This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio,
the Bloomberg Terminal, and the Bloomberg Business App. Paul, I want you to bring in dan Ives, but let me give you some pre COVID comparisons. Pre COVID one hundred and twenty six billion revenue one two six has become two four to three. Okay, ebit do down the income statement, throwing some balance sheet joy that only Dan Ives understands. Fifty six billion pre code COVID. They've done terrible. It's one hundred and twenty five billion now fifth that they've
done on the edge of a double. Yeah, a triple, excuse me a triple. And then let me just get down to what I care about. I just doesn't care about free cash flow free cashlow thirty eight billion. It's basically a double pre covid to where we are. This company is failing. Why don't you bring in the good guy from Wedbush.
Our good friend Dan, I's Wedbush Securities senior equity analysts.
So Dan, we got a good look at a couple of the.
Real stalwarts in the tech space last night. Microsoft and Alphabet. I know you you don't cover Alphabet, but I know you've got some thoughts there. But let's just start with Microsoft. There, our good friends in Seattle. It seemed like a solid quarter across the board here. I mean, I know the stocks reflected that over the last year. What did you take away from our good friends at Microsoft.
I mean, look, I think they should print this press release off and conference call and put in the loop. I mean, if you look, the cloud numbers here are off the charts. Co Pilot. Remember this is all about AI co pilot. You have over a million customers now from a subscriber perspective. Enterprise are lining up Monzians here. This is just the start of the revolution. I think this is as bullish as we could have expected.
Jennives go out three years I was talking with our great Joel Lovington this morning about you know the timeline out. I want you to be an adult. I don't care about the next trading day. I don't even care how we get Microsoft to Valentine's Day. Give me twenty twenty six. Where is this juggernaut? Then?
I think it's somewhere between four to five trillion. I mean, but Tom muld, you put some numbers around it, please. There's an incremental one hundred to one hundred and twenty five billion of cloud revenue not reflected in the street numbers. If you put that into EPs, I mean you're really essentially looking at what could be an incremental three to four hours of EPs that's now refucked in the stytum.
Yeah. While I was on the conference call and I said to Satya, I said, don't get rid of Diablo for but tell me about Activision because I looked at the free cash flow explosion, and everybody's been out of shape about the revenue of EC division. I'm looking at the profit from day one. It's larger than what we would call Windows business. What does profit AC division do out two years, three years?
Well, I think it's really about the cross sell opportunity. I mean that that's something that probably could increase another twenty twenty five percent for me from profitability perspective, that's just going to give them more and more of a talent because in the in the scheme of things that's around the error, you know, relative to the overall business or what they're doing now, they're just broadening out in the consumer and on the enterprise, gaining more more strength.
And you look at the numbers, the numbers are just their job jo dropping.
They're truly folks. From the scope and scale there's to me, it's the Rockefeller build up back in the eighteen nineties to nineteen twenty Paul linked in up ninety percent.
It's just amazing. Hey Dan, I know you don't cover Alphabet per se, but what do you think You know this just AI and chat ept for our friends in Seattle. What does that mean for kind of the global search business?
But I think look, if you look at Alphabet, the advertising, even though you know some could sort of split hairs here, I think actually really strong. We saw from YouTube and a lot of their assets. I think the big thing on Alphabet is just what's happened Google Cloud. You look at that some of the parts. I mean, they're just starting to tapp into that massive opportunity in the cloud.
And we've talked about all of my colleagues got deviit that could add thirty to forty dollars per share to the to the Google Store.
You know.
I just real little simple here, Apple tomorrow, Amazon tomorrow. What do you expect?
Look New York City, cab drivers, parish on Apple, you know, in terms of units and everything. And I think China's actually been relatively stable. I think that's gonna be a breadth of fresh air from Cooking Cooper Tino on units, on services and on Amazon. And the big story is gonna be the i'll call it a mini turnaround that they're seeing on e commerce as well as cloud. We're gonna look at the end of this week and say, big text delivering these knee jerk reactions I view as kind of table scraps.
All right, Dan, So, I mean, I think you know the big thing for Apple is China. So just give us a sense how you think that's going to be play out, or how do you think Tim Cook's gonna frame that out? Tomorrow night.
I think he's going to talk about demand has been relatively stable. There are some pockets of weakness Huawei competition, but overall, the upgrade opportunities in the ESP's look strong in the region. I mean it's our view that units show growth this year. The streets now bacon in obviously five to ten percent decline. So if you start to hear that from Cook along with services double digit growth, you look, what's happened? Or free cash or he always
talks about. I mean, you start to now get a stock that should be closer to fifty rather than you know.
I got thirty seconds, dan Ice use of cash? When did they get off their butt? Sweeney wants them to raise the dividend. He sent a note out there this morning to amihood they get a raise, a dividends, sheer, buy back bond issuance. When does Microsoft grow up and act like a blue chip?
Yeah, And they talked about that Sweeney activist situation and Nate looking and I think that's something. Over the next six twelve months, there's gonna be some massive deployment of capitol olt kid just given the generating more cash in some countries here.
You know, this just came in rich from the Netherlands just emailed it her the middle of the day. That's a hell of a man cave on YouTube, folks, you got the ives sports man cave. What do you got in the paraphernalia behind you there?
I hope we got our of course. Pete Penn state we are giants Island. There's got my bon Jovi stuff.
You got your banjo? Is it early bon Jovi back with the skull t shirts or is it later bon Jovi? Suburban review? Okay, when Michael Brower mixed it, that's good Dan, I's are on John bon Jovi, Thank you so much. Good morning Michael Brower who mixed all those great kids. Right now on the FED she won't fly bowing anymore.
Julia Carnado Jones's micro Paul, I'm kidding micro policy perspectives here on FED Day, Julia, I'm gonna posit the same question, which I think is the ambiguity of what to do with the nominal rate where it is, and that, folks, the math here is the yield of picure duration the ten year minus a new wicked small inflation, a disinflationary statistic which gives you a high real yield. Julie, how should the Fed respond to where the nominal the current ten year real yield is.
Well, I think that the FED trade off ahead of them. They can not be in a rush. At the same time, it's there's no denying now that the inflation trend is definitely outpacing their expectations, and a sequence of cuts to the nominal rate is the right way to balance risks
to keep that real yield from tightening. So I think the direction of travel is pretty clear, and what we will look to hear from j. Powell is some sense of strategy and timing and cadence right, and what exactly they're looking at to trigger this process?
Are they slaves to the green span measured? Which I think everybody knows so and listening to me for years, I totally disagree with my good friend doctor Greenspan on But are they just completely slaves to it all costs be measured?
I don't think so. I wouldn't. I would say it's it's a little bit more nuanced. They did say that they could move methodically, or that's what Governor Waller signaled, and we'll see if Chair Powell repeats that word today. What is methodical? Well, it sort of suggests they won't be moving in you know, fifty or seventy five basis point moves, that they will be moving in twenty five basis point increments. But I expect a lot less sort of rigid forward guidance. That doesn't mean twenty five basis
points every meeting or you know, every other meeting. It's going to be dependent on the data. Could be faster or slower, But it does seem like they are ruled out chunkier moves in the initial phases of this process. Again, as long as the economy cooperates. If we get you know, companies laying off workers, certainly that would change the landscape
and they could move a lot faster. But I think in the current environment where the labor market looks pretty healthy, a lot cooler but pretty healthy, growth is fine, and inflation is cooling quite rapidly, they the intention seems to be dare I say, move at a measured pace and.
Julia, but there's a lot of folks out there, a lot of folks that you know, look at real time data and say, hey, this FED inflation is already down, the economy is slowing. Now is the time? Why wait to see the rear view mirror data confirm what we already know, which is economy is slowing, inflation is tame. Let's go now.
Yeah, it's a it's a fine balance, you know. Again, you're right. We look at g Q four GDP, it's quite an impressive but again that's Q four. We're in Q one and we're looking towards Q two. What does the future hold. I think we've seen surveys showing some alarming things on the hiring front. We in our own scraping of earnings reports that we do at MPP hearing the same thing, that there's not a lot of hiring intentions. So we could see a cooling in the labor market
in coming months. I don't necessarily think it'll show up on Friday, because there's some seasonality issues that could boost the number. But I do think in coming months we're going to see softer job numbers and that could lead the FED to go either at a steadier pace. I do expect them to move in March. I don't see there's a reason holding them back. We expect as long as the January inflation data don't repeat the surge that we saw last January. If it looks more like the
last six months, which is very benign. I think that they go ahead in March and get this process started. I think that's what we've been hearing in feed speak when they say risks are balanced, that means, you know, it's time to start thinking about the next phase of policy.
Hey, Juiet, you mentioned kind of the labor market. Obviously we'll get a good read on Friday here. I mean, I don't know. I mean I took two economics classes at Duke. I feel qualified to comment on this. I'm just shocked at how strong the labor market has been and how resilient the labor market's been. What do you make of it?
Yeah, it's been impressive. It was the main reason we did not expect a recession last year. The US labor market is so diversified. It's an ocean liner, and we came into last year just firing on all cylinders and it was hard to see a sharp turned down. It's a little bit, I would agree, it is with a feed it's more balanced now. Hiring still looks okay, but
it's slowed considerably since last year. Unemployment is low, but it's crept up a little bit, and the base of hiring the number of companies hiring, the number of sectors hiring has really really narrow. Steve Rattner, it's just three sectors driving everything.
Steve Ratner was out the other days doing a thing. On morning Joe saw that Steve's got killer chart, killer killer chart, showing how odd the employment growth was. This explosion out of a stimulus lead pandemic. Doctor Coronado, who benefited in the job market? Was it the haves the have nots? Did the middle class lift?
Yes?
Yes, I mean I think one of the great things we saw from this run it Hot experiment was that it did benefit the lower end of the earning spectrum, and that's something we haven't seen in decades. But the lower income workers. You know, it was Amazon competing with Chipotle for you know, entry level, lower wage workers, and all of a sudden, those workers could get full time jobs with benefits at a decent wage. That was it was like a level shift up for the lowest earners.
Now at the top it's a bit more nuanced. Things like work from home allow Actually people are not willing, they're willing to take smaller raises for more flexibility, and so especially supervisory workers didn't get those raises.
Julia Coronado, thank you so much for the FED brief.
Do we have flexibility?
We have flexibility, Okay, I've waited and waited for this interview. Robert T. Kaplan, I've done a number of books with him, where they've been my book of the Summer. He did a brilliant book on China and all their expansion, if you will, off of Marco Polo. His definitive book on the South China Sea is a must read for anyone in the American military to get an understanding of the
circuitous nature of the South China Sea. And of course the way the United States militaries in the Philippines is just one example right now, And with that question, my book of the year this year was Robert T. Kaplan The Loom of Time. Yes, it's between empire and anarchy from the mediterrane to China. Boloney, it's a primer from Rocco all over to the stands where you don't know they're on the map. Robert T. Kaplan joins us right
now on international relations. Robert T. Kaplan, if you wrote The Loom of Time right now, how would you have to rewrite it? Mister Netanya who's actions in Israel.
First of though, it's a pleasure to be with you, Tom, I would not have to rewrite it at all, because Israel and Palestine are really not in the loom of time. And what I did do in the loom of time was I said that ultimately that the Middle East will change dramatically with a change of regime any Iran that will be driven by intern factors, and that I think the events of October seventh, twenty twenty three have, because of their very ferocity and beast reality and intimacy, have
probably changed the Israeli calculation on Iran. That sometime in the future we're going to see direct Israeli attacks on Iran, not now because they have their hands full with Gaza and that Iran. You know that as when Iran changes, where eighty five million Iranians are brought into the global economy, that's when the Middle East will really shift.
James Travinas was on yesterday the former Supreme Commander NATO. He was fiery, incendiary about that we need to take actions against Iran. You're one of our experts on what we've gotten right, what we've gotten wrong about the cultural Sunni Shia debate the idea that Iran has maybe the only legiti middle class in the Pan Arab world. What is the Robert Kaplan prescription for how we approach Iran after three deaths in Jordan?
Well, first of all, keep in mind that we had the United States and especially Israel have been in an undeclared war with Iran for years now, and it really ramped up after October seventh, and ramped up another degree or two after the three deaths at the US military base in northeast northeastern Jordan. I think the way they have to approach it is, you know, everyone says, let's take out their nuclear facilities or their missile facilities. This is easier said than done. A lot of their nuclear
facilities are deep underground. I don't think the Israelis have the equipment, you know, the bunker buster bombs to do it. I think what the Biden administration has to do is increase by degrees its its retaliation, in other words, not tit for tat. And the reason why tit for doesn't work anymore is because the Iranian strategy is they will have their proxies attack Americans and Israelis, and the Americans in Israelis will then attack their proxies without hitting Iran directly.
Therefore Iran suffers no retribution, and because Iran is afraid of a dramatic retribution against them, because that could unhinge the domestic situation in Iran, which has been tense for years now.
Robert, is their political will in Washington, in the administration, in Congress for such a change. Maybe imposture towards Iran on the part of the US, Well.
There might be in Congress. I'm not sure there is in the administration because you know this is very unscientific, but this is an election year and a wide ranging war in the Middle East may not help the Biden administration or probably hurt it. So I think that you know, in our system, the commander in chief makes the calls. All the powerful experts can give him this advice in that, but he has to make the judgment call. And I think he's ultimately fixated on getting reelected and doesn't want
a wide ranging war with Iran. But you know that being off the table, they have to really ramp up the level and ferocity of the attacks on Iranian proxies from Syria and the North to Yemen in the south.
Robert, what do you think the Israelis will do in the coming days weeks as it relates to their efforts in Gaza. I mean, the response was stronger, probably than maybe a lot of people thought, but it's been certainly consistent with what they've said. They said they are going to wipe out Hamas, and a lot of people question whether that's even possible.
What do they do from here?
Do you think?
All right? Well, the problem the Israelis have is if they have a permanent cease fire that allows in massive amount massive amounts of rebuilding and humanitarian aid. The way that Gaza society is structured is that the remnants of Hamas will take that aid and restrengthen themselves. You know, humanitarian aid is one thing, but rebuilding aid will be stolen by Hamas, and then the Israelis will not be back to square one, but they'll be back a number
of steps. Therefore, I think the Israelis will do everything to keep putting off American pressure, saying nice things to Secretary of State Anthony Blincoln, but ultimately to keep pressing on and fighting. Yes, there might be a cease fire for a few weeks to get back maybe one hundred hostages because Netagne, who is under a lot of domestic pressure to get more hostages released. But in the medium term, in a long term, I think they keep bombing, you know.
You know, though it will shift from these sort of you know, I wouldn't call it indiscriminate, but these wide ranging attacks on infrastructure and the Gaza stripped and changed to intelligence driven, targeted you know attacks. We get intelligence that these people are in such and such a building, we bomb it. And they will keep doing that, and they will keep methodically going after the tunnels, flooding them
with seawater, et cetera. You know, the media loves novelty, and there isn't a lot of novelty after you accept that the Israelis are bombing and flooding the tunnels. It's just takes time. It takes many weeks. So these so the media thinks Israel is not making progress, but that's false.
Robert Kaplan, folks, he will continue with us. Robert T. Caplin, I can't say enough about his effort over the years. A Loom of Time was my book of the year. I just can't say enough about the span from Morocco to the stands Robert Kaplan. I've got to go back because of the shock of our military at risk to the state of the Pacific, the jewel from years ago, Asia's Cauldron, the South China Sea, and the end of a stable Pacific. We walked away from the Pacific Rim.
Now we're coming back with four military bases sprawled across the Philippines, the debate of Taiwan. Give us an update on how you perceive the end of a stable Pacific.
All right, First of all, the Chinese love to, you know, to constantly bully in push around the Philippines, because the Philippines is a weak state compared to the other major states in the Pacific. But it is also a treaty ally, the highest form of ally with the United States. So whenever that China bullies around the Philippines, Beijing is also
poking Washington in the eye. I think what we've seen is the creation of this wall of sand where the Chinese have literally dumped sand, created atolls, built military bases in a very you know, you know, in a very slow moving fashion and salami sliced fashion. So that gradually, over the last decade since I've published Asia's cauldron. The Chinese have essentially taken over the South China Sea without
the United States being able to do much. It's been you know, they've done it by a thousand cuts, and each one so small that for us to retaliate, we would seem to be over retaliated.
I'm going to cut in here because I know Paul wants to jump in one final question on that. If it's been by a thousand cuts, what are there one thousand cuts? Is it relates to Taiwan.
Remember, the Taiwan is the northern border of the South China Sea. It is the cork in the bottle of the South China Sea. So by taking over the South China Sea, China makes tremendous progress in enveloping and making an end run around Taiwan's sovereignty.
Robert, we've seen economic data coming out of China much weaker than maybe people would have expected with the reopening of that economy. How does that change maybe the calculus of President g as he thinks about the positioning of China in that part of the world also easy to the US.
Yeah, you know, when you have a a big authoritarian state that is economically weaker but militarily stronger and becoming stronger and stronger like China. That's a very dangerous situation because it because the regime can always be tempted to kind of distract its population with nationalist posturing, especially if that population isn't producing enough, you know, if that economy is not producing enough jobs, especially for young males, et cetera.
So I think like an economically fragile China going forward with even as China is producing more nuclear weapons, more warships, more submarine more nuclear powered submarines, the most important thing of all. I think it's a very tense situation, you know, the combination of those two factors.
Yep, And I guess you know, from the technology standpoint, it really feels like there's a technology cold war between China and the West. What do you think the US postures should be politically, policy wise towards China over the next several years.
Look, we have to avoid at all costs a major hot war in the Pacific. We've you know, the mats around the world have absorbed in very well twenty five years of warfare in the Middle East, they've absorbed warfare in Ukraine.
They've made adjustments they've priced it in. But a hot, high end war in the Pacific would be it would be like COVID nineteen. It would be like an extinction level event for a period of time. From markets, it would disrupt supply chains in a big way and all of that. So how do you avoid a hot war? Well, you get to what I call a post Cuban missile crisis situation. You know, the Cuban missile crisis. Both superpowers
stared into the Abyss and they were absolutely terrified. And afterwards you got the hotline established, nuclear arms limitation talks, nuclear test ban, treaty, ultimately detent. That's what we have to get to with China. Well, without having a Cuban missile crist.
Dutch Caplin, I'm running out of time, Robert T. Caplin, as simple as I can make it, Do we have a foreign policy now? After the tumult of the last X number of years of presidential politics, all that's going on in Washington, whatever anybody's political affiliation, do you see a foreign policy in this nation?
I do, but I see it in danger of changing by one hundred and eighty degrees every four years. We don't have the continuity of a foreign policy the way we used to happen.
Got to leave it there, Robert Caplin, Thank you so much, folks. I'll put it out on LinkedIn and Twitter. It is my book of the year, The Loom of Time Lisa Mateo with their headlines, Lisa, what do you start?
All right, we're starting with the Wall Street Journal. Paul, this is over to you. It may entice you to go electric. Okay, listen to this. There's a German tech startup picks called Finn and it has a six to eighteen month subscription service, so it's letting people rent ev so you can kind of test them out, kick the tire or see what you think. It has about twenty five thousand subscribers. Now forty percent of those went on
to buy the EV's after they like driving it. So they have mostly in Germany, but they do have about two thousand subscribers here on the East Coast, so just over see, Americans are not as willing to buy. But just over seven percent of its American customers went on to buy the EV So this is just another venue. I mean, Hurtz tried it. It didn't kind of work out.
I know, you know, Matt Miller who he got me a one week test drive of the four f one fifty Lightning and it was awesome vehicle. And I'm not a pickup truck guy because I'm a Wall Street shot to try pickups. But it was awesome. But the charging anxiety exactly is there? Where Where did stop the show?
Now? Worldwide? Because this is what I hear from everybody over beverages of my choice. So you get the car from Miller the forty or whatever.
Yeah, he's a player.
Where did you charge it?
I charged at Bloomberg's Princeton offices. Actually I was down there for I was down there for a meeting. I forgot charge it up and booth and and my country club in New Jersey. They have charging stations there, so but.
Otherwise you charge it at your house.
No, it will take twenty four hours.
Yeah, it will take twenty four hours with my little on full disclosure.
And I don't even have a driver's license, folks, that's qualified.
Tom does not have a driveway.
I mean, I'm you know, I'm doing hybrid bently, It's it's working. What's next killing me? It takes how long to charge you?
Well, if you don't have the big charger thing. If you have the big charger thing, then it's pretty quick of a number of hours. But you got to drive around and look for it to I don't know next.
Okay, we're going to Bloomberg. Now a lot of layoff news. So Bloomberg took a look at who is most likely to get fired. Okay, so they interviewed economists, recruiters, consultants, career coaches. Turns out middle managers, remote workers because middle managers people trying to streamline. Companies trying to streamline remote.
Work from home.
Yes, correct, remote because you know, they want more people back in the office and it's easier to let go of someone remotely.
Then, so they didn't mention people with a red and blue bow tie.
No, it's not exactly you know what I'm wearing.
Claudia Some was busting my chop. She tore me to shreds out on associate yesterday. We're in a red and blue bow tie for doctor some today.
What do you think?
Yeah, I think you mentioned ups yesterday.
I know, six days a week, I know everybody's got to come.
In okay, quickly or one more? You got twenty seconds?
Go twenty seconds all right, Walt Disney. Parents going crazy. They're taking classes about these paid reservation systems, travel agents, YouTubers, influencers. It's all the lengths of parents are going to book Disney vacations for breakfast, forgetting it, to get.
What you want to do is spend two hundred dollars to get a warmed over pancake so Princess can see Goofy. Yeah, and I've actually folks have actually done this. Yes, Ken Philly, have you done this with the twins? I mean you have, You've been in the kast Goofy.
I'd have never done Disney with the kids four kids zero Disney, Yes, how about that.
We're only doing this for America for that.
The truth of the matter is is Lisa Matteo had a bon Jovi poster in her bedroom, and so did Denise. Denise from the Upper Upper Upper west Side had bon Jovi.
Bon Jovi.
We're all bon Jovi today for Paul Sweeney. This is a Bloomberg Surveillance podcast bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am
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