by Dr. Chris Kacher
Unpopular Populism
The rich are getting much richer. In the US, the top 1% now holds $40 TRILLION more wealth than the bottom 50% combined who hold just 2.5% of total wealth.
The stock market continuing to hit new highs made rich people ever richer, while the bottom 50% of Americans were left sitting on the sidelines. Real estate also continued to climb. 1 in 8 families in the US are millionaires often because of the homes they own which they may have bought more than 20 to 30 years ago for 1/10 or even 1/20 of the value are worth more a million today. The divide between the haves and have-nots has never been greater. This creates deep social unrest and explains why many once safe cities are no longer safe. Santa Monica is one of many casualties. But this trend is not just a US trend. It can be observed worldwide. Gaps between the top 10% and bottom 75% continue to grow. Barcelona, Paris, London, and other major metropolises are no longer safe. 1 in 7 are typically victims of crime in such cities.
Spurring this long term trend are central banks. The Fed is going to push asset prices, from stocks to gold to bitcoin, to much higher levels by lowering rates and by stealth QE which pay for debt interest and other major unfunded liabilities. They can’t help themselves. They have to service debt and pensions or the US would be in default. They also have to address the labor market issues which has backed them in a corner forcing rate cuts. Global liquidity should continue to swiftly rise.
On rate cutsBut the Fed should not have just cut rates by 25 bps. Some are worried a rate cut will drive inflation to concerning levels, but these people don’t realize how deflationary tariffs and artificial intelligence have been to the economy. Powell acknowledged that tariffs have not been nearly as inflationary as expected earlier in the year. “The [tariff] pass-through has been pretty small,” Powell said. “It’s been slower and smaller than we thought.”
The head strategist at BOK Financial said, “Powell’s tone and words in his press conference do indicate this cut was more a defensive move to avoid more weakness in the labor market and not one designed to spur a lot more growth. We think growth will be fine anyway."
A 50 bps cut would have surprised the market spurring a bullish position. This would stimulate the job market, companies would increase their spending on R&D, GDP would accelerate, and inflation would not increase because of the deflationary nature of tariffs and AI.
The dot plot shows big disagreement between the Fed governors. Powell said, “It’s a wide dispersion of views, and I think that’s understandable and natural in the current situation", calling today’s economy “historically unusual.” Unusual indeed. In one camp, we have the bears saying tariffs are ultimately bearish and will stoke inflation. They also cite the heavily manipulated CPI, GDP, and jobs numbers along with a weak job market. The bulls speak of how tariffs are deflationary and how AI is a game changer despite the hype as it counters inflation while boosting GDP despite the manipulated numbers.
AI game changer
That said, AI-driven productivity has fundamentally transformed most industries, with artificial intelligence acting as a much larger disruptor than the dot-com boom of the 1990s. AI adoption is accelerating progress across sectors, sparking new infrastructure projects and creating a surge in energy demand far greater than the impact of traditional data trends. Artificial intelligence has been a massive deflationary force in the US economy. Companies are figuring out how to be more productive and profitable with fewer employees, thus spurring higher unemployment over the past two years contributing to higher youth unemployment. So each employee is producing more overall. Think of how your own levels of productivity have been boosted, depending on how well you utilize the myriad of AI tools at your disposal. Now streamline and optimize that in a corporate setting.
So while job opportunities overall have declined in the short term, those who remain in the workforce are experiencing significant productivity gains. Despite slower payroll growth, these advances have made a pronounced contribution to real GDP growth and, as with past technological revolutions, AI is expected to generate more jobs than it displaces in the long run.
Capitalizing on the AI trend, Oracle (ORCL) surged 38% after announcing a nearly $455 billion backlog of AI-related orders. This leap means ORCL has outperformed all other AI-related stocks so far this year, even though it has dipped below its prior buyable gap-up low. ORCL remains one to watch for potential actionable entry points as the AI investment cycle unfolds. Major US indices are up in premarket trading after the rate cut. Assuming the general uptrend continues, this bodes well for leading AI names including ORCL.
Initial rate cuts tend to be bullish for the S&P 500. Only in 2001 during the dot-com bust and in 2007 which preceded the Global Financial Crisis did major indices fall. Bears suggest similar could happen as money printing never ends well, citing Ray Dalio's research. But Dalio has been long term bearish on many fronts for many years yet continues to be wrong as markets move higher and higher. AI is the wildcard and bulls would argue, the gamechanger.AI is widening divide between top-performing companies and the rest, distorting traditional financial metrics. For investors, greater productivity at these leading firms translates into stronger earnings over time. The exceptionally high GDP growth projections for the third quarter—despite a stagnating job market—underscore this trend. The bears correctly say these numbers are doctored, and they are right, but markets only seem to care about reported data, whether factual or not. Should markets adopt a different stance, believing less and less in the major economic reports, we will see it in the price/volume action of leading stocks and major indices in how they respond after the doctored reports are released.
Wall Street veteran Jordi Visser said, "The innovation and productivity gains driven by the world’s largest technology companies are reasons to fade all conversations about AI being a bubble. Every single year moving forward the only investment people should have in their portfolio [should be] related to the disruption that’s coming from artificial intelligence. It will only accelerate. People that are waiting for a crash, or that are waiting for inflation to go higher, or they’re waiting for bonds to collapse, they’re all missing the part that’s really happening, which is that artificial intelligence is driving all investment gains."