The Newsletter
The Transcript 03.22.20
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Succinct Summary: It’s hard to remember that there’s still a pandemic going on. Vaccination rates have increased and it looks like we may be on the cusp of a roaring 20s. Consumers are healthy and eager to make up for lost time–booking travel and eating out. Offices will probably re-open by the end of summer but working from home is likely to remain an option.
Macro Outlook:
Is this the start of the roaring 20s?
“I think the environment is very good. We are seeing a V-shaped recovery globally. GDP – we forecast GDP to be on a path of pre-COVID by pretty much the next quarter on a global basis, obviously, helped by Asia and the U.S. in particular. The vaccines are obviously on the way up, case counts on the way down. Our commodity policies continue. And, of course, I heard yesterday that, I think we’ve just stated, you said that we’re looking forward to starting back to roaring 20s. So there is definitely a psychology that is positive in terms of people want to come out and live a real life.” – Morgan Stanley (MS) Global Head-Investment Banking Franck Petitgas
You wouldn’t even know that there’s a pandemic going on
“I’m speaking to you today from Park City, Utah. And I was mentioning to Jamie, before the call that, you wouldn’t even know there’s a pandemic going on. It’s –everybody’s out. And people are really looking to get their life back. People wanting to travel domestically.” – Delta Air Lines (DAL) CEO Ed Bastian
Travel is picking back up
“The real story for the quarter, kicked in about, five or six weeks ago when we started to see bookings pickup. And that coincided, clearly, with confidence in the marketplace. People are starting to book their spring and summer plans” – Delta Air Lines (DAL) CEO Ed Bastian
“We’re thrilled with the response we’re seeing from our guests in terms of future reservations,” – Disney (DIS) CEO Bob Chapek
“People have been locked up at home, and they don’t have a chance to go with families, friends and basically get what they want to do with travel” – Mastercard (MA) Executive Chairman Ajay Banga
“We did see a big improvement in restaurants and travel. We said that they were both up almost five points, more than five points versus the prior quarter.” – Visa (V) CFO Vasant Prabhu
“We’ve seen a significant increase in people booking over the last few weeks, both March and into the spring and summer,” – JetBlue (JBLU) CEO Robin Hayes
Offices will probably re-open by the end of the summer
“I’m hopeful that we’re nearing the end of the impact of the pandemic.…Many companies are expecting by the end of summer to at least have some employees back in offices, which I view as a very positive thing.” – Cogent Communications (CCOI) CEO David Schaeffer
The consumer is pretty healthy despite everything that’s happened
“…there is a reasonably healthy consumer under that despite the K-shaped recovery, despite the digital divide, despite the inequities, despite all things that have happened during COVID; that’s kind of the big picture it.” – Mastercard (MA) Executive Chairman Ajay Banga
Institutional investors are concerned about inflation
“Think of the economy as being like an individual and their pulse is dropping. When the pulse is dropping the doctors come running in with the stimulant and they inject the stimulant. Now that the economy is rebounding inflation pressures are rebounding.” – Bridgewater Founder Ray Dalio
International:
Economic recovery in Europe is lagging the US
“I think it is no question when you look at Europe, there is a little bit of a decoupling between Europe and the U.S. in the sense that we forecast the pre-COVID recovery to be more Q1 of next year. So a slightly slower recovery than it is on a global basis, more like a W rather than a V shape.” – Morgan Stanley (MS) Global Head-Investment Banking Franck Petitgas
Financials:
SPACs are here to stay
“I think we got to the SPAC, SPACs I think are a new asset class, I think it’s an asset class that is going to stay. I think that there’s obviously exuberance right now in the market. So inevitably, there’s going to be an element of exuberance in that asset class. I think over time, it will – discipline will come back, and we will – and the SPACs that will work will be dependent on the quality of the managers. And I think that will be the test.” – Morgan Stanley (MS) Global Head-Investment Banking Franck Petitgas
On the AMC/ Reddit rally
“And finally, a quick comment on the so-called Reddit rally. Our focus has been on managing our business and directing its recovery. It’s not — it’s really not appropriate to say much more here on this earnings call. It’s probably notable to point out that of the more than $2.2 billion of cash will be raised between April of 2020 and now, about 99% of that cash, ironically came in before the Reddit rally.” – AMC Entertainment (AMC) CEO Adam M. Aron
Consumer:
75% of apparel sales were made online in February
“We’ve definitely seen a shift in the way consumers are spending throughout the pandemic. Almost three-quarters of all apparel purchases were made online in February, and this is up from 47% just a year ago.” – Mastercard (MA) President -North America Linda Kirkpatrick
Movies are 2nd most popular out of home experience
“…the industry sold 1 billion movie theater tickets in the United States, 1 billion. It’s the third most popular out-of-home — sorry, it’s the second most popular out-of-home experience in the United States. Other than going out to eat a meal in a restaurant. If you take the attendance of all 5 major professional sports leagues together, all 150-ish teams, all sports, all games, all season long, movie theaters sold 7x the quantity of every sports event tickets sold in the United States in 2019.” – AMC Entertainment (AMC)
Retail is doing well
“We talk about e-commerce, and that will be our growth, but this retail recovery is a big part of the story as well. The store traffic’s coming back. I think people don’t realize the upside we have in retail.” – Williams-Sonoma (WSM) CEO Laura Alber
Makeup is changing
“We see more of what we call “above the mask,” like eyes and brows and lashes, and we see that makeup in general is starting to come back. It’s just a matter of how long will it take for people to be in a situation when they’re not needing to wear a mask in a more social situation.” – Ulta (ULTA) CEO Mary Dillon
Walmart investing in delivery
“So a lot of the capital that we’re putting in really is about building out e-commerce pickup delivery capacity. We had a great problem in that weeks demand accelerated at least a couple of years. And so we want to get ahead of that demand. We want to make sure we’re catching up with that demand. And it just it’s all of those things together but what we wanted to lay out for investors a few weeks ago is that as we make these investments and as investors give us capital and make these investments, this is what we’re expecting of ourselves.” – Walmart (WMT) UBS Retail Analyst Michael Laser
Technology:
Companies are probably going to adopt flexible work from home policies
“Going forward, what we see most customers already doing is planning for what we call a hybrid work model, where they’re anticipating — in fact, we found in our research that 80% of companies believe they’ll have much more flexible work from home policies post-pandemic. 70% of workers safely, they’ll take their employers up on that at least once a week.” – Microsoft (MSFT) Corporate VP Jared Spataro
“We think that the way of working is going to be hybrid. People will work from the office, will work from home.…Over time, office printing will regain momentum and will grow again, but it will be always lower than what we were expecting it to be before the pandemic because again, people will not be spending so much time in the office.” – HP (HPE) CEO Enrique J. Lores
“A certain amount of people work from home permanently. I think there will be a large portion who permanently work in the office. There will be some hybrids, where you spend two days or two weeks at home and two weeks in the office.…It will reduce the need for commercial real estate, but there are huge weaknesses to the Zoom world. I mean most of us learn by an apprenticeship system, by seeing mistakes, going [on] trips, how to handle a client, how do you handle the problem. It’s hard to inculcate culture and character and all those things. It’s very hard to build and develop a deeper relationship on Zoom.” – JPMorgan Chase (JPM) CEO Jamie Dimon
Honeywell the leader in quantum computing?
“…we have world’s leading quantum based on a number of feedbacks of qubits that we’ve demonstrated we could do. And it’s not us just being arrogant but it’s a lot of our customers tell us that because they work with a lot of the other players. And I mean, literally, I think within a decade, the value of our quantum computing solution could be worth the value of Honeywell today. I mean, that’s how big I think this can be. So if you think about us being $150 billion, that’s what quantum could be. I mean it’s sort of the next evolution of computing. And as we continue to lead that this is something that can be that exciting.” – Honeywell (HON) CEO Darius Adamczyk
Healthcare:
Pfizer will have the ability to produce 3 billion doses by ’22
“…as we announced to the world we were about to make more than 2 billion doses actually I reviewed with my team, our manufacturing readiness recently, and right now, on a steady state for example on the entire 22, we will have a capacity of 3 billion doses. That would be if you have the run rate of what we’re doing right now, it’s going to be north of 2 billion, it’s only this year for your capacity of 3 billion doses. This is good enough to supply a very, very big part of the humanity.” – Pfizer (PFE) Chairman and CEO Albert Bourla
The Vaccine has proven safe
“…people were worried but look there’s been more than 100 million doses given in the US alone of both of these vaccines, more than 50 million doses of our vaccine. CDC published about 10 days ago a look at the first month early data and the results are number one, the reactogenicity profile is exactly what you saw in Phase 3. Number two, the other anaphylaxis is there but it’s rare and it’s at the similar magnitude as any other vaccine and so that initial noise probably isn’t real and number three, we have no other signal of concern for any other safety event.” – Moderna (MRNA) Chief Medical Officer Tal Zaks
Industrials and Transport:
3M sees balanced inventories
“…in general, I think that aside from the caution on the outlook for the economy, the channel inventory is fairly well balanced.” – 3M (MMM) CEO Mike Roman
There are pretty big changes happening within the auto industry
“This period is probably the most crucial for the whole industry. Within the next 15 years we will see a total turnover of the industry. Electric cars are taking the lead and then software really becomes the core driver of the industry. Cars are becoming autonomous within the next 15 years so this is going to change the industry and to manage this change is probably the most important task we are facing and we think we are making good progress…Within 2 life cycles. Gentlemen, the car industry will change dramatically, radically. Profit pools will shift from conventional cars first into EVs and then radically into software.” – Volkswagen (VLKAF) CEO Herbert Diess
Electric vehicle companies could have exit strategy in acquisition by larger auto manufacturers
“…no, there are no talks between Elon Musk and myself regarding joining force. So this is a long run and yes, there are a few startups which we are watching closely and Tesla for sure is … in the lead in some aspects there. But we are not so far behind and we are gaining momentum.” – Volkswagen (VLKAF) CEO Herbert Diess
Energy:
3M pledges to cut emissions by 50% by 2030
“…we’re talking about carbon neutral by 2050, we’re going to take it down 50% by 2030 and 60% or 80% by 2040. So, we’re stepping and bending the curve and same on water. So, that’s where you see a little more of the CapEx and even OpEx loaded at the front end.” – 3M (MMM) CEO Mike Roman
Digital Realty Trust’s data centers require 1.8 GW of power
“We have 290 global data centers. We’re the largest in North America, 1.8 gigawatts of power under operational control” – Digital Realty Trust (DLR) CEO Bill Stein
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