Technology: For Better or Worse
The unease and uncertainty continued this week as investors digested a good deal of economic data and suffered a little acid reflux. The topmost question on most people’s minds is how high will inflation go and for how long will it last. If you hadn’t noticed, everything from the price of gasoline, to the cost of shelter if you are a renter, to the price of beef and chicken has taken off this year. While the Federal Reserve has done an admirable job deflecting, it finally had to recognize the elephant in the room this week. While the calculus has changed a little with the recent FOMC meeting, the outcome was neither unexpected nor unwelcomed. We’ve been planning for this contingency since the start of the year.
There’s never a dull day when Jerome Powell, Chair of the Federal Reserve, comes to town. On Wednesday, the Fed raised its expectations for inflation considerably, saying the headline figure could reach 3.4% (annually), marking a full percentage point higher than its forecast in March. The central bank also brought forward the time frame on when it will next raise interest rates. The so-called dot plot of individual FOMC members expectations pointed to two rate hikes in 2023, after Powell said in March that he saw no increases until 2024. Additionally, there was no indication of when the Fed would begin tapering its bond buying program, currently $120B per month, but most now expect there could come an announcement at Jackson Hole in August. We still anticipate the taper will begin at the end of this year or early next year.
On a completely different subject, the issue of cyber-attacks and ransomware has been on the rise lately. Colonial Pipeline was neither the first nor the last to be hit by hackers, but it is clear there is a growing issue with infrastructure, corporate security, and a growing opportunity for blackmail. Last week Electronic Arts was hacked and the attackers stole important data including game source code for an upcoming game. The hackers want $28 million in return for the code. Even McDonald’s isn’t immune as the company confirmed a recent data breach. Navistar, a truck and military vehicle manufacturer, revealed a cybersecurity event on May 20. And most recently, JBS foods, the world’s largest processor of beef and pork, reported it paid an $11 million ransom to attackers. Companies will need to spend a great deal of money hardening their networks and ensuring their software is secure. We believe this trend will continue, if not accelerate, in the years ahead.
In company news, we have two developments that may just make your shopping experience more convenient. On the one hand, we have Amazon which is pushing the boundaries even further with cashierless grocery stores. And on the other, we have Walmart which is now actively testing drone delivery to your door. During the pandemic, a lot of people switched to online services like Kroger’s Click List, which allow you to order your groceries online and show up at the designated time to have an employee load your groceries into your trunk. For those who made the switch, I imagine they’re hooked. With the ability to walk into a grocery store and walk out without having to wait in line or take out your wallet presents yet another development which seems both plausible and somehow inevitable. As for Walmart and its drones, it has partnered with a drone company with over 10,000 pilots and FAA clearance to operate. I imagine it too is only a matter of time. Which will win out in the end? Perhaps they all win as we move toward an economy that caters more to convenience and less to price or service. Time will tell.
In closing, I bring you a report from a couple months back. It was a slow news week on the strange story front. It seems the U.S. population growth slowed in the past ten years to its lowest rate since the 1930s, according to new data released by the U.S. Census Bureau. In the decade from 2010 to 2020, the U.S. population grew by only 7.4%. This is the second-slowest rate of expansion since the government began taking a census in 1790. However, unlike the slowdown of the Great Depression, the slowdown this time is part of a longer-term trend, tied to the aging of the population, decreased fertility rates, and lagging immigration. If this trend continues, the U.S. could end up looking a lot more like Germany, Japan, and Italy. On the other hand, if the population were to grow at the same rate as it did in the 20th century, when it quadrupled from about 70 million to 280 million, we would run out of space in less than a couple hundred years. Certainly, we can find a happy medium somewhere between dying off and running out of resources? Let’s hope we figure it out. Now you know.
Bruce J. Mason, MBA