WEBVTT - Bloomberg Surveillance TV: May 3, 2024 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.920 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:36.720 terminal and the Bloomberg Business app. If you are just 0:00:36.800 --> 0:00:38.839 joining us, here are the numbers. Four you one's seventy 0:00:38.840 --> 0:00:42.160 five is the number the estimate was two forty. That's 0:00:42.159 --> 0:00:45.040 the headline payrolls print. Looking at unemployment, it comes in at 0:00:45.120 --> 0:00:47.559 three point nine percent previous number three point eight the 0:00:47.640 --> 0:00:50.360 estimate three point eight and wage growth month over month 0:00:50.840 --> 0:00:55.080 zero point two percent the estimate zero point three. To react, 0:00:55.200 --> 0:00:57.840 here's the lineup. Mohammad al Aeron of Queens College, Cambridge 0:00:57.880 --> 0:01:01.800 alongside Black Rocks Jeff Rosen. Muhammed first, to you your 0:01:01.800 --> 0:01:03.040 reaction to this one? 0:01:04.120 --> 0:01:07.520 You said it John, a goldilocks report that will please 0:01:07.560 --> 0:01:11.160 the Fed and please the markets. I'm not particularly surprised 0:01:11.240 --> 0:01:15.400 on the miss on job creation because we've been running 0:01:15.600 --> 0:01:18.240 at very high levels for the year and a monthly 0:01:18.280 --> 0:01:22.200 average of two fifty one thousand before this one. I'm 0:01:22.240 --> 0:01:26.160 a little bit surprised on the wage the zero point two, 0:01:26.680 --> 0:01:30.120 that's the one that surprises me. But overall it is 0:01:30.240 --> 0:01:31.640 a goldilocks. 0:01:31.040 --> 0:01:33.720 Report, Muhammed, At first look, how would you explain that? 0:01:33.959 --> 0:01:37.279 How would you explain this continued strength and payrolls growth 0:01:37.280 --> 0:01:40.360 and this little weakness, touch of weakness, softness in wages. 0:01:41.560 --> 0:01:42.960 I know how it will be explained. 0:01:42.959 --> 0:01:45.640 It will be explained by new entrants into the labor 0:01:45.680 --> 0:01:49.600 force at much lower level, at a much lower lower level. 0:01:49.960 --> 0:01:52.480 I'm just surprised it has made that much of an impact. 0:01:52.600 --> 0:01:55.000 So that's something that one needs to look at much 0:01:55.040 --> 0:01:55.640 more closely. 0:01:56.480 --> 0:01:58.680 Jeff Rosenberg, I love your take on this because right 0:01:58.720 --> 0:02:01.840 now the market is celebrating. Are you celebrating also? Do 0:02:01.880 --> 0:02:03.440 you think this is a reason to buy or do 0:02:03.480 --> 0:02:05.320 you view this as basically a lot of noise for 0:02:05.400 --> 0:02:08.720 people who are just looking for any direction at all. 0:02:08.840 --> 0:02:11.080 Well, I think Jonathan said it. This couldn't have been 0:02:11.080 --> 0:02:16.239 scripted better. This report runs the tables for a good report. 0:02:16.360 --> 0:02:18.520 This is bad news. A little bit is good news, 0:02:18.520 --> 0:02:22.639 but it's really just about how bearish we got. Jonathan 0:02:22.680 --> 0:02:26.560 mentioned it, ECI. The rate moves the expectations in front 0:02:26.760 --> 0:02:30.640 of Wednesday's FOMC, So some of this is just positioning. 0:02:30.680 --> 0:02:33.600 You had a lot of bearishness, so people put shorts on. 0:02:33.639 --> 0:02:36.360 There was a big momentum to higher rates. But this 0:02:36.639 --> 0:02:40.640 is a good report across the board for validating what 0:02:40.720 --> 0:02:44.000 we heard from Jay Powell on Wednesday that kind of 0:02:44.040 --> 0:02:47.200 what me worry about inflation. No, things are going to slow. 0:02:47.440 --> 0:02:49.960 Don't get over excited. And I think it's a little 0:02:49.960 --> 0:02:52.280 bit of that over excitement on the short side that's 0:02:52.320 --> 0:02:53.919 being rung out of the markets right now. 0:02:54.040 --> 0:02:56.320 Mohamma, Does it concern you that we saw the unemployment 0:02:56.440 --> 0:02:58.799 rate take up to three point nine percent, the sort 0:02:58.840 --> 0:03:01.840 of incremental shift up about a half a percentage point 0:03:01.840 --> 0:03:02.960 for some of the recent lows. 0:03:05.360 --> 0:03:08.680 Does it concern me? Yes, because people are losing their jobs. 0:03:09.240 --> 0:03:12.120 But let's not forget we've had twenty seventh straight months 0:03:12.160 --> 0:03:15.800 of the unemployment rate below four four percent. We haven't 0:03:15.800 --> 0:03:18.799 seen that since the sixties, So we have been an 0:03:18.800 --> 0:03:23.679 exceptional economy. And does it surprise me. No, But if 0:03:23.800 --> 0:03:29.560 the increase accelerates, that would really worry me. Remember, especially 0:03:29.560 --> 0:03:34.880 at the low income side, wage are key to consumption 0:03:35.040 --> 0:03:38.520 and key to economic growth. Pandemic savings have been run down, 0:03:38.720 --> 0:03:42.000 credit card balances have been run up. So wage income 0:03:42.080 --> 0:03:45.240 is absolutely critical to the well being of this economy. 0:03:45.360 --> 0:03:47.680 So three point nine percent is still a really good 0:03:47.760 --> 0:03:50.119 unemployment rate, but I wouldn't want to see it get 0:03:50.160 --> 0:03:52.040 close to four and a half percent anytime soon. 0:03:52.560 --> 0:03:55.920 This software print though, that we're seeing and digesting right now, Muhammad, 0:03:56.240 --> 0:03:58.360 is this enough for potentially people to start talking about 0:03:58.400 --> 0:03:59.520 cuts this summer? 0:04:01.120 --> 0:04:01.280 Oh? 0:04:01.320 --> 0:04:05.840 I suspect that what was pushed back to December got 0:04:05.920 --> 0:04:08.760 pushed you know, I don't know which way we go 0:04:08.800 --> 0:04:12.400 anywhere got pushed forward to November before this and after 0:04:12.520 --> 0:04:16.279 Chap How this will take us to September. You know, 0:04:16.600 --> 0:04:20.520 there is a bigger issue and others can speak to 0:04:20.560 --> 0:04:21.520 it much better than I. 0:04:21.480 --> 0:04:22.400 Can, including drift. 0:04:22.880 --> 0:04:25.440 Is this volatility that we're seeing in the indust rate structure, 0:04:25.920 --> 0:04:29.680 It is causing havoc elsewhere in the world when US 0:04:29.960 --> 0:04:32.599 waits swing as much as they do on a short 0:04:33.000 --> 0:04:37.080 on short term basis. So this volatility, which we are 0:04:37.080 --> 0:04:42.080 continuing to see in weights, risks. I'm afraid risks breaking 0:04:42.120 --> 0:04:44.159 something elsewhere, and that's what we've got to keep an 0:04:44.160 --> 0:04:44.440 eye on. 0:04:44.560 --> 0:04:46.120 Well, let's get into that. So the next step for 0:04:46.160 --> 0:04:49.120 this conversation, for anyone who wants the calendar, May fifteenth 0:04:49.160 --> 0:04:50.840 is when we get the CPR report. So this can 0:04:50.880 --> 0:04:53.039 all change once again, as you will know, Jeff, Let's 0:04:53.080 --> 0:04:56.200 talk about that. How much expectations have swinged, how much 0:04:56.240 --> 0:04:58.680 the narrative has changed. I remember a conversation we had 0:04:58.680 --> 0:05:02.599 with Aberdeen, James Athey, he killed it. Narrative, table tennis, narrative, 0:05:02.640 --> 0:05:04.920 ping pong, just back and forth, back and forth. We've 0:05:04.960 --> 0:05:08.159 gone from seven cuts to one. Arguably by the end 0:05:08.200 --> 0:05:10.440 of today we'll be talking about two again because of 0:05:10.480 --> 0:05:12.400 this job's print. Jeff, what do you make of that, 0:05:12.520 --> 0:05:14.919 just how quickly we've gone from one direction to the 0:05:14.960 --> 0:05:16.440 other in rate pricing. 0:05:17.720 --> 0:05:22.799 Well, it's because the FED is abandoned forecast based monetary policy. 0:05:23.200 --> 0:05:23.320 Right. 0:05:24.000 --> 0:05:27.240 We basically have had a very bad experience with trying 0:05:27.240 --> 0:05:31.239 to forecast inflation. So we've abandoned forecasts and we react 0:05:31.360 --> 0:05:33.800 to the data. And we're reacting to the data because 0:05:33.839 --> 0:05:35.880 the FED reacts to the data, and that's basically what 0:05:35.920 --> 0:05:38.400 they tell us to do, and it's very hard print 0:05:38.400 --> 0:05:40.800 to print to know where that data is going. We've 0:05:40.839 --> 0:05:45.400 had serial degrees of surprises and we're continuing to see 0:05:45.400 --> 0:05:48.200 those surprises, and so that's why there's this heightened degree 0:05:48.200 --> 0:05:51.560 of volatility because the FED is basically no longer willing 0:05:51.600 --> 0:05:54.760 to provide a forecast, to stick with its forecast, to 0:05:55.040 --> 0:05:58.840 give the market a clear trajectory, and so we're really 0:05:58.880 --> 0:06:02.960 forced to react change those expectations for timing December Novembers 0:06:02.960 --> 0:06:07.400 of Denber July based on every other data, every single 0:06:07.440 --> 0:06:07.920 data point. 0:06:08.000 --> 0:06:10.080 Mohammad, You've said this a million times every time we've 0:06:10.080 --> 0:06:13.320 spoken on Payrose Friday, the lack of a strategic anchoring 0:06:13.320 --> 0:06:16.599 of the feder reserve contributing to this whip sawing that 0:06:16.640 --> 0:06:19.000 we've seen in rate pricing on every single data point. 0:06:19.000 --> 0:06:22.279 You've talked about the being hyper sensitive to incoming information 0:06:22.600 --> 0:06:25.560 in the Financial Times. I saw your recent article Chafouse 0:06:25.640 --> 0:06:29.400 Dutishness is right, not for the reasons that he believes. 0:06:29.520 --> 0:06:31.520 Can you talk to us a little bit more about that, Muhammad? 0:06:32.680 --> 0:06:34.599 Yeah, and I want to thank Jeff. I wanted to 0:06:34.600 --> 0:06:38.760 reach out and hug him through my computer because he 0:06:38.920 --> 0:06:41.800 just said what I've been saying, which is, rather than 0:06:41.920 --> 0:06:45.760 provide a strategic anchor to markets, the FED got on 0:06:45.800 --> 0:06:50.719 the roller coaster of reacting to high frequency data. And 0:06:50.960 --> 0:06:53.720 therefore we have a very reactive FED. And what does 0:06:53.760 --> 0:06:57.800 that do. It amplifies the volatility in the market. So 0:06:58.400 --> 0:07:01.520 there is a concern that the FED is overly data dependent. 0:07:02.640 --> 0:07:07.080 I think that overly data dependent stance is what may 0:07:07.240 --> 0:07:10.320 end up leading us into a FED policy mistake. I 0:07:10.360 --> 0:07:13.160 hope we don't get there, and that's why a strategic 0:07:13.240 --> 0:07:15.840 view is necessary. And I suspect if you were to 0:07:15.880 --> 0:07:21.440 take a strategic view, you would not have validated the 0:07:21.480 --> 0:07:24.880 markets over reaction from going from seven cuts all the 0:07:24.880 --> 0:07:26.600 way to one with some people even say you're going 0:07:26.640 --> 0:07:28.680 to get a hike. You would have said, no, this 0:07:28.800 --> 0:07:32.720 economy is slowing. It's slowing in a gradual fashion. Let's 0:07:32.760 --> 0:07:36.240 not push it into something more dramatic, and you would 0:07:36.320 --> 0:07:40.840 stick to your two to three cuts this year. But 0:07:40.960 --> 0:07:43.000 this FED is data dependent, John, So I don't know 0:07:43.000 --> 0:07:43.920 where they're going to end up. 0:07:54.240 --> 0:07:55.960 Jeff, was your take on that this idea that the 0:07:56.000 --> 0:07:59.320 fluctuations in and of themselves sort of whipsaw action and 0:07:59.360 --> 0:08:03.680 whipside arratives and markets is actually creating a potential headwind 0:08:04.000 --> 0:08:06.400 to how this all plays out and potentially to the 0:08:06.440 --> 0:08:08.560 FED actually achieving their soft landing. 0:08:10.400 --> 0:08:13.800 Well, I mean, it is a headwinds, but we also 0:08:13.880 --> 0:08:15.920 have to see the other side of this that the 0:08:15.920 --> 0:08:20.120 equity market has been much more resilient to these shifts 0:08:20.160 --> 0:08:22.680 in the interest rate narrative. And when you think about 0:08:22.680 --> 0:08:26.840 financial conditions and the transmission of market volatility into the 0:08:26.880 --> 0:08:32.480 real economy, it's mostly going to happen from the equity side. 0:08:32.520 --> 0:08:35.360 Not to say that interest rates and credit spreads don't matter, 0:08:35.600 --> 0:08:39.720 but we're talking about volatility around elevated rates of base 0:08:39.880 --> 0:08:43.280 rates of borrowing in an environment of very muted and 0:08:43.320 --> 0:08:47.920 compressed credit spreads. So the marginal financial condition easing and tightening, 0:08:48.040 --> 0:08:50.480 it's coming from the equity side, and there the story 0:08:50.520 --> 0:08:53.480 has been much more about the numerator, much more about 0:08:53.480 --> 0:08:56.960 the secular growers, the tech story, the incredible earnings that 0:08:56.960 --> 0:08:59.880 we're seeing, and as long as the rate picture stays 0:08:59.880 --> 0:09:02.800 bounded unlike what we had over the last two years 0:09:02.800 --> 0:09:07.120 with these huge swings from FED policy inflation uncertainty, I 0:09:07.160 --> 0:09:10.560 think you can mitigate some of that transmission of the 0:09:10.679 --> 0:09:13.480 volatility that we're talking about as a result of the 0:09:13.520 --> 0:09:17.800 fed's policy shift from forecast to data dependence into the 0:09:17.800 --> 0:09:21.000 real economy, because you're not really seeing it transmitted through 0:09:21.040 --> 0:09:21.839 the equity market. 0:09:21.880 --> 0:09:23.240 But Jeff, do you think that there is sort of 0:09:23.320 --> 0:09:26.320 a challenge the broadening out trade to Mohammed's point that 0:09:26.400 --> 0:09:28.480 this actually could cause something to break outside of. 0:09:28.400 --> 0:09:30.040 The United States at a time when. 0:09:29.880 --> 0:09:31.600 A lot of people are saying the US is no 0:09:31.679 --> 0:09:34.040 longer so exceptional. The rest of the world is catching up. 0:09:34.240 --> 0:09:35.280 Does this challenge that? 0:09:37.640 --> 0:09:40.880 I mean, there are certainly challenges. You know, Jonathan highlighted 0:09:40.920 --> 0:09:47.800 the yen reaction, the FX component of interest rate divergences. 0:09:47.960 --> 0:09:52.160 You always have those degrees. I think what we've seen, though, 0:09:52.240 --> 0:09:56.239 is a remarkable degree of resiliency in the global economy. 0:09:56.720 --> 0:10:00.400 I think we talked on Wednesday about the difference is 0:10:00.480 --> 0:10:04.240 in emerging market sensitivity to FED policy this time round 0:10:04.440 --> 0:10:07.960 really much more about a function of the change and 0:10:08.080 --> 0:10:13.480 the more traditional policy approach happening in emergen market central 0:10:13.480 --> 0:10:17.400 banks much more credible policy dampening. Some of that passed through. 0:10:17.480 --> 0:10:21.479 So I think you have certainly the core interest rate volatility. 0:10:21.679 --> 0:10:23.520 You know, you look at the move index. It was 0:10:23.559 --> 0:10:26.600 once at fifty. Now it's between one hundred, one hundred 0:10:26.640 --> 0:10:30.000 and fifty two hundred, much higher degree of interest rate volatility, 0:10:30.160 --> 0:10:33.040 and that has its problems. As Muhammad laid out, I 0:10:33.040 --> 0:10:36.079 think we're seeing a little bit less passed through though 0:10:36.120 --> 0:10:38.480 in some of these more traditional areas, and that can 0:10:38.559 --> 0:10:41.080 kind of mitigate some of this concern about the effect 0:10:41.280 --> 0:10:45.400 of the policy uncertainty from data dependence into the real economy. 0:10:45.480 --> 0:10:48.040 Not taking away what Mohammad said, though, I agree with 0:10:48.080 --> 0:10:51.440 his point that you still have the potential there for 0:10:51.480 --> 0:10:54.800 a policy mistake as a result of no longer anchoring 0:10:54.800 --> 0:10:56.120 to forecast based policy. 0:10:56.200 --> 0:10:58.520 Let's reach fideli yen. Let's talk about that move, not 0:10:58.600 --> 0:11:00.440 just on the sension, but talk about it the week. 0:11:00.559 --> 0:11:02.959 It's been phenomenal. Moments ago, we had a one fifty 0:11:03.000 --> 0:11:05.640 one handle on dolly en. Right now just about holding 0:11:05.640 --> 0:11:08.200 onto one fifty two and one fifty two twenty four 0:11:08.240 --> 0:11:11.200 on the week, it's about four percentage points of yen strength. 0:11:11.360 --> 0:11:14.920 But go from the highs of Monday, Monday one sixty seventeen, 0:11:15.000 --> 0:11:17.080 from those highs to where we are, you've seen a 0:11:17.120 --> 0:11:20.480 move of more than five percentage points. Yen strength, Yen 0:11:20.520 --> 0:11:23.079 strength big time. I've mentioned the time in Tokyo repeatedly. 0:11:23.080 --> 0:11:26.800 It's nine forty four pm going into the weekend in Tokyo. 0:11:26.960 --> 0:11:29.599 Raise a glass sort of, you know, walk away f 0:11:29.760 --> 0:11:32.040 a pretty good going into the weekend, Bramo, because that's 0:11:32.040 --> 0:11:35.600 the stronger Japanese yen. The Japanese authorities wanted they could. 0:11:35.440 --> 0:11:37.280 Either walk away or they could lean in, do a 0:11:37.280 --> 0:11:39.560 little more intervention. Now when they're in a holiday and 0:11:39.559 --> 0:11:42.319 you're actually getting a tailwind from the US economic data 0:11:42.400 --> 0:11:44.160 and oh yeah, yeah, you want to be short us, 0:11:44.240 --> 0:11:45.200 you want to be speculative. 0:11:45.360 --> 0:11:47.679 Good luck, Muhammad. I don't know if this move sticks, 0:11:47.840 --> 0:11:50.040 but I'm sure they wanted to. How happy do you 0:11:50.080 --> 0:11:52.560 think authorities are abroad after this number? 0:11:53.720 --> 0:11:58.800 So certainly the Japanese authority are very happy. Between chair pals, 0:11:58.840 --> 0:12:03.440 more dubbish than expected press conference in today's number. A 0:12:03.480 --> 0:12:05.560 lot of the pressure has been relieved. And like you say, 0:12:05.600 --> 0:12:08.800 we were at one sixty on Monday, and we are 0:12:08.960 --> 0:12:14.080 at one sixty risking another disorderly move. I suspect that 0:12:14.240 --> 0:12:18.000 around the world people will feel some relief. You have 0:12:18.160 --> 0:12:22.760 emerging market economies that need to cut interest rates from 0:12:22.800 --> 0:12:25.640 a domestic side, but are afraid of the consequences for 0:12:25.720 --> 0:12:29.559 that currency. Yes, Jeff is right, that have been resilient 0:12:29.679 --> 0:12:32.199 so far, but the degree of resilience has come down 0:12:32.240 --> 0:12:34.760 a lot, so we shouldn't test them too much. You 0:12:34.800 --> 0:12:39.040 have the ECB that wants to diverge from for good 0:12:39.080 --> 0:12:41.079 reasons for the ones that diverge from the FED, and 0:12:41.160 --> 0:12:44.200 keeps on telling us we're not fed dependent, but knows 0:12:44.360 --> 0:12:46.360 in the back of its mind that does a limit. 0:12:47.240 --> 0:12:49.360 You know, for the rest of the world, it's about 0:12:49.400 --> 0:12:52.959 the movement in the US yield curve. It's about what 0:12:53.160 --> 0:12:55.319 US weights are doing for the US economy, I agree, 0:12:55.320 --> 0:12:57.480 which is about the equity market. But for the rest 0:12:57.520 --> 0:12:59.840 of the world because of exchange rates, it's about what 0:12:59.840 --> 0:13:00.680 you yields do. 0:13:00.760 --> 0:13:02.360 Well, let's sit on the rest of the world, Muhammad, 0:13:02.440 --> 0:13:05.120 just for a beat. So the conversation has been dominated, 0:13:05.120 --> 0:13:07.880 as you know, over the last month, with words like exceptionalism. 0:13:07.960 --> 0:13:11.240 You've written about ITIP divergence. There will be some people 0:13:11.240 --> 0:13:14.400 getting excited about the prospect of convergence, that this was 0:13:14.440 --> 0:13:17.520 peak exceptionalism. When we're moving on beyond that, that maybe 0:13:17.520 --> 0:13:19.360 we've seen the peak and the US dollar a peak 0:13:19.600 --> 0:13:21.880 in US yields. Do you think those conversations this morning, 0:13:21.960 --> 0:13:24.960 Muhammad after one job sprint are a little bit too premature? 0:13:26.280 --> 0:13:30.040 Totally true, premature. There's three elements to this exceptional US behavior. 0:13:30.760 --> 0:13:35.720 One is its growth performance, Two is the manner in 0:13:35.760 --> 0:13:39.560 which it's investing in the future, and three it's its 0:13:39.600 --> 0:13:43.760 ability to get away with a fiscal stance that other 0:13:43.840 --> 0:13:49.360 countries cannot get away with. In order to get convergence, 0:13:49.600 --> 0:13:52.440 you would need convergence on all three, and we're not 0:13:52.480 --> 0:13:54.600 going to get convergence on all three. US is going 0:13:54.600 --> 0:13:59.520 to remain exceptional. It's growth performance may not outpace others 0:13:59.559 --> 0:14:02.040 as much as it has, but it is the only 0:14:02.880 --> 0:14:05.800 major economy in the West that is seriously investing in 0:14:05.800 --> 0:14:09.240 tomorrow's engines of growth. And because of the role of 0:14:09.280 --> 0:14:13.480 the dollar, it can run an irresponsible fiscal policy for 0:14:13.640 --> 0:14:14.800 much longer than others. 0:14:14.840 --> 0:14:17.640 Can they retain the privilege of venting recklessly maybe for 0:14:17.720 --> 0:14:29.840 a little bit longer. The photograph of New Street Research 0:14:29.880 --> 0:14:32.360 has a neutral rating and a one seventy five price 0:14:32.400 --> 0:14:34.760 target on shares of Apple. He joins US now for 0:14:34.840 --> 0:14:37.400 more perre I want to go straight to sales and 0:14:37.440 --> 0:14:39.920 then we'll get to financial engineering. Do you think the 0:14:39.960 --> 0:14:41.880 sales declines are behind us? 0:14:44.680 --> 0:14:49.480 Yes, I think we are positively riching like a trophy 0:14:49.560 --> 0:14:53.680 and a stabilization. It doesn't look like we're going to 0:14:53.720 --> 0:14:57.120 see like a major correction in sales. So I would say, yes, 0:14:57.200 --> 0:15:01.800 the declines behind us. Things are stabilizing, but we we're 0:15:01.800 --> 0:15:04.320 not going to have like a significant reveum from where 0:15:04.360 --> 0:15:04.960 we are today. 0:15:05.040 --> 0:15:06.600 But that's what I want to get into. So jp 0:15:06.720 --> 0:15:08.920 Mo're going to talk about a launch pad into the 0:15:08.960 --> 0:15:12.240 AI upgrade cycle. How much of a launch pad do 0:15:12.320 --> 0:15:13.920 you say in September? 0:15:15.560 --> 0:15:18.240 Yes, I'd be very very careful about that. If you 0:15:19.000 --> 0:15:20.200 look at what people. 0:15:19.880 --> 0:15:23.920 Tell me around on you know, the silicon of the iPhone, 0:15:23.920 --> 0:15:27.320 it doesn't look like this September product cycle is going 0:15:27.360 --> 0:15:32.880 to be a cycle where generatively is like a revolution 0:15:33.200 --> 0:15:35.480 in terms of hardware, and if it's not a revolution 0:15:35.520 --> 0:15:37.800 in terms of hardware, can be really like a revolution 0:15:37.840 --> 0:15:40.960 in terms of features and drive, really like an upgrade cycle. 0:15:41.040 --> 0:15:42.080 So I've heard this argument. 0:15:42.120 --> 0:15:44.960 A lot of people are asking more and more whether 0:15:45.200 --> 0:15:47.800 we could get into a very nice polect cycle. 0:15:48.440 --> 0:15:50.320 I think it's too early to say, and I think 0:15:50.360 --> 0:15:51.040 it would be. 0:15:52.120 --> 0:15:55.440 It wouldn't be problem to be overly optimistic. You know, 0:15:55.520 --> 0:15:58.360 generatively I is still in the making, and how you 0:15:58.400 --> 0:16:01.880 get that into an iPhone and create like a world 0:16:02.080 --> 0:16:05.360 factor that really gets people, that gets through the world 0:16:05.520 --> 0:16:08.520 people willing to accelerate the relasement of their pot. 0:16:09.440 --> 0:16:12.480 We need to be convinced. I need to be convinced 0:16:12.520 --> 0:16:14.440 and see what the physical would look like. 0:16:15.200 --> 0:16:17.280 We're not convinced what's going on in China Rise. There 0:16:17.320 --> 0:16:19.520 seems to be a disconnect between the guidance that we're 0:16:19.520 --> 0:16:22.040 getting from the company, what their talagus is happening on 0:16:22.080 --> 0:16:25.400 the ground, and what independent researchers are saying as well. 0:16:25.680 --> 0:16:29.080 What explains that spread that distance between the company and 0:16:29.360 --> 0:16:32.320 independent researchers. 0:16:32.600 --> 0:16:36.120 It's a very it's very surprising. It's a major surprise. 0:16:36.200 --> 0:16:38.880 We didn't see that coming at all. We were clearly 0:16:38.920 --> 0:16:44.200 expecting Apple to create like a much lower point in China. 0:16:44.440 --> 0:16:47.000 So unfortunately, I don't have an explanation for you. 0:16:47.120 --> 0:16:47.280 Join. 0:16:47.400 --> 0:16:50.680 It's like it's something we'll have to better better understand. 0:16:50.680 --> 0:16:51.400 In the next few days. 0:16:51.400 --> 0:16:54.320 We're going to try and circle back with independent research 0:16:54.360 --> 0:16:57.640 providers to understand in their methodology where they could have 0:16:57.720 --> 0:17:02.400 been missing or how the disconnect could could be explained. 0:17:02.440 --> 0:17:07.119 So what we see is like some Chinese players coming 0:17:07.119 --> 0:17:10.359 back into the market, coming back into the higher end 0:17:10.359 --> 0:17:13.359 of the market, putting a risk, you know, the twenty 0:17:13.520 --> 0:17:17.640 million odds like units iPhone one the last three four 0:17:17.720 --> 0:17:19.399 years out of a lack. 0:17:19.280 --> 0:17:22.320 Of competition in China. This is not materializing. 0:17:22.440 --> 0:17:25.600 So does that menu this Chinese phone went into the channels, 0:17:26.160 --> 0:17:29.320 did well in early weeks, but actually didn't convince consumers. 0:17:31.520 --> 0:17:34.719 That would be one explanation, but we need more research 0:17:34.760 --> 0:17:36.760 to figure that out. As I said, a very very 0:17:36.800 --> 0:17:39.040 strong supprise, very significant supply YEA, and. 0:17:39.040 --> 0:17:41.159 To build them out. The CFO of Apple saying the 0:17:41.240 --> 0:17:43.640 reality is different from maybe what you read at times 0:17:43.920 --> 0:17:46.639 about what we see in China. This rais is a 0:17:46.720 --> 0:17:49.440 question of how much Apple either needs to address vision, 0:17:49.480 --> 0:17:52.000 paying to promisey and kind of what the line is 0:17:52.240 --> 0:17:56.399 from authorities in terms of discouraging or encouraging people or 0:17:56.400 --> 0:17:59.479 allowing them to buy iPhones going forward in the region, 0:18:00.200 --> 0:18:03.439 or whether it really even matters. In other words, how 0:18:03.520 --> 0:18:05.720 much do you have to have clarity on this faith 0:18:05.760 --> 0:18:06.240 in the stack? 0:18:08.080 --> 0:18:11.480 Well, because things have stabilized and normalized, you know, over 0:18:11.480 --> 0:18:13.359 a couple of years, you don't really have growth in 0:18:14.560 --> 0:18:18.280 iPhone set the positive aspect of it, that doesn't create 0:18:18.359 --> 0:18:21.280 that much of a downside rate, but also not that 0:18:21.400 --> 0:18:23.400 much of an upside rate. So I think the iPhone 0:18:23.480 --> 0:18:28.240 is like vastly mostly like a deary standpoints, and so 0:18:28.640 --> 0:18:31.400 the only thing that could really created create a suffrice 0:18:31.480 --> 0:18:34.960 from here on the iPhone is like a significant product cycle, 0:18:36.320 --> 0:18:40.159 and of course if that happens, it would have to 0:18:40.200 --> 0:18:44.960 be related to generative that's like the new features the 0:18:45.000 --> 0:18:47.800 company is working on. So so that's really where we're standing, 0:18:47.840 --> 0:18:50.040 and not much is going to happen on the iPhone 0:18:50.040 --> 0:18:53.280 front until we see this fire cycle. And my point 0:18:53.400 --> 0:18:58.120 is like building conviction on the product cycle for this September. 0:18:57.720 --> 0:18:59.919 Is probably to early. You don't have enough of it 0:19:00.200 --> 0:19:00.720 of that coming. 0:19:01.119 --> 0:19:02.720 Is it still a gross stock or is this a 0:19:02.800 --> 0:19:07.000 value stock delivering buybacks that count for basically more than 0:19:07.040 --> 0:19:09.159 the value both forward and GM put together. 0:19:10.359 --> 0:19:11.160 That's a good question. 0:19:11.359 --> 0:19:13.879 I would say it's I would struggle to call it 0:19:13.880 --> 0:19:16.680 a gross stock, but it's still a compounding stock if 0:19:16.680 --> 0:19:19.240 you add up you know, the kind of like still 0:19:19.240 --> 0:19:21.520 excellent pricing powers of franchise. 0:19:21.080 --> 0:19:23.960 As which in the prices can go in the right 0:19:23.960 --> 0:19:26.440 direction in low single digit every every year. 0:19:27.680 --> 0:19:31.560 The growth potentroling services and the excellent financial performance that 0:19:31.680 --> 0:19:36.440 translates into very good buybacks. It's still like a story 0:19:36.480 --> 0:19:40.520 that can compound earnings and take a flow in mid 0:19:40.560 --> 0:19:44.680 to high single digits. So that's a good compounder. And 0:19:45.160 --> 0:19:46.879 of course the quality of the stock is reflected in 0:19:46.920 --> 0:19:49.200 the price. It's trading at a fifty percent premium of 0:19:49.240 --> 0:19:52.840 a SMP name that has the same kind of growth 0:19:53.200 --> 0:19:58.280 potential growth out, So if it's an expensive single digit compounder, 0:19:58.440 --> 0:20:00.240 I would say that. And that's the reason why we're 0:20:00.320 --> 0:20:03.600 very neutral on this. You know, we we don't see 0:20:03.840 --> 0:20:06.399 major issues with where valuation or where expectations are. 0:20:06.440 --> 0:20:07.960 It's just that it compounds slowly. 0:20:08.520 --> 0:20:11.679 Pr Services was a relative bright spot for Apple, but 0:20:11.960 --> 0:20:13.440 they're obviously. 0:20:12.960 --> 0:20:14.879 Dealing with a lot of regulation around the world. Is 0:20:14.920 --> 0:20:17.120 there a ceiling on how much they could bring in 0:20:17.400 --> 0:20:18.320 from services? 0:20:20.680 --> 0:20:23.119 A ceiling is actually the right way to think about it, 0:20:23.240 --> 0:20:26.920 more than downside risks. So Apple has a lot of pressure. 0:20:27.480 --> 0:20:30.720 So you can't imagine like an aggressive move with aggressive 0:20:30.800 --> 0:20:36.840 and aggressive pricing and monetization strategy coming through in that environment. Now, 0:20:37.080 --> 0:20:38.920 what you see over the last two three years that 0:20:39.040 --> 0:20:42.120 the regulatory pressure, like the channel like I would say 0:20:42.119 --> 0:20:45.680 public opinion pressure that Apple has on like the very 0:20:45.680 --> 0:20:50.320 comfortable monetizations they can exercise on them on the on 0:20:50.680 --> 0:20:54.760 on the appisode, basically means that the take create is 0:20:54.760 --> 0:20:56.480 eroding very slowly over time. 0:20:56.880 --> 0:21:00.800 But like now, like the risk of your calm down 0:21:01.080 --> 0:21:05.200 appears very very remote. So this is overall. 0:21:04.800 --> 0:21:08.439 Growing, you know in low in loa tings with you know, 0:21:09.119 --> 0:21:13.800 revenues from Google for licensing continuing to grow, the app 0:21:13.800 --> 0:21:17.880 store continuing to grow in probably even if the tech 0:21:17.960 --> 0:21:20.800 rate is coming down, the volume or on the on 0:21:20.880 --> 0:21:24.280