Money Supply, Inflation, ChatGPT

December 7, 2022 - Max Osbon (5 mins to read)

Money Supply

When you add cash into a system, the value of each dollar starts to dip, which ultimately leads to a rise in prices across the board. And if supply is tight due to disruptions in the supply chain, well, then you can expect prices to skyrocket for obvious reasons. The big question on everyone’s mind right now is whether or not inflation will continue to rise or if it’ll start to cool off. Keep in mind that inflation isn’t just about the actual increase in prices, it’s also about the rate at which those prices are rising. In other words, even if prices are still going up, if they’re not doing so at the same breakneck pace, then the inflation rate will start to decline.

Supply chains have managed to get back to their pre-pandemic levels. The Freightos Index that tracks global shipping rates has completed a round trip from $1,500, to $11,000, back to $2,528 and falling. Real estate is slowly starting to normalize, with the median sale price now up just 2% y/y instead of 13%. That data is at least 30 days lagged. Real estate is 50% of the CPI index. Meanwhile, BREIT, the $69B Blackstone real estate income trust has halted redemptions (more on that later). Finally, the money supply has actually decreased for the first time in as long as the data is available (1960).

The M2 money supply shot up 40% during the pandemic, going from $15.4T to $21.4T. But now, the M2 level has actually shrunk by -1.5% since March 2022, which is a first in modern history. I don’t align myself with the “transitory” crowd, but the money supply is shrinking, housing prices are falling and commodity prices are back to normal. Supply chains are back on track and all of this data is a little behind the times (by 30-90 days). I know it sounds wild, but we might actually see a negative number on the CPI print next year based on the direction of all of this data. Crazy, right?

The next Fed rate hike is December 14th, next week, and will likely be another .5% to bring us to 4.5%. Just like we were far too slow to raise rates, we’re almost certainly far too slow to stop the rate hike process. The inverted yield curve is signaling that rates greater than 4% will last fewer than 2 years. Futures markets are betting the Fed’s first rate cut will be in November 2023.


Market Liquidity

The market price you see on CNBC is the price that people are currently buying and selling an asset for. As I mentioned above, BREIT, Blackstone’s main real estate fund, made headlines last week when it halted redemptions. Blackstone can do this because if too many people tried to sell their shares, it would force them to sell the actual real estate assets, which would push prices down. In public markets things work differently. If someone wants to cash out immediately, the price just keeps falling until all of the liquidations are met. Starwood, a $14.6B REIT, also halted redemptions to maintain price stability. But the truth is, an asset is not really worth $14.6B or $69B if you’re not able to sell more than 2% at a time. It’s unfortunate and misleading, but it’s just how markets work. Over time, the real value of an asset will reveal itself, even if it’s just for a minute.


Saving time with ChatGPT and other AI assistance tools

ChatGPT is getting a lot of attention recently. It’s well deserved as the tool is a game changer when it comes to saving time. The biggest issue with ChatGPT is that it’s often confidently wrong. StackOverflow has had to ban code submissions generated by ChatGPT for “plausible-sounding but incorrect or nonsensical answers”. A non-coder can effectively use ChatGPT to speed up the learning process and ultimately find a correct answer through trial and error in a way that was not previously possible.

ChatGPT is pretty good at writing copy, poems, lyrics and giving simple reference answers with what appear to be thoughtfully constructed answers. For example, looking up a recipe on ChatGPT saves time because you don’t have to scroll through Google’s article results that are full of ads vying for your attention, it just gives you the answer. You still have to decide for yourself if the answer seems correct or not.

I’m certain that we’ll continue to see AI tools evolve at warp speed. The better these tools get, the more time we will collectively save on mundane work and the better our learning and results will be. When everyone starts using these tools you will undoubtably see a meaningful increase in productivity. Even though ChatGPT is free I’ve already saved enough time in the past week to justify paying for it.


This week’s Wizard of Oz image:

ChatGPT is like the man behind the curtain in the Wizard of Oz because it uses advanced technology to create a seemingly intelligent conversation with users.

The image was edited via Dalle-2 to add an NVidia GPU and the sentence above was generated via ChatGPT with the prompt: “In one sentence tell me how ChatGPT is like the Wizard of Oz man behind the curtain”. I’m not intending to be overly cynical about AI but I thought it was funny and worth including the response.



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