Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com Slash podcast.
Speaker 1: Let's turn to economics because we've got a lot of
Speaker 1: eco data this week. We've got a lot of central
Speaker 1: banks meeting around the globe. I think the Bank of Japan,
Speaker 1: the ECB coming this week, along with the US Bank
Speaker 1: of England next week. So a lot to chew on
Speaker 1: there from the central bank perspective. Let's break it down
Speaker 1: with Liz McCormick, chief correspondent of Global macro Markets at
Speaker 1: Bloomberg News, and Michael McKee, international Economics and Policy correspondent
Speaker 1: with Bloomberg News, who joins us here in studio. Mike,
Speaker 1: just want to start with you. We had the the
Speaker 1: PMIS come out. I don't they didn't look that good
Speaker 1: to me.
Speaker 3: I mean, what do you.
Speaker 1: Know, I'm manufacturing service. The composite PMI slowed from last month.
Speaker 1: What do you reading to these types of numbers.
Speaker 4: Well, the economy is slowing, which we expected. The question
Speaker 4: is how fast does it slow. The Bloomberg most recent
Speaker 4: Bloomberg Economic survey that just came out last Friday, suggests
Speaker 4: that economists think that the US economy is going to
Speaker 4: fall off cliff starting in this quarter, but that includes July,
Speaker 4: and that's not kind of what the story the data
Speaker 4: are telling at this point. Now you look at a
Speaker 4: number that's forty nine for manufacturing, the PMI is not
Speaker 4: a great number. It's below the level in theory that
Speaker 4: is break even. But we still see services above healthily
Speaker 4: above fifty, and composite above fifty. So things have slowed down,
Speaker 4: but they don't seem to match up with what people
Speaker 4: are expecting to happen.
Speaker 3: Okay, so you're a glass half full type of person.
Speaker 4: I'm wait until the waitress comes around.
Speaker 5: Fill it up again.
Speaker 4: We got GDP numbers on Thursday, and we get the
Speaker 4: latest spending numbers on Friday, so we'll have a much
Speaker 4: better view by Friday of where the economy is. Unfortunately,
Speaker 4: for the Fed, they're meeting Wednesday.
Speaker 3: Yeah.
Speaker 6: Well, speaking of that optimism, I wonder Liz, if you
Speaker 6: can talk us through this Nirvana scenario that we're hearing about, and.
Speaker 7: Is that what we're gonna see?
Speaker 8: Well, you know I love ed Yar Denny, but Nirvana
Speaker 8: we all wanted show.
Speaker 3: That's great.
Speaker 8: But yeah, well, I mean clearly there is some like
Speaker 8: Mike just said, some of the dire predictions many thought
Speaker 8: we might be in a recession already haven't panned out.
Speaker 8: So the market is kind of kind of more so
Speaker 8: saying hey, there's a possibility we could get through this.
Speaker 8: I mean, we've got five hundred basis points of tightening already.
Speaker 8: FED says they're going to do some more markets pricing
Speaker 8: in a little that could we have this you know,
Speaker 8: I call it the nebulous soft landing on that possibly
Speaker 8: the market is pricing in some easy next year, but
Speaker 8: the FED could ease a bit even if we're not
Speaker 8: in a recession, just to get things better in line
Speaker 8: to normalize policy. So I would say there's still kind
Speaker 8: of a camps out there hard landing policy mistake from
Speaker 8: the FED is coming. They should have stopped to the
Speaker 8: h Maybe they'll pull this off kind of thing, and
Speaker 8: you know, we'll have to talk in maybe six months
Speaker 8: in a year.
Speaker 3: See it was right right.
Speaker 1: All right, So Michael, you're the international guy here. Bank
Speaker 1: of Japan this week, ECB this week, Bank of England
Speaker 1: next week. How does a market look at some of
Speaker 1: these other international national banks visa v what kind of
Speaker 1: what the FED does?
Speaker 4: Don't forget the Bank of Ghana which raised rates today.
Speaker 3: Oh good to know to thirty percent.
Speaker 4: Inflation is running at forty two and a half percent
Speaker 4: a year there, so they're a little bit above that
Speaker 4: two percent target. Yeah, But the FED is driving everything
Speaker 4: in the sense that we are the by far biggest economy,
Speaker 4: and it's the most influential central bank, and it is
Speaker 4: where the US rate settles, is what drives currency trading.
Speaker 4: So everybody's watching that, and then they'll be perhaps more
Speaker 4: eyes on. At this point the ECB, they're in the
Speaker 4: sort of same situation as the Fed. Christine and the
Speaker 4: Guard has to and company have to decide whether they're
Speaker 4: one and done. They're going to do one more and
Speaker 4: then they will hold and wait and see what happens,
Speaker 4: or do they promise to do a series of rate
Speaker 4: hikes still because they're still concerned about where inflation is
Speaker 4: the Bank of Japan, the consensus is that a huge
Speaker 4: change is coming the end of yield curve control, but
Speaker 4: not now, so it's a question of when do they
Speaker 4: get there. What'll be interesting with the Bank of Japan
Speaker 4: is to see what their economic forecasts are, because the
Speaker 4: reporting from Bloomberg is that what we're going to see
Speaker 4: is a big increase in the Bank of Japan's inflation outlook.
Speaker 4: They're going to raise their inflation view, which is kind
Speaker 4: of the opposite of what the other central banks want
Speaker 4: to do, but it's what the Bank of Japan wants
Speaker 4: to see happen.
Speaker 6: So as we head into this kind of triple header
Speaker 6: of central banks, which do you think we'll learn the
Speaker 6: most from in terms of where we're heading.
Speaker 4: Well, it depends, And this is a good question for
Speaker 4: Liz because it's a it's a matter of interpretation. What
Speaker 4: everybody wants to know from the FED and the ECB
Speaker 4: is what next and how specific are they going to
Speaker 4: be about what next? Whereas the Bank of Japan is
Speaker 4: not going to really do anything and probably won't say
Speaker 4: a whole lot, but if they do raise their inflation
Speaker 4: forecasts a lot, that's going to set up a lot
Speaker 4: to talk about what do they do next, how much closer.
Speaker 4: Are we to the end of your curve control?
Speaker 1: So, Liz, again, what's kind of the market. Does the
Speaker 1: market feel like this Federal Reserve is still behind the curve?
Speaker 1: I mean when you look at the trading week, the week, month,
Speaker 1: the month here, it's felt like for a long time
Speaker 1: the market wasn't listening to the Fed.
Speaker 8: Yeah, I think, well, I think the market has kind
Speaker 8: of thought the Fed was behind a curve on both ends.
Speaker 8: Obviously late to the party to realize inflation wasn't transitory,
Speaker 8: so they were slow to tight and slow to stop
Speaker 8: their quantitative easing. And then there are some who feel
Speaker 8: like Fed is going too far, like the market is
Speaker 8: only priced for one more quarter point hike. We know
Speaker 8: the Fed's dots have said two. It'd be interesting to
Speaker 8: see if Chairman Powell, which he's been really you know,
Speaker 8: kind of doubling down and saying to whoever he talks
Speaker 8: to Congress, whomever, there's two more hikes coming. That's what
Speaker 8: a lot of our officials are signaling.
Speaker 7: Does he tone that down a little.
Speaker 8: I think he clearly doesn't want to, just like Christine Legard,
Speaker 8: like Mike was saying, they don't want to kind of
Speaker 8: gin up animal spirits too much to say we were done,
Speaker 8: we've won the battle, because they're pivotal, you know, at
Speaker 8: not a key inflection point, but getting there.
Speaker 5: But inflation is above both.
Speaker 8: Their targets, right, So maybe somebody called it endgame communication, like,
Speaker 8: you know, how far are we How do we kind
Speaker 8: of gingerly get us into even if it's higher for
Speaker 8: longer that they get to wherever and they stay there
Speaker 8: for a while. That's the next thing. But I think
Speaker 8: that's what they're trying to say. We're getting closer, maybe
Speaker 8: more work to do, but we're not for sure done.
Speaker 9: You know.
Speaker 8: They don't want to signal that, and I think that's
Speaker 8: why the market is in price for two hikes.
Speaker 4: When you said does the market think the FED is
Speaker 4: still behind the curve? I was thinking, well, it depends
Speaker 4: on what day of the week it.
Speaker 6: Is, right exactly. Well, and it's such a great point
Speaker 6: that they were too late to the party and now
Speaker 6: people think they're too late to leave. It sounds like, Liz,
Speaker 6: based on what we were saying with Mike earlier about
Speaker 6: this triple header this week, what are you going to
Speaker 6: be looking at the most?
Speaker 8: Well, I probably since I live here, have to say
Speaker 8: the Fed, because I mean like they do move all boats.
Speaker 8: I mean for a while, like Edna Current and I
Speaker 8: were talking the other day, for a while we all
Speaker 8: thought maybe boj is right the most exciting this week,
Speaker 8: and then we had that great reporting from our folks
Speaker 8: saying not this time. Like Mike said, that's like a
Speaker 8: waiting on GOODO. We keep thinking that you'll curve control, change,
Speaker 8: tweak whatever is coming. So I really think it's the Fed.
Speaker 8: You know, how do they signal? Does is there a
Speaker 8: way they can you know, get the market to price
Speaker 8: up a little bit? I think, you know, Pow wants
Speaker 8: as much optionality, but this bond market really kind of
Speaker 8: wants to rally.
Speaker 3: So we'll see how.
Speaker 7: He does with that.
Speaker 1: And Michael, just for our friends who maybe don't have
Speaker 1: a good understanding of kind of inflation in Europe, why
Speaker 1: is it so much worse there? It seems like even
Speaker 1: though everybody's over there traveling, you know, that's.
Speaker 3: Well, it's based on a few different things.
Speaker 4: Especially energy has been an issue there, and their indexes
Speaker 4: are constructed a little bit differently from ours, so they're
Speaker 4: not directly comparable, but they do show the problems that
Speaker 4: we've had and they have had much bigger rate increases
Speaker 4: with some of the pattern barketing they have that people
Speaker 4: are worried about. But can it come down fast? Well,
Speaker 4: inflation's coming, I mean energy prices are coming down. So
Speaker 4: as long as that happens, inflation should come down. And
Speaker 4: when you look at the PMI to take us back
Speaker 4: to where we started for Germany thirty eighty for manufacturing,
Speaker 4: that suggests you're going to see some price pressures.
Speaker 9: Ease.
Speaker 1: Okay, great stuff, great having you both in here. I
Speaker 1: looked up and Liz was right there. I was expecting zoom,
Speaker 1: but Liz was right there. LIZI McCormick, chief correspondent of
Speaker 1: Global macro Markets with Bloomberg News, and Michael McKee, International
Speaker 1: Economics and Policy correspondent, both the Bloomberg News, joining us
Speaker 1: both here in our Bloomberg Interactive Broker studio. And on Monday,
Speaker 1: by the way, I mean usual on a Monday, you
Speaker 1: get the Bloomberg salespeople because they have their big morning
Speaker 1: media on Monday, so all the kids are and you
Speaker 1: get us and we get some of the economists.
Speaker 3: And that's how it works.
Speaker 6: Like Liz is doing an incredible Q and A session.
Speaker 6: I think tomorrow today I'm.
Speaker 3: Going to be front row.
Speaker 6: I can't wait for all internally, ask me anything.
Speaker 3: Liz McCormick and the benefit of her experience.
Speaker 10: You're listening to the team.
Speaker 9: Ken's are lying Bloomberg Markets weekdays at ten am Eastern
Speaker 9: on Bloomberg dot com, the iHeartRadio app and the Bloomberg
Speaker 9: Business App, or listen on demand wherever you get your podcasts.
Speaker 1: Madison Mills, Paul Sweeney here in our Bloomberg Interactive Broker Studio.
Speaker 1: Big big earnings week, technology coming in to focus. I'm
Speaker 1: talking Microsoft, Alphabet, Meta, a bunch of others, and I
Speaker 1: tell you what these com be is better delivered. Nastac
Speaker 1: is up about thirty four percent just a year to date.
Speaker 1: So anticipation in the market for really strong performance. It's
Speaker 1: see if they can deliver. Dan Ives.
Speaker 3: He always delivers.
Speaker 1: Dan Ives as managing director and senior equities analysts for
Speaker 1: web Bush Security.
Speaker 3: So Dan, a big week for tech. What do you expect.
Speaker 11: I think it's get out the popcorn. I mean, in
Speaker 11: my opinion, we're going to see an uptick and it spend.
Speaker 11: I think Cloud's going to be strong from the likes
Speaker 11: of the behemoths Microsoft as well as Alphabet and I
Speaker 11: think it's all about AI spend. We're starting to see
Speaker 11: monizations sooner arrive than later. I mean, Paul in my opinion,
Speaker 11: Bright green Light, Dome and Tech I think up twelve
Speaker 11: to fifteen percent second half of the year.
Speaker 6: Wow, Dan, how much are you going to be looking
Speaker 6: at capital allocation when it comes to overall it spend
Speaker 6: companies that are portioning off a larger chunk of that pie,
Speaker 6: specifically to AI. And are there any companies that could
Speaker 6: be hurt or dinged because of that allocation?
Speaker 11: Yeah, it's a great question. That's why right now the
Speaker 11: trophy case at the top of the mountain is in Redmond.
Speaker 11: I mean, if you look with Nadella and the team
Speaker 11: have done, I mean they are in pole position to
Speaker 11: gain more and more share budget. We believe next year
Speaker 11: we're hearing eight to ten percent a budget to AI
Speaker 11: driven this year less than one percent. And that's that's
Speaker 11: the drum roll, that's the super Bowl what everyone's waiting for.
Speaker 11: The actual quarters are almost the backstory to really the
Speaker 11: forecast and the outlook going into next year.
Speaker 1: How about the companies that rely upon digital advertising, Dan,
Speaker 1: that's kind of been, you know, a wobbly business even
Speaker 1: you know, even amongst all the other key growth drivers
Speaker 1: in technology. So we're talking about Meta and you know
Speaker 1: Alphabet that really rely up on digital advertising.
Speaker 3: How is that's looking right now?
Speaker 11: I mean we're seeing upticks. I think stabilization is going
Speaker 11: to be the sort of word that we hear from Meta,
Speaker 11: from Alphabet, and you combine it all, we're starting to
Speaker 11: now see a less cautious spending environment. They'll be you know,
Speaker 11: probably toned in terms of how they talk about things
Speaker 11: over the coming quarters. But I think digital advertising we're
Speaker 11: seeing stabilization, cloud and uptick and overall it spint I
Speaker 11: think you saw that from Arvin and IBM. I view
Speaker 11: this as sort of a table pounder of view into
Speaker 11: tech this week. I do not view the reactions of
Speaker 11: Netflix and Tassa as a brahma for what we're going
Speaker 11: to see this week. That's why, in my opinion, getting
Speaker 11: the popcorn ready, and I believe it will be a
Speaker 11: strong week for tech.
Speaker 6: Okay, so if it's not Netflix and Tesla, Dan, what
Speaker 6: is the bell weather that you've looked into to indicate
Speaker 6: how happy you're gonna be able to be this week.
Speaker 11: It's tomorrow night. When you look at Alphabet, you look
Speaker 11: at Microsoft. That's that's the key. That's that's the messy
Speaker 11: moment for earnings for tech because of what we ultimately
Speaker 11: see in cloud, in digital advertising, and if you look
Speaker 11: going back to the Nvidio guidance heard around the world
Speaker 11: the last quarter, Now we start to see the optics
Speaker 11: in spend in terms of the forecast, no better. Everyone
Speaker 11: will be listening to Nadella and Microsoft's called that is
Speaker 11: going to be the one that they not just tech,
Speaker 11: but all the street's going to be focused on to
Speaker 11: see what we're seeing monization of cloud. We think a
Speaker 11: trillion dollars incremental spend next decade.
Speaker 3: Hey, Dan, you know the Nvidia results.
Speaker 1: I think it was the last quarter that just really
Speaker 1: shook the market, reset the market, woke up people like
Speaker 1: me who really wasn't paying attention to this AI thing.
Speaker 1: How much of the AI budget over the next several
Speaker 1: years do you think it's going to be incremental tech
Speaker 1: spending or maybe just taken it from all the parts
Speaker 1: of the stack.
Speaker 11: Why we think about thirty to forty percent incremental. The
Speaker 11: rest will be taking from the stack. That's why the ciscos.
Speaker 11: You could argue the intels, maybe the hp is obviously
Speaker 11: will back in so on the hardware side. But I
Speaker 11: think it's incremental because in our opinion, it's a nineteen
Speaker 11: ninety five moment. It's an Internet moment. Companies are actually
Speaker 11: changing their view of spend and two letters have all
Speaker 11: changed in terms of AI and that's why, unless you
Speaker 11: have a telescope, you're not seeing a recession out there.
Speaker 11: And I think that's gonna be innarratable here in the
Speaker 11: next week or two.
Speaker 6: So if it is ninety five all over again, how
Speaker 6: are you not worried about a bubble?
Speaker 12: Dan?
Speaker 11: Well, first off, I think if you look at the
Speaker 11: actual evaluations, it's we're not talking pets dot com movement.
Speaker 11: In other words, these are now the star wards that
Speaker 11: ultimately I view. When I look at Microsoft, I could
Speaker 11: argue this is a three and a half four trillion
Speaker 11: dollar company in next two to three years. I think
Speaker 11: the difference when you go back to the bubble ninety
Speaker 11: nine two thousand, I mean a lot of that was hype.
Speaker 11: This is different because the fundamental and the real business
Speaker 11: cases are there. I'm not saying, oh, there's not gonna
Speaker 11: be fraud from losers that fall by the wayside. But
Speaker 11: I believe this is an AI gold rush. It's real.
Speaker 11: And then's why this week I think the Bears go
Speaker 11: back into their hibernation mode after how little win last
Speaker 11: week to what's been a brutal six months for him.
Speaker 1: Hey Dan, in the context of this AI discussion, it's
Speaker 1: going to accelerate once again this week with these earnings.
Speaker 1: How does Apple fit into an AI discussion.
Speaker 11: I mean, they're not gonna be on the outside looking in,
Speaker 11: and we've talked about them. I mean, they're spending almost
Speaker 11: the equivalent of what Microsoft did with Open Ai in
Speaker 11: turn on on AI. This is all the drum all
Speaker 11: to what I believe. I'm in German's hand, had a
Speaker 11: bit to their They're gonna roll out AI within their ecosystem.
Speaker 11: I ultimately believe it's an AI app store for Apple,
Speaker 11: which I believe could add thirty to forty dollars per share.
Speaker 11: And again Cook continues to play chess while others are
Speaker 11: at the kids table playing checkers.
Speaker 6: Wait, say more about the AI app store.
Speaker 11: What are you anticipating a separate app store that's gonna
Speaker 11: be AI driven developers? I believe it started off with
Speaker 11: Vision pro in terms of, you know, actually building a
Speaker 11: separate almost app store. It's gonna be AI driven health, fitness,
Speaker 11: AI apps will be in that app store, and that
Speaker 11: for Apple, that's just gonna be a whole nother opportunity
Speaker 11: to further penetrate the base that has an unparalleled install base.
Speaker 11: And I believe right now the valuation is not reflecting
Speaker 11: what I'll call AI multiple and that's why I believe
Speaker 11: this is a four trillion dollars markap by twenty twenty five.
Speaker 6: Dan, you mentioned the headset, and this earnings call is
Speaker 6: gonna be the first time folks have the opportunity to
Speaker 6: ask Apple about that headset. Do you think they're gonna
Speaker 6: get killed for invent staying in a headset when people
Speaker 6: have moved on to focusing on AI.
Speaker 11: Because ultimately is not about the headset. Because my view
Speaker 11: is that this is really just the start ar v
Speaker 11: R to what ultimately is going to be the next
Speaker 11: vision around AI, and that's going to be integrated more
Speaker 11: and more within that ecosystem for Apple, and I think
Speaker 11: ultimately investors who are focused more on iPhone fifteen, we
Speaker 11: think ultimately units are going to be higher and this
Speaker 11: is a mini super cycle. That's the long game right now.
Speaker 11: It's all about developers build out for what I view
Speaker 11: is sort of the next evolution of the Coupertino ecosystem.
Speaker 1: Hey, Dan, I just want to talk Tesla for just
Speaker 1: a moment because Bloomberg News Stephan and Nicola is out
Speaker 1: with a great story saying Tesla is lapping Germany's automakers
Speaker 1: in the global ev race. And so you know, we
Speaker 1: heard from all the big German manufacturers over the last
Speaker 1: several years how they're going all in on EI. But
Speaker 1: Tesla delivered almost eight hundred and ninety thousand cars in
Speaker 1: the first half of the year. That's more electric vehicles
Speaker 1: the Volkswagen, BMW, Mercedes or Porsche combined.
Speaker 3: So how do you think.
Speaker 1: About Tesla and just kind of their competitive position as
Speaker 1: everybody else tries to ramp up.
Speaker 11: I mean, it's Tesla's world, everyone else paying rent. If
Speaker 11: you look at electric vehicles and from a scaling scope perspective,
Speaker 11: battery technology, super charger, and I ultimately believe the FSDAI.
Speaker 11: That's why I think last week you got the knee
Speaker 11: jerk sell off after just a parabolic move this year.
Speaker 11: I think this is still early to middle innings of
Speaker 11: the broader Tesla story build out and this ev green title,
Speaker 11: the five trillion dollars green title. There's been many winners.
Speaker 11: The three win three are Code GM four, the European
Speaker 11: players at the China players. But ultimately, if you look
Speaker 11: the biggest beneficiary is gonna be muscling us really quickly.
Speaker 6: Dan, are you team Twitter formerly or now x formerly
Speaker 6: to Twitter? Or team threads?
Speaker 10: Oh?
Speaker 11: I stayed Twitter, and again I go back to thread?
Speaker 11: Did rathery broccoli from the full data the trench?
Speaker 3: Very good?
Speaker 1: There you go, Dan, conviction of nothing else. Dan I
Speaker 1: was managing director and senior equity analyst at Webbush Securities.
Speaker 1: Appreciate getting that roundup on Tech is again a big,
Speaker 1: big earnings week here for a lot of industries and
Speaker 1: most notably tech and is the biggest sector in the SMP.
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Speaker 13: Let's talk about some of the industrial companies and because
Speaker 13: they're reporting numbers today, but you know, I looked at
Speaker 13: the PMIS today for the manufacturing PMI came in at
Speaker 13: forty six point two.
Speaker 1: That's not good on the number fronts. A. It's below fifty,
Speaker 1: suggesting contraction, and it was blowed the concent of forty
Speaker 1: nine and it was below just kind of in line
Speaker 1: with last.
Speaker 3: Month forty six point three.
Speaker 1: But I want to start there and then we'll branch
Speaker 1: out to some of the manufacturing companies that are reporting
Speaker 1: later this week. Brook Sutherland joins us. She covers all
Speaker 1: of that industrial stuff for Bloomberg Opinion, and she joins
Speaker 1: us here on our Bloomberg.
Speaker 3: Interactive Broker Studio. So, Brooke, what did you think when you.
Speaker 1: Saw the manufacturing PMI today. I mean, it's a it's
Speaker 1: a manufacturing recession. Is that kind of what we're dealing with?
Speaker 12: I mean, this is a continuation of a trend where
Speaker 12: we have seen numbers from the PMI that have been
Speaker 12: indicating a contraction in manufacturing activity. I think the question
Speaker 12: is there's a bit of a diversience between those numbers
Speaker 12: and what we're hearing from the industrial companies which are
Speaker 12: still very bullish on the demand that they're seeing. They,
Speaker 12: you know, are talking a lot about sort of structural
Speaker 12: tailwinds that will keep people buying industrial equipment for the
Speaker 12: foreseeable future. Those include electrification of everything, the sort of
Speaker 12: wave of factory investments that we've seen in semiconductors, electric
Speaker 12: vehicle and other types of manufacturing. And I think the
Speaker 12: question for investors is, you know, whether this slowdown that
Speaker 12: we're seeing just reflects a normalization of supply chains because
Speaker 12: you had a lot of people that were over ordering
Speaker 12: just to get their place in line and to make
Speaker 12: sure that they could get some kind of components coming
Speaker 12: in the door, and whether we may be just seeing
Speaker 12: the other end of that or if we're seeing a
Speaker 12: real demand slow down. And I don't think investors have
Speaker 12: made up their minds, And I think it depends on
Speaker 12: which company is reporting. Honestly, the way in which people
Speaker 12: view their order numbers.
Speaker 6: It feels like three M is the name to watch
Speaker 6: this week. Is that what you would say?
Speaker 9: Sure?
Speaker 12: I mean, it depends on what you're looking for. We've
Speaker 12: got just about every industrial company reporting earnings this week,
Speaker 12: so three m is interesting. You know, I don't really
Speaker 12: view them that they used to be an industrial bell Weather.
Speaker 12: I don't really think of them as that anymore, just
Speaker 12: because they have so many idiosyncratic problems, including pfast liabilities.
Speaker 12: They have an ongoing legal issue with combat earplugs that
Speaker 12: they sold to the US military that veterans are claiming
Speaker 12: we're defective, and so, you know, they have a variety
Speaker 12: of issues that you know, investors will be looking for
Speaker 12: updates on. But they do still have their industrial businesses
Speaker 12: and it will be interesting to see what's happening there.
Speaker 12: These tend to be early cycle businesses and so they
Speaker 12: tend to be on the front lines of economic swing.
Speaker 12: So if we are seeing a slowdown, you would see
Speaker 12: it hit there first before some of the longer cycle
Speaker 12: businesses like aircraft engines or wind turbines or things like that.
Speaker 3: This is a Tom Keane kind of trivia question. What
Speaker 3: does three AM stand for? You know, I don't know
Speaker 3: that Minnesota Mining and Manufacturing. John Tucker knows that.
Speaker 10: Well, it used to be.
Speaker 5: They officially changed the name the three AM two to
Speaker 5: three AM.
Speaker 1: Yeah, but based in Saint Paul, Minnesota. Saint Paul is
Speaker 1: a great Town by the way. I love Saint Paul,
Speaker 1: a great hotel that I can't think of the name.
Speaker 1: But the stock has been brutal trailing, you know, over
Speaker 1: the last five years, compounded annual decline of about nine
Speaker 1: percent versus the S and P five rounded up up
Speaker 1: almost twelve percent.
Speaker 3: So that's just a brutal name.
Speaker 1: And what's just I mean, it's a fifty eight billion
Speaker 1: dollar market cap company.
Speaker 3: What's the problem with those guys? What's the story?
Speaker 12: You know? And it's you have to somewhat feel bad
Speaker 12: for the current management team because the issues largely do
Speaker 12: not have to do with decisions that they made. They
Speaker 12: have to do with the way in which three M
Speaker 12: was managed, you know, decades ago. So the company is
Speaker 12: a legacy manufacturer of p fasts, which are known as
Speaker 12: forever chemicals because they linger in the environment and in
Speaker 12: the body. They've faced numerous legal challenges over p fast
Speaker 12: and the uncertainty of what happens there has been a
Speaker 12: big drag on the stock. And then, as I mentioned,
Speaker 12: there's also the military plugs issue, which was the last
Speaker 12: thing that the company needed but remains unresolved. And you know,
Speaker 12: we're talking about estimates in the range of several billion
Speaker 12: dollars to try to settle that alone, before you even
Speaker 12: start talking about p fasts.
Speaker 1: All right, three m Minnesota Mining Manufacturing went public. Just
Speaker 1: some trivia and get on the Bloomberg terminal with the
Speaker 1: dees function October first, nineteen seventy eight.
Speaker 3: Who took them public?
Speaker 1: Kid Or Peabody, which was an awesome firm back in
Speaker 1: the day, some of the best bankers, best analyst, great
Speaker 1: m and a practice, really good stuff. All right, ge,
Speaker 1: I kind of still consider them a belt, whether I don't.
Speaker 1: They're not the belt, whether they used to be.
Speaker 3: What are you looking for here? From ge? What's the
Speaker 3: What are investors going to be looking for?
Speaker 12: Sure? I mean, well, they're a significantly simpler company they
Speaker 12: used to be from back in the Kidder Peabody days.
Speaker 12: But they so they've already spent off their healthcare business,
Speaker 12: and then they are speeding toward eventually spinning off their
Speaker 12: energy businesses, and so that includes their gas turbines but
Speaker 12: also their wind turbine business and some other myriad assets
Speaker 12: that get kind of grouped with that. And once they're
Speaker 12: done with that, they will essentially be an aviation company,
Speaker 12: and investors are already treating the stock as if you
Speaker 12: know that spin off is a good done deal, and
Speaker 12: I think it's just a simpler story and people are
Speaker 12: better able to focus on that core aerospace business and
Speaker 12: the growth opportunities there.
Speaker 3: Broke.
Speaker 6: One of the fantastic stories that you have for us
Speaker 6: on Bloomberger Opinion recently is about ties to China for
Speaker 6: some of these names, and you specifically talk about Chinese
Speaker 6: ownership of Sirrus Aircraft. I believe can you talk to
Speaker 6: me about how the China story is impacting some of
Speaker 6: the names that you cover.
Speaker 12: Sure, I mean, I think it is a big issue,
Speaker 12: and I think the current environment is a minefield for CEOs,
Speaker 12: even those who have had long standing relationships with Chinese entities.
Speaker 12: And so Sirus makes private planes. These are more like
Speaker 12: hobby aircraft or used for charter flights, that sort of thing.
Speaker 12: And they were acquired by a subsidiary of a Chinese
Speaker 12: company in twenty eleven. Before that, they were owned by
Speaker 12: a Bahrain investment arm of a bank there, and so
Speaker 12: they've been under foreign control for a very long time.
Speaker 12: But the company is getting more scrutiny. I filed to
Speaker 12: go public in Hong Kong in June, and that's just
Speaker 12: drawing attention to the fact that it is in fact
Speaker 12: owned by a subsidiary of a Chinese entity that is
Speaker 12: subject to sanctions. And you're seeing this happen in all
Speaker 12: types of industrial businesses where long standing relationships are coming
Speaker 12: under fresh scrutiny. There was also a report in the
Speaker 12: Wall Street Journal earlier this year about a Rockwell Automation
Speaker 12: software development center in China and whether that might pose
Speaker 12: some sort of national security risk. And I really think
Speaker 12: to operate in China, if you are an industrial company,
Speaker 12: you need to have a siloed enterprise there, and a
Speaker 12: number of companies have already taken efforts to set this up.
Speaker 12: Emerson sources ninety six percent but its components for its
Speaker 12: Chinese products within that region that with the rest coming
Speaker 12: from other East Asian countries. It doesn't run that business
Speaker 12: with expaths. It uses all local employees primarily, and I
Speaker 12: think you're just going to see more and more of that.
Speaker 1: So when we talk to the industrial companies that you
Speaker 1: do all the time about China, is it central to
Speaker 1: their future as either a source of raw materials or
Speaker 1: an end market for consumers? How do they view China
Speaker 1: over the next five to ten years.
Speaker 12: Sure, I mean I think they're carefully Yeah, that's given
Speaker 12: what a political issue it is. But it's a very
Speaker 12: important market for these companies. It's the reason why they're
Speaker 12: there in the first place. And so, you know, one
Speaker 12: of the interesting things about Cyrus, the private aircraft maker,
Speaker 12: is that, you know, the entity that owns it has
Speaker 12: joint ventures with just about every aerospace company under the sun,
Speaker 12: and most of them are focused on the development of
Speaker 12: the C nine one nine, which is the Comac challenger
Speaker 12: to the Boeing seven thirty seven max in the Airbus
Speaker 12: A three twenty. And the reason why those US companies
Speaker 12: have those ventures is because they want to compete for
Speaker 12: this business that you know, if this is sort of
Speaker 12: the future of China aviation, it's an important place for
Speaker 12: these companies to be.
Speaker 1: All right, Brooke great stuff has always Brooke Suther then
Speaker 1: she's a columnist covering industrials and deals for Bloomberg Opinion.
Speaker 3: Appreciate gatting a few minutes of your time.
Speaker 9: You're listening to the Team Can't Live program Bloomberg Markets
Speaker 9: weekdays at ten am Eastern.
Speaker 10: On Bloomberg dot Com.
Speaker 9: The iHeartRadio app and the Bloomberg Business app or listen
Speaker 9: on demand wherever you get your podcast.
Speaker 1: All right, let's check in with somebody who really does
Speaker 1: this stock stuff for a living. She's been doing it
Speaker 1: for a while now, she's got some experience. And Maletti,
Speaker 1: head of Active Equity at all Spring Global Investments in
Speaker 1: what town here and thanks so much for joining us here.
Speaker 1: We're getting into the teeth of the earning cycle here.
Speaker 1: What have you seen and heard so far and what
Speaker 1: are you looking forward to going forward to a big
Speaker 1: tech week of earnings.
Speaker 14: It has been a big tech week. Nice and nice
Speaker 14: to talk to you again, Paul. Look, so far, earning
Speaker 14: for the most part have been pretty strong. But I
Speaker 14: think what our teams are looking at is what does
Speaker 14: the tail and the burning season look like? And I
Speaker 14: think we'll see some volatility this earning season. I think
Speaker 14: that was somewhat expected by most investors. You do generally
Speaker 14: see some softness this quarter, and that's what we're expecting
Speaker 14: to see. But you know, from what we expect it
Speaker 14: all year. There will be differences from the bottom up
Speaker 14: company by company, and that's why we think it's a
Speaker 14: great environment to look at companies specifically and not just
Speaker 14: you know, pick a sector, pick an industry, pick growth,
Speaker 14: pick value. It's time for individual company selection right now.
Speaker 6: So and what is the market going to move on
Speaker 6: more this week? The FED decision or some of these
Speaker 6: check earnings.
Speaker 14: That is a great that's a great question. I do
Speaker 14: think it's not going to be on the side decision itself.
Speaker 14: I think we all really do believe. And there's kind
Speaker 14: of because Hass's opinion that we're going to get that
Speaker 14: twenty five basis point increase. But I do think what,
Speaker 14: you know, what we don't know is if we're going
Speaker 14: to get the interpretation of a hawkish tone or a
Speaker 14: dubvish tone from Chairman Powell. And that is the million
Speaker 14: dollar question out there. You know, I guess I'm in
Speaker 14: the camp that he's still going to continue to be
Speaker 14: a little bit more hawkish. And you know, even though
Speaker 14: we have seen some signs of weakness in the economy,
Speaker 14: the jobs data and the employment data continues to be
Speaker 14: pretty strong. And that's going to continue to make can
Speaker 14: fairly cautious and want to give them optionality that we
Speaker 14: may not be done or that the FED may not
Speaker 14: be done raising rates. And so I think the market's
Speaker 14: going to move a little bit more on that than
Speaker 14: on tech.
Speaker 1: Brames, he and you and I have known each other
Speaker 1: for a while, so will not surprise you to know
Speaker 1: that I missed out on owning those big seven magnificent
Speaker 1: seven names. So now I got some work to do
Speaker 1: for the remainder of the year.
Speaker 3: Do I look it?
Speaker 1: Maybe some smaller MidCap names. I mean that acquires a
Speaker 1: little bit more homework on my part. But is that
Speaker 1: where you think some opportunities might be.
Speaker 14: I'm Paul, you know probably put me in the same camp.
Speaker 14: I do think there is a really good opportunity for
Speaker 14: investors out there, and you know, I think this is
Speaker 14: this is something that we've been focused on a lot,
Speaker 14: because for investors who want to invest more broadly, who
Speaker 14: want to stay in the market regardless of what the
Speaker 14: economy is doing, and by the way, history would suggest
Speaker 14: that is the right thing to do. If the market
Speaker 14: broadens out, and it should, there are real opportunities downcaps.
Speaker 14: And if you just look at the fundamentals, what Paul,
Speaker 14: you spent a lot of time doing, and I spent
Speaker 14: a lot of my career doing. Free cash flow is
Speaker 14: a really good metric of qualities. And if you look
Speaker 14: at the free cash flow margins and the highest quintile
Speaker 14: of free cash Dolow margins in those smaller cap names,
Speaker 14: they're trading at a twenty percent discount to the counter
Speaker 14: parties and large caps, and that's a historic discount by
Speaker 14: any measure. And you know, if you can buy quality
Speaker 14: at that big of a discount, and even at a
Speaker 14: discount relative to their smaller cap piers, that's the area
Speaker 14: of the market that our investment teams are finding some
Speaker 14: real value in today. And I think where investors can
Speaker 14: be rewarded. There's strong balance sheets there. You know that
Speaker 14: pre cast slow will give them protection even if things
Speaker 14: get a little bit more challenging in the economy, even
Speaker 14: if we head into a recession.
Speaker 6: So and how much of the boat needs to be
Speaker 6: filled with small caps at this point given what you're
Speaker 6: saying about some of the opportunities there.
Speaker 14: You know, the allocation decision is really a personal one,
Speaker 14: and that's where it's a little bit more challenging for
Speaker 14: me to have a personal opinion. I certainly do have
Speaker 14: an opinion on my own, but I think for investors
Speaker 14: it's you know, small cap can be a little bit riskier.
Speaker 14: But again, it's the area. It's just where you want
Speaker 14: to invest within small cap. I don't think it's an
Speaker 14: area that should be ignored. Growth can continue to be
Speaker 14: really good block cap companies even when growth pulls back
Speaker 14: within the economy. So it's it's an area that investors
Speaker 14: should not ignore. The lead the allocation decision up to
Speaker 14: investors themselves. The tactical decision is I would just say,
Speaker 14: don't ignore the area at all.
Speaker 1: Hey, and do you folks at all Spring have you
Speaker 1: are you still talking recession? Is that still in your
Speaker 1: outlook or have you kind of tabled that a little bit?
Speaker 14: Yeah, you know, I think we're still in the camp
Speaker 14: that the recession risks still do linger. And you know
Speaker 14: the reason for it is six months ago, you know,
Speaker 14: we were only at three percent interest rate, and there's
Speaker 14: a lot of great increases that have happened since then,
Speaker 14: and there's a big like effect to the impact of
Speaker 14: increasing rates. We have yet to see the full impact,
Speaker 14: whether that takes six or nine months to fully feel that,
Speaker 14: you know, we haven't seen it, and so we're still
Speaker 14: cautious about how bad the total impact will be. We
Speaker 14: already know we saw some breakage in the system with
Speaker 14: what happened with the regional banks earlier. I don't completely
Speaker 14: think that is over. And again we're not done with
Speaker 14: rate increases. We have one coming this week and then
Speaker 14: still a question about what happens after that. So it's
Speaker 14: not off the table for us. That being said, you
Speaker 14: don't want to be out of the market completely. We
Speaker 14: already saw the ramifications of what could happen with that,
Speaker 14: and so you know, the economy and the market are
Speaker 14: two different things, and investors just have to keep that
Speaker 14: in mind.
Speaker 1: All right, and thanks once again for joining us and
Speaker 1: the Letty, head of active equity at all Spring Global Investments.
Speaker 10: You're listening to the tape.
Speaker 9: Can to our live program Bloomberg Markets weekdays at ten
Speaker 9: am Eastern on Bloomberg Radio, Tune it up, Bloomberg dot Com,
Speaker 9: and the Bloomberg Business App. You can also listen live
Speaker 9: on Amazon Alexa from our flagship New York station. Just
Speaker 9: say Alexa play Bloomberg eleven thirty.
Speaker 1: All right, let's go to Mattel here. This is a beneficiary.
Speaker 1: They own the whole Barbie thing. Mittel stock is up
Speaker 1: one point six percent today.
Speaker 3: Nice move. It's up twenty percent year to date. That's nice.
Speaker 1: It's got a market cap is seven point six billion.
Speaker 1: Let's break it down with the analyst at Bloomberg Intelligence
Speaker 1: who covers Mattel, the company, the stock, Lindsay Dutch. She
Speaker 1: is an analyst at Bloomberg Intelligence. So, Lindsay, give us
Speaker 1: a sense of kind of what this means for Mattel. Here,
Speaker 1: it's obviously a great day, a great weekend for the
Speaker 1: movie and what it means.
Speaker 3: For but what's it really mean for the company.
Speaker 15: Yeah, thanks Paul for having me. So this movie is
Speaker 15: a big deal for Mattel. Barbie is one of their
Speaker 15: biggest brands. It peaked at one point seven billion and
Speaker 15: twenty twenty one, it was off about eleven percent last year.
Speaker 15: There was sort of weak demand for Arbi, so coming
Speaker 15: into this movie, there was a lot of uncertainty, you know,
Speaker 15: and concerns about demand for the dolls. But I think
Speaker 15: Mattel did a really great job in terms of hyping
Speaker 15: up the movie, and I think that could be a
Speaker 15: catalyst for the second half and really a rebound for
Speaker 15: the company in terms of toy sales, but also the
Speaker 15: royalties that they're going to get from the movie and
Speaker 15: related merchandise and things like that. So there's a real
Speaker 15: possibility of strength in the second half, you know, with
Speaker 15: this big movie debut.
Speaker 6: Lindsay I'm curious about and I know you haven't seen
Speaker 6: the movie, but there's definitely a sense of Mattel calling
Speaker 6: themselves out a little bit when it comes to some
Speaker 6: of the potential what someone view as mistakes they've made
Speaker 6: in terms of Barbie's impact on how young women and
Speaker 6: girls are viewing themselves, et cetera. I wonder is there
Speaker 6: any potential negative impact for Mattel because of some of
Speaker 6: those messages, or is the extra dream success of the
Speaker 6: Barbie movie just going to be a boom for them?
Speaker 7: So I agree.
Speaker 15: I mean, I think that the brand has had ups
Speaker 15: and downs, you know, throughout its sort of life and
Speaker 15: and creation. I think Mattel was going into this movie
Speaker 15: they knew it was critical to you know, reinvent the
Speaker 15: brand a little bit and and sort of ease some
Speaker 15: of those concerns that we've had.
Speaker 7: So I think that was you know, it.
Speaker 15: Is a pivotalle, a pivotal moment for the company and
Speaker 15: whether they can really you know, change the attitude around Barbie.
Speaker 15: But there are also so many people who are nostalgic
Speaker 15: about the toy, about the brand, and that adult collector's
Speaker 15: market is huge and it's growing.
Speaker 7: It's a big piece of the toy market.
Speaker 15: And so I think that there's a lot more opportunity
Speaker 15: than than risk, especially like seeing the numbers coming out
Speaker 15: of this weekend and this debut to.
Speaker 3: In general, how big is it the toy market in general?
Speaker 3: How big is it?
Speaker 1: What's the growth characteristics of kind of the toy business,
Speaker 1: because now it seems like every kid's got a phone
Speaker 1: in their hand.
Speaker 7: I know.
Speaker 15: So, you know, the toy market in terms of dolls,
Speaker 15: if you think about dolls, that's more like a three
Speaker 15: to four billion dollar category.
Speaker 7: Mattel is a clear leader.
Speaker 15: They've always been a dominator in that doll category because
Speaker 15: of Barbie.
Speaker 7: They also own American Girl.
Speaker 15: When we think about dolls, you know, growth was astronomical,
Speaker 15: astronomical in the pandemic, and it really started to come
Speaker 15: off in twenty twenty two.
Speaker 7: You know, there was weak demand.
Speaker 15: We had over inventory issues, you know for a lot
Speaker 15: of their key suppliers if you think about Target and Walmart.
Speaker 15: So there was a huge pullback in the fourth quarter
Speaker 15: last year. Really hurt results for Mattel and as well
Speaker 15: as other peers, and the beginning of this year, you
Speaker 15: know it is going to be challenging.
Speaker 7: Their sales were in the first quarter.
Speaker 15: I'm expecting sales to be down again when they report
Speaker 15: their results for.
Speaker 7: The second quarter.
Speaker 15: But like I said, this is really a second half
Speaker 15: story for the company, and really what can happen with
Speaker 15: this growth going into the back half. So in terms
Speaker 15: of the category as a whole, you're talking about sort
Speaker 15: of like low to mid single digits growth. You know
Speaker 15: in this next couple of years, Mattel is typically a
Speaker 15: market share gainer, so you know, we would typically expect
Speaker 15: a little bit faster growth coming out of Mattel.
Speaker 6: Well, and you mentioned American Girl. They've also got Hot
Speaker 6: Wheels under the Mattel brand, which has increasingly been taken
Speaker 6: up a bigger piece of the revenue pie. Do you
Speaker 6: anticipate that allocation changing this coming earning season or earnings
Speaker 6: results because of the Barbie movie?
Speaker 15: So I think so Barbie has always dominated in terms
Speaker 15: of Mattel's revenue mix. You're right, hot Wheels is gaining.
Speaker 15: They were about a one point two five billion dollar
Speaker 15: business last year compared to Barbie's one point five. I
Speaker 15: think that, you know, heading into second half, you know,
Speaker 15: success of the movie could really put Barbie.
Speaker 7: Back, you know, sort of on top.
Speaker 15: I think Hot Wheels is sort of closing that gap
Speaker 15: here in the first half.
Speaker 12: There.
Speaker 15: I think Mattel's history does sort of, you know, skew
Speaker 15: towards that doll category. But the vehicles has just had
Speaker 15: a couple of really great years and when we saw
Speaker 15: growth slow in dolls, vehicles picked up. Also, action figures
Speaker 15: has been a really big growth driver for them. It's
Speaker 15: much a smaller business, but where we are seeing growth
Speaker 15: in that category. But I do think coming into the
Speaker 15: end of this year, you know, we'll see Barbie be
Speaker 15: still be a bigger business for matel than Hot Wheels,
Speaker 15: but that gap is definitely a lot tighter than it
Speaker 15: was historically.
Speaker 1: All Right, Lindsaya, as a former media analyst myself, I
Speaker 1: have to ask this question, is there going to be
Speaker 1: a bar Be Seql?
Speaker 3: What have we heard from the company? Have they said anything?
Speaker 15: They have not said anything, but you know, their CEO
Speaker 15: has a background in TV and entertainment, and I think,
Speaker 15: you know, he truly believes in sort of that halo effect,
Speaker 15: you know, linking entertainment and movies and everything that we
Speaker 15: stream today, you know, to physical toys.
Speaker 7: So I wouldn't be shocked.
Speaker 6: And the return on the investment in the Barbie movie
Speaker 6: is going to be considered a positive for them when
Speaker 6: history looks back on this moment, right.
Speaker 7: Yeah.
Speaker 15: So I think there's you know, some element of the
Speaker 15: movie baked into guidance which is pretty bleak for the
Speaker 15: year when we think about Mattel, But I think a
Speaker 15: lot of it is not baked in. I think, you know,
Speaker 15: the profitability, the margin on you know, when they license
Speaker 15: out that.
Speaker 7: Barbie brand, the Bee, the Pink Bee.
Speaker 15: You know they had, you know, a partnership with Gap
Speaker 15: that they did, you know, all that merchandise sales, all
Speaker 15: the licensing out of things like that. It is huge
Speaker 15: on the margin and I think that a lot of
Speaker 15: that stuff can come in better than expected this year.
Speaker 15: But again sort of just rebuilding that love of Barbie
Speaker 15: and the brand going forward.
Speaker 1: All right, Lindsay, thanks so much for joining us. Lindsay Dutch.
Speaker 1: She's an analyst Bloomberg Intelligence. She covers some of the
Speaker 1: consumer space, retail as well as the reachs.
Speaker 3: But today it is all.
Speaker 1: About her coverage of the company. Mattel again is stock
Speaker 1: up nice today on the news up twenty percent year
Speaker 1: to date. See if they can monetize this Barbie mania
Speaker 1: going forward.
Speaker 9: You're listening to the tape Cat's are live program Bloomberg
Speaker 9: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 9: tune in app, Bloomberg dot Com, and.
Speaker 10: The Bloomberg Business app.
Speaker 9: You can also listen live on Amazon Alexa from our
Speaker 9: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 1: One of the names that's actually driving performance this year,
Speaker 1: as it typically does, is our good friends Adding Cooper
Speaker 1: Tino Apple. Mark German joins us, I don't know why,
Speaker 1: because he's a chief technology off and corresponding something like that,
Speaker 1: I liked CTO.
Speaker 7: He's basically the CTO.
Speaker 1: Okay, we'll go with yeah, and he covers all the
Speaker 1: tech stuff out there in Silicon Valley. Mark, I haven't
Speaker 1: replaced my phone and I don't know how long man,
Speaker 1: How does Apple think about me? I've had this phone
Speaker 1: for I don't know, three or four years. What do
Speaker 1: they have to do to get me to kind of
Speaker 1: buy a new phone?
Speaker 5: Yeah? So I think your first question is what do
Speaker 5: they think of you?
Speaker 16: They okay, so they like you a little bit because
Speaker 16: you have an iPhone. They like you a little bit
Speaker 16: more if you're buying apps and subscribing to things. But
Speaker 16: they're not in love with you because you don't have
Speaker 16: a new one and you haven't bought for the last three.
Speaker 5: Or four years.
Speaker 16: What they would prefer is if you were upgrading annually.
Speaker 5: What do they have to get you? What do they
Speaker 5: have to do to get you upgrade?
Speaker 16: Well, I'll just be completely honest with you because I've
Speaker 16: had similar thoughts as well. So the iPhone ten came
Speaker 16: out in twenty seventeen, that's six years ago. So this
Speaker 16: is going to be the iPhone fifteen is going to
Speaker 16: be the sixth generation phone since the iPhone ten. God, honestly,
Speaker 16: it's not too different. The phone doesn't operate that differently, right.
Speaker 16: The big difference would be the overall performance in the speed.
Speaker 16: And the reason you would want to upgrade at this
Speaker 16: point is because the phone at this point, if you
Speaker 16: have an iPhone tent, probably feels really sluggish and it
Speaker 16: feels really behind, particularly on the camera, or you've dropped
Speaker 16: the phone enough times or you have dents in the
Speaker 16: steel band around the phone, you have a crack in
Speaker 16: your screen, or maybe you have a big glass crack
Speaker 16: or shattering on.
Speaker 5: The back of the phone. Right, So that's really.
Speaker 16: How they get you to upgrade over time as the
Speaker 16: phone feels sluggish and damaged and such. This year is
Speaker 16: going to be an interesting year. This is going to
Speaker 16: be the first time in maybe three years where they're
Speaker 16: doing anything of significance.
Speaker 5: Okay, right in my opinion.
Speaker 16: So the iPhone fifteen Pro is going to be quite
Speaker 16: an upgrade this year. It's going to have a titanium
Speaker 16: case around the edges instead of stayingless steel on the
Speaker 16: biggest and most expensive phone, the fifteen Pro Macs. It's
Speaker 16: going to have something called a periscope camera that allows
Speaker 16: for much deeper zoom using hardware. That means the camera
Speaker 16: lens can actually move within the phone to get closer
Speaker 16: to the image in order to provide better zoom versus
Speaker 16: the digital zoom we have today, which you can zoom
Speaker 16: in but you get a bit of a blurry picture.
Speaker 16: They're also changing the charger to more of an industry standard,
Speaker 16: going from the current lightning charger to what's called USBC,
Speaker 16: And there's also going to be a much faster process
Speaker 16: or in better battery life on the top end phones.
Speaker 16: The low end phones will get some of the iPhone
Speaker 16: fourteen pro features like the dynamic island, that new area
Speaker 16: at the top of the phone, as well as a
Speaker 16: better camera on the back.
Speaker 6: So how much of everything you're talking about played into
Speaker 6: Apple's decision to ask suppliers to keep the production of
Speaker 6: iPhone units in line with last year at eighty five
Speaker 6: million units, which I found just a little bit confusing
Speaker 6: because phone sales have been declining over the past eight quarters.
Speaker 6: So what did you make of that decision?
Speaker 16: Yeah, so eighty five million would mean flat for the
Speaker 16: thirty year in a row. The thirteen was a very
Speaker 16: small upgrade. The fourteen was a small modus upgrade. I
Speaker 16: would say the fifteen is not a generational upgrade, right,
Speaker 16: but it is significant, And so I think if let's
Speaker 16: look at it this way, right, if it was a
Speaker 16: minor update this year, I think units would actually be
Speaker 16: declining given the overall economy and the overall smartphone market
Speaker 16: and the tech market in terms of sales and buying
Speaker 16: power and such, not the stock market. I think the
Speaker 16: fact that it is a significant upgrade across the four
Speaker 16: models this year is why they're.
Speaker 5: Able to keep it flat.
Speaker 16: You know how sometimes Apple says that, you know, the
Speaker 16: revenue has gone down, but in a all things current environment,
Speaker 16: it actually would have been up. Right, So something similar
Speaker 16: to that, where given everything going on, they're able to
Speaker 16: stay flat because the upgrade is so significant.
Speaker 1: Mark Toktos, I guess the latest thinking coming out of
Speaker 1: Kopertino on China. I can't think of a company that
Speaker 1: has any more ties both in the supply chain and
Speaker 1: source of raw materials as well as an en market
Speaker 1: than Apple does with China. What's their latest thinking about
Speaker 1: how they're approaching this over the next several years.
Speaker 16: Well, I'll tell you one thing and that'll answer your question.
Speaker 16: It feels like the rhetoric around China and Apple working
Speaker 16: with China and the US China relations, while that's still there,
Speaker 16: it feels like it's an idea or a reality.
Speaker 5: I guess that has.
Speaker 16: Calmed down in recent months. Right, things were really teetering
Speaker 16: a year ago, six months ago even, and people were
Speaker 16: really pushing for Apple to get out of there. That
Speaker 16: is no longer the case now. To answer your question,
Speaker 16: nothing has changed.
Speaker 5: Over the last year or so.
Speaker 16: The idea or the plan is still to diversify production
Speaker 16: as much as possible outside of China. They're building up
Speaker 16: more lines for the iPhone in places like India. They're
Speaker 16: expanding the iPad to places like Vietnam. A lot of
Speaker 16: Mac production has moved to Vietnam and Malaysia, right, So
Speaker 16: they're doing what they can to move out of China
Speaker 16: except for one product. It's the iPhone, the one we
Speaker 16: were just talking about. And in order to get the
Speaker 16: iPhones in those eighty five million quantity that you need
Speaker 16: to ramp up and be built in two months time
Speaker 16: and to be deployed globally over a three month period,
Speaker 16: you just can't and by the way, at the quality
Speaker 16: they need to do so, you just can't do that
Speaker 16: outside of Fox Coon in China at this point. So
Speaker 16: that's really what's keeping them there.
Speaker 6: So Mark, we don't get Apple earnings until next week,
Speaker 6: but slew of tech names reporting this week, making up
Speaker 6: about forty percent of the market cap of the S ANDP.
Speaker 6: In terms of the names we're going to hear from
Speaker 6: which name are you going to be listening into to
Speaker 6: indicate how the Apple story may evolve or are the
Speaker 6: tech names we're hearing from this week completely separate from
Speaker 6: the Apple story.
Speaker 16: I mean, I know this week we have Meta, we
Speaker 16: have Alphabet, we have Microsoft, right, any other big ones
Speaker 16: that I'm missing, some of.
Speaker 6: The social ones like we've got to snap this week,
Speaker 6: some of that stuff, but not necessarily about weather for
Speaker 6: no Apple.
Speaker 16: I would definitely not include Apple in that group. They
Speaker 16: have a way of either outperforming or underperforming that group, right,
Speaker 16: So I think they're a bit of an outlier there
Speaker 16: in terms of, you know, earning calls that I'll be
Speaker 16: paying attention to definitely will be meta, right. I would
Speaker 16: like to see how their you know, metaverse play as
Speaker 16: they call it, is continuing to go. I want to
Speaker 16: see what the losses are like. I want to see
Speaker 16: what they have to say about the Apple product. I
Speaker 16: want to see if they have any more commentary on that.
Speaker 16: I want to see what's coming out of Alphabet in
Speaker 16: terms of their hardware sales. I want to see anything
Speaker 16: they have to say so far on their new pixel fold.
Speaker 10: Right.
Speaker 16: That thing is eighteen hundred dollars. I have had one
Speaker 16: for several weeks. I don't think it's particularly great. I
Speaker 16: also don't think people are particularly buying them up, so
Speaker 16: I want to pay attention to see what's going on there.
Speaker 16: One other interesting news item for this week is going
Speaker 16: to be Samsung Unpacked. That's going to be their new
Speaker 16: phone launch event that's happening in Korea and they're going
Speaker 16: to be announcing their latest phones there, which obviously we'll
Speaker 16: be going up against Apple's new devices in the fall,
Speaker 16: so I'll be interested to see how those all compare.
Speaker 16: So it's actually going to be quite a busy week
Speaker 16: and a lot to pay attention to.
Speaker 1: Hey Mark, just real quick twenty seconds. Apple recently completed
Speaker 1: their just amazing new headquarters in Koopertino. What percentage of
Speaker 1: their employees show up there on a given day?
Speaker 12: Ooh?
Speaker 5: What percentage show up on a given day? You know?
Speaker 16: The headquarters seats about twelve thousand to fifteen thousand people,
Speaker 16: and then there was a bunch of peripheral buildings around
Speaker 16: there in the Coopertino Sunny Vale its larger Santa Claire
Speaker 16: Valley Silicon Valley area. I would say the majority of
Speaker 16: employees are coming in three times a week, that's typical.
Speaker 16: Most employees are there.
Speaker 3: Two They better be happy employees.
Speaker 1: The stocks of fifty percent this year on a compound
Speaker 1: of basis, up over thirty percent over the last five years.
Speaker 3: They got to be happy. I mean, I say, get
Speaker 3: your wealthy keister back. That's just me, all right.
Speaker 1: Mark German, Chief correspondent Technology for Bloomberg News. He's based
Speaker 1: out there in Silicon Valley. He's drinking the cool lad
Speaker 1: Why not? I mean, Applestock has just been a just
Speaker 1: a tank, just been amazing and it continues.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm Faull Sweeney.
Speaker 3: I'm on Twitter at pt Sweeney.
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Speaker 1: Bloomberg Radio.