Your 401(k) is probably invested in AI

It is Friday, so we will talk about the week that was. We'll talk about a couple other slices of this economy as well. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdahl. It is Friday today. This one is the 23rd of October. Good as it always is to have you along, everybody. So we have come to that time in the political calendar where I am obliged to remind one and all that the economy keeps on plugging no matter what the calendar says. So that's what we're going to do. The economy. Sadiq Reddy is at MSNOW. Jordan Holman is at The New York Times. Hey, you two. Hey, Kai. Sadiq, you get to start today, and the question comes with this observation. The Federal Reserve meets next week. We will get PCE the day after their meeting. But I want to ask you a vocabulary question here. There was a point two, three, four months ago where you were hearing Fed officials say, you know what, we're just we're looking through the the inflation spike. We're looking through the energy shock. And number one, we're not hearing them say that anymore. And number two, if they're not looking through that, then what are they looking at? That is a very good question there. This is a puzzle that they're going to have to work through because for months next week, we hit the eight month. Mark of a war. And for for most of that period, they were thinking, OK, well, this is we've gone from a few weeks of war to a few months of war. But I don't think anybody thought that we could possibly hit the one year mark of a war. And they still can't get their their heads around that. And the problem that we've all been seeing is oil prices are pushing inflation up, but they can also restrain growth. And we see them taking up again and they're having this meeting where they're going to gather around. All of these threats that the president of the United States is saying that, hey, in a week, I'm going to actually restart the bombing and send oil prices higher. And Iran is threatening to destroy all the oil infrastructure of the Middle East. That would be a spectacular inflationary event. But it could also be the start of a deflationary event because it could destroy the rest of the economy here and hit consumers and cause all sorts of knock on effects. And then they'd be fighting yesterday's war, so to speak. So they have to be cognizant of. All of those problems at the same time, an inflationary and deflationary risk all at the same time. Jordan Holman, you may certainly comment on the Federal Reserve if you would like. But the question I was going to throw you was about consumers in this country. And I'm not going to ask the usual question, which is, oh, my goodness, when are consumers finally going to break? The question is going to be sort of along the lines of what Sudeep was saying. What's going to happen when consumers finally throw up their hands and say, you know what? We're not doing this anymore. I just I don't have a dime to spare and gas is five dollars a gallon. I'm out. Right. Then what happens? Well, it is really hard to imagine that scenario, given that for the past, I don't know, four years at this point, that's been the expectation. But companies will have to really, especially consumer facing companies, will really have to consider this. They any CEO I talk to will point to the fact that despite consumer sentiment being in the toilet, essentially consumer spending has held up and they've really banked on that fact and saying, like, we we see no weakness in our business. This is a big part of why businesses are still having strong profit and still having strong sales is because people are spending. So I think that reality, if it actually catches up, that consumers throw up their hands, you'll feel that throughout the economy and companies specifically will have to have a different game plan. Jordan, just real quick. It's like the top 20 ish percent of consumers on the income spectrum who are spending right. Everybody else is actually, you know, scraping their nickels together. Yeah, absolutely. And part of that is because of. The stock market still being strong, despite what we've seen this week with tech slides. But people have strong portfolios that's helping to, I guess, make them hardy spenders still. And so that's what CEOs are looking at and saying, we don't see weakness. We don't feel that even if the oil prices are higher, flights are more expensive, people are still buying. Right, right. I mean, the wealth effect is real. Sudeep, you get to answer that question, the question about the thing that Jordan alluded to, which was the tech. This week, AI, Meta ran into some problems, CoreWeave. I think I'm on the right. I know I'm on the record of saying AI is a bubble. I don't know what you think. But the question is, how much longer can this go on? You know, we're we feel so many echoes from 1999 and 2000. And you think, well, maybe this time could be different. You stop yourself the moment you say that. You're like, OK, well, that it probably isn't. And we forgot. We've forgotten the lessons. It takes a generation to forget the lessons of prior crashes like that. And look, there is going to be some real productivity gain from AI. We don't know how much. We don't know how. There's going to be some restraint on hiring. We're seeing it certainly at the younger end of the labor market and some restraint on wages there. All of that is true. Yet there is a very obvious overinvestment. In in a lot of these areas. And what's remarkable about the stock market is the if you're an index fund investor, like most people are, you're doing just fine. Like you're a couple percent off record levels in some of these more speculative tech companies. And oh, boy, buckle up, because it's it's bumpy and it could get worse. And now this week, we're seeing the start of maybe we're going to be on the verge of AI generated cyber attacks. And we don't know what that is going to look like and what that. Mood generates around. I'll tell you what mood that generates. Not a good one. Oh, my goodness. Jordan, we're going to go out on you. And it's it's an interview that you do with Scott Kirby, the CEO of United Airlines. It was in the paper this past week, which which I thought was super interesting. But you asked him at one point, you know, I'm paraphrasing, but there's a disconnect between CEOs and kind of the rest of the economy. And I thought his answer was really interesting. Yes. After spending basically an hour chatting with him, I was curious of how he felt or one. Was he aware that people feel a certain way about CEOs? And his response said, listen, I think I'm a good person and all the things. But what he called for was a 100 percent wealth tax on the wealthy, saying that they're the level of wealth inequality in this country has gotten to a dangerous level and that something needs to be done. He's not. So the person to do it, he said, policymakers are. But that was his perspective. Yeah, it was totally fascinating. Jordan Holman at The New York Times and City of Brady and MS Now on a Friday afternoon. Thanks, you two. Thanks, Kai. Thanks for having us. Wall Street today. Well, you know, oil went up because of the Middle East and stocks went down because of the Middle East. We will have the details when we do the numbers. All right. Say it with me now. Headlines about this economy are all well and good. But what really matters is how people are feeling it in their day to day. That goes for businesses, too. Kalina Bruce is one of our retail regulars. She owns Noir Lux Candle Bar up in Seattle, Washington. This is a little crazy. Good and bad. We are moving into what we consider to be candle season. So we're getting a lot of bookings. We're doing a lot of holiday party bookings and things like that currently. So we started prepping for the fall in July. And that included ordering supplies, inventory, coming out with our new catalogs. And just trying to figure out in real life. What people are enjoying, what people have the capacity to spend money on. Really, I don't think there's a way to be fully prepared. We're just trying to anticipate all the things that we can in a reasonable manner. Costs are kind of stable. What we've been finding is that shipping has been a little bit challenging. We've been seeing more delays. And that's likely going to increase as we move into the holiday season. Staffing is good. We have some folks that we kind of have on deck for holiday staffing, seasonal staffing. But most of my team are college students. So currently I'm working around their school schedules. The challenges come up if there's a social event or a party that they all want to go to. And I have to figure out how I'm going to staff. I think the challenge. The challenge right now is just how people are spending. There's a lot of uncertainty that continues to linger. And so people are being rightfully cautious about how they're spending their money. It keeps me up at night a lot of times trying to figure out how to make sure that we are continuing to sustain. And to be innovative in an ever-changing climate. I cannot imagine how different Difficult running a small business must be. That was Kalina Bruce at Noir Lux Candle Bar. She's up in Seattle. You remember a couple of weeks ago when I said that right now, maybe the stock market actually is the economy? I think that's still true. For now, the magnificent seven technology stocks, all the big artificial intelligence companies, your alphabets and metas and NVIDIAs, all the rest of them, they are a third of the total market capitalization of the S&P 500. And if you are saving for retirement, dutifully putting your money into 401Ks and 403Bs and whatnot, chances are very, very high that you are in AI stocks too. Sudeep was talking about this. Patricia McCoy is a professor of law at Boston College where she studies financial regulation and consumer regulation. Financial protection, among other things. Professor, welcome to the program. It's good to have you on. It's great to be here, Kai. So fact check me here. I said in the introduction that most of us in some way, shape or form are exposed to artificial intelligence in the stock market right now. Is that fair? Oh, yes, absolutely. Okay. Now, what do you think about that? Well, it concerns me a lot. People's 401Ks are riding on this. People's pensions are riding on this. Right now, the stock market is heavily overweighted with AI-related companies. And if they miss their earnings targets because either their cash needs are so massive or because down the road, the demand for AI proves to be less than expected, we could see investors pull their investments from the AI sector. One obviously should consult one's own financial advisor and all of those are very important. But is there a way not to be in AI right now in the stock market? It just seems to me that everything is feeding into these 7, 8, 10, 12 giant companies doing AI. Yes, I agree. It's really difficult to avoid the exposure. If you're in an S&P 500 index, you have heavy exposure. If you're in bonds, the bonds sector increasingly is exposed to AI because a lot of the money that's being spent on bonds is being spent on AI. And that's a lot of the money that's being spent on AI. Because a lot of loans and a lot of bond offerings are being directed to the AI sector. All right. So let's say the chairman of the SEC calls you up and says, Professor McCoy, what should we do? What do you tell him? Well, I think we need to think about risk management. We need to think about total transparency in stock markets and bond markets. That's something this administration is moving away from. Yeah, well, let's keep going with that because, honestly, there's so much money on the line with these hyperscalers and these big AI companies and the hundreds of billions of dollars that they kind of seem not to care about risk management. There is a mentality in the AI sector that they're making gobs of money right now. Most of them are. And that this will go on forever. That this time it's different. But history tells us it's not. There's a saying out there somewhere, more money has been lost on those four words. This time is different than any other four words in the history of man. You just have to look at the history. That's absolutely true. AI is a historic technological shift. But so were the railroads. So was electricity. So was the internet. And some of those historic technological shifts turned out to be bust and led to financial crises. Please don't take this the wrong way, but you've been around a while and you've seen some things. You ever seen anything like this? I certainly saw something like this in 2008. It was then the loss of confidence was in the subprime mortgage market. And we saw over the course of a year in the 2008 time period, stocks plunge 50% over the next few years. Tens of millions of people lost their jobs. Housing values also plummeted. It was carnage. So let's bring it back to you and the moms and pops and all those people who are exposed to AI as we set up at the top of this interview. I mean, what are you going to, what are you, not to make it all about you, but what are you going to do? You just riding it out? I'm riding it out. But as you alluded, Kai, I'm not getting any younger. Okay, so you did take it the wrong way. I mean, come on. I'm having fun. All right. And so what I've been doing because I am somewhat older and I have a shorter horizon is saying to myself, how much cash would I need to get through a crisis? And so I've been stockpiling about three years of cash. Everything else is in stocks and bonds and it will remain there. Patricia McCoy is a professor at the Boston College School of Law, expert in financial regulation and a bunch of other things. Professor, thanks for your time, ma'am. I appreciate it. My pleasure, Kai. Thank you, Kai. Thank you, Kai. Coming up. The Silicon Valley of organized crime. Oh, that's just what we need. First, though, let's do the numbers. Dow Industrials dropped 652 points today, about one and a quarter percent, 52,215. The Nasdaq dipped 53 points, two-tenths percent, 25,955. The S&P 500 descended 39 points, half percent, 76 and 23. For the week, the Dow gained four-tenths, the Nasdaq slid seven-tenths percent, S&P 500 down about half of one percent. Oil prices are climbing, as I alluded to. If I didn't allude to it, I actually said it. Brent crude stands at more than $116 a barrel. U.S.-West Texas Intermediate at more than 103 a barrel. Apple's first folding phone, the iPhone Duo, officially hit stores today, comes with a price tag of, oh, I don't know, $2,000. Apple shares off more than a tenth of one percent. Google, it of the Android, so I'll share it with you. Shares drop about one and a quarter percent. Bonds fell. Yield on the 10-year T-note rose to 5.00 percent. French oats, talked about them yesterday, 5.04 percent, if you're curious. You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl. Today's snapshot of this economy comes to us via the October S&P Global Market Intelligence Purchasing Managers Index, PMI for short. And whatever else in the economic, firmament might be giving you heartburn, stocks and bonds and oil and volatility, the private sector economy, and I know it doesn't feel like this, but the private sector economy is actually doing pretty well right now. Mostly. Marketplace's Mitchell Harmon reports. The growth of U.S. business activity remained near a five-year high in October, says economist Chris Williamson at S&P Global Market Intelligence. This is another really strong report in terms of, you know, manufacturing growth, accompanied by service sector growth as well. It's a broad-based upturn that we've got. It's a welcome change from the past few years for manufacturing, which was hit by tariffs and the administration's trade wars. For so long in manufacturing, we saw dormant activity, and that has picked up quite nicely. Economist Kathy Busjanczyk at Nationwide has two letters for what's driving this. AI, boosting both manufacturing and construction. We know the construction sector could, use that because residential housing continues to be in the dumpster. One kind of growth is running rampant that's not so favorable for the economy, says Williamson, prices. We've got prices charged for goods and services rising at the fastest rate for four years, well above the Fed's target. So far, corporate America is rolling with it, he says. Companies are seeing their costs increase, notably fuel and energy, but they're able to pass that on to their customers. Without squeezing their profit margins. And without driving consumers away, says Dan North at credit insurer Allianz Trade. Consumers have been driving the economy despite terrible sentiment and disposable personal income slowing down pretty sharply. North says the consumers who drive the most spending, the top 20% by income, aren't really daunted by high prices because of all the wealth they've banked from housing and the stock market. I'm Mitchell Hartman, for Marketplace. Obviously, you never answer a call or a text from an owner. number, you don't know, just because. But if you do happen to need another reason, it's entirely possible said call or text is coming from a scam center in Southeast Asia. Unsuspecting Americans fall for those scams to the tune of an estimated $10 billion a year. Layla Goldstein has an up-close view of an abandoned online fraud compound in Southeast Cambodia. A bus takes me and a group of other journalists through the gates of what looks like an office park. There are basketball courts, restaurants, and building after building of office space. Just like the campus of a tech company. The only thing missing? The workers. Okay, we're entering the building. It's a Noctua with a water cooler and cleaning equipment. Inside the deserted offices are rows of empty desks, upturned chairs, and scattered SIM cards, AT&T and T-Mobile. The people that sat at these desks until early this year. were messaging people in the U.S., the U.K., China, and scamming them out of money. More like a diary. Diary? Yes. Technical guide. How to speak to victims. Things like that. Wild. Left behind are stacks of call scripts and notebooks. One handwritten note describes how to connect romantically with a victim. Imagine a life together, it reads. A yard. A cat. A daughter. Sunshine and breakfast. What they're trying to do is to get people to make investments in some sort of a crypto trading app, right? A fraudulent crypto trading app. Jason Tower is with the Global Initiative Against Transnational Organized Crime. And whether they use romance or investment opportunities or whatever, it leads to individuals buying that crypto, putting it into a wallet that's under the control of the criminal actors, which they'll move immediately. They'll start laundering that stolen currency. But many of the people working at scam centers like this one are victims themselves. Foreigners are promised a high salary to relocate to Cambodia for a job. Once they arrive, their passports are taken, and they're forced to work, facing threats and violence. We're ushered to another building, where a metal panel has been welded over the entrance. So this is the warehouse where they keep the equipment, whatever, from the compound. But now they're going to break it for the media. Inside the sealed warehouse are boxes and boxes of electronics found on the site. Over 11,000 mobile phones. So-called phone farms use large numbers of phones as automated call centers. They can manage thousands of social media accounts that carry out crypto fraud. Phnom Penh Deputy Prosecutor Sang Heung speaks to journalists through an interpreter. Cambodia is not a safe haven for online scam criminal. It is instead an anti-scam country, and we do not tolerate online scams. Before Cambodia declared this year that it had shut down all large-scale compounds following international pressure, the government spent years denying the scale of scam operations in the country. And empty compounds don't mean the problem is fixed, says Jacob Sims, a visiting fellow at Harvard's Asia Center. It is not just compounds. It's actually like a whole technology. Tech ecosystem, like a Silicon Valley of organized crime that exists in Cambodia. The technology that was developed and perfected here is what's important. The stable coins, the crypto money laundering, mixer tools, etc., etc. And those tools, they've been developed for a very lucrative, illicit economy. With few criminal syndicates or elites facing consequences, he says many scam operations can move to smaller sites in the country. Others are setting up scams. Others are setting up shop in Sri Lanka or Madagascar, and bringing what they learned in Cambodia with them. In Phnom Penh, I'm Lila Goldstein for Marketplace. This final note on the way out today, just keeping big picture track of the labor market. In light of the announcement, from American Express that it's going to cut 3,500 jobs, about 5% of its workforce. That follows cuts this week by eBay, Volvo, and Barclays. Small, yes, in the grand scheme of things in the global labor market, but, you know, trends, right? Our theme music was composed by B.J. Liederman. Marketplace's executive producer is Nancy Fargali. Joanne Griffith is the chief content officer. Neil Scarborough is the vice president and general manager. And I'm Kai Rizdahl. Have yourselves a great weekend, everybody. We will see you back. We'll see you back here on Monday, all right? This is APM.