David Fuller and Eoin Treacy's Comment of the Day
Category - General

    ChatGPT Can Decode Fed Speak, Predict Stock Moves From Headlines

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    To Marinov, while there’s no surprise machines can now read almost as well as people, ChatGPT can potentially speed up the whole process. 

    When Man AHL was first building the models, the quant hedge fund was manually labeling each sentence as positive or negative for an asset to give the machines a blueprint for interpreting the language. The London-based firm then turned the whole process into a game that ranked participants and calculated how much they agreed on each sentence, so that all employees could get involved. 

    The two new papers suggest ChatGPT can pull off similar tasks without even being specifically trained. The Fed research showed that this so-called zero-shot learning already exceeds prior technologies, but fine-tuning it based on some specific examples made it even better. 

    “Previously you had to label the data yourself,” said Marinov, who also previously co-founded a NLP startup. “Now you could complement that with designing the right prompt for ChatGPT.” 

    Read entire article

    Email of the day on the Dollar and income

    Dear Eoin, Does your bearish view on the US dollar imply that investors whose income and expenditure are in currencies other than the US dollar should note be holding any assets denominated in these dollars? Regards A

    Read entire article

    Is FedNow a CBDC?

    This article from the CATO Institute may be of interest to subscribers. Here is a section: 

    What is FedNow?
    FedNow is an instant payments system—a sort of update to Fedwire and the Automated Clearinghouse (ACH). Individuals will not have direct access to FedNow, but they will have access to faster payments so long as their bank or credit union opts into the FedNow network. Although creating FedNow was not necessary to achieve faster payments, one big difference with FedNow will be that payments will no longer be held up on weekends, holidays, or after traditional business hours.
    FedNow is Not a CBDC
    Astute eyes will likely recognize that FedNow does vaguely resemble a wholesale CBDC. Where a wholesale CBDC would be restricted to financial institutions for use during interbank settlement, FedNow would also be restricted to financial institutions. The difference, however, lies in their design. Where a CBDC is a currency, FedNow is a payment rail. If we think of dollars and cents as water, then FedNow is the plumbing that gets those dollars and cents where they need to go. In contrast, a CBDC would involve replacing the water itself in this analogy.

    Under the current system, interbank settlement is performed on the Federal Reserve’s payment rails, thus ultimately affecting retail banking customers’ settlement times. It’s for this reason that Federal Reserve Governor Michelle Bowman said, “My expectation is that FedNow addresses the issues that some have raised about the need for a CBDC.” This statement should not be misunderstood to say that FedNow will take CBDCs off the table, but it does show that the Federal Reserve itself sees FedNow and CBDCs as distinctly different.

    Read entire article

    Financial repression and funding a green revolution

    Thanks to a subscriber for this transcript of an interview with Russell Napier. Here is a section: 

    So that’s where we are at the minute. I think they’re rushing round trying to do something piece-by-piece. I suspect that in the last-, since the blowout of gilt yields, I see a moving hand here, rather than someone playing whack-a-mole. I see a government, increasingly, that they’re somewhere in there, whether it’s in the treasury of somewhere else, that realises the direction of travel has to be financial repression. So, I think the best example of that in the UK is, I don’t know if he’s passed it yet, but Rishi Sunak was looked for the power to overhaul all our financial regulators to push that power into the hands of the prime minister. The question is why? As chancellor of the exchequer, this is not a power that he sought.

    So, I think people are beginning to realise that, yes, you can go round and whack-a-mole, so it’s happening anyway, but there could come a time where we have to something more aggressive. For me, it’s pretty obvious what that aggressive is, which is forcing savings institutions to buy government bonds. That’s the core of a financial repression. We haven’t taken that giant leap yet, but I think since the crisis in the gilt market, there is evidence I think, that someone realises that that is where we might end up and they’re preparing to have to take that leap. To stress this is not a UK problem, it’s the entire developed world and actually, Japan might have to go first in terms of that major jump.

    Read entire article

    Bond Markets Brace for Billion Dollar Question From Japan

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    Market watchers are bracing for volatility, should Japanese investors increase their sales of foreign securities and bring some of that cash home. Dai-ichi Life Holdings Inc., a life insurer with one of Japan’s largest institutional portfolios, said last month that it’s shifting more money to domestic bonds from US Treasuries and other foreign securities.

    Some strategists expect the insurers to stay focused on domestic bonds, particularly longer-dated ones, with hedging costs for foreign investment still at elevated levels. Others see the potential for the overseas outflows to reverse, with the Federal Reserve expected to moderate the pace of its rate hikes and new BOJ governor Kazuo Ueda seen eventually tweaking policy.

    Mizuho Securities Co. Chief Desk Strategist Shoki Omori expects life insurers to stay focused on domestic debt partly because they need to hold an additional ¥35 trillion of long-maturity Japanese government bonds to meet asset-liability management requirements by April 2025, when a new solvency regime will be implemented. In addition, controlling currency risk is too expensive now.

    “They will continue to be cautious on overseas bonds as they see high grade bonds including sovereigns such as Treasuries being too rich on both a hedged and unhedged basis,” Tokyo-based Omori said. “Hedging costs are too high at around 5% and the dollar-yen is too high to go outright at current levels.”

    Read entire article

    Twitter Could Soon Enable Trading Stocks, Bitcoin As Elon Musk Reportedly Inks eToro Partnership

    This news release may be of interest. Here it is in full: 

    Twitter has reportedly announced a new partnership with eToro that will enable users to view market charts and trade stocks and cryptocurrencies.

    What Happened: According to CNBC, the move is part of Elon Musk‘s plan to transform Twitter into a super-app that allows users to access multiple services in one place.

    With the eToro partnership, Twitter’s “cashtags” will expand to cover a more extensive range of instruments and asset classes, according to an eToro spokesperson, CNBC quoted.

    Currently, Twitter cashtags show major cryptocurrencies such as Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH) and Dogecoin (CRYPTO: DOGE). This was in partnership with Robinhood.

    Users will also be able to click a “view on eToro” button that takes them directly to eToro’s site, where they can buy and sell assets on the platform. EToro uses TradingView as its market data partner.

    Read entire article