Then there’s the growing debate, both in frequency and alarm, over how similar the AI bubble is to the dot-com bubble, and concerns over a similar outcome. Besides the potential for overpromising and underdelivering, practical uses for AI are a concern due to the lack of reliable accuracy. Likely more important, the extreme energy requirements are gaining attention as electricity customers of every sort are seeing their bills rise thanks to the demands on the system. When data centers are responsible for the Three Mile Island nuclear plant reopening (targeting 2028) after being mothballed since the accident in 1979, you know energy demands are a problem. On top of the significant energy needs for bitcoin mining, there is a push for electric vehicle use. On a side note, maybe that is contributing to the Trump administration’s push to end EV support?
For a more specific example, chip maker NVIDIA has been the poster child for the AI boom, with it going from under $12/share in late 2022 to almost $190/share three weeks ago. That resulted in a market capitalization of $4.45 trillion currently and contributed significantly to gains in the stock market indexes, directly or indirectly. Yet the CEO, Jensen Huang, on Tuesday expressed his dismay that NVIDIA went from having 95% of the market share in China to 0% (due to trade restrictions imposed by the White House), stating, “I can’t imagine any policymaker thinking that that’s a good idea.” Such developments may inspire profit-taking following such a sharp gain in value over three years.
At the same time, grain, oilseed and energy prices have been under significant pressure since the tops seen in the early days of the Russian invasion of Ukraine, as politicians from both sides of the aisle promised to bring prices for food and fuel down for consumers. The political incentive was obviously to help with being elected, but the budgetary incentive is to be able to reduce interest rates as inflation comes down, saving the government a large fortune in interest costs along the way. It’s hard to argue with the reasoning, unless you’re the one who is being hurt along the way (by lower commodity prices).
The one thing that low prices usually do is cure low prices. With increasing biofuel production use both in the U.S. and, more importantly, in South America, demand increases would likely be stressing available supplies if not for the trade war with China and the exceptional weather seen in many production areas over the past few years. Even then, it may yet, as anecdotal reports of disappointing yields in the U.S. (thanks to late-season drought and disease pressure) suggest much lower supplies may be the outcome. And a developing La Nina weather pattern could yet interfere with expected record production for the 2025-26 South American crop (that’s just in the process of being planted).
Strong markets are highlighted by their ability to focus on bullish developments while ignoring bearish ones, and vice versa for weak markets. Should money managers decide it’s time to take profits out of the equity markets and add to their commodity exposure at a time when inflation may return (should interest rates fall in support of a weakening labor market while inflation is left unchecked), they will surely find fundamental justification for the move. And with the S&P index at 64 times the value of the Bloomberg commodity index, they won’t have to look far for incentives.
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Mitch Miller can be reached at mitchmiller.dtn@gmail.com
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