By Steve Dinnen
Roadblocks to your economic prosperity abound. Inflation, job loss, boom-bust cycles with the economy and stock markets. It’s an evolving list, to which we may now add new hurdles such as artificial intelligence, a K-shaped economy and what Liz Ann Sonders describes as a “temperamental era.”
Sanders is the chief investment strategist at Charles Schwab. They do a lot of work with West Des Moines wealth advisors Gilbert & Cook, whose own chief investment strategist, Chris Cook, recently joined her for what they’re calling a fireside chat (pretend there’s snow) to discuss wealth building.
Ahead of that meeting, Cook talked about some of the topics on that list of current challenges. First to the temperamental era, a concept popularized by Sonders: It describes a macroeconomic shift away from the low-inflation, low-volatility “Great Moderation” (mid-1990s-2021) toward turbulent dynamics characterized by volatile inflation, supply shocks and shifting stock-bond correlations. We’ve seen them all in recent years.
Meanwhile, the stock market is doing well, hitting record highs week after week. Unemployment is relatively low, inflation is settling down a bit, and yet “people feel really crummy,” Cook said. The University of Michigan Consumer Sentiment Index just this month sank to its lowest level since the inflation spike of 2022, with echoes of consumer sentiment during the recession of 2008-2009.
So there’s a disconnect between how people feel and what’s actually happening. It’s hard to say when or if this will end, but Cook noted that buying opportunities can arise during times like these.
In the midst of this is the K-shaped economy. On the top of the K are households that already own assets. Many have accumulated retirement savings and own homes with low mortgage rates. They’ve benefitted from asset appreciation while remaining insulated from today’s higher borrowing costs.
Then there are younger households and others who didn’t already own those assets before the current turbulence. They face higher home prices and mortgage costs, making it hard to create wealth.
Into this mix comes AI, which Cook sees as a new Industrial Revolution. He estimates it already is boosting GDP by a full percentage point and will continue as another major theme, particularly because the AI build-out is already a powerful economic force.
Fortunes are being made in AI, by the players and investors (watch Western Digital, Seagate and Marvell), but it’s volatile. Just look at Sandisk, which over the past year exploded from $43 a share to $2,354. Over the past month it tanked, from $1,408 to $998, only to shoot up 81% to $1,807 before settling in at $1,706. These investments are not for the faint of heart.
Neither is the whole road to prosperity, yet it must be traveled. So be prepared and arm yourself with some financial know-how if you want to end up on the high side of that K chart.
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