When A.I. Spending Starts Slowing, Start Worrying About Recession | Wolf Richter

Wolf Richter (0:00)

It's this huge amount of corporate money that's getting spent, that's getting drawn in globally, and that's getting spent in the US economy. When that starts declining, that's when I start seeing a recession on the horizon.

Adam Taggart (0:24)

Welcome to Thoughtful Money. I'm Thoughtful Money Founder and your host, Adam Taggart. Welcome you here for a long-overdue return discussion with Wolf Richter, publisher of wolfstreet.com, very famous not just for his macro and market research, but for the charts that he creates there. Wolf, it's been way too long. Thanks so much for coming back on the program.

Wolf Richter (0:43)

Thanks for having me, Adam.

Adam Taggart (0:46)

Well, look, we caught up before we turn the camera on, but I just want to say once again, I was just back in your home city of San Francisco 24 hours ago, and despite some of the problems the city is still dealing with, it is still overall one of the most beautiful cities in the world. So congratulations on living there.

Wolf Richter (1:07)

I have nothing to do with that.

Adam Taggart (1:10)

And I will remind people that Wolf is one of those crazy people that walks down and goes swimming in the bay there, which is so cold. But I'm sure that you were hip on cold plunges before they became the hot thing to do.

Wolf Richter (1:31)

Well, you know, the cold plunges were that they sit in ice water in the bathtub.

And I can't do that. When I get into cold water, I need to move where I get very cold. So I need to I need to swim hard to stay warm or not get too cold too quickly. But these people are I look at them, you know, this is nuts to sit in ice water like that. I need to swim.

Adam Taggart (1:57)

I get it. Although it's hard not to look at you. Swimmers is nuts. I was on a there's an old boat, the Belclutha, you may know, Wolf. That's it's kind of moored down there off the bay or on one of the docks. And I think it's like fourth grade. It's when in the Bay Area schools, kids go and spend a night there. So you're living like the old sailors did back in the 1800s. And so I was a chaperone on that. It was cold. I mean, this was, this was winter San Francisco time. And you're up all night. And I remember at like 3.45 in the morning, 4 a.m., I started seeing these little blinking lights in the black water. And it was these little LEDs that the swimmers had on their swim caps there. So they're swimming in the pitch black, freezing cold, shark-infested water. I just don't get it, but I've got a lot of respect for you guys.

All right. Well, look, beyond that, let's get to the matter at hand here. So it's been a good while. So I should probably just open up with Wolf, kind of what's your overall outlook on the economy and markets these days.

You sent me some notes of how you see the world, but why don't we start there and then we'll start drilling into some specifics.

Wolf Richter (3:08)

Yeah, so the markets, I'm just writing this article about AI bonds right now. And there's a lot of hand wringing about that, but the bond market is still in La La Land. I mean, the yields are back where they used to be before QE. The spreads have widened a little between treasuries and corporate debt, but they're still at historically narrow levels. And so, we've got that in. And the stock market, of course, you know, it's broken in two, but the AI and tech, the AI-related tech companies, they're on an extreme valuation binge. I mean, it's just incredible what's happening there. And so, you have other stocks that have plunged, and the overall indices are near their all-time highs. And so, you can see that the markets are still in boom territory, overall. And, though, sure, when you look at thousands of stocks, you can find probably a couple of thousand in that group that are 80% or more off their highs. But the big stocks that are carrying the day, they're at all-time highs. And they have extreme valuations of trillions of dollars. And so, that carries the index. Then, in terms of the overall economy, so we've got the AI spending boom that's throwing maybe a trillion dollars in corporate money, and investor money at the economy. A lot of that comes from overseas because they're raising funds overseas. That gets spent, at least in part, in the United States. Then we've got government deficits of a couple of trillion dollars a year, and that's getting spent. And the consumers, they're working. We have full employment, wages are up.