Corporate mega-caps (Microsoft, Apple) with massive free cash flow can finance AI capex through equity issuance or retained earnings without leveraging the bond market, giving them structural advantage over smaller players that must borrow.

The supply-shock framework is preferable for investors because 'the cure for high prices is high prices'—meaning high oil prices naturally reduce consumption and restore supply-demand balance without requiring policy intervention.

DoubleLine Capital uses AI primarily for data scraping (quarterly reports, earnings transcripts) to extract structured data faster; report writing and coding are applied with caution due to hallucination risks.

Current rate levels are approximately neutral or slightly tight for the economy, evidenced by real growth rates north of 3% in recent years despite the Fed having stopped hiking; this suggests the market was overestimating the need for rate cuts.

In 2022, market participants needed to listen to Fed governors in real time (not just Powell) because governors were communicating that rate hikes were coming when Powell was still emphasizing transitory inflation; governors were signaling a more hawkish stance than the chair.

When Trump attempted to fire Powell in mid-2023, bond markets immediately spiked yields in protest, effectively forcing Trump to back down; this market reaction preserved Fed independence and should be replicated if future administrations threaten institutional autonomy.

Credit investors' core concern is getting repaid, not whether the debtor achieves high margins; therefore credit investors should focus on whether the AI capex will generate sufficient cash flow and returns to service debt, not whether it will be profitable.

Despite neural networks and linear program models being pursued as 'holy grails' in mathematics for decades, their actual limits may have been reached; Sherman is skeptical about near-term breakthroughs in AI's fundamental capabilities.

Break-even spreads on the front of the curve have elevated due to headline inflation from oil prices, but further-out curve break-evens (10-year, 30-year) haven't risen meaningfully, indicating the market views this as a temporary supply shock, not a fundamental inflation regime change.

Microsoft can sustain $200 billion annual capex spending without materially impacting its viability, meaning credit risk is primarily about the business cycle, not capex affordability for mega-caps.

Kevin Warsh, the incoming Fed chair, was historically known as a hawk during his prior Fed service, but he likely adjusted his public positioning to signal dovishness to secure presidential support; his actual policy direction is unknowable until observable.

The US federal budget deficit reached $1.05 trillion in the first 5 months of the year (before the war), implying an annualized $2.2 trillion deficit, creating structural pressure on long-end bond yields regardless of near-term Fed policy.

AI models still have significant hallucination problems, which means they cannot be trusted for critical coding or data work without human verification; this limitation remains a barrier to full automation of complex analytical tasks.

The bond market has been consistently pricing Fed rate cuts since September 2022 (when Powell said 'we're done hiking'), but the Fed has repeatedly failed to deliver, creating a recurring pattern where geopolitical or economic shocks reset rate-cut expectations.

Residential mortgage assets offer attractive returns because they are not exposed to AI-driven disruption risks, despite the possibility of margin changes from automation or AI-driven robo-mortgage origination, which Sherman views as overstated given past hype around robo-mortgages in 2006.

Data centers have no readily apparent alternative use; repurposing a data center building in a remote location into residential or commercial space is economically unclear, creating high residual value risk for CMBS investors.

AI is useful for report writing but Sherman finds it most valuable as a tool for editing written content rather than generating initial drafts, as a mathematician he prefers to write content in bullet points and use AI to structure it into prose.

Higher oil prices sustained at $80 or above for the rest of the year act as an impediment to growth, creating a trade opportunity in duration (bonds) because slower growth typically prompts Fed rate cuts.

The bond market is currently pricing nominal GDP as unchanged post-conflict, meaning it expects real growth to be lower with higher inflation rather than a full economic collapse.

The February spike in spreads was driven by private credit concerns and AI-disruption fears in software companies, not fundamental credit deterioration; bonds repriced 2 points at worst but stocks stayed down, indicating repricing of margins rather than obsolescence.