Bloomberg Markets Full Show (11/09/2021)
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. She stayed the night with him in London tanning having New York with 30 minutes into the trading day in the United States from London on Guy Johnson Alix Steel pulls over in New York. Welcome everybody to Bloomberg Markets. Alex NYSE is a little soft. The S&P down right now. We rally into the close. We get nine days higher. Last time that happened. Nineteen sixty four. Really. I love that. What was the top song in 1964. Go look it up. That should be a good thing that we should play it. Even before my time. Even before it. It just. Just. OK. Some point to the equity market. Very interesting in terms
that nine day rally. The other kind of action here is what's happening within the bond market. Look at the 10 year yield. You have yields down now by about 5 basis points. A lot of buying coming in particularly the long end of the curve. We get 30 billion dollars worth of 10 year notes coming in an auction at 1 p.m.. So watch that take down now. S&P now though down four tenths of one percent. So we might not get that 1964 record. And you have the utilities that are leading the way like utilities and real estate and consumer staples. So all the safety kind of trades doing the better than the S&P IGT. Obviously the performer will get to that in just a second. So you have it feels like a risk off but then you get bitcoin which
is up by almost 2 percent. So maybe we can't look at it as a risk on risk off kind of scenario throughout the day and crude up by six tenths of 1 percent at o'clock. That's me. My game time. We get the E I a short term outlook report. Everyone's kind of putting a lot of money on that in terms of will we get an SPDR release more oil coming out of the US and that's going to definitely move the bond market guy. Yeah absolutely looking forward to that what's moving the bull market around at the
moment seems to be. Paul Bremer. Paul Bremer. What are we gonna get a decision on that. So let's talk about the top stories we're watching this morning. Bloomberg's Amari Hall done in Washington. Is it gonna be. How is it going to be Brainard. When are we going to find out. Please let it be soon. Mike McKee breaking down the U.S. CPI data and critically looking ahead to the CPI number tomorrow. And General Electric splitting in two or three units. Caroline Hyde.
Joining us with the latest on that. So let's first of all deal with the power brainer debate. When are we finally going to figure out which way the president is going to jump. Annmarie Horden joining us from D.C. with the latest. Well we just don't know the exact timeframe. When we asked the president this in Glasgow he had said we'll know sometime soon. But now it does seem like it's coming a little bit closer. That decision with the fact that Bloomberg News our colleagues are reporting that when Governor Brainard was at the White House last week to meet with the president it was to interview for the top job. Many
have speculated potentially he would keep Powell at the top job but put Brainard as part of the supervisory chair position that Quarrels is leaving. But now we know that Powell potentially has this serious rival. But a lot of questions still remain. Michael McKee actually is a great threat on Twitter. He's going to be coming up next. But potentially will she have a little bit hard of her confirmation hearing. Is this something that potentially Biden wants to extend some political capital on. It would definitely be a nod to progressives who think she's much tougher on banking regulation even though Brainard and Powell really are lockstep when it comes to monetary policy. The changes would be in terms of banking regulation as Mike points out ESG policies especially climate change. I think one thing we should note though over the summer our reporting was that Treasury Secretary Janet Yellen told the economic advisers around President Biden that she supports the reappointment of Jay Powell. Is President
Biden actually going to ignore the advice of Treasury Secretary Yellen a former Fed chair herself. All right everything flap bloom hammering her during. Joining us there. Can be really interesting. It's kind of like what's taken so long guys. All right. Let's get to the deeper debate then. We stick to the economic news. Got prices paid in the US producers accelerated in October. Of course that fuels concerns our persistent inflationary pressures. And then you get the rally in the bond
market. Something odd is happening out there. Michael McKee Bloomberg National Economics and policy correspondent is with us as well as to breakdown Palin versus Brainerd. Alex it doesn't matter which person is the Fed chair there's still going to face the same problem in 2022. And that is inflation. You see that PVI for final demand which is the headline number and CPI core.
Both are up. It was a no change month for both of them but that means they are still both at records. Now this doesn't get a lot of attention on Wall Street. What really matters to people on Wall Street is the PCC which is the Fed's favorite indicator. And the CPI which comes out tomorrow. So how will this influence the CPI. Well the CPI is expected. The forecast to go to five point nine percent which would be the highest in decades and four point three percent of the core. The headline is higher because that includes of course food and fuel. And according to the Bureau of Labor Statistics the PPA was heavily heavily influenced by the price of gasoline this past month. And so where does this leave us going forward. Are you going to feel a political impact from this. Well maybe
not. You take a look at this. The white line is the employment cost index. This is how much the raise you've gotten went up over the past three months. And these are the inflation indicators that PPA the CPI the PCC and then the CPI is the purple one. And you can see that CPI looks really really bad for you. But the other indicators are not quite as bad. And if inflation
can keep up with pay checks can keep up with inflation. That might work for the political side of this with the president. He's got to hope that we keep getting more money to workers and less. But he's going out the door for oil and fuel by the way. Guy and Alex I can tell you 64 pretty obviously the Beatles. Yes. I want to hold your hand was number one and she loves you is number two. But number three you will never guess what. Hello Dolly. By Louis Armstrong. No actually I would never. I knew you would never get that. No. But now you say
she's now claiming that she would have got it basically is what she's saying here. Yes. Much of the annoyance of my father. I was never a Beatles fan. You can't say that you're British. You literally can't say that. It's like blasphemy. I know as I say much of the annoyance of my father. He finds it bewildering and. It's been a family debate for quite a while. Mike McKee thank
you very much indeed. Looking forward to the continuing conversation around what is happening with the data. B what is happening with the Fed and who is ultimately going to end up leading it. So let's talk about the GS story. I spent a large chunk of my career working for G.E. the once mighty American global rates.
We now know is going to break out. General Electric will split into three companies. The first one is going to focus on healthcare. Then we're gonna get power. Then we're gonna get aviation. It's the most sweeping and significant change for G.E. well forever like it says on the screening of tournaments. It's Larry CAC became CEO in 2018. I would argue 2008 the pivotal
turning point. I remember being there at that point. And once the financial crisis hit and sort of finance started to experience problems maybe this was always on the cards. Currently Hart senior analyst for machinery at Bloomberg Intelligence joins us now. And that's my question Karen. This felt this feels like it's been kind up on the cards for a long time. My question therefore is why did it take so long. A couple of things. Of the debt structure had to get in much better shape. They were very over levered. They needed the cash flow from health care and aviation. They weren't in a financial
position to do it. They are now with the sale of the aircraft business. They now will have debt down 75 billion dollars. So that's that that's the timing part of it. Frankly I think the timing of the announcement was a surprise premature earlier than I certainly expected. The timing of the split the plan timing though sounds really
right. Health care first. The other the power business later 2023 24. Aviation will be in very good shape. So the timing sounds right. If you take a look at the different valuations each of these companies alone will command which has the most upside from right now aviation. Aviation is under earning. I mean the rebound is happening faster than expected because of commercial aftermarket. But the earnings power of that business is so much higher than it's higher than it was in 2019. Once we get the full recovery. So that's the best business. Health care is also a very good business. It's been a good business. It really hasn't run into problems. They'll now be able to be more focused do more M and A
know get more growth your businesses. So that makes sense. And power the power the basket of power which is renewables and power and a little bit of digital that's still going to be not a great business but it'll be a fixed business. I put fixed with quotes you know on mid single digit high single digit margins low single digit growth not a great business but it will be earnings solid money. So that's that's the time. Karen thanks a lot. You've been covering this for a long time. You've been calling for this for three years right. So finally it's coming. They're accountable. Hard Bloomberg Intelligence thank you so much. A programming note Larry called General Electric chairman and CEO. I'll be joining Balance of Power today at twelve thirty p.m. in New York. Five thirty pm in London. Definitely don't miss that conversation. All right. Kind
of got stock trading a little heavy here. Looks like we don't want to hold our hands S&P 500 and easing off as long as France's 2017. Is this the end of the winning streak. Emily Roland J.H. Investment Management co chief investment strategist joins us next. This is Bloomberg. Live from New York I'm Alix Steel with Guy Johnson number in London. This is Bloomberg Markets. So one of the big expectations of yields rising this year is the value stocks would actually surge in China beating growth. Guess what. It hasn't actually worked out. Joining us now is Bloomberg to Abigail Doolittle. That was
sort of the consensus for like a second and it just hasn't panned out yet. Again. Diet can't get the bid. It really has not panned out at all. And this is a stark reminder. But overall we have growth up about 28 percent on the year value up about 20 percent. Not so shabby for both. But to your point Alex Tesla and video up huge huge way. And on
the other hand some of the top value stocks Disney and AT&T actually lower on the year. So it is a busting of that idea that using rising yields would really help out value. It just hasn't helped out that way. Worked out that way. But also when we take a look at valuation we're gonna see something interesting happening which is the spread between value and growth has really widened. So back at the end of 2018 the value P was almost 13 times for growth. It was almost 19 times. So a spread of six. Right now we're looking at almost a spread of 15 value trading at about 17 times growth trading at thirty one times. This may suggest that there could be some catch up for value ahead something that
everybody's been waiting for for a long time. That's not working out that way yet and tying it back to you. If we go into the Bloomberg terminal and take a look at what's happening here is again rising yields supposed to help rising yields. The 10 year yield up about 50 basis points on the year in below. It's been a very choppy ride but below we have value versus growth and value really just not performing at all. Growth taking the cake. Amazing isn't it. Considering where we were and where we've come from and the message that was delivered earlier on this year Abigail thank you very much indeed. Bit of breaking news. Hurts
indicated to open twenty nine fifty. The offering offering priced twenty nine. So we're kind of picking up so we're kind of twenty nine twenty nine fifty were basically around the offer price. But if you think about where we've come from that's an amazing results. Yeah absolutely sensational results. This was a company that was on its knees Alex. And to come back to the market in such form and to be able to basically deliver this kind of a share price turnaround. Sensational. Yeah I'm sure the whole E Tesla thing didn't hurt matters before the IPO. But from bankruptcy in this it's
definitely a big bet. Also this shows the kind of money that was in here to the back of this while at some point from a meme stock remember when it filed for bankruptcy and then it could still win it by issuing shares. I mean yeah that's crazy. Oh all kind of normal practices. Normal. Normally what you would expect to happen thrown out of the window. Yeah. Anyway we'll come back. We'll see what exactly what it opens and what it looks like when we get to that point. We'll bring you the news a little bit later on when that happens. Okay. Let's talk to Emily Roland's J.J. Investments Management co chief investment officer. Emily is worried that there aren't enough bears about
this market has lost its bearings. If you get the joke. Emily thank you very much indeed for your time today. We've had record high after record high. We're a little softer today. But if we have nine days higher we haven't seen that since 1964. Apparently that was when the Beatles were in charge of the charts. Emily how big a problem is this. And what do you think
about these markets right now. Are you comfortable with where we are or are you worried actually was setting ourselves up for disappointment. Well thanks for having me. I'm still a little bit worried about the fact that you're not a Beatles fan guy but I think we'll have to go back to that one later on. So you know I think what's interesting about this market right now is that
it does have a lot going for it. The economic data has been surprising on the upside. You know last week we saw U.S. services PMI ISE at a record high. We saw the U.S. economy add over 500000 jobs with significant upward revisions to previous months. And the fundamentals are great as well. Q3 earnings season really couldn't have been better. Thirty nine percent year over year growth reflecting this really strong demand backdrop. And then you've got some significant risks that are fading. Covid certainly is one. We've got these new treatments announced. We have kids now being able to get vaccinated. Know
higher taxes are fading as a risk at the margin is this infrastructure bill gets watered down. And then finally you've got a ton of cash on the sidelines. That's looking to get deployed. The challenges is that we're starting to see these pockets of speculation building again. You've got small cap stocks stocks ripping. You've got you mean stocks coming back into the narrative you know and you've got bears really starting to capitulate. I've seen it significantly on Bloomberg over the
last few days. Some of those bears that we've heard from over the past few months saying that they're waiting to buy the dip. They're not waiting anymore. If you look at the Bank of America fund manager survey a month ago investors were bearish. Both stocks and bonds. And clearly you know that was wrong. So when we think about our view heading into next year it's really about don't get too comfortable in the fast lane. Don't overreach for risk in this market. And in fact we think it's going to be important to be more thoughtful about layer and how you're invested into next year. So Emily does that mean that you want
to sell rips and then put and then put some cash on the sidelines of them buy the dips. We want to sell areas where there is speculation. We want to sell the highest most cyclical areas of the market. We want to say things like commodities as we head into next year. And we want to embrace quality. We want to look for stocks or sectors that have great balance sheets good return on equity great earnings prospects as we head into next year. You know in the previous segment there was a conversation from Abby around valuations. And you know we tend to look more. Of course the PE
ratio has a numerator and a dominator. The numerator is prices the denominator is earnings. And we think the denominator is more important. And when you look out into next year the quality growth sectors that we really like areas like technology and communication services are showing the best earnings growth prospects along with some higher quality cyclicals like industrials. When we look on the value side those earnings growth prospects are actually starting to fade. The financial sector is showing negative earnings growth for 20 20. So we want to be very mindful of that. We just want to notch up on quality. We still want to embrace equities. This is not an overly bearish message but as the economic growth backdrop slows you want to be
more careful about where you're invested. So you still want to embrace equities. Let me ask you therefore the question that I asked Kate Moore yesterday her her answer was absolutely. Do you want to be fully invested at this point. You do. You know we continue to embrace value and growth. So you want those higher quality value stocks. You want to own growth stocks. You want to also have a balanced portfolio. You hear a lot and I know it sounds boring but you hear a lot of folks
talking about sort of you know the death of fixed income. You don't want to own bonds in this environment. We actually think that you've got to own a combination of higher quality bonds to offer that buffer. If we see volatility next year which we do expect. And you want to pair that with corporate bonds particularly in the triple B and the double B space in order to capture that additional yield. So we still think that equities need to do a little bit more of the heavy lifting here. We want
to own bonds in that intermediate part of the curve. There's great roll down potential there where we don't want to be. Guy is in cash. Cash is simply going to be a very very inefficient asset class. The Fed we think is going nowhere. We think rates stay lower for longer. And right now of course you're losing money if you own money market funds or cash where frankly a lot of the flows are actually going. Ali before we let you go we started talking in the show about Lael Brainard versus Fed chair
Jay Powell. The excuse for the rally in the bond market yesterday was that we may get Lael Brainard fed chair. How do you factor that in. How much do you care about the two between the two of them. Who leads and how does that affect investment decisions you may make. Well I wouldn't overemphasize that as a key catalyst for the market. And first just to answer the question around bond positioning you know we look at the rally that we've seen in bonds it's just a shift in positioning as investors were overwhelmingly position prior to the Fed meeting for rates to back up and those positions needed to be unwound.
And that's one reason that we think that we're seeing this rally in bonds. As far as the decision between Brainard and Powell probably won't put much of a dent in markets as we've just talked about. Not much. Ken right now. So we don't think that that event will cause significant volatility. The challenge for if we do see significant turnover on the Fed which regardless of who the chairman is we are going to see significant turnover. This cycle is moving quickly. This is a new Federal Reserve that could get put to the test very very fast. And we've seen with Powell that sometimes it takes a little bit of runway to get
that communication just right to get that messaging just right. And that could be a challenge as we have a more kind of junior group of Federal Reserve officials into next year at a time that the economy is slowing and inflationary pressures potentially need to be snuffed out more quickly. All right Emily thanks a lot. We really appreciate it. Thank you very very much. Emily Roland of JH Investment Management thank you very much. And just to update you on what's happening with Hertz we're looking at
indicating open about twenty six dollars of stock offering. A member was priced at twenty nine. Tom Brady apparently also just tweeting to the moon in a Hertz reference. Ago we spoke to Tom Brady earlier today about about Hertz and its IPO today. We'll keep you updated on the price. Still ahead robots investors reaping the rewards of teen staying glued to their phones even as the Covid lockdown eases. This is Bloomberg. OK. Let's talk about what is happening in the market right now. Mobile gaming company roadblocks managing to double its Q3 revenue once more. Even as kids go back to school they've Wilson
looking at the numbers and the pop the we're seeing in the shed this morning. Yes quite the pop guy no question. And bear in mind roadblocks is one of these companies that when you talk about the metaverse it has to be part of the conversation. It's not just Facebook and it's metal platforms parent company. You know it's roadblocks. So video games people can create their own games. They can share them with others. And that model seems to be working out for him at a time when we're seeing other companies kind of struggle to hang onto their business. You know in light of the Corona virus pandemic easing robots doing just fine. As you mentioned more than doubling its revenue in the third quarter as it did in the second quarter and in the first
quarter. And we should bear in mind this company's only been public since March. So you know quite the start for roadblocks. I mean it comes at a cost no question when you look at sort of how the results break down things like developer fees and person now and all the rest that kind of leaves them with an operating loss for the latest quarter. Though if you make the adjustments it turns out that they had earnings that beat analysts average estimate of Bloomberg sorry. Similar survey but similar story
with revenue. So do roadblocks gets a boost from analyst as those results do look better. But hasn't the games industry been really closely tied to the pandemic. So I just wonder what happens as the re-opening trade which we're still seeing has more juice. I think there's no question if you look at an index of video game
makers it peaked back in February down as much as 25 percent this since then. Roadblocks though really kind of define the broader trend. I mean you're talking about a stock that's set a record today and their average daily active users actually rose in the third quarter which is saying something. Yeah. Now it is indeed. That guy's kids are still playing basically. All right.
Thanks a lot. Dave Wilson good to chat with you on that. All right. Coming up COP 26 is still in the thick of it. Christiana Figueres and Global Optimism founding partner and former executive secretary of the UN Framework Convention on Climate Change. We'll get her take. This is Bloomberg. Maybe the next generation is going to give us absolutely zero emissions. It's important for us to recognize that as was true
five years ago. We have not done enough. World leaders haven't up to this point. Delivered on their promises. They haven't acted fast enough. What excuse should we give for the future. This is not a secret. That COP 26 is a failure. Don't need any more distant non-binding pledges. We don't need any more empty promises. We don't need any more commitments that are full of loopholes and incomplete statistics. And that ignores the historical emissions and climate justice for any government. It's not as simple as flicking a switch that our careful transitions that need to be
done. That is an energy transition. Those are some of the heaviest hitters in global politics and activism in the environment saying that there is a lot more work to be done. That's all coming on the heels of COP 26. And currently House Speaker Nancy Pelosi is also in Scotland. In the US congressional delegation to COP 26 is holding their news conference in Glasgow. I'll bring you any headlines that cross as we go. Let's get a report card on where we are. Christiana Figueres is Global Optimism founding partner. She's also a former executive secretary U.N. Framework Convention on Climate
Change. Was one of the architects of COP 21. That's when we had the world come to an agreement. COP 26 is what we kind of get more details. Christiana I know you've been looking at all the headlines that have come out of COP 26. A lot of big promises. Can you grade for us how you think everything's going. Yeah. Hi Alex. Thanks for inviting me back on. Yeah I would say there's definitely been progress and much more progress needs to be done this second week. I would actually choose three big ticket items. Number one one point five degrees is the new two degrees. What that actually means is that we thought several
years ago that a maximum temperature rise of two degrees would be more or less. Okay. It's not. Scientists are screaming from the rooftops that we have to actually be able to limit warming to one point five. So that is actually very important. This is the first cop at which there is unison agreement has to be formalized at the end of the week but it is definitely clear that one point five is now the new two degrees. The second point that is a big ticket item is the role of nature. All of a sudden
it has exploded at this cop with 100 countries pledging to reverse deforestation by 2030 and 20 billion dollars of public and private funds being allocated to that to that challenge. And perhaps the most exciting thing Alex is how the finance system is moving at this cop. We had more than 450 financial organisations in the financial sector including banks fund managers fund asset owners insurance companies in more than 45 countries pledging to move one hundred and thirty trillion dollars of funds to a decarbonise or decarbonise portfolio. So that three I think very very important big ticket items with a lot still to be done. Christine is Guy London. One point five is the new 2 percent for those that were present
at the meeting. The problem is though China wasn't present at the meeting. Plenty of other important countries weren't present at the meeting. How effective can this already be if those countries aren't on board. No there are they are on board. Just because they didn't come. Doesn't mean that they're not on board. Actually it is odd.
China and India are very much moving toward a one point five degrees because they know that it actually can be quite dangerous for them if we don't do that. So those are not the countries that have been on that have been a problem. The country is not ours. Still having a very hard time accepting the fact that we have to decarbonise the global economy are actually Australia Saudi Arabia and Brazil. And for for obvious reasons. But I have I have a feeling that even they will have to give in to what is by now a majority position on the responsibility that we all have to stand up to the exigencies of science. Christiana what role do you think that coal. I'll even say coal nuclear and natural gas need to have it feels like you can't win any way you
slice it. And that's been quite a disagreement. It feels a cop 26. In light of the energy crisis how would you think about it. Well on coal it's pretty clear no more new coal. That is absolutely clear. We cannot even afford to take the coal plants that have been mothballed because they are such stranded assets. We can't even afford to bring them back into operation. And Alex the very dangerous thing is that with these absolutely crazy gas prices that we have right now and electricity prices going through the roof because of gas prices there is some temptation in some countries to take those coal plants out of mothball and have them fire up again. This could be a make it or break it winter for many countries and in fact even for progress on climate change because of that temptation to put highly inefficient costly and highly polluting plants back on to onto the grids. And it only underscores how we absolutely have to invest deeper and much much quicker into cleaner energy. Is that
our of course all of the traditional energies by now solar wind but very exciting new energy that is beginning to emerge. So watch that space is actually using renewable energies to produce green hydrogen. That actually means that you can then substitute power coal power and gas in heavy industry. And that is actually going to be the most important contribution to the decarbonization of the economy. Christina what are we going to get a carbon tax a global carbon tax and what are we gonna get penalties for not living up to promises.
I don't think you're going to get penalties we went through that during the regime called the Kyoto Protocol which if anyone is old enough to remember I certainly do. But during the Kyoto Protocol we had penalties. And the only thing that that led to was that those countries that were not complying just pulled out out of the agreement 24 hours before the penalty would have been imposed. So that was a big lesson learned that is not going to happen. Much more important in terms of punitive measures is the peer pressure that countries are getting from young people for sure. Thousands and thousands and thousands of them on the
streets but also from scientists from anyone who is aware of what is going on. So I think punitive measures have been substituted by peer pressure and that has to remain Christiana. One thing that may bridge both is a carbon tax basically setting a carbon price. And I'm a carbon trading market. It's liquid. And that can be very much participated in. It still feels like we're far away from that. Every CEO that I talk to wants that. What do you think is the right price and the right structure
that will really incentivize change. Well what I know is not the right price is the ridiculous price we have now which is two three four five dollars a tonne. That's ridiculous. It has to actually go up very very quickly to perhaps even a hundred dollars a tonne in order to really make a dent. When are we going to get that global that global price. Well it has been lagging since the Paris agreement. I'm afraid to say in 2015 because there is not agreement from everyone either to make it a global market liquid as you say or in fact to do so with transparency and without double counting which is absolutely critical because a global market that has double counting it is not going to help us at all. So those are the two points that are still being discussed a cop 26. You know that last week there was some progress on it but still needs to be landed at
the end. Hopefully a much better space at the end of this week. Christie how should the proceeds from such a tax be used. Well I think one thing that we learned from the yellow vest movement in France is that yes you'll have to tax pollution but that funding needs to actually be able to support those who would be negatively impacted by a raise in energy prices. And that was a very very clear lesson that was learned and one that is at least in with intent already being planned by many countries because of that lesson. Christine were going to be there. Fascinating conversation we
hope for more progress to come out of Glasgow. We'll watch with interest. Christiana Figueres former executive secretary of the UN Framework Convention on Climate Change. We really appreciate your time and your analysis. What are we going to talk about next. The end of the road for G.E. in its current form. Dean Lee is from RBC Capital Markets is going to be joining us equity
research analyst covers G.E.. Two hundred and twenty nine year olds industrial giants that seems to be at least in its current form coming to an end. We intend to see where the G E name ultimately ends up. Anyway DeAndre coming up to talk about this next. This is Bloomberg. This is Bloomberg Markets Gupta and you're looking at a live shot of the principal room coming up Dr. Anthony Fauci. That's at 12:00 p.m. in New York 5:00 p.m. in London. This is Bloomberg. Let's check in on the Bloomberg first what these numbers can get to Space X has returned for astronauts from the International Space Station. NASA's crew to mission splashdown off the coast of Pensacola Florida late Monday completing one hundred ninety
nine days in space. The space agency was forced to alter its crew's launch and landing schedule due to disruptive weather over the past two weeks. In Nicaragua President Daniel Ortega has won a fourth consecutive term after jailing his less popular opponents. But the U.S. and the European Parliament called the election a farce. President Biden is pledging to use diplomacy to hold Ortega accountable for abuses. And in the U.K. Prime Minister Boris Johnson is under fire over a lobbying scandal involving a conservative party that will make ISE government has been openly accused of corruption in parliament. And even
newspapers that are typically friendly took aim at Johnson's party. A new poll shows his approval rating at a record low. The giant General Electric built by Jack Welch and his predecessors will no longer exist. G.E. says it will split into three companies focused on healthcare power and aviation. Health care will be spun off in 2023. Renewable energy power equipment and digital businesses will be combined into a separate unit that will be spun off in 2020 for the remaining companies. We'll be GS airplane engine operation Global News 24 hours a day on air on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries analysts can get to. This is the bad guy. I think very much indeed. Let's dig deeper in to that story. Geez trading 115 right now it's up circa 6 percent till the back
of this news. Our next guest has a price target of one hundred and twenty seven. DeAndre RBC Capital Markets equity research analyst joining us now. As I say outperform rating on the stock deal with trading 115. And we've got a nice pop on the stock. You got a price target of 127. What do you think the real breakout value of this business is. Yes. Guy thanks for having me on. We've been looking at G.E. valuation on a sum of the parts basis ever since Larry Korb joined with an expectation that there
could be a breakup coming. So our published some of the parts model suggests that there's at least 20 percent upside on a breakup value. This all has to play out over time. So we're not surprised to see some of that realized today on the announcement. But we see at least 20 percent upside from here. Wow. Which one would you want to own after this split. You know it's really interesting. That's the question I've been
asked most frequently today. And I have said all along if I were starting a multi industry company today I would want to be in the aviation business. The business model is so elegant that you get seven to eight times the revenues servicing a jet engine over its 30 plus year economic life at significantly higher margins. So if I had to pick one that would be the one that I
would like to see in the multi industry portfolio. That's a health care business as a leader. And the power to renewables are also a leader. But you asked me to pick one. OK let let's ask about it. If you had the opportunity to pick two. My question is why are they. Why are they splitting. Aviation and power. You look at what G.E. is doing in terms of the race engines it's putting forward the hydrogen power. It's working strongly with Airbus there. You look at the renewables business you think about what is going to go on there and ultimately the direction of travel that there seems to be some overlap. Does it make sense to split those two businesses off. You know there was that thinking all along that somehow aviation would still be paired with the power business. If you think about it a gas turbine is a similar technology as a jet engine.
It's only stationary and it's a tax to a generator. So there's all kind of synergies in terms of the technology but not in the end markets. And in the end this is an end market decision. And from that standpoint that that's the reason we're seeing them separated today. I have sort of the flip question of what guy ask. It feels like when you're looking at low single digit
growth and high single digit margins for the power renewable business. It feels like that's a utility so versus something that has the growth kind of potential in the cyclical potential of the aviation business. And the reason why I feel like that is significant is a for the rating. But B what a lot of energy companies are dealing with the energy transition like are we moving to this all being utility based versus like innovation cyclically based.
Well Alex you're exactly right. There is a utility aspect to the power business because the primary customer are utilities. You know there are some other Arrow derivatives go into some industrial applications. But for the most part it's a utility based addressed market. And I liked that you touched on the energy transition because the power business that we knew over the past several years is transforming rapidly into green technologies hydrogen. And the pace of change I think is going
to be remarkable at the power business. And the turnaround has gotten traction in the past couple years. I think you'll see a lot of change going forward. What does this mean for other industrial conglomerates. Is this just that idiosyncratic story. G didn't fit together. Others do or is there a lesson on conglomerates. You know there is an important lesson on conglomerates. And we've talked about this extensively. We've called this this trend of the pendulum swinging towards the urge to merge trend. So portfolio simplification you call it addition by subtraction
with the market. This these days is rewarding these multi industry companies for simplifying. And we've seen this happen. The last one of size was United Technologies breaking three ways. So in our note this morning we said it's the lot. G.E. is the longest anticipated breakup. And so it is finally underway. We do think there are some others that could be urged long. We
think the boards at companies like Emerson might take a second look. 3M has not participated in. They need this simplification on a go forward basis. So we think there are significant implications for the sector as a whole. So would that be your next best guess. Like a 3M like who will be first on that list. So the one that probably bubbles up to the top in terms of anticipation. And again we published on this extensively would be Emmerson separating their automation business from commercial and residential solutions. Dave Farr the ex CEO and chairman said that's up to the new CEO to decide. So it's come up on several day conference calls. It's not something they would be doing it from a position of strength.
If and when they decide to pull the trigger. Hey Dave thanks a lot. Really great perspective. We enjoyed chatting with you DeAndre RBC Capital Markets equity research analyst. And stay with Bloomberg Larry Korb and General Electric chairman and CEO. I'll be joined. David Westin balance of power today at twelve thirty New York time by thirty PM in London.
Definitely do not miss that. This is Bloomberg. It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now and which could get. Pelton is expanding beyond cardio. The company known for its stationary bikes and treadmills has launched its first strength training device. It's a 400 ninety five dollar set top box with a camera that guides users through exercises. Southwest Gas has rejected an unsolicited takeover offer from billionaire Carl Icahn. The company says the cash offer for seventy five dollars a share undervalues it and is not in the best interest of shareholders Icahn revealed last month. He holds a four point
nine percent stake in the Southwest. Gas and Netflix is making another attempt to attract younger viewers to its platform. The streaming service is rolling out a tick tock type feature aimed at kids. It's called Kids Clips and it will show short videos from Netflix Library of Children's Programs and Movies. Electric Shock A review on automotive prices. Its IPO today hopes to raise as much as 10 billion dollars and a listing that could value the company at more than 70 billion if the shares are sold at the top of the market range. It would be the seventh largest U.S. US IPO on record. And that is your business flash guy Alex. Thank you very much indeed. I think that's what half the now I've got to do is do my maths here. It's not far off half what
Volkswagen's worth. Which is amazing. Yeah. Absolutely amazing. But then I also think it becomes you know how much can they produce is the same kind of situation that Tesla was up against. One analyst and new straight research was saying it's only about 300 to 400 thousand units per year. There's going to be cut some kind of natural ceiling there for production but I don't know. Did you really buy Tesla for the actual production. No. You'd be better for the potential for the dream. OK. Yeah. And to get from A to B. Which considering that they have the range that nobody else seems to have at the moment was a huge draw. I just anecdotally talking to people about why they bought
Teslas. So yeah I think part of the dream part of the the opportunity and and they led the market in a huge way. Yeah. Really. And I I think Libyans really Anne's story is really initially a about the trucks that they've got there but also the kind of the more more more of a focus on kind of commercial vehicles and what's going to happen there. They've obviously got this relationship with Amazon which is going to be really interesting in terms of the way that that allows them to access the market. Clearly Amazon needs to figure out different ways of delivering products and doing so on a more sustainable way. So they're going to have the story. Yeah. And you know as of today it does feel like
really good tape for these kind of IPO is I mean Hertz will be very indicative also. But yeah at least read there is that it could open in 28. The offering was priced at twenty nine. So below the offering. But this is like a bankruptcy stock. Turned around quite quickly. And now to IPO yet again. So and if we are able to stabilize here the Nasdaq 100 sort of off though because Tesla is getting hit. But that's more idiosyncratic. Michael Barr coming out and saying maybe you should kind of sell shares if you are if you must sell shares to pay some debt. But aside from that it feels like it could be a relatively good tape because it's a pretty chunky IPO. Chunky. I'm using your words. This is so unfortunate.
Yeah it's bananas. It's it's it's a story though. Basically you've just that the halo effect of Eevee is amazing in terms of the impact that it has on the share price. And there was a really interesting notes out from Philip Schwab a little bit earlier on this week from Jefferies on Volkswagen. That seemed to imply maybe actually Volkswagen had taken that that too far. At the same time they upgraded their target on Tesla massively. Fourteen hundred. So they still see significant upside there. Some headlines coming through. Boris Johnson did travel Wednesday to Cop 26 in Glasgow to be entering. See actually whether that's an indication. We're gonna get some headlines on that. The European Close is coming up
next. This is Bloomberg.
2021-11-11 21:36
