Gold Goes Cold, AI Comes for Bankers, OpenAI Starts Browser Battle
Let's see how to handle precious metals now; also, AI is eyeing investment bankers' jobs and is an OpenAI browser deal in the works?
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It was time. Precious metals had gone parabolic. Of course, gold and silver were ripe for some profit-taking. Even if the dollar was not especially weak on Tuesday. Both gold and silver suffered their worst selloffs in several years on Tuesday. Spot gold was down as much as 6.3%, which made for the worst daily session for the yellow metal since 2013. Spot silver dropped as much as 8.7%. By day's end, those beatings had moderated to -5.7% and -7.2% respectively.
Is the debasement trade over? I would not go that far. I often recommend exposure to gold and silver (mostly gold) of between 5% and 10%, with 5% in physical exposure and up to 5% in paper exposure (ETFs and / or futures). But I would suggest that should this new condition persist, absolutely nothing is wrong with reducing that exposure on the paper side.
If one regularly rebalances physical exposure, either quarterly or semi-annually, I personally will not be altering a set schedule. But one must occasionally rebalance. That physical exposure is your protection against inflation and against debasement. Has that threat diminished? If so, then have at it. Paper gold and silver are there to trade.
Paper gold and silver are, in my opinion, a tool for rapid adjustment in overall exposure. Move something into Bitcoin? I have nothing against Bitcoin nor cryptocurrency, but weakness in one asset class is not an invitation to increase exposure to the other.
Cryptocurrencies may or may not protect one against debasement, but they definitely won't be there the day the lights go out. Physical gold and silver will still be in that vault or in that firebox on that day.
AI Comes for Investment Bankers
Bloomberg News ran an interesting piece on Tuesday, showing that, OpenAI is apparently putting more than 100 former investment bankers to work training its AI products on how to build financial models. The target of this effort is the grunt work usually done by junior bankers or assistant traders or both. These former professionals are being paid $150 per hour to write prompts and develop models to tackle a wide range of transaction types, even to handle restructurings and IPOs.
What do I think? I think that if OpenAI or any AI services provider was going to target junior Wall Streeters, that they would be very late. Wall Street's rank and file never truly recovered from the great financial crisis. There are not a lot of junior positions left and those that still exist are certainly doing something more than grunt-work. We all know that the eventual target will be senior Wall Streeters. That's where the overhead is. That's where the bonuses are. To quote Winston Churchill, concerning that crowd, "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
Markets
Wall Street was mixed on Tuesday. Treasury yields dropped a little further as by day's end the U.S. Ten-Year Note paid just 3.96%. The major equity indexes literally went nowhere. The S&P 500 closed as close to "unchanged" as I think it possibly can in this electronic era. Our market's broadest large-cap equity index gained less than 0.22 points, not in percentage terms, which still rounds off to a move of 0%, but in nominal points. Yes, despite the 14.9% pop in General Motors (GM) and 11.6% run made by Halliburton (HAL) . The Nasdaq Composite gave up 0.16%.
As for the mid-majors, the Russell 2000 somehow lost 0.49% while the S&P 600 gained 0.27% even though they both measure small-cap performance. The Dow Transports were the day's top-performing index at +0.78%, while the Dow Utilities gave up 1.01% and the Philly Semiconductors lost 0.66%.
Breadth
Well, the trading volume returned. The markets just really didn't do all that much with the increased action that had apparently been subdued on Monday due to Amazon's (AMZN) outage at Amazon Web Services. Five of the 11 S&P sector SPDR exchange-traded funds closed out the Tuesday session in the green, with the Discretionaries (XLY) in front followed by the Industrials (XLI) . Utilities (XLU) were the day's biggest losers trailed by the Staples (XLP) . It could be considered a potential market and economic positive when the top performers are cyclical in nature while the laggards are defensive types.
Winners beat losers at the NYSE by a rough 4 to 3, while losers beat winners by just a smidgen at the Nasdaq. The split was the opposite once we broke out the trading volume. Advancing volume took a 46.2% share of composite NYSE-listed trade, but a 57.2% share of composite Nasdaq-listed activity. That said, aggregate trading volume was up sharply across NYSE-listings, Nasdaq-listings and the membership of the S&P 500.
Is that meaningful? Not in and of itself. Looked at more broadly, however, this could diminish the impact of the broad rally on Monday that came on significantly reduced activity likely due to what happened at AWS.
OpenAI Browser
Shares of Alphabet (GOOGL) gave up 2.4% on Tuesday. Why? OpenAI officially launched its AI-powered web browser ChatGPT Atlas in what is being seen as a direct challenge to Google's search engine and Google's Chrome browser, which has already been integrated with Google's AI assistant Gemini. Atlas became available on Apple's (AAPL) macOS on Tuesday and will soon be available for Apple iOS users as well as on Microsoft (MSFT) Windows and Google Android.
Shares of Alphabet are trading higher overnight. Why? Bloomberg News is reporting that Anthropic and Alphabet's Google are in discussions to provide Google AI cloud computing services to Anthropic. The deal, if it comes to fruition, would allow Anthropic to use Google's tensor processing units (Google's in-house chips) to accelerate the junior company's workloads.
Anthropic, which is still private, has an interesting story. The company behind the Claude chatbot said this past August that it currently has a revenue run-rate of more than $5 billion, has more than 300,000 customers and the number of customers who have spent more than $100,000 has grown seven-fold in 12 months. Google has been an investor in Anthropic as has been Amazon.
Economics
(All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.42%.
07:00 - MBA Mortgage Applications (Weekly): Last 0.9% w/w.
10:30 - Oil Inventories (Weekly): Last +3.524M.
10:30 - Gasoline Stocks (Weekly): Last -267K.
1:00 p.m. - Twenty Year Bond Auction: $13B.
The Fed
(All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: (T) (.54), (GEV) (1.72), (HLT) (2.05), (TMO) (5.50)
After the Close: (IBM) (2.45), (LRCX) (1.22), (TSLA) (.55), (URI) (12.31)
At the time of publication, Guilfoyle was long GEV, LRCX, TSLA, GOOGL, MSFT equity.
