AI-Driven Correction Ahead, Unclear When: RockCreek CEO

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Watch AI-Driven Correction Ahead, Unclear When: RockCreek CEO - Bloomberg on Dailymotion

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00:00I just want to get your take here in terms of the sentiment and how we seem to have shifted

00:04from a glass half full to a glass half empty this week. Great to be with you. I think what

00:11is happening is really this two-tail city of the economy and the market are persisting and

00:18getting more divergent. So what we're seeing is that on the one hand, anything related to AI that

00:24had this incredible growth in terms of value, we saw what, like 164 percent, 164 percent since OpenAI

00:33started, increase in those stocks. And we saw only 24 percent increase in other stocks, which is a

00:40really big difference, really sort of start to get corrected this week, right, as people got nervous,

00:46as you just said, and saw the valuations being high. Even the utilities, even stocks like

00:52constellation, you know, were affected. So anything impacting AI, data centers, energy was

00:58impacted, except maybe a little bit in oil and gas. And people are getting nervous about this sort of

01:05fraudy market. People are selling even private positions, not just public positions. You're

01:10starting to see some of that or not allocating a lot to privates. So across the board, the markets

01:16are seeing more volatility. The VIX index is a little bit higher. At the same time, I think in

01:22the last, what, in the last 10, 15 minutes with Senator Schumer coming to talk about maybe there

01:29might be an agreement to bring the shutdown to an end, starting to turn the market around a little

01:36bit. I think we need to see a lot more in terms of what the details on that are. It's a little bit too

01:41soon. But people obviously have been impacted by the shutdown, by that consumer sentiment number

01:48that you said also. Yes, absolutely. And for now, it's showing up in sentiment. But at what point,

01:52Afsana, does the shutdown threaten fourth quarter growth, whether it's in earnings or in the economy?

01:57How are you thinking about that? I think generally, economists would say that shutdowns,

02:02you know, that whatever you see in impacted, and we've seen a lot, you know, whether you're using

02:07sort of large numbers that we have seen Bloomberg use in terms of the shutdown per week, come back

02:15and get corrected for in the following month or two. I'm not so sure if that's going to be the case.

02:22I think that a lot of people who are not holding stock markets, sort of, they are not investors in

02:29the stock market, are really starting to get nervous about their jobs. We've seen the jobless numbers,

02:35we've seen the layoffs that are starting to happen. So it doesn't mean that the shutdown is stopped,

02:41and people start spending because I think that nervousness and that sentiment will go on. Plus,

02:46affordability hasn't changed, right? The price of health will still be high, regardless of these

02:51agreements. The price of housing is still very high. The price of food is very high. I think the

02:56administration has been thinking of the price of gas, maybe that's just one commodity. But all the

03:01other prices are high. They're not going down. Yeah. Well, as you mentioned, Afsana, you know,

03:05the consumer sector definitely struggling at the moment. But then at the same time, we have had a

03:10market that's been driven so much by expectations for AI and all these deals that we've been seeing,

03:16a K-shaped economy, as you mentioned. Where do you think kind of that divide bridges the gap? And

03:22which sector do you think will feel more pain if there is kind of a reconciliation coming for both

03:28sectors of the economy at the moment? I think on the positive side, I think things that get

03:33impacted by AI, but not necessarily building the big data centers, but the applications and the uses

03:40part of that economy will continue to do well. Because I think we're still in the first innings,

03:45as far as AI is concerned. So while that huge infrastructure cost that we see getting built

03:50may get impacted, the other parts of, you know, services to the, that are impact, that are coming

03:56around and applications will benefit. On the negative side, I think consumer goods will get

04:01impacted, not just because of what we're seeing with layoff and with the efficiencies that are

04:06coming into the market in middle management, as well as in other white collar work, but also the fact

04:13that we're seeing the, the permitting, for example, was delayed, IPOs delayed. So all of that is not going

04:20to help us start getting the employment that was originally intended by that administration into

04:26manufacturing. And are you worried then about the possibility that we may be seeing a bit of a bubble

04:34growing here in the AI space? Is that something that you're worried about bursting potentially

04:38at some point toward the end of the year or maybe early next year? I think no question there will be some

04:44sort of correction, whether that correction is at the end of this year or, you know, next year,

04:48or it takes even longer to correct, just like we saw with other bubbles in the internet market.

04:54Nobody can call the time. But I think the point of that, though, is that it doesn't mean that those

05:02things, while they're a bubble, they're going to still impact the market, the economy positively,

05:07right? If they impact the economy positively and cause growth in the economy, that will have a positive

05:13impact eventually on the markets as well. So I think we have to be careful to sort of look at the

05:18impact, the negative and the positive at the same time. And frankly, I don't think anyone has an

05:23answer to to that question. Absolutely. I mean, it's just speculation at this point. You know,

05:28what we have seen with the government shutdown is a tightening of financial conditions. We're seeing

05:33stress in money markets. And I wonder whether this will have consequences for the credit market,

05:38which leads all the other asset classes. Absolutely. I think I think we should watch the credit

05:45markets. We're seeing already car loans, other kinds of loans that are starting to have some

05:51problems. We're just seeing more more problems in terms of payments. It's not of the scale that we

05:57saw around the time of the of the financial crisis because of the, you know, the regulation that was put

06:05in place. But no question that that is starting to impact a lot of people. And if depending on what

06:10this, how the ACA gets impacted, if it's solved in the next week or two, maybe things will be

06:17different. Otherwise, we have to add on the debts that will be added on in terms of medical costs.

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