#414 Andy Constan: Markets Vulnerable to Disappointment, Cautious on Equities, and the 60/40 Strikes Back

Andy Constan, founder and CIO of Damped Spring and a veteran of Bridgewater and Brevan Howard, makes his debut on The Julia La Roche Show. He lays out his four-pillar macro framework and explains why he's turning cautious on equities despite a strong U.S. economy. His "pie theory" argues that the earnings AI companies are promising add up to more than the GDP available to deliver them. His "hamburger theory" warns that the massive borrowing needed to fund AI capex could stall if capital markets take a breather. With rates spiking for the seventh time since COVID, Constan doubts policymakers will engineer another V-top. He is currently short equities and max long long-term bonds, arguing that the much-maligned 60/40 portfolio is finally worth owning again. He also gives his early read on Fed Chair Kevin Warsh, explains what it would really take to kill inflation, and argues that this cycle has no clean historical analog because it's fueled by public-sector rather than private-sector debt. He closes with the story of analyzing every trade from the 1987 crash on the Brady Commission at age 23, and his core advice: own a well-constructed portfolio at your risk target and hold it for life.

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Links:

Website: https://dampedspring.com/

X: https://x.com/dampedspring

Substack: https://substack.com/@dampedspring

Timestamps:

00:00 Introduction and welcome Andy Constan
00:50 The four-pillar macro framework: growth, inflation, risk premium, positioning
02:42 Where we are: a strong economy and 66 months of above-target inflation
05:20 AI and the "pie theory": why there isn't enough GDP for the earnings expectations
12:22 The "hamburger theory": who pays for the AI capex boom
13:50 The seventh rate spike: will it V-top again?
17:43 Why he's getting cautious on stocks
18:13 How most people should invest: risk targets and always owning beta
21:43 Seeking alpha and his current positioning: short equities, max long bonds
24:21 "The 60/40 Strikes Back": why bonds make sense again
29:30 Bonds finally get the growth memo
31:58 Vulnerable to disappointment, not recession
32:52 His read on Kevin Warsh at the Fed
36:59 What it would actually take to kill inflation
38:45 Why the administration isn't fighting inflation
41:37 What's mispriced right now
43:35 Historical analogs: 0DTE options, portfolio insurance, and a public-debt-driven cycle
48:09 Serving on the Brady Commission after the 1987 crash at age 23
53:02 Parting thoughts and where to find Andy

The content of this podcast is provided for informational, educational, and entertainment purposes only and does not constitute financial, investment, tax, or legal advice. Nothing discussed should be interpreted as a recommendation or solicitation to buy, sell, or hold any security. Guests' views are their own. Always do your own research and consult a qualified financial professional before making investment decisions.