Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jaily.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. What
Speaker 1: we're gonna do here and in a good half hour
Speaker 1: we have Catherine Man with us with City Group is
Speaker 1: to go to her acclaim her fame out of m
Speaker 1: I T and all that she's done in academics and
Speaker 1: dovetails with a story of two thousand nineteen which is
Speaker 1: a trade war. And then we'll talk about the equity
Speaker 1: markets and you know, the US economy and that here
Speaker 1: in in a bit you wrote a classic in you
Speaker 1: read a five with Michael Rosenberg Codependency into Function between
Speaker 1: China and the US two thousand three, two thousand four.
Speaker 1: You're one of the truly one of the experts on this.
Speaker 1: Did you see a trade war coming? I didn't think
Speaker 1: that a trade war was inevitable, um, but I do
Speaker 1: think that, um, there was a definitely a pivot with
Speaker 1: the change in leadership in China, and that pivot was
Speaker 1: towards a more state oriented UH, and move away from
Speaker 1: the objective of more private oriented enterprise running running the economy. UH.
Speaker 1: There was also a pivot away from liberalization of the
Speaker 1: capital account and a less management of the R and B.
Speaker 1: And there was definitely a pivot toward a more UM
Speaker 1: industrial policy strategy towards UM a national development And Paul,
Speaker 1: we see this this morning with whispers out of China
Speaker 1: again of an accommodation in their policies. So, Catherine, this
Speaker 1: move I guess back towards more state control of the economy.
Speaker 1: This is tied to mr G. Is this long term trend?
Speaker 1: Do you think? Is this something because it seems like
Speaker 1: China was moving more towards market economy is a little
Speaker 1: bit on the margin. Are you now shifting back and
Speaker 1: you think that's permanent? Well, I think it's hard to
Speaker 1: make a judgment about permanence, but UM. I think the
Speaker 1: what's what's most interesting to think about is the question
Speaker 1: of does UH does a heavily managed direct approach to
Speaker 1: UM becoming a frontier innovator along the dimensions that they
Speaker 1: want to which is the man, you know, the manufacturing?
Speaker 1: Can you do that with state direction? I think that's
Speaker 1: really the most interesting question. It's always been a question
Speaker 1: about industrial policy. How much state intervention, whether it be
Speaker 1: a market economy or not, UM, how much data intervention
Speaker 1: can get you to the frontier of innovation? And so
Speaker 1: I think that's what is up for grabs here, UM.
Speaker 1: And I think it's the evidence in the past has
Speaker 1: been that, UM, if you're not at the frontier, state
Speaker 1: intervention can can get you there, because you know, what
Speaker 1: you're trying to get to. The frontier is at somebody
Speaker 1: else is in front of you. UM. But can you
Speaker 1: actually break through the frontier? Can you make the frontier
Speaker 1: as a state state direction? That the evidence on that
Speaker 1: is much more limited, right, is it? So as we
Speaker 1: change our attack under this administration to more a bilateral
Speaker 1: negotiation between the US and China, what is your thought
Speaker 1: on that versus what had been the trend I think
Speaker 1: prior to that for a period of time of multilateral
Speaker 1: engagement with China is what do you think one is
Speaker 1: better than the other? Well? I think this this administration
Speaker 1: has gone bilateral in every single negotiation that it has
Speaker 1: been involved with, even U s m c A was
Speaker 1: ultimately broken up into two bilateral discussions and negotiations ZOM
Speaker 1: there is no question that multilateral trade negotiations are superior
Speaker 1: to bilateral UM. Bilateral are one off, one off deals,
Speaker 1: and UM, we are a global economy. UM. We're kind
Speaker 1: of eroding away from that right now, but but ultimately
Speaker 1: it is better if we are a global economy and
Speaker 1: UH you have market opening across all different economies. UH.
Speaker 1: And that's where you get the benefits of the greatest variety,
Speaker 1: the biggest scale, the lowest prices, UM, and the more
Speaker 1: value change that creates the greatest productivity. What you end
Speaker 1: up with bilateral negotiations. And this has been well known
Speaker 1: for quite some time. Job just Bug Waddy called it,
Speaker 1: probably twenty years ago spaghetti bowl. A spaghetti bowl where
Speaker 1: the rules of origin because remember, if it's a bilateral
Speaker 1: trade negotiation, you have to have rules of origin to
Speaker 1: identify who's in and who's out of of a deal.
Speaker 1: And those costs of rules of origin UM are extremely
Speaker 1: expensive for companies to abide by. So you're raising the
Speaker 1: cost of doing trade, of engaging in trade when it's
Speaker 1: done on a bilateral basis. And with regard to China
Speaker 1: in particular, UM, the issue that I'm most concerned about
Speaker 1: is the with withdrawal. The US is sort of taking
Speaker 1: an approach of withdrawing, breaking up that relationship, withdrawing and
Speaker 1: becoming more national focused, and that takes away you know,
Speaker 1: that creates a situation where China can go into all
Speaker 1: of the other markets that the US is seceding from.
Speaker 1: Let's take this to what you do it sitting up,
Speaker 1: which is advised your institution and your business relationships every
Speaker 1: day on this and folded and also with Paul Sweeney
Speaker 1: and when Bloomberg Intelligence is doing worldwide. The gambit here
Speaker 1: is phonies like me fly to Hong Kong. I land
Speaker 1: at the airport, I get in a fancy car, I
Speaker 1: go to the hotel, I go to the office at
Speaker 1: hotel office hotel, I get back in the car, come
Speaker 1: back home, and I say I went to China. I
Speaker 1: mean that's the truth, and folks trust me. I didn't
Speaker 1: go to China. The real world for City Group clients
Speaker 1: is maybe they go to Hong Kong and then an
Speaker 1: hour later they're on a plane to cheng Do. Is
Speaker 1: that broken in this trade war, that that business relationship
Speaker 1: of American businesses with their China equivalence, Well, that's certainly
Speaker 1: part of the objective is to um break the value
Speaker 1: chains that have been put into place between by US
Speaker 1: business in order to produce for China or to use
Speaker 1: China as a production platform for back to the United
Speaker 1: States or for other markets. And so the objective of
Speaker 1: of the of the trade war is in a tariffs
Speaker 1: in particular, or to make it very costly to do that. Now,
Speaker 1: what companies are doing is um you know, some of
Speaker 1: them already had kind of in their in their desk
Speaker 1: drawer the plan for moving away from China when it
Speaker 1: became more more expensive to to to produce there, and
Speaker 1: they've taken those out of the desk door, and they've
Speaker 1: and they've started. Yeah they're flying the heno exactly or
Speaker 1: or you know, yeah exactly. So ket I mean give
Speaker 1: us a sense that it appears that we're moving towards
Speaker 1: if I can be sorry for the latest tweet kind
Speaker 1: of a phase one type of deal. Is this much
Speaker 1: ado about nothing, because until we get the phase two
Speaker 1: or phase three, this is kind of just soybeans going
Speaker 1: back and forth. The phase one deal um looks a
Speaker 1: lot like what was on the table in May um
Speaker 1: and of course that did not that fell apart. So
Speaker 1: UM we're we're we're cautiously optimistic as a team that
Speaker 1: there will be something signed, but that it's implications are limited,
Speaker 1: very limited. Um, you know, and and the are the
Speaker 1: argument that it's the first of a of a set
Speaker 1: of of of broader relationships and broader negotiations. I think
Speaker 1: it's way too early to come to that conclusion because
Speaker 1: the hard stuff is still the stuff that's on the table.
Speaker 1: Katherine Man City Group, I, I really, I really can't
Speaker 1: say enough. It's just a few years ago. She was
Speaker 1: just out of m I T at the time. Is
Speaker 1: a trade deficit sustainable? It's still worth reading today and
Speaker 1: a primer for all, including a possibly the gentleman at
Speaker 1: six Pennsylvania Avenue. Kit Jukes was with us during the
Speaker 1: goodness of Prime Minister Johnson, that extraordinary election that we
Speaker 1: saw with the Prime Minister and the shifts for the
Speaker 1: ninety Kingdom. Now on this day we'll talk to Mr
Speaker 1: Jukes society general about a bigger, broader picture as well. Kid,
Speaker 1: I want to go back to Ken Rogoff when he
Speaker 1: was on the watch at the I m F did
Speaker 1: all sorts of research with the team on fixed versus
Speaker 1: floating or even fixed it's abandoned currency versus folding. How
Speaker 1: different is your study of dollar ran mimbi If it's
Speaker 1: a floating dollar in a sort of kind of like
Speaker 1: fixed ran mimbi, How does that change your study? I
Speaker 1: think it changes everything when when look when you've got
Speaker 1: if you if you reckon that of world trade is
Speaker 1: is United States, China, and Europe. If you have a
Speaker 1: fixed or pretty fixed relationship between two of those parties,
Speaker 1: it locks down one side of the world. If all
Speaker 1: three float freely against each other, we we live in
Speaker 1: a We live in a world where all the other
Speaker 1: currencies orbit to different degrees around each of those three currencies,
Speaker 1: and it makes it more difficult. But it also means
Speaker 1: that we have to we have to understand and the
Speaker 1: one we understand least well is the Chinese unts because
Speaker 1: as it moves more, as it floats more freely but
Speaker 1: not completely freely, what we're faced with is we we
Speaker 1: get far less information about monetary policy, about current c
Speaker 1: policy from the Chinese than we do with the bombardments
Speaker 1: on policy that we get in Europe and in the
Speaker 1: United States. So we we kind of have to work
Speaker 1: it out for ourselves. But that you know, in terms
Speaker 1: of its share of world trade and influence on the
Speaker 1: currencies on the economies of the rest of the world.
Speaker 1: Make no mistake, the Chinese un is as important as
Speaker 1: the Euro or the U. S. Dollar now, and in
Speaker 1: some ways more important because because we understand it less well.
Speaker 1: So Kick, can you give us a bear case for
Speaker 1: the US dollar? I have not heard one. The bear
Speaker 1: case for you, as dollar is that there's a certain
Speaker 1: amount of complacency about the U. S. Economy, so that
Speaker 1: the best thing that could happen to it next year
Speaker 1: is it does about as well as people expect and
Speaker 1: continues at the current kind of gradually slowing pace. So
Speaker 1: the consensus is something like one percent growth next year,
Speaker 1: and the Fed does not very much of anything through
Speaker 1: that period. The bear cases that the earning cycle has
Speaker 1: clearly turned down, and as that continue used to be
Speaker 1: the most important thing driving or creating an economic cycle,
Speaker 1: the dangers are all to the down side. That that's
Speaker 1: the economic case. The other side of this, frankly, is
Speaker 1: the dollar is just about as expensive in real trade
Speaker 1: weighted terms as it can usefully get, and so two
Speaker 1: things can happen. It can stay here or it can
Speaker 1: weaken getting significantly stronger is going to be really difficult,
Speaker 1: or you're predicting that we stay here. I mean, you know,
Speaker 1: I'll be honest, folks, A strong dollar call this year
Speaker 1: has been just stay here, and that's been very against
Speaker 1: consensus as well. What's your call for next year? Is
Speaker 1: it stay here? My call for next year is that
Speaker 1: the dollar will do better than the Chinese un and
Speaker 1: the Euro will do better than both of them, and
Speaker 1: the yen will do better than all. What does a
Speaker 1: stronger euro do to your European GDP and European exports
Speaker 1: being so open, it doesn't help, so it won't go
Speaker 1: up very much. The context again is that if you
Speaker 1: think that since the creation of the euro, the euro
Speaker 1: has traded a little bit below purchasing our parity against
Speaker 1: the dollar against the sort of the calculation then based
Speaker 1: on just stuff we buy in the shops, that level
Speaker 1: is one thirty six. Now, so I know, folks who
Speaker 1: think that fair value for euro dollar is one thirty five,
Speaker 1: we are barely above one ten. We are the best
Speaker 1: part of below that level at the moment. I don't
Speaker 1: think that if the interest rate differential between the US
Speaker 1: and Europe narrow, as if the bondial differential narrowers to
Speaker 1: any significant degree. I don't think we can stay here forever.
Speaker 1: I don't think the Europeans will like it but for
Speaker 1: one minute. But I think that the balance of of
Speaker 1: relative economic performance is just beginning to shift in its favor.
Speaker 1: It's not gonna so if it if it makes it
Speaker 1: to one twenty, that that's making it less than half
Speaker 1: the way back from from where someone might think that
Speaker 1: fair value should be. We need a different way to
Speaker 1: think about fair value in that sense because the Chinese
Speaker 1: u and played such a big role. But but it's
Speaker 1: the it's again this piece that it's not inconceivable that
Speaker 1: once that move happens, that it happens more in the
Speaker 1: second half of next year than the first half, that
Speaker 1: it's slow, and that we spend most time just waiting
Speaker 1: on the US economy and the European economy, which is
Speaker 1: which is less volatile than the US, just does a
Speaker 1: little bit more miserably slowly. That the game changer that
Speaker 1: that could be could come but isn't necessarily going to come,
Speaker 1: is if the Europeans wake up one morning and realize
Speaker 1: that easing fiscal policies about the most sensible thing they
Speaker 1: could do at any point in time, but right now
Speaker 1: especially so. Kid. I'm looking at my chart here, basically
Speaker 1: just a one year chart for the sterling. I'm actually
Speaker 1: surprised as we pulled back down below one to thirty
Speaker 1: that we didn't get a more stained move above one
Speaker 1: thirty and holding above one thirty, maybe even moving higher
Speaker 1: on the Brexit. Where do you think Sterling trades here
Speaker 1: and what's kind of the key determinant. I think the
Speaker 1: key determinant of Westerning trades against the dollar next year
Speaker 1: will be where the Euro trades against the dollar. I
Speaker 1: think Sterling is now going to be much quieter against
Speaker 1: the Euro. And remember the the you know, the UK,
Speaker 1: despite everything, does much much, much more trade with Europe
Speaker 1: than with the United States. So it's it's what happens
Speaker 1: to the Euro that really matters. In other words, we
Speaker 1: can get we can get to one forty against the
Speaker 1: dollar if the Euro can get to one twenty against
Speaker 1: the dollar. But if if the Euro states here, we're
Speaker 1: just not going to go up much against the dollar.
Speaker 1: Otherwise we'd have to take the level against the Euro
Speaker 1: back to the kind of place we were at before
Speaker 1: this referendum, and the referendum is not going to go away.
Speaker 1: We might we might conceivably get a clean exit, but
Speaker 1: we're not going to put this back and never do it.
Speaker 1: Tell us about and this was a news item last week.
Speaker 1: Focus is sort of esoteric on Monday before the holiday season.
Speaker 1: But we'll go Lancashine. You. Sweden has a unique central
Speaker 1: bank experiment. They have a history of this, certainly going
Speaker 1: back to the Glory and Risk of nineteen ninety two.
Speaker 1: The sweat, I should say of nineteen ninety two is
Speaker 1: there a way Kitchuks to play the courage of Sweden
Speaker 1: where they say enough negative interest rates um. I think
Speaker 1: the weight of play it was was possibly to do
Speaker 1: it in advance of of when they did it, so
Speaker 1: that the Swedish Crowner had a big run when they
Speaker 1: first indicated that they were going to get interest rates
Speaker 1: back to zero. The probability now is that having gone
Speaker 1: from negative rates to zero rates, they stay at zero
Speaker 1: for a really long time and something has to change
Speaker 1: in the economy. Again. That the key here is, and
Speaker 1: I think they're they're an incredibly important lesson for everywhere.
Speaker 1: But the key here is, once you accept that negative
Speaker 1: interest rates have um, negative connotations for the economy that
Speaker 1: they're not just a win win, and they're definitely not
Speaker 1: just a win win for the economy. Then you have
Speaker 1: to be prepared to use fiscal policy as a tool
Speaker 1: for helping drive the economy and the short medium term
Speaker 1: in a way you didn't before. What you learn from
Speaker 1: Swiss from Sweden is if easier fiscal policy takes on
Speaker 1: as a as a fashion acround the world outside the
Speaker 1: United States, the Swedish trining will fly more likely. To
Speaker 1: my money, it's not the Swedes that will be the
Speaker 1: ones that these fiscal policy. It will be somebody else
Speaker 1: right now though, um I guess that the trade that
Speaker 1: I would like is is that the Norwegian croner is
Speaker 1: catching up on Swedish crona strength pretty quickly, and I
Speaker 1: would rather own the Norwegian croner than switch coroner. But
Speaker 1: but but the lesson from Sweden is it's all about
Speaker 1: fiscal policy in well have to well some are do
Speaker 1: we have Mr Jukes scheduled for January, we have to
Speaker 1: we have to drive forward that conversation very he was
Speaker 1: a very needge of m Mt Jukes. Thank you so
Speaker 1: much with such oh is just a wonderful help with
Speaker 1: us with perspective this year as well, Boeing coming out
Speaker 1: with the press release and management changes. David Calhoun named
Speaker 1: president and CEO Lawrence Kellner to become chairman of the board. Uh.
Speaker 1: They're saying new leadership to bring me nude commitment to
Speaker 1: transparency and better communication with regulators and customers in safety.
Speaker 1: So a change at the top at the top, Tom here, Uh,
Speaker 1: new CEO. Let's bring on a good friend, George ferguson
Speaker 1: Bloomberg Intelligence. He follows abobing and all things aerospace. George,
Speaker 1: does this surprise? You were getting a new leadership here
Speaker 1: the CEO out, new CEO in no, I think, Uh,
Speaker 1: you know, we we thought maybe it would take a
Speaker 1: little bit longer without bowing, might try to put the
Speaker 1: Max back in service before they changed leadership. But so
Speaker 1: it doesn't surprise. It's just maybe a little bit earlier
Speaker 1: than we expected. So, George, I mean, I guess when
Speaker 1: we look back on this with hindsight, you know, over
Speaker 1: the past year, it really does seem like management either
Speaker 1: didn't really understand the scope of the problem, didn't manage
Speaker 1: the parties, whether it's the f a A, whether it's investors,
Speaker 1: whether it's you know, it's competitors and customers. What do
Speaker 1: you think was the real undoing here or the real
Speaker 1: mistake from Boeing? You know, I mean we had seen
Speaker 1: I would say, a distinctive change in the way Bowing
Speaker 1: communicated to all kinds of constitution in sees with with
Speaker 1: Dennis Fellenberg, and I think that, um, that didn't help
Speaker 1: during the during the crisis, I think they had become
Speaker 1: they've provided less information. Uh, you know, they got much
Speaker 1: tighter with everything they I think there was a little
Speaker 1: bit of you know, feeling that they were at the
Speaker 1: top of their game, things were going great, and they
Speaker 1: didn't have to give all this information and I think
Speaker 1: I think that that hurt them ribly in this in
Speaker 1: this uh, in these latest problems. George David Calhoun is
Speaker 1: a uniquely qualified guy for this. Not only was this
Speaker 1: relationship to Wall Street and private equity in the black
Speaker 1: Stone Group, but I'm really going to go to what
Speaker 1: I learned in an interview years ago that the pros
Speaker 1: look at an airplane is engines with a fuselage attached,
Speaker 1: which I really didn't understand. And he has as a
Speaker 1: business executive the working knowledge of general electrics airplane engine business.
Speaker 1: Describe his impetencies on engines, which are the clearly part
Speaker 1: of the tragedy of these two plane crashes. What unique
Speaker 1: skills does he bring after his work with with Caterpillar
Speaker 1: and that and his work with black Stone and particularly
Speaker 1: with ges aircraft business. I mean, ge is so deep
Speaker 1: into the aviation business right in the the engine business,
Speaker 1: and I think that just means that he has a
Speaker 1: very good understanding of of the industry obviously had he
Speaker 1: has some great experience um and I just think that
Speaker 1: gives him executes and think quite quite well for I
Speaker 1: think all the for all the abuse I'd say gees
Speaker 1: getting in the marketplace as it as it restructures itself
Speaker 1: on the aircraft side, I think it's been an outstanding
Speaker 1: executor and so I think he brings that that skill
Speaker 1: set to Boeing. The interesting thing though, is that we
Speaker 1: just let a ge guy go at bowing commercial airplanes, right.
Speaker 1: McAlister was running commercial airplanes and he just went out
Speaker 1: the door. So we had a guy go out the
Speaker 1: door as well. But what's topic, I mean, George, what's
Speaker 1: so good about your skill set? As you actually know
Speaker 1: the operational skill sets of this company and this company
Speaker 1: in crisis. What's this to do list today? Is he
Speaker 1: supposed to speak to employees? Is he supposed to speak
Speaker 1: to the f A A. I mean, what's what's the
Speaker 1: immediate to do list for Mr Calhoun? Is it replaces
Speaker 1: Mr Muhlenberg. Yeah, I think he has to. I think
Speaker 1: he has to get with the f A A and
Speaker 1: and repair that relationship as quickly as possible. Right, I
Speaker 1: think really they need the f A to review the
Speaker 1: MAX and help get it back into service as soon
Speaker 1: as possible. They need to go to the f A
Speaker 1: and and and just be ready to support them in
Speaker 1: that effort and make sure that that's that's an absolutely
Speaker 1: positive relationship because so key to this company's future is
Speaker 1: getting that MAX back into the air and getting things
Speaker 1: moving again. Paul, I want to be careful in the
Speaker 1: headlines here, Mr Calhoun is joining Boeing as CEO January,
Speaker 1: and in the in the in the the headlines following on,
Speaker 1: Mr Greg Smith will serve as interim CEO. Right, Okay,
Speaker 1: we had Mr Mullenberg actually resigning, So George, it's interesting
Speaker 1: here just give us a sense of the state of
Speaker 1: the relationship between Boeing and the regulators. I mean, it
Speaker 1: seemed like for decades, if not for all time, it
Speaker 1: was a very strong, close working relationship. What happened, well,
Speaker 1: I mean, I mean, the regulators clearly have um, you know,
Speaker 1: the reputations had tarnished through this whole seven thirty seven
Speaker 1: Max problem, and and it seemed like Dennis and the
Speaker 1: regulators weren't on the same sheet of music because you know,
Speaker 1: we well we don't get a lot of information for
Speaker 1: that relationship was working. You know, we we all heard
Speaker 1: that he had sort of got called to Washington to
Speaker 1: talk to the regulator a couple of weeks ago and
Speaker 1: asked not to give timetables for when the MAX was
Speaker 1: going back into service. I would have thought he would
Speaker 1: have been coordinating that with the f a A and
Speaker 1: making sure that you know, they're they're both of their
Speaker 1: views for how the process would work for getting the
Speaker 1: MAX into the air were in sync. And I think
Speaker 1: that was very surprising to me, all Right. I would
Speaker 1: have thought the f a A A would have been looking
Speaker 1: over Boeing shoulder as they went through all of the
Speaker 1: fixes to the MAX. So even though they need they
Speaker 1: need to be able to sign off on it, you know,
Speaker 1: from an f A standpoint is being safe. They could
Speaker 1: have seen the process and been provided some level of
Speaker 1: comfort in that. And it seems like we're still three
Speaker 1: months away from getting this airplane back in the air. Well,
Speaker 1: that's let me frame this again. With David Calhoun taking
Speaker 1: over here in January, we believe in the stream of
Speaker 1: headlines coming out, Greg Smith, the chief financial officer and
Speaker 1: executive vice president, will uh be the interim CEO. Of
Speaker 1: course we know him. There was affiliate issue with the
Speaker 1: Economic Club of New York. We affiliate Bowing the Sea
Speaker 1: at but very much headquartered in Chicago. UM. George Freeman
Speaker 1: with this right now, giving us wonderful perspective on this, Uh, George,
Speaker 1: the plane is going to get back in the air
Speaker 1: and X months says, who what are the engineering changes
Speaker 1: that they need to do to get the f A
Speaker 1: a okay and to get the confidence of their staffing,
Speaker 1: including pilots and also the American public. Well, I mean,
Speaker 1: the as near as we can tell, uh, the you know,
Speaker 1: the biggest fix is going to be a fix to
Speaker 1: software on this MCAST system. Let's call it an anti
Speaker 1: stall system, UM. And then it's going to be training
Speaker 1: the pilots to use this new system. As near as
Speaker 1: we can tell, that fix to m CAST is done,
Speaker 1: but the FA has to be satisfied. Okay, it won't override.
Speaker 1: Have they move the engines? I mean a lot of
Speaker 1: the geometry this and I'm working off the great work
Speaker 1: you did and others, particularly in c at all. Is
Speaker 1: there an engineering change away from software? No, No, it's
Speaker 1: the same plane it is. And look, I think the airplane.
Speaker 1: Our sense from what we've done is that from the
Speaker 1: work we've done and the people we've talked to, is that, well,
Speaker 1: the engines change a bit of the physics, and I
Speaker 1: think it means long term they can't do much more
Speaker 1: with this airframe. The airplane as it's designed now, with
Speaker 1: an MCAST system that's working properly, is a safe airplane
Speaker 1: and will be a member of fleets for a long time. George,
Speaker 1: is there any risk here that they just scrapped the
Speaker 1: seven three seven Max? I don't think so. Um, I'll
Speaker 1: never say never. I hate saying never, but I don't
Speaker 1: think so because I think, as I just said, I
Speaker 1: think the airplane is safe to fly. This software system
Speaker 1: was designed to keep people out of trouble with an
Speaker 1: airplane where they had pushed the engines forward. There was
Speaker 1: a risk of on on heavy thrust takeoffs of the
Speaker 1: of the um nose being pulled up a bit and
Speaker 1: potentially getting into a stall. This was designed to keep
Speaker 1: pilots out of trouble. Clearly they got some pilots into
Speaker 1: trouble because it was it provided too much deflection to
Speaker 1: them to the control surfaces on the airplane and drove
Speaker 1: the nose towards the ground. I believe that if they
Speaker 1: get the fixed to that software, which I think they're done.
Speaker 1: I've heard American Airlines pilots way have gone into simulators
Speaker 1: and flown the new m CAST software and said it
Speaker 1: reacted as they expected and that they and that they felt,
Speaker 1: you know, pretty confident in the safety of this of
Speaker 1: this system. I believe it means the airplane is viable
Speaker 1: and will be in fleets for a long time. I
Speaker 1: do think, though, that bone needs to come out of
Speaker 1: this and go at hard, a new narrow body, a
Speaker 1: new seven thirty seven, because they've pushed this one for
Speaker 1: all they can get. And I think that the next
Speaker 1: time that we go to if we go to bigger engines,
Speaker 1: bigger fan sizes to to create better efficiency, I think
Speaker 1: that there they can't put underneath this air frame, and
Speaker 1: so they got to fix that. Okay, but that gets
Speaker 1: back to the engineering issue. Is there an established understanding
Speaker 1: on people like you, all the regulators, the pilots, etcetera,
Speaker 1: that X the software the existing frame is doable. I
Speaker 1: think there is. It appears to me that there's a
Speaker 1: fair amount of consensus in the marketplace that among among
Speaker 1: the smart people in the marketplace, which I'm probably doesn't
Speaker 1: even include me, include other people that I read. Well,
Speaker 1: it's interesting just time that in the pre market the
Speaker 1: stock is now trading up about one point eight percent
Speaker 1: in the pre market here. So um, so the market
Speaker 1: kind of likes what it's seeing here, that change in management.
Speaker 1: So I mean, George, long lasting risk to reputation within
Speaker 1: the community foreboing, Um, you know what, the Max's problems
Speaker 1: have lasted longer than I would expect. The star Lander
Speaker 1: didn't help this week. Um, I think yeah, I think
Speaker 1: you they're they're banged up here for a couple of
Speaker 1: years on reputation for sure. Um, it's been it's been
Speaker 1: a rough yere Okay, George, thank you so much. We're
Speaker 1: gonna we're gonna move on here. This has been absolutely
Speaker 1: informative right now joining us Brooke Sutherland, who has been
Speaker 1: writing not only this crisis but the synthesis of it
Speaker 1: into all of manufacturing America. Brooks, thank you so much
Speaker 1: for joining us on short notice. They have gone to
Speaker 1: the most obvious person here. There is clearly no time
Speaker 1: for an outside search within all your reporting. What is
Speaker 1: the first to do for Mr Calhoun? I mean, I
Speaker 1: think the most obvious thing is to get into the sky,
Speaker 1: but they're obviously a number of before you can do that.
Speaker 1: I mean, I think what we've learned in the last
Speaker 1: couple of weeks is just how stringing the relationship has
Speaker 1: been with the FAA is hugely unprecedented for the FAA
Speaker 1: administrator to come out and publicly admonished a company like Going,
Speaker 1: as Steve Dixon did a couple of weeks ago, really
Speaker 1: really significant turn in this crisis. And I think that
Speaker 1: is one big reason why you're seeing going make this
Speaker 1: change this relationship. Reassuring the FAA that there is no
Speaker 1: effort at all by going to try to speed up
Speaker 1: this process is essential. And you also have to look
Speaker 1: at the customers. Um Arizonians are not happy the Southwest
Speaker 1: Airlines CEO Gary Kelly has made it abundantly clear that
Speaker 1: he's very frustrated. Was going to the point that he's
Speaker 1: been talking about looking at Airbus. Well, that's right where
Speaker 1: I wanted to go. I mean, our guy Brook, our
Speaker 1: Guy Johnson's on Bloomberg Television right now, expert on to
Speaker 1: lose and Airbus. Are we really at risk in America
Speaker 1: of iconic brands dropping the iconic engineering technology we have
Speaker 1: in using Airbus far greater in America. So you have
Speaker 1: not seen that yet, And a big part of that
Speaker 1: is because airbus is backlog is so long. I believe
Speaker 1: it's about six years, and so you'll be waiting a
Speaker 1: long time if you join the back of the line
Speaker 1: right now for an Airbus jet. But I do think
Speaker 1: longer term there's a significant risk of Bowing losing its
Speaker 1: competitive edge, losing its reputational advantage. I mean, all you
Speaker 1: have to do is look at the Airbus A XLR,
Speaker 1: which they just launched at the Paris air Show in June.
Speaker 1: And Boeing was supposed to be working on a competitor
Speaker 1: to that, the new middle market aircraft, and that had
Speaker 1: to be put on the shelf because the seven seven
Speaker 1: MAC crisis. Airbus has been getting tons of orders for
Speaker 1: the XLR, and that is shrinking the market share opportunity
Speaker 1: for that Boeing plane, which I think likely does not
Speaker 1: launched at this point. And I think what Airbus has
Speaker 1: essentially done is because you have to remember that the
Speaker 1: seven thirty seven mac UH flight control system that was,
Speaker 1: you know, thought to be significantly at the root of
Speaker 1: these crashes was put in place because Airbus came out
Speaker 1: with UM when we're fuel efficient UH signal body jet
Speaker 1: and Boeing felt like that they had to respond, so
Speaker 1: they and they had to respond quickly, so they rejiggered
Speaker 1: the model to adapt it to the bigger, more fuel
Speaker 1: efficient engine. And that's why you got those flight control system.
Speaker 1: So we're really here because of competition from Airbus, and
Speaker 1: so I do think you have to worry about competition
Speaker 1: longer term. And SMP and Moody's when they downgraded Borings
Speaker 1: credit rating last week, specifically cited that rist and they
Speaker 1: were going to do that decision. Brook Solo and thank
Speaker 1: you so much for joining us in a short notices.
Speaker 1: Greatly appreciate it. This morning, writing of course from Bloomberg News,
Speaker 1: we rip up the script and you can do that
Speaker 1: with someone who's competence is Gregtly Gregory Valier with a GF.
Speaker 1: We should be talking politics, maybe, Greg, we can talk
Speaker 1: about a president who was out front of his own
Speaker 1: fa A. We do this, folks, with the announcement. Mr
Speaker 1: Milenberg will resign immediately from Boeing. David Calhoun, their lead director,
Speaker 1: will take over h in a matter of weeks, and
Speaker 1: their CFO Mr Smith will step in. Is it room
Speaker 1: at CEO? Greg? How does the f a A with
Speaker 1: an annual budget of twenty kazillion dollars a year? How
Speaker 1: do they fit into the Washington you know? Not? Their
Speaker 1: pretty low profile time considering their budget. Uh, they've obviously
Speaker 1: had a difficult year, has has Boeing, But yeah, very
Speaker 1: low profile. It comes within the idea of regulators are
Speaker 1: there and they're supposed to help us, and there's the
Speaker 1: FDA and that and all the rest of it. But
Speaker 1: the f a A is so viscerable, visceral to our
Speaker 1: listeners and viewers. Uh, and that we fly our families
Speaker 1: on it. We we It's an immediate thing and I
Speaker 1: think it really goes A president viscerally got this in
Speaker 1: March when this story broke. I mean, with all the
Speaker 1: critics and the proponents of President Trump, sometimes his energy
Speaker 1: makes things happen, doesn't it. It does, Tom he has
Speaker 1: tremendous energy. And I also would say he's got good instincts.
Speaker 1: I think he has a good finger on the pulse
Speaker 1: of the country. I think that he's very underrated in
Speaker 1: that regard. So Greg talk about having a good pulse
Speaker 1: on the finger on the pulse. You've had a no
Speaker 1: recession call in nineteen You are pretty aggressive. It seems
Speaker 1: like the markets now agree with you. We've heard the
Speaker 1: word frothy come into the discussion. I think that this
Speaker 1: is an overbought market, to say the least. At some
Speaker 1: point people are going to have to realize that things
Speaker 1: don't go straight up. I must say I've been a
Speaker 1: little surprised to hear retail clients start to talk in
Speaker 1: a frothy way. That sometimes can be a warning signal
Speaker 1: that the market is getting a little bit overvalued. What
Speaker 1: does frothy retail me? Does that mean that they're buying
Speaker 1: the extra marginal gift of ali a family, a Tiffany's
Speaker 1: What does that mean? I wish I should be so lucky.
Speaker 1: But no, I think people are not perhaps a where
Speaker 1: the fact that markets can can go down from time
Speaker 1: to time. I would say, this guy's the reason I
Speaker 1: said all year long way I thought the recession was
Speaker 1: not remotely imminent. Comes from Washington. And it's not just
Speaker 1: a FED it's fiscal policy. I've never seen spending like this.
Speaker 1: There's a great editorial this morning in the Wall Street
Speaker 1: Journal on spending. It's totally out of control. In the
Speaker 1: short run, it's good for the economy and the long term,
Speaker 1: we got a lot of debt to finance. Greg, you
Speaker 1: and I we can say this in honor of people
Speaker 1: like Paul Songas and Pete Peterson and the late uh
Speaker 1: Paul Boker as well. We've been talking this for decades.
Speaker 1: I know interest rates are low, but but there's truly
Speaker 1: no breaks on this whatsoever. I mean, what do we
Speaker 1: do in the next budget go around? Well, there's no
Speaker 1: one's scared of this story. Because we were told if
Speaker 1: deficits took off, we'd have high inflation. We didn't. We
Speaker 1: were told if deficits really exploded, we would have a
Speaker 1: lower economic growth. We didn't. So with interest rates of
Speaker 1: this low, it's awfully hard to convince the public anything
Speaker 1: to be worried about. How do we develop a mega,
Speaker 1: ginormous infrastructure bill. If that's where we're coming to, I
Speaker 1: think that we could get one. I think that Trump
Speaker 1: could maybe say some of the money comes from the
Speaker 1: private sector. That's the Wilbur Russ strategy. But I think
Speaker 1: next year it's going to be high on his list
Speaker 1: two things infrastructure number one, Number two tax cuts. Trump
Speaker 1: is going to talk aggressively. You won't get him, I
Speaker 1: don't think, but he's got a great campaign issue. I mean, Paul,
Speaker 1: it's amazing when you think of infrastructure and you divided
Speaker 1: among tunnels to New Jersey airports here there and everywhere,
Speaker 1: and every other bridge that's out there that needs to
Speaker 1: be fixed, I mean trillions, And it's like catnip in
Speaker 1: an election to talk about that. To talk about tax cuts,
Speaker 1: people like hearing about that, whether you can pay for
Speaker 1: it or not, suddenly becomes less relevant. I mean about
Speaker 1: that tax cut from with hindsight, What does your take
Speaker 1: on that? Two quick points. Number one, Yes, there was
Speaker 1: a sugar high for individuals, I get that, but the
Speaker 1: positives for business persist. Lower tax rates, repatriation of earnings,
Speaker 1: very liberal depreciation schedules. All of these tax provisions have
Speaker 1: fueled the rally and continue to fuel the rally. So
Speaker 1: if we have a discussion of another tax cut, would
Speaker 1: this be the quote unquote middle class tax cut because
Speaker 1: the first one wasn't really perceived as a middle class Well,
Speaker 1: good point, Paul, and I think that the only way
Speaker 1: this could have any chance at all of getting through
Speaker 1: the House and Nancy Pelosi would be if it was
Speaker 1: in middle class tax got that raised taxes on corporations
Speaker 1: and the wealthy. That means it would be dead on
Speaker 1: arrival with Republicans. So I think if we're going to
Speaker 1: talk a lot about it, but I don't see anything happening. Greg.
Speaker 1: Thank you so much. We greatly appreciate your time and
Speaker 1: again his morning note must read in all of political
Speaker 1: Wall Street is with the A g F of of Toronto,
Speaker 1: thrilled to Greg Bell could join us. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
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Speaker 1: I'm on Twitter at Tom Keene Before the podcast, you
Speaker 1: can always catch us worldwide. I'm Bloomberg radio