'I'm afraid of human stupidity': Why this top economist prefers U.S. tech and gold over bonds

By Barbara Kollmeyer

Daniel Lacalle's recommendation: Don't fear AI

Economist Daniel Lacalle is a believer in the promise of artificial intelligence, and that, to him, means buying U.S. technology stocks.

When it comes to possibly one of the most transformational technologies humanity has ever seen, economist and fund manager Daniel Lacalle thinks fear is misplaced.

"I'm not afraid of artificial intelligence. I'm afraid of human stupidity - that's what worries me," Lacalle, the chief economist at the Spanish private bank Tressis and the co-fund manager of the firm's Adriza International Opportunities Fund, told MarketWatch in a recent interview.

"Artificial intelligence is what always brings us to the ground as investors, as bankers, as governments," says Lacalle, who has written multiple books on finance and macroeconomics in both English and Spanish. "Artificial intelligence would have never, never addressed the 2008 financial crisis [by] increasing government spending and printing money."

For more than a dozen years, Lacalle has been pounding the table over overspending and central banks "doing nothing to reduce inflationary pressures from monetary policy." He says Federal Reserve interest-rate hikes won't ease the present geopolitical energy shock but instead will make life harder for families and businesses as credit gets more costly.

The economist traces the current rise in Treasury yields to the sovereign-debt bubble blowup of 2021, when governments spent to stimulate postlockdown economies. "The amount of money in the system exploded, inflation rose, bond yields started to creep up and bond prices came down, and they haven't recovered."

Lacalle sees danger not in rising 10-year Treasury yields but in 20- BX:TMUBMUSD20Y and 30-year yields BX:TMUBMUSD30Y as investors demand greater compensation to hold that debt. "The problem is that the market is adapting to the reality of the impossibility of disguising fiscal irresponsibility with monetary policy."

"What investors are realizing is that sovereign bonds are not the safe asset that gives you real economic return in periods of market uncertainty. It's completely logical that bond yields are rising, but [stock] markets are not tanking," he says.

This year has seen the S&P 500 SPX rise 12%, while the yield on the 20-year Treasury note is up to 5.624% from 4.822%.

As for where he's steering clients, Lacalle believes the debt side of the traditional 60% stock/40% bond portfolio is better served in hard assets. He says that as global central banks boost gold (GC00) holdings and trim sovereign debt, a small investor would be crazy to do the opposite.

"So you need to have gold, you need to have hard assets and you need to have equities, but you need to be invested in equities that are exposed to elements of growth and innovation that are driving the economy in the next 10 [to] 20 years."

That means avoiding so-called defensive sectors that don't defend investors "because they're stranded assets and because they are similar to bonds," he says.

Lacalle recommends an overweight exposure to the U.S. and technology - basically to the AI theme. Stocks exposed to aging populations, such as healthcare companies focused on research and development and those connected to rising middle classes in emerging economies are also on the list.

He steers clear of healthcare providers or nursing homes catering to aging populations - "basically a fast-maturing and bad hedge to inflation" that won't easily pass on rising costs to those residents.

"Today's old people have a purchasing power and wealth that the old people of the next 10 years don't have. So your model is based on wealth accumulated by a generation that is not happening in the next three generations at all."

Lacalle believes strength in the S&P 500 hinges on innovative companies with strong balance sheets and global growth that's not falling apart, but he is concerned about how persistent inflationary pressures could affect the multiples investors pay for some companies. He cautions that investors keep watch on the economies of France, Germany and Japan, as fiscal or economic trouble for those could ultimately spill over into the U.S.

Sustainability is another big theme for Tressis, notably resource generation, such as improving access to water, which directly ties into his enthusiasm for AI.

"It's absolutely incredible what it can do to reduce the limitations and the roadblocks and the chokepoints in everything from manufacturing supply chains, etc.," says Lacalle. " Everything that we do in months, AI can do in minutes. The time that companies spend analyzing routes and figuring out how to manage the most efficient way to get goods and services will happen very, very fast and much cheaper [via AI]," he says.

While he sees governments as using inflation to disguise their fiscal ambitions, he believes the technology will be hugely deflationary, envisioning a world with "a lot of free stuff," and no shortage of jobs, even if jobs are different.

"I am super positive on AI. I think it's the best thing that has happened, and it probably will be the solution to the enormity of debt and spending that we have."

The markets

U.S. stocks SPX DJIA opened higher, the 10-year Treasury yield BX:TMUBMUSD10Y is hovering at 5.24%, gold (GC00) is rising and crude (CL.1) (BRN00) is also higher.

 
Key asset performance                                                Last       5d      1m      YTD     1y 
S&P 500                                                              7670.84    -1.21%  0.52%   12.06%  14.69% 
Nasdaq Composite                                                     26,797.54  -1.64%  2.67%   15.30%  18.26% 
10-year Treasury                                                     5.228      11.20   44.40   105.60  112.60 
Gold                                                                 4219.7     -4.01%  -3.57%  -2.60%  8.54% 
Oil                                                                  90.22      0.41%   -0.51%  57.15%  44.51% 
Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Private-sector payrolls rose by a bigger-than-expected 90,000 in September. The personal-consumption-expenditures price index excluding energy, rose a smaller-than-expected 0.2% in August. The August trade deficit expanded to $132.6 billion and second-quarter GDP growth was revised up to 2.2%.

Memory maker Micron Technology (MU) will report results after the close (see earnings preview).

Boeing (BA) won a multibillion-dollar U.S. Navy contract, while shares of rival Northup Grumman (NOC) are down on disappointment over losing that deal.

Robinhood's stock (HOOD) is up after the online trading platform announced new AI agents that can invest on behalf of users.

A flight headed to Israel from the United Arab Emirates was forced to make an emergency landing in Saudi Arabia after a reported cockpit struggle.

Tuesday was one of the more disturbing days for markets of late, says Goldman Sachs pro.

The chart

There's a new TACO - the popular acronym for the phrase Trump always chickens out - barometer in town aimed at predicting the behavior of the U.S. president, this time from JPMorgan. Strategists base that on three variables: his approval ratings, the S&P 500 SPX and 10-year yields BX:TMUBMUSD10Y. The strategists' chart shows notable historical moments when that barometer has fallen through pain points and flagged a policy pivot.

Top tickers

These were the most searched ticker symbols on MarketWatch as of 6 a.m.:

 
Ticker symbol  Security name 
NVDA           Nvidia 
GME            GameStop 
TSLA           Tesla 
MU             Micron 
AMZN           Amazon 
SPCX           SpaceX 
META           Meta 
AMD            Advanced Micro Devices 
TSM            Taiwan Semiconductor Manufacturing 
AAPL           Apple 

-Barbara Kollmeyer

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(END) Dow Jones Newswires

09-30-26 0933ET