The Transcripts

The Transcript 12.16.19

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Succinct Summary:  The consumer continues to show strength with higher holiday spending. Business spending isn’t quite as strong though but companies, especially small businesses, are optimistic. As such, most CEOs don’t expect a recession in 2020.  Historically, presidential election years are usually good for the stock market.

Macro Outlook:

The consumer continues to show strength

“The strength — the underlying strength in the consumer is showing through…70% of the U.S. economy is really driven by the consumer. So, as goes the consumer, typically, that’s where the economy runs.” –  Goldman Sachs (GS) COO John Waldron

“U.S. economy is two-thirds, 70% consumer driven. So, if the U.S. consumer is doing well, we know the economy will do pretty well.” – Bank of America (BAC) CEO Brian Moynihan

“U.S. consumer healthy and the housing environment is stable and provides support for home improvement demand.With wage growth now at over 3% and a lowest unemployment rate in 50 years, the consumer remains confident heading into next year. We’re in the 10th year of economic expansion” – Home Depot (HD) Executive VP & CFO Richard McPhail

“The consumer has been remarkably strong and healthy” – Citigroup (C) CFO Mark Mason

“…it seems so far this conference has been just the strength of U.S. consumer spending and just how good confidence is, and how optimistic people are around at least the consumer piece as we head into next year” – Citigroup (C) Unidentified Analyst

“…the consumer sector is certainly strong. And it is offsetting some of the weakness we’re seeing in industrial.” – The Carlyle Group (TCGP) Co-CEO Kewsong Lee

“We’ve got 50-year unemployment lows. Consumer balance sheets are in good shape. And obviously, the corporate sector, you know, after the tax cut, there was a major surge…Consumer remains very strong.” – Morgan Stanley (MS) CEO James Gorman

“the consumer is incredibly strong. So starting with credit, credit is very, very good. And think about the job market obviously, Friday’s report was very encouraging. So the labor market very strong.Sentiment had come off the peak, but we’ve now seen a rebound in consumer sentiment. And then on spending, spending very strong as well.” – JPMorgan Chase (JPM) CFO Jen Piepszak

“The consumer has done the lion’s share of the economic growth so far in this 10-plus-year cycle and we think consumers are in a good position to continue with strong employment trends, good wage growth, low inflation and a strong consumer confidence” – Wells Fargo (WFC) Head of Global Market Strategy Paul Christopher

And their holiday spending is up

“…if you look at the holiday spending, you know, the Wednesday before Thanksgiving to Cyber Monday, up double digits, strong, people are spending. So, that’s good news for the U.S. economy.” – Bank of America (BAC) CEO Brian Moynihan

“…holiday spend feels very consistent holiday to-date with what – the trends we’ve been seeing all year, which is up about 10% year-on-year. Importantly, though, if you look at Black Friday through Cyber Monday year-over-year were up nearly 20% for Black Friday through Cyber Monday. So look, we have to wait to see how the holiday plays out in the fullness of time, but very consistent with what we’re seeing broadly across the U.S. consumer, which is very strong.” – JPMorgan Chase (JPM) CFO Jen Piepszak

“Demand throughout the holidays has been strong. The Sunday that we just finished after Thanksgiving was our highest revenue day in our history—almost $200 million in revenue in that one day alone. And as we look through the holiday and look through 2020, we see that solid demand continuing. The U.S. consumer is doing well by us.” – Delta Air Lines (DAL) Chairman and CEO Ed Bastian

Manufacturing is weak

“Manufacturing weaker, no question.” – Goldman Sachs (GS) COO John Waldron

“…business fixed investment and exports remain weak.” – The Federal Reserve FOMC statement

Global growth may be weak but CEOs don’t expect a recession in 2020

“Ongoing trade tensions and geopolitical uncertainties are contributing to a slowdown in world trade growth, which has more than halved since last year. This has in turn depressed global growth to its lowest level since the great financial crisis,” – ECB Chief Christine Lagarde

“…in general, the growth is slower than it has been. But our economists are forecasting call it 3% global growth with more of that in emerging markets than in developed markets overtime.” – Citigroup (C) CFO Mark Mason

“…where we are seeing slower growth globally. It is not negative, so we still have positive growth. But the whole world, we are seeing it as slowing down. And I think the number one question we get is: do you see a recession in 2020? And right now, our data would say probably not” – The Carlyle Group (TCGP) Co-CEO Kewsong Lee

“Globally, growth is slower, but at the margins getting better.” – JPMorgan Chase (JPM) CFO Jen Piepszak

“The odds are against a recession occurring before the end of 2020. And what has happened is consumer evidence has really held up. And the year-over-year leading indicators from the conference board, we’re at 7% year-over-year fifteen months ago, which is really strong. And you have never had a recession in the last several decades without leading indicators first going negative. So, that is really the canary in the coal mine.” – DoubleLine Capital CEO Jeffrey Gundlach

“…the tight credit spreads, the inverted yield curve and negative rates suggests there is a lot of liquidity in the system. And I think of it as kind of a watch, right? So in terms of a potential recession, there’s watch conditions out there at least in the fixed income markets. Doesn’t mean that a recession is imminent, doesn’t even mean it’s going to occur. Often watches are issued, no storm follow.” – Wells Fargo (WFC) Co-Head of Global Fixed Income Strategy Brian Rehling

Companies and especially small businesses are positive on the overall economy

“We’re pretty constructive on the overall economy. Certainly, in the United States in particular, the economy feels, if anything, like it might be accelerating again from what had been more of a patchy 2019” –  Goldman Sachs (GS) COO John Waldron

“We’re the largest lender to small business in the country. You know, loans grew, third quarter last year to third quarter this year, about 6,7, 8%, whatever it was. But shows you, there’s good robust activity. And the confidence level of those small, medium-sized businesses is okay. Because, they’re – the drip down a little bit came back up mostly because they’re exposed to the U.S. economy.” – Bank of America (BAC) CEO Brian Moynihan

Central banks easing is helping

“we’re seeing that implication of easier policy coming through to the economy. And it’s become much more of a stimulant for particularly consumers, but corporations, as well… consistent with an easing by us in monetary policy, it renewed risk appetite in the market, I think it improved sentiment in CEO offices and in boardrooms. We’re seeing more M&A activity.” – Goldman Sachs (GS) COO John Waldron

Presidential election years are usually pretty good for the stock market

“…since 1928, there have been 23 Presidential Elections and only four of those featured or coincided with losses in equity and broad equity markets during that Presidential year. Three of those years of losses happened when we were in the Great Depression or in the 2008 crisis, and one of them was in 1940 when World War II was looking very, very threatening to the United States and to the world as a whole.So it’s going to be the case we think that it’s best to focus on the economy. Don’t focus on the polls.” – Wells Fargo (WFC) Head of Global Market Strategy Paul Christopher


LPs want more exposure to Asia

“…what we’re finding is LPs want more exposure to Asia. They know that’s where the growth is the room. Over half of global GDP growth is coming from Asia. So what we find is everywhere in the world LPs want exposure.” – KKR (KKR) Co-President & Co-COO Scott Nutall

Lending has slowed in china 

“Overall slowdown of macro economy and credit tightening continues to put downward pressure on consumer and SME lending.According to PBOC, the central bank, the growth of retail consumer loans significantly slowed down in the first half of 2019, with incremental volume less than 30% of the second half of 2018. The licensed non-bank financial companies, or NBFC, new loan disbursement in Q3 was almost flat with 0.02% increase compared to Q2.” – Jianpu Technology (JT) Co-Founder, Chairman & CEO Daqing Ye

Emerging markets are trading at a 30% discount

“Here in the U.S., they’re willing to pay about $17.5 per unit of earnings. But if you look at emerging markets, the investor is only willing to pay 12.4x a unit of earnings. In other words, it’s a 30% discount if you want to buy earnings in the emerging market.” – Wells Fargo (WFC) Head of Global Equity Strategy Audrey Kaplan

with valuations in China especially impacted by the trade war

“China, which is over 30% of the emerging markets benchmark, it has been more negatively impacted by the trade war relatively speaking compared to the U.S. Because normally you could buy Chinese equities and emerging market equities at about 15% to 20% discount and today it’s at a 30% discount.” – Wells Fargo (WFC) Head of Global Equity Strategy Audrey Kaplan


Credit spreads are below historical averages

“So the added yield, the added costs over kind of the risk free treasury rate is quite tight. So historically, it’s well below averages. This means that investors of course are paying up for corporate debt. It’s cheaper for corporations to issue debt. So that’s a good thing from a liquidity perspective, good thing from a market risk return perspective. But it does concern us from a fixed income perspective in the sense that are you being properly rewarded for the risk you’re taking?” – Wells Fargo (WFC) Co-Head of Global Fixed Income Strategy Brian Rehling

Especially considering that fewer and fewer companies are rated single A and higher

“The percentage of the investment grade corporate bond market that’s rated single A or higher is at an all-time low. It used to be two-thirds of the corporate bond market was rated single A or higher, 25 years ago. Now it is 35% of that market. So, the rating is actually worse. So, the yield spread should be higher than average. Not at near a low level. So, that is a very bad sign.” – DoubleLine Capital CEO Jeffrey Gundlach

Valuations are high across asset classes

“…it is hard to say that private market valuations aren’t high. But, I point out, valuations are high pretty much across all asset classes, with bonds, real estate, you name it.” – The Carlyle Group (TCGP) Co-CEO Kewsong Lee

Zero commission is good for scale players

“…so, zero commission. I mean look I think overall we think this is going to be positive for us. I know there’s a lot of debate. I don’t think it’s been positive for everybody. But I think it’s going to be broadly positive for those people who are market leaders, who are scaled players, who have a brand and who have the technology that basically leverage their existing franchise. At the end of day less friction is just good for clients. ..So if it’s good for clients we think less friction means more clients than ever before going to have access to ETFs.” – BlackRock (BLK) CFO Gary Shedlin

Lots of Runway left for ESG funds

“…then sustainable which is really pretty small today, something like 40 billion. We expect that to potentially multiply by ten times over the next decade. So huge amount of growth. I think everyone is familiar with some of the demand dynamics of ESP [ph] more broadly. Again number one player in a sustainable and our ESG leaders iShare has over billion dollars to close this year.” – BlackRock (BLK) CFO Gary Shedlin

Some interesting stats on customers moving to digital from US Bancorp

“…about 70% of our customers already use the digital channels, about 70% of transactions from the consumer bank occur in a digital channel. So, the migration is already occurring. And why is that important? So, if you think about the average customer, they visit a branch about 10 times a year. They visit the mobile app about 300 times a year, but they visit the digital platform about 3,000 times a year.” –  U.S. Bancorp (USB) CEO Andy Cecere


Online grocery is growing fast

“Total online grocery continues to grow at a faster rate than the core e-commerce comps, although again it’s a still relatively small piece of the business.” – Costco Wholesale (COST) CFO Richard A. Galanti

50% of online customers at Home Depot pick online orders in the stores

“We have grown our online sales by approximately $1 billion each of the last 6 years, making us the fifth largest e-commerce operation in the United States and approximately 50% of the time customers choose to pick up their online orders in our U.S. stores.” –Home Depot (HD) Chairman, President & CEO Craig Menear

Social media fueling a desire to travel

“It’s true for all demographics across our landscape. People are enticed and they want to travel. They want to experience. I think there’s a number of reasons for that. I think technology has had a big impact on that. I think social media…is a big driver of that. People…want to go and they want to – they see their friends. They see their family members. They see people in their community…there’s an excitement and enthusiasm by travel that I think is just going to continue to grow. And when you combine the fact that, that interest is there and travel is more affordable than ever before, airfares on a real dollar basis are down 40%, including fees over the last 25 years, it’s huge.” – Delta Air Lines (DAL) CEO Ed Bastian


On self driving Cars

“For a self-driving car, a self-driving car is going to be one of the most complex computers in the world. It will be running tens of deep neural networks models simultaneously. It will be fusing surround cameras, radars, lidars, and it will be doing so under the requirement of a high degree of safety at high speeds.So for all of those things, I think, a centralized computer architecture is the proper solution as opposed to an intelligent sensor. And then as a result – and then we start getting into the weeds but there’s a lot of details about how you set that up and how you divide compute tasks and requirements. But that’s kind of where the rubber hits the road. It’s – that’s a lot of complex expertise.” – NVIDIA (NVDA) VP for Autonomous Machines Rob Csongor

There is a move towards conversational AI

“the overall focus on natural language processing moved to how do we talk in terms of conversational AI. This is expanding our overall workloads, both the size, the complexity as well as the steps that are necessary and in both the overall training side of that as well as the overall inference side. When you think about conversational AI, you are likely looking for response rate in the 100s of milliseconds and you need a processor that not only can handle the size of the data, handle the overall workload but also that response time is going to be very clear.” – NVIDIA (NVDA) CFO Colette Kress

The Flash market is getting better

“The issues that we saw in the flash market were really supply induced. It was just too much flash inventory in the market. And so, prices compressed as a consequence of that. For a variety of different reasons, the supply situation has kind of rectified itself. We indicated that we felt that the industry would be in a balanced supply/demand situation as we exit this year in the next couple of weeks.And so, things are really moving in the right direction.” – Western Digital (WDC) CEO Steve Milligan

The shift to the cloud is moving corporate spending from CapEx to OpEx

“a lot more spending is going towards the cloud…What we’re seeing is lot of customers are shifting their strategy from being their own data centers moving to the cloud. And I think that shift is having strange impacts on the corporate spending, IT spending P&L, things are going from CapEx to OpEx. And as that begins to happen, you still have this illusionary effect that people are spending less. Actually, they are going to be spending more and that spending is going to show up in cloud, whether it’s cloud security, cloud solutions from AWS, Azure, GCP, et cetera.” – Palo Alto Networks (PANW) CEO Nikesh Arora.

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