Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
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Speaker 1: right now is Thomas Purcelli, Chief US economist at PGUM
Speaker 1: Fixed Income. He's definitive with work on the open market
Speaker 1: desk at the Fed and also truly great work on
Speaker 1: wage dynamics in America. Congratulations on a new shingle across
Speaker 1: the Hudson.
Speaker 2: Thank you.
Speaker 1: As simple as I can. I want to go to
Speaker 1: your wheelhouse right away. You're talking to Greg Peters, which
Speaker 1: is really difficult. You've got to prepare medica.
Speaker 2: He's the best, loving the pieces.
Speaker 1: You're talking to Greg here, and he's going to turn
Speaker 1: to you just like I am, and say, okay, but
Speaker 1: what about wage dynamics. That's what you on the high
Speaker 1: ground on. How are wages in America into twenty twenty four?
Speaker 3: Yeah, look, I think here's here's the problem for the
Speaker 3: backdrop with regard to wages, which look in real terms,
Speaker 3: I think we'll appreciate or sort of you know, performing decently.
Speaker 3: That The challenge though, is if you have real revenue
Speaker 3: that's moving sideways, right which it is, and you have
Speaker 3: which obviously is a function of the consumer that is
Speaker 3: sort of sort of slowing down to some extent, how
Speaker 3: do companies respond to that? How do companies respond to
Speaker 3: real revenue moving sideways, wage pressures firming up a bit
Speaker 3: in real terms. I think that to me, that's a
Speaker 3: perfect recipe for companies to go after labor, particularly if
Speaker 3: it means you're going to get a margin compression, which
Speaker 3: is something that you know, we've been talking about for
Speaker 3: a while and I think Lisa, you and I talked
Speaker 3: about that last time I was on That to me
Speaker 3: is challenge as it relates to sort of the labor
Speaker 3: dynamic in the United States to.
Speaker 4: Translate this, yeah, they're going to be layoffs. That's basically
Speaker 4: what you're seeing is that if you see this incredible
Speaker 4: margin compression, if you see costs going up and you
Speaker 4: see consumers pushing back on prices, the next step is
Speaker 4: people are going to lose their jobs. How much pushback
Speaker 4: is there actually to pricing if we're still seeing robust
Speaker 4: service as side inflation as this report just suggested.
Speaker 3: Yeah so, and what we know is that wage pressures
Speaker 3: again remaining firm in real terms, but it's coming in
Speaker 3: the context of inflationary pressure that's now slowing down. I mean,
Speaker 3: this was just two tenths that we got I get it,
Speaker 3: you know, firmer than expectations, but that still doesn't change
Speaker 3: the trend. The trend of inflation is actually moving slower.
Speaker 3: So that means that the pass through is becoming much
Speaker 3: more difficult for companies.
Speaker 5: Well, but this is.
Speaker 4: We're seeing this. You know, we saw this with American
Speaker 4: Airlines and Spirit earlier this morning. So the pass through
Speaker 4: is getting more difficult.
Speaker 3: And sorry, no no, I was just going to say, Lisa,
Speaker 3: I think it's such an important idea. Not only do
Speaker 3: you have that idea this dynamic where the pastor is
Speaker 3: becoming much much more complicated, but you know, just just
Speaker 3: look at what some of the retailers are have been
Speaker 3: talking about. I mean, the consumers is now trading down, right,
Speaker 3: I mean, just in the context of these wage pressure,
Speaker 3: these inflationary pressures that are out there. I think it's
Speaker 3: such an important idea.
Speaker 4: The problem with it is, and this is what I'm
Speaker 4: struggling with, and I think a lot of other people
Speaker 4: are as well. We were saying this six months ago.
Speaker 4: We were saying that consumers were going to push back
Speaker 4: and that savings were going to be beaten down. And suddenly,
Speaker 4: you know, we were going to see, you know, a recession.
Speaker 4: It didn't happen, and the data totally keep surprising to
Speaker 4: the upside with this yet another surprise, the upside and
Speaker 4: core how can you explain that?
Speaker 3: Yes, so I think there's a really easy way to
Speaker 3: explain it. So, in fact, there's a couple of ways
Speaker 3: to explain it. So one, the idea of excess saving
Speaker 3: is real, right, I mean, the consumers still working that down.
Speaker 2: So let's just be clear.
Speaker 3: The consumer has had a massive pool with which to
Speaker 3: sort of dive into.
Speaker 2: Excess saving was one of those ideas. The other was credit.
Speaker 3: I mean, credit usage has been you know, sort of
Speaker 3: off the charts. I mean you're looking at revolving debt
Speaker 3: that's now running out a trillion dollars, and so the
Speaker 3: consumer has been able to sort of perpetuate the sort
Speaker 3: of the consumer backdrop as a result of these two ideas.
Speaker 3: But just to be clear that now is sort of
Speaker 3: drying up a little bit, right. Excess saving continues to fade.
Speaker 3: It's not gone, it continues to fade. Banks are now
Speaker 3: actually getting pretty stingy as it relates to how much
Speaker 3: credit they're willing to sort of lend out. And we
Speaker 3: could see that in obviously bank's willingness to make these
Speaker 3: kind of loans. And so I think the whole that
Speaker 3: this this, this this backdrop.
Speaker 2: Is drying up, right. The ammunition is drying up for
Speaker 2: the consumer to some extent.
Speaker 1: What I think is so important here is, with Robert
Speaker 1: tipp coming on in the next hour, John, you've got
Speaker 1: to turn to a bunch of bond animals with the
Speaker 1: ambiguities between your economics in their portfolio management. Can you
Speaker 1: assume a disinflationary tendency means price up, yield down in
Speaker 1: bond portfolios? Is that just a given?
Speaker 2: Yeah?
Speaker 3: So I think this is a really important idea. One
Speaker 3: of the things that we've been talking about at PGM
Speaker 3: is this idea that rates can stay high. Rate rates
Speaker 3: can stay pretty elevated. And I think that you can
Speaker 3: have rates remain pretty elevated. I mean when I think
Speaker 3: about sort of the fed's reaction function toll of this,
Speaker 3: you know, and again I get it on CPI DA,
Speaker 3: we're talking about inflation. But the thing that I keep
Speaker 3: on coming back to, and I'm trying to bring it
Speaker 3: back to this today here now is the labor backdrop.
Speaker 3: Because I think when push comes to shove, I think
Speaker 3: the Fed's can be very responsive to the labor backdrop.
Speaker 3: So I can easily make the case for the FED
Speaker 3: to engage in an easing cycle. Now, I think when
Speaker 3: people say easing cycle, I think they immediately think of, Hey,
Speaker 3: this big aggressive easing cycle. It's not going to be that.
Speaker 2: I think it's a dynamic where the FED cuts back.
Speaker 1: Their easiest path within a symmetry is to go longer. Yes,
Speaker 1: stay elevated and go longer.
Speaker 3: I agree, And so to me, that's sort of the
Speaker 3: big challenge here for the FED. It's I think it
Speaker 3: doesn't have to be a big aggressive cycle. If it's
Speaker 3: not going to be a big aggressive slowing and economic
Speaker 3: twenty five or.
Speaker 1: Fifty beefs and just sit on it through twenty four.
Speaker 3: I think that's exactly right. So Our call has been
Speaker 3: you can easily see a dynamic where the FED cuts
Speaker 3: you'll call it, fifty to seventy five basis points over
Speaker 3: the coming year. And I think that's how you sort
Speaker 3: of get to this dynamic where rates still remain pretty elevated,
Speaker 3: which is.
Speaker 4: The reason why I wonder if boldilocks and soft landing
Speaker 4: is the best case scenario for risk assets or if
Speaker 4: it's actually the worst case scenario for risk assets over
Speaker 4: the longer term, particularly corporate credit. When you face off
Speaker 4: with this idea of refinancing, what's your view? Is that
Speaker 4: potentially problematic?
Speaker 2: So it can be right.
Speaker 3: I mean, I think the rollover risk idea will become
Speaker 3: a challenge, but that's not a challenge for necessarily right now, right.
Speaker 3: I mean, a lot of companies have done a great
Speaker 3: job of turning out their debt. One of the things
Speaker 3: that we've been talking about at PGM and delete. My boss,
Speaker 3: I think he's been absolutely fantastic about highlighting this really
Speaker 3: important structural idea that's out there, which is something I've
Speaker 3: been talking about since, you know, my prior life.
Speaker 2: I think that the pieces are in.
Speaker 3: Place for productivity to really kill it. I think that's
Speaker 3: going to take time to develop. And I think that
Speaker 3: leases is basically that that's another really important idea too
Speaker 3: uncerta into your your your question.
Speaker 1: We got to go when you go across the Hudson River,
Speaker 1: as Peters, let you use the Hinckley picnic Bode. He's
Speaker 1: got a little Hinckley thing that takes you over to Pega.
Speaker 2: I'm just happy to be around him.
Speaker 1: Okay, Tom Purcella, thank you so much. Say Robert Tip
Speaker 1: as well. He'll be here later. Mister Purcelli is with
Speaker 1: p Jim Fixed Income. We are doing the best we
Speaker 1: can on this. And when you have Mark German and
Speaker 1: Ed Ludlow leading to charge, it is best in world
Speaker 1: analysis of this. And what Bloomberg Surveillance has done is
Speaker 1: get away from the blah blah blah and actually talk
Speaker 1: about what it means for the company, what it means
Speaker 1: for the stock, and frankly, what it means for America.
Speaker 1: Mister forty joins US now senior research channelist D. A. Davison.
Speaker 1: He is a neutral on Apple. Let me cut to
Speaker 1: the chase. I thought some of it was fascinating and
Speaker 1: the rest of it was sort of but time to me,
Speaker 1: the key thing is What does it mean for the
Speaker 1: broader Apple ecosystem? I mean, I think there's when you
Speaker 1: have storage, everybody's complaining about two terabytes of storage and
Speaker 1: iCloud they pop that sucker out the six to twelve terabytes.
Speaker 1: Little things like that below the headline. What's yesterday mean
Speaker 1: for the Apple ecosystem?
Speaker 6: Sure?
Speaker 7: So, I think that what I thought was most interesting
Speaker 7: is that they're taking at facto price increase on the
Speaker 7: promax are They're not offering one hundred and twenty eight
Speaker 7: megabt megabyte model anymore, So it's one hundred dollars more to.
Speaker 6: Get an ipro Max. And then the dongle.
Speaker 7: You teased it before, But the fact we're talking about
Speaker 7: accessories not the phone is good and bad news. The
Speaker 7: good news is that it should be a creative to margins.
Speaker 7: The margins on a twenty nine dollars dongle ought to
Speaker 7: be fantastic for the ecosystem. I think that you may
Speaker 7: not see the incremental new buyer this year, but as
Speaker 7: you pointed out earlier, the wireless carriers seem to want
Speaker 7: to subsidize their five G networks, which is also good
Speaker 7: news for Apple.
Speaker 1: I got it so good and bad I got eight
Speaker 1: ways to go here, Tom and John and Lisa have
Speaker 1: more intelligent questions. They got a three nanimeter a seventeen chip.
Speaker 1: Is it enough for someone to upgrade in China? Is
Speaker 1: it enough for someone to upgrade? Sitting to my right
Speaker 1: here in New York, where he's adamant, he's not gonna
Speaker 1: fall for the fanboy baloney? Is that new chip enough
Speaker 1: to upgrade?
Speaker 7: I do not believe that it is. So when I
Speaker 7: was thinking about all the buzzwords and all the new
Speaker 7: things in the iPhone fifteen, I was chuckling at titanium
Speaker 7: and how there have been titanium golf cubs for some
Speaker 7: time now, or how they're essentially no one's pointed out
Speaker 7: that they're offering on Star. And so I'm concerned that
Speaker 7: there's a lo a lot of small incremental adjustments, but
Speaker 7: there's no one item that I think is going to
Speaker 7: get you to wait in line, you know, like we
Speaker 7: used to do for an iPhone.
Speaker 5: So, Tom, you know the bullish thesis. The bullish thesis
Speaker 5: sounds like this, there are tons of people who haven't upgraded.
Speaker 5: The iPhone fifteen is going to get them to upgrade? Now, Tom,
Speaker 5: you clearly don't buy into that. So let's go through
Speaker 5: your rating neutral one eighty price target in the pre market.
Speaker 5: Right now, we're at one seventy six. Given the multiple
Speaker 5: that this stock has and the fact that you don't
Speaker 5: believe in the bullish thesis, Tom, I've got to ask
Speaker 5: the question why this isn't a cell and why that
Speaker 5: one eighty isn't a whole lot lower.
Speaker 7: Yeah, so I do think, I mean, you still have
Speaker 7: an amazing balance sheet, so they have the potential to
Speaker 7: buy back billions of dollars of shares to support the stock.
Speaker 7: I don't think they would ever raise their dividend yield
Speaker 7: to say three percent, to attract that pure dividend investor.
Speaker 7: But the foundation is still there, and I don't think
Speaker 7: that the stock is so overheated they would warn accelerating
Speaker 7: at this point.
Speaker 4: There is this question though, if there isn't anything to
Speaker 4: really touch everybody's eye except for a twenty nine dollars dongle,
Speaker 4: there is an issue of the increasing geopolitical concerns, especially
Speaker 4: as right after this launch, China came out and so
Speaker 4: that they flagged a number of unspecified security incidents with
Speaker 4: the iPhone. How do you factor that into a price target.
Speaker 7: So the way that I factor it in is about
Speaker 7: ten percent of the revenue comes from China. They're clearly
Speaker 7: still heavily dependent on China from a supply chain standpoint.
Speaker 7: And when you think about what I'm thinking of is
Speaker 7: protectionist behavior by the Chinese government. We have protectionist behavior
Speaker 7: in the US as well when you think about banning
Speaker 7: TikTok and things of that nature. But to quantify it,
Speaker 7: ten percent of their sales are at some level of risk,
Speaker 7: and that's bad news for Apple.
Speaker 4: So if you're looking at right now a product that
Speaker 4: isn't necessarily going to encourage a real refresh kind of cycle,
Speaker 4: where is the bulk of the revenue going to come from.
Speaker 4: Is it going to increasingly come from services or can
Speaker 4: it continue to come from just the fact that at
Speaker 4: some point this is going to break and even John
Speaker 4: is going to have to upgrade, all right.
Speaker 7: So there is some element of the slowed upgrade consumer.
Speaker 7: But I think that this is why there was a
Speaker 7: lot of enthusiasm for the Vision Pro. But we still
Speaker 7: think that the Vision Pro, which looks to be on
Speaker 7: track for launch next calendar year, they're not going to
Speaker 7: achieve mass adoption with their augmented reality, virtual reality headset.
Speaker 7: So if you don't have the next new thing and
Speaker 7: you have kind of the iPhone aging on the vine,
Speaker 7: it's a challenging.
Speaker 6: Period for Apple.
Speaker 7: It's somewhat remarkable how well the stock's done again that
Speaker 7: they already tipped off to the hand that they're going
Speaker 7: to report their fourth consecutive order of.
Speaker 6: Declining revenue in the September quarter.
Speaker 7: So new products and I guess still a foundation on
Speaker 7: iPhone and buybacks might be the things that pulled up
Speaker 7: the stock on a near term basis.
Speaker 5: It's worth thirty times forward earnings.
Speaker 6: No it's not, but yeah, so it is not.
Speaker 7: The services element is what enabled them to get the
Speaker 7: premium multiple versus where they were trading before services. It's
Speaker 7: still a good story, but at some point, either the
Speaker 7: iPhone's going to have to exceed all of our expectations
Speaker 7: or the vision pro is going to have to do
Speaker 7: much better than I think for the stock to continue
Speaker 7: to go higher over the next twelve months.
Speaker 5: And Tom, let's just finish on this line that Lisa
Speaker 5: mentioned from China. I wonder what the response will be
Speaker 5: from Apple to this, because it's not something you typically
Speaker 5: hear this is from the Chinese Foreign Ministry spokeswoman. We
Speaker 5: notice that there have been many media reports about security
Speaker 5: incidents concerning Apple phones. Tom, what do you think they're
Speaker 5: alluding to?
Speaker 7: Yeah, so, I think they're alluding to the reports that
Speaker 7: government workers in China are not able to use Apple devices.
Speaker 7: I think it's interesting, I mean, trying to figure out
Speaker 7: the appropriate chess piece for our ball in the increasing
Speaker 7: tension between the US government and the Chinese government.
Speaker 6: They're clearly not upon They're not the king, they're not
Speaker 6: the queen.
Speaker 7: Maybe they're a knight, but they have tremendous way in China,
Speaker 7: I think so to their relationship with Fox Con. But
Speaker 7: I think they're getting kind of cott in the middle
Speaker 7: here and this increasing tension between the two countries.
Speaker 5: Without a doubt to forth. I thank you, Sir of D. A. Davidson.
Speaker 5: Following the release the Unfailing the Big Reveal if the
Speaker 5: iPhone fifteen.
Speaker 1: Regina Mayor is global head of Client's Markets and Petroleum
Speaker 1: and KPMG with Military service to the Nation. Regina, thank
Speaker 1: you so much for joining us today. Your research note
Speaker 1: is demand, demand Demand. Are the Saudis aware of the
Speaker 1: resiliency and demand the KPMGS.
Speaker 8: Projects absolutely so part of the supply challenge. It's against
Speaker 8: the backdrop of a stubbornly robust economy, but it is
Speaker 8: also a big supply part of the equation. Right we
Speaker 8: are anticipating supply drawdowns through the rest of the calendar
Speaker 8: year Q three, Q four, and we're in probably the
Speaker 8: tightest supply situation that we've been in ten years. Ten
Speaker 8: month through highs that you've emphasized, but what I'm looking
Speaker 8: at are some underlying indicators. US production is almost at
Speaker 8: its record high twelve point eight four million barrels per
Speaker 8: day against a record high thirteen million barrels per day,
Speaker 8: with seventeen percent of the rigs off the market. That's
Speaker 8: one hundred and twenty seven fewer rigs with the Saudi's
Speaker 8: intentionally keeping barrels off the market. Right now, we're saying
Speaker 8: there's roughly a three million barrel per day supply versus
Speaker 8: demand gap because demand continues to go up, and we
Speaker 8: think OPEC's purposely keeping about one point eight million barrels
Speaker 8: per day off the market, and there's no global relief
Speaker 8: valve in this environment. We can't rely on the spr
Speaker 8: There's no other worse where we can. We can turn
Speaker 8: on a tap and oil will flood back into the market.
Speaker 4: Given the fact the production is so high in the
Speaker 4: United States, is that an indication that, yes, inventories are
Speaker 4: the titus as you said, going back ten years. But
Speaker 4: this isn't as much about supply as it is ongoing
Speaker 4: continued demand and that people are underestimating the strength on
Speaker 4: the other side. That's also fueling some of these price increases.
Speaker 8: Yeah, so we've been talking about peak demand. Potentially it
Speaker 8: happened pre COVID. I think we definitely have put that
Speaker 8: in the rear view mirror. Right now. The EIA is
Speaker 8: saying average demand for twenty twenty three is going to
Speaker 8: be over one hundred and one million barrels per day.
Speaker 8: That's average. So last month we just came off one
Speaker 8: of the hottest summers in a lot of years, and
Speaker 8: we're anticipating that's one hundred and three million barrels per day.
Speaker 8: That's the three million barrel per day gap, and then
Speaker 8: the EI is projecting it goes up to one hundred
Speaker 8: and two million barrels per day in twenty twenty four.
Speaker 8: When is peak demand going to take place? Some are
Speaker 8: predicting it's this decade. Some are predicting its next day.
Speaker 8: Regardless of which decade, you anticipate that it's coming. We
Speaker 8: know it's coming. So if you're a major oil company
Speaker 8: or a major resource holder, you're trying to figure out
Speaker 8: when's the last marginal dollar of additional investment that I'm
Speaker 8: going to pit in to grow supply against the backdrop
Speaker 8: of ultimately that supply is going to be in excessive demand.
Speaker 4: Given that backdrop, if there is a recession or some
Speaker 4: sort of downturn of softening in the economy, could that
Speaker 4: offset the tightness in the oil market? In other words,
Speaker 4: could oil prices come down sharply in a surprise even
Speaker 4: with all of these technical backdrops, simply because you do
Speaker 4: get a weakening of the consumer.
Speaker 6: Absolutely.
Speaker 8: I think if we start to see more signs that
Speaker 8: the economy is slowing down, you will start to see
Speaker 8: oil prices come back down. We are seeing the potential
Speaker 8: for supply rebuild in twenty twenty four, So it's really
Speaker 8: just this six month period. I know there are some
Speaker 8: that'll say its triple digit for longer that's coming. I
Speaker 8: think there are bare signs in the market right now. Rankly,
Speaker 8: it's all upside very little downside.
Speaker 1: Regina, Just for final question here, with great respect for
Speaker 1: your bringing in international relations into the KPMG oil debate,
Speaker 1: does the United States of America have an energy policy?
Speaker 8: I think we have different aspects of energy policies. I
Speaker 8: think some of the things that we've just recently seen
Speaker 8: on anwar as more politics versus substance. It would have
Speaker 8: taken billions of dollars in investment to get drilling production
Speaker 8: and then moving that material to market. We would be
Speaker 8: best served to focus on where are great sources of
Speaker 8: resources Golf of Mexico, onshore and conventionals, other dry gas plays.
Speaker 8: There are lots of different factors that slowed down the
Speaker 8: ability for our industry to exploit those resources. I do
Speaker 8: think there's room for a more coherent, more effective energy
Speaker 8: policy overall.
Speaker 5: The policies love a prices tak I think that's the
Speaker 5: policy we want to crisis. That's kind of it dead on.
Speaker 5: Regina's just quickly, when does the mond destruction start to
Speaker 5: kick in? Aren't we already thinking about that in the nineties.
Speaker 8: For sure? I mean, I think if gas prices go
Speaker 8: substantially over four dollars, where right now we're at the
Speaker 8: end of summer driving season, and US gas prices are
Speaker 8: twelve cents per gallon on average higher than they were
Speaker 8: this time last year. That's probably not enough to drive
Speaker 8: demand destruction. But some of the things that you are
Speaker 8: all talking about relative to airline airfares, the pinch that
Speaker 8: people are starting to feel, relative to how confident they
Speaker 8: feel about the future, how confident they feel about their savings, pushs.
Speaker 8: I do see some of those pressures that could dampen
Speaker 8: demand as we move into the fall.
Speaker 5: In the winner, Regina met of KPMG on the old market, Regina,
Speaker 5: thank you.
Speaker 1: Joining us right now. The gentleman from Arkansas, French kill
Speaker 1: Republican French. I got like fourteen ways to go, ending
Speaker 1: with Arkansas football, but forget about that. Kevin McCartney. Kevin McCarthy,
Speaker 1: he has a football he's playing right now. I read
Speaker 1: Cass Sunstein's magisterial book Impeachment cover to cover. It seems
Speaker 1: like we're almost downgrading. Impeachment is a concept of our civics.
Speaker 1: Lesson have we ruined the phrase impeachment? Have we bestardized it?
Speaker 8: Well?
Speaker 9: You bring up such a good point, Tom, And that's
Speaker 9: how I felt during the Nancy Pelosi impeachment for President
Speaker 9: Trump one and two. I felt like it was rushed.
Speaker 9: I don't think people collected the evidence. I don't think
Speaker 9: they even looked for the facts during those years. And
Speaker 9: that's why I was pleased to see McCarthy this year.
Speaker 9: Really encouraged Jim Jordan the Judiciary Committee, and Jamie Comer,
Speaker 9: who chairs the Oversight Committee, and the same for Ways
Speaker 9: and Means with Jason Smith, do your homework, don't rush this,
Speaker 9: And so for the last few months they've asked simply
Speaker 9: basic questions about Joe Biden says he didn't know anything
Speaker 9: about Hunter Biden's business dealing, He wasn't involved, he didn't
Speaker 9: have any business relationship. And what they've uncovered is that
Speaker 9: those assertions from President Biden weren't true. And so that's
Speaker 9: what's led I think Speaker McCarthy with Jordan and Comber
Speaker 9: to take the next step to give them an extra
Speaker 9: clout and asking the banking and legal records they need
Speaker 9: to answer those questions definitively.
Speaker 8: Do you have.
Speaker 1: Any sense as an adult in the room, Congressman Banker
Speaker 1: from Arkansas, do you have any sense that there are
Speaker 1: high crimes and misdemeanors involved.
Speaker 9: Well, one of the constitutional lists of impeachment items in
Speaker 9: the Constitution of courses bribery and actually in the whistleblower
Speaker 9: testimony from the IRS agents and other people that have
Speaker 9: come forward, there is that suggestion that potentially there was
Speaker 9: a bribe involved here or a cover up of illegal
Speaker 9: activity when Vice President Biden was in office and Hunter
Speaker 9: Biden was taking action here, and then it leads to
Speaker 9: the question, well, what's happened since President Biden's been president.
Speaker 9: The only way to get to those facts is simply
Speaker 9: have both sides present those assertions and look for the
Speaker 9: evidence and follow it where it goes.
Speaker 1: I look, French I on Liston wants to jump in here.
Speaker 1: These are really important questions. Where is this going to
Speaker 1: be into the Republican primary season? I mean, I understand
Speaker 1: there's theater here. There are partitions of GOP. You're in
Speaker 1: a certain partition. Where does your type of Republican want
Speaker 1: this to be in February?
Speaker 9: Well, I think for all Republicans, all Democrats, and all
Speaker 9: Independents to get to the bottom of this quickly and
Speaker 9: promptly is important and see where the facts lay out.
Speaker 9: Perhaps President Biden and Hunter Biden, their attorneys, their lawyers
Speaker 9: can present evidence that those sus suspicious activity reports, the
Speaker 9: LLC formations, the twenty one million dollars in payments to
Speaker 9: those LLCs, et cetera, all are completely logical and don't
Speaker 9: have anything to do with President Biden today or as
Speaker 9: vice president, and that'll clear up the whole matter. So
Speaker 9: I hope it's over just as soon as possible. But
Speaker 9: we want to make sure that the work gets done
Speaker 9: in an effective way, and that's what I really do.
Speaker 9: Contrast it with how the Trump investigations were carried on
Speaker 9: by the House Democrats.
Speaker 4: Congressman, and you're Bentonville, there probably is less concern about
Speaker 4: the impeachment proceedings and much more concern about the UAW
Speaker 4: strike discussions. What this means going forward for worker earnings,
Speaker 4: what this means for negotiating power. What do you hope
Speaker 4: happens tomorrow at eleven fifty nine.
Speaker 9: Well, again, this administration has been very pro union, and
Speaker 9: they have taken the side of the union in every
Speaker 9: legislative battle. So I think that question is better left
Speaker 9: for the administration. Obviously, the United States doesn't need to
Speaker 9: strike right now, but this administration has had such a
Speaker 9: pro union policy in every way, stretch and form. I'm
Speaker 9: sure the unions are feeling quite empowered to take action.
Speaker 9: And that's concerning to me because I think the economies
Speaker 9: that are a very fragile moment.
Speaker 4: That said, I was looking at a number of reports
Speaker 4: calculating what the earnings of some of these union workers
Speaker 4: were and strappling out to a forty hour work week,
Speaker 4: it's about thirty five thousand to sixty seven thousand dollars
Speaker 4: a year. This at a time where inflation is continuing
Speaker 4: to rise, and when we saw the biggest drop in
Speaker 4: household real income last year going back a decade, What
Speaker 4: do you propose to actually increase wages at a time
Speaker 4: where on a real basis households are basically being taxed
Speaker 4: by inflation.
Speaker 9: Well, first of all, stop inflation. And we could have
Speaker 9: on that if we'd taken our foot off the gas
Speaker 9: at the federal reserve in the fourth quarter of twenty
Speaker 9: twenty instead of doubling down and buying another trillion dollars
Speaker 9: of bonds and keeping interest rate zero, and if we
Speaker 9: had an unleashed and avalanche of spending to where we're
Speaker 9: now spending on an annualized basis over six trillion dollars
Speaker 9: a year when we were spending an f y nineteen
Speaker 9: four point five trillion, So inflation, beating inflation is the
Speaker 9: number one way to help okay working families.
Speaker 4: Well, but Congressman, I guess that, and I apologize for interrupting.
Speaker 4: I guess that I'm wondering what the cohesive plan is
Speaker 4: at this point, other than saying, you know, the FED,
Speaker 4: the Fed, the Fed, what is the cohesive plan? Yes,
Speaker 4: spending cuts, although it's been on both sides of the
Speaker 4: aisle that you've seen spending expansion. What is the plan
Speaker 4: in the near term to bring down inflation? From your side, well.
Speaker 9: I think they are linked and you can't separate them.
Speaker 9: I mean, the Fed's job's been made much harder, much
Speaker 9: harder because of the incredible fiscal stimulus and regulatory burdens
Speaker 9: put on by the two years of the Biden administration.
Speaker 9: And that's why i'm the debt sealing deal. We propose
Speaker 9: get more workers available for the workforce by encouraging work
Speaker 9: in the assistance programs, cut down regulatory burden, make it
Speaker 9: easier to get a project permitted, and cut spending and
Speaker 9: try to get spending back to pre pandemic levels and
Speaker 9: stop having these huge budget deficits that Joe Biden is
Speaker 9: forecast cover.
Speaker 1: Has been hill a very serious question. We are so
Speaker 1: focused on three zip codes here, the doings of Financial
Speaker 1: America and the global reach of Bloomberg. In all, what
Speaker 1: are you hearing from small business people in Arkansas? The
Speaker 1: unemployment rate is low, life is great, Arkansas is stealing
Speaker 1: for a game against LSU in two in two weeks.
Speaker 1: I get it, But what are you actually hearing from
Speaker 1: small business in your state?
Speaker 9: Well, I spent a lot of time in August talking
Speaker 9: to businesses all over the eight counties of Central Arkansas,
Speaker 9: and I have to tell you that labor is still
Speaker 9: an issue for both white collar and manufacturing where they're
Speaker 9: trying to find the right people for the right seats
Speaker 9: with the right training. And so Governor Sanders has really
Speaker 9: put an emphasis on workforce development. That's something I've worked
Speaker 9: on for the past fifteen years as a bank president,
Speaker 9: as a chamber chairman, and now is a congressman. And
Speaker 9: so the technical skill attainment and then just the bodies
Speaker 9: tom it continues to be an issue. We have low
Speaker 9: unemployment in Arkansas, and despite inflation and despite all the
Speaker 9: economic challenges. That's what I hear about, both with community
Speaker 9: bankers and with individual business owners when I'm at home.
Speaker 5: Raise it backs Tiger Stadium, tkod pest you are you
Speaker 5: proud of me?
Speaker 2: French?
Speaker 5: I know all this now, Yeah.
Speaker 9: That's describe this is I see engagement. We're taking a
Speaker 9: baby step forward and the next step is to visit
Speaker 9: Razorback Stadium in Faytteville.
Speaker 6: That's up to you.
Speaker 5: We're going to make it happen. Congressman, thank you, Congressman French.
Speaker 5: Shill their plates an impeachment inqui in the cost of
Speaker 5: living in America.
Speaker 1: Joining us now, and we're gonna get to Apple in
Speaker 1: the markets in a moment? Is Douglas cast of Sea Breeze,
Speaker 1: who understands the bat boy for the Los Angeles Dodgers
Speaker 1: makes more than that. I have never seen a seasoned
Speaker 1: doug where payroll matters less. In baseball, the Yankees and
Speaker 1: the Red Sox. The seats one section away from me
Speaker 1: at Fenway are forty one dollars tonight for the toilet
Speaker 1: Bowl in the American League East. Have you ever seen
Speaker 1: money spent to ill effect like we have this year?
Speaker 10: Never in my life.
Speaker 1: It's just as simple as that.
Speaker 2: I think I'll move on, and the Mets as well.
Speaker 1: The Padres are a disgrace what they've done. Let's move on,
Speaker 1: Doug care I got to talk about the Apple sare
Speaker 1: yesterday and the idea, and you, as the Pinata say,
Speaker 1: I'm short Apple, and I'm convicted short. But here's the
Speaker 1: pro question. How do you short an iconic company like Apple?
Speaker 1: How do you actually do it?
Speaker 10: I borrow the stock, I put in an order.
Speaker 1: Do you load the boat on it or do you
Speaker 1: you dip into it? How do you do it?
Speaker 10: Frankly, the key to our success at Seabreeze this year,
Speaker 10: in most years in our showbook is that we tend
Speaker 10: not to short stocks like Apple. We tend to short
Speaker 10: no drama stocks. That's what I call them. Stocks like Starbucks, Nike,
Speaker 10: fmc Winnebago, uncomplicated companies that sell widgets where we see
Speaker 10: the future more negative, leland the consensus. So Apple is
Speaker 10: an outlier. But Apple, for you know my position on
Speaker 10: the stock, it's one of my largest shorts. It's been
Speaker 10: a capital allocation story, it's been a buyback story. And
Speaker 10: as I have noted in the last decade, cash a
Speaker 10: percent as a percent of market cap has declined from
Speaker 10: thirty four percent to less than two percent. So the
Speaker 10: margin will impact because of higher interest rates and a
Speaker 10: higher stock price. On the buyback in terms of recreating
Speaker 10: EPs is greatly diminished.
Speaker 11: Hey, Doug, So, I mean people a gonna be rushing
Speaker 11: out buying the iPhone fifteen. But it kind of raises
Speaker 11: a question, how is the consumer out there? I guess
Speaker 11: the consumer has a job, but other than that, how
Speaker 11: is the consumer doing well?
Speaker 10: There's been a bunch of distortions that have held up
Speaker 10: the consumer, but that is changing, and I see the
Speaker 10: consumer who's widely considered to be resilient. I know Lisa
Speaker 10: in the last segment was frustrated by the strength retail
Speaker 10: For example, they will not be in the time ahead.
Speaker 10: And I'll give you some data points. Just look at
Speaker 10: Dollar General's poor results and guidance they delivered last week. Secondly,
Speaker 10: on Friday, Restoration Hardware, which is a high end retailer,
Speaker 10: announced that July sales were down nineteen percent year of
Speaker 10: a year and things aren't getting better. Thirdly, auto delinquency
Speaker 10: rates came out for the second quarter on Tuesday yesterday,
Speaker 10: they were at seven point three percent, up from six
Speaker 10: point nine percent, and Morning Stars predicting ten percent for
Speaker 10: the next year. In terms of your two vet bills,
Speaker 10: Tom and Ali and Daisy my two doctions. The three
Speaker 10: leading pet companies, Fresh Pet, Petco in Alanco reported in
Speaker 10: their quarterly releases that consumers are reducing their discretionary expenditures
Speaker 10: for their bets, less bones and less treats. Let's choose fifthly,
Speaker 10: excess savings, as you have noted and also in the
Speaker 10: last segment, has been taken down. Consumer debt is rising markedly. Seventh,
Speaker 10: we saw American airlines repull weaker traffic this morning. Same
Speaker 10: for spirit. The rise and gasoline prices has begun to
Speaker 10: be felt. Remember, inflation on a two year stack basis
Speaker 10: is dramatic in terms of increase. And finally, three months
Speaker 10: ago you couldn't find a Ford Bronco to buy. Now
Speaker 10: it's being discounted.
Speaker 8: Oh I didn't know that.
Speaker 11: Okay, So all that in the background there we've got,
Speaker 11: let's call it just mixed signals on the consumer. Are
Speaker 11: you buying stocks or selling stocks today?
Speaker 10: Don The question to me is not whether to be short,
Speaker 10: but how short? I should be quite frankly bull markets
Speaker 10: like John McLean and the movie Die Hard. But my
Speaker 10: warning to your listeners, and that wouldn't be an interview
Speaker 10: with you and Tom without a sports metaphor, is that
Speaker 10: risk happens fast, much like the optimism associated with Aaron
Speaker 10: Rodgers joining the New York Yeah, thank you, Bru. The
Speaker 10: passage in Ernest Hemingwheny's novel The Sun Also Rises, in
Speaker 10: which I think the character's name is Mike. He's asked
Speaker 10: how he went bankrupt, and he answers two ways gradually,
Speaker 10: then suddenly suddenly. The same applies to the inflection points
Speaker 10: in the market and the global economy and the corporate profits,
Speaker 10: especially when the distortions are so pervasive. You know, it
Speaker 10: was Friedman who said in nineteen fifty nine in a
Speaker 10: joint session of Congress that monetary policies operate with a
Speaker 10: long lag, and with a lag that varies widely from
Speaker 10: time to time. So because of a number of the distortions,
Speaker 10: investors have grown complacent, and that lag between tightening and
Speaker 10: the downturn has become longer than usual. But we're moving
Speaker 10: ever closer, as I mentioned in my Consumer Observations, to
Speaker 10: seeing the impact of tightening policies.
Speaker 1: Well, I opened the Laguard interview in Jackson Hole. Would
Speaker 1: that quote from Hemingway because she used it and April
Speaker 1: and this is really really important the suddenly, which is
Speaker 1: the understanding of experience and gray hair right exactly.
Speaker 11: Well, I've got plenty of that, Doug. If you're short,
Speaker 11: is this a short term trade or is this something
Speaker 11: you're going to play out over time.
Speaker 10: I think we have real problems with regard to the
Speaker 10: distortions of the last let's say, the COVID post COVID period.
Speaker 10: Nietzsche wrote that reality is captured in the categorical nets
Speaker 10: of language only at the expense of fatal distortion. And
Speaker 10: I think that the outgrowth of years of excessive monetary
Speaker 10: largess and zero interest rate policy, when followed by the
Speaker 10: need to raise rates so quickly and sizably, combined with
Speaker 10: some evolving and some revolutionary market structure changes, have led
Speaker 10: to worrisome distortions in the economy in our market. I
Speaker 10: wrote a lengthy piece on TheStreet dot com about distortions
Speaker 10: yesterday and Rosie Dave Rosenberg came back with an email
Speaker 10: to me saying that he agreed and that investors are
Speaker 10: not cognizant of the tail risks that have been delivered
Speaker 10: by the distortions. And just to summarize them, some of
Speaker 10: the economic distortions have been increased banking industry vulnerability from
Speaker 10: the standpoint of both profits and capital made it possible
Speaker 10: for investors and lawmakers to ignore bulging deficits and over
Speaker 10: thirty trillion dollar national debt load, it's produced a threatening
Speaker 10: public and private sector loan reset cliff, which was also
Speaker 10: discussed in the last segment. As of cost, the capital
Speaker 10: has abruptly risen. Has led to fiscal and monetary policy
Speaker 10: that has artificially goose consumer savings and pulled forward consumer spending.
Speaker 10: And it's disrupted the labor market. And finally, it's temporarily
Speaker 10: frozen the for sale existing home market, which has artificially
Speaker 10: inflated real estate prices. And you know what the structural
Speaker 10: concerns I have are the proliferation of zero days to
Speaker 10: expiration options. I mean, someone told you five years ago
Speaker 10: that sixty percent of the daily options traded would have
Speaker 10: a maturity of twenty four hours unless you would have
Speaker 10: been laughed off out of the room. And then, of
Speaker 10: course we have quand strategies which distort and exaggerate the
Speaker 10: markets move. I think basically zero interest rates have lowered
Speaker 10: the intelligence of both borrows and lenders.
Speaker 1: A lot of people would agree with that, particularly again
Speaker 1: with Gray here Douglas cast. Thank you so much. Subscribe
Speaker 1: to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere
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Speaker 1: Bloomberg Terminal. Thanks for listening. I'm Tom Kane, and this
Speaker 1: is Blumber Hm.