Felix Jauvin argued on Forward Guidance that the American consumer is effectively 'smoked.' Retail spending flipped negative on a real basis, and 90-day credit card delinquencies reached cycle highs as a $47 billion tax refund buffer ran out.
"Private debt and leveraged loans are showing cracks."
- Tyler Neville, Forward Guidance
Neville identified a divergence: public high-yield markets stay anchored by 'hyperscalers' issuing debt to fund AI. He noted nearly $80 billion in passive flows could soon be forced into this debt if indexes recategorize, creating a recursive loop. Jack calculated that year-over-year CPI won't return to 2% for another year due to base effects from the recent energy surge.
Neil Dutta, also on Forward Guidance, called this the largest capex boom in decades. But it’s a financial accelerator: AI spending fuels earnings, which drive stock prices, which then substitute for real income. Dutta warned that real disposable income growth is anemic and that a slowdown in data center buildouts would trigger a macro crisis.
New Fed Chair Kevin Warsh aims to justify cuts using a 'Golden Age' productivity thesis. Dutta thinks the data doesn't support it. In the 1990s, software and chip prices deflated rapidly. Today, the price of compute, memory, and software is rising. He contends Warsh is appealing to discretion over data.
Jack argued the bottom leg of the K-shaped economy has been in a recession since late 2023 or early 2024, exacerbated by negative real wages from the inflation spike. Confidence remains high only among the wealthy, sustained by a tech-heavy equity market.
The market has entered manic positioning. Neville observed that levered long ETFs and semiconductor products have gone parabolic as retail traders chase the AI trend. Put skew vanished as investors 'yolo' into call options to outpace inflation. Any disappointment could trigger a massive unwind.
He compared the environment to 2021. The bureaucracy of a Fed leadership transition and political pressure to keep markets high prevents the 'punch bowl' from being removed. Jack argued Fed liquidity measures supporting stocks have trapped policymakers, preventing rate cuts to help Main Street because inflation remains a problem.
