🎙️ In Green We Trust

🇨🇭For the 13th straight year, Switzerland was named the world’s most innovative country.

That’s what world-class education, business-friendly policies, and a skilled workforce will do for you. A little Swiss cheese that melts wonderfully in your sandwich might not hurt 🧀

As our Chart of the Day demonstrates, Sweden, the U.S., and the U.K. also ranked in the world’s top five.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• Microsoft lands OpenAI’s Sam Altman

• Why Argentina wants to dollarize its economy

• DOJ seeks more than $4 billion from Binance

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

💼 Sam Altman Joins Microsoft After OpenAI Ouster

Well, that was fast. 

Add another win to Team Microsoft, which just hired Sam Altman to lead a new artificial intelligence research team. 

Rewind the drama, please: On Friday, the board of Altman’s startup, OpenAI, pushed him out over communications concerns (more below). 

• By Sunday night, Microsoft CEO Satya Nadella said one of the world’s largest companies would embrace Altman’s expertise to lead the new team. Greg Brockman, OpenAI’s president and co-founder, who resigned Friday in protest over Altman’s ouster, will join him at Microsoft.
  

• Nadella said Microsoft will move quickly to give them “the resources needed for their success.”
  

• Translation: A lot of money and space to do their thing.
  

• “The mission continues,” Altman wrote on X (formerly Twitter). 

Altman is expected to bring more talent from OpenAI with him, as many researchers threatened to quit if Altman wasn’t reinstated over the weekend (he wasn’t). 

It was a dizzying weekend regarding Altman/OpenAI drama, with many unanswered questions. OpenAI has led the artificial intelligence boom since launching ChatGPT about one year ago. 

• Altman built OpenAI into one of the world’s most valuable startups ($100 billion-plus) and cultivated a close relationship with Microsoft, which has a 49% stake in the company.

Microsoft shares are up nearly 60% year-to-date and 267% over the past five years vs. the S&P 500’s 73% gain. Microsoft (ticker: MSFT) hit another all-time high on Monday.

Why it matters:

In short: Per The Wall Street Journal, Altman wanted the current board to resign. And despite pressure from investors, the board members pushed him out and didn’t reinstate him largely because of an unusual structure in which they had more power than the investors who threw billions of dollars into the firm. Go figure. 

Clash of titans:

• OpenAI co-founder and board member Ilya Sutskever clashed with Altman around the safety of the startup’s AI efforts, though OpenAI said that disagreement didn’t lead to his firing.
  

• Instead, a source told WSJ that the board developed a “mounting loss of trust over communications with Altman,” declining to offer examples.
  

• As WSJ framed it: “The abrupt shake-up at OpenAI turns on one of the oldest tales in Silicon Valley: a breakup between a founder and his board.”

Zoom out: Altman’s ouster has drawn parallels to Steve Jobs's firing by Apple in 1985 after a power struggle with the board of directors. In 1997, Jobs rejoined the company he’d made into a billion-dollar behemoth, and from 1997 until he died in 2011, he embarked on one of the greatest runs in corporate history. 

There will be much more to follow in the coming days and weeks: Just today, Bloomberg reported that virtually all OpenAI will join Altman at Microsoft if the board doesn’t quit. 

Read more

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💵 Argentina Wants to “Dollarize” its Economy

Argentina is shaking things up. As the country struggles with extreme 143% inflation amid a history of debt defaults and decades of economic mismanagement, Argentinians have selected a political outsider, Javier Milei, to flip the script.

We’ll leave the political commentary to others. Still, one thing did catch our attention — Milei has pledged to “dollarize” the country’s economy, removing control of monetary policy from the government after the peso has lost 90% of its value in the black market relative to the U.S. dollar.

• Moving to a dollar standard promises to arrest the Argentine peso’s inflationary devaluation, but doing so is easier said than done.

What could happen: The peso will almost certainly have to further devalue against the U.S. dollar, especially as Argentina’s central bank reserves of international currencies have dwindled. According to Bloomberg, “a large currency devaluation is expected any day now.”

While several countries have embraced the U.S. dollar as their own, they have been much smaller nations like El Salvador, Ecuador, and Panama.

• “As with everything in economics, there’s no free lunch, and adopting, preserving, and benefiting from dollarization could be challenging,” commented Goldman Sachs’ economists.
  

• By adopting the dollar, Argentina would effectively outsource its monetary policy to the Federal Reserve. This poses challenges since the country has its own economic cycle, which Fed officials don’t account for in their decisions to hike or cut interest rates domestically.

Why it matters:

In Green We Trust: Bloomberg warns that “dollarizing the $622 billion economy at a time when international reserves are depleted could tip the South American nation into another bout of hyperinflation.”

But markets have reacted more warmly, with investors bidding up prices for Argentine government bonds in light of promises to slash government spending by up to 15% of the country’s GDP. Milei promised to take a “chainsaw” to the state.

• Argentine stocks leaped, too, with the MSCI Argentina ETF (ticker: ARGT) moving over 13% higher on Monday.

To properly dollarize the economy, analysts project that Argentina’s government would need to borrow another $30 billion, at a time when the country is largely cut off from global capital markets and relies on the International Monetary Fund for external financing.

• One market strategist told the WSJ, “Argentina is like a patient in critical condition, and perhaps you apply a treatment that you wouldn’t do on a healthy patient, but there’s nothing else to do.”
  

• In other words, dollarization is more of a Hail Mary than an easy-to-follow prescription for fixing Argentina’s financial issues.
  

• But, as one investor put it, “This put an end to this idea that Argentina never changes — Argentina has just voted for a big change.”

Read more

MORE HEADLINES

🧠 Get to know OpenAI’s new (interim) CEO

🤑 Warren Buffett’s Berkshire Hathaway sits on $157 billion to deploy into investments whenever the economy tanks

🧸 Toy companies are increasingly making products for adults

💉 Researchers return to exploring Alzheimer’s vaccines

⭐ NASA’s Webb telescope reveals new features in heart of Milky Way

💻 Nvidia earnings will give Wall Street a peek into AI demand for 2024

💰 DOJ Seeks More Than $4 Billion From Binance

Hey there, Binance — we’re due for a check-in. 

The Department of Justice is seeking over $4 billion as part of a resolution to a lengthy investigation into Binance, the world’s largest crypto exchange. 

Founder Changpeng Zhao, aka “CZ,” lives in the U.A.E., but he still might face charges in the U.S. because of an agreement to resolve the investigation into alleged money laundering, bank fraud, and sanctions violations, according to Bloomberg. 

• Binance and the DOJ hope to strike a balance, allowing the firm to stay in business rather than collapse, which could have significant negative consequences throughout the crypto market.
  

• “A settlement with a monitoring provision in place could be a compromise that protects investors and allows Binance the option to evolve into a more institutional and compliant future direction,” noted a partner at a crypto firm.
  

• If Binance pays the $4 billion, it would be one of the largest penalties ever in a criminal crypto case. 

Staying bullish: The news comes amid a stellar year for bitcoin in 2023, with the asset up 126% year-to-date and 27% over the past month alone.

• After a rough year for the industry in 2022 — numerous implosions, including FTX, and a major slide in the price of digital assets — it’s been much smoother sailing this year.
  

Why it matters:

The Binance case is one of the largest DOJ investigations ever into a crypto company. The agreement might come as Washington increases its scrutiny of misconduct in the digital asset sector after the high-profile conviction of Sam Bankman-Fried for multi-billion dollar fraud. 

• The DOJ wants new leadership at the company, as other U.S. agencies and lawmakers have closely monitored the exchange. To regulators, something has long smelled fishy about Binance to regulators.
  

• In June, the SEC filed a lawsuit against Binance and Zhao, accusing them of mishandling customer funds, misleading investors and regulators, and breaking securities rules.
  

• That lawsuit crushed Binance, prompting another round of job cuts in September: about 100 positions, or one-third of its workforce, was eliminated. Meanwhile, trading volumes have slowed to a halt after the exchange lost banking support and suspended U.S. dollar deposits. 

Although the digital assets space has advanced considerably in recent years, many officials in Washington still consider it somewhat of the “Wild West.” Cases like Binance underscore their view. 

Read more

QUICK POLL

On Friday, we asked: Will the Russell 2000 (small-cap stocks) outperform the S&P 500 (large-cap stocks) in 2024?

— One “No” voter warned, “Higher for longer….classic value trap.”

— One “Yes” voter commented, “I hope so,” and wished us “Greetings from a rainy morning in London.”

See you next time!

That's it for today on We Study Markets!

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