Breaking Down Apple With A Look At The Latest Tech

The company yesterday unveiled an updated iPad pro with a faster processor, by G connectivity, upgraded screen, and new cameras. Question is do investors care? Let's bring it on Treney of Boston. He's a senior technology analyst at Bloomberg Intelligence. So on, And as we think about the Apple story here, I'm looking at the stock, it's you know, flat year to date, you know, really underperforming the market here. What's the story here for Apple right now? Yeah, that's a

that's a great question, Paul. Look, I mean we have maintained that Apple works on two prime vectors, right The stock and the company works on two primary vectors. One is iPhone, iPhone shipments, and I think they're set up really well in that regard, and the other is the Juggernaut services franchise, where this is going to be a sixty five billion dollar year just the services franchise. In so, I think that the iPad and the Max are very nice products, and in any other company they were moved

the needles substantially and then some. But in the Apple's scope of you know, three d and thirty and forty billion dollars of revenue with the just Go, you're it doesn't. Um, It's it's intrictive, it's additive, but in it of itself, it's not a stand alone vector of leadership. Yeah, about my Mac, I think two thousand or so. I love it, but I don't have any reason to replace it. Like

it does everything I needed to perfectly well. Um. But in terms of the services, when you talk about services, I assume you're including, um, you know, the Apple Music, um, the Apple TV content, the podcast that they announced yesterday. What what's the big driver with their services? Yeah, so that's a that's a great question, Matt. Look, the services business has at least eleven subsegments, and we've tried to sort of parse that out. At the Apple Music, Apple

TV TV, plus the Arcade business. Um, all of those are smaller portions of the services franchise. So in in their updates yesterday they didn't really even Apple Card doesn't move the needle at all for them. The biggest is the download of apps, both the paid as well as the free apps. Um, So that's a big portion of the business. Apple care is it is a very profitable business. The iCloud business is very profitable, and um, the licensing

the business. So Google pays Apple for to be the default search engine on the iPhone and that is a pretty big deal. That is a very lucrative, high margin payment that Apple gets. Those are the big pieces of the pie. Um. Apple Music is nice. It's still smaller than Spotify from a revenue perspective. Apple pay is is nice. Again, it's a very cohesive driver of all the different products

and services with the Apple platform. But in and of itself, Um, the people Apple Care as a driver, I mean, this is like they seem like good people right at first clients, but then they're making you pay extra to guarantee that your product doesn't break in the next couple of years. I mean, shouldn't that come for free? Well, look, I mean there's a replacement value, and the one of the things that these are expensive components to make, an expensive

components to assemble. Um, there has to be there's a minimum amount of guarantee that comes with the product. But it's only to the degree that it's a manufacturing issue. Right, If I stomp on my iPhone, I don't expect Aple to pick up the tab for that. Alright, alright, if I wreck my car, I don't expect you know, Mercedes to pick up the tab. But if it just stops working, you know, or even the manufacturing issue, you can certainly take it in. But otherways you pay in shorts. Oh,

they have the nice people help borrow whatever it is. Now, you can just take it into the store. I'm sure they'll they'll take care of you. Sorry, I'm looking at the balance sheet here, I'm looking at the financials for this company. You know, almost two hundred billion dollars in cash, eighty billion dollars of free cash flow every single year. Then they got a dividend yield of zero points six what's up with that? Why don't they raise their dividend,

buy back more stock? This is just craziness. Yeah, so look, they're they have accelerated share, They have accelerated share. We purchase programs. They have a big buy back up re up potentially coming in the next quarter. UM. All of those have to happen. But when you have again the size of cash flow generation that this company has, particularly this year, UM, when they've done really, really well with

the launch of their new iPhone, it's it's um. It's staggeringly big, and it's it's a it's a problem that needs to be overcome. It is genuinely a problem of how fast they can deploy that cash UM, either in stock buy backs or dividends or internal r and D, which is not going to move the needle from a cash balance perspective. So it's an absolute problem. You're right. The air tags such a great idea. I was hopeful

when other companies came out with similar products. Um, is this going to be something that we all have our key chains in the next couple of years. Absolutely? I think you know, I see the AirPod. The air Tags is very similar to the the air Pods franchise that was a sleeper hit and continues to be a really good product of them. UM. And I think it sort of again adds to the platform effect that Apple has UM.

And the security is robust, so I can definitely see this product taking off and being a noticeable de line item. All right, I'll I'm excited to see the reviews of that on. Thanks so much for joining us on a Trini vass on their senior semiconductor and hardware analyst for Bloomberg Intelligence. This is Bloomberg. We were talking precious medals. I want to bring it every moment right now, practious

medals specialist at Gainesville Coins. Um. I mean gold is probably the focus of most of our listeners in terms of you know, precious metals that individuals hold. Everett, we haven't really seen gold, you know, in the face of inflation expectations, we haven't really seen gold move to really impressive levels. All oh, it's had a good run the last few days right now at sevent troy ounce. Where's

it headed. Well, that recent rally you mentioned has pulled gold back to essentially as December loads, and it seems poised to retest those levels in the short term. It certainly helps that the dollar has pulled back a bit. Um, but really the gold trade has been pretty boring, right Um, We've seen some subdued trading in the West. But when I look internationally, UM, there's some key developments that I think are rather favorable for gold and could pretty swiftly

push us back above that eighteen hundred announced level. UM. China's relaxed it's pretty strict rules on who can import gold, so several billion dollars of gold are expected to flow into Beijing in the next couple of months. And similarly, in India UM they have ease their rather high import duties on gold and as a result we saw record high first quarter imports into India year over year UM.

And and and even in South Korea, the gold trade trading volumes have been running pretty hot and their own pace for about a fifty increase year on year. So these strong sources of demand should at least put a floor below the gold price, perhaps around seventeen fifty ounce for the time being. But I do agree that overall in the West, UH had the gold trade has been pretty subdued.

Really isn't moving anywhere yet ever? Is that reflecting the rise in the ownership of bitcoin and people viewing bitcoin as a perhaps a comparable store of value to golds, and they're saying, hey, maybe i'll take a little bit off my you know, my gold column put it into bitcoin. Sure, I do think that you know there is this clear

rivalry between the two groups of investors UM. But somewhat interestingly, survey data gathered between two thousand seventeen and two thousand twenty by a British firm called Global web Index show that there is had a bit of crossover between the demographics who are interested in cryptocurrencies and those who are

interested in gold. UM. It is a bit surprising because we tend to associate gold with the older investing crowd and cryptocurrencies with younger investors and people who are just getting into the markets, but in fact there is this overlap. So with the rise and interest in cryptos and n f t s non fungible tokens, we are seeing that sife and off some investment dollars away from the precious metals.

Just as cryptos rallied to start the second quarter, open interest in COMEX gold futures hit it two year low. So I do believe there is a correlation between the two UM. But as there are some an emergence of some gold backed cryptocurrencies, perhaps we could see some further merging between those two asset classics classes in between the types of investors who are interested in them. Yeah, that

that would be interesting. Although UM hasn't yet become really popular the idea of UM gold backed crypto, but it makes a lot of sense if we were willing to trade goldbacked FIAT for so long. I wonder about UM palladium. As the headlines just crossed the terminal, we hit an all time high. Does this rally continue or is this just part of the auto sales bottleneck due to the

ship shortage. Well, certainly the the semiconductor and chips shortage is affecting the auto industry, which has that direct effect on palladium. But even outside of automobiles, the energy transition to cleaner fuels could palladium could figure importantly into that. Both platinum and palladium UM are involved in fuel emerging fuel cell technology and other hydrogen based fuels. And we also have to remember on the supply side that the

majority of the world's palladium supply comes from Russia. So these reciprocal UM tensions and sanctions between the United States and Russia could perhaps put a barrier on a lot

of that palladium getting out of Russia. So I do think that the trend is still going to be upward for palladium, even though we're at the peak of what is a multi year rally in hitting those all time highs because of the supply concerns and because palladium does figure into the potential green future for our our energy sources. All right, great, great intel there, and we're so glad

to get you on. Everett Millman, Precious metals specialists from Gainesville coins UH coming to us obviously out of Gainesville, Florida, talking us through what's going on in in gold, what's going on in UH and and really in the kind of cross currents between the metal and the crypto sector as well, and um, what what is in which which university is in Gainesville? Is that university's okay? So, so Jacksonville is Florida? You those are the Gators and Gainsville, Florida.

Tallahassee's Florida state. Oh Tallahassa, right right, cool, all right, thanks for setting me straight. Our university specialist, this is Bloomberg. Now let's bring in David Coudla. He's the CEO and chief investment strategist Mainstay Capital Management is here to talk to us about his investment strategy in the current market environment. David, I guess the first thing we have to know, um,

is your forecast for growth and inflation. Well, uh, first, we think that we're going to have an amazing first quarter for growth, both in terms of what we're seeing in terms of GDP for the economy and what we see, you know, coming out of this uh uh impact of the COVID and the lockdowns on the economy from last year. So a year over year, you know, we're going to see amazing growth in the economy. We're also going to see, uh,

the earnings are going to be tremendous. We're expecting the best earnings since uh in the last couple of years. And we're seeing inflation that is just you know, incredible, not necessarily the inflation that the Federal Reserve monitors, although that did come in at high level year over year

headline inflation highest in many years. But when we look at some of the other commodity prices, you know, we've got iron ore trading in a three year high, nearly triple since last year, lumber more than five times from this you know, from this time last year. So uh, you know, we're we're really seeing, Uh, inflation in many sectors of the economy has run has run at a very very high level. Do you consider that inflation transitory, which is what I've the FED is suggesting, or is

this something that maybe we need to worry about. Well, um, I know that there are a lot of people to take objection with this and take objection with the FED stating this, but we do see it as transitory. We think that a lot of this, especially what I just talked about in some of these commodities. And although we may be in the beginning of a commodity supercycle, the levels that we've seen are a result of a couple of things. The COVID the pandemic had impacted the ability

to produce some of these commodities. But also, um, the construction sector, both a commercial and residential and especially residential never really slowed down during COVID. Housing has done very

very well. Uh, just you know, incredible pace all the way through the pandemic, and the supplier didn't expect that, and so there's just incredible pent up demand for those raw materials, those those supplies for housing in particular and building in general, and so you know that will be met and I think we'll see those prices come back down by as early as the end of the year.

So so that that those type of inflationary forces I think our transitory uh and ultimately if inflation in general, the long term secontary forces for deflation come back in. Oh interesting, So does how does that affect the stocks you want to buy? And can you give us some picks? Well, so we you know, in we were with the stay at home trades, a lot of the technology uh you know a lot of the e commerce trades and uh internet e commerce I T technology, we moved to the

consumer recyclical small caps. Now we're moving out back into some of the growth her names. So we still you know, some of the areas like the global x US infrastructure development et F, PAVES, P a V. Hence the name holds companies like Deer Vulcan Materials, Emerson Electric. We think they have further to go as the economy reopens um and we're still looking at and still holding some of the value names that in E T F s that

will uh we think continue to do. There's been a setback in value here the past couple of days that passed month, but we think value has further to go with the fiscal stimulus that's in the system and coming. But we're looking at at some of the some of the ets like mote Van Vector's morning Star, wide Moat, et F holds names like Google and Tell, young brands,

general dynamics. These are the brands that have a wide defensible mode around their business model and and UH and then a guard BTF growth at a reasonable price and and these are another growthier type e t flds like Facebook, wholety homes. We still think the home builders have further to go, United Reynolds, Adobe, and these are just some of these, a mix of still some cyclicals with some growth names that we think can do well as we

continue to move through the reopening the economy. David, thank you so much for joining us. We always appreciate getting your thoughts and perspective on these markets. David Coudla, CEO and chief investment strategist for Mainstay Capital. Again still constructive on this market map, but you know, kind of rotating maybe a little bit back into some of those growth names. We heard from David that cyclical trade had worked so

well released since September of last year. As you know, we started to get the some positive vaccine UH data points out there. Then we saw a rotation of the rotation, a rotation of the rotation, and I think, you know, we're starting to see U some folks take a look at some of those growthier names as well. So lots of ways to play this market. Bloomberg Opinion every day at this hour we get a columnist from our opinion UM our opinion group to talk about a column he

or she has written. Sarah Hallzac joins US now retail columnist for Bloomberg Opinion. You've written about inflation a very timely moment, saying that not everyone can copy Procter and Gambles price hikes. You talk about, um, the ease with which PNG raises prices on diapers as well as tampons, but said, UM say that it's difficult for everybody, UM,

including competitors to raise prices for the same reasons. Yeah, that's right, And I think part of that is because we've actually seen consumer brands flexing pricing power throughout the pandemic in ways that are starting to pressure consumers wallets, right, UM, I've written about that, everyone from Crux to Crux clogs to just peanut butter to Whirlpool appliances have seen the benefit of pricing actions during this time. UM. One way

is by cutting promotions. We've seen a lot of that over the last year, not offering that coupon that may have been table stakes before the pandemic. UM, and also through lift pricing increases and for a variety of consumer psychology reasons. Consumers have largely put up with it. But I think we are getting to a point where it's fair to ask how much more of this can consumers

see before they bulk? All right, So sir, what are we seeing in terms of maybe some of the you know, the bigger players of practics and gambles of the world versus maybe some of the smaller brands. Do they have similar pricing power or do you have is it really select? Uh? They do not have similar pricing power. I think we've see these big brands UM are able to do this. Uh. You know one thing P ANDNG has talked about that the pandemic really did was kind of bring people back

to big, national, trusted brands in a big way. UM. I think when you're in this time of crisis, you maybe don't feel as comfortable trying something new. You just want the thing that you know works, especially in the categories that P ANDNG is in, like household cleaning products. UM thinks that would you know, contribute to your safety during this time. UM So, I do think the big national brands have particular pricing power. And so you know

what P and G is committed to doing. Is it said in its BabyCare, feminine care, and adult and Continent's division. Um By September, you're going to see a mid to high single digit price increases on products in those categories. And that follows a similar announcement from kimber Kimberly Clark, that's the company that makes Huggy diapers and Scott toilet paper. They may would do price hypes of a similar magnitude. I'll tell you would be a blessing for the earth.

People would stop using disposable diapers and start using cloth diapers instead. Unlikely as that is to happen. Where where is it difficult to hike prices? Sarah? I think in the most discretionary categories, And I think you know one thing that happened uh during the pandemic was that uh

safety and convenience really Trump's value and consumers buying decisions. Right, So in order to only have to go to one store, you just thought whatever was available even if it wasn't on sale, or you just sucked up that the prices were higher online for the safety of having it delivered to your doorstep. And I think now that consumers are more mobile again, they're going to feel comfortable hitting more stores. They're going to feel comfortable, you know, doing more price

comparison and engaging in that activity again. And so uh, that is that is going to make them more conscious of price tags. And so I think these really discretionary items like do you really need need a new piece of clothing? Do you really need a new handbag? Um? Do you really need more sports equipment after all of the camping year you bought last summer when being outdoors

was the only thing you could do? Um? I think all of those are going to be areas where raising prices is just more difficult than it is on something as essential ast diapers, which is a purchase you just can't put off all right, So, Sarah, are we seeing consumer shifting maybe from name brands to store brands to try and to find value. So that is definitely something we have often seen during a recession. UM, I don't think we've seen a lot of clear evidence of that yet.

I think some of what that play is what I was describing earlier about this flight to really trusted brands UM and really wanting to make sure, especially with things like household cleaners or laundry detergent, that you're really getting something that's going to perform, that you're going to get bang for your buck. So I don't think we've seen that migration to store brands yet, and specifically with this

diaper issue. UM. Often if you saw the big brands like Pampers or Huggies raising prices, that could be an advantage for store brands. But because this is a commodity driven issue, UM that's affecting the whole industry. It's because the price of pulpe is really straining their margins. I don't think you're going to see that flight to store brands because I think everyone across the board is going

to be having to make pricing adjustments to shoulder these costs. Yeah, it'll be interesting to see if any of this of these price pricing issues go away. Right because UM, we're assured by Jerome Powell that this is transitory, and it doesn't sound like, at least in the cases that we're talking about from P and G or Kimberly Clark, that that it is going to go away very quickly. Right, These commodity costs issues might take a little while to work out. And look, when you talk about you know,

the consumer sector overall, UH, there's much more baked into this. There's, yes, UM, the port congestion and the global shortage of shipping containers. All of that is impacting their logistics costs. But they're also dealing with another issue, which is that e commerce as a percentage of their sales likely skyrocketed last year. And I expect that people start moving around more UM that will retreat a little bit and people will go

back to doing some in store purchasing. But you have to remember that the rise of e commerce UM is often harmful to the profit margins of retailers because they have to foot that bill for last miles delivery UM and in some cases have to pay for return delivery if you decide you don't like the items. That's really expensive for them, and it's a real change in their

cost structure. As more and more of their business moves online, and so that's just one more thing, uh, they're dealing with that is not going to go away, and that's going to shape their pricing decisions. Does just does practical gamble care whether they're product gets purchased, you know, on in a brick and mortar store or online. No, I

don't think so at this point. I think you know, ultimately their direct customers are the retailers themselves, not the shopper um and so I think you know their focus is just on supplying those retailers with product that they can sell and whatever channel the customer most wants to spend their money. Sarah Halzac, thank you so much. We appreciate that. Sarah halls like she's a retail columnist for

Bloomberg Opinion. You can read all of her work and that of our good folks at Bloomberg Opinion, at Bloomberg dot com, slash Opinion, or on the Bloomberg terminal by typing O P I N go. We have some fantastic Bloomberg Opinion columnists and they really put out some really thought provoking pieces. Sarah really focuses on all things in

the retail space, and we are seeing commodity prices. We have seen commodity prices increase pretty much across the board, and again the question is how much will manufacturers, uh, you know, eat those cost increases or pass them along to consumers. And in terms of products, we're seeing it on the consumer side, prices going up this boom. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast

platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. On Fall Sweeney, I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio