First Principles with Andy Constan

In this episode of First Principles, we break down the changing structure of markets as the IPO window reopens, AI CapEx accelerates, and corporate buybacks shift toward new equity supply. We discuss what the SpaceX IPO says about capital markets, whether AI spending can create disinflationary growth, why the consumer is still holding up, and what could challenge the current market bubble.Andy Constan on Xhttps://x.com/dampedspringDamped Springhttps://dampedspring.com/Damped Spring Substackhttps://substack.com/@dampedspringTopics covered:Why IPOs are central to the purpose of public marketsHow Andy evaluates whether the SpaceX IPO workedWhy issuers may want IPOs to trade higher after pricingThe shift from stock buybacks to new equity issuanceWhy AI CapEx is changing the supply and demand for sharesHow hyperscaler spending is being funded through cash, bonds, and stockThe economic test for whether AI investment pays offDisinflationary productivity growth versus labor displacementWhy the current economy is still supported by consumptionThe role of wealth effects and consumer dissavingWhy falling oil prices may not eliminate inflation pressureWhat Andy is watching in Fed policy, tariffs, AI CapEx, and equity issuanceHow Kevin Warsh could approach rates, QT, and the Fed balance sheetTimestamps:00:00 Intro and key themes04:18 How Andy reads the SpaceX IPO08:27 Why underwriters and regulators want IPOs to work13:00 Why issuers may want IPOs to trade higher17:05 From stock buybacks to new equity supply21:06 The 600 to 700 billion dollar shift in share supply26:42 The economic test for AI tokens32:09 Can AI create disinflationary productivity growth?38:10 Is AI CapEx holding up the economy?41:00 Wealth effects, dissaving, and the consumer45:52 Oil prices, war, and inflation49:07 Jalen Brunson, incentives, and long-term value52:00 Fed policy, tariffs, and what matters this summer55:36 Kevin Warsh, QT, and the Fed balance sheet58:42 Closing thoughts

In this episode of First Principles, Andy Constan explains how investors should think about portfolio construction, risk management and alpha during a bubble regime. We discuss why bubbles create FOMO, why low volatility can make investors take the most risk at the worst time, and how long-only and active investors can prepare for the other side without trying to call the top.Andy Constan on Xhttps://x.com/dampedspringDamped Springhttps://dampedspring.com/Main topics covered:Why bubble regimes require a different investor mindsetThe phases of a bubble: change, escalation, parabolic move and popWhy calling something a bubble does not mean calling the topHow FOMO and buyer’s regret lead investors into major mistakesWhy investors should know whether they are more vulnerable to chasing or panickingHow Andy thinks about the market portfolio beyond just stocks and bondsWhy stocks-only portfolios are less diversified than many investors realizeHow low-volatility uptrends cause investors to lever up at the wrong timeWhy rebalancing rules may need to change in a trending bubble marketHow cash, dollar-cost averaging and lump-sum investing should be evaluated through investor behaviorWhy many alpha strategies stop working as well in bubble regimesWhy momentum can work better than mean reversion during bubblesHow contagion spreads after bubbles pop and where future alpha may appearTimestamps:00:00 Why bubble regimes feel low risk00:59 Setting up part two on bubble positioning02:07 The phases of a bubble05:23 Why a bubble regime is different from a normal bull market07:23 How investors should shift their mindset10:29 Why knowing yourself is harder than it sounds14:00 Can a bubble resolve without popping?17:13 Why long-only investing should mean more than stocks24:21 Lowering maximum exposure in a bubble regime30:23 How 60/40 investors should think about rebalancing33:20 Cash, lump sums and dollar-cost averaging42:31 How active investors should adjust alpha strategies46:16 Why mean reversion can fail in bubbles49:41 How contagion spreads through markets54:06 Preparing for post-bubble opportunities without calling the top

First Principles with Andy Constan launches with a deep dive into market bubbles, AI, semiconductor stocks, and the financial conditions that can turn powerful technological change into a dangerous investment regime. Andy explains how bubbles form, why they are almost impossible to time, how today’s AI boom compares to past episodes like 1987, the dot-com bubble, housing, and the bond bubble, and what investors should watch as expectations, financing, and FOMO build.Andy Constan on Xhttps://x.com/dampedspringDamped Spring Advisorshttps://dampedspring.com/Topics covered:Why bubbles are easy to identify in hindsight but nearly impossible to define in real timeThe difference between an expensive market and a true bubble regimeHow new technologies, easy money, regulation, and exogenous shocks can create bubble conditionsWhy AI may rhyme with the internet boom without being an exact repeatThe role of ChatGPT, Microsoft’s OpenAI investment, and semiconductor earnings expectationsWhat the 1987 crash, Japan, housing, bonds, and dot-com bubble can teach investors todayWhy human nature, FOMO, and “keeping up with the Joneses” make bubbles so powerfulHow the late-1990s Fed response to Long-Term Capital Management helped fuel the final phase of the tech bubbleWhy tech’s current size in the economy and market may limit how far the AI boom can growHow AI capex, hyperscaler spending, buybacks, debt issuance, and IPO supply could determine what happens nextTimestamps:00:00 Intro and the challenge of identifying bubbles04:32 Expensive markets vs true bubble regimes09:57 The five bubble episodes Andy compares to today14:35 Root conditions, escalation events, and the peaking phase19:20 Why the 1987 crash may also have been a bubble24:25 The late-1990s setup and the Netscape Navigator moment28:00 Crisis analogs, easy financial conditions, and today’s AI parallels32:20 Long-Term Capital Management and rocket fuel for the tech bubble36:11 Why tech’s market share matters more today than in the 1990s43:18 Policy mistakes, subsidies, and how governments feed bubbles47:42 Semiconductor earnings expectations and valuation risk53:45 The AI capex chain and where the money has to come from58:42 IPOs, corporate debt, and the financing risk behind the AI boom01:02:27 What investors should do differently in a bubble regime