WEBVTT - S&P 500 Hits Record High as Dollar Selloff Deepens 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, radio news. 0:00:08.680 --> 0:00:13.000 This is Bloomberg business Week Daily reporting from the magazine 0:00:13.000 --> 0:00:17.639 that helps global leaders stay ahead with insight on the people, companies, 0:00:17.640 --> 0:00:22.560 and trends shaping today's complex economy. Plus global business, finance 0:00:22.600 --> 0:00:25.919 and tech news as it happens. The Bloomberg Business Week 0:00:26.000 --> 0:00:31.480 Daily Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio. 0:00:32.000 --> 0:00:34.159 With more on the currency trade and declines in the 0:00:34.240 --> 0:00:37.240 US dollar. Bloomberg News FX and Rates reporter Carter Johnson 0:00:37.280 --> 0:00:39.959 is here in the Bloomberg Business Week Studio. The declines 0:00:39.960 --> 0:00:42.559 that we continue to see in the US dollars, the 0:00:42.640 --> 0:00:45.640 flows behind it, what's the story that's telling you? 0:00:46.040 --> 0:00:46.320 Sure? 0:00:46.360 --> 0:00:49.240 Absolutely, Thanks Jim, Thanks Carol. And I think what's really 0:00:49.280 --> 0:00:51.160 interesting is we can look at this on a pretty 0:00:51.200 --> 0:00:55.480 long timeline. So I'm starting to hear comparisons late last week, today, 0:00:55.840 --> 0:00:58.680 yesterday to this feels like early twenty twenty five and 0:00:58.800 --> 0:01:03.440 Liberation Day all over. And that's just because yes, we're 0:01:03.440 --> 0:01:06.280 seeing some action at stocks and treasury and treasuries, but 0:01:06.560 --> 0:01:09.920 really this is a real sort of dollar focused impulse 0:01:09.959 --> 0:01:13.160 to sell, and of course on a shorter timeline as well, 0:01:13.200 --> 0:01:15.240 we can think about that in the context of what 0:01:15.280 --> 0:01:19.160 we saw last week, which was some pretty concerted movement 0:01:19.280 --> 0:01:23.399 in dollar yen specifically, and that was, as we reported, 0:01:24.200 --> 0:01:27.320 likely because some folks here in the US, the New 0:01:27.360 --> 0:01:30.119 York Fed, acting at the best of the Treasury, were 0:01:30.160 --> 0:01:35.399 reported to us to be checking rates and sort of 0:01:35.560 --> 0:01:38.520 calling into some banks and seeing where exchange rates were trading, 0:01:38.600 --> 0:01:40.640 so on a couple different levels, sort of in the 0:01:40.680 --> 0:01:43.680 near term and in the big picture, as you mentioned, Carol, 0:01:43.760 --> 0:01:47.119 questions about the US physical position policy and certainty those 0:01:47.160 --> 0:01:48.400 are all combining right now. 0:01:48.640 --> 0:01:51.880 Carter reading in this morning, you know, Bloomberg reporting app 0:01:51.880 --> 0:01:54.400 the positioning is heavily one sided. They said since Thursday, 0:01:54.520 --> 0:01:57.080 roughly two thirds of options trades in the year and 0:01:57.120 --> 0:02:00.360 the Australian dollar have been bets on further greenback weakness. 0:02:00.720 --> 0:02:04.520 So is this largely about dollar decline and not about 0:02:04.560 --> 0:02:07.720 bets on other currency strength backed by fundamentals. 0:02:08.000 --> 0:02:11.359 It's a great question. I think the answer honestly is both. 0:02:11.520 --> 0:02:13.720 And a lot of that impulse, as we just talked about, 0:02:13.840 --> 0:02:17.280 is because of a declining dollar in questions about US policy, 0:02:17.560 --> 0:02:21.240 but we are seeing relatively solid growth expectations in the 0:02:21.280 --> 0:02:25.360 rest of the world, whether that's Europe, maybe that's in Asia, 0:02:25.400 --> 0:02:29.880 and that really underpins the impulse to sell dollars as well. 0:02:30.560 --> 0:02:32.200 If the rest of the world, if growth in the 0:02:32.200 --> 0:02:34.520 rest of the world was creatoring at the moment, we 0:02:34.560 --> 0:02:37.239 wouldn't be seeing this sort of action we're seeing in 0:02:37.320 --> 0:02:40.239 terms of dollar sales. So it's absolutely the other side 0:02:40.240 --> 0:02:41.000 of the coin as well. 0:02:41.360 --> 0:02:45.519 We've got stock investors watching and listening to this program. 0:02:45.560 --> 0:02:49.680 What is the relationship between weakness in the dollar and 0:02:49.720 --> 0:02:51.359 what happens in the equity market. I mean, you made 0:02:51.360 --> 0:02:53.760 the comparison minutes ago. It to kind of feels like 0:02:53.960 --> 0:02:56.320 April twenty twenty five, and we all remember what happened 0:02:56.320 --> 0:02:57.760 to the equity markets during that time. 0:02:58.000 --> 0:03:00.520 Absolutely, and I think that's the big question is will 0:03:00.560 --> 0:03:03.880 we see that again. Where typically you'd expect to see 0:03:04.280 --> 0:03:08.360 the dollar weaker as stocks strengthen, they have a negative correlation, 0:03:09.200 --> 0:03:11.720 particularly the dollar as a traditionally have an asset, we 0:03:11.720 --> 0:03:14.400 didn't see that late last year. The stock's, the dollar, treasuries, 0:03:14.400 --> 0:03:16.280 they were all falling together. So I think that's the 0:03:16.280 --> 0:03:18.440 big question right now is will we see that again. 0:03:18.520 --> 0:03:21.360 I don't think we are yet, but in sort of 0:03:21.760 --> 0:03:24.120 a different picture as well. A week er dollars should 0:03:24.120 --> 0:03:28.440 theoretically support domestic manufacturers, it should support exporters here in 0:03:28.440 --> 0:03:31.400 the US. That's typically what we'd see on a lag 0:03:32.320 --> 0:03:34.760 but we also know that that's something that Trump administration 0:03:34.800 --> 0:03:37.520 has been vocal about as well. A week er dollar theoretically, 0:03:38.040 --> 0:03:42.760 again doesn't work instantaneously, but theoretically supports domestic manufacturing and 0:03:43.240 --> 0:03:45.320 exporters who are looking to sell to the rest of 0:03:45.320 --> 0:03:45.680 the world. 0:03:45.800 --> 0:03:48.120 Hey, one other thing I want to ask you, though, 0:03:48.200 --> 0:03:51.360 but is it about global investors and we've talked about 0:03:51.400 --> 0:03:55.800 flows into European equities. Is it another sign perhaps that 0:03:55.920 --> 0:04:00.000 global investors are less interested in dollar denominated investments. 0:04:00.600 --> 0:04:03.720 It is possible, although I think it's too early for 0:04:03.840 --> 0:04:06.839 us to say at this point. As we knew last year, 0:04:07.120 --> 0:04:10.200 we don't have that data yet necessarily, and again, if 0:04:10.240 --> 0:04:13.040 we look at just the relative performance of US stocks, 0:04:13.320 --> 0:04:16.720 they're they're doing all right, they're certainly holding up. I 0:04:16.720 --> 0:04:19.280 think what it could definitely be indicative of, and this 0:04:19.320 --> 0:04:20.919 is something we've covered a bit here at Boomberg in 0:04:20.920 --> 0:04:24.200 the past, is hedging behavior. And what that means is 0:04:24.279 --> 0:04:26.440 you're a global investor here in the invested here in 0:04:26.480 --> 0:04:29.200 the US. You might still want your exposure to US 0:04:29.200 --> 0:04:32.240 stocks in US tech, but you're gonna hedge that dollar 0:04:32.800 --> 0:04:36.159 component of that much more than maybe you used to mention. 0:04:36.320 --> 0:04:39.160 J Powell tomorrow the press conference. What are you watching 0:04:39.200 --> 0:04:42.480 for from from your purchase somebody who watches FX. 0:04:42.440 --> 0:04:45.560 Absolutely, I think, just as we are in the rates 0:04:45.560 --> 0:04:47.040 in the treasuries world as well. 0:04:47.360 --> 0:04:47.960 Any sort of. 0:04:47.880 --> 0:04:50.480 Forward guidance that we can get from from Chair Powell 0:04:50.880 --> 0:04:54.160 that'll be a tall order given the spotlight he's under 0:04:54.200 --> 0:04:57.839 at the moment, But any sort of future guidance about 0:04:57.880 --> 0:05:00.480 the outlook for rates this year, that'll be particular impactful 0:05:00.480 --> 0:05:02.200 for the dollars as well as rates. 0:05:02.279 --> 0:05:04.880 Right if for any indications that there's higher rates coming 0:05:04.880 --> 0:05:07.159 we're talking about that could put some a floor under 0:05:07.200 --> 0:05:09.200 the dollar correct, that could definitely help. 0:05:09.320 --> 0:05:12.000 Yeah, and you know it's funny, Yeah, No, for sure, 0:05:12.920 --> 0:05:15.000 JP Morgan when they came out with their big currency 0:05:15.000 --> 0:05:18.360 forecast late last year, they're barish on the dollar. But 0:05:18.400 --> 0:05:20.599 the big risk to their barish dollar view is the 0:05:20.600 --> 0:05:23.240 Fed has to turn around and hike again. We might 0:05:23.279 --> 0:05:25.120 not see that, but that's that's the risk. 0:05:25.200 --> 0:05:27.560 Although there is it feels like a growing conversation about 0:05:27.720 --> 0:05:32.760 inflationary concerns, which would certainly lead the Fed possibly certainly 0:05:32.760 --> 0:05:35.480 to keep rates as is or possibly hike them out 0:05:35.520 --> 0:05:37.960 to see Cord, thank you so much laying out the 0:05:38.000 --> 0:05:39.960 currency trade for us as we continue to watch the 0:05:40.080 --> 0:05:43.359 US dollar. He's Bloomberg News FX and Rates Reporder Carter Johnson. 0:05:44.800 --> 0:05:45.560 Stay with us. 0:05:45.600 --> 0:05:48.600 More from Bloomberg Business Week Daily coming up after this. 0:05:52.120 --> 0:05:56.040 If you're listening to the Bloomberg Business Weekdaily podcast, catch 0:05:56.120 --> 0:05:59.360 us live weekday afternoons from two to five pm Eastern. 0:05:59.480 --> 0:06:02.560 Listen on it, Applecarplay and Android Auto with the Bloomberg 0:06:02.640 --> 0:06:05.279 Business app, or watch us live on YouTube. 0:06:06.400 --> 0:06:08.480 The group of airlines stocks as a whole off about 0:06:08.520 --> 0:06:10.560 two percent today. Here to talk about that. We're also 0:06:10.560 --> 0:06:13.640 going to talk about Boeing, which also reported today, is 0:06:13.640 --> 0:06:16.839 Sheila Kayalu. She is managing director in equity research at Jeffrey. 0:06:16.880 --> 0:06:19.120 She joins us here, it's studio, nice to have you here. 0:06:19.160 --> 0:06:22.760 Happy New Year. You know January is over, but elm us, 0:06:23.720 --> 0:06:25.120 let's just start with the airlines and then we want 0:06:25.160 --> 0:06:27.359 to move into defense because you cover that really closely 0:06:27.440 --> 0:06:30.000 as well. It does feel like they're all finding their 0:06:30.000 --> 0:06:31.880 way back after the storm. We're trying to see if 0:06:31.880 --> 0:06:34.360 there's another storm. In terms of the impact, is it's 0:06:34.360 --> 0:06:36.440 still a case of they're still trying to assess. How 0:06:36.440 --> 0:06:38.800 do you, as someone who covers some of these names, 0:06:38.839 --> 0:06:39.880 kind of factor that in. 0:06:40.320 --> 0:06:40.520 Yeah. 0:06:40.560 --> 0:06:44.279 In terms of airlines, we're looking for revenue growth. We've 0:06:44.320 --> 0:06:46.320 seen the same trend across American that we saw at 0:06:46.400 --> 0:06:50.560 United and Delta. Corporate was up twelve percent. Corporate momentum continues. 0:06:50.839 --> 0:06:54.280 I'm taking a very long flight this weekend and then 0:06:54.680 --> 0:06:57.080 main cabin weakness, but it's getting a little bit better, 0:06:57.120 --> 0:06:59.200 and it's all about cost control. That's why I think 0:06:59.200 --> 0:07:01.280 you United one up the most on earnings is they 0:07:01.839 --> 0:07:05.520 really beat out on costs when American Airlines margins came 0:07:05.520 --> 0:07:07.880 in one hundred BIPs below our estimate. So I think 0:07:07.920 --> 0:07:10.680 the most polarizing stock is going to be Southwest. I'm 0:07:10.720 --> 0:07:13.320 really excited for their report on Thursday because they have 0:07:13.360 --> 0:07:14.320 some lofty targets. 0:07:14.320 --> 0:07:15.800 The stock's at forty dollars today. 0:07:15.880 --> 0:07:18.440 Some people think it's going to thirty, some people think 0:07:18.440 --> 0:07:20.840 it's going to eighty. It's all about they're adding extra 0:07:20.920 --> 0:07:23.760 lug room seats and it is the strategy going to work. 0:07:23.880 --> 0:07:26.840 But that's a huge shift for Southwest. I mean, they're 0:07:26.920 --> 0:07:29.840 essentially moving away from their DNA, what they're known for 0:07:30.240 --> 0:07:33.520 and the culture that they're known for, and that's alienated 0:07:33.520 --> 0:07:34.320 some people already. 0:07:34.920 --> 0:07:36.120 Yeah, it depends. 0:07:36.160 --> 0:07:39.000 So the average Southwest fair is about one hundred and 0:07:39.040 --> 0:07:42.119 nine dollars. So if you add an option for extra 0:07:42.200 --> 0:07:47.040 lug room or refundable or seating, if you add fifty 0:07:47.080 --> 0:07:49.120 dollars to that cost of that airfare, so one hundred 0:07:49.160 --> 0:07:51.600 and fifty nine, it's a fifty percent increase. 0:07:51.600 --> 0:07:53.200 Almost does the passenger back away? 0:07:53.200 --> 0:07:55.200 I'm not sure, but then again, it's only one hundred 0:07:55.200 --> 0:07:56.880 and fifty nine dollars, So how do we think about 0:07:56.920 --> 0:08:00.640 that and what adoption do we assume we're at about 0:08:00.720 --> 0:08:03.240 five percent adoption in twenty six. They have a bunch 0:08:03.280 --> 0:08:07.200 of other benefits as well, baggage fees and cost optimization. 0:08:08.080 --> 0:08:11.320 So that's driving their EPs to three dollars, essentially ebit 0:08:11.360 --> 0:08:13.840 tripling off of a very low twenty five base. So 0:08:14.120 --> 0:08:15.680 we'll see how much of that they get. You know, 0:08:15.720 --> 0:08:17.680 some people think they could godd to four dollars or 0:08:17.720 --> 0:08:20.720 even five dollars as more of that extra lug room 0:08:20.720 --> 0:08:24.080 adoption comes in but it's their first go at it, 0:08:24.160 --> 0:08:25.800 and we'll see how it takes off. 0:08:25.840 --> 0:08:27.800 You have a forty five dollars price target, so you're 0:08:27.800 --> 0:08:29.680 not at the eighty and you're not at the thirty. 0:08:29.800 --> 0:08:31.960 So maybe a little bit higher from where we are. 0:08:32.120 --> 0:08:35.720 You know, I would prefer United where they've If you 0:08:35.760 --> 0:08:38.520 think about United, they're going to be accounting for forty 0:08:38.559 --> 0:08:41.840 four percent of the why of the new premium seats 0:08:42.679 --> 0:08:45.280 through twenty twenty eight, so they're going to be accounting 0:08:45.320 --> 0:08:48.240 for more than any other airline in the US Americans 0:08:48.280 --> 0:08:50.520 after that in Southwest because of their extra lug room. 0:08:51.600 --> 0:08:54.880 I prefer to bet on that corporate customer paying one 0:08:54.920 --> 0:08:58.680 thousand plus one hundred dollars to achieve that additional corporate 0:08:58.720 --> 0:09:02.000 fare and that higher margin where United is adding its 0:09:02.000 --> 0:09:05.040 seats than Southwest adding on the You know, I think 0:09:05.200 --> 0:09:07.480 both are given the multiples that. 0:09:07.400 --> 0:09:10.320 They're currently trading at. United is more appealing to me. 0:09:10.920 --> 0:09:13.840 Let's talk some defense and then we'll talk some Boeing too. 0:09:14.040 --> 0:09:16.040 I want to look at shares of RTX. They're higher 0:09:16.240 --> 0:09:20.200 right now by about three point four percent. Profit topp 0:09:20.200 --> 0:09:23.560 to Wall Street estimates assign the momentum that the company 0:09:23.840 --> 0:09:26.440 awaits a potentially huge jump in US military spending. 0:09:26.640 --> 0:09:27.880 That's kind of where I want to start. 0:09:28.280 --> 0:09:30.320 What we've heard from President Trump in the last few weeks, 0:09:30.360 --> 0:09:31.960 not just with the idea of a one point five 0:09:32.040 --> 0:09:36.000 trillion dollar defense package, but also calling on some of 0:09:36.000 --> 0:09:39.920 these companies to do a better job, pay their executives less, 0:09:40.440 --> 0:09:42.920 and also build stuff for the US government more quickly. 0:09:43.400 --> 0:09:44.559 What are these CEOs to do. 0:09:44.760 --> 0:09:46.400 There's a lot going on in defense, and that's what 0:09:46.480 --> 0:09:49.320 I was saying. It's an exciting sector to cover because 0:09:49.760 --> 0:09:51.880 this is the first time that the five Primes might 0:09:51.960 --> 0:09:53.960 no longer exist as five primes by the end of 0:09:53.960 --> 0:09:57.480 the Trump administration, which is our view. We think that 0:09:57.520 --> 0:10:00.679 there's going to be similar to what LHX announced days ago, 0:10:00.960 --> 0:10:04.320 there's going to be more deconsolidation happening among the primes. 0:10:04.679 --> 0:10:07.800 Their budget is going up by five hundred billion from 0:10:07.840 --> 0:10:10.120 a trillion dollars. We don't know the time period of 0:10:10.160 --> 0:10:12.199 that spending. We don't know how much will be added 0:10:12.240 --> 0:10:15.679 to actual equipment and R and D versus military operations, 0:10:16.080 --> 0:10:18.160 but they're seeing an increase, whether it's to fun defense 0:10:18.200 --> 0:10:21.720 techniques like firefly voyage or the recent IPOs we've seen 0:10:21.760 --> 0:10:24.640 in the space or the traditional primes or suppliers like 0:10:24.679 --> 0:10:27.240 aero environment crados are up one hundred percent on the 0:10:27.280 --> 0:10:30.880 year already and we're twenty seven days in. So it's 0:10:30.920 --> 0:10:33.360 really interesting to see what happens in defense. But there's 0:10:33.360 --> 0:10:35.480 a lot of shakeups that are I think are going 0:10:35.520 --> 0:10:37.880 to play out. So it's about seeing who has the 0:10:37.880 --> 0:10:41.920 best position positioned portfolio and who to play from here. 0:10:42.160 --> 0:10:43.920 I was surprised, like I know, when you walked in 0:10:44.000 --> 0:10:46.680 we started talking, and I mean aerospace defense. Just the 0:10:46.840 --> 0:10:49.240 S and P broad Index up about nine percent year 0:10:49.240 --> 0:10:51.760 to date, up about forty six percent last year. Is 0:10:51.800 --> 0:10:55.320 it just because defense spending all around the globe is 0:10:55.360 --> 0:10:57.559 just happening and everybody's amping it up. 0:10:58.120 --> 0:10:59.800 It's yeah, it's as simple as that. 0:11:00.120 --> 0:11:04.880 Unders growth internationally twenty percent plus NATO budgets, Japan, Korea. 0:11:04.920 --> 0:11:07.319 We're seeing countries like Serbia put in orders that never 0:11:07.400 --> 0:11:10.040 used to, put in billion dollar orders for equipment to 0:11:10.080 --> 0:11:13.440 companies like Elbett in Israel. Coupled with the defense budget 0:11:13.480 --> 0:11:16.120 going from a trillion to one point five trillion makes 0:11:16.160 --> 0:11:19.199 defense very interesting and the administration has been very supportive 0:11:19.400 --> 0:11:24.040 of defense tech. Emergent technology companies, companies that had stagnant 0:11:24.040 --> 0:11:27.440 revenues for the last decade are seeing thirty forty percent growth. 0:11:27.480 --> 0:11:29.000 But you know, as to mention, you know, when the 0:11:29.000 --> 0:11:31.640 president talks about an industry, it can be good or bad. 0:11:32.000 --> 0:11:34.400 So is it good that they're on his radar? 0:11:34.480 --> 0:11:38.119 But when he's the world five million. 0:11:37.840 --> 0:11:39.480 Dollars we're talking about he. 0:11:39.760 --> 0:11:40.599 Did back off of that. 0:11:40.760 --> 0:11:43.800 He didn't quantify in the executive order the pay and I. 0:11:44.000 --> 0:11:45.520 But he mentioned it, and he mentioned it. 0:11:45.760 --> 0:11:47.680 Really, Yes, that's a headline that caught our attention. 0:11:48.160 --> 0:11:49.200 And five million dollars. 0:11:49.320 --> 0:11:51.080 It sounds like a lot of money, but not for 0:11:51.160 --> 0:11:53.240 a CEO who's paid over twenty million dollars. 0:11:53.080 --> 0:11:55.839 Right the executive executive pay, the average executive pay I 0:11:55.840 --> 0:11:59.000 would assume in any sectors over twenty million. So the 0:11:59.120 --> 0:12:01.520 caliber of folks you would get into the defense would 0:12:01.520 --> 0:12:04.000 be the opposite of what the administration is trying to achieve. 0:12:04.120 --> 0:12:07.679 So what do you hear from defense companies about getting 0:12:07.720 --> 0:12:10.280 some attention like that from the president? Do they do 0:12:10.280 --> 0:12:11.800 They kind of brush it off a little bit, like 0:12:11.840 --> 0:12:12.960 we're talking with them. 0:12:12.760 --> 0:12:15.520 Like I think one interesting trend we've seen from the reports, 0:12:15.559 --> 0:12:17.800 whether it was Northrop or raitheon today is the lack 0:12:17.840 --> 0:12:21.120 of buybacks, because that's what the administration asked for, a 0:12:21.160 --> 0:12:24.920 focus on additional cap X. Raith Yon mentioned that Northrop 0:12:24.960 --> 0:12:28.920 mentioned dot Boeing mentioned that, so across the board, everyone's like, sure, 0:12:29.040 --> 0:12:31.000 we're investing. We're going to get you supplies on time. 0:12:31.040 --> 0:12:34.040 That's our job and it helps funnel the growth. 0:12:34.120 --> 0:12:38.000 The Norther CEO saying northp rebalancing the need for performance 0:12:38.000 --> 0:12:40.079 with affordability and speed to market to meet the US 0:12:40.120 --> 0:12:42.040 defense departments focus on speedy development. 0:12:42.360 --> 0:12:44.240 Yes, and I think Kathy Ward and the CEO of 0:12:44.240 --> 0:12:46.800 Northup said this was the best spending environment she's ever 0:12:46.840 --> 0:12:49.720 seen in her career. So most of these executives are 0:12:49.800 --> 0:12:50.640 very bullish. 0:12:50.880 --> 0:12:53.920 Do the off starts in defense tech pose a threat 0:12:53.960 --> 0:12:55.920 to the incumbents? And I'm thinking of you know, an 0:12:55.960 --> 0:12:58.439 Anderill that is not yet And I say not yet 0:12:58.440 --> 0:13:01.720 because obviously this company, well IPO at some point soon. 0:13:01.920 --> 0:13:05.640 Do they compete with these incumbents. 0:13:05.240 --> 0:13:08.480 Yes, clearly they're competing and they're collaborating. They're working together 0:13:09.400 --> 0:13:12.720 both internationally and domestically. The primes are trying to work 0:13:12.840 --> 0:13:16.840 with you know, Northropez a partnership with Kratos on CCA. 0:13:16.920 --> 0:13:20.240 It's the autonomous vehicle essentially, so we're seeing a lot 0:13:20.280 --> 0:13:23.800 more collaboration, but they're also trying to take share. 0:13:23.880 --> 0:13:25.199 But the budget is growing. 0:13:24.920 --> 0:13:27.199 Overall, and that's the bottom line, although we're not really 0:13:27.200 --> 0:13:30.240 seeing it. In twenty six Northrops Guidance's five percent growth, 0:13:30.559 --> 0:13:32.840 they talk about an acceleration from there. In twenty seven 0:13:32.880 --> 0:13:36.800 twenty eight, same thing with Raytheon it was modest growth 0:13:36.840 --> 0:13:37.480 in defense. 0:13:37.559 --> 0:13:38.959 It didn't really pop. 0:13:39.120 --> 0:13:41.480 Yes, it grew in the second half versus the first half, 0:13:41.480 --> 0:13:43.160 and we'll see how those trends continue. 0:13:43.240 --> 0:13:45.319 I feel like with all of the geopolitical tensions and 0:13:45.360 --> 0:13:47.280 the wars that we've seen around the world, that everybody 0:13:47.320 --> 0:13:50.680 comes back to the US military might and the defense 0:13:50.679 --> 0:13:53.080 companies here in the United States. What is the global picture? 0:13:53.120 --> 0:13:57.760 Where's the competition? Is there not much global competition shila 0:13:57.800 --> 0:14:00.240 when it comes to the US defense companies, So. 0:14:00.160 --> 0:14:02.640 I think it's focused on maybe a few things first 0:14:02.679 --> 0:14:06.000 as missiles and munitions readiness. We need to have that 0:14:06.120 --> 0:14:09.840 available and that's why we're seeing companies like Lockheed increase 0:14:09.920 --> 0:14:13.079 Pack three production from six hundred missiles a year, which 0:14:13.160 --> 0:14:16.520 package it's a missile Packtory is the name of the missile. 0:14:16.760 --> 0:14:19.760 Going from six hundred units a year to two thousand, 0:14:20.320 --> 0:14:23.560 that is significant to say at least that's eight billion 0:14:23.560 --> 0:14:26.520 of additional revenues to Lockheed over seven years. If they 0:14:26.520 --> 0:14:29.080 could ramp to those levels. The backlogs twenty. 0:14:28.920 --> 0:14:31.480 Years for a missile like that. We're seeing that across 0:14:31.520 --> 0:14:31.920 the board. 0:14:32.440 --> 0:14:35.520 LHX ten days ago or two weeks ago now announced 0:14:35.560 --> 0:14:41.000 that they are seeing a government investment within their solid 0:14:41.040 --> 0:14:44.960 rocket motor business that powers missiles. They're going to open 0:14:45.040 --> 0:14:48.120 up sixty factories next year. LHX currently has two one 0:14:48.160 --> 0:14:51.480 hundred and fifty factories, so that's a magnitude of investment 0:14:51.480 --> 0:14:55.000 we're seeing from the government. So focus on missiles, ammunitions, 0:14:55.000 --> 0:14:58.080 and second, I think it goes back to old school warfare. 0:14:58.120 --> 0:15:01.200 Everybody thinks helicopters are we and F thirty five is 0:15:01.240 --> 0:15:03.800 a bad program. But we think about Venezuela, if we 0:15:03.800 --> 0:15:05.600 think about Iran, what's the. 0:15:05.560 --> 0:15:06.880 Kind of equipment we're using. 0:15:07.520 --> 0:15:11.240 So you know, it's not necessarily rebuilding an entire fleet 0:15:12.000 --> 0:15:14.840 for the Navy, but it's doing things that we could 0:15:14.880 --> 0:15:15.760 use pretty quickly. 0:15:15.880 --> 0:15:17.880 Just in last ninety seconds, I want to hit Boeing 0:15:18.160 --> 0:15:20.240 with you, shares are down today by about one point 0:15:20.280 --> 0:15:23.040 eight percent. The company did report this morning a second 0:15:23.080 --> 0:15:26.680 straight quarter of generating cash fifty seven percent, bumping sales 0:15:26.720 --> 0:15:28.760 during the final three months of the year. Shares down though, 0:15:29.200 --> 0:15:31.320 Is it because of accounting charges for the CAC forty 0:15:31.320 --> 0:15:32.200 six tanker program? 0:15:32.280 --> 0:15:32.640 Is that it? 0:15:32.760 --> 0:15:35.040 No, everybody just assumes that's going to happen every quarter. 0:15:35.320 --> 0:15:38.400 So we're all going shares down after So the. 0:15:38.360 --> 0:15:41.600 Share shares opened down, the call at ten thirty, got 0:15:41.600 --> 0:15:44.640 it up to write. It reversed about four points and 0:15:44.680 --> 0:15:48.800 then they're down again. We're a believer in Boeing. They're 0:15:48.880 --> 0:15:51.040 underwriting their free cash flow was a loss of two 0:15:51.040 --> 0:15:54.320 billion in twenty five. They're talking about positive two billion 0:15:54.400 --> 0:15:57.560 at the midpoint in twenty six, normalized for one time items. 0:15:57.600 --> 0:16:00.320 They're saying their free cash flow is high single just 0:16:00.360 --> 0:16:03.920 so say eight billion. They're reaffirming their ten billion target, 0:16:04.400 --> 0:16:06.400 and then they're saying they could go above that, so 0:16:07.040 --> 0:16:10.800 you know, ten fifteen. It's giving long only as a 0:16:10.840 --> 0:16:13.240 reason not to dismiss the stock. If this company could 0:16:13.240 --> 0:16:16.240 actually earn ten billion of free cash low, then it's 0:16:16.320 --> 0:16:19.360 quite compelling at its current valuation. So we're seeing a 0:16:19.360 --> 0:16:22.160 lot of fluctuations. Are they talking back twenty seven to 0:16:22.200 --> 0:16:23.760 twenty eight? No, I think that you're going to see 0:16:23.800 --> 0:16:26.560 two billion in twenty six and an improvement in twenty 0:16:26.560 --> 0:16:27.400 seven and twenty eight. 0:16:27.840 --> 0:16:29.560 So Boeing, let me just say, you've got a two 0:16:29.640 --> 0:16:31.680 ninety price target, it's at two forty four. You feel 0:16:31.680 --> 0:16:32.120 good about that? 0:16:32.160 --> 0:16:32.360 Yeah? 0:16:32.360 --> 0:16:34.880 You want to know is it? We are supportive of Boeing. 0:16:34.880 --> 0:16:37.840 We think there's a few positive catalysts. I think President 0:16:37.840 --> 0:16:40.960 Trump might be headed to China in April. We'll see 0:16:41.040 --> 0:16:43.320 if Boeing heads there. We haven't seen a China order 0:16:43.360 --> 0:16:46.440 since I can't even recall. Maybe it was twenty nineteen, 0:16:46.760 --> 0:16:51.240 maybe earlier. So I think Boeing works from here. You know, 0:16:51.520 --> 0:16:55.160 depressed prices for Max's maybe fifty percent below what they 0:16:55.240 --> 0:16:56.440 historically sell at today. 0:16:56.600 --> 0:17:00.880 This was fun. Come back soon, all right. Sheila Kayalu, 0:17:00.920 --> 0:17:03.680 she's managing director of equity research at Jeffrey's, joining us 0:17:03.680 --> 0:17:05.000 here in studio. 0:17:05.880 --> 0:17:09.720 This is the Bloomberg Business Week Daily Podcast. Listen live 0:17:09.800 --> 0:17:13.080 each weekday starting at two pm Eastern on applecar playing 0:17:13.119 --> 0:17:15.960 and Android Auto with the Bloomberg Business app. You can 0:17:16.000 --> 0:17:19.159 also listen live on Amazon Alexa from our flagship New 0:17:19.240 --> 0:17:22.639 York station, just say Alexa played Bloomberg eleven thirty. 0:17:24.400 --> 0:17:26.640 We do head back to the White House and Bloomberg 0:17:26.640 --> 0:17:29.879 New Senior reporter Jen DLOWI, Jen, good to have you 0:17:29.960 --> 0:17:32.680 here with us. We know President Trump on his way. 0:17:32.680 --> 0:17:36.080 I don't think he's landed yet, but we know there 0:17:36.160 --> 0:17:38.840 is a crowd in Iowa waiting for him. He did 0:17:38.880 --> 0:17:44.000 say en route to Iowa talking to reporters, he's meeting 0:17:44.640 --> 0:17:48.520 in terms of Tom Homan, the borders are, he said, 0:17:48.520 --> 0:17:51.800 he's meeting with the governor in Minnesota. He's meeting with 0:17:51.800 --> 0:17:53.760 the mayor. I think later and I hear that's all 0:17:53.800 --> 0:17:55.879 going very well. What are we hearing? Is it all 0:17:55.920 --> 0:17:56.680 going so well? 0:17:58.440 --> 0:18:01.439 You know early report out. You know, we don't have 0:18:01.640 --> 0:18:04.120 a great deal of intelligence out of those early meetings, 0:18:04.119 --> 0:18:06.440 but what we can what we are seeing, of course, 0:18:06.600 --> 0:18:09.639 is this effort by the President. It appears to dial 0:18:09.720 --> 0:18:13.159 down the temperature to do really two things, to express 0:18:13.200 --> 0:18:18.359 support for Homeland Security Secretary Nome and at the same time, 0:18:18.440 --> 0:18:22.280 who's obviously been criticized for her handling of these incidents 0:18:22.560 --> 0:18:25.160 and her characterization of them, and then at the same 0:18:25.240 --> 0:18:29.840 time also try to find a way forward with local leaders. 0:18:30.240 --> 0:18:30.439 You know. 0:18:30.480 --> 0:18:33.480 The President repeated that comment to us several times before 0:18:33.520 --> 0:18:37.119 he headed out to Iowa, you know, saying that he 0:18:37.200 --> 0:18:41.639 believes the conversations with the governor of Minnesota are going 0:18:41.800 --> 0:18:44.720 very nicely. And of course he was previewing that later 0:18:44.760 --> 0:18:46.960 conversation today with Mayor Jacob Fray. 0:18:47.560 --> 0:18:49.680 You know, I was surprised to hear, just based on 0:18:49.720 --> 0:18:51.560 the reporting that we've seen in the last twenty four 0:18:51.600 --> 0:18:56.199 hours that Tom Homan was headed to Minneapolis. Some of 0:18:56.240 --> 0:18:59.720 the reporting from other outlets indicated that Christy Nome had 0:18:59.760 --> 0:19:02.240 been sidelined in some way. She was at a meeting 0:19:02.280 --> 0:19:05.479 at the White House yesterday, reportedly went a couple of 0:19:05.640 --> 0:19:10.280 hours according to other outlets. How are you reading into 0:19:10.320 --> 0:19:13.640 that reporting? Has she been sidelined? The President earlier expressing 0:19:13.680 --> 0:19:16.600 his support for her, saying she will not she will 0:19:16.640 --> 0:19:19.639 stay on at the agency. How are you reading into that? 0:19:21.480 --> 0:19:26.240