Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Carol Masser, along
Speaker 1: with Manis Crowning and Katie Greifeld. Join us each day
Speaker 1: for insight from the best in economics, geopolitics, finance and investment.
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Speaker 1: Let's See how Much Sleep byby Sam Stowell got He's
Speaker 1: chief investment strategist at CFIA, joining us on this Friday.
Speaker 1: There is so much to talk about, Sam, as we
Speaker 1: get ready to wrap up a wild year one for
Speaker 1: the textbooks. I feel like in so many ways, as
Speaker 1: you sit here on this December, as we get ready
Speaker 1: for the last trading day here in the United States,
Speaker 1: how are you thinking about the year that was? In
Speaker 1: the year that might.
Speaker 2: Be, Well, good morning, Carol, and good morning everybody. I'm
Speaker 2: basically thinking that looking forward to twenty twenty four also
Speaker 2: being a good year. History tells us that great years
Speaker 2: traditionally are followed by good years that gains in excess
Speaker 2: of twenty percent in one calendar year. Lead to double
Speaker 2: digit gains in the second year, basically a three hundred
Speaker 2: basis point improvement over the long term average with a
Speaker 2: ten percentage point increase in the frequency of advance. So
Speaker 2: basically you letting your winners ride from one year to
Speaker 2: the next.
Speaker 3: So every day we've got to come up with a
Speaker 3: new way to ask you whether you want to belong
Speaker 3: the MAC seven relative to the breadth of the There
Speaker 3: are four hundred and ninety three other stocks, so find.
Speaker 4: Another version of it.
Speaker 3: If you think you're going to get a double digit return,
Speaker 3: The question is then within MAC seven they are expected
Speaker 3: to see their earnings growth rise by twenty two percent
Speaker 3: next year. That's twice the S and P five hundred advance.
Speaker 3: I mean there's an airrevocability of having to have MAC
Speaker 3: seven as a portion of your equity exposure. So is
Speaker 3: it still over exposed to MAC seven or do you
Speaker 3: go for breadth?
Speaker 4: I think you go for breath.
Speaker 2: But what you do is you broaden out and then
Speaker 2: those sectors that have done so well. Again, going back
Speaker 2: to nineteen ninety, if you were to be holding onto
Speaker 2: the three best performing sectors from an up year into
Speaker 2: the new year, you ended up beating the market seventy
Speaker 2: percent of the time, and the focus being that now
Speaker 2: you drift down into the second maybe third tier level.
Speaker 2: So semiconductors having one hundred and five percent improvement on
Speaker 2: a sub industry level within the S and P fifteen hundred,
Speaker 2: you would stick with that group. But you might instead
Speaker 2: of looking at Nvidia, you might be looking at Broadcom,
Speaker 2: you might be looking at Marvel Technology, et cetera. So
Speaker 2: you stick with the winning sectors, but you might broaden
Speaker 2: out to the second and third tier companies.
Speaker 1: Can I ask you, though, Sam, why not stay with Nvidia?
Speaker 1: I feel like you know what manis if we talk
Speaker 1: about AI chips, that is still the company that everybody
Speaker 1: says has to beat. I was listening to something from
Speaker 1: Ian King overnight. You know we're waiting for their you know,
Speaker 1: accelerator chips that are about to come. I mean, why
Speaker 1: not go with the leader?
Speaker 2: Oh, we still recommend In video, Angelo Zeno, ar tech
Speaker 2: specialist is saying that this is a company that is
Speaker 2: likely to be a leader for quite some time. I
Speaker 2: think that what I was saying is that we're also
Speaker 2: going to see others. Maybe we turn it into the
Speaker 2: Magnificent fourteen or so. But we basically broaden out those
Speaker 2: groups that are likely to benefit.
Speaker 3: And it's interesting that you say tier three, tier three
Speaker 3: going from in Vidia two hundred and thirty eight percent
Speaker 3: performance to broadcoalm at one hundred percent. But I get
Speaker 3: your point. How much exceptional breath would you take? We
Speaker 3: caught up with not Alliance Bernstein yesterday and they talked
Speaker 3: about a sweet spot for junk at sweet spot for
Speaker 3: many of these slightly riskier markets. How much risk do
Speaker 3: you want to put into portfolios next year? How much breath?
Speaker 3: I mean they talk about jump being in a sweet spot.
Speaker 3: What's the equivalent for you in the equity world.
Speaker 2: Well, when you deal with risk, I guess it depends
Speaker 2: on the individual. I like to say I'm so conservative,
Speaker 2: I wear a belt and suspenders, But I think when
Speaker 2: you look to historical precedent and you see that we
Speaker 2: are in an election year for a first term administration,
Speaker 2: the market has gained one hundred percent of the time
Speaker 2: since World War Two, with an average total return of
Speaker 2: fifteen and a half percent. We're in the second year
Speaker 2: of a bull market, typically up twelve and a half percent,
Speaker 2: rising eighty five percent of the time. And as I
Speaker 2: just mentioned whenever we're in a year following a twenty
Speaker 2: plus percent advance, the market has done exceptionally well in
Speaker 2: that second year. So I would tend to say that
Speaker 2: if you have added to the risk in this fourth quarter,
Speaker 2: stick with that higher risk, And if you do believe
Speaker 2: that there is more risk potential for twenty twenty four,
Speaker 2: I think we're a bit overbought right now, and once
Speaker 2: we get into the new calendar year, when people can
Speaker 2: take their profits and then defer taxes for another year,
Speaker 2: then I would say look to buy on those dips.
Speaker 5: Well, let's talk about this from a sector perspective, Because
Speaker 5: you write in your notes that following up years, it's
Speaker 5: best to let your winners ride. I want to talk
Speaker 5: about the other side of that. Do you let your
Speaker 5: losers continue to lose? You take a look at utilities,
Speaker 5: energy staples leading losses this year. Do you just stay
Speaker 5: away from them in twenty twenty four.
Speaker 2: Well, obviously we do have recommendations in all three of
Speaker 2: those sectors, but from a waiting perspective, we would continue
Speaker 2: to recommend underweighting these groups, mainly because there's an awful
Speaker 2: lot of overhead resistance and if there is the emphasis
Speaker 2: toward growth, toward risk, etc. Investors are going to continue
Speaker 2: to focus on those growth leaders. So I would tend
Speaker 2: to say that while you could see a drifting hire
Speaker 2: of some of these groups, from a relative strength perspective,
Speaker 2: they're likely to be underperformers yet.
Speaker 5: And I want to get specific here and run through
Speaker 5: some names because I'm taking a look at the socks
Speaker 5: that you've specified in financials.
Speaker 1: Charles Schwab.
Speaker 5: Schwab is a really interesting name to me because obviously
Speaker 5: it was one of the babies perhaps thrown out with
Speaker 5: the bathwater, and what we saw with margin, it really
Speaker 5: hasn't recovered. You take a look at shares down about
Speaker 5: sixteen percent for twenty twenty three. What's the thinking around
Speaker 5: Charles Schwab at this juncture.
Speaker 2: Well, I like to say that fundamentals tell you what,
Speaker 2: but technicals tell you when and how far. So I
Speaker 2: like to combine CFIA equity analyst recommendations along with our
Speaker 2: lowry research technical assistance area, so you know, seeing where
Speaker 2: the momentum relative strength happens to be. So Charles Schwab,
Speaker 2: basically it's an extreme undervaluation situation. It's almost trading at
Speaker 2: about half of what it normally trades. Also, we're looking
Speaker 2: at an environment in which the concern I think is
Speaker 2: just totally overblown. So with the prospect of another good
Speaker 2: year in the marketplace benefiting the investment banks and brokers,
Speaker 2: one that is over sold and really has not reached
Speaker 2: its potential is.
Speaker 1: Schwab Hey sam our most read story in the Bloomberg.
Speaker 1: It's a story put together by a bunch of our reporters,
Speaker 1: and it says Wall Street's best and bright is flopped
Speaker 1: once again in twenty twenty three, basically saying that at
Speaker 1: the end of twenty twenty two, everyone, it seem was
Speaker 1: game planning for the recession they were convinced was coming.
Speaker 1: There's a lot of things that came out seemingly from nowhere.
Speaker 1: Regional banking, the concerns there Russia Ukraine, that war continuing,
Speaker 1: then of course the Middle East conflict. As you look
Speaker 1: ahead and you obviously have laid out your scenario, you know,
Speaker 1: what are the things though, that we must keep on
Speaker 1: our radar that maybe could just kind of come out
Speaker 1: of nowhere.
Speaker 2: Well, as Mannis was saying early on in the program,
Speaker 2: is when will the FED start to cut and by
Speaker 2: how much our belief is that they're going to cut
Speaker 2: three times in twenty twenty four, starting in the second quarter,
Speaker 2: mainly because the FED doesn't want to make the mistakes
Speaker 2: that they did in the late seventies. They want to
Speaker 2: ensure that inflation, like a campfire, is fully doused before
Speaker 2: they start to cut interest rates. So our belief is
Speaker 2: that only if we end up with a hard landing
Speaker 2: rather than a soft landing will the FED be more
Speaker 2: aggressive from a rate cutting perspective. Also, adding geopolitical issues,
Speaker 2: should we find that there's a broadening of the Middle
Speaker 2: East tensions and conflict and the total shutdown of the
Speaker 2: Red Sea, we still are having some shipping firms that
Speaker 2: are willing to venture in there, but a total shutdown,
Speaker 2: a jump in oil prices, those could obviously upend the
Speaker 2: year ahead forecast.
Speaker 1: Yeah, already a full play, it feels like for the
Speaker 1: new year. Hey, Sam, thank you so much. Happy New Year.
Speaker 1: I always appreciate all the time you give us here
Speaker 1: at Bloomberg Sam Stovell over at CFRA a lot to
Speaker 1: talk about. I mean, Apple's had a very good year.
Speaker 1: The stock is up to I think just shy a
Speaker 1: fifty percent here in twenty twenty three, so and a
Speaker 1: lot of stories and a lot of concerns this week
Speaker 1: in terms of litigations stopping sales of the Apple Wash
Speaker 1: but coming back on board. So no offense. Guys, I'd
Speaker 1: love to talk to you, but I really want to
Speaker 1: talk to Mark German about it. Is Bloomberg Chief correspondent
Speaker 1: Apple Expert has written a bunch about Apple always, but
Speaker 1: also this week. Mark, good to have you here. We
Speaker 1: know it's early. I think you're on the West coast,
Speaker 1: so it is kind of early. Talk to us about
Speaker 1: the watch, specifically in terms of the back and forth
Speaker 1: pulling it off the market, putting it back on the market,
Speaker 1: patent litigation. I feel like when it comes to technology companies,
Speaker 1: it's kind of a given. But how should we be
Speaker 1: thinking about it, at least for the investment side and
Speaker 1: the investor audience.
Speaker 4: Sure, thank you so much for having me. So I'll
Speaker 4: start off by saying that the Apple Watch, one of
Speaker 4: Apple's most premiere products being pulled from sale in the US.
Speaker 4: That's unprecedented. That just doesn't happen. When the ITC said
Speaker 4: in October that Apple would have to pull the watch
Speaker 4: from store shelves after a sixty day review period, That's
Speaker 4: how we ended up with this happening during the week
Speaker 4: between Smiths and New Year's. I think a lot of
Speaker 4: people believe that there would be no way Apple would
Speaker 4: get to this point. Either Apple would figure out some
Speaker 4: sort of settlement, either they would issue a software update,
Speaker 4: they would convince the Biden administration to veto the order
Speaker 4: from the Trade Commission. I think it was very surprising,
Speaker 4: including to myself, when these things actually got pulled from
Speaker 4: store shelves. Now the Van, for all intentsive purposes, really
Speaker 4: only lasted a few days because Apple just a couple
Speaker 4: of days ago got an emergency order through an appeals
Speaker 4: court in DC that got them to put the Watch
Speaker 4: back on the market. Now this is temporary, right. Apple
Speaker 4: still has to put a software fix in place or
Speaker 4: another type of fix, and that fix is being reviewed
Speaker 4: by the US Customs Agency. There was actually a hearing
Speaker 4: yesterday on Thursday. We don't know how the hearing went
Speaker 4: at this point because it's all closed door stuff, but
Speaker 4: by mid January we should have some sort of answer
Speaker 4: from the Customs Agency whether or not the fix via
Speaker 4: software that Apple has proposed for the Watch is sufficient
Speaker 4: and to no longer in their view violate the patents
Speaker 4: from a company called Massimo, a medical device company that
Speaker 4: say Apple and fringed and got the ITC to pull
Speaker 4: the watch from Apple stores in the US.
Speaker 1: Hey, Mark, are we naive to just assume that Apple's
Speaker 1: going to figure this one out and they'll be able
Speaker 1: to keep their watches on shelves in the future.
Speaker 4: I think we were naive to believe that this wouldn't happen.
Speaker 4: I think we're less naive to believe that Apple is
Speaker 4: on the verge of figuring this out. There's going to
Speaker 4: be a resolution here sometime in January. I believe if
Speaker 4: the US Customers Agency accepts Apple's software fix, it's game
Speaker 4: over right. This watch is back on sale. Masno will
Speaker 4: go after Apple again. The two companies have been in court.
Speaker 4: They have a round two of their trial related to
Speaker 4: patents and trade secret theft that's kicking off in late
Speaker 4: October of twenty twenty four. For those unfamiliar, Massimo sued
Speaker 4: Apple in twenty twenty over patent infringement. There was actually
Speaker 4: a trial this year ended in a mistrial due to
Speaker 4: a hung jury. For this type of trial, you needed
Speaker 4: all the jurors to be in agreement. One way or another,
Speaker 4: but it was actually six to one in Apple's favor.
Speaker 4: So both Apple and Moss of a loss.
Speaker 3: So they've got history and they've got form, they've got
Speaker 3: form on that. Can we just sort of because those
Speaker 3: legal rankers are going to continue If you look at
Speaker 3: the wearable as part of the business, I know there's
Speaker 3: a number of the kdes keeping an eye and the
Speaker 3: wearables is ten percent of the revenue. We had Dan
Speaker 3: ives with us a little bit earlier in the week.
Speaker 3: Can he evangelize had a four trillion dollar valuation on
Speaker 3: Apple A. How quickly do you think it could make
Speaker 3: that valuation? But more importantly, how important is China too
Speaker 3: that because again there's regulatory sniping from the Chinese on
Speaker 3: the ownership of iPhones, and iPhones are seventy seven percent
Speaker 3: of the of the revenue lineup for Apple.
Speaker 4: Yeah, I'll tell you this. You can be quite successful
Speaker 4: by constantly betting that Apple's going to be okay long
Speaker 4: term and their market cap is going to keep growing.
Speaker 4: So you know, I see every scenario in the book
Speaker 4: that Apple gets the four trillion. I'm not sure it'll
Speaker 4: be in twenty twenty four, but it will happen. Eventually,
Speaker 4: and it's typically a bad bet to go against Apple.
Speaker 1: Right.
Speaker 4: In terms of China, there have been these reports from
Speaker 4: US and others about the government banning the iPhone and
Speaker 4: other non Chinese made devices in certain offices, in certain
Speaker 4: organizations within the country. I think it's really going to
Speaker 4: take until Apple reveals its first quarter results at the
Speaker 4: tail end of January or early February to see what
Speaker 4: revenue is like in China to get a full scope
Speaker 4: of that impact. The last revenue results that we got
Speaker 4: for Apple, that was the fourth quarter, they did okay
Speaker 4: in China. They really didn't decline much. It was pretty
Speaker 4: solid overall. That The issue for us in terms of
Speaker 4: trying to determine what that means is that it only
Speaker 4: incorporated very few days of iPhone fifteen sales in the
Speaker 4: overall Q four earnings. So it's really difficult to know
Speaker 4: until Apple actually puts those numbers out because otherwise we're
Speaker 4: just guessing.
Speaker 3: So a lot of the time, the detractors of Apple
Speaker 3: would say the scale and the speed of radical innovation,
Speaker 3: radical product product development has perhaps slowed down. Where do
Speaker 3: they what does Apple need as where to get to
Speaker 3: four trillion? Does it need multiple refreshes which we get
Speaker 3: or does it need something perhaps more damascene esque.
Speaker 4: That's undoubtedly true that the pace of device redesigns has
Speaker 4: slowed down to an incredible degree. If you look at
Speaker 4: the iPhone fifteen Pro, sure it has pretty great new materials,
Speaker 4: It has a very advanced processor, the first three and
Speaker 4: animeter chip to ship in volume in a smartphone. But
Speaker 4: if you put that thing in a case, or even
Speaker 4: if you don't put it in a case, it's going to,
Speaker 4: for the most part, look and feel almost the same
Speaker 4: as an iPhone you bought three or four years ago.
Speaker 4: But that doesn't necessarily matter. It's the ecosystem, it's the
Speaker 4: lock in, it's the services, it's the attached products like
Speaker 4: the AirPods, the Apple Watch, the Apple TV and others,
Speaker 4: which has really created this mode for the company that's
Speaker 4: going to help it continue to grow. And I think
Speaker 4: for twenty twenty four you have some pretty cool products
Speaker 4: on the roadmap. The Apple Vision Pro, their first mixed
Speaker 4: reality headset that's going to go on sale in about
Speaker 4: one month from now. That's not going to drive a
Speaker 4: lot of revenue for Apple, but it's probably going to
Speaker 4: add for the next two years. Probably between two and
Speaker 4: five billion an annual revenue, and on a quarterly basis,
Speaker 4: that could be the difference between a couple percent growth
Speaker 4: or a couple percent decline. So that could be important
Speaker 4: in the short term, but critical in the long term.
Speaker 4: You're going to see larger iPhones in the fall. They're
Speaker 4: moving from a six point one inch to a six
Speaker 4: point three inch on the smaller phone, and from six
Speaker 4: point seven inches to six point nine inches on the
Speaker 4: bigger phone. Now to your questions about China, that's very
Speaker 4: important because in China, lots of consumers are shifting to
Speaker 4: one instead of having an iPad, iPhone, mac, i'll watch,
Speaker 4: et cetera. A lot of people are just buying phones
Speaker 4: and they want the biggest ones that they can get
Speaker 4: their hands on, and so that six point nine inch
Speaker 4: iPhone sixteen Promax, that's going to be pretty important for
Speaker 4: that market.
Speaker 5: I really don't understand the desire for a larger phone,
Speaker 5: but I want to talk about the Vision Pro a
Speaker 5: little bit. I'm sure you remember the video of when
Speaker 5: they unveiled the Prison Pro and they read out the
Speaker 5: price of it and the audience gasped. It was a
Speaker 5: viral moment.
Speaker 1: It was pretty funny.
Speaker 5: Who's going to buy these? Is this just people who
Speaker 5: love Apple? Apple enthusiasts, and are we going to see
Speaker 5: the price tag come down from several thousands of dollars.
Speaker 4: Yeah, you're going to see software developers who want to
Speaker 4: develop for the platform. You're going to see mixed reality enthusiasts.
Speaker 4: You're going to see not the early adopters. I think
Speaker 4: the early adopters are the people who buy the new
Speaker 4: iPhones the first day or week they come out. But
Speaker 4: I think you're going to see the early, early early adopters. Right,
Speaker 4: that is an even more niche audience. I'm not expecting
Speaker 4: lines outside of Apple stores. You know, they believe over
Speaker 4: the course of a year they're only going to sell
Speaker 4: a couple of these at most a day in each
Speaker 4: of its retail stores. Right, So this is a niche product,
Speaker 4: probably in the same spectrum as people who would buy
Speaker 4: a Mac prow or high end Mac Studio. Those are
Speaker 4: the company's most expensive max right, you're talking thirty five
Speaker 4: hundred dollars plus five hundred dollars in task in the US.
Speaker 1: Yeah. Not for the lighthearted or the small pocketbooks. Mark
Speaker 1: always appreciate it. Mark is always my go to. Is
Speaker 1: it time for me to upgrade a watch a phone?
Speaker 1: That's who I talk to, Mark German, Thank you so much,
Speaker 1: Happy New Year, Bloomberg's own Markerman. When it comes to Apple,
Speaker 1: I must read here at Bomber.
Speaker 3: Let's take these discussions too. On next guests, Terry Haynes,
Speaker 3: is they find at off Pangaea policy? Very good morning
Speaker 3: to you. I mean you lay it out very punchally,
Speaker 3: so well done to you. This is what you say
Speaker 3: about Washington. Let's just start with the geopolitical situation there,
Speaker 3: because they haven't funded Ukraine and they're reluctant to fund Israel.
Speaker 3: They've got two hot wars. But you say this, Washington's
Speaker 3: lazy burn minimum approach on everything, whether it's border security,
Speaker 3: foreign aid, or building fiscal crisis of great concern to
Speaker 3: markets won't cut it in twenty twenty four, Not for markets,
Speaker 3: not for the US national and international interests. We've ignored
Speaker 3: markets have essentially ignored these faux pas, these grand faux pas.
Speaker 3: We've ignored them. Is that our folly to ignore these
Speaker 3: and which is the biggest tail risk?
Speaker 6: Well, I think what you've got, manis here is a
Speaker 6: situation where you haven't seen in fifty years, where you've
Speaker 6: got a combination of probably the highest geopolitical risk and
Speaker 6: probably the highest domestistical risk as well, those things combine.
Speaker 6: I think what markets ignore is that going into twenty
Speaker 6: twenty four with that combination very simply is you know,
Speaker 6: they tend to see political issues by and large as
Speaker 6: spices one way or the other. You know, things that
Speaker 6: the things that are fundamental to the markets but provide
Speaker 6: some some minor upper down action, when what they should
Speaker 6: consider is that lower geopolitical risk and lower domestic political
Speaker 6: risk in the United States are both foundational to the markets.
Speaker 6: And and you know, we haven't really had a main
Speaker 6: conflict in the United States the shook markets since the
Speaker 6: Second World War. But when it did, you know, the
Speaker 6: markets went down by twenty percent in the first six
Speaker 6: months after Pearl Harbor. And you know, I'm talking about
Speaker 6: a conflict that happened almost eighty years ago, in a
Speaker 6: conflict in which you know not as today more than
Speaker 6: half of the United State citizens are invested in the markets.
Speaker 6: So the foundational risks here, I think generally are in
Speaker 6: the volatility.
Speaker 1: Terry. Let's get more specific, though, play it out. If
Speaker 1: markets are ignoring geopolitical risks, what what might likely happen
Speaker 1: in twenty twenty four. When it comes to the geopolitical risks,
Speaker 1: and we've kind of laid them out all throughout the week,
Speaker 1: Obviously we continue to watch what's going on in the
Speaker 1: Middle East and concerns about escalation. You still have Russia
Speaker 1: and Ukraine, We're looking at China and Taiwan, and then
Speaker 1: you know you've got an election coming up. I think
Speaker 1: there's some concerns nervousness to here, so play it out
Speaker 1: specifically what you think likely could happen that investors have
Speaker 1: to be wary of.
Speaker 6: I think fundamentally, there will be a temptation to think
Speaker 6: that the three major conflict areas geopolitically that you just
Speaker 6: pointed out Ukraine, Israel, Taiwan are going to be somehow handled,
Speaker 6: when in fact they're going to continue on for months.
Speaker 6: I mean, there's no easy end to the Ukraine War.
Speaker 6: The Israelis say that the Moss War will go on
Speaker 6: for months, and I don't see anything there to stop it.
Speaker 6: And there's a lot of volatility around Taiwan, which I think,
Speaker 6: frankly is underappreciated by markets who think that Biden and
Speaker 6: chi Jinping have some sort of an agreement after their
Speaker 6: recent summit, when in fact, what China is doing is
Speaker 6: pushing on kind of undeterred and and probably has more
Speaker 6: rather than less incentives to act thanks to their more
Speaker 6: powerless politicals or excuse me, economic situation.
Speaker 4: So there's all that, and.
Speaker 6: Then you and then you're going to have a lot
Speaker 6: of points in the in domestic politics, with primaries coming
Speaker 6: up over the next several months. Who are going to
Speaker 6: be the non cominee? Will there continue to be rising
Speaker 6: third party challenge? Jesus, I've thought and continue to think
Speaker 6: there will be, you know, exactly what is the direction
Speaker 6: of the United States, both domestically and in terms of
Speaker 6: its own foreign policy. Those will play out in you know,
Speaker 6: in specific points, you know, at least once or twice
Speaker 6: a month through the year, and I think have the
Speaker 6: opportunity to put additional volatility into the market. Says I'm
Speaker 6: sure about the future direction of the Unity Terry.
Speaker 1: I don't want to be inflammatory. I just want to
Speaker 1: be smart here for our audience when we talk about
Speaker 1: a third world war. When I look at our Bloomberg
Speaker 1: intelligence team and when they're putting out research when it
Speaker 1: comes to what we need to watch on the global economy,
Speaker 1: and top of the line or top of the headline
Speaker 1: is about war. So how do we need to think
Speaker 1: about the possibility of a third World war?
Speaker 6: You know? In some ways, and I'm not trying to
Speaker 6: be inflammatory either, I'll give you a different way of
Speaker 6: thinking about it. Though in a lot of ways we
Speaker 6: already are are. You know, there are at least three
Speaker 6: regional conflicts. Uh, there's there's cyber war. There's a concern
Speaker 6: about how the the contending parties move into space. There
Speaker 6: is there their concerns about how they they're moved around
Speaker 6: in even in the Arctic for example.
Speaker 2: So you know, you've got.
Speaker 6: Kind of a slow moving conflict right now. And I'm
Speaker 6: not trying to be inflammatory or push it push it
Speaker 6: too far either, but what I will say is that
Speaker 6: anybody that's looking at the current three spots as solely
Speaker 6: regional conflicts and not representative of a larger conflict isn't
Speaker 6: thinking about this enough. And the economic consequences alone, as
Speaker 6: you all just noted, on supply chains and in the
Speaker 6: Red Sea and many other things, could be very substantial.
Speaker 6: So you know, we are in a very We're in
Speaker 6: a very volatile situation already, even though markets don't fully
Speaker 6: understand it, realize it, or appreciate it.
Speaker 5: So there's a lot to worry about on the global front.
Speaker 5: Let's go back to mestic though, because you write in
Speaker 5: a recent note you talk about Washington's out of control
Speaker 5: fiscal spending increasing debt service costs. Maybe we saw some
Speaker 5: of those concerns play out in the treasury market in
Speaker 5: the summer, but looking at the state of play right now,
Speaker 5: it seems like that.
Speaker 7: Was a blip.
Speaker 5: But what's the trajectory there when you think about the
Speaker 5: fiscal side of the equation.
Speaker 8: Washington.
Speaker 6: Washington always thinks that they understand the markets, and the
Speaker 6: markets always think they understand Washington, and that Washington is
Speaker 6: responsive to markets. I've never thought that was true, and
Speaker 6: we've probably got the biggest gap between Washington and the
Speaker 6: markets in some time. Increasingly markets are asking you when
Speaker 6: and whether the United States government is going to be
Speaker 6: able to get its fiscal spending under control, and there's
Speaker 6: no movement at all towardwards.
Speaker 1: Do that?
Speaker 4: You know, you have a.
Speaker 6: Situation in Washington right now where the most the people
Speaker 6: are banging their fists on the table, the most to
Speaker 6: control spending. Are people that are ironically to some extent
Speaker 6: conservative Republicans, But really what they're doing is talking about
Speaker 6: as much as one percent out of thirty percent the
Speaker 6: discretionary part of the overall federal budget. And that's a blip,
Speaker 6: and that's by no means what anybody expects. So the
Speaker 6: discrepancy between what markets want in terms of more sustainable
Speaker 6: fiscal policy and what Washington can deliver, there's a huge gap,
Speaker 6: and there's no there's no indication that Washington even understands
Speaker 6: what markets want or expect.
Speaker 3: There, Terry, we'll have to see how these negotiations go
Speaker 3: down to the war this month in regards to the
Speaker 3: potential risks, and as you say, there is a great
Speaker 3: disconnect between markets and Washington. Let them rule, we rule
Speaker 3: our own way at say the bond equity commodity traders.
Speaker 3: Terry Hans Pangaea Policy.
Speaker 1: Angela Stent is here with us. She's a non resident
Speaker 1: senior Fellow at the Brookings Institution. She's author of Putin's World.
Speaker 1: She understands Vladimir Putin so well. She has worked done
Speaker 1: national intelligence for Russia and Eurasia the National Intelligence Council.
Speaker 1: So really understands a lot when it comes to geopolitics, Angela,
Speaker 1: good to have you here as we get ready to
Speaker 1: wrap up twenty twenty three. This latest barrage by Russia
Speaker 1: shows that what to you, that this war is long
Speaker 1: from over.
Speaker 8: Oh yes, this war is going to continue well into
Speaker 8: twenty twenty four. Despite stories that occasionally appear in our
Speaker 8: media about being willing to negotiate, he's defined this as
Speaker 8: an extential existential issue for him, the survival of his regime.
Speaker 8: And as we saw today, this was I think the
Speaker 8: deadliest attack again hitting civilian targetssly and you know, anger
Speaker 8: that the Ukrainians were able to destroy this amphibious Russian
Speaker 8: warship in Crimea this week. This was a major game
Speaker 8: for the Ukrainians. But still there they are fighting very
Speaker 8: hard to maintain their position.
Speaker 1: Angela, I do wonder that geopolitically, there's a lot going
Speaker 1: on around the world, to say the least, it's an
Speaker 1: understatement with what's going on in the Middle East, and
Speaker 1: I do wonder how global allies are preoccupied with so
Speaker 1: much and how that might impact their support of something
Speaker 1: like the Russian war in Ukraine.
Speaker 4: Right, So for.
Speaker 8: Putin, you know, the Israel Hamask war has been a godsend.
Speaker 8: Attention is being diverted to what's happening in the Middle East,
Speaker 8: away from Rsian Ukraine. And then of course you have
Speaker 8: the debates within the United States. Our Congress couldn't agree
Speaker 8: on a major sixty billion dollar aid package for Ukraine.
Speaker 8: They went away. They may be able to agree on
Speaker 8: it in January, but it's of course tied to all
Speaker 8: these issues of border security. The European Council was unable
Speaker 8: to vote on a fifty billion euro tranch of financial
Speaker 8: support for Ukraine because Victor Orbam Hungarian Prime Minister venoed it.
Speaker 8: They're also trying to get round this, but the Ukrainians
Speaker 8: are our saying that they cannot pay pensions going forward
Speaker 8: if they don't get this money from the European Union.
Speaker 8: So allies are distracted, They're dealing with their own domestic issues,
Speaker 8: and so the outlook for Ukraine for the next year
Speaker 8: is really very sober.
Speaker 3: Angew good morning. When you talk about the lack of
Speaker 3: robust support from the US and from Europe, is Victor
Speaker 3: orban of course, who is the spoiler in that narrative?
Speaker 3: Does this embolden putin to deliver killing blow as he
Speaker 3: has today. I mean it is one of the missile record,
Speaker 3: missile barrage killing eighteen people. This is breaking news this morning.
Speaker 3: He's attacked Kiev live, Odessa are under attack. Do you
Speaker 3: think that this prevarication by the United States and by
Speaker 3: the part in part Europe emboldens Putin?
Speaker 8: Oh, it certainly does. If you watch the nightly Russian
Speaker 8: TV shows, they are gloating both about the debates within
Speaker 8: Congress and the Republicans who don't want to give any
Speaker 8: more money to Ukraine, and they're gloating about a disunited
Speaker 8: European Union. Of course it emboldens them because Hutin's calculation
Speaker 8: is a defeat. Waits this out Western support will further erode.
Speaker 8: He is waiting for Donald Trump to be re elected
Speaker 8: next November and hoping that then US support for Ukraine will.
Speaker 3: Can I ask you if Trump, I mean this is
Speaker 3: this is projection. This is projection. But I want you
Speaker 3: to reflect on certain moments in the previous administration when
Speaker 3: Trump was in power. He went to meet Kim Jong ung,
Speaker 3: He he got on planes, he sort of you know,
Speaker 3: grand standard, and it did a great deal of theater.
Speaker 3: Is that our risk here that if there's a shift
Speaker 3: in politics in the United States of America, is this campaign,
Speaker 3: Is this Russia war going to play in the polls
Speaker 3: for Trump towards the campaign later this year.
Speaker 8: Well, I think it will. I mean Trump has said
Speaker 8: that he could end this one in twenty four hours.
Speaker 8: I would be interested to understand how he's going to
Speaker 8: do that. But it's clearly going to play in the
Speaker 8: election campaign in the United States. The whole question of
Speaker 8: why we're supporting Ukraine and how important it is, as
Speaker 8: he said before during his presidency, to have a good
Speaker 8: relationship with Russia.
Speaker 5: And before we get, of course to the twenty twenty
Speaker 5: four US presidential election, we have to get through the winter.
Speaker 5: And you write in your notes that the winter will
Speaker 5: be very challenging for the Ukrainians walk us through that.
Speaker 5: The reality on the ground is, of course, the calendar
Speaker 5: year flips here, right.
Speaker 8: So the Ukrainian counter offenship that began in June did
Speaker 8: not achieve one of the Ukrainians and I think what
Speaker 8: we and the Europeans hoped that what they want able
Speaker 8: to take back a significant amount of territory, they need
Speaker 8: to mobilize more soldiers, their generals have said that now
Speaker 8: they need more US weapons, and if they don't get
Speaker 8: the weapons from the US, which is quite possible given
Speaker 8: the debates in Congress, it will be much more difficult
Speaker 8: for them to push back if they don't get the
Speaker 8: financial assistance both from the US and for the European Union. Again,
Speaker 8: they're the mystic situation. Their economic situation will deteriorate, and
Speaker 8: Russia still has millions of people that it could mobilize.
Speaker 8: So far, Putin, who's running for re election in March,
Speaker 8: has said that there won't be another mobilization and maybe
Speaker 8: there won't be at least until after the election. And
Speaker 8: the Russians, you know, they've survived the sanctions. The sanctions
Speaker 8: have not had the impact that the West hoped that
Speaker 8: they would, so Russia appears to be in a stronger
Speaker 8: position now and Ukraine really is very challenged to keep
Speaker 8: pushing back against the Russian.
Speaker 5: Forces well on the AID conversation. Of course, on the
Speaker 5: US side, we've been talking about it on the program
Speaker 5: this week, about a compromise needed when it comes to
Speaker 5: the southern border, and the expectation seems to be there
Speaker 5: that that will be achieved in January, but when it
Speaker 5: comes to the EU. You mentioned, of course Victor Orbn's opposition.
Speaker 5: Is there a path for the EU around Hungary's veto?
Speaker 8: I think there is, and the EU, the European Council,
Speaker 8: they're discussing this, and they've said that they hope in
Speaker 8: January that they can somehow avoid having to have, you know,
Speaker 8: organ vote on this and find another way of getting
Speaker 8: the money to Ukraine. But it still has been I
Speaker 8: think much more challenging for them. I think the other
Speaker 8: thing we should realize is that right now the G
Speaker 8: seven countries are seriously thinking about how they can deploy
Speaker 8: the frozen, frozen Russian assets three hundred billion dollars of them,
Speaker 8: maybe not the principle, but the interest to help Ukraine.
Speaker 8: And this is a conversation that has now gained momentum,
Speaker 8: So that might be a way around some of this
Speaker 8: in the next year.
Speaker 1: Hey, Angela just got about thirty seconds left here. There
Speaker 1: is a way though to peace, but maybe it's after
Speaker 1: the presidential elections.
Speaker 8: I mean, there's always a way to peace. But the
Speaker 8: question is are the Russians interested in negotiating and how
Speaker 8: much would the Ukrainians have to agree to give up
Speaker 8: if there were to be peace negotiations, and I think
Speaker 8: we have to be quite clear idea that as long
Speaker 8: as Putin is in power, even if there were peace negotiations,
Speaker 8: they would probably only be temporary because he has not
Speaker 8: given up his goal of trying to conquer all of Ukrain.
Speaker 1: All right, going to leave it on that note, Angela,
Speaker 1: thank you so much, Really appreciate your insight. Angela's stent
Speaker 1: of the Brookings Institution shares a Carnival corporation. They are
Speaker 1: the seventh best performer in the S and P five hundred,
Speaker 1: one hundred and thirty two percent year in to day
Speaker 1: and we were delighted to have with us on this Friday. Carnivals.
Speaker 1: Josh Weinstein, he's president, CEO and chief Climate Officer, joining
Speaker 1: us here on set in New York in town. Welcome, Welcome, Welcome,
Speaker 1: almost Happy.
Speaker 7: New year, Happy new day, everybody, Thanks for having me.
Speaker 1: How are you thinking about the year. I mean, you
Speaker 1: guys have had a great one in terms of a
Speaker 1: stock run. You're working on a lot of things in
Speaker 1: terms of pairing down debt. Talked to us you just
Speaker 1: reported earnings last week. Some pricing power talked to us
Speaker 1: about the kind of the business environment.
Speaker 7: Yeah, so the twenty twenty three you know, we wrapped
Speaker 7: in November on November thirtieth, and you know, the one
Speaker 7: word that we like to use as a as a
Speaker 7: summary is record. We had record demand, record yields, record pricing,
Speaker 7: record bookings, forward bookings, record on board spending level. So
Speaker 7: really across the board, our business has really thrived in
Speaker 7: twenty twenty three, and we expect much more in twenty
Speaker 7: twenty four.
Speaker 1: It could continue because you're such a great gauge of
Speaker 1: how customers are feeling. You know, you have several brands,
Speaker 1: but you really kind of speak to, you know, the
Speaker 1: everyday US can consumer if you will, and you just
Speaker 1: have a great read on it. Are they continuing to spend?
Speaker 1: Are they continue to do advanced bookings and then once
Speaker 1: they're on their ships, Josh, continuing to spend as well.
Speaker 7: Yeah, that is exactly what we see. You know. As
Speaker 7: a matter of fact, our Q four was from a
Speaker 7: pricing standpoint, the highest all year. So it's accelerating, it's
Speaker 7: not decelerating. And when we look when we look forward,
Speaker 7: we're actually two thirds booked for all of twenty twenty
Speaker 7: four already. It's nice visibility, it's not too bad. We
Speaker 7: were about ten points higher than we were last year.
Speaker 7: And on top of the ticket bookings, we've actually started
Speaker 7: pulling forward on board spend, so we have about a
Speaker 7: more or less about a third of our onboard spend
Speaker 7: being prepaid in advance. So we have a really good
Speaker 7: amount of visibility. And those booking trends, they just haven't
Speaker 7: slowed down. You know, every quarter this year, you know,
Speaker 7: people expected it's got to slow down, it's gotta we're
Speaker 7: gon we're going to see something. The consumer is going
Speaker 7: to get impacted, and the fact is, with our business,
Speaker 7: we haven't seen it. It's record after record. As a
Speaker 7: matter of fact, we just ended the two weeks of
Speaker 7: you know, Cyber Monday and Black Friday at more records.
Speaker 7: And it's not just coming from one brand. It's not
Speaker 7: coming from the United States. It's global. It's with our
Speaker 7: global portfolio of brands, which is really really encouraging.
Speaker 3: Do you think we're moving Good morning, good to me.
Speaker 3: Do you think we're moving from many CEOs similar to
Speaker 3: yourself that I've sat with that run global airlines and
Speaker 3: global businesses have said we've lived through a period of
Speaker 3: revenge tourism. We were all locked up for a period
Speaker 3: of time. This is something we had this parabolic reopening
Speaker 3: and you had a parabolic rebooking. Are we evolving into
Speaker 3: some kind of new cycle? You said, there's no end
Speaker 3: insight in this demand. So if we've ended revenge tourism,
Speaker 3: how do you describe the next evolution?
Speaker 7: Yeah, that's a great question. So we don't think this
Speaker 7: is revenge anymore. This is not pent up demand. It's
Speaker 7: two years on from when we really got back in
Speaker 7: full as a corporation. This is people who have decided
Speaker 7: what's meaningful for them. How do I want to spend
Speaker 7: my life? And experiences are what they're looking for, you know,
Speaker 7: unforgettable memories and creation with friends and family. And that's
Speaker 7: exactly what cruising has to offer.
Speaker 3: And that's why I sat down at the a course
Speaker 3: and he said, look, I haven't got enough hotel rooms
Speaker 3: and I haven't got enough high end staff to help
Speaker 3: me run this business, which then takes me to the
Speaker 3: cruise is the high end hotel. But to what extent
Speaker 3: are those packages off ship and on shore those additional
Speaker 3: spans are they critically important to the expansion and the
Speaker 3: turnaround from the loss that you've had, do they add
Speaker 3: incrementally or significantly?
Speaker 7: So, I mean, when we think about our business, we're
Speaker 7: a little bit different from from when you're looking at
Speaker 7: hotel companies. You know, I'm staying in a hotel in
Speaker 7: New York and I won't tell you which one it is,
Speaker 7: but I'll tell you the service is not very good.
Speaker 7: And we've learned how to live with that. As a society.
Speaker 7: It's almost a tacit acceptance. No, we should not. And
Speaker 7: a cruise industry, our brands did not deviate from service level.
Speaker 7: Our guests have high expectations and we aim to exceed them.
Speaker 7: We do not close off floors, we do not shut
Speaker 7: areas down, We do not skimp on the services that
Speaker 7: we used to offer. It is full steam ahead and
Speaker 7: that's what people expect and that's what they're willing to
Speaker 7: pay for, and that's what we're seeing.
Speaker 5: And let's talk a little bit about the fact that
Speaker 5: you are a global brand. Of course, a global company
Speaker 5: that goes many places in the world. I don't need
Speaker 5: to tell you that the geopolitical landscape very fraud right now.
Speaker 5: Two hot wars and of course conflict in the Red
Speaker 5: Sea has that impacted at all where you can go
Speaker 5: and are you seeing any inflationary pressures from some of
Speaker 5: the things that we're talking.
Speaker 7: About here, So the second question is, no, we haven't
Speaker 7: seen anything of note. Obviously, we pay attention to crude prices,
Speaker 7: which is a good barometer of a lot of things.
Speaker 7: With respect to the impact on our business, we had
Speaker 7: about less than one percent of our business touching Israel
Speaker 7: in one way or another, not necessarily homeporting, but it
Speaker 7: might be one transit stop on a world cruise or
Speaker 7: something of that nature. We may changes some time ago.
Speaker 7: We actually don't have any ships transiting the Red Sea
Speaker 7: area for several months, and so obviously safety first, and
Speaker 7: we will we have mitigation plans should we need to
Speaker 7: adjust where those ships would be transiting, but as of now,
Speaker 7: we're to watch and learn mode.
Speaker 5: Let's also talk about your bond book, because it was
Speaker 5: interesting seeing just last week actually SMP coming out and
Speaker 5: upgrading Carnival not quite back to investment grade territory, but
Speaker 5: you're getting closer to not just higher, to not just higher.
Speaker 5: On Earning's day, actually you think back and the chief
Speaker 5: financial officer of Carnival said that there's a real possibility
Speaker 5: that Carnival will come back to the debt markets in
Speaker 5: twenty twenty four. Where is your current thinking on that
Speaker 5: and what would actually bring you back to the debt market.
Speaker 7: Well, really, the only thing that would bring us back
Speaker 7: to the debt market as far as we can see,
Speaker 7: is if there's opportunity to refinance on more favorable terms rates. Yeah,
Speaker 7: lower rates. We're not or managing our maturities, but we're
Speaker 7: not looking to lever up. As a matter of fact,
Speaker 7: as you said in the intro, we've managed to cut
Speaker 7: down our debt load by about five billion dollars so far,
Speaker 7: and we expect much more of that as we go forward.
Speaker 7: You know, that's priority one, two and three when it
Speaker 7: comes to our capital structure.
Speaker 1: De lever So, hey, you know one of the things
Speaker 1: and it kind of ties together geopolitical but also kind
Speaker 1: of you know, we're thinking about growth. Soa story. I
Speaker 1: think it was today or in the last twenty four
Speaker 1: hours that the first domestically built ship in China getting
Speaker 1: ready to hit the high seas. But it's a joint venture.
Speaker 1: It's you guys are involved in this, and I think
Speaker 1: about how important China is for you guys, but also
Speaker 1: geopolitically concerns about China It's ambitions with Taiwan and whether
Speaker 1: or not there's going to be some problems there down
Speaker 1: the road.
Speaker 7: Sure, well, we're very happy for the folks at the
Speaker 7: China JV. We actually unwound the JV earlier this year.
Speaker 1: We did.
Speaker 7: We did so we've been providing shipbuilding expertise support for
Speaker 7: them and we were very happy to do that work.
Speaker 1: O story still says you guys are involved, but go ahead, Well,
Speaker 1: that could be.
Speaker 7: How we're involved at this point. But from our perspective,
Speaker 7: we got a portfolio of world class brands all over
Speaker 7: the world and that's where our focus is. You know,
Speaker 7: it's great for the cruise industry that China has opened
Speaker 7: up and it will be opening up for international cruise companies.
Speaker 7: We're not going to be one of them that's going
Speaker 7: back in. We've got our assets where we want them.
Speaker 7: We've we've changed our assets strategy, we've moved ships to
Speaker 7: different brands to accommodate the change in China and they're
Speaker 7: doing very very well. So we'll uh, we'll take a
Speaker 7: wait and see approach on that as well.
Speaker 1: But not a market you need to be in, right
Speaker 1: now just.
Speaker 7: No, it's definitely not all right.
Speaker 1: Gonna leave it there. Listen, so appreciate it. You know
Speaker 1: you're spending some time with family, but great to get you.
Speaker 7: While you're my pleasure. Thanks and happening to her.
Speaker 3: Yes, the New York Hotel, you should be get an upgrade.
Speaker 1: The same experience in some hotels. I don't think they
Speaker 1: have the workers.
Speaker 7: They do not.
Speaker 8: You need.
Speaker 7: We do have all the workers that we need, and
Speaker 7: I'd encourage everybody come come book a cruise before we
Speaker 7: run out of inventory for twenty twenty four because it's
Speaker 7: going pretty fast.
Speaker 1: Josh Weinstein, the Presidency of Carnival. Thank you so much,
Speaker 1: So appreciate it. Subscribe to the Bloomberg Surveillance Podcast on Apple, Spotify,
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Speaker 1: Thanks so much for listening. I'm Carol Master and this
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