YouSaid · the spoken record

Michael McGowan

lines on the record: 19
first: 2020-04-21
most recent: 2020-04-21
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“So it's a good question. I've been trying to keep a lot of my typical routine. One thing I've added, which was actually the recommendation of a client, is I've been reading Orren Buffett's shareholder letters dating back to 1957 and just working through them chronologically. And I think it's been interesting for two reasons. The first is that it's just a great history lesson, hearing what was going on in the US economy generally, in the market specifically, from the perspective of someone who is experiencing them at the time. And then two, it's a good reminder that while we haven't seen this unique set of facts before, we have seen similar crises, and we weather through them and we've come out the other end stronger. So it's also a bit of a hopeful message that we will get through this as well.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“When this crisis first started, the focus was really distilling all of the information that was out there about the virus and about the implications of the virus into what was most relevant and most critical to our clients. The next stage was really on a client-by-client basis, doing downside scenario planning, understanding their liquidity, and making sure that they were in the position to weather what could be a very long downturn. Now that we're in a situation where I think we all have a much better understanding, at least on the range of possible outcomes of this crisis, it's returned to more strategic dialogue and frankly more traditional investment banking dialogue, which is the acquisition of capital and the allocation of capital. So while clients are still concerned and they're still downside scenario planning, we are starting to have bigger discussions about what should you be doing differently today than you were doing pre-crisis to make sure that you meet your strategic objectives.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“So obviously, how do you view your role? It's changed a little bit. There isn't as much MA going on. What's your role now as sort of as an advisor to your clients today compared to normal state business”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“Seen changes in the way that homes are actually built. So taking more of the construction, moving it off site, making it more efficient, taking some of the labor out of it, I think you're going to see that trend really emerge. You brought up something interesting and more specific, which was the connected home. I think the connected home is quite interesting when I talk to my building products clients because from a consumer standpoint, it's exceptionally important, but it's really a trend that's being driven by big tech, like Amazon and Google. So while my clients know that they have to play in that ecosystem and they have to be relevant, they're reticent to really try and lead that movement given your competition seeks to be other building products manufacturers and starts to be very large, very well capitalized companies.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“I do think it's going to continue, and I think you're right, it could even accelerate. When you look across industrial end markets, the real ubiquitous theme we've seen over the past 20 years has been increased technology. And if you look at your own car, I think that's probably the best example. How much incremental technology is in the car, more so than it was 10 years ago? One laggard has really been construction. And when I think about interesting innovation in technology around the home, It's really all sorts of different things. It's material replacement. So companies that are replacing traditional wood that you would use in deck or the trim of a home with more environmentally friendly, durable materials, it's in-home technologies. One of my favorites is electrochromic windows, which are windows that automatically change in tint, which dramatically changes the experience of the home in terms of lighting. You don't need blinds and that sort of thing. It also changes just the energy efficiency of a home. And then lastly, you're”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“So, another trend, obviously pre-crisis, was that we were seeing smart homes, more technology and innovation in the building sector in the home. Would you expect that to continue as a result of the crisis or maybe be accelerated?”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“I do. And maybe again, I'll point back to 2008. In 2008, you saw a large number of Americans decide that maybe borrowing a bunch of money and buying a house is not the best investment. I think you may see the opposite effect this time around. And what I mean by that is there's a view that this could be the catalyst that pushes a large number of millennials out of the city centers and into the suburbs. And I do think an additional accelerant of that trend is going to be the fact that working from home has become easier and more accepted and therefore being in a city center is less relevant. I would say the other trend I expect to see is more on the repair and the remodel side. You've got a large number of folks who are spending more time in their homes than they ever used to, and they're looking around at what they don't like or what they may want to improve. So I expect a real spike in remodeling spending coming out of this crisis. If I had to pick one area of those”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“So you mentioned early on that we were on the cusp of seeing a little bit of a change in millennial habits in terms of home buying. Do you expect to see any changes come out of this crisis longer term difference in those trends?”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“So, when I talk to my clients about activism, I typically remind them that activists fundamentally, first and foremost, are deep value investors. So an environment where there's a lot of stock price dislocation, there is inherently more potential for activism because there's more embedded upside in those stock prices. That said, this environment is a bit different. One activist themselves have been a bit challenged the way everyone's portfolio has been challenged in terms of performance. And two, this is a health crisis more than a financial crisis. And I do think there's a perception that is accurate that any sort of activist agitation against the management team in the current environment would be exceptionally tone-deaf to what they're really focused on, which is liquidity and the safety of their employees. So while activism will certainly come in the wake of this crisis, it always does. I do not think we'll see much activism in the near term until we have more visibility in terms of when this crisis”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“So, private equity returns in the building product space have been very strong over the past 10 years, and that's attracted more and more funds to focus on the sector. I will say fundamental to private equity are financing markets where they can put significant leverage on businesses. And while in the current environment, the investment grade in high-yield markets are very open to well-known corporate issuers. I think it's going to take a bit more time before private equity firms can really tap the leverage markets for what I'll call more PE style financing transactions. So that I do not expect to be near term.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“You're right, MA has really been on pause, and this has been a sector where there's been a lot of activity driven by private equity, driven by consolidation and key product categories, and some of the larger, more diversified players, reorienting their portfolio, whether it's via spin-offs or divestitures. And things are really on pause. And when I talk to my clients, I'd say where they are really focused is the safety, health, and wellness of their employee base. And I actually think this has been an underreported story. I hear this in the private conversations I have with clients. And if you read through their earnings transcripts over the past months or so, it's really the focus. I mean, a good example is Lennar, which is one of the country's largest home builders. They reported earnings on March 19, which if you think back to then, was really peak uncertainty in terms of the outlook of this virus. I think the S&P bottomed a few days later. And that call was 60% focused on their employee base. So I do think CEOs are lazy.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“So, an infrastructure bill would certainly be helpful for construction overall. And I agree with you, there is bipartisans and support right now for the concept. I will say an infrastructure bill is a bit complicated in terms of how you fund it, how you structure it, and what the dynamic is between more urban states and more rural states. And in an election year, particularly a very polarized election year, we think it's unlikely we see an infrastructure bill before the 2020 election. That said, we are becoming more and more optimistic that you'll see some sort of infrastructure spending bill in 2021.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“So there's always in Washington talk of infrastructure bills, and they never seem to go anywhere. But the crisis seems to give it a little new impetus towards bipartisan cooperation on things that might stimulate the economy. How might an infrastructure bill help this sector?”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“Going forward. I think the last point, which might be the most important point, is when I look at the balance sheets and liquidity positions of my clients, both in home building and building products, it's quite strong. Most of them still have access to the capital markets, given some of the Fed action that we've seen. And generally, they're all positioned to whether what could be a potentially a very extended downturn. So the outlook today is much different. And while folks are naturally going to look to 2008 as a comparable, I do think, at least as it relates to construction, things are much different today.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“It's a great question, and look, we are all human, and we're all subject to some recency bias. And I think folks are looking at 2008 and approximating equity market performance and financial performance of the sector to be similar to what they saw then. I will say the environment is much different from my perspective and is for a couple of reasons. One is the supply and demand dynamic that I described earlier. If you remember back to 2008, the 2008 crisis was largely caused by an asset bubble and frankly an oversupply of housing. That's not the case today. The housing supply is quite low. Additionally, the consumer is in a much better position today than they were going into 2008. The household debt-to-GDP ratio in 2008 was about 85%. Today it's more like 65%. So we think that looks a lot better overall in terms of the consumer's ability to really lean in on both housing and repair and remodels.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“So obviously, in the equity markets, this sector has been particularly challenged. Basically, home builders are down on average about 50%. The product manufacturers are down 35%. What are investors thinking about this sector right now and how are they weighing the equity outlook?”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So COVID 19 has dramatically impacted really every end market and construction is no different. Now on the positive side, construction has been deemed essential in many states. That said, new homes and expensive repair and remodel expenditure are discretionary consumer products and an environment where the economic outlook is very uncertain, that is going to slow. We really saw the first data point illustrating this with the March new home starts, which were down 20%. And what makes that particularly jarring is the fact that the first two weeks of March were actually quite positive. So we expect the April data to be worse. That said, our outlook for the sector overall of the demographic tailwinds I talked about at the beginning of the call are still in place. And therefore, while we expect there to be a pause in construction, COVID-19 hasn't fundamentally changed the sector. And because of that, we expect new homes.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“Was a real limit in the supply. Builders have really been under building homes since the financial crisis. And we expected that to drive the construction of a number of new homes, a secondary dynamic there, is that the age of homes has increased to about 40 years. And in that environment, you typically see repair and remodel spending folks redoing their kitchens, their decks, their bathrooms really spike. And that can be very beneficial to the building products manufacturers who sell into those end markets.”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT
“A good question. When I talk to my CEO clients in late 2019, they were very optimistic about 2020. And there's a number of reasons for that. The first is the supply and demand dynamic in the sector. So on the demand side, there's been a lot of conversations about the millennial generation and their extended adolescence. The fact that they've been delaying family formation and delaying buying homes. One of my favorite statistics is that the median age of a home buyer in 1985 was 32. And today that's 47. That said, we were really starting to see that trend change. And the millennial homebuyer was emerging. Now this generation, which is 70 million Americans aged 20 to 40, is entering an age band where you typically see homeownership move from around 30% to more like 65%. And that was expected to be a very significant and long-term tailwind going into 2020. Augmenting that demand”
2020-04-21 · Goldman Sachs Exchanges · How the Housing Sector Has Been Impacted by the Economic Slowdown · IDENTIFIED FROM THE TRANSCRIPT