Category: Stocks

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When corners of the financial markets that are typically considered mundane draw outsize attention on Wall Street, it is always cause for investor concern.

That was the case last week when surging overnight borrowing costs laid bare cracks in a key Wall Street funding mechanism, which left many scrambling for cash and the New York Federal Reserve responding by injecting hundreds of billions of dollars into the financial system to restore calm.

In other words, this was no ordinary week in financial markets and more than a few investors were seeing shades of the 2008 financial crisis, reigniting decade-old nightmares of a systemic funding chaos.

‘There’s really nothing more important than the functioning and transparency of financing markets.’

Hugh Nickola, head of fixed income at Gentrust

“My initial reaction was fear,” said Hugh Nickola, head of fixed income at Gentrust, and a former head of proprietary trading of global rates at JP Morgan. “There’s really nothing more important than the functioning and transparency of financing markets.”

The sudden spotlight on the short-term “repo” market easily overshadowed Wednesday’s highly anticipated Fed decision on monetary policy, where the U.S. central bank cut federal-funds rates by a quarter-of-a-percentage point to a 1.75%-2% range in a divided 7-3 vote.

Rates on short-term funds, that are typically anchored to fed-funds rates, briefly became unhinged, spiking to nearly 10% on Tuesday.

See: Here are 5 things to know about the recent repo market operations

Nickola said his worries only receded after the Fed started to intervene with a series of short-term funding operations that kicked off Tuesday and totaled nearly $300 billion for the week. On Friday, the central bank tightened its grip on rates ahead of the end of the quarter, when liquidity can become scarce, by extending its daily borrowing facilities through at least October 10, and unveiling three, 14-day term operations.

The short-term rate spike also raised concerns about the potential for the funding tumult to shake consumer confidence, at a time when financial markets often are viewed as a barometer of the economy’s vitality.

Bruce Richards, CEO of Marathon Asset Management said the biggest risk to the U.S. economy was a weakening of consumer sentiment, in remarks Thursday at the CNBC Institutional Investor Delivering Alpha conference.

Richards said that while U.S. households are doing well, it would become “very worrisome” if consumer confidence starts to fade, since two-thirds of the U.S. economy is consumer-driven.

“Right now, it is corporate confidence” that is weakening, he said.

Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott, also sees reason to fret due to continuing Wall Street liquidity woes that could seep into the real economy.

He pointed to three factors that still leave the money-market plumbing fragile: heavy U.S. Treasury borrowing to fund the widening fiscal deficit, a flat-to-inverted yield curve, and a regulatory environment that limits the ability of banks to absorb government debt.

LeBas thinks overnight funding operations alone won’t be enough to keep credit flowing over the longer run.

Wall Street primary dealers are tasked with helping to execute financial operations for the U.S. Treasury and the Fed and LeBas cautioned that they could run out of cash around the first quarter of next year, unless the Fed makes a series of aggressive cuts to short-term rates or launches a more permanent effort to expand its balance sheet, known on Wall Street as quantitative easing or bond buying.

“I’m not here to tell the Fed what to do,” LeBas said, adding that when banks run out of balance sheet it can lead to sales of assets like corporate debt or force banks to pull back from lending to businesses and individuals. That’s exactly what the Fed wants to avoid because a retrenchment in lending can have the effect of amplifying economic downturns.

“If the Fed does not act with rate cuts or QE, that’s the most obvious way this problem affects the real economy,” he said.

The overnight repurchasing rate, or the amount banks and hedge funds pay to borrow to finance their trading operations for a single day, peaked earlier in the week at three to four times their usual levels of around 2% (see chart below).

Capital Economics

The spike in borrowing costs saw investors clamoring for intervention to ease strains in funding markets. Usually, that aid comes from the New York Fed, which, because of its presence in the hub of the financial capital of the U.S., is tasked with supervising the banking system and helping to ensure financial stability among the nation’s largest institutions.

“That ability of the system to move money around and redistribute — it didn’t work the way we’ve seen in the past,” acknowledged New York Fed President John Williams in an interview on Friday, the Wall Street Journal reported.

“They walked into a situation this week where there was not enough liquidity in the system,” said Robert Tipp, chief investment strategist at PGIM Fixed Income, referring to perceptions that the Fed was slow to anticipate and react to the spike in overnight borrowing costs that took hold on Monday and accelerated the following day. “They completely were out of practice on how to perform an open market operation.” In fact, the Fed’s first intervention in short-term markets on Tuesday was aborted and had to be restarted, stoking further worries about Wall Street’s systems and process among market participants.

The Fed’s missteps come at a uniquely sensitive time for domestic and global markets, and raised serious questions about whether the blowout in short-term rates represented a signal of something more ominous crystallizing in financial markets. More than a decade ago, a seizing up of short-term markets were the hallmark of a financial crisis that saw historic Wall Street institutions Lehman Brothers and Bear Stearns brought to their knees.

So, investors might be forgiven for fearing the worst as funding troubles cropped up last week.

Benchmark U.S. stock indexes have struggled to exceed all-time highs this year because fears about anemic international economic growth and an unsettling conflict between the U.S. and China over import duties has investors on edge.

On top of that, a menacing phenomenon in Treasury markets, known as an inverted yield curve, has investors worrying that a recession might be looming. Companies in the S&P 500 stock index are already in the throes of an earnings recession, a period of successive declines in earnings per share, marking the first such pullback in three years. In aggregate, companies comprising the large-cap index reported an average earnings decline of 0.35% in the second quarter, after an EPS decline of 0.29% in the first quarter.

Check out: We are in an earnings recession, and it is expected to get worse

That backdrop has made market participants particularly sensitive to news on the U.S. – China international trade dispute and hiccups by the Fed, an institution seen as one of the last lines of defense when the markets go haywire, are even more unnerving.

As the WSJ notes, the Fed hasn’t had to intervene in money markets in the past decade, up until last week, because the U.S. central bank “flooded the financial system with reserves. It did this by buying hundreds of billions of dollars of long-term securities to spur growth after cutting interest rates to nearly zero” after the 2008 financial crisis.

But despite the Fed’s stumbles, Tipp said the market still “managed to roll right through it,” even after the dramatic spike in oil prices following last weekend’s attack on Saudi production facilities.

“While this isn’t a feel-good economy, the fact of the matter is that the market looks pretty resilient,” he told MarketWatch.

For now, George Boyan, president of Leumi Investment Services, said the New York Fed’s rescue measures have been effective. He pointed to the way the effective fed-funds rate inched down to 1.90% on Thursday, or well below the upper bound of the Fed’s preferred target.

In the last few days, the fed-funds rate has either bumped at the range’s ceiling and even briefly above it after the squeeze in repo markets spilled over into the fed-funds rates, pushing the benchmark interest rates higher.

Others saw similarities to the 1980s when the Fed would carry out repo operations a hundred to two hundred times a year, said Dave Leduc, chief investment officer of Mellon’s active fixed-income arm.

“People are reacting to this as a strange thing, but they forget [the Fed’s repo operations] used to happen a lot,” said Leduc.

All that said, the S&P 500 SPX, -0.49%, the Dow Jones Industrial Average DJIA, -0.59%  and the Nasdaq Composite Index COMP, -0.80% are not far from all-time highs and corporate earnings are expected to stage a turnaround. Analysts expect things to turn positive again in the upcoming holiday period, with expectations for 1.3% EPS growth overall in the calendar year.

Next week, surveys may reveal to the extent to which consumers have been impacted by market volatility and slowing economic growth. A reading of U.S. consumer confidence in September is due on Tuesday and a reading of sentiment is due on Friday, with a host of other reports and Fed speakers on deck.

However, Wall Street may be the most keenly attuned to the internal workings of the arcane short-term funding in the hope that it resumes being mundane.

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Happy Friday, MarketWatchers. Here’s some of the week’s best personal-finance content to dig into this weekend.

Personal Finance
This 24-year-old has raised more than $600,000 for charity — by asking for beer money on national TV

Anheuser-Busch and Venmo are matching donations to the University of Iowa children’s hospital.

Why Jennifer Aniston declined my ‘Friends’ request

‘Friends’ celebrates its 25th anniversary. The actress who played Rachel Green was way ahead of her time.

2 reasons beyond prices that this merger of textbook publishers should worry every college student

If the proposed merger between Cengage and McGraw-Hill Education goes through, just two publishers would dominate the market, both for print and digital textbooks.

The best (and worst) tippers in America

A new study says some people are Grinches when it comes to adding that 20%. Do you fit that bill?

A teenager stole Amy Livingston’s handbag — she will never carry these items in her purse again

He looked young and he looked scared.’

This long and silky tequila was 99,000 hours in the making

A Mexican distillery touts the time and effort that goes into producing a high-end spirit.

My sister-in-law is a greedy, gold-digging, woman — it floored me that men could be so stupid

This letter writer is embarking on an around-the-world trip with her husband and is afraid that her relative will insinuate herself into her daughter’s life while she’s gone.

They met at a Google incubator — now they’re trying to destroy the smartphone

The new Light Phone may capitalize on the backlash against smartphone addiction.

Online courses could help make college affordable, but this $1 billion industry is standing in the way

In hiring companies known as online program managers, universities give up what is often a large share of revenues.

More Americans are worried about a recession now than right before the last one

People are evenly split one whether a recession will hit in the next 12 months.

Elsewhere on MarketWatch
Trump says he doesn’t need China deal before election and unveils Iran central bank sanctions

President Donald Trump on Friday said he didn’t need a trade deal with China before the 2020 elections, as he rejected a partial agreement and said “we have to do it right.”

GM can’t afford to give those striking workers what they want

Liberals cry corporate greed, but GM’s cash is going toward the biggest liberal goal of all.

Gun violence costs the U.S. more than $200 billion each year and 5 Trump states are hardest hit, report says

Gun violence is costing the U.S. economy $229 billion each year, and five southern states that President Donald Trump won in the 2016 election are hit hardest financially by such violence.

‘The wrong Amazon is burning’: These are some of the most powerful global climate strike signs

The international call for climate action is expected to be the largest such demonstration ever.

This post was originally published on this site

This week, MarketWatch readers worried about the implications of the Federal Reserve’s rate cut — and whether they should upgrade to the new iPhone.

The decision on Apple’s latest offering might be the easiest, although certainly as divisive. Columnist Jurica Dujmovic dismisses the iPhone 11 as overpriced and behind the times. He stacks it up against offerings from Samsung and others. Read about his findings here. Readers, of course, had their own ideas, so join the conversation.

Here are more articles you shouldn’t miss.

What to do about the Fed

Fed officials are divided about the economic outlook, so what does that mean for your finances?

Rethink that. Jacob Passy offers up suggestions of what not to do in the wake of the Federal Reserve’s interest-rate cut this week.

Meanwhile, Fed watchers are no less divided than the policy makers. Peter Morici takes the Fed and European Central Bank to task for not learning from their mistakes, and Barry Bannister, chief equity strategist at Stifel, says the Fed remains too tightfisted.

Hidden tech gems

Michael Brush shares five out-of-the-way technology companies, including one that may benefit greatly as China invests in specialized microchip technology that it has traditionally relied on the U.S. to provide.

Don’t forget the midcaps

Financial media coverage of stocks, funds and ETFs nearly always focuses on either the largest companies or the smallest. Amy Zhang of Alger and Crit Thomas of Touchstone Investments make the case for midcap stocks as the best performers over the long term.

Also: An analyst calls for a 50% drop in Roku. ROKU, -18.62%  

The big down payment

I remember thinking during my college years that I might never be able to buy a home because it would be so difficult to scrape together money for the down payment while also paying rent. If anything, the situation has become much more difficult. Here’s how millennials are getting it done and what the consequences might be.

Dealing with the gold-digging sister-in-law

MarketWatch’s Moneyist weighs in on this latest episode of relatives behaving badly. So do MarketWatch readers:

“Setting their money up in a trust fund for their daughter was the best advice. No matter what happens, a slow payout will give her time to learn not to give her inheritance away.”

Victoria Kugler
‘Retirement’ doesn’t mean quitting

Mitch Tuchman points out how dangerous the first year of retirement can be to one’s health, argues that target ages for ending a career are outdated and describes a more balanced approach to financial independence.

Maria Bartiromo weighs in on her own retirement plans in an interview with Allesandra Malito.

Retiring abroad … in Costa Rica

Martin Farber was living in a Chicago suburb and never expected to retire in Costa Rica. First impressions, however, turned out to be misleading.

The risk of living together in your golden years

Many more people over the age of 50 choose to live together rather than get married. But the laws favored married couples. Brad Wiewel, an estate planning lawyer, explains what to do so that it’s much easier for partners to help each other.

Terry Bradshaw’s $900,000 real estate loss

“I lost a lot, but it could have been a lot worse,” the former Steelers quarterback tells Weston Blasi.

So now he flips $5 million airplanes.

Want more from MarketWatch? Check out our Personal Finance Daily or other newsletters, and get the latest news, personal finance and investing advice.

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Lots of people would like to create their own pension but don’t have the cash in their nonretirement accounts to buy an annuity, which often requires a large lump-sum premium to provide a substantial monthly payout later on.

That’s where qualified longevity annuity contracts (QLACs) come in. They let you tap into your tax-deferred retirement accounts, where people usually have most of their savings, to make that initial premium payment. And they allow you to shelter that money from taxes until you start getting your monthly payouts, usually in your 80s. Call it two benefits for the price of one.

QLACs are fairly new products—in 2014 the Internal Revenue Service approved their purchase with pretax money from retirement accounts—but they haven’t exactly taken off. Last year all deferred income annuities, of which QLACs are one type, accounted for $2.3 billion in sales, a mere 1% of total annuity sales, according to Limra. That’s partly because people are reluctant to shell out money now for a payoff later and also because QLACs are sold by insurers while people’s retirement money is managed by investment companies.

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The stock market today is almost exactly where it stood one year ago.

But don’t be upset that it didn’t rise. By being flat over the last year, the market has provided retirees and soon-to-be retirees with a good illustration of how their equity holdings might perform during markets that go nowhere. And that’s important, because flat markets are surprisingly common—far more so, in fact, than you probably imagine.

The good news is that a market that goes nowhere need not mean your portfolio will also be flat. That’s the unmistakable message of the trailing 12-month returns of the investment newsletters monitored by my company that audits investment performance. For example, the best performing equity model portfolio from any of these newsletters produced a 12-month return of 17.8%—a return that retirees would be happy with in any year, even a powerful bull market year.

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In a bygone era, employees followed a fairly standard path to retirement using a combination of Social Security benefits and company pension plans.

Over time, pensions gave way to 401(k)s and IRAs — all vehicles for long-term wealth building that are essentially untouchable until your golden years.

Today, a type of equity compensation called restricted stock units (RSUs) offers a new building block toward retirement, while also opening doors for investments, experiences and major purchases throughout the course of your life.

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This was seven minutes in hell.

Passengers aboard Delta DAL, -0.09%  flight 2353 shared terrifying firsthand accounts of their plane plummeting almost 30,000 feet in about seven minutes on Wednesday.

The midair emergency came halfway through the trip from Atlanta to Fort Lauderdale, Fla., when the pilots had to make a “controlled descent” from 39,000 feet to 10,000 feet following a “cabin pressurization irregularity,” Delta representative Drake Castaneda told the New York Post. The plane was then diverted to Tampa, Fla., “out of an abundance of caution” and landed without further incident.

The sudden descent didn’t feel controlled to the frightened fliers, however. Passenger Harris DeWoskin told Florida ABC affiliate WFTS that “chaos” ensued when the plane dropped in the air.

“Initially, it was sort of a panic; there wasn’t really any forewarning,” he said. “The oxygen masks dropped down, then one of the flight attendants, I believe, grabbed the intercom and was just repeatedly over the intercom stating ‘do not panic, do not panic,’ but, obviously, it’s a hectic moment. So, the passengers around me, a lot of people were kind of hyperventilating, breathing really hard.”

He added that, “I immediately reached out to my girlfriend, my family and let them know some scary stuff is going on right now on the plane.”

Related: If turbulence freaks you out, do not watch this terrifying clip

Others shared the white-knuckle ride on Twitter TWTR, +0.40%  once they had landed safely.

“I texted my wife and dad I loved them. Told my mom I love her and hugged my son,” tweeted user @BrutusOsceola in a post that included a picture of him cradling his young boy.

He also said, “God Bless the Captain and crew,” for landing everyone safely in Tampa.

Other passengers shared video and images of the oxygen masks deploying, and the plane appearing to shake.

Delta released the following statement to WFTS: “We apologize to our customers on flight 2353 from Atlanta to Fort Lauderdale, which diverted to Tampa out of an abundance of caution and landed without incident following a cabin pressurization irregularity en route.” The plane is still grounded at Tampa International Airport, where maintenance technicians are examining it.

Passenger DeWoskin added, “Life is fragile. There was a scary 60 to 90 seconds where we really didn’t know what was going on. You are 15,000 feet in the air; it’s a scary moment for sure.”

In July, an ALK Airlines flight between Kosovo and France made headlines after a video of turbulence strong enough to snap seatbelts and send beverage carts flying went viral.

A British Airways flight was also filmed swaying violently side-to-side in February, which one passenger described as a “near-death experience,” although the airline said “at no point was there a risk to safety.”

In investing, it’s better to think big-picture

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iStockphoto
Coke or Pepsi? Consumer staples or consumer discretionary? Stocks or bonds?

“Here’s the one stock you should buy now for the best returns!”

“Now that you’ve finally figured out what the “Great Rotation” is, here’s how to play it with smart-beta multi-factor ETFs.”

“Don’t forget: Always buy low and sell high.”

The amount of advice you get constantly about investing can be overwhelming. It can even be contradictory, especially at unsettled moments like the current one. We’re either in the late innings of the economic cycle with a bit more room to run, or we’re at that point at the bottom of the ninth when everyone makes for the exits to avoid traffic.

That’s why it might be more useful than ever to think big. Instead of this stock or that trade, investors should take a holistic view of their investments, experts say. That approach, known as asset allocation, simply means finding the right balance between different asset classes, like stocks, bonds, and cash, and ignoring the daily tick-tock of market gyrations. And if that sounds too simplistic, here’s a secret: professionals do it that way, too.

Academic studies, including the granddaddy of “modern portfolio theory” by Harry Markowitz have shown that asset allocation, not picking specific winners and losers, is 90% of the game, said Richard Daskin, who manages money for clients through his firm, RSD Associates. What’s more, he said, “it’s much more efficient. It allows a money manager to be more focused on your goals because he isn’t worried about, is Pepsi PEP, -0.38%   better than Coke KO, -0.08%  ?”

Anora Gaudiano, a senior advisor associate at New York-based Sontag Advisory, notes that constructing what are sometimes called “model portfolios” has become so common that it’s nearly “commoditized.”

Sontag advisors take a fairly common approach with clients, deciding together on what that household’s risk profile and investment objective are. “Say we decide that client is moderate-aggressive,” Gaudiano said. “That would mean, say, 60% stocks, 40% bonds.”

“Commoditized” doesn’t mean “cookie-cutter,” though. Some clients may have unique situations, like a heavy tax burden that may call for more exposure to municipal bonds, for example – but Sontag keeps its allocations just that high-level: stocks versus bonds.

“When we want to have US stock market exposure, we go to a large-cap index fund,” Gaudiano said. “That’s low-cost and difficult to beat no matter what you do.”

Daskin gets a little more granular, picking sectors – think consumer staples versus consumer discretionary – but no deeper. He also spends a lot of time thinking about risk. Rather than trading a client’s holdings every time the wind shifts, he asks, “is their portfolio diversified and resilient enough for different economic conditions?”

Related: Three fund managers may soon control nearly half of all corporate voting power, researchers warn

The biggest consideration, Daskin said, whether individuals do it themselves or work with an advisor, is having a sense of how risk-averse they are. “Can you stand it if you lose 10%? 20%?” It’s better to ask that question every so often than to rely on old models that say young people should be more risk-averse, and grow more conservative as they age. Younger investors may well need to protect a nest egg if they want to use it for, say, a down payment on a home, Daskin points out.

(Here’s a very basic introduction to how individual investors can think about risk in asset allocation.)

Asset allocation isn’t just the preferred path of financial professionals who work with individuals.

Ned Davis Research is a global macro research firm that also provides financial advisory and asset management services to institutional investors. Will Geisdorf, one of the firm’s senior strategists, explained that the firm uses an old model suggested by the Wall Street Journal for their own in-house portfolio as a “static benchmark,” then adjusts according to economic conditions and other considerations.

The benchmark is 55% in stocks, 35% in bonds, and 10% in cash. But late last year, growing cautious, NDR strategists shifted their allocation to 40% stocks, 50% bonds, and 10% cash. “Thus advising maximum defensive positioning whatever your constraints and risk tolerance, we would view any rallying as an opportunity to lighten up ahead of increasing volatility in 2019,” they wrote.

See also: Why buying and selling a house could soon be as simple as trading stocks

It’s important for individual investors to remember that staying on top of economic, market, and political news enough to make even calls like those, that span the coming nine to 18 months, are time-consuming, Geisdorf said. Most retail investors would do best to “set it and forget it,” and remember that “broad exposure is best,” he added.

In fact, NDR just published a white paper about asset allocation, and noted that “over the last 92 years, the long-term real returns (i.e. net of inflation) for U.S. assets were 7% per year for stocks, and about 2.5% per year for bonds.

“Balanced portfolios (e.g. 60% equity, 35% bond and 5% cash) delivered a real return in the range of 4-5% per annum,” the paper authors said. “Investors could withdraw 4% of their balance each year without reducing the purchasing power of their investments.”

If the argument in favor of a broad, hands-off approach isn’t convincing enough, here’s one last piece of wisdom. Consider what Warren Buffett said of his instructions to the trustee who would manage his own family’s wealth after his death.

“Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund VOO, -0.36%  . (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”

Read: Forget the active vs. passive debate — what matters most is selecting the best portfolio mix

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There are more Americans expecting an economic downturn now than there were just before the start of the Great Recession.

A Gallup poll released Friday painted a gloomy picture: people are becoming increasingly pessimistic about the economy and bracing for a recession.

• 49% of poll participants said a recession will likely arrive in the next 12 months. In October 2007 — two months before the Great Recession began — 40% of poll participants felt the same way.

• For the third straight month, a growing share of Americans said the economy is deteriorating, going from 37% in July to 48% in September. At the same time, fewer people said it’s improving, slipping from 54% to 46%.

• Republicans are rosy and Democrats are downbeat: 21% of Republicans said a recession will likely happen within a year, while 74% of Democrats said a recession is coming in that time. Independents were evenly split.

Gallup noted it conducted the poll from September 3 to 15, as the latest round of Chinese tariffs took effect, but before the latest interest rate cut.

Don’t miss: 3 things NOT to do with your savings now that the Fed has cut interest rates

Consumer perceptions weren’t totally glum. Though 49% of people told Gallup a recession is either fairly likely or very likely, another 50% said a recession isn’t too likely, or not likely at all.

After all, there’s still a record-breaking 10-year bull market and a 3.7% unemployment rate, which is around a 50-year low. Like consumers, market experts are also divided. Some brush off recession talk, but others say a downturn will happen by the end of 2020.

“While some economic indicators remain strong, many economists are sounding the alarm that a recession is coming in the near future. This latest polling finds that not all Americans are taking that warning to heart,” the Gallup poll said Friday.

More from MarketWatch
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Maria Bartiromo has been covering business news for 30 years, and she’s got her eye on the next big wave: artificial intelligence.

The Fox Business News anchor, who recently re-signed with the network for a multiyear deal, is releasing an hour-long investigative documentary about artificial intelligence. The segment, which has been in the works for a year now, includes interviews with chief executive officers of major companies including IBM IBM, +0.23%  and Ford. F, +1.21%. Fox News parent 21st Century FOX, -0.09%  and MarketWatch parent News Corp. NWS, -0.07%  share common ownership.

Artificial intelligence isn’t just making demands to Siri on Apple’s iPhones, AAPL, +0.45%  or telling your Google GOOG, -0.03%  email inbox to identify spam. Eventually, people will be talking about artificial general intelligence, which is machine learning — that is, the computer deciding on its own what is or isn’t relevant to a person’s request based on its past experiences. This technology has the potential to create entirely new jobs, eliminate other ones and also save lives, Bartiromo said, and the key for Americans to succeed in the face of this new technology is to understand where and how it will be implemented.

See: Artificial intelligence is revolutionizing the workplace, but it’s also dominated by men

The documentary will air on Sunday at 8 p.m. EST on Fox News FOX, -0.09%, and is broken into six parts. Bartiromo spoke with MarketWatch about how artificial intelligence will affect future workers and retirement, as well as her own plans.

MarketWatch: What do you see as the biggest impact of artificial intelligence on businesses? Is there a certain sector or facet of the workplace that will be most affected?

Maria Bartiromo: Artificial intelligence is powered by data so any job that involves a lot of data will be impacted first. So let’s say you’re a mortgage broker, or the person who looks at the eligibility of someone to see if they’re going to get a mortgage. You have to go through large sets of data, which a machine can do fast.

I think the industry that will be most impacted, in a good way, is health care. The machine can look at a radiology report, a mammogram, an MRI — it can look at a million eyes and understand which one of those eyes is diseased. Or a million skins and see really simply, easily and quickly what the specifics of that skin is and what the propensity is for it to have cancerous cells. That’s what IBM’s Watson is doing in hospitals — they’re using AI in very big ways to understand routines and what these reports might show. It won’t replace a doctor, but it will just be able to let the doctor do more. When you go to a doctor and you say you have a headache or stomach ache, the first thing the doctor does is eliminate things. That takes time. A computer can do that very quickly. I think it will be lifesaving.

But while it can be lifesaving, it can also be job killing in other industries. I think when you look at those industries, that’s when the worry comes in and really sparks a debate in business about how to unleash artificial intelligence in an ethical way.

Maria Bartiromo

MW: People seem to think AI will replace older workers. What do you think?

Bartiromo: Not necessarily. It is really about a person’s savvy with technology. You can be an older person and be really good at technology, you don’t have to be a young person to understand how technology impacts things. So it’s really about how savvy you are with these changes and how to keep up with this skill set, or you need to be trained. We have seen technology replace jobs our entire careers. We didn’t know what jobs would be available in 1998 with the dot-com boom. I remember covering this with a front-row seat in the 1990s when Amazon AMZN, -0.09%  went public. We didn’t know what the technology meant, that drones might replace delivery people or shopping was going to move online as opposed to brick and mortar. There will be jobs, but the scary thing is we don’t know about them yet. It is not targeted toward older people but it is targeted toward white collar.

Read: How AI is catching people who cheat on their diets, job searches and college work

MW: Will AI impact retirement, and if so, how?

Bartiromo: Work is shifting. I don’t know how many people you know who retire at 65 and say “all right, I’m going to go hit the hammock.” I am certainly not going to do that. People may retire but they just retire from a job they had for 30 years and then they’ll do something else. I am a firm believer of “never retire” and the reason I say that is because you have to constantly keep your mind going and have to constantly challenge your mind because if you don’t use it, you’ll lose it.

MW: What does retirement mean to you? What do you envision retirement even being for yourself?

Bartiromo: I don’t know because I’m nowhere near it. I know in my frame of mind right now, I’m not going to go hit the hammock. I am a curious person. I love work, I love learning new things and I have an open mind to new ideas. So I doubt when I am faced with that prospect that I’m just going to stop working. I’m going to do something to enrich my mind. I have no expectations that when I retire from my job I’m going to rest and relax. It’s just not who I am.

MW: What advice do you have for someone starting to work, especially if there will be more technological advancements in the workplace?

Bartiromo: I would say don’t write this off. Understand what you don’t know and make sure to bone up on technology if you are in an industry that is data-heavy. Make sure you understand that in the future, machines will be able to handle that so arm yourself with the right training to thrive in the profession. It’s really important not to say “I don’t get that,” “I’m lame when it comes to technology” — that’s a cop out and it will hurt you in the future. Make sure to improve on the skills you need regarding technology and make sure you know the systems.

MW: What would you say are some of the biggest misconceptions of AI in the workplace?

Bartiromo: One misconception is that you have to be afraid of it. You have people like Elon Musk (the chief executive officer of Tesla TSLA, -1.00% ) who say it is dangerous but the reality is it is happening. Technology has always impacted jobs. Don’t be afraid of it, understand it and try to educate yourself. Understand what parts of your routine are vulnerable to being replaced.

Another misconception is that when we talk about AI we are talking about Siri and your phone or the Echo home device. Yeah, that is artificial intelligence, but it is more about machine learning, so when I say “Siri, put on yoga music,” and it learns what yoga music is, that is machine learning. When you talk about artificial general intelligence, where the computer is mimicking the brain to a tee — that could be changing the way you live and work.

The last thing you want to be is the last man standing, not understanding the systems in your workplace.

Maria Bartiromo, Fox News anchor

MW: In your career reporting on business news, how have you seen the emergence of AI reported? How have people been talking about it and how has the perception of AI changed in those years?

Bartiromo: I have been covering business news for 30 years. I have had a front-row seat and seen many cycles and many different innovations. When I first got into business in 1989 at CNN, we were in the middle of the individual investor revolution, where individuals were hungry for information and wanted to arm themselves with information because they thought they could make their own investment decisions. So what happened then — we had a whole industry swarmed and discount brokerage firms like E*Trade, ETFC, +0.71%  Ameritrade (now TD Ameritrade) AMTD, +0.16%  and Schwab SCHW, +0.86%  of course thrived in that. Information was people’s currently and that was the power for them to get ahead in their lives.

Also see: The rise of artificial intelligence comes with rising needs for power

From there, we saw the cycle and euphoria of the dot-com boom, so people were investing in things with a .com at the end of it because why? I don’t know why. There were no revenue or earnings but the stock was trading at an enormous valuation. It was just mania where we thought we were on the doorstep of a new revolution.

Back then, a lot of companies said they didn’t have a dot-com site and they didn’t need to compete with Amazon. We know now you did need to compete with Amazon because if you weren’t online, you took a back seat. We are seeing companies look at AI and start adopting it slowly. We will see companies adopt it in a huge way because they’re going to realize they have to do this to be competitive. The first adopters will be enterprise, so companies, not the consumer, and it will be in your jobs.

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