Countdown to CPI and the Latest Threat to Apple in China 9/12/23

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. 1 ,200 bucks. That's the starting price at the highest end of the newest iPhone. Will customers be ready to pay up or will a competing product from China put a damper on demand in a top growth market? Plus, crude reality, rising oil prices expected to cause an uptick in inflation. Will this give the Fed pause in pausing? And what's it all mean for the consumer? And later, Oracle falls from cloud nine. Regional banks get a bump in why investors are sneezing at the makers of Sudafed and Dayquil.

0:35I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Dan Nathan, Guy Dami, and our special guest for the hour, Rebecca Patterson, former Bridgewater chief strategist. Welcome, Rebecca. And we start off with a countdown to tomorrow's big inflation print. Economists expecting consumer prices rose six-tenths of a percent in August, a faster clip than in July. The data coming as oil prices hit 10-month highs, WTI closing in on 90 bucks a barrel, the highest it has been since last November. Crude oil now up 40 percent from its May lows. So how is the Fed dissecting these numbers and could the uptick in prices put an end to consumer confidence?

1:13Rebecca, you brought this up. This could actually cause CPI to look higher. Right. So if consensus is close to reality tomorrow, we're getting the core prices continuing to decelerate. I think the Fed will take comfort in that, even though core at 4.3 percent isn't even close to the Fed's target. So I think a September pause, which is fully priced in, is the most likely outcome. I think the bigger deal here is what's going on with energy and commodities. The Fed tries to look through it, but at the same time, they don't ignore it. What we saw in the New York Fed's consumer expectation survey, which was released today, was that inflation expectations, commodity price expectations, both are going up.

1:53At the same time, people's expectations for jobs are going down. So you're getting a consumer that gets very nervous, and this could affect how much the Fed can act, what they should do. So I do think they are going to be watching oil, not overreacting to any short-term blip, but definitely it's going to be on their radar screen over the coming months. I think they realize this, and I can't speak for them. I think they realize this is sort of in a bit of a pickle here. And we've said for months that in the fall, and I think we're pretty much September's in the fall, we're going to start to see a reacceleration of inflation.

2:24And numbers you just put up basically back that up. In terms of energy, Tim can speak to this. You stay with the space. It's working. OIH is now at a five-year high. Valero, for example, is within a whisper of an all-time high. All these energy names, valuations are reasonable despite the recent run-ups. And I think people are underestimating, I don't know, sort of the runway and sort of the, I guess, sort of the green lights that this entire space seems to have in front of them. So I guess there's two ways we teach two ways to trade, and that is from the prism of the Fed, but also the prism from investors in terms of energy equity.

3:00So where do you want to go here? So I'll first just talk about the market and the prism of investors around the Fed, which is I think we've gotten a lot of good news out of better and more benign inflation prints. I think the market's running out of gas on that. I think we've seen it over the last couple of prints. I think if you look at where real rates are around 2 percent, That, you know, back to valuations, this is where the equity multiple really starts to hit the road. And in other words, rubber hits the road. And I think we're probably two to three turns on the S &P on the multiple. Energy equities, first of all, when we start to hear OPEC is actually starting to increase supply, that's very bullish for oil.

3:33And I think if you look at where inventories are right now overall, I don't think inventories get a whole lot better in the near term. So I think, and I mentioned this two days ago, some of the data I'm seeing is that inventory levels are back at the lows of 2 ,000. I think oil stays here. I think oil equities are a very different story. They are a investment, not a trade. And I've said that for a long time just because I think that oil companies are run differently. So I think you love this trade. Four point six percent of the S &P. I think that index is going higher. And I think it's a place for people to hide out.

4:02Yeah, it's interesting. When you talk about the consumer, though, and we talk about inflation, I think that headline from Walmart last week was really interesting. If you want to put wage inflation all time, all time highs. But interestingly, pendulums seem to have shifted, right? They're going to pay more. Well, yes. I mean, so if we have energy going back up, right, and we have wage inflation that might have topped out, that's some of the readings we have, to the point where Walmart, one of the largest employers in our country, feels like they can now cut starting wages, right? And we know that that sliver of a consumer that is going to work at a Walmart, energy prices moving up the way that they have precipitously is probably not a good scenario for them.

4:39And we think about the consumer here. So we could be like literally on the precipice of a bit of a shift. We've been waiting for this consumer to weaken. This might be the moment. It feels like we're sort of in this Goldilocks period where it hasn't fully hit the consumer yet. Walmart's CEO just today at a Goldman Sachs retail conference is talking about how the consumer is holding up better than had been expected. And this contrast to sort of the conservative approach that they were taking in terms of guidance when it came to reporting their earnings back in August. So we're sort of here. The consumer is still employed.

5:09They may be feeling worse. They may be starting to pay more at the pump and for all those energy-related expenses, but they've still got money at this moment in time. Exactly. There's a question. The reality we have today, 3.5 % GDP growth probably in the third quarter, something around that, which is incredibly robust, versus sentiment that's deteriorating, businesses getting more cautious. We saw that in the small business survey this morning. Consumers that are getting more nervous. The question is, when do we go to that tipping point? When do they actually start pulling back? I think commodities are a big, big deal.

5:42Food and energy plays an outsized role, especially for the lower income consumer. Those prices stay at these levels or rise further. They're going to start losing that real purchasing power, that real wage gains that have helped earning so much this year. And again, back to those household disposable income as a percentage of their monthly debt servicing, whatever it is. And Dan's bringing up, I think the point on Walmart should not be underestimated. Walmart, we talk about this in terms of what they do to suppliers. They basically dictate price. When Walmart started raising minimum wage, everybody had to start raising minimum wage.

6:15It's a great thing for our country. It's a great thing for society. And I hope it doesn't reverse itself. I'll just say that's a sign that I bet they're not the only one. And that's going to help the Fed and make it a lot harder on the consumer. As Tim just said, you know, Walmart making an all-time high. That's great if you own Walmart. The flip side, target multi-year low effectively within$2 or so. Dollar gen, multi-year low. So it's the bifurcation. I hate the word, but it's true. Is there. But that doesn't mean things are going really well. That means the last bastion is Walmart and people are trading down from the dollar gens and the dollar trees and the five belows of the world.

6:49Doesn't paint a particularly rosy picture. And the U.S. consumer, we've said this a thousand times. They will spend always never underestimate their want to spend until they get scared. And typically what scares them is something happens in the stock market. Well, it's interesting. Also, you know, that notion that consumers will spend on their pets. Remember, we talked about this a little bit. So remember, like, two weeks ago when Chewy, it had that really bad report and that bad guidance. And, you know, I was probably maybe a little casual about it when it gapped down. I think it was down like 15 percent or something like that.

7:17It was trading very near 50 week, two week lows. And I was like, you know, it's probably OK. It's not OK. The thing is barely seen an uptick. It's basically approaching its all time lows right here. Tigger. Tigger. Tom. I mean, is Tigger getting cut back here? But the headline today in the journal was that consumers are starting to trade down for their pets. You know what I mean? And that was the thing that was supposed to be recession-proof. So if that's starting to happen before we have the recession, I think there's a lot of stuff that we're talking about that are happening before we've had this recession that continue to get pushed out.

7:45Which, by the way, is normal. I mean, if we look back at history, the actual turn in the economy happens very, very fast. You know, the rise in unemployment rate, the rise in jobless claims, it's good until it's not. And so what we're seeing now are all these data points suggesting that we need to get ready for that turn. It's possible we avoid it and we have Goldilocks, but Goldilocks is priced in. Wow. We're so cautious here tonight. How do you how do you trade, though, today for that turn, which may happen on a dime at some point in the future? Well, we've been waiting for that on the dime for so long.

8:20And I think we're seeing bifurcation. certification. We're going to have a chat later about maybe the impact on some of the food companies and whatnot in the more broad space around the weight loss drugs. But I look at staples, which have underperformed the S &P by 15 percent. And that's over the last six to nine months. I look at names like Hershey's. I look at names like General Mills, Diageo. These are stories where I think you've already seen the kind of a reaction in the consumer. But we've also seen, I think the more important part of this is companies that had pricing power, that had margin power.

8:50So this is higher interest rates. This is a world where wages are higher. This is a world where people are cutting back. That's the story. And I think I think when people are spending more money on their pets for fresh food than than they are for putting a steak on the table, the world's upside down. But, you know, I I'm going to get thrown under the bus on Twitter now because there's a lot of happy pet people out there, the animal lovers out there, I'm sure. But I'm sure when the choice comes down to it, you choose your family over your. Oh, well, let's hope so. There's some strange stuff going on out there.

9:19I want people on the radio. That's not Guy Adami saying it's Tim Seymour. So directed at Tim, the pet hate. I go home and the first question is, did the dogs eat? Not a cheese whizzle here, Abe. Nobody cares about me. You hardly eat at all. Good point by you. But how do you listen? You stay with the energy space. It's working. This Walmart outperformance will continue. The underperformance of Target, Dollar Gen, will continue. These trades will continue to work, I think, over the next couple months. If we turn on a dime and oil prices go lower. I don't think they are. So I'll play the game with you.

9:50Let's say things go pear-shaped or however you want to characterize it. The economy softens. We theoretically should see less of a demand for oil. That's fair. So think about what we've endured over the last couple months. China's slowdown, which has been, we talk about it seemingly every day. Oil doesn't seem to care. It's clear that things are slowing down in Europe. Market doesn't seem to care. Things seemingly slowing down a bit here. Oil doesn't seem to care. Dollar's been going higher. Oil doesn't seem to care. So right now, the energy market, the commodity market is telling you something.

10:20This might surprise you. I mean, I think Microsoft and Apple selling off 10 percent from their highs earlier this summer. I actually think that that's going to be a great setup here. The technicals have broken. I think the excitement around some of the fundamentals got a little ahead of himself when they reported and guided. I think investors acted fairly rationally after a very irrational period on trillions of dollars of market cap in stocks related to AI. And I think that if that continues to come undone before the market comes undone, before we have the recession, those names will end up, if they're down 20, 25 percent from the highs, end up being defensive again for all the reasons that people love them starting off this year when the fear factor was still very high before we knew we were in a rip-roaring bull market.

11:01I would agree with that point. And I would just add, going back to Guy and energy, that the only thing you didn't mention there was supply. And it does feel like the Saudis in particular want to keep a floor under the oil price. So even if demand were to take a step lower in the coming 12 months, there's only so much downside that I think the major OPEC producers are going to allow because they need it for fiscal reasons to be able to afford the projects underway in those countries. I agree. And again, when they start to let out some more of that supply, it's bullish. It's not bearish. It's definitely not a case where you're going to see oil prices pull back.

11:35So we don't, you know, as someone that's long energy, I don't want to see oil get to 110, 120. That's not necessarily good for oil equities. But when I look back to the OFS, oil field services are now starting to, first of all, look at XLE, look at Exxon, Exxon, which is almost a four bagger from December of 2020. And I think some of those integrated names have run not as far as they can go. But I look at oil field services and I say, Schlumberger is now getting pricing power. They have economies of scale. They've actually used technology to be a lot more efficient. And if you look at their pricing power, you're starting to see the drillers have a lot more pricing power and people are drilling for more oil.

12:13So I look at the and look at the chart and it's not a linear relationship that you should be investing. There's nothing fundamental about saying, hey, Slumberjay was a$90 stock back in 2016, except for the fact that they have an increased share count. Their earnings power, I think, is growing. And some of those numbers actually do make sense when you look at those charts. Coming up, all the details out of Apple's iPhone 15 launch from the charging port to the price tag to the Chinese competitor that could be the real barrier to growth for Apple. All that is next. And it may still be technically summer, but our next guest already is predicting a harsh winter for the office space.

12:44While you may want to layer up if you're investing in commercial real estate, Fast Money is back in two.

12:55Welcome back to Fast Money. Apple revealing its iPhone 15 today, just days after Huawei announced its Mate 60. How do the two stack up against each other? And could the Chinese offering really take a bite out of the iPhone? CNBC's Steve Kovac is out in Cupertino with the tale of the tape. We want to hear about the new developments and how it stacks up, Steve. Yeah, Melissa. So let's talk about today what Apple announced with these four new iPhones, just as we expected four models of the iphone 15 two of the regular models that plus model with the larger screen and then the pro models on the higher end that's where apple puts its most advanced chips and its best cameras those are the 15 pro and 15 pro max now it's the 15 pro max that's probably the most interesting out of this lineup it got a hundred dollar price increase over last year's model apple putting more technology in that than even the regular iphone 15 pro the smaller version, better zoom on the camera, and also double the storage of what the same model had last year.

13:51But look, you mentioned that Mate 60, and we've been talking about China over the last week and a half or so in this story with Apple about the new competitor coming back with these new Chinese-made Huawei phones and this potential ban on government use of iPhones. Based on what we've seen, reports out of China, the Huawei phone, you know, it sounds like it's pretty capable. It It looks a lot like the iPhone, in fact, and it operates like the iPhone, but it is not 5G. Now, remember, Huawei kind of went dark in the smartphone space for a couple of years there because of silicon restrictions of what they could bring into China to put this phone together.

14:27So while they're bragging that it might have 5G like speeds, it's not technically a 5G phone. So this is actually going to be a test now that there is a new Huawei flagship out there. Do the Chinese customers go for the homegrown option or do they take a look at these new iPhones? And look, Apple needs this to be a hit. They have not had top line growth in three consecutive quarters, likely a fourth consecutive quarter. Comparisons are going to get easier in the holiday quarter coming up. But again, competition is coming back in China, Melissa. All right, Steve, thanks. Steve Kovach and Dan, you had mentioned this before.

15:01Steve said that Huawei sort of went dark when it was limited from accessing silicone. But it actually gained market share. It almost doubled its market share second quarter. 22 to second quarter. 2023. Yeah. Despite that. And we also have been talking about this since the advanced chip bans had come in late last year or something like that, that, you know, this forces the Chinese chip makers to get better at what they do if they don't think this is going to get better. So, you know, we're talking about a phone right here and Huawei obviously is a vertically integrated company. Also, you know, they're going to get better at all of it, especially if they see a tougher road to hoe is access to our technology.

15:36And that doesn't make Apple's life easier. Right. In the environment that they're playing in. Now, Apple has done very well in China over the last few years. They've gained a lot of market share. I mean, some data will show you their number two or three from where they were five, you know, in 2019. When you remember in 2019, they were having a really tough time with China. It was the first disappointing, you know, the pre-announcement they had in a very long time. So I guess my point is there's nothing here in this phones and this hardware that says they're going to do better in China. And I think the consumer issues that they're going to have there for a whole host of nationalistic reasons, they're not going to bait in a quarter or anything like that.

16:10So this stock trading at 27 times next year at about 7%, 8 % expected earnings in sales growth, it just doesn't make a whole heck of a lot of sense. When you think about China's growth at 20 % of their total sales, it probably doesn't get better in the next couple quarters. And that's what J.P. Morgan said, that this Huawei Mate 60 is going to halt the gains in Apple market share in China. This thing's been flying off the shelves, and they want to push this in China, and they're going to. And it's technologically, it's impressive. It's not a 5G phone, but they've given the same features, essentially the speed in terms of processing data.

16:43And that's really what it comes down to. I realize that investors wanted to hear about the$100 price raise. In other words, that's important. The ASPs have been an important part of the Apple revenue story. In other words, shipments are up 15 percent. Revenues are up 45 percent since 2019. I get that. At some point, the conversation we just had last block applies to Apple. And I think it really does. And I also think that the phones are so good and that this camera. Look, I just got the 14 two weeks ago. Poor timing. I had no choice. But, you know, my phone, my camera's fine. I mean, I don't, I mean, I don't know.

17:18Guys, my camera's fine. I don't know. What are you working with over there? Let me tell you something. You always have a choice. So two things. Basically, everything is a choice except for two things. Okay. Death and taxes. You have to pay taxes. Otherwise, everything else is a choice. So you could have waited a couple weeks. It wasn't going to kill you, number one. Number two, if your happiness is predicated on how many megapixels this Apple phone has and you wait online at these events, you're living life the wrong way. And I'm going to say that. Bring on the hatred. In terms of the stock. By the way, folks listening to this on radio, that's Guy.

17:48That's Guy. Not Tim. Tim was the Pat's guy as the Apple. 176 and a half. This is basically the all-time high we saw in December of 21. Very important that we hold here. But this China salvo, that's not going to be the last one. Government workers first. And then you said it last night. Shadow ban for the country. And it's not a positive thing. When you tack on valuation, it doesn't paint a rosy picture. Yeah, I mean, a lot of the geopolitical risk is probably in the price at this point. But I agree, it's not going to get better anytime soon. I mean, we had the House Committee on China, whatever, how we compete and contain, etc., doing a New York tour this week.

18:24And they were on your air this morning. They were at the Council on Foreign Relations yesterday. You know, that is one of the few areas of bipartisan agreement in this country that the U.S. needs to prevent China from getting a technological edge. And so China's going to push back. Of course they are. And Apple is one very powerful way to do that. So for them to try to limit how many people in China can use an Apple phone or device, it wouldn't surprise me if that becomes reality. Unfortunately, this is part of the bigger picture. And you have to watch what's happening in Washington as Congress comes back.

18:58the noise is going to get louder, not quieter going into the election. Definitely. For more, let's bring in Fast Money friend Gene Munster. He's a managing partner at Deepwater Asset Management. Gene, great to have you with us. So given what you've seen today with the iPhone 15, given what you've seen in terms of features and pricing, is the stock fairly priced, overpriced? What's your assessment? I'm sorry to report, Dan. I think the stock goes higher. And the biggest reason is that what Apple showed today was the substance behind the story turning to return to growth. And I think Steve's setup segment appropriately mentioned that we're going to have four quarters of declining revenue.

19:39That's the pressure point. Can Apple return to growth? The growth relative to the multiple, it is a similar topic to is Tesla a car company or is it a tech company? In this case, is Apple a consumer device company or is it a tech company? I think it is both. But the consumer device attributes, we saw them on stage today. And I think they garner a higher multiple, more like a Coke, Procter & Gamble. We've talked a lot about that. So, Melissa, I think the most important piece today was there was enough substance in this phone to drive this large 400 million upgrades, a pool of 400 million upgrades.

20:17And I think we're going to see Apple return to growth. And I expect the stock to move higher as that plays out. So, Gene, it's Dan. And again, I appreciate all that. You know, the stock from its lows in January gained a trillion dollars in market cap while it was basically quarter over quarter, you know, not growing. Right. So so we can say that whatever the rosy outlook is about the return to growth, it's been discounted in the stock price for the better part of this year. Does that make some sense? And so let's just say that China does slow down and China has been really good for them over the last couple of years.

20:51Won't that be something that maybe the stock should be put in the penalty box for a little bit? And when I'm talking about penalty box, I'm talking another 10 percent down to 160 and take a few turns off this thing. And you know what I mean? And it seems a lot more reasonable given the unknowns that we have about the story and the growth prospects going forward, especially when you consider how incremental really everything. And I know you're geeked up about spatial computing and all that sort of thing. But we can all agree that that's a back half 2024, 2025 thing. So this could have a 10 % pullback.

21:22And I think that can be consistent with the stock going higher into next year. This stock has proven to have those kind of pullbacks. And I think it's appropriate, the conversation, to talk about China. I think the China conversation also needs to include the India conversation. There are equal number of people. The GDP per capita in India is a lot less than China, five and a half times less. And so that needs to be factored in. But that's something that is going to become a bigger part. It will be an offset to China. I think Apple is getting close to the top of China as a percentage of their revenue.

21:55It's 20 percent. Maybe it gets to 22. But we're going to need to start to see India come on. And at the end of the day, what all this comes down to, we talk about the geopolitical. Can Apple make products that get people excited? And I just want to mention one feature here that was not anticipated. Our Andrew Murphy from Deepwater did expect this to come out. But they added spatial camera to the Pro model for photos and video. Spatial video is a killer app when it comes to Vision Pro, and it is the biggest upgrade to a camera. And, Guy, I hear you when you say that it's sad that people get so excited about cameras.