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The Timber Log

The Timber Log - 7/21/2021

By David Cleary, CFA | Jul 24, 2021 8:30:00 AM
The Timber Log is a quick overview of Timber Point Capital’s weekly investment meeting.  If you would like to join the call or have questions about the content, please reach out to Patrick Mullin at pmullin@timberpointcapital.com
 
The information contained herein does not constitute investment advice or a recommendation for you to purchase or sell any specific security.

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Market rebounds after selloff…longer term EPS growth estimates are the key

  • Y/Y eps growth estimates set to decline sequentially going forward from easy Covid compares
  • We think sustainable growth returns to 2%-ish, even with accommodative Fed into 2022
  • Biden administration policies are more of a hamper than help on future growth estimates
  • ROW struggling with Covid/delta variant = rebounding dollar and flight to quality in US FI market
  • Inflation largely a factor of supply dislocations that linger on from Covid…are resolving
  • Yes, monetary policy is a tailwind but much of stimulus is in excess reserves vs. economy
  • Opportunistic trades – Covid recovery plays in equity market, long Treasury trade played out

 

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Supply dislocations continue to result in higher input prices – A special report from TPCM summer interns!

 

Sample of Company Headlines/Comments:

  • Vista Outdoor: “Federal has made more hunting ammo this year than in past 99 years of company”
  • Wingstop: “Wholesale price of wings a year ago was 98 cents per pound…Today, it’s $3.22.”
  • China car sales down 5% in June to 1.58 mln, largely a result of supply shortages
  • BMW will produce 30K less vehicles in 2021 vs. budget – “shortage of chips will impact upcoming two quarters of sales.”
  • NXP Semi: “Our current expectation is we will fact tight supply environment for at least the remainder of 2021.”
  • CEO, National Ass’n of Home Builders: “While the recent drop in lumber prices is a positive development, the lumber crisis is far from over.”

 

Bottom line: Dislocations are real but will be resolved

  • Supply of workers should be on the rise post Labor Day
  • Profit motive will drive industry to find work arounds in all areas for workers and inputs
  • Substitution effect is real – chicken wings now becoming chicken thighs
  • Relentless technology innovation replacing human labor in service and manufacturing industries
  • Double ordering likely real - will we see order cancellations in the Fall as supply normalizes? We think so.
  • Price normalization will be a function of time for supply chains to stabilize – stay tuned for more on this as it is already and will continue to happen!

 

Written by David Cleary, CFA

David Cleary, CFA is the Founder and Lead Portfolio Manager at Timber Point Capital Management. Previously he spent 23 years at Lazard Asset Management where he held a series of senior portfolio management roles over multi-asset and global fixed income strategies. Additionally, he served as the firm’s global head of fixed income, a $26 billion platform. Prior to Lazard, David worked at UBS and IBJ Schroder, mostly in fixed income asset management roles. He began working in the asset management field in 1987 upon his graduation from Cornell University, with a BS in Business Management and Applied Economics. He is a CFA charterholder.

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