Boeing’s Safety Record Under Scrutiny

Published Apr 17, 2024, 8:08 PM

Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Intelligence Senior Aerospace Analyst George Ferguson discusses US lawmakers challenging Boeing to expend the necessary time and effort to reset its safety culture. Maria Robinson, Director of Grid Deployment Office at the Department of Energy, shares her thoughts on accelerating deployment of US grid solutions to lower costs and improve reliability. Lime CEO Wayne Ting talks about the electric bike and scooter network investing more than $55 million to expand its global fleet. And we Drive to the Close with Aaron Kennon, CEO at Clear Harbor Asset Management. Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan. 

Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.

Shares of United Airlines they are surging. They are up sixteen percent. As Charlie mentioned, that's the most of more than three years. You got to go back to November of twenty twenty to see that kind of a move. This is after the carrier forecast more than it's better than expected profit this quarter, tempering concerns that Boeing aircraft delays and regulatory pressure will put expansion plans at risk. So that's what's going on with United. We talked about it. We broke those numbers after the closed last night.

Yeah.

Meantime, Boeing is the subject of two Congressional committee hearings today on the company safety culture in the wake of a near catastrophic accident in January, as well as two crashes of seven thirty seven Max aircraft a few years ago, and also Carol on its relationship with regulators yeah.

It's a full plate. Senator Richard Blumenthal, Democrat from the state of Connecticut, who chairs the second Session Congressional Session today, says today's hearing is the first of several who weighed in earlier.

There are mounting serious allegations that Boeing has a broken safety culture and a set of practices that are unacceptable. These whistleblowers have come forward at great personal risk.

That was, of course, Senator Richard Blumenthal, Democrat from the state of Connecticut, he chairs the session today, with more on all of it. Let's bring in a Bloomberg Intelligence senior Aerospace, Defense and Airlines analyst, George Ferguson, who joins us from Arizona, Georgia. First up, I want to talk about Boeing in the hearings today. The hearing this morning was the first of two in Washington today to explore Boeing safety record. The second panel focus claims by a Boeing engineer turned whistleblower who alleges that the company has cut corners on the production of its seven eighty seven Dreamliner.

What do you.

Watch for during events like this? What should our audience watch for during events like this?

So on the Dreamliner specifically. You know, I think what we're watching for is to figure out whether or not this is part of an earlier issue that Boeing had with the seven eight seven, with joining the fuselage pieces. They negotiated or discussed with the FA the right way to fix a shimming problem they had with the airplane. They you know, what we've heard is they'd fixed that problem and they had a better process in place to join the aircraft together. So if this is part of that same issue that I'd say, you know, for investors, then it's it's there's nothing here. If it's an additional issue with the seventy eight seven and not that shimming problem, then I'd be concerned. Right then it's going to be additional costs for Boeing and it could lead to concerns about safety and flying the airplane.

You know, I think about it, and just watching all of the issues that have kind of hit Boeing over the last few years, it's like, why are they having these problems? And I do wonder, George, if you think these committee hearings will help get to the bottom of it, especially when one of the things that lawmakers are concerned about is that the FAA has been too soft on the company, and I'm curious if you could weigh in on that, if you agree that maybe Boeing has been too cozy with its regulators.

Yeah, I think even more than cozy. Right, So the sense I really get is the relationship between Boeing and the regulator, the FAA, for many many years, has been one of Boeing being in a superior position. You know, I think they Boeing probably had more engineering talent than the FAA, and I think they you know, sort of told the FA what they thought was needed rather than you know, how to sort of a one on one balanced relationship with the FA. And that's clearly going to have to change. The FA has had its challenges too, through through the pandemic that they've had a lot of turnover, They've lost some some talent there as well. They have the batfill, so that that creates more you know, that creates a problem too with the with that whole relationship. So I mean, I think, you know, again, I think we've heard this previously. We've also heard previously from the FAA that the safety systems that Bowe were broken, that people uh you know, were centivized, not to speak up there, and you know, if they spoke up, they would potentially be you know, have some sort of recourse brought against them if people were concerned about safety over moving aircraft through uh through production.

So I think.

Congress is getting to something that we already know. But Congress is probably rightfully concerned because this is the most important aerospace company, aerospace manufacturer, fuselage manufacturer in the country.

So good, this is a good part of the process to getting to the bottom of what's wrong at Boeing. In your view, this is this this should result in getting to the bottom of it.

I guess I'd like to see. I'm going to look for more out of the FAA and it's and it's investigations. You know, Congressional hearings can get a little bit political, so there's going to be some grand standing and things like that, right, But I think Congress is rightfully you know, expressing their view that hey, something is broken and we want do attention paid to it, and it needs to be fixed. It's in the best interest in the country. Along that road, we'll get you know, some political actors in the whole game.

Okay, George, So let's think about potential outcomes here post FA investigation, given that we've already seen leadership turnover at Boeing. The CEO Dave Calhoun is on his way out by the end of the year. We saw reshuffling of executive ranks is there as well. So what could potential outcomes be post FA investigation, Like what could repercussions be.

So I don't know what rep cushions and I haven't really sort of dialed into my analysis repercussions. One I'm more dialed into into my analysis is you know, adjustments to the Boeing production process, and that is going to include I think a lot more oversight both from the FAA, and I think the FA is going to expect Boeing to do a better job of overseeing the factory floors and ensuring safety and quality, which I think is going to slow things down. But it's important. You got to build quality products in aerospace or nobody's going to trust your product. And I think it's interesting that the FAA did give the exercise to Boeing to propose how they were going to improve it, because you know, I guess they could sort of scrutinize from there what Boeing comes up with and it'll be interesting to see if they have additional measures they want to put on top of it. But I think a lot of it's going to be training and oversight.

All right, let's talk about United, because man, this stock is up sixteen percent, the most since November of twenty twenty. In terms of the size of the jump that we're seeing. Earnings came out after the close yesterday. A lot of it has to do with the outlook. But tell us how you see it and how you look at this quarter, and they, of course, we're dealing with some of those challenges that Boeing has been dealing with because of the grounding of planes and so on.

Yeah, so I guess the way I look at United is it was a nice quarter. I totally agree. I think they did more premium seat sales this quarter. They've been, you know, these airplanes, they've been taking delivery of the larger aircraft, their aircraft that have premium seats in it. Right now, in the marketplace, you want to be offering premium seats. I think there's maybe a little too much basic economy seating, but there's not enough premium, it appears, and I think that helped drive the quarter. I would note that when we look at the yields they're making on, for example, their domestic business, their yields came up, you know, a couple I think it was almost three percent, where Delta was flatish. But the absolute yield, which is the price paid you know, per mile, but the price the customer pays per mile flown. If you look at the actual yields, there's still beneath Delta for United, which tells me that there's more room to grow, which I think the market is probably responding to more room to grow those premium offerings, you know, to get better yields out of it. And I think that that's a lot of what's going on here now. Obviously Boeing problems are going to mean less aircraft delivery for United this year, although they appear to be tapped into eight three twenty one from Airbus. So the continue to increase the size of their aircraft, which has improves their efficiency and again allows them these premium seats of front that they can command a better price for. And I think that's that's working for them. They're they're closing that gap. I would note too real quick that United is still valued if I just look at quickly on a pe ratio, there's still valued below delta, you know, so that I think that's what you're seeing a reaction to in the marketplace.

George, how should investors think about the FAA review that's already begun at this point regarding safety incidents?

For United has a lot of reviews going on, right and so it really does and look again, all important again. I think the regulator has been through a couple rough years during the pandemic, and hopefully this means they're getting their footing underneath them and getting out and influencing these you know this these marketplaces or these industries. Look United has every incentive to do, uh, do the utmost for safety inside their network. I think they had a spate of challenges. I think there's been a lot of turnover at all the airlines during the pandemic, and the maintenance turnovers hard because you've got to train new people, You've got to make sure they're very thorough. My guess is we're going to find out is that turnover created the problem. But I would expect that you know, maybe there's some uh you know, some processes that United has to tighten up but I think you're going to find out it's again it's an employee turnover issue. In that time to get better as people are more trained and understand their job better and turnover goes down.

All right, great stuff, so appreciate you, weigh in Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst George Ferguson joining us from Arizona. We mentioned shares of United up about sixteen percent here, the most in terms of the percentage gain since we've seen going all the way back to November of twenty twenty. But the whole airline sector tim looking at the S and P five hundred Supercomposite Airline Index, it is up almost five percent. Today's session, you're.

Listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple card Play and then brought auto with a Bloomberg Business app, or watch us live on YouTube.

Well earlier this year, Bloomberg News reporting stress on the nation's electric rids is accelerating at an unprecedented clip. Demand is climbing just as aging infrastructure strains under the massive overhaul needed to adapt to renewable energy. The convergence is making it harder to maintain safe, reliable power quality, and some regulators and utilities are not tracking the problem all right.

And so last fall, the Department of Energy announced up to three and a half billion dollars in funding to upgrade the US grid. This topic among the many at this week's Bloomberg ANYF Annual Energy and Climate Summit. Our next guest participated in a panel at the event. It was entitled Leveraging largest ever grid investment to Enhance Resilience. So there is a lot going on with us. In the studio to talk about the nation's grid is Maria Robinson. She's director of the Grid Deployment Office at the US Department of Energy. I feel like I don't even need to ask you how bad is the grid because I feel like we do stories on it all the time about how bad it is, but how bad is it really?

So we're facing a lot of different problems here on the grid.

Today.

You are talking about we have new demand. It's great that we're bringing manufacturing back to the United States, but that's a strain on the electric grid. The electric grid is aging. It's not just older than me it's older than my grandparents. So then we're looking at ways that we need to upgrade our existing infrastructure while continuing to build new ones. I think of it. We released a report just yesterday on advanced and innovative grid deployment mechanisms of being able to take advantage of some of the existing infrastructure and figuring out ways at relatively low cost to.

Upgrade what we currently have. The joke that I make is so we cannot do upgrades. It's not like a massive rebuild.

Right, we have to do both. Okay, we are definitely going to have to continue to build in order to meet all the demands, but we can take advantage of those existing rights of way, right, we don't have to deal with as much permitting, which we all know is a really difficult topic to deal with. But you know, oftentimes folks are taking our existing lines and replacing the metal part that's inside of it. It's called a conductor, and oftentimes they're just replacing that like for like instead of upgrading it to a newer technology that can move more electrons every single day.

And so it's so funny. There's a story in the Bloomberg. It's probably a connection with this, but it's a central transmission line is getting a twenty first century upgrade, and it's about a startup that's created a wire that's lighter and can carry it to three times more electricity. I mean, we talk about this with battery usage, right for evs, about just about making things even chips, right, accelerators, making them more productive, making them more energy efficient.

Like this is what it's about, exactly. And so all these great technologies are already out there. They're really proven in the field. We just need the market to pick them up.

Is it more of a state issue right now? I mean, I think if states that have struggled with their grids Texas and California certainly come to mind. Is it a federal issue or is it a utility issue?

It's all three. The fun part about the electric grid is that it doesn't follow political lines.

Right.

We have an eastern interconnect a western interconnect, and they don't follow necessarily. They're like time zones, right, They just sometimes split a state down the middle. So we have to figure out how we mix some federal policy with individual state policy. Some states are really looking to decarbonize and the way they want to build their grid might be different than their neighbor who has different goals ultimately, and so we're trying to mix and match all those different priorities in order to make sure that we have a strong grid that can withstand anything.

There's nothing like a federal incentive or a tax break or something to get us to do something, whether you're a company where you're an individual. So what are the incentives that you guys or that utilities need to actually adopt better technologies and some of the technologies that you guys are talking about.

So there are certainly some ways from the regulatory structure that utility commissioners at the state level or at the federal level could incentivize the use of some of these different technologies.

They do we need to really make it happen.

I think we need to make a bit of a push here, just because we have so much to deal with over the next three to five years, and that's when we can deploy some of these technologies while we're still building out major transmission lines that you know take ten to twelve years.

Is this a national security issue?

It certainly is a national security issue, and this is something that we continue to face every day. Our grid is one of our greatest assets that we have in our country and making sure that we can withstand cybersecurity attacks, physical attacks, and just frankly weather. One of the biggest issues is wildfires and making sure that we can prevent those from happening moving forward.

Yeah, we were talking about this another story that's on the Bloomberg today that's about that. You know how investors have looked at the debt at utilities as kind of a sure thing in the past, right in terms of investing, but because of what's happening with climate change, that is not necessarily the case. That there's a lot more questions that are out there in terms of the unpredictability and the costs that are mounted against some of the nation's utilities.

And I think part of this is incent trying to incentivize utilities, and they're really coming around to realize this. You're not going to if a pole gets knocked down from one hundred and fifty mile an hour WINS, you're not going to replace it with another pole like was there before that could get knocked down. You want something that can stand two hundred and fifty mile an hour WINS. And so we have to make sure that the regulatory structure is there in place to allow them to think in a forward leaning way.

What can I just ask you? So, what is that regulatory structure?

So there are these very fun organizations called utility commissions public utility commissions. They're the people who decide how much you pay on your electricity bill and on your gas bill. And those are the folks that hold utilities accountable and also figure out how those costs are being allocated to regular folks like us and to major industry as well.

How much are we talking here? If you could wave a magic wand and get enough funding to completely upgrade the grid in the US, how much would it be?

So we are really lucky under the bipartisan infrastructure law, the Inflation Reduction Act rate my office has about twenty two billion dollars to upgrade the grid. We talked about three and a half of it going out last year. To be honest, that's a drop in the bucket. Every year, utilities spend about twenty three billion dollars just to maintain their existing assets in order to continue to upgrade. What we do find though, is that some of those costs could just be shifted instead of paying to replace l like for like, we could be paying a slightly lower cost even to do some of those upgrades. And that's where we have to continue to push the market as much.

As west so is twenty plus billion dollars enough.

Twenty bus plus billion I think per year. But you know, we're blessed with having Inflation Reduction Act money and by Parson Infrastructure Law of course that expires after a period of time.

Is there a chance that we're all going to end up paying as users consumers that to in other words, to help pay for this, that we are going to pay higher utility costs.

I think if folks are smart and we do good planning, and we think years out and make sure that we're being preventive about it, that we're not going to bear the cost. I think about how much a cost for recovery after a major storm at the lights go out? How many billions of dollars of revenue is y here we are?

So what like hope do you have that it kind of changes?

I do have a lot of hope. I think that folks are really come this issue is coming to a head for the first time at least in my career. Folks are really realizing that our grid needs a lot of investment. Everyone focuses on the generation side. They're excited about new plants and new gas, and new solar and new wind.

I hate to end on this, but what's like one scenario that keeps you up at night?

There are a lot of scenarios that keep me up at night. Hurricane season keeps me up at night. Hurricane seas and it absolutely keeps me up at night. And so we just want to make sure that we can invest in our grid as much as possible, to make sure that instead of the light's going out for five hours, they only go off for five minutes.

Well, Maria Robinson, thank you so much. Reality check there, director of the Grid Deployment Office at the US Department of Energy.

You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business ad. You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa playing Bloomberg eleven thirty.

Well Line is the operator of a shared e bike and scoter network. It's backed by Uber and it's seeing its business growing. Bloomberg News reports that the privately held company is planning to invest more than fifty five billion dollars this year to expand its global fleet and add more than thirty thousand net new bikes across North America, Europe and Australia, while also replacing aging ones. That story last week by Bloomberg's Natalie Young, We've got with us Wayne Tang, the CEO of Lime. He joins us from New York. Wayne, good to have you with us this afternoon. Really interesting to see this story, especially at a time when the micromobility industry has hit so many speed bumps. I mean, we're talking about Bird Global and its bankruptcy, super pedestrian shutting, US operations, Lift on City Bike popular here in New York City. It's been looking for a strategic partner or to sell its bike sharing business. Why is the story of Lime different right now?

Yeah?

I think that I actually think that the story of Line is different for it because we've really focused in on the things that truly matter. I think every company asks this site, what are the two or three things that allow you to win customers differentially from competitors and growth, profitability.

And for our industry.

The three things that matter are one the quality and durability of hardware, two best in class operation enabled by technology, and three our relationships with cities and governments. And across all three of these things, Line has been the best in class on all of them. On hardware, for example, all of our competitors buy off the shelf Chinese hardware, data outsource the scooters and e bikes. Every scooter and eedbyke at Line, we've developed in house and we manufacture with our controlled manufacturing partners. What this means is that we get to design them so that we can focus on the things that writers care about, and whenever there's an issue with a bike or scooter, we can make quick changes to the next.

Production line to improve it.

If one of the challenge there's a big conflict of interest when you buy off the shelfs scooters and bikes. If my business is to sell you more scooters and bikes, I have very little incentive to make them last as long as possible and to use as few spare parts as possible. So over the last five years, while lines scooters and bikes have continued to improve in our reliability and durability, our scooters and bikes on average last more than five years from just over a month five years ago. Our competitors have not seen that type of improvements or hardware, and in the course of the last five years, our p and L and financial results are completely diverse.

So because of these investments.

So you are profitable, correct?

Yes?

We last year we deliver over ninety million dollars of adjusted EVADAH, which is up five x versus twenty twenty two.

What's your outlook in terms of our expectations when it comes to growth going forward and what is fueling growth top and bottom line.

Yeah, so twenty twenty three, our top line grew by thirty two percent. It's actually our thirty or in a row of thirty plus percent growth and we expect to see that level of growth continue to the future. So, Tim, you mentioned that we're going to make a fifty plus on investments and e bikes because we're seeing huge demand from writers and cities for more e bikes all around the world. Last year, while our top line grow by thirty two percent, are e bike business double and we're seeing this all throughout the world and part part of the major reason is because cities have committed to transition their transportation system towards a green transportation future, and as we're seeing with electric cars, sales are not hitting expectations. The only way for us to hit our Paris climbing of core goals is to drastically reduce our reliance on cars and lines. E bike fleet is a good way and often cheaper way for writers to access electric bikes all around the world.

But when I go back to what Tim you Know said, you know, Bird Global went bankrupt super pedestrian, shutting US operations, thinking about the sale of its European business. This is according to tech Crunch, and then you got City Bike that was looking for a strategic partner. It is interesting. It feels like the challenges and one of the challenges is banned. I'm curious how what your approach to policy given some of the recent eastcooter banks, and I do wonder too within your business what's growing more? Is it scooters or is it bikes.

Bikes is actually growing faster than the scooters, so we are actually not seeing a lot of bands. There's only there is one decision in Paris to take to exit scooters from Paris, but since then we've actually doubled our e bike fleet in Paris, as Paris is looking for green transportation ahead of the Olympics, and we now have more e bikes on the streets of Paris than we did with scooters before the so called scooter band, and since then we've seen no other city follow suit. In fact, we see every single city we work with either extend or expand their scooter and e bike operations. So we're seeing the opposite effect, which is cities are actually adopting microability faster with time.

I'm wondering too well. I want to ask a little bit about new vehicle types here because there are also some new areas that you're working on, including new vehicle types, also a new business line when it comes to advertising. Starting with advertising, what do you have planned there?

So, I think one of the differences between Lime's business model and traditional docked bike so you all mentioned Motivate from Lyft. If you look at traditional dock bike businesses, yeah, the only profitable part of the business is the advertising business, and they typically and so one of the big differences for Line is that we actually make money in our core operations, and so when we look at the advertising business, it's a proven business model for a lot of bikes your businesses.

We've just never historically tapped into it.

But if we do go into it, it would be additive to the core business because I think of the one of the challenges a lot of these business have done is that they have not improved their core operations and they simply relied on advertising and make up for losses and their co operations.

That is not what Lion is doing.

We make money in our core e bike, east grout or rental, and we see advertising as a add on to our core business.

And what about those new vehicles types, these new accessible vehicles that you're piloting in some areas of the world right now.

Yes, I think one of the advantages that Line passed because we have an internal hardware team is that we get to experiment with lots of different hardware modes. And one of the things we learned with the e bikes versus the scooter is that different types of hardware types can appeal to different riders differently. So, for example, bikes will see a more gender balance between women and men and as slightly older ridership than scooters, which are probably a little bit younger and more men than women.

Because we're afraid of a scooter. I'm just gonna say so.

Right as we're investing more hardware, we're also looking at how do we expand the appeal of microability to more writers, different age groups, different use cases, and so'll you're continue to see this invest in new hardware form factors we have what.

Does that look like if it's not a bike, it's not a scooter, what is it.

You could share with us.

So the way we think about.

This is that the target trips linked for line trips is trips under five miles. Sixty percent of car trips are under five miles. And then so our question is what do people do on these trips. They can go to the grocery stores, go to work, go to school, you know, go visit a family.

And what can't we do today?

So, for example, if you want to go to a grocery store, you have your groceries on you, it's hard to ride back and a scooter, but in our e bikes, we have the basket and it's a good place to put the grocery store whatever things you've bought. So we're going to continue to look at like, oh so right now, if it gets very cold wherever it rains, it becomes harder to use.

An E bike or EA scooter.

Are there ways we can make lin scooters and bikes usable during rain and even during winter? And people typically don't want to use this for longer distances, but can we make a mode that is good for long distance travel as well? So the way we think about.

This, yeah, go ahead, please no, no, no, finish your thought please please girl.

Now I think about is how do we continue to tackle different use cases that writers may want to use microability for.

It pretty cool looking forward to when you want to share more, draw us a picture. We would love to know. Hey, got thirty seconds left here? Do you have to go public though to fuel the expansion and growth that you're talking about? Ultimately, just quickly if you could.

We don't need to go public to fuel it.

So one of the things that one of the big reasons why we're investing fifteen million dollars when all of our competitors and industry is pulling back, it's because we actually generated nearly one hundred million dollars even out that we can leverage to invest in our growth and expansion line is profitable in self.

Sustaining, so we're at a.

Point where we don't need to raise more money. In fact, I think one of the problems with the industry that I would say with the BC industry generally, is that there's been so much cheap money coming in and then there's been a growth that all costs against a drive towards profitability. This is actually bad for business because bad companies don't go wait, they just go raise more cheap capital. Okay, so that's not how we want to run our business. And we don't need to go public to fund our growth. Okay, we generate enough profits to fund our.

Okay, five seconds though, do you want to go public?

Of course?

Okay, that's all I needed to know. Hey, Wayne, thank you so much. Look forward to next time. Wayne Tang, he's the CEO at Lime.

The journal.

Now about you let me drive?

Oh no, no, no, no, honey, please, I.

Want to drive. It's good question that.

This is the drive to the clothes down to me think well Byron.

On Bloomberg Radio, it's that time already, Carol, that we drive to the clothes.

Yeah, yeah, I do believe it. And kind of an interesting tone today, and we're trying to make sense of it, because we have seen yields back off a little bit, of course, kind of a re assessment following j. Powell's comments yesterday. But you've got a ten year note four fifty eight, okay, on a two year note below five at four point nine three. So we moved up from a move down from what we've saw kind of some early moves earlier in the session.

Aboudaill do Little, our chief markets correspondent, essentially saying earlier that equities are catching up to what yields have been telling us.

Yeah.

We also talked a little bit about AI early on in our program today, which is kind of where I want to start with our next guest, because he says that when it comes to AI, the early winners and losers may seem obvious, but the truth is that we are just getting started. Those are the words of Aaron Kennon, who's the co founder and CEO at Clear Harbor Asset Management. They've got more than one point five billion dollars in assets under management. Aaron joins us once again from Stamford, Connecticut, erin how are you doing great?

Tim, Thanks for having me back.

Good to have you back with us.

I do want to start with AI and we'll get to markets in just a second. You know, it's something we talk about all the time. Of course, the winners are very clear. When you say we're just getting started. What do you mean by that, Well, I mean.

AI has been with us for a long time. We have begun to focus on it and sort of the sort of popular landscape of you know, how is it impacting certain aspects of our life? And I just think, you know, like like like many things, we have to be careful as investors to to chase certain themes because there will be probably many winners, but also perhaps many more losers. And and I think we're in the early innings of the AI revolution. Like I said, that has that has been ongoing for a long time. I mean Andy jasse over at Amazon Amazon was was articulating this, uh last week in his annual letter. We even heard it from Banks CEO Jamie Diamond. We're hearing it from the behemoths on the consumer staple side, like Procter and Gamble and even util and so AI is is a broad theme. I think in the in the news, we've tend to focused on it just in the context of technology and software well.

It's funny that you say that. I think it was also David Solomon over Goldman who said something to the effective AI. Yeah, all of the investment, Well we're thinking about, you know, all the financing that's going to be need to make that investment in AI. So it is interesting. And I have to say, is we go through earnings, we joke a little bit because it just feels like every earnings release or every you know, C suite on their calls is somehow sprinkling it into the conversation. So it's like it does feel a little kind of funny at times. Having said that, though, how do you think about it, because it does feel like, you know, we did a story about Microsoft and using it to help with coding and it's made a lot of advancements using chatchypt right open AI's chatty BT to actually make advancements in coding and helping its software engineers. So being put to use. So how do you, Aaron figure out, Okay, what's the smart part of this trend where I want to position my clients and my investors.

That's a great question. I mean, it's a challenging one to answer in a few seconds, for sure. But suffice it to say, we're going to see major productivity gains and that old crew positively to the bottom line, perhaps provide better balance sheets for many companies and employment challenges for particular segments of the economy. This has happened time and time again as we moved into the age of the Internet and the two thousands, as we move from horse and buggy to an automobile, and we're going to see challenges but also opportunities within AI. But you point to something quite interesting, which is some engineers are being laid off because they're creating artificial intelligence that reacts and acts in the way that a human engineer would act. And so you maybe a few months ago you think, well, engineers are going to be in high demand, and that certainly may still be the case, but they're also being somewhat perhaps in a year or two that they could be disintermediated by AI itself, which is really an interesting thought.

Well, if you go back, right, even a couple of years or something more like hey kids, you know, or hey parents, tell you kids they should go be coders, right because we're all going to need it because everything is digitized, if you will, So it is fascinating to see how the narrative has quickly changed. Having said that, the narrative around what the Fed may do has changed dramatically, and we've seen that representation in dramatic moves when it comes to you as treasury yields and it impacts everything the US dollar. It's gold, gold. You were watching Tim Tee's ahead of you coming on about gold up about fifteen percent so far this year. You look at gold, is it something that's investible for you and your clients.

Absolutely, It's been a really interesting year. And it's only, of course April to see the dollar move up, call it five percent in gold, which tends to move in inverse to the dollar of fifteen percent. It suggests to me that there are other things happening in the marketplace. And I would argue, although the data is a little less than transparent on this point, that emerging market central banks are certainly most I shouldn't say certainly are most likely the culprits behind the bid up in the gold market. We've seen some evidence that China is the most significant buyer of gold at the moment, and I think there are a couple of reasons for this. One is we're seeing more non dollar transactions occurring in the midst of this sort of Ukraine war and friction with China. You have China trading energy and commodities with Russia in ren and b you have Russia trading oil with India and rupees, and so I think it's sort of putting into question the degree to which the dollar remain the prevailing lead currency in the world. I mean, certainly that trend is still in place. The dollar is the global reserve currency, but it's trended downward from I don't know, seventy five to eighty percent maybe in nineteen fifty two, below sixty percent today, and that trend probably will continue declining into the future. And I think that's, you know, part of what's going on in the goldfront. The other big point here too, is that our fiscal house is not in order. And the last time we had interest rates where they are today on a like a two year rolling basis was back about seventeen years ago when our debt to GDP was sixty percent, and today it's over one hundred and twenty percent. So the notion that you know, the dollar is in good stead relative to gold is being put into question, and there are of course many other variables to talk about there, but those are some of the key ones that come to mind.

Well, Aaron, we only have thirty seconds left, but I do want to talk about today's market. The S and P five hundred on track for a close days four days of decline. If it does indeed close lower with it, which it looked like like it will do, buying opportunity right now.

I think in the long run, you want to own well managed, well positioned equities, for sure. But if you look at the breadth of the market, which had been winding out going into the end of the quarter, it's it's not any longer. If you look at the top four names in the market that have led the rally of six percent in the SMP, TIM, Nvidia, Meta, Microsoft, and Amazon, they represent seventy two percent of the current year to date return of six percent. You know, last year that number was forty three percent. The top four names led only forty three percent of the total return, and so it's certainly a narrow rally. But if you look beneath the hood at the broader SMP, at the broader market, it's cheaper. It's only trying to get sixteen.

Times, we got to run Aeron Kennon over at Clear Harbor Asset Management. This is Bloomberg.

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