GM and BRRR.

Markets remain muted in preparation for tomorrow’s price inflation reports. While CPI expectations are muted at 3.1% y/y, “core” inflation (read: price inflation without food and energy) is expected to clock in higher, at 5.0% y/y. Both numbers are still above the Fed’s target of 2.0% y/y, but would indicate inflation has been suppressed and continues to move in the right direction.

A hot inflation print could prove catastrophic for risk assets, so we’ve trimmed tech exposure at the open today, headed into tomorrow’s event.

A key area in which the economy has seen prices cool off dramatically is the used car market.

Following an unprecedented 4.3% increase in February 2023, the largest since 2009, used car prices experienced a stark reversal with a 4.2% decline in June 2023, marking the most significant monthly drop since the pandemic began. This volatile trend reflects a 10.3% annual decrease in the Manheim Used Vehicle Value Index, a leading indicator of used car pricing.

Yet, despite these fluctuations in the used car market, core inflation remains steady, supported by a resilient 10% year-on-year rise in overall consumer spending on vehicles. (Supply & Demand?) The volatility has been influenced by global supply chain disruptions from the pandemic and the microchip shortage, but as these factors start to recede, a stabilization in used car prices is anticipated.

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AI: The Money Robots

Tesla Bots Coming to Stores: Will They Be Programmed to Upsell?

Tesla plans to utilize its Optimus robot, or Tesla Bot, in its stores to boost customer engagement and increase foot traffic. Rather than directly interacting with customers, these humanoid robot display units are envisaged as an attraction to draw people into the stores. The strategy, currently being tested in China - Tesla's top-performing retail market - is part of a larger plan to improve the company's retail performance in North America. Despite the bot still being in development, Elon Musk sees its future potential as a significant contributor to Tesla's long-term value.

• Promising Start in China: Tesla has already started testing the introduction of the Optimus humanoid robot display units in its stores in China, which has been deemed as Tesla's gold standard for retail performance. This move has been found to increase customer engagement and foot traffic in the stores.

• Response to North American Market Performance: The initiative is part of a broader strategy to improve Tesla's retail performance in North America, following a quarter where the company did not meet its delivery goal despite recording deliveries that exceeded Wall Street expectations.

• Long-Term Potential of Optimus: Despite the Tesla Bot still being in development, CEO Elon Musk confidently predicts it will account for a majority of Tesla's long-term value. The robot's future tasks could range from simple, repetitive tasks in Tesla's manufacturing operations to becoming a general-purpose robot for household use.

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Our take: Bullish for Tesla. Constantly innovating and evolving business models like this continue to push them to the forefront, not only for the automotive industry & AI industries, but tech as well.

Ongoing Financial Crisis

Commercial Real Estate Collapsing in SF

San Francisco's commercial real estate market has been severely impacted by tech companies fleeing the city and soaring adoption of Work-From-Home policies. It faces record high vacancy rates and declining valuations. Despite this downturn, an influx of AI companies, capitalizing on the city's status as an AI hub, offers a glimmer of hope for the market's revival. However, the question remains whether this AI-led demand can fully offset the broader economic issues plaguing the city's real estate market.

Detailed Points:

1. Record High Vacancy Rates: San Francisco has seen an unprecedented rise in office space vacancies, with an alarming 27.1 million square feet of office space currently available. The city's office vacancy rates are at a 30-year high, a result of the shift towards remote work by the tech-heavy workforce. This remote work trend has also led to a significant decrease in foot traffic, causing a domino effect on the retail sector.

2. Plummeting Real Estate Valuations: The commercial real estate market has also experienced a drastic decline in valuations. Case in point, the city's 350 California Street office tower was sold in May for 75% below its asking price in 2020, underscoring the severe drop in commercial property values. Additionally, Westfield, a mall operator, had to surrender its San Francisco Centre mall back to its lender due to declining sales and foot traffic.

3. Hope Amidst Gloom: AI's Potential Role in Market Revival: Despite these grim statistics, the city's reputation as a global AI hub is attracting interest from AI companies. AI companies are driving office leasing demand, potentially offering some respite to the struggling commercial real estate market. However, experts like Hans Hansson, president of Starboard CRE, question whether this AI-centric demand can fully counter the broader economic downturn, especially given the remote or hybrid work models prevalent in AI companies.

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Our Take: We think commercial real estate is the next shoe to drop in the ongoing debt and banking crisis that started earlier this year. Look out below.

AI Art of The Day

The BRRR’s Portfolio Update

We sold half of our COIN today after its recent surge.

Looking at the Fear and Greed Index, we see Greed at multi-month highs, so we feel markets are a little ahead of themselves with inflation expectations as low as they are headed into the CPI report. We’re still balls-long, but we did secure a little profit today.

On Watchlist:
$AMD: NVDA’s strongest competitor
$ASML: They make the machines that make AI machines
$ADBE: Creativity & productivity software
$ISRG: Robot Surgeons
$OPRA: Growing web-browsing solution

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The BRRR is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.