PodcastHidden ForcesJim Bianco

Is It Time to Start Buying Bonds? | Jim Bianco

Jim Bianco argues that inflation may remain around 3% as goods prices rise amid deglobalization and supply-chain pressures, while labor-market conditions look adequate against slow population growth. He says nominal growth supports current bond yields and puts them in perspective against longer-term history, even as debt remains a real problem that is not an acute emergency. The discussion also examines AI adoption and potential labor displacement, the concentration of stock-market gains in AI-related companies, and the possibility that heavy capital spending could eventually trigger a balance-sheet recession.

Fixed IncomeInflationInterest RatesEconomic GrowthGovernment DebtArtificial Intelligence

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Key Takeaways

Bianco describes the U.S. AI boom as a distinctive source of capital recycling into markets, even though adoption remains early: about 60% of companies are spending on AI, but only 2%–3% say it meaningfully affects operations or the bottom line. He says company IT restrictions are holding back AI agents, while expecting their ability to work within company systems could transform job tasks and help startups handle back-office work without first hiring employees.

Bianco says AI-related companies already represent 49% of the S&P 500’s market capitalization and generated 70% of U.S. stock-market gains since November 29, 2022; future listings such as OpenAI and Anthropic could lift their index share to about 55%. He also notes that the S&P 500’s gain is roughly 140% from the COVID low but about 100% from the February 2020 high, underscoring how both index concentration and the chosen starting point shape the return picture.

Bianco argues that inflation is likely to stay around 3% as moderate goods inflation replaces the deflation that once offset services inflation, with deglobalization, tariffs, wars, and supply-chain problems contributing to the shift; he says a geopolitical oil shock could push inflation to 4%, 5%, or 6%. He says prices have risen about 31% since April 2020 versus average hourly earnings up 26%, while rising home and stock values have helped asset-owning households keep pace more than wage-dependent households.

Bianco says consumer spending is increasingly concentrated: Moody’s estimates the top 20% of households account for half of U.S. retail sales, a record share, supported in part by rising home and stock values rather than wage income alone. He cites home prices up 30%–40% and an average U.S. home price of about $420,000, linking asset gains to the divide between asset-owning households and those relying mainly on wages.

Bianco argues that weak-looking job growth can still be adequate in a slowly growing labor force: September added 29,000 jobs and the year’s monthly average was about 60,000, versus roughly 35,000 needed given working-age population growth. He pairs that view with a record-low four-week average of 198,000 initial jobless claims and says employment difficulties are more pronounced for non-STEM graduates, while conditions vary by sector.

TECHNOLOGY

AI Capital Flows — Jim Bianco argues that the U.S. AI and innovation boom is recycling capital into the market. He characterizes this source of investment as unique to the United States.

“Now reason I bring that up is when you ask the question about capital recycling the AI boom the innovation boom that the United States has is unique to the…”—

AI Adoption Gap — Bianco says about 60% of companies are spending on AI, but only about 2%–3% report that AI workflows meaningfully affect their bottom line or operations. He says this suggests AI is still in the early stages of becoming a potential economic displacement force.

“And it's something like 60% of companies that are spending on AI…”—

AI Agents — Bianco says company IT restrictions on AI agents are holding back task automation. He expects agents operating within company systems to transform how jobs are done, and says startups and small companies may use them for back-office work without first hiring employees—including compliance, accounting, organization, and identifying potential revenue sources.

“Now, part of the reason we might not be there yet is a lot of company IT departments are afraid of angentic AI…”—

ECONOMY

GDP Growth — Bianco says U.S. GDP has grown about 2.5% annually for four years, near the upper end of estimated potential growth. Growth has been higher still in the most recent quarter or so.

“the economic data that we see in terms of growth in GDP has been running at around two and a half percent for the last four years…”—

Inflation Risks — Bianco argues that inflation is likely to remain around 3% rather than decline. Goods-price deflation, which offset services inflation during the WTO period, has given way to moderate goods inflation amid deglobalization, tariffs, wars, and chronic supply-chain problems; services inflation is in the high 3s. He says inflation could reach 4%, 5%, or 6% if a geopolitical problem sent oil prices soaring.

“is that when we when China entered the WTO in 2001, for the next 18 years, goods averaged falling half a percent a year, deflation. It offset services inflation…”—

Wage Pressures — Bianco says post-COVID price increases have outpaced wage gains, leaving paycheck-to-paycheck households behind: CPI rose 31% since April 2020, versus average hourly earnings up 26%. Inflation has stayed above 2% for more than five years and is currently above 3%; he favors chain-weighted PCE measures and cites a separate comparison showing prices up 31% versus wages up 25%.

“CPI is up 31% since April 2020. That's the end of COVID. The average wage, average hourly earnings is up 26% since the end of COVID…”—

MARKETS

Housing Wealth — Bianco argues that gains in housing and investments have helped asset-owning households offset inflation, widening the divide with households relying mainly on wages. He cites home-price gains of 30%–40%, an average U.S. home price of about $420,000, and an average price of $172 per square foot.

“At least stock market has. You know, home prices are up 30 or 40%. And that's made up the difference for you…”—

S&P 500 Returns — Bianco distinguishes the S&P 500’s roughly 140% rise from the COVID low from its roughly 100% gain measured from the February 2020 high. The comparison shows how the starting point changes the reported return.

“So, I go back to the February 2020 high and I say only when you get above that is the day the bull market starts, not the day of the…”—

Introduction

The host welcomes Jim Bianco, mentions an upcoming CFA Society New York event, and asks about Bianco's changing view of bonds and his outlook for the economy.

Jim Bianco's Bullish Turn on Bonds After Six Years

Bianco says he has turned positive on bonds for the first time in six years because yields now align more closely with nominal growth, which he estimates around 5.5%.

The K-Shaped Economy: Asset Owners vs. Wage Earners

Bianco describes a K-shaped economy in which asset owners have gained wealth from housing and stocks, while paycheck-dependent households have lost ground to inflation.

Capital Gains Replacing Wages as the Engine of Consumer Spending

Bianco argues that wealth gains help explain why affluent households drive a growing share of consumer spending, increasingly drawing on appreciating assets rather than wages.

AI Companies Now Represent Half the S&P 500's Market Cap

Bianco says AI-related firms make up roughly half the S&P 500's market value and account for most market gains since ChatGPT's launch, attracting global capital to US innovation.

Why the US Labor Market Looks Better Than the Headlines Suggest

Bianco argues that modest job growth can still be adequate because the working-age population is growing slowly; low unemployment and initial claims support his view that the labor market is holding up.

AI and Entry-Level Employment: Where the Real Displacement Risk Lies

Bianco says evidence that AI is displacing entry-level workers remains inconclusive, with non-STEM graduates facing particular difficulties; he warns that experienced, higher-cost workers may face greater future risk.

Generative vs. Agentic AI: The Shift from Answering to Doing

Bianco distinguishes generative AI, which answers prompts, from agentic AI, which performs tasks, and says IT restrictions are slowing workplace adoption despite its eventual potential to reshape jobs.

How AI Is Reshaping Financial Research and Educational Media

Bianco and the host discuss how AI helps Bianco expand his research work and could shift educational media toward interactions between customers' AI agents and creators' data and expertise.

Preferred Inflation Metrics and Why We're Stuck Above 3%

Bianco favors core PCE inflation measures and says inflation is likely to remain above 3% because goods prices have shifted from deflation to inflation amid deglobalization and supply pressures.

What's Actually Driving Long-Term Bond Yields Higher

Bianco says long-term yields reflect expected inflation plus real growth; with nominal growth around 5% to 6%, current Treasury yields look appropriate rather than expensive.

US Debt and Deficits: Acute Crisis or Elevated Blood Pressure?

Bianco calls US debt a real but non-acute problem, noting total borrowing relative to GDP is near its 2006 level and arguing that exceptionally low rates—not today's yields—were historically abnormal.

Topics for the Second Hour

The host previews a second-hour discussion of debt funding, possible financial repression, AI capital spending and balance-sheet risks, divergent markets, midterms, and Federal Reserve communication.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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