WEBVTT - US adds 187,000 Jobs (Podcast) 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:31.000 the Bloomberg Terminal, and the Bloomberg Business App. Jeffrey Rosenberg, 0:00:31.040 --> 0:00:35.839 portfolio manager, Systematic Multi Strategy Fund at Black Crack. I 0:00:35.880 --> 0:00:38.720 don't know which way this is going to cut, you know, Jeff. 0:00:38.720 --> 0:00:42.120 We talked to Steve Major of HSBC at Bloomberg today 0:00:42.120 --> 0:00:45.440 and there's this whole idea of okay, we've had this move, 0:00:45.880 --> 0:00:48.880 Now which way does it cut? Are you betting here 0:00:49.120 --> 0:00:52.560 on a direction in the yield market, particularly off a 0:00:52.680 --> 0:00:54.120 quiescent jobs report. 0:00:55.600 --> 0:00:58.320 Yeah, Tom, I think when you look at this report, 0:00:59.080 --> 0:01:02.160 it's there are some comments, as Jonathan was just talking about, 0:01:02.200 --> 0:01:07.600 between the wages, but the headline is really a story 0:01:07.800 --> 0:01:13.520 of gradual labor market normalization, and gradual labor market normalization 0:01:14.280 --> 0:01:19.560 basically continues the market expectation that the hike of the 0:01:19.600 --> 0:01:22.840 last meeting was the last hike, and and that's the 0:01:22.880 --> 0:01:26.120 big change in the in the yield market outlook is 0:01:26.160 --> 0:01:32.440 that we're seeing the effects of normalization in the labor market. Yes, 0:01:32.600 --> 0:01:37.560 wages will follow, maybe not. That remains the uncertainty. But 0:01:37.640 --> 0:01:39.720 you look at the ECI report, you look at some 0:01:39.760 --> 0:01:42.160 of the other broader reports, what do they show you? 0:01:42.520 --> 0:01:45.760 They show a gradual slowing in wage inflation, and so 0:01:45.760 --> 0:01:48.960 that feeds into this narrative that the FED can be done, 0:01:48.960 --> 0:01:51.640 they can wait. And so for the for the yield outlook, 0:01:51.680 --> 0:01:53.840 it's it's really about the shape of the curve. What 0:01:53.880 --> 0:01:56.720 we saw this week the steepening, and I think that 0:01:56.760 --> 0:02:00.560 remains to be the message that that's our our main 0:02:00.600 --> 0:02:02.280 focus in terms of our position. 0:02:02.040 --> 0:02:07.000 Your broad mandate, which spread gives you the most information 0:02:07.440 --> 0:02:11.720 right now? Which comparison of two yields gives you the 0:02:11.760 --> 0:02:12.640 most information? 0:02:14.520 --> 0:02:16.959 You know, you can look at lots of different measures. 0:02:16.960 --> 0:02:19.480 We tend to like the five year five year forward. 0:02:20.600 --> 0:02:24.480 You know, it's a it's a nice measure. It captures 0:02:24.520 --> 0:02:27.760 both the level and the shape of the curve. And 0:02:28.120 --> 0:02:31.040 it's moving. And you know, we've seen a significant move 0:02:31.720 --> 0:02:34.400 this week, and and for good reason. The back end 0:02:34.440 --> 0:02:39.200 of the curve is definitely a bit more challenged when 0:02:39.200 --> 0:02:42.680 you look at historic levels a five year, five year forward. 0:02:42.720 --> 0:02:44.720 If you look at I think you're showing here, you know, 0:02:44.760 --> 0:02:47.839 we look at the two ten spread, and I think 0:02:47.840 --> 0:02:51.120 that's really where the market pricing is a little bit vulnerable. 0:02:51.320 --> 0:02:53.520 When we look at all of the information that we 0:02:53.639 --> 0:02:57.000 saw come out this week, you know, and and away 0:02:57.040 --> 0:02:59.840 from kind of the monetary policy focus, it's it's really 0:02:59.840 --> 0:03:03.960 about fiscal policy. We had the refunding announcement, and you 0:03:04.040 --> 0:03:08.200 see very very compressed term premium both in real and 0:03:08.240 --> 0:03:11.679 inflationary space, and that's I think the vulnerability that we're 0:03:11.720 --> 0:03:12.280 looking at. 0:03:12.600 --> 0:03:14.359 Jeff, I have to go back to something that you're 0:03:14.400 --> 0:03:17.400 saying that what people basically are assuming is if FED 0:03:17.440 --> 0:03:19.480 is done, they're not going to raise rates more. 0:03:19.600 --> 0:03:21.440 And that's what you're seeing today where. 0:03:21.240 --> 0:03:22.760 There's a little bit of a move at the front end, 0:03:22.760 --> 0:03:24.520 but really the move that you're seeing is at the 0:03:24.520 --> 0:03:27.359 tenure yield once again reaching four point two percent, the 0:03:27.440 --> 0:03:29.920 highest levels going back to November. 0:03:30.280 --> 0:03:31.880 This is the key question. 0:03:32.400 --> 0:03:35.160 Is the FED going to take their foot off the 0:03:35.200 --> 0:03:38.840 break at a time when we're still seeing wages go up? 0:03:39.000 --> 0:03:41.520 Is that basically the assumption of markets now looking at 0:03:41.520 --> 0:03:44.640 a FED comfortable of three percent inflation over a longer 0:03:44.640 --> 0:03:46.640 period of time and not needing to get down to 0:03:46.680 --> 0:03:47.680 two percent so quickly. 0:03:48.880 --> 0:03:52.320 Well, it's a really good question, Lisa. What does taking 0:03:52.360 --> 0:03:55.840 the foot off the break mean. Does it mean not 0:03:56.560 --> 0:03:59.520 doing another hike that they signaled last meeting two men 0:03:59.600 --> 0:04:04.160 days ago, or does it mean just simply leaving rates unchanged. 0:04:04.760 --> 0:04:07.920 Or does it mean as the bond market is anticipating 0:04:08.240 --> 0:04:11.680 that they move to cutting interest rates? And I think 0:04:11.720 --> 0:04:15.200 as we progress this debate, we're going to increasingly talk 0:04:15.320 --> 0:04:19.360 not about the next FED hike, but how much inflation 0:04:19.560 --> 0:04:22.480 decline if we continue to see that decline. How much 0:04:22.480 --> 0:04:24.600 inflation decline you need to see before the Fed has 0:04:24.640 --> 0:04:28.159 to start cutting rates, Because as inflation declines and the 0:04:28.200 --> 0:04:33.560 Fed stays pat, real interest rates, the real Fed funds rate, 0:04:33.600 --> 0:04:38.040 which is the transmission mechanism for monetary policy, that begins 0:04:38.040 --> 0:04:42.000 to actually increase. So how much actual breaking does the 0:04:42.000 --> 0:04:45.640 FED tolerate, not by their action, but by further declines 0:04:45.640 --> 0:04:47.360 and interest rates? And that's going to be the metric 0:04:47.480 --> 0:04:51.200 that Poul is really telling you about in the press 0:04:51.200 --> 0:04:55.359 conference from last week, that was really the story is 0:04:55.400 --> 0:04:59.000 that as inflation comes down, their policy gets tighter, and 0:04:59.040 --> 0:05:01.680 how much how willing are they going to be to 0:05:01.800 --> 0:05:05.200 see that tightening in policy? Again, this is all predicated 0:05:05.240 --> 0:05:08.720 on this expectation that will continue to see further declines 0:05:08.720 --> 0:05:12.040 in inflation, and obviously that changes, the whole story changes, 0:05:12.080 --> 0:05:14.680 but that is kind of the natural breaking that occurs 0:05:14.720 --> 0:05:16.040 without the FED having to do anything. 0:05:16.240 --> 0:05:18.240 Just quickly here, Jeff, it seems like there's been a 0:05:18.320 --> 0:05:20.960 narrative shift over the past couple of weeks. We're higher 0:05:21.000 --> 0:05:24.640 for longer is more acceptable as well as a soft 0:05:24.720 --> 0:05:26.200 landing type of scenario. 0:05:26.400 --> 0:05:28.600 How much are you leaning into this and. 0:05:28.600 --> 0:05:32.520 Adjusting your expectation of yields being higher for longer, but 0:05:32.600 --> 0:05:35.520 also risk acids continuing to chug along in the meantime. 0:05:36.680 --> 0:05:39.560 Yeah, I mean, part of the problem with adjusting too 0:05:39.640 --> 0:05:43.000 much is that the market pricing for so many risky 0:05:43.040 --> 0:05:47.080 assets is already there. So when you look at is 0:05:47.160 --> 0:05:50.760 there a lot of opportunity in credit markets, for example, 0:05:50.920 --> 0:05:56.440 for the soft landing being realized, you see that you're 0:05:56.480 --> 0:06:01.360 pricing in many cases mid expansion type levels for expectations. 0:06:01.520 --> 0:06:03.599 You know, you look at the high bond market, for example, 0:06:03.600 --> 0:06:07.479 it has been on a tightening tear. It has never 0:06:07.640 --> 0:06:11.760 really reflected the same degree of recession fears and recession 0:06:11.760 --> 0:06:15.480 probabilities that you see, say, you know the consensus economics 0:06:15.560 --> 0:06:20.080 profession now you know moving away from pushing down recession probabilities. 0:06:20.240 --> 0:06:22.760 You never really had that price into the credit markets, 0:06:22.760 --> 0:06:26.560 this huge disconnect between you know, the sluice, the credit 0:06:26.680 --> 0:06:29.520 indications in the surveys, and what's pricing the market. So 0:06:29.680 --> 0:06:32.880 there is an opportunity. It's really about carry rather than 0:06:32.920 --> 0:06:36.520 price appreciation because a lot of that price appreciation already 0:06:36.560 --> 0:06:39.200 happened off of the November loads of last year. 0:06:39.360 --> 0:06:42.120 Jeff Rosenberg, thank you so much with black Rock this morning, 0:06:52.720 --> 0:06:55.200 right now on this jobs day, with all that we 0:06:55.240 --> 0:06:58.920 see in the market's futures of fractionally up as well, 0:06:59.680 --> 0:07:02.600 without question, the conversation of the day on having the 0:07:02.680 --> 0:07:05.880 courage to be in this market given the sum of 0:07:05.920 --> 0:07:09.039 all our fears. Edward Yard Denny joins as president of 0:07:09.120 --> 0:07:12.560 your Denny Research. I can't say enough about his prescience 0:07:12.640 --> 0:07:16.920 once again across many decades. In October of last year, 0:07:17.560 --> 0:07:22.520 reaffirm ed Yard Denny how a bull acts and moves 0:07:22.560 --> 0:07:25.400 forward given them many fears. 0:07:24.960 --> 0:07:31.240 That are out there well, I've been thinking that we've 0:07:31.320 --> 0:07:34.520 been in a recession since early last years. We've discussed 0:07:34.560 --> 0:07:37.600 before it's just been a rolling recession. Now I think 0:07:37.640 --> 0:07:41.280 we're in a rolling recovery, and I think increasingly the 0:07:41.600 --> 0:07:45.880 markets obviously have discounted that, and the so called Godeaux 0:07:45.920 --> 0:07:48.760 recession still hasn't shown up. It may show up at 0:07:48.760 --> 0:07:51.840 some point, but with regards to the market, my year 0:07:51.920 --> 0:07:53.720 end target for the S and P five hundred is 0:07:53.760 --> 0:07:54.760 forty six hundred. 0:07:55.360 --> 0:07:55.960 We got there a. 0:07:55.960 --> 0:07:58.920 Few days ago, so I'm thinking I'm not going to 0:07:59.000 --> 0:08:01.040 raise my target forty six hundred. 0:08:01.080 --> 0:08:02.000 I'm going to keep it there. 0:08:02.400 --> 0:08:04.920 I think it's going to turn out that the expectations 0:08:04.920 --> 0:08:07.320 at the beginning of the year was that we would 0:08:07.360 --> 0:08:09.520 have a pretty lousely first half of the year and 0:08:09.800 --> 0:08:11.640 a good second half of the year for the market. 0:08:11.960 --> 0:08:13.360 I think it's going to be the reverse of that. 0:08:13.400 --> 0:08:15.800 I think we've clearly had a very good first half, 0:08:16.080 --> 0:08:17.720 and I think the second half is just going to 0:08:17.720 --> 0:08:19.360 be challenging. I don't think it's going to be a 0:08:19.360 --> 0:08:21.760 big downer. I think it's going to be kind of sideways. 0:08:21.800 --> 0:08:25.120 September is coming, and that obviously could create some problems 0:08:25.120 --> 0:08:26.960 but by year end, I think we'll be at forty 0:08:27.000 --> 0:08:29.160 six hundred, which is where we were a few days ago. 0:08:29.280 --> 0:08:31.440 How much are you buying in to this idea that 0:08:31.480 --> 0:08:34.760 we're going to see higher rates for longer particularly in 0:08:35.000 --> 0:08:37.480 duration in ten year notes, in thirty year notes. 0:08:38.920 --> 0:08:41.800 Well, I've thought that on short term rates that the 0:08:41.840 --> 0:08:44.200 FED was pretty clear what they wanted to do, and 0:08:44.240 --> 0:08:46.320 I took them at their word. I know there's always 0:08:46.360 --> 0:08:49.240 skepticism and the feeling that the FED isn't. 0:08:49.000 --> 0:08:51.080 Going to get it right, but they've been saying. 0:08:50.840 --> 0:08:52.920 They wanted to get the short term rate up to 0:08:52.960 --> 0:08:55.480 a restrictive level. I think they're there at five hundred 0:08:55.520 --> 0:08:58.120 quarter percent. I don't think they have to do anymore. 0:08:58.280 --> 0:09:00.680 I think they're just going to leave it there. What 0:09:00.840 --> 0:09:03.599 is interesting is, my friends, the bond vigilanti seem to 0:09:03.679 --> 0:09:07.920 be settling up, and I thought we'd hold around four percent, 0:09:07.960 --> 0:09:10.440 But here we are back at the November high of. 0:09:10.440 --> 0:09:11.600 Four point two percent. 0:09:11.720 --> 0:09:14.600 So it's looking a little dicey on the bond side, 0:09:14.640 --> 0:09:18.319 and I think suddenly we have to take into consideration 0:09:18.440 --> 0:09:23.400 that while the Fitch rating agencies downgraded the US government 0:09:23.440 --> 0:09:26.679 debt was sort of the event that focused everybody back 0:09:26.720 --> 0:09:29.160 on the deficit. The fact of the matter is, we've 0:09:29.200 --> 0:09:32.480 all known that the deficit is a problem. We've known 0:09:32.520 --> 0:09:35.600 that fiscal policy is profligate. It's just the market cares 0:09:35.640 --> 0:09:37.520 about it now. So if the market cares about it, 0:09:37.559 --> 0:09:38.760 I've got to care about it. 0:09:39.480 --> 0:09:40.319 At a certain point. 0:09:40.480 --> 0:09:43.760 Ed, when does the higher rate structure at the long end, 0:09:44.000 --> 0:09:45.960 at the ten year, at the thirty year end, not 0:09:46.080 --> 0:09:48.920 on the short end threaten your bull thesis. 0:09:50.480 --> 0:09:54.440 Well, I think that it already done its damage in 0:09:54.480 --> 0:09:57.440 the one area where the rolling recession is hit, and 0:09:57.480 --> 0:10:02.040 that's in housing. But even there we've seen of late 0:10:02.200 --> 0:10:04.360 the housing markets holding up pretty well, at least in 0:10:04.440 --> 0:10:07.280 terms of prices, and there really is a shortage. 0:10:07.679 --> 0:10:09.120 The real issue is the consumer. 0:10:09.240 --> 0:10:13.640 Will higher long term rates knock down the consumer? And 0:10:13.720 --> 0:10:16.840 I don't think that's necessarily the case at this point. 0:10:16.880 --> 0:10:20.520 The consumer obviously depends on a certain amount of consumer debt. 0:10:21.040 --> 0:10:24.000 But the key is employment. The key is wages. And 0:10:24.040 --> 0:10:26.680 while employment we can somewhat, it can always be revised 0:10:26.760 --> 0:10:28.840 one way or the other. We know that the waging 0:10:28.920 --> 0:10:34.240 number at four point four percent well exceeded the Well, 0:10:34.320 --> 0:10:36.319 let's make it zero point four because we're doing month 0:10:36.360 --> 0:10:38.640 to month, so zero point four, we know that it 0:10:38.679 --> 0:10:42.640 exceeded the CPI, and so real wages are increasing, and 0:10:42.800 --> 0:10:47.080 consumers have a lot of wealth in their houses. The 0:10:47.120 --> 0:10:49.840 baby boomers have a lot of wealth. They're retiring and 0:10:49.840 --> 0:10:53.280 spending it. So all in all, I'm not quite sure 0:10:53.640 --> 0:10:58.400 how a increase in the bond yield knocks the consumer down, 0:10:58.640 --> 0:11:03.400 unless that you just get some sort of banking crisis 0:11:03.440 --> 0:11:05.920 event again as a result of that. 0:11:06.160 --> 0:11:07.080 Just quickly then ed. 0:11:07.360 --> 0:11:09.400 How much are you thinking that the FED is still 0:11:09.440 --> 0:11:12.800 gone enough even if we are seeing this and sticky 0:11:12.920 --> 0:11:14.920 inflation and wage pressures. 0:11:15.960 --> 0:11:18.920 Well, it looks sticky, but I think the productivity numbers 0:11:18.920 --> 0:11:21.920 are starting to come through. Yesterday we had a remarkable 0:11:21.920 --> 0:11:24.079 increase in productivity of three and a half percent. It 0:11:24.200 --> 0:11:27.560 was so remarkable that even a bullleg myself didn't quite 0:11:27.600 --> 0:11:32.439 believe it because it also indicated that employment was flat, 0:11:32.520 --> 0:11:35.200 which wasn't really the case as we know based on 0:11:35.200 --> 0:11:38.400 the monthly data. But I think productivity is going to 0:11:38.400 --> 0:11:40.240 make it come back, and we may very well see 0:11:40.240 --> 0:11:42.160 wages rising faster than prices. 0:11:42.520 --> 0:11:46.280 And long ago and far away on a Friday evening, 0:11:46.600 --> 0:11:49.160 lou ru Keiser would sit there with you on the couch, 0:11:49.559 --> 0:11:53.680 and he'd say, what's it look like? Long term? Modern 0:11:53.720 --> 0:11:57.120 day long term is nine months, maybe it's a year 0:11:57.360 --> 0:12:01.040 at Yard Denny for the mere mortals watching and listening, 0:12:01.120 --> 0:12:05.360 where long term is three years or five years. Frame 0:12:05.440 --> 0:12:09.960 out the growth you see in revenue of our equities. 0:12:10.040 --> 0:12:14.880 It seems to be pretty darn good, like four percent whatever. 0:12:15.480 --> 0:12:18.240 Give us a yard Denny three year perspective. 0:12:19.200 --> 0:12:22.720 Well, I actually like to do a decade decade perspectives. 0:12:22.800 --> 0:12:26.560 And this decade, I think started out with all sorts 0:12:26.600 --> 0:12:27.600 of problems. 0:12:28.200 --> 0:12:28.840 At the very. 0:12:28.720 --> 0:12:31.200 Beginning of the decade, before the pandemic hit, I started 0:12:31.200 --> 0:12:35.040 talking about a possibility of the Roaring twenty twenties with 0:12:35.120 --> 0:12:39.319 productivity making a big comeback, and that looked absolutely delusional 0:12:39.360 --> 0:12:41.839 there for the past couple of years. But it's looking 0:12:42.200 --> 0:12:44.160 like it might be a reasonable way to think about 0:12:44.679 --> 0:12:49.719 the rest of the decade. Just but robotics, automation and 0:12:49.800 --> 0:12:52.559 lots of technologies there that are going to boost productivity. 0:12:53.080 --> 0:12:56.720 So I think from a revenue perspective, you know, revenues 0:12:56.760 --> 0:12:59.120 tend to increase along with nominal GDP if we get 0:12:59.160 --> 0:13:03.160 a productivity boost here. There's no particular reason why revenues 0:13:03.760 --> 0:13:05.320 grow five to eight percent. 0:13:05.559 --> 0:13:09.840 Should we fear the concentration of seven, eight, nine, ten 0:13:10.320 --> 0:13:13.480 mega names The meganames have reported two of them in 0:13:13.559 --> 0:13:17.480 the last twenty four hours. How should we interpret the 0:13:17.600 --> 0:13:20.040 durability of what we see from these names? 0:13:20.760 --> 0:13:23.120 Well, first and foremost, I personally try not to get 0:13:23.160 --> 0:13:25.960 too emotional about the markets. I mean, it's it's easy, 0:13:26.000 --> 0:13:28.120 it's easy to save and hard to do, and I 0:13:28.200 --> 0:13:31.079 do go on the same roller coaster as everybody else. 0:13:31.160 --> 0:13:35.120 But if you try to control your emotions, you just 0:13:35.160 --> 0:13:37.520 have to deal with the facts. And the fact is 0:13:37.600 --> 0:13:40.440 we've got I call them the megacap eight. We got 0:13:40.520 --> 0:13:43.480 eight companies that account for twenty seven percent of the 0:13:43.679 --> 0:13:45.960 market cap of the S and P five hundred and 0:13:46.000 --> 0:13:50.319 they are great companies, as Amazon demonstrated with its latest 0:13:50.360 --> 0:13:52.720 journeys report, and I think they're going to continue to 0:13:53.240 --> 0:13:57.400 have an outside impact on the market capitalization of the market, 0:13:57.440 --> 0:13:59.800 which means we have to accept the pees higher because 0:13:59.800 --> 0:14:01.000 they're you hire. 0:14:01.280 --> 0:14:03.880 Ed your dorney, Thank you so much on a Friday morning, 0:14:03.880 --> 0:14:10.760 mister Yourrdney research friendly kids listening. 0:14:10.800 --> 0:14:15.920 Barbie still has legs to confirm that just confirming, Oh 0:14:16.000 --> 0:14:20.960 my god, Tom forday just now, Tom's going to catch up. 0:14:21.240 --> 0:14:23.960 Catching up yesterday was really revealing as well, some insightful 0:14:24.000 --> 0:14:26.200 comments you made on Apple where you essentially said, and 0:14:26.240 --> 0:14:28.720 you've written about this, you think maybe the stock had 0:14:28.720 --> 0:14:31.040 gone too far. We're down this morning by one point 0:14:31.080 --> 0:14:34.160 eight percent. You're aware of the bullish thesis, Tom, there's 0:14:34.200 --> 0:14:37.280 this upgrade cycle, lots of people sitting on old phones. 0:14:37.320 --> 0:14:40.000 They're all going to upgrade and buy new ones. Where 0:14:40.040 --> 0:14:42.680 is the upgrade right now going into the new launch 0:14:42.760 --> 0:14:45.520 of new products in a month or so. 0:14:45.520 --> 0:14:49.280 So the most concerning statistic from Tim Cook on the 0:14:49.320 --> 0:14:53.680 call yesterday was that consumers more than half are already 0:14:53.840 --> 0:14:54.760 paying for their. 0:14:54.640 --> 0:14:57.280 Apple product on an installment basis. 0:14:57.680 --> 0:15:00.320 So I think the low hanging fruitsman picked to the 0:15:00.360 --> 0:15:03.720 extent that that was the opportunity for Apple to get 0:15:03.760 --> 0:15:06.520 you to go from buying your iPhone or having your 0:15:06.560 --> 0:15:10.520 iPhone essentially fully subsidized by the carrier, to now having 0:15:10.520 --> 0:15:11.480 the consumer. 0:15:11.120 --> 0:15:14.160 Pay for it on an installment basis, often with no interest. 0:15:14.800 --> 0:15:17.160 And I also am concerned that the carriers are going 0:15:17.160 --> 0:15:19.920 to subsidize the fifteen to a lesser degree than the 0:15:19.920 --> 0:15:23.080 fourteen or thirteen. Yes, they want more consumers on their 0:15:23.080 --> 0:15:26.880 five G networks where they've invested billions, but their times 0:15:26.880 --> 0:15:29.760 are tough too right now, so that comments on the 0:15:29.760 --> 0:15:33.240 iPhone are concerning, and I think that's what's weighing the stop. 0:15:33.040 --> 0:15:35.840 Time away from your neutrin call and to go to 0:15:35.880 --> 0:15:38.720 the Apple fanboys and all that. The bottom line is, 0:15:38.760 --> 0:15:41.440 it's an ugly June. Ugly July. It happens every year. 0:15:41.840 --> 0:15:44.120 We have to wait for September. Somebody with a black 0:15:44.160 --> 0:15:47.280 turtleneck walks out on stage and tells us the second 0:15:47.280 --> 0:15:50.680 coming of Apple, and OMG, the stock goes up. Why 0:15:50.760 --> 0:15:52.480 is that going to be different this time? 0:15:53.120 --> 0:15:55.120 It's going to be different this time because I think 0:15:55.200 --> 0:15:58.520 that they just told us that the September quarter, where 0:15:58.520 --> 0:16:01.400 they're going to tell us about this new wonderful iPhone, 0:16:01.920 --> 0:16:05.080 is going to have negative revenue growth, and that while 0:16:05.120 --> 0:16:08.120 the iPhone will have an improvement from the negative two 0:16:08.120 --> 0:16:11.720 point four percent it did in the June quarter, it'll 0:16:11.800 --> 0:16:15.000 likely be negative as well. So yes, they'll be touting 0:16:15.120 --> 0:16:18.160 the every new feature on the iPhone, but they're promising 0:16:18.200 --> 0:16:21.680 made about the financial impact are pretty disappointing. 0:16:21.800 --> 0:16:24.960 The Open Prayer Services picks it up and crosses how 0:16:25.000 --> 0:16:30.840 far out do you go where services catches up and 0:16:31.000 --> 0:16:35.320 advances and overcomes iPhone dynamics. Is it a three year lookout, 0:16:35.720 --> 0:16:37.640 is it out ten years? How far out is that 0:16:37.720 --> 0:16:41.240 magic point where services become really important? 0:16:41.840 --> 0:16:44.240 So the mass suggests time more like five years when 0:16:44.240 --> 0:16:46.080 you think of the relative growth rate of services to 0:16:46.120 --> 0:16:46.640 everything else. 0:16:46.760 --> 0:16:47.440 But if you look at the. 0:16:47.480 --> 0:16:51.240 Quarter, hardware was down, iPhones were down, iPads were down, 0:16:51.400 --> 0:16:52.360 laptops were down. 0:16:52.760 --> 0:16:57.040 Services was up. That's great news. And I do believe over. 0:16:56.880 --> 0:17:00.320 The long term, Apple is a service is real possibility. 0:17:00.520 --> 0:17:02.120 You pay two hundred dollars a month, you get the 0:17:02.200 --> 0:17:04.879 latest and greatest iPhone, You probably get Apple TV and 0:17:04.960 --> 0:17:07.359 other things, and then you're not thinking about the fact 0:17:07.359 --> 0:17:10.719 that you're essentially paying two thousand dollars for that new iPhone. 0:17:10.840 --> 0:17:12.680 You're just thinking about the two hundred dollars a month 0:17:12.880 --> 0:17:14.920 and getting the latest and greatest iPhone. 0:17:15.359 --> 0:17:16.240 I think that that's the. 0:17:16.160 --> 0:17:19.000 Opportunity long term, But mathematically, I think it's more than 0:17:19.040 --> 0:17:22.879 five years out before services is more than half revenue. 0:17:23.080 --> 0:17:26.399 So, Tom, you did decrease your price target for Apple, 0:17:26.440 --> 0:17:29.159 but you increased your price target for Amazon after they 0:17:29.200 --> 0:17:33.400 delivered much better than expected results and suddenly everyone's heralding 0:17:33.480 --> 0:17:34.480 Andy Jasse as. 0:17:34.400 --> 0:17:35.760 The hero of Wall Street. 0:17:35.800 --> 0:17:37.720 How long can this be the case for him to 0:17:37.800 --> 0:17:40.760 keep cutting and keep beating on the top and bottom 0:17:40.760 --> 0:17:41.720 lines across the board. 0:17:42.440 --> 0:17:45.359 My best answer right now is that this is twelve months. 0:17:45.880 --> 0:17:49.360 So they just had their good June quarter, their good 0:17:49.400 --> 0:17:52.280 outlook for the September quarter. They'll have a good December 0:17:52.280 --> 0:17:55.359 requorder and a good March quarter. I am very concerned 0:17:55.400 --> 0:17:57.920 that at some point reality sets in and to the 0:17:58.000 --> 0:18:02.040 upset that these cost cuts are making them less customer centric. 0:18:02.280 --> 0:18:05.879 That's going to slow the flywheel price convenience selection. So 0:18:05.920 --> 0:18:09.520 I think the next twelve months they're good. Day one 0:18:09.680 --> 0:18:10.800 of the next year. 0:18:11.000 --> 0:18:14.600 I'm concerned some people might argue that the cloud business 0:18:14.640 --> 0:18:16.600 is going to take overall. It has done the heavy 0:18:16.640 --> 0:18:19.119 lifting for all the profitability of this company, and it 0:18:19.160 --> 0:18:21.720 showed signs of picking back up. There'll be questions about 0:18:21.720 --> 0:18:25.760 whether it's gaining market share versus Microsoft Azure. How long 0:18:25.800 --> 0:18:28.879 can that really be the main flag bearer for the company? 0:18:28.920 --> 0:18:30.800 I mean, is not enough to really. 0:18:30.600 --> 0:18:33.120 Offset what you see down the line on the customer 0:18:33.160 --> 0:18:36.000 service side, in the sort of retail side of things. 0:18:37.000 --> 0:18:38.760 The answer is not long enough. 0:18:39.160 --> 0:18:43.320 So we're cheering a twelve point two percent growth rate 0:18:43.560 --> 0:18:45.680 compared to a fifteen point eight percent growth rate, and 0:18:45.760 --> 0:18:48.000 they werefore in the March quarter. Though it is better 0:18:48.040 --> 0:18:50.360 than the ten point eight they suggested the month of April. 0:18:50.720 --> 0:18:53.480 That's the slowest growth rate since AWS was launched in 0:18:53.520 --> 0:18:56.400 two thousand and six. Andy Jase is bragging about double 0:18:56.400 --> 0:18:58.200 digit growth as if it's. 0:18:58.119 --> 0:18:59.480 Not going to be sustained. 0:19:00.040 --> 0:19:02.639 So a lack of double digit growth for one of 0:19:02.720 --> 0:19:07.360 their most important profit centers is hugely problematic, especially given. 0:19:07.200 --> 0:19:09.120 The current state of an e commerce business. 0:19:09.760 --> 0:19:13.399 Amazon collectively needs something like three point four billion for 0:19:13.440 --> 0:19:17.359 an incremental basis point or a percentage point revenue growth. 0:19:17.760 --> 0:19:20.720 They're going to need advertising, they're gonna need video, they're 0:19:20.720 --> 0:19:23.520 gonna need healthcare. They're gonna need something else to come 0:19:23.560 --> 0:19:26.600 in to take the baton from AWS. 0:19:26.640 --> 0:19:27.600 Over long term, it's on. 0:19:27.720 --> 0:19:30.480 Can you describe how service on the e commerce side 0:19:30.480 --> 0:19:32.520 has deteriorated over the last year? 0:19:33.600 --> 0:19:36.280 Yes, So the best example is anecdotal. 0:19:36.640 --> 0:19:40.160 So I had a defective smoke alarm that I purchased 0:19:40.200 --> 0:19:42.400 on Amazon not that long ago. 0:19:42.480 --> 0:19:44.280 They would say, Brosar it's defective. 0:19:44.320 --> 0:19:46.879 Will send you a replacement, put the whole one on 0:19:46.920 --> 0:19:48.840 your porch and UPS to pick it up for free. 0:19:49.280 --> 0:19:51.280 Now they want seven to ninety nine for UPS to 0:19:51.320 --> 0:19:52.800 pick it up, or they want me to go to 0:19:52.840 --> 0:19:56.159 Whole Foods Wightline of Whole Foods to return it. So 0:19:56.200 --> 0:19:58.760 that to me is one example. What's going to happen 0:19:58.880 --> 0:20:01.479 is I'm going to start thinking more about going to Target. 0:20:01.640 --> 0:20:04.400 I'm going to think more about going to Walmart, to Costco, 0:20:04.560 --> 0:20:09.040 to other retailers. And I think that's hugely concerning for Amazon, 0:20:09.119 --> 0:20:10.800 something I'm monitoring closely. 0:20:10.880 --> 0:20:12.800 It's anecdotal, but I had the same thing from so 0:20:12.880 --> 0:20:16.919 many PayPal Tom Tomfode if Aidavis and greatco on Apple 0:20:16.960 --> 0:20:17.760 got into the Innix. 0:20:28.280 --> 0:20:30.879 Let's turn to politics right now, the politics of the 0:20:30.960 --> 0:20:35.119 United States of America. We do this so much for 0:20:35.200 --> 0:20:39.600 our international audience. Wendy Schiller has advised us with Brown University, 0:20:39.680 --> 0:20:43.000 the Tommins Center for American Politics. Wendy, I want to 0:20:43.040 --> 0:20:45.960 go to the word culnulative. We're using it in economics 0:20:46.040 --> 0:20:50.119 now in the FED we have culnulative indictments. What is 0:20:50.160 --> 0:20:54.480 the difference between this single event of yesterday and the 0:20:54.520 --> 0:20:58.200 fact there's been one, There's been two there's been three, 0:20:58.400 --> 0:21:01.040 and dare I say there could be. What's the difference? 0:21:01.160 --> 0:21:04.040 The distinction It depends on the audience. 0:21:04.160 --> 0:21:07.159 Tom's a great point is for Trump supporters, you know, 0:21:07.280 --> 0:21:10.240 really very loyal people who've stuck with the former president, 0:21:10.400 --> 0:21:13.639 this just emboldens them, keeps them more loyal. You know, 0:21:13.680 --> 0:21:15.960