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Speaker 2: He is absolutely unique as a president, president, former president, governor,
Speaker 2: vice chairman and chairman of the FED, and that no
Speaker 2: one in the multiple years I've been covering it synthesized
Speaker 2: Wall Street business.
Speaker 3: And economics like Robert Kaplan. He was at the Dallas
Speaker 3: FED with a.
Speaker 2: Real sense of the border political economics, the heritage of
Speaker 2: the Dallas Fed around Robert McTeer and the Georgia School,
Speaker 2: their research capabilities, and were thrilled he could join us
Speaker 2: this morning for an extended conversation. It's been way too long, Robert.
Speaker 2: Let me cut to the chase, the definitive series which
Speaker 2: Jerome Powell speaks of.
Speaker 3: Is the Dallas trim mean?
Speaker 2: You are expert on that with your research staff. Does
Speaker 2: the Dallas trim mean for Robert Kaplan? Does it indicate
Speaker 2: a vector of disinflation or a new worry back to
Speaker 2: the time of say Wayne Angel in a higher inflation rate.
Speaker 4: It probably suggests inflation is a new word sticky, meaning
Speaker 4: it's kind of going sideways.
Speaker 5: And we're not making improvement.
Speaker 4: And I would guess that if prices edge up a
Speaker 4: little bit, it's going to be more supply side issues
Speaker 4: from here than demand side issues.
Speaker 2: What I'm looking at, Robert Kaplan, is the ambiguity, the swirl,
Speaker 2: if you will, of American economics with our politics is
Speaker 2: a sum total of what our listeners and viewers understand
Speaker 2: on this Friday. Is it towards a depressed real GDP
Speaker 2: because of policy uncertainty?
Speaker 4: Yeah, So there are five big structural changes going on
Speaker 4: that's very unusual and'll just tick off. We're restructuring the
Speaker 4: way we do fiscal spending and it's going to have
Speaker 4: some jarring effect, but we're going to have less fiscal spending.
Speaker 4: If they succeed, that would tend to lower growth. We're
Speaker 4: going to do a regulatory review in every industry to
Speaker 4: try to produce more productivity growth that actually might be helpful.
Speaker 4: There's going to be an effort to control the workforce. Obviously,
Speaker 4: no more people coming in across the border entering the workforce,
Speaker 4: and we're going to deport that tends to lower growth
Speaker 4: unless we have an effort to revitalize legal immigration, and
Speaker 4: then we're going to try to restructured the energy ecosystem
Speaker 4: in this country to lower costs.
Speaker 5: That's probably helpful.
Speaker 4: And then the last thing is the tariffs, and the
Speaker 4: tariffs have a price effect. But I would guess these
Speaker 4: tariffs and the uncertainty with them on margin lower growth.
Speaker 4: So you've got a bunch of cross currents, and I
Speaker 4: would guess the net of it all is I would guess, yeah,
Speaker 4: growth is probably slowing a little bit right now. And
Speaker 4: the uncertainty as well as when you cut government spending
Speaker 4: and you reduce workforce growth or you reduce the growth
Speaker 4: of it, you know, you you limit GDP growth. The
Speaker 4: effort is I don't know if that's that concerning, and
Speaker 4: that I think the effort of this administration is to
Speaker 4: try to create more organic, more private sector growth, less
Speaker 4: government led growth, so quote unquote healthier growth, but top
Speaker 4: line growth probably is going to be somewhat weaker, I
Speaker 4: would guess, so.
Speaker 6: Robert, giving that back in the five big structural changes
Speaker 6: that you just outlined, if I'm the Federal Reserve, do
Speaker 6: I just sit on the sidelines and kind of let
Speaker 6: it all play out because the market is kind of
Speaker 6: suggesting that the Fed's not going to do a lot
Speaker 6: this year.
Speaker 5: Yeah, yeah, I think the right thing.
Speaker 4: Yeah, the FED is quietly drifting stage left, and that's okay.
Speaker 4: The center stage is structural changes, executive branch changes away
Speaker 4: from the FED, and in a period like this, I
Speaker 4: think the wisest thing the FED could do, yes is
Speaker 4: be comfortable standing pat be careful about what they say,
Speaker 4: because I think commenting too definitively on how these structural
Speaker 4: changes are going to play out, It's too early to
Speaker 4: do it.
Speaker 5: Tariffs is a good example.
Speaker 4: We don't even know what the tariffs are going to be,
Speaker 4: and so yeah, I think the FED will do less.
Speaker 4: I think that's fine, and I think Jay pals Can
Speaker 4: communication on that has been good recently, where he's made
Speaker 4: clear we're in no.
Speaker 5: Hurry and people should be prepared.
Speaker 4: Their focus should be more on what's going on at
Speaker 4: the executive branch. And second comment I'd make, if there's
Speaker 4: a rate I'm focused on, I'm much more focused on
Speaker 4: the ten year treasury rate than i am the FED
Speaker 4: funds rate.
Speaker 6: It interesting. So, Robert, as we sit back here, and
Speaker 6: we think about the economic backdrop here, how do you
Speaker 6: view the consumer right here? I mean, we've heard about
Speaker 6: and talked about and noticed in the data this K
Speaker 6: shaped economy.
Speaker 5: How do you think about the consumer? There's two big groups.
Speaker 4: It's confusing because there's two big groups. Probably unlike maybe
Speaker 4: anything I've seen in my career.
Speaker 5: There's one group.
Speaker 4: That's sixty five that's rough numbers, sixty five seventy million
Speaker 4: workers that make fifty five grand a year or less,
Speaker 4: and they are struggling to make ends meet. They've lost
Speaker 4: at least twenty five percent purchasing power. They don't tend
Speaker 4: to own financial assets. That group is spending, but they're
Speaker 4: watching every dollar they're going to McDonald's and they're agonizing
Speaker 4: over even McDonald's trading down. That's sixty five to seventy
Speaker 4: million workers and consumers. There's another sixty five to seventy
Speaker 4: million consumers fifty five and older, own their home, have
Speaker 4: a fixed rate mortgage, have financial assets, and this recent
Speaker 4: period has been pretty good. Yes, there's infliction, but their
Speaker 4: financial appreciation their financial assets is offset it.
Speaker 5: And because their.
Speaker 4: Mortgage is fixed, they're really not that sensitive to higher rates,
Speaker 4: and they are spending much more aggressive. I guess aggressively
Speaker 4: on services and other products. And that's why when you
Speaker 4: see corporate earnings reports, it's confusing. Which of these two
Speaker 4: groups are you serving. If you're serving that first group,
Speaker 4: you're likely seeing a much more challenging business. If you're
Speaker 4: serving the second group, you know business looks better to you.
Speaker 2: Robert Kaplan with us, of course, the vice chairman of
Speaker 2: Goldman Sachs, with farm Wearer's relationship with the Dallas Fed.
Speaker 2: All sorts of academics through the year at his Harvard
Speaker 2: were thrill these with us, and we said good morning
Speaker 2: to you on YouTube in your home, at your office,
Speaker 2: all of Golden Sacks tuned in on YouTube. I mean,
Speaker 2: you know that's happening right now. Robert Caplan, I got
Speaker 2: in the New Foreign Affairs last night. It's a very
Speaker 2: strong issue, folks in these tumultuous times. Marianna Mazakata, who
Speaker 2: Robert Caplan is not on the same page with the
Speaker 2: esteemed left economist, huge economic history student Marianna Mazacato with
Speaker 2: a wonderful essay on where we need to go. And
Speaker 2: Robert Caplan, I'm sure you don't agree with all that
Speaker 2: Professor Mazacata wrote up in The New Foreign Affairs. But
Speaker 2: the one thing she talked about, you're the most qualified
Speaker 2: person I know, is the financialization that we've seen in
Speaker 2: the last ten, twenty, even thirty years, even before the
Speaker 2: Great Financial Crisis. How do you explain the financialization of
Speaker 2: the American culture and the winners you just described in
Speaker 2: the millions of losers out there that are a reality.
Speaker 4: Well, so I'll put it. I'll put it this way.
Speaker 4: And you've heard me talk about this before.
Speaker 5: I listen.
Speaker 4: I work on an a firm now, and we run
Speaker 4: a business, and I've run other businesses. Human capital is
Speaker 4: the most important asset you have. And that's true for
Speaker 4: the United States. It's true for the state of Texas
Speaker 4: and so on. And early childhood literacy, secondary education, skills training,
Speaker 4: a digital divide, allowing people to be more productive. That
Speaker 4: is key to a growing middle class in building the economy.
Speaker 4: And what we're seeing a little bit in the last
Speaker 4: numberumber of years is a divergence financially between that I
Speaker 4: just mentioned those two groups. Working people that don't take
Speaker 4: government money have probably been employed, done everything right their
Speaker 4: whole career, but they don't have a lot of savings.
Speaker 4: They may not own their home, and they're reading in
Speaker 4: the newspaper about another group of people out there who
Speaker 4: are rising by bounds in terms of their financial wealth
Speaker 4: and financial assets, and it seems like capitalism isn't quite
Speaker 4: working for them. And I think education is one of
Speaker 4: the vehicles to try to address this. But one of
Speaker 4: the issues with decelerating workforce growth is education tends to
Speaker 4: be paid for at the state level and city level.
Speaker 4: If you're a growing city or state, you got the
Speaker 4: money to spend on the getting affordable childcare, full day
Speaker 4: versus half day, pre.
Speaker 5: K, all these critical things.
Speaker 4: But if you're in a state which is probably forty
Speaker 4: plus states whose populations.
Speaker 5: Are flat to down, you may not have the money.
Speaker 4: And then philanthropy, which I'm actively involved in, can help
Speaker 4: pick up the slack. But I think we should be
Speaker 4: focusing more on our human capital and a little less
Speaker 4: on financial end and.
Speaker 2: Paul, that's the common ground between Mazocato and Kapitlin, no
Speaker 2: question about that.
Speaker 3: The individual education effort. Robert.
Speaker 6: I know in your role as vice chairman of Golden Sacks,
Speaker 6: who speak to CEOs around the world, what is their
Speaker 6: view of I don't know the ability to take risk
Speaker 6: to maybe think about M and A as a growth scenario.
Speaker 6: Where are they in terms of how they feel about
Speaker 6: their business and their ability to take risk over the
Speaker 6: next couple of years.
Speaker 4: Okay, So on the positive side, I think the prospect
Speaker 4: of a more balanced regulatory environment, more cost benefit analysis,
Speaker 4: more in their words, more sensible regulation.
Speaker 5: They're okay with tough regulation.
Speaker 4: But there has to be a rationale for it. I
Speaker 4: think they're excited about that. On the other hand, they're
Speaker 4: dealing with another They're dealing with the trade uncertainty. And
Speaker 4: if you're going to domicile more manufacturing, for example in
Speaker 4: the United States, you really need the corridor of Mexico
Speaker 4: and Canada for integrated supply chains and logistics. And when
Speaker 4: they see threat of tariffs on for example Mexico, which
Speaker 4: they hope doesn't happen, which could undermine logistics and supply chains,
Speaker 4: it gives them pause and makes them want to just
Speaker 4: slow down a little bit and be more careful. And
Speaker 4: the other big thing is AI and technology. Now, we've
Speaker 4: had technology innovation for years, but if you're a CEO
Speaker 4: right now, you've got to spend on AI in your business.
Speaker 4: You're not sure which use cases will work and which won't,
Speaker 4: but you got to do it. And so I think
Speaker 4: you're going to see though a lot of merger activity
Speaker 4: by companies who feel that, boy, if we're going to
Speaker 4: take share in the years ahead, if we're going to
Speaker 4: grow in the years ahead, we're more likely to have
Speaker 4: to take share, and we're gonna have to size and scale,
Speaker 4: and the ability to ford AI investment is more important
Speaker 4: than its ever and I think you're going to see
Speaker 4: a desire for many companies bigger to try to deal
Speaker 4: with that.
Speaker 3: I gotta squeeze this in too important.
Speaker 2: There seems to be another threat happens every two, three,
Speaker 2: five years. It's not specific to mister Trump on FED independence.
Speaker 2: How does the institution of the Fed, mister Kaplan protect
Speaker 2: itself and stay independent versus the McChesney Martin challenges decades ago.
Speaker 5: Yeah.
Speaker 4: So the thing that's always challenging at the FED, and
Speaker 4: this isn't new, is regulatory provisory policy at the FED
Speaker 4: is not politically independent and has not been politic independent.
Speaker 4: The tilt of it changes, whether it's Obama to Trump,
Speaker 4: then back to Biden, now back to Trump, and that
Speaker 4: you'll see on setting the FED funds rate, though, and
Speaker 4: the stance of monetary policy. I think it's critical of
Speaker 4: this country that stay politically independent. Now the president can
Speaker 4: jawbone and pressure and that's not new. May be more
Speaker 4: intense right now, and the FED will do its job
Speaker 4: and should to try to extent. They can't ignore that
Speaker 4: make decisions only. The biggest threat to the FED, I
Speaker 4: actually think sometimes is not from outside. Then you have
Speaker 4: to be careful as a governor or a president. Don't
Speaker 4: try to say things publicly you think might go over better,
Speaker 4: or worry about the pressure.
Speaker 5: Just do what you think is right.
Speaker 4: And as long as they manage themselves, I think they'll
Speaker 4: through this in an independent way.
Speaker 3: Out of time. Robert Kaplan. Next time you're on, We're
Speaker 3: doing a complete hour on do we need the docks?
Speaker 2: Robert Kaplan of the Dallas Fed, always in forever and
Speaker 2: now vice chairman of his Goldman Sacks.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 3: Now on oil.
Speaker 2: It has been too long, and she is definitive on
Speaker 2: Saudi inc. As we have the joy in the honor
Speaker 2: of speaking with Edward Morris a few days ago, now
Speaker 2: in honor to speak with Ellen Wald. Ellen, what does
Speaker 2: the Saudi royalty want besides one hundred dollars barrel oil?
Speaker 2: What's their desire? Given the new hydrocarbon politics of Washington.
Speaker 7: You know, it's interesting right now it seems like they
Speaker 7: really want to broker peace between Russia, Ukraine and the
Speaker 7: US or Europe. They're really pushing themselves as these you know,
Speaker 7: kind of neutral peace brokers. Of course, it isn't all
Speaker 7: so altruistic here, because with an end to Russia Ukraine
Speaker 7: hostilities could come some very interesting developments from the oil market,
Speaker 7: and you can be sure that the Saudis are all
Speaker 7: about that.
Speaker 6: Ellen, Just give us with some hindsight here, with three
Speaker 6: years into this wark where and the sanctions associated with that?
Speaker 6: Where does the Russian oil? Where has it gone? How
Speaker 6: does it get into the marketplace these days?
Speaker 7: Yeah, that's that's a really great question, because it used
Speaker 7: to go all over the place, and it's.
Speaker 8: Still it still goes.
Speaker 7: It just really mostly goes to two places. Now goes
Speaker 7: to China and goes to India. India is just open
Speaker 7: this massive, huge market for Russian crude oil. And what's
Speaker 7: so fascinating about it is their refineries have been benefiting
Speaker 7: immensely from cheap Russian crude. They buy a lot of it,
Speaker 7: and they process it and they make a lot of diesel,
Speaker 7: and then they go ahead and they sell it to Europe.
Speaker 7: And Europe is more than happy to buy this. I
Speaker 7: kind of like call it laundered Russian crude because they
Speaker 7: know where it comes from.
Speaker 8: They know that it's Russian crude. But as long as
Speaker 8: you know the origin of the diesel.
Speaker 7: That they're using, says India and not Russia, they're more
Speaker 7: than happy to buy it and keep their their you know,
Speaker 7: supplies up and from this cheap Russian oil.
Speaker 2: I took out a chart in Bloomberg today Ellen Wild
Speaker 2: It's an inflation adjusted Saudi light and essentially on an
Speaker 2: inflation basis is a generalization the price of a barrel
Speaker 2: of oils where.
Speaker 3: It was forty years ago.
Speaker 2: Do we overplay in the media, Do we overplay in
Speaker 2: our own minds, all of us, the listeners and viewers,
Speaker 2: the importanttons of oil. Has it become inconsequential to the
Speaker 2: public because of its cheapness.
Speaker 8: So that's that's a really good, good question.
Speaker 7: I think that we do overplay the importance of oil
Speaker 7: in some respects. I know, we overplay it in when
Speaker 7: we look at say the Saudi budget. So you know,
Speaker 7: every year the IMF comes out with these these you
Speaker 7: know stats and say, oh, the Saudis need x price
Speaker 7: or a barrel of oil to cover their budget. And
Speaker 7: the fact is that that is a meaningless statement because
Speaker 7: that's not how it works in Saudi Arabia. You know,
Speaker 7: a ramco sells oil and then a ramco you know,
Speaker 7: makes money, and then they the Saudi government gets uh
Speaker 7: you know, they get royalties, they get rents, they get dividends.
Speaker 7: Now they get you know, it's not just that they
Speaker 7: don't just get the money from the barrel. There's a
Speaker 7: lot more that goes into it, and so things are
Speaker 7: a lot more complicated now.
Speaker 8: Of course, if you look even farther back than forty
Speaker 8: years ago, you know, when oil was like to to
Speaker 8: you know, something.
Speaker 7: A barrel, and you realize that in you know, what
Speaker 7: what Opek was fighting for in the nineteen seventies was
Speaker 7: like to increase it to you know, a price of
Speaker 7: like six something, and that was considered obscene.
Speaker 8: You know, the request was considered absolutely obscene, you know,
Speaker 8: and we.
Speaker 7: Think about that now and it seems rather ridiculous. But
Speaker 7: you know, when you do consider inflation and you do
Speaker 7: consider what we're using oil now, I mean, look, natural
Speaker 7: gas is becoming more expensive such that we're seeing a
Speaker 7: lot of switching over to gas oil interesting from natural
Speaker 7: gas right now, which is not good for the environment
Speaker 7: to begin with.
Speaker 8: But it's you know, so oil is still very very
Speaker 8: much a very important and I would.
Speaker 7: Probably say maybe the key role in uh, you know,
Speaker 7: in terms of the hydrocarbrid spectrum.
Speaker 2: Today, I get ten seconds. When do we get a
Speaker 2: new book? It's all anybody?
Speaker 8: Oh, that's a good question.
Speaker 7: Not not anytime soon, you know, thinking maybe I should
Speaker 7: write a TV script considering how successful Land went.
Speaker 3: There you go. Would you like to weigh in on this?
Speaker 3: Joe Tucker can wait?
Speaker 6: Oh, I know everything about bring the land, man. I'll
Speaker 6: tell you what that Getting oil out of a ground
Speaker 6: that is serious business.
Speaker 5: That's not an easy job. That's my deal.
Speaker 3: Idiots like Paul Sweeney and Tom Kane. The closest I've
Speaker 3: done is a gas station.
Speaker 2: It was forty four cents a gallon, and I worked
Speaker 2: at a gas station, so it's not easy.
Speaker 6: I'm ready to be a Senior Fellow of the Atlantic Council.
Speaker 6: Now that's how smart I am.
Speaker 2: Paul Sweeney, oil expert Ellen wald D, thank you, senior
Speaker 2: Fellow at Atlantic Council, the author of Saudi That Life.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: Just Say Alexa Play. Bloomberg eleven thirty out of the.
Speaker 2: University of Michigan, he has crafted out the most important
Speaker 2: job in tech journalism.
Speaker 3: Lukas Shaw, I mean it's sort of close. I mean,
Speaker 3: you know, I mean loses if they're on fire. Mark
Speaker 3: Kerman joins us in studio here in New York on
Speaker 3: his ownership of the Apple story.
Speaker 2: Mark where I am on this going back to like
Speaker 2: I was one of the first people to see Lisa
Speaker 2: and the failure of Lisa and a lot of the
Speaker 2: early Max stuff is to me always in forever, what
Speaker 2: the media misses and you don't miss it is chips.
Speaker 2: I don't want to hear about Tim Cook. I don't
Speaker 2: want to hear about stupid videos, launch and stuff.
Speaker 3: I'm gonna butcher the name. Who is Johnny Shrugie?
Speaker 2: Who's going to give us the A eighteen A nineteen
Speaker 2: chip this fall in the new Apple iPhone.
Speaker 9: Well, first of all, Tim, you did not butcher the name?
Speaker 9: That is right?
Speaker 3: I can't close.
Speaker 9: No, no, you got it right. It's Johnny Srugie.
Speaker 10: Okay, nice, you were spot on as always once a year.
Speaker 10: Sugie is probably the most important executive at Apple other
Speaker 10: than Tim Cook. I agree about why at this point,
Speaker 10: with so much commoditization in the technology industry, Apple's unique
Speaker 10: differentiator that makes their products better.
Speaker 9: Than the rest is their chips.
Speaker 3: Thank you.
Speaker 10: It allows them to differentiate the designs. They can have
Speaker 10: thinner form factors, better power efficiency, unique components that all
Speaker 10: enable new features. For instance, the artificial intelligence capabilities that
Speaker 10: everyone is talking about today. That support started to be
Speaker 10: built into their chips in twenty seventeen.
Speaker 2: Okay, I know you're not in speaking terms of say
Speaker 2: Uber bowl like dan ives, but if you add a
Speaker 2: cup of coffee with Dan Eves at Webbush and with
Speaker 2: your journalistic abilities. Is the chip is there a constraint
Speaker 2: or a limit to it on a mathematical basis? Is
Speaker 2: Johnny Strujie and the rest are they going to get
Speaker 2: to a limit where they can't get better in the
Speaker 2: stock levels or goes down?
Speaker 10: Well, I think in terms of performance you've seen drop.
Speaker 10: There was a time ten eleven years ago where you
Speaker 10: were getting one hundred percent, seventy five percent, fifty percent,
Speaker 10: even twenty five percent year over year performance agains. That's
Speaker 10: not the case anymore. At most you're getting ten to
Speaker 10: fifteen percent performance gains. And that's due to a combination
Speaker 10: of the engineering and Apple, but also their secret sauce,
Speaker 10: which is their deep partnership with TSMC, which year after
Speaker 10: year is able to improve their both production capacity and
Speaker 10: their production technology.
Speaker 3: And Bok.
Speaker 2: My book of the year was Chipwark. It's fabulous book
Speaker 2: about the history semiconductors. If you're at three nanometers, don't
Speaker 2: you have a constraint towards two nanimeters.
Speaker 10: Well, you're going to get to two nanimeters. Eventually you're
Speaker 10: going to get to one nanometer, half a nanometer and
Speaker 10: then even smaller than that. These production technologies are only
Speaker 10: going to improve. The bottleneck, however, is that they need
Speaker 10: to do two things at once. Right now they need
Speaker 10: to walk and chew gum. They need to improve that
Speaker 10: production technology. But at the same time, they're in the
Speaker 10: middle of a move from bringing chip production out of
Speaker 10: time one to other places.
Speaker 9: Soon you're going to.
Speaker 10: See Apple at full steam at a plant in Arizona.
Speaker 10: They're going to eventually work on some plants in Europe.
Speaker 10: So you're talking about having to do two things at once,
Speaker 10: make your production technology better and move it outside of
Speaker 10: Taiwan because they need the additional production capacity. But there
Speaker 10: are real concerns geopolitically in terms of world affairs, in
Speaker 10: terms of potential world disasters. Why would we put all
Speaker 10: of our chips in one location. If Taiwan goes down,
Speaker 10: Apple goes down so to speak, for a long time.
Speaker 9: So that needs to be resolved.
Speaker 3: And our knew digital distribution on YouTube.
Speaker 2: Subscribe to Bloomberg Podcasts with us an extended conversation our
Speaker 2: chief correspondent Apple and Technology Mark German Paul Hey Mark.
Speaker 6: A lot of folks feel like with China, maybe not
Speaker 6: the growth story for Apple that it used to be
Speaker 6: that the company really needs to look to India in
Speaker 6: a bigger way and they need a lower cost phone
Speaker 6: arguably to do that.
Speaker 9: Is this sixteen E?
Speaker 6: Is that the phone that they introduced this week, Is
Speaker 6: that maybe something that could be really competitive in a
Speaker 6: market like India.
Speaker 10: First of all, I want to add to what you
Speaker 10: said about China. So China, You're right, it's no longer
Speaker 10: a growth story, but it's I would say a decline
Speaker 10: story at this point. Right we saw sales fall eleven
Speaker 10: percent on an annual basis. They're about eight billion dollars
Speaker 10: less a quarter in revenue than they were just a
Speaker 10: couple of years ago.
Speaker 9: Wow, in that region.
Speaker 10: And this when Tim Cook became CEO, replacing Steve Jobs
Speaker 10: in twenty eleven, that was really the number one priority
Speaker 10: was making things work in China. In his first few
Speaker 10: years there, there was some real innovation when it came
Speaker 10: to the iPhone. They brought the bigger iPhone six and
Speaker 10: six plus to China just a few years after he
Speaker 10: became CEO, and at the same time he himself struck
Speaker 10: a deal with China Mobile, biggest carrier in China, so
Speaker 10: they had the twofold they had that fablet sized device
Speaker 10: that everyone loves, right in addition to access to more
Speaker 10: consumers than they ever had before, and so that was
Speaker 10: like a lightning bowl for them. But since then they've
Speaker 10: sort of petered out of little bit there. India is
Speaker 10: very important. They believe they have very small market share there,
Speaker 10: it's sub five percent. The way they see it is,
Speaker 10: they have ninety five percent left to go after, right,
Speaker 10: and I think they're slowly growing there, but they are
Speaker 10: going to gain some steam there. Unfortunately, to your point
Speaker 10: the iPhone sixteen e. With that device, they've abandoned the
Speaker 10: budget market, but there are some little tricks and levers
Speaker 10: they can pull. So you're going to have that six
Speaker 10: hundred dollars starting price for the iPhone sixteen eight. But
Speaker 10: what I think you're going to see is a bigger
Speaker 10: push into clearance phones, so the older phones, refurbished phones,
Speaker 10: and some of the older models that they don't advertise
Speaker 10: on their website that they're going to keep pushing through
Speaker 10: resellers in India. We may not hear about it here
Speaker 10: in the States or in Europe, but in India they're
Speaker 10: going to be selling those things through resellers.
Speaker 6: So how does the company view China. Is this a
Speaker 6: they're managing a declining business or is this something that
Speaker 6: they think they can salvage bird Potentially.
Speaker 10: I think the optimists in the company believe that they
Speaker 10: can salvag it.
Speaker 9: It's a real problem for them.
Speaker 10: You have the slowed sales in China, you have the
Speaker 10: current tariffs situations, you have the geopolitical concerns, and oh,
Speaker 10: by the way, at the same time that thirty years
Speaker 10: we spent building up the world's biggest supply chain, the
Speaker 10: most intricate supply chain, entirely based or not entirely based,
Speaker 10: heavily based in China, by the way, we're in the
Speaker 10: middle of moving that to more places US, India, Thailand, Malaysia, Vietnam, Indonesia.
Speaker 6: What's the timeframe for that for exact Like again, you
Speaker 6: said thirty years to build up that supply chain that
Speaker 6: really was centered around China. Is it a similar timeframe
Speaker 6: to try to decouple itself from China?
Speaker 10: Yes, I mean that took a long time to build,
Speaker 10: and so they've been working on decoupling themselves from China,
Speaker 10: starting already, you know, six seven years ago, right even
Speaker 10: eight years ago, towards the beginning of the Trump administration,
Speaker 10: COVID gave it increased prominence in importance, but this is
Speaker 10: going to take a while. They've really moved the needle
Speaker 10: in terms of moving out of China, and by the way,
Speaker 10: I don't expect them to fully move out of China.
Speaker 10: This is about augmenting and growing. So if they think
Speaker 10: they're going to double their user base in thirty years,
Speaker 10: you need more capacity. They've probably filled up what they
Speaker 10: can do in China and they need other places to build.
Speaker 2: The rest when the release comes out. You've been very
Speaker 2: good about this, but the rest of the streets touchy
Speaker 2: feely soft questions about product I go log the growth
Speaker 2: of services and iPhone revenue and services is growing so
Speaker 2: steady and so large, it's literally back to just pre
Speaker 2: pandemic iPhone revenue. Do you in your reporting see a
Speaker 2: true persistency of services growth to justify the bulk case?
Speaker 10: Yes, you have to ask yourself, Tom, what would the
Speaker 10: case be for Apple? How it investors feel about Apple?
Speaker 10: What would be saying about Apple if it wasn't for
Speaker 10: the service's story?
Speaker 9: Right now? They knew about a decade ago.
Speaker 10: That they needed to augment their device sales with a
Speaker 10: new growth story, and that is services Apple TV Plus.
Speaker 10: I think there's an opportunity as early as next year
Speaker 10: or the year after to release an ad supported version.
Speaker 10: And I'm not saying I'm the biggest span of the
Speaker 10: content on Apple tv Plus, but they have a lot
Speaker 10: of fans, and they have some absolutely terrific shows, and
Speaker 10: I think they're making some money on the ten dollars
Speaker 10: per month subscription. But once they do an advertising model
Speaker 10: and get people hooked to more great shows, I think
Speaker 10: that's going to be the real money maker for them,
Speaker 10: and that's ads. I think ads is sort of the
Speaker 10: secret lever they can pull.
Speaker 9: I actually wrote a few days.
Speaker 10: Ago that they're seriously considering bringing ads to Apple Maps.
Speaker 10: Apple Maps is one of the most used apps on
Speaker 10: the iPhone ecosystem. Don't forget two billion plus device is
Speaker 10: strong there, So I think there's opportunities putting ads in
Speaker 10: some places that could be a nice little growth story
Speaker 10: for them.
Speaker 6: Have we moved past the period where if you're an investor,
Speaker 6: you're just an Apple observer, it's about the next product launch,
Speaker 6: what's going to changing, what's be the next new thing.
Speaker 6: Have we kind of moved past that? Is that we
Speaker 6: are kind of where we are, and now we need
Speaker 6: to think about other areas of growth.
Speaker 10: I think investors need to move past that. I'm not
Speaker 10: moved past it because I always will still see Apple
Speaker 10: as the company that brings out major new products and
Speaker 10: revolutionizes things. But I think with the Vision pro and
Speaker 10: the AI push has showed us that they're not able
Speaker 10: right now, or they don't have that magic formula to
Speaker 10: bring out that major hit that is a game changer,
Speaker 10: like the iPhone was, the iPad was, the Apple Watch.
Speaker 9: Was to some extent.
Speaker 10: And so this is a company that instead of coming
Speaker 10: out with a new hundred billion dollars a year device,
Speaker 10: they need to come out with a bunch of smaller
Speaker 10: bets that add up to the revenue that would come
Speaker 10: from a bigger bet.
Speaker 9: So let me give you a few of those, give
Speaker 9: me a few.
Speaker 10: Okay, Robotics, that's going to be a big endeavor. Tabletop robot.
Speaker 9: Right, it's a top robot.
Speaker 10: Yes, So it's a smart home hub, a big iPad
Speaker 10: like display on a robotic arm that moves around on
Speaker 10: your desk and has a personality. Right, it's like a
Speaker 10: companion in your works.
Speaker 3: Can you get the seventeen year old to empty the dishwasher.
Speaker 10: Okay, well you may not be able to get your
Speaker 10: seventeen year old tempty the dishwasher, but you may one
Speaker 10: day be able to get an Apple humanoid robot tempty
Speaker 10: or dishwasher. And the humanoid is so interesting. I know
Speaker 10: it sounds ridiculous, but this is where the industry is going.
Speaker 10: Meta is starting a multi billion dollar division as of
Speaker 10: last week to develop humanoid technology. They want to be
Speaker 10: the Intel Qualcom Android of the robotics industry. I'm telling
Speaker 10: you this is the next big thing.
Speaker 2: Okay, but you told you and others told us about
Speaker 2: the stupid Goggle thing that went down in flames.
Speaker 3: What's what's a human robot?
Speaker 10: I'm not saying it's not going to go down in flames.
Speaker 9: I'm saying it's coming.
Speaker 3: Okay, fair, fair, nice distinction.
Speaker 2: Mark German continues with us, thrilled to have him in
Speaker 2: our New York studios, usually a sconced on the Left coast.
Speaker 2: Mark Herman, of course driving all of our Apple coverage
Speaker 2: and definitive around the world for his voice on Apple News.
Speaker 2: Of course, very quiet about his sources, as he should be.
Speaker 2: I want to go to what nobody ever talks about anymore.
Speaker 2: I remember, like you know, forget about the way back Max,
Speaker 2: but I remember being an absolute awe of sixteen megabytes RAM.
Speaker 2: We got M four. I guess I got M five
Speaker 2: coming now. I got in my music thing at home.
Speaker 2: I got a big Mac Pro sixteen. You know, the
Speaker 2: thing's got bells and whistles on it. Do computers still
Speaker 2: matter to them and do they want to put out
Speaker 2: a cutting edge commuter computer still for Creative America, Creative Globe.
Speaker 10: Oh absolutely. I think that they were more than think.
Speaker 10: They were teetering on the Mac about a decade ago.
Speaker 10: There was a multi year periodfare twenty fifteen twenty eighteen
Speaker 10: where they weren't really coming out with redesigned computers. They
Speaker 10: weren't doing frequent updates, and the problem was twofold one.
Speaker 10: They believed maybe too heavily in the iPad right, the
Speaker 10: iPad of the future. But then Intel they were really
Speaker 10: a laggard, not doing a great job with their chips,
Speaker 10: not bringing the performance gains Apple wanted. And then you
Speaker 10: compared the performance of phones and tablets compared to what
Speaker 10: you're getting from the Mac. In terms of year of
Speaker 10: year efficiency improvements. They were in different worlds, but Apple
Speaker 10: moving to its own silicon. You mentioned Johnny's RUGI five
Speaker 10: years ago in the Mac that really changed everything for them.
Speaker 9: It had sales skyrocket.
Speaker 10: You know last quarter was n well, yes, well, in
Speaker 10: the last quarter it was about fifteen percent year of
Speaker 10: a year ago for the Mac. And so that was
Speaker 10: very significant. And so I think they now have the
Speaker 10: resources and the confidence to even double down on the Mac.
Speaker 10: So what I think you're going to see, Well, you're
Speaker 10: going to see new pro machines this year.
Speaker 9: Creatives.
Speaker 10: You talk about creatives, you'll get your new Mac Pro.
Speaker 10: You'll get in your new Mac studio with the M four,
Speaker 10: M five. They've now moved the MacBook program.
Speaker 3: You're talking to missus Keane right now, keep it up.
Speaker 9: Yeah, yeah, the MacPro.
Speaker 10: Yes, Tom needs his new M five or M four
Speaker 10: Mac Pro. The iMac will get another update. They've moved
Speaker 10: the MacBook Pro, which is not their most popular machine,
Speaker 10: but a really hot seller and really importance. What I use,
Speaker 10: it's what I think a lot of people here use,
Speaker 10: a lot of people in college and schools use. They've
Speaker 10: moved that to an annual cycle every November, like clockwork.
Speaker 10: You're getting a new MacBook Pro, just like you get
Speaker 10: a new iPhone every year. So that is a really
Speaker 10: big deal and I think is really important. MacBook Air
Speaker 10: that's the most popular mac Okay, last updated.
Speaker 9: A year ago. Here's a scoop for your show.
Speaker 10: Apple's preparing to put the new MacBook Air M four
Speaker 10: on sale in March, so next month, in just a
Speaker 10: few weeks from now. They've started preparations, they've started sending
Speaker 10: materials to their retail stores, they've ramped up production, and
Speaker 10: they're nearly ready to go on the M four thirteen
Speaker 10: inch and fifteen inch MacBook Air, your most popular machine,
Speaker 10: just in a few weeks from now.
Speaker 6: One hundred and fifty thousand employees, Is this still the
Speaker 6: cool place to work?
Speaker 9: If you're in this big question?
Speaker 3: Well, good question.
Speaker 9: I'll answer that in a second.
Speaker 10: But I think the way that I would see it
Speaker 10: is you're working at a place where you're impacting two
Speaker 10: billion plus consumers.
Speaker 9: Yeah, that's a good way to think about it.
Speaker 10: Yeah, and you're influencing the products that you probably use
Speaker 10: on a daily basis. So I think that's at least
Speaker 10: what the company he sells to their employees in terms
Speaker 10: of like the cool stuff in order to keep engineers
Speaker 10: at a company who've been there twenty thirty years like
Speaker 10: still like interested, you need to give him some moonshot
Speaker 10: since so the vision pro was a moonshot. Interesting self
Speaker 10: driving car was a moonshot, And so they probably kept
Speaker 10: around people at Apple who wanted to leave them quite
Speaker 10: a bit longer just by throwing them on these new
Speaker 10: projects and just pushing them from new moonshot to new moonshots,
Speaker 10: new special project group, the new special project group, instead
Speaker 10: of having him, you know, flee to Google or Meta.
Speaker 5: Yeah.
Speaker 2: Tim Cook Auburn, nineteen eighty two, just get that in
Speaker 2: there for Duke. Who's after Tim Cook? I mean we
Speaker 2: were fixated by Iiger in Disney. I don't see people
Speaker 2: fixated about who's after Tim Cook?
Speaker 3: Should we?
Speaker 10: You're seeing one person right now who's fixated on who's
Speaker 10: after Tim Cook? Because I think it's a fascinating story.
Speaker 10: He's been there around three decades at this point, he's
Speaker 10: been in the job since twenty eleven. He's going to
Speaker 10: be pushing sixty five next year. But then you look,
Speaker 10: you look at this, right, you have Jamie Diamond, he's
Speaker 10: in his late sixties.
Speaker 9: Right, You've got Iiger, who's.
Speaker 10: In his almost going to be in his mid seventies.
Speaker 10: You know, there's a universe that Tim Cook could stick
Speaker 10: around at Apple for a ball Biger like ten here.
Speaker 10: Now you know Iiger took a few Michael Jordan like breaks,
Speaker 10: you know, in between, so that's a little bit unique.
Speaker 10: I think Cook's got you know, three to seven years
Speaker 10: there left in the tank. Now you look at Apple's
Speaker 10: executive team. Here's the problem. They're all in their mid sixties,
Speaker 10: are going to be in their mid sixties, late sixties
Speaker 10: by the.
Speaker 9: Time Cook retires.
Speaker 10: Right, You've only got one person on that executive team
Speaker 10: who has the ability to step in there in five
Speaker 10: to seven years be CEO and stick in the role
Speaker 10: for a decade. That is mister John Turnas, the senior
Speaker 10: vice president hardware Engineering. He's in charge of the device's business, right,
Speaker 10: He's not an operations guy. Maybe he's not a business
Speaker 10: guy or design guy, but he's the one in charge
Speaker 10: of their money makers.
Speaker 3: We're out of time. Are you going to come back
Speaker 3: to New York scent? We can do it. We can
Speaker 3: do it remote from Michaelson.
Speaker 6: The LA office is phenomenal. It is Century City, extraordinary.
Speaker 2: Shay German Mark germant On behalf of all of us
Speaker 2: on team Bloomberg Surveillance.
Speaker 3: Thank you so much for your work.
Speaker 2: It is definitive to be at midnight and there'll be
Speaker 2: some story out of Taipei or Singapore.
Speaker 3: German says.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg terminal.
Speaker 2: Bloomberg Surveillance in our front pages at Lisa Mateo moment, Lisa,
Speaker 2: what do you got?
Speaker 11: Okay, we all know Ferrari right hot brand. But the
Speaker 11: Wall Street Journal has this really interesting look into the
Speaker 11: crazy economics behind why it's dominating.
Speaker 8: The luxury car market.
Speaker 11: So it's worth about ninety billion, but it only delivered
Speaker 11: about thirteen thousand, seven hundred vehicles just over that. So
Speaker 11: they call this business model based on scarcity because sometimes
Speaker 11: they only offer like a few select vehicles to collectors,
Speaker 11: and the collectors love it because they're part of this
Speaker 11: elite club. And then while most cars lose value, some
Speaker 11: of these like select Ferraris.
Speaker 8: They keep their value, they gain value.
Speaker 11: Like the hypercar in twenty thirteen it was like one
Speaker 11: point four million dollars. It now fetches about three point
Speaker 11: eight million dollars and they show it. It's similar to
Speaker 11: like the air May's the Burke and bags. You know,
Speaker 11: everyone wants a Burke and Bags and that they they say,
Speaker 11: it's a similar kind of thing. You know, it has
Speaker 11: this thing that everybody just wants them, and that's what
Speaker 11: it is.
Speaker 6: So here goes tom Thing. I've got something picked up
Speaker 6: for you, the twenty twenty five Ferrari F eighty Okay,
Speaker 6: list price three point seventy four million.
Speaker 3: You got to be Sir Lewis's height to get into
Speaker 3: the things.
Speaker 8: Yes, that's why they don't have the session.
Speaker 6: They would get into the Ferrari and the Lamborghinis the world.
Speaker 3: I don't know how many over the Martin store and
Speaker 3: Park Evan. Once they threw me out of the store,
Speaker 3: they nice try next.
Speaker 11: Okay, this one. You pointed out this out to me,
Speaker 11: tom So, about how restaurants are charging like deposits or
Speaker 11: minimum amounts when you have to make a reservation.
Speaker 8: Well, I found a story.
Speaker 11: Actually London is starting to do this because higher number
Speaker 11: of cancelations, no shows. They're also saying it's because of
Speaker 11: those bots and resale websites that are taking up a
Speaker 11: lot of the reservations. Then they have the social media
Speaker 11: influencers who want the free meal in order to post
Speaker 11: a picture. So they're saying that they're charging like one
Speaker 11: hundred dollars like per person as a minimum, and you
Speaker 11: have to pay it when you book the reservation.
Speaker 6: Reservation squatting.
Speaker 11: Squatting, that's another thing. Yes, it's like multiple bookings and
Speaker 11: you don't you only go to one.
Speaker 2: Wonderful restaurant to South Madison. Amiranth, good morning to Ammerth.
Speaker 2: We were talking to Libby Cantrell about the new Van
Speaker 2: Clea store and they set over Amreth, great food, great launch,
Speaker 2: blah blah blah, and Amorth told me it's the plague
Speaker 2: and they're they're battling what to do about.
Speaker 6: Let's the old day the restaurant. Yeah, like a reservation
Speaker 6: two people.
Speaker 11: Yeah, sometimes you have to wait in line. Actually you
Speaker 11: can't even call them one more. Okay, Big Sports Media News,
Speaker 11: Major League Baseball, Walt Disney's ESPN. They're ending the broadcast
Speaker 11: relationship at the end of twenty twenty five, so we
Speaker 11: talked about it. The league said, to the mutual agreement,
Speaker 11: ESPN kind of scale back their baseball coverage because they
Speaker 11: want to pay less. They did, so there's a lot
Speaker 11: of ways to watch baseball though.
Speaker 6: End up, ESPN is looking at its costs and saying, hey,
Speaker 6: baseball is a regional sport, not a national sport or
Speaker 6: a national network. So the costs aren't worth it for
Speaker 6: us right now. So like everything else, Tom, it's going.
Speaker 3: To streaming, Amazon, Netflix, whatever. Yeah, and you know you
Speaker 3: they spend over one billion on James Bond. What are
Speaker 3: they going to spend on the Boston Red Sox?
Speaker 6: Anything they want. They can afford anything they want.
Speaker 9: So yeah, so it's.
Speaker 6: Gone to the regional streaming story.
Speaker 3: Why are we sewing Yankee footage on YouTube?
Speaker 9: Yes, there you go. What else would you show? Exactly?
Speaker 9: What else would you show?
Speaker 3: You know you want to go work for Mark Kerman. Hurry,
Speaker 3: that's just too much. You don't want it. Thank you
Speaker 3: are that's the last Yankee imagery we do, Lisa Mateo,
Speaker 3: thank you so much. The newspapers. I will put it
Speaker 3: out on Twitter and LinkedIn.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
Speaker 1: seven to ten am Eastern on Bloomberg dot Com, the
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
Speaker 1: can also watch us live every weekday on YouTube and
Speaker 1: always on the Bloomberg terminal