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Breaking Down Apple With A Look At The Latest Tech · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets podcasted
• 0:15
  Speaker 1: Apple Podcasts or wherever you listen to podcasts, and at
• 0:18
  Speaker 1: Bloomberg dot com Slash podcast. Let's talk Apple right now, Matt.
• 0:23
  Speaker 1: The company yesterday unveiled an updated iPad pro with a
• 0:27
  Speaker 1: faster processor, by G connectivity, upgraded screen, and new cameras.
• 0:33
  Speaker 1: Question is do investors care? Let's bring it on Treney
• 0:35
  Speaker 1: of Boston. He's a senior technology analyst at Bloomberg Intelligence.
• 0:40
  Speaker 1: So on, And as we think about the Apple story here,
• 0:42
  Speaker 1: I'm looking at the stock, it's you know, flat year
• 0:45
  Speaker 1: to date, you know, really underperforming the market here. What's
• 0:50
  Speaker 1: the story here for Apple right now? Yeah, that's a
• 0:54
  Speaker 1: that's a great question, Paul. Look, I mean we have
• 0:57
  Speaker 1: maintained that Apple works on two prime vectors, right The
• 1:01
  Speaker 1: stock and the company works on two primary vectors. One
• 1:03
  Speaker 1: is iPhone, iPhone shipments, and I think they're set up
• 1:06
  Speaker 1: really well in that regard, and the other is the
• 1:10
  Speaker 1: Juggernaut services franchise, where this is going to be a
• 1:13
  Speaker 1: sixty five billion dollar year just the services franchise. In so,
• 1:18
  Speaker 1: I think that the iPad and the Max are very
• 1:22
  Speaker 1: nice products, and in any other company they were moved
• 1:26
  Speaker 1: the needles substantially and then some. But in the Apple's
• 1:29
  Speaker 1: scope of you know, three d and thirty and forty
• 1:33
  Speaker 1: billion dollars of revenue with the just Go, you're it doesn't. Um,
• 1:37
  Speaker 1: It's it's intrictive, it's additive, but in it of itself,
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  Speaker 1: it's not a stand alone vector of leadership. Yeah, about
• 1:45
  Speaker 1: my Mac, I think two thousand or so. I love it,
• 1:49
  Speaker 1: but I don't have any reason to replace it. Like
• 1:52
  Speaker 1: it does everything I needed to perfectly well. Um. But
• 1:56
  Speaker 1: in terms of the services, when you talk about services,
• 2:01
  Speaker 1: I assume you're including, um, you know, the Apple Music, um,
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  Speaker 1: the Apple TV content, the podcast that they announced yesterday.
• 2:10
  Speaker 1: What what's the big driver with their services? Yeah, so
• 2:14
  Speaker 1: that's a that's a great question, Matt. Look, the services
• 2:17
  Speaker 1: business has at least eleven subsegments, and we've tried to
• 2:21
  Speaker 1: sort of parse that out. At the Apple Music, Apple
• 2:26
  Speaker 1: TV TV, plus the Arcade business. Um, all of those
• 2:32
  Speaker 1: are smaller portions of the services franchise. So in in
• 2:35
  Speaker 1: their updates yesterday they didn't really even Apple Card doesn't
• 2:40
  Speaker 1: move the needle at all for them. The biggest is
• 2:43
  Speaker 1: the download of apps, both the paid as well as
• 2:46
  Speaker 1: the free apps. Um, So that's a big portion of
• 2:49
  Speaker 1: the business. Apple care is it is a very profitable business.
• 2:54
  Speaker 1: The iCloud business is very profitable, and um, the licensing
• 2:59
  Speaker 1: the business. So Google pays Apple for to be the
• 3:03
  Speaker 1: default search engine on the iPhone and that is a
• 3:06
  Speaker 1: pretty big deal. That is a very lucrative, high margin
• 3:09
  Speaker 1: payment that Apple gets. Those are the big pieces of
• 3:12
  Speaker 1: the pie. Um. Apple Music is nice. It's still smaller
• 3:17
  Speaker 1: than Spotify from a revenue perspective. Apple pay is is nice. Again,
• 3:22
  Speaker 1: it's a very cohesive driver of all the different products
• 3:26
  Speaker 1: and services with the Apple platform. But in and of itself, Um,
• 3:30
  Speaker 1: the people Apple Care as a driver, I mean, this
• 3:33
  Speaker 1: is like they seem like good people right at first clients,
• 3:36
  Speaker 1: but then they're making you pay extra to guarantee that
• 3:39
  Speaker 1: your product doesn't break in the next couple of years.
• 3:42
  Speaker 1: I mean, shouldn't that come for free? Well, look, I
• 3:47
  Speaker 1: mean there's a replacement value, and the one of the
• 3:51
  Speaker 1: things that these are expensive components to make, an expensive
• 3:55
  Speaker 1: components to assemble. Um, there has to be there's a
• 3:59
  Speaker 1: minimum amount of guarantee that comes with the product. But
• 4:02
  Speaker 1: it's only to the degree that it's a manufacturing issue. Right,
• 4:06
  Speaker 1: If I stomp on my iPhone, I don't expect Aple
• 4:09
  Speaker 1: to pick up the tab for that. Alright, alright, if
• 4:14
  Speaker 1: I wreck my car, I don't expect you know, Mercedes
• 4:17
  Speaker 1: to pick up the tab. But if it just stops working,
• 4:20
  Speaker 1: you know, or even the manufacturing issue, you can certainly
• 4:23
  Speaker 1: take it in. But otherways you pay in shorts. Oh,
• 4:26
  Speaker 1: they have the nice people help borrow whatever it is. Now,
• 4:29
  Speaker 1: you can just take it into the store. I'm sure
• 4:30
  Speaker 1: they'll they'll take care of you. Sorry, I'm looking at
• 4:33
  Speaker 1: the balance sheet here, I'm looking at the financials for
• 4:35
  Speaker 1: this company. You know, almost two hundred billion dollars in cash,
• 4:39
  Speaker 1: eighty billion dollars of free cash flow every single year.
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  Speaker 1: Then they got a dividend yield of zero points six
• 4:46
  Speaker 1: what's up with that? Why don't they raise their dividend,
• 4:49
  Speaker 1: buy back more stock? This is just craziness. Yeah, so look,
• 4:53
  Speaker 1: they're they have accelerated share, They have accelerated share. We
• 4:57
  Speaker 1: purchase programs. They have a big buy back up re
• 5:01
  Speaker 1: up potentially coming in the next quarter. UM. All of
• 5:05
  Speaker 1: those have to happen. But when you have again the
• 5:07
  Speaker 1: size of cash flow generation that this company has, particularly
• 5:11
  Speaker 1: this year, UM, when they've done really, really well with
• 5:14
  Speaker 1: the launch of their new iPhone, it's it's um. It's
• 5:17
  Speaker 1: staggeringly big, and it's it's a it's a problem that
• 5:21
  Speaker 1: needs to be overcome. It is genuinely a problem of
• 5:24
  Speaker 1: how fast they can deploy that cash UM, either in
• 5:28
  Speaker 1: stock buy backs or dividends or internal r and D,
• 5:31
  Speaker 1: which is not going to move the needle from a
• 5:34
  Speaker 1: cash balance perspective. So it's an absolute problem. You're right.
• 5:38
  Speaker 1: The air tags such a great idea. I was hopeful
• 5:40
  Speaker 1: when other companies came out with similar products. Um, is
• 5:44
  Speaker 1: this going to be something that we all have our
• 5:46
  Speaker 1: key chains in the next couple of years. Absolutely? I
• 5:49
  Speaker 1: think you know, I see the AirPod. The air Tags
• 5:52
  Speaker 1: is very similar to the the air Pods franchise that
• 5:56
  Speaker 1: was a sleeper hit and continues to be a really
• 5:59
  Speaker 1: good product of them. UM. And I think it sort
• 6:02
  Speaker 1: of again adds to the platform effect that Apple has UM.
• 6:06
  Speaker 1: And the security is robust, so I can definitely see
• 6:10
  Speaker 1: this product taking off and being a noticeable de line item.
• 6:16
  Speaker 1: All right, I'll I'm excited to see the reviews of
• 6:18
  Speaker 1: that on. Thanks so much for joining us on a
• 6:20
  Speaker 1: Trini vass on their senior semiconductor and hardware analyst for
• 6:24
  Speaker 1: Bloomberg Intelligence. This is Bloomberg. We were talking precious medals.
• 6:34
  Speaker 1: I want to bring it every moment right now, practious
• 6:35
  Speaker 1: medals specialist at Gainesville Coins. Um. I mean gold is
• 6:41
  Speaker 1: probably the focus of most of our listeners in terms
• 6:45
  Speaker 1: of you know, precious metals that individuals hold. Everett, we
• 6:50
  Speaker 1: haven't really seen gold, you know, in the face of
• 6:53
  Speaker 1: inflation expectations, we haven't really seen gold move to really
• 6:58
  Speaker 1: impressive levels. All oh, it's had a good run the
• 7:01
  Speaker 1: last few days right now at sevent troy ounce. Where's
• 7:05
  Speaker 1: it headed. Well, that recent rally you mentioned has pulled
• 7:10
  Speaker 1: gold back to essentially as December loads, and it seems
• 7:14
  Speaker 1: poised to retest those levels in the short term. It
• 7:17
  Speaker 1: certainly helps that the dollar has pulled back a bit. Um,
• 7:21
  Speaker 1: but really the gold trade has been pretty boring, right Um,
• 7:25
  Speaker 1: We've seen some subdued trading in the West. But when
• 7:28
  Speaker 1: I look internationally, UM, there's some key developments that I
• 7:31
  Speaker 1: think are rather favorable for gold and could pretty swiftly
• 7:35
  Speaker 1: push us back above that eighteen hundred announced level. UM.
• 7:39
  Speaker 1: China's relaxed it's pretty strict rules on who can import gold,
• 7:43
  Speaker 1: so several billion dollars of gold are expected to flow
• 7:47
  Speaker 1: into Beijing in the next couple of months. And similarly,
• 7:51
  Speaker 1: in India UM they have ease their rather high import
• 7:54
  Speaker 1: duties on gold and as a result we saw record
• 7:57
  Speaker 1: high first quarter imports into India year over year UM.
• 8:02
  Speaker 1: And and and even in South Korea, the gold trade trading
• 8:04
  Speaker 1: volumes have been running pretty hot and their own pace
• 8:06
  Speaker 1: for about a fifty increase year on year. So these
• 8:10
  Speaker 1: strong sources of demand should at least put a floor
• 8:13
  Speaker 1: below the gold price, perhaps around seventeen fifty ounce for
• 8:17
  Speaker 1: the time being. But I do agree that overall in
• 8:20
  Speaker 1: the West, UH had the gold trade has been pretty subdued.
• 8:24
  Speaker 1: Really isn't moving anywhere yet ever? Is that reflecting the
• 8:28
  Speaker 1: rise in the ownership of bitcoin and people viewing bitcoin
• 8:33
  Speaker 1: as a perhaps a comparable store of value to golds,
• 8:36
  Speaker 1: and they're saying, hey, maybe i'll take a little bit
• 8:38
  Speaker 1: off my you know, my gold column put it into bitcoin. Sure,
• 8:43
  Speaker 1: I do think that you know there is this clear
• 8:46
  Speaker 1: rivalry between the two groups of investors UM. But somewhat interestingly,
• 8:51
  Speaker 1: survey data gathered between two thousand seventeen and two thousand
• 8:54
  Speaker 1: twenty by a British firm called Global web Index show
• 8:59
  Speaker 1: that there is had a bit of crossover between the
• 9:01
  Speaker 1: demographics who are interested in cryptocurrencies and those who are
• 9:06
  Speaker 1: interested in gold. UM. It is a bit surprising because
• 9:09
  Speaker 1: we tend to associate gold with the older investing crowd
• 9:13
  Speaker 1: and cryptocurrencies with younger investors and people who are just
• 9:17
  Speaker 1: getting into the markets, but in fact there is this overlap.
• 9:21
  Speaker 1: So with the rise and interest in cryptos and n
• 9:25
  Speaker 1: f t s non fungible tokens, we are seeing that
• 9:28
  Speaker 1: sife and off some investment dollars away from the precious metals.
• 9:32
  Speaker 1: Just as cryptos rallied to start the second quarter, open
• 9:36
  Speaker 1: interest in COMEX gold futures hit it two year low.
• 9:39
  Speaker 1: So I do believe there is a correlation between the
• 9:42
  Speaker 1: two UM. But as there are some an emergence of
• 9:45
  Speaker 1: some gold backed cryptocurrencies, perhaps we could see some further
• 9:50
  Speaker 1: merging between those two asset classics classes in between the
• 9:54
  Speaker 1: types of investors who are interested in them. Yeah, that
• 9:57
  Speaker 1: that would be interesting. Although UM hasn't yet become really
• 10:01
  Speaker 1: popular the idea of UM gold backed crypto, but it
• 10:06
  Speaker 1: makes a lot of sense if we were willing to
• 10:08
  Speaker 1: trade goldbacked FIAT for so long. I wonder about UM palladium.
• 10:13
  Speaker 1: As the headlines just crossed the terminal, we hit an
• 10:16
  Speaker 1: all time high. Does this rally continue or is this
• 10:20
  Speaker 1: just part of the auto sales bottleneck due to the
• 10:24
  Speaker 1: ship shortage. Well, certainly the the semiconductor and chips shortage
• 10:31
  Speaker 1: is affecting the auto industry, which has that direct effect
• 10:34
  Speaker 1: on palladium. But even outside of automobiles, the energy transition
• 10:39
  Speaker 1: to cleaner fuels could palladium could figure importantly into that.
• 10:45
  Speaker 1: Both platinum and palladium UM are involved in fuel emerging
• 10:49
  Speaker 1: fuel cell technology and other hydrogen based fuels. And we
• 10:52
  Speaker 1: also have to remember on the supply side that the
• 10:56
  Speaker 1: majority of the world's palladium supply comes from Russia. So
• 11:00
  Speaker 1: these reciprocal UM tensions and sanctions between the United States
• 11:05
  Speaker 1: and Russia could perhaps put a barrier on a lot
• 11:09
  Speaker 1: of that palladium getting out of Russia. So I do
• 11:11
  Speaker 1: think that the trend is still going to be upward
• 11:14
  Speaker 1: for palladium, even though we're at the peak of what
• 11:16
  Speaker 1: is a multi year rally in hitting those all time
• 11:19
  Speaker 1: highs because of the supply concerns and because palladium does
• 11:23
  Speaker 1: figure into the potential green future for our our energy sources.
• 11:31
  Speaker 1: All right, great, great intel there, and we're so glad
• 11:35
  Speaker 1: to get you on. Everett Millman, Precious metals specialists from
• 11:38
  Speaker 1: Gainesville coins UH coming to us obviously out of Gainesville, Florida,
• 11:43
  Speaker 1: talking us through what's going on in in gold, what's
• 11:46
  Speaker 1: going on in UH and and really in the kind
• 11:50
  Speaker 1: of cross currents between the metal and the crypto sector
• 11:54
  Speaker 1: as well, and um, what what is in which which
• 11:57
  Speaker 1: university is in Gainesville? Is that university's okay? So, so
• 12:01
  Speaker 1: Jacksonville is Florida? You those are the Gators and Gainsville, Florida.
• 12:06
  Speaker 1: Tallahassee's Florida state. Oh Tallahassa, right right, cool, all right,
• 12:11
  Speaker 1: thanks for setting me straight. Our university specialist, this is Bloomberg.
• 12:17
  Speaker 1: Now let's bring in David Coudla. He's the CEO and
• 12:19
  Speaker 1: chief investment strategist Mainstay Capital Management is here to talk
• 12:24
  Speaker 1: to us about his investment strategy in the current market environment. David,
• 12:29
  Speaker 1: I guess the first thing we have to know, um,
• 12:33
  Speaker 1: is your forecast for growth and inflation. Well, uh, first,
• 12:41
  Speaker 1: we think that we're going to have an amazing first
• 12:45
  Speaker 1: quarter for growth, both in terms of what we're seeing
• 12:49
  Speaker 1: in terms of GDP for the economy and what we see,
• 12:53
  Speaker 1: you know, coming out of this uh uh impact of
• 12:56
  Speaker 1: the COVID and the lockdowns on the economy from last year.
• 13:00
  Speaker 1: So a year over year, you know, we're going to
• 13:02
  Speaker 1: see amazing growth in the economy. We're also going to see, uh,
• 13:07
  Speaker 1: the earnings are going to be tremendous. We're expecting the
• 13:10
  Speaker 1: best earnings since uh in the last couple of years.
• 13:15
  Speaker 1: And we're seeing inflation that is just you know, incredible,
• 13:19
  Speaker 1: not necessarily the inflation that the Federal Reserve monitors, although
• 13:23
  Speaker 1: that did come in at high level year over year
• 13:28
  Speaker 1: headline inflation highest in many years. But when we look
• 13:33
  Speaker 1: at some of the other commodity prices, you know, we've
• 13:36
  Speaker 1: got iron ore trading in a three year high, nearly
• 13:39
  Speaker 1: triple since last year, lumber more than five times from
• 13:43
  Speaker 1: this you know, from this time last year. So uh,
• 13:48
  Speaker 1: you know, we're we're really seeing, Uh, inflation in many
• 13:51
  Speaker 1: sectors of the economy has run has run at a
• 13:55
  Speaker 1: very very high level. Do you consider that inflation transitory,
• 13:59
  Speaker 1: which is what I've the FED is suggesting, or is
• 14:03
  Speaker 1: this something that maybe we need to worry about. Well, um,
• 14:09
  Speaker 1: I know that there are a lot of people to
• 14:11
  Speaker 1: take objection with this and take objection with the FED
• 14:14
  Speaker 1: stating this, but we do see it as transitory. We
• 14:18
  Speaker 1: think that a lot of this, especially what I just
• 14:20
  Speaker 1: talked about in some of these commodities. And although we
• 14:23
  Speaker 1: may be in the beginning of a commodity supercycle, the
• 14:30
  Speaker 1: levels that we've seen are a result of a couple
• 14:33
  Speaker 1: of things. The COVID the pandemic had impacted the ability
• 14:39
  Speaker 1: to produce some of these commodities. But also, um, the
• 14:43
  Speaker 1: construction sector, both a commercial and residential and especially residential
• 14:48
  Speaker 1: never really slowed down during COVID. Housing has done very
• 14:52
  Speaker 1: very well. Uh, just you know, incredible pace all the
• 14:56
  Speaker 1: way through the pandemic, and the supplier didn't expect that,
• 15:01
  Speaker 1: and so there's just incredible pent up demand for those
• 15:04
  Speaker 1: raw materials, those those supplies for housing in particular and
• 15:09
  Speaker 1: building in general, and so you know that will be
• 15:12
  Speaker 1: met and I think we'll see those prices come back
• 15:15
  Speaker 1: down by as early as the end of the year.
• 15:17
  Speaker 1: So so that that those type of inflationary forces I
• 15:21
  Speaker 1: think our transitory uh and ultimately if inflation in general,
• 15:27
  Speaker 1: the long term secontary forces for deflation come back in.
• 15:32
  Speaker 1: Oh interesting, So does how does that affect the stocks
• 15:37
  Speaker 1: you want to buy? And can you give us some picks? Well,
• 15:42
  Speaker 1: so we you know, in we were with the stay
• 15:47
  Speaker 1: at home trades, a lot of the technology uh you
• 15:50
  Speaker 1: know a lot of the e commerce trades and uh
• 15:53
  Speaker 1: internet e commerce I T technology, we moved to the
• 15:59
  Speaker 1: consumer recyclical small caps. Now we're moving out back into
• 16:04
  Speaker 1: some of the growth her names. So we still you know,
• 16:08
  Speaker 1: some of the areas like the global x US infrastructure
• 16:13
  Speaker 1: development et F, PAVES, P a V. Hence the name
• 16:17
  Speaker 1: holds companies like Deer Vulcan Materials, Emerson Electric. We think
• 16:22
  Speaker 1: they have further to go as the economy reopens um
• 16:26
  Speaker 1: and we're still looking at and still holding some of
• 16:30
  Speaker 1: the value names that in E T F s that
• 16:34
  Speaker 1: will uh we think continue to do. There's been a
• 16:37
  Speaker 1: setback in value here the past couple of days that
• 16:39
  Speaker 1: passed month, but we think value has further to go
• 16:42
  Speaker 1: with the fiscal stimulus that's in the system and coming.
• 16:46
  Speaker 1: But we're looking at at some of the some of
• 16:49
  Speaker 1: the ets like mote Van Vector's morning Star, wide Moat,
• 16:52
  Speaker 1: et F holds names like Google and Tell, young brands,
• 16:56
  Speaker 1: general dynamics. These are the brands that have a wide
• 17:00
  Speaker 1: defensible mode around their business model and and UH and
• 17:04
  Speaker 1: then a guard BTF growth at a reasonable price and
• 17:08
  Speaker 1: and these are another growthier type e t flds like Facebook,
• 17:14
  Speaker 1: wholety homes. We still think the home builders have further
• 17:17
  Speaker 1: to go, United Reynolds, Adobe, and these are just some
• 17:22
  Speaker 1: of these, a mix of still some cyclicals with some
• 17:26
  Speaker 1: growth names that we think can do well as we
• 17:30
  Speaker 1: continue to move through the reopening the economy. David, thank
• 17:35
  Speaker 1: you so much for joining us. We always appreciate getting
• 17:37
  Speaker 1: your thoughts and perspective on these markets. David Coudla, CEO
• 17:42
  Speaker 1: and chief investment strategist for Mainstay Capital. Again still constructive
• 17:47
  Speaker 1: on this market map, but you know, kind of rotating
• 17:50
  Speaker 1: maybe a little bit back into some of those growth names.
• 17:52
  Speaker 1: We heard from David that cyclical trade had worked so
• 17:55
  Speaker 1: well released since September of last year. As you know,
• 17:59
  Speaker 1: we started to get the some positive vaccine UH data
• 18:02
  Speaker 1: points out there. Then we saw a rotation of the rotation,
• 18:05
  Speaker 1: a rotation of the rotation, and I think, you know,
• 18:07
  Speaker 1: we're starting to see U some folks take a look
• 18:09
  Speaker 1: at some of those growthier names as well. So lots
• 18:12
  Speaker 1: of ways to play this market. Bloomberg Opinion every day
• 18:20
  Speaker 1: at this hour we get a columnist from our opinion
• 18:24
  Speaker 1: UM our opinion group to talk about a column he
• 18:28
  Speaker 1: or she has written. Sarah Hallzac joins US now retail
• 18:31
  Speaker 1: columnist for Bloomberg Opinion. You've written about inflation a very
• 18:35
  Speaker 1: timely moment, saying that not everyone can copy Procter and
• 18:39
  Speaker 1: Gambles price hikes. You talk about, um, the ease with
• 18:42
  Speaker 1: which PNG raises prices on diapers as well as tampons,
• 18:47
  Speaker 1: but said, UM say that it's difficult for everybody, UM,
• 18:51
  Speaker 1: including competitors to raise prices for the same reasons. Yeah,
• 18:56
  Speaker 1: that's right, And I think part of that is because
• 18:59
  Speaker 1: we've actually seen consumer brands flexing pricing power throughout the
• 19:03
  Speaker 1: pandemic in ways that are starting to pressure consumers wallets, right, UM,
• 19:08
  Speaker 1: I've written about that, everyone from Crux to Crux clogs
• 19:12
  Speaker 1: to just peanut butter to Whirlpool appliances have seen the
• 19:16
  Speaker 1: benefit of pricing actions during this time. UM. One way
• 19:21
  Speaker 1: is by cutting promotions. We've seen a lot of that
• 19:24
  Speaker 1: over the last year, not offering that coupon that may
• 19:27
  Speaker 1: have been table stakes before the pandemic. UM, and also
• 19:30
  Speaker 1: through lift pricing increases and for a variety of consumer
• 19:33
  Speaker 1: psychology reasons. Consumers have largely put up with it. But
• 19:37
  Speaker 1: I think we are getting to a point where it's
• 19:38
  Speaker 1: fair to ask how much more of this can consumers
• 19:41
  Speaker 1: see before they bulk? All right, So sir, what are
• 19:44
  Speaker 1: we seeing in terms of maybe some of the you know,
• 19:46
  Speaker 1: the bigger players of practics and gambles of the world
• 19:49
  Speaker 1: versus maybe some of the smaller brands. Do they have
• 19:52
  Speaker 1: similar pricing power or do you have is it really select? Uh?
• 19:57
  Speaker 1: They do not have similar pricing power. I think we've
• 19:59
  Speaker 1: see these big brands UM are able to do this. Uh.
• 20:03
  Speaker 1: You know one thing P ANDNG has talked about that
• 20:05
  Speaker 1: the pandemic really did was kind of bring people back
• 20:08
  Speaker 1: to big, national, trusted brands in a big way. UM.
• 20:12
  Speaker 1: I think when you're in this time of crisis, you
• 20:15
  Speaker 1: maybe don't feel as comfortable trying something new. You just
• 20:18
  Speaker 1: want the thing that you know works, especially in the
• 20:21
  Speaker 1: categories that P ANDNG is in, like household cleaning products.
• 20:24
  Speaker 1: UM thinks that would you know, contribute to your safety
• 20:27
  Speaker 1: during this time. UM So, I do think the big
• 20:29
  Speaker 1: national brands have particular pricing power. And so you know
• 20:33
  Speaker 1: what P and G is committed to doing. Is it
• 20:35
  Speaker 1: said in its BabyCare, feminine care, and adult and Continent's division.
• 20:39
  Speaker 1: Um By September, you're going to see a mid to
• 20:42
  Speaker 1: high single digit price increases on products in those categories.
• 20:46
  Speaker 1: And that follows a similar announcement from kimber Kimberly Clark,
• 20:49
  Speaker 1: that's the company that makes Huggy diapers and Scott toilet paper.
• 20:53
  Speaker 1: They may would do price hypes of a similar magnitude.
• 20:57
  Speaker 1: I'll tell you would be a blessing for the earth.
• 21:00
  Speaker 1: People would stop using disposable diapers and start using cloth
• 21:04
  Speaker 1: diapers instead. Unlikely as that is to happen. Where where
• 21:08
  Speaker 1: is it difficult to hike prices? Sarah? I think in
• 21:12
  Speaker 1: the most discretionary categories, And I think you know one
• 21:16
  Speaker 1: thing that happened uh during the pandemic was that uh
• 21:20
  Speaker 1: safety and convenience really Trump's value and consumers buying decisions. Right,
• 21:26
  Speaker 1: So in order to only have to go to one store,
• 21:29
  Speaker 1: you just thought whatever was available even if it wasn't
• 21:32
  Speaker 1: on sale, or you just sucked up that the prices
• 21:34
  Speaker 1: were higher online for the safety of having it delivered
• 21:38
  Speaker 1: to your doorstep. And I think now that consumers are
• 21:41
  Speaker 1: more mobile again, they're going to feel comfortable hitting more stores.
• 21:45
  Speaker 1: They're going to feel comfortable, you know, doing more price
• 21:48
  Speaker 1: comparison and engaging in that activity again. And so uh,
• 21:52
  Speaker 1: that is that is going to make them more conscious
• 21:55
  Speaker 1: of price tags. And so I think these really discretionary
• 21:58
  Speaker 1: items like do you really need need a new piece
• 22:01
  Speaker 1: of clothing? Do you really need a new handbag? Um?
• 22:04
  Speaker 1: Do you really need more sports equipment after all of
• 22:07
  Speaker 1: the camping year you bought last summer when being outdoors
• 22:10
  Speaker 1: was the only thing you could do? Um? I think
• 22:12
  Speaker 1: all of those are going to be areas where raising
• 22:14
  Speaker 1: prices is just more difficult than it is on something
• 22:17
  Speaker 1: as essential ast diapers, which is a purchase you just
• 22:20
  Speaker 1: can't put off all right, So, Sarah, are we seeing
• 22:24
  Speaker 1: consumer shifting maybe from name brands to store brands to
• 22:28
  Speaker 1: try and to find value. So that is definitely something
• 22:32
  Speaker 1: we have often seen during a recession. UM, I don't
• 22:36
  Speaker 1: think we've seen a lot of clear evidence of that yet.
• 22:39
  Speaker 1: I think some of what that play is what I
• 22:41
  Speaker 1: was describing earlier about this flight to really trusted brands
• 22:45
  Speaker 1: UM and really wanting to make sure, especially with things
• 22:47
  Speaker 1: like household cleaners or laundry detergent, that you're really getting
• 22:51
  Speaker 1: something that's going to perform, that you're going to get
• 22:53
  Speaker 1: bang for your buck. So I don't think we've seen
• 22:56
  Speaker 1: that migration to store brands yet, and specifically with this
• 23:00
  Speaker 1: diaper issue. UM. Often if you saw the big brands
• 23:03
  Speaker 1: like Pampers or Huggies raising prices, that could be an
• 23:07
  Speaker 1: advantage for store brands. But because this is a commodity
• 23:11
  Speaker 1: driven issue, UM that's affecting the whole industry. It's because
• 23:14
  Speaker 1: the price of pulpe is really straining their margins. I
• 23:18
  Speaker 1: don't think you're going to see that flight to store
• 23:20
  Speaker 1: brands because I think everyone across the board is going
• 23:23
  Speaker 1: to be having to make pricing adjustments to shoulder these costs. Yeah,
• 23:26
  Speaker 1: it'll be interesting to see if any of this of
• 23:29
  Speaker 1: these price pricing issues go away. Right because UM, we're
• 23:33
  Speaker 1: assured by Jerome Powell that this is transitory, and it
• 23:37
  Speaker 1: doesn't sound like, at least in the cases that we're
• 23:40
  Speaker 1: talking about from P and G or Kimberly Clark, that
• 23:43
  Speaker 1: that it is going to go away very quickly. Right,
• 23:47
  Speaker 1: These commodity costs issues might take a little while to
• 23:50
  Speaker 1: work out. And look, when you talk about you know,
• 23:52
  Speaker 1: the consumer sector overall, UH, there's much more baked into this. There's, yes, UM,
• 23:57
  Speaker 1: the port congestion and the global shortage of shipping containers.
• 24:00
  Speaker 1: All of that is impacting their logistics costs. But they're
• 24:03
  Speaker 1: also dealing with another issue, which is that e commerce
• 24:07
  Speaker 1: as a percentage of their sales likely skyrocketed last year.
• 24:11
  Speaker 1: And I expect that people start moving around more UM
• 24:13
  Speaker 1: that will retreat a little bit and people will go
• 24:15
  Speaker 1: back to doing some in store purchasing. But you have
• 24:17
  Speaker 1: to remember that the rise of e commerce UM is
• 24:20
  Speaker 1: often harmful to the profit margins of retailers because they
• 24:23
  Speaker 1: have to foot that bill for last miles delivery UM
• 24:26
  Speaker 1: and in some cases have to pay for return delivery
• 24:29
  Speaker 1: if you decide you don't like the items. That's really
• 24:31
  Speaker 1: expensive for them, and it's a real change in their
• 24:34
  Speaker 1: cost structure. As more and more of their business moves online,
• 24:37
  Speaker 1: and so that's just one more thing, uh, they're dealing
• 24:40
  Speaker 1: with that is not going to go away, and that's
• 24:42
  Speaker 1: going to shape their pricing decisions. Does just does practical
• 24:48
  Speaker 1: gamble care whether they're product gets purchased, you know, on
• 24:54
  Speaker 1: in a brick and mortar store or online. No, I
• 24:58
  Speaker 1: don't think so at this point. I think you know,
• 25:01
  Speaker 1: ultimately their direct customers are the retailers themselves, not the
• 25:04
  Speaker 1: shopper um and so I think you know their focus
• 25:07
  Speaker 1: is just on supplying those retailers with product that they
• 25:11
  Speaker 1: can sell and whatever channel the customer most wants to
• 25:14
  Speaker 1: spend their money. Sarah Halzac, thank you so much. We
• 25:17
  Speaker 1: appreciate that. Sarah halls like she's a retail columnist for
• 25:20
  Speaker 1: Bloomberg Opinion. You can read all of her work and
• 25:23
  Speaker 1: that of our good folks at Bloomberg Opinion, at Bloomberg
• 25:27
  Speaker 1: dot com, slash Opinion, or on the Bloomberg terminal by
• 25:31
  Speaker 1: typing O P I N go. We have some fantastic
• 25:34
  Speaker 1: Bloomberg Opinion columnists and they really put out some really
• 25:36
  Speaker 1: thought provoking pieces. Sarah really focuses on all things in
• 25:40
  Speaker 1: the retail space, and we are seeing commodity prices. We
• 25:43
  Speaker 1: have seen commodity prices increase pretty much across the board,
• 25:47
  Speaker 1: and again the question is how much will manufacturers, uh,
• 25:50
  Speaker 1: you know, eat those cost increases or pass them along
• 25:54
  Speaker 1: to consumers. And in terms of products, we're seeing it
• 25:57
  Speaker 1: on the consumer side, prices going up this boom. Thanks
• 26:01
  Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
• 26:04
  Speaker 1: and listen to interviews of Apple Podcasts or whatever podcast
• 26:08
  Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
• 26:11
  Speaker 1: Matt Miller three. On Fall Sweeney, I'm on Twitter at
• 26:15
  Speaker 1: pt Sweeney before the podcast. You can always catch us
• 26:18
  Speaker 1: worldwide at Bloomberg Radio