May brings the magnolias into bloom here in the Southeast. The complex process of time of year, diurnal time, soil composition and temperature, availability of food at the roots, sustainable leave and flower structure and the presence of birds and bees make our elegant, tall, luscious trees quite adorable during spring.
In a similar complexity, the economies, markets and flows of cash, interest rates and demand impact the global ruggedness of our markets. Well, I may call it beauty, you may call it horror, but we are still observing the same virtuous wetlands!
This is a complex task, so bear with me while I try to explain. Let’s use bullet points to begin:
- The Iranian events grab most of the headlines
- Undercurrents impact the riverine markets far more deeply than Middle East ramblings
- Demand for capital, in the form of credit, by data centers and their slave masters AI flows like a river beneath these surface currents
- These demands run deep, at the global institutional levels, showing every sign of river bottom erosion
- Energy defines the banks of this capital riverine pace
- The widening absence of petroleum and natural gas erodes these banks, allowing capital to overflow the fields
- Flows from the Middle East dry up, replaced at new oxbows by flows of uranium, lithium, hydrogen et al
- Gold demand – trees overhanging these capital riverine banks – changes from institutional to retail; new trees sprout from seedlings
- This new growth can sustain, but only at the margins, well beyond the banks
- Humans are the avian predators seeking sustenance from this complex intertwining of capital, energy, politics and demand.
All this to observe that the media focuses upon the surface stories (if it bleeds, it leads) while the global markets – and ultimately the economies – are far more concerned about the excessive demand for debt driven by AI’s accelerated development. Just one firm, Microsoft, plans to spend $190 Billion in 2026 on its AI buildouts. Its rivals big and small have very similar plans. This money comes primarily from debt lent by global and institutional capital sources. Banks, private equity and BDCs are the sources. They are very concerned about the amount of new debt and the industrial demand for it by this new hyper-industry: Artificial Intelligence.
AI makes the news desk in the form of worries over job losses. These concerns are ‘lipstick on a pig;’ silly dressings for the proletariat. Worrying about buggy whip makers. The real concerns on AI remind me of the capital demands from railroads during the 1800s and autos during the 1900s. More than 90% of the early entrants died slow capital deaths. Darvin as the optimist. We experienced these capital pandemics again in the 2000s.
While the Eternal Optimist in me urges us ever upwards in wealth and health creation, I can’t help but wonder at the clouds steepening on the near horizon; whether a thunderstorm or hurricane, only time will tell.
In the meanwhile,
Eat wisely
Sleep well
Love with Abandon!