Excess Returns Podcast Summary

Episode: Mag Seven Margin Crunch | Cameron Dawson on Tariffs, Recession Risk and the Defensive Investing Trap
Date: May 3, 2025
Host(s): Matt Zigler (“B”), Dave Notting (“C”)
Guest: Cameron Dawson, CIO of NewEdge Wealth (“A”)

1. Main Theme Overview

This episode explores the complexities investors face amidst rising tariffs, a potential recession, and the continued dominance—and vulnerability—of the "Mag 7" mega-cap tech stocks. Cameron Dawson discusses the murky economic environment caused by recent policy shifts, how margin pressure may impact the broader economy and corporations, the importance of cyclical vs. defensive assets, and actionable investing frameworks for navigating volatility.

2. Key Discussion Points and Insights

The "No Man's Land" Economy and Tariff Shock

• Uncertainty Rules: The current economic environment is described as a "no man's land or purgatory" between the immediate panic following tariff announcements and the actual manifestation of their effects in economic data. (00:00)
  • "We could be in this purgatory of a space for months and not really see full evidence of what these tariffs will be doing to the U.S. and global economy until we get into the late second quarter and early third quarter." – Cameron Dawson (01:51)
• Soft vs. Hard Data: Dawson highlights that soft sentiment data can be misleading—a lesson taken from the post-pandemic "vibe session" (Kyla Scanlon’s phrase), where sentiment signaled recession but spending remained strong. Now, sentiment appears to be impacting behavior, but is masked by demand being pulled forward ahead of tariffs. (01:51)
• Cliff Analogies: The period feels like "Wile E. Coyote running off the cliff and looking right at the camera." It’s unclear whether the drop will be sharp and long or short and shallow, potentially depending on political intervention. (03:00)

Early Warning Indicators to Watch

• Reliable Soft Metrics:
  • Small Business Sales (NFIB survey): Found to be predictive of unemployment when sales are the top issue.
  • Labor Differential (Consumer Confidence): Tracks the balance between jobs being plentiful vs. hard to get, and is signaling weakness.
  • Freight and Supply Chain Activity: Data from Long Beach port and trucking activity suggest a sharp drop in demand, pointing to underlying supply chain strains likely to worsen. (05:19)
• Corporate Response: The potential for margin pressure—companies may soon have to decide between preserving margins by cutting costs/headcount or trying to hold out for stabilization. Large companies say things are fine; small businesses report no wiggle room. (06:45, 08:59)

Capital Account & Currency Dynamics

• Trade and Capital Wars:
  • The US faces a dual struggle: a "current account war with China and a capital account war with the rest of the world." (10:16)
  • Despite fears, real evidence of China and others dumping Treasuries is minimal, but there is an observable decrease in foreign demand for US dollars and Treasuries at the margin. (10:32, 14:11)
• Currency Cycles: Major non-US equity bull markets require major US dollar bear markets. For sustained outperformance by international stocks, you need deep dollar cycles, which do not appear imminent but can be triggered by shifts in trade flows or capital surplus/deficit dynamics. (15:18)
  • "You have to see these major bear markets in currencies in order to get the major bull markets [in non-US stocks]." (17:00)

The Mag 7 “Margin Crunch” and Parabolic Moves

• Blow-Off Top: The Mag 7’s dramatic run, peaking in December 2024, could represent a historical "blow-off top" in outperformance. Such parabolic moves usually last longer than expected but do not correct by going sideways—they eventually snap back. (22:18)
  • “Parabolic moves typically go further and last longer than you think, but they don't correct by going sideways.” – Cameron Dawson (23:23)
• Positioning and Risk: Overcrowding in Mag 7 means when sentiment reverses, the drawdown can be sharper due to high multiples and investor concentration. While expectations recently reset, making positive surprises more likely, the risk remains. (24:00)

Defensive vs. Quality/Cyclical Strategies

• True Defensives: Traditionally defensive sectors (utilities, staples, healthcare) show "episodic" outperformance—only excelling briefly in crises, usually by losing less rather than gaining.
• Preferred Approach: Dawson advocates for quality stocks with good downside and upside capture: aim for ~80% downside capture (lose 20% less than the market) but retain better rally participation than pure defensives. This smooths compounding and reduces emotional errors for clients. (39:14)
  • "If you are having big dips in your performance or in your earnings during a correction, you have to grow from a much lower base in the subsequent up cycle." (40:00)

Hedging and Portfolio Construction

• Tactical Hedges: Some use for buffered/hedged products, especially for clients with liquidity needs, but typically prefer maintaining compounding through equities and T-bills for most. (41:40–43:08)
• Rebalancing: Rebalancing strategies depend on client specifics. For new money, they accelerate allocations on drawdowns; for those sensitive to losses, they raise cash/liquidity during rallies, layering on hedges as needed. (44:28)

Flows, Retail Behavior, and “Buy the Dip”

• Retirement Flows: Persistent 401k and retail flows provide a "relentless bid" under equities—only a true labor market shock would disrupt this.
• Herding and Risk: Retail has not yet capitulated, and the buy-the-dip mentality remains strong. What would finally break that is unknown—possibly only a deep, persistent market drawdown. (30:57–33:27)

3. Notable Quotes & Memorable Moments

• On Uncertainty:
  "This is a murky and unsettled, uncertain period—an incredible understatement." – Cameron Dawson (02:40)

• On Market Psychology:
  "Buy the dip has been an incredible source of outsized returns... What market environment, what scenario, what price action would scare people enough to not buy the dip?" – Cameron Dawson (32:44)

• On Defensive Investing Trap:
  "The challenge with defensive stocks is that they exhibit episodic volatility on a relative basis... What we prefer is quality names with good downside capture and still maintain much better upside capture than your pure defensives." – Cameron Dawson (39:14, 41:22)

• On Multi-Disciplinary Investing:
  "I believe very strongly in a multidisciplinary approach to investing. There's never one school of thought that answers everything—top-down macro, technicals, behavioral, bottom-up, quant. The point is to take from all these methodologies." – Cameron Dawson (46:46)

• On Long-Term Discipline:
  "There’s value in simplicity, in having a set plan that takes emotion out of it... Being a student of history serves everyone well. Even when things feel unprecedented, history always rhymes." – Cameron Dawson (48:50)

• On Pop Culture Metaphors:

  • "It feels a little bit like Wile E. Coyote running off the cliff and looking right at the camera." (03:00)
  • "The bigger they are, the harder they fall." (Pitbull/Kesha reference, 22:18)
  • "We're living in a nihilist market. It's like the honey badger market. Honey badger don’t care." (38:10)

4. Timestamps for Key Segments

| Topic | Timestamp | Key Highlights | |------------------------------------------|-----------|-------------------------------------------------------------------------------------------------------| | Opening: Tariff Purgatory & Uncertainty | 00:00–04:32| Cameron introduces economic limbo post-tariff, Wile E. Coyote metaphor | | Soft vs. Hard Data, Early Indicators | 04:56–08:45| Discussion of soft/hard data, small business sales, labor differential, supply chain warning signs | | Margin Compression, Small Biz Strain | 08:45–10:11| Margin pressure, corporate responses, small vs. large business pain, timing to trouble | | Current/Capital Account War | 10:16–15:07| Explanations of capital flows, China/Treasury sale narrative, global currency cycle | | Mag 7 Parabolic Moves and Risk | 21:41–25:05| The blow-off top in Mag 7, parabolic market theory, crowded positioning | | Defensive Investing, Quality Focus | 39:14–41:22| Defensive sectors' limits, why quality stocks are preferred | | Hedging vs. Simplicity | 41:22–43:28| Buffer products, T-bills, personal risk management, emotional aspects | | Rebalancing and Volatile Markets | 44:11–46:23| How to rebalance dynamically for different clients | | Multidisciplinary Approach, Lessons | 46:43–48:50| Multiple lenses, technical analysis, history, emotion in investing | | Book/Media Recommendations | 50:13–51:12| Where to follow Cameron, pop culture & investing content |

5. Actionable Takeaways for Investors

• Watch for true margin compression and layoffs as leading indicators of economic distress—especially in small business and supply chain data.
• Be skeptical of parabolic moves and recognize the historical tendency for sharp reversals in crowded trades—especially Mag 7/growth stocks.
• Prefer high-quality equities with balanced downside and upside capture over chasing pure defensives during volatile periods.
• Beware of herd behavior: “Buy the dip” is ingrained, but could fail if faced with persistent and deep market stress.
• Lean on a multidisciplinary framework—combine technicals, macro, behavioral, and bottom-up analysis to navigate uncertainty.
• Stay disciplined and unemotional: Have a plan you can stick with, regardless of narratives and near-term volatility.

6. Where to Find Cameron Dawson

• LinkedIn: Cameron Dawson, CFA
• Company: NewEdge Wealth – Weekly macro and market commentary (music/movie themed!)

7. Episode Tone and Style

The episode is engaging, energetic, and metaphoric—frequent use of pop culture (Kesha, Wile E. Coyote, Pitbull), humor, and music references. Despite being technical, the guest and hosts make a point to demystify concepts for investors, oscillating between serious macro analysis and lighthearted banter.

For investors navigating today's uncertainty, this conversation offers practical frameworks, tells you which signals matter most in real time, and cautions against complacency both in portfolios overweight crowded trades and in emotional responses to market swings.