Ep.100: BIG Tech Earnings & Why Stocks Keep On Rallying!

Okay, hello and welcome to episode 100 of the Market Maker podcast. You made it, Piers.

What a milestone.

Yeah, we got to about 60, 70, I thought you were flagging.

Yeah, I went through a little bit of dip. I dipped in form, I think, but now, um, I think my form's returned for the, for the century. Well, we'll see, you can be the judge of that.

Well, look, a quick teaser of what we're going to talk about in this episode, um, big tech earnings. And we're yet to see the open on Wall Street, actually. All these earnings came out last night and they all got beaten down about a range of 5 to 6% for the likes of Apple, Amazon, and Google. Given how big they are, that's no small feat to fall 5%. So we'll deconstruct those, have a bit of a chat about that. Meta Your, your biggest short jumped 20%, uh, middle of the week. And so we'll also talk about that as well. They were actually the darling of the week, if I can, uh, yeah, what a reversal of fortunes, hey?

And you've got like Amazon and Google, yeah, and Apple getting spanked, and Meta is rising It's like Phoenix out of the ashes, isn't it?

Yeah, it's a role reversal for sure. And then we've just had US non-farm payrolls has just dropped literally like a few minutes ago, and then we've had the Fed, the ECB, and the Bank of England. So it's been a pretty big week for financial markets overall, and so we will talk about both of those things. However, if you're watching the video format of this on YouTube, you can see that we have that third leg of the stool, as Piers put it in the previous episode. So, Keev, how are you?

I'm very well, Anthony. Thank you.

How are you?

Great. And, um, you know, last week we said we'd bring on a guest for this episode to mark the 100 milestone. This will go down in history, and, and, uh, we feel privileged that you're with us, Anthony.

I feel privileged myself. Thank you, both yourself and Piers.

Well, you're very welcome.

So, so this isn't the first time we've met, so why don't you give a bit of a backstory about, um, our interactions with you last summer and then how we got to meet and then what you've been up to since then.

Well, I think it's no surprise, Anthony, we met at the Summer Roundness program. I started off with meeting George And afterwards, he convinced me to come to the Summer Analyst Program. Afterwards, I had a pretty intense 3 weeks with yourself, Piers, Eddie, and Will going back to back in a range of buy side, sell side, and equity markets. We got to meet the new alumni across a set of various weeks. And it's been ecstatic, to say the least. The whole experience, it was very beneficial, not just for myself as someone who's done their degree and is working in industry, but also for people that are actually at university. And from what I saw, you guys, you provide a very necessary bridge to actually show everyone, you know what, this is the gap and the skill set that you need when you come out of university. And you give everyone a range of activities and exercises to actually get exposure to different roles they can experience in their careers. Aside from that and having access to that knowledge, that experience, it's been tremendous. I would say even after the whole Summer Analyst Program, having the alumni there, keeping in contact with yourself, with Piers, with Will, various recruiters that have come on after the Summer Analyst Program, it's been— honestly, it's been amazing. Even now, I keep in contact with quite a few of the alumni from the cohort just seeing where they're up to. Some of them are getting in summer internships with the likes of Nomura, some of them are working with Bloomberg, some of them are now— they've got their summer internship with Goldman Sachs as well. So honestly, it's brilliant. With me, I went back to working with KPMG. I, I work in deals, deal execution specifically, and I effectively took time off whilst I was working to come and join in Summer Analyst Program because It was something that I wanted to get insight into, into the wider world of finance, to see how everything worked, to get an exposure to both buy-side and sell-side markets, and to see where I want to position myself long-term. And I can say after coming back, I haven't just found a picture of what I want to do long-term, but I've also been able to actually apply what we've done from the Summer Analyst Program back into my work over here, which is brilliant. I literally used some of the stuff that you gave me over the Summer Analyst Program last week for a pitch deck.

So it's been brilliant.

Wow, awesome. Yeah, awesome to hear. And, um, Piers, how much have you paid this guy to—

Yeah, well, that— you, you stuck to the script perfectly there, Sakrit. Thanks, thanks for that. What, what awesome, uh, well, I love it. My head's just expanded by about 3x, I think. Um, but yeah, no, great to hear. And yeah, you're right, I mean, it's, it's that kind of, um I guess it's being part of that community, isn't it? You're just mentioning there other people getting various positions at various firms and, you know, you loving it and we love it. Um, you know, so yeah, just being part of the community, I think it's just a really positive thing.

Um, well, look, what we can do to help further is, you know, there's, there's people obviously listen to this podcast and we'd love for everyone to connect with Sakib. I'm going to put his LinkedIn anywhere this episode goes. So Spotify, Apple, YouTube, you know, your network is incredibly important. Even if you're in a, in a role, you know, who knows where your career will take you. So yeah, definitely connect. I hope that helps, Sakib, and hopefully we'll get to see you in person in the city sometime soon.

Perfect. Thank you so much once again, guys.

Thanks for joining.

Cheers. See you next time. Take care. All right, Piers. So honestly, I'd just like to say that was not rehearsed. That was just— yeah, what a legend. Um, but yeah, let's dive in then. We've got plenty to talk about, and let's kick things off with— let's kick things off with Meta. Yeah, because look, we've spent the entirety of 2022 coming on again and again and again just saying it's the death, it's the gradual demise of Zuckerberg and Facebook, uh, and the shares have spiked 20%. Now I guess before we look at the context, because I know what, I know what you're like, you'll start looking at, oh yeah, last 12 months they're down like 70%, and so 20— I can see you typing away now. But let's just talk through the numbers first and, and what generated the positive response before we look at the broader picture of the share price and, and so forth. So, um, daily active users exceeded expectations. This is always like the key metric that people will look at, and this is a bit of a quirk. We were talking to a trader the other day, right, and he was saying he wanted to train some of his staff And it was like, right, you can look at earnings per share, your EPS and your revenues. That's one dimension. But then there's also these idiosyncratic factors that can pop up like DAUs or ASPs if you're talking about phones and average selling prices or subscribers when you're talking about Netflix or Disney Plus and all these sorts of things. And so yeah, their daily active users, beat. And they look at that metric across different, uh, time durations, so monthly and so forth. They announced a $40 billion stock buyback. Yeah, I actually saw quite a few people, uh, commenting on a post I did about this Facebook release, and they were saying, oh, that's nice, isn't it? You sack 11,000 people but you take care of your shareholders.

Yeah.

Necessary evil though, right? I mean, he's got to appease the shareholders, he's got to cut costs, and he's got to keep them happy because he doesn't want them to bail.

Yeah.

Um, and then so a few other metrics. Average revenue per user, this is your ARPU. So just, you know, you better have your notepad ready, there's a couple of these. Uh, so the ARPU topped Street estimates. So your DAUs in combination with that, ARPU and your MAUs. Yeah, monthlies.

Yeah, yeah.

Um, so then the company on their outlook said their revenues in Q1 would be between $26 to $28.5 billion US dollars. That was against a Street estimate of $27.9, so little bit soft on that front, but if they hit that, it suggests the revenues could rise from a year earlier should the results come at the top end of— within their own range.

Um, in that sense, that what you've just said there is hugely significant for a particular reason, because that's looking back. So let me just repeat. So at the top of that range, let's say they hit hit the top of the range. So they're saying they would make $28.5 billion revenue in this quarter, right? Now, if you compare that to the same quarter in 2021, that would beat Q1 2021. The reason why that's significant is because since then, Apple on their iDevices, of course, have changed the privacy settings that have made it considerably harder for advertisers to track users across the internet, which is one of the big, big reasons for Facebook's— or sorry, Meta's— downside last year, because people are panicking that, you know, this is the end of their revenue, their sort of advertising revenue model. So the fact that this quarter they're saying they're going to make more money than before that setting changed by Apple, that's really key. It shows that they have been able to pivot and jump over that hurdle that Apple have set. And I think that obviously in combination with the— I'll use the word again— massive pivot on cost. And now that he's tightening the belt rather than just going on some kind of ridiculous spending binge, which was the direction they were going in. Yeah, those two factors for me Obviously the cost one's obvious, but you know, that point around beating revenue since pre-Apple privacy setting change, I think that's really key.

Yeah, not only were all these other headwinds, like you've mentioned the iOS privacy, TikTok, which has kind of been around for a while now. So it's probably been embedded into the psyche of most investors in that sense.

Yeah, although, although obviously right now the regulatory pressure on TikTok is building and building and building in the US. I mean, some— I think some— what is it? Some schools have banned it, some universities I think have banned it. And there's obviously pressure to just ban it entirely from— so that obviously plays into Facebook's— Meta's hands in a positive way as well.

Yeah. Yeah. And then, yeah, the cost cutting, to put it into perspective, they, they dismissed 11,000 staff. So as a, as a figure to put that in context, that's about 13% of total employees that they trimmed in November. And when you actually look at it, when you hear these big numbers from Amazon, for example, or Apple, actually Amazon will have far more employees. So percentage-wise, it's a, it's the deepest, I think, or one-off in terms of Meta's aggressiveness with that cost cutting.

Yeah, it's— I think it's pretty much only Twitter that's gone even more aggressive, hasn't it? Um, or Salesforce as well went pretty aggressive. Um, but look, on the— on this cost-cutting front, because— so what Zuckerberg said on the earnings call, our quote here, he said, we're going to be more proactive about cutting projects that aren't performing or may no longer be as crucial. And I don't know, it kind of— obviously when you say that, you think you're like, well, obviously, well, clearly you would stop just spending money hand over fist on stuff that's just a bit of a punt, isn't really working, is incredibly speculative. Obviously you do that. But I think that sentence right there kind of sums up what's happened to the tech industry in the last decade with these absolute behemoths these kind of cash mountains of cash that they print on a quarterly basis. They're like, right, they feel like they're, they're justified in going, right, well, let's just start punting it around on crazy projects, these moonshot projects, right? When, um, you know, ultimately a lot of that money is just being wasted, it's being poured down the drain. So the fact the share price You said it spiked 20%, which it did on the day. That actually prior to that day, it was already up 70% on the year. Then it went another 20% off the back of these earnings. Wow. So it's actually doubled. It's more than doubled off the low. It bottomed at $90 in October.

Yeah.

End of October, $90. It's now trading at $188. Now, obviously, that's amazing, but it's still— yeah, it's still 50% down over the last 18 months. After this rally, it's still 50% down. So it just kind of goes to show that there's a long way back, but Yeah, and look, the $40 billion share buyback thing, yeah, great. I mean, I think that— I mean, thinking about severance— well, maybe actually we'll talk about the other big tech earnings first because there's obviously a trend across all of them apart from one on job cuts. So maybe we'll come back. I want to make a few points on the kind of job cuts across the industry and what it means, but let's maybe— okay, talk about the others first.

I think I know the one who hasn't cut jobs, so I'm going to skip over them. We'll come back. So let's talk Amazon next. Okay, Amazon numbers. EPS miss, 3 cents against 18. The revenues did exceed, but cloud missed. AWS came in below expectations. Advertising was slightly above. Overall, Amazon closed out its slowest year of growth in its quarter century as a public company.

Hmm. Is that right?

Company expects to post Q1 revenues of between $121, $126 billion. The Street was looking for $125.1, so they've actually lowered that bottom end of the range a little bit. Um, their shares were down about 5% last night. We're recording this, the shares haven't opened yet on Friday session. So yeah, what do you, what do you think about the Amazon release?

Yeah, I'd say obviously a bit— on the one hand, not surprising on that, on that kind of revenue growth slowing. I mean, obviously 2022 was a bad year for— from an economic point of view, so you'd expect it to feed through into a business like Amazon. I mean, I think the biggest worrying thing was the operating income from AWS dropped marginally. Um, obviously AWS, their cloud services, their big kind of profit engine. And it is actually the case, if you took AWS, even though their income dropped, it was still very profitable, right, on the AWS side. But if you took that out of the equation, take AWS out, uh, Amazon would have recorded a loss of $2.4 billion on the quarter, which pretty much, pretty starkly shows you how important that cloud business is to Amazon. Um, but having said that, there is like glimmers of hope. And look, when you're saying like all these big tech stocks had a sharp, sharp downside, um, off the back of some of these, um, earnings, you've got to realize they had a monster rally, um, yeah, on, on the Wednesday. So we'll perhaps talk about that as well in a minute, just in terms of where do they sit on the week overall, are they actually up or down? But I was going to say with Amazon, one thing that was quite interesting underlying their sales from their retail side was better than expected. So actually the holiday shopping season in December from these numbers from Amazon shows that the retailer— sorry, the consumer is continuing to be incredibly resilient in the face of the twin nightmare of really high inflation and really high interest rates, and obviously some mass job losses in the tech industry at least. And so I think that was a surprising factor, not just a good thing for Amazon, but just more generally from a sort of macro measure point of view, that US consumers just cracking the wallet out still as if everything's hunky-dory.

Well, yeah, if nonfarm payrolls is anything to go by.

Indeed.

You mentioned before about cloud being somewhat robust against macro changes.

Yeah.

One of the things here was that analysts on the call and the post-release were saying that some big businesses— well, they'd identified that some big businesses have been postponing efforts to move software to AWS data centers the reason being the economy, right? Um, and others were taking a pause after dramatically increase— so I guess it's one of the— it's double-edged sword, isn't it? It's like you've seen dramatic adoption.

Yeah.

And it's not that it's not going to continue that way long term.

Yeah.

It's just that going over the cliff into the potential recession, it makes sense that businesses are a bit more cautious, and so therefore the speed or the profit margin will shrink a tiny bit.

Yeah, and again, that's not a surprise given what Microsoft told us last week with their Azure figures, also showed a little bit of softness. And yeah, you know, I think that's— yeah, it's kind of that, that's, you know, you're— I mean, maybe, I mean, maybe from a macro point of view, this is a decent kind of measure of where's the bottom of the cycle. And maybe it is when you actually start seeing it show up in some of these cloud growth figures from some of these big giants. You know, it's kind of that last little item on the sort of cost budget that you perhaps start to trim. So yeah, maybe a lead indicator there that maybe we're approaching some kind of bottom of the cycle.

Okay, Alphabet.

Yep.

Now, when you were picking bottoms, we were down at $85 a share in, in Alphabet. I think we're now about $108.

Yeah.

So again, in tandem, like you said, took a decent boost on the back of the Fed, but also January just in general, right? Year to date, these, these stocks have been moving sharply higher. So their EPS— Alphabet missed, revenues missed, missed, YouTube missed, missed, Google Cloud revenue—

let me guess, up?

No. Traffic acquisition costs, otherwise known as TAC, missed. Everything missed. Yeah, essentially. The company said it would take a charge also of between $1.9 and $2.3 billion, mostly in the first quarter, related to layoffs of the 12,000 employees it announced in January. So the charge is about— I love this though. I was seeing some of these numbers when I was collecting some data for you early in the week, and it was like, X the job, X the $2 billion we're just gonna have to pay for severance. Oh, our numbers are actually fine.

Yeah, it's like, okay, talking about Um, 2 billion doesn't exist. Yeah, I mean, the Google here, there's not much. I mean, at least you can pick a few items out on the others where it's actually a bit of a bright spot in amongst generally not great. But for Google, it's just— I don't know, there just aren't any bright spots. It's just, it's just bad. I mean, and actually it's the, um, yeah, obviously revenue below, um, expectation, but it's the, um the revenue— revenues dropped. It's the first— sorry, it's the second time ever that quarterly revenues have dropped on a year-on-year basis for, for Google. So that's obviously a bit of a landmark. But I would say, and something we mentioned last week, the US— the strength of the US dollar, they were very clear to point out, was a huge part of that. And again, another reason why I guess stocks have had a good rally, or certainly these tech stocks or these multinational businesses have had a good rally this year, and that's because the dollar's weakened in January. And so, you know, what, what was dollar strength being negative for revenues, um, in Q4, you're going to see that flip, and dollar weakness will be positive for revenues in Q1. I've just seen markets have opened now, actually. So Google has opened at 1 below 104, but closed at 100— well, let's just call it 109 last night.

4%.

Yeah, so it's down 4%. That's about in line with the kind of the moves we saw, uh, post-market last night. But, um, you know, it's still, it's still basically easily the highest levels for the year other than Wednesday. Um, you know, it's still well above, but that's still actually around the levels we last saw back in September, actually. Um, so they're still well off their, their lows down at $84. But yeah, I mean, I guess it's this classic here with these big tech stocks— bad earnings, you know, share prices lower, but then all these earnings is backwards. Look, look, we're in February, right? These numbers for October, November, December. And so We're in February, and so it's quite unique here for an earnings season where you've got such a dramatic difference between the conditions we had when— that they're reporting on with these earnings, and now the current macro environment today. And obviously the macro dial has quite radically shifted. So yeah, despite some disappointing numbers, I think broadly investors will get over these, and it'll be the kind of broader macro picture, I think, that will be the dominant force on share price— on these share prices, like, over the next few weeks.

Well, before we talk about that, because I definitely want to get your take on that, because there definitely is a split on what I'm listening to from big bank economists, and they keep banging the drum that don't buy in, don't get the FOMO, don't chase this market up. They've been saying that for quite a while. We keep going up. So I'm gonna, I'm gonna park that for now, but I definitely want to get your— what side?

All those, all those analysts that are on those huge salaries, you know what they would have been doing on Wednesday evening at 7 PM, and then between 7 and 8 PM Wednesday evening? They'd have been like, ah, head in their hands. It's like, oh my God, I'm wrong again. Um, can I honestly keep banging this drum without myself looking really stupid?

Yeah, it's interesting because I was listening to, um, Mike Wilson, the MS guy, and he's like the uber bear one we've mentioned a few times. And he's obviously been saying, you know, the whole valuation angle, and he's been saying for a long time that this rally this last couple of weeks, just like, don't buy into it, it's going to pull back aggressively. And then he was on, he doubled down in this week's podcast.

I thought, and I was like, before the— when was the podcast, before the Fed or after the Fed?

It was, I think it was after the Fed.

Yeah. Okay.

I listened to it on Thursday, so yeah, it was after the Fed. So he doubled down after the Fed saying, no, you're wrong, like, there's no— it's coming down.

And I was like, oh, If you, if you, if you tell people to sell for long enough, uh, eventually you'll be right. Yep, it's just not for now.

All right, well, look, Apple, before we jump into the Fed and the central bank, so Apple, they, they did miss on their earnings per share and their revenue. Uh, their iPhone revenue missed. Decent miss actually. $65.8 billion against $68.3 billion. That's fairly sizable, all things being equal. In fact, it was the first decline in iPhone revenue since the third quarter of 2020. However, context is really— yeah, yeah, the 8% drop was still less than the 20% drop experienced by their main competitor Samsung.

Oh wow, 20%. 20%.

Right, so the devil's in the detail there. It's like, okay, bad, but how bad? Yeah, one of those scenarios. Um, the other parts here, Mac and other product revenues both missed, but I was looking at the, um, the different revenue streams Apple has. And if you're not signed up to it already, if you listen to this in time, subscribe to the— our newsletter because I've got some really great graphics that visualize the earnings statement, the financial statement, and you can see all the streams, like the tentacles of revenue, if you like. And one of the— I did— I was surprised by just how much, um, the services division pulls in these days.

Well, that's— what does that include? The App Store?

Yeah, so predominantly that's the big one.

That's like—

yeah. And I was like, that's their second biggest revenue stream after the iPhone, and it was up. That was up. So nearly everything was down. That was up 6.4%, uh, year over year. So yeah, I mean, it was— as far as Apple goes, you mentioned something similar with Google. Um, I mean, for Apple, it's the first earnings miss versus consensus expectations in almost 7 years. Yeah, so it's been quite a while. Cook, Tim Cook, said the challenging macroeconomic environment hurt iPhone sales, Mac sales, wearables. So like the Apple Watch, uh, as some of the rationale. So yeah, Apple, and also the, the job situation on Apple.

Well, yeah, um, well, firstly, look, iPhone sales taking a big hit in Q4 of last year, it's not surprising given zero tolerance lockdowns in China. Okay, so again, this thing about backwards looking and forwards looking. So Foxconn, who's their big partner in China, and they got a big plant in, um, Zhengzhou, and that got closed down because of COVID and that had a massive disrupting factor. So big supply chain disruptions, right, which we knew about. So it's hardly surprising when it kind of feeds through into these, these numbers, right? But the key thing is, what is it— what does it look like going forwards? And obviously that supply chain disruption factors, I mean, I won't say it's gone entirely, but it's certainly almost gone. And in fact, Tim Cook kind of talked about that on the call. And he said that he expects iPhone sales are now gonna really accelerate. And he said, we're now at the point where production is what we need it to be. And so the problem, as in the supply chain issue, the problem is behind us. So that's pretty notable. I've got another—

on the China issue, on China sales, China actual sales, so not supply chain, they actually beat expectations, 23.91 billion. So 24 billion above 22 as expected. And this is pre-reopening, right?

Yeah. Well, then, yeah, but is that— well, as you're saying, though, a lot of that is services, right? Lockdowns, you could argue App Store revenue, that's good news if you're in a lockdown. Maybe you could argue, yeah, potentially more time on your phone, I guess.

Yeah, you'd have to ask the question, what is classified as a China sale?

Yeah, um, I've got another, um, I've got another acronym. Oh yeah, for you, in terms of measuring these, these guys. So the Do you know who the chief financial officer is of Apple? This is what I wonder, because look, everyone knows the CEOs, right? So your Mr. Tim Cooks and the like. But here's a quiz for you. Who is, without Googling it, who is the CFO of Apple?

I'm gonna go for Peter Granny Smith.

Uh, is that the grandson of the apple farmer? Um, the name is Luca Maestri, is the CFO of Apple. Who's the CFO of Amazon?

I don't know. Come on.

Brian Olsavsky.

Oh, Brian. Yeah, of course.

Good old Brian. Anyway, I mean, these guys don't get enough airtime, I think. You know, the CEO gets the glory. Anyway, Luca Maestri, Apple CFO, was basically saying that— so his measure that he likes to bang out on these calls is active installed base, meaning the number of devices that are plugged into the Apple ecosystem, and that hit— that crossed the 2 billion threshold. So that's up from 1.8 billion same time last year. So they have 2 billion active installed devices, which is fairly mind-blowing, um, and that's why their services business is just amazing. Because, um, all these devices are plugged in, gorging on the, uh, App Store and all the rest of it.

Okay, one criticism then of your CFO buddies—

yeah—

is that their job is obviously to engineer a framing of, well, what we've missed for the first time in 7 years, how should I pivot this? Okay, right. 2 billion's a lot of people, so he might as well have had a pattern of reporting this number. My point being is that, um, again, when I was doing some data gathering of some previous quarters' reports, um, the Netflix one was just such a classic. You remember when they moved to, um, start attributing what classifies as someone who's watched an episode, and it went from something like the entirety of the episode to they must have watched 7 seconds. And you're like, okay, so your metric has just like gone through the roof now. And your reporting metric is like, oh yeah, like 6 billion times the Squid Game was watched. And you're like, okay. So yeah, the one thing, you know, I think these CFOs are as much as, You know, they're kind of the silent people. They are the artists of their profession. Well, the other—

and well, and the other one is obviously banging on about the strong dollar because they've all done it. And, uh, Maestri did as well, but he put a number to it. So he calculated or said that basically the strong dollar, he said, could have shaved up to 10% off our revenues. That's basically $12 billion. So they're, they're kind of estimating $12 billion chopped off their revenue purely because of the fact that the dollar, um, strengthened. Is kind of a bit— it's just insane, isn't it? But, um, but yeah, that— so Apple are the odd one out though, aren't they, out of the big tech giants, right?

Apple right now, we've just opened 15 minutes on Wall Street. After earnings. Apple are up 0.2%. Microsoft are down 1.5%. They obviously reported earlier in the week. Um, Amazon are down 4.5%. Meta is up— Meta is up 1%. So there you go, much more tame than the initial freight train last night.

Well, one on top of the 20 from, uh, yesterday. Um, but yeah, I mean, there's one, there's one notable difference between these, one of these lot and the rest, and that is their strategy around, well, cost cutting broadly, but specifically within that, um, personnel and laying people off. And whilst the absolute vast majority of the tech industry are cutting the fat and laying people off, and in some cases obviously super aggressively, with, with Twitter being top of that list, uh, Apple have chosen the exact opposite path, and they are laying off nobody at all. And it's an interesting play. So there's two angles of thought I've got on this. One angle is this is a really clever move from Apple. And then the other angle is this is not a clever move. But the clever argument is thinking about the cyclical nature of the economy and the fact that, yeah, sure, we're in a downturn. So obvious thing is, right, cut costs. Easiest way to do that, lay off some of the workforce. Well, obviously, A, that's super expensive, as we have seen. And some of the numbers we've been seeing are pretty mind-blowing. So Amazon, $640 million on severance costs. But it's not just severance, it's not just laying people off. They had kind of an associated impairment cost to kind of decommission office space, or in Amazon's case, grocery store locations. So Amazon spent $720 million closing stores and $640 million in severance costs for the 18,000 jobs that were lost. Google, their severance bill— so they laid off 12,000. Their severance bill, they're saying, is between $1.9 billion and $2.3 billion. Now, those numbers are crazy, right? But if you've got your calculator out, do you know how much that is per employee?

Go on, hit me.

$191,000 per employee for 12,000 employees. I mean, and they've got a cost of $500 million related to office space reduction. Okay. Meta, as we know, their severance cost was $795 million. The list goes on, right? Salesforce, whatever, right? So Apple have avoided these massive costs. So you could say that's a positive. And if the economy swings back up, as it always, always does, of course, then, you know, these other companies will have to rehire again, right? And that's expensive. And also it's really difficult to rehire. That's the key here. You know, there's 10 million job openings. Companies across America are finding it super hard to find staff. So I think that's Apple's probably main strategy. They've got enough cash to look, we'll just wear this fat through the downturn just so that we don't come get snookered on the other side when we're trying to rehire. So that's obviously the positive spin. The negative spin is very much different. I'm thinking a bit longer term and where it says, and what we've already touched on a bit, and that's how these giant tech firms have been so uber profitable with cash just spouting out of every orifice. And they're like, right, we've got to do something with this money. And like Apple, you know, share buybacks and whatever it might be, right, dividends and all the rest of it. And then it's like, right, we've got to do something with this money, right? Let's start these tangent projects. And you build suddenly these huge teams who are going off on entirely different tangents and these crazy moonshot kind of objectives. And I think that Generally, it would be fair to say that that whole thing has gone too far. And now you've got these big tech giants with massive wage bills, with a big portion of that wage bill actually not being productive. And that this is a moment in time where it's just, and this is Facebook, very much of this, you know, is a good case in point. It's like, stop. We need to stop this long-term direction of travel. And now that cash is valuable because interest rates have gone up, cash isn't free anymore and cash is valuable, right? You can generate a return on cash now. I think they should be less gung-ho about spraying cash on these crazy projects. And just kind of rein it in a bit.

So, so more, more long-term, then all of this is a net positive for these tech firms. It's like, it's like you've had this like explosion through the last 10 years and then it's been topped up by this pandemic-fueled situation where everything went absolutely nuts. 2020, '21. Is this a necessary evil to just recalibrate back to a more fit-for-purpose way to operate, to then continue down the path of growth that they have been on?

I, I think that's a very good question because I think that to a degree, yes, this is the right move, but they can't overdo it. You know, take Meta, right? They're spending huge amounts of money. Why? To win the end game, which is to control the next big thing in human evolution, which is the metaverse. So if you were to say Zuckerberg should switch off all investment on the metaverse because the company's got way too much cost and is going in the wrong direction, then fine, short term, that's good. Check out the share price. It's up 100%. Long term though, it might mean they don't win that race and ultimately they miss out on the next big thing, right? So these companies, I think they've gone too far in that they've got too many kind of wild projects on the go, but they kind of need to be in that game if they want to be all over and dominating, you know, the next chapter and the next chapter and the next chapter.

Yeah, cuz maybe I'm, um, just talking my book a little bit, but when I hear that Microsoft's OpenAI is gonna kill Google and search forever, I can't help but think that this is exactly what Google needs. Yeah. It's like you need, like human evolution or ingenuity comes from being challenged, like No one can stay on the top forever, and the longer that happens, the more naturally that progression, innovation reduces over time. And so I actually think it's a good thing, um, even though short-term it's obviously a destabilizing thing from a— from the uncertainty of how big is this thing going to be and how much will it influence.

Yeah, they're driving each other on, aren't they? You know, you would say broadly, probably, that the innovation gains we've seen over the last decade have been much more rapid than they would have been if it hadn't have been this— the, the big giants kind of slugging it out, uh, and kind of pushing them on.

Yeah. Okay, so out of Amazon, Apple, Microsoft, Meta, Alphabet— I don't want you to list them in the 5— who's— and let's give you a time period. Long-term investment, and this is purely for educational purposes, just a caveat, who's your top pick and who's your bottom, least favorite pick out of the 5? Well, the box has the Microsoft news shifted it at all for you over that medium long-term play or, or not?

The bottom one, that was the easiest question in the world. 12, 18 months ago, it was Meta, hands down. Now they've collapsed in price and they've done a bit of a U-turn and they're going to cut some costs. They're, you know, it's not quite— I don't think it's quite as clear now as to who's going to be the worst out of these. I think that's a really hard one to pick. Who's going to be the best? Well, certainly I'd say Microsoft have maneuvered up the the list, I think I was Google, wasn't I, when we had this conversation 12 months or so ago. Maybe Microsoft have overtaken them on the grounds of the AI thing. But I mean, I'm still— look, short term, yeah, I think Microsoft and OpenAI have got first mover advantage. But it doesn't mean they're going to win it. Ultimately, ChatGPT just scrapes the internet, right? So it's not like they own the internet. So that just means it can be challenged. And obviously the likes of Google should be challenging. And then they— well, can't they scrape the internet in the same way? And so whilst it's amazing, this ChatGPT thing, don't get me wrong, it's vulnerable to competition because it doesn't own the information that it's scraping and kind of working off. But, but for sure, yeah, I mean, I think Microsoft are just a juggernaut, that, that kind of slow and steady. And maybe, yeah, whoever wins the AI race, of course, is the answer to your question. Whoever wins the AI race? And will there be a straight outright winner or is there room for a few of them?

Yeah, and who says you have to just back one horse?

Yeah, exactly. All right. I think I avoided that question quite well.

All right, well, look, let's try and keep this part on point and talk about Let's not talk about the Bank of England, ECB, so much. Let's focus on the Fed, because it's the Fed that moved not just US markets but global markets midweek. Uh, they downshifted the size of hike, so they're going for 25 now. Um, and what one of the main things that people were picking out was that given the rally we've been seeing in stocks and bonds throughout the beginning of the year It's will Powell comment either validate or push back on this market pricing. The market pricing being at the current point of time that rates are going to peak in March, and actually a subsequent 50 basis point easing cycle is going to take place at the back of the year. And if you're going off Fed language, it's unlikely that that's going to happen, the latter part at least. However, he didn't come out really explicitly and say otherwise. So was that the most important part that you heard, or was there other parts? Because I know he mentioned about the first time disinflationary processes have started, which was another key phrase.

That's a key word.

Yeah.

Disinflation.

So explain to me, what does that mean?

It just means it's not So disinflation is where inflation levels are dropping. It doesn't mean deflation, of course. That's when inflation levels are negative. But disinflation is that kind of middle ground where inflation's getting lower and it's being dampened. So for that individual to utter that one word, that's pretty huge. And he knows— He's not stupid. He very consciously, very carefully selected that word and said it. And I think that's quite significant. And that's basically him saying, we've won. We've won the battle against inflation. I know he did say some other words contrary to that. But anyway, here we go.

He said—

yeah, go on. I've got it here. We're going to be cautious about declaring victory. And sending signals that we think the game is won because we've got a long way to go. Okay, that's what he said. We're going to be cautious about that. But basically that's what he was saying. We've won. Inflation's been tamed. We're hiking by 25 basis points. And you know what? Could well be the last one. And importantly, from the market's point of view, Yeah, in that question around, have you seen markets ramping higher recently? Aren't you worried about that? And his, his answer was, our focus is not on short-term moves, which basically was the green light to just go, we're here, let's carry on going up then. And they certainly did that. The NASDAQ was up 3%, literally 3%, off the back of those words that came out of his mouth.

Do you think that if you were Jerome Powell, you come off the stage, you do it, the press conference, you've heard all these bears on Wall Street talking down the market, and then something like that happens, do you think he gets a little, like, little buzz?

Yeah, whilst he's checking his phone to check his share account and just to see— yeah, have I done— yeah, Pelosi-style, just check or just log into IG Index.

So yeah, oh yeah, perfect, perfect. Well, interestingly, to kind of bolt on to this, we just had non-farm payrolls come out, and that was like a really strong headline figure. Um, the expectation is for 185,000 jobs created, non-farm payrolls for January. The top of the range, I think, was 310. This figure came out of 517. That's well and over above I just don't get it.

How, how is it that high?

Yeah, and the last 6 months, I think we've on an average, it must be like a 2-5 figure for 6 months straight.

I just, uh, literally very rarely do you get an economic data release that just completely It's so completely out of line without any real explanation. I just find it incredibly weird. I literally can't think of a way to describe how that number is so high. Got any ideas?

No. I mean, it's so weird. Yeah. The average hourly earnings numbers, because I actually thought that all things remaining relatively in line with jobs, I thought that the kind of magnitude of reaction would be determined by the average wages because indicative of inflation conditions, but that was in— that was basically in line, in line month to month.

I'm just thinking now, maybe I have got a thought, you know, like the job openings figure. So it was like 10 million, right? 10 million job— maybe the job openings number has sharply dropped Now that people are going, all right, fine, I will accept that job at Starbucks or whatever, maybe that's something. But anyway, it's, it's a real outlier to say the very least. Um, and I was looking like the initial market reaction to all of this was like, whoa, hang on a minute, this is implying that the economy is super strong and that actually maybe that celebration on Wednesday with Powell saying inflation's behind us, we're going to stop hiking. And then all of a sudden it was like, oh, hang on, maybe the economy is so resilient but inflation isn't yet disinflation, and that maybe the Fed are going to have to carry on hiking more. So actually the initial reaction to markets was sharply down. I'm talking about stock markets. Dollar strengthened quite a lot, but I'm looking at the chart now I'm looking at the NASDAQ. It sold off from 12,760 to 12,560, so did a 200-point sell-off. Then it's just turned and it's recovered the whole lot to go back to the highs. So that's interesting that you're not getting downside on these. Well, at least we'll see. I guess there's a few hours into the close yet, but, um, certainly a very undecided reaction here on stocks given that they're so high. This week has just been crazy, the distance these markets have traveled through. And here's a really good excuse to sell off and book a lot of profit, and it looks like traders aren't doing that, which, which would be a really bullish signal for the weeks ahead, by the way.

Yeah. So the Fed are coming to the end. Jobs are still decent. Soft landing.

Well, so this is the argument against Yumian from Morgan Stanley. He's saying valuations are too high because they're not pricing the recession that's coming. But what happens if it's not even a soft landing? What happens if it's even better than a soft landing? And actually we're just going to chug on through and the economy is going to stay super resilient, in which case actually these valuations are fully justified. Maybe they look a bit cheap.

I was just having a quick look while you were talking then because you asked the question, why is that number so high? Yeah, and it's good. This is the way that we always encourage people to think, right? It's like I saw a headline, it's like an 8-sigma beat to expectations. So basically, if there's something that's wildly out of line, yeah, something should go, that's not right, that figure is not right.

Healthy skepticism, right?

Show me how that figure is generated. And so I was just having a quick scan, and apparently Goldman's had a piece out in their preview before this, right? In summary, was talking about the outlier strong report being down to massive seasonal adjustments. and I was kind of like, what's this seasonal adjustment then? And bearing in mind they were talking about this before it came out, they were the top end of the street, right? They were the 320 basically.

Okay, so they were at 320, but it was still wildly higher than that.

So, so their, their thing was— and I, not all of it makes sense to me because there's one thing about California that I've not heard before— but they said while consensus appears to expect the spike in corporate layoff announcements to weigh on this report, Yeah, jobless claims have fallen further. California warn notices suggest the majority of these mass layoffs have not yet been implemented.

Ah, okay.

Our well-above-consensus forecasts reflect strength in big data employment indicators, a boost from favorable seasonal factors that are spuriously fitting to last winter's Omicron wave, right? Still elevated labor demand and a 36,000 boost from the return of striking education workers. So yeah, quite interesting to— yeah, but even with all that being said, they were still 200,000 off the mark. So yeah, I mean, you can't get away from that, that number, but Yeah, I actually thought— I mean, I was covering this live, right? You were, you were watching at the time, and I actually— market was selling off, and I was actually kind of talking equities up, thinking, yeah, you know, actually, I think this is— it's not a bad situation to be in, surely, that figure in, in all— in the current context. And here we are, it's actually— the NASDAQ is exactly where it was, reversed the entire sell-off.

Yeah, you've got the Fed turning dovish and the economy's strong.

Perfect.

Happy days.

Yeah, the days are getting longer, it's Friday. Yeah, the beers are in the fridge, it's just happy days. Cool. All right, well, maybe a quick word on the BoE and ECB and we'll wrap. So, um, both hiked interest rates, both by 0.5%, both talking about the benchmark key rate in the UK and deposit rate in ECB, at least at their highest levels now since 2000. 8. Yeah, um, couple of things. The rationale for the BoE majority said strong pay growth and ongoing shortage of workers were feeding price pressures in the economy. Bailey said that while inflation likely to drop sharply, the risks that it remains above 2% target are skewed more strongly to the upside than at any time on record. Um, a few other points that they made was unique to them, of course, is the vote split. 2 dissenters. They were both saying, look, let's just do nothing. So they were, you know, if you were there, if you were the number 10 of the NPC board, you would have been there as well. But they also issued their every other meeting forecasts, and they're actually less pessimistic than they were in November, now predicting a mild recession. And you remember before, it was like doomsday.

Yeah. I know a lot of that's due to what's happened with the gas price. Natural gas prices have collapsed and we were just expecting them to stay uber strong and it to just annihilate a super weak consumer that's been struggling with inflation and all the rest of it. So it's like, it's like the big bonus of this winter is that natural gas prices that have just come way down. Much, you know, surprising everyone. And of course we've had a mild winter, um, which obviously then plays into that and has been driving some of that move down. So yeah, a bit of a, a bit of a bonus.

Yeah. And then in the opposite fashion to Powell, Christine Lagarde said the Governing Council intends to raise rates by another 50 basis points at its March meeting. I mean, as explicit as that.

Yeah.

And then they said they're gonna evaluate the subsequent path of its monetary policy. Um, very much a reiteration of the hawkish rhetoric that they've had. But despite the hawkish rhetoric, one thing I did see from a stat point of view the other day was that the Stoxx Europe 600— so this is when you look at the broader collection of European companies— so far this year, um, it's the best ever start to a year. Yeah, that it's had amid low natural gas prices. You mentioned cooling inflation, resilient economic growth outlook. Remember, it's the UK the IMF said this week is the worst of the bunch. Europe's not so bad. Um, Goldman's actually said on that note that regional equities have the potential to extend their outperformance against their Euro-US peers based or helped by cheaper valuations. Yeah, because we were talking, what, months ago about Europe, you know, being killed. Yeah, when all of the peak of the Russian, you know, kind of situation was happening. So is that fair? Are we still better priced there for value?

Well, yeah, if you're of the opinion, or when the next kind of global upturn begins, right, which will be the, the first time— well, I don't know, it's in the future, but it's expected to be the first time where we have a synchronized global upturn. Now that China have got rid of their zero COVID, it's like at some point this year, some are saying it's already started, some are saying it won't happen till the second half, you're going to have this synchronized upturn. Okay, now if that's the case, then great. All all regions are looking good from an equity point of view. So where's best to put your money? Well, where's the cheapest? That's where your money should go if there's going to be a global upturn, right? And at the moment, valuations in Europe look cheap relatively. And as long as Europe can get through that, what was an extreme risk with the Russia-Ukraine situation, last year, even though obviously it's still ongoing, that conflict. But it looks like from a natural gas and a crude oil point of view, looks like Europe have sorted it out. And so with that as a kind of a backdrop, then, then yeah, some of these stocks look pretty cheap compared to the US where, yeah, valuations are relatively a lot higher.

Cool. Well, look, let's end episode 100 there. Once again, for our regular listeners, thank you so much for, for joining us every week, if that is the case. I know I do get messages, you know, people on their run or driving or on the train, stuff like that. So look, number one thing is we really appreciate it. We hope it helps, you know, take part in the Finance Accelerator if you haven't already done so. It will help you in so many ways to figure out about yourself, your future career, And then hopefully by listening to this and, you know, being involved, involved in the community, the newsletter will help you then also build out that commercial awareness and hopefully set you up for that application cycle to, to outperform. So yeah, it's been a real pleasure and a privilege. And, um, do connect with us on LinkedIn. Do send us anything you want to see here in the podcast for 2023. I'm working on a series at the moment. I'm doing some outreach to some of our corporate clients to try and talk to their early careers teams to join me, and I'll drop a new series and a midweek episodes that are specifically talking about big firms and what they like to see in Canada. So hopefully that would be super useful. And then as always, me and Piers will battle it out at the end of the week and, um, have our usual chinwag.

Here's to the next 100 centurions. Enjoy the weekend.

All right, thanks, Piers. Take care, everyone.