The risks that come with US economy going from K to L-shaped

00:00 Speaker A

We’re coming out of this quarter with a lot of uh these big cap hyper scalar companies investing more in capex and then when they planned coming into the year. What has been the influence of these investments on the US economy?

00:14 Peter

Well, it’s been you know very stimulative both because the capital spending itself has supported the economy, but more importantly from the wealth effect. US households currently hold around 75 trillion in equity wealth. Just as a comparison at the peak of the dotcom bubble in 2000, they held 12 trillion in equity wealth. So we’ve gone from 12 trillion to 75 trillion. and as a share of GDP, that’s about 100% higher today than it was back then. So households, at least those who hold that stock are feeling embolden to spend more. Uh the savings rate has fallen to very low levels and that’s held up the economy even in the face of uh very very stagnant real income growth. Year of year, real income growth is actually flat. consumption is up about 2% largely because of that wealth effect.

01:21 Speaker A

Peter, we’ve seen and I thank you for doing this because you teed me up for it and you you certainly didn’t plan on doing so. Uh the K-shaped economy uh continues to be a focus for a lot of investors where, you know, the higher income is is getting wealthier, lower income is just essentially the other side of the K, it’s not looking good. Does that K-shaped economy continue into the back half of the year? And what should, you know, what would that mean to the economy and to the markets if it does?

02:00 Peter

Yeah, I mean, keep in mind that the the wealthiest 1% of US households hold 50% of the stocks. So there are large segments of the population that aren’t really benefiting that much from AI. In fact, you can argue that they’re being hurt because they’re paying more for memory when they buy a phone, they’re paying more uh for electricity uh because of that data usage that uh data centers require. So that’s that’s a problem. And if you look at consumer delinquency rates, they’re actually not that far off from where they were at the peak in the great recession. That’s true for credit card loans, it’s true for auto loans. So large parts of the population are struggling. If the AI trade were to go in reverse, well, I’m not saying that’s going to happen imminently, but if it were to happen, then there’s a real risk that this case shaped economy will end up with a like a looking like an L-shaped economy where both sides of the K are looking very, very weak.