The Transcript Podcast Ep. 10
In this episode of The Transcript Podcast, we cover the positive developments in travel and bookings, institutional investor’s concerns about inflation, and quantum computing featuring Honeywell.
00:00 – Introduction
00:15 – Are we heading into roaring 20s?
05:13 – How does work-from-home post-pandemic look like?
07:26 – The EV and autonomous vehicles market
09:52 – AMC and GameStop reports for the first time after the Reddit rally
11:52 – 3 billion doses of Covid-19 vaccine from Pfizer in the next 1.5 years
Scott: [00:00:00] Okay everybody welcome to a new episode of the transcript podcast. You’ve got me, Scott Krisilof I’m the editor of the transcript, along with Erick Mokaya who’s the lead writer. We sent out a new edition of the newsletter yesterday and had a lot of good stuff in there
The roaring 20s ahead?
The headline from this week was are we at the start of a new roaring twenties? And there was a quote from Morgan Stanley’s head of investment bank, suggesting that we may be starting back to a roaring twenties here. Thematically, we’re definitely seeing the economy start to pick up things normalizing from where they were during the pandemic.
And the question really is what is the world going to look like now that we’re exiting the pandemic phase? And one potential vision of the future is to go back into this roaring twenties, booming economy mode. It’s one possibility. I’m not sure that I really buy that we’re going into a roaring twenties, but it’s one thing that could potentially happen. Mokaya, what do you think?
Mokaya: [00:01:00] I mean, I’ve heard that phrase a couple of times this past couple of weeks and think we caught it in some other, I can’t remember which transcript but is was the same theme of people thinking that there will be a roarind twenties ahead. It will be interesting to see but as you saw, like travel is speaking up pretty well. I think across board, a lot of the restaurants, travel, they’re picking up pretty well, but then I think there is also the awareness that a lot of small businesses are still being affected a lot. So I’m not so sure, like, you’d say there will be a roaring twenties ahead, but we sure do hope that that’s the case. But a roaring twenties also maybe followed by a tough thirties.
Scott: [00:01:36] Yeah. I mean, the thing that I’ve been struggling with thinking about is, it’s pretty foggy here what the economy is going to look like on the other side of this pandemic. And you know, it has been wrong to bet on anything other than a bull market for the last 12 years. And so there’s a temptation to bet that we’re just going into a continuation of that. But at the same time, it does seem like there’s signs that inflation is picking up. There’s monetary policy and fiscal policy is definitely going to get, have to get tighter here one would think. And so those would suggest that there’s maybe more slowness than roaring twenties ahead.
Will the stimulus trigger inflation?
Mokaya: [00:02:16] I have a question for you. So, one of the things that you pick up the past couple of weeks, and even now as a consumer is pretty strong in terms of they’ve done a lot of savings. They still have stimulus coming in. Don’t you think that that will provide a great impetus for a roaring twenties if that were to happen then?
Scott: [00:02:34] Yeah. So, I mean, I’ve thought a lot during the pandemic period about how there are some analogies to the world war II period and the post-World war II period, because in world war II, the economy was shut down to the extent that we weren’t producing consumer goods, that we were just producing military goods and there was this huge influx of cash to consumers.
And then once the economy opened back up in 46, you know, late 45 and 46 you really just got a lot of inflation out of it. You got a lot of inflation and that was the, the reconversion economy led to inflation. But you know, the inflation experience of the 20th century has not at all been born out in the 21st century. And so are we going to get inflation here? Is that analogous? I don’t know. That’s a big question mark.
Mokaya: [00:03:16] It is a big question mark. And I think that’s on top of the minds of a lot of institutional investors. I think you saw one of the quotes we pulled up of Ray Dalio, so worried about inflation coming up as a lot of stimulus is in the systems. I don’t know. A couple of other quotes that I saw said something about companies trying to also maybe pass on a few of their price increases to customers. So I’m not so sure, like inflation may be something that we haven’t seen in a while, but it may be the time for it.
Scott: [00:03:47] Yeah. I mean, I think we’re getting into this phase where the cyclicality that was created by the pandemic is normalizing. And now we’re getting in back into the question of structural inflation and deflation, and whether we’ve exited this period of structural deflation that we’ve been living with for the last 20 years. And like the financial elites that’s why, you know, the Dalio quote was interesting. I’m hearing more chatter out of the institutional side of finance about concerns over inflation.
And that does not necessarily mean that inflation is coming to fruition. It just means that that’s the way that those circles are thinking about this. Conversely, the Fed Jerome Powell was pretty clear a couple of weeks ago that The Fed doesn’t view us as having moved into a structural inflation environment that [basically] think of this as cyclical or temporary inflation and that our tendency is really more towards deflation. I don’t know. We’ll have to see what happens.
Mokaya: [00:04:42] I mean, Europe at least is lagging behind the US in terms of, I think I’m surprised though, that Europe started early in terms of vaccinations and all, but I think the US is on the front foot on this, and I think given the start and stop kind of measures that Europe has been instituting in regards to the vaccines. I’m not so sure if we’re going to catch up soon, or the us will remain ahead in that regard. Is there any other quote that you found interesting?
How does work-from-home post-pandemic look like?
Scott: [00:05:13] I think along the lines of this reopening of the economy question and what the world is going to look like on the other side of COVID We have a pretty large chunk about work from home and the way that work from home could evolve in the economy going forward. And I think the consensus is that there will probably be some additional work from home relative to the way that it used to be. But that people will still want to go into offices some, and that may be one to three days a week, people are in the office and you know, the balance of time people they’re working from home. It’s going to be really interesting to see how those things shake out because for businesses, there’s a strong incentive to minimize the amount of time that’s in an office because you can save money.
You know, in terms of office space and then also, you know, you can minimize business travel expense. And so I think a lot of businesses are moving towards that. On the other hand, what’s the cost of having a distributed team? Is it harder to have culture? Is it harder to have the type of progress that needs to be made when people are working from home? That’s a bigger question here. And within the investment world there’s potentially money to be made on one side or the other depending on which side you fall on on that side of the debate.
Mokaya: [00:06:29] Yeah, at least what’s clear for my point of view here in Sweden from the kind of business that I’ve observed around, a lot of businesses are selling a lot of their office equipment that they had, like tables and stuff. I think yesterday we went to buy one. This was actually from a company that is shutting down their office and moving to a flexible hotel where they can actually be having their conferences from now on. So it’s pretty interesting to see how such shifts are happening. I think Jamie Damon kind of pointed out there’s there may be a little less need for some real estate, that is commercial real estate for some companies. But then again, a lot of companies also need a bit more space to house a lot of the employees that they have because of the social distancing norms and all those.
And as most companies maybe anticipate by the end of the summer, this year, we will have a lot of people back in the office or a feel that people are back in the office. I think then we’ll start to get a little bit of a better picture on this. Any comments on electric cars?
There’s a big shift in the automotive industry
Scott: [00:07:26] Yeah. I mean, I thought the electric car section was really interesting. Volkswagen CEO talking about the shift for automobiles in general. I think the two cycle shift that he’s outlining, which is more than just electric cars, it’s electric cars and autonomous down the line. And so you’re having these big shifts within the automotive industry. And, you know, I’ve always been pretty deeply skeptical of all of these EV companies that have come to market, but as he was talking, or as I was reading those quotes was starting to think maybe if there’s enough disruption in that industry maybe there is room for more new entrants.
Mokaya: [00:08:07] Do you mean like more new entrants that will be acquired by the incumbents kind of cause that’s what you hinted there?
A surprising player in the quantum computing space
Scott: [00:08:14] They could be acquired. They could be acquired just for brand value potentially. You know, on the technology front, there is also a pretty surprising quote that we picked up from Honeywell last week, talking about being the leader in quantum computing which, I don’t follow Honeywell that closely, but reading them say that was really surprising. I had no idea that Honeywell had even invested in quantum computing. And I really don’t know that I believe them. I haven’t done enough work in the quantum computing space to know whether I believe it or not, but it’s interesting to me for a few different reasons. Number one, there’s not a lot of ways to play quantum computing in public markets.
So if that’s something you really want to invest in, Honeywell may be a silent way to invest in quantum computing. But then it’s also interesting to me because like, in some of the other emerging technologies, it reminds me of IBM claiming AI supremacy with Watson or, you know, Lockheed Martin has said that they’re really advanced in fusion energy technology. And like neither of those programs are actually bleeding edge. And that’s what this Honeywell comment sounds like to me, more of a marketing thing than reality. But if you believe it, if it’s true, it’s like a potential, really big catalyst for Honeywell. So it’s worth keeping an eye on.
Mokaya: [00:09:29] It also struck me because quantum computing is not something we associate with an industrial manufacturer like Honeywell. You would expect, my thought was like, now they’re taking on Google head to head. So in that kind of a fight you’d be betting more on Google, not on Honeywell. Right. It’s impressive that they come out to brag a little bit about what they have in terms of arsenal they have.
You had a couple of quotes from AMC, by the way. Do you want to talk about them, movies being the second most popular out of home experience?
AMC and GameStop’s first annual reports after Reddit rallies
Scott: [00:09:59] Yeah. I mean, I think that’s another question mark of what the world’s going to look like after COVID and how much of these behaviors that we adopted during the pandemic translate to after the pandemic and you know, movies, the movie theater industry was clearly on the decline, even going into the pandemic. And you would think that the pandemic accelerated trends of cord cutting and adoption of streaming and, you know, investment in home theaters and things like that. And so, I don’t know, AMC is interesting on a lot of different fronts, not least of which is the fact that Reddit is helping to fuel a rally in the stock. But what’s the world going to look like for movie going after this? I don’t know. I don’t know.
Mokaya: [00:10:45] I mean I think today, Tuesday is when GameStop is reporting their first annual reports after the issue, I mean the Reddit rally, so it will be interesting to see what kind of revenues they post or perhaps the Reddit army went and bought more movies from GameStop or something.
Scott: [00:11:04] Yeah. I was looking at each of their financial reporting and like, I think both of these are probably dead companies in the long run, but at least GameStop has some more robust financial support than AMC. I mean like AMC balance sheet is a mess. I don’t know if you’ve looked at it, but like…
Mokaya: [00:11:22] The one I looked at was I think I looked at GameStop and they think they’re trading at six X expected revenues for the last financial year. So I think like the one they’re going to report tomorrow, so it should be pretty interesting to see how they perform and how the Reddit army kind of reacts to that also.
Scott: [00:11:44] Yeah. I mean, it seems all very divorced from reality, so I’m not sure that the earnings matter one way or the other at this point.
Pfizer’s production capacity and oversupply concerns
Mokaya: [00:11:52] That’s true. That’s true. To finish on something really cool, I think Pfizer says that they will be having 3 billion doses of vaccines ready. That’s pretty impressive. They’ve marshaled their supply chain and they’re able to do that within a year and a half, I think for the next year and a half, and then we have vaccines for almost half the world from one company. That’s pretty impressive I would say.
Scott: [00:12:14] Yeah, I think that was actually a statistic to me that suggested we may be getting into an oversupply phase of this vaccine pretty quickly. My expectation has been that compliance is going to be lower than people expect. So I think like fewer people are going to end up getting the vaccine than should get the vaccine. And it’s one of these typical industrial cycles that if you overproduce, then you have over inventories, prices fall and like, it’s usually not good for the supply chain
Mokaya: [00:12:39] Yeah. I think that’s a pretty nice place to wrap up today’s podcast. Always send us your comments at [email protected] and leave us some reviews in your favorite podcatchers. See you next week. And thank you for joining us this week.
Scott: [00:12:57] Thank you.
Transcript by Rebecca Wanjiku
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