Eye On The Market - "Mad Libs: just fill in the blanks"
Host: Michael Cembalest
Date: October 16, 2025
Overview
In this engaging episode, Michael Cembalest uses the playful device of "Mad Libs"—filling in economic and market blanks with his data-backed adjectives and nouns—to examine current risks and misconceptions shaping markets and policy. He covers the central role of the AI supply chain, US-China tensions (tariffs, critical minerals), the impact of immigration on economic growth, Oracle and AI company debt, the reality behind central bank gold buying, and societal insights from psychiatric medication data.
Key Discussion Points & Insights
1. Foundation of US Equity Markets: The AI “Moat”
- Focus: Exploring the Nvidia–TSMC–ASML supply chain as the backbone of AI and hyperscaler growth.
- Four central risks to this "moat":
- Power constraints
- China’s ability to replicate the AI hardware stack
- China–Taiwan relations
- Whether AI capital expenditures will achieve sufficient returns, given >$1 trillion spent by hyperscalers since ChatGPT's launch.
“How indestructible is this Nvidia TSMC ASML moat ... which is now really the foundation of the whole US Equity market?”
— Michael Cembalest [01:01]
2. Tariff Impacts: Manageable, Not Catastrophic
- Mad Lib: "The impact of these tariffs on US Growth will be ___."
- Cembalest’s word: "Manageable"
- Reasoning: Estimates for effective tariff rates vary widely (Yale at 18%, Cembalest’s team at 14%, real collections at 10%, and price impacts at just 3–5%). Misclassifications and high retail markups blunt real-world costs.
“These are really hard estimates to make… It is the full employment act for tariff lawyers.” [04:00]
“The impact on final selling prices from an increase in the tariff cost component is often a lot lower than the stated tariff rate.” [06:02]
3. Critical Minerals & China’s Leverage: “Huge” Risk
- Mad Lib: "If these restrictions remain in place, the eventual impact on US military, industrial and renewable energy output would be ___."
- Cembalest’s word: “Huge (with a Trump-style y and several u’s)”
- Reasoning: The US is nearly entirely import-dependent on critical minerals, and China can restrict export flows dramatically.
"China has decided to grant some licenses. But they have the ability to kind of turn this bigot on here and off here at any time.” [13:15]
- The US may overestimate the impact of tariffs in negotiations with China, given China’s shifting export markets and regulatory retaliations.
“China now has a complement to every one [of the US's national security tools], and increasingly the inclination to use them.” [11:55]
4. Economic Growth: Immigration is the Bigger Risk
- Mad Lib: “The bigger risk to economic growth is not tariffs, but ___.”
- Cembalest’s word: “Immigration”
- Declining US fertility rates, falling net immigration (now half previous 20-year averages), and the shrinking labor pool pose medium- to long-term threats.
“My concern... is more about the growth impact of a shrinking labor supply than the inflation impact...” [15:41]
- Labor force participation gains are limited; productivity booms from AI are possible but not immediate.
“I think the administration’s immigration policy is a bigger risk to growth than the tariffs are.” [17:28]
5. Oracle and AI Company Debt: “Misleading” Chart
- Mad Lib: On Oracle’s debt to equity chart
- Cembalest’s word: “Misleading”
- Debt to equity overstates Oracle’s constraints due to stock buybacks. Net debt to EBITDA paints a fairer picture (still high, but not extreme).
"Debt to equity ratio is probably not the right, the best thing to look at… a net debt to EBITDA ratio of around four times is consistent... with a triple B rated company." [18:42]
6. Gold Prices & Central Bank Buying: “Flawed” Logic
- Mad Lib: “This logic is ___.”
- Cembalest’s word: “Flawed”
- The rise in central bank gold reserves as a percentage of assets is nearly all price-driven, not due to mass institutional gold buying or a vote of no confidence in the dollar.
“Almost the entire increase in this widely publicized central bank gold share reserve is because gold prices have gone up.” [20:10]
“Central bank gold allocations don't... appear to be a big part of the reason why [gold prices are rising].” [21:00]
7. Psychiatric Medication Use: “Men” as the Explanation (Humorous Coda)
- Strikingly higher rates of usage among women aged 40–60, with Cembalest jokingly blaming “men.” Noted also: widowed men have a much higher mortality rate.
“The reason for this is... men. In other words, to conclude, men appear to drive women crazy and then after they lose their spouses they're the ones that disproportionately suffer.” [22:08]
Notable Quotes & Memorable Moments
- “Liberals are certainly mad. The latest Pew Research Polls show Democratic support for Trump at around 6%...” [01:34]
- “It is the full Employment act for tariff lawyers.” [04:30]
- “For all of the critical input controls... that the US has been building... China now has a complement to every one of them and increasingly the inclination to use them.” [11:55]
- “I did my part, I kits, but the replacement rate issue is going to start to bite at some point.” [16:23]
- “The chart was misleading.” [18:51]
- “Almost the entire increase... is because gold prices have gone up.” [20:10]
- “Men appear to drive women crazy and then after they lose their spouses they're the ones that disproportionately suffer.” [22:40]
Key Timestamps
- 00:25 – Episode intro, upcoming research previews
- 01:01 – Nvidia–TSMC–ASML “moat” as US equity foundation
- 03:26 – Tariffs: estimates, effects, and “manageability”
- 09:49 – Critical minerals, China’s control, rare earth crisis
- 14:51 – Immigration as a risk to US growth
- 18:08 – Oracle and AI debt capacity reconsidered
- 20:01 – Gold prices, central banks, flawed logic
- 22:08 – Psychiatric medication, men, and population health
Summary
In signature fashion, Michael Cembalest dissects economic “Mad Libs,” spotlighting how headlines and data can mislead. He emphasizes that while tariffs are creating noise, the real long-term risks involve critical material supply chains and falling immigration. He debunks gold’s central bank narrative, rewrites Oracle’s debt analysis, and closes with a humorous demographic insight. Investors and market-watchers seeking clear-eyed, data-rich frameworks will find this episode both informative and entertaining.