The contrarian long view: AI, bonds, and oil

It seems that everywhere you look in the financial media these days there is persistent hype about artificial intelligence (AI) and the companies developing it. Right alongside this great investment boom is doom and gloom about the future value of bonds. Oil, too, is frequently covered for two reasons, the inability of oil futures prices—which seem suspiciously low—to reflect the long-term effects of what is happening in the Persian Gulf and the high prices of refined products such as gasoline and diesel where the real squeeze seems to be right now.

It's hard to resist the constant din of such news in order to arrive at an independent assessment. But that is precisely what we should strive to do in the face of what seems like the overwhelming consensus. However, I am not writing to give you financial advice which often requires precise timing to be of much value. In the financial markets—as I have learned again and again—being early is almost always the equivalent of being wrong. What I hope to do is to help you understand the financial news better. First, let me declare that I have no financial interest in anything mentioned in this piece lest you think I am "talking my book."

To be a contrarian with a long view requires a lot of mental armor as near-term events almost always contradict your prognostications. Trends in financial markets tend to go on longer than any skeptic can conceive. As famed economist John Maynard Keynes is quoted as saying, "Markets can remain irrational longer than you can remain solvent." Taking the long view, not surprisingly, requires not only patience but also fortitude.

Sulfur and the emerging food crisis

Sulfur has become an indispensable element for the modern industrial system including for agriculture. Before the outbreak of the Iran war, 24 percent of the world's supply of sulfur passed through the Strait of Hormuz. I can find no reliable information on whether sulfur is being shipped through the strait now after the Iranian government claimed control. I suspect the amount is close to zero.

The sulfur price at the start of the Iran conflict was approximately $500 per metric ton for sulfur originating from the the Middle East. It now sits above $800. Some customers paid more than $1,000 in June for Canadian-origin sulfur, a record. These high prices are threatening worldwide phosphate fertilizer supplies which depend on sulfuric acid for their production. To understand why this is happening, it's important to have some background.

In the densely interconnected web of global production, sulfur sits in the middle as the basis for sulfuric acid, a chemical that finds wide application in industry including for improving octane in gasoline; as raw material for detergents, resins, dyes, and explosives; for the "pickling" of metals, that is, the removal of oxidation from the surface; as an electrolyte in lead-acid batteries; as a laboratory reagent, that is, a chemical used for analysis and synthesis of chemicals; and for the production of phosphate fertilizer, an essential plant nutrient critical to obtaining high yields in today's industrial agricultural system. In fact, 50 percent of all sulfuric acid is used to make fertilizers, 42.5 percent to make phosphate fertilizer and 7.5 percent to make ammonium sulfate (a source of nitrogen) and sulfur fertilizer products. (Sulfur is an important soil nutrient by itself.)

Altman to humanity: Accept some bad things to get benefits of AI

The leader of the most visible company hawking the future of artificial intelligence (AI), Sam Altman, CEO of OpenAI, told Politico a little over a week ago that "the world should accept some bad things happening for the benefits of this technology." Let me provide additional context. Previously Altman has said the following:

1. "It is terrifying because of the power that superintelligent AGI wields to destroy human civilization, intentionally or unintentionally." -- Lex Fridman Podcast #367 (March 25, 2023)

2. "Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war." -- Center for AI Safety statement (No date)

3. "I was very intent on not destroying the world before having kids." -- Vanity Fair interview (October 5, 2026)

I do not know for a fact that AI can destroy civilization, and I'm not sure exactly what Sam Altman means when he says that. But I do know one very important thing that bears repeating again and again: Any product or system that has a nonzero chance of destroying all of human civilization should be abandoned. There is no amount of benefit that can justify risking the destruction of the entire human project no matter how small the risk.

U.S. Supreme Court to decide whether climate suits can go forward

Tomorrow, the U.S. Supreme Court will hear arguments about whether a lawsuit filed in state court in Colorado seeking damages from two major oil companies for the climate-change related damage inflicted on Boulder County can go forward.

Here's the short version: The Canadian-based Suncor Energy Inc. and Texas-based ExxonMobil say that policies regarding climate change and any alleged damages resulting from it are matters for the federal government and courts only and that therefore the state suit should not be allowed to go forward. Boulder County says that it merely seeks compensation for damage done to Boulder and its residents by decades of emissions from these two companies. It is not seeking to change the policies of the federal government.

The energy companies contend that a victory for Boulder County would allow many similar suits to proceed and could bankrupt the oil industry by essentially creating a judicially ordered "carbon tax" in the form of damages.

Taking a break - no post this week

I am taking a break this week and plan to post again on Sunday, October 4.

All energy is local: The emerging physical delivery problem for petroleum fuels

Even as U.S. diesel and gasoline prices soared in the wake of the U.S.-Israeli war with Iran, both fuels remained widely available, just more expensive. Now, a few station owners are saying they are out of diesel though this appears to be an isolated problem for the moment. However, if the diesel and gasoline supply situation does not change, more and more stations may find themselves without one or both of these two crucial motor fuels.

Proximity to supply is starting to matter more and more. For example, in Texas (where many refineries and oil fields are located), the statewide average for diesel as of September 20 was $5.9779 per gallon. Regular gasoline was $3.9480 per gallon. In California (where refineries and oil fields are not as plentiful and air pollution rules complicate refining requirements) the statewide average for diesel was $8.4244 per gallon, while regular gasoline was $6.1533 per gallon.

And, it's not just ground transportation that is being affected, of course. Several airlines have announced they are cutting back on flights as a response to higher aviation fuel prices.

Pipeline "solution" to Strait of Hormuz closure gone in a flash

The East-West Pipeline in Saudi Arabia which delivers oil to the shores of the Red Sea has been an important workaround to the choking of tanker traffic by Iran in the Strait of Hormuz, the only exit for tankers from the Persian Gulf to the open sea. The Saudi government claims that 7 million barrels per day (mbpd) of crude oil can flow westward through the pipeline to the port of Yanbu though the current exports are thought to be lower (perhaps 5 mbpd) than that given infrastructure restraints.

But, now that pipeline has been bombed and put out of service. The Saudis are saying that the pipeline has been closed "as a precautionary measure." But that statement seems to underplay what has happened. Satellite images show that the attacks damaged at least two pumping stations. Repairing or replacing these stations may be more involved than simply replacing a section of damaged pipeline since the pipeline sits mostly above ground. And, of course, once repaired the pipeline could simply be attacked again. The 1200-mile length of the pipeline is not easily defended.

The oil-starved importers of the world have been gushing about how much oil has been getting out of the Persian Gulf right under the noses of a threatening Iranian Revolutionary Guard Corp (IRGC) who are standing watch with missiles and drones on the shores of the Strait of Hormuz. But even these surreptitious transits have carried volumes far below those transported before the war began, only 7 mbpd versus 20 mbpd. The East-West Pipeline became a crucial source of oil to the world after the Iranians closed the Strait of Hormuz.

Strategic metals literally going up in smoke

I've been writing for more than a decade and a half about a broad category of metals often nowadays dubbed "strategic" because they are crucial to high-tech applications such as solar photovoltaic panels, wind turbines, electric vehicles, flat screens, semiconductors, batteries, optics, aerospace and a wide array of military applications including night vision, radar systems, communications satellites, radiation shielding, vehicle armor, submarine hulls, precision weaponry, and on and on.

It is the military applications which interest me here because much of the volume of strategic minerals in most civilian devices can be recycled when devices containing them are junked. But, of course, in warfare the whole point in many cases is to just blow stuff up. And, once you do that to something containing any of the strategic minerals important for military applications, there is no chance to recover the metals and use them again.

That's why this headline caught my eye: "Ukraine's Drone Warfare Devouring 4% Of Global Germanium Demand As China Chokes Supplies." I can't verify whether this claim is true, but some nonzero amount of germanium is being consumed by drone warfare, not just in the Ukraine-Russia war, but also in the Iran war with the United States and Israel. It's important to note that germanium has many civilian applications such as semiconductors, solar energy, autonomous vehicles, scientific instruments, battery  technology and a variety of health care applications.

Conflict combines with climate change to push food supply down and prices up

Two weeks ago I wrote about how conflict and climate change are combining to impede navigation across the globe. That same combination is also pushing food supply down and prices up worldwide. Climate change is no longer coming; it's here and we're mixing it with our human folly in war in ways that make matters worse.

A single headline can only tell a fragment of the story. For example, "Britain faces food shortages within months, warn farmers," one article blares. Why? The writer explains: "The worst harvest since 1984 and a spike in livestock deaths have left many farmers without the cash needed to sow their fields for the coming year." Contemplate that for a moment. Many farmers in Great Britain may not even be able to afford to plant crops next season. As of now, a decision to plant would almost certainly cause farmers to lose money.

But we need to dig deeper for the cause. One farm leader explained: "Rain has come too late for lost harvests and slashed yields, while livestock farmers are dealing with the worst bluetongue outbreak [a disease in sheep] to reach our shores." So we now know that climate change is likely involved as warming temperatures tend to increase both droughts and floods depending on where you are. And, there is an increase in animal disease which can be traced to the warmer temperatures: "Bluetongue, a disease that causes fertility problems and deaths in sheep, has been particularly bad this year because high temperatures have led to a larger-than-normal number of midges, which spread the virus."

AI destroys transgenerational memory by tearing apart rare books to scan them

When I read that artificial intelligence (AI) companies are destroying rare books as they feed their contents into what are called their large language models (LLMs) which power their AI applications, I was reminded of a conversation I had many years ago that seems to illustrate what is at stake. (For the record, the companies cut off the spine to give them better access to all the pages and then after scanning the pages, dispose of those as well.)

Regarding that conversation, the town where I used to live decided to give its public library a thorough rework. After it was completed, I was lamenting the aesthetic result during a conversation with someone who was a local hero for having meticulously restored historic homes and other buildings in and near the downtown area, restorations that helped propel a revival in the downtown and adjacent neighborhoods.

I observed that the exterior facing of the renovated library changed color and materials at strange intervals. The result gave the impression that the contractor more than once had run out of one type of facing and then gone to the hardware store and picked up whatever was on sale to continue the job, but still didn't have enough to finish the job and so repeated the process. My take was that the cartoonish modernism of the building exterior would quickly move beyond its sell-by date.