Moneybeat: Trillion dollar AI optimism

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

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

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

EICHER: Well, David, the news economy, I think, functions as all economies do, allocating scarce resources which have alternative uses, and with so much of the news resource allocated to coverage of the debt-ceiling negotiations. Perhaps it squeezed out other important stories. David, if we’re paying too much attention to that, what are we missing?

BAHNSEN: What interests me this week in the markets is this artificial intelligence stuff, and the huge performance of a company called Nvidia (which is about to be the next trillion-dollar company in the American stock market) getting more coverage in a sense than the debt ceiling did by the second half of the week. I think you’re going to end up with similar companies making a lot of money going way higher. We saw this with Nvidia: It’s up well over 100% in recent months.

But then I think we’re gonna have really bad companies that don’t make any money also go up a lot as part of the what will probably be next craze in this artificial intelligence space. So both as a social story and a market story, the AI thing is front and center. But you’re right. News—both in terms of the attention spans of those consuming as well as the people reading the news—has changed quite a bit.

The new conversation now is, “is the Fed going to pause or skip over the idea?” A lot of people have been expecting that they’re just pausing for while—letting it sit there—but maybe all they’re doing is just taking a meeting off and going back to resuming the hikes later. The Fed fund’s futures are still overwhelmingly pricing in close to 100% chance of a rate cut by the end of the year. But the idea of that happening in July or September was considered to have really high odds the past couple of weeks that have come way down since, so we shall see.

EICHER: All right. Well, David, it's interesting, you should bring up the Fed because the first of the two questions we have selected for today from our world journalism Institute students, the first one has to do with the Fed. And I should point out here that we've got quite a diversity of colleges and universities represented here in the students. But the two questions that we picked out, as it turns out, are both from students from Hillsdale and perhaps that has something to do with the fact that Hillsdale has an excellent Economics program? I don't know. Let's go to our first question.

OLIVIA HIHCEK: My name is Olivia. Hijcek. I'm from Goshen, Indiana. I'm here this week at WJI. My question is, I've heard a lot of conservatives complain about the Fed and say that we should abolish it. Is the Fed an inherently bad thing? Or is it something that could be used for good?

BAHNSEN: Well, that’s a great question. And there is a lot of debate within conservatism on it. I don’t think that there’s been a lot of really thoughtful debate.

I think that when it comes to most of the people who advocate just abolishing the Fed (and sometimes even talking about what the damage they’ve done in a really conspiratorial or sinister way,) I don’t think that there’s a whole lot of homework and research that’s been done there. My own view is that virtually everything the Fed is doing right now is counterproductive, and the way in which we’ve turned to the Fed to ask them basically to run the economy and smooth out anything challenging that happens in the economy is also very wrong.

I think a lot of it was even codified into law in the late 1970s in something called the Humphrey Hawkins Act that directs the Fed to make sure that everyone has a job and that prices remain stable. And I don’t think that what we call the dual mandate is supposed to be the role of the Fed either. I do not believe that not having a central bank is a good idea. I think that the humble objective of a central bank, being lender of last resort in the late 19th and early 20th century, is to guard against times where a liquidity crisis can turn into a solvency crisis if you don’t have a central bank that can lend against good collateral.

And so I follow the one of the founders of The Economist magazine, Walter Bobcat wrote that the central bank should lend at high rates against good collateral as a lender of last resort, and that’s what I believe the role of the central bank should be. Having them set interest rate policy arbitrarily at their own conference room table without a particular rule or methodology around it is destabilizing. And I think inherently we have a boom bust cycle because of a Fed trying to do too much. But I do not think that’s the same thing as saying we don’t need central bank as a lender of last resort.

AIDEN JOHNSTON: I'm Aiden Johnston. I'm from Colorado Springs, Colorado, and I'm here at the World journalism Institute. Proverbs 1322 says, A good man leaves an inheritance to his children's children. But Jesus also commends a widow for giving away all she has, given the substantial amount of wealth Americans have today, how should Christians think about saving for future generations, as opposed to giving to others, especially in the middle of a turbulent economy?

BAHNSEN: There’s a couple of biblical principles there that are very, very important. And I don’t think they’re at all contradictory. But I think that it’s really important that we learn to hold them in the right tension.

The biblical precept behind Jesus commending the widow had to do with the heart of surrender, being able to give abundantly, generously, and that someone who gives a very small amount but is willing to give sacrificially is more blessed than someone who gives a large amount when it is not sacrificial. And throughout Scripture, hundreds of verses that one could read that speak to not idolizing wealth and hundreds of verses that one could read that speak to wealth as a very appropriate incentive. And so we are asked to either conclude that the Bible contradicts itself over and over again, or that these are two dual principles that we can hold at once. When you invite the subject of inheritance in, I think that you do get an inevitable conclusion that the Bible is speaking well of holding and transferring wealth, but also doing so in a particular way. Not just having so much wealth, that there’s stuff to leave when you go, but as a godly person, to their children. It’s multigenerational.

My belief is that so much of this problem for the church is rooted in a lack of understanding of economics; that we do, in fact, meet the needs of humanity in a market economy. That when we understand from Genesis that God made us to produce goods and services that meet the needs of humanity, that God asks us to grow the earth to cultivate the earth, to extract the potential out of His creation, that what we are doing is participating in wealth building exercises and other incentives that go along with that, on the way incentives created by God. And I think that we need to learn to appreciate these things, and then understand them in the context of a moral philosophy that is rooted in generosity; that’s rooted in sacrifice, virtue and character.

This entire subject is more or less the mission of my life. I do think that an inheritance is a very godly objective. I think that there are ways people do that that is really inappropriate. I do not believe in enabling our kids and grandkids to not have to work. I think we didn’t want to be very careful about how we go about leaving an inheritance. And yet at the same time appreciating incredibly clear biblical precepts against idolizing wealth.

EICHER: David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group. His personal website is Bahnsen.com. His weekly Dividend Cafe is found at dividendcafe.com.

David, thanks, I hope you have a great week!

BAHNSEN: Thanks so much, Nick.

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