California Governor’s AI Bill Veto Sparks Debate
California Governor Gavin Newsom’s decision to veto Senate Bill 1047, which aimed to introduce first-in-the-nation safety regulations for artificial intelligence, has ignited a fresh debate over AI governance, innovation, and public safety. While supporters of the bill argued it was necessary to ensure AI developers adhere to safety protocols, the decision reflects the complex balance between fostering innovation and protecting the public from the risks associated with this rapidly advancing technology.
Background
Senate Bill 1047, authored by state senator Scott Wiener, sought to impose certain requirements on AI developers before they could proceed with building advanced AI models. The bill emerged as Congress continues to lag on federal AI regulations, leaving a significant regulatory vacuum in the U.S. Meanwhile, the European Union has taken the lead with its AI Act, prompting many in the tech sector to call for similar safety measures domestically. Proponents of SB 1047 believed California, a global hub for AI innovation, was uniquely positioned to fill this gap.
However, the bill faced significant opposition from industry giants like Google, Meta, and OpenAI, who argued that the proposed regulations could stifle innovation and create unnecessary roadblocks for developers. Despite their concerns, some tech figures, including Elon Musk and Anthropic, cautiously supported the bill, acknowledging the importance of responsible AI governance.
Newsom’s Justification
In a statement accompanying his veto, Governor Newsom acknowledged the bill’s good intentions but emphasized that its approach was overly broad. According to Newsom, SB 1047’s standards applied to all AI systems, regardless of the risk or sensitivity of the environment in which they were deployed. He argued that treating basic AI systems and high-risk models with the same level of scrutiny could hinder innovation in non-critical areas while not adequately addressing the real threats AI could pose.
Instead, Newsom pointed to ongoing efforts to develop science-based, empirical guidelines for AI regulation. He emphasized working with top AI researchers, including Fei-Fei Li, and industry leaders to develop a more precise framework for regulating AI. He also committed to revisiting the issue with California’s legislature in the near future.
Implications for AI Regulation
Newsom’s decision highlights the tension between innovation and regulation in the AI space. Supporters of the veto, such as Google and OpenAI, have praised Newsom for maintaining California’s role as a leader in AI innovation. They argue that overly restrictive regulations could slow progress and hinder the development of useful AI tools, which could benefit various industries and societal needs.
However, critics, including Senator Wiener, have expressed disappointment, framing the veto as a missed opportunity for California to lead the way on AI safety, just as it did with net neutrality and data privacy. Nonprofit organizations, such as Accountable Tech, went even further, accusing Newsom of caving to Big Tech interests, leaving the public exposed to unregulated AI tools that could threaten democracy, civil rights, and the environment.
What This Means for AI
The veto of SB 1047 underscores the ongoing debate about how best to regulate AI without stifling innovation. As AI continues to evolve, lawmakers, researchers, and industry leaders face the challenge of developing policies that allow for technological progress while mitigating the potential risks of unregulated AI.
Governor Newsom’s commitment to working with experts to create a science-based framework is a promising step forward. However, the path to responsible AI governance is far from clear. With the federal government lagging on AI regulation and other regions, such as the EU, pushing forward with comprehensive rules, the question remains: How will the U.S. balance innovation and safety in the AI era?
As California continues to play a pivotal role in AI development, the state’s regulatory decisions will likely influence the broader national and global landscape of AI governance.
Why interest rates are a big deal?
Jeremy Powell, Chair of the Federal Reserve (aka the Fed), the central bank of the United States, will be giving his interest rate decision in a few hours. It will be one of the most watched commentaries with financial market participants trying to assess whether this is the beginning of the end of interest rate hikes and eventual reduction in rates.
Recently the Fed raised its benchmark interest rate by 0.75%, the second hike of this magnitude in just two months. This move is part of the Fed’s strategy to combat inflation, which has reached record levels in the past year.
But what are the consequences of higher interest rates for the US economy and beyond?
In this blog post, we will explore some of the effects that interest rate changes have on various sectors and actors, such as consumers, businesses, government, and developing countries.
Consumers: Higher interest rates mean higher borrowing costs for consumers who want to buy a home, a car, or use credit cards. This can reduce their spending power and demand for goods and services. Higher interest rates also affect savings accounts, as they offer higher returns for savers who want to earn more on their deposits.
Businesses: Higher interest rates make it more expensive for businesses to borrow money to invest in new projects, expand production, or hire more workers. This can slow down economic growth and innovation. Higher interest rates also affect corporate profits, as they increase the cost of servicing existing debt and reduce future cash flows.
Government: Higher interest rates increase the cost of financing public debt, which is already at a high level in the US. According to one estimate, the total budget deficit from 2022 to 2031 will be $12.7 trillion . Higher interest rates also affect fiscal policy, as they limit the government’s ability to stimulate the economy through spending or tax cuts.
Developing countries: Higher interest rates in the US can have spillover effects on developing economies in several ways . First, they can reduce US demand for imports from these countries, which can hurt their export-led growth. Second, they can attract capital flows away from these countries, as investors seek higher returns in safer US assets. This can cause currency depreciation and financial instability in emerging markets. Third, they can increase borrowing costs for these countries that rely on external financing from international institutions or markets.
In conclusion, interest rate hikes in the US have significant impacts on various aspects of the economy both domestically and internationally. While higher interest rates are intended to curb inflation and maintain price stability, they also entail trade-offs and challenges for different sectors and actors.
Hedge Fund Assets Hit $4.32 Trillion
Summary of Preqin’s 2022 Global Hedge Fund Report:
• Returns across the asset class were up 11.43% (as of September 2021, +15.52% annualised).
• Event-driven funds topped the leader board, recording returns of +17.53%, ahead of equities at +14.85%
• Hedge funds’ assets under management (AUM) passed the USD4 trillion mark at the end of Q1 2021 and grew substantially to USD4.32 trillion as of September 2021.
• Strong inflows and a spirited performance drove an +8.1% increase in AUM in 2021 relative to the end of 2020 (USD3.99 trillion).
• Investors poured in $41 billion in 2021 (as of September 2021), with positive inflows recorded in every quarter.
• Additionally, $18.8 billion was committed to hedge funds in the second half of 2021.
• Every top-level strategy, except for credit ($6.7 billion) and multi-strategy ($0.6 billion), experienced positive inflows in 2021.
• Overall, investors are pleased with their hedge funds allocations, according to Preqin’s November 2021 survey: about half (48 %) believe that returns will be about the same in 2022 as in 2021, and almost a quarter (23 %) think the performance will be better.
• North America remained the most prominent investor base for hedge funds in 2021. Investors in the region accounted for 68% of the market and boasted the highest median allocation as a percentage of total AUM at 9.1%.
• North America (+13.67 % as of September, +18.62 % annualised) continued its positive momentum in 2021, outperforming Europe (+8.65 % as at September, +11.69 % annualised), and Asia-Pacific (+9.16 % as at September, +12.39 % annualised).
• North America’s strong performance resulted in positive cashflows of USD49 billion, while Europe’s lagging returns in 2020 and 2021 resulted in outflows of USD20 billion.
• Investors in Asia-Pacific ramped up their allocations last year by +USD13 billion, boosting AUM in the region by +11.9%.
Source: Preqin
Bitcoin AUM Declines 20%
Bitcoin is being outpaced by some of the smaller and faster-growing cryptocurrencies. The dynamic has lessened Bitcoin’s dominance, with total assets under management for Bitcoin-related investment products falling 20% to $39 billion in December, according to a report from CryptoCompare.
The decline reduced Bitcoin products’ portion of total digital-asset investment vehicles to 67.8% from 70.6%, the lowest share of the year, according to the data provider.
Polkadot and Cardano have each gained more than 20% over the past seven sessions, according to Coinmarketcap.com.
Axie Infinity’s coin has added 18% in that period, while FTX’s coin rallied 7%.
December was a stretch marked by choppiness for Bitcoin, the original and once-supreme cryptocurrency. The coin is down 10% so far this month, on pace for its second consecutive monthly decline.
Source: Bloomberg and Cryptocompare
UK Housing Hits Record High
U.K. house prices hit a record high of £269,945 in September 2021 according to Bloomberg as buyers rushed to tie up deals before a property tax cut came to an end.
- The data: Prices have soared by 15%—more than £35,000—since Rishi Sunak introduced a tax waiver in July 2020, Land Registry figures show. That dwarfs the £2,500 saving in stamp duty that the average buyer would have benefited from.
- The drivers: While the stamp-duty holiday is one factor driving the boom, arguably more significant is a “race for space”—demand for larger properties away from city centers among people for whom homeworking is now the new normal.
Source: Bloomberg
Tesla Shares and Elon Tweets
Ouch! Billionaires can be so harsh, lol.
Tesla CEO Elon Musk’s trust sold about $6.9 billion worth of stock in the company over the last week. Some of the shares were sold in part to satisfy tax obligations related to an exercise of stock options but he’s just cashing in on record stock price.
Despite falling 15% last week, Tesla shares are still up around 46% year to date following a record closing price of $1,229 the previous week.
I’ve been out of Tesla stock since Q3 so missed the recent run. I prefer the growth at a more reasonable price (GARP) approach to investing than the growth at a ludicrous price (pun intended) form of investing that Tesla and some of the recent high-flyers have become.
I still remember buying Tesla shares for the first time at around $40 per share back in 2016 and God I wish I had just held on or forgotten about em… what most people don’t realize is that Tesla shares were a ‘dog’ not moving much and only post-pandemic have the shares skyrocketed and gone up 10x or 1,000%!
Speed bumps ahead. Drive carefully.
Millennial and Gen Z Survey 2021
We’ve had plenty of research and surveys of Millennials and now more understanding of Gen Z’s can help us understand the changing socio-economic environment. According to a Deloitte survey of over 8,000 Gen Zs, they seem to be the most vocal generation, likely to speak out against things like racism or sexism.
Also like investors and founders of an earlier era of the 1970’s, Gen Zs are willing to upset the status quo. They’re likely to change jobs frequently and don’t expect them to put away their phones while at work.
Private Equity a Sellers Market
Private equity firms are paying an average premium of 45% for European companies in 2021, the highest since the data company Refinitiv started keeping records in 1980. In the US, the premiums hit 42% this year, the highest since 1999. UK-listed companies were taken private at an average premium of 47% this year.
Source: Financial Times, Refinitiv
Tech Spending in 2022 Forecast
An increased focus on investing in business outcomes as opposed to buying finished products underlies Gartner’s expectations for sustained growth in IT services — 9.8% in 2021, with a CAGR of 8.68% over the 2020-2025 period (second only to software at 11.9%).
Also noticeable in Gartner’s forecast is a sharp near-$100 billion rise in spending on devices in 2021, most of which is attributable to the rapid shift to remote working during the pandemic, as companies reacted to the initial shock and stabilized their operations.
That reactive phase is now largely over, Gartner says, with most companies preparing to reach the ‘next normal’ — exiting phase 3 of the analyst firm’s COVID response model (‘rebounding to the future’) and moving into phase 4 (‘accelerating opportunities’) as per chart above.
Source: Gartner, ZDNet
Pound Sterling on a Tear
The economic gloom is lifting so fast in the U.K. that even the skeptics are warming to the Pound Sterling which is up more than 4% from its January low. Thanks to one of the world’s fastest vaccine-rollout programs, the pound is winning fresh backing as the faster-than-expected recovery fuels speculation that the Bank of England is about to get hawkish.
ABN Amro, a long-time bear on the pound, just revised its pound forecast, as has Citigroup and bulls predict further gains too, with Nomura International Plc and Societe Generale SA seeing the pound erasing all its post-Brexit losses by year-end.
Source: Bloomberg