The Newsletter

The Transcript 07.29.19

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Succinct Summary: We are deep into the expansionary cycle. The persistent global uncertainty is unnerving investors who are choosing to adopt a wait-and-see approach as they look for clarity from the central banks. The market anticipates rates to go lower and the central banks seem to point to a similar direction. Such accommodative policies will spur this cycle on. 

Macro Outlook:

We are deep into the cycle
“America just broke the record for the longest sustained recovery. We are deep into the cycle” –  Capital One Financial Corporation (COF) CEO Richard Fairbank
But global uncertainties persist
“…the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets, is dampening economic sentiment, notably in the manufacturing sector.” – ECB
“…persisting concerns over national politics, geopolitical uncertainty and global trade.” – UBS Group AG (UBS) CEO Sergio Ermotti
” Global trade tensions once again escalated in the second quarter” – BlackRock (BLK) CEO Laurence Fink
“…the economic backdrop remains uncertain.” – Comerica Incorporated (CMA) Curtis Farmer
“there remains uncertainty with respect to the economic market and rate environment” – Citigroup (C) CEO Mike Corbat
“the uncertainty around the rate profile as well as the growth profile” – Morgan Stanley (MS) CEO James Gorman
Investors are adopting a wait-and-see approach
“a high percentage of clients that are really waiting for markets to drop before they are likely to move further, there could be a muted impact overall in client activity.” – UBS Group AG (UBS) Kirt Gardner
Animal spirits are muted
“our quarterly survey shows that investor sentiment remains muted” – UBS Group AG (UBS) CEO Sergio Ermotti
“It’s more of a subdued up than sort of the animal spirits you would generally characterize in this type of environment.” –  Morgan Stanley (MS) CFP Jon Pruzan
Inflation and economic activity has slowed
“inflationary pressures remain muted and indicators of inflation expectations have declined” – ECB
“From a macro standpoint, it’s clear that activity slowed.” – Fastenal Company (FAST) Holden Lewis
yet the labour market is tight
“Many of our largest markets continue to see tight labor market conditions.” –   ManpowerGroup (MAN) CEO Jonas Prising
“labor pressures continue to persist” – Domino’s Pizza (DPZ) Jeff Lawrence
Central banks are signalling accommodative policies
“The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time” – ECB
“We’ve seen…accommodative views from central banks.” – Goldman Sachs (GS) CEO David Solomon
“both the Federal Reserve and the ECB have shifted towards a more dovish stance.” – BlackRock (BLK) CEO Laurence Fink
The markets expect lower rates
“we recognize that we may begin to see rate cuts as early as later this month”- Citigroup (C) Mark Mason
“The market now expects several Federal Reserve rate cuts by the end of 2020.” – BlackRock (BLK) CEO Laurence Fink
“the markets are expecting the Fed to cut rates” – Comerica Incorporated (CMA) Muneera
Lower rates could elongate this recovery
” …to the extent that they really do elongate this recovery and we end up with benign credit conditions and we end up with robust consumer spending and flows and businesses remain healthy and borrow and continue to invest even at these relatively subdued levels.” – Wells Fargo & Company (WFC) John Shrewsberry


Europe too is affected by the global uncertainties
“softening global growth dynamics and weak international trade are still weighing on the euro area outlook.” – ECB
Asian Investors are worried
“We see diverging regional dynamics, Asian investors are more worried about FX of trade tensions resulting in declines in optimism” – UBS Group AG (UBS) CEO Sergio Ermotti


Many clients are happy with their current asset allocation
“a high percentage of clients have indicated that they’re happy with their current asset allocation. So that would suggest to us that we’re unlikely to see further derisking going forward.” – UBS Group AG (UBS) Kirt Gardner
Overall, the credit markets are healthy
“When you look in the leverage loan market, default rates are near record lows, coverage is as strong as it’s been since the financial crisis…we see a fair amount of discipline out there and we are not seeing things – anything close to what we saw in the precrisis era…overall, the credit markets are healthy ” – Blackstone Group LP (BX) CEO Stephen Schwarzman


Real estate is unlikely to be tokenized any time soon
” when you get to things like tokenization, what you need are assets that are very similar and don’t have – and have the ability to be more commoditized. When you look at larger scale assets, particularly in real estate, what you see is, it’s very difficult to turn those into some sort of computer ledger thing because the assets are so different in their nature. …So we don’t really see that as a factor in the near term.” – Blackstone Group LP (BX) President Jonathan Gray


Aggressive destocking in steel OEMs last year caused pricing to go lower; things normalizing now. 
” We’re on the cusp of the transition from a situation of severe to down destocking to more normalized order entry rate from our service centers…we’re getting to the point where the inventories are down to the normal levels and we expect to see more normalized ordering rates in the next quarter” – Nucor Corporation (NUE) CEO John Ferriola

Materials & Energy:

The US  shale oil key source of global production growth
“On the supply side, we continue to see U.S. shale oil as the only near to medium-term source of global production growth. However, the consolidation among North American E&P companies is further strengthening the shift away from growth focus towards financial discipline” – Schlumberger Limited (SLB) CEO Paal Kibsgaard

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