Non-Recession Recession
Are we out of the woods?
Succinct Summary: The consumer remains pretty stable and there’s a sense of optimism around. Markets seem to have gotten tired of waiting for a recession. Are we out of the woods?
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Macro
The consumer has been pretty stable
"...what we’re seeing from a consumer perspective is a very resilient consumer. We talked about the fact that volumes in the first four weeks of May were largely consistent with our expectations for the quarter. And we’ve really been benefiting from the shift to experiential-based spending…So really a very resilient consumer, and again, very consistent with our expectations for the quarter." - Mastercard (MA 0.00%↑) President of North America Linda Kirkpatrick
"And then from a consumer perspective, they're holding up very well now, but it's going to get tougher from our estimation for them…they continue to have weaker balance sheets, less liquidity." - The Clorox Company (CLX 0.00%↑) CEO Linda Rendle
"What we’re seeing right now is continued stability. Our categories in the U.S. continue to grow value at around 6% to 7%, fairly consistent past 3, past 6, past 12 months." - The Procter & Gamble (PG 0.00%↑) CFO Andre Schulten
"We are seeing. I think our consumer has been pretty stable. So it's predominantly 100K plus in income and I think that their preferences morphed over time where eating out is more like a staple so built into their budgets, everybody, who wants a job can have a job. So in terms of disposable income remains pretty steady…I think generally I think we feel like our consumer is in a pretty good spot and overall the business trends are the most stable and predictable they've been since the pandemic started." - Cheesecake Factory (CAKE 0.00%↑) President David Gordon
Inflation has decelerated
"...inflation has decelerated, but it’s not negative. I mean if we looked at this current fiscal year, which just ended for us, our inflation was 14% to 15%.... Lower inflation is great, but it’s hard for me to see an area where we have — where we see disinflation." - General Mills (GIS 0.00%↑) CEO Jeff Harmening
There’s a sense of optimism
“There's a sense that things are going well. In Europe, it was only last year that people were saying that there were going to be people dying in their homes for lack of energy and so on and so forth. And now just a year later, like everybody is like, "Oh, yes. We solved the energy delivery problems. We've redone the supply chains, and everything is fine." And so it's a long-winded way of saying, globally, we feel sort of a sense of optimism, with everybody having a little asterisk by it saying, "Yes, but there still could be some catastrophic economic issue out there." But it seems like they're taking it less seriously now, and we can see it in our contract renewals across the business" - Intercontinental Exchange (ICE 0.00%↑) CEO Jeffrey Sprecher
Markets seem to have gotten tired of waiting for a non-recession recession
"...it's interesting because we're somewhat feeling a sense of optimism. And I think it was almost like, for 2 years, everybody said a recession was right around the corner. And people were looking at consumer spending and consumer savings and credit cards and all this. And everybody said, "Well the lines are going to cross and everybody is going to run out of money and we're going to go into a recession." And then I felt like, earlier this year, maybe the market just got tired of saying that.” - Intercontinental Exchange (ICE 0.00%↑) CEO Jeffrey Sprecher
"I see us as having a non-recession recession…: I just don't see any sign in the underlying economy of the kind of demand destruction that is going to put unemployment back to levels we would really think about as recessionary." - Apollo Global Management (APO 0.00%↑) Co-President Scott Kleinman
International
China’s recovery has been slow and steady
"...the rate of recovery in China, which is we called it slow and steady. ..It doesn't seem -- doesn't appear to be any stimulus-driven or commercial real estate build-out driven, it's going to be more consumer-driven, and I think it will take some time. Fundamentals are very strong. So no concerns long term, but I think China's recovery is surprising some in terms of its rate and pace." - Cummins (CMI 0.00%↑) VP & Corporate Controller Christopher Clulow
"I would say in China, we start to see a recovery. So we expect a sequential improvement in the revenue. Of course, it's still very far from where it was before the down cycle, like December 2021. But it's starting to recover from the December level, the March level" - Seagate Technology (STX 0.00%↑) CFO Gianluca Romano
“There was also one more thing. There was also a second COVID wave about 4 weeks ago. So those who didn’t get the first time got it then. And so when you hear other companies talking about kind of mixed results, that’s part of the equation as well." - The Procter & Gamble (PG 0.00%↑) CEO Jon Moeller
Druckenmiller thinks that Japan looks interesting
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Coffee consumption has room to grow in emerging markets
"In coffee, it’s quite amazing, but the coffee consumption in emerging markets is actually 6x lower than what it is in the developed world. So we have huge opportunities in countries like China and India, for example, in coffee. You could tell me, yes, but these are our tea markets. But when you look at what we have done because we have been really instrumental in Nestlé in developing that in the U.K. and in Japan, which were originally tea markets, which have become coffee markets, we are very positive about" - Nestlé S.A. ($NSRGY) CFO François-Xavier Roger
Financials
Private Equity needs to adjust to the non-free money era
"We’re no longer in a free-money environment. Our industry is going to have to go back to good old-fashioned creating value through good old-fashioned operational improvement, buying well, finding good underloved companies." - Apollo Global Management (APO 0.00%↑) Co-President Scott Kleinman
This will be a good vintage year in private credit
"I'd say probably like this vintage is probably going to be one of the best vintages in private credit, just given with the rates being as high as they are, new companies coming to market can't put on the same amount of leverage that they were able to a year ago. So what was maybe a five-and-a-half or six times leverage transaction a year ago is now a four-and-a-half or five-times leverage transaction with about the same purchase price. So there's more equity coming in behind you, higher pricing, lower leverage that should all kind of blend together to suggest a pretty good vintage." - Actelis Networks (ASNS 0.00%↑) Chief Management Officer at Portman Ridge Patrick Schafer
Banks that failed had unique exposure to high-net-worth customers
"So those 3 banks in question really did have unique business models tailored to certain customers and high net worth customers. I think the average deposit for the community bank is about $1,300. And so in terms of deposit outflows, really, there's really no incentive for you to open up a new account and move money somewhere, particularly if you have a relationship with the bank, you trust the bank and moving a $1,300 balance to another bank for an extra 0.5 point of interest is it really going to change anything in your financial profile." - nCino (NCNO 0.00%↑) Chief Corporate Development & Legal Officer Gregory Orenstein
The vast majority of businesses are SMBs
"...if you look at the overall sort of census of businesses in the US, there's 6 million companies with employees. There's only about 100,000 businesses that have more than 50 million dollars in revenue. So by definition, most businesses are small and medium-sized. There's another 25 million businesses that are just one person, either a sole prop or something. And then you would add to that freelancers and gig economy workers and whatnot." - Bill.com (BILL 0.00%↑) CFO John R. Rettig
Consumer
Restaurant and dining sales trends were soft in April/May
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Jewelry purchase trends may indicate macroeconomic pressure on higher-income consumers
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Consumers are getting more anxious
"The other thing that is cause for concern is that consumers are getting more anxious…the first thing consumers do in the food business when they start to get more anxious, as they trade consumption away from home to consumption at home. We saw that in the last Great Recession, we saw at the beginning of the pandemic. We’re seeing that now." - General Mills (GIS 0.00%↑) CEO Jeff Harmening
But aren’t trading down
"...there's no behavior in the marketplace that suggests there's any kind of trade down or extending of usage of lenses beyond what is normal in the marketplace. I would think it would have to get pretty bad." - Cooper Companies (COO 0.00%↑) COO Daniel McBride
Inventories are better but still elevated
"We are seeing inventory levels come in better positioning. So although I'm anticipating further discounting in the marketplace." - Lululemon Athletica (LULU 0.00%↑) CEO Calvin McDonald
"In 2022, Kohl's went through some really, really tough times because of the high level of inventory that we had in the company. We finished the second quarter with 48% more inventory than the prior year…So we're going to continue. We're going to continue to operate with negative mid-single-digit inventory levels for the foreseeable future" - Kohls (KSS 0.00%↑) CEO Thomas Kingsbury
Technology
Apple’s new Vision Pro is a launch into “spatial computing”
"Every major Apple platform was driven by an innovative new input model. Mac with the mouse. I pod with a click wheel and iPhone with multi-touch. With Vision Pro, we set the ambitious goal to design, an incredibly intuitive input model for spatial computing when that can be used without controllers or additional hardware Apple Vision Pro relies solely on your eyes hands and voice. It's just you and your content is remarkable and it feels like magic. You promised the system simply by looking." - Apple (AAPL 0.00%↑) VP of Human Interface Alan Dye
“So in the same way that Mac introduced us to personal computing and iPhone introduced us to mobile computing, Apple Vision Pro will introduce us to spatial computing” - Apple (AAPL 0.00%↑) CEO Tim Cook
Meta has a different vision
"I think that their announcement really showcases the difference in the values and the vision that our companies bring to this in a way that I think is really important. We innovate to make sure that our products are as accessible and affordable to everyone as possible, and that is a core part of what we do. And we have sold tens of millions of Quests. More importantly, our vision for the metaverse and presence is fundamentally social…seeing what they put out there and how they’re going to compete just made me even more excited and in a lot of ways optimistic that what we’re doing matters and is going to succeed. But it’s going to be a fun journey." - Meta (META 0.00%↑) CEO Mark Zuckerberg
PC inventories are normalizing
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Gaming is strong
"PC gaming is strong, and it’s getting stronger. It’s not the first time you guys have heard me say that. And it’s still true and I still believe it. If you look at from 2019 to 2022, in spite of the tailwinds of the pandemic and work-from-home residing, we have gained 100 million gamers from 2019 to 2022, according to Newzoo. And from that new base, we expect to see continued growth as more people come into gaming. Gaming is arguably the most important entertainment medium in the world today." - NVIDIA (NVDA 0.00%↑) SVP of Gaming
It’s too early to say how AI will be monetized
"Where currently our monetization plans and the model we shared doesn't include the AI leverage of our tools. And the main reason for that is that whoever tells you that they know how AI will look like is either illusionizing or lying. That's the bottom line." - JFrog (FROG 0.00%↑) CEO Shlomi Ben Haim
"I think it's too early. What we said that is, we don't know how this is going to go. The honest truth is the world -- the software of the world doesn't know how this is going to be monetized, right? You've seen, of course, you all as investors have seen an investment cycle in the infrastructure with NVIDIA and others. And that has to be -- you can't do any of it unless you get the infrastructure going. So it's a little too early for us to give examples, but we certainly said in our call and in our subsequent investor meetings, that will let everybody know as we see that in which way it goes." - Datadog (DDOG 0.00%↑) CFO David Obstler
"I don’t know the answer to that because obviously, I — it’s not clear in this early stage of the AI, generative AI…But it’s not clear to us…Enterprises, not sure at all. I don’t think enterprises are really jumping in and investing in AI in a big — in the way the hyperscalers are doing." - Broadcom (AVGO 0.00%↑) CEO Hock E. Tan
HP may have some supercomputing expertise
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Industrials and Transport
Supply chains have dramatically eased
"The second dynamic that has manifested itself during the course of the year is, first, easing of all the supply constraints that we had been witnessing for the past 2 years. You may remember, '21, '22, the most spoken word was supply chain. No one speaks about the supply chain in '23 anymore. It's no longer used. It may be out of fashion, which is not a bad thing. Before people didn't know what supply chain was. So supply constraints have eased dramatically" - Hewlett Packard Enterprise (HPE 0.00%↑) CFO Tarek Robbiati
But some parts of the supply chains are still not fully back
"In terms of throughput, I think, it’s improving, but we are not quite back. I think a good example is in North America plants where on-time delivery for suppliers would normally be like going back three years or four years in the 80%s, like high 80% or mid-to-high 80%. It got down to the 50%s in the pandemic. It’s only up to about 70% now. So it’s not all the way back. So we are still getting short-shipped….I am worried it’s going to take a while before we find the new normal, whatever that is. Inventory is elevated" - Cummins (CMI 0.00%↑) VP & Corporate Controller Christopher Clulow
The “digital” car is changing the business model of OEMs
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Cummins is bullish on hydrogen ICEs
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Ford recognizes that it can make more money on EVs than ICEs
"I feel like when that second quarter last year profit came out for Tesla and they showed like a $15,000 premium, it totally changed my world. It was an epiphany. It was like the angels' song of like, oh my God, we can make more money on these than our ICE. Forget about the cost switching. We know it's a better product, except for maybe the range. … I think that this is the magic of Tesla is because they were capital constrained, they didn't have the money, they did things that we are too lazy to do" - Ford (F 0.00%↑) CEO James D. Farley
China became the number 1 global exporter of vehicles in Q1
"In the first quarter of this year, no one noticed, but we noticed that something monumental happened in our industry where China became the number one exporter of vehicles globally. It had always been the Germans and the Japanese...companies like SAIC, Geely, BYD, these are going to be global players now. Their local market was big enough at 25 million units, approximately 25% of the overall vehicle sales. It was big enough for them to concentrate locally, but now with the pricing wars on EVs, they’ve turned their sights overseas where the pricing power’s higher like Europe, especially Europe…I would say a company like BYD. They have to sort out their brand and their distribution overseas and become a global player. It’s not going to be easy. But…I think you can clearly see it’s a bit of a new world order." - Ford (F 0.00%↑) CEO James D. Farley
Real Estate
There’s still a lot of interest from home buyers.
"...the way I'd think about it is we just have seen an awful lot of interest from home buyers. Even as mortgage interest rates have been up, there are still people who want properties. Their interest increases as rates come down a little bit and wanes a little bit as rates go back up. But even at the current level of rates we see right now, there's just an awful lot of interest from home buyers. And what's holding the market back more than anything else is just a lack of inventory." - Redfin (RDFN 0.00%↑) CFO Christopher Nielsen
Sellers are reluctant to sell
"Well, I do think that's the biggest factor, which is many sellers who are considering putting their property on the market have a 3% mortgage interest rate. And so they don't want to trade that interest rate for a higher one if they were to go rebuy a property." - Redfin (RDFN 0.00%↑) CFO Christopher Nielsen
Construction timelines are normalizing
"It's starting to normalize it's not normal it's not what it was pre-pandemic, but things seem to be settling down. We seem to be able to make deals with landlords and a better pace than we were in the middle of Covid, obviously, construction seems to be normalizing equipment and supply definitely is normalizing." - Cheesecake Factory (CAKE 0.00%↑) President David Gordon
Nuggets of Wisdom
Shorting is tough
“...frankly, I'm not sure I've ever made money. If I look back at the last 40 years, I'm afraid to look, I've never had a down year, but I'm not sure I've made money in shorts. I like it. It's fun, but you can get your head handed to you and it's a game that really only professionals and the maths against you. If you're dead wrong on a long, you can lose a hundred per cent. If you're dead wrong on a short, you can lose 10 times your money. When I was at Soros, I shorted 200 million worth of internet stocks in March of 99, and in three weeks covered them at a 600 million loss. I lost $600 million on a 200 million investment in three weeks. I was short 12 stocks. They all went bankrupt. Every one of them." - Duquesne Capital Chairman Stanley Druckenmiller
Hire people who you would want to be your boss
"....only hire someone to be on your team if you would be happy working for them in an alternate universe then something that that kind of works and you know that's basically how I've tried to build my team…I think in an alternate universe where one of these other folks was running the company I'd be happy to work for them I feel like I'd learn from them I respect their kind of General judgment um they're all very insightful they have good values and I think that that gives you some rubric for you can apply that at every layer and I think if you apply that at every layer in the organization then you'll have a pretty strong organization" - Meta (META 0.00%↑) CEO Mark Zuckerberg
It’s good to build a business during tough times
"...most entrepreneurs think the time to build a business is when money is free and everybody is doing well. It's a good time to raise money, but it's not necessarily a good time to build a business. All of the big tech companies, if you go back and look at them, they all came out of the dot-com boom. All their competitors fell away, and then they became these monoliths. And so I like these periods, even though you got to navigate them." - Intercontinental Exchange (ICE 0.00%↑) CEO Jeffrey Sprecher