‘I’m afraid of human stupidity.’ Why this top economist prefers U.S. tech and gold over bonds
The line sounds flippant until you unpack it. Fear of “human stupidity” is not fear of IQ; it’s fear of policy error, geopolitical brinkmanship, regulatory overreach, reckless fiscal imbalances, cyber mishaps, and the thousand other ways systems fail when incentives, politics, or panic collide. In that worldview, the macro risks that matter most are the ones engineered by people rather than nature: unanchored deficits, ad hoc capital controls, protectionist spirals, accidental wars, and the misuse or misregulation of transformative technologies.
From that premise flows a portfolio tilt that often puzzles traditional allocators: favor U.S. technology and gold over long-dated sovereign bonds.
The case against long bonds in an age of policy error
For decades, the central tenet of balanced portfolios was simple: own equities for growth and long-duration bonds for ballast. That compact relied on two assumptions: inflation would be low and stable, and central banks could backstop demand without fiscal dysfunction. Both assumptions now look less sturdy.
– Inflation volatility is back. Even if headline inflation has cooled from its post-pandemic peaks, the drivers of variability—energy transition frictions, geopolitical fragmentation, onshoring, climate shocks, and large fiscal transfers—remain. Bonds are claims on nominal cash flows far into the future; they are mathematically most sensitive to surprises in the price level. When inflation risk rises, the term premium—the extra yield investors demand to hold long-dated debt—tends to rise too, pushing prices down.
– Fiscal dominance risk is real. When public debt is high and deficits are persistent in peacetime, the path of least resistance historically has not been austerity or explicit default; it has been financial repression and higher trend inflation. That doesn’t mean hyperinflation. It means living with inflation uncertainty and episodic spikes that erode the hedging role of duration.
– Supply-demand imbalances are structural. Governments must issue more bonds to fund deficits and investment programs, while two of the biggest marginal buyers—central banks (now doing quantitative tightening) and banks (more constrained on balance sheet)—are less price-insensitive than in the QE era. Foreign official demand is more selective. That pushes term premia up and increases volatility.
– Correlation regimes changed. In 2022, stocks and bonds fell together, delivering one of the worst years for traditional 60/40 portfolios in generations. That doesn’t prove the regime has permanently flipped, but it reminds investors that duration is not a reliable hedge in an inflationary or policy-error shock.
Against that backdrop, the economist’s skepticism targets long-term bonds, not the entire fixed-income universe. Short-term bills and high-quality short-duration credit can still serve as dry powder. But taking on 20- to 30-year duration in an era of policy unpredictability is a very different bet than it was from 1990 to 2019.
Why U.S. technology sits on the “anti-stupidity” side of the barbell
Favoring U.S. tech is not just a momentum call on megacap stocks. It’s a structural bet on resilience and cash generation in a world where policy mistakes and geopolitical frictions are frequent.
– Secular growth with pricing power. The dominant U.S. platforms monetize global demand, enjoy network effects, and command high switching costs. In an environment of sporadic inflation or wage pressure, software and cloud businesses can sustain margins through pricing and productivity-enhancing offerings.
– Balance-sheet strength and optionality. Many top tech firms run net cash balance sheets and produce robust free cash flow. In a higher-rate world, cash-rich firms benefit from interest income, while their internal funding reduces vulnerability to credit market freezes. They also have the option to invest countercyclically—especially in capital-intensive AI infrastructure—when others retrench.
– The AI capex supercycle. Whether hype or not, AI spending has already become a real cash-flow engine for semiconductor leaders, cloud providers, and select software companies. If AI lifts productivity—even modestly—it can support earnings growth despite macro noise. If it falls short, the leading suppliers to the buildout still capture significant economics.
– U.S. institutions still dominate innovation. Despite political dysfunction, the United States retains unmatched depth in capital markets, top universities, venture formation, IP enforcement, and talent immigration (albeit uneven). That ecosystem compounds over time.
This is not to deny risks. Regulatory scrutiny is intensifying, valuations in pockets are rich, and tech cycles can be brutal. But for an investor worried about human mistakes that distort currencies, debt markets, or trade flows, owning firms whose value derives from global, software-based cash flows and hard-to-replicate IP looks more robust than owning a long stream of fixed nominal coupons.
Gold as the hedge against policy and geopolitical tail risk
Gold produces no cash flow. It is hard to model and easy to mock. Yet it keeps turning up in resilient portfolios because it hedges the very risks that spring from human error.
– Hedge against monetary and fiscal regime shifts. Gold tends to do well when real yields fall due to inflation surprises, when confidence in fiscal sustainability wobbles, or when currency debasement fears rise. It is nobody’s liability, which matters when trust in institutions is strained.
– Geopolitical insurance. Wars, sanctions, and capital controls tend to increase the demand for portable, apolitical stores of value. Central banks, especially in emerging markets, have been net buyers in recent years, a structural source of demand that is relatively insensitive to Western investor cycles.
– Diversification when bond hedges fail. In inflationary or stagflationary shocks, bonds can lose their negative correlation to equities. Gold has historically provided diversification in some of those episodes.
Gold is not a panacea. If real yields rise sharply and stay high, the opportunity cost of holding gold increases. In benign disinflationary recessions, long bonds can outperform gold by a wide margin. But gold’s role is precisely to insure the scenarios where policy mistakes elevate inflation volatility or impair sovereign balance sheets.
Putting it together: a barbell for a messy world
The preference is not “all tech, all gold, no bonds.” It is a barbell:
– On one end, high-quality U.S. technology and adjacent enablers of the AI and cloud economy, with strong balance sheets, pricing power, and durable moats.
– On the other, gold as a hedge against policy and geopolitical tail risks.
– In the middle, short-duration cash-like instruments rather than long bonds, to preserve optionality and reduce exposure to term premium and inflation surprises.
This barbell accepts that the main opportunity cost is missing a classic duration rally if growth collapses into a deep, disinflationary recession—historically a time when long Treasurys shine. But it wagers that the more likely errors in the years ahead risk higher inflation variability, fiscal strains, and geopolitical shocks, where long-dated sovereign bonds don’t hedge well.
Common objections, answered
– What about TIPS? Inflation-protected bonds can play a role, but they still carry duration risk and depend on an official inflation index. In tail events involving policy credibility or liquidity stress, TIPS may not behave like gold. They are a complement, not a substitute, in this framing.
– Aren’t U.S. tech valuations stretched? Some are. The argument is to own quality and cash flow, not to indiscriminately chase narratives. Valuation discipline and diversification within the theme matter.
– What if AI underdelivers? Even then, suppliers to the buildout and platforms with entrenched economics can still compound. Position sizing should reflect uncertainty; the barbell does not require an AI utopia to work.
– Could gold disappoint? Yes—especially if real rates grind higher on credible fiscal consolidation and productivity gains. That is a good problem for an equity-heavy portfolio to have. The barbell is designed to be robust across plausible paths, not to maximize returns in any single scenario.
The deeper logic: robustness to avoidable mistakes
Calling it a fear of “human stupidity” is a provocation. The serious point is to build resilience not only to exogenous shocks but also to the endogenous ones we inflict on ourselves: short-termism in fiscal policymaking, fragmented regulation that stifles rather than channels innovation, brinkmanship that rattles alliances and supply chains, and the overconfidence that accompanies each new tech wave.
A portfolio anchored in globally dominant, cash-generative technology franchises, hedged with an apolitical store of value, and funded with short-duration liquidity seeks to be less exposed to those man-made errors than one reliant on long chains of nominal promises payable decades from now. It is, in short, a blueprint for compounding through messy governance.
None of this is forever. If inflation volatility fades, fiscal trajectories improve, and institutions rebuild credibility, duration will reclaim its diversifying power. In that world, portfolios should rebalance. Until then, the barbell reflects a clear-eyed read of the main risk factor in markets today: not nature’s randomness, but our own.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investing involves risk, including the possible loss of principal. Consider your objectives and constraints or consult a qualified advisor before making decisions.
