Why GE Is The Number One Large Cap Pick, According to Heymann

Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, on the Bloomberg Nicholas Burns with us. Who needs no introduction on the program, David, Why don't you bring him Mr Burns? Since we spent the entire break talking about how the Red Sox did assigned Aaron Judge Ruthian. Are we talking about the election last week in the UK and in economic context a few minutes ago? Help us understand it in a in a political one.

How does this change the amount of capital that the Prime Minister has? How optimistic are you? How likely is it do you think that she's going to be able to hold onto the to the job well, David, Prime Minister tourism is significantly weakened by this this now, she she didn't lose the election. Technically the Conservatives are still in power, probably with a minority party from Northern Ireland Democratic Union Party. But she didn't exceed, she didn't meet

the expectations. Labor won many, many more seats, and so you have to ask is she going to be prime minister a year from now? Next week the United Kingdom begins it's Brexit negotiations with the European Union. This is gonna be very tough because now all the weight, the leverage has shifted over to the EU, and there's widespread speculation that at some point the next several months she could be out of power. Someone like Boris Johnson, the Foreign Secretary could be in power. Um and the country

is still very much divided by Brexit. Need a clinic right now. This is a mystery to me. Through the weekend of a lot of different reading, and I understand the UK newspaper cadence is very different from what I see out of America. Ce E J. Dion's wonderful column today in the Washington Post Boris Johnson is prime Minister? How unimaginable is that to the British people? Well, you know, as inimaginable as it was that Donald Trump would be

President of the United States. For the American people. Boris Johnson is um unique in British politics to say the least his personality. But he's experienced, highly intelligent, sophisticated about the world. I think it's not unimaginable. I take your point on he's highly intelligent. I get all that Gordon Brown off the chart ete side and someone like you, Ambassador,

why why does he play the part? If he playss if he has the cut of hot cloth to be someone more conservative, right, it brings in votes and votes as part of his political identity. Um. But Britain is in I think trouble right now because you don't have any kind of unified direction on the part of the political class or the politicians as to what they should be doing in these Brexit negotiations. And correspondingly, we were

talking um earlier on Bloomberg. If you had said a month and a half ago that France would be stable, that France would be strengthening, that France and Germany would be re emerging as the twin engines of the EU. Mat Kroll one another victory yesterday in the first round of the French legislative parliamentary elections. He's set up to win a complete victory next week. In the second round. He'll go for a pension and labor and tax reform. It'll be difficult, but you can see France and much

better ship in David. To give you perspective on that, I was in France running up my m X and it was really questionable what McCrow would do. Those expenses haven't even cleared yet and mcross got the big victory. I'm looking for the big victory to what does all of that say about party what we've seen here in the UK, what we're seeing in France as well. Of course, he had his victory and there was uh interested enthusiasm

about that from from many corners. But there was also a lot of doubt that he would be able to field candidates in every district and he would be able to assemble anything close to to a majority. How did that happen and what does that say about parties generally? Well, he's a uniquely gifted politician, much in the way that Barack Obama took America by storm in the two thousand and eight election. He has all the great skills and

the charisma to succeed publicly. I think the French are also reacting to the prospect of Marine le Pen victory the populist right wing leader to the dissolution of the European Union. I think Americans don't fully understand the depth of support among many Europeans for this European project that they began just after the Second World War. And now France strengthening, Germany strengthening this could be very good news for the EU, in part fueled by insecurity about the

United States. For the first time in three narrations, there's an American president who does not look upon Europe primarily as a strategic partner. He looks upon Germany as an economic competitor. He had a disastrous visit to Brussels three weeks ago, and I think that is fueling in part this belief in Europe. We've got to get our act together. We have to strengthen the European Union. These are the

two countries France and Germany to do it. The great tragedy is that their second leading economy, their largest military, will soon be out Britain, and Britain itself is searching for an identity as it leads the European Union. Do you think that he thinks that he had a disastrous visit to Brussels? And then how do you you remedy that you look ahead to the G twenty in Hamburg, And we've read all of the reporting about what transpired in the dinner with leaders following the speech that he

gave in Brussels. If if we have a leader who is convinced that the way that he spoke, what he addressed in Brussels was better than fine, how does that how does that change the political geopolitical landscape. Well, here's the I think here's the problem of the effectiveness and unity of the Trump administration. I think the President probably feels he had a good visit because he said what he's been saying as a politician for the last two

years about the EU. They're freeloaders, they don't pay their dues, etcetera. The White House staff, the cabinet know what a disaster it was. This is our principal defense alliance in the world, NATO, and the core of it is an attack on one

of us is an attack on all of us. The President's refusal to say those words, although he now said them Friday Um shocked the American political establishment, shocked his own administration because Secretary Teller student Secretary Maddis had every reason to believe that those words were in the speech until an hour before he gave it. And and the fact that Donald Trump, in addition, is not standing up

to Russian interference in our election. It's got a lot of people worried about how he views his job of protecting this country. On that note, that was a through line throughout James Combe's testimony last Thursday. Essentially he said, we can't lose sight of the bigger picture here. Yes, there's a there's a debate over two principles in a room and what they said to each other, but there there is the threat of further intervention and elections and

other events by the Russians. How do we How seriously are we taking that? Do you think as a country? You know, it's interesting. I thought that was the most effective part of Director Comy's testimony, when he said, with great confidence that they intervened in our election. Russia, they intervened in a massive way. We've got to guard against it. It It was a patriotic message, I thought, and you're

seeing this week a sanctions bill against Russia. You will be debated on the Senate floor today led by by by John McCain and others. This is the right response. The Russians are a threat to us. The fact that the President never asked James Comey about the nature of the Russian intervention, never asked him what do we do about this? All the questions and the President James Comey

were how does this affect me? Donald Trump? And I think you're seeing a reaction in the Republican Party, Republican leaders standing up to say we've got to do something to hit back against the Russians with sanctions and to prepare ourselves to defend ourselves the next time we have an election. Ambassador, what is your tool list to do list for the Secretary who state he is a chief executive officer? Are the true multinational one of our great companies?

Whatever anybody thinks about it, all, etcetera, etcetera. What is your prescription for Secretary Tillers? And you know, I think he's got he needs to rebind our alliance with NATO and and and knitted up again. After after all the uncontaty about Article five number one. Number two, there's an assault on Roca now by American and Syrian forces. There's an assault on Mosul. This is a big movement to to move to force the Islamic State out of both Syria and Iraq. And he's the one who has to

keep that coalition together. And you see him trying to do that in settling and diminishing the tensions between Gutter and Saudi Arabia. He also has to balance the fact that we're a partner with China economically in some respects, but we're a competitor and the Chinese are running amuck in the South China. See, this is a tough job. I hope that's kept us be happy with that. Yeah, but come on, isn't the toughest job. He's got to

have a cup of coffee at the White House. The toughest problem is that he is not being backed up by the President of the United States a key moments. That's the toughest part of his job, the greatest. Thank you very much for Nicholas Burns, a professor to practice that come back when the Yankees lose, I surely will always Yes, David, it was extraordinary. I actually watched the entire Saturday game, just by chance. I haven't done in years. Actually watched it like a fan at the park, except

I watched on the famous TV. And it's just it's just funny. You could be the greatest Yankee hater of all time. That would be me. And they're just glorious to watch. I imagine you were up late last night as well. Hoy, No, it's no foregone. I have trouble with the modern game. It's great, it's exciting. I'm glad they play. I just make gold like you gotta write a column, Bloomberge column on the MO. I just I'm all judge. I got my ninety nine jersey on underneath.

That's true. I can verify the judge worldwide. This is Bloomberg Robert Sinch, who's good to have on because he's been so right about Sterling. It was weak. He said, get along. He was right a while back, he said, get short. Here we are on, Bob. I need to make some money off the weekend. I lost a lot of money betting against the Yankees. Uh, what do I do with Sterling? You know, I think there's still some downside for Sterling um in the short run. I think

we're probably in a trading range. We're moving to the lower end of that range, as you suggested, and I think the next leg will have to be a stronger dollar, and we do think we're going to get that as the year progresses, as as markets are probably underestimating what

the Fed is going to do. By your end, where do you stand on this whole argument about Briggs that a lot of people who were proponents of it say, look, we had it and the economy hasn't suffered that dramatically sterling sterling aside, there were those who were against it who are worried about what's going to happen here as we inch closer to June nineteen and still closer still to to that deadline two years from now. Are you

sympathetic to that argument? You know? I think that that this is one that's um getting a little beaten to death UM excessive focus on something that goes into effect two years from now. UM. But certainly it keeps the dialogue going. Look, this is a long, UM, probably arduous negotiation. UM. When when we when we reached the conclusion, my view continues to be that the Europeans have as much to lose as the bridge to do in this Brexit process.

If you look at Eurozone exports, UM, the US and the UK are right up there at the top, almost equal in terms of the amount of exports from the from the EU. So they don't really want to see a hard Brexit and a lack of trade going forward. So I think the rhetoric will be tough, but these

are negotiations. They'll be long negotiations, um. And I don't think we're going to learn very much over the next month, three months, six months, except the fact that that that Prime Minister make kind of overstepped, overreached, and uh, I think this this moves us towards um, you know, sort of more of more balanced negotiations going forward. We're in a six percent dollar bear market off the Bloomberg Dollar Index.

That's since the beginning of the year. We're in a four percent four point seven dollar beer market going back to the beginning of the year prior. There's a theme here, Bob sin Well, we'll turn dollar around. It just simply underestimating Janet yellow and rating increases. Yeah, I think that's

a significant part of it. I also think that you know, we came into this year with the market very build up on the dollar, and we had long positions in the dollar against the whole variety of currencies based on expectations of what the FED would do this year UM and of course markets tend to sense out those those positions that are most extreme, and certainly if you look at some of the hedge fund returns this year, they would suggest that, in fact, a lot of funds got

this dollar position wrong. However, we've now against a number of currencies shifted the opposite way, and we're seeing very large long positions in the in the Euro reported by the CFTC. I would also note big long positions now in the Mexican Paco of all currencies. So I think what we had was excessive long positions. The economy gave

us another soft first quarter. UM Uncertainties have developed about what the FED is going to do after this June meeting, and so we've unwound a lot of those positions, and that that has brought the dollar lower. I think from this from these levels, we now have the market pretty negative on the dollar, positioning built up short the dollar, and I think, you know, another FED rate hike by the end of the year without much action in the

rest of the world. I think we're going to see the dollar higher, David, I note that robertson just driving sterling lower one getting right near the weakness of June ninth, Friday. We'll come back with Bob, since you're in just a moment to talk a bit about dollar Mexico. Let me ask you quickly before we go to break here, though, Bob, about the yen. In light of the b o J meeting later this week. We got the FED first and then the BOJ meeting on the fifteen six. Are you

expecting any sort of surprise out of that meeting this week? No, I don't think so. I mean, I think the the the only surprise you might see out of the b o J is them beginning to admit that this annotative easing thing, um, it just can't continue forever um. But I don't think that the yen is going to allow

them that flexibility right now. I think they'd like to back away a little bit uh from continuing to add to their balance sheet and liquidity, But unfortunately, with the end strengthening, it's not a good time to do that. Robert Sinch with us, the Amber's Pierrepont too many things to speak about with Bob Sinch. Bob, what is the decision tree for chair yelling at the press conference to

indicate what she's gonna do in the future. Is she gonna say, well, there's slack in the economy which was three years ago, or is it looking for Vice Chairman Fisher's alter accommodative shift. What's what's gonna be the buzz if you will, that she's gonna frame at the press

conference to describe the next year. Well, I think the biggest difficulty she faces is reconciling the labor market data, which the FED even admits, even even the most dubbish members of the board, I admit the labor market is probably operating at at at full employment with still soft wages, and now this recent weakening of the inflation rate, which really kind of upsets I think the Fed's plan about

where they're headed. Um, we've had some some funky numbers and a couple of categories in the technology area that have kind of messed up the readings that all of a sudden popped up out of nowhere. But I think that's the that's the the issues that that Mike McKee is going to bring up to her is is how do you reconcile the reported inflation and wage numbers with

this very strong growth and employment. Now, I think the way to reconcile it is the growth and employment has been for the most part in some some lower wage industries, and so the way are our wage data works, it's a it's a weighted average of who's working in what

jobs and what they get paid. And I think that's been biasing down a little bit um wage pressures, but nonetheless, um the inflation numbers themselves really create a difficult environment for the Fed, and I think she'll fall back on normalization. We need to normalize policy. Something that that Steve Stanley and I've been talking about a long a long time ago, is that what this kind of labor market and this kind of growth in the economy, why should the Fed

funds the real Fed funds rate still be negative. And I think that's, uh, that's kind of the thought process as to why they want to bring the real Fed funds rate to neutral, which I think probably gets them to to somewhere around one and a half percent at this point. What stands in the way of her doing that? What could derail that that plan inflation inflation inflation? You know, I mean, I think there's sort of there are two schools of thought and thinking about what the Fed needs

to do. Um, there's the school that I belong to, which is we need to normalize policies. I said, bring the real Fed funds rate back to neutral, and you know, I'd say that we would have to argue that whatever measure of inflation you're looking at, it's at least one and a half percent. Uh. And those who are arguing, why do you hike rades? Why do you tighten policy?

What inflation is so low and not showing signs of acceleration, And one of them is an argument based on sort of the rate of change, what do we need to do to change policy because of inflation? And the other one is to say, let's get policy back to a normalized level after this ten years of crisis, and that does require having a different level of the Fed funds rates, So it's kind of a rate of change argument versus a level argument. Let's talk a bit about dollar Mexico here.

You've written about that in a in a recent note, Bob, and I'm looking at it here and where at levels we haven't been out since the election. Uh what what accounts for that? How worried are you here about where where dollar Mexico might be heading? Boy, you talk about round trips post election and and and recently. Um, that is one of the biggest round trips. Mexico was in the in the Blueberg rankings of extended major currencies thirty

one currencies. The Mexican peso was ranked thirty at thirty one in the second half of last year and first year to date this year, complete round trip. Um. Look, I think it's a it's it's a microcosm of the dollar story in general. Uh. We we had a very large short position in the pace, so long position of the dollar versus the pace. So at the end of the year, after all, you're going to have fed tightening

that's probably bad for the pace. So you're going to have a border wall, You're going to have renegotiation of NAFTA. A lot of reasons for the market to be very negative to pay. So we've heard a lot less rhetoric about things like the wall and disagreements about NAFTA. Obviously, a big adjustment in uh in expectations or some adjustment and expectations about what the Fed will do, and those big short positions in the pace SO have gotten squeezed. What's kind of amazing to me now is we've gone

to the opposite extreme. We have a multi year high in the long positions in the in the pace SO and in the speculative community, at least according to the CFTC. We have oil prices lower, which would normally be a negative for the pay so. We have interest rate spreads. You look at five year interest rate differential between the US and Mexico, and the Mexican advantages started to come down in the last couple of weeks. So I think the market has gotten very complacent about dollar mex As

I said, it's been the best performing currency. A lot of folks have probably lost a lot of money being short to pay so this year. Um, but right when the market gives up on a position like that, that's when I think it's time to go the other direction. And I think, I think as we look out over the next three months, Uh, my favorite long dollar position

now is shifted from pound. At these levels, I still like the dollar versus the pound, but I think our favorite position would now be long the dollar versus the Mexican pays. I look bother at this and I guess I got to go back to Sterling with the news flow we've got, Now, what does Prime Minister Johnson mean for Sterling? Can you hazard to guess that? Or is that just so arbitrary and irresponsible I shouldn't even ask

the question. No, I mean I think that that Look, you know, Boris Johnson has had a pretty um significant rebound in terms of his political fortunes over the last six to nine months, and you look around the world, particularly places close to us around the world, he doesn't seem that extreme anymore. So, Um, you know, I think that's a that's a that's a potential outcome. It would tilt the UK back towards more of a of a harder line on the whole breggsit process. Um, you know,

I find I find this very interesting. Who would have thought two weeks ago we'd be sitting here saying or three weeks ago, oh, we're gonna have political certainty in France with a with a party that didn't even exist eighteen months ago, and we're going to have political uncertainty

in the UK. I mean, it just tells you how how volatile these more these these politics fool environments are um and you know, sort of good news for France, I hope going forward, Bob, since thank you so much for Amazon pierpoint this morning, as we walked through that linkage of the Lippus paper, the global system of foreign exchange market into yields yields higher risk on curve is really not steep and all that much yet it has

but it's just just a teen sweens. Let's see if a level four, David, but the two year yield one point. I dutifully trotted out the lollipop chart, and I was surprised I hadn't looked at it in a while. Day it's like five weeks ago, and give it out to select people. But anyways, the lollipop chart shows higher yields and one point three four seven zero on the two year is June is busting out all over And you go on to the other means one of the one of the let's let's before we do that on Bloomberg

June July September twenty. That's a long distance from July to September twenty. So in that from June fourteen, there's three jobs reports before September. So that that's pretty cool, Brunt you by Bank of America Mary Lynch. With virtual reality, virtually everything will change. Discover opportunities in a transforming world VI of a mL dot Com slash VR, Mary Lynch,

Pierced Fenner and Smith Incorporated. It was April fifteen, eighteen ninety two from Mr Edison and a host of others established a company called General Electric with the modest exception of when Nick came in. Jeffrey T. Spray is followed ge from most of those hundred in twenty five years. He's a legend and industrial research on Wall Street with his vertical research partners. We welcome the tank commander Jeff Spray. Jeff, good morning, Good morning, Tom, thank you very much. What

happened with Mr mL? Did he just simply overstay his welcome? Yeah? Tom. I think the short answer here is, um, you know, there was a lot of trials and tribulations with capital deployment, and all of the Jeffs left, you know, a positive mark on the company in many ways. Obviously the stock has you know, lag very substantially over his tenure, and I think the pressure finally built in the in the board decided it was time to make a change. I did the recovery from O nine as part of the

email tough times chair, what a great recovery. What's but in the last twelve eighteen months, why the almost bear market in GE shares, well, Thomas has been this increasing focus and I think rightly so on on ges cash flow over the last eighteen months or so. So we we got that very big bounce in the stock in

when when Tryon got involved in that. You know, that sparked a lot of investor interest, but the actual uh, you know, uh, operating results have struggled somewhat over that time frame, and we've had this increasing disconnect between the cash flow and the earnings, and I think investors rightly have focused more on the cash flow metrics in terms of a proper valuation approaching David Garrow from three years ago twenty one billion free cash, thirteen billion free cash

and then down to the recent challenges and acquisitions of actually negative free cash, modeling back to only eleven billion for fiscal year seventeen. That off the Bloomberg David Jeff, help us look ahead here at what you think this this company's thing to do? Obviously, there'll be a new leadership in place. We've seen GE spin off it's it's finance unit. Do you think we're going to see more

spinoffs going forward? Well, it's a really interesting question, David, because if you look at John Flannery's background, although he's had some very successful operating experience recently in GE Healthcare, he also has a business development background and spent a lot of time in GE Capital, which always involves buying and selling things. So I think that does kind of spark the question of the debate about will he do something more dramatic. Clearly he'll want to put his mark

on the company. That one thing I would note that currently, you know, my some of the parts value on the company is about twenty four dollars. So that makes it a little tricky to do wholesale dismantlement because you kind of lay bare that valuation disconnect and that that's twenty four dollars would be before we think about any disynergy

from corporate or tax or other things. As you know, and you take a part a company like this, if you as as you watched him this play out with the with the activist investors, with Nelson Peltive trying partners. How well has he handled that that pressure? What lessons are to be learned by the way that that's been navigating. You're asking a questions from from a Jeff mmel stands, Yeah, exactly. Uh, you know, I think he you know, he addressed it

pretty straight on. I think they they showed kind of, you know, an open attitude towards it. You know, they didn't they didn't dig in and fight, you know, so I think there was an acknowledgement that try and brought some good ideas to the table, and they were willing to kind of think about what they were saying and work with them to some degree. So from that standpoint, you know, I think they handled it the right way.

I would just say, though, you know, just the gravitational pull of the valuation though, was just kind of worked against the company in the back of the envelope. Uh. Skill set here is to look at the margin down the income statement. You mentioned CASHALA earlier. Maybe it's ebadar earnings before interest taxes and the other stuff. I didn't

pass on the see it. But but Jeff, there's a compare and contrast here to U t X and to Honeywell and GE is nowhere near that, even at sixteen cents on the dollar down to E, but U t X and Honeywell are generating a lot more. Is that easily fixable? I don't think it's easily fixable, Tom. Some of it is, you know, is the difference in the business um and so that you know, you don't fix

that overnight. And one thing that I would say though, is that if you look at G's cash flow, UH cash flow margins, so free cash flow is a percentage of sales, it's actually very similar to U t X and companies like a BB and Siemens who would be there.

They're close piers. So one of the conundrums that I think Mr Flannery has is that's cash flow is not poor per se, it's actually that the earnings construct that is a quote unquote operating construct and excludes a few things, has created this large disconnect between what the cash flow is and what the EPs is. Okay, over their data just too much. We're never ever Jeff Sprague on again. Jeff,

thank you so much. Great really honored to have Jeff Sprague on with this with Vertical Research UH this morning. He's truly a legend, almost that I first met Jeff Sprague, Uh, David Garrow with his writings. What you meet analysts when they write, because writing is what matters. And he wrote these brilliant short essays for bear Stearns. This is a million years ago and and it was sensitivity analysis, and you know all this this typical stuff of industrials about

what not to do. That was not a ringing endorsement. I don't I don't you know, we don't do buy old seller, folks. But we've given you a number of opinions this morning, uh particul Karen Earlhart from Bloomberg Intelligence on very short notice. Joy this as well. Great to hear from Jeff Fake. And we'll get Nicholas Hayman out among the others here in the coming days, Mr uh Mr Flannery's General Electric. This is what Bloomberg surveillance is all about, folks. We have honored to bring you our

coverage this morning of General Electric. And we finished strong for calling us from O'Hare. Nicholas Hayman with William Blair. Nick, thank you so much for joining us as you wait for the plane. Nick, it is the changing of a guard. Is it a generational change? A g E. There's that new brooms syndrome. Will Mr Flannery move a lot of people in and out? Um? No, I don't expect a

whole lot of change at all time. Actually, I would say at this juncture, you're more likely to see a lot of the changes that have really, you know, been structurally put in place since maybe April seem when they announced the Alpha energy. These are all going to comminate. And now if you do have as you saw on the first quarter, with the exception of free cash flow, much stronger fundamental performance, we think the free cash and the cash from operations will be much better, uh from

the second quarter on out. And if that's the case, you actually have now a new CEO who's a pragmatic leader and who in turn gives an opportunity for that

enhanced fundamental performance to actually benefit the share price. Under Jeff who was a very strong leader, but it was very tended to be a big optimists Okay, uh, coming from sales and marketing background, Um, that aspirational nature had basically uh warnt ben I guess the best way to say, a lot of the institutional investment community, and in turn, the traction from the improvement of all these changes to exit largely most majority of financial services, and then to

really supersize your p our business. And now you're oil and gas. You're now a chance for this finally actually all all the improvements in the fundamentals to actually now benefit the place. Many would agree with you, and you see it from a share price from ten to thirty off of the onine bottom. Brian moynihan, among others, Mr corbetted City Group would kill for Jeff m l performance

off the bottom. You and I talked twenty four months ago about Jeff m L arguably being CEO of the Year in the way he had to reinvent his generous electric Why is he being shown the door now? I mean, I get flannery. Maybe it's a generational change and that, But what exactly did Jeff m L do wrong? I don't think it was so much wrong per se. But when you know in late fifteen he laid out a

vision for two dollars and earnings by the end of eighteen. Okay, um, the guy the stepping stone to get there, the dollars sixty dollars seventy this year, people are comfortable that that range could be hit um. I think it may be

at the opera end of that range. We'll see. But now I think the biggest, in the hardest part was for investors to understand how you could go, say from the dollar sixty five to two dollars, without any external benefit of tax reform, of US infrastructure modernization, or any of the other initiatives that were, at you know, one time, widely expected to occur under the Trump administration this year.

Jeffrey Emil sat down with a John Micklethwaite, editor in chief a couple of months ago, I think it was back in February and Boston, and he asked Mr Emil how he's changed the company, and he said, uh, it's more global, it's more focused on the customer. When I became CEO, he said, we were seventy percent inside the United States. Now we're seventy outside the United States. As we begin to to look at his legacy at G is that the biggest part of it. That's one of them.

You know. The second will be that he's certainly at the very leading edge of figuring out how to convert into the digital organization that can create value um from from information and all of the insights and UM you know, continue to push with those analytic insites to a company that's masked customization in terms of what they produce UM. You know with additive metal manufacturing. So there's a lot

of transformational nature of what how you buildings. But you're moving beyond the based products, beyond the long term service agreements, and even beyond the software to now you know, add as a fourth way to create value of customers information. Nicholas Shalman with US with William Blair, thrilled to have him on after talking to a number of other g E types this morning. Nick came in, how do they put three D basis points on the IBADA margin? You

come down the income statement. I believe they're underperforming U t X, underperforming aneywell and on and on and on. How do they strap on a better IBADA margin? Well, you know, you're certainly taking these structural costs out right, a billion this year and a billion next year to get down to twenty two point three billion and total structural costs. I think you know, we were just out recently to see Bill Rout, who runs to Digital and UM.

I would honestly tell you in our framework that there was the expectation that after investing aggressively to build out the partners for the Predicts alliance as well as UM several major M and A acquisitions and train about thirty thousand independent software programmers, that seventeen and eighteen were supposed to be the breakaway years for digital to contribute incremental sales and earning scrut to ge and clearly in my mind that will occur in eighteen and on not seventeen.

So you know, UM, I think I think as you look forward, the things that are really going to be internally uh catalysts capable catalysts for g V will be the ability or to be digital to move from conceptual productivity,

internal enhancer to actual strong third party sales. And I think the second thing will be pretty pretty timely transformational burger uh go on gas would maker use he take and move away on gas from ten percent of g and instead of North American upstream that's growing, it's now sixty. So in the second half of this year you're going to suddenly see really a drag racer acceleration in the performance of what is now going to the company. It's amazing.

So you see the difference there David girl in Nick Cayman's tone versus what even earlier is optimism? David jumping with one Yeah, Nick, I think it was last month jeff Eymilt was saying that he has as much as twelve billion dollars in unallocated capital, ostensibly the use for for acquisitions. Do do you expect that to be deployed here under mr Mr Flannery or is there going to be a more wait and see approach here with this leadership changeover? I think that, um, you know, is anything. Uh,

you have a couple more investors coming here. They'll consumer lighting, business, doustrial solutions. They closed at the end of this year imminently of your water. Um he made. Take a look at the medical portfolio. We just had seemens who are follow h four weeks ago get up and have their kind of webcast debutants party for their health plan years. And that is you know, they're gonna e merge that they're gonna I p o it, They're gonna spin it

out and so much like they did with Lighting. Okay, as from a little ahead of gus decision to to to exit the lighting, so I think that there will be an evaluation of perhaps parts of the healthcare portfolio. Having you know, John's background in M and A and

strategic planning prior to writing healthcare. He's as good at hand if that is any And that portfolio GEES is actually much more valuable than the one Healthlan years the seams because they have gone so much further into by a pharma and that's really where the growth and the returns are going forward. The other businesses are performing well, but they don't hold the same you know, uh future

you know growth potential. Nick came in one final question by hold Cell. Please frame, uh, please frame where you are on bi hold Cell. We are you know, outperformed and um we uh we believe amongst the large camp stocks that we industrial stocks, that we found them all the industry. Second, this is hands down the number one. It's trailed and yet it's fundamental text you know, um,

they cash flow. They have really started to rebound. We've seen tremendous orders here from Vietnam and from Saudi Arabia in the last couple of weeks. We don't think that there's any fundamental hiccup or even shortfall as many have alluded to for the cards to the dividend being able

to be paid and sustained. But in fact what we do see is we now see an ability to take and convert what should be a lot stronger uh tast from operating activities over the next three quarter, second third and the next year to be to be aligned with you know, um much much better still this year price this year, price of them. You know, if you're all all even with everybody else, just moving along with everybody.

And it hasn't been and the message has battle try has been were gonna cut the dividend and the Matthew isn't even remotely there. Okay, you wouldn't be buying back, you know. I think it's all gonna come out. Nick, Thank you, Thank you your troopers. William Blair from o'harrey International Airport today. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

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