Are Higher Rates Worse Than ZIRP? (EP. 486)

Paramount Skydance

• Ben Carlson · Ritholtz Wealth ManagementBearish

  Paramount's $52B debt load for the media deal will not pay off; there is no way this works.

  Ben notes Paramount took on $52B of debt for the deal, which was oversubscribed. A Wall Street Journal piece says doing it four months earlier would have saved about $400M in annual interest. He argues there has never been a media deal that took on this much debt and paid off, even if Paramount aims to become the next Netflix. He concludes the deal will not work out.

  “There is just... There's no way that this works out. There's never been a media deal where they've taken on this level of debt that's actually paid off.”at 1:01:04

• Michael Batnick · Ritholtz Wealth ManagementBearish

  The Paramount Warner Bros deal won't look good in ten years; equity holders are unlikely to be rewarded.

  Asked whether the debt question means bondholders get paid or equity holders get rewarded, Michael says equity holders get rewarded in the sense that they would benefit from the deal. He says he cannot imagine looking back in ten years and calling the Paramount Warner Bros deal awesome, and believes it will not work. He adds that betting against it is a plus 1,100 bet.

  “There's no way that in ten years I look back and go, man, that Paramount Warner Brothers deal was awesome. There's no way that this works. No way.”at 1:01:13

Kalshi

• Ben Carlson · Ritholtz Wealth ManagementBearish

  Kalshi's volume is dominated by long-shot bets and parlays, which Ben expects to cause harm and backlash.

  Ben cites data that since the start of 2025, half of Kalshi's trading volume has been on bets with potential returns of at least 1,000%, against mostly sophisticated traders and market makers. He says 65% of volume is now going into sports parlays. Michael adds that 41% of contracts involved outcomes given under a 10% chance. Ben notes a similar pattern on Polymarket, with 12% of contracts betting against a 90%+ favorite. He compares this to gambling and alcohol harms and concludes it will ruin people's lives and bring backlash later.

  “So for Kalshi, since the start of 2025, half of all trading volume has been on chasing potential returns at least a thousand percent... 65% now are piling into sports combination wagers known as parlays.”at 44:52

Nike

Across the shows: 2 speakers in other episodes, 0 bullish and 1 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Nike's business and stock are all bad, with Jordan brand sales down mid-teens year over year.

  Michael cites Jordan brand sales down mid-teens year over year, which he calls a crash for a sneaker line. He says the stock has fallen almost every day this year, so the business and stock are all bad.

  “Nike, of course, is getting demolished. The business, the stock, it's all bad. And Jordan brands was down mid teens year over year.”at 47:21

Lennar

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Lennar is getting mauled as high rates push builders into subsidies that can't compete with resale.

  Michael argues rates may not come down, so people who must move have to act, and builders' incentives and subsidies can't compete with the alternative. He cites home builder stocks, including Lennar, as getting mauled and hitting new multiyear lows. The view is about the housing market weakness and how it hits builder stocks.

  “The home building stocks, like KB Home and like, Pulte, for example, and Lennard, like, they're they're getting mauled. New multiyear lows.”at 55:41

KB Home

• Michael Batnick · Ritholtz Wealth ManagementBearish

  KB Home is getting mauled as rates stay high and builder subsidies can't compete.

  Michael argues rates may not come down, so people who must move have to act, and builders' incentives and subsidies can't compete with the alternative. He cites KB Home as one of the home building stocks getting mauled and hitting new multiyear lows.

  “The home building stocks, like KB Home and like, Pulte, for example, and Lennard, like, they're they're getting mauled. New multiyear lows.”at 55:41

PulteGroup

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Pulte is getting mauled as rates stay high and builder subsidies can't compete.

  Michael argues rates may not come down, so people who must move have to act, and builders' incentives and subsidies can't compete with the alternative. He cites Pulte as one of the home building stocks getting mauled and hitting new multiyear lows.

  “The home building stocks, like KB Home and like, Pulte, for example, and Lennard, like, they're they're getting mauled. New multiyear lows.”at 55:41

The Walt Disney Company

• Michael Batnick · Ritholtz Wealth ManagementBullish

  Disney's pricing of holding entry tickets flat while raising premium prices makes sense; he backs raising prices.

  Disney is keeping ticket types, passes and add-ons at Disneyland flat this time, while premium products such as the top skip-the-line service at Walt Disney World now cost close to $500. Michael says this makes a lot of sense: entry prices stay stable and high-end buyers pay more. He agrees with continuing to raise premium prices, which points to pricing power at the top end.

  “Many ticket types, passes and add ons at Disneyland are not increasing at all this time... Premium products are getting more expensive.”at 56:11

US stock market outlook

• Michael Batnick · Ritholtz Wealth Management

  Top-five stock concentration is a natural-monopoly feature of the modern bull market, not a problem until it is.

  Batnick reran his July 2018 pie chart: the top five stocks, which were equal in weight to the bottom 282 index companies then, now equal the bottom 434. Their trailing twelve-month net income also equals the bottom 436 companies, so profits track the concentration in the stocks. He calls these natural monopolies discussed for fifteen years and says breadth widening tends to happen in bear markets, as in 2001. He says concentration is more nuanced than not mattering, that the index can be up while many stocks are down, and that this is simply how the modern bull market works, with no judgement of good or bad.

  “These are natural monopolies that we've been talking about for the last fifteen years. And it's not a problem until it is.”at 6:15

• Ben Carlson · Ritholtz Wealth Management

  Stock concentration could persist for decades, and non-megacap stocks are still doing fine this year.

  Carlson argues concentration could be a twenty-to-thirty-year secular condition rather than something that suddenly ends. He notes people have worried about it for a decade, and that the government is unlikely to break up the companies and consumers don't want that either. He adds that year-to-date small caps (Russell 2000 up about 15%), mid caps (almost 12%) and the equal-weight S&P (almost 13%) are all up double digits, so the other stocks are not being killed. He also suggests the concentration worry is an easy one to hedge with bonds, European equities, REITs or value.

  “The problem though is this could last for... This could be a twenty to thirty year secular thing. This is not something that could all of a sudden just end.”at 8:15

• Michael Batnick · Ritholtz Wealth Management

  The zero-rate narrative only applied to weak growth stocks; the strong ones grew into valuations.

  Carlson argued growth stocks only worked because of ZIRP, and that they should have struggled once rates rose, but they kept working. Batnick agrees that the narrative held for weak growth companies that could never grow into their valuations. But he says the other growth stocks did grow into their valuations, which is the striking part, so the rate-driven story does not fit the strong names.

  “That narrative was definitely true for the shitty growth stocks... But all these other ones actually did grow into their valuations. That's the crazy part.”at 11:53

AI infrastructure & data centers

• Ben Carlson · Ritholtz Wealth Management

  AI data center construction is the only thing growing, crowding out other investment in the economy.

  Using a Jason Furman chart of real construction spending, Carlson shows data center construction up 65% year over year while nearly every other category, including multifamily, single-family, healthcare, commercial, offices, manufacturing and lodging, is down, with manufacturing down sharply. He concludes that AI is propping up the economy but also crowding out and holding back everything else. He doubts a reversal in other construction would come soon enough to offset an AI slowdown.

  “From this chart, it looks like over the last year, the only thing getting built is AI stuff. ... it's also kind of crowding stuff out and holding everything else back.”at 23:01

• Ben Carlson · Ritholtz Wealth Management

  Hyperscalers' huge AI capex is all-or-nothing, with no soft landing if the bet fails.

  Carlson relays a discussion with Meta's Zuckerberg and AI head Alexander Wang, where Zuckerberg said there is no dipping a toe in: companies either write huge checks or do not do it at all, while the CFO said good outcomes are fine but an investment without return would be very bad. Carlson concludes that the people worried about AI risk see no soft landing: the spending either has to work or there is a hard landing.

  “there's no soft landing scenario here if this doesn't work. ... This is either it has to work or there's a hard landing.”at 31:30

AI bubble & tech valuations

• Michael Batnick · Ritholtz Wealth Management

  AI spending may burn trillions of dollars, which could damage the broader economy if it fails.

  In response to Carlson's view that a failed AI bet would be like the metaverse, Batnick argues there is a lot of money trapped and burning in AI spending, so the question is what damage that does throughout the economy. He says trillions of dollars might just be gone. He is more concerned about the economic fallout than Carlson, who believes AI is not like the metaverse and that the damage would be contained.

  “There's a lot of money that's trapped burning on fire, and what sort of damage does that cause throughout the economy. This is trillions of dollars that might just be gone.”at 32:54

• Ben Carlson · Ritholtz Wealth Management

  Expects a roughly 30% AI-triggered bear market, followed by a buying opportunity and AI still working.

  Carlson argues the AI trade could hit a hiccup that causes a swift bear market of about 30%, which he compares with the twelve-year .com bear market and calls a far quicker shock. He thinks AI will still work out, so the drop would be an unbelievable buying opportunity. He says he is about 90% confident of this path, with the probability of AI ultimately delivering everything it promises at 57%, though the transcript on these numbers is garbled.

  “I tend to think that we're going to get a, like, 30% bear market from this... There's probably gonna be, like, a 30% swift bear market because some hiccup in AI. And then it's still all gonna work out.”at 33:18

Big Tech platforms & digital ads

• Michael Batnick · Ritholtz Wealth Management

  Megacap AI companies are unaffected by higher rates because they locked in near-zero borrowing costs.

  Carlson showed that net interest costs as a share of profits for the large AI companies have kept falling even as the Fed funds rate has risen. Batnick argues this is a throwback chart from 2022 and the reason is that these companies borrowed at around 0% over the past eighteen months, so they are fine. The mechanism is locked-in low fixed borrowing costs, which blunts the effect of higher policy rates.

  “It hasn't impacted them at all. This is a throwback chart... They just borrowed at 0%. They're good.”at 4:58

Consumer AI products

• Ben Carlson · Ritholtz Wealth Management

  AI shopping agents are overblown because people still enjoy shopping themselves.

  Carlson links the pandemic-era rise of an e-commerce company to the idea that AI agents will do all of people's shopping. He thinks people have shown they enjoy shopping, with the dopamine hit from buying, and that people still want to do it themselves. He says maybe not for everything, but the notion that an AI agent will shop and pick for consumers is overblown.

  “Maybe not for everything, but the whole idea that, like, your AI agent is gonna do all the shopping for you and pick it, like, I think people still want to do that.”at 14:41

Wealth, inequality & billionaires

• Ben Carlson · Ritholtz Wealth Management

  Fed wealth survey likely underreports US household wealth because wealthy households are answering less.

  Carlson examines the Fed's triennial Survey of Consumer Finances, which showed median real net worth rising strongly for older households and falling for under-35s. He notes that the survey response rate for the general population fell from 65% in 2016 to 45%, and for wealthy households from 33% to 24%. Since the wealthy are answering less, he thinks the survey underreports national wealth. Batnick agrees the conclusion follows from the numbers, which makes the survey skewed lower.

  “But wealthy people used to be 33%. Now it's 24%. So rich people are no longer answering surveys... So I think it's underreporting the wealth of the country.”at 20:48

Tariffs & trade policy

• Ben Carlson · Ritholtz Wealth Management

  Tariffs were a terrible idea that raised goods prices with no manufacturing benefit.

  Carlson cites a New York Fed report finding that by February 2026 tariffs had contributed 2.9 percentage points to goods price inflation, and that without them goods prices would have fallen significantly. He notes the promised manufacturing revival did not happen, with manufacturing down about 24%. He concludes there was no tangible benefit, calling it possibly one of the worst economic ideas ever, and says it was one of the rare policies that sane people across parties opposed.

  “I think this is possibly one of the worst economic ideas we've ever had.”at 24:37

US rates & the Fed

• Ben Carlson · Ritholtz Wealth Management

  Current higher interest rates are worse for the economy than the ZIRP era of the 2010s.

  Carlson's case is that the zero-rate era, which Burton-style critics called a future crisis, produced no crisis; it only produced some venture-capital risk-taking. In contrast, current rates are hurting the economy, most visibly housing, which he calls 20% of the economy and says is absolutely dead. Higher borrowing costs are also hurting borrowing more broadly. He says lower rates of two to three percent are better for this economy than four to five percent. He holds this view while admitting he is not an economist and that he may be wrong.

  “My big take is I think higher rates, current level of rates right now, are worse for the economy than ZERP was in all the two thousand tens.”at 27:28

China's economy

• Ben Carlson · Ritholtz Wealth Management

  China's economy far outgrew the US, yet its stock market shows no relationship to that growth.

  Citing Egan Jones data for 2004 to 2025, Carlson says China beat the US on nominal GDP and real GDP growth, and Chinese wages rose about 13 times versus about 2.2 times in the US for 2000 to 2024. Yet shareholder returns, profits and return on capital in China show no relationship to its economic performance. He treats China and Japan as outliers that make no sense relative to economic theory over the last fifty years.

  “There's no relationship between China's economic performance and their performance of their financial markets.”at 29:50

Enterprise AI adoption & AI software

• Ben Carlson · Ritholtz Wealth Management

  AI transcription and proposal drafting let a small deck builder send clients accurate proposals immediately.

  Ben describes a deck builder who records client conversations and uploads the measurements and transcripts to ChatGPT right after each visit. The tool compares them to past proposals and drafts a new proposal. The draft is about 90% right, which the builder accepts, so the client gets a proposal immediately with action steps. Ben calls it a great idea, showing AI cutting the usual weeks-long quote cycle in a physical trade.

  “he says it sends it to him, the proposal is probably 90% right. He says good enough. The the person gets a proposal immediately with action steps.”at 36:38

US consumer

• Michael Batnick · Ritholtz Wealth Management

  Young Americans are financially doing fine, with rising renter net worth and unemployment near 4%.

  Michael cites a Nick Maggiulli chart showing the median net worth of renters under 35 rose from about $5,000 to $12,000 over the last six or seven years. He adds that the economy is okay, unemployment is 4%, and it is harder for young people to get jobs. He concludes young people are financially okay, even though he thinks they are struggling mentally and socially.

  “Young people generally are doing pretty well financially. The economy is okay. Unemployment is 4%.”at 48:32

US housing

• Ben Carlson · Ritholtz Wealth Management

  US housing activity has been at GFC-bottom levels for three years, worse than the GFC by duration.

  Ben adjusted US existing home sales for population growth (about 280M in 2000 to over 343M today) to compare activity on a per-1,000-residents basis. Existing sales bottomed near GFC levels and then rebounded, but have stayed at that bottom level for about three years. He concludes this is quite possibly the worst housing market in terms of activity since the Great Depression, and worse than the GFC in duration. He ties this to high rates, arguing high rates have been worse for housing than zero rates (ZIRP).

  “We have been, for three years, of GFC bottom level activity in housing... We've been there for three years now.”at 54:39