More GPT, Spikes and Limbo

January 18, 2023 - Max Osbon (4 mins to read)

GPT and AI tools

Microsoft recently invested $10B into OpenAI at a $29B valuation. This is reminiscent of Adobe buying Figma for $20B. Both valuations are extremely high, but these companies cannot afford to not participate in the future of these markets.

LLMs (large language models) like ChatGPT completely change how we gather, interact with and consume information. Whereas a Google search yields links to other websites, GPT provides direct and creative answers to prompts. Depending on how you word the question or prompt, you can essentially have a conversation. LLMs are gaining sophistication at an exponential pace. So far, ChatGPT has passed a practice bar test and recently passed all three parts of the US medical exam. It’s like a talented college student today, and sooner rather than later, it will be a subject matter expert. Personally, over the weekend I integrated the GPT API into Google Sheets which enables a =GPT() formula and the results are nothing short of incredible.

From a writing perspective, universities and schools are in panic mode trying to stop students from using LLMs to create “clean paragraphs, fitting examples and rigorous arguments”. Nature, the scientific journal, is in an ongoing argument with a handful of scientists who plan to list ChatGPT as one of their contributors.

LLMs are already adding tremendous value to programmers, saving hours and even days of work. Once these models surpass the early adoption phase, there should be a pretty significant increase in productivity. One parallel that comes to mind is replacing farmers working by hand to working with tractors. The skill sets, type of jobs done and productivity capacity changed entirely when farming machinery was introduced. Back to Microsoft, the implication here is that we’ll see ChatGPT tools in Word, Excel and Powerpoint by the end of the year. I think the biggest accumulator of value on LLMs will be society as a whole.


Spikes and Limbo

The Fed began hiking interest rates in March 2022 and will likely end March 2023. The 12 month, 5% rate hike is extreme. We’re at 4.5% now and in all likelihood will see two .25% hikes on Feb 1 and Mar 22. The yield curve is already predicting rates will fall as the entire curve has been falling consistently since the peak in Oct ‘22. The 10-year yield has already dropped a full point from 4.33% to 3.33% today. Falling rates boost all asset prices.

We’re still in limbo, but the market is trying to front run any and all good news. Falling rates is good news and falling inflation is good news (although don’t look at the rest of the world where 50% of countries still have double digit inflation). What I don’t understand is how the financial system can continue to operate smoothly while going from a 0% to 5% interest rate in one year. The money has to come from somewhere. The US government’s interest payments in 2023 and beyond are astronomical. Banks don’t pay those interest rates on deposits so I imagine banks are losing deposits at a steady clip in favor of 4.5% risk free yields. There are likely banks out there leaning on the Fed to help cover customer withdrawals.

The futures market and the bond market point to rate cuts by the end of 2023, if not sooner. In the meantime, until we stop rate hikes and inflation falls below the interest rate, we continue to sit in limbo. With markets down, many of the valuations will turn into generational buying opportunities.


Comments on commodities

I wrote in November, “A bull market in copper seems imminent at this point.” Copper continues to steadily increase in price and it doesn’t seem like that will stop anytime soon. We’re not investing in enough production (supply) and demand continues to increase, especially in the green energy space like wind turbines, solar, EVs and batteries.

It’s one thing to have a supply shock and see the price whipsaw, it’s another to systematically and persistently underinvest in new supply. We never had a lack of supply of lumber, for example, but the lack of labor and productivity at the lumber mills during covid sent the prices on a round trip from $350 to $1500 and back. Policy changes are needed to help secure the supply of critical materials for the short, medium and long term.

Weekly Insights

delivered to your inbox


This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”

“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.

Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.

Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.

This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.

While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.

Adviser does not endorse the statements, services or performance of any third-party vendor.

Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.

Any IPO alerts are purely informational and should not be construed as recommendations to invest.

Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.

Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.

Weekly Articles by Osbon Capital Management: