Small Cap Season | Jack & Max on Fed Independence, Acuren, Franco Nevada, MSCI, and More

Episode Summary

Executive Summary: The episode centers on fears that Fed independence is under pressure from Trump-era political interference, while the latest Fed meeting delivered dovish policy guidance despite mixed macro signals. The hosts then pivot to market implications—especially small caps, AI/data-center beneficiaries, gold royalty firms, and controversial growth names—arguing that independent research and careful stock selection matter more than ever.

Main Topics: Fed independence under political pressure (Priority: 5/5): The hosts argue the Fed is facing its greatest independence risk in decades due to direct political pressure from President Trump, the Mirren appointment/dissent, and attempts to remove Governor Lisa Cook. September FOMC, dissent, and rate-cut path (Priority: 5/5): They discuss Steve Mirren’s early dissent for a 50 bps cut, the shift in Waller/Bowman toward consensus, and what the latest SEP and Powell’s remarks imply for future easing. Dovish policy vs hawkish economic projections (Priority: 4/5): The statement and dot plot were described as dovish, but GDP, unemployment, and inflation projections implied rates should arguably be higher—showing a tension inside the Fed’s framework. Labor market deterioration and revisions (Priority: 4/5): A major concern is weakening payroll data, especially huge downward revisions in May and June, even though unemployment remains relatively stable because it is based on a different survey and is not revised the same way. Small-cap rotation and rate sensitivity (Priority: 4/5): The speakers frame the recent rally in small caps as a classic beneficiary of falling rates, while warning that many Russell 2000 constituents are low-quality or unprofitable and require deep research. Stock-picking themes: AI/data centers, royalties, and battleground shorts (Priority: 3/5): They highlight several names—Acuren/TIC, MSCI, Franco-Nevada, Nebius, FTAI, CoreWeave—as examples of how thematic research, alternative data, and controversy can drive opportunity.

Key Arguments: Fed independence is at greatest risk in the hosts’ lifetimes because the White House is openly trying to influence rates and personnel. Steve Mirren’s dissent for a larger cut is less important than the broader Trump-vs-Fed struggle over monetary control. The allegations against Lisa Cook resemble politically motivated tactics used against Trump in New York, and should not be used to justify personnel removals. The latest Fed statement and dots are clearly dovish, but the SEP’s GDP, unemployment, and inflation forecasts are comparatively hawkish, suggesting internal inconsistency. The labor market looks weaker than headline unemployment suggests because payroll revisions have been sharply negative. Lower interest rates should help small caps more than mega-cap growth stocks on a business basis, though valuation effects still matter broadly. Independent research providers and thematic analysts are increasingly moving markets, reducing the influence of traditional sell-side upgrades/downgrades. AI and data-center capex remain a major positive growth engine, while the broader economy may be more fragile if that spending slows. Gold royalty firms offer bond-like economics with high margins and long-duration assets, making them attractive in a gold bull market. Battleground shorts and complex accounting stories (FTAI, CoreWeave) show why investors need to verify narratives with fundamentals and alternative research.

Data Points: Fed rate move at meeting: 25 bps cut - Market pricing and eventual Fed action for the meeting discussed Mirren dissent preference: 50 bps cut - Steve Mirren dissented in favor of a larger cut Waller/Bowman prior dissent: 25 bps cut - They dissented at the prior meeting but aligned with consensus this time Waller betting-market probability: 22% - Cauchy market odds for next Fed chair, up 3 points on the week Kevin Hassett betting-market probability: 25% - Largest weekly increase in next Fed chair odds, up 11 points Kevin Warsh betting-market probability: 18% - Next Fed chair betting market Mirren betting-market probability: 16% - Down 2 points on the week in next Fed chair betting market Zervos betting-market probability: 10% - Next Fed chair betting market 2025 Fed funds projection: 3.6% - SEP dot plot, down from 3.9% in June 2026 Fed funds projection: 3.4% - SEP dot plot, down from 3.6% in June 2025 GDP projection: slightly higher - SEP economic projections compared with June 2026/2027 unemployment projection: 10 bps lower - Compared with June SEP projections 2026 PCE/core PCE projection: 20 bps higher - Compared with June SEP projections May payroll revision: 139,000 to 19,000 - Initial estimate revised down sharply June payroll revision: 147,000 to -13,000 - Initial estimate revised to a job loss Negative payroll revisions over two months: 280,000 - Combined revisions discussed for May and June March payroll revision: -108,000 - Negative revision cited in labor-market discussion February payroll revision: -49,000 - Negative revision cited in labor-market discussion January payroll revision: -32,000 - Negative revision cited in labor-market discussion IWM 1-month total return: ~8% - Small-cap performance over the last month QQQ/SPY 1-month total return: ~3%+ - Broad and tech benchmarks over the last month Acuren/TIC market cap intraday: $2.698 billion - After Citrini-referenced report and stock move TIC average volume: 2.3 million shares - Used to illustrate that the stock is actively traded TIC trading volume on report day: 21.8 million shares - Volume surge after thematic research coverage TIC share move: +22.9% - Intraday reaction to the report TIC forward EV/EBITDA: 8.5x - Compared with cited peers SGSN, ITRK, and ULS Nebius Microsoft deal: $18 billion - Deal announcement that drove major stock appreciation Nebius after-hours move: up over 60% - Reaction to Microsoft agreement Franco-Nevada operating margin: ~70% - Discussed as a royalty company with high-margin economics Franco-Nevada gross margins: ~90% - Typical royalty model economics described Franco-Nevada investment impairment: 2023 loss / Cobra Panama marked to zero - Mine impairment caused a major reported loss Franco-Nevada gold equivalent ounces: 403,000 to 290,000 - Drop tied to Cobra Panama impairment and production mix change Silver/gold relative price: silver in the 40s vs 20s recently - Used to explain gold-equivalent accounting and potential AI use case for silver

Pivotal Quotes: "I do think that the Federal Reserve independence is at most risk than it has been during our entire lifetimes." — Jack: Opening answer on the state of Fed independence "I think it is Trump versus the Fed loyalists who are going to try and stay independent." — Jack: Describing the broader political struggle around the Fed "The statement was extremely dovish. The dots, extremely dovish." — Jack: Summarizing the latest FOMC communication

Implications: Listeners should expect continued political pressure on the Fed, more rate-cut speculation, and potential market rotation toward small caps and rate-sensitive names. The episode also argues that independent research and fundamentals-based stock picking are increasingly essential.