Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. We begin the South
Speaker 2: with our top story, Apple's Tim Kirk stepping down following
Speaker 2: fifteen years of the helm, naming John Turners as its
Speaker 2: next leader. Tom Ford of Max and grew with this
Speaker 2: to say, the naming of mister Turners as CEO is
Speaker 2: an indication that Apple still considers itself as a halfware
Speaker 2: first company. We look to see how well Apple capitalizes
Speaker 2: on AI. Tom joins us now for more. Tom, welcome
Speaker 2: to the program. Is this a continuity candidate and is
Speaker 2: that what this company needs?
Speaker 3: Now? This is absolutely a continuity candidate as you're referring
Speaker 3: to it. I believe Tim cook handcooked handpicked John Turnas
Speaker 3: to succeed him, as Steve Jobs handpicked Tim Cook to
Speaker 3: precede him beforehand. Does Apple need a continuity candidate? So
Speaker 3: I think that we'll be measuring John Turnas's tenure at
Speaker 3: Apple on the company's ability to capitalize on AI. How
Speaker 3: long can he extend the iPhone life cycle it's already
Speaker 3: nineteen years? And will he be more like Steve Jobs
Speaker 3: and less like Tim Cook and be able to determine
Speaker 3: what the next device the consumers want that they may
Speaker 3: not know that they want smart glasses, foldable iPhones, Will
Speaker 3: they give the car another attempt? Will they work on
Speaker 3: more connected home devices? So those are the things we'll
Speaker 3: be measuring John's performance in the future. Tom.
Speaker 4: Why now?
Speaker 1: Why is Tim Cook stepping down at a time of
Speaker 1: tumult ahead of what could be the biggest revolutionary aspect
Speaker 1: or evolution in technology?
Speaker 5: I think you could argue, Lisa that why now?
Speaker 3: Tim Cook has got the company in an amazing position
Speaker 3: when you think of the challenges it faces. He's diversified
Speaker 3: the supply chain, so they're less dependent on China. They
Speaker 3: now rely on China and India and Vietnam at least
Speaker 3: on a near term basis. He's addressed the AI challenges
Speaker 3: by having a strategic partnership with Google to ultimately enable
Speaker 3: them to enhance Siri, and he hands over a very
Speaker 3: strong company. When you think about that twenty percent growth
Speaker 3: in iPhone revenue in the December quarter, So I think,
Speaker 3: why now He's handing off a very strong Apple to John,
Speaker 3: and he's addressed a lot of the near term challenges
Speaker 3: for the company.
Speaker 1: One thing Tom that we've been noting for a number
Speaker 1: of months now is that the other big tech companies
Speaker 1: have all been investing hundreds of billions of dollars into
Speaker 1: the tech evolution. Apple's been relatively investment light. They have
Speaker 1: kept their kind of capital light profile. Well, do you
Speaker 1: expect that to change as Apple tries to be more
Speaker 1: forward looking and come up with new products.
Speaker 3: I don't expect it to change unless John pivots the
Speaker 3: strategy and Apple changes its emphasis on AI to focus
Speaker 3: perhaps on services or things where they need more rock
Speaker 3: compute power. When you think of the heavy investment spend,
Speaker 3: a lot of it's by the hyperscalers Amazon, Google, Microsoft,
Speaker 3: and a lot of it's come from meta platforms.
Speaker 5: So that the question is for John turnas how long can.
Speaker 3: Apple maintain this hybrid model called capital light relative to
Speaker 3: its peers and AI and I would say it depends
Speaker 3: on how much rock compute power he intends and if
Speaker 3: he wants to offer AIS more of a services, including
Speaker 3: at the enterprise level.
Speaker 6: How much bandwidth will turnus actually have with of course
Speaker 6: still having Tim Cook as the executive chairman.
Speaker 3: I think he's going to have tremendous bandwidth. So when
Speaker 3: you think about Tim's cook success at Apple, He's managed
Speaker 3: the governments of US and China beautifully. He was a
Speaker 3: steady hand following the untimely passing of Stee Jobs in
Speaker 3: twenty eleven. So I think that Tim Cook as executive
Speaker 3: chairman will be very supportive to John, but ultimately be
Speaker 3: John's vision for the future that I think drives Apple
Speaker 3: shares from here to him.
Speaker 2: Just finally, Tim Cook, I was going through the numbers yesterday,
Speaker 2: just how much stock has he brought back over the
Speaker 2: last fifteen years. Just how much has that company changed
Speaker 2: from that vantage point.
Speaker 3: I don't think they ever achieved cash flow neutrality or
Speaker 3: that sort of thing, but yes, he has done an
Speaker 3: amazing job of returning that tremendous free cash flow to
Speaker 3: shareholders initiating a dividend buying backstock. I like to think
Speaker 3: of the four trillion from three hundred and fifty billion
Speaker 3: performance in his tenure, which is truly superb.
Speaker 2: Stay with us more Bloomberg Surveyman's coming up after this.
Speaker 2: The President of the United States telling Bloomberg the US
Speaker 2: around seas far expars. Tomorrow night, the Vice President Jadvance
Speaker 2: expected to travel to Pakistan for a second round of talk.
Speaker 2: Steve Yates of the Heritage Foundation ranked in. The President
Speaker 2: made clear that he has a lot of cards, and
Speaker 2: he's willing to use them. We have the last gas
Speaker 2: of the IRGC trying to flex their muscles, but they're
Speaker 2: really at this point no match. And pleased to say that.
Speaker 2: Steve joins the program now for more. Steve, welcome to
Speaker 2: the show. It's good to see you, sir. Let's talk
Speaker 2: about this messy kind of moment that we're in right now,
Speaker 2: where both sites trying to find a bit of leverage.
Speaker 2: Why do you believe the US is in a stronger position.
Speaker 7: Well, basically because everything the United States has sought to
Speaker 7: do in unwinding this multi decade intractable problem has worked
Speaker 7: better than someone could reasonably expect at the beginning of
Speaker 7: the process. There has been overwhelming military dominance. Strategically, there's
Speaker 7: been tactical hits that have come back from time to
Speaker 7: time when you start looking at going from a strategic
Speaker 7: force on the cusp of multiple nuclear weapons, as international
Speaker 7: assessors and inspectors have account reported, not just American sources,
Speaker 7: and you look at the large number of.
Speaker 5: Organized military forces.
Speaker 7: You have a divide now in Iran between regular military
Speaker 7: and the IRGC. All of them, from leadership down to
Speaker 7: true capabilities are degraded, and we have new tools that.
Speaker 5: Have been opened up.
Speaker 7: Between Round one of negotiations and whether we get to
Speaker 7: Round two in the next day or two or it
Speaker 7: takes longer. There's been an immense toolbox of financial tools
Speaker 7: that have opened up to Secretary Vesant that.
Speaker 5: Really aren't open to public scrutiny.
Speaker 7: That are because Iran lashed out at allies and so
Speaker 7: international financial access and tools that could be just as
Speaker 7: crippling economically as the military has been intrategic sense, this
Speaker 7: is a correlation of forces that can push for a change.
Speaker 7: The question is what kind of a change if you're
Speaker 7: not going in to occupy and run a country, which
Speaker 7: we absolutely are not doing this time around. You're going
Speaker 7: to end up with this messy situation of a disaggregated
Speaker 7: leadership that is a bit schizophrenic on communications, some elements
Speaker 7: lashing out, and you have to manage that de escalation
Speaker 7: over time.
Speaker 6: Well, that's the Iran we're left with. What does that
Speaker 6: mean for stabilization of the region.
Speaker 7: Well, in some ways the region is much stronger if
Speaker 7: you look at the Arab allies that have a lot
Speaker 7: of capital, that are determined to invest in a number
Speaker 7: of different ways, first and foremost in their own capabilities.
Speaker 7: Having strong independent allies is actually a net benefit to
Speaker 7: the United States if we have to surge anywhere in
Speaker 7: the world, from the Endopacific to our own hemisphere, it
Speaker 7: helps greatly if we have very strong, vested and determined
Speaker 7: allies who can somewhat keep the lawn mode in their
Speaker 7: own region without us having to be there for a
Speaker 7: daily manis maintenance.
Speaker 5: Doesn't mean we leave.
Speaker 7: It just means that it's a much better set of
Speaker 7: options for us and for the allies for that matter.
Speaker 5: I think there's been a clearing.
Speaker 7: Of the air somewhat on where there are real powers
Speaker 7: and abilities to influence United Nations has been a wall
Speaker 7: in this. Europe in many ways has not influenced things
Speaker 7: very much beyond going on television or public events, and
Speaker 7: some allies in Asia are stepping in to balance things
Speaker 7: in different ways too. So some of these changes, if
Speaker 7: they are sustained, changes in energy dependence and flows, that
Speaker 7: could greatly affect China's geostrategy and the US relative power
Speaker 7: there on those negotiations.
Speaker 5: So a lot still to unfold.
Speaker 7: But I think on balance, there's a lot of geopolitics
Speaker 7: that are net advantage, while there's still a lot of.
Speaker 5: Risk to manage.
Speaker 6: Steve, As you know, the Iranis are notoriously famous for
Speaker 6: dragging their feet when it comes to negotiations. Do you
Speaker 6: even think we have talks tomorrow.
Speaker 7: I'd give it about a fifty to fifty chance, but
Speaker 7: I don't think it matters in the long run. I
Speaker 7: admire the administration's willingness to do this. It's one of
Speaker 7: the things that kind of goes counter to a lot
Speaker 7: of the cartoon caricatures of President Trump in his style.
Speaker 5: This has been a very gradual.
Speaker 7: Escalation of power and use of tools. It's been somewhat patient,
Speaker 7: It's much different than sort of the flash bang of
Speaker 7: going into Iraq before and pushing for regime change and depathification.
Speaker 7: There's a higher tolerance to work with remnants that is
Speaker 7: kind of more of a centrist and pragmatic approach than
Speaker 7: people might have assumed.
Speaker 5: And so I think.
Speaker 7: That it doesn't matter as much if the talks happen
Speaker 7: in the next twenty four to forty eight hours. That
Speaker 7: is great if there is a sustained deal that comes
Speaker 7: of it, But I'm very much in the don't trust,
Speaker 7: just verify category when it comes to who you're negotiating with.
Speaker 1: With all due respect, there's this question about the impulsivity
Speaker 1: or whether this was orchestrated, or whether this was a
Speaker 1: patient effort, gi fact that a lot of allies were
Speaker 1: not aligned or aware of exactly what was happening. And
Speaker 1: now there's a lot of pushback, at least publicly from
Speaker 1: both Europeans as well as from some of the Golf allies,
Speaker 1: talking about how you made this mess, now clean it up?
Speaker 4: How do you see it differently?
Speaker 7: Just the facts of the on the ground are completely
Speaker 7: counter to that narrative. We have politicians in a lot
Speaker 7: of geographies whose audience is larger than their ability to influence.
Speaker 7: They have meetings about meetings about someday going in and
Speaker 7: protecting freedom of navigation, but the whole world can watch
Speaker 7: that they are all dance and no music. And in
Speaker 7: the golf there are definitely some mixed messages that come
Speaker 7: from different capitals, but real centers of power among those
Speaker 7: golf allies are saying publicly that they are on the
Speaker 7: American side of this longer term and ultimately they don't
Speaker 7: think that the Iranians are free.
Speaker 5: Of responsibility and all this.
Speaker 7: Ultimately, Iran has been a profound threat to them, and
Speaker 7: they've seen everything that's been tried in recent decades is
Speaker 7: being insufficient to the task. I don't like the ugliness
Speaker 7: of the missiles coming their way. They would rather have
Speaker 7: greater certainty, greater access. But they see this as having
Speaker 7: been a necessary issue to address, whether they liked the
Speaker 7: timing or the pre operation consultation. Also, not everyone who
Speaker 7: is consulted says so publicly.
Speaker 1: Steve, there's also a question you mentioned that you think
Speaker 1: that it aligns the United States in a better position geopolitically,
Speaker 1: even with respect to China. There are a number of
Speaker 1: people who say that China is trying to actually reinforce
Speaker 1: its influence in the Middle East as the major oil
Speaker 1: buyer from the region, and that you're seeing actually some
Speaker 1: of the oil traded in the region from Iran transacted
Speaker 1: in Runman B. What do you make of that, The
Speaker 1: idea that China's actually gained leverage during this process.
Speaker 7: Well, it's I think very incidental leverage, and it's really
Speaker 7: exposed two huge vulnerabilities for China that haven't really factored
Speaker 7: into a lot of people's long term assessments of China's
Speaker 7: powered influence. One is China is entirely dependent on being
Speaker 7: an export led economy. There has been no transition to
Speaker 7: a consumption economy in China, and where they have to
Speaker 7: export is to the world's largest consumer market, which is
Speaker 7: the United States.
Speaker 5: That's a huge complication for them.
Speaker 7: The other part is that China remains hugely dependent on
Speaker 7: imported fossil fuel. There's been a lot of chatter about
Speaker 7: them racing ahead on solar and maybe they are, but
Speaker 7: when it comes to being a cutting edge AI driven
Speaker 7: export tech economy, it's just impossible for them to even
Speaker 7: function at a survivable rate without that dependence on imported energy.
Speaker 7: And especially fossil fuel, and so their risks have gone
Speaker 7: significantly up. We've had exposure on rare earths, they have
Speaker 7: much bigger vulnerabilities.
Speaker 5: Really both have to address those.
Speaker 7: But America's options are getting gradually better.
Speaker 5: I think China's options are not.
Speaker 2: More Bloomberg surveillance coming up after this, We begin this
Speaker 2: sound with stocks holding their all time high. Civita Supermanium,
Speaker 2: a bank for America writing we see a big proportion
Speaker 2: of halves in financials and a good chunk of halves
Speaker 2: in tech, and see both sectors as rife with idiosyncratic opportunity.
Speaker 2: Civita joins us now for more Civita, good morning, get.
Speaker 4: To see you, Good morning.
Speaker 2: The mood on Wall Street by the depths. I seen
Speaker 2: this across the border, seen it from a range of
Speaker 2: banks that every time you get a big bit of
Speaker 2: weakness you should buy it.
Speaker 4: It's that your approach to this moment not necessarily.
Speaker 8: I think you can use this opportunity to buy certain stocks.
Speaker 8: And you mentioned tech and financials. Those are areas where
Speaker 8: we think a lot of stocks have been sort of
Speaker 8: summarily rejected because of geopolitical risk and haven't necessarily come
Speaker 8: back I think that for the index overall, I worry
Speaker 8: because there are some supply shocks in terms of equity
Speaker 8: coming up. We've got a lot of private capital sitting
Speaker 8: on the sidelines waiting to IPO, especially in technology, which
Speaker 8: is the biggest chunk of the s and P five
Speaker 8: hundred of the US equity market. I also think that
Speaker 8: the direction from here is really what's the next positive
Speaker 8: surprise versus negative surprise? And you know, we're done with
Speaker 8: that whole geopolitical thing, it seems.
Speaker 4: But are we? You know? I think that's the question.
Speaker 8: And then on top of that, we're starting to see
Speaker 8: the potential impact of higher oil prices in consumer companies
Speaker 8: forward guidance.
Speaker 4: So I think the risk is the.
Speaker 8: Impact of oil shocks takes a while to play through.
Speaker 8: So far, what we've seen is that consumers are spending
Speaker 8: more on gas and oil, but the actual hit to
Speaker 8: discretionary and you know, kind of the rest of the
Speaker 8: stack could be three quarters out. That's what we found
Speaker 8: in our data. So I think this is a moment
Speaker 8: where you have to think about what are the positive
Speaker 8: versus negative surprises? And I guess I don't see as
Speaker 8: much likelihood of positive surprises in these big bell weather
Speaker 8: sectors like tech.
Speaker 4: Like you know, even industrials.
Speaker 8: I think industrials is now trading at a really lofty multiple.
Speaker 4: It's pretty crowded.
Speaker 8: Sure, tons of tailwinds, capbecs alive, and well everything is
Speaker 8: hunky dory defense. You know, you've got oil plays in
Speaker 8: the sector. But I do think that, you know, there
Speaker 8: are areas of the market that were basically bought to
Speaker 8: hedge against geopolitical risk, industrials being the classic case.
Speaker 4: I mean, it's interesting.
Speaker 8: So I'll give you a little anecdote. I was marketing
Speaker 8: in Europe a couple of weeks ago, and as you know,
Speaker 8: it's hard for global investors to buy fossil fuels. So
Speaker 8: I think that, you know, there is this this frustration because.
Speaker 4: You can't buy oil stocks. Oil is surging, so I.
Speaker 8: Think there was this sort of industrials closet energy demand,
Speaker 8: and because if you look at the correlation of industrials companies,
Speaker 8: they're basically they act like energy. A lot of them
Speaker 8: look like energy and act like energy stocks, but aren't
Speaker 8: in the energy sector. So they're a good way to
Speaker 8: get exposure to a commodities upcycle without actually having.
Speaker 4: To buy the energy companies. Sorry, long, long of it.
Speaker 2: So the headwinds and the threat at the index level, yes,
Speaker 2: you know today capital IPOs being one, the land effect
Speaker 2: from higher oil prices being two. There's a third from
Speaker 2: tracking your research that you didn't mention, and that was buybecks.
Speaker 4: Ah, yes, yes, thanks changing.
Speaker 2: And why is that becoming a biggerhead wind to this index?
Speaker 8: So, I mean there's a lot more claims on capital
Speaker 8: for companies. Thank you for remembering that. For me, buybacks
Speaker 8: are a big deal. I think that what we're seeing now,
Speaker 8: they're still happening. And in certain sectors like financials and tech,
Speaker 8: you're seeing really sustained levels of contribution to earnings for
Speaker 8: share from buybucks. But for other sectors we are starting
Speaker 8: to see a bit of a slowdown. And you know,
Speaker 8: I think that what we're seeing right now in that
Speaker 8: megacab tech complex suggests cost cutting and you're seeing this
Speaker 8: with layoffs. Buybacks are slowing down. There's a lot more
Speaker 8: money earmarked for capbas like kind of mandatory capback. So
Speaker 8: I think that's the problem right now is you've got
Speaker 8: higher interest rates, You've got this environment where the cost
Speaker 8: of capital has increased pretty aggressively could go up even
Speaker 8: further for ig investment grade debt. You know in some
Speaker 8: of these tech areas where you're seeing supply issuance, as
Speaker 8: we were talking about, So, I think this is in
Speaker 8: a moment where you really want to think hard about
Speaker 8: what companies are doing with their capital, by the ones
Speaker 8: that are getting the cap bax, not spending the cappax,
Speaker 8: and by the companies that are continuing to have this
Speaker 8: share buyback or cash return focus, because that is starting
Speaker 8: to wane rather than wax.
Speaker 1: It feels like it's sort of a good moment for
Speaker 1: Tim Cook to step aside as a share buyback, the
Speaker 1: king of share buy back stepping down at a time,
Speaker 1: and maybe that's not going to be as much of
Speaker 1: a driver. You pair the potential negative technical with the
Speaker 1: positive that everyone who comes in the show keeps talking about,
Speaker 1: which is earnings.
Speaker 4: They've beats the upside tremendously. Earnings are great. Why it's
Speaker 4: not enough of you.
Speaker 8: Earnings are not the problem. Earnings are great. I mean,
Speaker 8: so far, so good. Q one coming in strong, more
Speaker 8: beats than misses by a big margin.
Speaker 4: I think. So, you know, when you think about what.
Speaker 8: Markets react to, it's not necessarily actual earnings.
Speaker 4: It's a surprise element. So you know, what we've found.
Speaker 8: Is that during years of really strong earnings and strong
Speaker 8: GDP growth, the market actually turns in sort of you know,
Speaker 8: average returns. It's not necessarily the greatest year for the market.
Speaker 8: The markets to generally anticipate these recoveries.
Speaker 4: And now the question is our earning is going.
Speaker 8: To surprise as much as they did last year or
Speaker 8: the year before.
Speaker 4: I don't know. I think it's harder at this point.
Speaker 1: What do you have to see next week from the
Speaker 1: big tech players to potentially change your view and suddenly
Speaker 1: upgrade to seventy six hundred, say, you know what dat right?
Speaker 4: Right by the dips? By the dips. Look, I think
Speaker 4: that tech is still you know, the.
Speaker 8: Future right and it's it's some of these companies belong
Speaker 8: as core holdings in our portfolios.
Speaker 4: But I think that.
Speaker 8: The idea that all of the Magnificent seven can go
Speaker 8: to infinity is hard to imagine.
Speaker 7: Me.
Speaker 8: There are going to be winners and losers, and you know,
Speaker 8: I guess I want to see how long it takes
Speaker 8: to really monetize AI because if you look at the
Speaker 8: telecom bubble back in the nineties two thousands obviously very different,
Speaker 8: much more extreme valuations, a lot more leverage. But during
Speaker 8: that buildout cycle, the companies couldn't fund themselves and last
Speaker 8: long enough to enjoy the fruits of their labor, which
Speaker 8: is all that fiber they laid in the ground that
Speaker 8: we are using now, but they're not around to actually
Speaker 8: recoup the benefit. So I think the longer this buildout
Speaker 8: cycle takes, and the longer it takes to actually monetize
Speaker 8: these efficiency tools, the more at risks some of these
Speaker 8: companies are, especially the ones that are having to lever
Speaker 8: up to extend that that Capbax machine.
Speaker 6: Something that struggling to research was you say, there's better
Speaker 6: low low income consumer for affordability measures. The same time,
Speaker 6: what I'm seeing in polling is that the lower income
Speaker 6: consumer is struggling right now at higher guests with.
Speaker 4: Higher gas and oil.
Speaker 8: Yeah, So, I mean, I think that's the one kind
Speaker 8: of uh dark spot. But when you think about the
Speaker 8: lower income consumer in general, I think what we've seen
Speaker 8: outside of energy is a slowdown in some of the
Speaker 8: inflationary measures for you know, food at home versus food
Speaker 8: away from home, like things that are skewed more to
Speaker 8: that lower income wallet. I think, you know, one of
Speaker 8: the benefits as we move towards the midterm elections is
Speaker 8: if we start to see a renewed focus on this
Speaker 8: affordability agenda, and you know, that could that could get
Speaker 8: the wheels turning again for the consumer. But but I
Speaker 8: think you know, we're we're we were surprised by this
Speaker 8: sort of inflation shock rather than a disinflation affordability shock
Speaker 8: at the beginning of the year.
Speaker 4: So I think that's the spanner in the work.
Speaker 2: Yeah, how we start the year and how we kicked
Speaker 2: off the month of March, we're very, very different. This
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