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Boeing shares initially at their high up almost four percent.
Today they're off.
Those levels, just up again about one point two percent.
But we had some big news early this morning.
Tim Yeah, CEO Dave Calhoun stepping down at the end of the year. Chairman Larry Kellner will not stand for reelection. Stan Deal, who's the umbattled chief of Boeing's Commercial airplane division, also departing immediately. He'll be replaced by Chief Operating Officer Stephanie Pope.
All Right, safe to say, much work to be done as a planemaker continues to struggle to get a handle on a spiraling safety crisis. So let's get to our key interview on Monday. Bloomberg News Boston Bureau chief Brook Sutherland with us. She's followed industrials and the space for years.
She's a writer for the Bloomberg Industrial Strength newsletter. With us too, someone who knows so much about the aerospace and airline industry, Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst, George Ferguson. Hey, Brooke, and George, I feel like not a surprise maybe the news today considering that a bunch of airlines had meetings with Boeing's board last week. But CEO Dave Calhoun was not a part of those meetings.
But let's go through it because it's important to understand the details. Brook, let me start with you break down the news and changes, who is all leaving, and what it means for this company going forward.
Sure, so it's a pretty sweeping leadership overhaul. So Stan Deal, who oversaw the commercial Airplanes division, is retiring. He will be replaced by Stephanie Pope, who, as you said, had just been appointed to chief operating officer. You also have the chairman of the board who will not stand for re election. And then CEO Dave Calhoun is planning to
depart at the end of the year. Now that is a pretty long time away from now that they do not have a replacement yet identified for Calhoun, and I think that's really the key question, is you figure out where Boeing goes from here and how it recovers is who do they get to fill that job?
Yeah, so George, come on in on that. Where does Boeing go from here? And will these leadership changes at the top And we don't know them all yet, as Brook mentioned, we still don't know of new CEO for Boeing at this point. Does that is that enough to turn the company around? Is that enough to fix Boeing?
Well?
So, I don't think so, right. I think that what really matters is obviously stability of the production process and quality, and uh, that's just going to take a little while, uh, you know, to push through to I think, reinforce their oversight on the on the line and the stability of that manufacturing process. So I think that effort is ongoing and Dave Calhoun's obviously going to oversee that until he leaves.
I think that they could have got a shot in the arm here and they the markets are giving them a bit of the shot in the arm already on bringing in someone new that they think will do a better.
Job of this process.
I think it's key for going to bring in someone who's got a good manufacturing resume. You know who's focused on quality manufacturing and on a strong engineering culture. That remains to be seen, but clearly the markets are excited about just the fact that it's going to change from here.
George, I want to come back to you, though. The first thing I thought about, I'm like, oh, Calhoun is out, who's replacing him? And then I'm like, no, he's not stepping down until the end of the year. It's only the end of March. That's a long time. Are they just kind of buying time in your educated view of
this industry, because they just weren't. They knew they had to kind of move him along, at least publicly, but they just don't have the right person yet, and that we should assume that they're going to have a new CEO in sooner rather than later, because to me, as an outsider an observer, you need to have a new CEO in place.
So sorry, I think that was for me.
Yeah, oh I'm sorry, Yes, no worries, yees.
So I think the I think the board was a bit flat footed here, right, And I think that's what I perceive of this long wait until Calhoun leaves. You know, I think Calhoun had a number of people on the board that he was responsible for putting on there, maybe a little bit of loyalty. So I think it took the you know, the outsiders of the airlines to show up and talk to the board frankly and so. Yeah, so I think they're flat footed. I think they need time to figure out who they're going to bring in
to replace Calhoun. I think it's going to be someone outside Boeing again, someone with a resume that's strong in manufacturing and a strong engineering culture.
There's a lot to.
Do this year at Boeing, so I'd hope that if they find someone sooner, maybe Calhoun even goes sooner because they're going to put a lot in place this year that's going to matter a lot in the years down the road.
Ry and Brook come on in on that. I guess that's my point. It's like, I just thought, you got to have somebody new in that spot that as long as Dave Calhoun is there. I don't know, how do you perceive that or isn't that part of the problem that they need somebody new in charge.
I mean, I think it sends a signal to say that he's departing at the end of the year. And Boeing as a company that is in need of signals right now, especially on the positive front, to show that they're taking action, that they're taking this seriously, and so I think this does that for them. But that was my initial point of like, well, it matters who you're going to get to replace him in terms of figuring
out where this company goes. And I completely agree with George that it needs to be somebody with a real manufacturing expertise, somebody who is going to go line by line in that factory and get them to the point where they can deliver quality airplanes. But I think you know that this is an important moment of accountability. But I do think it's striking that you know this is coming on the heels of the criticism from customers, those who determine ultimately how much money Boeing makes and what
it's marketsha looks like those are financial metrics. We've of course had very public criticism of Boeing from the FAA, which did an audit of its manufacturing line and has called upon the company to come up with a plan
within ninety days to fix systemic quality control issues. We did not see this announcement come right on the heels of that FAA report, and so I think that is very interesting and sort of underlines what the challenge is here with Bowling's culture in terms of getting this company to be a real engineering manufacturing enterprise.
Again.
It's also, I think notable given that in twenty twenty one, the company's board actually raised the mandatory retirement age for the CEO from sixty five to seventy with the idea that Calhoun would stay on through a few more years. Here's what Dave Calhoun told CNBC a little earlier today when asked about what he wants to see in the next CEO quote. I want somebody who knows how to handle a big, long, long cycle business like ours. It's not just the production of an airplane, it's development of
the next airplane. It'll be a fifty billion dollar investment. I would like somebody who clearly has the experience inside our industry. Brook, are there any names that are floating around the space right now based on your reporting? Any names come to mind of people or positions companies that they would come from at this point?
I mean, I think that the best man for the job would probably be Larry Colp. When you just look at the turnaround that he's been able to engineer at GE, and the type of skills that Boeing needs are very
similar to those that Larry has. He is a meticulous operator and that's really you know, a big part of his turnaround effort at GE is going in and improving factory operations one step at a time, one small change at a time that really adds up to make a big difference in terms of how that company's operations are run. Now Larry is on the cuss of the final piece
of the breakup of GE. He has had, you know, a very successful track record that I don't know if he is looking is his contract challenge Atvolling, but we'll have to see. But he is obviously sort of the name that comes up just because of how much SSS he has had a GE. But you know, there's others out there that I think will certainly enter the conversation. Dave Gitlin is on Boeing's board. He was a former executive at United Technologies, which is now known as RTX.
He now runs Carrier, which is an air conditioning business. But he obviously has a lot of aerospace manufacturing expertise in the connection to Boeing.
Yeah, we've talked a lot with him actually on our air George, come on in on who you think might be the kind of CEO, our person out there that you think should maybe take over. And I do find it interesting in that interview on CNBC that Dave Calhoun said that he will have a say in the decision on a new CEO. I wanted to start their first job, George, does it make sense? I mean, you have to have the former CEO of Boeing who understands this company so well to help in that transition or no? Or yes?
So I think you would want the CEO to help you in the transition. And as far as names are concerned, I mean, you know, there's some people I know, some people that have been in the industry for a while. Shanna hand Down at Spear comes to mind. But he said he wants to get out of the business, that his wife gave him a year to turn around spirit. I think it's gonna take longer, but ultimately get bought. And then there's Ray Connor that used to run Boeing
commercial airplanes. He's very smart person, but getting getting up there in age in the in the high sixties. But I'm sure you know, they're gonna have to cast a wide up. But I'm sure there's somebody out there that's got the skills of like a Larry Culp that can come in and get the job done. That's the challenge is finding the right person.
You know, did Calhoun's letter to employees, He wrote, the eyes of the world are on us, and I know we will come through this moment a better company. George, let me start with you. What's it gonna take for Boeing to come through this moment and really be a better company and not have in another year or two an issue.
So I think what's gonna take is they're gonna have to change wholesale change the culture at Boeing. Right, the Boeing culture became too much about spreadsheet management, managers running you know, the different divisions, not having engineers involved and everything. I think they've really got to look at their business
as all about building a quality product. You know, you can't totally give up in the financial metrics, but you have to loosen the financial metrics here because you're going to have to spend more money to train people to bring the next generation of workers into the aerospace world and their managers. You're gonna have to spend more money
on oversight, which is those managers. You're going to have to get into the supply chain, stabilize the supply chain, not squeeze it, look to develop it as well as is it for You're one team, and so it's going to take a relaxation of everything's about the next penny of the bottom line and more about how do we build the infrastructure to make great airplanes for the next one hundred years.
Brook.
I hear what George said just now, and I think to myself, we could have had this conversation in twenty twenty, post twenty eighteen and twenty nineteen Max crashes. And indeed a lot of the folks who leveled criticism against Boeing in the wake of those two accidents did mention a lot of what George just mentioned. This all to say that these aren't new issues at Boeing at this point, and these issues weren't necessarily created under a Dave Calhoun.
Does that mean that they have to go external to find someone brand new to come in and change the culture.
I don't know that they have to, but I think that it would be helpful. And even with Dave Calhoun, he sort of branded himself as an outsider when he was brought in, but he'd been on the Boweing board since two thousand and nine, so this was a company that he had a lot of institutional knowledge and involvement in. And I think there's something to be said for fresh
eyes at this point. To your point, you know, the time to be talking about quality control issues and manufacturing at Boeing was after those first two seven thirty seven Max crashes. We shouldn't still be having this conversation today, and yet we are. And so that suggests that you meet something more dramatic to happen, to really get to the core of what is going on at Bowing and
how do you get back to making quality airplanes. But I do want to come back to what Carol was talking about from that letter, because it's not just a here and now. It is a forward looking question as well of where does Boeing go from here in the competitive landscape. They have lost a lot of market share relative to Airbus and they need to be thinking about what comes next, what is their next airplane? How do you get back to at least some level of equity with Airbus on a competitive landscape.
Well, it sounds x extential almost, Brooke. I mean, are we getting to that point that you know, it's just too many mistakes and when you start to have carriers, you know, saying we're going to go elsewhere. I mean, it's about maybe the existence going forward longer term.
Is that right?
Is that how you're thinking about it?
Sure? I mean, I don't think there's a world when where airlines want to only buy planes from Airbus. We're already in a doofully and that's not very helpful as it is, but certainly to make that more lopsided is not in those airlines interests. And I think part of why they're so frustrated is because they need Boeing to
be successful. They want Boeing to be successful, not just in terms of negotiating on some of these orders, but also in terms of getting the planes that they've already purchased and actually giving them delivered on time and without any kind of defects. And so I think, you know, it's also from a US perspective, Boeing as a national champion, the US needs Boeing to be successful, and I think that's why there's so much pressure and scrutiny right now.
And in the end, I mean, I think everybody's rooting for Boeing to figure this out, but they are the only ones that can really do that.
Work, right, George, you heard Brooke mention the way that Airbus has pulled ahead in recent years when it comes to the market. Would it be completely out of this world to look at Airbus as a place where the next CEO of Boeing could come from? Should we dismiss that?
Yeah?
I mean, anything can happen, but that one I think would be very difficult.
There's a potential.
I guess, never say never, never say never. What last thought? Hey, Brooke just got thirty seconds. I want to go back to you on this out like moving the headquarters back to Seattle, A right, they went to Chicago, then they went to Virginia. That's a long, long away from where the product's actually made.
Just quickly it is, and I think that that would be a smart symbolic move. On Boeing's point, you need to go back to where the airplanes are manufactured and make sure it's clear that that's where your executives are focused.
All right, guys listen, thank you so much, really appreciate this deep dive. Bog and shares, by the way, still up about one point two percent our thanks to Bloomberg News Boston bureau chief Brooks Sutherland, also writer for the Bloomberg Industrial Strength newsletter, and of course our Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst, George Ferguson.
Guys, thank you so much.
You know, it's interesting though, like what they talked about, when you start to have airlines, you know, cutting some of their flight offerings because they don't have the planes that they need. That's when airlines are like enough, those are the customers are boeing.
We're not the customers are Boeing. We're the customers of the airlines. The airlines are the ones.
But the trickle down of it.
Yeah, you're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then Bright Auto with a Bloomberg Business act or want us live on YouTube.
Well, a little bit of news. I'm sure you know we've been certainly reporting about it here at Bloomberg when it crossed a New York judge ruled Donald Trump's first criminal trial will start April fifteenth of Manhattan, getting the case back on track after a short delay that was
caused when thousands of pages of new evidence emerged. And then also today, Donald Trump vowed to post a one hundred and seventy five million dollars bond in New York civil fraud lawsuit after an appeals court slashed it by more than two thirds and handed him a crucial financial lifeline as state authorities were preparing to start seizing his assets. So that's kind of the latest on former President Donald Trump's legal back Trump. But there's other stuff going on.
Yeah.
In the meantime, our group of very very well known Wall Street and Silicon Valley folks who are either overtly or quietly embracing the GOP nominee for president and the prospect of returning to the political turbulence of the Trump era. This story Carol by brad Stone.
Brad, of course, the editor of Bloomberg Business Week, the author of several books, including two on Jeff Bezos, Amazon on Bound, and The Everything Store. Brad joins us right now from our San Francisco bureau. His story, by the way, featured in the new issue of Bloomberg Business Week that's out on newsstands, on the Bloomberg and at Bloomberg dot com. Brad, great to have you here. Let's get to the who, the what, and the why of your story, because the
story of the who alone reads like Who's who. It feels like of Silicon Valley and also of Wall Street. So tell us about who's doing this and what they're up to.
Right, Thank you, Carol. I was calling it the revolt of the winners, and this very conspicuous support among business leaders in tech and primarily on Wall Street for former President Trump. And as Tim described, there are kind of two brands of support. There's the overt support and so you've got Howard Lutnick of Canter Fitzgerald and John Poulson, the hedge fund owner holding fundraiser for Trump, Nelson Peltz Disney Foyle who endorse Trump recently, and then the more
subtle forms of support. Ken Griffin from Citadel saying on TV that Trump would be good for the capital markets, and of course Elon Musk on the service formerly known as Twitter almost every single day, suggesting that he's moving in a right word direction and hasn't endorsed Trump, but is certainly putting a lot of distance between him and the current president.
And as you mentioned the piece, you know he's saying Elon Musking, he hasn't endorsed and he won't donate to any political candidates. But certainly a lot can happen between now and November fifth, Brad. So what happened in terms of this transformation for some of these folks over the last four years There were quite a few after January sixth who came out and distanced themselves from the former president.
What has happened in your view over the last four years or over the last year to move people back to former President Trump?
Yeah?
No, I mean I think.
Look and there are plenty of business leaders who are moving in the opposite direction and endorsing or supporting President Biden. And maybe in a future column I'll look at that, but there is there is this movement. Another great example is jeff Yass by the way, from Susquehanna International, the Pennsylvania billionaire who may or may not own a portion of the company that has merged with Truth Social and
given Trump a potential lifeline. He was once a never Trumper and is now certainly making some news favorable to the former president. So look, I mean, I try to diagnose what's going on here. I mean, I think there's a couple things, you know, in the in the case of jeff Yass, maybe this is very transactional. You know, Trump has reversed his position of TikTok yas is a
major owner of Byte Dance. I do think there's a sort of material concern here with some of these billionaires looking at at Biden's economic and taxation policies and and and the idea that Biden raised in the State of Union to instate a billionaire tax, to increase the corporate tax rate, to roll back the higher end of some
of the Trump tax cuts. There's Biden's antitrust agenda. There's the pro labor stance, and the fact that Sean Faine from the UAW was a guest of the White House during the State of the Union and recognized by the President. And you know, to somebody like Elon Musk who runs a non union shop, these are existential concerns. So I think we can get into what some of the emotional reasons might be, but those are perhaps some of the rational decision making that's going on right now.
And I totally get the rational side. I love when you get into kind of the more emotional side of like, these guys are disruptors and they like when things kind of get it feels like unsettling. Talk about that kind of thinking and why they may be providing support for Donald Trump.
Yeah, you know, I don't want to get too far into the psychologist's office with this analysis, but I think, you know, to some extent, they feel like Biden and you know, maybe the Biden administration victimized them a little bit, ran against the one percent or the point one percent, so they don't feel recognized. I think this maybe reassessment of tech power in Wall Street power over the last decade,
you know, left them feeling at a little victimized. And yeah, and then there's the sense of being contrarians, being disruptors. You know, Peter Thild made this contrarian bet in twenty sixteen, and you know, to a certain extent it backfired on him, but he got a lot of mileage out of it, and he had the ear of the president back in
twenty sixteen. So perhaps some of these business leaders are billionaires see where the political wins are shifting and want to have the ear of someone who they think, despite you know, the arguments for against, it's someone you know, who they might think has a shot of winning the next election, and so they're trying to get on that side of history. I think probably for a lot of
these folks, there are different reasons. But you know, I don't think that we can dismiss the pure capitalism here and the idea that some of these folks just see a better tax regime and perhaps anti trust regime under Trump.
Yeah, let's talk about the anti anti trust regime, because that is one area where President Biden has you know, been I think, in his view, pretty successful at this point. That's certainly a part of it, Brad. But I do wonder to what extent, you know, how these folks did
over the last four years during President Biden. Because Carol and I were talking about this a little earlier as we were preparing for this, and we're thinking to ourself, you know, talking with each other, Well, it's not necessarily like, you know, yes, there was some rhetoric in the State of the Union, but it's not like there were policies put in place that actually hurt these folks who you write about.
Yeah, and I guess that's the question I had. You know, the markets are going to determine a lot of the
financial success for some of these figures. I mean, you look at like Larry Ellison of Oracle, who has been report to be dining with President Trump as Trump looks to improve his fundraising status, and you know, like the markets like predictability, and what we do know again, I'm trying not to be political here in my analysis, but what we do know is that you know, President Trump historically and certainly it seems on the compantrail brings an
element of unpredictability and chaos and the markets don't like that. So I do think that, you know, some of these business leaders are trying to be opportunistic and they're embracing an agent of chaos. And it will be interesting to see where that support goes, whether it waivers as we get into the real campaign season, or people are paying attention and when the former president hasn't necessarily been as scripted as perhaps some of his handlers would like.
I love this line in your story in your reporting, Brad, you say billionaires aren't all that different from Trump's main constituency constituency of less educated, working class white households. Both groups tend to seek conspiracy by far off elites who are out to deprive them of influence, expropriate their money in squander America's advantage abroad. Like, it's interesting to see,
like make that connection between those two groups. But I don't know, it's just kind of very interesting and fascinating, right. We could bring a lot of therapists and psychologists on this one, but it's fascinating that connection.
It's one thing that I had never seen before and don't necessarily know how to interpret, which is the sort of venom that's out there. And maybe I'm paying too much attention to social media among certain elites. For other elites, for academic leaders. I mean, this was came clear in the battle against Harvard's president by Wall Street leaders like Bill Ackman, and this idea to scramble for influence. There's
a great book which I'll recommend that, Caroll. I know you're a big reader, but a book called End Times by Peter Turchin, where he actually somewhat apocalyptically describes the end of regimes across centuries and one of the telling tales of moments of instability has been when the elites start competing each other and battling for influence. So I don't know, maybe that's a little bit of a downer note to introduce, but I feel like.
Sounds like a sweet movie and Compar't worry, Brad, We're not going to end on that note. Okay, we're not going to I'm going to look, the election can go anyway. We have no idea how it's going to go between now and November fifth, but we do know, and we do know that money plays a big role in politics.
But does the support of the folks you write about, Brad, any idea if it actually moves the needle when it comes to what matters, which which, of course is turnout and votes in these swing states well and.
And fundraising obviously does matter. And I'm not an expert in this, but you know, from what I read, President Biden is is out raising Trump, and I think that's one of the reasons why the Trump campaign has out been there soliciting, either soliciting donations or having conversations with folks like Mary Ellison and jeff Yass. And I don't know that any of them have necessarily stepped up. I mentioned the fundraiser that Lutnik and Paulsen were holding I
think beginning at next month. Whether that support translates to the ballot box, I mean Trump, the Trump campan has to be careful, right, because you don't you don't want to necessarily turn off your broad base of supporters, working class supporters by trumpeting your billionaire support. So it's a careful line that they've got to they've got to walk right.
And also in an industry, I feel like the tech world really knows how to play well with their enemies, their frenemies that they often work with. So could they just be hedging as you end the story, Brad in terms of the outcome, A really great read and really timely read. Brad, Thank you really appreciate. Bradstone, of course, the editor of Bloomberg Business Week.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on applecar Play and Android Auto with the Bloomberg Business End. You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa, playing Bloomberg eleven thirty oh.
Agusta is certainly keeping an eye on the economic data this week and what it means for the broader market, in particular those megacap tech stocks that shape the momentum trade. And that's exactly where we go now, Carol, because this group of mega caps have had their own market branding. First it was the Fang stocks, then it was the mag seven when newcomer in Nvidia joined the crowd. Now, how does this how does this ring? Okay, I'm listening
Magnificent two, the Middling too, and the Math three. I mean, gosh, it's like doesn't necessarily have the same ring too?
A great name for garage band.
Don't you think it is?
All right?
As investors have come to focus on the importance of AI and Vidian, Meta have surged ahead. Microsoft and Amazon have done reasonably well On Apple, Tesla and Alphabet have been trailing Tim the s and P five hundred.
Eric Wiener is Equity as America's team leader for Bloomberg News. He writes about this for Bloomberg Business Week along with Jaron Wittenstein and Mark German. So Blazing two and tep It five are starting to emerge. The story by the way featured in the new issue of BusinessWeek magazine. You can get it on newsstands, get the story on the
Bloomberg terminal, and at Bloomberg dot com slash BusinessWeek. So we've talked a lot about the rise of AI and video in video certainly ahead of the pack, meta platforms doing incredibly well. Also, are we to the point, Eric where we just have to sort of give up this moniker of mag seven because Tesla is doing so poorly well.
The bigger question is does Tesla even belong?
I mean, the idea of the mag seven really is the big tech stocks, and then what's been driving big tech and ever since really AI reared its head as a driver middle of last year, that's been sort of moving everything up. So the market has kind of been riding on that. You can see it in chips right now.
Tesla doesn't do that.
Tesla's problems are its own, completely opposite of or completely so say from the group, Apple is a different dynamic. Apple is falling into exactly you know, it's at the bottom end of the Magnificent seven if you want to call it that or whatever for a very magnificent seven reason. Whereas Apple is when you're dealing with the tesla, you're talking about ev adoption, you're talking about infrastructure, you're talking about things.
At the other company's right, they don't deal with that. They don't deal with that.
Apple, on the other hand, this is something that we were seeing a long time ago. They weren't getting punished for it, uh, and then people figured it out, and that was that they aren't really growing uh. And if they don't, the bet, the long term bet on Apple would be that they are going to be the ones that are going to elegantly figure out how to get AI into our pockets. And if anybody's going to do that, you know Apple's products are going to do that, and that's your long term bet.
But if you're looking at them right.
Now, they have a very orderly, very revenue heavy business that just churns it out. But the growth is not there. And like when you're talking about what people were buying into with Apple, they were buying into a perpetual growth machine. And if you're not going to get more people to buy iPhones, you're not going to get more people to buy their products.
Where is that growth going to come from?
And Vidia answers that question Meta answers that question apple less, So are you making.
Though a decision or investors kind of making a decision by saying, okay, AI is the idea the technology that we all have to jump on board, and it's going to be what everything else is measured off of. Are we smart to do that already?
Oh? God? Well?
So my first book was in Oral History of Wall Street and it went through every boom since nineteen twenty nine, and this is normally what happens, which is that technology. I mean you can go back to like people making photocopies and is xerox being seen as revolutionary? So it's always because the stock market is a forward looking mechanism and it's got all this hope into it. The idea is like, what's going to be the next thing? And how early can I get in on that? AI appears
to be the next thing. However, there have been other next things that have not panned out, and that's where you kind of have to wonder if that, like, is this the dot.
Com moment or is this not?
And we have yet to really see it because even at the beginning of the dot com moment, you couldn't necessarily see what it was about to become because I guess I.
Just think about fang right, Facebook, Apple, Amazon, Netflix, Google, Like they all weren't the same kind of company, right, Like we just we have this love of like grouping people. It's a cute little you know word, and then kind of trading around it. I get it that they're massive companies, right, and they are great momentum you know drivers if you will. So I'm just I guess I'm trying to think about like how we need to think about the market and the importance of classification of some.
Of these names. Investment strategists love to do this.
You can think about the bricks where they did it on geography. You know, Yeah, you're putting together various different things and creating a thesis around it. But if you're actually looking at the market, what you kind of want to do is go beyond that and look into what each each valuation is and what their growth prospects are, because you need to time when you're buying, and you also need to time what you're buying.
Does it also tell us any sort of story about indexing in the index? Given that the S and P five hundred is a market cap weighted index and it's overwhelmingly turns out to be these top companies.
That is absolutely it. So when you think about what we're doing when every every day all of our four to one k's and all the things that are index related, this pressure just piles in all of these all of these fund managers and passive managers need to step in and buy these stocks because the index is weighted that way. So the more that this gets centralized, the more that centralization moves things up. What we're seeing now is the market kind of sort of fluctuating in terms of the numbers.
It's not climbing as much, but the rest of the market, if you look underneath the hood, there's a lot of growth. There's a lot of companies that are moving, but they're not showing up in at the index level because they just don't have the waiting.
So, do we do an injustice maybe as media, right and whoever or whoever comes up with these and then we all jump on board, right, Because as you say, we've talked about the market, the gains broadening out and the importance of all of these other names that are out there. So do we do an injustice of kind of trying to classify some of these guys.
I think it's simplistic. I think what you guys are trying to do in getting behind it is the actual right answer.
But like thank you, you can come back.
But in all seriousness, like if you look at the socks index, you look at what chips are doing, and you start to wonder is that good for the market? Where is that going to show up? It's not that simple, And but we tend to tell a simple story because that's the easiest way for people to understand the market now.
And I also think it's really smart to kind of as we go through this AI crazy four year reality, if you will, like to understand each company that even though they drop the phrase or something, but what does it really mean for their business going fard.
Do you remember when the dot com era was going on in pet stores were well, yeah, exactly, pet stores are technology.
Companies, exactly.
The puppet is probably exactly.
We know.
It is really fun.
Thank you, Eric Having, Equity's America's team leader at Bloomberg News joining us in studio. You're listening and watching Bloomberg Business Week, and this is Bloomberg.
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As I mentioned, it's the company behind the theme parks Lego Land, Madame two, So it's Pepa Pig Theme Park, the London Eye and many more. In fact, it's got part works and attractions in twenty three countries around the world, serving more than sixty guests per year. It's called Merlin Entertainments, formerly a publicly held company now owned by Blackstone, the Canadian Pension Plan Investment Board and more.
We got the CEO with us we do.
Indeed, right next to us, Scott O'Neil, he's CEO at Merlin Entertainments. He's joining us here in our studio. Scott also previously president of Madison Square Garden Sports, which was of course owner of the Knicks, Rangers, Liberty and Moore, and the CEO of Harris Blitzer Sports and Entertainment, which includes the Philadelphia seventy six Ers, New Jersey Devils and more. Scots are we've read.
Look at you guys, having the whole background.
In Sorry, we've done your bio we're done.
That's not everything.
How are you?
You know?
I'm pretty happy I moved to the UK. It's been a big adjustment.
Do you like that?
I do.
I didn't anticipate how challenging.
The move would be.
I've grown up in this little bubble between New York, Philly, Connecticut, New Jersey, and.
What was challenging the weather or just different.
I just think, well, I have My youngest is seventeen years old, So taking a seventeen year old out I had just have to do this. One quick story is you know, we're having that heart to heart, that father daughter connect conversation, and she she holds up her finger and points in my chest and says, dad, let me get this straight. Your career is more important than my happiness. And she turns and just walks out of the room.
And I was like, but but I love you.
I mean I love you, honey filizes up.
So that transition was harder than we thought. But she's happy now, she's in London with me. She won an international basketball championship, gold.
Medal score, congratulations.
So she's doing great. She's she's thriving. My wife's happy. So yes, So life's sad you'll can you imagine, I can tell you're in my chest.
Boom boom, She'll never forgive you. But that's okay, No, yeah, that's okay. You know, your business is all about leisure and discretionary spending, and you've got a great view around the world because you're in what more than twenty countries at this.
Point, twenty three countries.
So just give us an idea of how things are going when it comes to.
That spending and doing stuff.
Yeah, well, we're pretty fortunate. For those of us who had children in COVID, it was a little close when we couldn't leave the house. And when COVID ended, we got on planes as quickly as we could. But the one thing we were searching for was connection and meaning and memories. And we moved away from the economy of things the economy of experiences, and so we have a lot of tailwinds. It is a look, it's it's we go from Malaysia, Korea, Japan, China all the way to
the US and everything in between. Yeah, and so we get to see quite a bit. So whenever people are like, how's business, I'm like, so, where is it bad? Yeah, China is tougher than we anticipated. We anticipated even this year of recovery a little bit quicker than it's come.
So people are doing it or is it just a fraction of what it was.
It's just slower.
Yeah, yeah, Domestic tourism slower. Their international tourism coming out of China is a bit more than we thought. US is still fine. The US is great, and the US consumer we're wonderful people.
You spend money.
We do love to spend money, and we love experiences and memories and fun things.
So does that mean we're a pre pandemic for you guys?
We're over pre pandemic over people, both in terms of revenue and volume. And the UK is a little schizophrenic, very good for internationals last year. This year it's a little slower. Domestics is slow and Europe slow. Now remember we had bizarre weather last year. Okay, so you know most of our peers Disney and Universal and I know you've never most people listening maybe haven't heard of Marlin Entertainments before, but we are the number two theme parks in the tracks business in the world.
Does that frustrates you, like if you think about so many of those names, like a Land like we just went through them. I mean, they're well known, bands are great, but that the recognition it's coming.
Okay, it is coming.
It's a great change.
But it doesn't even matter if these brands aren't necessarily connected. The other people know that Madame Tusodes is owned by the same folks who on Legoland.
I think it does. I think when you talk about not to be too technical, but we are Bloomberg, you know, when you talk about Ibada meeting multiple, when you think about how do you grow your multiple? One of the things that that I think matters to Disney is their brand, you know. And I think one of the things that matters to Universal are the licensed partners, the brand ip partners. And you look at ours green you know, you take you know personally, I take Legoland and Peppa and Madame
Tussaus and I put them up against there. So I and I we're dragging behind them. Now, we're we're way ahead of our the US regional theme parks like the Six Flags and the Sea Worlds and the Cedar Fairs in terms of multiple. But I think we've got a we have a journey ahead of us to map that the brand and the experience to where we are.
It's the movie or something like like, how do you know what I'm seriously.
There could be some content around it, right, So we have a lot of different brands and so so we have to take a portfolio approach for sure. But yeah, I did know, I know, I just I did about amazing, amazing, amazing executive for sure, just like.
How you kind of you know, capitalize.
It all of that.
Yeah, well, well they are a whole host of things, you know. I I'm I'm following a founder, Sir Nick Varney, he's ND And I thought to myself, could that be me someday?
So like when you.
Yes, I'm taking the job.
But it's sir, don't I somehow don't think that's gonna happen.
Maybe she'll have to stay at school and take a test when during the ceremony that could happen. Let's not get ahead of her.
So, so following a founder is there's so many wonderful things. And I come from a family of founders, and my brothers and sisters of all family companies and will only sell out and out of the five of us, and and and the the magic, the stuff. You can't see this on the radio. But the feel of the business that you have as.
A founder thirty your family on YouTube.
Damn so so there's so many wonderful things and they feel the business so well, and a lot of this stuff becomes intuitive and that's hard. And they have like this father or motherly like figure, you know, like a larger than life figure, and sort of come in after that their whole host of challenges culturally, et cetera.
With leadership, but there's.
Also usually these gaping holes of opportunity. And because the founders have such rhythm and intuitiveness in the business, you have things that I think can really underpin future success, like digitizing the business, like driving data, like dynamic pricing, like the stuff that I've my whole life have made made a business of. Come into a new business and you think, you know, my eyes are as big as saucers, and I'm thinking, Okay, there's enough opportunity.
When you think about the different types of products that you offer, the different attractions that you have, what's growing and what's struggling right now, Like where's the opportunity for growth?
Yeah, Well, in Legoland, that's about forty percent of our business. Lego Land resorts. There are ten of them, three in the US, Korea, Japan, Malaysia, Dubai, Germany, Denmark, London, et cetera. We're building a one in Shanghai in China as well. It's a really good business and we have to invest in making me a premium.
It's like, oh, sorry, but god, that brand is wonderful well recognition, you.
Know, and you know Neil's who's the CEO. They're just understands the brand and how to grow it, and their partnerships are smart and they're wonderful people, and they know how to do deals and drive deals, and they're one of our largest investors and so so that's an unbelievable opportunity. But we have to continue to invest, invest, invest, how do you make that more premium. That's what we're finding is like there is a flight to quality. Premium is
going to matter. Our resort theme parks business a lot more complicated. It's kind of like if you can imagine a six flags dropped in Europe, that's what we have in Europe. And I'm of the school of bigger is better. So mega resorts will matter and regional ones will really struggle. And so we're on the effort of that, and then where I think there's the max growth from us. We had over twenty percent growth in this segment. We call
it gateway and London is the best example. We have two what we call must see, must do We call them anchor attractions, the London Eye by the Way, and Man two Sad's the original, and then we have three other attractions. One out of every four tourists into London come to one of our attractions, and forty percent of them come to at least two. So that's what I call like cluster penetration and building those in the ten most important tourist cities in the world is where I think our growth is.
Going to come from.
Just got a minute left, man, I wish we had ten more money.
Me too.
I got to ask you, though, with your sports background, do you miss it being actively involved in like running it, you know, a team and so and so forth.
There are elements I love and miss. It's mostly about the people. Yeah, you know, in terms of when you when you hit a certain level at those jobs, it becomes a different type of job. And if you compare that type of job to this one, it's not even close. I mean I've got people purpose and scale, which is what I'm looking for. I'm like learning every day. I was in that business for so long. I knew it and I want I want to stretch a bit.
Thirty seconds left. Are you going to add to go back to your current job? Is there stuff to add to the portfolio?
Oh?
Yes, so acquisitions will be coming.
Yes.
We just bought the Orlando Eye Yeah, in icon Park. So if you're down in Orlando swing by, it's a great respite from uh, the difficulty sometimes of grinding through a resort. We have a Legoland resort down there as well. But yes, more to come, and that's going to be an anchor for Orlando Cluster.
Good to know, Good to know, Come back soon.
Come see me at my resorts. Action that daughter I will three, she will actually love it, but it might be a longer show.
Thanks guys, Scott O'Neil, thank you so much.
Chief executive officer of Merlin Entertainment's joining us right here in our Bloomberg Interactive Brokers STUDIOMUC.
Journal.
Now about you let me drive?
Oh no, no, no, no, honey, please, I'll gravelse.
Ma, I want to drive. It's a good question.
Try this is the drive to the globe. Well, young Don on Bloomberg Radio.
All right, everybody, just under eighteen minutes left in today's trading session, the Monday trade on this March twenty fifth, twenty twenty four. Carol Messer along with Tim Stenoviek here in our Bloomberg Interactive Broker's studio, John just broke down the numbers, kind of bouncing around.
We're off. I don't know.
It's just a little change, a little bit lower here overall.
Tim, Yeah, jot down four tenths of a percent, the S and P five hundred down close to two tenths of one percent. I want to see what Sarah Ponsik has to say about all this. She's financial advisor with Ubs Private Wealth Management. She joins us on Zoom from book A, Ratona, Florida. Sarah, how are you.
I'm great, great to be with you too.
Full disclosure.
Sarah formerly our colleague here at Bloomberg before she decided to move to a sunnier place that's warm.
Year round, talking about buying a snow shovel. Yeah, and I was not jealous at all.
I can't no snowshovels. No snowshovels, just snow.
Shovels for me right now. Although we did have we did have plenty of rain over the weekend. If it makes you feel a little better, it.
Does make me feel better, but so did we. So you know, no comparing notes here, Sarah, what's up when you look around right now? Did you see an S and P five hundred that's uplisted ten percent on the year. What are you telling folks about diversification, about where opportunities are, about how they should play this out?
So it's pretty amazing coming into twenty twenty four, think the majority of us were saying, all right, the outlook looks pretty good here. Still, the Federal Reserve is expected to cut interest rate, but the economy still looks strong, inflation's moderating, corporate profits are holding up. But with that said, we're probably not going to see stock market games at the same pace at which we saw them in twenty
twenty three. And here we are three months into the new year, and we've seen twenty new record his for the S and P five hundred. As you mentioned, we've already seen double digit returns and it just continues. So to your question of how investors should play this out. What we're telling clients about diversification. It's a bit of a two way street because on the one hand, tech led much.
Of the rally.
As you know last year and the beginning of this year we have seen a broadening out. But tech is still so important in clients' portfolios, and we believe that it's a huge risk for clients to be under invested and under exposed to tech. But with that said, that doesn't mean tex your entire portfolio, and you do need to be diversified.
So it goes both ways.
Well, let's talk to it.
I mean, what is the And I understand every investor has a specific situation right in terms of what their investor or investment objectives are Sarah. But having said that, what's a good allocation and how you think about it? And then let's also say not all tech has created equals. So when you say tech, what do you mean by it specifically?
Absolutely so, when I was just speaking about tech and not being under exposed to tech, that's just large cat US tech broadly. You don't want to be under exposed to US tech. And when I say under exposed, I mean tech has come to be such a large portion of the indexes, so you don't want to have less
than the indexes representation in tech in your portfolio. Now, there's another subtector of tech, and that would be small or mid cap tech or also other areas of the technology ecosystem that would be or would see a major tailwind from AI revenue. I mean, we've been talking about generative AI now for over a year. It's not a buzzard anymore. It's just become part of the daily lingo,
it seems like. But there's reason for it. I mean, our Chief Investment Office estimates that AI revenues are going to expand by seventy percent per year until twenty twenty seven. And it's not just the Magnificent seven stocks that are going to benefit from that. There's other areas as well. So you need to make sure that you're looking to other companies, other areas of the tech ecosystem that could be the next big thing, but that are also seeing
revenues to prove it. Now, in addition to that, no.
Go ahead, Carroll, go yeah, no, no finish out.
I was going to say, it's not all tech. If we're looking at diversification within the stock market. Look, you want to have exposure to other sectors too. If we highlight two as of right now, two areas that we do like are healthcare. It has you know, defensive components, but we've also seen a lot of a major boost from everything going on with weight loss drugs and therefore
and also industrials. You know, we like sickle players the market, as we do expect this rally is going abroad now as we have seen so far in twenty twenty four.
I had to jump on when you use the term magnificent seven because we had a great conversation with our Eric Wiener, who's our Equities in America's team leader here at Bloomberg News, and he and Jarin Wittenstein and Mark Gerrman have a story out in the new issue of Bloomberg Busines this week and they say this year the Magnificent seven has looked more like the Magnificent two, the Middling two, and the med three. And he talks about the importance of AI and Vidian Meta, which have all
surged ahead. Then you've got Microsoft and Amazon that have done reasonably well, and then the other three have trailed.
The S and P five hundred index.
So you know you're super smart, and I think about when you were here at Bloomberg, like we could just get into the weeds of things, like, it's important that we be careful, right Like if we say magnificent seven, they're all really magnificent this year. And this is why when I say, like, when we talk about tech, we've got to kind of drill down and understand the particulars of each name.
You're absolutely right, Carol, And look they were all bagni in twenty twenty three, but that's not going to continue forever. And something we always love to remind clients of is well we're experiencing right now too when you see you're like twenty twenty three and which you have. You know, companies which many people know very well just from everyday life, but then they're hearing the about them every day on the news, or they're reading about them and the financial media,
or they're seeing their stock prices excel every day. Now clients say, I want more of that. I want more of that. And it's important to remind clients that, you know, say, went back to two thousand. If you look at the five largest companies from back in two thousand, how many of them are still you know, some of the top companies today. The answer is only one actually, So.
Yeah, you know, these.
Companies are amazing, and if you look at the revenues that they're putting up, they're amazing. But that doesn't mean that they're going to be at the top of the leaderboard every single day, every single year.
Right, and then it kind of makes finding the next ones Sarah that five years from now will be at the top of the leader board even more.
Difficult, right, And that's why, you know, we like looking at different, you know, thematic type of investments that give clients exposure to small and midcaps within the technology space as well, so you're not only concentrating your portfolio in whether you want to call it the Tig seven or you know the mag two this year.
The middling five smug.
But that way you're not just looking at you know, three five seventh.
The meth three three, middling two.
Sarah Ponzek always good to hear your voice and check in with you financial advisor over at UBS Private Wealth Management.
Joining us there from Booker Raton, Florida.
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