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Speaker 2: This is the Bloomberg Surveillance Podcast.
Speaker 3: I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz.
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Speaker 3: Our guest in the morning to synthesize all this with
Speaker 3: our question. Peter Cheers joins us now. Ahead of a
Speaker 3: macro strategy at Academy Securities.
Speaker 2: You look for price up, yield down. What will that do?
Speaker 2: To the equity market.
Speaker 4: I think for now it's going to be good. I
Speaker 4: think we see four thirty on tens before four, before
Speaker 4: we see four to seventy five. I think the pain
Speaker 4: trade is actually to lower yields. A lot of people
Speaker 4: who are bullish at five kind of got short again.
Speaker 4: I think that works until we get down about four
Speaker 4: thirty five. Equities rally on the back of that. Then
Speaker 4: we realize we're getting there because things like oil, copper
Speaker 4: receding because the economy is actually slowing fast. So I
Speaker 4: think at that point that's when the recession fear start
Speaker 4: getting priced back into stock taking.
Speaker 3: Academy Securities three year view, you've got that slowing global demand.
Speaker 3: Nick bennenbrook On from Wells Fargo stunning with a two
Speaker 3: point four percent global GDP call.
Speaker 2: Can you own equities out with a three year vision?
Speaker 4: I think you could if you had a three year vision.
Speaker 4: I think right now it's more like a two to
Speaker 4: three week vision. Everything's so volatile. We don't know where
Speaker 4: this economy is turning. We don't know what's going on there.
Speaker 4: And one thing that's starting to scare me is we're
Speaker 4: having a lot of discussions about the middle East, we're
Speaker 4: starting to hear a little bit more concerns about supply chains.
Speaker 4: I don't think it's an issue today, but if as
Speaker 4: this drags on, if there's any degree of escalation, supply
Speaker 4: chains become an issue again. So I think that will
Speaker 4: be a big drag on the economy.
Speaker 5: The Middle East crude last month is just unreal to
Speaker 5: see a move of almost eleven percent lower on WTI,
Speaker 5: even with the heightened tension of them. Add least a
Speaker 5: lot of people Pete appointing to maybe demand starting to
Speaker 5: crack in a certain places around the world, Europe one,
Speaker 5: maybe even the United State's gone into next year.
Speaker 6: What's your view on that?
Speaker 4: Yeah, I think last time I was here, I said
Speaker 4: buying oil was not going to be a good hedge
Speaker 4: for escalation there because oil had been under so much
Speaker 4: pressure before, and I think that's what we're seeing again.
Speaker 4: There's just that lack of demand and the Saudis definitely
Speaker 4: have the ability to turn on the tap if they want.
Speaker 4: We're clearly trying to figure out how to work with Venezuela,
Speaker 4: and so far it looks like Aram's going to continue
Speaker 4: to pump oil despite the sanctions, despite the heighted tensions there,
Speaker 4: So there's not much in favor of oil right now,
Speaker 4: and I think that's a very crowded long position, so
Speaker 4: I could see that breaking lower next year.
Speaker 6: You mentioned a two to three week view. I'm with you.
Speaker 5: You know what's about to happen though, In the next
Speaker 5: two to three weeks, we're going to get a load
Speaker 5: of people publishing their outlooks for twenty twenty four. Can
Speaker 5: you help us understand how you get any visibility whatsoever?
Speaker 5: It's next year? What's the strategic view going into next year?
Speaker 4: You know, I think there's still some big themes. I
Speaker 4: think AI, how people are using AI, the efficiency that
Speaker 4: that could cause for companies. I think that's going to
Speaker 4: be a big theme still. So you can look over that.
Speaker 4: Where are we going to be on the defense spending?
Speaker 4: Where are we going to be in terms of geopolitical spending.
Speaker 4: I think the reshoring is still real. I think a
Speaker 4: reasonably healthy economy with their decent jobs is still the
Speaker 4: overriding thing. So I think markets are a little bit
Speaker 4: more volatile, volatile right now than the underlying economy is.
Speaker 7: So if you put this together to what you said
Speaker 7: earlier that you see benchmark ten year yields getting down
Speaker 7: to four point three to five percent before going back
Speaker 7: up to four point seventy five percent, or just basically
Speaker 7: they're heading lower. Does that mean that we're going to
Speaker 7: have slower growth but still the soft landing and that
Speaker 7: it basically people are going to a little concerned about stocks,
Speaker 7: but that it sets up a rally. And I'm just
Speaker 7: trying to understand. No, I think a very convoluted range
Speaker 7: of thoughts.
Speaker 4: So I think as we move towards four thirty five,
Speaker 4: you get this, oh, this is all good for stocks,
Speaker 4: And then as you start moving below four forty, I
Speaker 4: think people realize, oh, man, we're getting there because things
Speaker 4: are not good in the economy. The job market has changed,
Speaker 4: you know, white collar workers aren't doing as well as
Speaker 4: they were. You're seeing, I think, some potential for spending.
Speaker 4: You're seeing little cracks in the housing prices. So I think,
Speaker 4: all of a sudden, by year end, we're going to
Speaker 4: be back on a hard landing discussion, and it'll be
Speaker 4: the boy who cried Wolf, but we'll all be back
Speaker 4: talking about no more soft landing. We've overdone it.
Speaker 7: So you think that at that point treasures will continue
Speaker 7: to be Haven's once again, even though arguably one of
Speaker 7: the biggest drivers of the yield move has been Washington,
Speaker 7: d C. And it doesn't look like that's changing.
Speaker 4: That's not changing. But again that's a three five, ten
Speaker 4: year sort of pain. It's you know, we get ahead
Speaker 4: of ourselves. And I do think the one problem we
Speaker 4: all have is the bond market's so big. You talk
Speaker 4: about these numbers, two hundred and fifty billion, and it's huge,
Speaker 4: but it's you know, a action of twenty five trillions.
Speaker 4: So I think the ability to digest this. You see
Speaker 4: corporate bonds come out twenty two billion yesterday, I believe
Speaker 4: it was you know, there's no problem digesting this. So
Speaker 4: I think the market's pretty healthy. I think people see
Speaker 4: yields as attractive. You're going to see people continue to
Speaker 4: add to that, so I think that's fine. It's going
Speaker 4: to be the risk side of things that gets people
Speaker 4: a little bit more spooked.
Speaker 3: Tell me about the November real yield shift we've seen.
Speaker 3: We've seen the ten year real yield migrate two point
Speaker 3: five zero percent to two point one nine percent.
Speaker 2: That makes things easier for everybody, right, it does.
Speaker 4: But I think the nominal yields still play a big role.
Speaker 4: They're still relatively high, and we had that move from
Speaker 4: you know, three seventy five to five, so we haven't
Speaker 4: clawed a lot of that back. I think there's this
Speaker 4: long you know, invariable lag time is really long. This
Speaker 4: time people did such a good job locking in yields.
Speaker 4: It's only now that you're hearing more and more people
Speaker 4: have to roll over their debt. Right if you issue
Speaker 4: to your debt back in the hey day, Now it's
Speaker 4: rolling over three year debts not quite rolling over. So
Speaker 4: I think we're just starting to see that slow down impact.
Speaker 4: And I think one point John brings up, we've got
Speaker 4: what we've been calling this full liquidity, this fake liquidit
Speaker 4: idiot feels like the markets are super liquid at any
Speaker 4: given price point, but the ability to gap high or
Speaker 4: low is there. So I think we got pushed to
Speaker 4: five percent by people getting stopped out pushing on yields.
Speaker 4: Were now got back to four fifty in a heartbeat
Speaker 4: because people are getting stopped out the other way. So
Speaker 4: that's what we're trying to I think manage is like
Speaker 4: what's the real noise versus the signal?
Speaker 5: You mentioned the Great financinc. The Great financcinc of the pandemic,
Speaker 5: the huge wealth transfer we had from Treasury to the consumer.
Speaker 5: Consumer balance sheets were stronger. Everyone under the Sunny wonder
Speaker 5: House remortgage termed out that debt low rates. Corporate America
Speaker 5: did the same thing. One place didn't, Treasury Stan Drug
Speaker 5: AMLA has been very critical of leadership at Treasury over
Speaker 5: the last i don't know, five years through that low
Speaker 5: interest rate period not termin out the debt. What are
Speaker 5: your thoughts on that? What do you think about that conversation?
Speaker 4: Yeah, I think they should have done what corporations did.
Speaker 4: I'm always a big believer, right, you know, borrolong it
Speaker 4: blocks in, You've reduced volatility, and we're having a lot
Speaker 4: of conversations with clients. Probably a little bit hypothetical at
Speaker 4: this point, but maybe people are supposed to be under
Speaker 4: weight treasuries and tea bills and way overweight whether it's
Speaker 4: commercial paper, corporations. That right, if you take a step
Speaker 4: back and talk about this as being governance, right, the
Speaker 4: US governance is awful right now in terms of our spending,
Speaker 4: in terms of we talk about not spending paying our bills. Right,
Speaker 4: you look at the large corporations world, they have good
Speaker 4: corporate governance, they have global plans. They never once would
Speaker 4: ever even think about saying, oh, we're not going to
Speaker 4: pay our debt on time because we don't feel like it.
Speaker 4: So I think you're supposed to be starting to push
Speaker 4: really heavily to overweight high quality corporates, maybe in commercial paper,
Speaker 4: maybe some abs, and move really underweight T bills.
Speaker 7: So do you foresee a time when Apple can borrow
Speaker 7: at a lower rate than the US government.
Speaker 4: You know that ability to break the sovereign ceiling rarely happens,
Speaker 4: even in emerging markets. I don't think it happens here,
Speaker 4: But I do think you can see really tight spread compression,
Speaker 4: especially at the front end of the corporate bond curve.
Speaker 4: So I like that as a trade.
Speaker 5: Do you think we get conversion spread compression on governance
Speaker 5: issues alone?
Speaker 4: I think that will play a part of it.
Speaker 2: Yeah.
Speaker 4: I think the top quality companies have a ton of cash.
Speaker 4: The liquidity in the bond market's not what it once was,
Speaker 4: so whatever you have to pay up their own T bills,
Speaker 4: maybe you don't. And I think this government issue is
Speaker 4: going to become a real thought again if you think
Speaker 4: about it, why would you lend to someone who talks
Speaker 4: about not paying your.
Speaker 5: Debt because for a long time they've had the privilege
Speaker 5: of acting recklessly correct talked about this so many times
Speaker 5: there's been a consequence for it.
Speaker 6: Why is this time different.
Speaker 4: I think something we talked about before snapped in the market,
Speaker 4: and all of a sudden people are really questioning this
Speaker 4: whole you know, correlation or coalescence of events that have
Speaker 4: been on the back of everyone's mind. I don't think
Speaker 4: it cracks this time, certainly, but I think it starts
Speaker 4: setting us in stage again. I always go back to
Speaker 4: the Great Financial Crisis. It started breaking in two thousand
Speaker 4: and six, got fixed, broken in in two thousand and seven,
Speaker 4: got fixed, broken in two thousand and seven, got fixed.
Speaker 4: So I feel now we've started this unwined, and unless
Speaker 4: DC gets its act together, this is going to be
Speaker 4: Every time it rears, Itt cetera will get uglier. But
Speaker 4: it's not this year's story anymore.
Speaker 5: Pey love it always thoughtful, pitecher there of academy securities.
Speaker 3: Libby Cantrell, joints now Managing director, had a public policy
Speaker 3: at PIMCO.
Speaker 2: Libby, You're the only one I can do this with.
Speaker 3: Can you take the election results and you can fold
Speaker 3: them into a government shutdown, which happens in about three
Speaker 3: cups of coffee. Can you make that exercise happen?
Speaker 4: Yeah?
Speaker 8: Well, good morning, and thank you for not asking me
Speaker 8: a question about ORGO. I did not take organic chemistry school,
Speaker 8: so thanks thanks for testing me on that. Yeah, so
Speaker 8: I do think that the read through actually from last night, Tom,
Speaker 8: so thanks for thanks for a layup. Here is actually
Speaker 8: Democrats won a special election in Rhode Island. This was
Speaker 8: a is a blue race, a blue seat. This is
Speaker 8: a House seat. That means that they have two hundred
Speaker 8: and thirteen seats in the House. Republicans, however, only have
Speaker 8: two hundred and twenty one. They have a special election
Speaker 8: Utah in a few weeks. The reason why this actually
Speaker 8: means is important from a government shutdown perspective is that
Speaker 8: means practically that Republicans now can only lose three seats
Speaker 8: excuse me, three votes in order to pass a funding
Speaker 8: bill that they need a pass to avoid a shutdown
Speaker 8: by by next Friday. So it just means that the
Speaker 8: margin of error is much more narrow for Republicans. Speaker
Speaker 8: Johnson was already needing to thread a needle, if you will,
Speaker 8: and that a needle point has just gotten even more
Speaker 8: narrow from from the result from last night.
Speaker 3: And threading the needle. What will moderate Republicans do. I
Speaker 3: don't have it in front of me, but I'm going
Speaker 3: to suggest on Long Island east of New York City,
Speaker 3: the Republicans had a good night. What are the moderate
Speaker 3: I guess the former president would say, Republicans in name only?
Speaker 2: How do they adapt an adjust off thee selection?
Speaker 8: You know, I think that what we what we learned
Speaker 8: last night is that the abortion rights still very much resonate.
Speaker 8: That was obviously a take away from the twenty two,
Speaker 8: twenty twenty two midterms, where abortion really emboldened turnout. It
Speaker 8: shows last night that this really is very much an issue,
Speaker 8: especially when it is on the ballot.
Speaker 6: Now.
Speaker 8: I think for twenty twenty four, many of these folks,
Speaker 8: particularly in those districts Tom that you mentioned, where there
Speaker 8: are you know, Republicans who are defending Biden districts, the
Speaker 8: Democrats will make this an issue. You're going to hear
Speaker 8: a lot about abortion rights over the next year because
Speaker 8: of the results of last night, just sort of underscoring
Speaker 8: that this clearly is a resident voting issue for voters
Speaker 8: now in terms of the government shutdown, what does that
Speaker 8: make those modern Republicans do they are voting in lockstep here?
Speaker 8: They really are trying to give Speaker Johnson, you know,
Speaker 8: the benefit of the doubt. I think that will continue.
Speaker 8: I think the big question for markets is, though, is
Speaker 8: that enough can they actually avoid a shutdown? If they
Speaker 8: pass apartisan bill, tom, we will see a shutdown next
Speaker 8: next Friday. So again kind of an open question of
Speaker 8: how this all resolves. But as of now, it looks
Speaker 8: like they are voting in a partisan way, which means
Speaker 8: that shutdown risk is you know, I think is increased
Speaker 8: over the last week or so.
Speaker 7: Do markets care though, I mean, it's a shutdown basically, Okay,
Speaker 7: they're going to do it for twenty four hours for
Speaker 7: a fact, and then we'll move on.
Speaker 8: Yeah, least I think that's that's that's the real the
Speaker 8: real issue. If it is a temporary shutdown, no, this
Speaker 8: will just be more DC noise. If it's a longer,
Speaker 8: more prolonged shutdown, it does become I mean, the economic
Speaker 8: impacts of you know, lots of federal workers being furloughed
Speaker 8: not actually collecting a paycheck, could matter. And also, you know,
Speaker 8: the data matters, right. If we don't get data from
Speaker 8: the Department of Labor, for instance, that makes the Fed's job,
Speaker 8: you know, a little bit a little bit harder. And
Speaker 8: we can also see, you know, that this term premium
Speaker 8: that you all been talking about, we could see you know,
Speaker 8: some of the yields back up again as well on
Speaker 8: account of this. So I think you're right. If it's
Speaker 8: a short term shutdown, no, the markets probably don't care.
Speaker 8: If it's longer term, however, you know, it may it
Speaker 8: may weigh on, you know, again on just sort of
Speaker 8: the confidence around sort of the political apparatus in Washington,
Speaker 8: d C.
Speaker 7: Just shifting from last night's elections to what we're expecting
Speaker 7: next year, the presidential election. How much of a certainty
Speaker 7: do you think that it is that we're going to
Speaker 7: see President Biden versus former President Trump. How much will
Speaker 7: tonight's debate really color that discussion about potential other running
Speaker 7: candidates for the Republican Party in particular.
Speaker 8: Yes, I think what we've been messaging to client Lisa
Speaker 8: is with high conviction President Biden will be the nominee
Speaker 8: for the Democratic Party. This idea that he is going
Speaker 8: to drop out, that Governor Newsom, for instance, may jump
Speaker 8: into the race. It just is not it's just not
Speaker 8: realistic at this point. Nor is there any indication from
Speaker 8: the Biden camp that he has you know, he has
Speaker 8: any interest in dropping out or any intention of dropping out.
Speaker 8: So he will be the Democratic nominee again, you know,
Speaker 8: excluding or assuming there's no sort of exident health issue
Speaker 8: or have you. On the Republican side. If President Trump
Speaker 8: obviously has an incredibly formidable lead in the polls, but
Speaker 8: this is actually a really important point. His campaign is
Speaker 8: much more organized, I think by his own emission than
Speaker 8: it was in twenty sixteen, and they have been systematically
Speaker 8: changing the delegate rules in the states in terms of
Speaker 8: how the state primaries allocate delegates to his benefits. So
Speaker 8: not only does he have this formidable lead in the polls,
Speaker 8: but he's also sort of changed the kind of the
Speaker 8: machinations behind the scenes in terms of how these delegates
Speaker 8: are allocated, and of course getting the nominations just a
Speaker 8: delegate game. So the fact that he's been changing these
Speaker 8: rules is to his benefit as well. So, I mean
Speaker 8: a lot would have to happen, I think tonight and
Speaker 8: over the next two months now. I think what we
Speaker 8: can show from even last night that voting behavior is
Speaker 8: the most important thing to look at and polls are
Speaker 8: not always right, and so particularly in Iowa and New Hampshire, Nevada,
Speaker 8: and South Carolina. Those are the four the first contests, Lisa,
Speaker 8: and how we're guiding our clients is if Trump wins
Speaker 8: all of those, then he very likely is going to
Speaker 8: be the nominee. However, if there's somebody can test one
Speaker 8: of those that it could be easily become a two
Speaker 8: person race. But again sort of remains to be seeing.
Speaker 8: In terms of tonight, it's really a race for number
Speaker 8: two DeSantis between and Haley. Yeah, I think we will
Speaker 8: see it be pretty pretty nasty and pretty ugly tonight.
Speaker 5: Looking forward to that debt, Rebe, thank you got to
Speaker 5: catch out you one.
Speaker 2: Of the best.
Speaker 6: You got to catch with at Pencott.
Speaker 3: Le Vis at fourteen point eight four. That is a
Speaker 3: Dana Ives Market is Senior Equity Research Channel Wedbush. He
Speaker 3: refuses to talk to us when Apple learnings come out.
Speaker 3: We only get him to pick up the debris and
Speaker 3: we can tell for those of you on radio, you
Speaker 3: can understand.
Speaker 2: These long Lily Pulitzer as well this morning. Great.
Speaker 3: Look, Dan, I want to talk about your two forty
Speaker 3: call on Apple.
Speaker 2: You're not lonely.
Speaker 3: There's a few other people out there with dan ives
Speaker 3: optimism on Apple. When I saw those margins and a
Speaker 3: company managing for profit not revenue growth, can you raise
Speaker 3: your two forty estimate?
Speaker 2: Yeah?
Speaker 9: Look, I think this is just the beginning of the
Speaker 9: next phase of the Apple store. You look at margins
Speaker 9: that are historical. You look what's happening on services now.
Speaker 9: Mid teen growth and iPhones despite the haters continuing to hate,
Speaker 9: is growing even when you take out currency, and you look,
Speaker 9: it's even growing more asps. The China iPhone demise story
Speaker 9: is a fictional Netflix story, and in my opinion, this
Speaker 9: is just the start of what I ultimately view is
Speaker 9: at three and a half to four trillion dollar markets.
Speaker 3: A slow day, we gotta make some news here. Can
Speaker 3: you pop from two forty up to two fifty this
Speaker 3: morning for us?
Speaker 9: Look, I believe that I believe are the best case
Speaker 9: or the bowl case is probably closer to seventy five
Speaker 9: as this all plays out, because also now you don't
Speaker 9: have AI in those numbers. This is just to get
Speaker 9: out the popcorn moment for when Apple, ultimately, I believe,
Speaker 9: over the next year, introduces the AI App Store, and
Speaker 9: that's just going to be you know, ultimately from a
Speaker 9: services perspective, that could be an incremental five, ten, fifteen million.
Speaker 6: You made a couple of statements, so let's stalk down
Speaker 6: on them. We can do that.
Speaker 5: Your friends, you talked about growth at the iPhone. What
Speaker 5: growth are you talking about?
Speaker 9: So if you look at unit growth, units are growing
Speaker 9: into the December quarter. You also, if you take our currency,
Speaker 9: which is ahead wind, you're basically mid single digit growth.
Speaker 5: You've been talking about a massive boom of people upgrading.
Speaker 5: I guess my question to you, Dan, to be polite
Speaker 5: about it, have you been right for the wrong reasons
Speaker 5: on the stock to acknowledge that?
Speaker 9: I would say that ultimately, if you look at this,
Speaker 9: what I've used a mini supercycle that's playing out. The
Speaker 9: ASP stories played out, and I think our biggest call
Speaker 9: has been China. Despite many yelling fire in a crowd theater,
Speaker 9: the China growth is actually increasing, not decreasing.
Speaker 6: But they had a down quarter right in China.
Speaker 9: Well, if you look at China, meanwhile, in China was
Speaker 9: actually a record for the September quarter. When you look
Speaker 9: at the overall you know, as Keen talks about the
Speaker 9: initial reaction after sure iPads max that and three dollars
Speaker 9: go to your cup of coffee. I'm focused on iPhones
Speaker 9: where units were up in China.
Speaker 6: Well, I'm struggling with that.
Speaker 5: And you'd appreciate this if you came on today and say,
Speaker 5: margins the better they are. I'm with you, Okay, Marchin
Speaker 5: is a great service revenues where the growth is that
Speaker 5: deserves to hire multiple I understand that maybe you can
Speaker 5: make the case for why the stock is high this
Speaker 5: year based on those things. When you say things like
Speaker 5: iPhone supercycles when we've had no growth for four quarters
Speaker 5: in the company, that's where I struggle.
Speaker 6: Can you help understanding?
Speaker 9: So let's dissect that first. When you think about the
Speaker 9: card five six hundred BIPs FX headwinds, that is actually
Speaker 9: underlying growth that you're seeing an iPhone units.
Speaker 6: Just to steady stated.
Speaker 9: I also believe our whole view of the iPhone cycle
Speaker 9: is really going to be over the next three, four
Speaker 9: or five quarters. That's where you're going to have these upgrades.
Speaker 9: It's that actually come through. I'm not saying that you
Speaker 9: don't have some maybe share minor share losses on the
Speaker 9: sort of mid tier, but in terms of high end
Speaker 9: as a utility, this essentially is going to be a
Speaker 9: mid to high single digit growth on iPhone, and when
Speaker 9: you start to run that through, that could be an
Speaker 9: incremental one two three dollars earnings as you look out
Speaker 9: next two three years.
Speaker 7: There's a lot of growth already baked into valuation, and
Speaker 7: a big piece of valuation is where the buyers are
Speaker 7: going to come from. And you've been traveling around the
Speaker 7: world trying to hold everyone's hand and convince them that
Speaker 7: there is still value in big tech. How much do
Speaker 7: the losses of other areas of the tech like sphere
Speaker 7: and I'm thinking of Masioshi's Sun and the more than
Speaker 7: eleven billion dollar loss on we work.
Speaker 6: How much does that.
Speaker 7: Play into a little ambivalence about buying the story right now?
Speaker 9: Look, I think you're definitely having winners and losers in
Speaker 9: terms of this just broader economy, and I think in
Speaker 9: terms of the Magnificent seven in terms of big tech,
Speaker 9: I think the strong gets strong to my point, you know,
Speaker 9: being an easier for a few weeks and in Europe,
Speaker 9: you know, It's very easy to sit there here in
Speaker 9: New York on your ten floor spreadsheet being negative on Apple.
Speaker 9: What I see out in the world is a much
Speaker 9: different environment in terms of the growth that's happening, and
Speaker 9: I believe tech to your point, you're going to see
Speaker 9: the strong continuing to dominate. And I think in terms
Speaker 9: of AI, we are just in the early stages of monetization.
Speaker 9: I think that's a big thing in this tech ball market.
Speaker 9: Microsoft saw it in terms of AI. You're starting now
Speaker 9: see monization data Dog. That's a Hall of fame quarter
Speaker 9: in terms of what we saw there, pallenteer the messy
Speaker 9: of AI, and I believe alternately, right now the AI
Speaker 9: gold rush is actually starting.
Speaker 7: That sounds lovely on that side. On the side of
Speaker 7: how much we're paying for price monetization and monetization of AI,
Speaker 7: AM looking at Apple plus in sort of the amount
Speaker 7: that though that's increased. Are we going to be paying
Speaker 7: six hundred dollars a month to Apple for all of
Speaker 7: our various services?
Speaker 9: Look, I think over in there. But to your point,
Speaker 9: I think over the next year or two, I think
Speaker 9: the average Apple user is going to start to definitely
Speaker 9: increase what they're paying Apple on the services because ultimately,
Speaker 9: as it goes out, the AI technology that's going to
Speaker 9: be in fitness health in the app store, that's just
Speaker 9: going to give them just another added growth to the
Speaker 9: monization of Coupertino. And I think part of why the
Speaker 9: stocks reacted, you know, despite you know many I think
Speaker 9: being very negative initially, as it's come through, you know,
Speaker 9: to Pharaoh's point iPhone, you're now starting to see grow
Speaker 9: services mid teen growth margins. This is just another you know,
Speaker 9: flex the muscles moment, and I think that's on a
Speaker 9: sum of the parts, how this is a stock that
Speaker 9: ultimately is gonna be a four trillion dollar markup by
Speaker 9: twenty twenty five.
Speaker 5: Just picking up on penalty the messy of AI. Why
Speaker 5: why is thy the messy of Ai?
Speaker 9: Because I believe they are the purest AI name in
Speaker 9: the market period. And and look, Palenteer is one where
Speaker 9: you know, many have been negative on that story for
Speaker 9: a number of different reasons. But I think what you're
Speaker 9: seeing now happen is that they've actually parlayed enterprise success
Speaker 9: and you're now seeing the use cases explode. I believe
Speaker 9: Palenteerman twenty five is are a base case, but that
Speaker 9: is the golden child of AI.
Speaker 2: I'm gonna make some news any day now.
Speaker 3: Do I see another massive, mega billion dollar Apple debt offering.
Speaker 9: Look, I think that's something that you know clearly, you
Speaker 9: know could be on the table. I think the bigger
Speaker 9: thing for Apple is I think they're finally going to
Speaker 9: look at M and A, and we've talked about I.
Speaker 3: Think we got to extend the inf They're going to
Speaker 3: buy Disney by by the week.
Speaker 9: I believe ESPN is the asset that.
Speaker 6: Ultimately o't buy.
Speaker 9: Okay, but for that, I think thirty five to forty
Speaker 9: billion in terms.
Speaker 6: Of what bates transaction, but it could not beats three
Speaker 6: and a half billion.
Speaker 9: But also it goes back to the MLS deal that
Speaker 9: was I think where the light bulb went off in
Speaker 9: terms of live streaming sports. I think ESPN's a unique
Speaker 9: ass And look right now, you look at the top
Speaker 9: of this mound, it's Nodella, it's cook you know, it's
Speaker 9: you're really starting to see ultimately more of an opportunity
Speaker 9: where they can go on the offensive rather than defense.
Speaker 5: Okay, it's good to say it though, Thank you buddy
Speaker 5: here Dennice of web Bush.
Speaker 7: It's joining us to talk about just how bad of
Speaker 7: a time this is for this to hit. Alexander Goldfarb,
Speaker 7: Senior Research Analystic Piper Sandler.
Speaker 3: I want to.
Speaker 6: Start there, Alexander.
Speaker 7: There've been talks discussions around the number of leases that
Speaker 7: we work is going to abandon. Is the pressure on
Speaker 7: commercial real estate office space in particular in New York
Speaker 7: is it overstated right now or understated?
Speaker 10: Well, Lisa and Tom and thank you for having me on,
Speaker 10: you know here at Piper Sandler. When we look at
Speaker 10: what is going on in office, it's eerily similar to
Speaker 10: what happened with malls. You know, over the past decade.
Speaker 10: If you recall everyone pre pandemic thought every single mall
Speaker 10: was going to close because everyone was going to shop online.
Speaker 10: And in fact what happened is the dominant malls like
Speaker 10: the Roosevelt Fields or Houston Gallerias continue to excel and
Speaker 10: lesser malls fall away. The same thing is with office.
Speaker 10: So if you look at we work, which we don't
Speaker 10: cover we work, but if you look at some of
Speaker 10: the fallout out in San Francisco, they rejected a bunch
Speaker 10: of leases. They did not reject one lease from Boston Properties.
Speaker 10: When you look in San Francisco. When you look in
Speaker 10: New York, you know companies like s Green Bornado have
Speaker 10: zero exposure now to WE Work because they exited those
Speaker 10: we Work leases over the past number of years, and
Speaker 10: even Boston properties only as one percent. So when you
Speaker 10: look at the fallout that's going to happen, and you
Speaker 10: look at the major rates and especially the ones that
Speaker 10: we cover here at Piper Sandler, the impact is negligible.
Speaker 10: And what's really interesting is when you look at office,
Speaker 10: especially here in New York, it's gravitating around Grand Central
Speaker 10: and actually you're seeing rents increase on Park Avenue. So
Speaker 10: just like mal the dominant office will survive the lesser
Speaker 10: the generic office. That's where the trouble is.
Speaker 7: So are you saying right now that the prices have
Speaker 7: baked in a lot of that trouble or that people
Speaker 7: just haven't been discerning enough to understand the winners versus
Speaker 7: the losers.
Speaker 10: Absolutely. If you speak to the brokerage community like Newmark,
Speaker 10: they are starting They and Cushman and the other brokerage
Speaker 10: companies are starting to discern the difference between top tier
Speaker 10: versus generic Class A, Class B, etc. So when you
Speaker 10: look at what tenants want today, tenants want great space
Speaker 10: with a lot of amenities, convenient, convenient for commuters, and
Speaker 10: they want a landlord who has the capital wherewithal to
Speaker 10: invest in the properties. And let's face it, the brokers
Speaker 10: want to get paid a commission, and you're seeing that fallout.
Speaker 10: It's no different than we've seen in retail. So again
Speaker 10: I use them all example Simon Property Group, yet with
Speaker 10: their billion dollars a year for the past, so tenants
Speaker 10: know that they can be there. The same is happening
Speaker 10: in reads with companies like sl Green.
Speaker 2: That's right where I wanted to go. Alexander, you are
Speaker 2: reading my mind. What is David Simon going to do
Speaker 2: with this folks?
Speaker 3: Simon Property Group Indianapolis, three thousand employees. What is the
Speaker 3: guy from Indiana University can do? He's seen this before
Speaker 3: we come down. But my history is fresh money always
Speaker 3: comes in. When does the fresh money click in? If
Speaker 3: transaction to transaction, I'm down forty percent.
Speaker 10: Well, you are speaking David's mind. He loves cash flow.
Speaker 10: So since IPO, the company's paid out thirty nine billion
Speaker 10: in dividends, and the reason they've done that is by
Speaker 10: investing shrewdly. So when you look right now, he's very
Speaker 10: focused on investing in his malls. So apart for the
Speaker 10: Tallman acquisition, which was structured before the pandemic, he hasn't
Speaker 10: bought anything on the outside. His focus has been investing
Speaker 10: in the malls, like out in Northgate in Seattle where
Speaker 10: they're converting it into a hockey arena, or Houston Gallera
Speaker 10: where they're adding office and apartments, etc. So that's where
Speaker 10: he's focused. But let's face it, given the challenges away
Speaker 10: from Simon, he can pick and choose. But if you look,
Speaker 10: he's making a ton of money out of his portfolio,
Speaker 10: which people forget is actually small. It's only one hundred
Speaker 10: and twenty malls and only two hundred or so domestic
Speaker 10: properties in total. So he's a large company, but with
Speaker 10: a small powerhouse portfolio.
Speaker 3: Right bet Alison, I got to make some headlines here.
Speaker 3: We're in the business and news, Alexander. There's blood on
Speaker 3: the streets. We see it in New York, and I
Speaker 3: get it in New York's its own little weird place,
Speaker 3: but there's all across the nation real estate blood on
Speaker 3: the streets. Are you saying your world reads back to
Speaker 3: when you were at Lehman, Your world of reads. Is
Speaker 3: it now a screaming by because of all the agony
Speaker 3: Lisa was just framing.
Speaker 10: So it's not a screaming buy in the sense that
Speaker 10: interest rates are high. Right, we have a tenure that
Speaker 10: was approaching five percent. It's now backed off a little,
Speaker 10: but certainly the financing market, which as you guys have reported,
Speaker 10: is basically shut down, right. CNBS market is tough. You
Speaker 10: walk into a bank and try to get a construction loan,
Speaker 10: they'll call the cops on you. They're like, we don't
Speaker 10: do that right now, right, So lending is very tough.
Speaker 10: The transaction market is almost on ice because of the
Speaker 10: widespread what's interesting and people missing Tom, you're like my
Speaker 10: first boss at Lehman, David Shulman. You've been around a
Speaker 10: number of decades. Real estate right now is benefiting from
Speaker 10: a phenomena that it has not had in a long
Speaker 10: long time, which is low supply because nothing new is
Speaker 10: getting built and low vacancy. That combination is really powerful.
Speaker 10: And you started the show by saying, how is the
Speaker 10: credit going to get work out?
Speaker 4: Again?
Speaker 10: As you as we've spoken before, back in the GFC,
Speaker 10: everyone was panicked about the CNBS. No one can tell
Speaker 10: you where the benchmark GG ten. What happened to that
Speaker 10: famous twenty two thousand and seven deal. Right, stuff gets
Speaker 10: worked out. Obviously there will be pain, there will be
Speaker 10: blood for sure. But if you look at real estate's
Speaker 10: biggest benefit right now, it's that lack of supply and
Speaker 10: low vacancy. That's a huge positive that is underappreciated by
Speaker 10: the market.
Speaker 7: Just about thirty seconds, what happens if there's force selling
Speaker 7: akin to we work.
Speaker 10: So we work is a tenant, so you don't really
Speaker 10: have forced selling from that. But to be clear, banks,
Speaker 10: where everyone's focused on, they're not in the business of
Speaker 10: running real estate, right, So as long as it's a
Speaker 10: good asset with a good sponsor, they're going to work
Speaker 10: out some deal. Because, as the old adage goes, a
Speaker 10: rolling loan collects no loss. That said, there's clearly going
Speaker 10: to be assets that will go back to the lenders,
Speaker 10: and those are the assets where the economics don't exist.
Speaker 10: That's the stuff to worry about. Big properties like the
Speaker 10: three ninety nine Parks, the one Vanderbilts, those big centers
Speaker 10: or are going to be fine. And again, when you
Speaker 10: look at where the value in real estate is, it's
Speaker 10: a crewing at the top. You're right, there will be blood,
Speaker 10: and the blood is going to be some generic assets.
Speaker 3: Alexander brilliant. Alexander Goldfar years of work at Piper Sandler,
Speaker 3: now on real estate investment Trust. Subscribe to the Bloomberg
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