The Compound and Friends - AI Optimism and Macro Skepticism With Dan Ives & Neil Dutta

Episode Date: December 17, 2025

On this TCAF Tuesday, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ is joined by Dan Ives and Neil Dutta to talk about AI, Tesla, the Fed, chances of market turmoil in 2026, and much more! This episode is brought to you by VanEck. Learn more about the VanEck Semiconductor ETF: http://vaneck.com/SMHCompound Sign up for ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Compound Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and never miss out! Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello and welcome to another episode of What Are Your Thoughts? My name is Michael Battenick. And today I am joined by the legend, The Goat, Dan Ives. We get into Tesla's all-time high. Did you know Tesla hit an ultim high? I didn't. Did today? Close on an Altam High. We talk about Oracle, the bubble barometer, as it's being referred to in some circles, not these circles, but in some circles. Then later in the show, I am joined by my friend Neil Dutta. We get into the the state of the economy, the job support today, and finally, who will be the next head of our Federal Reserve? I want to thank Van Neck for sponsoring tonight's show. Hope you enjoy it. It was a good one. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnik, and their castmates are solely their own opinions and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain

positions in the securities discussed in this podcast. All right, let's go. It is Tuesday. today. It's 5 o'clock on the East Coast. What's up, everybody? How we doing? I am very excited today. Have two special guests that are going to be joining us. Josh is down south with our crew in New Orleans. So I'm holding down to Ford tonight. We have Dan Ives. Great timing. We are going to be talking about Tesla. Tesla is making a new all-time high. And Dan's bullish. So we're going to talk about his bulk case for Tesla, where they go with autonomous and robotics and all that sort of good stuff. We'll talk SpaceX, AI, and the like. And then after I let Dan go, our friend Neil Duda is

going to be joining us talking about the labor market. We got an NFP report today. It's been a minute. I think we skipped the last one. No big deal. Who cares? And we'll talk about the Fed and what's going on there. But first, a word from our sponsors. Today's show is brought to you by Van Eck. We talk about the hypers every week. You know the story. Massive KAPX budgets and the race for AI dominance. But picking the single winner in the semiconductor space is getting harder. That's why you look at the Vanex Semiconductor ETF, ticker SMH.

You know it, SMH. That gives you the entire ecosystem, the names, including Nvidia, TSMC, Broadcom, the company's actually receiving those billions in KAPX. The industry has matured. It's not just cyclical anymore. It's about supply discipline. and pricing power. Instead of betting on just one chip stock to wool them all,

just on the leaders. Check out SMH at vannock.com slash SMH compound. All right, as my oldie on, is Dan Ives here? Let's go. Let's get him in. Dan, Ives, where are you at? Great to be here. Ah, perfect.

I hear you. I was freaking out for a second. And thanks for wearing the shirt. Right? How do we look? You look good no matter what you're wearing, but that shirt, man, looks money. Love it.

We got the back too. That's beautiful. all right dan uh you're looking good today as as you always are the human rainbow stick i want to start here and this is my so this should be the sport this is the ives sport shacket so you'll be able to buy that soon where do people buy your stuff so dan ivesclothing dot com that's the collab that i do with snowmilk you know awesome zana at brooklyn and then this will be uh the sports jacket okay i love it um that might be over my line but the tish the the polo i can Rock the Polo. All right, Dan, I want to start here with this Open AI chart. So I saw Deirdrebosa

post this two or three weeks ago. So we recreated it. I think she pulled that from Morgan Sennyson. So I want to give credit to the chart, because we pulled it from somebody else, but we updated it. So Daniel, chart on please. Come on. Let's go. Chart on. All right. For those listening, we are showing the Open AI exposed stocks versus Google exposed infrastructure basket. And what's in the Open AI basket is Oracle, AMD, Microsoft, and Video Core. We've been SoftBank. And in the Google basket, it's the other names. Google, Broadcom, and I don't know what those other ones are, but whatever.

They're there. So, Dan, my question to you is this. And the red dot is Sam Altman, appeared in the podcast, was a little bit, a little bit cagey. Brad Gerster asked, chart off please. Brad Gerster asked him a question, like, about the funding obligations. and the revenue, and he said, listen, Brad, I'll buy your stock.

I'll find you a buyer. And people were like, that's a little bit weird. And so, boom, correction. So I want to ask you this. The comments obviously changed their narrative. They just did. But when we zoom out and we fast forward and we're looking back, did it change the story?

It does. I mean, like, look, 3% of companies have gone down the AI path in the U.S. today. zero in Europe, zero. You know, if you've met Asia, ex-China less than 1%. Middle East sovereigns just starting. Look, I get how the comments,

the circular financing, the concerns, right, look at Oracle is a good example. But, I mean, Mike, I mean you've talked for years. This is year three of an eight to 10-year buildout. And Open AI is going to play an integral role in terms of that stack getting built out. And I just think when we look at this chart a year from now, that kind of open AI relate,

I believe those are names that I would better get bet for relative to where I see everything. Fraudian slip, you're about say bet against. Look, this is, the reality is people are betting against them, but I think it's the opposite. Because if you look, look, the data center build out today, you have more data centers on the construction and active data centers. Wow. So when you think about the role open AI is going to play, and the role Oracle is going to play, and the role AMD, and obviously, Godfather of AI Jen's in the video. Look, Google's been one of our top pick coming into the year, you know, along obviously with Palantir, Microsoft, and a few others in Nvidia, and go back to the sentiment. So just go back to the sentiment on Google, Jan 1, 2025.

They're going to get broken up. New York State cab drivers barrage on it. AI is going to, you know, it's going to change the whole search model that now celebrated. I'm just trying to give examples of like, we are, you have what, three to four trillion that's going to be spent next two or three years. The narratives change fast. So, all right, so two things can be true. Number one, it is very early to talk about open AI's model and meaning not, not their, not

their LLM. I mean like their business model and say, oh, they're only doing this much revenue. It's like, wait a minute. They don't know what their business model is going to be. This is a very early conversation to look at the numbers and extrapolate anything. Okay, that's true. But it is also true that when you are valued at half a trillion dollars and when Oracle has a commitment from you for five billion, for five years and $300 billion, it is fair to ask, yeah, your business model might be it. But these are astronomical numbers. Where is the money going to come from? What is your business model? Like, those two things can coexist at the same time. So, like, what do you say about that? What I say is, is that

you're in a fourth industrial revolution. You're just going into the buildout today. I mean, you're going to go, like I said, three to four trillion next few years. You actually, if you fast forward, you go out five, seven years, you're talking what, eight, ten trillion dollars being what percentage open AI going to? It's not just from the LOMs. But that's on the build. That's on the build out? Like, what does the revenue model look like? Is open-ed going to start? Is the $200 tier going to be $50 and everybody's going to have access to it? Is it ads? Is it enterprise deals? Like, what is the monetization mechanism? I believe it's all the above. I mean, I think that's why what they're doing on the stack, it's going to be, it's an Amazon model, it's a Google model,

it's a Microsoft model. There's parts of that are almost palanteerish in terms of how they're going after the enterprise and eventually on the consumer. consumer. But open AI is not going to sit there today and say, okay, just put us in the LM category. That's what we're doing. They're viewing this is like, look, we are in the beginning of what's going to be a decade-long buildout. And we're at the centerpiece of that. We're going to make bet. You talk about Oracle, Oracle making a bet on Open AI. And that's the right bet. You want to be associated with Open AI. You do not not want to be associated with them. they're at the centerpiece, but I could go back years and be like, you don't want to be

associated with Poundeer. You don't want to be associated with Google. There were a lot of disputes about Microsoft and what ultimately that Open AI relationship book, I can look where it is today. So my point is, is that I see the deployments, we see the demand, and demands 12 to 1, demand the supply. So to call that a bubble, I just view as that someone 30th for in New York City office building and a spreadsheet call in a bubble, not seeing what demand looks like in a fab in Taiwan. So I know you were traveling the globe. I want to ask you about it. So I think I know the answer to this question. Let's assume that opening I was a publicly traded stock. And let's assume that its stock dropped 40% from 500 billion to 300 billion. I think it's a fair guess. I assume based on

your comments that you would be buying hand over fist or or i i would drop coverage of it if i covered it and i'd buy it in my pa that bullish i mean that but just because it goes back as something like myself that like apple 2008 iPhone's only going to be a one-year cycle given the financial crisis why would anyone go away from a blackberry you know the short-sighted nadella 2014 takes So no way Microsoft's going to be a cloud player, especially he's an internal candidate. Jensen, why are you spending so much on AI, 2021, 2021, you're a gaming company. Remember Facebook monetizing mobile? Can they do it? No, it's a joke.

Netflix, that is ridiculous. Stock down 50%. Why do you actually go away from DVDs at your core? Like, look, all I'm just saying is that my perspective is, it's the first time in 30 years the U.S. is ahead of China when it comes to tech. okay from my whole like my whole there's so many times throughout my career you know I'll sit there be in Taiwan see everything happen 18 hours day China when the Newark airport there's a fist five dung and donuts and you're like man US there's a reason we're 17th of math now first time in 30 years US is ahead of China when it comes to tech because of the godfather

of AI gens and because of open AI because of my because of car and Palantir. So I'm just one, like, there's two more years in this tech bull market. I just, to say it's a bubble is, is so wrong relative to only 3% of companies in the U.S. have even gotten on the AI path. Well, I'm inclined to agree with your taste. I was actually fist pounding this today on, on Microsoft as an example to use like the proxy

for the market that we're in. If you look at Microsoft divided by the S&P on a relative basis, it's gone nowhere since April 2023. The launch of Chatchip D was November 2020. So this was the closest proxy to it. And the stock has gone sideways relative to the market. So, all right. Let's talk about Oracle.

Oracle, there was a headline in Bloomberg, or a big article at Bloomberg. Oracle's $300 billion AI bet has fast become a bubble barometer. By the way, I tried to buy the dip in Oracle. I sold it for a 10% loss the day that earnings reported. I spoke on this last week, such as an update for the listeners. 10% loss, whatever, happens, no harm, not foul. The story here is, it's the debt. So we've got a chart the net debt versus the earnings.

And I want to read you. So for people that are listening, the net debt is, it just skyrocketed. Like obviously, it was way below earnings for basically ever. When vertical, it's now 5X the earnings. And I want to read a quote from the CFO on the earnings call. investors do not like the earring score. Okay. Our full year, this is the CFO or the principal financial officer.

Our full year fiscal year 26 revenue expectation, and this was like their third quarter fiscal, their fiscal years are weird, so it's not the calendar year. Our full year fiscal year 26 revenue expectation of $67 billion remains unchanged. Okay. However, given the added RPO this quarter, which is remaining performance obligated, agents, you could explain that to us, Dan. That can be monetized quickly starting next year. We now expect fiscal 2026 KPEX will be about $15 billion higher than we forecasted after Q1. These are not small numbers. And the market, and I love it. And I think you got to love it too.

Like there was a governor on the market. Like the investors are saying we don't want a bubble. So I love the price. Actually, even though I don't love selling the stock for a loss. I love that people are not acting euphoric about the stock. So let's just forget headlines, what the stock's doing after the quarter. Okay, because I think it's very easy to get caught up sometimes then and it changes, you know, I think it changes the narrative. In terms of RPA, just very simply, like when you think about the deal flow that they've booked in the future that now they have to ultimately get.

done in the future okay so it's deals that they've done and now they have to execute on 69 billion this quarter last quarter was like over 300 billion obviously open AI was associated with it then you go back it was 33 billion 50 if you go back like five six quarters it was two billion now it's like 450 for the next one month there's something crazy i'm just trying to explain yeah you you can't just look So let's just go through some of the math. You're like revenue growth doesn't even look that strong this quarter. Revenue growth's going to go from 17% to 33%.

These are fiscal years to 48%. But the market doesn't believe it. But I'm just saying I understand. But like what I'm telling you is that given all the demand we see and more data centers on the construction and active data centers and what we see on demand for chip turn video, and even META can't get enough so they got to go TPU with Google, I'm telling you that's not just going to happen.

That's probably conservative relative to where I think that's ultimately going to end up for Oracle as well as other tech. So to me, I'll make the bet, even if you put a 20% discount on that and say they're not going to be able to get 20% of that done, they're just not going to have the capacity. The stock's basically telling me,

you here, I'm basically saying 60, 70, 80% of that never happened. Guess what? Like, I'll make that bet any day of the week to buy Oracle here relative to what I view as the stack, their install base, the RPO, and weather position. Oh, and I'm buying it back tomorrow. No, but, but to that point, okay, you're like, well, I'm betting on open AI is bad. That's like me being like, dude, I eat too much Peter Lug. Stake. I have too much Peter Ruger's in the freezer. You buy here's a you go white

castle. I'll go Peter Lugar's in the freezer and I'll bet on and that. And that's my view of Open AI. Okay. Last char for you. Market did not like this one either. Oracle's quarterly free cash flow. I mean, this is gnarly shit. It was negative a lot. Many, many, many, more than $10 billion. Not good. So you think that the market is being short-sighted. The market is not believing that those those remaining performance applications are going to be filled, and the market is wrong. It's become, look, it comes down, like, thing about meta after the quarter, right? After the quarter, like free cash flow goes down, EPS, they ramp up capbacks, negative, right? Everyone took meta stock down.

I want to see Zuck as wartime CEO. It's three billion users. How are you going to monetize the AI revolution? The point is it always comes down to, like, at the time, investors fret, after when the success is showing like, well, so glad they spent when they needed to, right? I mean, it goes back to like, go back to the NVIDIA conference calls in 2022. The question is why you spent? What do you do?

You're a gaming. Did that work out? No, I'm just trying to explain. Like, at the time, it's easy to see that I could care less about free cash over the next quarter. My view is we're in year three of an eight, 10 year buildup. We have a tech bull market next two years. are there going to be things deep seek liberation day like somehow looking at cd s spreads on oracle bonds they will always be different conspiracy or different negative but i always say like the bears

when they're in their caves they can see AI in the spreadsheets and they'll continue to get proven wrong as this plays out in 2006 for the record uh i am with you i do not think that it's a bubble I think that there are obviously always areas to point to where you say, well, that doesn't make sense. Okay, fine. But those examples aside, I think zooming out, I think the spend is real. I think the monetization will come and I think the bears will look wrong. Well, but also just thinking about it, like autonomous is just starting.

So let's get there. Like 20% of cars are going to be autonomous next three to four years. And just like humanoid robots, just. start. Like, it just speaks to my view, like, how early, an eight-year-old today won't need a driver's license when they're 16. So what a wild year for Tesla. Um, close in an all-time high today. Uh, I had no idea, frankly, before I looked at it, that it was on this massive run of the last couple of weeks. So Tesla had a hell of a year. The stock was down 40, chart on, please. The stock was down 45%, like year to date through May. I mean, the stock

The stock got cut in half effectively in a couple of months, really ugly. And then a hell of a turnaround. The stock is now up 19% on the year, again, all-time high. All right. The car business, kind of who cares about it? I mean, obviously, like, that got us here. It's not going to get us there. Nobody's buying the stock today at an all-time high, expecting that the car business

is going to be a great business. So what even drives the stock today? Why is the stock in an all-time high right now? Because it's the autonomous and robotics future is now in the doorstep. That age is here. The AI revolution is now at Tesla. So what does that mean? What that basically means is that when you look at true autonomous, in 2006, we're going to see robotoxies in 30 cities.

We're going to see full-scale production of Cybercad. we're going to see true build out of optimist in terms of human robotics. That's finally here. So every investor that took in a Tesla, yeah, you went through some dark periods this year with brand issues, doge, you know, everything we saw with Muz, deliveries. But MUST got through that. That political, you know, obviously, you know, is in the background. And now wartime CEO, focused and taking Tesla into the AI Revolution Chapman. I don't believe there's a bet.

The two best physical AI plays in the market are Nvidia and Tesla. And now you're going to see that AI valuation come through. The past couple of weeks, Uber stock has been under pressure. I assume that's the autonomous vehicles driving that. Let me ask you this question. Is this a good business? Like, okay, they're going to be in 30 cities. Is it going to be a profitable business?

Or, again, does that not matter? No, I'd argue, given the profitability in what's really a software-driven business from FSD to autonomous, margins, I mean, we think core numbers go up 4x over the next three to four years in terms of EPS earnings, in terms of free cash. Because the view is that a car business is the most cap-X intensive business there is. You're now essentially going into a software-driven technology model that's built through autonomous as well as optimist. The whole business model, the whole margin profile is going to change. Are the cars that are on the road the same cars as like the regular Tesla or are these completely different vehicles?

No, I mean, they're the same one. I mean, obviously, like, it's about the software in there, right? Like, in other words, like, it's about true full self-driving technology. Today, less than 15% of Tesla's subscribed to FSD. We think you actually get over 50%. That's pure software margins. So if somebody, if somebody, like, bought a Tesla a year ago, like, are they going to be able to turn this on with their car or is that not how it's going to work?

No, it's like they're going to be able to turn it in. if they want to put into the network. But then the cybercabs that are going to be built, those are specifically for the Robotoxy service. So let's say that somebody has a Tesla and they're like, this is incredible. I never, I could work while I drive. I could whatever, watch whatever I want to do. Is it like, all right, for $99 a month, you got FSD?

Like, how does it work? Well, it's going to be FSD that you're going to pay. But the biggest thing, too, is that when you think, think about how the network's going to get built out, you're going to be at work. And technically, your Tesla could be picking up rides, getting paid, and then the car returns your driveway. I think that's going to be. I don't, who's going to want that?

You be, I'm just, I'm telling you that when you think about the future and how Tesla's building this, there's two cyber cabs and that's going to be the vast majority. But when you look at FSD and the network effect and what they're building, that's like, they're building it for optionality for anyone that buys a Tesla in the future. All right. Let's throw this next shot up. Tesla earnings expectations. So you're not alone.

Analyst are bullish up until the right through the end of the decade. Do you think that most of this is going to come through the vehicles? How much are the robots going to? Like, from what I see, and I don't know anything, so I'm obviously excited to ask you this, how far away are robots? Like, try off, please, actually being in our house. I'm sure they're in the factories already, but like- I are only 27.

Really? Like, at scale or- Like, not, but I mean, scale we've said 28, 29, but like, we are within the next three to four years, autonomous, humanoid. robots like for real in our house doing what like folding household duties you go remember those are basically human brains right and if you really think about it from a chip perspective but isn't this so much more complicated than driving like there's there's 37,000 household chores like cleaning out like that they're going to be able to do that that's when you

think about like optimist i mean there's some test of bulls that will say optimist is going to be bigger than autonomous. So when you ask why the stocks in an all-time high, it's because the view that Tesla at scale, from a global scale perspective with Musk, is going to, I mean, I could say Tesla could be the biggest AI play period in the market over the coming year,

especially when they also will own XAI and pieces of that. Okay. So that brings us to the last part of this conversation. SpaceX, $800 billion valuation, that's what they're targeting. So part of the bulkcase for Tesla has always been Elon, right? Like he is the engine that drives this car. Is there enough room in the market for another vehicle for Elon devotees to express their enthusiasm?

Like we've got the, is it a trillion and a half, whatever Tesla is, I don't know exactly, And also SpaceX. Like, is SpaceX coming public potentially bearish for Tesla? Is there enough in the market for two mega-cap Elons? Yeah. Well, I think it actually creates more of the halo effect around Musk. I mean, because my view is that what SpaceX obviously is solving a whole other problem, but look, the view also is that Musk's empire eventually is probably going to be a holding structure

where there's SpaceX, Tesla, X-A-I, and everything else. But I don't view this in any way negative. I also think Tesla is going to have a piece of SpaceX. Like Tesla will own a piece of SpaceX and a piece of X-A-I. How? X-A-I, they're going to be able to invest in it from a private perspective. And then when you look at SpaceX, I think Tesla investors would want some exposure to SpaceX. And I believe, you know, through offerings or other K-billers, I believe that they will,

by the end of the next year, Tesla will have an ownership in SpaceX. That's our being. Okay. Last question. Gavin Baker was on Patrick O'Shaughnessy's podcast. He was the only one that said this. I think Elon might have said this, actually. But I was like, huh? Yeah, sure, why not? I'm talking about data centers in outer space. yeah it's happening oh it's i mean i i got you know i talked to many within the industry and that's another one like that's not that's gonna it's a matter of like when scale does the business model work how big like what timing looks like but yeah i don't i view it's a matter of when not if that that will be something that we'll be talking about in the next you know four to five

years all right and that yeah but but but i think it's a great way to close because look you know that'll be the top. This is a great way to close. No, because, look, you talk about all this. And then how could you go back to them being like, I'm just being on, it's a bubble. It's chat, GBT. No, this is the beginning year three of an eight to 10 year buildout. I hope so.

I'm here for it. All right, Dan, you're the best. Thanks for doing this. I appreciate you. Thanks so much. All right, man. Be good. Okay.

The great Dan Ives, everybody. What an absolute legend. I always love talking to him. All right, next, our friend Neil Dutta, welcome him in. Get him in here. Neil, what's up, man? How's it going, Michael? How are you?

Hanging in there. Tonight. What's tonight? Next? We're going to do it, man. We're going to do it. Okay. I think so, too.

So this is a perfect day to have you here. We got some data from the government. It's been a minute, but we heard about the labor market. So how's the economy, Neil? How are we doing? Well, it depends who you talk to. I'm talking to you. You know, I think, look, I still think it's kind of the three buckets, right?

The housing market's in recession. I think the consumer and the labor market's getting worse. But the labor markets appear to be closing in on a recession-like dynamics. And you have in the background this sort of spectacular AI. tech capital spending boom that's going on. So that's still sort of where we are. At the margin, I would say the labor markets are getting worse. And I think that's the big piece of it. Because a big sort of thesis for the growth bulls has been consumer spending, right? Like consumption's been doing well and, you know, but ultimately if unemployment is going to go up,

that means that worker wage growth is going to moderate. And if wages are, moderating, that means that consumers don't have the money to go out and spend. And so if they can't spend, that that sort of undercuts a big thesis that the Bulls have been making. I know that you're a business economist by trade. You're not necessarily a stock market in the weeds observer like your partners are. But I want to ask you this. Maybe like, do you think that the market is an accurate representation of what's actually happened? I'll be specific. If you look at a chart of Capital One Financial and Ally Financial, these are two businesses that are very much levered, not just to the American Express customer,

and that's a great looking chart too. Is the stock market, are these, are investors wrong because these stocks are basically at all their highs? And not, and this can't take stock market as gossip, but you would think if there's, there's really stress in the aggregate that it would show up in these stocks? Yeah, I mean, I think, you know, look, I mean, stock markets, in my view, are a good discounting mechanism, they're not a perfect discounting mechanism, and that would be my only kind of retort to it. I mean, it doesn't, you know, the issue is, is that if that's going to be the anchor, then, you know, there's a risk that, you know, it's sort of the train kind of leaves the station, and that's like, oh, look, now the stocks are down. I mean, it's not that, you know,

my view, frankly, is that the stocks tend to be a better discounting mechanism at the lows, not necessarily at the highs. And in terms of the consumer, just bringing it back to the economic data that I look at, there's never been a business cycle in all of U.S. economic cycles where consumer spending is actually turned down in front of the economic slump.

So in front of an economic recession, consumption never actually declines. Sometimes it doesn't even go down during the recession. So if you look at 2000, one. For example, he actually had expending consumer spending during that period. Yeah. Huh. Because Ben keeps asking the podcast, like, what is going to slow down the consumer from spending? And I know this is sort of circular logic, but it's got to be not just a recession, like a statistical recession. I know the statistical stuff gets wonky. But it has to be like

real fear of them losing their job. Otherwise, they're going to keep spending through it. A hundred percent. I mean, if you go back to, I don't even, I mean, if you look at like the 90s through the GFC, I don't think we had one quarter where consumer spending actually went down. No shit. I mean, that's the, yeah, like a full quarter. Like, I'd have to go back and look, but it's, it's pretty, yeah, I mean, we had a very, very, like, extended period of consumer spending during that time.

We don't stop. All right. So I grabbed your chart from your post, high frequency data heat map. So we're looking at manufacturing and output, employment, housing, housing, and. inflation, and the consumer. This looks like a very mixed picture. What are some of the big takeaways on your end? Well, I mean, the manufacturing sector is clearly sluggish, and I think housing is getting

worse, not better, right? So those are two sort of, that's like the linchpin of the goods producing economy, right? So like everyone's talking about the big AI data center buildout, but if you have less residential construction, I mean, remember, my friend Rick Palacios at John Burns has been talking about how builders are going into the new year. with the most completed unsold inventory since 2010. So if they're sitting on more unsold completed units, what does that mean for employment in the residential construction industry?

It seems to me like they should focus more on unwinding or getting these sort of homes off their books than actually hiring more people to break ground on new homes. So I think builders are in a more precarious spot. And, you know, historically, that's been an important tell on the outlook for the economy. Like, a lot of industries, I think, are kind of downstream from housing. But, yeah, I mean, I would just say that, look, I mean, the risks are clearly building. I mean, here's another thing, Michael, inflation, right?

Oil prices, we know where they are, is collapsed. Home prices are slowing, right? They're contracting in many parts of the country. I mean, if home prices are declining, then, you know, the underlying asset, the cost of renting the underlying asset is also going to go down, right? Like if a home price is going down, it's not like the landlord can come up to you and be like, hey, I'm going to charge you more. And labor cost inflation is slowing, like pretty clearly. I mean, if you look at like quits rates, they're down. The ECI was that number was weak.

Average early earnings are slowing as unemployment's going up. So when you think about like what areas do we think about when we, when we think about sustained inflationary pressure. It's labor, housing, and energy. And wages? Yeah, labor. Yeah. I'm sorry. Right. Those are all, those are all running south. Okay. So, so, so is the Fed, and I'm skipping ahead a bit here, but is there a policy mistake afoot? Yes. I think so. I mean, I've been saying that, You know, I think at the end, to me, the fact that we're debating whether or not they might cut in January is a bit ridiculous, given what I'm just told. Okay. So we'll get to, we'll get to the Fed in a second.

I just want to stick with the report today. So unemployment, try not please. So U.S. payrolls rise in November. Okay. That's good. We had a not so pretty October number. Unemployment rate not reported in October. But okay.

But it's going up to the right. I'm going to assume that this is, has you a bit concerned? Well, so if you go back historically, Michael, and you look at other periods where the unemployment rate has gone up for like three or four months in a row, typically a year later, it's higher than at that time, right? So the unemployment rate is inertial, right? Like once it moves up, it tends to keep moving up. So that's why I'd be concerned about it, right?

Like we were at 4-2, 4-3, 4-4, 4-5, now we're at 4-6. I mean, that's a very unusual circumstance. And then you have to really tell me, like, why is that stop? Like, why does that train stop? For me, it's very challenging to do. We're kind of running on one engine right now with respect to the job market. If you look at the private sector, all of the jobs growth was in the healthcare industry. It's not a particularly cyclical sector.

Everything else was sluggish. I mentioned housing employment coming under pressure. Manufacturing is pointing down. You know, you look at oil prices. Like, do you think it makes sense for oil drillers to be hiring mining workers right now? New multi-year low today and crude. Daniel, let's fill this NFP chart up, please. So, all right, we've got monthly change in NFP by industry,

broken down by education and health services, leading the charge. Next construction, which, I don't know, it's noteworthy, given what you just said, Neil. Professional and business services next. And on the other side, we've got leisure and hospitality, which I find interesting, shedding 12,000 jobs, trade transportation, and utilities. Like what inside the report was most interesting to you? Well, I think that construction piece was interesting because it sort of speaks to this idea that Dan was probably talking about earlier. There's this massive data center buildout that's putting upward pressure on non-residential construction employment. And that's really

where it's coming from. If you look at specialty trade contractors as an example, residential contractors keep going down. But there's been a meaningful offset from a full offset, frankly, from non-residential construction. Now, we'll see if that continues, because we do know that the rate of growth in spending is likely to moderate next year. But that to me is interesting. And I would just say that there's probably more risk to the residential piece of that going forward because, you know, builders are frankly sitting on too many workers relative to what they're what they're doing. I forget the exact number, but let's say this is directionally right. Artificial intelligence spend is responsible for half of GDP growth

this year. Is that sustainable? Like, can those dynamics persist through 2026? I mean, it's really hard to see how it, I mean, I think there's a bit of a debate over how much the number is. I mean, this is sort of like a geeky, wonky kind of econ nerd fest. Like, how much of that are we importing and how much growth would we have in the absence of AI? But, yeah, I don't, I mean, I would just say, no, it's not sustainable to have an economy this imbalanced. I think that's, that's the simplest answer. At some level, like, the AI buildout is probably crowding out residential investment, and to some extent, maybe consumer spending because it's putting some sort of demands on the electrical grid, and that might be pushing up household utility costs,

right? So, yeah, I don't think it's, I don't think it's sustainable. What about the Atlanta now GDP stuff? That is showing under 4%, I think, for the most recent quarter. Is that, you think that's wildly optimistic? Well, I mean, I think the latest number was like for the third quarter, right? I don't know that it's being updated yet. I mean, I have to go back and take a look. But I would just say that the main story before the government shut down was this massive disconnect between GDP, which has been strong, and employment, which has been weak. That historically reconciles by GDP kind of going towards employment. So I don't think productivity is like 4%, right? So there has to be, you can't be growing that quickly or

employment should be a lot stronger. Like that's sort of how this has to work out. You can't have the economy growing at 4% with total hours worked in the economy basically flat. What are clients asking you, or what are you hearing or seeing from companies about their plans for labor? Because the AI story and where productivity comes in, is this like more? of, hey, we don't need to do as much hiring as we thought in 26, or we actually don't need as many people as we thought, let's get rid of them? It's been spotty. I mean, I think you could probably detect some modest increase in layoff announcements.

If you look at corporate earnings commentary, you know, we saw, for example, Verizon layoff a bunch of workers. You know, I think, what was it, P&G earlier in the year? So I think at the margin, like layoff announcements have been going up. When I look at things like warn notices, those are worker adjustment and retraining notifications, right? So these are like little slips that they have to send out if they plan to shut a factory or lay people off. Those have been going up. So that tends to lead unemployment.

So I would say at the margin, like the unemployment news from the corporate earnings commentary has been getting worse. You know, clearly like there are some industries that are like more at risk than, others, like consumer packaged goods companies appear to be under more pressure, right? So, you know, but I just say, like, you look at, you go back to your chart about, like, the distribution of where the employment growth is coming from, you know, like, leisure hospitality. Like, you look at what's going on with, like, some of these, like, casual dining establishments, like, Chipotle and Kava and Sweet Green and, like, Shakechag. And, like, they're telling you that they want to hold the line on prices. They want to let,

essentially they're willing to like let their margins suffer to maintain market share, right? When you see announcements from companies like that, the slop-ball economy, how much of that is just like, don't blame young people and don't blame whatever, like you guys got out of control. You opened, you expanded too far. Your stock prices were stupidly high and nobody wants to spend $16 for your food. Like is that, that's where I am at versus a read-through to the consumer that they're talking

about. Well, it's one of the, what is that saying? It's like, it's like when my, when my share price is out is up, it's, it's, it's my, it's my, I'm executing my strategy and when my share price is down, it's the economy. Yeah. Yeah. I don't know. I mean, when I think about some of these companies, it's sort of, I kind of think about like, this is where people that work in office buildings typically go to eat lunch. And if there aren't as many people eating lunch in office buildings, then these companies are going to come under pressure. I think your point probably is well taken. I mean, you know, but I would just say that for me, the issue is with respect to employment,

right? Like, so if restaurants are holding the line on price and they're allowing their margins to come under pressure, the likelihood then is that they're probably not going to be going out and hiring that many people. And so leisure and hospitality, that's a big driver for employment, right? Like, that's a big part of the private sector economy. And at least in terms of employment, like the value ad isn't the same as tech, obviously. But in terms of labor, it's important.

All right. Let's pivot to the Fed and who's going to run it. A couple of weeks ago, Kevin Warsh was really nowhere. The prediction markets chart down, please. Had Kevin Hassett way in the lead. Kevin Hassett is some sort of economic advice to the president famously or infamously wrote down 36,000 a million years ago. But Kevin Warsh, coming up the rear, what is the story? Who is Trump going to nominate?

I don't know. I don't even think Trump knows yet. You know, the Waller, believe it not, Governor Waller is moving up in the prediction markets because... That spiked this afternoon, right? It did because there was a journal article that came out that basically said that he's meeting with the president tomorrow. So, you know, we know that the president has a very sort of impulsive nature sometimes, right? And he can, you know, it's like usually like, who's the last person he spoke to? and that person, you know, is maybe the one that's kind of in the lead. Is Waller?

I don't know anything about Waller. I know that Hassett is not a serious person. Is Waller grown up? I think Waller is a very serious person. He's a governor at the Fed right now. And he's been importantly, like, very early in a lot of the key calls that the Fed's been making. I mean, to me, like if you want to be at an institution like the Fed, it's really about your power of persuasion.

Like, how can you get people to think the way you're seeing? things, right? So you can't just go in there like guns blazing, calling everyone like a numskull. But, you know, what's interesting about Waller, like remember, a couple of years ago, he was the one that made the point about, you know, we can cut job openings without seeing much of an increase in unemployment. I think he was right about that. And then more recently, he's been very, very early in terms of advocating for rate cuts because he says that labor markets are in a much more precarious position than people think. And I think he's been vindicated on that as well. And now a lot of the arguments that he was making like maybe two, three, four months ago,

those are the arguments that Powell's making now. So I think that's really a tell, right? Like, so he's like an intellectual thought leader on the Fed. I think he'd be a great pick. And then also he'd probably get Powell to leave, right? Like that's another thing, right? Powell's been very playing it very, very close to the best. to remember. Powell does not have to leave in May. He doesn't? No, he doesn't have to. His term ends up in 2028.

He can stay governor for two more years. So, I mean, the question is, if you put someone like Waller up, then the likelihood is, is that Powell will leave, and then you get another seat that you can fill. So what's May? His term is up, his term is up, his term is chair is up. His term as governor can go on for an additional two years, I believe. Understood. Okay.

So you mentioned that. I don't think it'll be either of these people. I actually think that like Trump is just buying himself time to get Scott Besson, to convince Besson have taken the seat. Okay, we'll come back to that in a second because I want to hear your take on that. You mentioned that it is not just about being a bull in a China shop. You actually have to build persuasion. I'm sorry, you have to build consensus by persuasion. So Kevin Warsh was talking to, there was an article in Barron's. Kevin Warsh says Jerome Powell has failed inside the mind of the man who may lead the Trump Fed. So he was talking about in the article, a conversation that he had with Paul Volcker.

And he said, this is Volker saying to him, the job of the central bank is to do two things. First, to get interest rates about right. And second, and he emphasized it was at least as important as the first, is to make sure you look like you know what you're doing. Credibility is what we're talking about here. And Warsh said, quote, the Powell Fed has failed on both measures. Do you think that's true? No.

I think he's saying, look, I mean, it's just really rich for Kevin Warsh to talk about credibility. I mean, my entire career, he's been hawkish. He's always been, and when he's wrong, I mean, to me, it's okay to be wrong. Like, everyone's wrong, like in our business. You know that. The issue is if you're always wrong in the same direction, that to me is a problem. And he's always wrong in the same direction. He's always too hawkish.

Okay, so he said they believe that inflation is driven by consumers, by wages that are rising too much. He's talking about the Fed, and consumers that are spending too much. I fundamentally disagree. At the core, I think inflation comes about when the government spends too much and prints too much. So the school of thought is fundamentally different at obviously odds with Powell. So you think that he's always been too afraid of inflation? He's a fiscal, I mean, he was afraid of inflation, spectacularly afraid of inflation in the 2010s when inflation was doing absolutely nothing. And then, you know, look, I mean, to me, what's interesting about him is beyond the economics is just like his, if you go through that guy's resume, Michael, like the one of impressive thing on his resume is the Fed, which is an institution that he knifed right upon leaving, right?

Bernanke kind of gave him this cool job to kind of be the liaison from the board of governors to Wall Street. So he talks to, like, bankers and so forth. You know, I mean, it probably helped him establish a lot of relationships. And how does he repay Bernanke for that? Basically, trash talks of him. He slept with his wife for forever. So, okay. No, I mean, I just think, look, like, I think it's a little disingenuous for him to be calling the Powell Fed, like, lacking of credibility.

I mean, it's, I don't really put too much stock into that. Based on your comments, and based on his comments, why is this this doesn't sound like somebody that the president would want leading he's huckish right the president wants someone that can make the intellectual case for for low for cutting interest rates and that's a really difficult place for Kevin Warsh to do to be because he hasn't really ever been able to make that argument because he's always been hawkish like I think that's another thing right like you have to ask yourself like isn't a little convenient for him to be doveish now like I think that's kind of interesting right like he's been a hawk his entire life the second

where the moment where it becomes like politically convenient for him to be dove as she becomes one. Okay. As we as we wrap this conversation up, Neil, the journal had an article, why everyone got Trump's tariffs wrong. This is a very unusual year. At least it felt to me, it felt weird, 2025. So many different narratives, so many different what ifs and obviously you mentioned we're wrong all the time all over the place in this business. But just so many things that we thought what happened that didn't come to pass. Are you surprised? What do you think people got wrong about Trump's tariffs?

Yeah, I am surprised. I mean, I was probably one of those people that was like lighting my hair on fire, like in the middle, well, I mean, in the second quarter of this year, thinking that the bottom was going to kind of fall out. And, you know, and Trump reversed himself, like, very quickly and kind of pulled back. But at the end of the day, I mean, we still have an effective tariff rate north of 10%. And we're collecting hundreds of billions of dollars at an annual day. So the $200 billion.

I mean, we sucked it out of the economy. It didn't seem to slow us down very much. Well, I mean, I think that that's, I think that remains to be seen, right? And so this is sort of my, my gripe is that, I mean, you're seeing it show up in employment. You're seeing it, you're seeing it show up in, you know, certain areas of the economy. I think what we didn't maybe foresee is just how massive the, the AI boom has been. that's kind of hit the economy across multiple dimensions, right? It's generated a wealth effect in the equity markets, and that's supported high-end consumer spending, and it's supported

a fairly significant capital spending boom as, you know, you have this big data center construction build out all across the country. So, you know, we'll see. We'll see what happens, but I don't think you can raise hundreds of billions of dollars and have no blowback on the economy. So, Neil, we're at a very weird place in the economy. the market in the cycle. I don't even know where we are. But as the Fed is cutting with inflation, wages, not inflation going lower, but everything that drives sticky inflation, you would think, going in the right direction for people that don't like price increases, what would you need to see or what are you going to be looking for as a leading indicator to say, okay, things are actually

not going in reverse, but maybe they're starting to bottom out and actually, the economy is going to be in stable footing. Like, what would you look for? I mean, to me, it's really about, it comes to employment. Like, you want to look, you want to see hours work to expand. You want to see jobs growth broaden out beyond just health care. When those things happen, then I think you can, you can, you know, be a little bit more optimistic about the future.

But, you know, for the time being, those things aren't happening. And it's hard to see why they would happen, you know, between it now and the end of next year. How concerned are you? I was about to use a green to you've read scale, traffic lane. I don't know why, but zero, 10, 10 being major scared, zero being, we're great. Like, where are we? Are you seven? Yeah, I think we're seven, eight.

I mean, if 10 is like GFC and like, and, and, you know, zero is like just like the 90s. I mean, I think, I'd probably say I'm in a seven. I mean, you know, look, I think this is, I think we have a sluggish, a sluggish, a, sluggish year ahead, I would just say. I mean, you do have, you do have, like, rising unemployment. That's going to create some issues for consumers. State and local governments are pulling back. The housing market is in recession. You know, those are some important areas of the economy that have been driving growth for a number of years. So if you lose that, you're sort of, you're on much thinner ice than you think. And, you know, look, a lot of the enthusiasm right now is just driven

by, like, oh, we have this, you know, bill coming where you get refunds and so forth. But, historically, like, tax refunds don't create like a sustainable turn in consumption, right? Like you get your refund. Maybe you spend it. Maybe you don't. I mean, it really depends on how you feel about employment at the time, right? Like if you're getting a refund, but you're worried about losing your job, are you going to really go out and spend the money? Are you going to save it? So, yeah, I mean, I think there's a lot to think about next year, but I feel good sort of about where our call is. And I think, you know, in terms of unemployment, I mean, it's, It's clearly going higher.

And despite that, the Fed is not doing anything. And so, you know, look, the markets are not even priced fully for January, right? Like, so even though we just had another increase in the unemployment rate. So to me, that's a little concerning, and it kind of risks them falling behind the curve. All right, that's a bad place to end it. But, Neil, listen, I want to thank you for coming on. You are data dependent. It's one of the things I love most about you.

You do not have a narrative and then torture the data to find it. wherever the data goes, that's where it will take you. So I appreciate you coming on today. Thanks, Michael. Go Nix. Go Nix. All right. I want to thank Van NIC again for sponsoring.

I want to thank everybody for tuning in and watching. Dan A. Ives is the man. Thank you, Dan. All right, Josh, we'll be back with us next week. Tuesday, live at 5. Happy holidays, everybody. We'll see you soon. You know,