Catalyst Watch: Housing Indicators, Tesla Earnings (Podcast)
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Catalyst watch for the week of April 16. Seeking Alpha Associate News Editor, Kevin Curran says investors can expect the latest housing indicators in the week ahead. You should also look out for more on bank earnings as well as earnings from Tesla (NASDAQ:TSLA) and Netflix (NFLX). Hot topic: Josh Harris is buying the NFL’s Washington Commanders for a record $6B.
Auto-generated transcript:
Julie Morgan: So Kim is out today, but of course we’ve got Kevin. Kevin, how are you?
Kevin Curran: I’m doing just fine. How are you, Julie? I’m doing very well, thank you.
Julie Morgan: So let’s start off with macro, the big picture. What do we have for next week?
Kevin Curran: Well, following on from a CPI report that was a little bit cooler than expected in the past week, we still have a host of things coming up in the week ahead. It’ll start off with the Empire State Manufacturing Index, which is expected on Monday, which will be followed after a couple of hours by the NAHB Housing Index, which is the first of a couple of important housing indicators that we’ll get during the week. On Tuesday, Housing Starts data will also be provided. And then we’ll be moving on to the Beige Book data that will be coming out on Wednesday afternoon, as well as MBA 30-year mortgage rates that’ll be published early morning on Wednesday. So we have an existing home sales data as well as the Philly Fed Index and manufacturing PMIs on Friday. So pretty much every day of the week next week has a host of economic indicators that will be important to watch. So for those thinking that you could take a look at the CPI and go away for a couple weeks. Certainly no slowdown in economic activity for the week ahead.
Julie Morgan: And not to mention earnings, because everything kicked off, we’re recording this on Friday, and so things really kicked off today. So next week is also going to be very busy.
Kevin Curran: Yeah, I think, you know, the economic calendar is busy, but it pales in comparison to the earnings calendar. We have Tesla, AT&T, Charles Schwab, Netflix, and a host of other regional banks that are have been in focus I should say for a number of weeks following the collapse of Silicon Valley Bank and also following after pretty solid reports from JP Morgan and Wells Fargo on Friday which is of course the day that we’re recording this. So I think the most closely watched for sure is going to be Tesla. I mean we talk about it a lot but it’s because there’s always something happening it seems. The main focus for this quarter is, you know, after about a 70% jump to start 2023, rebounding from a really inauspicious 2022 for the company, we’ve seen maybe a slowdown in demand. We’ve seen some factories pausing in China, and we’ve seen price cuts across the globe. On Friday, they announced that they’re cutting prices across Israel, major European markets like France and Germany, Singapore, and of course China cutting with quite the price war going on there between Tesla, Xpeng, NIO, and other domestic competitors there. There’s also concerns about privacy. There’s a bombshell report in Reuters as of late that the images captured by customer cameras were shared internally among Tesla staff and that these were used in memes and made fun of by Tesla engineers without the knowledge of these customers. So that’s certainly something that will probably be asked about on the earnings call. And then finally, they’re expanding their footprint in China and outlining plans to build a new factory in Shanghai to produce megapack batteries. And the question there is, is it really an opportune time to expand into China with geopolitical tensions between the US and China, certainly not at their most agreeable status, let’s say. So it will be interesting to see what they say on the earnings call, what type of guidance they offer when deliveries have been faltering a little bit and price cuts have been implemented, with many seeing that as a sign that demand isn’t where executives have said it has been in recent quarters and what the forecast is for building out this factories in China and what the operating expenses will be related to these pretty ambitious efforts.
Julie Morgan: So has the company said that demand is that the main reason why they’re cutting prices?
Kevin Curran: No that’s that’s basically what analysts are saying. I don’t think that the company’s ever going to say they’re they’re pretty steadfast and they’re saying that you know they’re selling every car that they can build. I’ll just give you one point of reference from a bearish analyst, and then we can talk about more of what the company’s saying. So Bernstein analyst Tony Sackenagy had a note out this week, and he was saying that cutting prices and lower lead times on the models suggest that there’s more price cuts to follow actually, because demand is falling and competition is continuing to intensify. He’s saying that, and I’ll quote him here, quote, make no mistake, the price cuts reflect Tesla’s need to stimulate demand and are an explicit trade-off of margins for volume, end quote. So there’s definitely a pretty explicit feeling among some analysts that it is a trade-off for margins in order to make sure that demand stays where it is and they don’t end up with bloated parking lots full of vehicles. That said, Elon Musk, of course, is probably going to say that they have still some of the highest margins in the industry and that they’re looking to crush their competition by lowering prices to places where people can’t compete. And also just responding to the overall macro environment and the tightening of consumer wallets that we’re seeing across many markets.
Julie Morgan: Now, that would be a good explanation. Even if the company would fess up and say, hey, it’s because of demand, but we look at the macroeconomic environment and we see what’s going on there, it totally makes sense. It seems like that would be a good explanation.
Kevin Curran: It would, but it would also come at the cost of margins, which is what SAC and Aggie is getting at. And I think that that is true. Tesla does have really robust margins. They would just need to be saying that they’ve made some kind of operational or efficiency improvement that they can maintain really high margins and they are comfortable with a certain level of trade-off. The thing that will be kind of key for us to watch is how much is the trade-off there, how much a margin is going to come down on the basis of these price cuts that are not insignificant on many models.
Julie Morgan: Now, I have to ask you another question, totally different topic. If you could own a sports team, which one would it be? If you could buy one, which one would it be?
Kevin Curran: That’s a tough question. I mean, I’m from Boston, so I’d have to go with one of my hometown teams. I’d probably go with the Red Sox just because that’s my, you know, that’s the pride and joy of Boston. I think other people might say the Patriots or maybe even the Bruins at the record breaking season, the B’s are having the season. But yeah, I think I’d have to go with the Red Sox. I know that you’re from New Orleans. Are you taking the Saints or what’s your what’s your pick there?
Julie Morgan: Oh, yes. I’m a Louisiana girl. So I’m gonna definitely say the Saints Absolutely, but did you see this story? Apollo co-founder Harris will buy the NFL’s commanders for a record six billion dollars.
Kevin Curran: Yeah, it’s pretty crazy the price tags that are getting out there for sports teams you know, we only broke the billion dollar barrier with the Dolphins in 2008 when Stephen Ross bought the team. So we’ve gone from the first one billion dollar purchase in 2008 to now over six for a team in 2023. So I know inflation is strong, but it’s not that strong.
Julie Morgan: It doesn’t seem like it to me. I’m thinking six billion dollars. Now, according to the story that and I’m going to leave this link in show notes so you guys can check it out. It says this surpasses the deal made for the Denver Broncos of $4.6 billion just last year.
Kevin Curran: That was by the Walton family which is of course of Walmart fame. I think it goes to show kind of the investment tie-in here is there’s a lot of these major magnate type families whether it be the investment management side with of course David Tepper from Appaloosa buying the Carolina Panthers a couple of years ago. And now looking at Harris from Apollo buying the Commanders. I almost said their former name, but yeah, the Commanders. And then, of course, the Walton family buying the Broncos as well. So we’re seeing a lot more magnates buying these teams as opposed to, say, some of the story teams like the Hallases or the Maras that bought teams for, you know, I looked this up, the Hallises had bought the Chicago Bears for $100 in 1920. So quite a shift in price tags.
Julie Morgan: Oh yes, that’s a far cry from $100. Wow. So, okay, here’s my question. What do you think is the reason behind this? What is the draw? What’s the pull there?
Kevin Curran: I think that live sports is really where there still is money. You know, there’s erosion in some industries with the rise of streaming as far as entertainment goes. People aren’t necessarily going to the movie theaters in the ways that they used to. Maybe there’s a loss in attention to the weekly television shows that used to be major sources of entertainment. But there’s really no substitute for these live sporting events and they’re still a huge draw and that also translates of course to the television contracts to the advertisements i mean some of the investments that you get back here are pretty massive and i mean you can even just look at dan snyder buying uh… the washington commanders back in nineteen ninety nine he bought it for eight hundred million dollars and now he’s selling it for over six billion so you know you talk about buying a house and watching it appreciate you buy an NFL franchise That’s a pretty good return from 800 million to over 6 billion in a matter of a little over 20 years.
Julie Morgan: Yeah, pretty good. Really good. So around this time we usually talk about of course the Wall Street Breakfast Survey that appears in our newsletter, our daily one-page news summary every Monday. We took a week off last week or excuse me this week, but stay tuned. We will be back at it on Monday and I have a feeling it’s going to be about earnings. What about you? I think that’s what the question will likely be about, Kevin. What do you think?
Kevin Curran: Yeah, I think it’s definitely going to be about earnings. I mentioned a couple of them in our chat earlier, but there’s just so many here. Just to even rattle off a couple more, we have JJ, which will be closely watched with its suits hanging over at Lockheed Martin of course with geopolitical tensions hanging over ASML, IBM, a couple of airline reports to Procter & Gamble. I mean you name it there’s something for pretty much everybody’s portfolio in the week ahead.
Julie Morgan: Yes so stay tuned of course we will definitely keep you updated on the Wall Street Breakfast podcast as well as at SeekingAlpha.com. Kevin is part of the wonderful news team that writes all those articles so stay tuned.