Markets Price in Tech Spending and Midterm Elections

Oracle

Across the shows: 23 speakers in other episodes, 4 bullish and 21 bearish calls, past 30 days

• Darius Dale · 42 MacroBearish

  Skeptical of Oracle's claim of positive free cash flow by 2029 given uncertain AI compute demand.

  He says he cannot forecast his own company's cash flows in 2029, so reports that Oracle will be free-cash-flow positive in 2029 raise doubts. The compute demand that companies like his will need to buy across the economy is not reflected in that outlook. He treats the claim as unconvincing rather than a sign of strength.

  “I have no ability to forecast my cash flows in 2029. So when I see reports like Oracle saying they're gonna be free cash flow positive in 2029, not understanding the amount of demand for compute that we're gonna have in the economy”at 13:51

AI infrastructure & data centers

• Kay Haigh · Goldman Sachs Asset Management

  AI-linked investment-grade issuance could exceed $1 trillion within two years, straining credit capacity and widening spreads.

  AI debt from hyperscalers and chip deals was initially absorbed eagerly, but issuance kept coming. Investors began pricing market capacity and balance-sheet absorption rather than just underlying risk, which caused the spread widening that started in fixed income. She tracks off-balance-sheet residual guarantees and contingent liabilities as a building concentration risk. Those deals are shorter duration and rated, so the concern is the right price and spread level rather than the structure itself. Tracking where the buildup sits is crucial because AI capex runs through the capital markets.

  “The CapEx numbers are remarkable. We think you're probably going to end up north of 1,000,000,000,000 over the next in kind of two the IG space alone.”at 4:22

• Darius Dale · 42 Macro

  Midterms and gubernatorial races could be a negative catalyst that slows the growth of AI capex.

  The midterm elections and 36 gubernatorial races next week are a political catalyst that could slow the growth rate of AI capex. That is a risk to the AI infrastructure buildout that is being discounted in markets. He also argues that a slowdown in data center buildout is the only thing that could push the economy into a deflation regime.

  “One thing that also raises an eyebrow as it relates to this broader AI thing in the political cycle is next week we have not just the actual midterm elections and the thirty six gubernatorial elections, which could be a really negative catalyst in terms of slowing the growth rate, of all the AI CapEx.”at 14:17

Europe's economy

• Kay Haigh · Goldman Sachs Asset Management

  France's debt path is unsustainable; spreads over Bunds could widen further, with a possible Le Pen win adding risk.

  France's debt is about 120% of GDP and it runs a 5-6% deficit against 3% nominal growth, so the debt ratio rises about three points a year. The market has to fund that, and there is a limited pool of investors willing to buy French debt. Ten-year spreads over German Bunds are now 147 basis points and can widen further. The April-style presidential election adds risk: a Le Pen win would raise questions about post-election fiscal policy.

  “France is about 120 debt to GDP. ... they're running a five to 6% deficit and they've got 3% nominal growth. So that number goes up by three points every...”at 5:38

• Richard Portes · London Business School

  EU productivity growth lags the US, and fixing it needs policy governments have been reluctant to take.

  European Union productivity growth is long-standing weaker than in the US. Closing the gap requires measures that the central bank has no role in. Governments have been reluctant to take them, and the European Commission has not been aggressive about them, so he gives no positive verdict on Europe's productivity outlook.

  “there is the productivity issue. It's a long standing issue, and productivity growth in the European Union is not as high as it has been in The United States.”at 22:16

Central banks outside the US

• Kay Haigh · Goldman Sachs Asset Management

  A new Fed chair is unlikely to drive major change across central banking; major central banks are strong institutions.

  Developed-market and large EM central banks coordinate, compare notes and learn from each other, but each has its own political pressures and style. Personal style matters, but the ECB, Bank of England and others are strong institutions. A recent change in chairmanship is unlikely to drive tremendous change across central banking, though she will watch how less forward guidance plays out.

  “these institutions are kind of very strong institutions, ECB, Bank of England, and I don't think that a singular change and a new chairmanship, given that it's a very recent change in chairmanship, necessarily going to drive tremendous change across central banking”at 7:57

• Richard Portes · London Business School

  Lagarde has been a safe, forward-looking, consensual steward of the ECB, with only one early misstep.

  Lagarde had one early misstep when she said her job was not keeping spreads low. Beyond that she has run a consensual Governing Council with no leaks of dissent, unlike the Fed. The ECB and Fed also watch each other and the Bank of Japan, with tacit coordination, and Lagarde and Warsh have a good rapport.

  “She had one misstep very early in her tenure when she talked about my job is not keeping spreads low. But beyond that, she has been a safe, forward looking steward of the ECB.”at 20:19

Wealth, inequality & billionaires

• Darius Dale · 42 Macro

  Unfavorable wealth-tax votes in California, Colorado and Washington would hit markets near term and foreshadow 2028 redistribution.

  Three wealth taxes are on the ballot in California, Colorado and Washington. If the votes go against Wall Street, billionaires may have to sell assets and raise cash, which is negative for markets in the near term. Over the longer term, the result would signal that candidates will campaign on redistributive policies in 2028. That would challenge the free-cash-flow assumptions behind the expected 2028-2030 recovery in AI-related earnings.

  “If those wealth tax votes go in a way that's obviously not favorable for Wall Street, you're gonna have two catalysts that are negative. One catalyst is you're gonna force billionaires to actually sell assets and raise cash. That's negative for the market on the near term basis.”at 14:39

• Natasha Sarin · Yale Law School / The Budget Lab at Yale

  California's wealth tax ballot measure has problems; billionaire departures may make it a net negative for the state.

  Billionaires should pay more, but the measure targets about 250 billionaires and has problems already visible in practice. Figures like Sergey Brin and Larry Page are leaving the state, which costs the wealth-tax coffers and also the California income tax they would have paid. Estimates from Stanford's Josh Rao and co-authors suggest the tax could be a net negative for the state.

  “I speculate that while I'm incredibly sympathetic with the aim and billionaires absolutely should pay much more in taxes, this particular ballot measure has some problems that you're already seeing play out in practice.”at 30:28

AI regulation & safety

• Darius Dale · 42 Macro

  Risk of a Republican shift toward anti-AI policy rises if Democrats win the midterms.

  His quant signals suggest that a blue wave could prompt Republicans to adopt anti-AI positions, and that this risk is rising. He frames it as a political catalyst that markets may not be pricing in. The evidence is based on signal readings rather than specific policy proposals.

  “our signals are suggesting that the risk of a blue wave triggering a response in the Republican Party to get on board with anti AI is actually rising.”at 12:44

US rates & the Fed

• Darius Dale · 42 Macro

  Fed faces an impossible dilemma: [2%] inflation is incompatible with winning the AI race.

  If the administration is honest that AI is a national security imperative rather than a race for corporate profits, then getting inflation back to 2% conflicts with the spending needed to win the AI race. That leaves the Fed in an impossible position. He believes policymakers, including Treasury and the new Fed chair, are working on a liquidity response, and that the market is not yet pricing that risk.

  “[2%] inflation is not compatible with winning the AI race if in fact the administration is being honest with us that this is truly a national security imperative and not just a race to more corporate profits.”at 15:45

US stock market outlook

• Darius Dale · 42 Macro

  Market regime is worsening; expect more credit spread widening and multiple compression before buying the dip.

  Their quant systems moved to a risk-off regime about a month ago. Clients across the buy side have cut gross exposure, tightened net exposure and rotated up in quality, lower beta, and pods are following each other down. Earnings expectations are at cycle highs for 2027 heading into major catalysts, so the market has to downshift growth expectations. They expect more credit spread widening and multiple compression, and recommend downshifting beta and rotating into less cyclical, higher-quality names if fully invested. They also believe policymakers will eventually supply liquidity, so the dip should be bought later.

  “In our opinion, we think there's going to be more spread widening, more multiple compression before we get to a happy place.”at 17:34

US Treasuries & yields

• Darius Dale · 42 Macro

  Long-end Treasuries are severely underpriced for a Q4 2018-style risk-off deflation scenario.

  The sixty-forty model only works in a risk-off sentiment and a deflation regime, and the market is currently in an inflation regime. The only thing likely to push it into deflation is a slowdown in data center buildout. A Q4 2018-style episode would send the street into long-end Treasuries, and he views that risk as severely underpriced.

  “[Buy] the long end of the treasury curve. You're talking about a risk off deflation market regime, a q four twenty eighteen style scenario where the street goes, buy that.”at 17:55

US inflation

• Darius Dale · 42 Macro

  No disinflation yet in the system; 2% inflation is not in sight on CPI or PCE.

  He is skeptical of the view that inflation returns to 2% next year in Q2 due to base effects. Reaching 2% year over year requires several months of 2% annualized prints on a three-month and six-month basis, and CPI and PCE are not showing that. So he sees no disinflation in the system right now.

  “We're pretty good at forecasting. We don't see any disinflation in the system right now.”at 18:49

Oil & fuels

• Richard Portes · London Business School

  Higher oil prices hit Europe and the UK much harder than the US because they import most of their oil.

  Europe is hit much harder than the US by the price of oil. Both the EU and the UK import a very substantial amount of their oil, which has caused problems for their economies. The import dependence is the mechanism behind the uneven hit.

  “Europe is hit much harder than The United States by the price of oil. We import here, and I'm talking about The UK as well as the European Union. We import a very substantial amount of our oil.”at 22:37

European politics

• Richard Portes · London Business School

  The French political centre has been squeezed out, leaving it hard to see who will lead in 2027.

  The middle has been squeezed out in France. Whether Glucksman and the moderate left can gather enough support is uncertain. Meanwhile there are very negative forces on both the right, with Le Pen, and the left, with Mélenchon, and the centre has to put itself forward. He says it is very hard to project that far out.

  “The middle is, to some extent in France, being... Has been squeezed out.”at 25:32

US elections & politics

• Natasha Sarin · Yale Law School / The Budget Lab at Yale

  Quick affordability fixes like rent freezes won't solve structural housing and childcare costs.

  Cost of living is top of mind for voters across parties, as it was in 2024 when Trump won on inflation. She is nervous about politicians promising quick fixes like cutting prices on day one or freezing rents. Housing, childcare and elder care are structural problems that need long-term policy solutions.

  “I'm a little nervous about the idea that you have politicians who are trying to come up with quick fixes to affordability, things like cut prices on day one or rent freezes, when the reality is that things like housing, childcare, the cost of elder care in this country, all of these are structural issues...”at 31:58

US tax & spending policy

• Natasha Sarin · Yale Law School / The Budget Lab at Yale

  Raising corporate tax on the top 2% of multinationals could bring in hundreds of billions over a decade.

  The corporate tax rate fell from 35% to 21% in the last Trump administration, which gave companies more than they had asked for. Corporate income tax has fallen to well under 2% of GDP. The rate can stay in place for 98% of companies, and a better tax on the largest, most profitable multinationals can raise hundreds of billions over the next decade.

  “We definitely a thousand percent can, and it's just about the top 2% of the most profitable largest multinationals you can raise on the order of hundreds of billions of dollars over the course of the next decade.”at 34:19