MoneyFitt

16 December 2022

🇦🇷 ⚽️ 🇫🇷

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US large-cap S&P 500 closed 2.49% DOWN 🔻🔻Tech-heavy Nasdaq Composite closed 3.23% DOWN 🔻🔻🔻Pan European STOXX Europe 600 closed 2.83% DOWN 🔻🔻HK’s Hang Seng Index closed 1.55% DOWN 🔻 Japan’s Nikkei 225 closed 0.37% DOWN 🔻  

📊 IN THE MARKETS

Rate hikes and more to come, Confused traders

📝 FOCUS

Profitably Inflationary”OpenAI and ChatGPT: The Future of AI Chatbots Is Here!”

📖   MoneyFitt EXPLAINS

🎓🤖 Central Banks

📊 IN THE MARKETS

So, US and world markets tumbled overnight as they digested central bank 🎓 hikes not only from the US’s Federal Reserve (Fed) but also from the UK’s Bank of England (BoE) and the EU’s European Central Bank (ECB) and their accompanying comments. There are of course very many differences between the three, but there’s much in common as well, the main one today being the tone from all three that was definitely “hawkish” (ugly word #1, meaning more inclined to hike rates to fight inflation, and the opposite of ugly word #2: “doveish.”) 

This told markets that interest rate hikes would continue into next year as inflation, though probably past its peak, was not yet defeated. And higher and higher interest rates raise the risk of tipping economies into recession, when activity slows so much that an economy shrinks and people lose jobs (or, even worse, “stagflation”, where inflation persists but an economy goes into reverse for an extended period with a lot of people losing their livelihoods.)

Actually, US markets did have time to digest both the Fed’s (expected) rate hike and Fed Chair Jay Powell’s comments at 2:30pm right afterwards, since it was during the trading day. But though markets weakened, they didn’t collapse until today. 

Traders on Wednesday were thinking that Powell was talking tough on inflation so that the market would not rally too much and, with the wealth effect and feel-good factor that brings, ruin all his work. This was backed up by a “higher for longer” interest rate projection by the people who matter, the people at the Fed who SET interest rates. 

So “higher for longer” and yet the pace of interest rate hikes was slowed to “only” 50 basis points (0.50%) so the Fed won’t over-tighten and cause a recession, which private economists are expecting. But in recent weeks, he has been out there talking about how a “softish landing” (i.e. inflation down, no recession) was “very plausible” — which is exactly the Goldilocks-like scenario that markets are looking for to continue the rally since October.

Along with November’s bigger-than-expected drop in retail sales (economy weak, pushes down inflation) and a tight labour market with fewer-than-expected getting laid off (economy strong, pushes up inflation) traders on Thursday seemed to decide that it’s all too confusing and sold.

📝 FOCUS

Profitably Inflationary

The Governor of the UK’s Bank of England, warned of “a further forceful monetary policy response” to ongoing inflationary pressures after he hiked interest rates to a 14-year high. Inflation hit a 41-year high of 11.1% in October, though it inched down to 10.7% in November. 

Interestingly, he also said that he was worried that companies would keep raising prices too fast for too long, suggesting (perhaps) that inflation was increasingly company profit margin driven and (perhaps) not all the fault of nurses, railway workers, postal workers, immigration agents, bus drivers, civil servants, firefighters and charity workers… all of whom are either currently on strike in the UK or planning to be. 

“OpenAI and ChatGPT: The Future of AI Chatbots Is Here!”

The segment title above was generated from the GPT-3 Playground prompt: “Write a short clickbait headline for an article about openai and chatgpt.”

Who hasn’t been playing with ChatGPT, GPT-3 or Dall-E 2, which only seems to have burst into the public consciousness over the last couple of months?

Reuters reports that the generative AI company behind these astonishing toys tools, OpenAI, is expecting revenue of US$200 million next year and US$1 billion by 2024. It was recently valued at US$20 billion and has been looking for new investors, having already been bankrolled by Microsoft to the tune of US$1 billion.

Originally founded by a group of Silicon Valley’s leading lights, such Elon Musk (since departed) and Y Combinator founder Sam Altman (now the CEO) as a non-profit with a mission to promote “friendly AI” to “advance AI safely for humanity” it’s now an unusual “capped” for-profit company, with the profit cap set to 100X on any investment. 

There are many players in the AI space (Musk resigned from the board based on potential conflicts of interest with Tesla’s AI efforts) but many more who would be interested in building on OpenAI’s tools and technology. 

Google, which has similar capabilities, and which some have speculated as being in danger of missing the boat and being replaced, has so far chosen not to release its version. It believes the technology is still too immature and has problems including bias, toxicity and because it often simply makes things up. Google needed to be more cautious with the rollout because of the “reputational risk.” That said, even if it won’t entirely replace search, it could one day become a useful tool. So…

For today’s Explainer on central banks 🎓, below, we used (and double-checked!) ChatGPT and asked the following prompts:

Q) What is a central bank?Q) But they are not like normal banks, are they? Can you deposit your money in a central bank? Are they safer than normal banks?Q) Do central banks create all the money that is used in a country?Q) How do central banks control interest rates?Q) Can you answer all the above questions in a total of 200 words?

Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.

📖 MoneyFitt EXPLAINS

🎓🤖 Central Banks

A central bank is a financial institution that is responsible for managing a country’s monetary policy and issuing currency. Central banks typically have a number of functions, including controlling inflation, regulating commercial banks, and providing financial services to the government. They are typically independent from political interference and are responsible for ensuring the stability of a country’s financial system. Central banks are different from commercial banks in that they are not-for-profit institutions and do not offer deposit accounts or other financial services to the general public. Instead, central banks provide financial services to the government and to commercial banks, such as lending money and acting as a lender of last resort. Most money in circulation is created by commercial banks when they make loans to individuals and businesses. Central banks can control interest rates through the use of open market operations, which involves buying and selling government securities in the open market. This can influence the amount of money in circulation and the interest rates charged by commercial banks.

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