Moneybeat: Reality check

Editor's note: The following text is a transcript of a podcast story. To listen to the story, click on the arrow beneath the headline above.

JENNY ROUGH, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: It’s time now to talk business, markets and the economy with financial analyst and advisor David Bahnsen. David heads up the wealth management firm the Bahnsen Group, and he is here now. Good morning to you.

DAVID BAHNSEN: Well, good morning, Nick. Good to be with you.

EICHER: Well, David, The Wall Street Journal is reporting that the six-week government shutdown clearly pinched the economy—missed paychecks, delayed SNAP benefits, big drops in D.C. restaurant traffic. But the Journal, in its story, says the real challenge now is the data fog that this all creates. Some of the weakness might just be noise. Some of it might reflect something else, and disentangling the two might take some time.

So David, when you think about and look at the impact of the shutdown—and maybe even with the prospect of another one coming at the end of January when this temporary spending bill expires—do you see mostly temporary disruption, or does this, in your mind, expose a softer economy underneath?

BAHNSEN: I don’t even agree with the Journal about temporary disruption. I do know what they mean on a micro basis. There’s no question somebody who doesn’t get a paycheck, they were disrupted. I don’t want to minimize the disruption to a human being or a family.

But because the context of the question is macroeconomic, this was the longest shutdown in history, and people are going to have a very hard time finding any data that actually indicates it moving any particular needle macroeconomically.

And that other point they make about the delay of reporting is somewhat ironic, because what we had been hearing before the shutdown was a lot of people from the Trump administration saying you can’t trust that data anyways, and then other people from the left saying you can’t trust the Trump administration with the data anyways. And now people saying, what are we going to do? We don’t have this data.

But we have continued to get initial claims from states and the private-sector numbers. But I don’t think that any of us have been sitting around wondering, has the job market gotten way worse than we know, or has it gotten way better than we know?

I think most of us that spend a lot of time inside labor analytics, as I do, have a pretty clear picture of where things are, and it’s not good.

EICHER: Also in that Wall Street Journal story—and I hate to keep coming back to it now that we’ve kind of undone it—but it does quote the CBO, the Congressional Budget Office, saying the shutdown could shave a point to a point and a half off of fourth-quarter GDP. Does that not seem credible to you at all?

BAHNSEN: Now I really don’t think it matters. I’m not one who always wants to be critical of CBO, but they don’t have a way to fully know that.

And when they say a quarter, you know that they would mean that annualized. So it would mean a quarter of a point in one quarter. And so even then it would be what they would be saying it is as a result of certain government checks that didn’t get out the door, that are in the government-expenditure side of GDP.

And all that would mean is that there were checks that didn’t get mailed one month that did get mailed the next. I have a hard time understanding it, though, because of the timing of this that largely was in October into the middle of November shutdown—how it would impact a quarter’s data when anything that didn’t get paid in the first half of the quarter is going to get paid in the second half of the quarter.

So I just am skeptical that that will end up being accurate.

EICHER: Well, David, there’s another story. Again, I hesitate to quote the Journal anymore this morning, but—

BAHNSEN: Well, the Journal is the best newspaper we have out there, so I’m not trying to be critical of the Journal.

EICHER: But this story in the Journal, I think, pairs really well with your Dividend Café this week. It lays out six charts showing what they call the collision between AI hype and AI reality: record capital spending, a gold rush of data-center plans, but also hard physical limits like power shortages, transformers in short supply, permitting delays, and so on.

Now, David, you’ve been warning—and you warn in your current Dividend Café—this is a bubble. Maybe a productive bubble, but still a bubble. So talk a little bit about the difference between a productive bubble and a scarcity bubble, and where this current AI expenditure fits

BAHNSEN: Well, you know, because I manage investments for a living and am writing to investors in my weekly DividendCafe.com, I wanted that distinction to be clear. Because what I suggest happens when a productive bubble funded by equity goes awry is that individual investors lose money, and that’s bad for individual investors and not bad for others.

But to the extent that the bubble was excessive valuation of something that is productive, then what you end up with is a still-productive thing that is now in different hands—some investors lost a lot of money, and other investors got to come in at a better time and a better price with a productive asset.

And right now, that’s what I would be labeling the AI moment as: largely equity-funded, and it’s certainly a productive asset.

But it’s funny that when the Journal’s charts and our conversation right now, we’re talking about the kind of positive side of, oh, there is record money being spent on the data centers. Is that really a positive? That’s the question I’m asking.

There isn’t any question that companies like Nvidia and Broadcom are receiving real money from companies like Amazon, Google, and Meta that are spending grown-up money—hundreds and hundreds of billions of dollars. The question is whether or not what they’re spending it on is productive, valuable, and whether or not the amount they’re spending will be rational.

You could very well end up with a profitable use for AI that doesn’t match the amount of money that had to be spent on it. And so there’s a lot of complexity to this, Nick, but that, I think, is the fundamental argument when a bunch of companies are increasing the amount they’re having to spend to keep up with something that right now has no profits at all, and that the measurement of future profits is totally speculative.

And if, in the end, this goes out like the internet, that’ll be a great thing for society. We all use the internet every day. You and I are recording using the internet right now. This podcast exists because of the internet. It’s changed a lot of lives over 25 years.

But 25 years ago, a bunch of people overpaid for Pets.com and lost all their money. That was sad for them, but it didn’t blow up the world. Some people made a big mistake, and they moved on.

I want this to be like that—where risk-takers get profits and rewards, but we don’t end up going into a debt-fueled bubble, and we don’t end up asking the government to get super involved in something that I think ultimately will make it worse and more systemic.

EICHER: You know, I did find it interesting the comment that you made—if I’m quoting accurately—that it’s very similar to what happened with the tech bubble early on, the early internet. It’s not as though that information isn’t available. You can read about it.

BAHSNEN: Well, reading, requires reading.

EICHER: AI can tell you about the tech bubble!

BAHNSEN: Yeah, that’s true. There’s two things. There aren’t a lot of people that are doing the reading and the historical analysis, but that’s at least doable. But what isn’t doable is managing money now with the experiential lessons of having gone through it before.

There’s just something about the respect for risk and the humility that comes from having gone through certain asset bubbles that burst. So I lived through the productive bubble of the internet bursting and the scarcity bubble of excessive housing in 2005–06–07 bursting, and those things gave me a lesson that I couldn’t have gotten out of a book.

And I think that there are plenty of people professionally managing money now that were managing money in 1999. I’m not that old, but the bulk of people that I meet and talk to that are most enthusiastic about this AI moment—they have less than 25 years’ experience, which means they weren’t there when Pets.com took over all the Super Bowl commercials.

EICHER: Yeah, you’re not that old, but you were born in your 30s, it seems like.

BAHNSEN: Well, I’ll take that as a compliment.

EICHER: It’s meant that way.

All right. David Bahnsen—founder, managing partner, and chief investment officer of The Bahnsen Group. He writes at DividendCafe.com and at WORLD Opinions. David, hope you have a great week.

BAHNSEN: Thanks so much, Nick. Good to be with you.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.