Mid-Week Briefing: Is the Cost of Capital Too Cheap?

The AI Capex bubble is increasingly crowding out global sovereign debt.

If AI Capex-related debt issuance can do that to the world’s risk-free assets, will stocks be next? Investors may increasingly demand wider equity risk premia in the months ahead.

The question is not simply whether or not the cost of capital is too cheap. The bigger question is what happens when governments and AI Capex increasingly compete for the same capital.

Will policymakers once again change the equation?

Against this backdrop, 42 Macro’s Paradigm D, or “Print the Demand,” remains the highest-probability long-term outcome. 

Consider this: an additional 100bps of rate cuts by the Fed throughout 2027 would save the federal government roughly a percent of GDP’s worth of interest payments based on the current composition of the debt stock.

Here at 42 Macro, we help stressed investors know when to pivot using KISS, and help frustrated investors achieve results via Dr. Mo.

Explore our research to find actionable signals for navigating evolving market risks and opportunities.

42 MACRO RESEARCH SOLUTIONS

— Team 42