The Podcast

The Transcript Podcast Ep. 16: Ready to Party

In this episode of The Transcript Podcast, we cover the strong reopening with sold-out concerts and huge pent up demand for travel and entertainment, the heightened talk about inflation in earnings calls and The Transcript’s move to Substack

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

00:00 – The Transcript moves to Substack!

00:19 – Post-Covid Recovery Boom

01:22 – Demand for entertainment and travel on the rise

01:41 – Strong reopening with the risk of overheating

03:13 – Demand for cryptocurrency rises

04:34 – Working from home and productivity

06:50 – E-commerce vs in-store shopping

08:57 – Shift in consumer behavior

09:39 – Copper shortages

12:07 – We’re moving to Substack!


Introduction

Scott: [00:00:00]  Welcome everyone to a new episode of The Transcript podcast. You’ve got me, Scott Krisilof, I’m editor of The Transcript, along with Mokaya, who is our lead author. We put out a fresh issue of the newsletter yesterday, and there was a lot of good stuff in there.  It’s a really dense newsletter this week. From a macro standpoint, we saw a continuation of the boom from the post-Covid recovery. Things that stood out there were the return to entertainment and travel, some travel statistics that are getting back above the 2019 levels already, so real growth there, and also things like concerts selling out. People really just very excited to go out and live their lives and it almost feels to me like we’re getting back into like a kind of binge mode for the American consumer. People are flushed with cash and ready to go out and live life again. And so, it’s a.. the boom times in the U.S and there’s some inflationary implications with that too. But any thoughts on that Erick?

Mokaya: [00:01:07] Yeah, it’s one of the longest newsletter we’ve written in a while, because we had, I think, 1.5x  the amount of quotes. We had a lot, we had to cut out a lot actually to just compress it to what we have. But I think the key themes is what you’ve picked up so far. Like there’s a lot of, especially demand that is out there for entertainment and travel, people looking for really nice concerts. Like if you put out a concert, it’s out in a couple of minutes. Compare that to last year when Disney was closing down and all these things were closing down and now things are opening up. People really want to be out there. And I think, of course, the major concern is around inflation, and a lot of companies and CEOs are actually commenting about it. Not prompted mostly by analysts, but mostly actually them saying that yes, we are raising prices. Could you talk a little bit about what you’re seeing from your end, in terms of the US reopening?

Scott: [00:01:58] Yeah. it’s strong reopening. And, I think, especially after the Fed met last week and said that they were planning to continue to maintain stimulus. I think the risk of overheating is really becoming real and people are concerned about the potential of overheating. And we caught that in a quote from BlackRock’s Chief Investment Officer. But also last week, you know, outside of The Transcript, there was plenty of coverage of Janet Yellen saying that we may have to raise interest rates to make sure that the economy doesn’t overheat. And then obviously she walked that back that afternoon, but we’ve had this conversation in past weeks about behind closed doors, what are the politicians talking about and what are they saying publicly? And I think Janet Yellen may have let a behind-closed-doors conversation, slip out a little bit that day. So it’s pretty tough to ignore. It’s very clear that the economy is booming here. And it’s very clear that people are getting out and want to spend, have plenty of pent-up demand. So you know, it’s not hard to look at the data and see exactly what’s going on.

Mokaya: [00:03:04] Could be that they were testing, a little bit, the waters, on how the people would react should the interest rates rise but, I mean, like she had to walk that back. The general sense we get from the earnings was that clearly that the economy is actually booming. And the things you’d definitely notice in the market is of course the very high demand for crypto that is out there. And then I think Paypal were clear that the governments are actually considering digital currency. So something else that we picked up was about the zero demand among merchants. Would you want to comment about that a little bit?

Scott: [00:03:33] Yeah, I think both of those quotes are really interesting. The quote that you picked up from Global Payments saying that there’s quote zero demand among merchants to accept cryptocurrency.. I think that’s really telling because it shows that there’s really very few transactions going on from a goods and services standpoint in cryptocurrency. And that is basically a financial asset and a speculative financial asset at that. And so until you start to see actually goods and services transaction adoption of these en masse, I’m not sure that you can think that these are anything but speculative financial instruments.

Mokaya: [00:04:09] I mean, they, they could be. Elon Musk was on SNL just this past weekend and I’m told SNL is usually on the peak of kind of catching up to what’s happening in trends. So, I mean, it shows you that the demand, especially among retail is a lot, but may be like, companies themselves are not actually.. except for maybe Tesla, very few people actually accepting them as currencies. But I mean, moving on also, Jamie Dimon is really tired of Zoom. I actually listened to the interview on The Wall Street Journal and he was pretty clear he wants people back in the office and of course, there’s been, and one of the questions he was asked was whether there has been a little bit of pushback from people. He was very clear that this is something, this is a risk we have to take, but he is really done with Zoom and wants to cancel all Zoom meetings and be back in the office. What would you have to say about that?

Scott: [00:05:02] Yeah, I mean, I think I feel Zoom fatigue for sure. But I think I feel Zoom fatigue because I think I’m working way harder in a work-from-home Zoom environment than I would be if I were going into an office. And that’s because I have back-to-back meetings with people all over the world on different projects and stuff. It’s a nonstop thing and I think that’s why there’s Zoom fatigue. And so if you actually force me to go back into an office, I think I would be less productive than I am right now. And so it’s interesting,  I mean, the two quotes that follow the Jamie Dimon quote are one, about employers wanting their employees back in the office and then the other is employees expect to be working from home for at least part of the week. So I think what I hear from people, you know, employees on the employee side, I think they prefer to be working from home at least three days a week, two, three days a week. But I hear on the employer side a lot that opposite that they think from productivity, they want people to be in, in the office and we’re losing some of this serendipitous productivity that you would have in the office. So I think there is some tension between what employers want and what employees want and I think what’s really gonna win out is productivity. What’s the most productive way to have an organization because those, those organizations will end up rising to the top and you’ll have to, you know, we play a win. So the organizations that win are the ones that will adopt it.

Mokaya: [00:06:26] You would obviously know like the next couple of months, companies are going to have to have these tough discussions with employees between, where are you more productive? Are you more productive in the office, at home, or do you want to be hybrid? And my bet would be more hybrid for a while because I think there are a lot of things that people have adopted at home. And also companies have noticed, like we can cut down on expenses by people doing a lot of meetings on Zoom.

Moving on, you could also notice in the consumer section that comps for e-commerce companies are actually getting harder. I mean, Etsy had a spectacular year and I   from a lot of the companies, especially, which moved online, a lot of the sales picked up online and they were posting a lot of growth. Right now they are kind of they’re actually guiding that this year would be lower. So don’t expect the same amount of growth that we had last year. So you could notice from the two quotes we have there from Adidas and Intellicheck, both saying that people actually want to be back in the stores shopping again. So not, I mean, last year it was more about shop online. You could also see this maybe as a continuation of the Zoom fatigue. People, maybe, are tired of shopping online and want the experience of.. the magical experience of just being in a store, doing window shopping and just buying stuff, maybe on impulse, and then going back home with them.

Scott: [00:07:40] Yeah, I mean, I think the brick and mortar quotes were surprising to me but I think the e-commerce quote about comps getting harder for e-commerce companies is a really important investment catalyst or potential investment catalyst. Not really from the long side. I mean, I guess you could go long-short kind of like brick and mortar and short e-commerce, that feels really gross to me. You know, that seems to be like where you might be getting a dynamic here just because e-commerce comps are gonna get really hard for the rest of the year when you’re annualizing what happened last year, so…

Mokaya: [00:08:17] So it’s hard to beat last year. And I think that’s also what maybe Stanley Black and InterActive Corp have also noticed in the home improvement environment. People are home a lot last year, they invested in the home, but now it’s like, it’s really hard to beat that again. People want to be out there and not at home for a little while. I think. And maybe some of these trends will take a while to balance out, like what’s the correct balance between working at home and working at the office, and what’s the correct balance between shopping at the store and shopping online, and what’s the balance between, you know, doing home improvement and just maybe being out there and maybe doing other sports and all.  Anything else that picked your interests this week?

Scott: [00:08:57] Yeah, I mean, just on those housing quotes, it goes back to, again, the macro section that there is a real and profound shift in consumer behavior in the United States. As we’ve gotten to higher levels of vaccination, people are going back to living their lives the way that they used to live their lives and in fact, we’re even going beyond that. I think we’re going to an extreme of bingeing on behaviors that we hadn’t been able to engage in for the last, last year and a half. So, you know, a lot of those pandemic trends are going to have tough comps and they’re probably going to reverse the other way because you’re just not doing the same things that you were doing for the last year. Thankfully.

One other thing that I think is an investment catalyst that people should be paying attention to was in there, the materials and energy section. A lot of quotes on copper and shortages of copper and copper prices going up. I looked at Freeport-McMoRan after reading some of these quotes for the first time in a while and it was stunning to see that stock up to where it was, where it is. I think it’s like a $60 billion market cap or something. And it’s, it’s really interesting this whole inflationary dynamic that’s taking place, especially for people who were in financial markets before the 2008 financial crisis. There’s a lot of echoes of some of this stuff where the last time we really got some inflationary boom and commodity prices, especially. So Freeport-McMoRan is kind of a throwback to . 

Mokaya: [00:10:27] I mean reading those quotes, and I think there are a lot of other quotes about copper, by the way, we just cut to them to four, copper prices and generally I think raw material prices are actually rising a lot. And I think the, the key aspect that I pick are two. One was that why this can actually be a bit of an investment catalyst is that we are, the easy to get copper is out. The prices actually have to go higher to motivate producers to actually go to these far-flung areas to actually get the copper.

And you need copper, especially for the transition between going to renewables.  The electric vehicle requires a portion, approximately 3.8x the amount of copper a normal vehicle does. So I think that the demand is going to be higher, definitely. The prices have to be higher, but then at the same time, Sierra Metals is saying that this is the largest swing in terms of prices in copper that they’ve seen in the past ten years. So it really does tell you something about the trends here. And of course, lumber prices are up. Everything’s price is up right now. And I think it’s, it’s, it’s scary at the same time. And, and comes back. It draws us back to what we asked at the beginning. The fed is seeing these things, I would bet. They’re reading the transcript, I would bet. And they’re noticing the same things we’re noticing.

Scott: [00:11:39] They have to. I mean, it’s just, it’s very clear. It’s not like we have to stretch for any of the quotes that we’re pulling out or stretch to make a story. That’s the nice thing about what we do, we’re just kind of telling a story from what we’re reading. And it’s pretty obvious that this is on the minds of people running major segments of the economy and so if, you know, economic leaders in government aren’t paying attention to these quotes, I could say they’re committing malpractice.

Mokaya: [00:12:06] Yeah, definitely. I think could end there for today, but we have some interesting news. We’ll be on Substack from next week. You want to elaborate on that a little bit? On the vision we have for that?

Scott: [00:12:16] Yeah, so we’re going to be moving over to, to Substack for our newsletter starting next week and we’re really excited about that. We’ll be continuing to have free content. Parts of the newsletter will continue to stay free. And then we’re going to focus on being able to provide more investment catalysts for paying subscribers. So, you know, we highlighted a few investment catalysts from this week. You know, each week when we put these together, there are, there are investible thesis that pop out of these and we want to be pulling those out and making sure to highlight those for paying subscribers so that we can be impacting people’s portfolios directly. Because I know Mokaya and I use this primarily as, as an investment tool for ourselves. And there’s a lot of investment gains to be had through this work. So we want to make sure that our readers are being able to see that very clearly from us. And part of that will be through subscriptions on Substack.

Mokaya: [00:13:12] And then something else we may also be having maybe once a quarter to meet up some of the subscribers who are paying. So look out for all these kinds of content that we’ll be putting out and definitely we’ll continue making The Transcript better. This is our move to make sure that to get even higher quality content on The Transcript every week.

Scott: [00:13:30] Yeah, I think one other note I want to make is that we’ve been seeing increasing outreach from institutional subscribers, looking for additional insight from the two of us about what we’re seeing in the work that we’re doing. And we are happy to, to provide high levels of service to institutional investors. If anyone wants to talk about kind of a higher level of engagement with us we’d be happy to, to have those conversations. So all good things. We’re moving forward, we’re expanding and we really thank everybody who’s, who’s been along with us for this.

Mokaya: [00:14:05] Yep. Thank you so much for joining us this week and look forward to seeing you on Sunstack and as we made the transition from Monday next week thank you for this week.

 

Transcript by Eric Maina


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