When the people in the room manage $10 Trillion, listen closely to what keeps them up at night.

Five lessons we learned about 2023 from hedge funds and asset managers, Tim explains ChatGPT’s role as a “copilot” not a job-taker, Jon shares tax-time essentials, Ben breaks down free resources available through the IRS app & website.

01. I got to meet some of my investing idols this week

From Nate Hoskin, Founder & Lead Advisor

At the start of this week Tim and I attended one of the most prolific hedge fund conferences in the nation (and no we didn’t have to pay the $10k entry fee thank goodness).

We got to hear from billionaires like Paul Singer, C-Suite & Directors from Goldman, Citi, and JP, and the Chief Investment Officers of the largest hedge funds in the country.

Here are five investing insights from the conference:

1. Powell wants to go to “Fed heaven”Federal Reserve chairs that fail to arrest inflation go to “Fed hell” according to Nathan Sheets, Global Chief Economist at Citigroup. With the job market going gangbusters (just look at the most recent jobs print) Powell has very little incentive to change his hawkish stance on interest rates. Investors expect the Fed Funds rate to stay high through 2023 and be the main headwind for asset returns. Anyone hoping for a Fed pivot will have to wait longer than expected.

2. Avoid durationThis was a constant theme, echoed by Wei Li, Chief Investment Strategist at Blackrock and Paul Singer, hedge fund manager and billionaire investor. The stubborn Fed and fading recession risks mean interest rates may remain high and volatile. Reducing exposure to interest rate risk by reducing bond duration is a solid trade in this environment.

3. Markets are euphoricJan Hatzius, Chief Economist and Head of Global Investment Research at Goldman Sachs, was the first to say that markets are “priced for perfection”. The S&P 500 has jumped 15% off its October lows, a move most lead researchers see as euphoric. Every manager had a different way to play this uncertainty, but the themes were low volatility, collared equity positions, and increasing exposure to value stocks.

4. Regime shift to supply-driven economic cyclesAtul Lele, Portfolio Strategist at Bridgewater Associates (the biggest hedge fund in the world), made a really interesting point during the market outlook. For the past two decades, economic cycles have been driven by demand. The ‘01 crash was driven by demand for tech stocks, ‘08 by the housing market. Supply was never really an issue until 2020. Lele sees a regime shift to supply-driven economic cycles, which is particularly risky because all of the Fed’s tools are designed to manage the demand side of the economic equation. If this happens, inflation will be much harder to tame. This is one of the reasons Blackrock (and Wei Lei) still favors inflation-protected bonds over nominal bonds for 2023.

5. Stock/bond correlation goes positive when inflation is in the pictureNormally, bonds and stocks have a very low correlation, which is the basis for 60/40 portfolio. As Morgan Stanley states, the 60/40 portfolio is not performing as well as it used to because stocks and bonds are becoming more and more correlated. David Zervos, Chief Market Strategist at Jefferies, blamed inflation for this change in correlation for 2022. Managers expressed a need to rebuild the 60/40 portfolio by adding alternative strategies like long-short and low volatility or new asset classes like commodities. Looking ahead, just having stocks and bonds in a portfolio is an incomplete portfolio.

02. Ask ChatGPT: “Is my job at risk?”

From Tim Frenzel, Head of Data Analytics & Research

This is a question that is on the minds of many workers as the AI language model developed by OpenAI gains popularity and becomes part of the Microsoft product portfolio (maybe people will start using "Teams" now?).

Here are my two cents as a seasoned educator and data scientist:

While ChatGPT performs well in customer support and content creation, it has limitations in creative writing, journalism, and fields that require emotional intelligence and personal relationships. Jobs that are at risk of being replaced by ChatGPT include simple and repetitive writing tasks, while those that require human interaction, emotional intelligence, and personal relationships are less likely to be impacted. Jobs such as sales, education, and law require these skills and will not be replaced by ChatGPT in the foreseeable future.

ChatGPT has already impacted my workday as a coder, researcher, and educator in several areas in terms of productivity enhancement, but I don’t see it as a job replacement threat (yet). AI can improve our efficiency and effectiveness, but it cannot replace the human touch in certain industries.

It won’t be AI that steals your job, but someone using AI might. It’s worth it to take the time to understand the value of this resource and how to use it to improve your own work quality.

03. Only two things are certain, but taxes come first

From Jon Scott, Lead Author

It’s that time again: tax time. Luckily, we’re rolling out a number of articles on the Knowledge Base to help make tax time a little easier to understand:

1. Charity and TaxesThis article explains the full process of claiming a tax deduction for charitable contributions

2. Understanding Tax BracketsThis article explains federal tax brackets, capital gain taxes, and why/how Social Security and Medicare taxes are taken out of your income.

3. Tax write-offs as an individualWrite-offs are a well known tool for business owners, but this article breaks down the available write-offs for individuals.

Don’t forget, you can file your federal income taxes online for free with IRS Free File if you make an Adjusted Gross Income of $73,000 or less.

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04. Free tax resources and the IRS app

From Ben Silvernale, Strategic Advisor

Don’t worry, this isn’t a bunch of confusing tax mumbo-jumbo. Tax season is right around the corner, and I started the absolutely-not-soul-destroying process of collecting all the fun hieroglyphic documents from employers. However, there are tools and resources available for those like me who want simplicity and guidance when it comes to giving Uncle Sam his paycheck.

Did you know that the IRS has an app? First released in 2011, IRS2Go is a little-known secret available through Google Play and the Apple App Store where you can “check your refund status, make a payment, find free tax preparation assistance, sign up for helpful tax tips, and more.” I used it to check the status of my return last year, and it’s a handy tool to have for those that don’t want to navigate endless pages on the IRS web site.

Most people know of IRS Free File for those with an adjusted gross income (AGI) under $73,000 to file taxes for free using guided or self-ran resources, but did you also know that you can receive free tax return preparation assistance from qualified volunteer tax counselors? If you generally make $60,000 or less, are disabled, or have limited English-speaking skills, you are able to take advantage of the Volunteer Income Tax Assistance (VITA) program, and there is a similar program for those over 60 called Tax Counseling for the Elderly (TCE). To locate a VITA/TCE location near you, use this tool provided by the IRS, and make sure to bring these materials with you on your visit.

I would try to visit these facilities earlier rather than later, as I can imagine they will only get busier as April 18th approaches. If you are interested in empowering your community or campus and want to volunteer yourself, the IRS provides specialized training to help you do so. I would encourage you to get involved if you have the time, as a little help for those in need can go a long way!

“The only peace you will find on the top of the mountain is the peace you bring with you."

- Eliot Pattison

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