An Energy Boost

President Donald Trump’s tirade to the United Nations over climate policy should be seen as a belated attempt to thwart a reshaping of the global energy mix, if the latest shifts in energy supply are any indication. In the first half of this year, renewables for the first time produced more electricity globally than coal. This comes after several years of pullback in coal-fired power generation. Of the 12.3 gigawatts slated to be retired from the US grid this year, nearly 70% is from coal-fired plants, according to the Energy Information Administration.

The pace of decommissioning isn’t surprising as the growing ideological appeal of green energy resulted in a surge of new investment. The political backlash represented by Trump and his attempt to reverse years of technological advances is yet to feed through into production numbers. Renewable energy accounts for 34.3% of all electricity produced, compared to 34.2% for coal.

But this issue transcends ideology. Bluntly, it’s not personal, it’s business. What’s become clear is that electricity demand is surging, driven by the energy-hungry data centers needed to fuel artificial intelligence. Years of efficiency gains for renewables have positioned them to meet this new demand. As STX Group’s Marijn van Diessen notes, AI-linked demand partly explains why renewables stepped in as coal capacity dwindled:

"We’re seeing strong demand for renewable energy this year, particularly from big tech and data centers. Their power needs are growing rapidly and they remain committed to purchasing clean energy to meet their 2030 goals. We’re also seeing these companies raise the bar, looking for more granular, 24/7 renewable power solutions."

Coal’s luster is freshly boosted by the Trump administration, which has announced moves to support coal-fired power generation in the US. The Department of Energy is investing $625 million to “expand and reinvigorate America’s coal industry.” This includes $350 million for recommissioning and modernizing old plants, and $175 million for coal power projects in rural communities.

For now, coal’s extended lifeline relies on the unprecedented rise in electricity demand. A global shortage of natural-gas turbines adds to the need to keep the furnaces lit. Delivery delays range from one to seven years, with costs climbing sharply. Those setbacks are also a boon for renewable energy developers.

Renewables’ capacity can only stretch so far, and fossil fuels aren’t disappearing anytime soon. Energy sector indexes, primarily comprised of oil exploration, production, and auxiliary service companies, have underperformed the broader market since the last big price surge in the summer of 2008. Apart from a brief spike during Russia’s invasion of Ukraine, oil prices have largely moved sideways. The sector, whether on a US or global level, has lagged the market terribly throughout:

Understanding the Shock

Drilling activity is fast declining despite the “Drill, Baby, Drill” mantra. Without sustained price gains, it’s hard to make a business case for such investment. Baker Hughes’s analysis shows that the number of rigs drilling for oil onshore in the US has dropped from 468 at the start of the year to 399 by the end of August. This is beginning to be reflected in output. Wood Mackenzie’s Ed Crooks notes that since the US shale boom began in 2010, there have been sustained production declines only twice: during the price war of 2014-16 when the OPEC+ cartel drove down prices in a bid to punish shale producers, and during Covid. The first sustained decline outside of such extreme conditions will be a noteworthy event:

Video game designers use a concept called “coyote time” allowing characters to walk on air for a short time before gravity asserts itself and they fall to earth. This year, it has felt like the US oil industry has been operating on coyote time.

Regardless of this administration’s energy priorities, demand has to be met in a timely and cost-effective manner. In the absence of sustained generation for energy-guzzling data centers, it is preposterous to delay other sources of energy merely for ideological differences. This can harm businesses and, to some degree, residential customers. It also risks the US’s quest for AI dominance — and that is something Washington cannot afford.

Markets for Polymaths

Prediction markets have been around for decades. In the 16th century, they successfully forecast the outcome of papal conclaves. Economists have long established that they do a brilliant job of aggregating information and opinion. Now, they’ve reached the financial big time.

Intercontinental Exchange Inc. (ICE), the owner of the New York Stock Exchange, is putting $2 billion into Polymarket, the betting venue of the moment, valuing it at more than $8 billion. Either the political betting that has made Polymarket’s reputation will make money on a scale never before seen, or ICE has made a big mistake.

Total daily volume on Polymarket has only ever once exceeded $1 billion (on election day last year). Total trading in Nvidia stock alone on Monday was $49 billion. Many thousands of other stocks and derivatives all generated more turnover for ICE.

ICE is currently worth $92 billion. Spending $2 billion on Polymarket is a big deal for them. Its executives have built a huge company and know what they’re doing — but how can this valuation possibly make sense? There are several possible explanations:

ICE Is Backing the Winner of the Prediction Market Battle

No prediction market has caught the imagination quite like Polymarket. That includes the non-profit PredictIt, which limits the size of wagers in a way that makes the market harder to distort but also harder to make real money on, and Kalshi, which won various lawsuits last year in a bid to become a for-profit regulated US exchange. Polymarket, with early backing from Peter Thiel, enthusiastic support from Elon Musk, Donald Trump Jr. as an adviser, and a lot of good press, has swamped all of them, garnering far more coverage than the competition:

Polymarket Wins in the Marketplace of Ideas

It’s not the first time a prediction market has created such excitement. Ireland-based Intrade.com became hugely influential as its contracts called the winner of 49 states in the 2008 presidential election, and all 50 four years later. This is better than Polymarket’s record last year: It gave Kamala Harris a 40% chance of winning the election, and a 75% shot at winning the popular vote. But Polymarket basked in positive coverage, while Intrade fell foul of regulators, closed to US investors soon after the 2012 election, and shut down altogether the following year. Polymarket’s link with ICE appears to be the final step in ensuring it doesn’t suffer that fate.

Founder Shayne Coplan posted on X that this was “a major step in bringing prediction markets into the financial mainstream” and also “a monumental step forward for DeFi” (decentralized finance). Polymarket will now work with the NYSE to “usher in a new financial era of tokenization.”

ICE Is Desperate to Get Into Sports Betting

As anyone who has tried to watch sport recently will know, it’s suddenly saturated with betting. Whether at the stadium, at your computer, or watching TV, you are bombarded with proffers to bet. It’s made a lot of money for the bookmakers who led the charge into the newly legalized field of sports gambling led by DraftKings and Flutter Entertainment’s FanDuel.

Polymarket is famous for politics, but its site reveals plenty of wagers on sport. To support the notion that this deal is all about sports, look only at the performance of DraftKings and Flutter. They were flying high in a way ICE must envy, until the market treated the Polymarket deal as very bad news for them:

Sports Betting Has Been a Winning Bet

Dennis Kelleher, head of Better Markets, attacked the deal, saying that it was merely an attempt by unregulated gambling markets to create a loophole in the Commodities Exchange Act and avoid the robust state regulations on gambling. He said:

It’s no different than buying into a bookie or casino, which would be viewed as outlandishly inappropriate a mere 10 months ago. While legalization may happen, that will not get rid of the risks from bookmaking and casino activities, particularly if they have little or no regulation, which will migrate from the gambling markets to the core of the financial system.

Fellow Bloomberg Opinion daily newsletter writer Matt Levine has a similar take. Some successful sports bettors are wonderful people, but it’s still alarming that there is so much money to be made in gambling. What does it say about us as a people if there is more money to be made from betting on sports than on allocating capital to companies where it is most needed in the economy?

Fear Of Missing Out

Financial exchanges have enjoyed a fantastic run since the pandemic, but ICE has slipped in the last few months. A big punt on the sexiest market of the moment makes sense. In sporting parlance, it’s like a Hail Mary pass, or betting on a rank outsider:

Take Risk Management to the Next Level

There is a non-cynical interpretation. Market discipline is great for harnessing the “wisdom of crowds” and producing the best prediction possible with the available evidence. Merely as an analytical tool on traders’ and bankers’ screens, this is useful — which is why the Bloomberg terminal already carries a lot of prediction market data, and why Points of Return often cites them.

Polymarket contracts are futures — instruments that originated to help producers manage their risks. When Polymarket offers contracts on who will run the Fed, or on elections around the world, it’s offering the chance not just to gauge risks, but to manage them. Someone planning an investment in wind energy last year might have bought Trump futures as a hedge, for example.

The problem, as Koleman Strumpf, an economist and expert in prediction markets at Wake Forest University, puts it, is that prediction markets aren’t nearly big enough to provide a hedge for any corporate investor. “If the markets were to get 10 times bigger between now and election day in 2028, maybe it could be a little more useful.” The chances of scaling up are much greater now that Polymarket is under ICE’s wing.

Maybe, just maybe, this deal will harness the wisdom of crowds to help us all manage risk. And if not, there’s money in sports betting.

Survival Tips

Happy 70th birthday to Yo-Yo Ma. He’s had a long career since he performed for Presidents Kennedy and Eisenhower in 1962 at the age of seven. The great cellist shares a birthday with Vladimir Putin, but that shouldn’t take away from the beauty of his playing, or the generosity with which he has shared his music with the world. Try listening to Bach’s first cello suite, or Saint-Saens’ The Swan, or Elgar’s Cello Concerto, or Ol’ Man River, or Beethoven’s Triple Concerto (with Itzhak Perlman and Emmanuel Ax), or Shostakovich’s First Cello Concerto. It’s all beautiful. And a happy birthday to Vladimir too.