Fed, Organic Growth, AI Again

The Fed

The primary story this week has to do with the change in expectations for the Fed’s rate hikes in the short term. The next rate hike on March 22nd marks the 1 year anniversary since the start of this rate-hike inflation-fighting saga.

The Fed has gradually slowed its hikes over the past few months from .75% to .50% to .25%. On Tuesday after Powell spoke, the Fed Funds futures market abruptly priced in a greater than 70% odds the Fed would deliver a .5% hike, an acceleration over February’s .25% hike.

As we’ve mentioned in past articles this year, the next milestone is for interest rates to rise above inflation (CPI). Next Tuesday brings February’s inflation release. While it’s clear that inflation has peaked, the ongoing fear is that it won’t subside without additional and prolonged pressure from the Fed.

**Truflation’s real time inflation estimates have dropped to 4.78% from 5.4% 1 month ago.** This is a rough estimate of where CPI could be heading. Also, the median US home price dropped Y/Y for the first time since the start of Covid stimulus.

While earning 5% risk free today is enticing, eventually those rates will fall. Falling rates coincides with a rally in riskier assets.


EV Range Upgrades

February minted a new EV battery Unicorn named One.

One offers two types of batteries blended together into one unit: a series of lithium iron phosphate (LFP) battery for short range driving interwoven with anode-free lithium cells optimized for long range driving. Mixing the two battery types into one space packs in more energy density while reducing the need to reserve space for fire safety.

In testing, the company was able to drive a Tesla using their mixed battery a record 752 miles. Teslas and Rivians range between 330-400 miles per charge, or far less when avoiding range anxiety. One is now the largest privately owned battery company in the US.

Competition is good for the consumer and it’s good for consumers that Tesla has to consider battery competition in their roadmap going forward.


Bain’s Advice

Bain recently published their 2023 Global Private Equity report. One section stood out in particular related to adjusting to our new economic environment. They highlight these key areas of focus:

  • Invest in automation
  • Invest in supply chain redundancy and security
  • Manage balance sheet risk
  • Target customer groups and industries with lower price sensitivity
  • Build your organic growth story

“Invest in automation” jumped off the page, as did “build your organic growth story”. Automation is a persistent tailwind that benefits cloud computing and semiconductor industries. Rising labor costs and demographic issues mean automation is a recipe for sustaining or improving margins. While not explicitly mentioned, AI is a part of this automation story.

As for organic growth, markets are not expected to expand as they did in pervious eras, meaning the burden of growth is placed on emerging technologies and successful competition for existing market share.


Private Blockchains – California DMV joins Tezos

**The California DMV hired Oxhead Alpha to replicate its vehicle title system on a private copy of the Tezos blockchain.** Technically the car titles will be NFTs which, despite the reputation of the term, just means it’s an asset with a unique identity.

While public blockchains live on, most of the activity in the past few months seems to be focused on private blockchains. You could invest in the Tezos token based on this information, but you wouldn’t own a piece of the California DMV since they are running on a copy of the Tezos chain. We’ve seen similar stories with Goldman Sachs, where they are running a modified copy of Ethereum to manage certain bond offering settlements. Private blockchains are in the lead in 2023.


AI Again – too many OpenAI APIs

Are you sick of hearing about ChatGPT? Now, it’s all about OpenAI’s API integration. DuckDuckGo’s AI assistant named DuckAssist (powered by OpenAI’s API) summarizes Wikipedia pages to answer search queries. Both Salesforce and Hubspot released major OpenAI API integrations. Hubspot’s was much more thoughtful while Salesforce seemed to bolt it into everything, including Slack.

While companies play the integration press game, there are still interesting signs out there of where AI is heading. I come across new and unique AI companies on a daily basis. Here is a modeling agency that allows you to do generative photoshoots of people who never existed. For the right small Shopify business this could save a lot of time and effort.

My favorite AI quote of the week comes from a friend, Eric, who said, “Maybe the lesson from this new AI stuff is not that it’s extremely complex but that we’re more simple than we thought.”

Weekly Articles by Osbon Capital Management:

"*" indicates required fields