The AI Trade, the Fed and the Next Phase of the Bull Market | Warren Pies

**SPEAKER_1** (0:01)
This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus.
I'm Arch Manning.

**SPEAKER_2** (0:27)
I'm Madison Skinner. I'm Eva Jovich. I'm De'Coria Moore.

**Matt** (0:30)
Want to train like a Red Bull athlete?

**SPEAKER_2** (0:31)
Tell us your fitness goals this summer to enter the Red Bull Athlete Challenge. You'll get to try each of our workouts for a chance to win an ultimate Red Bull experience.

**SPEAKER_4** (0:39)
Think you have what it takes?

**Matt** (0:44)
You're watching Excess Returns, a channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. Most people talk about markets and think, it's all war and peace. But I, my dear Excess Returns watchers, know when you talk macro, it's really all war and pies.
How are you doing, Warren? What's good? Welcome to the show.

**Warren Pies** (1:04)
I appreciate that intro. Thank you, Matt.

**Matt** (1:06)
The Leo Tolstoy of Twitter threads and LinkedIn posts with some of this stuff. You're killing me with the content. It's great.

**Warren Pies** (1:12)
I'll take it. Every beer market is an allegory or whatever.

**Matt** (1:20)
Yeah, you got it. You got it. Right up there with the family quotes. See, you're well-versed. I know you're well-read. Speaking of well-read though, I'm starting with Fernando. Fernando is not here with us, but is in spirit always. He said that being invested in the market right now means constantly fighting against a deluge of bearish arguments about AI.
It feels like everything because when you sort through it, which of the bearish AI arguments do you think actually have any teeth?

**Warren Pies** (1:46)
Yeah. I think that's when you zoom way out, that's kind of markets in general, right? It's just you're always assessing risks and that's how we're wired. Anything that's new or novel is going to be especially fertile ground for concerns to crop up and for bear market stories and risks to crop up. Our job is whatever it is, AI, whatever is to, as researchers, is to test the theories as they come and try to be objective and level headed about it. That's what we do often with AI. I'm fortunate to work with Fernando, like you said. He has a background in machine learning and so this is not something that's like he had to pick up on the fly. It's an area of the world he's been involved in for over a decade.
His massively fortuitous for me because I'm just like a dumb macro guy with a background in energy. I'm just trying to pick this up on the fly. I can understand why there's so many generalists who are skeptical and worried about this build out. It's turned them off and it's made them just nervous and probably caused a lot of frustration because in order to, I mean, tech is now what, 50% of the market in order to outperform. If tech's outperforming and you already feel like tech's a big overweight, you have to be even more overweight to outperform. And so it's been a really tough market I've seen from a behavioral standpoint over the last couple years. So yeah, that's a totally the right description. I think that came from Fernando. I do think that there's always worries. I'm wired to be worried. I'm always peppering Fernando as our dynamic. He's more of an optimist, a techno optimist, and I'm more of, like I said, a traditional macro worrier. And I'm always peppering him with questions and saying, you know, like, what about this? And what about this? And what about this? And sometimes things land and sometimes they don't. But I think that right now, we're in this middle, in the midst of really thinking through what I would say is the open source panic. We really wanted to get to the bottom of that. Some of the charts that we've seen floating around within more traditional macro.
Our read on that, and we can talk about it, is that that's not really something to worry about. That's not an existential threat at this moment in time. The data and analytics that people are pulling from really, when you dig into them, aren't too worrisome. And so, that's not a worry. I think if you ask me, the biggest concern is regulatory. What happens? I do think that the messaging around data centers, you could call it the horseshoe effect, you could call it whatever you want. You're seeing both the left and the right start to say, why are we building data centers? And I mean, I'm somewhat sympathetic to that. My son actually asked me that this weekend. He's 15 and he was like, Dad, do you think we should be building data centers? So, I mean, this is becoming an issue. It's becoming something people are really talking about.