In Good Shape
Consumer confidence is up and consumer spending remains robust
Summary: The economy is in good shape. Consumer confidence is up and consumer spending remains robust. The base case seems to be that we had a soft landing, but Jamie Dimon still seems to want to hedge that bet.
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MacroMacro
The economy is doing well
"We feel that the economy is in good shape. It's healthy. Inflation is moderating, and a soft landing is our base case. So that's fundamentally what we think about. In terms of – maybe I can break that down into a couple of different pieces. So I can talk about in the consumer side, we see that people are employed, they're spending, their wages are growing. Now their savings, they're starting to dip into that as they make these purchases. Their levels are kind of where they were pre-pandemic. But overall, they're healthy." - U.S. Bancorp (USB 0.00%↑) CFO John Stern
“We would have thought that the aggressive Fed activity would have created tighter financial conditions. In retrospect, they haven't, as we all know, when we think why that's been the case, if you look at the average mortgage in the U.S., the average mortgage of all the folks who have mortgages, which is about 60% of homeowners, it's 3.8%. So we've not seen the impact of lower -- of higher rates on consumers in the U.S. as far, very resilient economy. You have to think that some of the inputs that the Fed is using on all their dot plots have been wrong” - Apollo Global Management (APO 0.00%↑) CIO James Charles Zelter
Confidence is up
"But right now, confidence is up. There's more M&A chatter. Equity markets are open a little bit. Spreads are getting close to historical lows, which means there's a lot of money chasing a high-yield deal. So things are open, markets are high, people feel it. So far, so good" - JPMorgan (JPM 0.00%↑) CEO Jamie Dimon
Consumer spending remains robust
"The consumer remains resilient and consumer spending remains robust. As we look at both macro factors as well as Mastercard's own data, we see that spending is quite healthy...Here in the US, we look at wage growth relative to CPI or inflation. And generally, as long as wage growth is higher than CPI, we believe consumers have purchasing power. And so far, that theory has been proven. We are looking at the trends around availability of capital, consumer debt, and certainly geopolitical challenges that may exist globally" - Mastercard (MA 0.00%↑) President Linda Kirkpatrick
"I feel that we say the same thing over and over the last number of quarters, but the consumer continues to be very resilient through a time where I think we all would have thought there would have been more weakness at this point...We were saying before the conference, you go out and you go out to dinner, restaurants are packed. You travel. The plane I was coming on down here last night, was packed, not a seat on the plane. And so you see the signs that are out there that it's still very, very active and I think that's what you see in the underlying spend data." - Wells Fargo (WFC 0.00%↑) CFO Mike Santomassimo
“Consumers are doing what they do best, which is to consume...And importantly, all the credit numbers, the balance sheet side of the consumers is very strong” - American Express (AXP 0.00%↑) CFO Christophe Y. Le Caillec
But it’s tough for lower-end consumer
"Now, having said that, we still expect that deposit balances are going to come down as people spend. We expect that you're going to see some deterioration in credit as time goes by and I think we can't get lost. Although the averages in the aggregate all look really good, there are still a bunch of cohorts of clients and consumers that are more stressed, right? Folks that are on the lower end of the wealth or income spectrum, they're definitely feeling stress more than others. Now, wage gains have helped offset some of the inflation that we've seen, but it's still pretty tight for a number of consumers out there." - Wells Fargo (WFC 0.00%↑) CFO Mike Santomassimo
Labor markets are still tight
"I think labor is still a little tight in some cases, depending on who you talk to. It's not -- I think you see lots of headlines around what's happening in the labor market. But in reality, it's still very tight, I think, for a lot of companies out there." - Wells Fargo (WFC 0.00%↑) CFO Mike Santomassimo
It’s still possible that the market is overconfident in a soft landing
"70 or 80 percent chance. We'll have a soft landing. I give it half that. We may very well have one, but I think there's also a higher chance in the market. Things have raised me a little bit higher. Another thing I think it's always a mistake to do is look at just the year, all these factors we talk about QT, fiscal spending, deficits, the geopolitics, those things may play out over multiple years, but they will play out and they will have an effect. And we just don't know what they are. So I'm just, my mind, I'm hedging" - JPMorgan (JPM 0.00%↑) CEO Jamie Dimon
International
The US is still the best place to invest
"So the situation worldwide is getting more and more difficult. As you know, about all the geopolitical uncertainties. China's economy is going down. Deficits are rising everywhere. But still, the U.S. market keeps climbing to new highs…the U.S., in spite of it being in some sense, a deteriorating situation politically, financially, and even culturally is still relatively the strongest place in the world to bring your money. So that's what people are doing, and that's what we see in our rising account numbers. People from all over the world want to have their money in the United States. So they invest in the U.S." - Interactive Brokers Group (IBKR 0.00%↑) Chairman Thomas Pechy Peterffy
“There's massive enthusiasm for risk. The U.S. is the place to be with base rates higher, it's a great time to be in credit with an underlying economy growing, it's a great time of [indiscernible] credit” - Apollo Global Management (APO 0.00%↑) Co-President & Chief Investment Officer-Credit James Charles Zelter.
A lot of international economies are increasingly weak
"We expect the environment around us to continue to be volatile and challenging from an input cost standpoint to currencies to consumer retailer and geopolitical dynamics. This includes continued market pressure in Greater China and softening underlying market trends in some European enterprises and Asia Pacific, Middle East, Africa countries, such as Egypt, Saudi Arabia, and Turkey, following multiple rounds of pricing to offset inflation and due to heightened tension in the Middle East." - Procter & Gamble (PG 0.00%↑) CFO Andre Schulten
"Shifting to International. Same-store sales, excluding foreign currency impact, increased 0.1%. The deceleration from the third quarter is being driven primarily by pressures in Europe and geopolitical tensions in the Middle East. Please note that the Middle East represents a relatively small portion of our profits at less than 3% of our operating income." - Domino's Pizza (DPZ 0.00%↑) CFO Sandeep Reddy
China is changing in some significant ways
"But most importantly, fundamental to us, it's unlikely for China to go back to the old growth model, which relies excessively on borrowing and channeling excess to savings to unproductive investments to boost GDP. That's not going to come back. Now the shift landscape from a policy perspective, it's not a change of that new growth model that China want -- China intention -- has the intention to go for. But it's a reality check on the timeline and execution of the new growth model, right? So that will have implications that require everybody, all participants in the economy, the government, the corporates, financial institutions, and investors to adjust our expectations to adapt to this new normal. That has implications on how we do things, right? For example, in the past, China is one way, beta. You close your eyes by the ship -- by the worst credit, right, then you're going to outperform. But now people need to go back to basics, focus on the bottom left, on the vendor credit selection for alpha generation, particularly when market growth is still there." - Allianz Global Asia Fixed Income CIO Jenny Zeng
Reshoring trend continues
"I would say in the -- I mean a couple of years ago, we started talking a lot about the reshoring and nearshoring, if you remember. And we still see a continuation of that. That hasn't really stopped at all. We see whether it is an extension of whether the producing facilities opening and -- or even we have one of our now vendors is basically moving their product from China to Mexico to [ B&B ] closer. So we see a lot of continuation of reshoring that is happening. That's definitely [not] the one." - Ingersoll Rand (IR 0.00%↑) CEO Vicente Reynal
Financials
Borrowers are managing debt conservatively
"In our lending business, we are taking more of a conservative approach given the macro uncertainty with respect to rates as well as liquidity concerns across the broader industry” - SoFi Technologies (SOFI 0.00%↑) CFO Christopher Lapointe
"On the wholesale side or business side of things, we're seeing that, again, people are – balance sheets are healthy, but there's cost avoidance that CFOs and others want to avoid, and so high interest rates are a headwind to taking out loans. And so we do see that. And that's, I think, reflective in the H.8 data that you're all seeing in terms of where a loan growth goes at this particular point in time." - U.S. Bancorp (USB 0.00%↑) CFO John Stern
"I think people are just being cautious and prudent as they look at their borrowing. And that's just -- it feels like that's -- it kind of makes sense if you think about what could be still a potentially more difficult environment even though the consensus appears to be very much aligned around this soft landing concept. It could be a little bit more problematic depending on how things play out. And I think people are just being very prudent." - Wells Fargo (WFC 0.00%↑) CFO Mike Santomassimo
SOFI is seeing robust demand though
"Given where we're sitting today and our posture on flat to down PL originations, modest growth in SLR and growth correlated with rates on the home loans business, coupled with the fact that we do have really robust demand from credit borrowers more than we've seen over the course of the last few years. But we expect the growth of the balance sheet to be relatively modest." - SoFi Technologies (SOFI 0.00%↑) CFO Christopher Lapointe
Charge-offs & delinquencies are at pre-pandemic levels
"As we look at the macro environment, we see inflation cooling, certainly across the Americas. We see that charge-offs and delinquencies are now back to pre-pandemic levels but are leveling off. We certainly see a strong consumer sentiment." - Mastercard (MA 0.00%↑) President of The Americas Linda Kirkpatrick
Capital One bought Discover to build it’s own payments network
"...from the founding days of our company, we've been very focused on the payments business, as we felt it's the tip of the spear of how technology and information are going to change financial services. So in many ways, what Capital One did over the years is build an information-based payments company. But there was always one sort of a gap, a very big gap sort of in what you'd normally have if you build a full payments company, and that was the network, and they're a very small number of networks. And so all of us built our business. And it was certainly very successful, but with an intermediary between us and the merchants -- that intermediary, of course, being Visa and Mastercard. So buying a network allows us to go directly to the merchant. And there's just many, many benefits of going direct….Discover created this extraordinary network…the appeal of the Capital One acquisition is to be able to add a whole bunch more scale to the network and to allow them to achieve things that otherwise they were not able to do" - Capital One Financial (COF 0.00%↑) CEO Richard D. Fairbank
"I don't know what their plans are, really. I, like I said, have a lot of respect for whatever Richard does, I pay a lot of attention to it. Can they actually create another credit card network? I don't know. But my view is to let them compete. Let them try. And if we think it's unfair we'll complain about that, but I'm not worried about it really. Like I, but we do track everything he does. I always make a joke with Richard that the reason I have my job is because of him because Cap One is the one that dissected the credit card business. Cap One started beating the hell out of First USA, which had been bought by Bank One, collapsed, and you know, called into the credibility of the management, and they hired me. So Richard is why I'm here" - JPMorgan (JPM 0.00%↑) CEO Jamie Dimon
2023 was tough for insurance
"2023 was a year of extraordinary challenges in the insurance world: the hardest reinsurance market in decades, some of the worst winter storms on record, and combined ratios above 100 throughout the industry. Several of the largest insurers in the US pulled out of some of its largest states - an unprecedented sign of distress. …Turning to 2024, there’s reason to be hopeful that many of the industry’s headwinds of ‘22-‘23 may turn into tailwinds in ‘24-‘25: inflation seems to be receding, new rate approvals are adding up and earning in, and if the costs of capital come down, we may yet see a moderation in reinsurance costs too" - Lemonade (LMND 0.00%↑)
JPMorgan is planning for life after Dimon leaves
"...for fairly obvious reasons, [succession planning is] particularly important for us. And so in that context, takeaway number one is that the Board is taking succession very seriously, and so is the management…the second takeaway is that we have a very impressive, broad, and deep bench of very talented people. And those people are getting moved around in various ways and given new opportunities to develop new skills to make them better prepared and more credible as successors" - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum
Consumer
Home improvement spending has slowed
"Beginning with our DIY sales results, November and December trends improved from the third quarter, followed by a sharp drop in traffic during periods of extreme weather in January. Macroeconomic factors like persistent inflation and a stagnant housing market continue to make DIY customers and consumers hesitant to spend on big-ticket purchases for their homes, and those who did engage in home improvement activities took on smaller non-discretionary projects with a heightened focus on value…the consumer is healthy and we feel good about the financial worth all of that consumer. They're simply choosing to leverage their spend in different places." - Lowe's (LOW 0.00%↑) CEO Marvin Ellison
Hollywood’s box office receipts are still far below pre-pandemic levels but demand for live events is still strong
"We all know that the box office fell from $11.4 billion in 2019 to $2.2 billion in the height of the pandemic calendar year 2020. But then the domestic industry box office started on its rebound, up to $4.5 billion in 2021 to $7.5 billion in 2022. And it grew again in 2023 by 21% to more than $9 billion in the year just completed. That is an upward slope for sure." - AMC Entertainment (AMC 0.00%↑) CEO Adam Aron
“And we're seeing most of these on sales still selling front to back, meaning most expensive tickets to least. So we're seeing strong demand at all price points….If we really have the best per-cap on-site spending right now at our theaters and clubs, just given it's Q1, those numbers continue to be strong and show year-on-year growth. So all fronts are showing strong consumer demand globally” - Live Nation (LYV 0.00%↑) CFO Joe Berchtold
AMC would have gone bankrupt last year without equity sales
"...in the full year of calendar year 2023, AMC raised $865 million of cash through the sale of APEs and the sale of common stock. We ended the year with $884 million of cash, $865 million raised, $884 million of year-ending cash. Again, do the math. Had we not sold that equity, deduct $865 million from $884 million. Big companies the size and scope of AMC cannot survive with only $19 million of cash on hand." - AMC Entertainment (AMC 0.00%↑) CEO Adam Aron
Duolingo has a 90% market share
"...we have about 90% share of global online language learning MAUs." - Duolingo (DUOL 0.00%↑) CEO Luis von Ahn
Technology
14 quotes including a large discussion on commercial deployment of AI. Quotes include thoughts on enterprise use cases, unique requirements for enterprise customers, and a contrarian perspective on the long-term value of the AI model creators.
Healthcare
1 billion prescriptions per year are left at the counter
"...in a world where approximately 1 billion prescriptions a year, billion with a B, are left at the counter due to affordability, the whole industry actually has a heck of a lot of incentive, to help people get those medications." - GoodRx (GDRX 0.00%↑) Interim CEO Scott Wagner
Industrials and Transport
Some companies still facing supply chain challenges
"With regard to labor, that continues to be a challenge. But definitely, the supply chain is tight. There really isn't -- there's no excess capacity. Things are very tight. And we're hoping that by the end of '24, things normalize, Frankly, I would have thought by now things would have normalized more. But unfortunately, our vendors are -- they're really struggling. Things will get better after November in a lot of ways." - HEICO (HEI 0.00%↑ Co-President & President of Flight Support Group Eric Mendelson
Continued softness in freight markets
“Old Dominion's fourth quarter financial results reflect continued softness in the domestic economy, which is similar to how the economic environment fell throughout much of 2023. As a result, the rebound in volumes that we had anticipated back in the spring never fully materialized. Despite the softness in the economy and weaker-than-expected volumes, the OD team faithfully executed on the same long-term strategic plan that has guided us through the ups and downs of the economic cycle many times before” - Old Dominion Freight Line (ODFL 0.00%↑) COO Kevin Freeman
Auto industry weakness continues
"While we navigate automotive industry weakness in the short-term, stemming from rising interest rates, slowing in-market car sales, decelerating consumer transition to semiconductor content-rich electric vehicles, and inventory rebalancing across the automotive industry, our design win momentum has continued unabated and reinforces our confidence in indie’s business model …automotive markets are forecasted to slow after experiencing a strong 2023. According to an updated S&P Global Assessment from last month, in 2022, light vehicle production totaled 83 million units, up 7% year-over-year, while 2023 was up 9% to 90 million vehicles, but S&P Global is now indicating the first signs of the market shrinking in this production year" - Indie Semiconductor (INDI 0.00%↑) CEO Don McClymont
The EV market remains challenged
"In particular, we are seeing real-time weakness across the China e-vehicle market as their luxury vehicle SAAR, or the seasonally adjusted annual rate, came in at 20.6 million for January, down versus 21.7 million reported in December, marking the fifth consecutive month of declines. While the fundamental landscape for EVs over the medium and longer-term remains robust, shorter-term, e-vehicle industry trends have certainly deteriorated, given reduced buyer incentives, concern over charging infrastructure, and the saturation of early adopters." - indie Semiconductor (INDI 0.00%↑) CEO Don McClymont
Auto pricing may come down this year
"We put in a planning assumption, and I'll explain what I mean by that, of pricing down 2% to 2.5% for the year. And much like the last couple of years, that's not a statement of expectations. That's an assumption on pricing coming back off the peaks a little bit. But each of the last 2 years, it hasn't. And if, again, it doesn't, we expect actually the numbers that we put out there, we could outperform." - General Motors (GM 0.00%↑) CFO Paul Jacobson
Materials & Energy
Energy is as big of a constraint on AI as GPUs
"Now, the constraint is that you'd think, well, somebody needs to call up Jensen and beg for GPUs. Let's say we can figure out how to do that. Maybe we know somebody who knows Jensen. Okay, the hard part is we can't get power. So I think the constraint on this going for everybody sees with the constraint is availability of GPUs. I think it's straight on this soon is going to be the availability of power. You cannot get power to build the data center in Silicon Valley. You know this, right? Northern Silicon Valley is PG&E, which is, I have no comment on that. And Southern Silicon Valley is some other power company. I know not what, but they will not give you power for a data center. So I think this GPU constraint is ephemeral as soon as it's going to be power." - C3.ai (AI 0.00%↑) CEO Thomas Siebel
"Boston Consulting Group believes that AI and regular data center demand will grow to 7% of total electricity demand by 2030. To put this in context, this is the equivalent of the electricity used for lighting in every home business and factory across the United States. It's a huge amount of energy. Most traditional data centers that were built 10 years ago were 10 megawatts or less. Today, it's not uncommon to see 100-megawatt data centers. And with our clients, we're talking about data centers that approach 1,000 megawatts. And they require 24/7 power. This is something that doesn't get talked about enough in my opinion." - Constellation Energy (CEG 0.00%↑) CEO Joseph Dominguez
"In datacenters, AI and machine learning computing systems require orders of magnitude more processing and thus energy, compared to traditional workloads…Last quarter, we secured a significant design win from a large hyperscale customer for our multiphase vertical power solution that reduces power losses by 35% when compared to conventional ones." - Analog Devices (ADI 0.00%↑) CEO Vincent Roche
"...it's very important when people think about energy consumption of AI that they step back and look at the macro. The macro is you're going to see an incredible growth of AI applications. And those AI applications all be on those highest, most incredible power consumption demands in the cloud, but they'll be moving to the -- as well to the edge and to endpoint" - Advanced Micro Devices (AMD 0.00%↑) CTO Mark Papermaster
Nuclear may be the only solution
"...nuclear produces more energy for the same amount of installed capacity than any other energy technology. It operates more than 90% of the time, in our case, operates 95% of the time. And that's nearly 3 to 4x greater than wind and solar. It's also there 24 hours a day in the heat of the cold, day or night, no matter the weather. The grid reliability and support provided by nuclear is unparalleled by any other energy resource…Note the existing nuclear plants could run at least for 39 more years. And I'd say at least because we believe that some of our plants could actually run to 100 years, much longer than existing wind and solar operating today, and it's also longer than all the renewables that are being built right now, and we think all the renewables that will be built this decade. Going to the chart on the lower left shows that nuclear has the lowest life cycle emissions of any technology. This is a big thing from a sustainability standpoint." - Constellation Energy (CEG 0.00%↑) CEO Joseph Dominguez
Real Estate
The housing market is still challenged though there are small signs of hope
"Our concern has been that 2024 will turn out like 2023, when rates approach 6% in January, then rose, peaking above 8% in October. Rates subsequently declined, approaching 6.5% in mid-December until climbing again to above 7% in February 2024. This recent rate increase has dampened 2024 demand. But the people now coming into the housing market know what they're getting into, having become more accustomed to mortgage rate volatility. Some also seem to recognize that when rates do ease, the market is likely to get more competitive. Already, our agents have reported a mostly seasonal resurgence in bidding wars. At one extreme, a Fremont, California listing got 50 offers last week. Redfin's listing demand increased sharply coming into 2024 but moderated in February. Home buying demand wasn't as strong, but it's held up better...We kind of argued in preparing for this call whether or not this January to February feels different than 2023's January to February. Maybe sales are pulling through a little bit better. We can't tell if that's our sales execution or if the market's like that." - Redfin (RDFN 0.00%↑) CEO Glenn Kelman
Good start to the year at D.R. Horton
"We’ve been encouraged by the early spring selling season, the signs, we’re still just on the leading edge of it, but traffic’s been consistent and demand’s been good, and I think, in line with our expectations thus far...We’ve seen pretty consistent demand across our footprint and across our MSAs. We don’t really have a geographic area today that gives us concern or that we’ve seen move beyond what we’ve seen as far as early spring demand." - D.R. Horton (DHI 0.00%↑) CEO Paul Romanowski
Office not getting better soon
"...at the same time, I personally have not seen or heard anything to suggest that the office space is going to get better anytime soon. And so in the end, on the question of office, all we really have to say about that for ourselves is that we think we're appropriately reserved, and we'll see what happens." - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum
Office attendance is 60% of what it was before 2020. Vacancy is at 13.5%
"The office sector continues to be the most challenged with 58 million square feet of negative absorption in 2023. Absorption since the pandemic now sits at negative 178 million square feet. Office attendance is 60% of what it was before 2020, though that understates demand since hybrid work requires higher peak use. The market sits at a record-high 13.5% vacancy rate. A silver lining is the decline in construction starts, which we predict will eventually result in a shortage of premium office space." - CoStar Group (CSGP 0.00%↑) CEO Andrew Florance
Nuggets of Wisdom
Most management teams are too conservative
"We had been thinking about streaming for 15 years, since starting in '97. This was our moment, and we were going to be the one. If you think of all management teams, how many are too cautious at preserving the current business, and how many are too aggressive at pushing into the new business? Well, obviously, everyone's too conservative. So, we realized we had to be so aggressive that it should make the hair on the back of our neck stand up because human nature is conservative, and most very good management teams were too conservative. So, the most radical thing we could think of was to dump the DVD business. And it was 80% of our consumption because the Internet was so slow back then, and we didn't have streaming to the television. There were a number of limiters. But we came up with this idea, and we knew it was going to be difficult because we cared about the customers. We could see that, but we thought it was still the right thing to do. And now, there's a good test case where a management team was too aggressive about leaning into the future, and that was us. So, we leaned in." - Netflix (NFLX 0.00%↑) Chairman and Co-Founder Reed Hastings
Being aggressive can also land you in trouble
"Most customers did not care about streaming, did not have streaming, couldn't watch it on the television. And so, it was just too early. And ultimately, the idea basically worked, which is Netflix became streaming and DVD shrunk year by year by year. But we overcorrected and were overconfident. We had had all these battles and various things and naysayers. And so, when you've had a lot of naysayers, and then you were proven right, then the next round of naysaying comes in, and you're like, whatever, we've seen this before. And this time, it was too much, and it was traumatic. It felt roughly like you're driving, and you get distracted reading a text, and you crash, and your kid in the backseat's in the hospital. The kid being the company, it wasn't dead, but it was severely wounded. Our stock was down 75%, we had our first big layoffs. It was everything that was horrible guilt, that should be, of, again, trying to learn the lessons that most management teams are too conservative, so therefore, we knew we had to push it to the edge...The same aggressiveness that made us take on Blockbuster, figure out these things, got us into streaming, got us into original content. That aggressiveness, part and parcel of it was, you're going to go too hard some of the time. So, you just want to make sure you have a balance sheet and a board of directors that can handle that. So, one of the big things we had to do was not overcorrect. The company, employees, and shareholders were traumatized, so we did have to go a little bit more cautious in the short term” - Netflix (NFLX 0.00%↑) Chairman and Co-Founder Reed Hastings
Build a better mousetrap
"I don't want to be cocky about this. To be honest, I spent half the Super Bowl in the bathroom or upstairs making nachos because I didn't want to see these competitor ads. But according to the early reports from similar web and other sites to compare traffic, we still got more traffic on Super Bowl Sunday than the company promising to spend zillions of dollars. And our basic thesis is that the best product wins if you build a better mousetrap, the world beats a path to your door, and we really believe in the quality of our website. I think there was sort of this 1999.com thesis that advertising dollars was the way to win. But mostly I thought we'd left that behind. And I know that when you get into some kind of advertising war, it depresses margins across the segment. It changes the competitive dynamic. We're certainly aware that there are better-capitalized competitors out there." - Redfin (RDFN 0.00%↑) CEO Glenn Kelman