Speaker 1: This is Bloomberg Surveillance. If anybody needs capable management teams
Speaker 1: for the future, it's the commercial banks, right, They're not
Speaker 1: going to go away. The business isn't going to go away.
Speaker 1: It's not assigned that the economy if not prosperous. The
Speaker 1: fact that in place there's only one passet, I don't
Speaker 1: get it. The fourth coarter was bad in terms of
Speaker 1: g d P, it wasn't bad in terms of jobs.
Speaker 1: In fact, it was fantastic in terms of job growth.
Speaker 1: And that's what's the most important. Bloomberg Surveillance your link
Speaker 1: to the world of economics, finance, and investment. On Bloomberg Radio.
Speaker 1: Good morning everyone, Bloomberg Surveillance. Scarlet Foo in for Michael McKeon.
Speaker 1: This's Friday morning. I'm Tom keen. We welcome all of you.
Speaker 1: Bloomberg twelve Boston, Bloomberg FM, Washington, Bloomberg eleven three on
Speaker 1: New York. Good early morning out in San Francisco, the
Speaker 1: Bay Area, Bloomberg nine sixty. We say good morning as well.
Speaker 1: A retail focused in this our honor to bring you
Speaker 1: Howard David Evans, who has really been really, really, really
Speaker 1: quite good on the challenges of retail boy did he
Speaker 1: get out front of the challenges of Macy's and Coles
Speaker 1: and others. And we'll talk to him. Get an update
Speaker 1: on the pulse of retail America. First, so we look
Speaker 1: quickly at foreign exchange. UH. The four X brief this
Speaker 1: morning brought you my Interactive Brokers winner of f f
Speaker 1: X Weeks two thousand fifteen award for the best Retail
Speaker 1: for X trading platform visit ib at ib kr dot
Speaker 1: com Slash four x yen one thirteen thirty nine weeker
Speaker 1: yen three days in a row, Euro under one, nine
Speaker 1: seventy four euro a weakness, dollar strength off g DP movement,
Speaker 1: a little better g d P number than expected. I
Speaker 1: think we'll leave it there this morning. I mean in
Speaker 1: sterling on doing better and as well, David. I don't
Speaker 1: want to rip up your script, but um GAP needs
Speaker 1: a miracle, right I mean? I mean, I mean, if
Speaker 1: we're gonna have a Howard on on retail, can you
Speaker 1: start with gafferd Is there something more important than gas?
Speaker 1: We can start there? Why not? They mean they need something?
Speaker 1: No question. GAP shares down about two percent in early trading.
Speaker 1: The largest US focused the pool retailer that's GAPS claim
Speaker 1: to fame. They expect earnings for the current fiscal year
Speaker 1: to be two dollars twenty five cents to share it
Speaker 1: best the high end of gaps forecast range trailed analysts
Speaker 1: averagessetment in the Bloomberg survey by nineteen cents. And then
Speaker 1: you have J. C. Penny, which is up more than
Speaker 1: fourteen percent in early trading. The department store chains fourth
Speaker 1: quarter profit and sales topped analysts estimates at least the
Speaker 1: ones we surveyed here at Bloomberg UH and the results
Speaker 1: showed Penny chief executive Marvin Allison is making progress and
Speaker 1: turning around the company. Looking beyond retail, You've got Kraft
Speaker 1: Hinds up five and a half percent, The food makers
Speaker 1: fourth quarter earnings and sales beat estimates. Craft Hunts, of
Speaker 1: course formed last year, and a deal orchestrated by private
Speaker 1: equity firm three G Capital and Warren Buffetsbergshire Hathaway, so
Speaker 1: they're among the winners. In response to those results, Monster
Speaker 1: evers O down five percent. The energy drake maker's profit
Speaker 1: and revenue trail the average estates for the third time
Speaker 1: in the past four quarters. UH. Some more well received
Speaker 1: earnings reports you've got the networking software maker Palo Alto
Speaker 1: Networks up seven and a half percent, the data analysis
Speaker 1: software makers Splunk of six months splunk as p lk
Speaker 1: is the ticker of sixty and a half percent, and
Speaker 1: stamps dot Com of twenty four and a half percent,
Speaker 1: all in response to well receive from Southwestern Energy, though
Speaker 1: down eleven and a half percent, the shale producer with
Speaker 1: a fourth quarter loss as revenue trail estimates. And then
Speaker 1: you have son Edison a lot of pieces to this story,
Speaker 1: stocks a thirty percent in early trading. Hatchment manager David
Speaker 1: Temper's attempt to block the company's proposed purchase of Vivin
Speaker 1: Solar was turned away by a Delaware judge who all
Speaker 1: the Tempers Appolution management couldn't prove the deal hurts investors,
Speaker 1: and son Edison's Terraform power unit now Vivin Solar up
Speaker 1: thirty seven and a half percent in early rating. Apple
Speaker 1: Loosa has a nine and a half percent stake in
Speaker 1: terror Form, and that stock is down eight and a
Speaker 1: half percent. Weight Watchers International down twenty eight percent. The
Speaker 1: weight loss company that partnered with Oprah Winfrey lad reported
Speaker 1: an unexpected fourth quarteter loss, the number of act of
Speaker 1: subscribers dropped four point eight percent, and finally, Republic Airways
Speaker 1: Holdings not stock down eighty two percent sixty two cents
Speaker 1: to share the regional jet owner file for bankruptcy Republic
Speaker 1: side and in fact of a lack of pilots during
Speaker 1: a contract dispute last year. David Wilson, thank you so much,
Speaker 1: appreciate that. And now we're bring in a hard did
Speaker 1: its associates who has given us just terrific perspective and
Speaker 1: way out front Gap stores. Just as one example, folks,
Speaker 1: I'll put the chart out on Bloomberg Radio Plus. Basically
Speaker 1: it's made up eighty percent of the success coming out
Speaker 1: of four five years ago. How how bad is it
Speaker 1: out there? I want you to give me a reasoned
Speaker 1: analysis of the state of retail getting out of the
Speaker 1: ugly spring. They get to summer and they've got a
Speaker 1: regroup for back to school. What's the strategy. Well, for Gap,
Speaker 1: they're in a segment that is almost all bad. American
Speaker 1: Eagle outfit is gas. Yeah, I mean every in the
Speaker 1: apparel chain business at Abercrombie, you're gonna find very few
Speaker 1: arrow posts that you're gonna find very few winners and
Speaker 1: almost all loses. Jay Crewe a disaster, So they're in
Speaker 1: a business where everybody is in collapse, including them. The
Speaker 1: good news about the Gap is they're richer than everyone else.
Speaker 1: They're balance sheet is a monster, sitting with a billion
Speaker 1: in cash, no debt. So this is a powerhouse company
Speaker 1: that is not going away. They're still making money, they
Speaker 1: have positive cash flow, they got lots of money. They
Speaker 1: just keep closing stores and the future is uncertain. That's
Speaker 1: the problem with the Gap. A little headline coming out
Speaker 1: love more on this Honeywell offers a hundred eight dollars
Speaker 1: per share to quote re engage with U t X.
Speaker 1: That's away from how to Vid of its expertise, but
Speaker 1: certainly important. U t X uh surging from eight seven
Speaker 1: up to nine and the new wagers up another ten dollars.
Speaker 1: Scarlett quickly, No. I wanted to get to Howard in
Speaker 1: terms of what we see across the retailers. Is this
Speaker 1: idea that these companies are big on promotions. When do
Speaker 1: we or do we ever start to see margin expansion? Well,
Speaker 1: we would never as long as you've got poverty doubling
Speaker 1: in the last seven years, which of course has been
Speaker 1: what we had one out of twelve in poverty, we
Speaker 1: now born out of six and poverty seven years later.
Speaker 1: As long as you've got that scarlet across America, as
Speaker 1: long as Macy's is now building discount stores, as long
Speaker 1: as norths from fastest growth this discount stores, as long
Speaker 1: as Sacks fastest growth a discount stores, as long as
Speaker 1: d J d J Max is the most power full
Speaker 1: apparel retailer in the United States by far, and as
Speaker 1: long as traditional walls are closing, then as long as
Speaker 1: the middle class is decimated, Uh, you've got a smaller
Speaker 1: and smaller piece of America with money and the aspirational
Speaker 1: middle class is killed forever because of on that and
Speaker 1: everything else, it's not going to change. So retailing has
Speaker 1: changed forever, and price it will be more important forever.
Speaker 1: Bed Bathroom Beyond. Can you imagine a thinking of giving
Speaker 1: up coupons because this sacrilege and sound, it's unbelievable sacrilege. Well,
Speaker 1: speaking of bed Bathroom Beyond, one of its rivals, certainly
Speaker 1: on a higher end, would be restoration hardware. One thing
Speaker 1: I found very interesting is the commentary from the CEO,
Speaker 1: Gary Freedman. He talked about how a bear market wouldn't
Speaker 1: be all bad news for the company because it could
Speaker 1: bring lower real estate prices, which would help the change.
Speaker 1: Is that I think that's one of the craziest comments
Speaker 1: I have. But look, Gary Friedman is a brilliant, brilliant guy.
Speaker 1: He is a groundbreaking guy. He's done the most exciting
Speaker 1: thing in furniture in fifty years. There is no there's
Speaker 1: no one like him right now. If you take that
Speaker 1: explanation and the real estate, that's a little looney, Uh
Speaker 1: what they don't think he is to change the real
Speaker 1: estate bright, but he gave fifty reasons. He is the
Speaker 1: real One of the key reasons that happened to him.
Speaker 1: He's in a business that's out on the fashion edge.
Speaker 1: That's what made him so great. Now, when you go
Speaker 1: out on the fashion edge and the slightest ripple happens,
Speaker 1: you're screwed. And that he he's in that kind of
Speaker 1: a business. Did he expand too quickly? You've seen this
Speaker 1: a million times. He did. This is Gary Friedman. This
Speaker 1: guy is going wild. He's opening up giant he's doing Okay,
Speaker 1: are there elements here of an Abercarbie and Fitch were
Speaker 1: a dominant that Neddick CEO gets out in front of
Speaker 1: trends or his p and L. Yes. Possibly, But but
Speaker 1: this guy has done so much good stuff, all right,
Speaker 1: I'm hesitant to say that yet because he's created America.
Speaker 1: I mean, he's chased his entire into Since Home Depot,
Speaker 1: we've never had anything like this the invention of home
Speaker 1: Depot at Home Depot fifteen years ago. Try and threw
Speaker 1: away five million dollars in liquid Howard, how we're gonna
Speaker 1: go to break in and and move forward very quickly? Howard.
Speaker 1: We saw Home Depot and Lowe's with solid same store sales.
Speaker 1: Can your world of retail pull over the Home Depot excellence? Yeah?
Speaker 1: I look the home sector, they're the kings of the
Speaker 1: home sector. Now if you look at some other people
Speaker 1: in the home sector, they're not so fantastic. But clearly
Speaker 1: Home Depot and Lowe's have a formula. And here is
Speaker 1: the difference between restorational lordwearing Home Depot. Home Depot cells.
Speaker 1: What you have to have as hard whistling great, they
Speaker 1: sell what you have. Now low cells what you have
Speaker 1: to have you don't have to have anything in restoration hardware.
Speaker 1: You don't have to have it. So he's when the
Speaker 1: market gets volable anything restoration hardware. Okay, how this is phenomenal,
Speaker 1: stay with us, hard to us with this. You heard
Speaker 1: his support Mr Freeman over restoration hardware, which has been
Speaker 1: a modest implosion, to say the least, future to the
Speaker 1: last time restoration. I have not been in the store,
Speaker 1: but I do do things off their website. I think
Speaker 1: they're they're just I don't know what they do. The
Speaker 1: furniture is too big. I know I've seen the ceiling
Speaker 1: fan picture on your website. On your All right, let's
Speaker 1: check in with John Tucker for the news headlines. Shot
Speaker 1: find Scarlett. Donald Trump spent eight months launching a parade
Speaker 1: of insults over any on all detractors of Marco Rubio's
Speaker 1: survived by staying mostly in the sidelines. Rubio subtlely and
Speaker 1: urgently emerged from the shadows last night to hammer the
Speaker 1: front runner. The House considering a bill that would reverse
Speaker 1: the man on the sail or import of ivory products
Speaker 1: on doing US fish and wildlife rules that were intended
Speaker 1: to halt the decline in wild elephant populations, and the
Speaker 1: conventional wisdom was that California, especially the southern part of
Speaker 1: the state would be awash this winter with rain and
Speaker 1: the valleys and deep snow in the mountains. Alnina was
Speaker 1: on the way to save the day. Well, a California
Speaker 1: hydrologist now says the water supply forecast for the spring
Speaker 1: period is falling like a stone. Global News twenty four
Speaker 1: hours a day, powered by our two journalists in more
Speaker 1: than one d fifty news videaus around the world. I'm
Speaker 1: John Tuckers Scarlet and to John, thank you so much.
Speaker 1: Futures Futures up one oh for Tom Keene and Scarlet
Speaker 1: Foo on your Friday edition. Bloomberg Surveillance Worldwide Market Driver
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Speaker 1: This is Bloomberg Surveillance Global Business News twenty four hours
Speaker 1: a day at Bloomberg dot Com, the Radio plus Mobile
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Speaker 1: Brokers dot com, slash c m E Group. Honeywell International
Speaker 1: saying is seeking to re engage with United Technologies on
Speaker 1: a merger, offering to pay a hundred eight dollars a share.
Speaker 1: US DOCK Index futures, meanwhile, are moving higher amid corporate
Speaker 1: earnings and signals from China's Central Bank that it will
Speaker 1: act to bolster its economy. We check the markets every
Speaker 1: fifteen minutes throughout the trading day. On Bloomberg SNP EMUNI
Speaker 1: futures have eleven points. Dowie EMUNI futures have a hundred
Speaker 1: ten nas. Documuny futures up thirty one, and the decks
Speaker 1: in Germany's up to percent ten. Your treasury down fourteen
Speaker 1: thirty seconds see yield one point seven six percent nine
Speaker 1: Execred Oil a four and a half percent or a
Speaker 1: dollar fifty to thirty four fifty eight of arrol Comas
Speaker 1: Gold is down one point one percent or thirteen dollars
Speaker 1: to twelve nine announced. The Euro a dollar oh nine
Speaker 1: six three and the en one thirteen point five four,
Speaker 1: and that's a Bloomberg business flash. Tom and Scarlett, Karen,
Speaker 1: I think so much. The combined employees of Honeywell ut X,
Speaker 1: if it was to come about to show you, the
Speaker 1: scale would be three six thousand roughly revenue. I do
Speaker 1: want to point out Honeywell has lower revenue than U
Speaker 1: t X, even though they are the acquirer. In this attempt,
Speaker 1: the key headline there is Karen Musk mentioning Honeywell six
Speaker 1: to re engage with you nighted Uh Technologies. We re
Speaker 1: engage with Howard d Vinovitz on retail. Howard, I I
Speaker 1: look at Amazon. Is the elephant in the room. Is
Speaker 1: I'm the channel working? Every time you hear that word,
Speaker 1: it makes me cringe. It's like synergy. Is I'm the
Speaker 1: channel working. Here's what's going on. If you call any retailer,
Speaker 1: call Mazie's, call anybody going on Strom, Here's what they're
Speaker 1: gonna tell you. What is the fastest growing party of business?
Speaker 1: Every one of them We'll say online without by including
Speaker 1: the gap anybody. That means from an allocation of asset
Speaker 1: point of view, that's where they're putting the money. And
Speaker 1: that makes sense. That's why all that's why all of
Speaker 1: the ma shrinking stores, and that's why all of them
Speaker 1: putting money into technology. And they're right, Scarlett, I know,
Speaker 1: wants to jump in here. Terry Londron has been through
Speaker 1: four to twelve cycles. Are the retailers being fast enough
Speaker 1: this time around? I think they're doing what they can.
Speaker 1: But there is a permanent change in America that that
Speaker 1: Terry LongRun is now in the department store segment he
Speaker 1: always has been. That means he's the high cost player
Speaker 1: where we've got double the number of people in poverty
Speaker 1: looking for deals. Hello, that is a gigantic problem. It
Speaker 1: is a problem. But does it matter if the targets
Speaker 1: to home depots, the Gafts of the world continue to
Speaker 1: invest in their omnick channel infrastructure. As long as Amazon
Speaker 1: keeps expanding its product line, it's it's offerings. What it
Speaker 1: means is they're gonna shrink forever. What it means is
Speaker 1: Macy's has got to keep drinking. Right now, they're trying
Speaker 1: to monetize their real estate, shrinking those big, down down stores.
Speaker 1: They're doing what they gotta do aid to stay alive
Speaker 1: and raise capital and keep their stock price up and
Speaker 1: be to get enough money to keep investing in what
Speaker 1: they've got to do. That's what they're doing, and that's smart.
Speaker 1: All right. We've named checked Terry Longren, We've talked about
Speaker 1: Gary Freeman of Restoration Hardware. Who among the retail CEOs
Speaker 1: gets this, who's doing it right? Well? The best retailer
Speaker 1: is out there are I would say Costco In my opinion,
Speaker 1: Costco is the best because Costco has a formula that
Speaker 1: when you cut the role the BS, they really give
Speaker 1: the customer the best deal. And guess what, everybody knows
Speaker 1: that Aldi Food really gives the customer the best deal,
Speaker 1: not BS like Walmar that I'm in down and dude,
Speaker 1: they really not like what Bathom beyond. Here's a good bond.
Speaker 1: But yet the other guy. These are not specific to CEOs, right,
Speaker 1: This is a philosophy. This is a corporate philosophy of
Speaker 1: corporate strategy. So the CEOs. Look, when Senegal ran Costco,
Speaker 1: at least he was Sam Walten. I mean, I think
Speaker 1: these companies that are winning, I think Amazon has got
Speaker 1: the best CEO out there right now. I mean, I
Speaker 1: think this guy is a game changer, guy who's on
Speaker 1: a mission. He's all all he's done has changed the
Speaker 1: entire retailing at seventy economy. This guy's amazing mis bays
Speaker 1: those that's my opinion. Well, Tom, we were discussing earlier
Speaker 1: how you and I don't actually go into stores anymore.
Speaker 1: We just go and buy her online. Howard House luxury
Speaker 1: before we let you go off. They had a good season.
Speaker 1: A luxury is mixed, and that's because of what's going
Speaker 1: on with China and Russia when they've got an also
Speaker 1: vulnerability in the stock market tremendously affects them. Howard, thank
Speaker 1: you so much, greatly appreciate hard to it. And we
Speaker 1: need to shout out right now to Rebecca Minkoff who
Speaker 1: darkened the Door fashion Week. It was great to see her.
Speaker 1: She got up wicked early and was like heading out
Speaker 1: to like forty seven hours of runway stuff with her
Speaker 1: brother Jury, and you know, it's just like that American
Speaker 1: spirit of okay, what do we do now? Granted that's
Speaker 1: in luxury and Howard's looking at Scarlett. I thought it
Speaker 1: was fascinating on restoration hardware, and I said to somebody
Speaker 1: that you guy said, restoration hardware is so polarizing. People
Speaker 1: either addicted to it, hate it, or at least they
Speaker 1: know where it is. I mean just the catalog. Have
Speaker 1: you ever gotten at home the catalog? Well, yeah, I
Speaker 1: almost broke the mailbox and broke the mailbox and broke
Speaker 1: your wrist or one of them. And it's just a
Speaker 1: complete yeah it was, you know, and they're doing how
Speaker 1: are we going? A huge response from Mr Davidovitz is
Speaker 1: on and of course he uh I heard their real
Speaker 1: support for Mr Friedman U in uh coming to grips
Speaker 1: at Restoration Hardware with a path af Ford. We're looking
Speaker 1: at all sorts of things. We're gonna focus in the
Speaker 1: next half hour on U t X Honeywell. This has
Speaker 1: been tangential. I would say it's been like, yeah, they're big,
Speaker 1: and there's regulatory overlays and all that. But with this
Speaker 1: new headline, let's go to it right now. On the Bloomberg,
Speaker 1: the basic idea of Honeywell h seeking to quote re
Speaker 1: engage with ut X and a hundred eight dollars per share.
Speaker 1: That's because they have hell talks in the past kind
Speaker 1: of got in the way, and then there's some concerns
Speaker 1: from regulators as well, which kind of sty me the
Speaker 1: whole deal. In the end, yeah, and and we're gonna
Speaker 1: have some chat on this for you, some good conversation.
Speaker 1: Just to put it in perspective, I'm trying to do this.
Speaker 1: If you take a hundred and eight dollar valuation right
Speaker 1: now U t x uh over the last ten years
Speaker 1: is about a nine percent return. Eight point eight percent
Speaker 1: is where I would put that modeling in a hundred
Speaker 1: eight dollars per share. Uh. There it is UM a
Speaker 1: little more on this headline out as well, Standard Charter,
Speaker 1: the Challenge Emerging Market Bank their units. They may be
Speaker 1: cut by Standard and Pores. On this Friday, Scarlet Fou
Speaker 1: tom Key, Henrik Lunchrist is not with us. It's about
Speaker 1: Bloomberg Surveillance. The Bloomberg Ski Report is brought to you
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Speaker 1: off the every day and seek adventure, the Discovery Sport
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Speaker 1: New York Cloomberg eleventh, LEO to Washington, d C Bloomberg
Speaker 1: ninety nine one to Boston Bloomberg twelve wonders to San Francisco,
Speaker 1: Bloomberg nine to the country, Serious XM Channel one ninety
Speaker 1: and around the globe the Bloomberg Radio plus Apend Bloomberg
Speaker 1: dot com. This is Bloomberg Surveillance. Good morning, Young Karen
Speaker 1: Moscow along with Tom Keen and Scarlet Foo and the
Speaker 1: opening bill brought to you by SEI Imagine. When asset
Speaker 1: management servicing is unconstrained by infrastructure, c s CIS Global
Speaker 1: Operating Platform can be your catalyst for a business expansion
Speaker 1: at se i c dot com slash imagine songs higher
Speaker 1: at the open the s and P five hundred up
Speaker 1: three ten percent or six points in nineteen fifty seven
Speaker 1: downtowns industrial average of three ten percent or forty three
Speaker 1: points to sixteen thousand, seven hundred fifty five and then
Speaker 1: as Deck up seven tenths percent or thirty two points
Speaker 1: to forty six fourteen tenure Treasury down fourteen thirty seconds,
Speaker 1: the yield one point seven six percent, the yield on
Speaker 1: a two year point seven six percent no i X
Speaker 1: screwed oil have three point nine percent or a dollar
Speaker 1: twenty nine to thirty four thirty six of barrel and
Speaker 1: comex s gold is down nine tenths percent or eleven
Speaker 1: dollars forty cents to twelve twenty seven thirty ounce the
Speaker 1: euro a dollar oh nine six eight and again one
Speaker 1: thirteen point five nine, Tom and Scarlett Karen, thanks so much,
Speaker 1: Peter Armant of stern Age. You will join us here
Speaker 1: in about ten minutes, fifteen minutes on Honeywell U t X,
Speaker 1: U t X up two points hundred point zero three
Speaker 1: on U t X and we've got a lot to
Speaker 1: say about that coming up on our next block. Right now.
Speaker 1: I love talking to Kevin get us. He's with UM
Speaker 1: with Morgan Keegan uh and and and a part of
Speaker 1: Raymond James. And it's about fixed income. And what I
Speaker 1: love Kevin, as you're in the trenches. What is the
Speaker 1: backstory right now to all of our audience that needs
Speaker 1: to find yield? What's the dumb thing you see going
Speaker 1: on right now? You know we are being is the
Speaker 1: rare that the bond marked the Bondarre likes to think
Speaker 1: of itself as a leader uh and uh and in
Speaker 1: both movement and prices, and and right now it is following.
Speaker 1: It's following oil prices like every other markets following oil prices.
Speaker 1: So we so we're kind of getting our cues from
Speaker 1: what happens overnight on oil prices to see how the
Speaker 1: equity market goes, because that's gonna determine where interest rates
Speaker 1: are headed. So where the interest rates go off, oil
Speaker 1: breaks down further lower. It's a it's a it's a
Speaker 1: pretty clean trade right now. We're seeing we're seeing interest
Speaker 1: rates go up when oil goes up overnight, and equity
Speaker 1: markets have good openings, a good beginnings, and as the
Speaker 1: day goes on, we're pretty reactionary to that. But the auctions,
Speaker 1: if you look at the auctions over the last five auctions, tremendous,
Speaker 1: tremendous interests globally interest uh in the treasury auctions because
Speaker 1: of a lack of inflation of FED that's now sitting
Speaker 1: on its hands and um and yields that on comparables
Speaker 1: against German bonds, against Japanese bonds, tremendous yield pick up
Speaker 1: and and that's where the money's flowing in. Kevin connect
Speaker 1: the dots for us for why oil is the leading
Speaker 1: indicator for the bond market. I mean oil should be trading,
Speaker 1: and it is trading often on supply concerns, not demand.
Speaker 1: But why is it the proxy for global demand? What
Speaker 1: about the transmission mechanism makes it a leading indicator. It's
Speaker 1: a proxy for inflation primarily and for growth, And so
Speaker 1: as oil falls UM, global economies suffer, and as those
Speaker 1: economies suffer UM we have a double effect of both
Speaker 1: the lack of inflation and a lack of growth, which
Speaker 1: puts the FED in a position that that can't really tighten.
Speaker 1: So I don't care whether they sing the song of
Speaker 1: economic growth which is moderate, uh, some inflation around the corner,
Speaker 1: which it isn't, or that the fact that they're gonna
Speaker 1: raise the lyrics aren't being heard by the bond market.
Speaker 1: So to what extent our sovereign wealth funds that have
Speaker 1: no choice but to sell down some of their holdings
Speaker 1: to raise cash, how much are they driving some of
Speaker 1: this panic? Well? I think again, believe it or not,
Speaker 1: the reach for yield, whether sovereign growth funds or just
Speaker 1: a global investors in general, is coming back to the
Speaker 1: the U S. Treasury market because of the yield pick
Speaker 1: up and UM and the other As we lay out
Speaker 1: these scenarios of inflation, it's just a better place to be.
Speaker 1: So we can have a disconnect, which is why we're
Speaker 1: seeing a flattening curve. If you have you know, pricing yield.
Speaker 1: If yields are low, and you suggest they could even
Speaker 1: go lower, you've got retail small guys. They're just trying
Speaker 1: to make a coupon whatever whatever category a bond. And
Speaker 1: if you say, look it's priced at you gotta hold
Speaker 1: your breath and hope for that's a tenuous strategy for
Speaker 1: a lot of smaller investors. Yeah, it really is. But
Speaker 1: I think, um, I think if you how do you
Speaker 1: hedge at day to day in your portfolio, well, I
Speaker 1: think you know, you find a middle range. So it's
Speaker 1: maybe a cop out, but five to seven years gives
Speaker 1: you enough yield against the curve. It it insulates you
Speaker 1: a little bit from from any potential fed move. And
Speaker 1: qualities the key here. So you have to write it
Speaker 1: out in quality. And so if you have a tax
Speaker 1: the corporate space and corporate space high quality corporate space, yes,
Speaker 1: but I would rather go to taxable munis or munis
Speaker 1: in general. For still, even with this is important, folks,
Speaker 1: even with a muni pop of last year, you're gonna
Speaker 1: tell people those value and g os and revenues absolutely
Speaker 1: uh in quality because um taxable equivalent meals are some
Speaker 1: hundred two hundred twenty basis points better. We're still we're
Speaker 1: still whether it's nine or versus five percent of of
Speaker 1: of taxables? Were there the problems you and I are
Speaker 1: talking like we've got two more teenis in our hand
Speaker 1: at the monkey bar at four pm on a Friday.
Speaker 1: Let me translate that, folks, after tax treatment, you can
Speaker 1: pick up one to one point two percentage points of
Speaker 1: yield in tax freeze versus the corporate debacle and taxables
Speaker 1: right now, and this is from a guy with a
Speaker 1: taxable heritage. Miss food dive in there. What is the
Speaker 1: number one question that your clients are asking you that
Speaker 1: they won't let go of that they just keep hammering
Speaker 1: home on. Yeah. If you remember November December and into
Speaker 1: the first the year, most of our clients, as predicted
Speaker 1: by the Fed, we're looking for a higher interest rates,
Speaker 1: So so they expected savings rates to go up, and
Speaker 1: they expected opportunity with their cash to buy into higher yields.
Speaker 1: The question we're asking now is they're asking us now,
Speaker 1: is is when is that going to happen again? Because
Speaker 1: all I've seen since the first of the year is
Speaker 1: a drop of about forty basis points and yield from
Speaker 1: the tenure. So we started the year at about a
Speaker 1: two seventeen and here we are at about a one
Speaker 1: in three quarters. Their main question is why do I
Speaker 1: keep investing in the bond market and to winter yield
Speaker 1: is gonna go up? Where I can put this cash
Speaker 1: to work? And how do you give them an answer
Speaker 1: that that that when we all have no clue what's
Speaker 1: gonna happen next with oil? Yeah, I don't think anybody
Speaker 1: has been very good at predicting both economic growth and
Speaker 1: when the Fed uh will raise rates, and even the
Speaker 1: FED themselves that they almost have to look back at
Speaker 1: their at their move in December and think, you know, what,
Speaker 1: was that the right move? Maybe it was, but we're
Speaker 1: gonna have to see another ten fifteen dollars out of
Speaker 1: oil up, and we're gonna have to see something other
Speaker 1: than one and a half percent on a core PC
Speaker 1: rate for the Fed. It's gonna have to be really
Speaker 1: turning that corner towards two percent on inflation before we
Speaker 1: see these higher yields. When I look at yield and
Speaker 1: you know it was someone like Bill Gross suggesting financial
Speaker 1: repression continues, I do believe inflation matters right now? Very low?
Speaker 1: What's our real yield? Do we have financial repression? Until
Speaker 1: you and I are ancient, I don't. I don't think so.
Speaker 1: I don't think that we're um and I hope that
Speaker 1: we're not headed towards you know, Japan's economy and interest
Speaker 1: rate structure. Um but um uh. But we are seeing
Speaker 1: a pretty significant move towards a flatter curve. And that
Speaker 1: probably concerns me more than anything right now, is that
Speaker 1: we've gone from about a hundred and forty basis points
Speaker 1: to a hundred basis points between two's the tens, right,
Speaker 1: So your dazzled? I know that huh flatten? Yeah, what's
Speaker 1: it means? Well, it means that's right now. That means
Speaker 1: it's a disconnect. But between what short rates uh are
Speaker 1: the perception of short rates are currently versus where where
Speaker 1: long rates and investors are putting their money um, and
Speaker 1: it is the difference between economic growth and inflation right now.
Speaker 1: This has been great, Kevin, give us thank you so much.
Speaker 1: Thank you, I really really appreciate it. With Raymond James
Speaker 1: and Morgan A. Keegan, Peter Armand coming up with stern
Speaker 1: age formula with Bleacher and this is on something that
Speaker 1: all of a sudden has become interesting. I'm sort of like, yeah,
Speaker 1: honeywell ut X, I get it, And back and forth
Speaker 1: with Scarlett with a one oh way, all of a sudden,
Speaker 1: we go into the weekend with another interesting transaction. Absolutely
Speaker 1: and in fact, Peter Armatt had written a note today
Speaker 1: that had said a one dollar eight share offer clear
Speaker 1: really not enough for management and shareholders, and at least
Speaker 1: one dollars a share quote could be enough. He sees
Speaker 1: a lengthy process that could extend to before being resolved,
Speaker 1: and I I this will be my chart for Monday
Speaker 1: on Bloomberg Television. You get a first look on Bloomberg Radio.
Speaker 1: I put it out on Bloomberg Radio. Plus the twenty
Speaker 1: year trend on ut X, the center tendency is a
Speaker 1: hundred and twenty five dollars per share. When she gets
Speaker 1: your right to work, Scarlett was talking about the dollars
Speaker 1: six the vix lower eighteen a bullmark at eighteen point
Speaker 1: four six. This hour of Surveillance is brought to you
Speaker 1: by Maza White Planes. Visit Maza white Plains dot com.
Speaker 1: Let's go to John Tucker now for news headlines. John well,
Speaker 1: Scarlett and Tom. The final GOP debate before Superhot Tuesday
Speaker 1: was a knockdown drag out a fair All in Houston,
Speaker 1: and among the highlights Marco Rubio getting at her front
Speaker 1: runner Donald Trump. Scan for Rubio, it was among the
Speaker 1: political turner bound since it was Rubio who got flustered
Speaker 1: during a New Hampshire bait when then Canada Chris Christie
Speaker 1: accused him of repeating himself. Authorities say it wasn't terrorism
Speaker 1: yesterday evening, but another workplace mass shooting near Wichita, Kansas.
Speaker 1: An employee of Xcel Industries open fired the plant to
Speaker 1: at least four people are dead, including the gunmen. Nevada
Speaker 1: Governor Brian Santiville, a Republican, has bowed out of consideration
Speaker 1: for the u su Preme Court as the partisan divisions
Speaker 1: hardened over filling the vacancy left by the death of
Speaker 1: Justice Anthony Scalia. And German beer brewers, who of course
Speaker 1: pride themselves on using nothing but pure water, hops, malt,
Speaker 1: and yeast to deliver a level of purity enshrined in
Speaker 1: a five year old law, are now rejecting a study
Speaker 1: that found traces of a weed killer in all fourteen
Speaker 1: beer brands that were put under the microscope. The group
Speaker 1: responding to a studied by the Munich Environmental Institute. Global
Speaker 1: News Yeah, powered by a twenty fred journalist and more
Speaker 1: than one hundred fifty news bureaus around the world to
Speaker 1: their Girl'll just stick with the wine. The Clydesdales. You
Speaker 1: can go to the Kleinsdale's John Tucker. Thank you so much.
Speaker 1: Bullmarket Very Track sixteen thousand two of the VIS nineteen
Speaker 1: point zero one. Next Honeywell United Technologies. Bloomberg Surveillance. Bloomberg
Speaker 1: Surveillance is brought to you by Bank of America Mary
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Speaker 1: member ft I C Global Business News twenty four hours
Speaker 1: a day at Bloomberg dot Com, the Radio plus mobile
Speaker 1: app and on your radio. This is a Bloomberg Business
Speaker 1: Flash and I'm Karen Moscow stocks are rising voice for
Speaker 1: a second straight weekly gain after the S and P
Speaker 1: five index are raised a monthly decline. And this comes
Speaker 1: of its signals from China's Central Bank that it will
Speaker 1: act to bolster its economy and it's crude oil clade.
Speaker 1: We check the markets every fifteen minutes throughout the trading day.
Speaker 1: On Bloomberg, the S and P five hundred up three
Speaker 1: tenths per cent or six points in nineteen fifty eight
Speaker 1: dowd Johnes industrial average of three tenths percent or forty
Speaker 1: two points to sixteen thousand, seven hundred thirty nine. Then
Speaker 1: Astacs a half per cent or twenty two points to
Speaker 1: forty six oh four. Ten year Treasury down twelve thirty seconds,
Speaker 1: the yield one point seven five percent yield on the
Speaker 1: two year point seven six percent. Nimex screwed oil up
Speaker 1: three percent or a dollar three to thirty four ten
Speaker 1: a barrel Comex Gold down seven tenths per cent or
Speaker 1: eight dollars fifty cents to twelve thirty thirty announced the
Speaker 1: euro a dollar oh nine seven three the N one
Speaker 1: thirteen point four eight. Honeywell International saying that a tie
Speaker 1: up with United Technologies would create seventy two billion dollars
Speaker 1: in combined shareholder value, part of a February nineteenth presentation
Speaker 1: pushing for a deal that the target company said was unworkable,
Speaker 1: Honeywell said the proposed offer of a hundred eight dollars
Speaker 1: per share woul lead to cost savings of three and
Speaker 1: a half billion dollars in four years, as it said
Speaker 1: it was seeking to re engage with United Technologies on
Speaker 1: possible transaction and Hilton Worldwide holdings, the world's largest operator
Speaker 1: of a hotel room, said it will continue to pursue
Speaker 1: spinoffs of its hotel properties and timeshare business to boost
Speaker 1: shareholder value. That's a Bloomberg business flash, thom and Scarlett Karen,
Speaker 1: thanks so much, folks. Peter Armand joins us some stern
Speaker 1: energy gleature right now at these head of their aerospace
Speaker 1: and defense system. Peter thrilled to have you and thank
Speaker 1: you so much on an incredible morning to join us.
Speaker 1: My chart for Monday is a twenty year trend on
Speaker 1: one of American's icons ut X and I don't understand
Speaker 1: a hundred and eight my center tendency twenty years back
Speaker 1: is a hundred and twenty three dollars a share. A
Speaker 1: one standard deviation premium is a hundred and forty eight
Speaker 1: dollars a share in way out stupid, it's two standard
Speaker 1: deviations a hundred and seventy eight dollars a share. Why
Speaker 1: is Honeywell low balling this offer? Well, I think it's
Speaker 1: it's it's initially I think probably the first the first
Speaker 1: of what I will be probably an initial offer. Uh,
Speaker 1: if you look, I mean United Technologies in the last
Speaker 1: few years has struggled. There is a incredible industrial business,
Speaker 1: but they they've run into um a point where their
Speaker 1: businesses are very mature and their margins are running at
Speaker 1: peak levels, and so they have to go through a
Speaker 1: restructuring to kind of reset the bar and re engage growth.
Speaker 1: And I think Honeywell seas an opportunity to try to
Speaker 1: combine to businesses and take advantage of that. Is there
Speaker 1: regulatory overlap? We've seen all sorts of different comments on
Speaker 1: this three thousand combine employees. I got revenues out, Oh,
Speaker 1: I don't know, ninety eight billion or something, give or
Speaker 1: take a couple billion. But what's the overlap? Yeah, the
Speaker 1: overlap um Initially, I think it's fairly significant. It's in
Speaker 1: a couple of key areas in the aerospace side, small
Speaker 1: aircraft and helicopter engines, auxiliary power units otherwise not as
Speaker 1: ap us, aircraft, environmental control systems, aircraft wheels and bay breaks,
Speaker 1: and then the firing security products the ladder. There's plenty
Speaker 1: of competition for so the fire security products, you could
Speaker 1: easily divest some of those and it wouldn't be an issue.
Speaker 1: And I think they're they're clearly is going to be
Speaker 1: some horse trading going on around the airspace assets about
Speaker 1: what they would divest and satisfy regulators. Regulators is one thing.
Speaker 1: Customer resistance is another. U t XS CEO had said
Speaker 1: earlier this week that that would make a merger too
Speaker 1: difficult to get done. What kind of customer resistance we
Speaker 1: were talking about here, So you're talking about Boeing air
Speaker 1: Bus UH in particular, and then probably the Department of Defense. UH,
Speaker 1: it's more probably on the commercial side. Initially, UM, we've
Speaker 1: looked at the the the key aircraft platforms, whether it's
Speaker 1: Bowings or Airbus, both of the kind of the narrow
Speaker 1: body side, the twenty for Airbus or the seven sevent
Speaker 1: three fifty, both new platforms that are ramping, and if
Speaker 1: you do the analysis, it looks like that from a
Speaker 1: cost basis that this combination and some of those platforms,
Speaker 1: the combination with Halt and somewhere between seven and sevent
Speaker 1: of the total cost base. So it's significant, significant, but
Speaker 1: it's not a deal breaker. There are some competitors out
Speaker 1: there that have larger shares um, so clearly there's a
Speaker 1: negotiation going on. And what you could horsetrate out Peter,
Speaker 1: I meant where US astern ag as we look at
Speaker 1: Honeywell U t X. Peter, I'm looking at the Bloomberg
Speaker 1: terminal and U t X is subpar across the entire
Speaker 1: income statement. But with that, there's not much different. I've
Speaker 1: got nominal growth U t X three four percent. Honeywell
Speaker 1: does better, maybe it's five percent. I've got eva DA
Speaker 1: they outperformed by two hundred basis points. Where does U
Speaker 1: t X have to get better to defend against everybody,
Speaker 1: including Honeywell. Do they have to do in the middle
Speaker 1: of the income statement and expenses, etcetera. Or do they
Speaker 1: just have to do better revenue? Yeah, Well, unfortunately it's
Speaker 1: a little bit of both. They have they have to
Speaker 1: uh cut, they have to go through restructuring, so they
Speaker 1: lost some share with OTIS over the last few years
Speaker 1: and to hold margin and instead they now have to
Speaker 1: you know, cut some pricing to uh so that's going
Speaker 1: to hurt their margins in order to get some volume
Speaker 1: back the same thing. They've got a you know, a
Speaker 1: very strong franchise with Carrier, but they're running up against
Speaker 1: kind of peak margin levels and they and they're continuing
Speaker 1: to look at ways to improve the cost structure there.
Speaker 1: And then the on the Pratt and Whitney side, I mean,
Speaker 1: they just have they have the benefit of having a
Speaker 1: great new engine, but unfortunately it's really next decade story
Speaker 1: before it starts generating a lot of income growls. Because
Speaker 1: I think he's looking to build kind of the next
Speaker 1: big industrial uh want. I think he wants to do
Speaker 1: something where he sees enormous synergies where there is a
Speaker 1: margin a margin expansion story that could still be in
Speaker 1: play when you look at the combination and I think
Speaker 1: you put the best in class of Honeywell's operating system,
Speaker 1: which has delivered tremendous share older values since Dave Cody
Speaker 1: has installed it, and I think he looks at there's
Speaker 1: an opportunity to do that with you. What does this
Speaker 1: mean for General Electric then, which is putting all its
Speaker 1: eggs in one basket as an industrial company, General Electric
Speaker 1: or the other other big industrials out there that if
Speaker 1: this deal gets done, there can always be a knee
Speaker 1: jerk reaction. I think General General Electric, which we don't
Speaker 1: have a rating on UM, is on their own path.
Speaker 1: They've obviously been cleaning up their own story and investing
Speaker 1: a lot of the financial assets, so I think that's
Speaker 1: a different story. But you know, clearly if you saw
Speaker 1: this deal ultimately get done and it would take probably
Speaker 1: well into seventeen UM, there probably would be a knee
Speaker 1: jerk reaction, if from a competitive standpoint, just because you'd
Speaker 1: have a very strong offering. Here's a partial score honeywell
Speaker 1: twelve U t X six point five shareholder return last decade.
Speaker 1: You say this will be a lengthy process, Peter, that
Speaker 1: could extend into before being resolved. Surely David Cody uh
Speaker 1: sees this as well. Why now, why is he choosing
Speaker 1: to act now? Well, I think he sees an opera
Speaker 1: a window here with the United Technologies that frankly, it's
Speaker 1: UM a very strong industrial company, but they're going through
Speaker 1: a period where UM three out of their four segments
Speaker 1: this year alone are going to show negative EBIT growth.
Speaker 1: So and because of the you know, headwinds that they're seeing.
Speaker 1: Some of that is is self inflicted with a great
Speaker 1: new engine that they're delivering and that's causing a drag
Speaker 1: for Pratt and Whitney, but others is where they need
Speaker 1: to kind of restructuring the business, whether it's OTIS or
Speaker 1: what they're seeing on the aerospace system side. So UM,
Speaker 1: I think there's an opening window here to see maybe
Speaker 1: if we put a combination together, we we divest some
Speaker 1: of the key assets that ultimately this is a one
Speaker 1: plus one equal story. What about getting shareholders on his side,
Speaker 1: Honeywell bringing over some of the u TX as shareholders.
Speaker 1: Are there any activists that play or potential activists that
Speaker 1: play that could get in. I don't see this being
Speaker 1: a near term activist story. I this is more about
Speaker 1: convincing UH United Technology shareholders that there's real value here
Speaker 1: and trying to keep what could be disappointment among the
Speaker 1: Honeywell shareholders who the reality is historically this is not
Speaker 1: what they signed up for. They signed up for what
Speaker 1: was a very strong, UH clear messaging story UH five
Speaker 1: billion dollar acquisitions and less continuing to tuck those in,
Speaker 1: improving the cost structure of those deals, adding you know,
Speaker 1: the Honeywell kind of operating system and then seeing the
Speaker 1: benefit of acretion going forward. So this is a deviation,
Speaker 1: a game changer for that. And and guess what, We're
Speaker 1: gonna have their Honeywell Investor Day next Wednesday in New
Speaker 1: York and we're gonna hear a lot more about we'll
Speaker 1: get you back on and that tell me the makeup
Speaker 1: And let's just pick on U t X. I mean,
Speaker 1: Judd greg Is on the Senator Greg on the Honeywell board.
Speaker 1: But tell me the quality of the U t X board.
Speaker 1: I see Governor Whitman of New Jersey on the board,
Speaker 1: Terry McGraw on the board as well, in Alan coleman
Speaker 1: on the board. Uh what's the quality that board? And
Speaker 1: do they tell the management what to do? Good question? Well,
Speaker 1: I mean both of these companies have tremendous boards. And
Speaker 1: John Faraci excuse me, Yeah, And there's a background of
Speaker 1: of other advisors, um, you know, former executives United Technologies
Speaker 1: who are certainly close to the story also, So I
Speaker 1: think they'll have great counsel and it's just a matter
Speaker 1: of whether they're satisfied, whether this is enough value being created,
Speaker 1: and whether they're willing to uh deal with the change
Speaker 1: and potential governance and having Honeywell run these what are
Speaker 1: great assets that technologist, Peter, thank you so much. Well,
Speaker 1: my people will talk to your people, so maybe we
Speaker 1: can drag you on the show next week sometime after
Speaker 1: the Honeywell meeting. Mr I meant is with Stern aging Leature,
Speaker 1: we thank him for his short term support today, Scott,
Speaker 1: that was fascinating. I love what he said about this
Speaker 1: is outside the box of what Honeywell shareholders would want. Yeah,
Speaker 1: they didn't sign up for this, right, I mean they
Speaker 1: were not looking for a year or two of lengthy process,
Speaker 1: lengthy negotiations, asset to sales and back and forth with
Speaker 1: regulators for any of this. Bloomber Radio Plus you got
Speaker 1: the first look at my chart for Monday, which is
Speaker 1: really interesting. It is it is the trend of ut
Speaker 1: X and the valuations of the center tendency of a
Speaker 1: two decade trend, which you heard Mr Armand say he
Speaker 1: thinks a hundred eight dollars and shares a little brief,
Speaker 1: a little early, and it would probably migrate higher if
Speaker 1: they ensue to battle. I think scarlet food. We're produced
Speaker 1: by y U N. Kent Felio, our Global technical director
Speaker 1: of Bloomberg surveillance,