The Cashflow Memo
Shownotes
[00:00:00 - 00:00:54] Intro
[00:00:54 - 00:02:15] Exhibit C: World Oil Supply/Demand
Oil price around $85 is great for producers, likely to be sustained due to uncertainty after Iran's drone/missile launch on Israel
Israel expected to respond, creating risk premium on oil prices
Houthis have disrupted traffic to Suez Canal, could impact Straits of Hormuz
Oil supply is higher than demand as Saudi Arabia and UAE are holding back production
Russian production down ~1M barrels/day due to Ukraine situation
[00:02:15 - 00:03:55] Exhibit B: US Gas Demand/Supply
Natural gas prices underperforming compared to past years
Reports indicate gas consumption for power generation, especially data centers, will increase faster than LNG supply
Forecasts show gas demand for power increasing significantly in 2022-2025, which should support $3.50-4.00 gas prices
Gas supply has increased substantially from 89 Bcf/d in 2019 to 101 Bcf/d
Continued large supply increases could still overwhelm demand growth
[00:03:55 - 00:04:48] Exhibit A: US Government Revenues and Expenses
Higher interest rates are a net negative for equity markets but are now priced in
Bipartisan consensus emerging to stabilize budget deficit around $1.4T and prevent further increases
Goal is to start reducing federal debt as a percentage of GNP
[00:04:48 - 00:07:12] Tesla Selloff & Latest News
Tesla announced 10% workforce reduction
Focusing efforts on AI projects like Robotaxi, unveiling planned for August 8
Treat Robotaxi as a call option - undefined value but likely more than zero
Higher interest rates hurt affordability of new cars, increasing demand for used cars
[00:07:12 - 00:09:30] How will AI affect professions like Investment Banking, Management Consulting, and Legal?
Speculation that AI tools like Copilot could allow investment banks to significantly reduce number of junior analysts needed
AI expected to automate mundane work and make remaining employees much more productive
Will disrupt many entry-level jobs but those workers can be retrained for higher-level roles
AI impact likely to be as significant as computers and mobile, the most applicable direct improvement in labor productivity
[00:09:30 - 00:11:30] Will AAPL iPhone sales rebound with more AI in the phones?
iPhone deliveries down 10% in Q1, partially due to China
Apple working to enhance Siri AI capabilities - could this drive demand for next iPhone?
Hardware advancements like AI accelerator chip and new AI-enabled apps could spur upgrades
Software and apps have been primary driver of iPhone demand in recent years vs incremental camera improvements
[00:11:30 - 00:13:23] Google's Search Conundrum and the future of the Open Web
Google's search business depends on the open web, but is being threatened by walled gardens like Facebook/Instagram that surface content without traditional search
Younger users increasingly finding content exclusively within social media apps
Best data is increasingly within walled gardens, not open web
YouTube is Google's best walled garden asset with valuable video training data for AI
Companies starting to put up paywalls and charge for content used to train AI models
[00:23:52 - 00:25:46] Vertex acquires Alpine Immune Sciences
Vertex acquired Alpine for $4.9B at a 40-70% premium depending on how positive Phase 2 study results are factored in
Alpine's drug Povetacicept treats rare autoimmune kidney disease, fitting with Vertex's focus
This rare autoimmune kidney disease affects 130K US patients, current standard of care costs $150K/yr
Povetacicept is the only drug that treats underlying cause vs just symptoms, could become new standard of care and major franchise for Vertex
[00:25:46 - 00:29:20] UNH / CVS / REGN / LLY
United Healthcare continues to show strong cash flows, CVS struggling to keep pace
Regeneron looks solid from a cash flow perspective
Eli Lilly expensive due to diabetes drug now being used for weight loss
Lilly's Mounjaro and Novo Nordisk's Wegovy (GLP-1 drugs) becoming blockbusters with many potential indications tied to obesity
GLP-1s may transition to being used chronically at lower doses for weight maintenance vs short-term high doses & increased competition in the space should help drive costs down. Reduced obesity could significantly lower overall US healthcare costs
UNH 0.00%↑ CVS 0.00%↑ REGN 0.00%↑ LLY 0.00%↑ GOOG 0.00%↑ GOOGL 0.00%↑ AAPL 0.00%↑ MSFT 0.00%↑ TSLA 0.00%↑ VRTX 0.00%↑ META 0.00%↑ ALKS 0.00%↑ BIIB 0.00%↑ AMZN 0.00%↑
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AI's Disruptive Potential, Pharma Deals, the Future of Search & the energy balance (e2416)