00:00Ethan, I'd love to know if you're penning a note to your clients these days, how are you setting them up for 2026 after this spectacular year of 2025?
00:10Well, we don't like to be the bearers of bad news, given, as you know, the exuberance in market strategists is very hard to miss at the moment.
00:18It seems like every single one is forecasting positive results for equity markets and certainly very bullish on the American's equity story.
00:27We are not exactly putting a cold shower on all of that, but we are bringing a few notes of caution.
00:32One of those is regarding the K-shaped economy we've been speaking about for some time.
00:37In the preview, you highlighted that we're speaking about the era of enough.
00:41We believe that there are many checks coming on this exuberant run we've seen in tech stocks, as well as sentiment.
00:49I can go into what some of those are, but we just have to look at electricity pricing for one.
00:52Ethan, I want to get to that, but I wonder, what is your take on the comparison between the AI enthusiasm now and the dot-com enthusiasm at the end of 1999?
01:06Or the comparison between NVIDIA now and Cisco in 1999?
01:13Because we were so excited to pay as much as possible to lay fiber then that we did eventually need, right?
01:21Yep.
01:22It just took a few years for it to become profitable.
01:24It feels to me like our enthusiasm to buy Blackwell chips now, which I'm sure we will eventually need.
01:31But the question is, when does that pay off?
01:34Well, there are some similarities, of course.
01:36And this is the old adage about history not repeating but rhyming.
01:40What we do see is this belief that it's different this time.
01:44We do also have key differences given the actual revenues, the actual cash flows in place this time,
01:50the fact that many of these companies have sufficient balance sheets to fund much of this expansion.
01:54But the exuberance and sense of excitement and almost the drowning out of some of the counter forces
02:01and some of the opposing voices, that is very similar.
02:04And in terms of the infrastructure build, I would agree with you that this will eventually be used.
02:09But then there is the difference in the fact that the shelf life of some of the chips is not going to be the same
02:15as what we had in terms of the fiber layout.
02:18And that may well be that the demand does not follow with the same pace as the chips essentially outlive their purpose.
02:26So, Ethan, if we're entering the year of enough in 2026, does that suggest kind of muted return expectations here?
02:34Or does it even suggest maybe even something a little bit more bearish?
02:39I would say to me what enough means is a rising up of the voice of the people, the voice of opposition.
02:45And what we've seen so far, I don't know about you, but I've spent far too many days between Christmas and New Year
02:50focused on some of the rabbit holes of X that have all focused on self-improvement.
02:55But there's been that voice of nihilism, discussion of this generation that is essentially degenerate when it comes to finances
03:02that have maybe given up and thrown in the towel in terms of conventional wealth creation
03:07and are now all going to the virtual casino in terms of betting everything.
03:12There's a lot of debate around that.
03:13And that is essentially basically really bringing out the case-shaped economy into its full effect,
03:19that there are some who will simply not participate in this uprising of the economy.
03:25They cannot participate in equity returns, and they're being left behind.
03:29And this is not just the lower-end socioeconomic consumer.
03:32It's increasingly the college graduate of today.
03:35So I do believe that consumers will call enough on AI progress.
03:39They will certainly call enough on electricity pricing.
03:42And they're going to call enough on some of the relentless march of AI and technology
03:47without taking account of some of the social impact.
03:51We're hearing a lot about the anxiousness.
03:52Go ahead.
03:53Well, I want to ask you about electricity pricing and about the performance of utilities.
03:58This year, they're up, I think, 13% or 14% as I look at the S&P, GIX sectors.
04:06Energy is only up 5%.
04:09That, of course, is due to the incredible drop in the price of oil that we've seen.
04:14But we're going to need these utilities.
04:18We're going to need electricity.
04:20We're going to need natural gas.
04:22Is that a bet for 2026, or do you think consumers will call enough,
04:25and that's going to curtail profits?
04:28No, they're going to call enough on the data centers
04:30that are essentially eating their electricity allocation and driving their prices higher.
04:35That's where the pushback will be.
04:37There will be a craving for energy.
04:38We know that that certainly is a hockey stick that shows no sign of abating.
04:43And you mentioned energy.
04:44Your columnist, John Authors, did an excellent piece,
04:46which he showed that essentially this hindsight capital looking back
04:50and showed how clean energy is up 40% this year,
04:54while oil and traditional energy is, of course, as you mentioned,
04:58seeing much more darker days in terms of its pricing.
05:01So the fact that clean energy could rise but close to 40% against the headwinds
05:06that the Trump administration is clearly throwing at it,
05:09that is a sign of just how we need electricity from anywhere it can be got.
05:13And that's something that I do see as not abating.
05:16As far as why utilities have not been participating in this,
05:19utilities are traditionally your defensive income-generating stocks,
05:23the very opposite to the large growthy tech stocks.
05:26So that has been a sector that's rotated out of.
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