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Moneybeat: Shutdown and startup

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WORLD Radio - Moneybeat: Shutdown and startup

David Bahnsen on political brinkmanship in Washington, labor data turning south, and the money-manager debate over whether AI builds capital or burns it


Office of Management and Budget director Russell Vought talks to reporters as House Speaker Mike Johnson of La., Senate Majority Leader John Thune, R-S.D., and Vice President JD Vance listen, Sept. 29. Associated Press / Photo by Alex Brandon

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.

MARY REICHARD, 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: Good morning, Nick, good to be with you.

EICHER: Well, David, the government shutdown is already making itself known in the labor market. The Wall Street Journal reporting about 100,000 federal workers have come off the payroll this week under a deferred resignation program—that comes on top of the roughly 750,000 furloughed. The White House is warning the economy could lose about $15 billion in GDP for each week that the standoff continues, and it strikes me as a bit of an odd message from the White House, inasmuch as it highlights the administration’s own shutdown costs. But I guess the political subtext there is to try to place the blame—to quantify that blame—and to lay it at the feet of congressional Democrats. So I wonder how significant the shutdown is, David, and whether the government job loss matters to the overall employment picture.

BAHNSEN: Well, the biggest issue that is impacting the payroll numbers in the weeks ahead and months ahead is the furloughs from earlier in the year that are now going to show up in the removal from payrolls. They were, I think, eight-month programs, and a lot of people that elected them early throughout October, November, December—it’s kind of staggered as to when those things will roll off.

The shutdowns are either a very small amount of that data or a temporary amount and not part of it whatsoever. In other words, they’re going to be coming back on when the shutdown inevitably ends. So the issue with the payrolls is that we’re not going to get a BLS number until the shutdown ends.

There are other data points. We look to the ADP number this week for the month of September—it was negative. The Challenger Gray report is showing the most amount of firings we’ve had in quite a while, but it’s still pretty low—but the least amount of hirings we’ve had since 2009, and those are both private-sector. ADP and Challenger Gray are both private-sector reports.

So there’s a lot of different data points on labor. None of them are particularly great. But the issue that I would push back on is the estimates that there’s going to be $15 billion of lost GDP from the shutdowns. I don’t think there’s any precedent for it being that high. And if the shutdown lasts two weeks, that’s $30 billion in a $30 trillion economy. So I don’t know that I believe the GDP loss is that significant. Primarily, I think what the shutdown does is reallocate resources.

But why is the stock market up so much in the last few days as the shutdown started? Why does the private sector shrug it off? Why has David Bahnsen shrugged it off as a matter of the economy—as a matter of markets, investable markets? Because we’ve been through this a million times. It always ends the same way. It’s a political story, not an economic one. And markets fundamentally trade off of corporate profits, not government activity.

EICHER: But what about this idea—and we heard President Trump talk about this—relying on his budget director, OMB Director Russell Vought, talking about how the shutdown really gives us an opportunity to make some cuts the Democrats would never stand for in the regular congressional process. You think he’s on to something? Is there something good that can come of this?

BAHNSEN: Well, they’re not cuts. They can reallocate. So they can cut things and then they’ll fill it up somewhere else. And Russell is very thoughtful about this, and I think there could be modest efficiencies that come from it. I do think some of it could end up being more political, but no—I think that that is exactly right, which is one of the reasons why many are surprised that Schumer is following the far left of his party here, because they really are giving a hall pass to Russ Vought—who is not someone that they like—and who does have the ability to go do things now because of this extraordinary circumstance he would not otherwise be able to do.

Now, some are saying to me, “Well, now we’re going to be able to really trim the deficit out of this.” And I’m afraid that’s not really the way it works. We can more optimally appropriate funds than we would if things were functioning the way that they normally do congressionally. And this now gives Russ a lot of discretion, and therefore I do think he can get rid of, let’s say, certain wasteful situations. But that doesn’t mean that that money doesn’t get spent, because it absolutely will. It just moves from one bucket to another in the end.

EICHER: Okay, well, I’d like to turn now to Bahnsen Group Week in Review. You came away from your annual money-manager week there in New York saying that they were the most heated conversations you’ve ever been a part of. Now, before we went on the air, you just said it was a doozy. So let’s start with—why don’t you just say overall, why was it such a doozy?

BAHNSEN: Well, I think the doozy could be applied to the sheer volume—it’s very different opinions about where we sit in the economy and where things are going and what to make of some of the major trends that are right in front of us.

Everybody, whether they like it or not, is talking about AI. Everybody is talking about some sort of revolutionary shift as a result of this new advanced technology. But there are absolutely some of the brightest people I’ve ever met that believe we are walking into a really unhealthy setup in how much speculation there is and how much just unprecedented money is being thrown at something that nobody anyone talks to has an idea of exactly how that money is going to come back.

And yet the side who just says, “Close your eyes and with both hands, get all in on the AI story,” what they’re saying is, “Yeah, you’re right, we don’t know exactly. We just know that it will, and this is so big we just want to indiscriminately participate.” Some say it a little more intelligently than that; some say it less intelligently than that, candidly.

But I do believe that that debate is a really substantive one, and it isn’t anyone saying AI isn’t real. Everybody is saying AI is real. The question is, does the capital-expenditure outlays of these hyperscalers lead to an investable return? And does it lead to a societal return? I would argue that the answer to the societal return is what will generate the investable return.

And so greater efficiency is greater productivity. Those types of things are investable. But how that plays out—and what that means to this sort of circular thing we have going now, where the people who make the chips for AI are investing in the AI—let’s call it language-learning models as the major application—and then the main customers are going up because they’re buying it, and then the main providers are going up because they’re selling it—I just think at some point that circularity has to break.

And so I have a lot of things I’m considering around it, but they’re very nuanced. They’re not “buy AI bubble forever,” and they’re not “this whole thing is going to blow up, it’s a joke,” because it isn’t a joke. It’s just that I don’t think things generally end well when people cannot answer what the investable theme is.

EICHER: Yeah, it’s so interesting to me, David. We’ve been talking about whether AI is the next tech bubble, and I think back to the tech bubble in the 2000s. For what it’s worth, I wonder whether there isn’t a meaningful difference here versus then, when it seemed the internet bubble was around things like—do you remember that, DrKoop.com?—all these crazy websites, versus AI, which seems very hardware-driven. I mean, we’re talking electricity, real estate, lots of stuff behind it, not just reputation. Does that make a difference?

BAHNSEN: Yeah, but the parallel, though, is that in what you’re referring to with the hardware—the bones of it—those things blew up out of dot-com, not just DrKoop.com, not just Pets.com. All of those Super Bowl-commercial dot-coms that blew up are an example of the bubble bursting and a lot of capital being set on fire.

But remember Juno and Juniper Networks and Cisco and these companies—they all are still around, but some of their stocks are down 90 percent. See, the internet became bigger than people thought, not smaller. It’s just that what people thought before they had a revenue model was really, really bad, and the valuations of things that had no revenue model.

But, you know, a lot of people keep saying how much a ChatGPT or a Grok or an xAI—some of the different LLMs—can do, and yet I’m not hearing anyone talk about how it gets monetized. Now, I know how the internet ended up getting monetized: a bazillion companies, including yours and including mine, use it day to day. But a particular website—besides Amazon, eBay, and, you know, very few—really learned how to monetize it for a long, long time.

And with AI, I think that there are a lot of great parallels to that dot-com tech story, but there are differences too. And one of the big differences is you’re already starting off in this thing with big revenues. It isn’t like Nvidia—as insanely high as its stock price has gone, and as insanely high as its valuation is—it isn’t like it isn’t generating more revenue than we’ve ever seen in history. It is. And all those dot-coms that we could make fun of from 1998—they had no revenue.

So there are various differences, but I don’t think the hardware-software thing is all that different, because I think right now that’s the only place anyone in AI has made money—by selling the bones of it. And all the people that sold the bones of the internet, the servers and the networks and the routers—those were the stocks that proved to be the most overvalued.

EICHER: David Bahnsen, founder, managing partner and Chief Investment Officer at The Bahnsen Group. He writes regularly for WORLD Opinions, and at dividend-cafe.com. David, thanks, have a great week.

BAHNSEN: Thanks so much, 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.

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