The Fed, Insurance, VR, and Goldman (Podcast)

about interest rates with Ira Jersey, chief US interest rate strategist. Ira. I mean, I was under the impression that twenty five basis points the next meeting, maybe twenty five after that, and then let's pause, see how things are going. But now people are telling me I need to folk pencil a third twenty five basis point rate increase. What's going

on with all you fed people? Yeah? Well, obviously over the last month you've seen some pretty poor or higher than expected inflation data, right, both CPI and the pc to flatter and then even just the small warning and the reason why rates are selling off today has been higher than expected inflation in France and Spain. So with such, you know, with inflation still being the worry and the

fear of central bankers. You continue to see whenever we get these surprises surprisingly high inflation prints, you're going to bind up pricing in more and more interest rate hikes. So yeah, so the market's now pricing in for a five and a half percent terminal rate for the Fed Fund rate, and I think that and no cut and no cuts this year, No no cuts this year. Well, I see them coming down to a terminal rate of like five thirty something, which is still between five twenty

five and five fifty. Yeah, so you're still talking about you're still talking about maybe a half is of fifty bases, a fifty percent chance of a single cut by the end of the year. So not a full cut though, which is to Matt to your point, is what we were pricing, um, and because we're pricing three cuts at one point, Yeah, we were pricing We're pricing pretty aggressive cuts, people thinking that we were going to have a significant slowdown.

And that's one of the reasons why the market shifted so much, because we were kind of expecting the cumulative, you know, rate hikes that we've had, and some of the data that we've seen certainly suggests that the economy is slowing, but the economy is just not slowing fast enough to bring inflation lower. And the interesting piece out of the most recent data, UM is services we expected to continue to grow. You know, wages are pretty strong.

We've talked about that on this show before. But but importantly in a lot of the data is that goods prices didn't continue to fall as most of us expected that that to occur, and and mitigating the increases and services. So since goods price is basically stabilized at near current levels, um, you know, that's that's really given some people some pauses to exactly what the future ratepath will be ultimately for for the FED and then therefore for the rest of

the market as well. And that's one reason why we're you know, testing four percent on the ten year for example, and yeah, you know, I think you get one or two more you know, better than expected data prints, and we can wind up breaking four percent again and maybe testing for in a quarter, which is the next really important technical level. It's actually four point two four percent

if you really want to get pedantic. So I've made a career out of ignoring people like you and Lisa Bramwood to talk about yield curves and all that kind of stuff. But boys, I look at the two year tenure. It's negative, it's inverted eighty five basis points. That's the thing, right, Should I pay attention to that? Yeah? Well, so the market is still thinking that we're going to have high rates now and then lower rates later, and that's I

think that that's a reasonable assumption. I think the question becomes and this is where you know, people who try to use these indicators and use the market for determining, you know, when the market things the recession is going to be ends up. That's when these types of indicators end up failing. Because the reason why where where we are today is not necessarily because we think there's going

to be a recession. The marketing it's going to be a recession this year, but that maybe there's going to be a recession in twenty twenty five. And the Fed cuts into states zero again, right, that still gets you to a ten year that's well below where the two year yield is today. The two year yields right at fair value, by the way, based on the Fed hiking to five and a half percent and then staying there for the rest of this year. So the two year

is probably right. The question is is the ten year right or are we going to see inflation be much more persistent than we have And that means that you can wind up with what we call a bear steepener, where you can wind up with ten year yields going up in two year yields not doing very much at all. Hey, we focus so much on the US because you know, it's the greatest country in the world and the only

place that's important. But nice Over in Europe, you had French and Spanish inflation that was stronger than expected, a record in France for the Euro Area, and we're now expecting or the markets are now pricing in four percent for the ecb which is I mean a lot. That's aggressive, right, Um, we're looking at the highest level on buns in what fifteen years? What's going on over there? And is that part of what's driving the trade here? Yeah, it definitely is.

And today in particular, so you know you've seen you've seen actually the European bond market leading the US bond market by by about five minutes during the course of the day today. Um, and the you know, there is a big worry because remember, unlike the US the European Central Bank only has a single mandate and that's to keep inflation under controls for stable prices. They don't have the the same you know, full employment mandate that the

US and five other central banks have. But so because they're so fixated on inflation, when you get higher than expected inflation prints, that just means that it's likely that the ECB is going to be somewhat more hawkish. They were very austious early on in this hiking cycle, but now that they've gotten going. Hugh Worthington, who's my colleague in London, you know, he expects them to hike twenty fifty bases points at the next meeting and then probably

go a little bit more after. So so you're right, like Europe is worried about inflation. Obviously, some of it is not related to the economy, right. All the stuff going on with the Ukraine and with guests and energy prices is a separate issue from the um you know,

from the underlying economy. But you know, central bankers only have a single tool to try and fight inflation, and that's doing what they're doing, and that's increasing interestry sure, and that they have to fight inflation, as you point out, without worrying about unemployment, A because it's not in their mandate and be because unemployment just doesn't suck as much in Europe as it does here. Socialism, right, you have that good stuff, all right, Eira um Manchester United. Presumably

they're selling a piece of the company. So of course my advisors and I we are kicking at tires. I'll talk to you about that next time time. Get your input, Ira Jersey. He's a chief US interest rate strategist for a bloomber cantell just giving us his thoughts on the FED. We've got a couple maybe three rate increases coming up in twenty twenty three. After that, who knows. We'll keep

in touch with Ira Jersey. He's got the skinny Pat Gallagher, CEO of Gallagher Insurance, so I'm guessing that's like his company. This is in York Stock Exchange list of company A JG is the ticker I pumping up on my Bloomberg terminal. I've got a market cap of forty billion dollars. Pat, how come I don't know anything about your company and you guys are so big. Tell me about your company

and where you guys fit in the insurance landscape. Well, okays, first of all, thanks for the time today, but it is it's unfortunately one sense that we're kind of one of the world's best cap secrets. But they're very proud of both our heritage and where we are today. We started off as a small broker in Chicago. My grandfather started the business. Came public in eighty six. Uh finished date year, I'm sorry, came Bubalan eighty four. Finished that

year about a seventy nine million dollar market chap. And it's been a really wonderful journey. Now we're one of the largest insurance brokerage and riskmans with claim spaying organizations in the world, operations over one hundred countries and as you say, about a forty billion dollar market cap. Well, and the stock chart, Pat is just unreal in how impressive.

When have we been met? I always um, you know, I'll gauge companies by pulling up the comp screen on the Bloomberg, which takes a five year snapshot of your company versus competitors versus the index, and you're just stopping all over everything, Paul, pull up the comp I'm sending I'm sending a message to my insurance and also Bloomberg Intelligencing. How come I don't know anything about this? Yeah, so what is driving your share price up into the right look?

I think that you know, it's a cliche to talk about culture, but that is what I'm going to do. We've been very lucky that a large part of our organizational growth over the last forty years has been through acquisition. We look for people to do a really good job of taking care clients, and we bring them in and build and hopefully build all kinds of capabilities around them that allow them to continue to expand their business. I don't want to make this sound like a roll up.

It's a real corporation, but made up of a lot of entrepreneurs I'm really really proud of. If you take a look at that chart, I forget what you said in terms of how far it is back there. You don't got our ten year TSR it's about six hundred percent. You look at at our five year TSR, it's over

two hundred and twenty percent. So I don't like TSR as a measure of success on a short term, three year, one year I have argument with Street on that, but I think if you look five ten, fifteen, twenty five years. T I was a really good at nicator of whether or not you're delivering for the shareholders. You need to see the chart. Yeah, you've basically done that. We've basically done that through the whole way. You can click on if you pull the TOMP screen, you can click on

a ten year as well. And it's I mean to me, it's it's just the outperformance that's so impressive, because the whole industry is done pretty well over the last ten years, doubled and tripled. But you've quadrupled, Quinn tupled, sep sep, I don't know how say it. Yeah, you're up more than six six times UM, so that that's fascinating. Let me ask you this then, Pat, what is You've been on the board of directors since nineteen eighty six, that was back when Paul was still doing KEG stands at

a duke. Yeah, but is born? What what does the rising rate environment look like to you? And how does it affect your business after ten years of basically zero um? What does it mean to you? This new way of life for most of us, but you've been through it and back. Let me let me talk about that because I think that's a really good point for your listeners as everybody frets about inflation and you take a look at what's going on in the marketplace, and of course

the stocks are down. The last year is a terrible year. One of the reasons we've outperformed and the industry's outperformed is that inflation really is a positive for Gallanthy. Now, that doesn't mean that if we have a recession that's a positive. And I could talk about that in the middle minute. Because our commercial middle market clients are not in recession, we can touch on that. But how can

inflation be positive? Remember, we get paid not on the market value of your home, but the replacement cost of your home or your building. And as inflation, as inflation causes wages in costive construction to go up, insurance companies rightfully demand more premium for the increased exposure we win in that environment. Secondly, we collect your money and we are allowed by agreement with you and our insurance carriers

to hold that money in most for sixty days. So for ten years we've had to do the growth that we've done with no fiduciary income on the investial asset, which is basically our premium we've collected to our clients. That's a substantial lift in a rate environment like we had today. So if you go back and you look at the Sevanghata invented this growth in a zero rate environment, a zero inflation environment, who's the one winner in the

market when the inflation comes along. It's not the insurance companies. And make no mistake, we're not an insurance company. We are a broker. So we help our clients manage their risk and we use the carriers as our partners do that. They take the risk. So if inflation crimps their loss reserves, that's their problem, not mine. But as premiums go up,

I benefit from any cruise commission. Hey, Pat, one of the reasons we like to get C suite executives on the show, it's just to really talked about how their business has evolved. And you know, particularly over the last three years with the pandemic. And I know you're based in the Chicago area, right in the heart of the United States, and you know, as as a founder of this company, how has your company, how have your employees change? How is your kind of workforce, your office life, how's

that all changed? Well, first and foremost, I think, you know, look when you look at our company. I know, again a cliche that our assets got up and done real it every day, but it's very very true. I'm really really pleased. We just completed our global forty three thousand employee survey and the culture is incredibly strong, which I'm pleased with, especially with so much so many people working from home, so we've gone to kind of a high

bred model. There's a lot of people in our offices three four days a week, and there are people working from home, and there are some that will work from home continually. So that certainly has changed that. We've benefited from the ability to utilize utilize it obviously, but the business itself has changed. And the fact that all the way down to your smaller accounts, people are demanding expertise,

and that's why you see so much growth. To you, it's no longer just your local agent is your buddy. I play golf with them, thanks very much to take care of my construction company. That's really changing fast as millennials take over. I don't really care that you and my dad played golf every weekend. The fact is I need somebody to help me handle risk management, and I need to know that there's breadth of understanding of what I do, and that's strength and capability by industry, so

I refer women's voticals or niches. Has really changed. Then of course you have digitalization and everybody wants two things. They want data and analytics want to know what do people like me? What kind of claims have you really seen? And again there's thirty nine thousand agents and brokers in America, the hundredth largest. Last you did thirty million in revenue.

We posted eight plus billions. So you are getting to this point where there's more and more every day A David and blythe kind of thing, yep, And so that's that's it's a big part of what's so so much change going on. That emphasizing culture continues to be the most critical thing our management team goes every day. Pat just about thirty seconds left. What do you think about the possibility of a recession? What's your view on the

economy going forward? Thirty seconds? Very interesting? Read all the same stuff you've read, see the Bloomberg reports as well. Understand high tech laying off people, our middle market clients. We measure this every single day, by endorsements and by and by audits, which means that you pay more if you pay me if your sales are up are stronger this year than last year. What's the takeaway on that our middle market American and global companies are doing extremely well,

which is why you see the pressure job growth. Fascinating, Pat great Stuff really appreciated. This company located in Rolling Meadows, Rolling chat Chicago, right near Evanston. You know, it's pretty close to the lake. All are just north of Chicago. There's great great towns, commuter towns north of Chicago, so that's kind of where they are. Rolling Meadows, Michigan, Great Stuff. Pat Gallagher, Illinois, Uh yes, thank you very much. He

started company. He started the company much better than Michigan. He started the company in nineteen seventy two as an intern. Great Stuff. Pat Gallagher CEO of Gallagher Insurance, Arthur Gallagher and Company and the New York SAKA Chains symbol a JG forty billion dollars market cap insurance brokerage firm. We love getting diverse CEO folks and C suite folks on from around the country, different businesses, getting a sense of kind of how business is out there in the real world.

I just feel like in a world of you know, tech, there are two mega conferences you have to go to. One is Consermer Electronics Show in Vegas that's in January, and the other one is the Mobile World Conference in Barcelona. And good job, by the way, saying that, thank you, I got a five on my ap Spanish. Can't speak a lick. Dan O'Brien, president of the America's and Gender Manager of HTC, he joins us he is in Barcelona, Dan,

what's the story here? Like, I did not go to CS this year, so I feel like I'm a step behind or two on the whole metaverse thing, virtual reality, augmented reality, all AI, all that kind of stuff. What is the buzz at the Mobile World Conference this year? Well, I think thanks for having and apologies for any noise that we are actually here on the show floor. But there's a lot going on here at Mobile Congress. A lot has to do with five G right, and how

is that going to create the connectivity for the metaverse? Right? And you know, how are carriers and companies like infrastructure partners like ericson and carriers like Verizon Wireless and AT and T Wireless and T Mobile and the likes, and how are they going to be the infrastructure providers for the metaverse? Right? And then how do companies like HTC deliver products and services and solutions for B to B and professional users and for consumers that will actually enjoy

and experience those types of immersive experiences? All right, Dan, I get that, and I know everybody there is drinking the kool aid. But to be honestly, if I'm a shareholder, a large shareholder of Facebook slash Meta, I can't say in one sentence, I can't tell you, and I own a jillion dollars worth of the stock, I can't tell you in one sentence what the metaverse is? What is the meta verse to you? And what do you think

the applications are to you? Sure? Well, the metaverse is really just an extension of the Internet and what you use today, what you're going to do in the metaverses be able to continue to interact with your computers, your

Android phones, your iPhones, your iPads. You're just now also going to be able to interact with this digital content as a first person, whether it's with mixed reality glasses or virtual reality glasses or augmented reality glasses or or glasses that do all of those functions, and you're going to be able to actually interact inside of these digital spaces.

Our version of the metaverseus the viverse, and you know, here we think consumers are going to use it for productivity and human performance improvement and things like training and simulation and education, but it's also going to be used for a lot of entertainment and enjoyment as well. What are all of these acronyms. I know VR is virtual reality. I don't know what XR is or MR is. What are all these different kinds of realities? Sure so XR

is kind of the umbrella. It's extended reality. It's the thing that extends you from your real space to a fully virtual space. Mixed reality is kind of you're interacting with your real world and everything in your space, and you can see everything in your space. There's also a digital overlay of content that you're also interacting with in your real space. So you could be playing a game, you know, in your living room where a portal opens up on the wall and the aliens come out, and

you're playing a game shooting at those things. You could also be you know, having an educational experience and learning about world history or ancient Egypt right and in your living room and actually doing it while you actually see everything in your living room and including the other people in that living room. So it's really kind of a mixture of the different levels of immersion that you can have. Virtual reality means you are one included from the real

world and you are completely in a virtual world. So dan is the virtual world? Is it a I mean, I have to have the headset. Is that just the way it is? And it's just a question who has the better headset, the better mousetrap. Well, I think we're all really driving at the industry to solve a lot

of these different problems as quickly as possible. We all started with virtual reality headsets because the easiest thing to do was put somebody inside of a completely virtual environment and control that and create the experience for the user. Augmented reality and mixed reality are more difficult, and you actually have to have a network infrastructure deliver content to those type of wearables or headsets. You know, the level of yes, we're all you know, in the future, you're

actually probably not going to have a smartphone anymore. And you will be using a wearable where you'll be able to actually have an augmented reality experience and just seeing overlays of digital content inside of the real world. And then you'll also be able to have you know, different levels of immersion with those types of headsets. We recently announced the XR Elite headset, which actually does virtual reality experiences and mixed reality experiences. So we're already moving there.

I think the industry and all the different OEMs and the different companies are trying to solve the different types of experiences we can deliver. I'm wondering about HTC and what you can do in this country. I know it's I think it's a Taiwanese company, right, but a lot of Americans are going to think it's Chinese straight away. And you've got this you know, China backlash going on.

What's what's your take on that? You know, growing up here, having gone to Marrymount, working your way up through KPMG and AT and T, now you're at HTC. Yeah, I think, um, you know, Time one is a is a compliant country that actually makes compliant products that are very safe for being used inside of Dude, I get that I'm just saying like there's a slant, right, there's a there's a bias, and right away people hear HTC and think, you know,

because maybe they're not as educated as you. Okay, basically a Chinese company. Um, how do you dissuade them of that? In marketing? How do you get around that? Sure? Well, for starters, we don't take any user behavior or user data or collect any of that data. We're actually a very privacy first company. UM. So regardless of where people think they actually the product was made or whether it

was made with good intentions. UM. We talk a lot about our brand, which is about innovation, creativity and humanity, and so all of our products are actually designed to actually improve humanity and give people solutions that will actually make their lives better. UM. And our products don't data mind any of our users or their user behavior. We want to protect all of that data as the best

we can for all of our users. So those are the things that we talk about heavily in our marketing and about our brand, and we try to really gain the trust of our users. And we have a long history of making things like smartphones and other products that users you know, at one point HTC sold forty eight million smartphones a year, and a lot of people were using our products and a lot of people have a lot of positive sentiment towards our brand. Hey, Dan, just

about thirty seconds. Is Meta or Samsung? Are they customers of HTC or competitors? Well, in some senses competitors, But in a lot of ways we were approaching the market very differently. You know, Meta is you know, subsidizing their hardware, and you know, you know, the user is kind of the product, right when it comes to a Facebook product

or a Meta product. When it comes to our product, the HTC product or the FIAT product that we sell you, that's the product and you get to use it for the benefit of you, whether it's for entertainment or for productivity or learning or education. But in terms of Samsung, you know, they exited the immersive portfolio and the immersive products and so we'll see what they come to market with probably in the next year or so. Okay, Dan, great stuff, Thanks for phoning in from Barcelona. Great stuff.

He's at the Mobile World conference there again, one of the big big mobile conferences, maybe the biggest. Yeah, exactly right, Dan o Brian, President of America's and general manager at HTC talking about the metaverse and all things technology. Some good stuff there. If you're into the investment banking biz like I am, you really pay attention to what the big big players, the Morgan Stanley's, the Goldman Sacks of JP Morgan's are saying, and we got a big How

do you do that? How do you do Is there any interass that you reach out to? The one person that you owe to from is Alison william She's our senior banks analyst at Bloomberg Intelligence. Literally one of the first analysts be hired. We begged her to join us back in the day when we were forming Bloomberg Intelligence. She's one of the best on the streets. Alison, you're downtown Manhattan. I know it's hard for you to go below fourteenth Street, but you're down in the financial district.

You're at Goldman Sachs. Are you learning anything today? Are they telling you in the street anything that maybe is surprising? Not a lot, And I would say not surprising. Although I'm surprised the stock is down, I don't know. I think that we weren't We weren't expecting any new targets

from the bank. They already sort of you know, talked about their strategy shift late last year, kind of gave new numbers and so what we were hoping for today and I think investors were expecting is you know, details on the path to better returns, and so they mapped out some things. I would say if there was something that was maybe disappointing is on the cost side of things.

They've missed their sixty percent cost ratio target in recent years and than some of the cost cuts that they've talked about are you know, are sort of not going to get them there this year. Um, But I feel like there is potential for downside coming into today just because um, you know, there there is a little bit of work to do to get to the returns. And they kept that return target and they do have you know, most banks when they put out these return targets, a

lot of it is dependent on the cost side of things. UM. I think that structural changes to their business are going to help get them there. So I think that's that's a positive and something tangible. They're going to be working down their their their balance sheet and asset management and then working to get you know, profitable on the platform business it just seems like, I know, Goldman Sacks is still you know, top of class in a number of

different um swaths of the industry. Right, of course, it's still Goldman Sacks, but they've had this about face with Mark is the consumer business. They've had this reorganization that's been a little bit messy. They've led the street in terms of having to layoff staff, and now they're holding an investor day, the second one. And they used to be like above investor days, too good for investor days.

So is it like a red flag that they're having to try and get investors together and convince them that it's still a good story. Well, I think you know, to me, the consumer business was not successful, but it's a small part of it. I mean, the overall bread and butter of Goldman is phenomenal and doing great, and I think that you know, the market share gains in that business which drives the majority of their profits, the m and A business, which is one of the most

you know, sought after businesses on Wall Street. You know, they pointed out how their number one for twenty years, but I would also point to, you know the fact that they have a big margin to the number two players, So let's keep that perspective. But I think the investor days, you know, they've they've sort of come with the current management, it's come with wanting to provide transparency, and it's come

with some of the newer efforts. You know, you have to be good at what you're good at, but always keep you know, trying new things. You know, the consumer business has not worked out. There's been so much media and headlines about that, but the transaction backing business has really done well, and you know, I think that's a business that we're going to hope to continue to see

good things from. And the alternatives business, you know, they've raised one hundred and eighty billion over the past few years.

That's you know, in the range of people like you know just below Brookfield and then you know a kru Blackstone and the leaders, but within that range of like Areas and Carlisle, and I think that that's really a story for investors that you know, as they continue to move some of these investments off their balance sheet into the hands of customers, and they're going to release capital, improve the returns on the business, improve the profile of

the business. They've never gotten credit for the returns there, and so I think that is really a positive story that we're going to see over the next couple of years. So Alis, I know from from talking to you and from reading your research that Goldman Sachs has typically had, you know, some of the highest returns in the industry year in and year out. I mean, I've competed against them for decades and I know how good they are to the extents. To the extet, the returns have been

lagging recently. Is it just their investments in the consumer bank or other parts of their business kind of lagged maybe a little bit, So I think it is the consumer part. But then you know, I will take you back to sort of the business I was just talking about, which is their investment business. So, as you said, you've known them for a long time, the private equity business and their investments has been a significant business for them, and in the postfocal world, they've been trying to work

that down. And while that business contribute to some of their returns, investors just really never give them the credit for it because it can be very volatile and there and so there's there's just generally less of a multiple applied to that business and so I think that is a part of the strategy to improve returns but also improve the quality of that returns through you know, moving some of those gains to recurring management type of fees

which investors do value with a higher multiple, reducing the capital that's going to reduce some of their capital requirements. The thirty billion Shary purchase, that's almost twenty five percent of our market value that they talked about today, that's a huge positive. So I think there are some good things. As I said, I think, you know, the negative side is maybe just that the costs they're going to continue to be a headwind. They're investing still in the platform business,

so it'll take a while. So I think today's just a lot of talk about execution. It's hard for the stock to turn positively. But I think they're setting good targets that they can meet and so you know we're going to have to see them them do that over the next couple of years. Well, it is interesting to see the stock down almost two percent when other financials

are gaining today. I don't want to leave you without getting a chance to talk about credit Suiee, Alison, because I know you never tire of the Green Sills, Saga, and apparently regulators are now saying Credit Suitee needs to hold board meetings occasionally to talk about their biggest counterparties, and they have to issue like a responsibility report for their top six hundred employees. It seems like so much work. It does, and I think this just continues to focus

on the process for Credit Sweeze. I think you know that there were some incremental positives in terms of their you know, remaining risk in the US. You know it's done. Who's Who's our legal expert, and I depend on him for those views. But it just I think, you know, from the local regulator perspective, continues to show that they have work to do. They're going to continue to be under scrutiny. We had news earlier this week. Oh well, we had news last week, you know, related to some

lawsuits about what they had said about flows. So I think sort of the legal challenges do you can continue for them, and it's just going to be a long process. All right, Allison, great stuff, and I recommend after your analyst meeting today you hop on the ferry, take it over to Hoboken, get the train home. That's a great way to commute. That's how I uhould do it back in the day from downtown. Alison Williams, Senior Global Banks

and Asset Manager analyst for Bloomberg Intelligence. She's at Goldman Sachs headquarters today in Lower Manhattan for their investor Day, giving us the latest on all things Goldman talk technology. I'm want to talk Apple and anyway we can go here. I mean, got a couple of choices. You can go on a rock Rana or you can go Man deep sing to me they're interchangeable. They can you can ask about hardware, tell them that yeah, I mean, I don't know,

both are indispensable, indispensable that that's a better word. But on a rock RANI. He's actually in seven thirty one Lexington Avenue, are Bloomerck Global HQ. So we got him here in Ore and there was a big Apple story today. There was a big Apple story here as we reached out to one of their suppliers in China and these supplier, this supplier tells us that they and their competitors, I guess, are looking for ways to move out China as quickly as possible. I can't imagine that goes down too well

with the government there, but I can't imagine. Well, anyway, we got on Rani here, he's a tech analyst for Bloomberg Intelligence Rock. Just summarize Force takes back a little bit and just summarize Force. Apple's exposure to China both as a supplier of stuff that Apple needs to build all the cold products, as well as an end user customer base. Talk to us about China that may be

evolving for Apple. So if you look at the smartphone supply chain that has taken I would say decades to build, or any supply chain for consumer electronics, Apple pretty much depends on China for all hits, all almost all its spots, whether it's you know, more than ninety eight percent of the iPhones are assembled there. Most of the lower end MAX are there, you know, you you just name it. Apart from the really high end Max. Everything else is

assembled in China. So given what the political tensions are, it is very logical. And it's not just Apple, it's the automotive industry. All industries are thinking how do I manage to take some of that supply chain risk outside? And this is going to be a big theme for the next decade. I'm not surprised about the new story.

I think more of that will come from exposure. On the revenue side, the Greater China region accounts for about twenty percent of Apple's revenue, so for in both cases, applele is overly exposed to China, whereas a company like Microsoft is, Google is not. What did they say about that? I mean, if you could make an argument, I can't own Apple, I think that China risk is to I can't own the stock. But nobody says that. But nobody

says that, but that you're right. But but Apple's ten percent of NASTAC, Apple's what four or five percent of the SNP, So you're absolutely right. If something happens tomorrow, Apple cannot you know, go out and procure those parts. Imagine what would happen to their revenue base because remember, you know, the eighty percent of their revenue is products, and they have to sell new products every year. So

it is a big risk. But having said that, they performed very well from a supply chain point of view, even during the big you know, the I would say, the embargo or the big fights we had a few years ago, they have been fine. But but you're right, it is a big risk. It is a big risk for everybody. I'm surprised eighty percent of the revenue is products. I would have thought they'd been boosting the services side of that. They are boosting, and the services is growing

in double digits. But having said that, I mean, you know, I phone is fifty. So we have a story on the terminal that maker of air pods called Gortech, one of their suppliers, which is a native China company, is looking to move to Vietnam. While they're investing two hundred eighty million dollars to put a plant in Vietnam, they're looking into an expansion in India. And a lot of

these other companies are doing the same. And it's not just Apple suppliers, right, it's also Sony suppliers, makers of the PlayStation and all of these consumer gadgets are they Are you seeing that across the industry, just to spread out to Vietnam, to India to other countries around China. Yeah, And as I said, it's not just consumer electronics. I hear this from my friends who make autopods. The real mandate over time. Now the question here is how long

it's going to take. And that's a very very big if. But over time, I do expect the global supply chain, which is let's say one hundred person independent of China, would only be fifty percent China and fifty percent elsewhere. That's what I'm thinking. I don't think. I mean, if you're China, your incentive is to remain I would think your economic incentive would be I want to be the supplier to the world. No, they are, but fifty percent is big enough too. It's not as if, like you know,

you can't, what are you gonna do? Cell only half to cell phones? Well, and for now also right, I mean, they surely they look at the evolution of other countries that have gone through the same thing, and they know that they can't forever be the supplier to the world. They can't forever have these low wage factories. The economy has to grow and change over time. And again, you know, they it's possible that the number of units you know,

produced in China will remains the same. But the next growth factor, whatever the next ten years of growth is, that's done from outside somebody else. Look what happened back in November. The Chinese factory that was making iPhone pro model, the expensive one got locked down with COVID and the you know, Apple missed a fair amount of shipments and that so Apple basically said, I'm going to assemble a second part of it somebody else. Now again, as I said,

this is going to take years. This is not something you can entangle so quickly, all right. So that brings me to India. If I'm an India technology person, I'm going over to Cupertino and saying, hey, I'll manufacture your stuff in India. I've got as good or better cost structure, I've got as good or better workforce, and i don't have the China risk. Talk to us about India from a technology perspective. No, they are doing it. But historically India has been very very you know, I could say,

focused on software development and less so on hardware. But that's already happening that you know, what you just said is in process. But having said that, even after a lot of these news reports, we just looked at some data you know, we got from IDC. Even now, ninety eight percent of the phones are still made in China from you know, close to ninety nine points some percent, so that the India you know, is less than a you know, maybe less than one to two percent at

this point. What is you cover a range of I guess B to B companies right on the tech side. What is your favorite one? What do you get most excited? I look across your research from Workday to IBM, to Apple to Salesforce, Microsoft, what makes what makes your job exciting for you? I think all these companies are something special about them. Each one of them do something very unique. But the one that reported last night I'm a big fan of is work Day. They are one of the

most ethically sound companies. They really develop a very good software product. They take care of their employees. I mean it's a very high quality company, and they grew, you know, numbers, pretty bookings pretty impressively last night. But Salesforce reports tomorrow. You know they're going through some growing pains. I think

their numbers are not going to be as good. But you know, we have activists invested there, and the big question is going to be when does Benihoff say, you know what, I've had enough and I'm going to walk away. And when that happens, you will see a Microsoft like story, you know, emerge over there. But work Day, so they they make products we use work Day for example, for our benefits management. Yeah. Here at Bloomberg for Bloomberg employe. So is the number one cloud R company in the

world HR company. Yeah, so, fifty five percent of Fortune five hundred companies use workday software. But it does. Does we use it? Yeah? If you go to manage your benefits, change your life insurance coverage, or anything like that, you do day software, which is a pretty cool suite of software products from a consumer from a user standpoint, Um, what's the end story for them? Does a salesforce buy them?

Does a Microsoft buy them? It would be too big, it would be very it's forty seven close to fifty billion right now. It'd be very difficult for anybody to buy them. But I'll tell you like a very interesting, you know, movie story behind it. This company is from, you know, from the founders of People's Soft, which went through a very ugly battle with Auticle many many years ago,

and Auticle basically acquired people Soft. And this found out who's probably at that time was in his seventies, walked up and said, you know what, I'm going to create a company, cloud based HR software company and it's baking taking share from PeopleSoft since then, so it is. I mean, they can make a movie out of this. These guys have done such an amazing job. What's the Wall Street call on Microsoft these days? And just kind of you know, looking at it here. I'm a big fan of the

CEO there. But the stacks, you know, up four percent this year to day, down about fifteen percent on a trailing twelve month basis. What's the Microsoft call? The Microsoft call is the cloud is going to keep on slowing down throughout this year, and hopefully, in my personal view, as soon as the FED signals that they're ready to stop, I think the business confidence improve, people start spending money

back again on technology. And when that happens and Microsoft comes back and comes back very strong, what is the tech? I mean it tech spending for twenty twenty two, twenty twenty three. It doesn't decline, right, It's just it's the growth. So last five years it has grown. Top twenty software companies have grown at an average of twenty percent PTY. But this year they're going to grow twelve thirteen percent, so shabby compared to last few years, but it's still

pretty impressive. So, I mean software is still the play, right, I mean, it's the cloud. I'm still playing the cloud, right, They're still playing the cloud. But this year is a bad year for cloud. So everybody is dumping Amazon. Everybody's taking you know, getting out of Microsoft because of that. But you know, in reality, the long term prospects are so good. In fact, this is the biggest case for cloud.

Is what's happening right now. You have a company, let's say a corporation that has had a fixed cost structure of it and certainly decides that, okay, ten percent of my acts go to the cloud, and now I'm charging on a per use basis. Certainly a cost structure becomes variable. In the next cycle, you're gonna go out and outsource more of that stuff because it's so beneficial for you. All Right, good stuff on Rona. Whenever we see them, they're in the AI and they're in the AI. They're

in the AI stuff. Oh that's good, that's good AI. Oh that's really good. Yeah. So by that, by that Ana rock Rana Techan also Bloomberg Intelligence. Whenever we see him running the halls here in New York, we literally just grab them, bring him into the studio and get the latest dump on what's going on in the world of technology. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts

or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three. And I'm Fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio