Transcription
We're going to talk about the state of the economy because that is likely to dominate next year. Henry, you've written, and I can't say it's terribly upbeat, but you've written the cover story that goes with, uh, the world ahead this week. And you have, you know, how markets could topple the economy. That is that is my kind of skiing there.
Um, uh, but tell me, give me your thesis because it's quite a compelling thesis. The thesis is simply that AI, the AI boom, the stock market boom in the US has been obscuring a lot of underlying weakness, and now we've reached a point where the valuations of AI companies are so high that it could come undone quite quickly. Now, a lot of people will talk about what that means in terms of lost investment in the economy, but as we were just talking about, a lot of that investment flows to, uh, imports from Taiwan. What really matters is the effect on the US consumer, and the fact is that the US consumer is really exposed, uh, to the stock market.
We've got a chart on this, in fact, showing the percent of US household wealth in stocks. And in the dot-com boom, uh, the enormous run-up in stocks in the late 1990s, that reached 17%. 17% of household wealth in stocks. Now, or in the second quarter, it's probably high, even higher now. It's 21%. So then households are more exposed than they were during the dot-com boom. So if you get a big market retrenchment, it could really hit the US consumer, and then I think the economy suddenly looks quite a bit weaker.
And it's, it's, it's not, it's all kinds of people investing in stocks. There's a fabulous piece in the finance section this week about how oldies are investing in stocks. I mean, there's, and, and, and one, one woman in from her hospice made a major investment in Nvidia. Um, it's, Rem, I mean, it's a, it's, it's a great piece. You really recommend that you read it. It's an excellent piece.
But, but first of all, sounds as though you think there is a stock market correction coming.
Uh, yes. I mean, I'm fairly bullish on AI as a technology, but it, but it is true that the valuations have become absolutely extreme, and I don't think you can, you can justify, uh, that yet because we don't know where the profits are going to be.
So, let, let's posit that there'll be a correction. Tom, you're host of Inside Tech. Is that going to make everybody think next year that the, you know, AI bonanza was actually a bust?
Um, I think this is going to be like previous technologies that were in fact world-changing, and the obvious ones are railways and, uh, electricity and the internet. Um, but they had, uh, crashes, or, you know, multiple crashes, uh, along the way, and people just generally got too carried away. Uh, there's a very striking, uh, statistic in your leader that says, I think if you look at the AI capex up to 2030, the amount of revenue a year you'd have to generate after that to justify is something like $650 billion. The current global revenue from AI is about $50 billion, which is about 1/8 of Apple or Google's revenue. So there is this huge disparity between the amount of money that people are planning to spend and the, the sort of trajectory of investment and the actual, uh, flows of money. And this is what we saw with the dot-com booms as well, that people were throwing money at these dot-coms, but they weren't really doing any business. They weren't selling anything. There weren't enough customers. Uh, eventually we caught up, and, uh, I think the same is going to happen with AI. So I'm in a similar position to, to Henry, that I'm, I'm long-term bullish about the impact of the technology, but I think there's going to be a crash before we get there.
So John, do you share that view? And, and what do you think, how do you think the Trump administration will react if there is a market correction and slowing of the economy?
Well, I'm so convinced by Henry. I share that view, and that's why I'm wearing a tie today because I think there's loads of evidence that when there's an economic downturn in the US, a market correction, men dress more formally. Come back. I thought no, co kills the tie. Sorry, I'm not budging.
That's one of my predictions for 2026 is the return of the tie for men. And for how Donald Trump will react, he'll blame other people, right? That's what he does. And I think one like really interesting scenario to think about is what if the correction were sufficiently big that some financial institutions were threatened? You'd then have Donald Trump in the position of getting to decide who got bailouts and who didn't. And I think he would love that. And can you imagine the orgy of lobbying and special interests and favors being done? You know, suddenly having the president's ear becomes a kind of existential question for a lot of businesses. So I think there's a, you know, clearly it would hurt his numbers. Uh, but I think he might kind of love it.
Fortunately, I think that's a little bit less likely because a lot of this AI investment is sort of equity finance from the companies' own cash flows at the moment. But it's this weird thing where the longer it goes on, the more the finance, financing is getting a bit funky.
OpenAI was talking about government backing, which they quickly walked back. But what was that all about? Because that sounds exactly like, you know, we want to make sure that if things go wrong, Donald Trump's got our back.
Well, that's true. And that perhaps that scenario plays out with the big AI companies rather than with a big bank.
So that's, so John Prito wears a tie. Everyone starts wearing ties. OpenAI goes and tries to get help from the, uh, from the Trump administration. Um, I, I'm sure the economy. I like you. I can't believe the stock market run can continue. Something is going to happen. And usually two things, I think two things I've learned. One is that I, I'm always wrong when I bet against the US consumer. So I suspect the consumer will be more resilient than we think. But there will be something somewhere in the further reaches of the financial system that we have not really realized is vulnerable yet.
What about the econ, the impact on the rest of the world though? Because you, you make a very interesting argument. Your leader suggests that the recession will be quite shallow, but that nonetheless, it will have bigger global impact than we might realize. Just talk us through that.
Uh, yes. So, uh, if you cross your mind back to April, before the AI boom got into full swing, when it was just tariffs and it was just the institutional changes in the US, the institutional threats, investors were pretty worried about that. And the narrative then was the end of US exceptionalism. So I think that it's quite plausible that you get those return, those kind of concerns resurfacing a bit if the AI stock market boom goes away. So whereas usually in a recession, you'd have this flight into the US dollar. Well, I'm less convinced that will happen this time because there will be so many question marks over the US, and because the US will definitely be taking a bigger growth downgrade than everyone else.
And will that make people at last be less pessimistic about Europe? All I hear is gloom and doom about Europe everywhere.
Yeah, maybe a bit. I mean, that did happen a little bit in the spring, but unfortunately, you know, improves the relative position without necessarily improving the absolute position. It's, it's possible to have a weaker America without, uh, Europe taking advantage of it, but it will certainly look relatively more attractive. He's got to help with things like foreign investors, attracting talent, and so on.
And will there, just one last question from you, uh, Tom? You've, I think long argued, as you did just now, that, you know, this is much like every other new technology, and it takes a while to implement and so forth. But I've, I've been struck by the growing sort of clamor of concern about AI is taking all of our jobs. And there's a, that's sort of in the last few weeks in particular, seemed piece after piece after. Are we going to hear more about that next year, particularly if the economy weakens?
I think we'll, whether it does or not, I think if, um, because if the AI boom continues, then people will start blaming things on AI, um, taking their jobs, and in fact, there already are. And if there's a bust, then, um, there will be cutbacks, and people will, will say that companies will justify it by saying, well, we found cost savings using AI, which is a kind of classic way to try and reduce your, your share price at the moment. Um, so I think there is going to be more concern about this. The other thing, the other piece of this is AI agents. And this is where you package up AI in a form that's easier for, for companies to adopt, and it kind of makes more sense to the accounting department. So agents that, you know, do the job of a programmer or a customer sales executive, and so on, and marketing AI in that way. I just can't think of a more effective way than, uh, than that to scare people about the prospect of AI taking their jobs. And we are seeing more and more of this concern about graduate unemployment in particular being blamed on AI. I think there's probably more to it than that, and there are other explanations, but we honestly don't know. So it goes back to your original framing thought, which is in 2026, we're going to get clarity on a lot of, a lot of things, and I think that's one of them. We're going to get more evidence on what's really happening with AI at the bottom rung of the ladder.
I mean, we have another piece in the finance section this week that points out that recessions also tend to be times when there is a lot of structural change. So, you could get a phenomenon where even if AI isn't causing the job loss, it provides a bit of an impetus for companies who are searching for cost savings and the like to actually adopt the technology, and it pushes, a pushes forward adoption a little bit. I think that's quite plausible.
Exactly. So, I think AI and jobs is back on the agenda in 2026.
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