Michael Hartnett: I coined “Mag7” - Here’s What Ends Their Run

Michael Hartnett (0:00)

Part of the reason to say they're magnificent is because they made magnificence amounts of cash and didn't spend any of it.

That's why they were magnificent.

Now, they're spending a trillion plus a year on AI capex and their negative cash flow to the tune of 200 billion. So they have to be subservient to the bond market. If the bond market pushes up yields or spreads too much, you're not going to get the spending. You know, if you look at what happened with the railroads, you know, what kind of ended it was social upheaval. A kind of a social upheaval that can happen when an industrial revolution creates enormous inequality and a lot of work is striped. And that's why, you know, these midterms look quite fascinating in terms of how people will vote. But the other thing that pops bubbles and booms and bulls is bonds. That's what we've been talking about. And so we're still waiting for that level to do that. I feel that the market in its entirety is not yet convinced that you're at this major secular inflection point. You were in equities in 2008 And as you say, you were in 2016 when we had Brexit, Trump in terms of commodities. Those were regime changing years. But people don't yet think that 2026 is going to be a regime changing year for bonds. The question is, is it going to be for AI?

Wilfred Frost (1:31)

Welcome to The Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you, our listeners, an edge. The Master Investor Podcast is sponsored by LSEG, Interactive Brokers, The World Gold Council, and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show notes.

My guest today is Michael Hartnett, the famed Chief Investment Strategist of Bank of America Global Research, who has always immaculately researched and focused on the facts, but yet still manages to make very bold contrarian predictions. It is also very rare to have him on an extended podcast. Michael, welcome to The Master Investor Podcast and thanks so much for joining us.

Michael Hartnett (2:33)

Thanks very much for having me, Wilf. Pleasure to be here.

Wilfred Frost (2:35)

Great to be with you here in London, two Brits that have spent lots of time in New York but connecting here. I also failed to say in the intro, you coined the phrase Magnificent 7

Michael Hartnett (2:48)

I did, I did purely by luck than judgment.

Wilfred Frost (2:51)

I always thought that was a Jim Cramer coinage and in my research for this have corrected myself.

Michael Hartnett (2:57)

Yeah, he actually once come up to me and congratulated me on that.

Wilfred Frost (3:02)

Because he'd done Fang, which was a short-lived predecessor and yours has lasted much longer.

Michael Hartnett (3:09)

Yeah, it seems to have.

Remember with the Magnificent 7, only two of them were alive at the end. So we'll see where that pans out.

Wilfred Frost (3:18)

I was going to say, as part of this conversation, maybe we will explore as to whether it will be still the key moniker for the next five years or not. And we can unpack that.

But to start with, if we could just set the scene of sort of, not all of time, but of this decade that we're halfway through so far. And you've written about this over a period of time, but this decade you think has very much been shaped by the response to COVID.

Michael Hartnett (3:47)

Yes. I mean, I think this is a decade of extraordinary change. Certainly, you know, comparable, I would say, the only recent comparison is probably the 1980s, you know, in that you have big things happening, you know, and big things changing. So we've gone from a world of globalization to de-globalization. We've gone from a world of monetary excess to fiscal excess. We've gone from peace to war, elitism in terms of our politics, to populism. So there's a lot of sort of new stuff that, you know, the market and the economy has had to, you know, digest. And I think that all of those things, you know, have created a backdrop for financial markets of an economy that is booming in nominal terms. I mean, the US in particular, I mean, the US is a massive economy, yeah? And yet, that massive economy has grown, I kid you not, 66% in six years. I mean, the US has added three United Kingdoms in terms of GDP in the past six years. And again, it's driven by the fiscal excess and wealth.