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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 2: my co host Matt Miller.
Speaker 1: Every business day we bring you interviews from CEOs, market pros,
Speaker 1: and Bloomberg experts, along with essential market Moven News.
Speaker 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 2: Here's a deal. Emily and my Wheelhouse both potentially you know.
Speaker 2: Look at Paramount Global that's the old Viacom, CBS and
Speaker 2: Warner Brothers Discovery again the old time Warner stuff plus
Speaker 2: the Discovery that merger David zaslov as the CEO. Maybe
Speaker 2: those two companies getting together, which would be really interesting.
Speaker 2: Robert Fishman, he's a senior equity analyst at Moffatt Nathanson
Speaker 2: and Robert's longtime street analyst. Maffatt Nathanson pound for pound
Speaker 2: the best TMT research on the street in my opinion,
Speaker 2: that's why we like to talk to those guys when
Speaker 2: we can. Robert, thanks so much for taking the time
Speaker 2: to chat with us here. Give us the rational for
Speaker 2: a potential hookup between Discovery, Warner Brothers, Discovery and Paramount.
Speaker 3: Sure, thanks for having me. Well again, this is all
Speaker 3: speculation at this point. I mean that the reports suggest
Speaker 3: that they clearly met this week. In terms of the
Speaker 3: logic behind it, I think it really just comes back
Speaker 3: to the fact that traditional media is really starting to
Speaker 3: get more desperate. And why I say that is that
Speaker 3: the realities of the fundamental business at hand, with linear
Speaker 3: advertising falling off a cliff and cord cutting continuing to accelerate,
Speaker 3: and the costs of switching and pivoting over to streaming,
Speaker 3: has really challenged a lot of these companies. So now
Speaker 3: they're all looking to figure out how can we try
Speaker 3: to get stronger And the way that it seems most
Speaker 3: of these companies are trying to do that right now,
Speaker 3: at the very least, is trying to have conversations to
Speaker 3: figure out who they can combine with.
Speaker 4: Robert, how do you see this deal going down, this
Speaker 4: potential deal in Washington, It doesn't seem like the antrust
Speaker 4: regulation would be very welcome to a potential deal this large.
Speaker 3: Yeah, we were surprised by the timing of these conversations,
Speaker 3: and really comes back to two key points. Number one,
Speaker 3: there's a two year lock up right now for Warner
Speaker 3: Brothers Discovery as part of its last deal with WarnerMedia
Speaker 3: and AT and T to come through on the other
Speaker 3: side of the reverse Morris Trust. So that leads you
Speaker 3: to April twenty four. But then coming back to your question,
Speaker 3: given the regulatory landscape right now, it's hard for us
Speaker 3: to see how any deal would be approved in the
Speaker 3: current administration, or at the very least what would have
Speaker 3: significant review. And we pointed out in our report this
Speaker 3: morning the overlap between the linear cable networks and broadcasts,
Speaker 3: just from a viewership standpoint, would be something that clearly
Speaker 3: would be looked at a little bit more closely, I
Speaker 3: think given the potential combination.
Speaker 2: Hey, Robert, you know, nothing gets done here unless Sherry
Speaker 2: Redstone gives the green light. Sherry Redstone the chairperson of
Speaker 2: National Amusements, which is the control shareholder of Paramount. Do
Speaker 2: we have any reason to believe I mean, she could
Speaker 2: have sold these assets at any time over the last six, seven,
Speaker 2: eight years at a drop of a hat. Why now
Speaker 2: do you think she might be open to a transaction.
Speaker 5: It's a really great question.
Speaker 3: What we think is leading to all of this now
Speaker 3: is again like the realization as far as what the
Speaker 3: trajectory of the business is going forward. And I alluded
Speaker 3: to it to a couple of the headwinds facing the
Speaker 3: traditional business already in terms of advertising and cord cutting.
Speaker 3: But another big piece coming up is the renegotiations with
Speaker 3: a few of their affiliate distribution partners, and namely Charter,
Speaker 3: and if we all remember what happened with Disney just
Speaker 3: only a couple months ago, we do think that this
Speaker 3: is going to be the template that at the very
Speaker 3: least Charter and more likely other distributors are going to
Speaker 3: look to take going forward in future negotiations. So that
Speaker 3: will put an additional pressure on companies like Paramount, which
Speaker 3: we've essentially labeled them as one of these cheaters of
Speaker 3: the ecosystem because they're double dipping in terms of putting
Speaker 3: their premium content, namely NFL and other sports rights over
Speaker 3: the top on Paramount Plus. So we think Charter and
Speaker 3: others are going to look to right size that type
Speaker 3: of economics.
Speaker 2: He you know, Robert, you and your partners over there,
Speaker 2: Moufett the agency and again the top of the top
Speaker 2: of the top of TMT research. But quite frankly, I'm
Speaker 2: not picking up the phone call when you guys call.
Speaker 2: I mean, I just don't have any reason to believe, Like,
Speaker 2: I can't figure out how any of those any of
Speaker 2: you guys make money at Paramount or Warner Brothers, Discovery
Speaker 2: or maybe even Disney for that matter. This whole pivot
Speaker 2: to streaming. Do you guys have a view as to
Speaker 2: whether anybody can do this? I mean, Netflix has done
Speaker 2: it successfully, but that's a different model and different legacy.
Speaker 2: Can any of these traditional media companies make that pivot
Speaker 2: from you know, the you know, the cable model to
Speaker 2: the streaming model.
Speaker 3: Yeah, I mean we as you probably know what we've
Speaker 3: long had our doubts in terms of whether streaming is
Speaker 3: actually a good business. And it's clear that streaming is
Speaker 3: not as good of a business as the old traditional
Speaker 3: PATV business for these companies. And so as these companies
Speaker 3: are working through this pivot and now that they don't
Speaker 3: have the full leeway that Wall Street has initially gave them,
Speaker 3: you know, coming out of COVID, we're at the point
Speaker 3: now where they have to focus on cash flow and
Speaker 3: figure out how quickly these streaming services can really be profitable.
Speaker 3: And we do agree that that Netflix has clearly won
Speaker 3: that fight in terms of the streaming wars. We still
Speaker 3: do expect Disney to be a strong number two player
Speaker 3: essentially given the assets that they have, but we think
Speaker 3: it's going to be more challenging for a lot of
Speaker 3: these other traditional media companies to figure that out.
Speaker 4: What would be some of the implications for the viewers
Speaker 4: if this deal we're actually going to go through on
Speaker 4: content and viewership.
Speaker 3: Well, what we're going through now, just back to the
Speaker 3: last point, is essentially like this content rationalization period where
Speaker 3: I think we've been all living in this world that
Speaker 3: we've enjoyed endless content essentially, and there's almost too much
Speaker 3: out there that you can't even watch everything, and I'm
Speaker 3: sure everyone has their own playlists that that they haven't
Speaker 3: been able to get through. But I think to your question,
Speaker 3: going forward, we're going to see a pullback in the
Speaker 3: amount of content that's being spent at these companies again
Speaker 3: because they need to focus on their cash flows and
Speaker 3: generating real profits and that's a more challenging environment. Given
Speaker 3: that that backdrop that I keep talking about, and how
Speaker 3: they figure that out and how they pivot clearly content spending,
Speaker 3: what will be a central piece to that, to that.
Speaker 2: Puzzle, Robert, what's your top pick for twenty four?
Speaker 3: We actually cover sports betting too, so we're in favor
Speaker 3: of DraftKings and clearly that they've had a tremendous year
Speaker 3: that this past year, but we think the momentum for
Speaker 3: DraftKings and sports betting overall is going to continue into
Speaker 3: twenty four.
Speaker 2: I mean, what's the is or what's the bear case
Speaker 2: for sports betting? Because I can't really think of one.
Speaker 2: I mean, this is just ridiculous, the appetite for this stuff.
Speaker 3: Yeah. Again, DraftKings has taken a tremendous amount of share
Speaker 3: over twenty three and they're set up nicely into twenty
Speaker 3: four and what we really saw and was probably the
Speaker 3: most surprised about this past year was just how quickly
Speaker 3: and how efficiently expenses have been rained in, but not
Speaker 3: to any detriment to that top line to your point,
Speaker 3: because the market just keeps growing really quickly.
Speaker 2: All right, Robert, thanks so much for joining us. Really
Speaker 2: appreciate it. Robert Fishman, he's a senior equity analyst that
Speaker 2: Maffatt Nathanson talking about the potential tie up between Paramount
Speaker 2: Global that's the old ViacomCBS, big big media company, and
Speaker 2: Warner Brothers Discovery another big media company.
Speaker 3: EI.
Speaker 2: They're both big, a lot bigger than they were five
Speaker 2: years ago, but guess what, in this new world order,
Speaker 2: they're not big enough. And so it's that whole argument
Speaker 2: we've seen in many other industries scale and that's kind
Speaker 2: of that's certainly the play in the media space as well.
Speaker 2: So we'll stay on top of that, and the folks
Speaker 2: at Moffat Nathanson are some of the absolute best research
Speaker 2: voices on the street.
Speaker 6: You're listening to the team. Ken's are Live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
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Speaker 6: on demand wherever you get your podcasts.
Speaker 2: One of my all time favorites is here, Emily. You
Speaker 2: don't know this, but a Maletti, a head of active
Speaker 2: equity at Allspring Global Investments. It joins us here for
Speaker 2: get this liken how money falls Wisconsin or something. I
Speaker 2: don't know, but I went out there one time about
Speaker 2: twenty five years ago. When I keep going back, so
Speaker 2: and thanks so much for joining us here. Boy, this
Speaker 2: last I don't know, six seven eight weeks, it's been
Speaker 2: such a move in the equity markets, in the treasury market.
Speaker 2: You know you've seen this come and go a million times.
Speaker 2: What do you make of the last six seven eight weeks?
Speaker 7: It's been a wild ride, Paul, And thanks for having
Speaker 7: me on. It was really nice to be on this week.
Speaker 7: And wish you all a merry Christmas and happy holidays.
Speaker 7: So thanks for having me back. Look, it's been a
Speaker 7: really wild ride. And you know we are getting that
Speaker 7: Santa Claus rally, certainly a little bit even early, but
Speaker 7: there's a lot now with the rally that we have
Speaker 7: that maybe took a little bit away from what we
Speaker 7: thought might happen in twenty twenty four. So I think
Speaker 7: now is the time.
Speaker 8: To be a little bit more disciplined about the way
Speaker 8: we enter the year.
Speaker 4: And I had the wonderful opportunity to actually meet you
Speaker 4: at your outlook event a few weeks ago, and I'm
Speaker 4: wondering if after that fed Duvish pivot you had to
Speaker 4: change anything from your twenty twenty four outlook.
Speaker 8: Well, Emily, you know, as we talk then it was
Speaker 8: interesting because a lot of the things that we were
Speaker 8: pointing out is where fundamentals were pointing us for twenty
Speaker 8: twenty four. And as soon as Powell kind of said
Speaker 8: the FED put is back on, those things really started
Speaker 8: to ramp up. Areas like small cap, right. You know,
Speaker 8: it's an area that we've been looking at really closely
Speaker 8: for the last couple of quarters. At least the market
Speaker 8: really hasn't been paying that much attention, but that's where
Speaker 8: our investment teams saw a lot of value. And as
Speaker 8: soon as it became clear from Powell that you know, look,
Speaker 8: rates are going lower, those that area of the market
Speaker 8: really really lit up. What I would say, though, Emily,
Speaker 8: is where we probably want to be a little bit
Speaker 8: more cautious is the type of small cap stocks that
Speaker 8: you know, investors enter into. There still are a lot
Speaker 8: of small cap names that don't have the best balance sheets.
Speaker 8: We're more interested in quality and looking at small cap
Speaker 8: stocks that have free cash flow, that have better balance sheets,
Speaker 8: those names and margins obviously to maybe the margins above
Speaker 8: twenty percent. Those were the names specifically that we were
Speaker 8: calling out that are durable and can last whatever we
Speaker 8: do see in twenty twenty four.
Speaker 2: Hey, and you know, one of the things that had
Speaker 2: I think concerned investors certainly for the first maybe nine
Speaker 2: months of this year was the lack of breath in
Speaker 2: this market, the Magnificent seven driving most of the performance.
Speaker 2: But that seems to have improved a little bit. We've
Speaker 2: had the Russell two thousand really outperforming over the last
Speaker 2: couple of months. How do you think that's going to
Speaker 2: play into twenty twenty four? Should you think you'll see
Speaker 2: some continued improvement in the bread out there? Or should
Speaker 2: I just jump on the Magnificent seven for next year?
Speaker 8: You know, Paul, it's so interesting because you know, as
Speaker 8: you and I both have been trained over time, fundamentals
Speaker 8: really do matter, and you know, it was as we
Speaker 8: really dug in and I did a lot of work
Speaker 8: on this. The Meg seven really did generate good returns
Speaker 8: in twenty twenty three because they had really good earnings
Speaker 8: relative to the rest of the market. And so, okay,
Speaker 8: i'll give them that, But when you look at the
Speaker 8: thirty percent plus earnings growth that many of the Meg
Speaker 8: stocks seven, or the many of the Meg seven had
Speaker 8: at least five names out of Megs seven grew earnings
Speaker 8: over thirty percent, many over forty percent in the third quarter,
Speaker 8: it's going to be really hard for them to top those.
Speaker 8: You know, compares now become very difficult in twenty twenty four.
Speaker 8: So I think we were also saying our compares are easier,
Speaker 8: and again that showed us where the breath of the
Speaker 8: market could be in twenty twenty four. That pointed to
Speaker 8: areas like small cap, but also areas like healthcare, where
Speaker 8: earning's growth appears to be the best almost of any
Speaker 8: other sector. As I look to twenty twenty four to
Speaker 8: twenty percent or more, earning's growth, No, look, it wasn't
Speaker 8: great in twenty twenty three, but we think the prospects
Speaker 8: there are pretty good in twenty twenty four, So driven
Speaker 8: by fundamentals, we think the breath is going to be
Speaker 8: much broader in twenty twenty four. And you know, not
Speaker 8: that the Meg seven are bad, it's just that the
Speaker 8: chances for them to top that growth rate is going
Speaker 8: to be a little bit more difficult.
Speaker 4: So then what does it tell you about the market
Speaker 4: that we're in that people are still buying the mag seven.
Speaker 4: You look at ETF flows. We saw a record inflow
Speaker 4: into spy s and P five hundre ETF last week,
Speaker 4: twenty billion dollars in. It looks like stocks more broadly,
Speaker 4: and a lot of this is coming from large cap
Speaker 4: sixty nine billion dollars into equity ETFs in December, that's
Speaker 4: the best month since twenty twenty one. What do you
Speaker 4: make of that? I guess euphoria just piling into these
Speaker 4: large cap stocks, or should people be pivoting into other areas?
Speaker 8: Then well, we personally think they should, Emily, and I
Speaker 8: think you know sometimes and look, I think investors generally
Speaker 8: speaking are very very smart. But one of the things
Speaker 8: that has gotten disjointed is this heavy overweight in these
Speaker 8: Meg seven stocks. And so you know, when you're buying
Speaker 8: an index, when you're buying the Russell three thousand growth
Speaker 8: when you're buying and all just the Russell three thousand.
Speaker 8: When you're buying the S and P, you're buying the
Speaker 8: most expensive names, and you're buying thirty forty percent of
Speaker 8: those names and much less of any And so while
Speaker 8: you might think you're diversified, you're buying, you know, very
Speaker 8: chunky portions of a few names and very few of
Speaker 8: the others. And so, you know, we think taking a
Speaker 8: much more active approach and having fewer names, but owning
Speaker 8: a broader portfolio makes sense at this point in the market,
Speaker 8: and we think returns can be better. Now. It's not
Speaker 8: surprising to me that those ETF flows are going there
Speaker 8: just because of the structure of the indexes. But we
Speaker 8: think it should change, and we think it will change
Speaker 8: when the performance of the other names starts to show
Speaker 8: that they can produce the fundamentals that I talked about earlier.
Speaker 2: Hey, and how about valuation here in the market. We've
Speaker 2: had a big, big move higher. I don't I'm not
Speaker 2: sure we've necessarily had a commensurate increase in earnings here.
Speaker 2: How do you guys think about evaluation here?
Speaker 8: Yeah, that's what makes me a little bit nervous, Paul,
Speaker 8: You know it. You know, certainly I can point to
Speaker 8: the four hundred and ninety three names that aren't as
Speaker 8: highly valued as the overall market. But I do think
Speaker 8: we do need to see some catchup, and we do
Speaker 8: need to see the fundamentals play out. And so, you know,
Speaker 8: I don't love the fact that we've had this really
Speaker 8: strong rally here, and I do think we're entering twenty
Speaker 8: twenty four with a much foggier environment. Yes, inflation has
Speaker 8: come down, but you know, we have problems with the
Speaker 8: Red Sea right now. The geopolitical risks as we enter
Speaker 8: twenty twenty four, you could say, are much higher than
Speaker 8: when we enter twenty twenty three. It's a political year,
Speaker 8: an election year. Now, typically those end up being up markets,
Speaker 8: but typically also pretty about little and so I think,
Speaker 8: you know, it's going to be much more challenging than
Speaker 8: investors believe today. That being said, we think will end
Speaker 8: up having an up year, but it's not going to
Speaker 8: be up, you know, double digit. We think it's going
Speaker 8: to be kind of up single digit, maybe high single digit,
Speaker 8: but expected to be a rocky one.
Speaker 4: What's the biggest macro risk for next year? That you
Speaker 4: don't think enough people are talking about.
Speaker 8: Yeah, I still think it's geopolitical, right, We're definitely focused
Speaker 8: on interest rates right now and whether the FED gets
Speaker 8: it right or wrong than you know, whether we have
Speaker 8: a softer hard landing. But it's always, you know, you know,
Speaker 8: Paul probably would also agree with this. It's never the
Speaker 8: things we spend the most time worrying about. It's the
Speaker 8: big surprises that come out of nowhere that really have
Speaker 8: the most dramatic impact of the market. And so you know,
Speaker 8: it seems to be that probably a geopolitical risk, but
Speaker 8: maybe one that we're not evening considering today.
Speaker 2: And as always, thank you so much for joining us.
Speaker 2: That is the great and malady head of active equities
Speaker 2: at all Spring Global Advisors. And I've said it before
Speaker 2: many times and I'll say it again pound for pound,
Speaker 2: I think some of the best investors I've ever come
Speaker 2: in contact with over my career. Or in Milwaukee. Why
Speaker 2: maybe it's the great University of Wisconsin, but boy, there's
Speaker 2: just so many firms large and small in Milwaukee that
Speaker 2: have some really smart investors and have really good track
Speaker 2: records over a long period of time. So you wouldn't
Speaker 2: necessarily think it. I'm telling you.
Speaker 4: Many maybe I have to take a reporting trip there.
Speaker 2: Absolutely, you're listening to the tape.
Speaker 6: Cat's are live program Bloomberg Markets weekdays at ten am
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Speaker 6: say Alexa play Bloomberg eleven thirty.
Speaker 2: Let's talk Apple here, I mean here we are the
Speaker 2: holiday selling season. It's kind of important for people that
Speaker 2: sell stuff, and Apple is certainly a company that sells stuff.
Speaker 2: One of the things they sell are those watches. I'm
Speaker 2: not an Apple watch? Where or either of you an
Speaker 2: Apple watchwhear? Nope, right now there Nora's got it? Okay,
Speaker 2: great now, I like I'll watch it tells time. So,
Speaker 2: but apparently they have a little bit of an issue here.
Speaker 2: Mark German joins us here, a chief technology correspondent for
Speaker 2: Bloomberg News. Mark put into context a tell us what's
Speaker 2: happening with Apple, and b kind of put it into
Speaker 2: context like doesn't matter.
Speaker 5: Yes, it certainly matters. And to tell you what's happening here,
Speaker 5: it's an unprecedented situation.
Speaker 2: This is the.
Speaker 5: First time in the modern era, or probably in the
Speaker 5: entirety of Apple's forty plus year history, where the company
Speaker 5: is being forced to stop sales of one of its
Speaker 5: core products in the United States. That core product being
Speaker 5: the Apple Watch Series nine and the Apple Watch Ultra two.
Speaker 5: Those make up probably eighty plus percent of all Apple
Speaker 5: Watch sales, the two newest models. They only sell three models,
Speaker 5: so two of the three models are impacted. Here. There
Speaker 5: was a patent dispute with the company in southern California
Speaker 5: called Massimo, and the International Trade Commission of the US
Speaker 5: ruled that Apple is violating two of Mosamo's patents related
Speaker 5: to blood oxygen saturation.
Speaker 7: Right.
Speaker 5: That's the app on the Apple Watch. You click it,
Speaker 5: it'll tell you your blood oxygen. Most people are looking
Speaker 5: for a percentage between ninety five percent and one hundred percent.
Speaker 5: That's in violation. Two things happening a season to sist
Speaker 5: on Apple being able to sell the watch in the US,
Speaker 5: as well as an import band and injunction so they
Speaker 5: can no longer import Apple watches manufactured outside of the US.
Speaker 5: All Apple watches are built outside of the US. For
Speaker 5: those watching at home. So that's the fundamental issue there, right.
Speaker 5: So starting on Christmas Day, the end of the day,
Speaker 5: December twenty fifth, the Apple Watch sales in the US
Speaker 5: are no more when it comes to the Ultra two
Speaker 5: in the series nine. Now, given that we're talking now
Speaker 5: and it's Thursday morning, starting at three pm Eastern time,
Speaker 5: the Apple Watch will no longer be sold on Apple's
Speaker 5: online store. Apple retail stores in the US they have
Speaker 5: about two hundred and seventy of them. They're closed Christmas Day.
Speaker 5: So December twenty fourth, Christmas Eve is going to be
Speaker 5: the last day of in store retail sales. Now for
Speaker 5: those who still want to buy an Apple Watch before
Speaker 5: the end of the year, maybe for themselves or a
Speaker 5: gift and what have you. Apple's not allowed to tell
Speaker 5: you this for legal reasons, but I can tell you
Speaker 5: can still get one at Best Buy, Target, wherever they're
Speaker 5: sold other than Apple retail stores.
Speaker 4: What's the history between Apple and Massimo. I'm so curious
Speaker 4: how Apple got involved in a patent dispute. I mean,
Speaker 4: you think of Apple, one of the largest, most important companies.
Speaker 4: How could something like this happen to Apple?
Speaker 5: Yeah, so Massumo actually sued Apple in twenty twenty. In
Speaker 5: January twenty twenty related to ten patents on health sensing technology.
Speaker 5: Right then in September twenty twenty, Apple introduced the Apple
Speaker 5: Watch Series six. That was the first Apple Watch that
Speaker 5: includes the blood oxygen feature. Now, Massimo, they're known for
Speaker 5: their contributions and patents related to blood oxygen, so they
Speaker 5: preemptively sued Apple in anticipation of this watch coming out.
Speaker 5: Then once the watch came out, they filed an injunction
Speaker 5: claim with the International Trade Commission of the US asking
Speaker 5: for the watch sales to be banned. Now that was
Speaker 5: filed in twenty twenty one. That is not actually going
Speaker 5: into effect until, like I said, the end of the
Speaker 5: day Christmas Day, so it took two years in change
Speaker 5: for it actually to go into effect. Masimo says they
Speaker 5: met with Apple ten years ago, back in twenty thirteen,
Speaker 5: before the first Apple Watch was introduced. Apple promised them
Speaker 5: some sort of partnership or discussed hiring them or licensing
Speaker 5: from them. In the end, what Apple did as they
Speaker 5: ended up hiring about twenty to twenty five of their
Speaker 5: individual engineers and executives, hired them to come work at Apple,
Speaker 5: offered them more significant salaries and they worked on the
Speaker 5: Apple Watch without Apple needing to partner with Masimo. So
Speaker 5: Masimo considered this a trade secret violation, so they sued
Speaker 5: Apple over that. In addition to this, these hiring concerns
Speaker 5: plus the patent concerns that have been ongoing. Now the
Speaker 5: first lawsuit, like I said in the beginning of twenty twenty,
Speaker 5: and now this is the ultimate pushback against Apple, this
Speaker 5: injunction and the season desist. Now, what I will tell
Speaker 5: you is the lawsuit related to the trade secret situation
Speaker 5: that actually ended a few months ago and ended in
Speaker 5: a hung jury. So these two things well related the
Speaker 5: same companies. This ITC ruling was able to happen exclusive
Speaker 5: away from the lawsuit.
Speaker 2: Mark. What is Apple saying in response here?
Speaker 5: Yeah, Apple is saying that they're going to take every
Speaker 5: legal method possible to get the Apple Watch background sale.
Speaker 5: They're complying with the order. They believe it wouldn't be
Speaker 5: so hot if they didn't comply. What I'm hearing is
Speaker 5: that Apple's trying to fix this via a software update.
Speaker 5: So that software update has been in development now for
Speaker 5: several weeks. What needs to be done is they need
Speaker 5: to test it. They need to get some sort of
Speaker 5: testing done related to regulatory given that the Apple Watch
Speaker 5: is in some cases used for health purposes, right, so
Speaker 5: there's an extra layer of testing that needs to be
Speaker 5: done internally. That blood oxygen feature is not regulated, so
Speaker 5: they don't have to deal with the healthcare regulators or
Speaker 5: the FDA, But what they need to do is get
Speaker 5: approval from the US Customs Agency. Need to submit that
Speaker 5: software update to the agency. The agency has to review it,
Speaker 5: and then they make the final determination if the season
Speaker 5: desists and the import band should be lifted or not.
Speaker 4: When do you expect to see this actually hit Apple's earnings,
Speaker 4: Apple's stock price? I mean, I'm looking at the HCP
Speaker 4: function on the Bloomberg terminal right now. I see that
Speaker 4: this week is looking to be its first down week
Speaker 4: in over seven weeks seven week win streak. This will
Speaker 4: be the first down week, down about one point five
Speaker 4: percent right now. But when do we actually see this
Speaker 4: come up in the price action?
Speaker 5: Yeah, so the sales and the revenue for the first quarter,
Speaker 5: right that runs through the end of December, so December
Speaker 5: thirtieth or thirty first, So I don't anticipate an impact
Speaker 5: on Apple's revenue that they're going to announce for Q one.
Speaker 5: They'll announce those numbers at the tail end of January
Speaker 5: or at the beginning of February. But what I could
Speaker 5: tell you is that they're going to probably get impacted
Speaker 5: on their Q two or Q three, depending on how
Speaker 5: long this roll is for I would anticipate a several
Speaker 5: hundred million dollars head wind year, which is not extraordinarily
Speaker 5: material to Apple, but certainly is worth discussing. And it
Speaker 5: is the difference between a growth quarter and a non
Speaker 5: growth quarter.
Speaker 1: Right.
Speaker 5: All you have to do to grow is generate one
Speaker 5: dollar more than you did in the quarter of the
Speaker 5: year prior, Right, So if you're down several hundred million
Speaker 5: or a couple of billion, you're not going to get
Speaker 5: that flexibility, and you might have a down quarter when
Speaker 5: you otherwise would have had an up quarter. But the
Speaker 5: big question is how long this is going to take.
Speaker 5: My guess is probably around three months, unless we have
Speaker 5: some surprising stay order from the federal government or some
Speaker 5: sort of last minute detO. But I don't really expect
Speaker 5: either of those.
Speaker 2: Mark, what's the for What are you looking for out
Speaker 2: of Apple in twenty twenty fours? Are there any products
Speaker 2: that we need to be on the lookout for any
Speaker 2: new services that you think they might try to pursue,
Speaker 2: any any anything else that's on your horizon.
Speaker 5: Well, the Vision Pro right, that's all anyone in the
Speaker 5: Apple world is talking about right now. That's the first
Speaker 5: mixed reality headset. I don't think it's going to be
Speaker 5: a big revenue driver, but it's certainly going to be awesome.
Speaker 5: The other big thing is out.
Speaker 2: When do we know? And that's going to happen, the Vision.
Speaker 5: Pro that's going to come out by February, so probably
Speaker 5: at the tail end of January or.
Speaker 2: Now are you going to be one of those techniques
Speaker 2: that's going to get one of these?
Speaker 6: Yes?
Speaker 4: Yes, it will be the whole paycheck on a Vision pro.
Speaker 2: Se an expensive who's kidding who? All right, So that's
Speaker 2: coming up in February. That's interesting. Now, how's a company
Speaker 2: positioning that thing?
Speaker 5: Well, they're not. They haven't talked much about it since
Speaker 5: the introduction in June. It's pretty nascent. Like you said,
Speaker 5: it's pretty expensive.
Speaker 6: With tax.
Speaker 5: It's probably coming up against four thousand dollars throws for
Speaker 5: most people, and so it is pretty pricey. I think
Speaker 5: the big marketing. Push is going to start sort of
Speaker 5: more in the middle of the year, obviously, when they
Speaker 5: release cheaper models. That's going to be a significant development.
Speaker 5: You asked about services. I think you're going to see
Speaker 5: Apple walk into the generative AI space this year. You'll
Speaker 5: see introductions in June around jen Ai integrating large language
Speaker 5: models into the iPhone. So that's going to be a
Speaker 5: quite significant initiative for the company too, even though they're
Speaker 5: going to be about a year and a half behind
Speaker 5: everyone else.
Speaker 2: Mark, I don't know if you know it, but Michigan's
Speaker 2: playing in the Rose Bowl. You're in southern California. Are
Speaker 2: you going to the game?
Speaker 5: I will not, but I'll do well.
Speaker 2: Aren't you a good Michigan man, A.
Speaker 5: Good Michigan man. But I'm pretty focused on the Lakers
Speaker 5: these days.
Speaker 2: I see the jersey Kobe in the background, So good
Speaker 2: for you.
Speaker 6: You're listening to the tape. Can's are live program Bloomberg
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Speaker 2: A lot of folks as you think about twenty twenty four,
Speaker 2: as MS was just mentioning the sentiment seems so changed
Speaker 2: to really leaning towards that soft landing, but there's still
Speaker 2: some concern out there. Semashad joins us. She's a senior
Speaker 2: global investment strategist Principal Global Investors, joining us via zoom. Sima,
Speaker 2: thanks so much for taking the time here. I know
Speaker 2: you guys have your twenty twenty four outlook aut and
Speaker 2: I'm just seeing kind of the focus here on pivot, pivot, pivot.
Speaker 2: What do you mean by that in twenty four.
Speaker 9: Yeah, it's a play on that friend's line. Well, look,
Speaker 9: I think you know we published that a few weeks
Speaker 9: before the FED spoke. I don't think any of us
Speaker 9: anticipated that the FED would shift in such a manner
Speaker 9: and so quickly, but clearly, I think the inflation data
Speaker 9: is certainly backing up that idea that twenty twenty four
Speaker 9: is no longer just the year of the pause, but
Speaker 9: it's actually mainly going to be about the pivot, and
Speaker 9: for a risk acid it's almost whichever way you look
Speaker 9: at it, there's going to be nuances, But overall, this
Speaker 9: should be a fairly good year for risk acids simply
Speaker 9: because those central banks are going to be are going
Speaker 9: to be pivoting, and importantly, it's not going to be
Speaker 9: you know, it's going to be supported by a not
Speaker 9: too unhealthy backdrop as well.
Speaker 4: You've you've seen a lot of year end markets. How
Speaker 4: crazy has the buying frenzy inequities been for this year
Speaker 4: and just compared to the rest of your.
Speaker 9: Career, it's certainly very aggressive, you know, I think that
Speaker 9: it's aggressive, but it's also not entirely unexpected, because as
Speaker 9: we've been going through this year, every time we've been
Speaker 9: talking to investors, declines and this is anywhere around the world,
Speaker 9: in Asia, Europe, the US, it's pretty much the same thing.
Speaker 9: The questions that we've been getting are generally along the
Speaker 9: lines of, you know, when are we going to know
Speaker 9: what the Fed is doing? When will they peak? They're
Speaker 9: kind of just waiting to put their money to work,
Speaker 9: So the uncertainty has been clouding a lot of investors' minds,
Speaker 9: but they haven't had any concerns that this is going
Speaker 9: to be a downturn or there would be a downturn
Speaker 9: that would be very destructive that would see any kind
Speaker 9: of permanent disruption to the underlying economy. And if you
Speaker 9: don't think there's going to be permanent underlying damage, then
Speaker 9: essentially what you're doing is you're just trying to time
Speaker 9: the market so when you know things are clearly going
Speaker 9: to be an upward move. So as soon as we
Speaker 9: saw any indication actually at the Bank at the end
Speaker 9: of October that Chair Powell was having a slight shifting stance.
Speaker 9: That was, you know, opening the airwaves, opening the doors
Speaker 9: to a huge flood into that equity space. Now, I
Speaker 9: do actually think that Q one is going to be
Speaker 9: a little bit more volatile, and you're going to have
Speaker 9: to see investors be strong in the face of that volatility.
Speaker 9: But overall, as I look out over twenty twenty four,
Speaker 9: I think investors are right to be taking on this
Speaker 9: lightly more optimistic perspective semas.
Speaker 2: So the FED, I guess, was clear, maybe clearer than
Speaker 2: they wanted to be about their you know, being open
Speaker 2: to being a little bit more dubbish here. How about
Speaker 2: the the Bank of England, the European Central Bank? What
Speaker 2: are we hearing out of those institutions.
Speaker 9: So again it's a very very similar sentiment and again
Speaker 9: backed up similar to the US, by a clear decline
Speaker 9: in inflation. Actually in Europe and your area, it's been
Speaker 9: extra interesting because the inflation has been inflation has actually
Speaker 9: come down faster than it went which is unusual. You know,
Speaker 9: you kind of hear the analogies of inflation takes the
Speaker 9: escalator up and stares down. It's the opposite way for Europe.
Speaker 9: So inevitably the ECB has had to acknowledge that, and
Speaker 9: they have also taken on dubbish stance, same thing with
Speaker 9: the Bank of England. But I think the key difference
Speaker 9: that you're seeing is that they are retaining an element
Speaker 9: of caution. They are still worried that if they were
Speaker 9: to cut rates too early, you would see that renewed
Speaker 9: drive up in inflation. So whereas they're acknowledging that there's
Speaker 9: likely to be a pivot in twenty twenty four, they
Speaker 9: have pushed back a lot harder at the idea that
Speaker 9: you could see rate cuts as soon as March.
Speaker 4: If you were working at the FED, what would stop
Speaker 4: you from declaring victory right now? Is it the labor market.
Speaker 9: So it's a couple of things. I you know, I,
Speaker 9: like everyone else, has probably poured over wall of speech,
Speaker 9: the two different speeches that he gave a couple of
Speaker 9: weeks apart, and he had said at that point that
Speaker 9: he needed to see a couple of months of clear
Speaker 9: inflation evidence, and it was disinflation to that three month
Speaker 9: from three month rate was moving down sufficiently, and in
Speaker 9: the end he only saw one month of that, and
Speaker 9: he had enough evidence to me I would be a
Speaker 9: little bit more cautious. I'd say, well, look, let's get
Speaker 9: a series of those numbers to know for sure, because
Speaker 9: if you look back to the seventies eighties period when
Speaker 9: you did have very high inflation, the FED made the
Speaker 9: mistake of cutting rates too early and then that drove
Speaker 9: inflation to a new high. So I would certainly be
Speaker 9: a little bit more concerned, especially knowing that, as you know,
Speaker 9: an unemployment rate of three point seven percent is extraordinarily low.
Speaker 9: It's a very very tight labor market, and so I
Speaker 9: would need to see some more evidence of a slight
Speaker 9: economic slow down. Obviously I need a recession, but sending
Speaker 9: it more evidence of slowing economic activity and unwinding labor
Speaker 9: market before I felt sufficiently confident to start cutting interest rates.
Speaker 2: So similar where the good folks are principal global investors,
Speaker 2: Where do you guys see the opportunity in twenty twenty four.
Speaker 2: We've had such a move here in as last six, seven,
Speaker 2: eight weeks. I think people are very happy with the performance,
Speaker 2: but they're saying, oh boy, now what do I do
Speaker 2: in twenty twenty four?
Speaker 8: Right?
Speaker 9: And this is a time where you know, we have
Speaker 9: to start thinking about valuations. What are the valuations, what
Speaker 9: are the signals coming to us? So from the equity space,
Speaker 9: you know, we know that the Magnificent seven have driven
Speaker 9: you know, most of the games this year, but their
Speaker 9: valuations are very, very expensive. And although we are long
Speaker 9: term holders of some of those really big tech stocks,
Speaker 9: there is something to be said for some of that
Speaker 9: small cap universe. There's valuations attractive. If you believe that
Speaker 9: there's going to be a cyclical recovery around the second
Speaker 9: half of the year, then to me, this is a
Speaker 9: good time to be ready to write some of the
Speaker 9: volatility down in the first quart or so, but knowing
Speaker 9: that you will be well positioned for the upside. So
Speaker 9: I think that that valuation set level is important. From
Speaker 9: a credit perspective, credit spreads are extremely tight historic tights.
Speaker 9: Knowing that there's going to be a little bit of
Speaker 9: a slowdown in around Q two Q three, I worry
Speaker 9: a little bit about, certainly the lower quality aspects of
Speaker 9: the credit spectrum. So I'd be entirely focused on that
Speaker 9: core fixed income space. And the other part of this
Speaker 9: is is as much as we know or feel that
Speaker 9: there is going to be a central bank pivot, there
Speaker 9: is still a lingering inflation risk. You know, economic theory
Speaker 9: tells you as long as growth there's above target, there's
Speaker 9: always going to be the risk that inflation researches, and
Speaker 9: we know that bonds have not done very well in
Speaker 9: protecting when inflation is moving up. So I still think
Speaker 9: that there means you need to have some kind of
Speaker 9: exposure to relasi it's in your portfolio. It doesn't need
Speaker 9: to be too much, but at least that broad diversification,
Speaker 9: so you'll protect against a couple of scenarios, which to
Speaker 9: our minds they're not entirely throwaway. You still have to
Speaker 9: consider them.
Speaker 4: What about outside the US is that an area to
Speaker 4: invest in for twenty twenty four?
Speaker 9: I think there are certain opportunities. The main area that
Speaker 9: we're looking at the moment is it's still in emerging markets,
Speaker 9: but at ex China. The beauty at the moment is
Speaker 9: that you can actually think about emerging markets without having
Speaker 9: to consider some of the downturn that's going well in China.
Speaker 9: So the areas that we're looking at are Latin America primarily.
Speaker 9: Again we're looking at very very cheap valuations. You've got
Speaker 9: central banks which are already cutting interest rates, and also
Speaker 9: you have the ability to ride onto a secular theme
Speaker 9: of deglobalizations, so kind of the regionalization of supply chains,
Speaker 9: as well as the fact that some of the natural
Speaker 9: resources that would be coming into play as you think
Speaker 9: about the energy transition, are actually coming from Latin America.
Speaker 9: So you can have a number of cecular plays by
Speaker 9: positioning in Latin America at a time where valuations are
Speaker 9: extraordinarily attractive at this point.
Speaker 2: So China, it's such a big part of the MSCI.
Speaker 2: But I guess from your perspective, the risk is not
Speaker 2: the reward is not worth that risk.
Speaker 9: We do have yeah, we do have concerns about China
Speaker 9: still lingering. You know, we've seen from the recent conference
Speaker 9: that the policymakers are not planning to move in with
Speaker 9: big stimulus. They're still thinking about quality growth, which of
Speaker 9: course from a long term perspective is positive. But as
Speaker 9: long as you're not seeing the property market respond in
Speaker 9: a way that would improve confidence, then the Chinese economy
Speaker 9: is going to be struggling. And the one thing I
Speaker 9: come back to is if you do a quick comparison
Speaker 9: of the US property market and the Chinese property market,
Speaker 9: just to give you an idea. In the US, the
Speaker 9: property market accounts for about thirty percent of US household Well,
Speaker 9: in China that number is sixty percent.
Speaker 2: Wow.
Speaker 9: So as long as a property market is struggling in China,
Speaker 9: then it's very difficult to see in meaningful economic recovery.
Speaker 9: And without that recovery, I think investors stay very, very cautious,
Speaker 9: and you just don't see those flows back into Chinese equities.
Speaker 2: It's great analysis. I's always loved that data point. I'm
Speaker 2: going to use that. I will credit Seema, but I
Speaker 2: would definitely use that Simasha, senior global investment strategists over
Speaker 2: their principal global investments in London. One would street great
Speaker 2: part of town just outside of the city.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
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