Dennis DeBusschere: Survey Says This Is “The Luckiest Economy" In History
Summary
AI Profit Expansion: The guest argues an ongoing AI-driven profit boom and perceived disinflation are key supports for equities despite geopolitical and inflation shocks.
Early Cyclicals: He is increasingly bullish on AI-related early cyclicals, especially service-oriented names that stand to benefit from AI CapEx and productivity gains.
Financials/Banks: Banks are highlighted as attractive within early cyclicals due to positive earnings trends and significant potential cost efficiencies from AI adoption.
Energy & Inflation Hedges: Flows into inflation hedges like energy and certain commodities appear crowded; he sees better risk/reward on the short side if inflation moderates.
Market Outlook: Financial conditions have eased and profit revisions are rising, making it difficult to fade the rally even if valuations are rich.
Rates & Inflation: The main risk is reaccelerating growth pushing yields higher in an already elevated inflation backdrop, with inflation still the cycle’s key constraint.
S&P & Policy: Constructive stance includes willingness to bet on higher S&P 500 levels into 2026 and a higher probability of Fed cuts versus hikes.
Transcript
Welcome to the On the Tape podcast. I'm your host Danny Moses and today I welcome back the president and chief market strategist at 22V Research, Dennis DeBusschere. Dennis was last on in October of 2025 and returns to give us his thoughts and perspectives on the markets. We actually have a score to settle based on some predictions Dennis made on previous appearances. Speaking of predictions, I'm excited to announce that Kalshi is now the sponsor of the On the Tape podcast and with that will come more actual ideas in the form of event contracts and it definitely makes it easier when it comes to my NFL picks during the season. So enjoy this episode of On the Tape and my conversation with Dennis DeBusschere and make sure you tune into my Kalshi trades I am putting on the tape at the end of the show. Dennis, welcome back to On the Tape. Thanks for having me again, Danny. How are you? I'm good, man. So you were on episode 18, you were on episode 35 and now you're on episode 52. So I'm sensing like a nice pattern here. And uh you were last on in mid-October. We were in the middle of a government shutdown. We were beginning to see how tariffs were being absorbed into the economy and Trump was browbeating Chair Powell for lower rates. You know, fast forward to today, we're in the middle of a war in Iran, oil has been soaring, tariffs are ruled illegal and we're in a partial government shutdown and Powell's last meeting as Fed chair maybe is upon us. Yet the market is making new highs. Makes perfect sense, right? Help make some sense just set the table here for what we're kind of seeing in the market. Yeah, so uh one thing I'll start with is uh the surprising resilience in the economy. Well, it's something near and dear to your heart. If you look at bank earnings last week, you'll cross the board positive commentary on consumer spending. Obviously, retail sales today ex oil and gas very strong relative to expectations. The labor market uh which was disappointing last year, no doubt, a little bit of a better readings last month. Claims are still very low, but even leaving that aside for a second, ISM coming in on the manufacturing side stronger. We've actually had a re-acceleration in data since the war started and quite frankly a little shocking to us, but that is what's happened and that's kind of the thing that I think is is supporting the market. That's one and then I'll I have another one if you want to jump in there. >> was going to I want to go back to that the re-acceleration in the data. Well, we know retail sales were going to be better because gasoline prices were higher. So I know you extract that it was still a little bit better. But from a behavioral perspective, we've seen the University of Michigan confidence was starting to drop. Some things match up and some things don't. So do you expect a lag impact if oil were to stay higher for longer here or is it the anticipation that I got to go out and buy stuff now before everything gets more expensive. So is there a little bit of hoarding going on as a result of the war? How do you explain that? >> You know, a couple of things there. I have a extreme distrust of the University of Michigan data. Doesn't mean it's wrong. It's just ever since it went to online, it's been, you know, extremely negative which says a lot about society. Like you answer a phone, talk to somebody, you might be acting a little differently than you would if you said something online. But leaving that aside, I think the re-acceleration is surprising and I do think the energy shock will bring down real income growth and eventually consumer spending. So I do think that's on the come. I don't think it's hoarding or pre-buying or anything like that. I think it's a very simple explanation which I should have led with fiscal stimulus. You are getting some tax rebate rebates now that is offsetting the energy shock more so than I would have thought by the way. You'd think that people wouldn't necessarily be like, oh great, I'm getting some more money here and despite oil prices going up, I'm just going to spend it anyway, but that appears to be happening which does set us up for a little bit of a potential slowdown going forward. >> Not to mention the non-QE QE that began in December of 40 billion a month of whatever buying T-bills, call it what you want, but there's obviously some monetary stimulus going on a little bit as well on top of the fiscal it appears. So you wrote a note called "Fading the Everything Rally Becomes Less Obvious" and I think that's a great title. Break into that a little bit here and because we're in the middle of earning season and it's certainly telling you something, right? Yeah, so there's two important aspects of this and this kind of could get to your point on the QE non-QE. I won't speculate as to why, but what I will what is very easy to identify is that financial conditions ex stocks, right? So we can just take that out of it for a second. Financial conditions have eased aggressively over the last three to four weeks. Some of that is less tail risk or at least assumed tail risk from the war, but financial conditions have eased. Uh long-term inflation expectations for whatever reason they aren't anchored. So when you have a combination of very low long-term inflation expectations and easing financial conditions, that's typically good for the junkiest stuff. Now, we could all make an argument that it's just moving too quickly relative to that that it was they were highly shorted. So maybe the the move is too too much too quickly and you should fade it. But my counter to that is one, what I just said, and two, it does appear that profit growth is significantly stronger than expected and that gets to the AI story and what might be happening there. And as you know on an everything rally, I don't really even care to prove whether or not productivity gains and margin expansion is happening. If people believe that in the context of financial conditions easing, uh do you want to be the guy to short it? No, I mean that's that's a tough business. So it's priced to perfection in the sense of if AI is creating more productivity and you you actually have a great chart of some of these companies like banks that can benefit the most and even a 2% improvement in cost efficiency could translate into an 8% growth in earnings. I want to get into that. But you're kind of what you're kind of saying is kind of the best of all worlds. It's deflationary AI. It won't hit jobs even though we know that it is. Now the speed that Citrini was talking about or kind of outline, you know, maybe that was maybe it was a little overly pessimistic. How do you put all that together because there's the immediate pull forward of the improvements which are going on and then once you realize you have those improvements, they might be one-time in nature and or you need to cut costs which could be employment down the road to kind of maintain that earnings growth. Kind of put that together if you would. Yeah, so it's a good question. I think about it in the most mercenary terms which is to say let's own the profit expansion and worry about employment later. Cuz I don't want to die on the hill of hey, we might have a higher unemployment rate as profits are expanding aggressively. And there might be some case in the future where if it's just purely productivity that you don't necessarily get the type of unemployment increase that some people are talking about. It could happen, it might not happen, but what I would know in advance of that is a profit expansion and disinflation longer term. So you're getting a profit expansion plus easy financial conditions all things equal. And so like do we want to sit around and worry about employment now? I get it could be something to worry about. I'm not trying to dismiss it. I'm just saying let's let's hit the first derivative. Make money on that and then worry about the rest later. It is so when you look at the S&P 500 construct which we could talk about till we're blue in the face. We've talked about it many times. It's so tech heavy. Not only is it tech heavy, the implementation of the tech that's being sold by some of these firms is having an impact on the rest of the S&P 500 and you kind of noted that except for auto and software, all these earnings revisions are actually moving higher. So where are we kind of within that revision period on expectations I guess so far in Q1 and then out in 2026? Yeah, so revisions are moving higher. What companies are saying are very positive on earnings. I think you could get probably get 3 to 4% higher from here if you believe some of the margin speculation out there which is difficult, right? But you could probably get a little bit more lift on your forward earnings outlooks. What is interesting is analyst guidance has been relatively muted relative to what companies are actually saying. So analysts actually got a little bit more they were reducing earnings guidance relative to revisions going up what companies are saying about earnings. Which is a very interesting dynamic. So you I mean a long way to way of saying we have a little bit of room to benefit from earnings revisions going higher. Oh by the way, we just hit new highs like a couple days ago. Uh maybe we're there or not right now, whatever. And we're two multiple points lower than we were on a next 12-month basis. Well, I would argue the risks are higher, but let's talk about >> It's fair. I'm just saying from we had I'm thinking purely earnings. No, no, 100% I that's that's my inside voice coming out, but I was about to say this is kind of like the hold your breath or hold your nose moment, right? Because we're anniversarying the tariffs. So that was kind of going to be gone so to speak. Although now there's refunds potentially going out to the companies that get to now double dip. They raised prices and now they get to go in and get the rebates even though we weren't the ones paying for them. That's a whole different story. We still don't know if tariffs are going to be enacted. It sounds like they will be. I don't know if anyone's going to pay attention to the law or the rules or not. And now you have a situation where and you know this better than anybody. I mean oil is a regressive tax. It absolutely hits the lower end consumer even more. It's everyone equally. There's no no escaping it. How are we kind of ignoring I mean what we're what we're saying is how this is just going to be temporary and yeah, oil's going to be back to 65 But what if it's not? How much longer does oil have to stay higher for really people to start changing to your point inflation expectations, margins, and pass-throughs that are going to be occurring here. It just it seems to me like this is being I think we have so much scar tissue from everything we've been through in the last few years including the pandemic supply chain. We're just saying buy earn you know, simplest thing earnings are going up just buy the market, Dennis. Yeah, one of the ways I internalize what you just said. I want to make this very clear. Correctly pointed out a lot of issues with the economy and risks. And uh Thanks for being my therapist by the way for the last uh No, no, no. Because I'm not trying to be dismissive of that. I would just say that we are the luckiest economy like I I can't think of a time in history we're getting this lucky where despite everything you say, despite the self-inflicted wounds, we have this AI boom. And that is kind of like the the that is the the thing I think that is offsetting all the issues that you mentioned and that's the profit story and that's the cap ex and that's everything. Without it, it would have been uh not so good to use a technical term. You and I have talked about last time you were on about rates in general. Look at the 10-year yields, it kind of is the be-all end-all for functioning and I kind of made the point with you and you agreed that 4 and 1/2 was kind of the new five. And I think we were concerned that, you know, growth would slow to a point where, all right, you can handle, you know, 4 and 1/2, but you probably can't handle five. And so, to me, it's always been the direction and the velocity of where rates are, but so feels like where the 10-year yields are right now, I'm not looking at the moment between kind of 4.27 and 4.33, somewhere in that range, I'm not exactly sure, things are fine. If you told me that that was going to be the level, what concerns you the most at this point? Is it actually economic growth and the broadening out in the economy that actually is going to send yields higher? Is it inflation? Is it a combination of both? Is it the creditworthiness of the US? What is it and where do you see 10-year yields going? The risk, I think, is an acceleration in growth in an already inflationary environment that sends rates materially higher. So, it comes back to where we started. I'm a little surprised. I shouldn't say a little, I'm a lot surprised about how strong the economy has acted over the last month, despite the shocks, and with inflation that is well above the Fed's target going into the shock. So, when people like talk about inflation now, they they kind of commingle it with the shock. Let's be very clear about this. Going into it, inflation had accelerated to a level that was well above the Fed's target. Now, you're adding on this shock to inflation and you can argue, you know, you talk about transitory all we want, but if we are handling that shock with an already elevated inflation rate, uh and the economy is reaccelerating at the same time, if that doesn't slow, right? If the economy doesn't slow over the next 6 to 8 months to a pace that helps alleviate the inflation pressure, then 10-year yields or it could be two year olds, you know, we can, you know, figure that out later. Financial conditions will tighten and that would be uh a negative, which is a way of saying inflation is still the constraint on the cycle. Are we also programmed now to a point where Fed's got your back, Treasury's got your back, don't worry, private credit's rearing its head. Yeah, but they'll figure out a way to kind of solve that. Um yeah, rates may move higher, but hey, Powell's gone. The Fed's going to lose some independency, even though Yellen is testifying today that it won't. But is that part of this, too? Is just this when I was talking before about how you can look past all this stuff, just the belief that whether it's artificial or not that that someone's going to either come to the rescue or implement certain policies. We've already seen some very kind of pro-market policies in a midterm year. Is that part of it, also? You kind of you kind of mentioned fiscal policy in general, but talk to me just about government policy. >> Yeah, so fiscal policy has been an obvious support. So, moving on to monetary policy, uh I actually don't believe that that is the underlying driver that people believe it'll be a bailout. It comes back to where uh and there's I'm not I don't mean to be dismissive of that. I just think it comes back to my broader point and I I I apologize to be repetitive. Uh if you have long-term anchored inflation expectations and you're going through the middle of an AI boom and financial conditions are relatively easy, it's tough for me to think that the central bank has a lot to do with that. They might have some, but it's more the cycle dominating and I think that is dominating the returns now. It just comes back to my my point earlier, if that generally leads to higher inflation, it turns out that the it's not necessarily productivity gains, it's just a lot of investment that ends up increasing inflation, which is another thing we haven't talked about. We're we're assuming that productivity gains happen with AI. If they are not as if this if this investment is not as productive as people think, it will lead to a lot more a lot tighter financial conditions. So, I think it's the cycle and my view is that either one or two things would happen even if the Fed is too easy in an environment of higher inflation. Either the Fed's going to do it through conventional monetary policy or the 10-year yield's going to do it for you. All right, Dennis, one of my favorite things, obviously, that you guys do at 22V and we're going to get into what you guys have been up to is your surveys. Last time you were in the process of doing them towards the end of the year. I assume you've done some in the last four to six weeks. I hope you did one kind of be great if you did one pre-war and kind of during the war here, but tell me what your surveys are telling us and uh kind of where the uh scared money is hiding. I like how you put that, scared money. The the I would say the most interesting thing now is uh the percentage of clients that expect the Fed to tighten to slow uh inflation has increased meaningfully. We were down at like 11, 12% of clients answering that question that they the Fed needed to tighten uh late last year. You're now up to like 42, 43% now. So, I think that's the most interesting shift. So, the uh people are getting more uh I guess in tune with the with the inflation data and realizing that the Fed just won't be able to cut. Um now, that's priced, right? We know what's happened with that futures, but what they're saying is a tightening of financial conditions to slow inflation. So, that would be more than no cuts, that would actually be hikes. So, that is one of the more I would argue the most interesting thing that's happened. I would say that over the last few weeks, you're right, the expectations were actually Fed rate hike. And now, actually, it's more likely if there's anything, it's kind of showing nothing, but if you picked a side now that it would be indeed be a cut. And that has always been just a driver in the markets to your point because it directly impacts financial conditions. Yes. Yes, precisely. So, uh I think there's more money to be made uh if I was a betting man, uh if I I think there'd be more money to be made on cuts versus hikes at this point. So, that's a, you know, kind of agree with you because it goes back to the war shock and how that impacts economic growth, etc. So, that's one thing I'm thinking about, uh certainly relative to the way certain assets have traded this year. Like, a lot of money had gone into, which is another survey we've done, a lot of money had gone into inflation hedges. Um inflation hedges are typically your deeper cyclical, cyclical. So, your energy, industrial materials. And the money going into inflation hedges, a little bit was the AI buildout, I shouldn't say a little bit, a lot of it was the AI buildout, but the other excuse was, oh, inflation's going up anyway, plus a war shock. You know, you're kind of there's a lot of inflation hedges or commodities that don't benefit from the AI buildout that have done very well. And that seems interesting to me on the short side now, if in fact you're going to end up with inflation potentially uh that's lower in the back half of the year than what we're seeing now. So, that leads me to my next question, which is on the sector rotations. And coming into the year, I still couldn't believe people were still underweight energy. I don't even think they ever even got to an overweight in the last few weeks, even when oil has spiked. But what's interesting is that the money came into energy and then found its way into other parts of the market. It didn't leave the market, right? So, to your point, energy kind of held these gains for the year, kind of held the S&P even at any level, even though it's small for 4 and 1/2% of the S&P and now. So, give me your kind of sector favorites here moving forward. What are you telling clients to do here you know, between sector weightings? Yeah, so I think the most interesting new thing from us is looking at the early cyclicals. Uh so, the deeper cyclicals, the late cyclicals, um I think have had their best performance on the year. Um Now, Danny, I'm not trying to have a uh cop out here and not answer your question. I'm going to answer it, but I just want to make sure that we all understand that there are AI baskets and not AI AI baskets and, you know, there's a little bit of a commingling, so there's even though I think the deeper cyclicals should have headwinds given the inflation uh dynamics I had mentioned, that doesn't mean that if you're getting if you're in the uh lack of a better term, in the way of AI CapEx that you're not going to keep on outperforming. So, if you're an AI CapEx beneficiary, that's going to continue and you will have tailwinds, right? So, just to be clear. So, I would say non-AI related deeper cyclicals were were not more more negative on and AI related early cyclicals getting very positive on and I'm most positive on the service companies, which would be in your early cyclicals. This could be uh technology names, it could be some software names, uh communications names, it could be retail names and banks. That group of stocks that some of which thought they were going to be companies that were going away because of AI look especially interesting to us now. So, you guys people need to subscribe to 22V, obviously, to get those, you know, you know, exact names. We're going to get get into some of this stuff. My surveys that I'm going to give you in a second here on some Katusa picks I'm going to want you to kind of look at and we might as well get out of the way that I've now lost my master's jacket pullover. I you put up your smoking jacket, whatever that thing was that you're wearing at master and it was when we we were taping in October, the S&P was around 6,400 and you said it could get to 6,700 before the end of the year. I'm like, no way. So, I actually had 5,700, which was moronic. You had 6,700. It hit it in like November, it closed at whatever, 6,840. So, congrats. But you're losing you're losing weight, you might not fit in my jacket again, but still next time I see you, I'm going to give it to you. So, Dennis, before I get into some of these Katusa picks I'm going to ask you talk about what's going on at 22V. Uh you guys have made some great hires. Um some of the stuff that you guys are putting out right now on the research front. Some of the hires we've had uh especially with Jordy Visser, who's uh you know, uh former CIO of Weiss Multi-Strategy. I don't I'm going to understate saying but extremely uh passionate about AI and its impact on the world markets, etc. >> Yeah, he's in the middle of it. So, you can you can uh uh 22V research will take you right to Jordy and and his portal, uh which is the 22V macro nexus. Bill Hebel, we talked about him last time, I believe, he's covering the regional banks for us, so we've delved into the to the stock coverage and uh those are those are the the I think the two most uh interesting things we've done over the last uh last 6 to 8 months. All right, time to get my jacket back or you can actually take it from someone else at Katusa. All right, first Katusa event contract I'm looking at here is how high will the S&P 500 get in 2026? So Dennis, if you're a newbie to this, obviously, you can see the spots on the left. 7,400 or above, 7,600, 7,800. All it has to do is hit those levels. So, is there a yes level that you like on any of these and a no level that you like on? I'm not trying to pin you on a range per se. I would love to hear it your thoughts and then I'll tell you how you would execute something like that. I would say yes on 78 or above. Like what's your risk reward on that? I think it's 31 or 32 cents. So, you're getting effectively over two to one. So, the way that would work Dennis, if you said yes and it was, you know, call it I think it says 31 cents there to 7,800 or above, you get paid out at a dollar. So, add a little bit add a penny or whatever. So, you're making 68 cents on what you risk. So, better than two to one. So, you and I can do that one offline. We, you know, or we can do it on the platform. But, I would actually take the no side of that it. So, of course we don't don't agree on that. All right. Next one is, will the Fed cut rates in 2026? And just understand, this is going to somewhat mirror where Fed fund futures are, right? So, when you look at that one, that's telling you that there's a 69% chance of a cut, you know, before the end or, you know, before 2027. You selling that? You buying that? I'm buying it. All right. So, you're going to put up 69 cents to make 31 cents effectively lay more than two to one. You think the Fed's going to All right, fair enough. So, we're clear. S&P 7,800 and and the Fed will cut and those kind of I guess those kind of go together. If you get one, you might get the other. All right, fair enough. All right. Last one, the one most near and dear to your heart. For those that don't know, Dennis's father, the legend Dave DeBusschere, number 22, it's what he named 22V after. Will the Knicks, even after the loss last night against the Hawks, I'm not even going for NBA champion here, Dennis, but I want you to put your put your family hat on one side and your brain on the other. Is there a chance Eastern Conference champion? So, let me explain this before you probably say yes at 12 cents. If you say yes and they get past the Hawks and they even win another game at the you know, win the first or second game in the second round, that 12 cents is going to move higher. So, this is not binary in the sense of you can't So, you can trade out of it any point. So, it feels like they just got oversold a little bit. But, give me your thoughts. Are you buying that at 12 cents on the Knicks? My first question is, is Kalshi every actually calculating this correctly? Because that is a gift. That's a gift, you'd say? I'm saying it's a gift. That's a no-brainer gift. If the Knicks end up beating the Hawks in the series, my guess, that probably goes to 20 cents, 21 cents. So, effectively, at 24 cents, you double your money. So, that to answer your question, this is probably a better way to play it than what the live odds are on a sports book for what the Knicks are to I'm sure they're still favored to beat Atlanta in the series slightly. But, to me, so yes, you're a buyer of that and obviously, if they win the Eastern Conference, you're getting, you know, you're making 88 cents on your 12. So, it's over 7x pay out on that. So, 12 12 makes it make it makes its way eightfold basically to a dollar there. So, all right, Dennis. I like you I like the conviction, you know, of of all three here. We're going to have to follow those obviously. Dennis, thanks again for coming on. I'm going to see how these contracts play out. I'll be up in New York soon. I will give you my jacket. Maybe I'll lend it to you, but I'll definitely give you my jacket and we'll take a good picture with that in it. So, Dennis, thanks again. We'll have you on again soon. Awesome. Thanks so much, Danny. Really appreciate it. It's time for my Kalshi picks of the week. Remember, when you were trading on Kalshi, you were trading with other users, similar to buying or selling a stock. You can jump in or out of your position at any time to lock in a profit or cut your losses. These are just my opinions, not telling you what to trade or offering any investment advice. All right, there's so much going on and it's really hard to keep track. But, let's not forget that assuming Kevin Warsh gets confirmed as the next Fed chair, this is Powell's last meeting next week before he officially steps down as chair on May 15th. However, just a reminder that Powell's term as Fed governor continues through January 2028 unless he resigns or Trump somehow finds a way to remove him. We know the back and forth related to the investigation into Powell regarding renovations at the Fed and Powell and his lawyer basically saying, if you want me to leave as a governor, which doesn't end again till January 2028, then drop the investigation. As a matter of fact, Senator Tom Tillis, who's the head of the Senate Banking Committee, who's hearing Warsh testify today, said he will not vote to confirm Warsh until this investigation is dropped. Well, something will give here soon and there are two event contracts I am looking at. The first is, will Trump try and fire Powell as Fed chair or Fed governor? Well, we know there is no need to do anything as it relates to Fed chair, but governor is still in play. There are a few days to choose from on this contract, but I'm going to go with May 15th and say yes and pay just over 9 cents. That's over a 10 to one return if it happens. And let me read you the definition of try, which almost happened last week. If the president signs an executive order, memo or official document stating termination, directs any member or senior official to do it, publicly states in a speech, interview or press conference or or on social media that he has fired or has decided to fire Powell, among other conditions. So, take a look at that one. The second contract I'm looking at relates to Powell as well is, is Jerome Powell out as Fed governor? Again, there are days to choose from, but I'm going to choose before June 1st at about 22 cents and here is why. The rules read the following. If Powell has either officially announced his intention to leave or has actually left. So, just intention, as long as he leaves within one year of stating it, this thing resolves to yes. And it also plays if he's terminated or removed by that day. So, it's hard to imagine one of those two contracts does not occur and result to yes and there is a chance you could hit both and you can always trade out of these before the contracts expire. These picks are not financial advice, but if you want to learn more, download the Kalshi app, read the rules and use promo code Moses to get $10 when you trade $10. Thanks for listening to the On The Tape podcast with Danny Moses. If you like what you heard, please subscribe on either Apple or Spotify to the weekly podcast and please leave a rating and review, positive only. You can also watch on the On The Tape channel on YouTube and give us a thumbs up there as well.
Dennis DeBusschere: Survey Says This Is “The Luckiest Economy" In History
Summary
Transcript
Welcome to the On the Tape podcast. I'm your host Danny Moses and today I welcome back the president and chief market strategist at 22V Research, Dennis DeBusschere. Dennis was last on in October of 2025 and returns to give us his thoughts and perspectives on the markets. We actually have a score to settle based on some predictions Dennis made on previous appearances. Speaking of predictions, I'm excited to announce that Kalshi is now the sponsor of the On the Tape podcast and with that will come more actual ideas in the form of event contracts and it definitely makes it easier when it comes to my NFL picks during the season. So enjoy this episode of On the Tape and my conversation with Dennis DeBusschere and make sure you tune into my Kalshi trades I am putting on the tape at the end of the show. Dennis, welcome back to On the Tape. Thanks for having me again, Danny. How are you? I'm good, man. So you were on episode 18, you were on episode 35 and now you're on episode 52. So I'm sensing like a nice pattern here. And uh you were last on in mid-October. We were in the middle of a government shutdown. We were beginning to see how tariffs were being absorbed into the economy and Trump was browbeating Chair Powell for lower rates. You know, fast forward to today, we're in the middle of a war in Iran, oil has been soaring, tariffs are ruled illegal and we're in a partial government shutdown and Powell's last meeting as Fed chair maybe is upon us. Yet the market is making new highs. Makes perfect sense, right? Help make some sense just set the table here for what we're kind of seeing in the market. Yeah, so uh one thing I'll start with is uh the surprising resilience in the economy. Well, it's something near and dear to your heart. If you look at bank earnings last week, you'll cross the board positive commentary on consumer spending. Obviously, retail sales today ex oil and gas very strong relative to expectations. The labor market uh which was disappointing last year, no doubt, a little bit of a better readings last month. Claims are still very low, but even leaving that aside for a second, ISM coming in on the manufacturing side stronger. We've actually had a re-acceleration in data since the war started and quite frankly a little shocking to us, but that is what's happened and that's kind of the thing that I think is is supporting the market. That's one and then I'll I have another one if you want to jump in there. >> was going to I want to go back to that the re-acceleration in the data. Well, we know retail sales were going to be better because gasoline prices were higher. So I know you extract that it was still a little bit better. But from a behavioral perspective, we've seen the University of Michigan confidence was starting to drop. Some things match up and some things don't. So do you expect a lag impact if oil were to stay higher for longer here or is it the anticipation that I got to go out and buy stuff now before everything gets more expensive. So is there a little bit of hoarding going on as a result of the war? How do you explain that? >> You know, a couple of things there. I have a extreme distrust of the University of Michigan data. Doesn't mean it's wrong. It's just ever since it went to online, it's been, you know, extremely negative which says a lot about society. Like you answer a phone, talk to somebody, you might be acting a little differently than you would if you said something online. But leaving that aside, I think the re-acceleration is surprising and I do think the energy shock will bring down real income growth and eventually consumer spending. So I do think that's on the come. I don't think it's hoarding or pre-buying or anything like that. I think it's a very simple explanation which I should have led with fiscal stimulus. You are getting some tax rebate rebates now that is offsetting the energy shock more so than I would have thought by the way. You'd think that people wouldn't necessarily be like, oh great, I'm getting some more money here and despite oil prices going up, I'm just going to spend it anyway, but that appears to be happening which does set us up for a little bit of a potential slowdown going forward. >> Not to mention the non-QE QE that began in December of 40 billion a month of whatever buying T-bills, call it what you want, but there's obviously some monetary stimulus going on a little bit as well on top of the fiscal it appears. So you wrote a note called "Fading the Everything Rally Becomes Less Obvious" and I think that's a great title. Break into that a little bit here and because we're in the middle of earning season and it's certainly telling you something, right? Yeah, so there's two important aspects of this and this kind of could get to your point on the QE non-QE. I won't speculate as to why, but what I will what is very easy to identify is that financial conditions ex stocks, right? So we can just take that out of it for a second. Financial conditions have eased aggressively over the last three to four weeks. Some of that is less tail risk or at least assumed tail risk from the war, but financial conditions have eased. Uh long-term inflation expectations for whatever reason they aren't anchored. So when you have a combination of very low long-term inflation expectations and easing financial conditions, that's typically good for the junkiest stuff. Now, we could all make an argument that it's just moving too quickly relative to that that it was they were highly shorted. So maybe the the move is too too much too quickly and you should fade it. But my counter to that is one, what I just said, and two, it does appear that profit growth is significantly stronger than expected and that gets to the AI story and what might be happening there. And as you know on an everything rally, I don't really even care to prove whether or not productivity gains and margin expansion is happening. If people believe that in the context of financial conditions easing, uh do you want to be the guy to short it? No, I mean that's that's a tough business. So it's priced to perfection in the sense of if AI is creating more productivity and you you actually have a great chart of some of these companies like banks that can benefit the most and even a 2% improvement in cost efficiency could translate into an 8% growth in earnings. I want to get into that. But you're kind of what you're kind of saying is kind of the best of all worlds. It's deflationary AI. It won't hit jobs even though we know that it is. Now the speed that Citrini was talking about or kind of outline, you know, maybe that was maybe it was a little overly pessimistic. How do you put all that together because there's the immediate pull forward of the improvements which are going on and then once you realize you have those improvements, they might be one-time in nature and or you need to cut costs which could be employment down the road to kind of maintain that earnings growth. Kind of put that together if you would. Yeah, so it's a good question. I think about it in the most mercenary terms which is to say let's own the profit expansion and worry about employment later. Cuz I don't want to die on the hill of hey, we might have a higher unemployment rate as profits are expanding aggressively. And there might be some case in the future where if it's just purely productivity that you don't necessarily get the type of unemployment increase that some people are talking about. It could happen, it might not happen, but what I would know in advance of that is a profit expansion and disinflation longer term. So you're getting a profit expansion plus easy financial conditions all things equal. And so like do we want to sit around and worry about employment now? I get it could be something to worry about. I'm not trying to dismiss it. I'm just saying let's let's hit the first derivative. Make money on that and then worry about the rest later. It is so when you look at the S&P 500 construct which we could talk about till we're blue in the face. We've talked about it many times. It's so tech heavy. Not only is it tech heavy, the implementation of the tech that's being sold by some of these firms is having an impact on the rest of the S&P 500 and you kind of noted that except for auto and software, all these earnings revisions are actually moving higher. So where are we kind of within that revision period on expectations I guess so far in Q1 and then out in 2026? Yeah, so revisions are moving higher. What companies are saying are very positive on earnings. I think you could get probably get 3 to 4% higher from here if you believe some of the margin speculation out there which is difficult, right? But you could probably get a little bit more lift on your forward earnings outlooks. What is interesting is analyst guidance has been relatively muted relative to what companies are actually saying. So analysts actually got a little bit more they were reducing earnings guidance relative to revisions going up what companies are saying about earnings. Which is a very interesting dynamic. So you I mean a long way to way of saying we have a little bit of room to benefit from earnings revisions going higher. Oh by the way, we just hit new highs like a couple days ago. Uh maybe we're there or not right now, whatever. And we're two multiple points lower than we were on a next 12-month basis. Well, I would argue the risks are higher, but let's talk about >> It's fair. I'm just saying from we had I'm thinking purely earnings. No, no, 100% I that's that's my inside voice coming out, but I was about to say this is kind of like the hold your breath or hold your nose moment, right? Because we're anniversarying the tariffs. So that was kind of going to be gone so to speak. Although now there's refunds potentially going out to the companies that get to now double dip. They raised prices and now they get to go in and get the rebates even though we weren't the ones paying for them. That's a whole different story. We still don't know if tariffs are going to be enacted. It sounds like they will be. I don't know if anyone's going to pay attention to the law or the rules or not. And now you have a situation where and you know this better than anybody. I mean oil is a regressive tax. It absolutely hits the lower end consumer even more. It's everyone equally. There's no no escaping it. How are we kind of ignoring I mean what we're what we're saying is how this is just going to be temporary and yeah, oil's going to be back to 65 But what if it's not? How much longer does oil have to stay higher for really people to start changing to your point inflation expectations, margins, and pass-throughs that are going to be occurring here. It just it seems to me like this is being I think we have so much scar tissue from everything we've been through in the last few years including the pandemic supply chain. We're just saying buy earn you know, simplest thing earnings are going up just buy the market, Dennis. Yeah, one of the ways I internalize what you just said. I want to make this very clear. Correctly pointed out a lot of issues with the economy and risks. And uh Thanks for being my therapist by the way for the last uh No, no, no. Because I'm not trying to be dismissive of that. I would just say that we are the luckiest economy like I I can't think of a time in history we're getting this lucky where despite everything you say, despite the self-inflicted wounds, we have this AI boom. And that is kind of like the the that is the the thing I think that is offsetting all the issues that you mentioned and that's the profit story and that's the cap ex and that's everything. Without it, it would have been uh not so good to use a technical term. You and I have talked about last time you were on about rates in general. Look at the 10-year yields, it kind of is the be-all end-all for functioning and I kind of made the point with you and you agreed that 4 and 1/2 was kind of the new five. And I think we were concerned that, you know, growth would slow to a point where, all right, you can handle, you know, 4 and 1/2, but you probably can't handle five. And so, to me, it's always been the direction and the velocity of where rates are, but so feels like where the 10-year yields are right now, I'm not looking at the moment between kind of 4.27 and 4.33, somewhere in that range, I'm not exactly sure, things are fine. If you told me that that was going to be the level, what concerns you the most at this point? Is it actually economic growth and the broadening out in the economy that actually is going to send yields higher? Is it inflation? Is it a combination of both? Is it the creditworthiness of the US? What is it and where do you see 10-year yields going? The risk, I think, is an acceleration in growth in an already inflationary environment that sends rates materially higher. So, it comes back to where we started. I'm a little surprised. I shouldn't say a little, I'm a lot surprised about how strong the economy has acted over the last month, despite the shocks, and with inflation that is well above the Fed's target going into the shock. So, when people like talk about inflation now, they they kind of commingle it with the shock. Let's be very clear about this. Going into it, inflation had accelerated to a level that was well above the Fed's target. Now, you're adding on this shock to inflation and you can argue, you know, you talk about transitory all we want, but if we are handling that shock with an already elevated inflation rate, uh and the economy is reaccelerating at the same time, if that doesn't slow, right? If the economy doesn't slow over the next 6 to 8 months to a pace that helps alleviate the inflation pressure, then 10-year yields or it could be two year olds, you know, we can, you know, figure that out later. Financial conditions will tighten and that would be uh a negative, which is a way of saying inflation is still the constraint on the cycle. Are we also programmed now to a point where Fed's got your back, Treasury's got your back, don't worry, private credit's rearing its head. Yeah, but they'll figure out a way to kind of solve that. Um yeah, rates may move higher, but hey, Powell's gone. The Fed's going to lose some independency, even though Yellen is testifying today that it won't. But is that part of this, too? Is just this when I was talking before about how you can look past all this stuff, just the belief that whether it's artificial or not that that someone's going to either come to the rescue or implement certain policies. We've already seen some very kind of pro-market policies in a midterm year. Is that part of it, also? You kind of you kind of mentioned fiscal policy in general, but talk to me just about government policy. >> Yeah, so fiscal policy has been an obvious support. So, moving on to monetary policy, uh I actually don't believe that that is the underlying driver that people believe it'll be a bailout. It comes back to where uh and there's I'm not I don't mean to be dismissive of that. I just think it comes back to my broader point and I I I apologize to be repetitive. Uh if you have long-term anchored inflation expectations and you're going through the middle of an AI boom and financial conditions are relatively easy, it's tough for me to think that the central bank has a lot to do with that. They might have some, but it's more the cycle dominating and I think that is dominating the returns now. It just comes back to my my point earlier, if that generally leads to higher inflation, it turns out that the it's not necessarily productivity gains, it's just a lot of investment that ends up increasing inflation, which is another thing we haven't talked about. We're we're assuming that productivity gains happen with AI. If they are not as if this if this investment is not as productive as people think, it will lead to a lot more a lot tighter financial conditions. So, I think it's the cycle and my view is that either one or two things would happen even if the Fed is too easy in an environment of higher inflation. Either the Fed's going to do it through conventional monetary policy or the 10-year yield's going to do it for you. All right, Dennis, one of my favorite things, obviously, that you guys do at 22V and we're going to get into what you guys have been up to is your surveys. Last time you were in the process of doing them towards the end of the year. I assume you've done some in the last four to six weeks. I hope you did one kind of be great if you did one pre-war and kind of during the war here, but tell me what your surveys are telling us and uh kind of where the uh scared money is hiding. I like how you put that, scared money. The the I would say the most interesting thing now is uh the percentage of clients that expect the Fed to tighten to slow uh inflation has increased meaningfully. We were down at like 11, 12% of clients answering that question that they the Fed needed to tighten uh late last year. You're now up to like 42, 43% now. So, I think that's the most interesting shift. So, the uh people are getting more uh I guess in tune with the with the inflation data and realizing that the Fed just won't be able to cut. Um now, that's priced, right? We know what's happened with that futures, but what they're saying is a tightening of financial conditions to slow inflation. So, that would be more than no cuts, that would actually be hikes. So, that is one of the more I would argue the most interesting thing that's happened. I would say that over the last few weeks, you're right, the expectations were actually Fed rate hike. And now, actually, it's more likely if there's anything, it's kind of showing nothing, but if you picked a side now that it would be indeed be a cut. And that has always been just a driver in the markets to your point because it directly impacts financial conditions. Yes. Yes, precisely. So, uh I think there's more money to be made uh if I was a betting man, uh if I I think there'd be more money to be made on cuts versus hikes at this point. So, that's a, you know, kind of agree with you because it goes back to the war shock and how that impacts economic growth, etc. So, that's one thing I'm thinking about, uh certainly relative to the way certain assets have traded this year. Like, a lot of money had gone into, which is another survey we've done, a lot of money had gone into inflation hedges. Um inflation hedges are typically your deeper cyclical, cyclical. So, your energy, industrial materials. And the money going into inflation hedges, a little bit was the AI buildout, I shouldn't say a little bit, a lot of it was the AI buildout, but the other excuse was, oh, inflation's going up anyway, plus a war shock. You know, you're kind of there's a lot of inflation hedges or commodities that don't benefit from the AI buildout that have done very well. And that seems interesting to me on the short side now, if in fact you're going to end up with inflation potentially uh that's lower in the back half of the year than what we're seeing now. So, that leads me to my next question, which is on the sector rotations. And coming into the year, I still couldn't believe people were still underweight energy. I don't even think they ever even got to an overweight in the last few weeks, even when oil has spiked. But what's interesting is that the money came into energy and then found its way into other parts of the market. It didn't leave the market, right? So, to your point, energy kind of held these gains for the year, kind of held the S&P even at any level, even though it's small for 4 and 1/2% of the S&P and now. So, give me your kind of sector favorites here moving forward. What are you telling clients to do here you know, between sector weightings? Yeah, so I think the most interesting new thing from us is looking at the early cyclicals. Uh so, the deeper cyclicals, the late cyclicals, um I think have had their best performance on the year. Um Now, Danny, I'm not trying to have a uh cop out here and not answer your question. I'm going to answer it, but I just want to make sure that we all understand that there are AI baskets and not AI AI baskets and, you know, there's a little bit of a commingling, so there's even though I think the deeper cyclicals should have headwinds given the inflation uh dynamics I had mentioned, that doesn't mean that if you're getting if you're in the uh lack of a better term, in the way of AI CapEx that you're not going to keep on outperforming. So, if you're an AI CapEx beneficiary, that's going to continue and you will have tailwinds, right? So, just to be clear. So, I would say non-AI related deeper cyclicals were were not more more negative on and AI related early cyclicals getting very positive on and I'm most positive on the service companies, which would be in your early cyclicals. This could be uh technology names, it could be some software names, uh communications names, it could be retail names and banks. That group of stocks that some of which thought they were going to be companies that were going away because of AI look especially interesting to us now. So, you guys people need to subscribe to 22V, obviously, to get those, you know, you know, exact names. We're going to get get into some of this stuff. My surveys that I'm going to give you in a second here on some Katusa picks I'm going to want you to kind of look at and we might as well get out of the way that I've now lost my master's jacket pullover. I you put up your smoking jacket, whatever that thing was that you're wearing at master and it was when we we were taping in October, the S&P was around 6,400 and you said it could get to 6,700 before the end of the year. I'm like, no way. So, I actually had 5,700, which was moronic. You had 6,700. It hit it in like November, it closed at whatever, 6,840. So, congrats. But you're losing you're losing weight, you might not fit in my jacket again, but still next time I see you, I'm going to give it to you. So, Dennis, before I get into some of these Katusa picks I'm going to ask you talk about what's going on at 22V. Uh you guys have made some great hires. Um some of the stuff that you guys are putting out right now on the research front. Some of the hires we've had uh especially with Jordy Visser, who's uh you know, uh former CIO of Weiss Multi-Strategy. I don't I'm going to understate saying but extremely uh passionate about AI and its impact on the world markets, etc. >> Yeah, he's in the middle of it. So, you can you can uh uh 22V research will take you right to Jordy and and his portal, uh which is the 22V macro nexus. Bill Hebel, we talked about him last time, I believe, he's covering the regional banks for us, so we've delved into the to the stock coverage and uh those are those are the the I think the two most uh interesting things we've done over the last uh last 6 to 8 months. All right, time to get my jacket back or you can actually take it from someone else at Katusa. All right, first Katusa event contract I'm looking at here is how high will the S&P 500 get in 2026? So Dennis, if you're a newbie to this, obviously, you can see the spots on the left. 7,400 or above, 7,600, 7,800. All it has to do is hit those levels. So, is there a yes level that you like on any of these and a no level that you like on? I'm not trying to pin you on a range per se. I would love to hear it your thoughts and then I'll tell you how you would execute something like that. I would say yes on 78 or above. Like what's your risk reward on that? I think it's 31 or 32 cents. So, you're getting effectively over two to one. So, the way that would work Dennis, if you said yes and it was, you know, call it I think it says 31 cents there to 7,800 or above, you get paid out at a dollar. So, add a little bit add a penny or whatever. So, you're making 68 cents on what you risk. So, better than two to one. So, you and I can do that one offline. We, you know, or we can do it on the platform. But, I would actually take the no side of that it. So, of course we don't don't agree on that. All right. Next one is, will the Fed cut rates in 2026? And just understand, this is going to somewhat mirror where Fed fund futures are, right? So, when you look at that one, that's telling you that there's a 69% chance of a cut, you know, before the end or, you know, before 2027. You selling that? You buying that? I'm buying it. All right. So, you're going to put up 69 cents to make 31 cents effectively lay more than two to one. You think the Fed's going to All right, fair enough. So, we're clear. S&P 7,800 and and the Fed will cut and those kind of I guess those kind of go together. If you get one, you might get the other. All right, fair enough. All right. Last one, the one most near and dear to your heart. For those that don't know, Dennis's father, the legend Dave DeBusschere, number 22, it's what he named 22V after. Will the Knicks, even after the loss last night against the Hawks, I'm not even going for NBA champion here, Dennis, but I want you to put your put your family hat on one side and your brain on the other. Is there a chance Eastern Conference champion? So, let me explain this before you probably say yes at 12 cents. If you say yes and they get past the Hawks and they even win another game at the you know, win the first or second game in the second round, that 12 cents is going to move higher. So, this is not binary in the sense of you can't So, you can trade out of it any point. So, it feels like they just got oversold a little bit. But, give me your thoughts. Are you buying that at 12 cents on the Knicks? My first question is, is Kalshi every actually calculating this correctly? Because that is a gift. That's a gift, you'd say? I'm saying it's a gift. That's a no-brainer gift. If the Knicks end up beating the Hawks in the series, my guess, that probably goes to 20 cents, 21 cents. So, effectively, at 24 cents, you double your money. So, that to answer your question, this is probably a better way to play it than what the live odds are on a sports book for what the Knicks are to I'm sure they're still favored to beat Atlanta in the series slightly. But, to me, so yes, you're a buyer of that and obviously, if they win the Eastern Conference, you're getting, you know, you're making 88 cents on your 12. So, it's over 7x pay out on that. So, 12 12 makes it make it makes its way eightfold basically to a dollar there. So, all right, Dennis. I like you I like the conviction, you know, of of all three here. We're going to have to follow those obviously. Dennis, thanks again for coming on. I'm going to see how these contracts play out. I'll be up in New York soon. I will give you my jacket. Maybe I'll lend it to you, but I'll definitely give you my jacket and we'll take a good picture with that in it. So, Dennis, thanks again. We'll have you on again soon. Awesome. Thanks so much, Danny. Really appreciate it. It's time for my Kalshi picks of the week. Remember, when you were trading on Kalshi, you were trading with other users, similar to buying or selling a stock. You can jump in or out of your position at any time to lock in a profit or cut your losses. These are just my opinions, not telling you what to trade or offering any investment advice. All right, there's so much going on and it's really hard to keep track. But, let's not forget that assuming Kevin Warsh gets confirmed as the next Fed chair, this is Powell's last meeting next week before he officially steps down as chair on May 15th. However, just a reminder that Powell's term as Fed governor continues through January 2028 unless he resigns or Trump somehow finds a way to remove him. We know the back and forth related to the investigation into Powell regarding renovations at the Fed and Powell and his lawyer basically saying, if you want me to leave as a governor, which doesn't end again till January 2028, then drop the investigation. As a matter of fact, Senator Tom Tillis, who's the head of the Senate Banking Committee, who's hearing Warsh testify today, said he will not vote to confirm Warsh until this investigation is dropped. Well, something will give here soon and there are two event contracts I am looking at. The first is, will Trump try and fire Powell as Fed chair or Fed governor? Well, we know there is no need to do anything as it relates to Fed chair, but governor is still in play. There are a few days to choose from on this contract, but I'm going to go with May 15th and say yes and pay just over 9 cents. That's over a 10 to one return if it happens. And let me read you the definition of try, which almost happened last week. If the president signs an executive order, memo or official document stating termination, directs any member or senior official to do it, publicly states in a speech, interview or press conference or or on social media that he has fired or has decided to fire Powell, among other conditions. So, take a look at that one. The second contract I'm looking at relates to Powell as well is, is Jerome Powell out as Fed governor? Again, there are days to choose from, but I'm going to choose before June 1st at about 22 cents and here is why. The rules read the following. If Powell has either officially announced his intention to leave or has actually left. So, just intention, as long as he leaves within one year of stating it, this thing resolves to yes. And it also plays if he's terminated or removed by that day. So, it's hard to imagine one of those two contracts does not occur and result to yes and there is a chance you could hit both and you can always trade out of these before the contracts expire. These picks are not financial advice, but if you want to learn more, download the Kalshi app, read the rules and use promo code Moses to get $10 when you trade $10. Thanks for listening to the On The Tape podcast with Danny Moses. If you like what you heard, please subscribe on either Apple or Spotify to the weekly podcast and please leave a rating and review, positive only. You can also watch on the On The Tape channel on YouTube and give us a thumbs up there as well.