1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 2 00:00:13,960 --> 00:00:17,560 Speaker 1: we bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,640 --> 00:00:27,280 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg And 5 00:00:27,320 --> 00:00:30,080 Speaker 1: we speak with Jonathan Gollob. He's a credit Swiss. He 6 00:00:30,160 --> 00:00:34,320 Speaker 1: writes piercingly detailed sell side reports on the state of 7 00:00:34,360 --> 00:00:36,879 Speaker 1: the market, and his state has been a state of 8 00:00:36,960 --> 00:00:40,880 Speaker 1: optimism for ages. John Gollob, what is the tech afternoon 9 00:00:40,880 --> 00:00:45,080 Speaker 1: of yesterday? What does that signal for America? You know, 10 00:00:45,360 --> 00:00:47,680 Speaker 1: for the what is the signal for America? I mean, 11 00:00:48,000 --> 00:00:50,720 Speaker 1: you know, I'm not sure that it represents the whole economy. 12 00:00:50,760 --> 00:00:53,360 Speaker 1: But when you're investing in the stock market, you're investing 13 00:00:53,360 --> 00:00:55,400 Speaker 1: in a basket of five hundred or a thousand, or 14 00:00:55,400 --> 00:00:58,200 Speaker 1: however many socks are in your portfolio. And what it 15 00:00:58,280 --> 00:01:01,520 Speaker 1: says is the companies that are in the public markets, 16 00:01:01,520 --> 00:01:04,440 Speaker 1: that you invested in a mutual funder in your brokerage account, 17 00:01:04,880 --> 00:01:09,480 Speaker 1: they are in extremely strong shape, even though the economic 18 00:01:09,520 --> 00:01:11,960 Speaker 1: backdrop is much more troubling. So here's what I hear. 19 00:01:12,000 --> 00:01:14,480 Speaker 1: We've got a lot of smart people saying sell the 20 00:01:14,600 --> 00:01:19,160 Speaker 1: tech move here, hold the tech move here. Can you 21 00:01:19,200 --> 00:01:21,960 Speaker 1: make a case this morning that you acquire more shares 22 00:01:22,000 --> 00:01:25,440 Speaker 1: of these juggernauts? Absolutely, And I don't think that the 23 00:01:25,800 --> 00:01:29,200 Speaker 1: cases because they delivered great earnings yesterday alone. I mean 24 00:01:29,640 --> 00:01:32,200 Speaker 1: these companies if you look at the top five companies, 25 00:01:32,200 --> 00:01:35,640 Speaker 1: and yesterday we've got four of the top five reported 26 00:01:36,040 --> 00:01:40,080 Speaker 1: they returned in the last twelve months. The rest of 27 00:01:40,120 --> 00:01:43,920 Speaker 1: the market delivered zero. But more importantly, these companies have 28 00:01:44,080 --> 00:01:46,360 Speaker 1: no debt on their balance sheets, They're sitting with cash, 29 00:01:46,720 --> 00:01:49,320 Speaker 1: they are less volatile than the rest of the market. 30 00:01:49,360 --> 00:01:51,800 Speaker 1: They're growing. In the last twelve months, they've grown their 31 00:01:51,800 --> 00:01:55,680 Speaker 1: revenues something like ten times faster than the rest of 32 00:01:55,680 --> 00:01:58,720 Speaker 1: the market. The p of these companies relative to the 33 00:01:58,840 --> 00:02:01,640 Speaker 1: growth rate is half what it is on the market, 34 00:02:01,680 --> 00:02:05,160 Speaker 1: so they're trading at a premium stock market multiple. They're 35 00:02:05,160 --> 00:02:09,080 Speaker 1: more expensive, but they're delivering so much faster growth that 36 00:02:09,200 --> 00:02:12,119 Speaker 1: the pe relative to the growth rate is the rest 37 00:02:12,120 --> 00:02:14,480 Speaker 1: of the market. I think the surprise is going to 38 00:02:14,560 --> 00:02:18,040 Speaker 1: be that these five or seven or many companies that 39 00:02:18,080 --> 00:02:21,120 Speaker 1: are leading the market are going to the gap between 40 00:02:21,160 --> 00:02:23,600 Speaker 1: them and everything else is going to continue to watch John, 41 00:02:23,600 --> 00:02:26,000 Speaker 1: You've done some tremendous research on this over the last 42 00:02:26,040 --> 00:02:29,000 Speaker 1: couple of weeks and it's all helped made personally compare 43 00:02:29,040 --> 00:02:32,080 Speaker 1: and contrast the top five now to the top five 44 00:02:32,120 --> 00:02:35,960 Speaker 1: back in two thousand. Yeah. Well, first of all, all 45 00:02:36,000 --> 00:02:38,360 Speaker 1: five of them are tech today, and you had companies 46 00:02:38,440 --> 00:02:42,120 Speaker 1: like ex On Mobile and and some others in back 47 00:02:42,680 --> 00:02:44,600 Speaker 1: at the peak of the uh you know, in March 48 00:02:44,639 --> 00:02:49,400 Speaker 1: of two thousand. But the companies back then were much faster, 49 00:02:49,680 --> 00:02:54,120 Speaker 1: I'm sorry, they were much more expensive than they are today. 50 00:02:54,240 --> 00:02:57,600 Speaker 1: Um they were. They were less healthy companies. Their earnings 51 00:02:57,600 --> 00:03:02,800 Speaker 1: growth rates um were not um so superior. Rather compared 52 00:03:02,880 --> 00:03:05,200 Speaker 1: to the rest of the market the way these companies 53 00:03:05,200 --> 00:03:07,920 Speaker 1: are today. They had the you know, the the profile 54 00:03:07,960 --> 00:03:12,680 Speaker 1: of these companies, UM, just is is much stronger. And 55 00:03:12,720 --> 00:03:16,080 Speaker 1: if I were to say to you that the market 56 00:03:16,600 --> 00:03:19,720 Speaker 1: is growing this fast and has these margins and doesn't 57 00:03:19,760 --> 00:03:22,200 Speaker 1: have any debt, and would you rather be in them, 58 00:03:22,240 --> 00:03:24,560 Speaker 1: you'd say yes. And then I say, by the way, 59 00:03:24,560 --> 00:03:27,560 Speaker 1: it's only five companies. People say, wow, that sounds a 60 00:03:27,600 --> 00:03:30,840 Speaker 1: little bit risky. It's only five names. That's not the 61 00:03:30,919 --> 00:03:33,320 Speaker 1: key point. It's how healthy the businesses are. How does 62 00:03:33,320 --> 00:03:35,040 Speaker 1: it get better than this, I think is a question 63 00:03:35,040 --> 00:03:37,200 Speaker 1: some people will be asking this morning relative to the 64 00:03:37,240 --> 00:03:41,080 Speaker 1: situation we faced in Q two. John, A conversation, rotation on, 65 00:03:41,280 --> 00:03:44,320 Speaker 1: rotation off. It's a conversation we've had repeatedly over the 66 00:03:44,360 --> 00:03:48,880 Speaker 1: last several months. Is rotation off again? No? I mean, 67 00:03:48,920 --> 00:03:51,400 Speaker 1: I think the real I think the real question though is, 68 00:03:51,680 --> 00:03:54,240 Speaker 1: and I know that you guys have have been addressing this. 69 00:03:55,240 --> 00:03:57,520 Speaker 1: The story that has me really concerned. You know, this 70 00:03:57,640 --> 00:04:00,120 Speaker 1: this fall and interest rates is basically the market saying 71 00:04:00,440 --> 00:04:02,640 Speaker 1: we don't think there's gonna be any economic growth over 72 00:04:02,680 --> 00:04:04,480 Speaker 1: the decade. Forget you know, we're going to get a 73 00:04:04,480 --> 00:04:06,640 Speaker 1: bounce off the bottom. I know it's kind of slowing 74 00:04:06,640 --> 00:04:09,000 Speaker 1: down and stalling out a little bit, but really the 75 00:04:09,080 --> 00:04:11,360 Speaker 1: question is what is the impact of all this over 76 00:04:11,400 --> 00:04:13,559 Speaker 1: the long run and all the debt that we're accumulating, 77 00:04:13,880 --> 00:04:17,560 Speaker 1: and it's going to be slower the this weakening of 78 00:04:17,560 --> 00:04:22,800 Speaker 1: this this bounce is really problematic for industrial companies and 79 00:04:23,240 --> 00:04:28,280 Speaker 1: um mining companies and retailers and banks, and so you 80 00:04:28,440 --> 00:04:31,680 Speaker 1: have a chunk of the market, maybe a third of 81 00:04:31,720 --> 00:04:34,760 Speaker 1: the market, that is really susceptible to some of the 82 00:04:34,800 --> 00:04:38,240 Speaker 1: economic problems that we're having, and then you have probably 83 00:04:38,279 --> 00:04:41,359 Speaker 1: about seventy of the market, not just five names, but 84 00:04:41,440 --> 00:04:44,920 Speaker 1: at the market that appears to be really healthy if 85 00:04:45,000 --> 00:04:48,200 Speaker 1: you look at healthcare names and consumer staples names. Um, 86 00:04:48,320 --> 00:04:51,760 Speaker 1: so you have this real bifurcation not only between just 87 00:04:51,880 --> 00:04:54,919 Speaker 1: the five, but those that are are super exposed to 88 00:04:54,960 --> 00:04:57,960 Speaker 1: these economic woes and then everything else, which seems pretty 89 00:04:57,960 --> 00:05:01,599 Speaker 1: good when you talk about that benefit dramatically from the 90 00:05:01,600 --> 00:05:04,480 Speaker 1: lower interest rates because they can borrow money at record 91 00:05:04,520 --> 00:05:07,240 Speaker 1: low costs. How much do you expect the trend of 92 00:05:07,279 --> 00:05:10,560 Speaker 1: borrowing money to buy back shares, to reduce the equity footprint, 93 00:05:10,600 --> 00:05:13,920 Speaker 1: to shift the capital structure into cheap debt. How much 94 00:05:13,960 --> 00:05:16,800 Speaker 1: do you expect that to continue, basically the privatization of 95 00:05:16,839 --> 00:05:19,760 Speaker 1: the biggest and strongest companies in America at least, I 96 00:05:19,839 --> 00:05:22,440 Speaker 1: don't think that that's the way that that things actually 97 00:05:22,480 --> 00:05:24,960 Speaker 1: play out. I think that what happens is these companies 98 00:05:25,320 --> 00:05:30,360 Speaker 1: are generating a boatload of free cash flow from their businesses, 99 00:05:30,440 --> 00:05:34,119 Speaker 1: and that's what they're returning. So when you talk about 100 00:05:34,120 --> 00:05:36,000 Speaker 1: the amount that they're buying back, in the amount that 101 00:05:36,000 --> 00:05:37,880 Speaker 1: they maybe pay out and dividends and things like that, 102 00:05:38,400 --> 00:05:41,240 Speaker 1: it's the fact that they're just they're generating more capital 103 00:05:41,600 --> 00:05:44,280 Speaker 1: than than they need to run their businesses, and so 104 00:05:44,320 --> 00:05:49,200 Speaker 1: they spew it back out to two shareholders. And I think, um, 105 00:05:49,240 --> 00:05:52,680 Speaker 1: I think that's the that's the big story. The rest 106 00:05:52,720 --> 00:05:54,840 Speaker 1: the market that can necessarily do the same, John, I 107 00:05:54,880 --> 00:05:58,480 Speaker 1: want you to fold in your equity call with the 108 00:05:58,600 --> 00:06:02,120 Speaker 1: stunning caution I has heard from your colleague James Sweeney. 109 00:06:02,360 --> 00:06:05,760 Speaker 1: I've done James Sweeney for ages. He's a brilliant economist 110 00:06:06,000 --> 00:06:09,120 Speaker 1: and I was thunderstruck earlier this week whenever it was 111 00:06:09,600 --> 00:06:14,960 Speaker 1: over his cautious view forward. Fold that into your optimism 112 00:06:14,960 --> 00:06:19,120 Speaker 1: on holding equity shares. Listen, I I love James, and 113 00:06:19,160 --> 00:06:22,279 Speaker 1: I think that his call right now is is smack on. 114 00:06:22,880 --> 00:06:26,080 Speaker 1: We have to separate out what is going on in 115 00:06:26,160 --> 00:06:28,880 Speaker 1: a number of public companies that have a certain type 116 00:06:28,880 --> 00:06:32,279 Speaker 1: of profile, and what's going on in employment markets and 117 00:06:32,320 --> 00:06:36,240 Speaker 1: the economic data. It's really clear, especially as we move 118 00:06:36,320 --> 00:06:39,760 Speaker 1: into September and October, that we're going to see some 119 00:06:39,880 --> 00:06:43,840 Speaker 1: of these brilliant numbers economically that we have bouncing. I 120 00:06:44,080 --> 00:06:47,000 Speaker 1: s M is bouncing. It will probably bounce towards sixty 121 00:06:47,080 --> 00:06:49,880 Speaker 1: and then it's going to roll back down. We're ready 122 00:06:49,920 --> 00:06:52,560 Speaker 1: starting to see this with some of the employment numbers 123 00:06:52,600 --> 00:06:56,240 Speaker 1: that have stopped improving, and I think that it's it's 124 00:06:56,320 --> 00:06:59,560 Speaker 1: the reason that you're seeing interest rates UM slip the 125 00:06:59,560 --> 00:07:02,880 Speaker 1: way that they are. And I think investors have to 126 00:07:02,960 --> 00:07:06,720 Speaker 1: kind of separate out when they think about equities are 127 00:07:06,760 --> 00:07:09,200 Speaker 1: not the economy. They're married to each other, or they're 128 00:07:09,360 --> 00:07:11,560 Speaker 1: or their cousins of each other, but but they're not 129 00:07:11,640 --> 00:07:13,880 Speaker 1: the same thing. And I think his calls right, which 130 00:07:13,920 --> 00:07:17,080 Speaker 1: is why I wouldn't be putting money in industrial stock 131 00:07:17,160 --> 00:07:19,840 Speaker 1: today and I wouldn't be calling for some kind of 132 00:07:19,880 --> 00:07:22,440 Speaker 1: a rotation out of the winners. I love James to 133 00:07:22,840 --> 00:07:29,640 Speaker 1: Jonathan gollip a credit swas, let's get to throw scot 134 00:07:29,720 --> 00:07:32,720 Speaker 1: Bridge Capital cod C. I try fantastic to catch up 135 00:07:32,720 --> 00:07:34,680 Speaker 1: with you, sir. How on earth do you make a 136 00:07:34,800 --> 00:07:38,280 Speaker 1: macro called self to data and then make the right 137 00:07:38,520 --> 00:07:44,080 Speaker 1: market called equities higher credit spreads Tita. Yeah, well, obviously 138 00:07:44,080 --> 00:07:47,760 Speaker 1: it's very difficult if you were timing the contraction economy 139 00:07:47,760 --> 00:07:50,160 Speaker 1: and set we're in March. You know, most macro managers 140 00:07:50,200 --> 00:07:54,080 Speaker 1: had a very difficult time timing the recovery. UM. We'd say, 141 00:07:54,080 --> 00:07:57,400 Speaker 1: look the trends that were in place before the pandemic 142 00:07:57,520 --> 00:07:59,960 Speaker 1: have just been exacerbated by it, right, And you alluded 143 00:08:00,000 --> 00:08:02,920 Speaker 1: to before that the stock market has become less and 144 00:08:02,960 --> 00:08:06,160 Speaker 1: less representative of the real economy. And you still have 145 00:08:06,440 --> 00:08:10,040 Speaker 1: arguably the greatest divergence between real economic outcomes and the 146 00:08:10,040 --> 00:08:13,080 Speaker 1: stock market, right. And why is that? Right? Obviously, big 147 00:08:13,120 --> 00:08:15,640 Speaker 1: tech is dominating more and more. You know, the top 148 00:08:15,640 --> 00:08:17,400 Speaker 1: five names of the SMP. You guys had a great 149 00:08:17,480 --> 00:08:23,080 Speaker 1: article on this yesterday, have a two since January the 150 00:08:23,120 --> 00:08:26,640 Speaker 1: rest of the stock markets up. That's a historic divergence. 151 00:08:26,960 --> 00:08:29,160 Speaker 1: The other key factor, of course, has been the FED, right, 152 00:08:29,200 --> 00:08:31,280 Speaker 1: and their balance sheet. Even though it has contracted by 153 00:08:31,280 --> 00:08:33,640 Speaker 1: about two or fifty billion dollars the past five weeks 154 00:08:33,640 --> 00:08:36,320 Speaker 1: as they've taken repot down, it's still up two point 155 00:08:36,360 --> 00:08:39,400 Speaker 1: seven five trillion. And so you know those two factors. 156 00:08:39,720 --> 00:08:43,040 Speaker 1: I mean, you know, asset reflation is here, and really 157 00:08:43,080 --> 00:08:44,760 Speaker 1: the only way to make money is to be along 158 00:08:44,840 --> 00:08:48,199 Speaker 1: equities and also be on credit um and enjoy the 159 00:08:48,559 --> 00:08:52,359 Speaker 1: FED support. And then you're hoping that the real economy 160 00:08:52,440 --> 00:08:55,520 Speaker 1: catches up and that there will be another round of stimulus, 161 00:08:55,559 --> 00:08:58,360 Speaker 1: because that is a necessity now in order to keep 162 00:08:58,400 --> 00:09:01,559 Speaker 1: them economy. Okay, where that's the macro view. I want 163 00:09:01,600 --> 00:09:03,760 Speaker 1: to know what alternative investments are doing now in the 164 00:09:03,800 --> 00:09:07,440 Speaker 1: world of Skybridge Capital. Are they under owned or over 165 00:09:07,559 --> 00:09:12,760 Speaker 1: owned in these glory names in general? You know, long 166 00:09:12,800 --> 00:09:15,160 Speaker 1: short tech funds have been lightening up on big tap 167 00:09:15,280 --> 00:09:19,320 Speaker 1: tech for the last three months. Yeah. Well, and the 168 00:09:19,320 --> 00:09:22,880 Speaker 1: main reason for that is that they're obviously extremely crowded. 169 00:09:22,880 --> 00:09:26,000 Speaker 1: It's most crowded trade argumently in history, and there was 170 00:09:26,080 --> 00:09:30,280 Speaker 1: concern over elevated multiple given where earnings were expected to be. 171 00:09:30,400 --> 00:09:34,840 Speaker 1: Now clearly the strength of their earnings continue and revenue 172 00:09:34,880 --> 00:09:37,960 Speaker 1: continues to be exceptionally strong. And so it's really the 173 00:09:38,040 --> 00:09:40,880 Speaker 1: story of hedge funds for the last ten years. Right, 174 00:09:40,920 --> 00:09:44,200 Speaker 1: the best trade has been long tech and short nothing. 175 00:09:44,640 --> 00:09:47,000 Speaker 1: The second best tradesmen, they'll be long tech and short 176 00:09:47,040 --> 00:09:49,559 Speaker 1: everything else. But if you're trying to be an alternative 177 00:09:49,600 --> 00:09:52,240 Speaker 1: to that, you know you're positioning yourself to be better 178 00:09:52,280 --> 00:09:55,840 Speaker 1: than bonds, hopefully compete with high yield and have less downside. 179 00:09:56,120 --> 00:09:59,679 Speaker 1: But at this point, going not overweight big tech has 180 00:09:59,679 --> 00:10:02,160 Speaker 1: been a huge problem because they have proven themselves again 181 00:10:02,160 --> 00:10:04,240 Speaker 1: and again. I go to buy the rumor by the 182 00:10:04,240 --> 00:10:07,880 Speaker 1: news because they delivered in a big way, beating expectations dramatically. 183 00:10:08,280 --> 00:10:10,600 Speaker 1: Why not just go into them given the fact the 184 00:10:10,600 --> 00:10:13,200 Speaker 1: biggest risk is regulatory and based on the hearings that 185 00:10:13,240 --> 00:10:15,440 Speaker 1: we heard this week, that doesn't seem to be much 186 00:10:15,480 --> 00:10:18,360 Speaker 1: of a risk. Yeah, we would completely agree that. You know, 187 00:10:18,400 --> 00:10:20,439 Speaker 1: we've for the last three years people have been talking 188 00:10:20,440 --> 00:10:23,200 Speaker 1: about regulatory risk right in the thought that that could 189 00:10:23,240 --> 00:10:26,560 Speaker 1: drive some type of breakup or some type of hyper regulation, 190 00:10:27,000 --> 00:10:29,360 Speaker 1: but it just hasn't come to pass. And so you 191 00:10:29,360 --> 00:10:32,240 Speaker 1: know that that's part of being investor managers choosing you 192 00:10:32,240 --> 00:10:35,360 Speaker 1: know what you're trying to achieve, and anybody can own 193 00:10:35,520 --> 00:10:38,280 Speaker 1: large cap tech for free basically, so you're trying to 194 00:10:38,320 --> 00:10:42,160 Speaker 1: provide alternative sources of return that certainly haven't kept up 195 00:10:42,160 --> 00:10:45,439 Speaker 1: in this raging bole market, particularly for tech, but I 196 00:10:45,480 --> 00:10:48,880 Speaker 1: have had the chance to outperform bonds and other asset classes. Troy, 197 00:10:48,920 --> 00:10:53,000 Speaker 1: what's the cleanest trite on the underlying economy? Well, from 198 00:10:53,040 --> 00:10:56,400 Speaker 1: our standpoint, the cleanest trade is still long residential mortgage 199 00:10:56,400 --> 00:10:59,920 Speaker 1: BacT securities because that's very representative of the consumer of area, 200 00:11:00,000 --> 00:11:03,000 Speaker 1: presentative of the economy. Spreads are still materially wider than 201 00:11:03,040 --> 00:11:06,440 Speaker 1: they were in March. You have had some normalization but 202 00:11:06,559 --> 00:11:09,080 Speaker 1: certainly not to the same degree. Um So, if the 203 00:11:09,080 --> 00:11:13,480 Speaker 1: economy continues to recover and for varians requests continue to drop, 204 00:11:13,920 --> 00:11:15,880 Speaker 1: that's their best way, in our opinion, of playing a 205 00:11:15,920 --> 00:11:18,719 Speaker 1: real economic bounce without having material down. So what's Troy 206 00:11:18,720 --> 00:11:20,040 Speaker 1: I reckon some of that with what the banks of 207 00:11:20,120 --> 00:11:22,679 Speaker 1: town against? JP Morgan's Jammie Tummond basically just telling us 208 00:11:22,679 --> 00:11:24,920 Speaker 1: in the last quota that the back end of the year, 209 00:11:25,160 --> 00:11:27,120 Speaker 1: that's when you see the recession. We haven't seen the 210 00:11:27,160 --> 00:11:30,120 Speaker 1: recession yet. How do you reconcile those two things? Well, 211 00:11:30,320 --> 00:11:32,480 Speaker 1: like he also said in his learning is called right, 212 00:11:32,800 --> 00:11:34,920 Speaker 1: what type of recession do you have where you have 213 00:11:35,080 --> 00:11:38,000 Speaker 1: personal incomes up by seven percent? And just like you 214 00:11:38,160 --> 00:11:40,680 Speaker 1: least some very interested in the personal income and outlay report, 215 00:11:41,000 --> 00:11:43,319 Speaker 1: and you have home prices up right, so that that's 216 00:11:43,440 --> 00:11:46,200 Speaker 1: very different, right, And that's helped keep for beans requests 217 00:11:46,280 --> 00:11:49,120 Speaker 1: delinquency is lower than they would have been otherwise. Obviously 218 00:11:49,240 --> 00:11:51,520 Speaker 1: from a banking standpoint, they're gonna have to earn their 219 00:11:51,559 --> 00:11:54,760 Speaker 1: way out of their long lost reserves, and delinquencies are 220 00:11:54,800 --> 00:11:57,280 Speaker 1: going up across the board, but it appears that they're 221 00:11:57,320 --> 00:12:00,280 Speaker 1: gonna end up being much lower than people forecast as recently, 222 00:12:00,320 --> 00:12:03,280 Speaker 1: it's ten weeks ago before the full effects the SteamOS 223 00:12:03,320 --> 00:12:06,439 Speaker 1: were felt. Are we also seeing particular strength in r 224 00:12:06,520 --> 00:12:10,480 Speaker 1: mbs and residential mortgage backed securities because wealthier individuals are 225 00:12:10,520 --> 00:12:13,000 Speaker 1: more likely to own homes that are less affected by 226 00:12:13,080 --> 00:12:15,800 Speaker 1: this downturn. Yeah, well, there's there's two things going on, 227 00:12:15,840 --> 00:12:19,120 Speaker 1: all right. So in the in the primary residential market, 228 00:12:19,320 --> 00:12:22,679 Speaker 1: you had very limited supply coming in and obviously very 229 00:12:22,720 --> 00:12:33,840 Speaker 1: good demographics to Skybridge Capital CIO with the Sea principal 230 00:12:33,920 --> 00:12:38,280 Speaker 1: Global investors and should write brilliant, brilliant notes extending out 231 00:12:38,440 --> 00:12:42,079 Speaker 1: not so much the strategy but the opportunities, and with 232 00:12:42,240 --> 00:12:46,360 Speaker 1: it some caution, Seema, there is the August of our discontent. 233 00:12:46,559 --> 00:12:52,160 Speaker 1: August is here. How rocky will August be? It's sound 234 00:12:52,200 --> 00:12:53,920 Speaker 1: great to be with you. I think it's gonna be 235 00:12:53,960 --> 00:12:55,920 Speaker 1: really rocky, you know. I I off my colleague the 236 00:12:55,920 --> 00:12:58,240 Speaker 1: other day. When did the summer long come? It doesn't 237 00:12:58,240 --> 00:13:00,760 Speaker 1: seem like it's coming. There's just too much with the 238 00:13:00,800 --> 00:13:04,760 Speaker 1: fiscal cliff. You've got the coronavirus cases most importantly, and 239 00:13:04,800 --> 00:13:06,640 Speaker 1: then of course there's going to be speculation about what 240 00:13:06,720 --> 00:13:09,680 Speaker 1: the FEDIC going to be doing. The August of our memories. 241 00:13:11,200 --> 00:13:13,600 Speaker 1: I remember around the beach, the smell of the sweat, 242 00:13:13,679 --> 00:13:15,719 Speaker 1: and it wasn't the beach and the heat, it was 243 00:13:15,920 --> 00:13:22,360 Speaker 1: outright fear in August. Is the financial system stealed for 244 00:13:22,480 --> 00:13:28,080 Speaker 1: this GDP plunges? The financial system stealed with less leverage 245 00:13:28,240 --> 00:13:32,560 Speaker 1: than what we've seen in other crises. Well, it's an 246 00:13:32,600 --> 00:13:34,959 Speaker 1: interesting question. I mean, I think the GP plans that 247 00:13:35,000 --> 00:13:37,480 Speaker 1: we saw in Q two, I don't. I don't think 248 00:13:37,520 --> 00:13:39,360 Speaker 1: the markets could have reacted too much to it because 249 00:13:39,360 --> 00:13:41,679 Speaker 1: it was all priced in. Our concerns are is that 250 00:13:41,880 --> 00:13:44,199 Speaker 1: you know, along of that momentum has already started. The 251 00:13:44,240 --> 00:13:46,760 Speaker 1: plateau when you look at the high frequency data is 252 00:13:46,880 --> 00:13:49,199 Speaker 1: really worrying, and you can see that it's very much 253 00:13:49,240 --> 00:13:51,960 Speaker 1: tied in with cases. So where can we look whatever 254 00:13:52,000 --> 00:13:54,040 Speaker 1: out that we may have about Monty policy or even 255 00:13:54,080 --> 00:13:57,400 Speaker 1: fiscal policy. Unfortunately, it's still tied into the health crisis. 256 00:13:57,720 --> 00:13:59,719 Speaker 1: And until we can find a way of breaking the 257 00:13:59,760 --> 00:14:03,160 Speaker 1: can extend between mobility in cases, then I think we're 258 00:14:03,160 --> 00:14:05,120 Speaker 1: going to be in a very difficult spot. What's the 259 00:14:05,240 --> 00:14:09,920 Speaker 1: argument to buy bonds here a second wave? I think 260 00:14:10,000 --> 00:14:11,880 Speaker 1: I think that would have to be your your main 261 00:14:12,000 --> 00:14:14,800 Speaker 1: reason um at this stage, you know, from what can 262 00:14:14,840 --> 00:14:16,839 Speaker 1: the Fed really do? And actually what can most central 263 00:14:16,880 --> 00:14:19,080 Speaker 1: banks do at this stage? I think their effectiveness is 264 00:14:19,120 --> 00:14:20,680 Speaker 1: starting to run out, and yet they still have to 265 00:14:20,760 --> 00:14:22,720 Speaker 1: keep plowing in, so that's going to keep it down 266 00:14:22,760 --> 00:14:24,880 Speaker 1: the pressure on yields. But also if we start to 267 00:14:24,960 --> 00:14:28,520 Speaker 1: see this recovery that we've seen um started tail off 268 00:14:28,520 --> 00:14:31,520 Speaker 1: and actually turn into negative territory, and that's my essential scenario. 269 00:14:31,520 --> 00:14:33,480 Speaker 1: But if you were to see that, then I think 270 00:14:33,520 --> 00:14:36,560 Speaker 1: that the negative space becomes more realistic. One of the 271 00:14:36,600 --> 00:14:39,040 Speaker 1: big arguments for equities right now is there there is 272 00:14:39,120 --> 00:14:41,000 Speaker 1: no alternative. If you take a look at bonds, you're 273 00:14:41,040 --> 00:14:43,640 Speaker 1: earning nothing to own them. And yet we have a 274 00:14:43,720 --> 00:14:45,920 Speaker 1: situation where if we do get a second wave, the 275 00:14:45,960 --> 00:14:49,360 Speaker 1: economy will sour considerably. Do you see an end to 276 00:14:49,480 --> 00:14:52,200 Speaker 1: the Tina trade, to the sort of move into equities 277 00:14:52,280 --> 00:14:54,760 Speaker 1: because yields are so low if we do get a 278 00:14:54,800 --> 00:14:59,120 Speaker 1: second wave or can this continue indefinitely? Yeah, that's a 279 00:14:59,160 --> 00:15:01,040 Speaker 1: really interesting question. So when we've been looking at this, 280 00:15:01,160 --> 00:15:03,120 Speaker 1: you know, we have I think I could slightly negative 281 00:15:03,120 --> 00:15:06,040 Speaker 1: out look on the economy given concerns around the virus, 282 00:15:06,560 --> 00:15:08,680 Speaker 1: But with bond deals where they are, you know, we 283 00:15:08,840 --> 00:15:12,640 Speaker 1: can't really conceivably see excs pushing and hitting their their 284 00:15:12,720 --> 00:15:15,840 Speaker 1: previous lows. So in that space, yes, you know, actually 285 00:15:16,000 --> 00:15:17,680 Speaker 1: it's a pretty decent place to be, but you've got 286 00:15:17,760 --> 00:15:20,320 Speaker 1: to pick your space widely. And one of the reasons 287 00:15:20,360 --> 00:15:22,120 Speaker 1: that we have, you know, we've got down slightly are 288 00:15:22,400 --> 00:15:25,200 Speaker 1: exposure to US equities. But it's all been placed in 289 00:15:25,440 --> 00:15:27,840 Speaker 1: in megaccount and we're really comfortable with that story and 290 00:15:27,960 --> 00:15:31,640 Speaker 1: we think that's really there to run. As you're speaking, 291 00:15:31,800 --> 00:15:35,080 Speaker 1: we're seeing the two year yield test new lows one 292 00:15:35,200 --> 00:15:40,520 Speaker 1: point excuse me, zero point one zero seven three. I'm sorry. 293 00:15:40,600 --> 00:15:43,240 Speaker 1: The bond market is speaking, and there seems to be 294 00:15:43,360 --> 00:15:46,840 Speaker 1: a guarantee of yield curve control. Do you buy it? 295 00:15:47,000 --> 00:15:50,800 Speaker 1: Do you buy that the central banks can be successfully 296 00:15:51,000 --> 00:15:56,360 Speaker 1: manipulative given what the bond markets doing. I think what 297 00:15:56,480 --> 00:15:58,840 Speaker 1: the central banks are able to do is literally just 298 00:15:59,040 --> 00:16:01,400 Speaker 1: keep things where are you know, in terms of the 299 00:16:01,480 --> 00:16:04,120 Speaker 1: bond market, it's tell you something that's concerns out there, 300 00:16:04,920 --> 00:16:07,520 Speaker 1: But abfully, what would explicit yeld of control? Where they 301 00:16:07,760 --> 00:16:10,120 Speaker 1: going to go down the road change? At this stage, 302 00:16:10,360 --> 00:16:12,480 Speaker 1: you know, yields are very very depressed and it doesn't 303 00:16:12,520 --> 00:16:15,080 Speaker 1: look like they're going any higher up any time soon. 304 00:16:15,680 --> 00:16:17,440 Speaker 1: You know, that's a big difference between now and ten 305 00:16:17,520 --> 00:16:20,000 Speaker 1: years ago. Tom. The last time we took FED funds 306 00:16:20,080 --> 00:16:22,800 Speaker 1: rate down to zero, Tom, everybody thought then the next 307 00:16:22,880 --> 00:16:25,120 Speaker 1: couple of years right to would start climbing again. It 308 00:16:25,200 --> 00:16:28,880 Speaker 1: wasn't until eleven that the two year yield actually bottomed out, 309 00:16:29,160 --> 00:16:31,000 Speaker 1: And that for me makes the important difference between now 310 00:16:31,080 --> 00:16:33,880 Speaker 1: and back then that we believe it's a reserve now 311 00:16:34,200 --> 00:16:36,080 Speaker 1: and we believe that they're not going anywhere for a 312 00:16:36,160 --> 00:16:38,240 Speaker 1: long long time. Do you know where the two year 313 00:16:38,320 --> 00:16:43,320 Speaker 1: yield was at the back end of eighteen Tom? Okay, Well, John, 314 00:16:43,560 --> 00:16:45,520 Speaker 1: you know, as we had the excellent headline here on 315 00:16:45,600 --> 00:16:48,000 Speaker 1: the Bloomberg Right now, folks and John go to SEMA 316 00:16:48,360 --> 00:16:52,320 Speaker 1: on this the tenure tip negative one point zero zero 317 00:16:52,880 --> 00:16:55,680 Speaker 1: three four, John, that is so important. You can do 318 00:16:55,800 --> 00:16:58,080 Speaker 1: the real yield deserve Tonoon. I'm looking forward to that, Tom, 319 00:16:58,160 --> 00:17:01,600 Speaker 1: Thank you, Seema. Inflation next vactations drifting a little bit higher. 320 00:17:01,600 --> 00:17:04,080 Speaker 1: It's part of the story as the white negative yield's 321 00:17:04,119 --> 00:17:06,480 Speaker 1: negative real yield to become that more dominant in the 322 00:17:06,560 --> 00:17:09,680 Speaker 1: last couple of weeks. What's behind the higher inflation expectations? 323 00:17:11,320 --> 00:17:12,920 Speaker 1: I think it's difficult to say. I mean, I think 324 00:17:12,960 --> 00:17:14,840 Speaker 1: one of the things is that, you know, I think 325 00:17:14,880 --> 00:17:16,440 Speaker 1: there's a lot of people out there who do believe 326 00:17:16,480 --> 00:17:19,600 Speaker 1: within about two to three years UM, the effect of 327 00:17:19,640 --> 00:17:22,920 Speaker 1: all of this Montre policy, this fistical spending will eventually 328 00:17:23,000 --> 00:17:25,959 Speaker 1: play fruit, pay fruit, and you'll start to see inflation 329 00:17:26,000 --> 00:17:27,960 Speaker 1: picking up, as well as all of the structural reasons 330 00:17:28,240 --> 00:17:31,760 Speaker 1: around supply chain, the globalization, etcetera. Um. Now when we 331 00:17:31,920 --> 00:17:34,480 Speaker 1: think about this, you know, what, are we talking about 332 00:17:34,600 --> 00:17:37,920 Speaker 1: inflation of more than three percent? Absolutely not, because anthly 333 00:17:37,960 --> 00:17:39,960 Speaker 1: it's going to take a really long time for the 334 00:17:40,000 --> 00:17:42,040 Speaker 1: economy to get backwards feet and to reach its pre 335 00:17:42,160 --> 00:17:45,840 Speaker 1: COVID levels. So yes, because the inflation returning to some 336 00:17:46,320 --> 00:17:48,840 Speaker 1: some reality, but certainly not the kind of levels that 337 00:17:48,960 --> 00:17:50,840 Speaker 1: maybe some people in the market half fears over the 338 00:17:50,960 --> 00:17:52,560 Speaker 1: same we're looking at this bond market right now, How 339 00:17:52,640 --> 00:17:57,320 Speaker 1: on earth do you buy the banks? You know, it's 340 00:17:57,320 --> 00:17:59,120 Speaker 1: a difficult one I have. So we are not we're 341 00:17:59,160 --> 00:18:01,639 Speaker 1: not big fans of financial this at this point, and 342 00:18:01,680 --> 00:18:04,720 Speaker 1: we still think the trade Renagerica acts have to be 343 00:18:04,880 --> 00:18:07,359 Speaker 1: in the texting. You know, where is the set for 344 00:18:07,440 --> 00:18:09,879 Speaker 1: growth coming from? It's not from many places but you 345 00:18:09,920 --> 00:18:11,960 Speaker 1: are seeing in technology, and you're seeing in make ups. 346 00:18:12,240 --> 00:18:15,359 Speaker 1: But when yelps those flats so low, where can it 347 00:18:15,400 --> 00:18:18,040 Speaker 1: play you through for financials? So I say, from from 348 00:18:18,080 --> 00:18:22,040 Speaker 1: my perspective, from an after allocation exposure, financial doesn't really 349 00:18:22,080 --> 00:18:25,000 Speaker 1: feature this stage, see my Meanwhile, it's Friday, and today 350 00:18:25,080 --> 00:18:27,960 Speaker 1: is the day when the enhanced unemployment benefits run out 351 00:18:28,119 --> 00:18:30,200 Speaker 1: if there is not an extension that's passed. And we 352 00:18:30,240 --> 00:18:33,760 Speaker 1: get data out today ancient history June personal income and 353 00:18:33,800 --> 00:18:37,080 Speaker 1: spending data, and it shows the results of the enhanced 354 00:18:37,160 --> 00:18:40,520 Speaker 1: jobless benefits, the idea that personal income dropped one point 355 00:18:40,640 --> 00:18:45,120 Speaker 1: one percent, personal spending rows five point six percent, people 356 00:18:45,200 --> 00:18:47,640 Speaker 1: getting money that they can spend from the government. How 357 00:18:47,760 --> 00:18:50,280 Speaker 1: big a hit to the US equity market will it 358 00:18:50,400 --> 00:18:53,240 Speaker 1: be if there is not some sort of extension past today. 359 00:18:55,480 --> 00:18:57,399 Speaker 1: I don't think it's been priced in sufficially by the 360 00:18:57,440 --> 00:18:59,440 Speaker 1: market by any means. I think it can be catastrophic. 361 00:19:00,000 --> 00:19:02,040 Speaker 1: If you look at the upturn and spending over the 362 00:19:02,160 --> 00:19:04,399 Speaker 1: last two months or so, A lot of that has 363 00:19:04,440 --> 00:19:06,159 Speaker 1: been driven by the fact that there's been so much 364 00:19:06,200 --> 00:19:08,760 Speaker 1: fiscal help coming through. If you start to take that away, 365 00:19:08,840 --> 00:19:11,600 Speaker 1: not only are you dealing with a coronavirus kit, which 366 00:19:11,640 --> 00:19:15,200 Speaker 1: is already suppressing a lot of the activity and increasing anxiety, 367 00:19:15,560 --> 00:19:17,320 Speaker 1: and then you're taking away the ability of people to 368 00:19:17,400 --> 00:19:19,200 Speaker 1: go out and spend. So I think this is this 369 00:19:19,359 --> 00:19:21,600 Speaker 1: is something that of course Congress must be taking note 370 00:19:21,680 --> 00:19:24,000 Speaker 1: of and thinking they have to resolve this as quickly 371 00:19:24,000 --> 00:19:26,800 Speaker 1: as possible. And Tom noticing that the personal savings rate 372 00:19:26,920 --> 00:19:29,840 Speaker 1: is and this goes to the narrative that there's a 373 00:19:29,960 --> 00:19:33,200 Speaker 1: huge wall of cash just sitting in people's bank account 374 00:19:33,960 --> 00:19:36,200 Speaker 1: looking to spend as soon as they get a sense 375 00:19:36,240 --> 00:19:38,960 Speaker 1: of the economy is stabilizing, seem would you buy that? 376 00:19:42,680 --> 00:19:44,080 Speaker 1: You know? I think, I think what we have seen 377 00:19:44,119 --> 00:19:45,840 Speaker 1: so I think there's a couple of things that play here. 378 00:19:46,160 --> 00:19:47,840 Speaker 1: Over the last few months, you've had it, as I said, 379 00:19:47,880 --> 00:19:51,000 Speaker 1: you said the paychecks incomjective coming in and of help, 380 00:19:51,480 --> 00:19:53,399 Speaker 1: but also there's been a lot of pent up demand 381 00:19:53,400 --> 00:19:56,080 Speaker 1: which has been used up and those are your easy winds. 382 00:19:56,520 --> 00:19:58,680 Speaker 1: But unfortunately a lot about savings rate. People have to 383 00:19:58,720 --> 00:20:01,119 Speaker 1: be sitting out there the dream that maybe they have 384 00:20:01,200 --> 00:20:03,080 Speaker 1: a job to get back to you today, But is 385 00:20:03,119 --> 00:20:04,760 Speaker 1: that going to be true in six months time if 386 00:20:04,800 --> 00:20:07,200 Speaker 1: we've still got the same kind of challenges going ahead, 387 00:20:07,560 --> 00:20:09,680 Speaker 1: So well, actually, I think something is going to stay high. 388 00:20:10,119 --> 00:20:13,399 Speaker 1: I think spending has been satiated to some extent um. 389 00:20:13,560 --> 00:20:15,880 Speaker 1: So this is going to be very very challenging time 390 00:20:16,160 --> 00:20:18,680 Speaker 1: into the second half of the year. John Farah, we 391 00:20:18,720 --> 00:20:20,720 Speaker 1: can close the loop of the personal savings are in 392 00:20:21,840 --> 00:20:24,920 Speaker 1: which that means a few iPhones were brought. Well, that's 393 00:20:24,960 --> 00:20:28,040 Speaker 1: the truth time around the fiscal plan same the Federal 394 00:20:28,119 --> 00:20:33,240 Speaker 1: Reserve divorced financial conditions from the underlying economy, and Congress 395 00:20:33,840 --> 00:20:38,359 Speaker 1: essentially insulated personal income from the job losses. So how 396 00:20:38,440 --> 00:20:40,800 Speaker 1: on earth going forward you have any kind of calculation 397 00:20:41,320 --> 00:20:42,879 Speaker 1: on what the economy is going to do for the 398 00:20:42,920 --> 00:20:44,639 Speaker 1: back end of this year and what it means for 399 00:20:44,720 --> 00:20:48,840 Speaker 1: the market. So we are a little bit negative for 400 00:20:48,920 --> 00:20:50,320 Speaker 1: Q three. It seems like a lot of it is 401 00:20:50,400 --> 00:20:53,159 Speaker 1: turning over. There has to be some concerns around the 402 00:20:53,160 --> 00:20:55,600 Speaker 1: coronavirus and the way that people are going to go 403 00:20:55,680 --> 00:20:58,000 Speaker 1: and spend from here. So we have got major concerns 404 00:20:58,080 --> 00:21:01,040 Speaker 1: there in terms of how do the market response. You know, 405 00:21:01,119 --> 00:21:04,520 Speaker 1: traditionally maybe you would expect markets to full pretty significantly 406 00:21:04,560 --> 00:21:07,360 Speaker 1: on these kind of concerns going ahead, But as long 407 00:21:07,400 --> 00:21:09,399 Speaker 1: as you have the Fed standing behind the market is 408 00:21:09,480 --> 00:21:12,760 Speaker 1: difficult to see the market retesting its previous loads, and 409 00:21:12,840 --> 00:21:15,119 Speaker 1: we have to make the assumption that the Congress steps 410 00:21:15,240 --> 00:21:18,440 Speaker 1: up and provide all the money that is required. Without that, 411 00:21:18,560 --> 00:21:20,080 Speaker 1: then I think you have a very different story. But 412 00:21:20,160 --> 00:21:21,760 Speaker 1: I think we haven't seen that that they do the 413 00:21:21,880 --> 00:21:24,240 Speaker 1: right thing. Still, everyone's assumption right now that they will 414 00:21:24,440 --> 00:21:27,640 Speaker 1: do the right thing. We hope they do. Principal level investors, 415 00:21:27,960 --> 00:21:34,399 Speaker 1: thank you. But then if you blocked them earlier, we 416 00:21:34,520 --> 00:21:37,760 Speaker 1: did the view from sixty feet on technology, the cosmic 417 00:21:37,880 --> 00:21:40,520 Speaker 1: realities of Tim Cook and others have to deal with. 418 00:21:41,040 --> 00:21:43,240 Speaker 1: Now we look at the nuts and bolts, the the 419 00:21:43,800 --> 00:21:48,560 Speaker 1: absolute reality and adjustment needed after the miracle that was 420 00:21:48,640 --> 00:21:52,639 Speaker 1: witnessed yesterday, Gain Your Lives of web Bush has absolutely 421 00:21:52,920 --> 00:21:56,920 Speaker 1: nailed the tech enthusiasm. He's frankly been a pinata on 422 00:21:57,040 --> 00:22:00,760 Speaker 1: that the gloom crew has repeatedly gone after him as well, 423 00:22:00,800 --> 00:22:02,560 Speaker 1: and we're thrilled that Dan Eyes could join us in 424 00:22:02,640 --> 00:22:05,680 Speaker 1: web Bush this morning. Dan Eyes, your new price target 425 00:22:06,040 --> 00:22:09,120 Speaker 1: gets us out to Apple near four written near two 426 00:22:09,200 --> 00:22:11,959 Speaker 1: trillion dollars. Is Apple going to be a two trillion 427 00:22:12,040 --> 00:22:15,919 Speaker 1: dollar company and a number of quarters I think by 428 00:22:16,000 --> 00:22:18,680 Speaker 1: the end of this year to Scember thirty percent to 429 00:22:18,800 --> 00:22:21,720 Speaker 1: two trillion hour mark cap. I mean, if you look 430 00:22:21,760 --> 00:22:24,359 Speaker 1: going into the iPhone twelve product cycle, which I think 431 00:22:24,440 --> 00:22:28,720 Speaker 1: is the supercycle, and need numbers, that's the one to punch. 432 00:22:28,800 --> 00:22:33,520 Speaker 1: And I still tep Dock Middle inning Dan very importantly 433 00:22:33,680 --> 00:22:36,840 Speaker 1: here the persistency of all that we saw, the persistency 434 00:22:36,920 --> 00:22:40,120 Speaker 1: on the income statement, the persistency of free cash flow. 435 00:22:40,480 --> 00:22:44,440 Speaker 1: To me, the foundational thing underneath the news yesterday was 436 00:22:44,520 --> 00:22:49,360 Speaker 1: a stunning growth of the mac component and the iPad component. 437 00:22:49,680 --> 00:22:52,680 Speaker 1: Nobody saw that coming. What does that signal for the 438 00:22:52,760 --> 00:22:56,320 Speaker 1: next few quarters. I mean not just showed this work 439 00:22:56,440 --> 00:22:59,200 Speaker 1: from home, that's just another talent that they were seen. 440 00:22:59,280 --> 00:23:02,200 Speaker 1: The street was now factoring in combined with a four 441 00:23:02,320 --> 00:23:06,159 Speaker 1: billion dollar iPhone indeed in China right now, this is 442 00:23:06,320 --> 00:23:08,320 Speaker 1: something where if you're a bull in the story, this 443 00:23:08,480 --> 00:23:11,320 Speaker 1: is never even on the spectrum in terms of the 444 00:23:11,400 --> 00:23:15,680 Speaker 1: touches of numbers we saw last night a jaw dropper. Absolutely, 445 00:23:18,160 --> 00:23:21,440 Speaker 1: Then good morning. Are these companies now at risk of 446 00:23:21,480 --> 00:23:24,600 Speaker 1: a breakup because they're they're so powerful and they're doing 447 00:23:24,680 --> 00:23:28,080 Speaker 1: so well well? I think for them it's better They 448 00:23:28,160 --> 00:23:31,080 Speaker 1: did the tech hearing the day before they reported than 449 00:23:31,119 --> 00:23:35,480 Speaker 1: the day after. And I mean look with that said, 450 00:23:35,840 --> 00:23:39,440 Speaker 1: look for now we think less there's a legislative fix. 451 00:23:39,840 --> 00:23:43,840 Speaker 1: It's it's most likely fines rather than a breakup or 452 00:23:43,960 --> 00:23:46,880 Speaker 1: business model tweak. This will game momentum in to the fall. 453 00:23:47,280 --> 00:23:49,560 Speaker 1: But for right now, in terms of in from an 454 00:23:49,600 --> 00:23:53,800 Speaker 1: investor perspective, the streets viewing it, more's background noise and 455 00:23:54,000 --> 00:23:56,399 Speaker 1: right now that digest these numbers, I think that the 456 00:23:56,480 --> 00:24:00,840 Speaker 1: contain risk. What about higher texation if you have a 457 00:24:00,840 --> 00:24:04,879 Speaker 1: new administration in the US. Yeah, and that's possible, and 458 00:24:05,200 --> 00:24:08,000 Speaker 1: depending on you know, if it goes blue red or 459 00:24:08,040 --> 00:24:11,000 Speaker 1: whether it's senator or presidential. But I think for right 460 00:24:11,080 --> 00:24:16,600 Speaker 1: now investors, whether it's taxation or finds, these companies they're 461 00:24:16,680 --> 00:24:21,520 Speaker 1: generating more cash in some countries, so that's not the issue. 462 00:24:21,560 --> 00:24:23,640 Speaker 1: It's more about the business model changes and we don't 463 00:24:23,640 --> 00:24:26,040 Speaker 1: think that that right now is in play. And I 464 00:24:26,080 --> 00:24:28,359 Speaker 1: want to talk about the cash. They're obviously bringing the 465 00:24:28,440 --> 00:24:31,480 Speaker 1: cash down from the lofty levels before. If they go 466 00:24:31,680 --> 00:24:34,880 Speaker 1: from ex. Gazillion dollars of cash down to eighty gazillion 467 00:24:34,920 --> 00:24:38,199 Speaker 1: wherever they are now, what's the dynamic forward? Do they 468 00:24:38,280 --> 00:24:42,520 Speaker 1: extend more debt to buy back shares. Are you suggesting 469 00:24:42,600 --> 00:24:46,920 Speaker 1: that there's pushing aside the idea of a ginormous acquisition. 470 00:24:47,040 --> 00:24:52,600 Speaker 1: What does it signal that there's a lesser lesser ample cash. Yeah, 471 00:24:52,600 --> 00:24:54,879 Speaker 1: it's a great question. I would say right now, the 472 00:24:55,000 --> 00:24:57,679 Speaker 1: one thing from the anti trust and obviously the target 473 00:24:57,720 --> 00:25:00,960 Speaker 1: on their back both in the beltways, wasn't you is 474 00:25:01,000 --> 00:25:03,160 Speaker 1: I think you'll see m and a slow down because 475 00:25:03,200 --> 00:25:05,600 Speaker 1: everything's going to get a second, third look, and you've 476 00:25:05,640 --> 00:25:09,080 Speaker 1: seen that across the board. You'll see more toward buy backs. 477 00:25:09,200 --> 00:25:12,320 Speaker 1: You will continue to see them take out debt um 478 00:25:12,480 --> 00:25:14,040 Speaker 1: you know, just given what they could do in the 479 00:25:14,119 --> 00:25:17,200 Speaker 1: balance sheet, and that's something from an invested perspective that 480 00:25:17,320 --> 00:25:21,440 Speaker 1: they want to see. Right now. They stronger getting stronger, 481 00:25:21,600 --> 00:25:24,240 Speaker 1: and if you look at these numbers, numbers continue to 482 00:25:24,280 --> 00:25:27,240 Speaker 1: go higher if they can defend thirty eight percent and 483 00:25:27,320 --> 00:25:30,080 Speaker 1: the tense of a decimal point of the margin expansion, 484 00:25:30,160 --> 00:25:34,960 Speaker 1: which is surprised everyone. Do they have the price elasticity 485 00:25:35,200 --> 00:25:38,960 Speaker 1: against unit growth to do that? What is the persistency 486 00:25:39,160 --> 00:25:43,119 Speaker 1: of that expanding margin if they have to defend the 487 00:25:43,280 --> 00:25:47,639 Speaker 1: unit growth or that's gonna be the question, especially as 488 00:25:47,640 --> 00:25:49,920 Speaker 1: you're going to iPhone twaves and in why to what 489 00:25:50,000 --> 00:25:53,000 Speaker 1: we're seeing from a consumer environment. I think they could 490 00:25:53,040 --> 00:25:55,679 Speaker 1: defend it. But also I think you'll see lower price points, 491 00:25:55,800 --> 00:25:58,520 Speaker 1: you know, in terms of sub a thousand on I phone, 492 00:25:58,600 --> 00:26:01,800 Speaker 1: because right now it's about the in and defending their moat, 493 00:26:02,119 --> 00:26:05,399 Speaker 1: especially in China and China that was the headline for 494 00:26:05,520 --> 00:26:08,320 Speaker 1: Apple in terms of China that rebound that scene. They're 495 00:26:08,480 --> 00:26:11,640 Speaker 1: just really a table pounder in terms of what we're 496 00:26:11,640 --> 00:26:16,000 Speaker 1: seeing from China in the Apple story. Yeah, I was 497 00:26:16,000 --> 00:26:18,640 Speaker 1: going to ask you actually actually down about Apple in China. 498 00:26:19,000 --> 00:26:21,639 Speaker 1: Are are they going to have serious, you know, concerns 499 00:26:22,040 --> 00:26:27,240 Speaker 1: of selling in China if the trade were escalates. Look, 500 00:26:27,280 --> 00:26:29,680 Speaker 1: and that's been the issue, especially over the last year, 501 00:26:29,760 --> 00:26:32,640 Speaker 1: where they're worried they'd be burning iPhones in the streets 502 00:26:33,160 --> 00:26:35,760 Speaker 1: of Beijing, and instead they were actually going into the 503 00:26:35,840 --> 00:26:38,960 Speaker 1: iPhone stores and behind them. And I think what you're 504 00:26:38,960 --> 00:26:42,520 Speaker 1: seeing is it's iPhone sales they're going to be from China. 505 00:26:43,160 --> 00:26:47,000 Speaker 1: That was up three four hundred bits higher than anyone 506 00:26:47,200 --> 00:26:50,239 Speaker 1: thought in terms of these numbers. And this is now 507 00:26:50,320 --> 00:26:52,720 Speaker 1: the drum roll into what I believe is their strongest 508 00:26:52,760 --> 00:26:56,080 Speaker 1: product cycle. It's two thousand fourteen. Darn, I want to 509 00:26:56,119 --> 00:26:58,320 Speaker 1: give you a sixty tho foot question. I want to 510 00:26:58,320 --> 00:27:01,119 Speaker 1: flip it over to Amazon that don't cover Amazon. I mean, 511 00:27:01,160 --> 00:27:06,000 Speaker 1: I get that, but I'm fascinated by Francine sees it 512 00:27:06,119 --> 00:27:11,280 Speaker 1: on Instagram, Francine searches it on Google, Francine buys it 513 00:27:11,400 --> 00:27:14,520 Speaker 1: off her iPhone and gets it in a cardboard box 514 00:27:14,600 --> 00:27:18,440 Speaker 1: from Amazon. Tim Cook said yesterday, this is not a 515 00:27:18,600 --> 00:27:22,119 Speaker 1: zero sum game where he's stealing for dollar for dollar 516 00:27:22,280 --> 00:27:26,200 Speaker 1: from bricks and mortar and traditional retail America. Do you 517 00:27:26,359 --> 00:27:30,680 Speaker 1: buy that that there's actually an expansion of society and 518 00:27:30,760 --> 00:27:35,239 Speaker 1: the good of society from this exercise. I think if 519 00:27:35,320 --> 00:27:38,520 Speaker 1: you look everything we're seeing in this pandemic and even 520 00:27:38,560 --> 00:27:41,520 Speaker 1: look at these numbers, it's really food, water, and fang 521 00:27:41,600 --> 00:27:45,320 Speaker 1: names in terms of the average consumer. And I think 522 00:27:45,359 --> 00:27:48,280 Speaker 1: the stronger getting stronger as we're seeing, and I think 523 00:27:48,359 --> 00:27:53,199 Speaker 1: that's something where that does become an issue obviously um 524 00:27:53,400 --> 00:27:56,320 Speaker 1: as as we see from the anti trust perspective. But 525 00:27:56,480 --> 00:27:59,000 Speaker 1: the one thing we're seeing is that that's it's a 526 00:27:59,080 --> 00:28:01,520 Speaker 1: double edged sore. Then we're seeing investors like could the 527 00:28:01,600 --> 00:28:03,960 Speaker 1: regulators will be focused on it? You raise your price 528 00:28:04,000 --> 00:28:06,680 Speaker 1: target to four seventy five, cut to the chase. What's 529 00:28:06,720 --> 00:28:08,840 Speaker 1: the sum of the parts if they have to go oh, 530 00:28:08,960 --> 00:28:11,280 Speaker 1: I had a tarbell and break up like standard oil 531 00:28:11,359 --> 00:28:14,040 Speaker 1: just to take Apple. I mean, how close is some 532 00:28:14,200 --> 00:28:18,960 Speaker 1: of the parts to your new price target for seventy five? Yeah, 533 00:28:19,119 --> 00:28:22,719 Speaker 1: for about a new bull case five fifty five fifty 534 00:28:23,600 --> 00:28:26,480 Speaker 1: five kickty for bull Case. And if I kind of 535 00:28:26,560 --> 00:28:29,639 Speaker 1: break that down, I believe the services business right now 536 00:28:29,880 --> 00:28:34,399 Speaker 1: is worth potentially seven to eight billion. And then you 537 00:28:34,520 --> 00:28:38,240 Speaker 1: look at the core iconic iPhone hardware business that could 538 00:28:38,280 --> 00:28:40,600 Speaker 1: be worth one point five trillions. So you put that 539 00:28:40,760 --> 00:28:43,479 Speaker 1: together and I think this is a three trillion dollars 540 00:28:43,600 --> 00:28:47,560 Speaker 1: dock by the end of the year. Okay, unless what 541 00:28:47,680 --> 00:28:50,200 Speaker 1: could derail is there one thing done that you worry 542 00:28:50,200 --> 00:28:53,600 Speaker 1: about them? The mean thing that could derail it is 543 00:28:53,680 --> 00:28:58,880 Speaker 1: the supply chain continues to tee mejor issues. iPhone twelve 544 00:28:59,080 --> 00:29:03,280 Speaker 1: pushed out no further even past holiday season, but a 545 00:29:03,440 --> 00:29:08,720 Speaker 1: definitely that looks like a very negligible chance happened. Why 546 00:29:08,760 --> 00:29:11,040 Speaker 1: do we why do we need a new toy? I mean, 547 00:29:11,160 --> 00:29:13,600 Speaker 1: let me speak for my children right now. They all 548 00:29:13,760 --> 00:29:16,800 Speaker 1: just got new toys. When does the gravy train end 549 00:29:17,160 --> 00:29:22,400 Speaker 1: that everybody needs an iPhone twelve or fourteen. Yeah, and 550 00:29:22,560 --> 00:29:25,320 Speaker 1: really the number that that I think dictates why you 551 00:29:25,400 --> 00:29:29,440 Speaker 1: own the stock. Three D fifty millions of nine million 552 00:29:29,520 --> 00:29:32,880 Speaker 1: iPhones have not upgraded their phones in three and a 553 00:29:33,000 --> 00:29:37,160 Speaker 1: half years. That's the supercycle going into what's gonna beet 554 00:29:37,160 --> 00:29:39,640 Speaker 1: five G. And if you look in the US as 555 00:29:39,680 --> 00:29:43,400 Speaker 1: well as in China from pcent, buy a new iPhone 556 00:29:43,440 --> 00:29:46,680 Speaker 1: that already have one, and that continues to be why 557 00:29:46,800 --> 00:29:51,680 Speaker 1: that's a golden brand, that cooking Coppertino built. Smart conversation, Dan, 558 00:29:51,760 --> 00:29:53,920 Speaker 1: I thank you so much, thanks for listening to the 559 00:29:53,960 --> 00:29:59,440 Speaker 1: Bloomberg Savannas podcast. Subscribe and listen to interviews on Apple podcasts, 560 00:29:59,760 --> 00:30:04,280 Speaker 1: so in Cloud or whichever podcast platform you prefer. I'm 561 00:30:04,360 --> 00:30:07,600 Speaker 1: on Twitter at Tom Keane before the podcast. You can 562 00:30:07,680 --> 00:30:10,840 Speaker 1: always catch us worldwide. I'm Bloomberg Radio