Economy & Markets
Oct 16, 2025
Mad Libs: just fill in the blanks
Michael Cembalest
Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management
Mad Libs. This piece is not about how mad liberals are at the administration, although the latest polling data indicates that it could be. Instead, it’s a fill-in-the-blank exercise regarding the impact of tariffs and immigration policy on growth, the impact of Chinese critical mineral export restrictions, Oracle’s debt levels and borrowing capacity, central bank gold reserves and the gender balance of psychiatric medication.
Descriptive audio
Morning, everybody. This is Michael Cembalest with the Eye on the Market podcast for October 2025. This one’s called Mad Libs. I’ll explain in a minute. First, here’s a picture of me and my new office here in 270 Park, working, with the, with a couple of colleagues that you remember from our webcast. I’m working on our biennial alternative investments review for December, where we go over the whole world of alternatives, the outlook, which comes out January 1st, and energy paper, which comes out in March.
The outlook will focus primarily on the following question: How indestructible is this Nvidia-TSMC-ASML moat, which stretches from chip design to lithography, to chip production, and which is now really the foundation of the whole U.S. equity market, when you consider the hyperscalers that are, built on top of it. So there’s four specific risks we’re going to look at there, we’re going to—power constraints in the West; China’s ability to scale that moat on its own one day; the China-Taiwan relationship, and then the profitability of the AI investments relative to capital deployed since ChatGPT was launched in November 2022, the four hyperscalers have invested over $1 trillion in capital spending in R&D. It’s an amazing number. And we’re all trying to figure out if there’s going to be a sufficient return on it.
So the, this Eye on the Market called Mad Libs, it’s not about mad liberals, although certainly it could be, because liberals are certainly mad at the latest. Pew Research polls show Democratic support for Trump at around 6%, which is close to Republican support for Biden, but among the lowest numbers in the postwar era. And then a Gallup poll just to outdo them. A Gallup poll from August showed 1% approval rating for Trump among Democrats and only 35% among independents, and only, you know, a little bit higher for things like education, economy and foreign affairs. So we could be writing about the mad liberals, but we’re not. This, this Eye on the Market was named after, if you remember, the old Mad Libs game that you would play when you were a kid.
So there’s a bunch of stuff we’re writing about, and then we leave open the blanks. You can fill in the nouns, adjectives and the adverbs, and I’ll share you with my answer for. The first topic is tariffs. And here’s our latest chart on tariffs. You’ve seen it before. It’s got all these dots for how high the tariffs go depending upon the outcome of the Supreme Court cases. And the Mad Libs is the impact of these tariffs that U.S. growth will be. And then you put in an adjective, and mine was manageable. And the reason why I think these are going to be manageable has to do with this next chart that shows different estimates of tariffs for, from a different, different perspective.
So we start with the highest number, which is the Yale Budget tariff rate estimate, which goes from around 2% at the start of the year to a whopping 18%. These are really hard estimates to make. I know because my team and I do them. We have a matrix of over 200 countries and 12,000 HTS codes, and though each one of those combinations has their own tariff rates, their exemptions, their special treatments, their fentanyl tariffs, and the rules keep changing, right? And so it’s the full Employment Act for tariff work. And so, our estimate of the same thing that Yale says is 18%, we’re closer to 14%. We also assume some domestic substitution in the U.S., substitution with China, which is already happening. That may be why our rates are lower than theirs.
Then you have the issue of misclassification. The red line on this chart shows actual tariff collections are running closer to 10% than either 14 or 18. And misclassification is a, is a nice way of talking about tax, tax evasion or tax avoidance, where companies deliberately misclassified goods to pay lower tariffs on. And then the lowest line on the chart, which is closer to 5% or even 3%, is the actual observed change in selling prices of imported goods, which comes from this thing called the Bipartisan Policy Center. And so, I know that one comes from the Digital Design Pricing Lab. And the issue there is that a lot of, a lot of goods, particularly consumer goods, get marked up by 100% or so in terms of their final selling prices. So the impact on final selling prices from an increase in the tariff cost component is often a lot lower than the stated tariff rate. So I don’t think the tariff issues are a huge problem. I think they’re manageable.
I’m much more concerned about two things. Issue number one is how does the U.S. eventually navigate all of these new expanded critical mineral export controls targeting the United States? Earlier this year, when there was a temporary export ban enforced by China, Ford actually stopped production of these export, and so, and not just the EV version, the, the whole thing, all of them, even the internal combustion engine. And so the Mad Libs is that these restrictions remain in place. The eventual impact on U.S. military, industrial and renewable energy output would be, and I put in the word huge, like the Trump version of the “Y” and the several “U’s” and then the “G-E” at the end. China broadened the scope of their rare earth export controls. And what they did is they mirrored the U.S. approach of a foreign direct product rule, which doesn’t just say they’re going to pass rules around how entities China can export these products, they’re going to say, we’re going to put those rules on foreign entities outside of China in terms of how they can export the products and to whom. And if you violate those rules, you lose access product. That sounds extreme. That’s what the United States started doing a few years ago with its own foreign direct product rule on things like semiconductors.
And so we have a table in the Eye on the Market that walks through all of the different critical minerals, some of which are rare earth and, what their primary uses are. The thing that jumps out at you is one, the U.S. is almost entirely import-reliant on these things; 80 to 100% of U.S. consumption supported. And then of that amount, a large number, anywhere from 50 to 70 to 100% of the imports are coming from China. And so, these, these Chinese rules are, will bite. And I think the, and I think the U.S. may underappreciate as a general principle how much negotiating leverage China has here. And in terms of the negotiating leverage that the U.S. has on China, we have a chart here showing very few Chinese industry actually substantially rely on exports to the U.S., you know, in spite of what you might hear. Certainly for consumer electronics and electrical equipment, that is the case. But for all sorts of other industries in China, their domestic market, plus other export markets that the Chinese have been working to build, are much larger than their revenues. in the United States. And since that’s the case, I think the United States may be overestimating the impact of, of tariffs in terms of its negotiating stance relative to China.
And, China has now developed their own analogs to all these national security tools. So for all of the critical input controls and extraterritorial reach, and list-based sanctions and retaliation framework that, and the security and market access reviews that the U.S. has been building over the last few years, that China now has a complement to every one of them, and increasingly, the inclination to use them. In the outlook, we’ll get into the fact that I consider this to be an implicit reflection of the fact that China is further along the value chain in terms of semiconductor advanced AI chip design. But, you know, we’ll, we’ll talk about that more in the outlook.
And here you can see that when China announced a rare export controls in April and enforced them, these exports to the U.S. almost collapsed. Zero. And they’ve since rebounded because China has decided to grant some licenses. But they have the ability to kind of turn the spigot on here and off here at any time. And so I would, I, I think the United States is going to find by the end of the year that there has to be some kind of a deal with China, given the military, industrial and energy applications that these things affect.
And then, of course, an indicative ETF of rare earth miners has been skyrocketing this year, given what looks like a concerted effort by the U.S. to provide anchor levels of demand, which we wrote about last time, for its own critical metals industry.
Okay, where am I? Okay. Next, Mad Lib, the bigger risk as it relates to economic growth is not tariffs, but I mean, you have to fill in the answer. And for me, it’s immigration. And there’s, there’s nothing that I’ve worked on that has more people looking at the same issue in different ways. And ,you know, when I, when I engage your PhD-level economists and people at the BLS in these discussions, everybody has a different, a mildly different view. Here’s what jumps out at me. The Dallas Fed just published a paper showing that the breakeven level of payroll gains has fallen from 250,000 a couple of years ago to less than 50,000 today.
Now, everybody’s estimate on this thing is different, but most of them are going down. Now what does that mean? That this estimate is the level at which payroll growth will become inflationary. And it also tells you something about contributions to growth. And so, you know, my concern, is more about the growth impact of a shrinking labor supply than the inflation impact of a shrinking supply. And, the United States is already a place where the fertility rate is way below the replacement rate. It’s not as bad as in Europe, but the replacement rate is about two births for woman, and, and the fertility rate is now almost one-and-a-half in the U.S. I did my part for kids, but the replacement rate issue is going to start to bite at some point, and again, this, these are numbers where, depending upon who computes them and how they compute them, they can be different.
But Goldman did some interesting research, and that combined with numbers from the DHS and the CPB and ICE, everything else, this is the picture of that immigration into the U.S., including visa and green card recipients, asylum parolees, TPS, legal immigrants, etc., and basically the net immigration numbers have, looked to be falling to around half the level they were averaged from 2001 to 2000. Now, I’ve often said yes, that’s taking place after a surge to four times the level that used to be. And so the stock of labor is still substantial, even though the flow has shut down. But, and so right now, I think is the wrong time to start looking for a, an enormous negative growth impact from a shrinking labor supply. But I think it’s coming.
And so the bottom line is for me, either one of three things has to happen for the Trump administration’s growth projections to come true. They’re either going to need more workers, a larger number of workers. They’re going to have to have the labor force participation go up. But for some cohorts, it’s already about as high as it’s been. Or they’re going to need a substantial positive productivity shock from the work we’ve got now.
There’s plenty of people projecting a huge boom in productivity from AI, but you know, let’s see. I think it took a long time for the productivity bonus from the internet and the interstate highway system, and penicillin and antibiotics to show up on the data. So I’m not sure, I promise you that. But the bottom line is, I think the, the administration’s immigration policy is a bigger risk to growth than the tariffs are.
In the, in the last Eye on the Market, I wrote a, a bit about Oracle and how they have a very high debt ratio, and that that debt-to-equity ratio would make borrowing, could make borrowing difficult as they seek to raise the amount of capital to meet the expenditures they have committed to OpenAI, assuming, of course, that OpenAI comes anywhere close to earning the money that they’ve promised to pay Oracle to do it. But the bottom line is, you know, we, I was, I was casting doubt on, on Oracle’s ability to tap the debt markets easily to, to comply with all of these goals.
And the Mad Libs for this one is that chart was, and I now think I think my chart was misleading. So I put it in the word misleading for this because debt-to-equity ratio is not the only way to look at debt capacity. And after years and years of buybacks, which have seen Ellison stake in the company double, the debt to equity ratio was probably not the right, the best thing to look at. It is true Oracle does not generate a ton of free cash flow relative to revenues. And when you look at the universe of our AI stocks, their free cash flow to revenue ratio is zero compared to 10 to as much as 40% for the rest of the AI stocks in our universe. But if we change the lens a little bit and look to net debt to EBITDA, which is basically how much is your net debt relative to your cash flow, Oracle is not quite as much of an outlier. That to be clear, they’re still at the very high end. And for most of the companies in our universe, their net debt ratios are negative, which means they actually have more cash and marketable securities on their balance sheet than both, than the sum of their short- and long-term debt. So Oracle is still a little off sides on the debt front as it relates to this. But at the end of the day, a net debt to EBITDA ratio of around four times is consistent in the broad fixed income universe. With a triple B rated company, its 30-year bonds have been trading at spreads of 110 to 270 basis points over Treasuries all year, and at least in the early stages of additional Oracle borrowing, there were probably plenty of investors that would line up to buy those bonds. So I think that more context around that discussion probably needed, and I use the wrong chart to portray their debt capacity.
Okay. The next Mad Lib is, so gold prices are soaring, as we know. And, and one of the common theses is that central banks, the rising central bank share of their reserves and gold is A: part of the reason, and B: reflects substantial institutional investor concerns about the dollar. And so this logic is, and then you fill in your, your adjective, and mine, my adjective is flawed. I think there’s a flawed logic. So the, the central bank gold holdings have been through an amazing journey. They used to be about, 1,000,000,000 ounces back in the, in the 1980s and early 90s. They went as low as 950,000,000 ounces in the trough in 2009, and are now back at the same 1.1 billion ounces that they were in the 80s, early 90s. And, but I think what, what I’m going to show you is that, yes, the gold share of foreign exchange reserves has gone from 11% to 23%, but almost that entire jump is just because of the gold price and not because central banks have been buying a lot more gold.
So let’s show you this chart. So the chart, one of the charts we have on the Eye on the Market shows this increase I mentioned from 11% in 2009 to 23% today. If we assume no change in gold holdings since March 2009 and just use the change in the price, it goes from 11 to 20%. So almost the entire increase in this widely publicized central bank gold share reserves is because gold prices have gone up. If we do the reverse and flip the switch and we let the gold holdings go up, but we keep the price where it was in March 2009, the gold share of reserves actually go down. So I, it’s very obvious here that, that what’s going on, at least the strength of the central banks is the vast, vast majority of what’s happening there is simply a price change rather than an asset allocation change.
I understand the partial disintegration of the postwar world order, rising trade deficits, rising developing world government debt, those things are all driving gold prices higher. And I get that part. But central bank gold allocations don’t be appear to be a big part of the reason why. And I don’t think more importantly than that, they are clear verdicts of, of some kind of institutionally negative view on the dollar as the world’s reserve currency.
Okay. So I had one last thing that I wanted to discuss with you. Let me find it. So I, a client sent me this chart, which I thought was, was notable. This looks at psychiatric medication use by gender. So it’s the percent of individuals that are reporting any kind of psychiatric medication, and, and women in particular, in their 40s and 50s and 60s, have a much higher, almost double the rate of psychiatric medication than men. So the Mad Libs is, the reason for this is that you have to put it a noun, and I couldn’t think of any other plausible explanation, so I put in men. Right? And the other interesting thing to point out is that in related research, the, the people that die fastest are widowed men on an age-adjusted mortality basis. And so, in other words, to conclude, men appear to drive women crazy, and then after they lose their spouses, they’re the ones that disproportionately suffer. So that I thought was, was notable, too.
Thank you very much for listening. And again, the next Eye on the Market will be our once every two year alternative investments review on private equity venture, private credit, things like that. See you next time. Bye.
(DESCRIPTION)
Text, J.P. Morgan Eye on the Market. J.P. Morgan. October 2025 Mad Libs.
(SPEECH)
Good morning, everybody. This is Michael Cembalest with the Eye on the Market podcast for October 2025. This one's called "Mad Libs." I'll explain in a minute.
(DESCRIPTION)
He sits at a table beside a pair of stuffed penguins.
(SPEECH)
First, here's a picture of me in my new office here in 270 Park, working with a couple of colleagues that you will remember from my webcast. I'm working on our biennial alternative investments review for December, where we go over the whole world of alternatives, the Outlook, which comes out January 1, and the energy paper, which comes out in March. The Outlook will focus primarily on the following question-- how indestructible is this NVIDIA-TSMC-ASML moat, which stretches from chip design to lithography to chip production, and which is now really the foundation of the whole US equity market, when you consider the hyperscalers that are built on top of it?
So there's four specific risks we're going to look at that. We're going to look at power constraints in the US, China's ability to scale that moat on its own one day, the China-Taiwan relationship, and then the profitability of the AI investments relative to capital deployed since ChatGPT was launched in November 2022. The four hyperscalers have invested over $1 trillion in capital spending in R&D. It's an amazing number. And we're all trying to figure out if there's going to be a sufficient return on it.
So this Eye on the Market is called "Mad Libs."
(DESCRIPTION)
A chart shows presidential approval ratings from the opposing party, percent who approve of president’s job performance from 1950 to present for each separate president, with overall opposition party approval declining over time from north of 50% to under 10% today, as well as declining at different magnitudes for each individual president, except for Clinton who’s approval went up 10%.
(SPEECH)
It's not about mad liberals, although certainly it could be because liberals are certainly mad. The latest Pew Research polls show Democratic support for Trump at around 6%, which is close to Republican support for Biden, but among the lowest numbers in the post-war era.
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A bar chart shows Trump approval ratings by party and policy area, percent who approve. Overall, 25% of independents and 1% of Democrats. Foreign affairs, 33% of independents, and 3% of Democrats. Education, 31% of independents, and 5% of Democrats. And the economy, 29% of independents, and 4% of Democrats. Source: Gallup, August 2025.
(SPEECH)
And then a Gallup poll, just to outdo them, a Gallup poll from August showed 1% approval rating for Trump among Democrats, and only 35% among independents, and only a little bit higher for things like education, economy, foreign affairs.
So we could be writing about the mad liberals, but we're not. This Eye on the Market was named after, if you remember, the old Mad Libs game that you would play when you were a kid. So there's a bunch of stuff we're writing about, and then we leave open the blanks that you can fill in, the nouns and the adjectives and the adverbs, and I'll show you what my answers were.
The first topic is tariffs.
(DESCRIPTION)
A chart of the average tariff rate on all US imports. Assuming 20% of US domestic and 20% of foreign substitution from China. From 1900 to 2025. A general downward trend from 25% to under 5%, with large spikes down in the early 1900s and towards 1950. Dots mark the Trade deals/ August 7 tariff rates, active tariffs being contested in court, and active tariffs. Impact from trade deals or from announced August 7 rates on countries without deals, copper tariff, timber/ lumber tariff between 10 and 15%. Plus 20% China, plus 25% Canada and 25% Mexico non-USMCA fentanyl tariffs just over 10%. Plus 10% reciprocal tariff. 25% global autos and plus 50% steel and aluminum straddle the 5% mark. Source: Tax Foundation, USITC, White House, JPMAM, 2025.
(SPEECH)
And here's our latest chart on tariffs. You've seen it before. It's got all these dots for how high the tariffs go, depending upon the outcome of the Supreme Court cases. And the Mad Libs is the impact of these tariffs on US growth will be, and then you put in an adjective. And mine was manageable. And the reason why I think these are going to be manageable has to do with this next chart that shows different estimates of tariffs from different perspectives.
(DESCRIPTION)
A chart shows US effective tariff rates, tariff revenues and imported goods selling prices, percent with differet upward trends from January to September 2025. Source: Digital Data Design Institute Pricing Lab, Yale Budget Lab, Bipartisan Policy Center, JPMAM, October 2025.
(SPEECH)
So we start with the highest number, which is the Yale budget tariff rate estimate, which goes from around 2% at the start of the year to a whopping 18%. These are really hard estimates to make. I know because my team and I do them. We have a matrix of over 200 countries and 12,000 HTS codes, and each one of those combinations has their own tariff rates, their exemptions, their special treatments, their fentanyl tariffs. And the rules keep changing, right? And so it's the full employment act for tariff lawyers.
And so our estimate of the same thing that Yale says is 18%, we're closer to 14%. We also assume some domestic substitution in the US and substitution away from China, which is already happening. That may be why our rate's a little lower than theirs.
Then, you have the issue of misclassification. The red line on this chart shows the actual tariff collections are running closer to 10% than either 14% or 18%. And misclassification is a nice way of talking about tax evasion or tax avoidance, where companies deliberately misclassify goods to pay lower tariffs on.
And then, the lowest line on the chart, which is closer to 5% or even 3%, is the actual observed change in selling prices of imported goods, which comes from this thing called the Bipartisan Policy Center. And so-- oh, no, that one comes from the Digital Design Pricing Lab. And the issue there is that a lot of goods, particularly consumer goods, get marked up by 100% or so in terms of their final selling prices. So the impact on final selling prices from an increase in the tariff cost component is often a lot lower than the stated tariff rate.
So I don't think the tariff issues are a huge problem. I think they're manageable.
I'm much more concerned about two things.
(DESCRIPTION)
A table of critical minerals subject to Chinese export restrictions comparing US net import reliance with the share of US net imports from China.
(SPEECH)
Issue number one is, how does the US eventually navigate all of these new expanded critical mineral export controls targeting the United States? Earlier this year, when there was a temporary export ban enforced by China, Ford actually stopped production of the Explorer. And not just the EV version, the whole thing, all of them, even the internal combustion engine version.
And so the Mad Libs is if these restrictions remain in place, the eventual impact on US military, industrial, and renewable energy output would be, and I put in the word huge, like the Trump version, with the y and the several u's, and then the g-e at the end.
China broadened the scope of their rare earth export controls, and what they did is they mirrored the US approach of a foreign direct product rule, which doesn't just say they're going to pass rules around how entities in China can export these products. They're going to say, we're going to put those rules on foreign entities outside of China in terms of how they can export the products and to whom, and if you violate those rules, you lose access to products. But that sounds extreme. That's what the United States started doing a few years ago with its own foreign direct product rule on things like semiconductors.
And so we have a table in the Eye on the Market that walks through all of the different critical minerals, some of which are rare earths, and what their primary uses are. The thing that jumps out at you is one, the US is almost entirely import-reliant on these things. 80% to 100% of US consumption is imported. And then of that amount, a large number, anywhere from 50% to 70% to 100% of the imports are coming from China. And so these Chinese rules will bite. And I think the US may underappreciate as a general principle how much negotiating leverage China has here.
And in terms of the negotiating leverage that the US has on China, we have a chart here showing very few Chinese industry actually substantially rely on exports to the US in spite of what you might hear.
(DESCRIPTION)
A bar chart with different exports to the US in billions, broken into domestic revenues, US export revenues, and other export revenues, with domestic revenues making up the bulk, and other export revenues secondary.
(SPEECH)
Certainly for consumer electronics and electrical equipment, that is the case. But for all sorts of other industries in China, their domestic market, plus other export markets that the Chinese have been working to build, are much larger than their revenues to the United States. And since that's the case, I think the United States may be overestimating the impact of tariffs in terms of its negotiating stance relative to China.
(DESCRIPTION)
A table of Chinese analogs to US economic security tools. China. Process & equipment technology/ controls. Rare Earth magnets. Critical input controls. Rare Earth and other critical minerals. Extraterritorial reach. Rare earths. List based sanctions. Unreliable entity list. Retaliation frameworks. Anti-foreign sanction laws. Security and market access reviews. Cybersecurity/ antitrust/ data transfer. Tariff and trade retaliation. Port fees on US vessels. Financial and investment controls on outbound investment. State guidance. US. Lithography/ semiconductors. Semiconductors. Foreign direct product rule. Commerce/ treasury lists. IEEPA/ Magnitsky Act. CFIUS/ICTS/FCC. Section 301/232/122. And treasury rules. Source: Gerard DPPPO (Rand China Research Center). JPMAM, 2025.
(SPEECH)
And China has now developed their own analogs to all these national security tools. So for all of the critical import controls, and extraterritorial reach, and list-based sanctions, and retaliation framework, and the security and market access reviews that the US has been building over the last few years, that China now has a complement to every one of them, and, increasingly, the inclination to use them.
In the Outlook, we'll get into the fact that I consider this to be an implicit reflection of the fact that China's further along the value chain in terms of semiconductor advanced AI chip design. But we'll talk about that more in the Outlook.
(DESCRIPTION)
A bar chart showing China rare earths exports to the US from 2018 to 2025 with a visible spike down in April of 2025. A general uptrend until 2023 where exports begin to level off or fall gradually. Magnets making up the majority of exports, with compounds secondary, and metals barely visible on the chart. Source: General Administration of Customs of China. JPMAM, August 2025.
(SPEECH)
And here you can see that when China announced a rare earth export controls in April and enforced them, these exports to the US almost collapsed to zero. And they've since rebounded because China has decided to grant some licenses. But they have the ability to turn the spigot on here and off here at any time. And so I think the United States is going to find, by the end of the year, that there has to be some kind of a deal with China, given the military, industrial, and energy applications that these things affect.
(DESCRIPTION)
A chart of indicative US rare earths exports miners ETF. Indexed to 200 in November 30, 2023. The trend is choppy sideways from December 2023 to March 2025, and then shots up to 400. Source: Bloomberg, JPMAM, October 13, 2025.
(SPEECH)
And then, of course, an indicative ETF of rare earth miners has been skyrocketing this year, given what looks like a concerted effort by the US to provide anchor levels of demand, which we wrote about last time, for its own critical metals industry.
OK. Where am I?
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A bar chart of estimates of the break even level of payroll gains vs. actual payroll gains in the thousands, monthly from 2002 to present. Actual payroll gains show an overall decline from 400,000 to under 100,000 and close to 0 in the last several months, with the author’s estimates of breakeven level above the rate of gains except for a short period at the end of 2024. Source: Dallas Fed, October, 2025.8
(SPEECH)
OK, next Mad Lib. The bigger risk as it relates to economic growth is not tariffs, but, and then you have to fill in the answer. And for me, it's immigration. And there's nothing that I've worked on that has more people looking at the same issue in different ways. And when I engage your PhD level economists, people at the BLS in these discussions, everybody has a mildly different view.
Here's what jumps out at me. The Dallas Fed just published a paper showing that the break-even level of payroll gains has fallen from 250,000 a couple of years ago to less than 50,000 today. Now, everybody's estimate on this thing is different, but most of them are going down. And what does that mean? That this estimate is the level at which payroll growth will become inflationary. And it also tells you something about contributions to growth. And so my concern is more about the growth impact of a shrinking labor supply than the inflation impact of a shrinking labor supply.
(DESCRIPTION)
A chart of US annual fertility rate vs. population replacement rate. Births per woman from 1965 to 2025. The fertility rate falls under the 2.1 replacement rate in the early ‘70s and never breaks back above, falling more precipitously after 2010 to between 1.5 and 1.8. Source: National Center for Health Statistics, Axios, JPMAM, 2024.
(SPEECH)
And United States is already a place where the fertility rate is way below the replacement rate. It's not as bad as in Europe, but the replacement rate is about two births per woman, and the fertility rate is now almost 1 and 1/2 in the US. I did my part. I have two kids. But the replacement rate issue is going to start to bite at some point.
(DESCRIPTION)
A chart of US net immigration, millions of people, annualized, divided into Visa and green card recipients, asylum, parolees, TPS, and illegal immigrants, with a line showing net immigration. A big spike between 2022 and 2025 and then a falloff to lower than average levels, with negative asylum, parolees, TPS, and illegal immigration. Source: Goldman Sachs, DHS, CBP, ICE, August 2025.
(SPEECH)
And again, these are numbers where, depending upon who computes them and how they compute them, they can be different. But Goldman did some interesting research, and that combined with numbers from the DHS and the CBP and ICE, and everything else, this is the picture of that immigration into the US, including visa and green card recipients, asylum parolees, TPS, legal immigrants, et cetera. And basically, the net immigration numbers have looked to be falling to around half the level they were averaged from 2001 to [? 2010. ?]
Now, I've often said, yes, that's taking place after a surge to four times the level it used to be. And so the stock of labor is still substantial, even though the flow has shut down. And so right now, I think, is the wrong time to start looking for an enormous negative growth impact from a shrinking labor supply. But I think it's coming.
And so the bottom line is, for me, either one of three things has to happen for the Trump administration's growth projections to come true. They're either going to need more workers, a larger number of workers, they're going to have to have the labor force participation go up-- but for some cohorts, it's already about as high as it's been-- or they're going to need a substantial positive productivity shock from the workers we've got.
Now, there's plenty of people projecting a huge boom in productivity from AI. But let's see. I think it took a long time for the productivity booms from the internet, and the interstate highway system, and penicillin, and antibiotics to show up in the data, so I'm not sure. But the bottom line is, I think the administration's immigration policy is a bigger risk to growth than the tariffs are.
(DESCRIPTION)
A chart shows the debt to equity ratios of direct AI stocks, with Oracle leading the group at 550%. IBM and Apple in second around 200%, with a lis of others trailing off towards 0%. Source: Bloomberg, JPMAM, October 3, 2025.
(SPEECH)
In the last Eye on the Market, I wrote a bit about Oracle and how they have a very high debt ratio, and that debt-to-equity ratio would make borrowing, could make borrowing difficult as they seek to raise the amount of capital to meet the expenditures they have committed to OpenAI, assuming, of course, that OpenAI comes anywhere close to earning the money that they promised to pay Oracle to do it. But the bottom line is, I was casting doubt on Oracle's ability to tap the debt markets easily to comply with all these goals. And the Mad Libs for this one is that chart was-- and now I think my chart was misleading. So I put in the word misleading for this, because debt-to-equity ratio is not the only way to look at debt capacity. And after years and years of buybacks, which have seen Ellison stake in the company double, the debt-to-equity ratio is probably not the best thing to look at.
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A chart shows free cash flow to revenue ratios of direct AI stocks, with the same list rearranged. Oracle is around 0% with Digital Reality and Intel both negative below it, Intel at negative 30%. And other companies all positive with Palantir leading with 40%. Source: Bloomberg, JPMAM, October 3, 2025.
(SPEECH)
It is true-- Oracle does not generate a ton of free cash flow relative to revenues. And when you look at the universe of our AI stocks, their free-cash-flow-to-revenue ratio is zero compared to 10% to as much as 40% for the rest of the AI stocks in our universe.
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Another chart shows net debt to EBITDA ratios of direct AI stocks with HP leading at 700%, Digital Reality at 600%, and Oracle at 400%, with IBM, Dell, NXP, Broadcom, and Uber all above 100% and the rest under 100%. Zero indicates an excess of cash and marketable securities over short and long term debt. Source: Bloomberg. JPMAM, October 3, 2025.
(SPEECH)
But if we change the lens a little bit and look to net debt to EBITDA, which is basically how much is your net debt relative to your cash flow, Oracle is not quite as much of an outlier. Now, to be clear, they're still at the very high end. And for most of the companies in our AI universe, their net debt ratios are negative, which means they actually have more cash and marketable securities on their balance sheet than the sum of their short- and long-term debt.
So Oracle is still a little offsides on the debt front as it relates to this. But at the end of the day, a net debt to EBITDA ratio of around four times is consistent in the broad fixed income universe with a BBB-rated company. It's 30-year bonds have been trading at spreads of 110 to 170 basis points over treasuries all year. And, at least in the early stages of additional Oracle borrowing, there would probably be plenty of investors that would line up to buy those bonds. So I think that more context around that discussion probably needed, and I used the wrong chart to portray their debt capacity.
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Another chart shows world FX reserve gold holdings and gold price in fine Troy ounces, millions. The gold price trends upward, flat from 1981 to the 2000s at under $1,000, where it runs up, and goes sideways until after 2021 just under $2,000, and runs up again to $3,500. The world FX reserve gold holdings is flattish at 1,150 until the 1990s, then falls sharply to 950 in the late 2010s, before rebounding again to an over 1,150 by the present day. Source: IMF, Bloomberg, JPMAM, August 2025.
(SPEECH)
The next Mad Lib is, so gold prices are soaring, as we know. And one of the common theses is that central banks, the rising central bank share of their reserves in gold is A, part of the reason, and B, reflects substantial institutional investor concerns about the dollar. And so this logic is, and then you fill in your adjective. And mine, my adjective is flawed. I think this is a flawed logic.
So the central bank gold holdings have been through an amazing journey. They used to be about 1 billion ounces back in the 1980s and early '90s. They went as low as 950,000,000 ounces in the trough in 2009, and are now back at the same 1.1 billion ounces that they were in the '80s and early '90s. But I think what I'm going to show you is that yes, the gold share of foreign exchange reserves has gone from 11% to 23%, but almost that entire jump is just because of the gold price and not because central banks have been buying a lot more gold.
So let me show you this chart.
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Gold share of world FX reserves. Actual vs. assuming no change in gold holdings since March 2009 vs. assuming no change in gold price since March 2009. The actual and no change in holdings trend together, inflecting upward from 2023 while the line that assumes no change in price remains flat with a slight downtrend. Source: IMF, Bloomberg, JPMAM, August 2025.
(SPEECH)
So one of the charts we have in the Eye on the Market shows this increase I mentioned from 11% in 2009 to 23% today. If we assume no change in gold holdings since March 2009 and just use the change in the price, it goes from 11% to 20%. So almost the entire increase in this widely publicized central bank gold share of reserves is because gold prices have gone up. If we do the reverse and flip the switch, and we let the gold holdings go up, but we keep the price where it was in March 2009, the gold share of reserves actually go down.
So it's very obvious here that what's going on, at least with respect to the central banks, is the vast, vast majority of what's happening there is simply a price change rather than an asset allocation change. I understand the partial disintegration of the post-war world order, rising trade deficits, rising developed world government debt, those things are all driving gold prices higher. And I get that part. But central bank gold allocations don't appear to be a big part of the reason why. And I don't think, more importantly even, that they are clear verdicts of some institutionally negative view on the dollar as [INAUDIBLE] are [INAUDIBLE].
OK. So I had one last thing that I wanted to discuss with you. Let me find it. So a client sent me this chart, which I thought was notable. This looks at psychiatric medication use by gender.
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From 2015 to 2018. Percent of US individuals reporting any psychiatric medication. It trends up from 0% at age 0 to a peak of 30% for women near age 60, and an increasing trend up to over 20% for men towards end of life, with notable peak in late teens. Source: Johansen, Journal of American Board of Family Medicine, JPMAM, 2021.
(SPEECH)
So it's the percent of individuals that are reporting any kind of psychiatric medication. And women, in particular in their 40s and 50s and 60s, have a much higher, almost double the rate of psychiatric medication than men. And so the Mad Libs is, the reason for this is, and you have to put in a noun. And I couldn't think of any other plausible explanation, so I put in men.
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A chart shows age-adjusted mortality rates by gender and marital status. Deaths per 100,000 US people from 2010 to 2017. Men and women are divided into never married, married, widowed, and divorced cohorts, with men men higher than women in every category. Widowed men leading the groups at over 2,000. 1,500 for widowed women. With divorced people second at over 1,500 for men, and over 1,000 for divorced women. Never married men over 1,500, and never married women over 1,000. With married men under 1,000, and married women at 500.
(SPEECH)
And the other interesting thing to point out is that in related research, the people that die fastest are widowed men on an age-adjusted mortality basis. And so, in other words, to conclude, men appear to drive women crazy. And then after they lose their spouses, they're the ones that disproportionately suffer. So that I thought was notable too.
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Text, October 2025 Mad Libs.
(SPEECH)
Thank you very much for listening. And again, the next Eye on the Market will be our once every two year alternative investments review on private equity, venture, private credit, things like that. See you next time. Bye.
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J.P. Morgan.
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About Eye on the Market
Since 2005, Michael has been the author of Eye on the Market, covering a wide range of topics across the markets, investments, economics, politics, energy, municipal finance and more.
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