Dan Niles: I have a simple rule, and that is don't fight the Fed

CERTAIN. >> WE RECOGNIZE. >> THAT AI IS A NEW VARIABLE, POTENTIALLY A NEW FACTOR OF PRODUCTION THAT WILL HAVE CONSEQUENCES BOTH FOR THE ECONOMY AND FOR THE CONDUCT OF MONETARY POLICY. IT OPENS UP SOME MAJOR LINES OF INQUIRY. WILL THE APPLICATION OF AI CAUSE A SIGNIFICANT, SUSTAINED RISE IN PRODUCTIVITY ACROSS THE ECONOMY? IF SO, WHEN? >> THAT WAS THE FED CHAIR GIVING HIS FIRST KEYNOTE ADDRESS AT JACKSON HOLE LAST HOUR FOR SOME MORE REACTION TO THE SPEECH AND WHAT IT MIGHT MEAN FOR TECH AND THE AI TRADE. LET'S BRING IN NILES INVESTMENT MANAGEMENT FOUNDER AND PORTFOLIO MANAGER DAN NILES. DAN, HAPPY FRIDAY, ALWAYS GOOD TO HAVE YOU. >> THANKS FOR HAVING ME ON, CARL. >> WE'VE HAD SOME DISCUSSIONS ABOUT MAYBE A HAWKISH TONE OUT OF THE SPEECH, BUT TECH IS CLEARLY NOT BOTHERED BY IT. AMAZON'S UP 4% OR BETTER. >> YEAH. I MEAN I HAVE A SIMPLE RULE DON'T FIGHT THE FED. SO IN THE NEAR TERM YOU'RE RIGHT. IF YOU LOOK AT THE WAY STOCKS HAVE RESPONDED, YOU CAN ARGUE IT'S BULLISH IN THE SENSE THAT THE MAGNIFICENT SEVEN AS OF RIGHT NOW ARE UP A PERCENT AND A HALF. THE S&P, I THINK IS UP LIKE 0.4%. BUT THE RUSSELL IS DOWN A HALF A PERCENT. AND I THINK THAT SPEAKS TO THE FACT THAT PEOPLE ARE GOING DON'T WANT TO FIGHT THE FED. WE'VE GOT RATE HIKES PROBABLY COMING, WHICH YOU KNOW WE WEREN'T CERTAIN. BUT I THINK THE ODDS HAVE MOVED FROM 35% HIKES IN SEPTEMBER TO NOW IT'S OVER 50. AND BUT THE TEN YEAR IS STILL UP. LAST I LOOKED LIKE A BASIS POINT. AND SO THERE'S PROBABLY THERE'S POTENTIALLY MORE THAN ONE RATE HIKE COMING. AND SO PEOPLE ARE TRYING TO HIDE IN THE BIGGER CAP NAMES. AND DON'T FORGET THE MAGNIFICENT SEVEN AREN'T UP THAT MUCH THIS YEAR. THEY'RE UP LIKE 5.5%. SO ON A RELATIVE BASIS THERE'S GOOD EARNINGS GROWTH THERE. NOT A BAD PLACE TO HIDE OUT IF YOU'RE CONCERNED AND YOU DON'T WANT TO FIGHT THE FED. >> RIGHT. I MEAN THAT'S AN INTERESTING POINT. YOU KNOW, PEOPLE HAVE NOTED THAT THE BULLS HAVE SORT OF A LAUNDRY LIST OF THINGS THEY NEED TO HAPPEN. NO AI SLOWDOWN, NO HIKES, CLEARLY NO ECONOMIC SLOWDOWN, AND MAYBE NO DEM SENATE. CAN ALL THOSE THINGS GO RIGHT? >> NO. I MEAN, I THINK YOU'D HAVE TO BE A PRETTY STARRY EYED OPTIMIST TO BELIEVE THAT THOSE THINGS CAN ALL GO RIGHT AND THROW ON TOP OF THIS. DON'T FORGET, THERE'S VERY FEW THINGS THE DEMOCRATS AND THE REPUBLICANS CAN AGREE ON. RIGHT? WHAT'S THE ONE THING THEY'RE AGREEING ON GOING INTO THE MIDTERMS? DATA CENTERS ARE BAD. EVEN IN TEXAS. YOU'VE HAD A STALL WHICH IS A DEEPLY RED STATE ON NEW DATA CENTERS. AND SO I LOOK AT THIS AND I SAY, OKAY, SO I'VE GOT THAT GOING ON, WHICH IS GOING TO BE A HEADWIND. THE SOCIALIST PARTY IS OBVIOUSLY PICKED UP A LOT OF SEATS, AND IT'S STILL SHOCKING TO ME. WE HAVE A SOCIALIST AT THE HEAD OF THE NEW YORK CITY, THE FINANCIAL CAPITAL OF THE WORLD, AND THEY, BY THEIR OWN ADMISSION, ARE NOT PRO-BIG BUSINESS. SO YOU THROW THAT ALL TOGETHER AND, YOU KNOW, THE DATA CENTER STUFF ON THE FUNDAMENTAL SIDE, AND THEN THE WAY THE POLITICAL WINDS SEEM TO BE SHIFTING. LET'S NOT FORGET THE POLLING NUMBERS, UNFORTUNATELY, ARE, YOU KNOW, ONE OF THE WORST WE'VE EVER SEEN GOING INTO THE MIDTERM ELECTIONS FOR THE SITTING PARTY. AND I THINK YOU'D BE FOOLISH NOT TO THINK THAT THERE'S GOING TO BE SOME KIND OF CORRECTION IN THE MARKETS BETWEEN NOW AND EARLY NOVEMBER WHEN YOU PUT ALL THAT TOGETHER. >> OKAY, WELL, IF YOU BELIEVE THAT, THEN HOW ARE YOU POSITIONING YOUR PORTFOLIO? >> I'VE GOT MORE SHORTS THAN LONGS, AND I'M HIDING OUT IN THE BIGGER CAP NAMES BECAUSE IF YOU LOOK AT SOME OF THEM, THE GOOD NEWS IS THIS LAST QUARTER WAS ACTUALLY VERY GOOD FOR THE CLOUD INFRASTRUCTURE NAMES. IF YOU LOOK AT GOOGLE, AMAZON, MICROSOFT, THEIR REVENUE GROWTH FOR THE MARCH QUARTER WAS 35% IN THEIR CLOUD BUSINESSES. THAT ACCELERATED TO 43% IN THE JUNE QUARTER. AND THE OPERATING MARGINS FOR THOSE THREE GUYS. MORE IMPORTANTLY TO ME, BECAUSE I WANT TO SEE PROFITS ON SPENDING, THEY EXPANDED BY ABOUT TWO PERCENTAGE POINTS. AND SO THAT'S KIND OF WHERE I'M FOCUSED RIGHT NOW BECAUSE I GO AT LEAST THERE, I'M SEEING SOME RETURN ON INVESTED CAPITAL, WHICH I LIKE. AND THEN, YOU KNOW, ON THE SHORT SIDE, OBVIOUSLY YOU CAN, AS YOU STEP DOWN THE CAP CURVE AND YOU MOVE UP IN TERMS OF HIGHER VALUATION STOCKS, YOU'VE GOT TO GET A LOT MORE CONCERNED. BUT YOU KNOW, AS I BROUGHT UP EARLIER, THIS PUSHBACK AGAINST DATA CENTERS, OBVIOUSLY THAT'S NOT GOOD FOR THE BIG