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Trading  | November 4, 2017

Entrepreneur and TV personality Mark Cuban is one of the most visible businessmen in America (present occupant of the Oval Office aside) – though whether his reputation is warranted or not is open to debate. LIke Trump, he is a master of self-promotion – he authored a popular business book – the aptly titled “How To Win At The Sport Of Business” (Cuban owns the Dallas Mavericks) – and is one of the hosts on a popular network reality TV show, “Shark Tank.”

And in an interview Kyle Bass for RealVision Television, Cuban shares his opinions on artificial intelligence and ICOs, which our readers know are two of the most-overhyped tech trends of the year.

But first, Cuban and Bass warm up with some small talk about parenting, where Cuban readily shares his strategy for raising kids to not become, in his words, “entitled jerks.”

MC: It’s like, you want something? You have to earn it. It may be doing math. Like, with my 8-year-old, it’s math for money. You have to answer math questions to earn $1 or $5.


With my middle daughter, it’s reading a non-school book. So, I’ll give her a history book or a biography. And she’ll make $20. If it’s over 300 pages, she can make more.


And then my oldest daughter is a challenge. My 14-year-old, that’s a whole different beast. All those things worked up until this year.


So, we’re working through trying to figure out what kind of jobs she can do. So, the point being that, I want them to recognize like I did growing up, that you have to earn what you’re going to get and that it’s just not going to be waiting for you. And so, whether that amount is $5 million like I have now or $10 million when they get to 30, then who knows? We can adjust. But it’s I think now is really where it matters and the habits that I get them into now are important.

While Shark Tank doesn’t pay as well as some of his other ventures, Cuban says doing the show is a labor of love. He says he enjoys hearing stories from parents about how watching shark tank inspired their kids to become more entrepreneurial.

In one notable aside, Cuban confirmed what many dedicated “Shark Tank” fans have probably suspected for years: The producers intentionally pick some of the more outlandish pitches (remember Cougar Energy? The energy drink shot marketed toward tired, single, middle-aged woman?) to inject a little excitement into the show.

Though sometimes the silliest pitches can yield surprisingly strong returns, Cuban said.

MC: Yeah. Because it’s TV, right? So, I invested in a guy – so when I first did the show – I came on as a guest 7 years ago. And there was a guy that did a little dance – I want to draw a cat for you, right? And I gave him $25,000 for a third of his company, and all we did was draw stick figures of cats. And he charged $10 a pop. And people were buying them. And so, literally, I got probably a 50% return of my $25,000 investment.


And also, on top of that, I got hired to do 10 cats at $1,000 apiece by somebody because the silliness of it is what sold. But I made the investment, not because I wanted to draw cats, right, but because he was really good at SEO. And so sometimes you see somebody who doesn’t really know how to manifest their skill set. So, you start with them here, and we did some things there, and then we took his creativity and pushed him into other areas. And now he’s on to bigger and better things, which is great by me.

Bass then moved on to asking Cuban a few questions about how he manages his $3.3 billion.

Cuban said he doesn’t think about investing strictly in terms of monetary return. When he chooses companies to invest in, he thinks in terms of the company’s overall impact.

Moving on, Bass asked how Cuban how he thinks about passing on his wealth to his children.

Cuban says he’s considering a similar approach to Warren Buffett whereby he leaves either $5 million or $10 million to each of his children in his will, with conditions so they don’t receive the money until they’re thirty. Cuban often speaks about how his teenage work experience selling garbage bags and delivering newspapers helped prepare him for life as an entrepreneur.

Cuban: So, when I wrote my will initially, it was $5, and not till they were 30, right? So that I wanted them to go through life. And I know my wife, if she outlives me – probably will – she’ll fill in the blanks like she does today, right? Like, my kids want money today, it’s like, how are you going to earn it? I’m not that dad that says here’s a present, right, here’s a bank account, here’s a debit card, just use it, or whatever– no. Here’s your Amazon account. Not at all.

Their conversation soon turned to global central bank policy, and how aggressive money printing by the largest CBs has helped distort the global cash-to-GDP ratio, which now stands at around 170%, compared to historical levels of just 40%…

KB: Yeah. So, when we think about– global cash balances today are the largest they’ve ever been. So when I think about what happened is – the first QE that happened in the US, and Europe, and Bank of Japan, Bank of England had to fill a hole, right? There was there was a hole.


Given the global financial crisis – global financial institutions were insolvent. They had to print that money. They had to inject it-


MC: No question.


KB: – in the banks. And that’s something that you and I would have done if we were running these institutions. Whether or not we agree with expanding fed balance sheets, we’d have to do it. So, the second part was the part that felt good, the part where we started to see some growth, and started to see cash getting distributed. And the interesting thing is it was fed policy was unintentionally distributed to the wealthy because the wealthy are the only people that could use leverage and assets, and they don’t spend it right away.


MC: And because of this drop in the stock market, people who could afford to lease got out of the market. And because so many people lost their homes, whatever savings you had, you used to try to save your house and to try to reimagine your life, if you will, and recreate your


KB: Exactly right.


MC: And so, you’ve got a greater disparity in standards of living, and that’s where we are today.

However, this excess liquidity created by the central banks will eventually evaporate as advances in artificial intelligence and automation trigger a deflationary spiral as they push more humans out of the labor market.

Cuban believes that – for better or worse – automation will change the world, and that companies should be proactive about engaging in it.

Ultimately, this trend will benefit tech stocks like Amazon and Apple. The biggest tech companies, Cuban said, are going to continue to swell in size, influence and profitability.

KB: – so innovational that we’ve had good deflation. But I think now, when you look at the price of just about anything in life, it’s going up. My view –


MC: See, I would disagree. Right. I think artificial intelligence is going to change everything, everything, 180 degrees. I’ve been in the tech business. I started selling PCs in 1982, right? I started selling local area networks – we were the first companies – my first start-up in 1983. I sold that, and then I started trading just tech. I started a hedge fund – started just trading tech stocks – sold that within 90 days. And then we started streaming, then first hide – all these things have happened that have changed how we do business, changed how we lived our lives, changed everything, right, the internet. But what we’re going to see with artificial intelligence dwarfs all of that.


KB: And you think it will be deflationary?


MC: Yes. Because there’s going to be –


KB: Because it displaces jobs?


MC: A lot of jobs.


KB: OK. That’s not good.


MC: Well, you can make arguments, right – it’s not a question of how it plays out over 100 years. It’s a question of how plays out over 10 years, 20 years, right? Who knows what exactly – But I can tell, at the beginning, which jobs are going to be displaced. I can tell you the real estate is going to be displaced. I’ve talked to major companies that, they’re asking me, Mark, we’re going to have all this extra real estate in all these towns. What are we going to do with it? Do you have any ideas? And I’m talking to them about –


KB: Because they’re going to be centralizing their operations?


MC: Just fewer people.


KB: Fewer people.


MC: Yeah. Just fewer people. So, the concept of you calling in to make an appointment to have somebody pick up your car to get your oil changed, right– someone will still drive to get your car, but there’s going to be no people in transacting any of it.


KB: That’s terrible.


MC: It is what it is.

Cuban says he agrees with Vladimir Putin’s assessment that whichever country wins the AI innovation race could wind up controlling the world.

KB: Or best professors, for that matter. They’re pulling them out of school.


MC: Exactly right. And so, Vladimir Putin says the winner in AI controls the world. China puts together a future plan saying whoever dominates in AI– and they’re subsidizing Tencent, Alibaba, et cetera, right?


KB: They know it’s a race.


MC: It is a race. We cut our Office of Technology and Science to one person who was an assistant to Peter Thiel. That’s where we stand. So, we talk about infrastructure jobs, robots are built in Germany, and they’re getting bought by Chinese companies. In some respects, I think some Japanese companies bought as well. We don’t build robots here very well, right? I just invested in my first robotics company, Hirebotics that puts robots into companies. They’re in Kansas City, I think it is, now.


But they lease and rent and sell robots into all these different types of circumstances to replace people, right? But I had to learn. I’m not saying it’s a good thing or a bad thing. It’s going to happen with or without me. But I wanted to learn what was going on. Those building up a robotics industry here, investing in our AI industry here, that’s the new infrastructure. Because if we don’t do it, and China or Russia win those wars, we’re SOL. We’re out of luck, right?


And so, when we talk about the price of assets going up – if you’re talking about intellectual assets, if you’re hiring, like we were just saying, the price is skyrocketing. Montreal has become the center of the universe for computer vision. It’s not US-based schools that are dominating any longer in those areas. We’ve got lots more kids – MIT, all different schools, right? And kids are starting to realize there’s a place for them to go. And I’m out there telling people, the first trillionaire is going to come from somebody who comes up with something – 

Asked for his opinion on digital currencies, Cuban likened the inherently deflationary bitcoin to a work of art that appreciates as it ages.

But in Cuban’s view, the biggest tech stocks will eventually outperform bitcoin as they master the ability to innovate while also achieving massive scale.

KB: It’s just a digital asset that’s a collectible? Yeah.


MC: Right? And in this particular case, it’s a brilliant collectible that’s probably more like art than baseball cards, stamps, or coins, right, because there’s a finite amount that are going to be made, right? There’s 21.9 million bitcoins that are going to be made. And if enough people hold and don’t sell, and enough people borrow to buy, just like we saw in the stock market. Because look, as much as a share of stock is ownership in a company, that’s the all-time lie, right? You have no authority, no ownership.


KB: Unless you control it.


MC: Yeah. Unless you’re the controlling shareholder, or you are willing to spend a lot to make a lot of noise.


MC: It depends on what my expertise would be, right? I mean, I always tell people to  focus on what you know. And if you don’t know, just put it in an SPX cheap fund, right? And maybe, now, I might say, OK, put 5% in Bitcoin or Ethereum, just red or black, right? Because it’s like artwork, but it has –


KB: A finite amount of artwork.


MC: There’s a finite amount of artwork, right, or baseball cards. But yeah, I would just tell people an SPX fund. Because I think the job of America is still business. And I think, whatever benefits will come from AI or whatever, is going to–


KB: Filter into –


MC: Yeah. And I think the FANG stock’s are going to crush them. My biggest public holding is Amazon.

…Before the conversation turned to ICOs. Cuban insists ICOs are “an opportunity” though he says he avoids the “speculative” side of the market….which is confusing because the market is a massively speculative bubble where products are rare and “pitches” are legion.

KB: And then, when you move into ICOs, how do you think about ICOs? You mentioned
to me, it’s a seat license.


MC: Yeah. That’s exactly right. ICO tokens really are an opportunity – there’s two there’s two different ways to look at ICOs, right – one, as a quote unquote, “investment vehicle,” which I don’t, right? Again, that’s just a scarcity play. It’s like it’s like an IPO in some respects. It’s just, if the float is small, and you can convince enough people on the road show to buy, it’s going up, right?

In summary, Cuban is categorically bullish about AI and ICOs, which is unsurprising. After all, he’s a tech guy who made his fortune selling to Yahoo in what turned out to be an ill-fated acquisition for the once-mighty internet giant. Still, if one has billions of dollars to invest in projects based on their purported “impact”, so-called “opportunities” in the ICO market are never in short supply.

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

275% in one week on XLF - an index fund for the financial sector. Even 583%, in 7 days on XHB… an ETF of homebuilding companies in the S&P 500. 

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