Sudden Wealth Syndrome (EP. 485)

iShares 20+ Year Treasury Bond ETF

Across the shows: 1 speaker in other episodes, 1 bullish and 0 bearish calls, past 30 days

• Ben Carlson · Ritholtz Wealth ManagementBearish

  Long-duration Treasuries are a poor bet; short-duration bills were the better hedge.

  Ben calls this decade the worst bond bear market ever. TLT is still down about 40-45% including reinvested income, yet its assets have grown from about $17-18 billion in 2022 to nearly $50 billion. He says a simple hedge was available: move to short duration, T-bills, or 1-3 year Treasuries, which avoided the rate volatility. Ben is skeptical about buying long bonds now. He notes the 30-year yield of about 5.7% is the highest in 20 years but calls it not a generational buying opportunity.

  “This decade has been by far the worst bond bear market that there is... there was a really simple and easy hedge for it. You go short duration. You go to T bills.”at 16:33

US stock market outlook

• Michael Batnick · Ritholtz Wealth Management

  Equal-weight stocks should catch up; he is not worried about weak market breadth.

  The S&P 500 was near all-time highs and having a strong day while the equal-weight index was only bouncing, and most stocks were falling. Michael says he is surprised the market is holding up given rates making new cycle highs across the 10-, 20- and 30-year maturities, but he is bullish and expects the equal-weight index to catch up. He is not worried about the poor breadth.

  “I'm bullish right now. I think that the equal weight will catch up. I'm not worried about the lousy [breadth].”at 12:19

• Ben Carlson · Ritholtz Wealth Management

  High-beta stocks have far outperformed low-volatility stocks this decade, a divergence not seen in 30 years.

  Ben compared Invesco S&P funds: high beta is up about 260% this decade, while low volatility is up only about 40% and has been slowing. He says that gap between the two is probably as wide as it has been in 30 years. High beta was a better bet than low vol over this stretch, and for diversified investors who held both, the results roughly matched the market. He also notes that momentum and high beta are where the money went, which is why he calls this the high beta decade.

  “This is the high beta decade. ... This decade alone, twenties, high beta is up 260%.”at 13:35

• Michael Batnick · Ritholtz Wealth Management

  Dividend and low-volatility stocks are especially vulnerable to rising rates.

  Michael says the dividend-focused, lower-volatility part of the stock market is hit hard by higher rates in two ways. Rising rates make it more expensive for these businesses to finance themselves, and investors shift their preference toward bonds. Ben agrees that bond yields now compete with dividend yields, which had not been true for years, so the rate move cuts into the appeal of these stocks.

  “this is the area of the stock market that is extremely vulnerable to higher rates both in terms of actually financing the businesses as well as investor preference.”at 14:23

• Ben Carlson · Ritholtz Wealth Management

  Stocks are ignoring higher rates and will hit new all-time highs again.

  Ben notes the S&P 500 is only about 25 points below an all-time high. He argues the stock market, so far, does not care about higher interest rates. He expects new all-time highs, and says people will be confused by that outcome given the rate backdrop.

  “So the stock market, as of yet, does not give a crap about higher interest rates. Doesn't care.”at 1:00:56

• Michael Batnick · Ritholtz Wealth Management

  S&P 500 is on track for another roughly 20% year.

  Batnick says the S&P 500 is heading toward another 20% year. When Ben asks where it stands, he answers about 15% so far this year. He treats the stronger gain as the trajectory, though he gives no detailed support beyond the year's performance.

  “We're heading towards another 20% year in the S and P.”at 1:01:11

AI infrastructure & data centers

• Michael Batnick · Ritholtz Wealth Management

  A stock market sell-off would cause hyperscaler capex to slow, not just follow it.

  Ben cited a historical pattern from a research note: in railways, 1920s utilities, Japan, the dot-com bubble and shale, stocks rolled over first and capex slowed a few months later. Michael agrees that the stock market may sniff this out, but argues the link is causal: the market rolling over forces companies to slow spending. He also says higher rates do change risk appetite, so the rate-driven market decline is the mechanism that would cut AI capex.

  “I think it's actually causal. ... And then the stock market rolls over, forcing these companies to slow down.”at 8:10

• Ben Carlson · Ritholtz Wealth Management

  Higher rates won't stop the AI capex boom; the stock market, not CEOs or the Fed, is the likely brake.

  AI now makes up about 53% of the S&P 500, with hyperscalers, semiconductors, hardware, power and software all posting big gains. A NYT piece cited a Barclays strategist who said higher rates aren't slowing the AI boom, which is a problem for the Fed because the usual rate-sensitive correction mechanism (housing) is being bypassed by a less rate-sensitive sector. Ben says the Fed can't touch this sector, but the markets can. If investors demand a higher hurdle rate and stop lending at these levels, the market can force the companies' hand regardless of what tech CEOs say. He thinks the AI spending could run longer than many expect, but that the market is the eventual stopping point. He says the market hasn't acted yet, so he would be careful about claiming rates can't slow this.

  “I don't care what Mark Zuckerberg or any of the other CEOs say... Eventually, the markets can slow down if it wants to, but it's up to the market to say.”at 11:26

US consumer

• Ben Carlson · Ritholtz Wealth Management

  US consumer is resilient; real spending keeps rising despite inflation and stress.

  Ben cites a Wall Street Journal chart showing inflation-adjusted consumer spending rising in a near-straight line since 2022, even as consumer sentiment is weak. He reads this as Americans powering through inflation and two wars and continuing to spend. From this he concludes the economy is the most resilient he has likely seen. Batnick is more cautious about the one-month personal spending vs income gap.

  “Things aren't that bad. This is the most resilient economy that we've probably ever seen.”at 38:17

• Ben Carlson · Ritholtz Wealth Management

  Low consumer sentiment readings are partly a survey artifact from the 2024 switch to web surveys.

  Ben argues that a key reason sentiment looks so weak is methodological. Sentiment had already fallen during COVID, but in 2024 the survey moved from phone-based to web-based responses. He says people answer differently online than on the phone, using a Louis CK bit as an analogy. He suggests the change is a missing factor in the sentiment-weakness story.

  “in 2024, they went from phone based surveys to web based surveys... You answer differently an online survey than you would if you were talking on the phone to someone.”at 38:31

US housing

• Ben Carlson · Ritholtz Wealth Management

  High rates are choking homebuilding, which will keep rents and inflation elevated.

  Ben argues that high interest rates suppress new housing and apartment construction. Citing Torsten Slach, he describes a 'higher rates, higher rent' doom loop: fewer homes built pushes rents up, which pushes inflation higher and keeps rates high. He notes owners' equivalent rent is about a quarter of CPI, so rising rents are a problem for the Fed. He concludes that higher rates are 'totally suffocating' housing activity and that the country is never going to get enough new housing built.

  “It does feel like we're just never gonna get more housing being built... And higher rates, obviously, right now are just totally suffocating the housing market from any activity happening.”at 42:18

• Michael Batnick · Ritholtz Wealth Management

  Falling rents won't last; rents will rise further as construction stays weak.

  Batnick agrees with Torsten Slach's point that the building slump will push rents up. He says the recent rent decline is 'great news' but will not last, and that rents are going to rise more. The argument rests on the lack of new housing supply from high rates, which Slach outlined, and Batnick endorses it.

  “but that's not going to last. They're gonna go up more.”at 43:10

Middle East & Iran

• Ben Carlson · Ritholtz Wealth Management

  A Strait of Hormuz-style chokepoint shock won't be allowed to recur; alternative pipelines will be built.

  Ben argues that the disruption to the chokepoint, which he describes as a small piece of land holding the global geopolitical system hostage, happened once and will prompt a fix. He says the world will figure out a pipeline workaround, so this will not be a repeated worry. He prefaces it by saying he is no energy expert, and the point is thinly supported.

  “they're gonna figure out some sort of pipeline to make this not be a worry anymore in the future. ... There's no way they're gonna let little piece of land take the whole global geopolitic... everything hostage again.”at 6:57

Credit markets

• Michael Batnick · Ritholtz Wealth Management

  Investor demand for big corporate bond deals is strong now; a failed debt offering is a 'someday' risk.

  Michael had proposed that a failed debt deal, such as Meta trying to borrow $30 billion with investors not showing up, could be the pinprick that deflates the AI boom. The evidence he gives against it is Paramount's recent offering: it sought $52 billion in debt and drew roughly $150 billion of demand. He concedes the idea that money won't show up for these companies may happen someday, but not today.

  “Paramount just came to market looking for $52,000,000,000 in debt. You know how much money showed up... A $150,000,000,000. ... maybe someday, not today.”at 10:09

US Treasuries & yields

• Ben Carlson · Ritholtz Wealth Management

  There's no normal rate: 2-4% has been the most common 10-year yield band since 1940.

  Ben plotted the 10-year Treasury yield back to 1940 using Schiller data and sorted it into bands. The 2-4% band has been the most common, while the 4-6% band that people call normal has occurred only about a quarter of the time. He says the simple average is misleading because the high rates of the 1970s and 1980s skew it. So the common view that 5% or higher is normal, and that current rates are abnormal, doesn't match the history.

  “I put these into different bands... The most normal quote unquote is actually two to 4%.”at 20:22

Consumer AI products

• Ben Carlson · Ritholtz Wealth Management

  Consumer AI paid adoption is tiny, so there is much room to grow.

  Ben cites a 16z report showing more households paying for AI, but only about 2.2%. He says there is nothing there yet in household terms and that most growth is still coming from businesses. He notes that trying AI software is easy, so consumers should adopt it more readily. He concludes there is a lot of room for further growth.

  “My whole point is there is so much room for more growth ahead.”at 40:45

Venture capital & startups

• Ben Carlson · Ritholtz Wealth Management

  VC returns are extremely concentrated, with dispersion between top and bottom funds at record width.

  Ben endorses a 16z analysis showing a power law in venture. The top 1% of exits account for 84% of exit value, and the top 10% for 94%. VC IRR dispersion by vintage has widened in 2024 and 2025 to the highest level on record. He concludes that if an investor was not in the best fund that owned the winning company, they are in trouble.

  “It's like this stuff is totally on steroids, the power law, and it says the VC dispersion has never been wider.”at 45:41