Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Business Week Insight from the reporters and
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Speaker 2: global business, finance and tech news. The Bloomberg Business Week
Speaker 2: Podcast with Carol Masser and Tim Stenoveek on Bloomberg Radio.
Speaker 3: It is the first full day of Donald Trump in
Speaker 3: the White House. We are expecting an announcement later on
Speaker 3: coming from mister Trump, specifically to announce open Ai SoftBank,
Speaker 3: Oracle and an Ai investment. This was initially reported by
Speaker 3: CBS News. We have seen Oracle shares jump on it.
Speaker 3: But again this is why we are watching very much
Speaker 3: the first few days, the first few weeks, the first
Speaker 3: one hundred days in terms of things that may come
Speaker 3: down that will impact the trade and also impact businesses.
Speaker 4: And that includes the tariff Watch.
Speaker 5: Yeah, things that may or may not come down. What's expected,
Speaker 5: what's not expected. The President's signal plans to impost previously
Speaker 5: threatened tariffs of as much as twenty five percent on
Speaker 5: Mexico and Canada by February first, reiterating his contention that
Speaker 5: America's closest neighbors and largest trading partners, Carol are letting
Speaker 5: undocumented migrants in drugs flood into the US.
Speaker 3: All right, So what might all of this mean for
Speaker 3: US companies? Bloomberg Intelligence Director of Equity Strategy and chief
Speaker 3: equity strategist Gina Martin Adams writes about that she.
Speaker 4: Joins US from New Jersey.
Speaker 3: All Right, Gina, So should investors be more concerned perhaps
Speaker 3: with this round of tariffs than first than compared to
Speaker 3: what we saw in the first Trump White House in
Speaker 3: terms of how it impacts specifically US stocks.
Speaker 6: Yeah, I think that's a really great question and something
Speaker 6: that we're going to have to grapple with probably most
Speaker 6: of this year. Unfortunately, as the tariffs unfolds. Right now,
Speaker 6: it's still relatively speculative. But the one thing we can
Speaker 6: hang our hat on is the fact that the dollar
Speaker 6: has been rallying since late September, in fits and starts,
Speaker 6: of course, but at its peak just a week or
Speaker 6: so ago, the dollar was up ten percent from its
Speaker 6: low in late September.
Speaker 4: The dollar is a.
Speaker 6: Signal for portions of the US market, especially the S
Speaker 6: and P five hundred's most multinational stocks, which tend to
Speaker 6: experience ripple effects of currency in their earnings outlook. Now,
Speaker 6: these happened to be also the stocks that were largely
Speaker 6: leading the S and P five hundred earnings recovery in
Speaker 6: twenty twenty three and twenty twenty four. They now face
Speaker 6: the most difficult comparisons and the highest earnings expectations going
Speaker 6: into twenty twenty five. So I would anticipate that at
Speaker 6: the very least, you have some currency concerns start to
Speaker 6: eat away a little bit at multinational stocks earnings outlook,
Speaker 6: which could create another bout of volatility or indigestion in
Speaker 6: stocks as those emerge.
Speaker 5: Gin We have sort of a playbook here in recent history.
Speaker 5: We saw what happened in the first Trump administration, We
Speaker 5: saw certain tariffs continue in the Biden administration. How were
Speaker 5: the stocks that were affected, the sectors that were affected,
Speaker 5: how were they hit, and how does that play into
Speaker 5: your analysis over at Bloomberg Intelligence.
Speaker 6: Yeah, I think it's a great point. There is a precedent,
Speaker 6: but pass is not necessarily a perfect precedent for what
Speaker 6: to expect in that. In twenty eighteen, the tariffs were
Speaker 6: pretty targeted at China. This time around, it looks like
Speaker 6: the tariffs could be considerably more widespread wrapped up with
Speaker 6: as you mentioned, at the onset and immigration issues targeted
Speaker 6: at least in the short run at Mexico and Canada predominantly,
Speaker 6: China seems to be kind of put on the back burner,
Speaker 6: or at least temporarily on the back burner. Let's see
Speaker 6: where that goes over time. Nonetheless, there's one indicator that
Speaker 6: I think is really the most important for investors to
Speaker 6: follow regarding the potential market implications, and that is the
Speaker 6: operating margin forecast from analysts. This is one of the
Speaker 6: single best indicators of coming performance in the equity market.
Speaker 6: Operating margins obviously have been expanding for the better part
Speaker 6: of the last two years. In twenty eighteen, we saw
Speaker 6: operating margin forecasts turnover very quickly, not only because of
Speaker 6: ten tariffs, but also because the FED was tightening interest
Speaker 6: rates and we had some operating issues at the largest
Speaker 6: tech companies emerge. And so I think you want to
Speaker 6: watch this operating margin forecast pretty carefully. If analysts start
Speaker 6: to lose face the faith that companies can pass through
Speaker 6: prices onto their ultimate consumers, that they can maintain pricing power,
Speaker 6: that is usually pretty problematic for stocks going forward. We
Speaker 6: saw that in twenty eighteen. We may say that again
Speaker 6: now now on the products and areas that could experience
Speaker 6: the greatest operating margin pressure, it could be quite different.
Speaker 6: But the important thing to know for the markets at
Speaker 6: large is that operating margins are the key.
Speaker 3: Also fair to say, and I was thinking about a
Speaker 3: conversation Tim and I and David Gora had yesterday following
Speaker 3: the inauguration, and this was with Stefan Seelig. He was
Speaker 3: Under Secretary of Commerce for International Trade at Commerce during
Speaker 3: the Obama administration. He was also head of the International
Speaker 3: Trade Administration. And he said, when we talked about tiras,
Speaker 3: he said, they're complicated. They are not all one thing.
Speaker 3: And as you made that distinction between twenty eighteen and
Speaker 3: the teriffs were very targeted at China versus maybe something
Speaker 3: here that's more like a blanket tariff, it does become
Speaker 3: a different issue. So we have to be smart about
Speaker 3: kind of the devil and the details we do.
Speaker 6: And I think the other thing to consider is that
Speaker 6: tariffs target at economies often impact markets through companies, and
Speaker 6: economies and markets are not the same thing. Economies companies
Speaker 6: are really a microcosm of economies are certainly related to
Speaker 6: the economies, but the companies are the ones that oftentimes
Speaker 6: pay the tariffs. A good example is, you know, these
Speaker 6: tariffs targeted at Canada. How much of that is actually
Speaker 6: going to impact US auto manufacturers, who are some of
Speaker 6: the biggest exporters of products from Canada into the US
Speaker 6: is a huge question, and I think we have to
Speaker 6: consider that companies are very multinational in nature. Many of
Speaker 6: the US companies that are multinational will ultimately be the
Speaker 6: payers of these tariffs. So we want to be really
Speaker 6: careful and conscientious in not suggesting that tariffs that are
Speaker 6: targeted at economy are paid by those economies exclusively. They're
Speaker 6: generally paid by companies, and companies are often multinational in
Speaker 6: nature and can sit on various exchanges across the world,
Speaker 6: don't necessarily represent those economies.
Speaker 5: Gina, in your analysis, does any of the transformation that
Speaker 5: the president is hoping actually happen? The idea that maybe
Speaker 5: because of tariffs, companies based here in the US will
Speaker 5: manufacture goods closer to home in the US, employ more Americans,
Speaker 5: and make it work as the whole idea behind these
Speaker 5: being implemented is well.
Speaker 6: I think there have to be a lot of other
Speaker 6: changes that happen to get US companies to relocate into
Speaker 6: the United States beyond simply an acceleration and cost. Companies
Speaker 6: tend to find lowest cost labor around the world. They
Speaker 6: will not necessarily relocate to the US. They may relocate
Speaker 6: to other nations. They may find other ways to path
Speaker 6: through costs. There are a lot of different ads by
Speaker 6: which companies can flexibly approach a sanctions or a tariff's environment,
Speaker 6: such as the one that we're likely to go into.
Speaker 6: I think you can see some relocations to the degree
Speaker 6: that's in the best interest of profitability of the company.
Speaker 6: But that profitability is most important for public companies to
Speaker 6: keep an eye on, obviously, and if it's not in
Speaker 6: the best interest of their shareholders, if it's not in
Speaker 6: the best interest of seeking profits, then why would they
Speaker 6: relocate to the United States. There has to be a
Speaker 6: pretty compelling reason beyond tariffs. One of the biggest reasons
Speaker 6: companies locate outside of the United States is it's just
Speaker 6: more efficient, more effective, and better for their cost structure.
Speaker 6: Will tariffs ultimately overwhelm that decision. It seems unlikely, given
Speaker 6: that labor is such a huge portion ultimately of company costs,
Speaker 6: but we'll see you can also see efficiencies gained in
Speaker 6: other ways, another by relocating into other regions of the world,
Speaker 6: particularly when we're selling into other regions of the world
Speaker 6: as a corporation. So I think think it is very complicated.
Speaker 6: I think that a blund instrument of tariffs can be
Speaker 6: effective in certain instances, particularly at protecting domestic industries, but
Speaker 6: it's not one big broad brush that we can paint
Speaker 6: and I think that each company decision will be made
Speaker 6: on a profitability perspective of that independent company.
Speaker 3: Hey, you know one thing I want to ask you,
Speaker 3: and one of the things that we've talked about over
Speaker 3: the last couple of years is some of the spending
Speaker 3: plant programs that Congress passed a Biden initiated that Congress
Speaker 3: ultimately passed and put investment dollars certainly into the US economy,
Speaker 3: spending on infrastructure, green initiatives, and so on.
Speaker 4: Chips.
Speaker 3: Donald Trump is expected to announce an open AI SoftBank
Speaker 3: Oracle AI investment. We've been talking about this news out
Speaker 3: of CBS reports, and I just wonder how you were
Speaker 3: thinking about or watching the Trump administration for other things
Speaker 3: that you think could potentially increase kind of the liquidity
Speaker 3: and cashets out there to put to work that would
Speaker 3: impact the markets, the equity market as well.
Speaker 6: Yeah, I think federal spending programs have become a really
Speaker 6: big bogie to watch for companies. Over the course of
Speaker 6: the last several years. The Chips Act was very consequential.
Speaker 6: The Inflation Reduction Act was also pretty consequential to certain
Speaker 6: industries profitability trends. So any sort of fiscal spending package
Speaker 6: or public private partnership dedicated to elevating investment into certain
Speaker 6: sectors can be very meaningful. I think we have to
Speaker 6: watch rather than speculate as to what may happen. I
Speaker 6: think we want to watch for the details of each
Speaker 6: of these packages to assess the viability and certainly the
Speaker 6: market impact. But nonetheless, we are in an era where
Speaker 6: federal spending and targeted federal spending is having real economic
Speaker 6: and market consequences.
Speaker 3: Hey, speaking of market consequences, just thirty seconds, real quickly,
Speaker 3: we've got Netflix after the earnings.
Speaker 4: We are an earning season. This is a big one
Speaker 4: to watch.
Speaker 3: It's been on a tear the last couple of years,
Speaker 3: but it's down about seven percent since early December. How
Speaker 3: might a name light Netflix kind of help or hurt
Speaker 3: sentiment in the markets just quickly.
Speaker 6: Yeah, it's a great question because Netflix is sort of
Speaker 6: one of those representative examples of the media segment within
Speaker 6: a tech telecom and media. It's pretty important for driving
Speaker 6: sentiment with respect to content producers. I think that it's
Speaker 6: less important than say the Mag seven. Yeah, but we
Speaker 6: do want to watch for persistence of profitability. I think
Speaker 6: Netflix could give us some pretty good indications as to
Speaker 6: sustainability of spending, but also what's happening with margins. Margins
Speaker 6: are really key right now for that entire space. To
Speaker 6: the degree that this company is navigating the margin outlook
Speaker 6: relatively with a relative strength, I think that could be
Speaker 6: fairly supportive for the broad sector. But ultimately we want
Speaker 6: to watch for the Mag seven, which are obviously have
Speaker 6: potentially profound impacts.
Speaker 3: I feel like I'm going to make up t shirts
Speaker 3: watch operating margins because I feel like that's my big
Speaker 3: message from you right now.
Speaker 6: Overall, it is the big message this year.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 4: The thiny twa billion.
Speaker 3: Dollar cannabis industry in the United States is watching perhaps
Speaker 3: what a Trump administration in Republican Congress may mean for
Speaker 3: their world. Bloomberg Intelligence Nathan Dean writing last month that quote,
Speaker 3: while legislation to let US banks service cannabis based businesses
Speaker 3: will face similar policy hurdles in twenty twenty five as
Speaker 3: in the past, Donald Trump's election victory raised the odds
Speaker 3: at a long awaited goal of the cannabis sector can
Speaker 3: make it to the President's desk this year. Let's see
Speaker 3: what Erwin Simon has to say. He's chairman, president and
Speaker 3: CEO of the one point one billion dollar market cap
Speaker 3: cannabis company Tillray Brands.
Speaker 4: He joins us from New York City.
Speaker 3: Tillery, by the way, is one of the world's largest
Speaker 3: licensed cannabis companies.
Speaker 4: Erwin, nice to have you back here on Bloomberg.
Speaker 3: We are curious about your thoughts regarding the Trump administration
Speaker 3: and their stance his stance toward federal legalization of marijuana.
Speaker 4: What do you think the outlook is.
Speaker 7: So Number one, thank you very much for having me
Speaker 7: listen It was great to see President Trump, you know,
Speaker 7: inauguration yesterday and ultimately see him come back to office.
Speaker 7: You know, Trump is about business. You hear him talk
Speaker 7: about terrorts. You hear him talk about you know, free trade.
Speaker 7: And if you come back and look at cannabis and
Speaker 7: the opportunities there to legalize that and the excise tax
Speaker 7: that can be brought into the US coppers, I think
Speaker 7: he looks at as a business and I think, as
Speaker 7: I said before, I think medical cannabis in the US legalizes,
Speaker 7: and that enacts safe bank ultimately from a decriminalization, and
Speaker 7: that takes the illicted market off the street.
Speaker 8: And I think absolutely Trump will absolutely look at that.
Speaker 7: And I think you know, he has already looked at that.
Speaker 7: When it came to the election in November, he was
Speaker 7: in favor of cannabis, you know, legalizing from a recreational standpoint.
Speaker 7: In Florida. It didn't pass that has needed sixty percent,
Speaker 7: and I think it was around fifty three fifty four percent.
Speaker 5: Why are you optimistic that he'll do this stuff during
Speaker 5: this term when during his first term there was a
Speaker 5: lot of optimism and a lot of hope from folks
Speaker 5: in the cannabis industry. I know you weren't at Tilray
Speaker 5: at that time, but there was a lot of optimism
Speaker 5: coming from the industry and that ultimately did not come
Speaker 5: to pass.
Speaker 7: So listen again, I think from a business standpoint, and
Speaker 7: he looks at it from two things. He looks at
Speaker 7: it from the tax dollars and the excise tax that
Speaker 7: come into place. And he looks at an illicted market
Speaker 7: that he takes off the street, and he gets real
Speaker 7: regulation in here, and he ultimately brings safe baking in here,
Speaker 7: which allows money that's going through going through the banks.
Speaker 7: From a regulatory standpoint, Listen, you come back and look
Speaker 7: at Canada today, and Canada is a tenth of the
Speaker 7: size of the US, and there's over a billion and
Speaker 7: a half dollars in excise tax that comes into Canada
Speaker 7: each year. If you multiply that by ten, you look
Speaker 7: at the fifteen billion dollars opportunity here in the US.
Speaker 7: So I come back and absolutely if you look at
Speaker 7: Europe today, there's twenty different countries that allow medical cannabis
Speaker 7: in Europe today, And come back and look at recreational cannabis.
Speaker 7: Recreational cannabis day is legal in twenty seven states in
Speaker 7: the US and medical cannabis is in thirty five states,
Speaker 7: so a big part of the US population wants cannabis legalized.
Speaker 7: But I'll tell you this here, till Ray is in
Speaker 7: a good spot. You know, we can't sell cannabis in
Speaker 7: the US because we're a NaSTA eclistic company. We're the
Speaker 7: largest cannabis company in Canada today. We have a good
Speaker 7: sized beverage business in the US today with our craft beers,
Speaker 7: our spirits with Breckinridge, and our hemp business of Manitoba Harvest.
Speaker 7: We also have a good sized business in Europe today
Speaker 7: with our medical cannabis business, where there we only can
Speaker 7: sell cannabis through prescriptions from doctors. So we're a well
Speaker 7: diversified company. And I got to tell you it would
Speaker 7: be very helpful to tell Ray if cannabis did legalize
Speaker 7: in the US from a medical standpoint, and I think, hey,
Speaker 7: it's a two three hundred million dollar business for US
Speaker 7: right away at a three percent size of the market.
Speaker 7: As you just said, you know, it's a ten billion
Speaker 7: dollar market here in the US. I'm a medical standpoint.
Speaker 5: What about what about tariffs and the comments that the
Speaker 5: President has made about Canada the possibility that there could
Speaker 5: be twenty five percent on good twenty five percent tariffs
Speaker 5: on goods coming from Canada by February first, and also
Speaker 5: the jokes that he made over the last month about
Speaker 5: essentially Canada becoming the fifty first state. How do you
Speaker 5: look at all that.
Speaker 7: Well, I don't think that's going to happen, number one,
Speaker 7: But number two, I think you got Canada's attention.
Speaker 8: You know.
Speaker 7: The good news is, you know, the only thing we
Speaker 7: bring in from Canada today is we bring some hented
Speaker 7: for our hemp business. You know, none of our beer,
Speaker 7: and of course none of our cannabis does sell within
Speaker 7: you know, the US. None of the cannabis we make
Speaker 7: today and growing Canada is sold in the US. Listen,
Speaker 7: the Canadian dollar, you know, has quite a bit of value.
Speaker 7: So if there was a tariff, I think ultimately it
Speaker 7: gets passed on to the consumer. I don't think it's
Speaker 7: going to be twenty five percent. I think there could
Speaker 7: be tariffs. We have five million square feet to grow
Speaker 7: in Canada today, and if we could produce there, which
Speaker 7: would be about sixty metric tons, and be able to
Speaker 7: sell them in the US, it would be very, very beneficial.
Speaker 8: To till errate.
Speaker 3: Where's the growth in your business? Right, there's cannabis, there's
Speaker 3: the beverage business. You guys are also moving increasingly into
Speaker 3: vape and infused pre role categories. So tell us a
Speaker 3: little bit about where the biggest opportunities are for you.
Speaker 7: So the growth in Canada today is in pre rolls.
Speaker 7: The growth in Canada today is cannabis and tu streets
Speaker 7: and the fake business. And that's where the growth is
Speaker 7: in Canada today. And as the market continues to mature
Speaker 7: and more and more consumers are buying, you know, from
Speaker 7: the legalized market, not buying the illicit market. And being
Speaker 7: one of the largest growers today in Canada, that's a
Speaker 7: big opportunity for the Canadian market. But you know, Canada's
Speaker 7: forty million people in size, and ultimately the market is
Speaker 7: going to continue to mature. In the US, we're the
Speaker 7: fifth largest craft brewer in the US today and we
Speaker 7: became a beverage company. So big opportunities that we come
Speaker 7: out with a treat called Liquid Love are not out
Speaker 7: drinks or energy drinks. So the beverage business for us,
Speaker 7: big opportunity for us. And listen, as people walk around,
Speaker 7: they always have something in their hand, whether it's a coffee,
Speaker 7: whether it's a drink, whether it's a water. And listen,
Speaker 7: beer business is not going away. And ultimately the beverage
Speaker 7: business is one of the biggest categories out there, and
Speaker 7: today we have ten breweries out there, We have seven
Speaker 7: hundred distributors, We have an infrastructure of sales.
Speaker 8: And marketing people in Europe.
Speaker 7: Medical cannabis big opportunity for US, as doctors are prescribing
Speaker 7: cannabis today as medicines for paying for anxiety, for sleep, etc.
Speaker 7: So we're really in some good businesses. We're a five
Speaker 7: year old company. As I put this together, we're investing
Speaker 7: in these business We're investing in these brands. We have
Speaker 7: over forty brands today with three diversified business So I
Speaker 7: like the cannabis business. I love the beverage business, and
Speaker 7: the wellness business is another big opportunity for US.
Speaker 4: Erinde. Your beverage portfolio.
Speaker 3: You guys have done some streamlining, and you know, the
Speaker 3: recently announced portfolio rationalization of beer brands in the US
Speaker 3: is really kind of consistent across the overall slowdown that
Speaker 3: we've seen with other alcoholic producers. Tim and I talk
Speaker 3: about it all the time with folks in the alcohol industry.
Speaker 3: Is cannabis use among young adults at the expense of alcohol.
Speaker 4: The reason why.
Speaker 7: So, Number one is, you know, we've done multiple acquisitions
Speaker 7: within the beer business in the US. We bought eight
Speaker 7: businesses from Anheuser Busch. We just bought four from Mulson's.
Speaker 7: We bought Montak Brewer. We we got Sweetwater. With that,
Speaker 7: we're doing a couple of things. We're doing a skew
Speaker 7: rationalization as we had way too many skews out there.
Speaker 7: We're coming up with a lot of new innovation. We
Speaker 7: have over one hundred and forty new products.
Speaker 8: And the other thing what we're.
Speaker 7: Doing is they're skeewing our brands to such regional brands
Speaker 7: and we're before we are selling them in multi states.
Speaker 8: Now we're only going to sell it in two or
Speaker 8: three different states.
Speaker 7: But shot Talk will become, you know, a national brand
Speaker 7: for US, and Sweetwater will be expelled and with half
Speaker 7: the US. So that's one of the big reasons. And
Speaker 7: the other thing is is we bring all these businesses
Speaker 7: together taken out costs. Is taking ours all these SKUs So.
Speaker 3: Yes or no, it's not because young adults are doing
Speaker 3: more cannabis versus drinking.
Speaker 7: So I think the young adults absolutely are doing more
Speaker 7: cannabis and absolutely that is you know, a rationalization, and
Speaker 7: that is affecting the drinking business.
Speaker 3: Absolutely great to get some time with you, Ern Simon,
Speaker 3: He's CEO of Tillry Brands.
Speaker 4: This is Business Week.
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Speaker 5: I said we were going to start with Apple, but
Speaker 5: that was before I learned about this bloom A News
Speaker 5: story from our next guest, Mark German, Bloomberg News Chief
Speaker 5: Technology correspondent, joining us from our San Francisco bureau. That's
Speaker 5: exactly where I want to start off.
Speaker 9: Mark.
Speaker 5: We'll get to Apple in just a minute. But you've
Speaker 5: got this story out about Meta working on upgrades too.
Speaker 5: It's smart glasses exploring new wearable devices. We're talking watches,
Speaker 5: camera equipped earbuds, looking to embed AI into more of
Speaker 5: its products. What did you learn?
Speaker 10: Yeah, so Meta that's the hot story this morning. Obviously,
Speaker 10: they've got their hardware division, Reality Labs, and they're cooking
Speaker 10: up a lot of stuff. They're cooking up some ideas
Speaker 10: that Apple has tried and Apple has been working on,
Speaker 10: and they're also cooking up some new ideas to take
Speaker 10: their smart glasses business to new heights. So let me
Speaker 10: start with this year. So right now, you have ray
Speaker 10: Ban Meta glasses. Right, those don't have AR displays, but
Speaker 10: they have cameras, microphones, you can take calls, control music,
Speaker 10: do all sort of sorts of stuff with them using
Speaker 10: Meta AI. Those are getting a big upgrade this year. Right,
Speaker 10: they're going to launch a new version that uses Oakley glasses. Right,
Speaker 10: this is meant for bikers, meant for athletes and such,
Speaker 10: so a little bit of a higher end pair. Then
Speaker 10: they're going to launch a super top end pair that's
Speaker 10: probably gonna cost around one thousand dollars. This is going
Speaker 10: to have a display in the right lens. It's not
Speaker 10: an AR display, but just a display so you can
Speaker 10: run some light applications, see photos that you took, get notifications.
Speaker 10: It's going to be pretty nifty. They're testing using risk
Speaker 10: based control. That's the same control mechanism that they've used
Speaker 10: for their AR glasses prototype Orion looking Ahead Orion, that's
Speaker 10: the big AR glasses splash they made last fall. That's
Speaker 10: actually never going to launch as a consumer product. Instead,
Speaker 10: they're going to start trying to sell it to developers
Speaker 10: next year in twenty twenty six, as a testing ground
Speaker 10: to develop applications for it. A year later they'll launch
Speaker 10: a follow up. The first one aim to consumers with
Speaker 10: AR functionality. That's called Artemis. That's a more modernized version
Speaker 10: some display trade offs, better hardware, better software, more modern
Speaker 10: the other things they're looking at, and this comes back
Speaker 10: to the Apple portion is again launching a smart watch.
Speaker 10: They've considered it for about half a decade, maybe even
Speaker 10: longer than that. They're working on it again, talking about
Speaker 10: launching it sometime this year or next year. And then lastly,
Speaker 10: they're exploring earbuds. These would be AirPods competitors in house
Speaker 10: headphones from Meta, and they would include cameras and you'd
Speaker 10: basically be able to look around and use AI to
Speaker 10: understand the surrounding environment. So the functionality would be very
Speaker 10: similar to what you're getting from the ray bands right
Speaker 10: now or the other Meta smart glasses, but they would
Speaker 10: be in a more familiar form factor. Right, There's some
Speaker 10: people who don't want to wear glasses, and so the
Speaker 10: alternative to get those same AI features would be tucking
Speaker 10: in those technologies and cameras and other elements into the earbuds.
Speaker 10: It's interesting because this is a type of product that
Speaker 10: both Apple and Samsung are exploring as well. So it
Speaker 10: seems like all the tech companies are looking how they
Speaker 10: can really beef up the earbuds businesses.
Speaker 3: Mark It feels like a really big step by Meta
Speaker 3: even further into hardware.
Speaker 4: Why are they doing it?
Speaker 2: Yeah?
Speaker 10: For for Meta all in on AI right now, and
Speaker 10: the best expression of AI is how it's integrated into
Speaker 10: hardware products. Obviously, if you're not the device maker, you're
Speaker 10: not going to be able to integrate AI. You see
Speaker 10: that Apple has its own AI tucked into its devices.
Speaker 10: Google has its own AI and its device is Samsung
Speaker 10: has its own AI and its devices. So for Meta
Speaker 10: really to be able to be a leader in artificial intelligence,
Speaker 10: they're going to need to push it not only to
Speaker 10: their applications on various platforms, but build their own platforms
Speaker 10: to run it on. And obviously glasses and different wearables
Speaker 10: like earbuds and smart watches. Those are the ultimate expressions
Speaker 10: of AI in making that technology actually useful. So I
Speaker 10: would say at this point, based on what we've seen publicly,
Speaker 10: it's fair to say that Meta is the leader in
Speaker 10: AI wearables, in AI devices right in terms of next
Speaker 10: generation types of platforms things be on the smartphone, We'll
Speaker 10: have to see if Google and Apple and Samsung others
Speaker 10: will catch up in the coming years. I do expect
Speaker 10: them to, at least on the hardware side in Apple's case,
Speaker 10: maybe not on the II side, but for now they
Speaker 10: have a first mover advantage.
Speaker 8: Mark.
Speaker 5: You try all this stuff out when it does come out,
Speaker 5: not when it's being worked on. What have you tried
Speaker 5: from META platforms And how has it been Because I
Speaker 5: haven't actually tried these smart glasses yet.
Speaker 10: Yeah, I've been wearing the Meta smart glasses actually recently.
Speaker 10: I love the form factor. The phone call quality is great.
Speaker 10: It's basically, you know, air pods and a glasses form factor,
Speaker 10: and you really get no benefit for that, right unless
Speaker 10: you have lenses that take advantage, lenses that take advantage
Speaker 10: of the surrounding environment by using augmented reality there's really
Speaker 10: no advantage to having that form factor. I guess the
Speaker 10: only thing you could say is usability, right getting that
Speaker 10: full temple area to do gestures, But Apple's done a
Speaker 10: pretty good job in the small space allocated on the
Speaker 10: miniature size of the air pods. The other thing is
Speaker 10: battery life, but those things will be overcome. So until
Speaker 10: you get these AR displays into these smart glasses, they're
Speaker 10: really no more useful from a technology standpoint in comparison
Speaker 10: to earbuds with cameras. But of course we're still waiting
Speaker 10: for that evolution to happen. So I think at some
Speaker 10: point you'll see smart glasses without displays morph into these
Speaker 10: earbudds with cameras, and the smart glasses market is going
Speaker 10: to become this AR device's market.
Speaker 5: But that's going to take a while, Okay, part perfect
Speaker 5: segue to move on to another big tech name. Shares
Speaker 5: of meta platforms, by the way, hired by about seven
Speaker 5: tens of one percent. Apple shares down three point eight percent.
Speaker 5: They were down as much as four point six percent,
Speaker 5: weighing on the S and P five hundred and the Nasdaq.
Speaker 5: iPhone sales fell eighteen point two percent in China, according
Speaker 5: to Counterpoint Research. That was during the December quarter. The
Speaker 5: company also getting this pair of analyst downgrades market It
Speaker 5: makes me think of what happened a year ago. We'd
Speaker 5: be talking to you throughout the month of January, Apple
Speaker 5: getting two down grades. In the first week of twenty
Speaker 5: twenty four, there was news of a discount on the
Speaker 5: iPhone fifteen in China. Everybody was freaking out about iPhones.
Speaker 5: Then Apple closes out the year hire by thirty five percent.
Speaker 5: What's going on here?
Speaker 10: Yeah, every year, I think for the last five six years.
Speaker 10: I think since around late twenty eighteen early twenty nineteen,
Speaker 10: there have been concerns about iPhone performance in China, particularly
Speaker 10: in the holiday quarter.
Speaker 9: You know China.
Speaker 10: The China iPhone sixteen launch misses out completely. On Apple
Speaker 10: intelligence and artificial intelligence, I don't think Apple intelligence is
Speaker 10: I don't think it's even fair to talk about it
Speaker 10: in the same breath as what you're seeing from METAAI
Speaker 10: and Google AI and some of the features you're gonna
Speaker 10: see from Samsung Leader this week on THEIRS twenty five line.
Speaker 10: But still it's a marketing point. It's important for consumers
Speaker 10: to know that AI for apples there too, and they've
Speaker 10: completely missed the boat on China, and I think that's
Speaker 10: dragged down iPhone sales there a little bit, combined with
Speaker 10: the fact that there's no new design or major new
Speaker 10: features in the iPhone sixteen hardware. Later this year, they're
Speaker 10: gonna come out with an air version of the iPhone seventeen,
Speaker 10: and from everything I've heard, that's probably not going to
Speaker 10: have a physical simcard slot. That's something that you need
Speaker 10: to use most carriers and most plans in China, So
Speaker 10: the sales of that device probably won't be as strong
Speaker 10: as they would have liked in China. But once they
Speaker 10: come out with a new design phone, I think some
Speaker 10: things will start to slightly turn around. But certainly the
Speaker 10: tide is continuing to shift for Apple and China in
Speaker 10: the wrong direction.
Speaker 3: Yeah, that's what I was going to ask you, Like,
Speaker 3: if they miss you know, if they have a quarter
Speaker 3: or there's you know, a product cycle a quarter or two,
Speaker 3: you know, does that just kind of build on itself
Speaker 3: to the downside. I'm just curious, you know, or do
Speaker 3: if consumers in China get excited, do they come back
Speaker 3: to Apple?
Speaker 2: Yeah?
Speaker 10: I don't think Apple's ever going to disappear the Chinese
Speaker 10: market loves these luxury items, these luxury goods, and you
Speaker 10: know Apple's going to keep coming out with more expensive
Speaker 10: devices and higher end devices. I certainly think once Apple
Speaker 10: is able to bring a foldable to market, I think
Speaker 10: that's going to do extraordinarily well in China if they
Speaker 10: can get the SIM card and the e SIM situation
Speaker 10: worked out there, because China is very prominently using physical
Speaker 10: SIM cards and when you move to these foldable devices,
Speaker 10: it's more of a digital SIM system because of the
Speaker 10: smaller space. But I'm sure they have plans to figure
Speaker 10: that out. But once Apple gets into foldables, I think
Speaker 10: that'll be slightly helpful there.
Speaker 5: Okay, Mark, we've said the last minute and a half
Speaker 5: to talk about Sonos because your Power On column over
Speaker 5: the weekend talked about the question would Apple buy Sonos?
Speaker 9: So they won't.
Speaker 5: Yeah, he wrote a whole column about it, and the
Speaker 5: answer is just.
Speaker 2: No, Yeah, I don't.
Speaker 10: Well, the column said that Apple's not gonna buy them, right,
Speaker 10: I don't see any benefit certainly on the software side.
Speaker 10: Apple's not gonna buy them. The software is the whole
Speaker 10: reason the CEO was just fired. Right on the hardware side,
Speaker 10: much of it is commoditized, and Apple has the chops
Speaker 10: internally to do speakers if they wanted to. So you're
Speaker 10: not really buying anything but a relatively small user base.
Speaker 10: So this is a better fit for a company like
Speaker 10: Spotify or Amazon.
Speaker 5: I'm Mark, I'm part of that small user base, and
Speaker 5: our Sono system at home is basically bricked. It's kind
Speaker 5: of unbelievable. We had this great system. It just doesn't
Speaker 5: work anymore. Is Tom Conrad gonna fix this or am
Speaker 5: I just out of luck?
Speaker 10: He's going to fix it enough, in my opinion, to
Speaker 10: make Sono's an interesting acquisition target. And I think at
Speaker 10: its sub two billion dollar market cap, which is in
Speaker 10: one one four thousandth of what Apple's probably going to
Speaker 10: be worth, and you know about before the end of
Speaker 10: the year, right uh, I think they're extremely attractive. We'll
Speaker 10: have to see what the new Justice Department is going
Speaker 10: to allow in terms of acquisitions, but it would fit
Speaker 10: quite nicely into Amazon, and it would also fit quite
Speaker 10: nicely into a company like Spotify that's tried and failed
Speaker 10: to develop its own hardware in the past.
Speaker 5: I just want speakers that work, Carol, He just wants
Speaker 5: it to work. I'm using my phone.
Speaker 4: About it a lot.
Speaker 5: I'm just going to tell you, yeah, I'm not the
Speaker 5: only one.
Speaker 3: All right, Mark Urman, thank you so much. Bloomberg News
Speaker 3: Chief Technology correspondent. Be sure to check out his weekly
Speaker 3: column and his Power on newsletter.
Speaker 8: Mac.
Speaker 7: I bet you let me drive.
Speaker 9: Oh no, no, no no, this is not a twin.
Speaker 8: Please, I.
Speaker 3: Want to drive.
Speaker 6: It's a good question.
Speaker 2: This is the drive to the clothes.
Speaker 9: Now, plum for me.
Speaker 2: Well then on Bloomberg Radio, all right.
Speaker 3: Everybody, just about eighteen minutes left in today's trading session.
Speaker 4: You heard from Charlie and Bill Maloney.
Speaker 3: We've got stocks pretty much hovering near their best levels
Speaker 3: of the session, so up about eight tens of a
Speaker 3: percent on the S and P five hundred again, of
Speaker 3: about two thirds of one percent on the Nasdaq one hundred,
Speaker 3: and the Dowie, if you're interested, is up more than
Speaker 3: one percent, So we're talking about a five hundred point gain.
Speaker 3: And we've seen pretty much some broad based buying into
Speaker 3: the trade.
Speaker 5: Hey, it's everybody's favorite parlor game, Carol Masser. How many
Speaker 5: times is the Fed going to cut rates this year?
Speaker 4: It's going to do what it's going to do.
Speaker 5: Well, traders, right now, pricing in about one and a
Speaker 5: half rate cuts by the end of the year. Yet
Speaker 5: our next guest says he's expecting four rate cuts. We're
Speaker 5: going to drive the clothes now with Chris McMahon, CEO
Speaker 5: of Aquinas Wealth Advisors and MFA Wealth. Chris joins us
Speaker 5: here in the Bloomberg Interactive Brokers Studio. He's also the
Speaker 5: author of a new book, Faithful Finances, Six Steps to
Speaker 5: Establishing a Catholic Financial Life. Chris, good to see you again.
Speaker 5: Look at that one and a half rate cuts by
Speaker 5: the end of the year. That's what sure the folks
Speaker 5: the options market is looking at right here, you're saying
Speaker 5: four though, why.
Speaker 9: A couple of reasons. I think it's funny, Tim, isn't it?
Speaker 9: What just last week?
Speaker 3: Was it?
Speaker 9: Vava said no rate cuts? They said, look, we're in trouble.
Speaker 9: The inflation's not rained in. We're gonna have no cuts
Speaker 9: next year. Then we saw what happened. PPI was cool.
Speaker 9: CPI was cool last week.
Speaker 6: Right.
Speaker 9: Then. Of course, Goldman came out just the other day
Speaker 9: and said, look, we're I think what did they called.
Speaker 9: I think they called it the sweet spot of the
Speaker 9: economy where inflation's under control yet and also at the
Speaker 9: same time, the economy is growing, and I think they
Speaker 9: called for two if them research so they called for two,
Speaker 9: and we're swinging for the fences. We think there's gonna
Speaker 9: be four. And one of the big reasons for this,
Speaker 9: which I don't think we're talking about enough, is kind
Speaker 9: of all this commercial real estate that's out there cooking
Speaker 9: the refinanceays. There's still a trillion dollars of commercial real
Speaker 9: estate leases are gonna have to be refinanced in twenty
Speaker 9: twenty five. That means that those interest rates have an
Speaker 9: enormous impact on this are you know, I certainly the
Speaker 9: FED might be you know, smidge political from time to time.
Speaker 3: Right, you're saying the Fed is going to do four
Speaker 3: rate cuts to tell about the commercial real estate?
Speaker 6: I do.
Speaker 9: I think that's going to have to We're I think
Speaker 9: we have a I think, Carol, I think at the
Speaker 9: end of the day, it will be a catastrophe. It'll
Speaker 9: slow down so much of this mojo we have going now,
Speaker 9: we'll push up against new highs in the Dow if
Speaker 9: we see, if we see some of this really problematic
Speaker 9: real estate not being refinanced at reasonable rates, I think
Speaker 9: it's gonna be a problem. And I think that's all.
Speaker 4: Why should sorry, why should the Fed do that? What
Speaker 4: are the implicator I mean.
Speaker 9: Lots of implications.
Speaker 3: That's a great question, But I mean, why once again
Speaker 3: should there be kind of a bailout.
Speaker 4: Well, that's a great question or a very helpful move.
Speaker 9: I think they would do it absolutely as a bail
Speaker 9: They wouldn't call it a ballot, but I think it's
Speaker 9: a move to a the commercial real list to industry.
Speaker 9: I think the consequences of not doing it or could
Speaker 9: be potentially could derail this entire market. We could see
Speaker 9: markets push down twenty you know, twenty percent easily. And
Speaker 9: some of these games we've made, and we've made them today.
Speaker 3: So take a step back, Chris, So you're saying, I mean,
Speaker 3: we've been talking about concerns about office property commercial, right,
Speaker 3: it's the office property, and it's not the top tier.
Speaker 3: We're talking about the lower tiers.
Speaker 4: And is this just because of pandemic people not going
Speaker 4: back to the office. It's just as simple as that is.
Speaker 3: It's vacant office properties that you really can't repurpose, and
Speaker 3: so something's got to happen.
Speaker 9: Absolutely. Carol from Pittsburgh. We've a tower there be and
Speaker 9: y has a huge tower in Pittsburgh. They're saying it's
Speaker 9: gonna be thirty percent occupied by the end of the year.
Speaker 9: Thirty percent, right, And that's just one little city. Cleveland.
Speaker 9: You saw what happened the skyscrapers that were sold. That's
Speaker 9: a huge issue. We see it. And then factor the
Speaker 9: fact that europe Central Bank said they were going to
Speaker 9: do four cuts. We don't mimic what Europe does, but
Speaker 9: I think we're going to be in an environment of reduce,
Speaker 9: of decreasing interest rates, and I think inflation has at
Speaker 9: least taken a pause. It gives them an opportunity to
Speaker 9: at least do too, you know, in the first in
Speaker 9: the beginning of the year, in the first quarter for sure.
Speaker 5: Okay, let's take a step back from rapcuts and talk
Speaker 5: about the incoming administration. I guess it's not well.
Speaker 4: It's kind of like linked it totally is.
Speaker 5: I mean, but they only have so much power. You said,
Speaker 5: the FED sometimes gets political.
Speaker 9: Every now and then they do get a little.
Speaker 5: What are some examples of that?
Speaker 9: Well, I mean, I think I think we've seen the
Speaker 9: interest rates go be cut probably at times last year
Speaker 9: when we had a big seventy five bit basis cut,
Speaker 9: people say, what's going on right now? We're still in
Speaker 9: an inflationary period. Clearly that was a sign to get
Speaker 9: in front of him, to sorry, set aside inflation and
Speaker 9: make consumers confident.
Speaker 8: Right.
Speaker 9: We see that all the time, and I think we're
Speaker 9: going to see it more. Consumer debt is still at
Speaker 9: all time highs. It's really a problem, right, But I
Speaker 9: don't worry about the consumer debt nearly as much they
Speaker 9: do the commercial real estate. I think that debt could
Speaker 9: be catastrophic to the economy, and I think, wait.
Speaker 4: Is that because the bank exposure.
Speaker 9: Yes, I think particularly regions.
Speaker 6: So then we.
Speaker 4: Shouldn't bring down the capital reserve ratio, should we?
Speaker 9: No, we should not.
Speaker 4: We should maybe even increase them.
Speaker 9: We're worried about regional banks. We think the big banks
Speaker 9: are going to be okay, the regional banks and whole
Speaker 9: commercial real estate, we're very worried about what that would
Speaker 9: do to them. And that's why we see the interest
Speaker 9: rates coming down. It'll save, it'll save, in our opinion
Speaker 9: of the regional banks, a great deal of pain, a
Speaker 9: lot of stress.
Speaker 10: Right.
Speaker 3: Well, well, so it's kind of interesting.
Speaker 4: So I'm thinking about people who are listening.
Speaker 3: I mean, we've what I wanted to go back to
Speaker 3: is that we've been thinking about talking about concer, about
Speaker 3: office properties, and you're saying, because today this year is
Speaker 3: when they've got to start making the payments and they've
Speaker 3: got to either restructure. Huh Okay. If we don't get that,
Speaker 3: then what happens? Is it a financial crisis akin to
Speaker 3: the GFC the Great Financial Crisis?
Speaker 9: I don't think so. I think it's going to be
Speaker 9: nothing like, it's not going to be compared, but it's
Speaker 9: going to be one. Maybe it'll be it'll be you know,
Speaker 9: forty percent of it could be dramatic. I think we
Speaker 9: can have twenty I even potentially twenty five percent rundown
Speaker 9: on all the all the capital markets, which would be
Speaker 9: catastrophic and all that wealth that was created would be
Speaker 9: wiped out. I think.
Speaker 3: But your real concern is the regional bank exposure. They're
Speaker 3: the ones that are going to feel it.
Speaker 5: Go ahead, I want to talk a little bit about
Speaker 5: like step back, big picture and hear more about what
Speaker 5: you do at aquinas Wealth Advisors in MFA Wealth, because
Speaker 5: you're a CEO of both of these organizations. I want
Speaker 5: to focus on aquinas a little bit because you write
Speaker 5: that you believe that good returns and good values are
Speaker 5: not mutually exclusive. You also have this new book coming
Speaker 5: out about faith and investing. Talk to us a little
Speaker 5: bit about how you make investments based on your face.
Speaker 9: It's interesting to him. For years, we never did it,
Speaker 9: They said, separate it, don't ever discuss politics and religion.
Speaker 9: But what happened was it became so polarized in the boardrooms.
Speaker 9: Boards became so socially active, much like college boardrooms did previously.
Speaker 9: And what we found as many of our investors were
Speaker 9: saying that had more traditional values. They're said, my goodness,
Speaker 9: the companies I'm investing in are radically out of alignment
Speaker 9: with the things I'm concerned about. Our main goal be
Speaker 9: to pull these companies back to neutral. That would be
Speaker 9: our main goal, right, get back to the old days.
Speaker 9: Companies make profits, They give the shareholders of the former
Speaker 9: dividends instead of having chairmans of companies. They've become really overvalued.
Speaker 9: They think their opinions are so important to us, which
Speaker 9: they're not.
Speaker 5: But did that hurt returns?
Speaker 6: Oh?
Speaker 9: Absolutely I think it did. Certainly.
Speaker 5: What are some examples of companies that went all in
Speaker 5: on these policies that then didn't have returns as good
Speaker 5: as you think they could have.
Speaker 9: That's a good question. I think there's an issue around
Speaker 9: investors bailing out on securities that hurt those companies ultimately.
Speaker 9: And I think when I think about that, there's some
Speaker 9: companies have done poorly. And also there's been a little
Speaker 9: bit of impunity if you're a call correctly some of
Speaker 9: the corporations where they saying, look, we don't care, this
Speaker 9: is who we are. For example, you know that corporate
Speaker 9: Equity Index scoring and you familiar with that scoring system,
Speaker 9: which really think about that for a second. Just two
Speaker 9: years ago, they were saying, unless you adopt our mandates
Speaker 9: around you know, DEI and these other types of concerns,
Speaker 9: even if your company is profitable, we're gonna if your
Speaker 9: corporate Equity Index score is not high enough, we're going
Speaker 9: to displace you as the chairman of the company. We're
Speaker 9: going to change the makeup of your board. That these
Speaker 9: companies are being held hostage by these mandates, and I
Speaker 9: think that really is changing dramatically and very very quickly
Speaker 9: as we see it.
Speaker 3: I think there's two sides too, because we also have
Speaker 3: a story about how a group of about thirty shareholders
Speaker 3: representing about two hundred and sixty six billion in funds
Speaker 3: as asked Walmart to explain its decision to retreat on diversity,
Speaker 3: equity and inclusion initiatives, especially after years of having consultants
Speaker 3: McKenzie and others saying, listen, diversity improves performance.
Speaker 9: Yeah, it's a great quick thing. You go right to
Speaker 9: the point, Carroll, here's the problem you're going. No one's
Speaker 9: ever going to be satisfied. We shouldn't get out of
Speaker 9: this business altogether. And reverse discrimination is discrimination, always discrimination.
Speaker 4: Chris, we got to run. Happy New Year.
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