The Podcast

The Transcript Podcast Ep. 11

In this episode of The Transcript Podcast, we cover how the accelerated vaccination rate is driving up confidence among executives, the continued supply chain challenges causing inflation pressures and NFTs.

The Podcast is now available on Apple Podcast, Google Podcast, and Spotify among other platforms and channels. This podcast is based on this week’s newsletter which can be read 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


Introduction

Scott: [00:00:00] Welcome everybody to another episode of the transcript podcast. You’ve got me, Scott Krisilof, editor of the transcript, along with Erick Mokaya, who is our lead author. And we sent out a new version of The Transcript yesterday.

Life’s normalizing in the US

And what we picked up this week in earnings calls was a continuation of high confidence and the belief that the economy is getting back to a more normal pace. In the US,  vaccination pace is really strong and it feels like the pandemic is becoming a thing of the past. So even just in my day-to-day life you notice a lot more traffic on the streets, people out at restaurants. There’s just a normalization. It’s a lot different than it was six months ago. So you’re seeing that in transcripts as well, and a lot of business activity happening. And then the secondary story around that is that this is creating some inflation pressures as supply chains are still not normalized. So that’s the big headline from this week. Mokaya any thoughts on that? 

Mokaya: [00:01:01] Yeah, I think I’d add that it’s pretty amazing. CEOs are really looking forward to having people back to work soon. I think also like the targets in the US is mostly from the president is that a lot of people should be vaccinated by 1st May and I think you can see that the CEOs are expecting a lot of people to be back to work and offices open in the summer. So I think that’s different from the rest of the world I would say. I think from what I’ve been reading, at least in Sweden, the vaccination rate is pretty slow. I think they just reached 12% of the population. And I think they stopped vaccinating a couple of days ago using the AstraZeneca vaccine. And that’s the story around Europe. What I get from reading earnings calls, I see more the US being faster than the rest of the world in terms of opening up. You could also see even Bank of Montreal in the earnings call also saying that Canada is actually doing not so well. So, I mean, that’s generally what I’m picking that the US would open up faster and I think more companies there would be doing better than those which rely on the rest of the world. Is that something you’d see also, because from talking to USC, you know, more people who have been vaccinated than I do over here in Sweden.

Scott: [00:02:18] Yeah, I think it’s it’s easy when you’re in the US to forget that we have an advantaged access to vaccinations to go along with a lot of advantages that we enjoy in the US but yeah, we saw that at Bank of Montreal, even talking about in Canada, the vaccination rate is lower than in the United States and that the US economy is getting a real boost from that. What we’re seeing in the US may be quite a bit different than what’s going on in the rest of the world, 

Mokaya: [00:02:43] What is the implication of the US opening and the rest of the world is still lagging behind?

Scott: [00:02:48] Well, I mean, I think from an economic standpoint, it’s good for the rest of the world that the US is opening, or it’s not a negative for the rest of the world that at least put it that way. And it’s something that is typical of an economic cycle. I think, again, as an American, it’s easy to forget what an advantaged position we’ve enjoyed for the last 70 years within the global economy, if not longer than that. And know that for most of the last 70 years the global economy has followed the US economy. And so this isn’t a total economic focused event, but the same dynamics that have played out a lot of times in the past seem to be playing out here. So…

Supply chains are still tight

Mokaya: [00:03:29] Definitely. As you caught on that Markit quote about supply chains trying to recover and at the same time still have like bearing the brunt of some of the natural disasters, like there’s a fire in Japan that happens to a semiconductor plant and then it pushes back and puts some more pressure on the supply chain, the blockage in the Suez Canal, which I think has been lifted currently. But I think we should still have some ripple effects going forward. The story is that supply chains are trying to recover a lot of companies’ inventory levels are getting better, but still the same challenge remains that supply chains are having a little pressure. Some companies are really thinking a lot to know how to do price increases

Scott: [00:04:12] Well, I think just to Continue on the supply chain stuff that you were talking about that we’re definitely seeing the supply chain, lots of commentary around supply chains being tight. You would expect this to normalize in the near to medium term to the extent that I even hesitate to say that. You know, tight supply chains are an investible catalyst. But you’re seeing a lot of commentary around it. You’re still seeing people with a lot of concern over inflation, partially because of that, because you have tight supply dynamics. And so that is showing up in earnings calls. 

Mokaya: [00:04:45] I think some companies are also saying that they wish they had a little more inventory to take advantage of how much the demand is to meet in the market. So what other quotes stood out for you this week? 

What is the nature of work post-pandemic?

Scott: [00:04:56] Yeah, I think another thing that I was keeping an eye on and have kept an eye on in the last few weeks has been about stuff that could change in the longterm as the result of the pandemic. And so I think really one of the biggest outstanding questions is around the nature of work. And we’ve covered this in a few different episodes. But will people go back into offices? Will people work from home more? Will people travel for work? These are still some of the big, outstanding questions. If you have a view on which way these are going to go, there’s definitely investible opportunities out there in public markets. For instance, you know, WeWork is coming to market via a SPAC as Mokaya picked up. You know, if you believe that the nature of office space is changing, people are still going to go into offices, WeWork may be something that could benefit from that. Steelcase is another one where actually, if you take the comments from Steelcase’s CEO at face value that we saw this week, there’s probably a pretty big opportunity for an investment return in Steelcase. Because Steelcase saying from their conversations, only 17% of CEOs think that they’ll downsize their footprint compared to 69% in August of last year. And so CEOs, management teams are thinking that people are coming back to work and they’re planning to have people come back to work. And that’s something that’s not fully appreciated by public markets yet. So if that comes to pass, then there’s probably some room for stock price appreciation. 

Housing Inventory is low

Mokaya: [00:06:23] Definitely I mean as time goes along, you see like, people are getting a little bit fatigued with staying at home and people want the company offices. Some of them are also reconsidering are they going to have permanent office spaces? Are they going into flexible office spaces like WeWork? I mean, there’s an opportunity there to invest as you’d say. I think also something else which was a bit small, is that inventory in housing is still pretty low. And that means that the housing supply situation is not yet normalized. I think prices are pretty high.  I saw like people are buying houses without actually ever having seen them. So it’s a pretty tight supply for housing even in Sweden, at least from what I’ve noticed, like the housing prices are going up a lot. People need more houses than there are out there.

Scott: [00:07:12] Yeah, I think in Los Angeles, I’m seeing the exact same thing. There’s very low inventory. And again, a lot of these dynamics are pandemic driven, where you have people, if they were going to move, where would they have moved to when we were in lockdown and people are still kind of less mobile than they otherwise would be.

And so that’s starting to change and you would expect more inventory to be coming to market over time. But for now, at least inventories really tight. You have people with a lot of money in financial markets. You’ve had big increases in market value of many assets as broad as Bitcoin and GameStop up to, you know, the mega caps. So there are people with a lot larger balance sheets than they used to have, tight supply, and so the law of supply and demand is leading to higher prices. 

Mokaya: [00:08:00] Speaking of crypto this weekend, NFT is the talk of town these days. The CEO of Twitter, sold his tweet for 2 million. What do you have to say about that? Do you want to create a transcript NFT soon?

Scott: [00:08:15] Yeah, I kind of feel like we should. I don’t know. I mean, I have been a really huge skeptic of most of this stuff for the past many years, but one interesting insight maybe it adds to the NFT discussion, which is that the last time we saw major inflation in the United States, in the 1970s you know, one of the asset classes that saw a lot of price appreciation and was kind of a hot investment asset for retail investors were collectibles. And so, you know, things like baseball cards, things like collectibles, like coins that were single mint, you know privately minted with small production runs. These things saw large increases in their value as a place where people were thinking it could be a place to put their money to protect against inflation. And so we live in a digital world now. The nature of ownership is changing quite a bit, but there is an argument to be made that what you’re seeing in NFT is a sign of further broader inflation. 

Intel is back!

Mokaya: [00:09:14] Yeah,  I, mean, I see some of their prices being paid for some of the things out there, and it’s ridiculous. Something else that we noticed in the tech section is that Intel is back. The CEO made some announcements this week about their plants. I think they call it IDM 2.0. So, I mean, it’s pretty interesting that a company which kind of lost its way, like Intel is trying to get its way back. Right now I think they’re trying to play catch up with TSMC. The new CEO is trying to revamp things around. So it’s a company to keep an eye on. They are changing strategy. They’re actually outsourcing, they’re using third party foundries, which has not been their strategy for so long.

Scott: [00:09:56] Yeah. Intel is a really interesting one. It’s been kind of this perpetual value trap. But there’s a lot of positive things going for Intel. On the one hand, we know we’ve covered in a lot of depth, how there’s this semi-conductor shortage. And one would think that Intel would potentially benefit from that. But on the other hand, I think last week we posted how the X86 architecture, which Intel had been dominant and for so long is being uppended by new forms of compute including architectures like ARMS architecture. And so you have this disruption to Intel’s core market, but at the same time, strong tailwinds in the semiconductor space shortages from the manufacturing perspective, which is where Intel had historically shined. And then you have a change in management at Intel which often creates a nice catalyst for a company. And then I think the stock is still trading at a pretty low multiple relative to earnings. So you do have a lot of things lining up potentially for Intel to come back so to speak. But I think that the burden of proof is still on the company to perform.

Mokaya: [00:11:04] Definitely. The thing that they have really going for them also is the geopolitical issues around the semiconductor. It’s that pretty much a lot of the semiconductors in the market come from Asia and Taiwan to be specific. So it’s a pretty good company to keep an eye on with all of these winds of change, kind of blowing in their direction. 

Shifts in the workforce to Millenials and Gen Z

Scott: [00:11:25] Yeah. One more thing, I guess, that stood out to me that you picked up from Phillips 66, talking about approaching 50% of their workforce being millennials and gen Z. I thought that was interesting. One thing that we should always be keeping track of as investors are shifting demographic patterns, and you’re just seeing this change in leadership of the economy slowly but surely from the baby boomers and gen X towards millennials and gen Z. And that could have some pretty big implications for the way that the economy is managed going forward, especially in terms of tailwinds from digitalization and technology, which millennials and gen Z are more fluent in. 

Mokaya: [00:12:02] Yeah, definitely. So thank you so much for joining us this week as we gear up to the Q1 2021 earnings calls that are coming up in the next few weeks. You can reach out to us at [email protected] and give us your comments and feedback so that we can keep making this podcast better. Thank you so much for this week and see you the week after next. 

Transcript by Rebecca Wanjiku


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