WEBVTT - Bloomberg Surveillance: Markets React to CPI Miss 0:00:05.040 --> 0:00:08.639 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:08.680 --> 0:00:12.040 with Paul Sweeney. Join us each day for insight from 0:00:12.039 --> 0:00:16.200 the best in economics, finance, investment, and international relations. You 0:00:16.239 --> 0:00:19.599 can also watch the show live on YouTube. Visit the 0:00:19.600 --> 0:00:24.360 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:24.360 --> 0:00:27.400 mornings from seven to ten am Eastern from our global 0:00:27.440 --> 0:00:32.080 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:32.440 --> 0:00:36.000 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:36.159 --> 0:00:37.280 the Bloomberg. 0:00:36.880 --> 0:00:39.400 Terminal, and the Bloomberg Business App. 0:00:40.000 --> 0:00:41.479 What you do when you have a jumble of a 0:00:41.520 --> 0:00:44.920 day like yesterday, as you call somebody that can synthesize 0:00:44.960 --> 0:00:48.120 it across economics at Market's David Rosenberg coming up later, 0:00:48.159 --> 0:00:51.680 but right now, Michael Darter with us from Roth MKM. 0:00:51.720 --> 0:00:55.400 They're chief economist and market strategists as well. Michael, we 0:00:55.440 --> 0:00:57.800 haven't done it yet this morning. Let's dive into the 0:00:57.840 --> 0:01:02.120 inflation statistic. Do you leave as I heard others Robin Brooks, 0:01:02.120 --> 0:01:05.640 I thought was outstanding on Twitter last night that some 0:01:05.680 --> 0:01:08.199 of this is a January effect where you could jump 0:01:08.240 --> 0:01:12.640 conditions in certain service sector inflation subsets. 0:01:14.160 --> 0:01:17.039 Hi Tom thanks for having me on. Look, this was 0:01:17.160 --> 0:01:21.039 not a good report for the January CPI. The core 0:01:21.200 --> 0:01:25.679 number accelerated pretty dramatically, and you know, even if you're 0:01:25.800 --> 0:01:27.959 stripping there's been a lot of talk about, you know, 0:01:28.040 --> 0:01:31.080 housing and the rental inflation. Even if you take that out, 0:01:31.160 --> 0:01:34.520 the FED looks at a gauge of non energy services 0:01:34.560 --> 0:01:39.959 prices excluding housing, and that accelerated pretty dramatically. So the 0:01:40.000 --> 0:01:42.200 markets did not take this well. When your price for 0:01:42.720 --> 0:01:45.200 profession and you have a set back, then you see 0:01:45.240 --> 0:01:48.640 a dumplake we had yesterday. All of that said, you know, 0:01:48.760 --> 0:01:51.760 let's not go into a complete panic over one number. 0:01:52.320 --> 0:01:55.400 The FED does focus on the PCE deflator, which is 0:01:55.440 --> 0:01:58.840 a different index, and there's been a pretty big gap 0:01:58.880 --> 0:02:01.680 between the two. So if you look at the core 0:02:01.720 --> 0:02:05.680 inflation readings from the PCE deflator over the last seven months, they're, 0:02:05.720 --> 0:02:08.720 you know, basically in line with the Fed's target one 0:02:08.760 --> 0:02:12.959 point nine percent average annualized growth. But the CPI core 0:02:13.040 --> 0:02:16.160 CPI readings have been much higher, and the divergence is 0:02:16.200 --> 0:02:20.560 about triple the historical average. Usually the CPI runs thirty 0:02:20.600 --> 0:02:25.120 to fifty basis points above the PCE deflator, and you know, 0:02:25.160 --> 0:02:28.160 we're we're seeing a gap about three times is wide now. 0:02:28.280 --> 0:02:31.600 So if we take a step back, you know, I 0:02:31.680 --> 0:02:35.240 think that the you know, the the CPI data could 0:02:35.240 --> 0:02:39.600 be overstating the inflation problem here. Nominal spending. If you 0:02:39.639 --> 0:02:43.679 look at nominal final sales to the private sector, over 0:02:43.760 --> 0:02:46.320 the course of time that we've had these better PCE 0:02:46.800 --> 0:02:51.320 core PCEE readings, we've essentially slowed to trend. So if 0:02:51.520 --> 0:02:55.600 aggregate demand total spending in the economy has slowed to trend, 0:02:55.680 --> 0:02:59.560 then that's going to take the inflation pressure off over time. 0:02:59.720 --> 0:03:03.040 So let's not completely go into a full blown panic 0:03:03.080 --> 0:03:04.119 over one number here. 0:03:04.320 --> 0:03:06.160 And Michael, you know, I'm looking at the kind of 0:03:06.160 --> 0:03:08.919 how the market traded yesterday. I mean, the indexes were off, 0:03:08.919 --> 0:03:11.280 you know, kind of one and a half percent ish, 0:03:11.400 --> 0:03:13.600 volume was kind of in line. It seemed like a 0:03:13.639 --> 0:03:17.440 reasonable kind of market response after kind of the big 0:03:17.520 --> 0:03:20.720 rips we've seen in November, December and strengthen. Maybe it's 0:03:20.760 --> 0:03:22.359 just a healthy day in the market yesterday. 0:03:23.080 --> 0:03:26.480 Oh, no doubt about it, Paul, no doubt about it. 0:03:26.520 --> 0:03:29.720 I mean, you know, the run that we've seen, especially 0:03:29.720 --> 0:03:32.839 in the S and P five hundred, led by infotech 0:03:32.919 --> 0:03:37.040 and consumer discretionary basically at seven stocks dominating the index. 0:03:37.520 --> 0:03:40.560 I mean, these valuations have really become stretched and we 0:03:40.640 --> 0:03:43.920 have a momentum market. It doesn't take much. It just 0:03:43.960 --> 0:03:46.480 needs to be some change of the narrative, whether it's 0:03:46.480 --> 0:03:50.400 sustained or not. And you see what we saw yesterday, 0:03:50.520 --> 0:03:53.400 so you just can't have a straight up market. We're 0:03:53.440 --> 0:03:56.320 starting to move into pretty unhealthy territory where you start 0:03:56.360 --> 0:04:00.000 to get worried about what could be on the other side. 0:04:00.120 --> 0:04:03.480 I mean, these kinds of valuations tend to be rarely 0:04:03.520 --> 0:04:06.360 seen in history and never sustained. So we're at levels 0:04:06.400 --> 0:04:08.600 now where your price to perfection and you do have 0:04:08.640 --> 0:04:11.640 to worry about threats to the you know, the perfect 0:04:11.720 --> 0:04:12.720 narrative unfolding. 0:04:13.200 --> 0:04:15.640 So part of that part of that narrative, Michael, is 0:04:15.960 --> 0:04:18.720 kind of the Federal Reserve obviously, and I think the uh, 0:04:19.120 --> 0:04:21.479 you know, the markets expectation is that that march is 0:04:21.600 --> 0:04:23.960 clearly off the table. FED Chairman j pob is pretty 0:04:23.960 --> 0:04:26.200 clear about that on those recent comments. But now the 0:04:26.279 --> 0:04:29.599 I guess the focus has shifted to May or June 0:04:29.760 --> 0:04:33.719 for the initiation of some rate cuts. Did yesterday's data 0:04:33.880 --> 0:04:35.720 kind of change your view? Where do you think the 0:04:35.760 --> 0:04:36.680 Fed's going to come out here. 0:04:38.279 --> 0:04:41.440 It's interesting. I mean, our thought was that the FED 0:04:41.560 --> 0:04:45.440 was probably going to push back on the timing and 0:04:45.760 --> 0:04:49.520 both the timing and magnitude of the easing expectations that 0:04:49.560 --> 0:04:52.640 were in the market, even if you think the economy 0:04:52.680 --> 0:04:54.960 is going to underperform this year. I mean, the Fed's 0:04:55.200 --> 0:04:58.279 framework is to look at SLACK and the labor market. 0:04:58.600 --> 0:05:00.799 You know, we've had you know, we have haven't really 0:05:00.839 --> 0:05:03.960 had a material increase in SELAC in the labor market yet, 0:05:04.880 --> 0:05:09.200 just very just very and they're watching things like financial conditions, 0:05:09.279 --> 0:05:11.880 which you know, based on our market discussion, have eased 0:05:11.920 --> 0:05:16.239 pretty dramatically. So I wasn't surprised to see Powell push back. 0:05:16.400 --> 0:05:18.720 And then if you get data like we saw, you know, 0:05:18.800 --> 0:05:21.920 with the with the CPI readings for January, then that 0:05:22.040 --> 0:05:24.800 genally enforces it. So I do think they're going to 0:05:24.839 --> 0:05:28.960 be pretty cautious in terms of when they start this process. 0:05:29.440 --> 0:05:31.960 And you know, we'll see you know, obviously we'll have 0:05:32.000 --> 0:05:34.920 more data before we get to the May meeting, but yes, 0:05:34.960 --> 0:05:36.720 for sure, March looks. 0:05:36.440 --> 0:05:38.400 Like I'm going to go walk right now. You can 0:05:38.400 --> 0:05:39.520 do this with Michael data. 0:05:39.680 --> 0:05:42.480 I'm doing an event and Michael data Kid comes up 0:05:42.520 --> 0:05:45.400 to me and on his phone he has his email 0:05:45.440 --> 0:05:47.360 from when he was an intern at Bloomberg and we 0:05:47.360 --> 0:05:50.880 were talking about the ambiguity of Hixe and and Slutsky 0:05:50.960 --> 0:05:53.720 and income distribution and substitution effect. 0:05:54.200 --> 0:05:56.480 We're not going to go over this on Valentine's Day. 0:05:56.400 --> 0:05:56.760 Thank you. 0:05:56.960 --> 0:05:59.960 But but Michael, what's great about this is that I 0:06:00.000 --> 0:06:05.760 identify as a euclidean ambiguity of our micro economics. Right now, 0:06:05.800 --> 0:06:10.800 we've got macro ambiguity with higher interest rates. Can we 0:06:10.880 --> 0:06:13.919 have a good economy and a good stock market because 0:06:13.960 --> 0:06:17.040 we pop nominal GDP and get a better revenue stream 0:06:17.080 --> 0:06:17.800 than expected? 0:06:19.520 --> 0:06:22.200 Well, I think that has been the story, tom right. 0:06:22.240 --> 0:06:25.240 I mean, we're sitting here talking about an interest rate 0:06:25.279 --> 0:06:30.359 structure that none of us thought was likely several years ago, 0:06:30.520 --> 0:06:33.719 right right, And so that's really been driven by the 0:06:33.800 --> 0:06:38.560 business cycle, the vigorousness of the upswing from the COVID recession, 0:06:38.960 --> 0:06:42.240 and you know, in the inflationary environment that we've been in. 0:06:42.360 --> 0:06:45.360 So you know, if you want to get wonky here, 0:06:45.400 --> 0:06:49.320 it means that the neutral interest rate, the Viccilian equilibrium rate, 0:06:49.400 --> 0:06:52.719 is higher setting like we've had then in the last 0:06:52.720 --> 0:06:56.240 business cycle where we had very slow growth, very low inflation, 0:06:56.440 --> 0:06:59.760 a lot of deleveraging pressures. Right, So this is you know, 0:06:59.800 --> 0:07:02.800 this is something that's that's quite different. What makes this 0:07:02.960 --> 0:07:06.000 tricky going forward is you know, is the FED actually 0:07:06.040 --> 0:07:09.160 restrictive now or is the FED not restrictive? And there's 0:07:09.200 --> 0:07:12.560 a big debate about that. People talking about financial conditions 0:07:12.600 --> 0:07:15.920 are too loose. So the FED really isn't restrictive. But 0:07:16.800 --> 0:07:19.760 let's drill into markets. If we look at forward looking 0:07:19.880 --> 0:07:23.840 measures of inflation expectations, you know, those have reverted to 0:07:23.960 --> 0:07:26.800 levels that are consistent with price stability. That was not 0:07:26.960 --> 0:07:29.080 the case when we went into the early evenings of 0:07:29.120 --> 0:07:32.680 the FED tightening those rights inflation break even spreads or 0:07:32.720 --> 0:07:35.160 telling the Fed they were really miles behind the curve. 0:07:35.640 --> 0:07:38.400 That's not the case now. So the Fed actually does 0:07:38.480 --> 0:07:41.400 have the real rate if you use forward looking inflation 0:07:41.600 --> 0:07:45.400 expectations at pretty cyclically high levels. And I do think 0:07:45.440 --> 0:07:47.920 that is going to mean, you know, the economy is 0:07:47.960 --> 0:07:51.480 going to continue to slow too, if not below trend. 0:07:52.040 --> 0:07:54.040 And the trick for the FED will be the timing 0:07:54.080 --> 0:07:56.200 on starting the rate cuts. If they're too late, then 0:07:56.240 --> 0:07:58.360 you get a recession. If they're too soon, then you're 0:07:58.360 --> 0:07:59.760 going to have persistent inflation. 0:08:02.960 --> 0:08:05.240 Michael Data, thank you, thank you, thank you. On short 0:08:05.320 --> 0:08:07.960 notice today after what we saw yesterday. Michael Darter with 0:08:08.080 --> 0:08:21.280 his spartan emails in it says time get the sequence straight, 0:08:21.640 --> 0:08:22.880 Paul save them. 0:08:23.160 --> 0:08:25.240 Yes, absolutely we can do that right now because I'm 0:08:25.240 --> 0:08:27.400 people trying to get a sense here giving that sol 0:08:27.400 --> 0:08:28.920 if we had yesterday kind of what does it all 0:08:28.960 --> 0:08:31.280 mean here as we think about what the Fed's going 0:08:31.320 --> 0:08:33.000 to do and what these equity markets are going to do. 0:08:33.040 --> 0:08:35.360 So we figured it was a good time to check 0:08:35.400 --> 0:08:35.480 you on. 0:08:35.559 --> 0:08:35.760 Geena. 0:08:35.800 --> 0:08:37.920 Martin Adam Sheet leads all of our equity strategy for 0:08:38.000 --> 0:08:42.280 Bloomberg Intelligence. Gina, I guess I was looking at yesterday's trading. 0:08:42.320 --> 0:08:46.560 It's just a normal, healthy pullback in reaction to a 0:08:46.679 --> 0:08:48.760 data point that the market wasn't discounting. 0:08:49.600 --> 0:08:51.600 Not much more than that. Am I being naive there? 0:08:53.000 --> 0:08:53.080 No? 0:08:53.320 --> 0:08:54.480 I don't think you're being naive. 0:08:54.559 --> 0:08:56.599 I just think there is a degree of volatility and 0:08:56.679 --> 0:08:59.320 rights markets. It's really difficult for the equity market to 0:08:59.400 --> 0:09:01.840 absorb on a daily basis. There was nothing in the 0:09:01.880 --> 0:09:05.480 inflation report, frankly that was terribly damaging for the profits 0:09:05.480 --> 0:09:08.120 outlook for companies. As a matter of fact, when we 0:09:08.160 --> 0:09:11.079 look at the long term scheme of things, CPI holding 0:09:11.080 --> 0:09:14.480 in pretty steady, with PPI decelerating and import prices fallowing, 0:09:14.600 --> 0:09:16.760 is a great environment for margin growth for the S 0:09:16.800 --> 0:09:19.320 and P five hundred. That's been the characteristic that has 0:09:19.360 --> 0:09:22.520 defined the margin recovery of the last year. So the 0:09:22.559 --> 0:09:26.319 inflation report in and of itself was not necessarily damaging 0:09:26.360 --> 0:09:28.920 to the outlook for stocks, but it did clearly create 0:09:28.960 --> 0:09:31.720 a lot of rate volatility, and the rates market seems 0:09:31.720 --> 0:09:36.240 to be incredibly frenetic. That is creating some valuation disruption 0:09:36.360 --> 0:09:38.880 for the equity market, as there is some follow through 0:09:38.920 --> 0:09:40.200 from rates onto stocks. 0:09:41.000 --> 0:09:42.720 Frankly, though, when we just threw. 0:09:42.600 --> 0:09:45.600 Past five thousand, we had very strong momentum in the 0:09:45.720 --> 0:09:48.600 SNP five hundred. A couple bit of a couple near 0:09:48.679 --> 0:09:52.600 term breadth breakdowns last week would have suggested that we 0:09:52.679 --> 0:09:55.760 weren't due for some sort of modest consolidation phase in 0:09:55.800 --> 0:09:56.680 the index anyway. 0:09:56.840 --> 0:09:57.640 So here's what I do. 0:09:57.720 --> 0:09:59.480 I'm only doing this to pretend g you have to 0:09:59.600 --> 0:10:02.240 radio gig doesn't work out, YouTube and car plack can 0:10:02.320 --> 0:10:04.280 go work for GENA carry our. 0:10:04.280 --> 0:10:05.440 Coffee and Jana. 0:10:05.480 --> 0:10:07.440 What I would do here is I take two standard 0:10:07.440 --> 0:10:11.480 deviations trading envelope off of the VIX, and the VIX 0:10:11.520 --> 0:10:13.880 here is at fourteen point six y two, doing better 0:10:13.920 --> 0:10:19.599 than eighteen at one point yesterday, even with the eighteen spike. Yesterday, 0:10:19.800 --> 0:10:23.480 I didn't get a Fibonacci across the two standard deviations. 0:10:24.000 --> 0:10:27.680 The fibonacci was eighteen point six to two center tendency. 0:10:28.000 --> 0:10:31.160 We didn't even get back to center tendency, and now 0:10:31.200 --> 0:10:34.640 we're back down to a twenty three percent Fibonacci. The 0:10:34.679 --> 0:10:39.200 answer is, we are so far advanced we need a 0:10:39.440 --> 0:10:42.880 huge pullback to normalize, don't we. 0:10:42.880 --> 0:10:46.040 Well, we would, and certainly you would normally see greater 0:10:46.080 --> 0:10:48.600 than two percent down days start to emerge if we 0:10:48.600 --> 0:10:53.520 were moving into some sort of bigger, longer term corrective process. 0:10:53.840 --> 0:10:56.400 You know, these one to two percent days. Anything less 0:10:56.400 --> 0:10:58.880 than two percent is frankly just a normal trading day 0:10:58.960 --> 0:11:02.320 in the world of equity. So to have stocks down 0:11:02.559 --> 0:11:05.880 relatively modestly yesterday, yeah, it's a down day, and we 0:11:06.000 --> 0:11:08.480 hadn't become terribly accustomed to those down days over the 0:11:08.600 --> 0:11:12.040 last several weeks of gains. But it's a normal down day. 0:11:12.120 --> 0:11:14.240 In the grand scheme of things, really, with the Vics, 0:11:14.280 --> 0:11:17.440 we don't worry about anything under twenty. Frankly, the long 0:11:17.600 --> 0:11:20.559 term you usually seeing that spiked to twenty as indicative 0:11:20.600 --> 0:11:22.720 of underlying volatility weakness emerging. 0:11:22.840 --> 0:11:25.280 I mean, I bought my first shares off Triple Lovers 0:11:25.280 --> 0:11:28.120 Dog cash, Paul, like three days ago, and I'm way underwater. 0:11:28.160 --> 0:11:31.839 That's all right. Sorry, you've taken a long term view here, Gina. 0:11:32.040 --> 0:11:33.960 We're about seventy five percent of the way through the 0:11:34.000 --> 0:11:36.600 earning cycle here. I kind of feel like it's not 0:11:36.679 --> 0:11:39.719 getting much attention. It's all fed this, fed that. What 0:11:40.280 --> 0:11:42.360 are you taking away in your team in terms of 0:11:42.400 --> 0:11:43.680 what we've seen in the earning cycle. 0:11:44.520 --> 0:11:47.120 Oh, you're absolutely right, Paul. It's been a really fascinating 0:11:47.160 --> 0:11:50.040 earning season actually, because the S and P five hundred 0:11:50.040 --> 0:11:52.480 is on track to post greater than six percent earnings growth. 0:11:52.480 --> 0:11:54.959 The consensus coming into this season was for less than 0:11:54.960 --> 0:11:57.760 two So we're talking S and P five hundred earning 0:11:57.760 --> 0:12:00.000 scrat at triple the pace that that was expected by 0:12:00.160 --> 0:12:04.040 the consensus. Eighty percent of companies have also beat expectations. 0:12:04.480 --> 0:12:07.319 That is substantially better than long term average of sixty 0:12:07.400 --> 0:12:10.040 five and even better than the post COVID average which 0:12:10.040 --> 0:12:14.320 has been abnormally high. So very strong earnings growth at 0:12:14.400 --> 0:12:18.520 least relative to expectations when we exclude the energy sector, 0:12:18.559 --> 0:12:21.160 which remember energy is something we've been watching very carefully 0:12:21.160 --> 0:12:23.959 because it is a net problem for the rest of 0:12:24.000 --> 0:12:27.440 the index. When energy stocks are doing well, excluding the 0:12:27.559 --> 0:12:29.840 energy sector, you're looking at ten percent earnings growth for 0:12:29.880 --> 0:12:33.840 the S and P five hundred and stronger breadths stronger 0:12:33.880 --> 0:12:37.520 recovery emerging for most sectors into the first and second 0:12:37.600 --> 0:12:40.800 quarter of this year. So it has gone largely unnoticed 0:12:40.880 --> 0:12:44.200 or at least uncommented on, as the FED has taken 0:12:44.280 --> 0:12:47.520 a lot of mind share. But frankly, the earnings numbers 0:12:47.559 --> 0:12:50.680 are are much better than expected and painting a pretty 0:12:50.679 --> 0:12:52.440 solid backdrop for stocks right now. 0:12:52.600 --> 0:12:55.160 And I know you guys on your team gena look 0:12:55.160 --> 0:12:58.400 at margins and the trends and margins are these quality 0:12:58.480 --> 0:13:01.000 earnings from what you can tell it to say stage. 0:13:01.440 --> 0:13:04.880 Yeah, it's mixed, to be quite honest, it's very mixed 0:13:04.880 --> 0:13:08.560 by sector, very mixed by industry. When we look at margins, 0:13:08.840 --> 0:13:13.000 net income margins do a computer improving faster than operating margins, 0:13:13.040 --> 0:13:15.120 which I don't want to call it a red flag, 0:13:15.160 --> 0:13:19.400 but it's something to watch for for pervasiveness. You really 0:13:19.400 --> 0:13:22.599 want to see both net income margins and operating margins improving. 0:13:23.280 --> 0:13:25.880 We're not yet there on the operating margin line, which 0:13:25.920 --> 0:13:29.719 does suggest that there may be some income statement of 0:13:29.760 --> 0:13:33.360 manipulations that are helping to improve margins. So we want 0:13:33.400 --> 0:13:37.160 to watch pretty carefully. That's said, certain sectors are improving 0:13:37.440 --> 0:13:42.120 very significantly, namely tech and communications, while other sectors like 0:13:42.240 --> 0:13:45.440 energy and materials are big drugs. That to me is 0:13:45.520 --> 0:13:48.800 not necessarily a bad sign. Energy and materials are commodity 0:13:48.880 --> 0:13:51.560 sensitive sectors. They are cost inputs for a lot of 0:13:51.600 --> 0:13:54.440 the other groups in the S and P, so the 0:13:54.520 --> 0:14:00.199 index can sustain improving fundamental conditions if these two sectors 0:14:00.280 --> 0:14:01.320 are the weak spots. 0:14:01.679 --> 0:14:03.400 Gina Martin Adams, thank you so much. 0:14:08.040 --> 0:14:10.840 I want to call it this because I think it's generational. 0:14:10.880 --> 0:14:14.640 As we go to Alex Webb in London on technology, 0:14:15.200 --> 0:14:17.559 You're a kid from you know, like pretty basic means, 0:14:17.600 --> 0:14:20.560 you play hockey, You end up Paul at the Rhode 0:14:20.600 --> 0:14:25.080 Island School of Design, and then you invent this strange 0:14:25.200 --> 0:14:28.160 thing where you have an apartment and you can rent 0:14:28.160 --> 0:14:31.680 it out and it's another playstory. Of course, it's Airbnb, 0:14:31.800 --> 0:14:35.600 and this is Brian Cheske we're talking about. And what's 0:14:35.680 --> 0:14:39.560 fascinating to me is, all of a sudden, he's a 0:14:39.600 --> 0:14:43.600 grown up six billion dollars sure buy back Uber. All 0:14:43.640 --> 0:14:46.600 of a sudden, they're a grown up with a generational 0:14:46.920 --> 0:14:49.640 and Alex Webb is so wise he can, you know, 0:14:49.720 --> 0:14:54.360 do the generational tilt. Alex Webb is Silicon Valley in 0:14:54.400 --> 0:14:55.240 a broad sense. 0:14:55.440 --> 0:14:57.160 Is tech growing up? 0:14:58.680 --> 0:15:02.600 Yeah, I mean Facebook's kind of like prime example of 0:15:02.640 --> 0:15:06.520 that as well. Meta you know, they doing massive buybacks 0:15:06.920 --> 0:15:10.280 as well. Actually wrote a piece just last week where 0:15:11.040 --> 0:15:12.160 they're really becoming a. 0:15:12.080 --> 0:15:13.040 Lot more like Apple. 0:15:13.080 --> 0:15:16.440 They're realizing that that shareholders care about cash at the 0:15:16.440 --> 0:15:19.680 moment in a way that they perhaps didn't in those 0:15:19.720 --> 0:15:21.200 heady years a few years ago when it was all 0:15:21.200 --> 0:15:23.920 about growth. They obviously not they're not exactly value stocks, 0:15:24.280 --> 0:15:29.480 but there's a massive pivot, which you know, is sensible 0:15:29.520 --> 0:15:30.800 giving the market dynamics. 0:15:31.240 --> 0:15:35.560 And we actually saw better initiade a you know, token dividend, 0:15:35.840 --> 0:15:37.640 but kind of a dividend in line with a yield 0:15:37.680 --> 0:15:38.760 that's in line with Apple. 0:15:38.880 --> 0:15:40.720 So maybe that's a little bit of a trend there, Alex. 0:15:42.000 --> 0:15:43.360 It certainly looks that way. 0:15:43.400 --> 0:15:45.640 And you know, you think also about all the the 0:15:45.720 --> 0:15:50.160 increased focus on efficiency, which you know, unfortunately euphemism in 0:15:50.200 --> 0:15:52.560 many works in many cases for job cuts. 0:15:53.720 --> 0:15:56.360 When you look at the sort of average. 0:15:55.840 --> 0:15:59.960 Revenue per employee at a company like like Mester or 0:16:00.120 --> 0:16:04.000 like Amazon, it fell massively actually in the years up 0:16:04.000 --> 0:16:07.040 to the pandemic because they were just hiring with such gusto. 0:16:07.720 --> 0:16:10.400 What we've seen in the past sort of six eight, 0:16:10.440 --> 0:16:13.520 twelve months is that there seems to be an increased 0:16:13.560 --> 0:16:16.280 focus on that number, that they have realized that their 0:16:16.320 --> 0:16:19.280 employees are not that they're working less efficiently essentially because 0:16:19.280 --> 0:16:21.240 they have too many of them. So we've seen massive 0:16:21.240 --> 0:16:22.800 reductions in headcounts of consequence. 0:16:23.280 --> 0:16:26.600 So, Alex, we did get Uber, another one of those names, 0:16:26.600 --> 0:16:29.880 one of those gig economy companies that's really come into 0:16:29.920 --> 0:16:33.040 its own with maybe some some new management with Derekkaswashahi. 0:16:33.640 --> 0:16:35.000 Now they've got to buy back here. 0:16:36.200 --> 0:16:39.400 That seems to validate them, as I guess adults in 0:16:39.400 --> 0:16:40.120 the room kind of thing. 0:16:41.640 --> 0:16:45.560 Yeah, And it's like, you know, ultimately it's not a 0:16:45.560 --> 0:16:47.840 company that's growing anywhere near at the pace it was 0:16:47.880 --> 0:16:50.280 you know, if you think about back in twenty twenty 0:16:50.400 --> 0:16:52.040 two when you had like of course they did some 0:16:52.040 --> 0:16:54.520 acquisitions as well, which turbo charge it. But you know, 0:16:54.600 --> 0:16:57.680 revenue almost doubled in a twelve month period. Now it's 0:16:58.080 --> 0:17:00.600 the market's looking for a sort of fifteen sixteen percent 0:17:00.680 --> 0:17:04.720 growth rate this year. But crucially it is now profitable, 0:17:04.840 --> 0:17:07.240 right That was not the case for the most of 0:17:07.280 --> 0:17:10.200 its existence throughout fifteen years or something of its existence 0:17:10.200 --> 0:17:13.520 only a decade it was not a profitable company. Now 0:17:13.640 --> 0:17:15.960 that's why it's interesting as well with Lift at the moment, 0:17:16.000 --> 0:17:20.600 because you know they are expected to post a profit 0:17:20.760 --> 0:17:23.040 at least an operating basis for the first time this year. 0:17:23.040 --> 0:17:24.000 That's meaningful. 0:17:24.960 --> 0:17:27.639 Shouldn't be probably given the way we've used to companies, 0:17:27.640 --> 0:17:29.520 but in the world of tech it isn't. It hasn't 0:17:29.520 --> 0:17:30.119 been a given. 0:17:30.400 --> 0:17:33.200 Alex Web with us in London here on Technology Alex. 0:17:33.240 --> 0:17:37.399 One of our emailers thank you for emailing in huge 0:17:37.480 --> 0:17:40.600 alex webfan and they say, Tom, cut the chat on 0:17:40.640 --> 0:17:44.200 these rich guys, alex webber you returning your vision bro? 0:17:44.440 --> 0:17:46.160 Are you just saying enough it doesn't work? 0:17:46.920 --> 0:17:48.680 If I was a rich guy, I might have a 0:17:48.760 --> 0:17:49.720 vision bro. I am not. 0:17:50.000 --> 0:17:50.679 I don't know. 0:17:50.760 --> 0:17:52.359 I mean, it's it was quite interesting. 0:17:52.400 --> 0:17:54.840 There was a video of Mark Zuckerberg basically giving his 0:17:54.920 --> 0:17:57.360 in a heavily verted commerce review of the Vision Pro. 0:17:57.520 --> 0:17:59.800 Surprise surprise, he says, our product is a lot better. 0:18:01.040 --> 0:18:03.000 I mean, the case I've made before is that actually 0:18:03.000 --> 0:18:05.040 Apple doesn't need the vision Pro to be a hit, right, 0:18:05.119 --> 0:18:07.600 It just needs to make sure that whatever Meta comes 0:18:07.640 --> 0:18:10.360 up with is not a hit, because if it sacrifices 0:18:10.440 --> 0:18:14.400 the next you know, vector of computing to a competitor, 0:18:14.440 --> 0:18:16.040 then it's got a big problems in its hands. If 0:18:16.080 --> 0:18:20.119 if like smart glasses, you know, virtuality or mental reality, 0:18:20.160 --> 0:18:22.080 mixed reality, whatever you want to call it, if that 0:18:22.119 --> 0:18:24.480 doesn't take off as a category, that's not really the 0:18:24.560 --> 0:18:25.960 end of the world for Apple. The problem is that 0:18:26.000 --> 0:18:27.800 if it does and Apple's not in there. 0:18:27.760 --> 0:18:29.399 Is a non financial guy. 0:18:29.920 --> 0:18:33.240 When the financial people say Apple has an ecosystem of 0:18:33.240 --> 0:18:35.679 what is a two point two billion pall ye something 0:18:35.720 --> 0:18:36.080 like that? 0:18:36.640 --> 0:18:39.080 Do you see that growing out ginormous to like three 0:18:39.160 --> 0:18:39.919 billion people? 0:18:40.000 --> 0:18:42.680 Is there just an endless Apple universe out there? 0:18:43.760 --> 0:18:47.560 Hard to see how that happens without really going down 0:18:47.600 --> 0:18:51.439 into more affordable devices, right, Like, you know, The reason 0:18:51.480 --> 0:18:55.800 that Apple has managed to continue growing earnings for share 0:18:55.960 --> 0:18:59.359 at a feral clip even as its top line growth 0:18:59.480 --> 0:19:03.120 is slow or in fact last year's shrunk, is because 0:19:03.400 --> 0:19:05.440 it's able to sell more of the top of the 0:19:05.560 --> 0:19:09.480 range devices, devices where you're selling two hundred and fifty 0:19:09.480 --> 0:19:12.440 six gigabytes of memory at a at an eighty five 0:19:12.440 --> 0:19:16.480 percent gross margin, right, whereas the smaller, cheaper devices do 0:19:16.600 --> 0:19:20.720 not have those sort of margins. So, you know, the 0:19:21.280 --> 0:19:25.520 if you're going to get to that next whatever market 0:19:25.640 --> 0:19:27.840 of another billion people, you probably need to be in 0:19:27.840 --> 0:19:30.440 the one hundred two hundred less than three hundred dollars range. 0:19:30.480 --> 0:19:32.520 And I think most Apple typically played well. 0:19:32.600 --> 0:19:34.760 And when we talked to analyst Alex it doesn't sound 0:19:34.800 --> 0:19:36.760 like just let's just take it. In India, for example, 0:19:37.119 --> 0:19:38.920 you could make the case that point if they come 0:19:38.960 --> 0:19:41.639 in with a cheaper phone, man, they can get huge 0:19:41.680 --> 0:19:44.480 market share there, and analysts kind of say them, they're 0:19:44.520 --> 0:19:47.040 going to stick with their high end products and wait 0:19:47.080 --> 0:19:49.160 for the middle class to grow out, you know, similar 0:19:49.160 --> 0:19:50.080 to what they did in China. 0:19:50.960 --> 0:19:52.520 I guess that's the way they're going to go there. 0:19:53.720 --> 0:19:56.359 It's really fascinating India because it's such a price sensitive market. 0:19:56.400 --> 0:19:58.760 If you look at Netflix, it's experience in that market 0:19:58.760 --> 0:20:00.240 where you know, you think of it, Oh, we could 0:20:00.240 --> 0:20:02.520 have four hundred million customers there. Well, you know, actually, 0:20:03.000 --> 0:20:04.800 are you going to get four hundred million people to 0:20:04.920 --> 0:20:08.480 pay you know, something in the order of twelve dollars 0:20:08.520 --> 0:20:11.040 a month? Almost certainly, not certainly not yet, you know, 0:20:11.040 --> 0:20:12.240 it might be in a few years time. 0:20:12.320 --> 0:20:12.480 Now. 0:20:12.520 --> 0:20:14.840 If you if Netflix can't convince people to part with 0:20:15.240 --> 0:20:17.879 you know, ten dollars a month, what's the likelihood of 0:20:17.880 --> 0:20:20.400 Apple being able to convince them to then actually download 0:20:20.400 --> 0:20:24.080