Episode summary
The $700 Billion Shift | Andy Constan on What Happens When Buybacks Turn into Issuance
Excess Returns
· · Guests: Andy Constan
Summary
Andy Constan argued that IPOs are the core function of public markets because they connect capital to companies that need it, and that a successful deal is one where the issuer, underwriters, investors, and regulators all feel reasonably satisfied. He said the SpaceX IPO worked well because it priced at $135, opened at $150, and traded into the $170s, signaling strong aftermarket demand even if some buyers flipped shares for a quick profit.
He also said the market is shifting from a long period of buybacks to a period of heavy equity issuance, driven largely by AI capex. In his view, the change from shrinking share count to growing supply is a meaningful headwind for asset prices, even if it is not enough on its own to break the market. He cited new IPOs, secondary offerings, employee stock compensation, and corporate bond issuance as part of the same funding wave.
On AI, Andy said the key question is whether the spending creates disinflationary productivity growth or simply displaces labor. He thought the economy is still holding up because consumption remains strong, supported by wealth effects and asset sales, while inflation stays sticky. He said war and falling oil prices mostly change headline inflation, while core inflation remains tied to spending, policy, and the persistence of easy financial conditions.
Key takeaways
- Andy Constan said the SpaceX IPO looked successful because it cleared at $135 and traded well above that level afterward.
- He said the market is moving from buybacks to issuance, with a large shift in share supply that he sees as a medium-term headwind for stocks.
- Constan argued that AI capex must eventually generate enough productivity or revenue to justify the flood of equity and debt financing.
- He said consumer spending is still being supported by asset wealth and dissaving, even though real wage growth is weak.
- He said lower oil prices may reduce headline inflation, but core inflation will stay sticky as long as spending and easy financial conditions persist.
Notable quotes
“I think it has to be you have to look at the various interests of the various characters that are involved”
“the deal was priced at $135. It opened at 150. It traded into the 170s”
“that's a big deal. Will it cause the stock market to crash? No, not at all”
“so the share buyback not only reduces the shares held in Apple but at the macro level reduces the total number of shares available for investors to invest”
How the episode opens
That's, you know, $6700 billion of shift from share reduction to no share reduction. And so that that's a big deal. That's a question which is is the the to are the tokens going to create disinflationary productivity growth, meaning more output for the same costs.
If so, nobody loses their job and so they can buy the to they can buy the output and the output can be worth the tokens spent on it. If oil comes down that will um increase consumption on other goods which is inflationary of those goods while so core will go up relative to headline which will come down. There's no sign that the bubble is about to pop.
So consumer deaving still has room to go. Now the thing is desaving can only go so far. Welcome back to another first principles episode with Andy Consten.
You can learn more about Andy and his research on his Dampspring Substack and also on his personal or the company's website dampspring.com. Today, Andy, we're going to work through a wide variety of of topics with you, including the recent wave of um IPOs or at least the SpaceX IPO and the future IPOs that are in the pipeline and sort of how investors should be thinking about that and how you think about it. Uh I think we'll get into AI and its impact on growth in corporate earnings and then just generally kind of wrap up with your some of your thoughts on sort of the current macro backdrop and how you're viewing these major asset classes today.
Um, one of the interesting pieces that you wrote recently was this piece on IPOs where you were kind of making the point or the argument that in the IPO machine, you know, you were sort of, I guess a little bit tongue-in-cheek, but maybe not, saying, you know, every everybody lies.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ipo window
- ai capex
- buybacks to issuance
- fed policy
- consumer holding up
Companies and tickers mentioned
- SpaceX
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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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