Sunday Edition: Markets, Megawatts and Monsters
Market Talk
To regulars here - it may seem as though it's been a while since you've seen a new Jones Report. Not really that long. Sometimes we all form our views and no sense beating them into the ground. That goes for other things besides stocks too. But let's stick to the market and stocks for now.
Let's briefly start with our past market observations as stocks like Micron (MU) were soaring with CNBC analysts falling to their knees touting up earnings and proclaiming memory victory in the AI world. It was here where you may have seen the more circumspect view. Recall when MU was peaking at $1,250 a share, this report implied just wait and see. Since that short time - MU is now nearly 500 points lower! I say this not to boast or brag. But that is an example of how hurtful the market can be for those who get over positioned in a stock, any stock. Here is a saying: "Things happen" and such things are outside of our control so we try to - stay aware..
Let's talk about some "things" that happen. You may occasionally hear about "bond vigilantes." These are not necessarily some organized group sitting around a table plotting the market's next move. BUT - they're big investors who can send a message by selling government bonds when they don't like what they see with inflation, deficits, spending or fiscal policy. When enough of them sell longer-term Treasury bonds, bond prices fall and yields rise. Those higher yields can spill over into borrowing costs throughout the economy — and they can put particular pressure on high-flying growth and technology stocks.
In other words, the Fed isn't the only game in town when it comes to interest rates. Sometimes the bond market does some of the tightening all by itself. And several pundits are pondering whether the new Fed Chairman, Kevin Warsh, is content to let longer-term market interest rates rise naturally, without the Fed itself raising the short-term rates it directly controls. Put another way — are the bond vigilantes doing some of Warsh's dirty work for him? The Fed can leave its own rate lever alone while the bond market does some tightening on the long end.
And lately those bond vigilantes have been making some noise. Concerns over government spending, deficits and inflation have helped put selling pressure on longer-term Treasury bonds. Remember, when bonds get sold their prices go down and their yields go up. That matters to stock investors because suddenly those lofty valuations have some competition from higher yields — and the higher the valuation, the more vulnerable a stock can become.Well, that's just ONE of the things that can cause a sector rotation out of what seem to be good bullish stocks and into other investments — or even just sidelined cash sitting in higher-interest vehicles.
What's another "thing" that recently happened? How about a major hedge fund that, ironically, had the word "awareness" in its name and saw billions in gains wiped out by being too bullish and over-margined? Yep, that all happened, causing forced and panicked selling of some favorite tech stocks even as other hedge funds may have been short selling the tech sector.
And that's something worth remembering. A stock doesn't necessarily have to suddenly become a bad company for its price to go down. Money moves. Priorities change. What looked like the best place for investment dollars yesterday can suddenly have competition today. Sometimes it's interest rates. Sometimes it's inflation. Sometimes it's geopolitics, government policy, earnings expectations or simply a sector that got too crowded and ran too far. And then there are manipulative forces that seem to be nefarious when it affects the stock YOU are in as a small retail investor.
Now add to the angst, the off and on and off again Iran war. Yikes - enough said!
That brings us right back to those high-flying AI and technology names. It doesn't mean the AI story is over or that these aren't good companies. It means price still matters. When everybody gets crowded onto the same side of the boat, it doesn't always take much to make it tilt.
Sometimes, it's smart to adjust the various positions to reflect what seems to be new baseline thinking. For example, recently we've seen the enormous capital expenses (CapEx) that some high-flyer companies are planning to invest in AI causing some investor angst. It's not necessarily that investors suddenly don't believe in AI. They are beginning to ask another question: Just how much money has to be spent to build all of this out, and how long before those enormous investments produce the returns needed to justify them?
In closing - you will not read here about all-time market highs being met in a market rebound last week. It's ALL relative to YOUR positions and nobody else. Ask the manager of the hedge fund that LOST BILLIONS recently if he is happy the markets rebounded. And what about stocks like MU? Not so good. Some recent IPOs were cautioned here as well — including the risk of previously locked-up shares becoming available for sale. Those things matter, and that was the point of the caution.
Markets have a way of getting carried away in both directions. Just as enthusiasm can push a good stock too high, fear and uncertainty can push that same stock too low. That's where things can start getting interesting again. Some watch stocks are indeed interesting but even then we use the words some, not too much, or none at all along with dry powder.Okay, enough opining - it's time for some ...
In other words, the Fed isn't the only game in town when it comes to interest rates. Sometimes the bond market does some of the tightening all by itself. And several pundits are pondering whether the new Fed Chairman, Kevin Warsh, is content to let longer-term market interest rates rise naturally, without the Fed itself raising the short-term rates it directly controls. Put another way — are the bond vigilantes doing some of Warsh's dirty work for him? The Fed can leave its own rate lever alone while the bond market does some tightening on the long end.
Well, that's just ONE of the things that can cause a sector rotation out of what seem to be good bullish stocks and into other investments — or even just sidelined cash sitting in higher-interest vehicles.
What's another "thing" that recently happened? How about a major hedge fund that, ironically, had the word "awareness" in its name and saw billions in gains wiped out by being too bullish and over-margined? Yep, that all happened, causing forced and panicked selling of some favorite tech stocks even as other hedge funds may have been short selling the tech sector.
And that's something worth remembering. A stock doesn't necessarily have to suddenly become a bad company for its price to go down. Money moves. Priorities change. What looked like the best place for investment dollars yesterday can suddenly have competition today. Sometimes it's interest rates. Sometimes it's inflation. Sometimes it's geopolitics, government policy, earnings expectations or simply a sector that got too crowded and ran too far. And then there are manipulative forces that seem to be nefarious when it affects the stock YOU are in as a small retail investor.
That brings us right back to those high-flying AI and technology names. It doesn't mean the AI story is over or that these aren't good companies. It means price still matters. When everybody gets crowded onto the same side of the boat, it doesn't always take much to make it tilt.
Sometimes, it's smart to adjust the various positions to reflect what seems to be new baseline thinking. For example, recently we've seen the enormous capital expenses (CapEx) that some high-flyer companies are planning to invest in AI causing some investor angst. It's not necessarily that investors suddenly don't believe in AI. They are beginning to ask another question: Just how much money has to be spent to build all of this out, and how long before those enormous investments produce the returns needed to justify them?
In closing - you will not read here about all-time market highs being met in a market rebound last week. It's ALL relative to YOUR positions and nobody else. Ask the manager of the hedge fund that LOST BILLIONS recently if he is happy the markets rebounded. And what about stocks like MU? Not so good. Some recent IPOs were cautioned here as well — including the risk of previously locked-up shares becoming available for sale. Those things matter, and that was the point of the caution.
Okay, enough opining - it's time for some ...
Super Data Centers Are Fucking Stupid!
There, I said it.
As the AI race heats up, we're now hearing plans for data-center campuses requiring 5 gigawatts — even 10 gigawatts — of electrical power. At some point bigger stops making engineering sense. In my view, 10-GW data centers cross that line.
So now you've created another problem. You need enormous cooling systems to remove that heat. Depending on the cooling design, that can mean tremendous water requirements. Then come the substations, transmission lines, backup power, redundant cooling, roads, security and all the other infrastructure required to keep this monster alive.
Water! Waste! Heat!
And for what? Why does all that computing have to be concentrated in one enormous location? WE have a LOT of space that can be more smartly used here in America.
A 500-MW data center is already huge. Instead of one 10-GW monster, that same ultimate computing capacity could be distributed among multiple smaller campuses. Put them where electrical power is available. Put them where cooling makes sense. Connect them through high-capacity fiber. Spread the infrastructure and geographic risk instead of putting everything in one gigantic basket.
That brings us to small modular nuclear reactors — and to one of the names on the Jones Watch List.
Take Oklo (OKLO). Its planned larger Aurora powerhouse design is targeted at up to roughly 75 MW of electrical output. Seven of those units gets you into the neighborhood of 500 MW. The nuclear campus wouldn't necessarily even have to sit beside the data center. It could potentially be located miles away on suitable land and deliver power through dedicated transmission infrastructure.
Now compare that with trying to power a 10-GW monster exclusively with 75-MW reactors. You're talking about roughly 134 Aurora units. That's no longer playing to the obvious advantage of a small modular reactor.
Maybe the smarter AI infrastructure model ultimately isn't a handful of gigantic 5-to-10-GW computing cities. Maybe it's many smaller data centers distributed around available sources of reliable power.AI needs enormous amounts of electricity. No argument there.
But needing enormous amounts of electricity doesn't mean you have to consume it all in one place.
Sometimes bigger is better.
And sometimes bigger is just stupid.
Now, a few words about OKLO stock. This stock traded as high as $170 just last year. It has no earnings and yet is rich in cash reserves as it carries out its plans. And Meta is not merely talking about SMRs someday. Meta is financially supporting development of a 1.2-GW Oklo campus, with first power targeted for 2030.
Last week, OKLO stock rallied back from lows in the 30's into the 40's after announcing that its Groves Isotope Test Reactor in Lockhart, Texas, achieved first criticality — a controlled, self-sustaining nuclear chain reaction — less than a year after groundbreaking. It's the first project under the U.S. Department of Energy's Reactor Pilot Program to reach criticality on private land from a greenfield site, and Oklo says it may be the fastest privately funded, privately sited reactor build in history. Want more Stock Talk? Scroll down through the recent Jones Reports for more stocks of interest and some latest thinking on them.Some, not too much and manage dry powder.
Stay Watchful.
Now compare that with trying to power a 10-GW monster exclusively with 75-MW reactors. You're talking about roughly 134 Aurora units. That's no longer playing to the obvious advantage of a small modular reactor.
AI needs enormous amounts of electricity. No argument there.
But needing enormous amounts of electricity doesn't mean you have to consume it all in one place.
Sometimes bigger is better.
And sometimes bigger is just stupid.
Last week, OKLO stock rallied back from lows in the 30's into the 40's after announcing that its Groves Isotope Test Reactor in Lockhart, Texas, achieved first criticality — a controlled, self-sustaining nuclear chain reaction — less than a year after groundbreaking. It's the first project under the U.S. Department of Energy's Reactor Pilot Program to reach criticality on private land from a greenfield site, and Oklo says it may be the fastest privately funded, privately sited reactor build in history.
Some, not too much and manage dry powder.
Stay Watchful.- Jones Report
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More later so ....Stay tuned, if you dare!
For now, we close by noting that any view on the market and stocks on any particular day may change in the days to come. That is why we watch and see how our views match up with reality. Looking ahead a few months may be a way to do things - but thinking too deeply about world events and the recent alliances forming, can make projecting ahead a dicey endeavor.
All in all - we use the word maybe "some", not "too much" and play it accordingly. Never get arrogant in our notions because things do change - and individual stocks are subject to many factors outside our control. So, we try to -stay aware.
With all the above caveats and attempted prognostications, I will close this post. Stay tuned for more opining on the market and stocks to watch.
ALL in my humble opinion, scroll down and read more. This site does NOT make Buy / Sell recommendations.
