Stagflation Lite: Cameron Dawson describes the current economic environment as "stagflation lite," characterized by resilient real growth but a weakening labor market and sticky inflation, differing from the stagflation of the 1970s.
Market Performance: Despite economic uncertainties, the market has seen strong performance, with back-to-back 20% return years, driven largely by AI-related investments.
K-Shaped Economy: The economy is experiencing a K-shaped recovery, where AI and high-income consumer spending drive growth, while other sectors and lower-income consumers lag.
AI Investment Cycle: There is significant investment in AI, likened to past tech cycles, with concerns about sustainability and potential overvaluation as companies race to lead in AI development.
Investment Strategy: Dawson suggests a balanced investment approach, addressing the optimist, pessimist, and nihilist perspectives, focusing on equities, safe assets like gold, and uncorrelated alternatives.
Sector Opportunities: Opportunities are identified in mid-cap stocks and infrastructure, with a focus on quality investments that are undervalued by the market.
Risk Management: Emphasis on managing leverage and being prepared for market volatility, ensuring portfolios are not overly concentrated in one trend or sector.
Economic Outlook: While stagflation lite is the current outlook, there is potential for economic recovery if labor market conditions improve and fiscal policies stimulate growth.
Transcript
So I think it's an important note that you're seeing things like capex intentions and hiring intentions really diverge at this time. So this stagflation light environment comes with we could actually have resilient real growth as we've actually had through the course of 2025. But the labor market is weakening around the surface or around the edges and you have that stickiness and inflation. All kind of leads into this stagflation like kind of scenario that probably makes us all want to drink a beer. [Music] Welcome to Thoughtful Money. I'm its founder and your host, Adam Tagert. Citing a current macro landscape of lower economic growth, sticky inflation, and rising unemployment, today's guest has recently declared, "We've entered a stagflation light period." Well, what does that mean? How long will it last? And how should investors position accordingly? to find out. We're fortunate to welcome Cameron Dawson, chief investment officer of New Edge Wealth back to the program. Cameron, thanks so much for joining us today. >> Thank you for having me, Adam. >> Oh, Cameron, it's always a pleasure. And I I looked at the last time you were on the channel, it was earlier this year, um quite earlier this year, and thought, you know what, it's been way too long. And we we know a lot more of the story now here in 2025 than we did at the beginning. there was lots of uncertainty coming in, especially with the new administration. Um, it's not like there's no uncertainty anymore. Um, but we certainly have a little bit more clarity into the policies that are going to be attempted to be pursued and things like that. Um, we've had a gang buster year in the market. I think that's surprised a lot of people off of the the the back of two, you know, backto-back 20% uh return years in the market. Maybe we'll get another one. Maybe it'll be a repeat. Who knows? Um but anyways um I did see your uh recent uh you know note there that uh we may be in a stagflation light period and so wanted to get you back on and let's dive into that as well as just everything else about 2025 as we're wrapping up the year. Um can you expound on exactly what you mean by stagflation light? So stagflation light, we're calling it doesn't taste great, less filling, which is effectively saying that this is not the stagflation heavy that we got back in the 1970s. If we go to the traditional definition of stagflation, it was that you would get both highly rising unemployment and much weaker real growth at a time where inflation was running hot. That of course was something in classical economic understanding was not supposed to happen. If you saw high unemployment, you're not supposed to see high inflation. But of course, the lesson from the 70s was not only about what happens when you run fiscal policy too loose, when you run monetary policy to loose, but then also how you deal with exogenous shocks. Remember, we had exogenous oil shocks that fed fed into this inflation scenario that all wrapped up into this stagflationheavy kind of environment. So, in the grand debate as to whether or not we're going to have that same kind of environment, for the last year or so, we've been saying no, it's going to be different. It's going to be lighter, meaning that you're going to see some easing in the labor force, but you're not going to see uh a soaring rate of unemployment necessarily based on what we were saying. We weren't we're not calling for a recession. We haven't been calling for a recession. Um, but that we'd say we we've been arguing that inflation is going to be stickier, meaning that you're not going to see the descent all the way to the 2% inflation target. And even if you have potentially exogenous shocks, and we would file tariffs under those kinds of ideas of exogenous shock that really affects supply chains that you see a stickiness of inflation persist and even a drifting higher. So maybe not the big spike in inflation like we saw in 21 and 22 but effectively where you're not in this disinflation scenario. Now I think this comes with a really really important caveat because I mentioned at the beginning that stagflation in the 70s came with a time with weak real growth and soaring unemployment. But there's a very interesting dynamic that's happening today, which is that the employment market is far weaker than what we're seeing within growth in the economy. And part of that is because of this incredibly narrow focus of this economy whether it's a focus or it kind of is it it it's created itself coming from AI meaning that you were seeing so much spending and capex in a very very narrow part of the economy that Neil Data from Renaissance Macro back pointed out back in the second quarter that as far as when it came to looking at the contributions to GDP growth in the second quarter that AI related software and hardware capex actually contributed more to GDP growth than the entirety of the US consumer. So I think it's an important note that you're seeing things like capex intentions and hiring intentions really diverge at this time. So this stagflation light environment comes with we could actually have resilient real growth as we've actually had through the course of 2025. But the labor market is weakening around the surface or around the edges and you have that stickiness and inflation. All kind of leads into this stagflation like kind of scenario that probably makes us all want to drink a beer. >> Okay. Yeah, probably something harder, not a light beer. Um, let me ask you this. Um, some really interesting points there. Um, I had not heard that stat that AI capex basically uh is now greater than consumer spending in terms of contributing to >> it was in the second quarter. So, so it's a very specific data point. You know, it's it may not persist in the in the third quarter, but on a percentage contribution basis, uh it did in the second quarter. >> Okay. So, this raises um the term K-shaped economy, >> which we've heard kicked around a lot. I mean, it sounds like you're describing sort of an extreme K-shaped economy there where it's basically the AI horse pulling the entire thing for the most part and and the rest of the economy really not doing nearly as well. >> Yeah, I think that you can see this encapsulated in earnings as well. What you can look at is the S&P 500's earnings continue to get revised higher. MAG7 earnings continue to get revised higher. However, the equal weight, the average stock, those earnings have actually been getting continuously revised lower throughout this year. So, it's a perfect K where you have this environment where where some portions of the economy, a very narrow portion of the economy is experiencing supernormal growth and everything else is just sort of listless and drifting along. And the lesson from the K-shaped economy from the consumer over the last couple of years has been don't worry when it comes to economic forecasts about the low income consumer because they don't carry the same weight in overall economic data >> whereas really focus on the high-income consumer because they're outpunching their weight. Moody's put out a stat back a couple weeks ago saying the top 10% of consumers in the US generate 50% of consumption which is absolutely wild. This is up you tens of percentage points over the course of the last couple of decades. So I think what this creates is an environment and we're about to publish our our our third quarter or sorry our fourth quarter outlook and it's all talking about how everything has become this sort of circular reference. So the US economy, you the classic phrase is the the market's not the economy. You've heard it all the time. Don't worry about it. It's not the economy. >> But I think you can make the argument now that the economy is actually mirroring the market a lot more. The economy is just as reliant on AI capex continuing as the market is. And you add now another layer on it that that high-income consumer is also reliant on the market continuing to rally. So you have the market relying on AI and you have the economy relying on AI and that economy relying on the consumer which is then relying on the market and AI and you have this circular nature that's happening that if one of those things were to show cracks then you start to see potentially a period of weaker growth but we're not seeing that yet. So we're not making that call but it's certainly something that we're thinking about as a potential risk into 2026. >> Okay. So so much to to comment on here. Um so in AI right now um there is an increasing um you know look at a little bit of circular capital flows there. um which some people are saying, "Hey, it smells a little bit like the uh the vendor financing, the sketchy vendor financing from the dotcom era where you have the the um the infrastructure companies, you know, the the Nvidia, uh they're getting tons of capex uh spending from the other Mag 7 and then they're taking that spending and they're reinvesting in their clients who are then spending that money back in Nvidia. So my question to you on all this um Cameron is is this sustainable? Is this organic or is this really sort of musical chairs that everybody loves as as things are going up? But at some point somebody realizes there's not sustainable value being created to support today's prices and then at some point you get a you know hey that emperor is not wearing any clothes moment and there's a big repricing. >> I think that's an inevitability in any and every capex cycle. It it it it trees never do in fact grow to the sky. So every single time there has been a big technology change, you always have this first environment or this first period where everybody is excited and everybody's dreaming of the future and you're not necessarily counting, you know, what the return of those investments are today because you're dreaming so far in the future. And then what ends up happening is that the initial infrastructure buildout is great for a certain subset of companies, but then when you come to the actual application of the technology, the winners from that are often times very different than those that benefited from the infrastructure buildout. And we saw that of course with the internet cycle, right? So those that were laying fiber optic cable are not the companies that led in 2000s and 2010s and 2020s from the applications of the internet. And so I think that a similar thing could happen here is that we're clearly in this capex portion of this cycle and the going is good. And so you have to as an investor you have this awareness that the music's still playing. So you if you start stop dancing and the music still playing, you'll you'll continue to watch people having a grand old time, but eventually the music will stop playing and people will start doing an assessment of what is the actual return on invested capital for these investments that are being made. Who's actually paying for them? You know, is you had a recent announcement with AMD and Open AI? Where is the money from Open AI going to come from? Is it going to come from more capital raises from individual investors? Will it come from debt financing? Where will it come from? And what will the actual return for open AI be? I mean, all these still are are are swirling questions that I think if you look historically, we've seen this story before. It always looks different and everybody says this time is different and this is the technology that's going to change everything but every time it repeats itself with a similar flavor of the the infrastructure buildout is very different than the application of the technology. One of my favorite books is by uh a a a two people named Quinn and Turner. And the book is called Boom and Bust. And it's a book about the about historical studies of bubbles. And they do a great job at framing it in the context of technology and liquidity and you this spark of optimism and this concept called marketability, all these different things together. But it's such a fantastic read because it really helps you realize that we've been here before. Doesn't mean that you shouldn't play along at home, but we have been here before and we do know how it ends eventually. >> Okay. Kind of begs a question then and and I know I'm asking you just to to guess here. Um, at the the current level we're at right now in the story, are we in a bubble? And if so, um, how concerned are you about, uh, the timing from here? In other words, is it still time to play or is it time to be, you know, nudging towards the door here? >> Yeah. So, I I I think one of the one of the important definitions and distinctions or things to remember is that bubbles can happen in earnings just as much as they can happen in valuations. >> Absolutely. >> So, valuation bubbles, we saw of course in the 2000s, I would argue we saw a valuation bubble. Sorry, the in but at the peak in March of 2000, we saw a valuation bubble in uh arguably in 2020 2021 with the stay-at-home stocks, you know, where you had, you know, Zoom trading at like 50 times sales or something like that, right? Uh so you you can have these valuation bubbles uh which have their own aftermath to them and then on the other side you can have earnings bubbles and that's when companies over earn and then face you multiple years and even in the case of of some stocks decades of unearning uh because if you look at what happened with Corning for example in the 90s right they overearned during that period of time and then ended up having multiple uh uh decades of of rather poor performance. The the there are plenty of examples of this uh uh go back to the overearning that happened uh within uh mining stocks and commodity stocks in emerging markets in the 2000s that led to the peak in 2013. Uh banking stocks in Europe overearned with the peak in 2007. There's all these great examples where overearning can be incredibly costic to long-term returns. So, I do think that we're starting to see signs that we're going to start over earning. All of these big deals that are being announced is effectively uh the signal that we're that we are going to get this over earning for those that are participating in the AI capex. The question is is when will the market care? >> I don't know. the the the challenge you have is that being early is the equivalent of being wrong. And I think that for us, what that means is that we want to make sure that that we're very aware of all of our exposures. We're not overconentrated in one central trend, right? Or one central factor. We want to make sure that leverage is really well appreciated because the more things go up, the more things they that can go down. Meaning the higher valuations you have, the greater we think of valuation as an amplifier of corrections. So the if you're trading at a high valuation and you and you challenge the narrative, you'll just have further to fall. So when you have further to fall, you have more beta or risk in your portfolios by definition. So that means you have to make sure you're really confident about your leverage levels. All of these things I think are prudent aspects of saying how do you how do you keep dancing while the music's still playing? but not expose yourself to you being the one without a chair when the music stops playing. Um, and I think that that that comes down to individual risk management and and um uh you really making sure that you know where your exposures and leverage sit. >> Okay. So, there's there's risk management that you can do as a as a capital manager or as an investor, right? um hedging, position sizing. I mean, there's all sorts of things that you can do. Um for at at New Edge Wealth, um presumably there are indicators that you'll be monitoring pretty closely to say, okay, we're starting to see some of the cracks um in the system that we would expect to see before things really start to get bumpy. Um what are the things that you are looking at? Yeah, I think a a a great reminder of one is very very simple. Look at earnings diverging from prices. U what we saw back in the late 1990s and we've seen it at different points of time prior to the beginning of more protracted market challenges is that earnings revisions start to taper off and even get revised lower and the market just doesn't care. it just keeps on rallying. Valuations continue to expand. Everybody is so optimistic and like, "Oh, yay. It's just it's just one or two names. Don't worry about it." >> And that divergence typically is setting you up for something that tends to be more of a whoops moment where all of a sudden you look around and be like, "Oh yes, we are trading at very high multiples and there's no fundamental underpinning for how much we've rallied." So, we'll watch those kind of divergences. We're watching really closely signs of complacency. Jeff Degraph at Renmack. Um so talked about Neil Data, Jeff Deg Graph, obviously we're big RenMac fans. Um he's been flagging that there's been some complacency in the options data. So options uh you you look at like things like the put call ratio. All that does is capture how much people are willing or wanting to buy downside protection versus wanting to buy upside optionality. If people only want upside optionality, that is typically a sign that they're growing complacent about downside risks. Mhm. >> You've seen a big huge jump recently in the AI net bulls indicator. So all of a sudden you have Fed cuts interest rates and everybody's bullish. >> You're starting to see finally um institutional investors get more fully invested. This is something I think is really important to watch. The Deutsche Bank consolidated equity positioning, which you can just Google it uh and see the most recent reads on it, is now in the 70th percentile, which is an overweight allocation to equities. But it's important to note that since the low in April to today, it's effectively showing that institutional investors have been sitting on the sidelines for this rally. It's been very slow to recover. it got to the first percentile in April, meaning only one percentage of the time in history were institutional investors more underweight equities. And so what you've seen is this rebound in equity positioning, but it's been really slow compared to what you would normally expect. So if that, you know, what one of the things that we're doing is actually playing out the scenario of let's say we rally to 7,000, let's say we get there by the end of the year, what's that setup and what does it look like for 2026? Uh, and does that make a foreat of of another great year that much more challenging because we're pricing in the moon and more? >> Yeah, you were talking about um over earning, right? Um, and uh that can certainly happen the way you described and and I guess it's the same thing with prices and valuations. I mean, basically multiple expansion um prices going up uh faster than earnings. It's essentially it's a version of pulling tomorrow's value into today. Yeah. >> Right. And once you do that, you are leaving less value to realize in tomorrow. Right. So it it it would make a four four pet I mean four pets are really really rare. Uh but it would make that even even more unlikely going forward from here. Well, the one thing I'd add I'd add is that like we these companies have admitted to them to to us that they are in an arms race and that the risk is under spending, not overspending, right? So, >> right, >> they're actually telling you we're going to overearn and overspend today. And remember, there's a circle of reference with reference within the AI names of the customers of each other. >> So, you know, I I think that that they're actually telling you that this is happening. It's a question of at what point does the second derivative pace of that arms race slow enough that the market starts to look around and be like wait we can't extrapolate anymore. So we you know we we now have to reassess our our forward outlooks. Um but that you know that has to come after you've already raised the outlooks and that people have have priced in the moon and more and once you get to that point then that's when you know that's when it's likely that you'll see more volatility. But >> all right. So I've got I've got I didn't mean to make this so much about AI, but this is super fascinating and super important because it's basically driving all the action here. As you said, everything is kind of um interdependent on on uh how AI goes and then that drives the market and then that drives the spending of the rich people and that you know keeps cycling. So let me ask you these three questions. Um, so right now, um, the, as I understand it, uh, the AI race, it may not exactly be a winner take all race, but you've got a bunch of companies that are competing to basically develop the smartest AI. And I think that you can make a pretty decent argument that there's sort of a a network effect for the winner, that at some point somebody's going to start to pull away from the rest, and everybody's going to want to use that AI because it's the best, right? um meaning there's going to be a lot of losers in this space, but right now everyone's kind of being valued as if they're going to be a winner, right? >> So, um first off, there could be a pretty decent repricing as people say, "Okay, look, this guy looks like he's going to be the winner. We got to take all these other guys and give them really big haircuts because they're not going to be the winner." So, there's there's that potential risk. Then there's just the risk of look, we think there's going to be a ton of profits here in AI, but we don't know yet. We're taking that on faith, right? So there is sort of an open question about how big is the AI pie in general, right? Then there's the third question which is um you know Deep Seek kind of caught the world by surprise when when its first version came out. China is still working real hard on it. Apparently there's another big release coming out soon and China is pretty famous as is just the technology industry in general of competing away margins, right? And so, you know, I guess my question here is is there the potential for AI to be super transformative to the world society. But there for any of those three reasons I just mentioned whether you know you you have to you have to take away the premium that that the most of the field has right now or that the AI space pie isn't as big as we all thought or maybe it is initially but then competition like China you know competes away the profits that there's just not nearly enough there there to support the price to the moon and stars as you just said is in right now. I mean, and you one of the things we've been talking a lot about is how these hyperscaler AI companies that are locked in this arms race right now trying to be, you know, the ABBA winner takes it all, right? That they are coming from a space where they have uh monopolistic power in the industries in which they play. And that monopolistic power doesn't require them to make a lot of incremental investment. That's how they have such massive gross margin, right? Like look at Google and search and meta in um in their you core advertising business. All of these companies have huge uh monopolies that they're now using to fund investments that are highly capital intensive and very very competitive. So I think your point's really powerful, which is that okay, maybe it's all a race to the stars where we all have to to hope that like the horse that we bet on is going to be the one that gets to super intelligence first. And so you don't know which one it's going to be, but then once they get there, they're just going to rule the world and then we'll all have our our robot overlords and, you know, let let's let's hope it's one of the nice CEOs. Who knows? >> Um, there's that aspect. The other one could be that this is just going to be a highly competitive technology that becomes ubiquitous in our life, but we're not going to pay a lot for it and because there's going to be so much competition. And we've seen that many times, right? So, so you the the uh whether it's something like cars for example, ubiquitous technology, automobiles, ubiquitous technology, terrible stocks. Um you have plenty of scenarios where something gets broadly adopted. But that doesn't mean that the spoils of whatever that technology is acrue to the shareholders you think it will. >> Mhm. >> So I I also think you know if if there's all this competition and the models are becoming more and more similar to itself assuming that we don't get the somebody wakes up tomorrow and says I have super intelligence and and nothing else can compete with me and I can read your mind. If that doesn't happen, then how does Open AI raise prices? If Meta has theirs and Google has theirs, >> where do you get where do you get the cash flow from the business itself to fund these kinds of investments? And I think that that remains an open question. So, for now, it's a startup and everybody's willing to fund it, but eventually, you know, maybe it's when OpenAI does an IPO and we get to look at the financials. Maybe, >> maybe, maybe. Yeah. And, you know, the analogy I've been using is is um, you know, the picks and shovels versus the actual miners, you know, during the gold rush, right? I mean, right now everybody's buying picks and shovels, right? If you're in the pick and shovel selling business in this space, if you're invid you can't answer the phones fast enough, right? The money's just coming in. >> But in terms of like ounces of gold coming out of the ground that people are digging up with their pickaxes, we're not seeing a lot of that yet, right? We're still taking a ton of that on faith. And we're increasingly seeing reports like I think Bane put out a report like two two weeks ago where they're like look we're trying to be as generous as possible here in how much we think AI can make. um you know I can't remember what their their timeline was the next 10 years or whatever it was and they're like we're coming up like you know 800 billion short you know with with the rosiest inputs we can come in here and who knows whether their math is right and we can debate it and whatnot but there's I I think there's a lot of um you know there's a lot of reasons for skepticism that it's like wow you know they're going to have to be like mining asteroids at this point to be supporting these valuations and look I don't know I'm not an expert in AI and may maybe we've beaten the horse uh beaten the horse enough in this discussion but it is so centrally important to to driving everything right now the market the economy the consumer spending and yet there is a lot of unknown in it here and a lot of optimism and those two things generally don't tend to pan out well in the long run especially you know you've cited a number of times in history where we've seen something similar to this and yeah there usually is a period of of uh repricing and um and and oftentimes either earnings or or return droughts because you pulled way too much expectation into today and it didn't materialize. The real value didn't materialize for a lot longer. >> Yeah. I I I I I really like as a you know kind of a perspective on this because he's been really good at raising an eyebrow to some of the AI skeptic uh analysis is Jordi Visser who has been doing a ton of great work on what's going on with the capex cycles and how intensive it's going to be. But you know, Jordy who's very very bullish on the AI capex story, you know, there's still this acknowledgement that in many ways we are now locked in this massive spending cycle that's causing us to divert our our capex dollars away from other productive uses into a technology that is going to be highly highly disruptive to society. and we have no kind of of of uh agreement about how we are going to as a society deal with these disruptions. So yes, it makes life easier in certain ways to make cool cat videos and to like write a better resume, but here we are, you know, using our energy, using our resources to to build a technology that's going to make us obsolete. And maybe that that is like the inevitability of all of this. But um I may and maybe it's just the reality of this is why we don't deserve nice things or can't have nice things. >> No, that that that's a great point. Um which I've talked about a bit on this channel, but um you know, we've been raising sort of the the economic uncertainty about AI, right? you know, maybe it not be it may not be as big of a deal as is currently being priced in or you know, even if it is in the long run, but there's a repricing that's going to have a negative wealth effect and that's going to impact all the things you talked about. But you're right. I mean, huge unresolved question right now is if AI is the job killer that many think it will be if successful, and I think it's going to be a huge one. Um, we don't have any consensus about how we're going to deal with that. Um the electricity demand of AI is gargantuan and we are going to be spending an an absolute crap ton on u build out of our energy infrastructure. Um which isn't necessarily a bad thing to be putting your money into, but but still, you know, looking at what we're going to have to do just to just to try to catch up with China is is mindboggling. And I'd actually love to hear your thoughts on on the energy space as a investment opportunity given the demands of AI. But then the last one and it say this tongue and cheek but not really. This technology might kill us in the end like it that's not something we can rule out for sure here about this right which is >> I mean we've all seen I don't know if you've seen the final Mission Impossible. Yeah. >> Yeah. Yeah. Or I certainly saw the Terminator movies, you know. Um so uh you know it is kind of funny that we're running you know headlong into this when we really don't know all those things I just talked about. Hey, are we going to have are we going to be employed? you know, are we going to be able to afford electricity because right now households are seeing in in in the growing number of states seeing their electrical bills skyrocket and it's because of all the competition coming from data centers. But yeah, at the end of the day, it's like we might just be running Pelmel, you know, feeding the beast uh that's going to kill us as fast as we can right now. It's just a little Anyways, um okay. So, um actually, why don't I let you talk about energy just for a second and then I want to get back to this whole K-shaped dynamic. I mean, it's very interesting in the energy dynamic as you're seeing utility stocks sore and and you talk about uh needing to open up reopen nuclear plants that you haven't seen much movement out of broad natural gas prices and and oil prices remain super subdued. So maybe that's the next phase of this. Um but it's it's certainly been a very narrow definition of an energy shortage. um because it's more of an energy shortage in the infrastructure to create that energy, not the base fuels to do it. But maybe we get there. Um you know, I think watching oil prices uh you know, that's kind of always the wild card of something exogenous that can impact so many things because it impacts acts as a tax on consumers uh effectively. Um it's so exogenous, you know, where you know the Fed doesn't control it, but it really feeds into inflation data and can metastasize throughout the rest of the economy. So, it's something that that we're watching on that front. But, um, you know, certainly the the the projections for in for energy capex remain so powerful. And we like infrastructure as a theme. It's been something that we've really liked all year long. >> Some of this infrastructure is related to that energy capex buildout uh for for sure. And so it's been something that we think is a great diversifier within portfolios effectively being able to say look 9 to 12% returns weren't exciting uh back when you the NASDAQ is delivering 30% a year but let's say we have an environment where the NASDAQ doesn't do that. I think I'd like to have something that gives me a somewhat stable return but then has the ability uh to be less correlated to markets overall. So it's still something that we're focusing on even though you know what we're being conscious and aware of is that there is still some AI relation there. So we want to make sure that we're not over our skis and and and that kind of exposure. >> Okay. All right. Um I'm going to I'm going to get quickly to Okay. So in general, what is sort of your investing approach for um uh stagflation light? Um and I'm going to guess that might be a little bit part of it, but um back to the Kshape part. So, we talked about the K-shaped economy. You did talk about how consumer spending is is so driven now by the top 10% of households, right? And that is a that is a growing trend, right? They're they're continuing to to make up more and more of the total consumer spend. Um and so let's assume for a moment that that the status quo continues for a while here. So, um AI doesn't kill us. um this whole circular thing keeps happening where market valuations go up and then the afflu consumers buy even more stuff right there's the bottom half of the K I mean we're talking really about a K-shaped society here which we've had but uh COVID and all the stimulus and and and and the asset inflation and the cost of living going in opposite directions or sorry opposite directions um have really accelerated that K-shaped society because those who have owned assets have done just fine because of that asset price depreciation. Those who haven't have just had to eat that increased cost of living, right? So maybe this is a little bit beyond, you know, your your scope as as what you do on a day-to-day investor um standpoint, but how concerned are you that just the longer we go in that trajectory, there are real societal issues that may be coming into play here? Yeah, I mean we've all read the fourth turning. >> Yeah. >> And and these extremes uh whether we're thinking about extremes and concentration within equity markets, extremes within concentration of wealth, they don't go on forever. Often times they can go a lot longer than you think. Right? We could have had this argu this talk about the K-shaped economy and we did this time last year and saying look like there's a big and it's not even just the the the top bottom desos pretty much the bottom half of the US income earners are really struggling. The last few years have been incredibly hard uh given the fact that wages wage growth has slowed materially uh and the lower- inome households rely much more on wage growth to fund um you know to fund overall spending. Um much more reliant on the jobs market, much less likely to you know be living off of savings and and uh and investment returns. and that you're still seeing in the areas where they have the highest propensity to consume in things like um uh food and and gasoline even though you know gas prices have been more subdued. Uh but shelter costs all areas that remain you know really under pressure for these consumers but it hasn't shown up in the broad aggregate data. So it shows up in the survey data for certain. We have University of Michigan surveys that continue to be in the doldrums because it's capturing the fact that on average on a basic average the US consumer is not as strong. However, on a weighted average based on how much they contribute to consumption, the US consumer on the surface looks perfectly fine. Right? >> So I think the big question and this is a phrase from Peter Bookfar who is awesome. He's an amazing analyst. um and write puts out a great note actually um that it is is super helpful. Um he um uh says we all breathe the same economic air. After all, we do breathe the same economic air and so at what point does the air get so thin given the strain in lower income consumers that it starts to bleed into higher income consumers? >> And it's a good reminder there's also that relationship with the mag seven as well. Don't forget Meta in 2022 had negative revenue growth because we were worried we were going into a recession and Meta's 98% advertising. What do you do when you're worried that you're going into a recession? >> You cut your corporate ad budget. Yep. So I I think that that you know the challenge you have is that just on a weighted basis it doesn't show up in the overall data but you're seeing more strain and now you're adding on top of it a jobs market that's kind of frozen. You have a jobs market where if you are looking for a job you can't find one. And we hear so much from from you know you know kids in my you know friends kids in the network that say like I just graduated from this great college and I cannot find a job. It's tough. I've got college age kids. It's it's tough out there for their peers. Yeah, >> it's really tough. And and you know, at what point does that create a breaking point and a strain? Um it's it's a really good question. Uh but obviously, you know, we we we know that some of these extremes are are not sustainable. And I, you know, the big hope is that you would see kind of a cyclical recovery in the US economy that can help absorb, you know, these college age workers and kind of get get people to work and the jobs market can open back up. Um, and and the optimism would be that you're going to get that because of changes in OBB um coming from, you know, what could help with capex expending which could get more potential corporate investment um as well uh as interest rate cuts that potentially kind of free some of that up as well. That's the optimistic view is that okay, just wait till early 2026. The the policies will change it. So, you know, I think that that um it better deliver is is maybe the point to say. >> Yeah. And you know, look, there's there's a lot of um concern to sling around here. And of course, one is on the job side of things. Jobs market's frozen. There's a good question to ask sort of like will it ever unfreeze if AI continues the roll out that that it hopes to where an increasing number of jobs may just go away permanently, right? Who knows? Now I I would say next 5 years if you want to go into the trades, become a a welder or learn how to build data centers or or you know help build the new electricity grid like you're going to have a ton of demand for your services. >> Yeah, I would not. Yeah, Yale Budget Lab has started putting out a piece about tracking labor market data to get a sense of how much AI is actually actually disrupting labor markets. So, it's easy for us to be like, oh, well, you know, here's this must be because AI that we're not seeing hiring. But, of course, it could be a whole host of other things, policy uncertainty, uh, you know, slowdown in underlying demand, whatever it might be. U, so Yale Budget Lab said that they're going to be updating it frequently as more jobs data comes out. Uh so I would keep an eye on that uh because it I I can't imagine that we're already we we try to talk to a lot of companies who are applying AI into their businesses and as of right now what they're saying um kind of broadly is that AI hasn't allowed them to fire people necessarily but it has allowed their existing people to be more efficient >> more it's a productivity enhancer right now. Yeah. which but but then yes it might make them more efficient but there's still a lot of work that needs to be done to kind of check the work. So they're not at the point yet where it really has changed their employment landscape but maybe at the margin it's allowing them to hire fewer people. I don't know. I I'm not sure. It's really, it's hard to know if the high unemployment rate for college recent college grads is a function of AI or a function of other of just a weaker economy, which you typically do see that recent college grad be the first area uh that shows weakness when you're about to go into a weaker economic period. So, um it it's hard to say it's definitely AI, but it definitely raises an eyebrow. >> Yeah. Yeah. Um multiffactorial and Yeah. I mean I I think one man's opinion I don't think AI is there there yet but in a year or two you know could it be you know five years you know potentially probably if if it's going to work just because it's it's exponentially improving but I don't know we'll see um all right so uh rapid fire questions because we're beginning to get tight on time I I got to be respectful of your time but you you you've just opened so many interesting doors here Cameron which is one of the reasons why I love interviewing you um when we first or sorry when we last talked to each other. I think it we were two months into the year. So, we didn't really have a strong sense yet of exactly which of the new administration's economic policies were going to get successfully deployed and what they were going to look like. Well, now we know that OBB has been passed and we know what's in it. We we now have a lot more data on tariffs. Um certainly more than we did during the confusion of liberation day, right? Um, so I'm just curious at a high level, what kind of grade would you give the new administration's economic policies as you know them so far? >> Oh, um, I, you know, I I think that it's it's difficult and I'm not trying to to wiggle out of your question. Um, >> answer any way you like. Yeah. >> I think it's I think the tariff judging it is a really fascinating concept, right? So if we think of it in the in the context of earnings estimates, if you look at earnings estimates in the second quarter for the second quarter, everybody thought tariffs would hit immediately that you would see tariffs cause uh consumers to pull back on spending that prices would would >> skyrocketing prices. Yeah. >> That you would see the the impact immediately. And you know, never we always, it's like we overuse the phrase, but it's true is never bet against the great American might of margin expansion, right? Like at the end of the day, companies are really really good at navigating tough environments. If you survive COVID, if you survive the first trade war, if you survived 2022, like you're you're pretty good at this. And so they figured out ways to not only pull forward demand, but also to be able to manage their inventories so that way they didn't have to pass on price increases immediately to consumers. And you heard it from the likes of Walmart saying, "Well, the price increases are now going to come because we weren't really certain if these were going to stick, but now that we know that they're sticking, we're going to raise prices." So, if we're judging the impact on tariffs, I know, you know, uh, you know, it's easy to be like, look, everybody was wrong. Everybody got tariffs so wrong and so because it they were just too early. And we thought the tariffs would take much longer to show up in data. We were thinking maybe 3Q you would start to see it. And this is going to be the test, right? this earning season is going to be the test as to whether or not tariffs are going to have a meaningful impact on on the economy. And with that, I think it's it's hard to make the judgment today. Um I think the the other part of it just that the way that we've been thinking about it is that there's a lot of offset between OBB and tariffs. Um so the incremental benefits from OBBB uh you different tax provisions for individuals and uh and corporations some of that just gets offset by tariffs and in fact you know from a budgeting perspective some of it gets offset by tariff impacts as well. So I you know it it is it um potentially net stimulative for certain areas? Yes. Um, is it going to be the same kind of boom to earnings that it was in 2018? Likely no, because you're not seeing that, you know, big huge downshift that you had in things like corporate tax rates. So, >> it's a little bit more of a wash with a question mark. >> Okay. Um, >> hopefully that was diplomatic. >> No, no, no. It was. Um, and um, let me ask you this and then I'm going to get to the your question about how to invest in stackflation light. Um, I had uh two analysts on last week, um, who I think quite highly of, uh, Anna Wong and Michael Caneritz. You're probably familiar with both of them. Anna from Bloomberg Economics. >> They're amazing. >> They're they're amazing. >> I I bow in their in their presence. Both. >> Yeah. I mean, they're very very smart, but they they they delivered they both delivered the surprising uh news to me and they were familiar with each other's work and reasons why too that they they're becoming more bullish um and especially Anna and uh they see conditions now being set for the economy to actually grow faster. They're not predicting a boom, but they're predicting a recovery of sorts. Um, and and in your stagflation light thesis, you know, you talk about sort of low growth. Um, I don't know if that's necessarily slowing growth or not, and that's what I wanted to give you a chance to react to here. Do you not everybody interview sees the way that they the the landscape the way that they do, so you don't have to, but I'm just curious. Do you do you actually see the table being set for the economy to be growing next year or with stagflation light? Are you expecting it to be more sluggish and or or maybe even heading down? >> Well, I mean that's the that's stagflation light with the nuance that what goes on within the jobs market is not necessarily what goes on within growth. >> And so we could have an environment where the jobs market remains somewhat anemic. But you are cutting interest rates. You are stimulating with so monetary stimulus, fiscal stimulus. Uh it is allowing companies to invest more in capex which is contributing to growth. Consumer spending stays okay because you're keeping moni you're keeping u uh monetary conditions or financial conditions really easy which is supportive of market. So you kind of get the sim similar kind of wealth effect that supports the high-income consumer. Uh and so you have you could have this environment where you see a recovery in certain areas in corporate spending but it doesn't necessarily translate into uh a much stronger jobs environment. So you could have a you know the jobless recoveries have happened plenty of times in history. So you could have an environment that looks somewhat similar to that. Now if the economy is booming you're going to see more jobs being added, right? So, so you'd need to see growth eventually be supported by a healthier labor market. Um, but it's very very possible uh given this this kind of optimism around a tech cycle and you could go into a full meltup bubble within equity markets that create a boom mentality and you know growth is always part psychological. So you could definitely see something like that happen which raises the question 2026 GDP estimates are at 1.6% slightly below trend. Those are likely too low um in this scenario. And if they're too low, that suggests that you're going to be in an estimate revision up cycle for GDP, which suggests a continued healthy backdrop for risk assets, which means that maybe the rallies can continue in the near term as you're recalibrating to those higher growth levels. Maybe. Or you're in an environment where you get non, you know, you take the other side of it, you the neil data side of things, which is that you've already seen enough weakening in the labor market. you get a little weakening, it turns into a lot of weakening really quickly and you go into a much lower growth period and you're still getting sticky inflation and then that looks a lot more like stagflation heavy than it does stagflation light. >> Right. Okay, great. Um, so two quick things in that. >> Well, I didn't actually answer your question. I just described two very different scenarios. Um, but uh, you know, classic two-handed economist. >> Sure. Well, look, no. Well, no, I mean there's potential for both. I guess my question just to give you a chance to clarify is in your stagflation light call right now. Um is that c can can you have sort of an economic recovery in terms of uh economic growth getting better next year and still be in stagflation light or is stagflation light kind of your default but you're open to the kind of the cantitz things could get better. Yeah, I I I mean I think you know we've been thinking that we were in a muddle through growth environment um because we didn't necessarily see the sources for big acceleration within the labor market within wages u and so we thought that growth was just downshifting from this above trend to slightly below trend um not falling off a cliff. So that's our baseline. Um and I I think it remains to be seen as we progress through the end of the year. You know, if the labor market continues to show signs of incremental weakening, you know, it would lean more towards the data camp versus the Canro camp. Uh and so that's why we're dancing in the middle. You know, we're we're like we're waiting. We want to be data dependent, but of course we're now in an environment where we're not getting any data. uh which means that we're listening to the equity market which is telling you risk on bullish cyclical boom everything's fine um party on gu like nothing to see here so um but the equity market does have a fairly good track record of of um uh being like uh Britney Spears and being the last to know if you remember I think the last song on her on her debut album was don't let me be the last >> you so it's so funny um you're such a great uh your your discoraphy is is so wonderful. Um I'm a big music trivia guy as well. Although right at the Britney Air is really where I start losing my area of expertise and after that I have to rely on my daughter for anything really newer than that. Um but uh at some point it would be so fun to play music trivia with you Cameron. Uh I think we might be a super team. Um you know >> you you you'd cover my blind spots. I got your blind spots. We're good to go though. >> We'll see. Although I get a sense from your references that that you you you probably don't have too many blind spots. uh no matter where we go, whether it's the >> my my music knowledge drops off by about like 2010, you know, because that's what happens is that, you know, you you get to a certain age and you stop liking new stuff. And I have to say, you know, the dribble that that that we get today is is is not great. Um but that's for a different discussion. >> It's for a different discussion. Okay. I'm really good 50s through mid9s. I think you're good is somewhere in that period up to 2010. and then we'll get my daughter to to cover the more recent stuff for us and then we'll be an unstoppable team. >> Um all right, but look real quick. Um so Ketro just just to you know his defense um >> I think it was him might have been Anna but I think he still feels similarly. He said look this was a fragile recovery at this point. Again he's not not predicting a boom and he in a big part of his his outlook is the weakness in the jobs market. He said the jobs market is just weak enough. It's weak enough to get the Fed to to ease to to you know help things out. Um, but it's not so weak that I start getting worried about it. Of course, if it starts getting weaker than that, different story. I'm going to change, you know, my outlook based on that. Let me ask you this real quick. Um, I've shown this chart before. So, this is, um, this is a chart from the Federal Reserve. Uh, in let's see here. In red, we've got the Fed funds policy rate and in blue we've got the unemployment rate. And I'm telling you stuff you already know here, Cameron, but in almost every uh every time where the Fed has gone through a hiking regime and then plateaued and then started to cut, that's sort of right where retroactively the the next recession was declared to have started. Uh and kind of concurrent with that in almost every one of those recessions, we had an unemployment rate that had bottomed, started to rise, and then right around the time the Fed started cutting, the unemployment rate just spikes to the moon, right? And again, that's heading into the next recession. And that that is the overwhelming pattern of history here in this chart that goes back to 1950. And so my question is is because I I I think if I heard you correctly, you you didn't you expect the unemployment market to be languid but but not to really roll over here like like not to really start you know becoming runaway unemployment. My question is is what is different about this time so that we don't repeat the the historical pattern here because we certainly seem to be right at that key junction where the Fed has plateaued. It's now cutting again. Unemployment has bottomed but it's now starting to rise. What is going to keep us from what history has seen so often here? >> Yeah. I So this is the chart that explains Fed cutting for a reason. You know, Fed cutting because they have to, not because they can, right? That the Fed is cutting because of some kind of issue within the economy. And of course the the issues in the economy post 1990. So the 1990 recession uh being savings and loan crisis 2000s you had a balance sheet recession following Enron and and WorldCom and of course the unwind of the tech bubble that was creating you know major balance sheet issues. Remember you had Sarbain and Oxley that caused a whole kind of reccalibration of things. the 2008 recession, of course, the GFC with with with bank balance sheet issues and subprime mortgages that, you know, the the Fed was cutting for these reasons and that the unemployment rate was going up as a result of those issues flowing through the economy. Um, and you know, the Fed was using saying, hey, unemployment is going up, but we also have to solve these other issues. um and that in so many ways unemployment was going up regardless of what the Fed was doing because it was a function of things that were outside of the Fed's control. And I think that that's a that's a is an important point which is that if you really were to see um um nonlinearity within the employment data which is something that data talks a lot about and you know Claudia Som talks a lot about this idea that once you get a little bit of weakening it typically is followed by a lot of bit of weakening past a certain certain threshold >> that when you uh when you experience that it's it you still need a catalyst, right? Companies need a good reason to be laying off workers, mostly after an environment for a few years where they had trouble getting workers, right? So, remember, you know, employee, you know, employees being hard to find or workers being hard to find was was a key uh complaint by small businesses in that NFIB survey for years following the the pandemic. >> Right. And that's why we got labor hoarding, right? People just they didn't want to fire because it's going to be I remember how painful it was to go back and try to find that guy. Yeah. >> Yeah. And now we also have this added question about what's going on within immigration, right? You're seeing labor supply shrink for the first time in modern American history. And so you have all of these uniquenesses, which brings us back to our core thesis coming out of 2022 was what we called the strange landing. And the strange landing was this idea is that data relationships have broken down since the pandemic. that the data relationships when when you know X happens, Y should happen that you have to throw those things out because they don't work anymore and that the the way that the data interacts with itself um and what it means is very different. Normalizing looks like a big decline, but it's actually just normalizing to trend as an example. A lot of things that happen in the labor market. So I think that we're still in this environment where if we're operating in a in a mindset that is X happened so Y must happen. Um I think that we have to be very cautious. So >> you know I I think that all of those things together is what is making this labor market so unique um and why we've been in this environment where it's sort of slowly creeping higher and weakening but not falling off a cliff. But to note, if you were to see stock prices, you fall precipitously um for a protracted period of time, if you were to see, uh that cause a big disruption to consumer spending, you could end up having that feed on itself and maybe that's when you get the weaker employment environment. So, I don't know. It's it's a tough one. Um but, you know, a lot of people have been calling for the for the employment economy to weaken. substantially for the last three years and it hasn't happened >> right it hasn't or put it this way it uh a lot of lot of debate over how much we can really trust the BLS data right so let's put that big boulder assault there >> yeah but just one one point on that I think is important which is that if you if you really can't trust the BLS data it would have shown up somewhere in spending if there were that many more unemployed people that many more and I get it like the K-shaped economy is just >> I was just going to go back to your data where I think if you look at the bottom 60% of the country I think it's like 15% of total consumer spending like it's not a lot those people could almost cut their spending in half and it might not make that big of a difference. >> Yeah. Yeah. So I mean that that could be that could be very true. I mean we've been using retail sales is effectively the litmus test but if you can't believe that because it's so concentrated meaning that you know on an average basis not a weighted average basis that um you maybe it is being distorted that much. All right. Well, look, Cameron, this I I there's so many questions I'd love to go even further with you on. Um I just can't because of time, but great discussion so far. In wrapping up, um so stagflation light is your default outlook going into next year. Um how does that translate into an investing approach here? So we think in times like this when markets are at highs um and you're you know you're contemplating big technology changes that we like this idea of playing to the three kind of personalities in all of our minds. The optimist, the pessimist and the nihilist. The optimist says I got to stay invested. The world is changing. I got to remain invested in equities. I got I have to respect this trend. um you there are great exciting powerful things happening in this economy and I need to be exposed to those dance while the music's playing. The pessimist says you know we're we're in a bubble you know like the world is ending um I need things that are going to you to be safe in that environment. So you know the the optimist you know has your great equity portfolio um and other kinds of kind of growth related investments. the the pessimist says eh you know like maybe I should have um things like gold in a portfolio because of dollar debasement or I should have you know my mun bonds you know is a tax efficient way to get you kind of sustain uh steady yield and then the nihilist gets interesting because the reason call it the nihilist is this idea that I don't care what happens I don't care what the S&P 500 does I don't care what the Fed does just get me stuff that's going to generate certain returns and that's where we utilize a lot of alternatives in order to get that. So we focused a lot at the beginning of the year on uncorrelated assets, things that uh you had in uh attractive return streams but did not show strong correlations with public equity markets. Uh we also looped in things like infrastructure into that acknowledging that there's certain overlap with infrastructure you know that with some of like the equity market trends but overall it has you know fairly attractive correlations. So, I think that that, you know, knowing you kind of making sure that you're balanced between those and that that none of those are too out of whack um between the optimist where you're not so overly optimistic that you're leveraged to the hilt and and you have a risk of ruin if things move against you, but not so pessimist that you're that you're uh uh not being able to take advantage of this exciting technological change that we're in. >> You're missing the party while it's running. Yeah. >> Yeah. the fact that you're in an uptrend, you're in a bull market, respect the bull market, and then not having too much of the nihilist, you know, that, you know, wants to burn it all down and and you do something different. So, I think having these these buckets of of of making sure that we kind of satiate the the desires of each of those personalities which kind of exist within all of us, uh, I think is is a prudent way to approach an environment like this. >> Okay. Um, couple quick questions here on the nihilist side. When we talked at the beginning of the year, you were expecting more volatility this year than we had seen previously before, which totally played out in spades in the first, you know, part of the year. Um, not so much now. So, I'm curious, are you have you put aside the the call for the volatility trade at this point? >> I I mean, volatility is one of those things that um it's easy to say that there will be more volatility because eventually you're going to have a correction. Say I'm right. Um, but the idea was that you know that it when volatility does present itself, you need to be able to be in a position to take advantage of it. So that's why when volatility strikes, we always run our flush deck and making sure that that we take the emotion out of making decisions to put capital to work. Um, you know, will volatility eventually rear its head again? Of course it will, because it always does, but it's episodic. And so you just you have to have a plan before the volatility hits to to to know how you're going to take action versus trying to scramble and come up with a plan uh when you're scared. >> Yeah. But but just to be clear at the beginning of this year, you seem to be saying we think the risk of volatility is elevated here going into the year. >> Yeah. >> Have you ratcheted down that? If you went to say Defcon 2 on volatility, have you brought it back up now? >> Well, so so the source of that is important, right? We were calling for higher volatility because we were we were noting that positioning was was stretched, valuation was stretched and sentiment was stretched because we went very quickly into April where positioning got to be very light. We started calling it the honeybger market. Meaning that that nothing stops the honey badger when it's hungry. Nothing stops an equity market that's underweight equities. So the expectation for volatility falls by definition when positioning gets so light. So, we'll probably revive the the call for higher volatility if positioning gets in the 98th or 95th percentile because you'll be set up to have that volatility. So, it's never a static call if that makes sense, >> right? But but we're not but we're not at those levels right now is essentially what I want to >> percentile. So, okay, >> things could get crazier. >> Okay. And then on the optimist side, you know, that is being in the equity party. Do you guys have any particular sectors, whatever strategies that you're looking at right now or is it just kind of being anything? >> Yeah, so we we invest broadly, but we've been finding amazing opportunities within Smidcap, leaning more towards midcap. Uh finally companies starting to get valued um uh what we think is more properly. We're quality investors for all of our core equity positioning. Uh but that's been a a fantastic area, you know, where the Russell 2000 looks terrible, but there's so much opportunity within S&P 400 uh um in smaller cap indices as well. So or S&P 600. Uh so I think that that uh you know, we'll continue to hunt in those areas. Um you can find you know, we we've the returns have been attractive u uh you know, for quality investors on that front. um you know we you like I said we invest across styles and uh we invest in international as well and that's that's had a great year. So it's hard to find value out there but there are spots and so we're trying to look for those spots where we're not paying up for the quality characteristics that we like. >> Okay. Um, and just to bring it back to Canro for a second, um, he because of this recovery that he sees, um, he he he sees basically looking at the economy, it's been driven so much by the capex and in the big tech space as as we've talked about, but he said he's he is starting to see indicators that other unloved parts of the economy are starting to to show some green shoots. And so he thinks that the economy is going to broaden out, but he also thinks similarly about the market. market's going to broaden out. And it seems to me that maybe you've got a similar approach here where he says, "Look, the big tech stocks will probably still do pretty well. They're probably not going to be the gang busters drivers of growth of the indices going forward the way that they have been. We're going to see more of of a the S&P 493 start to benefit the more smaller midcap stocks. Is that part of how you're looking at is is that why you're looking in those areas?" >> Not really. >> Okay, this is important. >> We're not making the argument that the rising tide is going to lift all boats. were just saying that there's there's there's diamonds in the rough that have been left behind. I So the the broadening out trade has been a hope springs eternal trade. >> Okay. >> Right. Everybody at the beginning of the year goes, "Oh, no, no, don't worry. MX7 is going to decelerate and you're going to see the S&P uh 493 pick up the slack." And year after year, it doesn't happen. And you see MAG7 remain dominant. And it's reflected in earnings. Mag 7 earnings, as we talked at the beginning, continued to go up. Eagle weight earnings continued to get revised lower. >> Yeah. >> So, I think it's a whites of the eyes. I I think that it's it's nice to hope for that to happen because it sounds great, but we haven't seen any evidence that it is happening. And if it does happen, the biggest question we are asking, and we debate this every week in our IC, at what point do you bet against the Mag 7? >> Mhm. H >> at what point do you bet against it's one thing to say okay I just need to be equal weight I need or I need to be like market weight these names >> right >> at what point do you actually take an active bet to say get these things out of the portfolios and I think the answer to that is when their earnings start to decelerate in such a meaningful way and disappoint that they are underperforming the the rest of the market but they've had such magnificent earnings growth to go with the magnificent price returns So until you see that, I don't think that this market broadens out, but you know, maybe that is the maybe that's the scenario for 2026. We'll be looking for evidence of that, but we want to see evidence before we make the the that call only because that call has been um very popular but very wrong for the last few years. >> Okay. So your then your approach right now is much more sort of active um valueoriented whites of your eyes. We're going to look for the company that's actually really doing well, but the current stock price hasn't reflected that enough yet, and we're going to try to ride that revaluation when the market wakes up to that. >> Yeah. >> Okay. Fantastic. All right, Cameron, this has been wonderful. Last and most important question, for folks that have really enjoyed this discussion and would like to follow you and your work in between now and the next time you come on this channel, where should they go? >> You can find me on LinkedIn uh and on X as well. Uh I don't post there as much, but I'm on LinkedIn a lot. uh uh under Cameron Dawson. And you can go to the New Edge Wealth website where you can sign up for our weekly uh uh written newsletter as well as I believe our chart deck as well, which I think might be available uh hopefully. It's it's a fun one. >> All right. Well, fantastic. And Cameron, as usual, when I edit this, I will put up your handles there as well as the New Edge Wealth website URL on the screen so folks know exactly where to go. Folks, those links will be in the description below this video as well. All right. Well, let me bring things to a close here. Folks, please express your gratitude to Cameron for giving us so much of her time and being so specific in terms of uh how she's looking at investing for this upcoming era of Stagflation Light. Uh so to show that appreciation, hit the like button and then click on the subscribe button below as well as that little bell icon right next to it. Uh just a quick update to on the conference. Uh the thoughtful money fall online conference on Saturday, October 18th is coming up real fast. Uh if you have not bought your ticket, you've just missed the uh expiration of the early bird price discount we were offering. But don't despair before the ticket rises to its full value this week. It's being offered at our last chance to save price discount. So I really want everybody to not have to pay full price if it can be avoided. If you haven't got your ticket yet, but are interested in going to the conference, go right now to thoughtfulmoney.com/conference. Buy your ticket. If you're a premium subscriber to our Substack, look for the emails that I've sent you with the discount code to use to get an additional $50 off of that price. And then last, if you'd like to get some professional help in positioning your portfolio for the road ahead, especially if it uh ends up turning out the way that uh Cameron thinks and the whole stackflation light scenario, uh I recommend that you get that help from a good professional financial adviser. Uh if you'd like to talk to one of the firms that come on this program with me week in and week out, you can do that by um filling out the short form at thoughtfulmoney.com and have a free discussion with them. Uh these discussions, as I said, are free. There's uh no commitments involved. It's just a service they offer to help as many people as possible prepare and position as prudently as possible for what may lie ahead. And with that, Cameron, um it's always such a joy. Another great discussion. and really look forward to having you back on again early in 2026. Thanks so much for everything. >> Thank you. >> All right, and everybody else, thanks so much for watching.
Get Ready For "Stagflation Lite" | Cameron Dawson
Summary
Transcript
So I think it's an important note that you're seeing things like capex intentions and hiring intentions really diverge at this time. So this stagflation light environment comes with we could actually have resilient real growth as we've actually had through the course of 2025. But the labor market is weakening around the surface or around the edges and you have that stickiness and inflation. All kind of leads into this stagflation like kind of scenario that probably makes us all want to drink a beer. [Music] Welcome to Thoughtful Money. I'm its founder and your host, Adam Tagert. Citing a current macro landscape of lower economic growth, sticky inflation, and rising unemployment, today's guest has recently declared, "We've entered a stagflation light period." Well, what does that mean? How long will it last? And how should investors position accordingly? to find out. We're fortunate to welcome Cameron Dawson, chief investment officer of New Edge Wealth back to the program. Cameron, thanks so much for joining us today. >> Thank you for having me, Adam. >> Oh, Cameron, it's always a pleasure. And I I looked at the last time you were on the channel, it was earlier this year, um quite earlier this year, and thought, you know what, it's been way too long. And we we know a lot more of the story now here in 2025 than we did at the beginning. there was lots of uncertainty coming in, especially with the new administration. Um, it's not like there's no uncertainty anymore. Um, but we certainly have a little bit more clarity into the policies that are going to be attempted to be pursued and things like that. Um, we've had a gang buster year in the market. I think that's surprised a lot of people off of the the the back of two, you know, backto-back 20% uh return years in the market. Maybe we'll get another one. Maybe it'll be a repeat. Who knows? Um but anyways um I did see your uh recent uh you know note there that uh we may be in a stagflation light period and so wanted to get you back on and let's dive into that as well as just everything else about 2025 as we're wrapping up the year. Um can you expound on exactly what you mean by stagflation light? So stagflation light, we're calling it doesn't taste great, less filling, which is effectively saying that this is not the stagflation heavy that we got back in the 1970s. If we go to the traditional definition of stagflation, it was that you would get both highly rising unemployment and much weaker real growth at a time where inflation was running hot. That of course was something in classical economic understanding was not supposed to happen. If you saw high unemployment, you're not supposed to see high inflation. But of course, the lesson from the 70s was not only about what happens when you run fiscal policy too loose, when you run monetary policy to loose, but then also how you deal with exogenous shocks. Remember, we had exogenous oil shocks that fed fed into this inflation scenario that all wrapped up into this stagflationheavy kind of environment. So, in the grand debate as to whether or not we're going to have that same kind of environment, for the last year or so, we've been saying no, it's going to be different. It's going to be lighter, meaning that you're going to see some easing in the labor force, but you're not going to see uh a soaring rate of unemployment necessarily based on what we were saying. We weren't we're not calling for a recession. We haven't been calling for a recession. Um, but that we'd say we we've been arguing that inflation is going to be stickier, meaning that you're not going to see the descent all the way to the 2% inflation target. And even if you have potentially exogenous shocks, and we would file tariffs under those kinds of ideas of exogenous shock that really affects supply chains that you see a stickiness of inflation persist and even a drifting higher. So maybe not the big spike in inflation like we saw in 21 and 22 but effectively where you're not in this disinflation scenario. Now I think this comes with a really really important caveat because I mentioned at the beginning that stagflation in the 70s came with a time with weak real growth and soaring unemployment. But there's a very interesting dynamic that's happening today, which is that the employment market is far weaker than what we're seeing within growth in the economy. And part of that is because of this incredibly narrow focus of this economy whether it's a focus or it kind of is it it it's created itself coming from AI meaning that you were seeing so much spending and capex in a very very narrow part of the economy that Neil Data from Renaissance Macro back pointed out back in the second quarter that as far as when it came to looking at the contributions to GDP growth in the second quarter that AI related software and hardware capex actually contributed more to GDP growth than the entirety of the US consumer. So I think it's an important note that you're seeing things like capex intentions and hiring intentions really diverge at this time. So this stagflation light environment comes with we could actually have resilient real growth as we've actually had through the course of 2025. But the labor market is weakening around the surface or around the edges and you have that stickiness and inflation. All kind of leads into this stagflation like kind of scenario that probably makes us all want to drink a beer. >> Okay. Yeah, probably something harder, not a light beer. Um, let me ask you this. Um, some really interesting points there. Um, I had not heard that stat that AI capex basically uh is now greater than consumer spending in terms of contributing to >> it was in the second quarter. So, so it's a very specific data point. You know, it's it may not persist in the in the third quarter, but on a percentage contribution basis, uh it did in the second quarter. >> Okay. So, this raises um the term K-shaped economy, >> which we've heard kicked around a lot. I mean, it sounds like you're describing sort of an extreme K-shaped economy there where it's basically the AI horse pulling the entire thing for the most part and and the rest of the economy really not doing nearly as well. >> Yeah, I think that you can see this encapsulated in earnings as well. What you can look at is the S&P 500's earnings continue to get revised higher. MAG7 earnings continue to get revised higher. However, the equal weight, the average stock, those earnings have actually been getting continuously revised lower throughout this year. So, it's a perfect K where you have this environment where where some portions of the economy, a very narrow portion of the economy is experiencing supernormal growth and everything else is just sort of listless and drifting along. And the lesson from the K-shaped economy from the consumer over the last couple of years has been don't worry when it comes to economic forecasts about the low income consumer because they don't carry the same weight in overall economic data >> whereas really focus on the high-income consumer because they're outpunching their weight. Moody's put out a stat back a couple weeks ago saying the top 10% of consumers in the US generate 50% of consumption which is absolutely wild. This is up you tens of percentage points over the course of the last couple of decades. So I think what this creates is an environment and we're about to publish our our our third quarter or sorry our fourth quarter outlook and it's all talking about how everything has become this sort of circular reference. So the US economy, you the classic phrase is the the market's not the economy. You've heard it all the time. Don't worry about it. It's not the economy. >> But I think you can make the argument now that the economy is actually mirroring the market a lot more. The economy is just as reliant on AI capex continuing as the market is. And you add now another layer on it that that high-income consumer is also reliant on the market continuing to rally. So you have the market relying on AI and you have the economy relying on AI and that economy relying on the consumer which is then relying on the market and AI and you have this circular nature that's happening that if one of those things were to show cracks then you start to see potentially a period of weaker growth but we're not seeing that yet. So we're not making that call but it's certainly something that we're thinking about as a potential risk into 2026. >> Okay. So so much to to comment on here. Um so in AI right now um there is an increasing um you know look at a little bit of circular capital flows there. um which some people are saying, "Hey, it smells a little bit like the uh the vendor financing, the sketchy vendor financing from the dotcom era where you have the the um the infrastructure companies, you know, the the Nvidia, uh they're getting tons of capex uh spending from the other Mag 7 and then they're taking that spending and they're reinvesting in their clients who are then spending that money back in Nvidia. So my question to you on all this um Cameron is is this sustainable? Is this organic or is this really sort of musical chairs that everybody loves as as things are going up? But at some point somebody realizes there's not sustainable value being created to support today's prices and then at some point you get a you know hey that emperor is not wearing any clothes moment and there's a big repricing. >> I think that's an inevitability in any and every capex cycle. It it it it trees never do in fact grow to the sky. So every single time there has been a big technology change, you always have this first environment or this first period where everybody is excited and everybody's dreaming of the future and you're not necessarily counting, you know, what the return of those investments are today because you're dreaming so far in the future. And then what ends up happening is that the initial infrastructure buildout is great for a certain subset of companies, but then when you come to the actual application of the technology, the winners from that are often times very different than those that benefited from the infrastructure buildout. And we saw that of course with the internet cycle, right? So those that were laying fiber optic cable are not the companies that led in 2000s and 2010s and 2020s from the applications of the internet. And so I think that a similar thing could happen here is that we're clearly in this capex portion of this cycle and the going is good. And so you have to as an investor you have this awareness that the music's still playing. So you if you start stop dancing and the music still playing, you'll you'll continue to watch people having a grand old time, but eventually the music will stop playing and people will start doing an assessment of what is the actual return on invested capital for these investments that are being made. Who's actually paying for them? You know, is you had a recent announcement with AMD and Open AI? Where is the money from Open AI going to come from? Is it going to come from more capital raises from individual investors? Will it come from debt financing? Where will it come from? And what will the actual return for open AI be? I mean, all these still are are are swirling questions that I think if you look historically, we've seen this story before. It always looks different and everybody says this time is different and this is the technology that's going to change everything but every time it repeats itself with a similar flavor of the the infrastructure buildout is very different than the application of the technology. One of my favorite books is by uh a a a two people named Quinn and Turner. And the book is called Boom and Bust. And it's a book about the about historical studies of bubbles. And they do a great job at framing it in the context of technology and liquidity and you this spark of optimism and this concept called marketability, all these different things together. But it's such a fantastic read because it really helps you realize that we've been here before. Doesn't mean that you shouldn't play along at home, but we have been here before and we do know how it ends eventually. >> Okay. Kind of begs a question then and and I know I'm asking you just to to guess here. Um, at the the current level we're at right now in the story, are we in a bubble? And if so, um, how concerned are you about, uh, the timing from here? In other words, is it still time to play or is it time to be, you know, nudging towards the door here? >> Yeah. So, I I I think one of the one of the important definitions and distinctions or things to remember is that bubbles can happen in earnings just as much as they can happen in valuations. >> Absolutely. >> So, valuation bubbles, we saw of course in the 2000s, I would argue we saw a valuation bubble. Sorry, the in but at the peak in March of 2000, we saw a valuation bubble in uh arguably in 2020 2021 with the stay-at-home stocks, you know, where you had, you know, Zoom trading at like 50 times sales or something like that, right? Uh so you you can have these valuation bubbles uh which have their own aftermath to them and then on the other side you can have earnings bubbles and that's when companies over earn and then face you multiple years and even in the case of of some stocks decades of unearning uh because if you look at what happened with Corning for example in the 90s right they overearned during that period of time and then ended up having multiple uh uh decades of of rather poor performance. The the there are plenty of examples of this uh uh go back to the overearning that happened uh within uh mining stocks and commodity stocks in emerging markets in the 2000s that led to the peak in 2013. Uh banking stocks in Europe overearned with the peak in 2007. There's all these great examples where overearning can be incredibly costic to long-term returns. So, I do think that we're starting to see signs that we're going to start over earning. All of these big deals that are being announced is effectively uh the signal that we're that we are going to get this over earning for those that are participating in the AI capex. The question is is when will the market care? >> I don't know. the the the challenge you have is that being early is the equivalent of being wrong. And I think that for us, what that means is that we want to make sure that that we're very aware of all of our exposures. We're not overconentrated in one central trend, right? Or one central factor. We want to make sure that leverage is really well appreciated because the more things go up, the more things they that can go down. Meaning the higher valuations you have, the greater we think of valuation as an amplifier of corrections. So the if you're trading at a high valuation and you and you challenge the narrative, you'll just have further to fall. So when you have further to fall, you have more beta or risk in your portfolios by definition. So that means you have to make sure you're really confident about your leverage levels. All of these things I think are prudent aspects of saying how do you how do you keep dancing while the music's still playing? but not expose yourself to you being the one without a chair when the music stops playing. Um, and I think that that that comes down to individual risk management and and um uh you really making sure that you know where your exposures and leverage sit. >> Okay. So, there's there's risk management that you can do as a as a capital manager or as an investor, right? um hedging, position sizing. I mean, there's all sorts of things that you can do. Um for at at New Edge Wealth, um presumably there are indicators that you'll be monitoring pretty closely to say, okay, we're starting to see some of the cracks um in the system that we would expect to see before things really start to get bumpy. Um what are the things that you are looking at? Yeah, I think a a a great reminder of one is very very simple. Look at earnings diverging from prices. U what we saw back in the late 1990s and we've seen it at different points of time prior to the beginning of more protracted market challenges is that earnings revisions start to taper off and even get revised lower and the market just doesn't care. it just keeps on rallying. Valuations continue to expand. Everybody is so optimistic and like, "Oh, yay. It's just it's just one or two names. Don't worry about it." >> And that divergence typically is setting you up for something that tends to be more of a whoops moment where all of a sudden you look around and be like, "Oh yes, we are trading at very high multiples and there's no fundamental underpinning for how much we've rallied." So, we'll watch those kind of divergences. We're watching really closely signs of complacency. Jeff Degraph at Renmack. Um so talked about Neil Data, Jeff Deg Graph, obviously we're big RenMac fans. Um he's been flagging that there's been some complacency in the options data. So options uh you you look at like things like the put call ratio. All that does is capture how much people are willing or wanting to buy downside protection versus wanting to buy upside optionality. If people only want upside optionality, that is typically a sign that they're growing complacent about downside risks. Mhm. >> You've seen a big huge jump recently in the AI net bulls indicator. So all of a sudden you have Fed cuts interest rates and everybody's bullish. >> You're starting to see finally um institutional investors get more fully invested. This is something I think is really important to watch. The Deutsche Bank consolidated equity positioning, which you can just Google it uh and see the most recent reads on it, is now in the 70th percentile, which is an overweight allocation to equities. But it's important to note that since the low in April to today, it's effectively showing that institutional investors have been sitting on the sidelines for this rally. It's been very slow to recover. it got to the first percentile in April, meaning only one percentage of the time in history were institutional investors more underweight equities. And so what you've seen is this rebound in equity positioning, but it's been really slow compared to what you would normally expect. So if that, you know, what one of the things that we're doing is actually playing out the scenario of let's say we rally to 7,000, let's say we get there by the end of the year, what's that setup and what does it look like for 2026? Uh, and does that make a foreat of of another great year that much more challenging because we're pricing in the moon and more? >> Yeah, you were talking about um over earning, right? Um, and uh that can certainly happen the way you described and and I guess it's the same thing with prices and valuations. I mean, basically multiple expansion um prices going up uh faster than earnings. It's essentially it's a version of pulling tomorrow's value into today. Yeah. >> Right. And once you do that, you are leaving less value to realize in tomorrow. Right. So it it it would make a four four pet I mean four pets are really really rare. Uh but it would make that even even more unlikely going forward from here. Well, the one thing I'd add I'd add is that like we these companies have admitted to them to to us that they are in an arms race and that the risk is under spending, not overspending, right? So, >> right, >> they're actually telling you we're going to overearn and overspend today. And remember, there's a circle of reference with reference within the AI names of the customers of each other. >> So, you know, I I think that that they're actually telling you that this is happening. It's a question of at what point does the second derivative pace of that arms race slow enough that the market starts to look around and be like wait we can't extrapolate anymore. So we you know we we now have to reassess our our forward outlooks. Um but that you know that has to come after you've already raised the outlooks and that people have have priced in the moon and more and once you get to that point then that's when you know that's when it's likely that you'll see more volatility. But >> all right. So I've got I've got I didn't mean to make this so much about AI, but this is super fascinating and super important because it's basically driving all the action here. As you said, everything is kind of um interdependent on on uh how AI goes and then that drives the market and then that drives the spending of the rich people and that you know keeps cycling. So let me ask you these three questions. Um, so right now, um, the, as I understand it, uh, the AI race, it may not exactly be a winner take all race, but you've got a bunch of companies that are competing to basically develop the smartest AI. And I think that you can make a pretty decent argument that there's sort of a a network effect for the winner, that at some point somebody's going to start to pull away from the rest, and everybody's going to want to use that AI because it's the best, right? um meaning there's going to be a lot of losers in this space, but right now everyone's kind of being valued as if they're going to be a winner, right? >> So, um first off, there could be a pretty decent repricing as people say, "Okay, look, this guy looks like he's going to be the winner. We got to take all these other guys and give them really big haircuts because they're not going to be the winner." So, there's there's that potential risk. Then there's just the risk of look, we think there's going to be a ton of profits here in AI, but we don't know yet. We're taking that on faith, right? So there is sort of an open question about how big is the AI pie in general, right? Then there's the third question which is um you know Deep Seek kind of caught the world by surprise when when its first version came out. China is still working real hard on it. Apparently there's another big release coming out soon and China is pretty famous as is just the technology industry in general of competing away margins, right? And so, you know, I guess my question here is is there the potential for AI to be super transformative to the world society. But there for any of those three reasons I just mentioned whether you know you you have to you have to take away the premium that that the most of the field has right now or that the AI space pie isn't as big as we all thought or maybe it is initially but then competition like China you know competes away the profits that there's just not nearly enough there there to support the price to the moon and stars as you just said is in right now. I mean, and you one of the things we've been talking a lot about is how these hyperscaler AI companies that are locked in this arms race right now trying to be, you know, the ABBA winner takes it all, right? That they are coming from a space where they have uh monopolistic power in the industries in which they play. And that monopolistic power doesn't require them to make a lot of incremental investment. That's how they have such massive gross margin, right? Like look at Google and search and meta in um in their you core advertising business. All of these companies have huge uh monopolies that they're now using to fund investments that are highly capital intensive and very very competitive. So I think your point's really powerful, which is that okay, maybe it's all a race to the stars where we all have to to hope that like the horse that we bet on is going to be the one that gets to super intelligence first. And so you don't know which one it's going to be, but then once they get there, they're just going to rule the world and then we'll all have our our robot overlords and, you know, let let's let's hope it's one of the nice CEOs. Who knows? >> Um, there's that aspect. The other one could be that this is just going to be a highly competitive technology that becomes ubiquitous in our life, but we're not going to pay a lot for it and because there's going to be so much competition. And we've seen that many times, right? So, so you the the uh whether it's something like cars for example, ubiquitous technology, automobiles, ubiquitous technology, terrible stocks. Um you have plenty of scenarios where something gets broadly adopted. But that doesn't mean that the spoils of whatever that technology is acrue to the shareholders you think it will. >> Mhm. >> So I I also think you know if if there's all this competition and the models are becoming more and more similar to itself assuming that we don't get the somebody wakes up tomorrow and says I have super intelligence and and nothing else can compete with me and I can read your mind. If that doesn't happen, then how does Open AI raise prices? If Meta has theirs and Google has theirs, >> where do you get where do you get the cash flow from the business itself to fund these kinds of investments? And I think that that remains an open question. So, for now, it's a startup and everybody's willing to fund it, but eventually, you know, maybe it's when OpenAI does an IPO and we get to look at the financials. Maybe, >> maybe, maybe. Yeah. And, you know, the analogy I've been using is is um, you know, the picks and shovels versus the actual miners, you know, during the gold rush, right? I mean, right now everybody's buying picks and shovels, right? If you're in the pick and shovel selling business in this space, if you're invid you can't answer the phones fast enough, right? The money's just coming in. >> But in terms of like ounces of gold coming out of the ground that people are digging up with their pickaxes, we're not seeing a lot of that yet, right? We're still taking a ton of that on faith. And we're increasingly seeing reports like I think Bane put out a report like two two weeks ago where they're like look we're trying to be as generous as possible here in how much we think AI can make. um you know I can't remember what their their timeline was the next 10 years or whatever it was and they're like we're coming up like you know 800 billion short you know with with the rosiest inputs we can come in here and who knows whether their math is right and we can debate it and whatnot but there's I I think there's a lot of um you know there's a lot of reasons for skepticism that it's like wow you know they're going to have to be like mining asteroids at this point to be supporting these valuations and look I don't know I'm not an expert in AI and may maybe we've beaten the horse uh beaten the horse enough in this discussion but it is so centrally important to to driving everything right now the market the economy the consumer spending and yet there is a lot of unknown in it here and a lot of optimism and those two things generally don't tend to pan out well in the long run especially you know you've cited a number of times in history where we've seen something similar to this and yeah there usually is a period of of uh repricing and um and and oftentimes either earnings or or return droughts because you pulled way too much expectation into today and it didn't materialize. The real value didn't materialize for a lot longer. >> Yeah. I I I I I really like as a you know kind of a perspective on this because he's been really good at raising an eyebrow to some of the AI skeptic uh analysis is Jordi Visser who has been doing a ton of great work on what's going on with the capex cycles and how intensive it's going to be. But you know, Jordy who's very very bullish on the AI capex story, you know, there's still this acknowledgement that in many ways we are now locked in this massive spending cycle that's causing us to divert our our capex dollars away from other productive uses into a technology that is going to be highly highly disruptive to society. and we have no kind of of of uh agreement about how we are going to as a society deal with these disruptions. So yes, it makes life easier in certain ways to make cool cat videos and to like write a better resume, but here we are, you know, using our energy, using our resources to to build a technology that's going to make us obsolete. And maybe that that is like the inevitability of all of this. But um I may and maybe it's just the reality of this is why we don't deserve nice things or can't have nice things. >> No, that that that's a great point. Um which I've talked about a bit on this channel, but um you know, we've been raising sort of the the economic uncertainty about AI, right? you know, maybe it not be it may not be as big of a deal as is currently being priced in or you know, even if it is in the long run, but there's a repricing that's going to have a negative wealth effect and that's going to impact all the things you talked about. But you're right. I mean, huge unresolved question right now is if AI is the job killer that many think it will be if successful, and I think it's going to be a huge one. Um, we don't have any consensus about how we're going to deal with that. Um the electricity demand of AI is gargantuan and we are going to be spending an an absolute crap ton on u build out of our energy infrastructure. Um which isn't necessarily a bad thing to be putting your money into, but but still, you know, looking at what we're going to have to do just to just to try to catch up with China is is mindboggling. And I'd actually love to hear your thoughts on on the energy space as a investment opportunity given the demands of AI. But then the last one and it say this tongue and cheek but not really. This technology might kill us in the end like it that's not something we can rule out for sure here about this right which is >> I mean we've all seen I don't know if you've seen the final Mission Impossible. Yeah. >> Yeah. Yeah. Or I certainly saw the Terminator movies, you know. Um so uh you know it is kind of funny that we're running you know headlong into this when we really don't know all those things I just talked about. Hey, are we going to have are we going to be employed? you know, are we going to be able to afford electricity because right now households are seeing in in in the growing number of states seeing their electrical bills skyrocket and it's because of all the competition coming from data centers. But yeah, at the end of the day, it's like we might just be running Pelmel, you know, feeding the beast uh that's going to kill us as fast as we can right now. It's just a little Anyways, um okay. So, um actually, why don't I let you talk about energy just for a second and then I want to get back to this whole K-shaped dynamic. I mean, it's very interesting in the energy dynamic as you're seeing utility stocks sore and and you talk about uh needing to open up reopen nuclear plants that you haven't seen much movement out of broad natural gas prices and and oil prices remain super subdued. So maybe that's the next phase of this. Um but it's it's certainly been a very narrow definition of an energy shortage. um because it's more of an energy shortage in the infrastructure to create that energy, not the base fuels to do it. But maybe we get there. Um you know, I think watching oil prices uh you know, that's kind of always the wild card of something exogenous that can impact so many things because it impacts acts as a tax on consumers uh effectively. Um it's so exogenous, you know, where you know the Fed doesn't control it, but it really feeds into inflation data and can metastasize throughout the rest of the economy. So, it's something that that we're watching on that front. But, um, you know, certainly the the the projections for in for energy capex remain so powerful. And we like infrastructure as a theme. It's been something that we've really liked all year long. >> Some of this infrastructure is related to that energy capex buildout uh for for sure. And so it's been something that we think is a great diversifier within portfolios effectively being able to say look 9 to 12% returns weren't exciting uh back when you the NASDAQ is delivering 30% a year but let's say we have an environment where the NASDAQ doesn't do that. I think I'd like to have something that gives me a somewhat stable return but then has the ability uh to be less correlated to markets overall. So it's still something that we're focusing on even though you know what we're being conscious and aware of is that there is still some AI relation there. So we want to make sure that we're not over our skis and and and that kind of exposure. >> Okay. All right. Um I'm going to I'm going to get quickly to Okay. So in general, what is sort of your investing approach for um uh stagflation light? Um and I'm going to guess that might be a little bit part of it, but um back to the Kshape part. So, we talked about the K-shaped economy. You did talk about how consumer spending is is so driven now by the top 10% of households, right? And that is a that is a growing trend, right? They're they're continuing to to make up more and more of the total consumer spend. Um and so let's assume for a moment that that the status quo continues for a while here. So, um AI doesn't kill us. um this whole circular thing keeps happening where market valuations go up and then the afflu consumers buy even more stuff right there's the bottom half of the K I mean we're talking really about a K-shaped society here which we've had but uh COVID and all the stimulus and and and and the asset inflation and the cost of living going in opposite directions or sorry opposite directions um have really accelerated that K-shaped society because those who have owned assets have done just fine because of that asset price depreciation. Those who haven't have just had to eat that increased cost of living, right? So maybe this is a little bit beyond, you know, your your scope as as what you do on a day-to-day investor um standpoint, but how concerned are you that just the longer we go in that trajectory, there are real societal issues that may be coming into play here? Yeah, I mean we've all read the fourth turning. >> Yeah. >> And and these extremes uh whether we're thinking about extremes and concentration within equity markets, extremes within concentration of wealth, they don't go on forever. Often times they can go a lot longer than you think. Right? We could have had this argu this talk about the K-shaped economy and we did this time last year and saying look like there's a big and it's not even just the the the top bottom desos pretty much the bottom half of the US income earners are really struggling. The last few years have been incredibly hard uh given the fact that wages wage growth has slowed materially uh and the lower- inome households rely much more on wage growth to fund um you know to fund overall spending. Um much more reliant on the jobs market, much less likely to you know be living off of savings and and uh and investment returns. and that you're still seeing in the areas where they have the highest propensity to consume in things like um uh food and and gasoline even though you know gas prices have been more subdued. Uh but shelter costs all areas that remain you know really under pressure for these consumers but it hasn't shown up in the broad aggregate data. So it shows up in the survey data for certain. We have University of Michigan surveys that continue to be in the doldrums because it's capturing the fact that on average on a basic average the US consumer is not as strong. However, on a weighted average based on how much they contribute to consumption, the US consumer on the surface looks perfectly fine. Right? >> So I think the big question and this is a phrase from Peter Bookfar who is awesome. He's an amazing analyst. um and write puts out a great note actually um that it is is super helpful. Um he um uh says we all breathe the same economic air. After all, we do breathe the same economic air and so at what point does the air get so thin given the strain in lower income consumers that it starts to bleed into higher income consumers? >> And it's a good reminder there's also that relationship with the mag seven as well. Don't forget Meta in 2022 had negative revenue growth because we were worried we were going into a recession and Meta's 98% advertising. What do you do when you're worried that you're going into a recession? >> You cut your corporate ad budget. Yep. So I I think that that you know the challenge you have is that just on a weighted basis it doesn't show up in the overall data but you're seeing more strain and now you're adding on top of it a jobs market that's kind of frozen. You have a jobs market where if you are looking for a job you can't find one. And we hear so much from from you know you know kids in my you know friends kids in the network that say like I just graduated from this great college and I cannot find a job. It's tough. I've got college age kids. It's it's tough out there for their peers. Yeah, >> it's really tough. And and you know, at what point does that create a breaking point and a strain? Um it's it's a really good question. Uh but obviously, you know, we we we know that some of these extremes are are not sustainable. And I, you know, the big hope is that you would see kind of a cyclical recovery in the US economy that can help absorb, you know, these college age workers and kind of get get people to work and the jobs market can open back up. Um, and and the optimism would be that you're going to get that because of changes in OBB um coming from, you know, what could help with capex expending which could get more potential corporate investment um as well uh as interest rate cuts that potentially kind of free some of that up as well. That's the optimistic view is that okay, just wait till early 2026. The the policies will change it. So, you know, I think that that um it better deliver is is maybe the point to say. >> Yeah. And you know, look, there's there's a lot of um concern to sling around here. And of course, one is on the job side of things. Jobs market's frozen. There's a good question to ask sort of like will it ever unfreeze if AI continues the roll out that that it hopes to where an increasing number of jobs may just go away permanently, right? Who knows? Now I I would say next 5 years if you want to go into the trades, become a a welder or learn how to build data centers or or you know help build the new electricity grid like you're going to have a ton of demand for your services. >> Yeah, I would not. Yeah, Yale Budget Lab has started putting out a piece about tracking labor market data to get a sense of how much AI is actually actually disrupting labor markets. So, it's easy for us to be like, oh, well, you know, here's this must be because AI that we're not seeing hiring. But, of course, it could be a whole host of other things, policy uncertainty, uh, you know, slowdown in underlying demand, whatever it might be. U, so Yale Budget Lab said that they're going to be updating it frequently as more jobs data comes out. Uh so I would keep an eye on that uh because it I I can't imagine that we're already we we try to talk to a lot of companies who are applying AI into their businesses and as of right now what they're saying um kind of broadly is that AI hasn't allowed them to fire people necessarily but it has allowed their existing people to be more efficient >> more it's a productivity enhancer right now. Yeah. which but but then yes it might make them more efficient but there's still a lot of work that needs to be done to kind of check the work. So they're not at the point yet where it really has changed their employment landscape but maybe at the margin it's allowing them to hire fewer people. I don't know. I I'm not sure. It's really, it's hard to know if the high unemployment rate for college recent college grads is a function of AI or a function of other of just a weaker economy, which you typically do see that recent college grad be the first area uh that shows weakness when you're about to go into a weaker economic period. So, um it it's hard to say it's definitely AI, but it definitely raises an eyebrow. >> Yeah. Yeah. Um multiffactorial and Yeah. I mean I I think one man's opinion I don't think AI is there there yet but in a year or two you know could it be you know five years you know potentially probably if if it's going to work just because it's it's exponentially improving but I don't know we'll see um all right so uh rapid fire questions because we're beginning to get tight on time I I got to be respectful of your time but you you you've just opened so many interesting doors here Cameron which is one of the reasons why I love interviewing you um when we first or sorry when we last talked to each other. I think it we were two months into the year. So, we didn't really have a strong sense yet of exactly which of the new administration's economic policies were going to get successfully deployed and what they were going to look like. Well, now we know that OBB has been passed and we know what's in it. We we now have a lot more data on tariffs. Um certainly more than we did during the confusion of liberation day, right? Um, so I'm just curious at a high level, what kind of grade would you give the new administration's economic policies as you know them so far? >> Oh, um, I, you know, I I think that it's it's difficult and I'm not trying to to wiggle out of your question. Um, >> answer any way you like. Yeah. >> I think it's I think the tariff judging it is a really fascinating concept, right? So if we think of it in the in the context of earnings estimates, if you look at earnings estimates in the second quarter for the second quarter, everybody thought tariffs would hit immediately that you would see tariffs cause uh consumers to pull back on spending that prices would would >> skyrocketing prices. Yeah. >> That you would see the the impact immediately. And you know, never we always, it's like we overuse the phrase, but it's true is never bet against the great American might of margin expansion, right? Like at the end of the day, companies are really really good at navigating tough environments. If you survive COVID, if you survive the first trade war, if you survived 2022, like you're you're pretty good at this. And so they figured out ways to not only pull forward demand, but also to be able to manage their inventories so that way they didn't have to pass on price increases immediately to consumers. And you heard it from the likes of Walmart saying, "Well, the price increases are now going to come because we weren't really certain if these were going to stick, but now that we know that they're sticking, we're going to raise prices." So, if we're judging the impact on tariffs, I know, you know, uh, you know, it's easy to be like, look, everybody was wrong. Everybody got tariffs so wrong and so because it they were just too early. And we thought the tariffs would take much longer to show up in data. We were thinking maybe 3Q you would start to see it. And this is going to be the test, right? this earning season is going to be the test as to whether or not tariffs are going to have a meaningful impact on on the economy. And with that, I think it's it's hard to make the judgment today. Um I think the the other part of it just that the way that we've been thinking about it is that there's a lot of offset between OBB and tariffs. Um so the incremental benefits from OBBB uh you different tax provisions for individuals and uh and corporations some of that just gets offset by tariffs and in fact you know from a budgeting perspective some of it gets offset by tariff impacts as well. So I you know it it is it um potentially net stimulative for certain areas? Yes. Um, is it going to be the same kind of boom to earnings that it was in 2018? Likely no, because you're not seeing that, you know, big huge downshift that you had in things like corporate tax rates. So, >> it's a little bit more of a wash with a question mark. >> Okay. Um, >> hopefully that was diplomatic. >> No, no, no. It was. Um, and um, let me ask you this and then I'm going to get to the your question about how to invest in stackflation light. Um, I had uh two analysts on last week, um, who I think quite highly of, uh, Anna Wong and Michael Caneritz. You're probably familiar with both of them. Anna from Bloomberg Economics. >> They're amazing. >> They're they're amazing. >> I I bow in their in their presence. Both. >> Yeah. I mean, they're very very smart, but they they they delivered they both delivered the surprising uh news to me and they were familiar with each other's work and reasons why too that they they're becoming more bullish um and especially Anna and uh they see conditions now being set for the economy to actually grow faster. They're not predicting a boom, but they're predicting a recovery of sorts. Um, and and in your stagflation light thesis, you know, you talk about sort of low growth. Um, I don't know if that's necessarily slowing growth or not, and that's what I wanted to give you a chance to react to here. Do you not everybody interview sees the way that they the the landscape the way that they do, so you don't have to, but I'm just curious. Do you do you actually see the table being set for the economy to be growing next year or with stagflation light? Are you expecting it to be more sluggish and or or maybe even heading down? >> Well, I mean that's the that's stagflation light with the nuance that what goes on within the jobs market is not necessarily what goes on within growth. >> And so we could have an environment where the jobs market remains somewhat anemic. But you are cutting interest rates. You are stimulating with so monetary stimulus, fiscal stimulus. Uh it is allowing companies to invest more in capex which is contributing to growth. Consumer spending stays okay because you're keeping moni you're keeping u uh monetary conditions or financial conditions really easy which is supportive of market. So you kind of get the sim similar kind of wealth effect that supports the high-income consumer. Uh and so you have you could have this environment where you see a recovery in certain areas in corporate spending but it doesn't necessarily translate into uh a much stronger jobs environment. So you could have a you know the jobless recoveries have happened plenty of times in history. So you could have an environment that looks somewhat similar to that. Now if the economy is booming you're going to see more jobs being added, right? So, so you'd need to see growth eventually be supported by a healthier labor market. Um, but it's very very possible uh given this this kind of optimism around a tech cycle and you could go into a full meltup bubble within equity markets that create a boom mentality and you know growth is always part psychological. So you could definitely see something like that happen which raises the question 2026 GDP estimates are at 1.6% slightly below trend. Those are likely too low um in this scenario. And if they're too low, that suggests that you're going to be in an estimate revision up cycle for GDP, which suggests a continued healthy backdrop for risk assets, which means that maybe the rallies can continue in the near term as you're recalibrating to those higher growth levels. Maybe. Or you're in an environment where you get non, you know, you take the other side of it, you the neil data side of things, which is that you've already seen enough weakening in the labor market. you get a little weakening, it turns into a lot of weakening really quickly and you go into a much lower growth period and you're still getting sticky inflation and then that looks a lot more like stagflation heavy than it does stagflation light. >> Right. Okay, great. Um, so two quick things in that. >> Well, I didn't actually answer your question. I just described two very different scenarios. Um, but uh, you know, classic two-handed economist. >> Sure. Well, look, no. Well, no, I mean there's potential for both. I guess my question just to give you a chance to clarify is in your stagflation light call right now. Um is that c can can you have sort of an economic recovery in terms of uh economic growth getting better next year and still be in stagflation light or is stagflation light kind of your default but you're open to the kind of the cantitz things could get better. Yeah, I I I mean I think you know we've been thinking that we were in a muddle through growth environment um because we didn't necessarily see the sources for big acceleration within the labor market within wages u and so we thought that growth was just downshifting from this above trend to slightly below trend um not falling off a cliff. So that's our baseline. Um and I I think it remains to be seen as we progress through the end of the year. You know, if the labor market continues to show signs of incremental weakening, you know, it would lean more towards the data camp versus the Canro camp. Uh and so that's why we're dancing in the middle. You know, we're we're like we're waiting. We want to be data dependent, but of course we're now in an environment where we're not getting any data. uh which means that we're listening to the equity market which is telling you risk on bullish cyclical boom everything's fine um party on gu like nothing to see here so um but the equity market does have a fairly good track record of of um uh being like uh Britney Spears and being the last to know if you remember I think the last song on her on her debut album was don't let me be the last >> you so it's so funny um you're such a great uh your your discoraphy is is so wonderful. Um I'm a big music trivia guy as well. Although right at the Britney Air is really where I start losing my area of expertise and after that I have to rely on my daughter for anything really newer than that. Um but uh at some point it would be so fun to play music trivia with you Cameron. Uh I think we might be a super team. Um you know >> you you you'd cover my blind spots. I got your blind spots. We're good to go though. >> We'll see. Although I get a sense from your references that that you you you probably don't have too many blind spots. uh no matter where we go, whether it's the >> my my music knowledge drops off by about like 2010, you know, because that's what happens is that, you know, you you get to a certain age and you stop liking new stuff. And I have to say, you know, the dribble that that that we get today is is is not great. Um but that's for a different discussion. >> It's for a different discussion. Okay. I'm really good 50s through mid9s. I think you're good is somewhere in that period up to 2010. and then we'll get my daughter to to cover the more recent stuff for us and then we'll be an unstoppable team. >> Um all right, but look real quick. Um so Ketro just just to you know his defense um >> I think it was him might have been Anna but I think he still feels similarly. He said look this was a fragile recovery at this point. Again he's not not predicting a boom and he in a big part of his his outlook is the weakness in the jobs market. He said the jobs market is just weak enough. It's weak enough to get the Fed to to ease to to you know help things out. Um, but it's not so weak that I start getting worried about it. Of course, if it starts getting weaker than that, different story. I'm going to change, you know, my outlook based on that. Let me ask you this real quick. Um, I've shown this chart before. So, this is, um, this is a chart from the Federal Reserve. Uh, in let's see here. In red, we've got the Fed funds policy rate and in blue we've got the unemployment rate. And I'm telling you stuff you already know here, Cameron, but in almost every uh every time where the Fed has gone through a hiking regime and then plateaued and then started to cut, that's sort of right where retroactively the the next recession was declared to have started. Uh and kind of concurrent with that in almost every one of those recessions, we had an unemployment rate that had bottomed, started to rise, and then right around the time the Fed started cutting, the unemployment rate just spikes to the moon, right? And again, that's heading into the next recession. And that that is the overwhelming pattern of history here in this chart that goes back to 1950. And so my question is is because I I I think if I heard you correctly, you you didn't you expect the unemployment market to be languid but but not to really roll over here like like not to really start you know becoming runaway unemployment. My question is is what is different about this time so that we don't repeat the the historical pattern here because we certainly seem to be right at that key junction where the Fed has plateaued. It's now cutting again. Unemployment has bottomed but it's now starting to rise. What is going to keep us from what history has seen so often here? >> Yeah. I So this is the chart that explains Fed cutting for a reason. You know, Fed cutting because they have to, not because they can, right? That the Fed is cutting because of some kind of issue within the economy. And of course the the issues in the economy post 1990. So the 1990 recession uh being savings and loan crisis 2000s you had a balance sheet recession following Enron and and WorldCom and of course the unwind of the tech bubble that was creating you know major balance sheet issues. Remember you had Sarbain and Oxley that caused a whole kind of reccalibration of things. the 2008 recession, of course, the GFC with with with bank balance sheet issues and subprime mortgages that, you know, the the Fed was cutting for these reasons and that the unemployment rate was going up as a result of those issues flowing through the economy. Um, and you know, the Fed was using saying, hey, unemployment is going up, but we also have to solve these other issues. um and that in so many ways unemployment was going up regardless of what the Fed was doing because it was a function of things that were outside of the Fed's control. And I think that that's a that's a is an important point which is that if you really were to see um um nonlinearity within the employment data which is something that data talks a lot about and you know Claudia Som talks a lot about this idea that once you get a little bit of weakening it typically is followed by a lot of bit of weakening past a certain certain threshold >> that when you uh when you experience that it's it you still need a catalyst, right? Companies need a good reason to be laying off workers, mostly after an environment for a few years where they had trouble getting workers, right? So, remember, you know, employee, you know, employees being hard to find or workers being hard to find was was a key uh complaint by small businesses in that NFIB survey for years following the the pandemic. >> Right. And that's why we got labor hoarding, right? People just they didn't want to fire because it's going to be I remember how painful it was to go back and try to find that guy. Yeah. >> Yeah. And now we also have this added question about what's going on within immigration, right? You're seeing labor supply shrink for the first time in modern American history. And so you have all of these uniquenesses, which brings us back to our core thesis coming out of 2022 was what we called the strange landing. And the strange landing was this idea is that data relationships have broken down since the pandemic. that the data relationships when when you know X happens, Y should happen that you have to throw those things out because they don't work anymore and that the the way that the data interacts with itself um and what it means is very different. Normalizing looks like a big decline, but it's actually just normalizing to trend as an example. A lot of things that happen in the labor market. So I think that we're still in this environment where if we're operating in a in a mindset that is X happened so Y must happen. Um I think that we have to be very cautious. So >> you know I I think that all of those things together is what is making this labor market so unique um and why we've been in this environment where it's sort of slowly creeping higher and weakening but not falling off a cliff. But to note, if you were to see stock prices, you fall precipitously um for a protracted period of time, if you were to see, uh that cause a big disruption to consumer spending, you could end up having that feed on itself and maybe that's when you get the weaker employment environment. So, I don't know. It's it's a tough one. Um but, you know, a lot of people have been calling for the for the employment economy to weaken. substantially for the last three years and it hasn't happened >> right it hasn't or put it this way it uh a lot of lot of debate over how much we can really trust the BLS data right so let's put that big boulder assault there >> yeah but just one one point on that I think is important which is that if you if you really can't trust the BLS data it would have shown up somewhere in spending if there were that many more unemployed people that many more and I get it like the K-shaped economy is just >> I was just going to go back to your data where I think if you look at the bottom 60% of the country I think it's like 15% of total consumer spending like it's not a lot those people could almost cut their spending in half and it might not make that big of a difference. >> Yeah. Yeah. So I mean that that could be that could be very true. I mean we've been using retail sales is effectively the litmus test but if you can't believe that because it's so concentrated meaning that you know on an average basis not a weighted average basis that um you maybe it is being distorted that much. All right. Well, look, Cameron, this I I there's so many questions I'd love to go even further with you on. Um I just can't because of time, but great discussion so far. In wrapping up, um so stagflation light is your default outlook going into next year. Um how does that translate into an investing approach here? So we think in times like this when markets are at highs um and you're you know you're contemplating big technology changes that we like this idea of playing to the three kind of personalities in all of our minds. The optimist, the pessimist and the nihilist. The optimist says I got to stay invested. The world is changing. I got to remain invested in equities. I got I have to respect this trend. um you there are great exciting powerful things happening in this economy and I need to be exposed to those dance while the music's playing. The pessimist says you know we're we're in a bubble you know like the world is ending um I need things that are going to you to be safe in that environment. So you know the the optimist you know has your great equity portfolio um and other kinds of kind of growth related investments. the the pessimist says eh you know like maybe I should have um things like gold in a portfolio because of dollar debasement or I should have you know my mun bonds you know is a tax efficient way to get you kind of sustain uh steady yield and then the nihilist gets interesting because the reason call it the nihilist is this idea that I don't care what happens I don't care what the S&P 500 does I don't care what the Fed does just get me stuff that's going to generate certain returns and that's where we utilize a lot of alternatives in order to get that. So we focused a lot at the beginning of the year on uncorrelated assets, things that uh you had in uh attractive return streams but did not show strong correlations with public equity markets. Uh we also looped in things like infrastructure into that acknowledging that there's certain overlap with infrastructure you know that with some of like the equity market trends but overall it has you know fairly attractive correlations. So, I think that that, you know, knowing you kind of making sure that you're balanced between those and that that none of those are too out of whack um between the optimist where you're not so overly optimistic that you're leveraged to the hilt and and you have a risk of ruin if things move against you, but not so pessimist that you're that you're uh uh not being able to take advantage of this exciting technological change that we're in. >> You're missing the party while it's running. Yeah. >> Yeah. the fact that you're in an uptrend, you're in a bull market, respect the bull market, and then not having too much of the nihilist, you know, that, you know, wants to burn it all down and and you do something different. So, I think having these these buckets of of of making sure that we kind of satiate the the desires of each of those personalities which kind of exist within all of us, uh, I think is is a prudent way to approach an environment like this. >> Okay. Um, couple quick questions here on the nihilist side. When we talked at the beginning of the year, you were expecting more volatility this year than we had seen previously before, which totally played out in spades in the first, you know, part of the year. Um, not so much now. So, I'm curious, are you have you put aside the the call for the volatility trade at this point? >> I I mean, volatility is one of those things that um it's easy to say that there will be more volatility because eventually you're going to have a correction. Say I'm right. Um, but the idea was that you know that it when volatility does present itself, you need to be able to be in a position to take advantage of it. So that's why when volatility strikes, we always run our flush deck and making sure that that we take the emotion out of making decisions to put capital to work. Um, you know, will volatility eventually rear its head again? Of course it will, because it always does, but it's episodic. And so you just you have to have a plan before the volatility hits to to to know how you're going to take action versus trying to scramble and come up with a plan uh when you're scared. >> Yeah. But but just to be clear at the beginning of this year, you seem to be saying we think the risk of volatility is elevated here going into the year. >> Yeah. >> Have you ratcheted down that? If you went to say Defcon 2 on volatility, have you brought it back up now? >> Well, so so the source of that is important, right? We were calling for higher volatility because we were we were noting that positioning was was stretched, valuation was stretched and sentiment was stretched because we went very quickly into April where positioning got to be very light. We started calling it the honeybger market. Meaning that that nothing stops the honey badger when it's hungry. Nothing stops an equity market that's underweight equities. So the expectation for volatility falls by definition when positioning gets so light. So, we'll probably revive the the call for higher volatility if positioning gets in the 98th or 95th percentile because you'll be set up to have that volatility. So, it's never a static call if that makes sense, >> right? But but we're not but we're not at those levels right now is essentially what I want to >> percentile. So, okay, >> things could get crazier. >> Okay. And then on the optimist side, you know, that is being in the equity party. Do you guys have any particular sectors, whatever strategies that you're looking at right now or is it just kind of being anything? >> Yeah, so we we invest broadly, but we've been finding amazing opportunities within Smidcap, leaning more towards midcap. Uh finally companies starting to get valued um uh what we think is more properly. We're quality investors for all of our core equity positioning. Uh but that's been a a fantastic area, you know, where the Russell 2000 looks terrible, but there's so much opportunity within S&P 400 uh um in smaller cap indices as well. So or S&P 600. Uh so I think that that uh you know, we'll continue to hunt in those areas. Um you can find you know, we we've the returns have been attractive u uh you know, for quality investors on that front. um you know we you like I said we invest across styles and uh we invest in international as well and that's that's had a great year. So it's hard to find value out there but there are spots and so we're trying to look for those spots where we're not paying up for the quality characteristics that we like. >> Okay. Um, and just to bring it back to Canro for a second, um, he because of this recovery that he sees, um, he he he sees basically looking at the economy, it's been driven so much by the capex and in the big tech space as as we've talked about, but he said he's he is starting to see indicators that other unloved parts of the economy are starting to to show some green shoots. And so he thinks that the economy is going to broaden out, but he also thinks similarly about the market. market's going to broaden out. And it seems to me that maybe you've got a similar approach here where he says, "Look, the big tech stocks will probably still do pretty well. They're probably not going to be the gang busters drivers of growth of the indices going forward the way that they have been. We're going to see more of of a the S&P 493 start to benefit the more smaller midcap stocks. Is that part of how you're looking at is is that why you're looking in those areas?" >> Not really. >> Okay, this is important. >> We're not making the argument that the rising tide is going to lift all boats. were just saying that there's there's there's diamonds in the rough that have been left behind. I So the the broadening out trade has been a hope springs eternal trade. >> Okay. >> Right. Everybody at the beginning of the year goes, "Oh, no, no, don't worry. MX7 is going to decelerate and you're going to see the S&P uh 493 pick up the slack." And year after year, it doesn't happen. And you see MAG7 remain dominant. And it's reflected in earnings. Mag 7 earnings, as we talked at the beginning, continued to go up. Eagle weight earnings continued to get revised lower. >> Yeah. >> So, I think it's a whites of the eyes. I I think that it's it's nice to hope for that to happen because it sounds great, but we haven't seen any evidence that it is happening. And if it does happen, the biggest question we are asking, and we debate this every week in our IC, at what point do you bet against the Mag 7? >> Mhm. H >> at what point do you bet against it's one thing to say okay I just need to be equal weight I need or I need to be like market weight these names >> right >> at what point do you actually take an active bet to say get these things out of the portfolios and I think the answer to that is when their earnings start to decelerate in such a meaningful way and disappoint that they are underperforming the the rest of the market but they've had such magnificent earnings growth to go with the magnificent price returns So until you see that, I don't think that this market broadens out, but you know, maybe that is the maybe that's the scenario for 2026. We'll be looking for evidence of that, but we want to see evidence before we make the the that call only because that call has been um very popular but very wrong for the last few years. >> Okay. So your then your approach right now is much more sort of active um valueoriented whites of your eyes. We're going to look for the company that's actually really doing well, but the current stock price hasn't reflected that enough yet, and we're going to try to ride that revaluation when the market wakes up to that. >> Yeah. >> Okay. Fantastic. All right, Cameron, this has been wonderful. Last and most important question, for folks that have really enjoyed this discussion and would like to follow you and your work in between now and the next time you come on this channel, where should they go? >> You can find me on LinkedIn uh and on X as well. Uh I don't post there as much, but I'm on LinkedIn a lot. uh uh under Cameron Dawson. And you can go to the New Edge Wealth website where you can sign up for our weekly uh uh written newsletter as well as I believe our chart deck as well, which I think might be available uh hopefully. It's it's a fun one. >> All right. Well, fantastic. And Cameron, as usual, when I edit this, I will put up your handles there as well as the New Edge Wealth website URL on the screen so folks know exactly where to go. Folks, those links will be in the description below this video as well. All right. Well, let me bring things to a close here. Folks, please express your gratitude to Cameron for giving us so much of her time and being so specific in terms of uh how she's looking at investing for this upcoming era of Stagflation Light. Uh so to show that appreciation, hit the like button and then click on the subscribe button below as well as that little bell icon right next to it. Uh just a quick update to on the conference. Uh the thoughtful money fall online conference on Saturday, October 18th is coming up real fast. Uh if you have not bought your ticket, you've just missed the uh expiration of the early bird price discount we were offering. But don't despair before the ticket rises to its full value this week. It's being offered at our last chance to save price discount. So I really want everybody to not have to pay full price if it can be avoided. If you haven't got your ticket yet, but are interested in going to the conference, go right now to thoughtfulmoney.com/conference. Buy your ticket. If you're a premium subscriber to our Substack, look for the emails that I've sent you with the discount code to use to get an additional $50 off of that price. And then last, if you'd like to get some professional help in positioning your portfolio for the road ahead, especially if it uh ends up turning out the way that uh Cameron thinks and the whole stackflation light scenario, uh I recommend that you get that help from a good professional financial adviser. Uh if you'd like to talk to one of the firms that come on this program with me week in and week out, you can do that by um filling out the short form at thoughtfulmoney.com and have a free discussion with them. Uh these discussions, as I said, are free. There's uh no commitments involved. It's just a service they offer to help as many people as possible prepare and position as prudently as possible for what may lie ahead. And with that, Cameron, um it's always such a joy. Another great discussion. and really look forward to having you back on again early in 2026. Thanks so much for everything. >> Thank you. >> All right, and everybody else, thanks so much for watching.