Latest / Bloomberg Intelligence / Apple's Explanation For Revenue Plunge Doesn't Cut It (Podcast)

Transcript

Apple's Explanation For Revenue Plunge Doesn't Cut It (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa A. Bramowitz. Each day
• 0:11
  Speaker 1: we bring you the most important, noteworthy, and useful interviews
• 0:15
  Speaker 1: for you and your money, whether you're at the grocery
• 0:17
  Speaker 1: store or the trading floor. Find the Bloomberg p m
• 0:20
  Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.
• 0:33
  Speaker 1: It is the story of the day, and it is
• 0:35
  Speaker 1: the person of the day who knows what to say
• 0:38
  Speaker 1: about this, and that is Shira Over, a Bloomberg opinion columnist,
• 0:41
  Speaker 1: wrote a terrific column about Apple and the surprise cut
• 0:45
  Speaker 1: to their first quarter forecast. Shia, thank you so much
• 0:48
  Speaker 1: for being here with us today. The big question is
• 0:52
  Speaker 1: is Apple facing something that is unique and surprising in China?
• 0:58
  Speaker 1: Or did something have been to the Chinese economy that
• 1:01
  Speaker 1: took a sort of spiral downward that is going to
• 1:04
  Speaker 1: affect the broader economy. What happened in two months? Yeah,
• 1:07
  Speaker 1: as usual, Lisa, you you ask exactly the right question
• 1:10
  Speaker 1: for which I do not have exactly the right answer.
• 1:12
  Speaker 1: But I agree with you that the explanation from Apple
• 1:18
  Speaker 1: needs more explanation. Right. So two months ago, um, when analysts.
• 1:25
  Speaker 1: When Apple held its quarterly earnings call, analysts asked Apple
• 1:29
  Speaker 1: about trends in China because it is no secret that
• 1:32
  Speaker 1: economic growth there has been slowing. It's no secret that
• 1:36
  Speaker 1: there's been a trade war between the US and China,
• 1:39
  Speaker 1: which may be unsettling consumers in China. Uh. And it's
• 1:43
  Speaker 1: no secret that smartphone buying trends are changing in China
• 1:48
  Speaker 1: as they are in the rest of the world. People
• 1:50
  Speaker 1: are are buying new devices less often. And the only
• 1:54
  Speaker 1: answer that investors seem to get from Tim Cook and
• 1:57
  Speaker 1: other exactly another Apple executives is that things are great
• 2:00
  Speaker 1: in China. Right. So the question is did economic conditions
• 2:05
  Speaker 1: substantially deteriorate in two months in China? Which is possible? Uh?
• 2:09
  Speaker 1: Did Apple simply not foresee that all of a sudden,
• 2:14
  Speaker 1: all of these trends that were blowing against it in
• 2:17
  Speaker 1: China finally started to show up in results. Um? Was
• 2:21
  Speaker 1: Apple simply not honest with investors about what it saw,
• 2:25
  Speaker 1: hoped things would improve in sales results in China and
• 2:28
  Speaker 1: didn't quite get there. I don't have an answer to
• 2:31
  Speaker 1: any of these questions, but I agree with you that
• 2:33
  Speaker 1: just blaming an economic growth slad and in China is
• 2:36
  Speaker 1: insufficient explanation for what is a pretty dramatic, uh deterioration
• 2:43
  Speaker 1: of revenue for the world's most valuable company. Sure does
• 2:47
  Speaker 1: Apple need to reevaluate their pricing? Is anyone going to
• 2:50
  Speaker 1: spend a thousand dollars just so that they can get
• 2:52
  Speaker 1: two hundred and fifty six gigabytes on an XX when
• 2:55
  Speaker 1: they can buy an XR and be very happy for
• 2:58
  Speaker 1: that upgrade. I I think that is a question that
• 3:01
  Speaker 1: Apple investors should be asking, and among many other hard
• 3:05
  Speaker 1: questions they should be asking of Apple right now. So
• 3:09
  Speaker 1: it's very clear that to Apple's credit, it charged an
• 3:15
  Speaker 1: an unprecedented price for iPhones the thousand dollars and up
• 3:18
  Speaker 1: in the last year plus, and people have been willing
• 3:21
  Speaker 1: to pay that price, and they weren't willing to pay
• 3:23
  Speaker 1: a thousand dollars up for other smartphones from Samsung, for example.
• 3:28
  Speaker 1: So there is a built in loyalty for Apple products,
• 3:31
  Speaker 1: built in um realization or belief that those phones offer
• 3:36
  Speaker 1: enough value to to justify a thousand dollars. But maybe
• 3:41
  Speaker 1: that near term gain for Apple, the revenue growth was
• 3:45
  Speaker 1: able to show only because it increased prices for iPhones
• 3:49
  Speaker 1: and some other devices. Uh maybe that gave a short
• 3:52
  Speaker 1: term revenue juice, and that's coming back to haunt Apple now. Uh,
• 3:57
  Speaker 1: in in addition to all these other factors that are
• 4:00
  Speaker 1: being on smartphone demand in general. So sure, it was
• 4:02
  Speaker 1: a rough period for Apple at the end of last year,
• 4:06
  Speaker 1: shares down more than nine percent. After they're reporting this
• 4:09
  Speaker 1: news after hours yesterday, at what point do we say, Okay,
• 4:13
  Speaker 1: the worst case scenario is baked in and actually people
• 4:15
  Speaker 1: are getting over their skis here. Yeah, that's again another
• 4:19
  Speaker 1: good question to which I did not have a great answer. Um. Yeah,
• 4:24
  Speaker 1: I was actually I wasn't sure whether the decline that
• 4:28
  Speaker 1: we've seen in Apple shares in the latter half of
• 4:32
  Speaker 1: was justified. There were also concerns a year earlier about
• 4:36
  Speaker 1: demand for the iPhone ten right, a similar set of
• 4:39
  Speaker 1: kind of reports out of the supply chain that demand
• 4:42
  Speaker 1: didn't seem to be that great, And then that didn't
• 4:45
  Speaker 1: really part of true, right, And so I was a
• 4:47
  Speaker 1: little bit skeptical, to be honest with you, about these
• 4:50
  Speaker 1: reports of of unsettled or waning or lower than expected
• 4:55
  Speaker 1: demand for the iPhone models that have been released towards
• 4:58
  Speaker 1: the tail. And it looks like those reports in this
• 5:01
  Speaker 1: case were accurate. UM. You know, growth expectations have obviously
• 5:07
  Speaker 1: been recut even before Wednesday, and they're being recut again today,
• 5:12
  Speaker 1: and I just don't know where the bottom is. The
• 5:14
  Speaker 1: worry for me is if Apple hasn't been honest with
• 5:18
  Speaker 1: itself or investors about what it's business look like, what
• 5:22
  Speaker 1: its business looks like, what a smartphone buying trends look like,
• 5:26
  Speaker 1: then I'm not sure people can have confidence in estimates
• 5:30
  Speaker 1: from the company or from the cell side analysts. Do
• 5:33
  Speaker 1: you believe that Alexa is also having an effect on
• 5:36
  Speaker 1: Apple because Siri is falling behind in terms of its popularity,
• 5:41
  Speaker 1: maybe on the margins, UM, maybe on the margins. It
• 5:46
  Speaker 1: is definitely a problem that Apple's Internet services and that
• 5:51
  Speaker 1: includes things like Siri, are not up to par with
• 5:55
  Speaker 1: competitors including UM, Amazon and Google, and that maybe hurting,
• 5:59
  Speaker 1: say ails on the margins. But the big thing that's
• 6:02
  Speaker 1: weighing on on Apple UM the generates. You know, Apple
• 6:07
  Speaker 1: generates two thirds of Daniel sales from iPhones, and the
• 6:09
  Speaker 1: smartphone market has permanently changed period, and that's largely what
• 6:15
  Speaker 1: we're seeing happen in China. The people that the easy
• 6:18
  Speaker 1: growth has gone there are fewer first time smartphone buyers
• 6:22
  Speaker 1: out there. People in many established countries are not switching
• 6:25
  Speaker 1: from my iPhone to Android or the reverse growth has gone.
• 6:29
  Speaker 1: Thank you very much, Shara Oviday, expert when it comes
• 6:32
  Speaker 1: to all things technology for Bloomberg Opinion. We've been getting
• 6:50
  Speaker 1: numbers for US sales out of the big automakers, General
• 6:54
  Speaker 1: Motors and Ford both reporting sales down. Joining us down
• 6:58
  Speaker 1: to talk about Alan Baum, auto analyst and principle of
• 7:01
  Speaker 1: Baum and Associates, General Motors shares in particular taking a
• 7:05
  Speaker 1: big hit down nearly three per cent. Why, well, that
• 7:10
  Speaker 1: the drop is is there? And of course, uh, you know,
• 7:14
  Speaker 1: since they've gone to quarterly reporting, Uh, the quarterly report
• 7:18
  Speaker 1: that we're seeing today becomes magnified since it has to
• 7:23
  Speaker 1: stand in for the previous two months. Alex Boum, can
• 7:26
  Speaker 1: you just describe sort of the overall tone of the
• 7:29
  Speaker 1: market for automobiles? What are we looking at? Seventeen million
• 7:33
  Speaker 1: vehicles sold? Over seventeen million for this year, probably about
• 7:37
  Speaker 1: seventeen point two. Um, I'm I'm looking at sixteen point
• 7:41
  Speaker 1: eight for next year. Yeah, it's a drop. Seventeen point
• 7:45
  Speaker 1: two is more or less flat with two thousand seventeen,
• 7:48
  Speaker 1: but obviously those are very strong numbers. UM. The concern
• 7:52
  Speaker 1: I have going forward, and we're starting to see a
• 7:54
  Speaker 1: little bit of it this year, is that retail sales
• 7:57
  Speaker 1: have slowed down there down for the year, even though
• 8:01
  Speaker 1: that the totals are flat UM and obviously profits are
• 8:05
  Speaker 1: are stronger on retail sales as opposed to fleets. UM.
• 8:09
  Speaker 1: I'm also concerned, uh with fleet sales being tied to
• 8:15
  Speaker 1: business UH business views and business UH expectations, and obviously
• 8:21
  Speaker 1: with the markets going all over the place, as well
• 8:24
  Speaker 1: as some real concerns about the coming year. In an
• 8:28
  Speaker 1: economic global economic sense, I think that that's going to
• 8:31
  Speaker 1: hurt the fleet sales side. Can you give us a
• 8:33
  Speaker 1: sense alan from your perspective, are auto sales being more
• 8:38
  Speaker 1: hampered by trade wars or just generally because the global
• 8:41
  Speaker 1: economy is slowing so much. Yeah, I don't think the
• 8:45
  Speaker 1: trade wars are hitting the consumer at this point. UM.
• 8:50
  Speaker 1: You know, the the key thing that I say all
• 8:52
  Speaker 1: the time at nauseum, the people who buy new cars
• 8:57
  Speaker 1: are increasingly well to do in the United States, and
• 9:01
  Speaker 1: so these these changes that occur, UH that that could
• 9:06
  Speaker 1: really hurt consumer demand and expectations are probably on having
• 9:15
  Speaker 1: more impact, at least in the car market, on middle
• 9:17
  Speaker 1: income people who in fact aren't buying new cars anyway.
• 9:21
  Speaker 1: They're buying the three year old LEAs cars, getting a
• 9:24
  Speaker 1: heck of a deal and a very good vehicle. I'm
• 9:27
  Speaker 1: glad you mentioned leasing, because isn't that where it's getting
• 9:31
  Speaker 1: more expensive leasing a new car getting more expensive, rising
• 9:34
  Speaker 1: interest rates, and then you've got the lower projected resale values.
• 9:39
  Speaker 1: This makes the automakers actually charge more and cut back
• 9:42
  Speaker 1: on their promotions and tim It's actually more than that
• 9:46
  Speaker 1: because what it's also doing, um we are seeing obviously
• 9:50
  Speaker 1: the tip to crossovers and SUVs and pickups that's been
• 9:55
  Speaker 1: going on for a while. More of those cars are
• 9:58
  Speaker 1: coming back in trade. And what's happening is simple supply
• 10:03
  Speaker 1: and demand. People want the trucks. When they come back,
• 10:08
  Speaker 1: they are more of them. So when you go to
• 10:11
  Speaker 1: the dealer and turn in your three or four or
• 10:13
  Speaker 1: five year old SUV or CUV, everybody else is doing
• 10:18
  Speaker 1: the same thing and the value is going down, so
• 10:21
  Speaker 1: your trade in is worth less towards that it was before.
• 10:26
  Speaker 1: And as you state, the least rates because of interest rates,
• 10:32
  Speaker 1: and for that matter, because the residual values that are
• 10:35
  Speaker 1: expected going forward are also rates are up, values are down,
• 10:40
  Speaker 1: so obviously your cost is higher. And again, if we're
• 10:44
  Speaker 1: talking about upper middle and and and wealthy people buying
• 10:50
  Speaker 1: those cars, that's not as bad an issue as it
• 10:53
  Speaker 1: might be, but obviously it limits how far down the
• 10:57
  Speaker 1: income stream UH new car buyers can be. I want
• 11:01
  Speaker 1: to just get your perspective on the electric vehicle market,
• 11:04
  Speaker 1: because if US federal tax credit fell in half from
• 11:09
  Speaker 1: three seven fifty dollars, and we saw from Tesla yesterday
• 11:13
  Speaker 1: they were cutting their prices by two thousand dollars to
• 11:16
  Speaker 1: offset the lacks of the lack of a tax credit,
• 11:19
  Speaker 1: that some buyers a perspective buyers might get. Are we
• 11:21
  Speaker 1: seeing similar moves by other auto manufacturers in the US
• 11:25
  Speaker 1: or other types of ways to offset the lack of
• 11:29
  Speaker 1: this extra stimulus. Well, first of all, that's only affecting Tesla, UM,
• 11:34
  Speaker 1: it's affecting General Motors UH two quarters later. They hit
• 11:39
  Speaker 1: the two hundred thousand mark last quarter. But frankly, General
• 11:43
  Speaker 1: Motors is not selling a huge number of evs, so
• 11:47
  Speaker 1: I don't see it as a big deal. And the
• 11:49
  Speaker 1: other automakers have the full seventy because they're not even close,
• 11:53
  Speaker 1: with the exception of Nissan to the two hundred thousand mark.
• 11:59
  Speaker 1: The bigger issue is, uh, we still aren't seeing the
• 12:02
  Speaker 1: industry again with the exception of Tesla selling these vehicles
• 12:06
  Speaker 1: in high volume general motors. The Chevy Bolt is a
• 12:10
  Speaker 1: wonderful vehicle. Technically, it's not being marketed strongly. In fact,
• 12:15
  Speaker 1: a lot of it's going to fleets for for testing
• 12:18
  Speaker 1: on autonomy UM. And so Tesla really does have the
• 12:23
  Speaker 1: electric vehicle market not to itself. And and there's a
• 12:26
  Speaker 1: lot of vehicles coming, but clearly they're they're they're they're
• 12:30
  Speaker 1: serious about it because that's all they sell. Uh So,
• 12:34
  Speaker 1: so they're obviously moving forward. And uh it is an
• 12:37
  Speaker 1: issue obviously that they're gonna do two things. One they're
• 12:41
  Speaker 1: gonna eventually sometime in this year we think, get the
• 12:45
  Speaker 1: thirty five thousand dollar and change car out the short
• 12:49
  Speaker 1: range vehicle UM. But as of course that that text
• 12:53
  Speaker 1: credit is declining. Alan and what if you could comment
• 12:56
  Speaker 1: on changes in miles per gallon and fuel economy standards
• 13:02
  Speaker 1: and emission standards in the United States and what you
• 13:04
  Speaker 1: believe that will bring in the future. Well, it seems
• 13:08
  Speaker 1: like the the auto I should say the oil industry
• 13:12
  Speaker 1: is getting its wish. There's been a lot of reporting
• 13:15
  Speaker 1: on that. Uh. The auto industry is getting more than
• 13:17
  Speaker 1: its bargained for. Uh and UH, and what I mean
• 13:20
  Speaker 1: by that is they're getting the The e p A
• 13:24
  Speaker 1: Nit's A plan is freezing the requirements at two thousand
• 13:28
  Speaker 1: twenty values, which puts the US well out of step
• 13:32
  Speaker 1: with the rest of the world. The obvious issue there
• 13:35
  Speaker 1: is the automakers are global and they can't just say, oh, well,
• 13:39
  Speaker 1: never mind, we were just not do that anymore. Uh.
• 13:42
  Speaker 1: They've got to move forward. Um. Obviously, they they like
• 13:46
  Speaker 1: a little bit of relief. What they don't like, like
• 13:48
  Speaker 1: every other major corporation, is uncertainty. And they're gonna get
• 13:53
  Speaker 1: that in spades because obviously there's gonna be a lot
• 13:56
  Speaker 1: of legal action once these standards are put into place,
• 14:00
  Speaker 1: you think in April. The not the least of which,
• 14:03
  Speaker 1: of course, will be the state of California, who is
• 14:06
  Speaker 1: expecting it's uh, it's waiver to be pulled. Uh. And
• 14:11
  Speaker 1: the bad news about that is not just what the
• 14:14
  Speaker 1: effect might be, but the timing. Obviously, the legal process
• 14:18
  Speaker 1: will be long, and automakers can't sit on their hands
• 14:23
  Speaker 1: and wait for that. They've got to move forward. Thanks
• 14:26
  Speaker 1: very much for helping us understand the industry. Alan Baum
• 14:29
  Speaker 1: is a principle of Baum and Associates based in West Bloomfield, Michigan.
• 14:34
  Speaker 1: Talking about the automobile industry, what should investors do as
• 14:53
  Speaker 1: the S and P five hundred, the Dow Jones industrial leverage,
• 14:56
  Speaker 1: and the NASDAK declined. Well, one thing they should do
• 14:59
  Speaker 1: is probably ask Matt Mainly. He's the equity strategist for
• 15:01
  Speaker 1: Miller tay Backing Company and he joins us now from Newton,
• 15:05
  Speaker 1: mass Matt Maylee, thanks very much for being with us.
• 15:08
  Speaker 1: What do you tell customers and clients who call and say,
• 15:11
  Speaker 1: I bought stock in eighteen Everything I bought is now
• 15:16
  Speaker 1: less expensive? Should I buy more? Well? Maybe not every
• 15:21
  Speaker 1: everything you you had bought, because you have a lot
• 15:23
  Speaker 1: of stocks, especially in the fang stocks. Uh that I
• 15:26
  Speaker 1: think we'll have a tough time bouncing back the same way.
• 15:29
  Speaker 1: Uh they did last February when the market bounced back. Uh.
• 15:32
  Speaker 1: So Uh the key is don't panic, um and don't
• 15:36
  Speaker 1: just uh sell stocks willy nilly, I think things. I
• 15:38
  Speaker 1: think you know, the bounce we've seen until today we've
• 15:41
  Speaker 1: seen over the last week or so. We'll continue for
• 15:43
  Speaker 1: a little bit a while because I think the market
• 15:45
  Speaker 1: got way washed out, and uh, I think that when
• 15:48
  Speaker 1: the market continues to rally, you might want to when
• 15:51
  Speaker 1: you go back into the market, go back into more
• 15:53
  Speaker 1: defensive names, and especially names that will pay you to wait.
• 15:56
  Speaker 1: In other words, names to pay a decent dividend and
• 15:58
  Speaker 1: the companies that not only pay good divn in but
• 16:00
  Speaker 1: have a history of of increasing their diven in every
• 16:03
  Speaker 1: year over over time. You know, Matt, it does seem
• 16:06
  Speaker 1: like there was a knee jerk plunge down and that
• 16:09
  Speaker 1: it seemed like it was almost irrational at the end
• 16:11
  Speaker 1: of the year. But perhaps it was a little bit
• 16:13
  Speaker 1: more rational than some had written it off as because,
• 16:16
  Speaker 1: for example, Delta just came out and also cut its
• 16:21
  Speaker 1: revenue forecasts based on disappointing ticket pricing among other aspects,
• 16:26
  Speaker 1: as follows Apple's cut its first quarter forecasts. I mean,
• 16:30
  Speaker 1: it seems like there is actually something legitimate here that's
• 16:33
  Speaker 1: going on with respect to a slowdown that we're seeing
• 16:36
  Speaker 1: in the actual numbers. There's no question. I mean, it's
• 16:39
  Speaker 1: something that I'm going into, uh into October, when the
• 16:43
  Speaker 1: when the downturn started in the stock market, I've been
• 16:46
  Speaker 1: quite cautious. And one of the reasons was, you know,
• 16:48
  Speaker 1: whenever the FED gets involved in a tightening uh program. Uh,
• 16:53
  Speaker 1: there's always a delay from when they start raising rates
• 16:56
  Speaker 1: to when it finally has an impact on the stock
• 16:58
  Speaker 1: market and then on the economy. Me. Uh, it's usually
• 17:01
  Speaker 1: anywhere from eighteen months to two years. Sorry. Uh, let's
• 17:05
  Speaker 1: say the Fed's fault. I mean, I think it was
• 17:06
  Speaker 1: something that FED had to do. The FED. You know,
• 17:08
  Speaker 1: people want to blame the FED. I mean, we don't
• 17:10
  Speaker 1: have a god given right to have the stock market
• 17:12
  Speaker 1: go up forever, every single year forever. Uh. We they
• 17:16
  Speaker 1: added a lot of liquidity at a time when we
• 17:19
  Speaker 1: needed it to save the financial system. At some point
• 17:22
  Speaker 1: they we all knew at some point they had to
• 17:24
  Speaker 1: withdraw that liquidity, at least some of it, uh, and
• 17:28
  Speaker 1: uh that it was gonna be painful. I mean to
• 17:30
  Speaker 1: think it wouldn't be painful to see how much it
• 17:32
  Speaker 1: helped asset prices go up. To remove some of that
• 17:35
  Speaker 1: liquidity is the right thing to do. And I point
• 17:37
  Speaker 1: back to what happened with the with the chairman vocal
• 17:40
  Speaker 1: several decades ago. When he when he made us take
• 17:42
  Speaker 1: our medicine a little bit, and although it was very
• 17:44
  Speaker 1: painful over the near term, it was something that was
• 17:46
  Speaker 1: very very helpful allowed the economy to get back and
• 17:49
  Speaker 1: and you know, take the trains wheels off and and
• 17:51
  Speaker 1: and be on its own. And that's something we need
• 17:53
  Speaker 1: to do. So even though I think we will could
• 17:56
  Speaker 1: see some lower loads, as I mentioned, I think on
• 17:58
  Speaker 1: a short term basis, I think we can see the
• 18:00
  Speaker 1: arket rally, especially Apple, touching a very important support level
• 18:03
  Speaker 1: here which should hold. Uh. But still I think we'll
• 18:06
  Speaker 1: be a tough year this year. But that's okay for
• 18:09
  Speaker 1: the longer term. Um, we can blame the FED all
• 18:11
  Speaker 1: we want, but I in many ways I think they're
• 18:13
  Speaker 1: doing what they need to do a lot of people
• 18:15
  Speaker 1: said they should have done it a lot earlier. Either way,
• 18:17
  Speaker 1: it needs to be done at some point. We can't
• 18:18
  Speaker 1: have massive liquidity injections forever because when we get another
• 18:21
  Speaker 1: two thousand and date all over again. Matt Maylee, you
• 18:24
  Speaker 1: began by saying, don't panic, don't sell Willie Nilly, don't
• 18:28
  Speaker 1: buy willy nilly. So who's doing this willy nilly selling
• 18:31
  Speaker 1: right now? With the SMP five hundred down two and
• 18:34
  Speaker 1: a quarter percent. Who are the sellers? Well, I mean,
• 18:37
  Speaker 1: you know, I don't want to spend too much time
• 18:40
  Speaker 1: blaming the algos, but that's certainly has had an impact. Um,
• 18:43
  Speaker 1: but I think it's who are these mysterious algos that
• 18:46
  Speaker 1: are able to move the market to such a large extent. Well,
• 18:50
  Speaker 1: it's you know, the machine driven whether whether they be
• 18:52
  Speaker 1: hedge funds, but there are some uh other uh investors
• 18:56
  Speaker 1: that besides his hedge funds whore involved, who are engaged
• 18:59
  Speaker 1: in these things. And when the market gets moving in
• 19:01
  Speaker 1: one direction, it exacerbates it. Now the thing that that
• 19:04
  Speaker 1: it's not just selling though, it's also because of all
• 19:07
  Speaker 1: the uncertainty. And remember back in the beginning of two
• 19:09
  Speaker 1: thousand and sixteen, the market did bottom, but there was
• 19:12
  Speaker 1: really only once uncertainty out there. It was oil. Oil
• 19:15
  Speaker 1: was crashing, you know, and that was affecting the high
• 19:18
  Speaker 1: yield market, and so those two things were getting knocked
• 19:21
  Speaker 1: down and hurting the market. So once oil stabilized and
• 19:23
  Speaker 1: bounce back, uh, it was fine. Right now, we have
• 19:26
  Speaker 1: a lot of other uncertainties we have, whether it be
• 19:28
  Speaker 1: the said we have trade, we have a brexit, we
• 19:31
  Speaker 1: have you know, slower growth, et cetera. So many uncertainties
• 19:34
  Speaker 1: out there, so there's a you know a basically, uh,
• 19:37
  Speaker 1: you have buyers stepping back, so we have a lack
• 19:41
  Speaker 1: of buyers, and you have these algalis selling the thing
• 19:43
  Speaker 1: that the whole thing is exascerbated these people. With all
• 19:46
  Speaker 1: the uncertainty out there, you have a lot of people
• 19:47
  Speaker 1: sitting on their hands, and that's why I think we
• 19:49
  Speaker 1: had these wild swings. Matt Mayley, thank you so much
• 19:51
  Speaker 1: for being with us. Matt Mayory, equities trategist for Miller
• 19:54
  Speaker 1: t back In Company. It has been called the flash rally,
• 20:14
  Speaker 1: It has been called some weird activity happening in the
• 20:17
  Speaker 1: Witching hour and the Asian hours of trading. But what
• 20:21
  Speaker 1: happened with the Japanese yen has caught the attention of
• 20:24
  Speaker 1: FX traders across walls, treading across the globe. Joining us
• 20:27
  Speaker 1: now to explain everything that we just saw and explain
• 20:29
  Speaker 1: it way so that we have perfect clarity, has been Signarella,
• 20:32
  Speaker 1: he's global macro strategist for Bloomberg. What the heck happened
• 20:35
  Speaker 1: with the end um hesitates to call it a flash crash,
• 20:39
  Speaker 1: to be honest, that would assume that people were very
• 20:42
  Speaker 1: long dollars and trying to get out of that position,
• 20:45
  Speaker 1: and then as the sort of the box and the
• 20:47
  Speaker 1: Algo trip it and there's this major sell off that happens,
• 20:50
  Speaker 1: they were probably, you know, a reasonable amount of long
• 20:52
  Speaker 1: dollar positions. I don't think the market was overbought. It
• 20:55
  Speaker 1: tended to happen in a bit of an ill liquid
• 20:58
  Speaker 1: market in Tokyo. With the markets closed, the writing kind
• 21:01
  Speaker 1: of was on the wall. But I have to tell
• 21:03
  Speaker 1: you that the extent of the move really surprised me.
• 21:05
  Speaker 1: As we handed off into Singapore last night, I did
• 21:08
  Speaker 1: say to my counterpart, you're gonna have some fun today
• 21:10
  Speaker 1: and watch the end after this Apple news, because the
• 21:13
  Speaker 1: end being the haven currencies is where traders would want
• 21:16
  Speaker 1: to go. But it was completely overdone by al Goes
• 21:19
  Speaker 1: pushing it. And what they do is the program basically
• 21:21
  Speaker 1: is a momentum model. It will continue to push in
• 21:24
  Speaker 1: one direction until it ostensibly reaches some sort of resistance,
• 21:28
  Speaker 1: and then it's literally programmed to just just repeat and
• 21:31
  Speaker 1: rinse and go back the other way. And the interesting
• 21:34
  Speaker 1: thing actually, from what I've seen in trading this morning
• 21:36
  Speaker 1: is as traded sideways all day, we've seen yields continue
• 21:40
  Speaker 1: to extend declines, UH equities continue to sell off. All
• 21:44
  Speaker 1: of these things would have suggested the end should have
• 21:47
  Speaker 1: rallied further in the US markets. And what that's telling
• 21:50
  Speaker 1: me is markets courts short and wrong, and this sideways
• 21:53
  Speaker 1: trading would suggest we might see a little bit of
• 21:55
  Speaker 1: a bounce sometime in the next day or so. Vincent,
• 21:57
  Speaker 1: can you just describe for people that may have and
• 22:00
  Speaker 1: a sleep while all this happened, what actually went on? Well,
• 22:03
  Speaker 1: it really is a situation where there are no there
• 22:07
  Speaker 1: are no more market makers. I mean when you look
• 22:10
  Speaker 1: at the when you look at the floor of the
• 22:12
  Speaker 1: New York Stock Exchange and you see news reporters picture
• 22:15
  Speaker 1: the same concept in the FX market. There are no
• 22:18
  Speaker 1: market makers. The the vocal rule and government regulations has
• 22:22
  Speaker 1: pushed all of those folks out of the business, so
• 22:25
  Speaker 1: that when someone comes in and does size and tries
• 22:28
  Speaker 1: to move a bit into the market, there's no one
• 22:30
  Speaker 1: to really there's no supply to to smooth that move,
• 22:35
  Speaker 1: so to speak, So it just basically leaps to a
• 22:38
  Speaker 1: point until it hits a pocket of liquid. Right, But
• 22:41
  Speaker 1: I just want to know what happened. We just described
• 22:44
  Speaker 1: people that don't know what happened to the value of
• 22:46
  Speaker 1: the yen against the Aussie dollar, against the Turkish era,
• 22:49
  Speaker 1: what happened last night, But there was a major programs
• 22:53
  Speaker 1: buying yen selling other currencies simply as a haven flow
• 22:56
  Speaker 1: to to protect against what looks like a trade war
• 23:01
  Speaker 1: that could get even worse given what Apple's earnings were.
• 23:04
  Speaker 1: So if you if if you have somebody like Apple
• 23:06
  Speaker 1: downgrading earnings going forward, and you'd expect that that then
• 23:10
  Speaker 1: to um spread across other corporations. It doesn't look if
• 23:15
  Speaker 1: a few direquity earnings and people are looking for haven
• 23:17
  Speaker 1: flows and they choose the end because it tends to
• 23:20
  Speaker 1: be a liquid market. Not so liquid last night, but
• 23:23
  Speaker 1: it tends to be a liquid and there is a
• 23:25
  Speaker 1: four day holiday in Japan that could be exacerbating this.
• 23:28
  Speaker 1: Another factor that was blamed was retail investors in Japan.
• 23:32
  Speaker 1: I see you already see the skepticism dripping over your face.
• 23:36
  Speaker 1: I mean, but basically the idea that retail investors in
• 23:40
  Speaker 1: Japan are still reaching for yield, so they're going into
• 23:43
  Speaker 1: currencies like the Turkish lira and the Aussee dollar, and
• 23:47
  Speaker 1: they're inherently short the yen, and they were caught off
• 23:50
  Speaker 1: sides with the big move on the heels of the
• 23:52
  Speaker 1: Apple announcement. You know it, I don't because the problem
• 23:55
  Speaker 1: with that is we've already seen a pretty decent appreciation
• 23:58
  Speaker 1: in the end, So we've gone up to the dollars
• 24:00
  Speaker 1: traded up to sort of one twelve thirteen, down to
• 24:02
  Speaker 1: one oh seven before, and then higher up to back
• 24:05
  Speaker 1: one o eight, one or nine before this came back
• 24:06
  Speaker 1: down again. That's not a market that we're an appetite for.
• 24:10
  Speaker 1: Retail investor tends to be that those type of swings
• 24:13
  Speaker 1: um tend to to to trip margin calls way sooner
• 24:18
  Speaker 1: than they would in the institutional market or pension funds
• 24:20
  Speaker 1: or or the like. So a retail investor, while they
• 24:24
  Speaker 1: love volatility um love volatility and sort of one direction
• 24:28
  Speaker 1: momentum sense, they can't really handle the up and down
• 24:31
  Speaker 1: movement so much because they get taken out of positions
• 24:33
  Speaker 1: very quickly. So they would have had probably small positions,
• 24:37
  Speaker 1: I would guess going into this, So the suggestion that
• 24:40
  Speaker 1: they would be the cause is probably not correct, and
• 24:44
  Speaker 1: it has to do with the fact that the end
• 24:45
  Speaker 1: at one point broke one oh five. Yeah, right, I
• 24:48
  Speaker 1: mean one oh four eight seven against the dollar. That
• 24:51
  Speaker 1: was an early Asian trading. Yeah, and you had a
• 24:53
  Speaker 1: couple of standard deviation move And again when the program
• 24:55
  Speaker 1: see something like that and it's a big stretched trade,
• 24:58
  Speaker 1: as they try to push it, if they can't push
• 25:00
  Speaker 1: it any further, it just simply reverses. Uh. And you
• 25:04
  Speaker 1: know when you say retail investors or anyone else, it's
• 25:06
  Speaker 1: really difficult for human beings to get involved in that
• 25:08
  Speaker 1: kind of trade because by the time you're looking at
• 25:11
  Speaker 1: selling near the lows, it's probably already bounced going the
• 25:15
  Speaker 1: other way. So there are times when traders get caught
• 25:17
  Speaker 1: long and even before they can cut the trade at
• 25:19
  Speaker 1: a loss, they're back in profit because it bounced self viciously.
• 25:24
  Speaker 1: That it's better lucky than good sometimes and that helps
• 25:27
  Speaker 1: you if you're going to be called out on a margin. Yeah, absolutely.
• 25:30
  Speaker 1: I mean sometimes sometimes you can't even get out of
• 25:33
  Speaker 1: the trade after you've breached your margin fast enough and
• 25:36
  Speaker 1: it either will continue or come back in your favor.
• 25:39
  Speaker 1: In this case, if down at the lows, it would
• 25:41
  Speaker 1: have come back in your favor. And again, I think
• 25:43
  Speaker 1: the trading sideways movement today is suggestive of um some
• 25:48
  Speaker 1: other programs being caught short at bad levels. Who are
• 25:53
  Speaker 1: momentums who tried to push it in and weren't successful.
• 25:56
  Speaker 1: Well the end currently trading it one oh seven eight
• 25:59
  Speaker 1: again the US dollar. Thanks very much, Vincent Cignarella, he
• 26:03
  Speaker 1: is our global macro strategist for Bloomberg News. Thanks for
• 26:11
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 26:13
  Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
• 26:17
  Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on
• 26:21
  Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa abramoits
• 26:25
  Speaker 1: one before the podcast. You can always catch us worldwide
• 26:28
  Speaker 1: on Bloomberg Radio