TheChek News Flow

There is little sign of crimped demand for equities among individual investors, who remain bullish after two years of blockbuster gains

Stocks haven’t looked this unattractive, by at least one measure, since the aftermath of the dot-com era. Plenty of investors are piling in anyway.

The equity risk premium, often defined as the gap between the S&P 500’s earnings yield and that of 10-year Treasurys, turned negative in late December for the first time since 2002 and sat last week at negative 0.15 percentage point.

The metric is based on a calculation of how much stocks yield, which is derived by dividing the stock market’s expected earnings by its price. The earnings yield is then compared with the yield on government debt.

The difference between stock and bond earnings yields shows how much investors are compensated for the additional risk of owning stocks over relatively risk-free government bonds. Over the long term, stocks need to promise a higher reward than bonds. If not, the safety of Treasurys would outweigh the risks of stocks losing some, if not all, of investors’ money.

In recent weeks, a combination of higher Treasury yields and soaring equity valuations pushed the equity risk premium into the red. That could pose a threat to the recently rekindled stock rally.

In reality, though, there has been little sign of crimped demand for equities among individual investors, who remain bullish after two years of blockbuster gains.

“I think you get what you pay for,” said Mike Ugino, a 73-year-old retired surgeon in Columbia, S.C. High valuations haven’t deterred him from scooping up more shares of Robinhood Markets, Nvidia and Intuitive Surgical in recent weeks.

Despite his age, Ugino keeps more than 80% of his portfolio in equities and said he believes tech stocks including Tesla and Meta Platforms can keep powering double-digit-percentage gains in major stock-market indexes in 2025.

“I don’t think you can sit back and have a 60-40 portfolio. I think that’s the stone age,” he said, referring to the traditional mix of stocks and bonds that was for years considered a safe and steady way to expand one’s nest egg.

“You want to make sure you’re invested with these companies that are proven winners,” he added. “You don’t want to bet against these guys. You don’t want to bet against Elon Musk.”

In the coming days, investors are awaiting the Federal Reserve’s next interest-rate decision and a spate of corporate earnings from the likes of Tesla, Microsoft and Starbucks as they weigh whether or not stocks look pricey.

Ugino is far from alone in his optimism. Investors poured $62.5 billion into U.S. equity mutual and exchange-traded funds in December, according to Morningstar Direct data, the highest monthly inflow on record.

The postelection stock rally found its second wind earlier this month after a round of reassuring inflation data brightened investors’ economic outlook. The S&P 500 set its first record of 2025 on Thursday and is up 3.7% this month.

Optimism among investors swelled. The percentage who are bullish and expect stock prices to rise over the next six months jumped to a seven-week high of 43.4% for the period ended Wednesday, up from 25.4% a week before, according to survey data from the American Association of Individual Investors.

Some factors that helped fuel last year’s blockbuster gains—such as the promise of artificial intelligence—are driving confidence.

Despite being a former bond trader, Robin Davis Wilson keeps the entirety of her $1.7 million portfolio in the stock market. Big tech stocks including Apple, Amazon.com, Microsoft and Nvidia comprise about 60% of her investments.

“That’s almost an anomaly, for someone my age to be that aggressive,” the 61-year-old small-business owner said. “I’m a big believer in these big stocks.”

Wilson has firsthand experience with how a bet on big tech can pay off. She purchased $100,000 of Nvidia shares in 2021, before the stock soared. That investment, which she still holds, is now valued at seven times that amount.

She is monitoring potential risks to equity prices, such as the threat of another interest- rate increase or the impact of President Trump’s economic policies. But those headlines are unlikely to shift her strategy.

“There’s going to be some volatility, but it’s not going to change my course of action,” she said.

U.S. investors’ affinity for equities has been shaped by a series of challenging years for the bond market. In 2022, the classic 60-40 strategy fell apart when both stocks and bonds sank in tandem, shrinking many households’ savings. For the first time in decades, fixed income didn’t act as a hedge against a stock-market downturn.

Now, bond investors are worrying that a tough market could get worse if the Trump administration raises the federal deficit or enacts inflationary policies such as tariffs.

“The majority of advisers that we’re working with, they’re buying bonds for protection,” said Tim Urbanowicz, chief investment strategist at Innovator Capital Management. “I think 2022 really woke a lot of people up to the fact that it doesn’t always work that way.”

The yield on 10-year Treasurys peaked above 4.8% two weeks ago and settled Friday at 4.624%.

Persistently high yields could pressure the equity risk premium and threaten stocks’ rise. Market watchers are monitoring those odds. In a recent Bank of America Global Research survey of fund managers, 36% said they see a disorderly rise in bond yields as the most bearish potential development this year. That number ticked higher from December.

The former Gucci president and CEO is said to be busy raising funds to invest in the Milan-based fashion brand.

Some new names have surfaced in the race to buy Versace — including former Gucci chief Marco Bizzarri, who is looking for a major coup in his new career as an investor, according to sources.

But he has plenty of competition in the process, which has Barclays drumming up buyers for both Versace and Jimmy Choo on behalf of Capri Holdings. The auction is said to have started off with about 15 would-be buyers and it’s now down to half of that, with next round bids expected to be finalized in early February.

Prada Group’s interest has been buzzed about for some time, but among the other players are said to be Bahraini firm Investcorp, private equity company Permira and others. Ferrari-owner Exor was also said to have taken a look, but has apparently decided to pass.

As is typical in the secretive world of high-stakes dealmaking, the parties either did not respond to a WWD query on Sunday or declined to comment on the record.

Each investor is coming to the process with their own strategy and not everyone is bidding on all the assets.

But the focus is on Versace, which is still seen as a top-tier brand with tremendous global appeal even though it’s struggled under Capri.

“Versace is the commodity that people see value in,” said one source familiar with the process.

“The pure financial sponsors are looking at [the assets] and saying, ‘OK, there’s opportunity,’ everyone sees the value in the brand, if you can get it at the right price and the right leverage,” the source said.

The fashion-centric players — including Prada and Bizzarri — could have an advantage with well-developed networks to build the brand. Strategic buyers, like Prada, can also afford to pay more by saving money later with back-office consolidations.

Miuccia Prada and her son, Lorenzo Bertelli, are said to be particularly interested in Versace. While Prada’s involvement was initially viewed skeptically or as simply an opportunity to get a peek at a competitor’s books, the company is said to still be in the running.

“I wouldn’t be surprised if Prada ends up taking both [Versace and Jimmy Choo],” said one source. “They have the means. They have to figure out if they’re going to try to compete with Kering or are they going to focus on Prada and Miu Miu.”

However, many people remain skeptical that Prada will ultimately walk away with the brands.

Sources say the contract of Donatella Versace, chief creative officer of the Italian brand, is up in February. The speculation surrounds whether she — or Capri — will renew it.

Bizzarri and Prada’s interest could support speculation that Dario Vitale, former Miu Miu ready-to-wear design director, might succeed Donatella Versace. A source said Vitale is a thoughtful designer that is not prone to rash decisions and would be mindful of getting involved with the brand while the sale process is underway.

Donatella Versace reached a $2.1 billion deal to sell her family’s company to the-then Michael Kors Holdings in 2018, which subsequently changed its name to Capri. The company is widely seen as considering its options for both Versace and Jimmy Choo — and perhaps even for Michael Kors — since Capri’s $8.5 billion buyout by Tapestry Inc. was dropped following an antitrust challenge from the U.S. government.

Versace’s first-half revenues fell 22.1 percent to $420 million, but Capri chairman and chief executive officer John Idol recently said the brand could bounce back by “engaging and energizing both new and loyal consumers, broadening our product offering, improving store productivity and returning our wholesale business to growth.”

For Bizzarri, who is said to be working to secure funds for the deal, buying Versace would cement his second career in dealmaking.

The former Gucci president and CEO told WWD earlier this year that he was “prioritizing investments in creative entrepreneurs, business leaders and great Italian brands.”

Bizzarri has already dipped his toes into the investment fund pool with the acquisition of a 23 percent stake in Elisabetta Franchi, becoming chairman of the Italian fashion company. This deal was done through his personal holding, Nessifashion, last spring.

And in 2021, he took a stake and became a partner in Orienta Capital Partners, which specializes in investments in small- and medium-sized companies with strong growth potential.

Orienta Capital Partners was cofounded by Mario Gardini in 2011 and he and Bizzarri go way back as they are both from the Emilia Romagna region — as is Franchi — and worked together early in their careers in Bologna at both Arthur Andersen and Mandarina Duck in the 1990s.

His first investment, leading FOREL with Gardini as an advisory company to FARO Alternative Investments, was in design, leading the acquisition of Visionnaire last April.

FOREL entered into an agreement on behalf of the FARO fund to acquire a majority stake in the Italian luxury interior design brand with the goal to accelerate its international expansion.

As reported, FOREL is supporting a sub-fund of the newly launched FARO Alternative Investments. As per its mission statement, the FARO Fashion, Luxury and Design sub-fund targets “global companies with strong brand recognition and high business potential.” FARO Alternative Investments SCSp SICAV-RAIF is a Luxembourg-based umbrella fund managed by Crestbridge Management Company SARL with FARO Value SpA S.B. operating as lead adviser. Its aim is to fundraise 1 billion euros.

Twenty years ago, the hotel magnate stepped down from Starwood, which later sold to Marriott for $13 billion. Now, he wants to give it another go.

Barry Sternlicht made a fortune building Starwood Hotels and Resorts, which birthed successful brands like W Hotels, into a giant of the travel industry.

Now he wants to do it all again — under the Starwood name.

Mr. Sternlicht is resurrecting the Starwood Hotels brand starting in February, nine years after the previous company was sold to Marriott in a $13 billion deal that created the biggest hotel chain in the world. His current hotel company, SH Hotels & Resorts, will take on the Starwood name.

The move is a sign that Mr. Sternlicht, 64, wants to reassert himself as a force in hospitality 20 years after stepping down from Starwood. Since then, he has focused largely on Starwood Capital, the $115 billion private equity firm where he created Starwood Hotels.

Hotels have remained part of part of Starwood Capital’s business, with Mr. Sternlicht buying and selling them just as he has apartment buildings and other properties. But since 2015, he said, he has wanted to have another crack at making a mark on the hotel-management industry under the Starwood name.

“I’m kind of like a singer having one song,” he said in an interview. “I want to have two songs.”

Reviving the Starwood name may seem like a small change in the grand scheme of things; indeed, Marriott had retired it years ago. But beyond his attachment to the name, Mr. Sternlicht believed getting it back would raise the company’s profile and help with recruiting. He took back the brand last year.

It’s the latest step in Mr. Sternlicht’s campaign to build a new hotel empire. By the time Marriott acquired the Starwood of old, that company oversaw more than 1,300 properties in 100 countries, with brands including Westin, W, Sheraton and St. Regis. The newly reborn Starwood has three brands so far, with 14 hotels in five countries.

It will likely be benchmarked against what Mr. Sternlicht achieved the first time around.

A real estate investor by background, Mr. Sternlicht hadn’t worked in the hotel business specifically before 1994, when his Starwood Capital bought Westin from a Japanese corporation, and then began adding other chains. In 1998, Mr. Sternlicht created the W chain, whose glamorous lobbies and bars made it synonymous with sleek chic.

He pored over even tiny details — the number of pillows, how porters handled guest luggage — at existing chains like Westin and Sheraton. “I’m like the style police, so people don’t drift off,” he said.

Company is exploring strategic options and may concentrate on its travel business

Retailer WHSmith is in talks to sell its UK high street shops more than two centuries after it opened its first store in London.

The FTSE 250 company, which has been focusing on its outlets in airports, train stations and hospitals in recent years, confirmed on Saturday that it was “exploring potential strategic options”, including an outright sale of about 500 UK shops, which have around 5,000 staff.

The high street stalwart that is known for its stationery and books is in talks with several potential buyers and a deal could be agreed in the coming months, according to a person familiar with the process.

However, WHSmith cautioned on Saturday “there can be no certainty that any agreement will be reached”.

Interested parties in the company’s high street shops include Alteri, a private equity investor which focuses on retail, and Hilco, a turnaround specialist, according to two people familiar with the process.

Jonathan Pritchard, an analyst at Peel Hunt, said it was a more likely that a private equity firm would be better placed to extract value from WHSmith’s shops, and they were unlikely to be bought by a competitor.

“There will always be mechanisms that private equity funds have that can perhaps squeeze a bit more juice out of the orange,” he added. “If they can get it on a low enough multiple and identify more cost savings, they could probably get their money back quite quickly.”

WHSmith recorded a 7 per cent increase in group revenue to £1.9bn in the year ending August 31, while profit before tax fell to £106mn, from £110mn in the previous 12 months.

Kate Calvert, an analyst at Investec, said WHSmith’s decision to explore a sale of its high street stores was “just another step” in the company’s evolution.

WHSmith’s travel business and the high street arm “have always been kept quite separate from an infrastructure perspective. It [the high street arm] still generates good cash, and that cash has been useful in terms of growing the travel business internationally”, she added.

Over the past decade WHSmith has become an international travel retailer through acquisitions such as a $400mn deal to buy Marshall Retail Group in the US in 2019.

The strategic review, which was first reported by Sky News, marks a watershed moment in the history of the UK high street, which has been struggling with a shift to online shopping and higher costs.

Some established chains such as Debenhams and Topshop have disappeared from the high street.

WHSmith was established in 1792 as a family-run newsagent, and opened its first travel retail store in London’s Euston station in 1848.

WHSmith’s travel business now has more than 1,200 stores across 32 countries, and it accounts for three-quarters of the group’s revenue and 85 per cent of its trading profit. 

Calvert added: “The business is big enough elsewhere to take on the growth, and do you really need the cash flow [from the high street arm]? I think that’s the decision.”

Tony Shiret, an independent analyst, said current WHSmith management could buy out the high street arm and run it as a private company, but a person close to the company said such a move was not on the cards.

Hilco declined to comment. Alteri did not immediately respond to a request for comment.

In Reid Hoffman’s new book Superagency: What Could Possibly Go Right With Our AI Future, the LinkedIn co-founder makes the case that AI can extend human agency — giving us more knowledge, better jobs, and improved lives — rather than reducing it.

That doesn’t mean he’s ignoring the technology’s potential downsides. In fact, Hoffman (who wrote the book with Greg Beato) describes his outlook on AI, and on technology more generally, as one focused on “smart risk taking” rather than blind optimism.

“Everyone, generally speaking, focuses way too much on what could go wrong, and insufficiently on what could go right,” Hoffman told me.

And while he said he supports “intelligent regulation,” he argued that an “iterative deployment” process that gets AI tools into everyone’s hands and then responds to their feedback is even more important for ensuring positive outcomes.

“Part of the reason why cars can go faster today than when they were first made, is because … we figured out a bunch of different innovations around brakes and airbags and bumpers and seat belts,” Hoffman said. “Innovation isn’t just unsafe, it actually leads to safety.”

In our conversation about his book, we also discussed the benefits Hoffman (who’s also a former OpenAI board member, current Microsoft board member, and partner at Greylock) is already seeing from AI, the technology’s potential climate impact, and the difference between an AI doomer and an AI gloomer.

This interview has been edited for length and clarity.

You’d already written another book about AI, Impromptu. With Superagency, what did you want to say that you hadn’t already?

So Impromptu was mostly trying to show that AI could [provide] relatively easy amplification [of] intelligence, and was showing it as well as telling it across a set of vectors. Superagency is much more about the question around how, actually, our human agency gets greatly improved, not just by superpowers, which is obviously part of it, but by the transformation of our industries, our societies, as multiple of us all get these superpowers from these new technologies.

The general discourse around these things always starts with a heavy pessimism and then transforms into — call it a new elevated state of humanity and society. AI is just the latest disruptive technology in this. Impromptu didn’t really address the concerns as much … of getting to this more human future.

You open by dividing the different outlooks on AI into these categories — gloomers, doomers, zoomers, bloomers. We can dig into each of them, but we’ll start with a bloomer since that’s the one you classify yourself as. What is a bloomer, and why do you consider yourself one?

I think a bloomer is inherently technology optimistic and [believes] that building technologies can be very, very good for us as individuals, as groups, as societies, as humanity, but that [doesn’t mean] anything you can build is great.

So you should navigate with risk taking, but smart risk taking versus blind risk taking, and that you engage in dialogue and interaction to steer. It’s part of the reason why we talk about iterative deployment a lot in the book, because the idea is, part of how you engage in that conversation with many human beings is through iterative deployment. You’re engaging with that in order to steer it to say, “Oh, if it has this shape, it’s much, much better for everybody. And it makes these bad cases more limited, both in how prevalent they are, but also how much impact they can have.”

And when you talk about steering, there’s regulation, which we’ll get to, but you seem to think the most promise lies in this sort of iterative deployment, particularly at scale. Do you think the benefits are just built in — as in, if we put AI into the hands of the most people, it’s inherently small-d democratic? Or do you think the products need to be designed in a way where people can have input?

Well, I think it could depend on the different products. But one of the things [we’re] trying to illustrate in the book is to say that just being able to engage and to speak about the product — including use, don’t use, use in certain ways — that is actually, in fact, interacting and helping shape [it], right? Because the people building them are looking at that feedback. They’re looking at: Did you engage? Did you not engage? They’re listening to people online and the press and everything else, saying, “Hey, this is great.” Or, “Hey, this really sucks.” That is a huge amount of steering and feedback from a lot of people, separate from what you get from my data that might be included in iteration, or that I might be able to vote or somehow express direct, directional feedback.

I guess I’m trying to dig into how these mechanisms work because, as you note in the book, particularly with ChatGPT, it’s become so incredibly popular. So if I say, “Hey, I don’t like this thing about ChatGPT” or “I have this objection to it and I’m not going to use it,” that’s just going to be drowned out by so many people using it.

Part of it is, having hundreds of millions of people participate doesn’t mean that you’re going to answer every single person’s objections. Some people might say, “No car should go faster than 20 miles an hour.” Well, it’s nice that you think that.

It’s that aggregate of [the feedback]. And in the aggregate if, for example, you’re expressing something that’s a challenge or hesitancy or a shift, but then other people start expressing that, too, then it is more likely that it’ll be heard and changed.

And part of it is, OpenAI competes with Anthropic and vice versa. They’re listening pretty carefully to not only what are they hearing now, but … steering towards valuable things that people want and also steering away from challenging things that people don’t want.

We may want to take advantage of these tools as consumers, but they may be potentially harmful in ways that are not necessarily visible to me as a consumer. Is that iterative deployment process something that is going to address other concerns, maybe societal concerns, that aren’t showing up for individual consumers?

Well, part of the reason I wrote a book on Superagency is so people actually [have] the dialogue on societal concerns, too. For example, people say, “Well, I think AI is going to cause people to give up their agency and [give up] making decisions about their lives.” And then people go and play with ChatGPT and say, “Well, I don’t have that experience.” And if very few of us are actually experiencing [that loss of agency], then that’s the quasi-argument against it, right?

You also talk about regulation. It sounds like you’re open to regulation in some contexts, but you’re worried about regulation potentially stifling innovation. Can you say more about what you think beneficial AI regulation might look like?

So, there’s a couple areas, because I actually am positive on intelligent regulation. One area is when you have really specific, very important things that you’re trying to prevent — terrorism, cybercrime, other kinds of things. You’re trying to, essentially, prevent this really bad thing, but allow a wide range of other things, so you can discuss: What are the things that are sufficiently narrowly targeted at those specific outcomes?

Beyond that, there’s a chapter on [how] innovation is safety, too, because as you innovate, you create new safety and alignment features. And it’s important to get there as well, because part of the reason why cars can go faster today than when they were first made, is because we go, “Oh, we figured out a bunch of different innovations around brakes and airbags and bumpers and seat belts.” Innovation isn’t just unsafe, it actually leads to safety.

What I encourage people, especially in a fast moving and iterative regulatory environment, is to articulate what your specific concern is as something you can measure, and start measuring it. Because then, if you start seeing that measurement grow in a strong way or an alarming way, you could say, ”Okay, let’s, let’s explore that and see if there’s things we can do.”

There’s another distinction you make, between the gloomers and the doomers — the doomers being people who are more concerned about the existential risk of super intelligence, gloomers being more concerned about the short-term risks around jobs, copyright, any number of things. The parts of the book that I’ve read seem to be more focused on addressing the criticisms of the gloomers.

I’d say I’m trying to address the book to two groups. One group is anyone who’s between AI skeptical — which includes gloomers — to AI curious.

And then the other group is technologists and innovators saying, “Look, part of what really matters to people is human agency. So, let’s take that as a design lens in terms of what we’re building for the future. And by taking that as a design lens, we can also help build even better agency-enhancing technology.”

What are some current or future examples of how AI could extend human agency as opposed to reducing it?

Part of what the book was trying to do, part of Superagency, is that people tend to reduce this to, “What superpowers do I get?” But they don’t realize that superagency is when a lot of people get super powers, I also benefit from it.

A canonical example is cars. Oh, I can go other places, but, by the way, when other people go other places, a doctor can come to your house when you can’t leave, and do a house call. So you’re getting superagency, collectively, and that’s part of what’s valuable now today.

I think we already have, with today’s AI tools, a bunch of superpowers, which can include abilities to learn. I don’t know if you’ve done this, but I went and said, “Explain quantum mechanics to a five-year-old, to a 12-year-old, to an 18-year-old.” It can be useful at — you point the camera at something and say, “What is that?” Like, identifying a mushroom or identifying a tree.

But then, obviously there’s a whole set of different language tasks. When I’m writing Superagency, I’m not a historian of technology, I’m a technologist and an inventor. But as I research and write these things, I then say, “Okay, what would a historian of technology say about what I’ve written here?”

When you talk about some of these examples in the book, you also say that when we get new technology, sometimes old skills fall away because we don’t need them anymore, and we develop new ones.

And in education, maybe it makes this information accessible to people who might otherwise never get it. On the other hand, you do hear these examples of people who have been trained and acclimated by ChatGPT to just accept an answer from a chatbot, as opposed to digging deeper into different sources or even realizing that ChatGPT could be wrong.

It is definitely one of the fears. And by the way, there were similar fears with Google and search and Wikipedia, it’s not a new dialogue. And just like any of those, the issue is, you have to learn where you can rely upon it, where you should cross check it, what the level of importance cross checking is, and all of those are good skills to pick up. We know where people have just quoted Wikipedia, or have quoted other things they found on the internet, right? And those are inaccurate, and it’s good to learn that.

Now, by the way, as we train these agents to be more and more useful, and have a higher degree of accuracy, you could have an agent who is cross checking and says, “Hey, there’s a bunch of sources that challenge this content. Are you curious about it?” That kind of presentation of information enhances your agency, because it’s giving you a set of information to decide how deep you go into it, how much you research, what level of certainty you [have.] Those are all part of what we get when we do iterative deployment.

In the book, you talk about how people often ask, “What could go wrong?” And you say, “Well, what could go right? This is the question we need to be asking more often.” And it seems to me that both of those are valuable questions. You don’t want to preclude the good outcomes, but you want to guard against the bad outcomes.

Yeah, that’s part of what a bloomer is. You’re very bullish on what could go right, but it’s not that you’re not in dialogue with what could go wrong. The problem is, everyone, generally speaking, focuses way too much on what could go wrong, and insufficiently on what could go right.

Another issue that you’ve talked about in other interviews is climate, and I think you’ve said the climate impacts of AI are misunderstood or overstated. But do you think that widespread adoption of AI poses a risk to the climate?

Well, fundamentally, no, or de minimis, for a couple reasons. First, you know, the AI data centers that are being built are all intensely on green energy, and one of the positive knock-on effects is … that folks like Microsoft and Google and Amazon are investing massively in the green energy sector in order to do that.

Then there’s the question of when AI is applied to these problems. For example, DeepMind found that they could save, I think it was a minimum of 15 percent of electricity in Google data centers, which the engineers didn’t think was possible.

And then the last thing is, people tend to over-describe it, because it’s the current sexy thing. But if you look at our energy usage and growth over the last few years, just a very small percentage is the data centers, and a smaller percentage of that is the AI.

But the concern is partly that the growth on the data center side and the AI side could be pretty significant in the next few years.

It could grow to be significant. But that’s part of the reason I started with the green energy point.

One of the most persuasive cases for the gloomer mindset, and one that you quote in the book, is an essay by Ted Chiang looking at how a lot of companies, when they talk about deploying AI, it seems to be this McKinsey mindset that’s not about unlocking new potential, it’s about how do we cut costs and eliminate jobs. Is that something you’re worried about?

Well, I am — more in transition than an end state. I do think, as I describe in the book, that historically, we’ve navigated these transitions with a lot of pain and difficulty, and I suspect this one will also be with pain and difficulty. Part of the reason why I’m writing Superagency is to try to learn from both the lessons of the past and the tools we have to try to navigate the transition better, but it’s always challenging.

I do think we’ll have real difficulties with a bunch of different job transitions. You know, probably the starting one is customer service jobs. Businesses tend to — part of what makes them very good capital allocators is they tend to go, “How do we drive costs down in a variety of frames?”

But on the other hand, when you think about it, you say, “Well, these AI technologies are making people five times more effective, making the sales people five times more effective. Am I gonna go into hire less sales people? No, I’ll probably hire more.” And if you go to the marketing people, marketing is competitive with other companies, and so forth. What about business operations or legal or finance? Well, all of those things tend to be [where] we pay for as much risk mitigation and management as possible.

Now, I do think things like customer service will go down on head count, but that’s the reason why I think it’s job transformation. One [piece of] good news about AI is it can help you learn the new skills, it can help you do the new skills, can help you find work that your skill set may more naturally fit with. Part of that human agency is making sure we’re building those tools in the transition as well.

And that’s not to say that it won’t be painful and difficult. It’s just to say, “Can we do it with more grace?”

Will the Federal Reserve respond to Donald Trump’s call on interest rates?

Market Questions is the FT’s guide to the week ahead

The Federal Reserve is not expected to cut interest rates on Wednesday but the US central bank’s policy is already under scrutiny from President Donald Trump.

Investors overwhelmingly expect the Fed to hold rates at their current level of 4.25-4.5 per cent, after three consecutive cuts since September.

Attention will focus on any shift in outlook from the accompanying statement, and on remarks from chair Jay Powell in the subsequent press conference.

In December the Fed signalled a likely pause in rate cuts and said it would consider the “extent and timing” of any further changes. Since then, data has shown slowing inflation and solid jobs growth — a combination that has sparked debate over the need for, and timing of, any further rate cuts.

“If the [Fed] wanted to send a further hawkish signal in January, this sentence could be modified again,” said HSBC US economist Ryan Wang. “We expect the Fed to refrain from sending such a signal, but this is a hawkish risk.”

But Powell is likely to face questions on early actions and comments from Trump, who this week said he would demand that interest rates drop. The president also called for lower oil prices, which could also affect inflation.

Trump has previously called for Powell’s exit but both have downplayed any friction since November’s election.

The Fed chair also made it clear in November he planned to serve out his current term and maintained too that the president could not remove him. Jennifer Hughes

Will the ECB signal a more aggressive interest rate policy?

After European Central Bank President Christine Lagarde last month came closer than ever to calling victory over inflation, investors are expecting another interest rate cut on Thursday.

Markets have fully priced in another 0.25 percentage point rate cut from policymakers in Frankfurt. If confirmed, that would be the fifth such reduction since June and would take the key deposit rate to 2.75 per cent, the lowest level in almost two years and 1.25 percentage points lower than at its peak in 2024.

In doing so, markets expect the ECB to discount December’s jump in annual inflation back to 2.4 per cent. It is confident that annual price increases this year will be close to its medium-term target of 2 per cent, while economic growth is likely to disappoint.

But almost half of the 72 participants in a Financial Times survey among European economists said that the ECB had been too slow in lowering rates.

“We do not see ourselves behind the curve,” Lagarde told CNBC in an interview in Davos this week where she attended the World Economic Forum.

Traders are expecting two or three further quarter-point cuts this year, according to levels implied by swaps markets.

With the US Fed becoming much more hawkish in December, a growing transatlantic gap in monetary policy appears to be opening up.

Lagarde told CNBC that the ECB was not “overly concerned” about potential repercussions for Europe from a potential uptick in inflation in the US. Olaf Storbeck

Will the Bank of Canada cut rates?

Traders are widely expecting the Bank of Canada to cut interest rates by a quarter point at Wednesday’s policy-setting meeting but a small question mark remains, given recent trends in economic data.

Swaps markets are pricing in a 90 per cent probability the central bank will cut its benchmark rate by 0.25 percentage points to 3 per cent from 3.25 per cent.

But when the Bank of Canada took half a percentage point off its overnight rate in December for the second meeting in a row, responding to weaker than expected economic growth, deliberations from its governing council showed that the decision between a quarter-point and half-point cut was a “close call” given mixed data and noted the “substantial” cumulation of recent reductions.

Members would be evaluating the need for further reductions in the policy rate “one meeting at a time”, the bank said in a summary of their deliberations, and “expected a more gradual approach to monetary policy going forward”.

Data since then show that Canada’s economy was growing “roughly in line” with the central bank’s forecast, according to Capital Economics. It also highlighted inflation data for December, that while including a decline to 1.8 per cent in the headline rate, indicated that a measure of underlying inflation trends was “uncomfortably high”.

Such pressures could give the central bank, which has also cited uncertainty created by the new US administration, the grounds to pause its rate cuts.

“With tariffs clouding the economic outlook, we judge that the governing council will opt for a [quarter-point] policy rate cut,” said Thomas Ryan, North America economist at Capital Economics.

The government is preparing to allow companies to access scheme surpluses in latest attempt to kick-start growth

Chancellor Rachel Reeves is looking to free up billions of pounds from the UK’s £1.2tn defined benefit pension system in her latest attempt to kick-start growth.

The government is preparing to allow companies to access scheme surpluses — estimated to be worth around £100bn — to encourage them to invest in more risky assets, according to people briefed on the chancellor’s thinking.

“The devil is in the detail but we are positively inclined,” said one government insider.

The Treasury declined to comment on the discussions — first reported by Sky News — but City sources said Varun Chandra, Sir Keir Starmer’s top business adviser, had discussed the possibility of using so-called surplus to boost the economy.

A shift in focus to DB schemes comes as the chancellor is gearing up for her growth speech on Wednesday. Pension experts estimate allowing companies to access scheme surpluses could unlock up to £100bn for investment.

The government had previously focused its pensions review on consolidating defined contribution (DC) and local authority pension assets. A review into pensions adequacy — which the government had hoped would drive more investment into the UK — has been delayed indefinitely.

In an interview with the Financial Times in November, former pensions minister Emma Reynolds said she had prioritised reforming DC workplace schemes because that was “where the growth is”.

She pointed out the majority of corporate DB pension schemes were closed to new members and “naturally had a less long time frame” as schemes move into less risky assets as they wind down or sell their pension obligations to an insurance company.

However, industry insiders said a radical improvement in the funding position of DB pension schemes in recent years following a rise in government bond yields meant many were now in a position to take on more risk, if the rules enabled companies and scheme members to benefit from it.

“The reason the government announcements have been about DC and the Local Government Pension Scheme is because they’ve not really understood DB and think it’s too big to touch . . . but the implications of not touching it are worse for the government and I think they realise it now,” said the chair of a multibillion pound DB pension scheme.

David Lane, chief executive officer at TPT Retirement Solutions which manages DB and DC pensions, said allowing companies to access scheme surpluses was “likely to be a more effective way of channelling pension assets in to the UK economy then some of the consolidation initiatives that have been announced . . . it’s direct if the employer reinvests that money into its business”.

Access to scheme surpluses could slow the pace at which pension funds have been offloading their pension obligations to insurance companies, with around £50bn of assets transferred in so-called bulk annuity transactions in each of the past two years, according to pensions consultancy WTW.

Halting this trend could help support UK government bond and equity markets in the longer term because insurance companies typically sell gilts and invest in higher yielding corporate bonds — many of which are overseas — as well as infrastructure to make their profits.

Zoe Alexander, director of the Pensions and Lifetime Savings Association trade group, said she backed surplus release, with the right protections in place to ensure member benefits are secure.

“Lowering the legislative threshold for allowing returns of surplus could potentially encourage trustees (in conjunction with their employers) to adopt a more ambitious mindset and take on slightly riskier investment strategies for their DB assets, including greater investment in UK assets,” she said.

Tesla is refusing to do the right thing about ‘Full Self-Driving’ package transfers and instead holds its own incapacity to deliver the package over the head of its owners.

I just had a conversation with Tesla about doing the right thing about FSD transfer. I got an answer: a “categoric no”.

Tesla is literally using its own incapacity to deliver a feature it promised and sold to people, unsupervised self-driving, as a demand trigger to get people to order new cars.

The Context

For those who are not aware, Tesla has been selling since 2016 something called “Full Self-Driving package”, FSD for short, that includes advanced driver assist features, and the automaker has been promising that it will eventually result in unsupervised self-driving capability through over-the-air software updates.

At first, Tesla claimed that all cars produced since 2016 would be able to achieve that. However, Tesla quickly found out that it was wrong and introduced a new computer called HW3 in 2019 and retrofited vehicles with it.

In 2023, Tesla introduced again a new computer, HW4, but the automaker claimed that it would just add more computing power to improve capacity in the future, and it was still confident that it could deliver on its self-driving promises with HW3 cars.

In fact, Tesla CEO Elon Musk even claimed that software updates on HW4 cars would lag 6 months behind updates on HW3 cars as Tesla focuses on delivering on its self-driving promises on the older vehicles.

That lasted less than a year. Since last year, Tesla has been focusing updates on HW4 as it is reaching the compute limits of HW3. As we previously reported, Tesla is now using both nodes on the HW3 computer – meaning that it doesn’t even have any compute redundancy, which is required for level 4-5 autonomy.

Late last year, Tesla finally signaled that it might be reaching the limits of HW3 and said that it would provide computer retrofits if needed, but there’s no retrofit in sight despite HW3 falling now months behind HW4 cars.

With the questionable hardware situation and the even more questionable data pointing to Tesla being way behind schedule on its self-driving ambition, Tesla FSD owners are asking for a simple thing from the automaker, and it can’t even do that.

The Problem

With the situation looking dire for HW3, Tesla owners have been asking the automaker for years to link the FSD software package to the owner rather than the car – meaning that if you upgrade your car to a new Tesla, you can transfer your FSD software package, which you paid up to $15,000 for and Tesla never fully delivered, to the new car.

Doesn’t this sound fair? Tesla sold you a product they never delivered, and you are only giving them another shot on the newer hardware with a new car, which has a higher chance of success.

It doesn’t cost Tesla anything since it’s just a software package that it transfers to hardware that is standard on all cars.

Yet, Tesla has refused to do the right thing here. Musk was asked several times by Tesla owners about doing that and refused. Instead, he devised a plan to use Tesla’s own inability to deliver self-driving capability as a demand trigger.

In the summer of 2023, Musk finally agreed to allow FSD transfers, but not because it was the right thing to do. Instead, he said it would be a “one-time amnesty” for a single quarter. Tesla used this to boost sales in the quarter.

Tesla ended up bringing back the incentive four more times when it needed to boost orders, making Musk a liar for saying it would only be for a quarter. By claiming it’s only for this one time, Tesla is creating urgency in trying to get people to upgrade – instead of doing the right thing and offering everyone who bought FSD the ability to transfer until Tesla actually delivers on its promise.

Currently, Tesla is not offering it because it doesn’t need to. There are plenty of other factors boosting demand right now including the new Model Y, the fear of losing the tax credit in the US, and in Canada, Tesla just announced a price increase coming next month – pushing people to take delivery this month.

I reached out to Tesla about transferring my FSD on a new car this week, and I was told “the FSD transfer window is closed right now”. After explaining all this above to the salesperson and highlighting that it’s the right thing to do not to charge me $11,000 for a software package that I already bought and they never delivered, they agreed to run it up the chain.

The next day, I was told that upper management responded: “a categoric no.”

Electrek’s Take

It’s such a simple thing to do. It’s not only the right thing to do, but it’s also smart for Tesla as it reduces the obvious liability of having HW3 cars that paid for FSD.

At this point, it’s clear that Tesla will never be able to deliver on its promised unsupervised Full Self-Driving capabilities on HW3 cars. Should we really be surprised? Tesla was wrong before and had to upgrade cars from HW2.5 to HW3, which is now 6 years old.

Tesla didn’t know what hardware it needed to deliver self-driving then, and there’s a good chance it doesn’t know now. But even then, would anyone seriously believe that Tesla would deliver unsupervised self-driving capability on 6-year-old hardware? I think not.

Therefore, every HW3 vehicle Tesla sold with a FSD package is a liability. It makes for them to remove the packages from those cars and move them to more recent vehicles with a higher chance of ever delivering on their promise – even though there’s plenty of room for doubt with those cars too.

Regardless, It’s about doing the right thing for your customers instead of using your own inability to deliver a product you promised as a demand lever for more orders. It’s worse than the tactics used by car dealerships that Tesla despises so much.

As usual, I want to highlight that I think FSD is an incredible product, and if it was developed without Elon Musk claiming that it would achieve unsupervised self-driving by the end of every year for the last 5 years and Tesla selling the product to customers before it is ready, I think it would be much more celebrated.

But instead, Tesla and Musk are doing those things, and many people see it as a fraudulent and dangerous product. It doesn’t help when the CEO grossly misrepresents data about the program.