Episode summary
Rates Keep Climbing. Stocks Refuse to Break. What If They're Saying the Same Thing?
Excess Returns
· · 31 min · Hosts: Jack Forehand, Matt Zeigler · Guests: Andy Constan, Liz Ann Sonders, Bob Robotti
Summary
The hosts use three recent interviews to argue that rising long-term rates and a strong stock market can be internally consistent when growth, productivity, and heavy issuance are pushing real yields higher. The guest argues that the bond market is reacting less to lost credibility and more to a mix of hot real growth, persistent Treasury supply, and a flood of corporate financing tied to AI and data-center buildout. In that framing, higher rates are not automatically bearish for stocks if they are not restrictive and the economy is still expanding.
Another thread is that the post-pandemic economy no longer behaves like a single synchronized cycle. The guest says the U.S. has seen rolling sector recessions, with manufacturing, services, and other parts of the economy taking turns weakening or improving. That helps explain how investors can feel pessimistic about wages, unemployment, and the broader economy while still expecting stocks to rise.
The discussion also leans into the labor-versus-capital shift. The guest says labor compensation has fallen from about 65% of GDP in the 1970s to roughly 54% or 55%, while corporate profits have risen to around 11% to 12% of GDP. Finally, the guest argues the AI trade may create its biggest opportunities not just in software, but in the physical economy: energy, natural gas, copper, aluminum, cement, and other underinvested inputs.
Key takeaways
- The guest says higher long-term rates can coexist with a strong equity market when rates are rising because of real growth, not just inflation shock.
- The guest argues Treasury supply and corporate issuance are adding a risk premium that pushes long yields higher without implying a market breakdown.
- The guest says the post-pandemic economy is best understood as a series of rolling sector recessions rather than one clean business cycle.
- The guest says labor compensation has fallen to about 54% to 55% of GDP while corporate profits have risen to roughly 11% to 12%.
- The guest argues the AI buildout may ultimately favor energy, materials, and industrial inputs such as natural gas, copper, aluminum, and cement.
- The guest says a true long-end yield spiral would likely require an inflation shock far beyond what they currently expect.
Notable quotes
“The markets are basically acting internally consistent at this stage”
“Real growth is by its very nature pushes interest rates up because people prefer to build a d spend their cash to build a data center that has great potential for earnings than buy bonds”
“we can't think of this cycle in linear terms”
How the episode opens
Welcome to the XS Returns weekly rap. Uh, live from vacation. I am Jack Forehand, joined as always by Matt Ziggler. Matt, what's going on? — Nothing says live from vacation like I'm recording a podcast. — Well, I figured the the backdrop, which I you're going to comment on at some point, so we might as well get out of the way. Um, with these these these nice photos I have behind me um would probably give it away.
They are. This is a lovely representation of nature and natural natural art. I assume they're from — Coral. It's kind of good fit for like I'm I'm like a beach location so the coral it all it all fits in.
This fits. Joseph Mora, I'm coming for you. We're going to critique Jack's wall art together and find out what vintage of reefs and sea anemy and other structures are behind him. — Yeah, I mean I barely got dried off. My kids were like splashing me like about five minutes ago. So I'm like, "Oh crap, I got to get up here and film on that."
Um, — No live from the pool. The uh the Jack Forehand. It's like the MTV beach house, but it's the Jack Forehand beach house. If it would get the views, Matt, I would do it as you know. Um, anything for the views, but uh, but I don't think that would get the views, nor would the people at the pool were probably wondering what's going on here with this guy. So, I know you're probably
I want the meta joke of basically for the for the two people who understand the reference of the time that Radio Head played at the MTV beach house and you had, you know, pasty guy in his striped shirt sitting next to the pool.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- rates and stocks coexisting
- rolling recessions
- labor versus capital shift
- ai commodity and energy beneficiaries
- long-end treasury yield control
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Excess Returns, this episode and its artwork belong to Excess Returns. Octagon is not affiliated with the show; this page is an independent summary.
