Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: Helene Becker joins now senior research analyst at TD Cowen,
Speaker 2: and we're thrilled that she could be with us today.
Speaker 1: Helene, January twenty second.
Speaker 2: I guess we get an earnings report from United, the
Speaker 2: others will lined up. What is their urgency to act,
Speaker 2: not so much off the Boeing accident, but their urgency
Speaker 2: to act because of the topsy turvy markets they're in now.
Speaker 3: I think that we have a situation where we're expecting,
Speaker 3: or we saw fourth quarter traffic was pretty good. The
Speaker 3: further we get away from twenty twenty, the more we'll
Speaker 3: see managed corporate travel come back. I think the trip
Speaker 3: where you have maybe a one day trip isn't coming
Speaker 3: back anytime soon. I feel like it's a lot like
Speaker 3: after nine to eleven tom when the really short haul
Speaker 3: trips went away, and we expect that to continue really now.
Speaker 3: But the longer haul trips. People need to get out,
Speaker 3: they need to see their clients. We've been talking about
Speaker 3: this for about a year now and we're seeing that.
Speaker 3: We're seeing that increase in managed travel, and we think
Speaker 3: that we'll continue into the rest of this year.
Speaker 2: With the Boeing accident, with the rivets, the fasteners, whatever,
Speaker 2: we're going to see in the coming weeks of that analysis,
Speaker 2: even months, I should say, of that analysis, what does
Speaker 2: it mean for the dynamic of refleeting A word I
Speaker 2: discovered last week. I think Helene Becker, you know, refleeting
Speaker 2: is going out and buying the bright, shiny new thing accelerated.
Speaker 3: Yeah, well yes, and no American did their refleeting in
Speaker 3: the last decade, so they're on the downside of that.
Speaker 3: United is doing it now and into twenty thirty two.
Speaker 3: Delta is in the middle of it. But Delta has
Speaker 3: a different and Southwest actually have different viewpoints on the
Speaker 3: way they refleet. They kind of spend about ten percent
Speaker 3: revenue on capex, somewhere between eight and ten percent every year,
Speaker 3: so they're continually refleeting, so we view that fairly favorably.
Speaker 3: I don't think anything changes. There's a lot of pressure
Speaker 3: on the industry to lower their carbon footprint. I know
Speaker 3: aviation only makes up two percent of total transportation carbon,
Speaker 3: but others are doing the whole reduction carbon faster, so
Speaker 3: aviation over time will become a bigger percentage of it.
Speaker 3: So there's a lot of pressure to fly young are
Speaker 3: more fully efficient aircraft oleane.
Speaker 4: I can't get past this comment from George ferguson words
Speaker 4: you never want to hear, when he basically came out
Speaker 4: and said it's not as safe as it was before
Speaker 4: the pandemic, talking about the safety of flying at a
Speaker 4: time when we did just have this incident with Alaska Airlines,
Speaker 4: also the incident that we saw in Japan, Questions around
Speaker 4: the competency and staffing levels at some of the agencies.
Speaker 4: Are you concerned? Do you feel like that is an
Speaker 4: accurate statement that it is not as safe to fly
Speaker 4: today as pre pandemic.
Speaker 3: No, no, no, I disagree with that completely. The fact
Speaker 3: that there were no casualties on the japan Air A
Speaker 3: three thirty is hugely significant. They were able to evacuate
Speaker 3: that entire aircraft without any incident, with half the doors
Speaker 3: being half the emergency doors being unusable because of fire.
Speaker 3: So I think that's one thing to consider. I think
Speaker 3: from an aviation perspective and a safety perspect that every
Speaker 3: time there's an incident, there's an investigation. There is no
Speaker 3: cover up. You never see that as you would in
Speaker 3: some as you may in some other industries. There have it.
Speaker 3: I mean, not to cha the industry, but there really
Speaker 3: haven't been any major accidents. The fact that Alaska air
Speaker 3: pilots were able to declare any emergency turnaround land safely
Speaker 3: with no injuries is hugely significant. And I think aviation
Speaker 3: is still the sepest form of transportation. No other industry
Speaker 3: does the deep dive into accidents that aviation does, and
Speaker 3: then aviation trains for every accident, and I think I
Speaker 3: think it's I think aviation is still very safe.
Speaker 4: I think that a lot of people will point to
Speaker 4: what happened in Japan and point out that that plane
Speaker 4: that everyone did manage to get out of I believe
Speaker 4: was an air bus and not a poet. But nevertheless, Yeah,
Speaker 4: So going forward, though, I'm curious what about some of
Speaker 4: the air traffic control issues and some of these other things.
Speaker 4: How important is it for airlines to do some sort
Speaker 4: of pr job, if nothing else, to assuage some of
Speaker 4: the concerns of neurotic people like myself. Where you're looking
Speaker 4: at this and thinking like, I don't.
Speaker 3: Know, well, I think you have to think aviation is
Speaker 3: safe number one. Number two, Yes, we do need to
Speaker 3: address the air traffic control situation, and the fact that
Speaker 3: we now have a permanent administrator is hugely important. That's another,
Speaker 3: you know, another thing that we view favorably. The FAA
Speaker 3: is certified to March eighth, so the government needs to
Speaker 3: really step up its efforts and get it certified permanently.
Speaker 3: My views are different than some of my peer group.
Speaker 3: I personally think the government should be responsible for safety
Speaker 3: and security, and I think your traffic control should be
Speaker 3: a separate corporation that's public that's paid for everybody. Right now,
Speaker 3: General Aviation, TOLUM and least in John don't pay for
Speaker 3: using air traffic control system.
Speaker 2: Helen, this is I wish we had another hour to
Speaker 2: cover this because I think each and every listener and
Speaker 2: viewer want to know about Back to the Reagan uproar
Speaker 2: and unions of years ago. How different is our transportation
Speaker 2: safety structure versus other major developing countries.
Speaker 3: Yeah, so euro Control runs Europe and that's a public
Speaker 3: company and Canada's public company and Canada it's just run differently.
Speaker 3: And I'm not saying it's better. I'm not saying it's worse.
Speaker 3: I'm just saying it's different, and you don't have the
Speaker 3: puts and starts that you have here. I've been talking
Speaker 3: about next gen since I started covering the industry four
Speaker 3: decades ago, and we're still talking about it. It's years
Speaker 3: behind schedule, it's over budget. Air traffic control, to your point, Tom,
Speaker 3: the Reagan administration fired all the air traffic controllers. They
Speaker 3: retrained them NAT because the union that represents them. They're
Speaker 3: they're well trained, but they're overworked, they're fatigued. We don't
Speaker 3: have enough of them to handle what we're doing right now,
Speaker 3: and so the aviation system will slow down. You won't
Speaker 3: be able to We'll see growth through replacing smaller aircraft
Speaker 3: with larger aircraft. We don't think we'll see the same
Speaker 3: level of pilot hiring in twenty four and twenty five
Speaker 3: that we saw in twenty one, two and three. That
Speaker 3: from that perspective. As we move further into the decade
Speaker 3: and people have more experience, that will be beneficial. But
Speaker 3: we're not going to grow as fast as we grow
Speaker 3: in prior decades because we just don't have the experience,
Speaker 3: and we can push the air traffic controllers to too
Speaker 3: much over time because it's a very taxing job to
Speaker 3: begin with, and we don't want any accidents to occur
Speaker 3: in the US because we want to continue to be
Speaker 3: able to say it's the safest form of transportation.
Speaker 5: Helen, I've got sixty seconds left on a clock top
Speaker 5: pic if ivor trade this year? What is it?
Speaker 1: Oh?
Speaker 3: Yeah, our favorite trade this year is Delta after United
Speaker 3: was our face for trade for the past two years.
Speaker 5: Why the change?
Speaker 3: The difference in capex, frankly is the biggest difference. I
Speaker 3: think United will continue to do well, but they're going
Speaker 3: to borrow a lot of money, sick. They have a
Speaker 3: sixty billion dollar capex program between now and twenty thirty two,
Speaker 3: and Deltas is not nearly as big, so you won't
Speaker 3: see the stress and the balance sheet that you may
Speaker 3: see at United.
Speaker 5: Interesting, Helene, thank you, thanks for the up date and
Speaker 5: lane backing there of td count, Thank you very much.
Speaker 5: Starting in the conversation this morning with Lori Cavassino, the
Speaker 5: head of US screty strategy at RBC Capital Markets, Loury,
Speaker 5: Good morning to you. This line jumped down from your
Speaker 5: most recent note, the week's start in January is just
Speaker 5: the beginning of a phase of turbulence. How concerned are
Speaker 5: you about that?
Speaker 6: Well, well, Johnny, I was talking to one of my
Speaker 6: traders last week and we were discussing the CFTC data.
Speaker 6: We're starting to see it's really just looking very very stretched,
Speaker 6: and I said, this looks scary, and I think we
Speaker 6: need to keep in mind that sentiment has been oscillating
Speaker 6: very very quickly over the last six months, so this
Speaker 6: isn't necessarily something that has to derail a call for
Speaker 6: the year. Maybe damp an enthusiasm just a little bit,
Speaker 6: but really what we've started to see the CFTC data
Speaker 6: on institutional investor positioning line up with what we're seeing
Speaker 6: on the retail survey for aaii, and both are looking
Speaker 6: very very stretched right now. I think there are a
Speaker 6: number of things that could come in and trip this
Speaker 6: market up a bit, but usually it's something the market
Speaker 6: doesn't see coming, So I think we need to focus
Speaker 6: here on the idea that sentiment itself just got carried
Speaker 6: away at the end of last year.
Speaker 2: Laurie Mike Wilson has been cautious on the markets. Over
Speaker 2: at Morgan Stanley has a brilliant paragraph parketing to nominal
Speaker 2: growth could be the surprise this year. It's one of
Speaker 2: his more optimistic constructions of where we're heading in the
Speaker 2: mystery of twenty twenty four, what do mid caps and
Speaker 2: small caps do?
Speaker 1: If we get legitimate.
Speaker 2: Animal spirit, we get legitimate nominal GDP.
Speaker 6: So what we've done typically seen is that when GDP
Speaker 6: and we tend to look at it in real terms
Speaker 6: as opposed to nominal terms. But if you're looking at
Speaker 6: real GDP above two point six percent, and two point
Speaker 6: six percent has been the long term average since the
Speaker 6: late seventies, we typically see that small caps and value
Speaker 6: stocks outperform in that environment. When GDP is running cool
Speaker 6: below trend, that's when large caps and growth tend to outperform.
Speaker 6: So it goes back to this question of leadership and
Speaker 6: rotation in the market. We've got GDP forecasts sitting at
Speaker 6: about one point three percent this year. That's up from
Speaker 6: about one percent back in November, so they're moving in
Speaker 6: the right direction. But if we really want to get
Speaker 6: a lasting, sustainable, durable leadership rotation away from the megacap
Speaker 6: growth stocks and into basically everything else in the market,
Speaker 6: you need to see GDP expectations move up quite a
Speaker 6: bit more from where they are right now.
Speaker 2: I mean, okay, well, the GDP's got to come up.
Speaker 2: I get that, But what do we do right now?
Speaker 2: I mean, you're deploying.
Speaker 1: Cash to small you know they've pulled back.
Speaker 2: You deploying cash this morning to small caps and mid caps.
Speaker 6: So I still like them, I don't like them quite
Speaker 6: as much as I did, you know, say four or
Speaker 6: five weeks ago when we last spoke. One of the
Speaker 6: things we've seen is that, in addition to sentiment getting
Speaker 6: a little frothy at the broader market, if you look
Speaker 6: at small cap positioning on the CFTC data, we're at
Speaker 6: important crossroads. We're basically at the three year highs, but
Speaker 6: we're not at all time highs. So we're going to
Speaker 6: know pretty soon whether or not small caps are really
Speaker 6: able to power through and take things up another leg
Speaker 6: of we's also still seeing that small caps look very
Speaker 6: cheap relative to large But if you look at a
Speaker 6: Russell two thousand and forward pe, it's back to average.
Speaker 6: Now that's not usually where things top out at, but
Speaker 6: it is telling us that maybe we have made a
Speaker 6: lot of the easy money in small caps already. So
Speaker 6: do I like them? Yes? Do I like them as
Speaker 6: much as I did a month ago? Not quite?
Speaker 4: This sounds all kind of negative, and yet you just
Speaker 4: upgraded your forecast for year end twenty twenty four to
Speaker 4: a fifty one fifty. That's a ten percent upside from here.
Speaker 4: If it's not small caps what leads.
Speaker 6: So I think that the value stocks in particular are
Speaker 6: something to keep an eye on. From here. We've seen
Speaker 6: the financials act quite well now I'm actually a little
Speaker 6: bit nervous about that heading into reporting season, but we've
Speaker 6: started to see some more favorable views emerge on the
Speaker 6: industrials as well. So I think we're going to get
Speaker 6: some interesting clues in this reporting season. But I do
Speaker 6: think sector composition is very, very tough right now. I
Speaker 6: do think, Lisa, if you kind of go back to
Speaker 6: our target, we were anticipating about a ten percent return,
Speaker 6: and we put that target out in early our mid
Speaker 6: November we were on sort of the earlier side of
Speaker 6: putting targets out. We trued up all of our you know,
Speaker 6: sort of models for year end. We did have this big,
Speaker 6: ferocious run in December, and now where we're sitting today,
Speaker 6: even with this upgrade on the fifty one to fifty,
Speaker 6: it's only about an eight percent return on the year,
Speaker 6: So it's not necessarily getting more bullish. It's just kind
Speaker 6: of truing up our model for the year ahead based
Speaker 6: on the moves that we had in December.
Speaker 4: You mentioned banks, and I find this interesting. How important
Speaker 4: is Friday going to be as JP Morgan kicks off
Speaker 4: earnings to give a sense of what the landscape is
Speaker 4: for banks? Or is it just JP Morgan's world and
Speaker 4: everybody else is living in it?
Speaker 6: So I think they all matter, Lisa. You know, I
Speaker 6: don't think it's just any one particular bank. I know
Speaker 6: some get more attention than others, especially the one that
Speaker 6: come at the beginning. But I tell you what I
Speaker 6: think is important for the banks is one, are those
Speaker 6: sort of strong numbers that we've seen in terms of
Speaker 6: performance going to hold up. Sometimes we do see, you know,
Speaker 6: sort of the banks give back when they've had a
Speaker 6: strong lead into reporting season, So are the numbers going
Speaker 6: to be good enough to really justify sustaining some of
Speaker 6: the better trends we've seen recently. I think that's one thing.
Speaker 6: But also I think for someone like me who's not
Speaker 6: a specialist in the financials, we really go in and
Speaker 6: look at the financials for clues on the plumbing of
Speaker 6: the economy, on the health of the consumer. And I
Speaker 6: think that's probably going to be the most important thing
Speaker 6: coming out of the next kind of week or so
Speaker 6: with those banks earnings.
Speaker 5: The real headline over the weekend coming into this morning
Speaker 5: a positive surprise in Washington, d C. Laurie this story
Speaker 5: congressional leaders announcing a deal on top line spending for
Speaker 5: the current fiscal year. Laurie, I was speaking to Wemy
Speaker 5: with Silverman in the last week and we talked about
Speaker 5: your line that talking about politics the election this year
Speaker 5: specifically is like staring at the sun. Is it that
Speaker 5: bad this year for you and the team?
Speaker 6: Yeah, it's pretty awful, John. I mean it's interesting that
Speaker 6: line comes from my conversations with US based investors who
Speaker 6: are like, Okay, it's time to write our outlooks. You know,
Speaker 6: this is kind of thinking back the last month or so,
Speaker 6: you know, what do we say about this? And we
Speaker 6: kind of walk people through data, We get through it quickly,
Speaker 6: and then we move on European and Canadian investors. I mean,
Speaker 6: you could easily spend a whole meeting on this. It's
Speaker 6: like it's like a spectator sport for them at this point.
Speaker 6: But I do think it's a major source of uncertainty.
Speaker 6: And I'll tell you what it was interesting to me
Speaker 6: last week when I was working through some of the
Speaker 6: data we saw at the end of the year in
Speaker 6: the beginning of this year, is that you are starting
Speaker 6: to see money flows improve or turn positive to Japan,
Speaker 6: to emerging markets, to China, and to Europe. US flows
Speaker 6: are still holding up, but we are starting to see
Speaker 6: non US geographies really attract, you know, some better flows.
Speaker 6: And I think part of that has to do with
Speaker 6: the election. Based on what I'm hearing from the non
Speaker 6: US investors.
Speaker 2: Laurie answer a question for OURBC clients watching listening, which is, jeez,
Speaker 2: we started the year week and.
Speaker 1: That signals a terrible year ahead. Is there any valid
Speaker 1: to that emotion?
Speaker 6: So I tend to be very skeptical of you know,
Speaker 6: these seasonal, you know kind of studies. Whenever we do
Speaker 6: this on this day, we do this for the rest
Speaker 6: of the week. I think that those kinds of studies
Speaker 6: can be massaged frankly, you know, change your starting point
Speaker 6: to show whatever you want to show. I've been actually
Speaker 6: looking at seasonality over the last ten years. We've had
Speaker 6: some good ones, we've had some stinkers, but we have
Speaker 6: seen that January has been pretty much a mixed bag.
Speaker 6: There have been some difficult ones if you especially look
Speaker 6: over the last five years. So it would be sort
Speaker 6: of keeping with a recent seasonality to have a rough
Speaker 6: start to the year. Does that necessarily tell you that
Speaker 6: you have to run away for the rest of the year.
Speaker 6: I don't think so. And I go back to what
Speaker 6: we talked about at the top of the show. Sentiment
Speaker 6: has been oscillating so quickly. We were basically overbought in August,
Speaker 6: oversold in November, overbought in December again, and that all
Speaker 6: round tripped off of oversold conditions last October and post SVB.
Speaker 6: So I think that sentiment helps you tactically. I don't
Speaker 6: think you can use it that much to make a
Speaker 6: really kind of longer term view. At this point, Laurie.
Speaker 5: Wonderful to get your views this morning. Thanks Obama. This
Speaker 5: lor Convasaye of the vampy seat capital market.
Speaker 2: Claudia sam will be up all night watching a football
Speaker 2: game as well. Claudia for the Department of Economics at Michigan,
Speaker 2: all that heritage. What does blue football actually mean? Do
Speaker 2: you completely ignore it? Or are you at the fifty
Speaker 2: yard line for every game?
Speaker 7: Well, they don't.
Speaker 8: Let the grad students have very good seats.
Speaker 3: But we went.
Speaker 8: You know, it's it's Michigan.
Speaker 1: Go Blue, Go Blue.
Speaker 2: We'll see tonight. Thank you so much for joining Claudia.
Speaker 2: Barry rid Oldson. You had a great idea out there
Speaker 2: that in our hysteria right now of single statistics.
Speaker 1: We have denominator blindness.
Speaker 2: Let's take the national debt the interest expense of that,
Speaker 2: and we forget how large our economy is or how
Speaker 2: large our labor force is. How is hysterical are we
Speaker 2: right now? And do we need to calm down?
Speaker 8: Well, we've needed to calm down for decades. This is
Speaker 8: not a new conversation. The debt has to be put
Speaker 8: in context, not just of our GDP. That's a flow
Speaker 8: that we get.
Speaker 6: That every year.
Speaker 8: We need to think about in terms of their wealth,
Speaker 8: which is multiples of what that debt is. And I
Speaker 8: also a firm believer, and we need to look under
Speaker 8: the hood and what are we spending our money on.
Speaker 8: There's good ways to do it investment R and D,
Speaker 8: and there's ways that aren't as good, maybe really high
Speaker 8: income tax cuts. So that's where we need to have
Speaker 8: a conversation, not just throwing around big numbers.
Speaker 2: Is the FED throwing around big numbers? Are they having
Speaker 2: a conversation as they move out into twenty twenty four
Speaker 2: that you would consider appropriate and rational.
Speaker 8: In terms of the debt or in terms of what they're.
Speaker 2: Doing in terms of what they're going to do with
Speaker 2: their monetary policy?
Speaker 1: Excuse me?
Speaker 8: Yeah, no, I mean the FED is trying to do
Speaker 8: the impossible. Well, right now, my heart goes out to them,
Speaker 8: and we will play a parlor game for the next
Speaker 8: year or two and what their next move is. And yeah,
Speaker 8: they've got the eye on the prize, right. They work
Speaker 8: through financial markets, but they really don't care about financial markets.
Speaker 8: It's about getting inflation down, it's about keeping people with jobs.
Speaker 8: And we're well on our way, but it's going to
Speaker 8: be tough. To know when they're there and can say, okay,
Speaker 8: we can back off.
Speaker 4: Let's do an anatomy of what happened on Friday, because
Speaker 4: it was some confusing data that I tried to parse
Speaker 4: through and continue to and read more reports, and I'm
Speaker 4: just as confused. Which data screams the truest to you
Speaker 4: at a time where we got stronger than expected headline number,
Speaker 4: some real shows of strength, and then real signs of weakness,
Speaker 4: particularly in services. Employment.
Speaker 8: Big picture of Friday's payrolls was a good day. We
Speaker 8: had unemployments staying at three point seven percent. We're averaging
Speaker 8: a little under two hundred thousand jobs in recent months.
Speaker 8: If you think about what the labor market is buffering,
Speaker 8: we have a five percentage point more than that increase
Speaker 8: in the federal funds rate. This is a labor market.
Speaker 1: Now.
Speaker 8: You can go under the hood. You can do this
Speaker 8: in almost any month and say, ugh, that doesn't look
Speaker 8: so good now. Granted, there were some real science things
Speaker 8: to keep an eye on, you know, and we always
Speaker 8: need to, but this was not a flashing red We're
Speaker 8: going over the cliff. I mean, come on, we've been
Speaker 8: under the one employer it's been under four percent for
Speaker 8: the longest stretch since the nineteen sixties.
Speaker 3: Well, it's good.
Speaker 4: What about the services ISM data. That's fact that hiring
Speaker 4: fell the most, the sort of sub index for that
Speaker 4: particular data point came in the most going back to
Speaker 4: twenty twenty at the height of the pandemic. Does this
Speaker 4: make you feel like we're at a tipping point? Even
Speaker 4: if no, we're not heading into the abyss that we
Speaker 4: are cooling off in a much more material way.
Speaker 8: It's been like case last year. We needed to rebounce.
Speaker 8: We needed to get to a place that was expansionary
Speaker 8: but not red hot. I mean, we were coming out
Speaker 8: of a really bad labor market with COVID. So we
Speaker 8: do need to see things normalizing slowing, not just this
Speaker 8: pace that's been so strong, because we want to get
Speaker 8: to a sustainable place and there are going to be
Speaker 8: all signs. Frankly, I take a lot more out of
Speaker 8: the payrolls data than I do the ISM and we
Speaker 8: need to look at everything. And yet we've gotten a
Speaker 8: lot of mixed signals from the data you know so far.
Speaker 2: So we adres a Samrell for us right now? How
Speaker 2: many states are in a miserable situation, doctor Son?
Speaker 8: So I haven't looked at every state recently. One that
Speaker 8: has stood out, and I imagine is still in the
Speaker 8: same place as California.
Speaker 6: That's a really.
Speaker 8: Good example of how you can have an industry that's
Speaker 8: having a tough time. I mean, tech in the Bay
Speaker 8: Area is legitimately having some tough times, and yet we
Speaker 8: have seen no signs of its spreading because it's an
Speaker 8: industry issue, it's not like a broad based contraction. And
Speaker 8: I will say at the national level, the samrull went
Speaker 8: back down to two tenths of a percentage point, So
Speaker 8: looking good so far.
Speaker 5: Coldly, I just want to weigh in on some of
Speaker 5: the politics, and I don't want to beg you too much,
Speaker 5: but whenever I listen to you talk about the labor market,
Speaker 5: you offer clarity where clarity can be found, and why
Speaker 5: there isn't any It leaves the question open. It's ready digestible,
Speaker 5: very very intuitive. Why do you think this administration is
Speaker 5: struggling with the messaging so much around what's happening with
Speaker 5: this economy?
Speaker 8: For a long time, Democrats have really put an emphasis
Speaker 8: on being the adult in the room. When I saw
Speaker 8: the jobs number, I had a gift that I use
Speaker 8: as like boom. You know, it's like, come on, let's
Speaker 8: get excited about this. Yes, there's more to do, and
Speaker 8: yet when I look at all it has been accomplished
Speaker 8: in the last four years and even during the Trump administration,
Speaker 8: the big push with CARES Act we really help people.
Speaker 8: Is not perfect, but like, don't hide behind what you've done,
Speaker 8: like go out and say we did agree. Job Okay,
Speaker 8: Then why can't.
Speaker 1: They do that?
Speaker 2: I mean, John brings up an incredibly important point. Claudie
Speaker 2: sim You've been in the trenches. Why can't somebody just
Speaker 2: come out not say, you know, Rosie Morning in America
Speaker 2: and all that, but say, look, we understand the agonies
Speaker 2: out there, but boy has this worked out from COVID
Speaker 2: versus many other countries and continents.
Speaker 8: I really don't know. I mean, I have come across
Speaker 8: the fact that across the democratic spectrum there's just so
Speaker 8: much anger at each other. I mean, I've gotten the
Speaker 8: worst feedback from far left, and you know center isn't
Speaker 8: exactly happy with me either. So it's just it's so strange, right,
Speaker 8: But you know, I don't know. I hate politics. I
Speaker 8: really don't understand it. I just keep doing my work
Speaker 8: and trying to explain and trying to learn from what
Speaker 8: people are going through.
Speaker 5: And we value your work. Clodia, thank you as always,
Speaker 5: just fantastic to hear from you. Todi Samda of some consulting.
Speaker 1: Right now on your Washington.
Speaker 2: Isaac Multanski joints Director of Policy Research at BTIG. Isaac,
Speaker 2: I got to go with the lead a headline, which is,
Speaker 2: I guess all clear in Congress we've actually passed a budget.
Speaker 1: Is that true?
Speaker 3: Absolutely not.
Speaker 7: That couldn't be farther from the truth. We now have
Speaker 7: top line agreement on what we can spend for the
Speaker 7: fiscal year. That's great, it's wonderful, and that just means
Speaker 7: that the hard work gets to begin now. You know,
Speaker 7: I think you're two points to highlight. Number one is
Speaker 7: you've got to notice how angry the far right flank
Speaker 7: of the House GOP is this morning. We need to
Speaker 7: understand that the speaker, Speaker Johnson is operating with no
Speaker 7: room for error and he will almost certainly need democratic
Speaker 7: support to pass his bill. That's something that former Speaker
Speaker 7: McCarthy didn't want to do, ended up doing and then
Speaker 7: got thrown out from the speakership. And the number two
Speaker 7: is there are so many points of departure between Democrats
Speaker 7: and Republicans when it comes to the specifics of the
Speaker 7: spending agreement. There are upwards of forty different poison pills
Speaker 7: some groups have counted that could shut down the talks
Speaker 7: around this. So look, I think the temperature has been
Speaker 7: taken down. The risk of a shutdown is slightly lower
Speaker 7: this morning. But there's still a lot of work that
Speaker 7: needs to be done over the next eleven days.
Speaker 2: So what's the primary to do list arking over the
Speaker 2: next eleven days.
Speaker 7: Yeah, So what I'm looking looking at is I can
Speaker 7: get movement on the other issues around the spending bill.
Speaker 7: So it's good that we've got this, and now I
Speaker 7: think the appropriators will slink back into their offices and
Speaker 7: you'll see some backroom negotiation and maybe not much on that.
Speaker 7: I'm interested in the border deal, Tom, because we've got
Speaker 7: to keep in mind, the spending agreement is just part
Speaker 7: of this three D chess game that we have going on.
Speaker 7: The other part is the supplemental spending measures, and here
Speaker 7: I'm talking about border security, and then of course funding
Speaker 7: for Taiwan, Ukraine and Israel. That's the other part of it.
Speaker 7: And we'll Lynch. All of that is the border security
Speaker 7: deal that we're now expecting to come later this week.
Speaker 5: You mentioned the international security concerns, big foreign policy issues.
Speaker 5: We've got to talk about the curious case of the
Speaker 5: missing Defense Secretary now Isaac. First of all, we wish
Speaker 5: him all a speedy recovery from what none of us
Speaker 5: sink to know the detail. According to our reporting, Lloyd
Speaker 5: Austin underwent an elective procedure in late December, didn't tell
Speaker 5: his staff they should notify others when he was admitted
Speaker 5: to Walter Reed Medical Center on New Year's Day after
Speaker 5: experiencing severe pain at the same time as chief of
Speaker 5: staff was ill with the flu, and failed to notify anyone,
Speaker 5: the person said that we've been speaking to. According to
Speaker 5: our source, that Austin's military aid quickly put Deputy Secretary
Speaker 5: of Defense Kathleen Hicks in charge of running the Pentagon,
Speaker 5: although she wasn't informed of the reason for this decision,
Speaker 5: and the President seemingly for days didn't have a clue.
Speaker 5: I say, what was going on? What is going on?
Speaker 7: This is one of the weirder stories you're going to
Speaker 7: come across in the Biden administration, which by and large
Speaker 7: has been pretty tame when it comes to these personnel stories,
Speaker 7: especially compared to the previous four years. But it's deeply unsettling, right,
Speaker 7: I know that the secretary is an incredibly personal excuse me,
Speaker 7: an incredibly private person, and that this is something that
Speaker 7: all the staff have highlighted about him. Don't get to
Speaker 7: be this private when you're sixth in line in the
Speaker 7: presidential line of succession, and so, Look, this is deeply unsettling,
Speaker 7: especially given that transparency is one of the pillars of
Speaker 7: our political system. But ultimately, this too shall pass, and
Speaker 7: I think it just reminds you of some of the
Speaker 7: stories of personnel volatility that we saw during the Trump administration,
Speaker 7: which is going to be one of the campaign trail
Speaker 7: considerations as well.
Speaker 4: You said volatility. Do you expect him to step down?
Speaker 7: No, Look, I think that, depending on health, of course,
Speaker 7: that he is going to be fine. I mean, the
Speaker 7: President has not made any comment that suggests that the
Speaker 7: Defense Secretary won't will leave here, so I think he
Speaker 7: will stay. I wouldn't be surprised if he's replaced if
Speaker 7: the President Biden does win reelection, though, I think this
Speaker 7: is the type of thing that doesn't get you reappointed.
Speaker 4: Well, this raises a question though, in general about foreign
Speaker 4: policy and also the platform for President Biden going forward.
Speaker 4: There were a list of asks that people are talking
Speaker 4: about his new platform, all of which you're going to
Speaker 4: get red and are dead in the water. Is he
Speaker 4: going to basically be running on the anti Trump candidacy
Speaker 4: once again at a time when Trump is consolidating a
Speaker 4: lot of popular support.
Speaker 1: Yeah.
Speaker 7: Look, I mean there's obviously you've heard that line a
Speaker 7: thousand times that you campaign in poetry, but you govern
Speaker 7: in pros I don't think anyone's going to like the
Speaker 7: poetry we see from a campaign trail this time around.
Speaker 7: It is truly going to be a fear driven campaign.
Speaker 7: It is fear of the other side. It is fear
Speaker 7: of reversal, is fear of retribution. I don't seem to
Speaker 7: think that we're going to see much hope and excitement
Speaker 7: coming from the campaign trail over the next few months.
Speaker 2: Isaac, you know the polarity of the states with Ohio
Speaker 2: and Ohio Wesleyan, I'm absolutely fascinating of the polarity in
Speaker 2: the Iowa caucuses. What is the distinctive tension as we
Speaker 2: begin the political season in Iowa.
Speaker 7: I mean, looking, presidential primaries are about retail politics, and
Speaker 7: they're about and they're about personal preference more so than
Speaker 7: any national old pole could ever understand. And then when
Speaker 7: we think about Iowa, we've got to think about President
Speaker 7: Trump having a thirty two point leaked and we've got
Speaker 7: to think about also, and I think this is important.
Speaker 7: Tom DeSantis went all in on Iowa. This is it
Speaker 7: for him. And if he comes in second and loses
Speaker 7: by thirty points, which the polls are suggesting, pretty hard
Speaker 7: to imagine him being considered a serious contender going to
Speaker 7: New Hampshire where he's clearly third at far behind Haley.
Speaker 7: And so really this is to me, Iowa is a
Speaker 7: little assess for the DeSantis campaign. If he loses as
Speaker 7: badly as it looks, I think that his campaign, which
Speaker 7: already been floundering, will effectively be over. And it's really
Speaker 7: a question then of how strongly Nikki Haley can look
Speaker 7: in New Hampshire a week later.
Speaker 5: But to that point, Isaac, if he loses and he
Speaker 5: has to drop out, who does he back? Where do
Speaker 5: those votes go?
Speaker 1: Look?
Speaker 7: I think it will be incredibly difficult for him to
Speaker 7: back anyone. I think that he will remain in the background.
Speaker 7: My bet though, is that those bets, those vote's actually
Speaker 7: split somewhat to Haley and the rest stay home from
Speaker 7: the primary. But my point to clients say is Trump
Speaker 7: is going to be the nominee. That is very clear
Speaker 7: right now. He is the likely nominee. Those votes weren't
Speaker 7: trying to figure out where they're going. They're going to
Speaker 7: him in the general election. And so that's the important
Speaker 7: point here. There's still so many clients and so many
Speaker 7: people in DC who don't want it to be Trump v. Biden,
Speaker 7: and I understand that. But all indications are it's Trump
Speaker 7: vi Bide, and that's what the market and DC folks
Speaker 7: need to start wrapping their heads around when we think
Speaker 7: about the politics and the policy of it all.
Speaker 5: Isaac, thank you, sir, isa Boltanski then of b tch bot,
Speaker 5: a Crockett senior research analyst that rusn't black securities join
Speaker 5: just not for more. But and let's talk about that
Speaker 5: the prospective. Say I was picking up for the iPhone
Speaker 5: and what's been holding them back over the last year.
Speaker 9: Well, look, I think that you know, we downgraded Apple
Speaker 9: in August early August. We currently have one hundred and
Speaker 9: eighty nine dollars price target neutral rating, And you know,
Speaker 9: our concern at that time is that you had a
Speaker 9: combination of a muted growth trajectory really across much of
Speaker 9: the company, including the iPhone, certainly factoring prominently into that,
Speaker 9: and a high valuation. So that combination, in our mind
Speaker 9: was not compelling, not something you needed to be overweight on.
Speaker 9: I think the issue with the iPhone is the feature set,
Speaker 9: innovation and the consumer pocketbook and some question about China,
Speaker 9: and I think all of those things have you know,
Speaker 9: given us data points that are very supportive of the
Speaker 9: notion that you're in a very muted place right now
Speaker 9: for iPhone. And I think given that that's something like
Speaker 9: fifty percent of sales, very difficult for that stock to
Speaker 9: have a lot of excitement. I think if there's not
Speaker 9: a lot of excitement in the iPhone.
Speaker 2: Marton, the basic idea here I guess for the bulls
Speaker 2: is they're running it for profit. If you look at
Speaker 2: the Evada margin from COVID twenty nineteen, they've moved from
Speaker 2: twenty nine cents on the dollar up to thirty three
Speaker 2: cents in the dollar. Even if they get a Barton
Speaker 2: krack at sales lassitude. Can they maintain margins?
Speaker 6: You know?
Speaker 9: The company I think can maintain margins, you know, but
Speaker 9: I don't know that that's type of story, you know,
Speaker 9: nickel and diming margins, muted growth is something that's going
Speaker 9: to be really compelling at currently about twenty ape thirty
Speaker 9: PE when we downgrade it, I think the certainly, it's
Speaker 9: a great company. It's a good company that you could
Speaker 9: want to own at the appropriate price. But I think
Speaker 9: you've got to be price sensitive. I think it's a
Speaker 9: maturing company, and you can't buy it at any multiple,
Speaker 9: and you can't sit back and predict blue sky multiple
Speaker 9: expansion and perpetuity with this type of business as we
Speaker 9: see it right now.
Speaker 2: I look at the center tendency of a long term
Speaker 2: chart when you say a pullback, how much would that
Speaker 2: be if you do get some negative news out of China,
Speaker 2: et cetera. Is this from one to eighty down to
Speaker 2: one sixty, which is a center distribution?
Speaker 9: You know, certainly we would feel more comfortable with a
Speaker 9: healthy double digit return to our price target. You know,
Speaker 9: I do have some comfort with our estimates and with
Speaker 9: the street consensus. I do believe that you know, people
Speaker 9: have baked in the idea of a very muted iPhone.
Speaker 9: You know, this is a company you can own at
Speaker 9: the right price, but it's a mature company price. It's
Speaker 9: not a growth multiple.
Speaker 4: I think, Martin, is this an Apple problem or is
Speaker 4: this a big tech problem?
Speaker 9: More broadly, you know, I think this is much more Apple.
Speaker 9: I mean, we look at some other big tech companies
Speaker 9: in our coverage and we see a really great confluence
Speaker 9: of things developing lower interest rates, certainly supporting multiples, expansion,
Speaker 9: certainly favoring scarce growth, which you don't have it Apple,
Speaker 9: but you do have it things like Amazon, And I
Speaker 9: think there's been a reset in the Internet model. People
Speaker 9: have understood that you can run these businesses with much
Speaker 9: better margins, much more efficiently.
Speaker 6: You know.
Speaker 9: So while you're nickel and diming some mar improvement at Apple,
Speaker 9: you're seeing explosive margin improvement at Amazon, at Meta, Pinterest,
Speaker 9: at Spotify. You know, those that I think are much
Speaker 9: more interesting opportunities in this environment.
Speaker 4: I've never thought that people would say Pinterest in Spotify
Speaker 4: would trump Apple when it came to potential opportunities. Is
Speaker 4: it negative enough in your view for them to really
Speaker 4: drop out of the mag seven for this to be
Speaker 4: defined by a very different narrative that Apple is just
Speaker 4: not included in in twenty twenty four.
Speaker 9: Well, you know, I mean max seven certainly, that's kind of,
Speaker 9: you know, a term of art. I guess the thing
Speaker 9: with Apple is, I think it's a CpG company. I
Speaker 9: think that, you know, it's a company that you'd like
Speaker 9: to own at the right price, you know, in a
Speaker 9: certain macro environment where perhaps it's defensive, if the economy
Speaker 9: is slowing, maybe it's more interesting. But you don't need
Speaker 9: to be overweight Apple in every environment. You should pick
Speaker 9: and choose your places.
Speaker 5: I always wonder what the appropriate multiple on that name
Speaker 5: actually is. You've got the core good, the iPhone going
Speaker 5: ex grow, You've got a multiple that still looks pretty
Speaker 5: growthy as the revenue mix starts to shift towards services.
Speaker 5: I'm ordering from your perspective, what most part did you
Speaker 5: put on that business?
Speaker 9: Well, look, I mean I think that it's trading at
Speaker 9: about one point four times or so the market multiple.
Speaker 9: You know, I think a lesser premium is appropriate. You know,
Speaker 9: you can give it some premium given the strength of
Speaker 9: its franchise, the strength of its brand, the durability you know,
Speaker 9: the iPhone's not going away, and they've got good cash
Speaker 9: flow and good share repurchase. So to think that this
Speaker 9: could be a load image twenties multiple makes more sense
Speaker 9: to me than a thirty multiple.
Speaker 5: Bana, Thank you, sir for your insight. The update to
Speaker 5: a new year. Bona Crockett there of Rosenblat Securities.
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