Could China’s Crackdown Go Beyond Apple? And Just How Big Can the Weight Loss Market Get? 9/7/23

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is fast companies like Nike, Tesla, Qualcomm be right now. A deep dive coming up. Plus, a$100 billion opportunity. That's how big, J.P. Morgan says, the market for weight loss drugs could be. Just how much could that mean for the biggest players in the space? We'll debate that. And later, are you ready for some football and some sports betting? NBC's magic wall maestro, Steve Kornacki, will be along to take us inside the numbers. I'm Melissa Lee coming to you live from our brand new set, Studio B at the NASDAQ.

0:46On the desk tonight, Tim Seymour, Karen Feinerman, Bono and Eisen and Steve Grasso. We start off with the second straight rotten day for Apple. Shares down another 3 percent today. They are down more than 6 percent over the past two sessions. The biggest stock in the world has also been the Dow's biggest loser two days in a row. The slide starting after report China will expand its iPhone ban to state-owned companies. Semi is tied to Apple also feeling the heat. Qualcomm, for instance, down 7 percent. Taiwan Semi down more than 2 percent. So is this just giving us a taste of how big the impact of a China crackdown could be and what other companies could face the wrath of Beijing next.

1:22We have been saying this again and again. It is just up to China to decide how big the restrictions will be. And I think we have to be careful not to overstate what has happened here. Too late. You're right. This is what happens in financial media. But the fact that you can't use your iPhone at work doesn't mean you can't go out and buy an iPhone and we're banning this company. And Tim Cook, of all the major CEOs, and obviously it's the biggest company in the world, has done a fantastic tightrope act here in trying to balance. There are social issues. There are dynamics around the economics. There's Foxconn.

1:55There's everything. I think this is important. I think it's important because, in fact, it does look like on some level China is responding and fighting back. I think what is more important to this news cycle is that it's coincident with the release of a very important phone in China, the Huawei, the Mate 60, which has chip design, which has seemingly been able to either kind of reconstitute a 5G phone without having 5G chips because Huawei is under major, major bans and restrictions from the U.S. I think it comes at a time when Apple's had three straight quarters of declining sales. And I think what it does is it just projects what's the multiple you want to put on this company.

2:32It doesn't change Apple's business that dramatically, I think. I think the concept of what we're talking about, we're going to continue to talk about and we should talk about it. I just want to make sure we're not overstating this news. But the context is also that China's macro looks awful right now. And there are already headwinds there for the Chinese consumer. And so you add to this, you know, hey, you know, you cannot use an iPhone at work. Maybe that person chooses a Huawei phone and not an Apple phone. And incrementally, that could still hit revenue there. I think that's a bigger issue, actually.

3:03Can the Chinese consumer afford to keep buying iPhones at the same pace, right? That, to me, is a bigger issue. And to me, also, it's about rates having moved up and multiples needing to move down. And they were getting such a big multiple. Steve and I were talking about this in the green room. There's a hardware business, much bigger, and a software business, and a high multiple of 30-ish. If you back out the hardware, the software business is trading at way higher than 30. And so we've seen multiples for those kinds of businesses come down. So this is kind of an excuse for the sell-off. Yeah.

3:33But I don't think in and of itself, this news should be at eight or nine percent move in Apple. I just think that it was too high. You know what I think? Investors are in a situation where they're shooting first and asking questions later. And I'll be honest, I never thought that would be the case with Apple. That's the biggest shocker there for me, that the selling is coming before any material development in this particular news cycle. Now, it's lost about 200 billion dollars of market cap. Now, you really want to ask yourself, is the move really worth that? I would say and prognosticate no.

4:06However, I think that speaks to the fact that we just don't know that there is some volatility around the situation. And given the whimsical nature of what the Chinese government may do in retaliation, will they keep it here? Will they expand it to state-owned enterprises? Will the bans be, you know, will there be somewhat of a shadow ban where it's implied that you really shouldn't really, you shouldn't affiliate yourself by purchasing the phone? So we truly don't know. So I don't think it's a complete surprise, given the rate environment that you mentioned, that there was some sell off. I mean, global companies view themselves as global companies.

4:37But in China, a lot of times companies are viewed as, you know, belonging to a nation. It is a U.S. company. And that's the way Apple is. Well, Tim stated it on the opening. Tim Cook and Elon Musk have done a masterful job. Those are the two CEOs that have done a masterful job at being agnostic. So if there's anyone that's not considered U.S. and just independent, it's those two. That's number one. Number two, Bono and said that he's shooting first. I don't think they shot first because if you look at it, it's only down 8 percent. Right. Guy sat here last night and said, shouldn't it be down more if you're shooting first and not asking questions?

5:16And then getting back to the amount of phones that are really in question. Dan Ives is talking about that he sees it as being 500 ,000 phones. The market is probably pricing in 5 million phones at this point. So they are shooting first. The problem is they're running out of bullets. So you saw this stock today. It bounced. Does it continue to bounce? I think so. I bought it yesterday. I bought it again today. I don't think that anyone should rush out and buy 100 % of whatever they think their position is going to be. But when you look at the services arm, that's growing. That's the growth. So Karen talks about hardware.

5:51They're separating themselves from the hardware dynamic of being that company. Yes, they get an exorbitant multiple, but that's where the growth is going to be coming from. The install base is incredible and only growing. In terms of proof, Bank of America had an interesting note saying that, you know, you should take a look at App Store revenue in the coming quarter, because that's where you will see it. If App Store revenue slows down, because in China it's 26 percent of total revenue. That's impressive. And it's the higher margin revenue. It's a higher margin revenue. That's where you'll see it.

6:23So we'll get that data in terms of how effective that ban is in terms of being enforced and so on. And I bring us back to yesterday's news also around the EU. It seems to me like the EU is really looking at the app store and they're calling them a gatekeeper. And but I think there's multiple dynamics there. We're talking about the multiple. We're talking about the global macro. I think we have to talk about also just within within the market space. And we talk about equal weighted ETFs versus market cap weighted. And look, what we know in the data that we're getting is that the data flow is going to equal weighted ETFs.

6:56You look at today, though, let's be clear. Apple was a significant underperformer to Google, to Amazon, to anyone else in the mega cap tech space. It's not by accident. And I think it's a combination also, though. Let's highlight. I mean, September 12th is a big day for the company. And yet it's, you know, that's the whole point. If September 12th and the release of the 15 is not that big of an event, I'm not saying it has to be that big of an event. And I'm sure you'll point out, Steve, that they haven't been big events for a long time. Right. But they normally run up into that event. So maybe now that event won't be won't be the sell on the news day that it's normally been because it's sold off prior to that event.

7:37So that's I just think it's not a coincidence, though, that you're running into this kind of pressure. Also coincident with the big release date. Right. And the semiconductors. I mean, we mentioned Qualcomm and Taiwan Semi, but if you take a look specifically at the Apple supplier, Skyworks was down 7 percent. Cirrus is down something like 4 plus percent. Yeah, I mean, Apple was one of the biggest beneficiaries with this Huawei ban. So I don't think it should come as a complete surprise that they're going to give up some of that value. They added massive market value, mainly at Huawei's expense.

8:06So I would expect there to be some collapsing of that divergence that we saw three years ago. I think to put it in context, as we all have been really trying to do here, we still don't know all of the data yet. And it's going to start trickling out. Eight percent perhaps isn't a complete kill shot, but that's a material move for a name. It's a first name that people rush into when they go to deploy Apple. And the big thing is the triple Qs. You said it last night. As Apple goes, so does the market. Is that the question? And you have Apple, Microsoft and Amazon account for 25 percent of the Qs.

8:39So if this starts to expand, that's not just Apple and it's all of those top names. Then how do you mount a rally? Because if those names don't perform, the market doesn't perform. That's the question. You know, you hold Nike. We've been saying this for a long time, Karen. Just, you know, the exposure that U.S. companies have to China in terms of, you know, the thesis that that's going to be the growth market. And it used to be. And it used to be. Right. And now maybe that's a discount to the business. I'll say this. In terms of incremental growth of one's business, I mean, the aggregate base in China may not be growing as fast, but it's still a massive base to go out and attack.

9:16And a lot of these brands are still going there. But this also comes – there was terrible export data out of China. So, I mean, it's what we say. Part of this is the Chinese economy. Part of these are the geopolitics. I don't think the geopolitics get better. I think they get worse. It's also interesting that on a day when semiconductors got slammed, Intel, the American flag-waving chip play, was up big. And I think it's more than a coincidence. I mean, I think there are home team favorites. There are national champion companies. And Intel hasn't really covered itself in glory in this country relative to its global peers.

9:49But I think that has something to do with why it was higher. Our next guest says global companies are going to have to fight to be in China. CNBC contributor Dewardrick McNeil joins us now. He's a managing director, senior policy analyst at Longview Global. DeWardrick, great to get your take on this. Do you think that it gets worse? Do you think that when you take a look at other companies that do business in China, where there are alternatives, in theory, that China will favor the home team or another team that's not a U.S. team? Well, you raise an interesting point here, Melissa. So the real question is, have we entered an escalatory, retaliatory, tit-for-tat cycle like we saw during the trade war?

10:31And if we have, and it's possible that we have, then there are some sectors, some companies that I think will have some challenges. I think in aviation, Boeing, I think China has an alternative in their mind. They're happy to play Airbus off of Boeing. They also have a domestic brand, the Comac C919 or C929 as well. So they think they have an alternative there. Automobiles. Look, Tesla, we've been talking about this for quite some time. GM possibly are at risk with BYD. You know, just this past week, we saw BYD in Europe at the Munich Auto Show. And their message was, we're beating you in our home market.

11:13And we're coming to Europe to beat you in your market. So, you know, I think there are a lot of concerns here about whether or not we are, in fact, in this retaliatory cycle. And if we are, Melissa, even though companies may see themselves as multinational brands or global companies, frequently governments and citizens, particularly nationalist citizens with the rising populist movements around the world, don't see companies as multinational. They see a flag attached to them. And if you go into China, you have to understand there are a lot of competitors there. You're going to have to get into a competition mindset.

11:52And the Chinese have their own widgets. And they're looking to sell them, not just in China, but in third markets as well. Duarte, it's Karen. Thanks for being on. Is this some of this on the heels of Secretary Raimondo's visit? What kind of happened? Because it seemed like the rhetoric escalated after that. Look, I think the Chinese have been sort of hot under the collar for quite some time about the way their businesses have been treated. And this was a great way with the Huawei announcement moving to seven nanometers, something that the Commerce Department actually has been very involved in in terms of the chip ban.

12:30All of this is coincidental, but too coincidental for those of us who watch China. I think the timing here says a lot about what China is looking to do. And it's really to send a signal that we are not going to be stopped. You can slow us down, but that we will continue to do what it takes to have indigenous development, to be self-reliant to the degree that we can. And this is the challenge, Karen. I'm not sure if they're going to win this over the long term, but I think they certainly feel comfortable that they send a strong signal right after Secretary Raimondo's trip. And, Wardrick, it's Tim.

13:06You've also said in your notes, I thought this was fascinating. It's kind of what you're saying here. China rarely takes actions that will harm China with no alternative. Is the point now that Huawei is ready? Is the point now that we really feel like we've actually and, you know, this this phone sold out in hours and it's priced below Apple at a time when the consumer is under pressure? And it's not a low cost phone. I mean, it's nine hundred sixty five dollars. But is the point that Huawei is ready to challenge? And as you say, China would be OK if they had to actually push on in a world where there was really more opposition to Apple.

13:37Yeah, I think that's the message here, Tim. I'm not sure that they are ready. I think you made a point before I came on about sort of right sizing this news. This Mate 60 is an impressive phone. I think it surprised Washington for sure. But it's seven nanometers. Apple in a couple of days here will debut their 15 Pro. That's a three nanometer chip. So there's still a lot of room here between seven nanometers and three nanometers. But the Chinese are very comfortable that they don't have to be the best. They just have to be good enough to dominate their market. And quite frankly, the Mate 60 Pro may be at seven nanometers just good enough.

14:17And so that that's the question that I think we have. But it certainly got the attention of many here in Washington. So we may see when Congress returns a discussion about a broader yard and a taller fence, as Jake Sullivan likes to say, about small yards and high fences here. So last quick question to Warder because we're just about out of time. But, I mean, it sounds like you think this gets worse. I'm fearful, Melissa, that we are entering into a tit-for-tat retaliatory cycle. like we saw during the trade war. And to Tim's point, and I've made this point in my notes, China's going to look for places where they can do this, where they have an alternative.

14:59Think about what they did with soybeans. They had a reliable alternative with Brazil and Russia. And so they were prepared to really level on the tariffs for soybeans. You'll see some of the same action if we are, in fact, back in one of these escalatory, retaliatory ladders. I hope not, but I fear that we are. DeWordrick, thanks. Good to see you. DeWordrick McNeil, Longview Global. We have some pretty good options, too, right? So there's India, there's South Korea, there's Vietnam, there's other options. So China is not the only one with options. And Karen just said, what happened after Secretary Raimondo was there?

15:33She got hacked, right? So she got hacked and she was not happy with that. And she told the Chinese officials that she was hacked and was not happy about that. So that's what's been ratcheting a lot of this, I would guess. And yet you still bought Apple twice. Yeah, because I think that China's all bark, no bite at this point. I think we have them versus they have us, to be honest with you. All bark, no bite. I know I'm not willing to go there. I definitely think they have a bite. I think I think whether or not their bite is as vicious as they think they're willing to bite. That's the scary thing.

16:03As Dwarjik said, the distance between a seven nanometer and a three nanometer. Four nanometers. Nice. In their head, she did that like that. That's a good math. Wow. He went to Harvard. But it is a big difference. Yes, in terms of the implications of the technology. And so the fact that they're flexing their muscle there seems like an insignificant tit for tat, or at least an irresponsible one. I think the barriers to entry in terms of being able to produce soybeans are light years different than being able to produce that technology. All right. Meantime, Goldman Sachs CEO David Solomon just wrapping up an exclusive interview with our own David Faber, the bank's chief, addressing a wide range of topics from the company's performance to the IPO market to his own portrayal in the press.

16:42David Faber joins us from Goldman's Cornucopia, Cornucopia, Communicopia Conference. It was a Cornucopia. That one's that's one that one is in November. It was a Cornucopia, too, Melissa. But good job on the math there between seven and three. You got that going. Yeah. And listen, as you might expect, of course, we spent a good amount of time on that very unusual spate of stories from major news organizations that really dealt with the subject of Mr. Solomon's personality and whether, in fact, it was getting in the way to a certain extent of his management of the firm. But, you know, for our purposes, of course, his comments about the capital markets and M &A certainly perhaps more centered for what what, again, we care about.

17:26And we've got a couple of big IPOs coming next week. You guys will be talking about that a lot. At the NASDAQ is going to be Arm pricing on the 13th to trade on the 14th of September. And I did ask Solomon, you know, overall, is he feeling a bit better about the IPO calendar and the capital markets as a whole? I definitely do feel better about the capital markets. And if you ask me to kind of look ahead, you know, over the course of the next few months, especially if Arm and some of these other IPOs, you know, go well, I think you're going to see a meaningful increase in activity. Now, David, it's often an anemic amount of activity.

18:03I mean, nothing happened last year. Nothing. No. I mean, it's really investment banking activity. If you go back to the second quarter, investment banking activity in the second quarter was a 10-year low. And so it's not hard to improve off of that. But I think we could very quickly get back to what I'd call a more normalized level of activity in the capital markets. And that's obviously very, very good for Goldman Sachs. Of course, Instacart will soon follow potentially, guys. So, you know, a lot to focus on when it came to M &A. Solomon also kind of a more positive forecast, at least, talking about dialogue starting to pick up.

18:39That's something I've been hearing as well and sort of just talking to many of the practitioners, whether they be lawyers or bankers, in terms of at least conversations, which, of course, need to take place before you can actually get announcement of deals. He sort of indicated that'll be fourth quarter and into 2024. But those are still the key businesses for Goldman Sachs, obviously trading in the capital markets and advising on M &A. a Melissa far more than the roughly 5 % that consumer banking represents, even though, of course, that also, in addition to Mr. Solomon's personality, has gotten a lot of attention of late.

19:12Is he DJing less? I'm only half joking because that was one of the many gripes, personality defects, I think you said to David Solomon, highlighted in these numerous articles about him and his tenure, the fact that he's a DJ on the side. And so I'm wondering how he sort of tried to reclaim his image. Yeah, you know, I think it's a process. I think for my purposes today, we asked those questions that I think felt necessary to ask, given, again, that really unusual spate of publicity specific to so many different anonymous quotes, basically saying he's a very difficult guy in nice terms. I did ask him if he's going to DJ again.

19:57He didn't answer the question. I kind of took it as a no. And I think, Melissa, it's been as much as a year since his last appearance, as far as I'm aware. So that is something that he has clearly cut back on as well. All right. David, thank you. David Faber joining us from Communicopia out west. We bring this up because, you know, it's always fascinating to talk about personalities when it comes to CEOs. But for a time, there were questions about whether or not he would continue to be CEO or whether his days were numbered. Right. Are you saying that as if those questions are no longer there? I don't know.

20:32I don't know. I think that at one point the drumbeat was loud and steady. And it's not as much anymore. Well, they did. I think he was trying to talk a little bit about, OK, we're past that consumer business. Right. Right. Right. So that was obviously a big waste of time. Money, resources didn't work out. So good for them for exiting it. It's amazing to me that Goldman Sachs, which really think of as, you know, the best of the best in a lot of ways, trades at 1.1 something times tangible book value. That's kind of amazing to me. And yet I haven't felt compelled to own it. I think, you know, if they're talking about M &A, investment banking, those sort of revenue streams don't trade at a great multiple.

21:12So even if activity improves, I don't think that's as solid footing as, for me, J.P. Morgan is the place to go. All right. Coming up, a UAW strike could be just days away, and the union just responding to the latest proposal from one big automaker. The details and how a work stoppage could impact the entire industry next. And up, up and away, we are getting in on the greenback with the dollar on pace for an eight-week winning streak. So how are the options pits cashing in? We'll find out when Fast Money returns.

21:48Welcome back to Fast Money. The clock is ticking on a potential strike in the auto space. The president of the United Auto Workers, calling GM's latest attempt to sidestep a stalemate, quote, insulting. Our Phil LeBeau has more on these negotiations. Seems like we're at a standstill, Phil. We are. And yet at the same time, there's progress that is being made. I mean, it's not like there's no negotiations and they work on a bunch of stuff before they get to the really meaty stuff. And that's always at the very end. Here's what's happening today. As we speak, representatives from the UAW are meeting with Ford again.

22:19Ford's giving them another counter offer, whether or not Ford releases that. I don't think they're planning on doing that, but who knows? And then there is General Motors. If you take a look at shares of General Motors, today the company said, okay, you want a counter offer from us? Here's our counter offer. 16 % over four years, 10 % initially, and then two lump sum payments over the course of four years of 3%. That's how GM gets to 16%. Also a$5 ,500 signing bonus. There's usually a signing bonus when these contracts are ratified. So a few hours after that was released, what did the UAW say?

22:53Sean Fain did not mince words again, calling it not only insulting, but then going on to say, GM either doesn't care or isn't listening when we say we need economic justice at GM by 11.59 p.m. on September 14th. The clock is ticking. Stop wasting our members' time. Tick-tock. Very dramatic. Similar to what we've heard from him, whether it's with GM or Ford, throwing the proposal into the garbage can on Facebook Live. This wall, do we have the wall? The wall showing it's really all about whether or not the automakers can afford to pay or how much more can they afford to pay. And you see where they are relative to the foreign automakers in the U.S.

23:34And then there's the estimate for Tesla considerably lower. By the way, with regard to Ford and Stellantis, there's the counteroffer talks that are going on this afternoon between the UAW and Ford. They've already had a couple of offers from Ford. Stellantis will be making another counteroffer tomorrow to the UAW. Bottom line is, I don't think we see anything really until middle to end of next week. And again, most people I've talked with in the auto industry do not believe that this is going to be resolved by next Thursday at 11.59 p.m. Wow. So 97 percent of members have voted in favor of a strike.