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The Transcript 01.18.20

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Succinct Summary: Vaccinations are happening around the US and the world.  It’s been a little slower than hoped but that may be because of the logistical challenges of administering vaccines at long-term care facilities.  We are on the cusp of mass dissemination, and there should be enough capacity to make sure that the population is vaccinated quickly. We’ve lost a year of our lives to COVID but the finish line is (hopefully) in sight. Vaccination should unleash a huge amount of pent up demand. Banks, which started to report this week, have showed that credit performance metrics have been better than anyone dreamed possible in March of 2020. They’re releasing reserves and preparing to return capital to shareholders. Tech spend is also booming.

Macro Outlook:

Vaccinations are happening

To date, we have done over 8,000 of these clinics in these facilities and we have administered over 700,000 vaccines. So as of yesterday, it was about 10% of total vaccines that were administered were administered by CVS.” – CVS Health (CVS) CEO Larry Merlo 

Long-term care facilities have been a logistical challenge

“I really believe it’s underappreciated in the media, that the average number of residents in a long-term care facility is 80. And to Karen’s point, we’re going to that one facility at a time. And Karen talked about where we are at this point, this week we will do over 10,000 clinics in long-term care facilities, and it will take that to administer about a million vaccines. If you think about what Karen was just talking about in terms of when we get into the retail phase, we’ll do almost a million vaccines a day.” – CVS Health (CVS) CEO Larry Merlo

But we’re very close to broad dissemination

“…we expect the federal program to open up shortly, and we are ready in our CVS Pharmacies to administer the vaccine. We have over 90,000 clinicians who are pharmacist, who are pharmacy techs, who are nurses and are nurse practitioners to be able to administer the vaccine. And we do expect that we can administer 20 million to 25 million vaccines per month once the federal program opens up.” – CVS Health (CVS) EVP, CVS Health & President, Aetna Business Unit Karen Lynch

There should be plenty of doses

“We are now expecting that we will produce in 2021 around 2 billion [doses]. And as you know, we say what we mean and we mean what we say. So, when you say something, we feel confident that we will be able to do that. And I have to say that I have admiration for our manufacturing team as much as I have for our research team because it’s almost equally difficult to scale up manufacturing at that level so fast as it was to develop the vaccine.” – Pfizer (PFE) CEO Albert Bourla

In fact, there may be overcapacity

“So, when you do the math on this, we expect a medical vaccinate running about 300 million vaccines, 150 million of the population, when you take, you know, people on the age of 16, which is about 70 million. When you think of the people that may not want to have the vaccine, then we get to round about that number…that tells you that, you know, when you think about it, you know, we have the capacity in Walgreens to certainly vaccinate 20, 25 million people a month, but it’s unlikely that market will be there for us.” – Walgreens Boots Alliance (WBA) Co-COO Alex Gourlay

You’ll probably be able to schedule your vaccine soon

“…we’ve actually developed a scheduling digital tool for vaccines where when you log in to schedule your vaccination, we’ll have a round trip ticket so to speak, so you’ll get your second scheduled appointment, and then we’ll follow up with you with tests and things like that and phone call because I think that’s a big thing relative to vaccines, making sure people get their second shot.” – CVS Health (CVS) CEO Larry Merlo 

A huge amount of pent up demand is waiting to be unleashed

“Although it will take time, customers want to travel again when they feel it’s safe. They feel they’ve had a year of their life taken from them, and they’re starting to get ready to reclaim.” – Delta Air Lines (DAL) CEO Ed Bastian

“…we haven’t experienced a demand challenge for cruise…the demand is really getting pent-up because there’ve been many months without being able to satisfy their craving for a cruise experience. we’ve seen good demand in all of the various cruise markets whether it be the Caribbean itineraries, Europe itineraries. We’re seeing good demand for Australia, for world cruises, et cetera” – Carnival (CCL) CEO Arnold Donald

And the Fed isn’t planning to raise rates any time soon

“When the time comes to raise interest rates, we will certainly do that. And that time, by the way, is no time soon,” – US Federal Reserve Chair Jerome Powell


Charge-offs and credit performance metrics remain strong

“Credit continues to perform well as both consumers and companies have benefited from accommodations, ongoing fiscal and monetary stimulus, and an improving economic outlook. Actual charge-off rates are at multiyear lows, but again, the ultimate timing and magnitude of losses depends on the broader recovery.” – Wells Fargo (WFC) CEO Charlie Scharf 

“…our customers and clients continue to demonstrate strong financial resilience in the face of an unprecedented pandemic, as evidenced in our credit metrics thus far.” – JPMorgan Chase (JPM) CEO Jamie Dimon

Banks have been able to reduce reserves

“Our reserve release this quarter primarily reflects our improving macroeconomic outlook…Overall, looking at the reserves we hold today, we believe that we are well positioned with nearly $28 billion in reserves, which represents an allowance for credit losses of roughly 4% on funded loan.” – Citigroup (C) CEO Michael Corbat 

“…we’re seeing what everyone else is seeing, which is that the performance is substantially better than we would have thought when we went into this, and when a lot of those CECL reserves were established.” – Wells Fargo (WFC) CEO Charlie Scharf

They have plenty of capital and are ready to return it to shareholders again

“We remain very well capitalized…we have excess capital we can return to shareholders, and we plan to resume buybacks during the current quarter.” – Citigroup (C) CEO Michael Corbat 

There’s excess office space

“Office space is clearly available and the cities we operate in, we can’t speak about others, but the cities we operate in there is all of a sudden a bit of an excess of office space.” – First Republic Bank (FRC) CEO Jim Herbert 

The competition from Fintech is real

“The cloud is real. The cost is real. The speed is real. The security is real. The AI is real. The machine learning is real….You have a tremendous amount of AI being used in asset wealth management, CIB, in trading, in Commercial Banking prospecting and it’s literally the tip of the iceberg. Whatever we say today, 10 years from now, it will be probably 50 times more than we are doing today. And I would spend anything to get it done faster….So I am confident we will be able to compete. But I think we now are facing old generation of newer, tougher, faster competitors who — and if they don’t buy the rails of JPMorgan, they can buy rails of someone else..I expect it to be very, very tough competition in the next 10 years. I expect to win. So help me God…But absolutely, we should be scared shitless about that.” – JPMorgan Chase (JPM) CEO Jamie Dimon 

Bitcoin may be the most powerful competitor

“(Bitcoin) is a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity. There has to be regulation. This has to be applied and agreed upon … at a global level because if there is an escape that escape will be used,” – ECB President Christine Lagarde

“The reason I have so much passion for Bitcoin is largely because of the model it demonstrates: a foundational internet technology that is not controlled or influenced by any single individual or entity. This is what the internet wants to be, and over time, more of it will be.” – Twitter (TWTR) CEO Jack Dorsey


Housing market conditions remain robust benefiting from low-interest rates

“…housing market conditions remain robust as the pandemic has helped to fuel demand for homeownership. The existing single-family home inventory is thin and continues to decline, now sitting at just 2.3 months’ supply and below that level in many of our markets, particularly at our price points. This limited level of resale inventory and an underproduction of new homes over the last decade, together with favorable demographic trends, especially with respect to first time buyers, should continue to drive demand for the foreseeable future.” – KB Home (KBH) CEO Jeff Mezger

“The lower rate environment continues to represent a terrific opportunity for single-family residential purchases and refinance. Single-family residential lending continues to be the primary driver of our growth, representing two-thirds of our loan growth during the year.” – First Republic Bank (FRC) CEO Jim Herbert


Technology spending is exploding

“So heading into calendar 2021, I mean, our view is the semi industry is going to grow 8% to 10% this year. Our — economists are forecasting 5% global GDP. Cloud spending looking like it’s going to grow 20%. 5G smartphone is going to grow more than two times. 5G infrastructure spending is going to grow about 35%, automotive production, up 15%. So feels like we’re stepping into a year that is going to be quite strong.” – Analyst Harlan Sur

We’re seeing the digitization of everything

“It is, as you say, a good time to be in semis (semiconductors), right? The digitization of everything seems to be accelerating computing, and computing is everywhere. It’s no longer just our PC or our server, but everything seems to need high-performance compute and the PC is essential once again. So they dynamics of the market are extremely favorable.” – Intel (INTC) CEO Bob Swan

Automotive and 5G are two areas leading the growth

“We forecast the penetration rate for 5G smartphone of the total smartphone market to rise from 18% in 2020 to more than 35% in 2021. We expect the silicon content of a 5G smartphone to continue to increase as compared to a 4G smartphone.” – Taiwan Semiconductor (TSM) CEO C. C. Wei

“But then if you look at the segments that are growing faster than that average, certainly, the automotive segment is by far one of the fastest-growing segments. And again, it’s a secular trend. You have a lot of driver as feature stake rolling out, a lot of automation, a lot of infotainment improvements in the car. And certainly, as more EVs rollout, they have dramatically higher semiconductor content luding memory and storage, compared to traditional cars. So that’s clearly driving how in the new cars get designed, built, architected. So I think that trend is going to last a good part of the decade, if not more. So we have a view that the automotive segment will be the fastest-growing secular driver throughout this decade across memory and storage. I think the cloud market is another important market.” – Micron (MU) EVP & Chief Business Officer Sumit Sadana

Data is the new oil

“Clearly, we see semiconductors growing faster, much faster than global GDP overall, but we also feel that memory and storage will be the fastest-growing portion of the semiconductor market in terms of major segments…as data becomes sort of the new oil of the new economy, I would say that, that sort of faster growth totally makes sense.” – Micron (MU) EVP & Chief Business Officer Sumit Sadana

CrowdStrike handling 4 Trillion security events per week

“And, you know – but it’s really cool when you think about it. I mean 4 trillion events per week, so just give you – put this in perspective in a single day. So, today starts and ends, we will have handled more events in our platform, these signals that come into our platform than Twitter has tweets in an entire year, just to put that in perspective. So we’re talking about a massive scale.” – CrowdStrike (CRWD) CEO George Kurtz

SolarWinds hack has made companies place cybersecurity concern at the forefront

“I think that what SolarWinds has done is a couple of things. One, I do think it has presented an opportunity for those companies that maybe weren’t yet at that point to start reconsidering their zero trust architecture. Two and perhaps more importantly, I think it does continue to debunk the view that on-prem is more secure. And I think that it also realistically when you think about zero trust, there is really no singular solution for security. So therefore, it does help that we bring to the table as I said kind of best-of-breed partners.” – Okta (OKTA) CFO Bill Losch

“Solar storm, we all expect that something will happen. Everyone thinks that, assume that you’re compromised, but no one expected that the whole supply chain could be compromised. That was a big thing. So I hear from CIOs and CECIL’s that this event was bigger shocker than Target, which was one of the biggest thing about six, seven years ago. I think the biggest thing now CIOs are doing, CECIL’s are doing, that they were not doing was realizing that this castle [ph] model where once you’re on my network you can infect everything is the most dangerous thing. When MERKS got hit two years ago with [indiscernible] everyone talked about it and this is the second a much bigger wake-up call.” – Zscaler (ZS) Chairman & CEO Jay Chaudhry


Infectious disease is likely to be a growing market

“…we believe that because of a 2020 pandemic, that this will change how the world thinks about infectious disease. A few years ago, a lot of people thought infectious disease didn’t really have a future. We believe it was not true, which is why we invested heavily in vaccines. But we believe that looking forward for the next 5, 10, 20 years, consumers, health care professional, payers, will pay a lot of attention for infectious disease because we are seeing a lot of unmet medical need.” – Moderna (MRNA) CEO Stéphane Bancel 

mRNA has great potential

“We think that mRNA can completely disrupt the flu market, because it can have, can do things in weeks instead of months. So as the flu market is changing every year with a new variant, this technology is ideal to be able to adjust to the latest news of the current strain and be much more effective as a result also has proven how effective it is by the way this technology. So, we will do that. And of course, we are thinking other areas of viral diseases that we can develop a vaccine.” – Pfizer (PFE) CEO Albert Bourla

Early cancer detection largest genomic application

“We expect early cancer detection and recurrence monitoring will be the largest genomic applications over the next decade by far, representing a $60 billion addressable market. 71% of all deadly cancers still do not have a screening test available today. So most cancers are detected too late when chances of survival are much lower. GRAIL’s flagship product, Galleri, is a pan-cancer screening blood test that detects more than 50 types of cancers with a low false-positive rate of less than 1% and tissue of origin with 93% accuracy.” – Illumina (ILMN) CEO Francis deSouza

A lot of physicians who first used zoom are having to come back to HIPAA compliant solution

“So during the pandemic, certainly, a lot of physicians embraced what we would call light solutions, widgets that are video enabled to enable them in their time of crisis to be able to connect to their patient populations. What we’ve seen is this incredible snap back over the course of the last few months as they’ve realized how sort of insufficient those capabilities are. They’re not integrated with their systems. They’re not integrated with their EMRs. They’re not integrated with their workflows. They’re not purpose-built for clinical use cases. And as a result, we’re finding that many, many of those providers who early on said, I want to use Zoom, I am going to use FaceTime, I need to do whatever I can to keep my doors open, are coming back to us and saying we really need your purpose-built set of capabilities that are not just HIPAA compliant but high trust certified.” – Teladoc (TDOC) CEO Jason Gorevic 

50% of the population doesn’t have a primary care physician

“50% of the population doesn’t have a primary care physician, right. So that population is going to turn to that which delivers the most convenience, the greatest efficacy, the best experience, and the broadest array of clinical capabilities.” – Teladoc (TDOC) CEO Jason Gorevic

Industrials and Transport:

Supply chains are still tight

“We are shipping lots of parts, and volumes in all segments are increasing, and that will happen through 2021. There will be tightness in the first half of the year, but alongside consumers we also ship to OEM partners. There is some real-time prioritization between end-user and OEM, but we understand that consumers want more and it’s very high on our priority list to meet this high demand.” – Advanced Micro Devices (AMD) CEO Dr. Lisa Su

“…let me talk about the automotive supply tightness. The automotive market has been soft since 2018. Entering 2020, COVID-19 further impacted the automotive market. The auto supply chain was affected throughout the year and our customers continued to decrease their demand in the third quarter. We only began to see sudden recovery in the fourth quarter. However, the automotive supply chain is long and complex, where many of our technology nodes has been tight throughout 2020 due to strong demand from our other customers. Therefore, in the near term, as demand from the automotive supply chain is rebounding, the shortage in automotive supply has become more obvious.” – Taiwan Semiconductor (TSM) CEO C. C. Wei

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