B (2:36)

Yes.

A (2:37)

You can explain to me why is no one buying cars anymore? Or specifically why is no one buying American cars? We had an announcement earlier this year from Ford. They were basically going to stop making all of all of their cars and concentrate just on trucks and SUVs and crossovers and stuff like that. And now General Motors seems to be doing much the same thing. And they're both Ceding the sedan market to the Japanese, who seem to have all of this tied up in the bow. What's going on there?

B (3:11)

This past week, CEO Mary Barra of GM announced that the company would be restructuring. They're going to be eliminating a number of plants in the Midwest and in Canada. And the reason they're doing this is because they want to shift from cars to, as you said, crossovers, SUVs, but also autonomous vehicles and electric cars.

A (3:34)

So the autonomous vehicles and electric cars thing really has less to do with the factory closings and more to do with this. Like, where do we reinvest profits? They do still have positive cash flow. And rather than trying to invest that money in making more cars or better cars, what they. What they've decided is that the stock market gives car companies very low multiples because they think that millennials don't drive, which they're probably correct about. And so if they want to get their share price up, they need to do sexy things like autonomous vehicles and electric vehicles, because they see that Tesla has a very high share price. And everyone. I think this is all Tesla envy.

B (4:15)

I think that this is really gm, fortunately, making a difficult decision that is probably necessary because Americans aren't buying cars. They're buying. They're buying vehicles, just to be clear. Like, they're buying SUVs, they're buying crossovers, they're buying trucks, but they're not buying cars.

A (4:32)

Well, they are. They're not buying American cars. They're buying the Nissan Altima and the Honda Accord and the Toyota Camry. They're just not buying.

C (4:42)

Actually, the statistic is two thirds of all new vehicles that were sold last year were trucks and SUVs. Two thirds. So they really aren't buying. We really aren't buying cars here in America. I mean, the parking lots where I live are filled with SUVs and crossovers and trucks. Like, no question.

B (4:59)

Right. So I think what GM is doing is they're meeting consumer demands. And also, GM is in a little bit of a different position than some of the other auto companies because they have, basically, they have too many plants. And that's part of the reason that they're coming forward with these announcements of complete plant closures, whereas we know Ford's going to be laying off a lot of people. But, A, they just haven't been as upfront about it, and B, it's a little different because they don't have so many plants that are just focused on cars.

A (5:23)

Well, I mean, the other thing to say is that although GM had a bunch of excess capacity. And a lot of what they're doing here is trying to get rid of excess capacity because I learned this from my amazing Axios colleague Joanne Muller, who actually does know about cars. The, the way you make money in the auto industry is by running auto plants at 100% full capacity.

B (5:47)

Over 100%.

A (5:48)

Yeah. And, and like just churning out the maximum number of cars per plant and only if you do that can you start really making money. And GM had a whole bunch of plants which were only running one shift and were like really nowhere near capacity. And the basic, you know, widely accepted estimate is there's roughly three and a half million cars per year of excess capacity in the US that that's how many more cars America could produce than it does produce. And that's just bad for efficiency. So she's closing down all of those plants to try and reduce that excess capacity. But GM only accounts for about 1 million of that, three and a half million. So Ford is the obvious one, as Anna was saying. And they're going to probably close plants as well for exactly the same reason.

B (6:35)

They probably won't be in closing, closing entire plants, but they will definitely be limiting staff.

C (6:40)

And the one thing that struck me, it struck me as disingenuous that she said they, they want to focus on electric cars because they are stopping the Chevy Volt. They're stopping the Chevy Volt which.

B (6:52)

But that's their hybrid, right?

C (6:53)

It's a hybrid, yeah. And that's apparently a great car.

A (6:55)

It's a plug in hybrid. Right.

B (6:57)

But this is, the point is that they've been making these half measures like GM has been making these half measures. Oh, we're kind of going to go, it's a hybrid. We're doing, were kind of making changes. And what they needed to do was to do something more dramatic to say like, no, we are actually changing the face of our company.

A (7:11)

Why do they need to do that?

C (7:12)

Maybe I think, I mean they make huge profits on the SUVs and trucks. The margins are like 30, 40%. Right.

B (7:18)

So and they lose money on the cars.

C (7:19)

And those are big gas guzzling things that they're able to sell here in the United States because we keep the price of gas very low because we're destroying the climate at a rapid pace. And GM coming out and saying stuff about electricity, electric cars and autonomous vehicles strikes me as just totally disingenuous.

A (7:36)

And let's be clear about that, given.

C (7:37)

Where they're making their money when gas.

A (7:39)

Prices were up at $4 a gallon. That was when Americans started buying cars again, and especially small cars and efficient cars and ones which had good mileage and the Prius became really popular. And now Americans aren't doing that because gas prices are low again. So this idea that it's clear what the trend is, which is that when Americans don't care about gas prices, they like big gas guzzlers. And when they do care about gas prices, that's when they start thinking about fuel efficiency. In a world where Americans don't care about gas prices and buy SUVs and trucks, that's not a world where electric cars are going to be particularly popular because the main thing that electric cars do is get great mileage and no one cares about mileage.

C (8:22)

Although maybe they're thinking. I was speaking to our climate reporter at HuffPost and he said maybe they're thinking about selling electric cars in China, where apparently they're very well subsidized and a growing share their auto market.

A (8:34)

But if you make electric cars in China, you can sell them in China, but you're not going to make them in America.

C (8:38)

You're not going to make them in America.

B (8:39)

No, I mean, I think they understand that right now there is not the demand for these products. They know that and they're making the bet on like, well, look, we can keep throwing money into products that is a dying part of our industry and where we're losing money or we'll put money into this other place where we're losing money. But we can, but we can see that as an actual growth opportunity, which is unfortunately what the company needs to do.

A (9:01)

Explain to me. So electric cars are a growth opportunity because of China or why?

B (9:06)

No, because I think you have a lot of, a lot of auto companies. The same as like, you hear a lot of energy executives talk about the fact that, like, they realize that despite our, you know, idiot administration, people understand that climate change is a real thing throughout the United States. We're obviously seeing it significantly in Europe. We are going to have regulations. There is going to probably be, I mean, at some point some type of more significant carbon tax. People see in the future, we're not, not going to have the same type of energy usage as we have now. And they want to get out in front of that.

A (9:38)

Yeah, I think this is a timing thing. I think that, yeah, you're right. At some point in the long term, there will be more electric cars. And the question is, is that long term close enough to get a decent sort of ROI on investments that you make today?

B (9:57)

No, you're not, you're losing us.

C (9:59)

Does GM know what it's doing on that front? I mean, they had the Volt by all accounts. We have this great piece on HuffPost from one of our reporters who lives in Michigan who wrote about his Chevy Volt and how it's like a great car. It was a good car, but GM never understood its own product, never really marketed it, never really got behind it. You know these, yeah, now they have.

A (10:20)

An all electric vehicle.

C (10:21)

They're like big cool gas cars, you know, with lots of muscle and like maybe even if they say they claim they're going to get into this new area and they see the future coming, I wonder if they can actually handle that future.

B (10:36)

I mean, I think it's going to be difficult for all of the large auto manufacturers because they did all come of an come of age where everything was about scale and bigness and you know, all of these huge mergers and now they're not just competing with the big three, they're now also competing with these more nimble companies. And it looks like that is going to continue in the future as also you're going to have more competition from markets outside the U.S. so car companies are thinking, and this isn't just GM, this is what's happening everywhere. It's just GM was far more vocal about it.

A (11:08)

Okay, well let's, since we're talking about scale and bigness. The other big car related news of late was the jailing of Carlos Gosin, who was the, let me get this right, the chairman of Nissan, the chairman of mitSubishi and the CEO of Renault. And he was trying to merge all three of them into this massive global car maker because he was convinced that you need that kind of scale. Fiat Chrysler is another relatively recent car merger which was predicated on this idea of you need to merge and get scale. I kind of buy this story. If you look at the problems that Tesla has been through, I don't buy this idea that it's like fast and nimble. I think that it is actually hobbled by a lack of institutional knowledge of how to actually manufacture cars at scale. And you know, Gozen obviously just overreached massively and everyone hated him. And so he, there was like this whistleblower in Japan who's like, hey, this guy hasn't paid his, reported his income and now he's in jail. And that didn't work out very well.

C (12:15)

I mean he was, people are saying, well, he's kind of like the last of the big personality autofills.

B (12:21)

Yes.

A (12:21)

Sergio Marchion died.

C (12:22)

Sergio Marchion died. And like all the other ones are gone. Yeah, Maya Coca comes to mind. But I know that was a long time ago and now we have someone by comparison, Mary Barra, who's just. It's interesting to see that even as GM is demonized for those layoffs and plant closures, like, Mary Barra really isn't demonized. I've been looking at her, the coverage of like her as a CEO versus say like Sheryl Sandberg lately and just thinking it's interesting like how her personality, Mary Barra sort of seeds in the background and as the auto industry seems to kind of also get smaller.

A (12:56)

I don't think Mary Barra has ever like expressed an interesting opinion in her life.

C (13:00)

No, she just.

B (13:01)

I'm pretty sure that's not entirely accurate.

C (13:04)

She has some anecdotes that she tells over and over again. Like I've heard her speak and she tells like the same story of GM used to have like a very button down kind of a dress code. And I guess when Bara came in she was like, you know what, I'm changing our dress code now. Just dress the way it makes sense, like as a. Dress appropriately was the new code. And I heard her tell that anecdote in like 2015. And then recently I saw a piece in courts telling the anecdote again, like she's just not a very.

B (13:29)

Well, that's also how cereals are coached to give in.

C (13:31)

Yeah, but like, I don't know, I feel like that's not how the car companies used to have these big personalities.

B (13:36)

Oh yeah, no, and I definitely agree with that.

C (13:38)

She's sort of like an example of what car companies are now, which is nimble, I guess, or trying to. I don't think there is such a.

A (13:45)

Thing as a nimble car company. Although. Although, like, to be fair, this was the whole idea behind the Fiat Chrysler merger and stuff like that is. And increasingly you have these car companies which have global. They. This is the one time when I feel like you can actually use the word platform and not be a complete douchebag about it that you, you basically have, you know, and I'm going to be really technical here, like the engine bits and the wheel bits and the, you know, you put all the cars together like a LEGO set, but you can mix and match. And so, you know, the Jeep Renegade is basically the same as the Fiat 500 with a different shape, you know, or, you know, and then. And that kind of thing. And that makes you more nimble, right?

C (14:29)

Yeah, like you sell at the dealership, you can sell a bunch of different kinds of cars.

A (14:32)

Exactly. And if people want, like, a big, boxy car, you sell them Jeep Renegade. And if they want a small, cute car, you sell them the Fiat 500. And if tastes change, you can just change the body shape from one to the other and keep on selling. And that actually, that kind of nimbleness comes from scale. It doesn't come from being small.

B (14:49)

Right. Except that if you're shifting towards, like, electric vehicles, I mean, they involve so many fewer parts compared to, like, the internal combustion engine, which is part of the reason that they would involve probably fewer workers. But it's also just. I mean, in some sense, the assembly is much more complicated in terms of, you could argue, like, the technology behind it in terms of the actual parts.

A (15:08)

No. Well, I mean, it depends whether you include all of the work that goes into making the batteries. Because making batteries is.

B (15:13)

Right. But the actual assembly of the car was going to be much. It's gonna be much more streamlined.

A (15:19)

Well, that was what Elon Musk kept on saying. And then he ran into all of these reduction companies.

B (15:24)

Cause he's an idiot.

C (15:26)

Wait, should we say why this guy's.

A (15:28)

In jail because he didn't report $44 million of income in Japan.

C (15:34)

He just kept it to himself. He was like, we'll get to this eventually.

A (15:37)

And then also there were all these stories about how he used a subsidiary in the Netherlands to build himself a house in Lebanon, even though, like, his company doesn't even have any operations in Lebanon.

C (15:49)

Yes, correct. And he was only there a few days a year.

B (15:51)

Yeah, yeah. He also had a Marie Antoinette themed party.

C (15:54)

Yes, I saw that.

A (15:55)

His second wedding, right?

B (15:56)

Yes.

A (15:56)

Yeah. So, yeah, don't do that. But also, can we have some, like. I feel so depressed that the only real visionary in the entire car industry is fucking Elon Musk. You know, we've got to be a visionary.

C (16:09)

I don't know if he's a visionary. Elon's just good at marketing himself.

A (16:12)

Right? Yeah.

B (16:12)

I don't know if that's entirely true.

A (16:13)

He is a visionary. He wants to go to Mars.

B (16:15)

Exactly.

A (16:16)

Mary Barrett. Mary Barrett is never gonna.

C (16:18)

Little boys in their bedrooms wanna go to Mars.

A (16:20)

There is a 70% chance that I'm going to go to Mars. I mean, Elon Musk is not gonna go to Mars. He is gonna say that there's a 70% chance that he's going to Mars. It makes him a big personality in the car industry. Mary Barrow would never say that.

C (16:33)

Yes. It makes Him a big personality, but I would argue, not a visionary, as I just said, mumbled like a lot of boys dream of going to Mars. He just happens to be rich. So he can say it to Kara Swisher.

A (16:44)

Every car visionary car CEO is basically a boy with toys trying to say what would be cool, what makes you a visionary in the car?

C (16:53)

I don't know if that makes you a visionary. No.

A (16:58)

Okay. Talking about visionaries and idiots. And idiots. We have the classic fight of fiction versus idiot. Here we have the man with the crystal ball. Mr. Jay Powell, the chairman of the Federal Reserve took out his crystal ball and sets interest rates in order to make sure that the US Economy can keep on growing and not shrink and keep on creating jobs and all of these other wonderful things. And he uses the combined power of all of the Fed's forecasters to do this. And he reckons that, yeah, we're still not quite at neutral rates yet, but the economy is ticking along quite well. And basically he seems to be doing an okay job, except there's this weird orange Cheeto thing in, like, coming in from stage left and making the whole thing much more complicated. What is going on, Emily?

C (17:56)

Well, Jay Powell at the Fed is trying his best to just go about his business, and President Trump just keeps trash talking him, basically saying he's not happy with him, saying he should stop raising rates, saying something, I'm not being accommodated by the Fed because I know in my gut that's what the President just wants to rule with his gut. He knows that he should not be raising rates anymore and breaking a long tradition of presidents not messing around with the Fed.

B (18:23)

Just to be clear. Yeah, just to be clear, like, no, it's. I mean, this is actually like, okay, look, we all hate Donald Trump. We all think Donald Trump's an idiot. Donald Trump breaks norms all the time. This is not norm breaking. If you look at when the Fed, like, kind of became independent in, like, 1951, since then, pretty much almost immediately, every president tried to affect Fed policy. You know, whether you're talking about the most famous example that everybody says of Nixon and Arthur Burns, or whether you're talking about, like, Lyndon Johnson, like, literally shoved William McChesney Martin against a wall and screamed at him.

C (18:54)

And that was a long time ago, though. I mean, the last.

B (18:56)

So did George H.W. bush. He said it.

A (18:58)

George H.W. bush did not shove anyone against.

B (19:00)

He did not shove any. Yes. He did not lay his hands on.

A (19:03)

No.

B (19:04)

But he, while he was president and after he was president, talked quite a bit about his that he did not agree with Fed policy. So I think that this is one instance where I think we are blowing Trump's actions a little out of proportion.

A (19:17)

Well, no, we are. Okay, so there's. But every other president. Not every. Okay. In general, when presidents have been unhappy about things Fed policy, they have tried to buttonhole the Fed chair and say, oi, you, stop making me look bad, stop raising rates. As far as anyone can tell, Trump hasn't done that. He hasn't talked to Powell at all. He just gives interviews to the Wall Street Journal where he talks about how unhappy he is with Powell. There's a difference. I think there's an important difference between saying something directly to the Fed chair and trying to influence Fed policy that way, which I think is actually not what Trump is doing and what was done in the past versus what Trump is doing, which is coming out in public and trying to make his supporters not trust the Fed and turn the Fed into an enemy of the people and basically reduce the public trust in the central bank, which I think has not been done by previous presidents.

B (20:21)

Well, although you had. I guess it just depends. I mean, yeah, to a certain extent, I'll give you a little bit of that. But you're, you're talking about Nixon trying to like actually looking into, actually diluting the power of the Fed, actually affecting Fed. I mean, he actually affected Fed policy. So yes, we can make the argument that Trump is doing more of this in public, but he's being less effective than previous. So if you, if the point is that we want an independent Fed, I would almost rather have some just idiot saying things than people who are actually using like their power or like Nixon planting false stories in the news about Fed.

A (20:53)

Independence is a means to an end. There's a reason why we want an independent Fed and it's not just because independence in and of itself is a wonderful thing. The reason why we want an independent Fed is because that's the best way to make sure that the public trusts the Fed to do the right thing. And what Trump is doing is he's doing an end run around that and he's trying to create mistrust of the Fed, even with independence.

B (21:22)

The reason we want an independent Fed is so that investors know that there is a check on government policy, there's a check on fiscal policy. You can't just have the monetary policy being used as a political tool. That is extremely important.

A (21:37)

Well, I disagree with that. I think the reason for an independent Fed has nothing to do with investors. It has nothing to do with markets. It has everything to do with just keeping the broader economy on an optimal footing as best we can, without political interference. And logically, that's probably good for markets, but that's a consequence, that's not a cause.

C (22:02)

I think we see this all the time in a lot of the countries. We wind up talking about how crucial it is to keep monetary policy away from politics and how when it gets tied up together, disaster occurs. And to talk about Nixon and say, well, this has precedent. I feel like that was quite a long time ago. And, I mean, there was a piece in the Journal from Nick Timiraos, and I think he said the last time a president tried to get involved with the Fed was maybe Clinton in 92, and he was talked out of it. And since then, there really hasn't been. It really has been more independent. I think. Also, it seems like Trump is. He's not just, like, trying to publicly put pressure on Jay Powell to keep rates low. He seems to be setting him up to be kind of like a scapegoat for when the economy goes south.

B (22:50)

Right. Although I would also, it's a bit high. I don't anyone wanna sound like I'm defending Donald Trump. Like, yes, he's an idiot, everything he says is stupid. But I just feel like we're being a little naive about how presidents have affected.

A (23:02)

Well, no, Emily's point. Let's think about this in terms of chronology, right? That Nixon was just a few years away from when the central bank had no independence at all. There wasn't this norm, this global norm of central bank independence for a while. It had been maybe 10, 15 years.

C (23:28)

Something like that, closer in time than.

B (23:30)

We are to Nixon, closer in time.

A (23:33)

Than we are to Clinton. And so he was still trying to push things around and see how much influence he could have. And as the years and the decades have gone on since then, and as central banks around the world have gained independence and as you've had, the ECB and other central banks really become part of the global monetary architecture, the idea of questioning central bank independence and trying to influence the central bank has become much more of a much stronger norm. So what Trump is doing here is he's violating a norm which is much stronger now than it was back in Nixon's day.

B (24:18)

Back in Nixon's day, yes. I'll agree with some of that. Although I would also argue that Alan Greenspan has come out and say every president constantly tried to influence him. So I guess that's where I'd say, like, yes, I Do think the public nature of it is different? I mean, I'll give you that, but I think the actual actions just aren't that different.

A (24:37)

No. And I think, you know, as I say, I think I can kind of agree with you on the influence. I don't think he is going to influence Powell. I don't think he is going to influence the Fed. If anything, he's going to, at the margin, force Powell to keep on raising rates, even if he doesn't really want to, just to prove that he's independent.

C (24:55)

But I actually, I heard he's probably going to raise rates again in the next, in December and then after that it's a question mark. So I was, I was wondering. I know there's zero evidence that Powell has been influenced. I mean, as though there could be like some smoking gun evidence of that. But it is kind of curious.

B (25:13)

No, I mean, that's gonna have to do with like shifts in data. And also a lot of this has to do with the fact that Powell messed up and he said in a, in a previous, in a previous statement that we were far from neutral and that spooked the market. So a lot of this is just face saving. Like I pretty much, I don't think anybody really thinks, unless the economy really turns, that the Fed's going to change their trajectory.

A (25:35)

So, so here's the question. Right is right now we're getting, according to Powell in his latest speech, very close to neutral. There'll be another rate hike this year. And then as you say, we don't really know what's going to happen in 2019. But let's say for the sake of argument, more or less that we go into 2019 with neutral or close to neutral monetary policy. At that point, the Fed basically has two choices in terms of future actions. If it thinks the economy is overheating and inflation is growing too fast and the economy is too hot, then it can raise rates to try and put the brakes on. If it is worried about recessions and the economy slowing down, then it can cut rates to try and keep the expansion going. My personal feeling is that the risk of a recession is probably higher than the risk of the economy overheating. So in that sense, maybe this rate hike cycle might be coming to an end.

B (26:46)

Yeah, it's possible. I mean, I think that we are in a little bit of uncharted territories because a lot of people talk about R Star, the kind of neutral rate and you know, you have people like who are saying it may be lower than it was in the Past because of globalization and the Internet and many, many other things, of why in just aging population, why it could be that rates will not have to be. Go quite as high in order to be neutral.

A (27:10)

Right. To one side, the question of where the neutral rate is. Let's just say, assuming that we're at or near the neutral rate right now, the question then becomes, what happens after it's neutral? Do rates go up or do they go down?

B (27:24)

I mean, my guess is they would probably just remain stable for a little while unless. Unless things markedly change. And that's also another reason why you don't want rates to be at zero. So then if there was a recession, your kind of toolbox is a little limited. I mean, yeah, I mean, I think a lot of people probably do think that it has been so long since we've had like a big inflation issue that I think a lot of people kind of forget. And we have had a relatively tepid economic recovery. So I think it does seem like the likelihood of the Fed overreacting is probably higher. And granted, if you actually.

A (27:53)

Wait, wait, when you say overreacting, you.

B (27:54)

Mean raising rates maybe too quickly. And I mean, I do think it's interesting if you just look at, like, the history of the Fed's actions, especially like the kind of modern fed, like post 1950, that they always make a mistake. Like, no matter what the Fed does, they will do something wrong. They're, you know, far better than any alternative we have. But the.

A (28:11)

I'm sure in general, the Fed's mistakes have been that they cut rates, they were too accommodative. Like, this is the big Greenspan era, is that he cut rates too far, too quickly for. No, especially like in the early 2000s for no good reason, just because he wanted to keep the stock market up or something. No one really understood why he was so aggressive about cutting, cutting rates in the early 2000s. And that caused the. The credit bubble, which caused the financial crisis. And in terms of raising rates, the big one that everyone remembers is Paul Volcker raising rates to 20% or whatever the hell he raised them to. And everyone gives him a huge amount of credit for that. No one said that was an error, right?

B (28:54)

I mean, look, that was. No, no one says that was an error. But if you. Having said that, what often happens is that the Fed tends to overreact to whatever happened previously. And so it's never perfect. And I'm not saying that they're gonna cause a massive recession. I'm just saying that, like, yeah, are they gonna be perfect. Probably not. But I do think that it seems like, you know, Powell is. Is pretty reasonable. And I do. I don't think he's overly hawkish. I don't think he's overly dovish. I think that they're pretty much just.

A (29:20)

Of course, the class.

C (29:21)

Janet Yellen would have been better, but she was too short to continue.

A (29:24)

Yeah. This is the ridiculous thing is that with Trump complaining that Powell isn't dovish enough, like, if he wanted a dove at the Fed, he could have just kept yelling. Right.

C (29:35)

But he got rid of her. I mean, purely because she didn't look the part, I really think. And also, I guess he wanted a change from whoever Obama picked. But the Washington Post did have this, like, delicious detail this week that he was thinking about keeping Yellen, but he went around and saying to people, she's 5 2. What kind of fed chair could be 5 2? She's too short to do the role that well.

A (29:57)

Welcome to Trump land. Okay, so let's talk about this ridiculous metric. Emily, as the sort of, like, you know, sensible person around this table, the.

C (30:11)

One who didn't prepare for this conversation, you didn't realize we were having it. I'm ready.

A (30:15)

No, but this is exactly why you're perfectly placed to answer this question. Why do any normal people care about market capitalization? Like, why is this a metric that, you know, the press and even the Huffington Post will write about on a regular basis? What is it about Market Cap that captures the imagination of people? It's like the only financial jargony metric term thing that people seem to care about a lot of the time.

C (30:46)

Okay, well, setting aside that you've just set me up as, like, the village idiot over here, I'm going to explain that people like to. They like recognizable brands. So we would only cover, like, Market Cap gets really big. If it's a company you've heard of. Everyone's heard of Apple. Everyone has Apple products in their pocket or their purse. So they care about Apple and how much it's worth and all that kind of stuff. It's like a person. Brands are like people to people, and Market Cap is kind of like an easy thing to wrap your head around. This company is worth this amount of money, and this company that you maybe hate is worth this amount of money. It's like a race or like a football score or something.

A (31:20)

And in general, higher is better.

C (31:22)

I mean, isn't that how money works, you guys? I don't know. You tell me. Like, yeah, higher is better.

A (31:27)

Is higher is market cap Something which like higher is better because I really don't think it is.

B (31:34)

Yeah, I mean it depends. I mean I think it depends on what you mean by that. Like who are you for the company, for the investor? Anyone like.

A (31:41)

Yeah, I mean so for investors it's clearly not. I mean what we have right now, the news hook here is that Microsoft may or may not at some point around now be overtaking Apple in market cap and become the most valuable company.

C (31:55)

I will add that this is interesting because Microsoft was supposed to be kind of like a dead tech firm and Apple is supposed to be the cool tech firm. So it's almost has like the, the whiff of like an underdog or a comeback story. There is a comeback story.

A (32:09)

Microsoft hasn't had a higher market cap than Apple since basically the iPhone took off.

C (32:14)

Yeah, exactly.

A (32:16)

But the way and, and also another company which is rising up the market cap league tables is good old fashioned Cisco, you know, which they remember them.

C (32:25)

From 30 years plus. People hate the. Sorry, one more thing. People are in this place right now where we hate all these newfangled tech and we hate, we hate Facebook now, we hate Twitter now. Right. We for some reason probably hate Apple too. They're all bunched together. So it's kind of fun since everyone's hating on those companies to go back and be like, remember the good old days when these other tech companies were running stuff.

B (32:46)

But I think that this is actually because, I think part of the reason that Microsoft is doing as well as it is is because they have focused on enterprise solutions. Like they're focusing on the kind of boring business side.

A (32:57)

Okay, but this is, this is slate money. We don't use the phrase enterprise solutions on slate money. I'm sorry, that's just not something we do. But no, okay, first of all, I'm not going to let you get away with that. What is an enterprise solution?

B (33:12)

They're focusing on cloud computing. On servers.

A (33:15)

Yeah, you see that? It's all jargon. I don't understand any of that.

C (33:18)

Everyone knows about the CL cloud.

B (33:19)

It's out there so that companies don't have to have their own servers on Microsoft 365 being like through the Internet. I mean this is where Microsoft is. Cloud computing is pretty much what they have staked everything on. That and AI.

A (33:31)

Okay, so the, what about the blockchain? They're not doing blockchain. But the way you get big, the way you increase your market cap if you're Cisco or if you're Microsoft or virtually any of these big Companies, but not, interestingly Apple is you grow via acquisition. You know, you're Microsoft, you buy GitHub, you buy LinkedIn, you buy Skype, you buy Minecraft, you know anything by Nokia, you know anything. There's anytime there's some like, interesting business you want to get into.

B (34:04)

Nokia wasn't the smartest purchase.

A (34:07)

But in any case, growing via acquisition, it will increase your market cap. It does nothing for your share price. Right. If what you care is about is your shareholders. And trying to create shareholder value or whatever market cap is, is kind of not important. And so that's one of the interesting differences, I think, between Microsoft and Apple is that Apple never really cared that much about market cap. It, you know, did care about the share price and it tried to become very profitable and did and made lots of money and the share price went up and became valuable. Never traded at enormous multiples, but was valuable all the same. Whereas these other companies which have been floating, you know, sticking around for a long time, like Microsoft and Cisco and intel, which is still huge today, are largely huge by. Because they grew via acquisition, which didn't, you know, it's, it's kind of a cheat.

B (35:03)

Well, but Microsoft's like stock price has done quite well.

A (35:07)

So yeah, that's the other thing Microsoft is trading on a much higher multiple than Apple is that Microsoft is not nearly as profitable as Apple. It has lower revenues, lower profits, but it's worth as much because it's managed to get this recurring revenue from large corporations with its cloud services and whatnot. So every month it gets massive checks from S&P 500 companies or Fortune 500 companies. And that, that kind of certain revenue with super high margins is exactly what the stock market loves. And that's why Salesforce is worth so much money. That's why Oracle is worth so much money. And that's why Apple has never been worth that much money because it doesn't have that kind of predictable recurring revenue from corporations. It's just trying to sell gadgets to individuals.

C (36:06)

Well, I think Apple in a way is a riskier business. It depends. I mean, if the iPhone people start buying iPhones, what is Apple left with? The itunes store? Well, no, I mean, I just don't. What else does it have? I actually kind of think it's a fun story if the companies are personalities to watch. Because yeah, Apple, I don't know forever.

B (36:27)

This is actually important. I mean, Apple gets like 60% of its revenue from the iPhone and they've announced that they're no longer going to be releasing the, they're no longer going to be releasing the count of individual units sold each quarter, clearly, because they're not going to be selling as many. So. And they're not doing as well overseas. And this is a big deal because they're talking about shifting more and more into services. That is what everyone's now saying about Apple. But you know, one really wonders, like, are they really going to have a competitive advantage in like the services like Apple pay, itunes, the app Store? Like, I mean, these are where.

A (37:02)

And we should. And we should say that there is a big antitrust lawsuit happening against Apple right now, which we're going to cover when we get a verdict, which is basically saying, you know, insofar as it's making a bet on taking its 30% cut of everything in the itunes store, that could be illegal.

C (37:21)

And it only works again if they keep selling those iPhones because if everyone switches.

A (37:25)

Well, no, that's. That's not true. I mean, if. So long as people keep their iPhones, they will keep on buying things on the itunes store, in order for that revenue to go away, they'd not only need to not buy new iPhones, they'd need to actually buy a new phone that wasn't an iPhone. And I think that most people with iPhones generally stick with iPhones.

C (37:46)

Yes. But I don't think that lasts forever. We've never seen any product last forever in that way. Right.

A (37:53)

Although I think products, given what's happened, given that There are only two mobile operating systems which are iOS and Android, and given that Android is part of this sort of privacy problematic, skeevy Google verse where they mine a whole bunch of data and like Tim Cook has been very clear that they have left a lot of money on the table by not invading your privacy and not selling your data and that kind of thing. I think over the long term that's good for iOS and that's a good reason for people to stick with iOS.

C (38:29)

I guess my thinking is maybe not as logical, but I'm like. Anna mentioned Nokia earlier and you know, everyone used to have a Nokia. Everyone used to have a Motorola Razr. No one saw the iPhone really even coming. So one day there's gonna be a new thing that comes that no one saw coming that is gonna destroy the iPhone that day might be in 20 years.

A (38:53)

I think that was the. That was the genius of the iPhone. Is that like back when Nokia was the huge brand in phones, it was the manufacturer of physical handsets and you bought the Nokia flip phones because they were cool or the Motorola flip phone because it was cool. And now and for the foreseeable future, every phone is exactly the same black rectangle. No one is buying it because this black rectangle is cooler than that black rectangle. It's all about the operating system. That's the only thing that matters.

C (39:19)

Tell that to Microsoft, which everyone said would always be powerful because it didn't matter what computer you bought, you would always buy Microsoft software. But that too came to an end with the introduction of the iPhone and everyone moving to, yes, the cloud. So like, tech changes, no one ever sees it coming.

B (39:38)

And I think you're right.

C (39:39)

Lose their monopoly.

B (39:40)

And I also think we should look outside of just the US market because Huawei and a lot of Chinese competitors are doing quite well. Like people outside of the US do not necessarily want to spend the money on an iPhone when they can get a less expensive phone with a lot of great features.

A (39:54)

Sure, but Huawei is Android. Basically. It's ultimately going to come down to iOS versus Android. And Android has always had much, much higher market share than iOS and always will. I don't think that's going to change. The question is, can Apple continue to sell iPhones at $1,000 a pop and you know, and keep its profits up that way? And it's, you know, it's a good question because like, do we really need, like, isn't technology meant to be something which comes down in price? The iPhone is the only piece of technology that I can remember that has actually got more expensive over time because.

B (40:33)

That'S the only way they can keep making the same amount of money on it if they're selling fewer iPhones.

A (40:37)

Okay, let's have a numbers round. Emily, what's your number?

C (40:41)

My number is $20,000.

A (40:43)

$20,000.

C (40:44)

Dun, dun, dun. That is sort of like the most a Santa Claus can make in a year. There was this great piece on Vox. Do everyone should go read all about what it takes to be a high end Santa.

A (40:58)

A high end Santa?

C (40:59)

Yeah, you have to have a real beard and it costs like several hundred dollars to get a dyed white during the season. A few thousand for the whole costume and everything. It's a very, it can be a very serious business and jolly.

A (41:11)

And then you make $20,000 in what, the space of a couple weeks?

C (41:14)

I guess it's a few months. I mean the one Santa they interviewed, he works as a Santa all year round, corporate parties and everything.

B (41:22)

It's a lot of.

A (41:22)

He's iconic and $20,000 is how much he makes all year.

C (41:26)

Yeah, that was sort of the. They said their estimate, Vox's estimate was like 10 to 20 is how much.

A (41:31)

You could make per what?

C (41:33)

Per year. But most of it's in the season.

A (41:36)

Right. So he has.

B (41:37)

Santa needs a second job.

A (41:38)

So he's not like a full time Santa.

C (41:40)

It's not. If you're thinking of like, I'll just quit and become a Santa, probably don't do that. You're not. It's not enough money.

A (41:46)

But is it a good excuse to like eat a lot and grow a belly?

C (41:50)

Yes. And like grow a cool beard and stuff? I guess a lot of the problems, some of the Santas can't grow like they have. It comes in patchy, so that's an issue. And then there's debate over what kind of fake beard to get. Human hair is obviously the top. And then there was other ones listed.

A (42:07)

Talking about bizarre facial hair. My number is $100,000, which is the fine that DJ Khaled is having to pay to the SEC for pumping crypto scams on his social feeds. He's also having to give back another $50,000, which is how much he got paid for pumping crypto scams on his social feeds. And Floyd Mayweather is having to pay a $300,000 fine and pay back $300,000. So, you know, they're finally cracking down on crypto scammers like DJ Khaled.

C (42:48)

Meanwhile, I just read Equifax didn't have to pay any fines for that big hacking thing that happened.

A (42:54)

Do you think that Marriott is going to have to pay fines for releasing 500 million pieces of data about every single person who's ever stayed in the Starwood Hotel?

C (43:04)

Probs not, but we got DJ Khaled.

B (43:06)

So all is right in the world. My number is 7.83%. That's the coupon on the Unicredit bond.

A (43:15)

Oh my God, I'm so glad that we've got a bond coupon.

B (43:18)

Yes. So Unicredit Italian bank sold this bond this week to a single buyer, which pretty much everybody knows as Pimco. And this is significant because in January when they issued a very similar type of debt instrument, the coupon was 1%. So this just shows you kind of going off of actually what we talked about last week, like how bad things are getting in Italy and how the debt markets are really, really suggesting that there is a lot of problem in the financial system of both the sovereign, the banking system, corporates and individuals.

A (43:54)

And you know, there's a problem in the bond system when you start seeing a coupon which has, like, two decimal places on it, Like. No, coupons are always round numbers.

B (44:06)

No, no, no, no. Well, it depends. I mean, like eight, three. But like, you have like three quarters, an eighth. There's lots of like.

A (44:12)

Yeah, sometimes. Sometimes it's like a half or an eighth. Often it's just a round number, but 7.83%. Yeah, yeah. Like, what you would normally do would be, like, put it at seven and a half percent, so the discount. But no 7.83% coupon. You know there's something wrong. Okay, I think that's it for us this week. Except for you lovely, lovely Slate plus listeners. If you're a lovely Slate plus listener, we will talk about what happens to pay GAP data when you include the fact that a lot of women just often spend years not working at all, working part time or working part time. That's in Slate Plus. But otherwise, many thanks to Health Max Jacobs for producing the show this week. Keep on emailing us on slatemoney@slate.com and we will talk to you next week on Slate Money.