Nov 4, 2026 · 1h 3m
Constan sees fiscal drag challenging inflated growth bets
Growth Expectations Are Probably Too High | Andy Constan on Post-Midterms Macro View, Bond Supply Issue, and QRA (Quarterly Refunding Announcement)
The episode tests whether high growth expectations, AI investment and Treasury supply can keep markets supported as fiscal momentum fades.
- 1Fiscal policy is becoming a growth drag, but disappointment may slow the economy without triggering recession.
- 2AI capital spending and elevated valuations make broad equity exposure less attractive than selective security positioning.
- 3Treasury supply and buybacks could influence long-term yields, especially if rates rise sharply.
Don't miss
Andy Constan explains how Treasury officials could restrain long-term rate pressure by reducing supply or increasing buybacks if yields rise sharply.
The brief
Andy Constan and Max Wheatley join Jack Farley to assess the post-midterm landscape, where policy constraints limit what the election result can deliver.
Constan argues that fiscal policy is becoming a drag as spending grows more slowly relative to GDP, while stronger real growth has kept pressure on bonds.
High growth expectations could disappoint without producing a recession, making broad equity bets less compelling as credit spreads widen and valuations stay elevated.
The AI debate turns on capital spending, equity issuance and valuation: investors may be pricing too many winners, even as the technology remains economically important.
The standout policy question is Treasury supply: Constan says the quarterly refunding framework leaves room to reduce issuance or increase buybacks if yields rise sharply.
Constan’s conclusion is deliberately selective: extreme valuations make both long and short positions dangerous, while security selection matters more than broad direction.
What was said on this episode
63 statements · 15 positive · 40 negative · 2 mixed · 6 neutral
Major fiscal expansion required Republican control of both chambers and eliminating the Senate filibuster.
“the only way that the combined government in the United States was going to be able to fairly, without a lot of politics, create fiscal expansion, additional fiscal expansion, is if the Republicans held both chambers and Trump convinced some significantly recalcitrant... senators on the red side to pull the nuclear option and eliminate the filibuster.”
Listen at 1:44
The election outcome leaves the United States in fiscal gridlock.
“we were heading for gridlock and that's where we are”
Listen at 3:03
Substantial bipartisan legislation is unlikely under current conditions.
“At this stage, I wouldn't expect a lot of bipartisanship, no matter what they say.”
Listen at 4:39
Fiscal policy will weigh on economic growth.
“fiscal is going to be a drag on the economy”
Listen at 5:25
Government spending net of taxes is currently and prospectively a drag on growth.
“The government is a drag on the economy today. Government spending, net of taxes is a drag on the economy going forward.”
Listen at 6:55
Government spending net of taxes will drag on the economy.
“Government spending, net of taxes is a drag on the economy going forward.”
Listen at 6:58
Bonds have become suitable portfolio investments again.
“bonds have finally become once again suitable for an investment portfolio.”
Listen at 7:50
Adding bonds can improve stock portfolio risk efficiency.
“You can own more stocks per unit of risk you're taking if you own some bonds too than owning just stocks alone.”
Listen at 8:07
Long-term bonds had negative expected returns at 65-basis-point yields.
“For one, they had a negative expected return.”
Listen at 8:27
Andy is reducing his long bond position.
“I'm actually in the midst of flattening out my long”
Listen at 9:27
Andy is reducing his maximum long bond position.
“I'm actually in the midst of flattening out my long, which was a maximum long bond position.”
Listen at 9:27
Treasury buybacks are intended to suppress long-term interest rates.
“It's simply a political decision to suppress long-term interest rates.”
Listen at 10:49
Aggregate consumer spending has been strong.
“the consumer has been very, very strong”
Listen at 13:36
Household saving and borrowing continue supporting aggregate consumption.
“for the aggregate economy, this saving has been a strong support of consumption. And that continues to be the case.”
Listen at 14:37
Strong real economic growth produces high real yields.
“with very strong growth, you have very strong real yields.”
Listen at 14:53
Strong economic growth produces higher real yields.
“with very strong growth, you have very strong real yields”
Listen at 14:53
The Treasury is running a deficit equal to 6% of GDP.
“the Treasury continues to run a 6% deficit to GDP”
Listen at 17:26
The Treasury is running a deficit equal to 6% of GDP, creating substantial debt supply.
“the Treasury continues to run a 6% deficit to GDP. That's a lot of debt for sale.”
Listen at 17:26
Dis-saving and new issuance have shifted markets from excess to scarce savings.
“this combination of dis-saving government issuance and corporate issuance has flipped. that to a deficit of savings, from a surplus of savings, from a glut to somewhat rare.”
Listen at 19:29
Bond markets always have buyers, but clearing prices can change.
“there's always a bid for the bonds. It's just a matter of price.”
Listen at 20:28
Growth expectations declined over the preceding three to six weeks.
“Growth expectations got marked down over the last three to six weeks.”
Listen at 21:24
The recent market move reflected a broad growth slowdown.
“it was just a broad growth slowdown”
Listen at 22:04
The recent bond rally reflected a broad economic growth slowdown.
“It was just a broad growth slowdown. And you can tell it was a broad growth slowdown because bonds rallied.”
Listen at 22:04
Growth will disappoint relative to expectations over the next three to six months.
“over the next three to six months, we're going to see a disappointment relative to growth expectations.”
Listen at 25:31
Andy has maintained a neutral view on stocks.
“I've been pretty neutral on stocks.”
Listen at 26:10
Policy intervention in bond markets has supported equities, growth, and inflation.
“policymakers stepped in and saved the bond market, which saved the equity market and stimulated growth and inflation.”
Listen at 28:29
The economy is beginning a slowdown, and lower rates will not prevent it.
“My short term view is that we're in the beginnings of a slowdown and that interest rates are not going to save us.”
Listen at 29:17
Ten-year Treasury yields will not reach 4.5% soon absent economic weakness.
“I don't think we're going to four and a half on tens at any time soon unless the economy weakens.”
Listen at 29:29
High-yield pressures are likely to persist.
“all the factors that are keeping yields high are likely to stay in place”
Listen at 30:22
Corporate share-count reduction historically ran around 2% of GDP.
“share count reduction has been running at around 2% of GDP”
Listen at 32:15
Net share-count reduction is projected to reach zero percent of GDP next year.
“we're projected to get there next year to 0% of GDP”
Listen at 32:28
Net corporate share-count reduction is projected to reach zero percent of GDP next year.
“we're projected to get there next year to 0% of GDP.”
Listen at 32:28
The shift in capital expenditure is partly financed through equity issuance.
“The change, which you just, the simple thing is you just have to look at the CapEx number. That change needs to be financed and it's being financed partly by shares.”
Listen at 33:54
Investors buying recently issued stocks have suffered adverse price effects.
“Those who are buying the thing that are getting sold, they're getting punished. That's for sure.”
Listen at 35:19
The aggregate Nasdaq has not experienced a bubble collapse.
“there has been no bubble popped”
Listen at 36:37
Storage and semiconductor stocks experienced speculative excess.
“there was just a speculative frenzy”
Listen at 37:06
Earnings expectations remain in a bubble.
“there's still a bubble in earnings expectations”
Listen at 37:37
Investors should avoid doubling down or leveraging into a possible bubble slowdown.
“I'd rather if they're long stay long fine no problem but don't be doubling down like don't martingale into what could be a bubble slowdown because that's where real money is lost”
Listen at 39:43
Investors should not double down into a potential bubble slowdown.
“don't be doubling down like don't martingale into what could be a bubble slowdown”
Listen at 39:46
Costco appears unlikely to offer investors an attractive return at its valuation.
“I would say it would be hard for me to believe that Costco offers a good return to investors”
Listen at 42:39
Aggregate stock valuations imply growth that cannot be achieved by all companies.
“I don't think it's possible that the aggregate set of stocks are going to survive.”
Listen at 43:59
AI could eliminate Google’s legacy business.
“They've got this unbelievable legacy business, which AI could literally end.”
Listen at 44:07
Required issuance may not clear at current prices to support priced-in growth.
“the amount of issuance that's needed to achieve the growth that's priced is still, which may not actually, the issuance may not actually be able to clear the market at current prices”
Listen at 44:49
The economy cannot achieve the growth embedded in aggregate stock valuations.
“there's just no possibility that we're going to be able to achieve that growth.”
Listen at 45:07
Crossholding gains should not be treated as recurring earnings.
“If you have a company that has a crossholding, that's not recurring earnings.”
Listen at 46:03
Midterm elections do not produce a reliable post-election market seasonality.
“midterms don't matter there is no seasonality there is none there's no post midterm”
Listen at 47:20
The 2017 corporate tax cut increased stock values by approximately 10%.
“the massive corporate tax cut was made. Just the moment that corporate tax cut was made, stocks were 10% more valuable, straight off.”
Listen at 48:08
Markets generally respond favorably to political gridlock.
“Gridlock, markets like gridlock.”
Listen at 48:55
Compute infrastructure buildout is expected to be lower.
“there's going to be a lower amount of of compute build out”
Listen at 50:37
Reduced compute capacity should increase compute prices.
“that means there's less capacity coming online, which should increase the price of compute.”
Listen at 51:03
A scarcity of compute could emerge.
“if there is a scarcity of compute”
Listen at 51:42
AI infrastructure and chip sellers will face slower sales and lower prices.
“those guys, you know, they definitely are going to be experiencing the slowdown. There's no doubt about it because they're going to have a glut of chips. They're going to sell less of them at lower prices.”
Listen at 52:18
Lower oil prices benefit bonds, stocks, gold, and other assets.
“the price of oil fell a lot. And that, to me, is good for bonds and good for stocks and good for gold and good for lots of things.”
Listen at 52:44
AI and compute are generating transformative productivity gains.
“I think these are the greatest things in the world. Like, I've been working with some form of compute to generate productivity for 40 years. And this one is, it's ramping up in ways we all can't imagine. It's a fantastic thing.”
Listen at 53:50
AI compute is rapidly increasing productivity and value.
“this one is, it's ramping up in ways we all can't imagine. It's a fantastic thing.”
Listen at 54:03
Many AI companies’ earnings do not justify their stock prices.
“they're not earning anything like what... is necessary to support their stock prices”
Listen at 56:00
AI companies are collectively priced for success, although many will not succeed.
“they're all priced to win and so when you add all those up every if everybody's priced to win and not all of them are gonna win”
Listen at 56:10
Selecting successful companies can generate large returns, but broad ownership is impossible.
“if you can pick the winners, you can still make a fortune, but you can't own all of them”
Listen at 56:45
The Treasury has issued roughly $4.2 trillion of coupon debt annually.
“They've been issuing $4 trillion of roughly $4.2 trillion of coupon auctions, tips, and floating rate notes every year for many years now”
Listen at 57:35
Bessent will reduce supply or increase buybacks if 10-year yields reach 6% and stocks fall.
“if they take 10-year bonds yields up to 6% and the stock market falls, this guy's going to pump. You can count on him reducing supply or buying back more.”
Listen at 1:01:28
Bessent continues attempting to administer long-term Treasury yields.
“He didn't withdraw that. He's still doing it.”
Listen at 1:02:45
Bessent will intervene again if necessary to constrain Treasury yields.
“But will he if he has to? Oh, for sure.”
Listen at 1:02:54
Bessent will intervene again if necessary to suppress long-term yields.
“will he if he has to? Oh, for sure.”
Listen at 1:02:54
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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