Jason Furman 2.8 13 ideas

Furman states that while AI hasn't boosted supply-side productivity yet, it was a "big factor on the demand side" in 2025 and will be bigger in 2026 due to money spent building data centers and energy supply. The economic boost is currently found in the *build-out* phase. Capital expenditure is flowing heavily into physical infrastructure required to support AI models, regardless of the software's current utility. Long the physical beneficiaries of AI spending (utilities, grid, construction). AI capex spending slows down if ROI remains elusive.

Furman notes that tariffs have "subtracted a bit from growth and added a meaningful amount to inflation," specifically citing price rises in "furniture, consumer electronics." Tariffs are acting as a direct tax on these specific goods. Higher prices typically lead to demand destruction or margin compression for retailers and manufacturers in these categories who cannot fully pass on costs. Short/Avoid sectors highly exposed to tariff-driven inflation where demand is elastic. Strong wage growth offsets price increases, sustaining consumption.

Furman explicitly states that tariffs have "added a meaningful amount to inflation," citing rising prices in furniture and consumer electronics. With the President doubling down on "reciprocal tariffs" (5-8% surcharges) despite court rulings, inflationary pressure is structural, not transitory. If the administration replaces income tax with tariffs (a "ludicrous" idea per Furman, but a signaled intent), inflation expectations will unanchor. Long inflation hedges (TIPS, Gold) to protect against policy-induced price increases. The Supreme Court successfully blocks all new tariff implementations, causing deflationary pressure as goods prices normalize.

Furman states that "AI was a big factor on the demand side in the economy in 2025" and expects it to be bigger in 2026, specifically citing "money that's spent building data sensors, the energy to supply them." The economic resilience is being underpinned by AI infrastructure capex. This confirms the "picks and shovels" trade is still active in 2026. The specific mention of "energy to supply them" highlights the bottleneck shifting from chips to power generation and cooling. Long the AI infrastructure stack: Chips (NVDA), Cooling/Infrastructure (VRT), and Power Generation (Utilities). Overinvestment leads to a capex cycle bust if AI monetization slows down.

"The right way to think about the world is... to be much, much more uncertain than we've been... almost a certain rationality to volatility, because there's no great reason to believe any particular thing about the future." Furman argues that the market's "knee-jerk" reactions (like the sell-off on the AI unemployment report) are actually rational responses to a "flat prior" environment. When certainty is low, small pieces of new information cause massive repricing. LONG Volatility as a hedge against policy whipsaws and macro data sensitivity. The administration clarifies policy rapidly, reducing uncertainty and crushing volatility premiums.

"There's also a whole number of commitments that have been made... to reshore in the United States... Now I imagine there's a huge question mark as to whether they do ultimately get fulfilled." The "Reshoring" and "Industrial Renaissance" trade relies on companies actually spending the capex to build US factories. If uncertainty causes these commitments to pause or cancel, the order books for industrial construction and machinery firms will dry up. WATCH capital expenditure announcements closely; if cancellations tick up, Short Industrial Construction. Companies may be forced to reshore regardless of cost due to geopolitical mandates, sustaining the trend.

"We've lost jobs almost every single month since the tariffs went into effect... You're raising the price of intermediate inputs. You're damaging the economy. You're hurting American exports." The macro narrative that tariffs protect domestic industry is false according to the data. Tariffs are increasing the Cost of Goods Sold (COGS) for manufacturers who rely on global supply chains for parts (intermediate inputs), squeezing margins and forcing job cuts. SHORT US Manufacturing/Industrials that rely on imported components, as their input costs are rising while export competitiveness falls. Trump successfully pivots to a different legal framework that subsidizes domestic production enough to offset input costs.

"Affordability is the word everyone's using, and they really do link tariffs to the lack of affordability... I expect most countries to keep their existing deals, but then new deals will be sort of TBD." While the SCOTUS ruling limits the *volatility* of tariff rates, the baseline tariffs (Section 122) act as a consumption tax. If "affordability" is the primary consumer constraint, discretionary spending and retail volumes will remain suppressed as costs are passed down. AVOID Retail and Consumer Discretionary sectors exposed to import tariffs until the Section 122 legality is resolved. Courts strike down Section 122 tariffs entirely, leading to a deflationary boom for imported goods.