Bloomberg Audio Studios, Podcasts, radio News. 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 I'm Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App. So we are thrilled to bring it out on your equity market, your bullmarket, Liz Young, Liz, I love, love, love your note. And the answer is you say profit wins? What are profits look like forward?
If you look at why people are buying stocks right now, I think everybody is searching for more upside, and especially after such a strong rally, it's been more difficult to find.
So then trying to answer that question of where are we in the market cycle, where are we in the business cycle, and what kind of stocks win at this point so that we can find more upside, and we did a bunch of analysis looking at what might happen to the yield curve, what might happen to the dollar if and when the FED finally does start cutting rates.
And one of the things that is consistent is that you do want companies that are kicking out good margins, that have healthy profits and are able to produce that kind of cash flow.
Do we grow our way in the denominator price to cares flow, price to this price to ebita, do we grow the denominator into a more intelligent valuation?
Well, you know what's interesting is that if you look at valuations, there continues to be this comparison between now and what happened in the early two thousands, and valuations compared to them are really not that outrageous. They're frothy, and in particular pockets, they're perhaps higher than most investors would want as an entry point. But I do think over the next couple years, if we managed to avert some big catastrophe, we do need earnings to continue to grow.
We do need them to come through in order to just support the current level of valuations. And then it becomes this awkward mental exercise of okay, if the pe is coming down, that's actually a good thing if earnings are going up, but the price of the index hasn't necessarily moved all that much. I think we've been used to these double digit returns and we may enter a period where we're in that more regular return era of mid single digits, but with earnings growth that's still strong.
Liz, you know, given the move we've had off those October levels here in the stock market, the S and P five hundred up, you know, over twenty five percent, where what sectors still screen attractive to you?
Guys? If any.
Yeah, Well, that goes back to the earlier part of this conversation is where do you find that upside and look, growth companies, particularly large cap still seem attractive compared to small cap. You start with some of those big buckets. What's better large or small? And at certain points in the business cycle, large cap does tend to do better. At certain types of yield curve environments, large cap also
tends to do better. So if we expect that at some point later this year, which I do expect, we will experience what's called a bull steepener, meaning that the short end of the curve comes down and the long end of the curve either stays put or rises a little bit. In that environment, you do want those large cap companies, some of them growth. You do also want
some of those defensive names. And although it's a bull market, there are defensive sectors that can do really well in a bull market, and utilities is one of those that has done well this year. I would still be staying away from sectors that start with the word consumer, though.
Liz so far has such a herity of studying the technology of America within the AI frenzy, what does our technology look like forward? And can you invest in it?
I heard a quote last week that was sort of resurrected from Bill Gates. It goes something along the lines of technology is always overestimated in the first two years, but underestimated in the ten year period. And I think what's happening with AI right now is obviously we've got a lot of enthusiasm and there are some real fundamentals
behind that trade and behind that theme. The reality is that all themes go through a life cycle, and we're likely to see at least somewhat of a boom and bust in the AI theme, and things are going to change quite a bit over time, much like what happened with the Internet theme. We didn't really know how to make money off of that early on, and I think that's where we are with AI and at some point we'll have to come back down to earth of we're not going to come up with these profits in the
next twelve months. I think that's sort of where that theme sits today.
We Liz, I don't want to talk to you about Texas Systems per se. I know that's not part of
the game. But we've got Anna rag Rana coming up here with the announcement from CNBC of an Elliott Management Steak, Kunjohn Sohani and Oscar Hernandez Tejada for Bloomberg Intelligence absolutely nail a company that's going to spend forward based off semiconductive development in America and that and as a generalization, investor saying, wait a minute, who's going to win out in that tug of war between capex Frenzy and investors
saying I want a little discipline and capital allocation responsibility, who's going to win right now?
I think we are actually going through a pivot where investors are deciding that you need to be much more judicious with your spending of capital, and we saw that in some of the announcements in first quarter earnings, where you're hearing big tech companies say we're going to spend a bunch on ai I. Last year they got rewarded for saying that, this year getting a little bit more punished, with investors looking at it as Okay, if you're going to spend, then where's the zero sum game? Who's going
to benefit from that spending? So rather than this, you know, the pie is getting bigger. I think it has turned into a little bit more of an environment where investors are saying, you need to be responsible. I will, I will go to the company that can benefit from some of that spending, but let's be careful about how much money we're throwing at a theme that isn't quite mature yet.
Hey, Liz, what are you?
What are you telling your clients these days about opportunities in fixed income?
Broadly speaking?
Do you stick it to your treasury close to five percentity? Maybe take a little credit risk?
You know, I wish I had a juicier answer to this question, but yeah, I am your I am two year treasuries all day long. I mean We're at a point in the cycle where the FED is going to have to cut rates at some point. We keep pushing it out, but at some point that short end of the curve is going to have to come to grips with the fact that the FED will eventually embark on a cutting cycle. So I still think it offers great opportunity.
Jong, thank you so much for so far great equity discussion there, folks, Aniragrano would have known to press the
blue button. He joins us right now with the Bloomberg Intelligence arog loves to talk about, including the Apple ballet, But I've got to ask you away from your remit about Texas instruments and what I want to talk about anerog And this is not Colenngenzolbani and asking Hernanda Tejada that will report for Bloomberg Intelligence and Texas Instruments way out front on the question that Elliot's bringing up, like, wait a minute, you got all these Capex dreams, what
about US investors, anierog within the cloud space, within the Aniogarana world, your universe. Is the Capex being overdone?
Now?
Is there two much enthusiasm about spend spend spend versus listening to investors or that they're saying, where's my return?
Tom, I love Capax, and you know what has been disappointing is you know, it's not you know, it's not resounding a lot with clients as I should it should have, because this really gives me a very big leading indicator that the cloud demand is going to bounce and bounce back good. So i'm i'm I'm very happy that these companies are investing very heavy in Capax, which means they they know something that all of us don't know. I feel okay about it at all.
All right, So let's go over to our good friend's Apple June tenth. I mean I don't know, Tom, I are thinking about booking, you know, the Gulf Stream to go out there.
And see what are you do?
You and the boat that what should we be looking for for Apple come June tenth.
So I think it's very clear at this point. Apple's now had their big focus on Jenny I and everything around it. They really need to tell the street that they can do it better, if not better, at least match what Google has showcased in the past few months. If they don't do that, I don't think it's going to be really good for investors in the near town because so far the story has been Apple has lacked
behind and they have not done much. We have heard from Markerman that they have a contract upcoming with open Ai that can infuse some of the features in there. Now, remember one thing Apple has the distribution. Apple has over one billion smartphone users, So if they can get somebody to use their products, I think it's going to help them out in the long run. But I would say a lot hinges on in this Tune tenth event for them.
So how do you define this overused word ecosystem? I mean, is there an ecosystem nothing more than an ecosystem of convenience? Or is it a tangible ecosystem? Is it a tangible universe?
So if you think about it, Tom, the way I think about it is ecosystem of Excel users. I mean, you know, free Google sheets have come and gone. I wouldn't care about it. You could argue that, you know, the same is the user, The same is the ecosystem for people who read Wall three journals. Once you are in that install base, you're not going to move away, even if I get a cheaper phone out there, I'm not moving away from Android to iOS or vice versa.
So I think the real big kicker here is do they really have the compelling next generation app where it can keep the I would say, you know, the users that may decide to either pick iOS or Android in the long run. So I think the ecosystem is sticky because once you get into one, you don't get out of it. But they really need to showcase that they have the mindset to you know, keep people in it.
Paul in Video is over one, so they were stacks split into one hundred. My first number was ninety seven, and right now the stock split to one hundred and ten dollars per share.
Yep, how about I mean, just that's the way to play Airo in a lot of people's minds. Hey, Honora, we saw some reporting coming out recently that Apple's China iPhone shipments jumps fifty two percent.
What is going on with that? I thought they were losing in China. What's going on there?
So I as probably one of the things we learned from the last earning scull on Apple is some of these ship in data shouldn't be relied upon that heavily, because remember it's this is. This is the same source that told us chan fab data was down I think thirty nine forty percent or something in that. But when Tim Cooat came on the conference call, he said, you know what iPhone sales were up in Malee and China. So I I, you know, the part of the ease in the stocks only of one percent and not quite
a bit. I'm not expecting a fifty two percent jump in iPhone revenue in the next quarter. I think this just shows one thing it shows though, is Apple's not losing out that big as it was made out in the last six months. People will buy and sell depending on when the sales are, when the seasonal nature is. So I mean I I really don't put that much emphasis on some of this data.
Point.
Explain to us ANA rog the utilities certitude that cloud your world, the aneriog around and world needs electricity generation and we're going to have to build all this stuff out. What in that theme do we get wrong? What's the distinction you say that needs to be clarified.
I think the biggest thing is, and Paul and I had discussed this a while ago, is how are they going to make up for something like this? How will you see what are you going to do? Where is the capacity going to come from? And I think I am pretty much looking forward to new kinds of ways
of doing things people coming up with. I think, you know, creative ways to utilize or make it more power and you know, use a friendly because the hungry nature of this particular technology is such that you know, we're going to see a lot of build up off you could say, alternative fuel rather than you know, the renewable energy because because we do need a lot of power to run these workloads.
So ana when we think about just Apple, you know, this has been such a great stock for such a long period of time, but this China risk, it just doesn't seem to go away. If I'm an when you talk to these institutional investors in Apple, how did they kind of carmental well, how do they put that risk kind of to rest a little bit?
Yeah, I think, you know, I think the last earnings call, as well as the data today should pass by one thing that this is a cyclical nature of the demand in China and not so much structural shrinking. That's a very good thing for long term and and something that you and I and the three of us have discussed over the last twelve months is you can say all you want about India and other emerging markets, at least for the next five years, Apple growth in iPhones is
going to come from China. Like it or not, that's reality. So I think this is a good news at least for the next couple of years. Now. One thing is also I think getting clearer something we've been hopping on for a while is this is not a company that's going to grow sales ten percent anymore. This is going to be at best a five percent sales growth company. And people need to get, you know, comfortable with that. And I think a lot of people are now finally
getting comfortable that that's the story. So you take five percent of revenue growth, a little bit margin expansion, and then share buybacks, you get to like eight to ten percent EPs growth trade and that's the reality of the park at this point.
One final question, have you ever been to an Apple developers conference?
No? No, they keep it insight, they keep it very tight. I know they have not invited me.
It's like an invited audience, right.
Yeah, yeah, no, absolutely, I don't even have about eye so definitely not invited.
And Ron thank you so much joining us now with Panje policy. This came up not once, Terry, but twice this weekend. I'm not going to mince words. How's the president's health and what is the dialogue forward for Joe Biden given.
The health, Well, what he's going to have to do is frankly, convince everybody that he's up to the job and do a better job than he has so far. I mean, I think the nadier of this was kind of late February early March, preceding the State of the Union with the Special Council report. He's been you know, it's gotten better since then. He's been better since then, But he's got a long way to go, and he's going to have to sustain for about the next five months the ability to show that he stood the so
capable of governing. To me, that's the key to the entire election.
What's the optionality he has forward? Based on the calendar, there's now June and then I assume the convention, excuse me, and then there's something after that. What does the windows of decision the President and his team and Missus Biden have.
Well, he's got this June twenty seventh, debate, and that's going to tell you an awful lot about not just Biden's health and Biden's ability to go forward, but also how Democrats feel about it, and you know, going into the uh going into their convention soon after that. If he doesn't do well in the Junie debate, there's going to be speculation is going to be right that the
party revolts. So there's a great potential roiling around politically, which will probably express itself in the markets to some extent, given the political and geopolitical implications.
I mean, Paul, I want to make clear, Paul that there was no ill will from the people that asked me about this this weekend. They're just mystified of what the path is for the president given is there was no nobody was like ranting or you know Republican's Maga rant He was none of that.
It's just baffled off almost exactly.
On the other side, Terry, here in Manhattan, we have got a little trial about to reconvene here today. Can you put in context what this trial for former President Trump and the other.
Legal issues are.
How are they kind of stacking up here in the greater scheme of things as we plowed towards the election.
Well, you got a situation where, you know, six months ago we were talking about this and we would have said, oh, you know, these are all these trials are going to be hugely significant for the for the path of the election. You know, now it's it's fairly obvious that they won't be.
I think there's a a I asked myself on the election, or excuse me, on the conviction likelihood, what would Tom Wolfe think, you know, and Tom wolf would probably think the conviction would exist just so the judge and the jury could get you know, could get through the thing, knowing that they could bucket along to an appeals. Beyond that, I think it's a situation where it doesn't it doesn't help Trump at all. It's sort but it hurts him
very little. Frankly, Uh, You've have a situation here, I think where everybody who thinks he's wronged already thinks he's wrong. And at most what happens here is you've got some independent voters who will hesitate a little bit more because this is a reminder of kind of the Trump circus and the Trump drama. Beyond that, I don't think it matters a lot.
How about the conventions that this summer Terry should should Tom might be paying attention to these things?
Yeah? You should, Yeah, you should. The you know, the conventions have turned into such you know, predigested comfort food
that there's usually not not much there for anybody. But this time out, I mean, there's going to be a lot more drama around the Democratic Convention as a result of Biden's condition, as we've discussed, and on the Republican side, I think what you need to look for is whether Trump's successful or not in consolidating support, naturally unifying the Republican Party, and actually starting to draw independence to him. He needs both of those, as he did in twenty sixteen.
Right now he's got neither of those. So the convention, you're going to tell you a lot about where that is.
Terry hates frame your guesstimate of what the White House, the Senate, and the House looks like the first Wednesday of November. What's your guess on which way they'll go?
Oh, I think I think Biden probably, aside from you something that else that might happen today, I think Biden probably squeaks through to victory. And I mean squeaks on the strength of superior organization and message discipline. I think the Senate is marginally Republican and the House is marginally Democrats.
So what you have is a kind of refraction of the situation that exists today and without a lot of without a lot different and the same or similar consequences for fiscal and a bunch of the other things that markets care about most.
Terry Haynes, thank you so much for the brief with Peenjia policy. You did. Look at the front pages with Lisa Matteo. Where do you start after a three day weekend?
You start with this interesting one from the Washington Post. It put a couple studies together and it says that more home buyers they're turning to the bank of mom and dad to buy a home to get that down payment. So Freddie Mack did this analysis of their home loans. They share of young home buyers relying on older mortgage co signers like family members most often the parents.
Yes, mom and Dad is as high as it's been.
In at least thirty years, So that's how bad it's getting. Redfin suggests it picked up even more in twenty twenty three and.
Here's the thing.
Parents are even taking out loans against their existing homes to fund their children's homes.
This is how crazy.
And they're considering joint purchases where their kids as part of this long term investment too. But the people who are being left out are the people who don't have that family.
On Twitter, so there's great feeds of busted properties. And there's a fancy place in Nashville. Taylor Swift has a unit in this fancy place and they do the own versus rent differential in that fancy place in Nashville. It's like New York City, Paul. It's like no one in their right mind would buy. It's like a money pit. And it's happening more around the COLT.
I think with the young folks, they've they got the student debt and all that kind of stuff that it's just it's tough there and with the interest rates where they are again make it.
Or becoming like Europe everybody, not everybody, but more many more people rent in Europe than here. Yeah, parents are taken.
Out, taken out loans in order to.
Just I'm lost on that next.
Yeah, I know, are you gonna are you gonna give good cherubs a down payment here, that's the question. Okay, this one is about the streaming wars, right, because you
hear a lot about these bundle TV offerings. You heard about comcasts and things like that, But will it compete with Americans who are kind of doing their own DIY bundling because they're sharing the accounts with family members, friends, co workers, even though some of those things may kind of violate the service agreements that you're not.
Supposed to share. Uh So that's the question.
Consumers are tired of the description costs, right, and then you have the companies who want to keep the customers. So you have comcasts doing these bundlings. You have Disney Warner Brothers, you know, doing these bundlings. You have the ESPN Fox trying to do the sports streaming bundling.
But that's what they're saying the di Y.
I dealt with this this weekend, and I will cancel two services this week. I haven't gotten to it. I don't believe the names out of it.
It's easy to but I mean the number one issue here, well, one of the big issues for the streaming companies that you didn't have with a cable television or satellite. It's very very very easy to cancel your streaming service. It's click of a button and so and that means churn and they don't want churns.
So in order to minimize churn, they're creating these bundles, you know, and maybe that'll minimize churn.
So but again Netflix has been very good about, you know, clamping down on the on the sharing the passwords.
We'll see I know I still at mine on it. That goes all right?
Apple the Developers conference next month, right, big, big, big, But they're betting on its giant customer base to kind of give it that edge in the AI space. So what they're doing is they're taking this different approach to AI. They want to focus on the tools that ordinary consumers can use, kind of like what Tom.
What you were saying last week, Like what does this mean for me?
What I want Mark?
I want Mark German to tell me what's the sw what? And I'm not there yet.
Yeah, So they're they're doing exactly because of what you know, things you're saying, and not just you, but a lot of people.
This new strategy project gray Matter.
So they have a set of AI tools that the come and he's going to integrate into apps like Safari, photos and notes.
But there's other features, right. They have Serie Personal.
Assistant that's going to get an upgrade, series getting an upgrade. They have Generative AI for emojis, with software that can create custom emojis on the fly based on what you're texting. So if you're texting someone like, hey, let's go out for dinner for pasta on Friday, a little pasta emoji will like automatically, And that's going to.
Make my life so much that's going to make you like so much better.
God?
Is that where we are these days?
Okay, but just about making things easier for their customers.
I don't think that this conference again, the developer conference, I guess it's June seventh.
Yeah, I don't.
I think there's a lot built up in the stock.
I think investors want to see something transformative as it relates to AI, to get that bump in the sock.
I'm not sure they're going to get it. I don't know.
It's a lot.
There's a lot, a lot of competition because there you get Microsoft, Alphbits, Google, this is.
What June something. Yeah, it's like right around, it's right around that fed me, is it more important than the FED meat?
That's a good question.
Instead of doing the FED decides, you can do.
It's June tent I stands tractictent, competent.
Days before the FED meeting. Okay, you got anything else?
Summer sales, that's what we're talking about. Shop till you drop.
Okay. So the Associated Press gave this breakdown.
They talked about target cutting prices, right, They talked about Walmart cutting prices. All the food shopping, A lot of it is food, beverage, essential, household isands because people are their budgets are tight.
Even restaurants. You have McDonald's introducing that five dollars meal deal. They want to do that.
So a lot of CEOs are saying that people are becoming more price conscious, more selective. They're doing the store brands more.
And the next That's what I'm doing. I'm doing the store brand more.
I started doing that too.
Yeah, well more for June Lisa Taylor, thank you, Lisa Motel there with the newspapers as well. 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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