WEBVTT - Surveillance: Golden Age For Tech, Ives Says 0:00:00.120 --> 0:00:13.760 Ye, Welcome to the Bloomberg Surveillance podcast named Tom keene Jarly. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.520 Bloomberg dot Com, and of course, on the Bloomberg James 0:00:27.520 --> 0:00:31.600 Anthony joining us now Aberty Standard Investment Senior investment Manager. James. 0:00:31.640 --> 0:00:34.920 Let's start there. The lack of treasury market action on 0:00:35.000 --> 0:00:39.680 a really whippy twenty four hours into this morning. Yeah, 0:00:40.040 --> 0:00:42.720 bit frustrating for us actually, as as duration balls. At 0:00:42.800 --> 0:00:46.200 least in part, we've been bullish because we we thought 0:00:46.240 --> 0:00:50.159 risky assets were being incredibly complacent with respect to the 0:00:50.159 --> 0:00:54.440 outlook across a broad a broad range of factors. We've 0:00:54.480 --> 0:00:56.800 been thinking about this and then trying to piece together 0:00:56.880 --> 0:00:59.240 some sort of understanding of why that might be the case. 0:00:59.440 --> 0:01:01.520 I think the story we've settled on really is that 0:01:01.560 --> 0:01:03.880 this is a position unwind. So what you had was 0:01:03.960 --> 0:01:07.039 the market was positioning for fiscal stimulus and a and 0:01:07.080 --> 0:01:10.119 a blue sweep. Let's let's be somewhat glib, and that 0:01:10.120 --> 0:01:14.200 meant being short dollars, being long risky assets, and being 0:01:14.200 --> 0:01:18.679 in treasury curve steepeners, possibly not necessarily shut outright duration, 0:01:18.720 --> 0:01:20.760 but in treasury curve steepness. So what we've seen is 0:01:20.800 --> 0:01:23.600 even though yields have gone up, the curve is actually flattened. 0:01:24.120 --> 0:01:26.520 And we've seen equities being unwound, and and and the 0:01:26.560 --> 0:01:29.600 dollar and the yen rallying, which were probably currencies where 0:01:29.640 --> 0:01:31.800 you had short positions. Certainly the dollar is definitely one 0:01:31.800 --> 0:01:34.200 way they've been short positions. So we kind of think 0:01:34.240 --> 0:01:36.679 this looks more like just a clear out of some 0:01:36.720 --> 0:01:39.920 of those positions, mainly because the virus stat has got worse. 0:01:39.959 --> 0:01:43.240 Also because I think some concerns a bit more latterly ever, 0:01:43.319 --> 0:01:46.000 have arisen that the election result might be closer, might 0:01:46.040 --> 0:01:49.400 be contested. Future is right now negative ectinas. Joe and 0:01:49.440 --> 0:01:52.840 Ferrel mentioned recovering James A. Thy Okay, so you have 0:01:52.920 --> 0:01:56.440 ownership of equities, you have no money to put to work. 0:01:57.040 --> 0:01:59.960 You have to have a framework, a view out there. 0:02:00.040 --> 0:02:03.600 Where is they're out there? Is it two twenty one 0:02:03.720 --> 0:02:09.200 or is it November four? Yeah? I mean, ideally we'd 0:02:09.200 --> 0:02:11.000 like to be long term investors, and we would like 0:02:11.040 --> 0:02:13.280 to take the long view. I think certainly, if you 0:02:13.320 --> 0:02:16.480 are an equity investor, if you're you know, my equity colleagues. 0:02:16.520 --> 0:02:18.440 These guys look at the quality of the firm, the 0:02:18.520 --> 0:02:21.240 quality of the balance sheet. They're not making an economic 0:02:21.360 --> 0:02:23.760 call um, and they will definitely be able to look 0:02:23.800 --> 0:02:26.320 through political events like this because they will be comfortable 0:02:26.320 --> 0:02:28.480 that the company they're buying is a good company at 0:02:28.480 --> 0:02:31.400 the right price. That's not the case for all types 0:02:31.400 --> 0:02:33.320 of investment, and that's certainly not the case for all 0:02:33.360 --> 0:02:36.160 types of investor. So in our asset classes a bit 0:02:36.160 --> 0:02:39.280 more difficult because that the prices themselves are very much 0:02:39.320 --> 0:02:42.000 going to be a function of the result itself and 0:02:42.040 --> 0:02:45.120 what that means for policy going forward. So depending on 0:02:45.160 --> 0:02:46.919 the type of investor, you will be able to look 0:02:47.000 --> 0:02:49.440 through this event to a greater degree. We would find 0:02:49.480 --> 0:02:51.560 it a bit more difficult to completely ignore. So we 0:02:51.600 --> 0:02:55.680 will be managing our risk levels and exposures accordingly. Alright, 0:02:55.720 --> 0:02:57.760 so managing risk levels. And yet you said that it's 0:02:57.800 --> 0:03:00.399 been a frustrating week for you as a dereach ball. 0:03:00.480 --> 0:03:04.640 What's the head here? Well again I would have said that, 0:03:04.720 --> 0:03:07.280 you know the curves direction and so aituation ball. We've 0:03:07.320 --> 0:03:10.160 been running you know, bullish duation positions and we've got 0:03:10.160 --> 0:03:12.120 some long end steatness on in the US, we're kind 0:03:12.120 --> 0:03:14.200 of both of those have gone against us this week. Now. 0:03:14.200 --> 0:03:17.240 Our FX positioning has very much been favorable to the 0:03:17.280 --> 0:03:19.840 moves this week because we've been positioned along the dollar 0:03:19.919 --> 0:03:21.880 and along the yen, and along the Swiss franc and 0:03:22.160 --> 0:03:24.919 short some of the risky currencies, and so FX has 0:03:24.919 --> 0:03:27.040 definitely been a good diverse far and a good hedge 0:03:27.080 --> 0:03:30.720 for us. But again, going into the event itself, I 0:03:30.760 --> 0:03:34.120 think the outcome is a lot closer than than you know. 0:03:34.200 --> 0:03:36.960 Nate Silver, for example, is calling it, and so I 0:03:37.000 --> 0:03:39.520 find it difficult to build a portfolio that I think 0:03:39.520 --> 0:03:42.840 will be truly robust to every possible outcome. So if 0:03:42.880 --> 0:03:45.360 that's the situation, I'm going to be happy running some 0:03:45.520 --> 0:03:48.880 risk in there, some short duration positions in Europe, for example, 0:03:48.920 --> 0:03:51.400 if if yields do go really high, I think, you know, 0:03:51.440 --> 0:03:53.880 European yields will get dragged to some degree we've seen 0:03:54.080 --> 0:03:55.840 it's not a huge amount, but they will get dragged 0:03:55.880 --> 0:03:58.000 a bit higher. So I can go in kind of 0:03:58.000 --> 0:04:00.760 still having a bit of a small long ration bias, 0:04:00.760 --> 0:04:04.000 some shorts in Europe, some defensive positions in effex but 0:04:04.120 --> 0:04:06.200 just taking the gross level of risk down so that 0:04:06.320 --> 0:04:10.320 it's you know, we're not seeing huge P and L songs, James, 0:04:10.320 --> 0:04:11.960 How why do you think this market is priced in 0:04:12.360 --> 0:04:14.840 the head winds to the recovery that we're seeing develop 0:04:14.880 --> 0:04:16.839 in Europe and our sware at the moment, I'm looking 0:04:16.839 --> 0:04:21.240 back across asset crewed the dollar dollar bottomed out end 0:04:21.240 --> 0:04:24.559 of August, start of September Ozzy and topped out around 0:04:24.560 --> 0:04:27.159 a similar time. Crew topped out around a similar time. 0:04:27.240 --> 0:04:31.000 Equities peaked around a similar time. That was two months ago, James, 0:04:31.240 --> 0:04:33.359 I'd argue this market was probably ahead of some of 0:04:33.400 --> 0:04:36.719 these risks. What do you say to that? Yeah, Again, 0:04:37.600 --> 0:04:40.880 broadly speaking, I think we'd gone too far, too fast 0:04:40.960 --> 0:04:44.200 quite some time ago, and it really didn't need the 0:04:44.279 --> 0:04:46.719 recurrence of the virus spread that we had seen for 0:04:46.760 --> 0:04:48.560 the market to take some of the air out of that, 0:04:48.680 --> 0:04:51.880 because again, we were just priced at the extreme of 0:04:51.920 --> 0:04:55.200 the probability distribution. We were pricing a utopian future where 0:04:55.320 --> 0:04:58.479 earnings would almost instantly recover. Policy was going to be 0:04:58.560 --> 0:05:01.080 sustainable and effective a it's the piece. Everything was going 0:05:01.120 --> 0:05:04.200 to be hunky dorry, and you know the certainty around 0:05:04.240 --> 0:05:06.359 that is somewhere close to zero. So that was that 0:05:06.440 --> 0:05:09.640 was really quite ridiculous market pricing, and we've we've seen 0:05:09.720 --> 0:05:12.040 that that you know, we've seen some pushback against that. 0:05:12.279 --> 0:05:14.320 To go to your original question, how well is the 0:05:14.360 --> 0:05:17.359 market price in the outlook, I would still say, broadly speaking, terribly. 0:05:18.160 --> 0:05:20.480 Looking at US equities doesn't give you a good picture 0:05:20.480 --> 0:05:24.120 for global equities. European equities is viewed, as you've described, 0:05:24.160 --> 0:05:26.920 have had a terrible time at horrid time. Valuations there 0:05:26.920 --> 0:05:30.480 are you look incredibly low relative to the US. There 0:05:30.520 --> 0:05:32.599 are good reasons for that. That still doesn't mean that 0:05:32.600 --> 0:05:35.200 they're cheap even at these levels. But you know a 0:05:35.240 --> 0:05:39.039 lot of assets, certainly in U S equity space, really 0:05:39.080 --> 0:05:43.480 have not taken account of the probability distribution of how 0:05:43.480 --> 0:05:45.200 this will play out, but also taken account of the 0:05:45.279 --> 0:05:47.600 damage that has been done and will continue to be 0:05:47.600 --> 0:05:50.800 done to economies and business models. James, they just looked 0:05:50.880 --> 0:05:52.800 and you can do this, folks in the Bloomberg, which 0:05:52.839 --> 0:05:56.200 is magical. You know, a large shirt of the value 0:05:56.240 --> 0:05:59.279 line geometric index, which is an old war horse, and 0:05:59.279 --> 0:06:02.760 there's some really interesting mathematics and takes out a lot 0:06:02.800 --> 0:06:05.440 of the emotion, a lot of the dynamics of the 0:06:05.520 --> 0:06:09.200 movable feast of all these big capped stacks. It is 0:06:09.240 --> 0:06:13.159 extremely well contained and it is, as you said earlier, 0:06:13.440 --> 0:06:17.279 basically a pullback. How do you know when a ballmarket ends? 0:06:17.320 --> 0:06:20.240 How do you know, as a fundamental guy, when a 0:06:20.279 --> 0:06:24.480 ballmarket ends? You absolutely don't, Tom, there is the answer, 0:06:24.520 --> 0:06:28.040 you know in the rear view mirror, I thought, I noted. 0:06:28.080 --> 0:06:30.159 I can't quite remember who one of the cell side 0:06:30.400 --> 0:06:33.800 analysts was drawing comparisons to this earning season in the 0:06:33.920 --> 0:06:36.719 US with the q on two thousand earning season where 0:06:36.720 --> 0:06:40.800 you've got actually solid looking earnings, lots of beats versus expectations, 0:06:40.839 --> 0:06:43.479 and yet equity performance on a single name and across 0:06:43.520 --> 0:06:47.240 the index basis was was absolutely diabolical. Nobody in March 0:06:47.320 --> 0:06:49.520 two thousand or April two thousand was saying that was 0:06:49.560 --> 0:06:51.960 the top of the NASDAC and it was over. It 0:06:52.080 --> 0:06:54.320 was only probably the end of the year when you 0:06:54.320 --> 0:06:56.240 could look back and go, yet that we're kind of 0:06:56.279 --> 0:06:59.080 done here. That's that's the highs that we've seen, and 0:06:59.320 --> 0:07:01.120 it takes a long time to get back to those 0:07:01.200 --> 0:07:05.440 highs when the overvaluation is so extreme, so absolutely impossible 0:07:05.560 --> 0:07:08.360 to know when it's the top, especially when you live 0:07:08.400 --> 0:07:12.440 in a world of post hoc justification for extreme valuation, 0:07:12.800 --> 0:07:15.200 just using rather glib narratives which don't stand up to 0:07:15.200 --> 0:07:16.960 a lot of scrutiny, and and that that's been the 0:07:17.000 --> 0:07:19.320 case for a lot of stock valuations in this period. 0:07:19.360 --> 0:07:21.200 So I think we will only know in the rear 0:07:21.280 --> 0:07:24.320 view mirror when it was that, when it was the top. Hey, 0:07:24.400 --> 0:07:27.920 James Grazer, catch ump as always, James Anthony. There of 0:07:28.000 --> 0:07:35.160 amity standard investments, Thank you, sir. Apples Yes Falling After 0:07:35.200 --> 0:07:38.280 the company reported iPhone sales the missed estimates, the CEO 0:07:38.480 --> 0:07:42.240 Tim Kirk cautioning that the latest iPhones who have has 0:07:42.280 --> 0:07:45.040 been well received, but the company is facing some strains 0:07:45.280 --> 0:07:49.760 due to the coronavirus. If you look at iPhone, we 0:07:49.800 --> 0:07:53.880 are constrained today. How long we will be supply constrained, 0:07:54.280 --> 0:07:57.480 it's hard to predict. We're supply constrained on Mark, we're 0:07:57.640 --> 0:08:02.720 supplied constrained on and we're supply constrained on some Apple 0:08:02.760 --> 0:08:07.000 watches as well. We're working really really hard, uh to 0:08:08.000 --> 0:08:10.560 remedy those as quickly as we can, but at this 0:08:10.760 --> 0:08:14.360 point I can't estimate when when we'll be out of that. 0:08:15.920 --> 0:08:17.679 And that was the problem, and not just for Apple 0:08:17.800 --> 0:08:19.560 but for many other companies that we put it after 0:08:19.600 --> 0:08:23.440 the close. Tom it was about the outlook, the lack 0:08:23.480 --> 0:08:25.600 of his ability that so many of these companies have. 0:08:25.840 --> 0:08:28.680 I just call it all American uncertainty here around very 0:08:28.680 --> 0:08:31.440 good financials as well. Danielize as an uber bull and 0:08:31.520 --> 0:08:35.160 all this he has been across all of media talking 0:08:35.240 --> 0:08:38.160 up out one year out, two years out, five years 0:08:38.480 --> 0:08:41.319 Daniel lives. Can you write today for wed Bush with 0:08:41.480 --> 0:08:44.600 a two and five year model or is the uncertainty 0:08:44.720 --> 0:08:48.760 so great you've got to pull in your timeline? The 0:08:48.800 --> 0:08:51.120 answer a great question me. I continue to sort of 0:08:51.200 --> 0:08:53.439 view it as near term uncertainty. But let's say, in 0:08:53.480 --> 0:08:57.720 the case of Apple, install base hasn't upgrade their phone 0:08:57.800 --> 0:09:00.160 three and a half years, so I think the hand 0:09:00.240 --> 0:09:02.800 up demand when I look out, I even think over 0:09:02.840 --> 0:09:05.680 the next twelve, eighteen, twenty four months, there's a would 0:09:05.720 --> 0:09:08.360 have more visibility when you look at Apple from an 0:09:08.400 --> 0:09:11.280 install based perspective. But no doubt I mean that you 0:09:11.360 --> 0:09:13.960 guys see farest through the trees here. Intact, we continue 0:09:13.960 --> 0:09:16.400 to be bullish. You know, I looked down at the 0:09:16.480 --> 0:09:19.760 people looking at ninety days out or even a year 0:09:19.800 --> 0:09:22.200 out and if you take any of these juggernauts and 0:09:22.280 --> 0:09:27.280 model them two years or particularly five years, it's shocking 0:09:27.360 --> 0:09:32.480 the growth. Is that growthiness still there represented by revenue growth, 0:09:32.720 --> 0:09:36.160 But can it come down the income statement and persist 0:09:36.400 --> 0:09:39.680 out five years. Yeah. I think it's a golden age 0:09:39.720 --> 0:09:42.160 for technology, which speaks to our bullish it's over the 0:09:42.240 --> 0:09:44.200 last few years. I think we're only the middle innings. 0:09:44.679 --> 0:09:47.840 You look at some of these names, the profitability profile 0:09:48.520 --> 0:09:51.479 is dramatically higher. Look at Apple in terms of services, 0:09:51.520 --> 0:09:55.040 I mean that gross margins about double the hardware business, 0:09:55.120 --> 0:09:57.240 And I think what you're seeing is it's very easy, 0:09:57.440 --> 0:10:00.480 especially in the jittery tape, to get my open and 0:10:00.559 --> 0:10:03.720 nervous on some of these prints and guides. But for Apple, 0:10:03.760 --> 0:10:06.600 the supercycle hasn't even started. And in terms of our 0:10:06.640 --> 0:10:10.040 Asia checks, we think pre order activity is more than 0:10:10.120 --> 0:10:12.760 two xs iPhone eleven. So I think that's why I 0:10:12.800 --> 0:10:15.720 when I look at Apple and sort a knee jerk reaction. 0:10:15.760 --> 0:10:17.920 You look at them next year or two and I 0:10:17.960 --> 0:10:20.679 think this is ultimate A hundred fifty stock six and 0:10:20.760 --> 0:10:23.520 nine months from now. So down what you think of 0:10:23.520 --> 0:10:28.080 stocks down about from the September Hind, I think part 0:10:28.120 --> 0:10:32.160 of it is just general nervousness going into the supercycle. 0:10:32.440 --> 0:10:34.880 China obviously is the key, that's the hearts and lungs 0:10:34.920 --> 0:10:38.079 of the overall cycle. And if you look, you know, 0:10:38.120 --> 0:10:40.840 and you saw this quarter, I think there's just general 0:10:40.960 --> 0:10:44.640 nervousness that you're not going to see that demand valuations 0:10:44.640 --> 0:10:47.640 had a huge re rating and you start see perfection 0:10:47.800 --> 0:10:50.319 built in, and I think you're seeing a risk off 0:10:50.559 --> 0:10:53.960 overall intech just going into the next week. But I 0:10:54.040 --> 0:10:56.400 believe it short lived. That That's why I still think 0:10:56.440 --> 0:10:58.680 it's green light to own tech. And I think I 0:10:58.720 --> 0:11:01.480 look out over next year and I think tech stocks 0:11:01.520 --> 0:11:05.760 are up another twenty plus. That's been your code through 0:11:05.800 --> 0:11:07.480 much of this year. Say, it feels like a rolling 0:11:08.160 --> 0:11:10.280 cold down, and for much of this year it's been 0:11:10.320 --> 0:11:13.760 dead on. But something happened in already September. Then some 0:11:13.800 --> 0:11:16.280 people are asking whether we've already seen the pull forward 0:11:16.559 --> 0:11:19.280 for Apple through the shutdown, and this is not about 0:11:19.320 --> 0:11:22.640 waiting for the iPhone twolve. This is the payback for 0:11:22.679 --> 0:11:25.120 a really decent quarter when the world was shut down. 0:11:25.360 --> 0:11:28.199 What's your response to that? Then, Yeah, I've seen you've 0:11:28.240 --> 0:11:31.640 seen the pull forward on Max and obviously on iPads. 0:11:32.000 --> 0:11:34.560 You've not seen the pull forward and iPhones, and I 0:11:34.559 --> 0:11:37.400 think that's really the key here. You're going into what 0:11:37.480 --> 0:11:41.280 I've used once in a decade supercycle for Apple. So 0:11:41.440 --> 0:11:44.600 that is still on the horizon, especial when it comes 0:11:44.600 --> 0:11:47.640 to China, because you got the installments, it has an 0:11:47.720 --> 0:11:51.280 upgrade their phone and the stack that gets read on services, 0:11:51.320 --> 0:11:54.200 which next year that's going to be north of sixty billion. 0:11:54.800 --> 0:11:57.280 And that continues to be the crux of the thesis 0:11:57.360 --> 0:11:59.920 here in terms of that's playing out in this quarter 0:12:00.080 --> 0:12:04.280 or doesn't change that whatsoever For me, Dan, One aspect 0:12:04.280 --> 0:12:06.959 of the big tech earnings that strikes me as odd 0:12:07.120 --> 0:12:09.559 is that they continue to trade as a monolith by 0:12:09.600 --> 0:12:12.320 large In large part people talk about big tech in 0:12:12.400 --> 0:12:15.520 tandem as though their fates are intertwined, and yet their 0:12:15.520 --> 0:12:18.520 actual business models are vastly different, whether it's an AD 0:12:18.559 --> 0:12:21.920 driven model, whether it's a Google search model, whatever it 0:12:21.960 --> 0:12:24.079 may be. And then you have Amazon, which knocked it 0:12:24.080 --> 0:12:26.120 out of the park in terms of projections, and people 0:12:26.120 --> 0:12:29.400 still are punishing them. Do you expect divergence in the 0:12:29.400 --> 0:12:31.840 fates of these shares and who will be the loser 0:12:32.120 --> 0:12:34.800 in the next year? Yeah, I think maybe you saw 0:12:34.840 --> 0:12:37.480 a little of that divergence with Google, especially over the 0:12:37.559 --> 0:12:40.199 last three or six months, and obviously they knocked it 0:12:40.280 --> 0:12:43.440 at the park last night. From an advertising perspective, now, 0:12:43.559 --> 0:12:46.280 I do think a lot of that could be on 0:12:46.320 --> 0:12:49.400 the antitrust as you start seeing more and more pressure 0:12:49.440 --> 0:12:52.520 from antrusts going to next year. Specifically, if you see 0:12:52.520 --> 0:12:54.920 a blue wave, the Googles and the facebooks, you know, 0:12:54.960 --> 0:12:58.199 could potentially trade a little different than the Apples and 0:12:58.240 --> 0:13:00.920 the Amazons and the platform play in terms of those 0:13:00.920 --> 0:13:04.000 secular trends. But for now, you know, we do view 0:13:04.120 --> 0:13:06.040 them as a group in terms of things that I 0:13:06.160 --> 0:13:09.559 also put Microsoft in there. The platform play isn't the 0:13:09.640 --> 0:13:13.040 stronger getting stronger, and I think you're seeing that in 0:13:13.080 --> 0:13:16.840 this environment. COVID's accelerated the growth rates and the consumer 0:13:16.840 --> 0:13:19.920 and the enterprise by one to two years, and I 0:13:19.960 --> 0:13:22.360 think that's playing out here. Even though you'll see some 0:13:22.400 --> 0:13:25.959 of the knee jerk reactions on well called Sandbad Guide 0:13:26.000 --> 0:13:29.199 and from the likes of Amazon well Dan, they're increasingly 0:13:29.200 --> 0:13:31.320 being treated as the haven investments because of what you 0:13:31.320 --> 0:13:34.160 talk about the stronger getting stronger, and yet the valuations, 0:13:34.440 --> 0:13:37.560 the multiples are getting higher and higher, and people are saying, well, 0:13:37.559 --> 0:13:40.320 it makes sense with such low yields. How much would 0:13:40.360 --> 0:13:42.679 you change your call if benchmark rates in the US 0:13:42.720 --> 0:13:45.840 went up. Yeah, I think that could change things. But 0:13:46.280 --> 0:13:49.120 I also think what's starting to happen is investors of 0:13:49.200 --> 0:13:51.720 you in them some of the parts you look at Amazon, 0:13:51.800 --> 0:13:54.839 e WUS, e commerce, you look at you know, an 0:13:54.880 --> 0:13:58.560 Apple from those services and from a hardware perspective. So 0:13:58.800 --> 0:14:00.800 I do think we'll start to happen is in terms 0:14:00.880 --> 0:14:03.600 of the breakup, talk to some of the parts, the 0:14:03.679 --> 0:14:06.559 reratings that you've seen. I think that's the key, and 0:14:06.600 --> 0:14:09.200 also they are their safety blank and names in the 0:14:09.400 --> 0:14:12.640 category five storm. But there on the other side you 0:14:12.679 --> 0:14:14.439 start to see I just start seeing more of a 0:14:14.559 --> 0:14:17.719 risk on trade. Tech continues to lead the market high 0:14:17.800 --> 0:14:20.560 and I don't see that changing here in terms of 0:14:20.600 --> 0:14:22.960 just the shifts that we're seeing, and I think it's 0:14:22.960 --> 0:14:26.080 having through earning season. Dan one of the great questions 0:14:26.200 --> 0:14:29.560 here and I just did a quick Pharaoh interpolation of 0:14:29.640 --> 0:14:33.720 the share buyback program of Apple, and folks basically out 0:14:33.720 --> 0:14:37.040 ten years, they go back to where they were in 0:14:37.040 --> 0:14:41.200 in terms of share, number of shares outstanding. Dana's other 0:14:41.240 --> 0:14:44.320 companies have tried that, Intel IBM and that story didn't 0:14:44.360 --> 0:14:47.720 work out. So good. Is Apple correct to be so 0:14:47.760 --> 0:14:51.760 aggressive of buying back shares. It's hard to argue with 0:14:51.800 --> 0:14:55.200 the strategy in terms of what you've seen on the 0:14:55.280 --> 0:14:59.880 net neutral cash policy, they're not acquisitive and the body 0:15:00.040 --> 0:15:02.560 back combined with and again the reason I think it 0:15:02.600 --> 0:15:05.040 hasn't worked for some of those companies they didn't have 0:15:05.080 --> 0:15:09.280 a golden installed base and and anything close to what 0:15:09.400 --> 0:15:13.120 the iPhone is within nineties nine embercent renewal rate. And 0:15:13.120 --> 0:15:16.040 I think just given they have more cash in some countries, 0:15:16.120 --> 0:15:19.080 they're not going to acquire Well, that's from an investor perspective, 0:15:19.120 --> 0:15:21.080 I think the right thing to do. I happen to 0:15:21.120 --> 0:15:24.320 agree with you. But what I find stunning is the 0:15:24.360 --> 0:15:29.040 margins of the growing service sector. Do they sustain those 0:15:29.160 --> 0:15:34.400 forty fifty even margins in service? Well? I do, and 0:15:34.440 --> 0:15:37.800 that's why I think the services business, which just take 0:15:37.960 --> 0:15:39.640 and we said some of the parts, I think that 0:15:39.760 --> 0:15:44.280 services business is worth nine to nine billion, and that's 0:15:44.280 --> 0:15:45.920 been a key part of the re rating in the 0:15:45.960 --> 0:15:48.560 stock over the last six and nine months as it's 0:15:48.560 --> 0:15:51.680 held up like Rocket Gibraltar. If you've looked at the 0:15:51.760 --> 0:15:55.520 services business and I think those margins teflon like and 0:15:55.640 --> 0:15:58.960 continue to I think stay where they are or potentially 0:15:58.960 --> 0:16:01.400 go higher. And that's the key part of the bull thesis. 0:16:02.160 --> 0:16:04.200 What do you make down of the fact that China 0:16:04.280 --> 0:16:08.400 sales of the iPhone and just in general dropped revenue 0:16:08.400 --> 0:16:11.040 for Apple? The idea that perhaps this has to do 0:16:11.120 --> 0:16:12.920 with the new phone coming out, but even more so 0:16:13.040 --> 0:16:16.440 perhaps the tensions that are growing between China and the 0:16:16.520 --> 0:16:19.360 US when it comes to tech. Yeah, I think tensions 0:16:19.400 --> 0:16:22.800 that's been there posed a child for US China trade war, 0:16:23.040 --> 0:16:26.120 just overall cold tech war. But I think this quarter 0:16:26.200 --> 0:16:29.080 is a throwing quarter for China because it all comes 0:16:29.120 --> 0:16:32.920 down to you see a pause ahead of iPhone twelve. 0:16:33.360 --> 0:16:35.840 I mean, we believe you could see growth in China 0:16:35.920 --> 0:16:38.440 double digits start in the summer quarter. That's why I 0:16:38.440 --> 0:16:42.000 wouldn't read into this. In other words, it's a scary headline. 0:16:42.360 --> 0:16:45.120 Stock will be down. Nietzscherk. I think three months from 0:16:45.120 --> 0:16:48.240 now we sit here, we're talking about how is China 0:16:48.360 --> 0:16:51.120 that strong in terms of iPhone twelve. That's based on 0:16:51.160 --> 0:16:53.800 what we see in terms of checks and pent up demand, 0:16:55.160 --> 0:16:56.960 and we'll see you in three months. The bull is 0:16:57.000 --> 0:16:59.960 still a bull. I have wet bush on the site, 0:17:00.080 --> 0:17:06.320 the blanket in a cap five storm right now, Lindsay 0:17:06.320 --> 0:17:08.520 pigs that joins us right now from Stapleward thrill that 0:17:08.560 --> 0:17:11.000 she could join this morning, Lindsay, I want to go 0:17:11.119 --> 0:17:13.879 right to that. Michael McKee showed the oddities of the moment. 0:17:14.240 --> 0:17:17.240 A savings rate that is double digit, that's not normal 0:17:17.359 --> 0:17:22.080 for America. What are the ramifications of that high savings rate. No, 0:17:22.240 --> 0:17:25.160 it's certainly not normal. And when we see American squirreling 0:17:25.160 --> 0:17:28.399 away that type of cash, that that amount of wealth, 0:17:28.760 --> 0:17:31.680 it really speaks to the uncertainty that the average American 0:17:31.760 --> 0:17:35.040 is feeling about their financial footing going forward. A fourteen 0:17:35.080 --> 0:17:39.560 percent savings rate translates into over two trillion in accumulated 0:17:39.560 --> 0:17:42.960 wealth and accumulated savings that can be deployed out into 0:17:43.000 --> 0:17:46.120 the marketplace. But right now, consumers are looking out at 0:17:46.160 --> 0:17:48.639 the recovery, they're looking out at the prospect of a 0:17:48.680 --> 0:17:53.280 resurgence of the virus and potential further restrictions or shutdowns, 0:17:53.520 --> 0:17:55.920 and the consumer is very nervous, and in fact, rather 0:17:55.960 --> 0:17:59.800 than immediately spending that wealth, they're deploying that to their 0:17:59.800 --> 0:18:05.400 savings account and sitting on that additional savings. Lizzie just quickly, 0:18:05.480 --> 0:18:08.760 of course, the distribution for those savings not equal. Where 0:18:08.760 --> 0:18:10.760 in society is that money sitting right now and how 0:18:10.840 --> 0:18:14.320 likely is it that it will be spent? Well, I 0:18:14.320 --> 0:18:16.560 do think there's a disproportionate amount of the savings that 0:18:16.720 --> 0:18:20.320 is being held at the top wrong of the income ladder, 0:18:20.359 --> 0:18:24.879 But with forbearance, with generous unemployment benefits, there is a 0:18:24.960 --> 0:18:28.080 sizeable amount of wealth that has been captured even in 0:18:28.119 --> 0:18:31.080 the middle or bottom wrongs of the income ladder. So yes, 0:18:31.119 --> 0:18:33.240 there is a little bit of a skew towards the top. 0:18:33.520 --> 0:18:35.600 But I do think that when we look at overall, 0:18:35.640 --> 0:18:38.600 the average American may be better off than they were 0:18:38.720 --> 0:18:42.800 pre pandemic, or at least on somewhat stronger financial footing. So, 0:18:42.840 --> 0:18:45.000 going back to a point you made earlier, I do 0:18:45.080 --> 0:18:48.040 think that this looming fiscal cliff that many are concerned 0:18:48.040 --> 0:18:51.960 about may not be quite as ominous as previously assessed 0:18:52.040 --> 0:18:55.280 because of that additional savings or that additional wealth that 0:18:55.320 --> 0:18:57.560 the average American is facing right now. That's where I 0:18:57.560 --> 0:18:59.920 wanted to go if we could game out how long 0:19:00.000 --> 0:19:03.320 long households have to maintain spending or even just reduce 0:19:03.400 --> 0:19:07.640 it a little bit, perhaps to edify these these forecasts 0:19:07.680 --> 0:19:11.280 for a blockbuster holiday season, how long do we have 0:19:11.760 --> 0:19:14.120 before we sort of hit the wall where we either 0:19:14.200 --> 0:19:16.800 need more fiscal support or we actually see the slowdown 0:19:16.840 --> 0:19:19.240 that so many people have predicted would already have happened 0:19:19.320 --> 0:19:22.640 and yet hasn't. Well, if we assume that the economy 0:19:22.640 --> 0:19:26.240 continues at this pace, the consumer does have several months 0:19:26.240 --> 0:19:28.919 to eat through that accumulated wealth that should carry us 0:19:29.240 --> 0:19:32.000 well into the first quarter, even independent of a fifth 0:19:32.080 --> 0:19:35.919 round stimulus package. But we also have to recognize that 0:19:35.960 --> 0:19:38.520 the virus is far from contained and that remains the 0:19:38.600 --> 0:19:41.160 number one risk of the economy, or should I say, 0:19:41.160 --> 0:19:43.880 the policies aimed at stemming the spread of the virus 0:19:43.920 --> 0:19:46.359 remain the number one risk. And if in fact, we 0:19:46.440 --> 0:19:48.720 do see a resurgence towards the end of the year 0:19:48.840 --> 0:19:53.440 leading to further restrictions, further lockdowns, resulting in further business closures, 0:19:53.520 --> 0:19:57.840 job losses, lost income, revenue opportunities, well, we could see 0:19:57.840 --> 0:20:01.560 growth regardless of the savings or that wealth accumulation. We 0:20:01.640 --> 0:20:05.920 could see growth slow significantly or even fall into net 0:20:05.960 --> 0:20:09.720 negative territory depending on the depth and duration of that 0:20:09.840 --> 0:20:13.760 rebound or that resurgence of the virus. Lizzie find a 0:20:13.840 --> 0:20:15.919 question for me. I think it's the biggest question for 0:20:15.960 --> 0:20:18.520 any economist in the United Stace right now. Does this 0:20:18.640 --> 0:20:21.000 U S economy in this recovery go the way of 0:20:21.119 --> 0:20:24.800 China or go the way Europe? By your end, I 0:20:25.160 --> 0:20:27.119 think right now, the risk is that we see a 0:20:27.160 --> 0:20:30.359 similar scenario that was playing out in Europe right now again, 0:20:30.400 --> 0:20:33.840 that second round resurgence of the virus really undermining the 0:20:33.920 --> 0:20:36.680 improvement that we've seen July the September, that was a 0:20:36.720 --> 0:20:40.639 welcome step in the right direction, a record bounds, but 0:20:40.680 --> 0:20:44.359 again reflecting the fact that we're simply reopening the economy, 0:20:44.400 --> 0:20:48.440 so really emphasizing the power of reopening the economy bouncing 0:20:48.440 --> 0:20:50.359 off of those low, low levels that we saw in 0:20:50.400 --> 0:20:53.320 the second quarter when businesses were forced to close and 0:20:53.400 --> 0:20:57.280 individuals were forced to to stay within the confines of 0:20:57.320 --> 0:21:01.120 their home, and it really highlights the ongoing detrimental impact 0:21:01.160 --> 0:21:05.080