Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business App. What a
Speaker 1: joy to see her in London. Sree Kachigovin and joins
Speaker 1: us right now, senior research economists at Aberdeen three. I'm
Speaker 1: absolutely fascinated by how the US stands alone, how Jerome
Speaker 1: Powell yesterday stood alone with massive stimulus leading into massive
Speaker 1: real GDP. Does the United Kingdom, where Governor Bailey stands now,
Speaker 1: do they need stimulus to keep it going?
Speaker 2: I think stimulus would probably not be a good idea
Speaker 2: at this point. Really, what we want to tackle is inflation.
Speaker 3: Now.
Speaker 2: The Bank of England have a very challenging backdrop. Growth
Speaker 2: outlook is weakening, but we still have very elevated inflation pressures.
Speaker 2: Now inflation is past the peak, it has started to decelerate. However,
Speaker 2: energy costs are still quite elevated. The headline inflation is
Speaker 2: still very high. And also we have even though those
Speaker 2: multi price based effects will start to unwind over time,
Speaker 2: we still have very sticky core services and wage pressures
Speaker 2: in place. So stimulus right now would not be a
Speaker 2: good idea for the UK. Now it's not restrictive fiscal
Speaker 2: background at the moment, but further stimulus would actually not be.
Speaker 4: Helpful with the Here's a fun fact from the Bloomberg
Speaker 4: News story that Lucy White wrote for US. Ben Bernanke
Speaker 4: actually attended the Bank of England's meeting as an observer.
Speaker 4: It's part of his review into the UK central banks
Speaker 4: forecasting communications. And of course this comes as Bailey has
Speaker 4: faced some criticism that they didn't move quickly enough to
Speaker 4: respond to inflation. Sree, can you compare and contrast the
Speaker 4: efficacy of communication at the BAIE versus the FED.
Speaker 2: I think, as we mentioned earlier, there was a conversation
Speaker 2: about group think. There is a split within the within
Speaker 2: the Bank of England, and I think the communication has
Speaker 2: been quite clear from the various members. We've had the
Speaker 2: arguments for staying on hold, the arguments for perhaps another
Speaker 2: an additional hike, and all of those are quite consistent
Speaker 2: actually with the data that we're seeing. But it seems
Speaker 2: that on the whole we are witnessing switch towards a
Speaker 2: focus on growth and the weaker activity data and some
Speaker 2: greater faith in terms of inflation actually passed the peak
Speaker 2: and decelerating from here. So we're also seeing there. So
Speaker 2: we have a signal from the split in the vote,
Speaker 2: and we also have that signal well, very very clear
Speaker 2: in terms of rates are going to be on hold
Speaker 2: for a meaningful period of time, even if, as we expect,
Speaker 2: the economy enters a recession, rates are going to remain
Speaker 2: quite elevated. And that's quite a burden for small companies
Speaker 2: in particular who are much more sensitive to the rate cycle.
Speaker 2: They are facing a profit squeeze. There is a bit
Speaker 2: of an issue there in terms of future business investment
Speaker 2: and so there are a number of challenges there, particularly
Speaker 2: for the smaller, smaller firms. So that's something that the
Speaker 2: Bank of England are going to have to really be
Speaker 2: wary of.
Speaker 4: Yeah, credit availability for small firm is always an issue,
Speaker 4: whether it's stateside or across the pond street. When it
Speaker 4: comes to the stimulus versus austerity debate, that time was
Speaker 4: referencing how does the Bank of England's decision to keep
Speaker 4: rates on hold for a second straight meeting and warn
Speaker 4: about a possible recession, warn about the need to perhaps
Speaker 4: raise rates in the future of inflation reaccelerates. How does
Speaker 4: that restrain or limit the government's options when it comes
Speaker 4: to supporting the economy.
Speaker 2: I think the government is also very aware, and we
Speaker 2: have heard from Sunak p at the Prime Minister. We
Speaker 2: have heard that there is a focus on inflation even
Speaker 2: within the government. Yes, they do have an election coming up,
Speaker 2: but they're worried about stimulus too soon and too much
Speaker 2: stimulus too soon. So I think they're going to pair
Speaker 2: back on any measures that are going to fuel inflation. Further,
Speaker 2: I think that's also concerned from them, get every challenging
Speaker 2: decision for them, given that there is an election on
Speaker 2: the horizon.
Speaker 1: Are all the gains in the United Kingdom focused on London?
Speaker 1: I mean, I mean, is it like, you know, the
Speaker 1: dominance of Paris and France. Are all the economic gains
Speaker 1: which you have been tangible here have they been focused
Speaker 1: on the south of England?
Speaker 2: Well, there has been a big debate for a number
Speaker 2: of years with regards to the regional disparities, and that
Speaker 2: was something that for a few years there have been
Speaker 2: some focus on what are the policies that can help
Speaker 2: level up the economic outlook. However, it has been quite
Speaker 2: challenging in order to do that with the pandemic recovery
Speaker 2: from the pandemic. And I think the leveling up policies
Speaker 2: may be, you know, they're on the horizon in the future,
Speaker 2: but right now, really the focus is quite narrow. That
Speaker 2: regional disparity, unfortunately, is still very much there.
Speaker 1: Christrie, thank you so much. Cut your govid in with
Speaker 1: us with Aberdeen joining us now. On the other points
Speaker 1: in the Wars of Washington, Gregory Vellier, he's chief US
Speaker 1: Policy Strategistic AGF Investments. Greg I believe it is November,
Speaker 1: that's twelve months away from an election. Take the drama
Speaker 1: of October in our many wars and fold it into
Speaker 1: how things change twelve months before an election. How does
Speaker 1: your world change given the pending one year out election.
Speaker 5: Well, good morning time. So many unknowns. I'd say one
Speaker 5: big one is Benjamin Netanaihu. If you saw the extraordinary
Speaker 5: story in the New York Times on Monday talking about
Speaker 5: how Israel and Netanaihu were blindsided by Hamas they got
Speaker 5: totally caught off guard. There's going to be recriminations. I
Speaker 5: think that has to be looked at very carefully. There's
Speaker 5: the FED and there's this continuing fight in the House
Speaker 5: between fairly moderate Republicans and the right wing. That fight
Speaker 5: is about to resume within days.
Speaker 4: Right, But you've got a right wing Speaker of the House. Now,
Speaker 4: shouldn't that restore some order in the House.
Speaker 5: One would think Scarlet wouldn't one, But I'm not quite
Speaker 5: sure about that. I think that even a handful four
Speaker 5: or five House Republicans could block this next spending bill.
Speaker 5: And there are Republicans in the House who don't want
Speaker 5: to spend money on Ukraine, as you guys know, and
Speaker 5: some lukewarm attitudes toward Israel. But the big fights still
Speaker 5: is a budget. We have a budget deadline in about
Speaker 5: two weeks and they're not close to being done.
Speaker 4: Yeah, and so we're watching that November seventeenth deadline very carefully.
Speaker 4: I want to get your take also on what the
Speaker 4: economy means for the presidential election tries. It might The
Speaker 4: White House has been selling Bidenomics, but it's not doing
Speaker 4: very well. When consumers are feeling pretty sour. What does
Speaker 4: the current FED policy mean for the economy in twenty
Speaker 4: twenty four.
Speaker 5: Well, I think there's maybe some relief among consumers that
Speaker 5: the FED didn't raise race. But I thought you and
Speaker 5: Tom a few minutes ago hit it perfectly talking about
Speaker 5: food prices. I mean, food prices are up. What did
Speaker 5: you guys say, nineteen percent cumulative?
Speaker 1: Yeah, over three years.
Speaker 5: Over three years, But that leaves an awful lot of people,
Speaker 5: maybe not us, but leaves an awful lot of people
Speaker 5: discouraged that this is not improving.
Speaker 1: Yeah. What's important there, Scarlett, is the USDA with this
Speaker 1: is really good data from the US Department of Agriculture.
Speaker 1: They say that for the have nots of America, it's
Speaker 1: not third world, but thirty percent of their compensation is
Speaker 1: going to food.
Speaker 4: Which means thirty percent of their conversation is not going
Speaker 4: to discretionary spending or anything else that usually supports the economy. Greg,
Speaker 4: I want to bring it back once again to FED
Speaker 4: policy in the economy in twenty twenty four because J.
Speaker 4: Powell's term expires as FED chaer in early twenty twenty six.
Speaker 4: So whoever wins the twenty four to four election, would
Speaker 4: get to pick the next FED chair. What does that
Speaker 4: mean to you? And I bring this up because if
Speaker 4: Donald Trump wins the nomination, yes he nominated Powell as fedchair,
Speaker 4: but he also nominated Judy Shelton as a FED governor.
Speaker 3: Yeah.
Speaker 5: I think if Biden wins, obviously he'll try to keep
Speaker 5: at Jerome Powell. If Trump wins, he will fire and
Speaker 5: get rid of Powell as quickly as possible, and that
Speaker 5: will I think cost some anxiety for the markets. You know,
Speaker 5: one other quick point I would make about what we
Speaker 5: could see in the next year or so that maybe
Speaker 5: is outside of the box. I go to piece this
Speaker 5: morning on Robert F. Kennedy Junior. There's a new poll
Speaker 5: out overnight from Quinnipiac showing him a twenty two percent
Speaker 5: that I was surprised. I think a lot of people
Speaker 5: were surprised to see that. And I do think that
Speaker 5: he will take away from Joe Biden, young people, independence,
Speaker 5: African Americans, environmentalists.
Speaker 1: Robert F.
Speaker 5: Kennedy Jr. Is not going to be the next president,
Speaker 5: but he may determine who will be.
Speaker 1: Craig Villie, thank you so much. With AGF investments, we
Speaker 1: can rip up the script with a gentleman that worked
Speaker 1: in the macroeconomic section at the FED. Jonathan Pingle joins
Speaker 1: the course with UBS, their chief US economists, John I'm sorry,
Speaker 1: I got to go here, and Julia Cornado XBMB Perry
Speaker 1: by Macro turns his way out in front of this.
Speaker 1: Are we completely misguessing the efficiency, the productivity, the technological
Speaker 1: advancement of America? Are we just flat out to pessimistic?
Speaker 6: Well, I mean it's hard to know what the expectations are,
Speaker 6: right there aren't that many people as in the weeds
Speaker 6: on productivity, you know, on the immigration rebound as Julia,
Speaker 6: and you know, give Julia a lot of props since
Speaker 6: we were at the board together a year long time ago.
Speaker 6: But I would say two things, and Sheer Powell touched
Speaker 6: on this yesterday. One is, you know, we have been
Speaker 6: seeing a pretty impressive rebound and labor supply and that's
Speaker 6: been both the combination of you know, a significant improvement
Speaker 6: and net international migration coming.
Speaker 3: Out of the pandemic.
Speaker 6: In addition to you know, some groups like prime age
Speaker 6: women punching out new all time highs and their labor
Speaker 6: force participation rates. And you know, we've certainly been writing
Speaker 6: about that, and Julia's done a good job as well
Speaker 6: on the productivity stuff. Though we do have to remember
Speaker 6: that productivity was incredibly weak as we went through the
Speaker 6: pandemic and immediately coming out, so we did have a
Speaker 6: fair amount of catch up to do. And when we
Speaker 6: look at sort of the longer run trends after today's data,
Speaker 6: just mathematically you are going to be a little bit
Speaker 6: above the longer run trends. So it is good news,
Speaker 6: but you're actually really still not that far from what
Speaker 6: we were seeing pre COVID. But I will say together,
Speaker 6: I think it's right. We're seeing nominal wage gains slow,
Speaker 6: and some of that is these supply side improvements and
Speaker 6: unit labor costs dropping. You know, we were forecasting a
Speaker 6: seven to ten drop. You know that is the result
Speaker 6: of the slowness we saw in average hourly earnings combined
Speaker 6: with basically five percent GDP growth in the third quarter.
Speaker 3: So that's a good supply side story.
Speaker 1: Tell me about course services. The chairman didn't talk about
Speaker 1: it much yesterday, but are we seeing a service sector
Speaker 1: disinflation to give confidence to an outright goods deflation?
Speaker 3: We are?
Speaker 6: I mean, we've had We've had some positive news on
Speaker 6: the core services over the last several months, but I
Speaker 6: would say we're sort of not out of the woods yet,
Speaker 6: right Like, you know, I think that's one of the
Speaker 6: reasons Chair Powell yesterday, you know, and Mike McKee did
Speaker 6: a great job with his you know, trying to pin
Speaker 6: the chair down on the objective versus subjective decision. But
Speaker 6: what we want to see is a little bit more
Speaker 6: slowing in the labor market in order to see more
Speaker 6: slowing in those components of inflation, because if we look
Speaker 6: at the ECI, it does look like wage gains are
Speaker 6: still a little too risk to be consistent with sustainable
Speaker 6: two percent inflation. So I do think the Chair and
Speaker 6: Mike was just saying this, they do need to get
Speaker 6: the labor market to slow here if they are going
Speaker 6: to achieve their mandate and restore price stability.
Speaker 4: All right, this is clearly a big, big week for
Speaker 4: labor market data. You had ADP employment change jolts and
Speaker 4: of course jobless claims this morning. Unit labor costs as
Speaker 4: well in productivity. We know that the UAW has come
Speaker 4: to agreements with the automakers, but if you are an
Speaker 4: union organizer and I'm thinking of the Actors Guild, for instance,
Speaker 4: that is still on strike. What is your takeaway from
Speaker 4: the flood of data that we've gotten on the labor
Speaker 4: market right now?
Speaker 6: Well, land market's still tight, right so you know, so
Speaker 6: you know, even I mean, and I don't really think
Speaker 6: you need to look much beyond the unemployment rate at
Speaker 6: three point eight percent to say, you know, the nation's
Speaker 6: at full employment and markets are tight, and you know
Speaker 6: you've got a point here where there might be some
Speaker 6: bargaining power for workers. The other interesting thing about a
Speaker 6: number of these strikes is there are a lot of
Speaker 6: non wage issues at stake. You know, you're talking about,
Speaker 6: you know, the use of AI for the actors, you're
Speaker 6: talking about, you know, the shift to electric vehicles amongst
Speaker 6: the UAW. And that's actually been sort of an interesting
Speaker 6: aspect where, you know, a lot of these labor negotiations
Speaker 6: it's not just about the wages, you know, it's really
Speaker 6: also about sort of these changing industry dynamics that they
Speaker 6: want to protect their workers from.
Speaker 4: So how does that show up in the data, How
Speaker 4: does that show up in the economy in what's measurable.
Speaker 6: Well, we should definitely see the impact of the UAW
Speaker 6: strike tomorrow. In tomorrow's data, you know, the BLS released
Speaker 6: their strike report. You know, between the strikes the Big
Speaker 6: Three and Mac Trucks, that should be about a thirty
Speaker 6: thousand job reduction in motor vehicle and parts assemblies employment.
Speaker 6: You'll see it in Table B and B one of
Speaker 6: the employment situation release. So we should definitely see that
Speaker 6: way on the employer report tomorrow, but that'll rebound in
Speaker 6: the subsequent in the subsequent report. And I think the
Speaker 6: bigger picture is that you have put in place for
Speaker 6: some of these contracts, you know, a return to things
Speaker 6: like you know, cost of living adjustments, et cetera. So
Speaker 6: this should generally mean for these workers somewhat firmer wage
Speaker 6: gains over the next few years than would have otherwise
Speaker 6: been the case.
Speaker 1: Jonathan Tingle, thank you for the brief, particularly there quickly
Speaker 1: on advancing productivity is with UBS. I love saying this
Speaker 1: the Union Bank of Switzerland. We're going to get complicated
Speaker 1: here and straighten this out. Hulu being taken out by Disney.
Speaker 1: Brian robertson Comcast unloading the Dogkeetha Ranganathen of Bloomberg Intelligence
Speaker 1: is truly encyclopedic on this near nine billion dollar that transaction. Getha,
Speaker 1: I'm lost here. Is Comcast happy today that they unloaded
Speaker 1: the stock or is this the deal of a lifetime
Speaker 1: for mister Eiger?
Speaker 7: So this is this is, as you just pointed out
Speaker 7: on this is a pretty complicated transaction. All that we
Speaker 7: got yesterday was that Disney is definitely buying out comcast
Speaker 7: thirty three percent stake. So Disney already owns two thirds
Speaker 7: of Hulu, so we know for certain that Comcast is
Speaker 7: offloading it who Disney is buying it? Now the biggest
Speaker 7: question here is going to be price. So we know
Speaker 7: the floor value was set at twenty seven billion. Disney
Speaker 7: actually came out yes, they're saying that they do expect
Speaker 7: to make that initial payment of you know, eight it's
Speaker 7: actually nine billion minus some capital calls, which which is
Speaker 7: why you get the eight point six billion. But really
Speaker 7: the point is going to be how much greater than
Speaker 7: twenty seven billion is the valuation going to be? And
Speaker 7: that is where all of the complexity is going to
Speaker 7: arise over the next few months.
Speaker 1: I mean, John Pharaoh is addicted to Hulu. He's just
Speaker 1: you know, he like binge watches Love Island USA and
Speaker 1: the rest of it. GITHA doesn't matter who watches this
Speaker 1: stuff in this transaction or is this just people distant
Speaker 1: from what we watch every day?
Speaker 7: I mean, Hulu has forty eight million subscribers some so
Speaker 7: it is a very very successful streaming service. You're absolutely right.
Speaker 7: It has a very deep catalog of classics.
Speaker 1: It has all of us Keith, You're not going to
Speaker 1: sell surveillances audience. The Love Island USA is a classic.
Speaker 7: Continue well, it has you know, it has a lot
Speaker 7: of the must watch shows, right you brought up the
Speaker 7: Bear Only Murders in the Building is show. It has
Speaker 7: a lot of shows that come up from broadcast TV,
Speaker 7: so it's a great catch up service. And it also
Speaker 7: has kind of this live Hulu Plus live option as well.
Speaker 7: So there are a lot of different flavors that it offers.
Speaker 7: But I think the biggest thing for Disney is really
Speaker 7: the ad component of it. If there is any streaming
Speaker 7: service out there that has got advertising right, it is Hulu.
Speaker 7: We know that Netflix is struggling with that right now,
Speaker 7: so is Disney Plus. So are a lot of the
Speaker 7: established services. Amazon is looking to bring an advertising service.
Speaker 7: Hulu is the one established brand already bringing in about
Speaker 7: three three and a half billion dollars in AD revenue.
Speaker 7: So that infrastructure is a gold mine and is super
Speaker 7: valuable to Disney.
Speaker 4: And for that reason, Hulu is one of the few
Speaker 4: profitable streamers. Netflix of course another profitable streamer here. But
Speaker 4: what is it about the ad packaging that Hulu has
Speaker 4: figured out. As a consumer of Hulu, it's really frustrating
Speaker 4: to see the same Tom Brady hurts commercial over and
Speaker 4: over again.
Speaker 7: No, you're absolutely right, But at the same time, I mean,
Speaker 7: this is a company, you know, obviously they have They
Speaker 7: are the ones that have ads, that have had ads
Speaker 7: on now for the longest period of time. They've built
Speaker 7: all these different they've built very a very very robust
Speaker 7: AD stack, and they've also kind of made all these
Speaker 7: different you know, relationships with advertisers. Of course, you have
Speaker 7: the larger Disney brand as well at work there, but
Speaker 7: that is something where they've really been able to crack
Speaker 7: the code. I mean, Hulu is one service where you
Speaker 7: have majority of you know, the consumers on the on
Speaker 7: the ads supported option, which is what has made it such,
Speaker 7: you know, so successful in what it's set out to do.
Speaker 4: Disney says it has enough cash and credit to buy Hulu,
Speaker 4: whereas Comcasts will be using the proceeds to boost its
Speaker 4: accelerate its stock repurchase program. When this financial transaction is completed,
Speaker 4: does it move the needle at all for either Disney
Speaker 4: or Comcast stock.
Speaker 7: I think it definitely moves the needle for Disney because
Speaker 7: this removes a key overhang. Remember, there are so many
Speaker 7: strategic questions that are still kind of pending for Barb Biger,
Speaker 7: whether it's the future of ESPN, whether it's the sale
Speaker 7: of the ABC network, and so, you know, kind of
Speaker 7: just closing this deal with Hulu and then integrating it
Speaker 7: with Disney Plus, I think just removes a key overhang
Speaker 7: for the stock.
Speaker 1: Five years out, do they mate. Do you see Hulu
Speaker 1: combined with Disney Plus to really take on Netflix as
Speaker 1: a combined adult in kids' entity.
Speaker 7: Absolutely, I think that is what the plan is. I mean,
Speaker 7: at the end of the day, they are looking to
Speaker 7: get synergies across the board in their streaming product because
Speaker 7: Disney Plus is still losing money. It is still going
Speaker 7: to lose about two and a half three billion dollars
Speaker 7: this year. But I think when you combine this we're
Speaker 7: looking at savings of at least one one and a
Speaker 7: half billion dollars. I think it's definitely going to accelerate
Speaker 7: streaming crafitability for Disney.
Speaker 4: Synergy to me means rebundling, So you're going to have
Speaker 4: to pay some big, heftier price to get all these
Speaker 4: different channels or streamers into twenty.
Speaker 1: That's what Paul Sweeney would say as well. What I'm
Speaker 1: fascinated by is when we're all said and done with this.
Speaker 1: I mean, there's Hulu and there's Disney Plus, and they're
Speaker 1: going to merge and they're gonna take on Netflix. Keitha,
Speaker 1: do you see a true duopoly out there? Is that
Speaker 1: where streaming is heading?
Speaker 7: It definitely is heading there, Tom, There's no doubt about it.
Speaker 7: I mean Netflix is far ahead of the competition. They
Speaker 7: have almost two hundred and fifty million subscribers. We do
Speaker 7: see them getting to three hundred million over you know,
Speaker 7: maybe the next few years. But yes, this is kind
Speaker 7: of very much turning into you know, Netflix versus Disney
Speaker 7: versus most probably Amazon. So yeah, maybe a tryal Max HBO. Yeah,
Speaker 7: that's a tough one, you know, Hbo Max. You know,
Speaker 7: she's got to be a second tier.
Speaker 4: Service, second tier look at it.
Speaker 1: She's just like, Wow, you know what's so bad about that?
Speaker 1: And this goes, this goes with Discovery Plus and Max
Speaker 1: and all that is. You know where am I going
Speaker 1: to see ninety day fiance?
Speaker 4: I know you're addicted to it.
Speaker 1: If it doesn't work, O Githa ruganof and thank you
Speaker 1: so much. I think I learned something there. Pierre Farragu
Speaker 1: wrote the Black Books for Bernstein and Technology for years. Yes,
Speaker 1: he's got a fancy title Global Technology Infrastructure at New Street,
Speaker 1: but the answer is once and forever he will always
Speaker 1: own the Black Books over at Alliance Bernstein Peer. Thank you, Pierre,
Speaker 1: Thank you so much for joining us. And you have
Speaker 1: been cautious on Apple. Is now a time to buy
Speaker 1: the shares? After the lassitude that we've seen over the
Speaker 1: last twelve months.
Speaker 8: I would have liked to say yes, but unfortunately, and
Speaker 8: the reason why I would have liked to say yes
Speaker 8: is because sentiment is very very low on the name.
Speaker 8: You know, sixty percent by ratings and forty percent sale
Speaker 8: and a neutral rating for that name. It's very very
Speaker 8: It's as low as can be, I would say. So
Speaker 8: we've had like a very slow yeer. You know, three
Speaker 8: after in a row in negative growth, we're getting back
Speaker 8: to politive growth probably on the guide, but it's just
Speaker 8: because we're hitting like the the easier compare now and
Speaker 8: so that slowdown, like the stock reacted relatively well to
Speaker 8: that slowdown. If you look at the Apple stock, it
Speaker 8: roughly tracked the NASDAK. So not much happened on the stock.
Speaker 8: And the reason why you know I wouldn't jump on
Speaker 8: board now is first not a significant pullback so valuation.
Speaker 8: You're still paying like a hefty premium for our early
Speaker 8: It's partly justified, of course, for the quality of the franchise.
Speaker 8: But you know what happens next that really creates a
Speaker 8: surprise and gets the stock to work. From here, the
Speaker 8: high kinmentalist.
Speaker 1: The harder matter pere single digit revenue growth. So I
Speaker 1: went back to the pandemic and basically sales are up
Speaker 1: forty seven percent from twenty nineteen, but the free cares
Speaker 1: flow generation after that is up seventy one percent. In
Speaker 1: your caution, are you suggesting that that formula they have
Speaker 1: of operating leverage, of generating ebit, of generating free cash
Speaker 1: flow is now broken? Given single digit revenue growth.
Speaker 3: No, I think it still works.
Speaker 8: But you know, of five percent revenue growth, you don't
Speaker 8: you don't generate as much free castural growth. So the
Speaker 8: way I like to think about it is out of
Speaker 8: like you know, between three and five percent revenue growth
Speaker 8: apper it can generate you know, you know, above five percent,
Speaker 8: like six seven percent earnings DIVIDI and free casual growth
Speaker 8: on a sustainable basis through like systematic buyback, through operating
Speaker 8: leverages that there are. So there is definitely a huge
Speaker 8: amount of quality there and a very strong benitry as
Speaker 8: you just mentioned.
Speaker 3: So all that is worth su premium.
Speaker 8: When you look at Apple today, it's straight on twenty
Speaker 8: seven times, you know, for for our earnings status and
Speaker 8: plus names who grow between five and ten percent anum,
Speaker 8: the overall economics are treading on like twenty two times,
Speaker 8: So you have a significant premium. So you won't have
Speaker 8: like a evaluation surprise out of this very healthy, very
Speaker 8: high quality model.
Speaker 3: And so when you own the Stoke today, you have to.
Speaker 8: To believe this premium is going to remain, which I
Speaker 8: think is fine, but you can't expect like a sudden
Speaker 8: jump and a sudden increase in valuation multiple unless you
Speaker 8: have a new growth story, and that's where it's kind
Speaker 8: of difficult to expect that.
Speaker 3: To cor right.
Speaker 4: The China part of the equation is not a growth
Speaker 4: story for Apple right now. How is May sixty pro
Speaker 4: getting a lot of attention kind of stealing the thunder
Speaker 4: in many ways? And Apple bears will always point to
Speaker 4: the China demand for iPhone fifteen as a reason to
Speaker 4: not be optimistic. How does Tim Cook frame the negative
Speaker 4: headlines that are hitting Apple out of China, whether it's
Speaker 4: the sixty pro or whether it's Beijing's ban of using
Speaker 4: foreign phones for government workers or stayed owned enterprises.
Speaker 3: Yeah, so I think it's a very good question. It's
Speaker 3: a source of concern.
Speaker 8: Interestingly, I don't think it's going to materialize that quickly
Speaker 8: because like the new Qua Way phone is really like
Speaker 8: in early innings, you know, they probably don't have a
Speaker 8: strong case to be that competitive against the iPhone.
Speaker 3: But it's true that.
Speaker 8: You know, in this junk you mentioned since twoenty and
Speaker 8: twenty term, a lot of that was like what we're
Speaker 8: getting out of the picture in China and Apple really
Speaker 8: like gaining about twenty million XI units iPhone units combined
Speaker 8: with an increase in a spit and so that part
Speaker 8: of the business I think is true is kind of
Speaker 8: a trick over the next couple of years. Because China,
Speaker 8: China might be able to put together alternative to the AFO,
Speaker 8: the aphone remained like an exceptional product. You know, this
Speaker 8: is the only phone at a string animeter manufacturing a
Speaker 8: note for the main shift exceptional quality, exceptional like integrated.
Speaker 3: Software and hardware that there are.
Speaker 8: So I wouldn't say the Chinese are going to create
Speaker 8: the fund that can compete with the iPhone, but we
Speaker 8: know that in the past about twenty million funds we
Speaker 8: are selling at Huawei, and when Huawei dies appeared that
Speaker 8: market seem to have moved straight into Apple's hands. I see,
Speaker 8: and that's that's a concern of course.
Speaker 4: So how about Apple and AI? I mean, Apple was
Speaker 4: kind of left behind when Chat, GPT and all the
Speaker 4: other AI tools you know, took over the zeitgeist. I
Speaker 4: know Apple's working on things with relaated relative to Siri,
Speaker 4: and how can incorporate more generative AI into its products?
Speaker 4: Is this something that has reached a point where investors
Speaker 4: can can model it?
Speaker 8: No, So I think on the business model of Apple,
Speaker 8: you know, with making all its profits from selling hardware
Speaker 8: and then selling like mostly subscription services over this hardware,
Speaker 8: Like you know, the kind of like magical one trick
Speaker 8: where you can chart like thirty dollars a months for
Speaker 8: a generative AI based services that does doesn't really exist.
Speaker 8: The way I see it is that for Apple, generative
Speaker 8: are is going to be more of a defensive move.
Speaker 8: Siria has never been exceptionally impressive in terms of what
Speaker 8: it can achieve in terms of voice recognition and user
Speaker 8: user service. Apoba is going to continue to do their
Speaker 8: best to enhance the overall user experience with generative AI,
Speaker 8: But I don't see that as like as a revenue
Speaker 8: enhancement for them as it could be for like a
Speaker 8: Microsoft or Google and metal and advertising and things like that.
Speaker 1: Heard you just to finish here, is the Apple such
Speaker 1: a animal like you were mugged by your kids to
Speaker 1: go out and buy more toys like bram or like
Speaker 1: food like King. I mean you're on the same game.
Speaker 1: Are you suggesting that this is a stock that treads
Speaker 1: water for five years or are you actually looking for
Speaker 1: a diminished share price?
Speaker 8: So that's I think from from here over the next
Speaker 8: five years, I think that's a stock that can compound
Speaker 8: with its earnings power or its dividend power, so you know,
Speaker 8: it can compound like in single digits, maybe high single digits,
Speaker 8: so it's not it's not too bad for a very
Speaker 8: high quality name. And then I would look at buying
Speaker 8: it only if there is a bit of a dislocation
Speaker 8: at some point, like a loss in confidence if this
Speaker 8: quality I see that Apple wasn't there all the time.
Speaker 8: And so if you see like a weakness coming out
Speaker 8: of China or things like that, and if the stock
Speaker 8: is hurt by that, I think I would be I
Speaker 8: would be baking to revisit and look at, you know,
Speaker 8: getting into the name at a more attractive evaluation because
Speaker 8: when you're talking, companding and valuation is almost everything, because
Speaker 8: that's that's what drives, you know, your ability to buy
Speaker 8: back your stock more efficiently and things like that. So
Speaker 8: I really think you need a lower melteaper to make
Speaker 8: Apple compelling, like you know, single legy companding opportunity, and
Speaker 8: then a kind of like a breakthrough opportunity, you know,
Speaker 8: an opportunity to increase prices, to increase in clevolume, to
Speaker 8: launch a new products.
Speaker 3: Difficult to see that on the horizon.
Speaker 1: To be honest, Pierre, thank you for the brief peer
Speaker 1: fargu for some real Apple caution. They're different than the
Speaker 1: fanboys that so many people speak of. Subscribe to the
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Speaker 1: for listening. I'm Tim Keane and this is Blumber
Speaker 3: Hm