With the adoption of the Internet, everyone seems to be blogging and posting “information” online. Of course, many of us ignore this, but others do not and, in fact, take these messages as the truth. It is reported that almost one-third of Americans use social media outlets, such as Facebook, as their only source of news, and that 71% use social media for some of their news. The quantity of information posted online and the opaqueness of the source make it nearly impossible to edit or filter. The traditional media is divided into legitimate, reputable sources and questionable ones, while the Internet is not quite there yet. This matters in many ways, as it is used by unscrupulous bloggers to achieve their objectives for political, social or financial gains.
Misinformation abounds and identifying it, let alone removing it or punishing the perpetrators, seems to be very difficult. Many believe the misleading or false stories. Foreign governments use social media to try to influence people’s opinions on elections and candidates, while businesses and individuals try to use social media to persuade others to their view. If this is rampant now, just wait until Artificial Intelligence (AI) becomes more widely adapted.
When AI is fully developed and implemented with critical thinking, the impact could be very scary for the world as we know it. Thousands, if not millions of jobs are potentially at risk of being lost to smarter automation and processes. Unions know this and are asking for job guarantees. Medical procedures could benefit, however, as human errors should be greatly reduced. Of course, here are a lot of issues involved in fully implementing AI, the first being legislation to curb its limits. A major issue is that AI requires enormous amounts of electricity to power data centres. One estimate is that 20% to 25% of today’s electricity usage could be required to power these. Microsoft data centre requirements alone have spurred re-commissioning of one of the famous Three Mile Nuclear reactors to power their data centres (Three Mile Island Nuclear in Pennsylvania was the facility that suffered a partial meltdown in 1979). Further, data centres require enormous amounts of water to cool the computer chips. Does AI mean that we are embarking on a new age of enlightenment? I don’t think so, because voters will elect politicians that protect our way of life. Implementation of AI will cause misinformation to be run rampant with all sorts of implications. However, legislation is needed to limit AI to uses that are beneficial. But the race is on for early adopting businesses to implement efficiencies to gain advantage on competitors, and the best performing stocks are in AI, which have powered the U.S. stock markets higher (see chart).
Geopolitics has heated up, and the conflict with Russia and Ukraine continues to be deadlocked. The Middle East conflict continues to spread with fronts in Gaza, Lebanon and now Iran. As Iran is a significant oil producer, the price of a barrel of oil has risen noticeably, and could spike higher still if conflict increases between Israel and Iran. Meanwhile, China continues to arm-up and expand its regional influence. Led by the U.S., western nations have been implementing tariffs on Chinese products and Chinese retaliatory tariffs are being implemented. This “tit for tat” escalation of trade barriers is not good and will likely be inflationary at some point. The mood in the world has turned more insular and protectionist than in the past decades. Parts of Europe have voted for far-right politicians who are anti-immigration and anti-European Union. This is troubling and doesn’t bode well for free trade. The U.S. is on a more protectionist path too, and whether Harris or Trump is the next President, trade barriers will continue. Most western central banks have begun cutting administered interest rates as inflation has dropped. Bond prices have rallied reflecting lower interest rates. Gold has been very strong given the geopolitical tensions, and its traditional role as a safe haven.
The stock market has been very strong with the excitement around the technology sector, specifically AI. This excitement may be overdone, at least in the near term. However, there are many good and attractively priced quality companies that are somewhat overlooked. As always, we at Pringle Portfolio Management will do our best to protect your portfolio.
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