TheBRRR’s Thoughts

GM.

Risk assets are lower today and mixed over the last 7 days, led by the Nasdaq down 1% from last Friday’s close.

Bitcoin is miraculously 10% higher from last Friday’s $62k close, although it has sold off from it’s Wednesday all-time high of $73k down to $68k this morning.

The late-week sell-off has been driven mainly by hot inflation data. Both CPI and PPI came in higher than expected for the second month in a row.

Relatedly, Japan’s central bank has declared that their multi year bout with deflation has ended and they will look to revert to positive interest rates for the first time since 2016.

Japan’s base rate has been under 1% since 1996.

This week’s inflation data caused prediction markets to reduce the odds of a June interest rate cut from roughly 70% to 55% and a cut by the end of July from 92% to 75% per the CME watch tool.

We still think the recent uptick in inflation is an aberration and the Fed will have the proper cover to cut rates this summer, but we’re watching closely.

We’re also covering a story about an AI acquisition made by Apple today. Broadly perceived as a laggard in AI with a lackluster vision and progress to date, Apple is now forced to play catch-up by buying what they cannot build internally.

Between shuttering their decade-long Apple Car project, weakening iPhone demand and their last-mover positioning in AI, Apple has a lot to prove in the coming months to retain its lofty 26.6 P/E multiple amidst slowing growth.

Fed To Maintain Rate Cut Plan Despite Inflation Data

WHAT HAPPENED:

• Despite recent inflation increases, the Federal Reserve is expected to stick with its forecast of three interest rate cuts in 2024 and an additional four in 2025. This prediction aligns with economists surveyed by Bloomberg News.

• The Federal Open Market Committee (FOMC) anticipates keeping rates steady at 5.25% to 5.5% during their next meeting, with the first rate reduction expected in June.

• Upcoming economic and rate projections from the FOMC meeting on March 19-20 are likely to show minor adjustments, maintaining the planned rate path.

WHY IT MATTERS:

• Economic Outlook: The Fed's anticipated slight increase in inflation and GDP forecasts for 2024 suggests a cautiously optimistic view of the economic landscape, balancing growth and inflation concerns.

• Policy Signaling: The Fed's stance on future rate cuts, despite higher inflation, indicates a focus on securing a stable economic recovery, emphasizing the need for "just a bit more evidence" before reducing rates.

• Balance Sheet Strategy: Discussions on the Fed's $7.5 trillion balance sheet and expectations for a tapering announcement in June reflect strategic considerations for managing monetary policy impact.

ANALYSIS:

• Economists expect a modest uptick in the Fed's median forecast for inflation and GDP growth in 2024, hinting at a stronger economy but with manageable inflation pressures.

• The emphasis on requiring additional evidence before initiating rate cuts underscores the Fed's cautious approach to unwinding its aggressive monetary policy stance.

• The potential tapering of the balance sheet starting mid-year aligns with a broader strategy to normalize monetary conditions without destabilizing financial markets.

Bloomberg

Apple Acquires DawinAI to Bolster AI Capabilities

WHAT HAPPENED:

• Apple Inc. has acquired DarwinAI, a Canadian artificial intelligence startup known for its advancements in making AI systems more efficient and compact. This acquisition, completed earlier this year, has brought significant AI talent to Apple, including DarwinAI co-founder Alexander Wong, who now serves as a director in Apple's AI group.

• DarwinAI's specialization in optimizing AI for speed and size, along with their experience in visual inspection technologies for manufacturing, aligns with Apple's strategic focus on enhancing device-based AI functionalities.

WHY IT MATTERS:

• Strengthening AI Offerings: This acquisition is part of Apple's broader initiative to deepen its AI capabilities, especially in generative AI, as it gears up for significant announcements related to AI features in its upcoming iOS 18 software.

• Generative AI Push: Apple has been perceived as lagging behind competitors like Google and Microsoft in the generative AI space. Acquiring DarwinAI highlights Apple's efforts to catch up and possibly lead in offering innovative AI-driven functionalities.

• Impact on Future Products: The integration of DarwinAI's technologies is expected to play a crucial role in Apple's AI strategy, particularly in making iOS 18 a landmark update with enhanced AI features. It underscores Apple's focus on running sophisticated AI applications directly on devices, ensuring privacy and efficiency.

CNet

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