😱👋 Drama at OpenAI
Happy Sunday!
Just as AI was making a comeback in the news cycle, we get hit with news of OpenAI choosing the let go of CEO Sam Altman. In today’s issue, we cover everything you need to know about Altman’s departure and potential future plans for both Altman and OpenAI.
It’s a juicy Sunday Primer, so buckle in.
- Humphrey, Tim, & Rickie
Market Report
Leadership Turmoil at OpenAI: The Sudden Firing of CEO Sam Altman
OpenAI pressed by investors to reinstate Altman (Bloomberg)
Altman’s ousting and possible return to OpenAI: What we know (Bloomberg)
The AI and tech world have been blindsided in recent days by the sudden firing of Sam Altman, CEO of OpenAI, known for projects like ChatGPT and DALL-E 2.
Altman's departure has raised questions about the future direction of OpenAI and the broader implications for the AI industry.
The events leading up to his firing began with a call initiated by OpenAI's chief scientist, Ilya Sutskever, where Altman was informed of the decision.
This was followed by a chain of resignations including Greg Brockman, a co-founder and long-time president of OpenAI, highlighting the significant internal fallout.
The reasons behind Altman's removal, as communicated by OpenAI, were not related to any misconduct or issues concerning the company's financial, business, safety, or security practices.
Instead, it was described as a breakdown in communication between Altman and the board.
Altman is reportedly considering launching a new venture, possibly an AI chip startup, with Brockman potentially joining him.
OpenAI's major investors, including Microsoft, Thrive Capital, and Tiger Global Management, have been actively working to reinstate Altman as CEO.
Microsoft, as a major stakeholder with over $10 billion invested in OpenAI, is collaborating with other investors to support Altman's return and is also advocating for changes in the current board.
Satya Nadella, CEO of Microsoft, was reportedly ‘furious’ at the board's decision and has been in direct contact with Altman, offering support for his future steps.
The investors are also considering potential new directors for the board.
The internal response to Altman's firing has been marked by several high-profile resignations and a sense of unrest among the staff. Key figures like Greg Brockman have departed, and there is a growing possibility of further resignations.
Altman himself is open to returning to OpenAI but under a revised governance structure. Alternatively, he is considering launching a new venture, which may involve former OpenAI employees.
This situation cast a spotlight on OpenAI's unique governance structure. Founded as a nonprofit, OpenAI later formed a commercial arm still governed by the nonprofit parent.
This arrangement allowed the board to oust Altman without the consent of some of OpenAI's largest investors, including Microsoft.
Altman, having no equity in the company, had diminished influence over the board.
Post-pandemic price surge appears finally behind us
The annual wholesale price inflation has returned to pre-COVID levels, signaling a positive trend in post-pandemic economic recovery. The Producer Price Index, which reflects the wholesale prices businesses charge each other, rose by just 1.3% year-over-year in October.
This is a significant deceleration from the more than 11% wholesale inflation experienced in mid-2022. Notably, this measure has remained below 2.5% for seven consecutive months.
Americans believe high inflation is the new normal
Despite a recent decline in inflation, American consumers' expectations for future inflation remain elevated, not fully reverting to pre-pandemic confidence in low, stable inflation.
The University of Michigan's November consumer sentiment survey indicated expectations of 3.2% annual inflation five to ten years from now, the highest since 2011.
Similarly, the New York Fed's Survey of Consumer Expectations shows Americans expect 3.6% inflation over the next year and 2.7% over the next five years, both higher than pre-pandemic levels.
This mindset could influence actual inflation rates and challenge the Federal Reserve's efforts to achieve its 2% target, although historically consumer expectations have not been reliable predictors of actual inflation rates.
U.S. Retail Sales Slow Ahead of Holidays, But Remain Resilient
U.S. retail sales in October displayed resilience, declining slightly by 0.1% but still indicating a robust consumer sector heading into the holiday season.
Despite challenges like a cooling job market, lingering inflation, and higher borrowing costs, key sectors such as personal-care and grocery stores saw increases, while furniture and car dealers experienced declines.
U.S. Debt Interest Bill Rockets Past a Cool $1 Trillion a Year
The United States Treasury is likely to experience increased selling pressure into the new year as the nation's debt repayment costs are surging. According to Bloomberg, estimated annualized interest payments on U.S. government debt have exceeded $1 trillion, doubling in the past 19 months.
This estimate is based on government data regarding outstanding debt balances and average interest rates. Although actual interest costs in the fiscal year ending September 30 were lower at $879.3 billion, the recent rise in yields on long-term Treasuries suggests that the government's interest expenses will continue to escalate.
This growing financial burden could reignite debates about the U.S. fiscal trajectory, especially considering the substantial borrowing by the government, which has already contributed to increasing bond yields.
Additionally, rating agency Fitch downgraded U.S. government debt in August, reflecting these concerns.