Feeding the Machine
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What recent market trends are impacting inflation?
Hello, I'm Alan Colder, editor-at-large of Intelligent Investor and a finance presenter and columnist and podcaster for the ABC.
And I'm James Thompson, senior Chanticleer columnist at the Australian Financial Review.
And we are The Money Cafe. G'day, James. How are you, Alan? I'm very well. I had a long weekend, so it's a good thing the Australian market was closed yesterday because it clocked down on Friday in Wall Street, didn't it?
It did, yeah. A sudden reversal. Well, two things happened. The US jobs data came in very hot, surprisingly hot, which had everybody rushing to redo their calculations for US interest rates. It was the old good news is bad news gag. Exactly, exactly. And now, would you believe we've gone from expecting no... No cuts. Sorry, we've gone from expecting a couple of cuts at the start of the year. We're now pricing in a hike for US interest rates before the end of the year, 0.25% because the economy is just running so hot.
Which is interesting because they've got a new chairman of the Fed now and he's about to have his first meeting, Kevin Walsh. And, you know, the assumption has always been that he's Donald Trump's man. He'll do whatever Donald Trump says and Donald Trump wants rate cuts. But the market is saying he's going to hike. That's interesting.
Yeah, yeah. And I mean, what's really interesting, Alan, is that he might not want to hike himself, but he might be outvoted. He might really have no choice because you've got this, you know, look, there's no doubt that Donald Trump's running the economy hot. You've got the combination of Tax cuts, deregulation, and still pretty steady fiscal spending. And then this is being juiced by big, massive household equity wealth, which according to Bank of America, I think has gone up about $16 trillion in the last 18 months. No wonder people in America are feeling rich and continuing to spend. And then, of course, you've got the energy shock with gasoline prices over there up around $4.50 a gallon. That hasn't slowed the economy yet, but it's going to at some stage or it's certainly going to put upwards pressure on oil.
And, you know, the other thing is all this borrowing, all this spending on AI, how does that go in a high interest rate environment? And we did see on Friday night, as you say, tech stocks and AI chip stocks specifically sold off. And what's interesting, Alan, is the biggest falls haven't been on Wall Street, but in Korea. where a couple of chip makers have done very well, Samsung and a company called SK Hynix. The Korean market's up 90% year-to-date, which is an incredible run, but it's had a couple of very bad days. On Monday, while we were all off for the king's birthday, the Korean market opened more than 8% down and had to be shut for, you know, it's called... hitting its limits and had to be shut temporarily while they restored order, still finished 8.3% lower.
You know, Wall Street hung on okay on Monday night and Korea will probably bounce on Tuesday. But, yeah, it's, you know, there's a lot of AI jitters, I think, around the world at the minute.
You had a piece yesterday saying we just saw how this bubble could end, blame Trump, Musk and Correa, and I guess what you were talking about was the impact of interest rates and how that could bring the bubble to an end. Is that what you were talking about?
Well, I think that's one of the things. I think the other thing, though, Alan, is obviously we've been hearing a lot about the SpaceX float and IPO. I think my other thing is that AI could sort of – eat itself to a certain extent. These companies are out there raising so much money. $75 billion is being raised in the SpaceX float. We saw Google last week raising $80 billion US. Anthropic's going to come to the market. I don't know. Does it raise somewhere between $100 billion and US $80 billion? So, you know, how much money in the world is around for these raisings, particularly when, you know, a lot of them, SpaceX is a perfect example, is mainly hot air. And this is a deeply loss-making company with prospects that, you know, might be great over 5, 10, 15, 20, 25 years.
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Chapters
5 chapters
1
What recent market trends are impacting inflation?
0:12–11:16
2
How are SpaceX, OpenAI, and Anthropic competing in the IPO race?
11:16–20:18
3
What challenges is KPMG facing amid recent scandals?
20:18–30:51
4
How is AI influencing the housing market and childcare costs?
30:51–40:00
5
What are the implications of rising interest rates on the economy?
40:00–49:14