WEBVTT - Surveillance: October's Soft US Jobs Report 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 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 --> 0:00:30.479 the Bloomberg Terminal, and the Bloomberg Business App. What you 0:00:30.560 --> 0:00:33.280 need on Jobs Day more Newtonian calculus. We'll do that 0:00:33.320 --> 0:00:36.000 with Randall Krosner of the Bus School, Chicago, of course, 0:00:36.040 --> 0:00:38.920 the former Fed governor, one of our great and giant 0:00:39.080 --> 0:00:44.000 financial economists in America. What's the second derivative of the 0:00:44.080 --> 0:00:45.360 jobs market look like? 0:00:45.479 --> 0:00:46.680 Randy? When it moves? 0:00:46.880 --> 0:00:47.680 Does it move? 0:00:49.400 --> 0:00:51.879 Ah? And that's the key question exactly what you were 0:00:51.920 --> 0:00:55.680 talking about. What does this pretend for the trajectory going forward? 0:00:55.960 --> 0:00:59.520 Certainly we're seeing a slowing pace over the last few 0:00:59.520 --> 0:01:03.480 months downward revisions. And then the question is will this 0:01:03.600 --> 0:01:05.959 be nice and smooth or will this pretend something that 0:01:06.080 --> 0:01:08.680 is going to be As at LISTA mentioned before, nonlinear, 0:01:09.760 --> 0:01:12.920 very difficult to predict any nonlinear moves and things. But 0:01:12.959 --> 0:01:17.880 I do think it's consistent with a somewhat softening labor market. 0:01:18.640 --> 0:01:22.120 I think the FED will certainly be heartened by the 0:01:22.120 --> 0:01:26.040 wage growth coming down a bit over time. I think 0:01:26.040 --> 0:01:28.200 this takes the wind of the sales of those who 0:01:28.280 --> 0:01:30.479 wanted to go further. I think it makes it much 0:01:30.520 --> 0:01:33.840 more likely that we will just hold where we are 0:01:33.959 --> 0:01:36.840 for a while. But so far, there's nothing in this 0:01:36.920 --> 0:01:38.800 to suggest that the FED is going to be eager 0:01:38.840 --> 0:01:41.679 to cut or be even talking about cutting anytime soon. 0:01:42.000 --> 0:01:44.200 Do you think, Randy is some people are pointing to 0:01:44.280 --> 0:01:47.440 manufacturing as a point of weakness, that that is a 0:01:47.520 --> 0:01:50.880 leading indicator in the way it has been in previous times, 0:01:50.960 --> 0:01:53.760 just because of how many people were hired during the 0:01:53.760 --> 0:01:54.760 peak of the pandemic. 0:01:56.080 --> 0:01:57.640 It is certainly one area that there was a lot 0:01:57.680 --> 0:02:00.600 of bounce back, because of course people want to things, 0:02:01.120 --> 0:02:05.160 but now people want services, and so the services part 0:02:05.200 --> 0:02:08.520 is still extremely important. I wouldn't put too much emphasis 0:02:08.560 --> 0:02:10.760 on any one particular sector. I think you have to 0:02:10.800 --> 0:02:14.040 look over overall, and as Mike had said, you know, 0:02:14.080 --> 0:02:17.520 we're seeing a little bit of slow down broadly, but 0:02:17.680 --> 0:02:20.359 not enormous amount of slow down. But I do think 0:02:20.400 --> 0:02:23.160 that is consistent with in somestance where the FED wants 0:02:23.200 --> 0:02:24.920 to go. They want to see the uneployment rate go 0:02:25.000 --> 0:02:26.919 up a little bit, not too much. They want to 0:02:26.960 --> 0:02:29.280 see wage growth come down a little bit, but not 0:02:29.360 --> 0:02:31.160 too much. And I think it's just going to be 0:02:31.200 --> 0:02:33.880 tougher to be hiring people going forward. Until just a 0:02:33.919 --> 0:02:38.000 few months ago, real wages were not growing, they were 0:02:38.000 --> 0:02:42.120 actually negative. Real wage growth was negative. Now real wage 0:02:42.120 --> 0:02:44.800 growth is positive, so it gives less of an incentive 0:02:44.880 --> 0:02:49.119 for firms to hire. Real interest rates are now positive. 0:02:49.200 --> 0:02:52.080 They had been negative for a very long time. That 0:02:52.200 --> 0:02:55.040 combination is probably going to lead firms to be less 0:02:55.040 --> 0:02:57.440 eager to hire, less eager to invest, and I think 0:02:57.480 --> 0:02:59.880 that's going to be leading to what I think is 0:03:00.040 --> 0:03:02.680 potentially a hard ish but not hard landing. 0:03:02.919 --> 0:03:05.040 This is an important jobs report. 0:03:05.040 --> 0:03:09.160 This November report of the October data just absolutely extraordinary. 0:03:09.240 --> 0:03:12.640 Randy Krasner, thank you so much, Professor Krasner with the 0:03:12.680 --> 0:03:21.520 Boost School the University of Chicago. If you're not part 0:03:21.520 --> 0:03:24.160 of the global Wall Street gang, you've got to understand 0:03:24.639 --> 0:03:27.680 it's hard to look at the Bloomberg screen and frame 0:03:27.720 --> 0:03:30.560 it out from where we were two weeks ago, which 0:03:30.600 --> 0:03:34.320 gets us to canes and when the facts change, I change. 0:03:34.400 --> 0:03:38.160 Jeffrey Rosenberg studied as Maynard Keynes at Carnegie Mellon. He's 0:03:38.160 --> 0:03:42.760 a black Rock portfolio manager systematic multi strategy fund. 0:03:42.720 --> 0:03:46.320 For all of us. Jeff Rosenberg, are the facts changing? 0:03:47.880 --> 0:03:49.080 Great question, Tom. 0:03:49.720 --> 0:03:53.400 You know, the narrative is changing and the facts are 0:03:53.600 --> 0:03:56.200 driving that. And so Lisa asked the kind of the 0:03:56.280 --> 0:03:58.560 key question, You know, how do you rally in front 0:03:58.600 --> 0:04:00.840 of a slowing labor picture? 0:04:01.040 --> 0:04:03.640 And that's because it's where we are. 0:04:04.160 --> 0:04:09.120 Equity markets were weaker while the economy was strengthening, and 0:04:09.160 --> 0:04:11.520 that was really about the rise in the denominator, in 0:04:11.560 --> 0:04:13.560 the discount rate and the interest rates. So as you 0:04:13.640 --> 0:04:16.400 ease off the pressure in terms of the interest rates, 0:04:16.720 --> 0:04:19.840 there's a little window here where the narrative changes and 0:04:20.320 --> 0:04:23.240 there's relief because the discount raid is expected to be 0:04:23.240 --> 0:04:25.279 a bit lower, and you see it in the bond market. 0:04:25.640 --> 0:04:28.520 But that's about horizon and so the near term horizon 0:04:28.600 --> 0:04:32.400 narrative will shift, but the longer term horizon about that 0:04:32.480 --> 0:04:34.600 hardish landing that Randy just mentioned. 0:04:34.920 --> 0:04:37.360 That'll be for future conversations. 0:04:37.440 --> 0:04:40.240 Right now, the market's pretty excited about lower discount. 0:04:39.839 --> 0:04:42.680 Way, Jeff Rosenberg, people would say, Blackrock is part of 0:04:43.000 --> 0:04:46.039 that wall of money that's out there. Okay, we got 0:04:46.040 --> 0:04:48.160 a short cover here, a short cover there, I got 0:04:48.200 --> 0:04:51.440 futures up eighteen. Rosenberg knows the numbers better than me. 0:04:51.960 --> 0:04:56.120 Are we underestimating Jeff Rosenberg? How many people here are 0:04:56.200 --> 0:04:59.000 off sides and need to get in and play? 0:04:59.400 --> 0:04:59.719 Now? 0:05:00.160 --> 0:05:02.560 Yeah, you know we talked about this after the FMC. 0:05:02.920 --> 0:05:06.360 You know, the near term volatility is all about technicals 0:05:06.440 --> 0:05:09.760 and positioning, and so you're going to have that and 0:05:09.760 --> 0:05:11.600 you're going to see you're going to see those moves. 0:05:11.839 --> 0:05:14.840 The longer term positioning is going to be about trajectory 0:05:15.200 --> 0:05:18.919 and fundamentals. But certainly, you know, after a report that 0:05:19.760 --> 0:05:22.719 you know pretty much convincingly across the board, as you 0:05:22.800 --> 0:05:26.320 highlighted earlier, you know, this is a report that helps 0:05:26.360 --> 0:05:29.480 to support the narrative of slowing in the labor markets, 0:05:29.839 --> 0:05:32.719 slowing in wage inflation, even though that's a mixed shift 0:05:32.800 --> 0:05:36.800 probably in the AH number, but across the board, especially 0:05:36.800 --> 0:05:38.719 with the revisions, you know, it just looks like this 0:05:38.839 --> 0:05:42.200 is coming in slower, and so that helps to feed 0:05:42.240 --> 0:05:45.160 the near term narrative that you get to the soft landing. 0:05:45.839 --> 0:05:47.760 You know, as Randy said, whether it's soft landing or 0:05:47.760 --> 0:05:50.600 hardish landing or hard landing will remain to be seen. 0:05:50.760 --> 0:05:52.479 When do you go with groupthink and when do you 0:05:52.520 --> 0:05:53.039 push back? 0:05:53.120 --> 0:05:53.200 Right? 0:05:53.279 --> 0:05:54.480 I mean, when do you go with the crowd if 0:05:54.520 --> 0:05:56.719 sentiment is shifting and you're seeing people go into risk, 0:05:57.080 --> 0:05:59.479 if you believe that essentially bad news will be bad 0:05:59.520 --> 0:06:01.000 news for risk acts. 0:06:01.480 --> 0:06:03.360 Yeah, you know, it's a lot about kind of what's 0:06:03.400 --> 0:06:05.480 in the looking at what's in the price, and how 0:06:05.520 --> 0:06:09.000 much cushion you have against the consensus move and where 0:06:09.040 --> 0:06:14.640 the asymmetries lie. So I think right now the momentum 0:06:14.680 --> 0:06:16.760 and the sentiment around soft landing is going to be 0:06:16.760 --> 0:06:19.960 pretty hard to push back against. But you know, as 0:06:20.000 --> 0:06:23.320 we see successive waves of data, we got a couple 0:06:23.360 --> 0:06:26.120 more here in terms of before we get to the 0:06:26.120 --> 0:06:29.520 December FOMC, there's going to be a little bit of 0:06:29.560 --> 0:06:33.479 momentum here around the easing off of financial conditions, the 0:06:33.520 --> 0:06:37.240 easing off of tightening from the FED, and I think 0:06:37.240 --> 0:06:39.000 that's going to provide a little bit of a tailwind 0:06:39.040 --> 0:06:40.080 for a short horizon trap. 0:06:40.320 --> 0:06:43.400 And definitely the momentum tends to overshoot, and there is 0:06:43.440 --> 0:06:46.240 this feeling that this does set the market up for 0:06:46.360 --> 0:06:49.560 more fragility heading into a print that could be a 0:06:49.600 --> 0:06:52.240 big surprise on the downside. Jeff, how much is that 0:06:52.279 --> 0:06:54.440 sort of the play right now is to lean into 0:06:54.440 --> 0:06:56.560 the momentum, go at the flow, soft landing. Sure you 0:06:56.560 --> 0:06:59.120 can celebrate, but the music will stop eventually, and each 0:06:59.200 --> 0:07:00.960 one of these economics prints are going to have that 0:07:01.040 --> 0:07:03.279 much more heft and importance in markets. 0:07:03.920 --> 0:07:06.680 Yeah, and you know, the main issue here is really 0:07:06.720 --> 0:07:08.880 about long and variable lags. And Tom, I know you 0:07:08.880 --> 0:07:12.480 hate when every time I say that, but it is 0:07:12.600 --> 0:07:15.680 where do you see that pressure coming in? Randy talked 0:07:15.680 --> 0:07:18.080 about the pressure in terms of easing off of hiring 0:07:18.120 --> 0:07:21.400 because real wages are no longer negative, it's more expensive. 0:07:21.880 --> 0:07:24.240 You talked about funding costs, and maybe there's. 0:07:24.240 --> 0:07:26.120 A little bit of an opening up in terms of 0:07:26.120 --> 0:07:30.000 the bond market, but I think you got to remember here, 0:07:30.640 --> 0:07:34.560 these are much more expensive funding costs. And so if 0:07:34.600 --> 0:07:36.920 you don't have to issue that debt because you've termed 0:07:36.920 --> 0:07:40.360 it out, you don't want to issue that debt. And 0:07:40.400 --> 0:07:42.440 so even though the market may be open, it's at 0:07:42.480 --> 0:07:45.600 a much higher cost. And that lagged effect of tightening 0:07:45.600 --> 0:07:48.160 in terms of interest expenses something you know, the market 0:07:48.200 --> 0:07:49.800 is still going to have to figure out where are 0:07:49.800 --> 0:07:53.800 the vulnerabilities, and there are vulnerabilities to that impact on. 0:07:53.840 --> 0:07:55.200 Bloomberg Television and radio. 0:07:55.280 --> 0:07:58.320 Jeffrey Rosenberg with us is Blackrack really timely, and of 0:07:58.320 --> 0:08:00.240 course we thank him forst fed work as well well. 0:08:00.320 --> 0:08:02.440 He's going to stay with us at right now, I 0:08:02.480 --> 0:08:04.840 can't do it to complete data check because Jeff Rosenberg 0:08:04.880 --> 0:08:05.480 is too important. 0:08:05.480 --> 0:08:07.760 But Lisa, there's some real nuances here. 0:08:07.800 --> 0:08:10.640 Futures up nineteen continue to advance down, futures up one 0:08:10.720 --> 0:08:13.320 thirty nine. Can I get to a VIXA fourteen, I'm 0:08:13.320 --> 0:08:15.239 not there yet fifteen point two six. 0:08:15.680 --> 0:08:16.920 As Bramba mentioned. 0:08:16.640 --> 0:08:21.080 Folks a two year yield in thirteen basis points, we 0:08:21.200 --> 0:08:25.160 continue to see lower yields and a higher prices ten 0:08:25.240 --> 0:08:27.880 year in his stunning eleven basis points. 0:08:27.960 --> 0:08:29.520 And just you know, outside the. 0:08:29.440 --> 0:08:33.640 Box here, I got weaker dollar, I got euros through. 0:08:33.440 --> 0:08:37.680 One oh seven. I've got yen dynamics, but euro yen. 0:08:37.800 --> 0:08:41.520 What does the Japanese institutions do this weekend? Off what 0:08:41.600 --> 0:08:44.920 Jeff Rosenberg says? Because I got euro yin one sixty 0:08:45.000 --> 0:08:45.880 point zero one. 0:08:46.200 --> 0:08:49.400 If they're not going to act now, Lisa, when are 0:08:49.400 --> 0:08:50.040 they going to act. 0:08:50.120 --> 0:08:52.640 That does raise a good question and Jeff to that point, 0:08:52.840 --> 0:08:55.360 does the move that we're seeing in the US a 0:08:55.440 --> 0:08:59.720 sigh of relief open up possible monetary disruption elsewhere hint 0:08:59.760 --> 0:09:02.559 hind Bank of Japan that could be disruptive on the 0:09:02.600 --> 0:09:03.400 other side. 0:09:03.720 --> 0:09:06.800 Yeah, I mean that's a big global story and one 0:09:06.840 --> 0:09:09.120 we've been talking about for a while waiting for. We 0:09:09.200 --> 0:09:12.760 got a little bit of it in terms of changing 0:09:12.880 --> 0:09:16.040 the definition of yield curve control. 0:09:15.600 --> 0:09:17.640 And there's an expectation that there's going to be more. 0:09:17.679 --> 0:09:20.720 And there's an incredible amount of fiscal stimulus coming out 0:09:20.720 --> 0:09:25.079 of Japan that is really going to push the BOJ 0:09:25.400 --> 0:09:26.120 even further. 0:09:26.320 --> 0:09:28.560 And so that's been a global impact. 0:09:28.600 --> 0:09:32.920 It's dampening term premium It's part of the term premium 0:09:32.920 --> 0:09:36.040 steepening story. You know, the refunding you know, certainly is 0:09:36.040 --> 0:09:38.760 pushed back on that and positioning you know, a bit 0:09:38.800 --> 0:09:43.360 off sides for that surprise somewhat surprise refunding. But really 0:09:43.400 --> 0:09:45.160 the big story there is going to be global term 0:09:45.200 --> 0:09:47.880 premium steepening and that's I think long term going to 0:09:47.960 --> 0:09:50.200 come back to the US. But near term this is 0:09:50.240 --> 0:09:53.160 going to be about softish landing and slowing of the Fed, 0:09:53.320 --> 0:09:54.920 and the market is going to run with that. 0:09:55.000 --> 0:09:57.120 We're looking right now at two year yields just tanking. 0:09:57.160 --> 0:09:59.560 I mean, honestly, this is quite a move fifteen bas 0:09:59.679 --> 0:10:02.960 points nearly from top to bottom in this trading session 0:10:03.000 --> 0:10:05.640 as people parse through this, Jeff just want to finish 0:10:05.760 --> 0:10:08.520 up with the Fed's reaction function, this concept of what 0:10:08.679 --> 0:10:11.680 it takes for the Federal Reserve to cut rates. Right now, 0:10:11.760 --> 0:10:14.640 there is base into the markets in real time, a 0:10:14.720 --> 0:10:18.120 sense that they will be cutting rates in much sooner 0:10:18.160 --> 0:10:20.920 than they're saying. Do you think that's accurate that the 0:10:21.120 --> 0:10:24.680 bar to cut rates has somehow come in as a 0:10:24.720 --> 0:10:27.680 result of just the general feeling and the public and 0:10:27.720 --> 0:10:30.480 the lack of willingness to tolerate much higher on employment rates. 0:10:30.880 --> 0:10:32.320 Well, it's tricky, Lisa. 0:10:32.360 --> 0:10:35.040 I mean, I think the reaction you're getting right now 0:10:35.120 --> 0:10:39.160 pricing out the kind of probabilities, the limited probabilities of 0:10:39.679 --> 0:10:40.600 the last hike. 0:10:40.880 --> 0:10:41.080 Right. 0:10:41.160 --> 0:10:44.480 So, you know, you go back to Wednesday, and you 0:10:44.520 --> 0:10:46.720 know you remember the question, and you know you talked 0:10:46.760 --> 0:10:49.960 about we're not even you know, talking about cutting rate now. 0:10:50.000 --> 0:10:53.760 Obviously the market is because the market is looking forward here. 0:10:54.400 --> 0:10:57.000 I think you got to see a lot more development 0:10:57.080 --> 0:10:59.679 on the inflation side before you get there. And then 0:10:59.720 --> 0:11:01.480 the other the problem we're going to talk about, I 0:11:01.520 --> 0:11:03.960 think is the reflexivity. I think you mentioned it is 0:11:03.960 --> 0:11:07.360 that you know, well, we the FED could do less 0:11:07.440 --> 0:11:10.520 because the market's doing more. But the more the market 0:11:10.600 --> 0:11:13.520 does more in terms of using financial conditions. 0:11:13.240 --> 0:11:14.679 The more then the Fed has to do. 0:11:14.760 --> 0:11:17.600 So you kind of get yourself chasing your own tail 0:11:18.600 --> 0:11:21.120 around that story in terms of whether they can cut. 0:11:21.160 --> 0:11:24.520 So it will come back to does the inflation really 0:11:24.559 --> 0:11:27.840 fall fast enough to that two percent level that gets 0:11:27.880 --> 0:11:30.720 real interest rates high enough that gets them concerned that 0:11:30.760 --> 0:11:33.560 they're too tight where they really need to deliver those cuts, 0:11:33.600 --> 0:11:36.520 and that I think is still way out into the future. 0:11:36.640 --> 0:11:38.600 And Lisa, where do you get to show where jeff 0:11:38.679 --> 0:11:42.439 Rosenberg channels George Soros on reflexivity. I mean, there's nowhere 0:11:42.480 --> 0:11:44.559 else in the world you can have this much fun. 0:11:44.640 --> 0:11:47.559 Jeffrey Rosenberg, thank you so much for joining us. 0:11:57.800 --> 0:11:59.200 That's the way it works, folks. 0:11:59.320 --> 0:12:04.680 The street only focuses on revenue dynamics, and if they're brave, 0:12:04.840 --> 0:12:07.480 they go down the income statement and they'll find that 0:12:08.000 --> 0:12:08.760 and then it's what I. 0:12:08.720 --> 0:12:10.760 Call concept concept concept. 0:12:10.400 --> 0:12:14.400 China, worry, worry, worry, yep iPhone worry where iPads omg 0:12:15.360 --> 0:12:18.760 and thank god. Gen Monster, with all of his work 0:12:19.080 --> 0:12:23.640 on Apple and technology, says, you know, maybe they're rock solid. 0:12:24.360 --> 0:12:27.520 Maybe they're running this thing for profit. 0:12:28.320 --> 0:12:28.600 Gene. 0:12:28.679 --> 0:12:34.520 I saw a record third quarter gross margin. I saw 0:12:34.559 --> 0:12:40.400 the persistency of services maintained, and critically, I saw cash 0:12:40.559 --> 0:12:45.320 generation in the gloom of Apple this morning. The second guessing, 0:12:45.800 --> 0:12:48.439 is there free cash flow growth going to EBB. 0:12:50.720 --> 0:12:54.240 No, Tom, I think it's just going to flow and 0:12:54.400 --> 0:12:58.360 flow higher. And ultimately they showed, as you said, some 0:12:58.400 --> 0:13:01.480 of the most impressive margins, most impressive gross margins that 0:13:01.559 --> 0:13:06.000 they've ever printed a mikeed environment where component costs are rising, 0:13:06.520 --> 0:13:09.720 of labor costs, shipping costs, all of that, and they've 0:13:09.760 --> 0:13:14.360 been maintaining price that shows operation efficiency. That's what drives 0:13:14.400 --> 0:13:18.480 free cash flow. And you said it right. One big 0:13:18.720 --> 0:13:22.400 X factor around free cash flow that we've observed with 0:13:22.480 --> 0:13:25.680 big tech over the last nine months is they all 0:13:25.720 --> 0:13:28.400 say we're going to be investing more into AI. Tim 0:13:28.440 --> 0:13:30.840 Cook talks about that but says he wants to do 0:13:30.880 --> 0:13:35.120 it responsibly, which means he wants to protect margins and 0:13:35.160 --> 0:13:37.040 do that that is a unique perspective. 0:13:37.559 --> 0:13:40.120 John from his house, looking down on the Helix and 0:13:40.160 --> 0:13:43.000 New Jersey emails in and says, is it a time 0:13:43.040 --> 0:13:46.400 to buy Apple? If there's all this worry about legitimate 0:13:46.400 --> 0:13:49.839 things like China, is gene monster saying load the boat. 0:13:51.720 --> 0:13:55.160 So this is not investment advice, but I do think 0:13:55.200 --> 0:13:58.640 that this is a time to own Apple. And ultimately 0:13:58.960 --> 0:14:01.439 is you have to play this picture forward for one, 0:14:01.559 --> 0:14:04.240 two and five years. And what we've seen in the 0:14:04.280 --> 0:14:07.800 near term is that the importance of their devices in 0:14:07.840 --> 0:14:11.920 our lives are central and that shows up and effectively. 0:14:11.960 --> 0:14:15.360 The guidance I think it's misunderstood is for seven percent growth, 0:14:15.440 --> 0:14:18.720 up from one percent last quarter. So that's the baseline. 0:14:19.040 --> 0:14:21.440 The second is just the opportunity that they have to 0:14:21.560 --> 0:14:25.920 continue to sell that engage base more products. And third 0:14:26.160 --> 0:14:29.040 is that they have opportunities to go into new markets, 0:14:29.080 --> 0:14:32.840 whether it be spatial computing or what potentially could come 0:14:32.880 --> 0:14:35.440 out of automotive. And so I think when you put 0:14:35.480 --> 0:14:38.360 all this together, this is a unique dynamic and I 0:14:38.400 --> 0:14:41.120 think that this will power shares higher in the years 0:14:41.120 --> 0:14:41.320 to come. 0:14:41.600 --> 0:14:42.280 Paul, you know this. 0:14:42.360 --> 0:14:44.000 I mean you've lived this where you're like, is it 0:14:44.040 --> 0:14:46.000 a twelve week quarter, thirteen. 0:14:45.640 --> 0:14:47.320 Week quarter of fourteen week quarter. 0:14:47.360 --> 0:14:49.360 I mean it's like death exactly. 0:14:49.400 --> 0:14:51.600 Hey, Gene, you know, going into the quarter, the pundits 0:14:51.600 --> 0:14:53.680 were saying, you know, the primary focus is going to 0:14:53.720 --> 0:14:58.920 be China. So let's approach that from the perspective of competition. 0:14:59.080 --> 0:15:03.560 Talk to us about the Huawei phone. How much of 0:15:03.600 --> 0:15:06.000 a competitor is that. How much is a concern about 0:15:06.080 --> 0:15:10.320 nationalism weighing on potentially future demand for Apple products. 0:15:12.280 --> 0:15:14.720 So the first is the Huawei phone that's picked up 0:15:14.760 --> 0:15:17.080 a lot of traction during the quarter, a lot of 0:15:17.160 --> 0:15:19.520 speculation this was going to weigh on the China numbers, 0:15:19.560 --> 0:15:23.080 and China was down two percent year over year, at 0:15:23.200 --> 0:15:26.360 a similar rate that it was down back in March 0:15:26.760 --> 0:15:29.880 when before the new Wuahwei phones came out. It was 0:15:29.920 --> 0:15:33.560 down seven percent December of twenty twenty two, and so 0:15:33.960 --> 0:15:37.000 it fluctuates as the bottom line, China's up and down, 0:15:37.040 --> 0:15:39.000 and I don't think that the Huawei phone is having 0:15:39.000 --> 0:15:43.240 an impact. Apple gained share in China in the September quarter, 0:15:43.640 --> 0:15:46.480 and Huawei may have gained share too, But Apple is 0:15:46.520 --> 0:15:49.040 gaining share, and so I think that it is not 0:15:49.160 --> 0:15:51.920 having an impact on their business. And if you look 0:15:51.920 --> 0:15:54.520 at their China business, and I look at this on 0:15:54.680 --> 0:15:57.360 excluding the FX on a constant currency basis, it was 0:15:57.440 --> 0:16:00.040 up four percent. I'm reluctant to do that because I 0:16:00.120 --> 0:16:03.480 want to give but it's worth noting that China's doing 0:16:03.520 --> 0:16:04.280 okay for Apple. 0:16:04.480 --> 0:16:09.160 Yeah, Paul, Code of the day, Aniograna genius. Apple has 0:16:09.480 --> 0:16:15.640 eighteen percent one eight eighteen percent of the unit installed base. 0:16:16.160 --> 0:16:18.360 And yet you just heard g monsters say they're gaining 0:16:18.440 --> 0:16:19.520 share in the training share. 0:16:19.680 --> 0:16:21.000 All right, let's go to the other side of the 0:16:21.040 --> 0:16:23.480 income statement. There a gene on the cost side here. 0:16:24.000 --> 0:16:27.280 I guess you know, when I look at the operations 0:16:27.280 --> 0:16:29.320 of Apple, I just don't see any scenarre where the 0:16:29.600 --> 0:16:33.920 d couple from China. Now, they can, I guess, reduce 0:16:34.240 --> 0:16:38.600 to some extent their dependency on sourcing and manufacturing in China, 0:16:38.600 --> 0:16:41.760 but they really can't decouple. So did how do investors, 0:16:41.800 --> 0:16:44.160 long term investors like you get comfortable with that side 0:16:44.160 --> 0:16:44.640 of the equation. 0:16:47.000 --> 0:16:48.560 I don't think you do. And I think that I 0:16:48.640 --> 0:16:50.520 mentioned everything is good in China. I was talking about 0:16:50.520 --> 0:16:53.360 on the consumer side. I think on the production manufacturing side, 0:16:53.400 --> 0:16:56.160 it's a different story. And the story is that Apple 0:16:56.240 --> 0:16:58.680 needs to get out of China or at least reduce 0:16:58.760 --> 0:17:01.720 its exposure. Right now, we estimate that about forty to 0:17:01.760 --> 0:17:05.359 forty five percent of their revenue is manufactured in China. 0:17:05.400 --> 0:17:07.560 Now it's down from sixty percent a few years ago, 0:17:07.600 --> 0:17:10.359 so they've been reducing their exposure there. But the bottom 0:17:10.440 --> 0:17:13.119 line is that I don't think investors until that number 0:17:13.119 --> 0:17:15.639 gets down to twenty percent, I don't think investors are 0:17:15.680 --> 0:17:18.480 going to rest easy because this is as a geopolitical 0:17:18.520 --> 0:17:21.399 element to it and is a wild card when it 0:17:21.440 --> 0:17:24.119 comes to some of the confidence that investor have in 0:17:24.160 --> 0:17:27.640 the company's ability to produce products to meet this sensational demand. 0:17:27.560 --> 0:17:30.000 And gene does a company have a strategy or are 0:17:30.000 --> 0:17:32.960 they articulating any confidence that they can in fact get 0:17:33.000 --> 0:17:35.600 down to that twenty or twenty five percent exposure. 0:17:36.160 --> 0:17:40.680 They do, it's predominantly India. India's right now about two 0:17:40.720 --> 0:17:44.240 percent of their production, and they've talked about ramping production 0:17:44.320 --> 0:17:46.600 there and so it'll go tell a lot of other areas, 0:17:46.640 --> 0:17:48.639 even like you probably will see something in Mexico in 0:17:48.680 --> 0:17:49.640 the next five years too. 0:17:50.240 --> 0:17:55.360 Jane, quickly here services up sixteen percent. It's a persistent vector. 0:17:56.040 --> 0:17:59.000 Do you have a terminal rate on services or does 0:17:59.000 --> 0:18:02.359 it just grow out, you know, until Frozen eight comes 0:18:02.359 --> 0:18:03.120 out for Disney. 0:18:03.200 --> 0:18:04.919 I mean, you know, does it just go out forever. 0:18:06.680 --> 0:18:09.880 It's gonna keep going out forever because they have pricing leverage. 0:18:09.880 --> 0:18:12.240 It's not just in what they've raised the pricing with 0:18:12.280 --> 0:18:15.119 Apple TV Plus, but they raise pricing with the storage. 0:18:15.160 --> 0:18:17.640 You get those notifications. They raise it at buck a month. 0:18:17.680 --> 0:18:19.480 You don't think much about it, but that's a fifteen 0:18:19.520 --> 0:18:22.280 percent increase. And so I think that this business is 0:18:22.359 --> 0:18:25.679 generally a ten percent growing business for the foreseeable future, 0:18:25.680 --> 0:18:28.120 which can put three to five years ten seconds. 0:18:28.240 --> 0:18:31.720 Gene Monster, what's your terminal some of the parts on 0:18:31.840 --> 0:18:32.800 Apple right now? 0:18:32.880 --> 0:18:34.920 Some of the parts some of. 0:18:34.840 --> 0:18:39.639 The parts is two forty And I think that's based 0:18:39.680 --> 0:18:43.960 on as we think about just ultimately what they can 0:18:44.000 --> 0:18:45.159 earn in twenty twenty. 0:18:44.920 --> 0:18:46.120 Five, Gene Munster. 0:18:46.280 --> 0:18:48.040 Not investment advice, but that's where we're at. 0:18:48.119 --> 0:18:50.920 It's not investment advice. But Tucker's got his by order 0:18:50.960 --> 0:18:58.280 out right now. G Muster, thank you so much. Luke Vencha. Well, 0:18:58.320 --> 0:19:00.840 let's say the show now. You can always do that 0:19:01.240 --> 0:19:02.719 with anarog Rana. 0:19:02.920 --> 0:19:06.359 He is truly expert on the cloud and has a 0:19:06.400 --> 0:19:10.000 partial interest in an Apple computer as well, Anna Regan, 0:19:10.040 --> 0:19:12.560 why you to explain to the audience how a tech 0:19:12.680 --> 0:19:17.960 company runs their company for profit versus running. 0:19:17.680 --> 0:19:19.800 It just at the top line. 0:19:20.080 --> 0:19:24.960 To me, Apple is a profit cast generating juggernaut. 0:19:25.480 --> 0:19:27.720 Why is that so odd, so strange? 0:19:29.040 --> 0:19:31.960 Yeah, I think that goes back to the foundation of 0:19:32.000 --> 0:19:35.800 the company. It really believes in having high margin products. 0:19:35.800 --> 0:19:38.159 It does not believe in gaining market share. You know, 0:19:38.200 --> 0:19:41.240 even after all these years, it has only eighteen percent 0:19:41.359 --> 0:19:44.240 of the unit market share of smartphones around the world. 0:19:44.480 --> 0:19:47.080 It can completely change that overnight if they drop the 0:19:47.119 --> 0:19:49.159 price of the phone, but they will never do that 0:19:49.280 --> 0:19:52.200 because they believe in gross margins more than anything else. 0:19:52.760 --> 0:19:55.800 Over time, they will gain enough market share in every market. 0:19:56.119 --> 0:19:58.600 But this is not something that they do is try 0:19:58.640 --> 0:19:59.680 to gain market share just. 0:19:59.600 --> 0:20:01.440 For the same It's the journey on a rag. As 0:20:01.440 --> 0:20:03.560 you know. Before we start talking about lower prices, can 0:20:03.560 --> 0:20:05.920 we talk about the absence of higher prices? Have they 0:20:05.920 --> 0:20:07.000 lost pricing power? 0:20:08.080 --> 0:20:10.399 No? No, I don't think so. The problem over here 0:20:10.440 --> 0:20:12.560