WEBVTT - Stock Market Is Getting Close To Being Washed Out: Maley 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:31.760 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. If 0:00:31.800 --> 0:00:35.440 you blink, you will probably miss the direction of stock markets. 0:00:35.479 --> 0:00:38.800 They are whipping around. Uh, they were down, then they 0:00:38.840 --> 0:00:41.760 were up as much as a percent on the Nasdaq, 0:00:41.840 --> 0:00:44.600 which has been leading the losses and the gains, and 0:00:44.720 --> 0:00:48.479 now they're up solidly but way off that NAZAC up 0:00:48.520 --> 0:00:52.400 to tents of two tenths of a percent joining us now. 0:00:52.479 --> 0:00:55.520 Matt Malee, equity strategist for Miller, ty Back and Company, 0:00:56.280 --> 0:00:59.320 joining us, Mad, how do you interpret the whippy action 0:00:59.360 --> 0:01:03.040 that we've seen, Uh, that really has marked every day 0:01:03.120 --> 0:01:05.640 over the past few weeks. After the past few weeks, 0:01:05.640 --> 0:01:09.560 excuse me, it feels like a Friday. Yeah, it's it's well, 0:01:09.640 --> 0:01:13.240 yesterday's it was. It was particularly worrisome because a lot 0:01:13.280 --> 0:01:16.120 of these big swings we've seen have been kind of 0:01:16.120 --> 0:01:18.640 one directional. We do in other words, well, say two directional. 0:01:18.680 --> 0:01:21.120 In other words, the first direction is in the morning 0:01:21.120 --> 0:01:24.039 we either open up very strongly or open down very strongly, 0:01:24.319 --> 0:01:26.880 and then uh, and then we move in the other direction, 0:01:26.920 --> 0:01:29.520 So that's kind of a second move. Yesterday we actually 0:01:29.560 --> 0:01:32.000 had three moves and uh. I think that you know, 0:01:32.080 --> 0:01:35.440 that does nothing but making people more uncertain. And as 0:01:35.440 --> 0:01:37.000 we all know, I mean, it's an old cliche, but 0:01:37.000 --> 0:01:39.479 it's very very true. There's nothing worse for the markets. 0:01:40.280 --> 0:01:43.240 The markets hate nothing more than uncertainty. And I think 0:01:43.280 --> 0:01:46.320 this has got people stepping back from this rally this morning. 0:01:46.360 --> 0:01:47.960 I mean, it's still holding up a little bit, but 0:01:48.320 --> 0:01:50.760 we're well off our highs on the day. Matt Malie, 0:01:50.920 --> 0:01:54.080 in your experience, is it possible to know how many 0:01:54.160 --> 0:01:57.200 shares of a particular stock need to be traded in 0:01:57.320 --> 0:02:00.400 order to move that said stock in one d direction 0:02:00.640 --> 0:02:04.560 or another. I'm sure there's been many studies on it, 0:02:04.600 --> 0:02:07.000 but for exact numbers that I'm not aware of it. Okay. 0:02:07.040 --> 0:02:09.519 The reason I bring that up is because hardly anyone 0:02:10.200 --> 0:02:13.240 has that information. I've never met anybody who can tell 0:02:13.280 --> 0:02:17.560 precisely what kind of volume is necessary in order to 0:02:17.639 --> 0:02:19.680 move his stock, and the reason I posed this to 0:02:19.720 --> 0:02:23.760 you is because the prices are determined not by long 0:02:23.880 --> 0:02:28.640 term shareholders who may not ever touch their positions. But 0:02:29.360 --> 0:02:33.400 I'm wondering who determines the price that we see on 0:02:33.440 --> 0:02:36.880 a daily basis, not on a long term basis, but 0:02:37.000 --> 0:02:41.399 on this volatile trading basis. Well, I'm afraid nowadays, of course, 0:02:41.440 --> 0:02:44.400 and more than more than ever, it's these uh you know, 0:02:44.440 --> 0:02:47.120 it's the mechanics trading. And we all talk about algalis 0:02:47.160 --> 0:02:50.160 and high frequency traders and such. We've been talking about 0:02:50.160 --> 0:02:52.440 it for years, but there's no questions they play a 0:02:52.480 --> 0:02:55.720 big role. And and the thing is in in in 0:02:55.960 --> 0:02:58.280 former days when you didn't have such a you know, 0:02:58.320 --> 0:03:00.200 there was been recognized trading around for a while. But 0:03:00.280 --> 0:03:02.880 with these algorithms that they're just kicking immediately. But not 0:03:02.919 --> 0:03:05.960 only do they add by orders when the when the 0:03:05.960 --> 0:03:08.800 market's going up, but they cancel sell orders and they 0:03:08.800 --> 0:03:11.120 cancel offerings in the same one in the opposite direction, 0:03:11.360 --> 0:03:14.000 when they add sell orders, they cancel their bids. And 0:03:14.040 --> 0:03:16.640 this exacerbates the big swings that we have in the marketplace, 0:03:16.840 --> 0:03:19.560 and it makes it for much harder for for us 0:03:19.600 --> 0:03:22.280 to regain our you know, kind of the UH investor 0:03:22.320 --> 0:03:23.920 confidence that we need to get, you know, to form 0:03:24.000 --> 0:03:26.679 an exactly a kind of the bottom for this h 0:03:26.760 --> 0:03:29.880 this sell off. So given that confusion, can you read 0:03:30.000 --> 0:03:32.240 anything into this? I know that you have a lot 0:03:32.240 --> 0:03:35.160 of specialty looking at technical analysis and sort of watching 0:03:35.160 --> 0:03:37.920 the markets and the patterns. Me are you gleaning anything 0:03:38.120 --> 0:03:39.760 or is it sort of all over the place because 0:03:39.800 --> 0:03:43.440 of this of the noise? Well? No, actually, you know 0:03:43.440 --> 0:03:45.680 we are seeing some things now, I mean the showing 0:03:45.720 --> 0:03:48.440 that we I think we're getting somewhat close to a 0:03:48.480 --> 0:03:51.320 bottom the problem whenever we have in terms of time, 0:03:51.680 --> 0:03:53.240 I think that we you know, we're starting to see 0:03:53.280 --> 0:03:55.320 a big pickup in volume. We're seeing some of the 0:03:55.960 --> 0:03:59.800 major groups I'm sorry, the major average is being oversold, 0:04:00.080 --> 0:04:02.360 maybe not yet to the quite the big extremes we 0:04:02.480 --> 0:04:05.600 usually see, but still getting very close to that. We're 0:04:05.600 --> 0:04:08.080 also seeing um sentiment. I mean, I look at the 0:04:08.120 --> 0:04:11.320 daily Sentiment index which measures futures traders. It's only ten 0:04:11.360 --> 0:04:14.920 percent bulls right now, that's quite a quite extremely sometimes 0:04:14.920 --> 0:04:16.560 you usually seem to need to see it fall into 0:04:16.600 --> 0:04:18.839 the single digits, but we're getting very close to that. 0:04:18.920 --> 0:04:22.240 So the problem is with these mechanized tradings going on, 0:04:22.440 --> 0:04:24.400 you could see a big another down, draft, another down 0:04:24.520 --> 0:04:27.040 five percent or more over a couple of days before 0:04:27.040 --> 0:04:29.479 we get that bottom um. But the thing I like 0:04:29.600 --> 0:04:31.440 the most right now is what we're seeing in some 0:04:31.480 --> 0:04:34.000 of the really beaten down groups, like the housing stocks 0:04:34.040 --> 0:04:38.760 and the um bank stocks. They've gotten so oversold that 0:04:38.839 --> 0:04:40.760 they're really getting to a level they should be bought. 0:04:40.800 --> 0:04:43.159 I believe number one and number two this week they've 0:04:43.160 --> 0:04:45.200 outperformed the rest of the market, so they're holding up 0:04:45.279 --> 0:04:47.840 much better than the rest of the market. Shows that 0:04:47.920 --> 0:04:49.719 at least they're getting washed out. So I think the 0:04:49.760 --> 0:04:51.200 rest of the market is getting very close to being 0:04:51.200 --> 0:04:53.760 washed out as well. Matt. Maybe I just want you 0:04:53.800 --> 0:04:56.720 to offer a little bit more detail into the technical 0:04:56.880 --> 0:05:01.200 aspects of trading, in the sense that sell orders can 0:05:01.320 --> 0:05:04.480 be canceled because you might put out a bid there 0:05:04.800 --> 0:05:07.920 to sell a large block of stock, and by the 0:05:07.920 --> 0:05:11.600 time you get back any information about what's available at 0:05:11.600 --> 0:05:15.120 a particular price, you can then cancel that order, which is, 0:05:15.160 --> 0:05:20.479 as you say, would accentuate changes in volatility exactly. They 0:05:20.520 --> 0:05:23.800 they again these these uh the way these things are 0:05:23.800 --> 0:05:26.000 set up in in in fractions of a section, so 0:05:26.240 --> 0:05:28.680 and I mean real fraction tiny when millions of it, 0:05:28.800 --> 0:05:31.360 well one thousands of of a second. Uh, these orders 0:05:31.400 --> 0:05:33.400 can be canceled. You think you've got a bid to hit, 0:05:33.720 --> 0:05:35.039 in other words, that you can sell it at a 0:05:35.040 --> 0:05:36.760 certain price. When you go down to sell it, it's 0:05:36.760 --> 0:05:39.159 not there. Uh. And then suddenly you're selling at a 0:05:39.160 --> 0:05:41.520 lower price. And if you put a market order in 0:05:41.560 --> 0:05:44.359 and then suddenly you're you're hitting. Instead of sending a 0:05:44.400 --> 0:05:46.320 lot of one price, you sold just very little there, 0:05:46.360 --> 0:05:48.479 and then you sell the stock down, so it's it 0:05:48.520 --> 0:05:51.960 gets overdone. I'll tell you though, if we get another downdraft, 0:05:52.080 --> 0:05:54.120 I believe the best way to play it is not 0:05:54.200 --> 0:05:56.800 trying to pick the bottom. But while I call align 0:05:56.880 --> 0:05:58.600 the book. In other words, if you want to buy 0:05:59.520 --> 0:06:02.320 a foul dollars with a stock by two at one level, 0:06:02.440 --> 0:06:05.080 then by another two hundred down half of a dollar 0:06:05.120 --> 0:06:07.159 below that, and below that, blow that line it all 0:06:07.200 --> 0:06:08.880 the way down. You're never gonna be able to pick 0:06:08.920 --> 0:06:10.960 the bottom. But that way your average price will be 0:06:11.000 --> 0:06:13.880 actually quite good and you won't be sitting there trying 0:06:13.920 --> 0:06:15.880 to chase things around when all this mechanized trading is 0:06:15.880 --> 0:06:17.400 going on. Matt, what do you think is driving the 0:06:17.480 --> 0:06:21.400 sell off. Well, I think you know, it's threefold. Number 0:06:21.440 --> 0:06:25.440 one is the the Federal Reserve u uh sticking by 0:06:25.480 --> 0:06:28.440 their guns and saying that they're going to continue to tighten. Um. 0:06:28.480 --> 0:06:30.039 And the one thing is that they've been tightening for 0:06:30.080 --> 0:06:33.279 two years now, almost two years anyway, and and that's 0:06:33.279 --> 0:06:35.679 what happens. That usually takes usually a big lad between 0:06:35.680 --> 0:06:37.480 when they start tightening when it has an impact on 0:06:37.520 --> 0:06:39.960 the stock market. Now. The same thing as is true 0:06:40.080 --> 0:06:45.359 uh on the these um things with trade issues with China. 0:06:45.640 --> 0:06:47.159 I mean, it was a lot of talk, but once 0:06:47.240 --> 0:06:50.560 these trade I'm sorry, these terrorists were actually imposed, that's 0:06:50.560 --> 0:06:52.480 when it's starting having the impact. And it is having 0:06:52.480 --> 0:06:55.760 an impact as we're seeing on at least not earnings 0:06:55.839 --> 0:06:58.400 right now, but on earnings guidance, and that's a big concern. 0:06:58.680 --> 0:07:00.279 And the last thing, of course, I think is Europe 0:07:00.279 --> 0:07:02.200 with this thing is Italy. The people. You know, we've 0:07:02.200 --> 0:07:05.239 seen the European banks fall well into the bear market 0:07:05.320 --> 0:07:08.279 territory before and our markets started to decline. It's something 0:07:08.320 --> 0:07:10.360 people were ignoring and not paying enough attention to. So 0:07:10.520 --> 0:07:13.600 it's kind of three three pronged thing here. Um. But uh, 0:07:14.160 --> 0:07:17.360 you know, it's it's the economy is still fine. I think, Well, 0:07:17.560 --> 0:07:19.720 this correction is healthy and normal. It could be a 0:07:19.760 --> 0:07:22.080 little bit deeper, actually, could be even go down another 0:07:22.120 --> 0:07:23.680 you know, like I said, five or six or seven 0:07:23.680 --> 0:07:26.600 percent more, But uh, we don't want things to go 0:07:26.680 --> 0:07:29.240 up on a straight line. This is actually healthy and 0:07:29.480 --> 0:07:33.920 h I wouldn't um, I wouldn't get overly concerned. It's scary, 0:07:33.960 --> 0:07:37.400 but that's that's the way it works. Thanks very much 0:07:37.440 --> 0:07:41.120 for being with us. Matt Malee is the chief equity 0:07:41.200 --> 0:07:44.920 strategist for Miller, tay Back and Company, and it sounds 0:07:44.920 --> 0:07:48.920 as though he's bullish, at least on the price action. 0:07:49.480 --> 0:07:51.640 I mean, this price action is mind boggling. Now we're 0:07:51.680 --> 0:07:54.400 back down to barely any gain at all on the NASDAC. 0:07:54.480 --> 0:07:56.760 I mean, things have absolutely been swinging all over the 0:07:56.760 --> 0:07:59.360 place h today, and they have been over the past 0:07:59.400 --> 0:08:03.000 few days. That certainly undermines confidence in and of itself. Yeah, 0:08:03.040 --> 0:08:05.440 and you've got this sell off well. I mean, even 0:08:05.440 --> 0:08:08.080 though the SMP fire is higher by a little bit 0:08:08.080 --> 0:08:10.600 more than six and a half points, it is off 0:08:10.680 --> 0:08:13.440 its highs of the day, and we are almost doing 0:08:13.480 --> 0:08:29.720 a round turn to where the market opened. General Electric 0:08:29.760 --> 0:08:32.760 has been a source SPoD for equity markets for a 0:08:32.840 --> 0:08:35.640 long time, and today it almost looked like they were 0:08:35.679 --> 0:08:38.840 ripping the band aid off. And then regulator, as it 0:08:38.880 --> 0:08:42.200 turns out, are looking into the company Brooks Otherland Bloomberg 0:08:42.240 --> 0:08:45.480 opinion columnists covering all things industrials choices. Now, so what's 0:08:45.520 --> 0:08:48.959 going on here and why can't she just catch a break? 0:08:49.600 --> 0:08:51.880 There are a couple of different things going on here. Um, 0:08:51.920 --> 0:08:54.800 so you know you reference regulators what they said on 0:08:54.920 --> 0:08:59.240 the conference callege the SEC is expanding its investigation into 0:08:59.320 --> 0:09:02.600 the companies that counting practices to include this twenty two 0:09:02.640 --> 0:09:05.680 billion good will charge that they booked in their power unit. Now, 0:09:05.720 --> 0:09:08.880 the SEC started this investigation after g E said in 0:09:08.960 --> 0:09:11.560 January that it was going to have a fifteen billion 0:09:11.679 --> 0:09:15.680 reserve shortfall related to a legacy insurance business. So to me, 0:09:16.120 --> 0:09:18.559 it's not terribly surprising that the SEC is going to 0:09:18.600 --> 0:09:21.040 look at this good will charge because it's basically the 0:09:21.120 --> 0:09:24.840 same issue. So the insurance business GE reviewed that every 0:09:24.880 --> 0:09:27.280 single year. So then all of a sudden come out 0:09:27.320 --> 0:09:30.360 with a fifteen billion dollar shortfall. I think raised a 0:09:30.440 --> 0:09:33.960 lot of questions about the credibility of their internal controls. 0:09:34.040 --> 0:09:35.840 It's the same issue with the good will I mean 0:09:35.880 --> 0:09:38.600 G reviewed that as recently as the second quarter and 0:09:38.679 --> 0:09:41.800 said that the you know, caring value exceeded the fair 0:09:41.880 --> 0:09:44.080 value and so too. Then all of a sudden do 0:09:44.080 --> 0:09:46.760 a complete all of a sudden, have this twenty two 0:09:46.760 --> 0:09:50.200 billion dollar charge. I think those are the same questions. Now. 0:09:50.480 --> 0:09:53.439 The difference, I think, and the bigger point is that 0:09:53.679 --> 0:09:57.079 G also said the d o J is now investigating 0:09:57.280 --> 0:09:59.760 the same things the SEC was looking into, including this 0:09:59.800 --> 0:10:02.040 good will charge the Department of Justice, meaning it could 0:10:02.040 --> 0:10:05.120 be potentially criminal. Yes, and so I think that obviously 0:10:05.160 --> 0:10:08.240 adds another element of risk here. The other factor is 0:10:09.000 --> 0:10:11.320 now that you're bringing this good will charge into the 0:10:11.440 --> 0:10:14.920 SEC and based investigation. There's a number of shareholder fraud 0:10:15.120 --> 0:10:20.360 lawsuits out there against GE related to that insurance reserve shortfall. 0:10:21.000 --> 0:10:23.800 This just sort of adds more fuel to their claims. 0:10:24.520 --> 0:10:26.560 I wonder if you could tell us what the effect 0:10:26.679 --> 0:10:29.839 or potential effect this might have on the credit rating 0:10:30.040 --> 0:10:33.880 of g E. Yes, so um SMP has cut its 0:10:33.920 --> 0:10:37.559 credit rating on GE earlier this month or now at 0:10:37.920 --> 0:10:40.720 B B B plus, down from A, and Moody's and 0:10:40.760 --> 0:10:44.520 Fish put their ratings on review for downgrade Um. Personally, 0:10:44.559 --> 0:10:47.520 I have to say that's long overdue, and they were 0:10:47.559 --> 0:10:50.040 about the last people to wake up to the fact 0:10:50.080 --> 0:10:54.400 that gees earnings and debt prospects for the foreseeable future 0:10:54.400 --> 0:10:58.520 are nowhere near that realm of credit worthiness. Um, you know, 0:10:58.600 --> 0:11:02.640 in terms of the numbers from today changing their outlook. 0:11:02.640 --> 0:11:06.000 I don't know if there's anything that would necessarily, you know, 0:11:06.120 --> 0:11:08.480 dilute that more other than just sort of the ongoing 0:11:08.600 --> 0:11:11.480 challenges that the power unit, which g says is going 0:11:11.520 --> 0:11:14.360 to cause it to significantly miss its cash flow targets 0:11:14.360 --> 0:11:18.480 for the year. So why were the shares up ahead 0:11:18.480 --> 0:11:21.280 of the market open when the company said that it 0:11:21.320 --> 0:11:24.080 was going to cut its dividend, which was widely expected, 0:11:24.080 --> 0:11:26.679 but still it means that shareholders are getting less money 0:11:26.800 --> 0:11:30.439 and missed estimates, and still their shares were rallying until 0:11:30.720 --> 0:11:33.160 I mean, it almost makes you feel like they shouldn't 0:11:33.160 --> 0:11:37.440 have conference calls, right, But no, I I think you 0:11:37.480 --> 0:11:39.679 know why you saw the shares railing. The divon and 0:11:39.800 --> 0:11:42.360 cut was expected, but I think it's the kind of 0:11:42.400 --> 0:11:45.839 aggressive action people are really looking for out of Larry 0:11:45.880 --> 0:11:47.920 colpe Um. And I think I talked with you at 0:11:47.960 --> 0:11:50.000 the time when John Flannery cut the divon in last 0:11:50.040 --> 0:11:52.640 year about how it probably wasn't going to be enough 0:11:52.679 --> 0:11:54.560 and that the payout was still going to soak up 0:11:54.880 --> 0:11:57.719 way too higher percentage of their free cash flow. Um. 0:11:57.760 --> 0:12:00.160 And that was with their you know, old target. Now 0:12:00.160 --> 0:12:02.880 obviously with the new target, it becomes even more untenable. 0:12:02.880 --> 0:12:06.000 And so I think this was a bold step and 0:12:06.040 --> 0:12:08.320 it was also a necessary step when you look at 0:12:08.320 --> 0:12:10.680 all of these potential capital calls, the g E and 0:12:10.760 --> 0:12:13.600 the ongoing struggles in G Power. I mean, he needed 0:12:13.600 --> 0:12:16.400 to do something to shore up the balance sheet, and 0:12:16.520 --> 0:12:20.240 I think this was what investors were looking for. Um. 0:12:20.280 --> 0:12:22.960 You know, and there's some debate about GE has long 0:12:23.040 --> 0:12:27.640 been sort of a retail investor attraction, but you know, 0:12:27.720 --> 0:12:30.320 you probably lost some of that base when they cut 0:12:30.320 --> 0:12:32.240 the dividend the first time around. So that maybe why 0:12:32.240 --> 0:12:35.560 you're not saying quite as painful of a reaction. Is 0:12:35.600 --> 0:12:41.120 the power unit at GE salvage herble? Yeah, Uh, that 0:12:41.320 --> 0:12:44.480 is the question. Um, you know, there's a lot of 0:12:44.760 --> 0:12:47.240 debate about this. I do think it's interesting what they're doing. 0:12:47.280 --> 0:12:49.160 So they said they're going to split the power unit 0:12:49.240 --> 0:12:52.000 into two, and so one will be primarily focused on 0:12:52.440 --> 0:12:55.720 the gas, turbines, equipment, and services, and then the other 0:12:55.760 --> 0:12:57.760 will be sort of all of these other assets that 0:12:57.800 --> 0:13:01.199 are in power, so that's steam, that's nuclear, that's power convergent. 0:13:01.920 --> 0:13:04.840 Not all of those other assets are bad and they're 0:13:04.880 --> 0:13:09.000 not necessarily as exposed to this sort of structural transition 0:13:09.080 --> 0:13:13.400 where you know, the preference is really shifting to renewable 0:13:13.440 --> 0:13:16.640 energy technologies because they're cheaper. But some of these assets, 0:13:16.679 --> 0:13:20.760 like industrial focus generation equipment or the grid's business, those 0:13:20.760 --> 0:13:23.839 still have a relatively viable outlook. I mean, you think 0:13:23.880 --> 0:13:25.920 about a b b is trying to sell its grids 0:13:25.960 --> 0:13:28.240 business and it is getting pretty high valuations for it. 0:13:28.280 --> 0:13:30.200 And so the idea here is to sort of create 0:13:30.679 --> 0:13:33.680 i mean almost a bad bank of power assets and 0:13:33.720 --> 0:13:36.560 then you know, an okayish bank of these other assets. 0:13:36.559 --> 0:13:40.280 So that should help. The other big thing is cost cuts, um, 0:13:40.400 --> 0:13:43.560 but you know, there's a big debate on how much 0:13:43.600 --> 0:13:45.400 those cost cuts are actually going to translate to the 0:13:45.440 --> 0:13:48.040 bottom line. G has done a lot of restructuring over 0:13:48.040 --> 0:13:50.240 the years, and we haven't really seen that playoff, and 0:13:50.240 --> 0:13:52.840 there's issues in Europe to given the agreements that they 0:13:52.920 --> 0:13:55.840 made as part of the Alstom deal around jobs numbers 0:13:56.000 --> 0:13:58.560 as to how deep they can cut their many Thanks 0:13:59.040 --> 0:14:03.000 always Brooks Otherland, a Bloomberg opinion columnist all about deals 0:14:03.000 --> 0:14:21.520 and industrial companies. After the close of trading today, we 0:14:21.560 --> 0:14:25.320 will get quarterly results from Facebook. And here to tell 0:14:25.400 --> 0:14:28.840 us about Facebook and other technology stocks is none other 0:14:28.920 --> 0:14:33.240 than Colin Gillis, the director of research for Chatham Road Partners. 0:14:33.600 --> 0:14:36.520 Colin Gillis, is Facebook as big as it's going to 0:14:36.560 --> 0:14:40.760 ever get him? It's always a wonderful pleasure to speak 0:14:40.800 --> 0:14:43.800 with you. And let's put this into perspective. Right, we've 0:14:43.800 --> 0:14:47.960 gotten three names out of the five letter fang tech 0:14:48.000 --> 0:14:53.440 stocks that have reported, right, Facebook, Apple, Amazon, Netflix, and Google. 0:14:53.720 --> 0:14:56.400 And then we know that of the Amazon, Netflix and 0:14:56.440 --> 0:14:59.360 Google reports that we've seen, the stocks have all traded 0:14:59.400 --> 0:15:03.280 down today. Is Facebook's turned The stock has declined over 0:15:04.120 --> 0:15:07.080 from a tie in July. I do not think it's peaked. 0:15:08.400 --> 0:15:10.800 You don't think it's peaked. In other words, I do 0:15:10.840 --> 0:15:14.600 not you think that it's going to rally. I do, right, 0:15:14.680 --> 0:15:19.440 And so I understand the concerns that they're running out 0:15:19.440 --> 0:15:23.360 of users, right, the concerns literally you know they've got 0:15:23.360 --> 0:15:25.800 around two point two billion users are about three point 0:15:25.840 --> 0:15:29.760 five billion humans on the Internet, So that's going to 0:15:29.800 --> 0:15:34.120 be a constraint factor. I definitely understand that they're putting 0:15:34.120 --> 0:15:39.440 in more and more expenses around privacy and contact control, right, 0:15:39.600 --> 0:15:41.880 but they're going to be able to extract over time 0:15:42.480 --> 0:15:47.600 more value per user. And while you may see margins 0:15:47.640 --> 0:15:50.520 come down, they've told us that quite clearly, Right, this 0:15:50.680 --> 0:15:53.360 is still a company that's going to grow its revenue 0:15:53.400 --> 0:15:57.840 this quarter, somewhere along the lines of you know, on 0:15:57.880 --> 0:16:00.280 a year of a year basis, it's a real bit nous, 0:16:01.760 --> 0:16:06.360 if it's a real business, then those billions of users 0:16:07.000 --> 0:16:12.200 are potentially at risk if something goes wrong with the platform, 0:16:12.240 --> 0:16:16.280 and something has gone wrong previously correct, correct, Yeah, And 0:16:16.520 --> 0:16:18.800 this is you know, this is the risk reward equation, right, 0:16:18.800 --> 0:16:22.080 and this is why some people have decided to exit 0:16:22.160 --> 0:16:25.440 their investments and rotate their money into other names. Right. 0:16:25.520 --> 0:16:28.880 But given the magnitude of the pullback, and also you 0:16:28.920 --> 0:16:31.240 said hasn't gotten as large as E were going to get. 0:16:31.920 --> 0:16:36.400 It's market cap is four billion dollars, well, still well 0:16:36.440 --> 0:16:38.560 below you know where Google is at it, you know, 0:16:38.720 --> 0:16:46.040 with seven seventeen Amazon, right, much larger than Netflix. Well, Colin, 0:16:46.040 --> 0:16:49.600 I'm wondering heading into what was your outlook on Facebook shares. 0:16:51.240 --> 0:16:55.000 So we were uh concerned for four pull back. We 0:16:55.040 --> 0:16:57.600 were concerned that the market was not factoring in the 0:16:57.680 --> 0:17:01.640 costs related to the obviously efforts that they were that 0:17:01.720 --> 0:17:05.399 they had to implement. Right, and some of that did 0:17:05.560 --> 0:17:08.000 bear out to be true, But now I think the 0:17:08.000 --> 0:17:10.400 pendulum has swung too far the other way. Well, hold 0:17:10.400 --> 0:17:12.480 on a second, because you were talking about how it's 0:17:12.480 --> 0:17:14.600 a real business and how it's you know, it's not 0:17:14.680 --> 0:17:17.000 as big as Google, for example. But at the end 0:17:17.040 --> 0:17:20.000 of the day, Facebook essentially is an advertising platform. Is 0:17:20.119 --> 0:17:22.800 essentially a place where they have a lot of eyeballs 0:17:22.840 --> 0:17:26.600 and they can distribute content to them. But if they're 0:17:26.640 --> 0:17:31.879 algorithms and if their privacy standards are questioned, that undermines 0:17:32.280 --> 0:17:35.960 their business model, albeit real or not. Well, it only 0:17:36.000 --> 0:17:39.760 undermines that business model if we see users leaving the platform, 0:17:39.840 --> 0:17:42.679 and if we see advertisers leaving the platform. Right, and 0:17:42.680 --> 0:17:45.080 so we're gonna see that. We're gonna get that data 0:17:45.359 --> 0:17:48.000 literally literally, you know, in a few hours, right, and 0:17:48.040 --> 0:17:52.119 we'll see the particularly the most valuable component are the 0:17:52.160 --> 0:17:55.320 North American right monthly active users, and we'll see if 0:17:55.320 --> 0:17:57.560 that number moves, right, it's kind of stalled out right, 0:17:57.720 --> 0:18:00.760 you know they were it's around two one million, right, 0:18:01.200 --> 0:18:03.440 you know, any lift from that number last quarter would 0:18:03.480 --> 0:18:07.359 be would be a positive. So you know it's not 0:18:07.400 --> 0:18:10.120 going to grow much. But if you can extract more 0:18:10.200 --> 0:18:13.840 revenue from those people, right, and that number that are 0:18:13.960 --> 0:18:17.880 two the average revenue per user is people are expecting 0:18:18.119 --> 0:18:21.119 a nice hefty lift on that. The estimate is that 0:18:21.240 --> 0:18:24.320 each user in the United States or Canada generates about 0:18:24.320 --> 0:18:31.040 twenty six dollars in revenue for the company. Right, all right, 0:18:31.440 --> 0:18:35.840 Now you talk about the potential for Facebook, do they 0:18:35.920 --> 0:18:41.720 have a plan for how to monetize What's App? Well, 0:18:42.119 --> 0:18:45.920 you know, what's app is a wonderful messaging service. Messaging 0:18:45.960 --> 0:18:50.240 in and of itself has not been very well monetized, 0:18:51.359 --> 0:18:55.520 and so I wouldn't be focused as much on the one. 0:18:55.600 --> 0:18:57.200 I wouldn't be an investor based on the what's that 0:18:57.359 --> 0:18:59.800 part of the story. I wouldn't be an investor based 0:18:59.840 --> 0:19:03.720 on uh oculus part of the story. Right, Instagram is 0:19:03.720 --> 0:19:07.760 obviously also a growing, flourishing business. It's going to have 0:19:07.800 --> 0:19:11.879 the same monetization opportunities as Facebook, right, But you want 0:19:11.920 --> 0:19:14.639 to make sure that the core business itself is is 0:19:14.680 --> 0:19:17.240 that they're able to stabilize it. They're able to do 0:19:17.320 --> 0:19:20.560 so in a way where they can retain their users, 0:19:20.560 --> 0:19:23.400 where they can retain their advertisers, and that they can 0:19:23.520 --> 0:19:28.720 can quell both public perception as well as investor concerned 0:19:29.080 --> 0:19:32.880 that the management team has a privacy issue that they 0:19:33.200 --> 0:19:36.320 can't contain. Let's shift our focus a little bit to Thursday. 0:19:36.320 --> 0:19:39.440 That's when Apple is going to report their third quarter earnings. 0:19:39.440 --> 0:19:43.040 Shares of that company up almost year to date. What 0:19:43.080 --> 0:19:45.879 are you expecting to hear from them, right, you know? 0:19:45.920 --> 0:19:50.080 And so the thing with Apple is, while everyone you 0:19:50.080 --> 0:19:52.840 know will dissect the numbers that the report, the most 0:19:52.880 --> 0:19:56.240 important piece of information they'll give will be the guidance 0:19:56.240 --> 0:20:00.080 for the December quarter because they're still very stacked to 0:20:00.280 --> 0:20:04.720 the holiday season. And right, if you focus on the 0:20:04.720 --> 0:20:08.920 iPhone itself, right, the concern that the thesis is one 0:20:08.920 --> 0:20:12.040 of two things. Right, it's a stable platform on which 0:20:12.040 --> 0:20:15.520 they can build a successful services business on top of right, 0:20:16.040 --> 0:20:20.320 and that's a positive thesis. Or you look at the 0:20:20.440 --> 0:20:22.880 units of iPhones and you say they've done a good 0:20:22.960 --> 0:20:26.719 job of driving more revenue per phone. But if you're 0:20:26.720 --> 0:20:30.240 concerned that the unit base you know, is either growing 0:20:30.280 --> 0:20:35.520 and you know, small single digit numbers, or possibly even shrinking, 0:20:35.560 --> 0:20:37.680 but the revenue is being made up because they're getting 0:20:37.680 --> 0:20:41.280 more revenue per phone. Then that may impact the services 0:20:41.320 --> 0:20:45.040 business and its ability to grow, because a big part 0:20:45.040 --> 0:20:47.159 of the of the story and the thesis is that 0:20:47.280 --> 0:20:52.080 the services business will become a major margin driver and 0:20:52.119 --> 0:20:56.320 will add a higher multiple business onto the lower multiple hardware, 0:20:56.640 --> 0:21:01.280 onto the hardware side, thinner, lighter and has written a 0:21:01.480 --> 0:21:05.320 display that's the description of the new MacBook Air that's 0:21:05.400 --> 0:21:08.959 just been released and is on sale from Apple. Do 0:21:08.960 --> 0:21:12.080 you believe that the desktop or the laptop or the 0:21:12.119 --> 0:21:18.240 computer and PC business for Apple is important? It's you know, 0:21:18.240 --> 0:21:20.840 it's it's it's really just icing on the cake, right 0:21:21.280 --> 0:21:24.639 and depending on how the phones move and and the 0:21:24.800 --> 0:21:27.439 r poos, right, the rest of it is, you know, 0:21:27.520 --> 0:21:31.640 just kind of consider ampler information. Thank you so much 0:21:31.680 --> 0:21:33.520 for being with us. Colin Gillis, a director of research. 0:21:33.680 --> 0:21:37.520 Chatham wrote partners talking about what to expect with Facebook 0:21:37.560 --> 0:21:39.880 coming out after the bell with their earnings, as well 0:21:39.920 --> 0:21:55.959 as Apple under armour has been a stock that has 0:21:56.000 --> 0:21:58.800 been hard to get right. Today it is surging at 0:21:58.880 --> 0:22:02.960 twenty six per scent after demonstrating that it's turnaround is 0:22:03.160 --> 0:22:05.879 taking hold. That is the biggest one day pop in 0:22:05.880 --> 0:22:07.879 the share since two thousand and eight. Joining us to 0:22:07.880 --> 0:22:10.119