Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Daniel
Speaker 1: Katson with us with the MP Perry BA a wonderful
Speaker 1: French bank. He's had a foreign exchange strategy North America. Dan,
Speaker 1: what will you listen for? Is we all listen to
Speaker 1: the Leguard press conference on fiscal matters. She has to
Speaker 1: address that Europe is not a great fiscal power, is it? No?
Speaker 1: I agree with you. I think there will be a
Speaker 1: discussion of fiscal issues in the press conference and some
Speaker 1: job owning towards directed at the at the finance ministers
Speaker 1: and and ads of government to move in that direction.
Speaker 1: But you know, at the end of the day, Uh,
Speaker 1: just as Powell yesterday said, a lot of this is
Speaker 1: outside of their remit, and all they can do is
Speaker 1: kind of nudge gently in the right direction. Now, how
Speaker 1: pur audience said, just how large is a CB asset purchases?
Speaker 1: Right now? They've got all these different programs, put them
Speaker 1: together just how big is monthly quee are the European
Speaker 1: Central Bank at the moment, it's I mean, it's you know,
Speaker 1: it's not it's not that different from how the FED story,
Speaker 1: where you have a range of programs. You have the
Speaker 1: que programs which are more traditional and in fact larger
Speaker 1: on the ECB side than than than what the FED
Speaker 1: is doing. But then you have to have all this
Speaker 1: alphabet soup that you're kind of referred to of of
Speaker 1: credit easing measures, and you know these there's so many
Speaker 1: programs because there's so many different things that the FED
Speaker 1: and the ECB are trying to to fix. But the
Speaker 1: bottom line is are trying to make sure that markets
Speaker 1: are functioning smoothly, that there's no pockets of liquidity, and
Speaker 1: that they're kind of getting their transmission into all the
Speaker 1: right places. There's another loan program for banks, because I'm
Speaker 1: sure it's going to be a topic for the news
Speaker 1: conference a little bit later this morning. The Canary and
Speaker 1: most people's coal mines right now is a bt P.
Speaker 1: The Italian boond the tenure right now up seven basis points.
Speaker 1: Off the back of this decision is the focus still
Speaker 1: on whether the ECB will buy junk debt from here
Speaker 1: on out, not just on the sulfuring side, but on
Speaker 1: the credit side. To Dan, I think there was also
Speaker 1: some hope that they might do more to address some
Speaker 1: of the pressure on the very front end of the
Speaker 1: market that you know you've seen in at least for
Speaker 1: part of April higher higher your Eyebork fixings uh and
Speaker 1: some hope they might add financial commercial paper or or
Speaker 1: T bills to their their their purchase programs. Instead, what
Speaker 1: they've done is out of these these additional uh T
Speaker 1: L t r os that you mentioned, so that may
Speaker 1: be coming up a bit short of what the market
Speaker 1: was helping for, and that may be why you see
Speaker 1: some of the pressure on the euro right after decision
Speaker 1: and also on the BTPs. Dan, I remember when currencies
Speaker 1: used to be a debate on which central bank was
Speaker 1: either tightening fastest or easing fastest. So I'm wondering if
Speaker 1: it still is a relative game in terms of who's
Speaker 1: easing most quickly, who's got the most ammunition to do so,
Speaker 1: who's winning here? Where is the pressure right now on
Speaker 1: a weeker dollar or a week or weaker euro. Well,
Speaker 1: I think we're kind of like where we got to
Speaker 1: in two thousand nine. Already we got your very quickly
Speaker 1: where everybody is all in. Everybody's at zero, and now
Speaker 1: they're just making adjustments along the margins to make sure
Speaker 1: that the transmissions working, so everyone's all in. Rate differentials
Speaker 1: have come down to about zero. It's about, you know,
Speaker 1: seventies sixty seventy basis points three months rate differential between
Speaker 1: Europe and US based on the FX forwards. And that
Speaker 1: means that you know, the currencies that are going to
Speaker 1: do well are the ones where investor you have a
Speaker 1: current account surplust investors have no more reason to keep
Speaker 1: our risk in overseas markets, and you'll see hedging away
Speaker 1: of overseas effects composure. So that's bad news for the dollar. Basically,
Speaker 1: I don't want to get you in trouble with Paris Daan,
Speaker 1: But let's try what's the optimal point for euro right now?
Speaker 1: What's the multi efficacious euro dollar pricing right now? For
Speaker 1: Christine Legard, Well, we think euro is cheap versus the dollar.
Speaker 1: We think a long term equilibrium is in one thirties area.
Speaker 1: So obviously that's a long way away. And and then
Speaker 1: you know, I'm not gonna that's not gonna happen very quickly.
Speaker 1: But we think you could get considerably higher from where
Speaker 1: you are now. And um, that would be a much
Speaker 1: more neutral place for facts that cats catch you. You
Speaker 1: joint to us from BMP powder bite. Here if the
Speaker 1: surveillance home studio in the oak paneled library with a
Speaker 1: bloody mary board, I can look at a book the
Speaker 1: Wage Curve Blanche Flower Oswald, and I can open the
Speaker 1: book and see the first sentence. Work on this monograph
Speaker 1: began in nineteen eighties seven. David blanche Flower joins us
Speaker 1: now from Dartmouth, where he saw twelve copies of the
Speaker 1: Wage Curve. David, is this the worst you've seen since seven?
Speaker 1: Is this is? This is stunning economic decline, isn't it? Well?
Speaker 1: It certainly is the worst. But I'm a historian as well,
Speaker 1: and I can't see anything worse than this ever. Um,
Speaker 1: I mean, I was looking at the numbers you were
Speaker 1: talking about this morning. Got numbers for Europe. We've got
Speaker 1: numbers for France but also Spain and Belgium and Austria,
Speaker 1: and we're looking at, I mean, unprecedented numbers. And just
Speaker 1: to put what John said in context, France, of course
Speaker 1: had a negative quarter the one before that, so basically interesting.
Speaker 1: Certainly now even before we get to Q two. I mean,
Speaker 1: these numbers are completely unprecedented, and they're all going to
Speaker 1: get a lot worse, and we're going to see another
Speaker 1: number at age thirty. My guess is four million or
Speaker 1: so you I claims. It's a bit difficult to follow
Speaker 1: because if you look at place like k because there's
Speaker 1: been a big increase there, But these are these are
Speaker 1: numbers that are you know, the only way to describe
Speaker 1: it is a falling night. This is just collapsing through
Speaker 1: the floor. Danny. For ten years, you said, don't raise
Speaker 1: interest rates. You kept saying, don't raise interest rates because
Speaker 1: this labor market has still got a load of slack.
Speaker 1: There's still a load of work to do, there's still
Speaker 1: more and more people that need to come back. They
Speaker 1: raised interest rates. Chair Yelen flirted with the idea of
Speaker 1: running things hard. She didn't run things hard. Chair how
Speaker 1: quickly realized after a couple of years on the job
Speaker 1: that maybe they should be leaving things to run hard,
Speaker 1: because there is more work to do in the labor market. Danny,
Speaker 1: when we come out of this in twelve months time,
Speaker 1: eighteen months time, whenever that is, in two years time,
Speaker 1: the reluctance to do what they did last time around
Speaker 1: is going to be absolutely massive. Can you help frame
Speaker 1: for our audience just how long rates are going to
Speaker 1: be at these levels because of the lessons that were
Speaker 1: learned over the last five ten years. What a great question.
Speaker 1: I mean, obviously, on your program many times I took
Speaker 1: a view that the bed was mistaken and it's great
Speaker 1: rises from two thousand fifteen to two thousand and eighteen
Speaker 1: and left the economy weaker than it should have been
Speaker 1: when this shot came along. Um, I think we need
Speaker 1: to look back at what happened both from two thousand
Speaker 1: and eight onwards, and it seemed to me that people
Speaker 1: underestimated to the shock. The fiscal authorities tightened too much,
Speaker 1: and that put pressure on the central thing. And I
Speaker 1: think we haven't learned the lesson. I used to quote
Speaker 1: this quote a lot Kane's in one talked about the
Speaker 1: long dragging conditions of semi slump, and he said the
Speaker 1: issue was not so much the crash itself, but what follows.
Speaker 1: And so I think that's a really great question of yours, John,
Speaker 1: that the reality is that you have this great shock
Speaker 1: and then you need to worry about what's coming. And
Speaker 1: I think if we look back that the biggest mistake
Speaker 1: that was made was to assume it was all over
Speaker 1: um and then you could sort of anchor back. And
Speaker 1: then if you hear and now your steerings of all
Speaker 1: talking about well, now in eighteen months or so, we're
Speaker 1: gonna we'll go back to where where we can raise rate,
Speaker 1: we can fight. And I think the reality what we
Speaker 1: know in these giant shops is that their long lapsing. Literally,
Speaker 1: So how come John Ferrell only has all great questions?
Speaker 1: What is that about? Danny and I talked before we
Speaker 1: do the shape you coordinate and you brob him. I agree,
Speaker 1: and I want to build on it. Uh, Danny and
Speaker 1: the idea of the slack in the economy and in
Speaker 1: the jobs market, and you wrote a really good paper
Speaker 1: about this recently, looking at the preliminary data about the
Speaker 1: job destruction and the mass of it in the United
Speaker 1: States and in the United Kingdom and the wake of
Speaker 1: the coronavirus shutdowns, and you talked about the widening wealth gap,
Speaker 1: the widening income gap, the disproportionate hit on lower income
Speaker 1: individuals is a fed effectively widening this wealth gap with
Speaker 1: its programs. Well, I mean the issue is who are
Speaker 1: you going to rescue? I mean, we had an initial
Speaker 1: piece of data from the BLX for its March release,
Speaker 1: and we're going to get the release for a rape
Speaker 1: coming shortly. If you look, the biggest group that were
Speaker 1: impacted with a young, So the young had a three
Speaker 1: point three percentage point rise in their unemployment rate. So
Speaker 1: obviously the issue here is that there's going to be
Speaker 1: distributional consequences here. And obviously the FED action we know
Speaker 1: in two thousand and eight onwards rescued people who owned assets,
Speaker 1: and what we're going to see here is that that's
Speaker 1: the same thing going to happen. The question is what
Speaker 1: happens in terms of the distributional consequences, And of course
Speaker 1: what we're seeing a distributional consequences of the virus itself,
Speaker 1: so people into the poorer people, people without health insurance,
Speaker 1: people owing up so well, so that that's obviously an issue.
Speaker 1: And the question always for a central bank is Okay,
Speaker 1: we're going to have an effect on distribution. We only
Speaker 1: have limited tools. It's up to the fiscal authorities to
Speaker 1: do something about it. And obviously the issue is that
Speaker 1: are they going to do that? And I think the
Speaker 1: second issue is that we see around the country are
Speaker 1: they going to get food to the people who need it?
Speaker 1: So I think distributional things are really important. And something
Speaker 1: else I should flag is that we're going to look
Speaker 1: at you, I claims. But the big deal going forward
Speaker 1: is going to be under employment, which is even that
Speaker 1: people are in work, they don't have enough hours, and
Speaker 1: that's sort of huge hit as well. Are we going
Speaker 1: to see big hits from that? So it's not just unemployment,
Speaker 1: it's about underemployment. And the people who are going to
Speaker 1: be under employed are the weakest spoke that. You're right,
Speaker 1: the FED will not essentially be be getting too because
Speaker 1: they can't do everything, but but the central government and
Speaker 1: the Congress have to get to those books and they
Speaker 1: aren't it. So what we've seen is the people who
Speaker 1: do best in the boom are the people who do
Speaker 1: worst in the slump. So the least educated, the young
Speaker 1: we're going to worry about. And the FED really has no, no,
Speaker 1: no part of play in that game. Danny. Politicians have
Speaker 1: done a lot over the last couple of months, and
Speaker 1: one of the things they've done is enhanced employment benefits
Speaker 1: in the United States of America? Does it rather contra
Speaker 1: vercial question being asked in America now over the last
Speaker 1: several weeks about the unintended consequences of that decision. Can
Speaker 1: you walk us through how you're thinking about that particular
Speaker 1: dilemma at the moment enhanced unemployment benefits which for some
Speaker 1: people they may well be doing better off without a
Speaker 1: job financially speaking, certainly, not psychologically speaking, but financially speaking. Well,
Speaker 1: the first thing we know from from all the work
Speaker 1: that I and many other people in paper economics have
Speaker 1: is that the biggest happiness inducer, if you like, is
Speaker 1: a job. And so obviously the question now is well,
Speaker 1: should you go in and help people who have lost
Speaker 1: the job through no fault of their own. So that's
Speaker 1: the first point. So you put in benefits, and we've
Speaker 1: traditionally have done it on a bypassing basis to help
Speaker 1: people through this shock. The issue, I guess is you've
Speaker 1: helped these people and then you say, well, are they
Speaker 1: just lazy? Are going to just sit there and not
Speaker 1: look for all the jobs that are out there? And
Speaker 1: then you get to the point of well, what jobs
Speaker 1: are there out there. The point of the point in
Speaker 1: this great recession where we've seen German unemployment rights and
Speaker 1: having a huge numbers coming just thirty million odd increase
Speaker 1: in unemployment claims is because there's no demand, oil price
Speaker 1: driving UM. The restaurants are closingest people aren't going to them.
Speaker 1: So this is to temporarily take help the people who
Speaker 1: have no fold with their own have been made unemployed. UM.
Speaker 1: And so to argue that we shouldn't help those people,
Speaker 1: we shouldn't deal with the difficult issues that are going
Speaker 1: on right now, seems well heartless as good as well,
Speaker 1: said Danny. Very well, said David blanch For thank you
Speaker 1: so much. He is with Dartmouth College. We have talked
Speaker 1: all sorts of good people. We think Stephen Riley of
Speaker 1: Imperial College for joining Bloomberg Surveillance today out of London.
Speaker 1: Right now, my conversation that I have with Francie Laqui,
Speaker 1: with Jason Farley with it Johns Hopkins University School of Nursing.
Speaker 1: Let's listen, We've got great data about the way we
Speaker 1: position patients UM that will actually help improve oxygen saturations
Speaker 1: or the amount of oxygen in the blood. UM. It
Speaker 1: can actually slow down if a patient's progressing towards the
Speaker 1: need for ventilation, by placing them on their stomach. We
Speaker 1: call that prone position or proning the patients. We can
Speaker 1: do that before a patient gets ventilated, we can do
Speaker 1: that after a patient gets ventilated. It actually helps to
Speaker 1: buy gravity improve the amount of oxygen in a patient's blood.
Speaker 1: So that's one thing. The second thing, and I think
Speaker 1: more importantly what Dr Fauci is referring to in this
Speaker 1: proof of concept is do we have any drug that
Speaker 1: shows it can help improve the way um it responds
Speaker 1: or it causes the virus to respond in the body.
Speaker 1: And that, I think is more what Dr Fauci is
Speaker 1: we're speaking to in his comments yesterday, the proof of
Speaker 1: concept that we now share a single drug that may
Speaker 1: offer a benefit. What is our proof of concept right
Speaker 1: now with our testing? It seems to be complex. People
Speaker 1: talk about the swabs and the rest of it. Is
Speaker 1: our testing up to proof of concept level? Well? Well, certainly,
Speaker 1: when we when we talk about proof of concept, it
Speaker 1: simply means that we have you know, we've theorized an issue.
Speaker 1: And when we understand that there is a at least
Speaker 1: something that gives us an idea that the hypothesis we
Speaker 1: originally proposed is actually has merit, right, and that's the
Speaker 1: proof of concept. So right now, our proof of concept
Speaker 1: is that we can stand up across the United States
Speaker 1: without the help of the federal government, you know, testing,
Speaker 1: and we can stand that testing up. Uh. You know,
Speaker 1: it takes it's a slow process. It's their supply thing
Speaker 1: that's used. But we are now testing across the United States, um,
Speaker 1: you know, hundreds of thousands of people a day. Um.
Speaker 1: That being said, it's remained a very slow process. So
Speaker 1: we do need to scale up. And the administration's estimate
Speaker 1: of testing two percent of the general population per day
Speaker 1: with you know, we've heard estimates that that would take
Speaker 1: up approximately four years to get to the right level
Speaker 1: of testing that we need. So we we definitely know
Speaker 1: that we need to speed up our testing capacity, need
Speaker 1: to speed up the number of people being tested. Dr Farley,
Speaker 1: what is you know, what are you most hopeful about
Speaker 1: right now? I know that there are a couple of
Speaker 1: clinical trials actually showing that Rodzeviere could be working. How
Speaker 1: long until we have you know, an almost certain answer
Speaker 1: on what drugs can help us fighting this pandemic certainly,
Speaker 1: so I understand. You know that the data that came
Speaker 1: out from the NIH yesterday was an interim analysis and
Speaker 1: and basically what that means is that the that there's
Speaker 1: a data safety and monitoring board that's independent to the
Speaker 1: investigative team. They look at the data and they've done that,
Speaker 1: and in that interim analysis, there is a statistical benefit
Speaker 1: in terms of recovery time. It's the four day benefits.
Speaker 1: So patients who received the drug redem severe received eleven
Speaker 1: day over all time to resolution, whereas people who received
Speaker 1: placebo was a fifteen day time to resolution. Now that's
Speaker 1: our first as we were saying before, proof of concept
Speaker 1: of the drug may have some level of benefits when
Speaker 1: it comes to survival UM. There was a trend toward
Speaker 1: survivability UM that was not exactly statistical significant at this point,
Speaker 1: meaning that you know, the metric we look at as
Speaker 1: scientists to say, is this different one drug AID versus
Speaker 1: drug B. And the answer to that is right now,
Speaker 1: it was. It appears that it's moving in that direction,
Speaker 1: but it was not yet statistically different. But the data.
Speaker 1: What the data did show was the eight percent mortality
Speaker 1: in the redemped severe arm versus eleven point six percent
Speaker 1: mortality in the placebo arm so that is at least
Speaker 1: some benefit it that we can see mathematically emerging. Jesson
Speaker 1: Farrowy the School Nursing Jena, because university owners should mention
Speaker 1: also affiliated with the Bloomberg School of Public Health at
Speaker 1: j h U. And of course we should mention Michael Bloomberg,
Speaker 1: founder of Bloomberg LP this radio and television operation as well.
Speaker 1: He has given generously to his School of Engineering and
Speaker 1: the rest of the Johns Hopkins University. Apple's taken over
Speaker 1: our lives, and they're becoming more and more integral as
Speaker 1: we are staying at home and consuming more and more
Speaker 1: media on our devices. Chris Sankar covers Apple for Counter
Speaker 1: Companies of Senior Research Channels Tom and he joins us here. Chris,
Speaker 1: thanks so much for joining us. Um, what do you
Speaker 1: expect from Apple after the close tonight when they report
Speaker 1: their earnings? Yeah, Hi, thanks for having me, and everyone
Speaker 1: is a very you know, Apple's party the first one
Speaker 1: to pull the guidance because of COVID back in mid February.
Speaker 1: So I would say that consensus numbers are all over
Speaker 1: the map. But if you look at the midpoint of
Speaker 1: it roughly around like you know, low to mid fifty
Speaker 1: billion and revenues. I do expect them to come in
Speaker 1: line with that number. And keep in mind that used
Speaker 1: to be sixty five billion, you know, pre guidance withdrawals,
Speaker 1: so you've seen quite a bit of tious king over there.
Speaker 1: So I do expect them largely to come in line
Speaker 1: at this point. I do not expect them to give
Speaker 1: a June quarter guidance. And the rationalt for that is
Speaker 1: pretty simple, right, So in jan thirty during the last
Speaker 1: earnings called, they give a March guidance. Two weeks later
Speaker 1: they pulled it at the time because the supply chain
Speaker 1: is disrupted due to the COVID And now the supply
Speaker 1: chain is up and running, but you have to forecast
Speaker 1: demand for June based on some geographies that haven't even
Speaker 1: opened up yet. So I think the demand forecasting is
Speaker 1: much more challenging than the supply ramifications at this point.
Speaker 1: So I would say, given all of that, I do
Speaker 1: not expect them to give a June quarter guidance about
Speaker 1: our forecast. It is to be largely flattish on a
Speaker 1: sequential basis, alright, So Chris, so I know they had
Speaker 1: some new phones UH is scheduled to be launched kind
Speaker 1: of a lower our mid price phone UH as well
Speaker 1: as perhaps a five G phone in the fall. Where
Speaker 1: do you think some of those new product launches are
Speaker 1: going to be impact? There are we gonna see some
Speaker 1: significant delays in some of their new product launches. So
Speaker 1: in term of like the mid rangers, I should say
Speaker 1: the low class phone they did come out of the
Speaker 1: two weeks ago the iPhone SC, you know, which the
Speaker 1: price phone is anywhere from three at the low end
Speaker 1: to five nine in the in the in the upper end.
Speaker 1: So I think they did come out of the iPhone SC.
Speaker 1: You know, in a normal environment, it has seen a
Speaker 1: little bit more fanfare official launch this time on it
Speaker 1: was an online launch, so I think that does add
Speaker 1: to some upside into the unit forecast in June, but
Speaker 1: more realistically into the half of the year. And then
Speaker 1: um the five D phone, which is scheduled for a
Speaker 1: later at the here. Typically Apple comes out with a
Speaker 1: new iPhone, you know, in the September October time frames.
Speaker 1: Looks like it might be shifted by maybe a month.
Speaker 1: But I would say, you know, in the grand scheme
Speaker 1: of things, whether the new iPhone five G gets lit
Speaker 1: by a month or two months, it doesn't really matter,
Speaker 1: you know, it doesn't matter to the thesis, it doesn't
Speaker 1: matter to the supply chain. If it's like a couple
Speaker 1: of months push out. I would say that if you
Speaker 1: are six or nine months push out, and uh, there's
Speaker 1: probably some ramistications in the in the medium term, but
Speaker 1: I would say a few months push out really doesn't
Speaker 1: change the land of the five adoption into calendar one.
Speaker 1: I can predict you know that all my kids iPhones
Speaker 1: will break one week before the rollout of five, six
Speaker 1: or seven. Gee. I got one question here, with all
Speaker 1: of this upside down demands supply dynamics, what do you
Speaker 1: model out for the growth of their free cash flow
Speaker 1: and for the sustainability of two hundred and seven jillion
Speaker 1: dollars of cash? I mean, there's a ball she got
Speaker 1: adjusted year off of cash flow or not? Yeah, I
Speaker 1: think that's a good question. And you know, one of
Speaker 1: the things I would say is that, you know, the
Speaker 1: stability of the balance. She has been a major selling
Speaker 1: point for many Apple shareholders, and you know, I mean
Speaker 1: the free cash if you look at it, you know
Speaker 1: last year it was around like two percent. You know,
Speaker 1: if these things are going to be down quite a
Speaker 1: bit this year, we actually don't expect the free cash
Speaker 1: or to diminish dramatically. In other words, right now forecasts like,
Speaker 1: you know, just under twenty percent free cash flow margins
Speaker 1: for physical twenty was his twenty two in fiscal nineteen.
Speaker 1: So I think that's kind of like the beauty of
Speaker 1: the model. The other thing that we have assumed in
Speaker 1: our model is that there's really no buy backs in
Speaker 1: the June quarter. You know, clearly Apple has been funding
Speaker 1: buybacks in their own cash flow, so they could do
Speaker 1: what they want with it. But given the environment and
Speaker 1: the optics of it, we just assume that they're not
Speaker 1: going to do any buy back at least in the
Speaker 1: June quarter. I mean, it's just you being Paul listen
Speaker 1: talking here. Nobody else is listening. What are they going
Speaker 1: to do with all that money? I mean, if there's
Speaker 1: a valuation contraction out there, isn't this like the best
Speaker 1: time ever for Mr Cook to get acquisitive? You know,
Speaker 1: I know it's a it's a very valid point, and
Speaker 1: usually you know, there are a lot of bargain basement
Speaker 1: deals at this time, but I think at the same time,
Speaker 1: you know, how many of them are bilnked itself. You know,
Speaker 1: historically they've done more tuck in em and a not
Speaker 1: any big transformational emin a. I feel like that is
Speaker 1: still their sentiment around m n as at this point.
Speaker 1: And if it's a big opportunity out there, you know,
Speaker 1: is there a building sell it as well? I doubt
Speaker 1: it in these valuation metrics. But at the same time,
Speaker 1: what they have made it very clear, both Mr Cook
Speaker 1: and uh Mr Luca the CFO, have made it clear
Speaker 1: that they want to be um net cash neutral, i e.
Speaker 1: They still have like net cash of like a hundred
Speaker 1: plus billion dollars. And what you've seeing them do is,
Speaker 1: you know, expectively do an eighteen to twenty billion dollars
Speaker 1: on a quarterly basis buy back. And they're also looking
Speaker 1: at investing in you know, TV plus or the news shows,
Speaker 1: et cetera. Over the last five years, some of the
Speaker 1: big topics, uh, you know investments were on retail stores.
Speaker 1: They're largely done building that out. So what are you're
Speaker 1: seeing is some of the more intremental and going towards
Speaker 1: original content for TV plus, et cetera. And you know,
Speaker 1: to your point, Tom when you have two hundred billion
Speaker 1: dollars in you know, in the bank. The world is
Speaker 1: your oyster. But historically, as you've seen, Apple is not
Speaker 1: being a major transformation accilition kind of a company, but
Speaker 1: it's been more bolt on so Christian, you know, one
Speaker 1: of the stories about Apple over the last several years
Speaker 1: has been the growth of the services business. And I'm
Speaker 1: just wondering how the services business will fare in a
Speaker 1: world where thirty million Americans just lost their jobs in
Speaker 1: the last five weeks, we have a global pandemic. How
Speaker 1: are you thinking about kind of the services businesses for Apple?
Speaker 1: You know, I mean, it's about the question, and at
Speaker 1: the end of the day, I would say the services
Speaker 1: is definitely more resilient in a normal environment. March Quarter
Speaker 1: usually sees the uptick in services, especially from China, where
Speaker 1: they do a lot of App store downloads of games
Speaker 1: around the Chinese years. Arguably, this March Quarter was not
Speaker 1: like any other March Quarter in history, so there's a
Speaker 1: lot more people working from home, so I think that
Speaker 1: actually probably helped the services business overall compared to historical
Speaker 1: March quarters. At the same time, I think the unemployment
Speaker 1: is the biggest concerns from investors. I think that is
Speaker 1: more centered around the hotweed or the smartphone division, and
Speaker 1: it's much more consumer centing. But I think the services
Speaker 1: siety is pretty resilient in today's pretty resilient. Yeah, Paul,
Speaker 1: let me do some cf A institute research for you
Speaker 1: right now. Create, explore and survive all this for six
Speaker 1: Explore infinite worlds and build everything from the simplest of
Speaker 1: homes to the grandest castles. Paul, you can do this
Speaker 1: with Minecraft. Trust me. Tim Cook's killing it with the
Speaker 1: Minecraft app from Apple. I know exactly times. I'm sure
Speaker 1: that's downloaded all all across the keen household. Won't even
Speaker 1: go for a walk anymore. He's playing bed Wars exactly. So, Chris,
Speaker 1: just you know, taking a look. You mentioned the supply
Speaker 1: chain here. It looks like China's reopening again. Give us
Speaker 1: a state of the supply chain for Apple. The supplant
Speaker 1: chain is definitely much better shape compared to a month ago.
Speaker 1: I think. You know, if you look at one of
Speaker 1: the major suppliers, which is fox Con, you know, at
Speaker 1: the peak of the pandemic in um in Asia, their
Speaker 1: utilization rates you know when below right now, they're back
Speaker 1: up into like over ninety percent. So clearly the supply
Speaker 1: chain has come from like you know, a sub fifty
Speaker 1: person in a late February to like you know, a
Speaker 1: more normalized run rate today. So the supply chain has
Speaker 1: seemed a quick to bound. You've also seen a lot
Speaker 1: of the shelter in place or as some of the
Speaker 1: Asian economies call it, like movement control orders. They've been
Speaker 1: lifted or in some cases they're actually given special permission
Speaker 1: to some of the larger employers, which would be like
Speaker 1: many semi chennect companies, Apple, et cetera, which employed tons
Speaker 1: of people in the local jurisdiction, many of them and relax.
Speaker 1: I think the supply chain is definitely in a much
Speaker 1: better situation than it was maybe like a month month
Speaker 1: and a half ago, where you're not seeing the biggest
Speaker 1: efficiency improvement is because there are some factories or shop
Speaker 1: flows there. You still have to practice social distancing, so
Speaker 1: you can have as many people or either people densities
Speaker 1: lower than what it would normally be, So that does
Speaker 1: have some impact on the supply but largely I would
Speaker 1: say the supply chain is you know, um in today's
Speaker 1: environment for lack of a better word back to normal. Chris,
Speaker 1: thanks so much for joining us to really appreciate your
Speaker 1: thoughts and commentary on Apple, which Tom Roster indoors. We're quarantining,
Speaker 1: we're shut in, and we are consuming media more than ever.
Speaker 1: The question is how do we kind of get it
Speaker 1: the cable the telecom companies. Are we streaming just a
Speaker 1: whole host of issues for these big tech telecom media
Speaker 1: companies to deal with. And who better to chat about
Speaker 1: that than our good friend Craig Moffatt Moffatt Nathanson, founding
Speaker 1: partner and senior research Annel's Craig, thanks so much for
Speaker 1: joining us. Let's talk cable stocks. First, we had some
Speaker 1: Comcast numbers. Out is the cable story, Craig, Just yeah,
Speaker 1: don't worry about the video subscribers. That business is going away.
Speaker 1: It's all about broadband. Yeah, Hi, good morning, Ball and Tom.
Speaker 1: Good good to talk to you again. You know, yes,
Speaker 1: I think that's right for the cable side of Comcast business. Broadband,
Speaker 1: blue doors off. I think all the things that you
Speaker 1: could have hoped for, which is that in this kind
Speaker 1: of a crisis, UH customers want at higher speeds. They
Speaker 1: were willing to trade up to a better broadband connection
Speaker 1: for DSL customers and what have you? Switching to cable.
Speaker 1: All that happened, and the results on the cable side
Speaker 1: of the business were very very good. Losing video subscribers
Speaker 1: doesn't hurt them that much because those customers don't make
Speaker 1: them much money anyway. And uh, and so you saw
Speaker 1: margins rise to an all time record. And if if
Speaker 1: Comcast were cable only company, the results would have been terrific.
Speaker 1: Craig very quickly here the gossip in A T and T.
Speaker 1: Mr Stevenson, Am I right? The board moved about the door.
Speaker 1: Tell us about the m and A activity of A
Speaker 1: T and T And what Mr Stanky can do to
Speaker 1: straighten this out fast? Well, you know, I I can't
Speaker 1: come in. I don't have any insight into to the
Speaker 1: circumstances surrounding Randall's earlier than expected retirement. I would say
Speaker 1: that that John Stanky as his success or, is to
Speaker 1: some extent an endorsement of the status quo at A
Speaker 1: T and T, though John was very much a co
Speaker 1: architect of this quote unquote a new media company vision.
Speaker 1: That is, you generate content and you distribute it over
Speaker 1: your own platforms. They've got it all under one roof.
Speaker 1: It hasn't worked so far, but this is clearly an
Speaker 1: endorsement of saying we're going to stay the course and
Speaker 1: try to keep keep trying here to make it work. Alright,
Speaker 1: So Craig, let's stay with a T and T here.
Speaker 1: You know, from my recollection, the Direct TV acquisition probably
Speaker 1: one of the worst deals I've ever seen. I guess
Speaker 1: the jury is still out on Time Warner. How much
Speaker 1: time does Mr Stinky have to prove this concept correct? Well,
Speaker 1: you're you're right. The Direct TV acquisition, I think we'll
Speaker 1: go down in history is one of the worst ever. Um,
Speaker 1: you guys one, could you guys sugarcoat it billion dollars
Speaker 1: or an acquisition that today is just five years later
Speaker 1: is worth billion dollars or something? Maybe? Um And and
Speaker 1: you're right. Time Warner is in some ways very similar
Speaker 1: in that long term structural challenges to these businesses. Now
Speaker 1: you're facing a lot of cyclical headwinds as well, but
Speaker 1: even leaving aside the COVID crisis, these are long term
Speaker 1: structurally challenge businesses. Um that they bought at extremely high
Speaker 1: valuations and they're just writing them down. What makes this
Speaker 1: so so difficult though, is as I said before, John
Speaker 1: Stanky was sort of the co architect of this strategy.
Speaker 1: So it's not like you're bringing in an outsider to say,
Speaker 1: now me change this business and UM and see what
Speaker 1: I can make of it. This is this is an
Speaker 1: endorsement of saying he helped put it together completely. Changing
Speaker 1: directions probably would have just been too hard and and
Speaker 1: too risky and so um. They've changed leadership, but but
Speaker 1: it is still very much the same strategy. I I
Speaker 1: don't know what the ticking clock would say for how
Speaker 1: long you have to put it together the obvious order
Speaker 1: to right the ship. I think the obvious question is
Speaker 1: just can you sustain the dividend and UM. Right now
Speaker 1: it looks like probably yes. But if the recession goes
Speaker 1: on longer than people think, or if it's deeper than
Speaker 1: people think, then the leverage ratio at A T and
Speaker 1: T will rise quite substantially as EVADA falls, and the
Speaker 1: rating agencies could very justifiably and and conceivably demand a
Speaker 1: dividend cut in order to redirect cash flows to debt
Speaker 1: retirement instead. And that's the real risk, and that's the
Speaker 1: ticking clock at A T and T alright, Greig, just
Speaker 1: real quick, Verizon thirty seconds. What's their strategy? Well, Verizon
Speaker 1: right now is viewed as an impregnable, defensive story, and
Speaker 1: that's not entirely wrong. Um. There's nothing bad that's going
Speaker 1: to happen to their business relative to most businesses in
Speaker 1: this crisis. UM, and they're doing fine. The problem is
Speaker 1: before this crisis, they weren't growing. UM. After this crisis,
Speaker 1: they won't be growing, and so they are an okay
Speaker 1: place to hide. But it's this is by no means
Speaker 1: one of those very few stories in the market that
Speaker 1: will emerge stronger. I don't think Verizon will emerge stronger.
Speaker 1: They'll sort of emerge the same, let's say, Craig Mofatt,
Speaker 1: not enough time, We'll do it again, Craig Moffatt with us,
Speaker 1: of course, with Moffett, Natancy. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio