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šļø Betting on Sam Altman
[5 minutes to read] Plus: Third-quarter earnings report card
By Matthew Gutierrez and Shawn OāMalley
Yes, you can bet on the OpenAI drama š
Specifically, on betting markets like PolyMarket and Kalshi, not only can you bet on whether Sam Altman will return as CEO to the company that produced ChatGPT, but you can also bet on other contenders for the job (the current replacement CEO is in an interim role.)
š On Kalshi, as of late Tuesday afternoon, bettors think thereās a 78% chance of Altman returning to OpenAI, which is up from 59% this morning.
ā Matthew & Shawn
Hereās todayās rundown:
POP QUIZ
Today, we'll discuss the three biggest stories in markets:
OpenAIās future hangs in the balance
Third-quarter earnings season comes to an end
How high-interest rates are crushing housing dreams
All this, and more, in just 5 minutes to read.
CHART OF THE DAY
IN THE NEWS
š¬ OpenAIās Future Hangs in the Balance
āHey ChatGPT, whatās the best way to save OpenAI after its CEO has been ousted?ā We already asked the chatbot, but alas, we got no insider insights ā finally, a problem not even ChatGPT can solve.
The saga at OpenAI continued on Tuesday after āextraordinary efforts by employees and investors,ā according to the FT, to remove the board that fired Sam Altman.
But, unlike most companies, the board at OpenAI isnāt beholden to shareholders, nor is it even made up of shareholders with meaningful financial stakes in the company.
OpenAI is weird: OpenAI was created as a non-profit, with a board of independent AI specialists and ethicists to advise the organization. Its āprincipal beneficiary is humanity, not OpenAIās investors.ā
But a for-profit subsidiary was established years later, allowing OpenAI to raise funds from Microsoft and venture capitalists to backstop the enormous computing and talent costs of developing world-leading AI.
The news came as a shock to Microsoft, which learned of the boardās decision to fire Altman only minutes before it happened.
Donāt shed any tears for investors: They knew what they were getting into. In the org chart, the non-profit OpenAI, which the board is tied to, sits above the for-profit OpenAI subsidiary.
So, OpenAIās non-profit board unilaterally calls the shots, and they arenāt exactly concerned with maximizing investorsā profits.
In its agreement with investors, it promises no returns on capital and says investments should be made āwith the understanding that it may be difficult to know what role money will play in a post-AGI (artificial general intelligence) world.ā Wonky stuffā¦but hey, this is Silicon Valley weāre talking about.
In other words, OpenAI was established with aspirations to create an AI-powered utopia that may exist in a world not bound by the normal rules of capitalism, or even money, for that matter.
Why it matters:
Aside from Sci-fi and strange corporate structures, OpenAI itself (both the non-profit and for-profit versions) faces its own existential challenges rather than dealing with existential questions about AI and humanity.
The number of OpenAI employees threatening to quit and join Microsoft if the board doesn't resign and reverse its Friday decision to remove Altman has reached 95%.
Microsoft wins: If everyone abandons ship to work for Microsoft, you might argue that Microsoft pulled off a full acquisition of OpenAI essentially for free.
It invested billions to own a share of a for-profit OpenAI subsidiary without power over the non-profit parent organization. Now, it may control OpenAI's talent and intellectual property without additional investment.
As Ben Thompson puts it, āYou can make the case that Microsoft just acquired OpenAI for $0 and zero risk of an antitrust lawsuit.ā
TOGETHER WITH THE ASSIST
Welcome to The Assist's 2023 Corporate Holiday Gift Guide! š
Discover a handpicked collection of this season's hottest finds, ranging from cutting-edge tech to luxurious indulgences guaranteed to delight your team and clients.
š With options for every budget, we've got your holiday shopping covered ā consider it checked off your to-do list!
š No More Earnings Recession
The third-quarter earnings season is (unofficially) over after Walmartās report last Thursday. Despite worries about an ongoing āearnings recessionā ā two or more consecutive quarters of falling profits across major companies ā the latest round of corporate reports ended the trend.
Profits had fallen at S&P 500 companies from Q4 2022 through the first two quarters of 2023.
How things shaped out: Consumer discretionary companies held particularly strong, padding the narrative that American shoppers remain resilient, with per-share profits in the sector rising some 40% ā driven most by Amazon.
According to Factset, 82% of S&P 500 companies reported a āpositive earning surprise,ā meaning their profits exceeded analystsā estimates.
This time around, only 276 of S&P 500 firms mentioned āinflationā during their earnings call with investors, marking the fifth straight quarter where fewer companies referenced inflationary challenges.
Still, the 10-year average for invocations of āinflationā is 173, so inflation concerns remain above average.
Why it matters:
In addition to fewer concerns about inflation, there were fewer mentions of ārecessionā in this quarterās calls. Based on the number of S&P 500 companies citing ārecessionā on calls, recession fears peaked at 237 in the second quarter of 2022 and dropped to just 53 this past quarter.
Eight of the eleven sectors that classify S&P 500 companies reported rising profits since last year, with only Energy, Materials, and Health Care seeing declines.
As another cause for optimism, this quarter saw the highest percentage of companies beat Wall Street profit projections since Q3 2021, coming in well north of 5-and-10-year averages, too.
In summary: Things were good. Not great, but very, very solid. As always, there are plenty of anecdotes to focus on to find reasons for concern, though the consensus feeling is optimistic.
Of course, markets remain forward-looking, and changes in projections for next quarterās earnings will carry far more weight going forward than these recent results.
Read more (Factset earnings report card)
MORE HEADLINES
š¤ Binanceās CEO āCZā steps down as part of $4 billion settlement with DOJ
š 15 million students in the U.S. chronically miss school
š McDonaldās invests more in China to tap ātremendous opportunityā
ā³ Tiger Woodsā tech-focused indoor golf league postponed to 2025
šø The top 100 world photos of 2023
š¼ The jobs with higher income and fewer hours
š How Higher Interest Rates Are Crushing Housing Dreams
We know that interest rates have slowed the housing market. But how have they specifically impacted prospective buyers worldwide?
For millions of people, homeownership is the primary way they build wealth, especially in countries with less robust stock markets.
But a shortage of homes and interest rates around 22-year highs have made housing unaffordable to people on average incomes.
The U.S. market is effectively frozen, as homeowners locked into low-rate mortgages wonāt budge. Who could blame them?
What this means for the middle class: Financial security has become more elusive.
The golden age: There are big winners ā longtime owners who have equity from the soaring value of housing. And then there are the losers, stuck grappling with getting by and making monthly payments.
āThe golden age of single-family housing is behind us,ā said an economist at Moodyās. āIf you bought in the wake of the financial crisis, you built up a lot of equity in most parts of the world, but the next 10 years is going to be more of a slog.ā
Many economists expect the U.S. 30-year mortgage rate to sit around 5% or 6% in the next decade, down from its 7.4% level today but far higher than the 2.65% low in early 2021.
Unaffordable: Commercial properties face much stronger headwinds in the real estate world. But consumers are reckoning with a world where rates and mortgage payments are much higher than they imagined just a couple of years ago, and itās too hard to ignore.
Low inventory, high prices and rates have made this market the least affordable in four decades: About 40% of the median household income is required to buy a typical home.
Why it matters:
The impact will play out for years, with transactions falling ā some economists believe 2024 could be the worst of the residential real estate market, with fewer transactions next year than at any point since the early 1990s.
Glacial period? āIn some ways, weāre in the early stages of this glacial period, and itās unlikely to thaw anytime soon,ā noted a University of Pennsylvania Wharton School professor. āThis weirdness can last for a long time.ā
That could mean less job mobility, forcing family and friends to live together, and older Americans staying put rather than selling to younger generations.
Meanwhile, many homeowners are sitting on near-record home equity. Most of them are unaffected by rate hikes.
Bottom line: Affordability may improve as price increases slow down and rates fall, but economists see a āslow punctureā rather than a housing crash. In other words, itās a relatively calm economic slowdown that doesnāt result in heavy job loss or housing distress.
QUICK POLL
Do you think AI poses existential risks for humanity?Sam Altman was reportedly removed by OpenAI's board due to concerns about AI's existential risks to humanity, which Altman apparently wasn't worried enough about |
Yesterday, we asked: How much of a raise do you need to be āhappyā?
ā One in three respondents said they need a roughly 10-20% raise to be āhappy.ā
ā Wrote one reader: āHappy is not going to happen in this economy, but 20-30% should help tread water ātil things improve.ā
ā Another said, āThere is no good amount.ā
TRIVIA ANSWER
See you next time!
That's it for today on We Study Markets!
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