The valuation of every company is simply a number from today multiplied by a story from tomorrow.
Morgan Housel - Same as Ever
The thing I have noticed is when the anecdotes and data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it.
Jeff Bezos
To suppose that the value of a common stock is determined purely by a corporation's earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, give to war on a whim, risen to the defense of Stalin and believed Orson Welles when he told them over the radio that the martians had landed.
Jim Grant
The world has changed a lot in the last week
"Yes. I think if you'd asked me this question last week, you get a different answer than what you get today because I do think the world has changed quite a bit in the past 7 days...I would say that the events of the past 24 hours continue to add some of that extra volatility into the mix." - Affirm Holdings (AFRM ) CFO Michael Linford
Markets are still assessing the impact of a classic bank run
“This past week we saw the biggest bank failure in more than 15 years as federal regulators seized Silicon Valley Bank. This is a classic asset-liability mismatch. Two smaller banks failed in the past week as well. It’s too early to know how widespread the damage is. The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge." - BlackRock (BLK ) CEO Larry Fink
"From our perspective, we have witnessed nothing more or less than a conventional bank run that led to illiquidity because of a fundamental mismatch of duration in assets and liabilities. Low-yielding long-term assets and commitments were underpinned by fairly concentrated overnight funding, which had grown incredibly quickly in recent years. When confidence was shaken and depositors became a herd heading for the doors, the bank failed." - Jefferies Financial Group (JEF ) CEO Rich Handler
This bank crisis will likely have an impact on credit availability
"We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the U.S. regional banking sector (akin to the S&L Crisis) with more seizures and shutdowns coming. It does seem inevitable that some banks will now need to pull back on lending to shore up their balance sheets, and we’re likely to see stricter capital standards for banks.“ - BlackRock (BLK ) CEO Larry Fink
"The question is what's the broader implications on the consumer lending economy? I think that's a TBD, right? Certainly, some institutions may be subjected to higher levels of regulation or scrutiny or liquidity requirements. You're also -- we're seeing deposits move around as well…I think my understanding of this is probably no better than anybody else's in the room. So we'll just have to see and hope it's a fairly contained event." - TransUnion (TRU ) CEO Christopher Cartwright
"I use the words unintended consequences. There are so many of them just swirling around out there. And I'm not sure how they're going to shake out. You're absolutely right that the community banking and regional banking system is a support structure for the broader housing market, whether it's the smaller builders or all the way through the system." - Lennar (LEN ) Executive Chairman Stuart Miller
But hopefully, this doesn’t portend a repeat of 2008
“We do not believe the events of last week portend a repeat of 2008, absent serious miscalculations of present circumstances…any issues are finite and idiosyncratic – in other words, they don’t threaten the whole system and should not lead to endless contagion, as long as we remain calm, acknowledge the problems are very serious and capable of spiraling out of control, and deal proactively and aggressively in a smart, immediate and targeted manner." - Jefferies Financial Group (JEF ) CEO Rich Handler
Regulators are acting forcefully
"The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements. To improve the swap lines' effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 20, 2023, and will continue at least through the end of April” - Joint Statement
There are some signs of stabilization
"While a number of banks coming into the weekend prepositioned the need to get more liquidity, what we found over the course of the week is that they have had to use less and less of it. And now that we’ve seen a stabilization in terms of deposits to those institutions” - Treasury Deputy Secretary Wally Adeyemo
Consumers keep spending despite bank noise
"The news is full of bank noise today. And so there's plenty to be paying attention to. But our view on our industry is travel will be very strong and travel continue to move. We expect consumers' desire and demand for travel to continue to build this year. We're seeing that, as I said at the start of the year." - Samsonite International SA ($SMSOF) CEO Kyle Gendreau
"If you shut yourself up in the room and all you did was look at our numbers…the business has been remarkably stable, right? It's been 43% to 45%, 46% ahead of 2019, almost on a day-by-day, week-by-week basis. And as you saw in February, once again, we had double-digit growth in the U.S. E-commerce growing strongly, card-present growing strongly, debit growing strongly." - Visa (V ) CFO Vasant Prabhu
"We haven't seen a decline in credit scores over the last several months. And so again, very strong…we tend to see a very high correlation between credit quality, the strength of the consumer and employment, right? And employment is very high, unemployment is staying low…generally speaking, our expectation is so long as people keep working that we're going to continue to see a relatively constructive credit environment" - Equifax (EFX ) CFO John Gamble
It’s a battle of fire and ice
"...this week, in some respects, is indicative of what happens when you're in the throes of that battle between fire and ice. You have the knob being turned to try to fight against inflation. And then the question is, do you stop turning the knob? How hot is the CPI print going to be in a couple of hours? Can the Fed continue to turn the knob to try to get inflationary expectations down? Or given what's happened this week, the reaction function, to higher interest rates, do they need to either slow the knob down or turn the other one? That is this week, which is the fire and ice right before us. And I think it's something we should expect over the next 6 to 12 months." - Morgan Stanley (MS ) Co-President, Head of Institutional Securities Group Edward Pick
When you move 500bps in one year, things can break
"...the reality is when you move 500 basis points in 1 year, that is a real adjustment to the system for investors, for the corporate community, for the consumer, 500 basis points in 1 year. There will be a reaction function to that" - Morgan Stanley (MS ) Co-President, Head of Institutional Securities Group Edward Pick
This could continue for a while
"At this point, I think we should prepare ourselves for the possibility that this new economic reality will continue for many years. Higher interest rates lead to the economy running leaner, more geopolitical instability leads to more volatility, and increased regulation leads to slower growth and increased costs of innovation. Given this outlook, we’ll need to operate more efficiently than our previous headcount reduction to ensure success." - Meta (META ) CEO Mark Zuckerberg
China is coming back on line but maybe not as fast as hoped
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The ECB is fighting inflation
"Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target." - European Central Bank Press Release
De-globalization of manufacturing continues
"So I think over the last couple of years, geographic distribution manufacturing has become more and more important and more critical, especially when you're starting to bid on opportunities a little further out on the horizon. We have customers who've told us point blank, "If you cannot manufacture a certain product for us here in the United States, don't even bother bidding on the program.”" - NXP Semiconductors (NXPI ) VP of IR Jeff Palmer
"So we absolutely are having a lot of conversations with customers. They want to diversify their supply chain over the last several years. I think it’s important to remember the primary conversation that we’re having is about Mexico, and we have a fantastic value proposition out of Mexico. So, as customers do want to diversify, we are anywhere they need to be. So, we feel really good about that. But I do want to be clear that it is a future conversation. From a magnitude perspective, we do not see any short-term large shifts that would change the position of China being the world’s manufacturer. So, I don’t think that that’s an immediate issue. I do think it’s a future issue." - FedEx Corporation (FDX ) Chief Customer Officer Brie Carere
"Whether it is for food and energy or computer chips and AI, companies and countries are all looking to ensure they are not dependent on supply chains exposed to geopolitical tensions. Increasingly, they want to source essential goods close to home even if it means higher prices. These shifts are producing a less integrated, more fragmented global economy. Leaders in public and private sectors are essentially trading off efficiency and lower costs for resilience and national security." - BlackRock (BLK ) CEO Larry Fink
Financial stress has people looking under the hood again
"I think it is pretty interesting how suddenly everybody was like trying to get under the hood to understand where the money gets parked." - Wise ($WPLCF) CTO Harsh Sinha
Some delinquencies are rising
“And what we are seeing is we are seeing some delinquency increases in subprime probably in subprime -- 60-day delinquencies in auto and in card, are up slightly over where they were versus where they were in probably 2019 and have increased slightly over the past several months. So there is certainly seeing some level of stress in that part of the environment” - Equifax (EFX ) CFO John Gamble
Capital markets’ reaction function is much faster than it was even 15 years ago
"After 15 years of the financial crisis, the notionals of all assets are much bigger, where we are all instantaneously connected to a Bloomberg machine. The reaction function time is immediate." - Morgan Stanley (MS ) Co-President, Head of Institutional Securities Group Edward Pick
Duration risk is real
"It's funny. It's really interesting. I think if you -- we used to use the word until very recently talk about risky assets, and that was code for credit risk. And I think this past week has been a lesson. And risk is a lot more than just credit risk. Duration risk is a real thing." - Affirm Holdings (AFRM ) CFO Michael Linford
Watch out for liquidity mismatches
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Securities markets are winners in this banking crisis
“Over the longer term, today’s banking crisis will place greater importance on the role of capital markets. As banks potentially become more constrained in their lending, or as their clients awaken to these asset-liability mismatches, I anticipate they will likely turn in greater numbers to the capital markets for financing. And I imagine many corporate treasurers are thinking today about having their bank deposits swept nightly to reduce even overnight counterparty risk.” - BlackRock (BLK ) CEO Larry Fink
Big banks are winning too
"The last couple of days, as you may expect, there is -- we've seen inflows, right? So -- but I mean, this -- you can't really draw conclusions from that in my view. It's a reaction at first is clearly [flight] to safety from that perspective. But I think 3 days don't make a trend. But yes, I mean, that's a normal reaction, I think, of the market to come to places like ourselves." - UBS Group (UBS ) Group CEO Ralph Hamers
Payments networks are operating normally
“...it was a busy weekend across the financial system. Good news from our perspective is our card products continue to operate normally, we were encouraged by the actions taken by the regulators over the weekend" - Mastercard (MA ) Chief Product Officer Craig Vosburg
“Speaking from the standpoint of the payments network, things have been completely normal. Debit and credit credentials have been usable without any disruptions whatsoever. They're settling every night. So really no impact whatsoever. And in fact, there's been absolutely no friction whatsoever" - Visa (V ) CFO Vasant Prabhu
European regulators have been obsessed with capital
"Europe has been obsessed with capital in banks. For a decade, I think this rebalances the debate on liquidity as well, but with the confirmation that the liquidity has not been an issue because it was plentiful. Now the ECB is pulling back in, but most banks have liquidity ratios that are off the charts. So, unless it dramatically dislocates from where it is now, but then I see the ECB intervening, but -- and I don't see any reason why it should dramatically dislocate now. We are in a relatively different situation." - UniCredit S.p.A ( $UNCFF) CEO Andrea Orcel
M&A may bounce back quickly in the next cycle
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Equity trading requires a lot of CapEx
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Consumers are under a lot of pressure
"...what we're seeing right now with our customer is the best news we have is that she's still employed. And as we've talked about for many years, that is the single most important factor to her economic health. But we are certainly, as we talk to our customers…we're seeing that she's worse off financially. And it's primarily due to food inflation. And obviously, as you think about how that changes her behaviors, one of the things we're seeing is she's relying more on savings, credit cards, and also borrowing money, quite frankly, from friends" - Dollar General (DG ) CEO Jeffery Owen
Strain is causing changes in spending patterns
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Microsoft and Google are starting major AI product integrations
"Today marks the next major step in the evolution of how we interact with computing, which will fundamentally change the way we work and unlock a new wave of productivity growth. With our new copilot for work, we’re giving people more agency and making technology more accessible through the most universal interface — natural language" - Microsoft (MSFT ) CEO Satya Nadella
"We’re now at a pivotal moment in our AI journey. ..Developers and businesses can now try new APIs and products that make it easy, safe and scalable to start building with Google’s best AI models through Google Cloud and a new prototyping environment called MakerSuite. And in Google Workspace, we’re introducing new features that help people harness the power of generative AI to create, connect and collaborate....We’re now making it possible for Workspace users to harness the power of generative AI to create, connect, and collaborate like never before. To start, we’re introducing a first set of AI-powered writing features in Docs and Gmail to trusted testers." - Alphabet (GOOGL ) Google Cloud CEO Thomas Kurian
Meta is laying off more people
"Overall, we expect to reduce our team size by around 10,000 people & to close around 5,000 additional open roles that we haven’t yet hired. This will be tough & there’s no way around that" - Meta (META ) CEO Mark Zuckerberg
Meta’s data suggests that in-person work is more productive than remote
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Consumer electronics markets have remained weak in Q1
“...we saw a pretty steep roll down in the fourth quarter with consumer electronics. We felt that would continue into the first quarter. It's pretty much played itself out, at least what we are seeing 2 months in. What we are seeing is smartphones down somewhere between 10%, TVs as high as down 30%. Sequentially, you've also seen semiconductors down mid-single digits. Auto, our auto business, which also has an impact of electronics because of our display and other electronic components we supply also down mid-single digits.” - 3M (MMM ) Chief Financial and Transformation Officer Monish Patowala
FedEx is seeing steep volume declines and laying off people
“...volumes declined by a low double-digit percentage across all segments partially offset by higher yields at Ground, U.S. Domestic Express and Freight. This led to a year-over-year revenue decline. While revenue fell across all segments, the decrease was most pronounced at Express…We will continue to aggressively manage headcount including attrition to align our teams with the network changes underway. By the end of this fiscal year, we expect U.S. headcount to be down roughly 25,000 year-over-year." - FedEx Corporation ( $FDX) CEO Rajesh Subramaniam
There may be softening trends in air travel
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Air travel is boring
"We have 200 million people a year with us, on average, three hours a session, and we even have them seat belted in and all facing forward, they can't move and they're bored out of their minds. This, to me, has always been the goldmine as to how we could figure out a way to create value for our customers, first and foremost, but also for our owners, by having that captive audience and what can you do to create a better experience for them. Well, Wi-Fi is the answer" - Delta Air Lines (DAL ) CEO Ed Bastian
Automobile supply and demand should balance in Q3
"...demand is slowing down and the supply is improving. So I expect Q3, where demand and supply will meet and that better supply that will be true for all of the companies." - Volkswagen ($VLKAF) CFO Arno Antlitz
Semiconductor availability should get better this year and next for automakers
"We saw 660,000 less vehicles built in Q4 regarding chip shortages than was planned at the beginning of the quarter…Chip availability is improving somewhat, with additional capacity that's come online, more meaningful capacity comes online throughout this year and next, which will further augment vehicle build levels and satisfy the deep backlog needed to refill the pipeline of inventory on dealer lots…inventory levels in North America have settled in around 36 or 37 days over the last few months" - Linamar ($LNR) CEO Linda Hasenfratz
"Looking a little bit ahead, what's happened in our industry? The industry was basically supply-side driven for 2 or 3 years. We had not enough semi-supply. We're still restricted with the semi supply, but that semi supply goal will improve throughout the year....we expect that in 2023, the structural shortage of semiconductors will improve and the supply with raw materials and logistics will gradually stabilize." - Volkswagen ($VLKAF) CFO Arno Antlitz
There’s low investment in oil and gas
"Given that we anticipate oil and gas will remain essential for the foreseeable future, the risks of underinvestment in our industry are real, including contributing to higher energy prices...We don’t see enough investment getting into the markets right now. We encourage the industry, policymakers, investors… to avail additional investment to really increase the amount in the sector, so that we can meet future demand” - Aramco ($ARMCO) CEO Amin Nasser
Energy costs in Europe normalizing but still 3X historical levels
"Both gas and electricity prices have backed off the exceptional highs that were seen late summer last year, but are notably still above triple historical levels. We're seeing a mixed level of impact in our plants on the energy side, given some plants in some regions have locked in some energy contracts, before levels really escalated, which have now expired. Other plants in regions were on the spot last year, and therefore, are seeing an improvement to energy costs." - Linamar ($LNR) CEO Linda Hasenfratz
There’s a massive undersupply of batteries
"Australia has all the minerals in the world you need for batteries, and right now, it’s like selling water in a drought. To put it into perspective we could open one gigafactory a month for six years and not meet the current undersupply of batteries." - Energy Renaissance CEO Brian Craighead
Leaner is better
"Since we reduced our workforce last year, one surprising result is that many things have gone faster. In retrospect, I underestimated the indirect costs of lower-priority projects…indirect costs compound and it’s easy to underestimate them. A leaner org will execute its highest priorities faster. People will be more productive, and their work will be more fun and fulfilling. We will become an even greater magnet for the most talented people. That’s why in our Year of Efficiency, we are focused on canceling projects that are duplicative or lower priority and making every organization as lean as possible." - Meta (META ) CEO Mark Zuckerberg
There’s no substitute for good management
"There's just simply no substitute for good management. It's impossible to totally legislate or regulate good behavior. And frankly, there's no substitute for honesty and integrity and for an executive management team to have some of their own money at risk in the stock of their company. And by that, I always mean real money, not just stock compensation." - Sterling Bancorp (SBT ) CEO Thomas M. O'Brien
Never underestimate the complexity of anyone else's business
"...for us, to your question, it is all about people at the end of the day. And if they are the most important piece of the equation, we can't just pluck them off of a tree and plug them into a store. They have to be well-trained. And I think there's a misconception, and it's something that I learned a long time ago never underestimate the complexity of anyone else's business." - Mister Car Wash (MCW ) CEO John Lai