MoneyFitt

04 January 2023

🌴H🐪ppy Wednesday!

US large-cap S&P 500 closed 0.81% DOWN 🔻 Tech-heavy Nasdaq Composite closed 1.15% DOWN 🔻 Pan European STOXX Europe 600 closed 1.22% UP ▲ HK’s Hang Seng Index closed 1.84% UP ▲ Japan’s Nikkei 225 closed 0.0032% UP ▲ 

📊 IN THE MARKETS

Santa Claus Effect? Tesla; SBF pleads NOT GUILTY!; Tesla (him again); ECDPF; HSI rally

📝 FOCUS

“No s***t, Sherlock!” UK in a recession… and getting less happy.

📖   MoneyFitt EXPLAINS

🎓 PMIs

📊 IN THE MARKETS

It’s not looking so great for the Santa Claus effect, when stocks are supposed to rise in the last 5 trading days of one year and the first 2 of the next. The S&P500 closed at 3822 and in the 6 trading days since then, we’ve lost 21 points or 0.5%. One more day! 

Tesla continued its terrible no good very bad December (when it dropped 37%) with a dreadful start to the year by cratering 12% on​ new vehicle deliveries in the final quarter of 2022 that were weaker than the highly-paid analysts were expecting. At 405k, deliveries were actually up 11% from the previous quarter, hitting a new record, but missed the 420-430k Street forecast on what seems to be weakening demand, with shorter waiting lists prompting bigger year-end discounts. For the year, Tesla sold 1.3 million vehicles, 40% more than in 2021 though shy of the 50% annual growth that Musk has been targeting. (China rival BYD sold 1.87 million vehicles, a 52% increase… and has been raising prices.) 

It’s possible, though, that buyers were just waiting for the new $7.5k tax credits for electric vehicles (EVs) that kick in this month, not by coincidence the exact same figure Tesla discounted its Models S and Y by. Investors will be watching whether China’s EV sales rise by the expected 30% (though waiting lists are shortening there as well), the launch of the Cybertruck and… when Musk will hire a CEO for Twitter so he can focus back on Tesla. (And Neuralink, SpaceX, the Boring Company etc.)

Meanwhile, in Sam Bankman-Fried news, the plea is “Not Guilty” to charges including wire fraud, conspiracies to commit commodities and securities fraud, conspiracy to commit money laundering, and campaign finance violations with a total potential jail term of up to 115 years. Basically, he’s accused of illegally using FTX customer deposits to support his Alameda Research hedge fund (supposedly separate businesses), buy luxury real estate and make millions of dollars in political contributions to both Dems and the GOP – the latter more quietly. (It is not unusual for criminal defendants to initially plead not guilty. Defendants are free to change their plea at a later date.

Meanwhile in Europe, the European Centre for Disease Prevention and Control said the variants circulating in and arriving from China were already circulating in the EU, so didn’t increase the risk for the Europe, where citizens have “relatively high immunisation and vaccination levels” anyway. 

Earlier in the day, HK’s Hang Seng Index closed up 1.8% despite an earlier drop of 2.4% as investors continued to look “through” China’s climbing Covid-19 death toll and weak PMI 🎓 data from Caixin showing that factory activity among smaller, export-oriented firms shrank again in December on disrupted production and soft demand after the surge in Covid infections. The unofficial, private sector survey has showed contraction for five straight months. An earlier official survey of larger companies hit a 3-year low. Tech stocks also jumped on hopes of friendlier regulatory treatment.

📝 FOCUS

ChatGPT + Microsoft Bing = Google Killer?

The hot new plaything in the tech world over the last few months has been OpenAI’s ChatGPT generative AI chatbot that’s sent journalists and students (and newsletter writers) into a frenzy.

One of the early questions was whether or not it would replace the reigning King of Search, Alphabet’s Google. Well, The Information is reporting that Microsoft, an early investor in OpenAI, could launch a version of its own search engine Bing powered by the same generative AI behind ChatGPT. Full answers instead of just a set of links? Yes, please

Coincidentally (maybe) Satya Nadella, the CEO of Microsoft, said in a recent conference that large language model-based artificial intelligence tools (“reasoning engines”) such as OpenAI’s ChatGPT and image-based Dall-E would play increasingly important roles in the future of workers.

OpenAI was started by a group of tech heavyweights (including Elon Musk and Peter Thiel) in 2016 with the stated goal of promoting and developing friendly AI in a way that benefits humanity as a whole. Originally a non-profit, it pivoted in 2019 to a to “capped” for-profit, with profit cap set to 100X on any investment in the company, which is when Microsoft entered as a US$1 billion investor. (Musk resigned from the board in 2018 on potential conflicts of interest with Tesla’s own AI, but interestingly, Musk also characterizes AI as humanity’s “biggest existential threat” and in a Recode interview compared it to “summoning the demon.”)

Inevitably, Google also has similar technology developed in-house, called LaMDA, or Language Model for Dialogue Applications, but had been reluctant to release it until further development was done. With the public release even in beta form of ChatGPT, the New York Times reported that Google management declared a “code red” to face down the first serious threat to its main search business. “For Google, this was akin to pulling the fire alarm.” Perhaps when the OpenAI CEO voiced some concerns about its readiness, that was just a head-fake to throw Google off the scent.

“No s***t, Sherlock!” UK in a recession… and less happy about it. 

And in possibly the least shocking datapoint you’ve seen all year, the UK PMI 🎓 showed December manufacturing output contracting at about the quickest pace since mid-2009 on terrible demand amid the cost of living crisis. It fell to a 31-month low of 45.3, down from 46.5 in November and the fifth time it’s been below 50 in a row. Anything under 50 shows a majority of businesses surveyed report a contraction.

The PMI data all but confirms that UK gross domestic product will fall in the final quarter of 2022. Following a 0.3% contraction in July-September, the worst among G7 countries, that would be a second consecutive quarterly decline, which defines a technical recession.

A study from consulting firm PwC showed that the UK is on track to be a less happy place to live in, with wages in 2023 heading back to 2006 levels in “real” terms (meaning adjusted for inflation), house prices slumping 8% and a 20% increase in divorces (16 divorces every hour!) 

Making the English even less happy will be if PWC is right about UK real wages falling back below those in France, where inflation has been much lower. (Bank of England chief economist Huw Pill said that Brexit is at least partly to blame for historically high inflation in the UK through labour shortages and generally weakening the economy.)

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

🎓 Purchasing Managers’ Index (PMI)

The Purchasing Managers’ Index (PMI) is a survey-based economic indicator that measures the performance of the manufacturing, service, and construction sectors of an economy. It is based on a monthly survey of purchasing managers in these sectors, who are asked about various indicators such as new orders, employment, supplier deliveries, and inventory levels. 

The PMI is considered to be a leading indicator of economic activity because changes in the level of business activity tend to lead changes in overall economic activity. A reading above 50 generally indicates an expansion in economic activity, while a reading below 50 generally indicates a contraction. As such, the PMI can be used to anticipate turning points in the economy and to gauge the overall direction of economic growth.

Main drawbacks are that the surveys only cover a limited number of industries and sectors, so may not provide a complete picture of the economy, and is based on the subjective assessments of purchasing managers rather than raw data.

There are several global PMI surveys, including the Institute for Supply Management’s (ISM) PMI in the United States, the Markit PMI in Europe, and the Caixin PMI in China.