WEBVTT - Bloomberg Surveillance: Geopolitical Risks in 2024 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.319 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.840 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.040 --> 0:00:33.080 Let's kick off this OUs conversation with Emily Rowland, co 0:00:33.240 --> 0:00:36.920 Chief investment strategist at John Hancock Investment Management. Emily, great 0:00:36.920 --> 0:00:38.879 to catch up with you. In the last down on 0:00:38.880 --> 0:00:41.680 Bloomberg TV, we spoke to Ben Ladra v Toro, who 0:00:41.720 --> 0:00:44.680 referred to tech names as teddy best stocks. You huk them, 0:00:44.720 --> 0:00:46.840 they happen you sleep at night. They delivered decent gains, 0:00:46.880 --> 0:00:48.919 at least for him because he was long tech through 0:00:48.960 --> 0:00:51.599 most of last year. Emily, do you still like those 0:00:51.600 --> 0:00:52.839 so called teddy best stocks. 0:00:53.320 --> 0:00:55.760 Yeah, we were long tech last year as well, really 0:00:55.800 --> 0:00:58.240 as a function of our preference for quality. So we 0:00:58.240 --> 0:01:01.200 were looking for companies with great balance sheets, tons of cash, 0:01:01.280 --> 0:01:02.880 low interest burdens. 0:01:02.440 --> 0:01:04.480 And we still like tech stops. 0:01:04.480 --> 0:01:06.560 But we've got to recognize the fact that the S 0:01:06.600 --> 0:01:09.440 and P five hundred growth index is now trading at 0:01:09.480 --> 0:01:13.320 a forty four percent premium to its twenty year average. 0:01:13.360 --> 0:01:16.360 So tech stops were up about fifty eight percent last 0:01:16.400 --> 0:01:19.039 year on about five percent earnings growth. Now, don't get 0:01:19.080 --> 0:01:21.960 me wrong, five percent earnings growth was of the best 0:01:22.000 --> 0:01:24.360 globally in the US tech sector. But I think it 0:01:24.440 --> 0:01:27.039 makes sense for tech to potentially take a bit of 0:01:27.040 --> 0:01:27.800 a breather here. 0:01:27.840 --> 0:01:29.319 We're not downgrading it. 0:01:29.520 --> 0:01:31.280 But I don't know how much you can expect this 0:01:31.360 --> 0:01:33.480 year after such an extraordinary twenty twenty three. 0:01:33.760 --> 0:01:36.920 What are you doing on sixty forty I mean, to me, 0:01:37.040 --> 0:01:40.000 this is a really important question. I've seen huge failure 0:01:40.080 --> 0:01:43.960 of some of the marketing concepts like target benefit programs 0:01:44.000 --> 0:01:45.959 and all the rest of it to get to an 0:01:46.000 --> 0:01:48.960 asset allocation. What do you do sixty forty forward? 0:01:50.080 --> 0:01:52.920 I mean, what an incredible year in twenty twenty three 0:01:53.000 --> 0:01:57.120 for a sixty forty portfolio after horrible twenty twenty two 0:01:57.520 --> 0:02:00.360 is up about eighteen percent last year. You know, when 0:02:00.360 --> 0:02:02.480 we look at it and everybody was calling for it 0:02:02.520 --> 0:02:04.320 to be dead, right, the death of the sixty to 0:02:04.320 --> 0:02:07.560 forty portfolio clearly very much alive and well, when we 0:02:07.600 --> 0:02:09.840 look at it, we're modestly adding to our. 0:02:09.760 --> 0:02:12.640 Positions in fixed income. And to us, it's a math game. 0:02:13.160 --> 0:02:15.160 You know, you look on the stock side of the house, 0:02:15.200 --> 0:02:17.200 it's you know, you're sitting at nineteen and a half 0:02:17.240 --> 0:02:20.919 times forward earnings. You've got twelve percent earnings growth penciled 0:02:20.919 --> 0:02:23.280 in by analysts on the street. It's just a tough 0:02:23.360 --> 0:02:27.079 starting point. We're not saying equities will do horrible this year. 0:02:27.080 --> 0:02:29.080 It's just the bar is really high. And when you 0:02:29.120 --> 0:02:32.000 look at fixed income, you know, four or five percent 0:02:32.040 --> 0:02:33.120 on high quality bonds. 0:02:33.120 --> 0:02:35.560 Of course, there was a better entry point back in. 0:02:35.560 --> 0:02:38.560 October, but we still look at the income on high 0:02:38.639 --> 0:02:41.040 quality bonds is a great way to sit here, get 0:02:41.080 --> 0:02:44.679 paid to wait, as we might experience some more volatility 0:02:44.720 --> 0:02:47.800 as the lagged impact of said tightening does cause crafts 0:02:47.800 --> 0:02:48.240 to form. 0:02:48.480 --> 0:02:50.639 In the economic picture and in the labor market. 0:02:50.800 --> 0:02:53.480 Is there such a thing as growth y value? I mean, 0:02:53.520 --> 0:02:55.239 I know you're going to tell me there's a partition 0:02:55.360 --> 0:02:59.200 between value and growth. But if I'm upset with thirty 0:02:59.320 --> 0:03:04.079 multiples or twenty two multiples, where's that grossy value? Or 0:03:04.120 --> 0:03:07.160 at least I can hide Yeah. 0:03:07.160 --> 0:03:07.799 Absolutely. 0:03:07.919 --> 0:03:10.040 So when we look on the value side, you've got 0:03:10.040 --> 0:03:12.399 to be really discerning because there's a lot of sick 0:03:12.480 --> 0:03:16.800 locality inherently in value indices. So we're looking at areas 0:03:16.800 --> 0:03:20.639 that have a high quality element to them. So healthcare, 0:03:20.680 --> 0:03:22.800 for example, one of our favorite sectors. I know a 0:03:22.800 --> 0:03:25.200 lot of people have been coming on here talking about healthcare. 0:03:25.240 --> 0:03:28.480 It's trading at a ten percent discount to the broad market. 0:03:28.520 --> 0:03:31.919 We think it's going to benefit as consumer behavior shifts. 0:03:31.960 --> 0:03:34.200 Maybe we're not going to buy all the stuff we want. 0:03:34.480 --> 0:03:36.880 I know we were talking about ath leisure earlier. By 0:03:36.880 --> 0:03:38.600 the way, I have an eleven year old daughter. I'm 0:03:38.640 --> 0:03:41.000 here to tell you ath leisure is alive and well. 0:03:41.640 --> 0:03:43.600 But people are still going to do the things they 0:03:43.680 --> 0:03:45.360 need to do. They're going to go to the doctor, 0:03:45.360 --> 0:03:48.640 they're going to get medical care. Utilities another area that 0:03:48.680 --> 0:03:51.960 got really really hurt down, you know last year, everybody 0:03:52.040 --> 0:03:55.000 left it for dead. It's trading at a twenty percent discount. 0:03:55.240 --> 0:03:57.560 So we could see a rotation into those sort of 0:03:57.920 --> 0:04:01.040 dogs of the Dow as potentially tech takes a breather 0:04:01.120 --> 0:04:02.160 into twenty twenty four. 0:04:02.480 --> 0:04:04.800 Emily, one thing I've really been struggling with in twenty 0:04:04.840 --> 0:04:07.520 twenty four is what is the biggest risk. Is it 0:04:07.560 --> 0:04:10.040 a reacceleration of inflation or is it recession. 0:04:11.560 --> 0:04:14.080 Oh that's the question of the year, I think, and 0:04:14.200 --> 0:04:17.640 you know, I think, as you're looking at looser financial conditions, 0:04:17.640 --> 0:04:19.599 this is going to be one for the history books. 0:04:19.720 --> 0:04:22.679 Right was the FED to dubvish over the last two meetings, 0:04:22.720 --> 0:04:26.479 suggesting that cuts are coming. In the summary of economic projections, 0:04:26.480 --> 0:04:29.640 markets are pricing in five six rate cuts this year, 0:04:29.640 --> 0:04:32.440 and of course that's caused the loosening and financial conditions 0:04:32.440 --> 0:04:35.520 which has been really spurring this pivot party that we've 0:04:35.560 --> 0:04:38.599 been talking about on the show this year. Right now, 0:04:38.640 --> 0:04:42.000 the pivot party's feeling a little bit like maybe a hangover. 0:04:42.200 --> 0:04:45.320 Maybe we're like trying out dry January here or something. 0:04:45.440 --> 0:04:47.360 Is the markets are now back to. 0:04:47.320 --> 0:04:50.599 This good news on the economic front, which is causing 0:04:50.680 --> 0:04:53.400 yields to back up being sort of bad news on 0:04:53.480 --> 0:04:56.960 the equity front. So our as recession goes, I think 0:04:57.000 --> 0:04:59.800 everybody's sort of tired of talking about And frankly, Matt 0:05:00.240 --> 0:05:02.359 and I don't really get paid on our views on 0:05:02.400 --> 0:05:04.640 whether recession plays out or not. We get paid on 0:05:04.920 --> 0:05:07.839 how we think about positioning into this environment, So maybe 0:05:07.839 --> 0:05:10.479 if it could, you know, we're prepared if an economic 0:05:10.520 --> 0:05:15.000 contraction takes place again lead leaning into high quality bonds, 0:05:15.080 --> 0:05:18.560 looking at income, and then rotating into these more defensive 0:05:18.560 --> 0:05:21.240 parts of the market that should benefit on a relative 0:05:21.240 --> 0:05:24.240 basis if something breaks. If something breaks and we do 0:05:24.279 --> 0:05:25.880 see that contraction play out, I. 0:05:25.880 --> 0:05:28.880 Guess that the way this folds into positioning is leaning 0:05:28.920 --> 0:05:34.000 into high quality income producing fixed income. Does this really 0:05:34.040 --> 0:05:37.000 get up ended if the economy is hotter than expected 0:05:37.000 --> 0:05:39.400 and if the pivot party, as you pointed out, has 0:05:39.440 --> 0:05:40.360 just run way too far. 0:05:42.160 --> 0:05:44.360 Yeah, I mean there is a potential here, you know, 0:05:44.440 --> 0:05:48.039 certainly for rates to chop around. We're watching energy prices closely, 0:05:48.120 --> 0:05:50.679 which could play into the inflation picture here. Of course, 0:05:50.720 --> 0:05:53.560 the data on Thursday on CPI is going to be 0:05:53.600 --> 0:05:55.800 you know, critically important here, so there is a risk 0:05:55.880 --> 0:05:58.719 here that we see a reacceleration. It's just hard to 0:05:58.800 --> 0:06:02.480 imagine an environment where inflation goes back to the nine 0:06:02.560 --> 0:06:05.320 percent that we saw in the summer of twenty twenty two. Obviously, 0:06:05.360 --> 0:06:08.919 there was some very unique sort of pandemic era dynamics 0:06:08.920 --> 0:06:12.479 there around supply chains, around fiscal stimulus, so we think 0:06:12.520 --> 0:06:15.960 that ultimately we go back to a low growth, low inflation, 0:06:16.560 --> 0:06:19.400 low rate environment which really permeated the markets and the 0:06:19.440 --> 0:06:22.880 economy for much of the last decade. Nothing changed except 0:06:23.120 --> 0:06:26.839 we pumped five trillion dollars of stimulus into the US economy. 0:06:26.839 --> 0:06:30.520 There's forces out there that are very much disinflationary, and 0:06:30.560 --> 0:06:32.880 we think over the longer term, that's where we go, 0:06:33.000 --> 0:06:35.120 and we're headed in that direction certainly as we start 0:06:35.200 --> 0:06:35.480 the year. 0:06:35.560 --> 0:06:37.279 I mean, I mentioned ben Light and he talked about 0:06:37.279 --> 0:06:40.640 the opportunities in Europe. Is the buys still America US 0:06:40.720 --> 0:06:42.920 stocks it is? 0:06:43.000 --> 0:06:44.719 I mean, you guys have been talking a lot this 0:06:44.839 --> 0:06:47.920 morning about how horrible, for lack of a better word, 0:06:47.960 --> 0:06:51.000 the data is coming out of Europe and certainly in Germany, 0:06:51.080 --> 0:06:53.920 and it's interesting to see, you know, stocks. 0:06:53.520 --> 0:06:56.120 Really not reacting to that. In Europe. 0:06:56.160 --> 0:06:59.640 You know, there's been buoyancy, there's been participation. The weaker 0:06:59.680 --> 0:07:02.840 dollar has helped non US equities. But when we look 0:07:02.880 --> 0:07:06.480 to the US, we're holding up the best around the world. Economically, 0:07:06.520 --> 0:07:09.840 our labor market is undoubtedly the strongest across the world, 0:07:09.840 --> 0:07:12.920 and earning estimates here are more robust than they are 0:07:12.920 --> 0:07:15.160 in other areas. And then Finally, we just have more 0:07:15.240 --> 0:07:18.080 high quality stocks here in the US. So we do 0:07:18.160 --> 0:07:21.760 still have a preference for US equities over international, especially 0:07:22.080 --> 0:07:24.400 over emerging market equities, where we think China is going 0:07:24.440 --> 0:07:25.600 to be challenged into this year. 0:07:25.720 --> 0:07:28.200 Interesting, Emily, thank you. Am we Rout in the of 0:07:28.320 --> 0:07:29.840 John Hancock Investment Management. 0:07:40.120 --> 0:07:44.160 Brook Sutherland knows this cold. She's a Bloomberg opinion columnist, 0:07:44.560 --> 0:07:48.680 and she knows that Clyde Cessna in nineteen sixteen invented 0:07:48.680 --> 0:07:52.600 our aviation world in Wichita, Kansas. So we're going to 0:07:52.640 --> 0:07:55.320 go to Wichita right now and talk about how we 0:07:55.360 --> 0:07:59.240 actually build the things we take for granted. How shattered 0:07:59.400 --> 0:08:04.560 is Ava Kansas this morning? Brook, how not afraid? But 0:08:04.720 --> 0:08:07.120 just how is there confidence broken? 0:08:08.440 --> 0:08:11.280 I think you have to be rather concerned in Whichita? 0:08:11.360 --> 0:08:14.600 I mean that is the home of Spirit Aerosystems, which 0:08:14.640 --> 0:08:17.640 is the supplier that makes the fuselage on the Boeing Max. 0:08:17.680 --> 0:08:20.360 Now this is not it's not clear yet if this 0:08:20.560 --> 0:08:23.600 was a Spirit issue, but they have had a history 0:08:23.680 --> 0:08:29.320 of quality control glitches just in this past year, really, 0:08:29.400 --> 0:08:32.240 and there's a lot of scrutiny over the relationship between 0:08:32.280 --> 0:08:34.640 Boeing and Spirit Aerosystems. This used to be a part 0:08:34.800 --> 0:08:37.840 of Boeing until back in two thousand and five, executives 0:08:37.840 --> 0:08:40.640 decided they could boost their profit margins by focusing on 0:08:40.720 --> 0:08:43.960 design and outsourcing some of the actual manufacturing work. But 0:08:44.080 --> 0:08:46.280 this was really just a set of factories. This was 0:08:46.320 --> 0:08:49.000 never really meant to be an independent business, and I 0:08:49.000 --> 0:08:52.000 think this relationship is going to get a lot of scrutiny. 0:08:52.080 --> 0:08:55.320 There's been speculation of could Boeing buy Spirit Aerosystems. I 0:08:55.320 --> 0:08:58.440 think that would be very complicated, considering Spirit has since 0:08:58.480 --> 0:09:02.120 diversified into contracts Airbus and the military. But I do 0:09:02.200 --> 0:09:04.640 think both Boeing and Airbus down the road are going 0:09:04.679 --> 0:09:07.760 to work at vertically integrating more of that aerospace structure's 0:09:07.800 --> 0:09:10.480 work because it's just not a tenable relationship. 0:09:10.720 --> 0:09:13.960 Is this enough for Airbus to get a legit foothold 0:09:14.040 --> 0:09:15.559 into American aviation? 0:09:17.080 --> 0:09:19.080 I mean, I think they have one. What's interesting is 0:09:19.080 --> 0:09:23.080 that Airbus has remained much more vertically integrated than Boeing 0:09:23.160 --> 0:09:25.600 ever has. They'd outsourced some stuff here and there, but 0:09:25.640 --> 0:09:28.280 they have not done it to the extent that Boeing did, 0:09:28.320 --> 0:09:30.839 And in hindsight, being twenty twenty, that was clearly the 0:09:30.920 --> 0:09:31.920 right decision. 0:09:32.040 --> 0:09:35.520 I'm wondering the decision by the airline companies of which 0:09:35.559 --> 0:09:39.000 planes to buy. Why it is that United and Alaska 0:09:39.040 --> 0:09:42.440 Air had a disproportionate number of these particular jets. Is 0:09:42.440 --> 0:09:44.280 it just the roots that they decided to fly on, 0:09:44.720 --> 0:09:46.199 Was it just simply availability? 0:09:46.320 --> 0:09:47.080 Was it the cost? 0:09:48.200 --> 0:09:49.680 I mean, I think it's a little bit of both. 0:09:49.679 --> 0:09:52.120 The reality is we have a duopoly. It's Boeing and 0:09:52.160 --> 0:09:55.240 it's Airbus, and Airbus is sold out of its Marquee 0:09:55.280 --> 0:09:58.480 narrow body jets into the twenty thirties. I think, you know, 0:09:58.520 --> 0:10:00.960 depending on the roots you want to fly. Fuel efficiency 0:10:01.360 --> 0:10:05.200 engines are also a concern. So the max Jet only 0:10:05.320 --> 0:10:08.680 takes the engine from CFM International, which is the joint 0:10:08.720 --> 0:10:12.240 venture from Saffron and ge Airbus. You can choose between 0:10:12.320 --> 0:10:15.200 that CFM engine or a variant of it, or the 0:10:15.400 --> 0:10:18.400 GTF from RTX, which of course is having problems of 0:10:18.440 --> 0:10:20.760 its own. They've had to do a very costly recall 0:10:21.080 --> 0:10:24.960 of that engine technology because of again a manufacturing glitch 0:10:25.160 --> 0:10:28.120 that time involved powdered metal. So if you're an airline, 0:10:28.480 --> 0:10:30.920 I don't really know what's your best option is because 0:10:30.960 --> 0:10:33.320 you're now having problems with both of these aircraft, but 0:10:33.360 --> 0:10:36.280 you don't have a lot of alternatives. The one thing 0:10:36.280 --> 0:10:38.440 we should say is that so far, all of the 0:10:38.480 --> 0:10:41.680 investigations the grounding is really focused on the Max nine, 0:10:41.720 --> 0:10:44.440 so that actually makes up a relatively small percentage of 0:10:44.480 --> 0:10:49.000 the overall operating Max fleet and the order backlog. So 0:10:49.040 --> 0:10:52.640 the Max eight is really the workhorse of that Boeing 0:10:52.679 --> 0:10:55.079 family of jets, and that so far has not come 0:10:55.160 --> 0:10:58.040 under scrutiny, although it's a fair question as to whether 0:10:58.160 --> 0:10:59.080 it may at some point. 0:10:59.320 --> 0:11:01.800 George Fergus of Loloberg Intelligence was on yesterday and he 0:11:01.880 --> 0:11:04.600 was talking about how there are some serious staffing issues 0:11:04.640 --> 0:11:07.560 since the pandemic and that could play a role in 0:11:07.559 --> 0:11:09.480 some of these supply chain issues or at least some 0:11:09.520 --> 0:11:14.080 of the assembly line issues and the lack of assiduousness 0:11:14.080 --> 0:11:18.200 to tightening the bolts. Do you buy into this? This 0:11:18.160 --> 0:11:20.800 is something that you've been hearing from other executives of 0:11:20.800 --> 0:11:23.480 industrial companies that they just do not have the quality 0:11:23.559 --> 0:11:26.280 or number of staffers to really make sure that things 0:11:26.280 --> 0:11:27.080 are done properly. 0:11:28.400 --> 0:11:30.360 Absolutely. I mean, I think if you look back to 0:11:30.400 --> 0:11:33.000 the pandemic, we bailed out the airlines, but we did 0:11:33.000 --> 0:11:36.360 not bail out the aerospace manufacturing supply chain, which was 0:11:36.400 --> 0:11:39.480 a very created a lopsided dynamic where these companies just 0:11:39.600 --> 0:11:41.920 laid off in mass and then they could not hire 0:11:41.960 --> 0:11:44.200 people back when they wanted to. Now, I would also 0:11:44.280 --> 0:11:47.440 put some of the blame though, on these aerospace manufacturing companies, 0:11:47.679 --> 0:11:50.959 because we have long had supply chain issues in this 0:11:51.080 --> 0:11:54.080 corner of the world. Even before the pandemic, companies were 0:11:54.080 --> 0:11:56.920 struggling to ramp up production to meet Boeing and Airbus goals, 0:11:57.200 --> 0:11:59.400 and so you would think that maybe these companies might 0:11:59.400 --> 0:12:01.199 have had some price of mine to hold on to 0:12:01.320 --> 0:12:03.959 the workers. And I've written about the railroads who are 0:12:03.960 --> 0:12:07.400 making some structural decisions about not laying off workers when 0:12:07.520 --> 0:12:09.880 times get tough, and whether we should see sort of 0:12:09.920 --> 0:12:13.000 a similar mindset shift in the aerospace world. I think 0:12:13.000 --> 0:12:14.439 that would be very necessary. 0:12:14.480 --> 0:12:16.280 I mean, Brook, you're expert at this. In the last hour, 0:12:16.320 --> 0:12:18.120 I talked about Boeing and I looked at a fancy 0:12:18.160 --> 0:12:21.720 Bloomberg chart, and I'm saying something happened starting on and 0:12:21.800 --> 0:12:25.839 around twenty sixteen as simple as I can. Did they 0:12:25.840 --> 0:12:29.720 lose the culture? Did they lose the engineering discipline when 0:12:29.720 --> 0:12:31.079 they exited Seattle? 0:12:32.440 --> 0:12:34.800 I think at this point, you have to look at 0:12:34.880 --> 0:12:37.680 deep rooted cultural issues. I mean, it has been one 0:12:37.880 --> 0:12:40.800 problem after another at Boeing, and I know Dave Calhoun 0:12:40.840 --> 0:12:43.440 has been very resistant to conversations that this is the 0:12:43.480 --> 0:12:48.160 cultural problem. He's resisted more sweeping overhauls of the engineering ranks, 0:12:48.200 --> 0:12:51.000 or management ranks or the culture there. But I think 0:12:51.400 --> 0:12:54.040 what's needed is a true reset. And I go back 0:12:54.080 --> 0:12:56.600 to GE because there are a lot of crossovers between 0:12:56.600 --> 0:12:59.920 GE and Boeing management. Over the years, that company went 0:13:00.080 --> 0:13:02.920 through a proper cultural reset and it is now on 0:13:03.000 --> 0:13:06.960 a much healthier path. It's breaking up, but it's making 0:13:07.000 --> 0:13:09.680 money again, it's generating cash flow again, and it is 0:13:09.760 --> 0:13:12.400 overall a much healthier company. And I think that when 0:13:12.440 --> 0:13:14.880 you have these type of crises, and especially when it's 0:13:14.920 --> 0:13:18.240 sort of something as basic, potentially as screwing in the 0:13:18.280 --> 0:13:20.600 bolts on a door, you have to look at how 0:13:20.640 --> 0:13:23.720 did we get here and what sort of cultural norms 0:13:23.720 --> 0:13:26.720 are in place that would allow this type of thing 0:13:26.760 --> 0:13:29.480 to happen, allow planes to be delivered in this condition. 0:13:29.280 --> 0:13:32.000 Broken Resistant of regulates us to that conversation. 0:13:34.240 --> 0:13:36.480 I don't think they should be resistant because I think 0:13:36.480 --> 0:13:38.880 their reputation is also on the line here. Now, remember 0:13:38.920 --> 0:13:42.240 that the FAA is supposed to be inspecting and checking 0:13:42.360 --> 0:13:46.040 every single max plane before it is handed over to customers. 0:13:46.120 --> 0:13:47.920 That was a protocol that was put in place in 0:13:47.960 --> 0:13:50.680 the wake of those two fatal crashes. When it came 0:13:50.720 --> 0:13:54.200 out that that flight control software was much more prone 0:13:54.240 --> 0:13:57.800 to being triggered by malfunctioning sensors than regulators realize and 0:13:57.840 --> 0:14:01.760 also a lot more powerful. Their reputation of the FAA 0:14:01.840 --> 0:14:03.760 really took a hit in that accident, and this was 0:14:03.840 --> 0:14:05.880 meant to be part of their response to that. So 0:14:05.920 --> 0:14:10.080 the FAA also missed something here, and so I think 0:14:10.080 --> 0:14:12.600 it should be in their interests to try to beef 0:14:12.679 --> 0:14:17.240 up scrutiny of Boeing and also the overall aerospace safety infrastructure. 0:14:17.280 --> 0:14:19.280 I mean, this is not the only issue that we've had. 0:14:19.320 --> 0:14:21.560 We've also had close calls on the runways, and I 0:14:21.560 --> 0:14:24.120 think we've gotten very comfortable as a country because we've 0:14:24.120 --> 0:14:27.560 been lucky enough not to have very many fatal accidents 0:14:27.640 --> 0:14:30.920 in recent years. But you cannot get complacent about aerospace safety. 0:14:31.000 --> 0:14:33.600 We just quickly, where is your focus right now? Is 0:14:33.600 --> 0:14:36.960 it on Boeing spirit error systems? The individuals that make 0:14:36.960 --> 0:14:39.040 the fuselage for the seven thirty seven? Is it on 0:14:39.080 --> 0:14:42.680 the carrier Alaskaare is it on the FAA? Where's your focus? 0:14:43.680 --> 0:14:45.480 Well, I would say all of the above, because I 0:14:45.480 --> 0:14:47.640 follow all those companies, But I think Boeing is the 0:14:47.640 --> 0:14:50.280 most important story here. How do they react to this, 0:14:50.400 --> 0:14:52.840 What types of changes do they make, whether that involves 0:14:52.880 --> 0:14:56.000 their supply chain, whether it involves management. If you remember, 0:14:56.120 --> 0:14:58.600 back in sort of mid twenty twenty two, there was 0:14:58.640 --> 0:15:02.560 an unusual number of Boeing customers calling for management changes. 0:15:02.600 --> 0:15:05.120 Now that has since sort of quieted down, but I 0:15:05.160 --> 0:15:07.320 do wonder if in the wake of this accident that 0:15:07.440 --> 0:15:10.040 might start to pick back up again. Now, Boeing did 0:15:10.120 --> 0:15:13.480 name the chief operating officer last month, Stephanie Pope, who's 0:15:13.480 --> 0:15:15.760 ahead of their services arm, sort of making her the 0:15:15.800 --> 0:15:19.120 heir apparent to Dave Calhoun. I would keep an eye 0:15:19.160 --> 0:15:22.160 on whether any type of management changes happened sooner rather 0:15:22.200 --> 0:15:24.200 than later. But I would also say that this is 0:15:24.320 --> 0:15:26.640 a company that could really use some fresh eyes and 0:15:26.720 --> 0:15:31.120 maybe promoting from within my race and more eyebrows. 0:15:31.120 --> 0:15:33.520 Interesting I broke this was great brook sepal and that 0:15:33.920 --> 0:15:35.200 of Bloomberg opinion. 0:15:39.400 --> 0:15:42.480 What we know for certain is Ian Bremer and all 0:15:42.520 --> 0:15:44.760 of you raise your group, have to rewrite their top 0:15:44.840 --> 0:15:48.880 risks for twenty twenty four on January ninth. That's how 0:15:49.040 --> 0:15:52.760 fast things are happening. He is here today with the 0:15:52.800 --> 0:15:56.440 top risk. What a grim set of risks in an 0:15:56.520 --> 0:16:00.920 election year. How uncertain is it to get to March 0:16:01.480 --> 0:16:03.040 or to get to say the middle of May. 0:16:03.320 --> 0:16:04.960 Well, first of all, happy new year, Tom, and to 0:16:05.000 --> 0:16:07.040 all of you here at Bloomberg Surveillance. It's so nice 0:16:07.080 --> 0:16:09.240 to join you as we kick off twenty twenty four 0:16:09.280 --> 0:16:10.040 on January ninth. 0:16:10.560 --> 0:16:14.560 No, I don't think we have to rewrite these risks, but. 0:16:14.600 --> 0:16:19.360 I think we have to recognize just how incapable we, 0:16:19.760 --> 0:16:22.880 the United States and our present set of global leaders 0:16:23.120 --> 0:16:28.520 are in trying to contain the geopolitical risks and conflicts. 0:16:28.280 --> 0:16:31.240 That we face today. You just saw the entry we had. 0:16:31.080 --> 0:16:35.160 Blinken standing there in the Middle East saying they need 0:16:35.200 --> 0:16:38.280 to understand We need them to understand. 0:16:38.320 --> 0:16:40.160 The hu Thies need to understand the need to stop this. 0:16:40.480 --> 0:16:42.880 He could have easily said, the Hamas needs to understand 0:16:42.880 --> 0:16:45.320 they have to let these hostages go. The Israeli war 0:16:45.360 --> 0:16:47.680 Copit cabinet needs to understand that they can't continue to 0:16:47.720 --> 0:16:51.720 expand the fighting in the region. The United States has 0:16:52.360 --> 0:16:56.640 zero ability to actually make those messages land with the 0:16:56.680 --> 0:16:59.720 actors on the ground who are escalating this. 0:17:00.360 --> 0:17:04.000 Triangulate this right now with Freed Zakaria's essay and Foreign 0:17:04.040 --> 0:17:08.480 Affairs Magazine in his Post American World. In the Bremer 0:17:08.760 --> 0:17:12.480 Post American World, you say the US is battling itself. 0:17:12.760 --> 0:17:15.959 That sounds a lot like Zakaria twenty years ago. Triangulate 0:17:16.080 --> 0:17:19.359 right now the lack of confidence you have in our 0:17:19.520 --> 0:17:21.280 US geopolitical strategy. 0:17:22.760 --> 0:17:24.479 It was about twelve years ago when I first came 0:17:24.560 --> 0:17:27.480 up with this idea of a G zero world where 0:17:27.760 --> 0:17:30.960 the United States was not going to be willing and 0:17:31.160 --> 0:17:34.159 able to be the global policeman, the architect of global trade, 0:17:34.160 --> 0:17:37.040 and the promoter of global values, but that no other 0:17:37.160 --> 0:17:40.160 country or group of countries would be able to step 0:17:40.200 --> 0:17:44.920 into its place, and that as that geopolitical recession played out, 0:17:45.400 --> 0:17:48.760 there would be more conflict, There would be more vacuums 0:17:48.760 --> 0:17:51.760 that would be filled by rogue actors who take advantage 0:17:51.840 --> 0:17:54.680 of the comparative chaos, of the lack of leadership. Twelve 0:17:54.760 --> 0:17:59.120 years of that gets you much bigger. 0:17:59.080 --> 0:18:00.800 And unmitting fighting. 0:18:01.720 --> 0:18:04.640 We see that with Russia Ukraine started in twenty fourteen, 0:18:05.040 --> 0:18:07.760 nobody really pushed back, and now we are here in 0:18:07.800 --> 0:18:11.040 twenty twenty four and that war is turning trajectory in 0:18:11.040 --> 0:18:12.760 a way that none of us are comfortable with. 0:18:13.240 --> 0:18:13.840 In the West. 0:18:14.080 --> 0:18:16.760 You see that in the Middle East, and that is 0:18:16.920 --> 0:18:20.280 set to expand significantly. And we see in the United 0:18:20.280 --> 0:18:26.320 States itself that we are increasingly a tribal, non functional 0:18:26.400 --> 0:18:27.840 democracy and crisis. 0:18:28.440 --> 0:18:29.400 Very simple point. 0:18:29.600 --> 0:18:33.159 When you have the former Secretary of Defense under Trump 0:18:33.400 --> 0:18:38.159 saying this man is a threat to democracy. He was 0:18:38.560 --> 0:18:42.520 in charge of American national security under Trump. When you 0:18:42.600 --> 0:18:47.600 have the person who is running having tried to subvert 0:18:47.760 --> 0:18:50.840 a free and fair transfer of power, doing everything in 0:18:50.880 --> 0:18:51.400 his power. 0:18:51.240 --> 0:18:51.640 To do so. 0:18:52.040 --> 0:18:57.040 In a functional democracy, that would be the number one 0:18:57.080 --> 0:18:58.159 issue of the election. 0:18:58.280 --> 0:18:59.320 Nothing else would be close. 0:19:00.119 --> 0:19:03.640 So is it that we're somehow getting our facts wrong, 0:19:04.200 --> 0:19:06.520 or is it that the United States is not a 0:19:06.560 --> 0:19:12.200 consolidated functional democracy because there ain't no other advanced industrial democracies. 0:19:12.800 --> 0:19:15.159 No one else in the G seven is having the 0:19:15.240 --> 0:19:18.920 problems in legitimacy of its political institutions at the United 0:19:18.920 --> 0:19:20.920 States is experiencing in twenty twenty four. 0:19:20.960 --> 0:19:23.960 What do you think those What do I think which you. 0:19:23.880 --> 0:19:26.480 Think it is? Do you think it is a functioning democracy? 0:19:26.640 --> 0:19:28.880 No, No, I think it's a hybrid system. I think 0:19:29.119 --> 0:19:33.760 the US democratic institutions have significantly eroded over the course 0:19:33.800 --> 0:19:37.960 of the past several decades. We have normalized that because 0:19:38.040 --> 0:19:41.200 all of the things that are unprecedented as they happen, 0:19:41.600 --> 0:19:44.000 and we still live here in the United States, we're 0:19:44.040 --> 0:19:45.960 basically saying, well, okay, I guess that's the way it 0:19:45.960 --> 0:19:48.320 works now. So impeachment doesn't work, and we can impeach 0:19:48.400 --> 0:19:50.520 someone twice and they can still run again. 0:19:50.720 --> 0:19:51.800 I guess that's the way it works. 0:19:51.800 --> 0:19:54.000 You can have ninety one indictments and I guess that's 0:19:54.040 --> 0:19:56.160 the way it works. You can post and say things 0:19:56.200 --> 0:19:57.919 that you never would have heard. I guess that's the 0:19:57.920 --> 0:20:00.359