WEBVTT - Surveillance: Fed Cuts with Luzzetti 0:00:00.320 --> 0:00:00.880 Joining us on. 0:00:03.400 --> 0:00:08.560 I'm Gonna do This is the Bloombergs Podcast along with 0:00:08.720 --> 0:00:12.280 Jonathan Ferris and Lisa Ramot. Join us in each stay 0:00:12.600 --> 0:00:16.840 insight from sneaking, politics, finances, investment. 0:00:17.320 --> 0:00:23.239 Subscribe to Bloomberg Serance on demand certainly and Spotify. Get 0:00:23.320 --> 0:00:26.600 your podcast as an always data on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.280 The Bloomberg the Revision and the Bloomberg Times. 0:00:29.680 --> 0:00:31.680 When you look at what the revisions were to Q two, 0:00:32.200 --> 0:00:34.440 core PC was unrevised, so didn't really tell you a 0:00:34.440 --> 0:00:36.360 different story about the New York term inflation trend. I 0:00:36.400 --> 0:00:39.199 think that's that's really important. A big downward vision to 0:00:39.240 --> 0:00:42.160 consumer spending, which is surprising at this point in time. 0:00:42.440 --> 0:00:43.959 We know that there was a big pick up during 0:00:44.000 --> 0:00:47.159 the summer months, but I've been highlighting if you look 0:00:47.159 --> 0:00:50.560 at the ba's credit card spending data, it slowed materially 0:00:50.600 --> 0:00:53.680 throughout September. So I think you know, as you look 0:00:53.720 --> 0:00:56.040 at what's been happening in Marcus, as you've seen consumer 0:00:56.080 --> 0:00:59.520 discretionary stocks coming off a bit, where we've been concerned 0:00:59.560 --> 0:01:02.160 about the head winds facing the consumer, I think we're 0:01:02.200 --> 0:01:04.920 seeing it in the high frequency data coming through. But 0:01:05.040 --> 0:01:08.080 you're still in this fuzzy period of time here where 0:01:08.080 --> 0:01:09.520 it's unclear if it's just to give back from the 0:01:09.520 --> 0:01:11.640 strong summer months that we had, or whether it's a 0:01:11.640 --> 0:01:13.000 new trend on the consumer of weakening. 0:01:13.200 --> 0:01:14.920 Is there a stronger signal that you're getting from the 0:01:14.959 --> 0:01:17.440 job as claims to just keep coming in at incredibly 0:01:17.480 --> 0:01:18.000 low rates. 0:01:18.600 --> 0:01:18.800 Yeah. 0:01:18.880 --> 0:01:20.600 I think when you look at the labor market, the 0:01:20.800 --> 0:01:23.720 consistent story is one in which labor demand is coming 0:01:23.760 --> 0:01:26.760 down materially and that is leading to a labor market 0:01:26.800 --> 0:01:29.640 that is no longer extraordinarily tight. It's no longer very tight, 0:01:29.640 --> 0:01:33.040 but it just looks historically tight. But at the same time, 0:01:33.160 --> 0:01:35.640 there's not much evidence of layoffs taking place. That's true 0:01:35.640 --> 0:01:38.120 in the jolts data, it's true in how people are 0:01:38.160 --> 0:01:42.080 perceiving their job opportunities, it's true in the unemployment claims data. 0:01:42.080 --> 0:01:45.080 So far, the key question will be if the consumer 0:01:45.120 --> 0:01:48.240 does slow as we continue to anticipate as these headwinds hit, 0:01:48.680 --> 0:01:51.080 can that story remain true? Can you continue to have 0:01:51.160 --> 0:01:53.760 a slowing labor market that is only demand driven. 0:01:53.840 --> 0:01:56.120 When you talk about a fuzzy period of time, and 0:01:56.160 --> 0:01:59.000 this is important because we've been talking about how we 0:01:59.080 --> 0:02:01.200 don't know that we're not a soft landing until it 0:02:01.240 --> 0:02:04.800 no longer is. Is there a historical corollary that you 0:02:04.920 --> 0:02:07.360 look to where there is a period of slow in 0:02:07.400 --> 0:02:11.280 consumer spending but a very robust labor market. Is that 0:02:11.720 --> 0:02:16.080 something that can be a persistent feature of an economy 0:02:16.120 --> 0:02:17.639 for a prolonged period of time. 0:02:18.160 --> 0:02:20.040 Yeah, you know, I think we were coming out of 0:02:20.080 --> 0:02:22.280 this very unusual period, and so we're kind of prone 0:02:22.280 --> 0:02:24.160 to say that everything is very unusual at what we're 0:02:24.160 --> 0:02:27.840 seeing with the labor market. It is typically nonlinear. So 0:02:28.080 --> 0:02:31.000 it is often the case that things look generally okay 0:02:31.720 --> 0:02:34.080 until you have a shock and layoffs pickup. You know, 0:02:34.120 --> 0:02:36.280 that's the Sam rule where if the unemployment rate rises 0:02:36.280 --> 0:02:37.880 by fifty basis points, you have a recession, and it 0:02:37.880 --> 0:02:40.639 always rises by more. So from that perspective, I don't 0:02:40.639 --> 0:02:43.880 know that there's all that much that's unusual here. You know, 0:02:43.919 --> 0:02:46.480 certainly from the lag of defects of monetary policy, people 0:02:46.480 --> 0:02:49.200 are pointing towards it not hitting as much. The key 0:02:49.280 --> 0:02:51.639 question is did it not tighten or hit as much 0:02:51.639 --> 0:02:53.440 because we had a lot of latent physical stimulus in 0:02:53.480 --> 0:02:56.320 the system and it's now beginning to bite. That's our view, 0:02:56.639 --> 0:02:58.800 but there's a lot of uncertaint about whether that's the correct. 0:02:58.520 --> 0:03:01.840 You right now, the data check folks, let's do that. 0:03:01.880 --> 0:03:03.400 We get the green on the screen. We're up three 0:03:03.440 --> 0:03:06.320 tenths of a percent on the SPX. The VIX comes 0:03:06.320 --> 0:03:09.560 in nicely, sprightly from an eighteen level into seventeen zero 0:03:09.560 --> 0:03:12.400 point ninety four tenure, yielding three basis points off the 0:03:12.400 --> 0:03:17.040 announcement of claims really quite good to zero four with 0:03:17.160 --> 0:03:21.600 a constructive leveling revision of to zero two. And we've 0:03:21.600 --> 0:03:24.640 got the GDP numbers here. Let's stagger over to Michael 0:03:24.680 --> 0:03:27.280 McKee for an insight. He's got the bramocam. I caught 0:03:27.320 --> 0:03:30.160 in a bramocam McKeegan, let me in, let me in, 0:03:30.200 --> 0:03:30.720 what do you got? 0:03:31.000 --> 0:03:33.600 Well, we do have the revisions here, and it does 0:03:33.680 --> 0:03:35.840 solve one of the mysteries or at least brings us 0:03:35.840 --> 0:03:39.880 closer to an answer of why gross domestic income has 0:03:39.920 --> 0:03:43.040 been lower than gross domestic product. It's because gross domestic 0:03:43.080 --> 0:03:48.400 product was over measured. That right now, the government says 0:03:48.440 --> 0:03:52.200 that the GDP from the fourth quarter of twenty nineteen 0:03:52.280 --> 0:03:56.360 to the second quarter of twenty twenty was down seventeen 0:03:56.400 --> 0:03:59.680 and a half percent. That is up seven tenths of 0:03:59.720 --> 0:04:03.600 a percent point. But when the expansion started again from 0:04:03.920 --> 0:04:06.000 twenty twenty the fourth quarter of twenty twenty through the 0:04:06.040 --> 0:04:09.480 first quarter of twenty twenty three, GDP was up five 0:04:09.480 --> 0:04:13.360 point six percent. That's two tenths lower than had been 0:04:13.440 --> 0:04:16.240 originally estimated. So it brings those numbers into a little 0:04:16.240 --> 0:04:17.040 bit more agreement. 0:04:17.080 --> 0:04:19.479 There's the heart of the matter to both of you, 0:04:19.560 --> 0:04:21.760 Matt was Eddie and Mike McKee. Does this allow the 0:04:21.800 --> 0:04:25.159 Fed to change course? Does it give them cover to 0:04:25.279 --> 0:04:26.040 change tone? 0:04:26.080 --> 0:04:28.000 I don't think so. I mean, when you're looking at 0:04:28.080 --> 0:04:30.520 Q three trackers, we're at three point eight percent. You 0:04:30.520 --> 0:04:32.440 know if the Atlanta FED closer to five percent, do 0:04:32.440 --> 0:04:35.360 you see the job as claims data here today? You know, 0:04:35.560 --> 0:04:38.039 the real time evidence that we have in terms of 0:04:38.040 --> 0:04:39.960 what happens with the labor market and the growth data 0:04:40.000 --> 0:04:42.640 so far for Q three, I think all fits with 0:04:42.720 --> 0:04:45.440 them maintaining this hawkish bias, that the thread of another 0:04:45.480 --> 0:04:47.200 rate hike that's out there. We don't think they deliver 0:04:47.279 --> 0:04:49.520 on it, but I think that it fits with them 0:04:49.680 --> 0:04:50.640 sticking with that story. 0:04:50.839 --> 0:04:52.680 When you talk about you don't know whether that we're 0:04:52.680 --> 0:04:54.920 seeing the lag in variable effects coming into play now. 0:04:54.920 --> 0:04:57.640 We don't understand why they didn't happen earlier. We don't 0:04:57.720 --> 0:05:01.520 understand a lot about this economy. What is your compass right, 0:05:01.839 --> 0:05:03.880 especially at a time where we might not be getting 0:05:03.960 --> 0:05:07.240 data from the government because of a government shutdown. What 0:05:07.400 --> 0:05:09.359 is the most important data that you're tracking? Is it 0:05:09.400 --> 0:05:12.880 credit card spending? Is it jobless claims? Is it something else? 0:05:12.920 --> 0:05:15.440 The sort of intangibles that some of the FED officials 0:05:15.480 --> 0:05:18.040 have said in the conversations with small business owners are 0:05:18.040 --> 0:05:18.840 the most important. 0:05:19.320 --> 0:05:21.400 Yeah, I think it appeared where you're not getting the 0:05:21.440 --> 0:05:23.080 key backer data, you have to rely on some of 0:05:23.080 --> 0:05:25.599 these other alternative data sets, the anecdotes that we might get, 0:05:25.600 --> 0:05:28.320 the surveys from the isms and those types of services 0:05:28.320 --> 0:05:31.440 will be incredibly important, I think for distilling what's happening 0:05:31.480 --> 0:05:33.599 with the economy. But I think it's all about the 0:05:33.600 --> 0:05:36.120 consumer and it's all about the labor market. We've done 0:05:36.160 --> 0:05:38.480 some research in the past which suggests that continuing jobless 0:05:38.480 --> 0:05:41.359 claims are the best real time indicator of recession. Right now, 0:05:41.440 --> 0:05:43.520 they're clearly not telling you that we are in a recession. 0:05:43.680 --> 0:05:46.120 They don't lead significantly, but they tell you when we 0:05:46.160 --> 0:05:48.839 are in a recession, and so I think that remains 0:05:48.880 --> 0:05:51.560 the key data point from a consumer perspective. I think 0:05:51.600 --> 0:05:53.800 it is this card spending data. It gives you kind 0:05:53.839 --> 0:05:56.720 of a weekly view on how things are evolving. It's volatile, 0:05:56.720 --> 0:05:58.680 it has thesal adjustment issues, so there's a lot of 0:05:58.680 --> 0:06:01.360 trickiness in it. But if you smooth through what we 0:06:01.400 --> 0:06:03.840 look at over a four week basis, it slowed materially 0:06:03.880 --> 0:06:05.960 over the back half of August and then into September. 0:06:06.120 --> 0:06:08.680 Is it coherent with this idea that you could see 0:06:08.680 --> 0:06:11.800 a sharp spike upward in the unemployment rate or is 0:06:11.839 --> 0:06:14.000 that still very unclear in your view? 0:06:14.520 --> 0:06:14.599 No. 0:06:14.960 --> 0:06:17.839 I think if we have a slow down where growth 0:06:18.000 --> 0:06:20.640 goes into negative territory and the consumer actually begins to 0:06:20.680 --> 0:06:24.200 contract with where how much labor demand has come down, 0:06:24.279 --> 0:06:25.680 I would not be surprised at all to see the 0:06:25.720 --> 0:06:27.800 unemployment route begin to move higher. It's kind of part 0:06:27.839 --> 0:06:31.240 of our baseline forecast. Timing that exactly when that happens 0:06:31.320 --> 0:06:32.039 is very different. 0:06:32.120 --> 0:06:34.400 Matt, was that e chief us a columns of Deutsche Bank? 0:06:44.680 --> 0:06:48.480 We need sunglasses from next guest standouts of Wetbush remain 0:06:48.520 --> 0:06:51.680 in bullish send this quote our view of tech stocks 0:06:51.880 --> 0:06:56.960 that the transformation or growth around AI will continued, cloud cybersecurity, 0:06:57.360 --> 0:07:00.520 a rebound of digital Antdellas will create a bringing board 0:07:00.560 --> 0:07:03.279 of growth into twenty twenty four that is currently being 0:07:03.760 --> 0:07:08.760 underappreciated by the street. Dani's TK of wet Bush out. 0:07:08.560 --> 0:07:12.760 On the web quote the iPhone is getting really hot 0:07:12.840 --> 0:07:17.360 when using it, even for a short while. Date July fourth, 0:07:17.440 --> 0:07:21.120 two thousand and seven. This has happened before the uproar. 0:07:21.160 --> 0:07:25.440 This morning, the man with titanium closed, Dan Ives joins 0:07:25.520 --> 0:07:28.360 us this morning here on the latest stuff where OMG, 0:07:28.520 --> 0:07:31.200 it's hot. First thing I said is, yeah, whenever they 0:07:31.200 --> 0:07:33.520 bring out a new phone, the software is screwed up, 0:07:33.560 --> 0:07:34.040 it's hot. 0:07:34.120 --> 0:07:35.400 It's like not news, is it. 0:07:35.640 --> 0:07:37.640 But this is not a surprised Apple. I mean the 0:07:37.640 --> 0:07:40.520 Apple knew from a titanium that this was going to happen. 0:07:40.920 --> 0:07:44.160 There will be some software updates fixed that come out 0:07:44.160 --> 0:07:46.920 of the next week, and it's typical Cooper Tino. They're 0:07:46.920 --> 0:07:49.840 going to fix it. And if you look ultimately at 0:07:49.880 --> 0:07:52.920 the demand for this iPhone, it continues to be adding 0:07:53.000 --> 0:07:53.440 much better. 0:07:53.440 --> 0:07:55.080 Thanks BacT for seriously, we got to do this. 0:07:55.160 --> 0:07:57.080 Is there any danger to the public with this, like 0:07:57.200 --> 0:07:59.600 exploding around an airplane lithium. 0:07:59.240 --> 0:08:01.800 But you know the gloom that's out there, something like danger. 0:08:02.200 --> 0:08:02.520 Not all. 0:08:02.600 --> 0:08:05.200 If you look at any even some of the ones 0:08:05.240 --> 0:08:07.920 that have tested this in terms of stress tested it, 0:08:08.240 --> 0:08:11.440 there's nothing like that. It's really just more it overheats 0:08:11.480 --> 0:08:15.320 in some instances. But I believe this, this bug, that 0:08:15.600 --> 0:08:17.120 the fix that they'll come out with it is going 0:08:17.160 --> 0:08:17.559 to resild. 0:08:17.640 --> 0:08:20.720 So if John's a Covent Garden buying a new iPhone, 0:08:21.040 --> 0:08:22.080 he can go in safe. 0:08:22.560 --> 0:08:24.440 He can go in safe, and he's gonna be able 0:08:24.440 --> 0:08:26.600 to watch Premier League and do all of everything. He 0:08:26.640 --> 0:08:27.360 loves descriptions. 0:08:29.120 --> 0:08:32.719 When I just go back, it seems to you just 0:08:32.760 --> 0:08:36.400 said something. You said demand will be better than expected. 0:08:36.920 --> 0:08:38.960 In fact, you implied that it is better than expected. 0:08:39.440 --> 0:08:41.560 Can you tell me about a what was expected and 0:08:41.600 --> 0:08:43.400 be how you're engaging current demand? 0:08:43.440 --> 0:08:44.079 What are you looking at? 0:08:44.080 --> 0:08:46.920 If you look at lead times in terms of iPhone deliveries, 0:08:47.400 --> 0:08:52.040 we are still ahead of iPhone fourteen and it's actually extending. 0:08:52.679 --> 0:08:55.040 And if you look last year, you basically had a 0:08:55.120 --> 0:08:59.160 shortage of iPhones. So when you actually combine what i'll 0:08:59.200 --> 0:09:02.120 call about ten million incremental units that we actually have 0:09:02.280 --> 0:09:06.400 now from an inventory perspective, we're tracking so far based 0:09:06.440 --> 0:09:09.680 on our estimate about ten to twelve percent ahead expectations. 0:09:09.800 --> 0:09:13.160 How do you make a distinction between scarcity that is, 0:09:13.480 --> 0:09:18.559 let's say, massaged by the company that produces this particular handset, 0:09:18.600 --> 0:09:21.720 and scarcity that's driven by real demand. Just doesn't Apple 0:09:21.720 --> 0:09:23.920 play this game. It's difficult to get our products. There's 0:09:23.960 --> 0:09:25.800 a big lead time, there's a delay. No, it's not 0:09:25.880 --> 0:09:28.440 getting some AirPods, it takes two months. Everybody wants them. 0:09:28.600 --> 0:09:30.000 Isn't that the whole marketing strategy? 0:09:30.200 --> 0:09:30.440 Look? 0:09:30.440 --> 0:09:32.640 And I think that it's a Rubik's cube to figure out, 0:09:32.640 --> 0:09:34.760 and that's why we spend so much time in Easia 0:09:34.920 --> 0:09:40.120 trying to understand what incremental units have actually been produced, 0:09:40.760 --> 0:09:43.600 what the demand looks like relative to the supply chain. 0:09:43.720 --> 0:09:46.880 And I think right now we're running probably about three 0:09:46.920 --> 0:09:49.200 to four million units ahead, you know, if you look 0:09:49.240 --> 0:09:53.319 relative to where iPhones are going to shape out. Also, asps, 0:09:53.679 --> 0:09:56.280 even in China continue to go up because of the 0:09:56.400 --> 0:09:59.120 pro And I think that's really the story here, is 0:09:59.160 --> 0:10:02.560 that the ASP talents there and despite doomsdays sort of 0:10:02.640 --> 0:10:05.679 you out there. I mean, you're basically seeing an iPhone 0:10:05.679 --> 0:10:07.599 demand story going into how itdays that's going to be 0:10:07.600 --> 0:10:08.439 ahead of expectation. 0:10:08.600 --> 0:10:10.520 How much is Apple eating the lunch of everybody else 0:10:10.559 --> 0:10:13.439 in terms of a market that is actually shrinking or 0:10:13.440 --> 0:10:16.359 at least in stasis. When it comes to the smartphone market. 0:10:16.480 --> 0:10:18.560 It's great. I mean, we've seen it in China. They've 0:10:18.600 --> 0:10:21.600 gained about three hundred BIPs in market share the last 0:10:21.960 --> 0:10:26.200 eighteen months, and I think even despite Huawei, I think 0:10:26.360 --> 0:10:29.160 will continue to gain share because Huawei, if you buy 0:10:29.160 --> 0:10:32.240 that phone, it's like buying an iPhone twelve and it 0:10:32.320 --> 0:10:35.040 comes down to the chips and what they've done. From 0:10:35.040 --> 0:10:39.000 a silicon perspective, it's the best smartphone in the world, 0:10:39.080 --> 0:10:42.120 I think by by miles at this point. 0:10:41.840 --> 0:10:45.319 Which raises a question in my mind, which is maybe 0:10:45.360 --> 0:10:48.240 Apple is the cleaner shirt in a dirty hamper or 0:10:48.280 --> 0:10:52.760 whatever the expression is. Yet the overall macro backdrop is 0:10:52.800 --> 0:10:55.839 souring in a way that is more meaningful. We saw 0:10:55.840 --> 0:10:58.360 that from Micron yesterday as some of the expectations coming 0:10:58.400 --> 0:11:01.920 out seem to be more negative than people previously expected. 0:11:02.520 --> 0:11:05.280 Where do interest rates have to stay to keep your 0:11:05.280 --> 0:11:08.280 both thesis afloat without the macro gloom getting in the way. 0:11:08.440 --> 0:11:10.439 Yeah, any look, and we've talked about it before. I mean, 0:11:10.440 --> 0:11:14.720 obviously it's a macro backdrop that's really causing white knuckles 0:11:14.720 --> 0:11:18.000 across tech bowls, and I think I see from investadors 0:11:18.000 --> 0:11:21.400 in their daily basis. Look, look, I mean my view 0:11:21.640 --> 0:11:25.400 is that going into this next year, I believe, you know, 0:11:25.480 --> 0:11:28.920 Fed's gonna cut at least from a backdrop perspective. 0:11:29.040 --> 0:11:29.760 But I focus. 0:11:29.840 --> 0:11:33.719 I'm more macro aware, micro obsessed in terms of how 0:11:33.720 --> 0:11:36.240 we've done it, and if I look at growth in tech, 0:11:36.440 --> 0:11:38.760 I believe it's going to be the biggest growth we've 0:11:38.800 --> 0:11:40.800 seen in the last thirty years. And that's why a 0:11:40.800 --> 0:11:42.600 lot of the bears that have called ten of the 0:11:42.640 --> 0:11:45.840 last two downturns, I get it. I get their thesis. 0:11:46.080 --> 0:11:47.880 I just think we sit here six nine months from 0:11:47.880 --> 0:11:49.040 now and Apples an all time. 0:11:48.960 --> 0:11:54.080 High calendar item October is upon us, and institutions are behind. 0:11:54.520 --> 0:11:58.480 With our question, they're under owned on Apple insiders share 0:11:58.559 --> 0:12:03.240 ownership off the Bloomberg Apple sixty six percent, Sacha Nadella 0:12:03.320 --> 0:12:07.640 and Microsoft seventy five percent, they're under owned end of 0:12:07.679 --> 0:12:10.320 the year. Do you get a massive short squeeze to 0:12:10.320 --> 0:12:14.120 get you from one seventy out to your two forty targets. 0:12:14.120 --> 0:12:16.480 I mean our view is this is a stock that's 0:12:16.559 --> 0:12:18.280 ultimately going to have a two in front of it 0:12:18.360 --> 0:12:21.160 over the next three to four months. I think earning 0:12:21.200 --> 0:12:23.800 season for Tech is going to cause I think a 0:12:23.920 --> 0:12:25.120 major what does a. 0:12:25.040 --> 0:12:29.320 Big institution do JP Morgan Asset Management name the company worldwide? 0:12:29.320 --> 0:12:32.760 They're under owned in this dog. They have to buy 0:12:32.800 --> 0:12:33.720 it in the year end. 0:12:33.679 --> 0:12:36.400 Right, it is a gift what I view Apple here 0:12:36.480 --> 0:12:40.120 a golden buying opportunity, and institutions that I talk to 0:12:40.200 --> 0:12:44.240 continue it's a groundhog Day situation. New York City cab 0:12:44.320 --> 0:12:47.200 drivers barish on Tech and Apple into earning season, and 0:12:47.240 --> 0:12:48.640 I think we sit here end of the year and 0:12:48.679 --> 0:12:51.880 we look back and this was an opportunity going into 0:12:51.920 --> 0:12:55.520 what I view as a mini supercycle, especially as everyone's 0:12:55.520 --> 0:12:57.400 position right now in big tech. 0:12:57.679 --> 0:13:00.880 It's China a groundhouk Day situation, Isn't that new? 0:13:02.120 --> 0:13:03.760 Well? I think when you look at China, I mean 0:13:03.880 --> 0:13:06.800 even if you go back the worries about government ban 0:13:07.000 --> 0:13:10.520 and everything we've seen, but yet you see the lines. 0:13:10.559 --> 0:13:14.040 You see Chinese consumers that are actually lining up to 0:13:14.040 --> 0:13:16.760 buy iPhone. So I think when I look at China, 0:13:16.880 --> 0:13:21.160 Cook ten percent politician ninety percent CEO. That continues me 0:13:21.240 --> 0:13:23.760 the hearts and lungs of the story. So I just 0:13:23.840 --> 0:13:27.520 view that as one where it's the big bad wolf. 0:13:27.559 --> 0:13:30.240 It's always the fear out there, but at least the 0:13:30.320 --> 0:13:32.240 bark is going to be worse than bite. So far 0:13:32.280 --> 0:13:33.559 in this cycle, I want to. 0:13:33.520 --> 0:13:36.160 Just end broadening out to where the macro fears are. 0:13:36.240 --> 0:13:39.559 Right now, this idea that we are seeing more strength 0:13:39.679 --> 0:13:43.400 that is going to cause more profit margin compression, that's 0:13:43.400 --> 0:13:45.000 going to lead to a lack of investment by a 0:13:45.040 --> 0:13:47.240 lot of companies. How much does that delay or would 0:13:47.240 --> 0:13:51.120 that delay your thesis of growing profits to new record 0:13:51.200 --> 0:13:54.160 highs as a lot of companies invest in artificial intelligence 0:13:54.160 --> 0:13:56.560 if they don't have the extra capital on hand to 0:13:56.600 --> 0:13:56.920 do so. 0:13:57.200 --> 0:13:59.520 Yeah, it would, And that's what we spend all of 0:13:59.520 --> 0:14:01.400 our time. I'm not here in New York City, but 0:14:01.440 --> 0:14:04.160 around the world trying to understand where the demand trends are. 0:14:04.600 --> 0:14:09.199 I believe we're gonna sit here with cloud numbers from Microsoft, Amazon, 0:14:09.320 --> 0:14:13.640 Google that beat expectation. We actually see the opposite that's 0:14:13.679 --> 0:14:15.319 playing out, and I think that's really going to be 0:14:15.360 --> 0:14:19.120 the surprise earning season. Of course, that's the biggest fear. 0:14:19.200 --> 0:14:22.240 But at least what we see fundamentally speaking is actually 0:14:22.280 --> 0:14:25.240 the opposite playing out despite some of the macro field. 0:14:25.240 --> 0:14:27.600 And we comparing some businesses that are still delivering double 0:14:27.600 --> 0:14:30.560 digit revenue growth and one business Apple the core of it, 0:14:30.640 --> 0:14:33.440 that's not really delivering any growth at all. Two very 0:14:33.440 --> 0:14:34.720 different stories, aren't they. 0:14:34.840 --> 0:14:36.960 No doubt when you look at Cloud and what's happened 0:14:37.000 --> 0:14:39.440 in AI. But I think we sit here a year 0:14:39.480 --> 0:14:42.760 from now and that's a re accelerated growth story, not 0:14:42.840 --> 0:14:45.600 just on iPhone but also services that's going toward double 0:14:45.600 --> 0:14:49.160 digital growth. And I think Apple's one where the bears 0:14:49.720 --> 0:14:52.360 for years have gotten it wrong, saying the best days 0:14:52.360 --> 0:14:55.920 in the rearview mirror. They continue to underestimate the golden 0:14:56.040 --> 0:14:57.880 story of Cooking Crest. 0:14:57.440 --> 0:15:00.160 To be unfair down because they've been right because it 0:15:00.240 --> 0:15:02.200 was a flat lined that isn't the company gone ex 0:15:02.320 --> 0:15:03.880 growth when it comes to the iPhone. 0:15:04.040 --> 0:15:08.440 Yeah, but I'd say they've been maybe right conceptually, but 0:15:08.560 --> 0:15:10.480 wrong in the stock and I think wrong in the 0:15:10.560 --> 0:15:13.520 valuation because I just view it right now. This is 0:15:13.640 --> 0:15:17.760 just a pause from a growth perspective in what has 0:15:17.880 --> 0:15:20.800 really been a multi year upgrade cycle that's gone on 0:15:20.800 --> 0:15:23.840 an iPhone, and I think it's just I don't. 0:15:23.640 --> 0:15:25.680 Mean to interrupt. It's just been a failure of stock. 0:15:25.800 --> 0:15:28.240 Ten year annualized return twenty nine percent. 0:15:29.320 --> 0:15:32.200 Yeah, Tom, it was backed up by tons of growth. 0:15:32.480 --> 0:15:34.080 The point isn't the thing the question is, and it's 0:15:34.080 --> 0:15:36.600 a valid one, is that growth isn't there anymore. They're 0:15:36.640 --> 0:15:38.480 operating and I'm not here to make a judgment about 0:15:38.480 --> 0:15:38.840 the future. 0:15:38.840 --> 0:15:40.320 That's they're operating leverage. 0:15:40.560 --> 0:15:42.240 To make an observation about the last twelve. 0:15:42.200 --> 0:15:45.320 They're operating leverage down the income statement from single digit 0:15:45.400 --> 0:15:48.640 revenue growth is historic. It's like back the Graham, Dot 0:15:48.640 --> 0:15:49.080 and Coddle. 0:15:49.120 --> 0:15:49.840 We've never seen it. 0:15:50.040 --> 0:15:53.040 And it's just the Apple silicon chip story. Now they're 0:15:53.080 --> 0:15:56.200 being intel their own game. They control the ecosystem. 0:15:56.240 --> 0:16:00.600 Oh way, is the nanotechnology, the three millimeters nano technology? 0:16:00.760 --> 0:16:02.280 Is that the cause of them being hot? 0:16:03.720 --> 0:16:06.800 I believe that it's really more titanium in terms of 0:16:07.240 --> 0:16:10.760 I'm serious, in terms of than it's just. 0:16:10.720 --> 0:16:13.080 Busted your do you have the new iPhone? That's all 0:16:13.120 --> 0:16:13.400 we want. 0:16:13.560 --> 0:16:16.160 It's coming this week. It's coming delight, But it's on 0:16:16.240 --> 0:16:19.960 delay because it's on delay because of demand, because Pharaoh 0:16:20.080 --> 0:16:21.320 king and everyone's ordering it. 0:16:22.640 --> 0:16:24.120 Then I was a kidding me. Then I was a 0:16:24.160 --> 0:16:26.880 white fish. It's got to say it as a white. 0:16:30.880 --> 0:16:32.240 Right now, without question. 0:16:32.320 --> 0:16:35.480 For Global Wall Street our interview of the Day on bonds, 0:16:35.880 --> 0:16:40.560 notes and bills, Alanonim has parchments in the usual accounting 0:16:40.640 --> 0:16:44.800 economics from Villanova Macro Credit research at Blackrock with a 0:16:44.840 --> 0:16:47.200 tour duty of gold and sacks and other places along 0:16:47.240 --> 0:16:50.200 the winding at road. She joins us, what's the level 0:16:50.200 --> 0:16:52.240 of sweat at black Rock? I mean, like, you know, 0:16:52.280 --> 0:16:55.000 are you all the windows locked and you know you're 0:16:55.040 --> 0:16:57.280 you're policing costs and the rest of them to be 0:16:57.320 --> 0:16:58.680 sure they're okay. 0:16:58.880 --> 0:17:01.480 No, I think we're all chat. We're navigating and good 0:17:01.480 --> 0:17:03.480 morning and thank you for having me. I think we're 0:17:03.480 --> 0:17:07.119 all navigating what is a very dynamic market that is 0:17:07.240 --> 0:17:09.280 keeping us on our toes for sure. I think for 0:17:09.359 --> 0:17:12.080 corporate credit investors, what we've really been focused on is 0:17:12.359 --> 0:17:15.000 this higher cost of capital environment and we're seeing it 0:17:15.119 --> 0:17:17.840 day by day kind of flow through the corporate credit market. 0:17:18.760 --> 0:17:21.480 And really for corporate credit fixed rate investors, the headwood 0:17:21.480 --> 0:17:23.360 has been on the risk free rate. We haven't seen 0:17:23.440 --> 0:17:26.320 much repricing in credit spreads, and I think that's been 0:17:26.640 --> 0:17:29.400 a really notable feature of the third quarter, and that's 0:17:29.440 --> 0:17:31.960 probably something that will continue into the fourth quarter. 0:17:32.160 --> 0:17:34.879 It's still happening just a little bit, just incrementally, we 0:17:34.960 --> 0:17:37.520 get in that spread widening when you look within high 0:17:37.560 --> 0:17:39.080 yield at the moment, where do you see the greater 0:17:39.160 --> 0:17:40.119 pain being inflicted. 0:17:40.480 --> 0:17:45.840 So we're seeing a really surprising dynamic actually where high 0:17:45.960 --> 0:17:50.879 quality is lagging and the lower quality really parts of 0:17:50.920 --> 0:17:53.400 the market are leading. And so if you just take 0:17:53.440 --> 0:17:56.800 the three broad buckets of leverage loans, high yield bonds, 0:17:56.840 --> 0:18:00.040 and investment grade bonds, arguably leverage loans are in the 0:18:00.080 --> 0:18:04.000 weakest vulnerable fundamental position because they've been contending with this 0:18:04.080 --> 0:18:06.920 higher borrowing costs for the past several quarters, really since 0:18:06.920 --> 0:18:10.080 early twenty twenty two. But they've had the best performance 0:18:10.200 --> 0:18:13.879 year to date. We don't think that that is sustainable 0:18:14.000 --> 0:18:16.040 over the long term. As you know, we don't view 0:18:16.119 --> 0:18:19.359 fixed rate corporate credit as immune from these headwinds either. 0:18:19.960 --> 0:18:21.960 So I do think that there will be some words differentiation, 0:18:22.040 --> 0:18:24.199 but I think going forward, what we've characterized it in 0:18:24.240 --> 0:18:26.480 our fourth quarter outlook is it's going to be about 0:18:26.520 --> 0:18:31.000 dispersion as opposed to widespread market disruption, and so when 0:18:31.000 --> 0:18:36.920 we're dealing with potential headwinds to margins, wages, commodity costs, 0:18:37.400 --> 0:18:40.560 potentially slowing economic growth, higher borrowing costs, we think that 0:18:40.560 --> 0:18:43.320 that will really result in differentiation across the spectrum as 0:18:43.320 --> 0:18:46.040 opposed to kind of this rising tide lifts all boats macro. 0:18:46.160 --> 0:18:48.080 I want to go to the question that John asked 0:18:48.119 --> 0:18:51.240 Ian Shepherdson, at what point will we feel the rates 0:18:51.400 --> 0:18:53.720 that the FED has inflicted on the market and that 0:18:53.720 --> 0:18:56.439 we're seeing priced into the risk free rate. When do 0:18:56.480 --> 0:19:00.200