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Well, got to say investors like in this report in the aftermarket stock still up about two percent here in the postmarket trade. Hey, let's see what Bloomberg News Managing editor for Global Tech Consumer Tech thinks about this. He is Mark German, knows everything about this company, lots of exclusives. This feels pretty good.
Jim Cook has to keep his job, at least for now. This is a massive, massive, massive quarter. This is a home run. Their greatest quarter ever by orders of magnitude. It's a gigantic beat on overall revenue. China is back. You have a big beat on the iPhone in particular. Eighty five billion dollar quarter is just insane. The installed base two and a half billion, The numbers are just beyond excellent. We could ignore the fact that they missed
on wearables, home and accessories. We can ignore the fact they missed on Mac. We could ignore the fact that they barely you know, crossed expectations on services. I guess none of that matters when the iPhone is selling so well. But still there's the big existential question of what's next. It's an important question because of AI and Apple absolutely needs to figure out it's AI strategy. There needs to
be an AI reckoning of some sort there. But they just bought themselves a very long time with this just insanely great quarter.
So let's talk about a couple of the areas that you highlighted there, China, and another one is the sort of the concerns that people had about memory chips in this quarter and the rising prices of memory chips. How was Apple able to navigate this so it didn't hit its margins like people thought it would.
They buy components and memory components quarters and months in advance, sometimes years in advance. They have these deals struck, so they're working off of numbers and pricing and materials here that really give them extensive pricing power over competitors. So we'll hear more about that on the call today. But it seems like they're fine.
Mark, I love this. I mean, I'm looking at our live blog, so you must have kicked this out before you jumped on air with us. But you did mention that the significant things on the call, You've already talked about the AI strategy succession. You've kind of said maybe that's off the table for now because this was such a blowout quarter. You talk about the long term viability of the business if it doesn't get its AI act together.
It's hard to even think about that when you see the numbers here and just what a big company this is and how significant is I feel like in so many different people's lives, like I have an Apple household. I think Tim has an Apple household. Is that is that really the long term viability if they don't get AI together, call me Tim Apple In fact they do, that's yes.
I said long term, right and the fucking really and talking really long okay, the little, the little, the really long term here, right, Like, at some point there is going to be a need to fulfill these AI desires and you know they're going to have to figure that out.
Well.
On o agranav Our BI team, he talked with Tim and I just moments ago, and he talked about, you know, how they're working with Google when it comes to AI, relying on them right now for their models, and so they're not doing the big AI spend. That makes sense for now too. So do you agree that that's kind of a smart strategy now and kind of waiting it out a little bit, But at some point they've got to kind of do their own thing.
It's not that they're waiting it out. Oh, it's that they have no choice, they have nothing internal. It's not that they're waiting it out. It's that they need to do it, and so they're partnering with the best partner they can. It's going to offer them the best pricing power, which for now is Google. They initially wanted to work with Anthropic, but from a pricing standpoint, that didn't work out. They couldn't work with open Ai because they're you know,
hardcore competitors at this point. So Google was all who was left. And obviously the judge didn't break up the search deal there, so it made sense and it'll aligned pretty nicely for them.
Okay, do we know yet how Apple was able to beat expectations in China once again for the first quarter, the most recent quarter, Greater China revenue came in at twenty five point five to three billion dollars. Twenty one point eighty two was the estimate you said it minutes ago. It is back in China. You're holding up an iPhone right now. That's what they did.
I'm answering your question. I'm answering your question.
It was the iPhone seven color orange. Oh, it's the color orange. It's that easy.
Because the promax. No, it's designed. People buy the new designs. This is the first new in half a decade. You got it done. That's why you do new designs, because you're trying to bring in new customers. Why is for upgrades? And but that's the way to do it.
Didn't they know that?
Of course they know that. But it takes time to do these new designs, and you kind of want to get it right. And then you can't do it too often because if you do it too often, it doesn't have the power that it has if you do it only every so often.
Hey, I want to roll into this a story you've got on the Bloomberg that you put out today, and this has to do with Apple buying the Israeli AI startup that interprets facial movement. QAI is this important.
I think it's going to enable some features for future air pods and smart glasses and mixed reality headsets and all that, but it's not fundamental to the overall AI strategy, which I think they're still trying to figure out. Also, just one piece of the puzzle.
Okay, Mark. Another story that you reported on this week, Apple's Tim Cook calls for a DS after Alex Pretti's shooting in Minneapolis. There's this thread that Tim Cook is trying to a needle that Tim Cook is trying to thread. He was at the White House on Saturday, and.
They do a very good job. Why not the needle? Well, I think his statement was kind of worthless in some respects. I think that he spent I don't know if it's at a statement talking about how the president, the one who's overseeing the policies that led to the situation of Minneapolis, has his ears wide open to listen to feedback. I mean, I'm not sure that's what his employees, who are sort
of revolting internally about this, we're looking for. I think they were looking for Tim Cook to take some sort of stand here, and he really didn't. You know. From his perspective is he's scared to upset Trump and get tariffs and other policies slapped onto Apple's business. So you'll see him continue to do what he's doing because this is not about taking a stand at this point for him, This is about protecting the underlying business. And the results
speak for themselves. Underlying business seems pretty well protected, all right, like.
We like to do, and you know we're going to go there. What do you think are the top two questions that's got to be asked on this call?
They got to ask about AI and they got to ask about succession. I'm sure they're not going to though, I mean maybe AI, but like they're not going to ask about succession and risk not being invited back next quarter to ask more questions.
Are they going to ask about him being at the White House to see the Millennia movie?
Like I said, they don't want to risk being banned from asking questions next quarter, So no one's going to ask anything that rocks the boat. All right, we'll see I hope I'm wrong.
Okay, great stuff as always, and we'll be looking for your reporting after that call as well. He is Mark, or he's thank you, Mark, Managing Editor for Global Consumer Tech for Bloomberg News. Out there out there on the West Coast.
Stay with us. More from Bloomberg Business Week Daily coming up after this.
If you're listening to the Bloomberg Business Weekdaily podcast, catch us live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Well, let's bring in Ed Ludlow. He's the cost of Bloomberg Tech on Bloomberg TV. He joins us from our San Francisco bureau.
Ed.
The story from Mark German is out sales trouncing estimates after iPhone fuels record quarter. Tim Cook called the demand quote unprecedented. Is this all about the iPhone doing well around the world?
Yeah, all about the iPhone, And in some ways it's like an issue of chronology and timing.
Right.
Think about when Apple announces the iPhone seventeen generation and we're all there in Cooper Tino for it, and then it goes on sale when you have the holiday quarter, so you know, actually it goes a little bit beyond that. Yeah, you know, this is where the Bloomberg terminal comes in useful. So that is a big beat. You can just see
it looking at the headline on a dollar basis. But not only is it nine percent above consensus even the top end of the most bullish ranges on how this iPhone would do, we're only about eighty one billion dollars. I think it came in above eighty five billion dollars. So they've done something. Either the phone has got traction or they've done something smart with the timing of it and it's sold well. The bit that's missing, of course, is that that commentary does not have anything specific to
do with Greater China. We know the numbers in Greater China are really good, but how did this iPhone do there?
Yeah, like, is it just WHOA just a good quarter or do was it luck or was it really strategy?
Right?
I've understod I'm super cautious because sometimes we've relied on third party data, like you know, I won't name it, it would be a bit unfair, but there are various third party data sets that say, oh no, Apple's doing really bad.
And knows what you're talking about.
It's okay, okay, I'll stick to my guns, you know. And then Apple comes around with earnings and the opposite has been true on more than one occasion. But this occasion, like the third party data, this sort of incremental and anecdote or of people queuing up for the iPhone seventeen in all markets, but like Greater China, it was kind of there. So that's interesting. Where else do you want to go? I mean this, you know, this is Apple. There's anything we want to go to AI?
Because you want to.
Ask me about the thing that they have nothing to say about that?
Yeah, sure, thanks jam.
Every analyst has really pointed to that. I mean, we can we can talk about the relationship that Apple has with Google and Progemini. We could talk about all the money going to Open AI potentially from Amazon and other companies, about a potential one hundred billion dollar fundraising around. We could talk about Apple relying on third parties rather than building its own Is there a risk in doing that?
I go back to basics, and you know, I kind of rely on Bloomberg's Mark Gumman, who is one of the world's leading journalists when it comes to covering not just Apple, but can Humor, electronics, and in the context of this earnings print. What he's written is probably true that Apple has done enough to mask over or allay the concerns that investors have about a lack of progress
in AI as a product. You know, the reporting's quite clear, and it's been announced now officially, right that at least on the interim, Apple's AI generation of Siri will be underpin underpinned by Gemini. And Mark's reported a lot about the financials around that, right, it's a one billion perannum agreement. We don't we don't and we won't get this sort of announcement like here it is, here's the date it's coming, and this is what it can do until it's here.
You know, that's not how Apple operates.
Yeah, it's just you know, I mean it's pretty like where do you go? Where do you go?
You know?
Here we are looking. I mean, the stock isn't up as much as it was earlier. We were talking about, you know, more than a two percent gain I think at its highs here in the aftermarket, it's just up about three quarters of one percentage point. What is it that they need to do? Maybe on the call? Is it AI? Is it that this is sustainable. This is a strategy. This is you know, we figured out China, Like what is it?
Well, you know that I didn't forgive me because I was blogging. I didn't hear what you guys were talking about just before. But in this very limited earnings release and statement, you guys maybe you went over the risk factors and forward looking.
Yeah, we talked about that. We talked about that, you know, I talked about how you started pointing that out back in May of last year.
Middle in May of last year, I was sat next to the you two in New York studio, do you remember, and we were like, oh, well, that's interesting, and they've never said that before.
But that was only your first report post Liberation Day.
Right that. The only observation I'll make in line with that is that this release also says nothing about the environment for memory chips. And you know, like memory chip prices are very.
High, but their market was so sad, right.
And their margins were pretty good, and there's a scarcity, and that the principal difference is like this, This is why it's so fun to cover hardware companies, and it's a privilege to be a technology journalist when you get access to all these companies and speak to the CEOs. If you're a very big company, you have leverage with your supply base. If a supplier has to choose, I've got this number of things, and I can only send them here, or I can send them there, or I
can split. It helps to be Apple, is what I'm saying. And there are companies that I've covered whose CEOs you know, will privately just agonize over how difficult it is to convince supplies to give them the things they need. So on the call that will come up, you know, the cell sider likely to ask about it.
But you know there are high prices, and then there's Apple dealing with high prices. And when I asked Mark this question about how they were able to successfully navigate these higher memory prices, he said, well, one they're Apple, and two they buy so far in advance, and they buy the components too that go in. So at a certain point ed it hit them right.
Well, it's not just that the memory prices are high. The reason that memory prices are high is that historically memory dram and and flash memory is a very cyclical up and down business boom and bust. You know, That's what Iaan King would say, boom and bust In King leads our semiconductor coverages right at at Bloomberg. And it is correct that Apple's supply chain teams are its secret source.
You know.
That was Tim Cooks whole thing. He was coo like, that's what he was good at. But the reason prices are high is because of scarcity of availability, you know, because there is such demand for the equivalent chips that are going to data centers. And so, like Mark's answer
is appropriate. Apple has leverage and the ability of scale to say like, okay, we have got ahead of this, and one would imagine that their supply chain team is sophisticated enough to have foreseen some of the things that we're now experiencing in that man.
So one one the first thing Mark said to us, I no, no, you were blogging ed and you were you were looking at the results. Was Tim Cook just bought himself time? Tim Cook gets to keep his job. I mean, there's been a lot of questions about succession. Mark says, That's one of two questions he would ask on the call. The other would be about AI. In your view, was was his job not not at risk? But you know there are questions about who leads this company after Tim Cook.
I am not Bloomberg's Mark Gum nor am I right? Is that when Mark did that recent reporting and it's been it's been over a period of time about which executives are now more at the forefront of Apple's future, he was crystal clear in that reporting that there is no suggestion that Tim Cook being replaced or stepping down or retiring is imm and you know that this was
a longer term thing. What I would reflect on is the conversations that I have with people in industry and those that come on the show and talk about it, is you know, Tim Cook is the operator that many people would want. In an environment like this where we still have trade and tariff considerations, the movement of goods between borders from point A to point B is quite difficult. And as we just talked about, you know, like specifically
memory pricing, that's within his you know, his range. This is not me speaking, This is how people would relay
it to me. Mark when he goes on air and when he writes, and again I'm not speaking on his behalf, he would talk a lot more about the product, you know, fresh products reiterated and renewed products and the product pipeline for the future, and right now, I don't know that people are necessarily so worried about that, at least in my world, they are worried about when they're going to get the software bit right with AI.
You know.
So it's interesting, you say AI. It's something we talked about just briefly with Mark German. It's a story that he put out Apple Buys is really AI startup that interprets facial movements. He's like, you know, interesting will help in terms of I guess product development, but not necessarily a big, big deal. But you know, what is the number one question from that they should be getting on the call when it comes to AI.
Yeah, you know, if I had the opportunity to interview Tim Kirk, and let me be honest about it, I haven't had that opportunity or in any other of Apple executive. You know, the big question is in the future, what is the form factor by which we interact with our official intelligence, in particular voice based AI assistance? Right For the most part, I use and I don't know about you guys, but I use chat GPT's voice mode quite a lot on my phone, and I use other generative
AI tools through my laptops. And because I'm a nerd, and because Bloomberg issues me different things, I have my own MacBook and I have a Windows based PC. Right, there are other people that envisage a world where the form factor device, the thing that we interact with is not a phone. It's the glasses per Meta, And look at the surprise upside from Meta's earnings about aiglasses tripling. You know, That's what i'd ask Apple, what do you see in the future about how people use your AI?
So and we have one time for one more question, and we'd be really remiss if we didn't ask you your view on Amazon. This news coming just late in the day, switching gears a little bit still on AI. Amazon talk and talks to invest fifty billion dollars and open ai expandize. This could be part of a one hundred billion dollar funding round, which would value open ai at more than eight hundred billion dollars. When we're talking about a funding round of one hundred billion dollars, I
mean we're talking about just the massive, massive scale. What does it mean that that Amazon could invest this much money.
Well, Amazon probably can invest that much money. You know, what we've seen is most of the hyperscalers that were wedded to one player have diversified, and Thropic and Microsoft have deepened their interaction. And Thropic was very heavily aligned with Amazon. Google and Anthropic have very heavily aligned. Afropic relies on TPUs. Amazon, from a software perspective, has tried to accommodate all the players on its Bedrock platform, which is basically a workplace where you can either train or
build on top of existing models. So the financials are there, like if you if people are watching that are investors in those companies, phone me explain the dilution to me, explain the post and pre money valuation. But open ai needs capital. It is coming from multiple places apparently, and one would imagine based on the reporting that's been done by Bloomberg and others, this is a big, large anchor round before a future IPO as well of some part of the open ai entity.
The scale is just other words, the amounts of money that we're talking about right now.
Yeah, just kind of close our mind. Yeah, all right, we get a run. We know you're gonna be we know the Apple call, what the Analyson investors is coming up in just about four and a half minutes time, and we know Ed'll be on it and our live blog. We'll be tracking all of it at Ludlow. Thank you, Thank you, of course, co host at Bloomberg Tech on Bloomberg TV. Catch it at eleven am to noon with Caroline Hi, another co host. It's always on Bloomberg TV Monday through Friday.
This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa played Bloomberg eleven thirty.
We want to talk a bit more about Tesla.
Tom Ryan is lead equity analyst Global Autos at RBC Capital Markets. Tom good to have you on the program and joins us from New York. I want to start with the sort of the headlines out of the Tesla call yesterday, as somebody who's followed the company for quite a while were all surprised about the models and model acts, essentially, in the words of Craig Trudell, being put out to pastor.
Out no not at all. I think that was pretty much expected, right, I mean this company is moving to more towards autonomy. It's more of an AI investment, right, robotaxi, humanoids. Right, the car business is in the past. Really, we've known about this for a while now. Maybe it's the final nail in the confidence so to speak.
Well, wait, you just said that the car business is Wait repeat what you said about the car business, because I think people still even though they don't value the company as a car company, but you know, it's still thought of by many people as a car company. The car business is what at Tesla?
Yeah, in terms of valuation, right, it's a one point four trillion dollar market cap. Right, the most all of new cars sales could ever be is something like two point seven trillion dollars. They sell two percent of all the cars in the world. Right, So mathematically it's not a car company. Right, How do you get to one point four trillion dollars of value?
Then?
What is it?
Clearly that it's a it's an autonomy company, right, it's humanoids, it's robotaxi. Right, it's not a private car that you and you and I buy and drive around.
Oh, that's it.
You'll never get to one point four trillion dollars of value.
That's because those business segments are already contributing so much to the top line.
She's being sarcastic, Tom, she's being sarcastical.
Look at the FA page on the Bloomberg. You know where they make money right now. Automotive eighty six billion in revenue expected in the twenty twenty six year and then energy generation and stewage that's almost Yeah, it's a little bit more than seventeen billions, So that's where they make it. I get what everybody's saying. And I feel like Tesla's always been like, well, wait, not what we're doing,
but what we're going to be doing. But how long do we have to wait to have it grow into that valuation that is much more like a tech company.
Yeah, you have a long way to go to get there. Absolutely, But I think the way to look at this is not the bottom up, right, how many cars are selling each.
Quarter, et cetera.
But you look top down, what is the market value of robotaxis? It is enormous, Right, It's a much more economical and it's a much more efficient mode of transportation, and it's going to generate a lot more revenues. Look how much you spend on ubers relative to what you were willing to spend on owning a private car. And then the humanoid space, which I don't know if that's the right word humanoid. I think it's better to look at robotics. Okay, so many industries are being upended by this.
The tams for both of these are in the multiple trillions of value. All Tesla needs to do is capture small percentages of this to get to its market capitalization that it has today. So I get it. This is far in the future. But I mean you could said the same thing about a lot of companies. Right, Netflix when it was renting DVDs. Right, it's not doing that anymore. It's doing something totally different, and I haven't years.
Yeah, I think that's a really good looking I think that's a good corollary. And at a certain point Netflix stopped sending DVDs by mail. It wasn't that long ago, But before they did that, they made it very difficult to actually, you know, sort of subscribe to that. They wanted to really push people to the digital video on demand, which is obviously the right direction if you were to do that for Tesla, though, then then why even bother
selling cars to consumers right now? Why not just focus on creating these fleets of robotaxis and work on autonomy, work on robotics, and really go all in there.
Yeah, I think you can't really have one without the other. Right. Remember FSD the software that powers the robotaxis, especially unsupervised, it comes from all the millions of miles and data collected from the cars that have FSD or have autopilot, etc. So it's a flywheel. You need to have the data to build upon that. And then once you have the robotaxis, there is a theory that that could then go backwards and make people buy more cars, and the subscription for
FSD on private cars could be another profit center. So while I do agree that in the year twenty fifty, I don't know if selling boxes with wheels is going to be the meaningful driver of value for Tesla. I don't think it will. I think in the evolution of the company, you need this to build the next generations and to get to these autonomy innovations that they're trying to achieve.
All right, So when does Tesla grow into this valuation I mean, when does the reality growing like match up with the valuation. I'm looking at a pe. This is just one metric three forty five, so three hundred and forty five times current earnings, almost two hundred times future earnings. So how long do we You said it's gonna take a long time. How long?
So my evaluation, right, I have FSD. I look at it at twenty thirty five, ROBOTAXI I look at it on twenty forty, right, Humanoids, I look at it at twenty fifty basis and then I discount those back, right, So you may have to wait a long time to actually see the earnings where it results in a multiple that's a market multiple, right, But that's you could say that about a lot of companies. Right Again, I think the way to look at it is, what do you
think about these and markets? And these you know, robotaxis the market and humanoids is a market, and what penetration do you think these guys could achieve?
Is that captured?
And where the stock is now? That I think is the way to think about it.
Well, the stock right now down about three points seven percent four hundred and fifteen dollars a share. Tom n Ryan thinks so much. Appreciate it. Lead equity analyst Global Autos over at RBC Capital Markets.
Stay with us more from Bloomberg Business Week Daily coming up after this.
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app.
Or watch us live on YouTube. A lot to get to with Lauren Goodwin. She's an economist. She's Chief market strategist at New York Life Investments. She joins us here in the Bloomberg Interactive Brokers Studio. We kind of went through a lot right there, but I want to get to sort of those individually. But before we do that, I just want you to answer for us. The biggest risk out there for markets right now that you see and the.
Economy right now, it's if in a couple of weeks we have an inflation report that shows inflation is moving back up. I think that the reason that the market has been able to digest so many big developments and so many questions uncertainties is because we have contained inflation. If that data looks a little different, then the Fed's dynamic looks different, people's economic forecasts look different. I think it really disrupts the frankly, the consensus that the market has right now.
She didn't say geopolitics.
You didn't say geopologics.
I saw you geopology.
I want to want I want to come back to that, but I want to go back to what you said about inflation, because J. Powell, FED Chair, of course said it pretty confident about the mandate, right, the dual mandate of the Federal Reserve, and in terms of inflation and in terms of the labor market. I mean pretty confident, don't you think I do? And I, for what it's worth,
I agree with him. Okay, our base case economic scenario calls for inflation to stay around where it is, maybe move a little closer to three percent, a little over. That's not a horrifically bad scenario. And that's probably a scenario where you get one or two cuts from the FED this year and they stay put that and for markets in the economy, that's really still a goldilocks backdrop.
Oh louyjah, Because I have to say, going through what he said, especially initially but even throughout, that's what I came to mind, Lauren is goldilocks, like this is a pretty good spot to be in, right.
It is a good spot, and that's why I think that. I mean, look, geopolitics would be a way more interesting and fun key risk to talk about. But when it comes to what really disrupts the market, we've been talking on the desk constantly that six months ago it was impossible to have any sort of certainty or any sort of view. Now it's really difficult to get out of consensus.
Most people are expecting a pretty good growth backdrop, but pretty good earnings backdrop thanks to a FED that's moderately easing, good fiscal policy support out of keep.
Hearing about the tax refunds that everybody's going to get and tax advantages for corporations.
A little bit of dollar weekening, a lot of portfolio sort of diversification and rebalancing. That's our view too, But it's difficult to break outside of that consensus. And I think the one thing that really disrupts the consensus for us, but for the FED as well is if that sort of single idea that we will get a couple of rate cuts and certainly rates wouldn't be moving back the
other direction just gets questioned. I think it also, you know, we talk a lot about the short end of the curve with the Fed's policy rate on FED Day especially, but inflation starts to call into question this conversation that FED is having about independence and really impacts the long end of the curve. Now, so much of not only the affordability question in the US, but also risk assets
are priced off of the long end. And so it's a boring answer, but I think that inflation number is just a key to keeping the market as well behaved as it's been.
So why why aren't geopolitics, to you the number one risk? We have an armada according to the President heading to Iran yesterday, these the President and the Iranians were trading barbs about that. I think has some people concerned that things could escalate, potentially what we saw in Venezuela something similar. We've already bombed that country.
Two parts to this answer. The first is that there's no doubt in my mind that the change in the geopolitical backdrop is meaningfully impacting the way we need to think about portfolio construction. No doubt in my mind this is not about a single administration. This is a fifteen year post financial crisis.
In the flows right starting and elsewhere, and it's.
Been exacerbated by a pandemic and Russia's invasion of Ukraine and all these things that just brought more attention to the fact that supply chains are vulnerable and that you might want technology, healthcare, energy, and a couple of other things at home, and that sort of the competition that that's bringing that matters. That's why we are seeing so many countries investing in and really trying to secure commodities in certain other supply chains.
So when you say those sectors, are you saying diversification here in the US in terms of your exposure? Are you saying also diversification outside the US?
I'm saying that countries and companies are realizing that we had just in time so apply chains for those things. And unlike maybe many other goods and services, those are ones that you have to have secure access to it, not at home than somewhere else. And so that's impacting the way we think about a global portfolio in a major way. But when I think about individual risks, they certainly matter for the societies in which they happen, for human beings, for the way that we think about the
world in general. But when I think about what disrupts the market, if you have US companies printing reasonable profits, then what happens to oil prices when so much energy production has come online in the US doesn't matter nearly the same way that it used to. And so again I'm not saying that it doesn't matter. It wouldn't prompt volatility, but those tend to be shorter lived unless they disrupt that market consensus in the way I was.
But the only thing I would say is those supply chains, right, they don't move overnight. And we've talked to lots of CEOs that yeah, I mean they are thinking about supply chains around the world, like to where they sell. But some of this build, whether it's manufacturing here in the US right to reduce our exposure overseas. None of this happens overnight.
Oh that's right. That's why I think it's become more of a part of the base case allocation question for investors and less of a risk.
Now.
One thing I think, though, that's really interesting about the business business decision that you're bringing up is and I was speaking about this last last night, we had a global roundtable of our investment leads talking about some of these sticky issues, and one of the things that we were speaking to was you have a again a lot of investor consensus around a constructive economic backdrop investment, et cetera.
But it hinges on you know, the top very small percent of consumers deciding that they're still going to spend. It hinges on businesses continuing to make the decision that it is worth investing in these areas that are becoming more and more fragile. It's a little bit of a of a behavioral question, very difficult to answer in the aggregate.
And so though I think that that inflation number is or that inflation dynamic is one of the kept the markets the most stable, you could see how over the course of the year worries could build up.
Again.
It's not our base case, but I think it's a very reasonable question to raise.
We are going to be speaking with Josh Green in just a minute. He wrote the Bloomberg Business Week cover story on Gavin Newsom, who we just heard from with our own Brad Stone in a fireside chat. Governor Newsom said during that chat that markets and their negative reactions to some policies have been a check on the president. Do you agree with that? It's not and I don't mean it to be a political question. It's just like
we have seen just the reality and the reality. But we saw the president, you know, in April said the bond market got yippie. We did see him soften his stance in Davos post a selloff last week, stopped in his stance toward Greenland. People accused him then of that, of tackling on that.
I do believe that the market is an incredibly important constraint on not just this administration, but frankly anymore on the economy. One just to give an example of something that we've been researching really in depth, is the concept that you've spoken about a lot of the key shaped economy. You have sort of wealthier consumer spending, the lower income consumers really really struggling in this environment. And people say, well, that doesn't really matter for the market. I beg to differ.
Not only has it impacted sort of the political backdrop in a meaningful way, but what it's done, more importantly to your question, is it's brought what happens in the market closer to what happens in the real economy. If we see the ten year run up and a ten to fifteen to twenty percent correction in the S and P five hundred relative to wealth for these wealthy spenders two years ago, that's not a big deal. The market's
been so constructive. But if they pull back spending from their pockets by five, ten, fifteen percent as a result, that's a major hit to this economy right now. That's a major change in people's expectations.
I love you because I feel like we all so many people point, well, the market another record, this is great, this is all good. But we've also done some reporting about how much of the consumer spending is that wealthier group. One last question, Chris Waller fed governor one of the descents yesterday, the other one Stephen Myron, which we expected to be a descent. Having said that, is that his move in your view, that he really wants to be fed chair.
I have no idea, but I do think that we're very lucky as a sort of investing populist that right now there is still actually real debate about whether the policy rate should be one or two twenty five bases.
So that doesn't say to you that maybe that's a sign of the FED not being independent. Not yet, Okay, not yet.
That's what I want to ask that it's such an important question, but we're still in the range where debate is reasonable.
Yeah, debate's good. We love debate.
Lauren Goodwin, economists and chief market strategy at New York Life Investments, joining us here in the Bloomberg Interactive Brokers Studio.
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