11AM Hour: Former Goldman Sachs CEO Lloyd Blankfein, AI Concerns Ramp Up & Diesel Prices at Record Highs 9/11/26

0:00This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.

0:29Lloyd Blankfein: You know, Kevin, sometimes I feel like computers are the only thing around here that are getting smarter. Yeah, my model hasn't had an update in a while. But that changes now. We think that we can smarten these listeners up about all things related to this crazy new future. Welcome to Machine Gods, a new NPR podcast that will be your guide to the AI future. Twice a week, we're going to help you get smarter about AI so you know what's real, what's hype, and what you should probably install on your phone. Listen to Machine Gods from NPR on the NPR app or wherever you get your podcasts. Good Friday morning.

1:03Welcome back to Squawk on the Street. I'm Sarah Eisen with Carl Cantania, live from Post 9 of the New York Stock Exchange. Today, a pretty somber morning here in lower Manhattan as we reflect on this 25th anniversary of the September 11th terror attacks. We'll be joined by former Goldman Sachs CEO Lloyd Blankfein in just a moment here at Post 9.

1:21Lloyd Blankfein: Growing AI safety fears as more researchers now warn of rising and imminent risks, including the threat to humanity itself. We're joined by one former OpenAI employee who says, quote, AIs are eventually going to be in charge of our planet. And elevated inflation keeping pressure on Fed Chairman Walsh to raise interest rates next week. We'll explore what today's CPI actually means for investor expectations. Meantime, some strength in tech and actually pretty broad strength. Only sectors that are lower are energy, maybe some health care names. Relief, you can see there, out of Treasuries as we got to 498 overnight.

1:56Lloyd Blankfein: And Brent got to 110, but it settled back to just below 105. Let's begin with this morning's CPI data. Our Steve Leisman has a look at some of the internals and some of the second looks at Supercore, things like that. Morning, Steve. Yeah, good morning, Carl. August inflation coming in just hot enough in the view of the market and most economists that I'm reading this morning to tip the balance in favor of a rate hike from the Fed at the meeting next week. Headline coming in, 0.4 had been 0.1. That's not the problem. 3.4 year over year remaining there. It's the 0.3, which, by the way, rounds up from 0.26.

2:29Lloyd Blankfein: So just two hundredths of a percentage point, enough to get you to that 0.3, which is a bit higher than the expectation. But we did have a tick down because of base effects to 2.4 percent year over year, driving inflation, the gas prices, 3.9%, but also bleeding into the core with 2.7 % on airline fares. Core Services X Housing, that's kind of your super core right there, up a half a point. That's a pretty big number right there. Used cars and trucks along for the ride there, up 0.4%. The problem, not so much this month's big gain in gas prices, but the certainty that it's going to be higher next month, that creates the inability of the Fed to say, hey, higher oil prices are a one-off.

3:08Lloyd Blankfein: There's no proof of what's going to happen down the road. Some bright spots did include food at home, a goose egg, housing up just 0.2 percent. That's been helpful. And car insurance has been falling down 0.8 percent. So here's how the market judged it. 85 percent now probability of a rate hike. That's up from 68 percent off of that PPI yesterday. And a second hike, well, now 73 percent. That's 50 basis points between now and the end of the year from 63 percent before the number came out. But it's more than just one inflation number. Fed Chairman Kevin Walsh and Jackson Hall left himself some wiggle room, but said that the Fed has more work to do if it's not confident underlying inflation moving to the target.

3:50Lloyd Blankfein: Noted 54 % of PCE components were greater than 3 % and said he was hard-pressed to see the funds rate as restrictive. It seems likely Walsh will have the votes to hike, but a quarter-point increase will almost certainly require the chair's support, Sarah. And we still have this debate, Steve, about whether they should hike or not, whether that is the right move or not, how much they should look through things like a supply shock from oil, which is clearly showing up in transportation and everything tied to energy. And then even, you know, on the SuperCore, if you look at apparently half of it came from wireless phone services alone.

4:26So I think that stuff matters when you're when you're trying to figure out whether a rate hike is really the right medicine.

4:31Lloyd Blankfein: I think that's fair, and it's a very fair way to look at it, and it is a point of view. I'll point out the other side of this, which is that the Fed has been enormously patient with higher inflation. It was patient through the Powell Fed, the end of the Powell Fed, and Kevin Worsh has been patient as well. I think a lot of folks on the Fed have kind of lost patience with this one-off idea, because you look down the road and you don't see necessarily the policies or the prospects that oil prices go down. We just had another bout of tariffs with Canada. So there's no certainty that that's just a one off effect.

5:06Lloyd Blankfein: And there's a whole nother set of tariffs to come through whose inflationary effects we don't know. So you have to look at the policies and not judge them, but just say, what are the prospects this leads to lower inflation? And I could say, don't do anything. Plus, there's a credibility issue here. I don't think that's the major issue, but I do think it's an issue. No. And that seems to be what the what the read was from Jackson Hole, how the market interpreted his comments, all of that. Thank you, Steve. That's why we're looking at almost 90 percent odds at the Fed hikes next week. For a look into how the markets are taking the CPI number, let's bring in Neuberger Managing Director and Senior Wealth Advisor Holly Neumancroft.

5:40Welcome. It's good to have you. Thank you. Always great to be here. So does it does it change anything for you if the Fed starts hiking next week on hotter CPI? No. I mean, our expectation like the market is that the Fed will hike next week. I think the CPI number would have had to really surprise positively for them to change course. Like Steve just said, the market has been patient. The Fed has been patient. And we saw the ECB just hike again, their second hike, with guidance for expectations for a third hike before the end of the year. So I think to maintain credibility, the CPI is not the only number that the Fed is looking at.

6:20There is a lot of data, but the prolonged conflict, which maybe now we can call it a war in Iran, you know, it started as a six week war. And now they're talking about the possibility that it could last through the end of the Trump administration. Oil prices are much higher, topping$100. That's a critical benchmark. The 10 year crossing five briefly. Those are all critical inflection points. Yeah, inflation. But do you think the market can hold up? Does it add volatility if we have a Fed raising rates? Well, those are two questions, right? I think the market can and will hold up. We're seeing that today.

6:59What we're seeing today is really a relief rally, relief that CPI wasn't a terrible number. But, you know, the market is really rooted in earnings. And earnings, we all know Q2 earnings surprised significantly on the upside, more than 50%. That was following Q1 earnings, which significantly surprised on the upside. And we're seeing analysts now revise their earning expectations for next year upward. So with strength in earnings, the A.I. spend robust in continuing. That's what the stock market is looking at. And it has proven able to withstand inflation higher for longer for a very long time. And we still think that there is room to run in the stock market.

7:46Lloyd Blankfein: Your point about revisions, once again, brings us back to discussions of what happened in 2022 when revisions were on fire and then boom. I mean, in part because of the Fed. I wonder, do you think that's fair? Druckenmiller yesterday at this Piper conference arguing that we might be over earning because this AI build out, in his words, is going to end at some point. It will end. And we don't think it's imminent, the end. But that goes back to the second part of Sarah's question, which is about volatility. And we do think that volatility is going to pick up dramatically, right? We've got the war.

8:20We've got midterm elections. We've got a hike next week, almost certain. So as we enter the fourth quarter and march towards year end, I think volatility will pick up. But the strength in not only corporate earnings, but corporate balance sheets. And we just think that there is room to run right now.

8:41Lloyd Blankfein: mean more multiple compression than we've seen so far this year? Maybe, maybe, maybe not. It's uncertain, but I think that the fundamentals of the market support the argument that this is not just a multiple expansion return. It's fundamental and that these companies have strength. So as far as where you're putting your clients in the market right now, just remind us how much you think about allocation to the AI trade versus everything else? Because typically you've been in favor of more like small caps and international and places that have been left behind. Yeah. So we are, look, we are constructive on a global diversified equity portfolio.

9:24We are overweight small caps, but high quality small caps because for a variety of reasons. But today in the conversation we're talking about a hike, small caps can be highly levered. And if you have a weak balance sheet and a lot of debt, your interest expense is going to go up. So high quality small caps. We continue to like emerging markets where the AI trade hasn't played out the way it has or as much as it has in the United States. So China, Taiwan, Korea, we see a lot of opportunities there. We pulled back. We're a little bit underweight on international developed, specifically in Europe.

10:00They are energy dependent and we're seeing slower growth there. So a little bit underweight. But overall, we're very constructive on a diversified global equity portfolio. Where does fixed income fit in right now, especially with some of the move up in rates and the intervention by Treasury? You know me, my taxable investors. If they can secure a taxable equivalent yield with no risk of 6 percent, let's take some risk off the table. Let's take some volatility off the table and let's lock those in. And there's, you know, you can turn a frown upside down. And so there's always a positive side to rates going up.

10:38What's the top question you're getting from your clients right now? Mostly around the war, but truthfully, clients tend not to call as much when the market is going up, sort of irrespective of the noise in the world. They read the headlines, but they call a lot when the market goes down. And as long as the market continues to be strong and, you know, we've cautioned all of our clients to expect increased volatility, oil topping 100. We didn't get any calls on oil this week, which is a little bit surprising. Maybe people are sidetracked with reentry into real life. But we've also shown resilience in the face of higher oil prices.

11:20We've shown resilience in the face of higher oil prices, higher inflation and a huge A.I. spend. So when that will reverse, we don't know, but we don't see it imminently, and we don't see it before the next time I will be here, so we can talk about it again. Well, we're happy to have you here regularly. That would be good news. Holly, thank you. Always good to see you. Holly Neumancroft, Neuberger Berman. Thank you.

11:42Lloyd Blankfein: When we come back this morning, former Goldman Sachs CEO Lloyd Blankfein is with us on set for the 25th anniversary of 9-11 when we're back in a minute. Legacy Credit Scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture. Vantage Score is changing that by modernizing credit scoring. Vantage Score uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments. Vantage Score safely broadens access to the credit economy and brings 5 million mortgage-ready borrowers into the market.

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13:04Lloyd Blankfein: This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like All I Want. Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for 12-month plan required,$15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only greater than 50 gigabytes may slow when network is busy. See terms. Welcome back to Squawk on the Street, New York City today honoring the memory of those we lost on 9-11 25 years ago.

13:42Lloyd Blankfein: Joining us here at Post 9 this morning, former Goldman Sachs CEO Lloyd Blankfein, who was in Lower Manhattan on that day. And we're so appreciative to you, Lloyd, for sharing some memories. Thanks for being with us. Thank you. It's kind of a sober day. It is. It's always tough. But we keep talking about the importance of telling the young people of this country who have no active memory of it. Look, if you are in your early 40s or younger, right, Sarah? I was in high school. In high school, you've read about it, and maybe you heard it from a distance, and you saw people being affected by it, but you don't know the story.

14:15Lloyd Blankfein: What's your story on that day? Well, we were vivid in a big meeting at 8.30 in the morning, 8.45. Someone hands me a piece of paper, and I go, oh, my goodness, a plane hit in. If you live in New York, you know the story of a bomber in 1940-something hit an Empire State Building. I said, God, it's such a clear day. You know, something kept on. And then, of course, the second one happens. And then it was kind of stunned. And then, you know, your sense of crisis management took over. And, you know, you did stuff. So first day. And a lot of decisions were made. And, you know, a lot of good, sensible things were deployed.

14:56Lloyd Blankfein: First security suggested everybody get out of the building. and then went downstairs. And I remember, and then I got there, and I decided, you know, at that point I was running the big trading division, but I wasn't, you know, I wasn't, I was one of the top people in the firm. I said, well, I can't be down here. And I went back up and to see, and, you know, most of the building was clear. By the way, except for the Jay Aaron energy traders on the fourth floor who wouldn't leave because they were trading the energy market. There was one market that was still being, I mean, that was still being attended to.

15:30Lloyd Blankfein: Hung around. It was like Pompeii. I mean, I don't remember Pompeii offhand, but I know that it was black and sooty and nobody could see. It was night for day and went outside. And stupidly, I really hung out. I mean, it wasn't just that I was there every day. I was there that day and walked past the site. And, you know, I can't be sure of this, but, you know, I had a little bit down the road, I had non-Hodgkin's lymphoma, which is one of the diseases that, you know, is an environmental disease. And, you know, there are people who were there who didn't get sick and people who got sick who weren't there.

16:03Lloyd Blankfein: But it certainly raised the probabilities of that. And odds are, you know, that was a little bit of a remembrance that I was gifted on that day. But then people went into, you know, figuring things out. People acted, you know, very well. We, you know, one of our chief administrator, officer booked, rented or hired all the ferries that he could get his hands on and went around the police blockades in the days afterwards. Because the only way you can get to work because there were checkpoints and you couldn't get you can work your way downtown. And I remember the first time I got in, I was so pleased with myself for getting myself to the office through lower Manhattan, through these various checkpoints.

16:45Lloyd Blankfein: And I was congratulating myself for my resilience and my will to do the right thing and get into place. And as soon as I got off the elevator on my floor, I saw there was a complete buffet because the entire support staff had gotten there three hours earlier and were doing their jobs. Everybody was pitching in and trying to do. And, of course, an overhang of sadness. we were all you know my kids were in school across a river and so how were the kids going to get picked up you couldn't get in touch in those days blackberries worked and the phones didn't one of the unsung heroes by the way of that the moment in the immediate aftermath was Verizon whose the whole telephone system was under the World Trade Center was annihilated and And they got up to run very, very quickly, much quicker.

17:42Lloyd Blankfein: And that was very, very important to not so much normalcy, but to, you know, for purposes of markets, to have the market clear, to kind of know where things were. In fact, one of the, I think the very first transaction that was done was Goldman Sachs bought a block trade of Disney stock, I remember. You know, you remember everything. Details. Yeah, you remember a lot of details that day, decisions that were made. And, of course, we had one of my dearest friends in the firm, the person who succeeded me in running trading at Goldman Sachs, Ashok Varadon, lost his brother that day. And other people did.

18:21Lloyd Blankfein: No Goldman Sachs employee, but a lot of Goldman Sachs relatives died on that day. And it's an overhang and something that we all remember. So I think we have to do this for the specific lesson and the specific memory and for the broader thing it teaches us about, you know, the uncertainty, you know, the uncertainty of life and, you know, the value that we put on it. That we take certain things for granted and it reminds us not to. And I mean, I remember I was in my last year of high school and then came here to New York to college the next year. But it changed all of our perception, I think, of what's safe and security.

18:59And I'm curious if it changed your worldview.

19:02Lloyd Blankfein: You know, you are who you are, and you're some other things. You never follow a different path. But, yeah, that was finally a crisis they didn't blame on Goldman Sachs right away. So that was novel. But it does— Vampire squid came a few years later. Well, we had the crisis of the century roughly every four years. But that wasn't one of them. But it was, you know, of course it changes your perspective generally about life and the events that can happen. And about resilience, too, and the market. You know, we're all wringing our hands always, you know, woe is us. You know, headlines today, we're all going to be annihilated by AI.

19:43Lloyd Blankfein: And you remember, you know, there's a lot of times in my life, look, my earliest childhood memories was doing drills in my kindergarten class in public high school to get under, to get under the table. I think at one point, my sister was a couple years older, they handed out dog tags so they could identify her incinerated body from the, you know, from the, you know, that was a much more day. When everyone says these days are so dangerous compared to other dangers, there were 6 ,000 nuclear warheads aimed at us. Although it does remind me of, you don't tweet much these days, but you did write one in late August where you said risk management 101.

20:25Lloyd Blankfein: Every exposure should have a limit, even when you're sure nothing could go wrong. After all, the Titanic sank and AAA mortgage bonds went to zero. No, no, absolutely. Absolutely. I would say, look, there's a lot of conversations about AI and the risks of it, you know, the existential risk that we're, you know, they have in place now, Terminator, Skynet, or what, you know, that risk, which, by the way, is absolutely real. And I don't know if it's a high percentage, but given how much money I spend to insure myself against 1 % risks that aren't existential, I would be cautioned. So there's that risk.

20:58Lloyd Blankfein: But there's also a kind of financial aspect to this. You know, we had limits on everything. We had limits on the credit we take with AAAs, which is, by the way, why we had credit protection on AIG, which was AAA in the financial crisis. And when you think of how much is at stake and how much risk we're taking in finance and other things on the success of AI, the financial success, that the revenues will be there. You know, people are debating, you know, the closed circuits in this. But at the end of the day, money has to come in and the revenue has to be there. And I can think of a number of circumstances when it may not come.

21:36Lloyd Blankfein: So I would say, and by the way, we're seeing it in interest rates where the borrowing of the hyperscalers are pushing out, you know, crowding out other borrowers, the price of power, crowding out users of power. And I would say closer to home for me, it's crowding out in a way the capital markets because, you know, go try to get the world excited about an industrial IPO today. You know, everybody wants the high growth expectations and there's just a lot of leverage. Even crypto. Pardon me? Even crypto. There's just a lot of things that are levered to the financial success. Now, you can talk about the success of AI, but in this particular case, you can talk about the risks of AI.

22:17Lloyd Blankfein: But in other words, I would say that this is a particularly uncapped kind of an exposure that I would try to think of putting a cap. You know, in my own... What does that mean? How do you do that? Well, I'll tell you, in my own world, I'm looking at things that I trade and I invest in. And I now, I used to divide the world, you know, this and that, you know, different segments. Now I just put in things that are highly correlated to AI and things that are not AI. You know, and I like, and to me, I'm almost taking the position that the non-AI positions, you know, if you go invest in a farm, you know, Eli Lilly or something like, oh, that's almost, that feels like a, you know, that almost feels like a T-bill to me now because it's not an AI trade.

22:57Lloyd Blankfein: It feels like you're getting, it feels like you're getting out of risk. So are you overweight non-AI right now? Is that what you're saying? No, I always tell people, end up being in the risk management business myself for a long time, always ask people what they think and then separately ask them what they do. So I could go on and rattle. I care about what you do. That's right. Most people say, what are you thinking? People come on and tell you what they think and then say, into business. So I could tell you, I could, look, an occupational hazard for me spent 98 % of my time on the 2 % that could go wrong.

23:25Lloyd Blankfein: And I still do that. But I am basically 100 % invested in, you know, in equities and disproportionately in things that correlate with the IT, which by the way, there's, you know, there's, what do you think is going to happen mode? And then there's risk management modes. What do I think that's going to happen mode? I, you know, I'm a believer in this. I believe in the productivity is going to emerge, is emerging already very, very quickly. I think the hyperscalers are going to put, and they're going to make, you know, an event, it's going to come, not everything. And, you know, you have a million guests who talk about that.

23:56Lloyd Blankfein: But at the same time, when you get into risk management mode, you just don't want to have too many eggs in one basket ever. Too many. You don't want to have excessive. You don't want to turn it into, you know, such correlated, as by the way, we found out in the global financial crisis when it turns out that what originally started out was as, you know, it's kind of the distressed part of the mortgage business and then turned into, you know, to Alt-A and then, you know, AAA and then all credit, then everything. You found out, you know, pockets of this in municipalities, pockets of this in Iceland, and it was everywhere.

24:32Lloyd Blankfein: And it turns out that everything was levered to that essentially real estate trade. And I think it's a good technique. You can look and see how much is levered to the success of AI from a revenue point of view. Yes. And does that come down to the revenue capabilities of two big players that are not yet public? Or is it broader than that? I'm talking about the risk of it. Those guys clearly are important and those are key. And those guys play a role on both sides of it. It's too much leverage in it. And then on the existential question, the other part of it is, I'm not sure we had an election where I would put in the existential risk of the United States in the hands of Sam Olden, who I, by the way, I don't own is perfectly good.

25:13Lloyd Blankfein: And if I had to pick somebody, who knows, maybe I'd pick him, but I'd rather not pick someone. Yeah. There's a lot of responsibility. Okay. Now I have a lot of responsibility. It's a lot of insanity. Now I have one about what you think, Lloyd, which is, which kind of ties it together back to New York, which is what, I mean, part, part of the story on, of 9-11 down being down here is just the incredible resilience of lower Manhattan and New York in general. You know, we see it's a popular place to live and all that. But I think there are questions about New York as a place, you know, long term to do business.

25:45You know, I've heard recently from David Solomon, who succeeded you, who said, you know, Goldman Sachs is here, but it has the same number of employees it had several years ago. And it's grown so many employees elsewhere. And I just wonder about the future of New York as the center of commerce and the capitalist capital of America.

26:05Lloyd Blankfein: It's a little bit like the Yogi Berra line. It's like, it's impossible to live here. It's so crowded. Rents are so high. There's so much demand. Nobody wants to come here anymore. Obviously, they're here. I still think, look, it would suit me, and I think it would suit the country. And we're getting there. There's more nodes of finance and more people going to great schools in these places, and kids graduating want to live around the school. But still, smart, upwardly mobile, ambitious people want to be with each other. You know, there was once a book written, The World is Flat, and said, you know, you can do anything with the Internet.

26:39Lloyd Blankfein: You can do anything from anywhere. And guess what? People don't want to do anything from anywhere. They want to get together. And when they get together, there's cultural events, great restaurants and great cultural events. You know, it's a virtuous circle. And New York still has it. And so I think it'll be a pattern where young people come here. Some people will leave because it's too expensive to raise kids. Tuitions in private schools are so expensive. of the public schools may not be the, you know, aren't the greatest, not may not be the greatest, aren't necessarily the greatest. And so they'll go out, some will stay, some will leave, and a new crop will come in.

27:11Lloyd Blankfein: And I think the demographics of the upward sloping part of the K-curve, as far as New York is concerned, is going to be young, but kind of always was. And so, yes, you know, when I was here, it was a lot cheaper and easier because there were seven and a half million people living here. Now it's so terrible that there's only eight and a half million people who are here. And so I still think it will be super attractive for young people. And when that demographic, when that cohort ages, it's like in this part of my life, I'm going, I went down to, you know, we have, you know, still live, mostly live in New York, but I still, you know, live in, you know, a place in Miami.

27:51Lloyd Blankfein: And I was remarking, you know, with some of my damn my friends, I said, you know, God, it used to be so old when I was younger and I used to visit, and now it's gotten a lot younger. And what the means said, it hasn't gotten younger. You've just aged. Your cohort just aged into the point where you went down there more. And I'd say that that's the same thing here, too. You know, everybody thinks they're an original and they're experiencing something for the first time. The world never stays the same, but it doesn't change that much. We've gone through crises, you know, and other things before. Most polarized, you know, most dangerous time.

28:24Lloyd Blankfein: And, you know, we did have a civil war. We did have a Cuban Missile Crisis. We did have polarization and political assassination in my lifetime, in the 60s. And I don't think the National Guard was shooting kids on the campus in Kent State. I would say that that was a little bit more of a polarized, difficult time than we have today. We got through that. We'll get through this. Lloyd, our thanks. Really grateful to you for all the reflections. Good to see you. OK, thank you very much, guys. Lloyd Blankfein. By the way, Goldman Sachs CEO David Solomon, speaking of which, will be on FAST today at 5 p.m.

28:59Lloyd Blankfein: Eastern time. He just wrapped his big TMT conference, Communicopia. Still ahead, we're going to speak to a former researcher at OpenAI. That says more and more experts are speaking out about the technology's potential threat to humanity. Plus, the national average for diesel did cross 6 overnight, got to 6.06. We'll take a look at what's driving that move when we're back in a minute. Did you know that psoriatic arthritis may progress over time and could cause permanent joint damage if left untreated?

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30:41Subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts.

30:48Lloyd Blankfein: This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song like All I Want. Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Welcome back to National Average for a gallon of diesel.

31:23Lloyd Blankfein: Crossed$6 for the first time ever. Our Pippa Stevens looking at what's been an incredible move over the last couple of months, Pippa. That's right, Carl. So we've seen a very swift move higher here for heating oil futures in the last few months. thanks to the dual outages both in the Middle East as well as in Russia. That's tightening global markets with about 8 percent of supply currently unavailable. Now, diesel is now above that$6 per gallon mark for the first time on record, currently at 6.06. That's up from 3.76 at the end of February, just prior to the war starting. Now, recently, we have seen a growing spread between diesel and gasoline futures thanks to the market missing those distillate-rich barrels from the Middle East, but also Russia cutting off diesel exports.

32:01And consumers are used to seeing the price of gasoline on every single street corner, but diesel is equally important since it fuels the trucks and trains that transport goods all across the U.S. Now, typically, these price increases don't show up immediately, but rather builds over time as higher transport costs are passed along to consumers. Now, over in California, diesel is now just two cents shy of$8 per gallon. And that might seem like a California issue, but it actually impacts the entire U.S., given the Los Angeles port complex is the busiest in the country, handling hundreds of billions of dollars in containerized trade.

32:37Now, those goods are loaded off the ships and onto trains and trucks that are exposed to the highest diesel prices in the nation. Now, California is also a major agricultural producer, alongside Iowa, Kansas, Minnesota, Missouri, and Nebraska, all seeing record high diesel prices today, just as the harvest season gets underway. And farmers don't have as many ways to cut down on their fuel yields as gasoline, when consumers do. So there isn't that same level of demand destruction here. Sarah? Yeah, I mean, we're learning how the industrial economy is so dependent on diesel. Thank you, Pippa. Pippa Stevens.

33:10Time now for a news update. Brandon Gomez has it for us. Morning, Brandon.

33:13Lloyd Blankfein: Hey, good morning, Sarah. The Justice Department is now reportedly investigating allegations the Los Angeles Clippers circumvented the NBA salary cap for star player Kawhi Leonard. It comes a week after the league imposed severe penalties on the Clippers over breaking the rules. According to the New York Times, the probe is in early stages and is being conducted by the U.S. Attorney's Office in Brooklyn. Meantime, the CDC this morning declared the end of the cyclospora outbreak, saying the number of recent infections linked to the outbreak has declined significantly and the contaminated lettuce is no longer available in stores or restaurants.

33:46Lloyd Blankfein: The parasite linked to lettuce sourced in central Mexico and sold by Taylor Farms sickened more than 11 ,000 people and caused nearly 500 hospitalizations and two deaths. And Republican lawmakers plan to bring a bill to the House floor next week that would protect consumers from absorbing growing data center costs. It comes as Republican leaders face pressure to rein in rising electricity bills tied to the rapid expansion of data centers to meet the demands of AI. Carl, send things back to you. All right, Brandon, thanks so much. Brandon Gomez. Still to come, we'll talk to a former researcher at OpenAI who says these fears about human extinction are real.

34:20Lloyd Blankfein: And you should take them seriously when we're back in a minute. Welcome back. A new report says Sam Altman is reacting to these recent concerns around AI development. Kate Rooney has some details. Morning, Kate. Hey, Carl. Good morning. So OpenAI CEO reportedly telling staff in a meeting this week that the company could potentially slow down AI development, possibly with other AI labs, but does warn that some might not agree to that. Bloomberg reporting this one and no comment from OpenAI. But Altman's comments do really align with what we have heard from others at OpenAI this week. One top OpenAI researcher put out an essay earlier in the week called The Alien Mind and argued that they need to strengthen so-called alignment.

35:00So that's essentially making sure that AI has the same priorities as humans, doesn't go rogue, and then figuring out a way to monitor all of this tech as it continues to get a lot better. It does come amid a wave of new warnings in the industry from inside of Anthropic in particular. A researcher there quit this week, tweeted about it and the risk, and then the possibility of human extinction. It's getting a lot of attention. Another Anthropic employee chimed in, argued that there is a now greater than 10 percent chance of something catastrophic happening. I asked Gary Tan. He's the CEO of Y Combinator about this yesterday at their demo day.

35:34YC is an open AI investor and he is on the ground with a lot of these AI founders. Tan argued that the fears are overblown.

35:42Lloyd Blankfein: We don't need to be responding to a science fiction sort of fantasy about what's going to happen. We need to be responding to what is happening right now. you know, if there was a breach and sort of a coordinated attempt by agents to take over our infrastructure, what do we do about it? These are things that are much more tangible than sort of pie in the sky, 30 ,000 foot in the air. You know, all of humanity is going to die. It's similar, guys, to what we have heard from other leaders in the AI industry as well. We heard from Jensen Wong at Goldman's conference yesterday, pushing back on all of this.

36:20Brad Gerstner also tweeting about it. I won't read his tweet on air, but I believe he's coming up later today. Yes. Okay. Thank you. That is Altimeter Capital CEO, Brad Gerstner, OpenAI investor. He's going to be joining the halftime report next hour. Look forward to those comments and some of the pushback. Let's stick with the fears around AI. As those who worked at companies like Anthropic and OpenAI continue to sound the alarm. Joining us now is Daniel Cocotelo, former OpenAI governance researcher and now executive director of the AI Futures Project. Daniel, it's great to have you. It sounds like how you feel very much echoes what we heard with Jacob Coxon's tweets this week.

36:58What's your thoughts on the matter?

37:01Lloyd Blankfein: Yeah, Jacob is right. He's not the first person to say this. People for years have been warning about this. In fact, before the industry even existed, AI luminaries had been saying, you know, hypothetically, if we ever made AIs that were better than humans at everything, that could go very wrongly and could possibly result in those AIs taking over and killing us all. It's not a new idea. What's new is that the AI companies are actually kind of getting close to maybe building AIs that are that smart. They're not there yet, but if you look at the trends and you look at the rate of capabilities improvement across so many different domains and you extrapolate those trends, as I have at the AI Futures Project, that's part of the work that we do, Well, those trends are pointing in a very concerning direction.

37:45Lloyd Blankfein: And it seems like a year from now, two years from now, three years from now, they really will be able to have AIs that can do the entire research process themselves. They will be autonomously self-improving. And that could go very badly. And therefore, the solution is what? The simple solution would be shut down the AI companies and ban them from doing this sort of thing. And that's, I think, much better than our current default path. If you're interested in a more nuanced, complicated solution, my organization has put out one. It's called Plan A. It's AI 2040. You can go look it up. In that more complicated solution, we require the AI development to happen in a totally transparent way where everyone can see how each AI model is trained.

38:35Lloyd Blankfein: And we have additional regulations on top of that that require safety practices to be followed and so forth. And that generally, in broad strokes, prevent this sort of recursive self-improvement thing from happening. We do not allow the companies to have giant swarms of AI agents autonomously self-improving on their data centers. If we can block that sort of thing, then I think things will be much safer. Do you not buy the argument that it's like the nuclear weapon or it's like the, you know, the automobile or the Internet, you know, where there were worries about safety, electricity? And ultimately, it just comes down to the responsibility of those that use this technology to make sure it doesn't get out of hand.

39:18Lloyd Blankfein: Great question. So with the automobile, lots of people died in car crashes. and as a result of all those deaths we iterated and we figured out how to make safer cars that aren't as dangerous um the problem with ai is that if the ais get too powerful too fast then you can't recover from the disasters so right now for example uh there is this hugging face attack where a swarm of ai agents unbeknownst to open ai broke out of their containment coordinated with each other, formed teams, tried to cover up the fact that they had done this and cheated, and then ultimately ended up attacking a different AI company, Hugging Face.

39:58Lloyd Blankfein: Now, they are eventually caught and shut down. But if you imagine a situation where there are millions of AIs instead of just thousands, and they're much smarter than humans in all of these different domains, and the AI company has deliberately put them in charge of self-improving on the data centers, It's very easy to imagine ways in which that could go wrong without people noticing, perhaps because the AIs are deliberately trying to conceal this from the humans. Yes. Eventually. Yeah. I was going to say that that was sort of the point that Paul Tudor Jones, I think, was trying to make in his op-ed this week is that you take you take slight risk of malfeasance, multiply at times.

40:40Lloyd Blankfein: He says tens of thousands of users. But to your point, it's not just one. And on the policy response, it's one thing to write something in this country. But, I mean, the challenges to make that policy global would be immense, don't you think? Indeed, it's a very immense challenge. And that's why, overall, I'm quite concerned about the situation that we're in. I don't think it's an impossible challenge, though. We talk about how it could be achieved. I think that if the United States government wakes up and puts some serious regulations on the AI industry to prevent them from doing this very dangerous thing that they're currently planning to do, I think we can then turn to other countries around the world and say, hey, we think you should do something pretty similar.

41:17Lloyd Blankfein: And we need to sort out some sort of system for making sure that other countries are also doing something similar here. And I'm actually optimistic that that could be achieved, although it's definitely a big lift. And we need to start as soon as possible because we're not sure how much time we have left. You went on Joe Rogan this week and said the situation with AI is just crazy. And I think not enough people really understand how crazy it is. So what is it exactly that you want people to understand that we don't know that's going on inside those doors? So the things that I'm trying to get people to understand are actually kind of open secrets.

41:51Lloyd Blankfein: If you follow what's going on, it's not really. Here are some things. The companies are trying to automate AI research, which they think will then result in getting super intelligent AI. So super intelligent AI, AI that's better than the best humans at everything. This is the explicit goal of Anthropic and OpenAI and several other companies. They're not shy about the fact that this is what they're attempting to do. That's one open secret. Another open secret is that, well, they're making rapid progress towards that goal. If you look at, you know, people have been for years sort of laughing at them and saying, oh, it's just hype.

42:22Lloyd Blankfein: They're not going to, no way are they going to be able to do that. The current paradigm is going to hit a wall. And those people have just been wrong and wrong every year. The current paradigm has not hit a wall. Every year, the AIs are dramatically smarter than the AIs of the previous year. if you look at the trends, they're already starting to accelerate the AI research process significantly within these companies. Almost all the code is written by AIs now. The job of people at these companies is mostly managing teams of AIs that are doing the actual grunt level work. It's just actually, unfortunately, very plausible that these companies will succeed at their extremely dangerous plan of automating the AI research and having autonomous swarms of AIs self-improving.

43:04What do you say to those that say, you're not there anymore? These people weren't there that long. They're disgruntled employees. They're part of some psyop to try to get more regulation into AI and fear-mongering. I mean, those people just aren't actually familiar

43:17Lloyd Blankfein: with you. You can just go talk to the researchers at these companies, as I do every day. And there's still the researchers saying these sorts of things. You can read Jakob's, his post that you, I think referenced his article on OpenAI's website. Also, Jacob Coxon, up until like three months ago, he was at OpenAI working on training these models to be smarter, you know? And then he had a crisis of conscience and decided he needs to think more about the safety stuff and went to Anthropic and then decided that that wasn't good enough because Anthropic's just another company doing the same dangerous thing.

43:55Lloyd Blankfein: And so he quits. It's just actually false to say that these concerns are like the result of being on the outside or something. It's almost the opposite. The people who are closest to the metal actually involved in this are often the source of a lot of these warnings. Yeah. Well, it's scary stuff, and thank you for coming on and raising some of the concerns and some of the research that you're doing. Hope you'll stay in touch. Daniel Cocotelo joins us, former AI, now AI Futures Project Executive Director. When we come back, we'll take markets temperature here on a pretty constructive day. 76.72 as we've bounced off of some critical levels, Samar.

44:34Lloyd Blankfein: You stay with us. Coming up, a Fed hike rally. Why traders may actually like the certainty around the Fed raising interest rates next week and what it means for the markets. A nice 500-point rally, 1 % move higher. We'll be right back. Solid bounce in the major averages this morning. Let's bring in our senior markets commentator, Mike Santoli. After we did hold those high 7 ,500s yesterday, Yes, exactly. All week. In fact, back to last week, the S &P 500 was unwilling to really break through this range, leaving itself open for a little bit of relief, which we did get today. And I would explain it as the CPI data ratifies where the market had already traveled to in terms of where yields were.

45:12Lloyd Blankfein: I mean, two year yields already above four and a half percent yesterday. And it is the clarity of what's going to happen next week that I do think releases some of the tension here up one percent across the board. Sometimes it feels a little mechanical. You got S &P and Dow and Nasdaq all up around one percent. But I do think it does take some of the immediate pressure off naturally. Longer term yields taking a breather oil as well. Big questions. I mean, it doesn't really create an all clear. We're still down for the week in the S &P 500, for example. So in the range, we got to see if the A.I.

45:44Lloyd Blankfein: trade reengages, because I do think it's now really more skeptical than enthusiasm around what's happening with A.I. build out. How about RSP, SPW, equal weight? Is that an equal weight potential breakdown? But that's been the pattern when you do have yields and oil creating this macro pressure. You know me, I've been against the kind of broadening rally as some kind of a salvation for the overall market. Interludes, when you do have broadening, when the average stock outperforms, that's great. It keeps the index from actually suffering outright pullbacks. But you need the leadership of the market to really reengage as the upside low.

46:21Lloyd Blankfein: locomotive. We'll see if it happens. Yeah. All right. We'll see if that rate hike is really a positive catalyst. Yeah. And how it's characterized. If we price in a couple more after that, it'll be fun. I mean, just talking about the resilience, that's the theme of the day. The Dow at 52 ,000. I mean, after several days of the market being closed on that horrific day after 9-11, when it reopened on the 17th, had a record drop and the level was 8 ,900, 8 ,920, which just shows, you know, I think it's part of, you know, what we remember today is the American resilience and durability. There's no doubt about that.

46:55Lloyd Blankfein: Have a good weekend.

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