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Don't Try to Trade This Market: Fidelity's Timmer · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Sweene. You,
0:05
Speaker 1: along with my co host Lisa Brahma Waits, each day
0:07
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
0:12
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 markets Hire. Today, everything rally continues.
0:26
Speaker 1: I'm wondering how long can this continue? So is everyone
0:29
Speaker 1: else on Wall Street joining us down to discusses. Urian Timor,
0:32
Speaker 1: Fidelity Investments Director of Global Macro Research and Strategy. He
0:37
Speaker 1: is coming to us from our Boston studio. Urian, thank
0:39
Speaker 1: you so much for being with us. I want to
0:41
Speaker 1: start with how long could be everything rally continue? Well?
0:46
Speaker 1: From my experience, UM bullmarket's end for only a couple
0:50
Speaker 1: of reasons. You know. One the main reason is that
0:53
Speaker 1: inflation ends up accelerating during the so called late cycle
0:57
Speaker 1: stage of the of the business cycle, and the forces
1:00
Speaker 1: the FED to essentially overtightened tighten more than the economy
1:04
Speaker 1: can handle. You get a recession, you get a bear market,
1:07
Speaker 1: and that's the end of the cycle. Obviously, we don't
1:10
Speaker 1: have that because inflation is persistently undershooting the fed's target
1:14
Speaker 1: to such a degree that the Fed actually now has
1:16
Speaker 1: the free option to cut raids a couple of times,
1:19
Speaker 1: even though we are in a very advanced phase of
1:22
Speaker 1: the business cycle. So it's a very unusual cycle. But basically, know, basically,
1:26
Speaker 1: in my opinion, this is not a linear system. So
1:30
Speaker 1: the cycle could theoretically continue or it can slow and
1:34
Speaker 1: then get some new life in it. And I think
1:36
Speaker 1: that's probably what the FED is trying to accomplish here,
1:38
Speaker 1: is to essentially extend the cycle and UH and therefore
1:42
Speaker 1: extend the bull market. You know, the SMP or the
1:45
Speaker 1: TAO has been in a holding pattern now for about
1:48
Speaker 1: eighteen months, just like it did back in late fourteen
1:51
Speaker 1: to early sixteen. And we're pushing against that three thousand
1:54
Speaker 1: level on the SMP. And if earning season is okay
1:58
Speaker 1: and it doesn't come too much at the expense of
2:01
Speaker 1: coming quarters and earnings do stage the rebound that the
2:04
Speaker 1: market is essentially expecting, and then the FED throws a
2:08
Speaker 1: couple of eight cuts into the mix, then you could
2:10
Speaker 1: argue that the cycle can can keep going. So you're in.
2:13
Speaker 1: It looks like it's been reported by some Chinese media
2:16
Speaker 1: that the U. S. Trade delegation will be returning to
2:18
Speaker 1: Beijing next week. How important to the markets, to your
2:22
Speaker 1: outlook is it to get a real deal done with China? Trade?
2:27
Speaker 1: Of course is extremely important for the markets, you could
2:30
Speaker 1: and it's and for the economy as well, of course,
2:32
Speaker 1: But you could argue that it's actually more important for
2:35
Speaker 1: the markets than than the real economy, because the real economy,
2:38
Speaker 1: led by you know, consumer spending UM is doing pretty well.
2:43
Speaker 1: The consumers in good shape. You know, dead levels are low,
2:46
Speaker 1: wages are rising, unemployments at a fifty year low. So
2:49
Speaker 1: you could argue that if you know, tariffs are a
2:53
Speaker 1: form of attacks and they get passed onto the consumer,
2:56
Speaker 1: that in the current economic environment, the economy might slow
2:59
Speaker 1: as a result of it, and we're already we've already
3:02
Speaker 1: been seeing that, but that ultimately the economy will do okay.
3:05
Speaker 1: But then when you look at the SMP five hundred
3:07
Speaker 1: and how that's really more of a global index um
3:10
Speaker 1: where companies are sort of geared or lever towards globalization
3:15
Speaker 1: in terms of you know, very efficient supply chains, and
3:18
Speaker 1: how that affects their profit margins and therefore their earnings growth.
3:22
Speaker 1: You can see the SMP actually being more vulnerable to
3:25
Speaker 1: a lack of progress on the trade front. And I
3:27
Speaker 1: think that's what we're essentially seeing because since the first
3:31
Speaker 1: tariff was lobbed eighteen months ago or so, the market,
3:35
Speaker 1: as I said before, hasn't really made much progress. And
3:38
Speaker 1: when you look at the earning season in Q one,
3:40
Speaker 1: you know, Q one ended up beating expectations, but then
3:43
Speaker 1: at coming at the expense of Q two and UH
3:46
Speaker 1: and Q two looks like it's doing about the same thing.
3:50
Speaker 1: So if I'm a company in the US UH and
3:53
Speaker 1: I rely on globalization to keep my profit margins high,
3:58
Speaker 1: and I don't know what the state of play is, um,
4:00
Speaker 1: I'm either gonna do nothing for a while or I'm
4:03
Speaker 1: going to try to re engineer those supply chains, but
4:06
Speaker 1: that that's costly and that takes time as well. So
4:09
Speaker 1: I think that that explains a lot of why we
4:12
Speaker 1: are where we are in the market. So it is
4:14
Speaker 1: very important. I don't have high expectations that a total,
4:18
Speaker 1: you know, broadly encompassing deal will happen, but maybe there
4:22
Speaker 1: will be a few singles and doubles here along the way, ran,
4:25
Speaker 1: why would any investor want to trade this kind of backdrop? Um? Well,
4:30
Speaker 1: I don't really believe in trading so much. I believe
4:33
Speaker 1: in in in investing for the long term. And I
4:36
Speaker 1: think one of the drivers for this market is that,
4:40
Speaker 1: you know, we are in a ten year expansion with
4:42
Speaker 1: as I said before, we don't have that inflation boogeyman,
4:46
Speaker 1: you know, threatening to to undo it. We also don't
4:50
Speaker 1: have a lot of pent up you know, leverage types
4:53
Speaker 1: of bubbles other than maybe corporate balance shees go ahead,
4:55
Speaker 1: and my point is why not just do a sixty
4:58
Speaker 1: forty portfolio and leave it at I mean it, basically,
5:01
Speaker 1: we've got this sort of push pull dynamic that's going
5:03
Speaker 1: to go on for a while, and everyone's saying it's
5:05
Speaker 1: range bound. Why even think more about it? Do the
5:07
Speaker 1: sixty forty, put it in, sleep on it, and not
5:10
Speaker 1: think again. Yeah, I could not agree with you more.
5:13
Speaker 1: You know that the the strategic allocation, which is what
5:15
Speaker 1: you're referring to, um, is what drives most performance over
5:19
Speaker 1: the long term. Now, tactical allocation is important if the
5:23
Speaker 1: opportunity set is there, and you could argue maybe E. M.
5:27
Speaker 1: Versus US. Equity allocations are an opportunity set right now.
5:31
Speaker 1: You know, we can talk about that, but the strategic allocation,
5:34
Speaker 1: whether it's thirty or whatever it is UM, I think
5:37
Speaker 1: ultimately is what drives UH, you know, investors to achieving
5:42
Speaker 1: their their ultimate goals. And I think it's very important
5:45
Speaker 1: to keep our eye on the prize and not trying
5:48
Speaker 1: to overtrade something because maybe we got a temper cent
5:51
Speaker 1: correction or even correction, we got one in December and
5:55
Speaker 1: the market you know, immediately m retrace that. So trading
5:59
Speaker 1: can be detrimental to our financial health. I agree. So
6:02
Speaker 1: you're in how concern should I be about the economies
6:06
Speaker 1: outside of the U S. I'm thinking about Western Europe
6:09
Speaker 1: very week to week. Brexit not helping. We've got China slowing,
6:13
Speaker 1: although still putting us some decent growth. Do I have
6:16
Speaker 1: to be concerned about that? Well? Global growth has been
6:19
Speaker 1: slowing for over a year. You know, the JP Morgan
6:22
Speaker 1: Global p M I peaked at fifty four point four
6:25
Speaker 1: I think UM a year ago, more than a year ago,
6:28
Speaker 1: and is down at forty nine and change. The U
6:31
Speaker 1: S sort of was bucking that trend for a while,
6:33
Speaker 1: but has now joined the slowdown, you know, with the
6:35
Speaker 1: U s I s I s M going from sixt
6:37
Speaker 1: one to fifty one. So clearly there's a global growth
6:41
Speaker 1: uh slow down underway, and this is obviously one of
6:44
Speaker 1: the reasons why the FED feels like it has the
6:47
Speaker 1: option to cut rates here. You know, even like the
6:49
Speaker 1: natural rates so called our star is starting to drift
6:52
Speaker 1: lower by a few tens of a percent. So I
6:55
Speaker 1: think the FED is doing the right thing, um And
6:58
Speaker 1: but globally, you know, China is I think my my
7:01
Speaker 1: main concern. I mean, the weakness on the manufacturing site
7:05
Speaker 1: in Europe, especially Germany. You can sort of tie that
7:08
Speaker 1: to to China weakness as well, and of course Europe
7:10
Speaker 1: has a has a banking issue also. But China, um,
7:14
Speaker 1: you know, it's reporting six point two percent growth, but
7:17
Speaker 1: my sense is that it's probably significantly less than that.
7:20
Speaker 1: And one of the big questions is that if the
7:23
Speaker 1: trade dispute gets resolved, and of course China's economy presumably
7:27
Speaker 1: will do much better because it's more geared towards exports
7:30
Speaker 1: to the US and the US is geared towards imports
7:33
Speaker 1: from China. But if that doesn't happen, you wonder if
7:36
Speaker 1: China needs to pull out the big bazooka in terms
7:38
Speaker 1: of stimulus like they did in and if they do that,
7:42
Speaker 1: what does that do to the currency, to the yuan?
7:45
Speaker 1: Does it break seven? So yes, it does concern me.
7:48
Speaker 1: But I think the the central bank pivot basically around
7:51
Speaker 1: the world will help in that sense. And you know,
7:54
Speaker 1: China and the e M S are alright already easing
7:57
Speaker 1: policy in anticipation of the FED rate cuts, so so
8:00
Speaker 1: so the FED cutting rates does give the e M
8:03
Speaker 1: S room to do more stimulus. You're in Timer, Thank
8:06
Speaker 1: you so much for joining us. Your a is a
8:08
Speaker 1: director of Global Macroe for Fidelity Investments. Joining us in
8:11
Speaker 1: our Bloomberg Boston A studio. Thank you so much for
8:14
Speaker 1: joining us. The tension between Iran and the US, as
8:28
Speaker 1: well as the European Union is rising. The latest is
8:31
Speaker 1: that Iran has accused a number of people of being
8:34
Speaker 1: in a c I A spy network, and has sentenced
8:37
Speaker 1: them to death. Joining us now to talk about these
8:40
Speaker 1: tensions and what the potential fallout could be, both on
8:43
Speaker 1: a geopolitical standpoint as well as on oil markets. Ariel Cohen,
8:48
Speaker 1: Senior Fellow at the Atlantic Council joining us from Washington,
8:51
Speaker 1: D c Ariel, Can you just first start by putting
8:54
Speaker 1: the latest accusations of these individuals being c i A spies.
8:59
Speaker 1: Can you play is put into perspective for us? Yes,
9:03
Speaker 1: of course. Uh. First of all, it's a tragedy that
9:07
Speaker 1: people most probably some of them innocenter all of them innocent,
9:11
Speaker 1: have been arrested drag to the infamous Evin prison in
9:16
Speaker 1: Tehran where there would be tortured uh and executed. Uh.
9:22
Speaker 1: Some of these people maybe and maybe known assets. Any
9:25
Speaker 1: intelligence service worth its metal um would track people who
9:32
Speaker 1: collaborate with for intelligence services, so at any time they
9:37
Speaker 1: can pick them up uh and then arrest them or
9:39
Speaker 1: kick them out of the country. Uh. This is a
9:42
Speaker 1: known tradecraft. However, the fact that President Trump tweeted that
9:48
Speaker 1: this is fake news makes me think that maybe Iranians
9:51
Speaker 1: just picked up some random opponents of the regime. After all,
9:56
Speaker 1: the urban and educated population hate the regime in Iran,
10:01
Speaker 1: and they may have been using this to seven scores
10:05
Speaker 1: to punish people that are Western or pro American but
10:09
Speaker 1: not spies, and that have been going on in Iran,
10:12
Speaker 1: that have been going on in Turkey and in other places.
10:16
Speaker 1: So Ariel. I wonder if you could just set the
10:18
Speaker 1: stage for us a little bit. There's so many moving
10:19
Speaker 1: pieces going on with Iran in the US and other
10:22
Speaker 1: Western nations. In your opinion, what do you think President
10:25
Speaker 1: Trump's strategy is as it relates to Iran? Well, the
10:30
Speaker 1: good question is does he have does he have a
10:33
Speaker 1: strategy beyond trying to squeeze Iran by imposing sanctions? And
10:39
Speaker 1: we saw from the leaked emails from the former British
10:43
Speaker 1: ambassador who said there's no strategy in building a coalition
10:48
Speaker 1: reaching out to our European allies. And also once you
10:52
Speaker 1: impose UM this pressure on the Iranian regime, granted this
10:58
Speaker 1: is a very significant pressure, more than anything we saw
11:02
Speaker 1: under the Obama administration. What happens when you UH corner Iran?
11:08
Speaker 1: Do you have enough deterrent power to prevent Iran from
11:12
Speaker 1: doing what it's doing now? Uh? It conducted seven attacks
11:16
Speaker 1: on tankers and other boats in the Gulf um it Um,
11:23
Speaker 1: may Um fire rockets, use proxies throughout the Middle East
11:28
Speaker 1: from Lebanon to Yemen. It has militia that they support. However,
11:34
Speaker 1: what makes sense here is that the more you squelch
11:38
Speaker 1: the cash flow for that regime. Uh, the less money
11:42
Speaker 1: they have for the mischief. And then the question is
11:46
Speaker 1: when you relent, when you stopped pressure because of the
11:50
Speaker 1: negotiating process, would they go back next day to do
11:54
Speaker 1: what they've done so far that caused this thing in
11:56
Speaker 1: the first place. But let's let's go at it from
11:59
Speaker 1: the other point if you because you have Iran clearly,
12:02
Speaker 1: tensions are already very high. They're suffering due to sanctions
12:07
Speaker 1: and they don't want to go back to having their
12:09
Speaker 1: finances completely cut off. And yet the UK government has
12:13
Speaker 1: accused them of seizing these tankers. Now there are the
12:17
Speaker 1: accusations of the CIA actors that are as you were
12:20
Speaker 1: just described. So what are they playing at? What are
12:23
Speaker 1: they looking for? Uh? They are playing tough. You need
12:27
Speaker 1: to understand the strategic culture of these countries, of each
12:33
Speaker 1: country is not the same as the other North Koreans
12:37
Speaker 1: are not the same as Iranians. And the Iranians are
12:41
Speaker 1: playing tough. We're not you know, folding, we're not bending.
12:45
Speaker 1: We can escalate. Um. What they're involved now is piracy.
12:50
Speaker 1: We haven't seen that level of disruption of international shipping
12:55
Speaker 1: at least since Somalia pirates or the Iran Iraq War
13:00
Speaker 1: in the nineteen eighties. I remember how President Reagan and
13:03
Speaker 1: President Bush um reflagged American reflagged anchors, put American flags
13:10
Speaker 1: on them, and UH provided American naval assets UH to
13:17
Speaker 1: UM guard the ship the shipments of oil. UH. And
13:21
Speaker 1: in the end of the day, what broke the spirit
13:25
Speaker 1: of the Iranians when by mistake U. S. Navy shot
13:29
Speaker 1: down in Iranian civilian aircraft. So I'm not suggesting anything
13:33
Speaker 1: horrible like that, but what I'm suggesting is if you
13:36
Speaker 1: want to negotiate, we have to negotiate from the position
13:39
Speaker 1: of strength. And this is something we see the British
13:44
Speaker 1: are ignoring. The British are failing UH to provide UH
13:49
Speaker 1: sufficient strength to stop the Iranians from seizing their tankers. UH.
13:54
Speaker 1: So it looks to me like it has to be
13:57
Speaker 1: a US, British and possibly other countries that are involved
14:03
Speaker 1: in oil shipping, maybe the Japanese, maybe other Europeans. But
14:08
Speaker 1: without negotiating from the position of strength UH, the Iranians
14:13
Speaker 1: have no incentive to negotiate UH, and we have no
14:17
Speaker 1: incentive to negotiate from the position of weakness. We need
14:20
Speaker 1: to show that we mean in business. We need to
14:22
Speaker 1: put put more naval vessels and guard the caravans that
14:27
Speaker 1: that ship oil and make it very clear for the
14:30
Speaker 1: Iranians that if they mess it up, if they disrupt
14:34
Speaker 1: the energy shipment in the Gulf, they will pay a
14:37
Speaker 1: very high unsustainable prize for that regime. Errol Cohen, thank
14:42
Speaker 1: you so much for joining us. Errol Coh as a
14:44
Speaker 1: senior Fellow with the Atlantic Council from Washington, n d C.
14:47
Speaker 1: Giving us his thoughts on the Iranian issue as tensions
14:51
Speaker 1: continue to rise. Well, we just celebrated the moon landing
15:05
Speaker 1: of Apollo eleven, which is prompting renewed discussion about the U.
15:09
Speaker 1: S Space program and its future. Our next guests can
15:11
Speaker 1: help us fill in some holes. Their Softie bacology author
15:14
Speaker 1: and physicist. He's based in Cambridge, Massachusetts. Softie, thanks so
15:17
Speaker 1: much for joining us. I wonder if you could just
15:20
Speaker 1: give us a sense of where the U. S. Space
15:23
Speaker 1: program is today. Well, we're celebrating this week the fiftieth
15:28
Speaker 1: anniversary of the moon landing. In the moon landing, which
15:30
Speaker 1: is one of the great inspiring events of human history,
15:35
Speaker 1: and then the US led the world. The US has
15:38
Speaker 1: led the world in space and science and technology for
15:41
Speaker 1: the last fifty years. But after that peak in the
15:43
Speaker 1: sixties and then the seventies, we gradually slowed down. And
15:48
Speaker 1: the question is why why should we give up that
15:52
Speaker 1: leadership because that leadership drove so much of the economy.
15:55
Speaker 1: And what's happening today is that NASA's role has shrunk
16:00
Speaker 1: because of competition from private industry, competition from the military,
16:05
Speaker 1: and we haven't had that spirit that we had so
16:09
Speaker 1: many years ago. And now the new race is with China,
16:13
Speaker 1: with Russia, and with India. And it's so important to
16:16
Speaker 1: understand this because we don't want to see, for example,
16:19
Speaker 1: the first colony on the moon being a Chinese colony
16:22
Speaker 1: or a Russian colony. We want that would just be
16:25
Speaker 1: not That would to me, that would be an admission
16:28
Speaker 1: of defeat. That would be an admission that our best
16:31
Speaker 1: years leading the world in science and technology are behind us.
16:34
Speaker 1: And I don't think they are. But what would you
16:36
Speaker 1: say to people who say that that's spending a lot
16:38
Speaker 1: of money on the part of the United States to
16:40
Speaker 1: basically beat our chests, saying, you know, we're the best,
16:44
Speaker 1: We're the best on the hill. I think those people
16:47
Speaker 1: failed to understand what was so important fifty years ago
16:52
Speaker 1: was the inspiration, the inspiration to young people, old people,
16:58
Speaker 1: average age people. Just how powerful the idea of astronauts,
17:02
Speaker 1: the idea of exploring the idea of space, and that
17:06
Speaker 1: ability to inspire our young people is a national advantage. Well,
17:11
Speaker 1: like you're also Safie the author of a Wall Street
17:13
Speaker 1: Journal bestseller, And I love this title, loon Shots, how
17:16
Speaker 1: to nurture the crazy ideas that wind wars cure diseases
17:19
Speaker 1: and transform industries. When I think about that kind of mentality,
17:24
Speaker 1: a couple of people that jump to mind or Richard
17:26
Speaker 1: Branson and Elon Elon Musk, and not surprisingly, I guess
17:30
Speaker 1: they're on the forefront of what might be the next
17:32
Speaker 1: wave of space travel. Well, I love what Elon Musk
17:36
Speaker 1: is doing. He's taking a big, bold approach to getting,
17:39
Speaker 1: for example, to Mars, and that's forcing NASA to react.
17:43
Speaker 1: That happened almost the exact same playbook happened thirty years
17:47
Speaker 1: ago with another crucial big science project, and that was
17:50
Speaker 1: the sequencing of the human genome. Big project, incredibly important
17:54
Speaker 1: for medicine, for human health. Federal government had a fifteen year,
17:58
Speaker 1: three billion dollar plan and a young billionaire in his
18:01
Speaker 1: early forties came up and said, forget that, I have
18:04
Speaker 1: a faster, better, bolder way to do it. The two
18:08
Speaker 1: of them together challenged each other and raised the bar
18:11
Speaker 1: and did a much better job than either one alone.
18:14
Speaker 1: And that's what's playing out again with Elon Musk and NASA.
18:17
Speaker 1: So I'm delighted to see that your mother was a
18:20
Speaker 1: prominent scientist with NASA, as was your father. What did
18:26
Speaker 1: your mother think of this book that you wrote, Oh,
18:29
Speaker 1: my mother, I've had people from NASA reach out to
18:32
Speaker 1: me as well. They want to nurture loon shots faster
18:35
Speaker 1: and better because the big ideas, the ones that truly
18:38
Speaker 1: changed of course, the science business are here street rarely
18:41
Speaker 1: arrive with blaring trumpets or red carpets, dazzling everybody with
18:45
Speaker 1: their breaths, with their brilliant so usually are dismissed or
18:48
Speaker 1: neglected for years or even decades, and their champions written
18:52
Speaker 1: off as crazy. And now, as understands it, as the
18:55
Speaker 1: armies as air forces to CEO, is that we need
18:58
Speaker 1: more of those. So if NASA isn't making the big
19:01
Speaker 1: investments that a lot of people think are necessary to
19:04
Speaker 1: sort of cultivate uh, this this sort of culture of
19:08
Speaker 1: of innovation. What's the sort of expense here? I mean,
19:12
Speaker 1: are we losing perspective NASA scientists and just scientists in
19:16
Speaker 1: general who might otherwise get wrapped in and nurtured and
19:20
Speaker 1: brought into the fold for these loon shot explorations. Well,
19:24
Speaker 1: it's absolutely important to have this federal government investment in
19:28
Speaker 1: research and science and technology and the ideas people think
19:31
Speaker 1: might be just enormously crazy. That gave us, for example,
19:34
Speaker 1: the transistor, the Internet, GPS, the personal computer industry. That's
19:38
Speaker 1: why that kind of investment in nurturing loon shots helped
19:42
Speaker 1: the US lead the world in science and technology. And
19:45
Speaker 1: I think we lost our way for ten or twenty years.
19:47
Speaker 1: But I'm seeing signs of the turnaround with the recent
19:51
Speaker 1: announcement that we're definitely going to Mars, with the recent
19:53
Speaker 1: announcement we're going to trying to establish a colony of
19:56
Speaker 1: permanent location on the moon, NASA trying to reach out
19:59
Speaker 1: and explore crazy new ideas. I think things are turning around,
20:02
Speaker 1: and I'm I hope we can compete and beat China, India,
20:07
Speaker 1: and Russia to those milestones. Is this administration supportive of
20:11
Speaker 1: those types of investments. I do believe it is, and
20:14
Speaker 1: I believe you're seeing the NASA budget increase. Certainly the
20:17
Speaker 1: inbound calls that I've gotten from NASA or even the
20:19
Speaker 1: military or intelligence agencies about wanting to nurture lunch shots,
20:23
Speaker 1: how do we organize to nurture these crazy ideas faster
20:26
Speaker 1: and better. I've had a flood of those calls just
20:29
Speaker 1: in the last few weeks, and I think there's something
20:32
Speaker 1: has ignited, and I think it may be the competition
20:34
Speaker 1: with China. How closely tied is the military to NASA.
20:41
Speaker 1: They're entirely separate. The reason why I ask is because
20:44
Speaker 1: some people say that it is actually a national defense
20:46
Speaker 1: issue with respect to having a greater dominance in space.
20:50
Speaker 1: Do you adhere to that at all? I think having
20:53
Speaker 1: a greater dominance in space means a greater competitive advantage
20:58
Speaker 1: in science and technology and ni nearing, and that benefits everybody.
21:01
Speaker 1: Benefits NASA, it benefits science, it benefits national security, and
21:05
Speaker 1: it benefits our companies. Are US companies, are US technologies
21:09
Speaker 1: and are intellectual based or intellectual capital for the future,
21:13
Speaker 1: which is the education of our young people. What seems
21:16
Speaker 1: like when I look at Elon Musk and his space
21:17
Speaker 1: program he's doing some amazing things. I just seeing video
21:20
Speaker 1: of the rockets that actually land after use um. That's
21:23
Speaker 1: a strikingly new technology. Is there sense that NASA will
21:27
Speaker 1: work with some of these private players as well. NASA
21:30
Speaker 1: has absolutely made it clear that they want to partner,
21:34
Speaker 1: and that is incredibly important. That's exactly the right attitude.
21:37
Speaker 1: That's exactly what we're twenty thirty years ago with the
21:40
Speaker 1: Human Genome Project, the federal government, National Research sponsored the
21:45
Speaker 1: basic technology that got us the biotech industry, and then
21:49
Speaker 1: all sorts of private industry worked with the federal government,
21:52
Speaker 1: and because of that, the US leads the world in
21:54
Speaker 1: healthcare and in drug discovery, and I think the same
21:58
Speaker 1: thing is starting to play out in space a science.
22:01
Speaker 1: Thank you so much. This is really really interesting. Safil
22:04
Speaker 1: author and physicist from Cambridge, Massachusetts. He is also the
22:09
Speaker 1: author of the Wall Street Journal bestseller loon Shots, How
22:12
Speaker 1: to Nurture the crazy ideas that when wars cure diseases
22:15
Speaker 1: and transform industries. I love the idea of loon Shots.
22:31
Speaker 1: Time to check in with Bloomberg Opinion. We're joined by
22:34
Speaker 1: opinion calumnist Brooks Sutherland. Brook I know you cover all
22:37
Speaker 1: things industrials were right smack in the middle of the
22:40
Speaker 1: second quarter earnings period. It's kind of a mixed week
22:43
Speaker 1: last week, I think about CSX on the downside, Uh,
22:46
Speaker 1: some of the other names had kind of some mixed results.
22:49
Speaker 1: You think there might be even some more rocky roads
22:52
Speaker 1: coming up here for the earnings, Yeah, I mean, I
22:54
Speaker 1: think it really depends on what expectations are going into earnings.
22:58
Speaker 1: And so last week we saw CSX sell off more
23:01
Speaker 1: than ten percent on its earnings report, and I think
23:03
Speaker 1: a lot of that had to do with the fact
23:04
Speaker 1: that the stock was up almost going into earnings, which
23:08
Speaker 1: signals to me that people thought this was going to
23:10
Speaker 1: be a relatively safe place to hide out. Um, and
23:13
Speaker 1: they were wrong in that assessment. Um. But then you
23:16
Speaker 1: had names like J. B. Hunt and Union Pacific that actually,
23:19
Speaker 1: you know, got a little nice pop off their earnings,
23:21
Speaker 1: and I think that just was because expectations have been
23:23
Speaker 1: lowered so much going into that. But there are a
23:25
Speaker 1: fair amount of names that are like a CSX that
23:28
Speaker 1: people have been sort of piling into, and I wonder
23:31
Speaker 1: if those are as defensive as people think they are.
23:33
Speaker 1: Like Well, another name that I think about is Honeywell
23:36
Speaker 1: which did actually report earnings last week UM, and they
23:39
Speaker 1: were they were good. I don't want to take away
23:41
Speaker 1: from it, but they were. They had some of the
23:43
Speaker 1: same slow down trends that we're seeing elsewhere UM in
23:46
Speaker 1: the industry, particularly in some of their shorter sales market
23:48
Speaker 1: like their productivity and sales division. UM organic growth for
23:52
Speaker 1: the quarter was a little bit weaker than analysts expected.
23:55
Speaker 1: I mean, they still had overall five percent organic sales growth,
23:58
Speaker 1: so it's not like the sky is falling. But I
24:00
Speaker 1: do wonder, you know, especially given the struggles that g
24:04
Speaker 1: E has had and three M has had, There's been
24:06
Speaker 1: a lot of people piling into Honeywell and what's really
24:09
Speaker 1: keeping that stock live as aerospace, But if that starts
24:13
Speaker 1: to crack at all, then that can be rather problematic.
24:16
Speaker 1: When industrials don't do well, people often say, look, this
24:19
Speaker 1: is a sign of the trade war, this is a
24:21
Speaker 1: sign of a slowing up macro economy. I'm wondering, based
24:25
Speaker 1: on what you're saying, whether that's an inaccurate narrative, whether
24:28
Speaker 1: it's more that people have just overpriced these shares heading
24:32
Speaker 1: in and are expecting too much and it's more just
24:35
Speaker 1: sort of taking off some of the profits from earlier
24:38
Speaker 1: in the year. Is that Is that a better way
24:39
Speaker 1: to look at it. I think it's a little bit
24:41
Speaker 1: of both. I mean, I think they're definitely feeling the
24:44
Speaker 1: pain of the trade war uncertainty. I mean, that's a
24:46
Speaker 1: big part of why you're seeing some of these sales
24:49
Speaker 1: numbers come down. They're citing people not really being comfortable
24:51
Speaker 1: with moving forward with these new investments. Um. But on
24:54
Speaker 1: the other hand, I think you have this weird dynamic
24:57
Speaker 1: where investors don't really have anywhere to go. Are you gonna,
25:00
Speaker 1: you know, pile into overpriced equities, Are you're gonna go
25:02
Speaker 1: into low yielding bonds? I mean, like, what are what
25:04
Speaker 1: are your options here? And I do think there's this
25:07
Speaker 1: misperception about the way that an interest rate cut can
25:11
Speaker 1: play out for industrial companies. This whole idea that twenty
25:15
Speaker 1: five basis point cut is going to spur this new
25:17
Speaker 1: rash of investments in like machinery purchases among industrial companies.
25:21
Speaker 1: I just don't buy it. The cost of debt is
25:23
Speaker 1: very low, it's been low for years. All of these
25:26
Speaker 1: companies had a huge influction of cash from the tax overhaul.
25:29
Speaker 1: I don't think any of them are sitting around saying,
25:31
Speaker 1: you know what, if I can just get that twenty
25:33
Speaker 1: five basis point cut, I'm gonna build a new factory.
25:35
Speaker 1: I'm gonna buy a new UM, you know, giant piece
25:38
Speaker 1: of machinery. And so I just don't know that that's
25:41
Speaker 1: going to be the saving grace that UM. Some investors
25:44
Speaker 1: would seem to think it is, just given where some
25:46
Speaker 1: of these stocks are trading. Well, one of your favorite names,
25:48
Speaker 1: I know is Boeing back into news today downgraded UM
25:52
Speaker 1: are the outlook of revised to negative from stable by Fitch.
25:55
Speaker 1: And I know the Southwest air CEO is out talking
25:58
Speaker 1: about how they're still looking at the seven thirties oven
26:00
Speaker 1: Max and if it's not there, they're gonna have to
26:02
Speaker 1: make other plans. I guess what's the latest that you
26:04
Speaker 1: expect to hear from Boeing. So Boeing did come out
26:06
Speaker 1: last week and they said they're going to take a
26:08
Speaker 1: four point nine billion dollar after tax charge in the
26:11
Speaker 1: second quarter, and that represents their estimate at this point
26:14
Speaker 1: in time for what they're going to compensate the airlines
26:17
Speaker 1: for keeping the Max grounded. Now, importantly, that does not
26:20
Speaker 1: include any litigation costs. Or settlements with families or anything
26:24
Speaker 1: like that that would all be separate. And they did
26:26
Speaker 1: also say they were going to expect one point seven
26:28
Speaker 1: billion in increased costs, and that has to do with
26:30
Speaker 1: taking down production of the MAX to accommodate the surplus
26:34
Speaker 1: of inventory they have building up. They're basing all of
26:37
Speaker 1: that on the expectation that the MAX comes back early
26:40
Speaker 1: in the fourth quarter. That to me seems optimistic, uh,
26:45
Speaker 1: and I it does give me pause because again and
26:47
Speaker 1: again you have Boeing with the most aggressive timeline. I remember,
26:51
Speaker 1: remember they back in March, we're saying they would have
26:53
Speaker 1: all the paperwork into the f a A by the
26:56
Speaker 1: end of March for a fix. And then we've subsequently
26:58
Speaker 1: seen all of these negative headlines coming out about the
27:01
Speaker 1: fact that some of these planes weren't you know, the
27:04
Speaker 1: sensors that would were tied to that flight software system
27:07
Speaker 1: that's been blamed for the two crashes weren't operational on
27:10
Speaker 1: some of the planes as they promise. Then there's a
27:12
Speaker 1: separate issue with a microprocessor, and I just I wonder
27:16
Speaker 1: what the value is in being the most optimistic, aggressive
27:19
Speaker 1: one in the room at this point in time. If
27:21
Speaker 1: you're Boeing um, and I do think you know there
27:24
Speaker 1: is a risk that this does slip into just because
27:27
Speaker 1: the f A is obviously incentivized as well to protect
27:30
Speaker 1: its reputation. Make sure they coordinate with international regulators and
27:34
Speaker 1: make sure this thing is safe before you get it
27:36
Speaker 1: back in the skies. It all sounds really bad. Boeing
27:38
Speaker 1: shares down though nine tenths of one percent not a
27:41
Speaker 1: huge decline, as a lot of bad news already is
27:44
Speaker 1: baked in. Investors kind of shrugging with a Fitch downgrade,
27:47
Speaker 1: baser putting in watch saying all right, guys, I mean
27:50
Speaker 1: we know it's not a great situation. Brooks Sutherland, thank
27:52
Speaker 1: you so much for being with us, Brooks Sutherland as
27:54
Speaker 1: deals and industrials calling this for Bloomberg Opinion. Thanks for
27:59
Speaker 1: listening to the Bloomberg n L podcast. You can subscribe
28:01
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
28:04
Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
28:08
Speaker 1: I'm Lisa abram Woyds. I'm on Twitter at Lisa abram
28:10
Speaker 1: Woyits one before the podcast. You can always catch us worldwide.
28:13
Speaker 1: I'm Bloomberg Radio