Category: Business

2024 Week 23

Notes, thoughts and observations - Compiled weekly

Growth is slowing around the globe and central banks in Canada, Australia and the Eurozone are signaling rate increases. At some point that will bleed over into the US.

Union pressure ramps up at Amazon as ALU partners with the Teamsters. Hands on labor is still in demand even though office work has been in recession for over a year.

EVs continue to drag down automotive sales and a used car price correction is underway.

The real estate market is still hot, but inventories are starting to recover to pre-pandemic levels. This will create downward pressure on prices but don’t expect a major correction. The real relief will come from more starter homes being built.

A different kind of M&A with Dollar Tree looking to divest some Family Dollar stores. In truth there is likely a lot of footprints overlap between the two and consolidation by shutting down underperforming stores is in order.

Finally, folks are starting to question the massive spend on AI related tech. Chamath Palihapitiya has been very vocal about the value proposition of AI chatbots. He further speculates that eventually shareholders will demand a return on their investment from massive spend.

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Category: Business

2024 Week 22

Notes, thoughts and observations - Compiled weekly

The Chevron deal is a move for Guyana in forging its own direction.

Anything short of a lower residential real estate price will help new buyers

Mergers and acquisitions ramp up with both T-Mobile and ConocoPhillips.

Drug prices are starting to pump the brakes on GL2, even as companies like Eli Lilly expand production.

Meanwhile Elon Musk continues to inspire the confidence of investors, even if his business aresosing their luster.

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Category: Business

2024 Week 19

Notes, thoughts and observations - Compiled weekly

Consolidation deals (M&A) in digital media are accelerating. Disney and Warner Bros are planning to bundle many services, while Sony and Apollo Group are planning to divest parts of Paramount group.

Automotive continues to realign. GM announced its dropping yet another vehicle from the lineup, leaving only the Corvette as the sole ICE car. Meanwhile Chinese car manufacturers continue to flood the EV market. While those vehicles won’t show up in the US, it could seriously impact EV exports.

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Category: Business

2024 Week 18

Notes, thoughts and observations - Compiled weekly

Justice? Maybe not but at least a judge called B.S. on Adam Neumann’s plan to buy WeWork out of bankruptcy. He was told to pay off the $4b debt first, and ostensibly everyone he owed money to. An article out of the Wall Street Journal (paywall) that confirms population decline. Record low birth rates aren’t new but mainstream acceptance that it will influence economics is. Again, I don’t think it’s a gloom and doom crisis, but it will change things.

A lot of news out of Artificial Intelligence this week. I highly recommend the latest edition of The Pragmatic Engineer newsletter for all the juicy details. Are LLMs hitting the “Napster” moment of licensing? Several lawsuits by IP holders seems to indicate.

Microsoft teased a new web-based version of CoPilot that builds on GitHub Codespaces and provides an intersection between CoPilot web and GitHub CoPilot. In the demo you can see the prompt engineer explain the concept and the LLM expands the idea and ultimately generates code.

This is a different approach than Devin or Magic.dev which aim for the moon shot of taking input and generating code without intervention. I won’t ignore that Microsoft has deep enough pockets to fund this project longer, I also think they are trying to gain market share early by producing tools that make developers more productive, rather than replace them.

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Category: Projects

Project Maestro

Using AI to design and develop an application

Maestro is a thesis that one person, with the help of current AI tools, can work on a problem from first principles through design and development, to go to market.

I started project Maestro to work in the open and demonstrate the level of sophistication of current AI tools. This is an exercise and won’t result in a real project. There are plenty of problems to solve, don’t I don’t want people to get hung up on a single idea.

If you’d like to come along please consider subscribing to the Project Maestro newsletter. You can also find a breakdown of all the results over on CloudShock under the Maestro category.

Stay tuned!

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Category: Business

2024 Week 17

Notes, thoughts and observations - Compiled weekly

I think we all learned an important lesson about stories from journalists who seek to sensationalize topics to generate clicks. The predicted Baltimore supply chain issues never materialized after shipping was shut down by the collapse of the Francis Scott Key Bridge.

Young workers have the lowest unemployment rate since the 60s and weekly wages are higher than in the past. Again, this contradicts the prevailing narrative that Gen Z is doing worse than previous generations. Look past the commentary at the data.

Median weekly earnings, inflation-adjusted, for young people are the highest they have ever been

Median weekly earnings, inflation-adjusted, for young people are the highest they have ever been

Wall Street wasn’t happy with META’s spending on AI. They’d rather the money be returned to the shareholders. We heard a very similar critique with Amazon as Bezos directed online retail profits into building what would become Amazon Web Services. The future of consumer AI will be through service providers, and companies like Meta and Microsoft will play a part.

The idea of natural gas as a bridge fuel is gaining mainstream support with the likes of Jim Cramer admitting as much. I’m still cautious that it will quickly bridge us to nuclear power which is the only reliable base load source that is carbon friendly.

Finally, the economy seems to be roaring ahead despite predictions of current or pending recession. GPD grew steadily but inflation also. Shelter costs and pending trade tariffs will only make inflation stickier. I see daily commentary on how indicators point toward future recession, but I’m mindful that while these indicators have a high correlation the timing is never consistent.

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Category: Business

2024 Week 15

Notes, thoughts and observations - Compiled weekly

Speculation continues on when the next Fed rate move will be, personally I don’t guess. But it’s possible that the source of an interest rate move may come from global forces rather than internal pressure. This hasn’t stopped top CEOs from sharing their opinion. Predict calamity long enough eventually it might become true

Work from home is still to blame for office vacancies, but I’m increasingly thinking that weak business fundamentals are a contributing factor. We are now higher than in 1986 and 1991. Global oil prices are also seeing weakness, though $80 per barrel is priced into the model and seasonal gasoline demand in the US is within historical trends.

It’s either a stock market bubble or a recession depending on which article you read. Someone pointed out the necessary recovery time for the NASDAQ 100 bought at the peak of the dot com bubble. Sure it took 16 years to recover, but if you held it until today, you’d still be up 276%. Also worth noting that the more diversified S&P 500 only took 7 years to recover.

Fear is ruling the day with folks buying gold from Costco and everyone penning articles about whether we are in a bubble and if it will pop. Sure semiconductors and tech may be VERY overpriced, fundamentals in other sectors could indicate we are on the cusp of a huge expansion in other market areas. Point being diversify and plan for the long-term are a better strategy.

Speaking of semiconductors, it looks like we might be on the verge of a second chip war around purpose-built AI processors. To date Nvidia has leveraged GPU designs but recent announcements by Intel, Meta and Alphabet may create a race to reduce training and inference processing costs. One thing is for certain: current AI processing costs are too high to be sustainable.

Another consideration for AI, EVs and chips is the impact of government incentives, tax breaks and spending programs. These act as fuel for expansion but when they expire it can often cause a rash of business failures. Look no further than the solar industry of the 2000s.

NOTE: Week 15 is a two week combination due to some well deserved time off.

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Category: Business

2024 Week 12

Notes, thoughts and observations - Compiled weekly

I’m not sure why I note this every week, but the projected Fed rate cuts aren’t coming. By the Feds on definition, we have neither seen a decline in employment nor a decline in inflation. The latest PPI numbers support this. Yet somehow Wall Street is betting on rate cuts. At this point I’m just speculating on what type of tantrum the market will throw when reality is accepted. 

Environmental concerns continue to top business headlines and new Federal emission regulations have everyone banking on a future sales benefit from more strict emission requirements. But sales data shows that consumers don’t want EVs. EV manufacturer Fisker is halting production and could be on the verge of bankruptcy. Meanwhile climate alarmism is once again pointing to ‘chartbusting’ extremes due to a 1.5-degree Celsius temperature increase. Bottom line is that climate alarmism didn’t work, and future efforts need to focus on mitigation strategies. 

The world of semiconductors and machine learning continues to move at a brisk pace. Further investment in domestic semiconductors by the US will probably fuel an expansion and speculation similar to the solar industry under a similar Obama program. The trend around AI mergers and acquisitions continues with Apple acquiring DarwinAI and Microsoft scooping up Inflection AI. The overall trend is that Big Tech will be the big winners of AI.

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Category: Business

2024 Week 9

Notes, thoughts and observations - Compiled weekly

Rough times for gaming as budgets are slashed and employees let go. Both Sony and Electronic Arts announced major changes. Given the strength of PC and mobile gaming, you must wonder about the future of consoles. 

Apple throws in the towel on self-driving cars. Does this signal capitulation that the technology is nowhere close to road ready? Another interesting point is why Apple is reassigning employees from the car division to AI. Is this a FOMO move or was Apple already working on its own AI for vehicles? 

Regarding a US recession the data doesn’t indicate that. In fact, many believe there is no imminent danger despite some conflicting metrics. What is a risk is further bankruptcies, like for Macy’s who is closing 150 stores nationwide. The move is due to decadelong underperformance and investors looking for ROI. Things look dark for the retailer if the company can’t pull out of the dive. 

The US economy’s statistical vital signs are, if not healthy, at least stable.

The US economy’s statistical vital signs are, if not healthy, at least stable.

The guys on the All-In Podcast had a great discussion about the structure of Nvidia’s business and a breakdown of recent results (worth a watch/listen). A couple of big questions: Are these results based on a sustainable revenue model or are they simply due to a one time build out?  Second who spends $22 billion? Big tech companies with lots of cash and not a lot of investment options. But at some point, investors will look for ROI and that could be bad for everyone involved. 

Real estate and energy continue to hum along. Home sales are slightly down, but prices are not. It should be noted that long-term inflation accounts for most of the rise in home prices. Meanwhile energy prices remain low in the US because of the shale gas revolution. To quote: “We’ve found almost three Saudi Arabia between oil and natural gas.” 

Finally, an interesting tertiary observation about the expansion of AI chips and data centers which generate a lot of heat. Folks are beginning to pay attention to the water usage, for cooling, that these data centers demand. It brings into question the location of data centers in drought-stricken areas, but it also opens the door for alternative cooling technology that Intel and other startups are working on.

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Category: Business

2023 Week 48

Notes, thoughts and observations - Compiled weekly

Where is the stock market going? If the yield curve and consumer spending is an indicator we could be headed for a recession. On the other hand, Black Friday card data says that spending may not be as weak as expected and the VIX indicates a new kind of bullishness not seen in a while. On thing is clear, sectors that performed well outperformed the S&P 500 by a significant amount. 

Rent or buy? No not talking about a home, but rather machine learning cycles. Companies like Snowflake continue to grow amid high demand for Nvidia chips. Sometimes it makes sense to rent a server rather than rack your own hardware. 

A couple of bright spots. First battery prices are expected to fall and newer technology will improve performance. Likewise, life extending technology like CRISPR gene editing is opening new possibilities in treatment. Finally, even though modular nuclear technology is a non-starter at the moment, the broader application of “hot rocks making steam” is still a benefit to reducing carbon output.

Anode and cathode material costs are important

Anode and cathode material costs are important

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Category: Business

2023 Week 46

Notes, thoughts and observations - Compiled weekly

Wages are still going up for some and inflation continues to cool effects are sticky. Companies continue to cut costs and shut down money losing projects 

Commercial real estate delinquencies are up but residential still looks OK. 

Moody’s cuts United States credit outlook and precious metal are being pitched as a remedy to a calamity that may never materialize. 

In the stock market retailers are seeing major drops in market value while shorts pile up on highflyers like TSLA and XOM. Meanwhile private equity that didn’t flee China is now stuck.  

Finally, OpenAI is asking Microsoft for more money, Sam Altman stating “Training expenses are just huge.” Simultaneous Disney’s content well is running dry with consumers as “The Marvels” lowest opening for a Disney film in the MCU.'

Delinquencies accelerating

Delinquencies accelerating

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Category: Business

2023 Week 44

Notes, thoughts and observations - Compiled weekly

This week we saw continued concern about the resiliency of consumer spend and the impact of growing debt on households. Credit card debt hit a record $1.08T and the largest increase since the NY Fed began tracking in 1999. Likewise household ability to cover a $400 emergency expense continues to decline.

Labor and recession talk still circulates but opinions are mixed on the implications. On the one hand “quits” are down to pre-COVID levels but we’re seeing a weird trend line in jobs due to shifting demographics. October numbers would have been 262,000 if the birth/death wasn’t negative. Likewise, where some see strength in the economy others are reporting slowdowns that will cause a future recession.

I guess it depends on whether you think we are in a recession, just came out of a recession, or are headed for the next recession. We are seeing layoffs and manufacturing is on the cusp of contraction. It may not be clear the casual observer as companies like Citigroup are disguising layoffs as special projects and others like BoFA have instituted hiring freezes to control labor costs.

Not all gloom and doom as several companies have announced that they will build their own proprietary large language models. Amazon announced Olympus and Titan despite also partnering with Anthropic. It’s clear that major companies are placing LOTS of bets with AI to leapfrog competition.

The percentage of loans in serious delinquency, 90+ days, is virtually flat across all categories save credit cards

The percentage of loans in serious delinquency, 90+ days, is virtually flat across all categories save credit cards

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Category: Business

2023 Week 30

Notes, thoughts and observations - Compiled weekly

This week marked yet another rate hike by the Fed and predictable market hang wringing. More troubling is the designation that we might not be headed for a recession after all. Meanwhile the alarm bells are still sounding, but are they early or late?

The entire cargo and ground transportation sector is in contraction with freight rates down significantly. Strikes by the Teamsters didn’t help Yellow trucking which has all but confirmed they will shut down. Likewise, consumer demand for EVS has stalled with dealers reporting a record number still on the lot.

Meanwhile more companies walking away from half-vacant real estate and many market watchers calling a bubble in AI. The most impressive counter view is the value discount for energy stocks particularly oil.

Energy is still vastly underinvested due to ESG hang-over

Energy is still vastly underinvested due to ESG hang-over

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Category: Business

2023 Week 18

Notes, thoughts and observations - Compiled weekly

Bankruptcy, fire sales and corporate debt.. all part of the cycle. Banking news buried a couple of important stories this week. Bed Bath and Beyond was the big news, but the current cycle is also taking down Jenny Craig. Meanwhile Darden is scooping up Ruth’s Chris Steak House that has struggled since the pandemic. 70 major bankruptcies so far and counting, but AI & ML threatening to disrupt more businesses.

Previous “peak search engine” equity rallies have not ended well

Previous “peak search engine” equity rallies have not ended well

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