THE MACRO

Happy Investors 😃 📈 

The economy is changing faster than investors realize. There are deeper trends forming that’ll determine which businesses will win and lose in the next 10 years.

I love talking about the best stocks for your portfolio, and we’ll keep covering 2 growth stocks per month that you should be eyeing. But it’s also important to know what’s going on big picture. This is the first monthly Macro Investor Report for long-term investors. If you’re investing for the long term, the daily headlines feel overwhelming. But under the noise, there are AI breakthroughs, fed cuts, record debt, tariffs, inflation, etc. Let’s go through what’s shaping the landscape going into Q4 and what long-term investors should be focused on, including how you should hedge for the debt spiral.

AI: Productivity Boom, Energy Demand, Valuations, and the CapEx Supercycle

Companies are racing to use AI, and the upside is big. Morgan Stanley thinks AI could save U.S. businesses nearly a trillion dollars a year. That kind of efficiency doesn’t come without consequences, meaning some jobs will eventually be replaced. For now, most companies are retraining workers, not cutting them (though you’re seeing signs). And don’t be surprised to hear louder calls for things like universal basic income (UBI) if job losses do pile up. That’s the idea of paying everyone a set amount each month, whether they work or not. The challenge for UBI is that the U.S. is already drowning in debt. Adding a new program like UBI would mean higher taxes, more borrowing, or more money printing.

There’s another piece of the AI story that isn’t getting enough attention, and that’s energy. Training and running AI models requires enormous power and data centers are now one of the fastest-growing sources of electricity demand in the U.S. The AI boom is turning into an energy story, and that could create opportunities in natural gas, utilities, and infrastructure as demand for reliable power surges.

Market Valuations and AI’s Influence

For investors, while valuations are higher than ever with the S&P 500 trading around a forward P/E of 21, AI may still have enough to keep the market supported. The biggest tech and data-driven companies are seeing the largest productivity gains, which could lift corporate earnings even as growth slows. The conflict, though, is how the job market and consumer spending will respond. If AI-driven efficiency starts cutting into employment or wage growth, it could cool demand, creating a push & pull between higher profits and consumer momentum.

The Global CapEx Supercycle: Building AI’s Backbone

Between AI data centers, energy transition projects, and reshoring supply chains, we’re entering one of the biggest investment cycles in decades. Companies are pouring money into physical infrastructure again, which includes everything from chip plants to power grids.

Investor focus:

• Industrials and materials

• Energy and infrastructure

• Companies building the backbone of the digital economy

Winners and Losers:

• Winners: Investors, cloud providers, data infrastructure, automation platforms

• Losers: Entry-level roles, labor heavy and low-margin industries (those that can’t adopt AI)

Key takeaway: AI is reshaping industries fast, but it’s also driving massive energy needs and fueling a global CapEx boom. Focus on companies using AI efficiently and those building the infrastructure behind it.

Tariffs and Inflation

Two big events ahead:

• Supreme Court review of tariff powers in November

• Possible U.S./China tariff expiration on November 10

Why it matters:
Tariffs can raise costs for both companies and consumers. We saw a glimpse in August’s inflation numbers as prices rose almost 3% from last year. Were tariffs the reason? We’ll soon find out.

Fed’s view:
Fed Chair Jerome Powell recently noted that the cost pass-through of tariffs to consumers has been “later and less than we expected.” In other words, while tariffs have pushed prices higher, the overall inflation impact has been modest so far. That said, as global trade patterns shift and supply chains reorganize, the real effects may take time to show up.

Though tariffs may push inflation higher in the short run, the global landscape is shifting. Many nations are leaning towards more nationalistic policies, emphasizing local manufacturing and supply chain independence. This change could reshape trade over time. As AI & automation continue to advance, countries like the U.S. will be able to produce more domestically without being held back by high labor costs. That means while we might see some bumps in the near term, the long-term outcome could be stronger and more self-reliant with less dependence on low-wage competition abroad.

How tariffs hit consumers:

1. Higher import costs > higher retail prices

2. Lower purchasing power > slower spending

3. Persistent inflation risk

Key takeaway: Tariffs and higher costs are keeping inflation sticky for now, but the push toward domestic production and automation could eventually create a more balanced, sustainable global system. Meaning, tariffs may cause short-term inflation, but over time, productivity and technology could neutralize those pressures. Invest in companies with strong balance sheets and pricing power that can protect profits even as costs rise.

Rates and Housing: The Fed’s Balancing Act

The Fed just cut by a quarter point, putting the target range at 4.00% - 4.25%. It’s their first move in a while, but don’t expect a rush of cuts. Inflation is still sticky, especially in services, and the Fed doesn’t want to get ahead of itself. To make things trickier, the government shutdown is delaying key economic reports. The Fed is flying with less data, which makes their job harder.

The Fed’s also been clear about one thing: the labor market still isn’t fully balanced. Even though overall hiring has slowed, certain industries like healthcare, construction, and skilled trades are still short on workers.

Why that matters:

• Higher wages raise company costs

• Companies pass those costs to consumers

• Prices stay high while inflation takes longer to cool

  That’s one reason the Fed is cautious about cutting rates too quickly.

Mortgage snapshot:

• 30-year fixed: Low 6% range

• Housing still tight with limited supply

• Lower rates bring some relief, but no full recovery yet

Key takeaway: The Fed is easing slowly, and while rates may drift lower, housing could stay tight. Long-term investors should look for value in sectors tied to gradual rate changes, not quick turnarounds.

Debt and Capital Flows: The Long-Term Pressure Point

The U.S. is running record budget deficits while interest costs climb fast. We now pay more to service our debt than we spend on defense. That limits how much flexibility the government has and puts serious pressure on the entire system.

China’s shift:
Once a major buyer of U.S. Treasuries, China is pulling back slowly. They’re buying more gold, and likely channeling funds into local investments and strategic projects like the Belt and Road Initiative (BRI). The BRI is China’s global infrastructure and economic development project (launched in 2013) to connect Asia, Europe, and Africa through new trade routes by building roads, railways, ports, and other infrastructure. They are not panicking, it’s just a slow, steady move that means fewer big buyers for U.S. debt, which could keep long-term rates higher even if the Fed cuts.

How to Hedge the Debt Spiral

If you’re very worried about the U.S. debt problem, consider these options from safest to riskiest…

• TIPS (Treasury Inflation-Protected Securities): Adjust for inflation

• Short-term Treasuries: Keep flexibility and liquidity

• Gold: A traditional store of value during times of fiscal uncertainty

• Dividend stocks: Provide steady income and resilience

• Large Cap Growth: Only those with beautiful balance sheets

• Bitcoin: An emerging hedge for those concerned about a dollar collapse and long-term debt expansion

Key takeaway: Our Debt is the big macro challenge. As foreign demand fades, long-term rates could stay higher. Use TIPS as protection against inflation and fiscal risks while always staying liquid. Stick to financially sound businesses within stocks.

Investor Playbook: Build for Strength and Flexibility

For long-term investors, this market is about staying focused on what lasts. The mix of AI growth, high debt, and shifting global money flows means you need a steady, flexible strategy that works in different environments; growth, slowdown, or inflation.

Your roadmap:

1. Quality first: Own businesses with rising cash flow, low debt, rising margins and a durable moat. These companies can keep earnings steady even when borrowing costs rise or consumer demand sinks. Think of brands or service providers that dominate their category and don’t rely on financing to grow.

2. Inflation protection: Inflation may or may not spike, but it’s likely to stay above the old 2% norm. Own assets that protect when prices rise; TIPS, dividend growers, short-term treasuries, gold, bitcoin, and large caps with great balance sheets.

3. Stay balanced: Keep cash to give yourself optionality. Market pullbacks will come, and liquidity lets you buy great businesses when you need to most.

4. Be patient: The biggest wealth builders are not short-term trades. Owning quality through uncertainty compounds returns when others panic. Focus on your time horizon, not the noise.

Strategy framework:

· Blend defensive income (dividends, treasuries, TIPS) with growth assets (AI infrastructure, high-quality tech, Bitcoin).

· Favor strong balance sheets and cash-flow visibility over high leverage or speculative growth.

Key takeaway:  There’s definitely uncertainty ahead, but that’s also where the best opportunities show up for those willing to stay patient and think long term. Build around quality and use inflation hedges to protect your returns. The long-term winners are always those who stay calm, flexible, and focused while everyone else reacts.