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Speaker 2: Pivotal Week.
Speaker 3: That was mag seven earnings, a FED meeting, tar off deadline,
Speaker 3: lots of economic data, you know, all this, a jobs
Speaker 3: report this morning, President Trump. I'm not happy with the
Speaker 3: labor report. We've got a FED governor right that's leaving
Speaker 3: a FED official. There's a lot. So let's get to
Speaker 3: our roundup of the week. We've got a great roundtable.
Speaker 3: Eric Wiener is Bloomberg New Senior Editor Equities America's, along
Speaker 3: with Bloomberg News Economics Editor Molly Smith, both here in
Speaker 3: our Bloomberg Interactive Brokers Studio. We're not going to talk
Speaker 3: about Rolex watches. We're not going to talk about the
Speaker 3: great state of New Jersey, Jersey though sure it is
Speaker 3: a great stake going there this weekend for it. Love it, Molly,
Speaker 3: I want to begin with you you continue to digest everything.
Speaker 3: We've had Mike McKee back in studio a total of
Speaker 3: three times because of everything that just kept happening and happening.
Speaker 3: Where to begin, what's front and center as you look
Speaker 3: at the week.
Speaker 1: That was, Oh boy, I guess it's really more of
Speaker 1: the day that was for me at this moment. So
Speaker 1: really starting out with the jobs report this morning, weaker
Speaker 1: than expected for July, but really the eye catching figure
Speaker 1: was that downward revision to May and June, biggest since
Speaker 1: biggest two month revision, sorry, since the pandemic got a
Speaker 1: lot of people's attention. Spoke to issues that we've laid
Speaker 1: out in a separate piece with seasonal adjustment issues as
Speaker 1: well as what's been a broader issue of just declining
Speaker 1: response rates to surveys. That makes you know, the initial
Speaker 1: rate that BLS collects from firms that can change a
Speaker 1: lot as they collect more sample in the subsequent months
Speaker 1: when they survey these firms and more of them respond.
Speaker 1: And then of course we get the big bombshell that
Speaker 1: he is going to fire the head of BLS, Erica mcintarford.
Speaker 1: This is a Biden era appointee, but really key to
Speaker 1: keep in mind here that BLS is very much an independent,
Speaker 1: non partisan institution, and anybody would tell you that that
Speaker 1: is why there's statistics as well as the really the
Speaker 1: breadth of US statistics as a whole are so good
Speaker 1: it is because they are non partisan and they don't
Speaker 1: have political influence.
Speaker 4: So this really is just like a.
Speaker 1: Huge announcement that you know of assuming that he does
Speaker 1: follow through with it, that it really could undermine a
Speaker 1: lot of public and market trust in the data.
Speaker 5: Well, the President piling on with a post at three
Speaker 5: forty five saying, quote, in my opinion, today's jobs jobs
Speaker 5: numbers were rigged, that's all in caps, in order to
Speaker 5: make the Republicans and me look bad. He said that
Speaker 5: Jerome too late, Powell is no better. But the good
Speaker 5: news is our country is doing great. Mollie, you just
Speaker 5: told us it's a non partisan organization. I feel foolish
Speaker 5: even asking the question, but just respond to the President's
Speaker 5: accusation that the numbers were rigged he presented without evidence.
Speaker 1: Yeah, that's definitely not how revisions work. Actually, we got
Speaker 1: a comment from BLS saying that revisions are needed in
Speaker 1: order to paint a more accurate picture of the job's
Speaker 1: data and this is just a normal part of data
Speaker 1: collection efforts. And if anything, this is being hampered now
Speaker 1: more by the fact that Trump has slashed budgets for
Speaker 1: a lot of these statistical agencies and cut their staffing,
Speaker 1: or a lot of the staffing rather has left through
Speaker 1: deferred resignations and other opportunities to leave. That the data
Speaker 1: collection efforts have been severely hampered. So this was not
Speaker 1: an issue of rigging numbers. That definitely is not what's
Speaker 1: at play here. And people on both sides of the
Speaker 1: aisle will tell you that that this is like a
Speaker 1: really gosh how to say that the data integrity is
Speaker 1: just so paramount to this institution and it's there to
Speaker 1: serve a public good.
Speaker 3: Well, it's paramount to the market trade and how everyone
Speaker 3: global investors look at the US markets. Eric, come on
Speaker 3: in on that, because I do think about what Molly
Speaker 3: said that if he is excuse me, this individual is fired.
Speaker 3: You know what that means in terms of undermining US
Speaker 3: financial markets.
Speaker 6: Oh, all the traders are talking about this specifically.
Speaker 7: I mean if you look at to Molly's point, if
Speaker 7: you look at data from the US where the gold
Speaker 7: standard we have the broadest variety. We have the most
Speaker 7: accurate reports, and it's been that way for a while.
Speaker 7: The struggle that there was a great story. Actually, the
Speaker 7: struggle that BLS has had getting responses speaks to what's
Speaker 7: going on in the markets right now with companies not
Speaker 7: wanting to give that data up. But the full faith
Speaker 7: and trust of what traders do is based upon us
Speaker 7: not inserting our political beliefs into what's going on in
Speaker 7: the economy and just really showing people all these different
Speaker 7: facets and then you, as a trader, can make up
Speaker 7: your mind. If things st you know, being manipulated, or
Speaker 7: you start sensing that they're being manipulated, that becomes scary
Speaker 7: as a trader.
Speaker 5: Eric, do you think that that could serve as some
Speaker 5: sort of guardrail against firing or making politicizing this organization,
Speaker 5: the same way that the bond market sort of served
Speaker 5: as a guardrail with post the so called Liberation Day,
Speaker 5: when the President referred to the bond market getting a
Speaker 5: little bit quote yippie.
Speaker 7: Well, what's interesting about this specific complaint is that he
Speaker 7: actually needs bad jobs data to.
Speaker 6: Get the rate cut that he wants.
Speaker 3: So, like the priest play hasn't checked out the warp
Speaker 3: function on the bloemob work.
Speaker 7: So yeah, so yesterday was forty percent chance of a
Speaker 7: rate cut.
Speaker 6: Now it's over eighty. It's like eighty six, I think.
Speaker 7: So basically everybody is now pricing in off of that,
Speaker 7: off of that job's report. Everybody's pricing in a rape
Speaker 7: cut in September. So it actually works in his direction.
Speaker 7: So I mean in terms of what we're hearing about,
Speaker 7: what how people will position off of this, it's so
Speaker 7: incoherent that you really don't know the question becomes.
Speaker 6: And it's this way with the FED too, because the
Speaker 6: FED is a board, so we act.
Speaker 7: He's acting like Powell tells the Fed like in some
Speaker 7: sort of mafia, you know, the way that you know
Speaker 7: Gott he controlled the Gambinos, he tells them what to do.
Speaker 6: It doesn't work that way.
Speaker 7: So there's sort of a lot of hope that just
Speaker 7: in general, there's just too much noise and not enough
Speaker 7: action or not action really that's going to happen.
Speaker 6: But there's fear that.
Speaker 7: He will start trying to influence, he will start actually
Speaker 7: influencing the numbers, and if that shows up, then people
Speaker 7: start questioning.
Speaker 1: And similarly to what Eric just said, there. It's a
Speaker 1: bit of a similar dynamic at BLS two. Right, It's
Speaker 1: not that Eric and Tarfer is the sole discretion over
Speaker 1: what the.
Speaker 4: Jobs data says every month.
Speaker 1: This is an institution of roughly two thousand people globally
Speaker 1: at BLS sorry and the US not globally.
Speaker 3: Who compile all these reports.
Speaker 1: And I mean, she certainly signs off on them, but
Speaker 1: like she is not at all, Like I honestly would
Speaker 1: question what role she in particular has in the data
Speaker 1: collection itself, which happens much beneath her level. But something
Speaker 1: else that is really interesting about this too. When Eric's
Speaker 1: talking about how reports like this help Trump's chances to
Speaker 1: get the rate cut that he wants, so have all
Speaker 1: the other reports from BLS on inflation, the very reports
Speaker 1: that he's been saying are so great. So it's really
Speaker 1: interesting then that the initial report initial tweets sorry that
Speaker 1: he said that he just found out that mcintarfur's a
Speaker 1: Biden era and point, I mean, well, first of all,
Speaker 1: she's been there for like a year and a half,
Speaker 1: and also she's been the one overseeing these great inflation
Speaker 1: reports that he's been touting.
Speaker 3: And not being political, But I asked this question to
Speaker 3: Mike mcgeeo. I said, when we got the numbers for
Speaker 3: the prior month, I know they've been revised downward, but
Speaker 3: when they initially came out, it's not like we heard
Speaker 3: from the White House saying, wait, we questioned this number.
Speaker 3: So it's just something we're trying to be smart about. Molly,
Speaker 3: I want to ask you one more time and just
Speaker 3: kind of wrap up here thirty seconds. The US economy,
Speaker 3: though we are seeing weakness, but we still have some
Speaker 3: inflation signs.
Speaker 4: Yeah, I mean I think.
Speaker 1: I mean, if we're just looking at the jobs report today,
Speaker 1: I think for a lot of the takeaway was for
Speaker 1: economists was that this really helped square up some of
Speaker 1: the weakness that we saw in the GDP report, about
Speaker 1: this underlying demand gage being so weak, consumer spending softening,
Speaker 1: We get netwild why because we saw the job growth
Speaker 1: has been weaker for longer than we previously thought.
Speaker 3: I want to save thirty seconds for eric last thoughts
Speaker 3: on the markets and kind of as we get ready
Speaker 3: for another trading week next week.
Speaker 7: Yeah, I mean, right now, it's how long does it
Speaker 7: take this stuff to filter through? If you look at Tariff's,
Speaker 7: you know, the window was six months the earliest.
Speaker 6: We're not even there yet.
Speaker 7: So my question is what, yeah, what the numbers are
Speaker 7: going to show because data now matters FED speak.
Speaker 3: Though, we're going to get start getting here in a
Speaker 3: lot well.
Speaker 1: I mean also the umpshell news that FED Governor Adriana
Speaker 1: Kugler who's stepped down, which I'm sure is another part
Speaker 1: of the program today.
Speaker 3: I told you Mike, Mike McKee was like a boomerang.
Speaker 3: He just came back and forth. Mollie Smith. Our thanks
Speaker 3: to you, and of course our thanks to Eric Wiener
Speaker 3: as well. Guys, have a great, great weekend. This is
Speaker 3: Bloomberg Business Weekdaily.
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
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Speaker 4: Well.
Speaker 5: As Carol mentioned, President Trump said the US is moving
Speaker 5: too nuclear submarines to respond to what he called quote
Speaker 5: highly provocative statements from former Russian president Dmitri Medvedev. Trump
Speaker 5: didn't immediately provide details on what instigated his move, though
Speaker 5: his post Friday was the the latest in a public
Speaker 5: exchange of heated rhetoric with the former Russian president who
Speaker 5: currently serves as Russia's deputy chairman of the Security Council.
Speaker 5: We've got with us Wayne Sanders. He's Bloomberg Intelligence senior
Speaker 5: defense analyst. He joins us from Maryland. Wayne's situations such
Speaker 5: as this where we publicly hear about a declaration of
Speaker 5: these machines of war moving into a different position, How
Speaker 5: seriously do you take that in the context of escalating
Speaker 5: conflict with Russia.
Speaker 8: Yeah, I would say that I'm more concerned about the
Speaker 8: fact that President Trump actually said it out loud as
Speaker 8: probably the bigger piece of it. We have the Virginia
Speaker 8: class submarines. We've got Los Angeles class submarines, both which
Speaker 8: are these attack submarine types. Then we have the nuclear submarines,
Speaker 8: the ICBM types, the ballistic missile submarines as they're known right.
Speaker 8: We have a lot of these, and we have twenty
Speaker 8: four Virginia class. We have almost fifty of the attack.
Speaker 8: We've got fourteen that are the ballistic missile submarines, and
Speaker 8: a lot of them are always operationally deployed and they
Speaker 8: are there to provide force projection for military power across
Speaker 8: for the United states around the world, right, So these
Speaker 8: things are out there most of the time. Anyway, when
Speaker 8: you think about a carrier strike group, they normally come
Speaker 8: with a nuclear powered submarine as part of the complement
Speaker 8: whenever the president decides to move one of those carrier
Speaker 8: strike groups anywhere. So the fact that he's talking about
Speaker 8: where he's parking it, I think is the key indicator here.
Speaker 8: Is saying, hey, look, I've got these capabilities. I have
Speaker 8: these nuclear powered submarines that you can't find, and I'm
Speaker 8: just telling you about where they're going to be. But
Speaker 8: at the end of the day, our technology is so
Speaker 8: good from a stealth perspective, and others were ten years
Speaker 8: ahead of China and Russia at a minimum from that perspective.
Speaker 8: So I think we're actually doing pretty well. But he's
Speaker 8: making his statement clear.
Speaker 5: So you would argue that if this were like, what
Speaker 5: would be the difference in your view, if he had
Speaker 5: kept this a secret, had done this in a way
Speaker 5: that wouldn't actually communicate to the world about this repositioning,
Speaker 5: would that actually mean that the tensions are more heightened
Speaker 5: than they would be if he's publicly saying this. Since
Speaker 5: he's publicly saying this, can we read into this in
Speaker 5: a way that's like, Okay, we shouldn't take it as seriously.
Speaker 8: Yeah, I mean, you know, we've talked previously in terms
Speaker 8: of there's diplomatic information, military and economic levers of power
Speaker 8: that you can use in the military side of the house,
Speaker 8: and how you play a lot of those pieces. The
Speaker 8: fact that he's talking about it is probably a good
Speaker 8: time from that perspective, because if you look at even
Speaker 8: Operation Midnight Hammer in the Iran strike, you know, nobody
Speaker 8: talked about the fact that there was an Ohio class
Speaker 8: ballistic or not the blistic missile one, but they have
Speaker 8: four that are strike ones that fire thirty tomahawks. Right.
Speaker 8: That's part wasn't talked about a whole lot because everybody
Speaker 8: focused on the B two spirit in the in the
Speaker 8: massive or in his penetrator. But that was a key
Speaker 8: portion of it, and it was one that wasn't just discussed.
Speaker 6: He didn't talk.
Speaker 8: About, Hey, I have this capability parked off of your
Speaker 8: off of your your shore, off of your coast.
Speaker 4: The way that he is right.
Speaker 3: Now, how do you read this? I can't make sense
Speaker 3: of the relationship between President Trump and President Putin. I
Speaker 3: don't know, friends, not friends back and forth sanctions, that's
Speaker 3: still a threat. I'm just trying to understand it.
Speaker 8: No, I think I think the key is from the
Speaker 8: public view is making sure one of the best things
Speaker 8: that he can do is use his information platform to
Speaker 8: be able to make his his intentions clear. And part
Speaker 8: of those intentions is I'm not I'm not happy with
Speaker 8: what Midyette did and and I'm going to make sure
Speaker 8: that everybody knows about it. I don't believe that from
Speaker 8: the perspective of where where these are actually located? Right,
Speaker 8: Like I said, these things are constantly operationally deployed anyway,
Speaker 8: So the fact that he said it, as long as
Speaker 8: he's not giving a latitude and longitude to where those
Speaker 8: locations are, you know, I think that I think Putin
Speaker 8: knows right now that most of the time there's probably
Speaker 8: some type of capability that is somewhere near strike this.
Speaker 6: Since of it.
Speaker 8: Anyway, the fact is he's just mainly talking.
Speaker 4: About it now.
Speaker 3: And is it significant that he didn't necessarily mention Putin
Speaker 3: in this right somebody else that he's kind of ticked
Speaker 3: off at, And so is that the way of kind
Speaker 3: of keeping it safe and being like, hey, it wasn't
Speaker 3: about you. It was about this other dude that's you know,
Speaker 3: Russian like. Is that kind of the justification or the
Speaker 3: or gave President Trump the ability to do that?
Speaker 4: I would say yes, right.
Speaker 8: I think if you're looking at the difference between escalation
Speaker 8: of force and de escalation of force with a clear
Speaker 8: deterrence strategic deterrence message, this is a way to be
Speaker 8: able to do that. And like you said, I think
Speaker 8: that that gives him a little bit of an out
Speaker 8: if Putin were to say anything to come back and
Speaker 8: go no, no, no. I was responding to Medgettev because Putin,
Speaker 8: I think, clearly knows that there is operational capability around
Speaker 8: the world that we constantly use.
Speaker 3: Do you think he gave Putin again? Speculation? But I'm
Speaker 3: going to go there? When do you think it gay?
Speaker 3: President Putina heads up?
Speaker 8: I honestly don't know, because I don't know the inner
Speaker 8: workings between Medyeedev and In Putin. I think that understanding
Speaker 8: better the relationship between those two and how easy it
Speaker 8: would be for President Trump to be able to say,
Speaker 8: I'm going to throw this out there at Medeta, but
Speaker 8: it's not about you, or if these two were partnered together.
Speaker 5: I'm going to read from the post that the President
Speaker 5: made on true Social quote based on the highly provocative
Speaker 5: statements of the former President of Russia, Dimitri Medviedev, who
Speaker 5: says the deputy Chairman of the Security Council, who's now
Speaker 5: the Deputy Chairman of the Security Council of the Russian Federation,
Speaker 5: I've ordered two nuclear submarines to be positioned in the
Speaker 5: appropriate regions just in case these foolish and inflammatory statements
Speaker 5: are more than just that. When we start out the
Speaker 5: conversation with you explaining the way that these submarines are
Speaker 5: part of carrier strike groups, does it mean that they
Speaker 5: always travel together, they're always near one another. Does it
Speaker 5: mean the entire strike group is being repositioned, or can
Speaker 5: these nuclear subs go without other naval vessels.
Speaker 8: They're able to go. They're able to go without it normally.
Speaker 8: What I was saying is that if you are going
Speaker 8: to put an aircraft carrier somewhere as part of a
Speaker 8: defensive measure, and it's part of the entire strike group
Speaker 8: packages you're talking about, you normally have your destroyers, your frigates,
Speaker 8: have your nuclear powered submarine that we go along with
Speaker 8: an aircraft carrier.
Speaker 4: So when you hear somebody say I'm deploying the US.
Speaker 8: Is gerald Ford and it's going to a specific location,
Speaker 8: normally you can assume that this is the rest of
Speaker 8: the compliment that's going to go there to not only
Speaker 8: protect the aircraft carrier in the aircraft that are on it,
Speaker 8: but the submarines can be free flowing that are separate
Speaker 8: from that, because obviously with twenty four Virginia Class, twenty
Speaker 8: four Los Angeles Class, and fourteen of these Ohio Class
Speaker 8: ballistic missile submarines, we have a lot more submarines than
Speaker 8: we do carrier strike groups.
Speaker 5: Okay, Wayne Sanders got to leave it there. Bloomberg Intelligence
Speaker 5: senior defense analyst. He's a career military officer, ultimately was
Speaker 5: a colonel in the US Army. Now at Bloomberg Intelligence.
Speaker 5: We appreciate him joining us this afternoon.
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live
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Speaker 2: All right, folks.
Speaker 3: Let's get now to certainly something that the equity markets
Speaker 3: have been focusing on, excuse me, all week, and that
Speaker 3: has to do with MAG seven earnings. Right now, I'm
Speaker 3: looking at Apple shares. They're down about two point one
Speaker 3: percent higher.
Speaker 5: Earlier in the session too, they were.
Speaker 3: They actually showed some gains. That wasn't the case for
Speaker 3: Amazon today It's been down as much as nine percent
Speaker 3: right now, down about eight point six percent. Both reported
Speaker 3: after the closed last night. Apple posting its fastest quarterly
Speaker 3: revenue growth in more than three years, and yet Amazon
Speaker 3: projecting weaker than expected operating income and trailing the sales
Speaker 3: growth as some of its cloud rivals. So we definitely
Speaker 3: are seeing some impact. It's all against the mag seven
Speaker 3: that we've heard over the last two weeks or so.
Speaker 6: Great to have back with us.
Speaker 5: Laura Martin, senior analyst over at Aninaman company who's coverage
Speaker 5: of the media, entertainment, and internet spaces are a must read.
Speaker 5: She joins us from Los Angeles. Laura, I want to
Speaker 5: start with Apple and the pull forward or whatever we
Speaker 5: saw with the huge beat when it came to that
Speaker 5: iPhone number, and typically a time when people are not
Speaker 5: buying iPhones. How do you explain it? Was it all
Speaker 5: about pulling forward of demand to avoid tariffs?
Speaker 9: It is really that, I mean, that's what the market's
Speaker 9: telling you today. Apple admitted that one hundred one thousand
Speaker 9: basis points, so one percent of their revenue growth, which
Speaker 9: was ten percent, well above average, was from pull forward,
Speaker 9: And the market's telling you they think that number was
Speaker 9: like five, you know, four half of the gain basically,
Speaker 9: which and they also Apple also said they had eight
Speaker 9: hundred million dollars of costs from tariffs in that second
Speaker 9: that recorder they just reported, and it's going to go
Speaker 9: up to one point one billion visibly in the September quarter.
Speaker 9: But I think the mark is telling you they think
Speaker 9: that could be higher in the September quarter.
Speaker 5: Oh so, does does this mean that we'll see fewer
Speaker 5: iPhones bought in the first fiscal quarter Apple? But Apple's
Speaker 5: December quarter, which typically is its biggest quarter, as a
Speaker 5: result of the pull forward that we saw in this quarter.
Speaker 4: I think it's worse, it's faster.
Speaker 9: So the June quarter over delivered because they pulled forward
Speaker 9: demand from the September quarter.
Speaker 4: Those are all old iPhones, okay.
Speaker 9: And then in late September you typically get the new
Speaker 9: iPhone and then you start this new annual cycle of
Speaker 9: the new iPhone. And one of the things they said
Speaker 9: that's turning the stock today is that Siri and Apple
Speaker 9: Intelligence will only be integrated next year, by which they're
Speaker 9: probably talking calendar year, which means the earliest we'll see
Speaker 9: you generative AI features drive an upgrade cycle for the
Speaker 9: iPhone would be not September of twenty five, it'd be
Speaker 9: September of twenty six. So then that tells you, so
Speaker 9: this is dead money again, right, there's nothing driving and
Speaker 9: there's risk here. Not only China subst drove a really
Speaker 9: nice China growth number, four point eight percent China revenue growth.
Speaker 9: People are worried that that is also like that subsidy
Speaker 9: isn't going to recur, and we've had a couple negative
Speaker 9: litigation regulatory decisions. Right, We've got we've got the feed
Speaker 9: to twenty billion dollars a year is what Google Search
Speaker 9: pays Apple to be the default search engine on all
Speaker 9: iOS devices. I think it's pretty clear from channel checks
Speaker 9: and DC that is not going to be allowed to persist.
Speaker 9: So that's twenty billion that will come out of services
Speaker 9: if it isn't allowed. And then similarly, we have the
Speaker 9: epic they got Apple got a negative epic Games which
Speaker 9: allows that which allows consumers to pay directly to apps
Speaker 9: and not have Apple share thirty percent. So that's another
Speaker 9: that's an app store risk that over the next twelve months,
Speaker 9: not immediate, but over the next twelve months. You know, Laura,
Speaker 9: We've had the luxury of talking with you in the
Speaker 9: last week or two and talking specifically about Apple. You've
Speaker 9: got a hold rating on it. It doesn't sound like
Speaker 9: you have a lot of concerns. I guess I should
Speaker 9: say why not put a cell rating on it?
Speaker 4: You know, I mean, I think so.
Speaker 9: One of the issues is when you look at the
Speaker 9: other mag seven, they basically have a singular strategy, which
Speaker 9: is envision generative, AI is disruptive. We everyone else is
Speaker 9: going to spend eighty five to one hundred billion dollars
Speaker 9: in CAPEX in twenty twenty five alone, and we're going
Speaker 9: to grow at twenty percent in twenty twenty six with
Speaker 9: no Every one of them has been pushed on what
Speaker 9: is that return on capital incremental capital?
Speaker 4: They all say, we don't know. We just think it's
Speaker 4: going to be big. If you don't believe that.
Speaker 9: If you're an investor and you think that jenerative AI
Speaker 9: is overhyped or the economics are further off into the future, Apple.
Speaker 4: Is a great place to hide.
Speaker 9: They are spending twenty billion dollars a year, not eighty
Speaker 9: five billion dollars a year. Jenerative AI is sometime in
Speaker 9: the future. They're not spending they're not hiring people like
Speaker 9: Meta Is for one hundred million dollars each to work
Speaker 9: on super intelligence. This is Apple is a great place
Speaker 9: to hide if you are an investor that doesn't believe
Speaker 9: in generative changing the world.
Speaker 3: Well, you know, it's interesting that you say that. I
Speaker 3: can't remember who was either on surveillance this morning with
Speaker 3: Tom and Paul, but it was just something to the
Speaker 3: point that, well, wait a minute. You know Apple often
Speaker 3: isn't you know, first mover on some big changes, right,
Speaker 3: we talked about it.
Speaker 5: Creates the tablet. They didn't create the music player, they
Speaker 5: didn't create the smartphone, but they created the best of
Speaker 5: all those things exactly.
Speaker 3: So if they're saying, hey, guys, go ahead and spend
Speaker 3: you know, your billions or trillions or whatever the heck
Speaker 3: it is, figure out this AI thing and then we'll
Speaker 3: come in and we'll collaborate or partner with somebody. Maybe
Speaker 3: that's not such a bad strategy.
Speaker 4: So it's risky business.
Speaker 9: So on the call last night, Tim Cook got this
Speaker 9: question and what he said is, I don't see a
Speaker 9: world where the consumer doesn't have an iPhone, which is
Speaker 9: basically a computer in his pocket. Okay, that's a vision
Speaker 9: of the future that Johnny Ive who's gone to Open
Speaker 9: AI is trying to displace. Johnny Ive, who developed every
Speaker 9: Apple product you have in your pocket while he was
Speaker 9: at Apple for twenty years, is now saying he regrets
Speaker 9: creating the screen because he thinks it makes people not
Speaker 9: pay attention to one another. So he's trying to move
Speaker 9: the next device with Generative AI backing to not.
Speaker 4: Be a screen.
Speaker 9: So that may not work, but if it does Apple,
Speaker 9: that's a problem for app. That is an existential risk
Speaker 9: problem for Apple. So long as an iPhone and a
Speaker 9: screen are going to be sort of the user device
Speaker 9: of record and they're going to persist in ten years,
Speaker 9: you might be right.
Speaker 4: That might be possible.
Speaker 9: What you just said, Apple can copy the best of Android,
Speaker 9: which will have Gemini, because Google has Gemini in every
Speaker 9: product now that will work. But if Jimmy I've and
Speaker 9: open AI are right and screens are going away, that's
Speaker 9: problematic for a smartphone maker.
Speaker 5: I guess that's maybe where whatever they're working on for
Speaker 5: a face computer could come in. Laura, I want to
Speaker 5: go back to what you said about Gemini and Android
Speaker 5: because of the way that Gemini is baked into Google devices. Now,
Speaker 5: you say in your most recent note that Apple is
Speaker 5: a single product company, its valuation risk is material if
Speaker 5: iOS falls too far behind Android, would you say that
Speaker 5: iOS is already behind Android right now?
Speaker 1: Oh?
Speaker 4: I would absolutely?
Speaker 1: I would.
Speaker 9: I mean when you look at Google's its revenue is
Speaker 9: accelerating over at Alphabet, and its costs are going down,
Speaker 9: so its productivity per employee is going up. Why because
Speaker 9: eighty percent of engineers are using Gemini to do their
Speaker 9: first draft of code for new products. They're introducing new
Speaker 9: products faster, they're integrating. They over delivered on advertising because
Speaker 9: they're integrating all these better convert both Meta and Google
Speaker 9: because they're using generative AI to increase.
Speaker 4: The conversion rate.
Speaker 9: So yes, Gemini is being integrated into everything at Alphabet,
Speaker 9: Android included.
Speaker 5: Does it matter to two comments here? One is the
Speaker 5: network effects that Apple has. And we're speaking with Laura
Speaker 5: Martin over at Needham. If you're just joining us, the
Speaker 5: network effects that Apple has, at least here in the
Speaker 5: US are really strong, right, the blue bubbles for when
Speaker 5: you're on I Message and the other Apple products that
Speaker 5: you have that ideally are supposed to work seamlessly with that. Plus,
Speaker 5: doesn't Gemini have an app that you can just use
Speaker 5: on your iPhone? So if you want to use Gemini
Speaker 5: as sort of a copilot here, if you are an engineer,
Speaker 5: you can just do it on your iPhone, but through
Speaker 5: an app that you'd get at the app store.
Speaker 4: If it's standalone.
Speaker 9: But I mean, I think my guess is where Alphabet's
Speaker 9: going is they're going to integrate. They're going to integrate
Speaker 9: Gemini into everything on your device. It's going to know
Speaker 9: where your appointments are, it's going to know who your
Speaker 9: friends are. It's going to be a personal assistant integrated
Speaker 9: into your Android phone. It's going to be a bigger
Speaker 9: idea than just a separate app where you go to it.
Speaker 9: It's going to be like, even if you listen to
Speaker 9: the meta vision of the world, super intelligence is about
Speaker 9: having a robot friend that does everything for you better
Speaker 9: than a human can make you. I mean, it's just
Speaker 9: I think these are bigger ideas than an app store.
Speaker 9: By the way, some CEO's visions of their apps are disappearing.
Speaker 9: So then you say, so what replaces them?
Speaker 4: Well, I don't know. Used to be websites, then we
Speaker 4: went to apps. What's next? It may not be apps?
Speaker 3: All right? You mentioned I want to just get to
Speaker 3: Meta and Amazon? What about Meta? You know, in terms
Speaker 3: of I mean that Stock was just off and running
Speaker 3: following its quarterly update. Those ad sales numbers certainly catching
Speaker 3: everybody's attention. A mega megaspen when it comes to AI.
Speaker 3: What is your hot take on that one?
Speaker 9: So Stock up strongly, really strong fundamentals, just sixty percent margins,
Speaker 9: twenty two percent revenue growth, and a huge company which
Speaker 9: was the fastest of the group that we the big
Speaker 9: tech companies we call really strong fundamentals. We are cautious
Speaker 9: on Meta and that is because they took their capex
Speaker 9: to seventy billion this year and one hundred billion next year,
Speaker 9: again no return in sight, and their stock comp per
Speaker 9: person is going through the roof as they hire super
Speaker 9: intelligence employees with press reports saying they're paying one hundred
Speaker 9: to three hundred million over three years for each of
Speaker 9: these people.
Speaker 6: Pretty good work, get it, I'll say.
Speaker 1: Yeah.
Speaker 9: My guess is they're trying to change the world right
Speaker 9: and they believe in super intelligence, which this isn't a
Speaker 9: vision of making you and I'm more productive. This is
Speaker 9: about replacing human beings with machines that teach machines. So
Speaker 9: it's literally terminator like life imitating art type of stuff.
Speaker 5: Doesn't sound like your pro AI in that In that context.
Speaker 3: Let's stick.
Speaker 4: Let's stick to Meta as a stock.
Speaker 9: My concern is that we're kind of we're losing five
Speaker 9: billion dollars a quarter on reality labs, and we're still
Speaker 9: funding the Metaverse, and we're funding Quest goggles, and we're
Speaker 9: funding ar glass way band glasses, and now we're funding
Speaker 9: a Jenna competition with companies twice their size. All of
Speaker 9: that feels like a lot of capital spending to me
Speaker 9: and actually costs to me without a clear sense.
Speaker 5: But investors are saying they are okay with it up
Speaker 5: to now because they believe that Mark Zuckerberg has this
Speaker 5: vision for super intelligence, which, to be honest, nobody has
Speaker 5: actually articulated to me, well, what does that world look
Speaker 5: like that that meta wants to create and thinks will
Speaker 5: be so profitable?
Speaker 3: Are they? Okay? Just because the AD sales number came
Speaker 3: in really strong, Like if it didn't, might everybody be
Speaker 3: like maybe not?
Speaker 9: Okay, Yes, absolutely, he is buying the right to spend
Speaker 9: money like a drunken salor because his fundamentals and his
Speaker 9: core business are strongly over delivering consensussessments. The day that stops,
Speaker 9: the music stops, and suddenly people are going to take
Speaker 9: a hard look at these You know, he's making five
Speaker 9: year commitments for these super intelligence employees, and he's making
Speaker 9: ten year commitments with the money.
Speaker 4: He's spending on data.
Speaker 9: So all of this money, he has a free pass
Speaker 9: so long as his core business is growing twenty two percent.
Speaker 5: Okay, okay, totally makes sense sort of the free pass
Speaker 5: Like Elon was, you know, allowed to be CEO of
Speaker 5: many different companies and investors were fine with it until
Speaker 5: they weren't. Jack Dorsey the same thing, Right, it works
Speaker 5: until it doesn't. Yeah, what about though, the promise of
Speaker 5: this being profitable in the future, all this investment ultimately
Speaker 5: paying off beyond making ads more efficient, what is that vision,
Speaker 5: What does that world look like in your view, at
Speaker 5: least articulated by Mark Zuckerberg.
Speaker 9: So again, so Mark Mark is just he has got
Speaker 9: a big idea.
Speaker 4: He wants to replace Apple, that's for sure. So does
Speaker 4: open AI.
Speaker 9: So Apple takes a thirty percent tithe on every dollar
Speaker 9: earned on its platform, and that hurts Mark Zuckerberg not
Speaker 9: only because Apple gets paid for a lot of work
Speaker 9: he is doing on Facebook and Instagram, but also it
Speaker 9: allows them to change policies and procedures like around security
Speaker 9: and safety and privacy.
Speaker 4: That costs Mark Zuckerberg ten.
Speaker 9: Billion in revenue three years ago, and since then, Mark
Speaker 9: Zuckerberg is all about replacing Apple or that piece of
Speaker 9: hardware with ray bound glasses or Quest goggles or something
Speaker 9: or the metaverse.
Speaker 4: He's trying to displace.
Speaker 9: Apple, and he wants to be the backbone that everybody
Speaker 9: has to pay thirty percent to. So that's his main
Speaker 9: economic mission. And now Jenerative AI comes along, which I think,
Speaker 9: you know, I think many CEOs thinks it changes everything.
Speaker 9: Even Apple said it's the biggest technological disruption of our lifetime.
Speaker 9: And they benefited from mobile, which you would have thought
Speaker 9: that would they would have thought was bigger than Jenai,
Speaker 9: but apparently not so. I guess the question is Meta
Speaker 9: is saying we think they're super intelligence. We think every
Speaker 9: human being is going to have a robot that they
Speaker 9: hold on to, maybe without a screen. We don't know,
Speaker 9: you know, we don't know what the form factor is.
Speaker 9: But that does things for you where you see the
Speaker 9: world differently and it helps you get through the world.
Speaker 9: But I don't think we know what that is yet,
Speaker 9: and he doesn't either. That's why he's hiring fifty smart
Speaker 9: people to have robots, train robots faster to do stuff
Speaker 9: humans can't do.
Speaker 3: Well, nobody can do what you can do. We want
Speaker 3: to ask you about Amazon. Sure this dock down still
Speaker 3: more than eight percent here in the aftermarket, and I
Speaker 3: think there is concerns about kind of the cloud spend comparison,
Speaker 3: you know, among the big hyperscalers, Amazon still the biggest
Speaker 3: when it comes to you know, we think about what's
Speaker 3: going on in terms of the cloud. What you take
Speaker 3: here are what we kind of need to be thinking
Speaker 3: about with Amazon, because investors seemed pretty disappointed.
Speaker 4: Are you.
Speaker 5: So?
Speaker 9: I think here's what I think is going on with Amazon.
Speaker 9: Answer the first half of that question. So they had
Speaker 9: very strong revenue growth up thirteen percent, which was like,
Speaker 9: you know, we were four percentage points below that, and
Speaker 9: very strong EPs and margins. But the problem is they
Speaker 9: gave very tepic guidance. Are really worried about tariff's impacts here,
Speaker 9: so they're worried about the next shoe to drop. They're
Speaker 9: advertising grew very robustly at thirty twenty three percent, which
Speaker 9: is great, and I think that would have been higher.
Speaker 4: Had not Tamu and Chean.
Speaker 9: Stopped advertising, you know, sort of on April tenth because
Speaker 9: they lost the Dominimus except rule exception, So I think
Speaker 9: that would have been higher. But that's a fabulous number.
Speaker 9: Nobody's focusing on today.
Speaker 4: And I think.
Speaker 9: People investors we've talked to are frustrated with capital spending
Speaker 9: on Kuiper, which has no revenue, capital spending for ten
Speaker 9: years so far, on Alexa no revenue, and like they're
Speaker 9: going to urban delivery same day, and I think people
Speaker 9: don't understand their core business of e commerce.
Speaker 4: I think people don't understand that as to use a capital.
Speaker 9: At the same time, they just raised their capex guidance.
Speaker 9: When you do the numbers to round numbers one hundred
Speaker 9: and fifteen, one hundred and twenty billion this year. The
Speaker 9: next closest is Microsoft and Google at eighty five billion,
Speaker 9: so they're quite a bit above everybody else on the jennerative,
Speaker 9: a I think and then AWS has a mnemic revenue growth,
Speaker 9: you know, neg I mean thirty two percent margins in
Speaker 9: the cloud business, and they were thirty nine percent ninety
Speaker 9: days ago, Like what the heck? And they say their
Speaker 9: capacity constrained. So then we would forgive them if they
Speaker 9: only report seventeen percent revenue growth, But then why aren't
Speaker 9: your margins sixty percent?
Speaker 4: Why aren't they forty percent?
Speaker 9: Again it why not sell to the highest bidder the
Speaker 9: last you know, you know, one gig of capacity. So
Speaker 9: we saw that in both Azure over at Microsoft and
Speaker 9: in Google Cloud slower I mean growth rates, but really
Speaker 9: high margins, and that just didn't play out at Amazon all.
Speaker 3: Right around the world. We went, thank you so much, Laura,
Speaker 3: always appreciate it. By the way, Laura's got a by
Speaker 3: rating on Amazon with a two hundred and sixty five
Speaker 3: dollars share price target, the stock right now just below
Speaker 3: two fifteen His share Laura Martin have a great weekend,
Speaker 3: Senior analyst at Needham and Company. Joining us.
Speaker 2: You're listening to the Bloomberg Business Week Daily Podcast. Catch
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Speaker 3: Both Exon Mobil and Chevron posted better than expected results
Speaker 3: after record oil production cushioned the impact of lower crude prices.
Speaker 3: This is coming in a week where we've got oil
Speaker 3: headed for its biggest weekly jump since Israel attacked Iron
Speaker 3: in jude Let's get to it. Longtime oil industry watcher
Speaker 3: doctor Ellen Wald is back with us. She's president of
Speaker 3: Transversal Consulting and Senior Fellow at the Atlantic Council. She's
Speaker 3: also author of Saudi Inc. Which talks about the history
Speaker 3: of Aramco and Saudi Arabia. Joining us from Boca Raton, Florida, Ellen,
Speaker 3: Great to have you back with us. Exon Chevron's result
Speaker 3: last quarter. Was it full of special caveats and nuances?
Speaker 3: Walk us through what we got from those companies and
Speaker 3: what it tells us about kind of the oil market
Speaker 3: and the oil business.
Speaker 10: Yeah, exactly, you know, both of them, they reported earning drops.
Speaker 10: I think that was very much expected given how low
Speaker 10: oil prices were this past quarter compaired to last year
Speaker 10: and even the first quarter, so so that was very
Speaker 10: much to be expected. But at the same time, both
Speaker 10: of these companies are looking very strong. Uh, you know,
Speaker 10: going forward, We've got Chevron's acquisition of hess Is finally
Speaker 10: has passed its final legal hurdle and it is going through.
Speaker 10: And then you know, with Exxon's acquisition of Pioneer Natural Resources,
Speaker 10: you know, it really looks good. They've got a lot
Speaker 10: of really good acreage in the Permian which is considered
Speaker 10: highly profitable. Both companies are working together on off toour
Speaker 10: projects in Guyana that are also expected to be highly profitable.
Speaker 10: You know, Chevron, you know, It's project in.
Speaker 3: Kazakhstan also looks good.
Speaker 10: Despite all of these you know, slight snaffhoos in terms
Speaker 10: of OPEC and production, it's just it's it's generally looking good,
Speaker 10: especially as OPEK is expected to increase its production. The
Speaker 10: really the big question that we see going forward here,
Speaker 10: I think it's mainly oil prices, and the big question
Speaker 10: here is really, you know, what is going to happen
Speaker 10: with this tariff business. I think the resolution or the
Speaker 10: deal with Europe has definitely brought some more stability to that.
Speaker 10: You know, with this resolution of these tariff issues or
Speaker 10: these trade issues come the expectation of more trade, and
Speaker 10: more trade is good for oil demands, so that's where,
Speaker 10: you know, that's where we're kind of looking in terms
Speaker 10: of the market with that. I also think that the
Speaker 10: energy part of that deal is very very good obviously
Speaker 10: for oil companies, especially in the US, considering how much
Speaker 10: oil and gas and other energy products the Europe has
Speaker 10: agreed to buy from the United States. Really the question
Speaker 10: is can the US actually supply all of that oil,
Speaker 10: given the fact that the amount that they're talking in
Speaker 10: terms of the dollar amount is basically like the total
Speaker 10: amount of oil exports that the US exports already, So
Speaker 10: there's some questioning there, But overall, it definitely looks good
Speaker 10: for American producers and oil companies in the United States,
Speaker 10: even if the exact details of that I think remained
Speaker 10: to be seen and have to be hammered out. The
Speaker 10: other big question coming up is just this tariff and
Speaker 10: secondary tariff issue with Russia.
Speaker 5: So that's the trade side of this, and I'm wondering
Speaker 5: about the US economy side of this, and it's kind
Speaker 5: of front and center today, at least when it comes
Speaker 5: to the jobs market. Given a headline miss and the
Speaker 5: revisions that we saw over the last few months from
Speaker 5: the BLS numbers that we got earlier today, what, in
Speaker 5: your view, does it potentially weakening job market or cracks
Speaker 5: starting to appear in the job market due to the
Speaker 5: long term demand picture for oil.
Speaker 10: Yeah, so weeks in the job market, cracks and fishers
Speaker 10: there are definitely not a good sign for oil demand
Speaker 10: in the United States, and I think that we saw
Speaker 10: that with the weekly report as well. There was some
Speaker 10: kind of we would.
Speaker 3: Have expected a much you know, we would have expected.
Speaker 10: Higher consumption and higher demand for this time of year.
Speaker 10: Generally the summer months tend to be higher demand, and
Speaker 10: what we saw was actually kind of weak, and in fact,
Speaker 10: some people were actually questioning whether this was a reliable
Speaker 10: But I think even kind of the revisions in the
Speaker 10: jobs report, I think we have to say that, yeah,
Speaker 10: this is definitely concerning. I think that it depends what
Speaker 10: we see going forward in terms of oil consumption, particularly
Speaker 10: as we're leading up to kind of end of summer,
Speaker 10: you know, kind of the summer finale. Generally, oil consumption
Speaker 10: goes up around in gasoling consumption rights up. Will it
Speaker 10: go up as much as expected?
Speaker 4: I think is really the number we're looking to see.
Speaker 8: Ellen.
Speaker 3: I want to go back to something you said about
Speaker 3: you know what we get in terms of possible sanctions
Speaker 3: from President Trump when it comes to Russia. He has
Speaker 3: said he expects to hit Russia with sanctions on August eighth,
Speaker 3: so a shorter deadline for Russian President Vladimir Putin to
Speaker 3: basically halt the war in Ukraine. Those sanctions, as we've
Speaker 3: been reporting at, would likely take the form of tariffs
Speaker 3: and countries that buy Russian energy. So I'm just curious
Speaker 3: tie together the importance of Russia in the oil energy markets,
Speaker 3: but also the complicated relationships, whether it's Russia, China, Russia
Speaker 3: Indian because it all kind of comes together.
Speaker 4: Yeah, exactly. I think that you know, this is.
Speaker 3: A really just about a minute left, So I just
Speaker 3: want you to be able to manage that this.
Speaker 4: Is a really big ass.
Speaker 10: I think that if we do see any kind of
Speaker 10: secondary sanctions on countries that buy Russian oil, either we're
Speaker 10: going to see these countries dropping their purchases of Russian oil,
Speaker 10: and that's going to put more demand on other oil sources,
Speaker 10: the US, OPEK, Saudi Arabia, et cetera. And that could
Speaker 10: definitely cause oil prices to go up in the short term.
Speaker 10: But if they decide that they don't care about this,
Speaker 10: then you know, we're just going to see more purchases
Speaker 10: of Russian oil and that could definitely cause prices across
Speaker 10: the board to kind of defleate.
Speaker 3: All right, going to leave it there, Ellen, Thank you
Speaker 3: so much. Doctor Ellen Wall, President of Transversal Consulting, Senior
Speaker 3: Fellow at the Atlantic Council. She's also author of Saudi Inc.
Speaker 3: If you want to understand Saudi Ramco, Saudi Arabia when
Speaker 3: it comes to the energy markets.
Speaker 2: This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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