10% R-I-S-K F-R-E-E
If you are not earning at least 5% on your cash, you are leaving money on the table
Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.
Milton Friedman
I know what you’re thinking. With such a title, it must be clickbait. If you are reading this post after clicking on my LinkedIn post, perhaps you got attracted by the picture of a good-looking girl promising 10% risk-free I generated using AI (more on how I did that later).
So, is it clickbait? It depends. If your time horizon is two years, it isn’t. The yield on two-year US Treasury yields is now higher than 5%, which means you will earn a little more than 10% over two years.
Look at the available yields across multiple maturities and compare them to what you could earn a few years ago. They have gone up… a lot!
There is no free lunch, of course. Interest rates are high because inflation is high, and central banks have had to react by raising rates to slow down the economy.
If you don’t want to bother with buying US Treasuries or Exchange Traded Funds (ETFs) that invest in US Treasuries, you can move your money to a money market fund that invests in ultra short-term securities (and also deposits money directly at the Fed, as I had explained in a previous post here). Money Market Funds offer daily liquidity, are supposed to always trade at the exact value of $1.00, and usually pay interest monthly. If you have an iPhone, even Apple offers a savings account that pays 4.15%!
Long story short: If you are not getting paid at least 5% on your cash, you are leaving money on the table. A yield of 5% may not be sufficient to offset the rise in prices, but it will limit the damage to your purchasing power.
Now, according to Nobel Prize-winning economist Paul Krugman, you don’t have to worry about inflation. If you remove everything that is useful and goes up in price, there is no problem. Inflation without food, energy, shelter, and used cars (?!) is back at 2%. This tweet is 100% real, and he is serious.
I am no Nobel Prize winner, but my interpretation of this chart is very different from Krugman’s: because food, energy, and shelter have gone up a lot (let’s forget about used cars), people don’t have much income left to spend on other things, so there is no price pressure on whatever is left after you remove what is vital for people. It’s precisely because inflation is high on things that matter that inflation on things that don’t matter is low.
One last thing on inflation. Somehow, a British journalist who has zero understanding of how inflation works thought it would be a good idea to be clever with Rishi Sunak. She thought wrong. Just watch.
The German Crash
I wrote extensively last year about the mistakes made by Europe regarding its energy policy. No country illustrates this better than Germany. The government shut down highly efficient, clean nuclear power stations, and it is now restarting old, very polluting coal power stations. You can’t make this up.
Ignoring the laws of physics and the basics of energy markets is starting to cost Germany dearly. The following article by Euronews summarized everything that went wrong with Germany.
The combination of high energy costs in Germany and generous subsidies and cheap energy in the US is leading many companies to relocate to the US.
AI Madness
These past few weeks have been insane on the AI front. So many tools have been launched, and new features have been added to ChatGPT.
ChatGPT can see now! You can upload pictures or simply take photos with your phone, and ChatGPT can use the content of the picture.
Watch a few crazy examples:
You have a picture of a dish you would like to prepare but no recipe? No problem. With just one picture, ChatGPT can reverse-engineer the recipe for you!
OpenAI (ChatGPT’s parent company) recently released DALL-E 3, the new version of its image generation AI tool. It is being rolled out to all ChatGPT+ users, and you can already access it for free using Bing.
If you have an idea for a logo, give it to DALL-E, and it will create it for you. You don’t need to be a graphic designer. Just write the right prompt or send a sketch of what you want to DALL-E.
People have been very creative with the ability to generate pictures using AI:
I used it to generate the clickbait picture at the beginning of this newsletter. It took some back and forth between me and Bing before I ended with something satisfactory. If you click on the source under each picture, you will see my prompt. These were the final four pictures I got to choose from:
I also tried with blond girls:
If you have made it this far in my newsletter, you deserve what I have in stock for you: an AI-generated version of Coolio’s Gangsta’s Paradise by… Franck Sinatra! When you listen to it, don’t forget that it’s not really Franck Sinatra singing, but an AI. It is mind-blowing. (original version by Coolio here).
You can expect dead artists to be resurrected, sing new songs, or play in new movies. James Dean is rumored to be returning 68 years after his death in a new movie.
Best Podcast Episodes
I listen to many podcasts every week, but lately, I have struggled to find interesting episodes that do not repeat what has already been said countless times. But, finally, there were a few great episodes in recent weeks, here they are:
MacroVoices #394 Louis-Vincent Gave: China, Energy & More A Frenchman who lives in Hong Kong and has a very interesting take on the state of the global economy
Forward Guidance Luke Gromen: Panic In The Bond Market Will Continue Unless Oil Or Dollar Relent Luke Gromen has been pounding the table for years about what is unfolding in real-time in financial markets
The Duran Podcast | An Endgame for the Ukrainian War w/ John Mearsheimer Chicago University John Mearsheimer was pretty much the only one to warn the West about the risk of a conflict in Ukraine almost ten years ago. He shares his views on what is next for the war in Ukraine in this episode
That’s it for this week! Subscribe to my newsletter if you are not already a subscriber, and any likes or posts on social media are much appreciated!
Vincent