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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordernt. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg
Terminal and the Bloomberg Business app. We begin the South with our top story, Apple's Tim Kirk stepping down following fifteen years of the helm, naming John Turners as its next leader. Tom Ford of Max and grew with this to say, the naming of mister Turners as CEO is an indication that Apple still considers itself as a halfware first company. We look to see how well Apple capitalizes on AI. Tom joins us now for more. Tom, welcome
to the program. Is this a continuity candidate and is that what this company needs?
Now? This is absolutely a continuity candidate as you're referring to it. I believe Tim cook handcooked handpicked John Turnas to succeed him, as Steve Jobs handpicked Tim Cook to precede him beforehand. Does Apple need a continuity candidate? So I think that we'll be measuring John Turnas's tenure at Apple on the company's ability to capitalize on AI. How long can he extend the iPhone life cycle it's already
nineteen years? And will he be more like Steve Jobs and less like Tim Cook and be able to determine what the next device the consumers want that they may not know that they want smart glasses, foldable iPhones, Will they give the car another attempt? Will they work on more connected home devices? So those are the things we'll be measuring John's performance in the future. Tom.
Why now?
Why is Tim Cook stepping down at a time of tumult ahead of what could be the biggest revolutionary aspect or evolution in technology?
I think you could argue, Lisa that why now?
Tim Cook has got the company in an amazing position when you think of the challenges it faces. He's diversified the supply chain, so they're less dependent on China. They now rely on China and India and Vietnam at least on a near term basis. He's addressed the AI challenges by having a strategic partnership with Google to ultimately enable them to enhance Siri, and he hands over a very
strong company. When you think about that twenty percent growth in iPhone revenue in the December quarter, So I think, why now He's handing off a very strong Apple to John, and he's addressed a lot of the near term challenges for the company.
One thing Tom that we've been noting for a number of months now is that the other big tech companies have all been investing hundreds of billions of dollars into the tech evolution. Apple's been relatively investment light. They have kept their kind of capital light profile. Well, do you expect that to change as Apple tries to be more forward looking and come up with new products.
I don't expect it to change unless John pivots the strategy and Apple changes its emphasis on AI to focus perhaps on services or things where they need more rock compute power. When you think of the heavy investment spend, a lot of it's by the hyperscalers Amazon, Google, Microsoft, and a lot of it's come from meta platforms.
So that the question is for John turnas how long can.
Apple maintain this hybrid model called capital light relative to its peers and AI and I would say it depends on how much rock compute power he intends and if he wants to offer AIS more of a services, including at the enterprise level.
How much bandwidth will turnus actually have with of course still having Tim Cook as the executive chairman.
I think he's going to have tremendous bandwidth. So when you think about Tim's cook success at Apple, He's managed the governments of US and China beautifully. He was a steady hand following the untimely passing of Stee Jobs in twenty eleven. So I think that Tim Cook as executive chairman will be very supportive to John, but ultimately be John's vision for the future that I think drives Apple shares from here to him.
Just finally, Tim Cook, I was going through the numbers yesterday, just how much stock has he brought back over the last fifteen years. Just how much has that company changed from that vantage point.
I don't think they ever achieved cash flow neutrality or that sort of thing, but yes, he has done an amazing job of returning that tremendous free cash flow to shareholders initiating a dividend buying backstock. I like to think of the four trillion from three hundred and fifty billion performance in his tenure, which is truly superb.
Stay with us more Bloomberg Surveyman's coming up after this. The President of the United States telling Bloomberg the US around seas far expars. Tomorrow night, the Vice President Jadvance expected to travel to Pakistan for a second round of talk. Steve Yates of the Heritage Foundation ranked in. The President made clear that he has a lot of cards, and he's willing to use them. We have the last gas of the IRGC trying to flex their muscles, but they're
really at this point no match. And pleased to say that. Steve joins the program now for more. Steve, welcome to the show. It's good to see you, sir. Let's talk about this messy kind of moment that we're in right now, where both sites trying to find a bit of leverage. Why do you believe the US is in a stronger position.
Well, basically because everything the United States has sought to do in unwinding this multi decade intractable problem has worked better than someone could reasonably expect at the beginning of
the process. There has been overwhelming military dominance. Strategically, there's been tactical hits that have come back from time to time when you start looking at going from a strategic force on the cusp of multiple nuclear weapons, as international assessors and inspectors have account reported, not just American sources, and you look at the large number of.
Organized military forces.
You have a divide now in Iran between regular military and the IRGC. All of them, from leadership down to true capabilities are degraded, and we have new tools that.
Have been opened up.
Between Round one of negotiations and whether we get to Round two in the next day or two or it takes longer. There's been an immense toolbox of financial tools that have opened up to Secretary Vesant that.
Really aren't open to public scrutiny.
That are because Iran lashed out at allies and so international financial access and tools that could be just as crippling economically as the military has been intrategic sense, this is a correlation of forces that can push for a change. The question is what kind of a change if you're not going in to occupy and run a country, which
we absolutely are not doing this time around. You're going to end up with this messy situation of a disaggregated leadership that is a bit schizophrenic on communications, some elements lashing out, and you have to manage that de escalation over time.
Well, that's the Iran we're left with. What does that mean for stabilization of the region.
Well, in some ways the region is much stronger if you look at the Arab allies that have a lot of capital, that are determined to invest in a number of different ways, first and foremost in their own capabilities.
Having strong independent allies is actually a net benefit to the United States if we have to surge anywhere in the world, from the Endopacific to our own hemisphere, it helps greatly if we have very strong, vested and determined allies who can somewhat keep the lawn mode in their own region without us having to be there for a daily manis maintenance.
Doesn't mean we leave.
It just means that it's a much better set of options for us and for the allies for that matter.
I think there's been a clearing.
Of the air somewhat on where there are real powers and abilities to influence United Nations has been a wall in this. Europe in many ways has not influenced things very much beyond going on television or public events, and some allies in Asia are stepping in to balance things in different ways too. So some of these changes, if they are sustained, changes in energy dependence and flows, that could greatly affect China's geostrategy and the US relative power there on those negotiations.
So a lot still to unfold.
But I think on balance, there's a lot of geopolitics that are net advantage, while there's still a lot of.
Risk to manage.
Steve, As you know, the Iranis are notoriously famous for dragging their feet when it comes to negotiations. Do you even think we have talks tomorrow.
I'd give it about a fifty to fifty chance, but I don't think it matters in the long run. I admire the administration's willingness to do this. It's one of the things that kind of goes counter to a lot of the cartoon caricatures of President Trump in his style.
This has been a very gradual.
Escalation of power and use of tools. It's been somewhat patient, It's much different than sort of the flash bang of going into Iraq before and pushing for regime change and depathification. There's a higher tolerance to work with remnants that is kind of more of a centrist and pragmatic approach than people might have assumed.
And so I think.
That it doesn't matter as much if the talks happen in the next twenty four to forty eight hours. That is great if there is a sustained deal that comes of it, But I'm very much in the don't trust, just verify category when it comes to who you're negotiating with.
With all due respect, there's this question about the impulsivity or whether this was orchestrated, or whether this was a patient effort, gi fact that a lot of allies were not aligned or aware of exactly what was happening. And now there's a lot of pushback, at least publicly from both Europeans as well as from some of the Golf allies, talking about how you made this mess, now clean it up?
How do you see it differently?
Just the facts of the on the ground are completely counter to that narrative. We have politicians in a lot of geographies whose audience is larger than their ability to influence. They have meetings about meetings about someday going in and protecting freedom of navigation, but the whole world can watch
that they are all dance and no music. And in the golf there are definitely some mixed messages that come from different capitals, but real centers of power among those golf allies are saying publicly that they are on the American side of this longer term and ultimately they don't think that the Iranians are free.
Of responsibility and all this.
Ultimately, Iran has been a profound threat to them, and they've seen everything that's been tried in recent decades is being insufficient to the task. I don't like the ugliness of the missiles coming their way. They would rather have greater certainty, greater access. But they see this as having been a necessary issue to address, whether they liked the timing or the pre operation consultation. Also, not everyone who is consulted says so publicly.
Steve, there's also a question you mentioned that you think that it aligns the United States in a better position geopolitically,
even with respect to China. There are a number of people who say that China is trying to actually reinforce its influence in the Middle East as the major oil buyer from the region, and that you're seeing actually some of the oil traded in the region from Iran transacted in Runman B. What do you make of that, The idea that China's actually gained leverage during this process.
Well, it's I think very incidental leverage, and it's really exposed two huge vulnerabilities for China that haven't really factored into a lot of people's long term assessments of China's powered influence. One is China is entirely dependent on being an export led economy. There has been no transition to a consumption economy in China, and where they have to export is to the world's largest consumer market, which is the United States.
That's a huge complication for them.
The other part is that China remains hugely dependent on imported fossil fuel. There's been a lot of chatter about them racing ahead on solar and maybe they are, but when it comes to being a cutting edge AI driven export tech economy, it's just impossible for them to even function at a survivable rate without that dependence on imported energy. And especially fossil fuel, and so their risks have gone significantly up. We've had exposure on rare earths, they have much bigger vulnerabilities.
Really both have to address those.
But America's options are getting gradually better.
I think China's options are not.
More Bloomberg surveillance coming up after this, We begin this sound with stocks holding their all time high. Civita Supermanium, a bank for America writing we see a big proportion of halves in financials and a good chunk of halves in tech, and see both sectors as rife with idiosyncratic opportunity. Civita joins us now for more Civita, good morning, get.
To see you, Good morning.
The mood on Wall Street by the depths. I seen this across the border, seen it from a range of banks that every time you get a big bit of weakness you should buy it.
It's that your approach to this moment not necessarily.
I think you can use this opportunity to buy certain stocks. And you mentioned tech and financials. Those are areas where we think a lot of stocks have been sort of summarily rejected because of geopolitical risk and haven't necessarily come back I think that for the index overall, I worry because there are some supply shocks in terms of equity
coming up. We've got a lot of private capital sitting on the sidelines waiting to IPO, especially in technology, which is the biggest chunk of the s and P five hundred of the US equity market. I also think that the direction from here is really what's the next positive surprise versus negative surprise? And you know, we're done with that whole geopolitical thing, it seems.
But are we? You know? I think that's the question.
And then on top of that, we're starting to see the potential impact of higher oil prices in consumer companies forward guidance.
So I think the risk is the.
Impact of oil shocks takes a while to play through. So far, what we've seen is that consumers are spending more on gas and oil, but the actual hit to discretionary and you know, kind of the rest of the stack could be three quarters out. That's what we found in our data. So I think this is a moment where you have to think about what are the positive versus negative surprises? And I guess I don't see as much likelihood of positive surprises in these big bell weather sectors like tech.
Like you know, even industrials.
I think industrials is now trading at a really lofty multiple.
It's pretty crowded.
Sure, tons of tailwinds, capbecs alive, and well everything is hunky dory defense. You know, you've got oil plays in the sector. But I do think that, you know, there are areas of the market that were basically bought to hedge against geopolitical risk, industrials being the classic case.
I mean, it's interesting.
So I'll give you a little anecdote. I was marketing in Europe a couple of weeks ago, and as you know, it's hard for global investors to buy fossil fuels. So I think that, you know, there is this this frustration because.
You can't buy oil stocks. Oil is surging, so I.
Think there was this sort of industrials closet energy demand, and because if you look at the correlation of industrials companies, they're basically they act like energy. A lot of them look like energy and act like energy stocks, but aren't in the energy sector. So they're a good way to get exposure to a commodities upcycle without actually having.
To buy the energy companies. Sorry, long, long of it.
So the headwinds and the threat at the index level, yes, you know today capital IPOs being one, the land effect from higher oil prices being two. There's a third from tracking your research that you didn't mention, and that was buybecks.
Ah, yes, yes, thanks changing.
And why is that becoming a biggerhead wind to this index?
So, I mean there's a lot more claims on capital for companies. Thank you for remembering that. For me, buybacks are a big deal. I think that what we're seeing now, they're still happening. And in certain sectors like financials and tech, you're seeing really sustained levels of contribution to earnings for share from buybucks. But for other sectors we are starting
to see a bit of a slowdown. And you know, I think that what we're seeing right now in that megacab tech complex suggests cost cutting and you're seeing this with layoffs. Buybacks are slowing down. There's a lot more money earmarked for capbas like kind of mandatory capback. So I think that's the problem right now is you've got higher interest rates, You've got this environment where the cost of capital has increased pretty aggressively could go up even
further for ig investment grade debt. You know in some of these tech areas where you're seeing supply issuance, as we were talking about, So, I think this is in a moment where you really want to think hard about what companies are doing with their capital, by the ones that are getting the cap bax, not spending the cappax, and by the companies that are continuing to have this share buyback or cash return focus, because that is starting to wane rather than wax.
It feels like it's sort of a good moment for Tim Cook to step aside as a share buyback, the king of share buy back stepping down at a time, and maybe that's not going to be as much of a driver. You pair the potential negative technical with the positive that everyone who comes in the show keeps talking about, which is earnings.
They've beats the upside tremendously. Earnings are great. Why it's not enough of you.
Earnings are not the problem. Earnings are great. I mean, so far, so good. Q one coming in strong, more beats than misses by a big margin.
I think. So, you know, when you think about what.
Markets react to, it's not necessarily actual earnings.
It's a surprise element. So you know, what we've found.
Is that during years of really strong earnings and strong GDP growth, the market actually turns in sort of you know, average returns. It's not necessarily the greatest year for the market. The markets to generally anticipate these recoveries.
And now the question is our earning is going.
To surprise as much as they did last year or the year before.
I don't know. I think it's harder at this point.
What do you have to see next week from the big tech players to potentially change your view and suddenly upgrade to seventy six hundred, say, you know what dat right?
Right by the dips? By the dips. Look, I think that tech is still you know, the.
Future right and it's it's some of these companies belong as core holdings in our portfolios.
But I think that.
The idea that all of the Magnificent seven can go to infinity is hard to imagine.
Me.
There are going to be winners and losers, and you know, I guess I want to see how long it takes to really monetize AI because if you look at the telecom bubble back in the nineties two thousands obviously very different,
much more extreme valuations, a lot more leverage. But during that buildout cycle, the companies couldn't fund themselves and last long enough to enjoy the fruits of their labor, which is all that fiber they laid in the ground that we are using now, but they're not around to actually
recoup the benefit. So I think the longer this buildout cycle takes, and the longer it takes to actually monetize these efficiency tools, the more at risks some of these companies are, especially the ones that are having to lever up to extend that that Capbax machine.
Something that struggling to research was you say, there's better low low income consumer for affordability measures. The same time, what I'm seeing in polling is that the lower income consumer is struggling right now at higher guests with.
Higher gas and oil.
Yeah, So, I mean, I think that's the one kind of uh dark spot. But when you think about the lower income consumer in general, I think what we've seen outside of energy is a slowdown in some of the inflationary measures for you know, food at home versus food away from home, like things that are skewed more to
that lower income wallet. I think, you know, one of the benefits as we move towards the midterm elections is if we start to see a renewed focus on this affordability agenda, and you know, that could that could get the wheels turning again for the consumer. But but I think you know, we're we're we were surprised by this sort of inflation shock rather than a disinflation affordability shock at the beginning of the year.
So I think that's the spanner in the work.
Yeah, how we start the year and how we kicked off the month of March, we're very, very different. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.