The Transcript

Welcome to Episode 28 of The Transcript Podcast.

Episode Summary:

In this episode, we discuss we discuss how the delta variant is dampening the summer euphoria, what companies are seeing in June/July data, and our Q2 review on Twitter Spaces this Friday. 

The episode is based on yesterdays’ newsletter which is available on Substack. A transcript of this podcast, with relevant images and quotes, is available to all subscribers this week.

Show Notes:

00:00:00 Introduction

00:00:15 Delta variant slowing summer euphoria

00:01:17 June-July data from companies is positive

00:02:26 Push back on return to the office

00:02:51 Seasonality and inflation may cause headwinds

00:03:51 The underlying economy is strong and robust

00:05:00 Tough comps

00:06:36 Invitation to Twitter Spaces this Friday

Episode Transcript:

Introduction

Scott: [00:00:00]  Welcome everyone to a new episode of The Transcript podcast. Thanks for joining in. You've got me Scott Krisiloff, I'm editor of The Transcript, along with Erick Mokaya who's our lead author. We sent out a new newsletter yesterday and there was a lot of good stuff in there.

Delta variant slowing summer euphoria

I think the biggest change that I noticed over the last week is just been the increasing concern over the Delta variant in the United States. For the last few weeks, it's been in the back of people's heads as something to keep an eye on, but it hasn't had much impact on the economy

Source: Reuters

We're still not seeing a big impact in any of the data, but I think especially as case counts rose above a hundred thousand per day threshold in the US, it's starting to get to a point where there is a little bit more impact on the way that people are going about their lives.

Last week could end up being a bit of a turning point in that where Delta and some other factors are providing a bit of a drag on the economy from the euphoria that we had at the beginning of the summer, as we're exiting the summer some of that euphoria may be starting to wear off a little bit. Any thoughts Erick?

"…the continued bit of cloudiness about the Delta variant, I think, is creating a little bit of a drag on food service at the moment. And so for us, the main characteristic of the third quarter and our guidance is simply lack of visibility" - Beyond Meat (BYND) CEO Ethan Brown

"…we're definitely not done with this. We shouldn't even call it post-pandemic. The pandemic is not over." - Fiverr (FVRR) CEO Micha Kaufman

June-July data from companies is positive

[00:01:17] Mokaya: I agree. The past two weeks we've noticed a little bit of a change in tone in executives who are a little more concerned about the Delta variant. On the positive end, the data that you have from the earnings calls of companies who reported last week and which had the whole of July to look at the data that is coming in, it's positive. It's not that the trends are continuing which they've seen before. Lyft had their best month since March 2020 in terms of rideshares.

It was RCI Hospitality that said something like July was better than June. That shows you that some trends are continuing, but I think the fall is a bit of a wildcard because as you say, a lot of people are going back to work now, leisure is moving more to corporate travel.

There are a lot of executives who are paying attention to how data develops, especially this month, the next month so that they can see if it's really impacting. So we don't have any data for August, but for June and July, the data looks good for most of the companies that reported.

"We are, of course, closely monitoring the impact of the Delta variant on the rising COVID case counts around the world as well as some newly imposed travel restrictions, which have led to a modest pullback in our booking trends in the month of July relative to June. However, the July booking trends were improved from our full Q2 results." - Booking (BKNG) CEO Glenn Fogel

"Yes, we've seen July improve from June levels in terms of percentage of 2019. The rate of improvement slowed May to June, as you saw in our numbers.” - TripAdvisor (TRIP) CFO Ernst Teunissen

Push back on return to office

But as you say, it's a little bit of rising concern on the Delta variant. That would also maybe impact us. Bright Horizons talked about if it will impact the return to offices. Some companies have pushed back on the dates because I think some were saying September, but some have said it's okay then we'll check out in October or November. So it's a little bit of pushback in terms of going back to the office. Any thoughts yourself?

"We continue to hear that that is very much a focus for employers is to by and large get their employees back to the office. Irrespective of that, I think there is certainly a tone change as it relates to irrespective of few employers that may delay their date past Labor Day or just after Labor Day." - Bright Horizons Family Solutions (BFAM) CEO Stephen Kramer

Seasonality and inflation may cause headwinds

[00:02:51] Scott: Yeah. I think most people are vaccinated feeling protected from that. And so I think it will be a marginal impact on going out to restaurants or consumer travel, things like that. But I think that sentiment is also hitting the seasonality hurdle coming up where people were going to be going out to restaurants less anyways People were going to be traveling less anyways from a consumer standpoint.

And so that could really start to funnel into the data that along with having higher inflation. People are starting to also recognize the inflation that's going on. Around the country, you're seeing $3, $4, $5 gas prices. No matter if you've had this nominal income boost, your real purchasing power isn't rising as much as the nominal side may have made you think psychologically. Again, this can provide some headwinds to real economic growth over the next couple of quarters.

“Today, I want to speak about what used to be called the cycle of inflation...That relates to increasing prices and the expectation of ever-increasing prices…the cycle begins and feeds upon itself. I believe that this cycle of inflation is what we are beginning to experience today." - Loews (L) CEO Jim Tisch

"I hate to use the word unprecedented too loosely, but we are certainly seeing inflation with little recent precedent. While our conversations about inflation may have seemed early at the time, it is now hard to read, watch or listen to the news without hearing about inflation. Inflation is here, and it appears that it will likely be here for some time." - B&G Foods (BGS) CFO Bruce Wacha

The underlying economy is strong and robust

[00:03:51] Mokaya: Yup. I listened to Jamie Dimon, last week he was opening a branch of the bank somewhere. One of the things that he highlighted and that was the first quote today was about the economy still being strong. The data he is seeing, the underlying economy is actually pretty strong going forward, even though there are concerns about, inflation, labor, which we've been seeing, which we've been tracking for the last couple of months. Still executives keep commenting about them, but it seems like the underlying economy is pretty strong and robust.

“I think the good news which is far more point we have a healthy underlying economy. The data is uncertain but the strength of the economy in my view is not - JPMorgan Chase (JPM) CEO Jamie Dimon

[00:04:26] Scott: Yeah I mean, from a financial markets perspective, we continue to have this feedback loop where if there is any softness, it makes it so that it's less likely that the Fed is going to pull back on stimulus. The Fed being the entity that sets the cost of capital in the United States and cost of capital being the most important factor for securities prices. A slow economy can actually be a good thing for asset prices. We've got this weird feedback thing still going on to think about too.

Tough comps

[00:05:00] Mokaya: From what I read is mostly about again, supply chain constraints, cost pressures, tough comps. The slow down is more from the growth of last year, when you're lapping them, it's really hard to give you greater growth. They can be an excuse to keep things as they are also. If you compare it versus 2019, you're still above the threshold where you were. Looking at 2019 and excluding 2020, 2021 is actually growth. If you compare against 2019, then the growth is still there. But if you compare against 2020, of course you're slowing down.

[00:05:41] Scott: Yeah, I think that's right. The economist's view of the world is that, of course there's still growth. But financial markets tend to focus on year over year comps and year over year comps are getting harder here. And there are these other headwinds. I'm not saying we're going into a recession by any means, but I do think that the euphoria era that we have been living through for the last several months that we've documented well on The Transcript, may be coming to a bit of a close here.

[00:06:16] Mokaya: Yep. I get that. Speaking of tougher comps, I think Clorox is having really tough comps this year. The demand for cleaning and disinfecting product is expected to stay up a bit. They expect a slowdown, but not as huge as they had this week. That was pretty interesting to see.

Source: Clorox

[00:06:36] Scott: Yeah. This might be a good opportunity to remind listeners that we're going to be doing a rundown of the second quarter and what we saw on Twitter Spaces on Friday after market close. We'll have a couple of special guests joining us in Sam Ro and The Science of Hitting. Any additional notes you want to make on that, Erick?

Source: Twitter

[00:06:59] Mokaya: I think it would be a really nice time also to meet us for the first time and live on a discussion and also to forward your questions about anything that we've been covering that you maybe want a little bit of exposition on. It's going to be a really great time, one hour of really good content this Friday. Join us on Twitter Spaces. We'll include the link in the podcast notes for this week so that you can be able to join us on Friday.

I think on that note we can also close up today's podcast. Thank you so much for joining us. Subscribe and email us at [email protected] so that we can keep in touch. See you on Friday and then see you next week.

Welcome to Episode 25 of The Transcript Podcast. The podcast and the transcript will be sent out to all subscribers this week.

Episode Summary:

In this episode, we discuss we discuss how the largest US banks are doing, continued discussions around inflation, and the Delta variant that is beginning to get the attention of the C-suite. 

The episode is based on yesterdays’ newsletter which is available on Substack.

Show Notes:

00:00:00 Introduction

00:00:40 Strong economy but supply chain bottlenecks persist

00:01:21 The Fed and Treasury insist the inflation is transitory

00:03:22 Delta variant might slow down the party

00:05:17 Banks are doing very well

00:06:33 Bank CEOs really want people back in the office

Episode Transcript:

Introduction

Scott: [00:00:00] Welcome to a new episode of The Transcript podcast. You've got me Scott Krisiloff, I'm the editor of The Transcript, along with Erick Mokaya who's our lead author. We sent out a new issue of The Transcript yesterday and it was the first week of earning season so a lot of good stuff in there. This week's issue, I should mention, is for paying subscribers only since it is the beginning of earnings season when a lot of new stuff comes across, we wanted to reward our paying subscribers by giving them a chance to have a first look at all of this stuff that we got this week. So there was a lot of good stuff, but we wanted to make sure that the podcast was still open to all of our subscribers. So welcome to everyone, both paid and free today.

Strong economy but supply chain bottlenecks persist

Anyways, what we saw in the earnings call is were a continuation of the themes that we've been seeing for the last several weeks and months. The economy is still doing really, really well, very strong, high demand. One of the things that we picked up was just confirmation from some of the industrial companies that supply chain bottlenecks are likely to persist through this year, into next year. Taiwan Semiconductor said into 2022 that there'll be semiconductor shortages.

Source: Bank of America

And so that being one of the major drivers of the inflation that we're seeing, I don't know what the definition of transitory is, but it's looking like this may be with us for a little bit longer than people are expecting. Any comment, Erick?

The Fed and Treasury insist the inflation is transitory

Mokaya: [00:01:21] I agree. I think what you see is a little bit of a discrepancy between what the regulators see and what the companies are seeing. So I think JP Morgan and Fastenal were quick to point out that they think it's not that transitory. But I guess by transitory, they mean a short while, which would mean less than a year or so. But I think the Federal Reserve Chair and the US Treasury Secretary disagree in saying that this is just medium-term and then needs to be back to normal levels. I would tend at this point, I may be a little bit biased, but having read a lot of the earnings calls that we've read so far, I tend to see a lot of the CEOs are actually seeing that a lot of inflation as you say, like supply chain bottlenecks causing them to rethink prices across products. So I mean, I would tend to agree more with the CEOs than the Federal Reserve at this point in time. What do you think yourself?

"Inflation has increased notably and will likely remain elevated in coming months before moderating" - US Federal Reserve Chair Jerome Powell

"...over the medium term, we’ll see inflation decline back toward normal levels." - US Treasury Secretary Janet Yellen 

Scott: [00:02:11] Yeah, I mean, we've talked about this a lot of times. Inflationary periods tend to be transitory. I think monetary policy has historically and probably right now a major driver of inflation. So when you have QE going on and printing huge amounts of money and injecting it into the economy, price levels are going to go up. As long as the QE policies persist, I think we're going to have above-trend inflation.

There's an anecdote that's really just blown my mind this week that I noticed in Los Angeles on Redfin. There was a house that last year sold.  It was a total tear down at the time, but the lot was sold for $3.5 million. The person who bought it, just tore the house down, leveled the lot, put nothing else up and reenlisted the house for four and a half million dollars. And then I noticed it sold for $4.9 million. So over the course of a year, somebody bought a piece of property in LA, just tore down the house, took value away from the property and then sold it at a one and a half million dollar gain. That's the type of stuff that's going on in housing markets around the US.

Mokaya: [00:03:20] That's really insane.

Delta variant might slow down the party

Scott: [00:03:22] The other thing in the macro section that we picked up that we should probably talk about is the Delta variant.  In LA, especially right now, there's been a pickup in infections and that could have an impact on how freely people are going to restaurants and traveling and gathering in groups. At least for some period of time.

"The Delta variant, should it spread further, could spear policy actions at slow economic growth. We are already seeing this play out in places like Hong Kong and Australia and potentially in parts of Europe." - Goldman Sachs (GS) CEO David Solomon

Mokaya: [00:03:43] From one statistic I looked at today is that 67% of people in the US above 18 have received a vaccination, the first dose at least. The 7-day average cases is the highest now's it's been since May 20th and the 7-day average hospitalizations is also the highest it's been since June 5th. So it also mirrors what is happening, especially in Southeast Asia, in Indonesia and a little bit in India where the Delta variant is more prevalent. So I think it places a little bit of worry at the back of your mind. A resurgence would actually cause us to rethink a lot of what you've been speaking about like moving back to normal a little bit. I agree with you, the Delta variant, I could sense, especially in the CEO earnings calls, that there are a couple of people who've mentioned it and they are a little bit worried about how that impacts growth and going forward.

A good thing, at least was from Delta airlines who noted that at least so far, it hasn't impacted their 60-90 day demand on travel so that gives you a little bit of hope, not so bad after all or what do you think?

Scott: [00:04:54] Yeah, I think so. A lot of times too, when you have these big events, you end up having aftershocks after them, psychological aftershocks. I had actually expected that at some point in the next five years, we'll have pandemic 2. It's probably not nearly as bad as COVID, but everybody will freak out and the stock market will sell off by like 10 to 15%. But yeah, this may be one of the aftershocks.

A good primer on the Delta Variant: Delta Variant: Everything You Need to Know

Banks are doing very well

Mokaya: [00:05:17] This was a banks earnings week, so I don't think we can close the podcast without having to talk a little bit about the banks. I think the major thing is that they're really doing well now, maybe because they're releasing reserves a lot. One of the quotes we had there was Wells Fargo releasing around 1.6 billion worth of allowances for credit losses. And then net charges are very low. PNC said it's the lowest is 2007, which is a pretty striking comparison level, pre-financial crisis levels in terms of net charges. Any thoughts, especially on banks and maybe what you see in terms of corporate confidence, back to work?

Scott: [00:05:58] One thing that I saw was actually JP Morgan talking about how they were well overcapitalized and that's the number one thing that they're focusing on with the Federal Reserve is getting them to allow them to increase their leverage which really shows that we finally moved past the financial crisis if that happens. Which is what, 13 years later, just a short period of time. And it took one pandemic to finally take our minds off of bank financial stability

And as Jamie pointed out earlier, both we and the system are really flush with capital, and the regulators have been pretty clear that there's enough capital in the system right now, and that growth would increase that amount quite a bit for us and for everyone else. - JP Morgan (JPM) CFO Jeremy Barnum

Bank CEOs really want people back in the office

Mokaya: [00:06:33] Come to think of it when PNC says that their comparison in terms of net charges is 2007, it tells you we are back to pre-financial crisis. He said it's 13 years and now we're back to there. It's pretty interesting. Strong words are also a lot from the CEOs of banks. They really want people back in the office. It was BlackRock who said that there is no substitute for face-to-face meetings and they want to hear directly from people about investment challenges, opportunities, and what lies ahead. Morgan Stanley were the same. They put out strong statements last month just before the blackout period saying that they want people back in their office. But I think they tried to tone down a little bit in earnings calls when the analyst asks them, okay, can you clarify? But they really, really still do want people back in the office.

"Net charge-offs for legacy PNC were $58 million, the lowest level since 2007 with an annualized charge-offs to total loans ratio of 10 basis points" - PNC Financial Services (PNC) CFO Rob Reilly

"Given the delinquency trends we are seeing today, we do not expect credit deterioration in the U.S. portfolio in 2021" - Citigroup (C) CFO Mark Mason

Scott: [00:07:22] Yeah. The craziest thing about the banks wanting their workers back in the office, I feel like banking and deal-making generally is one area of the economy where it’s 3X more efficient on Zoom than in person. If you're fundraising, being able to just line up Zoom calls back-to-back-to-back is so much more efficient than flying to a city, going from office building to office building. It's interesting that banks are among the most vocal about getting people back into the office.

"there is no substitute for meeting face-to-face with people to hear directly from them about their investment challenges, their opportunities, and what lie ahead for them." - BlackRock (BLK) CEO Larry Fink

" I think there's a limit to how far as good as the Zoom technology is, how far they can take you - Morgan Stanley (MS) CEO James Gorman

"With roughly 50% of our people in these offices back on a regular basis, I can tell you that seeing them in our buildings again has been completely invigorating" - Goldman Sachs (GS) CEO David Solomon

Mokaya: [00:07:52] That's striking. The pandemic has made them more efficient, but surprisingly, they still want people to be back in the office and talking to each other. It's striking as you say. Hopefully, I don't think they changed their minds from what I can tell. They are pretty bent on having people, especially before September back in the office as much as possible. That's the key takeaway. Me being here for the Q2 earnings season, I’ll keep noting a few more points as we go forward. So do you have anything else to add or do we close there?

Scott: [00:08:23] I don't think so. I think that's a good place to end today.

Mokaya: [00:08:25] All right. Thank you so much for joining us this week. We have a lot of content and we'll keep having a lot of content especially for our paid subscribers. We want them to enjoy as much of our top-quality quotes as we go into the earnings season so sign up and do send us your comments to [email protected]. We are also on Twitter @thetranscript_. We should not that we have a lot of quotes, which we do not include in the final piece for the week. So if you want a quote or two about something, you can always reach us on email, and we could have something on every kind of company that is out there. So that's something to know that we can add value to you. So thank you for joining us this week. So see you next week. 

Reporting this week:

Welcome to Episode 17 of the Transcript Podcast.

Episode Summary: In this episode, we cover the Transcript's move to our new home on substack, the palpable excitement about reopening, and Coinbase's moat.

The episode is based on yesterdays’ newsletter which is available on Substack. A transcript for this podcast is available for Subscribers only here.

Show notes:

[00:00]: Introduction

[00:15]: The Transcript is now on Substack!

[02:26]: Games and group gatherings are back

[03:13]: Gasoline demand is back

[04:32]: Travel and work are evolving

[05:36]: Malls are reopening

[07:41]: Coinbase’s unappreciated moat

[09:39]: Small businesses are advertising more

[11:43]: Room for growth in the Cybersecurity market

In this episode, we cover the strong reopening with sold-out concerts and huge pent up demand for travel and entertainment, the heightened talk about inflation in earnings calls and The Transcript's move to Substack

In this episode of The Transcript Podcast, we cover continuing strength in the US economy, the high pent up demand for things like entertainment, and how companies are coping with chip shortages.

Show Notes:

00:00 - Introduction
00:10 - Continuing strength in the US economy
00:49 - Inflationary and labor pressures
03:52 - Credit quality is high among consumers
05:25 - Big Tech still growing at startup pace
08:21 - Semiconductor shortage persists
10:12 - Nuggets from the Berkshire Annual Meeting

In this episode, we cover the increasing discussions around inflation in earnings calls, interesting quotes from Netflix  Q1 earnings call, and how companies are responding to shortages in the semiconductor industry. 

Show Notes:

00:00 - Introduction
00:14 - The US is "Very, Very Strong"
01:30 - Many companies are discussing inflation
06:01 - Netflix still worth betting on
07:56 - Semiconductor demand and new dynamics
11:48 - Bubble-like behaviour in real estate
12:16 - Emerging markets are struggling

In this episode, we cover banks' earnings for Q1 2021, institutional investors' concerns on inflationary pressures, and the high expectations for robust growth in the second half of 2021 and 2022 as cities come back to life.
 The podcast is based on this week's newsletter which is available here.

 In this episode of The Transcript Podcast, we cover the opening euphoria in the US, the persistent shortages in the semiconductor industry, and our expectations for the earnings season ahead. 

In this week's episode, we cover how accelerated vaccination rate is driving up confidence among executives, the continued supply chain challenges causing inflation pressures and NFTs.

This podcast is based on this week's newsletter which can be read here.  The Transcript for this podcast can be found here.

Show Notes:

00:00 - Introduction
00:25 - Life's normalizing in the US
01:45 - US is re-opening ahead of the rest of the world
03:29 - Supply chains are still tight
04:56 - What is the nature of work post-pandemic?
06:43 - Inventory in housing is low
08:00 - Are NFT's a sign of broader inflation?
09:14 - Intel is coming back
11:25 - The shift in workforce to millenials and Gen Z

In this episode, we cover the positive developments in travel and bookings,  institutional investor's concerns about inflation, and quantum computing featuring Honeywell.

The podcast is based on this week's newsletter which you can find here.
The Transcript for this podcast is available on our website. 

Show Notes:

00:00 - Introduction
00:15 - Are we heading into roaring 20s?
05:13 - There will be additional work-from-home post-pandemic than before
07:26 - There may be room for more new entrants in the EV and autonomous vehicles market
09:52 - AMC and GameStop report for the first time after the Reddit rally
11:52 - Pfizer will produce 3 billion doses of Covid-19 vaccine in the next one and a half years