UPTHINKING FINANCE

Upthinking Finance™ is now trademarked We welcome back Julia C. Hermann, Global Market Strategist at New York Life Investments, for a wide-ranging conversation on the 2026 economic outlook. We’re discussing the key macro trends shaping the future, from the ongoing AI boom and its comparison to the dot-com era, to the Federal Reserve's policy moves, the impact of tariffs and inflation, and the fast-evolving global geopolitical landscape. Julia offers a balanced perspective, exploring why the current environment may feel at odds with headlines about global chaos, and how investors can think about risk, portfolio construction, and opportunities in this unique moment. The discussion covers everything from the intricacies of bond-market risks and Fed independence to energy markets, Japan’s financial experiment, and the emerging role of China on the world stage. You will want to hear this episode if you are interested in...03:34 Navigating global economic uncertainty.07:35 AI investment and tax incentives.11:17 Fed independence and Powell's influence.18:30 Inflation driven by housing costs.26:09 Global economies wrestle with debt.27:59 Japan's tenuous reflation experiment.33:01 Fed influence vs market rates.35:52 AI and US-China dynamics.38:12 Focus on diversification and quality. Is the AI Boom Hype or Here to Stay?Many are quick to compare today’s AI surge to the dot-com bubble of the late ‘90s. However, Julia draws a firm line between the two. In the dot-com era, overvaluation was driven by hope in unproven business models. This time, it’s established tech giants, think Magnificent Seven, NVIDIA, etc., that are at the forefront. The current rally is grounded in real earnings, not just speculative future growth. These companies are reinvesting 50-60% of operating cash flow into capital expenditures, especially in AI infrastructure. Plus, recent fiscal legislation, like the One Big Beautiful Bill, supercharges this by reintroducing immediate expensing of capital investment, encouraging more spending and innovation. That depth and durability make a near-term AI bubble burst unlikely. Inflation, Bond Markets, and the Limits of PredictionInflation fears remain front and center for many investors. Despite headlines and some price increases from tariffs and supply disruptions, the full picture is more complicated. Inflation is broader than goods alone, with shelter costs making up about 45% of the inflation basket and being the major story over the past year. Energy prices have actually provided relief, with increases in some goods more than offset elsewhere. When it comes to fixed income, Julia n remains cautious about “adding duration”, a stance held even as long-term rates surprised many by coming down during 2025. The Fed’s Role, Policy Independence, and Market CommunicationA change in Federal Reserve leadership doesn’t necessarily mean the end of balanced monetary policy. The Fed chair is influential, but decisions require consensus from the Federal Open Market Committee. What the chair does control, however, is messaging. Ever since Greenspan’s celebrity status and Bernanke's implementation of greater transparency, communication...