Could Computers Drive Up Our Power Bills?

Electric supply doesn’t move at the speed of demand

In 2020, the U.S. joined Mexico and Canada in a free trade agreement that updated and improved the original North American Free Trade Agreement (NAFTA). However, the incoming administration plans to slap tariffs on those countries, regardless of that agreement. 

The impact on our economy could be profound.

The incoming administration proposed 200% tariffs on imports from Mexico and 60% to 100% on goods imported from China. We believe the planned tariffs will have a massive impact on the stock market. And investors would do well to prepare. We are not alone in our concerns.

Giant retailer Walmart said that it will raise prices if the tariffs hit. CFO David Rainey told CNBC:

“We never want to raise prices. Our model is everyday low prices. But there probably will be cases where prices will go up for consumers.

“We’ve been living under a tariff environment for seven years, so we’re pretty familiar with that. Tariffs, though, are inflationary for customers, so we want to work with suppliers and with our own private brand assortment to try to bring down prices.”

Retail stores will be hardest hit. In addition to Walmart, chains like Dollar Tree and Five Below import most of their stock. Shoemakers like Crocs and Sketchers will be hit hard. Auto parts companies like AutoZone will respond by raising prices as well.

Tariffs will hit clothing companies like Columbia Sportswear, Steve Madden, and American Eagle Outfitters. Home improvement stores will see higher prices. Lowe’s CFO Brandon Sink agrees with Rainey. He said that tariffs will increase costs of goods.

The looming tariffs will cause a scramble for suppliers. Companies need to diversify their imports across many countries to minimize impacts. Unfortunately, countries like Mexico, Canada, and China built out industries to supply U.S. goods.

From an investor point of view, we need to plan for earnings declines. Either these companies eat the tariffs, or they make their goods more expensive. The first case will reduce earnings to cover the taxes. The second case will impact sales…and reduce earnings.
Either way, some high-flying companies will see their share prices decline. That’s already starting to happen. Shoemaker Crocs (Nasdaq: CROX) took a huge hit after the election:

For more than a decade, U.S. power demand was flat. That’s incredible, considering we added around thirty-two million people to the population since 2010. It makes sense that electricity demand would be a long curve, tracking population. However, that is not what it did.

Thanks to massive increases in efficiency in everything from small appliances to lights, electric demand remained flat. Even as the population grew.

But that’s about to change dramatically. According to the North American Electric Reliability Corporation (NERC), we could see seventy-eight gigawatts of peak demand growth over the next 10 years. That compares to just forty gigawatts of forecast growth two years ago.

The culprit for much of that growth is not electric cars…it’s computer power.

The U.S. saw an explosion in crypto currencies and artificial intelligence (AI). Today, crypto “mining” operations consume 2.3% of U.S. electricity according to the U.S. Energy Information Administration (EIA).

There is massive growth in the datacenters that power the massive computers which drive AI. For example, Japanese firm SoftBank plans to invest $100 billion in the U.S. on AI infrastructure. According to industry consulting group Bain & Company, the U.S. must increase electric generation by 25% in just three years to meet that demand.

If that supply doesn’t emerge, electric prices will go up.

Frankly, that’s what we expect to happen. That’s why we named our flagship newsletter “New Energy.” Because we are sitting on the cusp of a massive shift. This event will be equally important as the switch from whale oil to kerosene.

But it isn’t just investors that need to be aware. This will impact everyone with an electric meter.

For the Good,

The Mangrove Investor Team

Numbers You Need to Know

11 Century

Commercial whaling for the purpose of selling their oil and other products started in the 11th century with people from Basque Country in Southwest Europe. (Science Media Museum)

1986

Commercial whaling was banned in 1986 under the IWC’s moratorium. However Iceland and Norway lodged official objections to the moratorium and have continued a commercial hunt. Japan and Iceland have also continued to hunt whales under the guise of “scientific whaling”. (WWF)

1851

Published in 1851, Moby Dick by Herman Melville was inspired by the Essex, a ship that had been attacked and sunk by a sperm whale in an 1820 incident. (Smithsonian Magazine)

What’s New in Sustainable Investing

Six Ways The Trump Administration Could Impact Investments

Exploring the incoming Trump administration’s potential macroeconomic and geopolitical impacts, including financial markets, foreign policy, fiscal policy and portfolios. (Mondaq)

Indiana to Replace BlackRock in Pension Funds Due to ESG Investing Policies

The Indiana Public Retirement System (INPRS) voted to replace BlackRock as a manager in its portfolio, due to the investment giant’s alleged use of ESG investment policies and its engagement using “an ESG focused agenda.” (ESG Today)

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