New Fed Chairman Kevin Warsh is braving the heat in Portugal to attend a European Central Bank (ECB) Forum this week. The real question is: will Warsh confront ECB President Christine Lagarde about the Vienna speech she gave, implying that AI will trigger a financial crisis?
I suspect that any Warsh criticism will be done privately, since he is still building a consensus within the and his central bank peers. However, I am hoping that Warsh will give a speech reiterating how AI is boosting productivity and U.S. growth, which is largely not inflationary, so central bankers should not worry about surging U.S. GDP growth and a surging U.S. dollar, which is naturally inflationary.
Although things are not yet normalized in the Middle East, commerce is picking up. Countries around the world are striving to replenish their depleted crude oil inventories, so worldwide demand is expected to remain strong for the next few months. Europe’s LNG inventories also remain at a 15-year low and have likely been exacerbated by the recent heatwave, so that bodes well for U.S. LNG exports.
Bears continue to throw cold water on the AI boom, and as an example, perma bear, Jeremy Grantham said on CNBC’s Squawk Box, “This is the most expensive market in American history.” He added, “Based on the value of the stock market compared to GDP, with modifications, this is the most expensive market in American history.” First, Jeremy Grantham is a bond investor who has never liked stocks to my knowledge. Second, clearly Jeremy Grantham does not look at earnings growth, order backlogs, analyst earnings revisions, earnings surprises, and forecasted price-to-earnings ratios.
The bottom line is the AI and data center boom cannot be stopped, and the U.S. is leading the worldwide boom, which will persist for at least the next three years. Every dip should be viewed as a buying opportunity.