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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Sweene. You,

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Speaker 1: along with my co host Lisa Brahma Waits, each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com markets Hire. Today, everything rally continues.

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Speaker 1: I'm wondering how long can this continue? So is everyone

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Speaker 1: else on Wall Street joining us down to discusses. Urian Timor,

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Speaker 1: Fidelity Investments Director of Global Macro Research and Strategy. He

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Speaker 1: is coming to us from our Boston studio. Urian, thank

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Speaker 1: you so much for being with us. I want to

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Speaker 1: start with how long could be everything rally continue? Well?

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Speaker 1: From my experience, UM bullmarket's end for only a couple

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Speaker 1: of reasons. You know. One the main reason is that

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Speaker 1: inflation ends up accelerating during the so called late cycle

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Speaker 1: stage of the of the business cycle, and the forces

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Speaker 1: the FED to essentially overtightened tighten more than the economy

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Speaker 1: can handle. You get a recession, you get a bear market,

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Speaker 1: and that's the end of the cycle. Obviously, we don't

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Speaker 1: have that because inflation is persistently undershooting the fed's target

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Speaker 1: to such a degree that the Fed actually now has

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Speaker 1: the free option to cut raids a couple of times,

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Speaker 1: even though we are in a very advanced phase of

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Speaker 1: the business cycle. So it's a very unusual cycle. But basically, know, basically,

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Speaker 1: in my opinion, this is not a linear system. So

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Speaker 1: the cycle could theoretically continue or it can slow and

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Speaker 1: then get some new life in it. And I think

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Speaker 1: that's probably what the FED is trying to accomplish here,

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Speaker 1: is to essentially extend the cycle and UH and therefore

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Speaker 1: extend the bull market. You know, the SMP or the

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Speaker 1: TAO has been in a holding pattern now for about

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Speaker 1: eighteen months, just like it did back in late fourteen

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Speaker 1: to early sixteen. And we're pushing against that three thousand

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Speaker 1: level on the SMP. And if earning season is okay

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Speaker 1: and it doesn't come too much at the expense of

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Speaker 1: coming quarters and earnings do stage the rebound that the

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Speaker 1: market is essentially expecting, and then the FED throws a

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Speaker 1: couple of eight cuts into the mix, then you could

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Speaker 1: argue that the cycle can can keep going. So you're in.

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Speaker 1: It looks like it's been reported by some Chinese media

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Speaker 1: that the U. S. Trade delegation will be returning to

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Speaker 1: Beijing next week. How important to the markets, to your

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Speaker 1: outlook is it to get a real deal done with China? Trade?

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Speaker 1: Of course is extremely important for the markets, you could

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Speaker 1: and it's and for the economy as well, of course,

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Speaker 1: But you could argue that it's actually more important for

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Speaker 1: the markets than than the real economy, because the real economy,

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Speaker 1: led by you know, consumer spending UM is doing pretty well.

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Speaker 1: The consumers in good shape. You know, dead levels are low,

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Speaker 1: wages are rising, unemployments at a fifty year low. So

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Speaker 1: you could argue that if you know, tariffs are a

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Speaker 1: form of attacks and they get passed onto the consumer,

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Speaker 1: that in the current economic environment, the economy might slow

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Speaker 1: as a result of it, and we're already we've already

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Speaker 1: been seeing that, but that ultimately the economy will do okay.

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Speaker 1: But then when you look at the SMP five hundred

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Speaker 1: and how that's really more of a global index um

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Speaker 1: where companies are sort of geared or lever towards globalization

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Speaker 1: in terms of you know, very efficient supply chains, and

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Speaker 1: how that affects their profit margins and therefore their earnings growth.

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Speaker 1: You can see the SMP actually being more vulnerable to

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Speaker 1: a lack of progress on the trade front. And I

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Speaker 1: think that's what we're essentially seeing because since the first

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Speaker 1: tariff was lobbed eighteen months ago or so, the market,

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Speaker 1: as I said before, hasn't really made much progress. And

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Speaker 1: when you look at the earning season in Q one,

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Speaker 1: you know, Q one ended up beating expectations, but then

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Speaker 1: at coming at the expense of Q two and UH

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Speaker 1: and Q two looks like it's doing about the same thing.

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Speaker 1: So if I'm a company in the US UH and

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Speaker 1: I rely on globalization to keep my profit margins high,

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Speaker 1: and I don't know what the state of play is, um,

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Speaker 1: I'm either gonna do nothing for a while or I'm

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Speaker 1: going to try to re engineer those supply chains, but

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Speaker 1: that that's costly and that takes time as well. So

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Speaker 1: I think that that explains a lot of why we

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Speaker 1: are where we are in the market. So it is

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Speaker 1: very important. I don't have high expectations that a total,

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Speaker 1: you know, broadly encompassing deal will happen, but maybe there

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Speaker 1: will be a few singles and doubles here along the way, ran,

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Speaker 1: why would any investor want to trade this kind of backdrop? Um? Well,

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Speaker 1: I don't really believe in trading so much. I believe

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Speaker 1: in in in investing for the long term. And I

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Speaker 1: think one of the drivers for this market is that,

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Speaker 1: you know, we are in a ten year expansion with

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Speaker 1: as I said before, we don't have that inflation boogeyman,

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Speaker 1: you know, threatening to to undo it. We also don't

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Speaker 1: have a lot of pent up you know, leverage types

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Speaker 1: of bubbles other than maybe corporate balance shees go ahead,

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Speaker 1: and my point is why not just do a sixty

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Speaker 1: forty portfolio and leave it at I mean it, basically,

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Speaker 1: we've got this sort of push pull dynamic that's going

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Speaker 1: to go on for a while, and everyone's saying it's

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Speaker 1: range bound. Why even think more about it? Do the

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Speaker 1: sixty forty, put it in, sleep on it, and not

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Speaker 1: think again. Yeah, I could not agree with you more.

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Speaker 1: You know that the the strategic allocation, which is what

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Speaker 1: you're referring to, um, is what drives most performance over

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Speaker 1: the long term. Now, tactical allocation is important if the

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Speaker 1: opportunity set is there, and you could argue maybe E. M.

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Speaker 1: Versus US. Equity allocations are an opportunity set right now.

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Speaker 1: You know, we can talk about that, but the strategic allocation,

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Speaker 1: whether it's thirty or whatever it is UM, I think

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Speaker 1: ultimately is what drives UH, you know, investors to achieving

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Speaker 1: their their ultimate goals. And I think it's very important

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Speaker 1: to keep our eye on the prize and not trying

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Speaker 1: to overtrade something because maybe we got a temper cent

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Speaker 1: correction or even correction, we got one in December and

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Speaker 1: the market you know, immediately m retrace that. So trading

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Speaker 1: can be detrimental to our financial health. I agree. So

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Speaker 1: you're in how concern should I be about the economies

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Speaker 1: outside of the U S. I'm thinking about Western Europe

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Speaker 1: very week to week. Brexit not helping. We've got China slowing,

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Speaker 1: although still putting us some decent growth. Do I have

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Speaker 1: to be concerned about that? Well? Global growth has been

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Speaker 1: slowing for over a year. You know, the JP Morgan

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Speaker 1: Global p M I peaked at fifty four point four

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Speaker 1: I think UM a year ago, more than a year ago,

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Speaker 1: and is down at forty nine and change. The U

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Speaker 1: S sort of was bucking that trend for a while,

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Speaker 1: but has now joined the slowdown, you know, with the

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Speaker 1: U s I s I s M going from sixt

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Speaker 1: one to fifty one. So clearly there's a global growth

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Speaker 1: uh slow down underway, and this is obviously one of

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Speaker 1: the reasons why the FED feels like it has the

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Speaker 1: option to cut rates here. You know, even like the

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Speaker 1: natural rates so called our star is starting to drift

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Speaker 1: lower by a few tens of a percent. So I

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Speaker 1: think the FED is doing the right thing, um And

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Speaker 1: but globally, you know, China is I think my my

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Speaker 1: main concern. I mean, the weakness on the manufacturing site

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Speaker 1: in Europe, especially Germany. You can sort of tie that

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Speaker 1: to to China weakness as well, and of course Europe

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Speaker 1: has a has a banking issue also. But China, um,

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Speaker 1: you know, it's reporting six point two percent growth, but

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Speaker 1: my sense is that it's probably significantly less than that.

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Speaker 1: And one of the big questions is that if the

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Speaker 1: trade dispute gets resolved, and of course China's economy presumably

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Speaker 1: will do much better because it's more geared towards exports

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Speaker 1: to the US and the US is geared towards imports

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Speaker 1: from China. But if that doesn't happen, you wonder if

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Speaker 1: China needs to pull out the big bazooka in terms

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Speaker 1: of stimulus like they did in and if they do that,

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Speaker 1: what does that do to the currency, to the yuan?

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Speaker 1: Does it break seven? So yes, it does concern me.

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Speaker 1: But I think the the central bank pivot basically around

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Speaker 1: the world will help in that sense. And you know,

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Speaker 1: China and the e M S are alright already easing

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Speaker 1: policy in anticipation of the FED rate cuts, so so

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Speaker 1: so the FED cutting rates does give the e M

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Speaker 1: S room to do more stimulus. You're in Timer, Thank

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Speaker 1: you so much for joining us. Your a is a

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Speaker 1: director of Global Macroe for Fidelity Investments. Joining us in

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Speaker 1: our Bloomberg Boston A studio. Thank you so much for

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Speaker 1: joining us. The tension between Iran and the US, as

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Speaker 1: well as the European Union is rising. The latest is

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Speaker 1: that Iran has accused a number of people of being

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Speaker 1: in a c I A spy network, and has sentenced

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Speaker 1: them to death. Joining us now to talk about these

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Speaker 1: tensions and what the potential fallout could be, both on

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Speaker 1: a geopolitical standpoint as well as on oil markets. Ariel Cohen,

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Speaker 1: Senior Fellow at the Atlantic Council joining us from Washington,

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Speaker 1: D c Ariel, Can you just first start by putting

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Speaker 1: the latest accusations of these individuals being c i A spies.

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Speaker 1: Can you play is put into perspective for us? Yes,

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Speaker 1: of course. Uh. First of all, it's a tragedy that

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Speaker 1: people most probably some of them innocenter all of them innocent,

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Speaker 1: have been arrested drag to the infamous Evin prison in

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Speaker 1: Tehran where there would be tortured uh and executed. Uh.

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Speaker 1: Some of these people maybe and maybe known assets. Any

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Speaker 1: intelligence service worth its metal um would track people who

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Speaker 1: collaborate with for intelligence services, so at any time they

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Speaker 1: can pick them up uh and then arrest them or

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Speaker 1: kick them out of the country. Uh. This is a

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Speaker 1: known tradecraft. However, the fact that President Trump tweeted that

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Speaker 1: this is fake news makes me think that maybe Iranians

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Speaker 1: just picked up some random opponents of the regime. After all,

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Speaker 1: the urban and educated population hate the regime in Iran,

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Speaker 1: and they may have been using this to seven scores

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Speaker 1: to punish people that are Western or pro American but

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Speaker 1: not spies, and that have been going on in Iran,

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Speaker 1: that have been going on in Turkey and in other places.

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Speaker 1: So Ariel. I wonder if you could just set the

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Speaker 1: stage for us a little bit. There's so many moving

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Speaker 1: pieces going on with Iran in the US and other

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Speaker 1: Western nations. In your opinion, what do you think President

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Speaker 1: Trump's strategy is as it relates to Iran? Well, the

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Speaker 1: good question is does he have does he have a

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Speaker 1: strategy beyond trying to squeeze Iran by imposing sanctions? And

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Speaker 1: we saw from the leaked emails from the former British

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Speaker 1: ambassador who said there's no strategy in building a coalition

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Speaker 1: reaching out to our European allies. And also once you

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Speaker 1: impose UM this pressure on the Iranian regime, granted this

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Speaker 1: is a very significant pressure, more than anything we saw

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Speaker 1: under the Obama administration. What happens when you UH corner Iran?

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Speaker 1: Do you have enough deterrent power to prevent Iran from

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Speaker 1: doing what it's doing now? Uh? It conducted seven attacks

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Speaker 1: on tankers and other boats in the Gulf um it Um,

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Speaker 1: may Um fire rockets, use proxies throughout the Middle East

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Speaker 1: from Lebanon to Yemen. It has militia that they support. However,

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Speaker 1: what makes sense here is that the more you squelch

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Speaker 1: the cash flow for that regime. Uh, the less money

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Speaker 1: they have for the mischief. And then the question is

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Speaker 1: when you relent, when you stopped pressure because of the

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Speaker 1: negotiating process, would they go back next day to do

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Speaker 1: what they've done so far that caused this thing in

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Speaker 1: the first place. But let's let's go at it from

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Speaker 1: the other point if you because you have Iran clearly,

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Speaker 1: tensions are already very high. They're suffering due to sanctions

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Speaker 1: and they don't want to go back to having their

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Speaker 1: finances completely cut off. And yet the UK government has

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Speaker 1: accused them of seizing these tankers. Now there are the

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Speaker 1: accusations of the CIA actors that are as you were

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Speaker 1: just described. So what are they playing at? What are

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Speaker 1: they looking for? Uh? They are playing tough. You need

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Speaker 1: to understand the strategic culture of these countries, of each

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Speaker 1: country is not the same as the other North Koreans

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Speaker 1: are not the same as Iranians. And the Iranians are

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Speaker 1: playing tough. We're not you know, folding, we're not bending.

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Speaker 1: We can escalate. Um. What they're involved now is piracy.

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Speaker 1: We haven't seen that level of disruption of international shipping

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Speaker 1: at least since Somalia pirates or the Iran Iraq War

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Speaker 1: in the nineteen eighties. I remember how President Reagan and

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Speaker 1: President Bush um reflagged American reflagged anchors, put American flags

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Speaker 1: on them, and UH provided American naval assets UH to

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Speaker 1: UM guard the ship the shipments of oil. UH. And

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Speaker 1: in the end of the day, what broke the spirit

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Speaker 1: of the Iranians when by mistake U. S. Navy shot

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Speaker 1: down in Iranian civilian aircraft. So I'm not suggesting anything

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Speaker 1: horrible like that, but what I'm suggesting is if you

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Speaker 1: want to negotiate, we have to negotiate from the position

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Speaker 1: of strength. And this is something we see the British

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Speaker 1: are ignoring. The British are failing UH to provide UH

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Speaker 1: sufficient strength to stop the Iranians from seizing their tankers. UH.

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Speaker 1: So it looks to me like it has to be

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Speaker 1: a US, British and possibly other countries that are involved

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Speaker 1: in oil shipping, maybe the Japanese, maybe other Europeans. But

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Speaker 1: without negotiating from the position of strength UH, the Iranians

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Speaker 1: have no incentive to negotiate UH, and we have no

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Speaker 1: incentive to negotiate from the position of weakness. We need

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Speaker 1: to show that we mean in business. We need to

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Speaker 1: put put more naval vessels and guard the caravans that

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Speaker 1: that ship oil and make it very clear for the

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Speaker 1: Iranians that if they mess it up, if they disrupt

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Speaker 1: the energy shipment in the Gulf, they will pay a

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Speaker 1: very high unsustainable prize for that regime. Errol Cohen, thank

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Speaker 1: you so much for joining us. Errol Coh as a

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Speaker 1: senior Fellow with the Atlantic Council from Washington, n d C.

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Speaker 1: Giving us his thoughts on the Iranian issue as tensions

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Speaker 1: continue to rise. Well, we just celebrated the moon landing

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Speaker 1: of Apollo eleven, which is prompting renewed discussion about the U.

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Speaker 1: S Space program and its future. Our next guests can

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Speaker 1: help us fill in some holes. Their Softie bacology author

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Speaker 1: and physicist. He's based in Cambridge, Massachusetts. Softie, thanks so

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Speaker 1: much for joining us. I wonder if you could just

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Speaker 1: give us a sense of where the U. S. Space

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Speaker 1: program is today. Well, we're celebrating this week the fiftieth

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Speaker 1: anniversary of the moon landing. In the moon landing, which

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Speaker 1: is one of the great inspiring events of human history,

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Speaker 1: and then the US led the world. The US has

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Speaker 1: led the world in space and science and technology for

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Speaker 1: the last fifty years. But after that peak in the

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Speaker 1: sixties and then the seventies, we gradually slowed down. And

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Speaker 1: the question is why why should we give up that

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Speaker 1: leadership because that leadership drove so much of the economy.

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Speaker 1: And what's happening today is that NASA's role has shrunk

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Speaker 1: because of competition from private industry, competition from the military,

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Speaker 1: and we haven't had that spirit that we had so

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Speaker 1: many years ago. And now the new race is with China,

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Speaker 1: with Russia, and with India. And it's so important to

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Speaker 1: understand this because we don't want to see, for example,

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Speaker 1: the first colony on the moon being a Chinese colony

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Speaker 1: or a Russian colony. We want that would just be

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Speaker 1: not That would to me, that would be an admission

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Speaker 1: of defeat. That would be an admission that our best

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Speaker 1: years leading the world in science and technology are behind us.

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Speaker 1: And I don't think they are. But what would you

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Speaker 1: say to people who say that that's spending a lot

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Speaker 1: of money on the part of the United States to

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Speaker 1: basically beat our chests, saying, you know, we're the best,

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Speaker 1: We're the best on the hill. I think those people

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Speaker 1: failed to understand what was so important fifty years ago

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Speaker 1: was the inspiration, the inspiration to young people, old people,

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Speaker 1: average age people. Just how powerful the idea of astronauts,

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Speaker 1: the idea of exploring the idea of space, and that

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Speaker 1: ability to inspire our young people is a national advantage. Well,

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Speaker 1: like you're also Safie the author of a Wall Street

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Speaker 1: Journal bestseller, And I love this title, loon Shots, how

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Speaker 1: to nurture the crazy ideas that wind wars cure diseases

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Speaker 1: and transform industries. When I think about that kind of mentality,

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Speaker 1: a couple of people that jump to mind or Richard

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Speaker 1: Branson and Elon Elon Musk, and not surprisingly, I guess

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Speaker 1: they're on the forefront of what might be the next

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Speaker 1: wave of space travel. Well, I love what Elon Musk

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Speaker 1: is doing. He's taking a big, bold approach to getting,

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Speaker 1: for example, to Mars, and that's forcing NASA to react.

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Speaker 1: That happened almost the exact same playbook happened thirty years

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Speaker 1: ago with another crucial big science project, and that was

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Speaker 1: the sequencing of the human genome. Big project, incredibly important

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Speaker 1: for medicine, for human health. Federal government had a fifteen year,

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Speaker 1: three billion dollar plan and a young billionaire in his

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Speaker 1: early forties came up and said, forget that, I have

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Speaker 1: a faster, better, bolder way to do it. The two

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Speaker 1: of them together challenged each other and raised the bar

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Speaker 1: and did a much better job than either one alone.

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Speaker 1: And that's what's playing out again with Elon Musk and NASA.

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Speaker 1: So I'm delighted to see that your mother was a

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Speaker 1: prominent scientist with NASA, as was your father. What did

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Speaker 1: your mother think of this book that you wrote, Oh,

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Speaker 1: my mother, I've had people from NASA reach out to

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Speaker 1: me as well. They want to nurture loon shots faster

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Speaker 1: and better because the big ideas, the ones that truly

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Speaker 1: changed of course, the science business are here street rarely

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Speaker 1: arrive with blaring trumpets or red carpets, dazzling everybody with

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Speaker 1: their breaths, with their brilliant so usually are dismissed or

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Speaker 1: neglected for years or even decades, and their champions written

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Speaker 1: off as crazy. And now, as understands it, as the

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Speaker 1: armies as air forces to CEO, is that we need

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Speaker 1: more of those. So if NASA isn't making the big

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Speaker 1: investments that a lot of people think are necessary to

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Speaker 1: sort of cultivate uh, this this sort of culture of

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Speaker 1: of innovation. What's the sort of expense here? I mean,

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Speaker 1: are we losing perspective NASA scientists and just scientists in

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Speaker 1: general who might otherwise get wrapped in and nurtured and

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Speaker 1: brought into the fold for these loon shot explorations. Well,

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Speaker 1: it's absolutely important to have this federal government investment in

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Speaker 1: research and science and technology and the ideas people think

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Speaker 1: might be just enormously crazy. That gave us, for example,

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Speaker 1: the transistor, the Internet, GPS, the personal computer industry. That's

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Speaker 1: why that kind of investment in nurturing loon shots helped

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Speaker 1: the US lead the world in science and technology. And

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Speaker 1: I think we lost our way for ten or twenty years.

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Speaker 1: But I'm seeing signs of the turnaround with the recent

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Speaker 1: announcement that we're definitely going to Mars, with the recent

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Speaker 1: announcement we're going to trying to establish a colony of

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Speaker 1: permanent location on the moon, NASA trying to reach out

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Speaker 1: and explore crazy new ideas. I think things are turning around,

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Speaker 1: and I'm I hope we can compete and beat China, India,

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Speaker 1: and Russia to those milestones. Is this administration supportive of

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Speaker 1: those types of investments. I do believe it is, and

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Speaker 1: I believe you're seeing the NASA budget increase. Certainly the

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Speaker 1: inbound calls that I've gotten from NASA or even the

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Speaker 1: military or intelligence agencies about wanting to nurture lunch shots,

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Speaker 1: how do we organize to nurture these crazy ideas faster

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Speaker 1: and better. I've had a flood of those calls just

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Speaker 1: in the last few weeks, and I think there's something

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Speaker 1: has ignited, and I think it may be the competition

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Speaker 1: with China. How closely tied is the military to NASA.

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Speaker 1: They're entirely separate. The reason why I ask is because

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Speaker 1: some people say that it is actually a national defense

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Speaker 1: issue with respect to having a greater dominance in space.

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Speaker 1: Do you adhere to that at all? I think having

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Speaker 1: a greater dominance in space means a greater competitive advantage

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Speaker 1: in science and technology and ni nearing, and that benefits everybody.

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Speaker 1: Benefits NASA, it benefits science, it benefits national security, and

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Speaker 1: it benefits our companies. Are US companies, are US technologies

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Speaker 1: and are intellectual based or intellectual capital for the future,

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Speaker 1: which is the education of our young people. What seems

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Speaker 1: like when I look at Elon Musk and his space

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Speaker 1: program he's doing some amazing things. I just seeing video

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Speaker 1: of the rockets that actually land after use um. That's

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Speaker 1: a strikingly new technology. Is there sense that NASA will

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Speaker 1: work with some of these private players as well. NASA

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Speaker 1: has absolutely made it clear that they want to partner,

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Speaker 1: and that is incredibly important. That's exactly the right attitude.

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Speaker 1: That's exactly what we're twenty thirty years ago with the

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Speaker 1: Human Genome Project, the federal government, National Research sponsored the

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Speaker 1: basic technology that got us the biotech industry, and then

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Speaker 1: all sorts of private industry worked with the federal government,

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Speaker 1: and because of that, the US leads the world in

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Speaker 1: healthcare and in drug discovery, and I think the same

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Speaker 1: thing is starting to play out in space a science.

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Speaker 1: Thank you so much. This is really really interesting. Safil

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Speaker 1: author and physicist from Cambridge, Massachusetts. He is also the

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Speaker 1: author of the Wall Street Journal bestseller loon Shots, How

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Speaker 1: to Nurture the crazy ideas that when wars cure diseases

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Speaker 1: and transform industries. I love the idea of loon Shots.

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Speaker 1: Time to check in with Bloomberg Opinion. We're joined by

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Speaker 1: opinion calumnist Brooks Sutherland. Brook I know you cover all

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Speaker 1: things industrials were right smack in the middle of the

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Speaker 1: second quarter earnings period. It's kind of a mixed week

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Speaker 1: last week, I think about CSX on the downside, Uh,

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Speaker 1: some of the other names had kind of some mixed results.

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Speaker 1: You think there might be even some more rocky roads

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Speaker 1: coming up here for the earnings, Yeah, I mean, I

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Speaker 1: think it really depends on what expectations are going into earnings.

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Speaker 1: And so last week we saw CSX sell off more

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Speaker 1: than ten percent on its earnings report, and I think

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Speaker 1: a lot of that had to do with the fact

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Speaker 1: that the stock was up almost going into earnings, which

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Speaker 1: signals to me that people thought this was going to

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Speaker 1: be a relatively safe place to hide out. Um, and

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Speaker 1: they were wrong in that assessment. Um. But then you

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Speaker 1: had names like J. B. Hunt and Union Pacific that actually,

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Speaker 1: you know, got a little nice pop off their earnings,

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Speaker 1: and I think that just was because expectations have been

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Speaker 1: lowered so much going into that. But there are a

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Speaker 1: fair amount of names that are like a CSX that

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Speaker 1: people have been sort of piling into, and I wonder

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Speaker 1: if those are as defensive as people think they are.

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Speaker 1: Like Well, another name that I think about is Honeywell

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Speaker 1: which did actually report earnings last week UM, and they

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Speaker 1: were they were good. I don't want to take away

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Speaker 1: from it, but they were. They had some of the

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Speaker 1: same slow down trends that we're seeing elsewhere UM in

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Speaker 1: the industry, particularly in some of their shorter sales market

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Speaker 1: like their productivity and sales division. UM organic growth for

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Speaker 1: the quarter was a little bit weaker than analysts expected.

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Speaker 1: I mean, they still had overall five percent organic sales growth,

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Speaker 1: so it's not like the sky is falling. But I

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Speaker 1: do wonder, you know, especially given the struggles that g

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Speaker 1: E has had and three M has had, There's been

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Speaker 1: a lot of people piling into Honeywell and what's really

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Speaker 1: keeping that stock live as aerospace, But if that starts

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Speaker 1: to crack at all, then that can be rather problematic.

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Speaker 1: When industrials don't do well, people often say, look, this

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Speaker 1: is a sign of the trade war, this is a

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Speaker 1: sign of a slowing up macro economy. I'm wondering, based

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Speaker 1: on what you're saying, whether that's an inaccurate narrative, whether

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Speaker 1: it's more that people have just overpriced these shares heading

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Speaker 1: in and are expecting too much and it's more just

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Speaker 1: sort of taking off some of the profits from earlier

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Speaker 1: in the year. Is that Is that a better way

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Speaker 1: to look at it. I think it's a little bit

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Speaker 1: of both. I mean, I think they're definitely feeling the

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Speaker 1: pain of the trade war uncertainty. I mean, that's a

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Speaker 1: big part of why you're seeing some of these sales

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Speaker 1: numbers come down. They're citing people not really being comfortable

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Speaker 1: with moving forward with these new investments. Um. But on

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00:24:54,880 --> 00:24:57,440
Speaker 1: the other hand, I think you have this weird dynamic

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00:24:57,440 --> 00:24:59,920
Speaker 1: where investors don't really have anywhere to go. Are you gonna,

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00:25:00,200 --> 00:25:02,639
Speaker 1: you know, pile into overpriced equities, Are you're gonna go

434
00:25:02,680 --> 00:25:04,720
Speaker 1: into low yielding bonds? I mean, like, what are what

435
00:25:04,760 --> 00:25:07,120
Speaker 1: are your options here? And I do think there's this

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00:25:07,560 --> 00:25:11,160
Speaker 1: misperception about the way that an interest rate cut can

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00:25:11,200 --> 00:25:15,160
Speaker 1: play out for industrial companies. This whole idea that twenty

438
00:25:15,240 --> 00:25:17,680
Speaker 1: five basis point cut is going to spur this new

439
00:25:17,880 --> 00:25:21,439
Speaker 1: rash of investments in like machinery purchases among industrial companies.

440
00:25:21,480 --> 00:25:23,760
Speaker 1: I just don't buy it. The cost of debt is

441
00:25:23,880 --> 00:25:26,480
Speaker 1: very low, it's been low for years. All of these

442
00:25:26,480 --> 00:25:29,440
Speaker 1: companies had a huge influction of cash from the tax overhaul.

443
00:25:29,840 --> 00:25:31,760
Speaker 1: I don't think any of them are sitting around saying,

444
00:25:31,840 --> 00:25:33,400
Speaker 1: you know what, if I can just get that twenty

445
00:25:33,480 --> 00:25:35,720
Speaker 1: five basis point cut, I'm gonna build a new factory.

446
00:25:35,720 --> 00:25:38,280
Speaker 1: I'm gonna buy a new UM, you know, giant piece

447
00:25:38,320 --> 00:25:41,120
Speaker 1: of machinery. And so I just don't know that that's

448
00:25:41,160 --> 00:25:44,360
Speaker 1: going to be the saving grace that UM. Some investors

449
00:25:44,400 --> 00:25:46,119
Speaker 1: would seem to think it is, just given where some

450
00:25:46,160 --> 00:25:48,480
Speaker 1: of these stocks are trading. Well, one of your favorite names,

451
00:25:48,520 --> 00:25:52,359
Speaker 1: I know is Boeing back into news today downgraded UM

452
00:25:52,720 --> 00:25:55,560
Speaker 1: are the outlook of revised to negative from stable by Fitch.

453
00:25:55,600 --> 00:25:58,200
Speaker 1: And I know the Southwest air CEO is out talking

454
00:25:58,200 --> 00:26:00,240
Speaker 1: about how they're still looking at the seven thirties oven

455
00:26:00,240 --> 00:26:02,040
Speaker 1: Max and if it's not there, they're gonna have to

456
00:26:02,040 --> 00:26:04,199
Speaker 1: make other plans. I guess what's the latest that you

457
00:26:04,240 --> 00:26:06,800
Speaker 1: expect to hear from Boeing. So Boeing did come out

458
00:26:06,880 --> 00:26:08,520
Speaker 1: last week and they said they're going to take a

459
00:26:08,640 --> 00:26:11,359
Speaker 1: four point nine billion dollar after tax charge in the

460
00:26:11,440 --> 00:26:14,920
Speaker 1: second quarter, and that represents their estimate at this point

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00:26:14,920 --> 00:26:17,840
Speaker 1: in time for what they're going to compensate the airlines

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00:26:17,880 --> 00:26:20,320
Speaker 1: for keeping the Max grounded. Now, importantly, that does not

463
00:26:20,440 --> 00:26:24,000
Speaker 1: include any litigation costs. Or settlements with families or anything

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00:26:24,040 --> 00:26:26,360
Speaker 1: like that that would all be separate. And they did

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00:26:26,400 --> 00:26:28,640
Speaker 1: also say they were going to expect one point seven

466
00:26:28,680 --> 00:26:30,840
Speaker 1: billion in increased costs, and that has to do with

467
00:26:30,920 --> 00:26:34,440
Speaker 1: taking down production of the MAX to accommodate the surplus

468
00:26:34,440 --> 00:26:37,199
Speaker 1: of inventory they have building up. They're basing all of

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00:26:37,200 --> 00:26:40,000
Speaker 1: that on the expectation that the MAX comes back early

470
00:26:40,040 --> 00:26:45,040
Speaker 1: in the fourth quarter. That to me seems optimistic, uh,

471
00:26:45,080 --> 00:26:47,800
Speaker 1: and I it does give me pause because again and

472
00:26:47,840 --> 00:26:51,240
Speaker 1: again you have Boeing with the most aggressive timeline. I remember,

473
00:26:51,400 --> 00:26:53,720
Speaker 1: remember they back in March, we're saying they would have

474
00:26:53,760 --> 00:26:55,840
Speaker 1: all the paperwork into the f a A by the

475
00:26:56,040 --> 00:26:58,760
Speaker 1: end of March for a fix. And then we've subsequently

476
00:26:58,800 --> 00:27:01,919
Speaker 1: seen all of these negative headlines coming out about the

477
00:27:01,960 --> 00:27:04,199
Speaker 1: fact that some of these planes weren't you know, the

478
00:27:04,280 --> 00:27:06,960
Speaker 1: sensors that would were tied to that flight software system

479
00:27:07,000 --> 00:27:10,520
Speaker 1: that's been blamed for the two crashes weren't operational on

480
00:27:10,520 --> 00:27:12,800
Speaker 1: some of the planes as they promise. Then there's a

481
00:27:12,840 --> 00:27:16,359
Speaker 1: separate issue with a microprocessor, and I just I wonder

482
00:27:16,480 --> 00:27:19,800
Speaker 1: what the value is in being the most optimistic, aggressive

483
00:27:19,840 --> 00:27:21,640
Speaker 1: one in the room at this point in time. If

484
00:27:21,640 --> 00:27:24,639
Speaker 1: you're Boeing um, and I do think you know there

485
00:27:24,760 --> 00:27:27,520
Speaker 1: is a risk that this does slip into just because

486
00:27:27,560 --> 00:27:30,320
Speaker 1: the f A is obviously incentivized as well to protect

487
00:27:30,359 --> 00:27:34,360
Speaker 1: its reputation. Make sure they coordinate with international regulators and

488
00:27:34,520 --> 00:27:36,359
Speaker 1: make sure this thing is safe before you get it

489
00:27:36,400 --> 00:27:38,760
Speaker 1: back in the skies. It all sounds really bad. Boeing

490
00:27:38,800 --> 00:27:41,359
Speaker 1: shares down though nine tenths of one percent not a

491
00:27:41,440 --> 00:27:44,000
Speaker 1: huge decline, as a lot of bad news already is

492
00:27:44,040 --> 00:27:47,600
Speaker 1: baked in. Investors kind of shrugging with a Fitch downgrade,

493
00:27:47,640 --> 00:27:50,240
Speaker 1: baser putting in watch saying all right, guys, I mean

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00:27:50,440 --> 00:27:52,840
Speaker 1: we know it's not a great situation. Brooks Sutherland, thank

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00:27:52,880 --> 00:27:54,639
Speaker 1: you so much for being with us, Brooks Sutherland as

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00:27:54,680 --> 00:27:58,960
Speaker 1: deals and industrials calling this for Bloomberg Opinion. Thanks for

497
00:27:59,000 --> 00:28:01,680
Speaker 1: listening to the Bloomberg n L podcast. You can subscribe

498
00:28:01,680 --> 00:28:04,520
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast

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00:28:04,520 --> 00:28:08,080
Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.

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00:28:08,119 --> 00:28:10,600
Speaker 1: I'm Lisa abram Woyds. I'm on Twitter at Lisa abram

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00:28:10,640 --> 00:28:13,879
Speaker 1: Woyits one before the podcast. You can always catch us worldwide.

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Speaker 1: I'm Bloomberg Radio