The Podcast

The Transcript Podcast Ep. 12: Fun is coming

In this episode of The Transcript Podcast, we cover the opening euphoria in the US, the persistent shortages in the semiconductor industry, and our expectations for the earnings season ahead. 

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
00:42 – Fun is coming
01:40 – Vaccination rates in Europe & US
02:22 – Economies are opening up
03:48 – Will America bounce back?
06:25 – Vaccine passports
06:55 – Shortages in the semiconductor supply chain
09:48 – Expectations ahead of earnings release


Scott: [00:00:00] Welcome everybody to another episode of the transcript podcast. You’ve got me, Scott Krisilof, editor of the transcript, and you’ve got Erick Mokaya, who is our lead author. We sent out a new version of The Transcript yesterday and had a lot of good stuff in there. It was a light week for earnings. But the quotes that we did pull out, continued to show a positive trajectory for the US economy and the global economy, driven by vaccinations and reopening. You’re really starting to see, as we get into summer, the weather warming up and people being vaccinated, you’re starting to see a euphoria starting to take over in the economy.

Fun is coming! 

And there was a quote, a really good quote in there that summed up the week, talking about the fun and it’s just beginning. So I think everybody’s looking forward to a really nice summer here. And economic activity should benefit from that. Mokaya, do you have any thoughts on that?

Mokaya: [00:00:53] Yeah. I mean, generally you can tell from a lot of the CEOs that they are excited about the changes that are coming as vaccines continue to  be distributed and people get to be vaccinated and you can see like the economy’s opening up. But again, I keep seeing a difference between Europe and the US. I think the US is way more open, I think. I talked to friends in Germany and in Sweden and you can tell like we’re really far behind the US in terms of reopening. So that’s the trend I keep seeing when I keep reading what CEOs in America are saying about the economy opening up and the excitement that is coming, I keep feeling like we are being left behind, but then again, I keep hoping that we can also like step up in terms of the vaccinations rate. So that we can also get to be as excited as the CEOs in America and the people there are.

Vaccination rates in Europe & US

Scott: [00:01:40] Yeah, I think it’s probably likely that the vaccination wave will hit Europe soon. It feels like in the US that pretty much everybody who wants the vaccine has access to a vaccine now. And, you know, there’s still a lot of vaccines being produced to be picked up. BioNTech talking about 200 million vaccines that they’ve already produced. And there’s hundreds of millions of Adena and Johnson & Johnson and others that are piling up. And you know, I actually think that vaccination rates are going to be lower than people expect here in the US just because compliance will be lower than people are hoping for. And that will lead to plenty of supply. I think of vaccines around the world. That’s my expectation, at least. 

Economies are opening up

Mokaya: [00:02:22] Do you see examples of like the economy opening up and things, people going back to normal kind of the business. Because when I look at travel, especially you could see like there is very high demand for travel. Cruisers are not yet open, but you can tell, like they have, they’re pretty much booked for  2022, especially in late 2021. So do you see the same trends around?

Scott: [00:02:45] Yeah, I mean, I think you can tell in traffic around Los Angeles, that people are out a lot more. Restaurants are packed right now. And so people are out there, I think in terms of travel, that’s one thing, that’s the next frontier of people to be getting back to, and I’m noticing, you know, I’m even having to start thinking about traveling for work again, and noticing that you know, plane ticket prices are still less expensive than they were in 2019. But I think that prices are going to start to be rising again here. So that’ll probably be an area that rebounds to

Mokaya: [00:03:21] I think travel is one sign that people are comfortable when you see them. And maybe boarding planes, especially international travel, local travel a little bit, people taking advantage of that. So I think there are some quotes we picked up there. You’re starting to see prices especially in going up which is of course an assumption that the demand is pretty high going forward as people maybe are planning to travel, hopefully the summer or in the fall or 2022, so to speak.

Will America bounce back?

Scott: [00:03:47] I wanted to mention as well, relative to what you were talking about, about the US moving much faster than Europe in terms of vaccination. I thought it was really interesting to think about that idea versus the quote we picked up from Jamie Diamond about saying that American competitiveness internationally may have been permanently impaired. This time may be different for the US rebound this, but Jamie Diamonds said. And when I first started to read that quote, it was talking about, you know, America’ has faced tough times before, but in each case America has come back and I started to read it and I was like, there’s nothing newsworthy about this quote.

This is just Jamie Diamond talking optimistically about America and like bet on America forever. Just like buffet usually says, which is probably accurate, but he ends up saying this time is different. Like America may not bounce back from this in the way that it has in the past. Which was really surprising. They’ll read from somebody like  Jamie Nyman. Yet, you know, what we’re seeing in vaccination suggests America will probably bounce back again.

Mokaya: [00:04:48] Well, I kept wondering the same.  What does he mean by that? This time is different actually. Pretty interesting to see how that goes. But my opinion, is that I think America still has maybe at the beginning of the pandemic, it was a little bit behind in terms of, as a country that was behind in terms of getting up to speed and dealing with the challenges of the pandemic. But I think, I feel like right now you’re pretty much ahead the rest of the world.

Scott: [00:05:14] Yeah. I mean, I think  in the early days of the pandemic, the fact that the Chinese were controlling the virus so well  relative to the US really suggested that we were floundering. But I think the result of the vaccination here gives some pride in American innovation. The fact that we’re leading the world in vaccines it’s again, innovation and science are the types of things that America has led the world in for the last a hundred years. And this is a case where, we’re powering the engine again.

Mokaya: [00:05:44] So in terms of expectations, when you read the carnival CEO, I think talking about like zero infection is a bit too high a standard. And that masks, I think something else that you see there that masks will be needed for awhile. I felt like maybe the optimism that we have maybe a bit too high in terms of us going back to normal life as it was before, it may actually not be the same case. It may mean that a few changes may happen along the way.

  Scott: [00:06:12] I think the story of activity is vaccination. Plus people just being tired of being cooped up at home for a year. And wanting to get out and resume normal life. People are doing that. People are resuming normal life.

Vaccine Passports

Mokaya: [00:06:25] I think something else that I may have picked up also is that a lot of CEOs are talking about vaccine passports for people who are coming on board with some of these ships are so, and also I mean, I’m not so sure how, and that’s what most of the CEOs are also really trying to encourage, especially there, they don’t have like, They don’t have a way of expressly demanding it, but they actually encouraging the employees to get vaccinated so they can get back to normal. And the fun can begin again. On that note then, are there other quotes that stood out for you?

Shortages in the semiconductor supply chain

Scott: [00:06:55] Yeah. I think there was a big section about the semiconductor shortages and what’s going on in the semiconductor supply chain.

Mokaya: [00:07:01] I think it keeps being repeated lots, that chips are actually in quite a very high demand right now. And as you could see, like some of the quotes are saying like this shortage could persist up to 2022, mostly because the timeline for these chips to come on, if you want. The demand, if you want to supply to come online, right, as in 12 months, you actually start now. So some of these foundries that they say Intel and TSMC are building will actually come into the supply in 2022. But then there’s also the challenge that if you, because the supply  is delayed, it could be by the time it comes online that you have actually an over supply of chips. So that can actually be something that to watch out for in the next 12 to 24 months.

Scott: [00:07:50] To your point, we’ve talked about the under supplying chips for a long time now. And I am embarrassed to admit that I haven’t really thought of it as an investment catalyst up until really this week where I’m embarrassed again, to say, I looked up Taiwan semi stock for the first time this week and looked at it. And it surged by a lot since the semiconductor shortage started And it’s this interesting thing where, you know, I was thinking, is this still an investible catalyst? You know, if the shortage is out to 2022, maybe. But on the other hand to your point it’s just the nature of industrial cycles that you have short supply, and then usually more capacity comes online and actually, and also maybe you have some some improvement in the conditions that are creating a short supply such as in this case, COVID and then you have this overcapacity and you have over inventories and you have you know, a reaction the other way. So semiconductors while technology-driven are an industrial commodity in a lot of ways, especially these semi-conductors. And so you probably have a boom and a bust at some point.

Mokaya: [00:08:58] That’s pretty much likely especially given that I think the global foundry CEO was saying that it’s not actually computer chips that are the problem or these other chips around them. So if that the supply is scaled up pretty quickly, you may end up back in an over supply situation.

 Scott: [00:09:16] One tip that I would say that is worth reading as a leading indicator for me, for semiconductor industry always is microchip. The company MCHP is the ticker. Their CEO is Steve Sanghai. I think he may actually be retiring, but within the semi-conductor supply chain, they are often a leading indicator and they’re always a good you know, quarter or two ahead in terms of talking about the trends in that market. So I’ll be interested to watch what they’re saying next time around.

Expectations ahead of earnings release

Mokaya: [00:09:48] I think maybe it’s something else that I want you to talk about is that the earning season is actually starting this week and next week. And are there thoughts, things that you’re looking forward to in terms of themes that you’re watching and things that you really interested like to find out in this coming season?

Scott: [00:10:04] I think I generally expect earnings to be pretty good here. I mean, the economy is clearly recovering and probably faster than people think. Two areas that I’m particularly interested in are banks. And the way, this particularly the way that the stocks will react to the earnings, because I think  they’ll probably be releasing reserves, earnings are going to be good, but will the stocks care or is that priced into the stocks?

And then the other area that I’m really interested in is how Facebook and Google stocks respond to their earnings, which again, I expect to be quite good. We picked up even this week, Dave and Buster talking about not wanting to advertise on TV anymore and moving everything to digital. You know, those two are kind of the only game in town for digital advertising still. And I think there’s been a big flood of advertising dollars pushing up prices there. And you know, if you’re somebody inclined to play earnings, those are probably two decent bets for some pops on earnings.

Mokaya: [00:11:03] Yeah,  it’s pretty much a very parked next couple of weeks. We will have a flood of companies reporting. I’d say JP Morgan is reporting this week on Wednesday Bank of America, Goldman Sachs this week, CT, Netflix next week. So it’s pretty much parked and really looking forward to unpack some of the earnings calls. And as you say, I think one of the things I’m watching out, definitely those reserves and how banks are playing around with them, are they releasing them or holding them up? Also, listening to their comments about businesses and how they are progressing. So I think that’s also pretty key. And also of course, looking forward to see a bit, if there’s been a resolution on to do with things to do with chips and how companies are responding, especially the manufacturers, the supply chains, is it pretty tight? or is it easing up? and all those kinds of things. So we definitely are looking forward to this very dense earnings season coming up.

Scott: [00:11:57] Yeah.  One other thing to add to that, that would be interesting, I think, to watch on earnings season within financial services, capital markets, sensitive companies. So those investment bankers and retail brokerages as well. I’m really curious to see what comments they have about retail activity and markets, because it certainly seems like retail investors are not as engaged in markets as they were. And then also for institutional investment banks have heard a lot of commentary around SPAC markets getting much less hot than they were. So capital issuance, capital markets, issuance activity may come in a little bit worse than expected. And so looking for those trends and seeing how stocks react to those. 

Mokaya: [00:12:41] Pretty much though, it’s SPAC. Year to date, they are higher, but I think from what I am learning is that month on month issuance is actually declining. So I think also like the whole hullaballoo around it has kind of died down a little bit. think there was maybe too much supply on of there’s too much capital in that area. And now I think they’re trying to look for deals now, so to speak. Any thoughts, any closing thoughts on any of the other quotes?

Scott: [00:13:08] No, I think that’s a great place to stop this week.

Mokaya: [00:13:11] Alright. We’re looking forward to the next earning season. So keep listening to the transcript and sign up at MENA. The is where you can find us with your comments and feedback so that you can keep making the podcast better. Thank you so much for joining us and see you next week. Thank you.

Scott: [00:13:29] Thank you.

Transcript by Boniface Oyunge

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