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Hey everyone, Max Chaffkin here, just a heads up. You're about to hear another episode of Everybody's Business, which is the new show that I've been working on with the wonderful financial journalist Stacy Vanicksmith. It's going to be here in the Eloning feed for the next few weeks, and then it's going to move over into its own feed in May. We just thought you'd really like it, and we really want to get some feedback, so please check it out and.
Let us know what you think. He's Stacy.
Hello, I've lived like several lifetimes thousand years since we last recorded. I've done a lot of reflecting on the choices that we made in that episode as we were living in a moment.
We are once.
Again in the moment, and this tariff madness continues.
This is Everybody's Business. I'm Stacy Bannicksmith Chafkin. It has basically been NonStop drama and action ever since the Trump administration unveiled that infamous list of taxes the US would be putting on imports from countries all over the world.
Yeah, and then he unlifted many of them.
So we're going to talk to Tracy Alloway, co host of Odd Lots, really one of the smartest people I think either of us knows on the markets. And then we're going to zoom in on one company, Apple, that has been really affected by these tariffs and including by the tariffs that remain by these these massive one hundred and twenty five percent tariffs on China, the stakes are super high for Apple, and I guess for anyone who's
buying an iPhone. And we've got a great segment with Bloomberg's Mark German on that.
Yes, and Max, I don't know if you saw Jurassic Park, if you remember that movie, Yes, it is happening.
It is happening. Maybe further proof of end of Days is that.
The underrated story or the overrated story.
I don't think Jurassic Park coming to life could possibly be overrated.
So Max, with all the.
Drama this week, the headlines changing every five minutes, like market disaster, market triumph, there was this one thing that I could not stop thinking about.
Was it the early season start of the New York Mets.
I don't even know what any of that means. I do know about the Mets, but what I kept thinking about was my iPhone?
Your iPhone?
My iPhone?
Because oh no, stare me.
Did you run to the Apple store to try to buy another phone?
Reading all this tariff news, my phone has been like semi dying. I probably could have gotten another four months out of it, but I was like, what is going to happen to the price of this phone in four months? So I ran to the Apple store on a Monday afternoon and it was a zoo and the salesperson told me that, in fact, he had been hearing about the terror issue from a lot of customers.
When you told me, I think we were slacking or something over the weekend, and you said you were at the Apple store. Yes, I don't think you said you were doing it out of tariff reasons. But I believe that Stacey vanock Smith, who has her stuff together, who's very prepared, who's from Idaho, would do this. But I couldn't believe that anyone else would run to the Apple store to try to get ahead of tariffs.
You underestimate our fellow Americans. In fact, Max, you expressed the skepticism, and so I wanted to see for myself. So I went back to the Apple Store and talked to some people who were coming out.
What's it like in there?
It seems busier than normal. I think a lot of people don't know what's about to hit.
What did you purchase today?
And I bought them too? Pline sales for me and my girlfriend?
Did you buy it today because of tariffs?
I wasn't gonna buy it anyway, but the taris my decision easier.
What did you purchase today?
Computer?
Telephones?
Oh?
A lot?
Yes?
Are you worried about prices changing?
I'm sure everything will be in pacted by tariffs, but like, what are we gonna do? I've had my laptop for ten years.
I need a new laptop.
Was it pretty crowded in there?
I waited like twenty minutes, which is not bad. But like New Yorkers are very busy.
Hearing Matt, I feel like people like you are maybe already thinking about buying another device, aware that Apple and these consumer electronics manufacturers are vulnerable to tariffs in a way that more so probably than almost any other type of company.
Cars.
Apparently, car dealerships have seen also a big rush of people recently.
Do you feel safe now?
Do you feel like you're you're ready to ride this thing out for the next three and a half years amid all this uncertainty.
That's an interesting question. No, I don't know how.
I navigating Costco over the weekend, and I was surprised.
You do spend you do talk.
To I spend most of my time when I'm not in this studio, and I was surprised that it was like a lighter day than usual. I saw the same number of Jumbo toilet paper packs that I would normally see.
You know where I bet this was not happening where at the Costco and Idaho people know?
People are prepared in my home state.
I hy k, why K.
After basically a full week of markets plunging and surging and plunging and surging, President Trump finally blinked. He announced a ninety day pause on most of the tariffs he put forward last week. That pause does not include China, our largest trading partner. Here to talk about this with us is the great Tracy Alloway, co host of the podcast Odd Lots.
Welcome, Tracy, Thank you so much for having me in for that very kind intro.
Well, I feel like your time is precious. You've been very NonStop.
It has been busy this week. I'll say that.
One thing that I saw that you tweet that I wanted to ask you about because I think it kind of gets at the heart of maybe what's going on underneath the blink is you wrote quote. Honestly, at this point, it's kind of comforting to see that the bond market can still intimidate everybody.
Yeah, I think this is really like one of the big things that happened this week. And that's in reference to the old famous Carville quote where he talked about if he was going to be reincarnated, he would want to come back as the bond market because then he could intimidate everyone. And here we are, about three decades after he uttered that quote, and it turns out that the bond market can still intimidate everyone, including a president who looked pretty set on trying to remake the global
economy and the global financial system. He might still end up doing it, but for the moment, the bond market really seems to be the big roadblock in some of these plans. And in fact, when he did his press conference on Wednesday where he announced the ninety day pause, he talked about markets getting like yippie queasy but he really highlighted the bond market.
The bond market is very tricky.
I was watching it, but if you look at it now, it's, uh, it's beautiful.
The bond market right now is beautiful.
And we know from you know, some other sources of reporting that it really looks like it was the move in the bond market, bond prices plunging, yields going up, that frightened him off.
Wait didn't he just get frightened because he saw Jamie Diamond on Fox News?
Am? I that is that? Like? Two good question?
But Jamie Diamond cares about bond yields too.
Okay.
The bond market is the most important market in the world. The US has like twenty nine trillion dollars outstanding. It's much bigger than the stock market. But more importantly, it is much more interwoven with the US economy, so it informs things like mortgage rates, corporate financing rates. And if you're Trump, someone who came in on the pro that you were going to lower housing costs, the economy was going to boom under your tenre, you really care about what happens to those rates.
Well, I feel like.
The stock market is so much more visible, and it's a simpler market to explain, I think in a lot of ways. So what was it about the bond market that like rattled people in a way that the stock market which was going up and down, I mean nine percent down. You know, we haven't seen this since COVID, since the housing crisis, and this kind of up and down I don't think I've ever seen.
Yeah, it was pretty intense. It is highly unusual to see both bonds and stocks falling at the same time. And to be honest, the financial system isn't really built to handle that. It can't really handle those two things happening simultaneously. When we see both of those asset classes falling. What tends to happen is big investors as well as banks and broker dealers which nerrisk them have to start
de risking their portfolios or their balance sheets. And once they're de risking, you set in motion, basically a feedback loop that really risks, making asset prices even lower, people having to sell more.
De risking you mean selling assets, right, Okay, I just want to say two things.
One is we're recording this Thursday morning. A lot could happen.
You need to say the exact time, Yes, exactly, it is.
Yeah, eastern time, Eastern time.
The other thing, I just think we should take a step back and say that what we're talking about, we're talking about the bond market. I think tracing is the concern that these tariffs are destroying the US economy, right, and that is going to lead to some kind of recession, maybe even a deep recession.
Do you have any.
Sense of why people were so worried about these tariffs? And we talked about a little bit last week, but Trump telegraphed this and we knew it was coming, and yet suddenly we're comparing what happened to you know, the great financial crisis of two thousand and eight or COVID or something, these incredibly traumatic moments.
Okay, there's a lot to say here, but I think the simple answer is the scale of the tariffs.
Right.
You don't get many countries who try to tear iff every single trading partner they have all at once. It's usually relatively focused. And the fact that it's the US economy, the world's biggest economy, actually doing that, it meant most people were expecting, you know, a ratcheting down of global growth. So if they were expecting global growth to slow, why did they sell bonds? So normally, if you expect a recession, you would buy bonds rather than stocks. And this gets
back to the de risking point. People were forced to sell, They had to unwind positions because the moves were just so extreme. And then the other thing that really spooked people about all of this is you have to look at what was going on in the financial plumbing, So the really big wholesale financing market, the repo market from which banks and investors source a lot of their overnight loans, a lot of their overnight liquidity. They need to keep
doing that in order to roll over positions. If they can't get that liquidity because their dealer is de risking its balance sheet and selling assets and it doesn't want to take on any more assets at that time, then that becomes a problem and you get that additional selling pressure. And the one other thing I would say on that is on Wednesday, when things got pretty extreme in the bond market, there was a lot of chatter about the FED possibly having to come in and bail out that market.
In a bailout the bond marketing, Yeah, I mean bail out. It's it's not a credit risk, although I think there are some investors who are potentially worried about the US's credit worthiness under this new presidency. It was more of a liquidity issue, and so the thinking was maybe they're going to do what they did back in twenty twenty.
And then the last thing I will say on this dynamic is you can just imagine if you're Trump, how much would you hate that headline that the FED had to come in and rescue the world's most important market because of your trade policies.
Well, one thing I wanted to ask about was, like you said, the bond market is typically where people go. It's like their safe space, and bonds are essentially loans that you give the government, and because the US government is seen as so safe, interest rates the yield as they call it, but the interest rate the government pays is really low. This is a super oversimplification, but it occurred to me that maybe the price of all this volatility.
If a stock drops ten percent and goes back up ten percent, technically you're fine if you own the stock, But maybe the long term price of all this volatility is the bond market, because now the interest or the yield that the government's having to pay on these bonds is really high, which is weird because normally, when so many people are looking for a safe space, bonds should be where everybody goes. Yeah, but all of a sudden, the US doesn't seem so trustworthy because of all the volatility.
So I was wondering if that might be like a long term consequence, even if the market comes back to where it was, that there's like long term damage from this.
Yeah, I think that's exactly right. So one of the consequences of all of this volatility, all of this chaos is people started talking about the possibility that we could see alternative safe havens, so things like German government bonds or Japanese government bonds. Europe, as one of our guests recently said, is a region of norms and strong conventions and rule of law, and maybe the US is a little bit less so at the moment, so you could
see big investors flocking there. The irony in all of this is there's already been reduced structural demand for US treasuries, and that means you've had big buyers stepping away from the market, and so when that happens, you know again yields are going to have to go up if this results in even less demand for US treasuries. The irony is the US's own financing costs are going to go up, and we know that Trump has talked about how important it is to get those down, how important it is.
It's like US servicing our debt.
Yeah, how important it is to reduce America's debt. That is much more difficult if you don't have buyers for it.
I want to say, sort of shift slightly to stocks, if you permit. The thing I've been wondering as we've watched the stock market sort of go up and down in response to where that Trump says, is like is this real? And I feel like you could tell two different stories. And John Herman at New York Magazine wrote a great article about this, basically saying Trump has turned the US economy into a meme stock. He's like basically managing the United States the way the CEO of Game
Stop does. So there's no reality, there's just vibes. You have traders just like trying to get inside the head of the guy running the thing, and you get chaos in these wild moves. And then I think there's an alternative story, which is like the stock market is asserting itself. It's actually serving as a check on Trump. And what we are learning now and maybe what we learned even yesterday was that you know that Trump can't do this, that there are going to be repercussions. Tracy, I'm sure
you saw this. Like in March, this guy, Michael Symbolist of JP morgan to put out this research note saying here's the interesting thing about the stock market. It could probably apply this to the bond market as well. It cannot be indicted, arrested or deported. It cannot be intimidated or threatened or billy. It has no gender, ethnicity, or religion. When this came out, I was like talking to a group of i'd say MAGA aligned finance guys and they
were laughing about this. They were like, this is like some you know, woke nods, you know what I mean. And I feel like we are maybe learning in real time and will continue to learn whether or not this thing that Michael Symbolist wrote that that feels like obviously true.
It is in fact true.
I mean, I think we've seen evidence of that this week, especially in the bond market. The thing I would say that investors are really struggling with at the moment. Kind of goes back to your reality point. I think investors are pretty good at pricing and weighing some of the consequences of these policies. The effects of all of this are very real. You know, investors have a pretty decent idea of what's going to happen to the global economy and markets if all of this were to happen, even
though you know it's unprecedented in many ways. As we discussed, I think the difficulty for them is the unpredictability of what Trump actually says, Like that is the sticking point. And because the the entire market is so focused on this one guy, you don't know what he's going to say between one day and the next. And it's funny. We wrote a newsletter, i think on Tuesday where we basically pointed out, you know, it's all about Trump. He
could come out and say everything's fine. And that's one reason why when we had an erroneous headline on Monday saying there was a ninety day pause, stock shot up so so much, and then you know, when it happened again on Wednesday, like people really rush to move up even though they might have been burned on Mondays. So that just underscores how important Trump is to the markets right now.
Well, Tracy, thank you so much for joining us. I think you have to go tape your own podcasts right now.
I do, I do, but it's been fun.
Thank you for joining us.
Thanks Tracy, thank you.
Wow.
Okay, Stacey, we're talking all about, you know, the chaos of the markets, these questions of like, okay, what should investors do with Trump making all these policy shifts and making these erratic statements, and they're sort of like the other side of this, which is what do you buy?
And how do companies price?
And we have a great guest to talk about this, Mark German, Bloomberg's chief correspondent covering consumer technology, author of the power On newsletter, which you should all subscribe to. I want to talk to Mark because in his newsletter the other day he wrote this really great sort of primer basically on how Apple prices, and we want to talk to him about that because Apple has so affected by these tariffs.
Mark, thanks for being.
Here, Thanks for having me. Great to be on.
Okay, Mark, I just said that Apple is really exposed to the trade war. Before you joined US, I might have even said that they are one of the most exposed companies to terrorst First of all, do you do buy that number one?
Number two? Why is Apple so exposed?
Talk a little bit about this incredibly global company.
Yeah, So, just to take a step back here for a while now, we knew that something was going to happen in relation to Apple and tariff specifically related to China, right. I think people understood that Apple is in a very bad position because they make about eighty five to ninety percent of their iPhones in China, right, and they sell the majority of them in the United States. So needing to build the product there and then needing to ship them to the United States, obviously you're going to get
tariff pretty high. Why the market went crazy is because the tariff percentage on China specifically was way higher than people had anticipated, not leaving much room for Apple to deal with getting better pricing, not leaving much room for Apple to eat some of the costs, and not leaving much room for minor price increases.
So that was one thing.
But what really sent everyone wild was the fact that the tariffs were planted across every country there were countries that Apple had moved to in order to reduce the threat from the China tariffs that they had long anticipated. So for the last several years, Apple had been building up in places like Malaysia, Thailand, Vietnam, and those places too were hit with tariffs. Right, So China you knew would be bad, but it was worse. And then everywhere else was way worse than anticipated too.
All that diversification too that you're talking about, a lot of it started, unless I'm mistaken, like under the last Trump presidency. They've been aware for years that their reliance on China creates vulnerabilities, geopolitical vulnerabilities, and they have been trying mark to diversify.
They knew for some time, you know, dating back to the first Trump administration, that there would be political and geopolitical economic vulnerabilities at some point with their huge reliance on China, and that really kicked off the diversification efforts, you know, closer to a decade ago. But COVID made us all realize that it's not only geopolitical, right, there are world related disasters that have little to do with the economy. And I think a prime example was actually
the iPhone fourteen Pro and Promax. Back in twenty twenty two, right, things seemed to have been calming down. COVID had been going on for a year and a half, things began to dissipate, and all of a sudden, there was a huge COVID wave in China and they had a lot of their fourteen pro production in one facility, right in one gigantic facility at Fox Gone in China, And because of that new COVID wave, the Chinese government shut everything down and that blew up Apples sales projections for that
device and their overall revenue in that holiday quarter. And that was another realization we can't just do everything in one place. At some point, if your Apple, you have to ask yourself, what can we do with all our money to really be able to withstand more issues in the future. Because Trump is only going to be here another three and a half years in this term, we'll see if his policies continue for another four or eight years after that.
But looking down the line.
Ten fifteen years, twenty years, fifty years, there are going to be more politicians, There are going to be more wars, There are going to be more natural disasters. There are going to be more pandemics right over the arc of time. That's just how the world works.
Mark, Let's talk about the actual pricing of the iPhone. You mentioned more than eighty five percent of iPhones are made in China. The iPhone, for people who don't know or have been living under a rock, is like the most successful consumer product of all time. It is also still very much the cornerstone of Apple's business. You kind of went through in this newsletter that I mentioned at the top, basically three options for dealing with a tariff, and I think we should just take them one at
a time. The top of the line iPhone in the United States costs basically one thousand dollars. What are their options they're hit with this tariff and right now it's over one hundred percent. If history is any guide, They're going to release another iPhone in the fall, and they're gonna have to come up with a price for that. Talk through how they're going to deal with these tariffs step by step.
Well, the first thing for the short term, it's getting as many phones into the US channel before the tariffs from China came into place. So that's something they've done over the past several months in the even more recent right as the tariffs are coming into place. Obviously they sell a lot of phones. You have to replenish that supply. It's bringing them in from India where you have a tariff hit that's now I don't know, fifteen percent of
the tariff hit they're talking about from China. So looking forward, it's now pushing suppliers to give them better pricing so they have fatter margins, so they have more cost opportunity to own and less cost to pass on to the customer.
And the reality is is that the iPhone price hikes are probably not going to be more than a few hundred dollars per model, because they are going to make supply chain changes, and Apple knows that customers are simply not going to pay certain dollar amounts when they can get refurbished phones for cheaper, they can buy used phones for cheaper, they can go elsewhere cheaper. And the other thing is installment plans and trading programs to offset the
higher costs. If new phone prices are going to go up, the value of the old phones are going to go up as well, and so you're going to be able to get more bang for your buck when trading in your older products too.
But mark their costs are going to go up by more than a couple hundred bucks.
Right.
The idea is by moving to lower tariff places, by pushing suppliers to give them better pricing, by eating a little bit of their costs, and then having the consumer eat a bit of the costs. You're splitting four ways, so maybe the price increase would have been one thousand dollars, but when you're splitting in four ways, you know you're in the two to three hundred dollars range for the customer.
Right.
So, like some of these components are also subject to tariffs, you sort of force some of your suppliers to take take some of that cost. You force, as you said, the customers to take some of that cost. And then Apple's a very profitable company. I'm not sure what the gross margins on these It's like forty five percent or something, but.
Yeah, forty five percent is their corporate average. I would say the phone is above fifty percent in most cases.
Right, So a lot of room there perhaps, But investors might disagree with that. They would be upset if they were taking smaller profit margins still, right, I mean that would be bad for the company.
Right Mark, Can I ask you something.
They basically have not changed the price of an iPhone in a very long time, and you brought this up, but like there have been these subtle price increases, so like a top of the line phone is cost about one thousand dollars for a very long time. They've they've done things where like you have to pay a little more for memory.
Or like larger screen.
Right yeah, Apple critics will point out, oh, they're charging money on services, you know whatever, but it does seem to be some kind of psychological threshold in terms of like what a consumer will pay for one of these things. Do we have any sense do your sources have any sense of how high they could push the prices without seeing you know, like consumer pushback.
A lot happened over the last ten years or so, and the iPhone price didn't change inflation. You had COVID, which obviously made things more expensive to make. The technology got more expensive and more advanced, and they still never raise the price. And that just tells you how price sensitive it believes consumers are. But they have a unique opportunity now for this price increase, because if Apple raises prices. Everyone is going to point to one man and it's not Tim Cook.
Oh oh, they have a scapegoat.
They have a scapegoat.
Now, I think everyone would know that this has become a untenable situation to keep prices the same because of the tariffs, and people would blame Trump here. I think if they did it because of inflation, I think if they did it because of COVID. I think if they did it because the technology became more advanced, people would be a lot less understanding and say, hey, Apple's just trying to make another.
Buck on us.
But now this is mainstream. This is not because of Apple. Apple would not be raising prices if it weren't for these tariffs.
I can assure you of that.
So when I ran to the store this week to upgrade my iPhone.
Uh, vindication is this?
Was that a good move? Did I save myself some money?
What did you come from and what did you get?
I came from a twelve, I got a sixteen.
Oh, Man Mark is like twelve.
Well, sure, but that's a good upgrade, right Like if you were coming from a fourteen or fifteen, I'd be more concerned about your decision making.
Whoo the fact.
The fact is is that you got a really good phone from a really old phone and it was time for you to upgrade anyways. So you saved money potentially but got something that you needed. And so this is like, for you, is the perfect storm.
And I think that was a complete vindication for Stacey feeling.
I know that the whole economy is in total turmoil, but personally I'm feeling good because of Markney.
The dye Gleses do while the bossing realm of the don't murder me.
I beg of you don't good?
All right, it's our underrated segment of the week and Mark, you're gonna stick around Stacy Vanick Smith, what do you have for us?
Yes, this is where we take what we feel was an underrated piece of news this week and we shine a light on it.
And in this case, it's a pretty exciting story.
Have you guys seen Jurassic Park, Yes, you know where they take the DNA out of the.
Mecedo amber in that guy's cane. They do them animation and they make dinosaurs, they make dynasty, they bring extinct species back to life.
This literally happened.
So there is this company called Colossal biosciences and they have brought back to life something called the dire wolf. This is a species of wolf that went extinct twelve thousand years ago.
These are the Game of Thrones wolves.
They are the Yeah, the Game of Thrones wolves were based on the dire wolves. They basically crossed their DNA or they used crisper or did the science where they put the dire wolf DNA in a gray wolf DNA thing, which is I guess, the closest living relative. And we have dire wolf pups and right now we can hear a wolf howl that has been extinct from this earth for twelve thousand years. They have three little pups that are so cute the house.
Okay, let's hear the.
How it's kind of adorable.
I'm not gonna lie.
It's so cute. Isn't that amazing? Like a sound not heard for thousands of years?
I think this is brilliant. And by the way, I love the name of that company, Colossal. That's yeah, that's a good one.
Hear me out.
I think that this is the biggest croc ever, how is it a croc?
You heard the howls?
The cute This is.
A wolf doodle. This is not a diar hole. This is a pr stunt. Look, I'm not saying it's not cool. I'm not saying those subtle hybrid wolves are not adorable. I'm not saying like I don't want to go to a zoo and see a white gray wolf. But if you look at the actual science here, they did not bring the dire wolf back. They took like something like twenty genetic traits and changed them in a gray wolf out of I think millions of traits they would have to change to change a actual gray wolf into a
dire wolf. This is like a wolf doodle. This is just like a This is like a total like. I'm not saying I'm not saying the science isn't cool, but like anyone who thinks we like brought back an extinct species is like.
I'm going to give you a couple of counterpoints which are not direct counterpoints, but counterpoint adjacent.
They got the DNA out of a tooth.
And a skull, so cool, and they're now working on resurrecting the mammoth, the dodo, and the Tasmanian tiger.
I mean, be skeptical.
I like Max's point. I think it's a fair point, but.
I am sticking to my guns.
I am sticking to my guns. This is underrated and this is really cool.
But I think Max's point is fair.
I do.
I was braced for a genuine intervention. I thought Mark was gonna be like, Max, you need you need to evaluate your life choices.
I feel like we could we could play the howls again and see if you still feel that way.
They're so cute, they they are cute.
Oh it sounds great.
Wolfdoodles, so cute.
Twelve thousand years of silence, and now this is epic.
It's epic.
Mark German, thanks for being here. We really appreciate it.
Thanks guys.
This show is produced by Stacey Wong.
Magnus Hendrickson is our supervising producer, Amy keenar editor, and Brendan Francis Newnham is our executive producer. Sage Bauman heads Bloomberg Podcasts. If you have a minute, please let us know what you think. This show is in development. We're still working on it and we really want to hear your thoughts. Email us at Everybody's with an S at the end at Bloomberg dot net. That's Everybody's at Bloomberg dot net. Thank you for listening and we'll see you next week.
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