News of the week summary - 11/19/2023

 OpenAi's CEO ousted by board

OpenAI, the creator of AI-powered chatbot ChatGPT and image creator Dall-E, has removed co-founder and CEO Sam Altman due to what the board describes as a lack of consistency in communication and actions hindering the company's responsibilities. The unexpected move was attributed to clashes over the company's direction with certain board members, particularly Ilya Sutskever, the chief scientist and co-founder.

Altman, a key figure in the AI revolution, attributed the decision to a power struggle within the board over the balance between speed and safety in AI development. Safety concerns, notably regarding the long-term implications of OpenAI's products, had been raised by Sutskever, who is establishing a team to research aligning future systems with human values.

Mira Murati, the firm’s Chief Technology Officer, has been appointed as interim CEO. The leadership change sparked concerns in the tech world, impacting Microsoft, which holds a 49% stake in OpenAI, and faced a 2% decline in its share price after the announcement.

Altman's departure raises questions about the alignment of profit and social good, as well as the broader regulatory landscape for AI development. In the aftermath, Altman expressed regret for not ensuring board loyalty and acknowledged the need for better management of internal factions. The situation remains fluid, with ongoing negotiations as the ex-CEO tries to negotiate his return, with the backing of prominent Silicon Valley leaders.

Global Inflation Trend Signals Potential Interest Rate Cuts

Inflation is declining more rapidly than anticipated across advanced economies, signaling a turning point in the struggle against rising prices by central banks. Last month saw consumer price growth fall below 5% in the UK (compared to 6.7% last month) and around 3% in both the US and the eurozone.

The decline in inflation offers relief to a global economy outside the US, where there are concerns about a potential recession, particularly in Europe. Yields on government debt in Europe and the US have dropped as investors anticipate earlier than expected interest rate cuts.

The sharp decline in inflation globally highlights common factors that initially drove up prices, including the Covid-19 pandemic and the war in Ukraine, impacting global supply chains, workforce numbers, and energy prices. As these factors subside, inflationary pressures naturally ease.

Despite the persistence of underlying inflation due to demand-side factors like government stimulus spending, economists believe that rate increases were necessary to address the situation. The UK, once an outlier in inflation, has also shown progress, with a decline to 4.6% in October from the previous month's 6.7%.

The potential for lower interest rates raises questions about whether central banks may have been too aggressive in their rate increases, impacting lending, spending, and job creation. 

Indeed, Japan's GDP has shrinked this quarter.

The nippon economy has experienced a 0.5% contraction, which follows a 1.1% growth, signaling challenges for the Japanese economy amidst sluggish household and corporate spending. The yield on Japanese government bonds fell after the release of the data as investors anticipate earlier rate cuts.

This economic contraction stands in stark contrast to the solid growth exhibited by the U.S. and China during the same quarter, highlighting regional disparities in economic performance. This adds to the expectations that the Bank of Japan's interest rates raises are likely to diminish. 

Weak private consumption, driven by consumer hesitation due to price increases, contributed to the economic downturn. The Japanese government responded by introducing a stimulus package exceeding $110 billion, including income tax cuts, to mitigate the impact of inflation and encourage spending. 

Some economists anticipate a rebound in the current wuarter, supported by a recovery in domestic demand and the return of foreign visitors. Nonetheless, global factors, including uncertainties in global economy and worries about the Chinese economic outlook add to concerns. 

Javier Milei, a self-described anarcho-capitalist, is elected as Argentina’s new president

Javier Milei won Argentina’s presidential election this Sunday evening with 56% of votes on the second round. He aims to replace the nation's peso with the US dollar to combat rampant inflation, which stands at 143%, one of the world's highest. Milei proposes eliminating the central bank's ability to print money, asserting that "closing the central bank is a moral obligation."

Economists and analysts express concerns about Milei's ambitious proposal. Dollarization has worked for smaller countries like El Salvador or Ecuador, providing price stability but not solving underlying fiscal issues. Analysts emphasize that dollarization works best for well-integrated economies, so Argentina's closed economy and unique business cycle may pose challenges in aligning with global economic trends. Without its own currency, Argentina could lack the flexibility to respond to external shocks, including commodity price fluctuations and geopolitical events. Critics argue that dollarization, while providing currency stability, is not a substitute for comprehensive structural reforms.

Following Milei's victory, Argentine assets rallied, with shares in state-run companies like YPF, the state-owned oil and gas company, surging in anticipation of privatization. However, doubts persist about the feasibility of Milei's plans. Some experts suggest that Argentina, akin to a "patient in critical condition," may be adopting an imperfect measure due to a lack of alternatives.

Jim Chanos, famed short-seller, announces closure of his hedge funds

Jim Chanos, a renowned investor known for his career in short selling, is announcing the closure of the hedge funds he manages. He attributed his decision to changes in the marketplace for short selling.

His strategy involves betting against what he deems overpriced or fraudulent companies. With a track record that includes a successful bet predicting Enron's collapse, Chanos has, in recent years, faced challenges in converting pessimistic positions into profits, especially as the broader markets continued their upward trajectory. Notably, Chanos' has struggled in his bet against Tesla as the automaker’s shares soared approximately 90% this year.