jason: welcome to "bloomberg: commodities edge." i'm jason kelley. joining you from bloomberg headquarters in new york. how boeing has focused on the bottom line said the company into a tailspin. the company and the decisions that led to the current crisis. flipping homes has proved lucrative again by the downturn in some hot markets is causing

great recession deja vu. we'vever story this week, probably -- the company that invented it is finding amazing new uses for the classic material. joins me now. so much to choose from in this week's issue. a company renowned for its products, not only in gore-tex in the jacket, but a cup -- ton of other stuff. membranes to the coding that goes in the space station. it is an incredible company for its product but revered in the business community for innovation. i love to the deep dive into culture and we talk about strategy so much and what is going on in a ceo and founder's mind. a company written about a lot because of its flat structure and real encouragement in fostering innovation. it doesn't come out with products that often.

it is almost like every decade or so, they have a breakthrough and this was an attempt within the company to say all of our product lines have reached maturity. what is our next big breakthrough going to look like? they developed this artificial curea that will potentially certain types of blindness. jason: it is an amazing cover, to say the least. very eye-catching. much more from reporter -- >> it is a bit of a wonder material. everyone knows it is slippery and very flexible. it is resistant to high temperature and uv radiation and all sorts of things. he really decided, i want to make stuff with this but at the

time, they were interested in making stuff and selling it to people. he decided to do that, so he got started by selling coated cables that were high-performing and ended up going to the moon among other places and one day -- >> just going to the moon. son wasne day, his playing around with the material trying to figure out if you could stretch it because it is expensive stuff. you want to use as little as possible. he ended up creating this wholly new form of it by accident. carol: what did he do? drake: he had basically this length of it and was trying to carefully pull it. then he got frustrated and yanked it and it turned out my doing that, he extended it tenfold. what he did was -- the analogy

in the story is he took a link them string cheese and turned it into swiss cheese. he opened up all of these pores inside it and it makes it useful for a million different things. jason: including this breathable material, which is how most of us know this through patagonia and others. gore-tex. drake: it is these pores and they are just the right size that water vapors can escape through it. they basically revolutionized the outdoor wear industry by creating these garments that you could wear in the outdoors, in bad weather while you were running around. nowadays, we created a whole market. carol: we all know the jackets and so forth, but they have done a lot of things and they are pushing into new frontiers, including the medical world. drake: the medical world they have been in for a little while.

they have made stents and patches and all these high-performing surgical -- the human body is a very difficult in the lastand they few years, would it make they have had a hard time finding the next big thing. carol: there is competition now to vortex, right -- vortex. -- gore-tex. drake: and to a lot of products they have made profitable. they also grown to the size where it is becoming a little harder to remain that nimble tribe of engineers, so part of what i was writing about is how they are trying to recapture that. carol: tell us about the product, because now we are talking about creating a cornea? an artificial cornea. cornea blindness is a big problem in lots of parts of the engineersa couple of decided we have these materials that might actually work much better than the existing corneal implants. the best thing to have is a

donor cornea been a lot of the world, that is not available. there are these pretty bad in plants that are hard to put in, that don't last very long, and because gore is full of these amazing wizards and library of wonder materials, they were able to put this together and they have begun to test it. troubles didn't come out of the blue. how the culture led to a crisis. plus, the road to winning back its reputation. this is "bloomberg businessweek ." ♪

jason: welcome back to "bloomberg businessweek." i'm jason kelley. join carol massar and me everyday on the radio from 2:00 to 5:00 wall street time. at itunes,ur podcast

soundcloud, and bloomberg.com. find us at businessweek.com and the mobile app. in the featured section, boeing is in a serious crisis. apartadly crashes months have sparked investigations into products and its training processes. the problems erected suddenly, but engineers at boeing said they were years in the making. we spoke to reporters zero vincent -- the robison. >> it has caught attention and rightly so because it is a stunning example of a company that has been known for its meticulous engineering and commitment to saving -- safety that is being questioned about that right now. tried to talk to employees who had been at the company a long time and will effect -- kept hearing again and again was the problem was that the company had shifted to a focused toward shareholder value rather than its traditional engineering culture, and this is showing up in multiple ways but it was

showing up importantly, recently in performance reviews. in had engineers being asked more specific and more directly threatening ways for specific time and cost reductions. you had an engineering workforce responding to that end you had layoffs, which were happening. that has not been fully appreciated. as boeing's stock price was increasing, it was laying off many of its experienced engineers and these people were telling us as the shuffle was happening, they fear things were being missed and that is potentially how this mistake and some of the oversights at boeing -- two software. carol: it sounds like long time employees were let go. formeryou suss out employees who don't have an ax to grind but can provide insight

into corporate culture? peter: that is a good question and i think part of it is judgment from having been on the beat. starting 20eing years ago and it was unusual in the story you'd have engineers who normally wouldn't speak to the press who were speaking to me and they were speaking to me because they were concerned by what was happening. we talked at length to an in ther who worked flight crew operations group that worked on the max and this is someone who has two u.s. patents in-flight systems and no to talk to us -- other than his concern about the layouts that were happening. carol: i guess, we were all wondering, we talked about there are still lots of westerns about the 737 max 8. peter, what is it? what went wrong? peter: training is becoming a

big focus, we are learning. wasengineer i spoke with really thinking back to a moment where managers asked the engineers in his group to not do any designs that would trigger level d simulator training for airlines and simulator training is something airlines might want to avoid if they are transitioning pilots from a model they are currently flying to a new one because it is disruptive. an airline like southwest has 8000 pilots and four simulators. to cycle them through simulators would take two years. this was a selling point for boeing. the new plane, when it was introduced, pilots can transition to it in an hour or two on an instructional ipad. it was crucial so in order to do that, it is crucial that training level be less than level d. that compromise the

design from the start and led to pilots not being warned of the new software that had been introduced because it was essentially trying to jury ring the old system and the new one. is jason: also in the future section, a look at the reputational turnaround. the world's largest pasta company made headlines in 2013 when its chairman rebuked gay families on a national radio show in italy. since then, its ceo has led an effort to make guerrilla -- a --la >> they've been in business for about 200 years, 150 and it is really interesting. on the family ownership, they've been firm. most of the time, only a decade in the 1970's when it was not under family ownership. controlled by the family. one of his the chairman of the company and was the chairman in

2013 when he made those comments on italy's best-known radio show, that were condemned widely as homophobic. carol: let's get into that because this is a company very well-known in the italian corporate culture. really known in the global pasta industry, but take us back to 2013 and what happened. >> he was getting a live radio interview on italy's best-known a program on station 24. he said he would never do a commercial with a gay family, not because he disagreed with the lifestyle b because it was notut the lifestyle that barilla wanted to represent. italy is a phenomenally traditional country in this respect. a lot can be attributed to the impact on religion on moral philosophy in the country so at the time, his comments to the

nation might not have seemed really that off-color. several comments have been made since then by some of the country's most powerful businessman but given that so the revenue is coming from international channels, the rot -- brand is known abroad and a lot of countries in -- customers in countries of the u.s. or europe mounted a global boycott or at least threatened a global boycott very shortly after those comments were made. jason: what is this corporate internal response, because the drivingens with the ceo to meet the chairman and hearing this interview, and being absolutely shocked but then having to deal with the aftermath. what did he do? thomas: i had a great opportunity to interview the ceo of the company and he joined less than a year before the interview was broadcast from

unilever, which really prides itself on a number of diversity measures and has for some time. he sat on the diversity board at unilever in his role as chief customer officer in new jersey. he wasback to italy, slightly taken aback the comments were made and really ourfact that the in interview in february, the debate on lgbt issues came later than in other european countries . he really took everything he had learned in a 25-year career celebrating diversity and tried to apply it to barilla in as short a time frame as possible because the moves that were needed were drastic to get the company back on track with more progressive customers. from oxfordsultants group, pdt global and has gone through sweeping changes that issuesen the number of

from barilla through the present day. ofon: next, a new generation how to deal with the reality of risk. plus, inequality is not just a problem for individuals. there is a 1% among companies, as well. this is "bloomberg businessweek ." ♪

jason: welcome back to "bloomberg businessweek." i'm jason kelley. you can also listen to us on the radio on sirius xm channel 119. you can listen to us on radio on sirius xm channel 119, and on am 1130 in new york, 106.1 in boston, 99.1 fm in washington, d.c. and am 960 in the bay area. in london on dab digital and on the bloomberg app. it has been a decade since the crisis talk property speculators hard lessons and home prices

have climbed back up, house flippers have crowded into the market. investors are now facing the first slow down and it is not pretty. a reporter told us more. of my storyhe theme is the hidden risk in the u.s. housing market and we are sort of getting a glance of it in the west coast. where markets have really slowed dramatically. they were red-hot a year ago, and especially in fourth-quarter they really stalled. flippers are right on the front lines so they felt it first. carol: funny you are talking about flippers. i thought we had learned our lessons but hellas about the people that were out there doing it and how they compare with the ones in the past and who is providing the funding? the loans necessary to buy those homes? >> it is a little different than last time around, but there are different sorts of risks. tv calling this the hd -- hd

generation of flippers. they grew up on reality shows where everyone seems to be easy to make money and you have hd tv, great -- get rich gurus who have classes and teach you how to flip, motivational and teach you to think big, never quit, and don't let negative thoughts getting your way. people have never been through downturn. now they are experiencing it for the first time and another big difference from the last time around is a lot of people back then bought multiple houses. they didn't do much to them and basil on the back of rising prices. this time, they are investing money and they are rehabbing and getting funded by hard money lenders that are increasingly allowing them to put down almost nothing and the borrowing costs

are high but they are coming down. jason: tell us about the concept of hard money because it is important for people to understand. you really describe well the difference here. the rehab aspect of it, but what is hard money in this case? prashant: hard money, these are basically private investment funds and often, they come with higher interest rates so 12% was sort of common and they have high upfront fees. increasingly, they have lower down payments. in the past, it was more common inhave 40% down payments and some cases now, they are allowing people to do this with nothing down. they are able to buy the house and pay for the rehab with nothing down or they may pay 10% just for the purchase and pay nothing for the rehab.

based on the part of the country and lender, but this is a way. jason: now to the remarks section and a timely issue through a unusual lens. our economic editor said household income inequality gets a lot of attention, but we should also note the effect of inequality on the corporate level and all the effects that may have on global economics. does what he told us. >> can talk a lot about inequality among individuals. that's a big topic and for good reason, but we don't talk about as much is inequality between companies. of toberal agenda is kind tar big business with the brush of being anti-consumer, whatever, and it is treated as a monolith. asfact, businesses have just much variety as individuals do.

some are extremely successful and others are costing money. to their shareholders and their bondholders. they may on paper, some of them, be making money as reported to economicut from an profit basis, that is where you take into account the cost of capital, they are not even earning their keep. carol: explain the concept, dig into it a little deeper. economic profit. peter: this is based on a study by mckinsey global institute, the think tank on mckinsey company consulting firm. it is called economic profit, but it is not a mckinsey idea. it is out there. a lot of people use it. it is important because if you simply have a company with a lot of resources that are raised from stockholders and bondholders, and then it makes it pittance of a prophet, that is not good enough.

the shareholders and bondholders have certain expectations. there is a threshold that the company needs to clear in order to be a legit business. carol: the cost of capital. peter: the cost of its capital and anybody who is watching this that went to business school and talk about weighted average cost of capital, you need to have return on investment capital exceeding that and whatever you told the sec and shareholders, if you don't, you're not a successful business. this something investors take into account when assessing companies or is this more for economic? peter: it is both. serious investors pay attention to the economic profit. what mckinsey global institute took 57 that they hundred companies worldwide that make over a billion dollars a year in revenue and found that

1/10 of these companies accounted for 80% of all the profits earned by the entire group of them, economic profits. hadwhile, the bottom 10th negative economic profits that were almost exactly the same in size. it is like a barbell were the losses absolutely offset the gains. then in the middle, they are caught in the middle and the big theme of the story is that you don't want to be in the middle. carol: how come? peter: you are squeezed on both ends. you have trouble keeping up with superstars because they are racing ahead of you with new products, new surfaces -- services, taking the best people, and yet, the people at the bottom are hurting you in a different way because they are ormaybe trying to cut prices

take drastic actions and try to save themselves and they can drag down the profitability in the industry. jason: taylor riggs is here with more on the story. taylor: you talk about income inequality between corporations and individuals but within the individual sector, you are seeing some income inequality within that. cool thing about the bloomberg terminal is they forecast all the data in yellow weight growth as low skilled workers and blue is high skilled workers. workers growing faster than the low skilled in yellow but back to the corporate sector like the gig economy with uber, depending on the jobs, you could see the low skill which pressure pickup. jason: that is great intersection of the corporate level and the individual level and how it plays into the larger economic picture. mogula billionaire media

aims to make formula one racing a little less predicable. this is "bloomberg businessweek ♪ ♪

jason: welcome back to "bloomberg: businessweek." still ahead in this week's issue , how this social at tictoc is shaking up the music industry. flu has spread worldwide with consequences for the global food industry. let's start in the business section.

one racing has been inequality problem of some sorts. the same teams keep winning championships year after year. this media mogul spent billions to buy the series and now he is ready to change the rules. back with me is our editor joel weber. i love the story. : that's right, and malone sees this opportunity. when you think about the reach of certain sports, football and soccer huge, basketball is huge. f1 is right up there, it is all of these different countries -- in all of these different countries. malone saw this opportunity and he is looking for more growth and rivalry. jason: and in contrast to sports you mentioned, this one has some complications. joel: that's right. one of the big problems is that

the same team keeps winning, mercedes. mercedes does not have much of an interest in changing things up. for, another winner or rental, or red bull, you have got these elite teams and others and malone is willing to shake things up. jason: there is a big media components to this unsurprisingly. >> john malone, who runs liberty media -- carol: and has done really well. >> around the world, not just in the u.s.. i can go andecided grab this great sports franchise formula one. you think of writing through the streets of monaco with international hobnobbing, it is a great thing. is what he did not count on

there are a lot more players with a lot of power to keep you from making changes. he said one of the big problems is predictability. people go to sports to see who will win and the excitement. that is not the case in formula one. only two teams have won the championship in the last nine years. carol: and it is boring for somebody who is watching. jason: in the sports world, people like a dynasty every now and then, but this is a totally different element. you have got ferrari and ripple winning and winning -- red bull winning and winning. >> mercedes always wins, and second?who is that is a big problem for the sport, it lowers the excitement that viewers have. so what malone wants to do is to figure out ways to change that

part of stability. predictability -- change that predictability. one way is to put a cap on how much teams can spend. how much you spend often determines if you win as you can put more money behind engineering. so put a cap on that, it means the driver matters more. we will also change revenue-sharing, because now it is set up in a way that a lot of younger teams don't get a lot of money. they tend to go bankrupt. more of a u.s. model where both successful and unsuccessful teams get a peace of the action -- piece of the action. he also wants to look for ways that people who have been in the sport for a long time do not skew things. right now, if you have been and there a long time, you get

action just because of seniority. jason: i want a longevity payment. but what they are doing now is there paying a longevity payment to for already of $100 million a year. that is a huge payment as they have been in the sport since 1950. but the economics really go crazy, unlike anything else. carol: you have to look at both sides. if you are a team involved in this sport, it is not an expensive to build out that team. and there is not a ton of ways to make that money back. >> that is one of the issues. for some manufacturers like mercedes or furry, each -- or ferrari, you view it as connected to your business. but for others, it is a branding exercise. what happens is you have to figure out what is the reason someone wants to be in here. but even if you say it is just

branding, you don't want to lose all the time and continually seek money funneled to people you don't think deserve it. the virusnext, sending shockwaves across the entire global food chain. tictoc the social app has become a power player in the music industry. this is "bloomberg: businessweek." ♪

jason: welcome back to "bloomberg: businessweek." everyarol massar and me day on the radio from two-5 p.m. wall street time they're also catch up on our daily show and podcast there -- podcast. and find us online and on our mobile app. in the economics section, it is year of the pay in the chinese zodiac and pigs are the center of a crisis that started in

china and has spread throughout the world. it is an outbreak of swine flu that is now threatening the global food supply. our editor filled us in. pay, is the year of the but has not been a good year for pigs. china recorded its first case of swine flu. authorities said it was quickly bought under control -- brought under control. it was isolated and they called the heard -- culled the herd. this is the equivalent of paid ebola -- pig ebola. there are no treatments and every paid that gets it pretty much does. that: let's remind people half the world's pages are in china. -- pigs are in china. and when we are talking about the number that may be affected

of is the equivalent of all of states. in the united usda is, so the anticipating that as many as 134 million pigs may have to be culled. that is equivalent to the output in the u.s.. it only takes six months from birth to slaughter. the herd right now is about 74 million. jason: wow, so that is the annual output. carol: what has this meant for food consumption, specifically pork or alternate food consumption in china. and how does it impact the global food chain? >> meat processors in australia and brazil are reporting increased demand.

in the u.s., pork exports to are underarticular tariffs right now, so there is a lot of anxiety for farmers hoping to see them gone. that could also be additional pressure on xi to reach a final deal, although that has become kind of fraud -- fraught. numbershen you put the into perspective and how quickly this has spread, has something can quickly affect our global flute -- food supplies. >> you realize how interconnected everything is, despite these western movements. it is amazing. we looked around and we saw that in spain, prices have gone up, in the u.s., they are up, in china, up 20%.

so much so that the central bank in china is looking at this. is the biggest single element of the consumer price basket in china so this will affect inflation. jason: staying in asia but moving to media and music, the social app tictoc is grating a phenomenon in asia and across the world. fans are suddenly finding their songs climbing the charts thanks to viral videos. songstists behind these are reaping the benefits. our reporter told us more. >> right now, the number one song in the united states is a song called "old town road>" -- "old town road." it got there because of tictoc. that is happening across the world whether it is in korea or china or even countries in europe.

a song that starts as a viral video phenomenon comes -- becomes the most streamed song in the world. carol: that is what the app is coming right? -- app is, right? are 10 or 15 seconds and you sit there and do a dance or a sped up tutorial. it is not a full-length video, it is the short snippets which is what makes it hard for a musician. the fans who have listened to this don't know who you are. jason: and there is no direct monetary link from that to the artist. >> right. the record label made deals with tiktok for tens of millions of dollars. for several months, they have been trying to get paid more. an artist is not going to get rich off of tiktok.

the hope is that the burst of fame will then lead to streams or people purchasing and you can monetize that another way. carol: how do artists feel about it? most are more comfortable with it a record labels and rights holders. rights holders are used to wanting to squeeze every last dollar out of anybody who is using that copyright. the artists figure it is a good way to promote themselves and then it is on them to figure it out. story you mention in your the tantrums, everybody knows that banned because of the song "handclap." i am so in the zeitgeist. but what happened with them? they did not even get to asia. >> that song was their first song to go double platinum. it means the equivalent of 2

million copies were purchased. but that happens in 2016. but into thousand 18, when they are at the end of their album cycle, all of a sudden, the song starts to take off in korea. it had gathered steam on some social video apps and then their record label in asia paid this a dance studio to make a video to the song. and that goes crazy, generates millions of streams. all of a sudden, this becomes the number one song on the international charts. na" thethan "hava biggest song ast year. -- last year. carol: bring us back to tiktok. remind us who these folks are. >> in a weird way, you might remember this app called musi c.ly.

it was kind of like buying -- like vine and it had a big following in the u.s.. and then this chinese company we had in the magazine a while ago, they had an app and looked at this and said hey, this is a good business for us and built their own version of it. it takes off and gets 100 million users like that. then they build an international version called tiktok. music.ly was this fund, viral phenomenon but was not building into this huge business. dance fullce -- byte this in and now they are the company behind short form videos. what are the most interesting things is that they have scared tencent, the messaging and tech giant in china, to try and copy

some of what they are doing. "pursuits" has everything you need for summer. plus, we caught up with telephones founder and head instructor as its devotees descended on new york city. this is "bloomberg: businessweek." ♪

jason: welcome back to "bloomberg: businessweek." you can also listen to us on the radio on sirius xm channel 119, and on a.m. 1130 in new york, 106.1 in boston, 99.1 f.m. in washington, d.c. a.m. 960 in the bay area, london on dab digital, and through the bloomberg business app. "pursuits" we are help you -- year to help you get ready for the summer and with what to read

and what to wear. we wanted to do a whole section on the shore in summer and we started off on this package on private islands. they got solar panels, cisterns. having a sustainable place is important when you are so far away from land. we have places from canada to belize to connecticut. from $4hich range million to $20 million or more. jason: one of the things i found so fascinating was that each of these homes has a story. whether it was passed down through generations, whether there is a legacy going back to napoleon, i believe. it is kind of remarkable how each of them has this tale. >> to build a place on an island that is so disconnected, you really have to make a strong choice. you have to want this for a reason and the venice one is the

main reason. it is a fort that napoleon built and some structures are still there. it is a 20 minute boat ride from san marco. it could be yours, if you want it. high-end weis the are talking about. was it hard to find? i feel like there are lots of violence around the world. -- lots of violence around the world. -- lots of islands around the world. >> there are a lot, there is even a website. carol: people might even want to wear jewelry inspired by the beach. >> sometimes i come to you with good news, sometimes that is. i don't how you feel about this, but bucher shell necklaces from the 70's and 80's, they are coming back. jason: i love that the story called -- starts with a call

back to the partridge family. neuwirth, she is a great jewelry designer and grew up loving that combined -- that vibe. she makes these necklaces. carol: $9,000. necklace --shall shell neckalce. it is a trend that was on the runway, seashells in different forms. people are all doing it. it is campy and a little bit costume he -- costume he -- costumy, you can wear seashells and it does not look like you are dressed to the minds. -- the nines. carol: talk to us about beach laser -- blazer. >> i started hearing about this

a few months ago. it is basically like a tuxedo -- carol: come on, all without -- pull it out. materialmade of towel but it is structured like a laser -- a blazer. you can wear it at the pool and dry it off, you are ready to go. jason: it is amazing. of devotees, the writers and runners that have turned this company into a fitness juggernaut convened in manhattan. carol and i were there as the weekend got underway. we also got some time with one of the most popular pallets on -- peloton coaches. >> we call it the democratization of great fitness classes.

we are trying to bring fitness to everyone if you have $2000 in if you have $2000 in your checkbook, if you have $58 a month, you can finance the bike. but even below that, if you have your own bike or treadmill you can download the app and pay under $20 a month without any hardware and take these fantastic classes. we think there are 23 million americans with treadmills in their homes today. they can transform their own hardware into a boot camp experience and throw it up to their 60 inch television screen or basement or wherever and be consuming our classes and joining the community. it is a big part of our growth. what is the next modality you may go after? we start with the bike, went to the treadmill. where might you go next? >> great question. we do consider ourselves and

innovation and technology shop first. we have some sexy stuff on the horizon. we are tasting the dog food as we build. carol: a lot of places that you can go? >> absolutely. we like fitness with a capital f. we understand there is a lot of difference in modality. carol: we are bloomberg, give us an idea in terms of financials. subscriber growth and an idea. -- an ipo. >> we have done what hundred 70 million topline last year and we are growing very quickly. carol: double-digit's? >> sure, if not more. it is a high-growth company and we hope to keep it a high-growth company. we do have big plans and we think you are kind of in the first innings.

i will tell you, we are close to 500,000 subscribers. we think we could have 100 million. we are very early in our days. i love it because that is how i personally train and how our instructors train. a little bit of this and that. that 360 view of fitness is what i want our members to appreciate. you can do a yellow class, meditation, the next morning, you could do a 30 minute hit class. that offering and continuing to increase the value of the membership is always the goal. somebody -- so as some of you who has produced a lot of tv and documentaries, how do you do it in one sitting? it is just so well produced and i am curious. >> we make it look easy. we have emmy award-winning producers, you guys know all about broadcasting live.

it takes a village. but also hiring the instructor who can also work out while hosting a television show and look amazing, it is small. we only make it look easy. carol: it does look easy. jason: in this week's extra, we shot -- chat with the founder of newh and lily, the hot start up bringing korean magic to the skincare industry. find that wherever you download podcasts. "bloomberg: businessweek" is available on newsstands and online and our mobile app. every week, we bring you our must reads. for me, it was the cover story, an amazing look at both corporate culture, but also innovation like you have never seen before. a company taking something developed over decades into whole different places. find more stories online over

the weekend. check out our daily podcast available on itunes, soundcloud, and bloomberg.com. more bloomberg television starts right now. ♪

♪ emily: i'm emily chang and this is the "best of bloomberg: technology." coming up, google holds its annual developers conference where it is doubling down on privacy. we hear from a top exec. melinda gates opens up. new book and her what she thinks the biggest priority should be for the tech industry. and as apple attempts to branch