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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: with David Gura. Daily we bring you insight from the

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Speaker 1: best of economics, finance, investment, and international relations. Find Bloomberg

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Speaker 1: Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of

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Speaker 1: course on the Bloomberg seth Masters. Join us now for

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Speaker 1: our Bloomberg and Lemon three studios. As I said, the

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Speaker 1: former chief investment officer Daby bernste great to have you

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Speaker 1: with us, and let's begin with that. With this news

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Speaker 1: about General Electric, what it says to you about the

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Speaker 1: company itself or industrials in particular. What we're seeing here

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Speaker 1: with this reimagining of our reinvention of General Electric, Well, look,

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Speaker 1: I think the General Electric almost defined the manufacturing age

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Speaker 1: for the United States and that we are now moving

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Speaker 1: into a world of increasing focus on services and information

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Speaker 1: and they need to pivot into that new world ahead

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Speaker 1: if they're going to survive. And this isn't an example

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Speaker 1: of the kind of renting transformations that have to happen

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Speaker 1: if companies want to try to succeed. It's not an

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Speaker 1: easy transformation to execute. Are we seeing a move forward

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Speaker 1: here or a move backward. In other words, are we

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Speaker 1: seeing a return to two general electrics roots, a paring

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Speaker 1: down of the expansion that we've seen here over the

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Speaker 1: last few years. Well, ironically in some ways yes, because

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Speaker 1: they're going to have to focus on some of the

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Speaker 1: businesses where they will have a sustainable edge as a

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Speaker 1: service provider, and and where are they in predicting where

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Speaker 1: do you see this company fitting and going forward? I

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Speaker 1: know that there was some word last week about the

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Speaker 1: calls for the death of the conglomerate. Are we seeing

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Speaker 1: that here? Is that what this portends. I don't necessarily

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Speaker 1: think it's the death of the conglomerate per se. I

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Speaker 1: think it's shifting from a focus on making things like

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Speaker 1: aircraft engines that you sell to somebody else who then

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Speaker 1: is responsible for them, to becoming a provider of aircraft

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Speaker 1: engine hours services that you meeter out for your users,

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Speaker 1: where you still maintain the engine and are responsible for it.

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Speaker 1: And of course the challenges that's a very big change.

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Speaker 1: The skills that are required are different, and at the

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Speaker 1: end of the day, it creates efficiencies for the system

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Speaker 1: and that actually shrinks the size of the market. I

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Speaker 1: just want to get your perspective before I moved to

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Speaker 1: to a broader theme here, just about the the import

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Speaker 1: of this, How how big a deal this is? As

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Speaker 1: I mentioned, John Flannery is still relatively new to the job,

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Speaker 1: scheduled to outline radical changes to the companies have just

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Speaker 1: been discussing how big a deal is this? Just contextualize

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Speaker 1: the moment for us, if you would, Well, I think

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Speaker 1: in the context of the US economy, it's a it's important,

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Speaker 1: but it's a modest deal because g is a large employer,

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Speaker 1: but it's a tiny percentage of the US labor force.

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Speaker 1: I think symbolically though, it does highlight a passing of

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Speaker 1: the baton from great manufacturing being the defining characteristic of

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Speaker 1: the United States to now being a smaller and smaller

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Speaker 1: portion of GDP, just the same way that once upon

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Speaker 1: a time we were an agricultural country too. Um, those

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Speaker 1: phase changes are very wrenching and and challenging, but we've

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Speaker 1: gone through them and the challenges to do that again.

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Speaker 1: Context there about the company. Let me ask you for

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Speaker 1: some context about this moment in particularly back in in

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Speaker 1: two thousand and twelve forecast we'd see down twenty thousand.

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Speaker 1: Here we are at now twenty two what do you

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Speaker 1: make of of where we are? Just from a broad

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Speaker 1: market perspective, I think where we are reflects the fact

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Speaker 1: that corporate earnings have been very strong. They're growing at

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Speaker 1: about ten percent this year, their forecast to grow at

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Speaker 1: about the same it's not actually slightly more next year,

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Speaker 1: which we'll see. Uh. And actually growth outside the US

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Speaker 1: in corporate earnings is even faster than that, And that's

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Speaker 1: partly because the economy continues to grow at a nice clip,

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Speaker 1: somewhere between two and a half and three in real terms,

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Speaker 1: plus we'll call it a dollop of inflation, so that's

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Speaker 1: about four and a half to five percent nominal growth.

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Speaker 1: And companies have been buying back shares, which means that

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Speaker 1: earnings per share can grow even faster. This just in

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Speaker 1: David jeff Emil to coach the New York Jeffy at

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Speaker 1: some point, maybe they will. That would be good. I mean,

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Speaker 1: there was a nice football player second he could get

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Speaker 1: it done. Flords Angels is funny. Good morning everyone, Stepmasters.

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Speaker 1: You know, I look at this and I guess, going

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Speaker 1: back to the import of g E, everybody's got to

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Speaker 1: move faster today. I mean I made a theme of

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Speaker 1: this three four or five years ago Davos, where the

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Speaker 1: new five year plan is three years. How much time

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Speaker 1: does a guy like Flannery have, not specifically ge, but

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Speaker 1: in general corporate officers it's like a one year two

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Speaker 1: year time horizon now right. It's true, it's it's harder

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Speaker 1: to get investors to be patient for more than a

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Speaker 1: couple of years because their time horizon has shrunk. But

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Speaker 1: on top of that, the pace of the economy as

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Speaker 1: a whole is also accelerating, because if you fall asleep

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Speaker 1: for one product cycle, you can really lose your business.

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Speaker 1: And that was not true twenty or thirty years ago.

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Speaker 1: So it's a much less forgiving environment for companies. You

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Speaker 1: just can't make mistakes. How close are you watching what's

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Speaker 1: what's unfolding? And watched in DC? The present making his

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Speaker 1: way back from Asia over these next few hours, he'll

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Speaker 1: be created by some political controversy on Capital Hill, of course,

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Speaker 1: but also just the latest on this taxiform writing process.

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Speaker 1: How much does that matter to you? How much does

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Speaker 1: it matter the markets right now? How all of this

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Speaker 1: is sorted out here over these next few weeks. Of course,

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Speaker 1: it matters if there is a tax cut, and it's

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Speaker 1: really about tax cuts that we're talking now. Um, then

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Speaker 1: in the short run, people might think that that's good

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Speaker 1: for corporations, but that's a one time benefit if it

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Speaker 1: if it materializes. In the longer run, a big tax

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Speaker 1: cut means much bigger deficits, and that will probably translate

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Speaker 1: into not only more interest rate rises, but actually the

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Speaker 1: need over the next few years to have a tax

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Speaker 1: height to catch back up with those deficits. So I

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Speaker 1: think that there's a lot of concern about that. The

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Speaker 1: other thing I mentioned, and it's not on people's radar

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Speaker 1: screens yet, but we're only about three weeks away from

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Speaker 1: the whole that ceiling and and and and that that

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Speaker 1: issue is going to be very gnarly, and given the timing,

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Speaker 1: may very well interact with this whole tax cut discussion.

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Speaker 1: I think that that is going to be a very

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Speaker 1: messy process, different than it has been in the past.

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Speaker 1: I mean, it becomes so inured to these short term

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Speaker 1: spending bills and short term increases of the DEAT ceiling.

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Speaker 1: What's going to make this one different? Do you think? Well?

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Speaker 1: I think that some of the problems are really intractable

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Speaker 1: because the Republicans at this point are really committed to

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Speaker 1: a tax cut. They've made that their litmus test, but

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Speaker 1: that actually interferes with a lot of their own program

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Speaker 1: and exactly how they square the circle. I don't know

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Speaker 1: scare the circle? Are you concerned, as a finance investment

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Speaker 1: guy with the build out of our deficit in debt?

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Speaker 1: I got all the econ guys saying no, it's no

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Speaker 1: big deal. You know we're not there yet, but I

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Speaker 1: just don't buy it. Well, it depends on exactly how

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Speaker 1: you build the debt and what you do with it.

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Speaker 1: So if you think about the tax cut that's currently

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Speaker 1: on the table, it's fairly large, and the problem is

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Speaker 1: it's unlikely to produce a lot of demand growth because

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Speaker 1: the corporate tax cut isn't really focused on the kinds

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Speaker 1: of investments spend that could actually perhaps create more growth,

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Speaker 1: and the personal tax cut is focused mostly very wealthy

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Speaker 1: people whose propensity to consume isn't going to change much

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Speaker 1: as a result of the tax cuts. So in both

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Speaker 1: cases you're not gonna get a lot of demand growth,

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Speaker 1: and that isn't good. If you wanted to design a

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Speaker 1: tax reform that was more likely to produce growth, you

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Speaker 1: could have done it, but that's not on the table anymore, Seth.

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Speaker 1: Thank you so much. Seth masters with us formerly will

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Speaker 1: they be Bernstein wonderful perspective on growth and value on

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Speaker 1: uh this bullmarkt David, did you did you go to

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Speaker 1: cash this weekend? Did you? I'm in the triple leverage

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Speaker 1: doll cash for so it's hard to get any more leveraged.

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Speaker 1: You know, and do it, John Tucker, don't look at

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Speaker 1: me like that. I'm making one and a half percent

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Speaker 1: a year because I'm leveraged. I was doing the calculations

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Speaker 1: for they do tre you. This is for another four

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Speaker 1: acrears of New Jersey swamp. I'm moving into John McQuary's basement.

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Speaker 1: Very good, very good, but yeah, I mean, I mean

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Speaker 1: we make jokes about it. But you know, unlike the

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Speaker 1: rest of us, Well, I can't afford to live local,

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Speaker 1: John Tucker, You're live in Salt right, yeah. Um, And

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Speaker 1: it's it's gonna be a big impact if they get

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Speaker 1: rid of state local deductions. Just love mentioning Tucker by

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Speaker 1: the fire doing his tax calculations. You and Biscuit, I mean,

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Speaker 1: h and are blocked for you, right, it was not happy.

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Speaker 1: Your texture turns like about four pages five pages the

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Speaker 1: way you lie. And I told the kids, I'm gonna

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Speaker 1: have to get I'm gonna have to let one of

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Speaker 1: them go. Good. That's where I was this week, and

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Speaker 1: all very good. Kevin's really will be with us through

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Speaker 1: the week as we go, really an important week here,

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Speaker 1: seth masters is going Jesus, maybe I should move to Jersey.

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Speaker 1: That would be a good good, Oh it will be.

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Speaker 1: We're laughing for those of you on the nation. We

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Speaker 1: are laughing in New York and New Jersey and Connecticut,

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Speaker 1: and we say good morning, Bluebird nine sixty the Bay

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Speaker 1: Area in California, because our taxes are going down, John,

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Speaker 1: some of us n Westinghouse disappeared. It was renamed the

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Speaker 1: CBS Corporation, and of course there was Viacom in there

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Speaker 1: in it was ancient history. How about this headline on

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Speaker 1: General Electric bracing for Monday with the Westinghouse. Jeffrey Sprague

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Speaker 1: is with Vertical Research Partners. Is Mr Flannery doing the

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Speaker 1: ghost of Westinghouse? Mr Sprague, Well, I think he's going

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Speaker 1: to try to avoid that ultimate fate and leave us

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Speaker 1: with something that's left that's called General Electric. But the

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Speaker 1: company is going to end up much smaller than it

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Speaker 1: is today. And you know, obviously it's it's the less

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Speaker 1: stock left in the original down Jones Industrial average, and

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Speaker 1: it's not written anywhere on a stone that it has

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Speaker 1: to be there forever. Um, what's the organic re a

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Speaker 1: new growth that could be generated off the announcements that

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Speaker 1: you see today. Can you get back to high single

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Speaker 1: digit Can he actually do a double digit revenue growth? Uh? No,

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Speaker 1: I think that's completely out of the question in the

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Speaker 1: near term. I think, uh for the next two or three,

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Speaker 1: maybe four years, there's gonna be a lot of pressure

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Speaker 1: in this power business. And you know, it looks like

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Speaker 1: the way they were shaping the portfolio, that would be

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Speaker 1: a good third of the portfolio. So I think there's

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Speaker 1: gonna be a you know, a fight here to generate

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Speaker 1: you know, low single digit organic growth and ultimately maybe

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Speaker 1: you can normalize it the mid singles looking at maybe

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Speaker 1: three years or so. One of the great realizations Jeff

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Speaker 1: is I use the c FA Institute curriculum three courses here,

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Speaker 1: there's somewhere in the middle of the second level two

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Speaker 1: where the clouds part, you realize the biggest mistake is

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Speaker 1: what you thought were variable costs are fixed. Costs. Does

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Speaker 1: he have the variable cost structure to play with to

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Speaker 1: reduce costs this morning, He's got a lot of fixed

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Speaker 1: costs to deal with. You. No, it's this is not

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Speaker 1: an easy variable cost equation. And you know, we're looking

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Speaker 1: at the company having spent upwards of twelve billion dollars

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Speaker 1: on restructuring and other charges and actions here over the

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Speaker 1: last three or four years, and we still have profits

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Speaker 1: under pressure and cash under pressure. So there's I think

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Speaker 1: they're behind the curve. And I think the other thing

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Speaker 1: Tom that's that's relevant is a lot of this is

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Speaker 1: a symptom of just deflationary pressures and some of their

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Speaker 1: big markets like power, right, so when prices going down

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Speaker 1: in a big multibillion dollar market, it's it's hard to

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Speaker 1: get out of that. David, this is my theme for

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Speaker 1: two thousand and eighteen. I haven't announced it yet, but

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Speaker 1: let's sort of have to do it here with Mr

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Speaker 1: Sprague pricing power. We're back to Jack Welch. We're pricing

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Speaker 1: power and deflationary pressures are tangible. Jeff, what can we

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Speaker 1: learn from what? What do The CEO of Siemens said

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Speaker 1: last week about conglomerates, He declaring them them dead. Is

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Speaker 1: this further confirmation of that as you see in Well,

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Speaker 1: I think it is. It doesn't mean that we're gonna

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Speaker 1: distill ourselves down to a bunch of mono line companies.

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Speaker 1: I think it's very incumbent on these more diversified companies

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Speaker 1: to have a focused diversity. If that's not an oxymoron, right,

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Speaker 1: But you know, focus on the two or three or

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Speaker 1: maybe four things that you can really do well and

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Speaker 1: be on top of because there's just there's not room

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Speaker 1: for mediocrity in this business world and any any business line.

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Speaker 1: You know, things are moving so quickly, so you know

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Speaker 1: you're if you're a conglomerate, you need to be lean

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Speaker 1: and nimble and on top of the trends in these

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Speaker 1: businesses or you get disrupted very very quickly. What's gonna

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Speaker 1: happen to this, Baker Hughes Steak. I gather we're not

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Speaker 1: going to hear much about that today, for at least

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Speaker 1: from what I've seen that reported. But that's certainly something

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Speaker 1: that John Flannery has got to be taken a look at. Yes,

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Speaker 1: since it already trades. I think what we'll see is

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Speaker 1: at some point there will be a split off of

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Speaker 1: the asset as opposed to a spin. So in a split,

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Speaker 1: GE shareholders canna leok to swap their GE shares for Baker.

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Speaker 1: This is what they did with Synchrony, the consumer finance

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Speaker 1: business when they separated that a few years ago. Um,

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Speaker 1: you know, they also did pull some cash out of Baker,

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Speaker 1: you know, a couple of weeks I guess about a

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Speaker 1: week ago with the share of purchase announcement. So I

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Speaker 1: think they'll try to pull a little bit of cash

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Speaker 1: out of it here in the near term, but then

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Speaker 1: ultimately the st will be separated, likely in a split off.

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Speaker 1: What happens to research and design going forward? This is

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Speaker 1: a company that has been for so many years so innovative,

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Speaker 1: and if we see cost cuts to that, to research

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Speaker 1: and development centeres around the world, what's that going to

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Speaker 1: mean for gees future. Well, I think it's going to

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Speaker 1: still be a very important part of what they do.

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Speaker 1: And you know what I'm hearing sounds like it could

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Speaker 1: make sense right to push that really more into the divisions,

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Speaker 1: to make sure the company is investing on investing in

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Speaker 1: things that really have you know, a commercial driver for them, right,

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Speaker 1: and be careful with the blue sky stuff. The blue

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Speaker 1: sky stuff. This is fine maybe around the edges, but

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Speaker 1: you really want to be investing for the customers need

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Speaker 1: and a clear vision of the future. What is your sign? Jeff?

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Speaker 1: As we've said, you've been more than anyone I know,

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Speaker 1: just dead on in your questioning of the income statement.

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Speaker 1: What does it take for you to be by You've

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Speaker 1: got a price target at twenty? What does he need

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Speaker 1: to say? Where you go? WHOA, they've drunk in the

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Speaker 1: kool aid. Let's go well, you know, I like part

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Speaker 1: of what I'm hearing, just a simplification I think is

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Speaker 1: very very important. Uh. The thing that weighs against that,

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Speaker 1: in my mind, Tom, is where you started. One of

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Speaker 1: your questions is just how do how and where do

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Speaker 1: we grow from here? And that's really ultimately going to

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Speaker 1: be what swings my opinion on the stock and whether

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Speaker 1: it's today or six months from now when I you know,

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Speaker 1: watch what they do and what they say. But really

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Speaker 1: I think we have some kind of base being established

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Speaker 1: here today and the question is can we grow off that?

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Speaker 1: And how do we capitalize that growth? How? How did

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Speaker 1: we get here? Was it accounting dreams and hopes? Do

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Speaker 1: you blame quote unquote blame Mr Immel. Was it just

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Speaker 1: the times? What's the negative look back that you have?

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Speaker 1: Who do you? Who do you? I guess fault? Well,

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Speaker 1: you know, ultimately you do have to fault Mr mL

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Speaker 1: who was the chairman of the company and the board.

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Speaker 1: I think the the ultimate uh, you know, the main

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Speaker 1: reason we got here, if I just still it down

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Speaker 1: into a single factor, it's just poor capital deployment, right,

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Speaker 1: I mean they were just chasing too many things, buying

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Speaker 1: businesses high, selling them low um and the cumultive effect

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Speaker 1: of that mismanagement of capital just destroys value. And I

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Speaker 1: can remember over the years, you know, they would do

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Speaker 1: something that didn't look too great and people would defend

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Speaker 1: it and say, oh, it's only a billion billion dollars.

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Speaker 1: I mean, that's that's chump change for ge. Well, you

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Speaker 1: know for anybody, you know, a billion here, a billionaire.

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Speaker 1: It starts to add up, right, And the chumultive effective

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Speaker 1: of poor investment decisions, particularly in M and A. I

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Speaker 1: think really it brought us to this point. How much

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Speaker 1: time are you giving this new CEO to to implement

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Speaker 1: all of this? In other words, we're gonna get the

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Speaker 1: outline today. It sounds like there'll be some intricacy to it.

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Speaker 1: How much time are you and others prepared to give

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Speaker 1: this company turn things around? Well, you know, I don't.

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Speaker 1: I don't determine, you know, how long he stays on

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Speaker 1: the pay roll or anything like that, Right, I mean,

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Speaker 1: it's it's gonna be my role to you know, try

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Speaker 1: to be a fair judge of what he's doing and

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Speaker 1: and determine if if there's an investment case here for

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Speaker 1: my clients. Uh, I want to give him the benefit

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Speaker 1: of the doubt. I mean, actually have not had a

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Speaker 1: positive rating on GE since early oh eight. I downgraded it,

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Speaker 1: uh in that Bear Stearns quarter if you recall Q

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Speaker 1: one of oh eight and have never come back. So uh,

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Speaker 1: you know it's uh, you know, it's we'll see, We'll

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Speaker 1: see what he does. Okay. I'm looking at the financial

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Speaker 1: analyst screen in the Bloomberg, the f A screen. This

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Speaker 1: is GE Equity f A. For those of the terminal

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Speaker 1: in John and the Hummer. Do you have the terminal

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Speaker 1: with two or four screens in the front seat. Oh,

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Speaker 1: I've got the four screens. I wanted to be sure

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Speaker 1: you've got that, Jeff, I got but at which is

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Speaker 1: very industrial even if they downsize a coup Beny, can

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Speaker 1: he stun people to come out with a boosted ibadal

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Speaker 1: margin today? Or is the is the pricing up tops

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Speaker 1: a week? He can't pull that rabbit out of the head.

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Speaker 1: I think, I don't. I'm not expecting an explicit EVA

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Speaker 1: don margin forecast today, but that's going to be the

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Speaker 1: premise of where they're going to head with this today.

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Speaker 1: Is this cost cuts and improve profitable profitability? Right and

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Speaker 1: uh And that's really where the decision point is going

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Speaker 1: to be. I mean, you know, as analysts, we have

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Speaker 1: to be very careful about you know, gross actions versus

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Speaker 1: you know, the next bottom line and the net to

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Speaker 1: the bottom line. Has been very challenging with what's going

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Speaker 1: on in these markets. Well, very quickly here Karen l.

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Speaker 1: Lark didn't help me here. She said it was too squishy.

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Speaker 1: Maybe you can be more exact. Two Hildren twenty nine

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Speaker 1: thousand bodies. How many go out the door in the

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Speaker 1: next thirty six months? Boy, I don't know. I would

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Speaker 1: say probably upwards the ten percent of that count. Yeah, okay, well, yeah,

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Speaker 1: it doesn't do it. We have to quote you worldwide

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Speaker 1: Blue John Tucker help me here, Jeff Sprague twenty or

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Speaker 1: thirty thousand, you can be in that vicinity next thirty

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Speaker 1: six months. You see the silence that we got him. Okay,

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Speaker 1: we'll take the silence is at Jeff Sprigg, thank you

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Speaker 1: so much for the vertical research. I'm kidding, of course, Vicinity,

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Speaker 1: John V, I, C I, Jeff Sbrigg, He's been wonderful

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Speaker 1: on General Electric. We really enjoy having Jeff Spregg come

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Speaker 1: on with us on General Electric. There is a firestorm

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Speaker 1: of analysis. Tax Policy Center, Urban Institute of Brookings Institution,

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Speaker 1: preliminary distributional analysis of the tax cuts and job back

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Speaker 1: over the center and budget and policy priorities. Sharon Parent

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Speaker 1: writing up Senate tax bill his same basic flaw as

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Speaker 1: his house built. Jared bernstein enjoins us. He's the only

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Speaker 1: one that's read five reports, six reports on all this.

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Speaker 1: Of course, he is acclaimed in economics and I would

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Speaker 1: suggest has a liberal bent. He studied under Vice President

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Speaker 1: Biden over the last eight years. Jared, what do you

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Speaker 1: make of this? And I think over the weekend. To me,

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Speaker 1: the critical issue is is the comparing contrast with six

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Speaker 1: or is it with early Bush? The younger tax reform?

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Speaker 1: What what kind of tax bill do we have. That's

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Speaker 1: a great way to tee up the analysis. It's very

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Speaker 1: much the latter, very much in the spirit of the

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Speaker 1: Bush too. And the key factor that informs that judgment

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Speaker 1: is the fact that tax reform was revenue neutral. Uh,

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Speaker 1: this reform loses at least one and a half trillion.

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Speaker 1: That's not me talking, that's the Republicans themselves. They wrote

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Speaker 1: one and a half trillion increase in the in the

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Speaker 1: in the ten year deficit numbers into their bill. That's

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Speaker 1: the leeway they've given themselves. And I think one of

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Speaker 1: the frustrating things for many people who are following the

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Speaker 1: debate is they sometimes these folks pose as uistical hawks,

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Speaker 1: but they're looking more like cistical chicken hawks. And that's

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Speaker 1: a problem. Jared, let me ask you how much we

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Speaker 1: know about these two pieces of legislation. One is in

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Speaker 1: co with the one before the Senate Finance Committee, is

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Speaker 1: not a fully fleshed out draft. We do have a

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Speaker 1: draft from the House Ways and Means Committee with some

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Speaker 1: amendments attached to it. I look at what's happened here

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Speaker 1: over these last few weeks. The Tax Policy Center having

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Speaker 1: to issue mea culpa is it does some analysis of

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Speaker 1: that legislation. Then we see the Tax Foundation doing the

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Speaker 1: same thing. So both of these institutions trying to get

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Speaker 1: a read on what's in this legislation and what it means.

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Speaker 1: How much do we know? And how difficult is it

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Speaker 1: to feel all knowing? Here as we move at such

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Speaker 1: a break Nick nick neckclip here to thanks living into Christmas.

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Speaker 1: Another important and piercing question. Um, we actually know quite

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Speaker 1: a bit about the legislation, about the proposal it self,

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Speaker 1: especially in the House where we've got four hundred pages

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Speaker 1: of tax changes largely cut. I think the thing that

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Speaker 1: we don't know, and where you see the dueling models

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Speaker 1: causing some trouble in my view, is that people have

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Speaker 1: all kinds of ideas about dynamics of such models. How

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Speaker 1: much will will they pay for themselves? How much economic

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Speaker 1: growth will they generate to offset their cost? And if

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Speaker 1: you're someone who supports the plan, you're naturally going to

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Speaker 1: be attracted to a model that I would do as

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Speaker 1: as pretty heavily juiced in that regard. So you'll you'll

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Speaker 1: find a model. But as all this is going to

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Speaker 1: unleash tremendous growth. But if you dig into the assumptions

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Speaker 1: of those models, you'll find it historically that just hasn't

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Speaker 1: been the case. Tax cuts, I'm not saying they never

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Speaker 1: pay for some portion of themselves, but it tends to

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Speaker 1: be quite small. Let me ask you just for for

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Speaker 1: your perspective on on where we go from from here. Uh,

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Speaker 1: it looks like there are still some fairly big issues

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Speaker 1: that need to be hammered out here This week, next week,

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Speaker 1: are for many weeks that it takes. The longer this

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Speaker 1: takes is it's does it does it less in the

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Speaker 1: likelihood that we're going to see a piece of legislation passed. Yes.

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Speaker 1: I would say that one thing the Republicans learned from

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Speaker 1: the healthcare debate is the time is their enemy. The

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Speaker 1: more that sits out there, the more people are going

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Speaker 1: to fight over the some of the changes, some of

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Speaker 1: the pay for is that doing various groups who benefited

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Speaker 1: from the ductors that they're taking away, you know, Jared

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Speaker 1: quickly or we've got to get the sub general electric

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Speaker 1: catalyst Paul Krugman I thought was brilliant over the weekend

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Speaker 1: and truly as wheelhouse, which is international economics and complex

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Speaker 1: dynamics is the fault of the politicians and no fault

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Speaker 1: of theirs. But it's just the reality that they're doing

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00:22:51,160 --> 00:22:55,920
Speaker 1: a domestic, close border, closed economy analysis, and the reality

431
00:22:56,040 --> 00:22:59,879
Speaker 1: is we're working in a massive, wide, open international economy.

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Speaker 1: That's really important, especially regarding that last comments I made

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00:23:03,920 --> 00:23:07,160
Speaker 1: about the dynamics, because the way you get the juice

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00:23:07,240 --> 00:23:10,480
Speaker 1: models in the big growth effects by assuming really strong

435
00:23:10,560 --> 00:23:14,119
Speaker 1: couple flows into this country, and the models discount the

436
00:23:14,160 --> 00:23:18,240
Speaker 1: impact of that on trade deficits. So a much more

437
00:23:18,520 --> 00:23:22,239
Speaker 1: realistic view would show that no, they're not gonna come

438
00:23:22,280 --> 00:23:25,359
Speaker 1: anywhere close to paying for all but a fraction of

439
00:23:25,359 --> 00:23:28,120
Speaker 1: their thoughts. Never enough time. Jared Versity, thank you so much,

440
00:23:28,160 --> 00:23:30,600
Speaker 1: greatly appreciate your work. He of course the senior fellow

441
00:23:30,640 --> 00:23:45,760
Speaker 1: Center and Budget and Policy Priorities. Why don't you bring

442
00:23:45,760 --> 00:23:49,320
Speaker 1: in our next victim uh In merger Derby, Yes, merger Derby,

443
00:23:49,440 --> 00:23:51,399
Speaker 1: Daham and joins us here in a limbog eleven three studios.

444
00:23:51,440 --> 00:23:56,840
Speaker 1: Great to have you here. You're looking at Qualcom and

445
00:23:57,119 --> 00:23:59,120
Speaker 1: Broadcom in particular. Let's start with just a basic question

446
00:23:59,200 --> 00:24:03,040
Speaker 1: here Broadcom had had offered or said it intended to

447
00:24:03,160 --> 00:24:05,720
Speaker 1: buy Qualcolm. What is Broadcom at this point what's it

448
00:24:05,760 --> 00:24:09,960
Speaker 1: looking to do. It's looking to almost double inside, which

449
00:24:10,000 --> 00:24:11,600
Speaker 1: is actually quite scary when you look at how big

450
00:24:11,680 --> 00:24:13,840
Speaker 1: this thing is to begin with. So the what we

451
00:24:13,880 --> 00:24:16,040
Speaker 1: call the enterprise value obviously the sort of value of

452
00:24:16,080 --> 00:24:18,719
Speaker 1: the company past, and that is a hundred thirty billion,

453
00:24:18,840 --> 00:24:20,480
Speaker 1: I think, is what they would be paying for Qualcom.

454
00:24:20,720 --> 00:24:23,200
Speaker 1: So you're putting together two of the biggest companies in

455
00:24:23,320 --> 00:24:26,560
Speaker 1: the chip making space, and obviously semi conductor chips are

456
00:24:26,800 --> 00:24:29,720
Speaker 1: in pretty much everything we use these days. Um, the

457
00:24:29,800 --> 00:24:32,040
Speaker 1: interesting thing for Brogom is Brogram is a sort of

458
00:24:32,240 --> 00:24:34,920
Speaker 1: acquisition machine. It's the company that you know, Hocktown. The

459
00:24:35,000 --> 00:24:37,160
Speaker 1: chief executives gone out. He's bought and bought and bought,

460
00:24:37,760 --> 00:24:41,280
Speaker 1: always through friendly deals. And this time not only is

461
00:24:41,359 --> 00:24:43,600
Speaker 1: this shaping up for a very big hostile they went

462
00:24:43,720 --> 00:24:45,800
Speaker 1: in a hostile They didn't approach the company behind the

463
00:24:45,840 --> 00:24:47,719
Speaker 1: scenes and say, hey, guys, you want to dance. They

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00:24:47,800 --> 00:24:49,359
Speaker 1: just went straight over the top and said, you know what,

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00:24:49,800 --> 00:24:51,320
Speaker 1: we know you don't want to dance because maybe your

466
00:24:51,320 --> 00:24:54,840
Speaker 1: sharehold is Qualcom rejecting this this over true, Let's talk

467
00:24:54,880 --> 00:24:57,440
Speaker 1: about the what what Broadcom has been up to recently.

468
00:24:57,520 --> 00:24:59,960
Speaker 1: Just a couple of weeks back, looking in the Oval Office,

469
00:25:00,000 --> 00:25:02,679
Speaker 1: we saw time visiting with the President announcing it intends

470
00:25:02,720 --> 00:25:05,000
Speaker 1: to move at Broadcams World head quarters to to the

471
00:25:05,119 --> 00:25:07,400
Speaker 1: U S to who knows where. What does this say

472
00:25:07,400 --> 00:25:10,120
Speaker 1: about the regulatory landscape and its approach to to deal making.

473
00:25:10,280 --> 00:25:12,520
Speaker 1: What an unbelievable coincidence right there in the White House

474
00:25:12,600 --> 00:25:16,240
Speaker 1: one then, and they're announcing a big hod style the next. Um. Look,

475
00:25:16,280 --> 00:25:18,960
Speaker 1: what it says is that I think the two things broke.

476
00:25:18,960 --> 00:25:21,040
Speaker 1: Com obviously knew that this is this is going to

477
00:25:21,080 --> 00:25:23,560
Speaker 1: be a hugely sensitive deal from not only a regulatory

478
00:25:23,600 --> 00:25:25,280
Speaker 1: point of view, but also just from the point of view.

479
00:25:25,760 --> 00:25:27,479
Speaker 1: You know, this is a big U S company being

480
00:25:27,520 --> 00:25:29,879
Speaker 1: put together with another big US company. If if they

481
00:25:29,920 --> 00:25:32,359
Speaker 1: had been still an overseas company Singapore domicard, then that

482
00:25:32,359 --> 00:25:34,720
Speaker 1: would have potentially been something that Quacolm could have could

483
00:25:34,720 --> 00:25:36,680
Speaker 1: have used to get it blocked. That's right where we

484
00:25:36,720 --> 00:25:42,480
Speaker 1: wanted to go. This is not to US companies, right technically,

485
00:25:42,600 --> 00:25:48,000
Speaker 1: Since then, little yeah, since the tea party, it's not Michael, sure,

486
00:25:48,200 --> 00:25:51,680
Speaker 1: come on, I mean Bill comes a sort of strange beast.

487
00:25:51,760 --> 00:25:54,320
Speaker 1: You know, it's it's certainly Singapore control. But thank you,

488
00:25:54,600 --> 00:25:57,800
Speaker 1: But but build Calm. It's called build Calm because it

489
00:25:57,880 --> 00:26:00,399
Speaker 1: bought Build Calm, so that was a U S company.

490
00:26:00,800 --> 00:26:03,320
Speaker 1: G E plunging now nineteen point eight eight. That's a

491
00:26:03,359 --> 00:26:06,560
Speaker 1: real drop down here, going comment by comment on Flarin again,

492
00:26:06,680 --> 00:26:09,960
Speaker 1: nineteen dollars sixty. I believe five cents is where it

493
00:26:10,040 --> 00:26:12,800
Speaker 1: was November two. I'm sorry to get this going on.

494
00:26:13,119 --> 00:26:17,240
Speaker 1: I mean, I'm looking at g it's said, but it's

495
00:26:17,320 --> 00:26:22,960
Speaker 1: not Broadcom. It's not right a U. S company. It's

496
00:26:23,000 --> 00:26:27,040
Speaker 1: not even Broadcam, it's not broad comments. Sort of it's

497
00:26:27,040 --> 00:26:29,240
Speaker 1: a weird company, isn't it, Because it's like, you know,

498
00:26:29,359 --> 00:26:31,520
Speaker 1: at what point does the company stopped becoming the company,

499
00:26:31,560 --> 00:26:33,600
Speaker 1: because it's just gone out and bought other companies. It's

500
00:26:33,640 --> 00:26:36,520
Speaker 1: a sort of, you know whatever, a patchwork of different

501
00:26:36,560 --> 00:26:40,400
Speaker 1: businesses with a weird domicile structure and weird owned ship structure.

502
00:26:40,480 --> 00:26:49,680
Speaker 1: But David, it's like Tapestry, Tapestries coach, you saved me, David,

503
00:26:50,119 --> 00:26:52,520
Speaker 1: heard about this? Where did things go from here? Let

504
00:26:52,560 --> 00:26:53,920
Speaker 1: me just close that with yet on this that we

505
00:26:54,000 --> 00:26:56,720
Speaker 1: have Qualcom rejecting this bid from Broadcast, which is the

506
00:26:56,800 --> 00:26:59,240
Speaker 1: least surprising thing in today at the Yeah, of course,

507
00:26:59,240 --> 00:27:01,399
Speaker 1: so what happened next, and what does this mean for

508
00:27:01,440 --> 00:27:03,480
Speaker 1: broadcast as it continues to I don't know who we've

509
00:27:04,520 --> 00:27:06,400
Speaker 1: I don't want to make it more complicated, but let's

510
00:27:06,440 --> 00:27:08,919
Speaker 1: just do it anyway. So, so Qualcomma in the process

511
00:27:08,960 --> 00:27:11,720
Speaker 1: of buying a Dutch company called n XP, which is

512
00:27:11,840 --> 00:27:14,280
Speaker 1: another huge company in the space, at paying around forty

513
00:27:14,320 --> 00:27:17,440
Speaker 1: billion dollars, they could potentially throw another let's say ten

514
00:27:17,480 --> 00:27:19,920
Speaker 1: billion dollars at that to try and effectively use it

515
00:27:19,960 --> 00:27:21,760
Speaker 1: as a poison pill. So they would say, look, now,

516
00:27:21,800 --> 00:27:25,280
Speaker 1: as a combined business with so ridiculously overvalued, the brock

517
00:27:25,320 --> 00:27:26,800
Speaker 1: On can't come in the bus. If they do that,

518
00:27:26,840 --> 00:27:30,200
Speaker 1: I think their showholders rightly will go to Bananas and Hammond.

519
00:27:30,200 --> 00:27:32,640
Speaker 1: Thank you so much for the update on broadcast qualcom

520
00:27:41,520 --> 00:27:45,560
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

521
00:27:45,720 --> 00:27:51,040
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

522
00:27:51,160 --> 00:27:55,040
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene David Gura.

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Speaker 1: Is that David Gura before the podcast? You can always

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Speaker 1: catch us worldwide. I'm Bloomberg Radio.