The Compound and Friends - This Is Where the Rubber Meets the Road, with Jurrien Timmer

Episode Date: October 9, 2026

On episode 263 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and Michael Batnick are joined by Jurrien Timmer, Director of Global Macro at Fidelity Investments, to discuss: Why year-end S&P 500 price targets miss the point, the $17 trillion rise in the national debt and the missing buyers of Treasuries, hyperscaler borrowing and reverse crowding out, 5% bond yields and the stealth correction underneath the market, record market concentration, whether AI is an earnings bubble, Kevin Warsh's Fed, why Nvidia and Apple have become the new defensive trade, going on with gold and Bitcoin, why the predicted AI job losses haven't shown up, the 60/20/20 portfolio, and whether today's AI bull market is following the dot-com playbook. This episode is sponsored by DBMF and Vanguard. To learn more about the world’s largest managed futures ETF visit https://www.dbmf.com/TCF Learn more about Vanguard bonds at https://vanguard.com/audio. Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠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/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ DBMF Disclosure: The iMGP DBi Managed Futures Strategy ETF’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, it may be obtained by visiting www.imgp.com. The Fund is distributed by ALPS Distributors,Inc. DBMF is the world’s largest managed futures ETF as of July 31, 2026 with $4.16 billion AUM. #stockmarket #investing #finance #stocks Learn more about your ad choices. Visit megaphone.fm/adchoices

There's no limit to what people will do physically. You saw the 61-year-old woman that just did a five-and-a-half-hour plank. What? 61-year-old lady, five-and-a-half-hour plank. Well, like I said, my wife just did the World Championship Iron Man 70.3 in Nice, France, without training. That doesn't make sense. You got eight and a half hours to do it. She did in eight hours and 15 minutes.

But why without training? She was just already in shape for that? I could do 20 push-ups without stopping. Without, because she doesn't, she's too busy to train. And for her, this is like, it's just fun. Like, she's not trying to meddle or anything. Oh, my God. But a number of years ago, she had this trophy case installed with no trophies.

And she says, I'm going to fill this case up with trophies. And now it's full of trophies. That's ambitious. That's, that's, that's determined. That's pretty awesome. I have a cousin who is doing, or attempting to do a marathon. Seven marathons and seven days on seven continents. Do you know about this?

Seven marathons. That's like an extra super different ultra-marathes. On seven different continents. You run a marathon and wake up the next day and run a marathon? Yeah. How do you get from one to the other? You run there? You swim.

Wow. That one I haven't heard. People are maniacs. It's good to be back. We're so happy to see you. Because I was in Europe the last time with the Peter. Lynch thing. So I unfortunately missed it. I was one of the one of our crazy institutional road shows that Fidelity International does, our sister organization. And this year I did three weeks throughout

all of Asia Pacific on one carry-on, but last year it was a big Europe trip. How many cities, three weeks? I did Seoul and then the southern city where the national pension fund is, then Tokyo, then Beijing, Shanghai, Taipei, Hong Kong. Does Fidelity have clients in all these places? Oh, yeah. I met with all the central banks. They have mandates with the governments of these places.

So Fidelity International is institutional and wholesale, so it's not like the U.S. where you buy a mutual fund. And being the Fidelity brand, we have access. I mean, I was at the PVOC. I was at CIC, the big sovereign wealth fund, all asking about gold. What's going on with gold? In this day and age? Because they don't have a reserve currency.

For us, it's a luxury. Like, who cares, right? It's a size show. It's like Bitcoin. You play or you don't. But for them, it's existential. That fidelity event I did with Peter Lynch was definitely like a career highlight. Nice.

Like guys like you and I were always talking. He doesn't do a lot of that. And he was razor sharp. Yeah. And I think, so I think at first we did a prep call. And as you could imagine, it's fidelity. So there's 10 people on a prep call. So this is a true story

So we're taught He he has no idea It's a podcast I don't And then all of a sudden He starts telling stories And I slacked I forget who I was slacking with

Somebody on my side Yeah I was like Holy shit He thinks this is the podcast Like I was worried Because he was like He was great

He was riffing He was making jokes And I'm like I think he thinks We're recording the podcast, it turns out I'm an idiot, what he was doing was warming me up. Like, hey, I can have fun.

I know the types of things that you want to ask me. He was showing me that he's into it, which was really cool. So we get on stage, he was kind of like backstage. He was kind of like, I would only do this for Fidelity Clients. He's like, that's pretty much it. So I thought like, all right, he kind of like got dragged into this. But he warmed up. And by the end, the audience was laughing at everything he was saying.

Like, so can I tell you my Peter Lynch story? He took the room over. So Peter Lynch was the only person other than me who ever did TV for Fidelity. He was on Louis. Is that true? He was on, well, for the 99%. He was on Lewis Ruckeiser, Wall Street Week. And then he retired.

But nobody who's a big shareholder at Fidelity ever really retires. I think they just kind of keep you on. And he's still not really. tired. But he was retired enough that when he did TV, he need to be coached a little bit. So I was his coach. So that's how I started. So he was the guy down in the field and I'm the guy in the booth feeding him the stats. Amazing. And ironically, now I'm him. No one's ever him. But like now I do the TV. But I was like, you know, like he's like, like, Yerian, fill me in. Like, you know, what are the latest stats and this and that? So somebody said to me, he has.

And he retired in 1990. What does he know about the market? I said, have you ever read a book about the market? It's always the same. That's number one. Number two, this guy just spent 40 years doing philanthropy. Yeah. At like the highest imaginable levels.

You think he has less to say than you do? You know what I mean? Like it was one of those things where you realize, because he's like, I don't own any tech stocks. Yeah. And I'm not involved in the AI stuff. But his stories were so much more important than that. What a loser. Well, because all the stuff that we're going through now with AI stocks.

It's just a time and a place. He's already been through all of that. Right. I thought it was magical. Shout to Fidelity for letting us do that. That was so cool. I think the venue was really amazing, too. Was the Boston Museum of Fine Art?

MFA. You've been there, I would imagine? All our anniversary events are there. So if you hit a round number anniversary, like 15, 20, 25, we do an event at the MFA and Peter's there, Abby's there, and it's nice. What's your next friend number? How many years? I'm at 31, so I got to wait a few years until I get to 35. And Bruce Johnstone, who is, I think, our oldest kind of active employee.

He's at 61. and he sits close by. I've known him forever. 61 years at Fidelity? Holy cow. He was in the same class. Oh, he was there. I met him.

Yeah. So same class as Peter Lynch, like in terms of when they were there. But I'm like, Bruce, I'm catching up to you. I'm at 31. He says, he'll never catch up to me. So he was backstage sitting with Peter and me. Yep.

You remember that? Uh-uh. You came backstage. I didn't admit to that guy, though. The other older gentleman that was sitting in the chair was, that's Bruce. Yeah. I was going to say, So when Peter ran Magellan, Bruce ran like our value fund.

Yes. So they were kind of like duos in that sense, but in different style boxes. I was going to say the other thing that happened that week is they invited Michael and I into the chart room, which we had only ever heard about. It was, it's pretty epic. Yeah. And it's kind of a shadow of its former self in a way because, you know, life has moved on and, you know, Will Danoff knows that anything that is. worth seeing someone's going to show to him. He doesn't need to go meander to the chart room. But I was hired to work in the chart room by Ned Johnson himself. Like, you know,

if you were a PM, fine. You go through the thing. But if you're working in his chart room, he vetoes whoever comes through. So my last out of like 12 interviews back in 1990, early 95 was with Ned Johnson. And we just talked about the markets and it was like the most amazing experience ever. But I would, so a lot of those charts, I created and, you know, we were always on... Do you have a favorite? It's like having a favorite child, you know. I'm a big fan, as you probably know, from my work to incorporate different disciplines.

So I'm not exclusively a technical analyst. I'm not exclusively a macro fundamental. And so I'd like to tell stories. So if there are different indicators, both technical, fundamental, whatever, that really give the narrative of what we need to think about, then to me, that's a great chart. Although there is something to be said for keeping the technicals and the fundamentals separate, and Ned always insisted on that because he wants the signal to be pure and not to be, you know, infected by other disciplines because that's going to come from someone else.

Oh, it's interesting. What was the purpose, what did they tell you when you went to work there in the chart room? What was the purpose that they explained to you, this is why we're keeping? So for people that don't know what we're talking about, in the Fidelity headquarters, there's a room with walls inside of the room, and every wall is plastered with these massive charts. Some of them are highly detailed.

Some of them are like a zoom out. But, I mean, there's eight foot long charts in there. Right? So what do they tell you you were supposed to be doing? It's both a, like a museum, an archive, a lab, the kind of the centerfold chart, for lack of a better word, is a daily chart. I think it goes back to like 1789 or something. And, you know, Ned was very precise about displaying information.

So the lights are museum lights. But everything would be on an equivalent log scale so that when you look at the NASDAQ in 2000 versus the Dow and the Dow goes flat, the NASDAQ goes down, whatever it was, 80%, on a log skill, even though they're different skills, but they're still log, you can visually compare the two, which on a linear scale you can't do. And like, you know, we were always on standby. Okay, Mr. Johnson is in the building. Be ready to go and spend two hours with him in the chart room, which is what he would do.

He would be, he'd have to go to like a board meeting, but he would like sneak out like a kid and go to his candy store, which is the chart room. And, you know, we would look at the S&P or whatever. today, and he would just take his finger and kind of go to the left and say, okay, last time... Bye. Well, just, it brings us back to this date in time. And on a chart that's, you know, 30, 40 feet wide and floor to ceiling high. 30 or 40 feet wide, right?

Way bigger than 8 feet. You can't do that on a screen. You have to do that as if you're standing in front of Rembrandt's Nightwatch, you know? And so that was... So that's the appeal. In older versions of the chart room, we had hundreds of flip panels with like every sector, every select fund, which was our sort of our pre-ETF sector funds. And, you know, he would be like, let's take a look at gold or let's take a look at this and we're flipping through charts. And it's, you know, that's what it was.

But, you know, times have evolved. Everything is electronic. And again, we have so much scale now and fund managers manage so much money. and they're so inundated with data that we have a team of technical analysts. And if there's something we're seeing, they will make sure the portfolio manager sees it. We met one of our favorite now recurring guests

on the compounded friends, Denise. Denise Chisholm when we were up there. And we did a session with her. Yeah, she's brilliant. And I remember we looked at each other like, how many people like this does Fidelity have hiding up here in Boston? Because we've never heard of her.

And they're like, you should meet, Denise Chisholm, and then she just crushed the show. So, and then they moved the Museum of American Finance out of New York. I think Fidelity sponsored to have it moved. It's at the pier, yeah. The pier is the new headquarters, which I saw. Commonwealth's Pier, yeah. Okay.

So what's the museum like up there is cool? I have not seen it yet, actually, because we have two buildings, and I'm still in the old building because we just don't have space because we're all back five days a week. so we just don't have the space. But I've been meaning to go and look at it. I'm there a fair amount, but it's sort of in and out to do... I'll go with you. Okay.

I'll show you what everything is. Sounds good. All right. How are we doing, guys? All right. Time is money. Right, you're in? This podcast is brought to you by DBMF,

the world's largest managed futures ETF. Feel like the world's changing fast? Sure do. Imagine a strategy built to move when everyone else is standing still. Going long or short across global markets is a trend shift. DBMF is made to move differently. A single low-cost ETF offering genuine diversification, even when stocks and bonds move together.

Discover why DBMF's liquid, uncorrelated, managed future strategy could be what your alt's allocation is missing at www.dbmf.com slash TCF. DBMF made to move differently. The IMGP DBI managed future strategy, ETF's investment objectives, risk, charges, and expenses must be considered carefully before investing. The statutory and summary prospectuses

contain this and other important information about the investment company. It may be obtained by visiting www. www.img.com. The fund is distributed by Alps Distributors, Inc. DBMF is the world's largest managed futures ETF as of July 31st, 2000, 26, with 4.16 billion AUM.

Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value in fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple fleshy funds your way and call it a day, but not Vanguard. Some managers out there promise big returns,

but those usually come with big risks. And that can meet a roller coaster ride for investors. Vanguard takes a steadier approach. They don't go all in on risky bets. Instead, they focus on reliability and consistency. It's not always flashy, but it sets the standard for what dependable investing should look like. So if you're looking to give your client's consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio.

All investing is subject to risk, vanguard marketing corporation distributor. Oh, wow. 263. What a treat you guys are in for. Michael and I get research from all over Wall Street. Everybody sends us their stuff. My inbox is inundated with tables and charts and commentary. You cannot even imagine the volume. There's only a few must-reads in there. I think you'd agree with this.

Well, now you kind of have to. There's only a few must-weeds in there that I never miss. And the work of Uri and Timmer is one of those. Longtime listeners you guys have heard and seen him on the show before. We are so thrilled to have him back. Uri and is Director of Global Macro at Fidelity Investments, where he is part of the firm's global asset allocation group, focusing on asset allocation and global macro strategy.

He has held that role since 2005, having previously served as a technical research analyst and portfolio manager of the Fidelity Global Strategies Fund. Welcome back, my friend. Thank you. Great to be here. All right. Let's start here. What is your year-end S&P-500 target? This is, is this how Michael and I keep saying it's the weirdest year.

Yeah, but it's also one of the, I think it's one of the silliest things Wall Street strategies do. You don't like it? No. Do you understand why they have to do it, though? Yeah, because they make headlines. They have to be on record. But it's such an arbitrary thing. Like, I want to know what the returns are going to be the next, you know, one, five, ten years, how much it actually. how much of that comes from price gains versus income. And also, one of my pet peeves is that people are so focused on price,

but price is just a byproduct of earnings and valuation, right? So solve for earnings, solve for what people are willing to pay for those earnings based on the longevity of the earnings cycle, the cost of capital, which of course is a big topic, the risk premium, how much of the earnings get paid, get returned to shareholders, as dividends or buybacks. And then you get a sense of, okay, earnings are worth 20x. And then you get an earnings forecast

and you put them together in a DCF model and outcomes of price or a present value of future cash flows. And to me, that's what I solve for. Price is just a residual. Counterpoint, though, like, and you know this, you get sent out from Morgan Stanley or from wherever, Bank of America,

and you're sitting with institutions and professional asset managers and PMs. And they sort of want, like, is the House view higher or lower? And if it's higher, how much higher? So it's almost like a shorthand. Like, forget about the price target itself. Directionally, we think the market will go higher. And we're just saying S&P 8,000, just because we're saying it.

I mean, it's fair. Framework. They have to do that. Of course, the market goes up 67%. the time, right? So you definitely always want to be on the upper side because if you're wrong, at least it doesn't happen very often. So Permabairs is a really tough business because you're really fighting the odds. But I see why firms do it, but I'm not a believer. And of course, I'm also not allowed to make predictions from our compliance. You better off.

So when I get questions like that, like on TV or questions that are maybe a little bit politically loaded, my stock answer as well, I've been in. the business 41 years. And the reason for that is that I don't answer questions like that. I love it. Good for you. So I'm going to turn the mics off, though. Tell us what your target is. All right. Let's start. So you're, a lot of times when we're preparing the show, we have to load the dock up with the charts that we're looking at as conversation starters. But when we talk to you, you've already done the most amazing stuff so we can just work on on what you're telling people. Your October deck came out today?

Okay. It's always... It's evolving. It evolves every week because every single weekend I do a complete download of everything. And then I publish on Sunday, you get the report. And so the material is always fresh, which is why it's always in my head, which is... All right. Here's something you put out on social media.

Let's do chart one. Tell us what we're looking at here. This is the increase in the national debt since COVID. It's almost $17 trillion. And there are no... non-economic buyers of that debt. So central banks aren't buying. Some are even selling like Japan, China. The commercial banks are not really buying. And so when that happens and when rates start to approach or exceed growth rates in the economy, the market starts pricing in fiscal risk,

which is obviously what's happening here, but everywhere in the world, except for China, where nobody wants to take any risk on anything so they buy Chinese government bonds. But of course, France is sort of Exhibit A right now because the economy in nominal terms is like growing at 2% and bond yields are like four and a half. And when you have a lot of debt and you don't have the ability to outgrow it, then you get, you know, you have a problem. You have a debt sustainability problem. The U.S. isn't there. And it's a priority, I think, of the administration. in Washington to outgrow the debt, and that's why they're all proponents of AI and in part. But it's an issue because there are economic buyers.

Like I would be an economic buyer. Economic buyer is somebody that cares what the interest rate is. Non-economic buyer is somebody that they have like international trade issues and they need to have treasuries on hand. Yeah, it's reserves. It's like big banks in Europe that are strictly policed by the state. central banks in terms of their risk budget. So they kind of have to buy it. So we don't really have any of those. And as that gap keeps widening, you wonder what the endgame is. And we're looking

at 5.3% nominal 10-year treasuries and almost 2.9% real rates. And it's not entirely because the fiscal risk is also about growth. And there's technical things about mortgage convexity and all this stuff. But it's, you know, the bond move is, is a big one. And that's, that chart is part of the story. I have a question about this. Do you think that, oh, are we about to get blasted? It's a fire drill. Right? It's not an actual fire. No, I just mean by the noise. Yeah, Nicole, just stand there for the next hour. That's right. I go to Burning Man. I'm used to Blanky light. So, Daniel, can we talk chart six? So, obviously you can't take this out of the equation because it's a huge part of the story. Hyperscaler.

This is from 22V research. Hyperscalar bonds is a percentage of net new treasury borrowing. It's a lot. It's 14%. Obviously giving investors a lot of choice. There's a spread. It's not a huge spread, but whatever. If you can get a spread, Microsoft is money good.

How much lower do you think yields would be absent this particular part of the story? I think reverse crowding out is definitely one of the factors here. So it's fiscal risk. It's just real growth. What's reverse crowding out? We're crowding out the government with private debt. So historically, you read the economic books, and crowding out is like governments are, they're spending too much, and it squeezes the corporate sector because there's too much supply of debt.

But this is reverse crowding out, right? So the hyperscalers are borrowing half a trillion this year. Our analysis suggests they're going to borrow another half a trillion next year. If you look at the Fed flow of funds data, the corporate sector alone, both bonds and now also equity. The IPO thing has flipped right now. Companies are net issuers of equity because instead of buying back shares, they're spending it on CAPEX and then other companies are going public.

When you add those two up over the last 12 months, it's about $3.6 trillion of new capital that's being raised. And it's being absorbed pretty well. It's being absorbed so far, so good. But, you know, we always wonder, like, when does the boom turn into a bubble? And we think about the Internet story. And I don't think we're in a bubble at all because earnings are exploding to such a degree that valuations are actually falling. And, you know, when the melt-up started for AI, which I think was start in April 2025, after the tariff tantrum, the market went vertical.

The PE on the tech sector was like 21, and today it's 20. So it's like the earnings are exploded. It's hard to have a bubble when you're paying less for earnings. Totally. But that doesn't mean the story doesn't have an unhappy handing, and that's not a prediction. But at what point does the market sort of choke on the fire hose of capital? Not yet. Not yet. And the irony is that the Fed is now raising rates. But I think the hyperscalers could care less where rates are because they go into the market. They borrow bonds. And they'll make a 30, 40 percent return on that debt issuance because they're building a data center. And there's insatiable demand. But it's not just the hyperscalers. I was talking to Josh about this the other day, Paramount, not exactly Microsoft in terms of their creditworthiness, raised $50 billion, $52 billion,

and $150 billion where the buying showed up. There is a lot of money sloshing around looking for returns. Yes, there is. And so far, it's okay. The capacity is so constrained in terms of semiconductors, GPUs, other infrastructure. I mean, you look at Japan is one of the hottest markets because they are supplying the AI space,

not with semiconductors, but equipment. So it's still going on. And, you know, the parties... It's poetic. Japan is where the transistor was invented. Yes. Like, so it's sort of poetic. I want to double down, though, on a question Michael asked you.

So if you had to quantify, not in percentage terms, but maybe in a rank of the cause of what we've seen happen this summer with rates, you would not put reverse crowding out or corporate selling of bonds at number one, you would probably put energy prices or no? I think it's a confluence of narratives.

So fiscal risk definitely is one. Here's why I'm asking you. Maybe you'll answer it differently. I think what a lot of people are thinking is we had this really fun summer of a broadening trade. We had small caps, mid-caps rising, value stocks working. We had stocks in every sector making $50,000. week highs. That seems to have come to an end when WTI crude crossed 80 and the yield on the 10 year

crossed 5%. All of a sudden, the market got more selective again, which makes perfect sense. So now if the question is, how do we end the year? And people are thinking about, well, what would be the catalyst for a catch-up trade, all those blown up sectors for the stocks to recover, in my mind? Well, the only real answer is yields at least stop going up and maybe we get a little bit of pressure from high oil prices down. That's the catalyst for the re-broadening. So I guess the reason I'm asking you that question is, what do we need to look for to get some kind of inkling that that's possible?

Yeah. So you hit the nail in the head because I look at correlations a lot. And so oil and the S&P are about 50% negatively correlated. And the S&P and long-term government bonds are about 50% positively correlated. So it's all one trade. it's oil feeding into sticky inflation. It's just inflation in general. We were talking about buyers of bonds,

but the whole savings glut era, the kind of the new normal, the secular stagnation, that's all in the rear view mirror. And it turns out that that really was the exception in history, not the rule, but it is the period that most of us grew up in career-wise. So clearly that's a big part of it.

I have a colleague who, this is genius, who looks at all of these esoteric things, and he's telling me about oil tanker rates, how they've gone up like tenfold. So there are still real bottlenecks. So I think that's probably the number one. Fiscal risk definitely is being repriced. You know, the term premium is now at 90 basis points. Real rates have gone from minus 200 bibs five years ago to now almost 300 bibs. Right.

There's a real interest right now in inflation. like adjusting for inflation, you actually are earning something. What a concept. And that is the fiscal risk. If you buy a five-year tips and you hold it to maturity, you're getting like 2.6% real plus whatever the inflation is going to be over the next five years, which is probably my view is going to be at least 3%. I mean, those are good numbers, right? And so you don't want to overstay your welcome being short bonds. They could easily go to six.

And per the Fed model, a 6% bond yield is a 16 PE on the S&P. So that's 20% down. But again, not price, but PE. And then it's a question of to what degree is that offset by earnings, which are growing 30, 40%, percent. And so I see this as like an echo of 2022. And we're having a sort of a stealth correction where, like you just said, you know, 25% of stocks are above their 50-day.

As of last week, 46% was above their 200-day. That is a 1994-like correction. In response to rates. Yeah. And in 2022. And again, it's the DCF math, right? If earnings are, like in 2022, earnings were decelerating because they had boomed after COVID, but that was all base effect recovery.

So earnings growth was slowing and it ended up being 8% in 2022. But the PE went down 33% because, the cost of capital went from like zero to five, and that's what's going to happen to PEs. And especially now, and this is the essence of the Fed model, that if the risk-free asset, treasuries are competitively priced against risky assets, which they are at 5.3, their yield is higher than the S&P. If that yield goes up, the S&P has to listen. And if it ignores it, we get an 87, 1987, 1987.

Where it's ignored up until a point where it can no longer be ignored. and all of that risk gets repriced in one day. It's ignoring it right now. Are you surprised? No, it's not because the P.E. is falling. So, again, this is not about price. It's about valuation. But like 87, right?

Rates went up, cost of capital went up. Fed was tightening. Bond yields went to 10%. Stock market is like, yeah, yeah, nothing to see here. And then it crashed. All right. So I said that it's not responding to which you said. No, it actually is.

I'm looking at the price of the S&P and drawing the wrong conclusion. PE ratio. You're saying the P.E. is re-rating precisely because of screaming rates. It's re-rating because of screaming rates. It's re-rating because... Maybe peak earnings.

Peak earnings growth. And we don't know if we're at peak earnings growth, but, you know, earnings growth is like 35%. Not getting close. And the expectations aren't that dumb. They're not going to keep bidding it up higher. So investors do not pay for peak earnings. And I think one of the key things we need to solve for, and I don't know if we can,

is not the level of earnings growth. which is, of course, is very high, but how durable that is. And then you have the separation between long-duration stocks like the Mag 7 and more cyclical stocks with weaker balance sheet, those companies who do get hurt by Fed tightening. And I think that's one of the delineations that we're going to be looking at. But again, it's present value of future cash flows. Cost of capital goes up, P.E. goes down, all else being equal,

which, of course, it never is, especially right now. And so in 2022, there was not enough. earnings offset to keep the market from falling. It was pre-chat GPT moment. And now there is enough earnings offset. And that's why the market since early June has really not gone anywhere. And underneath the internals are pretty, pretty sure. I looked at the industry group and sector internals earlier this week.

Somebody did a piece. It just, it occurs to me that most of the damage in the market, the subrosa correction that's happening, it's in order. of what's the most rate sensitive. It's almost monotonically in order. It's rational. It's completely rational. And the way I think about it is it looks as though every portfolio manager independently decided

I want less exposure to rate sensitive and more exposure to long duration tech assets. And they all did that individually. And then the collective aggregated manifestation of that is the leader. the leaders and laggards in bicepter. And it's worth, of course, I'm a student of history, but 1994 is a cycle worth looking back at that was under Alan Greenspan, of course. He doubled the cost of capital.

We had at that point, I think, the worst bond bear market in history. Well, he did it between meetings. It was a shock. It was a shock. And, you know, he was famously opaque. I think Kevin Warsh is trying to take a page from that playbook. But the market just sat there. had two drawdowns of 10%, and it basically did nothing for a year while the internals were

kind of rotting, right? Like more than two-thirds of the stocks in the S&P were down more than 20%, but you didn't see it because it was kind of a cap-heavy market and earnings were very strong, just like they are today. And as soon as he took his heavy hand off of the rate market, the market exploded. And to your question earlier, we could see that, right? because if somehow this Iran thing gets settled, and here we are, like a month to Aden still hasn't been,

but where the market calls the all clear on the bond side, we could get another big breakout. I think that's going to happen. I have a few pieces of evidence that I'd like to get your take on. Let's start with chart eight. So this happened today. I think today might be, might prove to be an interesting day looking back on the internal breakdown.

Lisa Abrammerk's tweeted evidence of how leverage the entire tech sector is to OpenAI An Anthropic. An FT story about OpenAI's revenue being less than initially reported is spurring on more than a 5% drop in Oracle shares, exacerbating losses from Nvidia and AMD to Microsoft. So in conjunction with that, you have the 30-year making a pretty decent reversal, which we haven't seen that in weeks and weeks and weeks. And I know that you are, you respect technicals. Jump to chart 12A, please, Daniel.

All right. We have a 12-A and a 12B. So here we go. So look at on top first. This is the ratio of the equal weight to the S&P. And this got very stretched, very fast where the S&P was holding up and underneath the surface, the average stock is getting the shit kicked out of it. So it bottomed here in October of 2025, October, October November. It bottomed here in May 2026.

And for whatever reason, not for whatever reason, the rubber band is getting stretched to the same levels. And you have this monster reversal. the ratio is up 1% today. It's the best day of equal weight versus the S&P since July, while everybody is talking about it. Everybody has been focused on how weak the breadth breakdown is.

And Josh and I were looking at this chart. You like stories. I think this is a terrific one. Chart 10. So this comes from duality research. This is such an awesome chart you're in. The purple line is the SEP 500 technology index. And the green line is the rest of the market,

S&P 500 X tech. And what Alex was saying is that everybody is focused on the wrong signal. They are worried about the breadth breakdown leading to further weakness in the index. And he's saying, no, no, no, the opposite has proven to be true. Every time tech breaks down, the rest of the market seems to wobble. Tech leading and the rest of the market selling off is not a bad thing because what has happened for the last five years is the rest of the market catches up eventually. And if we get inflation interest rates coming down a little bit, some energy prices coming in a little bit,

and rotation away from the tech trade into the rest of the market. That's the happy ending for the year. You could see a rip into the rest of the fourth quarter. And a piece of trivia, so you know, Goldman has all these thematic equity baskets. So they have an AI basket and an XAI basket. And the two are negatively correlated to each other. Yeah.

Which is pretty amazing because they're two halves of the same index. And the same applies to, you know, equal. Like I track Mag 7 to equal weight. And equal weight, the SPW has outperformed by 1800 bases. points over the last, sorry, Max 7 is outperformed by 1800 bases points. And so I told... Would you like to hear a fun fact? Yes. Goldman stole that idea from me when I coined the term Halo earlier this year, which is heavy assets, low obsolescent stocks.

Oreos. What? I didn't invent Oreos. No, no, no. Goldman started saying Halo literally that phrase in their research and then that gave rise to, we should have a basket to show the anti-AI trade. They expressed it differently than I would have, but. Duly noted. I got one more thing for you. Yeah. This is going to knock your socks off.

A lot of the breadth conversation that we're having, yes, the breath sucks, to be clear. But a lot of what we're seeing that's like looking really funky and bizarre, it's due to the concentration. So in 2018, I did a chart, a data point where this is July 2018. So eight years ago. The top five stocks at the time were equal. to the bottom 282 companies in the index. Chart 11, please. Today, look, this is how wild this is.

Today, the top five are equal to the bottom 434. It went from the bottom 282 in 2018 to the bottom 434 today, which is stock 67 to 500. And my favorite chart that we've done in a while, chart 12. So this is charting that through time. So the top five equals the bottom X over time of stocks. Look at this explosion. It's unfreaking believable.

It's never been this high, obviously. Could this make it into the chart room? I mean, that's a good one. So we have versions of this. So we track the top 10 stocks versus the bottom 490 to top 50 versus bottom 490. And I've done a lot of work on this, tracking this all the way back to the 60s, talking about the nifty 50 period in early 70s. obviously the dot-com period was a similar thing so i've i've studied this in depth and and you know right now we're in a cyclical bull market and a cyclical sufficly uh svies up about 125 percent

and only about 38 percent of the stocks in the index are outperforming the index and that's very similar stats to like 99 and 73 so is that at topy then inherently um it's it's really difficult because the market is obviously very top-heavy, right? So top 50 stocks are 60% of the index. Top 10 stocks are 40%. Max 7 is like 35% or something like that. These regimes, like late 90s, it was like a Cape model like reversal. But throughout like 40, 50, 60s, early 70s.

There's always leaders. That regime, it was a top-heavy market for decades, right? And so these companies have huge modes. There are some cases national champions. So you can't play the mean reversion game other than the valuation side. So in 73, so what happened was 68, this is a lesson from Ned Johnson in the chart room. 68, we had the glamor stock bubble. Everyone was buying any company with the worktronics in it went to a 50p.

Didn't Bill Cy Warcraft Fidelity? What? Was it Bill or Jerry? Jerry Sy. Jerry's side. Yes, yes, he did. Yeah. And so that happened.

Well, he was like the Kathy Wood of his day. Yeah. Okay. But so late 60s, then we had the recession in 1970. The retail investing public got wiped out. And then early 70s, it was institutions running money, including fidelity. And PMs just wanted safe quality, high, high quality stocks that were going to deliver earnings. And that was called the nifty 50.

They were brands. And the, yeah, it was like, it was Clorox, IBM, zero. And the irony is that all of those companies, through that 48% bare market in 73-74, they all delivered on their earnings. Their earnings didn't skip a beat, but they still got annihilated because valuations, right? Inflation will kill valuations, and that's what happened. And at that extreme, the top 50 stocks were trading at 2x, the PE of the bottom 450. Same thing happened in late 90s from 1998.

that LTCM moment, the meltup started. From that point, the top 50 doubled their P.E. From 20 to 40, while the rest of the market stayed at 20. That was like Cisco, Microsoft, Intel. And that was another bubble. And then you had this massive rotation, but it was in a down market. Now we don't have to value. We never had to evaluate a valuation extreme.

21. Well, you're 21, but that was for the whole market too. But even a year ago when a Mac 7 sort of lost its momentum, its PE was only about 30% more than the... Well, so can I ask you about this then? That's what the people that have been bearish, they've pivoted to. They said, no, no, no, you have it all wrong. You're thinking about 1999 and you're looking for an S&P at 50 times earnings and it's not. And you're looking for a NASDAQ at 100 times earnings and it's not.

It's an earnings bubble. We don't need high valuations for this to be a bubble because actually what's happening is a pull forward in demand related to the CAPEX data center CAPEX and it's global. And all of a sudden one day, these companies will start missing their earnings and they'll never hit their earnings again

until the analysts furiously ratchet down their expectations. And that process, I don't care that you're 21 times earnings. It's going to hurt like hell. And you'll be back at 14 times earnings and earnings will be falling. And that's, I think, their get-out-of-jail-free card. We're over-earning. Is there any truth to that?

Is there some? I think there's some truth to that. So, semiconductor earnings are up 178% year-over-year. So that doesn't sound sustainable to me. No, it's a cyclical index, right? That's why Microsoft is trying to get four times or whatever. And of course, people are making the argument, well, it's no longer cyclical, secular. But, you know, it's different this time, are not good words to live by.

And the semiconductor index has a very clear 40-month earning cycle, and we're like right at the part where it should start to roll over. And of course, 178% is not sustainable. But then we look at the companies, you know, I'm not going to mention names, but the companies that are in the, you know, that are providing all the stuff to the, to the CAPEX buildout. You know, it's so tight. They cannot keep up with demand. So I think the earning story actually...

You're talking about five-year backlogs. Yeah, exactly. So I'm not worried about the earning story so much, but what I worry about, and you showed that plummet in the Open AI, you know, anthropic, I worry about two things. One is, again, too much demand for capital, unknown ROIs, and the Mac 7 is sort of part of this, or the hyperscalers, is they used to pay back, you know, they're obviously cash cows. They happen for a long time. And they used to pay back 90 cents on the dollar in terms of the earnings that they make and give back to the shareholders via dividends, but mostly buybacks.

Now they're spending all their cash flow on capex. And, you know, a purist would say that's good. You're not supposed to be, you know, like, you're not supposed to give the money back. Your company, you're going to be investing it. But those buybacks, even if the return is lower, it's like a known return. Like, you know what you're getting as opposed to an unknown return on. in terms of the ROI on this CAPEX. And so it's a burden in the hand, right?

So the market will pay up for certainty. And that's actually another reason why bond yields are rising because Kevin Warsh wants to be like Greenspan and be more opaque and less predictable. And I think that's very wise and honorable. I love it. The market doesn't need its handheld because you lose price discovery, but it creates less certainty.

And that means a higher term premium because investors want to be paid for uncertainty. And so the irony is that in a way, he's driving our bond yields almost not deliberately, but it's a byproduct of this policy because investors will price in risk. And the risk is that nobody knows what the Fed is going to do, including the Fed, of course. I want to ask you about another market meme of the moment. And I'm part of this noise. But one of the things that I've been saying is in a rising interest rate environment,

the traditional defensive sectors don't act like defense. Utilities are the worst sector of the year, I think, and real estate. And staples. And staples. The three of them are like neck and neck. They all look awful. Yeah. They're considered bond proxies.

Right. So those stocks have been used as bond substitutes and equity portfolios for 15 years now. And REITs as well. Right. So what do people do when they get nervous? I think they buy Nvidia and Apple. And I'm not saying those are actually defensive stocks. I'm saying it is the defensive trade of the moment.

Number one, they're huge. Number two, they're highly liquid. You can buy them like that in size. Number three, we may not know what the right multiple is. In fact, I'm almost certain Apple's multiple is wrong and so is NVIDIAs based on their growth rate, but that's a whole other conversation. But what we do know is the earnings are going to show up. You might not like the amount that people are paying for those earnings. I sort of feel like they've become,

risk off would be the wrong etymology, but I sort of think they've become almost the default. All right, you know what? I don't like how the home building stocks are acting. I don't love how the biotechs are acting. I don't, let's just do a little bit more Apple. Yeah, no, I totally agree with that. And the Mac 7 and it's...

Microsoft too lately, meta is back. They are quality stocks with, and they generate a lot of free cash flow. They are spending, Some of them are spending it on CAPEX, but they are immune to what the Fed does. Yeah. Because their cash flow growth is so big. They don't need to really borrow money.

I mean, they can. And they are for the CAPEX. But if they decide we're not going to do CAPEX, their stocks actually will go to the moon. A lot of the economy is immune to what the Fed does, which is such a bizarre state of affairs. So. Well, they think it is. Yes and no. I mean, so part of the corporate sector is immune.

Anything that's touching AI is immune because the ROIs are so high. But if you're a weaker credit, more leverage, shitty balance sheets, and you're looking at a maturity wall in 2027 or 28, and you look at high-yield spreads are now moving higher, triple Cs are, you know, like, so there are pockets of the economy that are sensitive to that, and that's why the breath is not good. And the same thing happened in 2022. But the strong companies, the MAG7, other high-quality companies with solid balance sheets and good cash flow growth, are relatively immune. And that's actually fairly typical.

Historically, it's quality that wins during periods of rough sledding. And so that's happening again. I guess I was thinking more in terms of the economy and consumer spending. So, yeah, so I'm glad you corrected me on that. So obviously, what the hyperscalers don't care about does not translate to a homebuyer who's now looking at a seven handle on mortgages or weaker corporate credits. And of course, the government doesn't like it, even though the government can kick the can down the road.

But I think France is a very good lesson. I mean, the U.S. is not France. But France has no growth. They have a lot of debt. They have obviously a lot of political shenanigans going on. Things seem to be going well there. Yeah. So, and bond yields are exploding, and they are well, well above the speed limit of the economy.

And, you know, it's like, who are the two people that wrote the debt, the 90%? No, no, no, it was. Two people that what? There were these two people who wrote this famous book about debt. Reinhard and Rogoff. Yeah, exactly. And so the key is you need to outgrow your debt. And I think Scott Besson has laid that out, and I think that's a very clear strategy.

but the funding rate needs to be below the growth rate. And in France, it's now well above, and that creates a crunch. And we're seeing that in the bond market there. In the U.S., we're not there yet, but we're getting close, right? The real GDP growth, sorry, real potential GDP growth is now at 2.5% and starting to edge down because the base effects from 2021 are rolling off. if you look at a five-year Kager. And the real yield is at 2.8.

Now, maybe that speed limit is too low because we're going to get this big AI productivity. And maybe that real rate is going to go to three or four. Then we're okay. Potential nominal GDP growth is running around six and the 10 year is at 5.3, so we're not quite there. But it's getting close enough that you're starting to see the job voting.

The whole silly thing about the buying off the run. and going from $4 billion to $6 billion. It's like a drop in the ocean, right? I think our attempts to try to talk the market down. And the market has the last word. Would you expect gold to be performing better, given these fears, or high real rates just putting a lid on it? Gold is a very interesting asset class

that I've been trying to understand for a long time. And until 2022, the simple benchmark for gold was real rates. So you take the real tips yield, put it upside down, and it's exactly the price of gold. And not anymore. And in 2022, that narrative went upside down. Based on that metric, gold should have gone to 1,000 in 2022. Instead, it doubled. And now it's a proxy on global liquidity growth, global M2, which is growing at about 7, 8, 9%.

It's about 120 trillion. And that now explains the price of gold. as well as central bank buying. And this is why when I was in Asia talking to central banks around the Asia-Pacific reason, there are three questions were AI, boom or bubble, what the Fed's going to do, dollar, you know, kind of because they're central banks, they invest in treasuries. And the third was, what the hell is going on with gold? Why is it not doing what it's supposed to?

And to me, the short answer is that in 2025, gold had a big run. as always happens, the tourists jump in, they start buying GLD, and this is after Bitcoin had just put in a four-year halving cycle peak. So the speculator said, goodbye, Bitcoin, hello, gold. And it brought gold up to like 5,600. And it never should have been more than 4,800 based on my model of global money supply. And then Iran happened, and all of a sudden gold is for sale because it's a reserve asset, right?

If you're a GCC state and you can't sell your... your oil. Sell your gold. You got to sell something. And then gold and treasuries became highly correlated because treasuries are also for sale in that environment. And so the combination of being overbought and all of a sudden this regime change happens not go down to about $4,039.

It's at 42. I think that will pass. And based on global money supply, $5,000 to me is the right number and rising. And I think now not to change subjects, but now that Bitcoin, in my sense, view has done a full winter, a mild winter. But even a year ago, when it's when it broke that trend line, and it's interesting, Bitcoin, as chaotic as it looks, when you put both time and price on a log skill, it's like a beautiful harmonic picture based on the power law. And every wave up and down fits a harmonic pattern. And that peak in 2025, it was a little short of where

it should have gone. It should have gone to 150 over 150 weeks, but it went to 126 over 140 weeks. $126,000 of Bitcoin is still the high. And so at that point, based on trend lines and knowing that every winter gets smaller, I'm like, you know, 60K is a level that I'm going to buy, and it went to 58 and not to toot my own. The Bitcoin winters are shrinking in length. But so we hit 60.

And depth. Yes. It's a maturing acid, right? So it's going to moon less and it's going to swoon less. And that's what maturing assets do. But when it hits 60 earlier this year, I'm like, the price is right, but the time is wrong because these winters last nine to 12 months. And then as recently as maybe a month or two ago, it was still at 60. And I'm like, okay, now I'm really going to pay attention.

And then it broke above 80. That confirmed the double bottom. And when you price Bitcoin in terms of gold, it's a really beautiful pattern. So I think gold's, I think they're both going to go up and Bitcoin is going to go up more, even though we're still kind of. looking for a narrative. But as you know, when things move without a narrative, you always have to pay attention because there's something going on. We just don't see it yet.

On the economic side, if you go back and read some of the commentary in 2024 about what AI is going to mean for the economy, the predictions of job loss by 2026 or 27, I mean some of them, not everyone, some of them were cataclysmic. We haven't seen any of it. I know the jobs numbers are starting to disappoint to the downside somewhat, but in the scheme of, I don't know, 350 million people in the country and we're arguing about 50,000 or 100,000 jobs, it's not really relevant. It's a rounding error. Yeah.

And also one thing to remember about the jobs data is that, you know, we have no immigration and boomers are leaving the labor force. So the what we call the break even rate in the jobs is only like 30,000 where it used to be 70 or 100,000. So the weaker numbers, they're not really weak. They're measured against a labor force that is growing a lot less. And so you have to kind of normalize for that. But the fears, and who was the report that came out with the really disturbing? The fears of wholesale or large-scale job losses, I think it's one of the reasons why the Fed took out these three insurance cuts in 2025. They saw inflation getting closer to two.

everyone's worried about AI eating the job. So they cut three times and it turned out to be a false alarm. A, because Iran pushed inflation back up and B, the jobs market is fine. The economy is running pretty hot. You see the Fed was already worried about AI-driven disinflation in 25. Yeah, that's why they started to build us a cushion. That's why the Fed cut. And now they have to uncut.

So I don't see this as a tightening cycle. I see it more as they should not have eased those last three times and they need to to take them back. And that's what they're doing. That's, it's as simple as that. It's as simple as that. Okay. It doesn't appear that mass job loss is on the horizon for Q4 or Q1 of 2027. Those predictions all ended up being either charitably, extremely early, or they just misunderstood

the nature of what this technology really means. Which are those, would you agree with more? I think it's a little bit of both. I think, you know, the risks are were overstated, and I think they probably still are, because new industries are created when you have a technological innovation. We don't always see it. I mean, remember, like in 1999, when we were all fretting about pets.com, nobody had any idea that someday we would all be Ubering everywhere, right?

But that was a byproduct of the Internet revolution because of the connectivity. And so I think AI is going to infiltrate every part of life, every part of the economy, but we don't even really know what it's going to look like. And so I think that that's the point at where we are. I think so far it's a tool that makes people smarter. You know, like I'm best friends with Chad GPT now is like, because I always have all these questions swirling in my head. And like I got to wait until I go to the office to ask someone now.

I can just ask Chad GPT. I love that so much. And so, you know, I'll give you one example. You know, I run a food camp at Burning Man and I wanted to, I need to do some legal work on, you know, like waivers and just, you know, kind of like liability, stuff like that. And normally, you know, you go to a lawyer and they draft something that people have to sign and you go back and forth and it's going to cost X,000 dollars. I did this and I did 99% of it with chat GPT, iterating, right? Everything is an iteration. And then finally, I was happy with it.

Then I gave it to a lawyer. Yeah. And I probably saved five grand doing that. And I think that's, to me, for the typical person or business or enterprise, that is the promise of AI. So yes, does it require fewer bodies? Yes, of course. I was going to say, do you know how many lawyers you just fired? And one thing that is worth mentioning, it's not an original idea of mine.

But when you think about other technological revolutions like the railroad system, right, those took a long time to build or the highway system, all these networks, and it took a long time to feel the downstream effects because it takes so long, right? You build the railroads, then you build economies around it, and it takes almost like a generation. And so those things all created job losses, but they happen so slowly that they just get reabsorbed. And the one thing I do worry about is that AI's happening so fast.

To everything. I think faster than anyone is even comfortable. It's so fast it makes people uncomfortable, including the people running the actual frontier labs, that it may be more disruptive for that reason. Well, no industry is immune. I mean, the railroads came for horses. Yeah. This is a lot different.

Yeah. And speaking of horses, actually, it was trolley cars. not horses. But if you look, I've studied S-curves because we're in an S-curf right now. Bitcoin has been in an S-curve. So I studied S-curves going back like a couple hundred years. And the most spectacular failure of an S-curf were the trolleys. Because they came and then the cars came. Oh, it was too late. And that was the end. So that was an S-curve that imploded. And sometimes that does happen. Because you have cities that kept the infrastructure, but almost like as a novelty, like in Louisiana, San Francisco.

The car came too quickly after the trolleys. And yes, yeah, in San Francisco, of course, who doesn't like to go on the trolley. All right. So overall, then, given, like, everything that you've said, we know that there's this debt limit out there. Like, at a certain point, it will become apparent to everyone that there are no, you call them non-economic buyers,

and the rate is outstripping our potential economic growth. All right, but everybody knows that. Right. So that's, like, a thing that we just have to think about. I don't know that there's anything actionable about it per se. No, but when it, when push comes to shove, like one thing that's on my mind and you just asked about gold is at what point does financial repression come back or will it? I mean, when we had finance, so you know, QE, zero bound.

When we had that in the past, there was no, there was a deflation risk, not an inflation risk. So I don't know what that's going to look like at a period in a time when inflation is running at 3 to 4%. I don't know how that's going to be executed, but you look at France. It's a debt spiral because their cost of funding is going from 2 to 3 to 4 to 5, and it's going to eat up their interest expense and they don't have the growth. So someone has to go and try to fix that, which would be the ECB, but of course Europe is kind of a should show anyway. And fiscally, of course, they're all different countries.

But you wonder at what point do you get back to a Treasury Fed accord like we had in the 1940s and Bessenden Wars start to coordinate or they at least kind of force the banks to be that non-economic buyer, which is actually pretty easy to do. You stop paying interest on excess reserves and they're going to buy treasuries pretty quickly. And so you wonder what the endgame is if there needs to be one. and, you know, best and serrate doing this with sort of issue more bills, buy issue fewer bonds, but there are limits to how much you can do that with without the Fed being complicit, right?

Because otherwise they're going to push T bills up. That's going to upset the repo rate, the T bill ratio. You can have another repo problem like we had in 2019 that forced the Fed to cut rates. So you, like, those are the things I wonder about if the cost of capital keeps going up or at least doesn't come down. And then, you know, back to your earlier point about what do you buy when this stuff is happening, you know, I've been pounding the table on what I call the 60-20-20 for the last four years. Tell us what the 60-20 years. So we all grew up in the 60-40 era, right? You buy 60% S&P, 40% Bloomberg Ag.

Which has become 80-20 in recent years. And from the late 90s until COVID, that made you a 9% Kager and against. a 9% annualized vol when inflation was 2.5. Like, what's not the like, right? That's on the sweet spot of the efficient frontier. But it's built on the premise that the 40 is negatively correlated to the 60, which it no longer is because when the cost of capital rises and the risk-free asset is competitive, the correlation goes to positive.

And so bonds, I think they're attractive, right? The risk reward of owning 10-year treasuries is like 11 to minus 1, right? If yields fall 100 basis points, you get your 5% coupon plus 6% in duration. And if they go up 100, you get your 5 minus 6, you lose 1. Those are pretty good. No brainer. Those are pretty good numbers, right? And it's driven by real rates, which is even better because you can lock in that real rate.

So I like them for that reason. But not, you don't like them enough for them to be 40. But not, not 40. And so, like, I love short to intermediate term tips right now because they have a duration of like two and a half and they have a real rate of like two and a half. So it's like, to me, that's like a sweet spot. Leveraged loans, you know, they're like high yield but floating rate. They're syndicated loans.

No duration risk. Those are interesting. Gold, Bitcoin, commodities. So these are the things that you would stuff into that other 20. You want stuff that is uncorrelated because in the, what the, the, The world that many people know is that when the 60% wobbles, the stock market goes down, the bonds are there to bill you out. Now, it's the bonds that are causing the wobble.

The wobble in stocks. So you have a positive correlation. So you need to have stuff in there that doesn't move in relation. So I look a lot at correlations. And for instance, the B-Com Spot Index, commodity index, is so if you have four quadrants of correlation to equities and to bonds. This is in the lower left quadrant where it is negatively correlated

to everything else. Managed future is the same, probably because they all are long commodities. And short bonds. And short bonds. Again, short data tips. S&PXAI is like uncorrelated to everything. It's like, so there are so many places to go.

And that's one of, that's a great thing compared to, you know, five years ago. There was a danger, though, that if the wobble is so powerful in bonds and stocks, that components of that other 20 fall prey to it and the correlation snap to one? I'm thinking Bitcoin, like, how fast could Bitcoin go back to being a NASDAQ proxy? It could happen in two seconds. It was for, in...

For some of them, that is a risk. And actually, we're seeing this in the European banks right now. That's been one of my favorite sectors. You got a tremendous growth in the payout. The payout ratios 88%. They've out until just a few weeks ago, since April 2025. They outperformed the S&P by as much as AI did, which is incredible. These are the most boring part of the world, European banks.

But that's because they were handcuffed for so long by negative rates and policy. And now positive yields are very good for banks. But so you do worry about that. But for me, the bigger worry is when this very diversified portfolio, and again, it's not investment advice. It doesn't have to be 60, 20, 20. That's just back of the envelope stuff. My worry is that does, will that perform in a high beta environment or a low beta environment?

And my guess is it's going to be in a lower beta. Beta meaning the market return, right? So we're in a secular bull market since 2009. Many people disagree with me on the start. import, including Barry, when he did my podcast on Bloomberg. He loves debating that topic. Yeah, but to me it's 09.

I'm very annoying about that. And I can go for an hour about that, but let's not. Next time. But the return in the market's been about 17, 18%, just over the last 10 years. Unreal. Nominal returns 15, real returns 11. Those are outsized returns, right?

So we've been over-earning, back to your earlier point, beta for a long, long time. And of course, that comes from the price gains, which comes from the large-cap growth story and now the AI story. And my senses, and the Cape models suggest this as well as secular analogs, that the next five, ten years, they're not going to be terrible, but they're going to be a lower beta than what we've seen over the last five years. And I want to focus on the income side. I want a coupon clip equities that have high payout ratios and good payout growth and good dividends and buyback shares, but it's not going to be as sexy as, you know, earning 20% a year. Are you, last thing I want to get to before we let you escape.

I want to do this, I want to do this chart of the internet 1995 to 2000 versus the AI, which you're dating from, I guess, the end of 2022 to 2026. It's 16, Daniel. I know the chart. All right. So without getting into every aspect of this and going back into P.E.'s, just generally speaking, are you at all concerned by, I don't know if it's pattern matching or just the length that this has now been going on? Because I very specifically have memories of that 1995 to 99 run, which was four years, because that was how I started in the markets. And we're sort of knocking on that door. And I know it doesn't really actually mean. anything, but a little bit. Like, even secular ball markets that run on for a long time have resets during the course of that. You just talked about a few of them.

Like, you would all worry that maybe 27 could be a hiccup year, even if the AI boom goes on 20 years? Yes. And not just because of this chart, but just other analogs as well. But with the caveat that price analogs are for entertainment purposes only, Because they work until they don't. But there is some parallel here, right? So 1994, obviously, the rate cycle, Greenspan, stealth bear market is generally how technicians refer to it.

You can overlay that with 2022, which again, earnings were fine, but there was cost of capital increase, lowered PEs. then the Fed stepped off the brakes. In 95, the market went vertical, I think up 38%. And Netscape went public that year. And that was the aha moment where everyone was like, oh, internet, you know. And so you had this massive boom until 1998. Then LTCM happened, like totally unrelated to the internet. You had a 22% decline.

The Fed blinked ease rates three times. And that's the melt-up. and the melt-up phase start, 98 to 2000. Mega-cap stocks doubled in valuation, and they did not have the earnings to back it up. And you had Cisco vendor financing everybody else, just like Nvidia is doing today. So April 2025 is that same moment.

Market had gone 21% down. So back up. 2022, chat GPTs launched. That was the, oh, my God, you know. Right. And now we're years since then. And it's been straight up. Yeah.

And it went straight up until spring of 2025, the tariff tantrum happened, 21% drawdown. That ended, Fed blinked, east rates melt up. And so that's the analog that I showed on the chart, is 98 to 2025. And we've gone up exactly the same amount over the same length of time.

It's crazy. Now and then. But the opposite of that is the valuation, right? S&P Tech traded at a 70PE in 2000. It's at a 21 p. That's the saving grace. Another analog, very different situations, but situational awareness and LTCM. But just to take that one point further, valuation is such a fascinating topic because even

though the earnings are the earnings, a perma bear can look at the same data as a permabole and come up with opposite conclusions, right? So the next 12-month PE is falling like a stone. The last 12-month PE is falling, you know, not as a stone, but as a pebble. but the five-year cape ratio is at an all-time high. So pick one to argue with. So in this chart, if I showed five-year capes for the S&P then and now, they're identical. But what is a five-year cape, right?

That includes 2021, which is COVID. So I caution to look at that, but it just shows you how fascinating valuation is, and you can come up with any conclusion. It's like, is beauties in the eye of the beholder. So Rorschach test. We think you're a fast. Thank you so much for being here. Can we give you a present? Yes.

All right. You got to open it here, though, okay? Yeah. All right. Nicole, you're going to help? All right. This is for you. You could take the card with you. So we wanted to, we wanted to just recognize you as a fan favorite guest. And Michael and I love talking to you. We learned so much from all the research that you put out. And our audience always learns a lot from you as well.

So we have a scissor? Or a knife? I got it. You got it? All right. All right. So we wanted to get you a little something. And why you're...

Seeing that this is on the air, I might get a call from compliance, but... No, no, it's not gold bars. It's nothing outrageous. We know. I was in the brokerage industry for a long time. I'm well aware. Actually, it's the reverse. You can't give us a gift.

I think it's the way it really works. Yes, it's true. All right. So we know you cook for an army of people when you do burn. By the way, how is this year's burn? It was great. Was it one of the good ones? It was one of the easy ones.

So I'm the chief cat herder and orchestra conductor. Yes. And we had 100 people this year. Amazing. Including a Canadian TV crew that was there to document food culture. So we're actually going to be on Canadian TV at some point. But there was no drama. There was some rain, but we're kind of used to it now.

So it doesn't phase us. We fed more artists than ever before. And it was great. That's super cool. All right, well, I want you to bring this to the next burn. Do you know what it is? Oh, yes, I know what this is. I mean, I'm assuming you've got plenty of knives,

but this is your travel knife set for your next burn from William Sonoma, which is actually a stock in the bull market. Yes. I know you can't comment on the stock, but it looks pretty good right now. Let's see. You ready to rock with those or what? Oh, yeah. Yeah?

Wow. We like? Thank you. All right. It's our pleasure. Thank you so much. Thank you for everything, Yuri. You're the best.

Thank you. Appreciate it. Someday Michael will come to a burning man. I know someone you can talk to it. Yeah. I won't. I won't, but he might. All right.

That's it for us this week. Guys, huge thanks to urine, Timor. What's the best way for people to keep up with your research? I know you're active on LinkedIn. Is there a specific site at Fidelity they can subscribe to you? The easiest place is to find me. So every Monday I do a podcast, half hour a podcast. Okay.

It's actually for our Canadian sister organization, but they put it out on YouTube. It's really good. All the charts are there. And then every Sunday I publish. I nerd out all weekend and I publish on Sunday. It's internally, internal originally, then it goes out after compliance looks at it. It goes on LinkedIn usually by Tuesday morning. And it gets connected to X that way as well, although the people on X complain, why is the long form morning on LinkedIn?

But it's a long story. But so everything is out there. there to consume. All right. Guys, follow Urien on X, on LinkedIn. Get all his research. Thank you so much for being here.

Ladies and gentlemen, thank you for watching. Thank you for listening. We'll see you soon.