December 12, 2025

CONSUMER BUYING PRICES

AI: AN INTELLIGENCE EXPLOSION THAT ALSO OPENS PANDORA’S BOX

Since AI and tariffs have been the hot topics of 2025, I wanted to devote my last Market Insights of the year to both. As for Artificial Intelligence, it makes me wonder who actually understands the positives and negatives of what it can do. Trillions of dollars are being poured into AI with no idea if there will be a payoff. Right now, the AI strategy is “Damn the torpedoes, full steam ahead!”

I’ve been writing about tariffs in every Market Insights of 2025 and would be remiss not to mention them in this issue as well.

I know this is a longer read, but I found the AI information to be informative.

Benefits of AI (claude.ai)

• Healthcare Improvements: AI is accelerating drug discovery, improving diagnostic accuracy for diseases like cancer, personalizing treatment plans, and predicting patient outcomes. AI systems can analyze medical images, identify patterns humans might miss, and help doctors make better-informed decisions faster.
• Scientific Discovery and Research: AI is dramatically speeding up scientific breakthroughs by analyzing vast datasets, identifying patterns, simulating complex systems, and generating hypotheses. This includes applications in climate modeling, materials science, protein folding (like AlphaFold), and fundamental physics research.
• Economic Productivity and Efficiency: AI automates routine tasks, optimizes supply chains, improves customer service, enhances decision-making with better data analysis, and increases productivity across industries. This can free humans to focus on more creative and strategic work while reducing costs and errors.
• Education and Accessibility: AI enables personalized learning adapted to individual student needs and pace, provides tutoring at scale, makes education more accessible across languages and geographies, and can help people with disabilities through assistive technologies like real-time captioning or text-to-speech.
• Problem-Solving at Scale: AI can tackle complex global challenges like climate change modeling, disaster response coordination, traffic optimization, resource allocation, and agricultural optimization. It can process information and coordinate actions at scales beyond human capacity.

While this all sounds like progress, the concerns below have words like displacement, disruption, catastrophic, bias, discrimination, privacy, manipulation and misinformation, all of which will have consequences.

Concerns of AI (claude.ai)

• Job Displacement and Economic Disruption: AI automation threatens to displace workers across many industries faster than new jobs can be created, potentially widening wealth inequality. The transition could be particularly difficult for workers in routine cognitive and physical tasks, and society may struggle to adapt quickly enough.
• Existential and Catastrophic Risks: Some researchers worry about advanced AI systems becoming uncontrollable or misaligned with human values, potentially posing existential threats. Even without intentional harm, sufficiently powerful AI systems optimizing the wrong objectives could cause catastrophic outcomes. There are also concerns about AI-enabled bioweapons or other dangerous technologies.
• Bias, Discrimination, and Fairness: AI systems can perpetuate and amplify existing societal biases related to race, gender, socioeconomic status, and other factors. This can lead to discriminatory outcomes in hiring, lending, criminal justice, healthcare, and other critical domains, often in ways that are difficult to detect or challenge.
• Privacy and Surveillance: AI enables unprecedented data collection, analysis, and surveillance capabilities. Facial recognition, behavioral prediction, and data mining can erode privacy, enable authoritarian control, and create systems of social monitoring that fundamentally change the relationship between individuals, corporations, and governments.
• Misinformation and Manipulation: AI makes it increasingly easy to create convincing deepfakes, generate targeted disinformation at scale, manipulate public opinion, and undermine trust in media and institutions. This threatens democratic processes, social cohesion, and people's ability to distinguish truth from fabrication.

Here is what else I’ve learned through research about the impacts of AI on our finances and businesses. If you have any investments in the S&P 500, you can thank the Magnificent Seven for your gains. The AI concentrated stocks are Amazon, Apple, Nvidia, Meta (Facebook), Alphabet (Google), Microsoft, and Tesla. Approximately 35% to 38% of the total value of the S&P capitalization are those stocks. In the past 10 years through 2024, the S&P 500 returned 178.3%, while the Magnificent Seven had a staggering 697.6% combined return. If you own any of the Magnificent Seven, I am very impressed because I do not.

GDP this year is forecasted at 1.8% to 1.9%. During the first six months of 2025, spending on AI accounted for more than half of U.S. GDP growth. AI also accounted for the bulk of business investments. Strip it away, and according to Deutsche Bank, private business spending has been essentially flat since 2019.

The trillion-dollar question is: If AI is a bubble, will it pop or will it pay off? In the 1990s, the .com bubble did not have the strong financial backing that AI does now. It also didn’t pay off for a number of years and by then many of the companies were out of business. The AI money comes mainly from the well-financed Magnificent Seven. Yet not all of them will be successful. What will it take for them to generate revenue and returns to pay off their investments?

I used claude.ai to answer my questions. By the way, there is no fee for basic use of Claude or ChatGPT, but both do offer paid service plans for a couple bucks a month.

According to J.P. Morgan's analysis, the AI industry needs to generate approximately $650 billion in annual revenue through 2030 just to deliver a 10% return on investment. This is based on projected investments of $5-7 trillion in AI infrastructure over the next five years.

To put the $650 billion annual revenue requirement in perspective:

• This equates to every iPhone user paying an additional $34.72 per month, or every Netflix subscriber indefinitely paying $180 per month.
• This represents roughly 0.58% of global GDP. An MIT study found that 95% of organizations saw zero return on AI investments despite $30-40 billion in spending.
• Current AI infrastructure faces $40 billion in annual depreciation while generating only $15-20 billion in revenue at existing utilization rates.

“We tend to overestimate the effect of technology in the short run and underestimate the effect in the long run.” Amara’s Law, from futurist Roy Amara. The best performing tech companies are banking on this. Some of them will be very successful and some won’t.

This would keep me up at night.

The impact on human beings and society will be both beneficial and concerning. Edward Meir of Marex, provided information from The Atlantic and commented that “this article summed up the AI revolution best, albeit in somewhat Orwellian terms:”

“The biggest lesson of the past two decades of Silicon Valley is that Meta, Amazon, and Google and even the newer AI labs such as OpenAI have remade our world and have become unfathomably rich for it, all while being mostly oblivious or uninterested in the fallout. They have chased growth and scale at all costs, and largely, they’ve won. The data-center build-out is the ultimate culmination of that chase: the pursuit of scale for scale itself. If AI companies deliver on their massive investments, it would likely mean producing a technology so capable and revolutionary that it wipes out countless jobs and sends an unprecedented shock wave through the global economy before humans have time to adapt. (Perhaps we will be unable to adapt at all.) If they fail, there will likely be unprecedented financial turmoil as well. In all scenarios, the outcome seems only to be real, painful disruption for the rest of us.”

I agree with the Atlantic summation of AI. Is the world prepared for breakthroughs and painful disruptions? Now onto the other hot topic of 2025.

Tariffs

Damn the torpedoes, full steam ahead!

At times I feel like torpedoes are coming at the U.S. mothership and regardless of how dangerous that is, we continue to go full speed ahead without changing course.

Over eight months ago, on April 2nd, Trump announced Liberation Day with an onslaught of tariffs on virtually all the countries in the world whether they be friend or foe. He proclaimed that the tariffs would “supercharge our industrial base” creating a surge in U.S. manufacturing. As the tariffs continue to weigh in on trade, the anticipated economic surge has yet to arrive. It's ironic that Liberation Day happened just after April Fool's Day.

The ISM Manufacturing index continues to drop and has been below 50 in contraction for 10 months in a row. Uncertainty is causing a slowdown. Unemployment is going up, and job creation is going down. Inflation is still a problem. The Fed is conflicted whether to fight inflation or fight a slowdown. Stagflation occurs when the inflation rate is high, economic growth rate slows, and unemployment remains steadily high. The Fed as expected dropped the rate 0.25%. Further actions will be taken depending on the data relating to jobs and inflation.

The tariffs were created to reduce the trade deficit, particularly with China, by making imported goods more expensive and encouraging domestic production. Yes, the trade deficit with China has dropped substantially. However, the reason is high tariffs. Imports from China dropped to $18.9 billion in June, the lowest since 2009 as the tariffs discouraged trade. China's export shipments to the U.S. fell by 33% in August.

This brings to mind John Maynard Keynes, a brilliant English economist, who said "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

President Xi Jinping views President Donald Trump’s policies as chaotic and is preparing for a more turbulent global economy. China is seeking to reduce its dependence on foreign suppliers by investing in state-run companies and developing other new worldwide markets. So, it’s business as usual for them.

The U.S. continues to have a relatively strong economy and is trying to decrease its dependence on China by developing and investing in alternative supply chains and networks of allies. Current tariff policies aren’t helping.

The Supreme Court will rule on tariffs in early January. If they vote against the tariffs or try to restrict them, Trump will most likely find a way to circumvent the ruling. I don’t look for the steel and aluminum tariffs under Section 232 going away in the near future. They could, however, be reduced.

Will Trump change his strategy? Back to John Maynard Keynes, who said, "when the facts change, I change my mind. What do you do, sir?” We will see.

INFLATION

The fog is almost lifted

• The Consumer Price Index (CPI) for November will be released on December 18th. There was no October through November release because of the government shutdown.
• Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, for September was delayed and just came out December 5th. September was up 0.3% month over month and is up 2.8% year over year. Core prices (which exclude food and energy) were 0.2% in September and at 2.8% on an annual basis. These were almost identical to the previous month. Consumer spending was up 0.6% versus 0.5% the previous month.
• The Producer Price Index is still in a government shutdown fog. ITR is a highly accurate economic forecaster. The U.S. Producer Price 12MMA (Monthly Moving Average) was 1.5% above the year-ago level in August. ITR expects general prices to rise in 2025 to 2.5% and be at 3.4% for 2026 and continue through at least 2027. Inflation will persist through mid-2026, followed by disinflation (prices rising at a slowing pace) through 2027.

MANUFACTURING

Still a mixed bag

• The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) fell in November to 48.2 from 48.7 in October and has been in contraction for nine straight months. Only four of the 18 industries surveyed reported growth.
• New orders fell to 47.4 from 49.4. Production rose to 51.4 from 48.2. The prices paid index rose slightly to 58.5 from 58 but at a lower level for the year. The backlog of orders was down to 44 from 47.9. U.S. non-defense capital goods new orders, excluding aircraft, rose 0.6% in September. The rise in non-transportation orders in September was led by electrical equipment (+1.5%), primary metals (+1.4%), and fabricated metal products (+0.5%), while computers and electronic products (+0.5%) and machinery (+0.1%) also increased.
• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, rose a whopping 0.9% in September, the largest monthly increase since January of 2023. For the third quarter, they were up 5.0% annualized rate versus the Q2 average, the strongest quarterly growth since mid-2022.
• Car and light truck sales in November were up 2% from October and down 5.6% from last year, but still at a 15.6 million annual rate. According to ITR, the 12MMT (Monthly Moving Trailing) will rise in the near term, and that rise will extend through 2026. On that basis 2025 sales will be down 3.1% to 15.1 and up 3.2% for 2026 to 15.5 million units. The 12MMT will subsequently plateau for much of 2027.
• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across our nine locations and a diverse industrial base. Based on our twelve-month trailing average, volumes for November were down 9%.

CHINA

Machines over manpower

China still has lots of problems. Its population is shrinking from its long term one child policy. The housing bubble may never be corrected. The population does not have good social security and fear they will not be able to save enough for old age. Their domestic consumption percentage is the lowest compared to the rest of the world’s advanced economies. Unemployment is rising and young people are avoiding factory jobs. Their world exports are being fought because they are destroying jobs and industries in the local economies.

China knows that the shrinking population problem will require robots and AI to replace people. China continues its massive investment, driven by national strategies like, "Made in China 2025," and has made it the undisputed global leader in industrial robotics. Its robot population exceeds the combined total of all other nations, including the United States.

China has pioneered the use of AI and robotics in “dark factories” which are fully automated, lights-out facilities that can run 24/7 with virtually no human beings. That means no down time, higher quality, and less scrap.

According to the International Federation of Robotics, China installed 295,000 industrial robots last year, nearly nine times as many as the U.S. and more than the rest of the world combined. China’s stock of operational robots surpassed two million in 2024, the most of any country.

Of 131 factories and industrial sites recognized by the World Economic Forum globally for lifting productivity through cutting edge technologies such as AI, 45 are in mainland China, while three are in the United States.

Another example of AI and robotics is at China’s biggest ports. China has five of the top ten ports in the world based on turnaround time. These ports have self-driving trucks where shipping containers zip about with virtually no workers in sight. They have a system dubbed OptVerse AI Solver, which optimizes tens of millions of variables and constraints such as ship arrival times and crane capacity to manage scheduling. Planning that previously took 24 hours now takes ten minutes. These ports have highly automated operations that require 60% fewer workers than traditional ports. The U.S. ports rank in the bottom of the world turnaround times.

The difference between China and the U.S. are the unions. In the United States, automation was a top sticking point between port operators and a major dockworkers’ union in contract negotiations last year. Trump supported the union workers while questioning the wisdom of port automation.

China is embracing AI and robots at a very advanced rate. The U.S. still has the edge in the advanced chips. Even though they are trailing the U.S., Nvidia CEO Jensen Huang admitted recently that China was “going to win the AI race.”

AI won’t solve all of China’s economic problems. In areas such as frontier AI technology and chips, China continues to lag the United States, and many of our companies such as Amazon and Walmart are prioritizing automation in similar ways to Chinese firms.

The U.S. needs to be ready for a China that relies on itself. To avoid losing technological leverage, the U.S. and its allies must invest in alternative supply chains and networks of allies. Meanwhile, China’s manufacturing PMI came in at 49.2 in November down from 49.5 in October and is now below 50 for eight straight months. More concerning, the non-manufacturing PMI, which includes services and construction, fell to 49.5 from 50.1 in October, contracting for the first time since December 2022.

METALS

Tariffs keep inflicting pain on aluminum and steel manufacturers

The Midwest Premium started the year at $0.23 with the 10% tariff in place. In February the tariff went to 25%, and the premium rose to $0.41. On June 4th, Trump raised the Section 232 tariff again to 50% and the premium rose to $0.65. Now it is $0.88.

To give you some perspective on aluminum prices, when I first entered the business in 1970, the published fixed price for primary aluminum in the U.S. was around $0.29 while the transaction prices were as low as $0.22. There was no LME or Midwest Premium. At the time, President Nixon, while trying to reduce inflation, froze the aluminum price at $0.25. Additionally, if you graduated with an MBA in 1970 your starting salary was just under $10,000 or $5.00 per hour!

On January 1st, spot prime was $1.38, and on December 1st, it was $2.18. This continues to be painful for all aluminum manufacturers. And it was also a double-edged sword for prime scrap prices, which except for a few grades, remained flat all year. The reason was the high tariffs drove U.S. prime aluminum prices sky high and attracted scrap from around the world.

For the year, the secondary grades of aluminum scrap that go to the secondary smelters went up close to 10% while the secondary 380 ingot prices were flat. The secondary ingot business has always been difficult.

For December, prime aluminum grades rose slightly while secondary grades ranged from flat to down slightly. Copper rose 3% and stainless steel dropped. Steel prices were up $10 to $20 per ton depending on the grade.

Harbor Aluminum is forecasting LME aluminum to be $3000-3300 per mton in 2026. They expect LME prices to average $3,225 per mton in 2026.

“Harbor believes that a material rebound in aluminum end-user demand remains overdue and likely to materialize over the coming quarters amid improved U.S. trade policy and tariff visibility, strong U.S. investment projects, pent-up demand, restocking needs, world fiscal stimulus and declining interest rates.” They have been correct on the LME forecast for some time now even though I don’t see it happening with most of our customers. I believe a good part of that growth is coming from the AI customers.

CLOSING

The AI intelligence explosion will impact our lives for generations in ways we can never imagine or fathom. They will be both positive and negative. I believe and hope that the benefits will far outweigh what comes out of Pandora’s box.

This was more ground than I usually cover in Market Insights. The good news is that I learned how important AI really is. I think it was worth it.

I am grateful to my readers and to be able to challenge myself to keep learning. I read this eulogy a while back and continue to believe in it. “Life is lived in three phases: learning, earning, and, through mentorship, teaching, charity, returning.”

May we live in a world that knows peace, practices kindness and gives thanks. May your holidays be meaningful and joyful.

"Reflect upon your present blessings — of which every man has many — not on your past misfortunes." - Charles Dickens