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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Daniel

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Speaker 1: Katson with us with the MP Perry BA a wonderful

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Speaker 1: French bank. He's had a foreign exchange strategy North America. Dan,

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Speaker 1: what will you listen for? Is we all listen to

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Speaker 1: the Leguard press conference on fiscal matters. She has to

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Speaker 1: address that Europe is not a great fiscal power, is it? No?

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Speaker 1: I agree with you. I think there will be a

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Speaker 1: discussion of fiscal issues in the press conference and some

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Speaker 1: job owning towards directed at the at the finance ministers

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Speaker 1: and and ads of government to move in that direction.

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Speaker 1: But you know, at the end of the day, Uh,

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Speaker 1: just as Powell yesterday said, a lot of this is

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Speaker 1: outside of their remit, and all they can do is

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Speaker 1: kind of nudge gently in the right direction. Now, how

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Speaker 1: pur audience said, just how large is a CB asset purchases?

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Speaker 1: Right now? They've got all these different programs, put them

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Speaker 1: together just how big is monthly quee are the European

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Speaker 1: Central Bank at the moment, it's I mean, it's you know,

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Speaker 1: it's not it's not that different from how the FED story,

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Speaker 1: where you have a range of programs. You have the

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Speaker 1: que programs which are more traditional and in fact larger

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Speaker 1: on the ECB side than than than what the FED

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Speaker 1: is doing. But then you have to have all this

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Speaker 1: alphabet soup that you're kind of referred to of of

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Speaker 1: credit easing measures, and you know these there's so many

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Speaker 1: programs because there's so many different things that the FED

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Speaker 1: and the ECB are trying to to fix. But the

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Speaker 1: bottom line is are trying to make sure that markets

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Speaker 1: are functioning smoothly, that there's no pockets of liquidity, and

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Speaker 1: that they're kind of getting their transmission into all the

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Speaker 1: right places. There's another loan program for banks, because I'm

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Speaker 1: sure it's going to be a topic for the news

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Speaker 1: conference a little bit later this morning. The Canary and

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Speaker 1: most people's coal mines right now is a bt P.

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Speaker 1: The Italian boond the tenure right now up seven basis points.

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Speaker 1: Off the back of this decision is the focus still

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Speaker 1: on whether the ECB will buy junk debt from here

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Speaker 1: on out, not just on the sulfuring side, but on

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Speaker 1: the credit side. To Dan, I think there was also

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Speaker 1: some hope that they might do more to address some

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Speaker 1: of the pressure on the very front end of the

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Speaker 1: market that you know you've seen in at least for

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Speaker 1: part of April higher higher your Eyebork fixings uh and

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Speaker 1: some hope they might add financial commercial paper or or

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Speaker 1: T bills to their their their purchase programs. Instead, what

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Speaker 1: they've done is out of these these additional uh T

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Speaker 1: L t r os that you mentioned, so that may

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Speaker 1: be coming up a bit short of what the market

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Speaker 1: was helping for, and that may be why you see

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Speaker 1: some of the pressure on the euro right after decision

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Speaker 1: and also on the BTPs. Dan, I remember when currencies

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Speaker 1: used to be a debate on which central bank was

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Speaker 1: either tightening fastest or easing fastest. So I'm wondering if

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Speaker 1: it still is a relative game in terms of who's

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Speaker 1: easing most quickly, who's got the most ammunition to do so,

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Speaker 1: who's winning here? Where is the pressure right now on

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Speaker 1: a weeker dollar or a week or weaker euro. Well,

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Speaker 1: I think we're kind of like where we got to

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Speaker 1: in two thousand nine. Already we got your very quickly

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Speaker 1: where everybody is all in. Everybody's at zero, and now

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Speaker 1: they're just making adjustments along the margins to make sure

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Speaker 1: that the transmissions working, so everyone's all in. Rate differentials

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Speaker 1: have come down to about zero. It's about, you know,

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Speaker 1: seventies sixty seventy basis points three months rate differential between

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Speaker 1: Europe and US based on the FX forwards. And that

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Speaker 1: means that you know, the currencies that are going to

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Speaker 1: do well are the ones where investor you have a

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Speaker 1: current account surplust investors have no more reason to keep

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Speaker 1: our risk in overseas markets, and you'll see hedging away

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Speaker 1: of overseas effects composure. So that's bad news for the dollar. Basically,

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Speaker 1: I don't want to get you in trouble with Paris Daan,

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Speaker 1: But let's try what's the optimal point for euro right now?

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Speaker 1: What's the multi efficacious euro dollar pricing right now? For

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Speaker 1: Christine Legard, Well, we think euro is cheap versus the dollar.

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Speaker 1: We think a long term equilibrium is in one thirties area.

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Speaker 1: So obviously that's a long way away. And and then

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Speaker 1: you know, I'm not gonna that's not gonna happen very quickly.

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Speaker 1: But we think you could get considerably higher from where

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Speaker 1: you are now. And um, that would be a much

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Speaker 1: more neutral place for facts that cats catch you. You

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Speaker 1: joint to us from BMP powder bite. Here if the

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Speaker 1: surveillance home studio in the oak paneled library with a

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Speaker 1: bloody mary board, I can look at a book the

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Speaker 1: Wage Curve Blanche Flower Oswald, and I can open the

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Speaker 1: book and see the first sentence. Work on this monograph

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Speaker 1: began in nineteen eighties seven. David blanche Flower joins us

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Speaker 1: now from Dartmouth, where he saw twelve copies of the

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Speaker 1: Wage Curve. David, is this the worst you've seen since seven?

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Speaker 1: Is this is? This is stunning economic decline, isn't it? Well?

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Speaker 1: It certainly is the worst. But I'm a historian as well,

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Speaker 1: and I can't see anything worse than this ever. Um,

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Speaker 1: I mean, I was looking at the numbers you were

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Speaker 1: talking about this morning. Got numbers for Europe. We've got

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Speaker 1: numbers for France but also Spain and Belgium and Austria,

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Speaker 1: and we're looking at, I mean, unprecedented numbers. And just

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Speaker 1: to put what John said in context, France, of course

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Speaker 1: had a negative quarter the one before that, so basically interesting.

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Speaker 1: Certainly now even before we get to Q two. I mean,

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Speaker 1: these numbers are completely unprecedented, and they're all going to

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Speaker 1: get a lot worse, and we're going to see another

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Speaker 1: number at age thirty. My guess is four million or

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Speaker 1: so you I claims. It's a bit difficult to follow

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Speaker 1: because if you look at place like k because there's

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Speaker 1: been a big increase there, But these are these are

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Speaker 1: numbers that are you know, the only way to describe

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Speaker 1: it is a falling night. This is just collapsing through

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Speaker 1: the floor. Danny. For ten years, you said, don't raise

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Speaker 1: interest rates. You kept saying, don't raise interest rates because

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Speaker 1: this labor market has still got a load of slack.

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Speaker 1: There's still a load of work to do, there's still

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Speaker 1: more and more people that need to come back. They

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Speaker 1: raised interest rates. Chair Yelen flirted with the idea of

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Speaker 1: running things hard. She didn't run things hard. Chair how

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Speaker 1: quickly realized after a couple of years on the job

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Speaker 1: that maybe they should be leaving things to run hard,

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Speaker 1: because there is more work to do in the labor market. Danny,

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Speaker 1: when we come out of this in twelve months time,

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Speaker 1: eighteen months time, whenever that is, in two years time,

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Speaker 1: the reluctance to do what they did last time around

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Speaker 1: is going to be absolutely massive. Can you help frame

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Speaker 1: for our audience just how long rates are going to

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Speaker 1: be at these levels because of the lessons that were

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Speaker 1: learned over the last five ten years. What a great question.

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Speaker 1: I mean, obviously, on your program many times I took

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Speaker 1: a view that the bed was mistaken and it's great

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Speaker 1: rises from two thousand fifteen to two thousand and eighteen

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Speaker 1: and left the economy weaker than it should have been

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Speaker 1: when this shot came along. Um, I think we need

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Speaker 1: to look back at what happened both from two thousand

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Speaker 1: and eight onwards, and it seemed to me that people

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Speaker 1: underestimated to the shock. The fiscal authorities tightened too much,

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Speaker 1: and that put pressure on the central thing. And I

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Speaker 1: think we haven't learned the lesson. I used to quote

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Speaker 1: this quote a lot Kane's in one talked about the

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Speaker 1: long dragging conditions of semi slump, and he said the

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Speaker 1: issue was not so much the crash itself, but what follows.

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Speaker 1: And so I think that's a really great question of yours, John,

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Speaker 1: that the reality is that you have this great shock

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Speaker 1: and then you need to worry about what's coming. And

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Speaker 1: I think if we look back that the biggest mistake

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Speaker 1: that was made was to assume it was all over

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Speaker 1: um and then you could sort of anchor back. And

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Speaker 1: then if you hear and now your steerings of all

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Speaker 1: talking about well, now in eighteen months or so, we're

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Speaker 1: gonna we'll go back to where where we can raise rate,

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Speaker 1: we can fight. And I think the reality what we

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Speaker 1: know in these giant shops is that their long lapsing. Literally,

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Speaker 1: So how come John Ferrell only has all great questions?

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Speaker 1: What is that about? Danny and I talked before we

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Speaker 1: do the shape you coordinate and you brob him. I agree,

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Speaker 1: and I want to build on it. Uh, Danny and

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Speaker 1: the idea of the slack in the economy and in

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Speaker 1: the jobs market, and you wrote a really good paper

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Speaker 1: about this recently, looking at the preliminary data about the

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Speaker 1: job destruction and the mass of it in the United

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Speaker 1: States and in the United Kingdom and the wake of

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Speaker 1: the coronavirus shutdowns, and you talked about the widening wealth gap,

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Speaker 1: the widening income gap, the disproportionate hit on lower income

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Speaker 1: individuals is a fed effectively widening this wealth gap with

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Speaker 1: its programs. Well, I mean the issue is who are

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Speaker 1: you going to rescue? I mean, we had an initial

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Speaker 1: piece of data from the BLX for its March release,

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Speaker 1: and we're going to get the release for a rape

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Speaker 1: coming shortly. If you look, the biggest group that were

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Speaker 1: impacted with a young, So the young had a three

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Speaker 1: point three percentage point rise in their unemployment rate. So

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Speaker 1: obviously the issue here is that there's going to be

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Speaker 1: distributional consequences here. And obviously the FED action we know

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Speaker 1: in two thousand and eight onwards rescued people who owned assets,

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Speaker 1: and what we're going to see here is that that's

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Speaker 1: the same thing going to happen. The question is what

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Speaker 1: happens in terms of the distributional consequences, And of course

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Speaker 1: what we're seeing a distributional consequences of the virus itself,

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Speaker 1: so people into the poorer people, people without health insurance,

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Speaker 1: people owing up so well, so that that's obviously an issue.

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Speaker 1: And the question always for a central bank is Okay,

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Speaker 1: we're going to have an effect on distribution. We only

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Speaker 1: have limited tools. It's up to the fiscal authorities to

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Speaker 1: do something about it. And obviously the issue is that

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Speaker 1: are they going to do that? And I think the

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Speaker 1: second issue is that we see around the country are

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Speaker 1: they going to get food to the people who need it?

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Speaker 1: So I think distributional things are really important. And something

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Speaker 1: else I should flag is that we're going to look

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Speaker 1: at you, I claims. But the big deal going forward

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Speaker 1: is going to be under employment, which is even that

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Speaker 1: people are in work, they don't have enough hours, and

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Speaker 1: that's sort of huge hit as well. Are we going

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Speaker 1: to see big hits from that? So it's not just unemployment,

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Speaker 1: it's about underemployment. And the people who are going to

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Speaker 1: be under employed are the weakest spoke that. You're right,

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Speaker 1: the FED will not essentially be be getting too because

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Speaker 1: they can't do everything, but but the central government and

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Speaker 1: the Congress have to get to those books and they

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Speaker 1: aren't it. So what we've seen is the people who

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Speaker 1: do best in the boom are the people who do

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Speaker 1: worst in the slump. So the least educated, the young

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Speaker 1: we're going to worry about. And the FED really has no, no,

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Speaker 1: no part of play in that game. Danny. Politicians have

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Speaker 1: done a lot over the last couple of months, and

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Speaker 1: one of the things they've done is enhanced employment benefits

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Speaker 1: in the United States of America? Does it rather contra

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Speaker 1: vercial question being asked in America now over the last

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Speaker 1: several weeks about the unintended consequences of that decision. Can

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Speaker 1: you walk us through how you're thinking about that particular

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Speaker 1: dilemma at the moment enhanced unemployment benefits which for some

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Speaker 1: people they may well be doing better off without a

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Speaker 1: job financially speaking, certainly, not psychologically speaking, but financially speaking. Well,

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Speaker 1: the first thing we know from from all the work

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Speaker 1: that I and many other people in paper economics have

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Speaker 1: is that the biggest happiness inducer, if you like, is

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Speaker 1: a job. And so obviously the question now is well,

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Speaker 1: should you go in and help people who have lost

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Speaker 1: the job through no fault of their own. So that's

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Speaker 1: the first point. So you put in benefits, and we've

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Speaker 1: traditionally have done it on a bypassing basis to help

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Speaker 1: people through this shock. The issue, I guess is you've

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Speaker 1: helped these people and then you say, well, are they

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Speaker 1: just lazy? Are going to just sit there and not

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Speaker 1: look for all the jobs that are out there? And

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Speaker 1: then you get to the point of well, what jobs

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Speaker 1: are there out there. The point of the point in

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Speaker 1: this great recession where we've seen German unemployment rights and

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Speaker 1: having a huge numbers coming just thirty million odd increase

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Speaker 1: in unemployment claims is because there's no demand, oil price

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Speaker 1: driving UM. The restaurants are closingest people aren't going to them.

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Speaker 1: So this is to temporarily take help the people who

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Speaker 1: have no fold with their own have been made unemployed. UM.

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Speaker 1: And so to argue that we shouldn't help those people,

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Speaker 1: we shouldn't deal with the difficult issues that are going

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Speaker 1: on right now, seems well heartless as good as well,

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Speaker 1: said Danny. Very well, said David blanch For thank you

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Speaker 1: so much. He is with Dartmouth College. We have talked

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Speaker 1: all sorts of good people. We think Stephen Riley of

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Speaker 1: Imperial College for joining Bloomberg Surveillance today out of London.

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Speaker 1: Right now, my conversation that I have with Francie Laqui,

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Speaker 1: with Jason Farley with it Johns Hopkins University School of Nursing.

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Speaker 1: Let's listen, We've got great data about the way we

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Speaker 1: position patients UM that will actually help improve oxygen saturations

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Speaker 1: or the amount of oxygen in the blood. UM. It

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Speaker 1: can actually slow down if a patient's progressing towards the

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Speaker 1: need for ventilation, by placing them on their stomach. We

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Speaker 1: call that prone position or proning the patients. We can

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Speaker 1: do that before a patient gets ventilated, we can do

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Speaker 1: that after a patient gets ventilated. It actually helps to

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Speaker 1: buy gravity improve the amount of oxygen in a patient's blood.

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Speaker 1: So that's one thing. The second thing, and I think

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Speaker 1: more importantly what Dr Fauci is referring to in this

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Speaker 1: proof of concept is do we have any drug that

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Speaker 1: shows it can help improve the way um it responds

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Speaker 1: or it causes the virus to respond in the body.

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Speaker 1: And that, I think is more what Dr Fauci is

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Speaker 1: we're speaking to in his comments yesterday, the proof of

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Speaker 1: concept that we now share a single drug that may

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Speaker 1: offer a benefit. What is our proof of concept right

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Speaker 1: now with our testing? It seems to be complex. People

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Speaker 1: talk about the swabs and the rest of it. Is

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Speaker 1: our testing up to proof of concept level? Well? Well, certainly,

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Speaker 1: when we when we talk about proof of concept, it

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Speaker 1: simply means that we have you know, we've theorized an issue.

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Speaker 1: And when we understand that there is a at least

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Speaker 1: something that gives us an idea that the hypothesis we

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Speaker 1: originally proposed is actually has merit, right, and that's the

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Speaker 1: proof of concept. So right now, our proof of concept

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Speaker 1: is that we can stand up across the United States

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Speaker 1: without the help of the federal government, you know, testing,

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Speaker 1: and we can stand that testing up. Uh. You know,

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Speaker 1: it takes it's a slow process. It's their supply thing

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Speaker 1: that's used. But we are now testing across the United States, um,

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Speaker 1: you know, hundreds of thousands of people a day. Um.

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Speaker 1: That being said, it's remained a very slow process. So

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Speaker 1: we do need to scale up. And the administration's estimate

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Speaker 1: of testing two percent of the general population per day

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Speaker 1: with you know, we've heard estimates that that would take

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Speaker 1: up approximately four years to get to the right level

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Speaker 1: of testing that we need. So we we definitely know

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Speaker 1: that we need to speed up our testing capacity, need

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Speaker 1: to speed up the number of people being tested. Dr Farley,

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Speaker 1: what is you know, what are you most hopeful about

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Speaker 1: right now? I know that there are a couple of

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Speaker 1: clinical trials actually showing that Rodzeviere could be working. How

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Speaker 1: long until we have you know, an almost certain answer

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Speaker 1: on what drugs can help us fighting this pandemic certainly,

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Speaker 1: so I understand. You know that the data that came

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Speaker 1: out from the NIH yesterday was an interim analysis and

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Speaker 1: and basically what that means is that the that there's

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Speaker 1: a data safety and monitoring board that's independent to the

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Speaker 1: investigative team. They look at the data and they've done that,

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Speaker 1: and in that interim analysis, there is a statistical benefit

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Speaker 1: in terms of recovery time. It's the four day benefits.

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Speaker 1: So patients who received the drug redem severe received eleven

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Speaker 1: day over all time to resolution, whereas people who received

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Speaker 1: placebo was a fifteen day time to resolution. Now that's

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Speaker 1: our first as we were saying before, proof of concept

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Speaker 1: of the drug may have some level of benefits when

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Speaker 1: it comes to survival UM. There was a trend toward

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Speaker 1: survivability UM that was not exactly statistical significant at this point,

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Speaker 1: meaning that you know, the metric we look at as

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Speaker 1: scientists to say, is this different one drug AID versus

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Speaker 1: drug B. And the answer to that is right now,

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Speaker 1: it was. It appears that it's moving in that direction,

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Speaker 1: but it was not yet statistically different. But the data.

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Speaker 1: What the data did show was the eight percent mortality

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Speaker 1: in the redemped severe arm versus eleven point six percent

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Speaker 1: mortality in the placebo arm so that is at least

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Speaker 1: some benefit it that we can see mathematically emerging. Jesson

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Speaker 1: Farrowy the School Nursing Jena, because university owners should mention

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Speaker 1: also affiliated with the Bloomberg School of Public Health at

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Speaker 1: j h U. And of course we should mention Michael Bloomberg,

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Speaker 1: founder of Bloomberg LP this radio and television operation as well.

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Speaker 1: He has given generously to his School of Engineering and

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Speaker 1: the rest of the Johns Hopkins University. Apple's taken over

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Speaker 1: our lives, and they're becoming more and more integral as

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Speaker 1: we are staying at home and consuming more and more

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Speaker 1: media on our devices. Chris Sankar covers Apple for Counter

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Speaker 1: Companies of Senior Research Channels Tom and he joins us here. Chris,

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Speaker 1: thanks so much for joining us. Um, what do you

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Speaker 1: expect from Apple after the close tonight when they report

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Speaker 1: their earnings? Yeah, Hi, thanks for having me, and everyone

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Speaker 1: is a very you know, Apple's party the first one

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Speaker 1: to pull the guidance because of COVID back in mid February.

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Speaker 1: So I would say that consensus numbers are all over

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Speaker 1: the map. But if you look at the midpoint of

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Speaker 1: it roughly around like you know, low to mid fifty

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Speaker 1: billion and revenues. I do expect them to come in

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Speaker 1: line with that number. And keep in mind that used

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Speaker 1: to be sixty five billion, you know, pre guidance withdrawals,

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Speaker 1: so you've seen quite a bit of tious king over there.

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Speaker 1: So I do expect them largely to come in line

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Speaker 1: at this point. I do not expect them to give

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Speaker 1: a June quarter guidance. And the rationalt for that is

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Speaker 1: pretty simple, right, So in jan thirty during the last

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Speaker 1: earnings called, they give a March guidance. Two weeks later

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Speaker 1: they pulled it at the time because the supply chain

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Speaker 1: is disrupted due to the COVID And now the supply

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Speaker 1: chain is up and running, but you have to forecast

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Speaker 1: demand for June based on some geographies that haven't even

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Speaker 1: opened up yet. So I think the demand forecasting is

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Speaker 1: much more challenging than the supply ramifications at this point.

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Speaker 1: So I would say, given all of that, I do

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Speaker 1: not expect them to give a June quarter guidance about

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Speaker 1: our forecast. It is to be largely flattish on a

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Speaker 1: sequential basis, alright, So Chris, so I know they had

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Speaker 1: some new phones UH is scheduled to be launched kind

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Speaker 1: of a lower our mid price phone UH as well

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Speaker 1: as perhaps a five G phone in the fall. Where

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Speaker 1: do you think some of those new product launches are

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Speaker 1: going to be impact? There are we gonna see some

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Speaker 1: significant delays in some of their new product launches. So

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Speaker 1: in term of like the mid rangers, I should say

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Speaker 1: the low class phone they did come out of the

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Speaker 1: two weeks ago the iPhone SC, you know, which the

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Speaker 1: price phone is anywhere from three at the low end

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Speaker 1: to five nine in the in the in the upper end.

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Speaker 1: So I think they did come out of the iPhone SC.

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Speaker 1: You know, in a normal environment, it has seen a

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Speaker 1: little bit more fanfare official launch this time on it

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Speaker 1: was an online launch, so I think that does add

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Speaker 1: to some upside into the unit forecast in June, but

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Speaker 1: more realistically into the half of the year. And then

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Speaker 1: um the five D phone, which is scheduled for a

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Speaker 1: later at the here. Typically Apple comes out with a

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Speaker 1: new iPhone, you know, in the September October time frames.

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Speaker 1: Looks like it might be shifted by maybe a month.

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Speaker 1: But I would say, you know, in the grand scheme

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Speaker 1: of things, whether the new iPhone five G gets lit

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Speaker 1: by a month or two months, it doesn't really matter,

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Speaker 1: you know, it doesn't matter to the thesis, it doesn't

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Speaker 1: matter to the supply chain. If it's like a couple

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Speaker 1: of months push out. I would say that if you

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Speaker 1: are six or nine months push out, and uh, there's

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Speaker 1: probably some ramistications in the in the medium term, but

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Speaker 1: I would say a few months push out really doesn't

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Speaker 1: change the land of the five adoption into calendar one.

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Speaker 1: I can predict you know that all my kids iPhones

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Speaker 1: will break one week before the rollout of five, six

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Speaker 1: or seven. Gee. I got one question here, with all

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Speaker 1: of this upside down demands supply dynamics, what do you

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Speaker 1: model out for the growth of their free cash flow

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Speaker 1: and for the sustainability of two hundred and seven jillion

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Speaker 1: dollars of cash? I mean, there's a ball she got

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Speaker 1: adjusted year off of cash flow or not? Yeah, I

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Speaker 1: think that's a good question. And you know, one of

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Speaker 1: the things I would say is that, you know, the

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Speaker 1: stability of the balance. She has been a major selling

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Speaker 1: point for many Apple shareholders, and you know, I mean

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Speaker 1: the free cash if you look at it, you know

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Speaker 1: last year it was around like two percent. You know,

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Speaker 1: if these things are going to be down quite a

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Speaker 1: bit this year, we actually don't expect the free cash

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Speaker 1: or to diminish dramatically. In other words, right now forecasts like,

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Speaker 1: you know, just under twenty percent free cash flow margins

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Speaker 1: for physical twenty was his twenty two in fiscal nineteen.

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Speaker 1: So I think that's kind of like the beauty of

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Speaker 1: the model. The other thing that we have assumed in

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Speaker 1: our model is that there's really no buy backs in

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Speaker 1: the June quarter. You know, clearly Apple has been funding

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Speaker 1: buybacks in their own cash flow, so they could do

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Speaker 1: what they want with it. But given the environment and

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Speaker 1: the optics of it, we just assume that they're not

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Speaker 1: going to do any buy back at least in the

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Speaker 1: June quarter. I mean, it's just you being Paul listen

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Speaker 1: talking here. Nobody else is listening. What are they going

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Speaker 1: to do with all that money? I mean, if there's

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Speaker 1: a valuation contraction out there, isn't this like the best

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Speaker 1: time ever for Mr Cook to get acquisitive? You know,

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Speaker 1: I know it's a it's a very valid point, and

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Speaker 1: usually you know, there are a lot of bargain basement

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Speaker 1: deals at this time, but I think at the same time,

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Speaker 1: you know, how many of them are bilnked itself. You know,

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Speaker 1: historically they've done more tuck in em and a not

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Speaker 1: any big transformational emin a. I feel like that is

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Speaker 1: still their sentiment around m n as at this point.

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Speaker 1: And if it's a big opportunity out there, you know,

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Speaker 1: is there a building sell it as well? I doubt

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Speaker 1: it in these valuation metrics. But at the same time,

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Speaker 1: what they have made it very clear, both Mr Cook

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Speaker 1: and uh Mr Luca the CFO, have made it clear

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Speaker 1: that they want to be um net cash neutral, i e.

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Speaker 1: They still have like net cash of like a hundred

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Speaker 1: plus billion dollars. And what you've seeing them do is,

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Speaker 1: you know, expectively do an eighteen to twenty billion dollars

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Speaker 1: on a quarterly basis buy back. And they're also looking

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Speaker 1: at investing in you know, TV plus or the news shows,

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Speaker 1: et cetera. Over the last five years, some of the

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Speaker 1: big topics, uh, you know investments were on retail stores.

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Speaker 1: They're largely done building that out. So what are you're

431
00:23:14,920 --> 00:23:17,919
Speaker 1: seeing is some of the more intremental and going towards

432
00:23:18,200 --> 00:23:21,919
Speaker 1: original content for TV plus, et cetera. And you know,

433
00:23:21,960 --> 00:23:23,960
Speaker 1: to your point, Tom when you have two hundred billion

434
00:23:24,040 --> 00:23:27,080
Speaker 1: dollars in you know, in the bank. The world is

435
00:23:27,119 --> 00:23:30,840
Speaker 1: your oyster. But historically, as you've seen, Apple is not

436
00:23:31,240 --> 00:23:34,359
Speaker 1: being a major transformation accilition kind of a company, but

437
00:23:34,400 --> 00:23:38,120
Speaker 1: it's been more bolt on so Christian, you know, one

438
00:23:38,119 --> 00:23:40,960
Speaker 1: of the stories about Apple over the last several years

439
00:23:41,000 --> 00:23:43,080
Speaker 1: has been the growth of the services business. And I'm

440
00:23:43,160 --> 00:23:47,159
Speaker 1: just wondering how the services business will fare in a

441
00:23:47,240 --> 00:23:50,679
Speaker 1: world where thirty million Americans just lost their jobs in

442
00:23:50,720 --> 00:23:53,960
Speaker 1: the last five weeks, we have a global pandemic. How

443
00:23:53,960 --> 00:23:57,560
Speaker 1: are you thinking about kind of the services businesses for Apple?

444
00:23:58,600 --> 00:24:01,800
Speaker 1: You know, I mean, it's about the question, and at

445
00:24:01,800 --> 00:24:03,480
Speaker 1: the end of the day, I would say the services

446
00:24:03,720 --> 00:24:08,000
Speaker 1: is definitely more resilient in a normal environment. March Quarter

447
00:24:08,080 --> 00:24:11,600
Speaker 1: usually sees the uptick in services, especially from China, where

448
00:24:11,640 --> 00:24:14,240
Speaker 1: they do a lot of App store downloads of games

449
00:24:14,760 --> 00:24:17,960
Speaker 1: around the Chinese years. Arguably, this March Quarter was not

450
00:24:18,119 --> 00:24:21,040
Speaker 1: like any other March Quarter in history, so there's a

451
00:24:21,040 --> 00:24:23,480
Speaker 1: lot more people working from home, so I think that

452
00:24:23,600 --> 00:24:28,320
Speaker 1: actually probably helped the services business overall compared to historical

453
00:24:29,400 --> 00:24:32,919
Speaker 1: March quarters. At the same time, I think the unemployment

454
00:24:33,080 --> 00:24:35,680
Speaker 1: is the biggest concerns from investors. I think that is

455
00:24:35,800 --> 00:24:39,399
Speaker 1: more centered around the hotweed or the smartphone division, and

456
00:24:39,520 --> 00:24:42,639
Speaker 1: it's much more consumer centing. But I think the services

457
00:24:42,680 --> 00:24:46,400
Speaker 1: siety is pretty resilient in today's pretty resilient. Yeah, Paul,

458
00:24:46,480 --> 00:24:48,919
Speaker 1: let me do some cf A institute research for you

459
00:24:49,080 --> 00:24:53,320
Speaker 1: right now. Create, explore and survive all this for six

460
00:24:54,720 --> 00:24:58,600
Speaker 1: Explore infinite worlds and build everything from the simplest of

461
00:24:58,720 --> 00:25:01,919
Speaker 1: homes to the grandest castles. Paul, you can do this

462
00:25:01,960 --> 00:25:06,359
Speaker 1: with Minecraft. Trust me. Tim Cook's killing it with the

463
00:25:06,440 --> 00:25:10,720
Speaker 1: Minecraft app from Apple. I know exactly times. I'm sure

464
00:25:10,760 --> 00:25:15,040
Speaker 1: that's downloaded all all across the keen household. Won't even

465
00:25:15,080 --> 00:25:19,639
Speaker 1: go for a walk anymore. He's playing bed Wars exactly. So, Chris,

466
00:25:19,640 --> 00:25:21,679
Speaker 1: just you know, taking a look. You mentioned the supply

467
00:25:21,760 --> 00:25:25,479
Speaker 1: chain here. It looks like China's reopening again. Give us

468
00:25:25,480 --> 00:25:30,760
Speaker 1: a state of the supply chain for Apple. The supplant

469
00:25:30,800 --> 00:25:33,520
Speaker 1: chain is definitely much better shape compared to a month ago.

470
00:25:34,080 --> 00:25:35,480
Speaker 1: I think. You know, if you look at one of

471
00:25:35,480 --> 00:25:38,960
Speaker 1: the major suppliers, which is fox Con, you know, at

472
00:25:39,000 --> 00:25:43,320
Speaker 1: the peak of the pandemic in um in Asia, their

473
00:25:43,400 --> 00:25:47,400
Speaker 1: utilization rates you know when below right now, they're back

474
00:25:47,480 --> 00:25:50,679
Speaker 1: up into like over ninety percent. So clearly the supply

475
00:25:50,800 --> 00:25:53,320
Speaker 1: chain has come from like you know, a sub fifty

476
00:25:53,400 --> 00:25:56,000
Speaker 1: person in a late February to like you know, a

477
00:25:56,080 --> 00:25:59,159
Speaker 1: more normalized run rate today. So the supply chain has

478
00:25:59,160 --> 00:26:01,720
Speaker 1: seemed a quick to bound. You've also seen a lot

479
00:26:01,720 --> 00:26:04,399
Speaker 1: of the shelter in place or as some of the

480
00:26:04,520 --> 00:26:07,719
Speaker 1: Asian economies call it, like movement control orders. They've been

481
00:26:07,840 --> 00:26:11,720
Speaker 1: lifted or in some cases they're actually given special permission

482
00:26:11,760 --> 00:26:13,840
Speaker 1: to some of the larger employers, which would be like

483
00:26:14,080 --> 00:26:17,320
Speaker 1: many semi chennect companies, Apple, et cetera, which employed tons

484
00:26:17,320 --> 00:26:20,960
Speaker 1: of people in the local jurisdiction, many of them and relax.

485
00:26:21,119 --> 00:26:23,560
Speaker 1: I think the supply chain is definitely in a much

486
00:26:23,600 --> 00:26:26,840
Speaker 1: better situation than it was maybe like a month month

487
00:26:26,880 --> 00:26:29,080
Speaker 1: and a half ago, where you're not seeing the biggest

488
00:26:29,119 --> 00:26:33,200
Speaker 1: efficiency improvement is because there are some factories or shop

489
00:26:33,280 --> 00:26:36,480
Speaker 1: flows there. You still have to practice social distancing, so

490
00:26:36,960 --> 00:26:39,879
Speaker 1: you can have as many people or either people densities

491
00:26:39,920 --> 00:26:43,000
Speaker 1: lower than what it would normally be, So that does

492
00:26:43,119 --> 00:26:46,120
Speaker 1: have some impact on the supply but largely I would

493
00:26:46,119 --> 00:26:49,359
Speaker 1: say the supply chain is you know, um in today's

494
00:26:49,480 --> 00:26:52,760
Speaker 1: environment for lack of a better word back to normal. Chris,

495
00:26:52,800 --> 00:26:54,800
Speaker 1: thanks so much for joining us to really appreciate your

496
00:26:54,800 --> 00:27:02,400
Speaker 1: thoughts and commentary on Apple, which Tom Roster indoors. We're quarantining,

497
00:27:02,480 --> 00:27:07,240
Speaker 1: we're shut in, and we are consuming media more than ever.

498
00:27:07,359 --> 00:27:09,119
Speaker 1: The question is how do we kind of get it

499
00:27:09,200 --> 00:27:12,919
Speaker 1: the cable the telecom companies. Are we streaming just a

500
00:27:13,000 --> 00:27:17,200
Speaker 1: whole host of issues for these big tech telecom media

501
00:27:17,240 --> 00:27:19,840
Speaker 1: companies to deal with. And who better to chat about

502
00:27:19,880 --> 00:27:23,080
Speaker 1: that than our good friend Craig Moffatt Moffatt Nathanson, founding

503
00:27:23,160 --> 00:27:25,480
Speaker 1: partner and senior research Annel's Craig, thanks so much for

504
00:27:25,560 --> 00:27:28,760
Speaker 1: joining us. Let's talk cable stocks. First, we had some

505
00:27:28,800 --> 00:27:34,280
Speaker 1: Comcast numbers. Out is the cable story, Craig, Just yeah,

506
00:27:34,320 --> 00:27:37,040
Speaker 1: don't worry about the video subscribers. That business is going away.

507
00:27:37,080 --> 00:27:41,640
Speaker 1: It's all about broadband. Yeah, Hi, good morning, Ball and Tom.

508
00:27:41,680 --> 00:27:45,280
Speaker 1: Good good to talk to you again. You know, yes,

509
00:27:45,640 --> 00:27:49,760
Speaker 1: I think that's right for the cable side of Comcast business. Broadband,

510
00:27:50,240 --> 00:27:53,959
Speaker 1: blue doors off. I think all the things that you

511
00:27:54,280 --> 00:27:57,840
Speaker 1: could have hoped for, which is that in this kind

512
00:27:57,880 --> 00:28:01,760
Speaker 1: of a crisis, UH customers want at higher speeds. They

513
00:28:01,760 --> 00:28:05,240
Speaker 1: were willing to trade up to a better broadband connection

514
00:28:05,760 --> 00:28:08,760
Speaker 1: for DSL customers and what have you? Switching to cable.

515
00:28:08,840 --> 00:28:12,160
Speaker 1: All that happened, and the results on the cable side

516
00:28:12,200 --> 00:28:16,280
Speaker 1: of the business were very very good. Losing video subscribers

517
00:28:16,320 --> 00:28:19,680
Speaker 1: doesn't hurt them that much because those customers don't make

518
00:28:19,680 --> 00:28:23,200
Speaker 1: them much money anyway. And uh, and so you saw

519
00:28:23,320 --> 00:28:26,760
Speaker 1: margins rise to an all time record. And if if

520
00:28:26,800 --> 00:28:30,920
Speaker 1: Comcast were cable only company, the results would have been terrific.

521
00:28:31,440 --> 00:28:34,280
Speaker 1: Craig very quickly here the gossip in A T and T.

522
00:28:34,560 --> 00:28:37,680
Speaker 1: Mr Stevenson, Am I right? The board moved about the door.

523
00:28:37,760 --> 00:28:40,640
Speaker 1: Tell us about the m and A activity of A

524
00:28:40,800 --> 00:28:43,200
Speaker 1: T and T And what Mr Stanky can do to

525
00:28:43,360 --> 00:28:47,040
Speaker 1: straighten this out fast? Well, you know, I I can't

526
00:28:47,040 --> 00:28:49,720
Speaker 1: come in. I don't have any insight into to the

527
00:28:49,800 --> 00:28:57,120
Speaker 1: circumstances surrounding Randall's earlier than expected retirement. I would say

528
00:28:57,200 --> 00:29:01,160
Speaker 1: that that John Stanky as his success or, is to

529
00:29:01,280 --> 00:29:04,000
Speaker 1: some extent an endorsement of the status quo at A

530
00:29:04,080 --> 00:29:06,640
Speaker 1: T and T, though John was very much a co

531
00:29:06,840 --> 00:29:11,280
Speaker 1: architect of this quote unquote a new media company vision.

532
00:29:11,760 --> 00:29:14,960
Speaker 1: That is, you generate content and you distribute it over

533
00:29:15,000 --> 00:29:18,240
Speaker 1: your own platforms. They've got it all under one roof.

534
00:29:18,280 --> 00:29:21,160
Speaker 1: It hasn't worked so far, but this is clearly an

535
00:29:21,240 --> 00:29:23,240
Speaker 1: endorsement of saying we're going to stay the course and

536
00:29:23,360 --> 00:29:26,920
Speaker 1: try to keep keep trying here to make it work. Alright,

537
00:29:26,960 --> 00:29:28,960
Speaker 1: So Craig, let's stay with a T and T here.

538
00:29:29,200 --> 00:29:33,280
Speaker 1: You know, from my recollection, the Direct TV acquisition probably

539
00:29:33,320 --> 00:29:36,840
Speaker 1: one of the worst deals I've ever seen. I guess

540
00:29:36,920 --> 00:29:39,920
Speaker 1: the jury is still out on Time Warner. How much

541
00:29:40,080 --> 00:29:45,760
Speaker 1: time does Mr Stinky have to prove this concept correct? Well,

542
00:29:45,840 --> 00:29:49,200
Speaker 1: you're you're right. The Direct TV acquisition, I think we'll

543
00:29:49,240 --> 00:29:51,680
Speaker 1: go down in history is one of the worst ever. Um,

544
00:29:52,080 --> 00:29:57,440
Speaker 1: you guys one, could you guys sugarcoat it billion dollars

545
00:29:57,680 --> 00:30:00,680
Speaker 1: or an acquisition that today is just five years later

546
00:30:00,800 --> 00:30:04,959
Speaker 1: is worth billion dollars or something? Maybe? Um And and

547
00:30:05,000 --> 00:30:09,160
Speaker 1: you're right. Time Warner is in some ways very similar

548
00:30:09,200 --> 00:30:13,760
Speaker 1: in that long term structural challenges to these businesses. Now

549
00:30:13,800 --> 00:30:17,160
Speaker 1: you're facing a lot of cyclical headwinds as well, but

550
00:30:17,480 --> 00:30:20,400
Speaker 1: even leaving aside the COVID crisis, these are long term

551
00:30:20,440 --> 00:30:25,880
Speaker 1: structurally challenge businesses. Um that they bought at extremely high

552
00:30:25,960 --> 00:30:30,680
Speaker 1: valuations and they're just writing them down. What makes this

553
00:30:30,800 --> 00:30:35,680
Speaker 1: so so difficult though, is as I said before, John

554
00:30:35,720 --> 00:30:38,680
Speaker 1: Stanky was sort of the co architect of this strategy.

555
00:30:38,840 --> 00:30:42,680
Speaker 1: So it's not like you're bringing in an outsider to say,

556
00:30:42,720 --> 00:30:47,360
Speaker 1: now me change this business and UM and see what

557
00:30:47,400 --> 00:30:49,040
Speaker 1: I can make of it. This is this is an

558
00:30:49,080 --> 00:30:53,640
Speaker 1: endorsement of saying he helped put it together completely. Changing

559
00:30:53,680 --> 00:30:57,040
Speaker 1: directions probably would have just been too hard and and

560
00:30:57,120 --> 00:31:01,840
Speaker 1: too risky and so um. They've changed leadership, but but

561
00:31:01,960 --> 00:31:05,320
Speaker 1: it is still very much the same strategy. I I

562
00:31:05,440 --> 00:31:08,480
Speaker 1: don't know what the ticking clock would say for how

563
00:31:08,520 --> 00:31:10,880
Speaker 1: long you have to put it together the obvious order

564
00:31:10,920 --> 00:31:14,360
Speaker 1: to right the ship. I think the obvious question is

565
00:31:14,440 --> 00:31:19,360
Speaker 1: just can you sustain the dividend and UM. Right now

566
00:31:19,440 --> 00:31:23,240
Speaker 1: it looks like probably yes. But if the recession goes

567
00:31:23,280 --> 00:31:25,959
Speaker 1: on longer than people think, or if it's deeper than

568
00:31:26,000 --> 00:31:28,920
Speaker 1: people think, then the leverage ratio at A T and

569
00:31:28,960 --> 00:31:33,000
Speaker 1: T will rise quite substantially as EVADA falls, and the

570
00:31:33,120 --> 00:31:39,040
Speaker 1: rating agencies could very justifiably and and conceivably demand a

571
00:31:39,240 --> 00:31:42,280
Speaker 1: dividend cut in order to redirect cash flows to debt

572
00:31:42,320 --> 00:31:45,720
Speaker 1: retirement instead. And that's the real risk, and that's the

573
00:31:45,760 --> 00:31:48,720
Speaker 1: ticking clock at A T and T alright, Greig, just

574
00:31:48,760 --> 00:31:54,160
Speaker 1: real quick, Verizon thirty seconds. What's their strategy? Well, Verizon

575
00:31:54,280 --> 00:31:58,440
Speaker 1: right now is viewed as an impregnable, defensive story, and

576
00:31:58,520 --> 00:32:02,040
Speaker 1: that's not entirely wrong. Um. There's nothing bad that's going

577
00:32:02,120 --> 00:32:05,280
Speaker 1: to happen to their business relative to most businesses in

578
00:32:05,320 --> 00:32:09,000
Speaker 1: this crisis. UM, and they're doing fine. The problem is

579
00:32:09,200 --> 00:32:13,440
Speaker 1: before this crisis, they weren't growing. UM. After this crisis,

580
00:32:13,440 --> 00:32:15,800
Speaker 1: they won't be growing, and so they are an okay

581
00:32:15,840 --> 00:32:19,200
Speaker 1: place to hide. But it's this is by no means

582
00:32:19,240 --> 00:32:22,080
Speaker 1: one of those very few stories in the market that

583
00:32:22,120 --> 00:32:25,160
Speaker 1: will emerge stronger. I don't think Verizon will emerge stronger.

584
00:32:25,200 --> 00:32:27,880
Speaker 1: They'll sort of emerge the same, let's say, Craig Mofatt,

585
00:32:27,880 --> 00:32:30,280
Speaker 1: not enough time, We'll do it again, Craig Moffatt with us,

586
00:32:30,320 --> 00:32:33,080
Speaker 1: of course, with Moffett, Natancy. Thanks for listening to the

587
00:32:33,080 --> 00:32:39,600
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

588
00:32:39,960 --> 00:32:44,160
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

589
00:32:44,240 --> 00:32:48,480
Speaker 1: Tom Keane before the podcast, you can always catch us worldwide.

590
00:32:48,920 --> 00:33:01,680
Speaker 1: I'm Bloomberg Radio