Unhedged Podcast Summary

Episode: AI, shutdowns and shadow banks
Date: October 2, 2025
Hosts: Katie Martin & Robert Armstrong
Podcast by: Financial Times & Pushkin Industries

Episode Overview

This episode delves into three major sources of investor anxiety: the U.S. government shutdown and its impact on market data, the rapid and possibly overheated growth of AI-driven investments in the U.S. economy, and the expanding shadow banking sector that’s taking on increasingly significant (and opaque) financial risk. With their signature wit and skepticism, Katie Martin and Robert Armstrong examine why markets remain unfazed despite these uncertainties, discuss the possible implications of an AI-fueled economy, and explore the risks arising from shadow banks.

Key Discussion Points & Insights

1. The U.S. Government Shutdown and Market Implications

[00:39–08:59]

• Katie and Robert open with their willingness to highlight under-appreciated risks, joking about being “miserable old farts.”
• The current U.S. government shutdown means crucial data like the monthly nonfarm payrolls (jobs) report won’t be released:

  "Literally, it is the most important economic data point in the world. And it has been shut down by the shutdown..."
  — Robert, [03:22]

• The absence of jobs data comes as the labor market is sending mixed signals—weakening employment, but broader economic resilience.
• The hosts explain the annual Congressional budget process and the recurring political “game of chicken” that leads to shutdown risks, noting this time may be more unpredictable given the political context.
• Discussion of President Trump’s threats to fire (not just furlough) federal employees, which could raise political and economic stakes ([05:28]).
• Despite the drama, financial markets remain indifferent, brushing off shutdown headlines and weak labor market signals:

  “Markets, by the way, Katie, don’t seem to care about anything. They don’t care about the weak labor market either. So it’s not just the politics they’re ignoring...”
  — Robert, [05:48]

• Katie emphasizes that unless a debt ceiling crisis looms, shutdowns rarely move markets.

Notable Quote:

"They are. They're nihilist, dude."
— Katie, [06:01]

2. The 'AI Bubble': Is U.S. Economic Growth Hanging by a Thread?

[08:59–15:55]

• AI is portrayed as both revolutionary and single-handedly responsible for much of recent U.S. economic growth and market enthusiasm.
• Referencing economist Jason Furman, Robert highlights that stripping out tech hardware/software from GDP nearly erases recent growth:

  "If you take tech hardware and software out of GDP growth, that's like 90% of the GDP growth we saw in the first half of this year..."
  — Robert, [09:34]

• The complexity of measuring AI’s true economic impact is discussed, including how importing technology hardware distorts GDP.
• Katie observes the rapid, energy-intensive buildout of AI data centers across the U.S., driving both stock market and real economy growth.
• Robert provides a striking stat: the capital expenditure of just a handful of AI giants equals 1% of U.S. GDP ([11:33]).
• Both acknowledge the big unknown: whether these huge investments in AI will ever pay off.

  "If people realize that the AI business model is not that profitable… then there’s all these assets in the world that are going to have to be massively marked down..."
  — Robert, [12:45]

• Citing James Anderson (Baillie Gifford), Katie flags “uncomfortable echoes of the dot com bubble” as Nvidia and others announce massive investments.
• Robert draws analogies to previous bubbles – Japan in the 1980s, U.S. tech in 1999 – and notes that booms often leave valuable infrastructure behind, even if they burst.

Notable Quotes:

"This just feels a little bit, this feels a bit toppy, doesn’t it?"
— Katie, [14:25]
"Ultimately these things are good for economies... the railroad bubble gave us railroad lines, you know what I mean?"
— Robert, [15:49]

3. The Shadow Banking System: Burgeoning Risk in the Shadows

[16:09–19:01]

• Katie segues to shadow banking, referring to Robert’s ongoing reporting.
• Robert explains: A shadow bank is any lender that isn’t a bank (doesn’t take deposits), but raises money in other ways and extends credit—e.g., subprime auto lenders.
• Critical concern: Banks themselves are increasingly lending to these shadow banks, effectively taking on risk by proxy ([17:18]).
• The Federal Reserve now requires more disclosure. U.S. bank lending to non-bank financial firms has reached $1.7 trillion:

  "Now, I don't know how big a problem that is. I do know $1.7 trillion counts as a very large number."
  — Robert, [18:17]

• Shadow bank-related lending now accounts for almost all U.S. lending growth.
• Monitoring the risk is challenging since, as Robert says, it’s “not always easy to tell what’s going on underneath the hood.”

Notable Exchange:

Katie: "So all the lending growth comes from deep in the shadows. All the economic growth comes from the AI buildout. And we have a total blackout on official data to tell us how that's going to affect the US economy. Sounds great. Rack me up for another record high in U.S. stocks. All makes absolutely perfect sense."
— [19:01]

4. Markets Shrugging at Risks: Why Nothing Seems to Matter

[19:01–20:04]

• Despite shutdowns, AI bubble fears, and shadow banking opacity, U.S. stock markets are near all-time highs.
• Katie and Robert both reflect sarcastically on the disconnect:

  "In the short term, when the market has momentum, almost nothing else matters. Yeah, that's true today, and that has always been true since dinosaurs were trading stones..."
  — Robert, [19:40]

• They end the main segment with a wry sense that markets’ current indifference have deep historical precedent.

Memorable Quotes & Moments

• “Speaking of tough, I have received several inquiries after our last podcast, which we recorded when I was out in New York, checking that I was still alive after we went for a few little drinks last week...”
  — Katie, lighthearted banter, [01:57]
• "You called me a depressed old fart or something equally offensive at the top of the show. And I'm just trying to wear my optimist hat here. Katie, doesn't fit very well, but I'm trying to jam it along."
  — Robert, [15:55]
• "When the market has momentum, almost nothing else matters... that's always been true since dinosaurs were trading stones with one another..."
  — Robert, [19:40]

Important Segment Timestamps

• [00:39] – Introduction and preview of key worries
• [02:45] – The impact of the government shutdown on jobs data
• [06:39] – Differentiating market-irrelevant shutdowns from debt ceiling crises
• [08:59] – Transition to AI’s role in economic growth
• [09:34] – Citing GDP growth driven by AI/tech
• [11:33] – AI company capital expenditure as 1% of GDP
• [12:45] – Balance sheet risk from overvalued AI investments
• [14:08] – James Anderson’s AI bubble warnings
• [16:09] – Introduction to shadow banking
• [17:37] – Banks lending to shadow banks and quantified exposure
• [19:01] – Markets’ indifference, summary
• [20:04] – Segue to listener Q&A / wrapup

Tone and Style

The episode is marked by the hosts’ customary mix of dry humor, informed skepticism, and a touch of resigned world-weariness—often oscillating between wry fatalism about markets’ myopia and the real, if abstract, concerns lurking beneath the surface.

For listeners who missed the episode:
This installment offers a sharp, accessible, and often funny take on three pressing financial system risks: a data blackout from the U.S. shutdown, the all-consuming AI boom, and the under-the-radar ballooning of shadow banking—all of which markets appear happy to ignore for now.