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Speaker 2: All right, so we promised you a lot of the
Speaker 2: most read stories the Bloomberg and it does feel like
Speaker 2: the bond market man. The gains that we are seeing,
Speaker 2: the biggest boom that we've seen in decades. This month
Speaker 2: has been very different for the US treasury trade. But
Speaker 2: it's also mean, like everybody's kind of all in on everything.
Speaker 2: So let's get to it. Back with us the killer
Speaker 2: duo that wrote this story, Bloomberg News Race reporter Michael mackenzie.
Speaker 2: He is joining us as well as Liz McCormick, Bloomberg
Speaker 2: News Chief correspondent for Global macro Markets. Liz is on
Speaker 2: zoom in, New Jersey, Dynamic duo. They are the Dynamic View. Michael.
Speaker 2: I want to start with you. You two are really
Speaker 2: the bells of the bond ball right now, because I
Speaker 2: feel like it is like your world in a big
Speaker 2: way as we watch the very different trade that we've
Speaker 2: seen in November. This has not been though an easy
Speaker 2: year Michael, for the US bond market, and yet here
Speaker 2: we are in November. How remarkable has this trade really been.
Speaker 4: It's certainly been remarkable, and it's really something a lot
Speaker 4: of the active bond managers have been hoping for. They've
Speaker 4: been part of position for it pretty much since you
Speaker 4: can go back to last July last year, when they
Speaker 4: had the first kind of FED pivot. They thought inflation
Speaker 4: was transitory, and therefore they started putting bets on that
Speaker 4: the FED would stop in the middle of twenty twenty two,
Speaker 4: except the FED didn't stop. Inflation wasn't transitory. And I
Speaker 4: mean I was talking to one of the investors who
Speaker 4: over at Western Asset who's had a terrible time, but
Speaker 4: for November their funders jumped six and a half percent.
Speaker 4: So he was saying, you know, we got the core wrong,
Speaker 4: but things are looking better now and there's a lot
Speaker 4: of relief from those guys.
Speaker 5: Liz, I want to bring you into this conversation. Let's
Speaker 5: broad this out, so not just US treasuries, but other
Speaker 5: parts of fixed didn't come also this month, having pretty
Speaker 5: strong month here, talk to us more about that.
Speaker 6: Yeah, So the index in the story that Mike, who
Speaker 6: I feel like is my fourth brother, I had three
Speaker 6: all that good stuff exactly exactly, but it is the
Speaker 6: US AGG which is Treasury's corporates and all that other
Speaker 6: good stuff, a bunch of bond types in there, and that, like,
Speaker 6: like we show in the story, you know, having the
Speaker 6: best month since the eighties, and it's just amazing. I
Speaker 6: was saying earlier to someone that, like, look at that
Speaker 6: iron page on Bloomberg, which Mike and I used to
Speaker 6: always look at it.
Speaker 7: It was like red everywhere. That's all the bonded disease.
Speaker 6: Now it's all green. I can't believe it, you know,
Speaker 6: I mean, like from month to day, year to date,
Speaker 6: you know, and like Mike said, some of these investors,
Speaker 6: which I guess you got to give them credit.
Speaker 7: They stay the course, they take the pain.
Speaker 6: For a while, been saying it's a good time for bonds,
Speaker 6: and they haven't you know, got any let's say success
Speaker 6: on that, and now they have. I mean, this this
Speaker 6: month is just I mean, and Mike and I keep saying,
Speaker 6: it's not gonna be a straight line like this. It's
Speaker 6: not going to be sixty bases points a month, but
Speaker 6: it's definitely kind of lifted all boats.
Speaker 2: As you said, I'm pulling up the page Canadian Aggregate,
Speaker 2: China Aggregate Credit, Corporate Global Inflation, Link, Global high Yield,
Speaker 2: Penny European high Yield, and another It is all green,
Speaker 2: all green. But you know, Michael, this gets to a
Speaker 2: good point. Is this it? You know, it's been a
Speaker 2: very volatile market, to say the least, so and I
Speaker 2: do wonder does this trend continue, and what's necessary for
Speaker 2: it to continue, and does it necessarily translate into other
Speaker 2: parts of the fixed income world.
Speaker 4: That's really a great question. It's really what's got everyone
Speaker 4: thinking in the fixed income market, because clearly you've got Trogies,
Speaker 4: which is the sort of your classic defensive haven rallying strongly.
Speaker 4: But John Bonds had a great month of November two.
Speaker 4: So there's a disconnect. I think at the moment, the
Speaker 4: market's looking at soft landing because we're nowhere near the
Speaker 4: lows in treasure. You'll be saw back in March when
Speaker 4: regional banks failed and the bomb market was definitely thinking
Speaker 4: recessions coming. So now the debate it has shifted from
Speaker 4: the FED higher for longer and maybe not and maybe
Speaker 4: having a raise rates again. We now have kind of
Speaker 4: a new dynamic where the Fed, where the market now
Speaker 4: thinks the is going to cut next year. The question
Speaker 4: is are they going to cut by just the fifty
Speaker 4: basis points or half a percentage point that they indicated
Speaker 4: in their dot plot earlier this year, or do they
Speaker 4: do more? And it really comes down to the sort
Speaker 4: of type of slowdown that we're going to get, and
Speaker 4: I think in that environment, any kind of turmoil that
Speaker 4: starts to seep into equities and the riskier parts of
Speaker 4: the credit market, any sort of shocks we get from
Speaker 4: commercial real estate over the next couple of quarters is
Speaker 4: going to really make owning yields above four percent, particularly
Speaker 4: in the sort of five year part of the treasury market,
Speaker 4: a very good trade.
Speaker 2: Well, and then, Liz, what I keep thinking about, and
Speaker 2: we talk about this in the newsroom a lot is like, Okay, okay,
Speaker 2: it does feel like things are settling down. We keep
Speaker 2: getting these inflation report like everything the softness, and yet
Speaker 2: I think about next Friday's jobs report. Does it just
Speaker 2: take one report to remind us that way to mante guys,
Speaker 2: it's not a straight line, and that is something that
Speaker 2: the FED takes note of.
Speaker 6: Yeah, I think, I mean, I think it's gonna be
Speaker 6: hard for that jobs report to kind of change the
Speaker 6: whole zeitgeist.
Speaker 7: However, I think to your point, Carol, we're gonna have a.
Speaker 6: Lot of volatility because the Fed, even the folks that
Speaker 6: like Waller who sounded quite dubvish the usual hawk this week,
Speaker 6: that's to kind of let the kindling going this week,
Speaker 6: but that they're still saying we're watching the data. I mean,
Speaker 6: of course, if things change and they kind of somehow
Speaker 6: out of nowhere to get a string of the labor
Speaker 6: market not easing, inflation bubbling back up. I'm not predicting this,
Speaker 6: but they will have to kind of at least lean
Speaker 6: in and sound hawkish. So yeah, I think that's.
Speaker 2: Why the like Waller today, not Waller like John Williams today,
Speaker 2: right saying it's quite restrictive, but it's gonna stay restrictive
Speaker 2: for some time. So they're gonna kind of keep reminding
Speaker 2: us of that exactly.
Speaker 7: And we have Pal tomorrow.
Speaker 6: He might do the same kind of I don't think
Speaker 6: they want the market to get so ahead of them.
Speaker 6: I mean, we're the market is ahead, but there's probably
Speaker 6: a limit to how much they'll you know, accept that.
Speaker 5: And Mike, I wanted you to jump back in because,
Speaker 5: as Liz mentioned, Pale does speak on the calendar twice tomorrow.
Speaker 5: This comes ahead of the blackout period next week. What
Speaker 5: do you think investors want to hear from Powell versus
Speaker 5: what we would most likely actually hear from him.
Speaker 4: Well, I don't think they want to hear him being hawkish.
Speaker 4: I think they want to hear sort of being at
Speaker 4: least sort of mimicking what John Williams said. I think
Speaker 4: I expect they will hear that, I think Powe will
Speaker 4: play it pretty close to his chest. He'll essentially say, look,
Speaker 4: they're in a good spot. They just have to sit
Speaker 4: back and watch the data, which is what all the
Speaker 4: bonded market has to do as well. And ultimately it's
Speaker 4: kind of now out of the Fed's hands. The data
Speaker 4: is going to determine just whether or not the bomb markets,
Speaker 4: you know, thinking of rate cuts coming potentially as early
Speaker 4: as next March, do come to fruition. I mean, if
Speaker 4: inflation continues to fall, and if we start to see
Speaker 4: the employment market we can probably not not turn next week,
Speaker 4: but probably more in the early next year, then you're
Speaker 4: going to see the market we'll start to run ahead
Speaker 4: of the Fed. I mean, talking to investors this week
Speaker 4: is notable how some of them have been a's one
Speaker 4: said to me, I've been through five easing cycles. We
Speaker 4: know what happens here once it gets going, and the
Speaker 4: market wants to jump ahead of this, and so I
Speaker 4: think that's really the key point to keep to remember.
Speaker 2: Well, and that's what I was thinking about, Liz, like,
Speaker 2: I'm looking at the story that you guys put out,
Speaker 2: you know, I'm curious what you know Pimco's doing double lines,
Speaker 2: doing you know, what are the positions and you guys,
Speaker 2: you know, say how that they've been kind of loading
Speaker 2: up on longer day to debt and that just keeps unrising.
Speaker 6: Yeah, And Mike was out there, not this week, but
Speaker 6: last kind of visiting all them, you know, right in
Speaker 6: their shops and I'm you know, kind of upfront and center,
Speaker 6: and they were saying, and it's you know, that didn't
Speaker 6: work out the next day or so, but their long
Speaker 6: term investors saying, you know, hey, you're you know, we
Speaker 6: all love cash. Everyone's saying cash at about five percent.
Speaker 6: But they were telling Mike there's going to be a
Speaker 6: point where you're missing out, like it's kind of time
Speaker 6: to get into further out the curve. And boy, they
Speaker 6: nailed that call what happened this week, but that there's
Speaker 6: a point where because I always say, you can't react
Speaker 6: fast enough. That's why you know, all the textbooks the
Speaker 6: long term investment don't jump around because by time you know,
Speaker 6: us average folks say, oh wow, the cash rate went
Speaker 6: down so much, you've missed a lot of opportunity and
Speaker 6: the stock market and the bond market. So that's why
Speaker 6: they were saying, hey, you've got to get ahead of
Speaker 6: this and kind of go out the curve.
Speaker 2: Well, Lasstock, guys, this is not just a US thing, obviously,
Speaker 2: it's a global thing, right, and you have global central
Speaker 2: bankers at work and everybody dealing maybe with the different
Speaker 2: economic or inflationary pictures. So Mike, how does that complicate
Speaker 2: maybe to what comes next or make it even more interesting?
Speaker 4: Well, I think globally the economy is slowing. We haven't
Speaker 4: really seen the revival of Chinese growth which everyone expected
Speaker 4: earlier this year. It's been one another one of these
Speaker 4: missed sort of trades. You've got the oil price not
Speaker 4: really getting much love here, even though Opex just announced
Speaker 4: it intends to cut supply. So that's kind of telling
Speaker 4: you the economy is. It is slowing, and it's quite
Speaker 4: clear when you look at the inflation data across regions
Speaker 4: it is slowing in unison. So that tends to suggest
Speaker 4: that we are going to go through a period of
Speaker 4: softer growth, inflation, easy back, and it is going to
Speaker 4: give central banks a lot more room to maneuver, although
Speaker 4: I'm not sure the Bank of England has that luxury.
Speaker 2: Unfortunately, exactly just twenty five seconds left list. Part of
Speaker 2: me is like, I'm so suspect because I feel like
Speaker 2: I have been fooled so many times over the last
Speaker 2: couple of years. Is that a fair way to feel
Speaker 2: or do you feel like something's different now?
Speaker 6: Yeah, Carol, I think I've been you and my team.
Speaker 7: I'm always like.
Speaker 8: Ah, that's the motion.
Speaker 6: But I think this time it feels a little bit different.
Speaker 6: That it's pretty broad based, and like Mike said, and
Speaker 6: I think before we went on, I believe I saw
Speaker 6: Goldman Sachs European economists pull forward when they say the
Speaker 6: ECB starts cutting next year because they had a soft
Speaker 6: inflation data out overnight, and so I think we are
Speaker 6: seeing the disinflation, so we're okay, maybe we can trust.
Speaker 2: All right, So appreciate it, guys. Bloomberg News rates report
Speaker 2: of Michael mackenzie, also the fourth brother of Liz McCormick.
Speaker 2: Just kidding, and of course Liz McCormick. Bloomberg newschie courseponder
Speaker 2: for Global macromarkets. It's among the most read. It's really
Speaker 2: what this month has been so much about it and it
Speaker 2: really is about today's narrative.
Speaker 3: Thanks guys, This is Bloomberg you're listening to the Bloomberg
Speaker 3: Business Week podcast. Catch US Live weekday afternoons from three
Speaker 3: to six Eastern Listen on Bloomberg dot com, the iHeartRadio app,
Speaker 3: and the Bloomberg Business App, or watch US Live on YouTube.
Speaker 2: Let's get back to something that totally impacts a lot
Speaker 2: of Americans. Bloomberg Editorial Board writing about this in September.
Speaker 2: The US prescription drug market very different. Patients and providers
Speaker 2: don't make decisions about whether treatment offers good value middlemen do.
Speaker 2: These intermediaries, which design prescription drug coverage and negotiate discounts
Speaker 2: for health plans, get bigger fees for more expensive medications,
Speaker 2: and as a result, you've got payers such as Medicare
Speaker 2: can't be sure that they're getting a good deal. And
Speaker 2: other countries do it very differently. So let's get to it.
Speaker 2: Some thoughts on how it all works in the US
Speaker 2: with US is Gbi, Professor of Health Policy Management at
Speaker 2: Johns Hopkins Bloomberg School of Public Health, which is supported
Speaker 2: by Michael R. Bloomberg, of course, founder of Bloomberg LP
Speaker 2: and Bloomberg Philanthropies. G is on zoom in Washington, dcg
Speaker 2: Nice to have you here. With Jess and myself talk
Speaker 2: to us about this. These intermediaries, formacy benefit managers. You know,
Speaker 2: I think we all thought that they were going to
Speaker 2: make it all more efficient, and I guess we thought
Speaker 2: it would be better for consumers. Why is it not
Speaker 2: working out as we all thought?
Speaker 9: It's actually not working for cheap generical drugs. So we
Speaker 9: found one hundred dollars paid by medicare actually forty one dollars.
Speaker 9: We'll go to PBM just as a spread as profit
Speaker 9: and then manufacturers only got thirty dollars.
Speaker 8: So yah, the words PBM's profit problem.
Speaker 9: The spread is already thirty percent more than what a
Speaker 9: manufacturers get in their revenue, and the pharmacy you got
Speaker 9: it seventeen dollars and then holds it like a twelve dollars.
Speaker 9: So you can see this whole supply chain is very
Speaker 9: efficient for the GW drugs.
Speaker 2: So how did that happen? I mean, how is it
Speaker 2: that that? You know? And we've done some stories, certainly
Speaker 2: Bloomberg Business Week has done some stories. Increasingly we're looking
Speaker 2: at what's going on? How can it be better? You
Speaker 2: guys did a study, What did you look at specifically?
Speaker 2: What did you find so you.
Speaker 8: Know why this happened.
Speaker 9: Everybody want to get a big cut, the high spread
Speaker 9: if it's possible, but in most markets you can't because
Speaker 9: of competition. Right, if you're too grady you have a
Speaker 9: high cut, guys, what will be driven out of the market.
Speaker 8: But the PBI market is very different. It's not very competitive.
Speaker 9: So this lack of competition allows the PBMs, like we
Speaker 9: have only three large PBMs to generate such a high,
Speaker 9: large spread. So in other words, you are powerful. You
Speaker 9: can charge high from insurance and then you can pay
Speaker 9: load to pharmacies. That's what we found in our study.
Speaker 2: What Shocking Money would say is if the government was involved,
Speaker 2: do you think that they would be saying, hey, go guys,
Speaker 2: this isn't okay, this isn't right. And I do feel
Speaker 2: like there's, you know, slowly, some momentum to do that.
Speaker 2: What are you anticipating potentially on the regulatory.
Speaker 9: Front right now on the hill, there's some proposals to
Speaker 9: ban the spread pressing. But guess what if we do
Speaker 9: not change the market dynamics, we cut the spread pressing,
Speaker 9: and then other things will pop up.
Speaker 8: Right, It's like a waterbed effect.
Speaker 9: So I think the fundamentally, we need to address the
Speaker 9: market in efficiencies.
Speaker 8: You know, insurance.
Speaker 9: Actually works very well for high cost, expensive, low frequency things.
Speaker 9: That's why we are kigh insurance does all cover all change, right,
Speaker 9: our home insurance does all cover got a cleaning. But
Speaker 9: for drugs they're they're relatively cheap, so you very complex
Speaker 9: insurance to cover it. Actress not efficient. No study is
Speaker 9: found for many patients the alto pocket costs is already
Speaker 9: higher the cash pay. Let's say if they go to
Speaker 9: Kudak's Mark Cuban cost plus company, I'm in a pharmacy
Speaker 9: without doing their insurance, they pay a lower price than
Speaker 9: if they use their insurance for the auto polking.
Speaker 8: So that tells us insurance Actress is not efficient. Let's
Speaker 8: get it. Let's say push.
Speaker 2: Yeah, yeah, no, no, no no. It's fascinating. I was thinking
Speaker 2: about and kind of prepping for this story. Other countries,
Speaker 2: you know, whether it's Australia, the UK, they don't have
Speaker 2: this middleman because they've got a single negotiator, the government,
Speaker 2: their governments that can press essentially the drug manufacturers right
Speaker 2: for discounts.
Speaker 7: Uh.
Speaker 2: And they regularly are doing oversight, doing cost effectiveness assessments.
Speaker 2: And so their prescription drug spending is a fraction of
Speaker 2: the United States. So you know, anytime you throw in
Speaker 2: the middle man, there's going to be increased cost. But
Speaker 2: it does sound like it's getting out of control. You say, though,
Speaker 2: in particular, that there should be an end to insurance
Speaker 2: coverage of low cost generic drugs. You're saying, we don't
Speaker 2: need it, right, because they're so inexpensive.
Speaker 8: Uh huh.
Speaker 9: Actually, ill save everybody in money, right, we got higher
Speaker 9: take home pay, we got a lower premium, or you know,
Speaker 9: they can put government towards sponsors, can put more money
Speaker 9: in our House sittings account that we can use it
Speaker 9: for buying the generic drugs writing now is five dollars
Speaker 9: per months from Amazon Pharmacy, and then we can use
Speaker 9: that for all sorts of social becoming for health.
Speaker 8: Right, and then that can actually improve our health.
Speaker 2: Yeah, it's interesting. It's certainly you know, you wonder if
Speaker 2: it'll come up in the upcoming politics politicians, uh, when
Speaker 2: they are out on the campaign trail for the November elections,
Speaker 2: because it certainly impacts a lot of Americans. Gee, thank
Speaker 2: you so much. Gibai. She's professor of health policy and
Speaker 2: Management at Johns Hopkins Bloomberg School of Public Health. Joining
Speaker 2: us on zoom from Washington, d C.
Speaker 3: You're listening to the Bloomberg Business Podcast. Catch us live
Speaker 3: weekday afternoons from three to six Easter on Bloomberg Radio,
Speaker 3: the Bloomberg Business App, and YouTube. You can also listen
Speaker 3: live on Amazon Alexa from our flagship New York station
Speaker 3: Just say Alexa playing Bloomberg eleven thirty.
Speaker 10: INChO Hell.
Speaker 2: All right, he's back, Sam Altman back at open Ai.
Speaker 2: He asked a leader of chucchipt maker open Ai. But
Speaker 2: he's back at the company, returning there to the company
Speaker 2: that fired him earlier this month. It was quite a
Speaker 2: power struggle that shocked the tech industry, gave us all whiplash,
Speaker 2: brought attention to the conflicts around how to safely build
Speaker 2: artificial intelligence. And this story written by Sheren Gafari. It
Speaker 2: is in the new issue of Bloomberg Business Weeek, which
Speaker 2: is out on newstands as we speak on the Bloomberg
Speaker 2: terminal and also at Bloomberg dot com Slash Business Week.
Speaker 2: But it's interesting. He may be back, but there's a
Speaker 2: lot more that he's got to deal with, including governance issues.
Speaker 2: So let's get to it with us. As Rachel Matt's
Speaker 2: AI reporter at Bloomberg News, she is out there on
Speaker 2: zoom in San Francisco, right here in our Bloomberg Interactor
Speaker 2: Brokers studio, Bloomberg business Week Technology editor Joshua Brustin along
Speaker 2: with the editor of Bloomberg Business Week, Jill Weber. As
Speaker 2: we said here in studio, so Joel Sam Altman, winning
Speaker 2: the appened, Yeah, I was like, it ain't over.
Speaker 11: I was like on vacation and I left and he
Speaker 11: was in charge of O an AI.
Speaker 7: Track of I came back.
Speaker 11: And he was still in charge. So like like nothing happened.
Speaker 11: That's not true at all. Of course, a lot of
Speaker 11: stuff changed on the way, and I couldn't stop reading
Speaker 11: about it because it was just one of the most
Speaker 11: incredible stories of the year. And I think we're all
Speaker 11: still waiting to figure out what it all means.
Speaker 2: And I keep saying TVD, TVD.
Speaker 11: SAM and open AI and and all of that. But
Speaker 11: to break it all down, Josh, like, what were the
Speaker 11: stories that we wanted to have in this week's issue
Speaker 11: and what do we know and what do we not
Speaker 11: yet know?
Speaker 10: Well, I think there are two big things that we
Speaker 10: covered in the issue. The first thing is just what's
Speaker 10: going on with Sam Altman. Obviously, he was very surprisingly
Speaker 10: fired and then very quickly brought back as CEO of
Speaker 10: this company, which is right in the middle of all
Speaker 10: the discussion around tech and AI over the course of
Speaker 10: the year, and in some ways he's brought back and
Speaker 10: his reputation has been really bolstered. I mean, anytime that
Speaker 10: you are the boss of a company and ninety five
Speaker 10: percent of the employees say they will quit if you
Speaker 10: are not brought back as boss, that's unusual. I mean,
Speaker 10: I've had jobs before. I feel like it's not always
Speaker 10: how people feel about the boss.
Speaker 2: But there's how much was about the value of the company.
Speaker 10: Oh yeah, for sure, there were there are some financial
Speaker 10: reasons that these employees wanted Sam back. There was there's
Speaker 10: a large tender offer in which they would be given
Speaker 10: a chance to cash out shares. Employe and the investors
Speaker 10: who were part of this deal were getting a little
Speaker 10: bit queasy about going through with it if Sam Almond
Speaker 10: was not back. So that's obviously part of it. I
Speaker 10: don't think that's all of it. I think Rachel probably
Speaker 10: knows this better than anyone, but Uh, you know, I
Speaker 10: think Sam Almond has really built up a reputation among
Speaker 10: the people at the company as someone who takes the
Speaker 10: really big issues that they are looking at seriously.
Speaker 2: Rachel, come on in on this, because you've been following
Speaker 2: this closely. I mean, you finally hopefully got some sleep,
Speaker 2: because I know none of you guys were. It was
Speaker 2: just it was around the you know, it was kind
Speaker 2: of one of those things you walked away for twenty
Speaker 2: minutes or didn't read your phone and you're like, wait,
Speaker 2: something new, change.
Speaker 5: What is sep?
Speaker 7: What is it? No, I didn't walk away. That was
Speaker 7: the problem. My family was like, if this keeps going,
Speaker 7: we're going to murder you.
Speaker 3: All right.
Speaker 2: So, now that you've got some sleep, how are you
Speaker 2: looking at it? And what's still kind of at issue?
Speaker 7: Oh gosh.
Speaker 12: So there was a lot of rubber stamping that happened
Speaker 12: just yesterday in terms of saying okay, the company saying okay,
Speaker 12: Sam is officially back.
Speaker 7: We're still figuring out a few things.
Speaker 12: We have some the new board members that we said
Speaker 12: were coming in. So initially there was an agreement for
Speaker 12: him to come back, but it was an agreement of principle.
Speaker 7: Now they've worked some of those things out.
Speaker 12: There's going to be some additional board members. Right now,
Speaker 12: there's three board members. They're all men, so they're going
Speaker 12: to be looking to enlarge the board also make it
Speaker 12: more diverse. We're going to be keeping an eye out
Speaker 12: to see, like if there are governance changes, how will
Speaker 12: the board interact with Sam in the future. Like, clearly
Speaker 12: there were some issues at play that got the initial
Speaker 12: board to oust him in the first place, right, otherwise.
Speaker 7: None of this would have happened.
Speaker 12: So it'll be interesting to see if anything is changed,
Speaker 12: either specifically in terms of like rules that they have
Speaker 12: for how they're communicating or interacting, or simply if he
Speaker 12: is doing a better effort to work with this board
Speaker 12: in a different way. I think some of it remains
Speaker 12: to be seen, but it's clear that we are going
Speaker 12: to see the changes.
Speaker 11: Okay, so what about Microsoft and all of this, Josh, Well,
Speaker 11: Microsoft the biggest investor in open Ai and unusually really had.
Speaker 10: No formal control over the company. I mean, this is
Speaker 10: what the board, why the board was able to go
Speaker 10: ahead with this. Open Eye is an unusual entity and
Speaker 10: that a nonprofit, nonprofit entity controls the for profit startup
Speaker 10: and the board of that nonprofit can make the decisions.
Speaker 5: Now.
Speaker 10: I think what Microsoft showed is that when you've invested
Speaker 10: I think thirteen billion dollars into a company, you get
Speaker 10: to flex some power even if you don't have a
Speaker 10: board seat. And you know, the company was really played
Speaker 10: a key role in bringing Sam Altman back. They It's
Speaker 10: been announced that Microsoft will hold a board seat as
Speaker 10: a non voting observer going forward, so they're being brought
Speaker 10: in a little bit more. But obviously they have a
Speaker 10: big stake in open Ai developing and continuing to thrive
Speaker 10: and also developing along the ways that will be commercially
Speaker 10: useful for Microsoft itself.
Speaker 5: Hey, Rachel, I wanted to ask you about the personalities
Speaker 5: on the board because there was a surprise pick. When
Speaker 5: it comes to Larry Summers talk to us about who
Speaker 5: is the makeup of this new board?
Speaker 2: See the adult in the room?
Speaker 7: What this is?
Speaker 2: I don't know.
Speaker 7: I talked to him yesterday.
Speaker 12: Actually I got a chance to do a quick interview
Speaker 12: with him, and yeah, it was interesting to talk to
Speaker 12: This was like like very late yesterday after the announcements
Speaker 12: came out saying like yes, Sam is officially back.
Speaker 7: These are you know, As we said before, these are
Speaker 7: board members.
Speaker 12: Larry's interesting as as many people know, he's got experience
Speaker 12: in government. He also is a is the Bloomberg TV contributor,
Speaker 12: I believe.
Speaker 7: And has expressed a lot of views about AI. Has
Speaker 7: thought a lot about AI. My impression from things that he.
Speaker 12: Said both to me yesterday and in the past in
Speaker 12: general publicly is that he kind of feels both ways
Speaker 12: on AI. That it could be that it is growing fast,
Speaker 12: it is extremely interesting, and it could be extreme useful
Speaker 12: and powerful, and it's a huge shift in how technology
Speaker 12: is working, but also that that there are concerns there
Speaker 12: about how it could be used. So it'll be interesting
Speaker 12: to see how he's interacting with the other board members,
Speaker 12: which include, uh, Brett.
Speaker 7: Someone get me help me here. I'm banking on Brett
Speaker 7: black name.
Speaker 2: Bt Taylor, Taylor, Brett Taylor.
Speaker 7: Thank you. Sorry, it's been a long Uh okay, you
Speaker 7: know five hours. That was Actually we need more.
Speaker 2: Sleep this week. Still, thank you, You're welcome.
Speaker 5: Brett.
Speaker 7: Brett should be an interesting condition as well, and it is.
Speaker 12: I think it's interesting to note that Adam D'Angelo, the
Speaker 12: one remaining board member.
Speaker 3: Yeah, what happened?
Speaker 11: What's up with that.
Speaker 7: Why is he the one sticking around?
Speaker 12: I mean that was I think it was pretty important
Speaker 12: to the outgoing board members that would be Tasha McCauley
Speaker 12: and Helen Toner to as part of this deal to
Speaker 12: bring Sam back, to have one person remaining.
Speaker 2: This is the dude. Isn't this the guy?
Speaker 11: There's never been a board story as interesting as this one.
Speaker 11: They're usually so quiet and peaceful and you know, mysterious,
Speaker 11: and then it all breaks open over genera. AI.
Speaker 12: Yeah, no, it's I'm man, there's gonna be some really
Speaker 12: good like books, maybe a movie.
Speaker 7: Let's wait a couple of years, it's gonna be some
Speaker 7: good stuff.
Speaker 10: You know.
Speaker 11: I'm going to talk to the therapist.
Speaker 2: The therapist who've been helping out this board, this company.
Speaker 11: Okay, so totally or just the Thanksgiving conversations, Rachel, what
Speaker 11: what don't we know?
Speaker 3: Still?
Speaker 7: What don't we know? Still? So we're still looking at
Speaker 7: what exactly happened here?
Speaker 12: You know, like there there are reasons for doing something
Speaker 12: as drastic as getting rid of the CEU of a
Speaker 12: company and then also doing something almost equally as drastic
Speaker 12: as bringing them back. Right, So so there's still I
Speaker 12: think a bit of mystery surrounding all of that.
Speaker 7: Hopefully that'll be figured out very soon.
Speaker 12: TBD and uh, I think it's also like a bit
Speaker 12: of a mystery, like who's going to be joining the
Speaker 12: board going forward and what's going to happen with them,
Speaker 12: who are they going to be, what are their aims
Speaker 12: going to be. And then the other thing that's still
Speaker 12: a little hanging out there is Ilia Siskiver, who was
Speaker 12: also a person at open Ai, who was also a
Speaker 12: board member, who was involved in the ousting of Sam Altman.
Speaker 7: It sounds like they're trying to.
Speaker 12: Get him to come back in some fashion, but it's
Speaker 12: not clear yet what that's going to look like if
Speaker 12: he will in fact be part of the company.
Speaker 2: So that's the key player actually that I was thinking about, like,
Speaker 2: it's just it's just it's just unbelievable frenemies or whatever.
Speaker 2: But they're also Joshua right, are doing an investigation still
Speaker 2: or some kind of internal investigation of Altman? Right, Yeah,
Speaker 2: the board is business.
Speaker 10: The board is planning on looking at at Sam Altman,
Speaker 10: investigating some of the behavior that led to his ouster,
Speaker 10: which is still rather cloudy. There are questions about whether
Speaker 10: it had to do with AI safety, whether it had
Speaker 10: to do with some of his other business interests. He
Speaker 10: is involved in a number of other companies of which
Speaker 10: could potentially have AI elements as well, and so it's
Speaker 10: not clear exactly how that investigation will be conducted. As
Speaker 10: far as I understand that might correct on that.
Speaker 2: Rachel, Yeah, come on in on that, because he's going
Speaker 2: to still do his side things, right or is he?
Speaker 7: Yeah?
Speaker 12: I mean I have not asked him directly about that,
Speaker 12: but one would assume that those things are going to continue,
Speaker 12: at least for now.
Speaker 7: But yeah, I did.
Speaker 12: Actually I asked Sam, like, got to speak to him
Speaker 12: and Mirror Mradi, his CTO yesterday.
Speaker 7: I asked them about the investigation. I think Sam said
Speaker 7: that I should ask the board. So then I spoke
Speaker 7: to Larry Summers hafter.
Speaker 12: Then I said, Larry, Sam said to ask you what
Speaker 12: about the investigation. I mean, Larry basically said, yes, we're
Speaker 12: going to do this investigation, which is what they're supposed.
Speaker 7: To be doing.
Speaker 12: But he also politely and very rightly pointed out like
Speaker 12: give me a minute. I mean he basically said, look,
Speaker 12: we've been here for like thirty minutes this new board,
Speaker 12: so it's gonna take a little time, but it sounds
Speaker 12: like an investigation will be conducted and they'll try to
Speaker 12: figure out, like basically what happened here, which is what
Speaker 12: a lot of people want to know too.
Speaker 10: Yeah, and Rachel, what are the prospects for some significant
Speaker 10: changes to the non the profit for profit startup within
Speaker 10: a nonprofit entity and this board composition? Is there a
Speaker 10: chance that that changes significantly going forward?
Speaker 7: That's a good question.
Speaker 12: I think we're still trying to figure that one out.
Speaker 12: I mean, like it was not even that that long ago.
Speaker 12: I mean, okay, it was twenty nineteen. Maybe it doesn't
Speaker 12: feel that, but in twenty nineteen the company which was
Speaker 12: funded in twenty fifteen said actually we were a nonprofit
Speaker 12: as people knew at the time, but now we're going
Speaker 12: to be was called a CAF profit company. And really,
Speaker 12: if you haven't seen it before, you should go on
Speaker 12: to their blog on their website and look at this
Speaker 12: blog pust from twenty nineteen, because there's an org chart
Speaker 12: and you look at it and you're.
Speaker 7: Just like, what what does this even mean?
Speaker 12: It's very complicated. So I'm sure there was a reason
Speaker 12: for setting it up that way. It remains to be
Speaker 12: seen if they're going to try to simplify it, there
Speaker 12: could be perhaps the becoming board members and we'll have
Speaker 12: something to say about that.
Speaker 7: We'll see.
Speaker 11: So the other name that you mentioned there was Mira Moratti,
Speaker 11: who's the back to being Chief Techno Anology outsore, which
Speaker 11: is interesting because it was like Sam was in and
Speaker 11: then out, and then she was in and then maybe
Speaker 11: out and then was back to CTO. So what's her
Speaker 11: role going to be, Like, well, what is it previously
Speaker 11: and what do we expect from her going forward?
Speaker 7: That's a great question.
Speaker 12: So she is, she is and was Chief Technology Officer,
Speaker 12: and I feel like I've talked to people about this
Speaker 12: quite a bit recently because I've been seeing her a
Speaker 12: lot recently. Over the past number of months, the company
Speaker 12: has been increasingly positioning her as a public face of
Speaker 12: the company, as a leader of the company. She's appeared
Speaker 12: alongside Sam Almond literally aside him at events either in
Speaker 12: public like like in front of audiences or.
Speaker 7: Like a press scrum.
Speaker 12: On that opening I developed her day, it was for INSAM,
Speaker 12: side by side with a bunch of reporters.
Speaker 7: So it's clear that.
Speaker 12: She is a leader, and you know, a pretty public leader.
Speaker 12: At the company and she will remain as such. It
Speaker 12: sounds like they work pretty collaboratively as a team there,
Speaker 12: and she is part of the very top group of
Speaker 12: those people.
Speaker 5: What are the potential.
Speaker 7: Go ahead?
Speaker 2: No, well, just there's one thing in the story that
Speaker 2: Altman says he has no equity in open AI. Is
Speaker 2: that really true?
Speaker 7: That is what he has said publicly?
Speaker 2: Huh? And then a lot, Yeah, it's a lot. Oh wait,
Speaker 2: there's something odd to this story, shocking, Like.
Speaker 11: Look like where we began this year was like generative
Speaker 11: AI force. We've all seen this play out over the
Speaker 11: course of the year. So it's so satisfying just to
Speaker 11: know that, just like any workplace, there's drama and you know,
Speaker 11: right in time for us to like mess with our
Speaker 11: holidays and everything else, you know, So just prove that
Speaker 11: it is actually a perfect bookend for the year.
Speaker 2: What is CHATCHI?
Speaker 12: I asked chat GBT in the middle of all this, Actually,
Speaker 12: I was like, I don't know what else to do anymore.
Speaker 12: Can Chatchy bet to sort this out for us? An
Speaker 12: issue with chat cheept though, depending on how you're using it,
Speaker 12: is it's.
Speaker 7: Training data, you know, stops at a certain point. So yeah, I.
Speaker 11: Didn't say, but currently been loaded.
Speaker 12: I was like a Sam Altman, still in charge of
Speaker 12: open AI, and it was like, well as of the
Speaker 12: end of my training day.
Speaker 7: And I was like, I don't care. That's I do
Speaker 7: think that it's like a perfect it's perfect.
Speaker 5: Right.
Speaker 12: Like the year started with everybody obsessed with CHATYBT, whether
Speaker 12: or not it was loved or.
Speaker 7: Hated for various reasons, we're ending the year now with
Speaker 7: chat It is Chatty's.
Speaker 12: Birthday today, Happy birthday, and we have all this drama
Speaker 12: that it just came just behind us.
Speaker 2: Because you're gonna need it next year. I can just
Speaker 2: feel it. Rachel mattsay, you re put our Blomberg is
Speaker 2: Joshah brucetein Bloomberg BusinessWeek technology editor and the editor of
Speaker 2: Blomberg business Week, Till Weeber, both of those guys in studio.
Speaker 2: All right, check it out. It's in the new issue.
Speaker 12: This is Bloomberg.
Speaker 2: I'm brom.
Speaker 6: A journal.
Speaker 4: How about you let me drive?
Speaker 11: Oh no, no, no, no, who's going to drive?
Speaker 1: Honey?
Speaker 5: Please, I'll do the riding gravel.
Speaker 8: Let's wat I want to try it.
Speaker 12: Try it's a question. This is the drive to the
Speaker 12: Globe done well by hill it.
Speaker 3: On on Bloomberg Radio.
Speaker 2: All Right, everybody, just under eighteen minutes left in the
Speaker 2: trading session, getting ready to thirty day's house September, April, June,
Speaker 2: and November. Getting ready to wrap up November. I always
Speaker 2: have to check them. I was like, wait, is this
Speaker 2: one of those thirty one over? It's kind of a
Speaker 2: meth day when it comes to the equity trade, But
Speaker 2: what a month it's been the same thing for the
Speaker 2: bond market. It's just unbelievable. And it's that time of
Speaker 2: the year when we were wrapping up not just presents
Speaker 2: but the year that was, and just really thinking largely
Speaker 2: about what lies ahead in the new year.
Speaker 5: It's such a big thing, especially with what's going to
Speaker 5: happen ahead of that December thirteenth FED decision. What it
Speaker 5: means we'll get those quarterly projections and dup plots that
Speaker 5: well we know we'll get changed again in March with.
Speaker 2: The dollar platter. All Right, our next guest has the
Speaker 2: top ten items on his mind as we drive to
Speaker 2: the clothes on this Thursday back with us in our
Speaker 2: Bloomberg Interactive Broker Studio Real treat John Augustine Cio of
Speaker 2: Huntington Private Bank, a wealth manager subsidiary of the publicly
Speaker 2: held bank Huntington Bank Shares. How are you, sir, great?
Speaker 13: Good, thanks, We're ready for the holidays.
Speaker 11: You are talking, wrap it up right.
Speaker 2: I'm just curious before we get into kind of your
Speaker 2: thoughts on the market. You are a subsidiary of Huntington
Speaker 2: Bank Shares. I'm just curious about the conversations you guys
Speaker 2: are just talking about. They obviously, in the banking environment,
Speaker 2: have a good clue of consumers and lending and so
Speaker 2: on and so forth. You are obviously closely tied to
Speaker 2: what investors are on their mind. How would you sum
Speaker 2: up the environment right now?
Speaker 13: The environment's still constructive. Now, now the consumer has split.
Speaker 13: There's a credit consumer who's under stress, higher interest rates,
Speaker 13: but the job market is still good. There's a cash
Speaker 13: customer that's still plentiful in cash. So what we've noticed
Speaker 13: since the summer it had the consumer attitudes have shifted,
Speaker 13: which even played through to consumer confidence this week. If
Speaker 13: you remember, last month got revised down. This month was
Speaker 13: hired and expected. So that there's been a shift high
Speaker 13: end lowing.
Speaker 2: Consumers, the consumers who have cash, is that the higher
Speaker 2: higher end, higher end cash customers are still there and
Speaker 2: they're important to the I mean, we talk about consumers
Speaker 2: generally about important to the economy. Are they more important
Speaker 2: to the economy and you're viewing in terms of what
Speaker 2: you see.
Speaker 13: There they have been second half of this year.
Speaker 7: Yeah.
Speaker 13: The question for next year now is will rates come
Speaker 13: down middle of the years, the weather warms up, whatever
Speaker 13: you want to call it, to help bring the credit
Speaker 13: customer back.
Speaker 5: All right, I'm looking at the KBW Bank index. If
Speaker 5: you look for monthly, it's up fifteen percent. But obviously
Speaker 5: we're on the back of when you think back to
Speaker 5: the spring and mar with those issues with regional banks.
Speaker 5: What are you hearing about the banking environment right now?
Speaker 13: So the banking environment, we would say, is trading on
Speaker 13: the ye'll curve writing itself next year, risker recession coming down,
Speaker 13: which we've seen in consensus. Then in the third quarter
Speaker 13: THEY'LK curve supposed to write itself go back to being positive.
Speaker 13: And and that's what the markets are thinking about. That's
Speaker 13: our view of what the markets were thinking about.
Speaker 2: Would you be buying banks here, yeah, baby steps, yeah,
Speaker 2: big guys.
Speaker 13: Yeah, we're primarily big. We're primarily large cap shop Huntington,
Speaker 13: but that's one of three groups we would be buying
Speaker 13: financials banks specifically.
Speaker 2: What else when you we talk about these ten items
Speaker 2: on your mind, what else is on your mind?
Speaker 13: Well, what else is on our mind is do we
Speaker 13: get to exhale next year because we've been holding You know,
Speaker 13: we were wrong at our shop. We thought the FED
Speaker 13: would be off the table in June.
Speaker 2: Right, not happen, right, But everybody's been you know, we
Speaker 2: were right.
Speaker 13: On the economy, We were on the FED, so we
Speaker 13: were able to guide portfolios pretty well. But next year,
Speaker 13: do we get to exhale? Will we not wait for
Speaker 13: the jobs report every Friday, not wait for the FED
Speaker 13: meeting every six weeks or so? Will we be able
Speaker 13: to exhale? We think what's going on now, and you
Speaker 13: all been talking about it in November is Americans are
Speaker 13: exhaling because they're investing some cash, both stocks and bonds.
Speaker 13: And that's what's going on.
Speaker 2: You're seeing that directly and continued.
Speaker 13: We've been talking about it with our portfolio managers for
Speaker 13: the last sixty days almost.
Speaker 2: So is it no longer about moving into cash like
Speaker 2: or cash get it is moving out money market funds.
Speaker 13: Yeah, it's same equivalent. I mean it's a five percent
Speaker 13: world there. That's new. It was zero a couple of
Speaker 13: years ago. But now I think people realizing, you know
Speaker 13: that the Bloomberg Barclays EAG is up four and a
Speaker 13: half percent month of November, and stocks are up obviously
Speaker 13: well large caps. I think people are starting to realize that,
Speaker 13: starting to think about all the media talk, all of
Speaker 13: our talk about lower FED funds right next year and
Speaker 13: moving out of cash, doing it slowly both sides stocks
Speaker 13: and bonds.
Speaker 2: You don't think that the Fed gets to two percent.
Speaker 13: Think, well, we don't think their inflation called target.
Speaker 2: And you think the Fed's gonna be okay with it.
Speaker 2: They're not going to be like, we want to get
Speaker 2: it down.
Speaker 13: Yeah, they're gonna be okay with it. We think what
Speaker 13: they're going to be watching more next year is the
Speaker 13: unemployment rate. They'll shift focus.
Speaker 2: How significant do you think that gets hurt?
Speaker 13: It's going to go above four.
Speaker 7: The terrible as you.
Speaker 13: Talked about, Jess, it's really that step because they really
Speaker 13: blinked in September. They went from an expectation of an
Speaker 13: unemployment rate of four and a half to four point
Speaker 13: one Now, what are they going to do in December
Speaker 13: that that'll be of interest to us? That statement of
Speaker 13: economic projections, you're right, is going to be a big
Speaker 13: deal out of that FED meeting now that it's expected
Speaker 13: they stay on hold.
Speaker 5: So what are you advising clients to buy and sell?
Speaker 13: Both ways? Buy something now? Think about the bond market, though,
Speaker 13: we're in the camp four to four and a half
Speaker 13: ten year next year, so we're a little bit above consensus.
Speaker 13: Consensus thinks it starts with the three. We say four.
Speaker 13: So at the low end of the range by stocks,
Speaker 13: high end of the range by bonds, you can buy
Speaker 13: either way. Right now, we're kind of in the middle
Speaker 13: ten years, kind of in the middle.
Speaker 2: So we go back to kind of a balanced portfolio,
Speaker 2: bounced portfolio. What do you do with some of the
Speaker 2: high growth areas, the Magnificent seven that have often outperformed. Again,
Speaker 2: even though people are saying enough enough.
Speaker 13: Even today, we're seeing some rotation. We're seeing a broadening out.
Speaker 13: We've been seeing it through the month. There were two
Speaker 13: new sectors that came into play positively in November. Financials
Speaker 13: and reads both up double digits in November. So that
Speaker 13: joined the three sectors that the magnificent seven are in
Speaker 13: we would suggest and in our ten things, maybe the
Speaker 13: other four hundred and ninety three you get a shot
Speaker 13: next year, so it'll flip.
Speaker 5: So maybe those gains annually next year still higher, just
Speaker 5: not as strong because you don't have that more heavily
Speaker 5: weighted stocks that are pushing things.
Speaker 13: Yeah, and the expectation that the profits recession and the
Speaker 13: S and P five hundred is over and profits move
Speaker 13: up broadly, not just those big growth stocks. That's probably
Speaker 13: what helps them the most, the other four hundred ninety
Speaker 13: three if anything.
Speaker 2: So it's not a case of that the seven stop growing,
Speaker 2: the other ones just join the party because it's interesting
Speaker 2: because I feel like wheneverybody's that's growth exactly exactly. Do
Speaker 2: you have a number favorite investment as we head into
Speaker 2: the new year or favorite investment idea? Just got about
Speaker 2: twenty seconds.
Speaker 13: Stay in the US first half of the year. The
Speaker 13: summer is going to be most interesting next year. Will
Speaker 13: we go small cap? Will we go overseas? That's what's
Speaker 13: going to be interesting next summer.
Speaker 2: And I've heard both people are kind of strategy with you.
Speaker 2: Be well, happy holidays, too great to see you, Great
Speaker 2: to see.
Speaker 7: You as always.
Speaker 2: John Augustine, Cio of Hunting a Private Bank, joining us
Speaker 2: here in our Bloomberg Interactive Broker Studio.
Speaker 3: This is the Bloomberg Business Week podcast, available on Apple, Spotify,
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