The Macro Outlook
CVS says that they haven’t seen much change in the consumer’s cautious behavior
“I don’t think we’re seeing any changes in the consumer. I think that the consumer continues to be a cautious purchaser of products. At the same time, I don’t think we’ve seen a change in the competitive environment. We still see an awful lot of promotion across competitors.” (CVS Corporation (NYSE:CVS))
David Einhorn is cautious too
“The investment portfolio ended the quarter 48% net long which is down about 4% from the beginning of the quarter. As the market continues to rise in the face of conflicting economic data, global unrest and looming overdue Fed exit from quantitative easing we remain cautiously positioned.” (Greenlight Reinsurance Ltd (NASDAQ:GLRE))
The mortgage market is still soft even on the purchase side
“I mean, the mortgage refi boom is over, clearly. Those that have equity or had equity in their home have already refinanced. And so Zillow is — Zillow’s business for — mortgage business for the last couple of years has been more focused on purchase loans because it’s tied to a real estate site, but even the purchase business is challenged.” (Zillow Inc (NASDAQ:Z))
New York and SF are real estate outliers–home prices in the rest of the country have cooled off a lot
“the Bay Area and Manhattan are 2 areas that — where trees seem to only grow to the sky…But the nationwide number is that home values are increasing around 5% year-over-year, and we forecast that has slowed to about 3% to 4% year-over-year. So nationwide, the real estate market has basically cooled and returned to a normal — a more normal state, with a couple of exceptions, notably in New York and San Francisco.” (Z)
Apparently civil construction demand is booming
“For our Civil Group, we continue to see a strong 10 billion pipeline of prospective work to be bid and awarded over the next 12 months. We are absolutely bidding the maximum of our physical capacity with what seems to be no end in sight in major civil works…the Civil business is growing with such leaps and bounds, there’s definitely capacity constraints, which the next step leads to better margins.” (Tutor Perini Corporation (NYSE:TPC))
The Bank of England may raise rates before the end of the year
“We believe that interest rates could start to rise as early as the fourth quarter of 2014 in the UK and the first-half of 2015 in USA” (HSBC Holdings Plc (NYSE:HSBC))
Financials
A sampling of how much it costs to build Commercial Real Estate properties today:
“Our Building Group had new awards and adjustments in the second quarter totaling 647 million. The largest awards included the 255 million Panorama Tower in Miami, Florida; the 120 million Broadway Plaza retail development project in California; and the 113 million Scarlet Pearl Casino Resort project in Mississippi.” (TPC)
Consumer
As advertising dollars shift to digital…
“Well, I think that you are definitely seeing more compelling growth in advertising spending on new media platforms, digital platforms than you are on the traditional…you’re seeing it in the business in print and in radio and probably in outdoor, and I think that’s pretty telling…definitely the world is changing.” (Walt Disney Company (NYSE:DIS))
…Old Media is dealing with the shift by focusing more on content
“We successfully completed the separation of our Outdoor business. This accentuates that CBS is a content company, and we are fully focused on what we do best…Ownership of content is the key to our success…at the end of the day, it’s all about content…as long as we keep being sort of dominant in being the premier supplier of network programming, we’re always going to win, we’re always going to be fine monetarily. People won’t watch bad shows on good devices. It still depends on having a good show.” (CBS Corporation (NYSE:CBS))
Time Warner is one of the few media companies trying to build its own digital platform
“what we’re doing there is we’re trying to be best in class to have a platform that could not only deliver HBO networks but also Turner networks and frankly, other networks. It doesn’t have to be just be ones that we own.” (Time Warner Inc (NYSE:TWX))
But most media companies are ceding the distribution to others. For now they’re happy to do it because they’re getting paid well:
Disney believes in Netflix Inc (NASDAQ:NFLX) as a place that it can monetize its brands
“We’re growing our business with Netflix, first of all because we believe in their platform and its future. And we have from the beginning, when we did the output deal with the studio and we also believe that our brands can be well monetized on their platform, which is evidenced what they are paying for our brands and our content.” (DIS)
CBS really likes doing deals with NFLX and Amazon.com Inc (NASDAQ:AMZN) too
“In terms of the SVOD marketplace, once again, we are able to make deals consistently. As we said, we’ve expanded our Netflix library. We are extremely pleased that our current 2 summer shows have deals with Amazon and the next year show has a deal with Netflix.” (CBS)
Content can be hit and miss though
“Well I can pretty much guarantee over time that every single film will not work. I’ve been in the business long enough to know that. I can’t tell you which one wont right now. But that’s the business.” (DIS)
The fashion business is hit and miss too
“Are we going to make some mistakes at times? Absolutely that’s what fashion is about.” (Michael Kors Holdings Limited (NYSE:KORS))
Middle income shoppers are the fastest growing healthier eating segment
“Studies today show that the most rapidly growing segment of Americans adopting healthier eating habits is primarily middle income consumers. For years, price and availability have long been viewed key barriers to attracting this middle income shopper” (Sprts Frmr (NASDAQ:SFM))
People are shopping for homes and diamonds on their smartphones:
“We just set a new high-water mark in our mobile traffic. Mobile continues to represent about 2/3 of our usage. In July, more than 0.5 billion homes were viewed on Zillow from a mobile device.” (Z)
“We continue to see the lion’s share, at this point the majority of traffic coming from a mobile device.” (Blue Nile Inc (NASDAQ:NILE))
Technology
Telecom companies are gearing up for a big auction of wireless spectrum
“this auction is the first auction of meaningful spectrum in the mid-band, high-capacity since 2008. And so a lot has changed since 2008. There’s going to be a reset of values for this mid-band spectrum. And the reason is because, obviously, we now have the advent of smartphones, we now have the advent of tremendous capacity demands on the network.” (DISH Network Corporation (NASDAQ:DISH))
The telecoms all need more spectrum
“I think AT&T has got to participate in a big way because they have no path to more capacity and you just can’t put 100 million — they only have about 50 megahertz of downlink spectrum. It’s really hard to put 100 million people on 50 megahertz. And I think Verizon has got about 50 megahertz of downlink spectrum. They got 117 million people…And T-Mobile now today knows they’re probably going alone for the foreseeable future, and the auction’s kind of tailor-made for them. They’re the ones who really fought hard for this auction, for this particular band, because it fits pretty nicely into where they are” (DISH)
Demand for wireless connectivity is only going to grow with the internet of things
“The other thing about wireless networks is the number of devices, the number of things that will be connected to the network is going to grow by 10x what it is today. Every car, every pet, every child, every refrigerator, every camera, every security system, every watch, every machine is going to be connected wirelessly to a network, right? And so today, you’re seeing growth in wireless on tablets, right? That’s where most of the growth is coming from. But in the future, it’s going to be all those other devices.” (DISH)
Right now there are only four companies in the US that can connect you wirelessly
“you’re going to want to be connected and you’re going to be happy to pay for it. And right now, in the United States, there’s 4 companies that can do it.” (DISH)
Zillow claims to have 89m monthly active users (but there’s only 75m homeowners in the US)
“we again had record usage in the second quarter, attracting over 89 million average monthly unique users to Zillow’s mobile applications and websites, representing growth of 49% year-over-year on a large user base. (Z)
Even if they are overstating their user base though, advertisers seem to be finding plenty of value on the platform. More agents are using it and existing agents are spending more money on it
“We ended the quarter with nearly 57,000 Premier Agent advertisers…Agents that were here a year ago, agents that are on today that were here a year ago, spending 62% more in this period than they were this time last year.” (Z)
Healthcare
Most newly insured individuals have come from Medicaid
“I think we’re seeing utilization pretty flat I think from the exchanges I think as had previously talked, I think we’re seeing more of a benefit coming out of the Medicaid expansion. I think there’s still some uncertainty as we mentioned in our prepared remarks in terms of when you look at the exchange population, just how many of those are incremental to health insurance coverage.” (CVS)
Newly insured individuals will provide a tailwind to healthcare spending for years to come
“we can be confident that several million Americans have gained coverage in recent months and this should provide a positive secular trend in pharmacy volume growth for the next several years.” (CVS)
A lot of hospitals need to invest in “industrializing” their processes
“we feel we’ve got a lot of legs with that strategy over the coming years as we help industrialize a lot of the processes that you see within hospitals. The hospitals and health systems are really turning the corner around that in understanding their needs to drive efficiencies. They can’t do it with the processes and they can’t do it with the technology they’ve had yesterday. They need these types of improvements and changes.” (CareFusion Corporation (NYSE:CFN))
Materials, Industrials, Energy
EOG doesn’t think that backwardation of the Oil curve is warranted
“Backwardation in the forward curve on both gas and oil we don’t see as reflective of what’s going to happen in the future.” (EOG Resources Inc (NYSE:EOG))
The strength in Natural Gas prices earlier this year was just temporary
“we don’t have any plans to reinvest in dry gas drilling opportunities at current prices, as we expect that the strength we saw in gas prices earlier this year was only a temporary and driven by the coldest winter weather in 14 years.” (EOG)
Diamond prices have risen
“we have seen a greater level of change and inflation in the price of loose diamonds this year than last year…the prices of small-size stones were up by significant double-digit percentages versus the prior year; and the prices of mid-sized diamonds increased significantly at the end of March. Cost increases for larger diamonds were more moderate” (NILE)
HSBC believes in the North American manufacturing renaissance
“We’ve made a big push into North America, because we think there will be a renaissance in manufacturing as U.S. takes advantage of its energy price.” (HSBC)
Miscellaneous Nuggets of Wisdom
Some companies have M&A in their DNA
“M&A has been part of our DNA for a long time in our company. We’ve been very clear that as we think about capital deployment, one area to deploy capital is in kind of investing backward inorganically in our business and we will continue to do that…to the degree that we can bolt-on assets that make sense that we have line of sight to both synergies and returns, we’ll do that.” (CVS)
Be so good at what you do that your competitor advocates that you have a monument built in your honor
“absent a big acquisition, DIRECTV didn’t have a long-term future as a standalone company. So I think they did a fabulous job, and shareholders should be kind of erecting a statue to Mike White and Chase Carey before him, and Eddy Hartenstein. Those guys just built a great business” (DISH)
Never stop asking yourself how you can improve
“we’re spending a lot of time and effort right now in going through the process of saying: what are the next things that we want to achieve over the next several years to be even better?” (SFM)
Never stop learning
“We are not experts in the wireless business today. I mean, we’re not even experts in the video business, and we’ve been in it for over 30 years. So I think we always are learning stuff.” (DISH)
Sometimes the best deals you do are the ones you walk away from
“sometimes the best deals you do are the ones you walk away from. And it takes a lot of guts to do it, but you don’t want to get yourself tied up in 12 to 18 months of regulatory only to fail at the end.” (DISH)
If you want to grow you have to invest
“we’re building this company for the long-term, we’re not here for a quarter-by-quarter situation, we’re here to build something that is very sustainable. And to do that you have to invest” (KORS)
You’re making a tradeoff when you invest, but it’s a good one
“It does have short-term impacts on margins, but positive long term impacts on value.” (DIS)
Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.