Liquidity + Productivity = Nasdaq Melt-Up? | with Raoul Pal & Andreas Steno
The current economic backdrop presents a 'Goldilocks setup' with picking up manufacturing and falling inflation, potentially leading to a Nasdaq rebound driven by strong AI-related capital expenditure returns and a Greenspan-era playbook of allowing productivity to lower inflation.
Takeways• Manufacturing cycle is picking up while inflation remains low, creating a bullish economic setup.
• Strong returns from AI-related capital expenditure are expected to drive a Nasdaq rebound.
• The current economic strategy aligns with a 'Greenspan-year playbook' focusing on productivity and low inflation.
The manufacturing cycle is picking up, with ISM manufacturing expected to reach plus 55 territory soon, and domestic capital expenditure is finally spilling over. Crucially, inflation remains low, trending below the 2% target, creating a bullish 'Goldilocks setup' that is currently underestimated by the market. This scenario suggests a significant rebound in Nasdaq as strong returns on investment from AI-related capex become clearer.
Economic Goldilocks Setup
• 00:00:00 The current economic conditions are characterized by a domestic manufacturing cycle that is picking up speed, with ISM manufacturing expected to hit plus 55 territory. Simultaneously, inflation remains subdued, trending at 1.5-1.7% monthly, which is below the 2% annual target. This combination of accelerating growth and low inflation constitutes an incredibly bullish 'Goldilocks setup' that the market does not yet fully appreciate.
Greenspan Playbook & Nasdaq
• 00:02:18 The current environment profoundly resembles the Greenspan era playbook, where productivity exploded, core inflation remained low, and GDP growth surged while the central bank did little. This strategy, where the Fed cuts rates and allows productivity to control inflation, is what is likely to happen, enabling the economy to run hot and helping to stabilize debt-to-GDP. This scenario, combined with strong returns from major AI-related capital expenditure, is expected to drive a rebound in Nasdaq over the next two to three quarters.