The Transcript 10.12.20

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Succinct Summary: The economy has had a strong but incomplete recovery.  The worst seems to be over but there’s still a long way to go.  For many industries, this looks like a K shaped recovery.

Macro Outlook:

The economy has had a strong but incomplete recovery — for now

“Taken together, fiscal and monetary policy actions have so far supported a strong but incomplete recovery in demand and have—for now—substantially muted the normal recessionary dynamics that occur in a downturn.” – Fed Chair Jerome Powell

“…we have seen a pretty significant rebound in a lot of those states, not to where they were before pre-COVID, but certainly starting to get up towards those levels.” – Paychex (PAYX) CFO Efrain Rivera

“We’ve seen the business has come back. I think the customer has figured it out.” – Landec (LNDC) CEO Albert Bolles

The worst seems to be over

“I think the worst, hopefully, please, please never ever go back to where it was in April or March or things like that…I don’t think we’re going to end up with that mass lockdown that was in April. Yes, I’m fairly confident the worst is over. You do see people are traveling, just nowhere near the rate they were traveling last year.” – Booking (BKNG) CEO Glenn Fogel

“…over the late spring and early summer, homeowners were reticent to allow contractors in or around their homes. That’s starting to change” – RPM International (RPM) CEO Frank Sullivan

But there’s still a long way to go

“While the combined effects of fiscal and monetary policy have aided the solid recovery of the labor market so far, there is still a long way to go. The expansion is still far from complete” – Fed Chair Jerome Powell

This crisis has been shocking for the hardest-hit industries

“…we’ve been through a lot of crises. I’ve been now with this company for over 20 years. We’ve gone through, there was 9-11, there were recessions, there was SARS, there was the great recession of 2008, 2009. But I’ll be perfectly honest, nothing has ever, ever equaled what we’re currently going through. It has just been a disaster. It has been a human disaster with the number of people who have died. It’s a human disaster for the people who’ve been ill and are terribly debilitated by it. It’s terrible economically for everybody who’s lost a job. It’s terrible for economies in general. How bad it has been is what has been so shocking” – Booking (BKNG) CEO Glenn Fogel

For those industries, it looks like a K shaped recovery

“What we are facing is multiple letters in multiple places. For a very small number of countries that have been successful to contain the pandemic and are doing effectively better in restarting or actually sustaining their economies, v-shape is possible. But these are very few cases. Most countries are going to be faced with uneven recovery and we see in many cases a “K,” with parts of the economy doing really well, and other parts contracting dramatically.” – IMF Managing Director Kristalina Georgieva

The Fed will continue robust stimulus even if the economy continues to improve

“What I think will be surprising a little bit to markets is that the economy will continue to improve, possibly more rapidly than financial markets currently think, and yet the Fed will just keep with its current policy. To the extent there’s a surprise ahead in 2021, I think that may be what the surprise is.” – Federal Reserve Bank of St. Louis President James Bullard

“At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.” – Fed Chair Jerome Powell

“The U.S. economy has done really well by injecting two trillion in fiscal stimulus and also by incredibly decisive action from the fed. The U.S. Has fiscal space. Given that we are not out of the woods yet, continued support is necessary and the good news is the U.S. Can afford it. The sooner the better so we don’t risk bankruptcies and unemployment coming because of premature withdrawal of support. And that is actually the core of our message – do not cut lifelines prematurely” – IMF Managing Director Kristalina Georgieva

Financials:

Square bought $50 million worth of Bitcoin

“We believe that bitcoin has the potential to be a more ubiquitous currency in the future. As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.” – Square (SQ) Chief Financial Officer Amrita Ahuja.

New businesses are being created at a very fast pace

“I mean, we are certainly seeing as I think just generally in the economy, new business startups are up 20% year-over-year. It’s pretty incredible and I think what we are seeing – what you see and we see it on new businesses is people are shifting. So people are getting out of some businesses, shifting to others or evolving their business and others are seeing opportunities in this environment that they didn’t see before. So new business startups are really growing” – Paychex (PAYX) CEO Martin Mucci

Consumer:

Retailers are flying blind into a unique holiday season

“This year, I feel like I’m flying blind because it’s such a unique year…Everyone is seeming to start their promotions earlier and earlier in order to beat each other to a customer’s share of wallet” – Hero Cosmetics CEO Ju Rhyu

“The completely unprecedented nature of this year makes it hard to imagine what to plan for,” – Brooklinen CEO Rich Fulop

“Fourth quarter is always a bit of a slugfest when it comes to positioning yourself to win from a marketing perspective…This is going to be a new level of competition that is different than what we’ve experienced,” – Mack Weldon CEO Brian Berger

Millennials are experiencing the joy of cooking at home

“Many who used to rely on eating outside the home are now getting reacquainted with their kitchens. Studies confirm that consumers, especially millennial, are experiencing the joy of cooking more of sheltering in place and experimenting with a wider variety of meal options. It is this time of experimentation and newfound fun that is also expanding their use of essential products and gadgets for cooking, baking, brewing, cleaning, storage, and organization.” – Helen of Troy (HELE) CEO Julien Mininberg

There’s been increased demand for air purifiers 

“In the case of COVID-related demand, consumers are doing some interesting things. As indoor season comes along in the Northern Hemisphere, so think schools, universities, best time outside, in general, because of the temperature, we’re seeing a considerable surge in things like air purifiers. There are tons of articles in the press, some in the scientific press, lots of recommendations now, even from the CDC, on the subject of indoor transmission, ventilated spaces, droplets, particles, et cetera. So, this is a big deal and it is changing consumer behavior. We’re seeing a tremendous surge in air purifier sales. That’s only accelerated since Q2, so here we are in almost the middle of Q3 and I can definitely say that that is growing considerably” – Helen of Troy (HELE) CEO Julien Mininberg

AMC is keeping its theaters open

“We think it’s the right decision to stay open. We’ve had millions of people … come to our theaters in the United States and certainly in Europe since we reopened this summer…We’re in the business of amusing and entertaining people. If there was ever a time when people needed to be amused and entertained, to escape the stresses of the daily life, it is right now when corona is hitting this country very hard,” – AMC Entertainment (AMC) CEO Adam Aron

It’s more expensive for Domino’s to operate in the pandemic

“The reality is it’s just more expensive to operate, you know, in the coronavirus world that we’re living in now” – Domino’s Pizza (DPZ) CEO Ritch Allison

Technology:

Still early days in podcasting

“Podcasting hasn’t changed much in 15 years. There’s definitely a market . . . but there hasn’t been the equivalent of a breakout streamer hit in podcasting…You might know about Serial or The Daily, but it’s not in the masses yet” – Spotify (SPOT) VP/Head of Studios & Video Courtney Holt

“It’s still such early days in podcasting. More widespread consumer adoption just started happening in the last two years,” – Amazon (AMZN) Music Head of Music Steve Boom

Companies are rallying against Apple’s 30% charge on the App store

“When Apple charges 30 percent extra … we don’t have a 30 percent margin! It’s very odd to find a business with 30 percent profit margins,. We had to raise the prices, and we weren’t even able to communicate to our customers that they could get it cheaper from our website…There’s nothing you can say to that. They are judge, jury, and executioner on their platform, and you can take it or leave it. You can’t get any sort of fair hearing to determine whether it’s justifiable or not justifiable, anything they say goes” – ProtonMail CEO Andy Yen

“We don’t really fear retaliation. It’s more that we don’t want to constantly live in fear (more than we already do) that they’ll suddenly reject us and force us into doing a whole bunch of work on their terms. It was a really stressful experience last time and threw a spanner in our plans for the app, and we’re nervous it might happen again” – Exist.io Co-Developer Belle Cooper

The pandemic has catalyzed a lasting shift to e-commerce

“Online sales grew 32% and represented approximately 24% of our total sales in the quarter. The pandemic continues to accelerate via consumer trend from bricks to clicks.” – Helen of Troy (HELE) CEO Julien Mininberg

“There was a trend toward digital ordering pre-pandemic, and that significantly accelerated during the pandemic. I don’t expect customers to go back to calling on the phone, I expect digital ordering to continue to grow post-pandemic. And I feel that we are very well-positioned in that space today with 75% of our sales in the U.S. digital as we sit here today” – Domino’s Pizza (DPZ) CEO Ritch Allison

“We’re going to see e-commerce continue to grow. We’re profitable a year ahead of schedule, despite all of the accelerated investments that we’ve made.” – Levi Strauss (LEVI) CEO Chip Bergh

On Working From Home vs the office:

“When you are working from home, it sometimes feels like you are sleeping at work…Thirty minutes into your first video meeting in the morning, because of the concentration one needs to have on video, you’re fatigued…” – Microsoft (MSFT) Satya Nadella

“There are areas that have been able to stay productive, and there are those that have fallen a bit short,” – Nomura (NMR) CEO Kentaro Okuda

NVIDIA is experiencing incredible demand for its products

“I believe that demand will outstrip all of our supply through the year. Remember, we’re also going into the double-whammy. The double-whammy is the holiday season. Even before the holiday season, we were doing incredibly well, and then you add on top of it the ‘Ampere factor,’ and then you add on top of that the ‘Ampere holiday factor,’ and we’re going to have a really really big Q4 season…The 3080 and 3090 have a demand issue, not a supply issue. The demand issue is that it is much much greater than we expected — and we expected really a lot. Retailers will tell you they haven’t seen a phenomenon like this in over a decade of computing. It hearkens back to the old days of Windows 95 and Pentium when people were just out of their minds to buy this stuff. So this is a phenomenon like we’ve not seen in a long time, and we just weren’t prepared for it.” – NVIDIA (NVDA) CEO Jensen Huang

Industrials/Transports:

Everyone is trying to guess when travel will return

“I think everybody has fun guessing when is that going to be? The truth is, nobody knows because it’s so dependent on a couple of variables that are just guesses…I’ll certainly say that I don’t think anybody expects it to be anytime soon, that’s for sure.” – Booking (BKNG) CEO Glenn Fogel

High demand causing freight delays

“Surges in demand and shifts in shopping patterns related to COVID-19 have strained the U.S. freight network which is resulting in carrier delays.” – Helen of Troy (HELE) CEO Julien Mininberg

The worst not over for airlines as they seek for more support urgently

“We can’t continue to wait. If forced to, of course, we will indeed discontinue service to a lot of markets and we will be much slower to rebound and help the country rebound from this pandemic…”This is bigger than just trying to keep airlines afloat. This is about keeping critical infrastructure afloat for our country to bring it out of this pandemic.” – American Airlines (AAL) CEO Doug Parker

“The worst is not behind any airline, not only Qatar Airways..There will soon be other bailouts in Europe, there will be other collapses around the world. Because of the second wave, I think it is … even more severe than in the first wave…I think that there will be more reduction in capacity, which in a way is also not good for the traveling public because then it will give a monopolistic situation to certain airlines that exactly wanted this to happen” – Qatar Airways CEO Akbar Al Baker

 


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