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The Corporate ChatGPT Moment

Every company with “-aaS” in its description is racing to create the “ChatGPT moment” for businesses. Well, Salesforce may have just crossed the finish line. Get the full rundown on their new offering and how this could be a game changer.

September 20, 2024

Silver banana goes to…

In this issue of the peel:

  • Rate cuts—been there, done that, it’s old news by now. However, there’s plenty more to come with continued Fed easing and what it means for the broader U.S. and global economy, especially related to the U.S. Dollar. Find out what it all means below.

  • I guess y’all don’t like breadsticks anymore as Olive Garden owner Darden Restaurants posts dismal earnings, but news of a flashy partnership with Uber saved the day. Tesla surged on falling customer borrowing costs while a big downgrade slapped five Below. Finally, the dump continued in shares of Trump Media despite the former President’s efforts to pump. 

  • Every company with “-aaS” in its description is racing to create the “ChatGPT moment” for businesses. Well, Salesforce may have just crossed the finish line. Get the full rundown on their new offering and how this could be a game changer.

Market Snapshot

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Macro Monkey Says

Not That Simple

Rate cut days are kind of like birthdays—allegedly a big deal, usually looked forward to for a long time, and leave you wondering, “So… is anything really different?”

The only thing is that rate cuts are actually worth celebrating.

The effects aren’t immediate, but unlike being 29 one day and 30 the next, rate cuts carry implications beyond just having a pre-mid-life crisis.

Let’s get into it.

What Happened?

If Wednesday’s Fed meeting was an episode of the most overrated TV show in history, Friends, it would be called “The One We’ve Been Waiting For.”

The only question going in was, “How much?” Now that we have our answer—in the form of a 50bp cut—let’s talk about the implications of the central bank’s policy pivot.

Disagreements make markets. And right now, there’s a big disagreement between the Fed’s expected path of rates, implied by the dot plot, vs the market’s expectations, implied by interest rate futures positioning.

By the end of 2024, markets expect prevailing rates somewhere around 375-425bps, with a slight majority favoring the 400-425bp target range. That implies 50-100bps of additional cutting before year-end.

Meanwhile, The Fed is looking to keep conditions more restrictive. JPow and the gang anticipate a range of 425-475bps with a slight bias to the target range of 450-475bps. That implies just 25-50bps of additional cutting.

As we get closer to year-end, the spread will narrow. But that won’t stop volatility from spiking in equity and, more so, credit markets, especially if the spread narrows via market expectations moving closer to that of the Fed’s.

As of now, 2025 will bring even more volatility, given that the spread of year-end expectations is even wider.

So, strap in. It’s gonna be a volatile few years as the Fed attempts to untighten monetary policy to a degree that continues growth but does not re-trigger inflation.

And unfortunately, the implications of doing so stretch well beyond equity and credit markets.

The explicit purpose of cutting rates is to lower the cost of borrowing so economic activity can persist and, ideally, expand. However, this comes with a double-edged sword.

Against a basket of other currencies, the dollar has been in a near-steady decline for the past year in anticipation of Wednesday’s rate cuts and the easing cycle to follow.

The most obvious implications of a weaker dollar amid rate cuts include:

  • Higher prices on foreign goods, potentially increasing inflation

    • Paired with looming tariffs, this is easily the greatest risk to retriggering inflation, but on a cost-push basis as opposed to demand-pull.

  • Lower foreign demand for Treasuries

    • As if the U.S. isn’t already having a challenging enough time spurring demand for federal debt, lower yields will only exacerbate this issue.

  • Reduction in the trade deficit

    • A weaker dollar is good for net exports as demand for exports increases while demand for imports decreases.

    • But, other effects, such as the J-curve and variable impacts on the capital & financial accounts, could call this into question.

The Takeaway?

I know that was boring as hell. I almost fell asleep writing it, but trust me on this one—rate cuts aren’t as simple as the “Number down, Stock go up” idea that’s often portrayed.

Lowering the cost of borrowing and, thus, the yield on fixed-income investments impacts every layer of the economy. 

For most countries, they only have to worry about impacts within their own borders. However, as the U.S. dollar is still the global reserve currency, the impact of a Fed cut goes global.

In the grand scheme of things, a 50bp cut isn’t much. Usually, when the Fed cuts by 50bps, we’re in the midst of a recession. That’s objectively not the case now, and rates have remained at their highest level since 2007, excluding the hiking cycle.

There’s plenty more to come. Stay tuned.

What's Ripe

Darden Restaurants (DRI) 8.28%

  • Usually, missing estimates with a depressing outlook isn’t a recipe for a good day. But, announce a partnership with a flashy tech company? Markets won’t even remember.

  • Darden missed on sales and EPS by 1.4% and 4.4%, respectively. Same-store sales at every brand except Longhorn Steakhouse are up 3.7%.

  • The company’s Fine dining segment, Capital Grille and Eddie V’s, was the quarter’s biggest detractor, down 6%. Even Olive Garden fell 2.9%.

  • This is a perfect example of markets only caring about what’s next. Investor focus was on the new Uber deal, providing on-demand delivery for Darden’s brands.

Tesla (TSLA) 7.36%

  • Besides an asteroid slamming into the Earth, nothing in the universe could’ve held Tesla back yesterday. Musk might as well go smoke pot on Rogan again.

  • That’s because Tesla epitomized “right place, right time.” As an automaker, falling rates are huge as the cost of borrowing declines, increasing vehicle demand.

  • But Tesla is also a long-duration stock, meaning that its value is more inversely sensitive to changes in rates. In this case, it is that simple—Numbers go down, Stocks go up.

What's Rotten

Trump Media & Technology Group (DJT) 5.89%

  • Markets had the same message for former President Trump when he swore last Friday that he wouldn’t sell his shares, as they’ve had for Trump Media stock ever since it went public—not buyin’ it.

  • When Truth Social’s parent “company,” Trump Media, went public via SPAC in March, insiders were barred from selling shares for at least 180 days.

  • This is common in public listings but much more attention-grabbing for Trump Media, given the former President’s ~57% stake in the firm.

  • And I think Trump has faced some slight legal challenges since then. Not sure; no one talks about it, but markets seem to think he needs cash and will get it by dumping $DJT.

Five Below (FIVE) 2.22%

  • It’s hard to believe the price of this stock isn’t already as low as its products, but JPMorgan is certainly working on it as the bank just downgraded shares.

  • Five Below, a discount retailer that lists most products at a max price of $5 (but some at $25), has been struggling to manage inventories and attract demand.

  • JPMorgan’s downgrade comes on the back of weak margin expectations, lower basket sizes, and unfavorable leadership changes. Shares are now rated as underweight.

Thought Banana

Robot Invasion Begins

South Park was right—they are taking our jobs.

But, they were slightly off on who—or what—is taking our jobs.

Let’s dive in.

What Happened?

This is the key to enterprise AI… at least for now.

Salesforce CEO Marc Benioff went full comedian mode in this recent interview but also took some time to describe his company’s plans to own the enterprise AI space called “Agentforce.”

Basically, Agentforce is a new platform that Salesforce is rolling out, allowing companies to deploy autonomous AI “Agents” to assist with a wide range of business functions.

Using a primarily consumption-based model, companies will pay a certain fee per “conversation” with an agent. Salesforce also plans to offer Agentforce through third-party partners that can further customize agents for specialized tasks.

Lastly, and maybe the best part, Agents can embed into existing offerings, like Salesforce’s Sales or Marketing Clouds, and automate tasks for employees.

Imagine having your own personal assistant trained on all your company’s data that’s able to make decisions and accomplish tasks 24/7/365. These guys don’t even ask to take New Year’s Eve off.

It’s early, so take this with a grain of salt, but it seems like Salesforce has figured it out. This is exactly the kind of large-scale application AI needs to start taking off in commercialized settings, and the kind of application NFTs wish they had.

The Takeaway?

The Microsoft Office of AI is out there somewhere, and Salesforce seems to think it's Agentforce.

We know that AI-as-a-business works in a consumer setting, but this offering has the potential to be the ChatGPT moment for companies.

But… then again, that means this is potentially the start of AI taking over and stealing your job. According to the firm, Agentforce is already able to handle the most tedious tasks, potentially changing the nature of “entry-level” jobs forever.

Imagine if we had this when everyone went to WFH during the pandemic. We heard about people working 2 or 3 jobs at a time, but with this, you could be like the guy in Office Space for the entire S&P 500.

Just promise me none of you will create a Daily Peel agent…

The Big Question: Will Agentforce prove to be the ChatGPT moment for companies? What other AI services could claim that title?

Banana Brain Teaser

Previous

In a certain medical survey, 45% of the people surveyed had the type A antigen in their blood and 3% had both the type A antigen and the type B antigen. What is the closest to the percent of those with the type A antigen which also had the type B antigen?

Answer: 6.67%

Today

Half of a large pizza is cut into 4 equal-sized pieces, and the other half is cut into 6 equal-sized pieces. If a person were to eat 1 of the larger pieces and 2 of the smaller pieces, what fraction of the pizza would remain uneated?

Send your guesses to [email protected]

❝

People are spending way too much time thinking about climate change, way too little thinking about AI.

Peter Thiel

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David, Vyom, Ankit & Patrick