Vol. 4, No. 12 — Discovering our humanity
The AI productivity boom is coming; Guzman Y Gomez's IPO is ludicrously overvalued; Rate cuts are coming for some countries but not others; A growth fintech with 70% upside
Contents
The world this fortnight
Leader | Discovering our humanity
Letters to the editor
Finance | Buying Guzman’s shares is nacho best idea
Economics | Rate cuts are coming, for some
Cost of capital
Investment idea | Growth fintech with 70% upside
Economic and financial indicators
The world this fortnight
Investors are high on AI. American computer chip maker, NVIDIA, overtook Apple as the world's second most valuable public company. The shares rose above $1,200 each, taking the firm's market capitalisation over $3trn for the first time. The firm, which initially made graphics cards but is now the leader in artificial intelligence (AI) technology, reported $26bn in sales last quarter.
Indian stocks fell sharply as early election results suggested Narendra Modi, the current prime minister, might not secure a majority. The NSE Nifty 50 index of big Indian companies fell 6%. That was the steepest fall since March 2020, when lockdowns shook global markets.
WeWork is ready to emerge from bankruptcy with less debt and fewer offices. A drop in demand and overly aggressive expansion hammered the shared office space company's profits during the pandemic—the firm plans to operate 337 offices globally, with America and Canada remaining its most significant markets. SoftBank, a Japanese investment conglomerate, will remain an investor, but Yardi Systems, a real estate software company, will take the majority stake.
Shein, a fast-fashion giant, plans to list on the London Stock Exchange at a £52bn ($66bn) valuation. Lawmakers have criticised the Chinese company's environmental record and accused it of using forced labour. To rejuvenate its green credentials, the firm launched a resale platform in France. If the listing goes ahead, it would be a win for London's financial markets, which have attracted few new large listings in recent years.
It was a busy fortnight for investment bankers, too. They were busy brokering acquisitions all over the world. Czech billionaire, Daniel Kretinsky, agreed to buy British post handler, Royal Mail, for £5bn ($6.4bn). American telecom giant, T-Mobile, agreed to buy UScellular's wireless operations and some of its spectrum assets for $4.4bn. And Merck, a German pharmaceutical behemoth, decided to buy Eyebiotech, a clinical-stage eye disease biotechnology firm, for $3bn.
The American economy is still hot. Last month, American companies added 272,000 jobs, far more than the 185,000 that economists had predicted. This unexpected growth—unexpected to those who don't read 𝑉𝑎𝑙𝑢𝑎𝑏𝑙—dampened expectations that the Federal Reserve might start cutting rates soon. American workers' average hourly pay rose 4.1%, above the 3.9% expected rate. At the same time, the unemployment rate ticked up to 4% from 3.9% in April.
The European Central Bank (ECB) cut its interest rate from 4% to 3.75% following Canada's rate cut earlier in the week. Christine Lagarde, the bank's boss, said a better inflation outlook inspired the move, although she warned it would stay above the bank's 2% target into next year. Analysts, including this publication, reckon further cuts are on the way.
The Canadian and Australian economies both grew slower than economists expected. Canada's economy grew at an annualised rate of 1.7% in the first quarter, below the 2.2% forecast. And Australia's economy crawled along, expanding at a paltry annualised rate of 1.1% in the first quarter—the slowest growth in 30 years outside the pandemic. Australia's gross domestic product (GDP) per person continues to fall on an inflation-adjusted basis. ■
Leader | The AI productivity boom is coming
Discovering our humanity
Artificial intelligence will make us more productive and better-off than ever before. And, in the process, it will force us to examine what makes us human.
Workers are scared that artificial intelligence (AI) will eat their jobs, which has made many hesitant to embrace it. Some of these Luddites want AI stopped in its tracks. However, the possibility of streamlining operations has excited bosses and investors. What will AI do to productivity and the jobs market? While it will dislodge many non-creative in-person jobs, it will also drive a productivity boom that will leave us much better off.
Artificial intelligence will help us produce more stuff in less time. And the things we make will be better. As a species, we’ve always invented and used tools to improve our lives. Millions of years ago, we harnessed fire, the wheel and the blade. Then we developed agriculture, gunpowder and medicine. Most recently, we built factories and then the internet. All of these helped us produce more with less.
In modern history, few things have helped us as much as the internet—it drove a productivity boom. Workers could communicate, retrieve information, and build faster and more efficiently. In America, the real gross domestic product (GDP) per worker per hour worked has climbed 30% since the World Wide Web went mainstream. The same thing will happen with AI. It is a tool we will harness just like we did with factories and the internet. We will use it to produce much more in much less time and at a much lower cost. Massive AI computers will become to information what factories were to production.
That productivity boost will mean there are fewer repetitive, boring jobs. AI will help us automate anything and everything that is process oriented. That will slash the number of mistakes and make these processes more efficient. For example, AI is already replacing call centre and customer service representatives. That will make it easier to converse and get what you need. AI will also replace order-taking and processing in restaurants and elsewhere. No longer will you line up to order on a touch screen or with a person in McDonald’s. You’ll explain what you want to a virtual person on a screen or your phone.
It’s not just low-paying jobs on the chopping block, either. High-paying roles like diagnostic medicine leg, al research, and contract drafting will go. Your doctor will be on your phone or computer. You will talk to them and show them your symptoms as you would your general practitioner (GP) in person. That will eliminate waiting times and improve everyone’s health. It will reduce misdiagnosis and help catch problems early as the AI will have complete and up-to-date medical knowledge. But the jobs that this boom creates will become innately more human.
As AI takes over these non-creative roles, managers of these systems will become exponentially more productive and vital. A single person could achieve something that previously took a whole team months. More so, that will put a premium on in-person physical work. It will be difficult for robots to replace human dexterity and adaptability. Jobs that require problem-solving with skilled hands in different places won’t disappear anytime soon. How can AI shear a sheep or unblock a toilet? In-person social skills will also become critical and a symbol of luxury. High-end waiters and waitresses will become more in demand and rare as the gap between fine and casual dining expands. Being served by an actual person will be a high-cost luxury, much like having a butler is today.
Of course, robots will eventually replace many shearers, bricklayers, plumbers, waitpeople and writers. But that is quite a ways off. And until then, those jobs will become more valuable and in demand—there is simply no substitute for them. Artificial intelligence and robots will drive us to discover what makes us truly human. ■
Letters to the editor
Dilutaphobia-phobia
Your article on share dilution (“Dilutaphobia” Vol. 4, No. 11) was dumb. Of course dilution hurts returns. It’s simple math—when a company dilutes shareholders, the same amount of earnings is split amongst more people. You also brush off real concerns about control when it comes to dilution. Investors aren’t paranoid for no reason.
— James Harper, Austin
GameStop the presses…
How can you claim the market isn’t rigged (“No, the market isn’t rigged” Vol. 4, No. 11)? GameStop’s shares triple in two days because of some tweets. This isn’t normal market behaviour. Hedge funds have the resources to move stock prices and take advantage of dumb money and to say the Fed has no influence is so ignorant. Low rates and cheap money encourage risky behaviour, benefiting the big players who manipulate stocks. Everyone knows that. The market is so clearly manipulated, and regular investors are getting played. Articles like this protect the interests of the elite.
— Ryan Davis, New York
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Finance | Overpriced nachos
Buying Guzman’s shares is nacho best idea
A popular chain of Mexican takeaway restaurants in Australia is going public. But value investors should stay away. Here’s why.
It's been a quiet year for Australian companies going public. So far, just 26 firms have had an initial public offering (IPO) of shares. Last year was quiet, too. There were only 32 IPOs, the smallest number in over two decades. However, Guzman Y Gomez, an Aussie chain of Mexican takeaway joints, has decided to spice things up. Last week, the company announced it would sell shares to the public at A$22.00 ($14.60) a pop, giving the nacho maker a A$2.2bn ($1.5bn) market capitalisation. It's the biggest IPO of the year for a market with nothing but tumbleweeds. So, should you spice up your life and buy Guzman's shares when it goes public? In a single word, no. And there are three reasons why.