The Newsletter
The Transcript 12.23.19
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Succinct Summary: The main takeaway is the dichotomy between a US consumer economy that is doing well and a manufacturing sector that is weak. The uncertainty and slow growth will certainly continue into 2020.
Editor’s Note: This is our last issue for the year so thank you for your support this year. We’ll be back in the second week of 2020. Merry Christmas and happy new year!
Macro Outlook:
A solid economy but a struggling manufacturing sector
“we continue to see a split between solid consumer economy and a struggling manufacturing sector…Consumers are supported by a robust labor market while manufacturers have been hampered by trade policy uncertainty and an ongoing inventory correction.” – Fedex (FDX) Executive Vice President Brie Carere
Global trade volumes have contracted
“Total trade between the European Union and China slowed significantly in calendar year 2019 as slower growth and impacts from trade tensions have weighed on trade flows. Global trade volumes contracted year-over-year again in calendar quarter three and will show a contraction for the full calendar year.” – Fedex (FDX) Executive Vice President Brie Carere
And the slow growth and uncertainty are expected to continue into 2020
“looking at next year, I expect to see more of the same. Growth around 2% for the year. Unemployment staying hopefully around where it is now, around 3.5%. Unemployment rates, steady job gains and hoping to see inflation move back close to our 2% longer-run objective this year. So, I feel very good about where the economy has been this year, how it has progressed…my view is that some of this uncertainty is going to likely be with us for the time being.” – New York Fed President John Williams
International:
Chinese customers building up inventory given tariff uncertainty
” we saw some China buying pattern that was above normal compared to the past that we have seen. And we attribute that to some of the US/China trade tensions, and perhaps some of the customers in China procuring and shifting to, perhaps a longer-term strategy of carrying more inventory, because in terms of the US/China trade aspects, while Phase 1 deal is definitely encouraging to see, that is happening.” – Micron Technology (MU) CEO Sanjay Mehrotra
European manufacturing stabilizing but at low levels
” In the eurozone, manufacturing production appears to be stabilizing at low level. Germany’s industrial sector, however, is still in decline. Looking ahead to calendar year ‘20, European GDP growth rates will likely remain in line with where they are now…the industrial economy, particularly in Europe which was hit by the ricocheting bullets of the US China trade war, almost went into recession this time last year and it still hasn’t recovered and Germany in particular is extreme.” – Fedex (FDX) Executive Vice President Brie Carere
Financials:
Goldman Sachs tapping into millennial’s interest in ESG
“There is not only an urgent need to act, but also a powerful business and investing case to do so…Over the next 10 years, Goldman Sachs will target $750bn of financing, investing and advisory activity to nine areas that focus on climate transition and inclusive growth.” – Goldman Sachs (GS) Chief Executive David Solomon
“People whose preferences matter in the real economy want this in a way that has teeth. … Millennials want to shop differently…This is a large and accelerating trend. What do you do when you see that? You invest. You build your capabilities.” – Goldman Sachs (GS) Sustainable Finance Group Head John Goldstein
Consumer:
2020 will be a busy year for Nike with the Olympics and Euro Cup
” we’re about to enter a hyper-intense cycle of new product introductions with the Tokyo 2020 games and the football Euro Champs on the horizon…Euro Champs will be another great catalyst for EMEA apparel in the back half of the year…In Q3, we expect SG&A growth in the low-double-digit to low-teens range, driven by our decision within Q2 to shift demand creation into the second half in order to amplify the NBA All-Star Weekend, European Championships, the Tokyo Olympics and our launch of innovative new products.” – NIKE (NKE) CEO Mark Parker
Technology:
Memory prices keep declining
“Memory prices continuing to decline. Now, hopefully, the memory prices will stop declining, that’s the indication we are getting from the markets. And in fact, it’s a pretty specific indication, because our NAND prices are actually going up a little bit and lead times of definitely going out.” – SMART Global Holdings (SGH) CEO Ajay Shah
” Industry supply demand balance continues to improve in both DRAM and NAND.” – Micron Technology (MU) CEO Sanjay Mehrotra
CPU shortages to continue
“we are cautious on our near-term outlook for the PC segment due to reported CPU shortages, which seem likely to continue at least into early calendar 2020.” – Micron Technology (MU) CEO Sanjay Mehrotra
Industrials:
Narrowing gap between new and used car prices
“When I think about the favorable environment, obviously, favorable access to credit – new car prices at an absolute level are still high, although in the quarter, we seem to see a little bit of narrowing of the new to used car gap, but the absolute prices of new cars are still high. You’ve got low unemployment, you’ve got good consumer confidence, inventory build that I said. You’ve got those external factors.” – CarMax (KMX) CEO Bill Nash.
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