Stock Talk - Citrini Research: The Talk of Wall Street. Stock Talk Update, Friday February 27, 2026

Starting point is 00:00:00 Okay, investors, every few years, Wall Street writes a research piece so provocative that everyone has to read it. This week, we got such a piece from James Van Galen, as a trainee research, and a lot of Shaw. Here's a link to their very well-written. It's a thought piece. It's on substack. Click on the link below. They're questioned investors. AI continues exceeding expectations. Could that be very, very bearish for the overall economy? First off, this is not Oak Harbust's current view of the AI world and how it progresses through the economy. this article has gotten so much attention with institutional investors, we wanted to share it with our followers. Please remember, Glein explicitly says that this was a scenario analysis and not their prediction of where abundant AI compute could lead the U.S. economy into a spiral of,

Starting point is 00:00:46 accelerated white-collar unemployment, higher mortgage debt default rates, increased consumer credit and credit card defaults, political pressures in D.C. to fix the problems, and potentially a recession in 2007. in 2008. So with trading desks in New York, thinly staffed for the Blizzard, computers took over, and markets reacted immediately Monday morning. Several stocks mentioned in this piece dropped more than 10% Monday morning. Let's walk through some of the piece. The whole thing is worth a read, if only to get you thinking. So their core thesis is abundant intelligence from AI. The piece starts out in late 2006 when everything looks perfect. They've got the S&P 500 near 8,000.

Starting point is 00:01:28 The NASDAQ near 30,000 unemployment is low and AI investment accelerating throughout the year. So before I move on, investors, think of this. The S&P 500 at 8,000 is 16% higher than where we are right now. And the NASDAQ at 30,000 is over 31% higher. But guess what? This part of the author's piece wasn't focused on. When I saw even mentioned it, they all jumped right to the due two and a half years out, as if that were the forecast set in sum.

Starting point is 00:02:00 So the core of the piece projects out two and a half years and imagines the economy in June in 2020. Out there, they have in a scenario where unemployment hits 10.2%. The SP 500 is down minus 38% from its October, 2006 highs. As frequent followers of Oak Harvest content, no, this is a recessionary move down in stocks. Early layoffs in the second half of 2006 supposedly boosted earnings. and stocks rallied. Productivity surge like it did during the 1990s. However, wage growth peaked and then collapsed the next year in 2007. The owner of compute benefited labor did not. The authors

Starting point is 00:02:41 called this ghost GDP. Output appears in national data but doesn't circulate through households. AI exceeded expectations. The financial markets rewarded AI. U.S. economy didn't. So the authors postulated a negative feedback loop and laboral spiral. AI improves, company cuts employees and workers, workers spend less. Since we're over a 70% consumer economy here in the United States, margins compress, companies then invest more in AI to protect margins and lay off more people and workers. AI improves again. This matter becomes a white-collar incomes as an anchor of $13 trillion U.S. housing and mortgage market. It all began with software. Looking back in time, this was supposedly started in late 2025 as agentic coding tools took a step function leap with software developers like cloud code replicating software as service models in weeks.

Starting point is 00:03:37 Software companies face pricing pressure after hiring thousands of developers post-COVID reopening back in 2020. When their customers initially cut staff, they canceled software seats. AI-driven efficiency at one company reduced revenue and another. So what happens out in the future when friction goes to zero, they postulated. Well, compute growing exponentially by early 2007, AI agents could optimize consumer decisions automatically, 24 hours a day, seven days a week, 365 days a year. A median American consumes about 400,000 tokens per day currently. By then, they postulated it would grow 10fold in one year.

Starting point is 00:04:20 So those AI computer agents could shop for. insurance. They could cancel subscriptions. They could price match everyday purchases. They could squash commissions-based industries or route transactions almost for free. Computers and machines don't have brand loyalty. They just compute, optimize, and transact. Satrini hypothesized that in this business model built when friction compresses. Investors remember Jeff Bezos' famous quote from about 30 years ago, his quote, your margin is our sales. Imagine that exponentially. So by 2007, white-colored job openings were collapsing while white-collar workers represent about 50% of employment. Investors, they drive about 75% of discretionary spending here in the United States.

Starting point is 00:05:08 Remember that in the U.S., the top 10% of earnings account for over 50% of all U.S. consumption. That's that K-shaped economy we've discussed in the past. So if white-color workers lose jobs, get to find replacement jobs, have to take a 50% pay cut economic spending falls disproportionately. They postulated in this scenario by mid-2020 a recession with two negative consecutive GDP prints hits the economy. During so, credit exposure. Citrini goes into great discussion on private markets that have experienced massive growth in the last 10 years, as well as the potential for mortgage default contagion. Delinquencies would rise in high-tech zip codes because of structural income impairment.

Starting point is 00:05:53 prime mortgages are less serviceable due to high white income job losses that would be bad the policy constraints in DC would be high because of layoffs and automation labor share of GDP would fall from 56% to 46% and only four years remember this is all just a scenario worst case that they write about not their forecast but you know what robots don't pay taxes and they work 24 seven days a week 365 days a year without benefits. And under that scenario, payroll taxes would decline, income tax rates would decline, productivity gains would accrue to capital, not labor or workers, so the federal government would have to step in while collecting less revenue.

Starting point is 00:06:37 They call this the intelligence premium. Prior to AI, this massive compute boom, human intelligence was scarce. Now, with all this compute intelligence, machine intelligence has been substituted for basic human intelligence. Repricing the abundance of brain power is not collapsing, but it is a change and it could be painful. The key reminder, but the funny thing is, this was written this year in February, 2006, with the S&P 500, only about 2% from all-time highs and a projection of 8,000 on the S&P 500 in the next 6 to 9 months that no one seemed to pay attention to. Investors, the negative feedback loop that Sotrini postulates haven't begun. In fact, interview done, Van Gogh. Galen two days later, said Citrini, historically, has been criticized for being too bullish. In fact, he said, and I quote, we're definitely not allocated for a financial crisis.

Starting point is 00:07:31 So investors, if you read this, just remember, most of these scenarios won't likely happen, but AI will continue to accelerate and change many businesses over the next three to five years, maybe even less. As investors, we still have time to access our financial plans, assess them, and assess our investment portfolios and make changes if we need to over the coming months or coming quarters. So investors, for now, 2006 has been a sloppy, choppy mess for the S&P 500. We are navigating slower growth, factor rotations, and higher base rate volatilities in the market.

Starting point is 00:08:05 Whole harvest guidance remains consistent. Stay discipline, stay diversified, stay focused on long-term objectives. We continue monitoring these structural risks and positioning portfolios accordingly. Investors, whether your priority is growth, income, or a combination of both, our team is here to help you playing for your financial future, no matter where you're at in your career or in your retirement journey. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only.

Starting point is 00:08:34 It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. investing involves the risk of loss and past performance is not indicative of future results

Stock Talk - Citrini Research: The Talk of Wall Street. Stock Talk Update, Friday February 27, 2026

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