Fed Decision Explained & Apple Beats The Street

Welcome to the end of the week show, and we're going to cover two main topics. We're going to talk about what the US Central Bank, the Federal Reserve, said earlier this week, try and pick through and explain some of the nuance of the language that then led to various different types of market movements. So it's been a bit seesaw, particularly if we just look at US equities in particular, um, and then what comes next, importantly. And then also we've had Apple earnings come out after market. Their shares jumped a pretty sizable amount when you talk about a company of that magnitude. They jumped nearly 10%. They posted stronger than expected sales last quarter, and they predicted a return to growth in the current quarter or in the current period that we're in. And that has kind of nipped in the bud this idea that the slowdown was going to be persistent. So we'll dive into those numbers as well. But let's start with some of the headlines, Piers, from the Fed. So I'll give you some of the main, uh, pieces that came out. The FOMC— so these being the decision makers of the central bank— the committee voted unanimously to leave interest rates at the target range of 5.25% to 5.5%. That is how many meetings in a row, Piers?

Oh, uh, 6.

Correct. We're off to a sparkling start here, and it's a Friday morning. Here we go. Um, so as recently as March, Powell said it would likely be appropriate to start cutting rates at, quote, at some point this year. He did not repeat that phrase.

Right.

And added a new sentence to the statement noting, quote, in recent months there's been a lack of further progress toward the committee's 2% inflation objective. The Fed also tweaked other language to say the risks to achieving employment and inflation goals, quote, have moved toward better balance over the past year. So I'll repeat that: have moved toward better balance over the past year. Previously, he had said that risks were moving into better balance. So it's kind of retrospectively saying then it was going in the right direction. That little tweak, it seems he's backed off that a bit. So yeah, those initial kind of phrases, I mean, it's so delicate the wording here. I guess if you weren't used to this, you'd be a bit like, everything you just said sounds pretty similar. So what is the difference here?

Well, I think that before I say what the difference is, I just want to make a comment, which is this is like super detailed analysis of single word changes of this statement that the Fed put out at the end of each of their meetings. They have this statement which sums up their current position and investors and economists and traders are pouring over this statement with like a magnifying glass. Like the statement, how long's the statement, Ant? Like two sides of A4 kind of length?

Yeah. Not even that.

Not even that. Right. So we're talking like less than 1,000 words, like 500 words and like we're pouring over it and a lot of the statement is just copy and paste from 6 weeks prior when their last meeting happened. But if there are any changes in words, we go, oh my God, we freak out and go, right, what does that mean? Is there some kind of hidden, you know, underlying message here that the Fed are trying to get across to us? Um, and you can get over-obsessed with this. So I'm about to get over-obsessed. I want to then paint a different picture later, which is, look, forget about all the detail. Everything's fine. But if you want to get over-obsessed, then the word change— yeah, you— it's the— it's actually a change in tense, right? So last statement, he was talking in the present tense. We are moving into better balance, right? It's happening now. We are moving in the right direction. You know, inflation's going to drop. You know, we're probably going to cut rates soon. Right, that was last time. We are moving. This time we have moved, implying therefore we're not moving towards in the right direction anymore. And that's just, you know, inflation stopped going down. And actually some, some kind of, um, sort of panic mongers out there would say it's starting to go back up. Um, So he's just saying that inflation has stopped going down, and that is the case for like 12 months, right? It's not like it's stopped going down for a few weeks. We've got months and months and months now where inflation has flatlined higher than where they want it. They want it at 2%, then they'll start cutting. It's stuck at 3%. And so his subtle tense change in the statement is the biggest stride yet towards him saying no cuts this year.

Can I just ask, back in the day when you had more hair—

wow, we're talking way back—

so you would have traded an event like this, and presumably a word signal like that. Talk me through the mechanics in your brain And, and, and the time span we're talking about here between you hearing this— talk me through it. Well, so your brain and what are you doing?

Well, thanks to people like you who were providing a research service, right, we would be before— so look, the statement gets released at 7 PM, that's, that's London time, okay? On the day of their meeting. So they've had all their meetings behind closed doors, they've agreed the set text, then it gets given to the media. And it gets given to the media in a way that it only gets given to a certain— normally an individual, actually, or maybe a small team who are then in lockdown. They're not allowed to release the information that they now have. Until the second ticks to 7 PM, then it gets released. Okay, now prior to that one, that, that exact moment, 7 PM, we as traders are using the research you've produced, which is basically going, right, let's look back at last time, let's look at the statement that they released 6 weeks ago. Which are— which elements of the statement do we think might get altered, and how do we think they might get altered, and will they be altered in a dovish way or a hawkish way? And like, it's scenario building so that when the moment comes and, right, okay, actually it's a hawkish tilt because he's changed the tense of that statement, then we've already got that particular scenario in our heads. Like, so going into the moment, we might have 3 different scenarios in terms of what trade are we going to place. Um, we're going to place a trade because it's a hawkish change, we're going to place a trade because it's a dovish change, or no trade at all because there's not much change. And so we're ready, poised, and then it's almost like a trigger, um, instinctive, um, reaction. Then if you're used to this and you do it all the time, then you, you can immediately interpret that news and immediately go to the scenario that fits, and bang, you're into your position.

Simples.

Yeah, that's right.

What time frames are we talking about then? When you're— when you're— when you're— let's talk it through because people probably haven't experienced this. So how quickly before you into the trade? How long are you in the trade in itself? And how are you managing that trade?

Well, in this particular situation, an FOMC statement It's tricky. So how quick before you're in a trade? A second, maybe, maybe 2, 3 seconds. It depends on the nuance of the change. Sometimes they're like super clear-cut. Sometimes it's— this is quite nuanced, this one, because you're talking about— so that it changed from 'we are moving into better balance' to 'have moved towards better balance.' That's quite subtle. But if you're, if you're an expert on this stuff, you know that's a significant change. You know that the Fed members would have spent a long time on that one sentence and have very carefully chosen to change the tense. And they absolutely know that they're changing the tense, and they absolutely know what markets will— or how markets will interpret that.

Yeah. So I remember, obviously, my when I used to follow this stuff, you know, very, very closely, because this was like the bread and butter of where I could add value to someone like you. Yeah, it was a fee-paying client to our desk. Um, yeah, I remember there, there's a lot of pressure here because you could do my job two ways. There's an event that comes out, the statement drops, kind of know what I'm looking for. I could play it safe and I could read out the main headlines all with equal intensity and volume. And therefore you need to listen to everything I say, and then you entirely make a decision. And that probably made up the 97% of the people who did my job. There was the 3% where you backed yourself and you thought, yeah, I know what I'm looking at. And you would see that one little nuance change in that tense, and I would just scream it. And I'd ignore everything else. Everything else.

Yeah.

And then in your head, I'm assuming as the recipient, you just go, yeah, it's almost like I'm telling you, you need to buy without me saying it.

It's true.

But then in the same token, I mean, that sounds like an easy process. If I get it wrong, I mean, at the peak of my job, we were broadcasting to over 50,000 traders. If I get it wrong, And I, and I, over my career, there's a few howlers, like, boy, do you get it.

Well, I mean, it's a huge—

the—

I mean, yeah, it's, it's— you can't quite imagine the pressure that comes with that responsibility. If you've got 50,000 traders hovering over their left mouse button waiting to hear what you, Anthony Cheung, consider to be the most important thing in this statement. That's quite a lot of pressure. And yeah, it wasn't you, but someone else doing your job got one spectacularly wrong. I remember one specifically. Well, it's nonfarm payrolls today, actually, first Friday of the month. It'll be out later this afternoon. We're recording this Friday morning. But I remember back in the day, I don't know, 20 years ago now. No, maybe not 20 years. But anyway, the guy announcing the payrolls number Anthony Cheung announced, I can't remember, it was like positive, like 89,000, I think 89 sticks in my head. He said 89,000, right? Jobs created. He forgot the minus sign in front of that. It was actually minus 89,000, which entirely changed.

I'm going to fight that person's corner. You know why? Because I remember one time. And these are, these are like, to just try and like visualize it in your head. So if you imagine like a trading floor with like 150 traders on there, and it's like you can hear a pin drop when there's a big event. And then you're the guy there and you're like in the blocks, like a 100-meter sprinter, and it's like boom, the information comes out and you're like, and everyone goes mad. And so I remember more than once, so basically my job was super simple. It was just incredible high pressure. But literally, anyone off the street could have done that one singular part when it was reading data, because there's a box that you look at.

Yeah, that's easy.

And it's a data point that flashes and you just say it as fast as you can. It gets a little bit more complex because most data reports have different data points within it and you have to kind of pick it out. But the point being is, with just to, you know, save that person you mentioned, more than once I was doing that and it'd be like 10 seconds, 5 seconds, and then Bloomberg would flash up the 89,000 and I'd say 89,000, 89,000, and then they'd flash a minus.

Oh, what?

3 seconds later. And I'd be like, you motherfuckers. You're kidding. No.

Is that right?

And then people would pick up the phone and go, what did you just say? And I'd be like, it's not my fault. Like I just read the number and they— so basically, you remember when you used to look at the Bloomberg terminal, it blinks when the numbers come in. It's like a blink.

Yeah, yeah, yeah.

So it would blink number, and I'm so good at my job, bang, I hit the number, and then blink, they stick a minus in front of it.

You're like, that's probably what happened. Do you know then that Bloomberg— so there was a big, one of the big traders on the floor, Zayed Akbar, I think his surname was.

Right.

Um, basically, so this was a much— well, so the +89,000 was much better than expected. Okay, we were trading German government bonds at the time. He sold, he went short. Um, sorry, yeah, he went short German government bonds because they were going to sell off. Um, it was -89,000, so it was the opposite, it was really bad. So German government bonds went up, safe haven asset went up, right? But he's short now. He refused to take his trade off. He walked all the way down the trading floor, which is like a 250-seater trading floor, to the risk team at the bottom, and he said, I'm not taking that trade off. That is not my fault. He was wearing like a €150,000 loss. And he said, I'm not taking it off. You're paying. He, and he's like pointing at the news guy, he's paying for that.

Oh, I had many run-ins like that. Yeah. The best one was, uh, before my time on the desk I worked on was a trader coming over. So exactly in the way you described, except he didn't go to the risk manager, he went to the analyst and then punched him and broke his nose. They had to call the police.

No way!

But that's just, uh, not to scare any young people, this was back in the Wild West days of the— it was a very, very, uh, different, different times.

Different times.

Uh, safe to say you wouldn't get that shenanigans so much these days. But yeah, anyway, back to the narrative of what did the Fed say this time, and a couple of other things then. So let's talk about this reaction. Talked about how you would have traded in before, but here the reaction was interesting because it— the initial reaction, would it be right to describe it as a relief in the first instance? So why, why would there be a relief? Why would market— why would stocks specifically rally?

So to briefly extend the trading thing, right? So you, if you might be trading one part of the statement, but the problem with this trading opportunity is there's many parts to the statement, many paragraphs, many lines, many sentences. There's not just one that's changing and there might be several changes being made. So then you've got to make the judgment of, all right, well, that one sentence there might mean that I should be, that's hawkish. Maybe I should be buying bonds or selling the S&P. Or, but then there might be another sentence later on that's the opposite, and you can get these double reactions, contradictory kind of changes, and you get this big volatility and it's really noisy and it can be phenomenally dangerous and really expensive to trade it if you're kind of getting it wrong and you're getting the timing wrong. So in this, I would say this statement, there were two important elements to it. We've already covered the first. That's what I would say is a hawkish change where he's basically saying we're going to leave rates higher for longer. We can't cut rates. Inflation's not coming down anymore. Okay, that was the first part. I actually think there's a more important part to this statement and the one that we as investors, traders, analysts were— have been most worried about in recent weeks, and that is going— forget about rate cuts, it's a, it's about, well, hang on, is this economy strong enough that we might be maybe expecting a hike? You know, is there in any way possible that the Fed might be thinking we might need to hike a bit more here? Okay, so I think because we know rate cuts aren't coming, we've been pushing out our rate cut expectations for a couple of months now, and they're right out towards the end of 2024. Right? So it was more about give me any more information. Are you even thinking about hiking? And the positive thing from this statement was Powell, and he said nothing, I repeat, nothing in the current situation is suggestive that higher rates are required. And that's pretty clear-cut. He's saying we're not thinking, there's no hike here, guys. Don't worry about hikes not happening. So that was the relief rally. So if you look at the S&P's reaction to this event, it's quite crazy. Um, it went shooting higher. So I mean, it went from about 5,020 pre-statement up to 5,090 initial reaction of that comment. Ah, relief. Okay, there's no hikes. But then Right, let's read the rest of the statement. Oh, hang on a minute, he's maybe pushing out the rate cut timing even further. So that's bad news. So the S&P sold off all the way back to exactly where it started. So it did a 70-point rally and then it flipped and did a 70-point sell-off.

What was the time frame between the— so the initial— how long did it take to hit the peak and then how long until the move was fully reversed in that first part.

That's a good— so let me just try and answer that question. I can't get my chart to work. Well, yeah, we're talking, we're talking like 10 minutes, 20 minutes maybe max for the full round trip. For the full round trip.

Yeah, yeah. So, so yeah, to give people an idea then, this, this is quick.

Oh yeah, absolutely.

Yeah. And you mentioned there about the rate cut timing. So just to, you know, if anyone's doing interview prep and things like that, where does the market land now in terms of that expectation where we can derive probabilities about when the cuts are going to happen and the number of cuts? Again, the context being what we started the year 4 months ago, I think it was 7. Yeah, it's now 1. Yeah, at this point, um, and it's about a 45% probability of a cut in SEP. but that's pretty much even pegging with not doing anything.

Yeah.

At this point. So yeah, that's where we are at the moment.

Yeah. And I'd say the things that we're looking out for, I mean, you know, why is, why, why is Powell so confident to say that we're not, we don't need to hike? You know, why is that? Well, he's looking at things like, yeah, the labor market seems to be continuing to, um, soften. Okay, so on Wednesday we had something called the job openings data, um, and basically, um, the quit rate. So that's quite, um, an important measure of the labor market. Yeah, how many people are quitting? Because if you quit your job, if you literally hand in your resignation, you only really normally do that if you're confident that you've got another job lined up, right? So that's a sign that the labor market's strong because people are prepared to switch jobs and stuff. And then they're going to be earning more normally if they change jobs. But the quit rate's down now to the lowest we've seen since 2020. So that's a sign that it's softening. The open rate, the job open rates. So how many jobs are there currently open being, you know, people trying to fill jobs. And that's now again back to the lowest we've seen since the start of 2021. So you're seeing the labor market— you, you're not really seeing that necessarily in the non-farm payrolls figures yet, but in that job opening, job quit rate, you can see some softening. So he's confident there. And also on the inflation side, he still thinks that the, um, basically part of an inflation basket is rental costs, and he still thinks that that is turning and that rent costs today are lower, or at least going up slower. And so he thinks that will lead to inflation coming down. But to counter all of that, the reason why inflation isn't coming down is because the consumer's still super hot. The consumer is still out there. So we had some real personal consumption expenditures, expenditures data at the end of last week, which is one of the key kind of measures the Fed looks at. And, um, it's showing that personal consumption was up 0.5% month on month, which was the fastest month on month growth rate for 16 months. You know, you got really strong real private investment going on in residential and non-residential purchasing.

Um, so what you're mentioning there though is, is backward looking, right?

That is, that is backward.

And so one forward-looking indicator I was looking at was the University of Michigan, which is a consumer sentiment survey, which is forward-looking.

Yeah.

Giving what you were saying prior to that last statement, uh, your chairman— now we're picking, uh, the holes in this, but the consumer sentiment number in Michigan fell in April, uh, actually went to 77.2 from 79.4 in March.

Yeah.

It's quite interesting. It's almost like that nuance in the language he was saying. Okay. So we were feeling everything was firing and now it's starting, the consumer, it would seem, is starting to feel a little bit anxious.

Well, what, what, so when you look at the consumer, you can't just say the consumer, right? We, we, there's, there are different levels of income or different wealth levels. And what we're actually seeing— so if you look at companies that are basically selling products and their, their target market is lower income households, those companies are showing that they're showing weakening demand in their data. The lower income portion of the consumer spectrum looks to be now cutting back on spending and looks to be starting to save more. Okay, so you're seeing the impact of the bottom end. What you're not seeing is a similar pattern when you move up the income levels. And what we're seeing up at, you know, top half of the income spectrum, if you like, that the consumer is still super hot. And basically they're feeling really wealthy. Stocks have gone up, their house price has gone up, they're feeling their jobs strong, their wages are going up. And so they're confident. All right, that confidence figure has come down a little bit, but they're confident. But there is a school of thought, because if you look at a chart of the excess savings through COVID, so excess savings spiked because everyone got locked in the house. So we weren't spending as much. Add in the stimmy checks, and all of a sudden households are sat on a huge amount of cash, right? That excess saving ratio has now, over the last 3 years, from let's say spring 2021 till spring 2024, has been slowly drifting lower. It is now almost back to the pre-pandemic average, almost but not quite. Um, but the savings rate is still much lower than normal. So we still have the scenario that most of the income range are still spending more and saving less than was the pre-COVID norms. And that's what's driving the consumption story, which is keeping this economy powering forwards and keeping inflation or preventing inflation from continuing its journey down.

Okay. So finally, to wrap up than the Fed part of the conversation. US equities, so we've explained they spiked, reversed the entire move.

Yeah.

And here we are 2 days later and we're right back at where we were at the top of the initial spike. So we've actually grinded back up again.

Yeah.

So any thoughts about that move?

Well, I'd say 2 thoughts. So the main one is that I think, go back to that statement going into it, we knew rate cuts aren't coming. Rates are going to have to stay high for longer. We knew that. So the bigger, the larger takeaway was the Fed are definitely not going to hike according to Jerome Powell at this moment in time.

Be careful. It depends how quick I can get this episode out. And what, you had a second point?

Or is it just—

did you have a second point?

Sorry. Yeah, and the second point, well, we're going to move on to it. Apple earnings.

Okay.

And Apple's share price has gone up, and that is a big chunk of these indexes. So that's helped it get back up towards the top of that initial spike of the Fed statement on Wednesday night.

Okay, cool. So let's talk about the, the Apple earnings. But before we quickly dive into that for a few minutes, I'm going to give you a little, little quiz.

Okay.

We're going to talk Mag 7.

Yep.

Year-to-date performance percentage terms.

Okay.

So where do you want to go? Do you want to go worst?

Okay.

First or best first?

Uh, let's go worst first because I'm pretty confident.

Yep.

Worst is Tesla.

Correct. What, what percent?

Well, obviously it's bounced off the back of their earnings last week, but I would say It was down 40%, I think, at that point. So I'm going to say it bounced a little bit. I'm going to say it's down 30%.

Very close. It's down 28%.

Okay. Good start. Good start.

Yeah. Yeah. Good start.

Strongest. I'll go. Oh, if I go strongest next.

Don't overthink it.

You know, I should, it's got to be Nvidia then, right?

Yeah.

Um, percentage. I got no, I don't really know. I'm going to say 40%.

Just, yeah, I was going to say pick a number and double it.

80%.

Very close. 74%.

Wow. Okay, so they're the easy ones.

Okay, you've topped and tailed now. So yeah, where now it gets a bit more interesting. There's only one other company that had been negative. Remember, the Mag Seven had seen some division.

Well, I would have said, I would have said Apple. Now it's gone up a little bit, but it's probably still down on the year maybe, or I'm going to say it's minus 4%. I'm going to say it's minus 3% on the year now.

Yeah, again, almost on the money. It's about minus 1.5%, 2%. Okay, that, that's including the bounce from the—

yeah, yeah, including the bounce. Uh, let's go Meta first. That next, that's a difficult one because Meta was up supercharged I think it was up like 30, 40%, and then it got chopped. Um, but I reckon it's still up, but— and I, I'm gonna say it's up 10%.

No, no, it was up quite a bit more than that. In fact, Meta is the second best still performing despite being chopped down. Yeah, it was only chopped down to 26%.

Oh, wow. Still 26% up on the year. Okay.

Yeah.

Okay. Interesting. That's definitely more than I thought. Okay. And then—

So you've got left, you've got Amazon, Alphabet, Microsoft. So out of those 3, who do you think's done the best? Amazon, Alphabet, and Microsoft.

I'd probably say Microsoft.

Okay. Microsoft's the worst of the 3.

Okay.

Which is interesting, right?

It's interesting. Yeah. Are they, are they down on the year then? I think.

They're only up 6%.

Okay. Well, then both Google and Amazon, I mean, so Alphabet being Google, that was definitely underperforming, but then it had a decent, it's had a decent couple of weeks. I don't think it's up much. I'm going to say Alphabet's maybe up 10%, and then I reckon Amazon's up a bit more than that.

Okay. Alphabet 20%.

Oh, okay.

Amazon 22.

Oh wow, get a miles off.

So yeah, Meta 26, Nvidia 74.

Okay, okay.

So hopefully— let us know, how did you get on? Did you beat Piers, or was Piers the winner?

Probably.

Um, okay, so Apple jumped about 8%. Uh, this is an aftermarket trade because the, the NYSE hasn't opened, or the NASDAQ hasn't opened yet, so it's going to be about similar So it's a big jump, pretty much erasing, as we just said, the year-to-date losses. So top lines, so though revenue fell, so their revenues did fall more than 4%, I mean, have a guess at what their quarterly revenue— such a bad thing, their revenues fell. It's still clocking in at $90.8 billion for the quarter. So for 3 months, quarter, for 3 months, 90, 90, that is 8 billion.

That, that's 1 billion a day.

It's not bad, is it?

Every day.

And so that was better than Street estimates. Profits topped estimates, and they did their biggest stock buyback in US history. I'll get— come back to circle back to that in a moment. Couple of things then for context. Apple had posted sales declines in 5 of the past 6 quarters. And this had all been down to that.

Is that right?

Yeah. So it'd been, I mean, they've been bruised pretty badly in the context of Mag7. I mean, they're still, you know, a beast of a, of a stock. Sluggish smartphone demand, headwinds in China in particular. The latter, um, has been quite key. But on that point, um, China results were more upbeat than expected. In China, they generated $16.4 billion in revenue. Analysts were already expecting 15.9%. And one key phrase here as well, I mentioned about the sales persistent decline or slowdown. The company had warned analysts in February, so only 2 months ago, that revenue in the latest period would be down about 5% from a year earlier. So revenues have come out and they were down 4%. And then they came out and said in the current period, So this is where in the conference call you kind of aiming to kind of guide the analyst a little bit. They said Apple expects sales to climb by a percentage in the low single digits. And that in itself then is kind of bucking the trend of what had been lower. So it's almost like the Fed type situation. We're all thinking, oh my God, they're gonna hike. And then they, they say, no, we're not gonna do that. And it's like, oof, relief. It's almost with these numbers, some of the numbers here, even though they're big, they are slowing still, but it's almost like we've hit the bottom of that route in some of their performance. And that's enough then for people to go, yeah, okay, so the worst might be over here. But yeah, the buyback though, it would be good.

Oh yeah, well, well, firstly, there's— so they have their annual, um, what's the name of it? Their kind of tech conference. And they often use that to kind of launch new stuff. Um, and so people are thinking, and there's, there's rumors, you know, because basically one of the reasons they've underperformed, I mean, okay, obviously their sales has been declining, so no one likes to see that. But, but the other thing is they seem to be absent from the AI race that everyone else is on, um, except that there's rumors that actually they haven't been absent and actually there's something coming which might lead to renewed demand to want to go ahead and buy a new updated iPhone. Because that's the problem with these sales. The reason they're not going up, that the iPhone's so good, you just don't need to replace it every 1 or 2 years anymore. You can have your iPhone for 4 years, right? And it's absolutely great. But there's rumors that they've got this chat assistant coming on their smartphone, but they've done it in a different way. So rather than relying on, you know, training this on a huge LLM, which requires huge compute and requires all of these crazy expensive Nvidia chips to kind of build out the infrastructure that supports all of this, rather than all of that, Apparently, they may well have this AI chatbot that actually just runs off the handset, the hardware, the handset itself, and it doesn't require all this compute infrastructure. And apparently, that's what's possibly coming. And that could be the next thing that leads people to go, wow, okay, I need to upgrade. So we'll see in June at this conference. That's the kind of thing people are looking out for, any hints or news about that kind of stuff. But in the meantime, yeah, I guess one of the reasons why the stock went up other than the revenues were declining less than was feared was the share buyback. So they announced a $110 billion share buyback program, which is a lot of money. And in fact, so much so it's the biggest share buyback announcement in the history of share buybacks. Although having said that, Apple take up top 6 spots in the league table of biggest ever share buybacks because they do this on an annual basis.

And for any listeners, here's a question for you because Piers and I already know the answer, which we'll share right now, but just take 5 seconds to have a think and answer in your head. So $110 billion buyback they've just done. What company do you think has an entire market value of that same amount, $110 billion? So I'm going to give you 5 seconds. Have a think. All right, Piers, put them, put them out of their misery.

Well, to put this into context, that is the same market cap as the whole of Starbucks. Well, Starbucks is $111 billion, to give it credit. There's another one in here, Goldman Sachs. You might have heard of them. They're, they're $107 billion market cap. So Apple are going to buy back more shares in terms of value, more market cap in the next 12 months than the whole of Goldman Sachs's company's worth. But they do that every year.

Yeah.

Like last year, like in 2023, $90 billion. 2022, $90 billion. 2021, guess what? $90 billion. 2020, they actually had a bit of an off year because of COVID but they still bought back $50 billion. 2019, like 2018, they did $100 billion.

So yeah, COVID, it dipped. Yeah, but in COVID, I mean, everything was ramping. So tactically, if I was just looking blindly at that one statistic, so they, so let me get this right. They do this when, so when things are going great and stocks going up, they do it less. And when things aren't going so well, they've been ramping up the buybacks. So explain, explain that to me.

Well, I mean, this is the company. I mean, what is a share buyback in the first instance? Well, this is where a company has surplus cash on their balance sheet. And they've got no use for that cash at this moment in time. They have no, I don't know, new R&D product that they want to build out. I don't know. They don't want to spend more on sales teams and marketing. There's nothing earmarked for that cash. So we'll return it to shareholders is often the way they describe it. You can return cash to shareholders in two ways, really. One's a straightforward, direct way, which is called a dividend, where you literally deposit that cash into the shareholders' bank account as income. The other way, which is a little bit more of a around-the-houses way, is called share buybacks, where you— Apple, the company— take their cash and they go out into the public markets and they buy back their shares off the shareholders, and then they basically scrap those shares and they cease to exist. So you're reducing the amount of shares outstanding in the company. Okay. Now, why is that positive for existing shareholders? Well, it just means that then there are less shares. So it's, it's a supply and demand thing, right? There are now less shares available, and therefore each share becomes worth more. And also, when you think about these earnings, we just talked about revenues there with Apple. $90 billion, fine, and they've dropped whatever. But, um, there's also then the profits, right? And the profits are announced as an earnings per share. So you take the total dollar profit, divide it by the number of shares outstanding, equals your EPS. Well, if the number of shares outstanding has reduced, that's your denominator in that equation, then that juices And pumps up the EPS number. Okay, so each shareholder's getting more profit, if you like. Um, so that's another reason why investors like this. They did also increase their quarterly dividend by 4%, which isn't a huge increase, but it's an increase nonetheless. So they're, they're continuing this just monster cash return to shareholders. Which they've been doing for many years.

If you look ahead then to 20 years from now, yeah, surely there's no shares left.

Well, I mean, there is a scenario. I was trying to look that up. It's hard to find the latest trajectory, but there is a scenario where, yes, in the future, if Apple continue at this rate for another 20 years, as you say, roughly, they may well have bought back all of the outstanding shares. Which then means they would become a, well, a not, no longer a publicly listed company. They would have taken themselves back private, um, which is, I, to my knowledge, I don't know, but to my knowledge it's never happened before, or certainly not with a big company.

You might have to ask Stephen that question, but presumably they can just issue more shares.

Yeah, of course, then they can issue more at any point. Yeah, you can always issue more. But yeah, this has been an ongoing huge cash return to shareholders for many, many years. And some people criticize that because they're like, you know, this is the Tim Cook era. It's not an era of innovation like the Steve Jobs era. It's an era of caution, you know, much less risk and an era of, right, this is a cash cow. Phenomenal business, cash cow, but let's now, let's take less risk on innovation and let's start just return consistently returning cash to our shareholders.

Well, maybe we'll get Tim on in the next episode, see what he has to say about that. Cheers, me Tim. All right. Thanks very much, Piers. And yeah, thanks everyone for listening and have a lovely weekend.

Have a great weekend.