Practical analysis for investment professionals
09 August 2016

The C-Suite Speaks: Election Uncertainty

Posted In: Weekend Reads

The C-Suite Speaks: Election Uncertainty

The potential fallout from the US presidential election is weighing on the minds of CEOs, but most think it will not have too much of an effect on the economy — it’s going to be lousy regardless. For the news networks, however, things couldn’t get much better.

Brexit continues to confound, both in the short-term rebound and in the potential long-term effects.

And we are entering a new era of artificial intelligence (AI) and autonomous driving — both of which will be here a lot faster than expected.

The Macro Outlook

Wariness surrounding the US presidential election is affecting business decisions.

“Going into the presidential election, there’s a lot of uncertainty. There seems to be a lot of uncertainty around the world . . . So, I’m a little bit with you, I actually don’t think it’s going to be a huge finish to the year . . . I do look at the election as something that’s holding activity back quite a bit.” — Ares Capital Corporation director and CEO Kipp deVeer (Business Development Company)

National and global politics create a tough, uncertain market.

“We are looking at a marketplace right now where people are being very cautious. They are being very careful with what they’re spending money on, and they are very uncertain relative to what’s going on around the world from a political standpoint, relative to just a business environment standpoint and where things are heading.” — Emerson Electric chairman and CEO David Farr (Industrial Components)

Ratification of trade deals will lead to an increase in US exports.

“We’re mindful of the current political commentary on trade . . . Trade legislation to accelerate economic expansion like the Trans-Pacific Partnership is vital to the health of the US economy. We encourage our political leaders to support and pass pending trade legislation.” — UPS chairman and CEO David Abney (Freight)

Regardless of who wins the election, how the deficit will be managed is the main concern.

“So this deficit issue impacts the mental health, the frustration, the positive sense of tomorrow that working people feel in America. It hasn’t got to do with rich folks. It’s got to do with government, fiscal and monetary policy. We have $14 trillion in public debt and $5 trillion in intergovernmental debt. The coupon on that $19-trillion-and-climbing is around 2.3%, and that’s with short-term interest rates at zero virtually. Now, the current Fed, the lady is going to keep interest rates where they are.” — Wynn Resorts chairman and CEO Steve Wynn (Casinos)

With the right leadership, maybe we could even get to 4% growth.

“What I would worry about more is the next president, whoever it is, focuses on the right things. I think we can go to 4%. . . . I think there are a lot of ways . . . that we can make this country boom. And I think that’s what we should be focusing on and not just pointing fingers at each other and getting mad all the time.” — JPMorgan Chase chairman, president, and CEO Jamie Dimon (Bank)

The news networks are definite winners.

“Demand in the upfront was particularly strong for CNN, which has undergone nothing short of a renaissance over the past few years. To date, 2016 is the most-watched year in CNN’s history, and as the US presidential election draws closer, CNN continues to gain momentum and take share from its peers.” — Time Warner chairman and CEO Jeff Bewkes (Media)

For the rest of us, at least only one of them can be elected.

“There’s a funny bumper sticker I saw which said, ‘The good news is we can only elect one of them.’ So I think all the possibilities are out there, and so there’s only two outcomes and I think the market is kind of ready for either one.” — Moelis & Company chairman and CEO Ken Moelis (Investment Bank)

In the meantime, companies are confident — that the economic environment is going to be very poor.

“Somebody said, ‘How confident are CEOs?’ I said, ‘Yes, they’re confident that the economy will be lousy . . . they’re confident in that they understand that there will be a no growth economy that’s not good for leverage companies, but it does allow corporations to plan around a very predictable and unchanging low-growth economy.'” — Moelis & Company chairman and CEO Ken Moelis (Investment Bank)


Europe was rebounding from Brexit until everyone decided to take a holiday.

“I talked to Martin Samworth, the CEO of EMEA for our business . . . and he said that, in fact, there was a distinct clawing back of the momentum that had been lost due to Brexit up until about a week ago, when, as he put it, everybody in Europe started going on vacation. . . . But he’s encouraged that, when September comes around, that we’ll . . . the momentum reemerge.” — CBRE Group president and CEO Bob Sulentic (CRE broker)

A complete breakup of the eurozone is not impossible after Brexit, but it may not happen for years.

“You know, unfortunately that could be one of the fat-tail outcomes of Brexit. Because when you go to Europe . . . Netherlands is going to have a vote, Italy has a very important referendum, Germany’s going to have a vote. . . . You don’t know how it is going to fall out. And so, to me, that is one of those things out there that could possibly happen. It may take more than five years, but it may very well happen.” — JPMorgan Chase chairman, president, and CEO Jamie Dimon (Bank)


The profitability of financial services companies is being strained to the limit by the interest rate environment.

“Negative rates and the likely deferral of interest rate rises puts increasing stress on banks. Since 2007 we’ve seen our net interest margins contract from 2.9% to 1.8%. . . . In the light of this, we will not now hit our return on equity target of more than 10% by the end of 2017.” — HSBC Holdings group chief executive Stuart Gulliver (Bank)

Investors are taking on more liquidity in exchange for yield.

“We are seeing the frustrated fixed income investor reposition their portfolios into direct lending because of, obviously, the interest rate environment. . . . Folks have decided that putting a portion of their fixed-income portfolios into something that is liquid to achieve better yields . . . is something they are willing to do. So we’re seeing lot of repositioning on that front from kind of core fixed income.” — Ares Capital Corporation director and CEO Kipp deVeer (Business Development Company)


The restaurant industry may be facing overexpansion.

“The restaurant world gets a little ahead of itself and overbuilt. It’s considered a safe place to invest capital, and when that gets to be too much, then the expansion slows and the bifurcation begins and there [are] winners and losers. So, I think that’s where we are. I think there’s a lot of restaurants out there.” — Cheesecake Factory EVP and CFO W. Douglas Benn (Restaurants)

Many online retailers are working on their brick-and-mortar strategy.

“Within the last category of online retailers, we see many companies building the infrastructure to open brick-and-mortar locations in a traditional store roll-out program. Some examples of this include Blue Nile, Amazon, Peloton, Warby Parker, and Bonobos.” — Macerich senior EVP and COO Robert Perlmutter (Mall REIT)


This is the dawning of the age of artificial intelligence (AI).

“We’re now experiencing the dawn of a new era, a time when artificial intelligence is emerging as the lifeblood of all things. Just as the rise of electricity transformed the world 100 years ago, we now work with partners to use AI to transform industry after industry.” — Baidu co-founder, chairman, and CEO Robin Li (Internet)

Autonomous driving is going to occur before you know it.

“Full autonomy is going to come a hell of a lot faster than anyone thinks it will. And I think what we’ve got under development is going to blow people’s minds. It blows my mind.” — Tesla chairman, product architect, and CEO Elon Musk (Automobiles)

Many are talking about it, but Singapore may be the first to adopt robo-taxis.

“Singapore’s the most advanced from a plan to get, to use your term, ‘robot taxis.’ . . . We’ll have piloted vehicles for two years through the end of 2018. . . . And their plan is to have . . . a fleet of pilotless vehicles in the areas that we’re currently testing beyond 2020 servicing consumers. So they, by far and away, are the further along. . . . There’s a lot of dialogue, but Singapore’s first.” — Delphi president and CEO Kevin Clark (Auto Parts)

Elon Musk is creating an “alien dreadnought” to produce his auto fleet.

“The Model 3 — the internal name for designing the machine [that] makes the machine . . . we call it the alien dreadnought. At the point at which the factory looks like an alien dreadnought, then you know you’ve won.” — Tesla chairman, product architect, and CEO Elon Musk (Automobiles)

A nation of coders.

“The new middle-class job is a programmer, a data scientist . . . Everybody who joins GE is going to learn to code. We hire 4,000 to 5,000 college grads every year, and whether they join in finance or IT or marketing, they’re going to code.” — General Electric chairman and CEO Jeff Immelt (Diversified Industrial)


There’s concern that auto markets may be slowing.

“To your point around auto weakness . . . we continue to take a very cautious view on the outlook for automotive markets. We think North America will be largely flat this year and Europe and Asia will be up slightly. ” — Eaton chairman and CEO Craig Arnold (Industrial Components)

The high amount of leasing during this cycle may come back to haunt the auto industry.

“If you’re basically pulling business forward now, that means that when the day of reckoning comes, the disruption is great.” — AutoNation chairman, president, and CEO Mike Jackson (Auto Dealer)

Materials, Energy

Is the current oil price weakness just a seasonal anomaly?

“Price has seasonal components to it. too. We believe that we were likely to see softening of price as the summer ended. It was predicted by many in the industry. I know many are acting surprised, but that was a common prediction, and so we still think that the key metrics are supply and demand. They are narrowing. That’s what’s going to drive correction and price over any period of time.” — Ecolab chairman and CEO Douglas Baker, Jr. (Environmental Services)

Each week the team at Avondale Asset Management reads dozens of transcripts from earnings calls and presentations as part of their investment process. If you find these posts useful, click here to receive them every week via email.

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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.

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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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