Transcripts For CNBC Squawk Alley 20180213 : vimarsana.com

CNBC Squawk Alley February 13, 2018

Korea. He sat down with Gold Medalist chloe kim. That conversation is am coulding up in just a few minutes so stay tuned. Thats going to be super fun. All right. Now to the extreme market volatility less funneled which has been a global phenomenon as well for more on whats happening here and abroad, were joined by stephen roach, former morgue an stanley asia chairman, Yale University senior fellow he warned in december that global economies may not be as resill yen resill yent as once thought. We didnt plenmention that you also an economistist what do you think of the Interest Rates spa spooked the markets. Are they going to go higher or what is your prediction . Well, i think the Federal Reserve is clearly got its antenna up, michelle, given not just one data point on inflation but the fact that the economy has a fair amount of momentum at full employment and lo and behold were doing a lot of deficit spending at the same time which is not exactly the recipe for stable inflation going forward. So forward looking fed has to look at the future with a different set of considerations than it has in the past. You have spent so much time in china and the chinese own perhaps more u. S. Debt than any of the other entity in the entire world what do you think . Theres been talk that maybe they might sell. They might become part of the bond vigilantes. How do you think china see whats is going on with our spending and our treasuries . And what do you think theyre going to do . I think the biggest concern that the chinese would have would be if the u. S. Stays on the path of further increases in tariffs which is certainly been rumored now for several months i think in that possibility, the chinese would view that as an act of aggressive trade behavior on the part of the United States and, you know, at a minimum, i think theyd be inclined to buy less treasuries at subsequent auctions and if we got extremely aggressive on tariffs, then they might pull out the Nuclear Option and begin to think about selling their positions. Stephen, i believe you said that we are in for a loss of complaisancy in 2018 and were about 8 off the highs on the s p doesnt quite feel like a loss of complaisancy yet. Do you expect other shoes to drop i would agree with that i think the markets, you know, everybody has their own favorite valuation metric mine is one that looks at prices cyclically adjusted earnings and my new yale colleague robert shiller, that ratio is still very he will valted elevated byt it is higher than it was back in 1929 it was only higher in 1999 relative to where it is today. And there is still plenty of down side in that ratio from present levels stephen, i guess the reason that would become an acute concern in terms of level of valuation is if the World Economy didnt have any momentum where it could somewhat grow into these valuations not fully but at least kind of keep them at bay do you not actually see this period of pretty broad Global Growth as continuing do you think its a little fragile . Whats your take for the rest of this year . I think its very froth iag. Momentum is a very fickle characteristic of any economy. Sure, the trends on employment and earnings look great and gdp has been up at a solid rate for two to three quarters. But the savings funneldamentals, thats what makes or breaks an economy over the longer haul and the United States doesnt save, as you know, our savings rate of individuals businesses and the government sector stripping out the depreciation that goes for wear and tear fell to about 2 of National Income late last year that thats onethird in the final average in the final three decades of the 20th century. And given this deficit spending, our Savings Rates are going to go to zero adjusted for inflation. And thats going to push us into a realm of wider current account and trade deficits so, you know, the way i look at the fundamentals is theyre extremely fragile and were kidding ourselves every time there is a correction to say well, the economy is sound its not sound at all it seems through the lens of low savings. So in that vain, bill gross and jeffrey gunlock have been on to say they think the more than 30 year rally in bonds is over that we have now seen the bottom in rates and its higher from here you agree with that . Well, you know, with all due credit to those, you know, deeply well thought views, you know, when Interest Rates, michelle, go as low as they have for as long as they have, its not a tough call to say that theyre not going to fall a lot further. And, you know, i would subscribe to that with all due respect to those two gentlemen. I dont think its, you know, a difficult call to make in the current environment that were in stephen, i wonder, we seem to me to be at this odd political moment where there is no party that can even claim any more to be the party of fiscal responsibility how does that figure into what you expect to happen with the tough spot we find ourselves in economically well, look, i think thats a fair point through no fault of the trump administrations, they inherited a u. S. Economy with a very, very low savings rate the mistake that theyre making is embracing deficit spending in a way that will take that savings rate even lower. And theres no one who is standing up and saying, wait a second, what about the long haul will we have enough saving to fund future Economic Growth . After all, saving is the seed corn of future growth. You cant invest in the future if you dont save. The only way weve been able to do it is to borrow surplus savings from others around these massive current account and trade deficits to attract the foreign capital. And now were doing protectionism against the providers of that foreign capital. So, you know, were an accident waiting to happen here and just by spinning a Market Correction saying the fundamentals are sound and then going down the road of deficit spending, thats a worrisome way to run any economy let alone our own. All right lets see if they heed the warning, mr. Roach thank you. Thank you, michelle now lets get to carl at the Winter Olympics in pyeongchang, south korea. Carl jon, chloe kim may be the face of these olympic games. Of course, making her olympic debut winning a gold medal in the womens halfpipe she stopped by our set not too long ago we talked about her race and the tweets she made during the competition, tweets that were heard by fans and sponsors around the world i never really used twitter i was like, i was really bored at the top of the pipe just waiting for my second run and there were a lot of girls in qualifications i was just waiting i was like maybe ill tweet something. And, yeah. You did it yourself or tell someone to do it for you i did it myself yeah im glad everyone trusts me with my twitter account yeah. And i mean is it amazing to see the response yeah. I saw a piece in the Washington Post about the hwod hangry because of you. My mom gets really hangry sometimes and i definitely got that so my dad is like its the worst when you and your mom are hangry because its scary you both just attack me. Im just like yeah, we do. Fair point theres you, nathan, biny and some others who are either children of immigrants or immigrants themselves. Yeah. To the u. S. Yeah. I wonder what you think that says about america right now, the olympics right now, team usa. I mean, i am so proud to be a koreanamerican. I watching my family work so hard has been so inspirational and i think i think i really got their work ethic you know, i always want to do the best i can im always working hard. So i think thats really cool. I dont know i dont have much to say about that yeah a couple more questions on business we were looking through your list of sponsors and youre very effective in helping to push toyotas message and you mention mondalise and nike how much of that are you able to do because, what, you got school to think of and your regular life you know, i actually love working with sponsors. Its not, you know, so much more than just a contract but its like i genuinely only want to work with people that i agree with on certain things and, you know, there are many sponsors i didnt really want to work with because i didnt really agree with their messages they wanted to use me to convey. Can you explain what you mean by that . Like if there is something i dont believe in or something happens, i want to be cautious of that. Because when i work with someone, you know, its like, its a twoway contract. So i just need to make sure were all on the same page and all onboard. So everyone im working with right now, im so happy w and im so happy to call them family you know, they always put me first and they always want whats best for me and were always able to communicate about certain things and if something doesnt work out, well compromise. I think its so awesome that everyone i work with is about athletes and supporting them you know, like yeah, so im just really lucky to be able to work with people like that. And im very excited for the future oh, my gosh i cant imagine. Last thing im going to give you rapid fire just quick choices you answer which one you prefer. Okay. Under armour or nike . Nike. Instagram or twitter . Instawitter ice cream or churros . Ice cream star wars or star trek . Star wars netflix or hulu hulu. Alexa or siri pass . Pass. Dogs or cats . Dogs. Olympics or x games pass. In and out or shake shack in and out. Spotify or pandora . Spotify what a remarkable story she is going to hopefully get some rest tonight, guys. And go back home, try to enjoy what happened to her, what shes accomplished at these games. We talked to her about just what it feels like to have your twitter account explode and follower account go tenfold overnight and have all the sponsors tweeting to you she said it is kind of like seeing a new color for the first time its easy to forget. Shes 17 but what shes accomplished here in pyeongchang is just in decreed eb incredibly incredibly poised and char charming for 17. Absolutely. I think that comes through very much so. After a full day of competition and media interviews by the way. Yeah. She knows when to pass instawitter. Wouldnt pick siri versus alexa. You want to hold out and see whose marketing dollars flow in. Hedge your bets great stuff, carl thanks, guys. All right, still ahead we have apple leading the nasdaq and the dow higher yesterday with a 4 pop. Today the stock actually adding to it. Up. 25 in a weaker day. This is after the Shareholder Meeting. Were live with that plus, fighting words, why the ceo of youtube says facebook should get back to the baby pictures more squawk alley after this oh theres one. Manatees in novelty ts . Surprising. Whats come at me bro . Its something you say to a friend. Whats not surprising . How much money matt saved by switching to geico. Fifteen minutes could save you fifteen percent or more. At holiday inn express, we cant guarantee that youll be able to contain yourself at our breakfast bar. Morning, egg white omelet. Sup lady bacon fruit, there it is but we can guarantee that youll get the best price when you book with us. Holiday inn express. Be the readiest. Apple is holding the annual Shareholder Meeting today. We what is on the agenda mike, apples annual Shareholder Meeting is kicking off at noon eastern here apple park, the new corporate campus shareholders going to meet at that new steve jobs theater. I can tell you when i got here this morning around 7 00 a. M. Local, there was already a long line of shareholders waiting to get inside today at this meeting, theyre going to be voting on electing to the board of directors eight nominees including apples ceo tim cook, former Vice President al gore, and disneys ceo bob eger among others. Theyre also going to vote to approve executive compensation and two shareholder proposals among other items of business. As always, tim cook will be here ready to field questions from his stockholders who might have some questions about the future of the companys iphone franchise. Apple recently reporting record quarterly revenue and earnings per share. Shares of the new iphone 10 helping to propel the average selling price for iphones to nearly 800. Now that helped give a lift to total revenue even as the number of iphones sold in the Holiday Quarter slipped 1 to some 77 Million Units missing the streets forecast. Apple also offering a softer than expected revenue forecast for that march quarter today the Shareholder Meeting is not live streamed. Wield be here watching the event and bringing you all headlines as they come guys, back to you. All right thank you, josh lipton for more on this now, lets bring in the chief Investment Officer with Wedgewood Partners and andy argraves, analyst wit Key Bank Capital markets he downgraded the stock this month to second sector weight. Good morning to both of you. Andy, downgrade, but the average selling price on the iphone driven by the iphone x is pretty impressive apple seems to have shifted from trying to hit home runs with the iphones to more singles and doubles with this portfolio of products why arent you more bullish . Well, i think its a shift in strategy towards extracting more profit from each user rather than trying to grow users and one of the things that we were looking for was for gross margin upside to contribute to that we didnt get it the costs are rising more than we expected and that took a lot of the upside out of our expectation. David, are you feeling similarly about apple the idea that perhaps the Addressable Market for the luxury good, the iphone itself, isnt as big so theyre trying to make more of an ecosystem play . Does that make you a bit more cautious on the stock . Maybe a little cautious near term woen we owned the stock now for 13 years. So im thinking of where the stock might be in the next couple of years, its actually a k issue. From a longer term shareholder, im thinking where the stock might be a couple years from now, id much rather than buy a boat load of stock at 150 than 200 so i think near term expectations have been reset since the last quarter even the bearish numbers for this year are about 11 a share. Thats 15 times earnings thats not too demanding i like the risk reward here. We just recently last week firmed up our position a little bit. Are you worried at all about the two for one sale at at t and what might say about demand and the average selling price which was so high . Yeah, i mean, its a concern in that whats it going to take to bring in new users . Replacement cycle is elongated again, i think if the context of the valuation of the stock, if the stock is 25 or 30 times earnings, id be worried about that again, i think its not demanding here at this valuation. I think some of those really important bearish points are we think the reflected in the price right now. Andy, david mentions the prospect of big capital return on the general topic of how apple may deploy this cash thats now been unlocked by the new tax law, i wonder what it means for investors. There is almost never been a way for apple to invest in enormous amount of cash at anything like what the returns of the core business deliver i think thats what the market figures. So are you expecting in that area well, i think we have to be expecting both an increase to the dividend that is fairly substantial and increase to the buy back and i think theres some validity in that they can absolutely support the stock with yields if they choose to. For us, you know, we have to weigh that support against the upside potential and i think the real meaningful upside potential has to come from core fundamental performance which, is you know, as i mentioned earlier, where we see our problem. David, what are the down side risks that youre watching and perhaps worrying about i mean, it seems like for a long time it was commodity, samsung is going to come in with the cheaper phones that are just as good as iphones and drive the average selling price down well that didnt happen. Right. So what is it now i think the worst case scenario, i mean all the other parts of the business are, they have a good tail wind. Theyve been accelerating. The Services Business is really healthy, the whole ecosystem but the iphone quarter to quarter is the story the worst case is if unit growth flat lines for the next couple of years now that will be below expectations were still looking at 225 million iphones being sold every year and now we have a higher average selling prices so you have to pencil in some negative news on demand even in more elongated user upgrade to get iphone revenues flat for the next two years we think that would be a significant negative we dont think thats in the cards. And andy, what about Artificial Intelligence . One of the things i keep hearing these days is look at google look at amazon alexa and, you know, Google Assistant are so much smarter than siri is because apple has chosen not to combine all of our data together. Is that the new bear case on apple that its software isnt smart enough i think thats a decent point. I think its right that they squandered the lead that they had with siri. I think the bear case though, it really is back to iphone units and profitability that you have trade down activity over time. The phones are good enough you have he long waiting holding cycles and that forces you to support it with yields dividend yield which puts you in a position of being exposed to Interest Rate rises. I think thats the real sort of down side scenario here. Well, one of the next looks well get is at home pod sales see how they do. David, andy, thanks. Thanks. Thanks for having me. As we head to break, a look at some of the stocks moving on earnings athe this hour. Under armour is surging after posting sales that topped estimates highly by 17 . Blue apron also gaining. Higher by 2 after reporting a smaller than expected loss more squawk alley right after this feel that . Thats the beat of global markets, the rhythm of the world. But to us, its the pace of tomorrow. With ingenuity, technologies, and markets

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