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We want to.
Welcome Star Stage and Screen Creaty Groupda. She's a markets reporter for Bloomberg and she's here doing some work on an Amazon case Federal Trade Commission. It's tough to be a big tech and trying to get bigger.
Is in it? It is?
Look, this is my kind of weekly obsession this week. I'm traditionally Okay, it's reporter, as you know, But to me, I think one of the big stories that perhaps isn't getting enough attention is just how much momentum the FDC is getting. Some of the biggest cases against these big tech names are coming from the FTC, and a lot of them filed just this week on Amazon, the third one on Amazon. The big one I've been keeping my eye on, though, is Microsoft and Activision. Yes, and bear
with me. Fun fact my very first speed at Bloomberg was video game stocks and cannabis stocks.
Really, I know, I.
Didn't know that.
I know, it really tracks with my image, doesn't it have a cool be It actually was, And this was back in twenty eighteen, when you know, these weren't big covered sectors just yet. So Activision kind of holds a close spot in my heart. But I think what you really have to keep in mind here is that this is one of the biggest tech deals in history, sixty nine billion dollar active acquisition of Activision getting a lot of flak for basically potentially hurting consumers. That's kind of
the new definition of anti trust. Now, just how competitive does it get? If I can put some numbers on it, because you did start to hear testimony from Sati Nadella, the Microsoft CEO, the Activision CEO Bobby Codec as well, and one of the big takeaways was how much market share does Microsoft take in the cloud gaming space, which is very nascent by the way, if you take over call of Duty vertical integration essentially, and one of the chief kind of complaints came from the Sony PlayStation CEO.
They're saying, look, if you take call of duty off our consoles. That's going to one erode our own kind of market dominance in the console market. But two, it's really going to hurt consumers because at the end of the day, you don't just pay fifty to one hundred bucks for the game, you have to then pay two hundred and fifty to three hundred bucks for the console as well. And you know you could have gamers up in arms about that.
Yeah.
Yeah, So when does Microsoft say this has just gotten too hard and too expensive, let's just call it.
A day on this deal.
Yeah, well, that's where I think this decision is so crucial. Look, we've had about five days of testimony from both sides. We've heard closing arguments yesterday. We are expecting now to hear from the FTC Commissioner soon as well as well as a judge who is ruling the case. Basically, the deal here is the FDC has filed an injunction, which basically means they need to if the FDC grants it, or excuse me, if the federal court grants it, they need to then be able to take this to a
proper trial, a proper hearing. That's not what's happened yet. If it is taken to that proper trial hearing, that is three years of extra administrative costs plus a three billion dollar breakup fee. Now, in the context of Microsoft, three billion dollars is not that much, but the added kind of gains you've seen in Microsoft stock off of the potential of this deal is enormous, and that's where
you see a bigger loss. Basically, the chief lawyer for the Microsoft side said, if this injunction is granted, we're going to drop the deal because the closing date is July eighteenth, and there's no way you can get a hearing done before that.
So so when do we hear about that injunction.
We're expecting starting as early as Monday, but given the holiday, it might be later in the week.
And so is there a chance that this ing could actually go to trial before you know the kind of that closing date type of thing there, and we'll get a resolution one way or the other.
There is it might not go to trial, because basically Microsoft is saying is if they there is a push to go to a trial, they're going to drop the deal altogether. And if they don't grant the injunction. Traditionally, the FTC says, if you don't get the adjunction, we're going to hands off on the deal. That's been the historic trend. But Lenacon is a different She comes that tech really hard. She has been for a while. So anything can happen.
Here, really, And how does this impact the AI sector as well?
Chredy, what's the potential read through? Yeah, well, when we talked about cloud gaming, look, cloud gaming is something that is brand spanking new in the technology sphere, and it's why Microsoft really wants to get their hands on it as well. Here's what else is brand spanking new artificial intelligence and a lot of that is happening through these acquisitions of these smaller AI players because it hasn't grown
to that ability yet. And remember acquisitions have been kind of frozen for a lot of these big tech names for a while. It's why they're sitting on i think one hundred and fifty billion dollars of cash combined with all the kind of big tech players because they're trying
to avoid that scrutiny from the federal government. So the concern here for the broader tech sphere and the broader benchmark is that if you start to see some sort of precedent that the FTC wins here, then it could hit every deal that big tech has had and might potentially have in their race to really expand on AI.
Yeah, I mean that is the big fallout. Yeah, And I think we're kind of the market's kind of already pricing that in. I don't think the market anticipates the market. The government regular is allowing big tech to do anything more of size, right.
Nothing more. But then they also don't think that they're going to make progress on kurttailing what's already been done, and that's really where the market.
Risk is, all Rightty, great reporting, Thank you so much for coming in here. Kritti Gupta. She's host the Bloomberg Surveillants Early Edition for Bloomberg News and just doing some work here on what is a huge topic in Silicon Valley, in technology, in M and A in general, which is can big tech get anything done in terms of mergers and acquisitions? And boy, the government's really clamping down hard on that after you know, decades of a soft touch.
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First half of the year in the books, and you know when this day closes here, So we're looking at it. A nice big move up in this market. Fifteen percent plus and y s and P five hundred. Matt Stucky joins us. He's a senior portfolio manager at Northwestern Mutual. Matt, what do you make of this market here? What do you make of the first half here? With like no hindsight, Look, no hindsight.
This is a surprising result for the front half of this year, and so put me in that camp of those that probably were caught a little bit off guard with how strong this market has been. Look, I mean the Nasdaq up until today is up forty percent year today. That's the best since nineteen eighty three when what a
Feeling was leading the radio charts. And so this is definitely unprecedented just in terms of what this market's done in absolute terms, but also just in terms of the context of you know, we're in the middle of a fed rate hike cycle that they're moving pretty aggressively with. With there's you know, a good amount of fear out there in terms of the recession probability, and we think that is still something that's all on the table, and so pull that together, it definitely is a surprising result.
So to what extent, Matt, are you concerned about lack of breadth in the rally in the first half of twenty twenty three? Paul was citing earlier some research from Bloomberg Intelligence showing that that breath may not actually be as big of a problem as we tend to talk about all day here at Bloomberg. Is that something that's on top of mind for you?
It is, you know, just a I was actually looking at this topic this morning, and you know, if last October was indeed the low for this this cycle, and you know, recession risks were probably priced at that point, you would expect a pretty sizable rally off that low level and broad based participation off that level. But if you take a look at kind of what's happened since October, the equal weighted S and P five hundred for one hundred ninety days out since the low is up about
fourteen percent or so. The overall market, which is cap weighted obviously, is up about twenty four percent. But if you contrast that rally off the lows of fourteen percent against prior recession trough levels, we're in weak territory on average. If you kind of go back through each recession kind of what was the low and what was the rally from the low after one hundred and ninety days, that average rally is about forty five to fifty percent or so.
So we're quite a bit underneath that.
So broad based participation is not quite there, and on an equal weight to basis, it's it's telling you a different story just how narrow this leadership has been, which to me makes me question some of the sustainability.
All Right, so Matt, let's just assume I was overweight the magnificent seven stocks here this year. Now I'm sitting on this big game. I'm looking to reallocate here inequities. How are you kind of allocating between the various kind of ways to play this market? Large cap, small cap, growth, value, How are you guys kind of thinking about that?
Well, we're shifting a little bit towards value, a little bit, a little bit towards small and madcap, which is a little bit you know, I would say it's it's not necessarily addressed for the economic environment. Yet, because we do think of recession is in the cards for later on this year and into twenty twenty four, those asset classes are a little bit more economically sensitive, you know, to
the macro. But the reality that we think is priced into those asset classes to us gives us some compensation for the risks in front of us.
You know, look at small.
Cap as an example, it's just going to dig into that for a little bit. Earnings estimates for the four to twelve months or down about fourteen percent, and we're paying just a thirteen x multiple for those reduced estimates. Contrast that to the S and P five hundred, which have actually seen earning's revisions start to rise and they're only three percent off the all time highs, and you're
paying nineteen times earnings for that. You know, valuations aren't a very good short term indicator for performance, but over the long term, where we try to align our time horizon with our investment and portfolio, they do start to matter. And so we think we can probably weather the storm pretty well in something that already is pricing in a little bit of economic weakness, which is what we expect as we kind of move throughout the rest of this year.
But you know, broad outside of equities, we do think fixed income is attractive here, and we've allocated more of our portfolio towards fixed income for those that have more balanced portfolios. Part of that is just due to an overall outlook of again recession, but also inflationary pressures are
coming down and religious rates are rising. These are some of the highest real interest rates we've seen in over a decade, and so for investors that are out there that have balanced portfolios, we do think fixed income is attractive.
I want to talk to you about this breaking news that we've got on student loan forgiveness from the Supreme Court throwing out Biden's proposal on student loan forgiveness. There Biden's saying that he's going to come back with a different plan. But let's say that those student loan payments are not forgiven. And of course the student loan payments are resuming after a three year pause. JP Morgan says that's going to cause a hit, particularly to core retail
sales growth. Are you concerned about the return of student loan payments impacting earnings this season?
We are a little bit concerned about that.
I think if let's just use a hypothetical situation here that you know, payments are turned back on, and what's the cost of that to the economy. It's about you know, one hundred and twenty five billion or so worth of consumer payments that are going to be reallocated towards meeting their student loan obligations. And of that subset of those that are going to be required to start repaying, think
about the propensities to spend of that population. You know, typically these are younger people, these are people with lower incomes relative to the rest of the population, and the propensity is spend is very high. So the direct impact of the economy, we would think it probably punches above the way a little versus that number, and so you know the direct impact, Yeah, it's probably consumer related businesses, Retail sales definitely collecting a lot of the impact.
Hey, on your fixed income comment, Matt, talk to us about duration. Can I go out from the curve? I mean, I'm I'm very comfortable sitting here in my two year treasury four point eight seven percent. Some people are saying I got to get out of my comfort zone a little bit. And go out in duration. I don't know about that. What do you think?
It's tricky right now? You know, right now, actually one year treasury bills treasury bonds are at five point four one percent. That's twenty bases higher than we were prior to the regional bank crisis that flirted up during March. And you kind of think, okay, back then, the mark was expecting a rake cut in the next thirty days
when we started to see Sippy fail. Now there's no cuts priced in for the next six months, and this increase is probably we're going to get two more hikes from the Federal Reserve, and so kind of think, okay, interest rates are pressured upward from here, and maybe even the two years pressured upward from here. But we kind of go through history and hiking cycles and cutting cycles. The Fed, you know, when they're forced to cut, doesn't
just cut by twenty five basis points. Typically that first cut is one hundred and fifty to two hundred basis points. If they have that in the bag, that's usually due to some sort of economic event going on, you know, some sort of form of a recession.
There's a crisis somewhere.
I'm just going through history, and we're not calling for any kind of episodic situation that would force that, but you know, we do need to probably think through the likelihood that what we're seeing that's attractive on the front end here, how long that's likely to persist. And so we're more intermediate and that's what we're recommending to our clients, where we get that nice balance between duration and reinvestment
right for our clients. And you know, it is tempting there to take those attractive front end yields, though I understand that exactly.
All right, Matt, thanks so much for joining us. Appreciate getting your thoughts. Matt Stuckey, Senior portfolio manager for Northwestern Mutual.
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Madison Mills, Paul Sweeney. Here in our Bloomberg directive Broger Studio, Busy, busy day here, we need to take some time out here and get the latest on the geopolitical issues, particularly as it relates to Ukraine. And nobody better to speak to about this issue than Mike Rodgers. Mike is a retired four star admiral with the United States NAVING. Of course, we thank him for his service. Admiral, thanks so much
for taking the time to chat with us today. I would love to get your view of the current situation on the battlefield in Ukraine.
Sure, and thanks very much for the opportunity.
Paul. You know, as I look at it, I don't think either side, even the aftermath of the Wagner Group activities of the rebellion, neither side has yet shown the ability to deliver a knockout bow. Even in the midst of this disarray within the Russian and this side so to speak. Is this mutiny was ongoing, Ukraine wasn't unable to really take advantage of it.
They're still in the early stages I think of their offensive.
We'll see how that plays out, but right now my assessment would be we're likely to see a kind of continued stalemate for the near future at least.
What is your takeaway from this? Just stunning news of what happened within Russia over the last week with the Wagner Group, and most specifically, what do you think that means for Putin standing within Russia.
Well, first of all, I think at highlights there's probably more fragility in the Russian system than most of the West has recognized. If I was Putin, I'd be very concerned, and I'd be concerned about a couple of specific dimensions. Number One, you saw almost no reaction from the Russian
military or the Russian security services to this meeting. They literally seemed to sit on the sidelines and watch, and the Wagner Group was able to relatively quickly move several hundred miles, occupy Rostov and a few other locations with in southwest Russia, and then move on to Moscow before ultimately I think Putin cut a deal to get this thing to stop, but the fact that they didn't respond that would worry me if I were Secondly, if you look at the videos of the Wagner Group as it
moved into Rostov, the largest urban area that we saw them in, are you saw people on the streets literally cheering?
Yep?
Now, not because they.
Thought forgoes in The leader of the Wagner group was trying to overthrow Putin because he wasn't. But the idea that this strong individual who's been leading a group that's been relatively successful by Russian standards of the battlefield of Ukraine. This individual was saying, Look, the reason we're not winning his war is because of incompetence within the defense ministry
and the Russian senior military leadership. And therefore, I Progozen are going to put enough pressure on the Putin that he's going to remove those people and will ultimately win this war.
Because Progosen had been an advocate war, he had been arguing that it was an appropriate action. The fact that so many people were cheering this.
If I was Putin, I would be thinking to myself, this is something I need to be thinking.
About in terms of what does that mean? Why is the public responding so positively to this?
So to speaking, well, what about the global response. I'm curious what you're thinking about to what extent this reaction to Putin on the ground is going to impact the ability for other world leaders to continue to rebuff him and rebuff Russia when it comes to things like sanctions and other measures that other global leaders have.
So I think it doesn't change the broad dynamic where the West, US, EU, NATO, and a handful love on the nations remain committed to helping Ukraine, both through the provision of weapons, through assistance, and through these sanctions that are being imposed on Russia. I think all of those nations remain committed, and this activity of the last week doesn't change that. Likewise, I don't think China, the biggest champions so to speak, of the Russians, is likely to
change their position at least now. I think most of the major outside parties are trying to get a sense for was this event unique, was it a one off? Does it suggest that there's something more foundational or problematic, that there's greater weakness than the Russian system that we've fully realized. So I think right now you're watching people observe this and trying to see does this activity that we watch.
With the Wagoner group, does it start to spur others.
In Russia to startlingly start talking about, Hey, we need to stand up, we need to stop this war.
We'll see. I think we're going to see anything immediately, but everybody's clearly paying great.
Attention Admiral, is there any I guess, weaponry, armaments, or even sanctions that could be provided by the West that could tip the scales materially in the favor of Ukraine. I'm thinking F sixteen fighter jets. Is there anything out there that could be provided that would make a big difference?
Well, I think, though I don't want to speak for Ukraine, but my sense is if you ask them, what's the greatest capability that we wish we had that we don't have right now, I suspect their argument would be, give us long range weapons that would enable us to strike targets deeper within Russia. That would increase the pressure on Russia both domestically, it's populous, would see the war start
to feel the war. Putin would be more pressured, and it would also enable us to try to stop the flow of reinforcements, munitions, support into these Russian troops in Ukraine. We could hit the targets deeper behind them, enable us to isolate that much more effectively. My guess would be that would probably be the number one thing they would be looking for it at the moment that you asked.
The West has broadly said that would be really escalatory. We're not committed, We're not prepared to do that.
But if you watch how this is unfolded over the last since February of last year, we're coming up now in fifteen sixteen months. Yeah, we're now providing weapons the West is in the US that when this started we initially said.
Who this would be escalatory. We're not going to do that.
Like as you highlighted, you know, at sixteen or fighter aircraft. So the war is definitely in a different place than it was when it started, not unexpected as.
We kind of near this war lasting for a year and a half, which I feel like so many of us never anticipated. If you had to put a timeline on it, when would you say that this war is likely to wrap up? And how much acceleration do you think we'll see in that given the events that we saw in Russia for the weekend.
So first of all, I wish I could tell you I knew an exact day, but clearly I don't. My gut tells me it will be longer than shorter. So for example, I would not expect.
Anything before the end of the year at the earliest.
Personally, Now, what are the things that might change that dynamic, We'll see how this Ukrainian offensive unfold. If it in fact leads to great success on the battlefield and they are able to push the Russians either out of or back closer out of Ukraine or closer back into Russia itself, we'll see if that plays out. We'll see if Putin makes an assessment given what we've just watched with the
Wagner group. Hey, perhaps the conditions for me domestically within my own system in Russia are not quite as strong as I thought that where maybe it's in my best interest to try to declare victory, so to speak. But traditionally conflicts then for one of three reasons history. Either what happens on the battles, one side gains great advantage or another side is really weak.
It feels but we've just got to stop this.
The second scenario, generally historically is political pressure. Again, one site either feels I can't take this pressure, We're losing the my populaces against the war. We've got to stop at the prices too high. And then the third is some external party generally intervened. Historically, it might have been the United Nations, it could be China, the US or others who basically put pressure on the primary combatants in
the conflict. At the moment, none of those three scenarios battlefield dominance or failure, political pressure or or the major external parties supporting the primary combatants, none of those three things right now looks like there is any indication that they're going to bring.
An end to the battlefield conflict anytime soon.
Said ambassador. Is there any reason to believe that Putin still does not enjoy the support of a senior military leadership.
I would not draw the conclusion from this activity that Putin is imminent danger of being replaced removed, whether it be a coup for the military, of the security services, the only arts, et cetera. However, what we have seen
should clearly show both ourselves as well as Putin. Perhaps you're not as strong as you think you are, and given that, maybe you ought to step back and rethink that the value of continuing this conflict, which you started in the first place in a directed violation of sovereigny international law, and it's.
Time to end this. We'll see what if this changes.
Putin's calculus in the lot to watch in coming weeks and months.
All Right, Adamiral, thank you so much for joining us. Mike Rogers retired four star admiral for the US Navy and a proud graduate of Auburn University, so we appreciate getting some of his time there.
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Madison Mills, Paul Sweeney. Here in the Bloomberg Interactive Brokers Studio, we've been breaking down a lot of the rulings we've received from the Central from the Supreme Court over the last several days week and a lot of smart people in there helping us understand what's going on. Today. The Supreme Court throws out President Biden's student loan relief bill, and we want to break that down a little bit more,
and we've been talking about it all morning. We're joined right now by Bloomberg at Legal analyst June Garosso and Bloomberg Hire Ed Financial Report at Janet Lord. They join us here in our Bloomberg Interactive Broker Studio and on zoom from Washington D C Ryan Tige Beckworth joining us that covers the White House and politics. June, let's start with you. You've had a few minutes now to take a look at this ruling here. How profound is this ruling by the Supreme Court, How wide ranging may be.
So we're talking about the student.
Loan Yes, we are here, so many things.
It happened today and notice all by six to three votes the conservative majority of flexing their town. It's it's very profound and the I think the Supreme Court really the Conservatives went out of their way to find standing, sort of bent the rules a little bit to find standing in this case because they said the states didn't have standing, but they used a Missouri loan servicer, by law, has to give some money kick somebody back to the state.
And they said that because of this, you know, Joe Biden, for giving student loans, that loan services would lose money and so Missouri would lose money. So it was really a tenuated argument. But I mean, this is going to have profound effects on all the student loan borrowers. And I know that President Biden is supposed to announce new action, but I'm trying to figure out what action he could he could actually you know, put forward that would surpass.
Well, let's go to you, Ryan, you're done in DC. You're talking to the folks down there in the White House in the administration. What do you think the president can do?
Yeah?
I mean he's always had the power to do smaller and more targeted things, and I think if you read the decision here, the majority opinion says that its main beef with this is the unprecedented scale, so he can continue to do these sort of smaller targeted efforts that specific groups of people who have student loans. I don't know. Advocates want him to just you know, redo the same thing, but with a different rationale, not relying on the pandemic
as his excuse. And I don't think he's going to do that, but I do think he'll offer up a bunch of other ideas and then I think we'll see this become a push for Congress to get involved after the twenty twenty four elections.
Yeah.
Well, Ryan, to your point, this has been done previously by politicians across the aisle for a variety of different individuals and communities. The Doe forgave six billion dollars for defrauded students. Trump wiped out debt for disabled veterans. So going to you on this janet, are there some smaller moves that the Biden administration could make to get around some of the Supreme Court challenges here when it comes to specific groups of students that could get their debt forgiven.
Yes, you mentioned the forgiveness for for profit schools the Corinthian that was I believe it was six billion dollars. They've made the public service loan forgiveness program much easier. That was a very difficult way to get your loans repaid after ten years for working in the public sector. They've already been trying to make things easier. So there are ways, but it's not going to be the blanket
ten thousand for everybody. And Elizabeth Warren has already come out to say the fight is not over, that the president has more tools and he must use them, because the advocates have been pretty you know, strong in their in their language that they want something. However, you know, probably the bigger impact is the twenty thousand dollars on Pelgram recipients that would have had a bigger impact on their lives. Certainly, Elizabeth Warren had been pushing for fifty thousand,
which was not politically tenable. But the question is, if we talked about earlier, this does not solve the root problem of the increasing cost of college. This is a one time fix for ten thousand dollars for most borrowers. Doesn't aggress the cost of graduate school, which is, you know, the people with the largest balances are people who went to law school or other graduate schools and borrowed over one hundred thousand dollars, and that doesn't do anything to
change that. Calculus and frankly colleges were never on the hook for this money.
Yep, exactly. The last of the sweny offspring, the fourth is going to start as freshman year. It is all in numbers to them eight. It is uneven relative to my oldest that's been inflations crazy. June, let's step back from the court. You mentioned a six to three aspect of it. As we step back from and just look at it in too totality, what's your take on this court here?
Well, I think that this week really says it all because during the term there was an opinion here or opinion there where you think, oh, well, they're coming.
That's what I was thinking.
And in the last week, which is when they usually hand down the most controversial issues, you had six to three decisions which struck down affirmative action, which got rid of President Joe Biden's loan forgiveness, and which restricted rights of LGBTQ people. So I think that you're seeing the
conservative majority really flexing their muscle. They're not afraid even though we're at a point where there's so much questioning about the court and we've seen these ethics issues where were the public there's no accountability from these nine people. They can do whatever they want. Do we look what they're doing?
Did we?
Or do we see it on the mirror image? When the Democrats have and I can't recall when that was or whatever, But I mean, I'm not a scholar. What if the Republicans had or if the Democrats or when the Democrats had a six to three or five four, then they do kind of the same thing.
I don't remember things like this that. I mean, there were some things, you know, there was affirmative action there, but there's things they're taking away rights here. That's the difference. The Conservative majority is taking away rights, limiting them. When Democrats were in the majority, they were giving rights, and of course the conservatives objected to that. But abortion is a key example, and that also happened the last day
of the term. Just think about it. They wait for these decisions the last day of the term, then they all go off on vacation. There was a story about one justice that used to have the limousine waiting outside the court and once the opinions were ready'd get and go off on vacation. And they try to sort of insulate themselves from the backlash.
Well, and on the last night, five month two right, I've forgotten, Yeah, June, I also really quickly want to get your take on the sort of conflict that we're hearing amongst the justices. In the descent. It feels to me like we're hearing more infighting now than we've ever heard before. Does that feel right to you?
Yes?
I mean it's not right, but it is true.
That's a correct description rather, yeah.
Because and you know, when the justices read a descent from the bench, that's sort of a move showing that they are really really upset about what's happening. And for the last two days, Justice Sonya Sotomayor, who leads the liberal wing of the Court, has read descents from the bench, and an interesting thing is in her descents usually they
say I dissent respectfully something like that. She's just saying I dissent in her descence, and I think that and there the descents are really biting, and you see that in some of them. For example, in the affirmative action, Justice Katanji Brown Jackson, in the first black woman on the Court was sort of having a debate, nasty debate with Justice Clarence Thomas, who's made it his life's mission to get rid of affirmative action. So yeah, you're seeing a lot of fissures.
All right, Amazing stuff, amazing reporting. Thanks guys for joining us here, June Grasso, legal analyst and Janet Lauren higher education finance reporter, as well as Ryan Teagbeck with down in DC with the political Angle.
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Anna wom talk about a smart voice helping us out. Chief US economists with Bloomberg Economics Joints is here. So let's step back and what's your takeaway from the eco data we saw this week and last week what we heard from the central bankers here? You plug that all go into your model, which I know you've got a model. What does that do?
Well?
You know, I think the tension between what markets belief and the FED chair power wants the market to believe there's still just this DUDEO Powell wants us to believe that there's two more twenty five bits hike coming. Market is pricing in only one more hike. And you know, Paul, the student debt forgiveness today is interesting because it does shape off some a couple of tenths of percentage point
off inflation and the student debt. Yes, and it so we estimated last year that the student debt forgiveness would have added point two percentage point to CPI for each year. So you know, looking at an inflation for the rest of the year, because that really is what will what
will determine where Fed funds rate would go. We think that the resumption of student loan the payment this August, and on top of that, this student debt forgiveness program being invallot now that it would subtract about twenty BIPs from core inflation. And also the student debt forgiveness primarily
affect people on the forty to eighty income percentile. And you know, we wrote earlier this week that the bottom forty percent of households have already exhausted their excess savings, so those folks are seeing their credit card debts run up. And now the forty to eighty percent, tell by income, those folks are also having to see their finances further stretched with student loan you know, resumption payments. So I think that a broader stretch of this economy are experiencing
headwinds in the rest of the year. This is why we still think a recession is going to happen in the second half of this year. And I think that Powell will have a hard time con visiting market that there's two more hikes coming.
Okay, but doesn't the resumption of student loan repayments and a isn't that going to be a bit deflationary because the consumer is going to be struggling a bit more and therefore perhaps that does the job of the FED a little bit more for them.
Yes, that's exactly what I meant. So yeah, with the forgiveness program invalidated that it shoots subtract about twenty fips per year from inflation.
But we're still seeing that may not be enough to do the job for the FED enough for us to have this perfect soft landing scenario.
Is that what you're saying, Well, I think a recession is going to happen because there's there would be five hundred there's five hundred BIPs of rate hike in the pipeline and there's another twenty five bps likely coming in July. So in the second half of this year, you're going to have five hundred and twenty five BIPs of rate hike in the pipeline. So that should be sufficient to push the economy into your.
Session, Anna, with all your education, all your experience, can you explain what biden Omics is to me?
Biden Omics is about overheating the economy. And while there are short term gains, and there are a lot, and you know, it's really up to Congress to debate whether it's worth it, because you know, for many households, it's totally worth it. On employment rate for minority are at historical lows and many people. You know, it affects many people.
But at the same time, there are long term costs of higher inflation, is said, having to do more, potentially putting pushing the economy into recession, which could have long term term effects as well on many households. So ultimately it depends on the It's up to the politicians engaging whether this is the right thing to do.
Anna, you have an amazing story on Bidenomics on the Terminal that I read earlier this week and could not stop thinking about all week, about the three major tenth pole pieces of legislation he's been able to get through so far as president. Can you talk to me about remind our audience those three big pieces of legislation and just how much money those pieces of legislation are throwing into our economy.
Right, So aside from the American Rescue Act, right, there's on top of that the infrastruct bipartisan Infrastructure Bill, which is bipartisan, and that bill is about to generate five hundred and fifty billion additional spending on highway and American infrastructure in the next five to ten years. And the second one is the Chips and Science Act, which is also going to add additional about two hundred billion or so in spending and text subsidies in rejuvenating American manufacturers
in chips. And then finally there's the Inflation Reduction Act, which really adds about four hundred to five hundred billion of spending over the next couple of five to ten years, but also finance it with higher taxes on corporate and high income individuals. Altogether, whether the effects of these numbers
look very large, they are going to be spread. Spending is going to be spread across a long period, so you know, the economic impact of it on a per year basis, the gain is small, but over time it's the you know, especially with Infrastructure Act, productivity is going to rise. You know, when people have better highways that get to work faster, it only get stuck in traffic.
It's better for a productivity. But I think the ultimate cost is how much does it further overheat the economy at a time where where capacity of the economy is running up to the limit already and you're adding extra pressure on it, like for example, the Chips and Science
Act has stimulated a lot of construction spending. The money hard on this is that you know, constructure manufacturing spending that skyrocketed this year from ninety billion last year to one hundred ninety billion this year, and that will generate, by our estimation, about four hundred k additional jobs in construction. And it's adding to the pressure in labor market at a time where the labor market needs to cool off. So I think I think the overall the impact of
the well, it has noble intentions. Whether they're unintended short term consequences is another matter.
So, and it's just about thirty seconds or so, what's the greatest risk in your mind, persistent inflation or recession?
Persistent inflation because that and worst of actually both persistent inflation and recession than y staflation.
There you go, all right, I mean that would be bad. That would call I don't think you guys call that stagflation.
I don't know.
Anna Wong, she's the chief US economist for Bloomberg Economics. She's been great for us. She was really the first one on the street to really talk about higher rates for longer, and boy was she right on that. So here we've got the FED still thinking about you know, one maybe two more you know, FED rate increases. That was not what the market was thinking about, you know, six nine months ago, and and and her team were way out front and saying, hey, kids, you got to
really think about that. This FED is going to keep rates higher for longer.
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Wilson, Paul Sweet here in our Bloomberg Interactive Broker Studio. One of the stock stories of the day clearly is our good friends in Coopertino, California. Apple stocks up one point five six percent today. That gives it a market capitalization of just over three trillion dollars, all time high for the stock of forty eight percent year to date. All is good in the world of Apple. Let's break it down a little bit and see what this means
across the board. And we're going to do that with Anna rag Rana, he's a senior tech and also Bloomberg Intelligence. And Mark German, a chief correspondent on Apple and tech with Bloomberg News. They both join us via zoom.
Mark.
Let's start with you. We've been talking about the stock. I'm a stock analyst. That's kind of how I think about it. Investors and stuff like that. Talk to us about the people in Kuopertino, the employees at Apple. What does the stock mean to them? I would think, like most other big tech companies, they get a lot of stock in their compensation. What's the feeling when you go into their new futuristic headquarters in Kupertino.
Yeah, thank you so much for having me. Good to be here to talk about this milestone for Apple. You know, there's been a wave of departures from Apple over the last year or two. There is the post COVID quitting that you saw happen. People trying to reevaluate their careers, people wanting to go elsewhere to potentially make more money. And as you said, a big portion of Apple stock packages or pay packages or stock right you can have stock anywhere between twenty and sixty percent, even up to
seventy five percent in some cases. Right, and so stock is a key reason some.
People have left.
They felt that the stock growth has stopped or slowed. They feel like there's more upset in other companies. But since twenty twenty two, at the beginning of twenty twenty two, the last time we were in three trillion dollar market cap territory, it has climbed pretty steadily back up to where we are today, just over three trillion dollars as of now. And I think that's going to show employees that maybe it is best to stick around.
Maybe if you were thinking about quitting.
In October when stock's best on the RSUs, the best, the restricted units best, maybe you don't do that. Maybe you hold off for a few more years. Maybe you stick it out, maybe you ask for more shares. Right Because clearly this Apple stock is a worthwhile investment, one that has become rock solid and even more solified over time. So I think this is a positive thing for Apple
and it's employees. But also, you know, employee retention is one of the key issues right now at Apple and and other technology companies, and this helps solve that at least for the time being.
Well, honoron, come on in here, because City is saying that Apple has another thirty percent upside with already forty eight percent gains in the first half of twenty twenty three.
Here, do you think that the sky is the limit for Apple? When are we going to see the peak?
Here?
You know, I haven't seen the City report, but are they saying over the next twelve months or the next ten years? Because you know, one could make the argument that, yeah, the stock should go up over a long period of time, but you know I can't make that judgment call over a twelve month period trankly all.
Right, So Anrarak, just give us a sense of what is even after a forty eight percent increase this year, what's the bullcase from here?
So you can look at two ways. One is, are people you know, looking at Apple as a proxy towards the US market and that's one of the reasons why people are getting into it with you know, inflation coming down, employment rates are very good, interest rates are relatively low, or you're looking at the potential for some of the new products. But you know, in our view, as I've said in the past, I think iPhone really is the
big story for Apple. I think it's going to remain that at least for the next five to seven years because globally, you know, countries like India, China, Brazil that has a large, large population and the population is getting richer. You know, they once they hit a certain point, they are more you know, possible they're going to go for an Apple device rather than an Android And that's really the growth story in our view.
Hey, Mark, you know you think about India that Anorak just mentioned and I hear India, you know, mentioned from a lot of companies as an area of growth. You know, maybe China's kind of closed itself off or closing itself off, and so we're looking to India. But I think for India, don't you have to have a lower priced product to get into that market? And that doesn't just seem to
be Apple's kind of strength here. What do you hear with Nkoupertino about how they might want to you know, really grow in India.
I mean, the iPhone has been a failure in India, right if you're looking at it in terms of numbers at this point, right, it's been a failure. It has extremely low market share compared to many of the other handsets there. And the signals that Apple has been giving over the past several months is that we want the consumer to come to us, we don't necessarily want to
come to the consumer. And what that means is they're talking about holding pricing firm right and having consumers come to those prices rather than lowering prices and coming to more consumers. And as on a Rug said, Apple believes in this growing middle class in India. They believe people are generating more revenue and money in India and they want them to be able to spend more money on
their devices. Apple believes their phones are indispensable. They believe the brand is a premium brand and they don't want to impact that brand by lowering pricing or releasing cheaper models. I personally think they should. I think they could and should have already released an iPhone between two hundred and three hundred dollars. Right now, the cheapest iPhone is about
four hundred and fifty dollars with five gene subs. That's the latest iPhone onc When the next generation comes out, they can easily tag or drop one hundred dollars off that and make it an iPhone here towards India, I'm not sure they're going to do that. Instead, they're creating more installment plans, more financing plans, different promotions, try to keep that high end brand, those high end price points compared to the Huawei and show me devices you see
in India and have consumers come to them. So I don't see that's the endpoint changing anytime soon, though it should.
Well, Apple has an update on its ten pole product coming in the next few months. Mark with a new iPhone update. Talk to me about what we can expect from the iPhone fifteen and fifteen pro lines heading into this fall, and to what extent does Apple have pricing power for those upcoming releases.
Well, I would say that this iPhone fifteen launch happening in the first half of September is one of the key drivers to Anorog's point about why the stock is going up. Right, You typically see this end of June early July period. Analysts and shareholders and investors are anticipating the new iPhone launch that's happened same month for the last twelve years or so, right, and so they're really
excited about that. This is going to be a larger iPhone upgrade cycle because you're going to see bigger enhancements to both the low end models and the high end models, which something which is something Apple hasn't done since twenty twenty with the iPhone twelve and at five G. You're going to see big camera improvements as well as screen improvements the lower end phones, and on the higher end phones,
you're going to see a new titanium frame. So anytime Apple makes a material change in terms of the material that the phone is made out of, then you a pretty big deal about that. Consumers are going to say, Wow, that's really cool to get to be able to get a phone in titanium. Right on the highest n iPhone, the largest model. Apple's looking to raise ASPS by pushing people to the higher model by introducing what is known as a periscope camera. Now, the technology of periscope cameras
is still nascent. What this allows you to do is have exceptional hardware based zoom, so you can zoom in far more into something you want to take a picture of without degrading the quality, which is something that happens on iPhones on their phones today. This is going to be a big improvement only available on the biggest and most expensive phones. That's something that I think is going
to drive sales as well. I think shareholders anticipate higher end phones to raise asps and that's what's generating a lot of the excitement on the stock lately too.
Hey, Anura, can you give us a kind of an update on Apple and China. So when I think that Apple and China, I think about app you know, China as obviously a big, big market for them, but I also see that as a big supply chain risk. What's the latest thinking on Apple and China?
So from a supply chain point of view, they're doing a lot of work to assemble the phone outside China, and we've seen you know, a new factory you know, cropping up in India. I think that is going to be a big feature going forward. I think they will establish assembly factories outside in other regions. Also, you know, around a last Thanksgiving then they had issues with the pro model in China because of COVID, and I think that probably taught them lesson that they need to diversify
that pretty strongly. And I think this year, you know, as Mark said, it's going to be a lot of excitement in the fourth quarter or the calendar fourth quarter, because last year we had know COVID related stuff, so very easy comparison for them, And from a supply chain point of view, you know more and more stuff being assembled in India and then perhaps in Brazil later on.
And Mark, I want to talk to you about the headset because the day it was released, the stock price was not as in the green as we're seeing today. Obviously, is the headset going to be a headwind for Apple moving forward or is it just something that is going to be in the background but investors are happy to kind of overlook the potential success of the headset.
The stock growth drivers from the headset have nothing to do with the headset themselves. That has to do with this idea of ecosystem locking, the idea of consumers wanting to buy and use multiple products. The headset itself is not going to add more than three billion dollars to Apple's bottom line in the first year. And it's also possible it could be a huge flop and after for giving Apple return on its seven year development investment, it could completely go out of style.
Right.
I don't anticipate that happening. But that's to say I don't think anyone's buying Apple stock in any significant amount of money or number of cares because of this headset. The first model way overpriced out of normal consumer budgets at thirty five hundred dollars starting, It's going to go upwards at four thousand, depending on the bells and whistles
you get. The people who are buying this thing are going to be the most avid Apple fans, mixed reality efficient audos, and software developers, right the mass consumer, basically anyone other than me. It's probably gonna hold off until the third or fourth generation. Right over time, Apple anticipates this, I'm told, becoming a twenty five billion or so annual business. Right that's about an eighth of what the iPhone brings in anyways, So I think at this point not a
lot on the stock because of the headset. But it's really the ecosystem locking the idea where you know, I'm sitting in front of me with an iPad pro, a MacBook Pro, an iPhone pro, at AirPods Pro, and you know, in six months from now, I could be wearing an Apple Vision Pro to be talking to you. I'm wearing an Apple Watch ultra right, that's the magic subscribe to all their services.
Yeah, exactly.
And so I'm the shareholder's dream consumer and I helped him cook sleep at night. Consumers like me, and I think that's why that's why people want to buy Apple stock. It's just like investing in Coca Cola.
Yep, all right, it's got a lot of higher evaluation. But Mark German, thank you so much for We appreciate a chief correspondent on Apple and technology with Bloomberg News and of course Ana rag Ran, a senior technology analyst with Bloomberg Intelligence.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three, and I Fall Sweeney.
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