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With us now t the University of Pennsylvania and Chief Economist at WisdomTree. I don't think, Professor, that market sentiment is your favorite indicator , but could you comment on the claim I saw in an article today that this is the most expensive market in history? And this is a ridiculous statement.
I mean, you see, 1999 and 2000 were much more expensive than today. Uh, we see people saying that, and nobody says, "Wow, what a great buying opportunity." People... are feeling very anxious right now. And I think what I wanted to point out is that probably the hardest thing would be to buy with both hands right now.
Do n't you think so? We would have to be crazy, but that means it's probably the right thing to do. Well, you know, I think there are three things that are troubling the market. First, of course, what is happening in Iran. By the way, if we get a pause and the channels open, it will give a 10% increase for the S&P index.
I think there's definitely some uncertainty about what's going on with the AI situation. I mean, at 5 in the morning , when Dan Ives said it was an " arms race," I kept asking, "Well, is an arms race always the best thing?" But this is really a revolution of, you know, fundamental value. And everyone is arguing: are these "lunar projects," or Gemini, some kind of wake-up call?
How much are people willing to pay for something that is simply much better? And I constantly think about historical precedents. General Motors used to make more money from Cadillac than from any other car, but its main profit came from Chevrolet. Who is going to pay for all this ? But there is something we need to talk about—the Fed's decision on Wednesday.
I'm becoming a little more concerned about credit growth and money supply growth . Over the past six months, it has grown by 9% year-on-year . This is the fastest pace since that explosion that Jay Powell mistakenly triggered during the COVID crisis. And it's really hard not to worry about the rate hikes, that's all.
So, I don't think there will be any rate hike at all on Wednesday . There may be some disagreement about the high level, but if this credit continues to rise, it confirms the scenario that inflation is above target. So, those are three things. God, I mean, if we get some sort of resolution to all of this, it's, you know, a bull market in the early stages, but I think that's what's holding back those concerns.
I think they are at least holding back the market for now. Right. Maybe that's right. I do n't know, we constantly argue about AI, whether we underestimate its power and what we are witnessing, or whether we are already in too much of a hurry, because the money for many of the developments that we are seeing is simply not there right now .
Is there anything in between? Well, I mean, you saw what happened last week. I mean, the word " capital expenditure" has become toxic, you know. Um, and the problem is that history says that often overinvestment reduces profitability. I mean, we have a long history that shows that firms that make excessive or simply larger capital expenditures than others do not have the same stock performance as those that allocate their efforts very carefully.
But again , as I said, hyperscalers, all the vendors and disk manufacturers are making money now, but the next revolution is everyone being able to do what used to cost so much for a fraction of the price. This is the group that I believe can explosively grow margins and profits. And I think we're seeing that rotation now.
You know, non-tech stocks , so to speak, are holding up extremely well. And, as you said at the beginning, it's truly amazing what's happening in the Middle East. And oil is not 120. Well provided. I think if we just skip some of those ships and sort something out there and then add in the AI perspective, I'm still very optimistic about the market.
But I think there is a reassessment of how much capital spending and, quote, " arms race" will benefit companies that are spending so many billions. Hey, Professor Siegel. You're right about " capital spending" becoming a toxic term last week, right after we heard Alphabet's report and saw the stock fall because of how much they're going to spend .
But I started thinking about what would happen if some of these hyperscalers actually said, you know, we're not going to spend that much money. I think it would be much more disastrous for the market at the moment if they all said: we are not going to spend anywhere near as much as we have promised so far.
Well, it depends on how they phrase it. Whether it's because they're seeing a decline in demand or because they've reached a level of efficiency where they can provide an increase in the supply of computing power that's in such high demand—that's positive. If they say: I see that demand is falling, that's negative.
So I think it all depends on how they explain the reason for the capital expenditure. I do n't know. Google said it is spending more because the demand for its services never ends. Yes. The market punished him anyway . This is, in any case, a positive point. But the question is whether we will get a breakthrough in chips or technology that will allow us to not have to spend so many dollars to provide the increase in computing power needed at such margins.
I think this is a huge plus for society and, in fact , for everyone. What if artificial intelligence replaces all lawyers? So, what will this bring to the stock market and society as a whole? Professor, this is what we will get a double effect. Joe, I've heard your comments about all this advertising everywhere.
I am as concerned about her as you are. Well, it's like, you know, they're praying for another way to make money. You can't earn money by working—so we'll just sue someone. I know how to make money. And I've seen very few articles about what explains this explosion of this way of distributing wealth in this country.
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