WEBVTT - Surveillance: Market Pause with Calvasina 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.320 the Bloomberg Terminal and the Bloomberg Business app List. 0:00:30.400 --> 0:00:32.479 On the conversation with Lori Cavassin, a head of US 0:00:32.479 --> 0:00:36.360 Secretary Strategy at RBC Capital Markets, lor the headline in 0:00:36.400 --> 0:00:38.720 your most recent piece gif for a pause, Giff for 0:00:38.720 --> 0:00:39.960 a pause. What does that mean, Laurie. 0:00:40.120 --> 0:00:42.159 So look, I don't want anyone to come away from 0:00:42.200 --> 0:00:44.920 this thinking that Lori Caalvasin is turning super bearish. But 0:00:45.400 --> 0:00:47.159 we don't like where we are, you know, sort of 0:00:47.159 --> 0:00:49.519 in the intermediate term, and we're seeing a couple of 0:00:49.560 --> 0:00:52.199 things we went you know, every few months, right, we 0:00:52.240 --> 0:00:54.440 make sure we publish an update on our targets, our 0:00:54.480 --> 0:00:56.560 price target for the SMP. A couple of my cross 0:00:56.560 --> 0:01:00.520 asset models are deteriorating. They were improving back in so, 0:01:00.640 --> 0:01:03.360 in other words, the appeal of stocks relative to bonds 0:01:03.400 --> 0:01:03.959 is worstening. 0:01:04.640 --> 0:01:06.959 And also our sentiment model is really bothering us. 0:01:07.360 --> 0:01:10.040 It's really back at one standard deviation above its long 0:01:10.120 --> 0:01:11.959 term average. If you look at that fullishness on the 0:01:11.959 --> 0:01:15.320 AAII survey, typically you see you know, kind of mid 0:01:15.400 --> 0:01:17.679 to low single digit gains in the SMP over the 0:01:17.680 --> 0:01:20.080 next twelve months when that happens, and this just feels to. 0:01:20.040 --> 0:01:20.920 Me like a market. 0:01:21.319 --> 0:01:23.679 While I think everything has been deserved in terms of 0:01:23.720 --> 0:01:25.920 what we've done so far, it just feels like this 0:01:26.000 --> 0:01:28.840 market needs to stop, pause, have a little moment of digestion, 0:01:28.959 --> 0:01:29.679 and catch its fross. 0:01:29.720 --> 0:01:30.000 Okay. 0:01:30.120 --> 0:01:32.200 I like the analysis, and the idea is you got 0:01:32.240 --> 0:01:33.800 to pull back to get things, you know, like get 0:01:33.800 --> 0:01:35.440 the fear click in and you know, you know, we've 0:01:35.480 --> 0:01:38.000 all done this and studied it. Can you just stay 0:01:38.080 --> 0:01:39.760 flat out or through the bear market? 0:01:41.440 --> 0:01:45.160 I never really subscribed to that thesis to begin with. Tom, 0:01:45.400 --> 0:01:47.600 You know, I never liked this whole concept of we're 0:01:47.600 --> 0:01:49.520 in a bear market, therefore we have to do X. 0:01:49.520 --> 0:01:52.200 We're having a bear market rally, it's faults, don't believe it. 0:01:52.840 --> 0:01:54.800 I just was never in that camp. I think we 0:01:54.920 --> 0:01:57.560 priced in a recession last October, and we've basically been 0:01:57.600 --> 0:02:00.560 having a plain old fashioned recovery trade, and now we're 0:02:00.600 --> 0:02:02.920 seeing some of the things that we're really telling us 0:02:02.920 --> 0:02:04.480 to hold your nose and buy. At the beginning of 0:02:04.480 --> 0:02:06.520 the year, I go back to that sentiment model is 0:02:06.560 --> 0:02:08.040 telling us we need to calm down. 0:02:07.840 --> 0:02:08.359 For a little while. 0:02:08.520 --> 0:02:10.680 Ben Ladler over to Etro writes up on the Lord 0:02:10.720 --> 0:02:14.600 Calvacina World this morning. He talks about value, talks about 0:02:14.600 --> 0:02:17.600 what's out there away from seven Chosen stocks as well 0:02:18.120 --> 0:02:21.600 color or shape the value of mid caps right now. 0:02:23.040 --> 0:02:23.840 So it's interesting. 0:02:23.880 --> 0:02:24.079 Tom. 0:02:24.520 --> 0:02:26.120 We do a lot of work on small caps, but 0:02:26.160 --> 0:02:29.320 we've also been getting increasing questions on midcaps. In our 0:02:29.320 --> 0:02:31.440 big chart deck we published this morning, we actually added 0:02:31.480 --> 0:02:33.760 a midcaps section for the first time in quite some time, 0:02:34.160 --> 0:02:37.000 and it's a pretty similar story to small caps. They 0:02:37.000 --> 0:02:37.360 tend to. 0:02:37.400 --> 0:02:39.280 Benefit when you're in recovery mode. 0:02:39.800 --> 0:02:41.520 They started to do that a little bit, but not 0:02:41.560 --> 0:02:44.799 as much as we would have expected. The valuation story 0:02:44.919 --> 0:02:47.799 is pretty reasonable if you look at the multiples versus history, 0:02:48.080 --> 0:02:52.160 the midcaps look very cheap versus the megacaps right now, 0:02:52.560 --> 0:02:55.040 and if we get a recovery in twenty twenty four, 0:02:55.120 --> 0:02:57.640 there should be more upside there, so we do feel like, 0:02:57.680 --> 0:02:59.680 similar to how we feel in small caps, we feel 0:02:59.720 --> 0:03:01.720 like that MidCap part of the market where large cap 0:03:01.800 --> 0:03:05.079 managers actually can gravitate down to, we feel like that's 0:03:05.160 --> 0:03:06.600 right for a catch up trade as well. 0:03:06.720 --> 0:03:08.320 Laurie, We're going to be speaking with Michael Soon of 0:03:08.320 --> 0:03:10.520 Morgan Stanley later in this morning, which I'm really looking 0:03:10.520 --> 0:03:10.960 forward to. 0:03:11.360 --> 0:03:12.760 He has a no doubt. 0:03:12.600 --> 0:03:15.360 Talking about the fiscal backdrop and how much of a 0:03:15.440 --> 0:03:18.919 variable that is with respect to stock performance. How does 0:03:18.960 --> 0:03:22.120 that factor into what you're expecting going into an election 0:03:22.200 --> 0:03:23.720 year which tends to be tumultuous. 0:03:25.280 --> 0:03:27.639 So, you know, when we were going through this targeting, 0:03:27.680 --> 0:03:30.000 you know, kind of refresh last weekly, so we looked 0:03:30.040 --> 0:03:32.240 at one of our political tests, which is just a 0:03:32.280 --> 0:03:34.480 simple election cycle test, and one of the things we 0:03:34.560 --> 0:03:36.240 noticed is that the current year that we're intends to 0:03:36.280 --> 0:03:38.320 be one of the strongest for the markets, so it's 0:03:38.320 --> 0:03:42.000 been you know, kind of one of the more positive signals. 0:03:42.280 --> 0:03:45.440 And next year, the election year itself, for a presidential year, 0:03:45.760 --> 0:03:47.440 tends to be one of the weaker years in the 0:03:47.480 --> 0:03:50.080 election cycle. And I just juxtapose that with what I've 0:03:50.120 --> 0:03:52.600 been hearing from investors. They keep asking me, well, when 0:03:52.640 --> 0:03:54.720 are people going to start paying attention to the election. 0:03:54.800 --> 0:03:56.280 There are a lot of questions that are starting to 0:03:56.320 --> 0:03:58.840 come up, And my response to the investors I'm speaking 0:03:58.880 --> 0:04:00.920 with is, I think it's starting now because you're all 0:04:00.960 --> 0:04:03.520 asking me about it, and it seems to me that 0:04:03.600 --> 0:04:06.160 this is emerging as just a very very big source 0:04:06.200 --> 0:04:08.400 of uncertainty as to what is going to happen with 0:04:08.440 --> 0:04:10.680 the election next year, both in terms of the presidential 0:04:10.760 --> 0:04:11.640 race and Congress. 0:04:11.720 --> 0:04:14.560 So then, what is the election cycle playbook? What is 0:04:14.960 --> 0:04:17.800 how you played this particular type of uncertainty versus the 0:04:17.880 --> 0:04:20.480 uncertainty of where we are in the inflation cycle and 0:04:20.520 --> 0:04:21.280 the federal reserve. 0:04:23.360 --> 0:04:25.160 Well, I think there's a lot of, you know, questions 0:04:25.160 --> 0:04:27.200 that are starting to emerge about the outcome. One of 0:04:27.240 --> 0:04:29.719 the things I'm hearing from investors are, you know, they're 0:04:29.720 --> 0:04:31.040 trying to probe whether or not. 0:04:30.960 --> 0:04:32.279 They're alternatives to Biden. 0:04:32.320 --> 0:04:34.760 I'm hearing a lot of questions about that from international 0:04:34.760 --> 0:04:37.960 investors in particular. You know, I think there's a lot 0:04:37.960 --> 0:04:40.320 of head scratching over what's going going on on the 0:04:40.360 --> 0:04:42.599 Republican spide especially with DeSantis. 0:04:43.160 --> 0:04:44.680 There was some excitement there early on. 0:04:44.760 --> 0:04:47.159 Now that seems to have faded a bit, but I 0:04:47.160 --> 0:04:49.680 think this is just really an air pocket of uncertainty 0:04:49.720 --> 0:04:52.520 that's starting to emerge. We're not even really having detailed 0:04:52.520 --> 0:04:55.360 conversation with clients yet about what either side would want 0:04:55.400 --> 0:04:58.240 to do policy measures. It's really you know, I think 0:04:58.360 --> 0:05:01.839 just frankly, this over of not knowing what the outcome 0:05:01.920 --> 0:05:03.599 is going to be that could push investors to the 0:05:03.640 --> 0:05:05.320 sidelines for a little bit, and I think that's going 0:05:05.360 --> 0:05:07.320 to weigh heavily once we get to the fourth quarter, 0:05:07.680 --> 0:05:10.840 when everyone starts putting their outlook discussions out right, they're 0:05:10.839 --> 0:05:12.440 going to be talking about bed cuts in the back 0:05:12.440 --> 0:05:14.080 half of the year, but they're also going to be 0:05:14.080 --> 0:05:16.440 talking about the election, so we kind of see those 0:05:16.480 --> 0:05:18.080 things starting to come into the conversation. 0:05:18.360 --> 0:05:19.840 We have more outlooks to come. 0:05:20.040 --> 0:05:22.520 Oh joy, Well, some of those outlooks are being revised 0:05:22.520 --> 0:05:25.400 pretty quickly. The recession calls on Wall Street dropping like 0:05:25.480 --> 0:05:29.080 f ck Mike Gapan in the last week, Mike Feroli, 0:05:29.200 --> 0:05:31.880 JP Morgan gone into the weekend dropping his recession call too. 0:05:32.120 --> 0:05:35.440 Can you see Calvacina on the deck with a fam 0:05:35.600 --> 0:05:38.120 working on her outlook? Gin and Tonic on the table 0:05:38.200 --> 0:05:38.839 next door. 0:05:38.839 --> 0:05:42.000 In the summer, the summer, the mid year, the mid year, 0:05:42.200 --> 0:05:46.760 the summer, the summer time, summer, the summer time outlook, Laurie, 0:05:46.760 --> 0:05:48.800 can I finish on a single name? Forgive me? What 0:05:48.839 --> 0:05:51.520 does it say about the market when the biggest waiting 0:05:51.560 --> 0:05:53.760 on the S and P five hundred has had three 0:05:53.880 --> 0:05:58.320 quarters of declining sales, trades at thirty times earnings and 0:05:58.480 --> 0:06:01.760 is up forty percent yeah today? What can you take 0:06:01.800 --> 0:06:03.640 away from that? What's the signal you take from that. 0:06:04.920 --> 0:06:05.360 One of the. 0:06:05.320 --> 0:06:08.080 Reasons why I think people have been gravitating towards these 0:06:08.080 --> 0:06:11.200 megacap growth stocks is that we are in recovery mode 0:06:11.240 --> 0:06:13.800 and the shape of that recovery doesn't look so fantastic. 0:06:13.839 --> 0:06:16.080 I think the price we're going to pay for a short, shallower, 0:06:16.160 --> 0:06:18.920 skipped recession is subpar economic growth for a few years. 0:06:19.120 --> 0:06:21.839 If you look at consensus forecast is tracked by Bloomberg, 0:06:22.640 --> 0:06:25.840 basically for next year and twenty twenty five, GDP is 0:06:25.920 --> 0:06:27.839 expected to be in kind of that zero to two 0:06:27.839 --> 0:06:31.000 percent range. Well, guess what growth stocks typically do well 0:06:31.000 --> 0:06:33.840 when economic growth is scarce. And I think that's one 0:06:33.880 --> 0:06:36.560 of the reasons why people have been just plowing so 0:06:36.720 --> 0:06:39.839 much money into these big megacap names because despite some 0:06:39.920 --> 0:06:42.120 of the near term challenges, they have faith that the 0:06:42.120 --> 0:06:44.080 longer term growth opportunities are still there. 0:06:44.320 --> 0:06:47.680 Lurie, thank you. Lori Cavasena of MBC on somebody Tech 0:06:47.800 --> 0:06:48.960 stories so far this year. 0:06:53.000 --> 0:06:56.000 Our Conversation of the Day now on the equity markets 0:06:56.000 --> 0:06:58.640 of stock Market with Michael Wilson, Mike Wilson's CIO and 0:06:58.720 --> 0:07:02.720 chief US Equity strategy at Morgan Stanley. Mike, you go 0:07:02.800 --> 0:07:05.400 over and you study Ellen Zettner's notes and you look 0:07:05.440 --> 0:07:10.320 at fiscal tightening. Describe fiscal tightening, Describe what it means 0:07:10.640 --> 0:07:12.640 for the standard im ploors five hundred. 0:07:14.120 --> 0:07:17.080 Yeah, good morning guys. Yeah, look, I think you know, 0:07:17.120 --> 0:07:19.600 I don't think we've hit a wall completely here, but 0:07:19.880 --> 0:07:22.960 I think it's fair to say that the physical impulse 0:07:23.040 --> 0:07:26.080 that we've experienced over the last twelve months caught a 0:07:26.080 --> 0:07:29.560 lot of people off guard, including ourselves, and it has 0:07:29.640 --> 0:07:32.360 really kept the economy going in a way that most 0:07:32.360 --> 0:07:35.520 people were not projecting, and that has led people to 0:07:35.640 --> 0:07:38.960 believe that this can continue. Now, there's been a confluence 0:07:38.960 --> 0:07:42.080 of events for why interest rates have risen. I wouldn't 0:07:42.120 --> 0:07:44.240 blame it all on the downgrade last week. In fact, 0:07:44.280 --> 0:07:46.600 probably none of it is. I think the bigger issue 0:07:46.600 --> 0:07:49.360 is just simple supply and demand. We have an enormous 0:07:49.360 --> 0:07:52.920 amount of supply. The fund all is spending at a 0:07:53.040 --> 0:07:56.440 time when perhaps some of the natural buyers are not 0:07:56.480 --> 0:08:00.800 there anymore. For example, the banking system pretty full fun treasuries, 0:08:01.160 --> 0:08:03.640 and of course the Bank of Japan's changed last week, 0:08:03.720 --> 0:08:05.920 So you know, I think the interest rate move. Look, 0:08:05.960 --> 0:08:09.080 first of all, stocks are already expensive on their own 0:08:09.120 --> 0:08:11.280 cost of capital going up now think about it this way. 0:08:11.480 --> 0:08:15.680 The the the recovery we've had since COVID has been 0:08:15.720 --> 0:08:18.800 funded by the government for the most part, okay, and 0:08:18.880 --> 0:08:21.880 now their cost to capital is going up, So that 0:08:21.960 --> 0:08:24.000 has to have some sort of a you know, some 0:08:24.040 --> 0:08:27.000 sort of a knock on effect evaluation. If we were 0:08:27.000 --> 0:08:29.880 trading at a lower valuation here, I wouldn't be so 0:08:30.200 --> 0:08:33.360 concerned about the growth outlook. But you know, given our growth, 0:08:33.600 --> 0:08:36.520 our growth outlook, which is more customistic than most, that's 0:08:36.640 --> 0:08:38.880 where the that's where we have a real issue. And look, 0:08:38.920 --> 0:08:41.160 you can still make money picking stocks. It's just a 0:08:41.200 --> 0:08:43.800 harder game, and I think that's what most clients are 0:08:43.840 --> 0:08:44.440 having trouble with. 0:08:44.920 --> 0:08:46.640 That's where I wanted to go, Michael, So, I think 0:08:46.679 --> 0:08:48.720 this is so important. If we get a fiscal tightening 0:08:48.800 --> 0:08:54.520 and whatever your matrix is of equity dynamics folded into economics, 0:08:54.760 --> 0:08:58.400 if you will, does it lead to a more aggregate 0:08:58.679 --> 0:09:03.120 summed index or is it where sectors and selected stocks, 0:09:03.200 --> 0:09:07.480 including the glorious eight tech stocks, they're partitioned out, they 0:09:07.520 --> 0:09:09.520 do great while everybody else struggles. 0:09:10.880 --> 0:09:12.880 Well, that's been the bet that has worked so far 0:09:12.960 --> 0:09:15.360 this year. But now even those stocks seem to be tiring. 0:09:15.400 --> 0:09:17.400 I mean this, you know, this earning season has been 0:09:17.440 --> 0:09:19.959 to sell the news so to speak, if you want 0:09:19.960 --> 0:09:22.120 to call it that, even though even with companies that 0:09:22.120 --> 0:09:24.120 put up good numbers, it's been kind of a faded 0:09:24.640 --> 0:09:28.160 because the market anticipated, you know, kind of this stronger 0:09:28.280 --> 0:09:30.520 economic bounce this year and perhaps earning is not being 0:09:30.559 --> 0:09:32.880 as bad as people were thinking, and then we kind 0:09:32.880 --> 0:09:35.560 of muddle through. So now the question I think for 0:09:35.600 --> 0:09:38.120 the you know, for this rally to continue, it has 0:09:38.160 --> 0:09:40.480 to happen internally, right, We have to have breath improve. 0:09:40.920 --> 0:09:42.800 We need to see a rotation into some of these 0:09:42.880 --> 0:09:45.760 lagging areas. We've started to see that. We're not convinced 0:09:45.840 --> 0:09:47.800 yet that the breath. That way we measure breadth is 0:09:47.840 --> 0:09:50.439 not convincing to us yet, but we're open minded to it. 0:09:50.760 --> 0:09:52.559 But that's that would be the next stage of the 0:09:52.559 --> 0:09:54.240 bull market. If you want to be bullish, you have 0:09:54.320 --> 0:09:56.920 to be buying laggers here. You can't just keep chasing, 0:09:57.280 --> 0:09:59.600 you know, the magnificent seven and forget about everything else. 0:09:59.600 --> 0:10:01.079 That's not a healthy outcome. 0:10:01.200 --> 0:10:03.520 What about what Kareron Dawson was talking about, especially at 0:10:03.520 --> 0:10:05.960 a time of rising yields in part due to the 0:10:05.960 --> 0:10:08.600 fiscal backdrop, the supply and demand that you're talking about, 0:10:09.000 --> 0:10:11.400 It turns out that stocks become not a teen of 0:10:11.480 --> 0:10:14.520 trade but a little bit. There isn't another alternative that's 0:10:14.600 --> 0:10:18.560 much better. Revenues are going up in an inflationary environment. Yes, 0:10:18.640 --> 0:10:20.520 multiples look high. Well what are you going to do 0:10:20.679 --> 0:10:23.840 go into bonds that are losing value at this point? 0:10:24.080 --> 0:10:26.360 I mean, how much do you buy that type of argument? 0:10:27.880 --> 0:10:30.440 Well, we don't buy it because our view is that 0:10:30.480 --> 0:10:34.120 inflation's coming down much more rapidly from you know, at 0:10:34.120 --> 0:10:36.480 the company level than it is and the government statistics. 0:10:36.520 --> 0:10:38.000 And this is where I think it can get really 0:10:38.160 --> 0:10:40.120 interesting in this or tricky in the second half of 0:10:40.160 --> 0:10:44.120 the year. Which is we have government statistics reporting inflation 0:10:44.280 --> 0:10:46.480 still at three or four percent, So the FED is 0:10:47.280 --> 0:10:50.280 going to continue to hold or maybe even raise more. Yet, 0:10:50.320 --> 0:10:53.320 what companies are actually seeing in their businesses least that are, 0:10:53.679 --> 0:10:56.240 you know, deterioration, Like we have negative price now in 0:10:56.240 --> 0:10:59.240 many of the good sectors. Right the PPI finished goods 0:10:59.280 --> 0:11:02.439 is in negative tearatory export pricing, import pricing. So it's 0:11:02.440 --> 0:11:04.800 the opposite of twenty twenty one. Think of it this way. 0:11:05.040 --> 0:11:07.160 In the back and half of twenty twenty one, companies 0:11:07.200 --> 0:11:10.200 were getting fifteen to twenty percent price if the FED 0:11:10.320 --> 0:11:12.920 was on hold, because they were saying, well, we're not 0:11:12.960 --> 0:11:15.319 sure yet this is going to be permanent. Of course 0:11:15.320 --> 0:11:18.199 they relate to the party, and companies got to overearn 0:11:18.320 --> 0:11:19.960 at a very low interest rate. Now you have the 0:11:19.960 --> 0:11:22.600 exact opposite. Interest rates are being held very very high 0:11:22.920 --> 0:11:25.640 at a time when company earnings for the majority, not all, 0:11:25.720 --> 0:11:28.160 but the majority of companies is deteriorating. I means sales 0:11:28.160 --> 0:11:31.000 growth is not increasing, especially going down, and we have 0:11:31.120 --> 0:11:33.480 zero percent sales growth in the second quarter. And if 0:11:33.520 --> 0:11:36.079 we're right on this pricing dynamic, then that's going to 0:11:36.080 --> 0:11:38.000 be something that catches folks off guard. That's why we're 0:11:38.000 --> 0:11:40.440 not going into small caps and the lower quality parts 0:11:40.440 --> 0:11:42.360 in the market. If you're going to go to the laggers, 0:11:42.400 --> 0:11:44.080 make sure you go to the laggers that have good balance 0:11:44.080 --> 0:11:46.559 sheets and good margin structures. Okay, so it's still a 0:11:46.640 --> 0:11:50.160 quality play, just you know, just different quality names. 0:11:50.400 --> 0:11:53.560 If inflation is going to come down and come down rapidly, 0:11:53.960 --> 0:11:57.000 then why wouldn't that really favor a FED rate cut 0:11:57.160 --> 0:12:00.079 that could turbo charge some of the trade into big. 0:12:01.720 --> 0:12:04.760 Well, because I think I mean the FED no, I mean, 0:12:04.760 --> 0:12:08.000 they know they made a mistake, and they've said it right. 0:12:08.000 --> 0:12:09.920 They know they were a little bit laid on the 0:12:09.960 --> 0:12:13.160 transitory call. Okay, fine there. I mean, why would they 0:12:13.200 --> 0:12:15.720 cut rates if we have full employment? I mean, there's 0:12:15.720 --> 0:12:17.880 no reason to do that. Unemployment is three and a 0:12:17.920 --> 0:12:21.600 half percent, you have inflation still north of three percent, 0:12:21.679 --> 0:12:22.920 so now anywhere near their goal? 0:12:23.480 --> 0:12:23.920 Just hold. 0:12:23.960 --> 0:12:26.120 I mean, I'm not making the case they need a 0:12:26.200 --> 0:12:28.120 raise race here. I don't think they need to do that, 0:12:28.400 --> 0:12:29.880 but I think they're going to want to see the 0:12:29.880 --> 0:12:32.080 whites of the eyes to make sure that things are down. 0:12:32.320 --> 0:12:33.640 I'm not I don't work at the BED. I don't 0:12:33.679 --> 0:12:36.080 know what they're going to do. But my prudence would 0:12:36.080 --> 0:12:38.240 say that's what they should do. They should they should 0:12:38.280 --> 0:12:41.840 pause and see what happens and not try to anticipate 0:12:41.840 --> 0:12:43.360 too much here because that's gonna be in trouble. 0:12:43.440 --> 0:12:45.960 Last time, Mike, can we just finish with your framework 0:12:46.000 --> 0:12:50.040 post pandemic framework? We'll remember it well, it was hot 0:12:50.280 --> 0:12:53.000 and short. The cycle would be hot, but ultimately it 0:12:53.040 --> 0:12:55.640 would be shorter than what we'd seen previously. Now, Mike, 0:12:55.679 --> 0:12:58.280 it certainly was hot, and you've got the equity market 0:12:58.280 --> 0:13:01.600 call coming out of the pandemic dead on. But Mike, 0:13:01.760 --> 0:13:04.880 does anything lead you to question the short part? Because 0:13:04.880 --> 0:13:07.280 I think that's where the conversation is quickly shifting, as 0:13:07.320 --> 0:13:09.080 you know, over the last couple of weeks. 0:13:10.320 --> 0:13:12.600 Yeah, I mean this is going to sound ironic, Okay, So, 0:13:13.240 --> 0:13:16.440 as you remember back in January, I was concerned that 0:13:16.480 --> 0:13:20.520 everybody was too bearish, including ourselves, and that proved to 0:13:20.559 --> 0:13:22.400 be the right. You know, I should have gone with 0:13:22.400 --> 0:13:26.520 my instinct. And now though, I think the fact that 0:13:26.640 --> 0:13:29.720 everybody is saying that the recession risk is eliminated for 0:13:29.760 --> 0:13:32.040 the most part, including the FED itself. Right, they had 0:13:32.040 --> 0:13:34.120 called for recession back in March. They just staffed it, 0:13:34.480 --> 0:13:37.200 and they backed off that too. I don't know if 0:13:37.240 --> 0:13:39.320 we need a full blown recession, but I'm pretty convinced 0:13:39.320 --> 0:13:41.679 that growth is still flowing like we're in a down 0:13:42.000 --> 0:13:45.120 cycle now. Whether that leads to a full blown labor 0:13:45.160 --> 0:13:47.680 cycle or not remains to be seen. I think most 0:13:47.679 --> 0:13:49.920 people have pushed out the recession called the twenty four 0:13:49.920 --> 0:13:53.280 Ilean day set. It's eliminated, so it may be a 0:13:53.280 --> 0:13:55.480 four year cycle as opposed to a three year cycle. 0:13:55.600 --> 0:13:59.760 That's very plausible. I still really, I really like our boombust, 0:14:00.160 --> 0:14:02.440 you know, short cycle thesis based on the forties, because 0:14:02.440 --> 0:14:04.920 I've seen the data really supporting that. John and part 0:14:04.960 --> 0:14:07.720 of our note over the weekend, and you can appreciate 0:14:07.800 --> 0:14:10.520 this because you've followed it the whole time, is that 0:14:10.640 --> 0:14:13.200 we you know, we got you know, we kind of 0:14:13.240 --> 0:14:15.560 missed this fiscal impulse, right. That was a big miss 0:14:15.559 --> 0:14:17.640 on our part. We thought the fiscal impulse would come 0:14:18.040 --> 0:14:20.440 at the time that they really needed it. And think 0:14:20.440 --> 0:14:23.160 about this way they're doing. They're doing eight percent budget 0:14:23.160 --> 0:14:25.880 deficits spending when you have three and a half percent unemployment. 0:14:25.920 --> 0:14:29.360 I mean that's really unprecedented. So what's going to happen 0:14:29.400 --> 0:14:31.480 if we do get a slowdown next year, And I 0:14:31.520 --> 0:14:34.160 just think that I just think this boom bust thesis 0:14:34.200 --> 0:14:36.840 is so correct, and maybe the market's looking through it 0:14:36.880 --> 0:14:39.720 to the to the other side. Look, that's that's a 0:14:39.840 --> 0:14:42.880 risky proposition given where valuations are. It was a great 0:14:42.920 --> 0:14:46.000 idea to buy stocks last fall. We traded it. We 0:14:46.000 --> 0:14:48.440 didn't stick with it long enough, Okay, But I think 0:14:48.440 --> 0:14:51.160 at this stage you need to be very selective, very 0:14:51.200 --> 0:14:53.800 selective for some sort of retlacement, at least back to 0:14:53.840 --> 0:14:55.120 the tuner day moving average. 0:14:55.200 --> 0:14:57.560 Mike Wander for to get your thoughts. An update on 0:14:57.600 --> 0:15:00.440 the team at Morgan Stanley and Equity Research. Mike Wilson 0:15:00.520 --> 0:15:01.760 there of Morgan Stanley. 0:15:12.480 --> 0:15:15.640 Apple had a solid two standard deviation, moved to a 0:15:15.720 --> 0:15:18.840 lower weaker price, unlike some of the success stories that 0:15:18.920 --> 0:15:21.640 were out there last week. But with that, you know, 0:15:21.720 --> 0:15:23.920 it's not like it's a technical breakdown. I thought Sarah 0:15:24.000 --> 0:15:26.160 Hunt when we spoke to her, was on fire. I 0:15:26.240 --> 0:15:27.080 thought she was just great. 0:15:27.240 --> 0:15:29.360 Dan I was of Wetbush still bullish, Tom still bullish 0:15:29.440 --> 0:15:32.040 on the start. Despite a week Earning's report raising their 0:15:32.040 --> 0:15:35.120 price target from two twenty to two thirty. iPhones and 0:15:35.200 --> 0:15:38.440 services will accelerate in the June quarter with the softness 0:15:39.440 --> 0:15:43.000 OL Mac and iPad driven when excluding FX and focusing 0:15:43.080 --> 0:15:45.960 on the hearts and lungs, iPhones and services. This was 0:15:46.000 --> 0:15:49.080 a strong performance and guidance in our view, and we 0:15:49.120 --> 0:15:51.720 would be strong buyers on any weakness with Tom. I 0:15:51.760 --> 0:15:53.200 can tell you in the last week we've had some 0:15:53.320 --> 0:15:54.720 of that. We've had some weakness. 0:15:54.600 --> 0:15:58.000 Doing some important research. Now joining us from hirsh gibu 0:15:58.200 --> 0:16:04.600 Leedspillion twenty five ten seventeen PS Amsterdam, where Apple says 0:16:05.120 --> 0:16:09.440 vil javent and vat vor Joe. The best scus East 0:16:10.160 --> 0:16:13.000 is Daniel ives he is in Amsterdam and joins us 0:16:13.040 --> 0:16:16.560 by phone this morning. Dan, I does Apple sell in 0:16:16.680 --> 0:16:19.880 Amsterdam like it sells in New York, like it sells 0:16:19.960 --> 0:16:23.960 in Chicago, like it sells in La They do? 0:16:24.360 --> 0:16:26.960 I mean, I can tell you by what I've seen 0:16:27.080 --> 0:16:31.280 here and what Apple has always had, the presence, not 0:16:31.480 --> 0:16:34.280 just an Ansen, but across Europe. And I think if 0:16:34.320 --> 0:16:37.720 you look at the quarter, like Pharaoh was talking, I 0:16:37.880 --> 0:16:42.920 focus on iPhones, services, China, grouse margin. That was all 0:16:43.000 --> 0:16:46.240 better than expected, Mac and iPad. We have viewers noise 0:16:46.800 --> 0:16:47.760 Dan in Europe. 0:16:48.080 --> 0:16:49.960 They want to go after Google. They want to go 0:16:50.040 --> 0:16:53.800 after Microsoft. Indeed the evil Apple as well. Let's say 0:16:53.880 --> 0:16:57.280 that they are in a sense anti technology. That's the 0:16:57.400 --> 0:17:01.760 political elites. Are the people of Amsterdam, the people of Berlin, 0:17:01.880 --> 0:17:07.600 et cetera. Oslo Are they anti Apple, anti Google, anti technology? 0:17:09.160 --> 0:17:12.080 They're not an anti Apple. They're actually pro Apple, and 0:17:12.160 --> 0:17:14.280 I think investors are pro Apple. I think when it 0:17:14.400 --> 0:17:17.080 comes to the EU and when we see from a 0:17:17.160 --> 0:17:20.359 regulatory that's a whole nother situation. But I think it 0:17:20.520 --> 0:17:24.359 just comes down to find for big tech companies like Apple, 0:17:24.520 --> 0:17:27.880 Google at this point, that's like drinking a cup of coffee, 0:17:28.000 --> 0:17:30.280 and I think the investors are going to continue vida 0:17:30.280 --> 0:17:33.880 as background or is even though the heat gets hotter. 0:17:33.760 --> 0:17:35.760 In the kitchen, Let's talk about the hot and lungs 0:17:35.760 --> 0:17:37.399 of it. Dan. I think over the weekend someone at 0:17:37.440 --> 0:17:41.640 Parents said something like iPhone zero zero growth. Now, Dan, 0:17:41.680 --> 0:17:44.080 we've had three quarters of that. The stock's training at 0:17:44.119 --> 0:17:47.120 a multiple thirty thirty times earnings, and is that forty 0:17:47.160 --> 0:17:50.520 percent year today? What's the argument still that this is 0:17:50.560 --> 0:17:51.160 a growth stock? 0:17:52.880 --> 0:17:55.480 Well, first, you have four hundred bibs of that back sidewind, 0:17:55.640 --> 0:17:58.120 So the zero per se when I view it from 0:17:58.119 --> 0:18:02.400 a concurrency perspective where they're growing, and then you look 0:18:02.480 --> 0:18:05.240 at now what goes into the iPhone fifteen, which i've 0:18:05.320 --> 0:18:09.119 used basic Mini supercycle. You have twenty five percent of 0:18:09.119 --> 0:18:12.320 the install based that's not upgrade four plus years. So 0:18:12.520 --> 0:18:16.800 even though they've gone through what what i'll call conservative growth, 0:18:17.920 --> 0:18:20.359 that's going to now start to be high single digit, 0:18:20.800 --> 0:18:24.679 potentially double digit. And then at the same time services 0:18:25.000 --> 0:18:29.040 that is the key to the rereading. Now you're starting 0:18:29.080 --> 0:18:32.600 to see double digit services growth, and I think that's 0:18:32.640 --> 0:18:36.360 the perfect storm positive that I see going twenty twenty four. 0:18:36.640 --> 0:18:38.840 Part of your bullish theasis for a long time has 0:18:38.920 --> 0:18:41.959