The Podcast

The Transcript Podcast Ep. 9

In this episode of The Transcript Podcast, we cover the retailers posting very strong comps, the pain companies are facing with tight supply chains and congested ports and the end of the era of the internal combustion engine.

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Show Notes:

00:00 – Introduction
00:15 – The world is starting to normalize
01:19 – Retailers are posting very strong comps
02:40 – Some companies are raising the minimum wage
03:19 – 90% of Dell Workers Don’t want to go to the Office
04:39 – ARM architecture is changing the role of x86
05:29 – EVs and the end of the internal combustion engine
07:54 – Tight supply chains and congested ports


Introduction

Scott: [00:00:00] Okay, everybody. Welcome to another episode of the transcript podcast. You have me Scott Krisiloff, editor of The Transcript along with Erick Mokaya, who’s our lead author. We sent out another issue of our weekly newsletter.

The World is Starting to Normalize

And this week we picked up a lot of quotes that were showing that the world is starting to normalize from COVID. And one of the quotes that was picked up was a quote from Johnson and Johnson CFO, which was talking about a pretty clear sign that the pandemic period, or at least the emergency pandemic period is over. As more and more people are getting vaccinated, people are feeling more comfortable going out starting to travel again, going to restaurants. And so that’s filtering through to the rest of the economy and one of the noteworthy news items along with that is that even the federal reserve is starting to notice that the economy is normalizing and the world is normalizing. And so there were some quotes from a couple of federal reserve presidents including Jerome Powell which indicated that the economy is getting better. And so that should lead to changes in fed policy. Maybe not. Anytime immediately soon, but over the medium to long term.

Erick: [00:01:13] Yeah.  The general theme as you picked up was a resumption of normal lives. I think people are booking travel. I think one of the other quotes that we didn’t make, it was about people now moving from just dressing up for the house and now trying to get clothes for the summer. So I think that kind of feels like people are preparing to leave the house and just go back to normal lives. And something else that we picked up was about retailers posting very strong comps. Do you have something to say about that?

Retailers Posting Strong Comps

Scott: [00:01:41] Yeah. As you’ve seen stimulus come through and there’ll be another round of stimulus here, likely from the federal government, I think that strength is showing up in retailers with really large comps, you know, double digit, I think target post-death 30% comp. These are really incredible rates of top line growth.

Erick: [00:02:03] Yeah.  Something I picked up, which was also from Burlington Stores was about them, I think there is a bit of a, you could say the off-price retailers are not doing as well as the normal retailers. So that’s a bit of something to note, and Etsy also picking up that pop culture items pop up very quickly in their stores. And now I think they sold 1.9 million dollars worth of Bernie Sanders inspired merchandise within days of the inauguration. That’s pretty much I think of the times where companies are picking up on what is happening, kind of memes are being turned into sales at the end of the day. I think something else which has also been quite the talk the past couple of weeks is also that Costco is raising minimum wages. Do have some thoughts on that?

Scott: [00:02:48] Yeah. I mean, I think Costco raising minimum wages goes back to, I think Domino’s last week or the week before that we picked up saying that they couldn’t even hire people for minimum wage anyways, that they’re not really paying people $15 an hour. You know, labor markets have moved past that $15 number. And so we may even be headed to a world where a $25 minimum wage is really the right number for people. So…

Erick: [00:03:15] Okay. Are there some other quotes you found interesting?

90% of Dell Workers Don’t want to go to the Office

Scott: [00:03:19] Yeah. I mean, I think Dell talked about, they said that they polled their team and 90% of their team said that they don’t want to come back into the office. And they said that they’re seeing the same thing from customers. I think as we’re emerging from this COVID constrained world, one of the big questions is to what extent people will go back into offices. 90% is a really high number. That’s not quite matching with my anecdotal conversations that I have with people on an everyday basis. But the world could be a lot different if people that are working from home still again, even without COVID, you know, using Zoom more and things like that. What do you think?

Erick: [00:03:57] I was pretty struck by 90% also, because I know there are many people also from my anecdotal evidence that don’t want to stay at home now, I think they want to get back where you separate work and life also, so that you come home to something. So I think 90% is quite a high number. I’m a bit skeptical of the number, but also like pretty aware that that could actually be the reality that people may also want the flexibility. I think some quotes we’ve picked out the past couple of weeks is that people want the flexibility to work from anywhere. So it may not necessarily be from home, but from somewhere that is not the office. So there could also be a demand for something that is somewhere in between not home, but not at the office also. 

The Changing Role of x86

Scott: [00:04:39] Yeah, there were two more quotes that we picked up this week that I think are worth talking about as potential investment catalysts. One was in that technology section about the role of x86 changing. Dell was talking about how they’ve offered both Intel and AMD for years and will continue to do so, but saying that ARM gets more interesting. Particularly, as it moves from traditional low power prop value proposition to one of greater performance. And you saw that with Apple moving towards a custom-made chip. I believe it’s on an ARM architecture. X86 driven by Intel has been the dominant CPU architecture for decades. And as ARM gets higher, better and better performance at the edge. That’s something that is starting to break down that monopolistic position. 

The end of the Internal Combustion Engine?

Erick: [00:05:29] I think the next quote was about Cummins saying that the truck now is more full of chips than 10 years ago, right?  And I mean, it’s pretty interesting. It was happening at least in the auto industry. I think one of the last quotes there that we picked up was Volvo switching to being fully electric by 2030. So you mean like there’s more and more chips that are going to be inside in a lot of these companies, there’s going to be greater demand for it. So I think. The supply chain issues we are having in terms of semi-conductors, which are in demand for product from electronics to now cars means that we may have a few more issues to go around for the next year or two, as we try to realign supply and demand.

Scott: [00:06:13] Yeah, that quote from Volvo saying there is no long-term future for cars with an internal combustion engine. So like a historically significant quote. We’ve picked this up over and over and it seems that the industry is moving towards EVs. But the internal combustion engine is probably one of the top two most important inventions, maybe top four most important inventions of the 20th century or, you know, disseminated in the 20th century. And so to see this era of the internal combustion engine starting to seem to come to an end, it’s a really huge moment for humanity I think .

Erick: [00:06:48] Maybe something I could add from reading the entire press release was that the release of the cars would actually be online. I think from 2025. I mean, they are taking back distribution to themselves. Volvo, I think in Sweden, I’ve seen that and I mean, this is a pretty significant move, especially given that Norway has shown the way in terms of how EVs can be adopted and used on the road. So I think this is pretty major for a Swedish manufacturer to do this, a Swedish Chinese manufacturer now. So I think something else, is there anything else that you picked up? 

Very Tight Supply Chains

Because one of the things I could feel, at least from many of the retailers and other companies that spoke last week, was about the ports being very congested, that they can’t get their products on time. I think it’s causing delays from things to do with furniture. I think it’s been here for a while, but I think it’s reaching a tipping point where they really can’t get some of the supplies or the things that they want. So I think it’s a cause for concern. I’m not so sure. Maybe you are in the US, how do you feel from that perspective?

Scott: [00:07:54] Yeah, I think this section in the industrial section of the newsletter, where we picked up all of these quotes on supply chain tightness, and especially at the ports just goes to show that there’s still a lot of disruption in the supply chains and those cause inflationary pressures. I think these are ultimately transitory types of inflation pressures. But they are persisting and universally to your point there were comments on the ports. You know, we read earnings calls every week, and it’s rare that you’ll see so many companies talking about the exact same thing in so many different industries, as we’re seeing in terms of supply chain congestion.

So this is very real and something that probably we should keep an eye on. I think the summary quote for me in that section was Cummins saying that the industry got caught flat-footed and that’s because in the financial crisis, the upturn took 18 months to happen. And now the snapback from COVID was so much faster than anybody expected that there were a lot of changes to the supply chain in terms of decreasing supply. And then people had to come right back and meet this extremely surprising amount of demand. And so I think that’s what we’re dealing with here.

Erick: [00:09:13] I mean, yeah, I agree with that quote.  The quote I picked up, which struck me the most was both by Burlington and Ross Stores saying that these headwinds could be with us well into 2021. So I think that’s a bit of concern and I hope that this gets resolved quickly. I think on that point, maybe we can close the episode for today.

Scott: [00:09:32] Yeah, I think that was a good rundown. Thanks, everybody.

Erick: [00:09:34] All right. Thank you for joining us. Always leave us a message at [email protected] and tell us what you think so that we can keep making this podcast better every week. Thank you for joining us this week.

Transcript by Rebecca Wanjiku


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