WEBVTT - Apple's Explanation For Revenue Plunge Doesn't Cut It (Podcast) 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.440 Along with my co host Lisa A. Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:33.760 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 0:00:33.760 --> 0:00:35.479 It is the story of the day, and it is 0:00:35.520 --> 0:00:38.440 the person of the day who knows what to say 0:00:38.479 --> 0:00:41.120 about this, and that is Shira Over, a Bloomberg opinion columnist, 0:00:41.120 --> 0:00:45.280 wrote a terrific column about Apple and the surprise cut 0:00:45.320 --> 0:00:48.400 to their first quarter forecast. Shia, thank you so much 0:00:48.440 --> 0:00:52.800 for being here with us today. The big question is 0:00:52.800 --> 0:00:58.080 is Apple facing something that is unique and surprising in China? 0:00:58.680 --> 0:01:01.400 Or did something have been to the Chinese economy that 0:01:01.440 --> 0:01:04.480 took a sort of spiral downward that is going to 0:01:04.560 --> 0:01:07.200 affect the broader economy. What happened in two months? Yeah, 0:01:07.240 --> 0:01:10.160 as usual, Lisa, you you ask exactly the right question 0:01:10.240 --> 0:01:12.480 for which I do not have exactly the right answer. 0:01:12.920 --> 0:01:18.720 But I agree with you that the explanation from Apple 0:01:18.959 --> 0:01:25.679 needs more explanation. Right. So two months ago, um, when analysts. 0:01:25.720 --> 0:01:28.960 When Apple held its quarterly earnings call, analysts asked Apple 0:01:29.120 --> 0:01:32.280 about trends in China because it is no secret that 0:01:32.319 --> 0:01:35.960 economic growth there has been slowing. It's no secret that 0:01:36.000 --> 0:01:38.919 there's been a trade war between the US and China, 0:01:39.040 --> 0:01:43.640 which may be unsettling consumers in China. Uh. And it's 0:01:43.680 --> 0:01:48.600 no secret that smartphone buying trends are changing in China 0:01:48.720 --> 0:01:50.600 as they are in the rest of the world. People 0:01:50.640 --> 0:01:54.680 are are buying new devices less often. And the only 0:01:54.720 --> 0:01:57.320 answer that investors seem to get from Tim Cook and 0:01:57.400 --> 0:02:00.240 other exactly another Apple executives is that things are great 0:02:00.240 --> 0:02:05.200 in China. Right. So the question is did economic conditions 0:02:05.360 --> 0:02:09.800 substantially deteriorate in two months in China? Which is possible? Uh? 0:02:09.880 --> 0:02:14.600 Did Apple simply not foresee that all of a sudden, 0:02:14.840 --> 0:02:17.800 all of these trends that were blowing against it in 0:02:17.919 --> 0:02:21.720 China finally started to show up in results. Um? Was 0:02:21.760 --> 0:02:25.160 Apple simply not honest with investors about what it saw, 0:02:25.400 --> 0:02:28.679 hoped things would improve in sales results in China and 0:02:28.760 --> 0:02:31.480 didn't quite get there. I don't have an answer to 0:02:31.560 --> 0:02:33.640 any of these questions, but I agree with you that 0:02:33.800 --> 0:02:36.400 just blaming an economic growth slad and in China is 0:02:36.480 --> 0:02:42.880 insufficient explanation for what is a pretty dramatic, uh deterioration 0:02:43.200 --> 0:02:47.000 of revenue for the world's most valuable company. Sure does 0:02:47.040 --> 0:02:50.320 Apple need to reevaluate their pricing? Is anyone going to 0:02:50.360 --> 0:02:52.320 spend a thousand dollars just so that they can get 0:02:52.360 --> 0:02:55.519 two hundred and fifty six gigabytes on an XX when 0:02:55.520 --> 0:02:58.640 they can buy an XR and be very happy for 0:02:58.680 --> 0:03:01.800 that upgrade. I I think that is a question that 0:03:01.840 --> 0:03:05.639 Apple investors should be asking, and among many other hard 0:03:05.720 --> 0:03:09.040 questions they should be asking of Apple right now. So 0:03:09.360 --> 0:03:14.800 it's very clear that to Apple's credit, it charged an 0:03:15.000 --> 0:03:18.200 an unprecedented price for iPhones the thousand dollars and up 0:03:18.400 --> 0:03:21.760 in the last year plus, and people have been willing 0:03:21.800 --> 0:03:23.919 to pay that price, and they weren't willing to pay 0:03:23.919 --> 0:03:27.960 a thousand dollars up for other smartphones from Samsung, for example. 0:03:28.360 --> 0:03:31.560 So there is a built in loyalty for Apple products, 0:03:31.720 --> 0:03:36.560 built in um realization or belief that those phones offer 0:03:36.800 --> 0:03:41.040 enough value to to justify a thousand dollars. But maybe 0:03:41.080 --> 0:03:45.520 that near term gain for Apple, the revenue growth was 0:03:45.560 --> 0:03:49.200 able to show only because it increased prices for iPhones 0:03:49.240 --> 0:03:52.720 and some other devices. Uh maybe that gave a short 0:03:52.840 --> 0:03:57.480 term revenue juice, and that's coming back to haunt Apple now. Uh, 0:03:57.600 --> 0:03:59.840 in in addition to all these other factors that are 0:04:00.000 --> 0:04:02.880 being on smartphone demand in general. So sure, it was 0:04:02.920 --> 0:04:05.800 a rough period for Apple at the end of last year, 0:04:06.240 --> 0:04:08.920 shares down more than nine percent. After they're reporting this 0:04:09.000 --> 0:04:13.000 news after hours yesterday, at what point do we say, Okay, 0:04:13.040 --> 0:04:15.800 the worst case scenario is baked in and actually people 0:04:15.840 --> 0:04:19.919 are getting over their skis here. Yeah, that's again another 0:04:19.960 --> 0:04:24.120 good question to which I did not have a great answer. Um. Yeah, 0:04:24.320 --> 0:04:28.640 I was actually I wasn't sure whether the decline that 0:04:28.680 --> 0:04:31.600 we've seen in Apple shares in the latter half of 0:04:32.440 --> 0:04:36.560 was justified. There were also concerns a year earlier about 0:04:36.640 --> 0:04:39.880 demand for the iPhone ten right, a similar set of 0:04:39.920 --> 0:04:42.760 kind of reports out of the supply chain that demand 0:04:42.800 --> 0:04:45.000 didn't seem to be that great, And then that didn't 0:04:45.000 --> 0:04:47.360 really part of true, right, And so I was a 0:04:47.360 --> 0:04:50.640 little bit skeptical, to be honest with you, about these 0:04:50.680 --> 0:04:55.040 reports of of unsettled or waning or lower than expected 0:04:55.080 --> 0:04:58.480 demand for the iPhone models that have been released towards 0:04:58.480 --> 0:05:01.800 the tail. And it looks like those reports in this 0:05:01.880 --> 0:05:07.040 case were accurate. UM. You know, growth expectations have obviously 0:05:07.160 --> 0:05:12.119 been recut even before Wednesday, and they're being recut again today, 0:05:12.120 --> 0:05:14.560 and I just don't know where the bottom is. The 0:05:14.600 --> 0:05:18.480 worry for me is if Apple hasn't been honest with 0:05:18.520 --> 0:05:22.080 itself or investors about what it's business look like, what 0:05:22.200 --> 0:05:25.760 its business looks like, what a smartphone buying trends look like, 0:05:26.279 --> 0:05:30.040 then I'm not sure people can have confidence in estimates 0:05:30.080 --> 0:05:33.680 from the company or from the cell side analysts. Do 0:05:33.680 --> 0:05:36.279 you believe that Alexa is also having an effect on 0:05:36.440 --> 0:05:41.640 Apple because Siri is falling behind in terms of its popularity, 0:05:41.960 --> 0:05:46.400 maybe on the margins, UM, maybe on the margins. It 0:05:46.560 --> 0:05:51.159 is definitely a problem that Apple's Internet services and that 0:05:51.279 --> 0:05:55.200 includes things like Siri, are not up to par with 0:05:55.279 --> 0:05:59.440 competitors including UM, Amazon and Google, and that maybe hurting, 0:05:59.720 --> 0:06:02.360 say ails on the margins. But the big thing that's 0:06:02.440 --> 0:06:07.080 weighing on on Apple UM the generates. You know, Apple 0:06:07.160 --> 0:06:09.880 generates two thirds of Daniel sales from iPhones, and the 0:06:09.960 --> 0:06:15.000 smartphone market has permanently changed period, and that's largely what 0:06:15.040 --> 0:06:18.599 we're seeing happen in China. The people that the easy 0:06:18.640 --> 0:06:22.239 growth has gone there are fewer first time smartphone buyers 0:06:22.279 --> 0:06:25.919 out there. People in many established countries are not switching 0:06:25.920 --> 0:06:29.360 from my iPhone to Android or the reverse growth has gone. 0:06:29.839 --> 0:06:32.719 Thank you very much, Shara Oviday, expert when it comes 0:06:32.720 --> 0:06:50.679 to all things technology for Bloomberg Opinion. We've been getting 0:06:50.880 --> 0:06:54.599 numbers for US sales out of the big automakers, General 0:06:54.600 --> 0:06:58.520 Motors and Ford both reporting sales down. Joining us down 0:06:58.520 --> 0:07:01.200 to talk about Alan Baum, auto analyst and principle of 0:07:01.279 --> 0:07:05.160 Baum and Associates, General Motors shares in particular taking a 0:07:05.200 --> 0:07:10.520 big hit down nearly three per cent. Why, well, that 0:07:10.720 --> 0:07:14.120 the drop is is there? And of course, uh, you know, 0:07:14.160 --> 0:07:18.800 since they've gone to quarterly reporting, Uh, the quarterly report 0:07:18.840 --> 0:07:22.600 that we're seeing today becomes magnified since it has to 0:07:23.200 --> 0:07:26.440 stand in for the previous two months. Alex Boum, can 0:07:26.480 --> 0:07:29.920 you just describe sort of the overall tone of the 0:07:29.960 --> 0:07:33.360 market for automobiles? What are we looking at? Seventeen million 0:07:33.440 --> 0:07:37.520 vehicles sold? Over seventeen million for this year, probably about 0:07:37.560 --> 0:07:41.880 seventeen point two. Um, I'm I'm looking at sixteen point 0:07:41.960 --> 0:07:45.520 eight for next year. Yeah, it's a drop. Seventeen point 0:07:45.560 --> 0:07:48.360 two is more or less flat with two thousand seventeen, 0:07:48.840 --> 0:07:52.680 but obviously those are very strong numbers. UM. The concern 0:07:52.760 --> 0:07:54.760 I have going forward, and we're starting to see a 0:07:54.760 --> 0:07:57.520 little bit of it this year, is that retail sales 0:07:57.560 --> 0:08:00.440 have slowed down there down for the year, even though 0:08:01.440 --> 0:08:05.559 that the totals are flat UM and obviously profits are 0:08:05.600 --> 0:08:09.480 are stronger on retail sales as opposed to fleets. UM. 0:08:09.520 --> 0:08:14.280 I'm also concerned, uh with fleet sales being tied to 0:08:15.040 --> 0:08:21.080 business UH business views and business UH expectations, and obviously 0:08:21.160 --> 0:08:24.400 with the markets going all over the place, as well 0:08:24.440 --> 0:08:28.200 as some real concerns about the coming year. In an 0:08:28.200 --> 0:08:31.760 economic global economic sense, I think that that's going to 0:08:31.840 --> 0:08:33.920 hurt the fleet sales side. Can you give us a 0:08:33.960 --> 0:08:37.880 sense alan from your perspective, are auto sales being more 0:08:38.000 --> 0:08:41.640 hampered by trade wars or just generally because the global 0:08:41.640 --> 0:08:45.520 economy is slowing so much. Yeah, I don't think the 0:08:45.559 --> 0:08:49.880 trade wars are hitting the consumer at this point. UM. 0:08:50.160 --> 0:08:52.760 You know, the the key thing that I say all 0:08:52.800 --> 0:08:56.960 the time at nauseum, the people who buy new cars 0:08:57.120 --> 0:09:01.600 are increasingly well to do in the United States, and 0:09:01.720 --> 0:09:06.640 so these these changes that occur, UH that that could 0:09:06.640 --> 0:09:14.959 really hurt consumer demand and expectations are probably on having 0:09:15.000 --> 0:09:17.840 more impact, at least in the car market, on middle 0:09:17.920 --> 0:09:21.679 income people who in fact aren't buying new cars anyway. 0:09:21.720 --> 0:09:24.680 They're buying the three year old LEAs cars, getting a 0:09:24.720 --> 0:09:27.559 heck of a deal and a very good vehicle. I'm 0:09:27.559 --> 0:09:31.000 glad you mentioned leasing, because isn't that where it's getting 0:09:31.040 --> 0:09:34.440 more expensive leasing a new car getting more expensive, rising 0:09:34.520 --> 0:09:38.920 interest rates, and then you've got the lower projected resale values. 0:09:39.000 --> 0:09:42.280 This makes the automakers actually charge more and cut back 0:09:42.320 --> 0:09:45.760 on their promotions and tim It's actually more than that 0:09:46.080 --> 0:09:50.360 because what it's also doing, um we are seeing obviously 0:09:50.440 --> 0:09:55.760 the tip to crossovers and SUVs and pickups that's been 0:09:55.800 --> 0:09:58.800 going on for a while. More of those cars are 0:09:58.880 --> 0:10:02.960 coming back in trade. And what's happening is simple supply 0:10:03.000 --> 0:10:08.440 and demand. People want the trucks. When they come back, 0:10:08.480 --> 0:10:10.960 they are more of them. So when you go to 0:10:11.040 --> 0:10:13.679 the dealer and turn in your three or four or 0:10:13.679 --> 0:10:18.360 five year old SUV or CUV, everybody else is doing 0:10:18.400 --> 0:10:21.640 the same thing and the value is going down, so 0:10:21.920 --> 0:10:26.320 your trade in is worth less towards that it was before. 0:10:26.760 --> 0:10:31.920 And as you state, the least rates because of interest rates, 0:10:32.240 --> 0:10:35.000 and for that matter, because the residual values that are 0:10:35.040 --> 0:10:39.880 expected going forward are also rates are up, values are down, 0:10:40.160 --> 0:10:44.680 so obviously your cost is higher. And again, if we're 0:10:44.679 --> 0:10:50.160 talking about upper middle and and and wealthy people buying 0:10:50.200 --> 0:10:53.000 those cars, that's not as bad an issue as it 0:10:53.120 --> 0:10:57.480 might be, but obviously it limits how far down the 0:10:57.559 --> 0:11:01.360 income stream UH new car buyers can be. I want 0:11:01.360 --> 0:11:04.520 to just get your perspective on the electric vehicle market, 0:11:04.559 --> 0:11:07.559 because if US federal tax credit fell in half from 0:11:09.240 --> 0:11:12.959 three seven fifty dollars, and we saw from Tesla yesterday 0:11:13.120 --> 0:11:16.360 they were cutting their prices by two thousand dollars to 0:11:16.480 --> 0:11:19.240 offset the lacks of the lack of a tax credit, 0:11:19.280 --> 0:11:21.840 that some buyers a perspective buyers might get. Are we 0:11:21.880 --> 0:11:25.760 seeing similar moves by other auto manufacturers in the US 0:11:25.920 --> 0:11:29.400 or other types of ways to offset the lack of 0:11:29.440 --> 0:11:34.880 this extra stimulus. Well, first of all, that's only affecting Tesla, UM, 0:11:34.920 --> 0:11:39.319 it's affecting General Motors UH two quarters later. They hit 0:11:39.360 --> 0:11:43.880 the two hundred thousand mark last quarter. But frankly, General 0:11:43.920 --> 0:11:47.000 Motors is not selling a huge number of evs, so 0:11:47.360 --> 0:11:48.960 I don't see it as a big deal. And the 0:11:49.000 --> 0:11:53.840 other automakers have the full seventy because they're not even close, 0:11:53.920 --> 0:11:57.880 with the exception of Nissan to the two hundred thousand mark. 0:11:59.080 --> 0:12:02.520 The bigger issue is, uh, we still aren't seeing the 0:12:02.559 --> 0:12:06.680 industry again with the exception of Tesla selling these vehicles 0:12:06.679 --> 0:12:10.560 in high volume general motors. The Chevy Bolt is a 0:12:10.640 --> 0:12:15.559 wonderful vehicle. Technically, it's not being marketed strongly. In fact, 0:12:15.600 --> 0:12:18.440 a lot of it's going to fleets for for testing 0:12:18.480 --> 0:12:23.360 on autonomy UM. And so Tesla really does have the 0:12:23.440 --> 0:12:26.880 electric vehicle market not to itself. And and there's a 0:12:26.880 --> 0:12:30.920 lot of vehicles coming, but clearly they're they're they're they're 0:12:30.920 --> 0:12:34.040 serious about it because that's all they sell. Uh So, 0:12:34.040 --> 0:12:37.520 so they're obviously moving forward. And uh it is an 0:12:37.520 --> 0:12:41.040 issue obviously that they're gonna do two things. One they're 0:12:41.040 --> 0:12:45.240 gonna eventually sometime in this year we think, get the 0:12:45.280 --> 0:12:49.120 thirty five thousand dollar and change car out the short 0:12:49.240 --> 0:12:53.080 range vehicle UM. But as of course that that text 0:12:53.080 --> 0:12:56.439 credit is declining. Alan and what if you could comment 0:12:56.679 --> 0:13:01.960 on changes in miles per gallon and fuel economy standards 0:13:02.000 --> 0:13:04.600 and emission standards in the United States and what you 0:13:04.679 --> 0:13:08.760 believe that will bring in the future. Well, it seems 0:13:08.880 --> 0:13:12.840 like the the auto I should say the oil industry 0:13:12.920 --> 0:13:15.199 is getting its wish. There's been a lot of reporting 0:13:15.240 --> 0:13:17.920 on that. Uh. The auto industry is getting more than 0:13:17.920 --> 0:13:20.839 its bargained for. Uh and UH, and what I mean 0:13:20.920 --> 0:13:23.959 by that is they're getting the The e p A 0:13:24.120 --> 0:13:27.959 Nit's A plan is freezing the requirements at two thousand 0:13:28.000 --> 0:13:32.080 twenty values, which puts the US well out of step 0:13:32.160 --> 0:13:34.960 with the rest of the world. The obvious issue there 0:13:35.120 --> 0:13:39.000 is the automakers are global and they can't just say, oh, well, 0:13:39.120 --> 0:13:42.040 never mind, we were just not do that anymore. Uh. 0:13:42.080 --> 0:13:46.120 They've got to move forward. Um. Obviously, they they like 0:13:46.200 --> 0:13:48.719 a little bit of relief. What they don't like, like 0:13:48.840 --> 0:13:53.200 every other major corporation, is uncertainty. And they're gonna get 0:13:53.240 --> 0:13:56.320 that in spades because obviously there's gonna be a lot 0:13:56.400 --> 0:13:59.800 of legal action once these standards are put into place, 0:14:00.000 --> 0:14:03.280 you think in April. The not the least of which, 0:14:03.360 --> 0:14:06.480 of course, will be the state of California, who is 0:14:06.559 --> 0:14:10.360 expecting it's uh, it's waiver to be pulled. Uh. And 0:14:11.200 --> 0:14:14.480 the bad news about that is not just what the 0:14:14.480 --> 0:14:18.560 effect might be, but the timing. Obviously, the legal process 0:14:18.640 --> 0:14:23.120 will be long, and automakers can't sit on their hands 0:14:23.200 --> 0:14:26.000 and wait for that. They've got to move forward. Thanks 0:14:26.120 --> 0:14:28.920 very much for helping us understand the industry. Alan Baum 0:14:29.000 --> 0:14:34.000 is a principle of Baum and Associates based in West Bloomfield, Michigan. 0:14:34.400 --> 0:14:53.320 Talking about the automobile industry, what should investors do as 0:14:53.400 --> 0:14:56.440 the S and P five hundred, the Dow Jones industrial leverage, 0:14:56.440 --> 0:14:59.120 and the NASDAK declined. Well, one thing they should do 0:14:59.160 --> 0:15:01.800 is probably ask Matt Mainly. He's the equity strategist for 0:15:01.880 --> 0:15:05.440 Miller tay Backing Company and he joins us now from Newton, 0:15:05.520 --> 0:15:08.120 mass Matt Maylee, thanks very much for being with us. 0:15:08.160 --> 0:15:11.479 What do you tell customers and clients who call and say, 0:15:11.640 --> 0:15:16.120 I bought stock in eighteen Everything I bought is now 0:15:16.200 --> 0:15:21.120 less expensive? Should I buy more? Well? Maybe not every 0:15:21.160 --> 0:15:23.240 everything you you had bought, because you have a lot 0:15:23.320 --> 0:15:26.480 of stocks, especially in the fang stocks. Uh that I 0:15:26.560 --> 0:15:28.800 think we'll have a tough time bouncing back the same way. 0:15:29.080 --> 0:15:32.520 Uh they did last February when the market bounced back. Uh. 0:15:32.600 --> 0:15:36.120 So Uh the key is don't panic, um and don't 0:15:36.160 --> 0:15:38.800 just uh sell stocks willy nilly, I think things. I 0:15:38.840 --> 0:15:41.240 think you know, the bounce we've seen until today we've 0:15:41.240 --> 0:15:43.520 seen over the last week or so. We'll continue for 0:15:43.520 --> 0:15:45.000 a little bit a while because I think the market 0:15:45.000 --> 0:15:48.480 got way washed out, and uh, I think that when 0:15:48.520 --> 0:15:51.200 the market continues to rally, you might want to when 0:15:51.200 --> 0:15:52.920 you go back into the market, go back into more 0:15:53.320 --> 0:15:56.000 defensive names, and especially names that will pay you to wait. 0:15:56.080 --> 0:15:58.200 In other words, names to pay a decent dividend and 0:15:58.280 --> 0:16:00.680 the companies that not only pay good divn in but 0:16:00.720 --> 0:16:02.920 have a history of of increasing their diven in every 0:16:03.000 --> 0:16:06.440 year over over time. You know, Matt, it does seem 0:16:06.480 --> 0:16:09.000 like there was a knee jerk plunge down and that 0:16:09.120 --> 0:16:11.280 it seemed like it was almost irrational at the end 0:16:11.280 --> 0:16:13.120 of the year. But perhaps it was a little bit 0:16:13.200 --> 0:16:16.360 more rational than some had written it off as because, 0:16:16.720 --> 0:16:21.000 for example, Delta just came out and also cut its 0:16:21.040 --> 0:16:26.520 revenue forecasts based on disappointing ticket pricing among other aspects, 0:16:26.520 --> 0:16:30.080 as follows Apple's cut its first quarter forecasts. I mean, 0:16:30.120 --> 0:16:33.600 it seems like there is actually something legitimate here that's 0:16:33.640 --> 0:16:36.000 going on with respect to a slowdown that we're seeing 0:16:36.040 --> 0:16:39.520 in the actual numbers. There's no question. I mean, it's 0:16:39.560 --> 0:16:43.000 something that I'm going into, uh into October, when the 0:16:43.040 --> 0:16:46.520 when the downturn started in the stock market, I've been 0:16:46.600 --> 0:16:48.760 quite cautious. And one of the reasons was, you know, 0:16:48.800 --> 0:16:53.600 whenever the FED gets involved in a tightening uh program. Uh, 0:16:53.640 --> 0:16:55.840 there's always a delay from when they start raising rates 0:16:56.280 --> 0:16:58.320 to when it finally has an impact on the stock 0:16:58.320 --> 0:17:01.000 market and then on the economy. Me. Uh, it's usually 0:17:01.000 --> 0:17:05.280 anywhere from eighteen months to two years. Sorry. Uh, let's 0:17:05.280 --> 0:17:06.720 say the Fed's fault. I mean, I think it was 0:17:06.800 --> 0:17:08.679 something that FED had to do. The FED. You know, 0:17:08.880 --> 0:17:10.840 people want to blame the FED. I mean, we don't 0:17:10.880 --> 0:17:12.480 have a god given right to have the stock market 0:17:12.520 --> 0:17:16.120 go up forever, every single year forever. Uh. We they 0:17:16.160 --> 0:17:19.719 added a lot of liquidity at a time when we 0:17:19.760 --> 0:17:22.840 needed it to save the financial system. At some point 0:17:22.920 --> 0:17:24.800 they we all knew at some point they had to 0:17:24.800 --> 0:17:28.120 withdraw that liquidity, at least some of it, uh, and 0:17:28.320 --> 0:17:30.440 uh that it was gonna be painful. I mean to 0:17:30.520 --> 0:17:32.800 think it wouldn't be painful to see how much it 0:17:32.880 --> 0:17:35.239 helped asset prices go up. To remove some of that 0:17:35.280 --> 0:17:37.639 liquidity is the right thing to do. And I point 0:17:37.680 --> 0:17:40.000 back to what happened with the with the chairman vocal 0:17:40.280 --> 0:17:42.560 several decades ago. When he when he made us take 0:17:42.600 --> 0:17:44.719 our medicine a little bit, and although it was very 0:17:44.720 --> 0:17:46.680 painful over the near term, it was something that was 0:17:46.800 --> 0:17:49.000 very very helpful allowed the economy to get back and 0:17:49.119 --> 0:17:51.160 and you know, take the trains wheels off and and 0:17:51.160 --> 0:17:53.359 and be on its own. And that's something we need 0:17:53.359 --> 0:17:56.240 to do. So even though I think we will could 0:17:56.240 --> 0:17:58.080 see some lower loads, as I mentioned, I think on 0:17:58.119 --> 0:17:59.800 a short term basis, I think we can see the 0:18:00.040 --> 0:18:03.160 arket rally, especially Apple, touching a very important support level 0:18:03.160 --> 0:18:06.760 here which should hold. Uh. But still I think we'll 0:18:06.800 --> 0:18:09.199 be a tough year this year. But that's okay for 0:18:09.280 --> 0:18:11.760 the longer term. Um, we can blame the FED all 0:18:11.800 --> 0:18:13.640 we want, but I in many ways I think they're 0:18:13.640 --> 0:18:15.040 doing what they need to do a lot of people 0:18:15.040 --> 0:18:17.120 said they should have done it a lot earlier. Either way, 0:18:17.400 --> 0:18:18.920 it needs to be done at some point. We can't 0:18:18.920 --> 0:18:21.760 have massive liquidity injections forever because when we get another 0:18:21.760 --> 0:18:23.960 two thousand and date all over again. Matt Maylee, you 0:18:24.000 --> 0:18:28.119 began by saying, don't panic, don't sell Willie Nilly, don't 0:18:28.160 --> 0:18:31.880 buy willy nilly. So who's doing this willy nilly selling 0:18:31.960 --> 0:18:34.280 right now? With the SMP five hundred down two and 0:18:34.320 --> 0:18:37.560 a quarter percent. Who are the sellers? Well, I mean, 0:18:37.600 --> 0:18:39.760 you know, I don't want to spend too much time 0:18:40.080 --> 0:18:43.520 blaming the algos, but that's certainly has had an impact. Um, 0:18:43.560 --> 0:18:46.439 but I think it's who are these mysterious algos that 0:18:46.480 --> 0:18:50.480 are able to move the market to such a large extent. Well, 0:18:50.560 --> 0:18:52.919 it's you know, the machine driven whether whether they be 0:18:52.960 --> 0:18:56.600 hedge funds, but there are some uh other uh investors 0:18:56.680 --> 0:18:59.120 that besides his hedge funds whore involved, who are engaged 0:18:59.160 --> 0:19:01.119 in these things. And when the market gets moving in 0:19:01.160 --> 0:19:04.720 one direction, it exacerbates it. Now the thing that that 0:19:04.880 --> 0:19:07.760 it's not just selling though, it's also because of all 0:19:07.800 --> 0:19:09.960 the uncertainty. And remember back in the beginning of two 0:19:09.960 --> 0:19:12.320 thousand and sixteen, the market did bottom, but there was 0:19:12.359 --> 0:19:14.920 really only once uncertainty out there. It was oil. Oil 0:19:15.000 --> 0:19:18.520 was crashing, you know, and that was affecting the high 0:19:18.600 --> 0:19:21.359 yield market, and so those two things were getting knocked 0:19:21.400 --> 0:19:23.399 down and hurting the market. So once oil stabilized and 0:19:23.440 --> 0:19:26.000 bounce back, uh, it was fine. Right now, we have 0:19:26.080 --> 0:19:28.240 a lot of other uncertainties we have, whether it be 0:19:28.320 --> 0:19:30.919 the said we have trade, we have a brexit, we 0:19:31.000 --> 0:19:34.159 have you know, slower growth, et cetera. So many uncertainties 0:19:34.160 --> 0:19:37.680 out there, so there's a you know a basically, uh, 0:19:37.720 --> 0:19:41.000 you have buyers stepping back, so we have a lack 0:19:41.000 --> 0:19:43.879 of buyers, and you have these algalis selling the thing 0:19:43.920 --> 0:19:46.320 that the whole thing is exascerbated these people. With all 0:19:46.320 --> 0:19:47.880 the uncertainty out there, you have a lot of people 0:19:47.920 --> 0:19:49.399 sitting on their hands, and that's why I think we 0:19:49.560 --> 0:19:51.600 had these wild swings. Matt Mayley, thank you so much 0:19:51.640 --> 0:19:54.280 for being with us. Matt Mayory, equities trategist for Miller 0:19:54.400 --> 0:20:14.639 t back In Company. It has been called the flash rally, 0:20:14.840 --> 0:20:17.919 It has been called some weird activity happening in the 0:20:17.960 --> 0:20:21.280 Witching hour and the Asian hours of trading. But what 0:20:21.520 --> 0:20:24.240 happened with the Japanese yen has caught the attention of 0:20:24.359 --> 0:20:27.320 FX traders across walls, treading across the globe. Joining us 0:20:27.359 --> 0:20:29.800 now to explain everything that we just saw and explain 0:20:29.960 --> 0:20:32.679 it way so that we have perfect clarity, has been Signarella, 0:20:32.880 --> 0:20:35.800 he's global macro strategist for Bloomberg. What the heck happened 0:20:35.840 --> 0:20:39.760 with the end um hesitates to call it a flash crash, 0:20:39.800 --> 0:20:42.800 to be honest, that would assume that people were very 0:20:42.840 --> 0:20:45.360 long dollars and trying to get out of that position, 0:20:45.480 --> 0:20:47.520 and then as the sort of the box and the 0:20:47.520 --> 0:20:50.119 Algo trip it and there's this major sell off that happens, 0:20:50.400 --> 0:20:52.719 they were probably, you know, a reasonable amount of long 0:20:52.800 --> 0:20:55.359 dollar positions. I don't think the market was overbought. It 0:20:55.640 --> 0:20:58.119 tended to happen in a bit of an ill liquid 0:20:58.160 --> 0:21:01.680 market in Tokyo. With the markets closed, the writing kind 0:21:01.720 --> 0:21:03.080 of was on the wall. But I have to tell 0:21:03.119 --> 0:21:05.040 you that the extent of the move really surprised me. 0:21:05.240 --> 0:21:08.760 As we handed off into Singapore last night, I did 0:21:08.800 --> 0:21:10.680 say to my counterpart, you're gonna have some fun today 0:21:10.680 --> 0:21:13.280 and watch the end after this Apple news, because the 0:21:13.440 --> 0:21:16.240 end being the haven currencies is where traders would want 0:21:16.240 --> 0:21:19.440 to go. But it was completely overdone by al Goes 0:21:19.520 --> 0:21:21.760 pushing it. And what they do is the program basically 0:21:21.800 --> 0:21:24.119 is a momentum model. It will continue to push in 0:21:24.160 --> 0:21:27.800 one direction until it ostensibly reaches some sort of resistance, 0:21:28.080 --> 0:21:31.600 and then it's literally programmed to just just repeat and 0:21:31.720 --> 0:21:34.760 rinse and go back the other way. And the interesting 0:21:34.760 --> 0:21:36.760 thing actually, from what I've seen in trading this morning 0:21:36.840 --> 0:21:40.600 is as traded sideways all day, we've seen yields continue 0:21:40.640 --> 0:21:44.560 to extend declines, UH equities continue to sell off. All 0:21:44.600 --> 0:21:47.159 of these things would have suggested the end should have 0:21:47.280 --> 0:21:50.480 rallied further in the US markets. And what that's telling 0:21:50.480 --> 0:21:53.480 me is markets courts short and wrong, and this sideways 0:21:53.520 --> 0:21:55.119 trading would suggest we might see a little bit of 0:21:55.119 --> 0:21:57.639 a bounce sometime in the next day or so. Vincent, 0:21:57.680 --> 0:22:00.040 can you just describe for people that may have and 0:22:00.080 --> 0:22:03.640 a sleep while all this happened, what actually went on? Well, 0:22:03.960 --> 0:22:07.680 it really is a situation where there are no there 0:22:07.720 --> 0:22:10.160 are no more market makers. I mean when you look 0:22:10.160 --> 0:22:12.760 at the when you look at the floor of the 0:22:12.800 --> 0:22:15.840 New York Stock Exchange and you see news reporters picture 0:22:15.880 --> 0:22:18.000 the same concept in the FX market. There are no 0:22:18.080 --> 0:22:22.520 market makers. The the vocal rule and government regulations has 0:22:22.520 --> 0:22:24.960 pushed all of those folks out of the business, so 0:22:25.000 --> 0:22:28.159 that when someone comes in and does size and tries 0:22:28.200 --> 0:22:30.840 to move a bit into the market, there's no one 0:22:30.880 --> 0:22:35.160 to really there's no supply to to smooth that move, 0:22:35.240 --> 0:22:38.159 so to speak, So it just basically leaps to a 0:22:38.240 --> 0:22:41.000 point until it hits a pocket of liquid. Right, But 0:22:41.080 --> 0:22:44.640 I just want to know what happened. We just described 0:22:44.760 --> 0:22:46.720 people that don't know what happened to the value of 0:22:46.720 --> 0:22:49.640 the yen against the Aussie dollar, against the Turkish era, 0:22:49.840 --> 0:22:53.280 what happened last night, But there was a major programs 0:22:53.320 --> 0:22:56.840 buying yen selling other currencies simply as a haven flow 0:22:56.880 --> 0:23:01.440 to to protect against what looks like a trade war 0:23:01.520 --> 0:23:04.240 that could get even worse given what Apple's earnings were. 0:23:04.280 --> 0:23:06.320 So if you if if you have somebody like Apple 0:23:06.840 --> 0:23:10.680 downgrading earnings going forward, and you'd expect that that then 0:23:10.720 --> 0:23:15.159 to um spread across other corporations. It doesn't look if 0:23:15.200 --> 0:23:17.800 a few direquity earnings and people are looking for haven 0:23:17.840 --> 0:23:20.800 flows and they choose the end because it tends to 0:23:20.840 --> 0:23:23.399 be a liquid market. Not so liquid last night, but 0:23:23.400 --> 0:23:25.000 it tends to be a liquid and there is a 0:23:25.040 --> 0:23:27.760 four day holiday in Japan that could be exacerbating this. 0:23:28.560 --> 0:23:32.560 Another factor that was blamed was retail investors in Japan. 0:23:32.800 --> 0:23:36.480