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Anyone who is watching AI closely is worried about the future because it will bring massive disruption in the jobs market, particularly if AI unlocks robotic workers, which I believe it will.

Now I’m normally an optimist but I’m having a hard time figuring out how this ends well for most workers. Here is a take from Netscape founder and venture capital investor Marc Andreessen that highlights a particularly positive view.

A similar thinking is shared by OpenAI CEO Sam Altman who talked about a world of abundance or a “post-scarcity” economy where basic needs like food, housing, and healthcare become extremely cheap or nearly free. He has talked about a re-writing of the social contract for this or some kind of universal basic income. He’s talked about a $14K UBI.

This sounds nice but it doesn’t add up.

I’ll take three examples but I think there are many:

1) Air travel

You might argue this is some kind of luxury but AI is changing fast and aviation changes slowly. In 20 years, we will be flying on the same planes that are in the air today. Theoretically you could take away human flight attendants and pilots (though I don’t think you would want to) but you can’t take away the two biggest costs — fuel and the planes. Those make up more than 50% of your ticket with airport fees another other taxes making up as much as 20%.

AI might save small amounts of fuel with real-time route optimization, predictive maintenance or scheduling but at best, you’re cutting around 20% of costs and more likely just 10%. That could be passed on but flying would be highly inaccessible to 95% of consumers in a UBI world.

2) Materials

Mining and materials are already highly mechanized and energy-intensive industries. There are already many self-driving hauling trucks at mine sites but the wider applications can’t radically change the economics of mining. Yes, there could be some real-time optimization, improved maintenance, labor reduction and process automation but at best you’re reducing costs by 30% because AI doesn’t do much to make it cheaper to break, haul and crush rock.

On the processing side it’s even tougher. Steel and aluminum manufacturing is highly-automated already and incredibly energy-intensive. You can optimize blast furnaces and improve precision but there isn’t a path to ultra-cheap mining. Some might argue that the AI may discover higher-grade deposits but you ultimately still need to drill dozens of core samples to prove a deposit.

3) Manufacturing

This is a big one and it’s wide and varied but most consumer goods manufacturing facilities are either highly automated or located in places where the cost of labor is already extremely low.

In automotive — which has decent wages — factory labor accounts for 6-12% of the retail cost of a car if you add in R&D, engineering, and design labor that might double but it isn’t a path to providing extremely cheap cars. There is some space of optimization in supply chains, quality control and energy but

In these three examples you might save 20-30% of costs (at best) by dramatically cutting back on labor and highly-automating processes with AI but with people losing 80-100% of their salaries, the math doesn’t add up to some kind of age of abundance.

I could go on with examples in agriculture, utilities, healthcare and construction.Three problems AI doesn’t make cheaper are 1) hard physical limits 2) existing automation 3) infrastructure dependencies.

While I strong believe AI will be deflationary, it won’t be enough to sustain the living standards of the millions who will lose their jobs. A 20-30% decline in costs doesn’t fix an 80-100% decline in income. Moreover, any path to a new political consensus will be fraught.

This article was written by Adam Button at www.forexlive.com.

The US decided it wasn’t going to win on autos so it closed the market. DeepSeek is open source so it can be run without sharing any info with anyone. It won’t matter though if it’s a threat to US tech dominance.

This article was written by Adam Button at www.forexlive.com.

• High yield 4.457%
• WI level at the time of the auction 4.466%
• Tail:-0.9 basis points versus 6–month average of -1.0 basis points
• Bid to Cover: 2.64X vs. six-month average of 2.66X
• DIrects (Domestic demand): 23.06% vs 6-month average of 16.3%
• Indirects (international demand): 67.08% vs 6-month avearage of 74.0%
• Dealers (they take the rest): 9.86x% vs 6-month average of 9.7%

Auction Grade: C

The tail of -0.9 basis points was the good new but only average compared to the 6 month average. The Bid to cover was also average. Domestic demand was strong but the international demand was weaker than average. The dealers took about the average.

I was going to give a C+/B- but on 2nd view, it is near the 6 month averages. So I give it a C vs the history (average).

This article was written by Greg Michalowski at www.forexlive.com.

The US treasury will auction off $44 billion of 7-year notes at the top of the hour. The auction will complete the coupon issuances for the week ahead of the FOMC decision tomorrow at 2 PM. The FOMC is scheduled to keep rates unchanged after moving them lower by 100 basis points in 2024.

The treasury auctioned off 2 and 5-year notes yesterday. The 5 year note was met with better demand than the 2 year note.

The 7 year note results will be compared against the six-month averages to determine relative demand and the Wi level at the time of the auction:

• Tail: -1.0 basis points
• Bid to Cover: 2.66X
• DIrects (Domestic demand): 16.3%
• Indirects (international demand): 74.0%
• Dealers (they take the rest): 9.7%

This article was written by Greg Michalowski at www.forexlive.com.

On the day:

• Stoxx 600 +0.4%
• German DAX +0.7%
• Francis CAC flat
• UK’s FTSE 100 +0.4%
• Spain’s IBEX +1.4%
• Italy’s FTSE MIB +0.5%

With enough efficiency in AI, Germany might be able to afford to power the grid.

This article was written by Adam Button at www.forexlive.com.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2024 is 3.2 percent on January 28, up from 3.0 percent on January 17.

We are quickly approaching the first look at Q4 GDP.

This article was written by Adam Button at www.forexlive.com.

Cooler heads are having a re-think on DeepSeek today. That’s helped Nvidia shares to bounce by 2.6%.

The market also continues to be upbeat around the idea of certain winners related to cheaper AI as Apple rebounds and Amazon extends. There are also some earnings-related gainers near the top of the S&P 500 chart with Boeing and RTX up strongly.

The worst-performer is GM, which is down 9% after highlighting tariff worries following earnings.

Overall, the S&P 500 is now up 32 points, or 0.5% while the Nasdaq is up 1.2%. Don’t forget that it’s a huge week for earnings with Meta, Microsoft and Tesla reporting tomorrow after the bell.

This article was written by Adam Button at www.forexlive.com.

The Globe & Mail reports that Canada’s federal government is planning a covid-style relief effort if Trump imposes 25% tariffs. The moves would require a parliamentary vote so they’re far from certain. All opposition parties have pledged to oust the government and the ruling Liberal’s don’t have a majority.

Any stimulus would require the support of the left-wing NDP, which has propped up the government for three years. Parliament is currently prorogued until March 24 as the Liberal’s select a new leader to replace Trudeau (likely Mark Carney) but it could be called back early.

It’s certainly an interesting time in Canadian politics but I think the lesson here is that government everywhere still have the knee-jerk response of higher spending when there is turmoil. That’s a big reason why sovereign yields have been climbing in the past few months.

USD/CAD is up 19 pips to 1.4386 in choppy trade today.

This article was written by Adam Button at www.forexlive.com.

• Prior was 104.7 (revised to 109.5)
• Present Situation Index 134.3 vs. 145.2 prior
• Expectations Index 83.9 vs 81.1 prior (revised to 86.5)
• 12-month inflation expectations 5.3% vs 5.0% prior

The University of Michigan survey last week was surprisingly soft so eyes are fixed on the upcoming data on consumers and retail sales.

It doesn’t look like we’re getting some kind of breakout in this survey as it’s reeled back in after the election.

This article was written by Adam Button at www.forexlive.com.

15 consecutive negative numbers for the Richmond Fed

• Prior month -10
• Composite index -4 vs -13 estimate
• Services index 4 vs 23 last month
• Manufacturing shipments -9 vs -11 last month
• Employment 3 vs -8 last month
• New Orders -4 vs -11 last month
• Prices Paid 2.37 vs 2.86 last month
• Prices received 1.21 vs 1.71 last month

Good news on prices. Mixed otherwise.

6 month forward:

• Shipments 32 versus 41 last month
• new orders 31 versus 43 last month.
• Employment 12 versus nine last month
• Prices paid 4.08 versus 3.78 last month.
• Prices received 3.06 versus 2.91 last month

Below is a table of January versus December values along with the six-month expectations.

This article was written by Greg Michalowski at www.forexlive.com.

Nvidia was up by 5% at the pre-market highs but it wasn’t able to open near the highs and has continued lower since the open. I expect that some of that is fallout from yesterday’s blow up as it will take some time to balance out the market.

Technically, yesterday’s late low of $116.70 is the spot to watch.

The overall market is also holding its breath and near unchanged.

This article was written by Adam Button at www.forexlive.com.

Honda plans to launch a small electric vehicle priced below $30,000 in North America by as early as 2026, Nikkei reported earlier today.

That’s hardly a ‘DeepSeek moment’ for the automotive industry as the Honda Civic starts at $24,250 in the US. A real gamebreaker would be something like the BYD Dolphin, which is selling in some markets for $13,900 with 300 km of range. There are EVs in India selling for just $10K with 200 km of range.

Now there are different standards in the US market that make that highly unlikely but not impossible. Electric vehicles are far-less complex than ICEs and there would be a huge market for a vehicle at that cost.

This article was written by Adam Button at www.forexlive.com.