Company Notes Digest 12.1.17

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

We were off last week for Thanksgiving, but did have some notes that we compiled, so this post incorporates the last couple of weeks of conference calls.  Earnings season is slow, but several companies spoke at conferences. 

From an economic perspective, the consumer is optimistic, but credit card debt is likely the next area where there is a little too much leverage.

The Macro Outlook:

The economy is strong

“The North American market is – remains extremely strong, even though there’s still a lot of uncertainty on the whole federal government infrastructure support bill and tax bill, et cetera. The demand is there. The economy’s strong.” —Jacobs Engineering (Engineering/Construction)

Consumers are optimistic

“as we survey consumers, we continue to see favorable trends. Our third quarter Consumer Sentiment Survey highlighted that consumers have an increasingly positive view of the national economy and continue to view their personal financial situation favorably. Given that over half of homeowners believe their home values are increasing, intent to engage in discretionary home improvement projects remains strong.” —Lowes (Home Improvement)

And they’re spending more

“mid to high single-digit growth rates in debit and credit card transactions that represents a lot going on out there among consumers. People are spending more, in some cases, they’re earning more.” —Wells Fargo (Bank)

Are they getting over-extended?

“there’s a lot of competition to provide credit to consumers. And that’s probably at the margin, where excess leverage will show up. I don’t think it’s happened yet, broadly speaking, even the loss rates are a little bit higher than they have been for the last few years.” —Wells Fargo (Bank)

International:

Caterpillar sees sustainable change in India

“India is growing well. Under the Modi government it’s really doing some things that seems like there is going to be sustainable change going forward in India as well.” —Caterpillar (Construction equipment)

Brazil is still tough though

“Brazil is tough, very tough. I mean, the industry has really dropped off, whether it’s corruption and the government trying to get their act together. It’s taking a long time and it’s still got some time to play out I think before you see that coming back out.” —Caterpillar (Construction equipment)

Financials:

Malls aren’t the only ones losing foot traffic

“So we’ve talked clearly about the first 450 branches that will be taken out…there still are very high-level of personal interactions in branches, but it was down 5% or 6% year-over-year. And almost all of that is attributable to people self-serving on their computer, on their phone, and of course, phone has now recently, in our case, overtaken online.” —Wells Fargo (Bank)

Consumer:

Advertisers need to figure out how to work with a new medium

“we need to develop 21st century storytelling…the media diet has changed. Those meals of 60 seconds or 30 seconds, nobody is eating those as the only meal they get; that’s still exists; but now they are eating a lot of bites; six seconds that’s all the span of attention they have” —Coca Cola (Beverage)

Success is critical

“You know, particularly for the Urban brands, our customer lives on social media. So, that presence is really critical…it’s really not driving a lot of sales just yet, but I think this is very, very early days and I would expect this to be a major strategy going forward.” —Urban Outfitters (Retail)

Walmart grew its e-commerce business at 50% last quarter

“Walmart U.S. eCommerce sales were up 50% this quarter, with the majority of the increase through Walmart.com. Existing customers have become advocates for popular initiatives like online grocery and free two-day shipping, and as a result, new customers, suppliers, and partnerships are coming to Walmart.” —Walmart (Retail)

They’re hanging out with Google

“We heavily invested in some of the relationships…take the Wal-Mart example, we all spent a lot of personal time…with the teams at Wal-Mart. We went there. We visited them. They visited us over many, many years and we got to a point where we thought we can create a great relationship here.” —Walmart (Retail)

Technology:

Walmart isn’t the only Fortune 500 company building strategic partnerships with Google and Facebook

“There are platforms like Google and Facebook. I was there 10 days ago; telling them listen, I don’t want to tell you – I don’t want to ask you tell me what is the best price for these words in Google Apps or for these in your platform; I want for you to sign a number a non-disclosure agreement; I want to tell you all my strategy; I want to you to poke all the holes in it; and I want you to bring insights; and we’re doing that in the December, because we are going to co-create our strategy with our partners.” —Coca Cola (Beverage)

Tech decisions are being made at higher levels of organizations

“Mark and I have seen this over the last 24 months, there is a very accelerated increase in CEO dialogue…the level of dialogue is up leveled significantly with respect to what levels in the organizations we are talking to and what our capabilities are. I mean just last week I was in Europe and met with over 50 CEOs and the topic was all about digital transformation and how these companies move.” —Salesforce (CRM)

“Over the last six months or so, I’ve seen a pretty dramatic shift to where enterprises realize the value of what they have in that data…we’re really moving from where we were traditionally in the back-office data processing now out into the line of business. So we maybe within the same company, but we’re talking to entirely different people. We’re not to talking to the CIO of a hospital. We’re talking to the Chief Medical Officer.” —IBM (Enterprise Tech)

Quantum computing could represent the next paradigm shift in computing power

“I said, 10-15 years ago I did not think I would see a quantum computer in my lifetime. And by the way, the quantum computer is not on that Moore’s law curve I showed you. It’s in a completely different curve of its own. Its orders of magnitude faster than anything built on Moore’s law. In fact, a robust quantum computer, when we build it in the fairly near future, will be a performance step equal to the last 50 years of Moore’s law. So this is not like a little – so this is disruptive…So I used to think I would never see one in my life. Five years ago, I said I’m going to see one in my life. I now see one in my career.” —IBM (Technology)

Industrials:

GM sees $1/mile as a magic number for ride sharing

“We think autonomous ride sharing opportunity will be very, very large from an addressable market perspective and today is only in its early phases. The true value will be unlocked when you can get the cost per mile to be less than $1. If we think about it today, ride sharing is between $2 and $3 and we see a path to get into below $1 in the medium term” —General Motors (Automobiles)

Global aviation market is robust

‘Turning to aviation. This market is robust due to continued passenger growth, especially in emerging economies, aging terminals in some geographies and improved profitability among major airlines.” —Jacobs Engineering (Engineering/Construction)

Materials, Energy:

Copper and Iron Ore companies are investing in replacement capacity

“The focus for us is copper and iron ore, and we’re seeing activity in both. A lot of activity in Australia and South America specifically…replenishing capacity as mine lives come closer to end” —Jacobs Engineering (Engineering/Construction)

Dry bulk shipping carriers are even showing signs of improvement

“The bulk carrier market conditions have shown clear signs of improvement this year compared to the historically depressed market environment seen in 2016.” —Diana Shipping (Dry Bulk)

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 11.17.17

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

Ordinarily we would focus on retail in this week of the earnings cycle. There are a number of quotes in this week’s piece from traditional brick and mortar stores, but companies like Macys no longer feel relevant to the broader economic picture. It feels like that alone speaks volumes about the state of the industry.

Instead this week, the headline macro discussion is about housing. Following years of under-building we now find ourselves in a supply constrained environment. This is favorable for homebuilders and home-owners, but frustrating to anyone who hopes to buy. Political gridlock and rising prices are leading to a great migration of millennials from coastal markets to southern and midwestern cities with a lower cost of living.

The Macro Outlook:

Homebuilders are jacked up on housing markets

“I will tell you, Bob, the market feels really good. The positioning of this company with its people and its communities – never been better. So yes, we are pretty jacked up.” —DR Horton (Homebuilder)

There’s a lack of supply, especially on the coasts

“Especially in highly competitive coastal markets, it has become extraordinarily hard for customers to buy a home…even though buyer anxiety about rising home prices remains a concern, the number of homes for sale is once again the overwhelming issue” —Redfin (Online Broker)

Political gridlock makes it impossible to build

“There is so much political gridlock in a place like San Francisco around building new homes, especially high-density homes…So I don’t really see that inventory crunch getting much better in most of the coastal markets. I just see it starting to become a problem in markets where we never thought it would be. Hearing that there’s a bidding war in Pittsburgh, who would have thought?” —Redfin (Online Broker)

Housing markets could stay tight through 2020

“As we think about housing broadly and fears of slowdown, we don’t see that for 2018, 2019 and 2020 for a number of reasons. We’ve talked about an aging housing stock, household formation and home price appreciation, and you may say, well, home prices are really hot, haven’t they fully recovered peak to trough? Well, yes, they have, but on an inflation basis, they’re still down double digit.” —Home Depot (Retail)

Tax reform probably won’t have much impact

“candidly, we don’t subscribe to the fact that…the mortgage interest deduction elimination would have much of an impact…in large part because the majority of households wouldn’t have an impact from what’s described today…Our research shows that only 23% of tax filers actually use the deduction. And then of the people who have mortgages, only 5% have mortgages in excess of $500,000.” —Home Depot (Retail)

As a result there is a great migration of buyers

“The larger long-term trend is a great migration from expensive coastal markets to more affordable Midwestern and Southern cities. This has already happened in places like Austin, Denver and Portland, and it is now transforming places like Charleston, Detroit, Nashville and Salt Lake City.” —Redfin (Online Broker)

International:

Growth has accelerated in developing markets

“We do see some acceleration in growth in developing markets. I mentioned our results in China. Those were both market and share driven results. We see the categories in India moving past all of the policy interventions, the tax intervention and the demonetization intervention and resuming very nice growth. Russia is also getting better sequentially quarter by quarter. Brazil…in general some pick up in developing markets and to the extent that commodity cost continue to move which they have been I would expect that developing market dynamic to improve since many of those economies are commodity based and funded, Russia is an example.” —Procter and Gamble (Packaged Goods)

Activity in China has been better than people expected

“I think we are seeing signs of progress and in China…So domestic activity is being better and then anybody is really anticipated early in the year. And so there is a signs of progress and capacities identified has been removed again probably more than people anticipated earlier in the year.” —Arcelor Mittal (Steel)

Visa is bullish on India

“We definitely are bullish on India for a variety of reasons…We’ve had a good constructive conversations with the central bank and the government all the way through this demonetization. We really are 100% behind the government’s desire to move to more of a cashless society.” —Visa (Payments)

Financials:

Consumer credit may be deteriorating some

“there has been an increase in bad debt expense driven in part by the growth in uninsured revenue.” —Tenet (Hospitals)

“As it relates to credit…we are seeing a little bit more of a normalization as we move forward…we actually have seen a little higher level of reserves that need to be put in place, as well as some financing charges that have been recognized” —JC Penney (Retail)

Will reinsurance prices react to recent catastrophes?

“the million dollar question is, how will reinsurance market react to the recent losses…We believe the deterioration of pricing and terms and conditions has ended, but the magnitude of any improvement is uncertain… Historically it has taken up to two years for pricing to peak after big events.” —Third Point Reinsurance (Insurance)

Consumer:

No one is opening brick and mortar stores today

“People are not thinking about opening bricks-and-mortar stores if they don’t need to, right? So anybody who has a concept of being a merchant and selling your goods and services, initially, almost anywhere in the world today thinks about doing it in the digital world rather than in the physical world.” —Visa (Payments)

People want stuff delivered

“Delivery is one of those things that will grow over time, it doesn’t spike immediately. It’s a change in consumer behavior. So, it’s something that we’ll see grow over time…We’re excited about that business.” —McDonalds (Restaurants)

Particularly in concentrated urban environments

“If you look at the markets that have grown the fastest…one is Korea, one is China and they’re both…highly concentrated urban populations. And so, both from a consumer standpoint, traffic congestion, et cetera, e-commerce becomes a preferred shopping experience for some households, but also the economics work including the challenging dynamic of the last mile.” —Procter and Gamble (Packaged Goods)

Marketing is fundamentally changing to adapt

“I think that where we’re headed is mass one to one marketing. I mean historically our industry has been mass marketing, push a large volume of content out and hope it cuts through the clutter and I think we’re getting very close to a point…where the content is more pull versus push and again we refer to that as personal mass marketing and that, the return on that becomes much higher than a lot of very inefficient mass push.” —Procter and Gamble (Packaged Goods)

But price is really what matters most

“one thing we’ve learned this year is that price really matters to our customer. That sounds like an obvious statement, but it’s easy to convince yourself that other components of retail matter more” —JC Penney (Retail)

It should be another fiercely competitive holiday season

“In the fourth quarter, we expect the retail landscape to be fiercely competitive. With excess inventory still in the supply chain, broadened distribution strategies from some key vendors and a lack of newness and innovation, the fourth quarter and 2018 will continue to be promotional and pressure margins from last-year levels” —Dicks (Sporting Goods)

At least retailers feel like they are in a good inventory position

“We really entered the third quarter in a good inventory position…So, we are not anticipating having to liquidate a lot of unplanned inventory walking into the fourth quarter.” —Macy’s (Retail)

“For five straight quarters, sales growth outpaced inventory growth, and we exited the third quarter in a relatively clean inventory position.” —Nordstrom (Retail)

“We’re in really pretty good shape from an inventory standpoint… There’s still some stuff that needs to be cleaned through. But from an apparel standpoint, we’re really in very good shape” —Dicks (Sporting Goods)

Technology:

There’s tremendous competition in OTT television

“There is a tremendous amount of competition in the OTT space. I mean, there is probably approaching a dozen companies…And so what’s going to happen is that the market’s going to get more fragmented. And as a result, that’s consumers will have some choices. And not only will they have choices, but they can move between packages with a click of a button on the Internet.” —Dish (Television)

That could lead to more fragmentation and lower prices

“I can say that our plan on the Disney side is to price this substantially below where Netflix is. That is in part reflective of the fact that it will have substantially less volume…It is our goal to attract as many subs as possible as starting out.” —Disney (Media)

AI is a paradigm shift in computing

“AI is really one of these – once in a decade kind of transition. It is going to be a demand driver that really rises the entire market.” —Intel (Semiconductors)

Thousands of AI startups are cropping up

“There are thousands of startups now that are in – are startup because of AI. Everybody recognizes the importance of this new computing model. And as a result of this new tool, this new capability, all these unsolvable problems in the past are now interestingly solvable. And so you can see startups cropping up all over the west, all over the east and there’s just – there are thousands of them.” —NVIDIA (GPUs)

Miscellaneous Nuggets of Wisdom:

Stay focused on your product

“I remember, almost 10 years ago, when everybody went and invested in texting…And they took their eyes off the quality of the food. And I will tell you, many chains that I know, that became so tech savvy and then almost shrunk where they become irrelevant because they did not take care of the food consistency of the meals coming out quickly, and they neglected the kitchen. The kitchen at the end is the one that can keep a restaurant relevant. I don’t care what you – it’s about food” —Middleby (Restaurant Equipment)

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 11.10.17

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The macro story continues to be an industrial boom. There was also some focus on tax reform this week. I thought that the more interesting quotes were outside of the macro section though. I’d highlight a few areas of interest:

–Public markets are shrinking and private markets are growing
–Used car prices have stabilized
–Loyalty programs are an antidote to price transparency
–Higher deductibles have led to lower healthcare spending

The Macro Outlook:

The industrial economy has broad based momentum

“If I look at all of my end markets, if I look at all the key markets I serve, for oil and gas to powered to chemical to pharmaceutical, the mining – even mining is doing well for us right now… We’re seeing a pretty good momentum” —Emerson (Industrial)

Are companies ready to invest in new capacity?

“we are continuing to see good business environment for our products worldwide…Our inventories at Microchip as well as the distributors are towards the low end of our normal range. We are continuing to slowly add incremental capacity at various bottlenecks.” —Microchip (Semiconductors)

There have been false starts before

“I’m cautiously optimistic. I mean I’ve been bitten over the last five quarters on certain things continuing to be shifted right on the schedule. But this does kind of give us some optimism that the trough is the trough and we’re starting to come out of it.” —Fluor (Engineering & Construction)

But there could also be a feeding frenzy

“I’ve not seen the markets this low for this long in my career. And I do think that there is going to be a bit of a feeding frenzy with some of these projects that need to go forward if these companies are going to make the kind of numbers that they’re suggesting.” —Fluor (Engineering & Construction)

New investment could propel the industrial cycle into 2019

“I fundamentally believe the recovery is going to spread out over two years. I think the recovery is going to be spread out over 2018 and 2019….I fundamentally don’t believe the bigger projects will start happening…until late 2018 early 2019. ” —Emerson (Industrial)

Is the service economy booming in the same way?

“one of the questions we get often today, given the GDP numbers of the last two quarters, the optimism in the market, people ask, are you seeing more healthy demand today from your corporate customers than a year ago for example, and I think, generally, we would say no, it’s about the same. It feels to us like the economy is growing at more or less the same pace it was before” —Marriott (Hotels)

A lot of optimism has been contingent on political changes

“I believe a good portion of the reason for why the economy has gotten better is regulatory relief and there’s going to be more to come” —Wilbur Ross (Commerce Secretary)

But not much has happened yet

“we’re a year in and the situation, interestingly enough, is probably a bit more cautious on the political front because I think there is a point of view that a lot of those policies, other than things that can be done by executive order, haven’t come to – haven’t really made progress yet.” —Sotheby’s (Art Broker)

It’s not clear if tax reform will happen at all

“we’re not going to be brave enough to forecast an estimated tax rate for next year, yet.” —Moody’s (Credit Ratings)

Even if it does, will it boost earnings as much as expected?

“on tax reform, most of our income is domestic, so we’re not anticipating a whole lot of change, certainly in our book tax rate. Obviously, it’s a little higher, so that would go down a little bit. But then we’ve got to factor in what happens with state deductions or not. So we’re going to monitor this closely. We don’t think it’s again going to be a huge driver one way or the other for our cash flow or our GAAP earnings” —CBS (Television)

Some will be negatively impacted

“The thing that in the short term would likely have the greatest impact would be the repeal of 1031, the ability to do like-kind exchanges for art, which in the long term is a mild negative for the market…there is material activity at the high end of the market using 1031.” —Sotheby’s (Art Broker)

“the interest deductibility cap first of all should have essentially no impact on the investment grade sector, and should not have a significant impact for the higher rated portion of the speculative grade sector. So, it’s real, when you get more deeply into speculative grade that those was caps may make a difference.” —Moody’s (Credit Ratings)

It probably doesn’t move the needle on investment decisions

“If you wave a wand and say tax reform is done, and our tax – cash taxes and book taxes decline by a certain amount, I don’t think that, by itself, is going to change our capital availability, if you will. I think, the longer-term question would be whether or not that has the impact of reducing our cost of capital, which could – in some respects could go into a calculation about whether or not there are investments that make sense for us to do. But I think that’s a longer term, more theoretical question” —Marriott (Hotels)

International:

Britain will have to adjust to Brexit

“In the short term, without question, if we have materially less access (to the EU’s single market) than we have now, this economy is going to need to reorient and during that period of time it will weigh on growth.” —Mark Carney (BOE)

Negative interest rates have not impacted bank profitability

“We have also seen little evidence that negative interest rates are undermining bank profitability…In fact, net interest income has remained quite stable over the past two years, even as overnight rates have drifted lower.” —Mario Draghi (ECB)

Financials:

Public markets are shrinking

“if you go back and you look at the data, you’ll see that there are a lot fewer listed companies in the U.S. today than they were in years past and the size of those companies continues to get larger…the middle market size business is…not looking to do an IPO…I think in the past one of the main drivers of why you would go IPO was because you could oftentimes get a better valuation in the public markets than you could get in the private. But I think as has been widely reported, valuations on the private sale transactions have crept up over the years and so today the discount between a private sale and a public exit are really not necessarily all that significant. And so that’s the broader trend that I think is going on in the middle market, is that these companies are simply moving more to private equity ownership and away from public ownership” —Goldman Sachs BDC (BDC)

Private markets are growing

“we’re seeing new buyers coming in the market at lower price points, who are really interested in collecting, very interested in this both intellectual and somewhat financial exercise in their lives, and there’s no stemming the tide of people coming in…both in terms of the amount of collecting activity that we’re seeing and in terms of the number and range of artist that collectors are enthusiastically pursuing, we see an increase.” —Sotheby’s (Art Broker)

“There’s a lot of money on the sidelines for transactions in the U.S., particularly in the areas of industrial and multifamily…we’re having trouble keeping the buyers that we work with satisfied with the amount of product we’re delivering…It’s still a healthy market out there, and we’ve had nice growth in our investment sales business around the world.” —CBRE (CRE Broker)

That is making those markets more efficient

“the market is getting smarter and more efficient about finding its own level for different things. So there’s a sort of certain knowability or range of what particular work of art or markets are worth. And that’s helpful. It’s speeding up deals and probably increasing the flow of capital in the market because it’s smarter and more efficient.” —Sotheby’s (Art Broker)

Consumer:

Consumer debt is growing

“In the broader environment, the economy remains healthy with growth in GDP and continued low unemployment. At the same time, consumer debt levels have continued to increase as credit supply has returned to the market and losses have risen from their post-recession lows.” —Lendingclub (P2P Lending)

Loyalty programs are an antidote to radical price transparency

“we live in a world with radical transparency in pricing, where prices are available for essentially every hotel at an instant notice. We are doing everything we can. I mean, obviously, the core platform for us is the loyalty program…And that’s a powerful thing. Obviously, some of these other booking platforms are not conducive to loyalty members, because they will not earn points associated with them.” —Marriott (Hotels)

Technology:

Apple’s service business is the size of a Fortune 100 company

“In fiscal 2017, we reached $30 billion, making our Services business already the size of a Fortune 100 company.” —Apple (Technology)

Healthcare:

Patients are making different choices because of high deductibles

“there’s no doubt we continue to see a very soft volume environment…The fact is, consumers are making different choices with higher copays and deductibles” —Tenet (Hospitals)

Industrials:

Used car markets have stabilized

“the used car market stabilized compared to the first half of the year…residual values have really stabilized.” —Avis (Rental Car)

Materials, Energy:

Oil markets appear to be rebalancing

“we’re, I think, certainly encouraged by the improving market conditions as we look forward. The market, obviously, is continuing to rebalance nicely. Inventories are moving towards the five-year average, and we are watching the market closely for opportunities.” —EOG (Oil & Gas)

Oil service capacity is narrowing

“you mentioned pinch point, and pinch point would probably be in just thinking about the various services that are available. There’s been little equipment added over the last couple of years. And that’s one of the main reasons that we’ve increased our activity here with the additional 25 wells; it’s just to ensure that we have top-tier services available” —EOG (Oil & Gas)

Production companies could start producing free cash flow again

“The good news is…the price movement has gotten very constructive lately. And we…can see a price now where we could actually have some free cash flow next year pretty soon” —Apache (Oil & Gas)

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 11.3.17

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The economy is strong, capacity utilization is narrowing and inventories are growing.  It’s hard to find anyone who isn’t bullish.

The Macro Outlook:

The industrial economy is enjoying broad based growth

“From an end market perspective, virtually all improved during the quarter. Aerospace, fabricated metals and oil and gas continued to show strength while other end markets like heavy truck and agriculture which had bottomed out several quarters earlier are improving. In general, as customer sentiment remains positive and the industries hold the current levels, we should continue to see solid sales trends.” —MSC Industrial (Distributor)

“this is a broad-based growth…We’re really growing across the globe…better than we’ve seen in over five years. Really, really coming out of the recession was the only other time we saw this kind of growth number.” —UPS (Logistics)

Inventories are building

“The inventory destocking would seem to be behind us, and we’re building against the underlying growth in the categories going forward” —Colgate Palmolive (CPG)

Capacity is tightening

“the data that we see has the ocean utilization at over 97%. So you have a high, high, demand environment now with capacity really becoming tight…then you get up in the air, this is the fourth consecutive quarter where you really had demand outpacing capacity.” —UPS (Logistics)

“markets are still relatively tight and not all of the industry has returned to unconstrained operations because of some of the comonomer lingering outages that does impact some grades of polyethylene. ” —Lyondell Basel (Chemicals)

Price increases are on their way

“While competitive intensity remains high, several suppliers began taking prices up or signaling that price increases are likely in the coming months…what we are telegraphing here is a big bit firmer and more defined activity than what we have seen in past years at this point in time.” —MSC Industrial (Distributor)

What could go wrong?

“It’s an environment where the uncertainties are unusual in terms of number, scale and insolubility, where prospective returns are just about the lowest they have ever been, where asset prices are high across the board and where pro-risk behavior is commonplace. It’s impossible for us to predict what will catalyze the market’s correction, how severe it might be and when it will occur…We do not believe this is a time in the cycle for reaching for return” —Oaktree (Investment Management)

International:

Foreign exchange has become a tailwind

“We are also encouraged that on balance, foreign exchange turned favorable in the quarter, as we experienced a top line benefit from foreign exchange for the first time since the third quarter of 2011.” —Colgate-Palmolive (CPG)

Regulators have been more active in Europe

“In terms of regulation, we certainly recognize that there is more regulatory activity in Europe than the other regions.” —Visa (Payments)

Zuckerberg had some choice words for the Russians

“I’ve expressed how upset I am that the Russians tried to use our tools to sow mistrust. We built these tools to help people connect and to bring us closer together, and they used them to try to undermine our values. What they did is wrong, and we are not going to stand for it.” —Facebook (Social Media)

Financials:

The private funding market is still incredibly robust

“there hasn’t been as much, as we talked about, in the IPO market, but the private funding market is incredibly robust. And it’s impacted by the Sovereign Wealth Funds coming in, it’s impacted by the Vision Fund from SoftBank, it’s impacted by a lot of money that’s being invested by the Venture Capital Community. ” —Silicon Valley Bank (Bank)

CRE transaction volume has slowed

“Investment sales activity is down appreciably from last year, largely a function of buyer caution, lesser quality product being brought to market and owners electing to refinance rather than sell.” —Vornado (REIT)

Consumer:

The holiday spending outlook is bright

“We also remain confident about the holiday season, as consumer sentiment remains elevated” —UPS (Logistics)

But no one wants to invest in retail

“Because the retail industry is likely facing more structural than cyclical issues, we’re approaching it with extreme caution.” —Oaktree (Investment Management)

Mall operator Macerich says that sentiment is worse than reality

“As you can tell from the facts that our operating results, our company continues to perform at a very high level. However many folks tend to look at the glass as being half-empty instead of half full. Why is that? That’s because there is a major negative sentiment that we all know about retail, about our sector and about our company.” —Macerich (Mall REIT)

Technology:

Companies are getting more and more comfortable with the cloud

“the kinds of workloads now that are moving to the cloud has qualitatively changed. In the past we participated, but a lot of Tier 1 workloads were not on Microsoft stack, whereas now, a lot of Tier 1 workloads are in fact increasingly on Microsoft cloud.” —Microsoft (Enterprise Tech)

It’s tough to say how much companies are really using AI

“when somebody goes out and builds a rack…How much of its workload is really being used by AI? Anybody who tells you exactly what that number is, is just wrong, to be honest with you.So it’s very hard for us to say with precision that X percent of our units went into AI workloads because it’s rare that a rack is purely AI except for rare cases. But we know that it’s small, just by the type of interactions we have, but also fast-growing and one of the biggest areas of interest.” —Intel (Semiconductors)

Healthcare:

Healthcare markets have moderated

“this is just one of those years I believe where the market has been a bit overheated in the past and maybe it just moderated.” —HCA (Hospital)

Amazon won’t confirm or deny whether they are getting into pharmacy

“Yeah, I can’t confirm or deny any of the rumors related to pharmacy or anything else.” —Amazon (E-Commerce)

Industrials:

A lot of new cars were sold in Houston

“we’ve never seen anything like that before, and I don’t think we will ever see anything like that again. Our Houston stores on new vehicles basically doubled what they normally do.” —Group 1 Automotive (Auto Dealership)

A manufacturer can only move as fast as its weakest link

“there’s 10,000 unique parts, so to be more accurate, there’re tens of thousands of processes necessary to produce the car. We will move as fast as the least competent and least lucky elements of that mixture.” —Tesla (Automobiles)

Automation also makes it harder to ramp if a link is broken

“There’s vastly more automation with Model 3. Now the tricky thing is that when one automation doesn’t work, it’s really harder to make up for it with men and labor. So with S or X, because a lot less that was automated, we could scale up labor hours and achieve a high level of production. With Model 3, it tends to be either the machine works or it doesn’t or it’s limping along and we get short quite severely on output.” —Tesla (Automobiles)

Materials, Energy:

With Brent Crude back over $60, oil investment is likely to rebound

“In fact, Brent is already over $60. So as I like to say, I’m going to declare victory and retreat. In terms of what has to happen now for there to be increased investment, I think it’s going to happen…I think what’s going to happen – what’s happened is that there has been an enormous, enormous underinvestment in productive capacity worldwide. It’s breathtaking how big that underinvestment has been.” —Loews (Conglomerate)

There may be a limit to shale capacity in the US

“And it is my belief, based on study and research that shale oil produced in the United States, we’ll not be able to fully supply worldwide oil demand over the next 5 to 10 years that there is a limit to the shale productive capacity in the United States. I know that that statement maybe going against history and the trend so far, but I think that what you will see is that there is a limit to how much shale oil can be produced here.” —Loews (Conglomerate)

Miscellaneous Nuggets of Wisdom:

It’s not bad to be a little paranoid

“I think a good characteristic of any CEO is to be a bit paranoid” —Visa (Payments)

Love your customers

“We don’t comp people that don’t play, period…So maybe we have a little less business, but we send a lot of non-productive customers over to our neighbors. And because we love our customers, we send them over to our neighbor in a Rolls Royce.” —Wynn (Casinos)

Full transcripts can be found at www.seekingalpha.com

Credit Suisse Group AG 3Q17

David R. Mathers – Credit Suisse Group AG

No worries on MIFID II

“clearly MiFID II actually goes way beyond just being a research issue. It comes down to the reporting requirements that we have to our accounts. That’s a big investment process for us, a little work being into that. We’ll be able to deliver that on time for our clients and I’m not particularly worried about that

Bank of England Monetary Policy Decision

Business affected by uncertainties

“Business investment is being affected by uncertainties around Brexit, but it continues to grow at a moderate pace, supported by strong global demand, high rates of profitability, the low cost of capital and limited spare capacity…. Uncertainties associated with Brexit are weighing on domestic activity, which has slowed even as global growth has risen significantly.”

Rates raised, QE continues

“…the MPC voted by a majority of 7-2 to increase Bank Rate by 0.25 percentage points, to 0.5%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.”