Latest / Trend Watch / Episode 107: Michigan Polls, Somali Pirates, and Iraqi Militias

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Episode 107: Michigan Polls, Somali Pirates, and Iraqi Militias · Trend Watch

• 0:04
  SPEAKER_01: Ready to take a deeper look at where history, politics, and economics all intersect?
• 0:10
  SPEAKER_01: Well then, you've come to the right place.
• 0:13
  SPEAKER_01: Each week,
• 0:14
  SPEAKER_01: here's where we pull back the headlines and focus on the big trends,
• 0:18
  SPEAKER_01: the stuff that actually shapes our future.
• 0:21
  SPEAKER_01: Through the noise, we focus on the signal.
• 0:24
  SPEAKER_01: I'm your host, Neil Howe, and this is Trend Watch.
• 0:30
  SPEAKER_01: Today is October 1st, 2026, and this is Trend Watch.
• 0:35
  SPEAKER_01: Welcome back, everyone.
• 0:37
  SPEAKER_01: As usual, Christian Ford is here.
• 0:40
  SPEAKER_01: So, Christian, how was your week?
• 0:44
  SPEAKER_00: It's been pretty good, Neil.
• 0:45
  SPEAKER_00: Not much to report.
• 0:46
  SPEAKER_00: I'll just say with walking my dog now every day, I'm really starting to meet my neighbors.
• 0:52
  SPEAKER_00: You know the old joke,
• 0:53
  SPEAKER_00: you never meet your neighbors in the city,
• 0:55
  SPEAKER_00: but now that's changing after all these years.
• 0:58
  SPEAKER_01: Well, I'm sure they notice all kinds of similarities between you and your dog,
• 1:02
  SPEAKER_01: and I hesitate to think what those may be.
• 1:05
  SPEAKER_01: I
• 1:07
  SPEAKER_01: had an interesting experience this last week calling my mortgage company about a refi.
• 1:16
  SPEAKER_00: Oh, there you go.
• 1:18
  SPEAKER_01: This isn't a good time to do that, by the way.
• 1:21
  SPEAKER_01: So I called them up.
• 1:22
  SPEAKER_01: I said, I have a 30-year fixed, and how much could you save me if I go to a five-year arm?
• 1:29
  SPEAKER_01: And they said, you know, in theory, we could save you a lot.
• 1:32
  SPEAKER_01: But right now, this place is chaos.
• 1:36
  SPEAKER_01: Call us back in a month.
• 1:39
  SPEAKER_01: Anyway, I thought that was a good segue to where we're going.
• 1:45
  SPEAKER_01: As we saw,
• 1:47
  SPEAKER_01: at least one national mortgage index showed the 30-year mortgage rising
• 1:53
  SPEAKER_01: to 7.28 this afternoon.
• 1:57
  SPEAKER_01: Wow.
• 1:58
  SPEAKER_01: Ouch.
• 1:59
  SPEAKER_01: If you're in the market for a new home.
• 2:01
  SPEAKER_01: So why don't we get right into it?
• 2:03
  SPEAKER_01: Didn't have a lot this last week, but actually plenty of interesting stuff.
• 2:10
  SPEAKER_01: So why don't we start with the economic indicators?
• 2:13
  SPEAKER_00: All right, well, we'll do the markets here first.
• 2:15
  SPEAKER_00: The S&P closed up today 0.19%, but over the last five market days is down 0.49%.
• 2:23
  SPEAKER_00: Global Dow, not looking as good, closed down today 0.38%, and over the last five days...
• 2:28
  SPEAKER_00: Basis down 1.23.
• 2:30
  SPEAKER_00: As for the VIX,
• 2:31
  SPEAKER_00: that closed today at 16.45,
• 2:34
  SPEAKER_00: a little higher than what we were seeing the last few weeks.
• 2:37
  SPEAKER_00: And as for the 10-year Treasury, that's at 5.24%, up 3.5 basis points over the last five days.
• 2:45
  SPEAKER_01: Yeah.
• 2:46
  SPEAKER_01: Yeah, it certainly is.
• 2:47
  SPEAKER_01: And let's talk about the economic indicators and we can sort of ease right into it.
• 2:52
  SPEAKER_01: I think the big news in the markets is obviously the ongoing trend.
• 2:57
  SPEAKER_01: A rise in treasury yields,
• 3:01
  SPEAKER_01: not so much around the rest of the world,
• 3:04
  SPEAKER_01: although those are certainly higher than they used to be.
• 3:08
  SPEAKER_01: So I guess the big news was the GDP revisions and PCE, right?
• 3:13
  SPEAKER_01: Right.
• 3:14
  SPEAKER_00: Yeah, PCE was the big news.
• 3:15
  SPEAKER_00: You know,
• 3:16
  SPEAKER_00: people thought it didn't rise as much as they were expecting,
• 3:18
  SPEAKER_00: but there was still a rise for it.
• 3:20
  SPEAKER_00: So for August, month over month, rose from 0.1% to 0.3%.
• 3:23
  SPEAKER_00: Year over the year, stayed flat at 3.4%, but core, that also rose from 0.1% to 0.2%.
• 3:32
  SPEAKER_01: Yeah, I mean,
• 3:34
  SPEAKER_01: you know,
• 3:34
  SPEAKER_01: the PCE year over year,
• 3:38
  SPEAKER_01: if you want to look at,
• 3:39
  SPEAKER_01: you know, just, you know, year over year numbers, it's 3.36 to 3.42.
• 3:45
  SPEAKER_01: The month over month annualized is 0.61
• 3:52
  SPEAKER_01: to 3.79,
• 3:53
  SPEAKER_01: which is just a figment of the fact that July was a down month.
• 3:57
  SPEAKER_01: But the core year over year was 2.98 to 3.01.
• 4:02
  SPEAKER_01: That's up.
• 4:03
  SPEAKER_01: And the core month over month is 1.52 to 3.01.
• 4:09
  SPEAKER_01: All four of them are higher, but maybe not as high as people expected.
• 4:15
  SPEAKER_01: And I think what rallied the market a little bit was the upward revisions to
• 4:21
  SPEAKER_01: the quarterly GDP, especially for the second quarter.
• 4:26
  SPEAKER_01: From a 1.5% to 2.2% real annual growth rate
• 4:34
  SPEAKER_01: in most states,
• 4:35
  SPEAKER_01: particularly the big coastal states where all the IT is taking place,
• 4:39
  SPEAKER_01: I took some grim satisfaction in the fact that West Virginia,
• 4:43
  SPEAKER_01: where I live, had the lowest GDP growth in the nation.
• 4:48
  SPEAKER_01: At minus 2.3% of GDP.
• 4:51
  SPEAKER_01: And I can tell you,
• 4:53
  SPEAKER_01: very few people here really follow what's going on in
• 5:04
  SPEAKER_01: the whole innovation wave
• 5:05
  SPEAKER_01: in AI.
• 5:06
  SPEAKER_01: In fact, they really have very little connection with the S&P 500 in general.
• 5:12
  SPEAKER_00: They're probably more worried about diesel prices.
• 5:14
  SPEAKER_00: Well, that's absolutely true.
• 5:16
  SPEAKER_01: And people in rural America use diesel a lot.
• 5:20
  SPEAKER_01: I think all the Republican candidates are finding that out in the red zone.
• 5:26
  SPEAKER_01: And here's what really amazed me.
• 5:28
  SPEAKER_01: Private,
• 5:29
  SPEAKER_01: because this is the one that really takes out some of the fluffy stuff that's in
• 5:33
  SPEAKER_01: the NIPA numbers.
• 5:35
  SPEAKER_01: Private sales to private domestic purchasers, right?
• 5:39
  SPEAKER_01: That's just an acid bottom line.
• 5:42
  SPEAKER_01: You know, you're taking out government.
• 5:44
  SPEAKER_01: You're taking out, you're not...
• 5:46
  SPEAKER_01: You're not worried about inflation indexes.
• 5:48
  SPEAKER_01: You're just looking to private sector sales to private sector domestic purchasers in
• 5:54
  SPEAKER_01: the United States.
• 5:57
  SPEAKER_01: In the second quarter, it was up 9.5%.
• 6:00
  SPEAKER_01: 9.5%.
• 6:06
  SPEAKER_01: And that's obviously annualized,
• 6:08
  SPEAKER_01: but that's up from 5% to 6% in all the earlier quarters going way back, right?
• 6:14
  SPEAKER_01: That's a 4.3% real rise annualized in one quarter.
• 6:20
  SPEAKER_01: Anyway, extraordinary growth.
• 6:23
  SPEAKER_01: As you can imagine,
• 6:24
  SPEAKER_01: a lot of it is upward valuations and intellectual property rights
• 6:28
  SPEAKER_01: and Data center stuff, IT,
• 6:32
  SPEAKER_01: you look in the NIPA and you look at the actual rows in which there'd been
• 6:36
  SPEAKER_01: the big gains and that's kind of where it is.
• 6:40
  SPEAKER_01: So you pointed that out with the recent PMIs, right?
• 6:46
  SPEAKER_01: This is a pretty hot economy right now.
• 6:50
  SPEAKER_01: And it's running on AI hopes.
• 6:55
  SPEAKER_01: I think you can say.
• 6:57
  SPEAKER_01: Because it's amazing if you look, everyone talks about, oh my God, all the investment going on.
• 7:02
  SPEAKER_01: And it is true in AI.
• 7:05
  SPEAKER_01: But if you look at total net investment as a share of GDP,
• 7:09
  SPEAKER_01: it's been continuously declining over the last five years.
• 7:13
  SPEAKER_01: You know what I mean?
• 7:15
  SPEAKER_01: It's just everything other than AI is shrinking.
• 7:19
  SPEAKER_01: You see what I mean?
• 7:21
  SPEAKER_01: But nonetheless...
• 7:23
  SPEAKER_01: It is the AI investment that's driving the equity markets.
• 7:26
  SPEAKER_01: Is that not correct?
• 7:28
  SPEAKER_01: So I don't know.
• 7:32
  SPEAKER_01: You look at the political consequences of that.
• 7:34
  SPEAKER_01: We're going to talk about the midterms in just a second.
• 7:38
  SPEAKER_01: But I think the Republicans could be thankful that GDP,
• 7:43
  SPEAKER_01: with this long war going on, is keeping the 10% gain in the S&P.
• 7:53
  SPEAKER_01: I should say not GDP,
• 7:54
  SPEAKER_01: but I meant the S&P 500, right,
• 7:57
  SPEAKER_01: is keeping the 10% gain it achieved in April and May over where it was at
• 8:03
  SPEAKER_01: the beginning of the year.
• 8:05
  SPEAKER_01: Imagine where the Republicans would be in the midterms if it were down 10% from
• 8:13
  SPEAKER_01: the beginning of the year.
• 8:14
  SPEAKER_01: You know what I mean?
• 8:16
  SPEAKER_01: So not only is it a red-hot economy, but equities are high.
• 8:21
  SPEAKER_01: They remain high.
• 8:23
  SPEAKER_01: There were high valuation to begin with.
• 8:25
  SPEAKER_01: There are higher valuation now.
• 8:27
  SPEAKER_01: Interest rates are going up.
• 8:29
  SPEAKER_01: And because the outlook in the rest of the world isn't so great,
• 8:34
  SPEAKER_01: particularly in Europe,
• 8:35
  SPEAKER_01: certainly not in China right now, Capital is pouring into US equity markets.
• 8:40
  SPEAKER_01: We're like an emerging market economy with an investment boom, right?
• 8:45
  SPEAKER_01: The dollar's up,
• 8:46
  SPEAKER_01: interest rates are up,
• 8:48
  SPEAKER_01: equities,
• 8:49
  SPEAKER_01: although not falling,
• 8:50
  SPEAKER_01: are not doing nearly as poorly as those other markets you just cited, right?
• 8:59
  SPEAKER_01: Europe and Asia right now.
• 9:02
  SPEAKER_01: And so that's kind of where we are.
• 9:03
  SPEAKER_01: And when you follow equities day in,
• 9:07
  SPEAKER_01: day out, you notice there are just only two things that matter.
• 9:10
  SPEAKER_01: I mean, obviously, there are a lot of things that matter, the inequities.
• 9:16
  SPEAKER_01: But if you want to look at the fundamental question is,
• 9:21
  SPEAKER_01: are the MAG7 and all the chip stocks up today?
• 9:24
  SPEAKER_01: Is everything else down or is it slightly reversed?
• 9:28
  SPEAKER_01: And on most days, It's Mag7 and Chips Up, and they're kind of driving the net gain.
• 9:35
  SPEAKER_01: They certainly are what drove that 10% gain we saw in April and May, right?
• 9:42
  SPEAKER_01: And that's kind of where we are,
• 9:44
  SPEAKER_01: and it's pushing interest rates up because this AI requires a lot of investment,
• 9:51
  SPEAKER_01: and all those Mag7 are no longer generating cash, right?
• 9:57
  SPEAKER_01: They're investing it all, and they're now borrowing.
• 10:00
  SPEAKER_01: So everyone's borrowing to build up that multi-trillion dollar capital stock with
• 10:10
  SPEAKER_01: which America hopes makes everybody rich, you know what I mean, 10 years from now.
• 10:19
  SPEAKER_01: What's your thoughts on this?
• 10:21
  SPEAKER_01: I mean, we've talked about this from time to time.
• 10:23
  SPEAKER_00: Yeah, it is a strange market that if it doesn't pan out to be true,
• 10:29
  SPEAKER_00: this could really be trouble if the AI hype goes away.
• 10:35
  SPEAKER_00: Well, it's holding it up.
• 10:36
  SPEAKER_01: It's going to be challenging.
• 10:40
  SPEAKER_01: I think that AI will absolutely transform technology.
• 10:44
  SPEAKER_01: I think that's without question.
• 10:46
  SPEAKER_01: It's going to transform our lives.
• 10:48
  SPEAKER_01: It's going to transform our social environment and our workplaces.
• 10:52
  SPEAKER_01: The question is, though, about its viability as an investment thesis.
• 10:57
  SPEAKER_01: The way I look at it, I'll just give you the outline of how I look at it.
• 11:02
  SPEAKER_01: By most estimates,
• 11:04
  SPEAKER_01: AI is going to be building out something net of depreciation,
• 11:09
  SPEAKER_01: capital stock of around $4 trillion by 2030, right?
• 11:14
  SPEAKER_01: So let's say four years from now.
• 11:18
  SPEAKER_01: To get a return on that with...
• 11:21
  SPEAKER_01: Maybe a margin of 35%, 40% pre-tax.
• 11:26
  SPEAKER_01: That would require about $1.4 trillion in revenue.
• 11:31
  SPEAKER_01: So you think about that.
• 11:32
  SPEAKER_01: How much revenue do we now get from private enterprise,
• 11:36
  SPEAKER_01: consumers, rest of world, governments all around the world?
• 11:41
  SPEAKER_01: How much do they get in the United States?
• 11:43
  SPEAKER_01: Maybe that accounts for, I figure, about $180 billion, right?
• 11:46
  SPEAKER_01: So that's just over 0.5% of GDP.
• 11:50
  SPEAKER_01: It's going to have to grow to get up to that 1.4 trillion.
• 11:55
  SPEAKER_01: It's going to have to grow 67% in dollar terms every year for four consecutive years.
• 12:02
  SPEAKER_01: That's the challenge.
• 12:03
  SPEAKER_01: And I'm not original in numbers like this,
• 12:06
  SPEAKER_01: but that means that by the year 2030, it's going to have to be 3.3% of GDP.
• 12:11
  SPEAKER_01: 2030, 3.3% of GDP.
• 12:11
  SPEAKER_01: That's equivalent to...
• 12:22
  SPEAKER_01: Well, it's equivalent to all meals and hospitality as a sector in the United States.
• 12:28
  SPEAKER_01: Imagine every restaurant, every hotel, every resort.
• 12:33
  SPEAKER_01: Now, if it goes on one year longer, it's going to have to be 5.5% of GDP.
• 12:38
  SPEAKER_01: So that's the entire automotive industry, right?