Interview, Other
Riding the AI Wave
- Federal Reserve policy is anticipated to remain unchanged for the next three to six months, with a bimodal distribution expected by mid-2027 and an average of no move through September.
- While labor economists signal a likely policy cut, the Fed will not pre-commit to this action, and future changes under incoming leadership are projected to undergo years of study before enactment.
- Incoming leadership is expected to be slightly less dovish than the current administration, setting an intermediate policy tenor, while investors currently price in no rate hikes or cuts through the middle of next year.
- Inflation is projected to persist at 2 to 4 percent, rendering debt servicing costs manageable and disentangling domestic equities from macro outlooks due to private sector balance sheets being less levered than in 2008.
- The labor force is forecast to shrink over the next five years due to reduced immigration and the retirement of the baby boomer generation.
- Token usage is expected to explode later this year with the marketing of new world models capable of understanding physics and interacting with humans, driving value accrual for hyperscalers, LLM providers, and yet-to-be-funded business models.
- The investment thesis centers on credit expansion, which may lead to phases of concern regarding returns on capital for lenders, while the firm maintains a 7 out of 10 allocation to technology pending better entry points.
- The firm plans to rotate portions of its portfolio into energy and defense with specific allocations of 3 out of 10 and 2 out of 10 respectively, while holding no fixed income due to an expected lack of growth trajectory in that market.
- May's discretionary spending serves as an early indicator of consumer health as savings are tapped, while airline ticket prices have risen 70% and are not expected to halt travel behavior despite potential cost-cutting.