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JP Morgan's Michael Cembalest on the Impending Treasury Bust

Behind the Balance Sheet

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Michael Cembalest chairs the Market and Investment Strategy group at JP Morgan Asset and Wealth Management and effectively oversees $4tn AUM.

He is responsible for market and investment insights across the asset management business and has produced the famous Eye on the Market publication for over 20 years now. We discuss AI, which formed the bulk of his most recent annual edition, why he believes Open AI is a weak link and why he thinks the Treasury market will have a crash, but not yet.

Cembalest is known for his charts and he picks both his favourite and his least favourite charts. Michael is one of the most in-depth macro analysts I have met and it’s his depth as well as his breadth of knowledge which is truly impressive. We recorded in JP Morgan’s amazing new office in New York, check out the photos in the show notes.

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Chapters

00:00 Introducing Michael Cembalest: JP Morgan's Market Strategist

03:00 Cembalest on Market Evolution and Eye on the Market

06:25 Why US Equities Deserve a Premium: Structural or Cyclical?

09:37 Hyperscaler CapEx and the Early Returns of AI Investment

15:57 Concerns Over Meta's Aggressive Off-Balance Sheet Accounting

21:21 Predicting a US Bond Market Crisis and Dollar's Reserve Status

23:26 Dollar's Reserve Status

27:55 Protecting Portfolios and the Deterioration of Private Credit

34:31 AlphaSense Deep Research and Open AI's Energy & Revenue Challenges

38:29 Assessing Open AI's Valuations and the Wave of Tech IPOs

45:00 US Market Tech Concentration and Advice for Young Investors

49:48 Cembalest's Favorite Chart: How Markets Anticipate the Future

20 Comments

@sw6118 2 months ago

The billionaires are shaking every last dollar out of the non-billionaires’ pockets, the idea is that everyone will accept slavery in exchange for room, board, and two clean uniforms. And don’t for get the billionaires’ excitement when they get to stand up at a billionaire’s dinner party and brag, “I’m a trillionaire now.” Their future for the rest of us? No benefits, no PTO, no vacation, no discretionary income, no medical, no social security, pension, medicare, etc. The STUPIDITY here is that money to have real value must be moving in commerce. If 10 billionaires own all the dollars, the dollar is exactly as valuable and as fungible as the Mona Lisa. The mental condition that leads to hoarding money needs to be treated and recognition that those accumulated billions need to be diverted to the millions of unpaid and underpaid workers that those billions represent.

@TempestTossedWaters 4 months ago

A wise man once said, don't tell me your opinions, tell tell me your positions.

@maxasciutto8007 4 months ago

Michael sounds and looks like a banking version of Nicholas Cage

@AVA_Investment_Analytics 1 month ago

That was a good interview from both participants. I know Cembalest. He's is a great communicator and writer. His background explains why. But in my view, his research/articles don't offer much in terms of actionability and risk assessment for investors. But still, I like to read his pieces when I have time. Anyone who truly understands the role of Wall Street figureheads (chief economists, strategists, analysts) realizes that their real function is to serve as salesmen dressed up in "research" clothing, as opposed to true leaders of investment thought and guidance. That's why Wall Street is called the "sell side." This is my view as a 3-decade investment analyst having worked on Wall Street. In fact, this is one of the things I learned about the business. And it's one of the reasons why I left.

@mda0214 5 months ago

Should be the biggest financial page on youtube

@Carol-cb9yu 2 weeks ago

Great down to earth advise.

@LachlanEvans-r8v 1 month ago

Great interview, thank you for the insight

@arandmorgan 3 months ago

It's them over there. It's not us and our practices.

@yminors 3 months ago

Very Informative, thank you.

@peterparsons7141 3 months ago

Top level interview and guest industry insight and expert level discussion.

@idanko731 3 months ago

There is no market big enough for the AI companies to become profitable other than the "labor market". So unless the AI/AGI/ can replace the labor market, they will never be profitable. But if that happens, we have bigger problems.......

@macpduff2119 3 months ago

Just a wonderful interview

@apachecadillac 2 months ago

Very informative, and interesting, but what's he's saying boils down to 'keep dancing until the music stops', which didn't work out too well for Chuck Prince the last time around.

@brianfruman123 3 months ago

It’s a moral hazard you create the liquidity it has to go somewhere. My thesis is every up or crash is where the liquidity goes. Destruction of liquidity happens faster than creation of equity that’s the crash.

@MCWoodley-c2c 3 months ago

Isnt Bessent giving foreign countries default swaps now, to keep them from selling US Treasuries? Not mentioned, why not?

@KelvinMeeks 1 month ago

Have current events accelerated his predicted timeline?
re:
@21:21 Predicting a US Bond Market Crisis and Dollar's Reserve Status
@23:26 Dollar's Reserve Status

@andrewyarnot5911 3 months ago

just a critical enabler

@lisizecha9759 2 months ago

15:50
his most probably use case:
"Turn my notes into a nice 250 words essay,
then write a second version in Simple English"
Proof read it
"Translate into Farsi"