100% Out of US Stocks | Andy Constan on AI, War Risk and the Shift Abroad

Episode Summary

Executive Summary: Andy frames investing as a critical-thinking exercise: ignore noisy, biased “experts,” focus on probabilities and observable market reactions. He is largely neutral on the Middle East war’s near-term macro impact, but sees AI as a bigger market issue because promised capex and spending must be financed, potentially squeezing returns and credit. He remains constructive on non-U.S. markets and skeptical of gimmicky fiscal policies.

Main Topics: Framework for interpreting geopolitical shocks (Priority: 5/5): Andy argues investors should filter information by expertise, bias, and confidence level, and think in terms of possibilities rather than false precision about probabilities. Middle East conflict and market implications (Priority: 5/5): He views the Iran/Israel conflict as uncertain but likely not a major direct hit to the U.S. economy unless casualties, escalation, or regime changes alter the path. AI as a share and financing problem (Priority: 5/5): Andy says AI may lift GDP, but the key investment issue is who captures the gains and whether markets have overallocated valuation to too many winners. Capital flows, capex, and funding pressure (Priority: 5/5): He stresses that huge AI, factory, and deficit promises require financing through equity and debt, which could pressure spreads and asset prices as issuance hits markets. Macro backdrop: growth, inflation, and liquidity (Priority: 4/5): He thinks growth has held up better than expected due to fiscal stimulus, easier Fed policy, and resilient consumption, while inflation remains sticky. Shift away from U.S. assets toward international markets (Priority: 4/5): Andy explains moving out of U.S. stocks because European and Japanese bonds became investable again, improving portfolio balance and making non-U.S. assets more attractive. Skepticism toward Trump accounts (Priority: 3/5): He dismisses the newborn investment accounts as too small to matter macroeconomically and views them as a gimmick funded by added debt.

Key Arguments: Critical thinking matters more than confidence: investors should weigh source credibility, bias, and humility rather than follow loud geopolitical commentary. Experiential learning can mislead because past success may reflect luck or different conditions; low-confidence experts and strong thinkers are more valuable. The Middle East conflict is a process with multiple branching outcomes; markets should be judged by de-escalation timing, casualties, regime stability, and retaliation risk. War headlines have not yet produced a major dislocation across asset classes, so he is mostly sitting tight and not changing positioning. Historical war data is often too small a sample to be very useful for macro decisions; broad market history mostly confirms that owning diversified assets is beneficial. AI may create productivity growth, but the bigger immediate issue is distribution: tech valuations assume too much share capture relative to the size of the GDP pie. AI-related spending, deficits, and industrial policy require financing; issuance and capital market absorption are central risks, not just the technology itself. He sees current economic growth as supported by fiscal stimulus, tax changes, easier monetary policy, and elevated consumption, with inflation still sticky. He is more favorable on international equities and bonds because Europe and Japan now offer balanced portfolio exposure and diversification that was previously absent. Trump accounts may help financial literacy, but the fiscal cost is trivial in impact yet still funded by debt, making the policy more symbolic than substantive.

Data Points: War horizon: 1 week - Andy framed his geopolitical framework over a one-week window to assess de-escalation paths and market reaction. Oil move: about +$15, at one point +$20 from the low $56 area - He cited the crude oil response to the conflict and noted the move had partially retraced from around $75 to $71. Initial oil low: $56 - Referenced as the low level from a few weeks earlier before the geopolitical shock. Fed funds rate: 3.63% - He cited the policy rate as not very steep relative to growth expectations. 10-year Treasury yield: about 4.0% - Used to illustrate that bond markets are not fully pricing the stronger growth/inflation backdrop he sees. U.S. inflation / GDP growth assumption: 1% productivity boom - Used as a simple example to discuss who captures the gains from AI-driven productivity. GDP example: $300 billion - He translated 1% of a $30 trillion GDP into roughly $300 billion of incremental output. Children born per year: 3.5 million - He used U.S. births per year to estimate the cost of Trump accounts. Trump administration births estimate: 10–12 million - Approximate number of newborn beneficiaries over the administration. Trump account program cost: $12 billion - His estimate of the fiscal cost of giving $1,000 to roughly 12 million children. Fiscal deficit level: 6% - He said the deficit continues to run around 6%, adding to financing needs. Oracle issuance: $26 billion - Example of large corporate issuance tied to AI/capex spending. Oracle spread widening: 100 basis points - He noted Oracle’s credit spreads widened sharply after issuance. Oracle follow-on equity: $25 billion - He said Oracle had to do a large equity issuance after spread pressure. Broad ex-U.S. equity performance: 4% in local terms, ~30% in USD - He cited strong non-U.S. performance relative to U.S. equities. S&P 500 performance: 20% - Used for comparison with ex-U.S. equity returns. AI/CapEx buildout timing: 2026 - He expects some of the biggest IPOs and financing events to occur over the next 20 months or so, especially in 2026.

Pivotal Quotes: "By far, that's the most important thing to me." — Andy: He identifies the financing of large promised spending as the single biggest investment issue he is tracking. "There's just not enough GDP to support, even if they take share and GDP grows, there's just not enough support for all of the tech companies that are priced the way they are to all win." — Andy: His core bearish-AI-equities argument: valuation assumptions exceed likely economic pie growth. "I started lightening up in January and just have continued to lighten up until now I'm fully out of the U.S." — Andy: He explains his full rotation away from U.S. assets into international markets.

Implications: Listeners should focus less on headlines and more on funding, valuation, and capital-market absorption. The biggest risks are AI-capex bubbles, excessive debt issuance, and overconfidence in forecasts; diversification outside the U.S. looks increasingly attractive.