Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leie.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: our top story, shall we and a key question is
Speaker 1: a global manufacturing slump? Putting a reality check on this
Speaker 1: weekend's trade thrus across Asia and Europe manufacturing p m
Speaker 1: ice sticking in contraction territory for an original take, uous
Speaker 1: sound pleased to say that joining us in the studio
Speaker 1: is Carl Winburg, High Frequency Economics chief economist and found
Speaker 1: a good morning to Carl, Good morning. I know you've
Speaker 1: got a different take on this. Do you think the
Speaker 1: p m I s through the year have been somewhat misleading?
Speaker 1: Just walk us through the thinking over the high frequency
Speaker 1: at the moment, Car, let's just take a deep breath,
Speaker 1: all right, Mark, It's p m s are new and
Speaker 1: they're not statistically tested. They can't be there only twelve
Speaker 1: years old. So to put full credit, to put put
Speaker 1: full belief confidence in what they're saying is a mistake.
Speaker 1: You really want to look at the trusted indicators, the
Speaker 1: ones that have been around for a long time, like
Speaker 1: Germany's IFO Index, like the ECS European Commissions Economic Confidence INDSEASE,
Speaker 1: and they've been signaling an economic downturn and an industrial
Speaker 1: downturn for over a year now. It's been right there
Speaker 1: for everyone to see. And market meanwhile has been above
Speaker 1: fifty and they've been saying, well, the economy has been growing,
Speaker 1: when the hard data are showing us that it's not
Speaker 1: so industrial. To me, at least to our readers at
Speaker 1: High Frequency Economics, industrial recession in Europe is not news,
Speaker 1: all right. It's an ongoing story. It's not a problem,
Speaker 1: it's a fact. And the question we're talking about is
Speaker 1: when is it going to end? And there's no sign
Speaker 1: of it from indices that we trust, like the IFO Index,
Speaker 1: the European Economic Confidence Index, Japan's ton Kan out this
Speaker 1: morning down or it's been down for over a year now. Alright.
Speaker 1: Just have to look at the hard data and the
Speaker 1: surveys that are tested to see that that's been the case.
Speaker 1: There has been somewhat of a divergence through various economies
Speaker 1: between what is happening with manufacturing and what is happening
Speaker 1: with services. Europe is a fantastic example of that. We
Speaker 1: haven't seen much side of a bleed through from a
Speaker 1: really soft manufacturing sector into a somewhat resilient services sector.
Speaker 1: What do you see at the moment, CALP Well, the risk,
Speaker 1: of course is that services are to some extent dependent
Speaker 1: upon industry, all right, Industry subcontracts out services, right, the
Speaker 1: big factory has a services company run its cafeteria and
Speaker 1: clean the factory floors, so that a downturn and industry
Speaker 1: is important, even though industry is only a relatively small
Speaker 1: part of the picture. So the question we're seeing right
Speaker 1: now is that growth overall is coming down, employment growth
Speaker 1: is slowing. We'll be looking for that and releases this
Speaker 1: week from Europe. We saw a little bit of it
Speaker 1: in Japan last week, and we're looking for services to
Speaker 1: to slow down in parallel with industry, bringing GDP down
Speaker 1: to a halt or possibly even a contraction. Monetary policy
Speaker 1: in its a loneness fix this in Europe absolutely not,
Speaker 1: for a number of reasons. Reason number one is that
Speaker 1: the monetary stimulus that has been given to Europe by
Speaker 1: the ECB over the last five years has not been
Speaker 1: transmitted into the economy because banks aren't lending. Number two,
Speaker 1: monetary policy has stopped out the ECB despite Mr Drags,
Speaker 1: I'll call it bluster, all right, has very few of
Speaker 1: any tools left available to you. But critically, and Carl,
Speaker 1: this is where your expert. Is monetary policy stopped out
Speaker 1: across all of the Pacific rim? I mean, forget about
Speaker 1: major players like Japan. Is it stopped out in Singapore?
Speaker 1: Look at the Australian shock over the weekend of the
Speaker 1: new low rates John in Australia the I mean Italian
Speaker 1: two year under two percent this morning. But is monetary
Speaker 1: policy stopped out in Australia or Singapore? Now there are exceptions.
Speaker 1: Australia is certainly one of them. But even they're down
Speaker 1: to one in a quarter percent on the cash raid
Speaker 1: and their bond yields are at historic lows. You know,
Speaker 1: when you get bond yields down lower than they've ever
Speaker 1: been before, all right, you get them lower than inflation,
Speaker 1: you get borrowing rates below inflation. Money is now free.
Speaker 1: And when money is free and the economy doesn't grow,
Speaker 1: you sort of reached the limit as to what monetary
Speaker 1: policy can do. I think that the RBA governor Philip
Speaker 1: Low has joined voices with Mario Draggi has bin choices
Speaker 1: with all the central bank over you're saying it's time
Speaker 1: for fiscal policy to add something to this. Fiscal policy
Speaker 1: is the missing way. Karl Weinberg, high frequency economics. Where
Speaker 1: this this is with futures up thirty two down, futures
Speaker 1: up two hundred fifty three. How does an economist like
Speaker 1: you interpret a bowl market in equities the vixed thirteen
Speaker 1: point nine three? How what's the prism of equity valuations
Speaker 1: that you see? Well? What are the alternatives? Tom? Right?
Speaker 1: You look at bond yo olds all right, and they're
Speaker 1: not very attractive. You go to Europe and you have
Speaker 1: to pay the government to hold your money safely for
Speaker 1: a year or two or three or five, all right,
Speaker 1: you have negative of interest rates, so that the alternatives
Speaker 1: are not particularly attractive to equities right now. So a
Speaker 1: lot of money is it's a wall of money being
Speaker 1: funneled into it all. So I think the key question
Speaker 1: for us Tom through the week is are you willing
Speaker 1: do you have the tolerance the stomach to sit through
Speaker 1: and look through the weaker data that might come in
Speaker 1: the coming months. Do you have the stomach to sit
Speaker 1: through and look through the weaker revisions to earn It's
Speaker 1: going you make it in the coming months as one,
Speaker 1: starting with Jobs Day on Friday, the celebration of the
Speaker 1: colonies in the War of the Rebellion that happened in
Speaker 1: seventeen seventies six is on Thursday. I'll be working Friday.
Speaker 1: Are you in working Friday? We're both stays. Job stay,
Speaker 1: John Tucker, will you be Here's biscuit demand. Absolutely, we're
Speaker 1: all going to be Friday. So Carl, let's talk about that.
Speaker 1: A lot of people are worried that in the coming
Speaker 1: months we will get worst data, we will get negative
Speaker 1: earnings revisions for some of these companies, some of the
Speaker 1: large mega caps here in the United States. Is that
Speaker 1: something you anticipate, something you sent to see happen in
Speaker 1: the nice coming months. Well, the the the profit picture
Speaker 1: is complex, but certainly the macroeconomics don't seem to be
Speaker 1: supporting growth of profits. That's about as far as we
Speaker 1: can go at high frequency economics on the employment side.
Speaker 1: All right, Well, we have a very mixed picture in
Speaker 1: the United States right now, and this Friday's report has
Speaker 1: particularly big significance because we've got those bad numbers behind us,
Speaker 1: and the question is what kind of numbers lie ahead
Speaker 1: of us. The weakness in the labor market are are
Speaker 1: has not been confirmed by the weekly claims data, So
Speaker 1: our chief US economists at High Frequency Economics GUMO Sullivan
Speaker 1: is saying the jury is still out on what's really
Speaker 1: happening in the labor market, whether we've had some aberrational
Speaker 1: reports or whether we have a new trend. So we're watching.
Speaker 1: We will be watching not only the employment report, but
Speaker 1: also the weekly claims data on sixty thousand. John Farrell's
Speaker 1: our Monday number on non farm payrolls. That's what's interesting
Speaker 1: that will get tweaked over the next couple of days.
Speaker 1: A synthesis of thirty or fifty whatever the number of
Speaker 1: economists is, what do you think it comes down like
Speaker 1: from We've been told again and again and again that
Speaker 1: we can't keep up the two k month after month
Speaker 1: after month, but we've actually sustained a really decent pace
Speaker 1: of jobs growth in America. Is not something you can
Speaker 1: can see continuing at the moment, well, you know it
Speaker 1: can only continue so far. Quest the unemployment rate has
Speaker 1: a three handle on it and it can't go down forever.
Speaker 1: And this, of course, if we just take a deep
Speaker 1: breath and look backward. Why did the Fed high rates
Speaker 1: and tightened monetary conditions to begin with, It was because
Speaker 1: it was concerned that at the current rate of employment
Speaker 1: growth that we would run out of workers in a
Speaker 1: due course and lead to an inflation episode. So to
Speaker 1: some extent, a slow down in growth and the slowdown
Speaker 1: in jobs is what the FED really wanted to see.
Speaker 1: What's unexplicable right now, what we don't have a good
Speaker 1: story for is why it's taking so long for wages
Speaker 1: to respond. And we're expecting a little bit of up
Speaker 1: taking the wages component, but not enough to keep the
Speaker 1: Fed happy. Quick funal question called anything about the weekend
Speaker 1: has changed anything for you? And the time at high frequency? No,
Speaker 1: I mean the President Trump got what he wanted, you know,
Speaker 1: he got the talk started again. But the Chinese really
Speaker 1: gave up nothing, al right, it was total concession on
Speaker 1: the part of the US. They just agreed to come back.
Speaker 1: Was at two am Saturday morning, I looked at my
Speaker 1: phone and said, I don't believe what I'm looking at. Well,
Speaker 1: what were you looking at? All? Right? The Chinese agreed
Speaker 1: to come back to the table all right. They were
Speaker 1: away from the table, all right, and Trump went there
Speaker 1: to ask them to come back to the table. All right.
Speaker 1: So when you have that dynamic, alright, the question is
Speaker 1: what do you have to give up? So he gave
Speaker 1: up some degrees of freedom on tariffs, he gave up
Speaker 1: some of the restrictions on Huawei, and the Chinese said, okay,
Speaker 1: we'll come back to that. But though he didn't he
Speaker 1: there's nothing specific and the Chinese press has yet to
Speaker 1: report anything coming out of that meeting in terms of
Speaker 1: thank you. This is an important interview for anybody on
Speaker 1: Global Wall Street. And we can dovetail it right into
Speaker 1: the Brookfield, Genesee, Wyoming. That's real estate behind a train company.
Speaker 1: Robert Perfusak does a quarterly visit with us. He is
Speaker 1: with Jones Day, but that barely describes his history of
Speaker 1: actual normal size transactions. I would go back, of course,
Speaker 1: to the important transaction of Continental and United. The airline
Speaker 1: business in America's all bought. Profusis fault and he joins
Speaker 1: us uh this morning, explain the difference in your world
Speaker 1: of Jones Day two mega deals versus the actual deals
Speaker 1: that never make the headlines. Well that there are a
Speaker 1: lot of deals in this last quarter in particular that
Speaker 1: didn't that are not stillborn. I don't think they're just
Speaker 1: not happening yet. And one of the things that the
Speaker 1: thing that you've been talking about so much all morning,
Speaker 1: about the uncertainty of everything, that's been the main factor. Um,
Speaker 1: there there is an end. There is I think, not
Speaker 1: a crisis, but there there's a fair amount of confidence.
Speaker 1: There's not a crisis of confidence there's a fair amount
Speaker 1: of concern among CEOs right now. You know, it's chart
Speaker 1: of the week last week, and this is why you
Speaker 1: were going on your sabbatical, Morgan Stanley with a chart
Speaker 1: of business confidence stunning. I saw that. I saw that.
Speaker 1: I saw the chart. I don't know what the inputs
Speaker 1: into the chart, but we've seen the c suite confidence
Speaker 1: on various survey indicators roll over. Bob. I know many
Speaker 1: investors that are struggling to make an investment decision with
Speaker 1: a time arising longer than five seconds because of this
Speaker 1: trade story. How difficult is it right now for the
Speaker 1: c suites have the confidence to execute on a big transaction. Well,
Speaker 1: it is. It is difficult because on a big deal.
Speaker 1: Companies and their directors certainly know that there's a potential
Speaker 1: for criticism. Look at and a dark oh right now
Speaker 1: with um? What what's going going went on with occidental um?
Speaker 1: And you're making long term decisions in a in a
Speaker 1: difficult environment. Now, can people see through the fog of
Speaker 1: all this stuff? Sure? Sometimes, And there are plenty of
Speaker 1: deals that were announced that that that have been well
Speaker 1: received in the marketplace. Um, But we're in a difficult
Speaker 1: environment right now, and so you know, lots of directors
Speaker 1: are urging caution when CEO comes in and so I
Speaker 1: got this great idea. But one thing is we we
Speaker 1: shouldn't overlook that lots and lots of deals are still
Speaker 1: getting done. Um, lots of them. It's down on a
Speaker 1: year on your basis, but still the market is very
Speaker 1: active right now. There's always two extremes to every conversation.
Speaker 1: At one extreme, it's a C suite that doesn't have
Speaker 1: the confidence to do anything. At the other extreme, Patrick Draught,
Speaker 1: he slapping at premium on southa base and a billionaire
Speaker 1: takes the public company private. This is already a company
Speaker 1: that is by definition quite toppy, and therefore this guy
Speaker 1: comes in and takes it of it, and then some
Speaker 1: people the lazy analysis here and from me from the
Speaker 1: outside looking in the easy arguments constructors. This feels toppy,
Speaker 1: but it was the truth just somewhere in between, that
Speaker 1: things are still okay and transactions are getting done. Oh sure,
Speaker 1: there's lots and lots of deals getting done if I
Speaker 1: don't haven't seen the numbers yet, but my guess was
Speaker 1: going in this weekend a number of deals basis be
Speaker 1: down for the first six months something like that, but
Speaker 1: that's still on a on a basis, on a basis,
Speaker 1: it's huge. There are eleven twelve thousand deals a year
Speaker 1: they get done. So it's not like this isn't like
Speaker 1: two thousand nine or something like that, where there's no capital,
Speaker 1: there's no anything. It's just that people are more cautious.
Speaker 1: It's like it's like the equity markets. It's it's no really,
Speaker 1: this Bob it is. It is a question if the
Speaker 1: Federal Serve cuts interest rates, if boring costco love it,
Speaker 1: does that change an I think in the decision making
Speaker 1: process of any of these guys. Not really, it changes
Speaker 1: the math and it makes modeling easier. I mean, like
Speaker 1: you know, at these were ten years around, covering around
Speaker 1: two hundred as you mentioned, you know, that's that's almost free.
Speaker 1: And then when you think about it, and uh, the
Speaker 1: debt capital markets beyond the bank markets, you know they
Speaker 1: were difficult at the year end when the equity markets
Speaker 1: were difficult, but they're great right now. The desperation and
Speaker 1: healthcare seems unique. And I know it's you know, Washington
Speaker 1: and legislation. Now there's Abby Abbott Labs, Abby Pharmaceuticals and
Speaker 1: Botox whatever they took out. I can't remember the name
Speaker 1: right now, Elegant, excuse me. And there's Etna and you
Speaker 1: know that whole blow up as well. Is it a
Speaker 1: rational industry right now? Is healthcare irrational business? Well, it's
Speaker 1: a business. It's got a lot of it's under a
Speaker 1: lot of pressure, it's it's it's in the vortex of politics,
Speaker 1: it's got all these things to deal with. Yet you know,
Speaker 1: when you look at the contribution to the to the
Speaker 1: economy of this country, it's huge. It's a huge part
Speaker 1: of the Did you see how I didn't know the
Speaker 1: name of Elegant because when when you were gone, and
Speaker 1: it is sabbatical, this was a source of Can we
Speaker 1: just get us out of the way. Do you know
Speaker 1: how many people wrote to me last week and said,
Speaker 1: Tom keeps banging on about you being on vacation has
Speaker 1: given you a really hard time. You've had more vacation
Speaker 1: than me this year. That was my first week off
Speaker 1: of the year. Really, that was my first week off
Speaker 1: of the I would I would have never guessed though
Speaker 1: there's a Tom Keene vacation index. Do you remember the
Speaker 1: last summer when Tom missed every single payrolls Friday. I
Speaker 1: skipped every payroll through the whole of summer. Yeah, I
Speaker 1: just actually arranging so that doesn't happen. And now we've
Speaker 1: cleared things up, you can get conversation. Tell us about
Speaker 1: the law business right now. Are you having trouble retaining
Speaker 1: young Turks at Jones Day? No, it's a it's it
Speaker 1: really hasn't changed. Um, the business is good. There's lots
Speaker 1: and lots of I mean, the quality of the people
Speaker 1: coming out of stol Heard's stunning when I think about
Speaker 1: what I have been able to compete in that environment
Speaker 1: and exactly on speak four languages and their resumes are fabulous. Um,
Speaker 1: But you know, the law business, it's not you know,
Speaker 1: it's not like going to a startup tech company or
Speaker 1: something like that. But that's actually the benefit. It's stable
Speaker 1: and when you come out of a big time university
Speaker 1: with tons of debt, you know you can pay that down.
Speaker 1: Ye tell us about the dynamic of Jones Day in
Speaker 1: Washington and all of legal in Washington. Is it gearing
Speaker 1: up for? Is it's stable? What's the dynamic among legal
Speaker 1: lobby in Washington. Well, we don't We don't participate in
Speaker 1: the political side of things. We don't have a lobbying
Speaker 1: practice per se. But yeah, I mean, you know, just
Speaker 1: the part of the the the hysteria of everything that
Speaker 1: goes on today. I guess it's born by the media
Speaker 1: nowhere in events, but it just gets in your face.
Speaker 1: There's tremendous abount of activities, you know, John, outside the
Speaker 1: Saint Region spar in Washington, Long Vertical Room, it looks
Speaker 1: like an officer Jones, you are responsible for stereo in
Speaker 1: every single bar that you walk into. That as well.
Speaker 1: Have you ever been for a drink with Tom Bob? Actually,
Speaker 1: actually I've been once. Yes. Did it get messy quite quickly? Yes?
Speaker 1: I never, I never. I don't even try keeping up.
Speaker 1: The drinks start coming and I stop. I just stopped,
Speaker 1: and then I walk away very quickly. It's um an experience,
Speaker 1: it's an experience, Thank you, thank you so much. Bout
Speaker 1: PROFU sick with us is a CU three. Look. So
Speaker 1: the summary I get your bot Prefu sick is you've
Speaker 1: got some optimism into the second and a half, but boy,
Speaker 1: you've got some distractions in Washington. Yeah, that's that's right. UM.
Speaker 1: When we live in an environment where we're constantly bombarded
Speaker 1: by what's happening in these national capitals, it's just we were,
Speaker 1: of course here, so we think about Washington. It's not
Speaker 1: just Washington and everything we're doing right now about PUS.
Speaker 1: Thank you, I'm so much durable goods. I would suggest
Speaker 1: as more important than usual on Wednesday to Lindsay Panks
Speaker 1: about it Dark chief Economists, Staple's chief economists. It's a
Speaker 1: blur of data, Lindsay, and we all agree this time
Speaker 1: is different. What is different about your day to day
Speaker 1: analysis this week of America's economy? Well, I think it's
Speaker 1: increasingly important because we know the FED is watching the
Speaker 1: data and as they told us that's the latest l
Speaker 1: MC meeting, they're poised and ready to make a change
Speaker 1: in policy, But they're not yet contents, meaning that they
Speaker 1: do acknowledge some of the weakness bubbling underneath the surface,
Speaker 1: but they'd really like to see more evidence of that slowdown.
Speaker 1: And so the feed is going to be watching each
Speaker 1: and every data point that we get between now and
Speaker 1: the July meeting within increased scrutinate. If we get uh,
Speaker 1: my father would call it a Mouldi number, if we
Speaker 1: get a really bad number, aren't they hugely advantaged to
Speaker 1: get out front with a rate cut immediately so they're
Speaker 1: not pressured with a fifty basis point foolishness the end
Speaker 1: of the month. They are. But at the same time,
Speaker 1: the set is not going to adjust policy based on
Speaker 1: one data point, agreed, So they're going to be looking
Speaker 1: at the underlying trend. It has the trend in the
Speaker 1: data been deteriorating for quite some time? I would argue yes,
Speaker 1: but FET officials don't quite seem as convinced as I am,
Speaker 1: or not as convinced as the market is. John and
Speaker 1: your sabbatical. We did have some constructive data points on
Speaker 1: income and spending. I mean, they weren't bang up, but
Speaker 1: to God's point, there's been a few constructive data points.
Speaker 1: I've spoked some people at Morgan Standing recently, Lindsay, and
Speaker 1: one thing they worry about its corporate margins and how
Speaker 1: companies will respond to the threat of smaller corporate margins
Speaker 1: and whether they'll pull the lever that says cut the
Speaker 1: labor force, lind Do you seek any sign of that
Speaker 1: happening at the small and medium sized company level, any
Speaker 1: signs of job cuts starting to emerge in this economy? Oh,
Speaker 1: I think all we need to look at is last
Speaker 1: month's employment report, and there's very clear indication that businesses
Speaker 1: are having an increased difficult time passing on increases and
Speaker 1: costs directly onto the consumer, and so they're having to
Speaker 1: circumvent a lot of that pressure by finding ways to
Speaker 1: reduce costs at home, meaning find those cost efficiencies in
Speaker 1: many cases meaning layoffs or lower wages or both. And
Speaker 1: I do think that this is going to be an
Speaker 1: ongoing trend that we continue to see, particularly if we
Speaker 1: don't see the latest in trade negotiations actually pan out
Speaker 1: into an extended truth or some sort of long term
Speaker 1: of agreement. At ten businesses were able to eat that
Speaker 1: cost and this is going to be increasingly difficult. Lindsey
Speaker 1: look us through durable goods. I say this because I
Speaker 1: think durable goods and inventories are what I would call
Speaker 1: secondary or indeed tertiary market economic data points that no
Speaker 1: one cares about until they do care about it. Right
Speaker 1: now is one of those times walk us through how
Speaker 1: you interpret these longer than three year goods in America. Well,
Speaker 1: I I think durable goods investment is always an important education.
Speaker 1: It's certainly from a corporate standpoint, but I would I
Speaker 1: would say that we really need to get into the
Speaker 1: weeds when we're looking at the durable goods, well, yes,
Speaker 1: is important, but we really need to look at durable
Speaker 1: goods um X transportation so excluding aircraft UH production, and
Speaker 1: that is a proxy, that's a proxy for corporate investment
Speaker 1: when we look at that isolated component, and what we
Speaker 1: see is that corporations, yes, they're still investing. But again,
Speaker 1: when we look at capital goods excluding aircraft and defense,
Speaker 1: I should say, this really gives us an underlying sense
Speaker 1: of whether or not businesses are willing to invest. And
Speaker 1: we continue to see this very minimally positive trend. So again,
Speaker 1: corporate dollars still being put to work. But This really
Speaker 1: highlights a hesitancy and a really a heightened level of
Speaker 1: uncertainty when we look at the longer term trajectory for
Speaker 1: the economy. When businesses are feeling confident, when they're happy
Speaker 1: about the growth prospects of the economy or their particular sector,
Speaker 1: they're very willing to loosen those corporate purse strings and
Speaker 1: put capital to work. On the flip side, when they're
Speaker 1: not confident and they're concerned about the prospects for the
Speaker 1: U S economy, they pull back and what we have
Speaker 1: been seeing is very minimally positive months of investment or
Speaker 1: outright negative business investment. So this is something also that
Speaker 1: the FETE is watching at corporations are investing, they're not hiring.
Speaker 1: Thank you for the reefing dr pgs with stifle uh
Speaker 1: this morning text box are rallying before the market opens here.
Speaker 1: We had some you know on the on the news
Speaker 1: coming out of Osaka that perhaps the U. S and
Speaker 1: China will be going back to the negotiating table that
Speaker 1: helps our good friends out in Silicon Valley, particularly the
Speaker 1: guys at Apple Computer, the folks at Apple. Uh Dan
Speaker 1: ives as a managing director covering all things t MT
Speaker 1: for FBR Capital Markets. Uh And and Dan, just give
Speaker 1: us a sense. First of all, thanks so much for
Speaker 1: joining us, but give us a sense of what you
Speaker 1: think this could mean for Apple, because Apple's kind of been,
Speaker 1: I guess the poster child for tech regulation or tech tariffs. Yeah,
Speaker 1: they're the pusher child, especially in the US China trade battle.
Speaker 1: And you know, the Street does a many yelling fire
Speaker 1: in a crowd theater and I'd say about two tours
Speaker 1: of earnings has almost been taken off the street's whisper number.
Speaker 1: And I think when you wokle what happened, this is
Speaker 1: a goldilocks scenario for Apple, and we believe ultimately they
Speaker 1: could add about twenty dos per share to the name
Speaker 1: over the coming months if the China ultimately ends up.
Speaker 1: The bark's worse in the bite. So it's interesting when
Speaker 1: you think about Apple and the tariff scenario, they kind
Speaker 1: of got hit by a double whammy. I e. They
Speaker 1: sell almost of their revenue comes from China. Plus they
Speaker 1: manufacture the phones and the pads and all that kind
Speaker 1: of stuff in China, so you know, it really was
Speaker 1: a big issue for them. So how do you think
Speaker 1: they're going to kind of adjust to what might be
Speaker 1: easing discussions here. Are they going to turn back kind
Speaker 1: of there, let's build stuff outside of China scenario? Yeah,
Speaker 1: I mean ultimately that's where the key. I mean, we
Speaker 1: we believe that was a poker game. And ultimately, even
Speaker 1: best case five December cent production could go to an India,
Speaker 1: Vietnam in the eighteen months if the billion of tariffs
Speaker 1: never happened, they do not move in one iPhone addage China,
Speaker 1: and ultimately I think they could even double down there
Speaker 1: as you're seeing with macroduction now moving to China. So
Speaker 1: that's key on the supply chain. The demand side, I
Speaker 1: think the street is still a glass half empty in
Speaker 1: terms of what's going to come out of China from
Speaker 1: demand perspective. Is there a pro quality with nationalistic view?
Speaker 1: So that's right right now, we believe this is a
Speaker 1: major step in the right direction. Still, more with the
Speaker 1: chop with all the gloom on Apple, is it a
Speaker 1: gloom where they lose market share or is it an
Speaker 1: industry softness? Which is it nothing? Right now? The smartphone industry,
Speaker 1: you've seen it go into maturity, and I think right
Speaker 1: now the questions for Apple is can that incremental growth
Speaker 1: come out of China. iPhones over the next twelve months
Speaker 1: are going to come out of China. So I think
Speaker 1: partially it's Apples specific, but then there is a broad
Speaker 1: view of the sector. That's why right now for them,
Speaker 1: services is key to that value O bleep. But Dan,
Speaker 1: what's so important here is what I'll call margin elasticity.
Speaker 1: Do they have the ability to manipulate on unit and
Speaker 1: price to maintain margins even if there is a China slowdown. Well,
Speaker 1: if there's a significant China slowdown, it definitely is going
Speaker 1: to hurt them. But I do think they have flexibility
Speaker 1: from a price perspective in China to stimulate demand and
Speaker 1: for a company generates sixty billion in free cash or
Speaker 1: they have that flexibility. And that's right now what investors
Speaker 1: on when it comes to China. Well said in paulse Tweeney.
Speaker 1: This is incredibly important because I think to a lot
Speaker 1: of our listeners, they don't understand I don't understand the
Speaker 1: the mix, as they say in the conference, calls between
Speaker 1: unit sales and price and always that's a mystery, isn't it. Yeah,
Speaker 1: particularly now that Apple doesn't disclose the unit sales like
Speaker 1: they used to. So guys folks like at Dan, i'ves
Speaker 1: you know, put it makes their job a little bit
Speaker 1: more difficult. So Dan. One of the issues that I
Speaker 1: think investors had with this whole trade tension issue and
Speaker 1: Tireff issue is that the what what you know, the
Speaker 1: wadwei risk for Apple? I e. That China puts Apple
Speaker 1: on some blacklist and that really would impact Apple. Do
Speaker 1: you think that is off the table? Are still on
Speaker 1: the table? Yeah, we we continue to do it. That
Speaker 1: was a conspiracy theory where you're going to see people
Speaker 1: in the streets putting iPhones on fire, which we thought
Speaker 1: was never going to happen, and now that basically gets
Speaker 1: put to rest in our opinion, which is that's the
Speaker 1: first step. Next step is obviously no tariffs, and it
Speaker 1: comes down to demand. That's why if you're if you're
Speaker 1: Tim Cook last night, you're popping the ship. It's interesting
Speaker 1: the uh, you know, do you think Apple is still
Speaker 1: going to move ahead with you know, maybe greater urgency
Speaker 1: on contingency plans even if we don't have an issue
Speaker 1: with in the near term it it's seems like this
Speaker 1: might be a long term risk for Apple and other
Speaker 1: tech players. Look, I think they have essentially bet the
Speaker 1: farm with Fox con in China and giving the supply chain.
Speaker 1: When you look at Vietnam or India, Brazil, that is
Speaker 1: not a good alternator for them. They might take TO
Speaker 1: three and put into other countries, but realistically, for now,
Speaker 1: I would equally how Apple uses no different orderer GM
Speaker 1: moving out at Detroit if they ever moved out of China.
Speaker 1: Give us your price target, Dan ives again on Apple.
Speaker 1: I just want to get there too, thirty five price targain.
Speaker 1: We continue to think this this is a name has
Speaker 1: significant upside here. Thanks so much, Danna. I eaven with
Speaker 1: us today on Apple. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
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