The unusual tandem rise of gold (a safe haven) and tech stocks (risk-on) is explained by Vanguard's Joe Davis as the market pricing in two divergent possibilities: a pessimistic, deficit-driven slump and an optimistic, AI-fueled boom, dismissing a moderate middle ground.
Vanguard's Joe Davis finds that Silicon Valley insiders see a 100% chance of an AI boom, while prominent academics are equally certain of a deficit-driven slump. This polarization at the extremes suggests the moderate, consensus economic view is the least likely future.
If AI is truly transformational, its greatest long-term value will accrue to non-tech companies that adopt it to improve productivity. Historical tech cycles show that after an initial boom, the producers of a new technology are eventually outperformed by its adopters across the wider economy.
Joe Davis argues the economy faces a "tug of war" between an AI-driven boom and a deficit-fueled slump. He believes the mainstream forecast of stable 2% growth and 2% inflation is the least likely outcome, with an over 80% chance of a material change in the economic environment.
Don't dismiss megatrends like demographics and technology as only long-term concerns. Research from Vanguard's Joe Davis shows these forces account for roughly 60% of quarter-to-quarter changes in per capita GDP growth and earnings yield, making them immediate drivers of the business cycle.
To prepare for AI's career impact, Vanguard's chief economist advises using it as much as possible now. This not only increases your immediate productivity and value but also acts as an early warning system, revealing if your role is truly vulnerable to automation and giving you time to adapt.
While fears of job loss from automation dominate headlines, Vanguard's Joe Davis argues the real drag on economic growth is a *lack* of automation. The service sector, representing 80% of jobs, has seen little productivity improvement since the internet boom, leading to overall economic stagnation.
Contrary to popular belief, Vanguard's chief economist suggests that in a high-debt, low-growth future, overweighting fixed income is superior to holding gold. This assumes the Fed will maintain high real interest rates to fight inflation, making bond yields more attractive than equities, which would face a lost decade.