Dimon and LUI’s

Jamie Dimon released his annual letter this week, giving us some insight into his view of the economy and the largest bank in the US. Here are some notes on what stood out:

The term Shadow Banks was highlighted as a major competitive threat to JP Morgan and the entire banking industry. Shadow Banks is a vague term that’s meant to elicit suspicion and fear. Private equity, private lending, and even money market funds qualify as “shadow banking.” If you hear the term “shadow bank,” just know that it means any financial institution that does not have a bank charter (i.e. Fidelity) that deals with money. Many people are now learning about this difference after the SVB collapse. He includes a table of the size of the financial sector for context. He also mentions competitive threats from Apple and Walmart, which have been rolling out bank-like functions to their enormous customer base.

The insights into the consumer and health of the economy are particularly optimistic. On the one hand, we had Ukraine, an inflation spike, rapid interest rate hikes and a significant drop in public markets. On the other hand, we had easing supply chains, growth in government debt, frequent fiscal stimulus and continued rapid technological progress.

Consumers are still in far better shape than pre-Covid. Compared to 2008, it’s not even close, thanks to stock and housing market appreciation over the last decade. However, inflation could remain sticky for various reasons, and interest rates could remain elevated. There is a long list of potential risks: political divide, geopolitical shifting sands, government debt and volatile commodity and energy prices.

Yield curve inversion came up. There was a recession in all eight out of eight times when yields inverted. This time may be different because while governments set the short end of the curve, the market sets long-term rates. Dimon hypothesizes that the residual effects of QE are still baked into the long end of the curve. Personally, I think expectations of falling inflation explain the lower 10-year yields vs the 2-year yields. His point, most importantly, is that while the inversion may imply a recession, it doesn’t explicitly guarantee it.

And finally (this was a long letter), Dimon ended on a positive note of importance: “Finally, when one talks about risk for too long, it begins to cloud your judgment. Looking ahead, the positives are huge. However events play out, it is likely that 20 years from now, America’s GDP will be more than twice the size it is today, and hundreds of millions of people around the world will have been lifted out of poverty.”

While we must be prepared for risks, we should also prepare for the many possible optimistic outcomes. Here is the link to the JPM annual letter.

GUIs to LUIs and a few other AI notes

• LUI stands for Language User Interface. Apple’s Siri and Amazon’s Alexa are the most popular early examples. More recently, I’ve been using ChatGPT with text-to-voice on my phone, and I’ve found it to be an extremely fast and effective way to ask questions quickly. Once OpenAI refines its new plugins, it will book a flight or order groceries via a conversation. The LUI, in this case, replaces tapping icons or even looking at a screen.
• Reid Hoffman recently co-authored a book with GPT-4 called Impromptu about his experienced using LLMs and how it will change the world.
• ChatGPT Plus limits. Jamie Dimon’s letter is 16,000 words, or 35 pages. I had OpenAI read it to compare its summary of the insights to what I produced from my notes. The dozen or so different prompts I used produced dramatically different outcomes, with most of them praising the company. I even asked which quote it thought Matt Levine (Bloomberg) would like, and it made up a quote that looked plausible, but was not in the original text. Knowing how to ask good questions is a powerful overall life skill, so it’s no surprise that asking the right question is also critical when interacting with LLMs. The AI community calls this “prompt engineering”.
• There has been a lot of negative existential press around AI recently. I prefer the perspectives of Nassim Taleb and Kevin Kelly (Wired Magazine founder). Nassim said “if you are original enough to invent yourself when needed, AI will be your friend” and Kevin said, “The belief that AI will (can) kill all humans is a classic conspiracy theory.”