Succinct Summary: Economic data appears to be showing that inflation is as resilient as the consumer. This creates an issue for the Fed, which is committed to returning to 2% inflation. And that, in turn, creates an issue for capital markets, which have been expecting the end of tighter monetary policy. The Fed has been saying that it could take a while to beat inflation. Maybe they’re right?
Editor’s Note: Premium subscribers have exclusive access to the “editor’s notes” version of The Transcript. This is a version of the full weekly newsletter that includes comments from our editor Scott Krisiloff to help put some of the quotes in context and highlight important investment catalysts. This service is specifically designed to help you identify actionable insights to help you make money. Become a paid subscriber for access:
Additionally, blocked quotes are only available to premium subscribers.
Macro:
Inflation has been a little bit pesky
“And from what I read, I know inflation has been a little bit pesky. But it does feel like that the Fed is going to sort of be done with what they need to do on interest rates, either in the summer or the springtime” - Floor and Decor (FND 0.00%↑) Trevor Lang
"The way to think about it is dry grocery and consumables are stubborn mid-double digit, and those are going to just be with us for a while. And it will get a little confusing because you'll probably hear inflation numbers that start to sound lower, but you'll have to remember that's on a 2-year stack. So if inflation in dry grocery and consumables is only 3% or 5%, that's on top of 15%. And that's still a problem for the customer." - Walmart (WMT 0.00%↑) CEO Doug McMillon
It may not be coming down as quickly as the Fed hoped
"We are absolutely committed to getting back to 2% over the next few years. Although goods prices have come down in last several months, there are signs this may not go as quickly as hoped. We have demand that exceeds supply, labor market is extraordinarily strong. Monetary policy must bring demand and supply back into balance. Don't want to allow inflation expectations anchor to slip." - New York Federal Reserve Bank President John Williams
Could larger rate increases come back?
"A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount. The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way." - FOMC Minutes
Consumers are still spending money
"We also still see a healthy customer. I mean we have good jobs, job growth, growing wages, still strong balance sheets." - Home Depot (HD 0.00%↑) CEO Edward Decker
"I mean, I don't -- I'm no economist. So I don't know that I'm surprised by what's happening. I think we locked people up in their homes to for some period of time throughout the country…But all I can tell you is what we see in the business is continued strength…we certainly don't see anything in our destination business today that suggests that [recession] is on the horizon." - Caesars Entertainment (CZR 0.00%↑) CEO Thomas Reeg
CEOs are confident
"...when I talk to CEOs, they're a lot more positive than they would have been if they -- when they appeared on Bloomberg or CNBC about the outlook for the year. I think everyone was rightly cautious, and I think the general view is the world economy is in a better place today than when people feared it would be back in October and November. And by the way, you hear that consistently our peers" - WPP (WPP 0.00%↑) CEO Mark Read
And there are also clear signs of lower prices
"We benefited from meaningful deflation in 2022 and did not have to take price. In fact, in the fourth quarter, our same-store sales growth was 8.7%, driven entirely by transaction growth" - Wingstop (WING 0.00%↑) CEO Michael Skipworth
“Ocean freight rates have declined significantly due to lower global market demand and the easing of port congestion. In addition, we have seen material reductions in demurrage, tension and drayage cost and softening in domestic logistic rates” - Floor & Decor (FND 0.00%↑) CEO Trevor Lang
Consumers may be more discerning than it seems
"Let's start with consumer health…We were talking just before the call, Oliver, about which adjective to use, and we were coming up with words like choiceful, discerning, thoughtful. I think you can see it in the mix impact. Customers are still spending money." - Walmart (WMT 0.00%↑) Doug McMillon
And labor markets appear to be slowing
Quotes Hidden. Subscribe to Read
Soft landing or hard landing? Get an umbrella either way
"People are always asking me this question, how bad the recession is going to be? It doesn't matter. As long as we're going into a recession, you have to have certain degree of protection. It won't matter-- if it's raining a half an inch an hour, you need an umbrella. If it's raining two inches an hour, you still need an umbrella. In either case, you need an umbrella." - Doubleline Capital Founder Jeffrey Gundlach
International:
It's one year now since the Russian invasion of Ukraine
"I'm struck that tomorrow is the anniversary of the Russian invasion in Ukraine. We're actually 3 years really from the start of the recognition of the challenge of COVID. We stand on the cusp of really at the -- in the reality of a disaster in Turkey and Syria." - WPP (WPP 0.00%↑) CEO Mark Read
Travel in China is bouncing back
Quotes Hidden. Subscribe to Read
Companies are losing interest in outsourcing manufacturing to China
“It works as long as [products are] made in China and sold in China, but the business model of producing in China and exporting abroad is no longer viable. Not only have wages gone up, but obviously with all that’s happening between the US and China, it’s difficult to export from China to some regions." - Kyocera (TYO: 6971) President Hideo Tanimoto
Consumer:
Higher-income consumers are shopping more at Walmart
"We're gaining share across income cohorts, including at the higher end, which made up nearly half of the gains we saw in the U.S. again this quarter" - Walmart (WMT 0.00%↑) CEO Doug McMillon
The home improvement market is trending towards negative sales growth
"...over the last 7 quarters, we have seen our transactions gradually normalize as consumer spending has shifted from goods to services. We believe that if this shift continues at its current pace, the home improvement market would be down low single digits." - Home Depot (HD 0.00%↑) CFO Richard McPhail
"We have HomeGoods, which -- we're still trying to figure out the home trend nationally. We might have another couple of quarters across our home businesses, which just aren't in HomeGoods that could keep our top line down a little. So Q4, right, we ran on minus 7% in home goods." - The TJX Companies (TJX 0.00%↑) CEO Ernie Herrman
Retail inventories have improved
"This is the time last year. Just to remind you, back in February, March last year, we were really getting caught up from ocean backlogs and receiving product that should have been onshore as much as 6 months prior to it being unloaded. And the cost, the markdowns, the impact and everything, from store labor to creating overtime, we expect some of those to be better. However, down 3% of inventory, we're proud of that position. But there are still pockets of inventory in stores and some fulfillment centers and some categories like apparel where there's still more work to be done. So we want to make sure that we have room to address those things as we get into first half of the year." - Walmart (WMT 0.00%↑) CEO & President of Walmart US John Furner
Home Depot is raising hourly wages for workers
"...we are making a significant investment of approximately $1 billion in compensation for frontline hourly associates. This is a meaningful investment that we believe will position us favorably in the marketplace." - Home Depot (HD 0.00%↑) CEO Edward Decker
QSR delivery was down high single digits in 2022
"According to NPD data, the entire QSR delivery category was down high single digits for fiscal year 2022. Not surprisingly, according to NPD, pizza delivery was down as well." - Domino’s Pizza (DPZ 0.00%↑) CEO Russel Weiner
Amazon is the world’s largest advertiser
Quotes Hidden. Subscribe to Read
Avatar: The Way of Water has helped drive additional business to IMAX
"I've spoken often about what we call the Avatar effect. After James Cameron's watershed 2009 release, IMAX saw a two-year period of outside growth across virtually all KPIs, signings, installs, PSAs, followed by a structural rebasing of our network business. As Avatar: The Way of Water delivers on our highest expectations, we're beginning to see history repeat itself, with a surge of positive momentum and trends at hand." - IMAX (IMAX 0.00%↑) CEO Richard Gelfond
Technology:
We are at an AI inflection point
"AI adoption is at an inflection point. OpenAI's ChatGPT has captured interest worldwide, allowing people to experience AI firsthand and showing what's possible with Generative AI…Generative AI applications will help almost every industry do more faster. Generative large language models with over 100 billion parameters are the most advanced neural networks in today's world." - NVIDIA (NVDA 0.00%↑) CFO Colette Kress
Large language models have democratized computer programming
"We now realize -- the world now realizes that maybe human language is a perfectly good computer programming language, and that we've democratized computer programming for everyone, almost anyone who could explain in human language a particular task to be performed. This new computer -- when I say new era of computing, this new computing platform…is utterly revolutionary" - NVIDIA (NVDA 0.00%↑) CEO Jensen Huang
Hyperscalers are pausing spend
"Hyperscale customer revenue posted strong sequential growth, though short of our expectations as some cloud service providers paused at the end of the year to recalibrate their build plans. Though we generally see tightening that reflects overall macroeconomic uncertainty, we believe this is a timing issue at the end market demand for GPUs and AI infrastructure is strong." - Nvidia (NVDA 0.00%↑) CFO Colette Kress
IT customers are being cautious
"The changing macro is clearly making business leaders more cautious. Some of our customers are seeing signs of a slight slowdown while others are less impacted...while not expecting shocks, I do think we will see more cautious activity over the next few quarters. Clearly, caution is abundant, driving more scrutiny, making customers demand more value from their partners. We've seen some projects get delayed or descoped, non-canceled while most continue on track." - Palo Alto Networks (PANW 0.00%↑) CEO Nikesh Arora
Industrials and Transport:
The pandemic led to a massive bullwhip effect for FedEx
"The pandemic, this is one of the largest bullwhip effects we have seen in the recent memory and so we -- volumes increasing significantly to now down double digits as we showed you in the second quarter. So yes, we're doing our level best to, first of all, kind of flight hours to adjust to the volume conditions." - FedEx (FDX 0.00%↑) CEO Rajesh Subramaniam
Used vehicle prices up-ticked in February
"Wholesale used-vehicle prices ( $on a mix-, mileage-, and seasonally adjusted basis ) increased 4.1% from January in the first 15 days of February. This was the largest February increase since 2009’s full-month 4.4% gain…The seasonal adjustment drove a small part of the gains. The non-adjusted price change in the first half of February was an increase of 3.4% compared to January, while the unadjusted price was down 5.9% year over year." - Manheim Used Vehicle Value Index
Car prices and availability are still a challenge
"Used car prices and new car prices and availability are incredibly challenging. I think there's a stat recently that sort of Middle America is literally priced out of a new vehicle given the cost." - Driven Brands (DRVN 0.00%↑) CEO Jonathan Fitzpatrick
New vehicle inventories are rising but still well below pre-covid levels
"From a macro environment perspective, we are beginning to see some positive signals of improvement. First, many of our commercial customers have indicated an expectation of increased new vehicle production in 2023. Also, we are now seeing new vehicle inventory on dealer lots starting to increase with increased day supply. These 2 factors are the necessary ingredients to balancing supply and demand in the used vehicle market." - KAR Auction Services (KAR 0.00%↑) CEO Peter Kelly
"...new vehicle sales are still forecasted to increase approximately 8% year-over-year driven by pent-up consumer demand and improving production levels, including over 60 anticipated new car releases. New car average daily listings are also rising in our marketplace. They increased 74% compared to the prior year. However, they remain more than 60% below the pre-COVID period. Given these dynamics and our conservative posture of some OEMs, we remain cautious in our outlook for OEM and national revenue." - Cars.com (CARS 0.00%↑) CEO T. Alex Vetter
Work from anywhere continues to change the nature of leisure travel
"Recent research we conducted revealed that 80% of people surveyed would consider working remotely from a vacation destination as a way to extend the length of their trip, and this trend is expected to continue...With the strength we've seen in leisure travel, we've averaged nearly 90% occupancy for the year, illustrating the continued high demand for leisure accommodations." - Marriott Vacations Worldwide (VAC 0.00%↑) CEO John Geller
The US construction worker has become less productive since the 1970s
"As healthy as demand and construction continues to be, the industry's productivity has actually declined. According to a recent article in The New York Times, the U.S. construction sector has become less productive over the past several decades, in contrast to the overall economy, where labor productivity has risen almost threefold since 1950. In fact, some research has found that the value added per construction worker in 2020 was about 40% less than it was in 1970." - Procore Technologies (PCOR 0.00%↑) Craig Courtemanche
Materials & Energy:
Commodity prices have stabilized from their declines in 2022
"2022 was a volatile year for commodity prices with declines in the first half, albeit from record highs, accelerating in the second. Realized iron ore prices dropped 22%; copper, 19%; and for aluminum...Commodity prices have found support in recent months with global base metal inventories at low levels and China policy pivoting to pro-growth." - Rio Tinto (RIO 0.00%↑) CFO Peter Cunningham
Rig count is flat since September
"On the service side, I think we haven't really seen anything manifested yet, but I think we've all seen rig counts have largely been flat since September, and they're down off their peak of -- in November of probably 20 to 25 rigs. And with the drop in gas prices, I think everybody is expecting maybe we'll see some more softening on the rig activity level" - EOG Resources (EOG 0.00%↑) COO & President Lloyd Helms
Real Estate:
Housing has started the year with an improving trend
“Since the start of the calendar year, we have seen a marked increase in demand beyond normal seasonality as buyer confidence appears to be improving. We believe the recent pick-up in demand is a sign that the long-term fundamentals underpinning the housing market remain intact….demand improved each month as the quarter progressed. In fact, our January 2023 net agreements exceeded both November and December combined. As Doug mentioned earlier, February continues to show strength through this past weekend" - Toll Brothers (TOL 0.00%↑) CEO Douglas Yearly
There is still very limited inventory of homes. Sellers aren’t motivated.
“As mortgage rates increase, we see a kind of an interesting dynamic in homeowners who are happy with their fixed rate mortgage and then decided to improve in place. You just don’t have very many willing sellers in the market today...our homeowner customer is in such a healthy position that you just think about their motive for selling. As you know, 90% -- over 90% of U.S. homeowners either own their homes outright or have fixed rate mortgages under 5%. And so that incentive to sell and move to a higher rate mortgage just isn't there." - Home Depot (HD 0.00%↑) CFO Richard McPhail
“If you look across our markets…new listings are the lowest they have ever been since 2004 and that just means there are fewer sellers in the market for us to engage with right now.” - Open Door (OPEN 0.00%↑) VP Dod Fraser
Nuggets of Wisdom:
A handful of good decisions account for the bulk of the value that you’ll create in your career
"At this point, a report card from me is appropriate: In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so. In some cases, also, bad moves by me have been rescued by very large doses of luck. Remember our escapes from near-disasters at USAir and Salomon? I certainly do. ) Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years – and a sometimes-forgotten advantage that favors long-term investors such as Berkshire. Let’s take a peek behind the curtain. ..The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well" - Berkshire Hathaway (BRK) CEO Warren Buffett
Invest with people who are eating their own cooking
"There are many Berkshire centimillionaires and, yes, billionaires who have never studied our financial figures. They simply know that Charlie and I – along with our families and close friends – continue to have very significant investments in Berkshire, and they trust us to treat their money as we do our own. And that is a promise we can make." - Berkshire Hathaway (BRK) CEO Warren Buffett
The CEO should be a company’s Chief Risk Officer
"Our CEO will always be the Chief Risk Officer – a task it is irresponsible to delegate. Additionally, our future CEOs will have a significant part of their net worth in Berkshire shares, bought with their own money. And yes, our shareholders will continue to save and prosper by retaining earnings. At Berkshire, there will be no finish line." - Berkshire Hathaway (BRK) CEO Warren Buffett