The Economy, The Fed and The Obligatory AI Comment
Yes, I believe the U.S. economy is weakening.
Consumers are more than stretched, otherwise, we would not see delinquencies tick up across credit cards, mortgages and auto loans.
CRE will get worse before it gets better.
Banks can’t survive long-term in a world with an inverted yield curve.
Companies that carry meaningful debt will continue to find it difficult to invest for growth so long as debt refinancing pressure exists.
No, I do not believe that Gen AI will pull the U.S. Economy out of its slump. I am 100% certain of that.
Which companies are generating real revenue in the Gen AI space other than OpenAI and NVIDIA? Microsoft maybe? OK, but that does not justify MSFT’s stock run.
AI has been around for decades. When I think about machine learning and how it powers all sorts of models from customer churn models to movie recommendations to payment fraud detection to cybersecurity, I see a heck of a lot more economic value added than I do when I contemplate prospective Gen AI use cases. By the way, which CEOs will be fired when the Gen AI Bubble bursts?
I do not know when the Fed will ease (September perhaps after Jackson Hole?) However, when it does eventually lower its Fed Funds Rate, it will do so much more quickly than the Fed’s “dot plot” nonsense predicts.
The Fed will not be on a gradual 25 BPS rate cut path. Given the U.S.’s $35 Trillion Debt mountain, the $1 Trillion in Interest Expense, and the soft U.S. Economy, I believe that the Fed Funds Rate will be range bound between 0-2% when it is said and done, 0-1% will likely be the sweet spot.
My guess is that the Fed has not cut yet for fear of being viewed as political (aiding the Biden Administration), in an election year.
My Monetary Policy wish: End the Fed. I will settle for a true, legitimate audit of the Fed for now.