The Newsletter

The Transcript 03.01.20

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Succinct Summary: Covid cases are dropping, vaccines are being administered and warmer weather is coming.  Fatigued consumers are ready to return to normal.  We especially miss traveling.


Covid fatigue is real

“Now after 11 months of pandemic, I think we all know that COVID fatigue is real. People are clamoring for the opportunity to have experience outside their homes. Every day, we see signs of people want to get out and get away” – Royal Caribbean Cruises (RCL) CEO Richard Fain

And cases are dropping

“So I must admit every single day I go on the COVID U.S.A. chart on Google, and so how the trend line is and it’s just plummeting. So my sense is, is that we’re getting closer and closer to good news.” – Royal Caribbean Cruises (RCL) CFO Jason Liberty

By April vaccines should be available to everyone

“…vaccinations were ultimately going to be the deciding factor. And the quicker we vaccinate where we get to the point of herd immunity, which by most accounts, that timeframe is in the July, August time. So sometime in summer, the experts believe that by the end of April, anyone who wants a vaccine…will have access to one that all bodes well.” – Norwegian Cruise Line (NCLH) CEO Frank Del Rio

And we’re getting closer to warmer weather

“…we believe based on all the experts that we talked to, including the Healthy Sail Panel that we’re going to see a continuation of the significant drop in cases as we enter spring summer, as we continue to vaccinate over 1.5 million Americans a day, as more people get infected and recover.” – Norwegian Cruise Line (NCLH) CEO Frank Del Rio 

Consumers are ready to get back to normal

“…we’ve already been seeing the leisure recovery pick up since the beginning of the year when it was at its low point. Not only has occupancy been picking up in February, but overall bookings have consistently increased each week so far this year.” – Pebblebrook Hotel Trust (PEB) CEO Jon Bortz

People miss traveling more than anything else

“We did a survey recently of American travelers and we found a couple of things. The first thing we found is that people missed traveling, that’s not surprising, but we also found that people missed traveling more than any other out-of-home activity. People missed traveling more in America than going to a restaurant, going to sports, live music or other activities.” – Airbnb (ABNB) CEO Brian Chesky

There’s a lot of pent up demand

“Bookings and rebookings of weddings into the second half of 2021 and 2022 have been very strong, and we’re seeing rebookings of group into the second half of 2021 and all of 2022 as well…We’re very encouraged about how well group is shaping up for 2022 at this point.” – Pebblebrook Hotel Trust (PEB) CEO Jon Bortz

“…historically, we don’t really talk about 2022. But what we’re seeing continue on is our customers — there’s a lot of pent-up demand for vacations, right? They’re saving more. They bypass many of their vacations. And so they’re trying to eye out when, we’re going to return to service. And they’re going to be able to go and enjoy the vacations that they had previously planned. And so I think when you look at the first half of 2022, again, it’s very, very early, the pricing that we’re seeing relative to like-for-like for 2019 shows that our rates are up with or without any application of future cruise certificates.” – Royal Caribbean Cruises (RCL) CFO Jason Liberty 

“…we are very encouraged and very pleased by the strong booking activity driven by pent up demand across all three brands for 2022 voyages…For the first half of 2022 and for all of 2022, in fact, our load factor is currently well ahead of pre-pandemic levels” – Norwegian Cruise Line (NCLH) CEO Frank Del Rio

Consumers are flush with cash

“The leisure customer has a humongous amount of money in the bank. There’s huge fiscal stimulus in the system and more coming, the Fed has been pumping capital into the market.” – Pebblebrook Hotel Trust (PEB) CEO Jon Bortz 

Limited supply creates pricing power

“…this is a finite capacity business. I can’t cruise with 150% occupancy. So there’s going to be a squeeze play here. That demand is going to exceed supply…you got less supply, you’ve got pent up demand. You’ve got people with money in their pocket. I think this is just the making of a boom time for the cruise industry. And since we can’t expand, supply any faster than it’s coming online, pricing is what’s going to dictate the day. And we’re seeing it. I mean, it’s astonishing to me in the 25-plus years, I’ve been in this business.” – Norwegian Cruise Line (NCLH) CEO Frank Del Rio

But what does the world look like after Covid?

“We don’t think we’re ever going back to the world of travel in 2019, it’s going to change and it’s going to be different. And probably, the biggest difference we’ve seen is flexibility. A world of Zoom is a world, where more people can work from home and a world, where more people have the flexibility of work from home. We’re seeing more people say they can work for many home on Airbnb. And so we’ve seen a number of new use cases…People are living more nomadically. Some people are taking longer-term stays, one or two months at a time in our Airbnb. People are taking extended three, four-day weekends. So, like many weekends in a row, because they don’t have to be in the physical office. And many people are snowboarding, they’re like essentially living in somewhere cold and they want to go somewhere warm. They have the flexibility to do that.” – Airbnb (ABNB) CEO Brian Chesky


Institutions are adopting bitcoin

“We’re also going to double down on our commitment to bitcoin…We saw customers increase their usage of products beyond peer-to-peer transactions, including use of our Visa Cash Card, Cash Boost and bitcoin.” – Square (SQ) CEO Jack Dorsey

“Cryptocurrencies have recently started to be accepted by companies and financial institutions and show increased signs of staying power to address – to address industrial Ethereum mining demand, last week we announced a new line of NVIDIA CMPs or crypto mining processors. Shipments will start in March. CMPs lack display outputs and have other optimizations that improve crypto mining power efficiency.” – NVIDIA (NVDA) CFO Colette Kress 

But not everyone is onboard

“I do think that a properly run bank is a great contributor to civilization and that the central banks of the world like controlling their own banking system and their own money supplies. So I don’t think bitcoin is going to end up the medium of exchange for the world. It’s too volatile to serve well as a medium of exchange. And it’s really kind of an artificial substitute for gold. And since I never buy any gold, I never buy any bitcoin. Bitcoin reminds me of what Oscar Wilde said about fox hunting. He said it was the pursuit of the uneatable by the unspeakable” – Daily Journal (DJCO) Chairman Charlie Munger

New office structures could end up being a boost for business travel

“…speaking to a number of CEOs who are now looking at reducing their office space footprint, they’re talking about people working remotely. And so instead of driving the office 5 days a week, they may have to fly in once a month. Additionally, people are talking about having smaller offices and less meeting space as well. And so they’re going to have to use hotels as gathering places to do things in the past they’ve done in their offices, which could be true drivers of demand overall, too. So I think the business recovery will be more robust than people are giving it credit for.” – InterContinental Hotels (IHG) CEO Keith Barr

Buffett sees a bleak future for bond investors

“And bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.” Berkshire Hathaway (BRK) CEO Warren Buffett


Dominos has never made money in delivery

“We struggle a little bit, understanding the long term economics and some of the aggregator businesses. You know, in 60 years, we’ve never made a dollar delivering a pizza. We make money on the product, but we don’t make money on the delivery. So we’re just not sure how others do it. And in a world where, you know, we’re trying to shrink our delivery area to get closer to our customer for better service, a lot of these third parties are trying to expand to reach more customers, which we think just takes away from service. And, you know, when you think about the profit equation, you know, you get somebody who inserts themselves into the value chain and they have to make their money somewhere. And it’s either got to come from the restaurant or it has to come from the customer” – Domino’s Pizza (DPZ) CFO Stu Levy

You can’t hire people for $15/hr

“…we’re not paying the federal minimum wage anywhere. You can’t go out there and hire people at that rate. Anyway, we’re above the minimum wage, you know, both for our folks that work inside the stores and our tip drivers on the road and then in our supply chain business, you know, we’re in excess of fifteen dollars an hour everywhere we operate.” – Domino’s (DPZ) CEO Ritch Allison

43% of Best Buy’s sales are now online

“Online sales grew almost 90% to a record $6.7 billion and made up 43% of our total domestic sales…Our stores played a pivotal role in the fulfillment of these sales, as almost two thirds of our online revenue was either picked up in-store or curbside, shipped from a store or delivered by a store employee. The percent of online sales picked up by customers at our stores was 48%” – Best Buy (BBY) CEO Corie Barry

iBuying of homes is a commodity service

“iBuyers in a market like Phoenix for a long-time and they are duking it out. You have customers running auctions at the house where they’ve invited open door, Zillow, in this case, I think Redfin is coming to Phoenix soon, we certainly see that in other markets. So, I do think that iBuyers are competing with one another, because it’s a commodity service” – Redfin (RDFN) CEO Glenn Kelman

Airbnb built its business on PR

“Our marketing plan; therefore, our strategy is the following, a full funnel marketing approach. The top of the funnel was actually PR. we got more than 0.5 million articles in last year in 2020. And we had as much share of voice as most of the other major travel companies combined. And that’s how we really built the brand of Airbnb more than anything; probably with PR.” – Airbnb (ABNB) CEO Brian Chesky

Housing supply is still way below demand

“We’re just far away from being anywhere near the amount of supply that we need and the level demand that we have. We don’t even have our website turned on full blast to generate the demand that we could handle.” – Redfin (RDFN) CEO Glenn Kelman


eCrime is increasingly focused on “Big Game Hunting”

“The allure of big game hunting (BGH), ransomware campaigns aimed at high-value targets, dominated the ecosystem of eCrime enablers in 2020, spurring the market for network access brokers,” the report said. “BGH trends also disrupted traditional targeted eCrime behavior — as seen by threat actor Carbon Spider’s shift away from the targeting point-of-sale (POS) systems to join the BGH ranks.” – CrowdStrike (CRWD) 2021 Global Threat Report


Moderna is ramping manufacturing capacity for 2022

“…we decided to add manufacturing capacity. We have communicated previously that our capacity for 2022, given the ramp in 2021, will be approximately up to 1.2 billion doses, assuming 100-microgram dose. We have decided and have started to buy additional capital equipment, hire more people and order more raw materials towards 200 million doses per year of capacity for 2022. So if you assume a 100-microgram dose, we will have 1.4 billion doses of capacity for fiscal year ’22. In other words, we will build the manufacturing capacity to make up to 140 kilograms, yes, kilograms, of formulated mRNA in 2022.” – Moderna (MRNA) CEO Stéphane Bancel

Moderna’s vaccine is showing neutralizing activity against all current variants but weaker against B.1.351

“Last week, we published a letter in The New England Journal of Medicine with data that confirmed the Moderna COVID-19 vaccine, mRNA-1273, provides neutralizing activity against all variants of concern tested to date. Nonetheless, as recent reports have increased transmission and potential reinfections of the new variants have emerged, out of an abundance of caution, we have announced multiple strategies to try to increase protection against those variants…As has been widely reported, the immune response generated by original strains appears to be relatively weaker against the B.1.351 variant. If or when immunity wanes in the future, this might lead to a gap in protection. We plan to close this potential gap with an update to our vaccine based on the new strains. We anticipate different approaches for 2 distinct populations.” – Moderna (MRNA) President Stephen Hoge


Supply chains are still tight

“We are seeing some commodity price increases in certain spots in our Company. From a pricing standpoint, we think at this point in time that we’re able to cover most of the commodity or material increases through price. We’re taking actions on potential supply chain shortages or constraints, if you will. We’re doing some safety stocks.” – SPX (SPXC) CFO Jamie Harris 

“…we still have constraints in parts of our business that we don’t think we will solve themselves in the first half of this year. Gaming is a good example. We have yet to put the new generation of gaming consoles into our stores, we anticipate to do that soon. But we haven’t done that because there just hasn’t been enough inventory to meet demand.” – Best Buy (BBY) COO Michael Mohan

And that’s leading to pricing pressure

“Obviously, lumber being the most significant cost pressure that we’re seeing and certainly haven’t seen lumber at some of the prices that we’re seeing today in at least my career. We haven’t seen them this high. So there’s rising costs in general is a risk for us.” – LGI Homes (LGIH) CFO Charles Merdian

But there are some signs of supply chain balance

“…there was a severe container shortage, which even our largest retail partners were unable to fully mitigate. At this time, our largest suppliers have stabilized against our elevated demand. Therefore, we no longer need to issue POS 2 or 3 quarters into the future. We have gone back to issuing them closer to normal lead times of several weeks.” – Nautilus (NLS) CFO Aina Konold

“OEMs, I think, are going to be a little bit more cautious in the first half of this year and we’ll see nice pickup in the second half,” – (CARS) CEO Alex Vetter


The EV transition is real

“Seeing things like Ford’s commitment of $20-some-billion investment towards EVs over the next several years, seeing GM’s aspiration to not have internal combustion engines anymore in a decade or so, that is a very different landscape from where we started four, five years ago. And it tells you that this is happening, it’s real” – Edison International (EIX) CEO Pedro Pizarro

And it’s going to require a lot of investment in power generation

“Electric vehicles obviously going to be very real. General Motors is getting out of internal combustion engines, right? And there will be a shift, and that will drive more generation. And whenever there’s more generation, particularly if it’s renewables, that drives T&D demand.” – SPX (SPXC) CEO Gene Lowe  

“…our Pathway 2045 analysis…estimated that California would need to add 80 gigawatts of bulk power kind of wholesale level renewables and 30 gigawatts of wholesale bulk power level storage by 2045. That’s in addition to 30 gigawatts of distributed generation and 10 gigawatts of distributed behind-the-meter storage. But, all that would require something like $175 billion investment for the resource side for the renewables and storage side…that’s not all SCE, but that just gives you a sense of how big the investment need will be in order to accommodate that electrified future to decarbonize economy.” – Edison International (EIX) CEO Pedro Pizarro

Is clean energy a regressive tax?

“There’s a real recognition that there’s a risk that the entire clean energy transition, the cost of it is born in a residential electric bill. And that, in many ways is basically a regressive tax. Its tax policy borne out in electric bills” – PG&E (PCG) CEO Patti Poppe

Nuggets of Wisdom

Asset-light businesses achieve the best returns

“Our leadership in fixed-asset ownership, I should add, does not, in itself, signal an investment triumph. The best results occur at companies that require minimal assets to conduct high-margin businesses – and offer goods or services that will expand their sales volume with only minor needs for additional capital. We, in fact, own a few of these exceptional businesses, but they are relatively small and, at best, grow slowly. Asset-heavy companies, however, can be good investments” Berkshire Hathaway (BRK) CEO Warren Buffett

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