Authored by James Rickards via DailyReckoning.com,
To say that the world is in turmoil to an extent not seen since the 1960s is an understatement.
The war in Ukraine is now in its fifth year. The war in Iran continues with no end in sight, despite Trump’s optimistic talk. NATO may be nearing the break-up stage as Trump pulls U.S. troops out of Germany.
Energy prices are soaring, inflation has accelerated sharply again, consumer confidence has fallen sharply, debt is at an all-time high and supply chains are breaking down.
Yet the major U.S. stock indices are at or near all-time highs.
What accounts for record stock prices amid almost unprecedented turmoil?
There are a number of key factors supporting stocks. The most obvious is the AI frenzy. This has two aspects. The first is that AI applications can improve productivity. The second is that the build-out of data centers with the most advanced semiconductors has led to a $1 trillion capital investment tsunami as Microsoft, Amazon, Google, Meta, OpenAI, Anthropic and other AI providers build their server farms.
The next factor is related to the first and is often called the picks-and-shovels trade. The idea is that those who benefit in a gold rush are not the gold miners but the merchants who sell tools, clothes, supplies and other goods the miners need.
In the AI gold rush, the winners are electricity suppliers, builders, hardware manufacturers (semiconductors and servers) and small towns where the server farms are located. These suppliers will do well today whether AI lives up to its promise or not.
Another major factor is passive investing. An enormous amount of U.S. wealth is held in 401(k)s, IRAs and assets under management by wealth managers.
Source: ZeroHedge News
