Podcast Summary: Eye On The Market - Summer Mailbag
Podcast Information:
- Title: Eye On The Market
- Host: Michael Cembalest
- Episode: Summer Mailbag
- Release Date: July 29, 2025
- Description: Michael Cembalest delves into a diverse range of investment topics, analyzing the economy, policy, and financial markets.
Introduction
In the "Summer Mailbag" episode of Eye On The Market, host Michael Cembalest addresses a series of client-submitted questions, providing in-depth analysis and insights on pressing investment and economic topics. The episode also previews the upcoming August installment, which will focus on the healthcare sector's recent stagnation.
1. Natural Gas Turbines Backlog and Solar Storage Economics
Timestamp: [03:00]
Cembalest begins by addressing the long backlog for natural gas turbines, highlighting a significant delay in manufacturing and delivery times—from three to seven years—caused by increased demand and supply constraints. He notes that prices have surged from $1,200 to approximately $2,500 per kilowatt over the past few years.
“We’re going to take a look at all the things that are dragging down healthcare… including proposals on capping drug prices…” (07:00)
The discussion pivots to a recent study by one of the major energy research institutes, asserting that solar plus storage could meet nearly the entire energy load in regions like Las Vegas. However, Cembalest expresses skepticism about these claims, stating:
“I think we're a long way away on an unsubsidized basis... from when solar and storage are comparable economically as a form of baseload power to gas.” (08:45)
He concludes that the current delays in turbine production could hinder the expansion of data centers, which rely heavily on reliable power infrastructure.
2. China’s Rare Earth Export Constraints and US Defense Investments
Timestamp: [15:30]
Cembalest discusses China's drastic reduction in rare earth exports to the US, which plummeted by 80-90% in May, leveraging their dominant position to influence US tariff negotiations.
“China is already understandably exercising their leverage in these tariff discussions by really choking off rare earth exports to the U.S. now.” (18:15)
Highlighting the US Department of Defense's strategic investment in MP Materials, he underscores the challenges in achieving a China-free magnet supply chain by 2027 due to China's entrenched dominance in rare earth processing.
3. Yucks, Megas, and Equity Market Valuations
Timestamp: [25:00]
Exploring market valuations, Cembalest explains the concepts of "yucks" (young unprofitable companies) and "megas" (the top 10 largest companies). He observes a decline in the proportion of unprofitable companies from its peak during the stimulus period, signaling improved risk-taking in the market.
“The share of large cap companies that have negative earnings... has come sharply down to about 7%. That's close to the lower levels over the last 30, 40 years.” (30:00)
Regarding megas, he notes that while the top 10 companies now represent about 35% of the market cap—a historically high figure—this is balanced by their corresponding share in earnings estimates, mitigating concerns over disproportionate influence.
4. Deregulation Under the Biden Administration and Bank Capital Standards
Timestamp: [35:45]
Cembalest evaluates the potential impact of deregulation efforts by the Biden administration on bank capital standards. He criticizes the proposed relaxation of the supplementary leverage ratio, arguing that it offers negligible benefits to major banks like JPMorgan or Wells Fargo.
“Relaxing a capital standard that's not binding... doesn't really do anything for you.” (40:20)
He concludes that such regulatory changes are more symbolic than substantive, referring to them as a "nothing burger" despite the accompanying media attention.
5. Apple’s Paper on Reasoning Models and AI in the Workplace
Timestamp: [43:50]
Addressing Apple's recent critique of reasoning models in AI, Cembalest expresses skepticism about the paper's impact, emphasizing the practical benefits of AI in automating routine tasks.
“AI in the workplace is increasingly being used for summarizing materials and automating super routine tasks.” (50:10)
He references supportive studies demonstrating AI’s positive effects in education and medical research, while acknowledging challenges like confidentiality and the need for human oversight. Overall, he maintains a balanced view, promoting cautious optimism over sensational critiques.
6. Current State of Tariffs and Their Economic Impact
Timestamp: [55:30]
Cembalest provides an update on the fluctuating tariff landscape, noting that effective tariff rates on imported goods have risen from approximately 2.5% to around 17%. However, he cautions that only about a third of these tariffs are firmly in place, with the remainder subject to legal disputes and negotiations.
“This tariff stuff is still up in the air depending upon whether or not these two separate court cases...” (60:45)
He outlines the potential economic repercussions, particularly on imported capital goods crucial for infrastructure projects, and suggests that the uncertainty may prompt the Federal Reserve to adopt a cautious stance on monetary policy.
7. JP Morgan’s Blockchain Initiatives and Ethereum Positions
Timestamp: [65:10]
When queried about JP Morgan’s blockchain projects and their implications for Ethereum investments, Cembalest clarifies that JP Morgan’s current blockchain efforts are built on a private, permissioned version of Ethereum, which does not directly benefit public Ethereum holders.
“Should you buy Ethereum because JPMorgan is building this kind of blockchain project? No...” (70:00)
He underscores that the scale of these projects is relatively minor compared to JP Morgan’s traditional operations and remains skeptical about significant crypto investment implications at this stage.
8. Fraud Risks from AI Voice Cloning and Bank Security Measures
Timestamp: [75:30]
In response to concerns raised by Sam Altman about AI-driven voice cloning fraud, Cembalest discusses various protective technologies banks are implementing. These include deep fake detection tools, in-app authentication, and payment pattern recognition systems.
“I was encouraged to see the number of tools that are being developed to potentially offset some of these things.” (80:15)
He reassures listeners that while traditional voice authentication methods may be vulnerable, advancements in security technologies are mitigating these risks effectively.
Conclusion
Michael Cembalest wraps up the Summer Mailbag by previewing the August episode focused on the healthcare sector and expressing personal anecdotes about upcoming fishing trips. He emphasizes the importance of staying informed on dynamic market and policy developments, encouraging listeners to remain engaged with future episodes.
“Hope you're having a great summer.” (42:00)
Disclaimer: This summary is intended for informational purposes only and does not constitute personal investment advice.