(BIG WALL STREET BANKS ARE MOVING INTO AI)

Thursday, June 1, 2023

Hello everyone,

I didn’t sleep well last night. Is there an AI out there that can help me sleep when I am restless and have a lot on my mind? I’m not really into pill-popping. CALM Is one app that comes to mind.

Apparently, some banks are now jumping into AI. And JP Morgan is one of them. An AI bot, called Index GPT, was introduced in a U.S. Patent and Trademark filing on May 11 by the investment banking firm.

The product “provides temporary use of online non-downloadable cloud computing software using artificial intelligence for use in computer software selection of financial securities and financial assets,” the patent file noted.

The patent also covers:

Software as a service (SAAS) services featuring software using artificial intelligence for Generative Pre-trained Transformer models in the field of financial services.

Provides consumer product information for the purpose of selecting artificial intelligence (AI) hardware and software to meeting the consumer’s specifications; software as a service (SAAS) services featuring software for analysing and selecting securities tailored to customer needs.

So, is this the beginning of the end of human financial advisors? While the Chatbot version trademarked by JPMorgan Chase doesn’t infer it will displace actual money managers, industry experts argue that it’s only a matter of time. It does appear that JPMorgan wants to use IndexGPT to choose stocks, bonds, and funds for its wealth management clients.

Last month, JPMorgan Chase CEO Jamie Dimon stated that “the importance of implementing new technologies simply cannot be overstated.”

What! No human contact at all? What if you had a question, a complaint, or just wanted to share your success or share your experience with another human being? Trading is a solitary experience right now – will AI push us further into our own worlds and have us communicate less? Would you want a world without a human creating the information in Jacquie’s Post, or a world without John Thomas of Mad Hedge Fund Trader sending out newsletters and trade alerts? Would you want to be cut off from any social connection with us? We must be able to work side by side with this technology. And that’s what we will do, and in fact, all sectors will do this.

Banks shift tech focus to artificial intelligence.

An update on the debt ceiling deal:

So, what’s changed?

The deal between Biden and McCarthy would suspend the $31.4 trillion debt ceiling until January 1, 2025, allowing the U.S. government to pay its bills.

The trade-off? Non-defence discretionary spending would be roughly flat at current levels in 2024. There is an estimation that non-defence discretionary spending excluding benefits for veterans would total $637 billion for the 2024 fiscal year, down marginally from $638 billion the year before. That total would also increase by 1% in 2025.

The debt limit extension lasts past 2024 – until after the November 2024 presidential election. But Congress will still have to knuckle down and make some rational decisions about how to allocate money under the new spending caps this year.

The deal would boost total defence spending to $886 billion, in line with Biden’s 2024 budget spending proposal.

That’s about a 3% increase from the $858 billion allocated in the current budget for the Pentagon and other defence-related programs in other agencies.

Biden and Democrats secured $80 billion for a decade in new funding for the IRS.
Impact: hiring thousands of new agents – the extra tax revenue they generated is expected to offset many of the climate-friendly tax credits.

Clawback unused Covid relief funds which is estimated to be between $50 billion and $70 billion.

No changes to Medicaid in the deal.

But work requirements would be imposed on some low-income people who received food assistance under the program known as SNAP up to age 54, instead of up to age 50.

End the current pause on student loan repayments by late August.

Biden’s plan to forgive $430 billion in student debt, is still under review in the Supreme Court.

Energy projects to find it easier to gain permit approval.

We are waiting for Congress now. Will the deal be passed or will it fail?

Wishing you all a great week.

Cheers,

Jacquie

“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.” --Edmund Burke

(WHAT IS A BUY WRITE AND HOW DO I USE IT)

May 26, 2023

Hello everyone,

Would you like your shares to start working for you? I’m talking about a trading strategy, where your shares pay you. And I‘m not just talking about those dividends you receive.

I’m talking about Buy Writes. Also called covered calls. The investors sell options over a stock held in a portfolio to generate cash and therefore guarantee a modest return from them. The option buyer gets the right to “call away” the fund’s shares if they hit or exceed agreed-upon prices.

So, for the beginner, a buy write is combination of positions where you buy a stock and sell short options on the same stock against the shares at a higher price, usually on a one-to-one basis.

“Writing” is another term for selling short in the options world because you are in effect entering into a binding contract. When you sell short an option you are paid the premium the buyer pays, and the cash sits in your brokerage account accruing interest.

If the stock rallies, remains the same price or rises just short of the strike price you sold short, you get to keep the entire premium.

Most buy writes take place in front-month options and the strike prices are 5 or 10% above the current share price. I’ll give you an example of a 2021 Apple position.

Let’s say you own 100 shares of Apple (AAPL) at $140. You can sell short one August 2021 $150 call for $1.47. You will receive the premium of $147.00 ($1.47 X 100 shares per option). Remember, one option contract is exercisable into 100 shares.

If Apple shares close under $150 at the August 20 option expiration you get to keep the entire premium. If Apple closes over $150 you automatically become short 100 Apple shares. Then you simply instruct your broker to cover your short in the shares with the 100 Apple shares you already have in your account.

Buy writes accomplish several things. Firstly, they reduce risk, pare back the volatility of your portfolio, and bring in extra income. In a nutshell, it will enhance the overall performance of your portfolio.

But how do you know when to pull the trigger on this strategy? If the market is going straight up, you don’t want to touch buy writes with a ten-foot pole as your stock will get called away and you will miss substantial upside.

It’s preferable to skip dividend-paying months, usually March, June, September, and December, to avoid your short option getting called away mid-month by a hedge fund trying to get the dividend on the cheap.

You don’t want to engage in buy writes in bear markets. Whatever you take in with option premium it will be more than offset by losses on your long stock position.

O.K. let’s say you are a very cautious kind of person. Instead of selling short the $150 strike you call sell the $155 strike for less money. Then your risk of a call away drops too.

You can also go much further out in your expiration date to bring in more money. If you go out to the January expiration you will take in more option premium.

Let’s say you are a particularly aggressive trader. You can double your buy write income by doubling your option short sales at the ratio of 2:1. However, if Apple closes above $150 by expiration day you will be naked short 100 shares of Apple.

It may be that you won’t have enough cash in your account to meet the margin call for selling short 100 shares of Apple so you will have to buy the shares in the market immediately. Maybe you should leave that to the professionals.

Hang on. There’s another way to do this.

Instead of buying stock, you can establish your long position with another call option. These are called “vertical bull call debit spreads” and are a regular feature of the Mad Hedge Trade Alert Service. The “vertical” refers to strike prices lined up above each other. The “debit” means you must pay cash for the position instead of getting paid for it.

What about if there was a way to get into the position for free?

You could buy one call option and sell short two call options against it for no cost. The downside is that you go naked short if the share rises above the short strike prices, again triggering a margin call.

One strategy you must love is LEAPS (Long Term Equity Anticipation Securities). Go out with your expiration one to two years. Some investors are purely directional in their options. In other words, they buy a straight call, rather than doing a bull call spread. That’s OK. It’s up to you. I’m just giving you options (sorry for the play on words there).

Wishing you all a happy mid-week.

Cheers,

Jacquie

(A TANDEM SOLAR PANEL COULD BE THE FUTURE)

May 22, 2023

Hello everyone,

We all know about solar panels. Some of us have them. Some of us don’t.

Is there a chance we can make them more efficient?

Bill Gates seems to think so.

His Breakthrough Energy Ventures is exploring the mineral perovskite, which was found about 200 years ago, to see if it can lead to a new, more efficient leader in solar energy.

Apparently, perovskite has a crystal-like structure that could transform sustainable energy by boosting the efficiency of commercial solar panels.

Solar panels accounted for nearly 5% of U.S. energy production last year, up almost 11-fold from 10 years ago and enough to power about 25 million households. Nearly all the solar modules that are used in power generation today consist of conventional silicon-based panels made in China, a technology that has changed little since silicon cells were discovered in the 1950s.

Other materials used, like gallium arsenide, copper indium gallium selenide and cadmium telluride – the latter a key to the largest U.S. solar company First Solar’s growth - can be very expensive or toxic. Backers of perovskite-based solar cells say they can outperform silicon in at least two ways and accelerate efforts in the race to fight climate change. Just this week, First Solar announced the acquisition of European perovskite technology player Evolar.

How does it all work and what are the barriers in silicon-based solar panels?

Photovoltaic cells convert photons in sunlight into electricity. But not all photons are the same. They have different amounts of energy and correspond to different wavelengths in the solar spectrum. Cells made of perovskites, which refer to various materials with crystal structures resembling that of the mineral, have a higher absorption coefficient, meaning they can grab a wider range of photon energies over the sunlight spectrum to deliver more energy. While standard commercial silicon cells have efficiencies of about 21%, laboratory perovskite cells have efficiencies of up to 25.7% for those base don perovskite alone, and as much as 31.25% for those that are combined with silicon in a so-called tandem cell.

Sustainability and cost are also brought into the frame. Perovskite cells can be more sustainable to produce than silicon. Intense heat and large amounts of energy are needed to remove impurities from silicon, and that produces a lot of carbon emissions. It also has to be relatively thick to work. Perovskite cells are very thin – less than 1 micrometre – and can be pained or sprayed on surfaces, making them cheap to produce. A 2020 Stanford University analysis of an experimental production method estimated that perovskite modules could be made for only 25 cents per square foot, compared to about $2.50 for the silicon equivalent.

It looks like many industries in all corners of the world will start production lines in factories for the commercialization of their solar cells before 2025. And it looks like the tandem module will become a breakthrough climate technology. CubicPV has been backed by Bill Gates’s Breakthrough Energy Ventures and they have been developing these tandem modules since 2019.

A tandem module is one which has a bottom silicon layer and a top perovskite layer, and their efficiency can reach as much as 30%. And there are advantages. CubicPV argues that the company’s perovskite chemistry and its low-cost manufacturing method for the silicon layer make the tandem approach economical. CEO of CubicPV, explains that tandem extracts more power from the sun, making every solar installation more powerful and accelerating the world’s ability to curb the worst impacts of climate change. Furthermore, he believes that the entire industry will switch to tandem within the next decade.

How do these cells perform outside a lab environment?

And will the tandem cells have the required stability to be commercially viable?

Japan seems to think so.

They are now building these panels into walls and windows in their buildings.

Exhibited at CES 2023, Panasonic’s 30 cm-square perovskite-only cell has an efficiency of 17.9%, the highest in the world, according to a ranking from the U.S. National Renewable Energy Laboratory. Panasonic says it aims to commercialize its perovskite cells in the next five years.

Perovskite cell inventor Miyasaka believes perovskite-based power generation will account for more than half of the solar cell market in 2030, not by replacing silicon but through new applications such as building walls and windows.

It looks like this mineral could be a big contributor to realizing a self-sufficient sustainable society.

Welcome to a new week.

Have a good one.

Cheers,

Jacquie