tv Whatd You Miss Bloomberg August 1, 2017 3:30pm-5:00pm EDT
after conducting two recent missile tests. >> we felt the appropriate thing to do first was to seek peaceful pressure on the regime in north korea. a have them develop willingness to sit and talk with us and others, but with an understanding that the condition of those talks is there is no withe for north korea nuclear weapons. mark: secretary tillerson said he does not blame north korea's ally china for the current situation, but added that china can influence north korea, quote, as no one else can. president trump's son-in-law said the campaign could not have colluded with russia because the team was to dysfunctional and disorganized. kushner, senior advisor to the president, made the comment during a closed-door session
with congressional interns. the report says kushner was responding to a question about special counsel robert mueller's investigation into whether the trump campaign colluded with moscow. including suspects generals in military pilots went on trial in turkey today. they are accused of leading last year's failed coup. theey blames followers for coup, and will try him. it killed at least 249 last july. the u.s. secretary-general is urging all venezuelans to prevent further violence and push for lyrical dialogue. a spokesman says he is convinced the only way forward is a political solution. more than 100 people have died in protests against the president. leading opposition figures
were also taken from their homes last night, accused of violating terms of their house arrest. news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. i am mark crumpton. this is bloomberg. ♪ >> live from bloomberg's world headquarters in new york. >> we are 30 minutes from the close of trading here in the u.s. >> stocks closing within record highs. 10 years ago, a chain of events -- coincidence that a decade later, wall street regulators have agreed to rewrite well the many
restrictions put in place to prevent the next market collapse? speaking of ten-year anniversaries, apple wants to allow the world with what has been referred to as the iphone 8. we will have the numbers in one hour. julia: auto sales for the big three automakers came in at disappointing levels. in autoes amid warnings lending relating to credit quality. let's say these fears are unfounded. we are joined now. joe: thank you for joining us. this has been a drumbeat we have heard a lot. deteriorating credit conditions. you say it is proving to be a flop. guest: yes it is. most of the stories have been a flop. it's true theay,
big three u.s. makers had disappointing sales. there seems to have been a shift. nissan, honda, toyota did a little better. total sales actually rose in july. look, the question for every investor is, what is the market pricing in and what is the likely outcome going to be. we have been talking about subprime auto catastrophe for a long time now. if you just pull up a chart of ally financial -- allied financial, which is an auto subprime lender, the stock is actually rallying. that speaks volumes about what is in the price. if you have been betting on this theme over the last several weeks and months, it has not been working out too well. ultimately i think what matters for consumers generally is the health of the labor market and we know the labor market is healthy, people are finding work
come increasingly quitting their jobs in search of better employment. credit is one of these things at least for the consumer, it is difficult to worry about. julia: these things do take time to build up. --spoke to how it marks howard marks and he pointed out billion sterling's of debt last year, double the amount of the year before. for him that does have echoes of the subprime crisis. it does have a sense of risk obliviousness, a feeling of that. would you agree with that? neil: no because we are sitting here and talking about it. these things are very difficult to spot in real-time. why wouldn't we expect that given the the economy is improving? i would expected to pick up and expected to be reflected in the credit markets.
, it isack to auto difficult to be complaining about auto credit at the same time people are also mentioning used-car prices are falling. presumably when people buy cars they are taking unless debt because the prices are declining. julia: isn't that the point of the secondary market, because they are using it to fund -- neil: used-car prices are falling because leases are coming off. you can't have it both ways. you can't complain about credit well talking about prices in the sector falling. scarlet: i'm looking on the bloomberg here, the blue line tracks a growth in auto loans. is student loans and credit card loans are at the bottom in white. subprime auto loans is they do not have to unleash the next crisis for the effect to be damaging. that could be a lot of net charge-off and it could signal fundamental weakness on the part of the consumer. neil: i think you will see some
increase. i would collect a normalization because you are extending a credit to weaker parts of the credit basis. that can be seen as a good thing and a bad thing. if you look at subprime auto loans, as a share of auto loan origination, basically an extension to people with credit scores below 620, that was actually higher in 2005 than today. it is true that subprime auto loans are rising. prime auto loans are rising faster. i think that you have to take a new wants to view. -- a nuanced view. no one is saying everything is rosy. scarlet: we started with a discussion on sales of auto slowing down a bit. we had seven years of auto sales growth. it has peaked. we are in for a decline. what do you think it looks like this time around? last cycle was not a great
example of what it should look like. neil: i don't think auto is collapsing. everything in the economy can be boiled down to an identity. for example, at some level auto sales are a function of household formation and propensity for new households to want to own cars. we know household formation generally speaking, is evidenced by increasing growth in owner-occupied real estate which we have seen recently. i think as household formations rise we should be surprised next year the extent to which people are buying cars. the nature of the housing recovery is changing. more people are buying single-family. those single-family homes come with garages. quickly, weto shift had the jobs report coming out friday, it is kind of a cliche but people will say to watch the wage number. i'm sure we will say that on this show the next three days. what you point out the some
fresh data that actually wages look like they are accelerating. what is this chart showing you right now? neil: that a showing you the aggregate -- it is not just about hourly earnings. it's about the number of people working, how long they are working, and the earnings they are getting on those hours worked. when you take that total blended number, aggregate income growth in the private sector over the first six months of this year is running at a fairly healthy clip. we have not seen it since early 2015. that actually provides some relief to the outlook of consumer spending. we did see some pretty downbeat revisions to compensation growth in 2016. so, this offset some of that and it is good to see. my own view is that the jobs data is going to be fine. we saw employment accelerating, consumers are confident. i would not be surprised to see something around 200,000 again.
again, it comes down to jobs, hours and earnings. effective hourly earnings is the accelerating, that tells you that people are coming in, the people that are out are viable. they are productive people who can still exert pressure on the wages of those were still working. to me that is a reason for optimism and longevity in this cycle. scarlet: thank you so much. coming up, the most viable company in the world reports earnings and one hour. we're talking about apple. for livet here coverage and expert analysis as soon as those numbers come. this is bloomberg. ♪
away from the highly dissipated earnings report from apple at some analysts say it won't matter. the stock has had a spectacular run this year. let's bring in abigail doolittle to break this down. what are you hearing in terms of investors only caring about the iphone 8, if it is actually called that? abigail: i spoke to sean harrison earlier and he said this quarter really does not matter. it's interesting you are talking about the iphone 8 and what it is called. he said he has heard a variety of names from the professionals. in any case it does not matter because the iphone 8 is what everyone cares about. will it be spectacular and ring the company back. on the other hand, numbers matter. let's hop into the bloomberg. not only to the mound -- the numbers matter, but q3 of last year, that proved to be pivotal. if you recall we had a few
quarters where they were missing numbers. beat andr quarter they that was the beginning of apples run backup after dropping 30%. quarters do matter. $1.57.ors are looking for it will be important for them to get those numbers. we will know soon. julia: we'll was talking about super cycles where apple is concerned. do we think the iphone x will make for the next super cycle for apple? abigail: that's a great question. nobody knows because there are so many different factors. how much will it cost? are people going to be willing to put that much money out there? in terms of the installed base come anywhere between 400 million and 700 million, how many people will upgrade? there was, interesting point that without china is no super cycle. this is the china revenue growth over the last several quarters. it's been very lumpy.
more recently, big declines in growth year-over-year. if they don't get back on board there will not be a super cycle. stay tuned. joe: how are trader positions? abigail: that's an interesting question for sure. there could be a big move to the upside or downside. neither the buyers or sellers are really in control. if we look at a chart relative to the options, year to date chart come in white we had the stock come in blue we have a cost of put versus calls. it is very low. dom a technical standpoint i happen to love charts and patterns, this appears to be possibly a bit of a bottoming pattern, perhaps suggesting you can see the pricing go back up and see a re-convergence of the stock and the options activity. time will tell. scarlet: good stuff. abigail shares right now higher
for the first time in four days. julia: it's now time for the bloomberg business flash. brexit scenario has an estimated 4000 jobs moving from london across europe according to people familiar with the matters. most positions will transfer to frankfurt and berlin although no numbers haven't finalized. also signed ans agreement to lease space for new u.k. headquarters. beyonce is said to be considering the houston rockets. the team was put up for sale two weeks ago amid surging valuations. according to people familiar with the matter, the team could set a price of $2 billion. andnce is a houston native has performed wearing a rockets jersey. they declined comment. that's your bloomberg business flash. scarlet: "what'd you miss?" bloomberg has learned that wall street regulators will rewrite
the -- they will begin working together on a revision. terryr today i spoke to duffy on what he's looking for. >> we always need to have liquidity and we're going to get into a time of stress. everything is great right now. equity is up, interest rates are low, energy markets are fluctuating. what if we have serious volatility, which eventually we will get. we need more people to make sure they are providing deep liquidity. why you want to take the banks out of that equation is beyond me. i hope they can amend the rules to a point where banks can continue to stream liquidity because the public will need that. scarlet: here with the latest is benjamin who helped break the story. i want to pick up on what terry mentioned. is it any sense of urgency because of where we are in the market? stock market at record highs,
spreads and narrowing, and the federal reserve looking to reduce its balancing sheet and tightening monetary policy. ben: i think what you heard from mr. duffy is in line with what wall street banks have been saying since 2013 when this rule came into place. it is one of the more hated rules by wall street generally. they argued that because the language was a vague they cannot really go up to certain lines and that makes it essentially harder for them to do business. i think beyond just where the markets are, there is a sense of urgency in washington among regulators because it looks like not too much is going to happen anytime soon on capitol hill to make good on the trump promises to get rid of dodd-frank, to change and ease financial rules. elect will come down to what agencies like the fed, the sec, and what others can really do to make good on these pledges. julia: we are looking at a
revised rather than a repeal because that seems impossible. i was wondering what it means in terms of greater flexibility for the banks and when they're dealing with investment opportunities. what will it mean in terms of greater flexibility? ben: really what so far we know is that there was kind of a widely anticipated report that came out last month from the treasury department. they basically recommended, as you mentioned, not a wholesale repeal, but really easing some of the provisions in there, essentially exempting smaller banks from some restrictions and easing others. perhaps also making it a little clearer in terms of what is actually allowed. banks have complained for a long time that as you would just showing, it has decreased their trading revenue and also had a negative impact on the markets. people who support this say
banks are still making tens of billions of dollars a year on trading. it's not to say that business has gone away, and they would markets -- argue markets are safer. it's not a done deal, either. there will be political fighting over this for sure. joe: how much of the issue is that the wording of the volcker rule is complicated and how much is it that the underlying definition of proprietary trading is just a complicated thing to define? ben: i mean, banks would say it is both, i think. proprietary trading, business models have had two trains -- has had to change post-crisis. i don't think at this point anyone is calling for a wholesale scrapping of some of the restrictions in place. but it does seem most of the industry now has coalesced around the idea that the language has to be cleaned up. if it is clearer, how far they can go, then they will be able
to execute more trades on behalf of their clients. and critics of wall street would say then they are going to be taking more aggressive positions. i think it is a wording thing and a lot of back-and-forth is going to happen over the next several months and years, because this could take a while, over what the ultimate new language could look like. so we will stay tuned, but this is kind of the beginning of a process and certainly something that could set up a big win for wall street here in washington. scarlet: thank you so much. you will want to tune in tomorrow morning. the goldman sachs ceo will be joining us at 8:30 a.m. new york time. this is bloomberg. ♪
if you take a look at what is going on at the right hand side you get a sense -- this is -- it will maintain original technology while speeding up transactions. data comest from the from bitcoin cash --it comes from bitcoin. i am getting excited about it. out.ury may be joe: you have to love the old-style stuff. fascinating split. one of my favorite data points i always try to look at every month is gaming revenue. when things are picking up in macau and people are gambling, it is often a good sign for e.m.
of total macaue gaming revenue of nearly 30% year-over-year. the blue line is a ratio between em stocks and global stocks. they track each other pretty well. when macau gaming revenue started rebounding, a few months later em stocks started rebounding. with that acceleration in macau let's see if that continues to be a good sign, all kinds of animal spirits percolating. scarlet: i love how joe gets so excited about macau getting revenue. let's focus on oil prices. $50 a barreloff today. forget about being there sure bullish on oil. they are pulling that's off the table overall. this chart looks at the total number of wagers on wti.
either rising or falling. it has reached the lowest level since in november. the yellow line shows you the last time it was a slow. short-sellers have been setting the tone. , then plummeting rebounding as bearish bets retreated. long positions on wti have not changed that much since may. everyone looking for some sign of evidence the global oil market is balancing but they are not getting that evidence yet. julia: that could suggest we are at a breakeven point. this is around the levels analysts have said. are juste markets underpriced and it is all invalid. that never happens. scarlet: the market closes next. we have record highs in the dow jones industrial average. we are not near 22,000 yet but we certainly have got kind of close to that level today.
julia: u.s. stocks rising to all-time highs. hoping to push the dow within touching distance of 23,000. we'll see what happens with apple's third quarter results in 30 minutes time. i am julia tapley. scarlet: i am scarlet fu. joe: i am joh joe rosenthal. we want to welcome you to our weekday coverage. scarlet: we begin with our market minute. s&p 500 making an intraday high. the nasdaq moving high. a lot of -- joe: a lot of time for people to wear their doubt 22,000 hats. -- dow 22,000 hats. scarlet: in terms of industry movers, financials moving. on the downside, you have health care and industrials declining. here are some of the
individual movers. apple reports earnings later this afternoon in about 30 minutes time. sprint we are including because it is out 11% -- is up 11%. a possible merger is on hand. it has been cutting costs because of mounting subscriber losses. we know the head of softbank, which controls the company, has been looking for a suitor for sprint. under armour off by 8.6% after cutting its annual sales forecasts. real questions about whether under armour is no longer the company. this means the stock needs to come down with valuations where they are at. joe: let's take a look at the government bond market starting in the u.s.. lower yields today. a mixed picture today. weak auto sales numbers. we'll talk more about those later. pretty weak numbers. we talked about that earlier. that was earlier on today show.
-- today's show. strength in german 30 year yield. perhaps some buying in the u.s. and strong options there. julia: the dollar was slightly higher today after five consecutive months of losses. actually down 2.6% in july. level. just about the 93 the rally continues. a little bit of softness. 1.18. we have an interesting chart here. 39. euro sterling 89 the figure there suggests some euro pullback from sterling. what i am showing you here in this chart is going to come up any second. the blue line shows you the surprise index. this is the difference between the u.k. and the euro. you can see that coming down. some of the gains in the u.k. are softening. these surprises coming
from the euro area improve. traders are looking for a to improve to $.90, 90 euro cents. quick question. a quick point to make on dollar ruble. i was talking yesterday about the reducing population between the dollar ruble and the oil prices. we have oil down below $50 a barrel, trading at $49 a barrel. you see ruble weakness. the correlations are not all gone. joe: let's take a look at those commodities, including oil. oil down around 2%. texas intermediate below $50 a barrel. gold not doing much. soybeans falling 3.5% after some strong rains. those are today's markets. scarlet: "what'd you miss?" a few economic data points today. consumer spending and personal income.
little signs of inflation. obviously, a very different picture today from where we were 10 years ago on the anniversary of the hedge fund bust. here now with his perspective is kami craig. -- is cameron. economic data have been improving on the whole. ae surprise index looks little bit debtor, and it rolled over a bit today. we did not get great data today. cameron: it was ok. they had people worried the market was looking for a rise of .4% month on month. it turned out to be zero. if you dig a little underneath the surface it was not that bad,. it rose what the market had been expecting so the total income was downloaded dividends. dividend income and interest income, which obviously skewed a higher income cohort. joe: i am curious.
you look at the data, we have been talking a lot about the weak dollar and the extent to which it is driven by politics. how much is it politics versus the fact that everyone else is looking good, and we are looking good, but maybe not quite as good? cameron: i think politics is an easy scapegoat. the easy scapegoat is not always the accurate one. if you reset to where we were at the beginning of the year, the market is up not only on the fiscal situation in the u.s., which is admittedly a disappointment, but people were upbeat about the inflation trajectory where the monetary policy trajectory from the fed. when we have seen is not only a probably disappointing economic profile but also a disappointing inflation profile. that has encouraged the market to downgraded expectations for the overall fed cycle. at the same time, the rest of the world is looking relatively better in terms of europe.
the growth is good. in china, there is always the perennial worried about china. china seems to be humming along nicely, thank you very much. joe: an interesting piece available on the bloomberg is . this is the 10 year anniversary of the two funds. we will be talking about it for a long time because people can come up with it, is a reasonable start. -- but it is a reasonable start. where the theoretical fragility's we have seen in the market is the concerns we had back then? cameron: yesterday was the 10 year. from a macro perspective, the world looks quite a bit healthier than it did 10 years ago. you feel like you have to have a lot of gray here to remember this, but in the last decade,
the first half of the last decade, there was a lot of concern about global imbalances. the dollar was going to go down forever. g7 back when there were g7 meetings would come up with stat statements to talk about global imbalances. now that is not an issue. in 2007, the u.s. account benefit was 5% gdp. china's surplus was 5% gdp, no some of narrowed considerably. the u.s. requires less capital from overseas to come in. china is exporting less capital aggressively. scarlet: the rhetoric has heated up even as the numbers actually -- that is political. cameron: obviously, yes. scarlet: as we compare and contrast the financial conditions, the economic conditions between now and 10 years ago, people are wondering whether china is going to be the trigger, the catalyst for the
next credit crisis. how convinced are you buy the arguments out there? cameron: i think it is reasonable to assert that the chinese credit boom is unsustainable, but what we also know is it is not a clearly market-driven phenomenon. in many cases, credit is allocated by administrative , an average the forces that will bring it to an end will possibly be by administrative dictate. the other important distention between the chinese situation and the u.s. situation 10 years ago is that the chinese credit system is not entirely closed, but it is a lot more closed off and internalized than the u.s. one was where you had massive debt in theducts of u.s., which were securities purchased all over the world so
they resonated across the global banking system. julia: pineapples will tell you it is a control economy. the bears forget that fact. -- the bulls will tell you it is a controlled economy. the bears forget that fact. cameron: you get to a point where everything implodes. the air will have to come out of the chinese bubble at some point. but saving when an identifying when is very difficult. julia: the questions you have asked, china's credit market, oil at the $20 level, in an unexpected bankruptcy as amazon takes over the world. cameron: that is my little joke. kind of. at this point, i do not think it is possible for it to be unexpected if amazon drives. scarlet: more companies are concerned about amazon and how they cited that is a bigger issue than politics. julia: yes. cameron: i was joking with one of your colleagues off-camera that the only single stock that
i write about is amazon because amazon is macro. the impact on pricing. the influence on inflation. scarlet: amazon is micro. , too. love that com james mont did an interview over knew we get into the stocks are the second or third most a sense of the have ever been, and any attempt to compare them against interest rates or anything like that is saying it is different. he called out buffett. what do you think about that? can we excuse high pes because of other factors? cameron: i kind of think you do. you go to the supermarket and you look at the price of chicken, your decision is whether to buy the chicken. you have to look at the price of stake. if chicken is the same price as steak, this is america, most people will buy the steak. if steak is 50 times more than
chicken, you will buy the chicken. i don't think we can look at these things in isolation. for no other reason that when what are equities other than a series of the distant future. the lower the rate, the lower the present value of those cash flows. yeah, if you think your focus returns for equities is -4%, obviously you are going to say they are able. that is a little aggressive in terms of return forecast. julia: thanks to you cameron crise. coming up exactly on this point, is now the time we need to be cautious? that is a suggested from howard marks -- suggestion from howard marks. what traders should be preparing for in terms of downturns. from new york and when this is bloomberg. -- from new york, this is bloomberg. ♪
it is time now for first word news. a coalition of 16 state attorneys general led by eric schneiderman of new york has filed a lawsuit charging the federal environment protection agency with illegally stalling the designation of areas impacted by unhealthy levels of ground-level ozone. the coalition is challenging epa administrator scott pruitt's one-year delay, saying it violates the requirements of the clean air act. secretary of state rex tillerson says he will meet this weekend with russian foreign minister sergey lavrov on the sidelines of a meeting of southeast asian foreign ministers. relations between washington and moscow have been strained after revelations that russia meddled in last year's presidential election and more recently with
both countries imposing sanctions on one another. >> i think the american people want the two most powerful nuclear nations in the world to have a better relationship. i don't think the american people want us to have a bad relationship with a huge nuclear power. mark: secretary tillerson added that russia "must take some steps to improve relations." meantime, the white house says president trump has not signed the sanctions bill targeting russia that was sent last week. passed congress with overwhelming support. moscow responded by ordering a reduction in the number of u.s. diplomats in russia. pakistani lawmakers have elected a veteran lawmaker as the country's interim prime minister. the former prime minister was forced to resign last week after accusations he concealed assets. inassi is expected to quit five days to clear the way for the younger prime
minister. globaglobal news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. scarlet: "what'd you miss?" in the midst of the great bull market, some investors are raising alarm bells. howard marks spoke with erik schatzker earlier today. erik began by asking howard, why now? why is now the right time to send out a warning? time to sound a warning is when everybody is making a lot of money because that means the market is going up, enthusiasm is incorporated in prices and behavior. you cannot sound a warning after the thing has turned over and died. marketink that we see a in which there are lots of uncertainties. prospective returns are low.
asset prices are high. people are engaging in risky behavior. that is the kind of climate in which we should take a hard look at what we are doing, and i think reduce risks. erik: there are lots of people who want to keep making money. what kind of pushback have you gotten? howard: here is a shocker for you. i want to keep making money, too, but i try not to deceive myself about the ability to do that. this memo has gotten some of the most response of any in history. say 90% favorable, but some strong unfavorables. erik: what do those people have to say? howard: well, one of them, who i have seen on tv this morning, says howard marks says it is time to get out. i absolutely do not say it is time to get out. i don't say anything about getting out. i say it is a time about percussion.
one of the-- precaution. one of them said now is no better time for precaution than any other time. in fact, there is no better time for cash or for hedges, etc., etc., and no worse time that we can proceed. in other words, it is impossible to correctly put risk on or take risk off. we should always act as if we do not know. erik: that sounds like a resume for disaster. ,oward: well, not for disaster but for merely mortal performance. if you want to perform at an above average level, one of the things you have to do is to keep put risk on at some point in time and take it off at some point in time rather than be consistent in that regard. there are better and worse times
for aggressiveness and conservatism. erik: you have rung the alarm bell before. howard: yes. erik: in 2000. in 2005, which you acknowledged was a bit early. does the need to reduce risk feel any more urgent to you now than it did then? , i thought that in 2000, my comment was not about the stock market. it was about the tech stocks. i thought that was much more urgent than today. they really looked offbeat in those days. in 2005, it was not quite so urgent, but of course, the market had another two years to run, at which time it became urgent. you know, i would not describe it as urgent today. pingeconomy is still clip along at a modest pace and is likely to do so.
there has not been an economic boom, so i do not think there should be an economic bust. certainly not any time soon. i am not commenting so much on the fundamentals.i am commenting on investor behavior and asset prices. erik: many of the conditions that you describe in your memo are reflective or indicative of an overheated market. howard: yes. erik: or at least a market that is on its way to being overheated. among them, rich valuations, low value, the popularity of etf's, the reach for yields. those conditions have been in place for months if not quarters if not years. what changed? why now? howard: there is no magic. it is just the accumulation of things. you know? i once read where someone said i strength.trength -
i gather strength. my son andrew brings these things to my attention, and we talk about them. just enough accumulated. erik: it is a gut feeling? howard: yes. there is no magic. there is no quantitative miss. -- no quantitativeness. erik: is anything strike you as most horrible or most dangerous -- most home or a bull or most -- most vulnerable or most dangerous right now? howard: no. the main cause for all of this is uniform and applies to everything, and that is the low level of interest rates. low interest rates cause for inflated valuations of everything, and by being so unappealing to investors on safe
billion in the third quarter of 2016. i have seen this called the lame-duck course. it always tends to be soft. forecast willthe be the most supportive thing. that will give you a sense of the timing of the iphone 8. a quick look and a deep dive into my bloomberg. this is why it is all about the iphone. when you look at this segment breakdown, 62% of revenues rely on iphone sales. yes, they are trying to grow the other businesses. for now, it is all about the iphone. scarlet: they don't move the needle. the other big story when it comes to apple is its cash. it's well-documented $250 billion of cash in sor short-term securities, that figure as a percentage of
apple's total market cap. it is very dependent on the stock price how this line moves. right now, apple's war approximately a third of its market value. at the end of june, if you look at how much apple has paid out, apple has led all u.s. degrees in return of capital to shareholders. it is the combined value of dividends and buybacks. $46 billion. the next biggest company was general electric, and it was at $25 billion. joe: reason for apple shareholders to be interested in tax reform. something could happen there. apple is not facebook. it is not amazon. is not quite as sexy as those names these days, but it is still a really big deal. this bottom chart -- this top chart shows apple has crushed the s&p over the years. the bottom chart, however, is apple's weight in the s&p. it was 5% in 2012. here, it is down to 3.66%.
even though it is not capture the headlines as some of the other internet companies, you know, it still really matters. the earnings we will get in over three minutes, everyone has to pay attention. scarlet: of course, make sure to check the bloomberg for the live blocking. julia: absolutely. an assessment of the numbers. we will most definitely be talking. do not go anywhere because we will be talking to these numbers as well. those are the numbers to look at for the forecast upgrades as well. , content,en services. next, the world's most valuable company reporting earnings in two minutes time. let's take a look at how those shares are trading as we had to that release. -- head to that release. from new york, this is bloomberg. ♪ who knew that phones would start doing everything?
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scarlet: we have apple's results out. one dollar 67, that is $.10 higher than what analysts had anticipated. revenue, $45.4 billion. the consensus estimate among analysts was $44.95 billion, of the company anticipated anywhere from $43.5 billion to $45.5 billion so that is within the range apple had indicated. iphone units sold for the third quarter, 41 million even. analysts were looking for 41.1 million. this comes back to the idea that perhaps people are holding off on buying iphones and of the release of the newer iphones later this year. julia: i was talking about the forecast for the fourth quarter, which is critical in terms of
the timing of bringing the new iphone out. revenue estimates here, $45 billion to $52 billion. the estimate, $49.1 billion so what looks like they are anticipating seeing plenty of sales in the fourth quarter despite they may have to delay the release. joe: this is a very tiny miss. 41 versus 41.1 million. but because everybody knows that this is not the key quarter, it is not waiting on the stock much. it is up. scarlet: i am looking at some other numbers within the third quarter, the quarter that just ended. $8 billion, down 10% year on year. services revenue, $7.27 billion, up 22% year on year.other products , $2.74 billion, up.
fast-growing businesses, but really, they are minor when you compare that to the iphone. in terms of iphones, average selling price is $606. the consensus estimate -- joe: greater china revenue down in percent year over year. that will be a topic on the call that people will be very curious about. julia: some of the apps that are not relevant are being stripping out or the chinese government does not want in there. they are trying to tailor the business to the chinese market. levelre below the $500 where they need to make the gains. scarlet: let's bring in emily chang. she joins us from san francisco with some highlights of her conversation with tim cook, the apple ceo. emily: just got off the phone with apple ceo tim cook. everybody wants to know about the next iphone. not quite at guidance.
$49 billion to $52 billion is so important. that is at or above consensus. he would not talk about future products, of course, but when it comes to that guidance, he said, we are happy with this. we like t what we see for the beginning of the back-to-school season. 1.2 billion units sold over its lifetime. he elaborated a little bit on the pause on the last earnings call, the pause in the upgrade cycle. he said it feels like the rumors are much louder and more frequent then use in past -- than in years past. one of the things he was very happy to point out is the big increase in services revenue up 22%. services setting an all-time quarterly record. he told me over the last 12 months, the services business has become the size of a fortune 100 company. this is a milestone we had projected to meet but not this soon. we are thrilled we have achieved
that. the apps continue to be a major driver. now let's talk about china. you pointed out the 10% revenue decline in china year-over-year. that is actually smaller than the decline we saw last quarter when revenue declined 14%. so a slower than previous decline. i asked him, are the wind is changing in china -- winds changing in china? he told me the results were encouraging in china. . thought they would improve some, but they improved more. they had a record june quarter there. the service business extremely strong. in line with projections, but they feel really good. i followed up with a question about india. everybody is curious when we will see india start to contribute more meaningfully to sales. will start to make up for what they have seen in china?
is that they are making a lot of investment in china, and they are very -- he in particular is very optimistic about the market there. julia: brilliant work with that interview. emily chang, bloomberg technology anchor. let's get a little more context. we are joined by john butler. management under $4 billion. john, very quickly, that for one guidance on the fourth quarter, critical in terms of getting a sense of its timing of the next iphone release. looks like they are on track despite the rumors. john: it looks good. they are in line with where i think the street is for the quarter. keep in mind we have three new iphones coming in if the rumors are correct. we had the s series for the seven, which is a feature upgrade to the iphone 7 and the iphone 7 plus. then the anniversary phone with
the iphone 8. my hunch is they will introduce in september. they may even begin shipping it in limited volumes in september. so the big question is, is there a push back in the volume shipments of the anniversary phone into a later recorder perhaps? people are saying november, december is a possibility. scarlet: obviously, everyone is looking ahead. i want to bring denny fish into this conversation. how significant are these latest results and the outlook, or is this for you kind of an uneventful quarter in which we really need to see what kind of a timeline apple gives for the release of its newest iphone? >> i do think the numbers were actually quite impressive, particularly given some of the uncertainty leading up to the guidance that we were given today, but i think more importantly in terms of for us the way we think about apple is getting through the iphone eight 8per cycle -- the iphone
super cycle and thinking through ost thenings growth p iphone 8 cycle. one of the big drivers of the earnings momentum going forward past the cycle is the services business, and it looks like that was little over $7 billion. that is pretty impressive. now you are almost at a $30 billion run rate for that business, and that is recurring revenue. joe: john, the services revenue that he just mentioned, tiny but growing pretty fast. it is not nothing. it is not trivial. is this something that can get people excited about the company in these quarters when it is not really all about the iphone? john: it should. it is where the growth is and the future is for apple. it is small now, but highly profitable. a lot of those sales go right to the bottom line.
apple has committed over the next four years to dublin that business, which would put it --- to doubling that business, which would put it higher in revenue. highly profitable and high in growth. that is something to definitely to watch, particularly as the iphone franchise matures. julia: how close they are you watching what they say about china at this moment? because this is seen as a huge growth opportunity if they can get it right. when looking at some of these numbers here, and even if it is a slower revenue decline than we have seen in the past with revenues down 10%, does it resonate with you when tim cook says it is encouraging? are you encouraged or concerned? denny: it is definitely one of the most debatable points on the stock right now. it is because so much of the growth is driven by china when we went through the last big iphone cycle. it has been a big story of
growth and almost a quarter of revenue at one point. there are a number of reasons to believe that the outlook is a little more optimistic. we think about consumers delaying their purchasing behaviors, but what we also think about a lot is eastern consumers, they just operate differently in terms of how they used a smartphone -- use the smartphone and what they value. the use applications like alibaba's applications. it is a different user experience. we think about what the true value of the iphone is to an eastern consumer versus a western consumer. position.sh how happy are you right now with how the company is using that cash? denny: i think they are using it as efficiently as they need to. if there is one area i might be critical on, i think they can be more aggressive on the acquisition front. there is a number of things they
can do to accelerate the services business. it is something they will have to do over time. they talked about actually starting to develop original content. a number of areas they will have to invest in. m&a may actually be a more practical use of some of that cash to accelerate those initiatives. julia: i just want to pick up on the point you were just making about china and the evaluation difference that the chinese investors have or consumers have with iphone products because we know it is at the lower end of the spectrum here, where apple is so challenged in terms of price. appleiscount do you think needs to apply to its products in order to entice a chinese consumer to see the same kind of value as a western consumer would? denny: i do not have the answer to that because it is really -- if we look into china, apple is primarily viewed as a luxury device. the question becomes, what is
the value of that luxury status symbol relative to the value or the utility they actually get out of what they use on the device? that is a pretty wide gap if you look at the price point in terms it $100hones that call that continue to gain a lot of share. chinese consumers can use all of the applications and get to all the data and apps they want to get to through the android store in china and through those lower and phones relative to what iphone. julia: it is a tough market. scarlet: it is. denny: it really is. scarlet: tim cook trying his best to unlock it. our thanks to john butler and sticking with us, jennidenny fish. coming up, we will dig deeper into apple's earnings. apple extending gains, now up by almost 5%. emily chang just spoke to us earlier. she spoke to tim cook.
the expectation was 41.1. fourth quarter revenue estimate the estimates from the company coming in $49 billion to $52 million. the estimate, $49.1 billion. or flavor us a sense of what to expect in terms of sales and timing for those new products, those new iphones. we are showing you the after-hours trade their. -- there. 5.5% trade higher. i have an apple on the desk. i drew a smiley face on it because investors are clearly happy. i don't know if you can see it. joe: all of the analysis. julia: i know. emily chang. scarlet: tim cook talked about the guidance and the slo slowdown in the sales. he said it feels like the rumors are much louder and more frequent than in years past, so we believe that has created a pause. it is larger than previously.
still with us right now, denny fish joining us from san francisco. caroline hyde join just from our london bureau. talk a little bit about what we do know apple has told us about the upcoming release of the iphones because there is a lot of speculation out there, a lot of the envoys blogging about it all day, but what has apple told us? caroline: that is the difficulty. they never want to give away anything. we know it is an anniversary, the 10th nonetheless. upwill be a suped screen. that is what many were worrying could mean there will be some slowdowns. this is when many people were worried about, the fiscal fourth quarter of apple and what the forecast would be.instead , they smashed them. they say it could rise as much as 11%. the supply issues will not be
there, but certainly, we know there will be at least three new 7s's,s, suped up iphone and a new iphone 8. will it be called an iphone pro? we do not know. scarlet: sticking with the isdance, denny, apple notorious for being very conservative when it comes to its outlook. this sales outlook of $49 million to $52 billion, what do you read into that? has apple changed the way it approaches guidance? or is it still fairly consistent and always undershooting? denny: well, it is interesting because if we actually look at what just happened the most recent quarter, a little bit conservative, but they hit the numbers. the fact that they are generally conservative, particularly in very important quarters would suggest that they actually feel
pretty confident about the business. there was so much uncertainty coming into the timing associated with the ramp in the iphone 8. they clearly feel a lot more confident in the near term. hence the reaction you are seeing in the stock. joe: caroline you mentioned youk apple can use some of its cash to do m&a, perhaps bolster its services business. what do you have in mind specifically? what a potential areas for apple you think they could benefit from buying into? denny: well, i think probably the biggest opportunity for apple is forward. this company was built around redefining the music industry. if you go all the way back to the ipod. we think about how they have been able to leverage that competency over the last decade plus two really -- to really dominate that category. if you think forward, we are in
a world that consumption patterns around media have changed meaningfully. there is probably more disruption there on a daily basis than any other sector of entertainment. i would argue that they could be more inquisitive in that area. they potentially could be more acquisitive in the gaming sector as well, which dovetails into consumption patterns changing across media in general. julia: that is an interesting possibility. we are talking about the changing ways people choose to consume media. what about the prospect for the investment in original content hear from apple? when we look at these services businesses, the subscriptions to apple music. these are avenues where apple needs to perhaps go down in order to challenge some of its competitors, but also is a part of the business they are tried to focus on growing materially. caroline: looking at the numbers, it is growing materially. we are looking at the services still only $7 billion.
nothing in comparison to where the iphones are still raking in the revenue. up 22%. other products doing very well, up 23%. you are looking at the watch, ipods, new devices, and speakers will probably be added to that collection.this is an area of growth, but you are right . they have taken time to wise up, particularly to music streaming. spotify is the number one music company out there. now, they are trying to play catch-up. it is interesting now that spotify is trying to take on the apple podcast by unleashing its own podcasts as well and dabbling with that. this is a key area that apple needs to drive forward, getting back into the apple content. television, you are right. we have not seen content be driven to any great success there. we still see apple tv in the
other product section. scarlet: i know that you run a tech fund and apple is one of your biggest holdings if not the biggest, but the way apple has been viewed by the street, it was viewed as a growth company at one point. do you see this as a value stock? denny: welcome i think that is the way you look at it at the moment. just if you look at the pe multiple or the enterprise value to free cash flow metrics, it would suggest apple is being viewed as a value stock on the street. what is a sustainable durable earnings growth rate? where investors have struggled a little bit outside of the cycle, earnings, we are not back to 2015 levels yet in 2017. so when you have a company that is pre-much only growing earnings through brick products -- pretty much only growing earning products through
products, it is important for a couple of things to change the narrative and potentially change the multiple. can apple evolve its product portfolio to look more like subscription? can the services revenue get to a point where investors will give them an appropriate multiple for that recurring revenue base? so i think that is the way if you look past this cycle and we look past fy18 into fy19, 20, 21, that is the investors will look at the stock. julia: a great point. thank you so much for that. thank you to caroline hyde in london. denny coming to us from san francisco. the stock now up more than 5%. more on apple's earnings and what it means for the tech section in a whole. i want to leave you with more insight from tim cook, who just spoke with emily chang. when it comes to sales in china, this is what he said. the results were very
scarlet: it is time now for the bloomberg business flash, a look at some of the biggest business stories in the news right now. general motors sales falling the most in a year, down 15% compared to a year ago. the industry is getting hit after extending credit to people who could not pay loans. the carbon spending is dragging on u.s. growth after years of intervening to its expansion.
scarlet: "what'd you miss?" nasdaq closing at a record high and after the market closed, apple reported guidance was still encouraging. apple shares up. julia: got my apple ready. scarlet: don't miss this. user bank of india announces its decision at 5:00 tomorrow morning. joe: loretta mester and john williams both speaking tomorrow. julia: earnings on tesla. scarlet: a programming note. be sure to tune in as we are joined line at 8:30 a.m. new york time. do not miss that. joe: that will make headlines. scarlet: bloomberg technology is
of his statement regarding a meeting with the russian layer. that is after reports that trump himself dictated the july 8 statement, which says they -- discussed the adoption of children. emailed showed it was a means to deliver damaging material about hillary clinton. secretary of state rex tillerson says the u.s. is applying peaceful pressure on north korea. they raise concerns after recent icbm launches. he also says the american people want better relations with russia. he will meet this weekend with the russian foreign minister. a coalition of 16 state attorneys general filed a lawsuit charging the epa with illegally delaying designating areas impacted by unhealthy levels of ozone. the coalition says the epa administrator, scott pruitt's one-year delay violates, the requirements of the clean air act. president trump has not signed a sanctions bill targeting russia set last