The Fed Is Irrelevant While CapEx Runs The Economy | Weekly Roundup

The episode opens with discussion of Kevin Warsh's Senate confirmation hearing for Fed Chair, with the hosts noting his desire to eliminate forward guidance and dot plots, reform how the Fed uses economic data, and reduce the balance sheet. The hosts are skeptical of the idealistic nature of these goals, arguing that in any systemic crisis, the Fed would revert to balance sheet expansion regardless of stated intentions. They note the tension between Warsh's hawkish long-end stance and dovish short-end positioning, and question the credibility of his testimony given political pressures from the Trump administration.

The hosts then pivot to economic data, highlighting strong retail sales control group numbers, surging ADP employment data, manufacturing PMI re-acceleration, and M2 money supply growth at its highest annualized rate since 2008. They debate whether this strength reflects genuine economic momentum or front-running of supply chains due to the Iran war and energy shock. The consensus leans toward a real and ongoing AI-driven CapEx boom as the primary driver, with companies like Tesla committing over $25 billion in CapEx for the year and hyperscalers continuing to expand aggressively.

The AI infrastructure buildout is framed as a generational, 21st-century industrial revolution. The hosts note that the bottleneck for data center construction is not semiconductors but skilled tradespeople like plumbers, highlighting a massive skills gap. They argue that liberal arts-heavy education has left many workers poorly positioned, while the AI disruption will first hit white-collar 'bullshit jobs' like financial analysts, software developers, and compliance officers.

The hosts discuss the short-term technical risk in AI-related stocks, noting the semiconductors index was up 16 consecutive days and call option volume from retail investors was surging — historically a contrarian signal. They recommend matching time horizons to investment instruments and warn against using short-dated options on long-term theses.

On credit markets, high yield spreads at 317 basis points are near historical lows despite multiple ongoing geopolitical conflicts, suggesting corporate balance sheets are relatively healthy. The hosts note that problematic debt may be hidden in private credit rather than public high yield markets. They express concern about wealth inequality, arguing that current policies consistently favor asset owners and make the K-shaped economy worse.

Socially, the hosts observe rising church attendance — particularly in New York City — as a reaction to nihilism and social media-driven moral bankruptcy. They connect this to broader community breakdown and the search for meaning outside of tech worship and hustle culture. Geographically, they contrast cities like Austin and Miami, which expanded housing supply and attracted young workers, with San Francisco and other supply-constrained cities that are declining despite current asset prices.

On macro and currency, the hosts highlight that U.S. dollar usage via SWIFT is actually rising, counter to de-dollarization narratives. They argue dollar dominance will continue and could be further reinforced by stablecoin adoption. The Japanese yen at the 160 USD/JPY level is flagged as the key macro pressure point — a break above 160 could cause a carry trade unwind with cascading effects on global equities and liquidity. The hosts frame the current moment as a binary policy choice between allowing dollar strength to control inflation or suppressing the dollar and accepting inflation.

The episode closes with a look at the collapse of ESG investing, which the hosts attribute to a zero-interest-rate phenomenon that could not survive real inflation and energy security concerns. They note pension funds that refused to meet with oil and gas companies are now reversing course, representing an alpha opportunity in underweighted non-ESG assets.