Michael Hartnett: I Coined “Mag7” - Here’s What Ends Their Run

Part of the reason to say they're magnificent is because they made magnificent amounts of cash and didn't spend any of it.

That's why they were magnificent.

Now they're spending a trillion plus a year on AI CapEx and they're negative cash flow to the tune of 200 billion.

So they have to be kind of subservient to the bond market. If the bond market pushes up yields or spreads too much, You're not going to get the spending.

You know, if you look at what happened with the railroads, you know, what kind of ended it was social upheaval.

A kind of a social upheaval that can happen when an industrial revolution creates enormous inequality and a lot of worker strife.

And that's why, you know, these midterms look quite fascinating in terms of how people will vote.

But the other thing that pops bubbles and booms and balls is bombs.

That's what we've been talking about. And so we're still waiting for that level to do that.

I feel that the market in its entirety is not yet convinced that you're at this major secular inflection point.

You were in equities in 2008. You know, as you say, you were in 2016 when we had Brexit, Trump in terms of commodities.

Those were regime changing years. But people don't yet think that 2026 is going to be a regime changing year for bonds.

The question is, is it going to be for AI?

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More on that in the show notes. My guest today is Michael Hartnett, the famed chief investment strategist of Bank of America Global Research,

who is always immaculately researched and focused on the facts, but yet still manages to make very bold contrarian predictions.

And it is also very rare to have him on an extended podcast.

Michael, welcome to the Master Investor Podcast, and thanks so much for joining us. Yeah, thanks very much for having me, Will. Pleasure to be here.

Great to be with you here in London. Two Brits that have spent lots of time in New York, but connecting here.

um i also failed to say in the intro you

coined the phrase magnificent seven i did i did

by luck than than than judgment as the case i

always thought that was a jim crammer coinage and and i

in my research for this have corrected myself on yeah yeah no

no he's actually once come up to me and congratulated me on

on that because he'd done fang which was a sort of short-lived predecessor yes yes and yours has lasted much longer yeah it seems to have i mean yeah you know

remember with the magnificent seven only two of them you

know were alive at the end so you know we'll we'll see we'll see

where that pans out i was going to say as part of this conversation maybe we'll

explore as to whether it will be still the key moniker

for the next five years or not and we can

unpack that um but but to start with

if we could just set the scene of sort of not not

not all of time but of this decade that we're halfway through so far and you you've written

about this over a period of time but this decade you

think is is very much been shaped by the response

to covid yes i mean i think this

is a decade of extraordinary change certainly you

know comparable i would say the only recent comparison

is probably the 1980s you know in that you have big things happening you know and big things changing so we've gone from a world of globalization to deglobalization.

We've gone from a world of monetary excess to fiscal excess.

We've gone from peace to war, elitism in terms of our politics to populism.

So there's a lot of sort of new stuff that, you know, the market and the economy has had to, you know, digest.

And I think that all of those things, you

know, have created a backdrop for financial markets of an economy that is booming in nominal terms.

I mean, the U.S. in particular. I mean, the U.S. is a massive economy.

And yet that massive economy has grown, I kid you not, 66 percent in six years.

I mean, The U.S. has added three United Kingdoms in terms of GDP in the past six years.

And again, it's driven by the fiscal excess. Nominally. Nominally.