Here’s How One EU Law Could Affect Your Account
Tobin Smith
CIO at Transformity Wealth Management LLC with 575% total returns 2020-2024 +Managing Director at Transformity Capital Markets LLC
Wednesday WaveWire Vol. 1 №27
Well folks, with 80% of S&P 500 companies reporting better-than-expected results by the end of the week, the Wall Street Bears are taking it on the chin.
So what is it that the bears are getting so wrong? I think I know…
Because it is so tough to understand and gameplan in this historically-unique post-pandemic, post-Ukraine invasion, deglobalized environment, I’ll simply call what I’m seeing “macroeconomic schizophrenia.”
We are dealing with a lack of reliable forecasting models. Thus we are in a situation where one week major “experts” yell from the rooftops that the Fed is done raising rates, and then the following week shriek, “the Fed has to crush the economy and job market to get us to 2% inflation!”
I always think of short-term market action like an ocean tide that comes in and goes out. However, for all of modern history, in the end, the market tide winds up coming in for more years than it goes out.
All of this in-and-out rolling of the tide is driven by:
Really and truly, the market does look forward six to nine months. When it sees brighter days ahead, valuations tend to rise, and risk-free bond rates tend to fall.
A Morningstar study bears this out. According to the study, over 85% of actively-managed mutual funds and ETFs trail their respective market benchmarks over a 15-year period. The market “sees” and captures the upside before the manager can.
And this institutional underperformance gets worse over longer time periods. For example, over a 30-year period, more than 90% of actively managed funds trail their benchmarks.
But I will humbly brag that my investment research firm, Transformity Research, massively outperformed index funds during the crazy times between January 2020 and January 2023.
And that is because we have one of the largest intel groups in the investment world (our Transformity Experts Alliance). These experts were able to warn me early on about both the pandemic and Russian invasion so that we could position ourselves to profit from those historic macroeconomic transformative events.
The moral here?
If you are a self-directed investor who wants to outperform annual market returns, you have to:
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What Biden’s Latest Bill Means For The Election & Your Portfolio:
Biden just took pen to paper… positioning investors in front of a brand-new wave of wealth.
Which side of history will you be on?
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Speaking of transformations, let’s talk about AI.
Generative AI: Hype or Truly Transformative?
As a money manager and buy/sell/hold newsletter editor, this is the number one question I get these days. My answer is as follows:
“First, you need enough literal imagination and experience in judging true transformational macro or microeconomic technological events to see that we ARE entering a new technology era that I and others call ‘Software” 3.0.’”
Software 1.0 required humans to write so-called “deterministic software code” to perform specific tasks (think Windows OS + Word).
Software 2.0 was the painstaking collection of training data to train a neural network for a specific task (think Siri or Alexa).
Today, because of the wide availability of huge foundational models of data, the burden of collecting training data is greatly reduced, and the capabilities of the Software 3.0 era can be leveraged in a much easier and lower-cost way.
Experts in the field of technology platform shifts say Generative AI does have all the markings of a true shift in the “tech stack.” I agree.
However, we also agree that the ChatGPT model of scraping/stealing copyrighted digital content to train large language models (LLMs) is NOT actually a true platform shift for four simple reasons:
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2. The recently-passed EU AI Act will not allow scraping copyrighted digital content;
3. The EU AI Act levies €2 to €10 million fines for EACH infraction of scraped copyrighted content;
4. And the EU AI Act will also require all LLM digital content to make its origin and copyright status auditable.
But even before the EU AI Act, backlash from digital content media companies had already been unleashed on these LLMs.
News outlets, including The New York Times, CNN, Reuters, The Chicago Tribune, and the Australian Broadcasting Corporation (ABC), have blocked OpenAI’s web crawler, GPTBot, limiting the company’s ability to continue accessing their content.
A Reuters spokesperson said it regularly reviews its robots.txt and site terms and conditions. It’s clear these media companies are only going to become more vigilant against LLMs. According to the spokesperson,
“Because intellectual property is the lifeblood of our business, it is imperative that we protect the copyright of our content.”
I doubt Reuters is the only company in the business that feels this way.
The New York Times recently updated its terms of service to make the prohibition against “the scraping of our content for AI training and development … even more clear.”
As of August 3rd, its website explicitly prohibits the publisher’s content from being used for “the development of any software program, including, but not limited to, training a machine learning or artificial intelligence (AI) system” without consent.
Trust me, this is only the beginning. And with the EU AI Act passed and then copied by other modern (and not so modern countries) the retail ChatGPT business model of stealing copyrighted content for training LLMs is deader than my dreams of being a pro golfer!
So let’s discuss an AI company that IS truly transformative.
We’ll first need to understand the definitions of structured and unstructured data.
Structured data is organized in a predefined manner, while unstructured data is not.
Structured data is typically stored in a database, where it is arranged in rows and columns. This makes it easy to search and analyze. Examples of structured data include:
Unstructured data is not organized in a predefined manner. It can be text, images, audio, or video. This makes it more difficult to search and analyze. Examples of unstructured data include:
To date, it is still very expensive to structure unstructured corporate data (or personal data for that matter.)
But one publicly-traded AI software company has created an automated unstructured-to-structured system that makes unstructured data valuable, queryable and AI-encoded.
And especially crucial after the passage of the EU AI Act, it can make and verify that all of the trillions of scraped LLM data is encoded with the server of origin and copyright status.
This AI player is a great example of Transformative AI and a shift in the “tech stack.” It’s also serious time-saving and compliance-maintaining software that is here TODAY.
And the greatest news of all is that we currently hold this stock in our TIV portfolio. It’s a game-changer and my subscribers know it.
And now onto some more fun — my latest wine find.
I am a huge fan of Italian wines, and my friends at WineText have a $100-level Tignanello blend. Of course, if you join WineText you can pay under $30 per bottle or just over $20 a bottle if you order it by the case.
This 2016 Fattoria Montellori Salamartano will remind you of the first time you tasted Tigananello or Guado al Tasso. Those buying higher-end Super Tuscans like Ornellaia or Sassicaia will be blown away by the structure and complexity.
The bottle’s incredible 2016 Tuscany vintage adds to the intensity of the fruit and it looks like it will go down as one of the best vintages!
That’s it for today’s WaveWire. Enjoy your holiday weekend and I’ll see you next Wednesday.
Toby
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