Centerfin Collective Weekly

Weekly Update May 12, 2023

Google comes out swinging on AI, Uniformly weak econ data, US default gauge reaches all-time highs

Google comes out swinging on AI

Criticized by many for losing their lead in artificial intelligence technology, Google held an event unveiling a number of new updates/products. When OpenAI released ChatGPT 3.5 late last year, Google scrambled to respond, announcing their chatbot, Bard, in an event that left most unimpressed. This week Google attempted to change the narrative by announcing developments in their AI offering, including their latest language learning model (LLM), PaLM2, incorporating it into Bard and its ubiquitous search engine.

  • Artificial intelligence is definitively the next frontier in technology
  • We believe it has the potential to do for knowledge workers what machines did for manual laborers during the industrial revolution
  • The technology is at an inflection point to be incorporated throughout many use cases across industries
  • It's important to understand that this is deflationary in nature as it pertains to the macro-economic environment

Uniformly weak econ data

Economic data released this week was uniformly weak. The number of people applying for unemployment benefits was higher than expected. Inflation figures, represented by the CPI and PPI, came in lower than expected. To end the week, a survey of consumer sentiment showed that people are feeling less optimistic than experts thought they would be.

  • The post-pandemic period has been challenging for most economic prognosticators
  • The Fed has been fighting inflation by raising interest rates at an unprecedented pace
  • Their goal is to put pressure on the labor market, however to-date we have not seen much progress
  • This week's unemployment number, combined with inflation data and consumer sentiment data, may be the first in a change in trend

US default gauge reaches all-time highs

Credit Default Swaps (CDS) is an instrument traded on Wall Street that allows one to express views on an entity to default on its debt obligations. This week the CDS on the United States surged to all-time highs. With continued wrangling in government about the budget and the potential for default, this issue has come into focus.

  • The US budget deficit (spending more than we make) sets us up for a debate on the debt ceiling debate every few years
  • Most of the news around this is noise, given none of the stakeholders would ever let the US default on its debt
  • This does not stop speculators from betting on the possibility of such an event, given the very asymmetric payoff (if it happened, the CDS would pay off in a large way)

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