It Begins
The Fed to begin tapering its asset purchases
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Succinct Summary: The Fed met last week and began to taper its asset purchases, but decided that it’s not yet time to raise rates. The Fed acknowledged that inflation is not consistent with price stability and that there are signs of strength in the labor market but says that we’re not yet at maximum employment, so highly accommodative monetary policy remains appropriate in their view. In the real economy, consumer trends are rapidly normalizing around the world as economies re-open.
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Macro:
The Fed says that inflation is not at all consistent with price stability
"The level of inflation we have right now is not at all consistent with price stability." - US Federal Reserve Chair Jerome Powell
They acknowledge signs of a really strong labor market
"...people are leaving their jobs. They’re quitting their jobs in all-time high numbers, but in many cases, going back into employment and getting higher wages. So, a lot of the higher wages you’re seeing are for job switchers rather than incumbents. So, that’s a sign of a really strong labor market as opposed to people just running off and quitting." - US Federal Reserve Chair Jerome Powell
But it’s not yet time to raise rates
"...the focus at this meeting is on tapering asset purchases, not on raising rates. It is time to taper, we think, because the economy has achieved substantial further progress toward our goals measured from last December. We don’t think it’s time yet to raise interest rates. There is still ground to cover to reach maximum employment, both in terms of employment and in terms of participation." - US Federal Reserve Chair Jerome Powell
They didn't see this inflation coming
"...we’re very, very straightforward about it is that inflation is coming higher than expected and bottlenecks have been more persistent and more prevalent. We see that just like everybody else does. And we see that they’re now on track to persist well into next year. That was not expected. Not expected by us, not expected by other macro forecasters." - US Federal Reserve Chair Jerome Powell
But they expect it to decline
"...our baseline expectation is that supply bottlenecks and shortages will persist well into next year and elevated inflation as well. And that as the pandemic subsides, supply chain bottlenecks will abate and job growth will move back up. And as that happens, inflation will decline from today’s elevated levels. Of course, the timing of that is highly uncertain, but certainly, we should see inflation moving down by the second or third quarter." - US Federal Reserve Chair Jerome Powell
The Fed gets that inflation creates difficulties for individuals, but they don’t seem to think they can have an impact
"We understand the difficulties that high inflation poses for individuals and families, particularly those with limited means to absorb higher prices for essentials such as food and transportation. Our tools cannot ease supply constraints" - US Federal Reserve Chair Jerome Powell
They seem to be concerned more concerned about wages rising faster than profits
"The concern is somewhat an unusual case, where if wages were to be rising persistently and materially above inflation and productivity gains, that could put upward pressure on or downward pressure on margins and cause companies to their employers really to raise prices as a result, and you can find yourself in what we used to call a wage-price spiral. We don’t have evidence of that yet." - US Federal Reserve Chair Jerome Powell
Powell doesn't think it's controversial to not raise rates
"I do think it would be premature to raise rates today. That’s not -- I don’t think that’s controversial. Certainly, I don’t know anyone arguing for that today. And the reason is that there’s still ground to cover to get to maximum employment." - US Federal Reserve Chair Jerome Powell
They don’t want to surprise markets
"We are prepared to speed up or slow down the pace of reductions asset purchases if it’s warranted by changes in the economic outlook. And again, if we feel like something like that’s happening, then we’ll be very transparent. But we wouldn’t want to surprise markets." - US Federal Reserve Chair Jerome Powell
International:
Consumer confidence improving in emerging markets
"I think what we're seeing is that the consumer confidence is improving in markets like India, big parts of Latin America, they are seeing the vaccine roll-out, they're seeing life going back to normal. They feel better about their personal finances and that is reflected in their consumption." - Mondelez International (MDLZ) CEO Dirk Van De Put
"Yes, we're seeing some numbers coming up in Asia, great. I love it. The fact that people are getting more vaccinated in Asia, that's great. The fact that vaccines are being distributed more broadly and getting around, that's great." - Booking (BKNG) CEO Glenn Fogel
Europe is opening up rapidly
"Europe has opened up faster than the US -- What we're seeing now in a lot of European markets is that demand is like higher than pre-pandemic." - Uber Technologies (UBER) CEO Dara Khosrowshahi
Financials:
Zillow closed its iBuying department after it ran into trouble
"It weighs heavily on me that our strategic decision to wind down the Zillow Offers operation after 3.5 years involves having to let about 25% of our great colleagues go over the coming quarters. I'm sorry for how difficult and disruptive this will be. I am grateful to them. They have worked hard and will be missed -- The decision was tough but absolutely necessary, given the capital risk and volatility that is now obviously inherent to the Zillow Offers iBuying business -- We have been unable to accurately forecast future home prices at different times in both directions by much more than we modeled as possible, with Zillow Offers unit economics on a quarterly basis swinging from plus 576 basis points in Q2 to an expected minus 500 to minus 700 basis points in Q4. Put simply, our observed error rate has been far more volatile than we ever expected possible and makes us look far more like a leveraged housing trader than the market maker we set out to be" - Zillow Group (Z) CEO Rich Barton
"Since the sustainability of this business has gotten so much attention this week, you may wonder if Redfin’s hopes to compete as an iBuyer depend on being smarter, luckier, grittier, or just more cautious. The answer is that Redfin isn’t an iBuying company at all. It’s part of what we do, but it’s not who we are." - Redfin (RDFN) CEO Glenn Kelman
The housing market is normalizing some
"The housing market is returning to sustainable levels and oh what a relief it is. Year-over-year price gains peaked in May 2021 at 24% and have narrowed every month since to 13% in September. In the hottest pandemic markets, like Boise, Salt Lake City, and Tacoma, more than 40% of the listings on the market have dropped their price, when earlier this year that number was below 12%. From April to September, the percentage of Redfin’s offers facing competition decreased from 74% to 59%.” - Redfin (RDFN) CEO Glenn Kelman
"Demand continues to outpace supply. And in many communities, we continue to sell out of homes as soon as we release them due to existing waitlists. However, we are seeing signs that demand levels are normalizing from the surge that began last year." - LGI Homes (LGIH) CEO Eric Lipar
Consumer:
Planet Fitness saw people returning to the gym
"People are choosing bricks and mortar. They’re coming back faster than we’ve ever seen. They’re rejoining our clubs faster than we’ve ever seen. The Gen Z’s are joining faster than we’ve ever seen. All the winds are blowing the right direction, and the sails are wide open." - Planet Fitness (PLNT) CEO Chris Rondeau
Airbnb saw demand pick up in urban areas
"...we’re obviously seeing greater demand pickup in our more urban areas. So the percentage of nights in the urban area has started to increase or now made 46% of our nights. We’re still down to maybe 60% of our nights kind of pre-COVID. And so we’ll continue to see listings growth in those more urban areas as the demand kind of keeps coming back." - Airbnb (ABNB) CFO David Stephenson
Vegas is bouncing back
“...with cases on the downswing, we have built -- quickly we built momentum into October and the level of demand in the marketplace, especially on the weekends has simply been incredible. October will be another all-time record month." - MGM Resorts International (MGM) CEO Bill Hornbuckle
Travel demand continues to be strong
"...looking ahead, we are already seeing better bookings for next summer than we saw this time last year. So, the trends continue to be quite strong there." - Expedia Group (EXPE) CEO Peter Kern
Chegg saw a slowdown in education demand
"...a combination of variants, increased employment opportunities and compensation, along with fatigue, have all led to significantly fewer enrollments than expected this semester -- Nobody could have anticipated just the robust nature of the low-end economy where our kind of students, community college students, four-year students and schools that most of you don't know about, chose to go earn an income or stay home with their child versus go back to school this semester." - Chegg (CHGG) CEO Daniel Rosensweig
Peloton is also experiencing a post-pandemic slowdown
"It is clear that we underestimated the reopening impact on our company and the overall industry --.While we continue to see a nearly 100% two-year growth CAGR in both traffic and unit sales in Q1 and into Q2, we've seen a greater-than-anticipated taper of our website traffic levels over the past two months and a slower-than-expected pickup in retail showroom traffic, both of which are important inputs into our forward-looking demand mode." - Peloton Interactive (PTON) CFO Jill Woodworth
But companies still aren’t quite ready to make people return to offices
"I must admit that our tenants and we are a little frustrated by how long the return to work process is taking. But there's no doubt that work in office will win over work alone at the kitchen table." - Vornado Realty Trust (VNO) CEO Steven Roth
App store fees are huge costs for App companies
"The biggest swing factor in our 2022 EBITDA outlook is what happens with app store fees, which are an increasingly large percentage of our revenue, up from 17% in 2020 to an estimated 19% in 2021, totaling over $550 million." - Match Group (MTCH) CFO Gary Swidler
People may be forced to go to the stores this holidays instead of shopping online
"I think people are going to find that as we get closer and closer to the Christmas holiday, that the items that they normally would be able to buy online, they're going to have to go into stores to get it," - FreightWaves CEO Craig Fuller
Supply chain issues are impacting advertising spend
"While scatter pricing is still very healthy in Q4, up 30% to 35% over both upfront and last year, the overall tone in the market is a bit more subdued than last few quarters as clients worked through the constraints in the global supply chain." - Discovery (DISCA) CFO Gunnar Wiedenfels
"The global supply chain disruptions will likely impact the overall holiday season in terms of shipping delays, product availability issues, and product price increases. We expect the U.S. TV market to continue to be significantly impacted by these issues. Additionally, certain advertising verticals could reduce spend in Q4 due to limited product availability." - Roku (ROKU) CEO Anthony Wood
"...the macro environment remains challenging. For our CPG advertisers, supply chain issues are still front and center, and they're not sure when things will improve. Also, it's possible that the macro and supply chain issues will affect other non-CPG verticals more in Q4 than they did during the third quarter." - Pinterest (PINS) CFO Todd Morgenfield
Uber is racing to get drivers back
"When we first saw demand beginning to outstrip supply in Q2, we made a conscious decision to invest fast and to invest aggressively in attracting drivers back to Uber with a focus on the US. The results are clear, we've seen 10 consecutive weeks of active driver growth in the US, resulting in a far better rider experience. The number of active drivers is up more than 65% since January and more than 20% since June. As a result, the incidence of surge pricing has fallen by nearly half, and wait times are now below the magic 5-minute mark on average." - Uber Technologies (UBER) CEO Dara Khosrowshahi
Menu prices are rising fast
"A lot of your peers are taking their prices up mid to high single digits. In some instances, we’re seeing menu prices increase 10%." - Shake Shack (SHAK) North Coast Research Analyst Jim Sanderson
Technology:
Take Two’s CEO is skeptical about the Metaverse
"I’m skeptical that we’re going to wake up in the morning and intentionally sit at home, strap on our headsets and conduct all of our daily activities that way. We had to do that during the pandemic, and we don’t really like it so much." - Take-Two (TTWO) CEO Strauss Zelnick
Companies that have direct customer relationships are benefitting from IDFA
"...the disruption and the noise around the loss of cookies and device IDs like Apple's IDFA, in general, is a net benefit to Roku really for two reasons. First, independent ad tech is very challenged in an environment where these identifiers are getting more scarce because they don't have these identifiers. They don't have a direct consumer relationship, whereas Roku does. And so we're always working on our platform with our own first-party data, and it's a fundamental advantage for us and ultimately is bringing brands to us. The second is a more general statement, which is that these changes are forcing marketers to step back and reevaluate their full ad investment portfolio, how they're spending on social platforms, for example. As these identifiers disappear, their costs of acquiring users or whatever action they're chasing, are going up because their ability to measure it is being through the loss of these identifiers. And Roku is a beneficiary there in the sense that brands are generally underinvested still in streaming relative to our scale and our capabilities." - Roku (ROKU) SVP Scott Rosenberg
No slowdown in semis demand
"I think what you tried to ask me is am I seeing a slowdown, and the clear answer is no. We absolutely don't see a slowdown and you can imagine that especially, the car companies with the pretty significantly negative impact to their car production numbers of this year, and the ambition to grow them next year by, I don't know 10% plus over this year? They clearly need more semiconductors. And that is not limited to one product or one technology." - NXP Semiconductors (NXPI) CEO Kurt Sievers
Industrials and Transport:
Supply chain frustrations continue
"Now the third quarter of 2021 was again a quarter where we saw a significant impact to our business and performance by the continuation of the exceptional market situation in Ocean and across the supply chain. High demand by consumers, particularly in the U.S., combined with lack of labor in ports and warehouses and particularly lack of progress in many markets have led to congestion and bottlenecks across the world. And ship capacity is today tied up waiting outside ports at a time when demand is very strong. This has led to record high freight rates, but also increased cost and complexity for us." - A.P. Møller - Mærsk (AMKAF) CEO Soren Skou
Normalized inventory levels not expected until 2022
"At the time, many of our manufacturing customers were producing at approximately 80% to 85% of pre-COVID levels, and we’re not expecting to reach normalized inventory levels until mid-2022.
Since then, we received updated survey results. Our customers are still producing at these levels, but many are now targeting the second half of 2022 as a time frame to reach normalization. As we’ve discussed, food manufacturers will need to run at elevated production for a period of time to replenish inventory levels throughout the supply chain, which is how we define normalization." - Americold Realty Trust (COLD) CCO Rob Chambers
30% of Hanesbrand’s inventory is tied up in transit
"So we're producing a lot of product. We have to get it into the right place at the right time. We have more in-transit inventory than we would normally have. Right now, about 30% of our inventory is in transit.
So we think we have the right inventory, the right amount of inventory, the right seasonal inventory. We're still working on getting the right place at the right time -- If we had a little bit more in the right place, we would have sold a little bit more in Q3. There's no doubt about that. The demand is there." - Hanesbrands (HBI) CEO Steve Bratspies
Demand for warehouse space is very high
"We are either at or over capacity, and demand for space is the greatest I have ever seen," - Sarcona Management President Michael Sarcona
"In an efficient supply chain, you want about 15% availability of warehouse capacity in these markets and across the country. At 3.6%, these warehouses are operating beyond their available capacity to even function properly…I think we've lost the predictability of when products are going to be delivered to consumers -- I've been ordering Christmas items since mid-October -- [because] if anyone tells you they can tell you when something's going to be delivered, they're either not truthful or they're misinformed." - FreightWaves CEO Craig Fuller
Materials & Energy:
The world can count on fusion
"This funding ensures that Helion will be the first organization to generate electricity from fusion -- Our 6th prototype demonstrated that we can reach this pivotal milestone. In just a few years we will show that the world can count on fusion to be the zero-carbon energy source that we desperately need.” - Helion Energy Founder and CEO David Kirtley
EV cars adoption is growing fast but the charging infrastructure has not kept up
"Our deliveries of electric vehicles and plug-in hybrids doubled between January and September compared to the previous year. Our BEV sales were even 120% higher year-on-year. E-mobility has fully arrived in our everyday lives. However, the charging infrastructure isn't keeping up. Here in Germany and all across Europe, it needs to be expanded swiftly and noticeably while also being binding and ambitious. I'm also advocating for this as ACEA President. The growth of electric cars already exceeds the growth of current charging capacity in Germany by a factor of 5. Many EU countries still don't have a charging network at all. Without a coherent framework, no technology can be implemented or become widely accepted. This applies to both e-mobility and hydrogen." - BMW (BMW) Chairman Oliver Zipse
You need more backup with solar/wind as energy sources
"I think I've said it before, back when I went to New England electric, and we're doing the planning for generation of transmission, we used to design the system for a loss of load probability of one in 101% otherwise. And, we had come up that to achieve that we needed about 10% of the outstanding load the spinning reserve. And now spinning reserve will be the various. So if you take out, and we go down the road, they say you have a 30%, 40% between solar and wind, a single event which weather can take out both. So you need some backup, you need microgrids in the data centers out there, the banks beginning to realize, hospitals. And of course, the federal government was the first to realize that we have to get the backup. And so, the project has expanded." - Ameresco (AMRC) CEO George Sakellaris
The cost of power is higher in the US and Europe
"The cost of power has also recently spiked in many geographies within our global network, particularly in certain parts of Europe and the U.S. and we anticipate continued increases in the near term." - Americold Realty Trust (COLD) CCO Rob Chambers