WEBVTT - Can Apple's Ecosystem Withstand Negative Noise 0:00:01.360 --> 0:00:05.680 This is Bloomberg Business Wait inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.440 gloom O Business Finance and tech news. The Bloomberg Business 0:00:13.440 --> 0:00:18.960 Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:21.079 --> 0:00:34.520 Whoa whoa. 0:00:31.400 --> 0:00:34.840 Little b king. Yeah, we're a little worried. It goes 0:00:34.880 --> 0:00:37.760 like a street's a little worried about Apple, Tim, We 0:00:37.760 --> 0:00:39.760 were just talking about it, one of your decliners. Shares 0:00:39.800 --> 0:00:42.560 of Apple down for fourth day in a row, moving 0:00:42.560 --> 0:00:45.080 below it's ninety day moving average. This after analys at 0:00:45.080 --> 0:00:48.560 Piper Sandler cut their rating today, setting a week macro 0:00:48.680 --> 0:00:51.440 environment in China that will damp and demand for iPhones. 0:00:51.520 --> 0:00:53.720 We heard some worries just earlier in the week. 0:00:54.280 --> 0:00:57.080 Yeah, that follows the more bearish move by analyst at 0:00:57.120 --> 0:01:01.480 Barclays who cut their rating to underweight on Tuesday. In all, Carol, 0:01:01.480 --> 0:01:03.720 Apple is down six percent in the last four days, 0:01:03.800 --> 0:01:06.800 shedding one hundred and eighty billion dollars in market cap. 0:01:07.080 --> 0:01:10.000 We should note there are now five cells on the stock, 0:01:10.720 --> 0:01:14.600 so that pushes the company's by equivalent ratio down even further. 0:01:14.959 --> 0:01:17.720 With the percentage of analysts bullish on the company at 0:01:17.760 --> 0:01:18.480 a three year low. 0:01:18.600 --> 0:01:20.440 Yes, it's interesting, all right. So what's going on? Is 0:01:20.440 --> 0:01:22.440 twenty twenty four set to take a big bite out 0:01:22.440 --> 0:01:25.440 of Apple? We've got a great roundtable. Markermann is Chief 0:01:25.440 --> 0:01:28.119 Technology correspondent at Bloomberg News. He joins us on Zoom 0:01:28.160 --> 0:01:31.320 from our La bureau, and anurag Rana is senior technology 0:01:31.360 --> 0:01:34.399 analyst at Bloomberg Intelligence. He joins us on Zoom from 0:01:34.440 --> 0:01:36.880 our Chicago bureau. Guys, thank you so much. Happy New 0:01:37.000 --> 0:01:39.760 year to both of you. I do want to kick 0:01:39.800 --> 0:01:40.240 off with you. 0:01:40.360 --> 0:01:40.600 Mark. 0:01:40.600 --> 0:01:43.319 You cover this company like HONOURAG. You talk with them, 0:01:43.319 --> 0:01:45.440 you check out their products, you do your channel checks. 0:01:45.720 --> 0:01:48.240 Should we be saying Cooper Tina, we have a little 0:01:48.280 --> 0:01:49.400 bit of a problem here. 0:01:50.400 --> 0:01:50.600 You know. 0:01:50.640 --> 0:01:52.320 I think twenty fourteen good. 0:01:52.720 --> 0:01:53.400 Twenty fourteen. 0:01:53.520 --> 0:01:55.760 Twenty twenty four don't take me back, please? 0:01:56.480 --> 0:01:58.800 Yes, could shake up to shake out to be one 0:01:58.800 --> 0:02:00.760 of the most pivol years in Apple's history. 0:02:01.160 --> 0:02:02.000 There's a lot going on. 0:02:02.080 --> 0:02:05.280 They have a pretty compelling product roadmap for the year. 0:02:05.360 --> 0:02:08.280 The Vision Pro headset, their first new category of nine years. 0:02:09.240 --> 0:02:13.800 Larger iPhone displays biggest change of the iPad since twenty eighteen, 0:02:14.400 --> 0:02:17.519 big changes to AirPods in the Apple Watch. So there's 0:02:17.520 --> 0:02:22.320 a lot going on here, but big butt. The iPhone 0:02:22.360 --> 0:02:26.200 sales concerns are a real problem. The fact that we're 0:02:26.280 --> 0:02:28.600 likely going into our fifth quarter in a row of 0:02:28.760 --> 0:02:32.000 revenue decline, that's a big problem. That's something that hasn't 0:02:32.040 --> 0:02:35.760 happened in the modern Steve Jobs nor Tim cook eras 0:02:36.200 --> 0:02:39.360 The fact that this new product category they're launching is 0:02:39.400 --> 0:02:42.320 not going to have any mainstream pickup for several years 0:02:42.639 --> 0:02:46.240 or generate any material revenue, that's a problem. The fact 0:02:46.240 --> 0:02:49.320 that Massimo proved that you could beat Apple in a 0:02:49.360 --> 0:02:52.040 patent infringement lawsuit and get their product off the market. 0:02:52.520 --> 0:02:54.840 That's a really big deal. So there's a lot of 0:02:54.880 --> 0:02:58.200 negative noise around Apple. I still think that the fundamentals, 0:02:58.680 --> 0:03:03.200 the moat they've created, the ecosystem, the iPhone, people holding 0:03:03.240 --> 0:03:06.400 onto their devices, buying news services. I think that's all 0:03:06.400 --> 0:03:09.920 pretty strong. But it just feels a little weaker than 0:03:09.919 --> 0:03:10.359 it ever. 0:03:10.240 --> 0:03:13.639 Has on a rock. I see you nodding here from Chicago. 0:03:15.560 --> 0:03:17.520 Tell us tell us your thoughts based on what you 0:03:17.560 --> 0:03:18.119 heard from Mark. 0:03:18.720 --> 0:03:21.000 Yeah, I absolutely agree with Mark in fact, but the 0:03:21.040 --> 0:03:23.760 only thing I would say is all of this you know, 0:03:23.840 --> 0:03:27.000 iPhone weakness came out when they reported results on November 0:03:27.120 --> 0:03:30.000 the two. That's when we knew when they missed China 0:03:30.080 --> 0:03:33.320 numbers by a big amount. We had heard about, you know, 0:03:33.440 --> 0:03:39.120 competition from Huawei. All of those things are important because 0:03:39.560 --> 0:03:42.400 we were hoping that by this year we should see 0:03:42.440 --> 0:03:47.000 a improvement in China smartphone sales only because the year 0:03:47.040 --> 0:03:50.000 before we had COVID related problems and there was a 0:03:50.080 --> 0:03:53.200 depression in sales. I think that really is something that 0:03:53.600 --> 0:03:56.240 you know, when they came and gave guidance. To be honest, 0:03:56.280 --> 0:03:58.280 I was surprised that the stock didn't react the way 0:03:58.320 --> 0:04:00.680 it's reacting now at that time. So I think it 0:04:00.720 --> 0:04:03.760 could be a year and you know, portfolio management or 0:04:03.760 --> 0:04:06.920 whatever it was. But I agree this year is going 0:04:06.920 --> 0:04:09.040 to be tough for them. They're going to grow somewhere 0:04:09.040 --> 0:04:12.840 between three to five percent revenue, then you buy you 0:04:12.880 --> 0:04:15.240 know a little bit of buybacks in between. So this 0:04:15.320 --> 0:04:17.919 is a this is the new normal for Apple. It 0:04:18.000 --> 0:04:19.600 has been for the last two years. 0:04:19.720 --> 0:04:22.000 Well, honurk let me follow the new normal. Does that 0:04:22.040 --> 0:04:25.000 mean Apple at some point needs to think about China 0:04:25.120 --> 0:04:28.239 not being as big a market as it has planned 0:04:28.279 --> 0:04:28.880 for it to be. 0:04:30.160 --> 0:04:32.880 Well, China is a big market. There is no there 0:04:33.000 --> 0:04:35.640 is no way out of it. But see the way 0:04:35.680 --> 0:04:38.320 you want to think about Apple in totality, and I'm 0:04:38.360 --> 0:04:40.680 only going to focus on iPhones right now because that's 0:04:40.720 --> 0:04:43.760 really what drives the product growth at least, you know, 0:04:43.960 --> 0:04:45.960 the in the near term. When you look at the 0:04:45.960 --> 0:04:49.000 global market, they have a very high market share in 0:04:49.040 --> 0:04:51.480 the US, which is a mature market. Then the next 0:04:51.480 --> 0:04:54.360 big market is China, where they have less than eighteen 0:04:54.400 --> 0:04:57.520 percent of unit market share. But as people become more 0:04:57.600 --> 0:04:59.839 rich they go out with and get a more premium brand. 0:05:00.120 --> 0:05:02.240 Then the next big market is going to be India, 0:05:02.279 --> 0:05:04.760 where they have less than five percent market share in 0:05:04.839 --> 0:05:07.080 terms of the units. So the way you want to 0:05:07.080 --> 0:05:09.599 think about Apple is over the next three to five years, 0:05:09.960 --> 0:05:12.400 the big unit chipment, you know, numbers are going to 0:05:12.400 --> 0:05:15.520 come from China and after that India. In the US, 0:05:15.760 --> 0:05:19.200 you know, we have phones, we're going to refresh at 0:05:19.279 --> 0:05:21.960 whatever three years, three and a half years, potios and 0:05:22.040 --> 0:05:25.160 that's a bit of a saturated pocket. So China is 0:05:25.240 --> 0:05:27.920 the growth engine when it comes to phones, and that's 0:05:27.960 --> 0:05:30.200 where we are seeing some you know, I would say, 0:05:30.200 --> 0:05:30.880 slow down. 0:05:31.040 --> 0:05:35.719 Hey, Mark For years, we've been hearing about how the 0:05:35.760 --> 0:05:40.000 iPhone just powers Apple, and indeed it does account for 0:05:40.040 --> 0:05:43.880 more than fifty percent of the company's revenue. But we've 0:05:43.920 --> 0:05:47.680 also heard the risks associated with that. What is the 0:05:47.680 --> 0:05:51.480 most compelling new product category for Apple that will help 0:05:51.520 --> 0:05:54.440 offset some of this slowing iPhone growth? 0:05:55.720 --> 0:05:57.919 You know, it's it's an interesting question people for years, 0:05:57.920 --> 0:05:59.400 like you said, have been talking about is it a 0:05:59.480 --> 0:06:02.120 risk that everything revolves around the iPhone and half the 0:06:02.120 --> 0:06:05.080 revenue comes from the iPhone? I think it's even worse 0:06:05.120 --> 0:06:10.680 than that, because you're buying AirPods if you have an iPhone, 0:06:10.800 --> 0:06:13.200 you're buying an Apple Watch if you have an iPhone, 0:06:13.760 --> 0:06:18.279 all these services that Apple are selling, Fitness Plus TV 0:06:18.400 --> 0:06:22.960 plus Apple Music, the App Store. Every time you download 0:06:22.960 --> 0:06:27.640 an app, where are those downloads happening, It's happening on 0:06:27.720 --> 0:06:30.800 the iPhone. How many people own an iPad or a 0:06:30.800 --> 0:06:33.200 Mac and don't own an iPhone. How many people buy 0:06:33.240 --> 0:06:36.000 an iPhone before they buy an iPad or a Mac. 0:06:36.800 --> 0:06:39.960 So if you really think about the ecosystem in totality, 0:06:40.560 --> 0:06:44.000 it is one hundred percent built around the iPhone. You know, 0:06:44.040 --> 0:06:47.000 this new vision prode answer your question about new product 0:06:47.040 --> 0:06:50.320 categories to drive revenue. That's not going to drive revenue 0:06:50.320 --> 0:06:53.440 anytime soon. If they sell out of all their inventory 0:06:53.480 --> 0:06:56.080 for twenty four if you're talking about a three to 0:06:56.120 --> 0:06:59.479 four billion in just revenue alone, probably about a billion 0:06:59.520 --> 0:07:03.040 in profit maybe a little bit less, that's nothing, right, 0:07:03.080 --> 0:07:06.040 I mean, Honor Rock can get into how minuscule that is. 0:07:06.520 --> 0:07:10.120 And so I think long term, mixed reality, augmented reality, 0:07:10.200 --> 0:07:14.280 virtual reality, those are fine categories for Apple, but I 0:07:14.280 --> 0:07:16.720 think right now it's nothing more than a pilot dream 0:07:16.920 --> 0:07:18.679 in terms of not becoming a revenue generator. 0:07:18.720 --> 0:07:20.480 Honor Rok, come on in, you are not in your head? 0:07:20.520 --> 0:07:23.120 Go ahead, yeah, I mean it's as I said, that's 0:07:23.160 --> 0:07:25.640 why you know our I would say, seventy five percent 0:07:25.640 --> 0:07:28.080 of my focus going and goes into the iPhone and 0:07:28.440 --> 0:07:30.880 the work that's you know, we do around it. And 0:07:31.240 --> 0:07:33.680 you know, at this point we should see we should 0:07:33.720 --> 0:07:36.880 have seen an improvement in China. China, you know, there 0:07:36.880 --> 0:07:38.760 are about one hundred plus million phones that need to 0:07:38.800 --> 0:07:41.600 be refreshed that we haven't seen that number move quite 0:07:41.640 --> 0:07:43.560 a bit, and in terms of the base is a 0:07:43.600 --> 0:07:46.840 little bit more than that. But you know, we you know, 0:07:47.200 --> 0:07:49.960 China is going through weakness. You know, we have a 0:07:50.000 --> 0:07:52.400 new brand, new model from Huawei, but they haven't released 0:07:52.400 --> 0:07:54.840 in a while, so people are refreshing that. So I 0:07:54.880 --> 0:07:57.200 mean it it is a big bit of an issue. 0:07:57.200 --> 0:08:00.960 But frankly speaking, we really think Apple is a unique brand. 0:08:00.960 --> 0:08:03.760 Apple is a marquee brand. There is. If you look 0:08:03.800 --> 0:08:07.840 at globally the smartphone market, Apple has less than twenty 0:08:07.840 --> 0:08:10.760 percent of market share by units. I'm not talking about 0:08:10.800 --> 0:08:14.280 revenue by units. Think of Apple very much like an LVMH, 0:08:14.760 --> 0:08:17.560 like what Coca Cola was in the fifties and sixties. 0:08:17.800 --> 0:08:21.920 Whereas countries that are that they don't have the purchasing 0:08:21.960 --> 0:08:24.760 power to buy those products right now. As they become 0:08:24.840 --> 0:08:27.560 more richer, as they become more affluent, they're going to 0:08:27.600 --> 0:08:30.680 go with a marquee brand, and that's Apple. But if 0:08:30.680 --> 0:08:32.960 somebody's thinking they're going to grow ten to fifteen percent, 0:08:33.000 --> 0:08:36.600 I mean they need to recalibrate their thinking. This is 0:08:36.920 --> 0:08:39.640 at most now a company that's going to grow in 0:08:39.679 --> 0:08:42.240 a weak economy around three to five percent. In a 0:08:42.240 --> 0:08:45.360 good economy between sixty eight percent, which, to be honest, 0:08:45.400 --> 0:08:47.920 it's not bad. This is a brand that can you 0:08:48.120 --> 0:08:50.680 conquer a lot in the long run. But in the 0:08:50.720 --> 0:08:53.120 near term we do have growth problems. 0:08:53.240 --> 0:08:55.280 Mark Mark, I think that's such a great point. Just 0:08:55.320 --> 0:08:57.679 got about twenty seconds here this reset in terms of 0:08:57.760 --> 0:08:59.679 they still sell a ton of stuff, guys, but it's 0:08:59.679 --> 0:09:02.040 not going to be as aggressively growing. We need to 0:09:02.040 --> 0:09:03.200 think about that just quickly. 0:09:04.200 --> 0:09:06.319 It's been the case for years now, you know, in 0:09:06.440 --> 0:09:08.640 terms of reven New Apples very much like the new 0:09:08.640 --> 0:09:11.960 IBM in terms of products. They want to prove otherwise 0:09:12.000 --> 0:09:13.000 and this is the year to do it. 0:09:13.360 --> 0:09:15.040 Listen, guys, thank you so much. We were looking to 0:09:15.080 --> 0:09:18.440 do a smart roundtable fundamentally about the Apple story, and 0:09:18.480 --> 0:09:20.679 you guys just laid it out for us so well. 0:09:20.679 --> 0:09:23.800 Happy happy New Year. Mark Erman, chief technology correspondent here 0:09:23.800 --> 0:09:26.200 at Bloomberg News out there on the West Coast in 0:09:26.200 --> 0:09:29.000 our anaag Rana. A must read, as I always say, 0:09:29.240 --> 0:09:31.520 when it comes to a lot of things going on 0:09:31.559 --> 0:09:34.240 in the technology world, including Apple. He's senior tech analyst 0:09:34.240 --> 0:09:37.120 at Bloomberg Intelligence out there in our Chicago bureau. This 0:09:37.160 --> 0:09:37.760 is Bloomberg. 0:09:38.840 --> 0:09:42.400 You're listening to the Bloomberg Business Week podcast. Catch us 0:09:42.440 --> 0:09:45.800 live weekday afternoons from three to six Eastern Listen on 0:09:45.840 --> 0:09:49.880 Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, 0:09:50.160 --> 0:09:51.840 or watch us live on YouTube. 0:09:53.600 --> 0:09:55.440 What doesn't kill you makes. 0:09:55.280 --> 0:09:55.920 Us sud. 0:10:00.000 --> 0:10:03.280 Oh, thank god we have Gena to save us. Yes, indeed, everybody, 0:10:03.400 --> 0:10:06.120 US docs have begun twenty twenty four in a sour note. Weakness, 0:10:06.120 --> 0:10:09.439 though should be reasonably short lived, according to Bloomberg Intelligence 0:10:09.440 --> 0:10:13.520 Equity Strategies checklist of sixteen key indicators, which continues to 0:10:13.559 --> 0:10:15.920 improve for our fifth straight quarter. This from Bloomberg Intelligence 0:10:16.080 --> 0:10:18.480 Chief Equity Strategist Gina mart Adams, who is here in 0:10:18.480 --> 0:10:21.640 our Bloomberg Interactive Brokers studio. So nice to have you here. 0:10:21.679 --> 0:10:24.040 Happy New Year. Can't believe it's in New Year? 0:10:24.200 --> 0:10:24.400 Wait? 0:10:24.400 --> 0:10:26.280 Can I ask you something? You are here listening to 0:10:26.280 --> 0:10:28.400 this conversation. What do you make of the buy now, 0:10:28.480 --> 0:10:30.920 pay later? Is there something within the equity universe? I 0:10:30.960 --> 0:10:31.320 don't know. 0:10:31.440 --> 0:10:31.600 Oh. 0:10:31.640 --> 0:10:35.960 I think people are less and less cash rich, and 0:10:36.320 --> 0:10:38.679 Americans love their credit. So if you're going to give 0:10:38.679 --> 0:10:40.679 them an opportunity for a free lunch, even if they 0:10:40.679 --> 0:10:41.880 have to pay for that lunch in a month, so 0:10:41.880 --> 0:10:44.920 they're going to take that opportunity, In particular in periods 0:10:44.960 --> 0:10:47.200 of time when they're a little bit short cash, and 0:10:47.240 --> 0:10:49.320 that does appear to be where we are today. I mean, 0:10:49.360 --> 0:10:52.600 they still have very little debt, which is great longer term, 0:10:52.679 --> 0:10:55.480 but they are taking on more debt on account of 0:10:55.480 --> 0:10:59.000 the fact that it's getting more expensive to live and 0:10:59.120 --> 0:11:02.680 their incomes have really caught up with inflation. Even though 0:11:02.679 --> 0:11:05.000 that seems to be improving in the near term, we've 0:11:05.040 --> 0:11:08.000 been eighteen months in which inflation has been accelerating very 0:11:08.040 --> 0:11:11.640 quickly relative to income, and so certain income classes are 0:11:11.679 --> 0:11:14.720 struggling a little bit more than others. And anytime you 0:11:14.760 --> 0:11:19.200 give somebody something for free, they generally tend to do this. 0:11:19.320 --> 0:11:19.600 Do this. 0:11:19.720 --> 0:11:21.880 So, Gina, how do you square everything you just said 0:11:21.960 --> 0:11:24.840 right now with the optimism that you and the team 0:11:24.880 --> 0:11:26.199 have for stocks for this year. 0:11:27.000 --> 0:11:28.959 Well, so, the consumer is not the market. The market 0:11:29.000 --> 0:11:31.120 is not the consumer. It's the first thing to consider. 0:11:31.160 --> 0:11:33.400 There are potential weaknesses in the outlook, and many of 0:11:33.400 --> 0:11:36.200 them are consumer centric. But when we look at the 0:11:36.200 --> 0:11:39.679 composition of our broad equity markets in the US, it's 0:11:39.720 --> 0:11:42.199 a lot less about the American consumer than I think 0:11:42.320 --> 0:11:44.520 is popularly believed and what we've expected. 0:11:44.520 --> 0:11:46.559 We always talked about the consumer the backbone of the 0:11:46.640 --> 0:11:49.559 uscap exactly Yeah. 0:11:49.679 --> 0:11:51.360 I think that's a really good point and something we 0:11:51.400 --> 0:11:53.920 talk a lot about. It's sixty five percent of the 0:11:54.040 --> 0:11:56.720 US economy, but thirty percent of the market cap of 0:11:56.720 --> 0:12:01.080 the S and P five hundred at best is consumer sense. Also, 0:12:01.120 --> 0:12:03.840 what you tend to see in a normal recessionary sequence 0:12:04.080 --> 0:12:08.240 is the consumer slows down. There spending business investment crashes 0:12:08.320 --> 0:12:11.480 as a result of that consumer slowdown, and the business 0:12:11.480 --> 0:12:15.160 investment is what really creates the cycle. Business investments already crashed. 0:12:15.160 --> 0:12:18.320 Isms are already sitting at all time near all time 0:12:18.360 --> 0:12:22.199 low levels. Lais have already crashed, We've already experienced our 0:12:22.240 --> 0:12:25.880 major deceleration. So it's very difficult to get to a 0:12:26.240 --> 0:12:29.320 sort of mental constructs that would suggest that we're not 0:12:29.400 --> 0:12:33.400 already at or near some kind of low in the economy. 0:12:33.440 --> 0:12:35.640 Maybe we have a tiny dip lower if the consumer 0:12:35.720 --> 0:12:39.120 finally capitulates, but businesses have already adjusted, and we see 0:12:39.120 --> 0:12:41.880 that in the profit cycle as well. Within the S 0:12:41.960 --> 0:12:45.960 and P five hundred profit cycle, we saw profits capitulate materially. 0:12:46.000 --> 0:12:48.559 In twenty twenty two, we went through a massive recession 0:12:49.160 --> 0:12:52.040 in profits. Profits are starting to claw their way out 0:12:52.080 --> 0:12:54.880 of that recession now, So I think what's most important 0:12:54.880 --> 0:12:57.920 to driving stocks, frankly is earnings. Earnings are not one 0:12:57.960 --> 0:12:59.640 to one with the economy and by any stretch of 0:12:59.640 --> 0:13:02.360 the amount, and there's certainly not one to one with consumption. 0:13:02.440 --> 0:13:04.640 I am printing at the T shirts. Consumer is not 0:13:04.679 --> 0:13:06.600 the market. Market is not the consumer. Because I think 0:13:06.600 --> 0:13:08.880 about how much FI about sure, yeah, exactly, I'm going 0:13:08.960 --> 0:13:09.960 to I'm going to get it done. 0:13:10.280 --> 0:13:10.440 You know. 0:13:10.480 --> 0:13:12.080 The other thing I'd like to just add into this, 0:13:12.160 --> 0:13:14.160 because I'm talking about this for a note on Monday. 0:13:14.920 --> 0:13:17.960 We're so growth obsessed in the US. It's all about growth. 0:13:18.000 --> 0:13:19.480 It's all about growth. It's all about growth. But the 0:13:19.520 --> 0:13:21.959 reality of this cycle, especially over the last three years, 0:13:22.000 --> 0:13:24.520 that we've learned, or we should have learned, is that 0:13:24.559 --> 0:13:26.760 we should be a lot more inflation obsessed. And inflation 0:13:26.840 --> 0:13:29.720 doesn't always trail growth. And I think many of us 0:13:29.720 --> 0:13:32.520 in this market are conditioned on the idea that, well, 0:13:32.520 --> 0:13:34.920 if growth goes higher, inflation goes higher. If growth goes lower, 0:13:34.960 --> 0:13:37.720 inflation goes lower, and there's this symbiotic relationship that's not 0:13:37.840 --> 0:13:40.480 actually how it always happens. And we learned that the 0:13:40.559 --> 0:13:42.800 hard way in twenty twenty one and twenty twenty two, 0:13:43.400 --> 0:13:46.760 where inflation and growth really decoupled. So I actually think 0:13:46.760 --> 0:13:48.840 if there's a big risk to stocks next year, it's 0:13:48.880 --> 0:13:53.920 inflation that remains stickier than anybody anticipated. Even if growth accelerates, 0:13:53.960 --> 0:13:57.679 that's already expected. The whole world is expecting inflation, and we're. 0:13:57.400 --> 0:13:59.960 Not accelerate, but we're not expecting We're not expecting inflation 0:14:00.040 --> 0:14:01.880 into acel. I agree, and like, as you think about 0:14:01.920 --> 0:14:04.240 the Fed minutes from yesterday, they kind of covered everything. 0:14:04.280 --> 0:14:06.360 We could cut rates, but we could also raise rates, 0:14:06.360 --> 0:14:07.880 and I do feel like that that's the one thing 0:14:07.880 --> 0:14:10.680 that's being kind of underpriced in the markets. 0:14:10.960 --> 0:14:13.280 Yeah, and I think that that's just a natural byproduct 0:14:13.320 --> 0:14:16.600 of the fact that we're all human. We all work 0:14:16.600 --> 0:14:19.320 on recent experience. For the vast majority of the last 0:14:19.360 --> 0:14:23.040 twenty five years, we have really just been able to 0:14:23.120 --> 0:14:25.560 forecast growth and therefore forecast what was going to happen 0:14:25.600 --> 0:14:29.160 in markets. Something changed, it broke, and it definitely broke 0:14:29.200 --> 0:14:31.640 in a hard way. In twenty twenty two, Forecasting growth 0:14:31.720 --> 0:14:33.320 was not going to get you to where you needed 0:14:33.360 --> 0:14:36.840 to be with an investment strategy. So we have to 0:14:36.880 --> 0:14:39.200 consider inflation and what's going to happen with inflation in 0:14:39.240 --> 0:14:41.480 all aspects, but I think we're really reticent to do 0:14:41.560 --> 0:14:43.640 so because we're conditioned to all. 0:14:43.680 --> 0:14:46.760 But it doesn't really the end of everything, right, No. 0:14:46.800 --> 0:14:49.240 It doesn't necessarily mean the end of everything. It doesn't 0:14:49.240 --> 0:14:52.720 necessarily mean that things are broken. It's just different. It's 0:14:52.760 --> 0:14:54.480 just very different than where we've been for most of 0:14:54.520 --> 0:14:55.440 the last two decades. 0:14:55.760 --> 0:14:57.480 Well, for most the last few weeks, you and the 0:14:57.480 --> 0:15:00.360 team at Bloomberg Intelligence have been very busy because I 0:15:00.400 --> 0:15:01.200 got a lot of notes. 0:15:01.480 --> 0:15:03.440 Okay, thank you, thank you of it. 0:15:03.600 --> 0:15:05.480 We're catching up after the holiday break. 0:15:05.720 --> 0:15:08.240 Well, one thing that was really surprising to me looking 0:15:08.240 --> 0:15:10.280 back on twenty twenty three and how we can use 0:15:10.320 --> 0:15:12.480 this to predict what happens in twenty twenty four is 0:15:12.520 --> 0:15:15.480 the breadth, especially globally of stocks. We talked so much 0:15:15.480 --> 0:15:19.160 about the Magnificent seven, but you and the team crunched 0:15:19.160 --> 0:15:21.080 the numbers and it was a pretty good year globally. 0:15:21.160 --> 0:15:23.480 I know, it's kind of surprising because I think, again, 0:15:23.520 --> 0:15:25.440 the popular rhetoric has been, oh, it's just all of 0:15:25.520 --> 0:15:28.080 us seven. Hey if you missed the rally because you 0:15:28.080 --> 0:15:30.560 didn't have the Mags seven. But the reality is we 0:15:30.640 --> 0:15:33.280 tracked twenty major global equity markets around the world. Nineteen 0:15:33.320 --> 0:15:36.640 of twenty posted returns. Sixty percent of global stocks posted returns. 0:15:36.680 --> 0:15:39.840 Forty five percent of global stocks posted double digit returns. 0:15:40.320 --> 0:15:42.600 Last year. It was one of the greatest years for 0:15:42.640 --> 0:15:44.480 stocks in the last twenty five, one of the top six. 0:15:44.800 --> 0:15:47.160 So we had a really good year in equities in 0:15:47.200 --> 0:15:50.160 twenty twenty three. Not a great year in small caps 0:15:50.760 --> 0:15:53.680 without a doubt. Small caps were really left behind. Emerging markets, 0:15:53.760 --> 0:15:56.320 especially emerging markets when you include China, were left behind. 0:15:56.400 --> 0:16:00.560 So there were not everybody benefited significantly. A great deal 0:16:00.600 --> 0:16:02.600 of the equity market did do quite well in twenty 0:16:02.600 --> 0:16:03.000 twenty three. 0:16:03.080 --> 0:16:04.680 So how do you measure that? Is it the number 0:16:04.760 --> 0:16:06.960 hitting their fifty two week highs? What is it that 0:16:07.000 --> 0:16:07.480 you look at? 0:16:07.680 --> 0:16:09.360 Yeah, so we look at a lot of different things 0:16:09.800 --> 0:16:11.760 for that study. We just looked at the absolute returns 0:16:11.800 --> 0:16:13.680 just to kind of report in on, hey, here's actually 0:16:13.720 --> 0:16:16.960 what happened, and it looked pretty decent. I like to 0:16:17.000 --> 0:16:19.080 look at the percentage of stocks trading above their fifty 0:16:19.080 --> 0:16:21.240 and two hundred day moving average as my favorite breadth 0:16:21.320 --> 0:16:23.920 measure because I tend to find it gives me some 0:16:23.960 --> 0:16:27.120 indication as to what to expect for price trend. It 0:16:27.200 --> 0:16:31.400 also gives some near term toggles for the equity market. So, 0:16:31.440 --> 0:16:33.000 for instance, at the end of last year, we got 0:16:33.040 --> 0:16:35.120 to a point where seventy five percent more than seventy 0:16:35.120 --> 0:16:36.760 five percent of stocks were trading above their two in 0:16:36.760 --> 0:16:37.840 a day moving average. 0:16:37.520 --> 0:16:38.640 Which is significant. 0:16:38.760 --> 0:16:41.040 It's a very big breadth number, but it's also a 0:16:41.080 --> 0:16:44.360 bit extreme, okay, and it paired really well with things 0:16:44.400 --> 0:16:46.760 like our market Pulse index, which was saying the market 0:16:46.760 --> 0:16:51.400 itself sentiment is far too, far too bullish. RSI momentum 0:16:51.520 --> 0:16:53.800 also got to a very high extreme by the end 0:16:53.840 --> 0:16:55.800 of the year, so we were set up coming into 0:16:55.800 --> 0:16:57.480 this year to have a cool off period. At the 0:16:57.560 --> 0:17:00.840 very least, we needed to move out of the party 0:17:00.840 --> 0:17:03.560 that we had in December and pull off and let 0:17:03.600 --> 0:17:06.560 the market which I find a new equilibrium. How much 0:17:06.600 --> 0:17:08.919 of a cool loss it should be relatively small, just 0:17:08.920 --> 0:17:10.960 because most of the other conditions that we tend to 0:17:11.000 --> 0:17:15.120 follow for driving equity markets are pretty supportive, in particular 0:17:15.240 --> 0:17:17.880 the earnings trends. Frankly, I think it's kind of gone 0:17:17.960 --> 0:17:20.639 unnoticed that earning's made a major low in twenty twenty 0:17:20.680 --> 0:17:23.720 three and are starting to climb out of that low. 0:17:23.960 --> 0:17:26.880 Most sectors are going to participate in earnings recovery this year. 0:17:27.320 --> 0:17:30.639 The four ninety three, so in the non seven that 0:17:30.720 --> 0:17:32.399 we talk about, the four ninety three s and P 0:17:32.440 --> 0:17:35.120 five hundred companies that don't get as much play are 0:17:35.160 --> 0:17:38.040 actually supposed to produce their first quarter of earnings growth 0:17:38.040 --> 0:17:40.400 with the fourth quarter earning season coming up, the first 0:17:40.480 --> 0:17:42.520 quarter of earnings growth we've seen since twenty twenty two, 0:17:42.640 --> 0:17:46.080 So we should see some earnings momentum gather throughout the year. 0:17:46.280 --> 0:17:48.840 A lot of it is because inflation is decelerating. It's 0:17:48.920 --> 0:17:51.840 not because you got a big growth recovery or revenue 0:17:51.840 --> 0:17:53.240 but robust revenue recovery. 0:17:53.240 --> 0:17:53.679 It really is. 0:17:53.680 --> 0:17:57.760 Inflation needs to continue to accelerate to power that one recovery. 0:17:57.320 --> 0:17:58.639 We were talking about the end of the year and 0:17:58.640 --> 0:18:00.119 just got about a minute left here. Is that the 0:18:00.160 --> 0:18:03.200 money that's sitting in money markets. Do you anticipate that 0:18:03.240 --> 0:18:06.639 comes back into the equity markets this year? Or how do? 0:18:06.720 --> 0:18:07.000 I don't know? 0:18:07.080 --> 0:18:07.399 How are you? 0:18:07.480 --> 0:18:07.680 Yeah? 0:18:07.800 --> 0:18:10.400 I think you've got to get probably a stronger recovery 0:18:10.440 --> 0:18:13.440 in small caps and a broader recovery into all stocks. 0:18:14.280 --> 0:18:17.760 Probably need to get the FED to ease, okay, because 0:18:17.800 --> 0:18:21.280 then that changes the math. Right Right now, the math 0:18:21.359 --> 0:18:23.640 is not in favor of stocks relative to cash because 0:18:23.680 --> 0:18:26.000 the pe ratio is so high. With the exception of 0:18:26.040 --> 0:18:29.040 small caps, the math works very well for small caps, 0:18:29.040 --> 0:18:32.680 which are training at incredibly low valuation ratios. So your 0:18:32.680 --> 0:18:36.119