The Market Is Rising, but Risks Are Building Beneath the Surface

Remy Blaire: Wall Street rising in midday trade on this Monday morning, while we look at oil as well as Treasury yields pulling back.

Fed Chair Kevin Warsh raised benchmark interest rates at the conclusion of its September meeting by 25 basis points to a range of 3.75% to 4%, signaling a resolute stance against sticky inflation.

And despite tighter borrowing costs, U.S. consumer spending remains resilient. At the same time, investors are weighing the economic impact of AI, as well as fresh Washington proposals for federal AI oversight amid tensions with China.

Joining us live this afternoon to break down his market outlook, as well as his take on Fed policy and the case for reasonable AI guardrails, is Brent Wilsey, Chief Investment Officer at Wilsey Asset Management.

Good afternoon. Thank you so much for joining us.

So here we are at the beginning of a very busy week for geopolitics as well as for markets. While most of Wall Street dislikes higher borrowing costs, why do you believe the hike from the central bank, the Fed, was necessary to establish credibility and also keep inflation from getting out of control?

Brent Wilsey: Well, I think if we didn't raise something, he would have looked rather like what they called a sock puppet behind Trump.

And by him doing what he did, and again, it was good timing because we had a very good jobs report. We did see that inflation, the CPI, was a little bit above where it should be.

Raising a quarter point shows that, yes, we can do this. We're not going to affect the economy, but we need to slow things down a little bit.

And inflation, as he's been saying, I love when he speaks. He's so, so straightforward when he speaks. That's what he's going to do, is fight inflation.

Remy Blaire: Yeah. And indeed, speaking of straightforward, even that presser was abbreviated and shorter compared to years past.

But I do want to get your perspective on what we're seeing in terms of energy as well as the American consumer, because there is consumer stress and high diesel costs. We saw diesel hit new record highs yet once again.

So what is the retail data telling you about the real health of households out there? And do you think this spending pace can actually hold up through year-end?

Brent Wilsey: Well, we did see retail sales last week came out, and year over year, excluding gasoline sales, was up about 4.9%. So that's a very strong consumer.

And I still believe it is more on the higher-end consumer. I know there's some on the lower end probably struggling somewhat, but it was a nice report to see that consumers are still out there spending at a nice pace.

So that's a positive.

I still worry. I have no idea what's going to happen with this war in Iran, like many people. That's why we're seeing oil go up, and today it's down. That's good. Markets rally on that.

I just see nothing I can put my arms around saying, yes, this is close to being towards the end here. We're going to be having lower oil prices. I don't see that.

And we do have the heating season coming up for you people back East and Northeast, and, you know, that's not going to be good.

I think it's going to cost, I saw the numbers, about $12 billion extra in heating costs this year versus $8 billion last year. That's money out of people's pockets that they're not going to spend in the store.

So it is mostly Northeast. Out here in the West, I don't think I run my heater during the winter at all.

So it will affect the economy somewhat. And I did see that the Farmers' Almanac did predict a mild winter for you back East.

But it is, I mean, it's taking money out of people's pockets. And the gas, and then we see diesel.

I mean, diesel, it's not just the people who have diesel cars, but diesel is used in trucking and transportation, farming. We've got the harvest season coming up, so you've got the farmers, they're going to pay more.

So diesel around, what, $8 a gallon on average? That's going to be a big bite out of the economy on the manufacturing side.

Remy Blaire: Yeah. And Brent, while I have you here, I do want to get your perspective on AI.

So Trump proposing a new federal AI force, as well as tech executives debating safety slowdowns versus rapid innovation and regulation, has become a central market issue.

So how can the U.S. put reasonable guardrails around AI without handicapping American tech companies in their competition with China?

Brent Wilsey: I mean, that's a very tough question because we can't stop doing it, because we can't let China get too far ahead of us.

I did just read over the weekend, I think we're about six months ahead of China, somebody predicted that. But we can't stop it and have China continue forward.

So this has to be a worldwide thing, kind of like nuclear weapons, where we've got to come to agreements that we can only do so much.

Because if we don't, you know, it's funny, you read from the chip people, like from Nvidia and so forth, "Oh, we've got to go ahead full steam, full steam."

But the CEO of Anthropic is saying, no, there's concerns here. They talk about how they could actually build chemical weapons.

And what is that thing? I don't know where they get these names. Hugging Face or something, where actually it was not supposed to be connecting to others and it went ahead and did that.

I mean, it's very frightening, the unknown that AI can do.

And when I hear people that are, like again, the CEO of Anthropic, that would benefit from more, saying, and they have an IPO coming out too, he's really talking very fearful talk here as opposed to upping the stock.

So that's what worries me.

I don't care if these other guys all benefit from it. I care about the smart guys that are building it and saying, hey, we've got to have some guardrails here.

I know the president's against that, but we have to do it because, if not, I think we will have some major problems.

But we've got to get China on board as well.

Remy Blaire: Yeah. And Brent, here in New York City, the U.N. General Assembly's high-level meeting is taking place.

But of course, all eyes are on that gathering taking place at the White House later this week on Thursday between China's president as well as Trump.

And we also know that tech leaders will also be in attendance alongside financial leaders.

So we'll see what comes out of that conversation, as well as all of the other sideline events.

But while we're talking about AI, I do want to zoom in on a key demographic of the labor market.

We know that unemployment for young workers without a college degree dropped near 20-year lows as trades as well as repair jobs boom.

So how should investors be adjusting their expectations for wage growth as well as consumer demographics as the labor market shifts away from traditional entry-level jobs?

Brent Wilsey: Well, I mean, it definitely is changing.

And I'm even telling some people, like, I'm not sure if it's worthwhile going to college because you go to college now, you get out, you can't get a job.

I mean, our economy is changing where we need more people in the labor market that are actually building things, creating things, because those jobs are now being replaced, the other jobs.

And for the early people who are graduating, there's just not jobs out there for that. AI can take that job away.

So as far as what we're looking at, we still see, again, a healthy employment number. We watch that very closely every month.

There will still be jobs out there. AI will create other jobs, some we haven't even thought of yet.

But you've got to be careful when you invest. And I know I'm so glad to see the markets up today, but I'm very cautious.

I am very concerned that things are getting too big. I worry about the debt bubble as well. We've got so much debt out there, private and public as well, and the government.

It's just a terrible situation that is building, kind of bubbling up.

So when you talk about how investors should be investing with a wage market, there's so many other factors there they have to look at as well.

And I'm just in a cautious mode. We actually raised our portfolio to cash about 20% because we think there could be some pullbacks that we want to take advantage of going forward.

Remy Blaire: Well, Brent, we will have to leave it there for today.

Thank you so much for joining us, and thank you so much for sharing all of your insights as well as your perspective.

Brent Wilsey: You're welcome. Have a good one.