Speaker 1: Welcome to Bloomberg Opinion. I'm valny Quinn. This week film
Speaker 1: new homeowners are feeling stuck. You know, they're lucky enough
Speaker 1: to have a low rate, but they're afraid to move
Speaker 1: where They're just worried that the costs are going to
Speaker 1: be so exhorbiting compared to where they are right now.
Speaker 1: A conversation with Alexis Leander's on homeowners feeling trapped by
Speaker 1: they're cheap mortgages. And if you're going to use the
Speaker 1: Chinese burdon or chet GPT, it's going to align with
Speaker 1: the Communist Party's view of the world. Right, So if
Speaker 1: you ask them politically sensitive questions about us or Taiwan
Speaker 1: or China's place at the world, you don't get that
Speaker 1: view of the walk. Tim Colvin on how chat GPT
Speaker 1: will perform partially according to its ideological underpinnings. First, though,
Speaker 1: to this extraordinary month in markets, particularly rates markets, chief
Speaker 1: rates correspondent to Garfield Reynolds joins Garfield, You'll start the
Speaker 1: month at four point one o nine. On the twos,
Speaker 1: we're now at four sixty nine, and on the tens
Speaker 1: we were at three forty two and now above three
Speaker 1: eighty seven. To some extent, that's just a regular repricing, right,
Speaker 1: the Fed moving by twenty five basis points and signaling
Speaker 1: more to come. Looking back on the month, has it
Speaker 1: been an easy repricing or did it cause pain in places? No,
Speaker 1: it's definitely not been an easy repricing. The market had
Speaker 1: to abandon the thesis that the Fed was close to
Speaker 1: calling halt and that then we could start anticipating when
Speaker 1: they're y cut. We had seventy five basis point hike
Speaker 1: in November, fifty in December, and then as expected at
Speaker 1: the beginning of this month, we had twenty five. So
Speaker 1: the market was sort of going, okay, next move is
Speaker 1: no interest rate hike at all, and the next move
Speaker 1: after that as a cut instigate. The FED has made
Speaker 1: it clear that it's going to do multiple hikes from here.
Speaker 1: In fact, by now the pricing is for three more
Speaker 1: at least, and that it's going to hold rates higher
Speaker 1: for quite some time. Now. That's a message the FED
Speaker 1: had been tending for some time. It took several punches
Speaker 1: to the gut for bond bulls before that message got across.
Speaker 1: Is the message now across? Yeah, I mean the message
Speaker 1: is now pretty much across you can partly see that,
Speaker 1: you know, there's a lessoning in volatility and a willingness
Speaker 1: for some investors to come back in at these elevated yields,
Speaker 1: a sort of buy and hold investors. But there's kind
Speaker 1: of a sense that the bond market at the very
Speaker 1: least is no longer fighting the FED. It's now much
Speaker 1: more closely in line with the FED. Starting with that
Speaker 1: rate prices that we talked about, where the expectation is
Speaker 1: for a pig rate of seventy five basis points high
Speaker 1: per year and probably no rate cuts until next year.
Speaker 1: Ten year yields seem to be reluctant to cross that
Speaker 1: four percent level again that they did last October November,
Speaker 1: but not since. The question might be if three point
Speaker 1: nine seventy four, which was the high most recently, does
Speaker 1: that represent the bearish extreme intends for the time being.
Speaker 1: Do you think no? I don't think it does. I
Speaker 1: think that's a level that has been attractive to buy
Speaker 1: and hold investors that had a lot of people talking
Speaker 1: to me about dipping their toes in at this sort
Speaker 1: of level. But that's the thing. They want to be
Speaker 1: sure the temperature is right there, So things like PC
Speaker 1: price indicator, next month's jobs data, well this month's job
Speaker 1: data report at the beginning of next month. Then also
Speaker 1: inflation and what the fat says that it's brass meeting.
Speaker 1: All of these things have the potential to provide fresh
Speaker 1: either data or central bank stance shocks that could readily
Speaker 1: drive you higher. There is a pretty strong anticipation that
Speaker 1: it does go higher, you know something. Four point three
Speaker 1: percent is still seen for the moment at least being
Speaker 1: probably the peak of this cycle. I'm a bit skeptical
Speaker 1: about that estimation, considering that historically ten year yields have
Speaker 1: topped out around about the same level as the fence
Speaker 1: cash rate, and the fence cash rate is already considerably
Speaker 1: above that four point three three percent pick we saw
Speaker 1: an October for the ten year yield, so potentially more
Speaker 1: pain to come. Who's feeding that pain our field? Bond
Speaker 1: investors are certainly feeling that pain. The global aggregate impact.
Speaker 1: It had its best January ever and those gains almost
Speaker 1: got wiped out in February, So bond investors are certainly suffering.
Speaker 1: At the very least, they're looking at the potential that
Speaker 1: this year, if it is going to be gains is
Speaker 1: going to be gains eked out rather than a strong
Speaker 1: bounce back which they were looking for. There's also been
Speaker 1: pain spreading across the equities as they have lost momentum.
Speaker 1: And again they initially they were holding up okay when
Speaker 1: done to turn south, and there was some thought that
Speaker 1: the strong correlation we had seen between the two usually
Speaker 1: not correlated asset classes was going to break instead that
Speaker 1: swinging back, and that's likely a bitter case until the
Speaker 1: tightening cycle is definitively over. Yeah, I mean, it's really
Speaker 1: interesting because we didn't really see the reaction in say,
Speaker 1: the mega tech companies that we might have expected in
Speaker 1: quote unquote more normal times. That has yet to come,
Speaker 1: I guess too potentially. Yeah, well, I mean, and that
Speaker 1: depends a lot on how the economy develops. If you
Speaker 1: look at consumer sentiment drawing higher, the City Group Economics
Speaker 1: Prize Index shows that most data releases are beating expectations.
Speaker 1: So and yeah, the Atlanta our Fair tractor is a
Speaker 1: decent level and it comes to GDP, So the economy
Speaker 1: is showing a fair bit of resilience. As long as
Speaker 1: the economy shows resilience, you can hold out hope that
Speaker 1: equities in particular, look get through this with decent games,
Speaker 1: or even better than decent games, especially when you're thinking
Speaker 1: of text. Worry has to be that there's still a
Speaker 1: strong expectation for a recession, so at some stage of
Speaker 1: recessions gain't hit. That's still the base case for most investors.
Speaker 1: And the question is, you can meg Tex and other
Speaker 1: companies hold on to the gains that they've booked so
Speaker 1: far this year if we do get a recession, especially
Speaker 1: if it's a deep one and not a shallow recession.
Speaker 1: But if the labor market tightness doesn't weaken a little bit,
Speaker 1: how can we possibly get a recession? Well, and to
Speaker 1: some extent that's defends reasoning and willing to go higher
Speaker 1: and higher on rates to make sure inflation comes down.
Speaker 1: You know, they regularly refer to the lessons of the
Speaker 1: nineteen eighties where they eased off too soon is the
Speaker 1: received wisdom, And they ease off too soon why because
Speaker 1: it look like the economy was going into recession. But
Speaker 1: why should say ease off now unless inflation is visibly
Speaker 1: on its way down sustainably to the target range, if
Speaker 1: the labor market is still this strong, if the signs
Speaker 1: of recession aren't there. They kind of said, look, we're
Speaker 1: not going to stop until inflation is down, even if
Speaker 1: we're risking a recession, and at the moment it doesn't
Speaker 1: look like the risking a recession, so why stop. We
Speaker 1: did get the minutes this week too, though, Garfield, and
Speaker 1: it seemed like because we didn't know as much then
Speaker 1: as we know now, FED officials were also willing to
Speaker 1: believe that things were going in their direction, when in fact,
Speaker 1: then we got this massive jobs reward and plenty of
Speaker 1: economic data that suggested inflation wasn't coming down. Our FED
Speaker 1: officials willing to believe that the lag is actually shorter
Speaker 1: than it is. Too well, I think FED officials are
Speaker 1: very much you watch and respond mode. Part of the
Speaker 1: point of the steep rate hikes from last year was
Speaker 1: precisely to get from extremely loose conditions where they were
Speaker 1: helping to exacerbate an overheated economy to restrict fift territory. Now,
Speaker 1: from the first point of view, now that they're in
Speaker 1: restrictive territory, they can take smaller steps as they increase
Speaker 1: that level of restrictiveness, or even pause for a while
Speaker 1: to see if that level is as restrictive as they
Speaker 1: need to get. But that's very different from a scenario
Speaker 1: where they say, oh, okay, we've done enough, therefore we
Speaker 1: can look to cut rate again. They're only going to
Speaker 1: look to cut rate if a inflation is back down
Speaker 1: very close to target and they can see that the
Speaker 1: economy is really really in trouble. Now in the short
Speaker 1: term of they're more alert for our signs that the
Speaker 1: economy is continuing to show more strength, and they expected
Speaker 1: then the Minute seemed to indicate fifty basis points might
Speaker 1: be back on the table, and certainly at least three
Speaker 1: twenty five basis point heights seems to be a consensus
Speaker 1: for what is the base case of what's going to
Speaker 1: be needed. And if the data continues to come in
Speaker 1: stronger than next fact that well then they would look
Speaker 1: to If they don't go fifty, then they might go further,
Speaker 1: just with their twenty five places point hikes to keep
Speaker 1: the pressure on Garfield. Since the market is still projecting
Speaker 1: a chance of a rate cause in December, does that
Speaker 1: imply to the market things there will be a month
Speaker 1: where we suddenly see the data completely fall off a cliff,
Speaker 1: because there's not that many months left between now and December.
Speaker 1: Really well, yeah, they do obviously see a fairly swift turnaround,
Speaker 1: and to be fair, previous cycles we have seen that
Speaker 1: sort of thing. We've seen a switch to ray cuts
Speaker 1: or at least to an easy bias within three to
Speaker 1: six months of the peak in the fad rate. Now,
Speaker 1: as people are in pointing out to me, the difference
Speaker 1: is this time around in casement is much more elevated.
Speaker 1: So that's going to stay the fair hands to some extent,
Speaker 1: you would think, unless the data really collapses when it
Speaker 1: comes to turning towards ray cuts. But there are a
Speaker 1: lot of difficulties in navigating the current climate because so
Speaker 1: much in the way of data and other phenomena are
Speaker 1: extraordinary in the because of the pandemic and the post pandemic,
Speaker 1: you never quite clear to what extent things can revert
Speaker 1: back to how they were in the years before the pandemic.
Speaker 1: But you know, markets and the climates inevitably do factor
Speaker 1: in historical modeling. So if you think that things are
Speaker 1: going to work the way that they worked in the past,
Speaker 1: and if you look the latest Bloomberg Economist Consensus recession
Speaker 1: indicator with it a sixty five percent chance of a
Speaker 1: US recession within a year. If you think there's a
Speaker 1: better than fifty percent chance of recession within a year,
Speaker 1: you probably think there's a better than fifty percent chance
Speaker 1: of racer within a year. Stay tuned. We continue our
Speaker 1: conversation with Garfield Rentals and moments on Bloomberg Opinion. You're
Speaker 1: listening to Bloomberg Opinion and Vannie Quinn. Let's return now
Speaker 1: to our conversation with Garfield Renals. We'll get as thoughts
Speaker 1: on the churn at the Bank of Japan and moment.
Speaker 1: But first, this process is likely to take quite a
Speaker 1: bit of time. It's not going to be we don't
Speaker 1: think smooth. It's probably going to be bumpy. And so
Speaker 1: we think that we're going to need to do further
Speaker 1: rate increases, as we said, and we think that will
Speaker 1: need to hold policy at a restrictive level for a
Speaker 1: period of time. Some final thoughts on FED chair Powells dilemma.
Speaker 1: How does FED chairs your own Powell reconcile saying we
Speaker 1: are going to get to a certain point and we
Speaker 1: are going to hold I'd also say your data dependent
Speaker 1: and you might need to move basically with a trigger finger. Well,
Speaker 1: the loadstone for the fad remains inflation, and as long
Speaker 1: as that is at the elevated level, that is you're
Speaker 1: well about the faith target. They can be clear that
Speaker 1: we are more insted in racing rates from here than
Speaker 1: in holding them alone lowering them. If it does come
Speaker 1: down strongly from here, you know, if we do get
Speaker 1: a return to the disinflationry trend that we've had, anything,
Speaker 1: that placement trend accelerates. Some way of saying, if we
Speaker 1: get inflation coming down faster than than it currently is
Speaker 1: and two levels that would be consistent, well, then the
Speaker 1: FEND could be willing to switch to an easiest to
Speaker 1: a less hawkish bias, especially if there are also signs
Speaker 1: that the economy is starting to roll over. However, if
Speaker 1: you've got inflation coming down rapidly so you can see
Speaker 1: it getting to the appropriate levels, but the economy is
Speaker 1: still burning, well, you're sort of not going to be
Speaker 1: interested in cutting rate because that would be repeating the
Speaker 1: mistakes of the verteen eighties, which is what they said
Speaker 1: they don't want to do. And you know, the feed
Speaker 1: is said the path they do think they can achieve
Speaker 1: a soft landing, but it's a very narrow path. That
Speaker 1: also signal that they're willing on the side of risking
Speaker 1: a hard landing, provided that ensure that inflation is tained
Speaker 1: this time round. They don't want to see elevrated inflation
Speaker 1: lasting for a long time and fitting into expectations. So
Speaker 1: that's part of why bond space the potential for further pain,
Speaker 1: because if the Fed is willing to stay harsher for longer,
Speaker 1: that that could keep yields higher for longer. And also
Speaker 1: why equities could face a bit of a double jeopardy, hey,
Speaker 1: because race might be higher than they think me because
Speaker 1: the feed might end up with that hard landing despite
Speaker 1: the best effort, and that's not going to be good
Speaker 1: for stops. It might be good for bonds, it's probably
Speaker 1: not going to be good for stops. Garfield Green pivoted
Speaker 1: Japan for a moment. How in control is the BOJ
Speaker 1: It appeared that traders were attacking the point five percent
Speaker 1: upper limits on the band again this week. Oh, they
Speaker 1: certainly were, and they're difficulty years. There just aren't many
Speaker 1: ten weird bonds around in Japan because the BJ's bought
Speaker 1: the more so it's not easy. The benchmark yield has
Speaker 1: closed at the two point five percent target every trading
Speaker 1: day since Jevary ten when it rose to that level,
Speaker 1: and then it's been stuck there, even if the last
Speaker 1: couple of days it's jumped above. Now, overwhelming consensus is
Speaker 1: that yield curve control is going to have to go,
Speaker 1: probably sooner rather than later. That it's not sustainable that
Speaker 1: who later will have to change things once he becomes
Speaker 1: BJA governor because the BOJA owns too much of the
Speaker 1: market already, it's dysfunctional. It causes your problems for banks,
Speaker 1: for other companies with everything that's going on, and also
Speaker 1: the concern that the end could resume steep declines unless
Speaker 1: the finds a way to buy fuel bonds. So those
Speaker 1: are all the issues and the difficulties. There's is very
Speaker 1: strong inticipation that Japanese year's going to go higher, don't.
Speaker 1: I question is when, and the secondary one is how,
Speaker 1: because there is a way. Yes. The reason worry that
Speaker 1: if you take the lid off again or even you know,
Speaker 1: shifted a little bit higher, that all sorts of volatility
Speaker 1: could could break out, and in particular that you could
Speaker 1: get foreigners fleeing the short end of the market where
Speaker 1: they've been looping the rewards of the cross currency basis trade,
Speaker 1: and that that could send yields jumping on a range
Speaker 1: of tenors. That that could then set off an evaluation
Speaker 1: shock for Japanese investors. You'll hold those bonds now suddenly
Speaker 1: have to market to market. So there's a lot of
Speaker 1: your concerned bubbling away beneath the surface. Even as a
Speaker 1: stretch of metaphor, the Bank of Japan pushes down hard
Speaker 1: on the lid of the borrowing clothing that it claims
Speaker 1: to control. Right, I mean, it's a terrifying prospect for
Speaker 1: casual way. The end national core CPI is at four
Speaker 1: point three percent, so it's not as if it's helping
Speaker 1: really in terms of inflation or what the longer run
Speaker 1: outlook for inflation will be. Obviously Japan wants it back
Speaker 1: up to two is casual way they're suddenly going to
Speaker 1: innovate in monetary policy and think of something new. Well,
Speaker 1: that would be one way to result. The difficulty is,
Speaker 1: you know, what can they come up with and how
Speaker 1: do they try and move back to a more normal
Speaker 1: way of doing things when they own so much of
Speaker 1: the bond market and may also have a government that
Speaker 1: season needs to spend, for example, on defense and on
Speaker 1: other reforms, and so it's going to go on borrowing.
Speaker 1: It's not going to want to see Japanese yields go
Speaker 1: too high. Japan in general is it a country where
Speaker 1: they prefer to see things moved at a measured pace
Speaker 1: most of the time. So you think he's going to
Speaker 1: try to be contatory, he's going to try to move gradually,
Speaker 1: But then he himself has said at times that if
Speaker 1: you're going to end yield, curve control and negative rates,
Speaker 1: that be better to do it in one fell swoop
Speaker 1: in order to avoid everybody betting against you, and in
Speaker 1: order to be able to control the process better than
Speaker 1: if you signal or allow people to assume that it's
Speaker 1: going to be something that takes place gradual. Right now,
Speaker 1: options markets are positioning for him to retain flexibility. What
Speaker 1: are the odds and have realized I'm asking you to
Speaker 1: answer something that's really unanswerable. When do you think there's
Speaker 1: any possibility that he might actually do away with it
Speaker 1: completely in April and to surprise everybody, that's a possibility
Speaker 1: is soon to be predecessor. Corona managed to surprise markets
Speaker 1: ten years ago when he took over, and everybody knew
Speaker 1: that some sort of extraordinary monetary easing was coming, because
Speaker 1: that was part of the three arrows. But the way
Speaker 1: he did, at the extent to which he did it
Speaker 1: course huge shots. Initially, and in fact, on the first
Speaker 1: week or two of a Japanese yields jump up and
Speaker 1: then down, there was a lot of strains, There was
Speaker 1: a lot of concern, a lot of volatively and again
Speaker 1: as well and then in twenty fourteen, So for a
Speaker 1: seconds to Rota also surprise again. Even though people were
Speaker 1: expecting him to increase easing, they weren't quite sure that
Speaker 1: he shocked them with the way he did it. So
Speaker 1: there's definitely an extential for a surprise that would be
Speaker 1: very surprising to think. The more likely scenario would seem
Speaker 1: that he tries to hold the fort for a while
Speaker 1: at least while he commissioned a review or takes measures
Speaker 1: to try and improve the way the market is working.
Speaker 1: Whatever he does, in a lot of ways, he is
Speaker 1: going to surprise, because if he does do essentially nothing
Speaker 1: at the first meeting, that's also going to be a shock,
Speaker 1: and a lot is going to depend on how well
Speaker 1: he sells whatever the message is that he's sending. This
Speaker 1: is his first chance to show what he has when
Speaker 1: it comes to being a communicator of policies or potential
Speaker 1: policies and how he sees things being developing. And in
Speaker 1: particular he's also obviously talking to a very important constituency,
Speaker 1: the Japanese governing PLATH Chief Rates correspondent Garfield Reynolds. There
Speaker 1: next is your chat GPT Benign well define Benign will
Speaker 1: speak with Bloomberg's Tim Colbyn and Taipei. This is Bloomberg Opinion.
Speaker 1: You're listening to Boomberg Opinion. I'm Vannie Quinn. China may
Speaker 1: have a chat bought advantage, according to Bloomberg Compinions. Tim Kulpin,
Speaker 1: we had an IRL conversation about the ethical questions surrounding
Speaker 1: this technology that's seeing a race for territory from many
Speaker 1: of the major tech companies across the globe. Generative AI
Speaker 1: has obviously suddenly become the revelation Dure. You've pointed out
Speaker 1: that domestic internet companies in China had an advantage in
Speaker 1: search because literally the Great Firewall or the companies weren't
Speaker 1: even there in the first place, or they left once
Speaker 1: censorship threatened their product. So now China has potentially a
Speaker 1: chance again to seize the territory, explained to was your thesis.
Speaker 1: So one of the biggest struggles we're seen with chat GBT,
Speaker 1: and that's essentially a brand name of open ai to
Speaker 1: start up. One of the challenges that's seen already is
Speaker 1: that it doesn't always get dry. And then when Google
Speaker 1: came out famously just recently and showed off their own
Speaker 1: version literally in their initial ads, they made a mistake, right,
Speaker 1: So the problem is that they're gathering from a huge
Speaker 1: corpus of information while this information is conflicting, right, so
Speaker 1: you know, it mixes up east and west, north south,
Speaker 1: you know, black and white, this is sky blue, right,
Speaker 1: that kind of stuff, and like, you know, a humanise
Speaker 1: that doesn't make sense. But because it is just about
Speaker 1: it's not smart. We see a lot of stuff spat
Speaker 1: out bra chat GPT that looks very confident, it looks
Speaker 1: very authoritative, but then uncloser inspection, you realize it's rubbish.
Speaker 1: It's just not true. And that's because they are working
Speaker 1: on a very large corpus of information out there in
Speaker 1: the world, including social media things like Reddit, and you know,
Speaker 1: there's not necessarily any fact checking going on in social media.
Speaker 1: Shock corra, and so that's the problem, whereas in China
Speaker 1: it's a bit dystope into savors. In China, if you're
Speaker 1: crawling the corpus of Chinese information because of censorship, then
Speaker 1: the information you're going to see on the Chinese Internet
Speaker 1: is I wouldn't say it's it's true or accurate, but
Speaker 1: you could say it's veted to an step. Now, not
Speaker 1: all information in China has been sensed. That we have
Speaker 1: so many years of this structure of censorship and control
Speaker 1: of information that if something is online in China, on
Speaker 1: a website on social media, even if it's not necessarily
Speaker 1: true in the factual sense of at least some sense
Speaker 1: or whatever has better and said yes, it's true in
Speaker 1: our eyes. And so that means that the chat GPT
Speaker 1: versions that are being developed by companies like bay Do
Speaker 1: natis in Auli Baba, if they assume that they call
Speaker 1: only the Chinese website, then they're going to be calling
Speaker 1: vetted information. And so the information may spit out when
Speaker 1: given a query is going to be somewhat more aligned
Speaker 1: with what sense it might call accurate, and so you're
Speaker 1: going to get information that does align to be somewhat
Speaker 1: generally correct, is it You're not going to have these problems.
Speaker 1: Is it possible though, that these versions will have their
Speaker 1: own biases built in because of the nature of China censorship? Oh?
Speaker 1: Absolutely so, if you're going to use the Chinese version
Speaker 1: or a chat GPT, it's going to align with the
Speaker 1: Communist Party's view of the world. Right, So if you
Speaker 1: ask them orthically sensitive questions about US or Taiwan or
Speaker 1: China's police of the world, you aren't don't get that
Speaker 1: view of the world, right. That's absolutely going to happen,
Speaker 1: Not because the chat GPT boss itself is necessarily biased,
Speaker 1: but it's coming from a biased view of the world.
Speaker 1: You know, the corpus that is dragged, you know, it's
Speaker 1: pulling its data problem is going to be aligned with that.
Speaker 1: So that's definitely going to be a problem. But in
Speaker 1: the initial phases of training, this stuff around very very
Speaker 1: very early days of all that is happening. This is
Speaker 1: a ten twenty year thing, and the very early days
Speaker 1: of it. The biggest risk you have with any of
Speaker 1: these chat bots is either keeps spinning out bad information
Speaker 1: people won't rely on and they won't trust it. They
Speaker 1: may move away from it, and the other thing is
Speaker 1: you can manipulate it. Right. It wouldn't take much for
Speaker 1: me to set up a chat GPT bot, find a
Speaker 1: topic that I want to basically rewrite the narrative on
Speaker 1: balloons in the Sky and UFOs for example, and I
Speaker 1: could just use chat GPT to create, for example, to
Speaker 1: create a lot of false fake news and then post
Speaker 1: that on various websites. Act to create a website, I
Speaker 1: could put it on Reddit, and then this corpus. As
Speaker 1: these corpuses of data they train on get updated, it
Speaker 1: would be taking in the fake news that I've created,
Speaker 1: So it would be this echo chamber of problematic false news.
Speaker 1: And you can do that in the West because we
Speaker 1: have basically free speak. In China, much more difficult to
Speaker 1: do that. So the misinformation in China would be state
Speaker 1: responsored misinformation, which you can control and you can put
Speaker 1: it in what a direction life. But when it's in
Speaker 1: a Western countries or those more free and open information
Speaker 1: my theories, the parents actors could come in and use
Speaker 1: these tools, manipulate them and poison the data, poison the
Speaker 1: well of information they're using to train. So by do
Speaker 1: as announced, it's going to debut about next month, Ali
Speaker 1: Baba is already conducting internal tests on a chat tool,
Speaker 1: and Neetti's is also unveiling plans to offer something that's
Speaker 1: slightly different sphere there that's an education. Given that Internet
Speaker 1: seems so much more regulated in China, do you imagine
Speaker 1: that users will come from around the world to use
Speaker 1: the Chinese ones and vice versa, that perhaps Chinese companies
Speaker 1: or Chinese individuals even we'll want to use US ones
Speaker 1: or will this be something that will be very tailored
Speaker 1: to specific markets in terms of territory. Yeah, I think
Speaker 1: I think that's a key point. I think we're back
Speaker 1: to where we were in fifty years ago with search engines,
Speaker 1: where you know, Baidu has had the market to search
Speaker 1: in China for a very long time because the Western
Speaker 1: companies like Google and who really couldn't get access to
Speaker 1: the market. So we'll be back to that point. What
Speaker 1: we will see is ACCURSS is a huge issue. We
Speaker 1: don't have data from open Ai now about how accurate
Speaker 1: they are that released in the data. I think at
Speaker 1: some point they will have to. But at some point
Speaker 1: in future, when bay Do, Ali, Baba, Microsoft, Google, all
Speaker 1: these companies start coming out with various metrics about how
Speaker 1: good their chat bots are. That'll be saying we're going
Speaker 1: an accuracy rate of this, or maybe third party researchers
Speaker 1: academics will do research and come out with accuracy numbers.
Speaker 1: We will actually see the Chinese versions have that accuracy
Speaker 1: rate because they're pulling from a smaller corpus of data.
Speaker 1: But in the longer term it won't matter because you know,
Speaker 1: China is not going to allow Microsoft and Google and
Speaker 1: all the other overseas chat bots to service the Chinese market.
Speaker 1: That's not going to happen. And now with the way
Speaker 1: things are training with TikTok for example, and struggling even
Speaker 1: stand in the US, I don't imagine that by the
Speaker 1: chat bots Ai or Ali Baba's chatbot AI is going
Speaker 1: to be allowed to access the American market. So we're
Speaker 1: going to have a very distinct kind of market for
Speaker 1: the two, and that will allow both of them to
Speaker 1: claim that they're better the other better one maaticus. It
Speaker 1: will never be a head to hit that chap. Is
Speaker 1: there something that usmpanies can learn though from China companies?
Speaker 1: You say that content self regulation is built into the
Speaker 1: DNA of Chinese internet companies, and obviously that's something that
Speaker 1: resonates because content self regulation. I suppose there's another word
Speaker 1: for potentially another phrase for a censorship, but the fact
Speaker 1: that China is doing it and has been doing it
Speaker 1: for a long time and has managed to sort of
Speaker 1: police this crazy wild West. Is there something that a
Speaker 1: Facebook and a Google and all of the others can
Speaker 1: learn well, it would be a dangerous thing for foreign
Speaker 1: website social media companies and put forth to go down
Speaker 1: that road. I don't think it's worked out for the
Speaker 1: chat people, and I think in the long term, I
Speaker 1: don't think it's sustainable these arguments to be made about
Speaker 1: you know, why China needs could do this to keep
Speaker 1: social stability and so forth. I really think in the
Speaker 1: long term it's a net negative. I think the real
Speaker 1: struggle that the companies in the West, not just the US,
Speaker 1: in the Western general I kind of face with these
Speaker 1: kind of AI chat box and so forth, is ensuring
Speaker 1: that the data they're using informant and train on is clean,
Speaker 1: is correct as correct information. I think that problem can
Speaker 1: be solved over time. I don't think they're going to
Speaker 1: be able to rely on content moderators, But if you've
Speaker 1: waited more heavily to authoritative sources such as say, US
Speaker 1: outlets or government information. So if you want to write
Speaker 1: about stars and telescopes and supernova you probably would wait
Speaker 1: that more to say the European or the North American
Speaker 1: space agents. You rather some blog or some Facebook post. Right,
Speaker 1: academic journals might be a place you might want to
Speaker 1: more heavily wait over something you see on Twitter. So
Speaker 1: there's ways that you can wait these things to more
Speaker 1: authoritative things of variative sources. And you know you might,
Speaker 1: for example, have news media up higher compared to social
Speaker 1: media now of course, or people disagree with that, say
Speaker 1: mature media can't be trusted, but there is ways that
Speaker 1: you can keeper with it to ensure that you're wasting
Speaker 1: it more heavily towards known author its sources. Over time,
Speaker 1: the AIS can learn from that, so it is it's
Speaker 1: not a helpless problem. It can deal with. It's just
Speaker 1: a matter of ensuring that these companies slow down, don't
Speaker 1: rush to get things out, slow down and really think
Speaker 1: very very carefully about the sources of their data and
Speaker 1: not being not hard to put every bit of data
Speaker 1: available into the training algorithms so that they can have
Speaker 1: better returns. To be the output, Bloomberg Opinions, Tim Colvin,
Speaker 1: Bloomberg Opinions. Alexis Leanders joins now to discuss a problem
Speaker 1: with the housing market that started as a gift. So, alexis,
Speaker 1: what do the data show us about homeowners with mortgages
Speaker 1: who already have a rate below four percent? What kind
Speaker 1: of situation are they in right now? We see that
Speaker 1: about two thirds of homeowners right now who have mortgages
Speaker 1: are sitting pretty if you well, with a rate below
Speaker 1: four percent, So that means, you know, they purchase homes
Speaker 1: or they refinance that they have pretty low rates, and
Speaker 1: many of them are feeling stuck. There's this lock in
Speaker 1: effect where if they were to buy a new home,
Speaker 1: they would lose that rate, and sometimes if they have
Speaker 1: a three percent rate be looking at a six plus
Speaker 1: percent rate. So because of that, so many homeowners are
Speaker 1: feeling stuck. You know, they're lucky enough to have a
Speaker 1: low rate, but they're afraid to move, or they're just
Speaker 1: worried that the costs are going to be so exhorbiting
Speaker 1: compared to where they are right now. What if you
Speaker 1: don't want to move, what can you do? You feel
Speaker 1: like your current home is too small or too old
Speaker 1: or has things about it that you want to change.
Speaker 1: You know, then maybe it's worth taking out a second
Speaker 1: mortgage to renovate, and then you can stay put. You
Speaker 1: don't have to give up your old mortgage rate. You
Speaker 1: take on a new mortgage rate that, yes, is going
Speaker 1: to be more expensive, but combined, when you have this
Speaker 1: blended rate, you actually may be paying less than you
Speaker 1: would be if you went out and bought a new
Speaker 1: home or try to do a cash out refly on
Speaker 1: your assisting home. So how does a second mortgage work
Speaker 1: in that case? Then? Do you just get the prevailing
Speaker 1: mortgage rate for a certain amount of money, But obviously
Speaker 1: it wouldn't be as much of an amount of money
Speaker 1: as if you're actually buying home. That's exactly right. So
Speaker 1: basically what you do is you tap the equity in
Speaker 1: your home and you take out a lump sum at
Speaker 1: a fixed rate, typically for years, while keeping the original
Speaker 1: mortgage intact. So because of that, second mortgages tend to
Speaker 1: be for smaller amounts, and they're also known as home
Speaker 1: equity loans, but they're different from home equity lines of credit.
Speaker 1: There the rates are variable, as is the amount you're extended.
Speaker 1: A line of credit, so you know, you may borrow
Speaker 1: more or less, but with the home equity loan or
Speaker 1: the second mortgage, you're basically taking out a fixed thumb.
Speaker 1: Do you cassion on the amount that your home is
Speaker 1: appreciated by and try and buy something maybe just a
Speaker 1: little better or not, because if you buy something a
Speaker 1: little better, you're going to be as you say, siman
Speaker 1: buy that new mortgage rate, right. And that's why. Also
Speaker 1: I want to point this out, is home equity is
Speaker 1: still at records. Yes we've seen home prices dip a bit,
Speaker 1: but they're still up forty percent. So because of that,
Speaker 1: people are sitting on an extreme amount of wealth in
Speaker 1: their actual homes. So that's part of this idea of
Speaker 1: well how can I leverage my home? Don't want to overleverage,
Speaker 1: We don't want to go back to the dangerous space
Speaker 1: leading up to the Great Recession. But what can people
Speaker 1: do safely to kind of tap the equity in their
Speaker 1: home and be able to renovate or use the proceeds
Speaker 1: to pay down debt or do smart things with that money,
Speaker 1: Because again, they're sitting on their homes that are worth
Speaker 1: quite a lot. And that's why. So if you were
Speaker 1: to do a cash out refi. There's a very helpful
Speaker 1: example from Laurie Goodman over at the Urban Institute's Housing
Speaker 1: Finance Policy Center. Let's say you want to take out
Speaker 1: one hundred thousand dollars in home equity. If you were
Speaker 1: to do a cash out refi, you would say, pay
Speaker 1: around a six and a half percent new interest rate
Speaker 1: on a loan. You would have a monthly payment of
Speaker 1: about nineteen hundred dollars. But if you keep your existing
Speaker 1: mortgage rate, let's say three percent, you take out a
Speaker 1: second mortgage at a much higher rate. Even when you
Speaker 1: blend that together, your total monthly payment for both loans
Speaker 1: is probably going to be less than it would be
Speaker 1: if you did the cash out refi. Now, alexis not
Speaker 1: all banks, Not even many of the traditional banks do
Speaker 1: second mortgages, do they? Right? Some do. I think you'll
Speaker 1: have a better chance if you aren't interested in doing
Speaker 1: a second mortgage looking at some of the non traditional lenders.
Speaker 1: Rocket Mortgage offers a product Pennymack does as well. They've
Speaker 1: all introduced versions relatively recently, and again, just keep in
Speaker 1: mind that you will have to have good credit in
Speaker 1: order to qualify for these things. Probably not quite as
Speaker 1: high a credit score as you need to have with
Speaker 1: the home equity line of credit, but you'll still have
Speaker 1: to have a good credit score, documentation of income to
Speaker 1: show that you have the ability to repay, and so forth.
Speaker 1: So I do think we're going to see more interest
Speaker 1: in these products than we have in the last few years.
Speaker 1: And do we have any date on how many people
Speaker 1: are tapping into them yet or whether that number is rising. Yes.
Speaker 1: According to Equifax, from January to August of twenty twenty two,
Speaker 1: second mortgage origination totaled more than fifty billion. It was
Speaker 1: about fifty three billion. Now, remember it's a very very
Speaker 1: tiny sliver of the overall, you know, tillion dollars mortgage
Speaker 1: market plus, but that fifty three billion is a fifty
Speaker 1: percent jump from the previous year. So there is more interest,
Speaker 1: that's for sure. Bloomberg Opinions Alexis Leander's there. Well, that
Speaker 1: does it for this week's opinion. Do feel free to
Speaker 1: get in touch. I'm at Vannie Quinn on Twitter or
Speaker 1: email me at v Quinn at Bloomberg dot net. We're
Speaker 1: produced by Eric Mallow. Stay with us. Today's top stories
Speaker 1: and global business headlines are coming up right now,