Advertise on podcast: First Principles with Andy Constan

On this episode of First Principles, we break down the Fed's inflation challenge, what drives Treasury yields, and why bonds may deserve a place in a diversified portfolio again. We also explore how AI capital spending and stock issuance affect markets, why Andy is warming to Japanese stocks and bonds, and how long-term investors can set a risk level they can live with. Topics covered: How consumer borrowing, asset prices, and AI spending are supporting demand. Why Andy viewed the Fed's rate hike as necessary and what would build inflation-fighting credibility. Why bringing inflation down may require lower asset prices. How Treasury buybacks and debt issuance can work against Fed tightening. Why a Fed rate hike does not automatically mean higher long-term Treasury yields. Andy's four tests for owning bonds, including risk premiums, real yields, and inflation compensation. How bonds can help diversify equity risk when growth disappoints. Why funding AI capital spending creates a stock issuance headwind. Why Japan's bond yields have changed Andy's view of its stocks and broader investment appeal. Why portfolio risk, global diversification, and staying invested matter more than political noise. Timestamps: 00:00 Consumer spending, AI investment, and stubborn inflation 05:20 Why Andy called the Fed hike a no-brainer 10:15 Fed communication and the limits of credibility 15:25 Why lower asset prices may be needed to tame inflation 20:49 Can Treasury buybacks suppress long-term yields? 25:14 How Fed hikes affect the yield curve 29:24 Are bonds offering enough return over cash? 34:53 Inflation risk and bonds as an equity diversifier 39:29 Choosing portfolio risk and funding the AI boom 44:57 Why Japan's stocks and bonds look investable 51:55 Why Andy thinks midterms matter less than investors expect 56:35 Long-term investing and diversification across economic conditions Learn more about the Excess Returns podcast network: https://excessreturns.co No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.

Andy Constan joins First Principles to explain why record stock prices, rising long-term Treasury yields and sticky inflation can all coexist, and why the next major market risk may come from the financing behind the AI CapEx boom rather than the eventual return on that investment. We discuss Kevin Warsh and Fed balance sheet policy, Treasury issuance and the quarterly refunding announcement, corporate bond and equity supply, Nvidia's $500 billion financing structure, and Andy's "not enough pie" framework for comparing AI earnings expectations with GDP and productivity growth. Andy Constan on X https://x.com/dampedspring Damped Spring https://dampedspring.com/ Damped Spring Substack https://substack.com/@dampedspring Topics covered Why rising long-term interest rates can be consistent with strong economic growth and record stock prices Why Andy does not see higher government interest costs creating an imminent U.S. debt crisis The "script to kill inflation" and why reducing the wealth effect may require lower stock, bond and asset prices How the Fed, Treasury and other policymakers have suppressed long-term interest rates and risk premiums Why Kevin Warsh's comments about the Fed balance sheet and letting the bond market "do the work" could signal a policy shift How Treasury bill issuance, coupon issuance and the quarterly refunding announcement can affect stocks, bonds and financial conditions Why the AI CapEx boom is shifting from cash flow funding toward massive corporate debt and equity issuance Andy's "hamburger thesis" and why the ability to finance AI infrastructure may matter before anyone knows the ultimate AI ROI Why capital markets can suddenly close after issuance booms and what that could mean for the AI investment cycle How Nvidia's $500 billion financing structure expands the pool of capital available to data center projects The "not enough pie" problem: why projected corporate earnings may require extraordinary GDP growth, productivity gains or a larger corporate share of the economy What Andy watches in new stock and bond deals for signs that investors are becoming unwilling to absorb more supply Timestamps 00:00:08 Why stocks, long-term yields and inflation can all rise together 00:07:18 The "script to kill inflation" and why short-term rates may not be enough 00:12:48 How policymakers have suppressed long-term interest rates 00:16:53 The Warsh "drumbeat" and a possible shift in Fed balance sheet policy 00:21:56 Why markets may be underestimating Warsh's willingness to fight inflation 00:26:27 Treasury bills versus coupons and the limits of current financing policy 00:31:33 The "hamburger thesis" behind the massive AI CapEx funding shift 00:38:41 Why AI financing may matter more than AI ROI in the short run 00:42:55 Breaking down Nvidia's $500 billion data center financing structure 00:47:51 The "not enough pie" problem for AI earnings and economic growth 00:52:03 Demographics, productivity and the limits on future GDP growth 00:56:14 What issuance prices reveal about capital market stress Learn more about the Excess Returns podcast network: https://excessreturns.co No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.

On the Latest First Principles, Andy Constan explains what the options market is signaling about the AI and semiconductor boom, why he believes earnings expectations have outrun the size of the economy, and where the next risks may emerge. We discuss speculative call buying, single-stock volatility, AI capital spending, consumer dissaving, the Fed put, Kevin Warsh's monetary policy framework, and the looming reset of US tariffs. Andy Constan on X https://x.com/dampedspring Damped Spring Advisors https://dampedspring.com Topics covered: Why parabolic moves in AI infrastructure and semiconductor stocks may reflect a speculative bubble What rising single-stock volatility and unusually low market correlations reveal beneath a calm index Why out-of-the-money calls became more expensive than puts and what that says about investor positioning How investors can hedge concentrated stock gains by selling calls and buying protective puts Why the AI bubble may be hiding in earnings expectations rather than traditional valuation multiples Andy's economic pie framework and why projected corporate profits may exceed the GDP available to support them How AI competition, open-source models, job displacement and subsidized token usage affect the return on AI investment Why capital spending and consumer dissaving are supporting economic growth, and where those drivers could weaken Whether the Federal Reserve could eventually buy equity ETFs and the inflationary consequences of a permanent Fed put How lower short-term rates and a smaller Fed balance sheet could rebalance Main Street and Wall Street Why expiring Section 122 tariffs could create a near-term shift in inflation, growth and the federal deficit Timestamps: 00:02 Why the options market is flashing a warning on AI stocks 04:02 Extreme stock dispersion beneath a calm market 08:49 The signals of a speculative call-buying frenzy 13:00 How to hedge a stock position without calling the top 18:36 Why earnings expectations may be the real AI bubble 23:00 The economic pie cannot support every company's forecasts 27:00 AI job displacement and the widening gap between winners and losers 31:59 How capital spending and consumer dissaving are sustaining growth 36:00 When the return on AI investment starts to matter 40:26 Could the Fed buy stocks in the next financial crisis? 44:53 How Kevin Warsh might respond when markets and employment collapse 48:58 Lower rates, a smaller balance sheet and wealth inequality 52:59 The tariff deadline investors may be overlooking Learn more about the Excess Returns podcast network: https://excessreturns.co No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.

In this episode of First Principles, we break down the changing structure of markets as the IPO window reopens, AI CapEx accelerates, and corporate buybacks shift toward new equity supply. We discuss what the SpaceX IPO says about capital markets, whether AI spending can create disinflationary growth, why the consumer is still holding up, and what could challenge the current market bubble. Andy Constan on Xhttps://x.com/dampedspring Damped Springhttps://dampedspring.com/ Damped Spring Substackhttps://substack.com/@dampedspring Topics covered: Why IPOs are central to the purpose of public markets How Andy evaluates whether the SpaceX IPO worked Why issuers may want IPOs to trade higher after pricing The shift from stock buybacks to new equity issuance Why AI CapEx is changing the supply and demand for shares How hyperscaler spending is being funded through cash, bonds, and stock The economic test for whether AI investment pays off Disinflationary productivity growth versus labor displacement Why the current economy is still supported by consumption The role of wealth effects and consumer dissaving Why falling oil prices may not eliminate inflation pressure What Andy is watching in Fed policy, tariffs, AI CapEx, and equity issuance How Kevin Warsh could approach rates, QT, and the Fed balance sheet Timestamps:00:00 Intro and key themes04:18 How Andy reads the SpaceX IPO08:27 Why underwriters and regulators want IPOs to work13:00 Why issuers may want IPOs to trade higher17:05 From stock buybacks to new equity supply21:06 The 600 to 700 billion dollar shift in share supply26:42 The economic test for AI tokens32:09 Can AI create disinflationary productivity growth?38:10 Is AI CapEx holding up the economy?41:00 Wealth effects, dissaving, and the consumer45:52 Oil prices, war, and inflation49:07 Jalen Brunson, incentives, and long-term value52:00 Fed policy, tariffs, and what matters this summer55:36 Kevin Warsh, QT, and the Fed balance sheet58:42 Closing thoughts

In this episode of First Principles, Andy Constan explains how investors should think about portfolio construction, risk management and alpha during a bubble regime. We discuss why bubbles create FOMO, why low volatility can make investors take the most risk at the worst time, and how long-only and active investors can prepare for the other side without trying to call the top. Andy Constan on X https://x.com/dampedspring Damped Spring https://dampedspring.com/ Main topics covered: Why bubble regimes require a different investor mindset The phases of a bubble: change, escalation, parabolic move and pop Why calling something a bubble does not mean calling the top How FOMO and buyer’s regret lead investors into major mistakes Why investors should know whether they are more vulnerable to chasing or panicking How Andy thinks about the market portfolio beyond just stocks and bonds Why stocks-only portfolios are less diversified than many investors realize How low-volatility uptrends cause investors to lever up at the wrong time Why rebalancing rules may need to change in a trending bubble market How cash, dollar-cost averaging and lump-sum investing should be evaluated through investor behavior Why many alpha strategies stop working as well in bubble regimes Why momentum can work better than mean reversion during bubbles How contagion spreads after bubbles pop and where future alpha may appear Timestamps: 00:00 Why bubble regimes feel low risk 00:59 Setting up part two on bubble positioning 02:07 The phases of a bubble 05:23 Why a bubble regime is different from a normal bull market 07:23 How investors should shift their mindset 10:29 Why knowing yourself is harder than it sounds 14:00 Can a bubble resolve without popping? 17:13 Why long-only investing should mean more than stocks 24:21 Lowering maximum exposure in a bubble regime 30:23 How 60/40 investors should think about rebalancing 33:20 Cash, lump sums and dollar-cost averaging 42:31 How active investors should adjust alpha strategies 46:16 Why mean reversion can fail in bubbles 49:41 How contagion spreads through markets 54:06 Preparing for post-bubble opportunities without calling the top

First Principles with Andy Constan launches with a deep dive into market bubbles, AI, semiconductor stocks, and the financial conditions that can turn powerful technological change into a dangerous investment regime. Andy explains how bubbles form, why they are almost impossible to time, how today’s AI boom compares to past episodes like 1987, the dot-com bubble, housing, and the bond bubble, and what investors should watch as expectations, financing, and FOMO build. Andy Constan on X https://x.com/dampedspring Damped Spring Advisors https://dampedspring.com/ Topics covered: Why bubbles are easy to identify in hindsight but nearly impossible to define in real time The difference between an expensive market and a true bubble regime How new technologies, easy money, regulation, and exogenous shocks can create bubble conditions Why AI may rhyme with the internet boom without being an exact repeat The role of ChatGPT, Microsoft’s OpenAI investment, and semiconductor earnings expectations What the 1987 crash, Japan, housing, bonds, and dot-com bubble can teach investors today Why human nature, FOMO, and “keeping up with the Joneses” make bubbles so powerful How the late-1990s Fed response to Long-Term Capital Management helped fuel the final phase of the tech bubble Why tech’s current size in the economy and market may limit how far the AI boom can grow How AI capex, hyperscaler spending, buybacks, debt issuance, and IPO supply could determine what happens next Timestamps: 00:00 Intro and the challenge of identifying bubbles 04:32 Expensive markets vs true bubble regimes 09:57 The five bubble episodes Andy compares to today 14:35 Root conditions, escalation events, and the peaking phase 19:20 Why the 1987 crash may also have been a bubble 24:25 The late-1990s setup and the Netscape Navigator moment 28:00 Crisis analogs, easy financial conditions, and today’s AI parallels 32:20 Long-Term Capital Management and rocket fuel for the tech bubble 36:11 Why tech’s market share matters more today than in the 1990s 43:18 Policy mistakes, subsidies, and how governments feed bubbles 47:42 Semiconductor earnings expectations and valuation risk 53:45 The AI capex chain and where the money has to come from 58:42 IPOs, corporate debt, and the financing risk behind the AI boom 01:02:27 What investors should do differently in a bubble regime