Sharpening the Pins: The AI Bubble, Debt Insurance, and Midterm Paralysis Has the AI bubble burst? Well, last week the pins were certainly being sharpened. In fact, since August, stock markets have been largely flat. Even when a new high was made, it was not followed up by further gains. As markets stay flat without establishing new upward momentum, the risk of a broader pullback increases—especially with inflation and affordability acting as major issues for...
In listening to a podcast this week, I heard an economist reiterate common wisdom about Presidents: "They have little to no control of the domestic economy, either making it better or worse." She then amended that statement with a critical distinction: there is not much Presidents can do to make the economy better, but they can easily make it worse. We are living witnesses to this change in common wisdom. Discretionary executive decisions have rattled...
Increasing debt, assuming increasing revenue, is dangerous. Right now, it appears markets are deeply concerned about the massive growth in AI infrastructure being funded by increasing debt. How high can this house of cards rise before there are real consequences for valuations—especially when the risk-free rate of return for 10-year Treasuries is hovering over 5%? Underneath the AI investment explosion, there are serious reasons for concern. In addition to mounting corporate debt, with interest rates...
Here we go again—bad news for the economy is good news for the stock market. At the top of the list of concerns for equity investors has been the threat of further interest rate increases by the Federal Reserve, building on last month’s quarter-point hike. As recent inflation numbers came in hot, the odds of another Fed rate increase rose to 70% before the end of the year. However, with the latest employment report showing...
If you don't like the AI trade, just like the weather, wait a day. Sentiment across Wall Street flipped dramatically this week as the Magnificent 7 roared back to life, reclaiming market leadership after a brief period of ceding ground to value and small-cap sectors. Yet beneath these stock market fireworks sits a stark economic reality: the economy continues to work exceptionally well for the top 10% of Americans, while everyone else thinks the economy...
This week, President Trump promised $5,000 checks for each adult American. This proposed "Trump Dividend" would amount to roughly $1.2 trillion—a sum greater than the entire annual U.S. defense budget. Delivering on such a promise would require direct congressional approval and is already drawing strong bipartisan pushback. The announcement occurred during a speech where Trump condemned Democrats as socialists and communists, serving as a clear effort to rally voters ahead of the midterms. However, our...
James Carville, Bond Market Intimidation, and the 4% Cash Strategy Political strategist James Carville famously said: "I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody." Right now, everyone is talking about the bond market. The recent increase in interest rates reminds me...
The bond market took control this week as the 30-year Treasury yield hit highs last reached during the Great Recession. The sell-off—as interest rates go higher, the fair market value of bonds declines—caused the stock market to have its second losing week in a row, which has not happened often this year. However, the fact that it did not cause a larger decline in the stock market was notable. Nevertheless, with interest rates heading higher...
While the top 10% of Americans continue to hum along, the broader economic data is showing a noticeable cooling trend. The U.S. economy printed a second-quarter GDP growth rate of 1.5%—a clear deceleration from last quarter that reflects the ongoing drag of elevated interest rates and the lingering fallout from the conflict in Iran. Yet, if you look at Wall Street recently, you would hardly know the broader economy slowed down. Following an initial sell-off...
Animal Spirits, Big Tech Whiplash, and the $700 Billion AI Monetization Gap While the top 10% of Americans continue to hum along, the broader economic data is showing a noticeable cooling trend. The U.S. economy printed a second-quarter GDP growth rate of 1.5%—a clear deceleration from last quarter that reflects the ongoing drag of elevated interest rates and the lingering fallout from the conflict in Iran. Yet, if you looked at Wall Street today, you...
As we close out the month of July today, we find ourselves navigating what many on Wall Street are calling "Liberation Day 2." We are suddenly looking at a landscape with tariffs everywhere—a new wave of sweeping protectionist measures swiftly implemented to replace those recently struck down by the Supreme Court. As we march steadily into the second half of the year with mid-term elections on the horizon, the macroeconomic question is obvious: how could...
Aren't you feeling just a bit better now that headline inflation numbers dropped from a staggering 4.2% in May down to 3.5% in June? On paper, it looks like a clear victory. But if you think the macroeconomic landscape is smoothing out, you might want to look closer at the global forces driving these numbers. Just weeks ago, the brief Memorandum of Understanding with Iran supposedly opened up the critical Strait of Hormuz, sending the...