Feelin’ Fine
Capital markets are beginning to look past inflation
Succinct Summary: Most people thought that the economy would be in worse shape than it is but things, honestly, still seem fine. The consumer continues to spend and capital markets are beginning to look past inflation. It's hard to believe that the Fed could tighten as aggressively as it has and not cause a recession, but there aren't many signs of recession in the data that we're looking at.
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Macro
We thought we'd be in worse shape by now, but things are still fine
"[Our middle market clients are] trying to be careful. They're trying to make sure they can maintain margins. They're trying to make sure that they don't see a change in final demand. But most of them, honestly when you ask them, they're saying, "I thought I'd be in worse condition right now. I thought it'd be facing more pressure, and things are still fine." And so that's a conundrum because at the end of the day trying to be careful on hiring and things like that in the general sense, yet they're seeing the final demand of their products and service is strong...So I think overall, midsized companies, I'm with a group of them last week, and they all kind of don't want to say it out loud, honestly, that they're fine, they're doing fine." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan
Consumers are resilient
"So let's do consumer first. So -- in the grand scheme of things, things haven't changed particularly very much since earnings. Probably at the margin, things are slightly more positive...So broadly a continuation of the same themes. We can talk about the outlook a little bit, but in terms of what the data is showing us right now on the consumer side, it's [positive]." - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum
"U.S. consumers healthy, they are resilient -- they are healthy, they are resilient. The savings rates in the U.S. peaked obviously during COVID and that's sort of coming off. But still, the savings are much higher than pre-COVID. So that's why the health of the client and the resilience comes from." - Citigroup (C 0.00%↑) CEO of Personal Banking & Wealth Management Anand Selvakesari
"So I think the consumer has been much more resilient than people expected. I think there have been behavior patterns based on the way people live and work. They've affected people's disposable income and have shifted the way they're doing certain things, and there's been a long run out on that." - Goldman Sachs (GS 0.00%↑) CEO David Solomon
"And then if you look at the consumer, they keep spending money. And at the end of the day, we're the largest economy in the world, the consumer-driven part of it, the consumption part of it is as big as any other economy on its own. And those consumers have money, they're employed, and they're spending money and they have a lot of capacity to borrow." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan
Try getting a restaurant reservation
"On the credit card side, we're up at almost 20% in the month year-on-year...So the consumer side, people are out there still spending, and you can see that in your day-to-day life. Try getting a restaurant reservation in most cities these days, right? It's really hard if you want to do something last minute. And so I think we're seeing people out there." - Wells Fargo (WFC 0.00%↑) CFO Michael Santomassimo
Or a hotel room
“As we look ahead, while concerns about the macroeconomic environment persist around the world, booking trends to date remain robust and we have significant momentum in our business...January global RevPAR rose 52%, with the U.S. and Canada up 43%. We anticipate that first quarter RevPAR could increase 25% to 27% in the U.S. and Canada, 47% to 49% in international markets and 30% to 32% worldwide." - Marriott International (MAR 0.00%↑) CEO Anthony Capuano
"Consumer demand remains strong. Our middle-class customers continue to spend more on travel than they ever have, and they are staying longer than they were back in 2019, given hybrid work environments" - Wyndham Hotels & Resorts (WH 0.00%↑) CEO Geoffrey Ballotti
Inflation is still high
"The all items index increased 6.4% for the 12 months ending January; this was the smallest 12- month increase since the period ending October 2021...The index for shelter was by far the largest contributor to the monthly all items increase, accounting for nearly half of the monthly all items increase, with the indexes for food, gasoline, and natural gas also contributing" - US Bureau of Labor Statistics
“There's no doubt that inflation is impacting consumer decisions, and it's looking likely that inflation will continue into next year, albeit at a moderating pace” - BJ's Wholesale Club (BJ 0.00%↑) CEO Robert Eddy
But markets are starting to look past inflation
"Clearly, the market has a sense that we're putting inflation in the rearview mirror. The market's behaving that way. But I'm less certain and I think it's going to be a twisty-turny kind of road to kind of navigate through this and get to the other side. But I think the chance of a softer landing feels better now than it felt 6 to 9 months ago." - Goldman Sachs (GS 0.00%↑) CEO David Solomon
The consensus is more dovish now
"...the consensus has shifted to be a little bit more dovish in the CEO community that we can navigate through this in the United States with a softer economic landing than what people would have expected 6 months ago. So I know that -- I saw recently a CEO survey that was sponsored by the Conference Board, that basically said that 85% of the CEOs that were surveyed thought that the most likely scenario in 2023 was kind of a mild recession or no recession, a shallow recession or no recession. If you had looked at that back last June, you would have had a much greater percentage of the population say there was no CEOs saying there was no chance we can navigate through this without a very meaningful recession." - Goldman Sachs (GS 0.00%↑) CEO David Solomon
Can the Fed really be this aggressive and not cause a recession?
"And so [our economists are] sitting and saying, I know it's got to come. The Fed can't tighten this aggressively and not cause [a recession] -- and I understand that, but they don't see it. And that's why I keep saying that they'll just move out a little bit and get a little less severe each time our team comes out." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan
A strong consumer is ultimately a good thing
"...and that's a conundrum for the Fed to slow it down. And it's a good thing. The best thing about the U.S. is a consumption-led economy by U.S. consumers who spend money very well, is a nice place to be. And that's the tension that's going on." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan
International
Europe is under some pressure
"And as we look around the world, taking the various different pieces, starting in Europe perhaps or in EMEA, clearly, Europe is under some more pressure. The impacts of the conflict drove a much greater spike in -- short-term spike in inflation. That's playing itself through. It looks like the European economies are going to avoid a technical recession, but clearly, consumer demand is softening, and I think that's likely to continue into the rest of the year." - The Coca-Cola Company (KO 0.00%↑) CEO James Quincey
Financials
Capital markets activity is starting to pick up as expectations have reset
"So you're starting to see a pickup, that's confidence based, too. That's also pricing expectation. So if you thought that you could do a debt deal at x price and all of a sudden, it's x price plus 200, you pause and say, "well, I'll wait till it goes back. After about 4 to 6 quarters, you realize, no, it's not going back. I actually need the money. This is what the money costs and let's move ahead. The same thing with IPOs. If you thought you could take something public at x multiple and now it's x multiple less 40% or 50%, it's going to take 4 to 6 quarters -- well, that's the adjustment that we've been going through. But the capital markets are important to investment in growth." - Goldman Sachs (GS 0.00%↑) CEO David Solomon
"...that bid-ask spread is still there, for sure. So you still have founders, you still have management teams that are waiting and to some degree, hoping that we see a pickup in overall equity valuation. But as we've mentioned, with every passing quarter, you see companies getting a bit closer to a point in which they're going to need to do something from a funding perspective." - SVB Financial Group (SIVB 0.00%↑) CFO Daniel Beck
There is a huge shift to bonds happening
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Credit quality may be starting to normalize
"You're certainly seeing credit card delinquencies increase a little. You're seeing charge-offs increase a little. You're seeing some noise in the auto portfolio. But overall, it still feels okay, and it's moving in a very gradual pace in the consumer side...In commercial real estate, there's certainly a lot of potential stress in the office market. It's a long movie, though. We're still pretty early in the movie. And so it's going to take a while for that to play out. It hasn't really translated into any significant loss content at this point, but it's certainly something we're very focused on." - Wells Fargo (WFC 0.00%↑) CFO Michael Santomassimo
Lower FICOs are seeing more pressure
"...we are seeing credit normalization. The way I would put credit normalization is in the lower FICOs and the lower income growth, we are seeing an accelerated normalization. They are normalizing faster versus compared to the higher FICO and the higher income growth." - Citigroup (C 0.00%↑) CEO of Personal Banking & Wealth Management Anand Selvakesari
"...as we exit 2022 and enter a new year, consumer delinquencies remain elevated, and the funding markets remain limited in their appetite for risk." - Upstart (UPST 0.00%↑) FO Sanjay Datta
CMBS markets are still largely closed
"The financing markets remain highly constrained, driven by the volatility from the Fed's sharp rate increases. Banks are dealing with an increase in problem loans and remain cautious in lending and the CMBS market is still largely closed. While financing is available for the highest quality sponsors and properties, the markets will take some time to thaw, which likely won't happen until the Fed ends its tightening cycle." - Vornado Realty Trust and Alexander's (VNO 0.00%↑) CFO Michael Franco
Venture investment could be down 20-30%
"...on an annualized basis, we were thinking venture deployment was going to be anywhere between $120 billion to $140 billion, with venture deployment down likely in the first couple of quarters by kind of 20% to 30%. And that's largely shaking out from a deployment perspective." - SVB Financial Group (SIVB 0.00%↑) CFO Daniel Beck
HNW investors are not afraid of the market
"Then if you look on the wealthy side clients, you're all in the markets, you're investing their money, they're basically invested and cash balances aren't excessive. They're not worried about things and they move it around and think about it. But it's not like they're afraid of the market." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan
New company formation is still strong
"...we continue to see data supporting the strength of entrepreneurship and new business starts. According to the U.S. Census Bureau, applications for new businesses have been approximately 5 million a year for 2021 and 2022, which is a step function above the 4 million per year average for the previous 5 years." - Shopify (SHOP 0.00%↑) President Harley Finkelstein
Regulators are unlikely to allow large bank mergers
"I also think we're operating in a regulatory environment. Just to use your word, if we try to do something transformational, there would be a very high bar to get over it. I don't -- there was -- I mean there was an article written somewhere I saw that was -- somebody who's suggesting we should merge with another G-SIB. I can assure you there is no possibility in the world that we can merge with another G-SIB, and that's not something we want to do." - Goldman Sachs (GS 0.00%↑) CEO David Solomon
Consumer
Digital advertising is now 2/3 of total market spend
"Before the pandemic, digital advertising accounted for around half of total market spend, last year it represented more than 2/3 of the market...What's driving these 2 trends? Well, as I've said many times before, CTV is changing everything in advertising. Not only is the shift from linear to CTV driving significant growth in digital spend as advertisers shift dollars from linear TV to connected TV, but more spend is happening outside the walled gardens as advertisers shift spend from user-generated content to premium streaming content." - Trade Desk (TTD 0.00%↑) CEO Jeffrey Green
Advertisers are moving to streaming
"...big picture streaming is popular. Theatres are switching to streaming. Advertisers are moving to streaming...if you look at traditional TV in Q4, hours were down 5% year-over-year, but on our platform, hours grew 23%." - Roku (ROKU 0.00%↑) CEO Anthony J. Wood
The Trade Desk is gaining market share
"[in 4Q] we grew 24% and most of our large competitors were posting between negative 9% and negative 2% growth. I don't think we've ever had the level of industry outperformance in our 6 years or so as a public company as we did in 2022. And it means that we can be very confident that we're gaining share and that our platform continues to gain traction with advertisers." - Trade Desk (TTD 0.00%↑) CEO Jeffrey Green
There's an important shift happening in advertising IDs
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Airbnb posted strong growth
"2022 was a record year for Airbnb. Revenue of $8.4 billion grew 40% year-over-year...Net income was $1.9 billion, which marks 2022 as our first profitable year...Add to a couple of things. One is our headcount is actually still 5% below where it was in 2019. We have a revenue is 75% higher. So we're nearly twice as big as we were previously with fewer people." - Airbnb (ABNB 0.00%↑) CFO David Stephenson
New pool construction is slowing
"As of right now, we expect that new pool construction in units could be down approximately 15% to 20%, although this number will likely vary broadly by market and geography. Higher-end markets will be stronger, while lower-end and entry-level pools will continue to see headwinds. Renovation and remodel should be solid in most markets as we believe renovation activities may see only a modest decline in 2023" - Pool Corporation (POOL 0.00%↑) CEO Peter Arvan
Technology
Consumer tech markets remain weak
"In this environment of mixed macroeconomic signals, our customers are facing a variety of demand dynamics. Consumer-driven markets, including PCs and smartphones, are clearly weaker while inflection-driven markets remain more resilient, especially high-performance computing and AI, automotive, industrial automation and clean energy." - Applied Materials (AMAT 0.00%↑) CEO Gary Dickerson
PC markets could stabilize in the 2nd half of the year
"While the PC market still needs some time to digest the inventory to a healthier level, we believe total shipments are likely to stabilize at a higher than pre-pandemic level as early as the second half of this year," - Lenovo ($LNVGY) CEO Yang Yuanqing
Memory spending is likely to be down
"2023 will be a down year for memory spending as customers rebalance inventories and defer capacity additions in both NAND and DRAM. We expect DRAM to pick up ahead of NAND, potentially beginning to recover later this calendar year. We now see leading-edge foundry-logic spending being slightly down year-on-year." - Applied Materials (AMAT 0.00%↑) CEO Gary Dickerson
ChatGPT's competitors are attacking its accuracy
"The use cases we work on are not consumer, so consumer is a lot easier to explain: they type in something and, some number of times out of 10, you get an interesting, intriguing, and in the right ballpark answer. What nobody can quite say is how likely is it to get a completely incorrect answer, as at least one of the two demonstrations has shown. If you’re using it for consumer search, fine. If I’m using it to answer a question on somebody’s financial transaction, that’s actually quite a problem. Or, if it’s being used to answer somebody’s question on what healthcare treatment they might seek. So, for enterprise use cases, I still think that there is a massive opportunity that is outside the pure consumer space." - IBM (IBM 0.00%↑) CEO Arvind Krishna
IBM's CEO sees a similarity between ChatGPT and Netscape
"I think the marketing moment offered by ChatGPT is incredible. We’ve seen these moments before: a company called Netscape brought the web browser to everybody’s attention. I mean Netscape was not an eventual winner but the internet certainly was. I think what ChatGPT has done [is] helped make AI real to lots of people who kind of were aware of it but didn’t maybe quite see what the power of AI would be. So full credit to what they did there." - IBM (IBM 0.00%↑) CEO Arvind Krishna
Industrials and Transport
Supply chains continue to heal
"With lead time and availability of equipment mostly back to historic levels, our dealers changed their buying habits back to a more normal practice of purchasing equipment as needed during the construction and repair process as most availability concerns have abated. I mean in any given year, there's going to be a shortage on something, but most of the manufacturers would say that, for most products, availability was not an issue for the back half of the year, and it got better as the year progressed." - Pool Corporation (POOL 0.00%↑) CEO Peter Arvan
Automotive production remains strong
"In our view of the current economic landscape, automotive is the most exciting steel-consuming sector for 2023. The current age of cars on the road, the consumer backlog, the low unemployment rate and the still low inventory levels at the dealer lots continue to point to growth in automotive sales and production over the coming years, particularly now when they have finally improved the performance of their supply chains. Our January auto steel shipment rate was its best in nearly a year, and we expect this momentum to continue throughout 2023." - Cleveland-Cliffs (CLF 0.00%↑) CEO C. Lourenco Goncalves
New vehicle inventory is still constrained
"...if you look at our overall inventory levels and our days of supply, it's still very, very low...and I think we'll end the year with continued low -- relatively low -- very relatively low, frankly, when you look back at some of the previous year’s inventory levels on a day's supply basis...the days I hope of 75 to 90 days of inventory are long in the past. I also think periods of nine days are unsustainable, we're at 19. And I think with cooperation from our partners, a 30 to 45-day type normal is a pretty healthy place for everyone to operate." - AutoNation (AN 0.00%↑) CFO Joseph Lower
Demand for large agricultural equipment holding steady
"...large ag equipment demand is holding steady. We expect industry sales of large ag equipment in the U.S. and Canada to be up approximately 5% to 10%, reflecting another year of demand. The dynamics of strong ag fundamentals, advanced fleet age and low field inventory all remain. We expect demand to exceed the industry’s ability to produce for yet another year." - Deere & Company (DE 0.00%↑) Manager of Investor Communications Rachel Bach
Materials & Energy
Fossil fuels still represent 80% of the world's energy
"Over 80% of the world's energy currently comes from fossil fuels. The energy supply cannot be rapidly changed through policies attempting to force premature transition without significant costs and supply disruptions. It is the impacts of changing laws, policies and politics that are mandating or incentivizing scarcity in parts of energy stack...We should be looking at energy addition rather than a forced transition." - PBF Energy (PBF 0.00%↑) President Matthew Lucey
Real Estate
More workers are returning to the office
"We are seeing a real pickup in the return to office throughout our portfolio, particularly Tuesday through Thursday. Utilization rates are approaching 60% and momentum is improving month by month. Both employers and employees clearly recognize the productivity, collaboration, creativity and cultural benefits of working in the office together." - Vornado Realty Trust and Alexander's (VNO 0.00%↑) CFO Michael Franco
Amazon wants people back in the office
"Ultimately, they’ve led us to conclude that we should go back to being in the office together the majority of the time (at least three days per week)...Of course, as there were before the pandemic, there will still be certain roles (e.g. some of our salespeople, customer support, etc.) and exceptions to these expectations, but that will be a small minority. We plan to implement this change effective May 1." - Amazon (AMZN 0.00%↑) CEO Andy Jassy
But commercial office leasing has slowed
"The pace of leasing has slowed in the past few months, and the activity is lumpier as businesses generally are feeling cost pressures and are exercising more caution. Companies are still grappling with hybrid work policies and the right level of flexibility, but overall sentiment is shifting more closely to pre-pandemic norms." - Vornado Realty Trust and Alexander's (VNO 0.00%↑) CFO Michael Franco
Housing markets softened in February
"Mortgage rates had fallen from 7.3% in November to 6% in early February, then climbed above 6.7% yesterday on the news. Unsurprisingly, Redfin's February demand is still better than it was in November even after accounting for the season, but worse than it was in January." - Redfin (RDFN 0.00%↑) CEO Glenn Kelman
Inventories are still low
"The number of homes on the market at the end of January 2023 was up 40% since January 2022, but it was still at roughly half the pre-pandemic level it was from 2016 to 2019 during a strong seller's market. Our agents report that would-be sellers with 30-year mortgages at a rate below 3% are choosing to keep their homes instead of selling, either to live in or to rent out...normally in a downturn inventory shoots through the roof but that hasn't happened." - Redfin (RDFN 0.00%↑) CEO Glenn Kelman
Nuggets of Wisdom
Have fewer people in meetings
"...obviously, in 2020, we had to make some really difficult decisions -- and we became a much smaller and more focused company. And the obvious result of that is that we got more efficient and more profitable. But there was a less obvious result. What ended up happening is we have fewer people in meetings and people can move a lot faster. And we concentrate all of our very best people and put them on only a few problems. And I think that's been an explanation for why the company has grown really quickly. But also, I think it's made us a much more attractive place to work because it's much easier to get work done." - Airbnb (ABNB 0.00%↑) Brian Chesky
"Not being crazy" is a competitive advantage
"If you're just not crazy you have a big advantage over 95% of the people because most people have all kinds of crazy patches. If you just are consistently not crazy, you get a big advantage in life. Add patience and gratification deferred in addition to being not crazy, that's practically essential. and then if you're exceptionally good at satisfying your commitments to other people, then you just automatically improve your resources and your chances in life enormously and it's so simple. And why don't more people do it it's an interesting question I don't think you can educate your children to do it automatically" - Daily Journal (DJCO 0.00%↑) Chairman Charlie Munger
Go all in on good bets
"I sometimes ask myself a mental question. I say, what is the appropriate percentage of your net worth that you should put in the stock if you think it’s an absolute hit? Well, if you’re the kind of fella who’s right, if you think something is essential, the answer is 100% or maybe 150%. But nobody, nobody teaches people to think that way to finance but if you ever do it, he’s great enough the logical answer is 100%. Or maybe 200%...I think most people should avoid it but maybe not everybody plays by those rules. I have a friend who says, the young man knows the rules and the old man knows the exceptions." - Daily Journal (DJCO 0.00%↑) Chairman Charlie Munger