RenMac Off-Script: There Is An Alternative

PodcastRenMac Off-ScriptJeff deGraafSep 18

The discussion weighs geopolitical developments, trade, and policy uncertainty alongside the potential costs and local constraints of expanding AI data centers. The speakers see accommodative financial conditions and fading household tailwinds as risks to the current pace of consumption, despite a strong latest retail sales reading. In markets, they focus on high real rates, tight credit spreads, and uneven leadership, while expecting rate increases to favor defensives over cyclicals and viewing TIPS as a possible hedge against persistent inflation.

Geopolitical Risk Trade Policy AI Infrastructure Consumer Spending Interest Rates Inflation

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Key Takeaways

The speaker expects possible tariff reductions covering $30 billion of goods on each side, likely in nonsensitive areas, while also saying farmers have been burdened by tariffs and other events and that a large announcement could be aimed at winning them back.

AI data center development is facing both higher local cost demands and siting constraints: companies may have to absorb more of the costs, potentially raising capital expenditures or delaying projects, while access to power and a favorable local political and regulatory environment remain important. The guest says general opposition can shift to majority support when a $10,000 rebate is offered or money goes toward schools.

The speakers argue that financial conditions remain accommodative and that inflation cannot reach target without something giving, while the Fed chair explained the rationale for hikes without clearly identifying what would end them.

The speakers expect consumer spending to slow as elevated household costs and fading tax-refund support meet depleted savings, cautious borrowing, and sluggish real income growth. Although the latest retail sales report was strong, the speaker says the three-month picture is weaker and estimates real consumption growth at about 2%, perhaps a little higher.

GEO-POLITICS

Iran War And Gulf Talks — The speaker says relief from the Iran war could influence how the Fed and others proceed. Trump’s expected meeting with Gulf leaders on the sidelines of the UN General Assembly has raised expectations for a postwar plan.

“So, you know, we see some relief there on the Iran war that could obviously influence how the Fed and others, I think, proceed.”—

Tariff Reductions — The speaker expects possible trade progress, including tariff reductions on $30 billion of goods on each side, probably in nonsensitive areas.

“Another key is gonna be trade…”—

Chip Export Controls — The speaker is skeptical that the U.S.-China meeting will yield much beyond a broad commitment to continue dialogue. They do not expect the U.S. to relax export controls on sophisticated chips.

“I'm skeptical just given the mutual suspicions that we're gonna see much maybe behind just some broad sort of statement commitment to continue dialogue, durable dialogue in this area, But…”—

TECHNOLOGY

Data Center Support — The guest says a majority oppose data centers when asked about them generally, but a $10,000 rebate shifts the response so that a majority supports them. The guest also cites support when money goes toward building schools.

“When you ask people if you oppose data centers, majority are saying yes.”—

ECONOMY

Fed Accommodation — The speakers argue that financial conditions remain very accommodative. Describing Fed policy as removing accommodation suggests it is not yet restrictive; in their view, getting inflation to target will require something to give.

“In order to get inflation to target, it's going to require something to give. And, you know, talked a lot about how financial market conditions are very accommodative…”—

Fed Tightening Off-Ramp — The speaker says the Fed chair explained why the Fed hiked but did not clearly explain what would bring the hikes to an end.

“I mean, there was a shout out for commodity prices in his press conference…”—

Consumer Spending Headwinds — The speakers expect consumer spending to slow as higher food, energy, mortgage, and private-sector borrowing costs weigh on households and the tax-refund tailwind fades. They cite dwindling savings, reluctance to use credit, sluggish real income growth, and limited room for the savings rate to fall. Without a major job-market turnaround, they find the current pace difficult to sustain.

“And, know, I mean, that being said, you kind of have to stick to first principles, right?…”—

MARKETS

Market Reversal — Markets initially took the summary of economic projections in stride: stocks held their gains and yields were largely unchanged. The reaction turned negative after the Fed chair began speaking.

“And I just think you kind of look at the day and how it unfolded, right? The initial summary of economic projections and the and the…”—

Tech Momentum Divergence — The speaker says the tech momentum trade will take time to unwind and is watching for relative-strength breakouts to identify individual names that remain leaders. They expect performance to be episodic across individual stocks rather than uniform across the trade.

“But the big issue for me is within tech, which let's call it momentum, that trade just takes time to unwind and kind of right side itself…”—

EM Strength Caveats — The speaker says emerging and frontier markets look to be in a pretty good place, but cautions that dollarization and rising rates can pressure emerging markets. Strength in South Korea and Taiwan has reflected semiconductor names, they say, not necessarily broad-based EM strength; they warn against painting EM with too broad a brush.

“I know this is a more general question. But the EM and the frontier countries still look to be in a pretty good place…”—

FORECASTS

Defensives Versus Cyclicals — The speaker says they would expect Fed rate increases to shift performance toward defensive sectors and away from cyclical ones. Whether industrials can rally through overbought conditions will be an important tell during the tightening cycle.

“With the Fed raising rates, we would expect more of a move towards the defensives away from the cyclicality…”—

Fed Hike And Warsh

The hosts debate whether Warsh is leading the Fed toward further hikes or being pulled along, and Neil argues the hawkish turn contradicts expectations for rate cuts.

Further Fed Tightening

Neil sees additional rate increases as a reasonable baseline, arguing that financial conditions remain accommodative and returning inflation to target will require slowing the economy.

Iran And Xi Summit

The panel weighs how Iran developments and an upcoming Trump–Xi meeting could affect markets, focusing on oil, Taiwan, trade concessions, technology controls, and agricultural purchases.

China Trade And Midterms

The speakers expect limited progress on sensitive US–China issues but discuss possible tariff reductions and farm purchases, linking economic pressures on farmers to close midterm races.

Data Center Power Costs

Client concerns center on data centers, with local opposition and ratepayer protections pushing developers to shoulder more costs and making access to power and permitting increasingly important.

Crypto Clarity Act

The speakers say the Clarity Act is effectively stalled, leaving regulators to advance tokenized securities and other changes that could be reversed by a future administration.

Tech Leadership And Consumers

Jeff favors judging technology stocks by relative strength rather than broad momentum labels, while Neil expects consumer spending to slow as household cost pressures build.

Emerging Markets Outlook

Jeff cautions against treating emerging markets as one group but sees opportunities in parts of Latin America; Neil prefers emerging Asia to Europe, citing room for rate cuts and regional strengths.

Fed Watch And Market Rotation

Neil will watch Fed speakers and upcoming data, while Jeff tracks market breadth and expects rate hikes to favor defensives over cyclicals.

Real Rates And TIPS

The panel sees high real yields as creating an alternative to equities, with Jeff favoring TIPS as a hedge against persistent inflation and noting that tight credit spreads leave risks uneven.

Tight Spreads And Risk

The speakers distinguish strong real yields from still-accommodative financial conditions, arguing that tight credit spreads offer little compensation as the Fed tightens; they then close with informal banter.