Wells Fargo Daily Advantage

Good Evening, Investor:

Tuesday, October 13, 2015

Stocks ended in negative territory as fresh data on Chinese exports raised the question of whether Beijing will meet its growth target. Meanwhile, a new round of earnings reports is just around the corner, giving investors a fresh look at U.S. growth.

The Dow fell 49 points, with 22 its 30 components declining; the S&P 500 Index shed 13 points; and the Nasdaq lost 42. Decliners topped advancers by five to two on the NYSE and on the Nasdaq. The prices of Treasuries strengthened. Gold futures rose 90 cents to close at $1,165.40 an ounce. The price of crude oil fell 44 cents, settling at $46.66 a barrel.

In earnings news

- Johnson & Johnson's net income fell 29% to $3.3 billion in the third quarter from a year earlier on revenue of $17.1 billion, down 7.4%. Behind the results: Sales of the company's hepatitis C drug plummeted 90%, while the stronger dollar pared overall revenue by 8.2%. J&J's shares (JNJ) declined 0.56%.

In other business news

- Chinese exports fell 3.7% in September from a year earlier, following August's 5.5% decline, according to China's General Administration of Customs. Imports dropped 20.4% from a year earlier, following August's 13.8% decline. China's trade surplus rose to $60.3 billion last month from August's $60.2 billion reading.

- United Kingdom inflation, as measured by consumer prices, slipped to minus 0.1% in September from a year earlier. According to Britain's Office for National Statistics, falling gasoline prices and a smaller-than-expected increase for clothing prices contributed to last month's results. In addition, supermarket price wars pushed U.K. food prices down by 2.5%.

- Following weeks of merger attempts, SABMiller plc's board agreed to key terms of brewing rival Anheuser-Busch InBev's $104.2 billion takeover proposal. The deal would make AB InBev the world's largest brewer, with an estimated 28.4% market share, divestitures included. SABMiller's shares gained 8.41%, and AB InBev's shares (BUD) rose 2.10%.


The New Yorker's cartoon department employs an editorial assistant who's tasked with evaluating 5,000 entries a week for a contest in which readers submit funny captions for a simple, one-panel cartoon. The contest's winner basks in the glory of having his or her caption published in the magazine's subsequent issue. The editorial assistant who has to review all 5,000 submissions by Friday, however, just becomes burned out and quits—or so says the New Yorker's cartoon editor, Bob Mankoff, in an interview with Bloomberg.

"Burned out?" you say. "The job is to read jokes; how bad could it be?"

Well, drawing upon my own experience as a comedy performer who's watched many a live show, I can attest that sitting through hours of attempted humor doesn't always mean you're having fun (the operative phrase being "attempted humor"). Keeping this in mind, Mr. Mankoff turned to Microsoft to find out whether an artificial intelligence technology could help the New Yorker's cartoon team by reading thousands of cartoon captions and ranking the winners.

You see, like pretty much all things these days, electronically submitted jokes count as data. And while A.I.-driven software applications can be programmed to crunch mass quantities of data, humor has always proved elusive for machines. This is where the New Yorker and Microsoft's respective challenges converged. The magazine needed a machine learning assistant to reduce its caption-readers' workload. The tech giant needed a way to teach its virtual assistants how to understand the nuances of wordplay, sarcasm, and other forms of humor.

In an experiment, Microsoft researchers fed an archive's worth of cartoons and captions into an A.I. system and trained it to analyze and rank jokes. Because machine learning algorithms can't read hand drawings, the researchers had to type up and enter summaries of what was transpiring in each black-and-white cartoon panel. The researchers then entered each summary into the system, focusing on two aspects of a cartoon: context and anomaly.

I'll try and conjure up an example of how context and anomaly work, based on my years of experience staring glossy-eyed at New Yorker cartoons in my ophthalmologist's waiting room. Imagine a hand-drawn cartoon of a suit-wearing business executive sitting in an office (that's the context) and a dog that enters said office, also wearing a suit (that's the anomaly). Microsoft's A.I. system would break down the cartoon's elements into bits of data, cross-reference that data with thousands of potential captions, and then rank the captions from funniest to least funny.

So, if Microsoft's system actually works, "Hello, Mr. Dog. Welcome to my office." would not be among the winning captions, nor would "You're barking up the wrong tree, mister, because you're a dog, and this is a dog-themed joke."

Incidentally, those two examples were the best I could come up with. Sorry.

Did Microsoft's experiment work? Of course! Pop culture–driven technology demonstrations always work. In reality, the A.I. caption-crunching machine kind of worked: Its list of top-ranked jokes aligned with its human counterparts' lists about 55.8% of the time. Bloomberg guesses this could eliminate 2,200 not-funny caption submissions from a cartoon assistant's workload each week.

Is this a good thing? Hmm, I think anytime you delegate something as human as a joke to a machine, you're asking for trouble. But then, I'm biased—can you imagine a machine writing Daily Advantage? Wait a second … That could be fodder for a New Yorker cartoon! We'd just need a dog in a suit. Mr. Mankoff, I'll have a submission for you by Friday.

John D. Natale
Staff Writer


The opinions stated are those of the author and are not intended to be used as investment advice. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund.

Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds®. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. 238010

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Earnings reports: Delta Air Lines Inc. (DAL); Netflix Inc. (NFLX); Wells Fargo & Co. (WFC).

The Mortgage Bankers Association will release the MBA Mortgage Index at 7 a.m. ET. The Labor Department will issue the Producers Price Index at 8:30 a.m. ET. The Commerce Department will publish retail sales and business inventories at 8:30 a.m. ET. The Federal Reserve will release its October Beige Book at 2 p.m. ET.

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