Chief Investment Strategist, The Freeport Society
This week, all eyes have been on the Federal Reserve.
On Wednesday, it declared victory in its battle against inflation and slashed interest rates by half a percentage point, marking the first time rates have come down since early 2020.
Great!
However, whether the Fed hikes rates to infinity or drops them to zero, the underlying forces that make inflation so sticky remain. We have a labor problem, and that’s not something the Fed can help us with.
But technology can. And it’s doing so at 26 seconds at a time.
Twenty-six seconds…
That’s how long it takes Autocado, Chipotle’s new kitchen robot, to peel, cut, and core an avocado. That’s roughly half the time it takes an experienced chef to do the same task.
The burrito chain just went live with this “cobot” – or collaborative robot – in one of its Huntington Beach, California, locations. And Autocado is not the only machine laboring away in Chipotle’s kitchens. The chain’s nearby Corona del Mar location is putting the Augmented Makeline cobot to the test making salads and burrito bowls.
All of this might look like marketing fluff to make Chipotle Mexican Grill (CMG) look less like a burrito shop and more like a robotics and artificial intelligence powerhouse. What company isn’t guilty of a little AI-washing these days?
But I can assure you that this is not a cheap publicity stunt. Chipotle’s management knows exactly what is coming, and it ties directly into one of The Freeport Society’s core investment themes.
It starts with that labor problem the Fed can’t help us with…
From Baby Boomers to Bots
America’s working-age population leveled out around 2016 and hasn’t had meaningful growth since, as you can see from the chart below.
U.S. Working-Age Population
Young workers are just barely replacing retiring Baby Boomers. And by 2027, the number of Americans turning 65 – the traditional retirement age – will exceed the number turning 16 for the first time.
Even if we can entice aging Boomers to stick around for a few extra years, there simply aren’t enough new workers in the pipeline to meet the needs of a growing economy.
Labor market research firm Lightcast forecasts a shortage of 6 million workers by 2032, just eight years from now.
“Our labor pool’s growth will not match our population’s,” says Ron Hetrick, an economist at Lightcast, as reported by Bloomberg. “We will increasingly have more consumers than producers, driving price hikes and product shortages.”
Price hikes and product shortages… sound familiar?
That’s the inflationary malaise we’ve been stuck in since the onset of the pandemic nearly five years ago.
Government policy isn’t exactly helping either. It’s not a coincidence that both of Chipotle’s active kitchen robots were introduced in California. The state’s new $20-per-hour minimum wage for food-service workers has created a major incentive to shave off every hour of human labor possible by replacing repetitive tasks with machine labor.
To manage these inflationary forces, all companies – not just restaurants – will need to encourage more productivity out of their workers by teaming them up with AI-powered robots (or, in the case of office workers, AI software).
This ties back to the breakdown of globalization and the now necessary rebuilding of America’s industrial empire. I wrote about this in a Freeport Navigator earlier this week.
As the United States decouples from China and brings manufacturing closer to home, Chipotle and every other employer will be competing for a finite pool of American labor. The would-be burrito roller might find better prospects working in the new high-tech factories being built… such as Micron’s “megafab” near Syracuse, New York, or TSMC’s $40 billion project in Phoenix.
The more globalization unravels, the tighter the labor market gets… and the more incentive employers have to automate their processes with machines. Apart from being faster and cheaper than their human counterparts, Autocado, Augmented Makeline, and their robotic peers will never call in sick, go on strike, or have their ex storm into the restaurant and make a scene.
We know with absolute certainty that every major company in America will be investing heavily in automation technology to offset high labor costs. And that creates opportunities for us.
Three out of the four stocks in my paid members’ The Freeport Investor Rebuilding the American Industrial Empire portfolio (subscription required) are already up by double digits. And I see a lot more gains to come.
Of course, leveraging technology to boost productivity isn’t a new concept. Humans have been improving their labor productivity since the first hunter-gatherers tinkered with their spears.
The difference today is that everything moves at an exponentially faster pace.
Today, most investors are still enamored with the “obvious” investments in AI and automation, like chipmaker Nvidia (NVDA).
Nvidia is a fantastic company that is changing the world… But it’s also a crowded trade.
If you own an S&P 500 index fund, then you already have ample exposure to the chip king and the rest of the Magnificent Seven. In Freeport Investor, we’re looking deeper for the companies working behind the scenes to make the productivity revolution possible.
I’d recommend you do the same.
To capitalize on the next wave of innovation and boost your portfolio, click here to learn more about how to join my flagship service, The Freeport Investor.
To life, liberty, and the pursuit of wealth,