Transcripts For CNBC Squawk On The Street 20171114

Shares of ge sinking premarket on the heels of the biggest decline in almost a decade John Flannery will join us later this hour. Hurricane boost for home depot, raises full year guidance reports. Buffalo wild soaring premarket, getting a buyout offer from york capital. Well talk about that in a moment 7 drop, the biggest one day fall since 09 on monday they outlined the turnaround plan and announced it is cutting its dividend in half. Were going to talk to John Flannery exclusively later this hour lots to get to on the portfolio, on the influence of trian and dividend itself and what the message is going to be from here. Totally agree i think there are some issues about the way they are going to build the cash flow issues about the way 2018 is supposed to go and yes, theres a bit of a truth in reconciliation needed about how the company could have been so wrong about its own numbers in 2017, about how to tend to switch to real acting as opposed to the suboptimal form of accounting. Theres a lot to be here, a lot to be asked how quickly it can really turn. I dont know, david, if you feel it, but there were lots of gaps in the Conference Call where people really didnt you need to take a leap of faith and im done with the leap of faith. I think its funny in speaking to a couple of investors over the last since the call, they are unsettled i think there had been an expectation coming into yesterdays meeting and perhaps it was unwarranted, that a lot more questions would be answered and i think coming out of it, the best words i can use are unsettled in the sense of people just dont feel like theyve gotten the answers they dont know, yes, it is a reset and you can work your way up from a buck in earnings next year and hope theres a Significant Growth rate attached to that for 19 and 20 that will argue for a higher multiple, but we dont even know who the Board Members are coming off and going on. Yeah, the board has to be challenged on no, everybody from the board should go thats not happening. No. But somebody specifics to that point, were going to get from 18 to 12. They checked off on what i clearly think is suboptimal accounting, they checked off on the dividend and cash flow shouldnt they look at themselves in the mirror and say, you know what, we checked off on a lot of things maybe we dont some of them are, just dont know which ones are looking in the mirror and which arent. Its kind of like broken mirror i would like to know more. Maybe they should have delayed the Analyst Meeting until they had a bigger picture. Heres sound from the meeting. Listen. Lots of strengths, we have not performed well for our owners i said this on the Earnings Call and say it again today, that is unacceptable and the Management Team is completely devoted to doing what it takes to correct that. So when you say holes in the Conference Call, you talked about some questions about what else . I think id like to go to the guy who jeff immelt ridiculed on mad money, the fellow steve tusa has a list of a lot of questions which i think are very right how will you come up with the cash flow and if powers really worse than expected, how are you going to get that to be better than expected. Theres just can you grow power in 2019 . I think it drew a lot of questions about 2019 this is one of those lets use the nfl as an example, but they are a pretry rigorous organization this was a equivalent of a coach coming in, we have a bad season, were going to lose games, stick with us. When coaches come in in the nfl, they dont say that. Listen, were going to turn it around i feel like this is one of those where i start worrying about 2019 after i read it because i dont know how they can do it. Then of course, theres nelson peltz and the degree to which he helped precipitate a lot of this. This is peltz in october with jim at net net telling a story about talking to a room of ge shorts and hedge fund managers. Heres what im willing to do, take the price of ge stock at year end, take two years or three years. Ill take the over, you take the under and ill book every bet in the room just stand up and come on up and tell me how much you want to bet and well shake hands on it. Nobody showed up really . Nobody showed up. 50, 60 hedge fund guys, nobody showed up. Lets piece that ouxt end of year price, pretty good idea two yeerdars pretty good idea ed garden is one out of 12 but we learned that one out of 12 can be whoa. Flannery you can argue hes also one out of 12 on the board. The other ten i want to take back what i said. I think those people are very nice, they are nice people any college board, david. Trian, this has not been a good investment to say the least, after a brief runup, not that brief, the stock hit almost 30 on the positive impact of potentially of the sale of ge capital, which took place not long after they were arguing when you look back at trians white paper, of course, for what might have been a stock as high as 45 bucks a share, over 2 in earnings for next year. Next year. And its going to be half that thats kind of like what you have to hope when jeff came on mad money, the stock was at 30. You know, a wiseman once told me, sometimes you just get had ive got had hate be had. You like be had . I dont like being had what are you doing over here . Im doing me. Youve already worn the harry shirt on ge for a while sounds like youre quoting a movie. It was an actor that told me that. Yes, two time oscar winner. When the stock spiked on this initial flannery news, you did tell people to wait. That was ill advised, i try to get people to take advantage of the pop when youre not showure about a dollar number, its questionable said its not going bankrupt. I heard him say that. That was reassuring. Listen, theres a lot of People Living on pension from ge is helping provide the way they live and they are worried about it. There are great businesses, the service business. And that dividend of course rely on social security, give me a break but, look, there were aerospace, Like Health Care david, i like okay thats it. Its something. You cant split them up yet because theres not enough cash but look, im just trying to warn people that this is a lot of heavy lifting where did i get that term . Massive heavy lifty . I dont know. Cvl. And i think flanner are y iso it end of the year, two years, im on board for that. I think garden on the board from trian gives a chance for flannery to be tougher should john brennan still be the lead director . Youre in a transcript you cant hear you because youre going like his. No. Yeah, i mean, when they im not going to be facetious, this is a troubled situation i do think flannery is the right man and he did health care its just the hand he got is really a busted straight and its tough you have to kind of throw it back and get in a couple of cards theres an ante, any anlcy to see 18, 16, probably 18 because thats a big multiple and i think theyll beat the number thats first time i thenk they did an underpromise on earnings. I do like aerospace. They are stuck with power. They can say however they want how good power is but i dont think they dont know, dont even know their own accounting they dont how many years of accounting do you have to take to realize this is accounting. Its not acting. What is it this is what he has to answer, what is it we took that class we hope he will answer in about a half hour, 20 minutes. Stick with us for flannery onset. Home depot raising full year guidance, better than expected quarterly results, helped by a 7. 9 in comps. Increased sales from the hurricanes but due to lower margins and additional expenses related to the hurricane, impacted by 51 million. Go sell it and regret it. People will sell that and regret it that was a great comp. The company will have a good quarter. Reaffirmed, maybe theyve sold this down every single time. Then you look at it four weeks later and its up. Thats been the pattern. I think that pattern will be completed because they are one of the survivors a. Mazon hasnt gone after them i have to tell you, amazon can get the chipper shredders as fast as they can, steve busscemi, remember that scene . That was a wood chipper. But i think that this Company Performed incredibly well and i think that sold down and everyone who blows it out, will have sold it before carol tomei and tells you exactly how good they are selling it now ahead of tomei. It is down so is dicks which raises a beat on comps. They had that lower of the comps and i didnt like that even though quarter was a decent quarter. But they lowered the comps. Tjx, which everyone is selling, you know didnt include puerto rico they included puerto rico but no sales in puerto rico versus last year and the weather was really bad that doesnt matter so much for the home depot they are going to do a lot i think selling home depot ahead of the Conference Call has been time honored and carol tomei and great team comes on and why did i sell then you sell more because youre worried about amazon. Right, well, everybody is worried about amazon in everything. But every single thing. Amazon cant private label a lot of stuff on the shelves at home depot i guess. They can batteries and theyve done it. Christmas for Home Depot Holiday season for home depot is basically the spring and why is that because you buy plants when amazon starts shipping plants, im going to rethink my analysis. I would assume they will. You think so . Dont you wont they try no. Theyll be dropping plants on you how is it different than groceries. With their drones. Deliver those plants every minute. Heres your tomorrow tomato plant. You really fear amazon. You think amazon will come after ge power turbines . Sure, theyll drop those out of the sky too they pronounce it turbines. They dont do the sam accounting and same pronunciation. Weve got to go. Weve got to go when we come back, our exclusive with ges John Flannery here, hell join us exclusively at post nine. Take another look at the premarket s p 500 avoided first threeday loss since august. Although were looking at the down premarket back in a minute gglobal bonds, and highdividend strategies. Sure, these are investments. But theyre not what people really invest in. What people really invest in, is what they hope to get out of life. But helping them get there takes a pure focus. Because when you invest their money without distraction, hidden agenda or competing interests, Something Wonderful can happen. They might just get what they want out of life, and maybe even more. Busy morning in the bond pits good morning, rick. Very insightful day, we get a hot pti in the form of wholesale inflation but of course well see if it transfers in, just to look up at the boards now to give you an idea, weve had a little steepening over the last week or so but not today. If you look at twos, they are up one, fives are up one. Tens are down and you can see right around 8 30 eastern we popped a little bit, but it didnt have a huge effect like last month when the september hot readings came out only to be doused by the following day cpi. Will it be that way tomorrow well have to wait and see were now holding for the most part above 2. 40. We want to Pay Attention to 2. 44, the close for last year. Back to the yield curve, tens minus twos hasnt moved a whole lot but 30s minus fives, these are ten year tights for these major yield curve flattening spreads. If we look overseas, one of main reasons we popped, bunds on this one week chart have he is ka it escalated. If you open up to april, you can see how important it is. We have higher lows in terms of yields and traders are paying attention to that. When you consider everything the ecb is doing and the notion that theres actually reforms going on in parts of europe like france, maybe theyve taken away some of our thunder which means italian and spanish tens may have upside here if you look at a twoyear chart of the italian tens, they are lower yield by about 60 basis points but maybe they turned finally we can talk about the dollar index but thats not the hot gun trade, its the euro versus the dollar. Were at 1. 17 almost at 1. 18 never traded down to 1. 14 and it seems to be rates firming in europe, not a lot, carl, jim, david, back to you. Rick santelli, still to come, cramers mad dash and count down to the opening bell and shortly after the bell well talk exclusively with ges chairman and ceo John Flannery right here at post neni more squawk on the street is straight ahead is the monolithic view of emerging markets obsolete . At pgim, we see alpa in the trends, driving specific sectors of out performance. Where a rising middle class powers a booming auto industry. A leap into the digital era draws youthful populations to mobile banking and ecommerce. Trade and travel surge between emerging markets. Everyday our 1,100 investment professionals around the world search out opportunities for alpha. Partner with pgim, the Global Investment management businesses of prudential. [ click ] [ keyboard clacking ] [ clacking continues ] good questions lead to good answers. Our advisors can help you find both. Talk to one today and see why were bullish on the future. Yours. Weve got about eight and a half minutes before we get to the start of trading this morning. Lets get to a mad dash. Where do you want to take us i want to go to caterpillar i want to contrast this with ge, only just because this is one of the moments where, look at this. This is a company by the way at 60 here at goldman downgraded it there. That was illadvised but what happens this morning we get retail sales, october was retail sales for caterpillar, 19 versus 13. Im trying to put business in context. This is the resurgence of american manufacturing, theoretically ge should be doing much better if its the vertical caterpillar is doing great a lot of people feel it may not have been fair what do you mean . That it moved up too fast and business hasnt turned as much what you see is leverage here. They let go of a lot of people it will fall to the bottom line. Caterpillar, 13 in september, going to blow out the quarter. You think so. Blow out the quarter. Had a couple of strong my theyve had good quarters and these earnings estimates have to go up tomorrow and i think they will and the stock breaks through 140 ges industrial business which is largely aerospace, military is very strong its just that you think of ge as an Industrial Company and they mucked it up when they bought allison and im sure they wish they hadnt bought oil and gas. Caterpillar has some oil and gas. Speaking of oil and gas, were going to be joined by John Flannery, the chairman and ceo of ge very soon. Well get the opening bell coming up after this why did you take Credit Card Debt on . Second kid. Private school. Medical bills. Moving costs. Solid ground. A personal loan from sofi is a smart way to consolidate Credit Card Debt. Certain borrowers cut their credit card Interest Rates 42 and increased Credit Scores 17 points on average. Borrow up to 100,000 with low rates and no hidden fees. Find your rate in just two minutes, and take on your debt at sofi. Com. Allow you to take advantage of growth opportunities. With a level of protection in down markets. So you can head into retirement with confidence. Brighthouse financial established by metlife. Youve watching cnbc squawk on the street. Well talk to John Flannery in a few moments here at post nine. The president has left the philippines where he says hell have a major statement upon his return inflation running a little hot after the biggest year on year jump in five years in september. Now weve got another one. Look, i think i thought the Interest Rates would go up, i dont know what moves Interest Rates. Ho holy cow, germany is running really hot and havent made a move yet, the central bank there. Theyve been sticking by, 3. 3 for germany. They should raise rates quicker than we do. 3. 3 is not bad. Pretty good i think keeping the rates at zero is an attempt equivalent is an attempt to try to keep the euro down. Good look with that. I dont think you can keep the euro down. I think euro will be really strong because europe the continent is very strong ive been saying that. You have for a while but europe has been strong i said it ahead of time. A couple of years ago you were on that one i remember disputing it saying come on youre nice thank you. Youre nice like the board of directors at ge, nice people. Meanwhile, theres been talk about sentiment sagging a bit and apple looking at the fourth day down and bit coin volatility, the b of a fund manager says ik russ flies closer to the sun because of cash balance maybe its salmon Hercules Atlas zeus you can buy any of this. The bank stocks have come down consistently, they are getting interesting though i think retail is coming down, getting interesting. Tech has not come down yet you can argue it should come down but its a benign period, we had a really good Earnings Period and stocks are selling off, not much to do you know, you sell the market and you say well, listen the restaurant the world costs are going up, price of chicken wings going up even the ones that have the little thing we had David Rosenberg yesterday sorry, well get Buffalo Wild Wings. People are worried about the multiple we had good earnings and earnings are high but so is the market its not like one isnt going along with the other there seems to be some concern, high yield is starting to back up a bit. I saw that. Did you see yesterday mattel bonds, listen hasbro we like you. Well see what happens there. I think the market is coming in rather gently i dont can it keep going down actually, i dont want people dont understand this who just Retail Investors dont want to hear this. I want it to cool off. It got too hot want it to cool off, just you know, kind of like a grill, its like a griddle if you keep the eggs on buy at home depot. Yes, you keep them on for nine seconds, bingo but ten seconds i did buy a grill from home depot online actually. Online . Who would buy a tomato flat you know what a flat is . No. I have somebody who does the gardening i do the gardening. Its a thing of plate of tomatoes, who would ever do that a still picture of going like this whenever you ask david about shopping gardening. You reelgly do why do you hurt me, david i dont mean to i just live my life. Letsz gs get to the opening bell at the big board Corporate Capital trust celebrating its listing at the nasdaq its vanguard celebrating the launch of the total Corporate Bond etf. Might be worth watching depot. As you said this morning at the open as the call kicks off its an odd time. Think about how many things are unresolved here. We dont know washington we just had earnings kind of not gone were waiting for a fed hike, usually you dont want a hike and its a weird moment but i come back to the fact that its a benign period and stocks are drifting down not plummeting i get up every morning expecting to see futures down 19, 20, then its just going to happen that today is the day and instead we kind of go down home depot, this is really classic. Heres home depot, we dont even know yet how good or bad, yes just decided to sell on a comp store number thats extraordinary . Thats not my style. I like to know more. That is a number as they say. We were looking for 58. This has been happening over and over again its just stocks go up and people say wait a second, thats the last good quarter. Home depot had the last good quarter since frank. This is like the tenth last good quarter there are some industries where you could say that though, people who sell into the middle of the store. Of the supermarket, that was a last good quarter. Might have been the last goo quarter. Record retailers, their last good quarter but its interesting you mention that, nomt the record companies, music companies. Yeah. You know universal music is doing very well, Significant Growth because of streaming. Streaming streaming has finally i remember interviewing edgar ten years ago nice guy. When he ran warner music when it was a Public Company talking about things are going to go down and theyll eventually go up they finally started to in the music business because spotify has 60 million subscribers and so many are listening, even the tenths of a pennies or whatever, it adds up its interesting you mention the music business. I was out last week in sil silicon valley, companies are doing extraordinarily well but people say the stocks is a boom. Then we look at well have to be talking about for quite some time, this is qualcomm theres notes saying that broadcom can pay qualcomm could get an 80 bid and in that broadcom would go to 360 if they did it thats nice. Yes, it is. Better than a sharp stick in the eye. Better than a sharp stick in the eye. Broadcom, that story is unchanged. Qualcomm rejected and you brought up the 80 a share price. You think hock tan is going away you know him, i dont he aint going away hock tan gets his man. Ceo of broadcom, hes brilliant, hock tan. Hock tan gets his man. Always gets his man. It was also in that movie speed, dennis you always get your man can we get buffalo wild on the record before we bring on John Flannery. These proposed reports of a proposed buy outat the 150 or above level from rork. A lot of commentary surrounds whether or not they are a credible buyer. Remember panera bread, a lot of people thought panera could not get a bid, thrp under valued buffalo has gone down a lot part because of cost and wings have been expensive the Conference Call before the firing do you know these guys roark . I dont know them. I dont know them either. If you dont know roark, thats worry some i think potentially have a financing source and taken positions in other fast food related companies but this is a take out im just kir yus. Remember ma rca to was in there. I dont know, a lot of these companies you dont want to buy them because you the Restaurant Business is very hard food costs are going up. Wendys said the same thing on their call last week. I was critical of wendys and i look at wendys and mcdonalds and wendys is good but mcdonalds, its the largest company. You notice you dont hear by the grace of god you dont hear about chipotle issues at mcdonalds but they are super big. Yes, it is. All right, lets get to our main feature this morning. Weve been promoting it for the last 24 hours, ge yesterday announced the restructuring plan, reset on the companys words to a certain extent cut its dividend and did layout future Board Changes the stock fell this morning down another 2 were joined by ceo and chairman John Flannery right here at the exchange also nice to see you got the dress memo, very well done there. Absolutely. Nice to have you, thank you particularly after yesterday listen the stock is down yet again today. I termed it earlier as saying they are unsettled, that yesterday they didnt feel as though they got the complete picture or the real sense that the plan is in place how do you respond to that hearing that 24 hours after you began your presentation . Listen, i think were very clear about where were headed as a company we laid that out yesterday and focus on three businesses Going Forward and portfolio things we have to do outside of those things and we discussed baker hughes and other assets, weve got strong franchises at the core of the company. The power Business Needs fixing and laid a lot of detail out about that yesterday health care is strong and aviation is strong the direction is clear we disappointed people with tough news yesterday, low on 18 outlook and dividend cut and lower than most people expected. Im not surprised the investor reaction because we had disappointing news but im very confident where were headed with the company and what we need to do and the team is ready to go. It was only two years ago that people were anticipating as much as 2 per sharon earnings and now youre talking about a number roughly half of that. Right. What gives you the confidence youve mentioned that a number of times, previous interview as well, that you are on that right track, you just described . A couple of things, ive spent 100 days just exhaustively crawling through the company we looked at every single business and how the Company Works horizontally and corporate spending and Research Spending i have a very strong command of whats going on inside the company. Beyond that i look at my track record if you go back and look, this is very, very similar to what i experienced in health care i walked in and said this fundamentally a very Good Business and theres basic things around operating and capitalallocation and how we work as a team that make a difference im feeling very much the same way again but i recognize as i said yesterday, its show me time i can say what i can say but the reality is investors deserve and expect and will wait for results. When it comes to power in particular, which you pointed a spotlight on, i think again speaking to people after yesterday, they knew power was in trouble or had some troubles, but i think they were perhaps a little more alarmed by how weak things are and how long it may take to get it back on track. So, i think the russell stokes, new leader there, changed leadership in power substantially at every level of the company, senior level, new team in there. It is a heavy lift thats a challenging macro environment right now. But we have a really strong franchise, keep coming back to that we generate 30 of the worlds electricity. Weve got leading technology we have to manage that asset and run that asset better. So the position of the company, technology is not the issue. The industry is challenging but we exacerbated that with our performance, im focused on our performance Going Forward. Thank you for coming on, it means a lot to us and our viewers. Were trying to figure how we could have been about how wrong the company was doing, in february when the stook was at 30, we believe 1. 60 was reasonable and did believe that power was very strong. Okay we did believe there were very big synergies in power we did believe that it was a demonstration of your earnings power that you could give back 30 billion. In retrospect, what happens at the board level, say where they do decide about Capital Allocation and dividend, that people could have been so wrong about how you were really doing . Let me deconstruct the 2017 number first, the 1 p. 60 number were 1. 05 from 1. 60, 15 to 20 cents is decline in the power in oil and gas segments that i would say was not foreseen at the time points you referenced weve got about another 20 to 25 cents change in our restructuring. Weve taken a lot of cost actions in the company this year that were not contemplated then, moving very aggressively on that weve got restructuring charges that werent anticipated and writedown of the power conversion business. Theres charges there and then a little bit around tax and some things about Share Buyback the bulk of this is power and oil and gas issue, weaker markets and other things weve taken since then with respect to the discussion, we constantly are going back and forth about the businesses and how they are doing and that was id say not foreseen some of the things that happened here we have not managed the power business as well as we should have that is totally on us. Well do that Going Forward. What will you do in terms of restoring the companys credibility . Youre shrinking the board, obviously the board was too big. Adding three Board Members whose names we dont know. Whe dont know whose going to stay and whose going to go i understand what you say about health care, but they had very honest blgting, im not saying the other accounting was dishonest but opaque what do you tell the board about what the company is really going to earn and what does the board tell you you need to replace many members of the board who either got had and thats okay because sometimes we just get had. Or simply believed far too much and they still believe and dont belong on the board of an he is steamed company that really represents everything good about america . First i would say theres no accounting issue no one has been had. I take issue with those comments out of the gate. Ive been had in february of this year, jeff immelt came on my show. Im focused on the company Going Forward. John, i believe that, im sorry to interrupt and thats rude but i think the notion we werent had with the stock at 30 and 17, just kind of says what i most fear, which is that its okay, i would have preferred you to say jim, you know what, we didnt get the straight story and straight story is bad because thats honor jim, ive been completely transparent in the time ive been in the job of what the issues are with the company and what im doing to fix them that is my perspective thats where i am right now. Thats how im Going Forward thats what you would expect of me and i think ive been quite clear about where we have underperformed and how we fix that so going back to the past is not productive for me. Im focused on Going Forward and you would expect that right now. You mention 100 days youve been at work on this. Yeah. Can you describe how close you came to considering a more aggressive breakup of the portfolio. Because some of the commentary says weve waited this long and it wasnt as aggressive as some people hoped how close did you get to that . Listen, i have looked at and will look at every scenario from an analytical market backed way. Ive looked at all of the scenarios and ill continue to do that. Second, its a big thing that keeps getting lost in this whole context here, the strength of the franchises, we have an issue in our power business and softness in the oil and gas market the broad contours of the business have strength and we shouldnt discard those lightly. So as i look at this, keep coming back to run the businesses better and improve the performance, first port of call that people wanted us to get out of aviation in 2003. People wanted us to get out of healthcare in 2014 weve dramatically improved the healthcare business on growth and on margins and cash. We still have every strategic option available in that business that we had three years ago when people wanted to dispose of it. My task really is to run the assets better, keep an open mind to the alternatives and thats what were doing theres a rush in a to say lets just discard everything and reality is, incredible franchises built up over decades and i think we should be thoughtful and deliberate about managing better and what we do with them Going Forward. Its more that than tactical obstacles like Tax Implications . Its about the businesses themselves and what their achievable output can be thats the first call. John, the board itself, weve mentioned of course going from 18 to 12. Right. When are you going to make the decisions about who is off and who is on . 18 to 12 is part of the slate for the april Shareholders Meeting and well be doing that pren now and filing of the proxy statement or going through the ge governance process of the board on both who will exit and who the new directors will be. It will be our standard governance process and do that on a deliberate basis. As well mr. Brennan perhaps no longer going to be the lead director, sna a possibility . No, thats not a probability. Its not a probability. He will remain . Yes, jack has a tremendous track record and tremendous leader and been incredibly supportive with me and i dont see any change there baker hughes, youve mentioned that you do intend to potentially sell down what is roughly 63 stake looking at that now, yes. Youve got restrictions on that id like to get a little bit more specifics in terms of what the expectations are for actually lowering that stake over time. You cant do it right away, correct . Let me go back to the beginning of the baker hughes transacti transaction, we had an upstream Oil Equipment business that we merged with their service business, created a much broader platform, stronger asset but part of the original thought process of that transaction, it does create optionalty for us Going Forward. This is not new news in that sense. It was embedded in the original transaction, first point second point, we closed in july of 2017, theres a twoyear essentially window where the directors of the baker hues directors have a consent discussion to have if we want to do Something Different with our holdings thats the technical thing the third, were exploring, i said yesterday weve established a new committee on our board finance and Capital Allocation committee and the first thing ive xtd thasked them to work o, ee val wait what the options and forms of exit might be for baker hughes asset and well come back when we determine that. You were involved in the purchase of that asset, any regrets there . Do you feel that was well purchased at the time given the headwinds youre saying . I would say that deal in total has been a disappointment. Id start with that. We bout thealston asset for three strategic reasons, one the installed base very large, thats the cornerstone of our Business Model and multiple industries that were in. Longterm asset, productivity, chance to replace sockets as they age over time second was a broader product line they made things in steam and generators and things we dont do we could sell with our gas turbines and a significant amount of cost synergies we start with a target of 1. 3 billion for cost synergies and upped that to 3 billion those things largely have played out. What has not play out and really over taken those things. The market clearly has been substantially worse than what we forecast the company went through a very extended closing process, antitrust review, et cetera. Ive been Running Health care for a year by the time that closed, that was on tough and projects weve had losses there. Were in single digit return, its not an acceptable deal from a Financial Framework right now. The last thing i would say, these are 20, 30, 40year assets and our task is to keep working these incredibly hard. If we can go back in a time machine today, we would pay a substantially lower price than we paid, no doubt about that. Lets go over the asset sales, going to rely on mr. Tusas research, 17 was his prediction and he said how much cash in earnings will you be losing with the asset sales. Thats important, these businesses do generate a return. Yeah, theres a whole mix in here of assets that we have identified in a 20 billion pool and we have a slightly larger pool than that theres a final determination of what gets included in that i will say in general, these are much smaller assets with the exception of transportation, these are smaller assets, many of them have very small cash flows, some had negative cash flows, i expect the package of the whole transaction as we complete it to be akreetive to the overall economics and cash flow of the company. The proceeds will be in excess of the multiple. Whats the best use of those proceeds theres a wide range of things to look at. Capital allocation to me is a fluid process. We outline yesterday our total shareholder return approach, a dividend Share Buyback where it makes sense organic investment where it makes sense funding our pension where it makes sense. We had an announcement about funding that im going to see the outcomes first of what the proceeds are and what you have before us. But i think again, we talk about Capital Allocation, it happens inside the business day in and day out but thats what im heavily focused on as we have proceeds, well see it depends on what for example our share price is or what other alternatives we have i look at the deployment of capital in a highly analytic cal clinical way around risk adjusted return for the money we have i know you want new Board Members. Can you describe to us what those three new Board Members qualifications will be and whether they will share an orientation of mr. Garden from trian, which is to be an insurgent inside to push to make sure that Capital Allocation is right. A couple of things on that, we detailed yesterday, looking for industry expertise in the three new directors, so in care, some combination of that, and more digital and Technology Orientation Going Forward. With respect to the push and the debate, i totally welcome that i want Board Members and we have Board Members who push back. Im more than comfortable with that i think thats a healthy dynamic. Ed garden has joined us last month. I expect that from him i expect it from everybody, including the new Board Members. You mentioned the dividend cut. Was there was a camp inside the board who wanted to not cut it immelt always said cutting back in the day was one of the worst days of his career i wonder if you think youll say the same vereventually we went through an analytical exercise the construct of how we had a 96 cent dividend is tied to selling ge capital, what we expected to grow the sdral earnings. That turned out not to unfold the way we had underwritten at the time we had a very balanced analytical discussion around the dividend relative to our Free Cash Flow and the prospects for our Free Cash Flow, and we came to a determination collectively, very solidly, that it was too high a dividend to sustain Going Forward. It was in the best interest of the shareholders and company to reduce that to a level thats in line with our peers, in line with our peers in terms of dividend yield with respect to the comments about the worst day ever i dont underestimate in any sense, and i feel this deeply, the gravity of what we have had to do, and the people that rely on that dividend especially the people relying on this for current income. This is a very, very tough measure. And so its not anything we took lightly. I looked at this in very great detail and i just felt in the end it was something we had to do so its not something thats easy to go through, and im fully cognizant of the shareholder impact on that are you thinking at all at this point about a path to restoring the dividend even if its not to where it once was listen, i come back to the most important thing for us to do now is improve the results of the company, improve the cash flow of the company. The incredibly disciplined about how we invest the capital of the company to the end of growing the earnings and cash. As we grow the earnings and cash, job one, well move the dividend forward, too. So it all comes back to, i think, this whole discussion, how are we running the company, how are we allocating the capital. How is the operating rigor thats what we have to focus as we look at the stock price of 18. 59, youre going to have a larger portion of equity and compensation, i believe. For Senior Leaders of the company. What about morale overall you know, sometimes it can be a reflection of a stock price, if youre talking about one thats down 41 for the course of this year john, is morale a concern for you at the company i mean, of course it is but its also a challenge and an opportunity and a leadership sense. So a couple things i would say one is, im not trying to run the company for the reaction on monday or tuesday or wednesday of this week we have a longterm plan we have a lot of work to do. We have incredibly great franchises that were focused on and im confident in the future of the company so i think personally, getting Equity Compensation at this point in the cycle is something i expect to be a positive as we move forward the other thing i would say on the morale and culture of the company, this is a company that has incredible passion for employees. Incredible pride and you can debate certain parts of our culture you can never debate that one. And people want to change. They want to move forward. Theres my task is to stoke the competitive spirit in the company. Its a challenge no one likes to see this no one likes to look at their stock price go down and say i feel good about that thats obviously, it goes without saying theres a lot of pent up energy and desire for redemption and improvement, so my job is to channel that as a leader, and obvio obviously, people look at how i feel about the prospects ahead, and i recognize the heavy lift, but i feel great about the prospects. You think youll continue to attract quality people i remember an ad campaign not too long ago ge is a Technology Company still are the young people. Can you get that kind of a person to come work at ge, given the difficulties the company has gone through david, the company has been around for 125 years we have reinvented ourselves many times were in that process again. Were constantly leveraging our technology to reinvent the company and move in Different Directions people who want an exciting new direction, ill recruit anybody and talk to anybody, but people are going to have to want to battle, want to change, want to move the Company Forward people who want an easy task, you know, i dont want too much challenge, thats not for us and thats not for them. Massive heavy lifting i keep hearing that. Why would i own a stock why would i want to own a stock if i know 2018 is a year of massive heavy lifting . Look at the again, i go back to, first of all, depending on your time horizon, so i dont yeah. Time horizon is not made up by 30 down to 17. I understand, youre asking right now why would someone buy the shares now i would say the outlook for the company over three to five years, what we laid out, growing cash and earnings in three to five years, thats what someone should buy is it going to be immediate, is it going to happen in two months, four months, six months . No, its operational things we need to change in the company. If youre investing for a balanced return, a Dividend Capital gain over an extended time period, i keep coming back to, jim, the other thing i keep coming back to the power of the franchises and the power of the company. You know, again, we have a big issue in our power business. Other assets in the company are very strong. You look at our Aviation Business i would stack that up against any business, you know, on the planet you look at our Health Care Business with the Global Growth in that, the power of our life science business in that we have a whole other self therapy business in that i know the headline is the macro picture, and it must be, but theres something under the hood that is worth considering as well well, john, we certainly appreciate your willingness to come on, spend time with us. Its good we look forward to future conversations as well as we monitor the progress you have been talking about thank you. Okay. Thank you, guys. See you again. John flannery, chairman and ceo of ge. When we come back, more reaction to this mornings retail earnings and tomorrow, an exclusive with targets chairman and ce Obrien Cornell dow is down four points. Were back after a break [ keyboard clacking ] [ click ] [ keyboard clacking ] [ clacking continues ] good questions lead to good answers. Our advisors can help you find both. Talk to one today and see why were bullish on the future. Yours. Talk to one today and see why were bullish on the future. Win an uncertain world . K predictable income pgim sees alpha in real assets. Like agriculture to feed the world. And energy to fuel its growth. Real estate such as ecommerce warehouses. And private debt to finance transportation and infrastructure. Building blocks of strategies to pursue consistent returns over time from over 120 billion dollars in real assets. Partner with pgim. The Global Investment management businesses of prudential. Welcome back to squawk on the street. Im Carl Quintanilla with david faber. Kayla tausche is with us this morning, live from a trip around the world, here at post nine sara is off today. Take a look at the markets dow is down 106 as the s p narrowly avoids a threeday losing streak yesterday, but were back to a selling pattern. Oil is down a percent as well. Our road map begins with shareoffs General Electric sinking on the heels of its restructuring announcement what John Flannery just told us exclusively about the stock moves and the future of the company moments ago. A big beat for home depot a surge in sales following the multiple hurricanes. Well dig through the report, get reaction from wall street straight ahead plus, President Trump wrapping up his 12day tour through asia we have the big takeaways for trade, security, and more. First, lets get straight to ge, of course. Shares of the company plunging 7 yesterday that after a turnaround, a reset plan was unveiled. That was the single largest decline in the stock since april of 2009. Ge cut its dividend in half. It announced aggressive Corporate Restructuring plans. Also lowered the guide significantly for 2018 you can see, of course, today, the stock is also down fairly sharply. We spoke with ges ceo, John Flannery, just moments ago here at post nine heres what he told us about the possibility of breaking up this conglomerate i have looked at, will look at, always will look at every scenario from an analytical marketbacked quantitative way i have looked at all the scenarios and ill continue to do that. The second thing i would say, a big thing that keeps getting lost in this whole context here is the strength of the franchises we have an issue in our power business we have some softness in the oil and gas market the broad contours of the business have strength and we shouldnt discard those lightly. Carl, during the course of our 25minute interview or so, he came back consistently to the strength of the franchises of course, talking often about power and the weakness there, and its going to take them some time to get that right but aviation and health care, again, he kept saying, are worldclass franchises that theyre going to rely on to fuel what they hope will be another stage of growth one day, i guess. Right got a little personal on the div cut and the realization, the knowledge that investors rely heavily, ininvestors rely heavily on that, and what it means to cut that in half. And when asked about restoration of that dividend to any degree, he said it depends largely on improving the cash flow position of the company thats the first step. Yeah, and theyre looking for, what, 6 billion to 7 billion in Free Cash Flow next year they were at 8. 4 billion coming out, kayla, and now theyre at 4. 2 billion to fund that dividend, which they can meet, at least as of now its hard to think of a company as big as ge seeing much of a difference from 4. 2 billion. The Sticker Price is pretty big, but given how large their cap exis, how large their expenses are on an annual basis, the fact they would need 4. 2 billion is sort of, i think whats wrauking the stock here to think about ge not making light bulbs is like thinking about hoover not making vacuums. Its hard to think about what the identity of the Company Looks like with all of these seemingly disparate pieces now also, the comments about alstrom and the degree to which that has disappointed and undershot most of their forecasts going in, even though we knew it was a difficult thing to close, and if they had to go back in a time machine, would pay a much lower price very interesting, because he, of course, was involved very significantly in the purchase of that asset at the time, and then moving on to run health care, of course, and helped turn around health care, did mr. Flannery, which was one of the key reasons he did get the top job at the company. Lets get more on ge and what we can expect of course, as you see the stock making a new low now, down over, lets call it 3. 5 this morning. By the way, lowest in about five years plus. Yeah. Lowest in five years. Ge analyst joining us on the phone. Give me your take at a stock price, 18. 30 or so, is this it . Is this as low as it goes . Not necessarily no, i mean, we certainly wouldnt step in here. You know, you guys have talked about a potential breakup, some of the parts analysis we published on friday suggest the breakup would be under 15 a share. As you discussed with mr mr. Flannery, this is going to be a long, long turnaround so its going to take a while for people to see any value here yeah. Long, long turnaround, i guess, is one of the keys perhaps that sunk in yesterday during the course of their meeting. How many years are we talking about . So the base case is now a buck in earnings for 2018 what can we expect to see by 2021 well, its a good question. I mean, we havent gone out that far in our formal projections, but you know, this business is not terribly difficult in aggregate because there are so many big pieces to it that have differing cycles it doesnt have the same level of beta as caterpillar or some of the other large industrials that offer that. So lets actually be honest about what the number is next year they guide it to roughly a dollar on an adjusted basis, but that excludes pension expense, excludes actual restructuring of maybe 10 to 20 cents the underlying gap number is really around 65 cents or so and thats what we should really measure the cash flow off of so will it grow off that base in 2019 and 2020 . Perhaps, but not materially. That doesnt sound like a stock that anybody even wants to get in then at 18. 40. I mean, on a multiple to cash flow or even on a multiple to gap earnings that doesnt sound cheap to me at all i agree i think theres two things that need to be emphasized. 1 is if you went back a year ago, the power expectations, the power segment expectations were over 7 billion of pretax profit, in 2018. Yesterday, they guided it to about 2. 4 billion thats a 4. 6 billion delta or about 45 cents a share its a longcycle business and all of indicators are getting in that market. The aftermarket, the oe business, all getting worse, and theyre leaking price across the industry its not unique to ge. The second is the hangover of poor Capital Allocation. You talked about the alstrom deal look at the purchase they did. They did 27 billion in stock buyback over 2014 to 2016. At much higher prices. So rather than kind of building a better business, they just repurchased stock at now what is an economically diluted price. And all along the way, they werent funding the pension bill, which is now coming due. So, you know, if you look at their pension deficit and you include some of the other retiree items, its a 37 billion deficit. So the business is fairly levered if you look at how rating agencies look at it its basically over three times debt, constraining managements ability to do much thats why i think, again, when you see levered names like this entering a downturn, it takes a long time. Theres no quick fix any argument, i mean, we asked about the conversations they had and the degree to which they got close to considering a more aggressive breakup of the company. He obviously said they feel differently, but how what is the argument for that, even at this point i think its hard to make the case i mean, let me rephrase. I think you can make the case, but dont expect the stock price to go up in that environment so thats more of a strategic decision of what businesses do we want to be in as opposed to does it increase value to the current stock price. You know, the power business, its standalone today would probably trade poorly. I would imagine under eight times. The best business they have, aviation and the second best business, health care, would trade well, but in aggregate, some of the parts, again, we get 11 to 15, that was on friday prior to the 50 cut they gave yesterday on the underlying ebid in 2017 and 2018 thats more of a decision on what they want to be five or ten years from now than it is increasing value to shareholders are you at a point where the company has credibility and its now about a waiting a turnaround or are you still in the cloud of uncertainty regarding credibility of either the company or the board or the accounting or Something Else well, i think credibility, you know, will be earned over time they certainly lost all of it. You know, over the last several years when they were guiding 2 and 90 cash conversion of the 2 and came up short disclosure, which jim mentioned was sort of an issue, the opaqueness, even if you look at the presentation yesterday, they talked about what looked like 6 billion to 7 billion of industrial cash flow, but if you strip out items, it really was a guide to zero of Free Cash Flow next year. Because you have to take out cap ex you have to ding them for the annual pension cost, which would have been 1. 7 billion theyre putting it in Financing Activities by issuing debt to fund it. You know, so transparency still is a bit of an overhang, but credibility generally, i think its helpful that John Flannery is taking a cleareyed look at the portfolio, acknowledges the sins of the past, but its going to be earned over time you know, as an analyst who followed the company for a while, are you trying to understand what it is you and so many others may have missed . I dont say necessarily missed in terms of being negative or positive in the stock price, but the deterioration in these underlying businesses, particularly power, what went on what was actually going on at ge that has led them to this point . Its interesting. Im one of the newer analysts to pick it up i picked up the stock in june of last year. Central to that is the peoples power expectations were wildly optimistic you could actually argue it was just not looking at the data is what a lot of folks were doing so when you look at the power market, you can look at indicators of their customers. Utility operators who have metrics which has been compressing for years. You can look at their competitor whose are talking about price on the original equipment dropping for years. You could look at this big cycle that ge has that was sort of company specific, what they called advance gap cap upgrade big profit driver since 2012 that was going to peak we predicted this a year ago so part of it is just wild optimism, not looking at the data of the actual customers. And, you know, planning around that so one of the things we always reconcile is the emotion of the move from 30 to 18 at the end of the day, the question we should be asking is why the heck was it at 30 in the first place . It never made any sense when you look back. Well, it may be a long time, certainly it seems to be, until it sees 30 again. Thank you for your time this morning. My pleasure when we come back, the heads of the big four Central Banks speaking together in germany this morning what they had to say on stimulus, easy money, rates and a lot more stocks are in the red. Dow and s p briefly had their worst slide since september 5th and all the major averages have now gone red for the month a lot more squawk on the street continuein mens aomt. That College Experience that i had. The classes, the friends, the independence. And since we planned for it, that student debt is the one experience, im glad shell miss when you have the right financial advisor, life can be brilliant. Ameriprise the worlds most powerful central banker speaking this morning on a panel in germany. Steve liesman joins us with some of the comments from yellen, draghi, and carney yes, and curoto from japan. Yellen saying price ratios are alt the high end of historical ranges but the risk remains quite moderate in recent months, we have communicated in the minutes staffs evaluations that asset prices are elevated. That means that price earnings type ratios are at the high end of their historical ranges we are in a lowinterest rate environment, and that may be one thats likely to prevail for a long time. Draghi saying he saw some local cases where asset prices were out of line, but not in general. A general idea for dealing with them is regulation, not policy to address those price changes or those price levels. Also on the podium, japans governor, England Governor Mark Carney Carney sees an Economic Impact from brexit in terms of incomes and supply to the overall economy, and that will have an effect on policy kuroda saying prices are slowly picking up in japan. Banks are all in somewhat different places britain recently raised its rates but still expanded the blassheet. Ecb would reduce its quantitative easing. The u. S. , guys, the only one of the four both reducing its Balance Sheet and raising Interest Rates carl good stuff, steve thank you for that Steve Liesman back at hq the markets down today after the initial lows we were down about 160 or so a moment ago the s p and dow with the biggest slide since september 5th, both now down for the third time in the last four sessions for more on this, lets bring in jim paulson and brian. Good morning, guys good morning. Jim, you have said for a while now, you think the market is headed for a pause next year. Is this are we witnessing some of that we could be, carl i guess i have been worried about a combination here of i think that economic momentum might, you know, economies might stay okay, but theyll no longer surprise because everyone is caught up to the idea that were in a global synchronized recovery and the u. S. Is doing better but we might have some loss of economic momentum. And that could be enough to make the market struggle. What is even more concerning is if we get that loss of economic momentum and yet we continue to overheat that is to say what if Commodity Prices continue to climb or wages go over 3 or the dollar breaks lower, stimulating inflation pressures. The ppi report this morning is a good example of that you force the fed and bond vigilantes to raise rates. I think that could be a challenge here into 2018 interesting brian, on jims point, nfid today, 58 of Small Business owners said they tried to hire in october 88 reported no or few qualified applicants when you tie that to wholesale inflation today, is that where were all headed when you look at a lot of the survey data and also some of the hard data, cpi, ppi, and also the wage data, you know, initially, it seems like, well, if people want better candidates, why not pay more but apparently, its also not just a price issue here. Its also a quality issue as far as what the labor force, what is it that businesses need. So we will likely see some additional wage pressure going into 2018. And from a multiasset solutions perspective, what were telling clients is when you think about the federal reserve, a lot of people talk about their reaction function lets face it, theyre going to be a little more proactive in 2018 relative to what they were over the last few years. Think about their proaction function theyre looking at wages growing. And they want to try to hike when they can. They were heavily criticized for not hiking when they had the opportunity because then you suddenly had an economic slowdown so i would actually be looking for wages to continue to signal that they will go up the fed will likely take that as an indicator that inflation is on the rise and we could see a more aggressive fed in 2018 relative to 2017, 16, 15, or 14. Really what that means for me is risk preme yeah are likely to compress i think that means you should be a little more conservatively procyclical in this type of market here. Jim, i mean, take that bait what is conservatively procyclical mean to you. How do you defensively invest against what youre calling for as a potential correction next year and what do you make of the recent selloffs in russell and junk bond market that some are pointing to and saying maybe were seeing the beginnings of the cracks right now well, kayla, i think the challenge which brian sort of alluded to, i think the challenge faces Equity Investors is if this slowdown, the challenges to the stock market is primarily weaker economic growth, but not with inflationary overtones, so Interest Rates come down a little bit then i think you want to go more defensive. You want to go to the traditional utilities and Consumer Staples sort of plays the problem is is that a crowded trade, though were seeing utilities were the best performing sector yesterday and for several days last week im not advocating it heres why because i think were going to get some upward rate pressure with this slowdown and the four major most sensitive sectors to rising rates, health care, telecommunications, Consumer Staples and utilities, are really, really sensitive to higher yields in this recovery, much more so than they were prior to this recovery for example, both health care and telecommunications are twice as sensitive on the negative side to rising yields since 09 than they were prior to that utilities are three times more sensitive to Downside Risk to rising yields. And Consumer Staples are four times more sensitive to Downside Risk than they were prior to 2009 so the problem you have is if you want to get defensive in the traditional manner, you may go right into the fire of the frying pan to the fire and thats why i would suggest you stay more inflation orientated, but maybe back off of technology, for example maybe back down on materials but add some Energy Stocks or Consumer Discretionary stocks that might do well if rates go up but also might do well if economic momentum fades a bit. Brian, ill turn to you for one last question about sector recommendations. Do you agree with jims analysis regarding some of those sectors . And is this why were looking at apple down again for a fourth day in a row, for example . I think this is actually a great example of why it is that a lot of investors should start looking at the world more through a factor lens as opposed to a sector lens if you look at it through a low volatility, thats one of the core components of some of the portfolios were building for clients. You can do that in a way in which its more sector neutral so low volatility doesnt necessarily mean defensive it can actually be low volatility with a valuation awareness. Thats the way were building our portfolios brian, jim, thank you guys. Appreciate that very much. When we come back, five countries, three International Summits and more than a half dozen meetings with foreign leaders. The president wrapping up his 12day trip through asia, and well break down the big takeaways fr tmp tps quk the street will be right back well, its earnings season once again. Yeah. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its hard to make sense of it all. Well, victor, do you have something for him . Check this out. Td ameritrade aggregates thousands of earnings estimates into a single data point. That way you can keep your eyes on the big picture. Huh. Feel better . Much better. Yeah, me too. Wow, you really did a number on this thing. Sorry about that. Thats alright. I got a box of em. Thousands of opinions. One estimate. The earnings tool from td ameritrade. The president making his way back to the United States following that nearly twoweek trip through asia. Kayla tausche was traveling with the president for most of that time and has some takeaways for us fascinating look a lot of people talking this morning about what he brought back in terms of deliverables and whether or not this was symbolism or were there some takeaways on trade, for example. Well get more information about what he brought back tomorrow hes planning what he calls a very big announcement on trade tomorrow he was talking about that overnight on air force one with some reporters, but some takeaways from my time on the ground there are a few. The first is that our close allies who want reassurances from the u. S. On trade, they are learning very well how to master trumps pr playbook. In japan, you saw the Prime Minister there signing a hat that said make the Alliance Even greater. In south korea, you saw the president there at a state dinner telling the President Trump that he was already making America Great again. Congratulating him on one year since the election in both countries, they were touting their own investments in the United States. In both countries, it leaders were grinning and baring it as President Trump said they would be making massive military equipment purchased. They basically knew exactly what they needed to do to win the reassurances from the white house, knowing exactly what President Trump wanted in china, the situation is a little bit thornier. We saw a lot of pleasantries on the face of it, a lot of pomp and circumstance behind the scenes, those conversations were pretty difficult. Chinabasically denied the u. S. s request to install more financial sanctions. They said no we will abide by what the u. N. Has put in place china tried to offer the white house more opening of Financial Markets and the white house said no thats not good enough. So there are quite a few areas still of disagreement. Then theres this idea of economic nationalism that the president again touted at apec and again where he said that the renewal of america will bring up the rest of the world, but then went on to criticize countries like china, countries like vietnam for all of the ways that he feels theyre basically misusing the global trade system, the wto. Overnight, i want to show you a portion of what the president said to reporters when he was talking about specifically this issue. He said i think one of the things we really accomplished big is relationship, also letting people know that from now on, things are going to be reciprocal we cant have trade deficits of 30, 40, 50 billion. We cant do that we have to have reciprocal trade. Whats good for them is good for us certainly, not all those countries feel what is good for america is good for them well see how the president decides to move this forward and whether he decides to take one of these unilateral actions tomorrow when he returns to the white house. Any sense of what the ceos who traveled on the trip thought about the trip they were all impressed it was put together in the first place. Many we spoke to said we have never been asked to apply for a trip like this the fact we were asked to bring deals to the table, they thought was a big deal as well granted, many are deals that are being recycled from months or years prior, and some still wont come to bear for months and years to come, but they felt like the fact they were included was good but the fruits of the labor, time will tell well see if the memos of understanding turn into real sales. Great stuff all week, all two weeks, i should say. When we return, it was a blowout quarter for depot. Stocks down a little bit here, about half a percent they crushed estimates well dig through the numbers and break down what theyre saying on the Conference Call. Watch ge got within a nickel of 18, and the market cap over the past year now, the market cap loss is approaching 100ilon ckn mite bli good morning, everyone im sue herera heres your cnbc news update at this hour. Alabama gop Senate Candidate roy moore denying the latest allegations of sexual misconduct, saying he doesnt even know Beverly Young nelson she told reporters at a News Conference that moore attacked her as a teenager. People of alabama know me, they know my character they know what i stood for in the political world for over 40 years. And i can tell you without hesitation, this is absolutely false. I never did what she said i did. I dont even know the woman. I dont know anything about her. Secretary of state Rex Tillerson meeting with myanmars National Leader at the philippines. It comes a day after myanmars army released a report denying all allegations of rape and killing of the Muslim Rohingya population by security forces. The food and Drug Administration approving a pill to track whether customers are taking medicine. It sends a message from the pills sensor to the site. The sensor was created by Proteus Digital Health ill send it back to you thank you very much, sue herera were going to check on shares of ge once again. Getting close to 18 we had John Flannery on the show this morning stock felt its largest single day drop since april of 09 yesterday, after the company unveiled that aggressive restructuring plan, cut its dividend in half and lowered its earnings guidance. Flannery was with us earlier heres what he said. We disappointed people with tough news yesterday we were low on 18 outlook, low, obviously dividend cut, and lower than most people expected. Im not surprised the investor reaction, because we had disappointing news but im very confident in where were headed with the company and what we need to do the team is ready to go. David said he doesnt run the company for the reaction on monday or tuesday or wednesday of this week but sounded like he might have been a little surprised at the reaction to that presentation. Yeah, well, a lot of people came away, as i said earlier, unsettled. Thats a word thats been used in some of the analyst common tear when you do the math and look what are gap earnings for this Company Expected next year and throw a multiple on it, or if you want to use Free Cash Flow, you can still use fairly aggressive multiples and not get to a very high stock price i think that reality has sort of settled in to the market as we watch this thing flirt with that 18 level. He did say he understands the gravity of how meaningful a move it is to cut your dividend, especially cutting it in half, but he said its showme time. I wonder how long you think investors will give him to prove his strategy will work i think theyre not giving you know, theyre bottoming this thing to a certain extent based on the expectations for next year then i think he will be given time because its going to be hard to argue how low the stock could go but its going to take a while, kayla. This is not a onequarter or twoquarter kind of a turnaround this is years. Right by the way, market cap laggards over the past year since election day of last year, merck, hp enterprise, slumbergy, but none are closer to ge. So just massive amounts of equity and market cap lost in washington, the house gop leadership wrapping up its Weekly Press Conference a few moments ago. Speaker ryan did make news ylan joins us with more. Good morning, carl. Speaker ryan responded to President Trumps tweet yesterday that requested that the tax bill lower the top individual rate to 35 and also include a repeal of the individual mandate i asked the speaker if those changes were on the table before the house votes on the bill this week were pushing this bill as we have it. Theres ongoing conversations. Its a work in progress. The senate is just beginning their markup as you know, this is a work in progress, which is the house is passing its bill the senate is now marking up its bill were going to go to a Conference Committee and address all of these issues. So no major changes to this bill expected before the vote is going to happen on thursday. Thats what leadership confirmed this morning in addition, ryan also addressed this deadline that lawmakers are facing of december 8th to continue funding the government. He said theyre looking at a temporary solution to that rather than a fullblown spending plan. Back over to you its going to be a sprint to the finish line at the end of the year, ylan well be watching. Well also watch House Majority leaderen mccarthy about tax reform and the changes the president called for thats in just about an hour right here on cnbc meanwhile, take a look at where shares of home depot are this morning theyre now slightly in the red after the Home Improvement chain reported results that beat on earnings and on revenue and saw samestore sales urge following multiple hurricanes and peoples Recovery Efforts the company also raising its fullyear guidance, but the stock is still selling off were joined now by hard line retail analyst seth bashm as well as gordon haskt analyst Charles Graham charles, ill start with you because youre on set. Why is the stock selling off despite what looks like a hat trick by the Company Great quarter from home depot across the board samestore sales up 7 Gross Margins when you back out the hurricane, flat year over year, and they raised guidance really, a phenomenal quarter it begs the question why is the stock up i think the fact the stock is up 25 to date, when you see a strength in a stock like home depot and the stocks relatively flat after a good print, i think thats a Pretty Healthy sign considering whats happened in the rest of retail right now typically, if you go back to past 11 quarters, home depot beat by about an average of a nickel typically, stock doesnt do much on earnings day. As jim said this morning, it will grind higher throughout the year the bottom line, home depot is a winner regardless of the past 35 minutes. How long can home depot continue riding this recovery wave how long will people be going to home depot and say not lowes if they start to compete. How long can the Company Actually keep this samestore sale s trend up in the wake of these horrific storms . As it relates to the storm, theres still a nice tailwind associated with those. The company saw about 120 basis points comp benefit in the third quarter, experts more in the Fourth Quarter a nice tail into the first half of 2018. The storm is only one piece of the story here the company is also riding the waves of a very good housing cycle, very good map for economic environment, and to the extent we see housing continue to maintain its steady growth, we think that home depot should be able to outperform, especially when you consider they execute much better than lowes right now seth, every time we hear that people are spending more money to fix up their homes, we get into debates about affordability, new home creation, and more macro issues here do you think that that is still underlying any strength that were talking about in home depot . Certainly, the macro is a big piece of the story the Company Sales have often correlated with macro, including gdp and housing, considering we dont see housing being as strong as it has been, that will weigh on the company historically, theres about a two to three quarter lag in what happens with housing in terms of appreciation and xiszing home sales growth and comps we have seen a slowdown in existing homes sales growth, to the extent it persists, it may weigh on the company in 2018 you think theres some underlying concern about new entrants into Building Supplies . If you know what im talking about. I think on the margin, what we have been looking at is sort of the firsttime home buyer and trying to understand whats going to happen with the millennial customer. If you look at the big spenders today, are usually between the ages of 35 and 65. Right now, there are a very small piece of the spending cohort you look to 2020, 2025, they become a much bigger part of the spending pie millennials are starting to enter into the firsttime home buying market. That plays perfectly into what home depot is trying to do with its pro. Unfortunately, a lot of younger millennial customers dont know how to do that i dont really know how to do a lot of stuff im sitting right here, okay. Its not a knock. Its just reality. I think that plays exactly into what home depot is trying to do. When we think about retail, there are very few places people go to spend 900, which is what the ceo said they were seeing some ticket takehome tickets in this quarter if people are spending 1,000 at home depot, where are nay they not spending that money . Thats a good question. You can look across the retail landscape. We saw softness in a lot of other categories whether it be apparel and other things Home Improvement has been a big category people are spending more on experience as well to the extent that home prices continue to appreciate and the housing cycle is robust, we think people will continue to spend on their homes all right seth, charles, great to see you both today appreciate it. Thanks. By the way, ge did briefly fall below 18 a few moments ago. We have been watching to see if 18 would hold the intra day low, 17. 95. Well keep our eye on that really stunning to watch. Another 5 lost. Stock down almost 43 just this year all right, shares of Buffalo Wild Wings are soaring this after private equity firm work capital apparently made a 150 a share offer for the company. This is a private equity firm. It does have a restaurantheavy portfolio, including ownership of sandwich change arbys. Leslie picker joins us with more you have to fill me in on who these guys are because i havent heard of them very much. I hope youre hungry. Otherwise, the timing here makes a lot of sense for these guys. Buffalo wild wings stock has been beaten down and the company is in the midst of finding a new ceo. Nick mcguire won a proxy fight and pushed the current ceo to leave next month the reported takeout price is around the level mcguire invested, although its unclear at this time he supports this deal Buffalo Wild Wings seems like an ideal fit for roark portfolios capital. A lot of holdings are in the restaurant industry. About a year ago, they exited their stake in stock to decent returns. Thats one of Buffalo Wild Wings main competitors. They also recently acquired a majority stake in another sandwich chain, jimmy johns work is known to use very little debt in their investments. Given their atlanta headquarters, they tend to focus on Companies Based in and around the southeast. Their most recent 2. 5 billion buyout fund, though, it struggled to produce positive returns, but their earlier funds have done better and as the size of their funds increase, so too did the number of deals they signed each year in 2016, they completed 13 investments. A record high for them work capital is actually named after the protagonist in ayn rands the fountain head they say the character exhibited independence and integrity two qualities worth naming a fund after, guys all right i learned something. Thank you, leslie. I was wondering. 2. 5 billion fund. They do have the wherewithal to pull this off with financing, i would assume but its a pretty big price tag. By far the largest deal they would have done, correct thats likely to be the case. Jimmy johns was around 2 billion when they took a majority stake in that last year but depending on what they ultimately pay for this one, it could be the biggest, if not right up there with jimmy johns for these guys thank you, Leslie Leslie picker. As we go to break, dow is down 100 points. Obviously going negative for november ge, as you know, is not a big determinant of the intex overall because of the price weighting, but were watching shares closely as it briefly falls below 18 to osf17. 95. More squawk on the street continues in a moment. Nah. Not gonna happen. Thats it. Im calling kohler about their walkin bath. My name is ken. How may i help you . Hi, im calling about kohlers walkin bath. Excellent happy to help. Huh . Hold one moment please. [ finger snaps ] hmm. The kohler walkin bath features an extrawide opening and a low stepin at three inches, which is 25 to 60 lower than some leading competitors. The bath fills and drains quickly, while the heated seat soothes your back, neck and shoulders. Kohler is an expert in bathing, so you can count on a deep soaking experience. Are you seeing this . The kohler walkin bath comes with fully adjustable hydrotherapy jets and our exclusive bubblemassage. Everything is installed in as little as a day by a kohlercertified installer. And its made by kohler americas leading plumbing brand. We need this bath. Yes. Yes you do. A kohler walkin bath provides independence with peace of mind. Call to save 500 off bath walls with your walkin bath, or visit kohlerwalkinbath. Com for more info. What does ges dividend cut mean for the stock if history is any indication, it could be a buying opportunity. Well explain why on tradingnation. Cnbc. Com more squawk on the street coming up. Lets get over to the cme group and get the Santelli Exchange good morning again, rick good morning. Thank you, carl. Like to welcome my guest from morgan stanley, jim care rn. Thanks for taking the time thank you you know, were at a point in time in financial history where we have witnessed a crisis buildup of liquidity and manipulations by Central Banks that forced correlations all to be very uniform and highly positive now, the other side of the mountain, even though we havent really gotten there yet, we see cutbacks to liquidity, but its still a positive number. But it offers investors very little hope to try to diversify how our correlations are going to affect investors moving forward, jim so rick, i think this is a really important point, right . If quantitative easing and flooding the markets with money was going to correlate prices to move higher, then coordinating them should make them move lower. Thats of course unless the economic strength is there to propel the Prices Higher you used a very important word, diversificati diversification. Whether its high yield mortgages, whatever it is, when assets are highly correlated, its hard to create a diversified portfolio. You dont get you dont get theo constructing a portfolio and reducing risk. What that means is when the markets has shocks, upsets, ups and downs, it becomes difficult to find a place to hide and that can increase risk in reduced Financial Stability in the market and may be one of the unintended consequences of qe and its unwind now you brought up a key point, as well you said if Economic Activity follows this process, it might alter it i think what youre saying is, weve been trying to prime the economic pump for almost a decade now should it actually get going on its own . That would at least offer the correlations of a more subtle parachuted drop. Would you not agree with that . Yeah, i would agree with that you know, quantitative easing doesnt necessarily bring on economic growth. Hopefully it creates an animal environment the animal spirits can prosper, and that can happen the issue is theres blurred lines between risky assets and risk free assets they become Financial Assets and they all go up together, all go down together. Were seeing that a bit today in the markets. Equity prices have gone down, bond prices have gone down how do you hedge a portfolio when youre trying to create risk parity and thats where the difficulty comes in. Now, when you add in, jim, etfs, which are sort of some of them derivatives of derivatives, futures of futures, isnt that along with Market Conditions and liquidity, isnt that going to make this an even tougher normalization than many times in the past where correlations became very positive your final answer, sir absolutely. The thing with etfs is they attract the index. Most things i may not want to have exposure to, but i dont have a choice if i just buy etf. Being able to diversify select parts you want and dont put into the portfolio the parts of the index you dont want, thats going to be the key. More idiosyncratic, more index driven, less etf driven. They can be part of the problem Going Forward in a high correlation market youre not the only one jim caron, thank you kayla tausche, back to you thanks so much, rick, appreciate it. When we come back, a major causality of the gop tax bill. Ffy the real estate sector could suer weve got those details coming up next. What we do every night is like something out of a strange dream. Except that the next morning it all makes sense. To power global ecommerce Fedex Networks are massive, farreaching and, yes. A little magical. Fedex. Com slash dream i cant wait for her to have that College Experience that i had. The classes, the friends, the independence. 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Kayla, we talk a lot about cuts to the mortgage deduction, but theres even bigger cut that could make Affordable Housing worse than it already is the house plan wipes out something called private activity bonds these tax exempt bonds finance buildings like low income rental housing that the nation desperately needs as both home prices and rents rise. Republicans claim the bonds subsidize private businesses, but these Public Private partnerships finance more than half the development of low income rental housing, not to mention hospitals and some infrastructure the bonds are also tied to low Income Housing tax credits, which also promote development, but are tough to get without the bonds. The bonds access to credits, but together its 50,000 units, thats 50,000 households that will go without this really critically needed Affordable Housing. Families, seniors, veterans, homeless people, people with special needs are all going to be denied this housing its a devastating reduction the bonds could also be used to rebuild housing devastated by natural disasters like hurricanes harvey and irma back to you guys diana, thank you very much for that when we come back, youre looking at a live shot, john fortt sitting down with mark hurd talking bitcoin, the cloud, ge and more. Well hear some sound from that. Dow off thloe ws, down 45. Squawk alley continues in a moment this is not a cloud. This is a tomato tracked from farm to table on a blockchain, helping keep shoppers safe. This is a financial Transaction Secure from hacks and threats others cant see. This is a skyscraper whose elevators use iot data and ai to help thousands get to work safely and efficiently. This is not the cloud you know. This is the ibm cloud. The ibm cloud is the cloud for business. Yours. Rays always been different. 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Rates are competitive, and theyre the only plans of their kind endorsed by aarp. Remember these plans let you apply all year round. So call today. Because nows the perfect time to learn more. Go long. Welcome back im seema mody stocks well off the lows after the dow was down 160 points. Biotech under pressure, falling below its 200day moving average. Notable underperformance of names, amgen, gilead, biogen, and that does it for squawk on the street, carl . Good morning, its 11 00 a. M. At ge headquarters in boston, 11 00 a. M. On wall street, and squawk alley is live