The Compound and Friends
Episode: "Data Centers Are the New Fracking"
Date: February 27, 2026
Hosts: Downtown Josh Brown, Michael Batnick
Guests: Daniel Clifton (Partner/Head of Policy Research, Strategas Asset Management), Chris Varone (Partner/Head of Technical & Macro Research, Strategas)
Overview: Main Themes
This episode centers on the dramatic shift in business, politics, and investing triggered by the AI/data center boom—framed as “the new fracking”—and the broad sociopolitical, economic, and market repercussions. The conversation seamlessly weaves together investing hot topics, AI skepticism, election-year policy, CapEx surges, shifting market leadership, and the challenges of interpreting today’s rapidly evolving financial narratives.
Key Discussion Points & Insights
1. Setting the Scene: From Cartels to State of the Union (00:00–04:44)
- Michael shares a harrowing Mexico travel story, underscoring rising geopolitical risks (“Might be my last time.” – Michael, 00:47).
- Daniel and Chris join, quickly pivoting to hot takes on the recent State of the Union address.
- Trump’s performance compared to past presidents: “He’s bringing out the hockey team...200-year-old soldiers getting medals.” – Chris, 02:29
- Quick reactions to Trump’s moves on tariffs, immigration, and Supreme Court strategy.
2. Trump’s Policy Focus: Immigration, Data Centers, Taxes (04:44–06:10)
- Trump’s pivot to making the midterms about immigration and American jobs—discussed as a wedge issue.
- Chris flags unexpected, pivotal comments about data centers and the need for Microsoft and others to fund their own energy to calm voter concerns (04:44).
3. Political/Economic Disconnects & Market Behavior (06:10–14:34)
- The panel marvels at the paradox of economic tailwinds (low gas prices, stock market highs) not translating into better poll numbers.
- Michael: “What’s remarkable here...the market’s basically 2% off the highs.” (05:41)
- Debate on the Fed’s ability to parse structural vs. cyclical unemployment changes sparked by AI.
- Market breadth improves as mega-cap tech stumbles, recalling early 2000s market structure.
4. The AI Backlash Goes Mainstream (14:34–19:31)
- Josh: “The full backlash against AI finally went mainstream.” (14:34)
- Sobering stats on AI skepticism:
- 50% of Americans more concerned than excited about AI (Pew).
- Only 5% trust AI “a lot.”
- 61% say AI will eliminate more jobs than it creates.
- 77% distrust gov’t/business with AI.
Notable Quote:
“Everybody hates this shit. Here’s the COVID of Time magazine.” – Josh, 16:46
- Discussion on entry-level unemployment spiking for grads, attributed to reluctance to hire in an AI-evolving job market.
5. Data Centers: The New Fracking? (19:31–23:49)
- Chris: “Data centers are the new fracking.” (19:38)
- Local resistance to data center projects echoes past fracking political battles—nimbyism, environmental fears, and political flashpoints.
- Limited local job creation is a challenge to pro-data center arguments; instead, property tax revenues become the carrot.
- The fracking/AI comparison: both offered economic promise, both met with populist resistance.
Notable Quote:
“One of the problems is they don’t create a lot of jobs... you’ve got to make it about property taxes.” – Chris, 22:09
6. Market Rotation: End of the Mega-Cap Era? (23:49–33:09)
- Increasing momentum toward “the market of the many”—equal-weight indexes, industrials, mid-caps, and value taking leadership as tech falters.
- Discussion of 1999–2001 analogs: breadth improves even as the headline index stalls or drops.
- Software’s washout and semis’ “parabolic” moves—indiscriminate selling triggers potential reflex rallies.
- Caution against chasing parabolic moves “be very, very careful with the parabolic looking chart.” – Michael, 27:25
- New rotation: AI infrastructure plays (industrial, electrical equipment) go vertical while old standbys lag.
Notable Quote:
"All the incremental news flow...has been in this direction of this new developing trend...the market of the many." – Michael, 24:41
7. The Narrative Game & Policy Shifts (33:09–41:37)
- Panel suspects coordinated messaging among tech executives to downplay AI’s job-loss threat, stemming panic in enterprise buyers.
- Capex boom is broadening beyond tech and energy as expensing incentives kick in.
- Strong warnings against over-anchoring on narrative instead of price and trend: “Be really, really skeptical of anyone who is just so forceful with a narrative.” – Michael, 34:03
8. A Regime Change in Market Leadership (41:37–47:53)
- Old-economy cyclicals—industrials, energy, materials—lead for the first time in decades.
- Josh asks: “Could we pay tech-like multiples for industrial stocks?” (40:26)
- Marathon outperformance by consumer discretionary ends; US investors must re-learn the industrials/materials trade.
- Unpacking the political overlay: Capex/reshoring trends could hinge on results of the midterm elections.
Notable Quotes:
“This is a capex economy.” – Michael, 41:39
“If this is a new regime, am I playing by the right rules?” – Michael, 42:15
9. The Election Cycle & Market Volatility (47:53–59:32)
- Stocks, sector leadership, and policy are all now proxies for anticipated midterm results (e.g., tech underperforming as Dem odds of winning Congress rise).
- Strategic sector baskets for each political scenario (“Harris basket”: renewables, health care, etc.).
- Historical patterns: “The S&P 500 has not declined in the 12 months following a midterm election ever since 1938.” – Chris, 58:30
Notable Quote:
“When a trend is in motion, all the news flow tends to break in the direction of the trend.” – Michael, 48:59
10. Market Breadth, Defensive Rotation, & Sector Valuations (49:25–61:24)
- Strong breadth outside of tech; energy and staples at extremes above moving averages.
- Staples now trading at a higher PE than some big tech—ripe for a fade. “Are you buying an all-time breakout in multiple for consumer staples? You’re fading that all day.” – Daniel, 61:05
11. Anthropic, DOD, and AI National Security (61:26–66:12)
- New policy/regulatory front: AI safety, privacy, and government relationships at Anthropic (Claude).
- Defense exposure drives changes in how leading AI companies might operate/present themselves.
Notable Exchange:
“Anthropic basically now has to do whatever the Trump administration says.” – Josh, 62:17
“They're only going to have one customer, and the Department of Defense is only going to have one vendor...they will figure out a solution.” – Chris, 64:30
12. Gold, Crypto, and the Dollar (66:12–73:19)
- Gold seen as “in the penalty box” for now; silver declared “done.”
- Bitcoin no longer viewed as a game-changer since stablecoins (US Dollar-backed) are taking center stage in digital money (see 67:26).
- Broadening outflows from bitcoin ETFs symbolize emotional liquidation—but history says survivors bounce back.
- USD weakness helping global equities; expect some bounce, but bigger structural shifts possible post-midterm.
13. Global Markets: A New Era (73:19–77:24)
- US market cap as % of world peaked in late 2024; Japan, LatAm roaring (Nikkei eyeing 90,000–100,000).
- Panelists stress no “one-size-fits-all” sector/geographic analogs—each region has unique drivers.
- Political winner: US is “off the hook” for carrying global growth as Europe and Japan ramp spending.
14. Macro ETF Strategies: Investing for Policy, Price, and Narrative (77:24–81:58)
- Detailed rundown of Strategas’ thematic ETFs:
- SAMT: Macro theme rotation.
- SAGP: Stocks benefiting from lobbying intensity.
- SAMM: Pure price/relative momentum.
- Discussion of how policy, price signal, and narrative intertwine; rare moments when all align offer major opportunity.
Notable Quotes & Moments
- “Data centers are the new fracking.” (Chris Varone, 19:38)
- “What Dan sees in DC—he sees it before it’s on the front page of the newspaper… when it’s also showing up in my work… that’s where the magic is.” (Michael Batnick, 81:48)
- “Apple could be a market leader again—it’s the only one not tainted with these $600 billion capex multi-year budgets.” (Josh, 52:16)
- “I'm happy to be out of Mexico. I think the Masters is six weeks away. I’m looking forward to the Masters, the best week of the year. And… this is the most exciting macro environment I've ever seen.” (Michael, 83:05)
Important Timestamps
- 00:00–04:44: Mexico story, State of the Union, Trump policies
- 04:44–06:10: Tariffs, data centers in SOTU, tax policy
- 14:34–19:31: Mainstream AI backlash, polling data, employment fears
- 19:31–23:49: “Data centers are the new fracking,” local opposition, parallels with energy sector
- 23:49–33:09: Market structure: Rotation from mega-cap tech, breadth, bubble analogies
- 33:09–41:37: Narrative versus price, CapEx boom, skepticism about strong narratives
- 47:53–59:32: Market, sector, and election cycle interplay, historical performance around midterms
- 61:26–66:12: Anthropic and DoD, AI governance, privatization of defense tech
- 66:12–73:19: Commodities and crypto, gold/silver/bitcoin outlook, US dollar
- 73:19–77:24: Global market shift, US market cap declines, Japan/LatAm bull run
- 77:24–81:58: Thematic ETF deep dive, combining policy and momentum
Closing and Personal Touches
The episode closes with the recurring “what are you looking forward to” round:
- Chris: World Baseball Classic, midterm election (“Super Bowl”)
- Michael: The Masters, being home safe, and excitement at today’s macro investing landscape.
Josh’s birthday is celebrated with a song—a warm, personal ending to a dense, lively session.
Summary
This was an energetic, wide-ranging episode anchored in the intersection of macro trends, market leadership rotation, and the reverberating impact of artificial intelligence and political policy on business and investing. The “data centers = fracking” metaphor serves as the backbone, highlighting how technological shifts can trigger dramatic re-orderings across markets, policy, and public opinion.
The conversation is infused with skepticism toward conventional narratives, sharp historical analogies, and practical investing takeaways, making it invaluable for anyone trying to make sense of the new economic and investing paradigm.
Listen Further
Find these guests and their research at Strategas Research Partners and on LinkedIn/X. For the ETFs discussed, see official Strategas ETF sites. For disclosures: Ritholtz Wealth Podcast Disclosures.