AI Will Get Politicized. Extreme Moves In Rates & Oil.

AI Will Get Politicized. But It Probably Won’t Stop.

Artificial intelligence is going to become increasingly political.

That shouldn’t surprise anyone.

Every major technology that changes how people work, communicate, or make money eventually becomes part of the political conversation. AI will be no different. We will debate regulation, jobs, privacy, copyright, national security, education, corporate power and everything in between.

There will be arguments about what AI should be allowed to do.

But there’s an important distinction between slowing AI down and stopping it.

I don’t think we’re going to stop it.

The economic incentive to develop better AI is simply too large. Companies can use AI to automate repetitive work, analyze enormous amounts of information, improve productivity and create entirely new products and services. Governments have incentives to develop it for national security and economic competitiveness. Individuals have incentives to use it because it makes them more productive.

And perhaps most importantly, the technology is already here.

Think about what happened with the internet. Governments could regulate certain aspects of it, but they couldn’t put the genie back in the bottle. Smartphones didn’t disappear because people debated their consequences. Computers didn’t stop getting faster because some jobs became automated.

AI is likely to follow a similar path.

That doesn’t mean there won’t be bumps along the way. Regulation will matter. There will be winners and losers. Some jobs will change dramatically. Some companies will struggle because they failed to adapt.

But from a financial planning perspective, I think the bigger mistake is trying to predict exactly what AI will do rather than preparing for the possibility that it changes more than we expect.

That’s where financial planning becomes important.

If AI increases productivity and creates economic growth, there may be tremendous investment opportunities. If it disrupts certain industries, workers may need to change careers or develop new skills. If it changes the way businesses operate, the companies that adapt could look very different from the companies that dominate today.

You don’t have to predict the future perfectly.

You need a financial plan that can survive different versions of it.

That’s one of the reasons I believe good financial planning is about much more than picking investments. Your portfolio is only one piece of your financial life. Your income, career, taxes, retirement timeline, cash flow, insurance, estate plan and risk tolerance all matter.

The future is going to throw things at us that we can’t predict.

AI is one of them.

And while Washington can debate it, regulate it and politicize it, I don’t believe the underlying technological development is going away.

The better question isn’t, “How do we stop AI?”

It’s “How do we prepare for what happens if AI changes everything?”

That’s the kind of problem a good financial plan should be designed to solve.

Dream bigger. Sleep better.

Colin Symons, CIO Lloyd Financial Group

We’ve seen some extreme moves from oil and rates lately. We also had a bit of a move to revert that move on Friday, particularly in oil. How much is enough on these moves? Honestly, I think this is both a very important and complex situation we’re in, right now.

It’s hard to know where to begin, but let’s start with rates. The market thinks the Fed is currently overly accommodative and are pricing in four hikes before the Fed should end hiking (chart, below.) You can say that’s too much, but that’s what the market is saying, and there is now an 87% chance of a hike this week.

In turn, rate expectations moving sharply to the upside is helping pressure long-term yields. That’s the part the Treasury doesn’t like and is pushing against. The easy way to stop the rise in long-term yields is to cause a peak in short-term rate expectations. I’m not the Fed, but at this point, I agree with the market that the Fed would be best served by bending the knee to the market and hiking rates 25bps.

That may not sound like much fun, but quite a lot has already been priced into the market. A hike is already largely priced in and doing it sooner can probably help tame runaway yields. Rate expectations have sharply moved up over the last two or three weeks. Those extreme moves have the potential to reverse sharply if even a small reversion starts, similar to what we saw with semiconductors (SMH) earlier this year.

Arguably, you can see this with oil, we had a sharp move to over $104, then a move back to under $100 before settling just over that level, on Friday. Lots of money has entered oil longs recently, though not to the extent we’ve seen at long-term extremes. At this point, the US should have a great interest moving oil down, so the reversion lower is of interest.

However, the move higher in rates doesn’t seem to be as connected to oil and inflation as you may expect. CPI and CPI expectations remain pretty contained and Y/Y Core CPI is now the lowest since 2021. The latest CPI print was pretty noisy, with only a few items driving the number. The move higher in long rates seems more tied to continuing growth and the spending connected to that. High nominal GDP expectations drive long-term yield expectations higher.

The market has had a lot thrown at it, already. On the one hand, these moves can cause more pain if they continue. On the other hand, we’re near a point where a pause of these extreme moves is reasonable. Particularly if the Fed does the expected hike, this could pause the aggressive upside move in rates, and these quick moves up can reverse significantly.

I’m not really interested in forecasting anything, but I do want to be aware that we’ve had very sharp moves lately, and those moves can revert quickly as the market finishes pricing in extremes. That can cause a good bid in risk assets, which makes it hard to want to de-risk anymore, right now. Ultimately, I expect we’ll know more by next week. This week could easily be messy, for good or ill.

Core CPI was 0.3% m/m vs. exp. 0.2%, while the headline was 0.4% m/m, as expected. Interestingly, on a Y/Y basis, Core CPI was 2.4%, as expected, and vs. prev. 2.5%. Services was the driver of the beat, with Goods not so bad. That’s the lowest Y/Y Core CPI number since 2021. If you want to take the negative side, SuperCore was 0.5% m/m, though most of that was from wireless phone services. In all, a pretty messy number, skewing negative.

The AI space is down following the executives of Anthropic and OpenAI saying we should slow the AI pace due to the risks to humanity. I guess everyone, including China, will just go home now, right? Or maybe those guys are going the regulatory capture route, will have government babysitters, and hope to push others out of the game through added costs... Regulatory oversight would also likely shield them from future liability

RUM Group (RUM) was up 23% on Anthropic reportedly giving it an almost $14B GPU service deal. But I thought we were slowing down, right?

Bottom line: Lots of freakout over the weekend AI talks, which admittedly could be interpreted several ways.

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