Eric Cantor on AI Supercycle & Capital Competition

In a recent Bloomberg interview, Eric Cantor, Vice Chair of Moelis Company and former House Majority Leader, discussed the current investment climate and the intensifying competition for capital. He highlighted new forecasts from JP Morgan predicting higher yields, with 30-year rates reaching 5.40% and 10-year rates climbing to 4.85%. Barclays also indicated that long-term rates could move even higher, a trend that has significant implications for businesses seeking funding.

The AI Supercycle and Investment Boom

Cantor described the current economic period as potentially the biggest investment cycle since the late 1800s. He pointed to a substantial surge in digital infrastructure, particularly in data centers, and the emergence of entirely new industries. "Every conversation that we're having at Moelis is somehow downstream from this incredible cycle we're seeing," Cantor stated. He also noted the surprising resilience of the consumer market, despite observations of a K-shaped recovery, and suggested that Washington is supportive of continued growth given global uncertainties.

Concerns Over Debt and Financial Markets

The conversation touched upon concerns regarding the financial markets, specifically the amount of debt being issued. Cantor acknowledged the "super cycle for the mega caps," evident in the strategies of hyperscalers and other major technology companies. He observed that senior management teams are actively positioning themselves in response to this technological revolution and the "constructive nature of the regulatory environment." This willingness to transact is also seen on the private equity side, with significant dialogue occurring regarding creative solutions for investors to access capital and return it to limited partners. "There's just availability of capital for good companies," Cantor added, emphasizing the remarkable resiliency observed in the market.

The full discussion can be found on Bloomberg Podcast's YouTube channel.

The Race for Capital

Cantor addressed the potential competition between corporations and the U.S. government for capital. He pointed to the narrowing spread between 10-year corporate investment-grade instruments and 10-year Treasury yields, which has fallen below 100 basis points from a historical average of 150 basis points. This trend, he suggested, could indicate either improving corporate health or a weakening government fiscal position. "So, I do think there is a race for capital," Cantor remarked, linking it to the ongoing investment super cycle. He also noted the increasing global populism that is forcing governments to re-evaluate their financing needs for their populations.

Federal Reserve Policy and Economic Outlook

The discussion also touched upon the Federal Reserve's policy decisions, particularly regarding interest rate hikes. Cantor expressed a nuanced view, stating, "I don't think there's any question. . . I do think there is a raise for capital." However, he also reflected on the Federal Reserve's mandate and the challenges of managing inflation. He noted comments from Federal Reserve officials about the desire to return to basics and ensure discipline in the Fed's regulatory construct. Cantor believes that the increasing net interest cost for the federal government will eventually force Washington to act, as the political cost of inaction will outweigh the cost of taking action.

Consumer Impact and Inflation

Cantor also linked economic conditions to consumer sentiment, referencing the impact of rising gas prices on inflation. He mentioned the existing shortage of refined products and the ongoing debate surrounding the earnings of major oil and gas companies. He also noted that the conflict in the Middle East was anticipated to cause supply shortages, a factor that is already impacting the market.