Company Notes Digest 11.11.16

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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.

Every so often markets undergo a paradigm shift in which the most important themes of the day shift radically almost over night. Frequently, these paradigm shifts come around the election of new Presidents. FDR, Eisenhower and Reagan are all examples of Presidents who ushered in new economic eras. This week we probably embarked on a new era of our own. For the past eight years we have obsessed over the effects of ZIRP, NIRP and QE. Those days are (dear God please) now over.

The market’s convulsions this week reflect investors’ attempts to make sense of our new world. As we alluded to last week, the ramifications of a Trump Presidency are real. Washington creates winners and losers and capital will change hands.

For now, most are expecting lower taxes, less regulation and infrastructure spending. However, while we can speculate about what is to come, it will simply take time for a clearer picture to emerge. The true framework of a Trump Presidency wont be discernible for at least several months. We’ll help chart that path as it emerges.

The Macro Outlook:

Just when everyone was getting comfortable with lower for longer…

“As we move into 2017, I remain concerned that this…lower for longer mindset on the commodity prices – is starting to distort the E&C contracting market… When you think about our oil and gas customers as well as our mining customers, I think they’ve gotten their head around the fact that the commodity prices are going to be maintained at current levels for a long, long time; and they have in fact changed their business model to deal with a lower for longer” —Fluor CEO David Seaton (Engineering and Construction)

…Something unexpected happened

“Last night, like so many of you, I watched the election returns with family and friends. And like so many of our fellow Americans – both Democrats and Republicans – I am stunned.” —Starbucks CEO Howard Schultz (Coffee)

A frustrated electorate wanted change

“We are going through a period of profound political and economic change around the world, and American citizens showed that deep desire for change in voting to elect Donald Trump as the 45th President of the United States. We have heard through democratic processes in both Europe and the United States the frustration that so many people have with the lack of economic opportunity and the challenges they face. We need to listen to those voices.” —JP Morgan CEO Jamie Dimon (Bank)

The result was expected to cause panic, but instead we got a rally

“We are definitely prepared to intervene in an emergency. What that will really look like, we must wait and see.” —ECB Governing Council member Ewald Nowotny (Central Bank)

Buying pressure had built up before the election

“the summer was a little bit of a pattern of the doldrums. Coming out of the summer there was a little bit more confidence…And there is a sense in the art market from lots and lots of consigners that we’ve had a long sort of not very exciting patch during the art market, and that they are looking for an opportunity to buy.” —Sotheby’s CEO Thomas Smith (Art Dealer)

Certainty provided a catalyst

“I think our experience over a long period of time is things that are distracting like the election, once there’s an outcome, certainty is a good thing. So from a positive perspective, having certainty on that is probably a good thing looking into the holiday.” —Kohls CEO Kevin Mansell (Apparel)

There’s still a lot that needs to be worked out and prices will be impacted

“I’m sure various of the securities will be impacted in different ways based upon whatever the outcome of the election is.” —Greenlight RE Chairman David Einhorn (Hedge Fund)

Washington picks winners and losers

“Washington is something you don’t really have much control over and Washington does make decisions and they pick winners and losers and so I think you have to be pretty flexible as a company to deal with that.” —Dish CEO Charlie Ergen (Satellite)

Congress will have a big say in the outcome

“it isn’t just about the president obviously who wins is going to impact the part I think equally important is what happens in the house in Senate. So we will be looking at both congress and the race for president to determine what kind of actions we take after the election.” —Third Point Reinsurance CEO Dan Loeb (Hedge Fund)

People now expect infrastructure spending, lower taxes and less regulation

“you’re probably going to see bipartisan support for infrastructure. You’re probably going to see a more rational tax code, particularly as it relates to corporate taxes and particularly as it relates to maybe bringing overseas money back which then can pay for infrastructure. So I think those are all potentially big positives for business in general. I think you’re going to see lighter regulation, which I think could help GDP…in general, I think there’s going to be more flexibility in M&A transactions, right?” —Dish CEO Charlie Ergen (Satellite)

Will these policies work in the long run?

“you could have significant infrastructure spending, you could have that drop in corporate tax rates and while we think that might work in the short term in the long, we still have questions about that…We recognize and we’ve said to you there is too much debt in the United States and in the rest of the world. All of the monetary policy QE 123 all haven’t worked in any significant way.” —Faifax Financial CEO Prem Watsa (Insurance)

Either way, old policies are likely on their way out

“there’s no question in my mind that the main thing that the low rates has done is boost asset prices and increase inequality in the country. I don’t think those are particularly useful objectives in any event, so I really think their policy is misguided. Whether it’s based on their own economic views, whether it’s based on politics, whatever it’s based on, I think they’re plain wrong.” —Donald Trump Economic Adviser Wilbur Ross (Rumored Commerce Secretary)

“The bad results of the Fed’s ZIRP and QE policies have been clear for years. Business investment, the explicit target of the QE theory of low bond yields, has been notably weak. With U.S. growth stuck at an abysmal 2% or so, many parts of the world are sliding into recession and economic failure.” —Donald Trump Economic Adviser David Malpass

“What I object to about the Federal Reserve is that these are un-elected people. I think that it’s a threat to representative government that we’ve put so much power into the hands of one person.” —Donald Trump Economic Adviser Stephen Moore

International:

The US election will impact the international community

“Of course, the events of last night (the results of the US election) also may have some bearing on what happens next, so there are so many uncertainties it’s really difficult to predict.” —J Sainsbury CEO Mike Coupe (UK Grocery)

China has been put on notice

“I think the first thing he’s gonna do…he’s gonna expect the counterparties…to honor these agreements. If you look at China, China is not honoring many aspects of the WTO. If you look at NAFTA, there are specific areas of NAFTA that are not being honored.” —Donald Trump Economic Adviser Steve Mnuchin (Rumored Treasury Secretary)

“It would appear from this analysis that the answer to the question leading off this chapter — How likely is war with China, based on historical record? — is very ‘likely’ indeed” —Donald Trump Economic Adviser Peter Navarro

Very few US companies have succeeded in China, but maybe that could change

“There are countless examples over the last decade of western companies and consumer brands that have tried but failed to achieve relevance in China. Not only has Starbucks cracked the code in China…we have created partner pride and a deep emotional connection among our customers and our partners in the Starbucks brand in China that rivals any market in the world.” —Starbucks CEO Howard Schultz (Coffee)

Financials:

Mortgage markets still haven’t loosened all the way

“To the extent there’s been any loosening, it’s been very modest…Any loosening has been very modest. Nothing that’s moved the needle significantly in the market, but we would certainly expect that over time, probably, we continue to see a little bit more loosening, as the economy improves, as the mortgage market continues to improve.” —DR Horton CFO Bill Wheat (Homebuilder)

Macy’s saw worse than expected credit performance

“The credit performance has been worse than we had expected, so that’s one piece of the reason for the increase [in SG&A]” —Macy’s CFO Katherine Hoguet (apparel)

Consumer:

All companies have to understand technology to succeed in the new world

“there’s old world merchandising companies and new world. We are very quickly moving into the new world. We spent a lot of time over the last couple of years…reinventing, being a New World company, especially as it comes to technology both on bringing out technology products and wearables, et cetera, but also getting better at all things digital retailing, social media, omnichannel, e-commerce, et cetera.” —Fossil CEO Kostas Kartosis (Watches)

Many retailers will go out of business

“There’s no doubt that over the next five years or so, we are going to see a dramatic level of retailers not be able to sustain their level of core business as a traditional bricks-and-mortar retailer, and their omni-channel approach is not going to be sustainable to maintain their cost of their infrastructure. And as a result of that, there’s going to be tremendous amount of changes with regard to the retail landscape.” —Starbucks CEO Howard Schultz (Coffee)

Were NFL ratings just impacted by the election? We’ll find out soon.

“Look, as I mentioned, primetime is down a lot across the board. Sunday night is down a lot. Monday night is down. Thursday night is down…It’s half a season…there are a lot of factors. It’s a little early, and obviously the election has been mentioned. Let’s see what happens a little bit down the road.” —CBS CEO Les Moonves (Media)

Technology:

The new administration may re-evaluate net neutrality

“it’s possible that – it certainly is possible that with the election and with the leadership in Congress that all of net neutrality might get another look. That’s certainly possible.” —Dish CEO Charlie Ergen (Satellite)

Materials, Energy:

The oil industry needs $60 crude to meet demand growth

“Over the long-term we believe oil in the 40s will not sustain enough production to meet demand worldwide…we believe that US industry as a whole needs to sustain $60 oil prices and extended lead time to provide a moderate level of growth. Worldwide Base decline rates are slowly reducing supply and consensus view is the current large inventory overhang could return to normal levels by late 2017.” —EOG CEO Bill Thomas (Oil and Gas)

Miscellaneous Nuggets of Wisdom:

No matter who you were rooting for, we are all on the same team

“We have just been through one of the most contentious elections in memory, which can make it even harder to put our differences aside. But that makes it more important than ever to bind the wounds of our nation and to bring together Americans from all walks of life. Recognizing that our diversity is a core strength of our nation, we must all come together as fellow patriots to solve our most serious challenges.” —JP Morgan CEO Jamie Dimon (Bank)

Full transcripts can be found at www.seekingalpha.com