I don't give financial advice anymore, but. . .

I still watch the economy and stock markets.

Skip this post. 

I am probably wrong. 

Just because I have the willies doesn't mean there is anything to worry about.

I notice that there is a rush to build giant data centers.

The rush is so intense that the public has gotten spooked. Cities and states are banning them, even though they are theoretically a boon to a community because there are construction jobs building them, and then the fabulously valuable buildings sit there, nearly empty, paying property taxes but putting no demands for public services. 

But it doesn't work that way. Data centers want special low-ball property taxes, they are electricity hogs that sop up cheap legacy power generation, and they need water for cooling. People fear what they represent: a Frankenstein monster technology that steals our jobs and humiliates us by doing everything better than humans do.

But today's blog isn't about the politics of data centers. It is about the financing of them and the systemic risk they bring to our economy. They are being built to suit the most valuable and powerful businesses on Earth. Those companies represent America's economic and technical hegemony. Their capital investment has kept our economy growing. Their leaders have become allies with the president. They are too big to fail. Each of the competitors wants to be the first and biggest artificial intelligence company, the brand-dominant provider of a world-changing technology. You don't get that by waiting for profits from customer business. 

So what's my concern? Most data centers aren't being built by Amazon, Meta, Alphabet, Oracle, or Microsoft. They are the tenant for the facilities. They are the "smart money," the people with the best insight as to the growth of the technology. They have offloaded the risk by establishing Special Purpose Vehicles (SPVs) to create an accounting wall between themselves and the people who built the facilities. The smart money didn't want that risk. No problem. So-called "dumb money" did: private credit.

Maybe there is a good match between the pace of building those centers and the lease income from the hyperscalers using them. Being 76 years old makes me wary. Artificial intelligence users have moved from the experimentation stage to the shop-for-value stage. They realize that much of what they do can be accomplished on something produced by Chinese technology for one twentieth of the cost of AI work done by the frontier chips produced by NVIDIA and the American platforms. Data centers are multi-year facilities for a technology that changes by the month. 

A portfolio can get ugly very quickly. Oracle has lost half its value in the past two months. 

I expect Oracle and every other "hyperscale" company to survive. They are political partners with the American president.  The American taxpayer is a backstop for the very-well-connected. If someone must lose money in a crash-and-burn scenario of mis-allocated capital, the pension funds that funded those SPVs can take the hit. We saw this in the Great Financial Crisis. The well-connected get bonuses. The public absorbed the loss and suffered.

Don't mind me. I am old. Buy and hold. Everything will be OK.

In business and government, we are led by smart, prudent people who make careful, well-planned decisions. Right??

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