WEBVTT - Apple Ramps Up India iPhones, Hot U.S CPI Reading 0:00:00.600 --> 0:00:07.280 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:16.599 weekdays at ten am Eastern on Apple car Play and 0:00:16.600 --> 0:00:19.600 Android Auto with the Bloomberg Business App. Listen on demand 0:00:19.680 --> 0:00:24.560 wherever you get your podcasts, or watch us live on YouTube. 0:00:25.079 --> 0:00:28.760 You're listening to Bloomberg Intelligence Radio. I'm Alex Steel alongside 0:00:28.880 --> 0:00:32.080 Paul Sweeney. We cover all the top news for you 0:00:32.159 --> 0:00:35.159 with our Bloomberg Intelligence analysts. They cover two thousand companies 0:00:35.320 --> 0:00:37.760 and one hundred and thirty industries worldwide, and we're going 0:00:37.800 --> 0:00:39.880 to do that now with one of them in relation 0:00:39.960 --> 0:00:42.080 to Apple, So that stock is down to over one percent. 0:00:42.159 --> 0:00:44.760 It's a tough tape for sure. But the news overnight 0:00:44.840 --> 0:00:47.320 was that Apple has assembled about fourteen billion dollars worth 0:00:47.360 --> 0:00:50.720 of iPhones in India in the last fiscal year. So 0:00:50.760 --> 0:00:53.920 we want to get perspective with anurag Rana. He's Bloomberg 0:00:53.920 --> 0:00:57.560 Intelligence senior technology analyst. He's the guy we go to 0:00:57.640 --> 0:01:00.200 for all these kind of headlines on AOG. Always a pleasure. 0:01:00.360 --> 0:01:02.920 Fourteen billion dollars worth of phone sounds like a lot, 0:01:03.120 --> 0:01:03.400 is it. 0:01:04.440 --> 0:01:06.480 No, it's not a whole lot, but at the end 0:01:06.520 --> 0:01:08.679 of the day. You know, one of the things we 0:01:08.720 --> 0:01:10.720 have seen that over the last two and a half 0:01:10.800 --> 0:01:14.520 three years, Apple has been assembling its phone outside And 0:01:14.800 --> 0:01:16.959 you know, for us, the real reason for that is 0:01:18.040 --> 0:01:20.240 a couple of years ago there was a COVID big 0:01:20.319 --> 0:01:23.760 issue in China. It had an impact on some of 0:01:23.760 --> 0:01:26.520 the phones coming out, that had an impact on sales 0:01:27.000 --> 0:01:29.560 and so forth. Now having said that, that was one reason. 0:01:29.680 --> 0:01:33.080 Second Apple prior to the you know, you could say 0:01:33.080 --> 0:01:37.399 the COVID issue was completely dependent on China for all 0:01:37.440 --> 0:01:40.800 the assembly and their parts. Now what we are seeing 0:01:40.959 --> 0:01:44.000 is they are moving out of the assembly from China 0:01:44.040 --> 0:01:47.160 into other areas, mostly India. But one of the things 0:01:47.160 --> 0:01:50.480 I tell everybody at the same time, they still make 0:01:50.560 --> 0:01:52.600 most of the parts. So it's you know, if we 0:01:52.640 --> 0:01:54.920 ever get into a problem with China in terms of 0:01:55.200 --> 0:01:59.559 geopolitical issues, we still lean those parts to assemble the phone. 0:01:59.600 --> 0:02:01.720 It's not as if you know, those those parts are 0:02:01.760 --> 0:02:02.960 available all over the world. 0:02:03.520 --> 0:02:07.000 An I just wonder how you know investors in Apple 0:02:07.120 --> 0:02:09.560 view this China risk. Are they of the opinion I 0:02:09.560 --> 0:02:11.560 assume that if they own stock in the company there, 0:02:11.840 --> 0:02:13.920 they have some level of comfort with the China risk. 0:02:13.960 --> 0:02:14.160 Here. 0:02:14.360 --> 0:02:16.400 Did they just believe it's hey, you know, it's kind 0:02:16.400 --> 0:02:20.040 of a mutually beneficial relationship Apple and China that at 0:02:20.040 --> 0:02:22.000 the end of the day, that's what's going to keep 0:02:22.040 --> 0:02:22.720 everything moving. 0:02:24.080 --> 0:02:27.160 So well, I've seen two people, I mean two different buckets. 0:02:27.200 --> 0:02:30.320 One is, people are extremely concerned about the US China 0:02:30.400 --> 0:02:33.400 relationship in the long run. They obviously have you know, 0:02:33.440 --> 0:02:36.399 they don't want to deal with Apple or any other 0:02:36.440 --> 0:02:39.520 companies that you know, fall into that bucket. But the 0:02:39.560 --> 0:02:41.920 others said, listen, this is spart and parcel of the 0:02:41.919 --> 0:02:45.919 global world chain, supply chains, and most manufacturing companies are 0:02:45.960 --> 0:02:48.640 dependent on China. Like it or not. They seem to 0:02:48.680 --> 0:02:53.440 be okay with it, you know from our side, you know, yes, absolutely. 0:02:53.480 --> 0:02:57.240 The biggest risk that Apple faces from a stock point 0:02:57.240 --> 0:02:59.160 of view, from a revenue point of view, from a 0:02:59.200 --> 0:03:02.160 supply chain point view, is if something happens between the 0:03:02.280 --> 0:03:04.520 US and China, and we've talked about that quite a bit. 0:03:05.120 --> 0:03:07.200 But from a sales point of view, I think it 0:03:07.280 --> 0:03:09.840 is to me that's a bigger issue right now in 0:03:10.080 --> 0:03:13.840 the medium term, because China accounts for eighteen to twenty 0:03:13.840 --> 0:03:17.080 percent of total of Apples sale and frankly speaking, that 0:03:17.280 --> 0:03:19.880 is the big growth engine, and we have seen over 0:03:19.880 --> 0:03:22.840 the last twelve months of problems in that growth engine 0:03:22.840 --> 0:03:25.480 because of whahweh do we how. 0:03:25.400 --> 0:03:29.160 Much do they make these phones for in India versus China, 0:03:29.320 --> 0:03:31.160 versus other areas, and trying to get a sense of 0:03:31.200 --> 0:03:33.320 where they make, where the margins are, and what they 0:03:33.320 --> 0:03:33.680 look like. 0:03:34.520 --> 0:03:37.000 That's a very good question. And frankly speaking, we thought 0:03:37.040 --> 0:03:39.640 when they started making more phones in China or sorry 0:03:39.680 --> 0:03:42.800 in India, or we started seeing new phones coming out 0:03:42.800 --> 0:03:45.200 of that, that would have an impact on their gross margins. 0:03:45.320 --> 0:03:47.840 But they have managed it very well. And remember one 0:03:47.840 --> 0:03:50.640 of these things, it's the factories that they outsource their 0:03:50.680 --> 0:03:54.440 stuff to, and you know, it's kind of somebody else's headache. 0:03:54.600 --> 0:03:56.560 But in the end, you know, Apple will have to 0:03:56.600 --> 0:04:00.600 make some you could say concessions. But at the same time, 0:04:00.680 --> 0:04:03.960 so far we have not seen any impact on Apple's 0:04:03.960 --> 0:04:06.560 gross margins. I mean, surprisingly, we have seen them, you know, 0:04:06.600 --> 0:04:08.720 hold up very nicely over the last two years. 0:04:09.320 --> 0:04:12.120 Can you just kind of characterize the competitive landscape for 0:04:12.680 --> 0:04:16.920 Apple in China visa the Huawei and other phones here 0:04:16.920 --> 0:04:20.320 are they maintaining share, losing share, gaining share? How's Apple 0:04:20.360 --> 0:04:21.640 doing so? 0:04:21.800 --> 0:04:25.080 Apple has not done this you know, same number of 0:04:25.120 --> 0:04:27.800 sales as WAWE over the last twelve months. Now. There 0:04:27.800 --> 0:04:30.800 are two elements of it. One is the competitive landscape. 0:04:30.800 --> 0:04:34.000 People are choosing Chinese phone so over a foreign brand, 0:04:34.080 --> 0:04:37.240 So that's one aspect. The second aspect, which I'm hoping 0:04:37.360 --> 0:04:39.760 is probably you know correct in the long run for 0:04:39.839 --> 0:04:42.839 Apple's sake, is that Wawei didn't have a very you know, 0:04:42.880 --> 0:04:45.160 brand new phone for several years, and this is their 0:04:45.200 --> 0:04:48.200 first big new refresh, which is why people who have 0:04:48.320 --> 0:04:50.880 been using Quawei phones in the past are going out 0:04:50.880 --> 0:04:53.640 and refreshing their phone at a much faster clip. So 0:04:53.680 --> 0:04:57.360 that could be the second reason Apple is doesn't have 0:04:57.440 --> 0:05:00.640 that same you know, I would say, I mean, the 0:05:00.640 --> 0:05:03.360 cache is still there. But typically what I would do 0:05:03.480 --> 0:05:05.520 is if I have an Apple phone, you know, I'm 0:05:05.600 --> 0:05:08.279 doing everything on it, you know, chat and the pictures 0:05:08.320 --> 0:05:10.719 and every but in China, what happens is you do 0:05:10.839 --> 0:05:14.800 a whole lot of your transactions using the the you know, 0:05:14.839 --> 0:05:17.320 the the apps that you have or the super apps, 0:05:17.600 --> 0:05:20.560 and for that you can download those app in any ecosystem. 0:05:20.839 --> 0:05:22.560 So I would say, on a on a you know, 0:05:22.680 --> 0:05:25.400 competitive basis, you are less prone to be an Apple 0:05:25.480 --> 0:05:27.719 customer than you are in the Western world. 0:05:27.800 --> 0:05:30.440 Well that's interesting. So and then to that point is 0:05:30.480 --> 0:05:33.200 that what the regulation or the penalties in the EU 0:05:33.240 --> 0:05:35.080 in the US is going to force Apple to do 0:05:35.120 --> 0:05:39.080 an essence so it won't become that ecosystem in the 0:05:39.080 --> 0:05:39.640 same way. 0:05:40.680 --> 0:05:42.440 Well, there is no super app in the US that 0:05:42.560 --> 0:05:44.320 is very much like v chat. I mean you could 0:05:44.360 --> 0:05:46.279 you could say WhatsApp could be one of them. But 0:05:46.760 --> 0:05:48.920 frankly speaking, I mean Apple has done such a good 0:05:49.000 --> 0:05:52.279 job of uh you know, I would say, maintaining their 0:05:52.320 --> 0:05:56.200 customer base in the in the US and in Europe. 0:05:56.600 --> 0:05:58.920 That I mean, I don't I don't see that happening. 0:05:58.960 --> 0:06:01.119 That is certainly a new app comes in and people 0:06:01.120 --> 0:06:03.760 start using that over what's going on with Apple or 0:06:03.800 --> 0:06:05.240 the habits that they have right now? 0:06:05.640 --> 0:06:09.719 All right, Hona rock, I've got the iPhone eleven? Do 0:06:09.800 --> 0:06:12.880 I upgrade? Now? Do? I? Wait? What am I doing here? 0:06:13.800 --> 0:06:17.000 You should look at Wait till the September October, you 0:06:17.040 --> 0:06:19.359 know framework, Because one of the things is, as we 0:06:19.440 --> 0:06:22.160 talked about it last week, if in June they are 0:06:22.240 --> 0:06:24.440 able to go out and convince the world that they 0:06:24.440 --> 0:06:27.520 do have an AI play with new features coming in, 0:06:27.800 --> 0:06:30.240 then you would need a little bit more firepower in 0:06:30.320 --> 0:06:34.320 terms of the memory and the CPO that's going to 0:06:34.360 --> 0:06:36.640 which means the next phone will have a faster version 0:06:36.680 --> 0:06:38.880 of that. You know, I would wait for that because 0:06:39.120 --> 0:06:41.920 you know you will you will have both the both 0:06:41.960 --> 0:06:44.200 bigger memory as well as faster speeds. 0:06:44.560 --> 0:06:46.880 Interesting, see, that's what they get you right, Like, once 0:06:46.880 --> 0:06:49.400 you start, you can't leave that and closed ecosystem. It's 0:06:49.440 --> 0:06:52.560 definitely a thing. So what's the next catalyst now for Apple? 0:06:52.560 --> 0:06:54.159 What are you looking at? Well, any catalyst I guess 0:06:54.200 --> 0:06:54.600 would be. 0:06:54.520 --> 0:06:57.200 A big way. The June I mean that's it's Tune's 0:06:57.440 --> 0:07:01.239 Worldwide Developers conference where there are to talk about AI 0:07:01.560 --> 0:07:04.279 and what's a of Apple's AI strategy. That is the 0:07:04.320 --> 0:07:07.040 only thing that can actually put some fire in this 0:07:07.120 --> 0:07:10.239 particular you know, where is it down thirteen fourteen percent 0:07:10.360 --> 0:07:13.880 year a year todate Because other than that, I mean, 0:07:13.920 --> 0:07:16.600 we don't see China bouncing back this year, We don't 0:07:16.600 --> 0:07:20.280 see any major new product announcement, and obviously Apple Vision 0:07:20.280 --> 0:07:22.840 pro is not going to drive the overall growth rate 0:07:22.920 --> 0:07:26.200 of the company. So it's the iPhone and if there 0:07:26.240 --> 0:07:28.800 is anything that's out there that can force Paul to 0:07:28.840 --> 0:07:31.360 go out and buy a new phone. I think that's 0:07:31.400 --> 0:07:32.560 going to drive the next cycle. 0:07:32.680 --> 0:07:34.800 All right, Well, I'm heading down to Duke tomorrow Anarox, 0:07:34.800 --> 0:07:36.840 so there's a reasonable chance I might bump into Tim Cook. 0:07:36.880 --> 0:07:39.880 I'm going to make my dividend increase. Pitch. Yet again, he's. 0:07:39.720 --> 0:07:42.680 Gonna run away from you probably, Yeah? Is that had 0:07:42.720 --> 0:07:44.800 that conversation though, as you say, he's like, leave me alone. 0:07:44.840 --> 0:07:46.760 Paul I said, would a kill you to put a 0:07:46.800 --> 0:07:48.960 two and a half or three percent dividend yield on 0:07:49.040 --> 0:07:50.600 this thing? All right, Honorrock, thanks so much for joining 0:07:50.640 --> 0:07:53.800 us on rog ran a senior technology analyst Bloomberg Intelligence 0:07:54.160 --> 0:07:59.200 from the Technology Growth Boomtown of Chicago, Illinois. Go figure that? 0:08:00.000 --> 0:08:02.800 So AnyWho? So, yeah, we'll see the Apple. I think 0:08:02.840 --> 0:08:04.760 if you're a shareholder, you just you have to be just. 0:08:05.960 --> 0:08:08.120 I'll take the China risk, you know. I think the 0:08:08.120 --> 0:08:10.400 bigger risk isn't necessarily so supply chain, but at the 0:08:10.400 --> 0:08:13.360 competitive risk and the risks of my sales people, for 0:08:13.360 --> 0:08:15.720 whatever reason, are in the we're not really buying American 0:08:15.720 --> 0:08:16.680 stuff if we don't have to. 0:08:16.840 --> 0:08:18.920 Well yeah, and also it disrupts the thesis that like 0:08:19.240 --> 0:08:20.880 all of India is going to go buy an iPhone, 0:08:20.920 --> 0:08:22.480 which is like all of China's going to go buy 0:08:22.480 --> 0:08:24.640 an iPhone. Like, clearly we're seeing a difference in that 0:08:24.720 --> 0:08:26.840 thesis too. So such a good point. Not a supply 0:08:26.920 --> 0:08:29.200 chain issue with China, but just straight up demands. 0:08:29.320 --> 0:08:32.200 Yeah, I think that could be the bigger issue. 0:08:32.679 --> 0:08:36.559 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:08:36.640 --> 0:08:39.680 weekdays at ten am Eastern on Apple car Play and 0:08:39.679 --> 0:08:42.959 Android Auto with the Bloomberg Business. You can also listen 0:08:43.080 --> 0:08:46.160 live on Amazon Alexa from our flagship New York station 0:08:46.520 --> 0:08:49.280 just Say Alexa playing Bloomberg eleven thirty. 0:08:50.559 --> 0:08:52.840 I'm interested to see we are breaching those technical levels 0:08:53.000 --> 0:08:55.440 for the markets, but then what winds up happening to 0:08:55.600 --> 0:08:58.200 buying the dip? Does that materialize or do we actually 0:08:58.200 --> 0:09:02.679 get a proper longer. Francis Donald is chief a global 0:09:02.760 --> 0:09:05.800 chief economist and strategist for Manual Life Investment Management, and 0:09:05.840 --> 0:09:08.440 she joins us. Now, great person to talk to on this. 0:09:09.080 --> 0:09:11.080 Do you think investors buy the dip on this? 0:09:13.360 --> 0:09:13.560 Oh? 0:09:13.679 --> 0:09:15.920 I'm not sure I'm there just yet, Alex. I mean, 0:09:15.960 --> 0:09:20.400 we've been living in soft landing euphoria where everything is perfect, 0:09:20.559 --> 0:09:24.000 growth is coming in just fine, but inflation is declining. 0:09:24.240 --> 0:09:26.240 And we've said you can't have your cake and eat 0:09:26.280 --> 0:09:29.520 it too Either growth will hold in too long, inflation 0:09:29.600 --> 0:09:33.480 will reaccelerate and you will lose your rate cuts, which 0:09:33.520 --> 0:09:35.720 is what's happening, or and I think this is the 0:09:35.760 --> 0:09:38.760 next phase of this, growth will deteriorate and you will 0:09:38.760 --> 0:09:41.719 no longer be in this soft landing narrative. So we 0:09:41.800 --> 0:09:45.160 still have concerns that even though inflation is coming in sticky, 0:09:45.480 --> 0:09:47.520 growth is going to decline in the second half of 0:09:47.559 --> 0:09:50.640 the year. So what worries me. What worries me is 0:09:50.640 --> 0:09:53.920 this word stagflationary is probably going to come back a 0:09:53.960 --> 0:09:55.720 lot more in our narrative in the next three to 0:09:55.760 --> 0:09:58.520 six months. That's a very difficult place for the Federal 0:09:58.559 --> 0:10:00.720 Reserve to be. They're going to have to pick their 0:10:00.720 --> 0:10:03.880 favorite child, Sophie's choice. Is it inflation or is it growth? 0:10:04.040 --> 0:10:06.640 And I think it's a really difficult environment for risk assets. 0:10:06.679 --> 0:10:08.280 They're going to have to deal with the worst of 0:10:08.320 --> 0:10:10.040 both worlds. 0:10:10.320 --> 0:10:12.920 No bueno. So how about the Federal Reserve bump? FED 0:10:12.960 --> 0:10:15.160 Chairman J Powell. In the back of my mind, do 0:10:15.240 --> 0:10:17.240 I have a scenario where I don't cut rates with 0:10:17.280 --> 0:10:17.720 all this year. 0:10:19.559 --> 0:10:21.720 Of course, that's always a scenario. I mean that team 0:10:21.760 --> 0:10:23.839 and I sat down this morning. Our base case has 0:10:23.920 --> 0:10:27.080 been the FED would go later but faster, but we'd 0:10:27.120 --> 0:10:30.000 penciled in June to the starting point, and so I said, team, 0:10:30.000 --> 0:10:32.160 you know, are we moving to September? And all of 0:10:32.240 --> 0:10:34.040 us agreed. We got to wait. In the next twenty 0:10:34.080 --> 0:10:37.120 four hours. There is so much FED speak coming forward, 0:10:37.320 --> 0:10:38.720 and I think you know as well as I do. 0:10:39.080 --> 0:10:41.840 It's not uncommon to see extra FED speak pop up 0:10:41.880 --> 0:10:44.400 when you have big moves of this magnitude. So what 0:10:44.440 --> 0:10:46.960 we want to know is not the data itself, but 0:10:47.040 --> 0:10:49.240 what is going to be the interpretation of the data. 0:10:49.320 --> 0:10:51.840 There were many categories in today's CPI that are not 0:10:51.880 --> 0:10:55.760 going to flow through as strong to PCEE. Does Chair 0:10:55.840 --> 0:10:58.760 Powell want to emphasize that? What about that wages are 0:10:58.800 --> 0:11:02.040 decelerating fairly rapidly, and all of our leading indicators of 0:11:02.080 --> 0:11:04.079 wages say, well, there's not going to be a wage 0:11:04.080 --> 0:11:06.640 price spiral. If the FED wants to cut in June, 0:11:06.720 --> 0:11:08.920 they have enough data to be able to say, hey, 0:11:08.920 --> 0:11:10.720 we're going to cut in June. If they like to 0:11:10.760 --> 0:11:13.280 take the opening the bond market gave them to go later, 0:11:13.559 --> 0:11:15.400 then you'll probably hear a lot less from them in 0:11:15.400 --> 0:11:17.520 the next twenty four hours. They'll try to stay mute. 0:11:17.640 --> 0:11:20.280 But this is this part in the cycle where macro 0:11:20.400 --> 0:11:23.560 forecasting and FED forecasting becomes a little less science and 0:11:23.640 --> 0:11:26.400 a little more art. It's a lot more subjective. I 0:11:26.440 --> 0:11:28.200 need to hear what Powell says, not just what the 0:11:28.240 --> 0:11:28.959 data looks like. 0:11:29.120 --> 0:11:31.480 And just talking about sort of market reaction. Euro dollars 0:11:31.480 --> 0:11:33.160 down as much as one percent. We're now at one 0:11:33.240 --> 0:11:36.000 spot oh seven, biggest drop since July. So we'll just 0:11:36.040 --> 0:11:38.520 watch out for more of those superlatives as we go. 0:11:38.800 --> 0:11:42.120 You mentioned the PCE CPI thing of a bob, and 0:11:42.160 --> 0:11:44.120 I say a thing a bob because like, not everything 0:11:44.200 --> 0:11:47.120 counts in the same way to get different baskets. But 0:11:47.200 --> 0:11:51.640 you had the firmerical motor vehicle insurance costs and medical 0:11:51.720 --> 0:11:56.000 care and both of those are what feeds into PCE differently, 0:11:56.960 --> 0:11:59.719 So why how what does the FED talk about with that? 0:12:01.360 --> 0:12:04.440 Whatever they want? And this is what's been really challenging 0:12:04.480 --> 0:12:07.840 for us is there are measures like six month annualized 0:12:07.880 --> 0:12:12.280 CPI X shelter. Heading into this was stub two percent. 0:12:12.880 --> 0:12:15.600 That was totally enough for the FED to be cutting 0:12:15.720 --> 0:12:17.760 or they can lean on the shelter side of the picture. 0:12:18.040 --> 0:12:20.160 So this is a really challenging environment where the FED 0:12:20.200 --> 0:12:22.920 can choose what numbers it wants to focus on. They 0:12:22.960 --> 0:12:26.440 can tailor which data they reference to what they think 0:12:26.480 --> 0:12:29.480 is the appropriate outcome. We're talking a lot about inflation here, 0:12:29.480 --> 0:12:31.480 but let's not forget the job side of the picture. 0:12:31.679 --> 0:12:33.320 The job side of the picture, when you look at 0:12:33.320 --> 0:12:36.280 the leading indicators, is weakening and there on end, they 0:12:36.320 --> 0:12:38.679 can say headline job growth is good, or they can 0:12:38.679 --> 0:12:42.000 say full time jobs have been deteriorating very sharply, and 0:12:42.040 --> 0:12:44.559 that suggests it's going to be labor market weakness. That's 0:12:44.600 --> 0:12:47.400 why listening to the FED is going to become paramount, 0:12:47.600 --> 0:12:49.960 and unfortunately, especially for those of us that are trying 0:12:50.000 --> 0:12:52.360 to actively trade, it a lot more volatility and rates 0:12:52.360 --> 0:12:53.360 in the next couple months. 0:12:53.520 --> 0:12:55.960 All right, Well, if the underlying jobs data maybe is 0:12:56.000 --> 0:12:58.959 not as strong as the headline data, and we have 0:12:59.240 --> 0:13:01.920 persistent inflame here, it's got to be tough on the 0:13:01.960 --> 0:13:04.280 consumer out there. How do you think about the US consumer? 0:13:05.679 --> 0:13:07.600 Depends which consumer you are, I know there's a lot 0:13:07.600 --> 0:13:09.520 of depends coming through here, and it's because we have 0:13:09.679 --> 0:13:14.360 so much diversification and desynchronization. This is a really big term. 0:13:14.520 --> 0:13:17.680 I mean, this week we had a horrible, horrible small 0:13:17.720 --> 0:13:20.559 business optimism number. It was more like small business deep 0:13:20.600 --> 0:13:24.600 pessimism number. That's very consistent with dark recessions. And yet 0:13:24.679 --> 0:13:28.400 CEO confidence is off the charts. Look at consumer confidence 0:13:28.440 --> 0:13:32.520 by income. High income consumers are feeling gosh, are good 0:13:32.640 --> 0:13:36.040 and low income consumers are struggling. They're out of excess saving, 0:13:36.400 --> 0:13:39.840 their credit cards are too expensive, they're going to linquid. 0:13:39.960 --> 0:13:42.319 If you're a high income consumer, you're a saver. You're 0:13:42.360 --> 0:13:45.679 benefiting from investment returns and house prices returns. You're a 0:13:45.679 --> 0:13:48.640 really good shape. Let's not forget those high income consumers, 0:13:48.679 --> 0:13:51.400 the top twenty percent. They spend thirty five percent of 0:13:51.400 --> 0:13:54.280 all expenditures. So if you're a consumer right now that 0:13:54.360 --> 0:13:58.040 is interest rate sensitive, you are feeling recessionary. If you 0:13:58.160 --> 0:14:01.960 are not interest rate sensitive, then things look really pretty 0:14:02.000 --> 0:14:04.520 for you. The key here is not to cherry pick 0:14:04.559 --> 0:14:06.120 which side of theirs you're going to look at. It 0:14:06.200 --> 0:14:09.160 is to understand from a policy perspective that the economic 0:14:09.200 --> 0:14:12.400 experience across income groups and regions in the US is 0:14:12.800 --> 0:14:16.200 very different and from an aggregate perspective to look top 0:14:16.240 --> 0:14:18.680 down and say, what does this look like in totality, 0:14:18.920 --> 0:14:20.560 not just looking at one side of the picture or 0:14:20.560 --> 0:14:20.840 the other. 0:14:21.200 --> 0:14:23.280 So and to that point, sort of just looking at 0:14:23.320 --> 0:14:26.040 the areas where we saw increases versus decreases. I found 0:14:26.120 --> 0:14:28.280 it was so interesting, not to like bore you guys, 0:14:28.320 --> 0:14:31.360 but things like car insurance and clothing and personal care 0:14:31.400 --> 0:14:34.080 and education and furniture that all went up, right, But 0:14:34.120 --> 0:14:36.200 what went down on are things like the price of 0:14:36.280 --> 0:14:40.520 butter for example, Grocery store foods went down, cereals and 0:14:40.560 --> 0:14:43.640 bakery products so like go make croissants, so like it's hard. 0:14:43.800 --> 0:14:47.360 So I wonder, are we in like a rolling inflation 0:14:47.560 --> 0:14:51.440 scenario where we kind of saw that last year and 0:14:51.440 --> 0:14:53.760 the year before when it comes to rolling recession in 0:14:53.840 --> 0:14:58.600 certain areas of the equity market and industries. Are we 0:14:58.680 --> 0:14:59.760 in that place right now? 0:15:01.360 --> 0:15:04.440 Possibly? I mean on the flip side, goods are actually 0:15:04.440 --> 0:15:06.920 in straight up deflation right now. So where we're seeing 0:15:06.960 --> 0:15:10.280 the inflationary pressure is on the services side. But we 0:15:10.280 --> 0:15:12.680 were a little bit worried today we're going through the number. 0:15:12.720 --> 0:15:14.840 We said, Look, apparel is starting to pick up there's 0:15:14.960 --> 0:15:17.800 enough categories that the momentum is moving in the wrong way, 0:15:18.080 --> 0:15:20.040 So that's proving a little bit of concern for us. 0:15:20.320 --> 0:15:23.120 One thing I can't help but think about is last year, 0:15:23.200 --> 0:15:25.080 my team and I were saying constantly, hey, when the 0:15:25.120 --> 0:15:28.200 Fed cuts rates, you won't be asking why. And yet 0:15:28.200 --> 0:15:31.640 in December when Chair Powell pivoted, I constantly was asking 0:15:31.680 --> 0:15:36.240 myself why what changed from October to December to really 0:15:36.280 --> 0:15:38.960 create this movement? It didn't seem like a good idea. 0:15:39.000 --> 0:15:41.200 And there's going to be criticism on Share Powell, I 0:15:41.240 --> 0:15:45.080 think today, especially that he pivoted too early, He eased 0:15:45.440 --> 0:15:49.720 indirectly and therefore inflated the economy a little bit too early. 0:15:49.800 --> 0:15:51.400 I think that's going to be some of the pressure 0:15:51.480 --> 0:15:54.520 he gets now. On the flip side, if they say, okay, 0:15:54.560 --> 0:15:56.000 you know what, We're going to push out rate cut 0:15:56.080 --> 0:15:58.520 expectations till later this year, you might see some of 0:15:58.520 --> 0:16:02.400 that inflation come back. Is a veritable rollercoaster for our clients. 0:16:02.440 --> 0:16:05.040 We tell them focus on the two year horizon. Two 0:16:05.120 --> 0:16:07.160 years from now, rates will be much lower than where 0:16:07.160 --> 0:16:09.840 they are now, whether they start in June, September or 0:16:09.880 --> 0:16:14.000 frankly twenty twenty five is less relevant for most investors 0:16:14.400 --> 0:16:17.000 than that two year cycle. So that's what we're advocating, 0:16:17.040 --> 0:16:20.640 focusing on not big bets right now, not super tactical 0:16:20.640 --> 0:16:22.360 bets right now, unless, of course you have. 0:16:22.360 --> 0:16:25.240 To I like that too. Your view makes sense to me. 0:16:25.560 --> 0:16:27.720 That being said, we do have the warp function on 0:16:27.760 --> 0:16:30.200 Bloomberg terminal where people are kind of racing it out 0:16:30.240 --> 0:16:32.720 month the month here. So are you guys in the 0:16:32.760 --> 0:16:34.880 camp that says, hey, this Fed doesn't have to rush, 0:16:34.920 --> 0:16:36.680 they can wait as long as they want. 0:16:37.520 --> 0:16:40.400 Well, we're ver embarrassed on the economy compared to consensus. 0:16:40.400 --> 0:16:43.080 We still have a recession in our forecast, and actually 0:16:43.120 --> 0:16:45.880 today's inflation print, which tells us the Fed is going 0:16:45.920 --> 0:16:49.040 to stay a little bit longer, amplifies our concerns about 0:16:49.040 --> 0:16:52.520 recession risk for later this year and into twenty twenty five. 0:16:52.760 --> 0:16:55.720 So we see twenty twenty five as being really underpriced 0:16:55.760 --> 0:16:58.080 when it comes to easing. But for the rest of 0:16:58.120 --> 0:16:59.720 this year, as I said, we're going to listen to 0:16:59.760 --> 0:17:02.000 the a little bit in the next twenty four hours. 0:17:02.280 --> 0:17:04.520 It's going to be June or September. Of course, we're 0:17:04.520 --> 0:17:06.360 going to have a lot of short term focus on that, 0:17:06.680 --> 0:17:09.520 but big market moves should really be driven off of 0:17:09.800 --> 0:17:12.160 are we heading into a recession? Is it a traditional 0:17:12.280 --> 0:17:15.760 easing cycle with hundreds of basis points of cuts? That's 0:17:15.800 --> 0:17:18.920 going to be far more important for acid allocation decisions 0:17:19.040 --> 0:17:21.200 or bonds and stocks than June or September. 0:17:21.720 --> 0:17:26.080 Francis Francis Donald, thanks a lot, Manulife Senior chief chief 0:17:26.080 --> 0:17:29.480 economist and strategist over there. Yeah, And that's so interesting too, 0:17:29.520 --> 0:17:33.560 because when you take a look at what the forecast is, 0:17:34.080 --> 0:17:37.119 does it matter why they cut, Like are they cutting 0:17:37.119 --> 0:17:40.199 because the economy stinks? Or are they cutting because they're normalizing? 0:17:40.240 --> 0:17:42.240 And if they're normalizing, that's not going to be like 0:17:42.320 --> 0:17:45.639 three hundred bases points of cuts unless the economy super tanks. 0:17:45.960 --> 0:17:47.560 So does that change how you allocate? 0:17:48.040 --> 0:17:50.520 Yeah? Exactly right. And I think if I think what 0:17:50.600 --> 0:17:52.920 a lot of folks took from today's data is in 0:17:52.960 --> 0:17:56.040 any scenario, you can make a stronger case today that 0:17:56.680 --> 0:17:57.640 they can wait a little bit. 0:17:57.720 --> 0:17:59.479 Yeah or no, why aren't we talking about hikes? 0:18:00.040 --> 0:18:03.439 Why aren't we talking Yeah? Right, yeah, that's no fun though. 0:18:03.480 --> 0:18:05.399 No one always no fun and we don't like doing it, 0:18:05.440 --> 0:18:07.960 But like, why aren't we actually like talking about it 0:18:08.000 --> 0:18:08.520 at that point. 0:18:08.600 --> 0:18:09.320 Yeah, exactly. 0:18:11.840 --> 0:18:15.720 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:18:15.800 --> 0:18:18.480 weekdays at ten am Eastern on Apple car Play and 0:18:18.480 --> 0:18:21.080 then broid Auto with the Bloomberg Business app. Listen on 0:18:21.160 --> 0:18:24.440 demand wherever you get your podcasts, or watch us live 0:18:24.560 --> 0:18:25.280 on YouTube. 0:18:26.480 --> 0:18:29.000 I should point out the SEP is off the lows 0:18:29.160 --> 0:18:32.119 of the session, just down eight tens of one percent. 0:18:32.160 --> 0:18:34.040 I feel like my buying the dip question isn't as 0:18:34.080 --> 0:18:36.200 crazy as maybe would have got two hours ago. So 0:18:36.280 --> 0:18:39.280 let's ask it now to Shanna Sizzle, president and CEO 0:18:39.480 --> 0:18:42.000 of better On Capital Management. She joints now on Zoom 0:18:42.000 --> 0:18:45.520 from Chicago, Illinois. Shanna, do you buy the dip? 0:18:46.960 --> 0:18:48.080 I always buy the dip? 0:18:48.400 --> 0:18:51.439 Okay, But I mean, the market goes up more than 0:18:51.480 --> 0:18:52.080 it goes down. 0:18:52.080 --> 0:18:53.840