Practical analysis for investment professionals
14 June 2016

The C-Suite Speaks: Views from the Top and the Bottom

Posted In: Investment Topics

The C-Suite Speaks: Views from the Top and the Bottom

Each week our team at Avondale Asset Management reads 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 as well as other forums.

US Federal Reserve chair Janet Yellen set the tone for this week with a recent speech perceived as dovish by the market. Yellen said that policy should stay accommodative, while acknowledging that any accommodation should be removed before fully meeting policy goals.

This week’s post also contains a number of quotes from last week’s LD Micro Invitational conference. The twice-a-year event sponsored by LD Micro, which maintains the LD Micro Index, brings together a few hundred micro-cap companies to meet with investors. It is a fascinating forum with one-of-a-kind personalities.

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The Macro Outlook

The consumer is well positioned.

“So the consumer is in a good space, and [so is] the business sector — small, medium, large. Credit is good, and markets are wide open. So it looks good, and I think I want [growth] to be more than 2%. It might actually be accelerating a little bit now. I mean, it’s obviously hard to tell, and I’ll leave it to the economists to figure out whether that’s true or not.” — JP Morgan Chase chairman and CEO Jamie Dimon (Bank)

Conditions have improved for the auto industry after a disappointing month.

“Auto industry continues to do well even after a slow May. I think that most people in the industry are thinking that the sales this year are going to be 17.3 to 17.4 [million], something in that range.” — Sirius XM EVP and CFO David Frear (Satellite Radio)

Lululemon said that mall traffic patterns are looking better.

“Traffic was softer in the first quarter versus what we saw in Q4, and it was softer late in the quarter as well, and that persisted in the first couple of weeks of May, in Q2. We have seen the traffic trends improve in the last couple of weeks.” — lululemon athletica CFO Stuart Haselden (Athletic Apparel)

Debt capital markets have opened back up, even for struggling industries.

“The market has improved. The capital markets have improved significantly, particularly the bond level. So we are monitoring those conditions and we’ll look to refinance debt as it makes sense economically, but our real focus is on deleveraging.” — Freeport-McMoRan Inc. EVP, CFO, and treasurer Kathleen Quirk (Mining)

Conditions have improved, but the Fed still has many questions.

“Over the past few months, financial conditions have recovered significantly. . . . Unfortunately, as I noted earlier, new questions about the economic outlook have been raised by the recent labor market data. Is the markedly reduced pace of hiring in April and May a harbinger of a persistent slowdown in the broader economy? Or will monthly payroll gains move up toward the solid pace they maintained earlier this year and in 2015? Does the latest reading on the unemployment rate indicate that we are essentially back to full employment, or does relatively subdued wage growth signal that more slack remains? My colleagues and I will be wrestling with these and other related questions going forward.” — US Federal Reserve chair Janet Yellen (Central Bank)

Yellen feels that a modestly accommodative policy is still appropriate.

“Although the economy is now fairly close to the FOMC’s goal of maximum employment, I view our modestly accommodative stance of policy as appropriate for several reasons. First, with inflation continuing to run below our objective, a mild undershooting of the unemployment rate considered to be normal in the longer run could help move inflation back up to 2% more quickly. Second, a stronger job market could also support labor market improvement along other dimensions, including greater labor force participation.” — US Federal Reserve chair Janet Yellen (Central Bank)

It takes time for monetary policy to affect the economy, however, so accommodation should be withdrawn before the objectives are accomplished.

“These motivations notwithstanding, I continue to believe that it will be appropriate to gradually reduce the degree of monetary policy accommodation. . . . Because monetary policy affects the economy with a lag, steps to withdraw this monetary accommodation ought to be initiated before the FOMC’s goals are fully reached.” — US Federal Reserve chair Janet Yellen (Central Bank)

Could inflation already be rebounding? HD Supply was the first company in a long time to cite commodity cost inflation as an impediment.

“Commodity cost inflation is another short-term gross margin headwind in this environment.” — HD Supply SVP and chief commercial officer Will Stengel (Industrial Distributor)


Chinese consumers are the “most discerning” in the world.

“We looked at it too much like a developing market as opposed to the most discerning customers in the world.” — Procter and Gamble president and CEO David Taylor (Consumer Packaged Goods)


Real interest rates are currently negative.

“The current actual value of the federal funds rate . . . measured in real terms is . . . somewhere around -1%. With the actual real federal funds rate modestly below the relatively low neutral real rate, the stance of monetary policy at present should be viewed as modestly accommodative.”— US Federal Reserve chair Janet Yellen (Central Bank)

Sarbanes-Oxley had a meaningful effect on small companies’ appetites to go public.

“Sarbanes-Oxley changed the IPO process. IPO used to be something that people celebrate, now it’s something people avoid. . . . Being public doesn’t mean you have access to capital . . . going out there with a $100 to $200 million valuation, you’re asking to be orphaned.” — Firsthand Technology Value Fund (SVVC) CEO and CIO Kevin Landis (Closed-End Mutual Fund)


Amazon sets the standard for e-commerce for everyone.

“Amazon says they’ll get the product to the customer the same day. . . . We have to get as close as possible to Amazon, whether we like it or not.” — CafePress CFO Garett Jackson (Micro-Cap E-Commerce)

Amazon has the upper hand because it is allowed to operate at 1% to 2% operating margins.

“Short term they’re advantaged because they don’t have the same earnings hurdles that many traditional retailers have today. So you have retailers that are out there, they’ve been making 8% to 15% operating margins, and all of a sudden Amazon is coming in with 1% or 2% operating margins and eating their lunch. I mean, it would be an interesting world to see, if all the other retailers lower their operating margins to 1% to 2%, what would the fight look like. So it is a little bit of an unfair fight, right? Because Amazon is not being held to the same standards from a profitability point of view. But today the market’s allowing that and actually rewarding that.” — Restoration Hardware chairman and CEO Gary Friedman (Home Furnishing)

But you have to maintain pricing discipline if you want to make money.

“You don’t make your product available for free and if they don’t want to pay for it then they won’t be your customer. I think that’s okay. Automakers aren’t going to give away cars for free. So millennials are going to have to buy cars, I’m pretty sure shoe makers aren’t going to give away shoes for free. So millennials are going to have to buy shoes. And so, you know, the people who continue to give away their content to not just millennials, to anybody for free, well that’s the choice they are making.” — Sirius XM EVP and CFO David Frear (Satellite Radio)

Department store struggles have created real estate opportunities for others.

“Given what’s going on with some of the department store brands and big box retailers, there is a lot of real estate becoming available in markets to meet our criteria . . . as landlords and developers pivot towards more entertainment options versus traditional fashion retail and mall, we are in a good position to capitalize on these opportunities.” — Dave and Busters director and CEO Stephen King (Restaurants)

Sirius XM’s CFO believes Pandora has the best business model of any of the digital streaming music companies.

“Among the streaming companies, I think that Pandora has a better opportunity for a solid business model than the interactive streaming guys do. I think with the interactive streaming, the fact that the music labels and then your content distribution network take over 80% of your gross, it’s really tough to ever make money in that. Pandora operating under the compulsory license of the DMCA compliant service is a better opportunity to make money.” — Sirius XM EVP and CFO David Frear (Satellite Radio)


“You don’t actually want to be first in tech.”

“You don’t actually want to be first in tech. Take Lotus 123: Who made more money, Lotus or Excel?” — Destiny Media Technologies president, chairman, and CEO Steven E. Vestergaard (Micro-Cap Tech)

Large tech companies squeeze the vitality out of acquired start-ups.

“Oracle is like the mythical character that is 1,000 years old that sucks the youth out of its victims.” — Firsthand Technology Value Fund (SVVC) CEO and CIO Kevin Landis (Closed-End Mutual Fund)

Dave and Busters hasn’t seen strong adoption of the virtual reality (VR) games it invested in.

“We have tested some VR products and I would say that our results are not compelling . . . I think that what we have seen so far is that the content is such that people are likely to do it a single time and then not repeat . . . so it has some novelty value. . . . People are willing to try it, but they don’t tend to play it over and over.” — Dave and Busters director and CEO Stephen King (Restaurants)

Health Care

Bad press continues to affect Valeant’s operations.

“Unfortunately, negative external attention . . . continues to adversely impact the business and our reputation with patients, physicians, and all of you, our shareholders as well as our distracted organization.” — Valeant chairman and CEO Joseph Papa (Pharmaceutical)

Tax advantages have brought a lot of pharma manufacturing to Puerto Rico.

“Every pharma manufacturer is in Puerto Rico. The island is built around the manufacturing of pharmaceuticals.” — Pharma-Bio Serv president and CEO Victor Sanchez (Micro-Cap Pharma Consulting)


Boeing said the aerospace market is still in good shape.

“The underlying aerospace market is a strong one. Commercial aircraft market paced right now by global passenger growth, continuing to run at about a 7% year-over-year growth rate. . . . So, underlying market strength remains solid.” — Boeing chairman, president, and CEO Dennis Muilenburg (Aerospace)

Materials, Energy

Oil companies will still go bankrupt at $50 a barrel, but the collateral may be better than anticipated.

“Oil seems to be stabilizing [at] about $50. You’re still going to see bankruptcies. You’re still going to see reserves go up. I still believe a lot of those reserves will never be needed, that there’s more security in collateral behind some of those loans than people think.” — JP Morgan Chase chairman and CEO Jamie Dimon (Bank)

Copper companies believe that it will be difficult to grow the copper supply.

“We feel very positive about the long-term outlook for copper . . . we really take comfort in looking at the copper market is that the supplies of copper are very hard to come by . . . It takes a very long time to develop new sources of supply. . . . We know that the current price of copper of just over $2 a pound is not sufficient to create new investment. Everyone in the industry is cutting back investment, trying to reduce cost, but that’s going to have a meaningful impact, we believe. on the industry as we go forward. The new mines or the expansions that were being pursued are largely coming to an end, and it takes a long time for new supplies to be developed, if they can even be developed.” — Freeport-McMoRan EVP, CFO, and treasurer Kathleen Quirk (Mining)

Miscellaneous Nuggets of Wisdom

Build a team with people who protect each other when the going gets tough.

“You need people who have your back.” — Cel Sci Corporation director and CEO Geert Kersten (Micro-Cap Pharma)

All business is about building relationships.

“There are five ways to make money: Number 1 is talk to people. Number 2 is talk to people. Number 3 is talk to people. Number 4 is talk to people. Number 5 is talk to people. You have got to pick up the dang phone.” — Cel Sci Corporation IR Consultant Ken DeVane (Micro-Cap Pharma)

How do you forecast the future?

“The best way to predict the future is to invent it.” — Alphabet executive chairman Eric Schmidt (Google Parent)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: US Federal Reserve

About the Author(s)
Scott Krisiloff, CFA

Scott Krisiloff, CFA, is the CEO of Avondale Asset Management, an independent investment advisory firm located in Los Angeles. Krisiloff is the author of the firm's blog, Company Notes.

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