Ah-ah-ah-ah-ah-ah-ah-ah, Thunder
I'm back in black. I've been gone for a while, started my own firm, Harvest Lane Investment Partners LLC and I've been building something I should have done a long time ago. I guess I finally listened to the sound of the drums beatin' in my heart. But the itch to write never went away, and there's way too much happening right now for me to sit on the sidelines. So, for those of you who are new to hearing from me, welcome. I take things like demographics, economics, geopolitics, and markets and wrap them up in a way that makes you feel thunderstruck. For those of you who've been here since the beginning, I'm about to bring some thunder back.
The economy looks great right now. Unemployment is low, the market has been ripping, and if you just glance at the headlines, everything seems fine. And honestly? A lot of it IS fine. I've spent the better part of 15 years being the optimist when everyone else was calling for doom, and I'm not changing that now. But I also know that when things feel the most comfortable it is usually when people stop paying attention. And right now, the complacency out there feels like they're on the highway to hell.
Millennials. 62 million strong. They've been the engine behind a lot of the economic growth we've seen over the last decade-plus, and they're still very much on the rockin' roll train. The younger half of the generation, those born in the late '80s and early '90s, are right in the thick of it (I can attest to that fact). They're in their mid-30s, deep in the most expensive years of life: daycare, diapers, bigger houses, second cars, birthday parties where you somehow spend $400 for a bunch of 5-year-olds to jump on trampolines. That spending is real and it's still happening.
But here's the part people aren't paying attention to. The oldest Millennials just turned 45. And 45 is not just a number, it's a line that history has proven matters a lot.
According to the Bureau of Labor Statistics, consumer spending follows what economists call a "hump-shaped" pattern over a lifetime. It ramps up through your 30s and early 40s, peaks somewhere between 45 and 54. For my personal sake I hope it is closer to 45 and not 54 because my rockin' roll train is about to be rockin' off the track. We're not talking about a little dip in spending either, transportation gets cut nearly in half. Clothing drops by more than 50%. Even food spending falls off.
Think about it in your own life. When you're 35 with kids, you spend on everything housing, the furniture, the car seats, the groceries, the vacations, the soccer cleats every six months because their feet won't stop growing. By the time you're 55, the kids are gone, the house is furnished, and you're not exactly running to Pottery Barn every weekend. That's not a recession. That's just life. Every generation before us did the same thing, and Millennials won't be any different.
Now, the entire generation isn't turning 45 at once, the youngest Millennials are only 30. So, this isn't a light switch. It's more like a slow turn of the dial. But the leading edge is crossing that peak right now, and year by year, more of them will follow. The growth rate of Millennial spending, the thing that's been pushing this train forward, is going to start decelerating. Not stopping. Decelerating.
Gen Z is about 71 million strong, nearly as big as the Millennials. But the oldest Gen Z is only 29, and the youngest are still in high school. Consumer spending doesn't really ramp up until your mid-30s when the mortgage, the kids, and the second car show up. The oldest Gen Z won't hit that peak spending window until the early 2030s, and the bulk of the generation won't get there until the late 2030s. So, you've got Millennials starting to ease off the gas and Gen Z still five to ten years away from picking up the slack. That gap matters. And if your understanding of the economy doesn't account for that, you're going to get caught in the storm without an umbrella.
Now let's talk about the second thing that's been keeping this economy humming: the AI data center buildout. And look, I am not an AI skeptic. I use AI all the time. My wife tells me my new friend Claude is driving her insane. The technology is real and it's going to matter. But the spending? The spending has gone from impressive to insane. Zuckerberg is spending so much money you'd think he was on the highway to hell.
Tim Cook promised $600 billion in U.S. spending over four years. Zuckerberg pledged at least $600 billion through 2028. Sam Altman at OpenAI says he wants to spend "trillions" on data centers. Trillions. With a T. McKinsey estimates $6.7 trillion in cumulative global data center spending through 2030.
David Einhorn over at Greenlight Capital put it perfectly, the numbers being thrown around are so extreme that it's really, really hard to understand them. And Einhorn is not some guy yelling on Twitter. He's one of the sharpest investors on the planet. He went on to point out that every $1 of loss-making AI customer revenue cascades into more than $8 of aggregate revenue across the AI supply chain. Let that sink in. The customers aren't even profitable, and the entire ecosystem is building on top of that revenue as if it's real demand.
Bain & Company estimates that by 2030, AI companies will need $2 trillion in combined annual revenue just to justify the current buildout, and projects they'll come up about $800 billion short. 800 BILLION, that's not a rounding error. That really is a runaway train.
Meta borrowed $26 billion for a SINGLE data center complex in Louisiana that's supposed to approach the size of Manhattan. Nvidia is investing $100 billion into OpenAI's buildout, the chip company is financing its own customer so the customer can keep buying its chips. Now I wasn't old enough to be researching capital flows in 2000, but apparently, telecom companies were doing the same thing right before the whole thing blew up. I was thunderstruck when I saw those numbers, and you should be too.
All of this AI spending has been pumping real money into the economy, construction jobs, equipment, energy demand, the works. It's been a legitimate contributor to GDP growth. But it's not organic consumer demand. It's corporate capex on a bet that hasn't fully proven out yet. A little perspective on these numbers, in 2020 the capital expenditures of the 4 largest tech companies was $107 billion, 2023 it was $168 billion, 2025 $400 billion, and this year $650 billion has been announced. These 4 companies are planning on spending more this year than the entire GDP of countries like Sweden. When that spending slows or the math catches up, it's going to leave a hole that people didn't see coming. You know, like a bolt of lightning, leaving you thunderstruck.
Now here's where I'll leave you for this week. There's a third piece to this puzzle, inflation, and it ties directly into demographics. For some reason, a lot of people seem to think inflation is going to quietly come back down and stay at 2%. I am not in that camp. There are structural, demographic-driven inflationary pressures that the Fed simply cannot fix with interest rate hikes. Fewer workers, deglobalization, reshoring, energy transition costs, government spending, none of that goes away because Jerome Powell gives a speech.
But that deserves its own conversation, and I don't want to rush it. So next week, we're going to connect demographics and inflation in a way that I think will change how some of you think about what's ahead. Consider this the sound of the drums beating in the distance.
I'm not turning bearish. I'm still the demographics guy, and I still believe the United States is in the best position of any country on Earth. But being optimistic doesn't mean being asleep at the wheel. It means understanding what got us here so we can figure out where we're going. Forget the hearse, I never die. And neither does paying attention to the data.
It's good to be back.
See you next week,
Chad