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<p><span style="color: #ff0000;"><strong><a style="color: #ff0000;" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4187056">Multi-(Horizon) Factor Investing with AI</a></strong></span><br/>Authors: Ruslan Goyenko and Chengyu Zhang (McGill University)<br/><strong>Date: April 2023</strong><br/><em>This study investigates whether the technology behind ChatGPT can be harnessed for portfolio creation and management. By adapting this robust engine for financial applications, we explore long-horizon multi-factor investing. Our approach utilizes larger datasets and weighs the trade-offs between long-term and short-term volatility, liquidity, and trading costs to maximize expected portfolio returns. Our findings indicate that this method can effectively time factor premium realizations while promoting dynamic rebalancing and diversification among factors. Notably, adopting a long-term perspective enables more strategic trading and the ability to respond to a unique set of fundamental signals.</em></p>
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By James Picerno | <a href="https://www.capitalspectator.com/research-review-6-april-2023-artificial-intelligence-and-finance/" title="7:48 am" rel="bookmark"><time class="entry-date" datetime="2023-04-06T07:48:41-04:00">April 6, 2023</time></a>
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<p>* House Speaker McCarthy <a href="https://www.nbcnews.com/politics/congress/china-taiwan-kevin-mccarthy-tsai-ing-wen-meeting-rcna77992">meets</a> with Taiwan’s president, challenging China.<br/>* House Speaker McCarthy cautions Wall Street about debt-ceiling risks, as reported <a href="https://www.bloomberg.com/news/articles/2023-04-05/mccarthy-to-wall-street-you-should-worry-about-us-debt-ceiling?srnd=premium&leadSource=uverify%20wall">here</a>.<br/>* French President Macron <a href="https://www.cnbc.com/2023/04/06/france-macron-tough-talks-with-china-xi-jinping-eu-sino-relations-at-a-crossroads.html">initiates</a> discussions with China’s Xi Jinping.<br/>* The IMF estimates that increasing US-China tensions could reduce global economic output by 2%, as they <a href="https://www.cnbc.com/2023/04/06/imf-foreign-direct-investment.html">report</a>.<br/>* China's service sector saw growth <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/bc47578ce5d143d588736b9768a3b727">speed up</a> in March.<br/>* Norway emerges as Europe’s <a href="https://www.nytimes.com/2023/04/06/business/energy-environment/ukraine-russia-war-europe-energy.html">primary supplier</a> of fossil fuels.<br/>* The US services sector growth <a href="https://www.reuters.com/markets/us/us-service-sector-slows-march-inflation-cooling-ism-survey-2023-04-05/">slowed</a> more than anticipated in March.<br/>* US private hiring <a href="https://www.cnbc.com/2023/04/05/adp-march-2023.html">increased</a> less than projected in March according to ADP data:</p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2023/04/adp.06apr2023.png"><img fetchpriority="high" decoding="async" class="alignnone size-full wp-image-19969" src="https://www.capitalspectator.com/wp-content/uploads/2023/04/adp.06apr2023.png" alt="" width="650" height="450" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-6-april-2023/#more-19968" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-6-april-2023/" title="6:46 am" rel="bookmark"><time class="entry-date" datetime="2023-04-06T06:46:34-04:00">April 6, 2023</time></a>
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<p>Determining the risk of a US recession remains a complex undertaking. Nevertheless, I continue to emphasize the importance of utilizing a combination of models as the most effective strategy to evaluate the likelihood of an upcoming downturn defined by the <a href="https://www.nber.org/research/business-cycle-dating">NBER</a>.</p>
<p> <a href="https://www.capitalspectator.com/is-the-us-facing-a-slower-moving-recession-threat-part-iii/#more-19966" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/is-the-us-facing-a-slower-moving-recession-threat-part-iii/" title="7:24 am" rel="bookmark"><time class="entry-date" datetime="2023-04-05T07:24:51-04:00">April 5, 2023</time></a>
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<p>* Cleveland Fed President <a href="https://www.wsj.com/articles/cleveland-fed-president-reiterates-central-banks-resolve-to-fight-stubborn-inflation-d31ebc41?mod=economy_lead_pos2">reiterates</a> the central bank's commitment to tackle inflation.<br/>* Mester <a href="https://www.bloomberg.com/news/articles/2023-04-04/fed-s-mester-says-rates-should-rise-above-5-stay-for-some-time?srnd=economics-v2#xj4y7vzkg">advocates</a> for increasing the target interest rate above 5%.<br/>* The Eurozone economy achieved robust growth, marking the fastest expansion since May 2022 according to <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/a2390d8804cd49d2b04de643ccc82dee">PMI data</a>.<br/>* JP Morgan’s Jamie Dimon notes the banking crisis is far from over, as he <a href="https://www.cnbc.com/2023/04/04/jpmorgans-jamie-dimon-says-banking-crisis-is-not-over-yet.html">points out</a>.<br/>* Gold prices <a href="https://www.kitco.com/news/2023-04-04/Gold-price-keeps-daily-gains-trades-well-above-2-000-on-weaker-data.html">rise</a> substantially above $2000 per ounce, nearing record highs.<br/>* Walmart <a href="https://www.cnn.com/2023/04/04/business/walmart-warehouse-layoffs/index.html">reduces</a> its workforce by 2,000 at fulfillment centers.<br/>* US job openings in February <a href="https://www.cnbc.com/2023/04/04/jolts-february-2023-.html">declined</a> below 10 million for the first time in two years:</p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2023/04/openings.05apr2023.png"><img decoding="async" class="alignnone size-full wp-image-19963" src="https://www.capitalspectator.com/wp-content/uploads/2023/04/openings.05apr2023.png" alt="" width="1003" height="564" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-5-april-2023/#more-19962" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-5-april-2023/" title="6:19 am" rel="bookmark"><time class="entry-date" datetime="2023-04-05T06:19:41-04:00">April 5, 2023</time></a>
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<p>The projected long-term return for the Global Market Index (GMI) remained steady at 6.0% annualized in March, <a href="https://www.capitalspectator.com/total-return-forecasts-major-asset-classes-2-march-2023/">matching last month's figure</a> and aligning closely with its performance over the past decade. This forecast derives from the averaged results of three distinct models (details provided below).</p>
<p> <a href="https://www.capitalspectator.com/total-return-forecasts-major-asset-classes-4-april-2023/#more-19957" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/total-return-forecasts-major-asset-classes-4-april-2023/" title="6:40 am" rel="bookmark"><time class="entry-date" datetime="2023-04-04T06:40:35-04:00">April 4, 2023</time></a>
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<p>* The looming US debt-ceiling crisis is <a href="https://www.nytimes.com/2023/04/03/opinion/editorials/debt-ceiling-mccarthy-2023.html">growing</a> with little sign of resolution.<br/>* China <a href="https://www.cnn.com/2023/04/03/tech/china-micron-probe-us-chip-war-intl-hnk/index.html">initiates</a> a cybersecurity investigation into US-based Micron Technology.<br/>* The World Bank <a href="https://www.wsj.com/articles/world-bank-warns-of-lost-decade-for-global-economy-aba506a4?mod=economy_lead_pos1">cautions</a> against a potential “lost decade” for global growth.<br/>* Italy becomes the first Western nation to <a href="https://www.euronews.com/next/2023/04/04/after-italy-blocked-access-to-openais-chatgpt-chatbot-will-the-rest-of-europe-follow">ban</a> the AI chatbot ChatGPT.<br/>* Global manufacturing output <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/5c9ad0804dd34d4ab5e1af7f16072fef">increased</a> for the second consecutive month in March.<br/>* Car loan interest rates have <a href="https://www.prnewswire.com/news-releases/auto-loan-interest-rates-hit-highest-level-since-2008-and-drive-record-share-of-1-000-monthly-payments-in-q1--according-to-edmunds-301787981.html">reached record highs</a>.<br/>* US construction spending unexpectedly <a href="https://www.rttnews.com/3354260/u-s-construction-spending-unexpectedly-edges-slightly-lower-in-february.aspx">declined</a> in February.<br/>* The US ISM Manufacturing Index <a href="https://www.prnewswire.com/news-releases/manufacturing-pmi-at-46-3-march-2023-manufacturing-ism-report-on-business-301787309.html">fell</a> deeper into decline in March, indicating continued contraction for the fifth month:</p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2023/04/ism.04apr2023.png"><img decoding="async" class="alignnone size-full wp-image-19956" src="https://www.capitalspectator.com/wp-content/uploads/2023/04/ism.04apr2023.png" alt="" width="493" height="288" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-4-april-2023/#more-19955" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-4-april-2023/" title="6:15 am" rel="bookmark"><time class="entry-date" datetime="2023-04-04T06:15:53-04:00">April 4, 2023</time></a>
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<p>In March, a notable recovery was observed across various asset classes, particularly among inflation-indexed government bonds outside the US. Conversely, real estate stocks, both domestically and globally, performed poorly.</p>
<p> <a href="https://www.capitalspectator.com/major-asset-classes-march-2023-performance-review/#more-19951" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/major-asset-classes-march-2023-performance-review/" title="7:06 am" rel="bookmark"><time class="entry-date" datetime="2023-04-03T07:06:35-04:00">April 3, 2023</time></a>
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<p>* Saudi Arabia and other key oil-producing nations <a href="https://apnews.com/article/saudi-oil-production-cut-6d34316ce6820c749d2a6cd66a9fffea">announce</a> a reduction in oil output.<br/>* Analysts are <a href="https://www.cnbc.com/2023/04/03/oil-prices-surge-after-opecs-surprise-cuts-analysts-warn-of-100-per-barrel.html">projecting</a> that oil prices could reach $100 per barrel following OPEC's unexpected output cut.<br/>* Manufacturing growth in China <a href="https://www.cnbc.com/2023/04/03/chinas-march-factory-activity-growth-falters-on-weaker-demand-survey-shows.html">slowed</a> in March as per PMI data.<br/>* Eurozone manufacturing output <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/9a41a1c84c4740e5815e4a9ffcba9b70">increased</a> slightly in March according to the PMI survey.<br/>* The focus on credit risk for bonds <a href="https://www.morningstar.com/articles/1147884/for-bond-fund-investors-credit-risk-suddenly-matters">resurfaces</a> amid banking instability.<br/>* Economic foresight remains muted as <a href="https://markets.businessinsider.com/news/stocks/nouriel-roubini-economy-financial-crisis-recession-doom-loop-debt-inflation-2023-3">“Dr. Doom”</a> maintains a pessimistic outlook.<br/>* The resurgence of Lake Tulare in California may increase the cost of numerous agricultural products.<br/>* The Fed's preferred measure of inflation shows signs of easing <a href="https://www.barrons.com/articles/how-much-protein-older-weightlifters-retirement-ae24aba">but still remains high.</a></p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2023/04/core1.cpi_.03apr2023.png"><img loading="lazy" decoding="async" class="alignnone size-full wp-image-19949" src="https://www.capitalspectator.com/wp-content/uploads/2023/04/core1.cpi_.03apr2023.png" alt="" width="650" height="450" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-3-april-2023/#more-19947" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-3-april-2023/" title="6:07 am" rel="bookmark"><time class="entry-date" datetime="2023-04-03T06:07:48-04:00">April 3, 2023</time></a>
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<p><a href="https://www.amazon.com/Gradual-Case-Incremental-Change-Radical/dp/0197637043?crid=36879VI2586FV&keywords=gradual+greg+berman&qid=1680273066&sprefix=Gradual+Greg+Berman+%2Caps%2C192&sr=8-1&linkCode=li2&tag=thecapitalspe-20&linkId=59349d2d163a96b53bb2eccb959c646f&language=en_US&ref_=as_li_ss_il" target="_blank" rel="noopener"><img decoding="async" class="alignleft" src="https://ws-na.amazon-adsystem.com/widgets/q?_encoding=UTF8&ASIN=0197637043&Format=_SL160_&ID=AsinImage&MarketPlace=US&ServiceVersion=20070822&WS=1&tag=thecapitalspe-20&language=en_US" border="0"/></a><img loading="lazy" decoding="async" style="border: none !important; margin: 0px !important;" src="https://ir-na.amazon-adsystem.com/e/ir?t=thecapitalspe-20&language=en_US&l=li2&o=1&a=0197637043" alt="" width="1" height="1" border="0"/>● <a href="https://amzn.to/3M6CNuT">Gradual: The Case for Incremental Change in a Radical Age</a><br/>Authors: Greg Berman and Aubrey Fox<br/><strong><a href="https://www.economist.com/culture/2023/03/30/why-gradualists-are-usually-right-and-radicals-are-wrong">Review</a> via The Economist</strong><br/>While revolutionaries often have captivating slogans—Bolsheviks proclaimed "Peace! Land! Bread!" and Mao Zedong's call for a "Great Leap Forward"—the advocates of gradual change struggle to craft memorable rallying cries. However, as Greg Berman and Aubrey Fox assert in "Gradual," incrementalism proves effective. While revolutionaries seek sweeping change, they can bring chaos and hardship. On the other hand, societal progress is often achieved through small, sustained improvements to a flawed status quo. The Industrial Revolution, for instance, wasn't a rapid upheaval but rather a series of incremental innovations spanning decades. The authors conclude that "over time, incremental reforms can accumulate into significant transformation."</p>
<p> <a href="https://www.capitalspectator.com/book-bits-1-april-2023/#more-19928" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/book-bits-1-april-2023/" title="1:40 am" rel="bookmark"><time class="entry-date" datetime="2023-04-01T01:40:00-04:00">April 1, 2023</time></a>
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<p>The previous post discussed the ambiguous indicators of recession risk in the US as gathered from CapitalSpectator.com’s proprietary business-cycle indexes. This follow-up will delve deeper into the dataset to uncover insights regarding future economic trends.</p>
<p> <a href="https://www.capitalspectator.com/is-the-us-facing-a-slower-moving-recession-threat-part-ii/#more-19945" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/is-the-us-facing-a-slower-moving-recession-threat-part-ii/" title="7:31 am" rel="bookmark"><time class="entry-date" datetime="2023-03-31T07:31:00-04:00">March 31, 2023</time></a>
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