1 00:00:02,960 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,880 --> 00:00:15,040 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,080 --> 00:00:18,079 Speaker 1: Eastern on Apple Car playing Android Auto with the Bloomberg 4 00:00:18,120 --> 00:00:21,440 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,040 Speaker 1: or watch us live on YouTube. 6 00:00:24,600 --> 00:00:27,240 Speaker 2: We're talking about Target and looking at that Stott j 7 00:00:27,480 --> 00:00:30,440 Speaker 2: TGT is to tick her to load into your Bloomberg terminal. 8 00:00:30,640 --> 00:00:33,839 Speaker 2: Up eleven point seven percent today, So a nice move here. 9 00:00:33,920 --> 00:00:35,159 Speaker 3: Jen Bartash just joins us. 10 00:00:35,320 --> 00:00:40,640 Speaker 2: She covers all the retail industries for Bloomberg Intelligence. She's 11 00:00:40,680 --> 00:00:43,920 Speaker 2: coming to us via zoom from our office down in Princeton. Jen, 12 00:00:44,080 --> 00:00:46,639 Speaker 2: the street likes Target. What did Targets say to get 13 00:00:46,640 --> 00:00:47,800 Speaker 2: the stock up so much today? 14 00:00:48,560 --> 00:00:50,840 Speaker 4: Well, first, I had a good quarter, but they're also 15 00:00:50,840 --> 00:00:54,560 Speaker 4: giving an investor update today and so they've really revealed 16 00:00:54,920 --> 00:00:57,800 Speaker 4: their plan for growth over the next several years and 17 00:00:58,040 --> 00:01:01,840 Speaker 4: that has been resonating well with investors. And it's all 18 00:01:01,880 --> 00:01:06,000 Speaker 4: about recapturing top playing growth, traffic, market share, and they're 19 00:01:06,000 --> 00:01:08,200 Speaker 4: a little bit more upbeat on where they see the 20 00:01:08,200 --> 00:01:09,119 Speaker 4: consumer right now. 21 00:01:09,640 --> 00:01:12,039 Speaker 5: And when we look at inventory being an issue that 22 00:01:12,160 --> 00:01:14,120 Speaker 5: was such a big problem for Target back in the 23 00:01:14,160 --> 00:01:16,880 Speaker 5: pandemic or during the pandemic. It does seem like that's 24 00:01:16,920 --> 00:01:19,360 Speaker 5: being worked through. Kind of what's your expectation with how 25 00:01:19,400 --> 00:01:23,760 Speaker 5: Target is handling their inventory ahead of schedule or not 26 00:01:23,800 --> 00:01:24,520 Speaker 5: ahead schedule. 27 00:01:25,240 --> 00:01:29,000 Speaker 4: Yeah, they've done a major pivot with inventory, and obviously 28 00:01:29,080 --> 00:01:32,360 Speaker 4: they had huge issues a couple of years ago with markdowns, 29 00:01:32,680 --> 00:01:35,640 Speaker 4: and they've really been able to write size inventory that's 30 00:01:35,680 --> 00:01:39,480 Speaker 4: shown up where inventory right now is actually lower than 31 00:01:39,480 --> 00:01:41,960 Speaker 4: it was last year, and yet in stocks are better 32 00:01:42,000 --> 00:01:45,080 Speaker 4: than they've been. And so that focus on those retail 33 00:01:45,080 --> 00:01:47,480 Speaker 4: fundamentals of making sure that you have things in the 34 00:01:47,520 --> 00:01:51,000 Speaker 4: stores and in stock has really been playing through and 35 00:01:51,680 --> 00:01:54,840 Speaker 4: driving some of the results that they've seen and a 36 00:01:54,920 --> 00:01:57,680 Speaker 4: lot of that stems from inventory. And so right now 37 00:01:57,680 --> 00:02:01,040 Speaker 4: they're very well positioned going into twenty twenty four and 38 00:02:01,280 --> 00:02:03,880 Speaker 4: that should hopefully be a tailwind for them for for 39 00:02:03,920 --> 00:02:05,080 Speaker 4: the rest of this fiscal year. 40 00:02:06,040 --> 00:02:08,280 Speaker 3: An affinity card, can you explain what's going on there? 41 00:02:09,200 --> 00:02:12,960 Speaker 4: Yeah, So they're they're they're kind of reimagining their loyalty program. So, 42 00:02:12,960 --> 00:02:16,080 Speaker 4: so the baseline was Target Circle, which was free to join. 43 00:02:16,760 --> 00:02:19,360 Speaker 4: They have one hundred million users that have have joined it, 44 00:02:20,280 --> 00:02:22,760 Speaker 4: and that's where you can go in and save different 45 00:02:22,760 --> 00:02:25,120 Speaker 4: offers and you get an extra ten percent off your 46 00:02:25,720 --> 00:02:29,320 Speaker 4: your your paper towels, you know, that week and that brand. 47 00:02:29,919 --> 00:02:32,160 Speaker 4: What they're doing is they're taking that, They're making it 48 00:02:32,200 --> 00:02:34,280 Speaker 4: so you don't have to search and save. You get 49 00:02:34,320 --> 00:02:36,560 Speaker 4: the things automatically when you when you scan, when you 50 00:02:36,639 --> 00:02:39,080 Speaker 4: when you check out. And if you're a Red Card holder, 51 00:02:39,440 --> 00:02:44,000 Speaker 4: for forty nine dollars, you know, you can get unlimited 52 00:02:44,240 --> 00:02:48,760 Speaker 4: free delivery, same day free delivery to your house, and 53 00:02:49,160 --> 00:02:53,239 Speaker 4: they're calling this Target three sixty. You can also subscribe 54 00:02:53,240 --> 00:02:55,120 Speaker 4: to just that if you're not a Red Card holder. 55 00:02:55,520 --> 00:02:57,680 Speaker 4: Also an introductory price of forty nine, but it will 56 00:02:57,720 --> 00:02:59,720 Speaker 4: go up over time, although they didn't say to what. 57 00:03:00,639 --> 00:03:03,320 Speaker 4: So it's a move where they're trying to get, you know, 58 00:03:03,440 --> 00:03:06,160 Speaker 4: a little bit deeper into consumers' lives, you know, doing 59 00:03:06,200 --> 00:03:09,880 Speaker 4: more home delivery. There's some additional perks in there where 60 00:03:09,919 --> 00:03:12,840 Speaker 4: you can access all of what Ship does, which is 61 00:03:12,840 --> 00:03:15,440 Speaker 4: their same day delivery service, and that includes being able 62 00:03:15,480 --> 00:03:17,680 Speaker 4: to shop at other retailers. So that's kind of the 63 00:03:17,720 --> 00:03:21,919 Speaker 4: differentiator here with regards to the membership program that once 64 00:03:21,960 --> 00:03:24,239 Speaker 4: you have it, you could also have your your target 65 00:03:24,320 --> 00:03:30,200 Speaker 4: run include something from Crossco for example. But it's early 66 00:03:30,280 --> 00:03:33,200 Speaker 4: days and we'll see how much appetite consumers have for 67 00:03:33,280 --> 00:03:35,640 Speaker 4: yet another membership that they have to pay for. 68 00:03:36,320 --> 00:03:37,800 Speaker 6: Well, what are your expectations on that? 69 00:03:37,880 --> 00:03:41,080 Speaker 5: Because I feel like everyone pays for Amazon Prime and 70 00:03:41,200 --> 00:03:43,320 Speaker 5: Walmart Plus, I know has had a strong roll out 71 00:03:43,320 --> 00:03:46,040 Speaker 5: and has partnerships with different credit cards. Like, what can 72 00:03:46,080 --> 00:03:49,120 Speaker 5: Target really do to get people to pay another annual 73 00:03:49,200 --> 00:03:51,200 Speaker 5: fee when it seems like, at least looking at the 74 00:03:51,240 --> 00:03:54,520 Speaker 5: streaming platforms, they're struggling to maintain users. 75 00:03:55,640 --> 00:03:57,720 Speaker 4: It's a great question, and I think that's one of 76 00:03:57,960 --> 00:03:59,840 Speaker 4: the big questions that we're going to need to see 77 00:04:00,120 --> 00:04:04,360 Speaker 4: they really talk about what differentiates this program because you know, 78 00:04:04,440 --> 00:04:06,960 Speaker 4: forty nine dollars is cheap, but it is an introductory, 79 00:04:07,120 --> 00:04:09,320 Speaker 4: introductory price, and there are a lot of people out 80 00:04:09,320 --> 00:04:13,680 Speaker 4: there that do delivery, and so it's you know, when 81 00:04:13,680 --> 00:04:15,560 Speaker 4: I look at it, I think in order for it 82 00:04:15,600 --> 00:04:17,400 Speaker 4: to be a successful program, they're going to have to 83 00:04:17,560 --> 00:04:21,520 Speaker 4: really do something extraordinary that appeals to people to prompt 84 00:04:21,560 --> 00:04:25,920 Speaker 4: them to pay extra And historically, you know, Target's formula 85 00:04:25,960 --> 00:04:28,600 Speaker 4: for success has never been mimicking others. It's been about 86 00:04:28,680 --> 00:04:31,360 Speaker 4: kind of forging their own path. And I think This 87 00:04:31,440 --> 00:04:33,320 Speaker 4: is an example where it's going to be very very 88 00:04:33,360 --> 00:04:36,280 Speaker 4: important for them to do that, but it's not clear 89 00:04:36,360 --> 00:04:38,919 Speaker 4: yet how that's going to fold, how that's going to 90 00:04:38,960 --> 00:04:40,880 Speaker 4: be you know, realized. 91 00:04:41,200 --> 00:04:45,120 Speaker 5: And we had Brent Shooty of Northwestern Mutual earlier on 92 00:04:45,160 --> 00:04:47,040 Speaker 5: the show talking about a potential recession. 93 00:04:47,120 --> 00:04:50,000 Speaker 6: How does Target play into a recession. 94 00:04:50,080 --> 00:04:52,000 Speaker 5: Are they one of the companies that can weather the 95 00:04:52,000 --> 00:04:54,120 Speaker 5: storm because of their loyalty or how does that play 96 00:04:54,120 --> 00:04:56,600 Speaker 5: out just given their typical demographics. 97 00:04:57,400 --> 00:05:00,600 Speaker 4: Well, if there is a recession, you know, with their 98 00:05:00,640 --> 00:05:06,080 Speaker 4: typical demographics, Target's customer base is extremely loyal but Target's 99 00:05:06,120 --> 00:05:09,679 Speaker 4: you know, product mix does skew two more discretionary items, 100 00:05:10,320 --> 00:05:13,559 Speaker 4: and so whenever there's a pullback and spending, it tends 101 00:05:13,560 --> 00:05:16,159 Speaker 4: to have an outsized impact on Target versus other big 102 00:05:16,200 --> 00:05:19,880 Speaker 4: box retailers. Now, Target has been really focused in the 103 00:05:19,920 --> 00:05:23,720 Speaker 4: last eighteen months, especially on value. They've launched some new 104 00:05:23,720 --> 00:05:26,680 Speaker 4: private label brands that are you know, meant to be 105 00:05:26,760 --> 00:05:29,960 Speaker 4: the cheapest option in every category in the store. So 106 00:05:30,080 --> 00:05:33,159 Speaker 4: they're trying to respond to that. So, you know, they 107 00:05:33,200 --> 00:05:35,960 Speaker 4: have the breadth of category and they have the loyalty 108 00:05:35,960 --> 00:05:39,880 Speaker 4: of consumers that they can weather a recession. But it 109 00:05:39,920 --> 00:05:42,200 Speaker 4: will make it harder for them to get back to 110 00:05:42,279 --> 00:05:45,120 Speaker 4: that top line growth and that expansion of margin that 111 00:05:45,120 --> 00:05:47,600 Speaker 4: they're talking about today if we find ourselves in the 112 00:05:47,640 --> 00:05:48,600 Speaker 4: midst of a recession. 113 00:05:49,200 --> 00:05:52,560 Speaker 2: Hey, Jen, how do I differentiate how much shopper between 114 00:05:53,480 --> 00:05:54,520 Speaker 2: Target and Walmart? 115 00:05:56,240 --> 00:05:59,839 Speaker 4: It's all about perception, right when you think about Walmart 116 00:06:00,200 --> 00:06:03,360 Speaker 4: is usually about lowest price. Walmart is a is an 117 00:06:03,480 --> 00:06:06,240 Speaker 4: d l P. Every every day you get the lowest 118 00:06:06,240 --> 00:06:11,760 Speaker 4: possible price. They've got a very big assortment, and you 119 00:06:11,760 --> 00:06:15,160 Speaker 4: know it's uh and they have, you know, some some 120 00:06:15,279 --> 00:06:18,200 Speaker 4: perks with regards to their Walmart Plus program. When people 121 00:06:18,240 --> 00:06:21,400 Speaker 4: think of Target, they think a little bit more of discovery, 122 00:06:21,760 --> 00:06:24,800 Speaker 4: they think a little bit more about inspiration versus function 123 00:06:24,960 --> 00:06:28,520 Speaker 4: you know, than than functionality. And and that's where you 124 00:06:28,560 --> 00:06:31,000 Speaker 4: really see the divergence between those two retailers. 125 00:06:31,320 --> 00:06:33,000 Speaker 5: I will say, when I go to Target, I always 126 00:06:33,040 --> 00:06:34,640 Speaker 5: end up buying more than I want, where if I 127 00:06:34,680 --> 00:06:35,800 Speaker 5: go to Walmart, I'm kind of. 128 00:06:35,800 --> 00:06:36,359 Speaker 6: In and out. 129 00:06:36,960 --> 00:06:39,640 Speaker 5: Jen, question off of that comparison, I always talk up 130 00:06:39,640 --> 00:06:42,360 Speaker 5: the fact that Walmart owned Sam's Club. When you look 131 00:06:42,400 --> 00:06:46,479 Speaker 5: at the company, makeup, how much does that differentiate Walmart 132 00:06:46,560 --> 00:06:48,800 Speaker 5: versus some of the other peers just given as you mentioned, 133 00:06:49,120 --> 00:06:53,400 Speaker 5: Target potentially partnering with Costco if you're using their membership card. 134 00:06:54,600 --> 00:06:58,520 Speaker 4: Yeah, so you know, obviously there's a there's a great 135 00:06:58,600 --> 00:07:02,279 Speaker 4: benefit to Walmart of having both It's It's US Walmart 136 00:07:02,320 --> 00:07:04,840 Speaker 4: stores as well as the Sam's Club stores because they 137 00:07:04,880 --> 00:07:08,880 Speaker 4: really can capture they can capture spending by by different 138 00:07:08,880 --> 00:07:12,520 Speaker 4: groups of people and for different shopping reasons. Now, when 139 00:07:12,560 --> 00:07:15,000 Speaker 4: I talked about shipped, it's not so much that you 140 00:07:15,240 --> 00:07:18,320 Speaker 4: get the benefits of a Costco membership, for example, with Target, 141 00:07:18,320 --> 00:07:21,320 Speaker 4: it's just more that you can have your delivery person 142 00:07:21,400 --> 00:07:24,720 Speaker 4: pick up purchases from other retailers, which is something that 143 00:07:24,800 --> 00:07:28,840 Speaker 4: isn't embedded in a Walmart program for example. But you 144 00:07:28,920 --> 00:07:31,920 Speaker 4: know that that Target membership fee is going to be 145 00:07:31,960 --> 00:07:34,880 Speaker 4: competing with your Costco membership fee. It'll be you know, 146 00:07:34,920 --> 00:07:38,400 Speaker 4: competing with a bja's membership fee along with all of 147 00:07:38,400 --> 00:07:42,080 Speaker 4: your streaming services and everything else out there. So you know, 148 00:07:42,160 --> 00:07:45,080 Speaker 4: Walmart definitely benefits from the scale of having both the 149 00:07:45,480 --> 00:07:49,880 Speaker 4: Core stores and Sam's Club. But you know, it is 150 00:07:49,920 --> 00:07:51,680 Speaker 4: a little bit of a different business model than what 151 00:07:51,720 --> 00:07:53,000 Speaker 4: we're talking about with Target. 152 00:07:53,480 --> 00:07:55,320 Speaker 2: Just for what's worth I put up the comp function 153 00:07:55,440 --> 00:07:57,880 Speaker 2: c o MP for the last five years S and 154 00:07:57,880 --> 00:08:00,440 Speaker 2: P five hundreds compound and annual growth rate about fourteen 155 00:08:00,480 --> 00:08:02,760 Speaker 2: point six percent, So we all did pretty well there. 156 00:08:02,920 --> 00:08:06,240 Speaker 2: Walmart's right spot online there fourteen point eight percent. Target 157 00:08:06,240 --> 00:08:08,680 Speaker 2: a little bit better, just under twenty percent, So Target 158 00:08:08,720 --> 00:08:10,120 Speaker 2: out performing Walmart over. 159 00:08:10,040 --> 00:08:11,840 Speaker 3: The last five years a little bit. 160 00:08:11,920 --> 00:08:14,400 Speaker 2: Jen Bartashas, thanks so much for joining us. Jenny is 161 00:08:14,400 --> 00:08:16,920 Speaker 2: a senior retail annaly say. She has a very long title, 162 00:08:16,920 --> 00:08:18,880 Speaker 2: but I just call her senior retail analys. I'm going 163 00:08:18,880 --> 00:08:22,800 Speaker 2: with that. Bloomberg Intelligence joining us on zoom from the 164 00:08:23,120 --> 00:08:27,800 Speaker 2: BI headquarters in Princeton, New Jersey's talking about Tarja had 165 00:08:27,840 --> 00:08:31,120 Speaker 2: some some good numbers, got their inventory kind of in 166 00:08:31,240 --> 00:08:33,640 Speaker 2: line here, and the stocks up about her eleven percent today, 167 00:08:33,720 --> 00:08:35,200 Speaker 2: so a good move there. 168 00:08:36,800 --> 00:08:40,679 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 169 00:08:40,760 --> 00:08:44,280 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 170 00:08:44,320 --> 00:08:47,480 Speaker 1: Auto with the Bloomberg Business. You can also listen live 171 00:08:47,559 --> 00:08:50,720 Speaker 1: on Amazon Alexa from our flagship New York station. Just 172 00:08:50,800 --> 00:08:53,440 Speaker 1: say Alexa playing Bloomberg eleven thirty. 173 00:08:54,200 --> 00:08:55,840 Speaker 3: It's my data come in today. 174 00:08:56,280 --> 00:08:59,080 Speaker 2: Services side a little bit weaker than expect although the 175 00:08:59,120 --> 00:09:01,199 Speaker 2: new orders will hire. Let's break it down with Anthony 176 00:09:01,320 --> 00:09:06,720 Speaker 2: Nievi's Chair of Ism Services Committee, joining us via zoom 177 00:09:06,760 --> 00:09:09,240 Speaker 2: from Los Angeles. So, Anthony, I'm looking at the is 178 00:09:09,440 --> 00:09:12,160 Speaker 2: some services data come in a little bit lower than 179 00:09:12,400 --> 00:09:14,400 Speaker 2: last period, a little bit below expectations. 180 00:09:14,520 --> 00:09:15,360 Speaker 3: What are your takeaways? 181 00:09:17,600 --> 00:09:19,880 Speaker 7: Well, when you look at the composite index at fifty 182 00:09:19,920 --> 00:09:23,320 Speaker 7: two point six, it's actually up slightly from the twelve 183 00:09:23,320 --> 00:09:26,680 Speaker 7: month running total of fifty two point four. And what's 184 00:09:26,720 --> 00:09:30,320 Speaker 7: actually dragging down the composite index is the contraction we're 185 00:09:30,360 --> 00:09:34,559 Speaker 7: experiencing from the employment index as well as supplier deliveries, 186 00:09:35,080 --> 00:09:39,719 Speaker 7: and that's attributed to deliveries. We have improved capacity, some 187 00:09:39,920 --> 00:09:44,680 Speaker 7: logistical challenges, but overall less backlog than what we've seen 188 00:09:44,720 --> 00:09:48,080 Speaker 7: in the past. Just improvements all across the supply chain. 189 00:09:48,600 --> 00:09:51,240 Speaker 7: And the employment continues to be a mixed bag, with 190 00:09:51,400 --> 00:09:55,959 Speaker 7: companies managing that variable expense as well as having difficulty 191 00:09:56,120 --> 00:09:58,560 Speaker 7: in backfilling some of the open positions that have been 192 00:09:59,440 --> 00:10:02,760 Speaker 7: within their specific companies. Respective companies, and. 193 00:10:02,679 --> 00:10:03,680 Speaker 6: Anthony, I'm looking at it. 194 00:10:03,760 --> 00:10:07,319 Speaker 5: Some demand measures those strengthening, So gauge of new orders 195 00:10:07,360 --> 00:10:10,840 Speaker 5: placed with service providers increasing to fifty six point one 196 00:10:11,000 --> 00:10:14,200 Speaker 5: that's the highest since August. When you look at that 197 00:10:14,360 --> 00:10:16,800 Speaker 5: data point in some of the trends underlying it, What 198 00:10:16,840 --> 00:10:19,680 Speaker 5: can we make from demanding those orders being placed with 199 00:10:19,679 --> 00:10:20,480 Speaker 5: service providers. 200 00:10:22,400 --> 00:10:24,280 Speaker 7: Yes, when you look at new orders and it tells 201 00:10:24,360 --> 00:10:27,120 Speaker 7: us what's in the pipeline. The one thing we have 202 00:10:27,240 --> 00:10:30,120 Speaker 7: to keep in mind is that the cycle time for 203 00:10:30,360 --> 00:10:33,800 Speaker 7: orders on services is it's less than what you would 204 00:10:33,800 --> 00:10:36,040 Speaker 7: see on the manufacturing time just from the nature of 205 00:10:36,080 --> 00:10:39,600 Speaker 7: the different businesses that make up the industries and the 206 00:10:39,600 --> 00:10:43,160 Speaker 7: industries that comprise the sector. But overall it does tell 207 00:10:43,240 --> 00:10:46,200 Speaker 7: us going forward. It is a leading indicator that we'll 208 00:10:46,200 --> 00:10:49,480 Speaker 7: see this continued trend. We've seen this composite index stay 209 00:10:49,520 --> 00:10:52,559 Speaker 7: in the middle to low fifties over the last twelve months, 210 00:10:53,080 --> 00:10:56,080 Speaker 7: and it's just that sustainable levels and we've not seen 211 00:10:56,160 --> 00:10:59,640 Speaker 7: any head fakes or anything that might distort the picture 212 00:10:59,679 --> 00:11:00,240 Speaker 7: going far forward. 213 00:11:02,200 --> 00:11:06,360 Speaker 2: So, Anthony, we know services are critical to this US economy, 214 00:11:06,440 --> 00:11:09,520 Speaker 2: probably approximately seventy percent of the US economy. Here are 215 00:11:09,559 --> 00:11:14,199 Speaker 2: there regional differences that you see in your data. 216 00:11:14,320 --> 00:11:17,680 Speaker 7: We don't measure it regionally, but we can tell by 217 00:11:17,720 --> 00:11:21,520 Speaker 7: the companies that comprise our survey committee. So we can 218 00:11:21,520 --> 00:11:25,000 Speaker 7: see the different areas, and we know that certain things 219 00:11:25,080 --> 00:11:29,120 Speaker 7: will impact demand as well as the throughput, and it's 220 00:11:29,160 --> 00:11:32,840 Speaker 7: based on the geographic location and the effects of weather 221 00:11:33,600 --> 00:11:37,720 Speaker 7: and different variables such as that. But overall, the way 222 00:11:37,760 --> 00:11:41,920 Speaker 7: that we comprise this survey, it's based on contribution to 223 00:11:42,000 --> 00:11:46,439 Speaker 7: GDP percentage wise, and it's small, medium, and large companies 224 00:11:46,520 --> 00:11:49,679 Speaker 7: across all of the eighteen industries, so we really mirror 225 00:11:49,720 --> 00:11:53,839 Speaker 7: what we see on the trailing GDP figures, so it 226 00:11:54,240 --> 00:11:56,920 Speaker 7: maps closely over a time How about. 227 00:11:56,679 --> 00:12:00,360 Speaker 2: That services employment data. The employment data came in at 228 00:12:00,400 --> 00:12:03,640 Speaker 2: forty eight on the index. The consensus was fifty one 229 00:12:03,679 --> 00:12:07,880 Speaker 2: point four. Last period was fifty point five, so noticeably lower. 230 00:12:08,080 --> 00:12:08,680 Speaker 3: What do you make of that? 231 00:12:10,600 --> 00:12:12,920 Speaker 7: Yeah, I look at it, and I see that we 232 00:12:13,000 --> 00:12:16,160 Speaker 7: had decent number in November. It pulled back in December. 233 00:12:16,200 --> 00:12:18,240 Speaker 7: To me, that was more about cycle time and the 234 00:12:18,240 --> 00:12:22,079 Speaker 7: holiday season and things kind of slowed down traditionally there historically, 235 00:12:22,640 --> 00:12:25,000 Speaker 7: and we had a nice little pop up in January. 236 00:12:26,040 --> 00:12:29,240 Speaker 7: Now it looks like it's a combination of wariness. And 237 00:12:29,280 --> 00:12:31,520 Speaker 7: I'm getting this from responding comments. They're saying they're a 238 00:12:31,520 --> 00:12:34,000 Speaker 7: bit wary as to what's going on, and so they're 239 00:12:34,040 --> 00:12:36,560 Speaker 7: managing that expense, and others are saying they're just having 240 00:12:36,600 --> 00:12:40,679 Speaker 7: difficulty finding applicable workers to their open positions. 241 00:12:41,080 --> 00:12:44,040 Speaker 5: And the individual data points are important, but the underlying 242 00:12:44,080 --> 00:12:46,840 Speaker 5: trends are really what kind of drive expectations? What are 243 00:12:46,920 --> 00:12:49,079 Speaker 5: you keeping an eye on, and what trends stand out 244 00:12:49,120 --> 00:12:52,160 Speaker 5: to you when you put this February data point batch 245 00:12:52,160 --> 00:12:54,360 Speaker 5: of February data points into context. 246 00:12:55,520 --> 00:12:58,760 Speaker 7: The key things are and looking at the four indexes 247 00:12:58,800 --> 00:13:01,559 Speaker 7: that make up the composite, and we know that employment 248 00:13:01,679 --> 00:13:04,920 Speaker 7: also drives this sector. But I also look at some 249 00:13:04,960 --> 00:13:09,480 Speaker 7: of the specific industries the top four as well as 250 00:13:09,640 --> 00:13:12,920 Speaker 7: the wholesale trade because this sector is so reliant on 251 00:13:13,040 --> 00:13:18,640 Speaker 7: the intermodal as well as the distribution channel, so it 252 00:13:18,679 --> 00:13:20,880 Speaker 7: tells me what kind of activity. So looking at the 253 00:13:21,000 --> 00:13:24,080 Speaker 7: leading indicator of new orders and everything else, And to 254 00:13:24,120 --> 00:13:27,280 Speaker 7: your point earlier when you set out the demand, the 255 00:13:27,320 --> 00:13:30,600 Speaker 7: demand is still there and we're still seeing this sustainable 256 00:13:30,679 --> 00:13:33,360 Speaker 7: growth moving forward here for this sector. 257 00:13:33,840 --> 00:13:36,000 Speaker 2: All right, Anthony, thanks so much for joining us. Appreciate 258 00:13:36,000 --> 00:13:38,800 Speaker 2: getting your thoughts here. Anthony Niavis he's the chair for 259 00:13:38,960 --> 00:13:43,240 Speaker 2: im Services Business Committee, joining us from Los Angeles via zoom. 260 00:13:43,280 --> 00:13:46,959 Speaker 2: And again, the ISM Services index came in at fifty 261 00:13:47,000 --> 00:13:50,400 Speaker 2: two point six and put that into context. The consensus 262 00:13:50,520 --> 00:13:53,559 Speaker 2: was fifty three, so a little bit below consensus, and 263 00:13:53,640 --> 00:13:56,560 Speaker 2: it was about fifty three point four last period, so 264 00:13:56,679 --> 00:13:59,480 Speaker 2: below last period. Although it was Anthony, it's pointed out 265 00:13:59,480 --> 00:14:02,800 Speaker 2: it's higher than the twelve month trailing average of fifty 266 00:14:02,800 --> 00:14:06,120 Speaker 2: two point four, so staring some consistency of nothing else. 267 00:14:06,160 --> 00:14:09,600 Speaker 2: And again the key point, it's above fifty, showing that 268 00:14:09,640 --> 00:14:13,280 Speaker 2: the services economy is growing. So so breaking down the 269 00:14:13,320 --> 00:14:13,760 Speaker 2: news there. 270 00:14:16,200 --> 00:14:20,080 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 271 00:14:20,160 --> 00:14:22,840 Speaker 1: weekdays at ten am Eastern on fo Car Playing and 272 00:14:22,960 --> 00:14:25,840 Speaker 1: broyd Otto with the Bloomberg Business app. Listen on demand 273 00:14:25,920 --> 00:14:29,520 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 274 00:14:30,800 --> 00:14:33,400 Speaker 2: I'm gonna talk about global shipping it's impact on the economy, 275 00:14:33,440 --> 00:14:35,040 Speaker 2: and man, we've got a good guest for that. Chris 276 00:14:35,080 --> 00:14:38,080 Speaker 2: Williamson JOINANTCE is chief business Economists for S and P 277 00:14:38,200 --> 00:14:41,280 Speaker 2: Global Market Intelligence, based in London, but we got them 278 00:14:41,280 --> 00:14:41,960 Speaker 2: here in the States. 279 00:14:43,080 --> 00:14:46,560 Speaker 3: Chris, what brings you to the USA? You were at 280 00:14:46,600 --> 00:14:47,240 Speaker 3: a conference, right? 281 00:14:47,320 --> 00:14:47,600 Speaker 6: We did? 282 00:14:47,720 --> 00:14:48,560 Speaker 1: Yeah down in La. 283 00:14:48,920 --> 00:14:52,560 Speaker 3: The CPM we say out in La, out in La. 284 00:14:53,040 --> 00:14:53,800 Speaker 3: That's how you do it. 285 00:14:54,040 --> 00:14:58,320 Speaker 8: Sure foreigner in this land. Yeah yeah, out in La 286 00:14:58,360 --> 00:15:01,320 Speaker 8: the GM conference, the big annual shipping conference that the 287 00:15:01,400 --> 00:15:06,080 Speaker 8: General Commerce which smones is holding. So fantastic opportunity to 288 00:15:06,160 --> 00:15:09,520 Speaker 8: speak to the shippers and the shipping companies about what's 289 00:15:09,560 --> 00:15:10,720 Speaker 8: happening right now in the world. 290 00:15:10,760 --> 00:15:11,280 Speaker 1: In the Red Sea. 291 00:15:11,560 --> 00:15:13,520 Speaker 2: Boy, let's start right there, because I mean, Bailey and 292 00:15:13,560 --> 00:15:15,200 Speaker 2: I have been talking about, you know, just over the 293 00:15:15,360 --> 00:15:17,640 Speaker 2: less several months, that what's happening in the Red Sea 294 00:15:17,640 --> 00:15:20,120 Speaker 2: and it's impact on shipping on the Bloomberg Terminal. We 295 00:15:20,160 --> 00:15:23,080 Speaker 2: have a function called map go map and you can 296 00:15:23,280 --> 00:15:25,280 Speaker 2: link it to shoe where all the container ships are 297 00:15:25,320 --> 00:15:26,840 Speaker 2: and oil tankers are around the world. 298 00:15:27,160 --> 00:15:28,920 Speaker 3: I could take where they're not. They're not in the 299 00:15:28,960 --> 00:15:31,800 Speaker 3: Red Sea, they're not in the Zeez Canal. Where are 300 00:15:31,840 --> 00:15:35,280 Speaker 3: we with that whole situation? How's that impacting the economy? 301 00:15:35,760 --> 00:15:38,440 Speaker 8: Well, it seems that a lot of the IMPACT's already gone. 302 00:15:38,480 --> 00:15:41,840 Speaker 8: It's been and gone, So late December January was the 303 00:15:42,400 --> 00:15:44,880 Speaker 8: peak impact really, because what you've got to remember here 304 00:15:45,040 --> 00:15:48,440 Speaker 8: is there's no capacity been taken out of global shipping. 305 00:15:49,240 --> 00:15:50,280 Speaker 1: It just had a delay. 306 00:15:50,640 --> 00:15:52,400 Speaker 3: So it's one One. 307 00:15:52,640 --> 00:15:57,160 Speaker 8: Shipping company told me that their clients when all this hit, 308 00:15:57,480 --> 00:16:02,080 Speaker 8: they missed one week's delivery. Everything was re routed. But 309 00:16:02,200 --> 00:16:04,720 Speaker 8: now they're getting deliveries every week again. So yeah, it's 310 00:16:04,760 --> 00:16:07,680 Speaker 8: costing a little bit more, so it slight inflationary impact, 311 00:16:07,960 --> 00:16:10,280 Speaker 8: but it's not huge. And the impact is it's kind 312 00:16:10,320 --> 00:16:12,080 Speaker 8: of been and gone, it seems. And we saw this 313 00:16:12,240 --> 00:16:15,960 Speaker 8: with our the Global Manufacturing Peermise Supplies Delivery Times Index. 314 00:16:16,040 --> 00:16:18,400 Speaker 8: Now that was an index that joined the pandemic, was 315 00:16:18,480 --> 00:16:22,560 Speaker 8: one of the real worrying signals. Its spiked higher unprecedented levels, 316 00:16:23,000 --> 00:16:25,880 Speaker 8: pushing prices higher. So that rose again in January for 317 00:16:25,920 --> 00:16:29,120 Speaker 8: the first time in the year, signaling longer shipping times, 318 00:16:29,720 --> 00:16:32,280 Speaker 8: but then it fell back in January again, so another 319 00:16:32,320 --> 00:16:34,800 Speaker 8: sign that this is kind of it's all over, really yep. 320 00:16:35,160 --> 00:16:37,720 Speaker 5: And working through that, were there regions that were more 321 00:16:37,760 --> 00:16:41,440 Speaker 5: impacted than others, like in terms of US, Europe. 322 00:16:41,320 --> 00:16:44,680 Speaker 8: UK indeed indeed, yeah, yeah, So when I say it's 323 00:16:44,680 --> 00:16:46,680 Speaker 8: all over, it's all over on a global basis, but 324 00:16:46,760 --> 00:16:51,160 Speaker 8: there are some impacts still. Obviously in Europe. The UK's 325 00:16:51,560 --> 00:16:54,280 Speaker 8: is by far the biggest hit. It's an island, right, 326 00:16:54,400 --> 00:16:57,360 Speaker 8: so there's lots of research from the pandemic showing islands 327 00:16:57,760 --> 00:17:00,800 Speaker 8: have always been bigger hit by this sort of So 328 00:17:01,000 --> 00:17:03,520 Speaker 8: the UK has got quite severe delays and that's feeding 329 00:17:03,600 --> 00:17:06,639 Speaker 8: through to quite a bigger price spike in goods in 330 00:17:06,720 --> 00:17:10,480 Speaker 8: the UK and also the Mediterranean countries because they're they're 331 00:17:10,520 --> 00:17:13,119 Speaker 8: fed less by land than the likes of Germany for example. 332 00:17:13,320 --> 00:17:15,800 Speaker 5: Are there goods or industries that are more impacted in 333 00:17:15,920 --> 00:17:18,000 Speaker 5: terms of looking at the UK, like, are their products 334 00:17:18,080 --> 00:17:20,680 Speaker 5: that have faced longer delays or have had kind of 335 00:17:20,760 --> 00:17:22,800 Speaker 5: greater hurdles or greater inflationary impact. 336 00:17:23,200 --> 00:17:27,480 Speaker 8: Yeah, there is, but again it's it fits the sort 337 00:17:27,480 --> 00:17:31,120 Speaker 8: of narrative of what you normally ship. So these are 338 00:17:31,200 --> 00:17:33,880 Speaker 8: you know, the big expensive goods to move, so they're 339 00:17:33,920 --> 00:17:36,200 Speaker 8: not moved by air, they're moved by ship. It's the lumber, 340 00:17:36,240 --> 00:17:39,240 Speaker 8: it's the construction materials. There's lots of big white goods 341 00:17:39,320 --> 00:17:41,399 Speaker 8: and so forth. So those are the sectors that have 342 00:17:41,480 --> 00:17:44,440 Speaker 8: been hard hit. But again I would urge some caution 343 00:17:44,560 --> 00:17:46,679 Speaker 8: into reading too much into this because while the UK 344 00:17:46,840 --> 00:17:49,600 Speaker 8: has been disproportionately hit and there was quite a significant 345 00:17:49,680 --> 00:17:52,080 Speaker 8: lengthening of delivery times in the UK and in the 346 00:17:52,280 --> 00:17:55,680 Speaker 8: likes of Italy and Greece, these are you know, it's 347 00:17:55,840 --> 00:17:57,920 Speaker 8: likely to be short lived, it should fade. 348 00:17:58,160 --> 00:18:02,000 Speaker 2: So what you're with the shut industry, what are they 349 00:18:02,080 --> 00:18:04,360 Speaker 2: seeing in terms of the global economy, because there's a rule, 350 00:18:04,640 --> 00:18:06,080 Speaker 2: as you well know, there's a lot of folks that 351 00:18:06,080 --> 00:18:09,359 Speaker 2: are just unsure where this economy is going on a 352 00:18:09,400 --> 00:18:09,960 Speaker 2: global scale. 353 00:18:10,000 --> 00:18:11,440 Speaker 3: What are they seeing just from their perspective. 354 00:18:11,640 --> 00:18:13,560 Speaker 8: Yeah, Well, it's interesting because at this conference is where 355 00:18:13,560 --> 00:18:15,840 Speaker 8: a lot of people do their deals, fixing the prices 356 00:18:15,920 --> 00:18:18,920 Speaker 8: of shipping for the next year. So everyone seems to 357 00:18:18,920 --> 00:18:21,200 Speaker 8: fix their rates in the next month or so. And 358 00:18:21,320 --> 00:18:24,280 Speaker 8: the last two years it's very much been a sort 359 00:18:24,280 --> 00:18:28,080 Speaker 8: of buyer's market that we've had low shipping volumes because 360 00:18:28,080 --> 00:18:31,359 Speaker 8: of the manufacturing malaise we've had. We've had two years 361 00:18:31,480 --> 00:18:34,679 Speaker 8: now of virtually no growth in global manufacturing, we had 362 00:18:34,720 --> 00:18:37,960 Speaker 8: two years of falling exports. So this has led to 363 00:18:38,080 --> 00:18:41,600 Speaker 8: some really quite soft shipping rates. But this year seems 364 00:18:41,640 --> 00:18:43,439 Speaker 8: to be the first time where things are coming more 365 00:18:43,480 --> 00:18:47,800 Speaker 8: into balance, So you're seeing some hardening of those shipping rates, 366 00:18:47,880 --> 00:18:52,200 Speaker 8: and the consumer goods companies in particular, I think bracing 367 00:18:52,280 --> 00:18:55,560 Speaker 8: themselves for some tough negotiations this year. 368 00:18:56,080 --> 00:18:59,200 Speaker 5: And was that just a dumb question in person before? 369 00:18:59,320 --> 00:19:01,399 Speaker 5: Like in terms of of getting back out of COVID. 370 00:19:01,440 --> 00:19:03,560 Speaker 5: Were you in l A last year, No. 371 00:19:03,680 --> 00:19:04,120 Speaker 1: I wasn't. 372 00:19:04,200 --> 00:19:07,200 Speaker 8: No, No, that's this is the first time that I've 373 00:19:07,280 --> 00:19:10,760 Speaker 8: been there, so no, but it's yeah, fascinating conference. 374 00:19:10,840 --> 00:19:12,960 Speaker 2: What are they saying about China because that's also in 375 00:19:13,080 --> 00:19:17,120 Speaker 2: the news again, just people really concerned about that economy 376 00:19:17,240 --> 00:19:20,040 Speaker 2: and sort of the shippers. I mean, obviously, you know, 377 00:19:20,119 --> 00:19:22,399 Speaker 2: in Gene Succora from the Port of Los Angeles, we 378 00:19:22,440 --> 00:19:24,200 Speaker 2: have as a guest all the time, and he's a 379 00:19:24,240 --> 00:19:26,840 Speaker 2: good read for us on ship you know, shipping and 380 00:19:26,960 --> 00:19:28,920 Speaker 2: volume and experts out of China to the rest of 381 00:19:28,960 --> 00:19:29,280 Speaker 2: the world. 382 00:19:29,359 --> 00:19:31,320 Speaker 3: What do some of the shippers say about. 383 00:19:31,160 --> 00:19:37,040 Speaker 8: China, Well, in the most broadest context, really you when 384 00:19:37,080 --> 00:19:40,320 Speaker 8: you talk about China, very soon the words come to 385 00:19:40,880 --> 00:19:44,639 Speaker 8: diversification and resilience in the same conversation, right, So the 386 00:19:45,240 --> 00:19:49,800 Speaker 8: focus is very much on diversify your supply chains to 387 00:19:50,359 --> 00:19:54,280 Speaker 8: ensure that you maintain a constant supply and the ability 388 00:19:54,400 --> 00:19:59,439 Speaker 8: to switch suppliers quickly if one country or one shipping 389 00:19:59,520 --> 00:20:04,000 Speaker 8: route becomes a problem, then you've got other options where 390 00:20:04,040 --> 00:20:09,000 Speaker 8: you've already got contracts and relationships in place. And obviously 391 00:20:09,160 --> 00:20:13,000 Speaker 8: China is really at the forefront of that diversification away 392 00:20:13,040 --> 00:20:18,000 Speaker 8: from China towards especially the other Asian economies, and closer 393 00:20:18,040 --> 00:20:19,199 Speaker 8: to home towards Mexico. 394 00:20:19,520 --> 00:20:21,639 Speaker 5: So I was going to ask just in terms of 395 00:20:21,800 --> 00:20:23,639 Speaker 5: diversification away, it does seem like a lot of that 396 00:20:23,680 --> 00:20:26,680 Speaker 5: would be in South and Central America, which, in turn, 397 00:20:27,040 --> 00:20:29,240 Speaker 5: if an event like the Red Sea, everything that's going 398 00:20:29,280 --> 00:20:30,720 Speaker 5: on with the Red Sea, you would be able to kind. 399 00:20:30,600 --> 00:20:31,200 Speaker 6: Of bypass that. 400 00:20:32,040 --> 00:20:32,240 Speaker 1: Yeah. 401 00:20:32,359 --> 00:20:36,239 Speaker 8: Absolutely, So you know, being caught once is one thing, 402 00:20:36,320 --> 00:20:38,000 Speaker 8: but being caught twice is another. 403 00:20:38,119 --> 00:20:38,280 Speaker 4: You know. 404 00:20:38,480 --> 00:20:40,360 Speaker 8: So we had the pandemic and now with this Red Sea, 405 00:20:40,920 --> 00:20:43,760 Speaker 8: so you know, you really don't want to be living 406 00:20:43,800 --> 00:20:47,480 Speaker 8: your life like this going forward. And there's the whole 407 00:20:47,480 --> 00:20:52,120 Speaker 8: area of protectionism and climate change which add additional risks 408 00:20:52,200 --> 00:20:56,680 Speaker 8: to shipping and supply chain. So diversification is and resilience 409 00:20:56,800 --> 00:20:57,200 Speaker 8: is everything. 410 00:20:57,240 --> 00:21:00,440 Speaker 2: All Right, We had some S ANDB global PMI data today. 411 00:21:00,520 --> 00:21:03,440 Speaker 2: This came in better than expected, better than last month. 412 00:21:04,680 --> 00:21:05,639 Speaker 2: What should we take away from that? 413 00:21:06,880 --> 00:21:11,320 Speaker 8: Yeah, surprising resilience in the US economy, right, and the 414 00:21:11,359 --> 00:21:14,320 Speaker 8: em data that come out as well, I've supported that. 415 00:21:16,160 --> 00:21:21,440 Speaker 8: It looks like we're doing well. If you drill down 416 00:21:21,480 --> 00:21:24,479 Speaker 8: into the data there's encouraging signs of this being broader 417 00:21:24,520 --> 00:21:28,080 Speaker 8: based as well. Consumer spending seems to be reviving again 418 00:21:28,160 --> 00:21:31,959 Speaker 8: on goods and services. So to maybe backtrack a little bit, 419 00:21:31,960 --> 00:21:35,159 Speaker 8: if you go back a few months, this strength that 420 00:21:35,280 --> 00:21:38,360 Speaker 8: we've had in the global economy and the US economy 421 00:21:38,800 --> 00:21:42,119 Speaker 8: driven by financial services, right, this was the big acceleration 422 00:21:42,280 --> 00:21:46,399 Speaker 8: we saw, and this is all predicated on lower interest 423 00:21:46,480 --> 00:21:48,800 Speaker 8: rates in twenty twenty four. Remember back in December, they 424 00:21:48,840 --> 00:21:51,160 Speaker 8: were pricing in one hundred and sixty paces points and cuts, 425 00:21:52,200 --> 00:21:55,560 Speaker 8: and that spurred this big strength demand for new mortgage 426 00:21:55,600 --> 00:21:57,760 Speaker 8: years and so forth. Our fastest growing sector that we 427 00:21:57,800 --> 00:22:00,240 Speaker 8: had with our global pmis in January is realist state, 428 00:22:00,280 --> 00:22:04,200 Speaker 8: followed by insurance, then banking, these sectors propelling it. And 429 00:22:04,480 --> 00:22:08,480 Speaker 8: as those financial conditions loosened, you know, the stocking disease 430 00:22:08,520 --> 00:22:11,560 Speaker 8: that we had rising, all that wealth effect coming through 431 00:22:12,040 --> 00:22:15,960 Speaker 8: is feeding through to consumers now. And interestingly, in a 432 00:22:16,040 --> 00:22:19,520 Speaker 8: difference to early twenty twenty three, when consumer spending was 433 00:22:19,600 --> 00:22:23,800 Speaker 8: largely focused on services, as economies reopened, we all went 434 00:22:23,840 --> 00:22:26,840 Speaker 8: and enjoyed more holidays and recreation. This time it's more 435 00:22:26,920 --> 00:22:31,440 Speaker 8: balanced goods and services showing stronger growth. So this is 436 00:22:31,480 --> 00:22:36,640 Speaker 8: an encouraging picture. Manufacturers are doing less inventory reduction now, 437 00:22:37,000 --> 00:22:40,600 Speaker 8: in fact even switching around to restocking, so that's supporting 438 00:22:40,640 --> 00:22:45,160 Speaker 8: this whole picture as well. And consumers see some real 439 00:22:45,240 --> 00:22:48,160 Speaker 8: wage growth coming through as well as the prospect's lower 440 00:22:48,200 --> 00:22:51,160 Speaker 8: interest rates. But it's the latter that is the concern 441 00:22:51,280 --> 00:22:54,760 Speaker 8: because it's all predicated on those lower rates. And if 442 00:22:54,800 --> 00:22:55,520 Speaker 8: we don't get them, what do. 443 00:22:55,520 --> 00:22:57,280 Speaker 3: You think do you think the Fed's is going to 444 00:22:57,359 --> 00:22:57,800 Speaker 3: do this year? 445 00:22:58,960 --> 00:23:01,840 Speaker 8: Well, our base time because it's similar to everyone else, 446 00:23:01,880 --> 00:23:04,480 Speaker 8: which is the first cut in May now with with 447 00:23:05,760 --> 00:23:08,560 Speaker 8: maybe three four four cuts for the rest of the year, 448 00:23:08,920 --> 00:23:11,200 Speaker 8: but as these days to come in, that's starting to 449 00:23:11,240 --> 00:23:13,560 Speaker 8: look increasingly challenging to see that, right. 450 00:23:13,680 --> 00:23:17,320 Speaker 5: We're function my favorite, Paul, right now, first cut with 451 00:23:17,520 --> 00:23:19,920 Speaker 5: a real certainty is June, maybe July. 452 00:23:20,600 --> 00:23:22,000 Speaker 6: So we saw that really. 453 00:23:21,880 --> 00:23:24,280 Speaker 5: Pushed back from the beginning of the year where people 454 00:23:24,320 --> 00:23:26,600 Speaker 5: were pound of the table for March as much to 455 00:23:26,720 --> 00:23:27,320 Speaker 5: six this year. 456 00:23:27,400 --> 00:23:28,959 Speaker 2: All right, Chris, thanks so much for joining us, Really 457 00:23:29,000 --> 00:23:33,000 Speaker 2: appreciate it. Chris Williamson, chief business economist at SNP Global 458 00:23:33,080 --> 00:23:36,359 Speaker 2: Market Intelligence, joining us here in our Bloomberg Interactive Broker 459 00:23:36,440 --> 00:23:39,720 Speaker 2: Studio on his way back from La to New York 460 00:23:39,760 --> 00:23:40,600 Speaker 2: and then off to London. 461 00:23:40,640 --> 00:23:41,480 Speaker 3: Right, is that how we're going? 462 00:23:41,720 --> 00:23:42,080 Speaker 8: Indeed? 463 00:23:42,200 --> 00:23:44,040 Speaker 3: Thanks very good? Now are you going in the right direction? 464 00:23:44,160 --> 00:23:44,320 Speaker 9: There? 465 00:23:45,840 --> 00:23:49,720 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 466 00:23:49,840 --> 00:23:53,320 Speaker 1: weekdays at ten am Eastern on applecard Play and androyd 467 00:23:53,359 --> 00:23:56,520 Speaker 1: Otto with the Bloomberg Business. You can also listen live 468 00:23:56,640 --> 00:23:59,720 Speaker 1: on Amazon Alexa from our flagship New York station. Just 469 00:23:59,800 --> 00:24:02,080 Speaker 1: say hey Alexa playing Bloomberg eleven. 470 00:24:03,520 --> 00:24:04,600 Speaker 3: Look at this market here. 471 00:24:04,880 --> 00:24:07,600 Speaker 2: You know what we were looking for towards the November 472 00:24:07,640 --> 00:24:11,399 Speaker 2: December a little bit improvement and breadth and bailey. We 473 00:24:11,480 --> 00:24:13,440 Speaker 2: saw some of the small cap names, you know, start 474 00:24:13,480 --> 00:24:17,200 Speaker 2: to perform better. The SMP equal weighted outperforming closing the 475 00:24:17,280 --> 00:24:19,960 Speaker 2: gap with the SPX a little bit not so much 476 00:24:20,040 --> 00:24:21,760 Speaker 2: this year, kind of going back to the big guys, 477 00:24:21,880 --> 00:24:22,560 Speaker 2: kind of leading the. 478 00:24:22,560 --> 00:24:25,560 Speaker 5: Parade, driving the market, especially in a day like today. 479 00:24:25,720 --> 00:24:29,560 Speaker 5: SMP down on zero point nine percent. Laggard's Microsoft, Apple 480 00:24:29,640 --> 00:24:32,880 Speaker 5: and Video, Amazon, TESPLA, your main stocks that have really 481 00:24:32,960 --> 00:24:34,399 Speaker 5: driven most of those games so far. 482 00:24:34,480 --> 00:24:36,480 Speaker 6: You're to date Mac seven, Fab five, however. 483 00:24:36,280 --> 00:24:38,280 Speaker 3: You want to call it exactly. Brett Shrudey joins a. 484 00:24:38,320 --> 00:24:42,159 Speaker 2: He's a chief investment Officer Northwestern Mutual Wealth Management Company, 485 00:24:42,240 --> 00:24:46,720 Speaker 2: joining us from that zoom thing from Milwaukee again pound 486 00:24:46,800 --> 00:24:49,600 Speaker 2: for pound, Milwaukee, I think is some of the best 487 00:24:49,680 --> 00:24:51,080 Speaker 2: portfolio managers anywhere. 488 00:24:51,920 --> 00:24:53,800 Speaker 3: Brent, What do you make of this market here? 489 00:24:53,880 --> 00:24:56,639 Speaker 2: Are you one of those folks that are concerned that 490 00:24:56,720 --> 00:25:00,159 Speaker 2: maybe we don't have better breadth, better representation and the 491 00:25:00,240 --> 00:25:03,000 Speaker 2: move higher in this market that it's kind of pretty narrow. 492 00:25:02,800 --> 00:25:03,200 Speaker 3: At the top. 493 00:25:04,480 --> 00:25:06,360 Speaker 9: I am concerned about that. You've had a small group 494 00:25:06,400 --> 00:25:09,000 Speaker 9: of companies actually pushing the market higher. It reminds me 495 00:25:09,040 --> 00:25:10,600 Speaker 9: a lot of the late nineteen nineties where you were 496 00:25:10,680 --> 00:25:12,919 Speaker 9: later in an economic cycle like I think you are today, 497 00:25:13,320 --> 00:25:15,560 Speaker 9: and a small group of companies drove the market higher, 498 00:25:15,920 --> 00:25:19,639 Speaker 9: which eventually, as we all know, kind of unfolded in 499 00:25:19,720 --> 00:25:21,560 Speaker 9: a way after a recession where they didn't do so 500 00:25:21,640 --> 00:25:23,919 Speaker 9: well over the next time period in the next cycle. 501 00:25:24,320 --> 00:25:26,360 Speaker 9: But I think there's still opportunities in those other parts 502 00:25:26,359 --> 00:25:28,320 Speaker 9: of the market like there were that And so I 503 00:25:28,359 --> 00:25:30,080 Speaker 9: think about those names that you mentioned. I think about 504 00:25:30,080 --> 00:25:32,240 Speaker 9: small cap stocks, I think about mid cap stocks, I 505 00:25:32,280 --> 00:25:35,960 Speaker 9: think about value stocks. Those stocks still trade at fairly 506 00:25:36,040 --> 00:25:39,959 Speaker 9: low historical level levels, especially relative to their large cap friends, 507 00:25:40,400 --> 00:25:42,280 Speaker 9: which I think sets them up well in the next 508 00:25:42,359 --> 00:25:45,200 Speaker 9: economic cycle, which I think unfortunately happens after we have 509 00:25:45,280 --> 00:25:48,000 Speaker 9: a recession. So I still think one is likely, But 510 00:25:48,119 --> 00:25:50,880 Speaker 9: I think the downside in those even in the recession 511 00:25:51,440 --> 00:25:54,040 Speaker 9: is pretty low, just given the fact that they haven't participated. 512 00:25:54,080 --> 00:25:56,440 Speaker 9: They traded a cheap valuations, and I think the opposite 513 00:25:56,480 --> 00:25:58,200 Speaker 9: side is going to be pretty powerful for those types 514 00:25:58,200 --> 00:25:58,520 Speaker 9: of names. 515 00:25:58,840 --> 00:26:01,280 Speaker 5: And Brent, with those names, are you talking about energy 516 00:26:01,400 --> 00:26:03,280 Speaker 5: or banks? What are some of the bigger names that 517 00:26:03,359 --> 00:26:06,080 Speaker 5: you see as better position given as we were mentioning 518 00:26:06,119 --> 00:26:07,720 Speaker 5: the rally broadly for large tech. 519 00:26:08,400 --> 00:26:10,399 Speaker 9: So I think of value more as a factor, and 520 00:26:10,480 --> 00:26:14,320 Speaker 9: not necessarily industry by industry or sector bisector, but certainly 521 00:26:14,400 --> 00:26:17,119 Speaker 9: those are areas are areas that typically have more value 522 00:26:17,160 --> 00:26:20,040 Speaker 9: type of stocks. I think they will do well Historically 523 00:26:20,080 --> 00:26:21,879 Speaker 9: if you look at every economic cycle, So if I 524 00:26:21,920 --> 00:26:24,320 Speaker 9: go back to the nineteen eighty one economic cycle, the 525 00:26:24,440 --> 00:26:27,840 Speaker 9: next economic cycle after that has had different market leadership, 526 00:26:28,359 --> 00:26:31,280 Speaker 9: while whatever drove the last cycle typically doesn't do well. 527 00:26:31,640 --> 00:26:33,000 Speaker 9: And so if I take you back to late late 528 00:26:33,080 --> 00:26:36,280 Speaker 9: nineteen nineties, you did see obviously energy, you saw commodities 529 00:26:36,760 --> 00:26:39,080 Speaker 9: do well in that next economic cycle as well as banks, 530 00:26:39,840 --> 00:26:42,080 Speaker 9: and so I do think it's largely the same type 531 00:26:42,080 --> 00:26:44,680 Speaker 9: of setup, but I think more broadly as just things 532 00:26:44,720 --> 00:26:47,760 Speaker 9: that are cheaper versus things that are more expensive right now, 533 00:26:47,840 --> 00:26:50,080 Speaker 9: which a lot of those names have certainly earned the 534 00:26:50,240 --> 00:26:53,399 Speaker 9: right to be expensive, and they have good prospects going forward. 535 00:26:53,800 --> 00:26:55,760 Speaker 9: But much like back then, you wonder how much of 536 00:26:55,800 --> 00:26:57,320 Speaker 9: that is already priced, and I think the answer is 537 00:26:57,400 --> 00:26:57,800 Speaker 9: quite a bit. 538 00:26:58,600 --> 00:27:02,840 Speaker 2: So give us your recession scenario at Northwestern Mutual. How 539 00:27:03,080 --> 00:27:04,720 Speaker 2: long do you guys think it'll be, how deep you 540 00:27:04,760 --> 00:27:06,719 Speaker 2: think it'll be, and you have any sense of kind 541 00:27:06,760 --> 00:27:08,600 Speaker 2: of timing because a lot of folks we've been talking 542 00:27:08,600 --> 00:27:11,000 Speaker 2: about this for a while and we haven't seen anything. 543 00:27:11,920 --> 00:27:15,000 Speaker 9: Yeah, I think it's always calling the exact time period 544 00:27:15,040 --> 00:27:17,119 Speaker 9: of a recession is difficult. I think it's made more 545 00:27:17,200 --> 00:27:19,720 Speaker 9: difficult by what happened during COVID with all the stimulus, 546 00:27:19,760 --> 00:27:22,120 Speaker 9: all the excess savings, and the reality that the US 547 00:27:22,200 --> 00:27:25,560 Speaker 9: economy is not that interest rate sensitive because people and 548 00:27:25,640 --> 00:27:28,840 Speaker 9: corporations termed out their debt. This is where I think 549 00:27:28,840 --> 00:27:30,359 Speaker 9: we're at the end of an economic cycle. You look 550 00:27:30,359 --> 00:27:32,800 Speaker 9: at wages right now, wages look like they're at the 551 00:27:32,840 --> 00:27:34,840 Speaker 9: end of an economic cycle. The unemployment rate is low, 552 00:27:34,920 --> 00:27:37,639 Speaker 9: it's hard to find workers. We have about everything that 553 00:27:37,720 --> 00:27:40,320 Speaker 9: looks end of the cycle. I think it's hard to 554 00:27:40,400 --> 00:27:44,120 Speaker 9: time that because you haven't seen that penetrate the US 555 00:27:44,160 --> 00:27:46,879 Speaker 9: economy as much because that debt has been turned out, 556 00:27:46,920 --> 00:27:50,320 Speaker 9: has been fixed. The longer the fed lea's rates higher. 557 00:27:50,560 --> 00:27:53,320 Speaker 9: As your prior guest, I think on Leaden said, the 558 00:27:53,400 --> 00:27:55,600 Speaker 9: greater the chance there is an accident. To me, I 559 00:27:55,680 --> 00:27:57,520 Speaker 9: put it differently, and I say, the greater the chances 560 00:27:57,560 --> 00:27:59,080 Speaker 9: it works its way in to the economy. And you're 561 00:27:59,080 --> 00:28:02,120 Speaker 9: seeing that happen now, as mortgage debt reprices, as credit 562 00:28:02,200 --> 00:28:05,840 Speaker 9: card debt reprices, as auto loans repriced, and as access 563 00:28:05,840 --> 00:28:08,000 Speaker 9: savings wear often. So I still think one is in 564 00:28:08,080 --> 00:28:11,520 Speaker 9: the not too far offing, and I think it'll be 565 00:28:11,600 --> 00:28:15,240 Speaker 9: more mild, just because we don't have large levels of 566 00:28:15,320 --> 00:28:18,600 Speaker 9: excess like we have in past recessions that were longer. 567 00:28:19,280 --> 00:28:21,359 Speaker 9: I don't think that necessarily means the market won't fall, 568 00:28:21,520 --> 00:28:23,879 Speaker 9: especially some of those larger cap names, which I think 569 00:28:23,920 --> 00:28:26,159 Speaker 9: are priced to perfection, and I don't think perfection is 570 00:28:26,320 --> 00:28:28,040 Speaker 9: likely in the coming quarters. 571 00:28:28,359 --> 00:28:30,159 Speaker 5: Well, that's my next question. If we do get a 572 00:28:30,200 --> 00:28:33,080 Speaker 5: recession and you look at weakness in Nvidia, is that 573 00:28:33,200 --> 00:28:35,000 Speaker 5: one of the stocks that falls. You would assume Apple 574 00:28:35,000 --> 00:28:37,520 Speaker 5: would be one of the laggards though they've been underperforming. 575 00:28:37,560 --> 00:28:39,960 Speaker 5: Ass have Tesla, which are I would say more consumer 576 00:28:40,000 --> 00:28:42,040 Speaker 5: facing than the likes of a Nvidia and some of 577 00:28:42,040 --> 00:28:42,880 Speaker 5: the other high flyers. 578 00:28:43,880 --> 00:28:45,320 Speaker 9: I'll brun it out a bit more and just say 579 00:28:45,320 --> 00:28:46,880 Speaker 9: that the top ten names, the S and P five 580 00:28:46,960 --> 00:28:49,280 Speaker 9: hundred in the year thereafter haven't historically done all that 581 00:28:49,400 --> 00:28:51,920 Speaker 9: well over longer periods of time. And now I even 582 00:28:51,960 --> 00:28:53,680 Speaker 9: take you back to I think today's one of today's 583 00:28:53,720 --> 00:28:56,120 Speaker 9: magnificent seven, Microsoft, which was in the top ten names 584 00:28:56,560 --> 00:28:58,960 Speaker 9: back in nineteen nine and nine. Those who unfortunately about 585 00:28:59,000 --> 00:29:01,120 Speaker 9: Microsoft in ninety ninety nin it took them seventeen years 586 00:29:01,160 --> 00:29:03,280 Speaker 9: to get back to where it was in nineteen ninety nine. 587 00:29:03,880 --> 00:29:06,040 Speaker 9: And so to me, this kind of takes you back 588 00:29:06,080 --> 00:29:09,040 Speaker 9: to some common sense things and investing, like not concentrating 589 00:29:09,520 --> 00:29:11,840 Speaker 9: in anyone part of the market and kind of basing 590 00:29:11,920 --> 00:29:15,520 Speaker 9: your whole financial outcomes in the future on that leadership 591 00:29:15,600 --> 00:29:18,480 Speaker 9: changes and typically what was in favor in the past 592 00:29:18,560 --> 00:29:21,440 Speaker 9: economic cycle and kind of drove that economic cycle economically 593 00:29:21,960 --> 00:29:24,440 Speaker 9: is also in favor in the markets and the next 594 00:29:24,480 --> 00:29:28,520 Speaker 9: economic cycle. We typically cure our shortages, and so you know, 595 00:29:28,720 --> 00:29:30,600 Speaker 9: I just think it's more likely than not we get 596 00:29:30,640 --> 00:29:34,160 Speaker 9: different leadership. I think valuation matters over longer periods of time. 597 00:29:34,200 --> 00:29:36,600 Speaker 9: It's an imperfect timing tool, but I think parts of 598 00:29:36,640 --> 00:29:38,920 Speaker 9: the market that are cheap right now will do well 599 00:29:39,080 --> 00:29:41,520 Speaker 9: as we kind of get past this hopefully mild and 600 00:29:41,560 --> 00:29:42,280 Speaker 9: short recession. 601 00:29:43,080 --> 00:29:47,240 Speaker 2: So the Federal Reserve, I guess the question is, you know, 602 00:29:47,280 --> 00:29:48,960 Speaker 2: when are they going to start cutting, and maybe in 603 00:29:49,000 --> 00:29:50,840 Speaker 2: to what degree will they cut. We started the year 604 00:29:51,320 --> 00:29:53,840 Speaker 2: discounting maybe six rate cuts this year. Now I think 605 00:29:53,840 --> 00:29:55,440 Speaker 2: I think we're down to like three or four here. 606 00:29:56,280 --> 00:29:58,680 Speaker 2: How do you think the FED will will you know, 607 00:29:58,800 --> 00:29:59,840 Speaker 2: execute for their men? 608 00:30:00,360 --> 00:30:02,560 Speaker 9: I mean, this is another common sense thing. We're't a 609 00:30:02,600 --> 00:30:04,760 Speaker 9: difficult spot for the FED. If they cut too soon, 610 00:30:04,880 --> 00:30:07,080 Speaker 9: they risk the nineteen sixty six to nineteen eighty two 611 00:30:07,120 --> 00:30:10,280 Speaker 9: time period. If they cut too late, they risk job losses, which, 612 00:30:10,360 --> 00:30:13,040 Speaker 9: as we've seen in the past, once job losses start, 613 00:30:13,160 --> 00:30:16,080 Speaker 9: even if the FED starts cutting rates, they tend to trend. 614 00:30:16,480 --> 00:30:19,120 Speaker 9: There is nothing between upo point five percent on the 615 00:30:19,240 --> 00:30:22,200 Speaker 9: utterplant rate in cycles to being up one point nine 616 00:30:22,280 --> 00:30:24,400 Speaker 9: percent and so it tends to trend, and I don't 617 00:30:24,400 --> 00:30:25,880 Speaker 9: think they're going to be able to land an economy 618 00:30:26,080 --> 00:30:28,640 Speaker 9: that is one hundred and sixty eight million labor market 619 00:30:29,200 --> 00:30:32,160 Speaker 9: and twenty eight trillion big exactly, with just a little 620 00:30:32,160 --> 00:30:35,320 Speaker 9: bit of growth, not too much, but not negative. And 621 00:30:35,440 --> 00:30:38,000 Speaker 9: so right now, the reason why I don't believe there's 622 00:30:38,040 --> 00:30:39,640 Speaker 9: going to be a soft landing is I don't think 623 00:30:39,680 --> 00:30:42,400 Speaker 9: inflation pressures are gone, and I don't think they'll be 624 00:30:42,520 --> 00:30:45,160 Speaker 9: gone until you actually see a recession, which has happened 625 00:30:45,160 --> 00:30:47,560 Speaker 9: at the end of every other economic cycle. And so 626 00:30:47,720 --> 00:30:50,840 Speaker 9: right now inflation is still moving back up. We saw 627 00:30:50,920 --> 00:30:53,720 Speaker 9: that last week in PCEE. You saw the distribution of 628 00:30:53,760 --> 00:30:57,720 Speaker 9: a inflation components rising five percent or more fifty seven percent. 629 00:30:58,480 --> 00:31:00,920 Speaker 9: You see CPI, you see service is still too hot. 630 00:31:01,240 --> 00:31:03,960 Speaker 9: And actually the median CPI, the meetiing PC they're moving 631 00:31:04,000 --> 00:31:06,440 Speaker 9: in the wrong direction. And so to me, the FED 632 00:31:06,560 --> 00:31:09,760 Speaker 9: leaves rates high until they see signs that the labor 633 00:31:09,840 --> 00:31:12,440 Speaker 9: market is weakening and by then it's too late, which 634 00:31:12,480 --> 00:31:15,160 Speaker 9: I think the good news is because that will kind 635 00:31:15,200 --> 00:31:18,120 Speaker 9: of take the steam out of inflation altogether. They will 636 00:31:18,120 --> 00:31:19,960 Speaker 9: be able to cut aggressively. On the opposite side, of this, 637 00:31:20,080 --> 00:31:22,440 Speaker 9: but not until they actually see that. And so I 638 00:31:22,520 --> 00:31:24,560 Speaker 9: don't think rate cuts are likely in the near term. 639 00:31:24,640 --> 00:31:26,480 Speaker 9: And that's why I still think you're likely to see 640 00:31:26,520 --> 00:31:28,760 Speaker 9: a recession as they leave rates high enough and that 641 00:31:28,880 --> 00:31:30,360 Speaker 9: continues to bite in the economy. 642 00:31:30,520 --> 00:31:33,160 Speaker 2: Well, a lot of folks would say, you know, given 643 00:31:33,280 --> 00:31:35,520 Speaker 2: that and if you look at the real time data, 644 00:31:35,880 --> 00:31:38,640 Speaker 2: inflation is in fact whipped, and that they should be 645 00:31:38,680 --> 00:31:41,320 Speaker 2: cutting rates. Now, what do you think about that argument? 646 00:31:41,920 --> 00:31:44,400 Speaker 9: I mean, I take you back to CPI. I invite 647 00:31:44,400 --> 00:31:46,440 Speaker 9: you to look at CPI services. I invite you to 648 00:31:46,480 --> 00:31:49,080 Speaker 9: look at the CPI, the Cleveland Fed median CPI which 649 00:31:49,160 --> 00:31:52,400 Speaker 9: bottomed in July and is actually moving higher. I invite 650 00:31:52,400 --> 00:31:54,120 Speaker 9: you to think about wage growth, which is running at 651 00:31:54,360 --> 00:31:56,280 Speaker 9: four point three to four point eight percent. Pick your 652 00:31:56,280 --> 00:32:00,440 Speaker 9: favorite metric which typically weaves into the end of an 653 00:32:00,480 --> 00:32:03,080 Speaker 9: economic cycle. I invite you to look at one year 654 00:32:03,160 --> 00:32:05,320 Speaker 9: inflation break evens, where the bond market is telling you 655 00:32:05,400 --> 00:32:07,360 Speaker 9: that inflation may be a near term thing, as well 656 00:32:07,360 --> 00:32:09,920 Speaker 9: as to your break evens. And so certainly, I think 657 00:32:09,960 --> 00:32:13,880 Speaker 9: people have become a little bit too optimistic on inflation. 658 00:32:14,080 --> 00:32:16,600 Speaker 9: As a reminder, I thought inflation would come down because 659 00:32:16,600 --> 00:32:19,920 Speaker 9: it was tied to COVID. It was transitory, and that's 660 00:32:19,960 --> 00:32:22,600 Speaker 9: what I think carried us through twenty twenty three. Unfortunately, 661 00:32:22,600 --> 00:32:25,040 Speaker 9: I think now inflation is more tied to the economic cycle, 662 00:32:25,320 --> 00:32:27,960 Speaker 9: where you run out of labor market slack, wages rise, 663 00:32:28,600 --> 00:32:32,760 Speaker 9: Companies eventually try to raise prices. That gets squashed by 664 00:32:32,760 --> 00:32:35,560 Speaker 9: the Federal Reserve. And eventually, if your wages are going 665 00:32:35,640 --> 00:32:37,880 Speaker 9: up on your employees, so your expenses are going up, 666 00:32:38,040 --> 00:32:40,440 Speaker 9: but you can't raise prices, your margins get hit. And 667 00:32:40,520 --> 00:32:42,600 Speaker 9: that's where you begin letting you employees. 668 00:32:42,640 --> 00:32:45,480 Speaker 3: Smart stuff as always you bring in every time. Brent 669 00:32:45,640 --> 00:32:46,400 Speaker 3: really appreciate it. 670 00:32:47,520 --> 00:32:50,680 Speaker 2: Chicago NBA folks, they're pretty smart. Brent Shredy joins US 671 00:32:50,720 --> 00:32:54,280 Speaker 2: here a chief investment officer Northwestern Mutual Wealth Management Company, 672 00:32:54,840 --> 00:32:58,680 Speaker 2: joining us on zoom from Milwaukee. That's a sobering view, 673 00:33:01,000 --> 00:33:03,239 Speaker 2: cautious view, I guess, I'm not sure a reasonable view. 674 00:33:03,240 --> 00:33:03,520 Speaker 3: I don't know. 675 00:33:03,600 --> 00:33:05,720 Speaker 2: I guess it depends on your perspective. But he's not 676 00:33:06,200 --> 00:33:08,360 Speaker 2: just diving in on this momentum trade keep buying him. 677 00:33:08,520 --> 00:33:10,640 Speaker 6: No, And that's interesting. I mean, we have seen. 678 00:33:12,520 --> 00:33:14,760 Speaker 5: Caution really kind of being a tone that's been struck. 679 00:33:14,840 --> 00:33:17,600 Speaker 5: But again, it's interesting to see what different people who 680 00:33:17,720 --> 00:33:19,560 Speaker 5: are actually putting money on the line are thinking and 681 00:33:19,640 --> 00:33:22,800 Speaker 5: looking at and just given kind of again. Markets churning 682 00:33:22,840 --> 00:33:24,080 Speaker 5: around near all time heisman. 683 00:33:24,400 --> 00:33:26,600 Speaker 6: I know I hit it earlier. Yeah, Bitcoin at least 684 00:33:26,600 --> 00:33:27,960 Speaker 6: on entryday basis hitting a record. 685 00:33:30,440 --> 00:33:34,280 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 686 00:33:34,400 --> 00:33:37,320 Speaker 1: weekdays at ten am Eastern on Apple card Play and 687 00:33:37,440 --> 00:33:40,320 Speaker 1: Android Auto with the Bloomberg Business app. You can also 688 00:33:40,440 --> 00:33:43,600 Speaker 1: listen live on Amazon Alexa from our flagship New York 689 00:33:43,680 --> 00:33:47,040 Speaker 1: station just Say Alexa playing Bloomberg eleven thirty. 690 00:33:48,240 --> 00:33:52,720 Speaker 2: Apple down about two point eight percent today, about eleven 691 00:33:52,760 --> 00:33:55,000 Speaker 2: and a half percent year to date. The news today 692 00:33:55,160 --> 00:33:58,240 Speaker 2: Apple's iPhone wills in China deepen with a twenty four 693 00:33:58,360 --> 00:34:00,520 Speaker 2: percent sales plunge. 694 00:34:00,560 --> 00:34:01,920 Speaker 3: Let's break it down with Anurag Rana. 695 00:34:01,960 --> 00:34:05,200 Speaker 2: He's a senior technology analyst to Bloomberg Intelligence, joining us 696 00:34:05,720 --> 00:34:09,879 Speaker 2: via zoom Anurag what's causing this decline in the early 697 00:34:09,960 --> 00:34:13,320 Speaker 2: part of twenty twenty four in iPhone sales for Apple 698 00:34:13,480 --> 00:34:14,320 Speaker 2: in China? 699 00:34:14,520 --> 00:34:17,279 Speaker 3: Is it market share lost? Is it a contraction in 700 00:34:17,360 --> 00:34:18,520 Speaker 3: the market. What's going on? 701 00:34:19,680 --> 00:34:21,400 Speaker 10: I think it's a bit of both for them, and 702 00:34:21,560 --> 00:34:23,840 Speaker 10: this is the same story that's been going on for 703 00:34:23,920 --> 00:34:26,840 Speaker 10: the last six to nine months, ever since Wawei released 704 00:34:26,880 --> 00:34:30,399 Speaker 10: their higher end phone last year. So Apple's been losing 705 00:34:30,480 --> 00:34:33,279 Speaker 10: market share there that has been you know, you could 706 00:34:33,280 --> 00:34:36,640 Speaker 10: say deepened on coupled with consumer weakness in China, and 707 00:34:36,760 --> 00:34:40,040 Speaker 10: it's all that's you know, driving these problems right now. 708 00:34:40,440 --> 00:34:44,560 Speaker 5: And when I look at the PGeo function on the terminal, 709 00:34:45,040 --> 00:34:48,120 Speaker 5: iPhone accounts for more than half of Apple's revenue China, 710 00:34:48,280 --> 00:34:51,160 Speaker 5: call it a fifth of their sales anak. When you 711 00:34:51,239 --> 00:34:54,120 Speaker 5: look at those numbers, what does this actually mean for 712 00:34:54,360 --> 00:34:57,680 Speaker 5: Apple if they're going to see that competition eating into 713 00:34:57,719 --> 00:34:59,440 Speaker 5: their sales, Yeah, I. 714 00:34:59,440 --> 00:35:01,600 Speaker 10: Think it's going to be a tough time for Apple 715 00:35:01,719 --> 00:35:04,239 Speaker 10: in China for that at least this year and maybe 716 00:35:04,280 --> 00:35:06,560 Speaker 10: into next year before they can, let's say, make some 717 00:35:06,680 --> 00:35:10,040 Speaker 10: inroads in India and other markets. Emerging markets is the 718 00:35:10,120 --> 00:35:13,160 Speaker 10: real growth driver for Apple, there is no two ways 719 00:35:13,200 --> 00:35:15,359 Speaker 10: about it. And and you know iPhone is the big 720 00:35:15,440 --> 00:35:18,399 Speaker 10: growth driver. So if phones are not selling in China, 721 00:35:18,520 --> 00:35:21,080 Speaker 10: that's a problem for Apple. It means numbers need to 722 00:35:21,120 --> 00:35:24,239 Speaker 10: come down even more for Apple this year. You know, 723 00:35:24,400 --> 00:35:28,760 Speaker 10: we saw about double digit sales drop in China last quarter. 724 00:35:29,600 --> 00:35:33,000 Speaker 10: I looked up this morning on MDL consensus is about 725 00:35:33,040 --> 00:35:36,160 Speaker 10: seven percent drop in China for this quarter. I think 726 00:35:36,200 --> 00:35:38,400 Speaker 10: that number needs to creep up to someone in the 727 00:35:38,480 --> 00:35:40,920 Speaker 10: low double digit decline going forward. 728 00:35:41,200 --> 00:35:42,480 Speaker 3: So it's good, it's it's a pain. 729 00:35:42,640 --> 00:35:45,720 Speaker 10: It's a painful situation for Apple, and frankly, there aren't 730 00:35:45,800 --> 00:35:48,680 Speaker 10: at many you know, rosy things looking forward at least 731 00:35:48,719 --> 00:35:49,560 Speaker 10: for twenty twenty four. 732 00:35:50,160 --> 00:35:55,520 Speaker 2: So I guess the biggest concern for Apple obviously is competition, 733 00:35:55,600 --> 00:35:58,680 Speaker 2: because they haven't really had that robust of a competitor 734 00:35:58,719 --> 00:36:02,400 Speaker 2: and they're part of the market. Are there any responses 735 00:36:02,480 --> 00:36:05,239 Speaker 2: Apple can make here from a competitive landscape other than 736 00:36:05,840 --> 00:36:07,080 Speaker 2: lowering the price point? 737 00:36:08,040 --> 00:36:10,280 Speaker 10: Yeah, Paul, I think there is a little more hype 738 00:36:10,320 --> 00:36:14,920 Speaker 10: in that competition news than reality only because Huawei didn't 739 00:36:15,080 --> 00:36:17,319 Speaker 10: release a phone for many years, So that you can 740 00:36:17,400 --> 00:36:19,480 Speaker 10: think about it. If you have an install base of 741 00:36:19,560 --> 00:36:22,000 Speaker 10: Huawei phones, I mean, let's say you know that's X 742 00:36:22,120 --> 00:36:25,080 Speaker 10: and that hasn't been updated for four or five six years, 743 00:36:25,120 --> 00:36:27,359 Speaker 10: and you just certainly get a brand new phone. All 744 00:36:27,400 --> 00:36:29,320 Speaker 10: of those people will we are going to go and 745 00:36:29,440 --> 00:36:32,279 Speaker 10: refresh that. So I think you should take that as 746 00:36:32,320 --> 00:36:36,040 Speaker 10: a bigger factor. Plus the subsidies they are getting in 747 00:36:36,239 --> 00:36:39,319 Speaker 10: China from the local providers. So I think Apple will 748 00:36:39,360 --> 00:36:42,040 Speaker 10: do okay in China over the long term. But I 749 00:36:42,120 --> 00:36:44,320 Speaker 10: think that's not going to be a twenty twenty four story. 750 00:36:44,560 --> 00:36:46,600 Speaker 6: And you mentioned emerging markets as the next driver. 751 00:36:46,800 --> 00:36:49,600 Speaker 5: What countries, what regions are going to be able to 752 00:36:49,640 --> 00:36:51,840 Speaker 5: pay up for what I would say is quite an 753 00:36:51,880 --> 00:36:52,640 Speaker 5: expensive phone. 754 00:36:53,400 --> 00:36:55,560 Speaker 10: Yeah, I think that's the most important question. And I 755 00:36:55,640 --> 00:36:57,719 Speaker 10: think you know, just by the sheer size of it, 756 00:36:57,880 --> 00:37:01,160 Speaker 10: India is the next one. But frankly speaking, right now, 757 00:37:01,320 --> 00:37:04,160 Speaker 10: Apple doesn't even operate in you know, five percent of 758 00:37:04,239 --> 00:37:07,080 Speaker 10: the entire market because of the price point of the phone. 759 00:37:07,360 --> 00:37:09,960 Speaker 10: I think the strategy India is going to be a 760 00:37:10,040 --> 00:37:12,880 Speaker 10: mix of the lower phone the se as well as 761 00:37:12,960 --> 00:37:15,439 Speaker 10: the refurbished phone where the price point is even lower. 762 00:37:15,800 --> 00:37:18,240 Speaker 10: But having said that, I think India is a developing country. 763 00:37:18,280 --> 00:37:20,759 Speaker 10: The middle class is getting more richer, so I think 764 00:37:20,800 --> 00:37:22,680 Speaker 10: that's going to be the next big growth catalyst. But 765 00:37:22,800 --> 00:37:24,960 Speaker 10: this is it's not going to play out in twenty 766 00:37:25,000 --> 00:37:27,279 Speaker 10: four to twenty five. That's more of a I would 767 00:37:27,280 --> 00:37:28,480 Speaker 10: submit to long term story. 768 00:37:29,560 --> 00:37:32,920 Speaker 2: So is there a thought for we've talked about this 769 00:37:33,040 --> 00:37:36,399 Speaker 2: before that Apple might introduce a lower price phone into 770 00:37:36,520 --> 00:37:39,799 Speaker 2: India for just that reason. Is that something they're still 771 00:37:39,880 --> 00:37:42,800 Speaker 2: considering or will they just wait for the market to 772 00:37:42,880 --> 00:37:45,359 Speaker 2: kind of move up to where the Apple phone price 773 00:37:45,400 --> 00:37:45,719 Speaker 2: point is. 774 00:37:46,560 --> 00:37:48,319 Speaker 10: I think it's going to be the latter. I've done 775 00:37:48,360 --> 00:37:50,719 Speaker 10: a lot of analysis of how much share they can 776 00:37:50,800 --> 00:37:53,440 Speaker 10: gain if they drop the se price by fifty dollars 777 00:37:53,560 --> 00:37:56,120 Speaker 10: hundred dollars, and you know, when I publish that stuff, 778 00:37:56,120 --> 00:37:58,840 Speaker 10: I think that year they actually raised the price by 779 00:37:58,880 --> 00:38:01,759 Speaker 10: fifty bucks. So they don't leave in dropping prices. They 780 00:38:01,800 --> 00:38:05,640 Speaker 10: are more on a margin story, you know, So think 781 00:38:05,719 --> 00:38:08,120 Speaker 10: of Apple more on the long term basis right now, 782 00:38:08,280 --> 00:38:10,719 Speaker 10: not on the short term. I don't think they're going 783 00:38:10,800 --> 00:38:15,560 Speaker 10: to you know, I would say swap margins for market share. 784 00:38:15,680 --> 00:38:18,080 Speaker 10: They've never done that in their history, whether it was 785 00:38:18,120 --> 00:38:20,239 Speaker 10: on the mac side or on the phone side. 786 00:38:21,040 --> 00:38:24,080 Speaker 5: And quickly anorak. I look at the news, there's no 787 00:38:24,239 --> 00:38:28,880 Speaker 5: more Apple car, there's tepid reception to the vision pro 788 00:38:29,080 --> 00:38:31,840 Speaker 5: What actually drives the stock, what drives sales in the 789 00:38:31,960 --> 00:38:33,120 Speaker 5: next twelve to eighteen months. 790 00:38:33,760 --> 00:38:36,560 Speaker 10: Yeah, I think that's the most important question for Apple investors. 791 00:38:36,800 --> 00:38:38,080 Speaker 10: And I think there's going to be an event in 792 00:38:38,200 --> 00:38:41,800 Speaker 10: June the World Wide Developers Conference, where they have pledged 793 00:38:41,840 --> 00:38:43,880 Speaker 10: that they're going to show a lot of AI enhancements 794 00:38:43,920 --> 00:38:46,840 Speaker 10: to the operating system. I think that really is the 795 00:38:46,960 --> 00:38:50,920 Speaker 10: one wildcard that can completely change the sentiment of the company, 796 00:38:51,000 --> 00:38:54,600 Speaker 10: both in terms of sales and the gloomy investor sentiment 797 00:38:55,120 --> 00:38:58,480 Speaker 10: only because remember, Apple has a distribution network that stands, 798 00:38:58,640 --> 00:39:01,080 Speaker 10: you know, next to nobody out there in terms of 799 00:39:01,320 --> 00:39:04,640 Speaker 10: you know, affluent people using their phones. More than one 800 00:39:04,680 --> 00:39:06,719 Speaker 10: billion device is connected just on the on the on 801 00:39:06,800 --> 00:39:09,839 Speaker 10: the smartphone. I think that really is the big driver. 802 00:39:10,160 --> 00:39:12,120 Speaker 10: One of the things I was thinking about was if 803 00:39:12,160 --> 00:39:15,200 Speaker 10: you go back, you know, five years, seven years, there 804 00:39:15,280 --> 00:39:18,040 Speaker 10: were apps such as trip advisors and Yelp where people 805 00:39:18,120 --> 00:39:20,840 Speaker 10: used to go for their you know, specialized functions for 806 00:39:21,440 --> 00:39:24,959 Speaker 10: restaurant advices and tourism. But when you look at somebody 807 00:39:25,080 --> 00:39:27,600 Speaker 10: like Google, a lot of that traffic has moved on 808 00:39:27,719 --> 00:39:31,200 Speaker 10: to them because they control the distribution. I think Apple 809 00:39:31,320 --> 00:39:33,640 Speaker 10: has the same ability, but they have to show up 810 00:39:33,760 --> 00:39:37,000 Speaker 10: with some AI products otherwise that's not going to flow 811 00:39:37,200 --> 00:39:37,600 Speaker 10: all right. 812 00:39:37,560 --> 00:39:39,160 Speaker 2: On rog Rana, thanks so much for joining us as 813 00:39:39,200 --> 00:39:41,320 Speaker 2: always on rog Rana Senior technology analysts. 814 00:39:41,480 --> 00:39:46,000 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 815 00:39:46,200 --> 00:39:49,840 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 816 00:39:50,000 --> 00:39:52,960 Speaker 1: ten am to noon Eastern on Bloomberg dot com, the 817 00:39:53,080 --> 00:39:56,480 Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You 818 00:39:56,560 --> 00:39:59,680 Speaker 1: can also watch us live every weekday on YouTube and 819 00:40:00,000 --> 00:40:01,279 Speaker 1: always on the Bloomberg Trum