Will AI Take All Our Jobs? (EP.415)

Episode Summary

Executive Summary: The episode ranges from YCharts sponsorship and hiring to a broad market discussion centered on technicals, investor behavior, rates, housing, AI, and consumer sentiment. Michael and Ben argue that price action often leads fundamentals, that panic buying/selling behavior has improved, and that long-term investing is still about probabilities, not certainty. They also debate recession risk, government debt, AI’s labor impact, and how today’s markets differ from past cycles, with lighter commentary on travel, media, and TV.

Main Topics: YCharts sponsorship and hiring for Ritholtz Wealth (Priority: 5/5): The show opens with a sponsor pitch for YCharts household portfolios and transition analysis, then turns into a hiring call for an ultra-high-net-worth lead relationship manager for the multifamily office team. Market technicals, breadth thrusts, and the role of price (Priority: 5/5): The hosts argue that the market often bottoms before news and fundamentals, defending technical indicators like breadth thrusts as useful even in a tariff-driven regime where policy headlines move prices abruptly. Investor behavior, panic buying, and behavioral finance (Priority: 5/5): They discuss improved investor behavior during the selloff, the tendency to buy dips, loss aversion, and why averaging down or chasing volatility products usually fails over time. Bear markets, stock picking, and permanent impairment (Priority: 4/5): The conversation revisits the reality of bear markets, the difficulty of holding individual stocks through severe drawdowns, and why most turnaround stories fail while the market broadly recovers over time. Rates, bonds, recession risk, and Dimon-style doom warnings (Priority: 4/5): The hosts discuss bond-market risk/reward, low credit spreads, Jamie Dimon’s recurring warnings, and whether society may need a recessionary reminder of what a truly bad economy feels like. AI, labor displacement, and deflationary vs inflationary forces (Priority: 5/5): A major theme is whether AI will displace jobs and services inflation faster than government deficits create inflation, with examples from Alphabet token growth, Amazon robotics, and Waymo adoption. Housing market stagnation and consumer spending resilience (Priority: 4/5): They examine weak home sales, low inventory, and a large gap between sellers and buyers, while noting that consumer spending remains resilient despite poor sentiment readings.

Key Arguments: The stock market usually bottoms before the news and fundamentals do, so investors should not expect macro data to provide a timely all-clear. Breadth thrusts and rapid recoveries from oversold conditions are meaningful signals of bullish momentum, even if the current regime is noisy. Buying panic has been a high-probability strategy over time, but averaging down on individual stocks generally does not improve returns. Most individual stocks that suffer major declines never fully recover, because the business itself is often impaired, not just the price. Leveraged volatility products like UVXY are structurally damaging to buy-and-hold investors because decay overwhelms the occasional big spike. A 10-year horizon may make broad index investing feel near-riskless, but long stretches of flat or negative returns can still happen. Recession and sentiment surveys may have been distorted by COVID and inflation, but a real downturn would likely produce much worse readings than today. Long-duration bonds do not offer enough extra yield versus short-duration bonds to justify their historical drawdowns in the current setup. AI is likely to be more socially and economically disruptive than government deficits, especially through labor displacement and productivity shifts. Housing is stuck because mortgage rates are high and inventory is constrained; lower rates would likely unleash a wave of demand. Consumers may complain about the economy, but spending remains firm as long as the labor market holds up. The future response to AI could be to own the winners—stocks tied to robotics, infrastructure, and automation—rather than fight the trend.

Data Points: YCharts offer: 20% off initial subscription - Mentioned in the sponsor read for first-time subscribers who mention Animal Spirits. Ultra-high-net-worth client threshold: About $50 million and above - The hiring pitch defined the target client level for the multifamily office role. Hotel themed bar: 1990s-themed bar - A travel anecdote about staying in Wicker Park, Chicago. S&P 500 drawdown and recovery: More than 18% below high to within 3% of all-time high in one month - Used to argue for bullish momentum after a rapid reversal. Average daily equity ETF flows: Cut in half after the bottom - Todd Sona chart cited as evidence that investors stopped panic buying on the way up. NVIDIA drawdown in 2022: Down 70% - Example used to show how severe tech drawdowns can be even in dominant companies. 2022 bear market length: 18 months - The hosts argued that the 2022 selloff was a real bear market. 2022 peak-to-trough decline: 25% - Described as a legitimate bear market decline for the S&P 500. NASDAQ decline in 2022: 30% - Used to reinforce that the 2022 market was a true bear market. UVXY cumulative flows: $9 billion - Cited to show how much money has gone into a leveraged volatility ETF despite decay. Probability of stocks eventually getting cut in half: Almost all stocks eventually do - Discussion of the Mobuson research on long-term stock outcomes. Retail investor behavior: 50% more likely to buy after a stock falls than after it rises - Study on investors' tendency to average down on holdings. Sustained turnaround rate: 29% - Mobuson/UBS Holt turnaround study concluded only a minority of companies achieve sustained turnarounds. No turnaround at all: Nearly one half - Portion of companies in the study that never turned around. Credit spreads: Still very low - Used to argue that bond markets are not signaling stress. Bond ETF drawdown: TLT down 43% - Example of the pain in long-duration bonds. Short-term Treasury drawdown: SHY down about 3-4% - Compared to TLT to illustrate the risk/reward gap. Yield difference: About 1% more on a 30-year vs a 2-year Treasury - Used to question whether long bonds compensate for their risk. Consumer financial well-being: 73% doing okay or living comfortably - Federal Reserve survey of adult financial well-being. Local economy positive rating: 46% - Fed survey reading on local economic conditions. Overall economy positive rating: 29% - Fed survey reading on national economic conditions. Self-identified retired adults: 27% - Part of the Fed financial well-being survey. AI-related U.S. GDP boost: Full percentage point in Q1 - Investment in information processing equipment boosted GDP. GDP excluding data center boom: 1.2% contraction - Illustrates how dependent the quarter was on AI infrastructure spending. U.S. IT jobs growth: AI jobs up 448%; non-AI tech jobs down 9% since 2018 - From a Mary Meeker chart discussed in the AI section. Alphabet token processing: 400 trillion tokens monthly, up from 9.7 trillion a year earlier - Used to show the rapid adoption of AI products and APIs. Amazon robotics deployment: More than 750,000 robots - Illustrated how automation is scaling in real operations. Waymo paid rides: 10,000/week in Aug. 2023; 50,000 by May 2024; 100,000 in Aug.; over 250,000 now - Demonstrated accelerating autonomous vehicle adoption. Waymo total rides: 1 million in 2023; 5 million in 2024; 10 million in 2025; on pace for 20 million by year-end - Used to emphasize the speed of growth in autonomous driving. Home sales: April sales fell for the second straight month - Cited from the Wall Street Journal housing report. Housing inventory gap: Nearly 500,000 more sellers than buyers - Redfin chart showing the largest seller-buyer gap since 2013. Millionaire households: 22 million households, about 1 in 6 - The Hustle chart on household net worth distribution. Historical millionaire households: 5,000 households in 1910 - Long-run comparison for wealth accumulation. Delta single-passenger pricing premium: As much as 70% more than two-passenger pricing - Reported airline price discrimination on solo travelers. U.S. adults' household income confidence: About 73% say they are doing okay or living comfortably - Fed survey showing personal finances are relatively solid despite negative macro sentiment.

Pivotal Quotes: "The stock market always bottoms before everything else." — Michael S. Embilis (quoted by Ben): Used to support the argument that price leads macro and fundamentals. "Buying panic is always a probabilistic good move." — Michael Batnick: Part of the discussion on investor behavior and dip buying. "I am much more concerned about the damage that will be done from AI than I am from the damage that might be caused because of our deficit." — Michael Batnick: On the relative risks of AI versus government debt and deficits.

Implications: Investors should focus on price, behavior, and probabilities rather than headlines. AI and automation may reshape jobs and markets faster than expected, while housing and bonds face structural pressure. Emotional sentiment may stay detached from the actual economy for a long time.