Surveillance: Harris's recession forecast

Published Jul 26, 2023, 2:37 PM

Ethan Harris, BofA Securities Head of Global Economics, sees a mild recession early next year. Frances Donald, Manulife Investment Management Global Chief Economist & Strategist says market is pricing in four Fed rate cuts next year. Kathy Jones, Charles Schwab Chief Fixed Income Strategist says there's a lot of disinflation in the pipeline. Dan Ives, Wedbush Sr. Research Analyst says AI is going to bigger than the street anticipates. Sean O'Brien, Brotherhood of Teamsters General President says Amazon is definitely a target going forward.

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This is the Bloomberg Surveillance Podcast.

I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. This is a joy and I'm gonna cut to the chase of what Ethan Harris really did. There was a small shop that went under. It was called Lehman Brothers, and he was one of a select few that provided immense stability to Lehman Brothers in the debris. After that, he migrated over to Bank of America marilynch where he's been a force.

For decades and he's retiring. Here, I'm gonna cut to the chase.

Its moynihanna aware of this because Brian comes out Bloomberg.

Well, I really think real.

GDP, he's going to do this, and he's looking at down at Ethan Harris and stuff.

Moynihn allow this, Yeah, he's allowing it.

You know. One of the great things about our CEO is that he does read our stuff and he really cares about his research department. So I'm going to miss that. I mean, one of the great things about working at b of A is that the firm really cares about research.

I've been busting. He's selling this like it's just great. Brian. You can't come out in front of the campus. Stay over there, Brian.

What's important here is you wrote a magnificent book years ago, Ben Bernanke's FED. That was a piercing book with your experience at the FED about the dynamics of the FED. What does Jerome Powell's FED look like?

Is you go to write your next book?

Yeah, so I am going to finally write that next book you've been asking me about for fifteen years.

You know.

I think what we're going to see is a turning back the clock. I think the experiment that the FED did with this twenty twenty new framework didn't work, and we're going to see a turning back of the clock to something that looks more like a Ben Bernanke or a Janet Yallen FED. I don't think it makes sense for the FED to do what they did was which is way to the last second, wait for inflation to be really underway and then start to hike interest rates. So I don't expect radical change, but rather kind of just go back to the old model.

Well, the old model.

Is it the old model meaning ten years ago, or is it the old model forty years ago which was very different? And that's really the big debate we've been hearing about. What's your view of how we're going to look back at this moment in history.

Was it a sea change that.

Ushered in a new era of high inflation or was it a pandemic and dous blip it's going to go back to what we were seeing five years ago.

Well, I think the Fed is demonstrated that they learned a lesson here. They started very late, and you'll hear that from Bill Dudley later today. He was one of the people arguing they should get moving and they start too late. They did an incredibly aggressive catching up, and that was a signal to me that they understood that they'd made a mistake. Because you don't want to be going seventy five basis points a meeting. It's very dangerous normally, but if you're way behind the curve, you catch up, So I don't agree with people who say they're going to compromise on their inflation target. At his press conference, he repeats over and over and over again every chance he gets, he says, we're serious about hitting our two percent inflation target. He's putting his credibility in the line. He does not want to be Arthur Burns. He wants to be Paul Vulker.

What have we learned though, about this aggressive tightening. You're saying they don't want to do that. They did that, nothing broke. You could argue, Okay, we saw some bank rumbles, but right now we're looking at housing reaccelerating, seeming to have already bottomed, and much of the economy before being better than expected. What do you make of that?

Well, I think that they were up against some very big tail winds in the I mean, you had all that massive excess saving left over from the fiscal stimulus during the crisis. You've had a pent up demand for workers with all these job openings, and so the Fed did achieve some weakening in parts of the economy that are intrasensitive, but the consumer just refused to roll over. You know, jobs were great, the savings were high, and they could spend their savings. So I think it's delayed the weakness, and we still think a mild recession, probably early next year. But like a lot of other forecasters, we've been forced to conceive that it's not here. It's gonna take a while. I don't think it's the end of the world. There's this hot hard landing soft landing debate. Come on, if you're forecasting the unemployment rate going from three and a half to four and a half, that's not a hard landing. That's great, that's normal unemployment. So it's the people I disagree with, the perfect landing crowd that says, oh, you don't have to have any pain at all. All that inflation is going to go away on its own. No adjustment in the economy that I disagree with. But it's going to be a soft landing, either bumpy or a little more bumpy. But it's not going to be a hard landing.

With our new data capture, with all the noise that's out there, is there too much communication? We open the show with a beautiful vignette one of our interns put together of all these fed speakers speaking.

Is there too much communication?

Well, I mean that's the structure of the FED, right, it's a very old FED. Well, when when Greenspan dominated, he would he's suppressed the rest of the committee's openness, and so that's changed under the new FED chairs. So there's a lot of information coming out.

I think the.

Business reporters are a bit too hyped up about this whole thing. They keep talking about hawks and doves and all that hawks hawkish pulls. Yeah, well, look look at the FED. There's been virtually no descents through a period of way behind the curve, fastest titan history and now data dependent. Nobody's dissenting, right. So the idea that you know, you need to get all pumped up about what some dove said or what some hawks said, I think is way overdone.

You have been prodigious in building careers. I mean what you did for Michelle Myers she went off to some charge card company. I know what she was thinking. Moine hands you have to recover from Michelle Meyer Levn. But the bottom line is you built careers. You came out of the Newtonian calculus at Clark University up in Massachuse. It's the idea here of math matters is there's too much math now in the game.

Well not in the part of the area I'm in. Right, If you're a fed economist or a street economist and you're trying to figure out the economy and policy, we all understand that it's a lot of storytelling and historic analogy that you don't want to get crazy about the modeling. In academia, there is has been this drift into mathiness where you impress people by the complexity of the model, but it doesn't really work in the real world. So there's become a split in economics profession between people are practical economists and the ones that do the mathiness.

We're speaking with Ethan Harris of Bank of America Securities after more than a decade at Bank of America, who is retiring as of this Friday. I believe I believe this is your last interview that has been scheduled, and we appreciate you sharing it with us. I want to pivot a little bit because we're talking about looking back over a trajectory of a career and understanding where we are.

At this moment.

Do you think that in the future people coming into this industry, we'll be working in an office to the same degree, do you think that that will be one of the big sea changes that persists over the next decades.

Well, I think it to some degree. Hybrid is the new normal. I think there's a battle going on between a corporate leadership and the and the staff about whether that's really what they want to do.

Harris getting himself into Troubletdown's compliance is like, what's he saying, Yeah, so.

Maybe maybe today is my last day. But I'm not talking about Bank of America. I'm talking about in general, you know, And there's a trade off, right, So it's definitely not good for developing new people to have everyone sitting and their pajamas at home. That's not a good.

Maybe quote you on that exactly.

If they don't have their panamason then you're early trouble. But anyways, so you don't want to be entirely at home. On the other hand, in my case, I have a crazy New York City suburb commute, and so for me, I'm more productive if I'm working hybrid. So that's really the debate. It's about, you know, what's the most productive model, And I think in many industry's hybrid it's going to end up being the thing.

A sensitive question as we talk about some of the earnings of tech companies and artificial intelligence. Is chat gpt going to be your new research assistant?

You know?

I tried it, and in fact, a friend of my son tried it out, and he put my name in there and started asking questions about me. Now I've got a lot of visibility in the press and stuff. What I found with chat the chat app is that at first it gave very good answers. It found my bio and wrote it up in better language than I did. But then as my son's friend kept asking tougher questions, it started returning nonsense. It started telling me that I'd won some great prize in Japan for some Yeah, there's something like it's like a peace prize or something in Japan. And so if you pushed it and tried to get it to get really interesting, it gave you junk.

I've got to ask you this, because it's the heritage. Can you give all of our global.

Wall Street audience a vignette of what it was like, not the final days of Lehman, but a week after Lehman, a month after Lehman. Give us a window and how you and others had the leadership there to pick up the pieces.

Well, I mean everyone was in shell shock, and I was lucky my team got picked up by Barclay's and so we had a life raft to lifeboat to jump into. But you know, you were kind of in this environment where you had both these forced marriages going on in Wall Street, which are never fun, at the same time that you have this incredibly demanding and interesting and challenging world you're trying to forecast where the economy is just collapsing. It was an amazing time and you just had to kind of, you know, lean on each other a bit.

I guess Ethan Harris thank you so much. With a huge commitment to the show.

It's just been great research.

Francis, I just can't believe how transparency k just was so for a legal issue.

Well, in the CFA curriculum they talk a lot about transparency and they talk about how you shouldn't even give the appearance of conflicts. So Tom looks like it's done a great job there.

Yeah, But the other issue is letter in.

The major issue here is insider trading is not as clear cut as the public thinks they get.

It can get really back and forth about who said what?

When I was stunned by the allegations, I would think Francis Donald is with us.

All right now we say thank you. I thrilled your here this morning. What are you writing about this weekend? And why will see plus iplet's cheapless NX. What's the dynamic there? Is it investment or is it the mystery of this buoyant consumer?

You know, we are trying to stick to process even as price moves against our base case, which is that, yes, still all of our leading indicators and our economic model suggests that the best base case scenario is indeed a recession in Q four.

Now that's not.

Actually the game. The game is an asset manager is not to say whether there's recession or a soft lanning, but to get a sense as to what markets will price in and out over the next three to six months.

So what we're.

Talking about is that in the next one to two months we actually see economic data that will still give the appearance of soft lanning. That's an opportunity to chase some risk. But if you're looking further out, if you're looking beyond the next three months, we still have to maintain this call. It doesn't feel good as everyone moves towards the soft lanning thesis. But when you stick to the leading indicators, we have to say that is the best base case.

What does it mean to lean into risk right now? What are those areas well?

There is even as a macro strategist, as an economist, I can say sometimes you need to participate in momentum driven rallies.

This happens.

Macro is not always the primary investment driver. Again, that is not the most comfortable thing to say as a macro strategist, but an overlay and it matters much more at inflection points. I do not believe right now we are at an inflection point, even though today's a FED meeting and it may feel that way. That inflection point is to win. That recession will probably come back into the story is probably three months from now. So if you want to play off momentum, sentiment and technicals, now is the time to shine if those are your strength.

Did somebody overnight push their recession call out to twenty twenty five?

I want to say gold and sex, but I'm making it.

I didn't say that.

Somebody out there finding everybody's pushing it out, not nar Yeah, I'm sure.

Fortunately, can you raise it to twenty twenty six?

Sure?

And I'm sure that if you asked any economists, they would have some sort of recession in over the next five years, because I don't believe that cycles are necessarily dead. But it's a good question, and we ask ourselves all the time, which is why hasn't the recession that everyone's forecast materialized? It's probably because, and again, you know, you have to look at what a standard economic model would tell you. You also have to say what may be not true about that model or what's different about this environment, And a lot of strategists has said this time is fundamentally different. My view is that, well, you can't throw the baby out with the bathwater. There are elements of this story that are going to be very different. This recession that occurs later this year and into twenty twenty four will look slightly different. Unemployment rate probably not going to rise to the same extent, and you do have to question why isn't it here yet? It's probably because you have what we like to call cycle extenders in play, things like labor shortages, excess savings. We're not talking, you know, you don't need a PhD to figure it out that there are things that are different about this story. But negating all of history, negating all of the power of leading indicators, to me, is not prudent in this environment.

So Geremeny has session, Yes, Europe still has an inflation problem. As you anticipate that growth downturn in the United States, do you also envision that maybe we have a sticky inflation problem too simultaneously?

Yeah, absolutely, And this is actually what concerns me more. We spend so much time talking about recession or soft landing. There are a heck of a lot of environments in between those two things. And frankly, if I'm an asset manager, which i am, and trying to figure out how to invest over the next five years, a classic recession rebound, we have a playbook for that. You can do well in that type of environment. What concerns me more, what we don't have the playbooks for is what Europe is experiencing now, sticky high inflation with no growth. One thing I'm worried about is actually this concept of the soft landing being green light being the most bullish outcome. I'm not sure that a soft landing is as bullish as everybody makes it out to be.

Because we have four.

Cuts priced in for next year, and if we don't get those, because the economy is all clear, we have a rerating to be made in a variety of risk assets. I'm not sure that we've really thought through what does soft landing need for equity markets. It's not as bullish as it may appear.

How much do you think it's a bear market trap almost to lure people back to the sixty forty ahead of what you just explained in terms of the vulnerabilities in that type of maybe soft landing, but high inflation, no growth kind of a circumstances.

Well, again, it really depends on your timeline. If you're operating on a one to two month timeline, it's not a trap. It's an opportunity in order to really leverage what we'll probably see is some cyclicality, some cyclical bounds, and things like manufacturing data. But if you're a longer term investor, absolutely you should be looking at these bullish runs as opportunities to add back to quality and maybe reduce your risk. I think it's also going to call into play why there's a lot more focus on alternative assets and private assets, because in this type of environment, one that John is describing as slower growth for sessions with sticky hin inflation, we're going to be looking for asset classes that really reduce that volatility and are less correlated with the sixty forty As for.

A friend, is the meeting, this afternoon is the press conference?

This afternoon is snoozefest.

I hope for Marcus that it is, and I would expect that Chair Powell also hopes that it's a smooth what you produce. I don't believe there is anything that Chair Powell could say today that would convince the market to take out rate cuts from next year. And that's because just about everybody recognizes that the Fed does not have the luxury of pivoting. What's happened since the last meeting. We've got ad prices surging, inflation expectations in the longer end of the curve are up quite a bit, and financial conditions are easing. He has no choice. He cannot go dubbish. If he does, it'll be a little bit of an accident. So this is a market that's probably going to start putting a little less weight on what the Fed says and more on what twenty twenty four is going to look like.

How do you think he manages what is increasingly looking like a broken consensus on the FMCA.

Well, that's a tough one, probably like a lot of strategists are doing, which is coming out with a base case and then thinking through all the other scenarios behind the scenes. Goldman does a good job about talking about a base case and then a probability weighted base case, and so the FED can start talking a little bit more about scenarios. But it comes back to the issue that the FED has to control inflation expectations. I think this is a big theme for the next five years that central banks will have to have a moment where they admit, we don't know what's always going on, and secondly, we can't combat all elements of inflation. That's going to be the story for how markets trade around central banks over the secular theme.

Francis, this was awesome coming to studium more often.

I'd love to.

I love it, Francis Donald of Manueline.

Right now in the bond gent I'm going to bounce it back to you here because Kathy Jones is with us. She's Chief Fixed income strategist at Charles Schwab, and I think this is under play, John. There's been real stasis here, the real yield stasis, ten year old stasis. All my radars up in the boondom market because it's boring.

Right now, Kathy, let's get to it. Will it be boring? Get to thirty Eastern time?

Oh, I'm sure we'll get some excited, you know, you always do. But as you said, that's widely anticipated that it's going to hike. And then what's forward guidance going to be? And I think the expectation is they'll sound hawkish, but they may indicate a pause. How does that get parsed out in the Q and A session? What does Paul kind of communicate here? Will we get a dissenting vote possibly, or at least a hint that a handful of Fed officials are not on board with more rate hikes. That could communicate a lot to the market.

We've spoken to a couple of people this morning who think the inflation reaccelerates later this year. I just wonder if that's in your base case and what it would mean for a yield curve right now that's already deeply inverted.

Yeah, we don't have a really acceleration and inflation built in. There's a lot of disinflation in the pipeline that is still flowing through, especially when you look at wholesale goods prices, and we're not seeing that huge amount of pressure on the inflation side. Of course, you have oil, which is it is going to be there, but ex food and energy, it doesn't look like we're seeing a reacceleration at this stage of the game. Growth is still substandard. It's been five quarters of one and a half percent GDP growth. It's really hard, I think, to push the inflation narrative from there.

Would it be bad if J. Powell came out and said, we have no clue, we don't know where this is going. We're going to pause. Raphael Bostik is going to dissent, because he probably will, because he's been the lone dove out there that's been pretty vocal.

All of us aren't sure.

Here's what we're watching.

Call it a day.

Why can't he just do that?

I sort of wish he would to tell you the truth, but I think the Fed has to. They have forecasts, they have to communicate some sort of confidence about going forward. But you know, the truth is they don't know. They never know. Nobody really knows what's going to happen in the next few quarters. They can only follow the indicators and the trends. And we have, as Tom mentioned, very high real rates. We have tightening credit at the banks a lot, and we'll get the senior loan officers I think pretty soon. I would imagine the Fed has done some work on what's going on behind the scenes at the banks. I'm not waiting for the quarterly report to come out, so they may have a feel for just how tight credit is getting. So those are all going to go into the equation and then QT continues. We've still got that going on in the background, so tightening is still happening even if they pause, and I think that that may be part of the message that comes out.

And one aspect of this. And we're seeing this in terms of two year yields going up as high as they have, higher than the previous meeting, even as ris askids continue to rally. Can they with conviction say they are not going to hike next year and really push against people who are saying, well, it might be a recession. Could they give some indication of how high the bar is for them to really ease.

Well.

Paul, I think it was last November, outlined four things that he was watching for a pivot for a change in rates, and when was this disinflation from the wholesale markets to retail pricing. You could sort of say, yeah, that's happened. He's talked about a sub trend GDP growth for a number of quarters. Would argue we've probably had that over the last year or so. He talked about, you know, slow down in housing prices, and we're starting to see that, but it hasn't flown a kind of flowed through to the data. And then I think that there's the wage data, and so we have to wait for that. So I think they could outline the criteria and then say this is what we're watching. I think they've kind of outlined it in general over the last year or two. But we're waiting to see all of the boxes get checked. We're waiting to see everything kicking. And I would argue that, you know, the labor data is probably the final one.

Let's go from sixty thousand feet down to six feet. I'm over a kitchen table this weekend I'm still not recovered from the bond tobaccle of eighteen months ago.

I thought bonds were always supposed to go up.

What is the retail recommendation in to participate in fixed income out to twenty twenty six?

So we like extending duration, either with a barbell or say a.

Ladder ladder out is appropriate?

Yeah, yeah, laddering is fine because it takes you out of the game.

Give us a duration gap and that a maturity gap on how you ladder up?

Yeah, we like the a one to seven year right now, but it depends. If you're in the UNI market, you might want to go a little further out because.

They thirty years or the Austrian piece.

No, no, Austrian pieces.

That's what I did.

This is a really important lesson, John, You ladder out with someone an adult like this and retails ladder out? Should we go ten years or twenty years because they're yild hogs and they want to pick up yield?

Miss Jones? Is laddering one to seven? That's a massive lesson right there.

How's that sentry bund doing?

It's you know, it's just.

It's gonna say, it's just you know, it's a nice.

You know at the time when all that stuff was being issued, when Argentina came to the mind, it was one of those moments where everyone knew. Everyone knew it wasn't like you had that contrarian thought, well, this is a bubble, this is bad. Like everyone knew it was. They also knew that negative yields was deeply unsustainable. They just got more negative and persisted for a long time.

Lisa.

This is when you know something's truly a bubble, when people say maybe it's a bubble that can just exist in perpetuity. Giants have a new place where it's really capital appreciation and or the price appreciation, not the actual coupon, which is nothing.

Yeah, we were going to the bond market for capital returns and a monster bond market rally that yields are negative. Great, but there'll be more negative and price. That was the story, like the last ten years, Tom.

I mean, I mean it is, I mean the whole last ten years, last sixteen years.

Kathy Jones, thank you. It's going to see you, Kathy Jhons are charged for up there. It denis alongside this morning and good morning, Dat.

I's going to see it.

I thought you were going to say, at the corner of my eye saw this fluorescent jacket, and that's when I met Dan Ives. Dan, I always reflect on this video and you've heard this story before, forgive me, but you remember the clip from sixty Minutes in the late nineties, and there's this very sort of smug journalist asking an analyst about Amazon being bigger than Sears and saying bigger than Sears, And you look back on it thirty years later, twenty five years later, and it sounds ridiculous. So in moments like these, are trying to be maybe a little bit modest about what I don't know, and try and be a little bit you know, humidity is the word, maybe Ramo, just you know, try and have some humility about this AI moment. Dan, do you think we need a bigger dose of humility about how big this could be?

I mean, I think it's even going to be bigger than the street is even anticipating. And I think what we saw from Microsoft and Google just further confirms what we saw from in video. I mean, the used cases are exploding across the board. And if I look at this as a nineteen ninety five moment, biggest trend information that we've seen in tech in thirty years, and I think that's why this is just what's going to lead Obviously spite fed and MACA, it's the star of a new tech bull market in my opinion.

There is the nuance though, when people start to dig into what does AI mean in which areas are the investable and most lucrative areas. Is it going to be generative AI where basically you can go to any retailer, put your avatar and try on clothes and then order things, or is it something else? What are you looking for to determine who the winners are going to be?

Yeah?

Well right now New York City cab driven is the first derivative nvidiam Microsoft, and I think that's been proven again again top of the mountain. Now it's all about who's second, third, fourth derivative. It's really software and chips. When I look at names like Salesforce, dot Com, Mango, dB, you look at Snowflake, I think that's really just tip of the iceberg. I think others across the chip ecosystem and what we're really starting to see now it's all about use cases. That that's why right now, investors they're just looking. If you look at UH, it's expensive on next year's number, it's really looking out two, three, four years. I believe this from everything we're hearing. It could be eight to ten percent of budgets next year for it from less than one percent today.

So if you take a look at the price action today with Microsoft shares lower because they didn't necessarily deliver on the profitability of AI yet they can't. They're investing still and they're not delivering as fast of some sort of investment on the cloud space. What would you say to investors in terms of how they should look at this valuation, how they should look at some of the rejiggering of the top executives and put a price target on that.

Yeah, it's a great and that was all my conversations last night and even earlier this morning with institutional investors. Look, Nadella, the tactician, the hall of famer. I mean, this is just getting the popcorn out ready for what I view as actually an accelerating growth story. They're not gonna they're not cook style, gonna give their playbook away. They're going to keep this conservative and I view, which is the sandbag special as they continue to just beat numbers over the next few course, which is why I believe Microsoft a year from now it's gonna join Apple in that three trillion dollar I think more three point five trillion.

What I see in the year George Hammond Wrights in the Ft today about the AI crew.

He's got anthropic Google, Microsoft and open AI. Okay, I guess that's the new industry organization around this.

The ludites are going to show up.

We're gonna do a nineteenth century redux here of the damage of AI. How do these giant companies with a profitability they have handled the twenty first century ludites?

Look, I think stronger. You're gonna get stronger. There'll be some self regulation, but ultimately, if you look from a regulatory perspective, they're going twenty miles an hour in the right lane. Technology is going one hundred in the left lane. So I think, really the stronger to get stronger. If you look at Microsoft, you look what we see out of alp BET. That was a huge fux. The muscles carter for them.

Oh, I like the CFA talk.

It was a huge fux and muscles quarter and that's Look, this is this is one if you're if you're a bear now coming a little out of hibernation mode, thinking that you want to look at me, if you're a bear coming a little out of hibernation mode. I think ultimately what you saw from tech earnings, which is more and more bullish, okay, And I think next week is going to be the golden moment that.

Next Thursday'll say I talk. I want to know about next Thursday. Amazon and Apple. Amazon's not in an list of AI companies. I think they're in the cloud. Apple certainly isn't. How does Apple embrace AI? How did they get on this list of these companies?

Cook continues to play chess, others play checkers, And I think where we believe it's going to be an AI driven app store. German's hinted at some of the AI technology, but I ultimately believe the next one to two years that's just going to be a further penetration story adds thirty to forty dollars some of the part.

And if they took their margins down the income statement, how many beefs can Apple pick up on uh ebitdal Let's say out of AI five.

Years out, AI combined with chips you're talking to incremental three four hundred BIPs. That's just three to four hundred BIPs improvement because they own their ecosystem plus AI okay, being pure software.

Quickly do they.

Get the four trillion dollars market cap off of three hundred bip improvement.

I believe we will be sitting here in early twenty twenty five getting ready for Super Bowl and Apple will be four trillion.

Okay, brief so I acknowledged it in the late nineties, there were some real things that we didn't appreciate. We also got sold a lot of bs. So can you explain to me? And I wish we could curse on this show, could you explain to me AI generated App Store? What is that?

So that's ultimately going to be whether it's health, fitness, any types of apps developers are going to build, They're going to be AI generated with all what I'll called generated AI technology that we built within the app store, So ultimately any Apple user will be able to download those apps for developers, just like we have the App store today. The next version of that is going to be an AI driven app store that I believe Coupertino will ultimately come out and I think they're actually starting the concept of it with you know, Vision pro and ultimately a new form factor.

In the meantime, it's not gonna be a bad that it's going to be about how many iPhones they sell. For a long time, you've been bullished on this upgrade cycle that kind of never was and it's always been a justification for why this stock's got to go further. So a lot of people that haven't upgraded, they're going to buy the iPhone thirteen, fourteen, fifteen, and then it kind of remains the same and pretty staple what's coming on there.

Street numbers are moved up fifteen percent of iPhone. So the thing is the Bears ultimately thought sub two hundred million, but yet they sold two hundred twenty five million. Because they continue and keen the tacticianers as well as anyone, they continue to underestimate the golden install based Cooper Tino, which is why I view this as a mini super cycle playing out. And I think Apple next Thursday, Cook on the call, that's just going to be further what I've used fuel on the engine for this upgrade cycle.

Here's the upgrade cycle. I just took a photo of Dan's shoe. The saturation on this phone is so superior to anything.

And it still doesn't It doesn't care.

Sure, and look at that camera tech, the technology and the chip.

Isn't the Samsung camera betsa yeah.

But that this is a really important point.

Overnight we got thirty When does Samsung just give it up?

The report overnight was not good.

Look Samsung, ever, it's like Uphill Battle, another sort of black eye for them. And I think ultimately it's just it continues to be more and more share games for Apple, and I think, look Samsung, it reminds you know, it just it's a continued struggle that they have again again.

Then it's gonna catch up. Then we're gonna do this again in the next way. I'm gonna I'm looking forward to it. Thank you, buddy.

I'm gonna put this out on Twitter ives unfiltered, unfiltered.

Yeah, it's just a picture of a sneaks Yeah, okay, then nice of wet push.

This is the conversation of the day. If you are in Local twenty five in Boston and you grew up with three generations of teamsters, and.

Then you take on all of what we know, all of the.

Decades and decades of history of the Teamsters, and you revolutionize unions in America. You come to a moment like we saw yesterday with big brown Ups. Sean O'Brien has provided the leadership on this. He's General President of the International Brotherhood of Teamsters and joins us this morning. Sean, congratulations on this pre vote agreement, this handshake agreement you have with UPS. In your comments and others, you say Amazon is next.

Where do you move.

From this successful agreement to the next transportation company? Is it Amazon?

Amazon's definitely going to be a target to organize. We're going to take this historic agreement and use it as a template to show the Amazon work what they will receive when they joined the teams to union and we organize them.

The significance of this agreement speaks to a new Teamsters. Does all of America, including I'm going to call capitalist America, misunderstand the modern labored dynamic?

Well, I'm not sure if they misunderstand it. But the one thing that we were able to achieve with this agreement is that we showed the entire country what you can do when you have the support of your rank and file members. I think we put some more energy into the labor movement. But also we got the largest deal done without having to strike the company, So I think we added credibility to the process, and also more importantly, we set the tone for what organized labor can achieve against Corporate America and these high profits. And we want to be rewarded. Our members need to be rewarded.

Shaan, you said that UPS blinked in a statement to your three hundred and forty thousand members. Do you get the sense that corporations are more willing to blink now because of the labor shortages, that your negotiating power is stronger than it's been in a very long time.

Yeah, I think we've got We've got tremendous leverage right now because you know, we can leverage our ability. We've provided. We've provided tremendous support during the pandemic, providing goods and services, and I think now it's the time to capitalize. I mean, we fought too long. We kept seeing CEO pay increasing and stock options increasing, and our members pay, not just in the Teamsters Union but throughout the labor movement, we're not increasing. So I think right now we have the ability to really really showcase and be the model and encourage other unions to stand up and fight.

How do you decide, Sean, when you're negotiating what the threshold is between workers' rights and we're pay increases versus the health of a company, of what's sustainable over a longer period of time, given that prices are increasing and this is an inflationary environment.

Well, I think, first off, I mean, we had a great situation here with UPS because of our members and their hard work. They made one hundred billion dollars. So a healthy company should share the profits and should share the wealth. Look, we take every negotiation, we do a deep dive. We're a lot more sophisticated than we were thirty or forty years ago, So we obviously study the finances, study the projections, and make certain that you know, we understand what we can get out of these companies. But you know, far too long. You know, everybody uses the economy saying hey, we could probably go into a recession, and that's all well and good. We always come out of bad situations at some point in time. So we always just stay focused on what our members need. We're not too concerned about Wall Street or anything else. What is going to help our members buy and provide middle class opportunities for their families.

Mister Brian in the time that we have left, I mean, your sons are involved in this. Your father was Local twenty five as well. You've lived this for your entire lifetime. How do we change the atomization of labor in America, the deunionization of America. Do you perceive a sea change with this agreement?

Yeah?

I think this agreement is going to be a template to show the entire workforce, union and non union what you get when you join a union. You're going to get wage increases, You're gonna get health and welfare, you're gonna get pension, but more potently going at dignitium, respect and a future. This agreement that we negotiated, you know, we protected against technology. We provided for full time job opportunities. That's the leverage that you have when you're working for the best contract in the industry, and we achieve that.

Seana, you were just going to run out of time here. I want you to speak to the Bloomberg Surveillance office. There are a lot of fancy people, let's be blunt. They're probably less pro.

Union than many What do unions.

What do the teamsters bring to capitalists to provide for better productivity?

Hey, we bring the best work for us in America. We prove that during the pandemic, not just in ups, but picking up rubbish, delivering groceries. We provided goods and services. We prove we're essential, and we're going to continue that post pandemic, and we've got the best workforce in America.

Shawn O'Brien, congratulations. All I ask is after ups, you do something about the Red Sox Shawn O'Brien Local twenty five in Boston and also with the International Brotherhood of Teamsters there as well. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern on Bloomberg dot Com, the iHeartRadio app, tune In.

And the Bloomberg Business app.

You can watch us live on Bloomberg Television and always.

I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg

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