World in motion: AI, tariffs and the indeterminate future of capital

The modern investor must remain alert to the constant recalibration of global market narratives. A century ago, the thinkers of the Austrian School warned us that economic signals were fragile things, prone to distortion by policy folly and human overconfidence. Their ghostly warnings echo ever more pertinently today, as we navigate a marketplace transformed not just by global forces, but by enthusiasm bordering on mania. The latest outlook from Bentham Asset Management’s chief investment officer, Richard Quin, makes for sobering reading. It paints a portrait of an investment landscape in which optimism has turned speculative, and where public policy and private exuberance are marching in awkward lockstep toward an uncertain future.

Quin, speaking with the gravitas of a man who has seen markets cycle through euphoric peaks and doleful troughs, draws attention to what he calls the “collision” of three primary forces: tariff-induced economic drag, inconsistent inflation and the singularity-like emergence of artificial intelligence as both theme and thesis in modern capital markets. One need not have the disposition of a philosopher to see that these are not merely financial variables. They are the scaffolding of a new regime, economic and psychological alike.

For fixed income investors, the rear-view mirror still offers a measure of comfort. Bonds, that oldest and most stoic of asset classes, have outperformed cash and, in some cases, defied even their own pricing constraints. But as Quin notes with a seasoned caution, the tailwinds that buoyed credit markets over the past year have shifted. The “huge policy shift” represented by rising tariffs has caught many unaware. With average tariffs now hovering around 18 per cent, nearly double what markets had priced-in, we are witnessing a rapid deceleration in economic activity, most notably in the United States.

Such policy jolts are not theoretical inconveniences. They ripple outwards, distorting labour markets, denting confidence and hampering the Federal Reserve’s visibility. The recent US government shutdown, lasting a record six weeks, deprived the central bank of key data inputs, forcing it to “navigate in fog,” as Quin memorably put it. These are not the conditions under which monetary orthodoxy thrives.

What is perhaps most unnerving for the prudent allocator of capital, however, is not political chaos or even policy-induced contraction, but the fervour surrounding AI. Investment in artificial intelligence, by Quin’s reckoning, borders on the unhinged. Five trillion US dollars is the speculative figure now being floated for AI infrastructure and capability build-out. If such numbers feel reminiscent of the heady days of the late 1990s, that is no coincidence. Quin draws the analogy explicitly, warning that the capital cycle in AI may prove as binary and brutal as the dot-com bust, which left entire sectors hollowed and investors chastened.

Bentham Asset Management, formed in 2010 is a specialist in global credit and fixed income. The firm has honed its reputation on the back of disciplined portfolio construction, rigorous credit analysis and a practical scepticism toward short-term fashion.

Indeed, Quin’s fear is not of AI itself, though he notes its disruptive potential, but of the uncritical embrace it has received. Capital is flooding into the sector in amounts previously reserved for entire economies. Meta’s recent US$30 billion bond issue, which traded down post-launch, serves as a warning shot. This is, in Quin’s words, “not normal,” and investors would do well to remember that reality often reasserts itself in unflattering ways.

The ideological danger here is in allowing ourselves to believe that new equals better, and that old economy entities are doomed simply by virtue of their vintage. As Quin notes, AI’s radical impact on cost curves may well render many legacy companies obsolete, not through strategic failure but through sheer economic displacement. Such creative destruction, to borrow Schumpeter’s phrase, may delight the theorist but it should terrify the long-term investor.

Adding to the conundrum is the increasingly narrow policy space in which governments operate. The monetary easing cycle, which for a decade acted as the central banker’s universal solvent, is drawing to a close. While multiple rate cuts are still forecast in the United States and the United Kingdom, the utility of fiscal policy is now severely constrained. Governments, heavily indebted and fiscally fatigued, may be forced into pro-cyclical retrenchment, exacerbating downturns rather than ameliorating them.

The inflationary outlook is no more comforting. It is not so much a trend as it is a stutter. Quin warns that inflation will remain “choppy and unpredictable,” and that the AI build-out, for all its promises of efficiency, only adds to the ambiguity. It is a curious moment when a technology heralded as transformative is, simultaneously, a source of macroeconomic opacity.

In response, Bentham has retreated to safer ground. It has pared back risk, reducing exposure to high-yield credit and CLOs, and increased allocations to government bonds and agency securities, assets which, rather remarkably, now yield well above swap curves. This is not a retreat born of fear, but one grounded in prudence, reminiscent of Keynes’s old dictum: when the facts change, one must change one’s mind.

Quin remains particularly constructive on Australian bonds, though even there, exposures have been modestly trimmed in favour of diversification into UK and US sovereign debt. One senses a return to classical allocation principles, geographic diversification, duration balance and counter-cyclical posture, as the speculative froth elsewhere in markets becomes impossible to ignore.

To its credit, Bentham’s conservative turn has not cost it returns. The firm reports strong performance across portfolios, with bond market rallies captured and in some instances exceeded.

In sum, Quin’s outlook is neither apocalyptic nor sanguine. It is careful, reflective, and informed by the hard lessons of market history. Tariffs, AI and policy fragmentation are not just passing irritants; they are structural variables in a new global regime. Investors who fail to grasp this shift may find themselves misallocated, if not wholly exposed. One is reminded of a remark by the late Sir John Templeton: “The four most dangerous words in investing are, ‘this time it’s different.’”

Perhaps it is different. But perhaps, too, the fundamental laws of capital, scarcity, risk, and return, have not changed at all. Only their expression has. The prudent investor, like Bentham, would do well to remain watchful, modest, and unhurried. There is time yet to avoid the reckoning.

Nicholas Way

Nicholas Way is a contributing editor at The Inside Adviser and has covered business, retirement, politics, human resources and personal investment over a 50-year career.