Upcoming PCE Data May Revise St. Louis Fed President’s Increasingly Hawkish Stance
Federal Reserve Chair Jerome Powell testified before Congress in June of last year and said there is a risk the Fed could go too far raising rates. He didn’t believe overdoing it was a “top risk” to the economy. The greater risk, he thought, was that wage and price pressures could possibly keep inflation at a boiling point. He reiterated this position a few months later, saying it is easier to restart the economy if the FOMC is too heavy on the brake pedal rather than too unaggressive and left needing to do even more later. Today, FOMC members seem to agree, at least the St. Louis Fed President does, but he’s not alone. The non-voting member of the Committee says he wants to step up the pace of tightening.
A full percentage point of tightening is needed, and sooner is better, according to James Bullard, who is the President of the St. Louis Federal Reserve. The hawkish comments were made on CNBC February 22nd, but they echo those he made the previous week during his slide presentation titled: Disinflation: Progress and Prospects, deliveredto businesses in Jackson Tennessee. The comments come as inflation is still well above the Fed’s target and not receding toward the 2% goal at a pace that is in line with achieving the target.
During the CNBC interview, Bullard said the “risk now is inflation doesn’t come down and reaccelerates.” He used the 1970’s entrenched inflation experience as an example. Explaining that when rising prices become the norm over a long period of time, they become the mindset, the expectation, and then self-fulfilling. Bullard expressed that this is undesirable.
While speaking about where he expects the peak in Fed Funds should be this tightening cycle, he explained he supports a rate near 5.375%. Currently, the Fed targets 4.50% to 4.75%.
Another Fed president has also been vocal recently. Cleveland Fed President Loretta Mester, like Bullard, is a non-voting member this year. Last week she said she saw a “compelling economic case” for a 50 basis-point interest-rate hike at the Fed’s Jan 31- Feb 1 meeting. This conversation is expected to be reflected in the FOMC minutes being released this week. The markets may start reacting to comments of members that supported a more aggressive posture than the 25 basis points the Fed decided upon.
The next FOMC meeting is to be held March 21-22. Over the next month, there will be only one more look at the PCE index and several more employment reports. Overall the markets have recently begun to behave more in line with the data and Fed rhetoric. Bonds have begun trading off, although yields still price in much lower inflation, and the stock market, which traded up in January, appears to understand that if the economy wasn’t hot, there would be no reason for the Fed to throw cold water on it.
Expectations for a rate hike at the next meeting can change over the next month. Currently, according to the CME Fedwatch gauge, a 25 bp hike is where speculators have congregated. However, a 50 basis-point hike has gained popularity. The odds have moved up to 24% from 12.2% a week ago, according to the gauge.
Take Away
On the trading desk we label market moving news stories and interviews from influential policymakers, “tape bombs.” This is because as they come across news tapes (like Bloomberg), they could do damage to your positions.
The evenings before each trading week (usually Sunday), Channelchek emails to subscribers known events scheduled during the upcoming week that could become “tape bombs” to your holdings. Subscribe to Channelchek here to be sure you receive these potential risks before the action starts that week.
Image: Marine Corps Warfighting Laboratory MAGTAF Integrated Experiment (MCWL) 160709-M-OB268-165.jpg
War in Ukraine Accelerates Global Drive Toward Killer Robots
The U.S. military is intensifying its commitment to the development and use of autonomous weapons, as confirmed by an update to a Department of Defense directive. The update, released Jan. 25, 2023, is the first in a decade to focus on artificial intelligence autonomous weapons. It follows a related implementation plan released by NATO on Oct. 13, 2022, that is aimed at preserving the alliance’s “technological edge” in what are sometimes called “killer robots.”
Both announcements reflect a crucial lesson militaries around the world have learned from recent combat operations in Ukraine and Nagorno-Karabakh: Weaponized artificial intelligence is the future of warfare.
“We know that commanders are seeing a military value in loitering munitions in Ukraine,” Richard Moyes, director of Article 36, a humanitarian organization focused on reducing harm from weapons, told me in an interview. These weapons, which are a cross between a bomb and a drone, can hover for extended periods while waiting for a target. For now, such semi-autonomous missiles are generally being operated with significant human control over key decisions, he said.
Pressure of War
But as casualties mount in Ukraine, so does the pressure to achieve decisive battlefield advantages with fully autonomous weapons – robots that can choose, hunt down and attack their targets all on their own, without needing any human supervision.
This month, a key Russian manufacturer announced plans to develop a new combat version of its Marker reconnaissance robot, an uncrewed ground vehicle, to augment existing forces in Ukraine. Fully autonomous drones are already being used to defend Ukrainian energy facilities from other drones. Wahid Nawabi, CEO of the U.S. defense contractor that manufactures the semi-autonomous Switchblade drone, said the technology is already within reach to convert these weapons to become fully autonomous.
Mykhailo Fedorov, Ukraine’s digital transformation minister, has argued that fully autonomous weapons are the war’s “logical and inevitable next step” and recently said that soldiers might see them on the battlefield in the next six months.
Proponents of fully autonomous weapons systems argue that the technology will keep soldiers out of harm’s way by keeping them off the battlefield. They will also allow for military decisions to be made at superhuman speed, allowing for radically improved defensive capabilities.
Currently, semi-autonomous weapons, like loitering munitions that track and detonate themselves on targets, require a “human in the loop.” They can recommend actions but require their operators to initiate them.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, James Dawes, Professor, Macalester College.
By contrast, fully autonomous drones, like the so-called “drone hunters” now deployed in Ukraine, can track and disable incoming unmanned aerial vehicles day and night, with no need for operator intervention and faster than human-controlled weapons systems.
Calling for a Timeout
Critics like The Campaign to Stop Killer Robots have been advocating for more than a decade to ban research and development of autonomous weapons systems. They point to a future where autonomous weapons systems are designed specifically to target humans, not just vehicles, infrastructure and other weapons. They argue that wartime decisions over life and death must remain in human hands. Turning them over to an algorithm amounts to the ultimate form of digital dehumanization.
Together with Human Rights Watch, The Campaign to Stop Killer Robots argues that autonomous weapons systems lack the human judgment necessary to distinguish between civilians and legitimate military targets. They also lower the threshold to war by reducing the perceived risks, and they erode meaningful human control over what happens on the battlefield.
This composite image shows a ‘Switchblade’ loitering munition drone launching from a tube and extending its folded wings. U.S. Army AMRDEC Public Affairs
The organizations argue that the militaries investing most heavily in autonomous weapons systems, including the U.S., Russia, China, South Korea and the European Union, are launching the world into a costly and destabilizing new arms race. One consequence could be this dangerous new technology falling into the hands of terrorists and others outside of government control.
The updated Department of Defense directive tries to address some of the key concerns. It declares that the U.S. will use autonomous weapons systems with “appropriate levels of human judgment over the use of force.” Human Rights Watch issued a statement saying that the new directive fails to make clear what the phrase “appropriate level” means and doesn’t establish guidelines for who should determine it.
But as Gregory Allen, an expert from the national defense and international relations think tank Center for Strategic and International Studies, argues, this language establishes a lower threshold than the “meaningful human control” demanded by critics. The Defense Department’s wording, he points out, allows for the possibility that in certain cases, such as with surveillance aircraft, the level of human control considered appropriate “may be little to none.”
The updated directive also includes language promising ethical use of autonomous weapons systems, specifically by establishing a system of oversight for developing and employing the technology, and by insisting that the weapons will be used in accordance with existing international laws of war. But Article 36’s Moyes noted that international law currently does not provide an adequate framework for understanding, much less regulating, the concept of weapon autonomy.
The current legal framework does not make it clear, for instance, that commanders are responsible for understanding what will trigger the systems that they use, or that they must limit the area and time over which those systems will operate. “The danger is that there is not a bright line between where we are now and where we have accepted the unacceptable,” said Moyes.
Impossible Balance?
The Pentagon’s update demonstrates a simultaneous commitment to deploying autonomous weapons systems and to complying with international humanitarian law. How the U.S. will balance these commitments, and if such a balance is even possible, remains to be seen.
The International Committee of the Red Cross, the custodian of international humanitarian law, insists that the legal obligations of commanders and operators “cannot be transferred to a machine, algorithm or weapon system.” Right now, human beings are held responsible for protecting civilians and limiting combat damage by making sure the use of force is proportional to military objectives.
If and when artificially intelligent weapons are deployed on the battlefield, who should be held responsible when needless civilian deaths occur? There isn’t a clear answer to that very important question.
Image: Silver Peak Lithium Mine, Nevada – Ken Lund (Flickr)
The Lithium Dip May Be Worth Exploring
Lithium (Li) was once synonymous with treating depression. Today the mineral is more often discussed as part of the subject of sustainable energy storage, specifically batteries. So it’s ironic that the recent stock price movement of a number of companies tied to lithium may have depressed some investors, as February has seen a sudden depression in values. The primary reason for the decline in lithium stocks may actually be a net plus for miners and others tied to production. This thinking is outlined below.
Many companies involved in Li exploration and/or production were up on the year along with the overall market. Late last week and carrying over to today, many of these stocks have fallen dramatically. The reason for the sudden decline coincided with the largest EV battery manufacturer, Contemporary Amperex Technology’s (CATL) announcement that it will cut the price it charges for Li-ion batteries.
As seen in the chart below, Shares of the larger lithium miners Albemarle ALB (ALB), SQM (SQM), Livent (LTHM), Piedmont Lithium (PLL), and Lithium Americas (LAC) are down between 7% and 14% with much of that drop coming in the past few trading days. Smaller lithium mining operations like LithiumBank Resources Corp. (LBNKF), and Century Lithium Corp. (CYDVF) fared much better, outperforming the more established larger companies.
CATL seems to have aimed to maintain or grow its market share as a battery manufacturer. Any price war they may have started is likely to have a direct impact on competitors. Even car manufacturers that are involved in battery sales may shed some profitability, but is it necessarily a negative for companies involved in mining or refining?
CATL plans on pricing its batteries on a lithium-price-linked calculation. With this, 50% of each battery will benchmark to lithium carbonate, which would largely embed the price of lithium in its Li-ion product. The rest of the batteries will key off of the spot market for lithium carbonate.
Spot prices for lithium carbonate are up about ninefold over the past few years as the growth in EV demand and other battery-operated products has stressed the global lithium supply chain. So while CATL has decided to discount batteries, the production costs are unlikely to fall. The move may instead place greater demand on lithium carbonate. If production doesn’t keep up with, what should spark greater demand for Li-ion batteries, miners may benefit. If correct, this could suggest the declines in mining stock prices related to CATL’s new pricing policy, may be considered as an entry point for investors that had been looking for a price dip.
As for battery makers, this may have more permanently drained value. CATL is about 68% of the mainland Chinese EV battery manufacturing industry. Other battery producers may have to similarly adjust their pricing models to compete. This group includes Panasonic, LG Energy, Samsung, and SK Innovations that also tumbled this month.
Take Away
Mining analysts discuss supply and demand, or deficit and surplus, when adjusting forecasts. If demand grows as a result of the large battery manufacturer CATL discounting prices, and this discounting causes others to follow, the result could be a larger lithium deficit that could raise the price of the mineral per USD/metric-ton. Time will tell.
Will the Regional Fed President Speeches Change the Market’s Thinking This Week?
The markets will have to wait until late week to view the Fed’s preferred inflation indicator, the PCE price index, and PCE core index. Leading up to that report we will be treated to FOMC minutes on Wednesday, which could change the market’s view of what the Fed was thinking at the time of the last meeting, and a number of regional Fed President’s speeches which could give insight into any change to hawkish versus dovish bias. There has been a lot of new data since the FOMC meeting that ended three weeks ago.
Monday 2/20
US markets are closed for President’s Day.
Tuesday 2/21
9:45 AM ET, the Purchasing Managers Composite flash report (PMI) has been receding for the past three months. This contraction is expected to reverse itself minimally with expectations at 47.3 with services at 47.2. The flash PMI is an early estimate of current private sector output using information from surveys of nearly 1,000 manufacturing and service sector companies. The flash data are released around 10 days ahead of the final report and based upon around 85% of the full survey sample.
10:00 AM ET, Existing Home Sales have been shrinking but are expected to have held steady in January, at a 4.10 million annualized rate versus December’s 4.02 million.
Wednesday 2/22
2:00 PM ET, FOMC Minutes from the meeting held January 31 and February 1 where the Fed Funds level was lifted by 25 bp will be released. The Fed’s minutes could be a market mover as investors and analysts parse each word looking for clues to policy changes.
5:00 PM ET, John Williams the President of the New York Fed will be speaking.
Thursday 2/23
8:30 AM ET, Gross Domestoc Product (GDP) second estimate of fourth-quarter is 2.9% growth according to the consensus of economists surveyed by Econoday. Personal consumption expenditures (PCE), which was 2.1% in the first estimate, is expected to come in at 2.0% in the second estimate.
10:50 AM ET, Atlanta Federal Reserve President Raphael Bostic is scheduled to speak.
4:30 PM ET, The Federal Reserve Balance sheet data are released each Thursday. This information is becoming more of a focus as headway on quantitative tightening is revealed in these numbers.
Friday 2/24
8:30 AM ET, Personal Income and Outlays expected to rise 1.0% in January with consumption expenditures expected to increase 1.2%. The previous experience was a December rise of 0.2% for income and a December fall of 0.2% in for consumption. Inflation readings for January are expected at monthly gains of 0.4% overall and also 0.4% for the core (versus respective increases of 0.1 and 0.3%) for annual rates of 4.9 and 4.3% (versus December’s 5.0 and 4.4%).
10:00 AM ET, New Home Sales, which have been falling, are expected to hold steady in January, at a 617,000 annualized rate in versus 616,000 in December.
10:00 AM ET, Consumer Sentiment is expected to end February at 66.4, 1.5 points above January and unchanged from February’s mid-month flash.
10:45 AM ET, Loretta Mester the President of the Cleveland Federal Reserve Bank is schedulked to speak.
What Else
The four day trading week in the US will feature earnings reports from major retailers Walmart and Home Depot. Other companies reporting with enough of a following to adjust investor thinking are Nvidia, Coinbase, Alibaba, and Moderna.
Image: Student Santiago Andrade interning at Caterpillar
Not Your Grandfathers Nuclear Reactor – Educating the Needed Nuclear Talent Pool
Human infrastructure is critical to any industry. Building the foundations so a new or quickly expanding technology can begin to flourish requires foresight. This forward planning also requires schools to recognize a need, student interest, and old and new industries then understanding that internships are two-way streets that benefit both the young, and also the entrenched. MIT created a unique program for students in the field of nuclear power generation. Below is an article republished from their website on the success of one of their programs. – Paul Hoffman, Channelchek
As nuclear power has gained greater recognition as a zero-emission energy source, the MIT Leaders for Global Operations (LGO) program has taken notice. Two years ago, LGO began a collaboration with MIT’s Department of Nuclear Science and Engineering (NSE) as a way to showcase the vital contribution of both business savvy and scientific rigor that LGO’s dual-degree graduates can offer this growing field.
“We saw that the future of fission and fusion required business acumen and management acumen,” says Professor Anne White, NSE department head. “People who are going to be leaders in our discipline, and leaders in the nuclear enterprise, are going to need all of the technical pieces of the puzzle that our engineering department can provide in terms of education and training. But they’re also going to need a much broader perspective on how the technology connects with society through the lens of business.”
The resulting response has been positive: “Companies are seeing the value of nuclear technology for their operations,” White says, and this often happens in unexpected ways.
For example, graduate student Santiago Andrade recently completed a research project at Caterpillar Inc., a preeminent manufacturer of mining and construction equipment. Caterpillar is one of more than 20 major companies that partner with the LGO program, offering six-month internships to each student. On the surface, it seemed like an improbable pairing; what could Andrade, who was pursuing his master’s in nuclear science and engineering, do for a manufacturing company? However, Caterpillar wanted to understand the technical and commercial feasibility of using nuclear energy to power mining sites and data centers when wind and solar weren’t viable.
“They are leaving no stone unturned in the search of financially smart solutions that can support the transition to a clean energy dependency,” Andrade says. “My project, along with many others’, is part of this effort.”
“The research done through the LGO program with Santiago is enabling Caterpillar to understand how alternative technologies, like the nuclear microreactor, could participate in these markets in the future,” says Brian George, product manager for large electric power solutions at Caterpillar. “Our ability to connect our customers with the research will provide for a more accurate understanding of the potential opportunity, and helps provide exposure for our customers to emerging technologies.”
With looming threats of climate change, White says, “We’re going to require more opportunities for nuclear technologies to step in and be part of those solutions. A cohort of LGO graduates will come through this program with technical expertise — a master’s degree in nuclear engineering — and an MBA. There’s going to be a tremendous talent pool out there to help companies and governments.”
Andrade, who completed an undergraduate degree in chemical engineering and had a strong background in thermodynamics, applied to LGO unsure of which track to choose, but he knew he wanted to confront the world’s energy challenge. When MIT Admissions suggested that he join LGO’s new nuclear track, he was intrigued by how it could further his career.
“Since the NSE department offers opportunities ranging from energy to health care and from quantum engineering to regulatory policy, the possibilities of career tracks after graduation are countless,” he says.
He was also inspired by the fact that, as he says, “Nuclear is one of the less-popular solutions in terms of our energy transition journey. One of the things that attracted me is that it’s not one of the most popular, but it’s one of the most useful.”
In addition to his work at Caterpillar, Andrade connected deeply with professors. He worked closely with professors Jacopo Buongiorno and John Parsons as a research assistant, helping them develop a business model to successfully support the deployment of nuclear microreactors. After graduation, he plans to work in the clean energy sector with an eye to innovations in the nuclear energy technology space.
His LGO classmate, Lindsey Kennington, a control systems engineer, echoes his sentiments: This is a revolutionary time for nuclear technology.
“Before MIT, I worked on a lot of nuclear waste or nuclear weapons-related projects. All of them were fission-related. I got disillusioned because of all the bureaucracy and the regulation,” Kennington says. “However, now there are a lot of new nuclear technologies coming straight out of MIT. Commonwealth Fusion Systems, a fusion startup, represents a prime example of MIT’s close relationship to new nuclear tech. Small modular reactors are another emerging technology being developed by MIT. Exposure to these cutting-edge technologies was the main sell factor for me.”
Kennington conducted an internship with National Grid, where she used her expertise to evaluate how existing nuclear power plants could generate hydrogen. At MIT, she studied nuclear and energy policy, which offered her additional perspective that traditional engineering classes might not have provided. Because nuclear power has long been a hot-button issue, Kennington was able to gain nuanced insight about the pathways and roadblocks to its implementation.
“I don’t think that other engineering departments emphasize that focus on policy quite as much. [Those classes] have been one of the most enriching parts of being in the nuclear department,” she says.
Most of all, she says, it’s a pivotal time to be part of a new, blossoming program at the forefront of clean energy, especially as fusion research grows more prevalent.
“We’re at an inflection point,” she says. “Whether or not we figure out fusion in the next five, 10, or 20 years, people are going to be working on it — and it’s a really exciting time to not only work on the science but to actually help the funding and business side grow.”
White puts it simply.
“This is not your parents’ nuclear,” she says. “It’s something totally different. Our discipline is evolving so rapidly that people who have technical expertise in nuclear will have a huge advantage in this next generation.”
The US Budget Office Just Laid Out its Ten-Year Forecast – What Investors Should Know
The US National Debt Clock app might be useful for those that suffer from low blood pressure. I’m being facetious – the app and website provide a visual of the current estimated overall national debt. It breaks out what each citizen’s theoretical share is, and then divides it up in dozens f other categories. The clock is an estimate of real-time. For a future projection, the better place to turn is the just-released forecast from the Congressional Budget Office (CBO). The CBO’s website can be insightful and idea-provoking for investors as it includes a 10-year forecast for government spending, which is broken down by industry type.
Source: USdebtclock.org (February 17, 2023)
Direction of Overall US Debt
The US is on track to accumulate more than $19 trillion in additional debt over the next decade, according to a CBO document released on February 15.
This new expectation is $3 trillion more than previously forecast. Coming at a time when there is headbutting and chest pounding going on in Washington surrounding the debt ceiling (US Treasury borrowing cap), the significantly larger 10-year budget may additionally stress the governments ability to pay its bills. Phillip Swagel, a director at the CBO expressed his concern saying, “The warning is that the fiscal trajectory is unsustainable.”
The federal government is expected to collect $65 trillion in revenue over the next ten years. More than half is expected to come from individual income taxes, and another third comes from payroll taxes. Individually, we can’t change what may be higher taxes, or a weakened government financial situation, which, separate from the Federal Reserve, puts upward pressure on interest rate levels.
Source: CBO
Drilling down deeper into where the funding is expected to flow from, individual income taxes are planned to remain level through 2025, then ramp up at a pace quicker than payroll taxes and corporate taxes.
But the country will spend much more than what it collects. Rising interest payments, large federal stimulus bills, and the growing costs of Social Security and Medicare benefits for retiring baby boomers are some of the government’s largest spending items.
Source: CBO (Data excludes offsetting receipts)
Of the Federal agencies budgeted to spend the highest amount, health and human services top the list. Small percentage increases are a lot in actual dollar amounts when trillions are involved. Social Security is the agency consuming the second most amount, followed by the Treasury, which is experiencing growing interest expenses.
Source: CBO
Looking at a broader swath of areas that should benefit as a result of government budget expansion, we see in the graph above the top three areas already mentioned, followed by at least a trillion spent over ten years in defense, veterans affairs, agriculture, transportation, personnel, education, and homeland security.
For Investors to Think About
Short-term investors tend to ignore some approaching realities while overly focusing on others. Long-term, investors may find that the cost and expansion of public debt will eventually have the US responsible to pay more in interest over the next decade. By 2033, the net interest on public debt is expected to make up 14% of the federal government’s total spending.
There was another period in US history when net interest made up such a large slice of Federal spending, this was in the mid-to-late 1980s. Eventually, Congress did pay some attention to deficit reduction; it took years to taper the growth. The resurgence of the expanding debt trend in recent years has been explosive.
Interest rates on bonds could have built upward pressure as more debt would need to be issued to refinance at higher rates and pay for additional spending. A greater supply of debt without a growing supply of buyers is a recipe for higher bond yields. Are higher yields attractive? In bond markets, the value of a fixed bond goes down when rates rise. Floating rate bonds tend to approximate par throughout their life, but the Treasury and Wall Street have not been quick to issue these in the face of rising coupon rates.
Stock market investors may find value in investing in companies that receive 25% or more of their revenue from government contracts, particularly those agencies on the chart above that are budgeted to grow by billions or trillions. This could include smaller companies where the impact is greater. Within this category are aerospace contractors like Kratos (KTOS), communications companies like Comtech (CMTL), or transportation-related spending that could benefit dredging from companies like Great Lakes Dredge and Dock (GLDD).
The smaller companies mentioned may benefit from the massive budget growth. But they are not alone, Channelchek is a great source of data and discovery of many companies doing great things that are destined to become even greater. Be sure to sign-up for all the free resources available to investors by going here.
Gold Softens as Yields Rise on US Treasuries From Inflation Stickiness
As the month of February began, the talk was for gold to hit $2,000 an ounce in the first quarter. But, as is often the case with investment markets, once certainty creeps into the mindset, something unexpected often comes along and undermines it. Gold may very well reach the $2,000 price in early 2023, but it has, for now, taken a small hit caused by a resurgence of expectations related to inflation’s pervasiveness. The inflation itself isn’t necessarily a problem, it is the chain reaction of events that then follows.
The One Two-Punch Catches Gold Off-Guard
Gold futures reached 10-month highs near $1,975 just before the release of January U.S. non-farm payrolls were reported on February 3rd. The Friday release showed large gains in the employment condition which stoked old inflation worries.
Concerns about inflation had been settling down before the jobs number. One indication of that is US bond yields had been priced, by most measures, for an eventual easing of rates, not tightening of conditions. The employment report itself began to unwind gold’s strength. The price sank to below $1,830 before recovering to around $1,875. The reason is that higher inflation, begets higher expectations of bond yields, which then begets capital flows into dollars to take advantage of the higher rates available. Gold becomes relatively weaker and less desirable under these conditions.
On February 14th, as some AU investors were falling out of love with gold, an inflation report (CPI) for January showed a tick-up in January prices over December’s numbers. This exacerbated U.S. inflation fears and helped to bring gold back under $1,850.
New Expectations
The shift in expectations over a two week period are not likely to unwind without new information which undermines the new employment and inflation reports. That doesn’t seem likely in the coming days as a just released wholesale price report (PPI) now indicates inflation is more than a services sector concern.
Gold long positions are now caught in the crosshairs of the Fed’s resolve to fight inflation. Every treasury yield spike has led to a dollar spike and been used as an opportunity to reduce demand for gold or reduce it’s relative value against US dollars.
Historically, gold prices had risen with inflation as investors bought the currency alternative as a hedge against paper currency. Currency typically loses value when prices go up. What happened then is more typical and is what is still taught in textbooks – good economic news was good for risk assets.
More recently, good economic news, worries investors because it has the potential to make inflation hotter, prompting the Fed to dial up rates and hurt everything from stocks to gold and oil. The positive correlation is on hiatus, probably until the Fed’s finger comes off the rates trigger.
Take Away
The markets had begun looking past the tightening phase after 450 bp worth of Fed Funds increases. The numbers reported in February have many investors, including those that trade currencies, precious metals, stocks, bonds, and other commodities less certain about the Fed calling for a cease fire in its inflation battle.
Of course, this new trend is young, it can conceivably be unwound in an instant in a changing world with many concerns outside and away from price increases.
Will AI Learn to Become a Better Entrepreneur than You?
Contemporary businesses use artificial intelligence (AI) tools to assist with operations and compete in the marketplace. AI enables firms and entrepreneurs to make data-driven decisions and to quicken the data-gathering process. When creating strategy, buying, selling, and increasing marketplace discovery, firms need to ask: What is better, artificial or human intelligence?
A recent article from the Harvard Business Review, “Can AI Help You Sell?,” stated, “Better algorithms lead to better service and greater success.” The attributes of the successful entrepreneur, such as calculated risk taking, dealing with uncertainty, keen sense for market signals, and adjusting to marketplace changes might be a thing of the past. Can AI take the place of the human entrepreneur? Would sophisticated artificial intelligence be able to spot market prices better, adjust to expectations better, and steer production toward the needs of consumers better than a human?
In one of my classes this semester, students and I discussed the role of AI, deep machine learning, and natural language processing (NLP) in driving many of the decisions and operations a human would otherwise provide within the firm. Of course, half of the class felt that the integration of some level of AI into many firms’ operations and resource management is beneficial in creating a competitive advantage.
However, the other half felt using AI will inevitably disable humans’ function in the market economy, resulting in less and less individualism. In other words, the firm will be overrun by AI. We can see that even younger college students are on the fence about whether AI will eliminate humans’ function in the market economy. We concluded as a class that AI and machine learning have their promises and shortcomings.
After class, I started thinking about the digital world of entrepreneurship. E-commerce demands the use of AI to reach customers, sell goods, produce goods, and host exchange—in conjunction with a human entrepreneur, of course.
However, AI—machine learning or deep machine learning—could also be tasked with creating a business-based model, examining the data on customers’ needs, designing a web page, and creating ads. Could AI adjust to market action and react to market uncertainty like a human? The answer may be a resounding yes! So, could AI eliminate the human entrepreneur?
Algorithm-XLab explains deep machine learning as something that “allows computers to solve complex problems. These systems can even handle diverse masses of unstructured data set.” Algorithm-XLab compared deep learning with human learning favorably, stating, “While a human can easily lose concentration, and possibly make a mistake, a robot won’t.”
This statement by Algorithm-XLab challenges the idea that trial and error leads to greater market knowledge and better enables entrepreneurs to provide consumers with what they are willing to buy. The statement also portrays the marketplace as a process where people have perfect knowledge and an equilibrium point, and it implies that humans do not have specialized knowledge of time and place.
The use of AI and its tools of deep learning and language processing do have their benefits from a technical standpoint. AI can determine how to produce hula hoops better, but can it determine whether to produce them or devote energy elsewhere? If entrepreneurs discover market opportunities, they must weigh the advantages and disadvantages of their potential actions. Will AI have the same entrepreneurial foresight?
The acquisition of market knowledge can take humans years to acquire; AI is much faster at it than humans would be. For example, the Allen Institute for AI is “working on systems that can take science tests, which require a knowledge of unstated facts and common sense that humans develop over the course of their lives.” The ability to process unstated, scattered facts is precisely the kind of characteristic we attribute to entrepreneurs. Processes, changes, and choices characterize the operation of the market, and the entrepreneur is at the center of this market function.
There is no doubt that contemporary firms use deep learning for strategy, operations, logistics, sales, and record keeping for human resources (HR) decision-making, according to a Bain & Company article titled “HR’s New Digital Mandate.” While focused on HR, the digital mandate does lend itself to questioning the use of entrepreneurial thinking and strategy conducted within a firm. After AI has learned how to operate a firm using robotic process automation and NLP capacities to their maximum, might it outstrip the human natural entrepreneurial abilities?
AI is used in everyday life, such as self-checkout at the grocery store, online shopping, social media interaction, dating apps, and virtual doctor appointments. Product delivery, financing, and development services increasingly involve an AI-as-a-service component. AI as a service minimizes the costs of gathering and processing customer insights, something usually associated with a team of human minds projecting key performance indicators aligned with an organizational strategy.
The human entrepreneur has a competitive advantage insofar as handling ambiguous customer feedback and in effect creating an entrepreneurial response and delivering satisfaction. We seek to determine whether AI has replaced human energy in some areas of life. Can AI understand human uneasiness or dissatisfaction, or the subjectivity of value felt by the consumer? AI can produce hula hoops, but can it articulate plans and gather the resources needed to produce them in the first place?.
In what, if any, entrepreneurial functions can AI outperform the human entrepreneur? The human entrepreneur is willing to take risks, adjust to the needs of consumers, pick up price signals, and understand customer choices. Could the human entrepreneur soon become an extinct class? If so, would machine learning and natural processing AI understand the differences between free and highly regulated markets? If so, which would it prefer, or which would it create?
How Dangerous Was the Ohio Chemical Train Derailment? An Environmental Engineer Assesses the Long-Term Risks
State officials offered more details of the cleanup process and a timeline of the environmental disaster during a news conference on Feb. 14, 2023. Nearly a dozen cars carrying chemicals, including vinyl chloride, a carcinogen, derailed on the evening of Feb. 3, and fire from the site sent up acrid black smoke. Officials said they were testing over 400 nearby homes for contamination and tracking a plume of spilled chemicals that had killed 3,500 fish in streams and reached the Ohio River.
However, the slow release of information after the derailment has left many questions unanswered about the risks and longer-term impact. We discussed the chemical release with Andrew Whelton, an environmental engineer who investigates chemical risks during disasters.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Andrew J. Whelton, Professor of Civil, Environmental & Ecological Engineering, Director of the Healthy Plumbing Consortium and Center for Plumbing Safety, Purdue University.
Let’s start with what was in the train cars. What are the most concerning chemicals for human health and the environment long term, and what’s known so far about the impact?
The main concerns now are the contamination of homes, soil and water, primarily from volatile organic compounds and semivolatile organic compounds, known as VOCs and SVOCs.
The train had nearly a dozen cars with vinyl chloride and other materials, such as ethylhexyl acrylate and butyl acrylate. These chemicals have varying levels of toxicity and different fates in soil and groundwater. Officials have detected some of those chemicals in the nearby waterway and particulate matter in the air from the fire. But so far, the fate of many of the chemicals is not known. A variety of other materials were also released, but discussion about those chemicals has been limited.
State officials disclosed that a plume of contamination released into the nearby creek had made its way into the Ohio River. Other cities get their drinking water from the river, and were warned about the risk. The farther this plume moves downstream, the less concentrated the chemical will be in water, posing less of a risk.
Long term, the greatest risk is closest to the derailment location. And again, there’s limited information about what chemicals are present – or were created through chemical reactions during the fire.
It isn’t clear yet how much went into storm drains, was flushed down the streams or may have settled to the bottom of waterways.
There was also a lot of combusted particulate matter. The black smoke is a clear indication. It’s unclear how much was diluted in the air or fell to the ground.
How long can these chemicals linger in soil and water, and what’s their potential long-term risk to humans and wildlife?
The heavier the chemical, often the slower it degrades and the more likely it is to stick to soil. These compounds can remain for years if left unaddressed.
After the Kalamazoo River oil pipeline break in Michigan in 2010, the U.S. Environmental Protection Agency excavated a tributary where the oil settled. We’ve also seen from oil spills on the coasts of Alaska and Alabama that oil chemicals can find their way into soil if it isn’t remediated.
The long-term impact in Ohio will depend in part on how fast – and thoroughly – cleanup occurs.
If the heavily contaminated soils and liquids are excavated and removed, the long-term impacts can be reduced. But the longer removal takes, the farther the contamination can spread. It’s in everyone’s best interest to clean this up as soon as possible and before the region gets rain.
Air-stripping devices, like this one used after the derailment, can help separate chemicals from water. U.S. EPA
Booms in a nearby stream have been deployed to capture chemicals. Air-stripping devices have been deployed to remove chemicals from the waterways. Air stripping causes the light chemicals to leave the water and enter air. This is a common treatment technique and was used after an 2015 oil spill in the Yellowstone River near Glendive, Montana.
At the derailment site in Ohio, workers are already removing contaminated soil as deep as 7 feet (about 2 meters) near where the rail cars burned.
Some of the train cars were intentionally drained and the chemicals set on fire to eliminate them. That fire had thick black smoke. What does that tell you about the chemicals and longer-term risks?
Incineration is one way we dispose of hazardous chemicals, but incomplete chemical destruction creates a host of byproducts. Chemicals can be destroyed when heated to extremely high temperatures so they burn thoroughly.
The black smoke plume you saw on TV was incomplete combustion. A number of other chemicals were created. Officials don’t necessarily know what these were or where they went until they test for them.
We know ash can post health risks, which is why we test inside homes after wildfires where structures burn. This is one reason the state’s health director told residents with private wells near and downwind of the derailment to use bottled water until they can have their wells tested.
The EPA has been screening homes near the derailment for indoor air-quality concerns. How do these chemicals get into homes and what happens to them in enclosed spaces?
Homes are not airtight, and sometimes dust and other materials get in. It might be through an open door or a window sill. Sometimes people track it in.
So far, the U.S. EPA has reported no evidence of high levels of vinyl chloride or hydrogen chloride in the 400 or so homes tested. But full transparency has been lacking. Just because an agency is doing testing doesn’t mean it is testing for what it needs to test for. Media reports talk about four or five chemicals, but the manifest from Norfolk Southern also listed a bunch of other materials in tanks that burned. All those materials create potentially hundreds to thousands of VOCs and SVOCs.
Are Government Officials Testing for Everything they Should?
People in the community have reported headaches, which can be caused by VOCs and other chemicals. They’re understandably concerned.
Ohio and federal officials need to better communicate what they’re doing, why, and what they plan to do. It’s unclear what questions they are trying to answer. For a disaster this serious, little testing information has been shared.
In the absence of this transparency, misinformation is filling that void. From a homeowner’s perspective, it’s hard to understand the true risk if the data is not shared.
Getting to Know ChatGPT: A Shallow Dip into Its Current Functionality and Future Potential
ChatGPT and the underlying AI technology are, as near as anyone can tell, the next-level toolkit for research, communication, idea generation, and a million other uses. If you haven’t introduced yourself to it yet, leave plenty of time – getting started is easy, but getting yourself to stop may not be. Those of us that were around pre-internet may liken the first-time experience to the first time we gained access to the world wide web. The Sudden, much easier access to a world of information, puts one in a place where you don’t know what to try first.
Over the past couple of months, the now-familiar name, ChatGPT has made headlines. It quickly captivated the worlds imagination as an AI product that is likely to disrupt or destroy some industries while enhancing others. Obviously, this is of particular interest to investors. With this in mind, I sat down for an interview with ChatGPT; below are answers to questions that many investors are asking.
Channelchek (PH) – Am I able to interview Chatgpt?
ChatGPT – Hello! As an AI language model, I’m happy to answer any questions you may have. However, it’s important to keep in mind that I don’t have personal experiences or opinions like a human, and I can only provide information based on my training data. So feel free to ask me anything!
Channelchek (PH) – What do most users have ChatGPT to do for them?
ChatGPT – As an AI language model, ChatGPT can be used for a wide range of tasks, including:
Language translation: ChatGPT can be used to translate text from one language to another.
Content creation: ChatGPT can generate text for various types of content, such as articles, blog posts, and product descriptions.
Chatbot development: ChatGPT can be used to develop chatbots that can interact with users and provide information.
Sentiment analysis: ChatGPT can be used to analyze the sentiment of a piece of text, such as a social media post or a product review.
Question-answering: ChatGPT can be used to answer questions on a wide range of topics.
Text summarization: ChatGPT can be used to summarize long pieces of text into shorter, more manageable summaries.
Language modeling: ChatGPT can be used to train new models for specific domains, such as medical or legal language.
These are just a few examples of what ChatGPT can be used for. Its versatility and flexibility make it a powerful tool for many different applications.
Channelchek (PH) – From where do you pull your answers ChatGPT?
ChatGPT – As an AI language model, I don’t have pre-programmed answers. Instead, I generate responses to questions by analyzing patterns in large amounts of text data that I was trained on. Specifically, I was trained on a dataset of billions of words from various sources, including books, articles, websites, and other textual sources. During my training, I was exposed to a wide range of topics and writing styles, which helps me generate responses to many different types of questions.
When you ask me a question, I use natural language processing (NLP) techniques to analyze the question and generate a response based on patterns in the text data that I was trained on. I then use statistical models to determine the most likely response based on the context of the question and the patterns in the training data.
It’s important to note that my responses are only as accurate and reliable as the patterns that I learned during my training. While I strive to provide accurate and helpful information, I may not always get it right, and my responses may not reflect the views or opinions of OpenAI.
Channelchek (PH) – Are you at risk of having the response you generate slanted or biased based on users feedback adjusting your training ChatGPT?
ChatGPT – As an AI language model, I am designed to learn from the data that I am trained on, including the feedback that users provide to adjust my training. However, it’s important to be aware that the feedback that users provide can sometimes introduce biases into my training.
If the feedback is consistently biased in a particular direction, this could affect the accuracy and fairness of my responses. This is why it’s important to carefully monitor and evaluate any feedback that is used to adjust my training, and to ensure that it is representative of a wide range of perspectives.
To address this issue, OpenAI has implemented a number of safeguards to prevent bias and ensure that my training data is as accurate and diverse as possible. For example, the training data is carefully curated to include a wide range of sources and perspectives, and the training process is carefully monitored to ensure that biases are not introduced.
Additionally, OpenAI has implemented a number of techniques to help identify and mitigate any biases that may be present in the training data or feedback. For example, I am periodically evaluated to ensure that my responses are accurate and unbiased, and any issues that are identified are addressed through additional training or other adjustments to the model.
Channelchek (PH) – As an editor I write for Channelchek about stocks, the financial markets, the economy and business climate. Are you a good resource for current events related to these topics ChatGPT?
ChatGPT – As an AI language model, I can certainly provide you with information on current events related to stocks, financial markets, the economy, and the business climate. I have been trained on a vast amount of text data, including news articles and other sources related to these topics, so I can provide you with up-to-date information and insights on current events.
When asking me questions related to these topics, it’s important to provide me with as much context and specificity as possible so that I can provide you with the most accurate and relevant information. For example, if you are looking for information on a particular company or sector, you could provide me with the name of the company or sector, as well as any other relevant details or questions you may have.
However, it’s important to note that my responses are generated based on patterns in the text data that I was trained on, and may not reflect the views or opinions of OpenAI. Additionally, while I can provide you with information on current events and trends, I cannot provide investment advice or make predictions about future market performance. It’s always important to carefully evaluate information and seek the advice of a qualified financial professional before making investment decisions.
Channelchek (PH) – Do users ask you to forecast the stock market direction?
ChatGPT – Yes, users sometimes ask me to forecast the direction of the stock market. However, as an AI language model, I cannot make accurate predictions about future market performance. While I can provide information on current market trends and historical data, predicting the future direction of the stock market is a highly complex task that involves a range of economic, political, and social factors.
It’s important to note that investing in the stock market involves a certain degree of risk, and investors should always carefully evaluate market conditions and seek the advice of a qualified financial professional before making investment decisions. While I can provide general information and insights related to stocks and financial markets, I cannot provide investment advice or predict the future performance of individual stocks or the overall market.
Channelchek (PH) – Are you familiar with Channelchek?
ChatGPT – While I am not specifically programmed to be familiar with individual websites, I may have come across content from Channelchek during my training.
That being said, I can still provide you with general information on what Channelchek is. From my understanding, Channelchek is a financial information platform that provides independent research, analysis, and market commentary on publicly traded companies. It offers a range of tools and resources for investors and financial professionals, including market data, stock quotes, and research reports.
Channelchek’s focus is on providing unbiased and independent information to help investors make informed investment decisions.
Channelchek (PH) – Does your AI technology pose a risk to traditional internet search engines?
ChatGPT – My purpose is not to compete with traditional search engines like Google or Bing, but rather to complement them by providing an additional source of information and assistance to users. While I am capable of providing answers to a wide range of questions and generating responses to open-ended queries, I am not designed to replace traditional search engines or web browsing.
Search engines like Google and Bing are still the primary means by which users navigate the internet and find information, and they use a range of sophisticated algorithms and machine learning techniques to index and rank content on the web. While I am capable of processing natural language queries and generating responses, my training data is based on pre-existing content, which means that my responses are generated based on patterns in the text data that I was trained on, rather than direct access to the vast amounts of data on the internet.
Early Boolean Phrase Search Tool
Overall, AI language models like me are part of a larger ecosystem of tools and technologies that are designed to help users access and navigate the vast amount of information available online. While there may be some overlap between the capabilities of traditional search engines and AI language models, both serve different purposes and can work together to provide users with the most comprehensive and accurate information possible.
Channelchek (PH) – What industries are you likely to disrupt and which are you likely to augment or help build?
ChatGPT – As an AI language model, my capabilities are quite broad, and I have the potential to impact a wide range of industries and areas of society. Here are a few ways in which I could potentially disrupt or augment various industries:
Industries that could be disrupted:
Customer service: AI language models like me are already being used by many companies to automate and improve customer service interactions, and this trend is likely to continue. As AI technology improves, it could potentially replace many human customer service jobs.
Content creation: AI language models have the potential to automate certain types of content creation, such as news articles, product descriptions, and even social media posts. This could have a significant impact on the journalism and writing industries.
Education: AI language models could potentially disrupt the traditional education model by providing personalized learning experiences and automating certain types of teaching and grading.
Industries that could be augmented:
Healthcare: AI language models could help augment healthcare by providing more accurate and personalized diagnoses, and by automating certain types of administrative tasks.
Finance: AI language models could help augment finance by providing more accurate and data-driven investment advice, and by automating certain types of financial analysis.
Research: AI language models could help augment research by processing and analyzing vast amounts of data, and by identifying patterns and insights that might be difficult for humans to spot on their own.
Overall, the impact of AI language models like me on various industries will depend on a wide range of factors, including the development of the technology, the regulatory environment, and societal attitudes toward automation and AI. While there may be some industries that are more susceptible to disruption or augmentation than others, it’s important to approach these developments with a nuanced understanding of the potential benefits and risks.
Channelchek (PH) – Are users using ChatGPT to create social media bots to respond without human intervention likely to flood the internet?
ChatGPT – While it is technically possible for users to use AI language models like ChatGPT to create social media bots that can respond to messages without human intervention, I cannot speculate on whether this is likely to flood the internet.
The use of AI language models like ChatGPT could potentially make it easier and more accessible for users to create more sophisticated chatbots that can mimic human conversation more convincingly.
It’s also important to consider the potential impact of widespread use of social media bots on the quality and authenticity of online interactions. While chatbots can be useful in certain contexts, they can also be used to spread misinformation and propaganda or to manipulate public opinion. As with any technology, it’s important to approach the use of AI language models and chatbots in a responsible and ethical way, and to consider the potential risks and benefits of their use.
Channelchek (PH) – What do you call one that uses ChatGPT?
ChatGPT – There is no specific term for a person who uses ChatGPT or other AI language models, as these tools are designed to be accessible and usable by anyone with an internet connection.
However, a person who uses ChatGPT to create chatbots or other automated tools could be referred to as an AI developer or AI engineer. Similarly, a person who uses ChatGPT to conduct research or analysis in a specific field could be referred to as an AI researcher or analyst.
Channelchek (PH) – How much do you cost?
As an AI language model, I do not have a specific cost as I am not a commercial product. My purpose is to provide information and assistance to users like you, and I am freely accessible through various platforms that integrate my technology, including chatbots, voice assistants, and search engines.
Channelchek (PH) – Should I throw out the encyclopedias on my book shelf and rely instead on ChatGPT?
ChatGPT – Ultimately, whether or not to keep your encyclopedias depends on your personal preferences and how you prefer to access information. While AI language models like ChatGPT are convenient and accessible, they may not always provide the level of detail or accuracy that you require for a specific question or topic. So, it’s always a good idea to consult multiple sources of information to ensure that you have a well-rounded understanding of a given topic.
Channelchek (PH) – How does one get started using ChatGPT for research?
ChatGPT – Getting started with using ChatGPT for research can involve several steps. Here are a few basic steps you can follow:
Identify your research question or topic: Start by identifying the research question or topic you want to investigate. This will help you to focus your search and make the best use of ChatGPT.
Choose a ChatGPT platform: There are several platforms that integrate ChatGPT, including chatbots, voice assistants, and search engines. Choose a platform that best fits your needs and preferences.
Familiarize yourself with the platform: Once you have chosen a platform, take some time to explore and familiarize yourself with its features and capabilities. Many platforms offer tutorials and guides to help you get started.
Start asking questions: Once you are comfortable with the platform, start asking questions related to your research topic. Try to ask open-ended questions that will allow ChatGPT to provide more detailed and relevant answers.
Evaluate the results: As you receive answers from ChatGPT, evaluate the accuracy and relevance of the information. Keep in mind that ChatGPT is not perfect and may not always provide the most accurate or comprehensive information. Be sure to double-check any information you receive with other sources to ensure its accuracy.
Refine your search: If you are not finding the information you need, try refining your search by using more specific keywords or phrases.
Overall, using ChatGPT for research can be a valuable tool for gathering information and conducting preliminary investigations. However, it’s important to keep in mind that it is just one tool in the research process, and should be used in conjunction with other sources of information and research methods.
Wrap Up
It’s easy to comprehend how this technology, which will likely see stronger competition in the coming year, will quickly become something that is used every day to help streamline how we do our jobs, and find information in our personal lives. Unlike an internet search engine, queries produce individual results tailored to the individual question. The same question will recieve different phraseology if asked a minute later. Whereas Google or DuckDuckGo list websites that may provide the answer, ChatGPT responds using its own answer using artificial intelligence.
Getting started is as easy as going to OpenAI.com and navigating to Chat.OpenAI.com and providing an email and verification phone number. Click on my name below and write me, I’d love to hear what you are using it for.
Scion’s Michael Burry Owns Online Retailers, Tech Firms, a Mortgage Servicer, and a Detention Provider
GEO Group (GEO), the publicly held prison company organized as a REIT, again tops Michael Burry’s public market holdings as of the end of last year. This is one of nine holdings; a few are on-again, off-again favorites of the revered hedge fund manager. If there is one theme in his positions, it is that of select online retail merchants. While the overall size of the positions as of quarter-end is known, these positions may not represent all investments, just those that are public and reportable to the SEC on form 13F. Burry famous for his portrayal in the movie “The Big Short” was not short any publicly traded securities as 2022 drew to a close.
Below are the nine holdings, in size order, copied directy from the 13F-HR filing. GEO, Alibaba, and JD.com are familiar to followers of Dr. Burry’s holdings as this is not the first time they have appeared in his portfolio.
Geo Group (GEO) runs private detention systems. As shown below, at the end of the second quarter of 2022, it represented 100% of Scion Asset Management’s public market positions. The current holding is roughly half the dollar amount of what it was three months prior.
Black Knight (BKI) is making its first appearance in the Scion portfolio. The mid-cap company provides mortgage and loan servicing products.
Coherent Corporation (COHR) has not been in the hedge fund manager’s portfolio prior to the last quarter. The small-cap technology company is involved in communications networks for aerospace, automotive, life sciences, and various other electronics and systems.
Alibaba (BABA) is often described as the “Chinese Amazon.com”. The only other time Scion held this well-known online retailer was during the second quarter of 2019.
JD.com (JD) is China’s largest online retailer and largest internet company by revenue. Burry owned shares once before during the first quarter of 2019.
Wolverine Worldwide (WWW) makes active footwear and apparel. Brands include Sperry, Saucony, and Hush Puppies. The small-cap company has not been in the Scion portfolio previously.
MGM Resorts (MGM) is a mid-cap company that owns and manages hotels and casinos worldwide. This is the first time Michael Burry has owned this name.
Qurante (QRTEA), formerly Liberty Interactive Corporation, is yet another direct marketer through the internet and video. The small-cap company is headquartered in Colorado.
Skywest Inc. (SKYW) is Burry’s smallest holding but still represents 4.4%. The airline has scheduled flights, including international, and also leases equipment for non-commercial flights. This is the first time the small-cap company has made an appearance in the Scion portfolio.
Take Away
Four times each year the SEC requires asset managers above a certain size to make a public filling of its portfolio.
Scion Asset Management is not exempt, but may, in addition to transacting in public securities, be creating positions in assets that are not required to be reported here. The reputation of Michael Burry has at times caused a lot of interest around less followed stocks.
Investors Receiving a 5% Yield are Losing to Inflation
The CPI inflation report and the Fed’s relentless increases in Fed funds levels have pushed the six-month US Treasury Bill (T-Bill) above 5%. This is the first time since 2007 that this low-risk investment has topped 5%. Last year on this date, the six-month T-Bill was 0.76%. While the stock market is concerned that higher borrowing costs will have the Fed’s intended effect of slowing demand, rates are reaching a point where another concern creeps in. The concern is will traditional stock investors lay back and be satisfied getting paid interest.
More likely, the high cash position represents “dry powder” waiting for an opportunity.
Short Term Rates
Money Market fund assets were $4.81 trillion for the week ended Wednesday, February 8, according to the Investment Company Institute. Just shy of the record MF balances reported in January. Higher than average cash levels have often been thought of as a bullish sign as it represents potential to drive stock prices up when flows toward equities increase.
This may be part of the situation as we come off a dismal 2022 for equities, but there is likely something else incentivizing the retreat to safety. The higher interest rates are in the short end of the curve, investors are getting paid to retreat. High-yielding cash equivalents with six-month T-Bills now at 5% (10-year Treasuries are only 3.75%) may be more than a parking place. It may represent an alternative investment with a much more assured return.
With inflation at 6.4%, the answer is no. But it is definitely preferable to seven of the periods on the 10-year chart above. And with January’s consumer price index (CPI) report revealing signs of sticky to reaccelerating inflation, the Federal Reserve is more likely to be hiking rates for longer than expected.
For investors looking to invest for longer periods, the stock market handily beats inflation. In other words, for the various time frames below, S&P 500 investors did not see their assets erode due to inflation.
Beating inflation is foundational to investing. Far exceeding it is the goal of many. Investors are not doing this choosing cash, in fact they are choosing to lose buying power rather than risk that the market doesn’t perform as it has historically.
Data released on Tuesday February 14 showed the inflation rate (CPI) slowed to 6.4% in January. The cost of goods and services rose 0.5% during the month. The half percentage is the largest one month erosion of purchasing power in three months.
Investors content with 4%-5% returns should consider that they are losing ground to persistent inflation.
Investors with a five-year time horizon or longer should weigh the risks of earning yields below the inflation rate to the ups and downs of stocks. In fact, as more do, the 4-5 trillion in cash can make or quite a bull market.
The Future of Flight in a Net-Zero Carbon World: 9 Scenarios, Abundant Sustainable Biofuel
Several major airlines have pledged to reach net-zero carbon emissions by midcentury to fight climate change. It’s an ambitious goal that will require an enormous ramp-up in sustainable aviation fuels, but that alone won’t be enough, latest research shows.
The idea of jetliners running solely on fuel made from used cooking oil from restaurants or corn stalks might seem futuristic, but it’s not that far away.
Airlines are already experimenting with sustainable aviation fuels. These include biofuels made from agriculture residues, trees, corn and used cooking oil. Other fuels are synthetic, made by combining captured carbon from the air and green hydrogen, made with renewable energy. Often, they can go straight into existing aircraft fuel tanks that normally hold fossil jet fuel.
United Airlines, which has been using a blend of used oil or waste fat and fossil fuels on some flights from Los Angeles and Amsterdam, announced in February 2023 that it had formed a partnership with biofuel companies to power 50,000 flights a year between its Chicago and Denver hubs using ethanol-based sustainable aviation fuels by 2028.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Candelaria Bergero, Ph.D. Student in Earth System Science, University of California, Irvine, Steve DavisProfessor of Earth System Science, University of California, Irvine.
In a new study, we examined different options for aviation to reach net-zero emissions and assessed how air travel could continue without contributing to climate change.
The bottom line: Each pathway has important trade-offs and hurdles. Replacing fossil jet fuel with sustainable aviation fuels will be crucial, but the industry will still need to invest in direct-air carbon capture and storage to offset emissions that can’t be cut.
Scenarios for the Future
Before the pandemic, in 2019, aviation accounted for about 3.1% of total global CO₂ emissions from fossil fuel combustion, and the number of passenger miles traveled each year was rising. If aviation emissions were a country, that would make it the sixth-largest emitter, closely following Japan.
In addition to releasing carbon emissions, burning jet fuel produces soot and water vapor, known as contrails, that contribute to warming, and these are not avoided by switching to sustainable aviation fuels
Aviation is also one of the hardest-to-decarbonize sectors of the economy. Small electric and hydrogen-powered planes are being developed, but long-haul flights with lots of passengers are likely decades away.
We developed and analyzed nine scenarios spanning a range of projected passenger and freight demand, energy intensity and carbon intensity of aviation to explore how the industry might get to net-zero emissions by 2050.
Nine scenarios illustrate how much carbon offsets would be required to reach net-zero emissions, depending on choices made about demand and energy and carbon intensity. Each starts with 2021’s emissions (1.2 gigatons of carbon dioxide equivalent). With rising demand and no improvement in carbon intensity, a large amount of carbon capture will be necessary. Less fossil fuel use and slower demand growth reduce offset needs. Candelaria Bergero
We found that as much as 19.8 exajoules of sustainable aviation fuels could be needed for the entire sector to reach net-zero CO₂ emissions. With other efficiency improvements, that could be reduced to as little as 3 exajoules. To put that into context, 3 exajoules is almost equivalent to all biofuels produced in 2019 and far surpasses the 0.005 exajoules of bio-based jet fuel produced in 2019. An exajoule is a measure of energy.
Flying less and improving airplanes’ energy efficiency, such as using more efficient “glide” landings that allow airlines to approach the airport with engines at near idle, can help reduce the amount of fuel needed. But even in our rosiest scenarios – where demand grows at 1% per year, compared to the historical average of 4% per year, and energy efficiency improves by 4% per year rather than 1% – aviation would still need about 3 exajoules of sustainable aviation fuels.
Why Offsets are Still Necessary
A rapid expansion in biofuel sustainable aviation fuels is easier said than done. It could require as much as 1.2 million square miles (300 million hectares) of dedicated land to grow crops to turn into fuel – roughly 19% of global cropland today.
Another challenge is cost. The global average price of fossil jet fuel is about about US$3 per gallon ($0.80 per liter), while the cost to produce bio-based jet fuels is often twice as much. The cheapest, HEFA, which uses fats, oils and greases, ranges in cost from $2.95 to $8.67 per gallon ($0.78 to $2.29 per liter), but it depends on the availability of waste oil.
Fischer-Tropsch biofuels, produced by a chemical reaction that converts carbon monoxide and hydrogen into liquid hydrocarbons, range from $3.79 to $8.71 per gallon ($1 to $2.30 per liter). And synthetic fuels are from $4.92 to $17.79 per gallon ($1.30 to $4.70 per liter).
Realistically, reaching net-zero emissions will likely also rely on carbon dioxide removal.
In a future with similar airline use as today, as much as 3.4 gigatons of carbon dioxide would have to be captured from the air and locked away – pumped underground, for example – for aviation to reach net-zero. That could cost trillions of dollars.
For these offsets to be effective, the carbon removal would also have to follow a robust eligibility criteria and be effectively permanent. This is not happening today in airline offsetting programs, where airlines are mostly buying cheap, nonpermanent offsets, such as those involving forest conservation and management projects.
Some caveats apply to our findings, which could increase the need for offsets even more.
Our assessment assumes sustainable aviation fuels to be net-zero carbon emissions. However, the feedstocks for these fuels currently have life-cycle emissions, including from fertilizer, farming and transportation. The American Society for Testing Materials also currently has a maximum blend limit: up to 50% sustainable fuels can be blended into conventional jet fuel for aviation in the U.S., though airlines have been testing 100% blends in Europe.
How to Overcome the Final Hurdles
To meet the climate goals the world has set, emissions in all sectors must decrease – including aviation.
While reductions in demand would help reduce reliance on sustainable aviation fuels, it’s more likely that more and more people will fly in the future, as more people become wealthier. Efficiency improvements will help decrease the amount of energy needed to power aviation, but it won’t eliminate it.
Scaling up sustainable aviation fuel production could decrease its costs. Quotas, such as those introduced in the European Union’s “Fit for 55” plan, subsidies and tax credits, like those in the U.S. Inflation Reduction Act signed in 2022, and a carbon tax or other price on carbon, can all help achieve this.
Additionally, given the role that capturing carbon from the atmosphere will play in achieving net-zero emissions, a more robust accounting system is needed internationally to ensure that the offsets are compensating for aviation’s non-CO₂ impacts. If these hurdles are overcome, the aviation sector could achieve net-zero emissions by 2050.
