WEBVTT - Ludicrous To Attack China For Supporting Its Own Economy: Roach 0:00:06.080 --> 0:00:09.000 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:09.039 --> 0:00:11.799 Along with my co host Lisa Abramowitz. Each day we 0:00:11.920 --> 0:00:15.400 bring you the most important, noteworthy, and useful interviews for 0:00:15.480 --> 0:00:18.120 you and your money, whether you're at the grocery store 0:00:18.239 --> 0:00:21.000 or the trading floor. Find the Bloomberg p m L 0:00:21.120 --> 0:00:34.560 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Late yesterday, 0:00:34.640 --> 0:00:38.760 the White House said that broad tariffs on steel and 0:00:38.800 --> 0:00:42.960 ten percent on aluminum that are already in effect against China, Russia, 0:00:43.040 --> 0:00:45.320 Japan and others would not go into force for the 0:00:45.360 --> 0:00:49.599 European Union as previously planned. Instead, the European Union has 0:00:49.640 --> 0:00:52.800 another month to continue negotiating with the United States about 0:00:52.920 --> 0:00:56.640 the new pact. In order to avoid the tariffs Canada Mexico, 0:00:56.720 --> 0:01:01.040 they were given an extension until June of first talks 0:01:01.040 --> 0:01:04.759 continuing to rewrite the North American Free Trade Agreement. Here 0:01:04.800 --> 0:01:07.319 to tell us more about trade and China is Stephen 0:01:07.360 --> 0:01:10.080 Rocchi is a senior fellow and lecture at Yale University, 0:01:10.160 --> 0:01:14.839 also a Bloomberg View columnist. Uh Stephen Roach, give us 0:01:14.840 --> 0:01:18.720 your perspective on the trip that Stephen Manuch In, the 0:01:18.800 --> 0:01:22.160 Treasury Secretary is taken to China and whether they will 0:01:22.200 --> 0:01:26.200 actually accomplish any resolution to the trade dispute between China 0:01:26.200 --> 0:01:29.640 and the United States. Well, I worry that this is 0:01:29.680 --> 0:01:33.679 a waste of taxpayer money to send these guys over 0:01:33.720 --> 0:01:38.280 to Beijing. There's no real strategy that they have to 0:01:39.959 --> 0:01:46.480 UH negotiate a meaningful concession with the Chinese, and they 0:01:46.600 --> 0:01:50.920 go over with a with an approach that really has 0:01:51.240 --> 0:01:54.440 nothing in the way of macro coherence, doesn't understand the 0:01:54.560 --> 0:01:59.800 role that deficits play in um UH is a symptom 0:01:59.840 --> 0:02:02.960 of America's own macro economic imbalances. So I'm not too 0:02:03.000 --> 0:02:06.880 optimistic this trip is going to accomplish anything. Pim Stephen, 0:02:06.960 --> 0:02:10.080 you wrote a column for Bloomberg where you were saying, 0:02:10.240 --> 0:02:14.840 the US needs China more than China needs the US. 0:02:15.160 --> 0:02:18.920 Does Beijing know this? You know this is this is 0:02:18.960 --> 0:02:24.680 not you know um astrophysics. They know that they provide 0:02:24.800 --> 0:02:28.400 American consumers with a lot of low cost goods that 0:02:28.480 --> 0:02:31.800 they need to make to make ends meet. They know 0:02:31.919 --> 0:02:34.480 they buy a lot of treasuries, and they know that 0:02:34.600 --> 0:02:37.600 China is now the third largest and most rapidly growing 0:02:38.280 --> 0:02:41.040 market for U S exports. None of these are big 0:02:41.440 --> 0:02:45.960 state secrets. China understands all of that. These are these 0:02:45.960 --> 0:02:47.880 are issues, of course, that we haven't spent a whole 0:02:47.880 --> 0:02:51.520 lot of time absorbing at the policy level in Washington. Well, 0:02:51.560 --> 0:02:54.200 the reason why I ask is because Beijing came out 0:02:54.240 --> 0:02:57.200 and said, yeah, we're happy to negotiate with the United States. 0:02:57.720 --> 0:03:01.280 We're just not willing to discuss a mandatory when hundred 0:03:01.240 --> 0:03:03.959 billion dollar cut in America's three hundred seventy billion dollar 0:03:03.960 --> 0:03:07.080 annual trade deficit with China, or curbs on Beijing's three 0:03:07.160 --> 0:03:10.919 hundred billion dollar plan to bankroll the country's industrial upgrade 0:03:11.200 --> 0:03:14.200 into advanced technologies, which are the two main issues that 0:03:14.240 --> 0:03:17.240 the US wants to talk about. What do you make 0:03:17.240 --> 0:03:21.639 of that? Well, Um, first of all, you know, the 0:03:21.639 --> 0:03:24.280 the idea that you know, we can make America great 0:03:24.320 --> 0:03:27.320 again by cutting a bilateral deficit with China anybody else 0:03:27.440 --> 0:03:31.040 is totally ludicrous. I mean, if we don't rebuild our 0:03:31.160 --> 0:03:33.399 national savings, and of course we're going the other way 0:03:33.400 --> 0:03:37.840 with these big Trump administrastration budget deficits, we can slash 0:03:37.920 --> 0:03:40.360 a hundred billion, two hundreds even three hundred billion off 0:03:40.400 --> 0:03:43.920 the Chinese bilateral deficit will just go to someone else. 0:03:43.960 --> 0:03:46.640 And that someone else is a higher cost producer that 0:03:46.680 --> 0:03:50.160 will end up taxing American workers. And in terms of 0:03:50.480 --> 0:03:54.760 asking China to capitulate on its industrial policy, I mean, 0:03:54.800 --> 0:03:57.760 are we prepared to do that with our own industrial policy? 0:03:57.840 --> 0:04:00.280 Or did did Japan do it? Or as Germany on it. 0:04:00.920 --> 0:04:05.840 It's a ludicrous to accuse China of of of going 0:04:05.920 --> 0:04:10.160 after supporting innovations based initiatives when we all do it. 0:04:11.080 --> 0:04:13.960 Stephen Roach, give us your thoughts on the dispute over 0:04:14.040 --> 0:04:19.839 intellectual property rights with China. Intellectual property is the core 0:04:19.960 --> 0:04:25.840 of any modern innovations based society. But I've looked him 0:04:25.839 --> 0:04:30.000 at the accusations that have been leveled at China in 0:04:30.120 --> 0:04:35.320 the two page document produced by the US Trade rep 0:04:36.080 --> 0:04:39.760 on March it's not a It's not a good case 0:04:39.800 --> 0:04:44.760 at all. Um. They make three main points that China 0:04:45.480 --> 0:04:51.919 UH steals technology through joint ventures. Um, that's ludicrous. I 0:04:52.000 --> 0:04:54.120 was in a joint venture, and you know when you 0:04:54.120 --> 0:04:56.479 you're in a joint venture, you join with your partner 0:04:56.480 --> 0:05:01.320 and you build and share operating system and innovation. There's 0:05:01.360 --> 0:05:04.919 nothing forced about it. Then they go after China for 0:05:05.880 --> 0:05:11.799 UH being a predator in these going out outward bound UM. 0:05:12.200 --> 0:05:15.520 Foreign direct investment initiatives like made in China. We've just 0:05:15.600 --> 0:05:19.039 talked about that. I think that is ludicrous. There is 0:05:19.080 --> 0:05:26.239 a case to be made for UH China using cyber 0:05:26.520 --> 0:05:34.000 espionage to um uh go after US innovation UH, and 0:05:34.040 --> 0:05:36.880 that that certainly was a compelling case that the President 0:05:37.040 --> 0:05:41.120 Obama presented to a Shijun Ping at the Sunny Land 0:05:41.200 --> 0:05:45.120 Summit in two thousand and fifteen. But now I think 0:05:45.400 --> 0:05:49.360 a fair amount of that UH type of activity is subsided. 0:05:49.880 --> 0:05:51.440 So there is a case, but you know, is it 0:05:51.520 --> 0:05:53.640 a credible case? This is a strong case, is a 0:05:53.720 --> 0:05:56.680 compelling case, I don't think so. See, you know, I 0:05:56.680 --> 0:05:58.960 want to push back a little bit because every economist 0:05:58.960 --> 0:06:03.120 that we've talked to agrees that that the trade negotiations 0:06:03.120 --> 0:06:05.800 between the U S and China haven't been leveled for 0:06:05.839 --> 0:06:09.080 a long time, or that the trade just agreements in general. 0:06:09.160 --> 0:06:12.120 Given the fact that China really is a closed economy 0:06:12.200 --> 0:06:16.159 and they do have bands on US companies coming in 0:06:16.279 --> 0:06:18.200 too much, you know, are owning too much of their 0:06:18.240 --> 0:06:21.600 presence in China, what areas do you see room for 0:06:21.640 --> 0:06:24.560 improvement to level the playing field here? Do you think 0:06:24.600 --> 0:06:28.200 things are just fine? Well, you know, there's so much 0:06:28.360 --> 0:06:32.240 generalization going on right now. You know, everyone feels this way, 0:06:32.279 --> 0:06:36.880 everyone feels it's unequal um. This probably, you know, is 0:06:37.240 --> 0:06:41.799 exactly the way um we dealt with the communist threat 0:06:41.800 --> 0:06:45.800 in the nineteen fifties under the inquisitions led by Senator 0:06:45.880 --> 0:06:56.039 Joseph McCarthy. It becomes something that is unpatriotic to openly debate. UH. 0:06:56.400 --> 0:07:01.400 China has certainly been tough in competing for market share 0:07:01.440 --> 0:07:03.599 around the world. There are things that they don't do 0:07:04.160 --> 0:07:06.560 that are not fair, that are inequable, that we may 0:07:06.600 --> 0:07:09.440 not like, and they need to be held accountable for that. 0:07:09.560 --> 0:07:12.880 But but to condemn them for literally everything they're trying 0:07:12.880 --> 0:07:18.120 to do to grow a large, developing economy is ludicrous. 0:07:18.560 --> 0:07:21.160 The areas that I think we should focus on our 0:07:21.840 --> 0:07:24.760 market access, making certain that our companies have just as 0:07:24.840 --> 0:07:29.040 much access to their markets as they do to ours. 0:07:29.560 --> 0:07:34.080 And I've been long in favor of pushing ahead negotiations 0:07:34.080 --> 0:07:37.679 on a bilateral investment treaty between the U. S and China. 0:07:37.760 --> 0:07:41.280 This is stalled out, UH, And for the the Trump 0:07:41.280 --> 0:07:45.920 administration that prides itself as being a great dealmakers, why 0:07:45.920 --> 0:07:48.480 not do a deal on this is the obvious thing 0:07:48.520 --> 0:07:50.680 to do. Thank you so much for being with us 0:07:50.680 --> 0:07:54.000 and for your insights. Stephen Roach, Senior Fellow and lecture 0:07:54.160 --> 0:08:12.880 at Yale University, also a Bloomberg View columnist. Well, since 0:08:13.080 --> 0:08:18.440 the kickoff of earning season basically April, we've seen energy 0:08:18.520 --> 0:08:23.800 companies perform the absolute best among SMP five hundred corporations. 0:08:23.800 --> 0:08:26.920 Here to talk about the future outlook is Liab Denning, 0:08:27.040 --> 0:08:30.960 energy Mining and commodities columnist for Bloomberg gad Fly. So 0:08:31.440 --> 0:08:34.720 we have seen an outperformance in oil companies, and I'm 0:08:34.720 --> 0:08:37.319 just wondering, do you think that there is a lot 0:08:37.360 --> 0:08:43.080 of room for it to continue? I think so. Um Uh, 0:08:43.520 --> 0:08:47.719 it's it's partly an oil price uh phenomenon. Obviously, all 0:08:47.760 --> 0:08:50.600 prices are up and that does a lot of good. 0:08:50.640 --> 0:08:53.000 But the thing we shouldn't forget is what these companies 0:08:53.000 --> 0:08:56.000 have been doing to UM to actually make themselves just 0:08:56.080 --> 0:08:59.960 better companies. We've seen this from the majors in terms 0:09:00.240 --> 0:09:04.280 of scaling back on very bloated investment budgets, trying to 0:09:04.320 --> 0:09:07.800 get more efficient in terms of which projects they do 0:09:07.960 --> 0:09:10.600 and how they build them. But we've also seen it 0:09:10.640 --> 0:09:13.040 with the independent guys. You know, there is a lot 0:09:13.040 --> 0:09:17.760 more talk now of UM smaller exploration and production companies 0:09:17.800 --> 0:09:21.640 actually trying to live within their means generate returns rather 0:09:21.679 --> 0:09:24.920 than just grow as fast as they possibly can. We'll 0:09:24.960 --> 0:09:27.920 see whether that lasts if all prices go higher, but 0:09:28.360 --> 0:09:30.440 for now they seem to be making the right noises. 0:09:30.880 --> 0:09:35.400 The US production of oil eleven million barrels a day, Yeah, 0:09:35.480 --> 0:09:37.520 this is I mean, this is a big this historic, 0:09:38.280 --> 0:09:41.160 it is historic. Yeah, I mean it's it's the probably 0:09:41.240 --> 0:09:43.120 the biggest thing that's happened in the old market in 0:09:43.120 --> 0:09:45.880 the last decade. Okay, And any chance that we're going 0:09:45.920 --> 0:09:48.360 to see even increased production, because what we've heard in 0:09:48.400 --> 0:09:50.800 the past is oh maybe they'll get to eleven million, 0:09:51.360 --> 0:09:53.360 we could be headed a lot higher. The issue is 0:09:53.440 --> 0:09:55.280 just getting the oil out from where it is, let's 0:09:55.320 --> 0:09:59.199 say West Texas, nor pipelines nor roots. Yeah, and we're 0:09:59.320 --> 0:10:03.440 the logistical bottlenecks in West Texas will be eased within 0:10:03.480 --> 0:10:06.920 about eighteen months, I would say, um. As to how 0:10:07.000 --> 0:10:09.280 high it goes, um, I mean, there are all sorts 0:10:09.320 --> 0:10:11.839 of estimates out there. It certainly doesn't seem to be 0:10:12.520 --> 0:10:15.480 slowing down anytime soon. And I think the key thing 0:10:15.480 --> 0:10:19.320 to watch out for is with prices where they are 0:10:19.480 --> 0:10:22.599 that kind of sixties seventy range. A lot of producers 0:10:23.240 --> 0:10:26.760 are well able to keep growing production, to keep hedging 0:10:26.760 --> 0:10:29.640 their production. The thing to watch out for is this 0:10:29.640 --> 0:10:33.320 this kind of geopolitical premium that is creeping back into 0:10:33.360 --> 0:10:35.880 the market, which for the guys in West Texas is 0:10:36.360 --> 0:10:38.839 just a windfall because you know, none of that stuff 0:10:38.840 --> 0:10:41.680 actually affects any of their production. It all happens very 0:10:41.720 --> 0:10:45.600 far away. And the more supply shocks you see elsewhere 0:10:45.440 --> 0:10:48.480 that the more room that creates for US barrels. You 0:10:48.480 --> 0:10:49.760 know that that I want to pick up on that 0:10:49.800 --> 0:10:51.960 point because I think it's a really interesting one. Just 0:10:52.080 --> 0:10:56.080 how much of a geopolitical risk premium are we actually 0:10:56.160 --> 0:10:58.920 seeing baked into the market right now? Okay, so now 0:10:58.960 --> 0:11:00.880 you're asking me how long a piece of string is? 0:11:02.480 --> 0:11:06.600 So how long is a piece of string special? Okay, Sorry, 0:11:06.640 --> 0:11:08.640 I forgot to bring my piece of string to the studio, 0:11:09.920 --> 0:11:16.839 so it's impossible to say how much exactly. Okay. What 0:11:16.880 --> 0:11:21.120 I would say is that this has become much more 0:11:21.160 --> 0:11:23.560 of a narrative over the past six months or so 0:11:23.880 --> 0:11:26.720 than it was for the proceeding three or four years. 0:11:26.760 --> 0:11:31.880 In some ways, the crash that happened which was you know, 0:11:32.040 --> 0:11:34.960 in large part driven by the shale boom, sort of 0:11:35.000 --> 0:11:38.599 inoculated the market against geopolitical shocks, or at least it 0:11:38.640 --> 0:11:42.000 seemed like it no one really seemed to care about, uh, 0:11:42.200 --> 0:11:45.680 you know, the latest intrigues in Saudi Arabia or you 0:11:45.720 --> 0:11:48.480 know what was happening in the Middle East. People are 0:11:48.600 --> 0:11:52.120 caring more about it now, partly because inventories have come down, 0:11:52.920 --> 0:11:56.080 because demand has been pretty strong, partly in response to 0:11:56.120 --> 0:11:59.559 lower prices, and because obviously Opec, Russia and some other 0:11:59.600 --> 0:12:02.160 countries have been holding supply off the market. And if 0:12:02.160 --> 0:12:04.440 you bring inventories down, then people start to worry a 0:12:04.440 --> 0:12:08.480 bit more about supply shocks, etcetera, etcetera. It creates a 0:12:08.520 --> 0:12:12.400 certain danger in the market. Um. Right now, we're in 0:12:12.400 --> 0:12:16.079 a position where there is a lot of speculative money 0:12:16.280 --> 0:12:21.480 that is very long crude or prices. UM demand, while 0:12:21.640 --> 0:12:25.720 strong globally, is showing signs of responding to higher prices. 0:12:25.840 --> 0:12:29.520 The US demand data for February just came out yesterday, 0:12:29.559 --> 0:12:31.839 and one of the things that struck me about it 0:12:31.920 --> 0:12:34.640 was that oil demand was up about half a million 0:12:34.679 --> 0:12:37.360 barrels a day, but none of that was actually what 0:12:37.440 --> 0:12:40.520 we tend to think of as oil demand actual refined 0:12:40.520 --> 0:12:42.920 products like gasoline and that sort of thing. It was 0:12:42.960 --> 0:12:46.680 all natural gas liquids. Gasoline demand was actually down. And 0:12:46.720 --> 0:12:49.240 if you look back at what's happened to gasoline demand 0:12:49.360 --> 0:12:52.480 since late s which is when prices began to rise 0:12:52.520 --> 0:12:56.560 at the pump, that's kind of flattened out. Again. Are 0:12:56.600 --> 0:12:58.600 you loading up the car to take that summer trip 0:12:58.640 --> 0:13:01.000 because it's going to question more two dollars eighty one? 0:13:01.040 --> 0:13:05.800 Since is the triple a average gasoline price per gallon? Yeah, 0:13:05.840 --> 0:13:07.440 And if you look in a lot of cities it's 0:13:07.480 --> 0:13:12.400 it's already bus People are gonna be paying more this summer. Absolutely, 0:13:12.440 --> 0:13:14.640 and I think that does begin to feed into demand. 0:13:14.679 --> 0:13:17.440 And that's the risky get with these quote unquote geo 0:13:17.440 --> 0:13:20.080 political premiums. Thanks very much for being with us as always, 0:13:20.120 --> 0:13:23.760 Liam Denning Energy Mining and Commodities columns for Bloomberg gad Play. 0:13:24.240 --> 0:13:42.679 Read all about it at Bloomberg dot com. How bad 0:13:42.840 --> 0:13:45.960 will it be? That is the question with Apple, which 0:13:46.000 --> 0:13:48.840 is set to report earnings after the bell today. Uh. 0:13:48.880 --> 0:13:53.439 And people are worried that they are seeing slowing demand 0:13:53.640 --> 0:13:57.960 for smartphones, which have provided them with seemingly unlimited amount 0:13:57.960 --> 0:14:01.280 of cash filling their coffers. Joying us now, Stephen Milanovitch. 0:14:01.520 --> 0:14:04.240 He is managing director and technology analystic e b S, 0:14:04.360 --> 0:14:07.280 joining us from EBS headquarters in New York. Stephen, thank 0:14:07.320 --> 0:14:10.480 you so much for joining us. So what are you 0:14:10.520 --> 0:14:13.560 expecting and how much bad news is being already baked 0:14:13.600 --> 0:14:16.880 into shares of Apple? Well, you have to assume a 0:14:16.880 --> 0:14:19.600 fair amount is baked in, just because practically every Apple 0:14:19.680 --> 0:14:25.040 supplier has projected June quarter disappointment indirectly blaming Apple. On 0:14:25.080 --> 0:14:26.840 the other hand, the stock is held up quite well, 0:14:26.880 --> 0:14:28.440 so this quarter might be a bit of a tug 0:14:28.440 --> 0:14:31.920 of war between on one hand, disappointing iPhone units and 0:14:32.080 --> 0:14:35.440 on the other hand significant buy back and positives like 0:14:35.520 --> 0:14:39.040 services growth. So there's there's some built in, but there's 0:14:39.040 --> 0:14:42.160 still some room for disappointments. Give us your revenue estimates 0:14:42.160 --> 0:14:44.760 for what you think Apple is going to do. So 0:14:44.880 --> 0:14:46.840 we think the company is going to do a little 0:14:46.840 --> 0:14:49.960 over sixty one billion in the March quarter, and remember 0:14:50.040 --> 0:14:53.080 that they rarely have ever missed their guidance for a quarter. 0:14:53.400 --> 0:14:55.280 The real issue, though, is what's the guidance going to 0:14:55.320 --> 0:14:58.080 be for June and for June were just over fifty 0:14:58.080 --> 0:15:01.400 billion dollars. We're looking for, or about forty one million 0:15:01.600 --> 0:15:04.080 units for the iPhone. I think the concern is that 0:15:04.160 --> 0:15:06.040 some of the lower numbers on the streets suggest it 0:15:06.040 --> 0:15:08.480 could be as low as thirty five millions, So that's 0:15:08.480 --> 0:15:10.400 going to be a number of people are looking closely at. 0:15:10.920 --> 0:15:14.280 I'm trying to understand whether we can interpret all of 0:15:14.320 --> 0:15:18.560 this hype about declining smartphone sales as a failure of 0:15:18.600 --> 0:15:21.440 the iPhone ten or is this just a natural part 0:15:21.440 --> 0:15:24.080 of the cycle. I tend to think of it more 0:15:24.080 --> 0:15:26.000 as a market issue. Now. There is a narrative that 0:15:26.040 --> 0:15:29.480 the ten has been disappointing, that the company's overpriced it um. 0:15:29.840 --> 0:15:31.840 I'm not sure that's the case, in the sense that 0:15:31.880 --> 0:15:34.760 we find that users are moving up the Apple price curve, 0:15:34.800 --> 0:15:37.320 that is, the percentage of buyers by a phone s 0:15:37.480 --> 0:15:40.320 over seven hundred dollars. We think has doubled the cycle, 0:15:40.760 --> 0:15:42.240 and if you don't like the ten, there's plenty of 0:15:42.280 --> 0:15:44.320 other options for you. I'm a bit more concerned that 0:15:44.360 --> 0:15:47.960 the markets mature, that geographies like China, which we thought 0:15:48.160 --> 0:15:51.520 would really bounce back for Apple, are coming back very gradually, 0:15:51.800 --> 0:15:54.080 and as we continue to see an elongation of the 0:15:54.160 --> 0:15:56.520 upgrade cycle. So I think it's as much a market 0:15:56.520 --> 0:15:58.960 issue as it is an Apple problem. Can you speak 0:15:58.960 --> 0:16:01.840 a little bit more about China, because there are some 0:16:02.080 --> 0:16:06.000 estimates that between seventy between sixty and seventy million Chinese 0:16:06.000 --> 0:16:09.400 consumers are due to upgrade their phones over the next 0:16:09.400 --> 0:16:12.960 twelve to eighteen months. That's right. You know, Apple sold 0:16:13.000 --> 0:16:16.200 about seventy million phones in fiscal fifteen as China Mobile 0:16:16.280 --> 0:16:18.080 came on and you had a big screen phone, it's 0:16:18.120 --> 0:16:21.440 a huge year. We're nowhere close to that. Um, Hong 0:16:21.520 --> 0:16:24.400 Kong has pretty much gone. So we're talking about mainland China, 0:16:24.720 --> 0:16:27.320 which is around forty million units a year. We and 0:16:27.360 --> 0:16:29.440 others thought that there'd be a lot of people waiting 0:16:29.480 --> 0:16:32.640 to upgrade, and therefore we'd see you some sort of 0:16:32.680 --> 0:16:35.440 double digit growth this year. We're beginning to think that's 0:16:35.520 --> 0:16:38.160 less likely. We think that the number of people who 0:16:38.200 --> 0:16:40.920 can afford an iPhone in China is fairly flat, that 0:16:41.320 --> 0:16:43.760 Apple is pretty much splitting the hind of the market 0:16:43.760 --> 0:16:47.120 with Huawei, and that you are seeing elongation of upgrade 0:16:47.160 --> 0:16:50.240 cycles even in China. So um, we still expect to 0:16:50.280 --> 0:16:52.200 see some revenue growth for Apple in China with a 0:16:52.240 --> 0:16:54.480 higher a sp but we've kind of gotten off the 0:16:54.520 --> 0:16:56.240 idea that we're going to see a huge bounce back. 0:16:56.600 --> 0:16:59.280 So this is such a fascinating issue to me, and 0:16:59.320 --> 0:17:02.960 just of confirmed with Sony's earnings overnight where they reported 0:17:03.000 --> 0:17:07.640 a massive decline and production of of cameras for smartphones, 0:17:07.720 --> 0:17:12.159 and I'm just wondering what can Apple do to diversify 0:17:12.320 --> 0:17:16.160 their business that there is less focus on the smartphone 0:17:16.240 --> 0:17:20.439 supercycle and its potential death. Well, first of all, I 0:17:20.440 --> 0:17:23.119 think the smartphone is not a terrible position for Apple 0:17:23.119 --> 0:17:25.440 because their installed base has been growing, so it's a 0:17:25.560 --> 0:17:27.560 question of when, not if people are going to buy 0:17:27.560 --> 0:17:31.119 another iPhone. But to diversify, you've seen them certainly boost 0:17:31.119 --> 0:17:35.679 their services business, so services is moving towards profitability. We 0:17:35.720 --> 0:17:39.120 expect it's going to grow over this evening, so that's 0:17:39.200 --> 0:17:42.320 very helpful. They also have a seven billion dollar wearables business, 0:17:42.480 --> 0:17:45.640 you know, with the watch, the HomePod, the arabuds, so 0:17:45.720 --> 0:17:48.080 they're you know, starting to diversify a little bit there. 0:17:48.200 --> 0:17:50.359 And as the watch, you know, really doesn't excuse me 0:17:50.400 --> 0:17:52.240 as the iPhone doesn't really grow much in the future, 0:17:52.440 --> 0:17:54.920 getting a couple points of corporate grows from wearables is 0:17:54.920 --> 0:17:57.040 going to be noticeable. I don't think you're going to 0:17:57.119 --> 0:17:59.520 see tremendous new hardware from the company for the next 0:17:59.600 --> 0:18:02.840 day two years, but eventually you could see augmented glasses, 0:18:03.040 --> 0:18:06.159 augmented reality glasses, for example. That will help diversify revenue 0:18:06.200 --> 0:18:09.960 a bit as well augmenting the investors pocketbook. How about 0:18:09.960 --> 0:18:14.280 returning money to shareholders, Well, we expect a pretty big number. Tonight, 0:18:14.320 --> 0:18:17.560 they have about a billion of excess cash. We expect 0:18:17.640 --> 0:18:20.199 a good bump to the dividend and discussion of you know, 0:18:20.280 --> 0:18:23.240 up to a hundred billion dollar incremental buy back um. 0:18:23.320 --> 0:18:25.600 The question is over what period would that happen. I 0:18:25.760 --> 0:18:27.480 would say three to five years. I think it's going 0:18:27.520 --> 0:18:29.399 to be a little bit more on the gradual side. 0:18:29.720 --> 0:18:31.760 Some people have a concern that maybe they'll keep more 0:18:31.840 --> 0:18:34.800 dry powder for M and A possibly, but I don't 0:18:34.800 --> 0:18:36.679 expect the company is going to be that acquisitive, at 0:18:36.720 --> 0:18:38.639 least in the new yer term. So I think they 0:18:38.680 --> 0:18:41.320 feel the stock here is is very undervalued, particularly due 0:18:41.359 --> 0:18:43.840 to the services business, so I expect they'll be relatively 0:18:43.880 --> 0:18:46.840 aggressive on a buyback. Does anyone care about apples for 0:18:47.000 --> 0:18:54.920 a into that newspaper service and other types of subscription offerings, entertainment. Well, 0:18:54.960 --> 0:18:57.680 it helps the services side. You know. It's funny the 0:18:57.680 --> 0:18:59.960 the company has said that the vast majority of ifall, 0:19:00.160 --> 0:19:03.560 customers pay nothing for Apple services. So if they get 0:19:03.600 --> 0:19:06.359 people starting to use services, our work fines that they 0:19:06.400 --> 0:19:10.440 actually increase their number of transactions at rate annually. So 0:19:10.760 --> 0:19:13.879 it is through new kinds of video and the newspaper 0:19:13.920 --> 0:19:15.800 and so forth that they are hoping to get people 0:19:15.840 --> 0:19:18.800 into that services ecosystem, and history suggests that once they 0:19:18.800 --> 0:19:21.879 get in, they get pretty active. Stephen Milanovitch, thank you 0:19:21.920 --> 0:19:24.920 so much for being with as. Steven Milanovich is Managing 0:19:24.920 --> 0:19:28.359 director and technology Analysts at you b AS, coming to 0:19:28.480 --> 0:19:45.680 us from eb S headquarters. It is time to dig 0:19:45.680 --> 0:19:48.600 a little deeper into fixed income. Focus on fixed income 0:19:48.640 --> 0:19:51.200 brought to you by PIMCO for investors who demand more 0:19:51.240 --> 0:19:54.040 than the markets deliver. All investments contain risk and may 0:19:54.080 --> 0:19:58.320 lose value. Consults your investment professional before investing. A lot 0:19:58.359 --> 0:20:00.800 of people in the fixed income markets are focused on 0:20:00.840 --> 0:20:03.480 the Federal Reserve, which is starting a two day meeting 0:20:03.720 --> 0:20:07.439 that ends tomorrow, but also a lot of focuses on 0:20:07.680 --> 0:20:10.840 the US Treasure Department that is going to announce its 0:20:10.920 --> 0:20:15.920 quarterly refunding plans at eight thirty tomorrow morning in New York. 0:20:16.440 --> 0:20:20.600 Ira I red Jersey, chief US industrate strategist for Bloomberg Intelligence, 0:20:20.640 --> 0:20:23.680 joins us. Now, I want to start with the refunding 0:20:23.760 --> 0:20:27.120 announcement because frankly, a lot of people think that the 0:20:27.240 --> 0:20:29.919 increase in the amount of debt that the US Treasure 0:20:29.960 --> 0:20:34.040 Department is is issuing, uh, is part of the reason 0:20:34.080 --> 0:20:36.280 why we've seen yields actually rise. Steve minus In, the 0:20:36.280 --> 0:20:39.760 Treasury Secretary, of course, totally dismissing that yesterday at the 0:20:39.960 --> 0:20:44.080 Malkin conference. What's your perspective, what's your expectation for how 0:20:44.160 --> 0:20:46.840 much the Treasure Department is going to increase is debt 0:20:46.880 --> 0:20:49.240 sales in the next quarter. Yes. So what's interesting is 0:20:49.240 --> 0:20:52.800 that the Treasury departments already said, um, how much they 0:20:52.880 --> 0:20:54.399 think that they're going to have to borrow over the 0:20:55.080 --> 0:20:57.720 course of the next two months and then the following 0:20:57.840 --> 0:21:00.320 three months. So um, they think this quarter or so 0:21:00.400 --> 0:21:02.840 the quarter that actually started a month ago, Uh, they 0:21:02.840 --> 0:21:07.640 think they're gonna borrow seventy billion dollars of new marketable debt, 0:21:07.720 --> 0:21:11.320 which is not particularly high. The second quarter, of course, 0:21:11.359 --> 0:21:13.679 you just had taxes that were paid, so you you 0:21:13.720 --> 0:21:16.560 actually have uh. The month that just ended in April 0:21:16.840 --> 0:21:19.439 tends to be a surplus month, but then and the 0:21:19.480 --> 0:21:22.080 next couple of months tend to be pretty flat. There's 0:21:22.119 --> 0:21:26.120 not big budget deficits that really um uh, that really 0:21:26.119 --> 0:21:28.600 have to be funded over the next few months. So 0:21:29.000 --> 0:21:31.960 will Treasury Department do something with saying that they're going 0:21:32.000 --> 0:21:34.680 to issue more debt? Yes, they have to because later 0:21:34.720 --> 0:21:37.160 this year they're going to have to issue a lot 0:21:37.200 --> 0:21:40.119 more um, but it's going to be incremental again, so 0:21:40.160 --> 0:21:42.400 it will be another billion or two of a lot 0:21:42.440 --> 0:21:45.679 of different instruments of what I'm really looking for, quite frankly, 0:21:45.760 --> 0:21:48.480 or tips. So um. They didn't do anything with with 0:21:48.600 --> 0:21:52.480 the Treasury Inflation Protected Security Program last time, and they 0:21:52.560 --> 0:21:55.600 asked their advisory committee, Hey, what should we do with this? 0:21:55.720 --> 0:21:58.119 And there was a whole you know, forty page power 0:21:58.160 --> 0:22:02.240 point presentation that that that committee made to the Treasury Department. 0:22:02.280 --> 0:22:04.359 So the Treasury has been mulling that over over the 0:22:04.440 --> 0:22:06.679 last few months. That's really interesting. And we did, of 0:22:06.720 --> 0:22:09.679 course get the first quarter results as far as how 0:22:09.760 --> 0:22:12.000 much debt the U. S. Treasury sold four d eight 0:22:12.240 --> 0:22:16.240 billion dollars a record and exceeding the estimates that the 0:22:16.280 --> 0:22:19.879 Treasury Department previously came out with. How much credibility do 0:22:20.600 --> 0:22:24.080 these estimates have if they have exceeded them in the past. Yeah, 0:22:24.119 --> 0:22:27.480 there's always been. There's always big, big variants in it, 0:22:27.560 --> 0:22:30.040 and and part of that is they might pivot and 0:22:30.119 --> 0:22:32.440 decide to do something a little bit different in UH 0:22:32.480 --> 0:22:34.760 in between. So so that the one thing about that 0:22:34.800 --> 0:22:38.679 four eight billion is they basically pre funded some of 0:22:38.720 --> 0:22:40.879 the borrowing that they would have to do this quarter. 0:22:41.040 --> 0:22:44.160 So um. So, the previous estimate for this quarter, for example, 0:22:44.160 --> 0:22:47.119 was about a hundred and seventy five billion dollars of 0:22:47.160 --> 0:22:50.280 issuance during the second quarter of eighteen. Now it's only 0:22:50.320 --> 0:22:53.320 seventy five because the last quarter they issued an extra 0:22:53.440 --> 0:22:57.760 hundred billion dollars that was unexpected. So so these estimates 0:22:57.800 --> 0:23:00.359 are are just that their estimates, they always missed them 0:23:00.359 --> 0:23:03.320 by a little um But you know, at the same time, 0:23:03.359 --> 0:23:06.520 they're they're kind of useful guides as to the magnitude 0:23:06.520 --> 0:23:10.560 of increase that they're expecting or the magnitude of of 0:23:09.720 --> 0:23:13.240 UH pay down that they're expecting in in the different markets. 0:23:13.280 --> 0:23:16.000 So when you're trying to forecast exactly how much they're 0:23:16.000 --> 0:23:18.200 going to issue for T bills all the way through 0:23:18.240 --> 0:23:20.840 thirty year bonds. Um. You need to you need to 0:23:20.880 --> 0:23:23.560 know that, UM, and and so it is helpful information. 0:23:24.000 --> 0:23:27.040 I read Jersey. Is the market raising interest rates and 0:23:27.119 --> 0:23:30.680