Excess Returns Podcast Summary

Episode: The Four Pillars of Macro – And What They Say About This Market | Andy Constan

Date: October 9, 2025

Overview

In this episode, hosts Jack Forehand, Justin Carbonneau, and Matt Zeigler welcome back Andy Constan (formerly of Bridgewater and Brevan Howard, founder of Damped Spring). The conversation centers around Andy’s “Four Pillar” macro investing framework: Growth, Inflation, Risk Premium, and Flows. The group explores how this framework informs his current view of markets, delves into pressing issues such as AI-driven spending, tariffs, the Fed’s independence, and the unusual economic dynamics characterizing the present.

Key Discussion Points & Insights

1. Systematic vs. Discretionary Macro Investing (02:05–13:35)

• Background: Andy reflects on his experience at Bridgewater (systematic) and Brevan Howard (discretionary). He underscores the challenge of distinguishing skill from luck in decision-making.
• Key Insight:
  • “Both the discretionary trader and the systematic trader are trying to accomplish the same goal, which is have a very clear, precise picture of what's happening in the world and then to compare it to past worlds and see what's next. […] It's just two different approaches to the exact same problem.” — Andy (11:53)
• Memorable Moment: Andy compares systematic approaches to building a digitized "pixelated" version of the past, while discretionary traders see patterns analogically, often based on intuition or memory.

2. The Four Pillar Macro Framework (13:35–22:33)

Andy introduces his four pillars, each vital for understanding and predicting market behavior:

a. Growth & Inflation (14:12–16:14)

• Growth typically favors equities; inflation is harmful to fixed income and can hurt equities if margin pressure results.
• Foundational: "That's like table stakes for decades now is understanding that." — Andy (16:14)

b. Risk Premium (16:14–22:33)

• Focuses on whether assets pay enough premium over cash, shaped by policy actions, market perceptions of risk, and leverage.
• Andy credits much of his alpha in recent years to understanding pricing distortions created by active policy measures (e.g. QE, QT).

c. Flows (22:33–22:33)

• Encompasses both slow (like persistent investor contributions) and fast (large, sudden orders or central bank moves) flows.
• Key goal: "I want to know before a very large order that's going to impact price enters the market. Why do I want to know it? Because I want to buy before they do. And I also want to know when that order is going to get finished, because that's when I want to sell to them." — Andy (20:45)

3. Application of the Framework: Current Market Analysis

Growth (22:52–32:47)

• Recent GDP growth rebounded strongly after a weak first quarter, led by massive AI-related capex.
• Consumption is bifurcated: “We're in a Growth K economy where […] growth is so strong and the rest of the growth is just not that good. In some cases pretty bad.” — Andy (27:31)
• AI’s effect: big capex with uncertain near-term revenue. Andy warns this mirrors early Amazon—huge expectation, eventual bust, then recovery.
• "How do you generate a trillion dollars of revenue? [...] I don't see the pie growing at 3 1/2% higher than what is expected now. Nor do I see enough room for the share to grow so that these investments are going to have any sort of near term payoff." — Andy (30:12)

Tariffs & Policy Uncertainty (32:47–39:46)

• Tariffs have had less negative impact than anticipated; other growth supports (deficit spending, asset price strength) have offset them.
• Andy sees upcoming Supreme Court decisions on tariffs as a "digital" wild card that could shift outcomes sharply.

Fed Independence (39:46–47:15)

• Andy is sanguine about Fed independence, observing that the Fed almost always aligns with the fiscal response except during rare, severe inflation spikes (e.g., Volcker era).
• "You don't need an independent Fed at all. In fact, you never have one except occasionally. And when you have one, when it's that occasion, you really need an independent Fed." — Andy (40:22)
• In most scenarios, the Fed's path is pragmatic and broadly aligned.

Labor Market / Youth Unemployment (47:15–48:34)

• Youth (college-age) unemployment is a real concern. It’s unclear whether this is directly related to AI or simply a function of uncertainty.

Risk Premium & Portfolio Positioning (48:34–56:05)

• Key question: Should you own assets or hold cash? Over long horizons, assets win due to the risk premium, but short-term timing is very hard.
• "Every day you get a little bit of juice for being invested in assets in a broad sense. Every day it's working in your favor and every day you're in cash, it's working against you." — Andy (49:11)
• The best shot at alpha is spotting policy shifts (QE/QT), volatility, leverage cycles, and credit conditions before markets fully price them.

Flows (56:05–59:53)

• The sustainability of AI capex is questioned; hyperscalers are draining cash reserves and still buying back shares.
• Watch whether financing shifts from cash to more corporate debt issuance, which could ripple into bond spreads and demand dynamics for treasuries and equities.

4. Macro Outlook & Favorite Trades (59:53–66:57)

• Andy emphasizes current unpredictability and multiple “tail” outcomes.
• Supreme Court decision on tariffs (expected before Thanksgiving) is identified as a major upcoming market catalyst.
• "I've never seen conditions that could go either way in a digital fashion more than ever [...] it's very easy to picture a world in which bond yields go to 4%, three and a half percent, and then six, and equities go to 7,500 and then 5,000." — Andy (66:36)
• Implied and realized volatility remain low, despite elevated binary risks.

Timestamps for Critical Segments

| Segment | Topic | Timestamp | | ------------------------------ | --------------------------------------------------------- | -------------- | | Andy's background/approaches | Discretionary vs. Systematic Macro | 02:05–13:35 | | Four Pillar Framework Intro | Growth, Inflation, Risk Premia, Flows Explanation | 13:35–22:33 | | Current Growth Analysis | K-shaped AI economy, capex challenges | 22:52–32:47 | | Tariffs Discussion | Service economy, expectations, Supreme Court wild card | 32:47–39:46 | | Fed Independence | When it matters, historical parallels | 39:46–47:15 | | Labor Market/Youth Employment | Weakness and uncertainty | 47:15–48:34 | | Risk Premium Analysis | Asset vs. cash, policy impacts, timing | 48:34–56:05 | | Flows in Focus | AI capex financing, share buybacks | 56:05–59:53 | | Macro Outlook | Favorable/unfavorable scenarios, tail risks | 59:53–66:57 |

Notable Quotes & Memorable Moments

On Macro Frameworks and Process:

"The most important thing you do, which is try to understand how you make decisions. Are they good decisions? And then make sure that you can distinguish between luck and decision making."
— Andy (03:41)

On Systematic vs. Discretionary Approaches:

"A pixelated picture is never going to be analog. And there's going to be some great brain that's capable of understanding an analog picture better than any other system."
— Andy (11:14)

On AI's Economic Impact:

"We're in a Growth K economy where […] growth is so strong and the rest of the growth is just not that good. In some cases pretty bad."
— Andy (27:31)

On Fed Independence:

"You don't need an independent Fed at all. In fact, you never have one except occasionally. And when you have one, when it's that occasion, you really need an independent Fed."
— Andy (40:22)

On the Unpredictability of Current Conditions:

"I've never seen conditions that could go either way in a digital fashion more than ever."
— Andy (66:36)

On Portfolio Advice:

"Everyone on this thing should stop trying to beat markets, just invest broadly and go about trying to earn and save as much as they can in their profession. Not, not try to beat markets."
— Andy (49:00)

Conclusion

This episode provides a deep, candid look at how a veteran macro investor parses the current market, balancing optimism (particularly for AI and capex-driven narratives) with significant caution due to political, fiscal, and central bank uncertainties. Andy Constan’s Four Pillar approach—Growth, Inflation, Risk Premium, and Flows—serves as a robust lens for navigating today’s complex environment.

Listeners are left with a strong sense that, in the current “digital” (i.e., binary, rapidly shifting) market setting, preparing for tail events and thinking probabilistically are more important than ever.