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

    Google Tries to Catch Up to Rivals Like OpenAI as They Release Viral Apps

    This article from the Wall Street Journal may be of interest to subscribers. Here is a section: 

    Unlike OpenAI and other startups such as Stability AI, Google has released its most powerful image- and text-generation models only to a limited group of testers. Google executives in recent years have stressed the need to test new artificial-intelligence tools for signs of bias while guarding against potential misuse, concerns shared by many academics.

    Such caution has at times frustrated researchers at groups such as the artificial-intelligence unit Google Brain, some of whom have left to raise money for their own startups where they can more easily release new products, said people familiar with the matter.

    Last week, the head of Google's research division, Jeff Dean, published a more-than-7,000-word blog post summarizing the company's recent work in artificial intelligence, writing that the developments are "making their way into real user experiences that will dramatically change how we interact with computers."

    The pressures add to a difficult business environment for Google, whose search and ad-tech operations have both been targeted by Justice Department lawsuits. Google also announced the largest layoffs in company history last week, cutting about 12,000 employees.

    "We have long been focused on developing and deploying AI to improve people's lives," a Google spokeswoman said. "We believe that AI is foundational and transformative technology that is incredibly useful for individuals, businesses and communities, and as our AI Principles outline, we need to consider the broader societal impacts these innovations can have."

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    The Fed's Preferred Inflation Gauge Cooled...or Did It?

    This article from Barron’s may be of interest. Here is a section: 

    But in a Nov. 30 speech at the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, Powell said he was watching something even more specific -- not core PCE, but core services PCE less housing. "[This] may be the most important category for understanding the future evolution of core inflation," Powell said at the time.

    That isn't just specific, it is super specific. Core PCE already strips out food and energy. Core services PCE strips out food, energy, and the cost of physical goods. Powell wants to remove housing as well because "as long as new lease inflation keeps falling, we would expect housing services inflation to begin falling sometime next year," he explained.

    When Powell refers to core services PCE less housing, he is really talking about the job market. "Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category," he said. "Thus, another condition we are looking for is the restoration of balance between supply and demand in the labor market."

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    Putin Braces for Long War as He Plans New Offensive in Ukraine

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

    Putin’s confidence in his military’s ability to grind out a triumph - even at a cost of vast casualties and destruction - reflects a misreading of the West’s commitment to turn back his aggression, some insiders concede. The US and its allies have steadily stepped up weapons supplies to categories once considered off-limits.

    Still, US and European military officials fear the conflict could soon settle into a World War I-style artillery fight with largely stagnant front lines, a scenario that could come to favor Russia, with its larger population and military industry.

    Diplomatically, Russia has sought to win supporters among non-western countries with appeals for talks on a cease-fire. Even people close to the Kremlin admit those are hopeless at present, given Ukraine’s demand that Russia pull out its troops as a condition for any deal.

    The minimum the Kremlin would accept would be a temporary truce that left Russia in control of the territory its forces currently hold in order to win time to rebuild its forces, the people said. Though short of the boundaries of the regions that Putin illegally annexed in September, that would still leave Russia with a large swath of land, linking the areas it occupied before the war. As a result, the idea is a nonstarter with Kyiv and its allies.

    “Unless something changes, we’re looking at a war of attrition like World War I, which could go for a long time because both sides believe time is on their side,” said Andrey Kortunov, head of the Kremlin-founded Russia International Affairs Council. “Putin is sure either the West or Ukraine will grow tired.”

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    Made-in-China Cars Are Primed to Conquer the Global Market

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

    “To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

    And

    The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

    “There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.”

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    Australia's 4Q CPI Gives More Reason to End Hikes in Feb

    This note from Bloomberg may be of interest. Here it is in full:

    Australia's surprisingly strong 4Q inflation isn't likely to phase the Reserve Bank of Australia. The headline outcome exceeded consensus estimates, but undershot the central bank's forecasts - and isn't a threat to our view that a February rate hike is likely to be the last of this cycle.

    The economy’s inflationary pulse largely reflects temporary shocks, centered on utilities and airfares in 4Q. A number of other categories showed continued signs that pressures are set to subside in 2023. The central bank’s expectation for a lift in wage growth - necessary for inflation to be sustained in the target band - looks increasingly vulnerable given emerging signs of a softening labor market. Click on the Text tab for the full report.

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    Intel Tumbles After Forecast Suggests Its Comeback Is Far Off

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

    Intel Corp. slid in late trading after giving a dire forecast for the current period, hurt by sinking demand from PC customers and tough competition in the lucrative market for server hardware. 

    First-quarter sales will be $10.5 billion to $11.5 billion, the chipmaker said in a statement Thursday. That compares with an average analyst estimate of $14 billion. Intel expects to lose 15 cents in the quarter, excluding some items. Analysts had projected a profit of 25 cents.

    The outlook reflects the myriad challenges facing Intel, which was attempting to stage a comeback even before the market for personal-computer chips — its main source of revenue — fell into a slump. To get back on track, the company needs computer makers to quickly work through inventory stockpiles and return to ordering components. That would provide Intel with a revenue boost needed to help shore up its finances, which were already stretched by ambitious plans to regain technological leadership within the chip industry. 

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    Private Equity's Loved Assets Turn Problem Children in Downturn

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

    “In terms of just the macro and company performance, I think it will be much more muted as people capture the inflationary pressures,” he said. “Private equity M&A activity I think will be dampened.”

    Concerns around portfolio company performance were not the only challenges up for discussion in the south of France, with private equity firms struggling to secure the debt financing they need to do big deals and juice returns and facing more competition when raising funds. 

    The chief economist at German insurer Allianz SE, Ludovic Subran, said the industry had “nowhere to hide” when markets turned last year. “The private equity world has not been immune or has not defied gravity,” he said.

    Banks pulling back from lending on buyouts was described as a “new reality” by Francois Jerphagnon, head of Ardian Expansion, in an interview with Bloomberg TV. This will open up an opportunity for private credit funds to step in, others said.

    “There is much more interest in private credit and infrastructure where you do have that hedge against inflation and that hedge against rising rates,” said Richards at Pantheon.

    Blackstone’s Eapen said private credit providers are in “the middle of a golden age” and that last year had been one of his business’s biggest ever for deploying capital. 

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    Morgan Stanley IM Says the Decade of Emerging Markets Has Begun

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

    “Every decade, there is a new leader in the market. In the 2010s, it was US stocks and mega-cap tech,” Kandhari said in a phone interview. “Leaders of this decade can clearly be emerging-market and international stocks.” Morgan Stanley IM has $1.3 trillion in assets under management.

    The asset class has had a strong start to the year, with the MSCI emerging-markets index soaring 8.6% compared with a 4.7% advance for the US benchmark. The gains come as China’s pullback from its strict Covid Zero policy brightens the economic outlook, while investors position for the end of aggressive central bank interest-rate hikes. Many also still see US stocks as expensive, with those in emerging-markets trading at a nearly 30% discount.

    There’s a growing disconnect between US’s shrinking share of the global economy and the size of its stock market capitalization, Kandhari said. Along with fund allocations to emerging-markets that are well below historical averages and inexpensive currencies, that gives them a lot of room to outperform, she said.

    “What really drives this asset class is the growth differential, and that growth differential of the EM is improving relative to the US,” she said.

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