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Forward Guidance sees AI capex masking credit stress

Sunday, May 17, 2026 · from 3 podcasts, 4 episodes
Forward GuidanceBreaking PointsThe Economist
  • AI infrastructure spending hides weakness in leveraged loans and corporate debt.
  • Consumer delinquencies hit cycle highs as tax refund stimulus evaporates.
  • Labor-backed companies falter while capital-intensive AI firms fuel a debt flywheel.

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.

#Fed#Markets#AI Infrastructure
Federal Reserve

Source Intelligence

- Deep dive into what was said in the episodes

Forward Guidance
Forward Guidance

The Consumer Cushion Is Almost Gone | Weekly Roundup • May 15

  • Felix points to Yuri Tim Fidelity data showing earnings estimates are surging at a pace comparable to 2018.
  • Jack believes the current market is a policy-enabled bubble, different from historical examples like 2000, and argues it can last longer without a Fed policy reversal.
  • Jack notes bond issuance in 2025 has already surpassed 2024's total, with hyperscalers like Microsoft and Google comprising a major and growing share of the debt market.
  • A JP Morgan analysis suggests about $80 billion in passive high-yield fund flows could be unlocked to buy hyperscaler debt if the market is recategorized, providing a long-term bullish tailwind.
  • Jack highlights JP Morgan data showing public high-yield debt is stable with solid coverage ratios, while riskier leverage is concentrated in private markets.
  • Jack warns of short-term froth in derivatives, noting levered long semiconductor ETF AUM has gone parabolic and implied volatility is in the 90th percentile relative to realized volatility.
  • Felix observes retail sales data shows spending shifting toward gasoline due to high prices, with discretionary categories like autos and clothing weakening, indicating a pressured consumer.
  • April CPI came in at 0.6% month-over-month, hotter than expected, leading to negative real retail sales growth despite a nominal 0.5% headline increase.
  • Felix argues recent tax refunds, totaling $47 billion above last year, are acting as a shock absorber for consumers against high energy prices rather than a spending stimulus.
  • Consumer delinquency rates are rising, with credit card balances 90+ days delinquent hitting cycle highs, indicating balance sheets are being stretched.
  • Jack notes only cap-weighted tech indices are at highs, while equal-weight indices and retail stocks are 'smoked', illustrating a severe K-shaped market and economy.
  • Jack argues 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 recent inflation spike.
  • Jack contends Fed liquidity measures supporting stocks have trapped policymakers, preventing rate cuts to help Main Street because inflation remains a problem.
Also from this episode: (2)

Business (2)

  • Jack calculates that even with a 2.4-4% forward inflation rate, year-over-year CPI won't return to 2% for another year due to base effects from the energy surge.
  • Jack says tariff revenues have fallen 30% from their October peak to $22 billion monthly, with the effective tariff rate dropping from 13% to 8%, signaling an unwinding of trade policy.
#Macro#Markets#Fed#AI Infrastructure#Labor

The Fed Is Losing Its Easing Bias While AI Props Up The Economy | Neil Dutta • May 13

  • Neil Dutta argues the Fed is pushing towards a hawkish stance because the labor market is stable, inflation remains above target, and equity markets are at highs, leaving little trade-off to focus on anything but inflation.
  • The current AI-driven capex boom is the largest in their careers, surpassing the late 1990s. Dutta warns its eventual slowdown will be a major macro issue, threatening equity appreciation and consumer spending.
  • Dutta questions the 'golden age' productivity thesis because prices for key tech inputs like chips and compute are rising, unlike the deflationary 1990s, and real income growth is weak.
  • Dutta expects the Fed to soon remove its 'additional adjustments' easing bias language from statements, given current economic conditions, though an actual rate hike is less certain.
Also from this episode: (6)

Macro (3)

  • Dutta states real consumer spending over the last two quarters is running below 2%.
  • Aggregate weekly payrolls, a measure of jobs, hours, and earnings, has been negative over the last three months, indicating household balance sheets are under pressure.
  • Manufacturing production is only up about 0.5% over the past year, leading Dutta to be skeptical of a significant industrial renaissance despite positive PMI readings.

Labor (2)

  • Wage growth remains sluggish at around 3.5%, as measured by average hourly earnings and the Employment Cost Index, which Dutta sees as evidence labor market conditions are not tight.
  • Non-residential construction, including data centers and heavy engineering, is a major driver of recent employment growth, offsetting earlier reliance solely on healthcare.

Energy (1)

  • Geopolitical energy shocks, U.S. energy exports, and tariffs are seen as key drivers of current inflation, creating a tension between the Fed's mandate and White House policy.
#Fed#Macro#Inflation#AI Infrastructure#Labor
Breaking Points with Krystal and Saagar
Breaking Points with Krystal and Saagar

5/14/26: JD Gaslights On Trump Not Caring About US Finances, US Test Scores Plummet, Tucker Humiliates Kevin O'Leary • May 14

  • Producer Price Index jumped 1.4% in April and was up 6% year-over-year, its fastest rise in four years.
  • Consumer Price Index rose 3.8% in April year-over-year, the fastest pace of inflation in nearly three years.
  • Credit card delinquencies 90+ days overdue have skyrocketed over two years, alongside rising mortgage delinquencies.
  • Zach Exley argues AI will replace any job done remotely on a computer, as mundane technical hurdles like memory and screen access are solved.
  • A poll found 70% of Americans oppose a data center built near them, with more preferring a nuclear plant.
  • Nevada Energy will stop servicing Lake Tahoe homes next year to redirect power to data centers.
Also from this episode: (8)

Politics (1)

  • JD Vance denied President Trump said Americans' financial situations were irrelevant to Iran war decisions, contradicting Trump's clear quote.

Business (1)

  • Energy prices jumped 7.8% in April after a 10.1% rise in March, with core producer prices up 4-5% from the prior year.

Macro (1)

  • Wheat futures climbed to daily limits after USDA projected the lowest harvest since 1972 due to drought and climate disruptions.

Education (3)

  • Reading scores were down in 83% of districts and math scores down in 70% compared to a decade earlier, impacting all demographics.
  • Declines began in 2017, worsened by COVID, with modest upticks insufficient to recover lost ground.
  • Three districts defied the trend: DC, Mississippi, and Hawaii.

Society (2)

  • American children now spend up to 19 hours weekly on internet-enabled devices, with little difference between low-tech and tech-encouraging families.
  • Children's independence has dramatically decreased, with far fewer allowed to walk or bike alone without adults.
#Macro#Labor#Inflation#AI Infrastructure#Education
The Intelligence from The Economist
The Intelligence from The Economist

Fired alarm: AI hype versus labour-market history • May 14

Also from this episode: (10)

AI & Tech (5)

  • Callum Williams says polling shows the average American believes they have a 20% chance of losing their job in the next five years, a sentiment echoed by AI leaders.
  • Williams argues that rapid, economy-wide job destruction from new technology is historically unprecedented, as even the Industrial Revolution saw British employment nearly triple in the century after 1760.
  • Williams notes mid-20th century job disruption from computers and new manufacturing was much higher than today or during the Industrial Revolution, yet that period is now seen as a golden age for workers.
  • Williams proposes a historical benchmark: if US per-person GDP growth exceeds 2-2.5% annually alongside high corporate profits and broad job losses, it would signal an unprecedented AI disruption, which current data does not show.
  • Williams suggests Silicon Valley's doomsaying stems from historical ignorance and a poor model of how average people use technology, more than just branding for IPOs.

History (1)

  • Recent scholarship challenges the 'Engels' Pause' narrative of wage stagnation from 1790-1840, noting slow productivity growth and rapid population growth meant steady wages were a positive outcome.

Business (1)

  • For the first time, the unemployment rate for new graduates exceeds the overall rate, but Williams attributes this weakening labor position to factors predating ChatGPT, not AI.

Trade (2)

  • John McDermott reports the Kabanga nickel deposit in Tanzania, known for 50 years, is now pivotal as the West seeks alternatives to China's dominance of the nickel supply chain from Indonesia.
  • New Western competition is making China more amenable to African requests for on-site mineral processing, a shift from the old model of just shipping raw ore.

Diplomacy (1)

  • McDermott says the US is using diplomatic pressure, making support for Tanzania conditional on progress at Kabanga, as part of a broader, muscular effort to insert American firms into African mining from the DRC to Zambia.
#Macro#Labor#Energy#Trade

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