This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
Apple earnings just crossing the let's go through them.
Yeah, fourth quarter EPs, Carol coming in above estimates at a dollar forty six, estimates for forty dollar thirty nine. So investors certainly happy to see that fourth quarter revenue eighty nine point five billion. That also beat estimates of eighty nine point three to five billion.
All right, I'm looking at the stock already up about two percent here in the aftermarket. What's great about Apple is you've got to go through the different categories. Fourth quarter service revenue, that's about twenty two point thirty one billion. The estimate was for twenty one point thirty seven Wearables, home and Accessories, a little bit light, nine point thirty two billion, nine point forty one Greater China revenue. We
were focused on this. It is coming in light fifteen point zero zero eight billion, and the forecast was for seventeen point zero one billion. That pop in the stock in the aftermarket not as enthusiastic. In fact, we've seen the stock go a little bit negative. It's just up about zero point six percent. iPhone revenue forty three point eight billion, that is slightly better than the street forecast of forty three point seventy three billion, But again, China
revenue coming in light. iPhone revenue, it's a slight beat, called it almost inline, and fourth quarter revenue overall, it is a slight beat. Stock is now though, down about zero point five percent in the aftermarket.
Services revenue reaches a new all time high. Also, Carol, we should note Apple has declared a quarterly dividend of twenty four cents per share.
Well, what's interesting, though, is we were all wondering about China revenue, such an important market to this company. But keep in mind, you know, I was looking kind of going into this the comps were considered to be somewhat easy for the iPhone generally because of the production lines that were off in China. So we did see iPhone revenue generally come in strong. But we've been talking increasingly about the competition that is happening in China when it
comes to smartphones generally, and that China revenue. The domestic consumer has been coming back. We certainly saw it in the Golden week, right people were traveling. But nonetheless, the China revenue fifteen point zero eight billion versus an estimate of seventeen point zero one to almost two billion dollars.
Leight.
Hey, somebody who's watching this just as closely as we are is Angelo Zino. He's senior equity analyst at CFRA Research. He joins us on Zoom from New York City. Angela, good to have you join us, as you always do on Apple earnings such as these. Give us an idea of the numbers that you're focused on and why you think that we're seeing the stock move like this in the after hours.
Yeah, I mean, listen, I think initially kind of and we still have to look deeper into the numbers, but initially, you know, it looked good in terms of the earnings as far as well as the top line is concerned, fairly coming in line, slightly above our expectations out there. And you know, also on the services side of things, you know, reacceleration towards double digit growth, all kind of positives, and I think kind of, you know, some keys out there.
Of course, you guys have highlighted the disappointment on the China side of things, so we definitely want to hear a little bit more priority and more importantly what they see for the December quarter as far as China is concerned. You know, it could just be you know, more of a comps thing as far as you know the September quarter is concerned versus a year ago, relative to when
the iPhone fourteen was launched versus fifteen. But you know, we want to see what they have to say about the full quarter in terms of the December quarter as far as the holiday selling season is concerned, and of course, you know some of the headwinds that are that are notably out there, specifically some of the competitive pressures that are definitely arising, So we definitely want to hear all of that in China. Looks like it's going to be the key here on the call.
Yeah, it's just interesting. Stock down two percent, and you make a really good point on the iPhone number, even though it came in I think to slightly higher our own mark German and we were talking about this earlier that it's a slight beat, but it's not impressive given that the iPhone fourteen Pro couldn't be so last well for several weeks because of the Fox cons shutdown due to COVID. So you expected that it was an easy comp that maybe it should have been an even big
bigger beat. So our Mark German doing that on our live blog. We do have the stock down about one point eight percent. The outlook, as you say, is going to be very very important here specifically, what do you want to know about China? Is it just a case of the increasing competition that Apple is seeing in that massive market?
Well, listen, I think we want to know specifically, we want to kind of know what was going on both on the hardware side as well as the services side of things out in China. Specifically on the hardware side of things, it is, you know, on the competitive side of things, what does that look like to them, what does the demand picture look like as far as the
iPhone fifteen is concerned. And then also you know, on the other side of things, you know, they are launching kind of the new max out there that should help them here in the December quarter as well. We do think that they're going to they are going to return to growth on the max side of things in the
December quarter, that should help a little bit. And then as far as services, I think it'll be important for them to continue to say that, you know, the landscape looks fairly healthy in China as far as services is concerned. But you know, at the end of the day, it really it's you know, you don't want to extrapolate too much from this one number as far as China is concerned. Right, So, and also when you think about the December quarter as well versus the December quarter a year ago, the numbers
again are the comps are super easy. Our view is they are going to point towards an acceleration in terms of iPhone revenue in the December quarter versus September quarter because of those easy comps. So again, let's see what the trajectory looks like over the next kind of couple of months.
I'm just going to say, go to the press release, pretty basic, pretty forward. I'm not saying anything about outlook yet.
We should remind everyone that Apple's fiscal year ends at the end of September. In the December quarter that we're currently in right now, as Angela keeps referencing, is Apple's first quarter of its fiscal year. Our own Mark German pointing out on our live blog which I highly recommend, reminding us that it's a huge miss on the Mac coming in at least a billion dollars below expectations. It's no wonder. Mark writes that Apple pulled every lever it could to get the M three, MacBook Pro and iMac
out the door during the holiday quarter. Angelo, what do you make of the billion dollar below expectations when it comes to the Mac and how important is that category to Apple?
Yeah, I mean, we'll see if they're kind of looking at this on wine inventory, and you know, maybe they just weren't kind of pushing, pushing kind of sales through any more ahead of these new product launches. But you know, again, it was an extremely difficult comp as far as the Mac has been concerned, not only here in the September quarter, but over the last year. So you know, now that
they've kind of gone through that was last four tough quarters. Again, you're now going to enter the December quarter where you're laughing, essentially at twenty nine percent or so declined from a year ago, right with those new product launches. So you know, it's weak because of those tough comps we think, as well as the fact that, hey, listen, it's not the most favorable landscape out there for piecs, even though the broader PC landscape appears to have found some sort of
footing for the time being. But at the end of the day, the consumer landscape is still very challenging. In nature, but again, we want to know more clarity. They're not going to give exact numbers as far as the guidance is current concerned. It's only going to be more directional in nature. But our view it is going to be decent at least for the mask.
It's funny Tim and I were just going back and forth because I'm like, wait, they're going to give an out look, and they don't do that, right, They don't, you know. But you're looking for some commentary. Stocks now down about zero point nine percent here in the aftermarket if you're just joining us, we're talking with Angelo Zeno,
who covers Apple. Apple sales decline for a fourth straight quarter, marking the longest slowdown since two thousand and one, as the company struggles with sluggish demand and a shaky smartphone market in China, specifically, revenue falling to eighty nine point five billion in the fiscal fourth quarter that ended, of course, September thirtieth, compared with the average Wall Street estimate of
eighty nine point four billion. Apple did not provide formal guidance for the quarter, sticking with a policy it adopted during the pandemic. It's still a law of I feel like whenever there you look at Apple, they still angelo sell so much stuff. But remind us, I mean everybody has always for decades been going after the Chinese market. You know, our Mark German says China also needs Apple. Apple employs a lot of workers still in China. So that relationship is this just maybe a slight dip, a
one quarter dip or who knows? And I guess that's what we want commentary on. But how do you think about that relationship with Apple? Is it at some point it's just it's going to wind down to some extent or no?
I mean we don't think it's going to wind down. I mean, when we kind of forecast Apple and China at least looking ahead, we're kind of looking for the company they essentially kind of grow in line with the smartphone market in that region. So we're no longer looking for share gain, which is something that they saw, you know, as a significant tail wind over the.
Last two years.
Right, Huawei exits essentially kind of exits the high end of the market because they can't get their hands on these you know, these great chips. As far as five G is concerned, Apple takes a significant amount of share. Now that you know, those tailwinds are now gone in our view, So now it's more along the lines of kind of them growing in line with the market probably
at best, to be honest with you, in China. The fact of the matter, though, is the growth story isn't necessarily dead for Apple because they've got such low share in a ton of emerging regions out there.
Right.
India is of course a key market out there and growth op.
How many people are Apple? How many people in India can afford an iPhone?
Well not many, but I mean you start, well, well, there is going to be a wealth effect over the next decade in terms of India, right, I mean, similar to what we've seen in China over the last you know, two decades or so. So there is going to be a kind of Apple will grow with that that region over time. And now our view is they can probably take you know, they can probably see unit growth of about one to three percentage points on an annual basis
from India alone over the next decade. So we're not necessarily looking for significant kind of growth in any given year out of India, but I think it will be an increasing contributor to Apple's business over time, and I think that is important, right, I mean, what what happens with Apple here is they're just so darn big is there's not any single kind of item that's really going to move them noteworthy.
At this point in time.
You can't expect to kind of you're an investor out there, don't expect to get you know, fifty to sixty percent gains on a name like this, you know, every single year.
That's just not going to happen anymore.
You kind of say, in this name because it's a great free cash flow generator, they can continue to see solid earnings growth of let's say, high single digit, low double digit, you know annually here over the next kind of five to seven years. And that's why you're invested in this name, not you know, necessarily because of the significant growth opportunities that are attached to them.
Maybe any specific region.
It's funny that you said about India. It made me look back because I'd just come across a story this past week, the Hamptons of India rises as nation's wealth boom eclipses China's. But it just talks about a new class of wealthy entrepreneurs, deal makers, you know, and the luxury market just taking off in a big way in India. So yeah, it's not the market. We've always focused on
the emerging market, but it is increasingly that case. And they talk about the suspending, whether it's watches or what have you, it's taking off. Having said that, what's the thing that worries you about Apple?
I mean, listen, I think at this point in time, I think China would be the biggest concern out there. What does a competitive landscape look out there? It still is twenty percent of their revenue, So I think that is kind of the key, at least here in the near term over the next kind of nine to twelve months, as far as this iPhone and fifteen cycle is concerned. So if it was us, it's on the China side
of things. And then of course you've always got to worry about the regulatory landscape out there, right, you've got the digital market deck that's going to go full into effect here in Europe here in calendar twenty twenty four. No one's kind of really warned about that at this point in time. As far as kind of the big tech companies are concerned, whether or not it disrupts their business or kind of slows down the revenue trajectory on
any of these individual companies remains to be seen. But regulatory pressures out there are always something you've got to keep your mind on, whether you're Apple or another company out there. But this is specifically for Apple as far as that service is business, and we know if that service business gets dented in terms of the growth that look at any point in time, that's going to result in some sort of multiple compression. And Apple shit is
because it is a significantly higher margin business. It is driving a lot of the earnings trajectory here looking ahead.
Angela, what's the question you'd ask Tim Cook and executives on the earnings call later?
You know, I think at this point in time, you've got to ask him about the competitive outlook in terms of China, whether it's legit, whether you know he thinks that they can continue to grow in China despite kind of increasing pressures from Huawei, because if you recall before the pandemic, Huawei was probably Apple's biggest threat out there
from a competitive landscape. So now they are re emerging here and we need to know whether or not Huawei is going to be a legitimate, legitimate threat here over the next couple of years.
Hey, you mentioned, Okay, the stocks now down about one point three percent, it's not falling off a cliffs.
Especially fair we saw today with Apple.
Exactly it rallied in today's session. I'm looking at your note. You've got a twelve month price target of two twenty. You mentioned that multiple compression that needs to happen. Would you adjust your price target on the stock as a result of some of the news today. It's right now when it closed about one hundred and seventy seven, just below one seventy eight to share, Yeah.
I mean we we'd kind of want to get a better idea of what the outlook here, what they have to say in terms of the December quarter is concerned, what their views are as far as the iPhone fifteen cycle is concerned, and you know, specifically what they see ahead for the services side of things. But you know that being said, you know, this is continues to be a stable ship.
And as far as that as long as.
That pre cash flow trajectory over the next kind of five to seven years remain intact and there's nothing from at least these initial numbers that would tell us otherwise, then I think, you know, this is a company that still is worth buying here and should speak you know, capital appreciation here over the next twelve to eighteen months.
Well, and you know, I'm looking at your note. You like their pipeline, you like their spatial computing, their Apple car, their healthcare, their shift towards hardware as a service.
I mean, it's a long pipeline.
They have been.
Expanding out right, so that the other side of the story, I mean, is this potentially a little bit of an entry point if it's down one percent or so, maybe in tomorrow's trade or in the aftermarket here.
Yep, And we do see you know, some significant secular opportunities, and you kind of alluded to some of them, but the pricing, you know that they're brand and the pricing power they have, not to mention, you know, all across the globe specifically in the US, but you know, eventually, we do think they come out with foldable phones right, foldable devices across their ecosystem. That's going to help support
higher asps, higher revenue trajectory for this company. So in any given cycle there, you're going to have those soft patches, especially with an iPhone fourteen and fifteen cycles as you're lapping the twelve and thirteen, which were absolutely stellar cycles and have had the five G momentum right and some of the market share gains on that side of things, So they're going to be soft cycles here and there. The iPhone fifteen will probably be one of those cycles.
If you're an investor out.
There that you know can't be patient with the name, then you're probably you know, you potentially get out of the name and looking for, you know, certain opportunities to get back in. But it's extremely difficult to time Apple overtime, and it's probably the most forward looking name that we cover. You're probably looking at an iPhone sixteen and seventeen cycle for many investors out there at this point in time, and what the potential for the company as far as
those cycles are concerned. Where we do see higher average selling prices over time because of you know, opportunities like buldable devices.
This two point seven trillion dollars stock is up almost thirty seven percent year to date, and we are looking at a little bit of selling in the after hours. But now it's just down about eight tens of percent, so.
More than two percent today, Carol Session exactly.
So it's like hard yours. You know, the perspective on this name is just kind of fascinating. Really appreciate. Angela Zino, Senior equity Analysts at CFI Research. On zoom in New York.
City, you're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from three to sixty d Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or wants us live on YouTube.
What a man he is? Michael McKee man nobody covers the economy, international economy.
I'm so glad you went there. I thought you cold said what a man?
J Powell is?
I agree?
Sorry Michael McKee, Sorry, Jay, Let's just get right to it. Michael McKee is out there in our Atlanta bureau. He's International Economics and Policy correspondent. Joining us there getting ready for a big interview, which we'll get to you in just a moment. What's with that?
Go Dogs, University of Georgia. We are here in Atlanta, and of course the big game this weekend in Tennessee. Everybody's going to be focused on that here. You think jobs is important, but I mean this is as my daughter who went to UGA says, this is football, football, This is football.
I love it.
I love it.
Well, if you had assessed the game that is monetary policy, how would you do it? In terms of what we got from Jay Powell and Company yesterday? Mike Well, I.
Think the bottom line for people on Wall Street is basically that you can't at this point think the FED is done, and you can't think they're not done. You sort of have to throw as my question to Jay Boble was, you have to throw the dot plot out the window and the forecasts out the window and just basically go meeting by many and think that each meeting is live. They don't have an objective measure of data that they're using now to decide on whether they should
raise rates or not. It's subjective. What does everything look like when you put it all together what does it appear to them to be telling them, And so it's going to be hard for people to really invest ahead of the FED.
At this point.
We'll see the markets gyrate a lot based on economic data, but really, what you think the FED is going to do, you're not going to know till you're pretty close.
To the meetings.
It seems like traders today are pretty convinced they know the FED is going to do, and they certainly think that the FED is not going to raise rates another time. I'm pretty surprised to see this market reaction, Mike. I know you're a macro guy, but you certainly pay attention to what's happening in all of the markets. Does this surprise you, the moves that we're seeing today in the bond market and the equity market.
Yeah, it doesn't surprise me, because I think the markets were leaning in this direction and they go where they want to go where they think they want to go. Now, I've been telling people all day on Bloomberg, talk to me at eight thirty one tomorrow. If we get another blowout number like we did last week last month, rout there three hundred and thirty six thousand, then you're going to see yields go right back up again, So it
really doesn't matter at this point. We focus a lot on the movement and J. Powell said this, and look what happened, But it's really going to depend on what happens between now and then and what they set us up for when they get close to the meeting.
What's J. Powell more worried about at this point, you think, or is it even in terms of doing too much or too little.
He's still worried about doing too little.
The FED gets in trouble when they do too little, and the memory of Arthur Burns is seared into every FED official's brain. So they're still going to be worried about doing too little. But at this point they think they've done enough. They just need to get confirmation of that,
and it doesn't come in a neat, tidy package. So they're going to sit and wait and watch and eventually decide, well, it looks good enough and we don't have to raise anymore, or if inflation comes back, we'll see them raise.
They won't be cutting anytime soon.
Well, Mike, it sounds like that's what you were trying to get to at your question to J. Palate, Abigail Doolittle and I were like just kind of parsing over words that you said and when you were asking, kind of just remind everybody what you asked, what you wanted to get, and did you feel like you got a good answer.
Well, I wanted to get a sense that the FED is that the market can't guess really at what the FED is going to do successfully because they don't have an objective way of measuring it at this point. And while Powell was saying we're on hold, we could raise rates again. That's what they've been saying for a long time. They had another rate increase penciled in in the dot plot before the end of the year, but now the
end of the year doesn't mean anything. Every meeting is going to have that potential for a higher rate if the inflation numbers start to go back up again.
Mike, I was talking with Carol earlier about this because I think one of the takeaways that people had yesterday after hearing from Jay Powell was something they've been saying for weeks, which is, Okay, the bond market could be doing some of the work of the FED. And we've heard that from FED speakers over the last few weeks
or so. What happens if yields fall because of that relief that people think the Fed is done raising rates and those higher yields stop doing the work that the Fed wanted them to do.
Well, a little bit of that has been what's happened over the last twenty four hours. It's going to have to be sustained. The way monetary policy works is they raised the cost of money. You go in for a loan, you more, maybe you don't borrow as much, or maybe you don't borrow at all. But that takes place over a long period of time, the long and variable lags. Not everybody lines up to get a loan at the
same time. So they're anticipating that the longer this goes on, the lower the economic activity will be because people aren't going to be taking out these loans to expand their business or buy houses or whatever, and that'll slow down the economy enough to bring inflation down.
The question is does that happen.
They've been surprised all along by how strong the labor market is and how strong growth has been, so they want to keep that possibility of raising rates again in reserve in case they continue to get surprised, and if the market doesn't back off, then it is.
Always possible that growth stays strong.
But if growth stays strong and we get strong numbers, the market's going to come back up again. Yields are going to come back up again as bond investors try to force the.
Issue mike as economic cycles go, once they start to come undone, whether it's you know, we fall into a recession or not, but once they start to come undone, do they start to come undone rather quickly?
Historically that's been the case.
There is a saying in economics that recessions are non linear events. They just sort of spring upon you. Now, we haven't had this kind of downturn recovery really ever, or at least in the age of data. Nineteen eighteen flu we didn't have the data that we have today, so we don't know exactly how things are going to work out. The last couple of recessions before the pandemic, the pandemic brought on this recession, and the last two
we're brought on by financial market excesses. In this case, it's hard to say what the excess is and why we would necessarily have a recession.
So it's hard to see where the recession comes.
From except putting it in the lens of previous, previous downturns. And that's kind of what the Fed's been doing and a lot of economists on Wall Street have been doing, and it hasn't worked, and nobody quite knows why. So we could have a nonlinear event, we could go into recession, but it's hard to say, here's the thing that could make it happen.
Can we go into recession if the US is still adding roughly two hundred thousand jobs a month.
Nobody thinks that's really possible because all those people are going to be spending all that money that they are now making, and that just adds to the overall spending in the US and the overall wealth in the US. So as long as that's why the FED thinks they need to have a higher unemployment rate and lower job growth, is at this point we are adding to the economy's capabilities for growing rather than being neutral or cutting back.
But if we're spending perhaps more on student loan paybacks or more on our mortgage rates, could it possibly just kind of feel like a recession mic or will we maybe start to see some areas of the economy kind of get hurt just because we're spending more money elsewhere.
Well, there are a number of theories about that. If we're spending more money elsewhere, then yes, there would be cut back somewhere. The general feeling of academics who've studied the student loan thing is it's not going to have a major impact on spending overall. Most of the people with large student loans are the people who have the more lucrative professions, and so they can continue to pay
their bills. Housing is an issue because if we don't buy houses, then we're not going to be buying the furniture and carpeting and etc.
That goes with it.
So you could see a bit of a downturn there. But as long as people get jobs, they're still going to be spending money, and they've shown they want to spend money, they're going to be spending money on stuff, and that's going to keep it going even if some of these particular areas do fall off.
Now, the question kind of is who would fall off at this point.
If it's lower income people, yes, they're going to be buying less stuff like groceries and gas, and things because they live paycheck to paycheck. But we see the upper income stratus still spending like crazy, and they can power the economy for quite a while.
Mike, I took the day off on Tuesday to go trick or treating, and I will say that it was pretty subdued in my neighborhood. And I heard it was subdued in my old neighborhood as well, and I saw people tweeting about people, you know, one candy limits. Is there any sort of anecdotal data that we can look at here for a Halloween candy indicator.
I don't know that there's solid data. There are trade associations that anticipated a good Halloween, but I can tell you anecdotally talking to a lot of people in the Washington DC office after Tuesday night, there were a lot of complaints about the cost of candy bugs to give out, and so maybe people were a little less generous.
I don't know.
You remember Robert Griffin third, the former quarterback for the Washington Redskins who is now an ESPN broadcaster. He tweeted that he took his kids out and they got to a house and the people wanted to charge the kids.
For ken no, I don't know that's true. But wait what but there's an economic indicator for you.
All right, Mike, you're the best. And Mike, by the way, sits down with Atlanta Fed President Rafael Bostak for an exclusive interview tomorrow at three thirty pm AL Street time on Bloomberg Radio. Do not miss it. Mike McKee. Of course, at Atlanta Bureau covers all things international economics and policy. So we're looking forward to that tomorrow. Tomorrow. Yeah, So don't go anywhere, everybody. We're just getting started on this Friday. This is Bloomberg.
You're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
All of the news. Speaking of the news, the flow of it has made the environment very heavy and very stressful again safe to say.
Yeah.
When I was preparing for this segment, Carol, I did some research about you know, mental health at the workplace, and you know the meditation ap Colm, they did a survey of two thousand employees earlier this year. They get some insight into mental health in the workplace. It turns out that employees who work in education, retail, hospitality, and yes, healthcare yep, they report above average feelings of stress and anxiety. Yeah.
Absolutely, it makes a lot of sense. So there's a lot to be anxious about the economy. Kids are sick, stuff going on at home. We know a lot of people understandably are upset and concerned about the Israel Gaza war, and even conversations that are spilling into the workplace. All of this is spilling over. So we have a great voice for us. Ron Getzel is a senior scientist at
the Bloomberg School of Public Health. He's also the director of the Johns Hopkins Institute for Health and Productivity Studies, where he studies the relationships specifically between health and well being, medical costs, and work related productivity. Speaking of productivity, which we are more productive as we heard this morning in
government data. He joins us though on zoom from Baltimore. Hi, ay Ron, nice to have you here with Tim and myself, of course, the Johns Hopkins Bloomberg School of Public Health supported by Michael R. Bloomberg, founder of Bloomberg Help and Bloomberg Philanthropies. Yeah, we're all feeling pretty heavy and pretty stressed out. Again, make the connection for us, because I think people are like, well, let's just stress. We have to deal with it. But there is a cost, a significant cost.
There is, and thank you very much for inviting me. We've done quite a bit of research looking at the relationship between mental health and well being and the costs and employers bear not my dep with communities and society as a whole. So we find that there is certainly an impact on ind digital workers.
Mental health and well being.
So they may feel stressed out, they may be depressed, they may not have opportunities to have a work life balance, they're not getting enough sleep and eating wealth and all of those costs money, not just in terms of direct medical costs, but also in productivity losses.
How is it, Yeah, how is that manifested in productivity loss This is something that you study very closely, So give us some numbers here.
Right, So we looked at direct medical costs, certainly a prescription drug and medical care. On the productivity side, it's things like absenteeism, and disability, and also this issue called presenteeism, and what that means is that you're actually at work, but your mind may not be there because you're worried about your own health and well being or some family members health and well being. And there are ways to actually monetize it.
Well, talk to us to you a little bit about the monetization aspect of it, because I do think about that sometimes resonates unfortunately but maybe rightfully so I don't know with individuals and people who are listening.
All right, So imagine that you know you're stressed and depressed. Now there may be things in the workplace that are causing that to happen, and there are many things that employers can do to improve the workplace. But let's say in general, so your mind is drifting, you're not focused, you're not engaged, You kind of you have trouble getting out of better in the morning. That is a cost to you. It's a cost to the business because instead of you being focused, engaged, directed at the goals of
the business, you're actually distracted and worried about other things. Now, the business can have tremendous impact on improving that for many people. You know, going to work is actually a good thing.
You know.
It gives us an opportunity to be with our coworkers, to do things that are important and meaningful to us in life, and almost a respite from all the bad news that's around us. So employers can do quite a bit to improve mental health, well being, and productivity of the workforce.
I'm glad you said that. I mean I certainly feel that way. I don't know if you feel that way, Carol, Like work is like especially. I mean, anyone with young kids can can relate to this, but it's like you kind of get to work and you know your kids are at school or in daycare, and like everyone's in the right place and you kind of like breathe the sigh of relief. But I completely agree with that. I think that's why it's important to work in a place that you enjoy working.
I completely agree. I mean I've gone through parents who were ill and coming to work was like this incredible constant with a very warm environment, and I kind of knew what was going on. There were things that could control, yeah, but it was just something that was so important to me.
Having said that, so what's your advice to folks in this environment, or leaders at institutions or organizations about thinking about this, because I think there are times like we keep talking about meditation so important, so important, but it's not always so easy to do at an office environment or a workplace environment.
Well, let me just say that you can't yoga math yourself out of a stressful and toxic work environment. Meditation apps and yoga are very, very helpful, absolutely, But the approach that we've adopted at Johns Hopkins and our Total Worker Health Center of Excellence says there are three basic buckets of stressors and solutions. The first is and we call it the Post Center Poe someone named after ad gow Ed ground Poe, who have a house in the
museum in Baltimore. But peace stance for psychosocial factors, O, organizational and E environmental factors. So, imagine being in a work situation where the work demands are high, deadlines are imposed, you don't have the resources to do your job, your boss is yelling at you, You're exposed to toxic fumes, your pay is ridiculously low, benefits are limited, you're not sleeping well, no opportunity to exercise, diet is past, food blood pressure to control so no yoga class is not
going to fix all those problems. But there are things that employers can do within those broad categories of POE.
Well, just give us just got about fifteen seconds. What would be one or two things, just quickly, well.
Flex time breaks, predictable schedules, access to healthcare that's not too expensive, an EAP program, greater autonomy, shared decision making, living wages, paid medical leave, career path opportunity. So I can go on and on.
All right, you're hired some now, Ron for president.
It's a very very productive list. I really appreciate you going there. Ron Getzel, Senior scientist at the Bloomberg School of Public Health, Director at the Johns Hopkins Institute for Health and Productivity Studies. As we said, of course, the Bloomberg School of Public Health, supported by Michael our Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app band YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa, play Bloomberg eleven thirty Big Way.
Yeah, well a long way home may mean you get there and then you've got a really expensive mortgage to pay for because of higher rates. We're going to talk about the so called lock in effect homeowners who are unwilling to let go of cheap mortgages they got when rates were scraping bottom. They're the lucky ones, which has resulted in the least affordable housing market since the nineteen eighties, with sales approaching record lows.
This story is the domestic cover story this week of Bloomberg Business Week. It's also today Carol among the most read on the Bloomberg terminal with more on the US housing market that has become an impossible mess for so many people. With us is the team of the Bloomberg News real estate reporter. We got Prashan Gopaal, who wrote the story along with Pat Clark shot on Zoom from Massachusetts. We also got the editor of Business Week here, Joel Weber,
with us in our Bloomberg Interactive Brokers studio. Jiel, this is a story or a movie I should say that we've seen before.
Yeah, I've seen it before, but not maybe recently. And look, ultimately, if you want to feel like there's an existential crisis in the US, I think the housing industry. Housing market is maybe a pretty good one good place to look right now if you have one of those low rate mortgages.
And a lot of people do that.
A lot of people got fortunate enough to get in when when the market uh allowed that, you know, you're you don't want to give it up, so there's very little incentive to sell and then have to take out
a high mortgage. Now that also means that for those people who never had a chance to get in, you're not able to get in because nobody's selling, there's very low inventory, and if you could get in, you have to pay that eight percent mortgage that is potentially, you know, dramatically higher than what the housing market even looked like two years ago. And boy, that is just a rotten
place to be. And especially for people who are starting out, it really feels like you're just iced out and that has I think some long term economic implications for the US. And there I think we're done talking about the story because that's basically how rotten this is.
But there's a whole lot more there.
And Prashant and Pat Clark did a great job of not only setting that table and and this is to me one of these stories that when I first started engaging with them about it, it feels like one of the most important stories of the year. We've talked about what happened. What's happened in the commercial real estate world, this is equally scary because it affects meeple so directly, I think. So, Prashan, you've got to speak to some people, tell us about what you and Pat learned along the way.
Well, really, this is like two different worlds, right, So people who own houses are really the haves here, and in some ways they're sitting pretty because they locked in some of the lowest rates in history, and they're unaffected for the most part by the rising mortgage rates because you know, most people have fixed rate mortgages for you know, thirty years, so they might be in those homes for a long time because they have very little incentives to sell and take on sort of a much higher rate.
On the other hand, people who haven't gotten a chance to buy yet, maybe they were you know, they couldn't buy during the peak of the COVID buying frenzy because they lost out in bidding wars. But now they can't buy because they can't afford to. You combine these very high prices and these extraordinarily high rates, and you know they're they're just locked out.
What I think is interesting for me, and I kind of had to remember, you remind us of an economist back in the nineteen eighties who actually identified this so called lock in effect, take us back there, because we've kind of been in these disposition before.
Pat actually read that study, so that go for it.
Oh yeah, So it was very much like what we're seeing now, which is that interest rates shot up quickly, and people who you know, I think between nineteen seventy eight nineteen eighty one, interest rates doubled. They were much higher in those days. I think they shut up all the way I think to eighteen percent or so. But interest rates went up very quickly, and it became clear that the old mortgage had a value attached to it, right.
It wasn't just the bill you had to pay every month, but it was worth you know, thousands of dollars, and because if you were to trade it into a new mortgage, that's how much more you would pay over the life of alone. And you know, at the time, there was a an economist at the University of California who who you know who sort of showed that this was correlated or or he associated this with a strong dist incentive
to move, which is logical. You know. You fast forward now to today and there there are two researchers, one at University of Illinois and one at the University of Pennsylvania. But actually, you know, have a you know, a way to do a sort of back of the envelope calculation to show that there's a real causal effect between this,
you know, luck and effect and deuce residential mobility. People are going to move last and and in fact, people have been moving less than America, you know, for we were finally moving.
We were finally moving again right with the pandemic because you could work Jill anywhere, Like finally people were starting to move around again a little bit.
And boy did that end with the pandemic, right and and now suddenly maybe you did move somewhere, and now you know, even being able to offload that thing that you got yourself into, maybe you won't be so lucky now.
Now.
Most important question amount I asked today Pat Pashant, which have you got to speak to Eugene Quackenbush.
I always.
Okay, so tell us about.
Also, can we say the name of Eugene Quackenbush.
Quackenbush, exactly what he's doing Phoenix broke Like I know Pat has a deep understanding of Phoenix. But tell us about what what mister Quackenbush.
Revealed his name.
Okay, but but but he's a you know, he's a pretty savvy real estate guy in uh in Phoenix who has a real estate company called Get Your Nest. That will that that that that acts as a brokerage and the types of you know, effectively, he has to get creative for his clients. And and and the simplest thing is you go and look for a new home, right because the homebuilders are often buying down interest rates and and and we can tell you more about that. I
can tell you more about that. But he's doing things as well, like well, can we go out and find people who have assumable mortgages which is usually an f h A or a v A loan that someone else can take on, so you know, it was a there's a three percent mortgage and you sell the mortgage along with the house. You know, the package today, the package not.
Just it's not just not the garden.
You know, throw it, throw in the three percent mortgage. I mean it sounds like a great deal.
Yeah, totally, and it's you know, and it's probably better than the alternatives because the alternatives are you either look for something smaller. I mean, one thing we've heard about a lot is you look for something or what you find is a house that's not in great condition and so not only is it expensive, it's going to need more work. Or another thing that that Eugene told me he was doing with clients or you know, clients were
considering as you know, you just drive farther. It's it's no longer you know, the close in suburb that you pictured yourself in in twenty twenty one when all your friends were rushing to buy homes. You are now you know, you're now in the next or the one after, and you're having to drive farther every day.
Supershan, Let's talk about the home builder dynamic, because the other thing here is that there just hasn't been that much inventory.
Right.
But like so we're the homebuilders in all of this.
Right, So the home builders in some ways are in
much better shape because they produce inventory. So you've had the existing market just completely lock up, and that's left a little bit of an opening, especially for the larger builders that have their own mortgage arms, so they're able to kind of offer subsidized mortgage rates which are really enticing buyers to buy new so there can more aggressively cut prices and you know, offer you know, a five percent mortgage or something like that, at least for a
period of time. It can you know, it might increase later, but for the first few years five percent, and that's that's actually working for them, so they're able to sort of increase production and get more buyers in.
Okay, so young people can't get in, people with low rate mortgages don't.
Want to sell.
What's the way out of this impossible mess? Mortgage impossible as we called it on the cover, Well.
We had we had like we spoke with UH, you know, Ralph McLaughlin. He's a he's an economist. So there's been some efforts to sort of attack this from uh, from the perspective of demand, trying to get make it easier for people to purchase, right, so lowering fees for mortgages, things like that down payment assistance. But all that does is sort of adds to the competition, right, which is the problem we have. So his idea is, let's try
to get convinced sellers to sell. So he's suggesting that you could do things like, you know, uh, a window of time where you know, capital gains where you where maybe investors wouldn't have to pay that, or or or you you increase taxes on rental landlords. Either way, the idea would be to get some of these airbnb landlords and other landlords to sell to first time buyers.
Hey, there was a different answer that I was like, which was like, you know, inspired by mortgage impossible. It's tim descending from the ceiling down to you know, jove, there's a knife that lends on the.
Desks, just me at the bond market. Yeah, cutting rates.
That was there was an alternative answer that was a very academic and effective one.
I mean, isn't that go ahead?
Go ahead?
No please, no, no, no, My joke was not that good. We do have to do that. It's just like it was just like in the Federal Reserve interest rates if and this is really what the problem is, is like we don't see a way, you know, this is higher for longer for housing like we don't see a way for mortgage rates to come down quickly. They will come down, it's just you know, they're not going back to where
they were. And if they were to go back to where they were quickly, it would be because we had really big problems in the world.
Yeah, and if they came down, you know, you prices might go up because.
Well that's the other thing though, right, because like the thing that has not budged is the prices, and so prices could come down here because that's the dynamic that we have yet to really start to see.
Right, Yeah, rate rate. I mean, no one thought that we'd be, you know, flirting with eight percent mortgage rates, so that that really has been a downer for the market.
Which you know, prices had been rising a bit because of this lack of supply, but the higher rates could actually hurt start to hurt demand more, and that would there's a potential here that you know, prices could come down a bit going forward, but you know if rates fell, that actually could drive prices up again, so because you know,
more people would be able to buy. So there's there are very few solutions other than time, right, because if you've given enough time builders might be able to create some more inventory, but you know that's it's not gonna happen very.
Fast, Joel. One thing I want to make sure to touch on was the demographic implications of something like this, which I didn't even consider until I read this cover story. If people cannot move to a bigger place, then maybe they don't have kids, or maybe they only have one kid when they want to have two. And we all know what happens to a society that stops having children.
Yeah, you just hate the boomers even more for everything that they have than the rest of us didn't get right now and I just a little bit.
But or you're never able to retire because nobody can fund social Security.
Yeah, exactly.
These are these long term economic implications that I think are are going to be a significant challenge. And like, if it's like this now and we think about how quick this happened, I'm not so sure that this isn't a very slow unwind out of this then and again, maybe there's no end in sight.
Remember that earlier segment we did about being depressed.
A little bit in the meantime tim coming down from the ceiling in the Federal Reserve. But it's a movie I might want to watch.
All right, December FED meeting, I'll be there.
Oh my god. All right. Bloomberg News real estate reporters pack Law Ark and Personcobal. They wrote the story. It's the domestic cover story of Bloomberg BusinessWeek. It's a most read two on the Bloomberg Or thanks to them as well as the editor of BusinessWeek, Jill Webber.
Umbrella Marc.
A journal. How about you let me drive? O?
No, no, no, no, who's going to drive?
Honey?
Please the gravel?
Let's wat I want to try it.
It's a good question.
This is the drive to the Globes dot com.
I think well.
Byn on Bloomberg Radio.
All right, everybody, TikTok. It's just under eighteen minutes left in today's trading session. Carol Master along with Tim Stanovic life here in our Bloomberg Interactive Broker Studio. We've got the talks pretty much staying at their best levels of the day. Charlie just breaking down the numbers. Uh, as we said, everything seems awesome. Awesome again.
Bill Maloney, who you just heard? Yeah, he used a very technical term that I think was one he developed as a trader. He said, this is a rip your face off rally.
Bill, Are you listening?
He's walking away right now. I see him for your face rally.
Yeah, pretty interesting. I think he said the S and P right back above. It's two hundred days, so it's bullish significant. Yeah, certainly technicians would say so. All right, So let's get to it with Len's Canon, portfolio manager at hood River Capital Management, joining us on zoom from Palm Beach Cord in Florida. He manages the hood River International Opportunity Fund. It's up nine percent year to date, Timmitt's and an eighty ninth percentile for funds in this category.
That's according to our own data here at Bloomberg.
Hey, Len's good to have you with us this afternoon. Let's talk about the day and then zoom out a little bit. I mean, the S and P five hundred is up four point three percent over the last five days. Our investors getting ahead of himself right now.
Tim Girl's great to be here. You know, that's a good question. I'm it would be great to have more of these days coming ahead. But I think it's hard to ignore that was is happening from a macro standpoint out there. As well, and the fact that there are some signals that would suggest that maybe this isn't self sustaining as long as we'd like. But you know, we've been wrong before and we'd all love to see more of these days going forward. So here's a hope that this is sustainable at this juncture.
Well, so you've got to manage a fun or you are managing a fund, and I don't know how much you kind of kind of move around the portfolio. But in this environment, I mean, what is it that makes you sell buy? Is it just case by case company? Is there macro factors that impact the portfolio strategy?
That's a good question. So here at hood River, we're a bottoms up fundamental long only shop, so we tend to look for quality management teams we can invest with over time, have good quality products, and so for us, it's all about the fundamentals. Funamals drive both the buy and sell process. So we're looking for companies and opportunities that present a company in a situation where it's undervalued relative to maybe some of us peers, or even what
we think it should be valued. I think a great example of one of those type of names would be on Holdings, which is the company that owns on cloud shoes. It's a company that we own their international fund. It's based out of Switzerland that it's listened here in the US.
They've done a really good job with in terms of growing in Europe.
They've got a really great management team that's continued to work here and growing the company in the North America region as well as an Asia Pacific, which we think has a lot of leg Well.
North America right is their big, big market right now if you look at a pie chart right in terms of revenues, and I know the ADRs that trade here in the United States are up about sixty percent. I'm not being a show off, but our team just did a show one of our chief Future officers on Holding and they talked with there's two co CEOs, but one of the co CEOs is actually the CFO as well, So we just did a whole half hour on it. So it's certainly been a company that's on our radar.
But you're right, China, there's a lot of room for growth there if they can make it work.
Yeah, I agree on hundred percent with that, and I think that will have been if they can be successful over there. I think it's one of the things that can help them continue to drive the margin expansion. And one of the reasons why we're excited about the name is that we think there's opportunity for them to continue to expand margins, drive higher earnings growth, and develop more cash flow so then could be distributed back to us as investors down the road.
Okay, what about Baltic Classified. It's part of Baltic Classified, the group of trades over in London.
Yeah.
You know, you hear online classifieds and you think to yourself, Wait a second, I thought Facebook and Google completely disrupted, Yeah, this space, what's going on?
Yeah, so these guys are not necessarily in those jurisdictions that where you would think about Facebook and some of the other guys, whether this is like a Lithuania or some of the Eastern European countries where maybe it's not
quite as developed. From that standpoint, they've been able to go out and find the right platforms and built the right platforms in those jurisdictions or in those geographies, and it allows them to be a number one or number two market shared holder from that standpoint, and their average revenue per customer or per ad is significantly lower relative like your Facebook or eBay or some of these other online platforms that are doing and selling products online from
the individuals, and so we really like the opportunity they've created.
They can drive top line growth through both price and the pricing part that they have, as well as through expanding into other geographies that are adjacent to the ones that are already in where they're already starting to see some traction from you know, cross border opportunities, and from there successful in doing this, we believe that EBITDA will continue to grow, They'll continue to see margins expand as they've got a really hot, really low level of fixed
costs that have already been covered and then some and well it currently trades at eighteen times and this thing's growing it you know, call it mid teens. We think this is a longer term play that can really kind of choose your portfolio going forward.
Small cap when you look at the small cap universe, lots of names out there, you think right now for you to be looking at, a lot of them have been been beaten up. I know, certainly here in the United States.
Oh yeah, yeah, no, it's we're definitely constructive on international small cap or a small cap in general as a whole. You know, if you look at like the msci XUS small Cap Index relative to the fsci XUS Large Cap Index, historically the small cap index is traded at a premium relative to large cap. Right now, large cap is trading at a premium relative to small cap, which to your point, I think illustrates that these small cap neans have just
really been beaten up. But that's also why we're so positive and excited about the opportunities that we're seeing out there. We're seeing a lot of companies where there's opportunities to own names that will have positive earnings revisions over the next twelve to eighteen months, and that's really where we're focused right now, is identifying those names that are going to have those positive earnings revisions and then allow us to generate alpha for our clients going forward.
Is there a geography a region in the world that you're most bullish on.
There's a hamp I mean, India is very interesting to us right now. We're excited about various parts. Obviously we've talked about a name there in the UK slash Europe area, there's opportunities almost everywhere we look. To say that there's one particular that I'm excited about more than others is not true because I find that as opportunities to pretymache.
Everywhere, squeeze in one more basic fit.
Uh.
They're based over in the Netherlands, I believe. Yes, another one point six billion market cap. I'm looking at actually one point six billion in terms of euros. So tell us about this. This is what health clubs fitness just what.
It sounds like, basically be fit.
Yeah, it's exactly basic fit.
I would tell you.
It's a bit of roughly be kind.
Just talking to me. Don't worry, We've got.
It's all good.
Thirty seconds go ahead.
Yeah, so I guess real quickly. And this is like the Planet Fitness of Europe.
Yeah.
So it's a low cost provider. They're opening in more countries. They're in Spain and the Netherlands and Belgium and France. Another expanded in Germany and the UK and Italy. It's a lot of opportunity to expand there's not really a whole lot of competition for them. You're going to grow top line both by driving more memberships into the current clubs that are open those various countries, as well as
expanding to other countries adjacent to them. Even demarts to continue to expand as they were able to lovers six costs. All right, all the fun stuff, thank you.
The question is, you know, if it's the Planet Fitness of Europe, do they still have pizza mondays like Planet Fitness's.
Let's Only Hope? Lance Cannon, portfolio manager at hood River Capital Management, joining us there from Florida.
This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcast. Listen live weekday afternoons from three to six Eastern on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also want us live every weekday on YouTube and always on the Bloomberg Jurmalone