Hey, it's Carol and Tim and we have something new and exciting for you.
Everything you love about Bloomberg Radio is now in your car.
The new Bloomberg Business App now featuring Apple CarPlay and Android Auto.
Listen to your favorite Bloomberg Radio stations anytime.
Plus every Bloomberg podcast, the latest news, and more, all at the click of a button.
It's free and simple to use. Just download the Bloomberg Business App on your smartphone and connect your phone to your car.
The Bloomberg Business App now with Apple CarPlay and Android Auto features. Download it free in the Apple App Store or on Google Play.
Presented by our sponsor, Interactive Brokers.
This is Bloomberg BusinessWeek inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
All Right, they're out there, may be back in.
They're not.
They're now hired by Microsoft the streaming services already battling. Probably, I'm guessing to tell this high tech, high stake story. We are, of course, talking about the Palace coup that all began on Friday, led to the firing of open ai co founders Sam Altman and Greg Brockman, which led to so many questions, led to open AI's biggest shareholder and closest technology partner, Microsoft, then tim hiring the two to lead its new in house advanced artificial intelligence research team.
And then you have the hundreds of open ai employees, including the board member that did the actual firing, then signing a letter to say that they were going to leave. So you have more than seven hundred of the employees at open.
Ai, basically just about everybody, almost everybody.
You can't see this on radio, guys, but for those who are on YouTube and Bloomberger originals, these are just some of the stories that I had printed out covering everything to do with open Ai.
Do you know who spent a lot of his weekend writing those stories?
Old Man?
Thank god he did, because he's going to keep us all honest on this story.
Yeah.
He's a one man band and a key player to our incredible tech team that has worked all weekend to stay on top of the story. Carol, we got Ed Ludlow, co host of Bloomberg Technology, joining us on zoom from San Francisco.
All right, so Ed, let's cut to the chase.
I'm trying to think, what's the way to think about this story that I feel like we have to constantly check the headlines to see what's the latest.
How are you thinking about it?
Here?
We are at three h nine Wall Street time on a Monday.
Yeah, it is a full mutiny within the world's most important AI company that is completely unresolved and has massive repercussions for public markets viz. Of v Microsoft, but also private markets. You know, there's just hundreds of millions of dollars in real time hanging in the balance on open
AI shares, And we can get into that. But let's say I've spoken to one hundred people in the last seventy two hours, and this is an unprecedented story in the history of Silicon Valley in how it played out, what happened, and just how much of it is frankly unresolved. And I guess we could get to that too.
Okay, So let's we're going to get to where the company is valued and what happened to the share sales and the money sort of being held up that's supposed to come from Thrive and other vcs at this point. But first I want to start with the basic said, why did What do we know about why Sam Altman got the boot on Friday?
Yeah, we honestly don't know why. Open ai had a very small has still there a very small four person board. That board issued a statement saying around Friday lunch time and by the way, I was at a restaurant having lunch with an open ai investor. It broke and you you know, yeah, that was a crazy moment in my career. You can only imagine.
Anyway, was the person was the person shocked?
We both boxed our food and ran for it, physically ran and as you guys know, I was on TV with a minute. But listen. The board said it had lost confidence in Sam Altman based on his sort of less than candid communications with the board, without elaborating further. On Saturday morning, bradl like Cap, who is the COO of open ai and remains COO of open Ai, issued a memo to staff saying that this was a breakdown in a communication between Sam Outman and that four person board,
but there was no element of malfeasance. That's the language used. What we know from sources is that there is some sort of philosophical disagreement here. Sam Altman is a product guy. He is about getting that generative AI technology into the real world, charging money for it, getting it into the hands of consumers and enterprises. The board, the four of them are largely academics who recognize an existential threat from AI posed to humanity and that there's a point of
difference there somewhere along the way. But we don't know more than that. There's so much more to be unveiled.
Well it makes you wonder, okay, so you know, it makes me kind of nervous that the board wasn't able to maybe talk to it CEO right before doing this. Help me out, wait, go ahead, yeah, right, Well.
The chronology of it is astonishing. Sources say Sam Outman found out he was being fired as CEO minutes before he was fired as CEO. Mirror Morati, who was that then the CTO was informed the night before of what was going to happen and that she would become acting CEO. And what's astonishing, you know, Ashley Vance, our dear colleague Business Week, myself, people like Dina Bass, Emily Chang, you know, we were hearing pretty early on Saturday and Sunday, then
into Sunday afternoon that the board was digging in. They were like, no, we're not caving, We're going to hire a new CEO. But the messages from the Sam Oltman side were like, right up until the last minute last night, Sam's coming back as CEO, and the net result is that Sam has left joined Microsoft and we have a new interim CEO open AI. I'm just trying to give some sense of like, yeah, how all of this just played in real time and it's ramid. Yeah, it was rapid,
but also everyone was wrong. You know everyone, the investors that were trying to get Sam Altman back in the CEO role were adamant that it was going to happen. Satya Nadella, who's the Microsoft CEO, was playing the peace broker, the middle man, doing everything that he could to put Sam Altman back. Yeah, but my understanding is the board they just didn't pick up the phone.
I mean, I went to bed last night ed thinking that Sam Altman would be back at open AI. After all, he tweeted out that photo of him at headquarters yesterday wearing the badge thing. It's the first and last time I'm going to be wearing this everyone thought, you know, because it was a visitor's badge. So then I wake up this morning and find out that he's at Microsoft. Let's go back to the I mean it I kind of had to like check read it twice. I was like,
what is going on here? Go back to philosophical differences here, because that's a big part of this story is the way that people think AI will play a role in our lives in humanity moving forward. Yes, where does Sam Altman find himself? And where do others find themselves? And where's the rift?
So he finds himself at odds with the board. I mean, that's kind of part of why we're here. And the way to answer that question is to reflect on what happens. So Emmit Sheer was installed late last night as interim CEO of Open AI. And what sources told me and we reported is that a reason he was installed as interim CEO was that he shared with the board a recognition that advanced artificial intelligence does pose an existential threat, an ex threat to humankind otherwise known in layman's terms.
That's what it means. I'm not going to go down the whole EA route. And he shared that in common with the board, while also the board recognized that he was the Twitch CEO as recently as earlier this year, right, they felt that he could run a very large engineering team. And again I reiterate, we actually have no idea why the real reasons why the board fired Sam other than there was concern at how quickly he was commercializing that AI.
So how important is Sam to open AI? He's one of the co founders.
How the question, Yeah, yeah, that's it. I think that, Yeah, go ahead, sorry, who.
Owns the IP?
Like I think about that intellectual property that has so long, so far been developed that Microsoft has ponied up or promised you some ten billion dollars in it?
Who owns that?
So it's complicated. Microsoft literally owns forty nine percent of the incorporated four prop open AI, which is governed by not for profit board on which Microsoft does not sit. The basic answer is that the intellectual property is the current,
prior and future generations of large language model. But this is the story, and the story of the last twenty four or to forty eight hours has been key man risk that investors suddenly started to recognize that if you took out Sam Altman, who is responsible for the products flying around the world, talking to policymakers, attracting the top talent and the investors, and all of the data scientists
who matter, are willing to leave with him. Then what's left over is that open ai does not have any value. The intellectual property and value is in those eggheads forgive the phrase that are running the place. That's what's happening here.
So we have about thirty seconds left, said Microsoft, What does he do at Microsoft? Because he just tweeted that his priority is to continue development and open ai and that's the reason why he's at Microsoft.
And kiddo, just got about thirty or thirty five seconds.
Yeah, the door is absolutely open to Sam Altman going back to open ai. Investors are still trying to make that happen. My understand is the paperwork ain't signed to make Sam bind it to Microsoft, and I'm pretty sure Microsoft will be okay with an outcome where Sam went back. We just don't know, so you might not.
Get sleep tonight. Is that basically a kiddo.
Oh, I know, I wish listen.
I know, I know, but we so appreciate all the reporting you and the team have done because You've kept us smart, honest, and just up to date on this very rapidly moving and still moving story.
Ed Ludlow, Yeah, yeah, you are the best. Take an app at least twenty minutes.
It revives at Ludlow, co host of Bloomberg Technology on Zoom from San Francisco. Folks, We're not going away from this story. Still more to come read here on Bloomberg business Week.
If you're listening to the Bloomberg Business Week podcast, catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or want us live on YouTube.
Staying with the story of the day, Microsoft hit a new all time high after the software giant hired open ai co founder Sam Altman and Greg Brockman to lead its new in house advanced artificial intelligence research team.
We were just talking about this with our own ed Luve Love.
Okay, so if you're just getting up to speed, remember Microsoft is open AI's biggest shareholder and closest tech partner, made at least ten billion dollar investment in the company. The news at the start of the year is really what got us all talking about chat, GPT and generative AI. Microsoft certainly has its own AI initiatives. Google is aggressively
working on it. Tesla does a lot with AI, so are others with more We got with us Crawford Delprett, President of IDC, the global research, analysis and advisory firm for information technology, telecom and consumer tech markets. Crawford joined us on Zoom from Massachusetts. Hey, Crawford, give us an idea of your reaction when this broke on Friday. This is a world that you are deeply enmeshed in. What were your first thoughts?
Yeah, Oh my god, Hey Tim, how are you guys? This was a this was a moment, and this is
a moment in tech. It was kind of a head scratcher in terms of how open AI could think this way, how they could think about making this rational move, and really how the dominoes were all lined up for if you make this move without really a concrete vision to be able to communicate why you're going in that direction, how you could end up in a situation like we're in right now, where you've got employees revolting, where you've got management shake up, and then where you've got a
possibility that Sam could end up in a in a different place, or in maybe a place where you know, he could be very, very happy and do a lot of things going forward.
It has such a cinematic feel to it. Crawford, You guys advise, you do research, you do analysis. Are your clients calling you off the hook and just saying, hey, folks, it's way too early to kind of figure out what the longer term narrative is here?
Of course, Yeah. I mean, I think there's a lot of need to under stand and people trying to absorb this. But I think that you know, long term, this is a time where the future of tech is really on
the table. And this is not uncommon. This is not unlike what we saw in the two thousand time frame leading up where we had Netscape and we had we had Explorer, and we had the sort of the future of the web or not like we saw and not unlike what we saw in twenty ten with the web two dot zero companies, where you had salesforce accelerating and
you had the cloud accelerating. I think everyone knows that, all customers know that the pieces as they move around right now are going to form the next decade or more of tech, and so I think people are just sort of watching how this ultimately plays out, but knowing that probably the landscape a tech has changed dramatically for a decade or more.
He I want to bring in Rachel Metz. She's Bloomberg News AI reporter. She joins us on zoom from San Francisco. Rachel, you were up all weekend covering this story. We read so much of your coverage and the pre shit. You're joining us today. I want to go back to what Crawford just said that the future of this tech is at stake right now. Give us your interpretation of what that means and sort of where the chips lie right now, who has what and who can do and like who can use that for what tech?
Yeah.
No, that's an issue that I think a lot of people and a lot.
Of other companies are thinking about right now.
Open ai is by many consid to be the leader in for the hottest AI right now. A lot of large language models, generative AI in general. Open ai has looked to as a leader. So all these employees, like over ninety percent of the company as of this morning, had signed a letter saying, if you don't go with our demands, we're going to may, we may leave the company to fect Microsoft. Then it's a little unclear what happens to the company technology now and in the future.
Well, how do you Rachel, as someone who's been covering AI for us since we all went like crazy over it earlier this year initial Microsoft investment news, You know, it just made us sit up and take notice all of a sudden, like, wait, what is this? How did we miss it? Having said that let's take the longer lens?
Can we take the longer lens? As you watch the development of AI and its impact on this world, you know this philosophical debate that seems to be going on internally at open AI about the concerns the academics on the board, the worry over its impact versus so many out there. We talked to so many different CEOs and leaders about the potential of how it can, in a positive way maybe transform our world.
Yeah, that's a conflict that's been brewing for a while in AI in general. And I mean there's that's kind of it's kind of an interesting thing for technology, right because, as you were sort of getting at there, we often think of technology, the tech industry as wanting to crush ahead as fast as possible, make things you know more in more advance, Like every time there's a new iPhone that you want, you know, the latest feature is what's
happening now? Whereas when we're sending to see some people that are connected to AI and the AI research say maybe we's just slow down or maybe we need to slow down and some of that scene that sounds reasonable to some people, and some of it sounds ridiculous depending on what kind of arguments they're making for why they want to slow intown.
Hey, Crawford Delpratt, come on back in here, and I want to stay on the philosophical side of things. I mean, there's sort of a couple of different camps right here about people's concerns when it comes to AI. Some people said, hey, we do, including Elon Musk, we do not want machines to become essentially more powerful, more powerful and smarter than human beings. On the other side, there are people who say, wait a second, that's not something we actually need to
worry about. How do you characterize these two different sides, Like, play out the worst case scenario for me about what this could look like.
Well, the worst case scenario is that you've got machines making decisions at scale and humans reacting to those to to to to those decisions and not being able to govern second guess, you know, be able to stop bad actors, humans be not being able to discern what's reality versus what's not. Think about social media, how you get people spun up with fake images, images that look real but they're but but they're not. You know, these are all the things that uh, the Open Ai board was concerned about.
But you know, that doesn't mean that you can't have governance. That doesn't mean that that you can't have legislation take a much much more active role. And I think what remains to be seen is if Sam ends up at Microsoft, to what extent Microsoft will partner with governments, to what extent Google will be forced to partner with governments around these things to to to allay some of those fears.
Well, I feel like Rachel too, this is kind of an amped up version of like privacy concerns, right, Like we all have given incredible amounts of information to a Google, to a Meta, to a Microsoft, so much that they know about us, right, and we're all kind of yeah, uncomfortable, but it's kind of we need it to exist. Is that kind of where we could ultimately get to with generative AI?
I mean, look, I would say that what we're seeing for a number of people that are saying we need to slow down the face of AI technology, they're not talking about privacy risks so much as they're talking about things like potential extinction risks, like maybe AI that will get so good that it will kill all of us, that sort of thing, which some people say is a real risk, but a lot of people say that's ridiculous.
So I mean, I think that we have to sort of like keep that in mind when we're thinking about what the people who want to slow this stuff down, what some of them are thinking, which is that they tru some of them truly believe that AI is going to potentially ill people. And you know, an existential risk is you can see how you know that you kind of go in that path and you're like, oh wow, okay.
That'll that'll that'll creep you out. Hey, Crawford cut like twenty five seconds. The clients that you work with, are they more enthused, are they more worried about open AI and generative AI?
Real quickly, real quickly.
I think that most of the customers that we talk to are looking at it as an opportunity. They're looking at as an opportunity to be to increase productivity there, to give people skills that they never had before. But they are asking a lot about the security is tops of the list, Privacy is second on the list of things that they are most concerned about. They are taking an optimistic view, but definitely I think need need the governance.
All right, guys, thank you so much. Crawford del Pratt, President of IDC. Rachel Mattz, Bloomberg News AI reporter out there in San Francisco.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business App and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Jo Say Alexa play Bloomberg eleven thirty.
Hey Carol. In twenty twenty one, more than two hundred thousand Americans got these letters from the Social Security Administration. These letters said that hey, we overpaid and you actually owe the Social Security Administration money.
So people had to pay back the Social Security Administration.
Well, if they didn't pay, their benefits would be cut off until the Social Security Administration gets its money back.
All right, This is all according to our next guest, new book, It's Fascinating Social Security Horror Stories. Project yourself from the system and avoid clawbacks. This story, by the way, was the top of a sixty minute segment earlier this week that included Lawrence Kotlikoff. He's the co author tim of the book, along with Terry Savage.
It's good to have you back with us, Lawrence. He's also, we should note, a professor of economics at Boston University, a Fellow of the American Academy of Arts and Sciences, and a research associate at the National Bureau of Economic Research, among many other things. Carol, I actually left a lot of this stuff out of a ton of books.
Funny, yeah, he joins us on Zoom from Boston. So great to have you back with us, Larry. I hope this finds you. Well, let's get to the crux of it, because it is fascinating. It's also terrifying. You've also, though, been writing about the social security system for years. Why has this continued to generally be on your radar and a target a topic that requires examining in your view.
Well, it actually turns out there was testimony by the Acting Commissioner in front of Congress week or so ago, and she confessed that there's a million people being called back each year. So I've been writing about these horror stories. I've been calling them horror stories. Are wrote on PBS News Hour and Forbes for years. I've been writing, and you know, because people were asking me questions about SO
security and telling me this. And then I wrote another book called Money Magic, which Terry Savage is my co author on this new one. She interviewed me and then we became kind of friends, and she started sending She's a CBS News reporter in Chicago, and she started sending me questions and I said, well, these, yeah, these hard stories. I've been writing about them. And then I said, Terry,
let's do two things. Let's have you in your outreach you asked people to send in their stories, and if we get it a lot, well let's put put them together in a book. Within a couple of weeks we had over one hundred and fifty. And she knows that for CBS contacts the people at sixty minutes, so a bingo, we were on six. So it's all it's been there,
It's been there on for years. It's just that things came together that we could actually get this into the public attention, and then we decided we would write this book. And at the same.
Time, we only have about six minutes or so. So get to the heart of like what's happening.
What's happening is that there are social crety is making mistakes and the mantra is your mistake is our mistake. I mean, our mistake is your mistake, and so they can overpay you for years on disability benefits, or on your retirement benefit, on your spouse benefit, on whatever child benefits, and they are making a mistake. You don't know it.
You're thinking you're getting the correct amount, and then fifteen years later you get a bill in the mail for one hundred and ten thousand dollars or fifty thousand dollars or twenty five thousand dollars. But it's usually quite big. I've seen bills as large as three hundred and four
thousand dollars. They have no clue what they're doing. Really, the system is so complicated that the manual, the handbook where a manual operating manual, goes to twenty thousand pages covering twelve hundred and twenty seven twenty eight rules that are in their handbook about twelve just twelve benefits. So it's complicated beyond belief. So they make mistakes all the time, and then they don't catch them, and it's your.
Your fault, Lawrence, You argue that the onus is on us to actually make sure that we're being paid the right amount. Given that the Social Security Administration has made and continues to make so many mistakes. What do people listening and watching us right now need to know about how they can make sure that they're not going to get one of these letters.
Well, one of the things you know, I've done over the years is to produce a software tool called Maximizemsoli security dot com maximize Myself security dot com. We write about it in the book, but it's been there for you know years. It's thirty nine dollars. People can go and check that they're getting the correct benefit. If they're being overpaid, they can, But.
Can I can I just do that by logging into the Social Security Administration website and creating an account there.
Well, no, because they're not asking you. Those calculators there that they have are very primitive and make crazy assumptions, and you know it's not even clear that they're no. So I would say the answer is no. I would say the software that we have is far more accurate. We've actually corrected some of suskre's own benefit calculations and gotten them to fix their system using our software.
So help me understand though, in terms of these overpayments that kind of go undetected for years and then all of a sudden, individuals are getting something from the Social Security Administration saying hey, by the way, we overpaid you and UoS a chunk of money, and sometimes, as you said, in cases it could be what more than three hundred thousand dollars, it's a lot of money. Help me understand
the overpayment. Was it a slight overpayment extreme overpayment where somebody who was getting a check might have said, wow, why did that go up so much?
Well, you know, here's I'll give you an example. A lady becomes disabled, she writes a child's book. It becomes a best seller for a number of years. She starts getting royalties. And then she calls every year and says, listen, I'm getting these royalties. Can I still get my disability check? They say, no problem, it's royalties. Then she gives a
talk or to at a local library. They send her at ten ninety nine for the expense of going to whatever, parking or travel, and then so screat changes its mind ten years later, says, all those disability benefits we've been paying you for all these years, they're actually earned income because you actually took steps to make to sell your book. You gave these two talks, and therefore you always three
hundred and four thousand dollars. And then the administrative she appeals the administrative wall jud says, well, it has to be our mistake. It is our mistake. But also you have to be poor. And I've looked at all your financial records, and guess what. I've looked at your cable plan, and you have lots of TV stations. It's a very
rich plan, very good plan. And therefore I've decided you're not poor, and therefore you have to pay back the three hundred and four thousand dollars or we'll just continue not to pay you your check. Until the rest of you until you die.
So you're saying, they say, hey, it's okay, you should get these benefits, and then all of a sudden they kind of change the rules.
Is that fair to say they.
Can change the rules, they can change their mind. Forty five years later, we've seen clawbacks going back. Somebody who's a forty you know, sixty five, they're being clawback for one hundred and seventy five dollars because they got a child benefit when they were for one extra month when they were nineteen, because they were still in high school and so scarity got wrong when they actually graduated high school.
I mean, it's horrendous, and it's not just the disabled, it's there's we're talking about a million people a year for all kinds of reasons, and it's basically all mistakes from SO Security. If they charge us with.
I know in the sixty minutes piece that the individuals that were profiled they actually I think the Social Security Administration. I think Anderson Cooper at the end of the piece said listen, they basically forgave their debt and they were looking into it as well.
Is there anything that has.
Moved forward in terms of Social Security and how they are managing things, And I'm wondering what you think is that the problem is it mismanagement.
They don't have enough people, they don't have good technology.
And my apologies because I know this is not an easy fix to this situation, but we only have about a minute left.
Well, so Security has changed its philosophy internally and it's let's go get every single penny because we're broke. Although the clawbacks collectively are about twenty one billion that they're going after compared to a sixty five point nine trillion dollars unfunded liability, so it's peanuts. And they're putting all the you know, seventy seven million recipients under threat that they could be next with their relatives because I have to kick pick up the slag, yeah, if their weather
whatever gets hit. So I think it's people at the top who just don't give a damn. There's there's an overarching The reason that those three people were forgiven is that there's an overarching principle that so Security can waive these callbacks if it goes against equity and good conscience. That's in the wall. So the commissioner or the action commissioner today could write just saying beyond eighteen months, it's one of us. That's it.
Well, well, very interesting.
There's a lot more in your book, Larry Kotlikoff, Thank you so much, Professor of economics at Boston University's book Social Security Horror Stories.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or watch us live on YouTube.
Well, the Bloomberg US Aggregate Bond of Docks, it tracks at tw twenty five trillion dollars of investment grade government and corporate debt, gained about one point four percent last week. It's up five tenths of a percent for the year, and that's after we got softer than expected inflation data. That index, by the way, we should note, posted a record loss of thirteen percent in twenty twenty two.
Okay, so let's look into our crystal ball, and twenty twenty four hasn't sat right. Twenty three three is not even over yet, Carol, but we're already looking at that. We've got Leslie Falconio, head of Taxable fixed income strategy at UBS Global Wealth Management. She joins us on Zoom from New York City. Good to have you with us, Leslie. So, so give us an idea of what we can expect not just in the year ahead, but just in the next six weeks as we wrap up twenty twenty three.
Right, well, let's let's start with the next six weeks first. I mean, you know, you know, as you know, we've rallied quite a bit from the October level of five oh one on tenure yield. I mean, as you mentioned right after that CPI number, you know, we get a really large move the market is pricing in and pushing forward now some easing from the Fed in twenty twenty four, and now we have, you know, a thirty five percent
chance that they start in March. The easing in twenty four has been priced into one hundred, you know, to about one hundred base points. You know, we think that's a little bit overdone. You know, for the rest of the year. We have the Fed on December thirteenth, we still have another inflation number, we have another payroll number. So you know, I think there's a bit of fomo out there in terms of if you don't lock in right now, even though our view is no question that
yields will be lower in twenty twenty four. We think around three and a half to three seventy five going into near the end of twenty twenty four. But that's not necessarily a straight line. And so we've seen a bit of this loosing of financial conditions, the equity market doing well, and a bit of reversal from the last time the Fed Fed met back you know, a month
or so ago. So you know, I wouldn't be surprised if we saw a little bit of rise and interest rates in the short term, but for you know, in twenty four, there's no question yields or lower.
Well, one thing I.
Would say, Leslie, if anything you know for me once, shame on you for me twice, because I feel like we've had some fake outs when it comes to the treasury right and there's either enthusiasm in terms of you know, or expectations at rates stay higher for longer as the that has certainly lectured us about for a long long time, you know, or all of a sudden we move in the other direction. The volatility that we can see in this market can kind of give you a bit of whiplash.
No question. I mean, just look at even look at what happened with the two year. I mean, the two year moved last week around twenty basis points eight lower right. That was like the biggest movie that we've seen since SVB. So there's no question there's a lot of volatility out there. But there's a volatility because this is a show me market and you know, with you know, Chapoulo kind of having the sort of wait and see type of rhetoric, you know, every year, sort of moving on every number.
When CPI was so weak, the market really adjusted really quickly. When claims came out week, the market adjusts quickly. And now that you know, we were sort of through that, if in fact we have the next CPI we have a reversal, they're gonna have a definitely different outcome that we're seeing right now in terms of treasure.
Yelds.
Well, that's I'm so glad you brought that up, because is it does seem like, you know, this was kicked off with the ever so slightest you know, downside surprise when it came to jobs, when it came to CPI. What happens if we find out that you know, inflation is a little stickier, getting from three to two percent than people thought.
You know, I think that's that's very valid. That's why we don't think that the Fed really doesn't start to ease until the third quarter of twenty four. And it's you know best you know, it's probably his best interest right now to sort of keep that higher for longer kind of mentality for you know, the first half of twenty four, unless, of course, we see a negative payroll
print or we see a large decline in confidence. But otherwise than that, there's really no reason for them to ease in March, right so that higher for longer will be there for quite some time. And I think that the market is just getting a bit you know over skis right now temporarily in terms of yields, but overall we think yields will come down. But it's too soon to say or wave a victory flag right.
Before, but not too soon in your opinion to lock in some of these yields.
You're absolutely right, because I mean, when you think about you know, when you get to that five percent tenure yield, or even where we are right now around that four and a half percent, you know that combounding income is a huge hell wint to total return, and that's really what we're thinking about. I mean, you know, the the amount of that yields need to rise right for you to have a negative return is you know, sixty basis poicts.
It's quite a bit. And I know you were talking about earlier about the AG and what happened with the AG in twenty twenty two, and I think that's that's one of the valid points is that you know, we see everyone says, oh, could this be the third consecutive negative return of fixed income? Right? But you were starting a base case of fifty.
Why buy points? Why by the ten year for four point four to two when you could buy the two year for four point nine to one.
Because you have that you know, price appreciation by locking in and taking some interest rate exposure here. I mean, if anything, you're going to see that two year, which I'm sure will decline, but I don't think you're going to have that kind of you know, inflation appreciation that you're going to have by locking in some industry risk here, particularly given where we are on this.
Line anymore on the shorter and what you're saying is no more that appreciation on the shorter duration, I.
Think you could have it, but you're not going to have it compared to what you're seeing and throw that longer and the locking in right, because if they start to ease, they're easing because the economy is slowing, right, in which which we think is going to happen, you'll definitely have that long end coming down. And as we know, you know, over the past forty years, when the Fed pauses, right, interest rates come down, both in the short end and
in around that tenure. But having that interest rate risk now on top of compounding income is great for future total return.
So we had an auction today, strong Treasury auction. Yeah yeah, yeah.
Go ahead, go ahead, No, sorry, no, I was going to say, that's really that's really important too, because you know, obviously there's a bit of angst with that twenty year given what happened with the thirty year, right, I mean, with that five basis point out that we saw on the thirty year auction, there's a bit of anxiety with that twenty year because first of all, the twenty year is doesn't have the same sponsorship to begin with, right as you would as a ten to thirty combined with
what happened in the thirty year auction, there was a bit of anxiety, but actually it went quite well.
So okay, real quickly, just about forty seconds. Your recession next year? You're saying we don't cut rates until the third quarter of next year. Will there be a recession? Is that your expectations as part of the view.
Just quickly, No, it's not. We don't have a recession view. We think a slow in growth view. But you know the ease will be simply because we think inflation's coming down and well and growth will be below trend, but not recession.
All right, interesting stuff, listen, Thank you so much. Leslie Falconio, head of taxable fixed income Strategy at UBS Global Wealth Management. I meant to ask hers some questions for my cousin's husband, David, because we've been talking about that taxable fixed This.
Is like a theme today. We keep having these extra questions.
What's about relating back to my family?
Still, what's interesting We should mention Richmond Fed President Tom Barkin saying that progress isn't sufficient enough for the feeder to declare victory on inflation.
So folks ain't.
Here that we're not there yet.
Know that we're not there yet, not.
There O patience, patience, not there, Just saying, just putting it out there.
This is Bloomberg.
Brothering Marco Journal. How about you let me drive?
No no, no, no, please go and drive, honey, please?
How the gravels?
Let's wat I want to try it.
It's a good question.
This is the drive to the clothes.
Dot com for me.
I think we'll buy around yold it on on Bloomberg Radio.
A nice to talk everybody.
What we got about seventeen and a half minutes left in today's trading session. CONN equity rally underway. It's an interesting week. Holiday shortened trading week because of Thanksgiving. There is some trading, a shortened day on Friday. We have some economic news.
What a volumes volumes are hired today?
Well maybe people came in maybe because on.
The NASDAK, I should say the NASDAK and the DOV volumes are higher. S and P volumes are lower lower.
Okay, So but I think we're on track for is it a fourth week of games potentially for the S and P five hundred weekly, so pretty significant. All right, So let's see what our guest has to say our drive to the close. It is certainly on with us.
Is Greg Calter.
He's director of research at Carnegie Investment Council. They've got about four billion dollars in assets under management. He is on Zoom from Cleveland, Ohio, and I just want to mention that the company, Carnegie Investment, it's a registered investment advisor and they're also a wealth manager.
Hey, Greg, welcome. How are you.
I'm doing fine. I hope you are as well.
We are.
We're, you know, trying to keep up with the open AI story. Is that something that you, guys I don't know, think about talk about on a Monday for fun or is it about something you talk about from an investment perspective.
Probably both. Lots of events over the weekend, for sure, with Sam Altman and I just heard on your news piece there seven hundred are threatening to leave. We're seeing Microsoft driving to a new high and video which reports this week as well. So definitely it's water cooler chat as well as real business in regards to what Microsoft is doing by hiring Sam.
Does anything concern you about this story? We spent a good portion of the beginning of our program talking about philosophical differences between Sam Altman and others on the board of Open Ai with regard to guardrails in terms of how you're thinking about the technology as an investor, does anything give you pause.
It's obviously a potentially and probably contentious area. There's some who think that AI can go too far and potentially ruin the world. Others are looking for the benefits in terms of business productivity and so forth. Remains to be seen how all this plays out there. There's certainly incredible benefits that can be had if handled properly. So I think that's the main crux of the issue here is how this plays out over time. And really we're talking about one year since the CHTGPT came onto the.
Scene right January, right of this year. That's the big investment by by Microsoftware. We're all like, wait, what's going on here?
Hey?
You said, I feel like, first of all, Greg that when there's money to be made, investors are like, yeah, yeah, I got some concerns, but how do I make money? So how do I make money off of this? You said that there's real business. It's not only water cooler talk today, it's real business. So you know, our investing investors calling you guys up and saying, you know, increase my position exposure to Microsoft and VideA. Is there a
private market folks? Are you know who are saying, how do I get in on the open AI side of it?
From a private market? What is the real business that's coming off of this for you guys today?
Very good question, Carol, and we have had a client's call and ask us what we're doing in this regard. I think a lot of investors have lots of questions
and are confused on exactly what it is. Our stance has been, rather than go with the more speculative companies that really don't have revenues yet, we're looking at the Microsoft's of the world, and Amazon and Nvidia, the companies that make the chips and the data centers, so Eaten providing the electricity and the electrical power into that area. Those are the ways we're playing this. The more established companies.
I want to shift gears a little bit and and sort of zoom out. Well, Carlly, you want to do well?
You said eat and providing the power, meaning what wait, help me here.
Sure. Eaton is a Cleveland company actually not too far from us right here. They are huge into the electrical business, so everything from soup to nuts in terms of regulators and their backlog is huge and it's out into multi years now. So Eaton's products are needed for these data centers. The data centers are what are crunching all this data. AI is probably tenfold at least fivefold increase over what we have currently, So Eaton is a huge player, huge
beneficiary of that. As long as this trend continues.
It is a ninety billion dollar market cap. You're right, we don't necessarily talk about it day to day, and it is up about.
Forty five percent this year.
This speaks to It's like I feel like when it was either content and folks are like, I don't care who creates the content. I want to be the pipe that gets it into everybody's home. And that's what it sounds to me like right now. Artificial intelligence, whether we have problems with it or concerns about it, probably here to stay. I don't kind of necessarily know who's going to be leading with it, but if I can be the backbone or the infrastructure, I'm in it.
Right It's the so called picks and shovels approach, the gold rush, or the Levi's jeans approach. Right, Okay, so let's talk more of those, Greg, what else do you have for us? You've got Eton that Carol just mentioned that you just mentioned. Then there are the big players like Microsoft, like Amazon, like Nvidia. Who else is out there that could be that it is on your radar.
Sure, there's some other companies that I think investors wouldn't really think of, but a Center ACN is the symbol there in terms of the consulting. All these companies want to deploy AI, but how do they do it? What's the best way? A Century is a huge consultant and they will be one area we think will benefit from that.
Funny you say that Center're hitting a fifty two week high today. Shares up so far this year twenty four percent.
Carol, that's pretty fascinating.
It's funny, you know, Greg, Very early on in my career, it was like the beginning of the mutual fund industry. And that's how we would play it with our host. It's like something would happen in the news world and it's like, okay, so how do you buy it? And I always throughout this example, it was like, unfortunately, there could be a hurricane or devastation. It'd be like, Okay,
people are going to be buying the cement. You know, companies we think about we're in wartime, the defense companies right like you look at them right now, and I feel like, is that that is kind of the smart way to be looking at this news in this at this particular time. In terms of open AI.
No question. I mean here's another one. Striker is going to be using AI in the future of its implants, and you know from personal experience, I'll be having a hip replacement in ten days. You know, there will be using the Maco robot. Striker is at the cusp of all kinds of innovation and they'll they will be deploying AI in that space as well. So these are all to make these procedures easier, faster, faster recovery. I mean, that's huge for so who's undergoing that type of procedure.
Really smart way to look at this story. Can't tell you how much we appreciate it. Greg Halter, director of Research at Carnegie Investment Council. We mentioned four billion in assets under management. Happy Thanksgiving, Greg, thank you.
Yeah, and so good luck on the hip surgery coming up ten days away. I hope you have a RESTful time in your back on your feet and back with us to very soon.
Greg appreciate it absolutely well. Wishes to him in that journey.
All right.
You are listening and watching Bloomberg Business Week Carol Master, Tim Stanovic, and this is Bloomberg.
This is the Bloomberg Business Week podcast of a little on Apple, Spotify, and anywhere else you get your podcast. Listen live weekday afternoons from three to six Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Journal alone.