Sunday Finds + 3 Thoughts From Last Week
Podcast episodes on Spark Networks and Legacy Housing Corporation
Welcome to Chit Chat Money’s Sunday Finds + 3 Thoughts From Last Week. In this newsletter you will find three topics I thought about last week, links to shows we’ve recently released, and links to some interesting articles, podcasts, and tweets. Check out the archive here.
Chit Chat Money Podcasts From Last Week:
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1. People (including Elon Musk) Want To Pause AI Research
I think we are reaching a local maximum for this current artificial intelligence (AI) hype cycle:
Contemporary AI systems are now becoming human-competitive at general tasks,[3] and we must ask ourselves: Should we let machines flood our information channels with propaganda and untruth? Should we automate away all the jobs, including the fulfilling ones? Should we develop nonhuman minds that might eventually outnumber, outsmart, obsolete and replace us? Should we risk loss of control of our civilization? Such decisions must not be delegated to unelected tech leaders. Powerful AI systems should be developed only once we are confident that their effects will be positive and their risks will be manageable. This confidence must be well justified and increase with the magnitude of a system's potential effects. OpenAI's recent statement regarding artificial general intelligence, states that "At some point, it may be important to get independent review before starting to train future systems, and for the most advanced efforts to agree to limit the rate of growth of compute used for creating new models." We agree. That point is now.
This is an excerpt from a letter signed by technology and AI research leaders like Elon Musk and Steve Wozniak. They seem to believe that the coming onslaught of AI tools is going to destroy the usability of the internet, a huge amount of existing jobs, and eventually our current civilization.
And they seemingly think this will happen in short order unless we do what they want and pause research development.
I will be the first one to tell you there is an insane amount of uncertainty/variability in how the AI landscape will look a few years from now. Nobody knows for sure what the future holds with anything, especially within this disruptive new technology field.
But…I kind of have a hunch all these people have read too many sci-fi novels. They seem to be focused solely on what will go wrong but not on the immense benefits new life-like AI tools can have if they improve on their current issues. I mean, come on, “risk the loss of control of our civilization” is a bit much.
Maybe they are right (I certainly hope not). But if they are, I doubt there is anything we can do about it. Humans are too competitive (at least some of us) to let a power grab like this go to waste. Trying to restrict official development from regulated entities like Microsoft and Google gives a greater chance for rogue states to take advantage of this technology in a much less regulated fashion. Looping in Wozniak doesn’t change anything.
Of course, all this crazy rhetoric likely means we are currently in an AI sentiment bubble. Let’s check back a year from now and see whether these AI tools actually change society as some researchers expect.
2. Why is QQQ Ripping?
A dumb question that is probably impossible to know, but I want to ask it anyways. The Nasdaq 100 Index is now up 21% year-to-date and 17% in the last six months:
My only theory for why this is happening when the Fed is seemingly trying to induce a recession to slow down inflation is the deprecation of the U.S. dollar vs. foreign currencies in the last few months.
For example, the Euro:
Look at the top 10 holdings for QQQ. Most of these companies have huge workforces in the United States and earn a significant chunk of their revenue outside the country. So when the U.S. dollar goes up in value versus the Yen, Euro, British Pound, etc. companies earn less revenue in U.S. dollars (all else equal), which is what shareholders care about at the end of the day. Just think about how much executives have been harping on FX-neutral revenue growth on conference calls in the last few quarters. 2022 was one of the worst years for foreign currency depreciation in recent memory.
It is a double-whammy for companies with huge expense bases in the United States. Wage inflation was a giant headwind in 2022, meaning that two of the variables to earnings growth were moving in the wrong direction last year.
If these issues reverse, will this lead to a recovery in corporate profit margins? I think it is possible.
3. California snowpack
Call me crazy, but I think it would be smart for California to spend some money building more water reservoirs:
There is an absurd amount of freshwater that gets dumped onto the Sierra Nevadas in the form of snow each year, a key input for why the Central Valley is the perfect geography for growing food.
Each year, this snow melts and flows through the Sacramento and San Joaquin river systems:
Maybe the issue is getting this water out of the Central Valley into Southern California (where the water crisis is the worst), I don’t know. But it looks like California has a water storage problem, not a water crisis. Call me crazy, but I think a rich civilization like California can find a way to store and transport all this water to its residents.
Anyone with some expertise in this area please let me know what I am missing, because this seems to be one of those “existential problems” that get brought up in the news constantly that has an easy fix. Just add some more places to store the water!
See you next week,
Brett
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3 Good Reads
Supply, Demand, and Today’s Inflation - Apricitas Economics
The outright majority of today’s US inflation comes from demand-side pressures. There is too much money chasing too few goods, and cyclical inflation in housing and labor-intensive core services represents a serious problem that the Federal Reserve—and central banks across the world—are looking to address. Plainly, global monetary policymakers (and global financial markets) were operating in highly uncertain times and systematically underestimated the underlying strength of nominal growth and the interest rates necessary to keep inflation on target. Tighter monetary policy is now clearly slowing the economy and making progress in decreasing inflation, especially when you account for the lags associated with measurements of housing prices, but core price growth is still significantly above target.
Society’s Technical Debt and Software’s Guttenberg Moment - Irregular Ideas
We think that’s all about to change. The current generation of AI models are a missile aimed, however unintentionally, directly at software production itself. Sure, chat AIs can perform swimmingly at producing undergraduate essays, or spinning up marketing materials and blog posts (like we need more of either), but such technologies are terrific to the point of dark magic at producing, debugging, and accelerating software production quickly and almost costlessly.
And why shouldn’t it be? As the following figure shows, Large Language Model (LLM) impacts in the job market can be thought of as a 2x2 matrix. Along one axis we have how grammatical the domain is, by which we mean how rules-based are the processes governing how symbols are manipulated. Essays, for example, have rules (ask any irritated English teacher), so chat AIs based on LLMs can be trained to produce surprisingly good essays. Tax providers, contracts, and many other fields are in this box too.
Could ChatGPT Become an Architect? - Construction Physics
To find out how much GPT-4 knows about architecture and building design, I gave ChatGPT (with the GPT-4 model) a practice version of the Architect Registration Examination (ARE), which is given by the National Council of Architectural Registration Boards (NCARB). This is the test architects must pass (typically after several years of experience) to become licensed architects. It consists of six separate tests of 65 to 100 questions each. Each section tests a different area of architectural knowledge, from developing the concept for a building up through its construction:
1 Good Podcast
Jim Chanos: A Short Thesis on Data Centers - Business Breakdowns
Compound248 is back to host another episode of Business Breakdowns. His most recent podcasts have focused on digital infrastructure and today we continue with that theme, but with a twist. Our guest is Wall Street Legend Jim Chanos, famed for bringing a skeptical eye to a credulous world. Together, we walked through his short thesis on the US Data Center REITs, his bear case for commercial real estate, and some broader wisdom on how management can thoughtfully respond to short sellers. Let's get started.
Smart, Insightful, and Funny Tweets:
Interesting perspective on why tech is rallying in 2023. Lots of opinions out there and your US $ based POV is likely one of the contributors.
I think it also has to do with positioning...specifically lack of positioning in tech. Funds and retail investors have been underweight tech as we started 2023.
The recent banking crisis spooked confidence in the US financial system and investors sought low risk assets such as treasuries, gold, bitcoin and large cap tech. Large cap tech is a recession resilient sector.
The underweight in tech situation started reversing itself during the last two weeks of March leading the QQQ and NDX higher.
Funds quarter end window dressing (buying better performing stocks to list as holdings in their quarterly report) was also likely a strong contributor during the end of March.
Now it will be interesting to see if this trend continues or reverses leading into Q1 earnings season.