MIT's Microscopic Health-Tech Tools in Action

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2:32Carol Massar:Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank N.A. Member FDIC. Bloomberg Audio Studios. Podcasts. Radio. Radio News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Lauren Goodwin joins us now, economist and chief market strategist at New York Life Investment. She's here with us in the Interactive Brokers Studio. Lauren, let me just get your perspective on, again, acknowledging what we don't know and there's a lot we don't know. The kind of mood that we've seen develop over the course of this week, I think beginning with those comments from Jamie Dimon of JP Morgan suggesting there could be some problems with private credit that have gone ignored or unattended to.

3:20Now we see this kind of action in the regional banks today. Your sense of just kind of how you're watching this unfold, what you're looking for, and what it might tell us about the market. It's such an important question. And to be honest with you, as I've worked with public and private markets investors for the last 15 years, this has been on the radar. As banks pulled back after the financial crisis, private capital has stepped and in a meaningful way to fuel business activity. And one of the things that's sort of become apparent to me in this, let's call it shadow bank, as is commonly used, is the shadow banking system is a lot like the normal banking system.

3:58There is some really just high-quality lending, very well-backed normal activity happening, and there's some more challenging fraudulent activity happening. And so in terms of what we monitor, it's all the same stuff you monitor in the public markets. The major difference is that you have to be much more careful with things like default rates or some of the more standard areas of data that are going to have different definitions depending on who your lender is. It makes it a little more difficult to parse in the private markets, but it's the same idea.

4:28Carol Massar:I mean, I feel like we still have to figure out what happened here, right? I mean, I don't know. There are regulators over Zion, so you would assume that everybody was being a little bit more careful. Having said that, I mean, when you think about private markets and Jamie Dimon, what he said this week, are you getting a little bit more nervous about that there might be more problems in the financial system? I think it's incredibly reasonable. As you said, private markets for a while now. Yeah, I think it's so reasonable to be more attentive, let's say, when you have valuations and credit spreads where they are.

5:02Right. You know, it gets more and more difficult for people to see enormous amounts of upside in economic activity and market activity as well. And when you have a lending system that is so important to the real economy, it again, it's reasonable to say, hey, what's going on in this enormous segment of the economy that has grown so much over the last five to seven years? And so I think this is going to be an area that's going to draw more and more importance in our investment conversations coming up. When it comes to making investment decisions, though, you're seeing all in yields in these asset classes that are still attractive to investors.

5:40The transition that we're seeing then is a focus on quality, on workout capabilities, on if there is a problem in these asset classes, how do these teams navigate? When you were mentioning sort of the surge that we've seen of interest in private credit, suffice to say there's been a surge of interest in AI and artificial intelligence as well. And it does strike me that over the last week or so, there's been kind of a different conversation surrounding it. Maybe one of outright skepticism, maybe one just sort of about needing to see more proof in the pudding. And I wonder if you're seeing that as well, how you're rethinking about thinking about the kind of breakneck growth we've seen in AI and what needs to happen in the quarters ahead.

6:15I'm absolutely seeing this. It's really interesting, actually. I just got back from a three week roadshow with our clients in Europe and I was expecting a lot of things. but I wasn't expecting all of my conversations to include a big portion just about AI and US tech and what's really going on there. And I would say that the skeptic story is increasing. I think the catalyst, in addition to valuations being high, et cetera, I think the catalyst for this was really this sort of rooibos spending announcements out of NVIDIA and OpenAI that have raised questions about the sustainability of the great earnings capacity that we've seen in AI.

6:55What I'm really watching to determine whether this is reaching bubble conditions is the transition from capitalizing tech spend from cash off of these companies' balance sheets and into the debt markets. It's starting, but it's really early. I think we need to see that mature more before I'd be really concerned about bubble conditions.

7:14Carol Massar:All right, that's really interesting because I do feel like last earnings time, we looked at things like Meta and some of the big hyperscalers and we did see them actually having an impact from all the AI spend in terms of boosting revenues. But I feel like we're gonna have to go through that once again. Having said that, we've had quite a bounce back on the equity side of things. It would be normal to see maybe another correction of some sort here? I think that's right. But there's a, I can make a list of five or six really credible reasons why you might see a pullback in the equity market and specifically U.S.

7:48tech. But as we think about the next six to nine months in the equity market, the tailwinds are stronger than the headwinds. You have a Fed that's cutting interest rates. You have quantitative tightening that looks like it's likely to be easing. You have tax refunds in the spring that look like they're going to be much stronger than they've been in recent years. There's really a lot of important tailwinds to this market. And so until we see the AI hyperscaler say demand is falling, until we see the headwinds with respect to trade, et cetera, really make their way into the data, we're likely to see a pretty constructive market backdrop over the next six to nine months.

8:28I want to ask just for your perspective on the economy. So we heard a lot from Chris Waller today. He was on our air in the morning, and then our colleague Tom Kean sat down with them at CFR. They had a longer conversation still. You know, and his perspective here is, you know, another quarter point cut here at the next meeting. I talked a lot about the labor market inflation. Your sense of where this U.S. economy is, particularly when it comes to inflation, the stickiness thereof. How are you thinking through sort of where that's headed? Yeah, this is another area where we've spent a lot of time because we anticipate that the first level sort of impact of tariffs to consumer price and inflation are here but aren't really going to be felt until the holiday season and the turn of the year.

9:09And so I anticipate that we're going to have next year a growth environment that's slower. We're looking a little below 1.5%. So it's a little below consensus. Inflation, that's about a little higher than consensus, where it's sticky around 3 % for core inflation. That's a stagflation light scenario. But again, Again, when you when you layer on the modifier, it's it's no, it's it's it's it's not an overly bearish view on the U.S. economy, but it's one where the Fed and the market are grappling with these same questions. While you have the overlay of a sort of relatively bullish for the economy and for inflation, meaning inflation lower story coming out of AI.

9:51It's it. There's just really when we talk about the long term implications of inflation, things like technological change and productivity and demographics are always on the list. And you put a question mark by them. And that's what we're all going to be grappling with over the next year. So funny, because I've been kind of watching all these conversations happening in Washington. Yeah. Talked with some of our colleagues down there and they say the same thing, which is there's the promise of increased productivity. But nobody really knows at this point. It gives us all permission to acknowledge the lack of conviction, right?

10:21And look, it's interesting. I think that there is a trade to place and money to be made by having a really sort of one-sided perspective on this issue of inflation in particular. What we're seeing investors do is instead lean way more into diversification. And it's funny because diversification isn't a new investment idea. But if you look back in the last 15 years, your ideal asset allocation wouldn't have actually been very diversified. You should have been all in on U.S. large cap growth equity for your ideal allocation. And so closing underweights to international equities, adding gold and other commodities.

11:00Carol Massar:Well, that's where I wanted to go because gold is up, what, 64 percent. Carol's always at 20 percent gold. If only. But for such a long time, gold did nothing. So, I mean, how much should it be in your portfolio? So I am of the team here. Here's one of the areas where I do actually have a strong conviction. Personally, I am of the team that gold has become a new asset class and that we will continue to see the price of gold rise in the coming years. We've heard folks like Ray Dalio say that gold should be as much as 15 percent in your portfolio. I think that's a little high for the average wealth investor, if only because it is not a yielding asset class.

11:37And so when you look at price return off of equity by comparison, it's kind of cheating. You really should look at total return. What's your take on why it's going up? Is it a safe haven or is it? So there's hedging. Or a pushback on the dollar.

11:50Carol Massar:What is it? So there's structural factors related to central banks over the last, really since Russia invaded Ukraine, have been meaningfully trading dollars for gold. That's accelerated this year as a result of central bank and corporate hedging in response to some of the political volatility we've seen out of the U.S. I expect that sort of demand for gold to continue. There's also not been much development in supply. It's, you know, you can't wish gold mines into being. And so there's been a little bit of a hold up on that front. And then I think right now we are seeing a bit of a momentum or FOMO factor coming in where investors that maybe, you know, set it and forget it or wouldn't have thought very much about this are saying, oof, like, did I miss the boat on this one and piling in?

12:37Nuts. Yeah. Well, right. It's fun, though. How much gold is in your portfolio? Not enough. Not enough. I'll say that unequivocally. Well, a gold bar costs, what, more than a million dollars now? So the starting price is high. Yes, it's a high barrier to entry.

12:52Carol Massar:On a date, just got like 30 seconds. On a date when we're feeling just a little bit nervous and wondering, is this the beginning of something to come on down? Are you more optimistic or pessimistic about the outlook? My economist brain will always want to be pessimistic, but I'm constructive. I think that we have some tailwinds for the economy. markets that get us through another nine months. I didn't hear optimistic. No, well. Optimistic. No, no, no. Too late. Cheerlead. Thank you so much, Lauren. Thank you for having me. Great to have you back. Lauren Goodwin. She's economist and chief market strategist.

13:22Carol Massar:Two hats at New York Life Investments joining us here in studio.

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