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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global
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Brook Sutherland she is a Bloomberg Opinion the Colm. She covers the industrials for Bloomberg Opinion. So, Brooke, this feels like really big news for our friends at boeen What does it mean to you when you see such a management shape pick up here for Boeing?
It's definitely big news. I mean, I would say perhaps overdue big news, but it's important that they're making the change now, and it signals that I think they're giving the message that this needs to be deeper rooted cultural change at Boeing and really get to the bottom of what's been driving these manufacturing glitches, a series of problems
that have been plaguing the Commercial Airplanes division. And to see them make it change not just at the top, but also at the head of the commercial Airplane division signals that they're really trying to do an overhaul here and it's about time, but they're doing it now.
So Brooke, is there a feeling again this story here, this quality story has we're now several months into this year, with a little bit of hindsight, do we have any sense to what changed over the last maybe six to twelve months of this company versus the last, oh, I don't know, fifty years.
I mean, I do think it's been notable the public criticism that's been coming out of their airline customers. I mean, certainly there was a lot of that in the wake of the seven thirty seven Max crashes in the grounding of that airplane, but not to the degree that we have seen in the wake of these recent quality control issues. And I think it's just been striking the level of criticism that we've seen directed at Boeing ME and its
management team. And there were reports late last week that those airlines customers that actually asked for a meeting with the Bowing Board directly without CEO Dave Calhoun, and I think that that was an important Sigma R.
How do you color a finance person with three decades of experienced Stephanie Pope coming in but critically to me, the key announcement Brooke is Steve Malinkoff of Qualcom with an electrical engineering background Virginia Tech. You know he's steeped in the engineering processes that are discussed here. What will he do? What's not day one for Steve Malincamp as the new chairman, but what the tone that he has to shift?
I think, I mean job number one is figuring out who you hire to be the ultimate CEO, and I think it has to be somebody with, you know, an engineer's mindset towards manufacturing, and you really need somebody who's going to drill into every single process and root out defects and just improve the way that Boeing works. And I don't think this is a situation where you bring in, you know, a complete outsider CEO from the auto industry
or healthcare or whatever it might be. It needs to be somebody who really knows manufacturing and frankly, you need somebody like Larry Colp a GE. But I don't know, Okay, he would want to.
Take it, Okay, Loving and Paul, And I mean, it's teasing Brook here because I got to go to Kansas here. This job was built for Alan Malally, Kansas Aeronautics. Brooke knows this that Lawrence called Alan Malally or the kind of engineering process guys that this job begs for.
So Brooke, is there a sense that Boeing can to lack of a better word, fix their weakness. Is their deficiencies in the manufacturing process within any reasonable amount of time? Or is this kind of a I don't know, a multi quarter, maybe multi year kind of thing. Do we have any sense as to the magnitude?
I mean, I think it probably does take a while. I mean, and I just I always go back to gees an example, just because you know, it's a company close to my heart, but also there's a lot of
similarities between these two companies and their cultures. Be given that a lot of former GE executives we're in the top ranks of management at GOING and I think, you know, to really drill down into every single detail of the manufacturing process, and to do it right does take time, and you need to completely rewire how you work and
train the staff there. It's a cultural shift. You need to teach people to feel comfortable, to feel transparent about pointing out defects, you know, before you have a situation like a mid air blowout on Alaska Airlines, and that does take time. It's not just a switch that you can flip. It's not a switch that gets slipped just by the CEO stepping right when.
You write your phone and page book on this book, I know the movie writes have already been sold. Did the pandemic cause this was there a pandemic breakdown as with other manufacturing companies because of the illness, people in, people out whatever. You've alluded to this before. Is there a big asterisk next to all this? It's not Calhoun's fault. It was a pandemic's fault.
No. I mean, I think the pandemic is exacerbated things. But I mean the seven thirty seven Max crisis happened before the pandemic, and I think that, you know, if you want to talk about cultural issues that a bowling, you've got to go back, I mean almost to the late nineteen nineties and the merger with McDonald douglas. But also you know the Partnering for Success program where they
squeezed margins out of their suppliers. And I mean, I think this is sort of a long running cultural issue at Boeing, But I do think, you know, COVID certainly took its toll, and probably more so on the supply chain who already had their profit margins squeeze to then have to go through the volatility of the pandemic and the.
Lay Julie Johnson extra Chicago Tribune giving us great leadership out of Sicago here on aviation Brook Sutherland did Julie Johnson's heritage here? Did this company never make the leap from Seattle to Chicago?
I think that, you know, it certainly didn't help to have management not be in the same vicinity as the manufacturing factory. And they since even moved the factory again to Arlington, Virginia, or so I moved the headquarters again to Arlington, Virginia, which is even further away from Seattle, which I don't think was the right message to send or the right mindset to have when you know your bread and butter is this Commercial Airplanes Division. That's that's having manufacturing.
I think the brook Sutherland book here is up to five hundred pages. I mean, I'm here, we got We've got brooks got a schedule. We got to leave her now, brook Sutherland, thank you so much from Boston. Joining us today are in our true expertise on America's manufacturing process. One of the great truisms of Bloomberg Surveillance. Paul and I will steal from anyone we can, and we do that all the time. And right now with liz Anne Saunders,
Chief Investment Strategies that Charles Schwab. It's an over our conversation one b rid Holts Berry Rid Holts Masters in Business with liz Anne Saunders, and all I got to say, folks, if you want to know where you need to be in the market, just trust me get incredible perspective that only Barry red Holts can bring to it. Miss Saunders and Liz aenne Berry had one question which I just thought was ALLEGI it was just brilliant tears on it. Oh my god, this is a question I would never ask.
So I'm stealing from rid Holts Liz enne And it's simple you've been at Schwab forever. You and I saw what Schwab invented. He's older, he's moving on. But the answer Schwab continues with core values. What are those core values that have kept you at Schwab all these years?
Well, we have it, as I guess, for lack of a better word, our tagline, but it's what we live breathe every day, which is through client size and having almost nine trillion dollars essentially all individual investors. What is important to them is quite different from what is important, say to an institutional community. So we always think of everything we do from the perspective of the individual investor.
Did the individual investors show exuberance right now?
A little bit yes, I'd say. The sentiment data more broadly, is I guess, on the frauthier end of the spectrum. Certainly, attitudinal measures of sentiment, maybe a little bit less so behavioral measures of sentiment. I think it's important to understand which indicators fall in which bucket, and it's almost necessity for it to be a contrarian indicator to see it in both categories, which were not quite seeing it in both of those. But it's on the frauthier end of
the spectrum. The most important thing I would say, though, is sentiment, not that anything's a good market timing indicator. Sentiment is a terrible market timing indicator. We can get fraughthy sentiment and it can stay there for years, as we all learned in the late nineteen nineties. So it's more of a backdrop.
Luzcyne. We had a bunch of central banks speaking and issuing announcements last week, and let's start with the Federal Reserve. Probably came out a little bit less hawkish. I guess this is a right way to frame it than maybe investors were discount of going into it. What did you take away?
So it was definitely on the more dubbish end of the spectrum, particularly as it relates to the dots and the expectation heading into the meeting that we might see one of the three rate cuts come out of expectations per the dots. But I think what's more important is Powell continuing to push back on the notion that the dots represent some sort of policy path. They don't. They never have, and certainly in an environment where the FED
is data dependent and not on any kind of preset. Course, if the data changes, I think their perspective and things like probabilities in terms of the FED fund's future market could change. So at that moment in time it was slightly more dubbish. But the combination of their dual mandates I think has to continue to behave or in the case of inflation, actually roll back over and start moving down again for rate cuts to start as soon as the June FOMAC meeting.
So given that backdrop, litt lezande of you have you guys altered kind of your allocation here? Stocks, bonds, maybe alternatives? What's the Schwab call these days? Maybe how has it changed over the last several months.
So we don't play the short term sort of tactical asset allocation game by saying, you know, abobveer blow low or percentages, because again, almost nine trillion dollars of client assets.
What might be right for you know, some twenty five year old aggressive investor that inherited ten million dollars from the grandparents and doesn't need the money, versus say, a you know, seventy five year old who is retired and needs to earn income on an est egg that they can't afford to lose any component of so two different, entirely,
two different messages there. What we have continued to do, though, is focus on factors, even a little bit more than sectors, and we still think you want to stay up in quality. A momentum has been a dominant factor. But what's interesting is that's more of a concept than a factor. Momentum says thank you. It just says these shocks that have
been working, continue to work. What you can do though, because a lot of comparisons are being made to the late nineties, Uh oh, momentum as a factor is doing well right now, that's the same thing happened in the nineties. But the actual fundamental factor that was most highly correlated to momentum in the late nineties was negative earnings. The factor right now most positively correlated to momentum is are factors like high return on equity, strong free cash low
and a negative correlation right now is negative earning. So momentum is just a concept. But you then have to look at what are the fundamentals of the types of stocks that continue to do well, And I think that's an important differentiation, But in essence, it's high quality. Other factors that are dominating in terms of momentum, and that is what we say you want to stick with right now, stay up in quality. This is not the time to go down the quality spectrum.
What you just heard there, folks, as far as I'm concerned, is gospel. I don't even know where to go with this, this momentum stuff, Lezan. I'm aging listening to the certitude of young turks telling me momentum is a Steve Ross factor concept. You say quality matters. Are we going to get earnings to deliver Q one, Q two, Q three to develop that cash flow of quality.
I think earnings estimates on a forward looking basis maybe have some legitimacy, but probably only out a quarter or two. What we've seen in this sort of pandemic era not as extreme as the case a couple of years ago, when you had a record percentage of companies that just withdrew guidens altogether. So estimates just became a total, you know, dart throw because companies were saying, we have no idea,
We're not going to try to guide. I think a lot of companies are using the environment as an excuse not to go back to the kind of precise quarter league guidance. What that's left analysts to do is go into earning season, where lately they've been setting the bar too low, listening to what companies are saying, maybe make adjustments out a quarter or two, but then sort of leave, you know, three quarters, four quarters the following calendar year
aside until they get more concrete information. So I think there's probably some validity to first half estimates. I'm not sure how much is based in reality on later out stimates.
This is brilliant Lizzie in too short a visit, Thank you so much, Lizzie Sanders a Charles Schwab there on factors and maybe an overwrought comment on momentum, joining us now with leadership, on courage to stay in the market, and with an upgrade on his earnings in S and P. Call John Stulfus from Oppenheimer Today in the fearedom of two Octobers ago, the affeared moment of an October ago, John Stulfus, how did you not go to cash?
Simple reason is Tom that when when we looked at things, we looked at the the overall friends, and we thought that the calls that were essentially a bearish pitch book were just not accurate. They were based on near term trading.
When we saw what the situation was in terms of the corporate resilience, the the the consumers stance, and where FENN was being effectively very much sensitive to applying its mandate to inflation that was at untoward levels, we couldn't help but think we rather stay in the market rather than try to time the market. Recognizing the time in the market historically has shown to be a good way to get better returns over the intermediate to longer term.
So the Bloomberg reporting of your call here this morning, John Oppenheimer Asset mentioned list s and P five hundred target to Wall Street high of fifty five hundred. What's driving that? Is that earning's driven?
Is that?
But it's certainly it's a mix of both that it certainly is earning's driven. If you consider third quarter and fourth quarter s and P five hundred earnings really surprised very nicely to the upside. In addition, if you look at a d P and you reflect on Fed policy, the Fed has been remarkable with eleven hikes and what is it six pauses or skips as they call them now, has not pushed the economy into a recession. And then beyond that, the fact that what we believe is that
it's interesting. You just had George ball on and you all spoke about investors and retirement and things like that.
At one point, it's it's today two generations and more than that, the younger ones that follow the millennials, with the millennials and the boomers recognize the fact that social security is likely not to be what it once was as a core to retirement for prior generations over the decades, and in addition to that, the recognition that they will likely live longer, and so whether preparing for retirement or retirement,
there's a need for equities. Equities historically, again, you know, with past performance no guarantee of future results, as we always say, but equities tend to be a better place for intermediate to long term investing and diversification in Paul's and our view.
I mean, Paul's living this representative John, you and I have to work every day. Sweeney could have retired fourteen years ago. But the bottom line here, Paul Sweeney is when was the last time bonds made a return?
Yeah?
And I mean I'm talking you're back five years, seven years or whatever.
That I mean. John, It's interesting. It's you know, Thomas is mentioning you think about the fixed income space just got crushed in twenty twenty two, and thanks to miraculous November December, they eked out some games last year. But in the equity markets, I guess the question for a lot of folks is where do I go here? Do I follow the Magnificent seven or five or whatever they are today, or do I try to find some value in other parts of the market. Where are you at this part of the stage?
Great question, Paul. We think you have to mix and match, which really means diversification, and by that we mean we emphasize cyclicals over defensives, but still want some defensive in
there for the higher yielding dividends. Growthier value for companies that grow their dividends and still want growth because the innovation points to the very clear fact that much more sophisticated technology that we have today versus where the where we were when the tech bubble happened, And being forty years of this business, I can well remember the tech bubble,
which is not that long ago. This is an environment where technology keeps morphing, and it can very well help all the sectors, including both itself technology and communication services, which is over fifty percent about sixty to seventy percent technology, but all the others help companies become more efficient, help consumers be more efficient in the relationship business as well as each other.
I mean the question here in a broader question, folks, and I'm showing my age. We're talking to. George Ball was iconic, and so is John st John Stulfus was in Tykondergus Securities. I remember that the romance Securities. And what I really remember John Stulfis is a guy named Myron Pico who was at OpCo and literally taught me individual line item for accounting statements securities analysis. I mean, Myron like own the high ground. Can we get as I said to mister Ball, can we get back to
where people actually are riveted by individual security ownership? Or is that just the time gone by?
I think? I think, if anything, ironically, et apps bring them back to the thought of the need for diversification and approach. We like alpha beta for example, so alpha would be individual security selection or individual stock selection. Looking for alpha piics in combination with a strategically allocated and tactically weighted ETFs that track passive indices, and that way, if you're in the right church but in the wrong pew, you're okay. Or if you're in the wrong church but
at the right pew, you can also be okay. It gives you more opportunity, we think via diversification of approach to the markets, and we think people want to be that thoughtful, and we think the financial media calls for that many ways because most of the day spent highlighting individual stocks and not ETFs. But the benchmarks are looked at certain for certain but alpha beta. We think you don't have to be a kid to have to know your alphabet.
What would like to say from five thousand to fifty two hundred, John Sulphus lifting up here on earnings, and you wonder where he'll be six months out or eight months out. John Stulfus, folks, I'm just simple as I can. I said, this is Gina Martin Adams. You got to be in the market. You can't time it, you can't go to cash, You'll never make it. I've lived it. John Stulphus, with a courage to be in the market. He is with OpCo.
You're doing a look at.
The front pages around the world at LISTA.
I missed this.
I was reading I was reading Lemonne as Jitan in a beret.
I'm in a cafe.
Okay, I'm reading Lamant English. I'm sorry, I'm not reading Laman French. And I'm thinking all the newspapers were to have out of France. What do you got today?
All right, this is the big debate in the housing market because you remember the National Association of Realtors that class action settlement. Well you had President Biden who said the deal could save home buyers sellers as much as ten thousand dollars. But experts are saying that the true benefits they're really not clear, especially those first.
Time buyers who need help the most.
So this is that back and forth kind of a discussion being going on right now.
It was amazing, Paul to see the government support of housing in France versus the mess we have here. All the houses look the same. I mean, it's scary, how it's just you know, there's one contractor one look, miles of mos took to train up to Rue. The whole thing is build out houses supported by the government. They do it exactly opposite of the chaos we have.
But then okay, so we are going to get some savings, but we're just not sure how much it went.
That's the thing.
Yeah, because they're saying, oh, it could be up to ten thousand dollars, but experts saying, you know what, no, nope, nope, they're saying the NAAR actually says real estate agent commissions are driven by the market and are not the cause of the affordability crisis. So that's like kind of the back and forth there. All right, So we also have the AI boom, right, everybody's talking about AI, but there is a Caribbean.
Island who is making millions of dollars.
This is an unlikely fig Yes, okay, so and Guilla or I say and Gie, yeah, I'm not sure how the correct way to spend and Gwilla there you go. British Okay, yes, the British territory just to the east of Puerto Rico.
That's where it is.
So it collects a fee from every registration for Internet addresses that end in dot ai, which is the domain name that's assigned to the.
Island, so you get it. So you have all these companies.
Who want these, you know, domain names to show that they're on the forefront of AI.
So they want the dot AI. So how much are they getting?
So each registration and Guilla's government gets anywhere from one hundred and forty dollars two thousands of dollars from website names that are sold over at auctions. Last year, the government made about thirty two million dollars from those fees.
That's more than ten percent of their gross domestic.
Product just for being the dot AI. So you see kind of the need and how people are asking for it and they want to be.
Associated with it.
Next, all right, Jack Daniels, people are not drinking enough of it, and that's the problem. So demand actually for Jack Daniels Old number seven has been falling for months. The company behind it, Brown Forman, they're forecasting sluggish US whiskey business for at least the next year. Yeah, well here's a reason why tough comes.
Yeah, yeah, exactly.
So drinkers liked it during the pandemic. They saying the party is over. They're saying people are kind of cutting back on alcohol.
Maybe they're getting a.
Little bit healthier. They're switching to marijuana instead of drinking heavily.
That's another thing.
They're spending less time at home. They're going out a little bit more, but they're spending less, so they want the cheaper canned cocktails, maybe some tequila instead of.
And in your white cloth clauses.
And I go into the store and it's it's a wall. Like if the wall fell over, people would die white, the.
White claws, the high noons, thees. Yeah, you don't get the same buzz effect, but it tastes good.
Okay, okay.
And finally, this is honor of you, Tom coming back from Paris. You missed it. On Sunday, there was a race there.
It was a race that hasn't happened in over a decade, but it's it's when the waiters get out. There was about two hundred many women and they race for about a mile holding trays of croissants and coffee and water and they race around. They were short on the budget, but they decided to bring it back because the Paris Olympics is coming and they want to kind of promote everything going out there with the cafes and promote everyone to come out. So that's why they brought it back.
It's really interesting it is a Paris bubble. It is a tourist outpost and the restaurants are packed. Yep, they're very different on a salary structure that you get the whole feeling everybody's making a legitimate living on, like the struggle, you know, to make it in New York City.
But they but they you can see signs are gearing up for the Olympics.
Oh huge, huge, and you know it's all getting spriced up. And I have to say it is hugely emotional still to see the cathedral of Notre down. Oh yeah, are we We're racing to get it done and I have no idea where it is, but they really have made some headways. Oh no, no. We were actually going to go to the service on Sunday and there's no services still, but they're clearly. I can't believe they're going to get there by the summer, but maybe they'll get part of
it open. But you know it Actually Ben smith Ever of France did a wonderful interview I want listened to over the weekend and he says they completely guessed wrong on tourism. It is fully back and fully past twenty nineteen. Love us and it's great and can we just have the train service they have? That's all I want. I just want the trains of France, don't I don't want the Red Sox to win, you know whatever, Just give me this anything else?
That is it? That was one? Well do you like in the NC double a NC double A?
I don't know. See, my husband is a big North Carolina fans.
Sorry, you're the big Michael Jordan fan.
So that's the reason why.
So our household is big that I was pushing for Connecticut. I mean, hey, do we know who the Rock likes?
We don't.
Okay, let's find that out. Lisa Mateo with the newspapers today. You know, I get the Rock. Miami's not in this. That's what they're rock. Now. This is the Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern of our
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