Apple Makes the Right Move at the Right Time: Wedbush's Ives

for equity research at web Bush Securities. Uh, really one of our go to voices on all things technology. Dance, thanks so much for joining us here. Interesting news. I just kind of read a news story just a couple of minutes ago about Apple talking about bundling some of their services here, what can you tell us about what's actually going on with Apple and some of their services businesses which are a key to the future of this company. Yeah, and you hit the nail on the head in terms

of services being so significant. That's a sixty billion dollar revenue stream next year. And I think the bundling, it's just a massively smart move by Cooking Cupertino. I think ultimately this could increase services revenues by another five to seven percent. In terms of it's all that monetizing that golden installed based That's what Apple is doing. They're very similar many ways what Amazon done with the Amazon Prime.

What would they look like, because as I understand it, you know, some of them are kind of bundled already. Know you get like three or three months of this if you you know, if you're subscribed to that, and you know, maybe not exactly monthly bundling, but something similar. Yeah, I think this is really take a step back if you think about gaming, music, ultimately video you know, Apple TV plus, you know, as well as potentially iCloud and

some other package services in there. I mean, as they have continued to expand their offerings, they have more content to sell and I think that's just going to increase over time. And what this is really doing, it's putting really more of a fence around their backyard, just monetized

the installation and ultimately pricing it. At points where media consumer was not going to go for one or two of the bundles like an Apple News, now they will, and especially in the pandemic backdrop with the work from home and many you know, continuing to to kind of access things remotely. This is the right move at the right time for them. Hey, Dan, I want to switch gears a little bit and talk about just the gig

economy writ large week again. We got some jobless numbers today, But thinking about Uber and California, UM California is talking about I guess reclassifying some of those gig workers like an Uber and Lifted drivers into employees. This is a fundamental risk to these companies, isn't it. It's not just

the black cloud. It's really a future business model risk to the overall gig economy with the Uber and Lift frotain center, and it continues to be a head scratcher for many you know, if you mean many of the drivers that we've talked to you even over the last year, they don't want to be employees. That's why they work for Uber Uber itself. If they ever had to reclassify them, that could be upwards a four to five million of incremental costs per year. Obviously they're gonna fight through the

court system as well as in the ballot box. But the fear is is in terms of what California is doing. It's a Pandora's box situation where other states and cities will file. Right now, we think VARs worsen the fight. But if this continues down the road and ultimately Uber that's why they might have to temporarily get out of California. It's fascinating. Will it be a president for other companies?

You think? Well, I think when you think about gig economy, that's the word because it's starts to ubern Live and there's a cascading impact, and I think there's a lot of unintended consequences here, which is part of the big worry as California has gone down this head scratching route.

And when you think about the gay economy, you're talking about something that's created millions of jobs and now many of them could be at risk, even on the contractor employee debate, and that continues to be a frustration, not just for the companies but obviously for investors as right now that continues to be the need to risk around these names. Yeah, so it's interesting. I mean, I guess the the argument there is clearly, hey, these folks are working,

but they're not getting benefits. For example, what's the what's the argument from UH you know, the ubers and lifts and the other gig companies. The argument is, if an employee in the state of California's eye that wants to work ten hours a week, what do they do? You know, there's many of them. Like the flexible schedule might be a second job, it might be actually income for a

student that's looking to save money for college. Stain. The frustration from their perspective is the flexibility is the nature of the driver model, and most drivers do not want that. And that's that's ultimately the heart of the gig econ me,

which is why this is such a bewildering issue. Of Course, at a time, in a once in a hundre your pandemic where the gig economy, we believe, based on our survey work of consumers will not get into an uber or lift to a vaccines found just given safety issues. Will there be consolidation among some of these types of companies you know, Uber Lift, and of course you have other companies in the gig economy competing too. I mean, I think you will start to see some consolidation on

the smaller side. Uber and Wift, I think they go about it alone. That's why profitability is so important, and that's what we've talked about yesterday. But right now to herculean but bill battle for many of these companies as they get through this environment. I do believe on the other side they will be able to navigate, but for right now, this continues to be just a massive headwind that they're facing down before we go. I have one

question for you. Of all of your companies in your of the universe, the only underperform you have is on Slack Technologies, which I would have thought might have been doing pretty okay in this environment. Why own the performance? Slack a great company, obviously work from home name. Our biggest issue with Slack is the stocks had a great run. I just think with Microsoft and Redmond and teens, that's going to be a very difficult market for them to

further penetrates. They go after Microsoft, a great company. It just comes down to, is a great company a great stock at this valuation. That's why we're cautious at Slack at these levels. I hear that, all right, and thank you and thanks for being so open about that particular question.

I appreciated Don Ives, equity analysts at wed Bush Securities joining us it is time for Bloomberg Opinion, and for that now we bring in one of our favorite opinion columnists, and Neil Ferguson, a senior fellow at the Hoover Institution and of course Bloomberg columnist, among many many other roles that he plays in society and has played over the years in academia and elsewhere. His latest column is TikTok is a super weapon in China's Culture War. Neil, thanks

for joining. I want to read out the first couple of lines of your column. It's hard to get past the initial share inality of TikTok. I spent half an hour trying to make sense of the endless feed of video snippets of ordinary people doing daft things with their dogs or in their kitchens or in the gym. That's the background. If TikTok is so inane, how has it become such a cultural lever in the sense that it's mobilized K pop fans to register for Donald Trump's Tulsa rally.

It's been a pandemic favorite and suddenly, as you say, it's now got something to do with Cold War two. That's right. Well on my initial reaction, As you can tell, from the opening of the column was give me a break, it's not serious. I did some some thorough research, as a middle aged man should when confronted with an app popular with the young. My kids and I got some interesting feedback. My eight year old son said, Hey, check out the Dancing Weasel, but my twenty one year old

son said, woe, it's it's toxic. I don't go near it, and that was an interesting clue. I think the key here is to recognize that this is a Chinese owned app powered by artificial intelligence that is incredibly appealing and indeed addictive to teenagers, and half of American teenagers have used TikTok. When they use it, what they're doing is essentially providing the app with data, and the app also looks for other data about them. It doesn't just sit

there passively. We know from other reports that that TikTok is pretty good, rather like Facebook getting data about users from any source it can online. And so the key argument here is that we've essentially created a portal are allowed to be created, the portal through which young Americans provide all kinds of personal data, potentially embarrassing even compromising

data to a Chinese controlled app. And the critical point is that TikTok is owned by a Chinese company, byite Dance, and any Chinese internet company is legally obliged to make data all data available to the Chinese government, that is, the Chinese Communist Party. And that's why this apparently silly trivial app actually is a problem, and we can't simply let it carry on the way it is, which is essentially becoming the most popular app amongst amongst young Americans.

So neil I believe TikTok's response would be, hey, all of the data is on servers. None of those servers are in China. Um is that a valid kind of response. No, it's not, because it doesn't really matter where the servers are. If if she didn't, Pink calls up Uh and says, hey, we want to check out data on X because bite dance is compelled by Chinese law to to to comply, then there would be no There would be no way of their saying no. I mean, I think to be fair.

John J. Ming, who is the founder of bike Dance and who had the vision to see TikTok's potential, you know, he gets a lot of credit as an entrepreneur and visionary. Facebook failed to make an app as good as this. Facebook was trying to get video right, and it missed the key point, which is that if you just let users do the content and let the AI pick the

best content, you'll crush it. So you've got to give him credit as an entrepreneur, and you should give him credit also because I don't think personally he is an authoritarian. But the reality is he's a Chinese citizen. It's a Chinese company, the Chinese Communist Party. What's the data, It doesn't matter where the servers are. And by the way, you know TikTok says and it's user agreement that if you hand over data then its parent company bike Dance

will have access the data. So they are open about that, and now I think is the crux of the matter. Although as you say, you know this has to be seen in a broader context. I think I would be less exercised about all this if it wasn't for the fact that we know China is now engaged in a pretty active campaign online and offline to exert influence in

American culture. Really the way the Russians did back in twenty sixteen and We've seen active efforts by the Chinese government on Twitter on other platforms too, so disinformation about COVID nineteen. So this has to be seen in that context. It's not as if the Chinese government is playing no part in our culture war. It is actively involved in trying to sow disinformation in American public discourse. Neil, we

finally have a tickets in Joe Biden, Kamala Harris. If that turns out to be the next you know, inhabitants of the White House and the of All Office, and you know various wings of the West of the West Wing and the East Wing, and so what have you.

What happens with the China relationship, Well, I think from the vantage points of China, Biden presidency has become a lot more repealing than a continuation of the Trump presidency, because although Donald Trump started off trying to have a close personal relationship with t and thing, since the trade war started in ten things have gone rapidly downhill. And I argued at the beginning of last year that we were in Cold War two and we should, you know,

stop kidding ourselves. So I think from the Chinese vantage point, they just want to get through to November three and hope that that they get an altogether less hawkish president. Kamala Harris is an interesting pick for Biden. I think from the vantage point of the tech sector, it's a kind of sigh of relief because although she's been known for her pretty aggressive questioning on Congressional committe he is in truth, I think she is as friendly a vice

presidential candidate a Silicon Valley could have hoped for. So from that point of view, I think the risk of aggressive antitrust and other actions probably goes down if Biden Harris is the winning ticket. Neil, we just had the president's call reporters into the Oval office and we will could likely be hearing from him in a few moments. But there is a headline now that there is an historic deal to normalize relations between Israel and the United

Arab Emirates. I'm curious as to your thoughts about how the Middle East will be reshaped, if at all, given that Israel has this new normalized relationship apparently with the United Arab Emirates. Well, this has been kind of cooking

quietly for a while. Most attention has been elsewhere, and of course substantial sections the media are skeptical about the President's Middle East policy and have been from the very outset, But in reality, there's been a massive realignment in the region in the last three and years, and I think the Trump administration has done something at least to contribute to that, the main alignment being but a whole bunch of our countries, led by the U a E. Have

been looking to normalize relations with Israel and focus regional security policy on Iran, which poses a threat not only to Israel but two Sunni majority states. So I think this is important and I think it actually is a success for President Trump. That don't expect to read that in the New York Times of the Washington Post this week. Neil Ferguson, senior fellow at Hoover Institution and a Bloomberg opinion calumnist. A m C right there reopening and it's

been a big story this morning. Mark Lazie the other day talking about how he was looking at a MCS secured debt. And that's what I want to start with when I bring in Sally Bakewell, who's a corporate finance reporter, because one of her stories in the last couple of days, most of America is being shot out of the great borrowing binge. Ever, and this is why Mark Lazie is looking at the types of things like AMC secured debt. Sally, tell us what exactly you mean by the fact that many,

many great companies are actually not able to borrow these days, Hi, Funnie. Yeah, AMC is actually a really great example that you bring up there, because like a number of companies airlines, hotels, cruise lines, it's been absolutely devastated or it had been devastated by the virus. The virus of course whites out the revenue of it and many consumer facing companies UM.

And what they've been able to do, however, because they're big companies that can tack the bond market is go straight there and they've found willing invested to pay debt because the debt markets have effectively been back stopped by the vast kind of Federal reserve guerrilla UM and it's pledged to use it near limitless balance sheet to buy corporate bonds, and so that hasn't enabled all these companies kind of almost without too much discrimination, all of them

have been able to hit the bond market. And we saw another fantastic example of the kind of limitless nature of it today with Apple, which is of course of a great blue ship company that would lenders would fall over themselves to Lento. But it's it's in the same group of big companies. They can hit the bond market, bond market no matter what, UM. But on the other side of that, that kind of tremendous liquidity opportunity is not mirrored for smaller firms, and that's how we're getting

the fact that they're missing out. Yeah. So sadly, the smaller firms, mid sized firms, they depend less on the capital markets, more on their local banks. Are are bank lenders, and I guess they're being prudent saying, boy, in this pandemic, I gotta be tighter on my credit standards. Is that

kind of what's happening here? Absolutely, that's what's happening. UM. There was a recent loan officers survey of UM some of the biggest banks where they found that loans have been tightening at the fastest pace or at the most since at least the financial crisis, and prices have gone up to so for smaller companies, they can't access the bond market, where this enormous amount of liquidity is squashing around, UM,

and it's harder for them to get loan. Now, on the flip side, the Federal Reserve has come up with these other lending programs. It has the main Street Lending program, it has the Paycheck Protection program. But those have drawn criticisms for being quite difficult to access, for being complex.

And actually, Paul, you raised that point. Banks don't necessarily want to be involved in them because they don't feel that they're being compensated for the risk of lending to companies that potentially if you don't know if they will be around in the next year, Sally, what happens to these companies you just said they may not be around in the next year. But there are also options like,

for example, going to quote unquote vulture investors. Right, yeah, and that is another world, um, that we are seeing varying degrees of activity. Um. Of course, there are all the direct lenders, there are the distressed funds UM to varying degrees. They are jumping in opportunities. But you know that comes at the price too, So it's it's there is money there, but you probably have to pay up for it, um. And but a lot of firms a lot of investors are definitely seizing on on that opportunity

as other lenders for trend so sally. This kind of causing the question again the role of the bank, the local bank. This is the time when their customers really need them. What are the banks say they are? I think they're a bit tied, because of course they have to be more risk averse. They are building up their lost provisions because they know what well they know that we don't know, um what exactly is down the road.

And after the last financial crisis, which they were the epicenter of, they of course have become a lot more risk averse. Um. But then they are under this kind of pressure from the Federal Reserve two, which is trying to coax them to lend to these small and medium sized firms, which is so important to the economy. And of course you know it's it's important for banks too

that those firms thrive. Um. But I think you know, when I was talking to people for this story, um, they said, you know, if you're a good customer, um, without too much risk, you know, people might banks don't necessarily want to lend to you anyway. They want to get the fees they want to get the sort of you know, higher interest rates, so you know they're in a tight spot for sure. Yeah, exactly, Sally Bakeball, thanks

so much for joining us. Really appreciate a fascinating story here. Again, big companies like Apple and so on barring and historically low rates, but a lot of small and midsized businesses really finding it hard to get credit here in this pandemic, so fascinating story. Sally Bakewell, corporate financial reporter for Bloomberg News. Well, it is going to be a slightly different back to school retail season this year, if it exists at all.

Let's ask somebody who has been following this and presumably has some data and at least much much better informed about what's going on out there than me. Arthur Zachowitz is Women's Where Daily executive editor. Arthur, thank you so much for joining us. What are you seeing this August as we know approach what would have been a new school year. Well, well, thanks for having me first. You know, I think what we're seeing is a lot of uncertainty

and caution. Right, So, the National Retail Federation put ups some of you know, kind of estimates on back to school and they're looking at almost thirty four billion dollars impact sales versus twenty six billion last year, and the pulp bulk of that is is about ten billion in online sales. But you know, honestly, you know, I think that's kind of magical thinking, given you know what's occurring

in the market right now. Yeah, Arthur, I mean, do we even have a sense of what percentage of KATE through twelve students in the US will actually be going back physically to school as opposed to remote learning? Yet again, I know some parts of the South and the West have actually and they have gone back to school, but we have a sense of what percentage nationwide. Uh, you know,

I don't know that that's a great question. I know that you know, there are plans in place in certain states, say, you know, like New York, for example, has three different scenarios, you know, with many of the schools, and they just decided, you know, a couple of school districts in uh in the Hudson Valley for example, just decided to do online only. So we don't really know, and that's part of the uncertainty.

I think that you know, you're seeing Plus you know, we heard I think New Roman may excuse me, new brands said that they're a little um, you know, cautious because the consumer's caution and just you know, as far as like what to buy in the shopping lists haven't even come through for a lot of school districts across the country. So this uncertainty again in the market. What runs are you hearing from that are very concerned about their future? Arthur Well, I think, um, you know, we've

seen a lot of retail bankruptcies. Obviously, it seems like every other day there's another retailer going out of business. And and what's driving that is you know a lot of you know, online sales and a reluctance like consumers to go into physical stores. But you know, as far as like who's gonna you know, play out the best through the holidays and through you know, back to school, I think Target is is well positioned, right, That's that

sort of that one stuff shop. You know that moms feels comfortable you know, getting essentials, getting food, getting you know, apparel, getting gifts. Uh, you know, they could go in and out in a relatively you know, safe environment that they're familiar with. But you know, everyone else this is a challenging time. You know, if if you're not you know, a brand that has a real strong connection to the consumer,

you're gonna have difficulties. I think moving forward, you know, I think look look at Walmart recently label with their guidance based on the uncertainty of back to school. So you know, it's it's unclear as far as you know, how this plays out in the future. Also, you know, there's an interesting thing going all right, we have an election year, which is creates uncertainty, right, we have the

pandemic which is ongoing. We have we're in a recession, right, and then we have consumer anxiety on top of that. So you know, it's a it's a perfect storm for um creating shoppers who maybe want to be more frugal and pull back on spending. So Arthur, what our parents actually gonna be buying here in this back to school is just just you know, mass and wipes and hand sanitizer. Sure, because the safety it is first, right, So for the kids going back, you know, it's still safety items, uh,

and you got to carry that stuff in something. So I think backpacks, you know, you'll you'll see you know, those traditional categories supposed to regular school supplies. You know, as far as the peril is concerned. You know kids, you know, if you're going physically back to school, they tend that tends to come later. You know, they kind of go into school and then they look, you know, to see what everybody else is wearing and what the

trends are. And then they come back and you know take mom uh either while online mostly and say I want this, this and that, you know, and there's there's some really interesting stuff going on right now. You know, as far as like tweens. You know, I think Pup Sugar Iss teams up with Old Navy. That's interesting. Um Oshkosh Bagash is that you know that the the the overall company, right, so they they're still being on in twenty five years and they're launching a collection actually um

to red. You know they used to uh have adult stuff, right so now they really introduced that so the whole family could wear you know co uh you know cover rolls. So that that's interesting. It's fun. But you know, um, as far as like the staples are concerned, as far as like apparel, you know, I think you'll see Nike and um you know in brands that that offer active prayer, uh and essentials too, like you know, shopping on targets for example, you'll see printed T shirts as far as

you know from any brand really doing well. What about the luxury brands? I mean, you know, and this wouldn't just be for luxury customers. I mean put plenty of youngsters out there, you know, save all you're just by their yeasies or what. How do you you know that the next drop will there still be drops for brands like that? I think? So I think that that's going to be a challenge because of all this uncertain it.

It's kind of a clouded market and it's everybody's getting bombarded, right, so so things think about you, you've spent since last spring, you know, hold up in your home with your family. You've been bombarded with you know, a lot of director consumer marketing firm brands themselves. So so how do you cut through the clutter? You know? And the luxury brands,

you know, do that they have their loyal following. But you know, there's a lot of research out there just recently from uh, you know, de Lloyd and other companies Adobe that kind of shows that that shop is particularly you know, gen Z and millennials are have tried new brands during COVID right, so they're moving away, so there's a little bit less loyalty and because this stuck or something they was stuck in behind, they were like, I'll give that a shot. So if you'll luxury branding new

youth to that, yea, you know, I don't know. Arthur, Thank you so much for joining us. We always appreciate your thoughts into the retail space. Arthur Zechowitz, executive editor, Woman's Where Daily, giving us his thoughts say, back to school really key for retailers. A lot of uncertainty this year. We'll see how it plays out for the retail space. Thanks for listening to the Boomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever

podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.