WEBVTT - Breaking Down Apple With A Look At The Latest Tech 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.760 with essential market moving news. Find the Bloomberg Markets podcasted 0:00:15.760 --> 0:00:18.640 Apple Podcasts or wherever you listen to podcasts, and at 0:00:18.640 --> 0:00:23.480 Bloomberg dot com Slash podcast. Let's talk Apple right now, Matt. 0:00:23.480 --> 0:00:27.120 The company yesterday unveiled an updated iPad pro with a 0:00:27.160 --> 0:00:33.000 faster processor, by G connectivity, upgraded screen, and new cameras. 0:00:33.159 --> 0:00:35.920 Question is do investors care? Let's bring it on Treney 0:00:35.920 --> 0:00:40.360 of Boston. He's a senior technology analyst at Bloomberg Intelligence. 0:00:40.360 --> 0:00:42.879 So on, And as we think about the Apple story here, 0:00:42.880 --> 0:00:45.440 I'm looking at the stock, it's you know, flat year 0:00:45.479 --> 0:00:50.120 to date, you know, really underperforming the market here. What's 0:00:50.159 --> 0:00:54.040 the story here for Apple right now? Yeah, that's a 0:00:54.200 --> 0:00:56.520 that's a great question, Paul. Look, I mean we have 0:00:57.160 --> 0:01:00.960 maintained that Apple works on two prime vectors, right The 0:01:01.320 --> 0:01:03.680 stock and the company works on two primary vectors. One 0:01:03.760 --> 0:01:06.800 is iPhone, iPhone shipments, and I think they're set up 0:01:06.880 --> 0:01:09.959 really well in that regard, and the other is the 0:01:10.080 --> 0:01:13.520 Juggernaut services franchise, where this is going to be a 0:01:13.560 --> 0:01:18.400 sixty five billion dollar year just the services franchise. In so, 0:01:18.840 --> 0:01:22.360 I think that the iPad and the Max are very 0:01:22.480 --> 0:01:26.000 nice products, and in any other company they were moved 0:01:26.000 --> 0:01:29.240 the needles substantially and then some. But in the Apple's 0:01:29.280 --> 0:01:32.960 scope of you know, three d and thirty and forty 0:01:33.000 --> 0:01:37.400 billion dollars of revenue with the just Go, you're it doesn't. Um, 0:01:37.800 --> 0:01:41.240 It's it's intrictive, it's additive, but in it of itself, 0:01:41.280 --> 0:01:45.600 it's not a stand alone vector of leadership. Yeah, about 0:01:45.640 --> 0:01:49.680 my Mac, I think two thousand or so. I love it, 0:01:49.880 --> 0:01:52.400 but I don't have any reason to replace it. Like 0:01:52.440 --> 0:01:56.520 it does everything I needed to perfectly well. Um. But 0:01:56.680 --> 0:02:01.520 in terms of the services, when you talk about services, 0:02:01.560 --> 0:02:06.400 I assume you're including, um, you know, the Apple Music, um, 0:02:06.720 --> 0:02:10.880 the Apple TV content, the podcast that they announced yesterday. 0:02:10.919 --> 0:02:14.639 What what's the big driver with their services? Yeah, so 0:02:14.680 --> 0:02:17.280 that's a that's a great question, Matt. Look, the services 0:02:17.320 --> 0:02:21.239 business has at least eleven subsegments, and we've tried to 0:02:21.280 --> 0:02:25.920 sort of parse that out. At the Apple Music, Apple 0:02:26.000 --> 0:02:31.960 TV TV, plus the Arcade business. Um, all of those 0:02:32.000 --> 0:02:35.800 are smaller portions of the services franchise. So in in 0:02:35.880 --> 0:02:40.440 their updates yesterday they didn't really even Apple Card doesn't 0:02:40.480 --> 0:02:43.120 move the needle at all for them. The biggest is 0:02:43.240 --> 0:02:46.760 the download of apps, both the paid as well as 0:02:46.800 --> 0:02:49.560 the free apps. Um, So that's a big portion of 0:02:49.560 --> 0:02:54.720 the business. Apple care is it is a very profitable business. 0:02:54.800 --> 0:02:59.799 The iCloud business is very profitable, and um, the licensing 0:02:59.840 --> 0:03:03.320 the business. So Google pays Apple for to be the 0:03:03.440 --> 0:03:06.680 default search engine on the iPhone and that is a 0:03:06.840 --> 0:03:09.440 pretty big deal. That is a very lucrative, high margin 0:03:09.600 --> 0:03:12.760 payment that Apple gets. Those are the big pieces of 0:03:12.800 --> 0:03:17.440 the pie. Um. Apple Music is nice. It's still smaller 0:03:17.440 --> 0:03:22.519 than Spotify from a revenue perspective. Apple pay is is nice. Again, 0:03:22.600 --> 0:03:26.360 it's a very cohesive driver of all the different products 0:03:26.360 --> 0:03:30.160 and services with the Apple platform. But in and of itself, Um, 0:03:30.240 --> 0:03:33.200 the people Apple Care as a driver, I mean, this 0:03:33.320 --> 0:03:36.800 is like they seem like good people right at first clients, 0:03:36.920 --> 0:03:39.920 but then they're making you pay extra to guarantee that 0:03:39.920 --> 0:03:42.320 your product doesn't break in the next couple of years. 0:03:42.400 --> 0:03:47.080 I mean, shouldn't that come for free? Well, look, I 0:03:47.080 --> 0:03:51.120 mean there's a replacement value, and the one of the 0:03:51.200 --> 0:03:55.720 things that these are expensive components to make, an expensive 0:03:55.720 --> 0:03:59.640 components to assemble. Um, there has to be there's a 0:03:59.680 --> 0:04:02.400 minimum amount of guarantee that comes with the product. But 0:04:02.600 --> 0:04:06.000 it's only to the degree that it's a manufacturing issue. Right, 0:04:06.400 --> 0:04:09.760 If I stomp on my iPhone, I don't expect Aple 0:04:09.800 --> 0:04:14.480 to pick up the tab for that. Alright, alright, if 0:04:14.480 --> 0:04:17.479 I wreck my car, I don't expect you know, Mercedes 0:04:17.520 --> 0:04:20.040 to pick up the tab. But if it just stops working, 0:04:20.279 --> 0:04:23.720 you know, or even the manufacturing issue, you can certainly 0:04:23.760 --> 0:04:26.200 take it in. But otherways you pay in shorts. Oh, 0:04:26.240 --> 0:04:29.440 they have the nice people help borrow whatever it is. Now, 0:04:29.480 --> 0:04:30.880 you can just take it into the store. I'm sure 0:04:30.880 --> 0:04:33.400 they'll they'll take care of you. Sorry, I'm looking at 0:04:33.400 --> 0:04:35.760 the balance sheet here, I'm looking at the financials for 0:04:35.760 --> 0:04:39.200 this company. You know, almost two hundred billion dollars in cash, 0:04:39.880 --> 0:04:43.840 eighty billion dollars of free cash flow every single year. 0:04:44.360 --> 0:04:46.560 Then they got a dividend yield of zero points six 0:04:46.920 --> 0:04:48.919 what's up with that? Why don't they raise their dividend, 0:04:49.040 --> 0:04:53.760 buy back more stock? This is just craziness. Yeah, so look, 0:04:53.839 --> 0:04:57.640 they're they have accelerated share, They have accelerated share. We 0:04:57.680 --> 0:05:01.720 purchase programs. They have a big buy back up re 0:05:01.920 --> 0:05:05.000 up potentially coming in the next quarter. UM. All of 0:05:05.040 --> 0:05:07.719 those have to happen. But when you have again the 0:05:07.839 --> 0:05:11.600 size of cash flow generation that this company has, particularly 0:05:11.800 --> 0:05:14.760 this year, UM, when they've done really, really well with 0:05:14.800 --> 0:05:17.719 the launch of their new iPhone, it's it's um. It's 0:05:17.760 --> 0:05:21.479 staggeringly big, and it's it's a it's a problem that 0:05:21.520 --> 0:05:24.599 needs to be overcome. It is genuinely a problem of 0:05:24.640 --> 0:05:28.320 how fast they can deploy that cash UM, either in 0:05:28.360 --> 0:05:31.720 stock buy backs or dividends or internal r and D, 0:05:31.839 --> 0:05:34.120 which is not going to move the needle from a 0:05:34.160 --> 0:05:36.720 cash balance perspective. So it's an absolute problem. You're right. 0:05:38.120 --> 0:05:40.880 The air tags such a great idea. I was hopeful 0:05:40.920 --> 0:05:44.680 when other companies came out with similar products. Um, is 0:05:44.720 --> 0:05:46.400 this going to be something that we all have our 0:05:46.480 --> 0:05:49.520 key chains in the next couple of years. Absolutely? I 0:05:49.520 --> 0:05:52.719 think you know, I see the AirPod. The air Tags 0:05:52.839 --> 0:05:56.440 is very similar to the the air Pods franchise that 0:05:56.600 --> 0:05:59.280 was a sleeper hit and continues to be a really 0:05:59.320 --> 0:06:02.200 good product of them. UM. And I think it sort 0:06:02.240 --> 0:06:06.560 of again adds to the platform effect that Apple has UM. 0:06:06.640 --> 0:06:10.560 And the security is robust, so I can definitely see 0:06:10.600 --> 0:06:16.120 this product taking off and being a noticeable de line item. 0:06:16.120 --> 0:06:18.680 All right, I'll I'm excited to see the reviews of 0:06:18.680 --> 0:06:20.280 that on. Thanks so much for joining us on a 0:06:20.360 --> 0:06:24.320 Trini vass on their senior semiconductor and hardware analyst for 0:06:24.440 --> 0:06:34.240 Bloomberg Intelligence. This is Bloomberg. We were talking precious medals. 0:06:34.240 --> 0:06:35.919 I want to bring it every moment right now, practious 0:06:35.920 --> 0:06:41.159 medals specialist at Gainesville Coins. Um. I mean gold is 0:06:41.200 --> 0:06:45.400 probably the focus of most of our listeners in terms 0:06:45.480 --> 0:06:50.120 of you know, precious metals that individuals hold. Everett, we 0:06:50.200 --> 0:06:52.880 haven't really seen gold, you know, in the face of 0:06:53.920 --> 0:06:58.920 inflation expectations, we haven't really seen gold move to really 0:06:58.960 --> 0:07:00.960 impressive levels. All oh, it's had a good run the 0:07:01.040 --> 0:07:05.520 last few days right now at sevent troy ounce. Where's 0:07:05.520 --> 0:07:10.640 it headed. Well, that recent rally you mentioned has pulled 0:07:10.680 --> 0:07:14.320 gold back to essentially as December loads, and it seems 0:07:14.360 --> 0:07:17.680 poised to retest those levels in the short term. It 0:07:17.880 --> 0:07:21.800 certainly helps that the dollar has pulled back a bit. Um, 0:07:21.840 --> 0:07:24.960 but really the gold trade has been pretty boring, right Um, 0:07:25.000 --> 0:07:28.040 We've seen some subdued trading in the West. But when 0:07:28.040 --> 0:07:31.320 I look internationally, UM, there's some key developments that I 0:07:31.360 --> 0:07:35.280 think are rather favorable for gold and could pretty swiftly 0:07:35.320 --> 0:07:38.960 push us back above that eighteen hundred announced level. UM. 0:07:39.160 --> 0:07:43.520 China's relaxed it's pretty strict rules on who can import gold, 0:07:43.680 --> 0:07:47.120 so several billion dollars of gold are expected to flow 0:07:47.240 --> 0:07:51.360 into Beijing in the next couple of months. And similarly, 0:07:51.400 --> 0:07:54.440 in India UM they have ease their rather high import 0:07:54.520 --> 0:07:57.640 duties on gold and as a result we saw record 0:07:57.720 --> 0:08:01.960 high first quarter imports into India year over year UM. 0:08:02.040 --> 0:08:04.560 And and and even in South Korea, the gold trade trading 0:08:04.600 --> 0:08:06.800 volumes have been running pretty hot and their own pace 0:08:06.920 --> 0:08:10.720 for about a fifty increase year on year. So these 0:08:10.720 --> 0:08:13.720 strong sources of demand should at least put a floor 0:08:13.800 --> 0:08:17.080 below the gold price, perhaps around seventeen fifty ounce for 0:08:17.120 --> 0:08:20.800 the time being. But I do agree that overall in 0:08:20.840 --> 0:08:24.120 the West, UH had the gold trade has been pretty subdued. 0:08:24.240 --> 0:08:28.400 Really isn't moving anywhere yet ever? Is that reflecting the 0:08:28.560 --> 0:08:32.880 rise in the ownership of bitcoin and people viewing bitcoin 0:08:33.040 --> 0:08:35.960 as a perhaps a comparable store of value to golds, 0:08:36.040 --> 0:08:38.360 and they're saying, hey, maybe i'll take a little bit 0:08:38.400 --> 0:08:43.400 off my you know, my gold column put it into bitcoin. Sure, 0:08:43.480 --> 0:08:45.920 I do think that you know there is this clear 0:08:46.080 --> 0:08:50.760 rivalry between the two groups of investors UM. But somewhat interestingly, 0:08:51.120 --> 0:08:54.640 survey data gathered between two thousand seventeen and two thousand 0:08:54.720 --> 0:08:59.080 twenty by a British firm called Global web Index show 0:08:59.160 --> 0:09:01.760 that there is had a bit of crossover between the 0:09:01.800 --> 0:09:06.079 demographics who are interested in cryptocurrencies and those who are 0:09:06.200 --> 0:09:09.319 interested in gold. UM. It is a bit surprising because 0:09:09.320 --> 0:09:13.320 we tend to associate gold with the older investing crowd 0:09:13.360 --> 0:09:17.320 and cryptocurrencies with younger investors and people who are just 0:09:17.360 --> 0:09:20.840 getting into the markets, but in fact there is this overlap. 0:09:21.280 --> 0:09:25.760 So with the rise and interest in cryptos and n 0:09:25.800 --> 0:09:28.720 f t s non fungible tokens, we are seeing that 0:09:28.800 --> 0:09:32.839 sife and off some investment dollars away from the precious metals. 0:09:32.880 --> 0:09:36.520 Just as cryptos rallied to start the second quarter, open 0:09:36.600 --> 0:09:39.360 interest in COMEX gold futures hit it two year low. 0:09:39.800 --> 0:09:42.200 So I do believe there is a correlation between the 0:09:42.200 --> 0:09:45.240 two UM. But as there are some an emergence of 0:09:45.320 --> 0:09:50.400 some gold backed cryptocurrencies, perhaps we could see some further 0:09:50.559 --> 0:09:54.520 merging between those two asset classics classes in between the 0:09:54.559 --> 0:09:57.120 types of investors who are interested in them. Yeah, that 0:09:57.120 --> 0:10:01.559 that would be interesting. Although UM hasn't yet become really 0:10:01.600 --> 0:10:06.680 popular the idea of UM gold backed crypto, but it 0:10:06.760 --> 0:10:08.440 makes a lot of sense if we were willing to 0:10:08.440 --> 0:10:13.840 trade goldbacked FIAT for so long. I wonder about UM palladium. 0:10:13.880 --> 0:10:16.360 As the headlines just crossed the terminal, we hit an 0:10:16.360 --> 0:10:20.719 all time high. Does this rally continue or is this 0:10:20.800 --> 0:10:24.880 just part of the auto sales bottleneck due to the 0:10:24.880 --> 0:10:31.679 ship shortage. Well, certainly the the semiconductor and chips shortage 0:10:31.720 --> 0:10:34.600 is affecting the auto industry, which has that direct effect 0:10:34.640 --> 0:10:39.800 on palladium. But even outside of automobiles, the energy transition 0:10:39.880 --> 0:10:45.160 to cleaner fuels could palladium could figure importantly into that. 0:10:45.400 --> 0:10:48.960 Both platinum and palladium UM are involved in fuel emerging 0:10:49.000 --> 0:10:52.880 fuel cell technology and other hydrogen based fuels. And we 0:10:52.960 --> 0:10:56.760 also have to remember on the supply side that the 0:10:56.800 --> 0:11:00.200 majority of the world's palladium supply comes from Russia. So 0:11:00.400 --> 0:11:05.360 these reciprocal UM tensions and sanctions between the United States 0:11:05.360 --> 0:11:09.120 and Russia could perhaps put a barrier on a lot 0:11:09.160 --> 0:11:11.800 of that palladium getting out of Russia. So I do 0:11:11.920 --> 0:11:13.920 think that the trend is still going to be upward 0:11:14.000 --> 0:11:16.800 for palladium, even though we're at the peak of what 0:11:16.960 --> 0:11:19.360 is a multi year rally in hitting those all time 0:11:19.440 --> 0:11:23.840 highs because of the supply concerns and because palladium does 0:11:23.920 --> 0:11:28.480 figure into the potential green future for our our energy sources. 0:11:31.120 --> 0:11:35.000 All right, great, great intel there, and we're so glad 0:11:35.040 --> 0:11:38.800 to get you on. Everett Millman, Precious metals specialists from 0:11:38.960 --> 0:11:43.360 Gainesville coins UH coming to us obviously out of Gainesville, Florida, 0:11:43.559 --> 0:11:46.480 talking us through what's going on in in gold, what's 0:11:46.480 --> 0:11:50.480 going on in UH and and really in the kind 0:11:50.480 --> 0:11:54.600 of cross currents between the metal and the crypto sector 0:11:54.679 --> 0:11:57.800 as well, and um, what what is in which which 0:11:57.880 --> 0:12:01.640 university is in Gainesville? Is that university's okay? So, so 0:12:01.800 --> 0:12:06.880 Jacksonville is Florida? You those are the Gators and Gainsville, Florida. 0:12:06.960 --> 0:12:11.480 Tallahassee's Florida state. Oh Tallahassa, right right, cool, all right, 0:12:11.520 --> 0:12:14.640 thanks for setting me straight. Our university specialist, this is Bloomberg. 0:12:17.360 --> 0:12:19.559 Now let's bring in David Coudla. He's the CEO and 0:12:19.640 --> 0:12:24.120 chief investment strategist Mainstay Capital Management is here to talk 0:12:24.160 --> 0:12:29.320 to us about his investment strategy in the current market environment. David, 0:12:29.360 --> 0:12:32.880 I guess the first thing we have to know, um, 0:12:33.080 --> 0:12:41.440 is your forecast for growth and inflation. Well, uh, first, 0:12:41.600 --> 0:12:45.000 we think that we're going to have an amazing first 0:12:45.080 --> 0:12:49.080 quarter for growth, both in terms of what we're seeing 0:12:49.080 --> 0:12:53.000 in terms of GDP for the economy and what we see, 0:12:53.160 --> 0:12:56.560 you know, coming out of this uh uh impact of 0:12:56.720 --> 0:13:00.640 the COVID and the lockdowns on the economy from last year. 0:13:00.679 --> 0:13:02.400 So a year over year, you know, we're going to 0:13:02.480 --> 0:13:06.959 see amazing growth in the economy. We're also going to see, uh, 0:13:07.600 --> 0:13:10.920 the earnings are going to be tremendous. We're expecting the 0:13:10.960 --> 0:13:14.360 best earnings since uh in the last couple of years. 0:13:15.040 --> 0:13:19.000 And we're seeing inflation that is just you know, incredible, 0:13:19.040 --> 0:13:23.720 not necessarily the inflation that the Federal Reserve monitors, although 0:13:23.760 --> 0:13:28.199 that did come in at high level year over year 0:13:28.320 --> 0:13:33.040 headline inflation highest in many years. But when we look 0:13:33.080 --> 0:13:36.040 at some of the other commodity prices, you know, we've 0:13:36.080 --> 0:13:39.600 got iron ore trading in a three year high, nearly 0:13:39.600 --> 0:13:43.680 triple since last year, lumber more than five times from 0:13:43.679 --> 0:13:48.360 this you know, from this time last year. So uh, 0:13:48.440 --> 0:13:51.840 you know, we're we're really seeing, Uh, inflation in many 0:13:51.960 --> 0:13:55.280 sectors of the economy has run has run at a 0:13:55.360 --> 0:13:59.400 very very high level. Do you consider that inflation transitory, 0:13:59.440 --> 0:14:03.000 which is what I've the FED is suggesting, or is 0:14:03.040 --> 0:14:09.600 this something that maybe we need to worry about. Well, um, 0:14:09.679 --> 0:14:11.480 I know that there are a lot of people to 0:14:11.520 --> 0:14:14.480 take objection with this and take objection with the FED 0:14:14.559 --> 0:14:18.600 stating this, but we do see it as transitory. We 0:14:18.679 --> 0:14:20.800 think that a lot of this, especially what I just 0:14:20.840 --> 0:14:23.760 talked about in some of these commodities. And although we 0:14:23.840 --> 0:14:30.120 may be in the beginning of a commodity supercycle, the 0:14:30.240 --> 0:14:33.520 levels that we've seen are a result of a couple 0:14:33.520 --> 0:14:39.320 of things. The COVID the pandemic had impacted the ability 0:14:39.400 --> 0:14:43.560 to produce some of these commodities. But also, um, the 0:14:43.600 --> 0:14:48.200 construction sector, both a commercial and residential and especially residential 0:14:48.840 --> 0:14:52.520 never really slowed down during COVID. Housing has done very 0:14:52.600 --> 0:14:56.960 very well. Uh, just you know, incredible pace all the 0:14:56.960 --> 0:15:01.360 way through the pandemic, and the supplier didn't expect that, 0:15:01.760 --> 0:15:04.800 and so there's just incredible pent up demand for those 0:15:04.920 --> 0:15:09.640 raw materials, those those supplies for housing in particular and 0:15:09.800 --> 0:15:12.840 building in general, and so you know that will be 0:15:12.920 --> 0:15:15.160 met and I think we'll see those prices come back 0:15:15.200 --> 0:15:17.240 down by as early as the end of the year. 0:15:17.760 --> 0:15:21.200 So so that that those type of inflationary forces I 0:15:21.200 --> 0:15:26.960 think our transitory uh and ultimately if inflation in general, 0:15:27.520 --> 0:15:31.560 the long term secontary forces for deflation come back in. 0:15:32.800 --> 0:15:37.080 Oh interesting, So does how does that affect the stocks 0:15:37.360 --> 0:15:42.480 you want to buy? And can you give us some picks? Well, 0:15:42.840 --> 0:15:47.440 so we you know, in we were with the stay 0:15:47.440 --> 0:15:50.680 at home trades, a lot of the technology uh you 0:15:50.720 --> 0:15:53.400 know a lot of the e commerce trades and uh 0:15:53.840 --> 0:15:59.560 internet e commerce I T technology, we moved to the 0:15:59.600 --> 0:16:04.680 consumer recyclical small caps. Now we're moving out back into 0:16:04.760 --> 0:16:08.240 some of the growth her names. So we still you know, 0:16:08.320 --> 0:16:13.280 some of the areas like the global x US infrastructure 0:16:13.320 --> 0:16:17.320 development et F, PAVES, P a V. Hence the name 0:16:17.720 --> 0:16:22.240 holds companies like Deer Vulcan Materials, Emerson Electric. We think 0:16:22.280 --> 0:16:26.480 they have further to go as the economy reopens um 0:16:26.520 --> 0:16:30.320 and we're still looking at and still holding some of 0:16:30.360 --> 0:16:33.400 the value names that in E T F s that 0:16:34.000 --> 0:16:37.240 will uh we think continue to do. There's been a 0:16:37.320 --> 0:16:39.560 setback in value here the past couple of days that 0:16:39.640 --> 0:16:42.480 passed month, but we think value has further to go 0:16:42.560 --> 0:16:45.680 with the fiscal stimulus that's in the system and coming. 0:16:46.560 --> 0:16:49.040 But we're looking at at some of the some of 0:16:49.040 --> 0:16:52.640 the ets like mote Van Vector's morning Star, wide Moat, 0:16:52.760 --> 0:16:56.600 et F holds names like Google and Tell, young brands, 0:16:56.640 --> 0:17:00.480 general dynamics. These are the brands that have a wide 0:17:00.760 --> 0:17:04.240 defensible mode around their business model and and UH and 0:17:04.280 --> 0:17:08.240 then a guard BTF growth at a reasonable price and 0:17:08.240 --> 0:17:13.760 and these are another growthier type e t flds like Facebook, 0:17:14.000 --> 0:17:17.359 wholety homes. We still think the home builders have further 0:17:17.480 --> 0:17:22.080 to go, United Reynolds, Adobe, and these are just some 0:17:22.200 --> 0:17:26.800 of these, a mix of still some cyclicals with some 0:17:26.880 --> 0:17:30.439 growth names that we think can do well as we 0:17:30.520 --> 0:17:35.640 continue to move through the reopening the economy. David, thank 0:17:35.680 --> 0:17:37.680 you so much for joining us. We always appreciate getting 0:17:37.720 --> 0:17:42.600 your thoughts and perspective on these markets. David Coudla, CEO 0:17:42.680 --> 0:17:47.520 and chief investment strategist for Mainstay Capital. Again still constructive 0:17:47.560 --> 0:17:49.800 on this market map, but you know, kind of rotating 0:17:50.119 --> 0:17:52.760 maybe a little bit back into some of those growth names. 0:17:52.760 --> 0:17:55.760 We heard from David that cyclical trade had worked so 0:17:55.800 --> 0:17:59.240 well released since September of last year. As you know, 0:17:59.240 --> 0:18:02.200 we started to get the some positive vaccine UH data 0:18:02.280 --> 0:18:05.080 points out there. Then we saw a rotation of the rotation, 0:18:05.359 --> 0:18:07.520 a rotation of the rotation, and I think, you know, 0:18:07.560 --> 0:18:09.960 we're starting to see U some folks take a look 0:18:09.960 --> 0:18:12.480 at some of those growthier names as well. So lots 0:18:12.560 --> 0:18:20.600 of ways to play this market. Bloomberg Opinion every day 0:18:20.600 --> 0:18:24.120 at this hour we get a columnist from our opinion 0:18:24.720 --> 0:18:28.679 UM our opinion group to talk about a column he 0:18:28.800 --> 0:18:31.360 or she has written. Sarah Hallzac joins US now retail 0:18:31.600 --> 0:18:35.240 columnist for Bloomberg Opinion. You've written about inflation a very 0:18:35.320 --> 0:18:39.199 timely moment, saying that not everyone can copy Procter and 0:18:39.240 --> 0:18:42.840 Gambles price hikes. You talk about, um, the ease with 0:18:42.880 --> 0:18:47.399 which PNG raises prices on diapers as well as tampons, 0:18:47.440 --> 0:18:51.880 but said, UM say that it's difficult for everybody, UM, 0:18:51.920 --> 0:18:56.240 including competitors to raise prices for the same reasons. Yeah, 0:18:56.320 --> 0:18:58.600 that's right, And I think part of that is because 0:18:59.040 --> 0:19:03.800 we've actually seen consumer brands flexing pricing power throughout the 0:19:03.880 --> 0:19:08.560 pandemic in ways that are starting to pressure consumers wallets, right, UM, 0:19:08.600 --> 0:19:12.800 I've written about that, everyone from Crux to Crux clogs 0:19:12.840 --> 0:19:16.560 to just peanut butter to Whirlpool appliances have seen the 0:19:16.640 --> 0:19:21.040 benefit of pricing actions during this time. UM. One way 0:19:21.280 --> 0:19:24.199 is by cutting promotions. We've seen a lot of that 0:19:24.280 --> 0:19:27.399 over the last year, not offering that coupon that may 0:19:27.400 --> 0:19:30.480 have been table stakes before the pandemic. UM, and also 0:19:30.520 --> 0:19:33.880 through lift pricing increases and for a variety of consumer 0:19:33.920 --> 0:19:37.040 psychology reasons. Consumers have largely put up with it. But 0:19:37.160 --> 0:19:38.880 I think we are getting to a point where it's 0:19:38.880 --> 0:19:41.600 fair to ask how much more of this can consumers 0:19:41.600 --> 0:19:44.399 see before they bulk? All right, So sir, what are 0:19:44.440 --> 0:19:46.320 we seeing in terms of maybe some of the you know, 0:19:46.359 --> 0:19:49.560 the bigger players of practics and gambles of the world 0:19:49.680 --> 0:19:52.760 versus maybe some of the smaller brands. Do they have 0:19:52.920 --> 0:19:57.720 similar pricing power or do you have is it really select? Uh? 0:19:57.760 --> 0:19:59.800 They do not have similar pricing power. I think we've 0:19:59.800 --> 0:20:03.280 see these big brands UM are able to do this. Uh. 0:20:03.480 --> 0:20:05.280 You know one thing P ANDNG has talked about that 0:20:05.359 --> 0:20:08.280 the pandemic really did was kind of bring people back 0:20:08.320 --> 0:20:12.200 to big, national, trusted brands in a big way. UM. 0:20:12.240 --> 0:20:14.879 I think when you're in this time of crisis, you 0:20:15.040 --> 0:20:18.439 maybe don't feel as comfortable trying something new. You just 0:20:18.520 --> 0:20:21.399 want the thing that you know works, especially in the 0:20:21.400 --> 0:20:24.359 categories that P ANDNG is in, like household cleaning products. 0:20:24.480 --> 0:20:27.320 UM thinks that would you know, contribute to your safety 0:20:27.400 --> 0:20:29.720 during this time. UM So, I do think the big 0:20:29.800 --> 0:20:33.239 national brands have particular pricing power. And so you know 0:20:33.280 --> 0:20:35.359 what P and G is committed to doing. Is it 0:20:35.440 --> 0:20:39.120 said in its BabyCare, feminine care, and adult and Continent's division. 0:20:39.600 --> 0:20:42.280 Um By September, you're going to see a mid to 0:20:42.440 --> 0:20:46.320 high single digit price increases on products in those categories. 0:20:46.440 --> 0:20:49.520 And that follows a similar announcement from kimber Kimberly Clark, 0:20:49.960 --> 0:20:53.560 that's the company that makes Huggy diapers and Scott toilet paper. 0:20:53.840 --> 0:20:56.639 They may would do price hypes of a similar magnitude. 0:20:57.960 --> 0:20:59.760 I'll tell you would be a blessing for the earth. 0:21:00.160 --> 0:21:03.800 People would stop using disposable diapers and start using cloth 0:21:04.440 --> 0:21:08.520 diapers instead. Unlikely as that is to happen. Where where 0:21:08.600 --> 0:21:12.840 is it difficult to hike prices? Sarah? I think in 0:21:12.880 --> 0:21:16.080 the most discretionary categories, And I think you know one 0:21:16.119 --> 0:21:20.119 thing that happened uh during the pandemic was that uh 0:21:20.320 --> 0:21:25.960 safety and convenience really Trump's value and consumers buying decisions. Right, 0:21:26.200 --> 0:21:29.040 So in order to only have to go to one store, 0:21:29.400 --> 0:21:32.520 you just thought whatever was available even if it wasn't 0:21:32.520 --> 0:21:34.920 on sale, or you just sucked up that the prices 0:21:34.920 --> 0:21:38.600 were higher online for the safety of having it delivered 0:21:38.640 --> 0:21:41.400 to your doorstep. And I think now that consumers are 0:21:41.440 --> 0:21:45.320 more mobile again, they're going to feel comfortable hitting more stores. 0:21:45.600 --> 0:21:48.160 They're going to feel comfortable, you know, doing more price 0:21:48.240 --> 0:21:52.760 comparison and engaging in that activity again. And so uh, 0:21:52.920 --> 0:21:55.359 that is that is going to make them more conscious 0:21:55.400 --> 0:21:58.280 of price tags. And so I think these really discretionary 0:21:58.359 --> 0:22:01.440 items like do you really need need a new piece 0:22:01.480 --> 0:22:04.399 of clothing? Do you really need a new handbag? Um? 0:22:04.440 --> 0:22:07.800 Do you really need more sports equipment after all of 0:22:07.800 --> 0:22:10.320 the camping year you bought last summer when being outdoors 0:22:10.359 --> 0:22:12.440 was the only thing you could do? Um? I think 0:22:12.520 --> 0:22:14.720 all of those are going to be areas where raising 0:22:14.760 --> 0:22:17.200 prices is just more difficult than it is on something 0:22:17.440 --> 0:22:20.040 as essential ast diapers, which is a purchase you just 0:22:20.080 --> 0:22:23.399 can't put off all right, So, Sarah, are we seeing 0:22:24.080 --> 0:22:28.320 consumer shifting maybe from name brands to store brands to 0:22:28.440 --> 0:22:32.879 try and to find value. So that is definitely something 0:22:32.920 --> 0:22:36.720 we have often seen during a recession. UM, I don't 0:22:36.760 --> 0:22:39.720 think we've seen a lot of clear evidence of that yet. 0:22:39.840 --> 0:22:41.679 I think some of what that play is what I 0:22:41.720 --> 0:22:45.520 was describing earlier about this flight to really trusted brands 0:22:45.640 --> 0:22:47.720 UM and really wanting to make sure, especially with things 0:22:47.800 --> 0:22:51.080 like household cleaners or laundry detergent, that you're really getting 0:22:51.080 --> 0:22:53.080 something that's going to perform, that you're going to get 0:22:53.160 --> 0:22:56.040 bang for your buck. So I don't think we've seen 0:22:56.560 --> 0:23:00.800 that migration to store brands yet, and specifically with this 0:23:00.840 --> 0:23:03.720 diaper issue. UM. Often if you saw the big brands 0:23:03.720 --> 0:23:07.600 like Pampers or Huggies raising prices, that could be an 0:23:07.600 --> 0:23:10.960 advantage for store brands. But because this is a commodity 0:23:11.040 --> 0:23:14.320 driven issue, UM that's affecting the whole industry. It's because 0:23:14.359 --> 0:23:18.040 the price of pulpe is really straining their margins. I 0:23:18.119 --> 0:23:20.000 don't think you're going to see that flight to store 0:23:20.040 --> 0:23:23.040 brands because I think everyone across the board is going 0:23:23.119 --> 0:23:26.840 to be having to make pricing adjustments to shoulder these costs. Yeah, 0:23:26.840 --> 0:23:29.399 it'll be interesting to see if any of this of 0:23:29.440 --> 0:23:33.400 these price pricing issues go away. Right because UM, we're 0:23:33.400 --> 0:23:37.639 assured by Jerome Powell that this is transitory, and it 0:23:37.720 --> 0:23:40.680 doesn't sound like, at least in the cases that we're 0:23:40.680 --> 0:23:43.800 talking about from P and G or Kimberly Clark, that 0:23:43.800 --> 0:23:47.800 that it is going to go away very quickly. Right, 0:23:47.840 --> 0:23:50.399 These commodity costs issues might take a little while to 0:23:50.720 --> 0:23:52.639 work out. And look, when you talk about you know, 0:23:52.680 --> 0:23:57.400 the consumer sector overall, UH, there's much more baked into this. There's, yes, UM, 0:23:57.440 --> 0:24:00.840 the port congestion and the global shortage of shipping containers. 0:24:00.880 --> 0:24:03.640 All of that is impacting their logistics costs. But they're 0:24:03.680 --> 0:24:07.080 also dealing with another issue, which is that e commerce 0:24:07.119 --> 0:24:10.720 as a percentage of their sales likely skyrocketed last year. 0:24:11.000 --> 0:24:13.800 And I expect that people start moving around more UM 0:24:13.840 --> 0:24:15.520 that will retreat a little bit and people will go 0:24:15.560 --> 0:24:17.840 back to doing some in store purchasing. But you have 0:24:17.880 --> 0:24:20.359 to remember that the rise of e commerce UM is 0:24:20.440 --> 0:24:23.359 often harmful to the profit margins of retailers because they 0:24:23.400 --> 0:24:26.200 have to foot that bill for last miles delivery UM 0:24:26.240 --> 0:24:29.680 and in some cases have to pay for return delivery 0:24:29.720 --> 0:24:31.800 if you decide you don't like the items. That's really 0:24:31.840 --> 0:24:34.360 expensive for them, and it's a real change in their 0:24:34.400 --> 0:24:37.480