Jackson Hole preview, Apple's AI Ambitions, Rule of Law, New Housing Investors

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2:15This is Wall Street Week. I'm David Weston bringing you stories of capitalism. Apple earnings last week were better than expected, but it is still falling behind its biggest rivals. Patrick McGee, author of Apple in China, tells us why it has a long way to go. Plus, lawyers worry about the rule of law in the US. The head of the American College of Trial Lawyers explains why Wall Street should be just as concerned as members of the bar. And everything old is new again. Small investors are back in the game of buying homes to rent and ultimately flip. Why that doesn't necessarily mean we're headed back into another great financial crisis.

2:56But we start with the future of monetary policy in the U.S. as central bankers head back to Jackson Hole, Wyoming, with a new framework on the agenda. Our special contributor, Larry Summers, takes us through what he'd like to see. I'm not sure that it's the right time for a big new framework when you have an outgoing chairman. I would have thought that a new chairman should be providing a new framework when the new chairman arrives after the new chairman has consulted. So this seems a rather odd timing for a major new framework announcement. It seems to me that, if anything, the errors have been on the side of excessive transparency, excessive forecasting, excessive what we used to call when I was in government, iatrogenic volatility.

3:51Iatrogenic illness is when you get sick from being in a hospital. Iatrogenic volatility is when officials' comments end up adding instability to markets. So I think at the moment we have too many dot plots, too many forecasts, too much cacophony. And some of the ideas for more information from the Fed, I think, will end up pushing markets around without any great benefit. My own view is that Paul Volcker and Alan Greenspan had this right. They saw the Fed chairman as like the Delphi oracles were thousands of years ago. They were imperfect and couldn't really know the future, but people thought they were omniscient and omnipotent, and it was therefore better to keep any statements vague and oracular.

4:53Certainly, the dominant theme the last time the Fed had a new framework review was the difficulty of getting inflation up to target. That's not our problem anymore. Our problem now is making sure that high inflation expectations don't become embedded. So corrections back towards symmetry with respect to inflation seem to me to be appropriate. And I think one should learn from the fact that with the best of intentions, the framework adopted before, right ahead of the pandemic, wasn't really the right framework as things turned out, and that could happen again. So I think the Fed would do well to avoid being overly prescriptive at this juncture.

5:54Finally, I think that the whole question of the management of the maturity structure of the federal debt needs careful consideration. What matters to markets is the debt that they have to absorb. And the spectacle we've seen that a number of times in recent junctures where the Treasury was trying to push the maturity structure of the debt in one direction, and the Fed was trying to push the maturity structure of the debt in the other direction, seems odd. Larry, this week we got CPI numbers in, which basically I took two messages away from. One is we are persistently above that 2 % mark on inflation, and it seems to be really stubbornly so.

6:43And yet the markets took it as, boy, it's sure the Fed's going to cut in September. The likelihood went to almost 100%. Can you square those two things? I think that there's also evidence of weakening in the economy. And it's that weakening that I think is behind the market's view that the Fed will likely ease rates. I think that while inflation was elevated, it was not as elevated as many feared that it would be. So I wouldn't want to fight hard against the market's judgment with respect to September. I think it's also probably worth remembering, David, that what you described as a certainty of a 25 basis point cut in September is probably better understood as a likelihood of a 25 basis point cut with 50 basis points and zero being about equally likely.

7:53so the whole thing averages out to a 25 basis point cut. And there's more data to come in. And so I think it would be a mistake to be certain for anybody about what would happen. We could get very, very weak data that pushed towards a 50 basis point cut. We could get information on inflation and the strength of the economy that pushed towards delaying cuts even further. So it's a mistake to be certain about what's going to happen. One of the sources weighing on a 50 basis point cut side has been the Secretary of Treasury, Scott Besant, who said that might make sense in September. We should probably be 150, 175 basis points lower.

8:40So I think the committee needs to step back. I think probably one of the most politicized governors just went off the board. I was surprised to see the secretary, any secretary of the treasury, be that prescriptive. Usually that kind of judgment is not made by administration officials. And I'm not sure it's helpful for the administration to be publicly prescribing on monetary policy. Beyond that, I don't think the statement is in line with what I would say. I would have said that any model of monetary policy has to be based on a judgment about what the neutral interest rate is and has to be based on a judgment about inflation expectations.

9:44If one has the view that substantially elevated deficit spending plus substantially elevated data center spending is greatly plus reduced trade deficits in the United States, plus higher asset prices, which reduce the flow of funds for saving. If one has the view that all of that is raising the net demand for funds, then I think one might think that neutral interest rates have risen quite substantially, in which case you wouldn't be prescribing 175 basis point cut in rates unless we see a recession. I think the possibility and the risk of inflation expectations starting to pick up, given big budget deficits, given tariff pressures, given political uncertainties surrounding the Fed, is also a reason why one wouldn't want to feel that we were committed to major rate reduction going forward.

11:03So I'm not here to tell you that that's not going to happen. I'm not here to tell you that it shouldn't happen. I can certainly imagine circumstances in which the economy could play out, in which those kinds of cuts would be appropriate. But it seems to me to be confidently prescribing them at this juncture is beyond what I would see as a prudent judgment, all the more when the judgment is being made by a senior official with responsibility for policy. We end the week with President Trump meeting with President Putin in Alaska to talk about Ukraine, with Ukraine not being present. I wonder what your thoughts are and what effects that have economically.

11:58And let me ask you specifically about those Russian assets that you've talked about on this program more than once. David, President Trump, like him or not like him, support what he does or be more skeptical of some of the things he does, is the most transactional of all presidents. I would have thought and hoped that a president who was so transactional, with the tremendous is leverage over Russia that's represented by the fact that we have currently frozen their reserves, would use our claim on those reserves as leverage to drive them to a just peace with Ukraine. I know there's some reluctance about that in Europe.

12:53There's concern that it might inhibit some countries' ability to sell debt. President Trump's errors in the past have not been over-solicited for European views. So I have been surprised and a bit disappointed that President Trump has not been prepared to bring the reserves issue more into the foreground. because I think it would be helpful to him in achieving his objectives of putting the Russia-Ukraine conflict in the rearview mirror. Up next, the saga of the$3 trillion company falling behind in its race with other megatech firms. What Apple needs to do to get back on track.

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15:41This is a story about racing a bear, where it's not so much that you beat the bear as it is that you beat the others in the race so that you don't get eaten. Apple is worth more than$3 trillion, but it's no longer the world's most valuable company, and it's not racing as fast as its largest competitors. Patrick McGee, author of the bestselling book Apple in China, says there's plenty for Apple to be worried about. In 2017, the former head of software under Steve Jobs, Avi Tavaniam, basically used the analogy that if you and a friend are being chased by a bear, you don't need to outrun the bear, you just need to outrun your friend.

16:19He meant to say that in the world of Tim Cook, Samsung, the Google Android operating system, wasn't doing anything in particular in 2018. So while he could acknowledge that Tim Cook's Apple had sort of stagnated a little bit, it didn't matter in 2017. Well, eight years later, I think it really does matter. And that's why you have NVIDIA being worth a trillion dollars more, Microsoft being worth$800 billion more. Companies that really didn't even exist at the time, Anthropic, Perplexity, OpenAI, are really defining a new era of computing. And it's, you know, somewhere between embarrassing and tragic that Apple, sort of the most iconic company, really isn't even in that conversation.

17:00And And something like the design position, you know, chief design officer, has been vacant since Johnny Ive left in 2019. I don't think there's any excuse for that. What's slowing Apple down? Well, what made Apple so iconic in the early 2000s was really product design. And then Tim Cook's ability to operate those products at enormous scale. They're still playing the scale game. I mean they build and sell 230 million iPhones a year and probably be up double that number of products if you were to include everything from AirTags and AirPods to iPads and MacBooks. So their operation game is, you know, second to none.

17:34They run the world's most sophisticated supply chain. But they're no longer redesigning products in super interesting ways. The Mac Binnie is about as boring as you can get in terms of a product, in terms of how it looks. It's almost harking back to the 1990s when computers were all beige. The iPhone really hasn't been redesigned in any meaningful, tangible way since 2019, and I don't think the other products have been either. So they've sort of lost their cool in a certain sense, right? Apple no longer sort of defines how a computer or a smartphone is going to look and feel. And I think, unfortunately, sort of the most sexy smartphones in the world these days are from a bunch of Chinese companies who largely can't sell in America, like the Huawei Mate XT, which in Apple terms is an iPhone and an iPad in one.

18:18So really the story of my book is that Apple trained up its own competitors. They didn't just give birth to a smartphone industry in terms of the supply chain. The supply chain took those skills and they sort of offered what Apple taught them to Huawei, Oppo, Vivo, and Xiaomi. And those are the Chinese companies that collectively have a global market share in smartphones, the most iconic device of the 21st century, of more than 55%. So I really think Apple risks being overtaken by Chinese competition in the next three years within China. And the only reason that's not a global story is because you can't go to an AT &T store here, let alone down to the local mall and buy a Huawei phone.

19:02So there's all sorts of protections, you know, basically the same sort of thing that Donald Trump complains about overseas, right? Non-tariff protections we have in the telecom industry ourselves. But in places like Russia and Indonesia, I mean, the Chinese smartphone manufacturers have an 80 % market share, if not higher. And I suspect that's going to be a real problem for Apple in the next five to 10 years. One route Apple is pursuing to avoid the trade conflicts between the U.S. and China is to manufacture in India, which has its own tariff problems with President Trump. But even putting that to one side, McGee says India may not be the success story, it appears.

19:40There's more hype than reality in terms of manufacturing in India. Really, they haven't moved the depth and breadth of the supply chain. What they've moved is assembly. And because people largely don't know just how gargantuan Apple's operations in China are, their investments in India can look like a big deal. So just a few months ago, for instance, Apple's Taiwanese partner was investing into India, and they were making dormitories to house 30 ,000 workers. Well, to any American listener or reader, that sounds like a huge investment, until you remember that Tim Cook's own estimate of how many Chinese people are in the supply chain is 3 million, right?

20:14So what's 30 ,000 out of 3 million? That's 1%. The investments in India need to be on a staggeringly different scale for the country to really replicate the depth and breadth of the supply chain. I would say on a superficial basis, India absolutely has what it takes. 1.5 billion people, obviously a massive land mass, and wages comparable to what you had in China 20, 25 years ago. Unfortunately, the differences between China and India are more profound the more seriously you look at this issue. So, you know, the missing topography of Apple that my book really contributes to is an understanding that Apple didn't move to China because China offered competence.

20:52Apple moved there because Apple was able to build the competence, right, by training millions of people, by investing billions of dollars, by installing machinery on production lines that otherwise wouldn't be able to afford to do it. Now, Apple can do the same playbook in India. However, who's going to build the eight-lane highways from the factories to the ports? Who's going to build the high-speed rail? That's not something Apple can do. So I think there's great potential for India to be an enormous and successful partner to Apple, but it's going to take a lot from New Delhi or the governors of Tamil Nadu or Karnataka in order for that to make sense.

21:29Apple can't just write a blank check. They need government support. And negotiations for this probably have to happen at the level of New Delhi, Beijing, Washington, etc. Because you can't really expect a company to make these moves and just risk the backlash from Chinese consumers where Apple has a$70 billion business and from Beijing. So you're going to have to have everybody at a table striking some grand bargain for China, in a sense, to allow the manufacturing to leave its country. Because Beijing knows better than anybody else what it means to have Apple as a partner in your country building up major industrial clusters.

22:00And Beijing wants technology transfer to be a one-way gate. The information comes in. It does not leave. Apple's ties to China have turned out to be both a strength and a weakness. But it's not the only challenge it faces. It's also fallen behind its competitors in the race to artificial intelligence. Mandeep Singh is the global head of technology research at Bloomberg Intelligence. They have a history of creating new products. Obviously, iPhone is the big cash cow, and they have monetized it extremely well in terms of the newer versions. But AI is something that wasn't in their DNA in terms of investing up front.

22:43The hyperscalers like Microsoft, Google, Meta, these companies were quite aggressive in terms of believing that AI was a secular theme that will change the products. Apple, on the other hand, has always thought about hardware design. That has been their strength. And till date, I don't think there is a competitor when it comes to the quality of the hardware that Apple has versus anyone else. But what they really missed out on is the profound impact AI may have in terms of the functionality, whether you are browsing on your phone or how you interact with an assistant. the App Store. So now they are really realizing, okay, what is it that we could do given everyone else has a two to three year head start?

23:38And they haven't invested in infrastructure or data centers, but now partnerships, M &A seems to be the most viable option because they still control the distribution. How big a problem when it comes to AI does Apple have? And does Apple know it has a problem i think the acknowledgement is coming more now than it was six months back and part of the reason is how big ai has become so google right now is processing 980 trillion tokens a month now that's 100x in the past one year so that just goes to show what is the level of consumption in ai now versus where it was 12 months back open ai is close to 1 billion monthly active users a day And so with those kind of numbers, you have to acknowledge that AI is getting more pervasive in our lives and on our devices.

24:34Now, the question is, is it enough for Apple to just keep offering AI through their App Store, or do they need natively on the device? And the answer is what OpenAI has showed us with GPT-5 is you can use LLMs for scheduling your diary. You can use LLMs for summarizing your emails and acting as an assistant, which is what Siri was supposed to do. Apple talked about revamping Siri, but we know it has gotten delayed. And so those are the type of things Apple has to do something about it. Otherwise, it can turn people off. And once they move out of the Apple ecosystem, it's very hard to bring people back.

25:16Can they catch up? I think as long as you control the distribution, which is why companies like Google, which has made a lot of advancements in their LLMs, they control the browser. They control the Android ecosystem. And for me, Apple is similar. They have their Safari browser. They have the iOS operating system. They control the devices. So they have a lock-in with their users. The only trouble they have had is developing this LLM functionality. And so to my mind, an open AI or Anthropic also have to catch up. If they want to compete with Apple and take share, they have to come up with devices.

26:01And so it's not easy what Apple has done over the past 20 years in terms of the ecosystem they've created. And that's why, unless there is a disruption to smartphone or tablets, and there is a new form factor altogether, which, as I mentioned, Apple has come up with Vision Pro. So it's not as if iWear is going to challenge Apple. I just don't see any hardware disruption on the horizon to make me feel Apple is at risk, that$3 trillion market cap is at risk. But if I see a new form factor where people just do their work completely differently, it's a substitute for a phone, that's when I'll get worried about Apple.

26:41I think Tim Cook has done a tremendous job in terms of following in the footsteps of Steve Jobs. That's something basically nobody thought was really possible. And Apple's market cap, I believe, has gone from around$300 billion in 2011 when Steve Jobs died to$3 trillion. That's a massive accomplishment on the part of Tim Cook. but I think if you look at what's happening in Apple since 2022, it's not a whole lot and there's not a whole lot to cheer for. That was the year that they first hit$3 trillion. The share price has barely moved since then. I would look at 2022 Apple and say, mission accomplished.

27:14Tim Cook was brought in to scale and distribute at scale the products that Steve Jobs had already created. At this point, the pendulum has swung back to an area where you need a product design leader, a product visionary, someone who's adept in AI, and whatever the qualities of Tim Cook are, it's none of those three things. Coming up from a small town in South Georgia in the time of Jim Crow laws, comes the story of why the rule of law matters so much, not just to lawyers and judges, but to business and markets and the economy overall.

28:15all. Deep in the work that moves the business. Let's create smarter business. IBM. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same. The thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals. Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights. Helping you close deals faster. With revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio.

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