00:01Consensus is pretty constructive. It's pretty bullish, as it should be after most stock indices in the U.S. are
00:07sitting at all-time highs.
00:09And so I think people are very constructive.
00:12Unfortunately, when you get into that mode, you stop thinking about what could possibly go wrong.
00:17And I think that's the most important question to ask when you're bullish.
00:20And the answer this year, I think, is inflation.
00:22And linked into interest rates, Urien Timmer out on LinkedIn with a brilliant, brilliant chart migrating the 5% 30
00:31-year bond, a higher yield.
00:33Link out of consensus in the equity market with a 5.2, 5.4, 5. whatever percent 30-year.
00:44I haven't seen it.
00:46Well, I know you haven't seen it, but the basic idea is higher inflation, higher yields, market it to 30
00:52-year bond.
00:54How will that affect the equity markets?
00:55So push out the curve.
00:57Well, you know, that's the issue.
01:00I think people are really focused on one thing when it comes to inflation, and it's oil, which is now
01:06off the boil.
01:07It's really when a rise in commodity prices, energy prices, turns into core inflation, or what the Fed calls underlying
01:14inflation, that it becomes an issue for market multiples.
01:18And I'm fearful that that might be, you know, that might be what we're wrestling with come the fall.
01:23We have a new Fed chairman, Mr. Warsh.
01:26Presumably, he comes in with some kind of expectation to lower rates, if you will.
01:31But, boy, the data doesn't seem to support it.
01:33And what do you expect to hear from our Fed?
01:38It's in a tough spot, let's be honest, because the data is very constructive, you know, particularly if you look
01:44at the PMIs, the ISM yesterday.
01:46The regional PMIs are seeing these smile patterns in virtually every data series.
01:50I think that was a surprise, the consensus, you know, after what occurred in March.
01:56At the end of the day, we have an insane amount of stimulus hitting the economy in 2026.
02:01So it is your classic recovery, the tide that lifts all boats and earnings.
02:05We're clearly seeing that.
02:06And it's being augmented by what is happening to AI.
02:09Forward earnings growth for the S&P is up 29%.
02:13I've been at this a little over 30 years now.
02:15I've only seen numbers like that twice, coming out of the GFC and coming out of the pandemic.
02:20And so this is really unique times that we're in, but that is often a sign of an economy that
02:27is overheating.
02:28How about you see, like Tom mentioned earlier, Google coming to market really the first time since it went public
02:3420 some odd years ago,
02:36with this massive equity deal on the backs of the tech industry for the first time really in its history,
02:42tapping the bond market in size.
02:45What do you make of all this investment in AI?
02:47It's something like we haven't seen. Yeah, really.
02:49You know, Eddie, you were asking me about consensus.
02:52So one place where I think it might be off is just how strong the U.S. economy is in
02:582026.
02:59A lot of people are still hung up on structural issues and they're very legitimate.
03:04But cyclically speaking, you know, if you do back of the envelope math, you're getting about a percent to GDP
03:09growth this year from the big, beautiful bill.
03:11You're getting over a percent from the CapEx cycle just from the top five hyperscalers, which is a little mind
03:17blowing if you think about it.
03:19And then we haven't even talked about the lagged effects of the Fed's rate cuts, you know, which take almost
03:24two years to impact the economy.
03:26So it's not that difficult to get to three, four percent, you know, in 2026.
03:31Then the nominal GDP is five ish or, dare I say, with inflation, six is percent.
03:38Well, I guess it's not a banana republic, but it's not the American economy we knew two years ago, 12
03:44years ago, 22 years ago.
03:46It's original, isn't it?
03:48Well, what's changed is fiscal stimulus and monetary stimulus.
03:51I would say we had the CapEx cycle.
03:53It wasn't as pronounced as it is today, but we've added to that rate cuts and we've added fiscal stimulus.
03:59OK, so inside baseball, folks, I don't want to nerd out here.
04:01It's too early in the morning.
04:02And, you know, Alexis and I were up all night talking about the Knicks.
04:06The bottom line is, is the Kalecki-Levy theory, which Richard Sharma talks about in the FT, is that if
04:14you have a big government deficit, some of that rolls over as a spirit into the private economy.
04:20It's a, you know, theory 50, 60, 70 years old.
04:24Are we getting a goose to our economy because of all this debt and deficit?
04:29Partially. Yeah, absolutely.
04:30And I think the, you know, the real challenge for Warsh is that the Fed is dealing with labor markets
04:38that are unlike anything we've seen before.
04:40We have literally zero growth in the labor force this year, partially because of demographics, partially because of immigration policy.
04:47But we haven't seen anything like that.
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