WAYT 2-17-2026

Episode Overview

• This episode analyzes the resilience of corporate profit margins despite macroeconomic headwinds like inflation and high interest rates, challenging the bearish narrative on the economy.
• The hosts explore significant market rotations, specifically the shift from "asset-light" software companies to "asset-heavy" physical industries (the "HALO" trade) and the broadening of market leadership beyond the "Magnificent 7."
• The discussion includes a critical look at economic policy, debating the unintended consequences of taxing unrealized capital gains and proposing alternative ways to address wealth inequality without causing capital flight.
• Listeners will gain insight into the specific threats AI poses to mid-sized software companies (the "pincer move") and why Apple's "Agentic AI" strategy may offer a superior moat compared to standalone chatbots.

Key Concepts

• Corporate Resilience & Profit Margins Contrary to expectations that inflation and supply chain issues would crush earnings, corporations have proven to be highly adaptable engines. They have successfully protected and expanded profit margins by adjusting operations and pricing. This resilience underpins the bullish case for the stock market, suggesting that betting against corporate profitability based on geopolitical headlines is often a losing strategy.

• The "HALO" Trade (Hard Assets, Low Obsolescence) A new investment framework favors companies involved in physical infrastructure, industrials, and materials—sectors that cannot be easily disrupted by AI. Unlike software companies, where a chatbot can replicate code, companies that build the physical economy (data centers, energy grids, manufacturing) offer defensive value in an AI-dominated world.

• Market Broadening vs. Concentration The market is shifting from a rally driven solely by the "Magnificent 7" tech stocks to a broader recovery involving the "S&P 493," mid-caps, and value stocks. This broadening is a sign of market health; a rally supported by hundreds of companies is more sustainable than one propped up by a few tech giants.

• The "Pincer Move" on Vertical Software Mid-sized software companies (Vertical SaaS) face an existential threat from two directions. From "above," tech giants and foundation models offer plugin capabilities that replicate 80% of their functionality for free. From "below," AI-native startups with near-zero overhead undercut their pricing. This leaves incumbent "middle" companies with high legacy costs vulnerable to disruption.

• "Agentic" AI vs. Generative Chatbots There is a critical distinction between AI that generates content (text/images) and "Agentic AI" that performs actions. Apple's competitive advantage lies not in building a better chatbot, but in integrating AI into the operating system (OS) to navigate across apps and complete tasks (e.g., booking flights, moving money). This emphasizes the value of ecosystem control over raw computing power.

• Unrealized Capital Gains & "Buy, Borrow, Die" Proposals to tax unrealized gains often fail to account for capital mobility and the practical need to liquidate assets to pay taxes. A more precise economic critique focuses on the "Buy, Borrow, Die" strategy, where the wealthy borrow against assets to fund their lifestyle without selling. Taxing the borrowing event (securities-based lending) is discussed as a more effective revenue generator that doesn't force market-destabilizing sell-offs.

Quotes

• At 0:04:55 - "Corporations are the last vestige here... think about what they've been through this decade and how much money they're still making. Profit margins continue to rise... they've gone through everything and they've come out just fine on the other side." - Highlighting the adaptability of corporations as the primary reason for market resilience.

• At 0:09:23 - "The companies that are using AI, presumably in their operations, are saving money, maybe not hiring as many people, and productivity is exploding... That would be the bull case." - Explaining that AI CapEx isn't just a cost, but a driver of future operational efficiency and margin expansion.

• At 0:17:58 - "Every single Mag 7 stock was down... but it's just interesting to see that all these Mag 7 stocks have kind of rolled over this year and the equal weight [S&P 500] is doing really, really well." - Illustrating the rotation from narrow tech leadership to broad market participation.

• At 0:20:38 - "HALO is 'Heavy Assets, Low Obsolescence.' So like, companies where what they do can't be disrupted by a chatbot... You can't type a prompt into a box and replicate what these companies make and sell." - Defining the new defensive investment strategy focused on physical industries insulated from AI disruption.

• At 0:25:20 - "The mentality on the West Coast is... 'Holy sht, we might end up like Blackberry if we don't make the turn to whatever the next thing is.' ... To them, risk is not spending $200 billion a year in CapEx. Risk is not* spending it." - Framing massive tech spending as existential insurance rather than reckless waste.

• At 0:28:35 - "The one thing we know about the super rich is that their money is more portable than ever... The capital flight and the flight of the creative class... when you try to solve a real problem with something that's only going to create a bigger problem." - Critiquing wealth taxes on unrealized gains by noting that capital will simply leave jurisdictions that penalize asset ownership.

• At 0:31:29 - "It's a taxable event anytime you borrow against your portfolio... Is that not a simple way people could agree to raise revenue from the wealthy? Otherwise, you'd have to sell your shares to do that and pay taxes." - Proposing a targeted tax on securities-based lending as a smarter alternative to taxing paper profits.

• At 0:40:40 - "This shows over the last five years... Japanese stocks and International Small Cap Value... is beating the S&P over five years now. Nobody knows that." - Revealing data that contradicts the "US always wins" narrative, highlighting missed opportunities in international markets.

• At 0:50:50 - "From all the lofty talk, something remarkable emerged: EU officials finally admitted that it has taken too long to get all 27 member countries to agree on a plan for greater economic efficiency." - Noting a potential turning point for European markets driven by deregulation and integration.

• At 0:58:17 - "From above, you have Anthropic dropping these plugins that literally know an industry cold... And then from below, you have all these AI-native startups... small teams, frontier models, 80% capability at 20% of the price." - Describing the structural risks facing mid-sized software companies squeezed by both giants and startups.

• At 1:03:42 - "Agentic Siri is telling Siri to go into the hundreds of apps on your phone and do things across those apps. We cannot currently do that with ChatGPT." - Identifying Apple's unique "moat": the ability to execute actions across an ecosystem rather than just generating text in a vacuum.

Takeaways

• Look for investment opportunities in "Heavy Asset" sectors (industrials, energy, materials) that provide the physical infrastructure for AI, as these are less vulnerable to disruption than pure software plays.

• Avoid betting against corporate profitability based on general news headlines; focus instead on profit margins, which have historically weathered inflation and rate hikes better than sentiment suggests.

• Re-evaluate your portfolio's geographical exposure; consider diversifying into International Small Cap Value or Japanese markets, as data shows they have quietly outperformed the S&P 500 over the last five years.

• If investing in software companies, scrutinize their "moat" carefully—avoid mid-sized incumbents with high overhead that perform generic tasks, as they are most vulnerable to the "pincer move" of free AI plugins and low-cost startups.

• Monitor the US Dollar's strength when considering international exposure; a weakening dollar acts as a tailwind for returns on foreign assets for US-based investors.

• Recognize that massive AI spending by tech giants is "defensive" spending to avoid obsolescence; do not interpret high CapEx solely as a negative signal for near-term earnings, but as a necessary survival cost.