Eye On The Market Podcast Summary
Episode: The Blob: Capital, China, Chips, Chicago and Chilliwack
Host: Michael Cembalest
Date: September 24, 2025
Overview
In this multidisciplinary episode, Michael Cembalest (Chairman of Market and Investment Strategy, J.P. Morgan Asset Management) breaks down trends and tensions reshaping capital markets, technology, policy, and regional economies. Tying together themes from the explosive growth of AI and data centers (“the Blob”), to U.S. industrial policy, China’s evolving economic trajectory, the fiscal crisis in Chicago, and even a personal fishing retreat in Chilliwack, Cembalest offers data-rich perspective and trenchant commentary for institutional investors.
Key Discussion Points & Insights
1. The AI “Blob”: Data Centers’ Expanding Domination
- Analogy and Visual: Cembalest likens the growth of AI-driven data centers to the monster from the 1950s “The Blob” film, humorously envisioning today’s tech titans as the cast and crew (00:50).
- AI Stock Concentration:
- A basket of 40 AI-related stocks (30 direct AI, 10 utilities/capital equipment) has driven “70%–80% of all returns and earnings growth in the market since ChatGPT launched in Nov 2022,” and over 90% of capex and R&D growth (01:30).
- Quote:
“…the highest concentration I’ve ever seen… a remarkable development in the AI space.” (02:20)
- Impact on Power Markets:
- Data centers are outpacing office construction spending and heavily impacting grids—“70% of the increase in electricity prices in 2024 was due to data center demand” in the PJM region (03:25).
- AI’s growth isn’t just a tech issue; it’s transforming energy markets too.
2. Oracle–OpenAI Deal and the AI Arms Race
- Oracle’s Leap:
- Oracle stock soared 25–30% on news of a $60B annual AI facility deal with OpenAI (04:45).
- The buildout will require “over two Hoover Dams or four large nuclear plants” worth of new capacity (05:35).
- Leverage & Risk:
- Unlike peers funding growth from cash flow, Oracle’s “debt to equity ratio” is a staggering 500%—far above Amazon, Meta, Microsoft, Google (06:15).
- Quote:
“If you’re now going to get companies joining in who are going to amplify this even further through borrowing, you have the risk of an even greater AI arms race…” (07:10)
- Potential for a Capital Spending Crescendo:
- Oracle’s borrowing could fuel a new wave of spending and earnings activity in AI infrastructure.
3. U.S. Industrial Policy: Intel and Lessons from Asia
- Intel’s Government Backing:
- U.S. government took a 10% stake in Intel—not a key driver of AI returns, but needing anchor demand to survive (08:00).
- Cembalest supports this move, noting that “the horses have left the barn” for pure market solutions.
- TSMC Case Study:
- Taiwan’s government was foundational for TSMC—initial 49% stake, ongoing board presence, major subsidies and policy support.
- Quote:
“It’s a very, very mercantile world out there. And I consider it a little bit naive to think that the US is going to be able to resolve all its supply chain issues by just relying on market forces…” (12:15)
- Government Support Patterns:
- Charts show France, Sweden, Germany, South Korea, Taiwan all spend much more than the U.S. on subsidies and industrial policy; China spends almost 2% of GDP.
- State-owned bank system assets are far higher outside the U.S., even in developed economies.
- China leads the world in mercantilism, with strong local production requirements and direct/indirect industrial supports (14:35).
4. China’s Involution—Excess Capacity and Economic Policy
- Explaining “Involution”:
- Term refers to China’s chronic oversupply, which produces industrial angst and deflation (16:07).
- Shift: Beijing is now pushing banks to limit lending to surplus-producing firms, targeting a stubborn mismatch of supply and domestic demand.
- External vs. Internal Growth Engines:
- Exports are strong while domestic earnings are weak. Vehicle production is up (for export), but local sales are flat.
- Policy Impact:
- Government appears to be following through on restraining new fixed asset oversupply, but it’s unclear if this is sustainable and who the winners will be.
- Safer bet may be OECD industrials that gain pricing power if Chinese competition really recedes (19:45).
5. Chicago: Crime, Perception, and Municipal Solvency
- Crime Reality Check:
- Despite political attention, Chicago’s crime landscape is complex (21:15).
- Council on Criminal Justice data puts Chicago at or near the top among big U.S. cities in aggravated assault, gun assault, homicide, and robbery.
- Clearance rates misleading—arrests are far lower than “cleared cases.” Only 18% of resolved 2023 Chicago murders led to charges (23:10).
- Large share of those charged are released pre-trial; repeat offenders out on bail.
- Fiscal Crisis:
- Cembalest’s independent “ARC and the Covenants” project finds Chicago is the most indebted U.S. city, with pension and retiree healthcare obligations equaling 35–40% of annual city revenue (25:02).
- Police pension is only 24% funded—the second lowest among major U.S. pension funds.
- Illinois is America’s #2 most indebted state (right behind Connecticut), with “a much greater share than Connecticut in pensions relative to health care” (27:02).
- Quote:
“…just goes to show that I don’t play any favorites.” (28:30)
- Demographic Pressure:
- The state is experiencing some of the nation’s highest out-migration, compounding solvency challenges.
6. U.S. Equity Supply—A Structural Market Tailwind
- Net Equity Supply Decline:
- Since 2011, U.S. net equity supply has been negative—annual DB/DC plan flows (about $1.5T/year) are competing for a shrinking pool of available stocks (30:12).
- This dynamic is a key reason for U.S. equity market resilience to shocks.
7. Personal Note: Chilliwack Interlude
- Kayak Fishing for Sturgeon:
- Cembalest briefly shares about his Fraser River fishing trip near Vancouver, catching seven-foot, 200-pound sturgeon (31:28).
- Humorous Aside:
“If you’ve gotten this far in the podcast, maybe I owe you a voucher of some kind.” (30:50)
Notable Quotes & Timestamps
- On AI concentration:
“By far the highest concentration I’ve ever seen… first time you’ve seen this kind of concentrated earnings growth, price returns, capex in 40 stocks out of the S&P 500.” — Cembalest, (01:55)
- On Oracle’s leverage:
“…Oracle’s debt to equity ratios are 500%. By far the highest… of any direct AI stocks in our universe.” (06:20)
- On U.S. industrial policy realism:
“It’s a very, very mercantile world out there. I consider it naïve to think the US can resolve supply chains by just relying on market forces…” (12:15)
- On Chicago’s true law enforcement metrics:
“Of actual 140 Chicago murders in 2023 that were cleared, charges were only filed in 18% of those cases.” (23:10)
- On city solvency:
“Chicago came in as the most indebted city… 35–40% of all revenue collections required to deal with interest and amortization of unfunded pension/retiree healthcare.” (25:02)
- On reading retention, tongue-in-cheek:
“If you’ve gotten this far in the podcast, maybe I owe you a voucher of some kind.” (30:50)
Timestamps of Major Segments
- 00:22 – Episode open & “The Blob” AI/data center analogy
- 01:25 – AI stock concentration and market impact
- 03:20 – Data center power demand and grid implications
- 04:45 – Oracle–OpenAI deal and leverage risk
- 08:00 – U.S. government investment in Intel; commentary on industrial policy
- 12:15 – TSMC, government support, and global mercantilism
- 14:30 – Cross-country comparison: industrial subsidies & state-owned banking assets
- 16:07 – China’s “involution,” excess capacity, and deflation
- 19:45 – Policy impacts; plays outside China
- 21:15 – Chicago crime realities, clearance rates, and criminal justice issues
- 25:02 – Chicago municipal solvency, pension crisis, Illinois debt
- 30:12 – U.S. equity supply and market structure
- 31:28 – Personal footnote: fishing in Chilliwack
Tone & Style Notes
Cembalest mixes deeply researched financial and economic data with sardonic wit, anecdotes, and a critical view of popular narratives. His tone is accessible but uncompromising, urging institutional listeners to consider global context, local realities, and structural market trends.
Conclusion
This episode delivers an incisive tour through pivotal forces shaping investment and policy landscapes—from the AI boom’s grip on capital and power markets, to the realpolitik of industrial subsidies, the fragility of city and state finances, and nuanced global economic shifts. Cembalest’s synthesis bridges macro, micro, and even personal experience with clarity and candor.