WEBVTT - iPhone X Concerns Are Too High, Piecyk Says 0:00:00.080 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.680 Bloomberg dot Com, and of course on the Bloomberg I'm 0:00:34.680 --> 0:00:36.440 really pleased to say that here in New York will 0:00:36.520 --> 0:00:40.480 joined now by Brian Levitt, Oppenheimer Fund senior investment strategist 0:00:40.479 --> 0:00:42.240 brancod Morning to you, sir, and I guess we're gonna 0:00:42.280 --> 0:00:45.880 get used to this permanent layer of uncertainty. We're just 0:00:45.920 --> 0:00:48.040 gonna do this every single month for the next few 0:00:48.040 --> 0:00:50.440 months and maybe the foreseeable future as well well. I 0:00:50.440 --> 0:00:52.680 guess time will tell I suspect we might. I mean, 0:00:52.680 --> 0:00:54.840 I still view this, Jonathan as a as a very 0:00:55.200 --> 0:00:59.240 uh political move from the from the president. He ran 0:00:59.480 --> 0:01:04.160 on a protectionist sentiment nationalism, and so he brings these 0:01:04.200 --> 0:01:07.560 things out and then we slowly walk them back. The 0:01:07.600 --> 0:01:10.320 reason why I view it is still largely political rather 0:01:10.360 --> 0:01:12.960 than more of a of a of a bigger move 0:01:13.160 --> 0:01:15.920 is because you know, this is done to appease the 0:01:15.920 --> 0:01:18.400 base in the mid term elections and and set up 0:01:18.400 --> 0:01:21.560 twenty twenty. But if you go forward in an integrated 0:01:21.600 --> 0:01:27.640 global marketplace with uncertainty around trade or or greater protectionist measures, 0:01:28.360 --> 0:01:30.039 you're going to see an economy in a market that 0:01:30.080 --> 0:01:32.600 perhaps doesn't look so good. By the midterms are into 0:01:32.400 --> 0:01:35.160 the elections, so the president and the administration need to 0:01:35.200 --> 0:01:38.120 navigate that. So it's a state to negotiate better deals. 0:01:38.280 --> 0:01:40.120 UM in the meantime, and you kind of touched on it, 0:01:40.160 --> 0:01:42.759 and I want you to elaborate. Do you see any 0:01:42.840 --> 0:01:46.000 damage being done to the economy as this administration chooses 0:01:46.040 --> 0:01:49.160 to use this negotiating tactic. Well, for the time being, 0:01:49.200 --> 0:01:52.440 business sentiment looks quite good. So we're we're coming at 0:01:52.480 --> 0:01:55.840 this in a place where businesses are keeping more of 0:01:55.840 --> 0:01:59.200 what they earn. UM. Confidence is high. But yeah, you 0:01:59.240 --> 0:02:03.400 could see some erosion and sentiment if uncertainty continues over 0:02:03.440 --> 0:02:05.640 where we're going with regards to trade. I mean businesses. 0:02:05.720 --> 0:02:07.680 You know, it's the old saying, the old adage that 0:02:07.720 --> 0:02:10.800 the toothpastes out of the tube on globalization and for 0:02:10.840 --> 0:02:13.560 a lot of big companies, UM, you could see stranded 0:02:13.600 --> 0:02:17.560 capital if we go down a more protectionist path. You 0:02:17.560 --> 0:02:19.880 guys are in the theme and definitely the theme of 0:02:19.919 --> 0:02:24.000 the president United States delegation heading to China to begin 0:02:24.120 --> 0:02:28.160 talks on the massive trade deficit that has been created 0:02:28.200 --> 0:02:31.600 with our country. Very much like North Korea. This should 0:02:31.600 --> 0:02:34.880 have been fixed years ago, not now. Same with other 0:02:34.919 --> 0:02:38.600 countries and NAFTA dot dot dot, But it will all 0:02:38.639 --> 0:02:43.480 get done. Great potential for the USA exclamation point the 0:02:43.560 --> 0:02:46.560 President John Farroll three minutes ago. Yeah, and the trade 0:02:46.600 --> 0:02:49.040 says they should have been dealt with years ago. Previous 0:02:49.040 --> 0:02:52.040 administrations should have tackled the issue that is China head on, 0:02:52.160 --> 0:02:54.000 and they haven't. And you just wonder whether we can 0:02:54.040 --> 0:02:56.600 actually get some results. So you hopeful, Brian, that we 0:02:56.600 --> 0:02:58.919 could get some positive results here when this delegation just 0:02:59.000 --> 0:03:01.080 head out of to China. Well, what I would like 0:03:01.160 --> 0:03:04.680 to see is, you know, greater protection for US technological companies, 0:03:04.720 --> 0:03:08.120 greater protection for intellectual property, but to do so in 0:03:08.160 --> 0:03:10.680 a manner that is not disruptive of the goods market. 0:03:10.720 --> 0:03:14.280 If anything, um, you could see some uh you know, 0:03:14.400 --> 0:03:18.040 some impetus for greater reform in China if there, if there, 0:03:18.080 --> 0:03:20.079 if we do go down a path of greater disruption 0:03:20.080 --> 0:03:22.919 in the goods market, there could be opportunity for China 0:03:22.960 --> 0:03:26.920 to transition more quickly um to and more consumer based 0:03:26.960 --> 0:03:29.720 economy and a more service based economy. But again we 0:03:29.800 --> 0:03:32.239 have to remember that the numbers that we're talking about 0:03:32.280 --> 0:03:35.400 with regards to trade and the tariffs that were concerned 0:03:35.400 --> 0:03:38.040 about is still small from a from A A U. S. 0:03:38.120 --> 0:03:41.520 China trade perspectives. Think it's still about sentiment and confidence 0:03:41.520 --> 0:03:44.000 at this point. Brian Lovett with us with Oppenheimer Funds 0:03:44.000 --> 0:03:45.840 that we must say John Pim and I that we 0:03:45.960 --> 0:03:48.880 thank you for your supporter of Bloomberg Surveillance. Absolutely Funds 0:03:48.920 --> 0:03:53.000 is we appreciate your global and coast to coast support 0:03:53.440 --> 0:03:55.520 for all that we do. Christian Mormoney was in the 0:03:55.560 --> 0:03:57.800 other day. Let me ask you the same question. Do 0:03:57.840 --> 0:04:03.160 I buy US multinational rolls to express an international view 0:04:03.640 --> 0:04:05.440 or do I still have to go out there and 0:04:05.480 --> 0:04:08.400 get international companies. Well, we believe you still have to 0:04:08.400 --> 0:04:10.640 go out there and get international companies. I mean, there's 0:04:10.680 --> 0:04:13.640 a lot of great companies around the world that are 0:04:13.640 --> 0:04:16.960 taking advantage of significant growth trends all around the world. 0:04:17.120 --> 0:04:21.000 Most American investors are not significantly exposed. We don't have 0:04:21.040 --> 0:04:23.760 the research capability, right, I mean, but you know, Tom, 0:04:23.839 --> 0:04:26.400 we we deal with these products on a daily basis. 0:04:26.400 --> 0:04:28.440 I mean, for most of us, we get up in 0:04:28.440 --> 0:04:30.919 the morning and turn off the Japanese alarm clock and 0:04:30.960 --> 0:04:33.960 put on the Korean television. But this is important. In 0:04:34.000 --> 0:04:36.360 the old days, it was simple. You about telephone, is 0:04:36.480 --> 0:04:40.200 Mexico about te Max? And you bought a concrete company 0:04:40.480 --> 0:04:44.640 in Southeast Asia and you call it yourself investor give 0:04:44.720 --> 0:04:50.720 us I'm serious. You think you know there's like six 0:04:50.760 --> 0:04:53.800 textbooks for the CFA you read on this great, what 0:04:53.880 --> 0:04:59.520 do you guys actually do in Malaysia? Well, um, you know, 0:04:59.560 --> 0:05:01.080 I would just say, you know, turning it to the 0:05:01.080 --> 0:05:04.120 global economy, to the global markets as a whole. I mean, 0:05:04.160 --> 0:05:06.400 if I were to go home on Mother's Day with, 0:05:06.839 --> 0:05:09.600 you know, a US made luxury product, my wife might 0:05:09.600 --> 0:05:11.760 look at me and say, where's the Louis Vuitton product, 0:05:11.760 --> 0:05:17.320 where's the Burbery products? Exactly? Um, you know, you look 0:05:17.360 --> 0:05:19.760 at what's going on in China, with what's going on 0:05:19.800 --> 0:05:22.360 in e commerce or gaming or social media. I mean 0:05:22.360 --> 0:05:25.240 the we're not buying concrete companies, We're buying companies that 0:05:25.279 --> 0:05:28.280 are that are part of this big growth trend over there. 0:05:28.279 --> 0:05:32.080 Can you buy MidCap internationally? Is there? Like is it 0:05:32.120 --> 0:05:34.560 all blue? Chip or can you like, is there a 0:05:34.560 --> 0:05:37.560 lot of MidCap companies? There's there's a lot of MidCap 0:05:37.560 --> 0:05:40.400 companies to research. In fact um, if you look at 0:05:40.400 --> 0:05:43.960 our performance of our international small mid, our emerging market 0:05:44.040 --> 0:05:47.640 small mid, we've we've generated very strong performance in those 0:05:47.680 --> 0:05:49.520 parts of the market and they you know, they tend 0:05:49.520 --> 0:05:52.799 to be less covered. Great, great opportunity for active managers 0:05:52.839 --> 0:05:54.400 take advantage. Can we get to the elephant in the 0:05:54.480 --> 0:05:56.599 room just quickly? And I think for financial markets the 0:05:56.640 --> 0:05:58.800 elephant in the room cross asset over the last couple 0:05:58.800 --> 0:06:00.839 of weeks has been this Research and West dollar and 0:06:00.839 --> 0:06:02.800 it certainly managed to the trick discussion too. And we 0:06:02.839 --> 0:06:05.200 see it on the screen again, the dollar bid coming 0:06:05.200 --> 0:06:07.480 back into the market, right. What do you make of that? 0:06:07.520 --> 0:06:10.159 Because so many people eager to fade this, They just 0:06:10.240 --> 0:06:12.640 don't believe that this is going to continue. It's just 0:06:12.680 --> 0:06:14.680 a relief rally, bit of covering. We'll be back on 0:06:14.720 --> 0:06:17.080 trend shortly. What are your thoughts right now? Well, the 0:06:17.120 --> 0:06:18.640 first thing is, if you pull it up on the 0:06:18.680 --> 0:06:20.920 Bloomberg terminal and you zoom in, it does look like 0:06:20.960 --> 0:06:23.039 a pretty good move. If you zoom out just a 0:06:23.080 --> 0:06:25.320 few months or or a year, it doesn't look like 0:06:25.440 --> 0:06:28.479 much of a move at all. So the trend, the 0:06:28.600 --> 0:06:33.480 weaker trend, still remains intact. What's happening is the money 0:06:33.520 --> 0:06:35.599 your capital is going to flow to where there's growth 0:06:35.640 --> 0:06:38.719 in the United States. Um. Although you know the first 0:06:38.800 --> 0:06:41.200 quarter wasn't as it was big as people some may 0:06:41.200 --> 0:06:43.480 have expected, it's still above trend. In the second half 0:06:43.480 --> 0:06:45.760 of the year is likely to look pretty good given 0:06:45.760 --> 0:06:48.160 the amount of stimulus coming to the US economy, So 0:06:48.440 --> 0:06:52.760 some money comes in. UM. I think over time we 0:06:52.839 --> 0:06:55.880 are likely to be in a stable or week or 0:06:56.000 --> 0:06:58.599 dollar environment. I'm gonna put two charts out. Can we 0:06:58.640 --> 0:07:02.159 do this for Bloomberg Radio? Or we're gonna do two 0:07:02.200 --> 0:07:06.799 standard deviation trading envelope zooming in as Mr Levitt says, 0:07:07.200 --> 0:07:09.560 And then I'm going to take the weekly chart John, 0:07:09.800 --> 0:07:14.160 which borders on teacher college course excellence of where we're 0:07:14.200 --> 0:07:17.520 just mid range is. Mr Levitt suggests, a weekly chart 0:07:17.600 --> 0:07:21.840 gives you a dollar that's migrated stronger. Yeah, back to 0:07:21.920 --> 0:07:24.360 the mid range. And I think whether I'm worries is 0:07:24.400 --> 0:07:27.480 if this continues to several trades that sit on top 0:07:27.560 --> 0:07:30.240 of this week a dollar theme and the big one 0:07:30.320 --> 0:07:33.240 for me at least that I observe, is this consensus. 0:07:33.280 --> 0:07:35.400 O wait until we am both on the equity on 0:07:35.440 --> 0:07:37.600 the debt side that's been built up over the last year, 0:07:38.000 --> 0:07:40.600 build up on the back of a week of dollar Bryant. 0:07:40.760 --> 0:07:43.080 That's right, and look at this point in the cycle, 0:07:43.120 --> 0:07:46.120 I would be far more concerned with a significantly weaker 0:07:46.160 --> 0:07:49.160 dollar that was inflationary in the US would bring forward 0:07:49.640 --> 0:07:52.400 Fed tightening and you know, would see something along the 0:07:52.400 --> 0:07:55.840 lines of the Taper tantrum that we saw um the 0:07:55.920 --> 0:08:00.600 last time. That But if you look at them markets 0:08:00.720 --> 0:08:04.920 right now, inflation is down, real yields are are attractive. 0:08:05.040 --> 0:08:09.040 Growth looks strong, um. So the currencies have sold off some, 0:08:09.360 --> 0:08:11.840 as you know, US growth looks like it's going to 0:08:11.920 --> 0:08:13.680 pick up in the second half of the year. But 0:08:13.720 --> 0:08:16.680 to me, this is not the disruptive environment that we 0:08:16.720 --> 0:08:19.160 saw in the past. I would be much more concerned 0:08:19.200 --> 0:08:23.360 with a significantly weaker dollar and more aggressive FED tightening. UM. 0:08:23.640 --> 0:08:27.280 Some some modest improvements on in the US dollar or 0:08:27.360 --> 0:08:29.200 some modest strength in the US dollar on the back 0:08:29.240 --> 0:08:32.280 of good growth should be good for the global economy 0:08:32.320 --> 0:08:35.480 and emerging markets. Catch help me this morning, o'llpen on 0:08:35.520 --> 0:08:52.000 a fun senior investment strategist if you're in the bond market. 0:08:52.080 --> 0:08:54.880 This is the interview of the day Priam Ezrae with 0:08:55.040 --> 0:08:58.320 TV Security. She's brilliant not only in full faith and credit, 0:08:58.679 --> 0:09:02.400 but taking it out to less or credits as well. PreO, 0:09:02.520 --> 0:09:05.360 what's the tip point looking at full faith and credit 0:09:05.440 --> 0:09:08.319 tenure yield? Do you have in your head a point 0:09:08.440 --> 0:09:11.000 with the two year yield? It's not a linear function, 0:09:11.400 --> 0:09:15.360 it's quadratic, it's dynamic. At what point do we really 0:09:15.440 --> 0:09:19.280 sit up and watch the nominal tenure yield? That's a 0:09:19.480 --> 0:09:21.520 great question. I think for a lot of people in 0:09:21.559 --> 0:09:24.319 the market it's three percent, So that was the psychological level. 0:09:25.040 --> 0:09:28.199 I don't believe, right, what is it? I would say 0:09:28.240 --> 0:09:31.120 for the two year to watch anything close to three 0:09:31.280 --> 0:09:33.199 I would get a lot more nervous about because I 0:09:33.280 --> 0:09:37.160 think that is indicating that the FED is going above neutral. 0:09:37.240 --> 0:09:39.199 I think neutral rate is somewhere in the two and 0:09:39.240 --> 0:09:41.520 a half range, which is exactly where we are right now. 0:09:41.559 --> 0:09:44.160 So we've got to go up half a percentage point 0:09:44.800 --> 0:09:47.560 and the two year yield? Right? Is that a function 0:09:47.600 --> 0:09:50.160 of GDP growth or is that a function of FED movement? 0:09:50.760 --> 0:09:54.719 It's a function of real long term GDP growth. I 0:09:54.920 --> 0:09:58.079 think inflation, there are secular forces that keep inflation, you know, 0:09:58.160 --> 0:10:01.360 pretty well contained in the two percent range. It's really 0:10:01.559 --> 0:10:05.120 long term real rate of interest, you know, is that 0:10:05.400 --> 0:10:08.120 moving higher. We're not really seeing any evidence that that's 0:10:08.120 --> 0:10:12.480 moving up. Productivities stays pretty is staying pretty low. Labor 0:10:12.559 --> 0:10:14.640 force participation is only going to keep heading lower as 0:10:14.679 --> 0:10:17.920 we're an aging population. So if the Fed actually takes 0:10:18.559 --> 0:10:21.240 real interest rates, you know, close to that one or 0:10:21.320 --> 0:10:24.599 higher percent level, I do worry about then, is the 0:10:24.880 --> 0:10:27.719 economy's ability to handle these high real rates. I'm not 0:10:27.840 --> 0:10:30.719 sure we're there yet. We don't really have any real 0:10:30.840 --> 0:10:33.199 rates from the FED reserve yet on a on a 0:10:33.280 --> 0:10:37.439 real basis, um, we're still incredibly accommodative prayer. I think 0:10:37.480 --> 0:10:40.160 something a lot of people exploring right now, including common 0:10:40.240 --> 0:10:43.400 SAX and yourself, is whether they Fed interest rate picks 0:10:43.440 --> 0:10:47.000 above where the market sees the interest right Pakingum, where 0:10:47.040 --> 0:10:48.920 are those two respective things right now? As far as 0:10:48.920 --> 0:10:51.400 you're concerned, Yeah, I think the FED has been suggesting 0:10:51.480 --> 0:10:55.840 now for a while because the UH, the the SEP 0:10:56.240 --> 0:10:58.679 or or essentially the dot plot has been suggesting that 0:10:58.800 --> 0:11:02.079 the fair in twenty mainteen is going to go above neutral. 0:11:02.600 --> 0:11:04.640 I think the rates market is really going to struggle 0:11:04.679 --> 0:11:06.839 to price that in because you know, a year from 0:11:06.880 --> 0:11:10.000 now growth could be slowing down. Um you know, we 0:11:10.080 --> 0:11:13.360 could have interest rates rising as the Treasury issues significant 0:11:13.360 --> 0:11:16.240 amount of supply. So I think the market struggles to 0:11:16.360 --> 0:11:19.400 price that in. I also worry about risk assets if 0:11:19.440 --> 0:11:24.079 the Fed moves away from the narrative of normalization. To know, 0:11:24.240 --> 0:11:27.959 we're tightening and we're going significantly above what everyone believes 0:11:28.000 --> 0:11:30.679 as neutral rates, how to risk as its react in 0:11:30.720 --> 0:11:33.280 that environment. This is exactly the conversation I had yesterday 0:11:33.360 --> 0:11:36.480 with JP Morgan and Bob michael on the asset management side, 0:11:36.760 --> 0:11:38.040 that it's not the ten year. He's looking at the 0:11:38.080 --> 0:11:40.120 two years. And at the moment, quite clearly, you're not 0:11:40.200 --> 0:11:42.719 really incentivized to take duration risk because the spreads like 0:11:42.800 --> 0:11:45.640 fifty basis points tends over twos and even less if 0:11:45.720 --> 0:11:48.760 thirties over tens um credit risk and the incentive to 0:11:48.800 --> 0:11:51.120 take credit risk it's really going to be hit if 0:11:51.200 --> 0:11:53.200 you get that to your note up to three pc? 0:11:53.760 --> 0:11:55.719 Is that your base case prayer that we do get 0:11:55.760 --> 0:11:58.320 that to your note up to three So I guess 0:11:58.360 --> 0:12:01.000 it depends on if the economist to me thinks yes, 0:12:01.679 --> 0:12:04.280 the strategist in me, because you know historically the FED 0:12:04.360 --> 0:12:08.320 does go above neutral. The strategist in me worries about 0:12:08.480 --> 0:12:12.040 how financial conditions tighten and the fact that we have 0:12:12.320 --> 0:12:14.559 for this time in the cycle a significant amount of 0:12:14.600 --> 0:12:17.199 treasury supply than the market has to take down at 0:12:17.240 --> 0:12:20.120 the same time when global interest rates might be rising. 0:12:20.440 --> 0:12:22.560 So I do worry about the fedsibility to get two 0:12:22.600 --> 0:12:24.800 more hikes this year. I think is doable. When we 0:12:24.880 --> 0:12:27.800 talk about next year, as we're talking about going above 0:12:27.920 --> 0:12:31.079 neutral in an environment where interest rates are rising, I 0:12:31.160 --> 0:12:34.880 think find out the tightening financial conditions will probably prevent 0:12:35.000 --> 0:12:37.240 the FED to take interest rates that high. Do any 0:12:37.240 --> 0:12:43.559 of our listeners get a real wage increase? Priamiser rates up, 0:12:43.679 --> 0:12:47.440 inflation up. I don't buy for a moment that anybody 0:12:47.520 --> 0:12:49.760 is supposed to get a real wage increase. Yeah. Well, 0:12:49.920 --> 0:12:51.800 what we're seeing in the labor market is a very 0:12:51.880 --> 0:12:55.679 bifurcated labor market. So you will see high wage increases 0:12:55.720 --> 0:12:58.280 if you're in the group of people where there is 0:12:58.320 --> 0:13:01.199 a significant skills mismatch. For a lot of US I 0:13:01.320 --> 0:13:04.120 think technology, um, you know, I think all of that 0:13:04.360 --> 0:13:08.520 keeps wage real wage growth very low at at pretty 0:13:08.559 --> 0:13:10.680 low levels, prettymis with Thank you so much the TV 0:13:10.840 --> 0:13:27.559 Securities Walter Pisk working with Rich Greens on the bt 0:13:27.679 --> 0:13:32.520 I G has just been absolutely brilliant on staying with 0:13:32.679 --> 0:13:37.319 the Apple story once again through thick and thin. Oh right, now, 0:13:37.440 --> 0:13:40.839 as you mentioned Walter, the hand ringing going on. Is 0:13:40.920 --> 0:13:44.959 the legitimate worry over iPhone legitimate or is it just 0:13:45.120 --> 0:13:50.680 another bout of worry. It's worry we're talking about this quarter. 0:13:50.720 --> 0:13:52.719 Every quarter there seems to be a different worry. And 0:13:52.920 --> 0:13:56.719 you know antenna gate and there are well all the 0:13:56.800 --> 0:13:58.599 different types of gates that are out there, right, so 0:13:58.800 --> 0:14:03.599 the but you know, going, the concern in guidance is 0:14:04.080 --> 0:14:08.040 the new one. Last quarter, the going in the guidance 0:14:08.280 --> 0:14:12.000 consensus was sixty billion UM. That was obviously too high. 0:14:12.040 --> 0:14:15.679 People were too excited about the sp mix and that 0:14:15.840 --> 0:14:17.800 number came all the way down to sixty billion in 0:14:17.880 --> 0:14:21.880 the stock um still performing well, outperforming the market. So 0:14:21.960 --> 0:14:24.800 here we are again worried about what the guidance is 0:14:24.800 --> 0:14:26.600 going to be for the June quarter. Now, in terms 0:14:26.680 --> 0:14:30.200 of the iPhone UM ten, I think the concerns are 0:14:30.480 --> 0:14:32.200 just way too high. Like some of the data that 0:14:32.240 --> 0:14:34.840 we're getting from the operators is that you know, people 0:14:34.880 --> 0:14:37.080 are buying this product and actually the market share may 0:14:37.120 --> 0:14:40.760 have increased from month to month. Certainly the eight is 0:14:40.800 --> 0:14:43.400 the thing that's selling more, but not the ten. Is 0:14:43.480 --> 0:14:45.600 this horrible phone that no one wants to buy. The 0:14:45.640 --> 0:14:48.160 bigger issue is you had analyst at the end of 0:14:48.280 --> 0:14:51.120 last year, you know, talking about superside. This is the 0:14:51.200 --> 0:14:54.880 next supercycle from the iPhone six and like augmented reality 0:14:55.000 --> 0:14:57.480 is going to drive these masses phone sails, and that's 0:14:57.480 --> 0:14:59.720 just that's not the case. Like Apple is not that 0:15:00.040 --> 0:15:02.480 human bust cycle that it was before. It's it's all 0:15:02.560 --> 0:15:06.320 coming down to how old your phone and are these 0:15:06.400 --> 0:15:09.880 replacement cycle is going to stop elongating? Are the upgrade 0:15:09.960 --> 0:15:11.760 rates of the operator is going to start going up? 0:15:11.800 --> 0:15:14.240 That's the issue. Well, this is great function on the 0:15:14.280 --> 0:15:16.240 Bloomberg and I'm sure you've used it before. It's e 0:15:16.480 --> 0:15:18.760 r N and you can get the earning surprises for 0:15:18.840 --> 0:15:21.720 any given security on any given equity across most of 0:15:21.760 --> 0:15:26.680 the planet. The last time that Apple actually missed earnings 0:15:27.280 --> 0:15:30.960 estimates on any given quarter, you've got to go back, 0:15:31.520 --> 0:15:34.400 I think all the way back to Q two sixteen. 0:15:34.640 --> 0:15:37.160 Q two sixteen is all the way back to QT sixteen, 0:15:37.160 --> 0:15:39.160 and before then you've got to go all the way 0:15:39.200 --> 0:15:42.680 back to Q four. It is just really rare for 0:15:42.840 --> 0:15:44.960 Apple to miss earnings estimates. Why do we do this 0:15:45.080 --> 0:15:48.720 every quarter? Walter? I mean, there is a huge company, 0:15:48.840 --> 0:15:51.680 right everyone, It's broadly owned, so there's obviously a tremendous 0:15:51.680 --> 0:15:54.040 amount of focus on it. But ironically, the work that's 0:15:54.080 --> 0:15:56.120 done to try and figure out where that guidance is 0:15:56.160 --> 0:15:59.240 going to be probably is a bit lacking in some cases, 0:15:59.520 --> 0:16:01.560 and there's a lot of data points that people react to. 0:16:01.680 --> 0:16:04.520 I mean, you get a number of different suppliers that 0:16:04.640 --> 0:16:06.920 may or may not be losing market share with Apple 0:16:07.080 --> 0:16:09.960 or coming out with with estimates that have been revised 0:16:10.040 --> 0:16:12.240 on a weekly or or a monthly basis, and then 0:16:12.280 --> 0:16:14.720 you have analysts reacting to it. I mean, the approach 0:16:14.760 --> 0:16:16.920 that we try to take is looking more on the 0:16:17.000 --> 0:16:19.400 demand side. Where are the end users right now in 0:16:19.560 --> 0:16:22.320 terms of how old are the phones that they currently own, 0:16:22.360 --> 0:16:24.200 and what are the operators telling us in terms of 0:16:24.440 --> 0:16:27.280 those upgrade rates? And and there's reason to be more 0:16:27.360 --> 0:16:29.640 optimistic now than we have in the past, meaning that 0:16:30.560 --> 0:16:32.720 it sounds like those upgrade rates are not going to 0:16:32.800 --> 0:16:36.760 continue to decline, you know, as we progressed through and 0:16:36.800 --> 0:16:38.840 there was already some evidence of that in the A 0:16:38.960 --> 0:16:41.800 T in the Verizon numbers. That are the companies that 0:16:41.840 --> 0:16:44.120 reported last week in terms of those upgrade rates. So 0:16:44.240 --> 0:16:46.720 well to the suite, that could be the capital term 0:16:46.800 --> 0:16:48.760 program as well. What's your base case for what we 0:16:48.800 --> 0:16:52.239 get from Apple on on buy banks and boosted dividends 0:16:52.360 --> 0:16:55.000 and the like after the tax county. I mean, I've 0:16:55.000 --> 0:16:57.800 always looked at this in terms of they're tremendous, They're 0:16:57.880 --> 0:17:01.120 they're they're generating a tremendous amount of free cash left, 0:17:01.200 --> 0:17:03.440 so forget about the cash that's already on the balance sheet, 0:17:03.520 --> 0:17:06.760 and and they can spend ten billion a quarter on 0:17:06.840 --> 0:17:09.879 sherry purchase. Now, if you said everyone's talking about this 0:17:10.000 --> 0:17:12.000 net cash here, I mean that you take your hundred 0:17:12.119 --> 0:17:15.240 sixty billion of net cash and you bought a bunch 0:17:15.280 --> 0:17:18.240 of stock back. If they bought at the stock price today, 0:17:18.760 --> 0:17:22.800 you'd eliminate the share account, right, So you'd add about 0:17:22.920 --> 0:17:26.639 three dollars in earnings um just from that. You know, 0:17:26.760 --> 0:17:30.199 that type of significant event in terms of sherry purchase. 0:17:31.040 --> 0:17:33.040 I don't mind if they do it on a regular basis, 0:17:33.119 --> 0:17:35.000 so they increase the dividend. I mean, this is a 0:17:35.080 --> 0:17:38.159 way that that you take what is more normal and 0:17:38.440 --> 0:17:42.760 recurring lower revenue growth and leverage the into higher higher 0:17:42.800 --> 0:17:46.840 earnings growth to our basis, good base our base case, 0:17:47.119 --> 0:17:49.760 our base cases again is ten billion a quarter. But 0:17:49.800 --> 0:17:52.159 if they want to do something extraordinary above and beyond that, 0:17:52.960 --> 0:17:54.960 then obviously doesn't have a huge impact to earnings. So 0:17:55.040 --> 0:17:57.520 here's the question I've never asked, because once again we're 0:17:57.560 --> 0:17:59.800 handering and if you're just joining us Walter Price with 0:17:59.880 --> 0:18:02.560 A with B T I G. The world's gonna end 0:18:02.600 --> 0:18:05.159 as we know it. But we never talk. And this 0:18:05.400 --> 0:18:09.040 is if a one to three about the malleability of 0:18:09.119 --> 0:18:13.800 a given company's income statement, which is that the margins 0:18:13.880 --> 0:18:18.000 are there, and there's dynamics Walter within those margins that 0:18:18.040 --> 0:18:20.960 can be S G and A can be manufacturing processes 0:18:21.440 --> 0:18:25.879 and the rest of it. How malleable, flexible, adjustable is 0:18:25.960 --> 0:18:28.720 their income statement? My answer is it's got to be 0:18:28.840 --> 0:18:34.080 more valuable than anyone's out there. Well, there is some malleability, 0:18:34.160 --> 0:18:36.040 but I think on the R and D line is 0:18:36.040 --> 0:18:38.680 an example. UM as far as please you know what 0:18:38.760 --> 0:18:41.359 they're investing in future. I mean, that's that number has 0:18:41.400 --> 0:18:44.119 been outpacing revenue growth. Right. They're spending more and more 0:18:44.160 --> 0:18:45.720 on R and D every year, and I think what 0:18:45.800 --> 0:18:47.959 investments are hoping for that is that that will at 0:18:48.119 --> 0:18:51.240 some point, you know, yield a new product that will 0:18:51.280 --> 0:18:54.440 help us. Okay, stop there, this is too important. Why 0:18:54.520 --> 0:18:57.719 do they need a new product? I mean, I think 0:18:57.760 --> 0:19:00.320 people look at the iPhone business and if you're bullish 0:19:00.359 --> 0:19:03.320 on the company, say, look, it's it's it's um. We 0:19:03.440 --> 0:19:06.399 might not have these growth years again, but you've got 0:19:06.520 --> 0:19:08.440 a base that's going to come back to you every 0:19:08.480 --> 0:19:10.480 couple of years and continue to buy the phone. So 0:19:11.000 --> 0:19:13.240 if we'd rather not have three or four percent growth 0:19:13.320 --> 0:19:15.840 and we'd rather have double digit growth, you know, we 0:19:15.960 --> 0:19:18.280 have services out there as a as a business that 0:19:18.359 --> 0:19:20.280 a lot of people talk about. But new products are 0:19:20.359 --> 0:19:22.720 other ways that you can accelerate growth. But Tom the 0:19:22.800 --> 0:19:25.359 other thing on margins that that's interesting in terms of 0:19:25.440 --> 0:19:28.280 the malleability of an income statement. If you remember a 0:19:28.400 --> 0:19:31.879 decade ago or maybe even longer, you know, when Motorola 0:19:31.920 --> 0:19:34.000 and Nokia were the top dogs in this space in 0:19:34.119 --> 0:19:36.920 terms of devices, they would struggle to maybe get to 0:19:37.000 --> 0:19:40.320 ten percent operating margins. We are so far above what 0:19:40.480 --> 0:19:44.679 the perception of the appropriate margin is for phones relative 0:19:44.760 --> 0:19:48.440 to consumer electronic business or even other you know, path 0:19:48.680 --> 0:19:51.600 leaders in this space that whether it's up or down 0:19:51.680 --> 0:19:54.720 twenty or thirty basis point is the is missing the 0:19:54.840 --> 0:19:57.600 bigger picture in terms of how high these margins are. 0:19:57.640 --> 0:19:59.880 And why is that? Because people come back to these 0:20:00.000 --> 0:20:02.240 products every you know, every couple of years, and they're 0:20:02.359 --> 0:20:04.359 very loyal to the brand. Well, so I want to 0:20:04.400 --> 0:20:06.640 finish up by talking about the multiple and talking about 0:20:06.640 --> 0:20:08.920 the services business that you just briefly mentioned. And I 0:20:08.920 --> 0:20:11.240 don't think many people outside the analystic community that you 0:20:11.400 --> 0:20:14.520 lead um quite aware that it's now the second biggest 0:20:14.560 --> 0:20:17.440 source of revenue for Apple. It's coming from the services 0:20:17.520 --> 0:20:19.399 side of the business. What does that mean for how 0:20:19.480 --> 0:20:22.480 this company evolves over the common years and your mind, Walter, 0:20:22.600 --> 0:20:24.640 and what does that ultimately mean for how we value 0:20:25.200 --> 0:20:28.960 this company? So, so what it really means is you 0:20:29.080 --> 0:20:30.879 have this It goes back to this concept of a 0:20:31.000 --> 0:20:33.880 loyal customer base. I could pitch the fact that their 0:20:34.000 --> 0:20:37.040 their phone business is a recurring revenue business that you're 0:20:37.040 --> 0:20:39.200 not going to go to Android when you're ready to 0:20:39.280 --> 0:20:41.040 replace your phone. So you say, okay, I've got this 0:20:41.119 --> 0:20:44.160 loyal base, Now what else what other types of revenue 0:20:44.160 --> 0:20:46.639 can I extract from them? And services becomes that, So 0:20:47.200 --> 0:20:49.080 it's going to ultimately turn into a more of a 0:20:49.160 --> 0:20:52.040 recurring revenue business. Like we look at wireless operators where 0:20:52.040 --> 0:20:55.160 there's a hey, I've got x number of users, let's 0:20:55.160 --> 0:20:57.800