Dear Reader,
I was talking to my kids the other day about how strong this economy actually is.
And I thought the data was worth sharing with you.
78 Months and Counting
The US economy has now experienced 78 consecutive months of expansion.
That is the sixth longest business cycle since 1854.
The long-term average is 49 months.
The median is 38 months.
We are almost double the historical average right now.
By comparison, the longest expansion on record was the 128-month run between 2009 and 2020 — fueled by massive government support after the financial crisis, followed by even more massive support during COVID.
The current expansion started in April 2020.
And it's being driven by three things: unconventional monetary policy, historically large budget deficits, and the AI investment boom.
Why the Market Hasn't Sold Off
A lot of people have been asking why the S&P 500 hasn't collapsed under the weight of higher interest rates.
Here's the honest answer.
Earnings have been so strong that every time the market sells off a little, there's enormous support underneath it.
But here's something else worth understanding.
A big part of why interest rates are rising isn't just inflation.
It's massive demand for debt from the AI companies themselves.
Google, Microsoft, Amazon — these companies don't want to sell equity.
If you're a shareholder in Google, you don't want them selling more stock and diluting your future earnings.
So instead they borrow.
They raise debt.
And here's why that makes total sense from a business perspective.
If you can spend a billion dollars and get a return on that investment within twenty-four months — which is what Google and Microsoft are seeing on their AI corporate deployments — you borrow every dollar you can.
The debt is finite.
The earnings are forever.
That's not reckless spending.
That's rational capital allocation.
The Hangover Warning
Now here's where I want to be honest with you.
Our debt-to-GDP ratio has roughly doubled since 2015.
We went from about 50% to close to 100%.
That doesn't happen for free.
It's like drinking too much.
You feel great in the moment.
The hangover comes later.
A buddy of mine — Rich Smith — wrote a book called Understanding National Wealth that I've recommended here before.
He makes the argument that not all debt is bad.
And he's right.
If the US government borrows money and invests it in ways that generate higher GDP growth — the way AI investment could theoretically boost productivity by 1% a year over the next 25 years — the math actually works in our favor over time.
The debt pays for itself.
The key question — the one we've been asking here all year — is how ROI positive this AI boom actually turns out to be.
Early signs are encouraging.
But the data is still coming in.
The Bottom Line
We are living through the seventh longest economic expansion in American history.
That is a remarkable fact that doesn't get nearly enough credit.
It also comes with real warning signs that deserve respect.
The expansion has been built on unconventional monetary policy, large deficits, and an AI investment boom whose returns are still being proven.
As long as the earnings keep coming, the market has reason to hold.
When that changes, we'll adjust.
For now, we play the ball where it is.
And if the AI boom keeps generating the kind of ROI Google and Microsoft are seeing, the one company collecting royalties on every chip that powers it is the best place to put your money right now.
Believe it or not, one company collects a royalty on nearly every chip these hyperscalers make.
So regardless of who wins the AI race, they always profit.
Have a wonderful day.
I'll see you tomorrow.
“The Buck Stops Here,”
Found this helpful? Share it with others.
Written by Dylan Jovine