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Happy Cashier

The equity markets finished lower again this week as sentiment shifted on news that inflation remains a problem for both consumers and the Federal Reserve alike.  Unfortunately, it appears I was right last week when I said that the shine appears to be off the markets.  It now seems likely that an interest rate cut will be off the table in June with a growing number of analysts suggesting there won’t be any rate cuts this year.  While the probability is falling, we still believe we could see at least one rate cut in the back half of the year.  And despite analysts revising their outlook, investors continue to want a rate cut desperately in the hopes that the extra fuel will bolster the economy not to mention make borrowing less expensive.  I can’t blame them, but we should recognize any easing of monetary policy now could push inflation back into uncomfortable territory and no one wants that.

So, let’s talk about the elephant in the room.  The Consumer Price Index (CPI) climbed 0.40% in March exceeding expectations.  This indicates that the hot readings in January and February may be more than just a “bump” on the path to inflation heading toward the Federal Reserve’s 2% goal.  As I mentioned last week, the price of oil has climbed significantly in recent months and its contribution to inflation is problematic.  As it turns out, this week we learned that shelter and gasoline contributed more than half of the monthly increase in the March reading.  On a year-over-year basis, March’s CPI climbed 3.5%, accelerating from 3.2% in the prior month and clearly moving in the wrong direction.  This puts the Federal Reserve in a difficult position as it has all but promised multiple rate cuts this year.  I don’t envy the Fed and the decisions that lie ahead.

As for company news, there was an interesting trend I noticed this week.  For the moment Nvidia is the leader in both market share and cutting-edge chips for artificial intelligence.  However, the largest tech companies aren’t sitting idly as they watch Nvidia control the AI infrastructure.  Google announced its in-house Axion chips to cut AI costs and its reliance on Nvidia.  Intel unveiled its Gaudi 3 AI accelerator setting up a race with Nvidia.  The launch of this new AI chip is aimed at challenging Nvidia’s dominance in the field.  And not to be left out, on Wednesday Meta revealed its MTIA custom-made chip designed to support generative artificial intelligence products and services.  As these chips become more specialized it seems natural that the largest technology companies with the deepest pockets would begin designing chips to suit their specific needs.  While Nvidia has a large head start, it will have serious competition in the years ahead.

Considering the meltdown of managed care companies this year, it caught me by surprise that there is a drug shortage in the U.S., and that it is at the highest level since 2001.  It’s a strange time for healthcare companies.  You would think the aging demographic of the United States would create the perfect environment for these companies.  And yet, there are 323 medications in short supply in Q1 2024 including some chemotherapy drugs and emergency medications.  Continued challenges face those with ADHD as shortages have continued for some time now.  And more recently, the rise of weight loss drugs like Ozempic has put a strain on diabetes drugs that overlap.  So why is this happening?  Shortages are generally caused by either supply chain disruptions or outsized demand.  Additionally, fierce price competition forces generic drugmakers to shift manufacturing capacity to more profitable drugs from low-margin ones.  Eli Lilly launched the construction of a $2.5B plant in Germany to meet obesity drug demand.  However, this issue is larger than one company or even one industry.  I won’t go so far as to say the healthcare sector is broken, but it is facing significant challenges.

In closing, it seems artificial intelligence is going to revolutionize fast food.  I have written about how Chipotle is testing robotics to prepare food and how another large chain is staffing drive-through windows with call centers in foreign countries.  It is not only the large fast-food chains that are looking toward innovation.  A company named Happy Cashier offers “virtual hosts” who are based in the Philippines.  Using Zoom, customers are greeted and helped with the menu.  When not helping customers they coordinate food delivery orders, take phone calls, and oversee the restaurants’ online review page.  The only thing they cannot do is manage cash transactions.  The company expects to scale up quickly and be in more than 100 restaurants in NYC by the end of the year.  Like AI and robotics, is this just another path to reducing staff and cutting costs?  Probably, but it is a trend that likely won’t be turned back especially as labor costs continue to grow.  Now you know. 

Bruce J. Mason, MBA