"The single biggest impact of COVID is that we're now into an inflationary regime that will probably last 30 years." - Mike Wilson [00:11:55]
"Normally when you get a traditional recession everything kind of just collapses at once... this time around what we saw was sort of this staggered sort of recession through the economy." - Mike Wilson [00:02:33]
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"The Fed is not independent... not that they're captured by the White House but they're not independent of their obligation to help the Treasury fund the government." - Mike Wilson [00:17:13]
"Gold has gone obviously through the roof and if you look at the S&P 500 divided by the price of gold today it's still 70% below where it was in 2000." - Mike Wilson [00:18:25]
"Unfettered immigration is probably the most insidious thing you can do to your middle class and the lower income folks because that's where the immigration is the most destructive." - Mike Wilson [00:33:49]
"Technology becomes pervasive when the cost of compute collapses... I always kid around about technology stocks, these are deeply cyclical businesses." - Mike Wilson [00:36:41]
Speakers & Credentials
Meb Faber - Host; Co-founder and Chief Investment Officer at Cambria Investment Management.
Mike Wilson - Guest; Chief US Equity Strategist and Chief Investment Officer for Morgan Stanley.
1. Executive Summary
The US economy is transitioning from a period of "rolling recessions" into a broad "rolling recovery," heavily supported by resilient domestic strengths like rising consumer tax refunds and CapEx incentives.
A structural shift has occurred post-COVID, entering the global economy into a 30-year inflationary regime akin to the post-WWII 1940s, requiring active mitigation against fiat debasement.
The Federal Reserve is fundamentally constrained by "fiscal dominance," prioritizing smooth US Treasury funding over pure inflation targeting, inherently suppressing real bond returns.
Market concentration in mega-cap tech is becoming a vulnerability as hyperscalers take on debt, signaling a necessary portfolio rotation toward equal-weighted indices, small-cap cyclicals, and high-quality materials/industrials.
Structural labor and demographic shifts—driven by immigration restrictions and the incoming deflationary cost of AI compute—will empower corporate "adopters" of AI to capture massive operating leverage over the next decade.
2. Chronological Table of Contents
Rolling Recessions to Rolling Recoveries [00:01:40]
The Iran Conflict, Oil Prices, and Geopolitical Shocks [00:05:25]
Portfolio Positioning: Small Caps, Equal Weight, and Cyclicals [00:08:05]
The 30-Year Inflationary Regime & The 1940s Parallel [00:12:01]
Federal Reserve Capture & Fiscal Dominance [00:16:16]
The K-Shaped Economy, Immigration, and Deregulation [00:33:04]
AI's Impact on Labor, Productivity, and Healthcare [00:35:49]
International Markets and Future Outlook [00:42:05]
3. Detailed Thematic Summary
From Rolling Recessions to a Rolling Recovery [00:01:40]
The post-pandemic economy avoided a traditional synchronized collapse, instead experiencing "rolling recessions" where different industries bottomed sequentially [00:02:27].
The manufacturing sector suffered a grueling three-and-a-half-year recession, with PMIs remaining consistently below the benchmark level of 50 [00:02:57].
The final catalyst completing the recessionary cycle was the government sector, which shed approximately 300,000 jobs (roughly a 10% workforce reduction) under the DOGE initiative, establishing a definitive market bottom in April [00:03:54].
This localized weakness, masked for years by the hyper-performance of the "Magnificent Seven," has now transitioned into a "rolling recovery" buffered by consumer tax refunds spiking 17% year-over-year and massive CapEx influxes [00:06:43].
Geopolitical Shocks, Oil, and Inflation [00:05:25]
While the Iran conflict triggered headline fears, energy markets operated efficiently, with oil and energy stocks emerging as the best performers well before overt hostilities began [00:06:08].
The US economy exhibits robust insulation against geopolitical energy shocks; structural disruption only occurs if global oil prices sustain above $120 to $130 a barrel [00:06:25].
A massive blowout in the spread between Brent and WTI crude underscores this dynamic, highlighting America's internal supply resilience versus external import fragility [00:27:22].
Should oil hit $140 or $150, it would mandate a global recession, thereby forcing immense geopolitical pressure from major importers like China and India onto Iran to resolve the Strait of Hormuz logistical blockade [00:26:50].
The 30-Year Inflationary Regime & The 1940s Parallel [00:11:38]
The fundamental legacy of the COVID-19 pandemic is the initiation of a 30-year structural inflationary regime, abruptly ending the disinflationary tailwinds of the past three decades [00:12:01].
The current macro environment heavily mirrors the post-WWII 1940s, where an overwhelming debt burden (accrued via multiple wars and pandemic stimulus) forced the system to rely on high nominal GDP growth and inflation to deleverage [00:13:40].
In an environment of fiat debasement, real assets rule; despite the nominal all-time highs of the stock market, the S&P 500 priced in gold remains 70% below its dot-com peak in 2000 [00:18:25].
While real yields on 10-year Treasuries sit near a positive 2%, long-duration fixed income will remain a structurally lackluster asset class compared to high-quality equities capable of outgrowing inflation [00:22:17].
AI, Labor Markets, and Corporate Deregulation [00:33:04]
Efforts to fix the "K-shaped" economic divide rely heavily on aggressive immigration restrictions, which protect working-class wages, and corporate deregulation, which liberates small businesses [00:33:49].
Regulatory compliance historically imposes a brutal hidden tax of $50,000 to $100,000 per employee on small and mid-cap companies, acting as an anti-entrepreneurial ceiling that deregulation seeks to eliminate [00:35:02].
The US labor market organically loses 20,000 participants per day due to raw demographic aging, a supply-side constraint further compounding wage dynamics [00:38:13].
AI's immediate corporate impact is not massive layoffs, but a freeze on new hires, generating extreme operating leverage; true economic diffusion will explode once the currently exorbitant cost of AI compute inherently collapses [00:37:50].
The Reference Vault
4. Data & Figures
Data Point
Value
Context
Timestamp
Government Job Cuts
300,000 (~10%)
Government employee reduction marking the bottom of the "rolling recession."
Rolling Recessions & Recoveries: Rather than a synchronized macroeconomic collapse where all sectors fail at once, individual industries contract and recover sequentially. This model explains why tech bottomed heavily in 2022 while government and manufacturing only finalized their bottoms in 2024/2025. [00:01:47]
Fiscal Dominance & Fed Capture: The framework positing that the Federal Reserve is effectively subordinate to the US Treasury's operational necessity to fund government deficits. The Fed will systematically abandon inflation fighting to bail out bond markets if Treasury auctions are threatened. [00:17:13]
Enablers vs. Adopters in Tech Cycles: A cyclical model detailing that capital first heavily concentrates in the infrastructure builders (AI enablers), but long-term value eventually rotates to the non-tech companies (adopters) that utilize the technology once hardware/compute costs inevitably collapse. [00:36:41]
The 1940s Deleveraging Playbook: A historical overlay showing how sovereign entities escape colossal debt burdens. Unable to default traditionally, governments artificially cap yields and allow structural inflation combined with nominal GDP growth to silently erode the real value of the debt. [00:13:40]
6. Anecdotes
The 1990s Telecom Buildout vs. Modern AI: Wilson powerfully contrasts today's AI Capex cycle with the 1990s telecom boom. In the 90s, spending was broad-based (telecoms building networks, businesses connecting, households buying internet) and debt-fueled. Today's AI boom has been highly narrow and equity-fueled by hyperscalers. However, as these tech giants begin layering on debt to maintain spending, it signals a rising risk profile and the potential "beginning of the end" for unchecked mega-cap tech dominance. [00:31:04]
The AI Editor: Faber shares a personal anecdote regarding his new history book. While his human co-workers effectively identified basic grammar and chart errors, an AI tool immediately flagged that he had used the phrase "unprecedented time" 28 times—a semantic pattern recognition insight that humans missed entirely, highlighting AI's immediate utility in organizational filtering. [00:39:13]
The Small Business Audit Toll: To ground his macro views on deregulation, Wilson recalls his wife's experience running a small business. He highlights the sheer administrative exhaustion of audits and compliance, noting that current regulatory environments act functionally against entrepreneurship. This anecdote cements why rolling back the $50k-$100k per employee regulatory cost is a massive catalyst for small caps. [00:35:17]
7. References & Recommendations
Financial Instruments & Indices: Alpha Architect High Inflation and Deflation ETF (Ticker: HID), S&P 500, S&P 600 (favored over Russell 2000 for higher quality), Russell 2000, NASDAQ 100, Equal-weight Indices, 10-Year US Treasuries.
Legislation & Concepts: DOGE (Department of Government Efficiency), "The Big Beautiful Bill" (CapEx incentive legislation), The 60/40 Portfolio, K-Shaped Economy.
Individuals Mentioned: Jay Powell (Federal Reserve Chair), Bobby Kennedy Jr. (referenced regarding biotech/healthcare deregulation), President Donald Trump.
Books/Publications: Meb Faber's upcoming history book.
8. Actionable Next Steps
Execute a Quality Small-Cap & Equal-Weight Rotation: Begin transitioning capital away from highly concentrated, market-cap-weighted mega-tech (Mag 7) and deploy into the S&P 600, industrials, and financials, heavily exploiting the catalysts of deregulation and rolling cyclical recoveries.
Restructure Fixed Income for Fiscal Dominance: Acknowledge the reality of a 30-year inflationary regime by avoiding long-duration sovereign bonds. Utilize physical gold as a direct portfolio defensive hedge (potentially carving out a structural percentage of the traditional '40' in 60/40) and shift remaining bond exposure to shorter-duration (5-7 year) yielding product or private credit.
Audit and Accelerate Corporate AI Adoption: Transition strategic positioning from investing in AI "enablers" to becoming an aggressive AI "adopter." Organizations must integrate AI to drastically reduce the need for future white-collar hires and eliminate administrative bloat, capturing massive margin expansion ahead of the imminent collapse in global compute costs.
Jul 16, 2026
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Tax Refund Growth
+17% YoY
Growth in consumer tax refunds acting as a buffer against higher gas prices.