The Newsletter

The Transcript 08.26.19

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Succinct Summary:  It’s been a slow week in earnings. The main highlight was the meeting of central bank governors at Jackson hole where the Fed chair acknowledged that the US economy is characterized by weak growth, weaknesses in manufacturing and stable inflation. Elsewhere, retailers have noted that in-store pick up resonates a lot with consumers. Significantly, CEOs expanded the focus of a company to beyond just serving the shareholders.

Macro Outlook:

The expansion continues

“The current U.S. expansion has entered its 11th year and is now the longest on record.”- US Federal Reserve (The Fed) Chair Jerome Powell 

“We are in the longest economic recovery in our nation’s history.” – The Home Depot (HD) CFO Carol Tomé

“We are in the longest growth cycle we’ve had.” – Bank of America (BAC) CEO Brian Moynihan

But this one is unlike the previous ones

“the amount of growth during this recovery is still under the average of every other recovery in history. So, this is one reason why it’s been an elongated cycle.”  – The Home Depot (HD) CFO Carol Tome

The longer the expansion continues, the more risks accumulate

“Hyman Minsky long argued that, as an expansion continues and memories of the previous downturn fade, financial risk management deteriorates and risks are increasingly underappreciated….we cannot prevent people from finding ways to take excessive financial risks. But we can work to make sure that they bear the costs of their decisions, and that the financial system as a whole continues to function effectively.” – US Federal Reserve (The Fed) Chair Jerome Powell 

Inflation has been stable

“Inflation has been surprisingly stable during the expansion: not falling much when the economy was weak and not rising much as the expansion gained strength. ” – US Federal Reserve (The Fed) Chair Jerome Powell 

There is a slowdown

“we’ve seen a slowdown in the economy – we’ve seen an economic slowdown. And this is also having an impact, especially in the consumer side.” – HP (HPQ) CEO Dion Weisler

“The global growth outlook has been deteriorating since the middle of last year.” – US Federal Reserve (The Fed) Chair Jerome Powell 

Manufacturing has been hardest hit

“a few other industry which are less resilient such as [indiscernible] or cellphone manufacturers, these are the ones we see a quite considerable slowdown in terms of their spending for marketing dollar.” – Weibo Corporation (WB) CEO Gaofei Wang

“Business investment and manufacturing have weakened” – US Federal Reserve (The Fed) Chair Jerome Powell 

The consumer is doing well

“we feel good about the fact that the consumer has wages up about 3% year-over-year, consumer confidence is still high.” – The Home Depot (HD) CEO Craig Menear

“the underlying consumer is doing well making more money, they’re employed and more importantly, they’re spending more money..the data shows that the consumer is solid ” – Bank of America (BAC) CEO Brian Moynihan

“…we’re in a good place as long as the consumer can continue to pull the economy forward” – Kansas City Fed President Esther George


Global momentum remains soft

“a world of slow global growth, low inflation, and low interest rates” – US Federal Reserve (The Fed) Chair Jerome Powell 

“Global momentum remains soft” – Bank of England Governor Mark Carney

Uncertainty over Brexit continues to impact investment in the UK

“…underlying growth is positive but muted. The biggest economic headwind is weak business investment, which has stagnated over the past few years,…There is overwhelming evidence that this is a direct result of uncertainties over the UK’s future trading relationship with the EU, and it serves as a warning to others of the potential impact of persistent trade tensions on global business confidence and activity.” – Bank of England Governor Mark Carney

Suppliers shifting production from China

“I’m not aware of a single supplier who is not moving some form of manufacturing outside of China. So, we have suppliers moving production to Taiwan, to Vietnam, to Thailand, Indonesia and even back into the United States.” – The Home Depot (HD) Executive VP of merchandising Ted Decker

“We have seen some of the supply chain react in terms of country of origin already.” – Walmart (WMT) CEO Doug McMillon

Weaknesses in EMEA for HP

” as we look across the macroeconomic environment, particularly in EMEA, we are seeing even more uncertainty in industry-wide market softness.” – HP (HPQ) CEO Dion Weisler

Germany is slowing down too

“We have seen further evidence of a global slowdown, notably in Germany and China.” – US Federal Reserve (The Fed) Chair Jerome Powell


CEOs say that corporations have a duty to deliver more than just profits

” the Business Roundtable has had a policy statement that said the principal purpose of a corporation is to benefit its shareholders…182 CEOs of the Roundtable…issued a statement withdrawing that previous policy statement and saying, “No, the purpose of a corporation is to serve all of its stakeholders, its customers, its employees, its communities and its shareholders.” – President and CEO of the Business Roundtable Joshua Bolten

“We’re all thinking about this multi-stakeholder benefit and trying to design our system. If you want to think of a company as a system, design the system to benefit all.” – Walmart (WMT) CEO Doug McMillon

“By taking a broader, more complete view of corporate purpose, boards can focus on creating long-term value, better serving everyone – investors, employees, communities, suppliers and customers,” – Vanguard former CEO Bill McNabb,

“…the best-run companies do more. They put the customer first and invest in their employees and communities…it’s the most promising way to build long-term value,” – Progressive Corporation (PGR) President Tricia Griffith


Consumers like being able to pick up in-store

“being able to pick it up in stores resonates with lots and lots of customers. Just looking at a lot of retailers results this last couple weeks, seems to me there’s a pretty common thread there of some successes in various categories of company doing this”- Nordstrom (JWN) Co-President Erik Nordstrom

“combined sales for in-store pick up, drive-up and Shipt have more than doubled over the last year, accounting for nearly three quarters of Target’s 34% digital comp in the second quarter.”- Target Corporation (TGT) COO John Mulligan

“approximately 50% of all online U.S. orders were picked up in our stores during the quarter.” – The Home Depot (HD) CEO Craig Menear

Materials & Energy:

Lumber prices remain low

“Lumber prices remained depressed during the second quarter” – The Home Depot (HD) CEO Craig Menear

Understanding Gas demand in China

“China is basically split into 3 zones when you look at demand because of the seasonality. You have the north, which has a very high demand in the winter because it’s very cold. You have the middle, which is basically the industrial belt where the demand is more or less flat. And then in the south, it’s the opposite of the north where the demand is highest in the summer because of air-conditioning load.” – Höegh LNG Holdings (HOLHF) CEO Sveinung Støhle

Miscellaneous Nuggets of Wisdom:

How to deal with conflicts

“Just go through a descending list of things you agree on so that you then arrive at the 2% last thing that you don’t agree on and see how you can reconcile that last 2% in the situation. And by the time people enumerate all the things they already agree on, everyone is fine” – Shopify CEO (SHOP) Tobias Lutke

Intelligent risk-taking is not natural

” The idea of taking big risks that might not pan out and that that might be the kind of thing that leads to the best possible career is hugely unintuitive, and you really have to model to people before they believe it.” – Shopify (SHOP) CEO Tobias Lutke

Full transcripts can be found at Seeking Alpha and the Motley Fool