For the fourth fall in a row and by now a tradition on Doxa Takes, I got the chance to sit down with Conor Sen, former Bloomberg Opinion columnist and now author of The Housing Frame, for our annual macro check-in. Last year’s conversation was about whether the economy was weakening and how fast the Fed would cut. This year: mortgage rates at 7.5%, the 10-year at 5.3%, and a Fed that has started hiking. What a difference a year makes.
How did we get here? Housing, oddly enough, tells most of the story. The apartment wave financed when money was cheap in 2021-22 finally opened its doors over the past two years, and those new units cooled rents — keeping inflation from running even hotter than it already is. But construction has since stopped, the buildings are filling up, and rents in much of the country are tightening again. The thing that helped inflation this year is set to work against it next year. Add a labor market that found its footing — jobless claims are down about 10% from a year ago — and an AI build-out putting upward pressure on power, materials, and wages, and you get inflation stuck near 3% with no obvious path lower.
That’s the Fed’s dilemma. Its usual brake pedal is housing and cyclicals, and housing is already on the mat; as Conor put it, “you can’t kill something twice.” What’s left to slow? Only three things: the AI boom, the stock market, or the labor market. None of them slow down gently.
Markets, meanwhile, keep trading in themes. In the spring the fashionable trade was long AI, short software, until good earnings ruined the narrative. Lately it’s been long AI, short the consumer. Entire sectors get marked down not on their results, but on their role in someone else’s pair trade. We’ve seen this movie before: the last time the market organized itself around a single infrastructure build-out, circa 2000, the eventual cooling of that idea wasn’t the end of the story — the quiet half of the market carried the next five years.
Our takeaway is the theme we’ve hit all year: diversification across factors and themes, not just sectors, matters more right now than at any point we can remember. We frame it as cake and veggies (everyone wants cake; staying healthy takes vegetables too). The cake is the AI build-out, spanning five layers — from the energy that powers it to the applications where the value lands — and we favor the toll roads that collect whichever builder wins. The veggies are everything else worth owning: world-class franchises in themes AI doesn’t dominate like payments, aerospace, and the built world. It’s quality that compounds on a different clock. If the boom runs long, the cake earns its keep. If it cools, the veggies hold in. Nobody can time that handoff, and the point of having balance is that you don’t have to.
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