Moneybeat: ​​The Wild West of AI

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

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

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

EICHER: GDP is in for 2024: no surprises, really, 2.8 percent for the entire 12-month period. What do you want to say about it?

BAHNSEN: Well, it came in in line with expectations. There were some questions as to whether it’d be 2.7 or 2.8, but that should be pointed out as real GDP. That means net of inflation. Nominal GDP was obviously even higher. 
So, all in all, a good year in terms of economic growth

Basically the number is two things, Nick. It’s below what our average since World War II has been, and it’s above what our average has been since the financial crisis.

EICHER: So, also no big surprise the Fed chose not to cut interest rates at its rate-setting meeting last week. What meaning, though, do you read into it? Is this a sign of uncertainty around inflation?

BAHNSEN: No, I don’t think so at all.

They have taken over 100 basis points out of the yield curve. Interest rates are more than one percent lower than they were just a few months ago, and they have still signaled the intent to continue cutting.

I would point out that a few weeks ago, the futures market was starting to price in two more rate cuts by the end of the year. It’s now at 62% odds that there will be three rate cuts by the end of the year. So the indications are not that they’re stopping cutting—just that they’re not going to do one every single meeting. 


It’s a balancing act. I don’t support the fact that it is a balancing act because it points to the sort of arbitrariness and interventionism of the whole process. I favor a rules-based approach. This isn’t rules based.

This is discretionary. But within their discretion, they believe that they need to get rates lower—and they believe they need to do it at a slow pace. Both of those things are reasonable beliefs. But if they were to now say, we don’t know whether we want rates to be lower, that would introduce uncertainty. They haven’t said that.

It’s just simply a question of the pace at which they get there. Candidly, it helps because they are getting jawboned a little bit from the White House. You end up with the executive branch trying to get in there and play a role in monetary policy, which I think, to some degree undermines some of its independence. But by not cutting now and then cutting later, it kind of holds off some of those issues that are going to come up with the White House. 


Jay Powell has a year and three months left of this very difficult job and I think he has a clear plan as to what he wants to do along the way. It mostly centers around housing. He cannot be at a 30-year low for existing home sales, transactions taking place when Powell’s leaving office. 
By that point, the impact it will have had into construction, into finance and consumer and all kinds of other elements of the economy would be very problematic. Housing has not yet caught a tail in terms of economic distress. I don’t think they care if house prices go higher or go lower. 
I think their point is they need house sales to take place and they’re not taking place.

That isn’t going to happen until mortgage rates come lower and the Fed is trying to figure out how to make that happen.

EICHER: All right, David, tariff talk is feeling like a lot more than talk. Coming into the weekend here at WORLD, because we use a lot of Canadian magazine paper, we were sweating that 25 percent. What is your expectation for where things might go with Mexico and Canada?

BAHNSEN : I think that what a lot of people have to understand when it comes to Mexico and Canada is regardless of what exactly is said and what it looks like is going to happen at a point in time, I am extremely confident that the president does not want tariffs on Mexico and Canada.


He doesn’t want the market disruption. He doesn’t want the negative economic impact. You mention even how it affects, you know, entities like WORLD. He doesn’t want the bad headlines. And by the way, he doesn’t want the higher prices that everybody can deny it creates, but that it most certainly does create. Now, people will say, well, David, if you don’t think the president wants it, why is he doing the things that could help, you know, implement it? 


Why is he saying it? That’s where I make a separation between China and other countries and the way his policy framework is set and the particulars with Mexico and Canada. He definitely ask people in his ear that have told him, you don’t have anything to lose by threatening these types of things all the way to the one yard line. 


He’s lagged what he’s gotten so far the incident with Columbia a week ago those are headlines that this president lives for, you know, even if some of it’s a little bit embellished or exaggerated, the basic narrative that Columbia wasn’t being cooperative, he threatened tariffs, and then they became cooperative. That’s something he loves. And so there’s some outcome that he’s going for with both Mexico and Canada and the tariffs become a way for him to use, you know, public flexing and posturing to get that. 


Ultimately, if we were to go through a period of time that lasts more than the average length of one of these fake government shutdowns, then obviously it would be very detrimental to markets to the economy to stability, to predictability to buying patterns. And this president doesn’t want that. And so that’s where my confidence comes from. 


Then, Nick, we’re going to have the same conversation in, I’m guessing a few months around China. He’s focusing on Mexico, Canada first because it’s a very different and easier to obtain outcome. With China, there’s a whole bigger picture involving currency, involving technology, involving IP, involving Taiwan, involving Russia, Ukraine. That’s a much more holistic policy objective, and he’s far more willing to use tariffs there because, of course, there’s already tariffs in place. 


So he’s talking about moving the knobs around those things to get there. Lots going on there. The tariff question continues to be very polarizing and very confusing.

EICHER: David, this is a week-old story now, but last week at this time, when the markets opened we saw a lot of market cap for the chipmaker Nvidia evaporate because of this heretofore virtually unknown AI competitor from China. What’s to be said here, David? Is this just the soft ground of the early days of artificial intelligence innovation where you’ve got to expect the unexpected, where crazy things are just going to happen with new tech?

BAHNSEN: Well, I hate to use our valuable time together to tout my dividendcafe.com but I was proud of the Dividend Cafe that posted a couple days ago about this very subject because I really do think, Nick, that those trying to make it all about China and Deep Seek are missing some of the real story. I think there is a story here. It is entirely possible that China has an AI tool that is generative AI, language learning model, that maybe can be powered at something far less than the hyper-expensive and hyper-complex capital expenditures that companies like Microsoft, Google, and Meta are pouring into.

But 95% cheaper?


I don’t know about that.

Are Americans gonna use Chinese AI tools with all of their censorship and state control? Of course not. 


So none of this has to do with me playing into the story about China’s competitiveness. I wouldn’t ignore the story. I think that China not being a customer and becoming a competitor has all kinds of implications, but the far bigger story, Nick, is that nobody can answer the question as to whether or not we are spending hundreds of billions of dollars on AI capital expenditures for a good reason. 


They don’t know what the end run is supposed to be. They don’t know what the monetizable benefit is going to be. They don’t know who the monetizable benefit is going to accrue to.

So to me, there’s a Wild West right now that has a very big possibility of turning out to be a massive misallocation of capital. Things like Deep Seek coming out in a given weekend, the way it did, don’t so much show the misallocation as they remind us of the risk of misallocation.

And I think there’s any number of things. 


Look, we are used to with technology—the whole benefit is exponential downward pressure on prices that over time things get cheaper, not more expensive at scale. That’s been the point of digital pricing for 50 years.


Everybody has assumed that these Nvidia chips get more expensive over time, get ordered more over time, and get needed more over time. All three of those things might be false assumptions. In the meantime no one else has figured out any way whatsoever to make money on AI, except for the people making the chips. So there’s a lot of questions here and I do not know how they will play out. But I think about it, watch it, study it every single day.

EICHER: David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. David writes at dividendcafe.com and regularly for WORLD Opinions. David, I hope you have a great week!

BAHSNEN: Thanks so much, Nick. You too.

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