NFIB

• Low and declining sales…

• …but not a major concern:

• Inflation still a concern…

• …but profits are improving.

• Inventories now in good shape.

• Employment needs fulfilled.

• Credit markets not worsening, actually improving a little in April

Wendy’s, Google Train Next-Generation Order Taker: an AI Chatbot

Wendy’s is automating its drive-through service using an artificial-intelligence chatbot powered by natural-language software developed by Google and trained to understand the myriad ways customers order off the menu.

With the move, Wendy’s is joining an expanding group of companies that are leaning on generative AI for growth.

The Dublin, Ohio-based fast-food chain’s chatbot will be officially rolled out in June at a company-owned restaurant in Columbus, Ohio, Wendy’s said. The goal is to streamline the ordering process and prevent long lines in the drive-through lanes from turning customers away, said Wendy’s Chief Executive Todd Penegor.

“It will be very conversational,” Mr. Penegor said about the new artificial intelligence-powered chatbots. “You won’t know you’re talking to anybody but an employee,” he said.

To do that, Wendy’s software engineers have been working with Google to build and fine-tune a generative AI application on top of Google’s own large language model, or LLM—a vast algorithmic software tool loaded with words, phrases and popular expressions in different dialects and accents and designed to recognize and mimic the syntax and semantics of human speech. (…)

The application has also been programmed to upsell customers, offering larger sizes, Frosties or daily specials. Once the chatbot takes an order, it appears on a screen for line cooks. From there, prepared meals are relayed to the pickup window and handed off to drivers by a worker. (…)

“It’s at least as good as our best customer service representative, and it’s probably on average better,” Mr. Vasconi said, adding that part of the goal of the pilot rollout is to show Wendy’s franchisees that the technology works and can improve service speed and consistency. 

Up to 80% of food orders at Wendy’s are made at the drive-through lane, compared with roughly two-thirds before the Covid-19 pandemic, the company said. (…)

Spending in the global generative AI market is expected to reach $42.6 billion by the end of the year, growing at a compound annual rate of 32% to $98.1 billion by 2026, according to market analytics firm PitchBook Data.

Home Prices Drop in a Third of the U.S. Prices fell in more parts of the U.S. than they have in over a decade during the first quarter.

Home prices fell in more parts of the U.S. than they have in over a decade during the first quarter, when nearly a third of metro areas posted annual price declines, the National Association of Realtors said Tuesday.

During the peak of the housing boom, home prices surged in practically every corner of the U.S. Now, the housing market is split down the middle of the country, with prices still rising in many parts of the Midwest, South and Northeast while sliding in Western states. (…)

Prices declined on an annual basis in 31% of the 221 metro areas tracked by NAR, the highest percentage in 11 years. (…)

Western markets that were already expensive or where prices climbed the most during the pandemic-driven housing boom are now the ones where prices are falling the fastest. In much of the rest of the U.S., limited inventory continues to drive prices higher.

Nationwide, the median single-family existing-home sale price fell 0.2% in the first quarter from a year earlier to $371,200, the first year-over-year price decline since the first quarter of 2012, NAR said. (…)

In the first quarter, the typical monthly mortgage payment for a single-family home rose to $1,859, a 33% increase from $1,397 a year earlier, NAR said. (…)

DON’T FEED THE BEARS!

“This bear market has been an absolute wealth destroyer Household net worth is now contracting for the 4th time in the past 3 decades” (@GameofTrades):

…But Americans are still 27% richer than in 2019 and 110% better off than in 2007.

CRE

“Offices account for nearly a quarter of commercial real estate debt maturities this and next year, or about $250B.” (@Mayhem4Markets)

BTW: Canada’s banking sector has not experienced the declines in bank deposits seen in the US. (The Daily Shot)

Source: Scotiabank Economics

Data Dependency In Real Terms

• Premature for Fed to call end to rate hikes with inflation still high, Williams says

(…) “We haven’t said we are done raising rates” and Fed officials have not yet decided what lies ahead with possible increases in short-term borrowing costs, Williams said at an Economic Club of New York gathering. “We’ve made incredible progress” in taking action to lower overly high levels of inflation, but “if additional policy firming is appropriate, we’ll do that,” he said. (…)

“In my forecast I see a need to keep a restrictive stance of policy in place for quite some time to make sure we really bring inflation down from 4 percent all the way to 2 (percent). I do not see in my baseline forecast any reason to cut interest rates this year,” Williams said.

As the head of the New York Fed, Williams also serves as vice chair of the central bank’s rate-setting Federal Open Market Committee, and he is a key voice on the monetary policy and economic outlook. (…)

Williams also said “although we have seen some signs of a gradual cooling in the demand for labor – as well as for some goods and commodities – overall demand continues to exceed supply.” (…)

Williams said the aftermath of the banking stresses will figure prominently in his thinking about the future of monetary policy. “I will be particularly focused on assessing the evolution of credit conditions and their effects on the outlook for growth, employment and inflation,” he said. (…)

In his speech, Williams said he expects inflation, which was running at an annual rate of 4.2% in March as measured by the personal consumption expenditures price index, to fall to 3.25% this year and back to the 2% target by 2025. He noted there have been signs of slowing price pressures but core services inflation stripped of housing factors remains persistent.

He also said he sees the economy growing moderately this year and that the jobless rate, at 3.4% as of April, should rise to between 4.0% and 4.5% this year.

• ECB Is Near the End of Its Interest-Rate Hiking, Stournaras Says

(…) “We can’t yet say how many more rate hikes will happen,” Stournaras said, observing that this will depend on projections for inflation, economic growth and financial conditions. “As things stand today and if nothing dramatically changes, we can say that in 2023 rate hikes will end.”

• ECB Still Has ‘More Ground to Cover,’ Lagarde Tells Nikkei

(…) While inflation is well down from its double-digit peak, the outlook could face “significant upside risks,” Lagarde told Japan’s Nikkei newspaper in an interview published Wednesday. The ECB must be particularly attentive to wage pressures, she said. (…)

“We’re not yet done with rate hiking,” Bundesbank chief Joachim Nagel told German radio earlier Wednesday, though he said policymakers are “coming to the home stretch. (…)

Speaking Tuesday evening, Executive Board member Isabel Schnabel said the ECB will continue lifting borrowing costs “with full determination until there are signs that core inflation is also falling on a sustained basis.”

(…) Latvia’s Martins Kazaks, who told Bloomberg this week that investors are wrong to bet on reductions early next year.

Druckenmiller Says US on Brink of a Recession, Sees Hard Landing

The downturn will occur at some point during the current quarter — even earlier than he previously expected, the billionaire founder of Duquesne Family Office said Tuesday during the 2023 Sohn Investment Conference. Druckenmiller, 69, said a variety of factors including a decline in retail sales and the upheaval gripping the nation’s regional banks prompted him to accelerate his forecast for a recession. (…)

He defined a hard landing as unemployment exceeding 5%, corporate profits slumping at least 20% and rising bankruptcies. (…)

Banks tighten credit terms, see loan demand drop, Fed survey shows

Credit conditions for U.S. business and households continued tightening in the first months of the year, according to a Federal Reserve survey of bank loan officers, but the results seemed to mark the accumulating impact of Fed monetary tightening rather than the cliff-like decline in credit some feared after the March collapse of Silicon Valley Bank.

The Fed’s quarterly Senior Loan Officer Opinion Survey, or SLOOS, among the first measures of sentiment across the banking sector since the recent run of bank failures, showed a net 46.0% of banks tightened terms of credit for a key category of business loans for medium and large businesses compared with 44.8% in the prior survey in January – a modest, stepwise change.

For small firms, conditions were slightly more stringent with a net 46.7% of banks saying credit terms were stiffer now versus 43.8% in the last survey.

Banks reported that firms of all sizes were showing less demand for credit than three months earlier.

Credit access may be just part of the story, with banks also reporting they were capping loans sizes and raising the cost of borrowing.

On the consumer side, banks said soft demand prevailed again for credit card, automobile and other forms of household credit, although not to the degree seen at the end of last year. Banks on balance showed diminished willingness to provide consumer installment loans, and were also limiting the size of auto loans for example.

“It wasn’t a sea change…The tightening in standards probably wasn’t as severe as one might imagine given the banking stress,” wrote J.P. Morgan Chief U.S. Economist Michael Feroli. But the drop in demand, particularly the more than half of banks seeing a drop in small firms wanting to borrow, “appears to paint a grim picture about the outlook.”

The tightening also reflected modestly rising concerns among banks about the need to conserve capital and maintain adequate liquidity amid a weaker economic outlook. Mid-sized banks, the Fed said in reporting the survey results, seemed particularly stretched.

“Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023,” the release said. “Mid-sized banks reported concerns about their liquidity positions, deposit outflows, and funding costs more frequently than the largest banks.” (…)

Th drop in corporate demand for credit likely reflects the inventory cycle:

Inventories are not in bad shape given sales levels and trends:

Yesterday I showed lending stats through April 26. W now have the stats through May 1. Looks like business as usual so far 7 weeks after SVB:

Goldman Sachs notes that recent CRE loans were made with much lower leverage:

• The FT: Fed warns of credit crunch risk after US bank turmoil “A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity.”
• Chicago Fed President Austan Goolsbee to Yahoo Finance: “The credit crunch, or at least the credit squeeze, is beginning.”
• Reuters: Fed says banking sector looks set to weather recent turmoil In its semi-annual report on financial stability, the U.S. central bank said overall funding risks for banks remained low and firms still have ample liquidity.

(…) The Fed noted in its report on Monday that more than 45% of bank assets reprice or mature within a year, suggesting there is not heavy exposure to less valuable securities for long periods of time. (…)

• MichaelKantro, Chief Investment Strategist at Piper Sandler, tweeted this chart showing that “#SLOOS has a pretty good track record (100% historically) for determining soft and hard landings after a Fed tightening cycle.”

The odds of a hard landing are ominously high but note that the 1970, 1990 and 2001 recessions were very mild. The odds may really be 62%.

• NYC’s office return stalls (Axios)

Data: REBNY; Chart: Axios Visuals

US debt limit default could hit in early June to early August -think tank

The U.S. government will begin defaulting on its payment obligations between early June and early August without an increase in the federal debt limit, the Bipartisan Policy Center said on Tuesday, flagging pressure from a drop in tax revenue.

The front end of the centrist think tank’s latest estimate for the so-called “X-date” – when the government runs short of cash to pay its obligations – lines up with that of U.S. Treasury Secretary Janet Yellen, who warned last week that a default could come as early as June 1. (…)

But if tax revenues allow Treasury to meet obligations through mid-June, quarterly estimated tax payments due on June 15 can likely float the government through June 30, BPC said in its analysis. (…)

“In such a scenario, the additional room created by these measures would support Treasury’s ability to make good on our obligations through at least early July and perhaps several weeks beyond,” BPC said.

The think tank’s latest estimate roughly agrees with the Congressional Budget Office’s revised assessment that there is now a “significantly greater risk” of an early June default. (…)

• John Authers: Let the Debt-Ceiling Game of Chicken Begin

Chinese Exports Cool in Latest Warning Sign on Global Trade After three years of export-driven growth, Beijing is hoping domestic consumers can drive the next stage of the recovery

Exports rose 8.5% in April from a year earlier, China’s General Administration of Customs said Tuesday, faster than the 6% pace expected by economists polled by The Wall Street Journal but weaker than the 14.8% year-over-year jump recorded in March.

April’s export increase benefited from a comparison with weak figures in the year-earlier period, when Shanghai was locked down in an effort to control an outbreak of the fast-spreading Omicron variant of the coronavirus. When compared with March in month-over-month terms, exports from China to the rest of the world in April shrank 6.4%, to $295 billion. (…)

Overseas sales by other key exporting nations in Asia have also been weak, with April exports from South Korea falling 14% from a year earlier. Exports from Taiwan were down by 13% in April, though that marked an improvement from a 19% drop in March. (…)

Tuesday’s data showed imports falling 7.9% in April from a year earlier, an unexpectedly weak result. Economists said the drop likely reflects subdued appetite for goods as consumers favor spending on services, as well as weak demand for raw materials and components that feed into exports.

That weakness in imports boosted China’s trade surplus in April to more than $90 billion, up from $88 billion in March, despite the slowdown in exports.

Wanda in Talks With Banks on Loan Relief as Challenges Mount

Dalian Wanda Group Co. is in talks with major Chinese banks on a loan relief plan that may allow it to extend principal repayments for some onshore borrowings as the conglomerate faces a liquidity challenge, according to people familiar with the matter. (…)

Wanda’s commercial management unit alone had outstanding loans of 94.4 billion yuan [$13.5B] as of end-2022, including 16.5 billion yuan [$2.3B] due this year, according to its annual report. (…)

• The macro leverage ratio — or total debt as a percentage of gross domestic product — soared to 279.7% in the first quarter, according to central bank and statistics bureau data compiled by Bloomberg. *That was an increase of 7.7 percentage points from the previous quarter, the biggest jump in three years. (@C_Barraud)

GPTZero App Seeks to Thwart AI Plagiarism in Schools, Online Media

(…) Edward Tian, a 22-year-old Princeton University student studying computer science and journalism, developed an app called GPTZero to deter the misuse of the viral chatbot ChatGPT in classrooms. The app has racked up 1.2 million registered users since January.

He’s now launching a new program called Origin aimed at “saving journalism,” by distinguishing AI-generated disinformation from fact in online media. (…)

GPTZero analyzes the randomness of text, known as perplexity, and the uniformity of this randomness within the text — called burstiness — to identify when AI is being used. The tool has an accuracy rate of 99% for human text and 85% on AI text, according to the company. (…)

THE DYNAMIC DUO

Sadly, many forget the influence of Charlie Munger. Also sadly, the game is getting tougher with the size of the portfolio. The price of growth… Still remarkable.

These two guys are 92 and 99 respectively!!

And still working!

Data: OECD, Moody’s Investor Service. Chart: Axios Visuals

BTW, while on aging: When youth fades

There’s a typical age when most Americans start feeling like their youth is slipping away.

• It’s 42.

That’s according to a recent poll reported by The Wall Street Journal.

• The oldest members of the millennial generation are reaching their early 40s and experiencing this very phenomenon.

There’s a gap between the age when Americans stop feeling young — 42 — and the age they start feeling old, which is 52, according to The Journal.

The silver lining: As we’ve reported, with the help of Finish Line readers’ wisdom, there’s a great deal to celebrate about getting older and reaching your 4os, 50s and beyond.

• Happiness actually spikes in our 70s, when there’s more free time and less stress. (Axios)