Electricity

I tend to watch for thoughts to connect in threes when I am working on an investment idea for the portfolio. Recently, an idea about how perspective shifts occur came to me from a song I heard on Instagram. A different singer led to a different appreciation of the lyrics. The change of voice eliminated a predisposition I did not know I was carrying. But it cascaded into an idea around shifting your mindset.

For those wondering, look up Avery Anna and “No More Tears” by Ozzy Osbourne.

That idea led me to a conversation last week on the golf course with another parent, watching our sons play in their conference championship for their respective colleges. I tried to interact with her in between shots and the nice woman wanted nothing to do with it. The conversation and connection about mindset ended there. Rather than push, I dropped the thread and hoped it would return.

I think my strongest ideas or arguments arrive when I can see them in multiple ways. The two connections I made about perspective shifts didn’t arrive fully, so I left it for another day. This week I am attending the Strategic Investment Conference hosted by Mauldin Economics. John Mauldin sells a brand of doom I do not embrace, but the speakers at his conference challenge my thinking.

The first day featured David Rosenberg, Louis Gave, Lacy Hunt, and Ben Hunt. Three of those I have followed for years. Ben Hunt I was less familiar with. I knew the name but not his research, and his presentation was strong. His firm uses AI to surface the narratives being discussed across the global media landscape, and he does it with humility I respect. He said:

“I don’t know what the truth is. I’m going to show you some of the narratives around trade. I’m going to show you some of the narratives around global growth. I’m going to show you some of the narratives around global fiscal dynamics. I don’t know what the actual truth is, but I can absolutely tell you this is how the truth is being presented.”

His framing displayed a rare humility in this industry, and it converted me. One of his slides really landed: “Media framing is converging on a world where growth leadership rotates from West to Asia.” His research resonated because three speakers before him had told versions of the same story. Growth in the West is structurally challenged. The East is gaining strength despite its own problems. Western monetary and fiscal policies are sowing the seeds of inflation rather than growth.

Four connections instead of three. But what was actionable? Buy China, sell US? I was not ready to draw that conclusion, and the conclusion itself did not interest me much.

Then I remembered Jensen Huang on Dwarkesh Patel’s podcast where he recently said: “The input is electrons, the output is tokens, and in the middle is NVIDIA.” A clean thesis for owning the stock. But is the conversion mechanism the most important layer, or is the electron supply? Not most profitable. That is where most people focus, but what is the most important. Where is the load-bearing constraint?

That question took me back to Gavekal. In Chapter 6 of Charles Gave’s The General Theory of Portfolio Construction, he writes, “The economy is energy transformed.” Connect Gave and Huang and the picture sharpens. The economy is an energy-conversion system. NVIDIA has made the conversion explicit at the most valuable layer of the AI ecosystem. But the cheap-energy producer captures everything downstream of the conversion.

The fifth connection.

Today the conversion captures the value because conversion technology is scarce and electrons are taken for granted. Tomorrow the picture could invert. AI demand is growing faster than any industrial expansion in history, and no Western grid is paced for that demand curve. The provision of electrons eventually becomes the binding constraint in a growing economy.

Who provides them cheaply at scale has a clear advantage. China has built an energy infrastructure with the explicit aim of becoming the lowest cost producer, investing in green energy alongside everything else rather than as a substitute. The US has held onto carbon because it remains plentiful for now, missing that other green technologies may be creating comparative advantages we are not prioritizing.

Through my lens, the Chinese have embraced a constraint architecture that gives them room to endure. The US has ignored pacing, abandoned humility, and removed the friction that would have allowed the system to adapt.

The sixth connection is the one that matters most. This is connected to money.

For over fifty years we have operated within a petrodollar system that allowed oil to be priced in dollars in exchange for security guarantees and other benefits. According to Gavekal, the arrangement rested on three conditions that all simultaneously held. Energy was abundant and the US controlled its flow through the control of money. The US Navy controlled the sea lanes. And the dollar could be trusted not to be weaponized against the people holding it in order to maintain the status quo. All three are now contested.

But the price signals suggest things are shifting. The reserve currency of the next economy is unlikely to be decided by pronouncement. It could be decided by who controls the substrate of the economy that emerges, and by who holds the historical store of value that has always reasserted itself when fiat systems are repriced. China has clever positioning in both. They are becoming the lowest cost producer of the electrons the AI economy will run on, and they have been steadily accumulating gold for years, with central bank purchases that suggest they understand exactly which lever they are building.

I do not think the dollar disappears. I think it loses primacy gradually, the way other reserve currencies have throughout history. Slowly, then suddenly when circumstances dictate.

What does that world look like? As many others are suggesting, trade increasingly settles in non-dollar pairs. Sanctions become less effective because alternative payment rails actually exist. The ability to project power through financial pressure declines. Allies hedge more openly because hedging carries less cost. Resource exporters re-price their relationships with both powers. Capital allocates differently because the safe-haven calculus changes when there is a credible alternative store of value at scale. The dollar still functions but stops being the default answer to the question of where to keep value across borders.

This is what a multi-polar monetary order actually means in practice. Not the dollar’s collapse, but the end of its monopoly on the question of safety. And once that monopoly ends, the architecture of global power that was built on top of it has to reorganize, because that architecture assumed a single answer to a question that now has multiple legitimate answers.

The investment implications follow as themes rather than predictions. The dollar is likely under structural pressure in this world order. Technology will keep attracting investor attention, but the picks-and-shovels of the energy build are the more predictable opportunity. Carbon-based energy companies are likely to remain stable as a bridge through the transition. As US monetary dominance wanes, dollar-denominated commodities and gold are likely to find support. These are exposures rather than investment recommendations. Each benefits if the framework is roughly right and does not catastrophically suffer if it is not.

Six connections led to a self-reinforcing loop. The ideas are not new and the themes in the portfolio are already expressed, but new perspectives build the thesis further. The strength of the argument is that the connections keep producing the same answer regardless of which lens is added.

These signals suggest the financialization era in the US is reaching its limit, a constraint not chosen, but inherited. The horizon is long enough to matter for capital allocation, but uncertain enough to require restraint. The economy may be reverting to an older version of itself, with the financial layer that for fifty years obscured the physical layer beneath it becoming transparent again.

Jensen Huang gave us a clean line to give us as inspiration in thinking beyond Nvidia.

Input: electrons. Output: tokens. Everything else is downstream of who controls the input.

The rest is implementation, and implementation deserves more humility than confidence. At least it is something to keep wondering about.

Thank you for reading Wondering Aloud.

Steve Barth, CFA