Latest / Trend Watch / Episode 106: Midterm Odds, US-China Talks, and a Divided UN

Transcript

Episode 106: Midterm Odds, US-China Talks, and a Divided UN · 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 September 24th, 2026, and this is Trend Watch.
• 0:35
  SPEAKER_01: Welcome back, everyone.
• 0:37
  SPEAKER_01: As usual, I have on my fellow analyst, Christian Ford.
• 0:41
  SPEAKER_01: So, Christian, how was your week?
• 0:43
  SPEAKER_00: It was pretty good, Neil.
• 0:44
  SPEAKER_00: Not too much to report, though.
• 0:46
  SPEAKER_00: DC is finally getting into fall weather.
• 0:49
  SPEAKER_00: We're in the 60s, so a little welcome relief
• 0:52
  SPEAKER_01: from the heat.
• 0:53
  SPEAKER_01: Yeah, I understand you had some flybys, too.
• 0:56
  SPEAKER_00: Yes, with Xi Jinping being in D.C., I was startled as I was preparing for the podcast.
• 1:03
  SPEAKER_01: Well, our president wants to impress, you know, so that's the way you impress a couple of booms.
• 1:13
  SPEAKER_01: That's right.
• 1:14
  SPEAKER_01: It was interesting, up here,
• 1:18
  SPEAKER_01: was amazed a few days ago by the sound of a helicopter.
• 1:23
  SPEAKER_01: Now, where I used to live,
• 1:24
  SPEAKER_01: right along the Potomac,
• 1:28
  SPEAKER_01: I think I heard helicopters every single friggin' day.
• 1:32
  SPEAKER_01: You know what I mean?
• 1:33
  SPEAKER_01: Because they constantly have those federal military and surveillance people.
• 1:40
  SPEAKER_00: At all times, day and night.
• 1:42
  SPEAKER_01: Yeah, they do.
• 1:44
  SPEAKER_01: They do.
• 1:44
  SPEAKER_01: But out here, it's rare.
• 1:47
  SPEAKER_01: It's refreshing, anyway.
• 1:52
  SPEAKER_01: Well, let's get right into it.
• 1:55
  SPEAKER_01: I know we're going to start off talking about the economy.
• 1:59
  SPEAKER_01: It's certainly been a stressful week in the markets, and it has been two weeks.
• 2:07
  SPEAKER_01: So there's a lot to cover in the news.
• 2:10
  SPEAKER_01: So why don't we just start with the economy and we'll just take it right in.
• 2:14
  SPEAKER_00: All right, Neil.
• 2:14
  SPEAKER_00: Well, we'll start with the markets right now.
• 2:16
  SPEAKER_00: S&P 500 basically closed flat.
• 2:19
  SPEAKER_00: It was technically down 0.02% today.
• 2:22
  SPEAKER_00: And over the last five days, it's up 0.87%.
• 2:25
  SPEAKER_00: You know, the last two weeks, it's been real up and down.
• 2:28
  SPEAKER_00: Dow not looking as good.
• 2:30
  SPEAKER_00: Closed down today 0.51%, and over the last five days is down 1.11%.
• 2:36
  SPEAKER_00: VIX closed at 15.65%.
• 2:39
  SPEAKER_00: And as for the 10-year Treasury, this has been the big news, Neil.
• 2:43
  SPEAKER_00: Closed at, or right now is at 5.2%, and is up 27.5 basis points over the last five days.
• 2:52
  SPEAKER_01: Yeah.
• 2:53
  SPEAKER_01: Well, it certainly...
• 2:55
  SPEAKER_01: You know, where we're headed.
• 2:57
  SPEAKER_01: Why don't you talk first about the PMIs?
• 3:01
  SPEAKER_01: Because I think it sort of reinforces or underlines kind of the particular kind
• 3:08
  SPEAKER_01: of market and economy we're in right now.
• 3:10
  SPEAKER_00: That's right.
• 3:11
  SPEAKER_00: We got the Flash S&P PMIs for September.
• 3:14
  SPEAKER_00: And I had to do a double take, Neil, when I first read these.
• 3:16
  SPEAKER_00: Manufacturing rose from 53.9 to 57.0.
• 3:22
  SPEAKER_00: That's the strongest reading we have seen since May 2022.
• 3:26
  SPEAKER_00: All five components increased.
• 3:28
  SPEAKER_00: And services looking even better.
• 3:30
  SPEAKER_00: They rose from 56.5 to 58.7.
• 3:34
  SPEAKER_00: That's the strongest expansion they've seen in over five years.
• 3:39
  SPEAKER_00: Neil, things are looking pretty good on the PMI front.
• 3:43
  SPEAKER_01: Well, they are.
• 3:43
  SPEAKER_01: And that's why things aren't looking so good on the market front.
• 3:48
  SPEAKER_01: Because everyone assumes that the Fed is going to have to keep hiking to slow
• 3:53
  SPEAKER_01: the economy down to take away the demand push inflation going on, right?
• 4:00
  SPEAKER_01: I mean, there's also supply constraint inflation,
• 4:05
  SPEAKER_01: but there's obviously a lot of demand push inflation.
• 4:08
  SPEAKER_01: So that's what's worrying people right now.
• 4:13
  SPEAKER_01: It's not just what you see, but it's how much further it has to go.
• 4:17
  SPEAKER_01: Clearly, it's not slowing anything down right now.
• 4:21
  SPEAKER_01: And
• 4:24
  SPEAKER_01: it's not just the high PMIs, but these high interest rates reflect the fact that it's
• 4:32
  SPEAKER_01: Partly inflation expectations.
• 4:35
  SPEAKER_01: It's kind of hard to tell.
• 4:36
  SPEAKER_01: You have to figure in the term premium, and there's a lot of controversy about that.
• 4:40
  SPEAKER_01: But I think it's also just partly very high real rates.
• 4:44
  SPEAKER_01: I think the real rate of interest, both short-term and long-term, is very high right now.
• 4:50
  SPEAKER_01: It's not just the United States.
• 4:52
  SPEAKER_01: The UK now is at 5.4% on that 10-year.
• 4:56
  SPEAKER_01: France, and we're talking about the EU, right?
• 5:00
  SPEAKER_01: Lower inflation place,
• 5:02
  SPEAKER_01: you'd expect these interest rates to be lower,
• 5:04
  SPEAKER_01: but France is now at 4.7%, Germany at 3.6%, and Japan at 3.1%.
• 5:07
  SPEAKER_01: I mean, that's a dizzyingly high interest rate for Japan, right?
• 5:10
  SPEAKER_01: The 30-year in the U.S. is at 5.46%, right?
• 5:12
  SPEAKER_01: So Scott Besson tried his best.
• 5:29
  SPEAKER_01: I guess it just wasn't enough.
• 5:31
  SPEAKER_01: The average 30-year mortgage rate at the end of today is at 7.03.
• 5:37
  SPEAKER_01: That's up from 6.0% at the start of March, right?
• 5:41
  SPEAKER_01: And of course, again, you have to think about the politics of this, right?
• 5:47
  SPEAKER_01: This isn't going to endear people into voting for incumbents right now.
• 5:53
  SPEAKER_01: And Because you have populism run rampant everywhere,
• 5:58
  SPEAKER_01: it's the beginning of sort of, you know, funny season here.
• 6:02
  SPEAKER_01: This whole idea of blocking the exports of diesel,
• 6:07
  SPEAKER_01: you know, which as though that's going to help anything.
• 6:09
  SPEAKER_01: I mean, it turns out that if you don't export diesel,
• 6:12
  SPEAKER_01: it just sort of builds up where it already is, which is the Southeast.
• 6:17
  SPEAKER_01: So diesel prices in Texas will go lower, but they'll go higher everywhere else.
• 6:22
  SPEAKER_01: Because all those places have to import diesel from the rest of the world.
• 6:28
  SPEAKER_01: The wildest idea came out today.
• 6:31
  SPEAKER_01: This is Jean-Luc Mélenchon.
• 6:34
  SPEAKER_01: He's the La France Insoumise, the unsubmitted France, the left-wing coalition in France.
• 6:44
  SPEAKER_01: He's proposing throwing bonds owned by French banks.
• 6:49
  SPEAKER_01: These are public bonds.
• 6:52
  SPEAKER_01: The equivalent of treasuries by French banks into the fire.
• 6:56
  SPEAKER_01: That's his expression.
• 6:58
  SPEAKER_01: The people on the left, they love to use words like fire.
• 7:02
  SPEAKER_01: Just burn it up.
• 7:05
  SPEAKER_01: That's how France gets around the spending limit.
• 7:08
  SPEAKER_01: The day of populism has arrived.
• 7:11
  SPEAKER_01: Why not just do that?
• 7:12
  SPEAKER_01: Just take what the public owes to these banks and just cancel it out.
• 7:20
  SPEAKER_01: Let them just eat it.
• 7:24
  SPEAKER_01: We can imagine Emmanuel Macron was horrified.
• 7:28
  SPEAKER_01: And I don't think,
• 7:30
  SPEAKER_01: I don't think,
• 7:33
  SPEAKER_01: Maireen Le Pen,
• 7:35
  SPEAKER_01: I don't think she had to answer, you know, but that's kind of where you are today.
• 7:41
  SPEAKER_01: It's a weird time, right?
• 7:42
  SPEAKER_01: Yeah.
• 7:44
  SPEAKER_01: I think it's a dangerous time, too,
• 7:46
  SPEAKER_01: because a lot of these highly leveraged operations,
• 7:50
  SPEAKER_01: I'm thinking particularly in terms of private equity and private credit,
• 7:56
  SPEAKER_01: right, are highly leveraged.
• 7:59
  SPEAKER_01: I'd say nothing of real estate, just a lot of different sectors.
• 8:04
  SPEAKER_01: And so this is going to be difficult, and it's going to make duration.
• 8:10
  SPEAKER_01: If you think of duration in equities as kind of an equity factor,
• 8:14
  SPEAKER_01: It means that, well,
• 8:17
  SPEAKER_01: you're going to discount earnings way out in the future a little bit more harshly.
• 8:22
  SPEAKER_01: So as you've seen, though, the one thing that keeps the market going is AI, right?
• 8:29
  SPEAKER_01: So it's
• 8:33
  SPEAKER_01: been the semiconductor equities plus the MAG7, right?
• 8:40
  SPEAKER_01: And so they go up the most.
• 8:43
  SPEAKER_01: And then the Fortune 500 is sort of, you know, the next up.
• 8:48
  SPEAKER_01: And then comes, you know, the entire stock market is less.
• 8:53
  SPEAKER_01: And then the global stock market, you know, lags behind that, including, by the way, the Dow.
• 8:58
  SPEAKER_01: I think you mentioned that, right?
• 8:59
  SPEAKER_01: The Dow is falling behind and the rest of the world is falling behind.
• 9:02
  SPEAKER_01: That's because everyone's just being led by the prospect of all this,
• 9:09
  SPEAKER_01: you know, Trillions of dollars of eventual wealth.
• 9:12
  SPEAKER_01: And I think that's also pushing inflation and high interest rates.
• 9:15
  SPEAKER_01: People are spending because everyone thinks they're going to be so wealthy in
• 9:18
  SPEAKER_01: the future because they're already discounting all those future earnings.
• 9:23
  SPEAKER_01: So it's incorporated into the stock price of everything they own.
• 9:29
  SPEAKER_01: The big theme of this last week was the...
• 9:35
  SPEAKER_01: The AI mishaps, right?
• 9:38
  SPEAKER_01: What happens when AI goes rogue?
• 9:41
  SPEAKER_01: Is it going to kill us all?
• 9:43
  SPEAKER_01: And two things about this debate which just amazed me, right?
• 9:47
  SPEAKER_01: I mean, the one is,
• 9:49
  SPEAKER_01: as many people have pointed out,
• 9:51
  SPEAKER_01: and I think it's right,
• 9:52
  SPEAKER_01: is that this is the classic appeal of regulatory capture, right?
• 9:58
  SPEAKER_01: It's all just so dangerous that government ought to get together with a couple
• 10:03
  SPEAKER_01: of companies that are at the forefront, right?
• 10:06
  SPEAKER_01: And we can get some huge regulatory
• 10:12
  SPEAKER_01: set of rules and regulators and something
• 10:15
  SPEAKER_01: so complicated and so black box-like that no one else would be allowed to compete.
• 10:22
  SPEAKER_01: You know what I mean?
• 10:23
  SPEAKER_01: That's always the way it is, right?
• 10:24
  SPEAKER_01: Because we'll have all the lawyers and we'll make it all just real.
• 10:29
  SPEAKER_01: It'll be complicated.
• 10:30
  SPEAKER_01: Anyway, and that way we can all slow it down together, right?
• 10:35
  SPEAKER_01: That's part of regulatory capture.
• 10:37
  SPEAKER_01: You make it so complicated that only a couple of companies can join.
• 10:40
  SPEAKER_01: And then you just sort of slow everything down.
• 10:42
  SPEAKER_01: You know that thing where, oh, if we just slowed it down, how do we just slow it down?
• 10:46
  SPEAKER_01: That'll solve our problem.
• 10:48
  SPEAKER_01: Here's the real problem.
• 10:51
  SPEAKER_01: And in this case,
• 10:53
  SPEAKER_01: this is,
• 10:53
  SPEAKER_01: you know,
• 10:54
  SPEAKER_01: lately it's not something I often do,
• 10:55
  SPEAKER_01: but I sort of agreed with the president on this.
• 10:59
  SPEAKER_01: You know, what's the matter with competition here?
• 11:02
  SPEAKER_01: All of this rhetoric around AI being conscious and having rights and,
• 11:06
  SPEAKER_01: oh, my God, you know, AI does it.
• 11:08
  SPEAKER_01: We can't control it.
• 11:09
  SPEAKER_01: It climbs out of the sandbox.
• 11:12
  SPEAKER_01: It's just so wild and unpredictable.
• 11:15
  SPEAKER_01: AI is a tool.
• 11:17
  SPEAKER_01: It's a tool built by you guys.
• 11:19
  SPEAKER_01: And you guys are responsible for it.
• 11:22
  SPEAKER_01: Anything that happens.
• 11:23
  SPEAKER_01: Here's the thing.
• 11:25
  SPEAKER_01: All these,
• 11:25
  SPEAKER_01: you know,
• 11:26
  SPEAKER_01: uncool guys who make industrial products,
• 11:29
  SPEAKER_01: you know, like vinyl chloride or dioxin or something like that.
• 11:35
  SPEAKER_01: I mean, they're responsible, right?
• 11:37
  SPEAKER_01: They get fined.
• 11:38
  SPEAKER_01: They get sued.
• 11:39
  SPEAKER_01: I mean, anything that causes damage, they get sued.
• 11:43
  SPEAKER_01: Why don't we hold the same standard to these people?
• 11:46
  SPEAKER_01: Just say, if you cause damage, I think that's, if I were president, I would have said that.
• 11:51
  SPEAKER_01: If you cause damage,
• 11:53
  SPEAKER_01: you're going to be held responsible,
• 11:56
  SPEAKER_01: either by federal law or by tort, common law, right?
• 12:01
  SPEAKER_01: You see what I mean?
• 12:02
  SPEAKER_01: It'll be a huge class action suit and they'll get after your ass.
• 12:07
  SPEAKER_01: And so think about that.
• 12:09
  SPEAKER_01: And anyone who invests in these companies, think about that, right?
• 12:13
  SPEAKER_01: That's how you get, that's how you align.
• 12:16
  SPEAKER_01: The real alignment is, It's not between AI and the people who are experimenting with AI.
• 12:25
  SPEAKER_01: It's the alignment of public policy to force the people
• 12:29
  SPEAKER_01: who are designing these damn things to get it right and don't take stupid chances.
• 12:35
  SPEAKER_01: I mean, anyway...
• 12:38
  SPEAKER_01: I don't want to get off on this.
• 12:39
  SPEAKER_00: There was a great op-ed in the Wall Street Journal.
• 12:41
  SPEAKER_00: I don't know if you saw it.
• 12:42
  SPEAKER_00: I think it was written by a mathematician,
• 12:44
  SPEAKER_00: but he was making that same point, Neil, that these AI, they don't write themselves.
• 12:49
  SPEAKER_00: Humans are the ones writing the rules.
• 12:51
  SPEAKER_00: So when they're all saying they're so scary, they can't be stopped.
• 12:54
  SPEAKER_00: And it's these companies' responsibilities to make sure this doesn't happen.
• 12:58
  SPEAKER_01: These are just products.
• 12:59
  SPEAKER_01: These are just products.
• 13:01
  SPEAKER_01: You make them,
• 13:02
  SPEAKER_01: you're responsible for them,
• 13:04
  SPEAKER_01: and the alignment we care about is between law and your actions.
• 13:09
  SPEAKER_01: And if you misalign, we're worried about your misalignment.
• 13:11
  SPEAKER_01: Let's not worry about the AI.
• 13:13
  SPEAKER_01: You're responsible for anything that AI does, right?
• 13:16
  SPEAKER_01: That's the alignment that's going to hold your behind of the fire, right?
• 13:21
  SPEAKER_00: Exactly.
• 13:21
  SPEAKER_01: So anyway, I think that's where we are on that.
• 13:25
  SPEAKER_01: Let's jump in.
• 13:27
  SPEAKER_01: I know we got, speaking of those booms over your house, let's get into the China summit.