We need to have a big national campaign

to get people to stop spending money and to put their money into AI bonds.

War bonds. Right? Yeah.

I mean, yeah, I with people already

putting some weight on doom with not liking the noise

from data centers in their environment.

I think what America needs right now is to be told to to spend less

so that the AI boom can more fully run its course.

I, you know, I, I'm not running as a third party candidate, and I'm also,

probably not allowed, but you know, that would be definitely my platform.

I would classify that under financial repression.

Hello, and welcome to another episode of the Odd Lots podcast.

I'm Joe Weisenthal and I'm Tracy Alloway.

Tracy, this it dawned on me the other day,

Market’s kind of crazy right now.

No, no, it's like seriously, it's like we're sort of

used to all this stuff and everything that.

And then one day, one moment I realized, oh, markets are really crazy these days.

I would say weird.

I find them very weird at the moment with like, the biggest tension

being what's happening in the bond market and the stock market.

By the way, I have a huge caveat for this episode,

which is we are recording this on September 9th.

I've been away for the past week on vacation.

I probably should have put up my like normal going

on vacation morning, so something is about to blow up.

Turns out it was the bond market. Yeah.

You know, actually, it's funny you say that

because the way I think about the market right now is so much is happening

and nothing is happening in the specific sense that it's like,

okay, we're in the middle of a war with Iran.

And so we're just like, oh, it's just this headline.

Trump says negotiations are going good.

And then it's like people move on.

There's some crazy model leap etc.

by one of the AI companies huge news but also so regularly cadence

now is that even that almost becomes noise.

Obviously the movements in the bond market, I guess, like that is

that is probably the one thing that does feel novel about

maybe just the last few weeks.

But even there a lot of that angst has been going around a long time.

So it's like there's so much of everything.

There's no there's no like one thing that just, you know.

Yeah.

Like yesterday, September 28,

it was announced that David Zervos was going from Jeffrey.

I saw that time room in Connecticut with no electricity.

And even I saw that ten years ago.

If that is announced, that would be like a really big thing.

People talk about people.

It is who all this stuff.

And it barely broke through.

But there would have been a time where that would have been

the biggest sort of market related or Wall Street related story of the day.

It feels like stock markets are sort of overwhelmed

and or inured to everything happening, except trying to make money.

Know like that is the one impulse that remains that never gets old.

No. And that's arguably the point of the whole thing.

Anyway.

I really think it's

we need like a sort of big rambling state of the markets episode.

And we really do have the perfect guest, someone who used to be our colleague here

at Bloomberg.

We are, of course, speaking to Luke Kawa, head of markets at Sherwood News.

So, Luke, thank you for coming back on Odd Lots.

Oh, great to be here. Thanks for having me.

Oh, you know, I will get me started on something new, actually,

because there's so much going on, suddenly lately, market's having a great year.

S&P up or over 12% or about that as the time I'm talking.

What's up with I see a lot of talk about breadth.

This is sudden everyone.

So about market breadth these days. What's that all about.

Yeah I think why

they're talking about breadth this because it's absolutely god awful.

You know there's been a lot of different stats to,

to show a you can say, you know, the average stat is X, y, z, below it's high.

Well, the S&P 500 is, you know,

as of writing about, you know, 1.5% off of its high.

The one I came up with that bothered a lot of people the other day was,

coming into this week, the S&P 500 was, you know, 0.5% off a record high.

And just 51.2% of stocks were above their 200 day

last time we had, you know, that proximity to a high with that few stocks

above the 200 day was literally the day after the.com bubble peak.

So, you know, that gets a lot of people mad.

But then you have to point out, okay, wait.

Breadth was also that bad in 1998.

Market ripped for another two years. Yeah. After that.

So it really is a case of and I think to unify

a lot of what you were talking about in the intro,

is the market inured to higher rates?

Know a lot of the market isn't, the S&P 500 equal weight certainly isn't.

The Russell 2000 certainly isn't.

However, basically the to me, there seems to be just this big bet

that the AI impulse will continue to eat and swallow the world.

Until who knows what puts a stop to it, whether that's kind of the,

can credit conditions, the capacity to land, whether that's regulation.

But right now, the the pricing to me just looks like more and more betting on

a singular factor to be able to drive growth.

Like, think about it.

When's the last time that there seemed to be more confidence

in European industrials than the U.S.

consumer during a period of strong growth?

I like I cannot ever remember that happening outside of maybe like Euro boom.

What was it, 2017 for a couple months?

I mean, it is true that in higher rates.

So rates are a blunt tool for the fed.

Right.

And they're going to hurt something like a home builder a lot more than an

AI company that is issuing like mega deals into the bond market, I would imagine.

Is it the case that, you know, maybe the bet on AI makes sense in that environment?

Maybe the AI companies

are the ones that are less rate sensitive than a lot of other businesses out there.

I think right now that's like a perfect encapsulation of conventional wisdom.

To me, it's also, you know, very interesting

that as we've had this latest explosion higher

in yields and we've talked about like, oh, it's the AI impulse this, that,

it's also come at a time where hyperscaler credit spreads.

None of them are at their wides of the year at the long end.

Yeah.

It comes after a September of you can tell me how much U.S., IG

and USD issuance there was by hyperscalers.

I believe that's a zero for September.

So it's yeah. So very very interesting.

You know, they got their business done to help

because they got a little bit spooked with the CapEx response from the market.

So so that to me is something that like, hey, a lot of this in the bond market,

both a response to to stronger growth and, you know, the potential for issuance.

A lot of this is like the classic Mark Dow belated overreaction

to something we've been thinking and talking about for a long while.

And then I think the, you know, the question is how long can

the cyclicals that are doing well at, you know, operationally at least,

how long can you they be plumbing 52 week lows a lot of these.

And is it just because AI is doing so well?

And I think that's the kind of important part to be making the important point,

to be making that so much of this market has been dispersion.

Helene Miser calls it the either or market.

I've called it, you know, the Elaine George market.

Jerry's friends.

Only one can do well at the right time.

But that's that's been a really, really defining trademark of 2026.

At first it was, you know, semi software.

I think more recently it's been like this idea of inertia stocks

versus the year of the general AI beneficiaries.

And I think that to me is a bit of an important twist.

It's this idea that like it's not just one layer of AI that benefits.

It's, you know, multiple layers through through software,

through the hardware providers that get to benefit from an impulse

like muse, like tic Commerce, and then others that get hit.

So that, to me is the least a bit of a nuance

and how the market treats AI and the impulse.

But for me, it's just really a sign of the mechanics

that have continued to dominate and just continuing to play out.

It's interesting.

I looked up, chart of McDonald's and that was doing really well up

until and then it peaked on March 3rd, and then it's been straight down.

So it's like basically when the around war started,

that was wait, was that when the CEO ate, oh,

reluctantly I forgot about it.

What it just like any consumer name you can think of right now,

the stock is awful.

Nike is the classic example that was a has.

Crazy.

There was a $180 stock in 2021.

It's 35 now.

I mean there's just like I mean granted in any huge run up in 2021 to but like any

like just sort of like regular business that is they're just doing terrible.

It's it's crazy like and when you look at Nike,

one of the things that stands out

and I think you could apply this more recently to a Walmart, possibly

to a Costco.

And I'll tie this back to software, oddly enough.

But these were relatively expensive stocks that didn't have exceptional top line

growth and a world where nominal growth has been accelerating.

That's been the that's been what the bond market moves about.

That's what stock market resilience is about.

Like why do you well, why do you want to own the stocks?

Why do you want to own the stocks that aren't growing that fast,

that are expensive when everything else is growing very fast?

So I think for what happened for a while is that a lot of these consumer names and,

you know, Walmart and Costco in particular, they were stand ins for the

the software stocks that were, you know, bound to be disrupted by AI.

Because if you think about it, you know, if if you're going to spend,

a certain amount at Walmart every month, that looks to me like an IRR

kind of revenue profile that you've got there.

A Costco is literally a subscription kind of membership.

Yeah. And a lot of ways.

So I think that was a stand in for disruption fears.

And as software has come back you've seen kind of multiples there deflate.

So I think it is you know we gotta find someone to punish.

Maybe it's just because everyone's very invested.

But when air is doing well you gotta find someone to punish.

What about just in terms of pure earnings expectations, what we're seeing here.

Because this is the other thing that that in theory should be happening,

which is you hear about productivity gains from AI, you should be seeing people

get excited about the possibility of cutting labor costs.

I don't know, coming up with new products with AI or whatever.

And in theory, you should be seeing that go into the earnings estimates for future,

for future years. Are we seeing any of that?

I mean, I would say in theory and in practice, what we continue to see

more of is the AI hardware impulse as just the straight fuel for earnings.

Goldman had a good note

released a couple of days ago where they said, you know, about half of

earnings growth this year is expected to be just driven by Hyperscaler CapEx.

So pretty pretty big impossible.

We're talking about how strong growth has been.

Earnings growth has been this year.

And you can just link it and distill it just down to that one factor.

And then also if you look at okay, they also ran in a separate note.

What do we think explains multiples across Russell 1000 stocks.

And the answer they came up with was more so than usual.

It's three years forward sales estimates right now.

The one year forward sales estimates.

And those revisions have almost no explanatory power.

So you know sales growth right now in for the near future.

It's priced in. We all know it.

We see the backlogs all this all that.

The real bet on what you're willing to pay for

is the kind of three years out thing.

And when I did a scan of stocks that, you know, we're just both expensive

and had,

you know, so market's willing to reward them and fairly high sales estimates.

You know your Bloom Energy's a out of the optics stocks.

Those are the ones that that pop out there.

So that's been kind of the way to earn a higher valuation

right now in this market.

It's betting on the continuation of the hardware trade.

Yeah this is something interesting.

Both Tracy and I love the, hair charts, the Medusa charts of all the storage

lawnmowers, where you see historical expectations of a trajectory.

And one of the ones you're starting to see more is just the, the CapEx one.

And so you look at like, what, you know, what sell side had estimated

hyperscaler CapEx should be in 2023 and over

the next three years, and then that gets keeps getting revised higher.

And it seems like it's continuous.

And so I'm curious like there is some number exists.

Right. So maybe I don't know what it is.

They'll say like okay,

they're expected to spend 1.2 trillion over X period of time and that's up.

But like how much of the trade is essentially a trade that

that the estimates will keep getting revised higher for spending?

I gotta think a solid chunk right now.

And there's at some point I think there has to be this handoff

from that to a kind of kind of more broader set.

And when Nvidia and it's either a quarter ago or one before that,

they actually kind of rejiggered how they're organizing

their earnings to account for the fact that, you know, we expect

sovereign AI and, and robotics and physical AI on prem stuff.

We expect that to be contributing more and more to our sales going forward.

It's going to be real small now to start, but we expect that to be a bigger driver

than hyperscalers.

And you know, you know, potentially NIO clouds.

But you know they're doing all they can to support that going forward.

So I think right now that is a huge, huge chunk of the trade.

The the bulk of the trade.

But the the promise of AI is that it has to be more applicable than that.

Right. To your point, it has to have the productivity booms.

It has to have the labor saving.

If it doesn't, then, you know,

what are we here for is kind of I think the question at some point.

Yeah. Did you see the chart?

I think it was in a Adam Twosies newsletter this morning.

I mentioned that the CapEx expenditure on AI is now like the biggest.

Oh yeah. Yeah.

The great pay for all time. Yeah.

I saw the economist Hannah Lustig.

I'm not sure if I'm pronouncing his name right.

He's saying that this is a I mean, this is like that to

to justify all the spending. Yeah.

They estimate like a handful of companies will have to get revenue.

That's like 9% of GDP. Yeah.

In order to justify it, which is just like unbelievable.

It's ambitious, ambitious, I'll put it that way.

So I promised myself I wasn't going to talk

exclusively fixed income in this conversation.

But we can't have Lucan without, you know, more about fixed income,

bond yields rising.

So these are the headlines that I saw when I was on vacation last week.

You know, the ten year going to above 5%, 30 year rising as well.

What's your story for?

I guess I should divide it up.

Global bond yields rising and then U.S.

Treasury yields rising specifically

predominantly I think it's the same story for both are the same.

Like if you had

to do a principal component analysis or something, I think what would stick out

across the board is it's the global growth impulse, it's activity.

It's both in the U.S. and globally.

I think we see, you know, the industrial side of every economy

is doing incredibly well and expected to do so.

And I think something you wrote a while ago kind of fits into this about,

you know, that which can be repurposed for I will be with reference to forward.

Yeah, I believe that. You know,

it seems as though the the impulse is just getting more widely shared.

If it's, you know, you have an impulse this big, it's bound to lift

a lot of boats.

And I would say that's

kind of what's happening throughout the the global economy.

That is far and away, I would say the one thing

to think of if you had to if you just had an elevator pitch with someone,

why our bond yields are high because growth is really strong.

That's putting inflation up.

And central banks are expected to respond to that.

You know, zooming out.

But we haven't had a huge move in like break events in the U.S, for instance.

Yeah.

But I think that somewhat speaks to the idea

that central banks are going to be, you know, quote unquote credible in,

in keeping a lid on inflation over time.

You can believe that or not, because like,

if you've been a hold the maturity buyer of five year U.S.

treasuries from at any point in 2011 to 2021, outside of like a little

before the shale bust, if you got in there,

you have negative real returns through that entire period.

I'm actually very curious.

I find this the stability of break

evens to be very surprising, because usually what people say is like,

well, yeah, naturally, people

think the fed is going to take its dual mandate seriously.

And okay, we're going to they're going to have to raise rates to roughly and think

and therefore inflation will be a little over 2%.

Are you surprised that

after years and years of the fed missing its inflation target,

there hasn't been more like no, we do not think that the fed will be able to

we do not have the confidence that the fed will be able to, maintain

stable inflation in the years ahead, or why isn't it manifesting on their chart?

I would say in a word, yes, I, I I'm genuinely surprised that I find

this show surprising.

I think it is an odd dynamic.

The the best explanation I have for it is just thinking back to,

you know, when I be in meetings, we were discussing

asset allocation, especially during 2022 at

UBS in 2023, high inflation, high inflation, environment.

Basically bonds become the residual at a certain point.

Like you buy bonds when you're worried about growth

and you don't think there's going to be that much inflation.

If you think growth is fine and it's inflationary,

well, you know, it's, you know, cash or short

term and a lot of stocks and or you know, stocks, commodities a little bit of cash.

So it's like bonds are kind of the thing you make the final decision on.

So I would say the fact that a lot of this is driven by

real yields might come back to a I think of like,

how do we get bonds to be more attractive relative to stocks.

And a lot of people will do the, you know, your earnings yield less the

plain vanilla,

yield on bonds.

You should probably be doing it versus the real yield stocks are,

you know, stock earnings more of a real stream of assets.

So I think in order to get bonds to be a more competitive

asset with stocks, you do need to see reals rising.

And that a lot of the move is effectively saying like, hey,

I can't I can't justify

buying a, you know, 2%, you know, 2%, even real return, 3% real return.

When this is what I think is on offer.

And I so I think you're having it come through

realsies is part of that story and part of why,

you know,

part of the decision making process

in terms of how a cross asset investor would be looking at bonds or you go

the financial repression route and just make everyone hold bonds, right?

That's like that's an actual possibility or

we need to have a big

national campaign to get people to stop spending money

and to put their money into I bonds, war bonds.

Right? Yeah.

I mean, yeah, I with people already

putting some weight on pe doom with not liking the noise

from data centers in their environment.

I think what America needs right now is to be told to, to spend less

so that the AI boom can more fully run its course.

I, you know, I, I'm not running as a third party candidate, and I'm also,

probably not allowed, but, you know, that would be definitely my platform.

I would classify that under financial repression, but

I'm sure you know, it, it it is a form of oppression.

Yeah. Yeah.

Totally.

It yeah, just make it patriotic that it's like like we are in.

No, this is actually worrisome.

Worsham.

Dynamic to me in this sort of like thinking about the economy,

which is people perceive,

that a AI supremacy is going to be crucial for national security.

Right?

This is a I believe this is a widely held view in Washington.

It's cetera.

If we actually then, like, took that idea seriously, like,

we would be saying like, yeah, we want to depress the non

AI parts of the economy to free up real resources for the build out, etc..

No one, clearly no one can say this or like, articulate this or say

we are going to tax consumption of this, we're going to tax consumption of boats,

anything that could be stripped for its parts to be put into a data center, etc.

but if it is a matter of like

existential national

security, that would be the way we would be doing policy, right?

Almost certainly.

And then you have to go like with, man, if I'm being told I can't,

I still can't buy a house because of the AI,

that's that's going to bother the hell out of me.

So I think there is.

And it's not like it is not like the nuclear, the nuclear race

where once a country has achieved a bomb, it is then in the club of nuclear

powers, there's like it's never ending because it's like there's

no like reason to presume.

It's like, oh, we got the capabilities here.

And when I, when I hear that, what I immediately think of is,

damn, we don't know how easy, we had it.

Speaking as a policymaker, back in the post

GFC era, there were no like the trade offs exist.

No, no, trade offs did not exist for an entire cycle.

We still probably didn't do it optimally, but, you know, pretty, pretty darn close.

And now I'm, you know, I grew up hearing about how central banks,

just by virtue of saying inflation was going to be 2%,

that was one of the important factors that would help it be 2% over time.

I think now we're learning that, you know, that's junk, that completely junk that,

you know,

you got to prove it over time or else, you know, you will be in a situation.

We are right now where, you know,

people really apparently don't like the old bonds.

Joe, describe this as a crazy market.

I described it as a weird market.

Can you choose your one word for describing the market,

and then, you know, you're over at Robinhood now,

I'm sure you see some interesting retail investment trends and color

and maybe a little bit of flow, like what are you seeing at the moment?

Yeah.

So, if I had to summarize cross asset, how I see it, like last

era was Tina, you know, and this is no alternative. Yes.

There is no alternative.

This is too fast to fade both prices and earnings.

Just moving.

That's good. I like the fast to fade.

And speed is something that I think has completely defined 20, 26.

If you look at, you know, the monthly change between semis and software,

those have had some of it's like it's most for violent moves in either direction

this year alone.

You know, I remember when silver was going crazy with that was that was this year

like oh yeah. Yeah.

Absolutely nuts moves all over the place and you know, to to make this

and I think we were being told I compresses economic time.

And I think that was both because, you know,

the power of the technology,

the need to be able to look forward and see what has disrupted.

And now because of agents who, you know, can work when we're asleep.

So this idea of a compression of time and speed manifesting in the markets

is really, really what sticks out to me.

And in terms of the the retail side, the trading I've seen.

So I can describe, net single stock purchases at Robinhood.

So the absolute peak for that, the rolling 21 day peak happened

right about at the in late June, let's call it.

So you know around Micron's earnings then that was the the overall peak.

There was you know one before that in early November 2025, which coincided

roughly with a really big spec asset peak, in my view, in October 2025.

That's still, you know, in some senses, we haven't fully recovered.

So I do a spec, a spec asset like a lot of things like, you know,

Palantir, Bitcoin, quantum stocks, so many of these things. Yes.

And even call option volumes in total those peaked for a while and rolled over.

But that was a huge spec, top that, you know,

we're still kind of clawing our way back from in some senses.

So there's that.

And more recently, what we've seen is supposed

to be traditionally a slow month, September for retail.

It's really rebounded quite, quite strongly.

September.

Last numbers I have are about 89% of the peak that we saw in in June.

We're back to.

So it's been a really strong month for buying

because I went on vacation and spent a lot of money.

And it's like a lot of it's the names you would suspect.

It's, you know, your micron's, your,

your space X's those lead it.

But, you know, every day when I look at this, there's a name in the top 25.

I consider myself someone who knows a lot of tickers.

There is a name that I do not recognize and have to look up very often.

You know, it's fun.

It's, you know, people are, it's a sign of how people look for volatility.

People look to get rich quick.

Look at options trading.

Stock market is a place where we go to express our views

about the long term earnings power of corporate America,

and we do it with options with four days or less to expiry.

Like that's that's the story of the world we live in now.

I like this, the October 2025 speculative assets boom

does not get talked about that much, but it's fun.

It's a good chart.

Like if you just pull up Bitcoin and Palantir how close their peaks

were together around October, they both recently sort of hit a low in,

June.

I'm sorry I so I was

like I don't know which but I love

like actually I love the framing of speed

because it seems very relevant to even how I introduced this.

And one of the things that, like the AI

singularity type people talk about, Kurzweil talked about, etc.,

is this notion of like, okay, if you measure time

by how many, you know, how long it takes for the world,

the Earth to revolve around the sun, that's like stable if you measure time.

By how long does it take for there to be a headline worthy event,

which is a different, legitimately different way to measure time?

This is like extraordinary because and it goes to the intro,

which is just the pace of headline worthy events, is just extraordinary.

And then you see it manifest, therefore then in the speed

of the movements of the whatever underlying asset you're trading.

Yeah, it's blues and blues

should have been like all across my Twitter feed yesterday

and it probably got drowned out within, you know, a couple of minutes.

That's for the uninitiated. That's, you know, David. Yeah.

There goes all the right old motto there back, back in the day.

Where is it headlines, though?

Or is there also an element of market structure in here?

Because the other thing that's happened is we have a lot more shops that are out

there that seem to be affecting the market and causing, you know, sharp swings.

We have a lot more products,

we have a lot more zero day call options, things like that.

And this has been an ongoing trend in the market for a while, where we see the mean

reversals happening really, really fast now, much faster than they used to.

I certainly think both the higher participation of retail,

the increased, you know, AUM, if you, if you want to call it

that in, in the pie chart models with, with tighter with tighter stops,

even a gigantic trading which you know from what I can see

so far seems to be a little more momo driven

the most in terms of the, you know, the rules people will put in to do this.

Yeah, I think all of that in your overlay, the dispersion trade on top of that,

I think all of that does contribute, you know, to an environment where you do

get a lot more single stock volatility and a lot less at the index level.

And you know, that means even the markets are doing absolutely nothing.

It's the classic, you know, duck with its feet underwater going crazy.

We always have something to talk about

even when the stock market is completely aimless for months.

This reminds me, you know, I don't trade, but one of the projects I sort of

want to see how easy it is to build now

is like an a genetic trading bot and like paper trade

on Kelsey or something and like go do a bunch of academic research,

find where people speculate that there might be mispricing

and then like, create a systematic thing, make no mistakes and go, I have it.

I've like started to fiddle around with it, but I haven't really, done it.

Or do you see a lot of people like diving headlong into figuring this out?

I see a lot of people like diving or tiptoeing,

at least into into setting it up.

It's honestly something I want to look at a lot more,

because I think it has some, you know,

fun implications potentially for market structure, like, hey, if you've got,

an agent setting up rules for trading.

Yeah.

Does that mean there's less orders, less stops out there?

Does that mean what does that do to market visibility, that kind of thing.

So like I'm interested in that and kind of how that how that manifests.

And I do need to,

I think talk to more people that have their fingers on the button, so to speak.

But I really think it also has the potential to, again, exacerbate

volatility.

It seems like basically everything we've done had been moving towards

has the potential to exacerbate single day volatility.

Can I put you on the spot and ask you, I guess, the question

that everyone is wondering, because a lot of people will look at this

market and say like it does in fact look a little bit bubbly.

It's again weird that we've been able to shake off

interest rate pressures, a freaking war with Iran, all of that.

What are the sort of warning signs that you're looking out

for for a durable turnover?

I guess in stocks.

You mentioned Brett's earlier, but again, like Brett

can give a false positive like we saw in 1998.

Yeah.

Brett, breadth is not something that I would use as like

a sufficient or even necessary cause for this.

I'm, I'm very boring.

And I like to stick for what drives stocks over the long term.

Also kind of does help drive them over the medium term.

In shorter term it's earnings.

I took a look at recently.

So what would happen if you waited until S&P

500 earnings revisions were 5% off their 52 week high.

What have you like. And we all know the analysts are notoriously late.

You've definitely missed the top.

But like how bad would that be.

How far off would that be.

The only place where you're really, really getting killed on that for the

you know, the past 6 or 7 bear markets is covered

just because it happened so fast and absolutely nobody had time.

And we were already in the whole lockdown by the time it happened.

But, you know, pretty much every other time,

if you look at the if you held for two years

backwards, even after the time that estimates have been cut.

So, you know, you're arriving late to the party, admittedly,

most of the time you're still, you know, looking at pretty healthy gains.

So my kind of thing is, hey, if you've been invested,

you can probably afford to wait for earnings to start

to crack at the index level and have some kind of warning signal.

You're getting out. Yeah.

Beyond that, I think it's,

folks like you who are keenly focused on the credit market

and some of the peculiarities happening there.

Yeah, that are going to be, I think, in the best position to be able to spot.

Okay, like when has this kind of financial ingenuity gone too far.

Because one of the, one of the things that I was high conviction for me

was when hyperscalers went negative.

FCF okay, you have two choices right now.

Either the AI boom slows or the financing starts to get more creative.

The financing has gotten more creative.

So, you know, at a certain point, it's it's interesting to think about,

because when you think about sources of profits right now,

hyperscaler CapEx, obviously, and know

more of that debt financed, and we do have a big fiscal deficit.

So can you think of more, you know, safe places

to be sourcing your profits from then hyperscaler debt and fiscal debt?

That's pretty darn safe until it isn't.

You know, your classic kind of Minsky in formula there.

So, you know, that's one thing that honestly has me surprised

that multiples haven't even been more supported.

Just the fact that, you know, this debt comes from kind of safe places.

If you're on the recipient end of hyperscaler spending, it

almost feels like a bond at this point, right?

Like that's not really, but that's kind of what you're saying, which is like,

these are big structural things you could be fairly predictable.

On the other hand, when you look at who some of the recipients of this money

are going to be, you know, like it's not literally

they're on the recipients of the CapEx money, but kind of like core.

We've CDs.

How do you make the how do you think about credit,

angst among some of the AI players

with the assumption that AI spending is just going to keep going to the moon?

Yeah, I think you can pretty closely map, in a lot of cases,

just a straight up concern about the level of debt.

And just look at your classic debt ratios and oracles.

There's a reason why

Oracle stands out versus all the other major hyperscalers on this.

And kind of use that to flag what's the reason that saying that

I would say just relatively more indebtedness

then than peers or just like less credit worthiness to begin with?

That's why I think a big, you know, recent thing that's happened

is, you know, Nvidia trying to effectively credit wrap.

Yeah, make everyone the safest AI borrower possible.

But but yeah. No, I do think it's,

I do think we live in a world where now a lot of companies,

both aren't necessarily treated as unimpeachable AI beneficiaries.

And also the the second derivatives turned, we are no longer

pricing in the the fastest earnings revisions across the board ever.

At some point you've got to make the transition

from Hypergrowth to growth at a reasonable price.

And, you know, a lot of stocks post the Q3 momentum wrote are still all still

trying to do that.

Only have two semiconductor companies that have made 52 week highs in Q3,

only to AMD and Skyworks and the S&P 500.

Just crazy.

Speaking of like Oracle being different, Greg

at the Wall Street Journal had a really good

tweet the other day observing the fact that, okay,

the one thing that makes the AI boom weird

is that it's not being financed by the fruits of the AI boom.

Right? So you have all these internet, right?

And so it's like the companies

that are best positioned to spend have their own money printers.

Facebook has a gigantically profitable businesses, Google has search, etc.

Oracle is like, fine.

No, I mean it does nothing because Oracle is a good successful company, but

it does not have that like pure money spigot the way the other hyperscalers had.

And actually right now today

or we continue to see, their CDs spike,

speaking of financial engineering and, cash spigots, there's a headline

that came across the terminal, just as we started this conversation.

Luke, slight tangent, but I think it's still relevant.

Man city inflated revenue cut costs by 900 million pounds.

Premier League fines. They're going to be sanctioned.

We don't know what the sanctions are just yet, but immediate reaction.

Let's do sports. Yeah.

Immediate reaction couldn't happen to a better man.

Manchester team.

Hey, you know, this you fan. Yes.

Yeah. So this is, you know, what is FFO?

I'll. I'll keep it. I'll keep it to that.

And I'm very much hoping that

I will tolerate Arsenal retroactively getting trophies

if it means we can also retroactively get one as well.

And that takes a lot for me to say,

Joe thinks the Premier League is the ball case for Europe, so.

Oh, yeah, I love those competing, articles.

I will not say which one I enjoyed more.

I love all my parents equally.

You know what?

I, you know, our friend gone.

Yeah, he bought me.

He got me a gift, the Shenzhen Pang City football club.

He got me one of their jerseys. What colors?

It's blue. They're owned by Man City.

It's part of the, the same corporation or something like that.

It's some,

there's some sort of connection.

Shenzhen City FC is part of the City Football Group

network alongside Manchester City.

And I think like Manchester City.

What's the equivalent of the Championship league over there?

So I don't know. I want to learn more.

I know like, you know, every American first of all their jerseys

are the same color as the Manchester City jerseys.

But every American, you know, it's like, oh, we get excited about the World Cup.

And then we forget about soccer. Not me.

Me and my son have been watching the

the UEFA, tournament that's happening right now.

So, Spain versus England was really good.

Harry Kane missed a penalty kick. I love that.

We saw the Netherlands versus Serbia game.

So I am not one of the Americans who just, stopped paying attention

to soccer when it ends.

I like that you're like, you're the hipster American soccer fan.

This is.

This is very good.

Yeah. No.

Hey, what else are you supposed to do?

I'm like,

I think in the morning, in the morning, on the weekends, I'm like, you have kids,

so there's other things to do, but like, hey, for the rest of us, what else?

What else is there to do?

Well, you never know.

Also, maybe China football will become a huge thing

if the UAE can't spend money in, the UK anymore.

Oh, yeah, I think it's good.

Yeah, it's going to be it probably going to be huge.

I mean, like putting Luke on this, like it's like Luke another

I mean, like, if we're going to transition to a sport,

I was really hoping we'd go to hockey next, but.

Okay.

You know, to bring it back to, markets for a second,

I thought, there was an interesting note in my inbox.

Terry Wiseman over at Macquarie.

And he hadn't pointed out that, like,

okay, so we talk about these huge spending impulses, etc., and the two big ones,

obviously I and then structural government entitlements, etc., that keeps going up.

And then he points out that like wars are really expensive

and so markets people look at the Iran war headlines,

it seems like mostly through the lens of the oil price, right.

To the extent

that people are trading their interest in the Iran war is basically okay.

When is the Strait of Hormuz going to open?

What are the price of oil? Very diesel spreads, maybe.

But he points out, just like wars are very expensive

and he's like, is this like, you know, this is a third driver

of inflationary impulses that doesn't get much attention.

But defense spending rising for years all around the world.

Yeah, wars are expensive, armaments expensive, you know,

trying to reassure and build, you know, domestic capacity of semiconductors.

Yeah. It's expensive. Yeah.

All all of this is is really, really expensive.

It's it is the defining feature of this era.

Like how much we are willing to kind of tolerate the

side effects that are in our face every day of, of policies

that are in that are definitely, bottom line, inflationary.

Anything else

like really like stand out for you right now is being kind of eye

opening in this market.

I do think it is just borderline psycho that

the idea that European equal weight is closer to an all time high

than the US equal weight, when we're running like around 6%

nominal growth right now in the US at like blows.

Absolutely boggles my mind that like US, consumer discretionary has become

the new punching bag for the market and a strong growth environment

like in a quarter where, you know, it's estimated contribute what, 2.8 percentage

point growth.

Not amazing, I guess.

One question I have in addition to that is like

in a different era, dude,

you've just been so much more attention to how like bad the housing market is.

And like, you know, used to be housing was the business cycle.

You know, like, well, a housing was the business cycle for multiple reasons.

People spent out of their home equity, etc.

now we have this like miserable punk housing market and it hardly seems to

matter.

But now I, as the business cycle, which is the business

cycle and this wealth effect of like people

dipping into their, you know, people spending out of their stock market gains.

I'm just sort of like curious like your take on.

I don't know either.

Either way you look at it, whether it's like the salience of the stock market

and the wealth effect

or just the general market's lack of interest in housing these days.

Well, perfect timing, right?

It wasn't an earlier this year

when Americans share wealth from stocks versus from housing.

Also crossovers like yeah yeah it it is a it does feel like a seminal moment

in that front.

And when you think about why housing was the business cycle,

it's because you had these spillover effects to consumption.

Very, you know, via helocs or just via, you know, wealth effect.

From, from that and also, you know, spillovers from you

housing markets doing better, you're buying more consumer durables.

You can just take all of that and transfer it over to I.

Right.

Like you can just take that's that's where the construction impulse comes from.

That's where the wealth impulse comes from.

And, you know, as we've talked about, it's rivaling or surpassing

everything we've ever done in terms of the CapEx boom inside.

So you do I think it lasts forever. No.

Do I think it's kind of more of an anomaly around the around the now?

Certainly.

Because like at the end of the day,

we're all either, you know, businesses trying to make a profit or consumers

trying to buy something we like, like all of this has to eventually be good

for somebody downstream at the end of this,

or else there is no point to anything we're doing.

So there is no point to the to the profit if there's no kind of consumer intent

for it.

In the long run and in consumer income to buy it.

Yeah, the circularity and the size is what starts to worry you, I think.

And when you hear that, you know,

like people are using their stocks, their stock market gains to buy stuff,

which is helping the economy along along with the AI CapEx build out.

And that's leading to stock gains and relative economic growth.

And then it just becomes very perpetual motion machine.

Something that you've talked about

for a long time that I've started to think about is like

this idea

of like something big is going to happen soon, right?

And that big be it's like, oh,

maybe there is like a major catastrophe, like caused by, a bot or whatever,

or a, sorry, an AI model or the something big could be like

Utopia and everyone's real.

Wait, real wealth goes up dramatically and things get a lot cheaper, etc.

or the something big could be a major reshuffling

of people's place in the labor market in some way.

But I'm curious whether like, okay, some thing that everyone just sort

of has out there is going to happen, whether that leads to like a dip

in the savings rate because it's like, well, like this,

you know, I can see that's like, that's a real thing.

Yet it's the exact opposite of the like, right?

If you fear nuclear war, then just buy stocks anyways.

Because if it's in the price. Yeah.

I think now like you could reasonably argue the other side like hey,

if if the world's are doomed in ten years, why am I saving at all?

Like I, I, I find that fun interesting.

I don't think that's like a real thing I like.

I don't think if you were like someone with children,

you could possibly countenance the hey, like,

I am going to sacrifice their future welfare for that.

So I don't think it's something that could gain broad traction.

But in terms of like infecting people's

minds, I think, yeah, we're kind of definitely already there.

If I kills us all by setting off a nuclear weapon, our portfolios will be on fire.

And I just got heaven going.

Doesn't kill us all. Yeah.

Then our portfolios will also be on fire.

That's a good one. Thank you. I've tweeted that before.

I'm recycling my own jokes. Fine. That's fine.

Luke Kawa, that was a lot of fun.

I love your framing.

Great stuff.

I appreciate you coming back on Odd Lots. It's always a pleasure.

Keep it up, guys.

It love, love following and reading what you guys do.

That was a lot of fun.

We could talk to Luke for hours. Yeah.

And I do think, you know, I went into this episode, it's like, oh,

there's a crazy market I love this the the speed characterization.

Yeah. Gave I think that's perfect.

No I think that makes a lot of sense.

And again in my mind there's two things happening here, which is

you have a change in the actual structure of the market.

And you also have just the headlines.

Yeah. Flying thick and fast.

It's so hard to keep up.

And if you see one negative headline on a Monday, chances

are you might see a positive headline on a Tuesday.

Even if you don't believe the positive headlines.

Yeah, the markets will, you know, the markets will react to them.

And so you're just sort of ping pong back and forth between the news flow.

I want to build something like where we just look,

you know, the history of Read the Headlines would be an interesting

chart, right? Yeah.

And it would be really curious to look over trends about what,

you know, the pacing of them.

There's got to be some way to do that.

One thing I'd be interested in, it used to be the case with early,

machine reading trading, as we used to call it.

No one of that anymore,

that people would actually step away when there was a big headline.

So there was a little bit of a dip in liquidity because it took like a second

for a lot of the machines to read the news and how to react.

I doubt that's the case anymore.

I would be very curious

to see what liquidity provision actually looks like around headlines,

but I don't know if anyone's done a study I worry about.

Yeah, I worry about plenty of things.

Okay.

Shall we leave it there? Let's leave it there.

All right.

This has been another episode of the Odd Lots podcast.

I'm Tracy Alloway.

You can follow me @tracyalloway. -And I'm Joe Weisenthal.

You can follow me @thestalwart.

Follow our guest Luke Kawa @LJKawa.

Follow our producers Carmen Rodriguez @carmenarmen, Dashiell Bennett @dashbot.

Cale Brooks @calebrooks and Kevin Lozano @kevlloydlozano.

And for more Odd Lots content, you should check out our daily newsletter.

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