The Sunday Drive - 04/21/2024 Edition [#107]

Musings and Meanderings of a Financial Provocateur

A Sunday Drive Around the Internet

👋🏼 Hello friends,

Greetings from Saratoga Springs, NY. Let’s enjoy a leisurely Sunday Drive around the Internet.

🎶 Vibin'

I’ve written quite a bit lately about new professional relationships and opportunities. These are very exciting and I look forward to sharing my progress as they blossom and grow.

But recently, I’ve also had the opportunity to rekindle some old relationships - the kinds of relationships that were both personal and professional at the same time. When you’ve traveled on business for years with folks, there is a special kinship that develops. It’s been great to reconnect with some great former colleagues who are also friends.

This week, I’m vibin’ to the opening of the The Blues Brothers’ album, Briefcase Full of Blues.

💭  Quote of the Week‌

“I only want to be uncorrelated to the stock market when it goes down.”
– Paul Podolsky

BONUS QUOTE OF THE WEEK
”Nothing happens until somebody sells something.” - Whit Whitaker (RIP)

📈  Charts of the Week

Much has been written and discussed in recent years about Artificial Intelligence (AI) and how its rapid adoption may impact various industries, employment, and the economy as a whole.

We’ve seen a lot of focus on the demand for semiconductors from chipmakers such as Nvidia to serve the needs of AI growth. However, a potentially greater, yet largely undiscussed area of growth deserves attention.

The two Charts this week highlight the current number and expected growth of AI-driven data centers, and the resultant growth in the demand for power to keep them running. It’s true that some of the growth in power demand is from the transition to Electric Vehicles (EVs), but the vast majority is and will be driven by the current and future power needs of data centers.

We’ve seen this kind of growth before…

The 1950s and 1960s saw rapid growth in electric generation capacity in the United States.

Electricity demand grew significantly in the post-World War II economic boom. From 1949 to 1969, total U.S. electricity generation increased from about 300 terrawatt-hours (TWh) to over 1,300 TWh annually, more than quadrupling.¹

The growth of electric heating, air conditioning, water heating, and cooling accelerated at a rate far beyond the expectations of the prewar era in the 1950s.² The air conditioning boom in particular drove major increases in electricity consumption and the need for more generation.

Current electric power generating capacity is approximately 4,100 TWh, having grown very little over the last 15 years.

However, as depicted in the second Chart, electric power demand is expected to grow meaningfully faster than GDP over the next 15 years.

For the time being, this demand growth is mostly being met by fossil fuels.

While the performance of the Magnificent 7 has garnered much attention in the recent past, the performance of the Energy sector has also been quite strong, at least partially driven by growth in power demand from data centers. In fact, the Energy Select Sector SPDR® ETF (XLE) is up 14% YTD and 30% the last 3 yrs, as compared to 4.5% and 7.6% for the S&P 500 over the same time period.³

However, reliance on fossil fuels to power electricity supply growth is not sustainable, neither literally nor figuratively. I suggest that nuclear energy might be the only workable path to meeting this growth in demand. Microsoft, among others, is already eyeing this as a possible solution.

🚙 Interesting Drive-By's

🤔 Why Have Rate Hikes Not Done Anything? - from Matthew Kline [Link]

📈 Inflation is Not “Reaccelerating” - a “two-fer” from Matthew Kline [Link]

💡 America is Debating Whether to Raise the Retirement Age - from Fortune Magazine [Link]

🤓 The Performance of the Hedge Fund Industry - from Alpha Architect [Link]

💯 The 80% Solution - from Jared Dillian [Link]

👋🏼 Parting Thought

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If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em (X ‘em?) at me.

Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed.

‌I hope you have a relaxing weekend and a great week ahead. See you next Sunday...

Your faithful financial provocateur,

-Mike‌

If you enjoy the Sunday Drive, I'd be honored if you'd share it with others.‌‌

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1. https://decarbonization.visualcapitalist.com/animated-70-years-of-u-s-electricity-generation-by-source/

2. https://www.ecmweb.com/content/article/20892876/the-1950s-1950-1959

3. Source: YCharts