Comment of the Day
17th April 2023
Eoin Treacy
Apr 18
Video commentary for April 17th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include:China, Australia, Mexico extend rebounds, EAFE outperforming MSCI World, Dollar Indes strengthens, bonds yields firm, gold eases, bitcoin pulls back.
ChatGPT Can Decode Fed Speak, Predict Stock Moves From Headlines
This article from Bloomberg may be of interest to subscribers. Here is a section:
To Marinov, while there’s no surprise machines can now read almost as well as people, ChatGPT can potentially speed up the whole process.
When Man AHL was first building the models, the quant hedge fund was manually labeling each sentence as positive or negative for an asset to give the machines a blueprint for interpreting the language. The London-based firm then turned the whole process into a game that ranked participants and calculated how much they agreed on each sentence, so that all employees could get involved.
The two new papers suggest ChatGPT can pull off similar tasks without even being specifically trained. The Fed research showed that this so-called zero-shot learning already exceeds prior technologies, but fine-tuning it based on some specific examples made it even better.
“Previously you had to label the data yourself,” said Marinov, who also previously co-founded a NLP startup. “Now you could complement that with designing the right prompt for ChatGPT.”
Eoin Treacy's view
Needing to label every individual clause in a run-on sentence was a big limiting factor for early AI. That’s equally true of the labelling of photos required to teach computers to identify items. Now that labelling is no longer required the use of AI will experience a step change in usage which is what has been priced into related stocks over the last few months.
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Email of the day on the Dollar and income
Dear Eoin, Does your bearish view on the US dollar imply that investors whose income and expenditure are in currencies other than the US dollar should note be holding any assets denominated in these dollars? Regards A
Eoin Treacy's view
Thank you for this question which may be of interest to the Collective. I don’t believe absolutes are helpful when thinking about a reserve currency. A major bear market in a currency could mean it loses 50% of its value over a decade. That would boost the fortunes of exporters and potentially also raise interest rates to attractive levels. That suggests some stocks would do very well while the broader market would struggle to compensate a foreign investor relative to opportunities elsewhere.
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Is FedNow a CBDC?
This article from the CATO Institute may be of interest to subscribers. Here is a section:
What is FedNow?
FedNow is an instant payments system—a sort of update to Fedwire and the Automated Clearinghouse (ACH). Individuals will not have direct access to FedNow, but they will have access to faster payments so long as their bank or credit union opts into the FedNow network. Although creating FedNow was not necessary to achieve faster payments, one big difference with FedNow will be that payments will no longer be held up on weekends, holidays, or after traditional business hours.
FedNow is Not a CBDC
Astute eyes will likely recognize that FedNow does vaguely resemble a wholesale CBDC. Where a wholesale CBDC would be restricted to financial institutions for use during interbank settlement, FedNow would also be restricted to financial institutions. The difference, however, lies in their design. Where a CBDC is a currency, FedNow is a payment rail. If we think of dollars and cents as water, then FedNow is the plumbing that gets those dollars and cents where they need to go. In contrast, a CBDC would involve replacing the water itself in this analogy.
Under the current system, interbank settlement is performed on the Federal Reserve’s payment rails, thus ultimately affecting retail banking customers’ settlement times. It’s for this reason that Federal Reserve Governor Michelle Bowman said, “My expectation is that FedNow addresses the issues that some have raised about the need for a CBDC.” This statement should not be misunderstood to say that FedNow will take CBDCs off the table, but it does show that the Federal Reserve itself sees FedNow and CBDCs as distinctly different.
Eoin Treacy's view
There are many ways the Fed could speed up payments and transactions across the economy. Afterall, the USA is still somewhere cheques are commonplace. However, I think the reason they chose to use the FedNow protocol is to blunt the thrust of the digital currency movement.
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Eoin's personal portfolio: another commodity long initiated
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
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