Latest / Bloomberg Intelligence / Retail Sales Numbers Are Just Wrong: Craig Johnson

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Retail Sales Numbers Are Just Wrong: Craig Johnson · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
0:05
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
0:17
Speaker 1: at Bloomberg dot com. We got terrible December retail sales
0:23
Speaker 1: numbers that came in four weeks late due to the
0:26
Speaker 1: government shutdown. But before you get all barished the way
0:29
Speaker 1: that many traders have, we have the economic advisor to
0:32
Speaker 1: President Trump, Larry Cudlow, saying this about the data. Take listen.
0:37
Speaker 1: First of all, you had ten days of government shutdown.
0:40
Speaker 1: I regard that as a temporary glitch, as you know. Uh. Secondly,
0:44
Speaker 1: shoppers were very late. According to the National Retail Federation,
0:48
Speaker 1: shoppers came in very late. I wouldn't be surprised if
0:52
Speaker 1: January was revised up because of that. That was Larry
0:55
Speaker 1: Cudlow speaking to a gaggle of reporters in Washington, d C.
0:59
Speaker 1: Joining us here our Bloomberg Getta Active Broker Studios Coror
1:01
Speaker 1: Kadana Chief you as economist for Bloomberg Economics and joining
1:04
Speaker 1: us by phone. Craig Johnson, president of Customer Growth Partners, Carl,
1:08
Speaker 1: let's start with you. Was this data glitchy? I don't
1:12
Speaker 1: think there were glitches there in terms of a collection
1:15
Speaker 1: of the data and whatnot. However, to the extent that
1:18
Speaker 1: we had a government shutdown, probably those government workers were
1:22
Speaker 1: kind of absentees in the later part of the holiday
1:24
Speaker 1: shopping season, so that could have had an impact. I
1:27
Speaker 1: don't really buy into what a weather story there because
1:30
Speaker 1: one of the most weather sensitive categories tends to be
1:32
Speaker 1: motor vehicle sales. If there's two feet of snow in
1:34
Speaker 1: the dealership lot, you tend to not go for a
1:36
Speaker 1: test drive U. And actually that was the rare bright
1:39
Speaker 1: spot in this report, with the motor vehicle sales up
1:41
Speaker 1: one percent UH in the month h. The other factor there, obviously,
1:46
Speaker 1: is the equity market and financial market turmoil that we
1:49
Speaker 1: saw in you know, we we knew about in December,
1:52
Speaker 1: not fully, but that was definitely scaring people away or
1:55
Speaker 1: leading to some sense of, uh, you know, conservativism with
1:59
Speaker 1: their back to spending habits. So in light of this report,
2:03
Speaker 1: we have trimmed our GDP forecast for Q four. Right,
2:06
Speaker 1: consumers are very important part of that forecast. So we've
2:09
Speaker 1: taken growth down from to nine to two and a
2:11
Speaker 1: quarter UH for the UH for that's a very substantial
2:15
Speaker 1: revision that shows how bad this report actually was. UH. Nonetheless, UH,
2:20
Speaker 1: you know, we're not changing our outlook for consumers over
2:23
Speaker 1: the course of beware. I think there's some sticker shock
2:27
Speaker 1: as people are getting smaller than expected tax refunds as
2:31
Speaker 1: they're filing. But the labor market is on very sound footing.
2:35
Speaker 1: Personal income growth is strong. That means consumers will be
2:39
Speaker 1: back in the game, but maybe not until Q two.
2:41
Speaker 1: So Craig Johnson love to bring you on in this discussion.
2:44
Speaker 1: What do you make of this retail number and does
2:45
Speaker 1: it change your view of the consumer and for growth
2:48
Speaker 1: in well Answering the second question, first, no, we don't.
2:53
Speaker 1: We don't think it UH significantly affects the outlook now
2:56
Speaker 1: on SO two. The reason for that is is gets
3:00
Speaker 1: to the first question, is that we think there are
3:03
Speaker 1: clear anomalies in the data here. UM. Overall retail works
3:08
Speaker 1: in a world of year of year sales and total
3:11
Speaker 1: sales growth in December per the report, and this is
3:14
Speaker 1: excluding autos, gasoline, and restaurants normal exclusions, was up only
3:19
Speaker 1: one point UM. But if you look at non store
3:23
Speaker 1: retail for December UM, of which is with online sales,
3:29
Speaker 1: it's up only three h That is the worst showing
3:33
Speaker 1: since the native of the Great Recession uh in in
3:38
Speaker 1: in two thousand eight Quality two eight uh And yet
3:42
Speaker 1: if you look at online year to d eight sales
3:44
Speaker 1: through November, they were up two points ten ten. October
3:49
Speaker 1: and November, which is inclusive of the first half of holiday,
3:52
Speaker 1: online sales were up again using their data, was up
3:55
Speaker 1: thirteen point five And for the thought that suddenly this
3:59
Speaker 1: ran up down from thirteen point five percent pace in
4:03
Speaker 1: October November is only a three percent pace in December. Holds,
4:08
Speaker 1: are you basically saying that the numbers are inaccurate here? Yes? Okay,
4:12
Speaker 1: so you don't believe the numbers. You think that they
4:14
Speaker 1: are wrong, absolutely, because this would imply a deceleration from
4:19
Speaker 1: October December of a of a growth rate of thirteen
4:21
Speaker 1: point five percent, only a three percent growth rate in December,
4:24
Speaker 1: which has never happened. UM and other other the other
4:29
Speaker 1: retail Amazon is almost half of all retail sales. Their
4:32
Speaker 1: Q four sales are up eighteen year of a year.
4:35
Speaker 1: Wayfarers is which is the second biggest pure play, uh,
4:38
Speaker 1: and they'll be up almost this quarter. And so anybody
4:43
Speaker 1: who thinks the three percent growth rate for online in
4:46
Speaker 1: December is living in a dream world. And and we're
4:48
Speaker 1: certainly going to get some more earnings next week to
4:51
Speaker 1: confirm or rebut some of this data. But Carl, what
4:54
Speaker 1: gives you faith in this data enough to revise downward
4:57
Speaker 1: your GDP estimate for this year. Well, the retail sale
5:00
Speaker 1: are whether whether the data or right or not. And
5:02
Speaker 1: there's definitely a valid case there that maybe there's some distortion. Uh.
5:06
Speaker 1: The retail sales data, nonetheless are plucked and put plugged
5:10
Speaker 1: into the GDP tabulation. So if there's a mistake in
5:13
Speaker 1: retail sales, that gets factored into the GDP numbers as well.
5:17
Speaker 1: So it's just really plugging in the actual arithmetic. What
5:20
Speaker 1: can happen here is you have sampling issues. So uh,
5:24
Speaker 1: some retailers may not be counted in the retail sales survey.
5:28
Speaker 1: I don't know if that's the case for Amazon or
5:30
Speaker 1: what not. Usually Census doesn't disclose who they're pulling but
5:35
Speaker 1: you know, if you if you have a lot of
5:36
Speaker 1: retailers that were doing poorly at the end of the year,
5:39
Speaker 1: certainly there were lots of headlines about you know, sears
5:41
Speaker 1: and and companies of that nature that could be feeding
5:44
Speaker 1: some kind of distortion into the survey. So Craig, how
5:49
Speaker 1: about I mean, seriously, on the on the do you
5:52
Speaker 1: sense that if the data is correct or incorrect, that
5:55
Speaker 1: you're the consumers in a good position for Yeah, because
5:59
Speaker 1: the airline consumer fundamental. The reason we're sanguine about the
6:03
Speaker 1: rest of the year is that whether retail sales or
6:07
Speaker 1: consumer spending in general, retail is the biggest segment of
6:10
Speaker 1: consumer consumers sixty percented economy is is that the fundamentals
6:14
Speaker 1: that drive retail sales is two biggest. The biggest fundamental
6:18
Speaker 1: is growth in disposable personal income, and right now that
6:22
Speaker 1: depends that in turn is driven by two things. One
6:25
Speaker 1: growth and employment, particularly full time employment, which has been
6:28
Speaker 1: very robust, and secondly by growth in average wages, which
6:32
Speaker 1: are up three percent and change. Those two vectors combined
6:36
Speaker 1: to be a major driver, about a five percent driver
6:39
Speaker 1: retail sales, and that's why we're sticking with our forecast
6:43
Speaker 1: of about somewhere around five percent year of a year
6:47
Speaker 1: retail sales growth four two. Craig Johnson, thank you so
6:51
Speaker 1: much for being with us. President of Customer Growth Partners, Cardona,
6:53
Speaker 1: chief US economist for Bloomberg Economics. Just want to bring
6:56
Speaker 1: you this headline just crossing US and China trade teams
6:59
Speaker 1: are so to be far apart on reform demands. Looking
7:02
Speaker 1: at the Dow, it is off its earlier highs on
7:04
Speaker 1: this news, uh, So we are going to keep an
7:07
Speaker 1: eye on that as the day progressive we list. It
7:20
Speaker 1: seems like you and I are spending more and more
7:21
Speaker 1: time talking about gaming. Maybe that's just having met Cantraman
7:24
Speaker 1: come in and talk about the big gaming companies and
7:26
Speaker 1: their earnings. But one aspect of the gaming businesses e Sports,
7:29
Speaker 1: that just fascinates me. This is the business where people
7:32
Speaker 1: come to arenas and other public places to watch other
7:35
Speaker 1: people game. This is a real business. It is a
7:38
Speaker 1: growing business. This is a one billion dollar business four
7:41
Speaker 1: million viewers, uh and growing. So to help us kind
7:44
Speaker 1: of dig deep into this business and the opportunities here,
7:47
Speaker 1: we have a couple of gentlemen on our eleven three
7:49
Speaker 1: year studios Ken d Q Bellis CEO of Black Ridge
7:52
Speaker 1: Acquisition Company that is a Nasdaq listed spack on a
7:56
Speaker 1: the symbol b r A C. And Frank frank Ing
7:59
Speaker 1: c year of our Game International and Kennon Frank, I
8:02
Speaker 1: guess your companies are are in the process emerging to
8:04
Speaker 1: form what will be the new company would be Allied
8:08
Speaker 1: E Sports Entertainment. So Frank, maybe if you could just
8:10
Speaker 1: give us a sense of E sports. Why E sports?
8:15
Speaker 1: What are the opportunities that you guys see in this business? Uh.
8:18
Speaker 1: E sports has been around for a long time, but
8:21
Speaker 1: as the subset of gaming. But now it becomes an
8:24
Speaker 1: industry because in the past few years, streaming becomes extremely
8:28
Speaker 1: popular and that really support the growth of the sports,
8:32
Speaker 1: and and and and the essence, the core element is
8:35
Speaker 1: the viewership. Viewership has grown to a very large number already.
8:40
Speaker 1: You know, last year we had about four million on
8:42
Speaker 1: the global basis viewers regularly on the sports and it's
8:47
Speaker 1: already bigger than many major sports. So um as as
8:52
Speaker 1: it develops right now, you know, we we see a
8:54
Speaker 1: lot of new business model that is emerging and we
8:57
Speaker 1: we really believe this is at the very big getting
9:00
Speaker 1: stage off the industry. You know, to monetize from the
9:04
Speaker 1: sports activities. So you two are coming together to form
9:09
Speaker 1: Allied E Sports Entertainment. Ken dicobilis joining us here as well.
9:14
Speaker 1: In your firm, black Ridge Acquisition Company. Didn't it focus
9:18
Speaker 1: on oil? That was part of the initial focus. But
9:21
Speaker 1: I will tell you when you have a spack, you
9:25
Speaker 1: have a finite timeline that you have to get a
9:27
Speaker 1: deal done. So it's all about deal flow. And for us,
9:30
Speaker 1: we're very fortunate in that a gentleman named Lyle Berman
9:33
Speaker 1: took a company called World Poker Tour public in two
9:36
Speaker 1: thousand and four. He eventually sold that and then Frank's
9:39
Speaker 1: company bought WPT three years ago. As Frank was looking
9:43
Speaker 1: at various ways to fund the sports initiative, he heard
9:46
Speaker 1: that Lyle had a spack, so he approached Lylan for
9:48
Speaker 1: those who don't know his special acquisition company, correct, So
9:51
Speaker 1: they approached us, and I can tell you the opportunity
9:55
Speaker 1: with this business blows away any we were looking at
9:58
Speaker 1: in the energy space. So it's all about sure hold
10:00
Speaker 1: a return for us, and we think this is the
10:02
Speaker 1: right bet. Okay, So what is the business plan for
10:04
Speaker 1: your company and give us a sense of how that
10:06
Speaker 1: maybe mirrors what's going on in the sports business in general.
10:09
Speaker 1: I would say this this is unique. Okay, if you're
10:11
Speaker 1: looking to play the sports today, there's really two ways
10:14
Speaker 1: to do it. You are a video game publisher that
10:17
Speaker 1: makes the games itself, or a lot of the traditional
10:19
Speaker 1: sports franchise owners are buying teams that compete against each other.
10:23
Speaker 1: We're a game and team agnostic. The strategy is threefold.
10:28
Speaker 1: You hold a live event like at our lux or
10:30
Speaker 1: arena in Las Vegas, produce content off of that, and
10:34
Speaker 1: then drive viewers from the content piece to an online platform.
10:37
Speaker 1: So it's the three pillar strategy that, by the way,
10:39
Speaker 1: has been deployed at the World Poker Tour for seventeen years.
10:42
Speaker 1: So that's the play here to monetize. So, Frank, talk
10:45
Speaker 1: to me about the arena type play because this is
10:48
Speaker 1: something I have not seen that much about me. We
10:50
Speaker 1: know that watching competitive gamers, that's a very popular thing
10:54
Speaker 1: to do. People stream that. But you know what is
10:57
Speaker 1: the market like for in person events right now? Well,
11:02
Speaker 1: I think the market is growing very rapidly right now.
11:05
Speaker 1: A lot of the bigger sports events today they're being
11:09
Speaker 1: how that colosseum like you know, Candlestick Park for example. Um,
11:13
Speaker 1: you know, but we we're trying to create a new format,
11:16
Speaker 1: a dedicated arena just for E sports. Basically, it's just
11:20
Speaker 1: like a studio or TV studio with live broadcast capabilities
11:24
Speaker 1: that can house a thousand people with those gas, your
11:27
Speaker 1: show looks great, and I'll focus instead of you know,
11:30
Speaker 1: doing more like a proper organized league or teams. Instead,
11:34
Speaker 1: we want to create shows entertainment for e sports that
11:38
Speaker 1: can be carried out on a frequent, regular basis, and
11:42
Speaker 1: as such, the commercial value that can be created will
11:45
Speaker 1: be a lot bigger for our sponsors. So talk about
11:48
Speaker 1: where you are in or how how you view the
11:50
Speaker 1: model sponsorship advertisers, how critical is that to kind of
11:53
Speaker 1: what you guys are thinking about. Well, I would say this,
11:56
Speaker 1: the demographic in in the sports of the viewership is
11:59
Speaker 1: primary L thirty five and under. That's a highly coveted demographic.
12:03
Speaker 1: And the beauty of the ecosystem right now is they
12:06
Speaker 1: are all online. So E sports is an online business.
12:09
Speaker 1: The content that will be produced from the live events
12:12
Speaker 1: that the arenas will be distributed primarily online. So the
12:16
Speaker 1: sponsors really covet that demographic and so they want to
12:20
Speaker 1: get behind this business. As well. So, Ken, how big
12:23
Speaker 1: do you think this? How how how do you sort
12:25
Speaker 1: of monetize this in terms of ticket sales? Do you do? Uh? Gear?
12:30
Speaker 1: I mean just the practical aspects of this. Yeah, the
12:33
Speaker 1: two really big opportunities with this business model is with
12:37
Speaker 1: the content to sell sponsorship or spell sell the content
12:41
Speaker 1: to distribution networks. Okay number one. But thirdly, which really
12:45
Speaker 1: meets up with what Frank's background is, is an online
12:48
Speaker 1: subscription based service geared primarily towards gamers. That's what Frank
12:52
Speaker 1: has been doing his entire career. Yeah, thank you both
12:56
Speaker 1: so much for being here. Kenn D. Cabila's CEO of
12:58
Speaker 1: Black Ridge Acquisition Company, seem to be future CFO of
13:02
Speaker 1: allied E Sports Entertainment. Frank Young, chief executive of our
13:05
Speaker 1: Game Internet National future CEO of allied E Sports Entertainment.
13:10
Speaker 1: Both of you here in our Interactive Broker studios. Thank
13:12
Speaker 1: you so much for being here with us. Well, the
13:27
Speaker 1: number of the day is one point two, as in
13:29
Speaker 1: a one point two percent decline in retail sales for
13:32
Speaker 1: the month of December just released this morning, certainly impacting
13:35
Speaker 1: the markets. To get us give us a sense of
13:37
Speaker 1: what this means for the consumer and for markets going forward.
13:40
Speaker 1: We bring in Peter Anderson. Peter is the founder of
13:42
Speaker 1: Anderson Capital Management. He joins us right here in our
13:45
Speaker 1: bloom Bloomberg Interactive Broker studio. So, Peter, this number was
13:48
Speaker 1: clearly a surprise for the market. Uh does it change
13:51
Speaker 1: your view of the consumer and maybe how you're positioning
13:54
Speaker 1: your portfolio. The only thing it does is it really
13:57
Speaker 1: reinforces my opinion that last order was such a crazy quarter.
14:02
Speaker 1: Nobody really had firm opinions as to what was happening,
14:06
Speaker 1: and as a result, I think what you're seeing is
14:10
Speaker 1: the consumer just recoiled back and said I'm out for
14:14
Speaker 1: the month of December, simply because nobody is giving me
14:17
Speaker 1: any pure advice. Nobody is telling me which way the
14:19
Speaker 1: markets are going. Everybody seems confused, and when I'm confused,
14:23
Speaker 1: I go back into my bunker. Are you confused right now?
14:26
Speaker 1: I've never been confused? So so, so what's your take? Well,
14:32
Speaker 1: I think that the market has, uh, it needs to
14:36
Speaker 1: discount all the political policies that we're we're following. I mean,
14:41
Speaker 1: certainly it's very important about the tariffs, the wall breaksit,
14:45
Speaker 1: but let's just put it in perspective. You know that
14:48
Speaker 1: if you like US stocks, then I would suggest buying
14:52
Speaker 1: US stocks based on the fundamentals and not whether the
14:55
Speaker 1: tweet of the day by President Trump will actually change
14:59
Speaker 1: your mind. Paul, can you believe this? If you like
15:01
Speaker 1: US stocks, you should buy US stocks. I have to
15:04
Speaker 1: wonder on a day like today, when you see Coca
15:06
Speaker 1: Cola shares plunging the most in two thousand and eight,
15:08
Speaker 1: if you like the U S economy and you think
15:11
Speaker 1: people will keep drinking stuff that doesn't just water, would
15:14
Speaker 1: you be a buyer of Coke shares? Well? I don't
15:16
Speaker 1: own Coke shares because it's not in my universe of
15:19
Speaker 1: stocks that I own. I tend to own stocks are
15:22
Speaker 1: a little less followed, actually, because I think Coke is
15:24
Speaker 1: followed to death, and in terms of advantages of information,
15:29
Speaker 1: it's pretty tough because it's followed so much. But when
15:32
Speaker 1: you're looking at other stocks it might have missed their
15:34
Speaker 1: earnings that are not followed such as closely. Then I
15:38
Speaker 1: think those are buying opportunities if you do have the
15:41
Speaker 1: confidence in your own analysis. So we've certainly seen a
15:45
Speaker 1: tremendous rate or level of volatility, certainly in December and
15:49
Speaker 1: even coming that snap back here we've seen this year
15:51
Speaker 1: to date. Do you use volatility as a buying opportunities
15:54
Speaker 1: that is that kind of how you're viewing it right now,
15:56
Speaker 1: or are using volatility as an excuse to step back? Well, know,
16:00
Speaker 1: volatility is probably the most frequently used word in our business,
16:04
Speaker 1: and I have to tell you I almost ignore the
16:07
Speaker 1: total volatility. I just go ahead. I say to myself,
16:10
Speaker 1: if this is a stock that I like, and I've
16:12
Speaker 1: liked it for some time, and I still continue to
16:15
Speaker 1: like it. If a new client comes in, I don't
16:17
Speaker 1: even market time. I usually just jump right into the
16:19
Speaker 1: jump rope and don't wait for vall to pick up.
16:22
Speaker 1: So I might pick up the stock at a little
16:24
Speaker 1: bit more cheaply than I normally would, because it's a
16:26
Speaker 1: fool's errand to try to time that. So you'll hear
16:29
Speaker 1: a lot of people in my side talking about how
16:31
Speaker 1: scary the volatility is. But I'm not afraid of that
16:34
Speaker 1: because I don't think it's a major driver. If you're
16:36
Speaker 1: in this market for the long run. Sure you might
16:39
Speaker 1: pick up some stocks, uh during the high periods of volatility,
16:42
Speaker 1: where you might get cheaper prices, but in the end,
16:44
Speaker 1: it averages out and you should focus on more technical things.
16:47
Speaker 1: All right, So if you are not afraid of making
16:51
Speaker 1: statements and making opinions, what do you like? What shares
16:54
Speaker 1: do you like? Well? I like, uh, hold your breath
16:57
Speaker 1: now in video in video is reporting interesting talk about
17:00
Speaker 1: little stock exactly, but he doesn't pay attention to that's right.
17:05
Speaker 1: So let me just quickly talk to you about a video.
17:07
Speaker 1: You know, I grew up in the world of physics,
17:10
Speaker 1: so I feel like I understand uh humbly a little
17:13
Speaker 1: bit more than the street about in videos addressable market
17:17
Speaker 1: in the future, so certainly it will be lumpy around
17:20
Speaker 1: along the way. And it was of course last quarter
17:23
Speaker 1: and maybe even this quarter because it's reporting aftermarket. But
17:26
Speaker 1: that is a tremendous stock that you can get at
17:29
Speaker 1: now a pe of less than twenty times, and if
17:32
Speaker 1: you remember, it was trading at a much higher evaluation
17:36
Speaker 1: as recently as six months ago. Anything else in tech?
17:40
Speaker 1: Does tech scary way? Or do you like? You like
17:42
Speaker 1: the growth and you can make the valuation call well,
17:45
Speaker 1: I love computer security. So for instance, Palo Alto Networks
17:50
Speaker 1: cyber Arc just reported recently. Uh, those two companies will
17:55
Speaker 1: never their addressable market. Unlike Coca Cola for instance, there
17:59
Speaker 1: addressable market is growing undeniably and as we get more
18:05
Speaker 1: complicated and communications and technology and hacking, it's UH an
18:10
Speaker 1: arms race. So that will never end except with the
18:13
Speaker 1: advent of quantum computing, which is far far away in
18:17
Speaker 1: the future. So what about the breakdown between stocks and
18:20
Speaker 1: bonds and how are you allocating right now? UH? In
18:24
Speaker 1: terms of asset allocation, I would say that it is
18:28
Speaker 1: well overdone in our industry to have people come in
18:32
Speaker 1: here and talk about a core satellite model which might
18:35
Speaker 1: use ten to fifteen asset classes, and some of the
18:39
Speaker 1: exposures are two to four per asset class. What does
18:43
Speaker 1: that get you It it gets you low conviction. I
18:46
Speaker 1: advocate having if you're coming into on cash, for instance,
18:49
Speaker 1: so let's UH suspend capital gains issues. If you came
18:53
Speaker 1: in on cash, I would advocate as little as three
18:57
Speaker 1: to four asset classes. For completely diversified portfolio, I would
19:02
Speaker 1: I would do away with the lexicon of tactical allocation
19:05
Speaker 1: and strategic allocation. There would be a core UH SMPI
19:11
Speaker 1: et F very very cheap core e t F of
19:16
Speaker 1: fixed income, and then my twenty stock portfolio which would
19:20
Speaker 1: hopefully give you the alpha, and then you are done.
19:23
Speaker 1: Your reports come out three line items basically. Yeah, so
19:27
Speaker 1: ten seconds here, have you shifted the allocation between stocks
19:30
Speaker 1: and bonds or kept it sort of like a sixty
19:32
Speaker 1: for type model for most people. I keep it at
19:34
Speaker 1: sixty forty and I really don't switch that, and sometimes
19:38
Speaker 1: I even let that run, believe it or not, as
19:40
Speaker 1: opposed to going back and tactically reallocating. Peter Anderson not
19:44
Speaker 1: afraid to give some points of view. Really great having you,
19:47
Speaker 1: Peter Anderson, founder of Anderson Capital Management, joining us here
19:50
Speaker 1: in our Bloomberg Interactive Broker's studios. Right now, let's focus
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Speaker 1: on airplanes, in particular those that have staircases leading from
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Speaker 1: one deck to another. They are going out of style
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Speaker 1: and off the market. Joining us now to discuss George Ferguson,
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Speaker 1: Senior Aerospace, Defense and Airlines analyst for Bloomberg Intelligence. George, So,
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Speaker 1: air Bus is scrapping it's unprofitable a three eighty double
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Speaker 1: ducker jet. Why? Yeah, So, I mean it just wasn't
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Speaker 1: the demand for the airplane. And that's been as you said,
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Speaker 1: you know, the same for all sort of four engineer
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Speaker 1: planes lately. Um, I mean it's a real move to
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Speaker 1: two smaller wide bodies, so airplanes with to two aisles
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Speaker 1: in them. You know, smaller airplanes can be deployed to
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Speaker 1: more markets, different markets. You don't have to worry about,
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Speaker 1: um them being being too large that when you drop
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Speaker 1: them into a market you'll you'll hurt fair dramatically. The
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Speaker 1: A three eight really was just it was too big
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Speaker 1: to fly to most markets. It would just dilute fares
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Speaker 1: and her profitability. And I could say, Paul, he says,
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Speaker 1: you can drop it into a market and people get hurt,
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Speaker 1: a very different image and what he's talking about. Have
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Speaker 1: you ever seen one in land? It's amazing fly it
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Speaker 1: into Sarah. So I think that's just the challenge is
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Speaker 1: too big for most markets. He fled in there, and
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Speaker 1: you really dilute fairs and Emirates profitability has been it's
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Speaker 1: deteriorated over the last bunch of years. There's a lot
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Speaker 1: of competition out there, and they finally, I think, came
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Speaker 1: to terms of the fact that it's just too big
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Speaker 1: an airplane to operate most places. So, George, how rare
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Speaker 1: is it for you know, an airplane manufacturer to cancel
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Speaker 1: a whole line of of its plane, argue it's marquee
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Speaker 1: line of of a plane after such a short, short
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Speaker 1: shelf life. It seems like they really misread the market
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Speaker 1: here Airbus did. Yeah, you know, I think I think
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Speaker 1: they did. You know, for Airbus, it's not as rare
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Speaker 1: as it should be. The A three forty was another
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Speaker 1: four engine airplane that had a pretty short lifespan. So, um,
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Speaker 1: they've got to sort of misses on the wide body front,
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Speaker 1: I would say, in the last couple of decades. Um.
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Speaker 1: And you know, I think you just have to stay
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Speaker 1: close to customers. I feel like, um, I feel like
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Speaker 1: some of their competitors that maybe been a little bit
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Speaker 1: close to customers and understand demand a little bit better.
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Speaker 1: You know, Boeing built the seven forty seven. It's what
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Speaker 1: fifty years old now, right, They built it many many
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Speaker 1: many years ago. Um And and in those days, the
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Speaker 1: hub and spoke was more of the way airlines went
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Speaker 1: about trying to do their business, and now we're doing
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Speaker 1: more point to point and I feel like Airbus sort
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Speaker 1: of really missed that point to point trend. With the
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Speaker 1: three Airbus shares up for nearly four and a half
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Speaker 1: percent in Paris right now, I want to get your sons, George,
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Speaker 1: of just the fact that more than three thousand jobs
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Speaker 1: will get cut if this goes through. As this goes through,
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Speaker 1: do you have a sense of where those jobs are? Yeah,
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Speaker 1: I mean the three is made into loose. Um. They
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Speaker 1: put a lot of investment in too loose. So I
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Speaker 1: imagine would share of jobs get hurt there? Uh you
23:03
Speaker 1: know the rolls Royce to make engines, g makes some engines. UM.
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Speaker 1: See you see some some losses away from toloose some
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Speaker 1: of the suppliers and um and maybe you know some
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Speaker 1: of the other Airbus facilities that supply the airplane. But
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Speaker 1: I think the majority being to loose. I would note
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Speaker 1: that Emirates placed orders for the three fifty and the
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Speaker 1: three thirty, and air Bus is in the process of
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Speaker 1: increasing production of the three twenty from fifty to sixty
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Speaker 1: airplanes this year. That's increase per month. And so I
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Speaker 1: think there are other opportunities and Airbus alluded to this,
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Speaker 1: there are opportunities to find people places to move inside
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Speaker 1: the air Bus uh um network, you know, as they
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Speaker 1: wind down the three. So, George, is this a good
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Speaker 1: day for Boeing? Is a loss for Airbus, good for Boeing. Well,
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Speaker 1: I mean, you know, look, I think, uh, you know,
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Speaker 1: I think from from sort of the PR stamp, and
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Speaker 1: it might be it might be good because you know, again,
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Speaker 1: Boeing sort of built the seven or designed to build
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Speaker 1: the seven eight seven at the same time Airbus was
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Speaker 1: working the three eight, and the two airplanes were markedly different.
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Speaker 1: One was about point to point travel and the other
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Speaker 1: one was about hub and spoke. And I feel like
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Speaker 1: this is a win for point to point. But but
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Speaker 1: the truth is, I mean, the three eight wasn't making
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Speaker 1: much money. I don't know that it adds much like
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Speaker 1: to the seven forty seven. I think the seven forty
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Speaker 1: seven have got a freighter variant that helps carry it,
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Speaker 1: and that's really what's sort of saving the day for
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Speaker 1: the seven four seven. So it's a PR victory, but
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Speaker 1: it's not huge. George Ferguson, senior Aerospace, Defense and Airlines
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Speaker 1: and analysts for Bloomberg Intelligence, Thank you so much. I
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Speaker 1: gotta say, the kid in me is sad to see
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Speaker 1: these go, Paul, because uh, you know, where's the romance
24:41
Speaker 1: and where's the romance? No, they're just cramming us more
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Speaker 1: and more people into these single aisle you know, aisle planes,
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Speaker 1: and yeah, we're the cocktail bars and the so on
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Speaker 1: and so forth. Pan am. The nostalgia, the running up
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Speaker 1: staircases that I never really experienced but I saw in television,
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Speaker 1: and what I experience when I go and wonder if
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Speaker 1: I have to pay for my Coca Cola. Thank you
25:02
Speaker 1: for Coca Cola shares down. Thanks for listening to the
25:06
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Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm
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