The artificial intelligence boom is rational and good for the U.S. economy, although only a few players will be winners at the investment level, economist Mohamed El-Erian said Monday.
"There is no doubt that we are in an AI-driven economy and for good reason. The promise of AI in terms of productivity gains is huge. So if we didn’t have AI we wouldn’t look as good as we do now, we wouldn’t be outperforming the rest of the world but we do have AI. So I’m not too worried that it’s an AI-driven boom," the Wharton School professor and Allianz chief economic advisor said on CNBC's "Squawk Box."
"What I would stress is this is a rational bubble, that a lot of money is being thrown at different AI actors at the micro level because the promise is so huge. That is a good thing, that’s what distinguishes us from the rest of the world because different AI companies are competing and excelling," he said.
"However, at the end of the day, there are going to be just a few winners, a handful of winners, and therefore some of the investment will result in tears but overall for the economy, this is good news. It promises us significant productivity gains," El-Erian said.
On another topic, El-Erian predicted the record-setting gold rally will endure. "It wouldn't surprise me if we see $5,000 this year," he said.
El-Erian attributed the gold surge to the rest of the world's worry about the U.S. dollar and desire to invest in U.S. stocks, while hedging by slowly buying gold, in addition to central banks' slowly moving from the dollar to gold, institutional investors' increasing the allocation to gold in model portfolios, and speculators.
Bitcoin is evolving and "way behind" gold, he said, explaining it will be far more volatile as its speculative aspects are much larger and fundamentals smaller than gold's characteristics.
The economist, addressing recent cracks in the private credit market, also voiced confidence in the banking system's financial stability, despite failures that some observers liken to "cockroaches" and "ants."
“They’re not termites, I want to stress. They're not eating away at the foundation of financial stability. These are isolated cases” that come in a period when people take on too much risk for returns as spreads compress, El-Erian said, predicting there will be more cases.
The recent bankruptcies of an auto lender and a car parts supplier have led several banks to disclose problems with major commercial loans, sparking concern about broader trouble. JPMorgan Chase CEO Jamie Dimon predicted more private credit problems, saying "when you see one cockroach, there are probably more."
El-Erian agreed there will be more cases but said they won't be termites in the financial system.
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