This is a segment from The Breakdown newsletter. To read more editions,\u00a0<\/em>subscribe<\/em><\/a>.<\/em><\/p>\n \u201cI don\u2019t know what\u2019s going to happen tomorrow and I can\u2019t relive yesterday, but I live in the moment if I can.\u201d\u00a0<\/p>\n \u2014 Ozzy Osbourne<\/em><\/p>\n<\/blockquote>\n<\/figure>\n Stock markets made new highs again this week, but the mood is hardly celebratory \u2014 possibly because it feels like investing is about to get much harder.<\/p>\n How do you invest for the long term when 1) AI might change everything<\/em> and 2) the US government is $38 trillion in debt (and counting)?<\/p>\n This week, Jim Cramer said the ballooning national debt made him \u201cworried for his kids\u201d \u2014 so much so that he took the unthinkable step of recommending bitcoin as a hedge against monetary debasement.<\/p>\n Quite the reversal for someone who said as recently as 2022 that he \u201cwould not touch crypto in a million years.\u201d<\/p>\n (Note: 2022 was three years ago.)<\/p>\n I get it, though.<\/p>\n Watching yesterday\u2019s surreal exchange<\/a> between President Trump and Fed Chair Powell, both in hard hats, made me despair for the long-term health of my investment portfolio.\u00a0<\/p>\n What investments can you rest easy with when the world\u2019s only risk-free asset \u2014 US Treasurys \u2014 no longer seem free of risk?<\/p>\n You could buy gold, of course, and that has been working lately: The original inflation hedge is up 40% over the past year.<\/p>\n But an inflation hedge is all gold usually is: Over the last 2,000 years, its real, inflation-adjusted return is approximately 0%.<\/p>\n That will maintain your purchasing power, which is nice, but it won\u2019t help you retire.<\/p>\n Also, you don\u2019t want to be hiding in gold when they start mining it from asteroids<\/a> or creating it in fusion reactors<\/a>.<\/p>\n Is bitcoin a better hiding place then?<\/p>\n That, too, has been working: The newest inflation hedge is up 80% over the past year, cementing its reputation as digital gold.<\/p>\n But it\u2019s hard to have a 50-year view on such a new asset.<\/p>\n On that kind of timeline, people as smart as Cliff Asness and Matt Levine can think<\/a> that \u201cmost of the probability\u201d for bitcoin is \u201czero.\u201d<\/p>\n Finding investments where most of the probability is not<\/em> zero is not as easy as it used to be.<\/p>\n Land has been a reliable safe haven over the centuries \u2014 they\u2019re not making more of it, as they say.<\/p>\n But in an age of demographic collapse, we might need<\/em> less of it.<\/p>\n It\u2019s estimated<\/a> that by the year 2038, one-third of the homes in Japan will be abandoned for lack of anyone to live in them.<\/p>\n I\u2019m not sure land will hold its value when the entire developed world looks like Japan a decade or two from now.<\/p>\n Still, if we\u2019re headed toward monetary debasement in this<\/em> decade, a portfolio of gold, bitcoin and land is probably a good bet.<\/p>\n But what if this decade turns out to be surprisingly good<\/em>?<\/p>\n If the real story over the next 10 years or so turns out to be an AI-driven boom in productivity, a portfolio of gold, bitcoin and land might doom you to decades of underperformance (and declining purchasing power).<\/p>\n That is what the researchers at Epoch AI expect: They estimate<\/a> that \u201ceven when AIs have only automated 30% of all economically useful tasks, economic growth rates may exceed 20%.\u201d<\/p>\n 20%!!!<\/em><\/p>\n It\u2019s hard to fathom a world of 20% GDP growth \u2014 the US government might even manage to balance its budget in that scenario.\u00a0<\/p>\n But even that unthinkable outcome may be understating the upside.<\/p>\n The Economist<\/em> noted<\/a> this week that growth theorists who attempt to model the progress of technology \u201chave long posited that if ideas beget more ideas with sufficient velocity, growth should increase without limit<\/em>.\u201d (Emphasis added.)<\/p>\n Sam Altman seems to think that\u2019s where we\u2019re headed: He believes<\/a> AIs will be capable of begetting ideas as soon as next year, and that \u201c2027 may see the arrival of robots that can do tasks in the real world.\u201d<\/p>\n That would put markets on a crazy train to who knows where.<\/p>\n If investors sense that labor will soon be automated out of existence, there will be a mad scramble to secure the largest possible share of the post-labor economy.<\/p>\n \u201cWhat should you do if you think an explosion in economic growth is coming?\u201d The Economist <\/em>asks<\/a>. \u201cThe advice that leaps out from the models is simple: own capital, the returns to which are going to skyrocket.\u201d<\/p>\n But not just any<\/em> capital.<\/p>\n 20% growth would likely mean 20% interest rates too, which would destroy the value of your gold, bitcoin, land and any stocks not directly involved in the AI productivity boom.<\/p>\n You\u2019ll have to choose carefully, and maybe sooner than you\u2019d expect.<\/p>\n It\u2019s exhausting to think about. And maybe we shouldn\u2019t.<\/p>\n This week, Anthropic publicized<\/a> its findings that AI models suffer from \u201cinverse scaling\u201d \u2014 which is to say an AI model that\u2019s given more time to think tends to produce worse<\/em> results.<\/p>\n AIs think pretty much like humans do, so we too probably suffer from inverse scaling.<\/p>\n If so, now may be the time to follow Ozzy\u2019s advice \u2014 in investing and everything else \u2014 and try our best to live in the moment.<\/p>\n Let\u2019s check the charts.<\/p>\n AI automation and GDP growth:<\/p>\n <\/span><\/span><\/p>\n Pick your level of AI automation (the X-axis) and this chart from Epoch AI will tell you what level of GDP growth to expect. The TL;DR is that \u201cthe fraction of labor tasks automated by AI doesn\u2019t need to be very high to yield very large growth impacts.\u201d Per the chart, if only 20% of tasks are automated, they expect GDP to grow at an unfathomable 10% per year.<\/p>\n Revenge of the dorks:<\/p>\n The Reddit gang is back and this time they\u2019re betting on Dunkin Donuts, Opendoor, Rocket Companies and Kohl\u2019s. Why those four? I doubt even an all-knowing AI could make sense of it. But if you think AI is about to take all the jobs, rolling the dice one last time in memestocks may be less irrational than it seems.<\/p>\n There\u2019s a lot of dice rolling right now:<\/p>\n Data from Goldman Sachs shows that, as a percentage of overall activity, trading volumes in the most speculative stocks have rarely been higher than now. As an indicator<\/a>, that is generally bullish before it\u2019s bearish.<\/p>\n Tariffs have not slowed China\u2019s export boom:<\/p>\n The more obvious reason for equities being at all-time highs is that the Liberation Day tariffs were not nearly as disruptive to the global economy as generally feared. China\u2019s exports, for example, continue to boom. That show of strength may be why President Trump is reportedly<\/a> more willing to make concessions to get a deal done.<\/p>\n China is flooding the world with cars:<\/p>\n I\u2019m glad we still have an auto industry in the US, but if I could buy a high quality EV for $8,000<\/a>, I would.<\/p>\n Humans remain in demand:<\/p>\n The Atlanta Fed\u2019s wage tracker shows US wages growing at 4.2% \u2014 still well in excess of inflation (however measured).<\/p>\n Robots are not taking the jobs yet:<\/p>\n\n
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