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IAC’s chief executive Joey Levin also mentioned artificial intelligence and where the future is heading with tools like ChatGPT.

‘No dialogue today is complete without mention of Artificial Intelligence (AI). I can’t recall a product like ChatGPT that has so rapidly captured everyone’s imagination since the iPhone. The large language models (LLMs) underpinning ChatGPT, the most talked-about Generative Artificial Intelligence (GAI) consumer product in the market today, and similar platforms can process and synthesize information in eye-opening ways.

‘The product is new and advancing quickly, so we are probably currently at the greatest gap between reality and fear of impact, which leads to plenty of prognostication. While that gap narrows over time as some portion of vision becomes reality and some portion of fear subsides, we need to embrace and mitigate both the opportunities and disruptions, respectively.

‘The potential for real efficiency improvements is obvious: streamlined content production, accelerated code development, insightful scaled data analysis, more responsive customer service, and automated quality assurance, among many, many others.

‘Unlike other breakthrough moments of technological innovation, bringing these tools into production doesn’t require a complicated new skillset, and won’t be limited in the earliest phases to technology companies. The boost to business productivity generally is tangible.

‘our marketplace businesses specifically, where we match supply and demand to enable realworld connections, we believe GAI can be a great enabler. Angi, Care, Turo and Vivian have large proprietary networks of users and providers (service professionals, care givers, automobiles), and a key challenge for each of those businesses is creating better matches.

‘AI can not only help us here technologically but will also help to normalize the conversational user interfaces we need to gather better data for matching. New competition for and among search engines may also create new opportunities for distribution of our products. We believe the scaled provider networks comprising our marketplace businesses can be a key element of the value chain wherever the frontend experience evolves.’

Is Levin worried tools like ChatGPT can disrupt IAC’s businesses in negative ways?

‘The fearful narrative for IAC has mostly concentrated on publishing businesses, extrapolated from the LLMs’ surprising aptitude for content creation. As premium content creators, we pay close attention.

‘Fortunately, the GAI models have so far gone out of their way to brand themselves as untrustworthy, and deservedly so. But don’t take my biased word for it – just look at what they tell us. The first thing a user encounters on the two largest consumer-facing GAI tools in the market is a large warning sign reminding the user not to depend on its answer.

‘At Dotdash Meredith, we are happy to tout exactly the opposite. We’ve done the work, and we stand behind our results. Maintaining trust is essential for our brands, and we do so by doing the work for our users that computer models cannot. We often visit, see, taste, smell, listen, or feel before we publish under our brands. That enduring and valuable service is critical to the health of the information ecosystem.

‘In a world where content can now be produced at massive scale for minimal cost (the tidal wave of spam content has already begun), I believe the markers of trust which our brands provide are more important than ever, and, as platforms seek to build and maintain trust, will be rewarded.’

$IAC's Levin on business risk of #AI tools like #ChatGPT: 'In a world where content can now be produced at a massive scale for minimal cost … the markers of trust which our brands provide are more important than ever …' pic.twitter.com/fbiifhD3V3

— Fat Tail Daily (@FatTailDaily) May 10, 2023

IAC, the large investment holding company with a portfolio of businesses like Angi, Dotdash Meredith and Care.com, has released its latest quarterly.

That quarterly contained the latest shareholder letter from AIC’s CEO Joey Levin, a shareholder letter widely read among the financial community.

In the letter, Levin gave a brief lesson on valuation maths as part of his explanation for IAC’s recent share buyback:

‘Today IAC holds $2.8 billion of liquid shares in MGM Resorts International and $1.1 billion of Angi shares, as of yesterday’s closing prices. On top of that, we have $1.0 billion of cash with no debt at the IAC parent level as of March 31, 2023.

‘If you look at IAC’s consolidated balance sheet this quarter, you’ll see a different cash balance as well as the debt of Angi and Dotdash Meredith, but as we consider the value of IAC as a sum of several valuable parts, we are allocating the cash and debt to their respective entities for this analysis.

‘For example, Angi held $327 million in cash and $500 million in debt on its balance sheet at the end of Q1, all of which shows up on IAC’s consolidated balance sheet. However, the value of Angi’s equity included in our math already reflects the cash, debt, and other items on Angi’s balance sheet, just as the value of MGM’s equity reflects MGM’s balance sheet, which is not consolidated in IAC’s financials.

‘The sum of our Angi and MGM shares, plus our cash, is $4.9 billion. With 84 million IAC shares outstanding multiplied by a price of $54.16 per share as of yesterday’s close, our total equity value is $4.5 billion – that’s $300 million less than the sum of only a few parts of IAC.

‘Of course, a shareholder buying a share of IAC for $54.16 gets more than just their proportionate share of that $4.9 billion of value. A shareholder also gets an interest in Dotdash Meredith’s equity (after paying off Dotdash Meredith’s $1.3 billion of net debt), Care.com, Vivian Health, our stake in Turo, and everything else at IAC.

‘Reasonable people could debate what those things are worth or the potential tax consequences of various events. We simply know almost all those businesses are profitable category leaders and in aggregate they are worth far more than negative $300 million. As a point of comparison, on May 25th, 2021, by the same calculation, our $173 share price implied a value of $4.6 billion for our private holdings at the time.

‘Clearly the broader market valuations over the past two years played a role in the declines in both our stock price and the implied valuation of IAC’s non-publicly traded assets, but we have also been upfront about the mistakes and misjudgments that have undermined public investors’ perceptions and what we’re doing to address them. Investors may take some time to appreciate the proof, but we’ll keep laying it out each quarter. In the meantime, we bought the most IAC shares we’ve bought since 2016, using 13% of IAC-level cash.’

IAC, the large investment holding company with a portfolio of businesses like Angi, Dotdash Meredith and Care.com, has released its latest quarterly.

That quarterly contained the latest shareholder letter from AIC’s CEO Joey Levin, a shareholder letter widely read among the financial community.

In the letter, Levin gave a brief lesson on valuation maths as part of his explanation for IAC’s recent share buyback:

‘Today IAC holds $2.8 billion of liquid shares in MGM Resorts International and $1.1 billion of Angi shares, as of yesterday’s closing prices. On top of that, we have $1.0 billion of cash with no debt at the IAC parent level as of March 31, 2023.

‘If you look at IAC’s consolidated balance sheet this quarter, you’ll see a different cash balance as well as the debt of Angi and Dotdash Meredith, but as we consider the value of IAC as a sum of several valuable parts, we are allocating the cash and debt to their respective entities for this analysis.

‘For example, Angi held $327 million in cash and $500 million in debt on its balance sheet at the end of Q1, all of which shows up on IAC’s consolidated balance sheet. However, the value of Angi’s equity included in our math already reflects the cash, debt, and other items on Angi’s balance sheet, just as the value of MGM’s equity reflects MGM’s balance sheet, which is not consolidated in IAC’s financials.

‘The sum of our Angi and MGM shares, plus our cash, is $4.9 billion. With 84 million IAC shares outstanding multiplied by a price of $54.16 per share as of yesterday’s close, our total equity value is $4.5 billion – that’s $300 million less than the sum of only a few parts of IAC.

‘Of course, a shareholder buying a share of IAC for $54.16 gets more than just their proportionate share of that $4.9 billion of value. A shareholder also gets an interest in Dotdash Meredith’s equity (after paying off Dotdash Meredith’s $1.3 billion of net debt), Care.com, Vivian Health, our stake in Turo, and everything else at IAC.

‘Reasonable people could debate what those things are worth or the potential tax consequences of various events. We simply know almost all those businesses are profitable category leaders and in aggregate they are worth far more than negative $300 million. As a point of comparison, on May 25th, 2021, by the same calculation, our $173 share price implied a value of $4.6 billion for our private holdings at the time.

‘Clearly the broader market valuations over the past two years played a role in the declines in both our stock price and the implied valuation of IAC’s non-publicly traded assets, but we have also been upfront about the mistakes and misjudgments that have undermined public investors’ perceptions and what we’re doing to address them. Investors may take some time to appreciate the proof, but we’ll keep laying it out each quarter. In the meantime, we bought the most IAC shares we’ve bought since 2016, using 13% of IAC-level cash.’

In a wide-ranging interview with Joseph Walker, Dr Ken Henry — former Secretary of the Australian Department of Treasury — offered his penetrating thoughts on a swathe of matters.

One was the Reserve Bank of Australia. Henry lucidly explained why a mandate for financial stability is problematic:

‘I think the position is well, I guess it’s not diabolical, but it’s a very difficult position that they’re in. And I can understand why they would be, from time to time, very concerned about asset price inflation, particularly speculatively-driven asset price inflation. Of course, it makes perfectly good sense that they’d be concerned about that. But if their only instrument is the overnight cash rate, the target cash rate of interest, then they are simply not capable of dealing with that issue.

‘I mean, if house prices have been increasing at 15% per annum for, let’s say, three years — and there are several periods in Australia’s recent history where you can see that — it’s highly likely that people who are purchasing property as a speculative asset have got in mind that for some time, house prices are going to continue to increase in double digits. So to what level are you going to have to lift? Suppose they do have a mortgage. To what rate are you going to have to lift the overnight cash rate of interest to convince them that’s a dumb thing to do? And the answer, I think, on every occasion I’ve looked at it, is that you’d have to lift the cash rate of interest to a level that would generate a recession, because it would just kill the rest of the economy. So that’s the problem. You need additional instruments.

‘And that makes sense. You’ve got more than one target. You’ve got a target for consumer price inflation. You’ve got a target now for speculative asset price inflation. You’re probably going to need more than one instrument.’

5. On why the RBA shouldn't have a mandate for financial stability

(Full transcript here: https://t.co/vcC44UCbg0) pic.twitter.com/oZoB3zg9dv

— Joseph Walker (@JosephNWalker) May 10, 2023

In a wide-ranging interview with Joseph Walker, Dr Ken Henry — former Secretary of the Australian Department of Treasury — offered his penetrating thoughts on a swathe of matters.

One was the Reserve Bank of Australia. Henry lucidly explained why a mandate for financial stability is problematic:

‘I think the position is well, I guess it’s not diabolical, but it’s a very difficult position that they’re in. And I can understand why they would be, from time to time, very concerned about asset price inflation, particularly speculatively-driven asset price inflation. Of course, it makes perfectly good sense that they’d be concerned about that. But if their only instrument is the overnight cash rate, the target cash rate of interest, then they are simply not capable of dealing with that issue.

‘I mean, if house prices have been increasing at 15% per annum for, let’s say, three years — and there are several periods in Australia’s recent history where you can see that — it’s highly likely that people who are purchasing property as a speculative asset have got in mind that for some time, house prices are going to continue to increase in double digits. So to what level are you going to have to lift? Suppose they do have a mortgage. To what rate are you going to have to lift the overnight cash rate of interest to convince them that’s a dumb thing to do? And the answer, I think, on every occasion I’ve looked at it, is that you’d have to lift the cash rate of interest to a level that would generate a recession, because it would just kill the rest of the economy. So that’s the problem. You need additional instruments.

‘And that makes sense. You’ve got more than one target. You’ve got a target for consumer price inflation. You’ve got a target now for speculative asset price inflation. You’re probably going to need more than one instrument.’

5. On why the RBA shouldn't have a mandate for financial stability

(Full transcript here: https://t.co/vcC44UCbg0) pic.twitter.com/oZoB3zg9dv

— Joseph Walker (@JosephNWalker) May 10, 2023

The following is an excerpt from our gold expert Brian Chu’s latest piece for The Insider.

Gold moved from US$1,600 an ounce or so to over US$2,000 over the last eight months as the US long-term real yield eased from 2% to 1.5%.

Source: Refinitiv

A rising price of gold has helped bring buying interest back into gold stocks, leading to two good rallies already — the first one occurring from late-September 2022 till this January, and the other starting in mid-March.

But recently, there’re signs that suggest that gold stocks might’ve moved ahead of themselves and are bracing for a correction.

It also seems that my colleagues are sharing this sentiment.

And yet, as Fat Tail’s resident gold bull, I’m not at all worried.

Let me show you what I’m seeing, to help explain…

A correction amidst a gold bull market

Most of us know nothing rises in a straight line. And those that do fall harder when the momentum runs out.

If you look at the figure below showing the performance of the ASX Gold Index [ASX:XGD], you’ll see that since last September, we’ve had two rallies:

Source: Refinitiv

The correction during February looked like a healthy consolidation, in retrospect. It may have interrupted the bullish setup, as the three moving-average trendlines had all turned positive just before the selloff occurred. However, the index had rallied some 60% from its lows, which is a solid recovery.

The consolidation during February brought down the ASX Gold Index by some 15%, but that set a good base for the second rally that we saw recently. And you can see that the bullish setup is in once again.

Let’s take a closer look at the index relative to the 50-day and 200-day moving averages since mid-April when we hit a recent high of 7,813. There’s a wide gap between the index and these two trendlines.

This is one reason why I think prices are over-stretched in the short-term.

Secondly, you would’ve noticed that leading gold producers such as Anglogold Ashanti [ASX:AGG], Newcrest Mining [ASX:NCM], Northern Star Resources [ASX:NST], Perseus Mining [ASX:PRU] and Evolution Mining [ASX:EVN] hitting some resistance.

Many of these producers are trading at record highs but are unable to break through it.

Simultaneously, you might’ve also noticed that many of the smaller producers are lagging.

Several of these are solid performers such as Ramelius Resources [ASX:RMS], Regis Resources [ASX:RRL], Silver Lake Resources [ASX:SLR] and West African Resources [ASX:WAF]. They may be trading at 52-week highs, but the prices are at least 30% lower than their all-time highs.

As you go further down the hierarchy and look at the explorers, many are trading at rock bottom prices. Some are even making new lows in the past fortnight.

Source: Refinitiv

This is because the rally in gold didn’t bring investors interest into this space. It still feels like a nuclear winter, at least to mainstream investors.

Thus far, the bull market in gold has benefited the larger players in the gold mining space, but not much (if any) for the small players.

This happens in the early stages of a bull market. As it continues, the momentum picks up and the rest of the market catches up.

The following is an excerpt from our gold expert Brian Chu’s latest piece for The Insider.

Gold moved from US$1,600 an ounce or so to over US$2,000 over the last eight months as the US long-term real yield eased from 2% to 1.5%.

Source: Refinitiv

A rising price of gold has helped bring buying interest back into gold stocks, leading to two good rallies already — the first one occurring from late-September 2022 till this January, and the other starting in mid-March.

But recently, there’re signs that suggest that gold stocks might’ve moved ahead of themselves and are bracing for a correction.

It also seems that my colleagues are sharing this sentiment.

And yet, as Fat Tail’s resident gold bull, I’m not at all worried.

Let me show you what I’m seeing, to help explain…

A correction amidst a gold bull market

Most of us know nothing rises in a straight line. And those that do fall harder when the momentum runs out.

If you look at the figure below showing the performance of the ASX Gold Index [ASX:XGD], you’ll see that since last September, we’ve had two rallies:

Source: Refinitiv

The correction during February looked like a healthy consolidation, in retrospect. It may have interrupted the bullish setup, as the three moving-average trendlines had all turned positive just before the selloff occurred. However, the index had rallied some 60% from its lows, which is a solid recovery.

The consolidation during February brought down the ASX Gold Index by some 15%, but that set a good base for the second rally that we saw recently. And you can see that the bullish setup is in once again.

Let’s take a closer look at the index relative to the 50-day and 200-day moving averages since mid-April when we hit a recent high of 7,813. There’s a wide gap between the index and these two trendlines.

This is one reason why I think prices are over-stretched in the short-term.

Secondly, you would’ve noticed that leading gold producers such as Anglogold Ashanti [ASX:AGG], Newcrest Mining [ASX:NCM], Northern Star Resources [ASX:NST], Perseus Mining [ASX:PRU] and Evolution Mining [ASX:EVN] hitting some resistance.

Many of these producers are trading at record highs but are unable to break through it.

Simultaneously, you might’ve also noticed that many of the smaller producers are lagging.

Several of these are solid performers such as Ramelius Resources [ASX:RMS], Regis Resources [ASX:RRL], Silver Lake Resources [ASX:SLR] and West African Resources [ASX:WAF]. They may be trading at 52-week highs, but the prices are at least 30% lower than their all-time highs.

As you go further down the hierarchy and look at the explorers, many are trading at rock bottom prices. Some are even making new lows in the past fortnight.

Source: Refinitiv

This is because the rally in gold didn’t bring investors interest into this space. It still feels like a nuclear winter, at least to mainstream investors.

Thus far, the bull market in gold has benefited the larger players in the gold mining space, but not much (if any) for the small players.

This happens in the early stages of a bull market. As it continues, the momentum picks up and the rest of the market catches up.

Fat Tail Investment Research is a broad church. Diverging views on markets are common … and encouraged. As our editorial director Greg Canavan likes to say, conformity is always a worry when you’re looking for an investment that could outperform the market.

With that throat-clearing over, here’s an excerpt from a piece our crypto expert Ryan Dinse wrote yesterday in response to a scathing attack on Bitcoin by our veteran editor Vern Gowdie.

***

Yes, I know that bitcoin is a love/hate proposition for a lot of investors. But ask yourself: if it’s such a big scam, how come bitcoin is still around in 2023? Why are people still buying it? What’s the draw? There must be something, right?

I reckon I’ve heard every single prediction of bitcoin’s doom there’s ever been. And let me tell you, there’s been a few!

There’s even a website that tracks every ‘Bitcoin obituary’ since the very first ‘Bitcoin is dead’ piece was published way back in 2010.

Back then, one bitcoin was priced at just 23 cents.

Over the next decade and a bit, hundreds more obituaries were written, even as the price of bitcoin sailed past US$69,000.

To date, all 474 obituaries have been wrong.

Bitcoin is still churning out block after block of transactions every 10 minutes or so without missing a beat.

And despite some gut-wrenching volatility (I’ll agree with Vern on that score), the bitcoin price has bounced back more times than I’ve had hot dinners.

Despite what you may hear, things are bubbling beneath the surface, preparing for the next bull run.

Observe here:

Source: Glassnode

The orange line shows that the adoption of bitcoin — the rate at which companies and private individuals accept it as part of the financial landscape — continues to grow exponentially, despite the large fluctuations in the price.

Think about that for a second…

Despite the negativity you might read about crypto, there’s still a mad rush right now to buy bitcoin.

This next chart is even more illuminating, but it might need a bit more explanation…

This shows how bitcoin mining — the process of dedicating computing power to secure the network — is also at all-time highs:

Source: Coinwarz

Without getting into too much technical detail, that’s the opposite of what you’d expect in a bear market.

Usually, miners turn off their machines when prices fall…because they’re losing money due to electricity costs.

But in this ‘bear market’, miners are turning on more machines to mine as much bitcoin as they can, no matter the cost!

This should make even the sceptics stop and think, ‘is there something they’re missing’?

But will they?

That’s a different question!

https://www.dailyreckoning.com.au/a-bitcoiners-rebuttal/2023/05/09/

Yes, I know #Bitcoin is a love/hate proposition for a lot of investors.

But ask yourself: if it’s such a big scam, how come $BTC is still around in 2023?

Why are people still buying it? What’s the draw? There must be something, right? https://t.co/XlYOs5lx7j

— Daily Reckoning Au (@DRAUS) May 10, 2023

Fat Tail Investment Research is a broad church. Diverging views on markets are common … and encouraged. As our editorial director Greg Canavan likes to say, conformity is always a worry when you’re looking for an investment that could outperform the market.

With that throat-clearing over, here’s an excerpt from a piece our crypto expert Ryan Dinse wrote yesterday in response to a scathing attack on Bitcoin by our veteran editor Vern Gowdie.

***

Yes, I know that bitcoin is a love/hate proposition for a lot of investors. But ask yourself: if it’s such a big scam, how come bitcoin is still around in 2023? Why are people still buying it? What’s the draw? There must be something, right?

I reckon I’ve heard every single prediction of bitcoin’s doom there’s ever been. And let me tell you, there’s been a few!

There’s even a website that tracks every ‘Bitcoin obituary’ since the very first ‘Bitcoin is dead’ piece was published way back in 2010.

Back then, one bitcoin was priced at just 23 cents.

Over the next decade and a bit, hundreds more obituaries were written, even as the price of bitcoin sailed past US$69,000.

To date, all 474 obituaries have been wrong.

Bitcoin is still churning out block after block of transactions every 10 minutes or so without missing a beat.

And despite some gut-wrenching volatility (I’ll agree with Vern on that score), the bitcoin price has bounced back more times than I’ve had hot dinners.

Despite what you may hear, things are bubbling beneath the surface, preparing for the next bull run.

Observe here:

Source: Glassnode

The orange line shows that the adoption of bitcoin — the rate at which companies and private individuals accept it as part of the financial landscape — continues to grow exponentially, despite the large fluctuations in the price.

Think about that for a second…

Despite the negativity you might read about crypto, there’s still a mad rush right now to buy bitcoin.

This next chart is even more illuminating, but it might need a bit more explanation…

This shows how bitcoin mining — the process of dedicating computing power to secure the network — is also at all-time highs:

Source: Coinwarz

Without getting into too much technical detail, that’s the opposite of what you’d expect in a bear market.

Usually, miners turn off their machines when prices fall…because they’re losing money due to electricity costs.

But in this ‘bear market’, miners are turning on more machines to mine as much bitcoin as they can, no matter the cost!

This should make even the sceptics stop and think, ‘is there something they’re missing’?

But will they?

That’s a different question!

https://www.dailyreckoning.com.au/a-bitcoiners-rebuttal/2023/05/09/

Yes, I know #Bitcoin is a love/hate proposition for a lot of investors.

But ask yourself: if it’s such a big scam, how come $BTC is still around in 2023?

Why are people still buying it? What’s the draw? There must be something, right? https://t.co/XlYOs5lx7j

— Daily Reckoning Au (@DRAUS) May 10, 2023

In the US, politicians are in a race against time to negotiate a solution to the debt ceiling crisis and avoid ‘financial and economic chaos’.

One of the solutions that’s been kicking around — once again — is the trillion-dollar platinum coin.

This decade-old idea is based on exploiting a loophole in the system.

You see, the US Treasury can mint platinum coins in any denomination. So the idea is that the treasury would mint a platinum coin worth US$1 trillion and then deposit it, with the Federal Reserve to pay off national debt and solve the crisis.

The coin itself wouldn’t really be made of a trillion dollars’ worth of platinum, instead it would be kind of a token, a ‘symbolic’ deposit to pay off the Fed until they found a solution.

While the idea apparently isn’t too popular with US President Joe Biden and Treasurer Janet Yellen, there’s no telling what will be done to boost confidence. Money has been created out of thin air before…

But money has to come from somewhere.

The value of the money you have comes from the confidence that the government will honour its debts. The agreement that the value of the dollar is what it says it is.

You, yourself, likely spend most of your time during the weekday working to get money in your pocket. There’s work and time behind that money to produce it.

So what happens when there’s money for nothing?

When there’s no work involved in generating that dollar? What happens to the value of money?

Does a dollar created from minting a coin or typing a few keystrokes have the same value as a dollar generated from producing things?

My guess is that it doesn’t.

That’s why I’m so bullish about precious metals and commodities in general.

Gold has gained around 16% in the last six months against the US dollar and silver is up 20% year on year.

Platinum is also up more than 11% just this month. Not because of talk of a ‘trillion-dollar platinum coin’, but because demand for platinum continues to grow to make electrolysers in the hydrogen economy and supply is looking tight.

In my mind, having exposure to commodities, and in particular gold and silver, is a no brainer.

Central banks will likely take a break on raising rates, and the US dollar will weaken. But I think inflation is going to be much harder to get rid of than people think.

And worldwide, we are seeing clear signs of de-dollarisation. This week, Zimbabwe released digital tokens backed by gold to boost confidence in their currency and give an alternative to the US dollar.

Commodities are raw materials that have use in the economy. You can’t, for instance, just ‘print’ gold out of thin air.

Commodities are real things with value and their supply is constrained to what can be produced.

https://commodities.fattail.com.au/fake-it-till-you-make-itor-break-it/2023/05/10/

My my, what goes around certainly comes around in markets.

Have you heard of something called the SKEW Index? I’ll explain it and why you should care.

The SKEW Index is a measure of what investors are paying for deep ‘out of the money’ options on the American share index, the S&P 500.

For these options to pay off, the market would need to move more than 1 or 2 standard deviations than normal.

An elevated SKEW Index is an indicator, according to casual theory, that a major market event is looming.

That’s because a rising SKEW means investors and market participants are prepared to pay more for the options that underlie it.

Plenty of people take this as a signal that danger in the market is ‘flashing red’ or you should be at least ‘uncomfortable’.

You can see via this graph that the SKEW has kicked up this year:

Source: Google Finance

Let me pause here for a little history…

Back around June 2021, the SKEW Index hit all-time highs.

Here’s an example of the type of headline that went around at the time:

I remember this quite clearly.

At the time, I recorded a conversation with veteran trader and author Gary Norden on the very topic.

We talked about why the SKEW Index was likely way up, and why that wasn’t necessarily a sign of impending market collapse.

And, true to our instincts, the SKEW later settled down and the market rattled along without too much drama in the immediate period after that chat.

Here we are again!

Now, here’s the thing…

Some even call the SKEW the ‘black swan’ index.

The idea, I guess, is that the insiders in the market are preparing for the big one before the herd catches on.

No dice, I’m afraid.

By definition, a black swan event is not predictable. You cannot prepare for it.

All an elevated SKEW Index tells us is that market participants are preparing for something, but certainly not a black swan event.

We don’t need to overthink things here.

Let’s look back over the last six months.

For all the huffing and puffing, US stocks bottomed out in October 2022 and are up about 16% since.

We’ve just been through quarterly earnings reports, regional US banking issues, and have the US Government debt ceiling debate in play.

It makes sense that, if you’re a US money manager for example, you might buy some protection for your portfolio as we go through this uncertain and volatile period.

It’s not because you think there’s high odds that the world is going to collapse — it’s insurance just in case it does, or at least the market gets the wobbles.

You can do that by buying ‘out of the money’ options.

But you do have to buy them off someone else.

The market makers who take your trade are not stupid, either.

They can see the uncertainty and potential volatility. They raise the price of the options to compensate themselves for the risk.

The SKEW Index rises as a result of these perfectly reasonable and logical actions.

At no stage does a potential black swan event come into it.

And the very fact that investors are cautious and hedging their risk makes a total market meltdown less likely.

Markets — historically anyway — collapse when investors are blindsided and, usually, highly leveraged.

That makes the market vulnerable to relentless selling as investors quickly cut and run.

Paradoxically, I take comfort from the fact that the SKEW is elevated.

We know from other market observations that US fund managers have a high cash allocation right now as well.

They’re defensive.

To me, that says I can enter the market an acquire a stock I like without worrying about a general market meltdown.

That’s not to say I can’t get the stock wrong, or a market meltdown is guaranteed not to happen.

It just pulls the odds closer to my favour.

This is the essence of contrarian investing.

https://www.moneymorning.com.au/20230510/this-sign-says-a-market-crash-is-unlikely.html

Neuroscience tech developer Cogstate (ASX:CGS) is down 7.5% after announcing cost reductions and a FY23 guidance downgrade.

Cogstate will lay off 13% of full-time staff in an effort to save $2.6 million in annual costs.

Most of the redundancies are in CGS’s clinical trials business, which has faced ‘continued revenue delays’.

Apart from the layoffs, Cogstate announced that the aforementioned revenue delays mean FY23 revenue is now expected in the range of $39 million to $41 million, 9%-12% below FY22.

Net profit before tax is expected to be between $0.6 million and $1.6 million.

In FY22, net profit before tax was $10.7 million.

Cogstate CEO, Brad O’Connor, noted,

“In the face of continued revenue delays in our Clinical Trials segment, we are taking proactive steps to reduce our cost structure with a goal of improved earnings in the 2024 financial year. As a result of technology investments in process automation that we have implemented over the last two years, and associated efficiency gains, the management team has confidence that our Clinical Trials business will be appropriately resourced post restructure, even allowing for anticipated revenue growth next year.”

“Looking forward, we expect that the cost reductions will help us to restore Clinical Trials operating margins, and to deliver profit growth, in the 2024 financial year. FY23 revenue and profit has been impacted by isolated factors that do not impact our medium- and long-term view that Cogstate is extremely well positioned at the intersection of healthcare and technology addressing the incredible unmet need in central nervous system diseases.”

$CGS will lay off 13% of staff to save $2.6m in annual costs.

Most of the redundancies are in CGS’s clinical trials business, which has faced ‘continued revenue delays’.

FY23 net profit before tax is expected to be $0.6m-$1.6m.

FY22 net profit before tax was $10.7m.$CGS.AX pic.twitter.com/n0OEfxbApN

— Fat Tail Daily (@FatTailDaily) May 10, 2023

Accelerating return to profitability.

On the path to profitability.

Hastening the pace on the path to profitability.

2023 has been a year for such bromides. And marketplace platform Redbubble (ASX:RBL) continues the tradition today.

Redbubble said it is ‘accelerating its return to cash flow positive’ in the latest trading update.

This acceleration will be propelled by a 23% reduction in staff.

Martin Hosking, new chief executive, said:

‘Since being appointed CEO, my primary focus has been returning the Group to profitability as soon as possible. It has become clear that to achieve this, we need to further reduce our cost base. As a result, we have made the difficult decision to remove a number of roles from the Group.’

The redundancies are expected to reduce operating expenditure by around $13 million to $15 million on an annualised basis.

Redbubble now expects its FY23 operating expenditure to be between $125 million and $130 million.

Operating expenses were $109.3 million in FY22 and $88.7 million in FY21.

Accelerating return to profitability.

On the path to profitability.

Hastening the pace on the path to profitability.

2023 has been a year for such bromides. And marketplace platform Redbubble (ASX:RBL) continues the tradition today.

Redbubble said it is ‘accelerating its return to cash flow positive’ in the latest trading update.

This acceleration will be propelled by a 23% reduction in staff.

Martin Hosking, new chief executive, said:

‘Since being appointed CEO, my primary focus has been returning the Group to profitability as soon as possible. It has become clear that to achieve this, we need to further reduce our cost base. As a result, we have made the difficult decision to remove a number of roles from the Group.’

The redundancies are expected to reduce operating expenditure by around $13 million to $15 million on an annualised basis.

Redbubble now expects its FY23 operating expenditure to be between $125 million and $130 million.

Operating expenses were $109.3 million in FY22 and $88.7 million in FY21.

You know a trend is hot when companies go out of their way to integrate it into their strategy announcements.

Today, Appen said generative AI (powering Chat-GPT and countless clickbaiting LinkedIn posts) presents a ‘significant opportunity’.

Citing research that implies the usual hockey stick market growth for generative AI (from an US$8 billion market in 2021 to a US$110 billion market by 2030), Appen thinks it is well-positioned to serve the AI revolution in a back-room capacity.

‘Generative AI models like OpenAI’s ChatGPT require large volumes of human feedback to create experiences that are comparable to humans and avoid risks such as hallucination, bias, and toxicity. Furthermore, to increase the value of generative AI and foundation models in specific business use cases, companies will customise pretrained models by fine-tuning. Appen’s deep expertise in crowd-based data collection, annotation and model evaluation is highly relevant for generative AI,’ wrote Appen.

Appen is launching large language model (LLM) data products. These products ‘provide a comprehensive toolset for enterprise customers’.

APX’s new products have two core components: fine tuning and assurance.

I’ll let Appen explain these in its own words:

‘Fine tuning: Customisation, called fine tuning, is a critical step that enables the models to understand and respond to the intended context, while also limiting the ability to provide responses outside of the desired context. Appen’s fine tuning products enables enterprises to customise existing generative AI models from Nvidia, OpenAI, Cohere, Google, Anthropic, Reka and open-source channels.

‘Assurance: Models in product must be continually monitored to ensure that performance is maintained and to measure and identify sources of potential negative customer experiences. Appen’s assurance products ensure customers’ model performance is accurately measured and monitored to avoid risks such as hallucination, bias, and toxicity.’

$APX expects revenue to 'decline materially' in FY23 as it flags a 'strategy refresh' and a focus on generative #AI. $APX.AX #Appen #ASX pic.twitter.com/yYoh8OXLrh

— Fat Tail Daily (@FatTailDaily) May 10, 2023

You know a trend is hot when companies go out of their way to integrate it into their strategy announcements.

Today, Appen said generative AI (powering Chat-GPT and countless clickbaiting LinkedIn posts) presents a ‘significant opportunity’.

Citing research that implies the usual hockey stick market growth for generative AI (from an US$8 billion market in 2021 to a US$110 billion market by 2030), Appen thinks it is well-positioned to serve the AI revolution in a back-room capacity.

‘Generative AI models like OpenAI’s ChatGPT require large volumes of human feedback to create experiences that are comparable to humans and avoid risks such as hallucination, bias, and toxicity. Furthermore, to increase the value of generative AI and foundation models in specific business use cases, companies will customise pretrained models by fine-tuning. Appen’s deep expertise in crowd-based data collection, annotation and model evaluation is highly relevant for generative AI,’ wrote Appen.

Appen is launching large language model (LLM) data products. These products ‘provide a comprehensive toolset for enterprise customers’.

APX’s new products have two core components: fine tuning and assurance.

I’ll let Appen explain these in its own words:

‘Fine tuning: Customisation, called fine tuning, is a critical step that enables the models to understand and respond to the intended context, while also limiting the ability to provide responses outside of the desired context. Appen’s fine tuning products enables enterprises to customise existing generative AI models from Nvidia, OpenAI, Cohere, Google, Anthropic, Reka and open-source channels.

‘Assurance: Models in product must be continually monitored to ensure that performance is maintained and to measure and identify sources of potential negative customer experiences. Appen’s assurance products ensure customers’ model performance is accurately measured and monitored to avoid risks such as hallucination, bias, and toxicity.’

$APX expects revenue to 'decline materially' in FY23 as it flags a 'strategy refresh' and a focus on generative #AI. $APX.AX #Appen #ASX pic.twitter.com/yYoh8OXLrh

— Fat Tail Daily (@FatTailDaily) May 10, 2023

Appen’s latest trading update shows a business in need of a revamp. So how is Appen planning to turn its fortunes around?

The data services company today announced ‘significant measures’ to deliver annualised cost savings of about US$36 million. That’s on top of the $10 million in cost-saving measures identified earlier this year.

The brunt of this fat-trimming will occur in FY24.

‘Following implementation of these initiatives and those announced on 27 February 2023, Appen expects to exit FY23 with an annualised run-rate cash operating cost base of approximately $113 million [excluding crowd expenses] . This includes capitalised software development costs of approximately $11 million and excludes non-cash share-based payment expenses of approximately $7 million,’ said Appen.

Appen expects thing to improve in 2H23 and should ‘current conditions persist throughout the year’, the firm believes it can exist FY23 ‘with a return to underlying EBITDA and underlying cash EBITDA profitability on an annualised, run-rate basis’.

Data services tech stock Appen (ASX:APX) is down 18% after a sour trading update and an announced ‘strategy refresh’.

‘Challenging external operating and macroeconomic conditions’ have crimped Appen’s financial performance in FY22 and continue to hurt the company in FY23.

In a trading update as at 30 April 2023, Appen said revenue fell 21.4% to US$95.7 million.

Gross profit to April year to date fell 24.7% to US$35.8 million.

Underlying EBITDA (excluding pesky FX movements) swung to a loss of US$12.4 million from a positive US$7.9 million the prior corresponding period.

Not good.

Appen admitted revenue will ‘decline materially’ in FY23 compared to FY22.

Chief executive Armughan Ahmad commented:

“Appen has tremendous potential. These important initiatives announced today represent a refresh of the business. We are highly focused on the areas that are within our control and have taken the necessary steps to align our cost structure with current revenue expectations and now expect to exit 2023 as an underlying EBITDA and cash EBITDA positive business. With this stronger foundation, we look to the future to fully capitalise on the exciting growth opportunities enabled by generative AI.”

Data services tech stock Appen (ASX:APX) is down 18% after a sour trading update and an announced ‘strategy refresh’.

‘Challenging external operating and macroeconomic conditions’ have crimped Appen’s financial performance in FY22 and continue to hurt the company in FY23.

In a trading update as at 30 April 2023, Appen said revenue fell 21.4% to US$95.7 million.

Gross profit to April year to date fell 24.7% to US$35.8 million.

Underlying EBITDA (excluding pesky FX movements) swung to a loss of US$12.4 million from a positive US$7.9 million the prior corresponding period.

Not good.

Appen admitted revenue will ‘decline materially’ in FY23 compared to FY22.

Chief executive Armughan Ahmad commented:

“Appen has tremendous potential. These important initiatives announced today represent a refresh of the business. We are highly focused on the areas that are within our control and have taken the necessary steps to align our cost structure with current revenue expectations and now expect to exit 2023 as an underlying EBITDA and cash EBITDA positive business. With this stronger foundation, we look to the future to fully capitalise on the exciting growth opportunities enabled by generative AI.”