Intro

In this episode of Excess Returns, we welcome back Andy Constan of Damped Spring Advisors for a wide-ranging discussion on geopolitical risk, AI and productivity, capital flows, credit markets, fiscal policy, and the shift from US to international equities. Andy walks through the framework he uses to evaluate uncertainty, from wars and geopolitical shocks to the long-term implications of artificial intelligence, and explains why capital markets and funding conditions may matter more than bold narratives. We also explore growth, inflation, Fed policy, and the structural case for global diversification in today’s macro environment.

Main topics covered

• A practical framework for analyzing geopolitical shocks, including red flags, green flags, and how to evaluate information quality during times of uncertainty

• How markets are pricing the current conflict with Iran across oil, equities, bonds, gold, and volatility

• Why historical market performance after wars may offer limited predictive value due to small sample sizes

• How to think about AI from a macro perspective, including GDP growth versus GDP share and who ultimately captures the gains

• The capital markets implications of massive AI-related capex and whether equity and credit markets can fund current spending plans

• Growth, inflation, and the Fed: how fiscal stimulus, wealth effects, QT, and labor market trends are shaping the current macro backdrop

• Why Andy has shifted away from US assets toward international markets, including the role of bond yields and global risk parity

• A critical look at the Trump accounts proposal and the broader issue of fiscal deficits and capital allocation

• The key risks Andy is watching over the next three to six months, especially around credit markets and funding conditions

Timestamps

00:00 Introduction and overview of discussion topics
01:01 Framework for evaluating geopolitical shocks and information quality
11:46 Market reaction to the Iran conflict and asset pricing implications
23:00 Why historical war data may not be reliable for market forecasting
27:03 How to analyze AI’s impact on productivity and economic growth
37:00 AI capex, credit markets, and funding risks
42:24 Growth, inflation, and Fed policy in the current cycle
49:20 The case for international equities over US markets
56:20 Trump accounts, fiscal policy, and capital allocation
01:02:23 What Andy is watching most closely in the months ahead