Higher Rates Could Burst the AI Bubble — Here’s What to Own Instead

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Jesse Felder (2:00)

There's really nothing like rising interest rates to burst a speculative bubble. Everything is now dependent on the AI bubble. If I don't want to own treasuries, I don't want to own corporate bonds, your really only other choice outside of these kind of financial assets is real assets.

Maggie Lake (2:21)

Hello and welcome to Wealthion and Maggie Lake. Joining me today to discuss gold bonds and how to prepare for what's ahead is Jesse Felder, founder of The Felder Report. Hey, Jesse, great to have you on again.

Jesse Felder (2:32)

Great to see you, Maggie.

Maggie Lake (2:33)

So if we are on a new rate hiking cycle, I guess first of all, do you believe it's going to be a series of hikes? Because there's some disagreement about that and some people think the feds hiking into what will be a demand slowdown. That's already happening and they're late to the game. So we think there's going to be all these rate hikes, but there's not really going to be. Do you sound like you're in the camp that no, there's going to be?

Jesse Felder (2:58)

Yeah. I do think this is a new rate hike cycle. I think it's because when you listen to Warsh, he echoed something that Bill Dudley, former head of the New York Fed wrote last week, which is the rationale for tightening has rarely been so clear cut as it is today. The Fed's only missing on one side of the mandate, right? Obviously, unemployment is really low, but they've missed on the inflation side really since March of 2021 Core PC has been running above target, and missing that long, and now inflation is threatening to rise again in the short term. So I think people are mainly, right now, maybe don't appreciate these inflationary dynamics that are building right now. Nominal GDP is running at its literally, there's only six quarters since 1990, that were nominal GDP has been running as high as it did in the second quarter. It was in 2005, right before the housing bubble burst, and in 1999, right before the dot-com bubble burst. So the economy is literally running. We're running the economy hotter than we have at any point in 35 years.

Financial conditions are as loose as they've ever been, while we're running the economy hotter than at any point in 30 years.

And we now have one of the greatest fuel crises on record, diesel prices hitting record highs. Import prices, a lot of this is driven by the AI stuff, but import prices are rising at the fastest pace in decades. Producer prices we're seeing are literally ripping higher. You see any of the kind of the manufacturing surveys, they're all talking about pricing pressures building again. Food prices are now starting to turn higher again and threaten with a new El Nino. We could have a real spike in food prices next year.