We Have Lift-Off
The Fed raised rates last week and signaled that more rate increases are coming
Succinct Summary:
The Fed raised rates last week and signaled that more rate increases are coming. The Fed could also start shrinking its balance sheet at its next meeting. They said that they don’t see any elevated risk of recession and the US economy remains quite strong. Omicron has mostly faded from memory in the US and consumers are back out enjoying the start of spring.
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Macro:
The time has come for the Fed to raise rates and shrink its balance sheet
"The economy is very strong, and against the backdrop of an extremely tight labor market and high inflation, the committee anticipates ongoing increases in the target range for the federal funds rate will be appropriate. In addition, we expect to begin reducing the size of our balance sheet at a coming meeting -- the committee really does understand that the time for rate increases and for shrinking the balance sheet has come." - US Federal Reserve Chair Jerome Powell
They’re not going to let high inflation become entrenched
"I just wanted to say that as I looked around the table at today’s meeting I saw a committee that’s acutely aware of the need to return the economy to price stability and determined to use our tools to do exactly that--We’re not going to let high inflation become entrenched. The costs of that would be too high and we’re not going to wait so long that we have to do that. No one wants—no one wants to have to really put restrictive monetary policy on in order to get inflation back down. So, frankly, the need is one of getting back up—getting rates back up to more neutral levels as quickly as we practicably can and then moving beyond that if that turns out to be appropriate." - US Federal Reserve Chair Jerome Powell
They don’t view recession risk as elevated
"Although the invasion of Ukraine and related events represent a downside risk to the outlook for economic activity, FOMC participants continue to foresee solid growth--in my view, the probability of a recession within the next year is not particularly elevated. And why do I say that? Aggregate demand is currently strong and most forecasters expect it to remain so" - US Federal Reserve Chair Jerome Powell
However, others see a risk of a slowdown
"The conflict in Europe was really tragic. First ground war like that in many, many years. And -- but the impact on the economy is something that we have to see. I think it starts with the cost of fuel. As fuel cost goes up around the world, inflation goes up, and then because of that, the potential economic slowdown. How long this lasts is anybody's guess." - FedEx (FDX) Executive Vice President Brie Carere
"...inflation is a concern. I think if the cost for housing for hitting for fuel raises, I think there's high risk for the economy that would also negatively impact our businesses finally." - Volkswagen AG (VWAGY) CEO Herbert Diess
"Consumers are trying to ration their money a little bit more carefully because they're trying to smooth out their cash flow" - Affirm (AFRM) CEO Max Levchin
The war is impacting the global economy
"We are seeing the effects of the war on the global economy, on raw materials, and on our supply chains. Volkswagen had to stop production in Russia and exports to Russia for the time being. We are continuing to pay our employees in Russia 80% of their salaries. We're also continuing to supply our Russian customers with spare parts. And we're supporting our suppliers of riding harnesses in Ukraine, which are keeping up operations to the extent they can." - Volkswagen AG (VWAGY) CEO Herbert Diess
"...think what you've seen is that the way we deal with our clients, literally, we give daily updates now because it is so intense for this happening. And it is on one side, intense in terms of what comes out of Ukraine, but also the effect that it has on no political tensions and with that maybe also economic impact, and that is not limited to that area." - UBS Group AG (UBS) CEO Ralph Hamers
Sanctions to continue until Putin retreats
"...we’ve made very clear to President Putin and the rest of the international community is as long as the invasion continues, sanctions will continue. And they’re going to continue to put a squeeze on the Russian economy, which we’ve seen with the stock market being closed for several weeks now. The ruble depreciating by more than 50% and President Putin being put in a position where he has to make choices about where he’s going to put his financial resources." - United States Treasury Deputy Secretary Wally Adeyemo
International:
Senseless war in Ukraine continues
"What is unfolding in the world around us in many ways is unfathomable. We've navigated through a global pandemic. Only to now witness a humanitarian crisis unfolding in Ukraine. Unprovoked attacks on innocent people. It is horrific. It's devastating." - Starbucks (SBUX) Chairman Mellody Hobson
Ukraine’s president called on the world to do more
"This is a terror that Europe has not seen, has not seen for 80 years and we are asking for a reply, for an answer to this terror from the whole world. Is this a lot to ask for, to create a no-fly zone over Ukraine to save people? Is this too much to ask? If this is too much to ask, we offer an alternative. I call on you to do more"- Ukraine President Vlodomyr Zelenskyy
There is a slowdown in Asia
"To be honest, we are obviously observing a little bit what's going on. It's clearly a slowdown that we are seeing on the back of the 0 COVID approach that China takes but also the clampdown on technology and so the overall situation geopolitically that is certainly somewhat unclear, let's put it this way." - Credit Suisse (CSGN) CEO Credit Suisse Group AG
China’s zero COVID policy is leading to shutdowns
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Japan will not raise rates
"Inflation is around 8% in the U.S. and about 6% in Europe, but in Japan, it’s still below 1%. For them, it’s natural that they would raise rates, weaken the amount of easing, and move toward normalization. There’s absolutely no need for Japan to raise rates just because others are doing it.” - Bank of Japan Governor Haruhiko Kuroda
Financials:
The financial crisis was 15 years ago
"...the last financial crisis was 15 years ago. Many of our traders, you walk onto any trading desk, are on average in their 30s. So they were quite young in the last financial crisis. And very, very few people, I might be 1 of the only ones who traded in the '90s, when you actually had consistently rising rates. So there was a question of experience with this kind of situation." - Barclays (BCS) CEO Coimbatore Sundararajan Venkatakrishnan
Investment banks are watching the 2nd and 3rd order effects of the Ukraine War
“Yes, in terms of second, third-order consequences, we're obviously paying attention to some countries that are going to be, I think, impacted Turkey, Egypt, Polish zlotys down materially, et cetera. I don't think any of that at the moment is causing this particular concern” - HSBC (HSBC) CFO Ewen James Stevenson
"Moving beyond the first order to the second-order, where I think, by the way, we still are, right, is what I would call contingent and counter-party risks. So the contingent risk is that you have credit exposure to somebody who themselves have credit exposures in Russia--Phase III or the third-order effect is what is going to happen to the broader economies of Europe, the U.K. and the U.S." - Barclays (BCS) CEO Coimbatore Sundararajan Venkatakrishnan
Consumer:
Business bounced back after Omicron
"We estimate the effect of Omicron-driven volume softness in our Q3 results was approximately $350 million. While it was significant, it was also temporary and we have seen volume rebound from January levels." - FedEx (FDX) President Raj Subramaniam
AMC is investing in mining companies now
“I am excited about our investment in HYMC, but there has been so much volume in that stock today, lawyers insisted I stay off air. Our strategic investment being announced today is the result of our having identified a company in an unrelated industry that appears to be just like AMC of a year ago. It, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue. Its share price has been knocked low as a result. We are confident that our involvement can greatly help it to surmount its challenges — to its benefit, and to ours." - AMC (AMC) CEO Adam Aron
Howard Schlutz rejoined Starbucks as interim CEO
"The board has asked Starbucks founder Howard Schultz to return as interim CEO. Starting April 4th he will also rejoin the board. Howard is volunteering his time as interim CEO and will receive one dollar of compensation. During his years at the company Starbucks grew from 11 to more than 28000 stores in 77 countries and its stock price surged, 21000% from the time of its 1992 IPO until his retirement in 2018." - Starbucks (SBUX) Chairman Mellody Hobson
“When you love something, you have a deep sense of responsibility to help when called. Although I did not plan to return to Starbucks, I know the company must transform once again to meet a new and exciting future where all of our stakeholders mutually flourish" - Starbucks (SBUX) Interim CEO Howard Schlutz
Real estate demand is very strong but bidding wars might be peaking soon
“The bidding wars that opened 2022 may be cresting--It feels crazy for demand to be so strong in the midst of war, market volatility, and inflation. We expected rates to increase over 2022 from 3.3% to 3.8%. That happened just in January. Then, mostly yesterday in a few hours, we got a hike of nearly the same size, to 4.4%--Even still, we’re supply-constrained. Last quarter, 18.4% of homes sold to investors, a record; the 10-year average prior to the pandemic was 12.6%. Another record: 71% of homes in February sold in bidding wars. Pre-pandemic, when inventory was still low, the average was 55%--Year to date, the number of new listings is down, but only 6%. The average number of homes for sale is down much more: 24%--The bidding wars created by this inventory crunch have been the worst I've seen in 17 years.” - Redfin (RDFN) CEO Glenn Kelman
It’s going to be harder to use your parents’ Netflix login
"So for the last year, we’ve been working on ways to enable members who share outside their household to do so easily and securely, while also paying a bit more. And over the next few weeks, we’ll launch and test two new features for our members in Chile, Costa Rica, and Peru: Add an Extra Member:" - Netflix (NFLX) Director of Product Innovation Chengyi Long
Technology:
Data consumption continues to surge
"We conservatively project a 5x data increase on our network over 5 years. A couple of examples. The evolution of social interaction, gaming, and experiential alternate realities will consume huge amounts of real-time, low latency 2-way data." - AT&T (T) CEO John Stankey
Increased cyber attacks
"The persistence and sophistication of new attacks continues. We entered 2021 on the heels of Sunburst and exited the year battling Log4j. And most recently, the potential for cyber warfare has significantly increased in light of the Russia-Ukraine conflict. This has further escalated the threat environment--We recently named and published research on Hermetic Wiper related to the escalating cyber attacks surrounding the Russia-Ukraine conflict. This was a real-time discovery on the eve of Russia's ground invasion. It helped bring awareness to cyberattacks accompanying modern warfare" - SentinelOne (S) CEO Tomer Weingarten
“...the example of Ukraine, right, ViaSat had a challenge. They had a cyberattack, and it took out quite a bit of services over Eastern Europe and Europe. And they have large geostationary satellites that cost $300 million and take 5 years to build and structure that finance with about $0.5 billion in presell transponder capabilities to telco. And then the only Internet service that is currently operating in Ukraine right now is from Starlink. And so when I mentioned a resilient infrastructure where you don't have single points of failure. And that then opens up different types of trust that you can use and use cases that allow for those -- allow for the mega-constellations to service” - Planet Labs (PL) Co-Founder, Chief Strategy Officer & Director Robert Henry Schingler
TTD Integrates with Adobe Real-Time Customer Data Platform
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Healthcare:
The pandemic is two years old
"It was almost exactly 2 years ago that we did earnings only 8 days after the pandemic was declared. Then, as now, the world faced incredible uncertainty. We are all watching the events unfold in Ukraine, and there are many potential scenarios which are difficult to predict" - Accenture (ACN) CEO Julie Spellman Sweet
"We have had really the 2 most challenging years in our history. I think we were all -- at the end of 2019, we started 2020, the first 2 months exceeding our 2019 numbers, and we were feeling very robust about our future. We are feeling very confident. And for those of us who've been in the industry a long time, we thought we've seen it all. They can't throw us a curveball we haven't seen. We've been through 9/11. We've been through financial crisis, what could possibly happen. Well, unfortunately, I think we found out what could possibly happen and it was very humbling for all of us." - Delta Air Lines (DAL) President Glen Hauestein
Omicron is mostly behind us in the US
"Firstly, it's kind of almost funny that Omicron is almost a thing in memory even though it was ravaging just a couple of months ago but is now behind us in that sense. And we have other bigger things now to deal with." - FedEx (FDX) COO Raj Subramaniam
There’s been a large decline in vaccine activity
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Industrials and Transport:
It’s hard to implement sanctions
"It is possible that we will not go back to doing business in Russia for many years to come. But is it a surprise we both can and are willing to pay. Practically speaking, though, it's not that easy to stop doing business in a country like Russia. Firstly, before the war broke out, we had more than 50,000 import bookings in our network en route to Russia. We try to deliver these containers as quickly as possible. The cargo in the containers does not belong to us but to our customers, and many of those are not Russian. And many of the containers also contain perishable foodstuff. Now also practical issues in storing containers in already crowded ports on the continent. We expect that it will take us until the end of April to get all the containers out of the system 1 way or the other. Secondly, we have about 50,000 of our containers in Russia today, and many of them are empty. They are property, and we need them, and we would not be happy to leave them in Russia. Therefore, we still have some ships going to Russian ports. The situation in Ukraine poses many dilemmas, which we have to handle. And that sometimes occurs in a very public space where there are many emotions and many opinions. And the debate very quickly becomes harsh and very black and white." - A.P. Moeller (MAERSK) CEO Transport & Logistics Soren Skou
Travel demand has come back very quickly post Omicron
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Even business travel recovering
"First, very strong leisure demand, I think you've heard this from other presenters today, but really unprecedented demand, people want to get back out, they want to connect, they want to see their friends, family and in fact, they actually want to start traveling for the business. Business traffic is booming, we still have a long way to go. But we've made so much more progress than we thought earlier in Q1. So we're well on our way and we'll talk about that more in a little bit--Most importantly, business revenue which we talked about a lot, business revenues now close to 75% versus 2019, business demand is about 70%." - United Airlines (UAL) Executive Vice President Andrew Nocella.
Fuel surcharges are coming
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Volkswagen generated 35% more FCF in 2021 despite a 6.3% drop in volumes
"The past year was still impacted by the COVID pandemic and global semiconductor shortage. As a result, vehicle sales across the group declined 6.3%. Yet we were able to increase revenues by 12% to EUR 250 billion as we allocated more chips to higher-margin models and reduced sales incentives. Our strict cost discipline and efficiency measures helped us to double the operating profit before special items to EUR 20 billion. And with EUR 8.6 billion, we generated a net cash flow that was 35% higher than a year before." - Volkswagen AG (VWAGY) CEO Herbert Diess
Materials & Energy:
Higher oil prices only accelerate the shift to EVs
"...we don't need higher fuel prices for the success of de EVs. We already before the war in Ukraine, we had very good order books. We're making good progress in China, in the U.S., in Europe. And our, let's say, order books are for the EVs are -- and we have longer lead times for deliveries on the EVs and on the ICE businesses. So the shift to EVs, I think, is well underway. It's according to our plan. It's what we estimated some 3, 4, 5 years ago. And I think it also will progress because, in the heads of the customer, EVs are already the better option. They are cheaper to run, cheaper to drive. They probably have higher residual values as well. So I think this transition is on the way. So we don't need those high fuel prices and also not the -- the raw material impact is something which might impact us even harder" - Volkswagen AG (VWAGY) CEO Herbert Diess
But EV supply chains are constrained
"We think we are making really good progress. And you have to see that this is not a monthly game or even a yearly game. Now this transition into EVs will take probably 2 product life cycles, and we are just starting. So far, it's going really according to plan for us. Now, we are planning for 20%, 25% by '25. It seems to be achievable from our position. We are planning for 50% by ‘30 worldwide. It seems to be achievable. But it will already be tough because to establish the supply chain for EVs is the most -- will be a bottleneck not only for us but also for all our competitors because we need the capacities for the raw materials for lithium, for nickel, at the beginning, still for cobalt, and that has to be established. So there's a big efforts. We have internal efforts to make sure that we get the contracts for the raw materials, that we get the cathode material, that we get up our plants up and running, 6 plants we need until ‘30." - Volkswagen AG (VWAGY) CEO Herbert Diess
Nuggets of Wisdom:
Tips on winning real estate bidding wars
“We put together a top-10 list of novel tactics to win an offer. It turned out 56 items long. My favorite move is reverse-offer deadlines, where the offer includes a $10,000 bonus if it’s accepted before 5:00 that day. Because our agents use our software to prepare offers, we know every term of every offer, win or lose. We show our clients the data, asking if they want to put together “a good offer, a strong offer, or a winning offer.” The difference between those is often six figures. This data lets us quantify how changing offer terms helps a buyer win a bidding war. What matters most: a cash offer increases your odds 334%.” - Redfin (RDFN) CEO Glenn Kelman
5 years of the ‘Skip Intro’ feature on Netflix
“Nowadays, it's hard to imagine streaming your favorite series without using the 'Skip Intro' button. On Netflix in a typical day, the ‘Skip Intro’ button is pressed 136 million times, saving members an astonishing 195 years in cumulative time! But six years ago, it was just a glimmer of an idea. We did research and found that in about 15% of the time members were manually advancing the series within the first five minutes. This gave us confidence that a lot of people wanted to skip the intro. Rather than build a general-purpose solution that might help a little with several different needs, like a skip forward 10 seconds button, we designed a single-purpose solution that did only one thing really well.” - Netflix (NFLX) Director of Product Innovation Cameron Johnson