“Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.” ― Morgan Housel, The Psychology of Money
While Robin Wigglesworth’s economic cautions remain valid…
“In case you were wondering, the Strait of Hormuz is still closed. The U.S. economy is propped up by an AI buzz that is increasingly fueled by vast off-balance-sheet exposures. The Fed is possibly going to raise interest rates. China’s economy is still slowing. Yields everywhere are climbing, and Japan is suffering a bond crisis. Private credit is stressed. Virtually every measure of leverage is engorged.”
…there are also pretty significant economic tailwinds driving growth and giving hope. Sometimes good news is actually good news, with powerful positive trends offsetting clear risks. Here’s a look at six current tailwinds:
1. U.S. Corporate Profit Margins are Highest on Record
2. U.S. Household Leverage (liabilities to net wealth) is Lowest in 50 Years
3. Financing is More Easily Obtained than Any Time Since at Least 1990
4. Massive Infrastructure Investments are Forecast to Top $1T Globally in 2026 & Accelerate Further in 2027
5. U.S. Experiencing a“Productivity Miracle”
6. U.S. Layoffs Drop to Near 60-Year Low
SO WHAT
It’s OK to have hope. Risks abound but so do opportunities, tailwinds along with the headwinds. Apollo’s Torsten Slok believes it’s all about AI and that “over the next six months, the market will make up its mind about which AI scenario is playing out:
If AI succeeds and tech companies generate trillions in revenue, AI will be massively deflationary and push rates lower.
If AI does not work out, the bubble bursts and the Nasdaq is down 50% as investors rotate out of equities into Treasuries and long rates fall dramatically.”
Whether you’re an investor, business leader or everyday person trying to prepare for the unknown, it’s critical to remain objective & diversified, hedge foreseeable risks and plan for multiple potential futures. And as Morgan Housel wrote: “Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.”
VIDEO
Sticking with Morgan Housel, here’s my discussion with him from 2024 on his second book, “Same as Ever”:
Infrastructure is a very broad label. AI-related infrastructure doesn’t help the state of our physical infrastructure relating to water, roads, airports, electrical grid, etc.
An excellent and well researched analysis. Negative news prevails in most media today, and this is a refreshing look at the other side of things. Well done.