Things Are Going to Get Even Crazier: The Macro Regime Shift | Andreas Steno Larsen

Episode Summary

Executive Summary: The interview argues that markets are entering a late-cycle, more euphoric phase driven by an AI/semiconductor upcycle, a potentially hawkish Fed shift, and geopolitical shocks from the Iran/Strait of Hormuz conflict. While inflation and rates may stay higher, the speaker sees steepening yield curves, a strong dollar, and AI-related scarcity as supportive of select equities before the cycle rolls over in Q4 or early next year.

Main Topics: Late-cycle macro regime shift and Fed policy (Priority: 5/5): The discussion centers on a changing Fed backdrop: inflation has reaccelerated, rate cuts look less likely, and the Fed may shift from an easing bias to a neutral stance. The guest thinks the most likely outcome is patience, not cuts, with rates staying elevated or even moving higher. Iran conflict, oil, and inflation transmission (Priority: 5/5): The Strait of Hormuz / Iran situation is treated as the key geopolitical inflation shock. The guest argues the market has roughly 7-8 weeks of balanced supply left and that a prolonged disruption would materially change the inflation and risk-asset outlook. Semiconductor and AI cycle euphoria (Priority: 5/5): AI demand, scarce compute, and memory/semiconductor pricing power are portrayed as the dominant equity trade. The guest expects a euphoric final leg before the semiconductor cycle peaks in Q4 or early next year. Yield curve steepening, long-end bonds, and global duration (Priority: 4/5): The interview argues that long-end yields can rise materially without necessarily breaking risk assets, partly because a steeper curve supports bank lending and foreign bond demand dynamics, especially from Japan. Emerging markets, India, Brazil, Korea, and the strong dollar (Priority: 4/5): The guest says the strong dollar plus fading energy prices hurt many EMs, with India and Korea as relative winners due to growth/semis, while Brazil and LatAm face a bad mix of FX pressure and weakening commodities. AI’s second-order effects: goods inflation and labor disruption (Priority: 4/5): Beyond semis, the conversation explores AI-driven scarcity in consumer electronics, potential goods inflation from reduced component supply, and the likely sequence of labor disruption starting in tech and finance before reaching logistics, legal, and eventually blue-collar work.

Key Arguments: The Fed is unlikely to cut rates soon because the inflation impulse from energy and geopolitical stress is too visible for policymakers to ignore. The most likely policy stance is neutral-to-patient; rate hikes are possible, while rate cuts are not the base case. A steeper U.S. yield curve is not necessarily bearish for risk assets and may even support banks, credit creation, and foreign demand for Treasuries. Japan’s steeper curve and hedged-buying dynamics help explain why U.S. long yields may need to rise to attract foreign capital. The Iran/Strait of Hormuz shock is temporary only if a deal is reached soon; otherwise inflation and crisis risk rise sharply by late summer. AI is not only a demand story but also an inflation story because scarce compute and semis are pushing producer prices higher. Semiconductor cyclicality still matters: the trade is in a euphoric upswing now, but the cycle likely turns in Q4 or early next year. The best AI-related opportunities may shift from top-tier names to lower-quality, high-beta beneficiaries as the cycle matures, similar to commodity bull markets. A wave of IPOs is a classic late-cycle signal, but the guest believes the market can still become “crazier” before the top. EM performance is being distorted by the dollar and by sector composition; Korea and India may outperform because they are linked to semis and growth, not because all EM is broadly healthy. AI-driven scarcity may spill into consumer electronics, reducing the deflationary benefit of cheaper gadgets and creating goods inflation pockets. AI adoption will likely hit tech first, then finance and legal, and only later reach logistics, transportation, and physical labor markets.

Data Points: Semiconductor cycle peak timing: Q4 or early next year - Guest’s best guess for when the semiconductor upcycle rolls over. 10-year Treasury yield: Above 5% - Guest says a 5%+ 10-year is very likely. 30-year Treasury yield: Around 6% - Guest expects long-end yields to rise if the Fed stays patient/transitory. Fed December hike probability: 42.7% - Host cites FedWatch pricing for a 25 bp hike at year-end. Fed December unchanged probability: 30.3% - Host cites market pricing for no change by year-end. Fed December 50 bp hike probability: 21.8% - Host cites market pricing for a more hawkish outcome. Balanced energy supply window: 7-8 weeks - Guest estimates the current oil market balance can persist only for several more weeks. Strait of Hormuz oil flow: 20 million barrels/day - Guest cites typical daily throughput through the chokepoint. India growth exception: Only EM exception currently - Guest says India is the only major EM showing accelerating growth in his data. Korea semi-export growth: More than 200% YoY - Guest cites Korean export data as evidence of semiconductor-led growth. Overall Korea exports: Up 50% YoY - Guest says semis dominate the export mix. GPU utilization: Almost 100% - Guest uses this as evidence of persistent AI compute scarcity and pricing power. Logistics/warehousing workforce: 6-7 million people - Guest estimates the broader U.S. logistics and warehousing employment base vulnerable to AI/automation. Taxi/shuttle/chauffeur jobs: About 500,000 - Guest estimates the U.S. job count potentially affected by robotaxis/self-driving adoption. Portfolio allocation to AI-linked names: About 10% - Guest says he has roughly 10% in the space, partly from earlier crypto-related positioning. HFGM Morningstar ranking: #1 since inception in U.S. macro trading category - Sponsor copy during the episode.

Pivotal Quotes: "It can become crazier than what we've already seen. And I think it will be a lot crazier before we turn." — Andreas Stino-Larson: Describing how far the market and AI/semiconductor euphoria can extend before the cycle tops. "The semiconductor cycle will roll over towards the end of the year, early next year." — Andreas Stino-Larson: His core timing call on the AI/semiconductor trade. "The most underappreciated macro risk right now is if the Strait of Amuz is still closed when we get to August." — Andreas Stino-Larson: His view on the highest-conviction geopolitical inflation risk.

Implications: Listeners should expect more volatility, sticky inflation, and a late-cycle chase in AI/semis before a probable rollover. Selectivity matters: long-duration bonds may stay pressured, EM is uneven, and the biggest opportunities may be in AI-adjacent supply-chain and pricing-power winners rather than broad beta.