Episode summary
Dylan Jovine | PPI Shock Could End the AI Bull Market
Summary
Dylan Jovine argues that last week materially worsened the market’s risk outlook because the Producer Price Index jumped to 6%, the biggest increase since 2022, and bond yields moved to levels not seen since 2007. He says that higher wholesale inflation is likely to feed through to retailers and consumers, keeping prices elevated and making it harder for the Fed to ease policy.
He links that inflation pressure to higher borrowing costs, weaker consumer spending, and lower profits for the largest AI spenders. In his view, if the Magnificent 7 companies such as Amazon, Meta, and Google face slower advertising and commerce demand, their trillion-dollar AI infrastructure buildout could slow or stop, which would threaten the AI bull market.
Jovine also raises his probability estimate for a sell-off or recession from about 25% to 30% to 35%. He compares the current setup with the inflation cycles of the 1970s, arguing that government fiscal spending may relieve pain in the short run while reinforcing inflation over time. Based on that shift in risk, he says he will close some positions, sell some holdings, and take profits.
Key takeaways
- Dylan Jovine says the PPI jumped to 6%, which he sees as a clear increase in inflation risk and a direct challenge to the bull case.
- Jovine says the Treasury had to pay 5.046% on 30-year bonds, the highest level since 2007, signaling tighter financial conditions.
- Jovine argues that higher rates will hit consumers first and could reduce advertising and commerce revenue for the Magnificent 7.
- Jovine warns that if the Mag 7 slows its trillion-dollar AI spending, the AI bull market could be over.
- Jovine raises his estimate of a sell-off or recession to 30% to 35% and says he will trim positions and take profits.
Notable quotes
“the producer price index jumped to 6% last week, which is the biggest increase since 2022”
“the risk danger or sell-off or whatever has gone higher, full stop”
“That means it raises the risks that the Fed raises rates, okay? Period”
“The Mag 7 stops spending a trillion dollars on this build out, the bull market is over”
“What does that mean for us? We will be closing out some positions, selling some things, taking some profits”
How the episode opens
Good morning. This is Don and I are behind the markets. Happy Monday.
Today is Monday, May the 18th. I talked on Friday about how last week was a week where risks have gone higher. I was talking this weekend with friends of mine and we were just discussing and we discussed in CPI numbers, inflation.
Uh we discussed the China trip, the warning President Xi Jinping gave Trump. And of course, we have to discuss the PPI number, wholesale inflation, the producer price index jumped to 6% last week, which is the biggest increase since 2022. Now, I don't want to be the guy the worry wart, the sky is falling, Chicken Little, sky is falling is the sky.
But, we are betting we bet on statistics. We look at patterns and we bet on statistics and right now, the risk danger or sell-off or whatever has gone higher, full stop. Now, why does, you know, friends of mine asked me this weekend, does the PPI change the bull argument?
And the answer is yes, solidly. It raises risks. It raises inflation.
Okay, cuz producers buy things and if they're paying more for the things they're buying, they're going to push it out to other people and sell them directly, retail as let's say. And the retailers they'll charge the retailers more, for example, and retailers will charge consumers more. So, proof of that has already happened.
The Treasury Department, in anticipation of higher prices, the Treasury Department issued 25 billion dollars of new 30-year bonds at 5.046%. That's what they had to pay. Now, this is the highest level since 2007.
Okay? Since 2007. Think about that, okay?
We haven't been this high on the 30-year since 2007. And remember, in Midnight in America, I talked about one of the big five, debt.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ppi shock
- inflation outlook
- bond yields
- fed policy
- ai infrastructure capex
Companies and tickers mentioned
- AMZN
- META
- GOOGL
- GOOG
- Amazon
- Meta
Watch the episode
Watch “Dylan Jovine | PPI Shock Could End the AI Bull Market” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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