Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Hey everyone, Max Chaffkin here, just a heads up. You're
Speaker 2: about to hear another episode of Everybody's Business, which is
Speaker 2: the new show that I've been working on with the
Speaker 2: wonderful financial journalist Stacy Vanicksmith. It's going to be here
Speaker 2: in the Eloning feed for the next few weeks, and
Speaker 2: then it's going to move over into its own feed
Speaker 2: in May. We just thought you'd really like it, and
Speaker 2: we really want to get some feedback, so please check
Speaker 2: it out and.
Speaker 3: Let us know what you think. He's Stacy.
Speaker 2: Hello, I've lived like several lifetimes thousand years since we
Speaker 2: last recorded. I've done a lot of reflecting on the
Speaker 2: choices that we made in that episode as we were
Speaker 2: living in a moment.
Speaker 3: We are once.
Speaker 2: Again in the moment, and this tariff madness continues.
Speaker 4: This is Everybody's Business. I'm Stacy Bannicksmith Chafkin. It has
Speaker 4: basically been NonStop drama and action ever since the Trump
Speaker 4: administration unveiled that infamous list of taxes the US would
Speaker 4: be putting on imports from countries all over the world.
Speaker 3: Yeah, and then he unlifted many of them.
Speaker 2: So we're going to talk to Tracy Alloway, co host
Speaker 2: of Odd Lots, really one of the smartest people I
Speaker 2: think either of us knows on the markets. And then
Speaker 2: we're going to zoom in on one company, Apple, that
Speaker 2: has been really affected by these tariffs and including by
Speaker 2: the tariffs that remain by these these massive one hundred
Speaker 2: and twenty five percent tariffs on China, the stakes are
Speaker 2: super high for Apple, and I guess for anyone who's
Speaker 2: buying an iPhone. And we've got a great segment with
Speaker 2: Bloomberg's Mark German on that.
Speaker 4: Yes, and Max, I don't know if you saw Jurassic Park,
Speaker 4: if you remember that movie, Yes, it is happening.
Speaker 5: It is happening. Maybe further proof of end of Days
Speaker 5: is that.
Speaker 3: The underrated story or the overrated story.
Speaker 4: I don't think Jurassic Park coming to life could possibly
Speaker 4: be overrated.
Speaker 5: So Max, with all the.
Speaker 4: Drama this week, the headlines changing every five minutes, like
Speaker 4: market disaster, market triumph, there was this one thing that
Speaker 4: I could not stop thinking about.
Speaker 3: Was it the early season start of the New York Mets.
Speaker 4: I don't even know what any of that means. I
Speaker 4: do know about the Mets, but what I kept thinking
Speaker 4: about was my iPhone?
Speaker 3: Your iPhone?
Speaker 5: My iPhone?
Speaker 3: Because oh no, stare me.
Speaker 2: Did you run to the Apple store to try to
Speaker 2: buy another phone?
Speaker 4: Reading all this tariff news, my phone has been like
Speaker 4: semi dying. I probably could have gotten another four months
Speaker 4: out of it, but I was like, what is going
Speaker 4: to happen to the price of this phone in four months?
Speaker 4: So I ran to the Apple store on a Monday
Speaker 4: afternoon and it was a zoo and the salesperson told
Speaker 4: me that, in fact, he had been hearing about the
Speaker 4: terror issue from a lot of customers.
Speaker 2: When you told me, I think we were slacking or
Speaker 2: something over the weekend, and you said you were at
Speaker 2: the Apple store. Yes, I don't think you said you
Speaker 2: were doing it out of tariff reasons. But I believe
Speaker 2: that Stacey vanock Smith, who has her stuff together, who's
Speaker 2: very prepared, who's from Idaho, would do this. But I
Speaker 2: couldn't believe that anyone else would run to the Apple
Speaker 2: store to try to get ahead of tariffs.
Speaker 4: You underestimate our fellow Americans. In fact, Max, you expressed
Speaker 4: the skepticism, and so I wanted to see for myself.
Speaker 4: So I went back to the Apple Store and talked
Speaker 4: to some people who were coming out.
Speaker 5: What's it like in there?
Speaker 3: It seems busier than normal. I think a lot of
Speaker 3: people don't know what's about to hit.
Speaker 5: What did you purchase today?
Speaker 2: And I bought them too? Pline sales for me and
Speaker 2: my girlfriend?
Speaker 4: Did you buy it today because of tariffs?
Speaker 2: I wasn't gonna buy it anyway, but the taris my
Speaker 2: decision easier.
Speaker 6: What did you purchase today?
Speaker 1: Computer?
Speaker 5: Telephones?
Speaker 3: Oh?
Speaker 1: A lot?
Speaker 7: Yes?
Speaker 4: Are you worried about prices changing?
Speaker 6: I'm sure everything will be in pacted by tariffs, but like,
Speaker 6: what are we gonna do? I've had my laptop for
Speaker 6: ten years.
Speaker 3: I need a new laptop.
Speaker 5: Was it pretty crowded in there?
Speaker 6: I waited like twenty minutes, which is not bad. But
Speaker 6: like New Yorkers are very busy.
Speaker 2: Hearing Matt, I feel like people like you are maybe
Speaker 2: already thinking about buying another device, aware that Apple and
Speaker 2: these consumer electronics manufacturers are vulnerable to tariffs in a
Speaker 2: way that more so probably than almost any other type
Speaker 2: of company.
Speaker 3: Cars.
Speaker 4: Apparently, car dealerships have seen also a big rush of
Speaker 4: people recently.
Speaker 3: Do you feel safe now?
Speaker 2: Do you feel like you're you're ready to ride this
Speaker 2: thing out for the next three and a half years
Speaker 2: amid all this uncertainty.
Speaker 5: That's an interesting question. No, I don't know how.
Speaker 2: I navigating Costco over the weekend, and I was surprised.
Speaker 5: You do spend you do talk.
Speaker 2: To I spend most of my time when I'm not
Speaker 2: in this studio, and I was surprised that it was
Speaker 2: like a lighter day than usual. I saw the same
Speaker 2: number of Jumbo toilet paper packs that I would normally see.
Speaker 4: You know where I bet this was not happening where
Speaker 4: at the Costco and Idaho people know?
Speaker 5: People are prepared in my home state.
Speaker 3: I hy k, why K.
Speaker 4: After basically a full week of markets plunging and surging
Speaker 4: and plunging and surging, President Trump finally blinked. He announced
Speaker 4: a ninety day pause on most of the tariffs he
Speaker 4: put forward last week. That pause does not include China,
Speaker 4: our largest trading partner. Here to talk about this with
Speaker 4: us is the great Tracy Alloway, co host of the
Speaker 4: podcast Odd Lots.
Speaker 6: Welcome, Tracy, Thank you so much for having me in
Speaker 6: for that very kind intro.
Speaker 4: Well, I feel like your time is precious. You've been
Speaker 4: very NonStop.
Speaker 6: It has been busy this week. I'll say that.
Speaker 4: One thing that I saw that you tweet that I
Speaker 4: wanted to ask you about because I think it kind
Speaker 4: of gets at the heart of maybe what's going on
Speaker 4: underneath the blink is you wrote quote. Honestly, at this point,
Speaker 4: it's kind of comforting to see that the bond market
Speaker 4: can still intimidate everybody.
Speaker 6: Yeah, I think this is really like one of the
Speaker 6: big things that happened this week. And that's in reference
Speaker 6: to the old famous Carville quote where he talked about
Speaker 6: if he was going to be reincarnated, he would want
Speaker 6: to come back as the bond market because then he
Speaker 6: could intimidate everyone. And here we are, about three decades
Speaker 6: after he uttered that quote, and it turns out that
Speaker 6: the bond market can still intimidate everyone, including a president
Speaker 6: who looked pretty set on trying to remake the global
Speaker 6: economy and the global financial system. He might still end
Speaker 6: up doing it, but for the moment, the bond market
Speaker 6: really seems to be the big roadblock in some of
Speaker 6: these plans. And in fact, when he did his press
Speaker 6: conference on Wednesday where he announced the ninety day pause,
Speaker 6: he talked about markets getting like yippie queasy but he
Speaker 6: really highlighted the bond market.
Speaker 3: The bond market is very tricky.
Speaker 6: I was watching it, but if you look at it now, it's, uh,
Speaker 6: it's beautiful.
Speaker 3: The bond market right now is beautiful.
Speaker 6: And we know from you know, some other sources of
Speaker 6: reporting that it really looks like it was the move
Speaker 6: in the bond market, bond prices plunging, yields going up,
Speaker 6: that frightened him off.
Speaker 2: Wait didn't he just get frightened because he saw Jamie
Speaker 2: Diamond on Fox News?
Speaker 3: Am? I that is that? Like? Two good question?
Speaker 6: But Jamie Diamond cares about bond yields too.
Speaker 2: Okay.
Speaker 6: The bond market is the most important market in the world.
Speaker 6: The US has like twenty nine trillion dollars outstanding. It's
Speaker 6: much bigger than the stock market. But more importantly, it
Speaker 6: is much more interwoven with the US economy, so it
Speaker 6: informs things like mortgage rates, corporate financing rates. And if
Speaker 6: you're Trump, someone who came in on the pro that
Speaker 6: you were going to lower housing costs, the economy was
Speaker 6: going to boom under your tenre, you really care about
Speaker 6: what happens to those rates.
Speaker 5: Well, I feel like.
Speaker 4: The stock market is so much more visible, and it's
Speaker 4: a simpler market to explain, I think in a lot
Speaker 4: of ways. So what was it about the bond market
Speaker 4: that like rattled people in a way that the stock
Speaker 4: market which was going up and down, I mean nine
Speaker 4: percent down. You know, we haven't seen this since COVID,
Speaker 4: since the housing crisis, and this kind of up and
Speaker 4: down I don't think I've ever seen.
Speaker 6: Yeah, it was pretty intense. It is highly unusual to
Speaker 6: see both bonds and stocks falling at the same time.
Speaker 6: And to be honest, the financial system isn't really built
Speaker 6: to handle that. It can't really handle those two things
Speaker 6: happening simultaneously. When we see both of those asset classes falling.
Speaker 6: What tends to happen is big investors as well as
Speaker 6: banks and broker dealers which nerrisk them have to start
Speaker 6: de risking their portfolios or their balance sheets. And once
Speaker 6: they're de risking, you set in motion, basically a feedback
Speaker 6: loop that really risks, making asset prices even lower, people
Speaker 6: having to sell more.
Speaker 2: De risking you mean selling assets, right, Okay, I just
Speaker 2: want to say two things.
Speaker 3: One is we're recording this Thursday morning. A lot could happen.
Speaker 6: You need to say the exact time, Yes, exactly, it is.
Speaker 5: Yeah, eastern time, Eastern time.
Speaker 2: The other thing, I just think we should take a
Speaker 2: step back and say that what we're talking about, we're
Speaker 2: talking about the bond market. I think tracing is the
Speaker 2: concern that these tariffs are destroying the US economy, right,
Speaker 2: and that is going to lead to some kind of recession,
Speaker 2: maybe even a deep recession.
Speaker 3: Do you have any.
Speaker 2: Sense of why people were so worried about these tariffs?
Speaker 2: And we talked about a little bit last week, but
Speaker 2: Trump telegraphed this and we knew it was coming, and
Speaker 2: yet suddenly we're comparing what happened to you know, the
Speaker 2: great financial crisis of two thousand and eight or COVID
Speaker 2: or something, these incredibly traumatic moments.
Speaker 6: Okay, there's a lot to say here, but I think
Speaker 6: the simple answer is the scale of the tariffs.
Speaker 3: Right.
Speaker 6: You don't get many countries who try to tear iff
Speaker 6: every single trading partner they have all at once. It's
Speaker 6: usually relatively focused. And the fact that it's the US economy,
Speaker 6: the world's biggest economy, actually doing that, it meant most
Speaker 6: people were expecting, you know, a ratcheting down of global growth.
Speaker 6: So if they were expecting global growth to slow, why
Speaker 6: did they sell bonds? So normally, if you expect a recession,
Speaker 6: you would buy bonds rather than stocks. And this gets
Speaker 6: back to the de risking point. People were forced to sell,
Speaker 6: They had to unwind positions because the moves were just
Speaker 6: so extreme. And then the other thing that really spooked
Speaker 6: people about all of this is you have to look
Speaker 6: at what was going on in the financial plumbing, So
Speaker 6: the really big wholesale financing market, the repo market from
Speaker 6: which banks and investors source a lot of their overnight loans,
Speaker 6: a lot of their overnight liquidity. They need to keep
Speaker 6: doing that in order to roll over positions. If they
Speaker 6: can't get that liquidity because their dealer is de risking
Speaker 6: its balance sheet and selling assets and it doesn't want
Speaker 6: to take on any more assets at that time, then
Speaker 6: that becomes a problem and you get that additional selling pressure.
Speaker 6: And the one other thing I would say on that
Speaker 6: is on Wednesday, when things got pretty extreme in the
Speaker 6: bond market, there was a lot of chatter about the
Speaker 6: FED possibly having to come in and bail out that market.
Speaker 6: In a bailout the bond marketing, Yeah, I mean bail out.
Speaker 6: It's it's not a credit risk, although I think there
Speaker 6: are some investors who are potentially worried about the US's
Speaker 6: credit worthiness under this new presidency. It was more of
Speaker 6: a liquidity issue, and so the thinking was maybe they're
Speaker 6: going to do what they did back in twenty twenty.
Speaker 6: And then the last thing I will say on this
Speaker 6: dynamic is you can just imagine if you're Trump, how
Speaker 6: much would you hate that headline that the FED had
Speaker 6: to come in and rescue the world's most important market
Speaker 6: because of your trade policies.
Speaker 4: Well, one thing I wanted to ask about was, like
Speaker 4: you said, the bond market is typically where people go.
Speaker 4: It's like their safe space, and bonds are essentially loans
Speaker 4: that you give the government, and because the US government
Speaker 4: is seen as so safe, interest rates the yield as
Speaker 4: they call it, but the interest rate the government pays
Speaker 4: is really low. This is a super oversimplification, but it
Speaker 4: occurred to me that maybe the price of all this volatility.
Speaker 4: If a stock drops ten percent and goes back up
Speaker 4: ten percent, technically you're fine if you own the stock,
Speaker 4: But maybe the long term price of all this volatility
Speaker 4: is the bond market, because now the interest or the
Speaker 4: yield that the government's having to pay on these bonds
Speaker 4: is really high, which is weird because normally, when so
Speaker 4: many people are looking for a safe space, bonds should
Speaker 4: be where everybody goes. Yeah, but all of a sudden,
Speaker 4: the US doesn't seem so trustworthy because of all the volatility.
Speaker 4: So I was wondering if that might be like a
Speaker 4: long term consequence, even if the market comes back to
Speaker 4: where it was, that there's like long term damage from this.
Speaker 6: Yeah, I think that's exactly right. So one of the
Speaker 6: consequences of all of this volatility, all of this chaos
Speaker 6: is people started talking about the possibility that we could
Speaker 6: see alternative safe havens, so things like German government bonds
Speaker 6: or Japanese government bonds. Europe, as one of our guests
Speaker 6: recently said, is a region of norms and strong conventions
Speaker 6: and rule of law, and maybe the US is a
Speaker 6: little bit less so at the moment, so you could
Speaker 6: see big investors flocking there. The irony in all of
Speaker 6: this is there's already been reduced structural demand for US treasuries,
Speaker 6: and that means you've had big buyers stepping away from
Speaker 6: the market, and so when that happens, you know again
Speaker 6: yields are going to have to go up if this
Speaker 6: results in even less demand for US treasuries. The irony
Speaker 6: is the US's own financing costs are going to go up,
Speaker 6: and we know that Trump has talked about how important
Speaker 6: it is to get those down, how important it is.
Speaker 5: It's like US servicing our debt.
Speaker 6: Yeah, how important it is to reduce America's debt. That
Speaker 6: is much more difficult if you don't have buyers for it.
Speaker 2: I want to say, sort of shift slightly to stocks,
Speaker 2: if you permit. The thing I've been wondering as we've
Speaker 2: watched the stock market sort of go up and down
Speaker 2: in response to where that Trump says, is like is
Speaker 2: this real? And I feel like you could tell two
Speaker 2: different stories. And John Herman at New York Magazine wrote
Speaker 2: a great article about this, basically saying Trump has turned
Speaker 2: the US economy into a meme stock. He's like basically
Speaker 2: managing the United States the way the CEO of Game
Speaker 2: Stop does. So there's no reality, there's just vibes. You
Speaker 2: have traders just like trying to get inside the head
Speaker 2: of the guy running the thing, and you get chaos
Speaker 2: in these wild moves. And then I think there's an
Speaker 2: alternative story, which is like the stock market is asserting itself.
Speaker 2: It's actually serving as a check on Trump. And what
Speaker 2: we are learning now and maybe what we learned even
Speaker 2: yesterday was that you know that Trump can't do this,
Speaker 2: that there are going to be repercussions. Tracy, I'm sure
Speaker 2: you saw this. Like in March, this guy, Michael Symbolist
Speaker 2: of JP morgan to put out this research note saying
Speaker 2: here's the interesting thing about the stock market. It could
Speaker 2: probably apply this to the bond market as well. It
Speaker 2: cannot be indicted, arrested or deported. It cannot be intimidated
Speaker 2: or threatened or billy. It has no gender, ethnicity, or religion.
Speaker 2: When this came out, I was like talking to a
Speaker 2: group of i'd say MAGA aligned finance guys and they
Speaker 2: were laughing about this. They were like, this is like
Speaker 2: some you know, woke nods, you know what I mean.
Speaker 2: And I feel like we are maybe learning in real
Speaker 2: time and will continue to learn whether or not this
Speaker 2: thing that Michael Symbolist wrote that that feels like obviously true.
Speaker 3: It is in fact true.
Speaker 6: I mean, I think we've seen evidence of that this week,
Speaker 6: especially in the bond market. The thing I would say
Speaker 6: that investors are really struggling with at the moment. Kind
Speaker 6: of goes back to your reality point. I think investors
Speaker 6: are pretty good at pricing and weighing some of the
Speaker 6: consequences of these policies. The effects of all of this
Speaker 6: are very real. You know, investors have a pretty decent
Speaker 6: idea of what's going to happen to the global economy
Speaker 6: and markets if all of this were to happen, even
Speaker 6: though you know it's unprecedented in many ways. As we discussed,
Speaker 6: I think the difficulty for them is the unpredictability of
Speaker 6: what Trump actually says, Like that is the sticking point.
Speaker 6: And because the the entire market is so focused on
Speaker 6: this one guy, you don't know what he's going to
Speaker 6: say between one day and the next. And it's funny.
Speaker 6: We wrote a newsletter, i think on Tuesday where we
Speaker 6: basically pointed out, you know, it's all about Trump. He
Speaker 6: could come out and say everything's fine. And that's one
Speaker 6: reason why when we had an erroneous headline on Monday
Speaker 6: saying there was a ninety day pause, stock shot up
Speaker 6: so so much, and then you know, when it happened
Speaker 6: again on Wednesday, like people really rush to move up
Speaker 6: even though they might have been burned on Mondays. So
Speaker 6: that just underscores how important Trump is to the markets
Speaker 6: right now.
Speaker 4: Well, Tracy, thank you so much for joining us. I
Speaker 4: think you have to go tape your own podcasts right now.
Speaker 6: I do, I do, but it's been fun.
Speaker 5: Thank you for joining us.
Speaker 3: Thanks Tracy, thank you.
Speaker 6: Wow.
Speaker 2: Okay, Stacey, we're talking all about, you know, the chaos
Speaker 2: of the markets, these questions of like, okay, what should
Speaker 2: investors do with Trump making all these policy shifts and
Speaker 2: making these erratic statements, and they're sort of like the
Speaker 2: other side of this, which is what do you buy?
Speaker 3: And how do companies price?
Speaker 2: And we have a great guest to talk about this,
Speaker 2: Mark German, Bloomberg's chief correspondent covering consumer technology, author of
Speaker 2: the power On newsletter, which you should all subscribe to.
Speaker 2: I want to talk to Mark because in his newsletter
Speaker 2: the other day he wrote this really great sort of
Speaker 2: primer basically on how Apple prices, and we want to
Speaker 2: talk to him about that because Apple has so affected
Speaker 2: by these tariffs.
Speaker 3: Mark, thanks for being.
Speaker 7: Here, Thanks for having me. Great to be on.
Speaker 2: Okay, Mark, I just said that Apple is really exposed
Speaker 2: to the trade war. Before you joined US, I might
Speaker 2: have even said that they are one of the most
Speaker 2: exposed companies to terrorst First of all, do you do
Speaker 2: buy that number one?
Speaker 3: Number two? Why is Apple so exposed?
Speaker 2: Talk a little bit about this incredibly global company.
Speaker 1: Yeah, So, just to take a step back here for
Speaker 1: a while now, we knew that something was going to
Speaker 1: happen in relation to Apple and tariff specifically related to China, right.
Speaker 1: I think people understood that Apple is in a very
Speaker 1: bad position because they make about eighty five to ninety
Speaker 1: percent of their iPhones in China, right, and they sell
Speaker 1: the majority of them in the United States. So needing
Speaker 1: to build the product there and then needing to ship
Speaker 1: them to the United States, obviously you're going to get
Speaker 1: tariff pretty high. Why the market went crazy is because
Speaker 1: the tariff percentage on China specifically was way higher than
Speaker 1: people had anticipated, not leaving much room for Apple to
Speaker 1: deal with getting better pricing, not leaving much room for
Speaker 1: Apple to eat some of the costs, and not leaving
Speaker 1: much room for minor price increases.
Speaker 7: So that was one thing.
Speaker 1: But what really sent everyone wild was the fact that
Speaker 1: the tariffs were planted across every country there were countries
Speaker 1: that Apple had moved to in order to reduce the
Speaker 1: threat from the China tariffs that they had long anticipated.
Speaker 1: So for the last several years, Apple had been building
Speaker 1: up in places like Malaysia, Thailand, Vietnam, and those places
Speaker 1: too were hit with tariffs. Right, So China you knew
Speaker 1: would be bad, but it was worse. And then everywhere
Speaker 1: else was way worse than anticipated too.
Speaker 2: All that diversification too that you're talking about, a lot
Speaker 2: of it started, unless I'm mistaken, like under the last
Speaker 2: Trump presidency. They've been aware for years that their reliance
Speaker 2: on China creates vulnerabilities, geopolitical vulnerabilities, and they have been
Speaker 2: trying mark to diversify.
Speaker 1: They knew for some time, you know, dating back to
Speaker 1: the first Trump administration, that there would be political and
Speaker 1: geopolitical economic vulnerabilities at some point with their huge reliance
Speaker 1: on China, and that really kicked off the diversification efforts,
Speaker 1: you know, closer to a decade ago. But COVID made
Speaker 1: us all realize that it's not only geopolitical, right, there
Speaker 1: are world related disasters that have little to do with
Speaker 1: the economy. And I think a prime example was actually
Speaker 1: the iPhone fourteen Pro and Promax. Back in twenty twenty two, right,
Speaker 1: things seemed to have been calming down. COVID had been
Speaker 1: going on for a year and a half, things began
Speaker 1: to dissipate, and all of a sudden, there was a
Speaker 1: huge COVID wave in China and they had a lot
Speaker 1: of their fourteen pro production in one facility, right in
Speaker 1: one gigantic facility at Fox Gone in China, And because
Speaker 1: of that new COVID wave, the Chinese government shut everything
Speaker 1: down and that blew up Apples sales projections for that
Speaker 1: device and their overall revenue in that holiday quarter. And
Speaker 1: that was another realization we can't just do everything in
Speaker 1: one place. At some point, if your Apple, you have
Speaker 1: to ask yourself, what can we do with all our
Speaker 1: money to really be able to withstand more issues in
Speaker 1: the future. Because Trump is only going to be here
Speaker 1: another three and a half years in this term, we'll
Speaker 1: see if his policies continue for another four or eight
Speaker 1: years after that.
Speaker 7: But looking down the line.
Speaker 1: Ten fifteen years, twenty years, fifty years, there are going
Speaker 1: to be more politicians, There are going to be more wars,
Speaker 1: There are going to be more natural disasters. There are
Speaker 1: going to be more pandemics right over the arc of time.
Speaker 1: That's just how the world works.
Speaker 2: Mark, Let's talk about the actual pricing of the iPhone.
Speaker 2: You mentioned more than eighty five percent of iPhones are
Speaker 2: made in China. The iPhone, for people who don't know
Speaker 2: or have been living under a rock, is like the
Speaker 2: most successful consumer product of all time. It is also
Speaker 2: still very much the cornerstone of Apple's business. You kind
Speaker 2: of went through in this newsletter that I mentioned at
Speaker 2: the top, basically three options for dealing with a tariff,
Speaker 2: and I think we should just take them one at
Speaker 2: a time. The top of the line iPhone in the
Speaker 2: United States costs basically one thousand dollars. What are their
Speaker 2: options they're hit with this tariff and right now it's
Speaker 2: over one hundred percent. If history is any guide, They're
Speaker 2: going to release another iPhone in the fall, and they're
Speaker 2: gonna have to come up with a price for that.
Speaker 2: Talk through how they're going to deal with these tariffs
Speaker 2: step by step.
Speaker 1: Well, the first thing for the short term, it's getting
Speaker 1: as many phones into the US channel before the tariffs
Speaker 1: from China came into place. So that's something they've done
Speaker 1: over the past several months in the even more recent
Speaker 1: right as the tariffs are coming into place. Obviously they
Speaker 1: sell a lot of phones. You have to replenish that supply.
Speaker 1: It's bringing them in from India where you have a
Speaker 1: tariff hit that's now I don't know, fifteen percent of
Speaker 1: the tariff hit they're talking about from China. So looking forward,
Speaker 1: it's now pushing suppliers to give them better pricing so
Speaker 1: they have fatter margins, so they have more cost opportunity
Speaker 1: to own and less cost to pass on to the customer.
Speaker 1: And the reality is is that the iPhone price hikes
Speaker 1: are probably not going to be more than a few
Speaker 1: hundred dollars per model, because they are going to make
Speaker 1: supply chain changes, and Apple knows that customers are simply
Speaker 1: not going to pay certain dollar amounts when they can
Speaker 1: get refurbished phones for cheaper, they can buy used phones
Speaker 1: for cheaper, they can go elsewhere cheaper. And the other
Speaker 1: thing is installment plans and trading programs to offset the
Speaker 1: higher costs. If new phone prices are going to go up,
Speaker 1: the value of the old phones are going to go
Speaker 1: up as well, and so you're going to be able
Speaker 1: to get more bang for your buck when trading in
Speaker 1: your older products too.
Speaker 2: But mark their costs are going to go up by
Speaker 2: more than a couple hundred bucks.
Speaker 3: Right.
Speaker 1: The idea is by moving to lower tariff places, by
Speaker 1: pushing suppliers to give them better pricing, by eating a
Speaker 1: little bit of their costs, and then having the consumer
Speaker 1: eat a bit of the costs. You're splitting four ways,
Speaker 1: so maybe the price increase would have been one thousand dollars,
Speaker 1: but when you're splitting in four ways, you know you're
Speaker 1: in the two to three hundred dollars range for the customer.
Speaker 3: Right.
Speaker 2: So, like some of these components are also subject to tariffs,
Speaker 2: you sort of force some of your suppliers to take
Speaker 2: take some of that cost. You force, as you said,
Speaker 2: the customers to take some of that cost. And then
Speaker 2: Apple's a very profitable company. I'm not sure what the
Speaker 2: gross margins on these It's like forty five percent or something, but.
Speaker 1: Yeah, forty five percent is their corporate average. I would
Speaker 1: say the phone is above fifty percent in most cases.
Speaker 4: Right, So a lot of room there perhaps, But investors
Speaker 4: might disagree with that. They would be upset if they
Speaker 4: were taking smaller profit margins still, right, I mean that
Speaker 4: would be bad for the company.
Speaker 3: Right Mark, Can I ask you something.
Speaker 2: They basically have not changed the price of an iPhone
Speaker 2: in a very long time, and you brought this up,
Speaker 2: but like there have been these subtle price increases, so
Speaker 2: like a top of the line phone is cost about
Speaker 2: one thousand dollars for a very long time. They've they've
Speaker 2: done things where like you have to pay a little
Speaker 2: more for memory.
Speaker 1: Or like larger screen.
Speaker 2: Right yeah, Apple critics will point out, oh, they're charging
Speaker 2: money on services, you know whatever, but it does seem
Speaker 2: to be some kind of psychological threshold in terms of
Speaker 2: like what a consumer will pay for one of these things.
Speaker 2: Do we have any sense do your sources have any
Speaker 2: sense of how high they could push the prices without
Speaker 2: seeing you know, like consumer pushback.
Speaker 1: A lot happened over the last ten years or so,
Speaker 1: and the iPhone price didn't change inflation. You had COVID,
Speaker 1: which obviously made things more expensive to make. The technology
Speaker 1: got more expensive and more advanced, and they still never
Speaker 1: raise the price. And that just tells you how price
Speaker 1: sensitive it believes consumers are. But they have a unique
Speaker 1: opportunity now for this price increase, because if Apple raises prices.
Speaker 1: Everyone is going to point to one man and it's
Speaker 1: not Tim Cook.
Speaker 5: Oh oh, they have a scapegoat.
Speaker 7: They have a scapegoat.
Speaker 1: Now, I think everyone would know that this has become
Speaker 1: a untenable situation to keep prices the same because of
Speaker 1: the tariffs, and people would blame Trump here. I think
Speaker 1: if they did it because of inflation, I think if
Speaker 1: they did it because of COVID. I think if they
Speaker 1: did it because the technology became more advanced, people would
Speaker 1: be a lot less understanding and say, hey, Apple's just
Speaker 1: trying to make another.
Speaker 7: Buck on us.
Speaker 1: But now this is mainstream. This is not because of Apple.
Speaker 1: Apple would not be raising prices if it weren't for
Speaker 1: these tariffs.
Speaker 7: I can assure you of that.
Speaker 4: So when I ran to the store this week to
Speaker 4: upgrade my iPhone.
Speaker 3: Uh, vindication is this?
Speaker 5: Was that a good move? Did I save myself some money?
Speaker 7: What did you come from and what did you get?
Speaker 5: I came from a twelve, I got a sixteen.
Speaker 3: Oh, Man Mark is like twelve.
Speaker 1: Well, sure, but that's a good upgrade, right Like if
Speaker 1: you were coming from a fourteen or fifteen, I'd be
Speaker 1: more concerned about your decision making.
Speaker 3: Whoo the fact.
Speaker 1: The fact is is that you got a really good
Speaker 1: phone from a really old phone and it was time
Speaker 1: for you to upgrade anyways. So you saved money potentially
Speaker 1: but got something that you needed. And so this is like,
Speaker 1: for you, is the perfect storm.
Speaker 3: And I think that was a complete vindication for Stacey feeling.
Speaker 4: I know that the whole economy is in total turmoil,
Speaker 4: but personally I'm feeling good because of Markney.
Speaker 1: The dye Gleses do while the bossing realm of the
Speaker 1: don't murder me.
Speaker 3: I beg of you don't good?
Speaker 2: All right, it's our underrated segment of the week and Mark,
Speaker 2: you're gonna stick around Stacy Vanick Smith, what do you
Speaker 2: have for us?
Speaker 4: Yes, this is where we take what we feel was
Speaker 4: an underrated piece of news this week and we shine
Speaker 4: a light on it.
Speaker 5: And in this case, it's a pretty exciting story.
Speaker 4: Have you guys seen Jurassic Park, Yes, you know where
Speaker 4: they take the DNA out of the.
Speaker 2: Mecedo amber in that guy's cane. They do them animation
Speaker 2: and they make dinosaurs, they make dynasty, they bring extinct
Speaker 2: species back to life.
Speaker 5: This literally happened.
Speaker 4: So there is this company called Colossal biosciences and they
Speaker 4: have brought back to life something called the dire wolf.
Speaker 4: This is a species of wolf that went extinct twelve
Speaker 4: thousand years ago.
Speaker 3: These are the Game of Thrones wolves.
Speaker 4: They are the Yeah, the Game of Thrones wolves were
Speaker 4: based on the dire wolves. They basically crossed their DNA
Speaker 4: or they used crisper or did the science where they
Speaker 4: put the dire wolf DNA in a gray wolf DNA thing,
Speaker 4: which is I guess, the closest living relative. And we
Speaker 4: have dire wolf pups and right now we can hear
Speaker 4: a wolf howl that has been extinct from this earth
Speaker 4: for twelve thousand years. They have three little pups that
Speaker 4: are so cute the house.
Speaker 5: Okay, let's hear the.
Speaker 1: How it's kind of adorable.
Speaker 7: I'm not gonna lie.
Speaker 5: It's so cute. Isn't that amazing? Like a sound not
Speaker 5: heard for thousands of years?
Speaker 1: I think this is brilliant. And by the way, I
Speaker 1: love the name of that company, Colossal. That's yeah, that's
Speaker 1: a good one.
Speaker 3: Hear me out.
Speaker 2: I think that this is the biggest croc ever, how
Speaker 2: is it a croc?
Speaker 5: You heard the howls?
Speaker 3: The cute This is.
Speaker 2: A wolf doodle. This is not a diar hole. This
Speaker 2: is a pr stunt. Look, I'm not saying it's not cool.
Speaker 2: I'm not saying those subtle hybrid wolves are not adorable.
Speaker 2: I'm not saying like I don't want to go to
Speaker 2: a zoo and see a white gray wolf. But if
Speaker 2: you look at the actual science here, they did not
Speaker 2: bring the dire wolf back. They took like something like
Speaker 2: twenty genetic traits and changed them in a gray wolf
Speaker 2: out of I think millions of traits they would have
Speaker 2: to change to change a actual gray wolf into a
Speaker 2: dire wolf. This is like a wolf doodle. This is
Speaker 2: just like a This is like a total like. I'm
Speaker 2: not saying I'm not saying the science isn't cool, but
Speaker 2: like anyone who thinks we like brought back an extinct
Speaker 2: species is like.
Speaker 4: I'm going to give you a couple of counterpoints which
Speaker 4: are not direct counterpoints, but counterpoint adjacent.
Speaker 5: They got the DNA out of a tooth.
Speaker 4: And a skull, so cool, and they're now working on
Speaker 4: resurrecting the mammoth, the dodo, and the Tasmanian tiger.
Speaker 5: I mean, be skeptical.
Speaker 7: I like Max's point. I think it's a fair point, but.
Speaker 3: I am sticking to my guns.
Speaker 1: I am sticking to my guns. This is underrated and
Speaker 1: this is really cool.
Speaker 7: But I think Max's point is fair.
Speaker 3: I do.
Speaker 2: I was braced for a genuine intervention. I thought Mark
Speaker 2: was gonna be like, Max, you need you need to
Speaker 2: evaluate your life choices.
Speaker 4: I feel like we could we could play the howls
Speaker 4: again and see if you still feel that way.
Speaker 3: They're so cute, they they are cute.
Speaker 7: Oh it sounds great.
Speaker 3: Wolfdoodles, so cute.
Speaker 4: Twelve thousand years of silence, and now this is epic.
Speaker 5: It's epic.
Speaker 3: Mark German, thanks for being here. We really appreciate it.
Speaker 7: Thanks guys.
Speaker 3: This show is produced by Stacey Wong.
Speaker 2: Magnus Hendrickson is our supervising producer, Amy keenar editor, and
Speaker 2: Brendan Francis Newnham is our executive producer. Sage Bauman heads
Speaker 2: Bloomberg Podcasts. If you have a minute, please let us
Speaker 2: know what you think. This show is in development. We're
Speaker 2: still working on it and we really want to hear
Speaker 2: your thoughts. Email us at Everybody's with an S at
Speaker 2: the end at Bloomberg dot net. That's Everybody's at Bloomberg
Speaker 2: dot net. Thank you for listening and we'll see you
Speaker 2: next week.
Speaker 6: He ed to factor and to factor