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How can you best protect your investments if inflation continues to rise? – The Arizona Republic

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The accelerating pace of inflation is one of the main economic trends of 2021.

The Consumer Price Index or CPI, the government’s main inflation gauge, has ran around a 5% annual pace for the past several months, well above last year’s 1.4% rate and the 50-year average of about 3.9%.

Higher rates of inflation have the potential to erode the value of investment portfolios, reviving memories of the 1970s, when large U.S. stocks took it on the chin.

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Various investment hedges can help blunt the damage, but the current inflationary trend might not last all that long — and you might already have sufficient protection. Before making any drastic moves into inflationary hedges, consider these issues:

Which assets hedge against inflation?

Various assets can help protect against inflationary spikes. TIPS, or Treasury Inflation Protected Securities, are one obvious example on the bond side. Gold and other tangible assets including real estate also have reputations as inflation hedges. Cryptocurrencies, too, might fit that role.

But during a Sept. 23 webinar on inflation protection hosted by investment researcher Morningstar, the panelists found common ground in a less-obvious area: The stock market.

“You’re buying shares in real companies that make real goods and services,” the prices of which tend to go up over time in an inflationary environment, said Catherine LeGraw, an asset-allocation specialist at investment firm GMO

Specifically, the shares of natural resource, commodity and real estate companies can fare well during inflationary periods. But other corporations can too, assuming they can pass along price increases to consumers.

In the Morningstar discussion, gold received relatively little attention, though Nic Johnson, a commodities portfolio manager at PIMCO, described the metal as an asset that you can expect to “keep pace with inflation over very long periods.”

The panelists spent little time on bitcoin and other cryptocurrencies, noting that they lack any fundamental value. If you invest in cryptocurrencies, LeGraw said, you had better hope that “the next guy will like them better than you do.” 

Do you need more protection?

Before making any adjustments, it’s worthwhile to take inventory of what you own in your investment portfolio. Oil and other energy stocks, mining enterprises, real estate companies and other traditional inflation stalwarts already are included in most broadly diversified mutual funds and exchange traded funds, though perhaps not in the weightings that you would like.

Energy stocks, for example, make up less than 3% of the broad Standard & Poor’s 500 index. So too for materials companies and those engaged in real estate. Contrast that with, say, nearly 28% of the index’s assets held in information technology stocks, 13% in health care and nearly 12% in consumer-discretionary companies.

For more punch, you might consider adding a bit more to inflation-protected assets such as natural resources or commodity companies, but be wary of overdoing it. As a general rule, allocating 10% or 20% specifically in these areas to an already broadly diversified portfolio likely would suffice, Johnson said.

Also consider the inflation protection offered by other assets you might have, such as a house or rental properties. And if you’re collecting Social Security retirement benefits, keep in mind that you can look forward to cost of living adjustments, making Social Security a decent inflation hedge. The Social Security Administration next month will announce the COLA for 2022.

Where is inflation heading?

Predicting the future direction of inflation isn’t easy. Despite occasionally alarming headlines, It’s possible that we have seen some of the highest numbers in this cycle already. Several long-term deflationary forces remain in place, from global trade and relatively inexpensive imports to the technological revolution, which continues to moderate costs for computing hardware and other goods and services.

America’s aging population also could contribute to disinflation, as older people tend not to spend as much on new homes, furnishings, vehicles, entertainment and so on (though more in other areas, especially health care).

The three Morningstar panelists were asked when we are likely to see CPI numbers drop and stay below 4% on an annual basis. Evan Rudy, a portfolio manager at investment firm DWS, said he expects that will occur in the second half of 2022, while Johnson and LeGraw anticipate it happening earlier.

The reopening of the economy from the COVID-19 pandemic has boosted inflation as consumers started buying things they had put off, from vehicles to air travel, and as more people re-entered the work force and were hired.

Supply chains continue to be stretched and that could continue well into next year. Prices for some items already are rising at double-digit rates, and retailers and others are warning of shortages for the holiday-shopping season.

Still, many of these pressures aren’t likely to be permanent. Johnson drew a parallel between recent inflationary increases and the start of a marathon. All the runners initially congregate in a small pen behind the starting line, he noted, but as the race unfolds, that congestion eases as runners spread out and find their own paces.

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Clues from the past and future

Past periods of high inflation weren’t all that common, and unique catalysts tended to spark each such incidence. Back in the 1970s, for example, the OPEC oil embargo pushed up energy and transportation costs, and wages were escalating at a brisk pace. There’s no such oil embargo currently, and a relative lack of collective bargaining and union strikes these days suggest that wage inflation isn’t likely to become rampant, LeGraw said.

“Do workers collectively have enough power to cause broad wage increases?” she asked. “Right now, workers lack that power.”

Bond investors could get hammered if inflation and inflationary expectations continue to rise and if interest rates creep higher, as seems plausible. Bond prices fall and yields tend to rise under such conditions. Yet prices are still high and yields remain near decades-low levels on Treasury securities and many other bonds, LeGraw noted, suggesting that investors don’t see these as long-term threats.

Federal policies also play a role. As an example, the push toward green energy and more electric-vehicle charging stations, as proposed under President Biden’s Build Back Better plan, could spark more inflation initially if those initiatives are enacted and construction projects get carried out, Johnson said. But the push to renewable energy could be disinflationary in the long run, he added, if it means cheaper energy eventually.

Reach the reporter at russ.wiles@arizonarepublic.com.

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Amazon completes $4B Anthropic investment to advance generative AI – About Amazon

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Amazon concludes $4 billion investment in Anthropic.

Customers of all sizes and industries are using Claude on Amazon Bedrock to reimagine user experiences, reinvent their businesses, and accelerate their generative AI journeys.

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The work Amazon and Anthropic are doing together to bring the most advanced generative artificial intelligence (generative AI) technologies to customers worldwide is only beginning. As part of a strategic collaborative agreement, we and Anthropic announced that Anthropic is using Amazon Web Services (AWS) as its primary cloud provider for mission critical workloads, including safety research and future foundation model development. Anthropic will use AWS Trainium and Inferentia chips to build, train, and deploy its future models and has made a long-term commitment to provide AWS customers around the world with access to future generations of its foundation models on Amazon Bedrock, AWS’s fully managed service that provides secure, easy access to the industry’s widest choice of high-performing, fully managed foundation models (FMs), along with the most compelling set of features (including best-in-class retrieval augmented generation, guardrails, model evaluation, and AI-powered agents) that help customers build highly-capable, cost-effective, low latency generative AI applications.

Earlier this month, we announced access to the most powerful Anthropic AI models on Amazon Bedrock. The Claude 3 family of models demonstrate advanced intelligence, near-human levels of responsiveness, improved steerability and accuracy, and new vision capabilities. Industry benchmarks show that Claude 3 Opus, the most intelligent of the model family, has set a new standard, outperforming other models available today—including OpenAI’s GPT-4—in the areas of reasoning, math, and coding.

“We have a notable history with Anthropic, together helping organizations of all sizes around the world to deploy advanced generative artificial intelligence applications across their organizations,” said Dr. Swami Sivasubramanian, vice president of Data and AI at AWS. “Anthropic’s visionary work with generative AI, most recently the introduction of its state-of-the art Claude 3 family of models, combined with Amazon’s best-in-class infrastructure like AWS Tranium and managed services like Amazon Bedrock further unlocks exciting opportunities for customers to quickly, securely, and responsibly innovate with generative AI. Generative AI is poised to be the most transformational technology of our time, and we believe our strategic collaboration with Anthropic will further improve our customers’ experiences, and look forward to what’s next.”

Global organizations of all sizes, across virtually every industry, are already using Amazon Bedrock to build their generative AI applications with Anthropic’s Claude AI. They include ADP, Amdocs, Bridgewater Associates, Broadridge, CelcomDigi, Clariant, Cloudera, Dana-Farber Cancer Institute, Degas Ltd., Delta Air Lines, Druva, Enverus, Genesys, Genomics England, GoDaddy, Happy Fox, Intuit, KT, LivTech, Lonely Planet, LexisNexis Legal & Professional, M1 Finance, Netsmart, Nexxiot, Parsyl, Perplexity AI, Pfizer, the PGA TOUR, Proto Hologram, Ricoh USA, Rocket Companies, and Siemens.

To further help speed the adoption of advanced generative AI technologies, AWS, Anthropic, and Accenture recently announced that they are coming together to help organizations—especially those in highly-regulated industries including healthcare, public sector, banking, and insurance—responsibly adopt and scale generative AI solutions. Through this collaboration, organizations will gain access to best-in-class models from Anthropic, a broad set of capabilities only available on Amazon Bedrock, and industry expertise from Accenture, Anthropic, and AWS to help them build and scale generative AI applications that are customized for their specific use cases.

Deepening our commitment to advancing generative AI, today we have an update on the announcement we made to invest up to $4 billion in Anthropic for a minority ownership position in the company. Last September, we made an initial investment of $1.25 billion. Today, we made our additional $2.75 billion investment, bringing our total investment in Anthropic to $4 billion. To learn more about the broader strategic collaboration between Amazon and Anthropic, of which this investment is one part, check out the stories below:

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Amazon doubles down on Anthropic, completing its planned $4B investment – TechCrunch

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Amazon invested a further $2.75 billion in growing AI power Anthropic on Wednesday, following through on the option it left open last September. The $1.25 billion it invested at the time must be producing results, or perhaps they’ve realized that there are no other horses available to back.

The September deal put $1.25 billion into the company in exchange for a minority stake, and certain tit-for-tat agreements like Anthropic continuing to use AWS for its extensive computation needs.

Amazon reportedly had until the end of the first quarter to decide whether to increase its investment to a maximum of $4 billion, and here we are just before the deadline, and the company has decided to throw in the maximum amount.

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Anthropic’s AI models are one of very few that compete at the highest levels of capability (however you define it) yet are available at scale for enterprises to deploy internally or in user-facing applications. OpenAI’s GPT series and Google’s Gemini are the others up there, but upstarts like Mistral may soon threaten that fragile triumvirate.

Lacking the capability to develop adequate models on their own for whatever reason, companies like Amazon and Microsoft have had to act vicariously through others, primarily OpenAI and Anthropic. The two have reaped immense benefits by allying with one or the other of these moneyed rivals, and as yet have not seen many downsides.

What we can take from Amazon’s decision to invest the maximum after (one must assume) getting a pretty close look at how they make the AI sausage over there is, really, pretty scant.

It makes too much strategic sense for these companies, which possess enormous war chests saved up for exactly this purpose (outspending rivals when they can’t out-innovate them), to pour cash into the AI sector. Right now the AI world is a bit like a roulette table, with OpenAI and Anthropic representing black and red. No one really knows where the ball will land, least of all the companies that couldn’t predict or create this technology themselves. But if your bitter enemy puts their chips down on red, it only makes sense for you to bet on black.

Especially if you can bet on black at a discount — which is what Amazon got here, since it could invest at Anthropic’s September valuation, which is most certainly lower than it is today.

That said, if things were looking sketchy over there — the way they must have looked at Inflection before Microsoft pounced on it — Amazon could have backed out or just invested less than the full supplemental $2.75 billion. But that might have sent a confusing signal no one wants getting out there, least of all existing multibillion-dollar investors.

We know Anthropic has a plan, and this year we’ll find out what Amazon, Apple, Microsoft and other multinational interests think they can do to monetize this supposedly revolutionary technology.

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Canada to tighten foreign investment rules for AI, other sectors

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Canada will require foreign companies to warn the government in advance before making investments or acquisitions in artificial intelligence, quantum computing and space technology, Bloomberg News reported on Tuesday, citing an interview with Innovation Minister Francois-Philippe Champagne.

The move will aid the government in conducting a national-security review before transactions get too far advanced and would-be investors may be restricted in their access to target companies’ user data or other property while the inquiry is taking place, the report said.


Click to play video: 'Canadians concerned about risk of AI generated fraud'
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Canadians concerned about risk of AI generated fraud

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The tougher rules will also apply to investments in critical minerals and potentially other sectors, Champagne said to Bloomberg.

Earlier this month, Champagne said Canada will crack down on foreign investment in the interactive digital media sector to stop state-sponsored actors from endangering national security.

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