Episode summary
How Strong Is the US Economy? Where This Expansion Ranks Since 1854
Summary
The host argues that the U.S. economy is stronger than many investors realize, pointing to 78 consecutive months of expansion, a sixth-longest business cycle since 1854, and an S&P 500 that has held near highs despite rising interest rates. He says earnings have remained very strong, so market pullbacks have been brief and quickly absorbed.
He also links higher interest rates to more than inflation. In his view, AI companies are creating huge demand for debt because firms like Google and Microsoft would rather borrow than issue stock and dilute future earnings, especially when they are seeing returns on AI investment in under two years. He uses that to argue that debt financing can make sense when projects have fast paybacks.
At the same time, he warns that the expansion has come with risks. He notes that the prior no-recession stretch from 2009 to 2020 lasted 128 months and was supported by heavy government intervention, and he says the U.S. debt-to-GDP ratio has doubled since 2015 to 100%. The broader question, he says, is how much long-term growth the AI boom can really add relative to the debt it is helping justify.
Key takeaways
- The host says the U.S. has had 78 consecutive months of expansion, making this one of the longest business cycles since 1854.
- He argues the S&P 500 has held up because earnings have been very, very, very strong despite higher rates.
- He says AI-related debt demand is helping push rates higher because companies prefer borrowing over equity dilution.
- He argues that if AI projects can earn back $1 billion within 24 months, debt can be a rational funding choice.
- The host warns the expansion carries risks because U.S. debt-to-GDP has doubled since 2015, from 50% to 100%.
Notable quotes
“the S&P 500 has not really sold off because of that”
“Earnings have been very, very, very strong”
“It's inflation, but it's also massive demand for debt from these AI companies and and and this build-out”
“if you know, if you're seeing that you could spend a billion dollars, for example, and get a return on that within 24 months”
“there are some interesting data out here, you know, that I wanted to share with you”
How the episode opens
Good morning. This is Dylan Jovany with Behind the Markets. Happy Thursday.
Today is Thursday, October 8th. I am grateful to be here. As you've noticed, I've been wearing this hat every single day since I came back, showing you how happy I am to be back in the good old USA.
Anyway, today I'd like to talk about the economy. You know, I was talking to my kids the other day about, you know, really how strong this economy is. And there are some interesting data out here, you know, that I wanted to share with you.
And really, if you look at it, it's really amazing cuz the S&P 500, we've seen interest rates go up, but the S&P 500 has not really sold off because of that. What we're seeing instead is that it sells off a little bit and fills in. There's a lot of support around close to the highs here because of earnings, as we've talked about here.
Earnings have been very, very, very strong. And a lot of the reason or a lot of the cause of the rise in the interest rates are not just inflation. It's inflation, but it's also massive demand for debt from these AI companies and and and this build-out.
I mean, these guys are they don't want to sell equity. They don't want to sell stock of their company. If you're Google, you don't want to sell any more than you have to dilute future earnings for partners like us who are shareholders.
You want to raise money via debt, especially when you look at Google and Microsoft who are getting a return on their AI investment in under two years on the corporate side, this build-out side. So, you're seeing massive ROI. Now, as a business person yourself, if you know, if you're seeing that you could spend a billion dollars, for example, and get a return on that within 24 months, you're definitely going to want to raise get borrow the money instead of sell equity cuz if you sell equity, you dilute your earnings forever.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- us economic expansion length
- interest rates
- ai-driven corporate debt
- s&p 500 performance
- debt to gdp and recession risk
Companies and tickers mentioned
- GOOG
- GOOGL
- MSFT
- Microsoft
Watch the episode
Watch “How Strong Is the US Economy? Where This Expansion Ranks Since 1854” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Behind The Markets Podcast
-
Nvidia CEO Out: 4 Reasons I’m Not Panicking About Nvidia -
The Mag 7 Sell-Off: My 3 Secrets to Picking Stocks -
Morgan Stanley’s AI Winners List Is Full of Bank Stocks -
Anthropic IPO: Why I’m Not Rushing to Buy at $1 Trillion -
Chip Stocks Sell-Off: Why the AI Build-Out Just Went From 3 to 5 Years -
Midterm Election Results: The Stock Market’s Winners and Losers
Behind The Markets Podcast, this episode and its artwork belong to their owners. Octagon is not affiliated with the show; this page is an independent summary.
