WEBVTT - Here’s Why U.S. Housing Will Get Even Less Affordable: Shilling 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:33.040 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Lennar 0:00:33.400 --> 0:00:36.920 is surging today on the prospects of continuing to build 0:00:36.920 --> 0:00:39.760 homes and continuing to have people buy them even as 0:00:39.800 --> 0:00:43.600 they become less affordable. Joining us now is Gary Shilling. 0:00:43.840 --> 0:00:46.760 He is a Bloomberg Opinion Calmness. We're always happy to 0:00:46.760 --> 0:00:51.280 have him on his president of a Gary Shilling and Co. Gary, 0:00:51.280 --> 0:00:54.440 you wrote a column saying US housing will get even 0:00:54.720 --> 0:01:00.560 less affordable. Why, well, they're not. A reason for that 0:01:01.400 --> 0:01:05.559 one is that the construction costs have gone up, Labor 0:01:05.640 --> 0:01:09.399 costs have gone up. A lot of the carpenters, masons, uh, 0:01:09.560 --> 0:01:13.800 plumbers and so on that came from Mexico and elsewhere 0:01:13.920 --> 0:01:17.479 in Central America. Uh, when the housing boom, they've gone home. 0:01:18.120 --> 0:01:21.120 And with immigration policy, it's harder for those people to 0:01:21.240 --> 0:01:24.200 come back. And also economic conditions are better in Mexico, 0:01:24.360 --> 0:01:27.640 so they're happier to stay there. You've also had increases 0:01:27.680 --> 0:01:33.399 in lumber cost is of paraffon imported Canadian lumber, and 0:01:33.440 --> 0:01:36.480 there have been forest fires and insect damage in the 0:01:36.520 --> 0:01:39.880 Pacific Northwest which you've added, which has added the costs. 0:01:40.319 --> 0:01:45.880 Uh so, And and you also also in terms of 0:01:46.040 --> 0:01:49.760 the cost you simply have a lot of builders who 0:01:49.800 --> 0:01:54.280 are in effect concentrating on a higher cost houses because 0:01:54.720 --> 0:01:58.440 those are people who can't afford them, lower lower income 0:01:58.480 --> 0:02:00.000 people a lot of times they don't have a credit 0:02:00.040 --> 0:02:02.800 scores and so on. So villers are saying, I'll concentrate 0:02:02.880 --> 0:02:05.800 on the area where people are less price sensitive. So 0:02:06.680 --> 0:02:10.320 you really do have in effect a shift to higher, 0:02:10.400 --> 0:02:14.440 higher cost housing. And it's it's a number of factors. 0:02:15.320 --> 0:02:20.200 Gary Shilling maybe explain why is it that a segment 0:02:20.240 --> 0:02:24.040 of the economy residential construction, which accounts for just four 0:02:24.520 --> 0:02:28.280 of g d P, Why is this such an important 0:02:28.320 --> 0:02:32.160 area it has a bigger effect. Well, it's bigger. It's 0:02:32.200 --> 0:02:35.519 bigger pen because it is so volatile and its last 0:02:35.560 --> 0:02:39.480 recession really proved it. Now this was this was really 0:02:39.560 --> 0:02:43.160 driven by the collapse in the subprime mortgage sector, and 0:02:43.520 --> 0:02:45.919 it took the economy with it, but you had their 0:02:46.440 --> 0:02:51.520 UH decline. Housing at its peak was six point seven 0:02:52.040 --> 0:02:55.320 of g d P in late two thousand five, then 0:02:55.320 --> 0:02:57.880 it went to two and a half percent two point 0:02:57.880 --> 0:03:02.360 five percent of GDP in two thousand eleven. Well, that 0:03:02.440 --> 0:03:06.600 collapse of four point two percentage points of GDP in itself, 0:03:06.639 --> 0:03:08.680 that is a major recession. It's a matter of fact, 0:03:08.880 --> 0:03:12.680 the whole economy declined attempt to less four point one 0:03:12.680 --> 0:03:15.600 percent of was housing collapse account for more than they 0:03:15.639 --> 0:03:18.519 declined in the economy and that recession that was the 0:03:18.560 --> 0:03:21.440 worst sense in myteen thirty So it's it's a volatility 0:03:21.480 --> 0:03:23.040 and a lot of it has to do with the 0:03:23.520 --> 0:03:27.360 fact that housing is driven by by interest rates. Is 0:03:27.560 --> 0:03:29.600 highly leverage. You think about it, if you had a 0:03:29.639 --> 0:03:31.840 company that was leverage where you can get an f 0:03:32.040 --> 0:03:34.800 h A loan three and a half percent down, Well, 0:03:34.800 --> 0:03:37.920 if you had a company that that that had only 0:03:37.960 --> 0:03:41.040 that amount of capital and the rest was piled you say, boy, 0:03:41.080 --> 0:03:43.960 their way over leverage. But actually housing is so it's 0:03:44.040 --> 0:03:46.200 very sensitive interest rates. And then of course you also 0:03:46.240 --> 0:03:50.080 had that banans of people rushing into subprime mortgages are 0:03:50.160 --> 0:03:53.200 ridiculing afford them, so it was augmented the whole the 0:03:53.200 --> 0:03:55.840 whole cycle on the downside. Well, Gary, I'm just trying 0:03:55.880 --> 0:03:58.480 to understand what the path forward is because a lot 0:03:58.480 --> 0:04:02.080 of people are lamenting the lack of affordable inventory here. 0:04:02.760 --> 0:04:04.760 You're you're predicting that there isn't gonna be much more 0:04:04.800 --> 0:04:07.600 of it because builders aren't really being incentivized to build it, 0:04:07.640 --> 0:04:10.840 and and just the materials and the labor is more expensive. 0:04:10.960 --> 0:04:14.200 So going forward, Uh, this this would seem to be 0:04:14.480 --> 0:04:19.039 supportive of prices right, um, but in the wrong places. 0:04:19.600 --> 0:04:21.880 In other words, that it's going to be perhaps cheaper 0:04:21.920 --> 0:04:24.440 to buy homes on the high end, but it's going 0:04:24.520 --> 0:04:28.800 to get more and more difficult to buy more affordable homes. Yeah, 0:04:28.800 --> 0:04:32.240 and you see that in the in the inventories. Uh uh, 0:04:32.520 --> 0:04:35.679 there is a lot more inventory, you know, months surply, 0:04:36.400 --> 0:04:39.400 Uh that the the inventory relative to the sales in 0:04:39.680 --> 0:04:43.520 the latest month that is much higher in new houses 0:04:43.920 --> 0:04:46.840 than there's for existing houses. And existing houses tend to 0:04:46.880 --> 0:04:49.440 be cheaper. So in effect, you just don't have the 0:04:49.520 --> 0:04:52.520 existing Housesn't that you haven't had a turnover four four 0:04:52.640 --> 0:04:56.039 babies are staying in their houses, they're working longer, allow 0:04:56.080 --> 0:04:58.520 of them need to. They don't have the income to retire. 0:04:59.120 --> 0:05:03.440 You had a huge shopping up of of used houses, 0:05:03.480 --> 0:05:08.560 existing houses brought out of foreclosure by institutional investors, and 0:05:08.600 --> 0:05:10.720 they and they tend to hang on to them. They 0:05:10.760 --> 0:05:13.840 turn don't turn over as fast as normal homeowners. And 0:05:13.880 --> 0:05:15.760 that's the that's the key reason. Both these are key 0:05:15.760 --> 0:05:18.480 reasons that the that the length of time that people 0:05:18.480 --> 0:05:20.440 are staying in the house now is ten years. It 0:05:20.600 --> 0:05:22.599 used to be six years. So you just don't have 0:05:22.640 --> 0:05:25.520 a turnover. You don't have the available supply, particularly of 0:05:25.720 --> 0:05:29.839 existing houses. Garrett, we've been talking about supply. We've spoke 0:05:29.880 --> 0:05:33.000 about the effect of the housing industry on the overall economy. 0:05:33.240 --> 0:05:35.479 Give you about a minute or so, tell us about 0:05:35.839 --> 0:05:39.240 the demand side right now. Well, the demand side is 0:05:39.680 --> 0:05:42.320 seeing is being hurt by a number of factors. One 0:05:42.360 --> 0:05:45.720 is affordability. Uh, particularly for younger people, they simply do 0:05:45.800 --> 0:05:48.760 not have the money the assets. I mean, you know, 0:05:48.800 --> 0:05:52.680 the average the average person under under thirty five has 0:05:52.680 --> 0:05:55.680 got savings of five thousand dollars or lett doesn't go 0:05:55.880 --> 0:05:58.960 very far in terms of buying a house. Uh. Student 0:05:59.040 --> 0:06:01.880 loans are big pressing a factor for many of these people. 0:06:02.279 --> 0:06:05.479 Credit scores. They've brightened up since the Great Recession and 0:06:05.560 --> 0:06:09.560 housing collapse, and they can't meet the credit scores. Uh. 0:06:09.720 --> 0:06:12.000 So you have a number of factors here that really 0:06:12.040 --> 0:06:16.320 make it much more difficult for people to uh to 0:06:16.440 --> 0:06:19.479 afford houses. And you can say this is an imbalance 0:06:19.520 --> 0:06:22.599 and it shouldn't exist forever, but what it really means 0:06:22.640 --> 0:06:24.919 there is a lot more people are being forced to 0:06:24.920 --> 0:06:28.799 to rent now new homes. First time buyers are increasing, 0:06:29.400 --> 0:06:33.000 no question about it. And the gap between mortgages and 0:06:33.760 --> 0:06:37.400 between the mortgages and rents is closing in favor of 0:06:37.480 --> 0:06:40.000 owning owning a house, but it's got a long way 0:06:40.040 --> 0:06:43.120 to go. Thank you very much, Gary Shilling. He is 0:06:43.160 --> 0:06:46.400 the president of a. Gary Shilling and Company. He is 0:06:46.440 --> 0:06:50.960 also a Bloomberg opinion columnists. He also is a wonderful 0:06:51.000 --> 0:06:55.600 honey producer. He has his own bees. Yes he does. Yes, 0:06:56.040 --> 0:06:59.440 yeah a p R. I think it's the term. Well done. 0:07:00.320 --> 0:07:14.960 Thanks very much, Gary Shilling. Hey, Gary Shilling and Company. 0:07:17.400 --> 0:07:20.280 All right, time to talk about commodities with Mike mcloan, 0:07:20.360 --> 0:07:24.000 our commodity strategist for Bloomberg Intelligence. He joins us here 0:07:24.000 --> 0:07:26.960 in our eleven three oh studio and Alan burga agriculture 0:07:26.960 --> 0:07:30.240 reporter for Bloomberg News. He joins us from our Bloomberg 0:07:30.320 --> 0:07:33.040 nine one studios in Washington, d C. And of course 0:07:33.320 --> 0:07:37.280 you can follow Alan on Twitter at Alan Burga. That's 0:07:37.400 --> 0:07:41.200 b J E r g A. Uh, Mike. I want 0:07:41.200 --> 0:07:43.920 to begin with you because let's get the price action 0:07:44.080 --> 0:07:45.760 first of all, and a little bit of the pain. 0:07:45.960 --> 0:07:48.960 Let's start with soybeans. What has been going on. If 0:07:48.960 --> 0:07:52.520 you're a soybean farmer, you're not happy. You're not happy 0:07:52.560 --> 0:07:55.200 with prices, You're happy with production. That's the one problem. 0:07:55.280 --> 0:07:58.120 The good, excellent conditions for this month are the best 0:07:58.120 --> 0:08:01.400 they've been in decades, in fact, basically right at the 0:08:01.440 --> 0:08:03.680 two thousand eleven peak. And I was there in the 0:08:03.720 --> 0:08:06.200 Midwest last weekend and I've just never seen the crop 0:08:06.280 --> 0:08:08.920 look this good, notably in corn, but soybeans are the 0:08:08.960 --> 0:08:13.280 main expert. We have to China, so good conditions, um 0:08:13.480 --> 0:08:17.000 export trade tensions, and then of course the plunge in 0:08:17.080 --> 0:08:20.480 the Brazilian real has been basically a perfect storm for soybeans. 0:08:20.520 --> 0:08:24.720 So looking forward, the question is is this perfect storm sustainable? 0:08:24.800 --> 0:08:27.640 And from these levels it's unlikely. So Allen, come on 0:08:27.680 --> 0:08:31.000 in here. I mean, what could potentially alter this backdrop, 0:08:31.040 --> 0:08:34.640 which is a perfect storm to send corn and soybean 0:08:34.679 --> 0:08:38.360 prices plummeting and uh and leave and leave a lot 0:08:38.400 --> 0:08:42.240 of crops out there, uh without a lot of profit margin. Well, 0:08:42.280 --> 0:08:44.200 there's two things you could do. I mean, one is 0:08:44.200 --> 0:08:46.840 sort of the perennial, which is weather. If you have 0:08:47.480 --> 0:08:49.959 we're getting to to a sensitive period in terms of 0:08:49.960 --> 0:08:52.439 the germination of the crops for corn and soybeans. If 0:08:52.480 --> 0:08:55.520 you have a hot dry spell in the US Midwest, 0:08:55.559 --> 0:08:57.840 that would change the crop out look. Um. Of course, 0:08:57.880 --> 0:08:59.760 you can always hope if you're a U. S. Farmer 0:08:59.800 --> 0:09:01.719 for lack of rain somewhere else. I mean, this is 0:09:01.760 --> 0:09:04.680 a global market with global supply and demand. So those 0:09:04.679 --> 0:09:06.640 are a couple things. That's that's one thing. That The 0:09:06.640 --> 0:09:08.679 other thing, of course, is the policy environment. I mean, 0:09:08.800 --> 0:09:10.800 somebody could blink in the trade war, or the trade 0:09:10.800 --> 0:09:13.040 war could be called off, or something could be done 0:09:13.040 --> 0:09:16.160 in that regard. Another factor is the U. S. Department 0:09:16.160 --> 0:09:18.320 of Agriculture keep saying that that they're going to have 0:09:18.960 --> 0:09:22.000 US farmers backs. That could be through some stepped up 0:09:22.000 --> 0:09:25.320 commodity purchases in the short term that could help support 0:09:25.400 --> 0:09:27.880 prices in the case of a trade war, but you 0:09:27.920 --> 0:09:29.400 in the long run it would just contribute to a 0:09:29.440 --> 0:09:32.040 supply overhang. So that's got to kind of present a 0:09:32.080 --> 0:09:34.400 bit of a mixed picture for the market. Alan a 0:09:34.440 --> 0:09:36.960 little bit more on these policy wars, perhaps on a 0:09:36.960 --> 0:09:40.240 product that isn't necessarily is widely traded anymore, and this 0:09:40.280 --> 0:09:43.439 has to do with cheese and dairy products, particularly on 0:09:43.480 --> 0:09:46.120 the Canadian border. What have you been hearing? You know, 0:09:46.640 --> 0:09:49.760 A lot of the attention on terry and cheese has 0:09:49.800 --> 0:09:52.720 been with with Canada and the tariffs that they have 0:09:52.880 --> 0:09:55.880 on US products and their system of supply management, which 0:09:55.920 --> 0:09:58.440 is something that's become very controversial in the NAFTA talks. 0:09:58.640 --> 0:10:00.960 I would actually draw some of your mentioned to Mexico. 0:10:01.120 --> 0:10:04.000 I mean, for the very reason that Canada doesn't gavel 0:10:04.080 --> 0:10:07.360 out of US market share. It's not actually a big 0:10:07.400 --> 0:10:10.640 supplier a big issue on the markets. Mexico, on the 0:10:10.640 --> 0:10:13.679 other hand, is our biggest export destination, and when you 0:10:13.679 --> 0:10:16.040 start to see some of these duties go into effect 0:10:16.280 --> 0:10:19.920 with Mexico, exports have really what have been supporting dairy 0:10:19.960 --> 0:10:22.480 markets um and if you see that cut off from 0:10:22.480 --> 0:10:25.040 the largest customer, now we see a return to dairy 0:10:25.040 --> 0:10:27.839 gluts that could be very difficult for producers. Mike, come 0:10:27.880 --> 0:10:29.640 on in here. I just want to broaden out and 0:10:29.640 --> 0:10:33.640 take take take a step back and look at commodities overall. 0:10:33.640 --> 0:10:37.839 Bloomberg Commodities index actually has declined for yet a fourth week. 0:10:37.880 --> 0:10:40.760 That is its worst run in more than a year. 0:10:41.080 --> 0:10:45.320 And this comes right after months after behemets from Pimco 0:10:45.440 --> 0:10:47.720 to Goldman. Sachs said, commodities is the place to go. 0:10:47.880 --> 0:10:50.600 This is the bullish bet of the year. It has 0:10:50.679 --> 0:10:52.600 not been. Is it it has not been? Is it 0:10:52.640 --> 0:10:55.280 because of the stronger dollar? Is it because of the 0:10:55.320 --> 0:10:57.840 trade talk? Is it just a perfect storm in a 0:10:57.920 --> 0:11:00.320 lot of different areas. When we're talking not just props, 0:11:00.320 --> 0:11:03.240 we're talking also zinc, We're talking aluminum, We're talking a 0:11:03.240 --> 0:11:05.800 whole bunch of things. I think you nail at first. 0:11:05.800 --> 0:11:08.200 With the dollar. The dollar had a pretty weak first 0:11:08.800 --> 0:11:10.800 first few months of the year. In the last few months, 0:11:11.160 --> 0:11:13.520 basically since the end of March, the Bloomberg dollar necks 0:11:13.559 --> 0:11:15.360 is up about five six percent, and guess what, the 0:11:15.360 --> 0:11:18.280 Bloomberg commodity necks is down almost exactly the same amount. 0:11:18.280 --> 0:11:20.240 So the dollar is a key thing. Also, we've seen 0:11:20.280 --> 0:11:23.199 a peak in energy and crude oil prices. And what's 0:11:23.200 --> 0:11:26.760 really been more surprising is this this plunge in metals, 0:11:26.760 --> 0:11:28.840 and I think the metals at a very good support level. 0:11:28.840 --> 0:11:31.760 Obviously they're the most dollars sensitive, that's the key area. 0:11:31.960 --> 0:11:34.280 And then aggs now aggs are really the ones getting 0:11:34.360 --> 0:11:37.480 hit by trade tensions the most. So these kind of 0:11:37.480 --> 0:11:40.320 areas and these levels of question is is this somewhat 0:11:40.360 --> 0:11:43.080 perfect storm the last few months for commodities last month 0:11:43.120 --> 0:11:47.040 really is it sustainable? I think it's unlikely, unlikely. What 0:11:47.080 --> 0:11:49.640 does that mean? So where people are people actually following 0:11:49.640 --> 0:11:52.439 that that that strategy? Well, yes, I think overall the 0:11:52.480 --> 0:11:54.760 commodity market looks like it's still in a pretty very 0:11:54.840 --> 0:11:57.840 solid recovering period. Now. It had got a little too 0:11:57.920 --> 0:12:00.560 enthusiastic earlier near and my main risk is that crewel 0:12:00.559 --> 0:12:02.959 would peak, and it did, and to me, the main 0:12:03.000 --> 0:12:06.080 potential upside is probably an agriculture and the eggs. But 0:12:06.200 --> 0:12:08.560 now that's a little bit far away from now. But 0:12:08.600 --> 0:12:11.040 as our prey previous, as Allen mentioned, you know, the 0:12:11.080 --> 0:12:13.240 market has still has not even you know, we haven't 0:12:13.240 --> 0:12:15.360 started July in August and that's the key month for eggs. 0:12:15.440 --> 0:12:18.040 But overall. The key thing to remember commanity is this 0:12:18.080 --> 0:12:20.480 bool markets only three years old. Look at stock markets 0:12:20.480 --> 0:12:23.040 about ten years old. And the key issues a dollar. 0:12:23.120 --> 0:12:26.040 If we if this dollar rally, which looks like it's unsustainable, 0:12:26.080 --> 0:12:28.280 if it peaks out soon, the commodity market should come 0:12:28.360 --> 0:12:30.400 right back, and it probably is going to. So Allen, 0:12:30.679 --> 0:12:32.600 come on in here, because I know you've you've got 0:12:32.600 --> 0:12:36.000 a lot of connections to the farming world and you've 0:12:36.040 --> 0:12:38.720 been tracking it for years, and I would love to 0:12:38.760 --> 0:12:42.600 get your sense of whether farmers kind of view this 0:12:42.720 --> 0:12:44.880 the same way as Mike was just portraying it, that 0:12:44.920 --> 0:12:48.320 this is just a perfect storm largely driven by the 0:12:48.400 --> 0:12:52.520 dollar rally that will reverse probably in short order. Or 0:12:52.520 --> 0:12:55.440 are they viewing this as something more substantial that they're 0:12:55.480 --> 0:12:57.880 that they're more concerned about. Well, it kind of depends 0:12:57.920 --> 0:13:00.480 on what you mean by this. If you're talking about 0:13:00.480 --> 0:13:02.600 some of the short term issues in terms of trade 0:13:02.600 --> 0:13:05.680 flows with China and wars with exporters, I do think 0:13:05.720 --> 0:13:07.440 the sentiment is is that something that could be a 0:13:07.480 --> 0:13:10.360 short term pain, but you know there is a hope 0:13:10.400 --> 0:13:12.360 for a long term gain there. You know, farm country 0:13:12.440 --> 0:13:14.640 tends to be very supportive of President Trump, and when 0:13:14.640 --> 0:13:17.560 they're told that he'll have farmers backs and in the 0:13:17.600 --> 0:13:19.800 long run this will lead to a better trade environment, 0:13:19.800 --> 0:13:21.720 a lot of them are willing to believe that message. 0:13:22.160 --> 0:13:25.120 But in terms of the overall commodities outlook, I don't 0:13:25.160 --> 0:13:28.880 think we've seen enough um in terms of adjustment to 0:13:28.920 --> 0:13:32.600 supply and demand for farmers to truly be confident that 0:13:32.720 --> 0:13:35.559 this sort of dull drum period that we've been in 0:13:35.600 --> 0:13:39.120 for about the past half decade is really going to change. 0:13:39.480 --> 0:13:42.040 You know, American farmers, in terms of their productivity, can 0:13:42.080 --> 0:13:44.760 often be their the greatest enemy. And and other you know, 0:13:44.920 --> 0:13:47.880 world productive producers from Brazil and Argentina to the Black 0:13:47.920 --> 0:13:50.520 Sea region have really up their gain too. And so 0:13:50.880 --> 0:13:55.160 from the macro standpoint of supply and demand and global agriculture, 0:13:55.200 --> 0:13:57.920 regardless of the headlines of the day, there has been 0:13:57.920 --> 0:14:02.560 a production and and and demand imbalance that even though 0:14:02.679 --> 0:14:04.960 this year we're seeing some progress on it for the 0:14:04.960 --> 0:14:08.400 first time in about five six years, it's still something 0:14:08.440 --> 0:14:10.560 that is very concerning an agriculture country. And I think 0:14:10.600 --> 0:14:13.040 you would need to have to three years of demand 0:14:13.080 --> 0:14:17.400 outstripping supply before farmers would feel really confident again. Thank 0:14:17.400 --> 0:14:19.360 you so much for joining us both of you. I 0:14:19.480 --> 0:14:22.280 personally have been really interested in the idea that you've 0:14:22.320 --> 0:14:25.800 seen this sell off in commodities after so many firms 0:14:25.800 --> 0:14:29.040 that this was the place to go. Mike mclognan, Commodity 0:14:29.080 --> 0:14:33.720 Strategies for Bloomberg Intelligence, Alan berga Bloomberg agricultural reporter. Thank 0:14:33.760 --> 0:14:49.360 you to both of you. Now we're going to get 0:14:49.360 --> 0:14:53.320 smarter on General Electric with Karen Yubilhart, our industrials analyst 0:14:53.360 --> 0:14:58.480 for Bloomberg Intelligence. Karen, if the ge healthcare business is 0:14:58.520 --> 0:15:02.600 such a great business, why are selling the business? I 0:15:02.640 --> 0:15:06.040 think that they needed to get smaller in a big way, 0:15:06.720 --> 0:15:09.800 and uh, they can't really do much with them Power 0:15:10.440 --> 0:15:15.080 aviation is their ground jewel. I think they the numbers worked. 0:15:15.240 --> 0:15:18.360 It is a different kind of business versus the other 0:15:18.560 --> 0:15:21.680 you know, industrial businesses they're in, and they can really 0:15:21.680 --> 0:15:23.280 pull a lot of cash out of it and solve 0:15:23.320 --> 0:15:27.400 a lot of their other problems. What's left, Uh, Well, 0:15:27.440 --> 0:15:30.120 the aviation business, which is the engine business and the 0:15:30.280 --> 0:15:33.960 all the after related aftermarket and digital etcetera. And that's 0:15:34.000 --> 0:15:39.120 a very very good business with margins almost twenty uh 0:15:39.120 --> 0:15:42.440 so that's a keeper and Power, which is a problem 0:15:42.480 --> 0:15:45.080 so they've got a great business and a problem business, 0:15:45.120 --> 0:15:48.560 but there is upside uh if they can just shrink 0:15:48.840 --> 0:15:52.080 power enough. So that's a multi year thing though, So 0:15:52.160 --> 0:15:55.920 what's the narrative that's driving the shares up seven today? 0:15:55.960 --> 0:15:58.520 That they took a big move that they gave us 0:15:58.680 --> 0:16:02.080 numbers are going to reduce step by twenty five billion dollars. 0:16:02.640 --> 0:16:05.000 A bunch of a lot of the pension is going 0:16:05.080 --> 0:16:08.480 with healthcare, which was another you know, um thing around 0:16:08.480 --> 0:16:12.280 their neck. And so some of these real financial balanchee 0:16:12.320 --> 0:16:16.160 cash full problems can go away with the magnitude of 0:16:16.160 --> 0:16:18.160 the money they can draw from these other assets sales, 0:16:18.200 --> 0:16:21.200 which includes by the way Baker use what happens to 0:16:21.240 --> 0:16:26.120 the dividend, Well, the dividend will stay intact as long 0:16:26.160 --> 0:16:28.680 as the entity is intact, but when they split it 0:16:28.760 --> 0:16:31.920 up in aggregate, the dividend will probably be lower. The 0:16:32.000 --> 0:16:34.720 industrial they will seek to get a yield in line 0:16:34.720 --> 0:16:38.160 with the industrial peers, which will be about to two 0:16:38.240 --> 0:16:41.040 point to two point three percent yield, and then the 0:16:41.040 --> 0:16:44.760 healthcare business will have a lower yield, so net uh, 0:16:44.880 --> 0:16:49.280 it will be down. However, solving these other problems I 0:16:49.320 --> 0:16:52.360 think matters significantly more to the stock. Let's go to 0:16:52.400 --> 0:16:55.120 the conspiracy theories, Karen. Right now, I just want to 0:16:55.120 --> 0:16:59.040 bring up what Dave Wilson noted earlier today. He was saying, 0:16:59.080 --> 0:17:02.080 it's so interesting ge was just booted from the Dow 0:17:02.200 --> 0:17:05.800 Jones Index and now it announces the spinoff and it 0:17:05.920 --> 0:17:08.960 shares our surging. Do you think that the removal of 0:17:08.960 --> 0:17:12.640 the company from the Dow Jones Index actually had anything 0:17:12.720 --> 0:17:16.359 to do with its decision to to do these sales? Now, 0:17:17.440 --> 0:17:20.680 I think the timing was I would think there was 0:17:20.720 --> 0:17:23.440 a little bit of planned timing on that front actually, 0:17:23.560 --> 0:17:26.920 because it happened the same day, right, Um, But I 0:17:27.560 --> 0:17:30.560 don't think a decision might would have the decision would 0:17:30.560 --> 0:17:32.159 have changed because new GI is going to still be 0:17:32.240 --> 0:17:35.280 a much smaller, smaller company. Right. But I think the 0:17:35.359 --> 0:17:38.240 timing is interesting. Well, I mean that the point being 0:17:38.320 --> 0:17:40.960 here that there's less pressure on General Electric to be 0:17:41.640 --> 0:17:45.040 a behemoth, and there's less pressure to sort of maintain 0:17:45.080 --> 0:17:48.080 a certain veneer of anything. They can go try to 0:17:48.119 --> 0:17:51.560 do whatever makes sense for their business, um, without having 0:17:51.600 --> 0:17:53.800 to worry about getting booted out of the index because 0:17:53.800 --> 0:17:56.400 they already happen. Yeah, I don't think they'd make big 0:17:56.400 --> 0:17:58.679 decisions based on that. I think all of this stuff 0:17:58.720 --> 0:18:01.560 was well under way, but I agree it lifts something 0:18:01.600 --> 0:18:03.960 that frankly didn't matter much to the you know, the 0:18:04.040 --> 0:18:07.199 prospects for the company, but it was a news that 0:18:07.240 --> 0:18:09.040 people worried about. Oh, they're gonna get taken out. They're 0:18:09.040 --> 0:18:12.040 gonna get taken out. Well, that's behind us now, Baker Hughes, 0:18:12.400 --> 0:18:14.840 what's the future there? Uh, you know, he got a 0:18:14.840 --> 0:18:16.880 lot of heat because that is um and I said, 0:18:16.920 --> 0:18:20.720 he could have monetized very easily, could have and um 0:18:20.880 --> 0:18:24.119 he the Flannery CEO. Flannery said, look, I'm not going 0:18:24.160 --> 0:18:26.040 to do something quickly just because you want me to 0:18:26.040 --> 0:18:28.560 do something quickly. I want to get the benefits of 0:18:28.560 --> 0:18:31.440 an oil recovery, and I'm not going to sell it now. 0:18:31.520 --> 0:18:33.480 So he said, he'll sell it over two or three years. 0:18:33.520 --> 0:18:36.600 You'll probably sell it in pieces. Strategically they made that 0:18:36.680 --> 0:18:39.840 made sense, but he had such cash issues that you know, 0:18:39.920 --> 0:18:41.560 there was a question of whether he'd be able to 0:18:41.600 --> 0:18:46.119 do that. And now by monetizing healthcare, he gets some 0:18:46.160 --> 0:18:49.760 flexibility to wait for a rebound. What's next for them 0:18:49.800 --> 0:18:53.160 to sell? You know, I think we're kind of done. 0:18:53.200 --> 0:18:55.600 I mean, there might be some little bits and pieces 0:18:55.640 --> 0:18:58.720 in power. Uh, you know that business. The core of 0:18:58.720 --> 0:19:01.320 it is the large gay since steam turbines. But there 0:19:01.359 --> 0:19:04.520 are some other businesses like a small grid business for example, 0:19:04.560 --> 0:19:08.440 you know, transmission and distribution business. Um, there's a few 0:19:08.480 --> 0:19:11.959 other smaller things in power he might want to prune, 0:19:12.400 --> 0:19:15.440 but the big stuff with these two moves is pretty 0:19:15.520 --> 0:19:18.000 much done. Karen Eu wil Heart, thank you. That was 0:19:18.040 --> 0:19:21.639 really really illuminating and explains why the shares are up 0:19:21.720 --> 0:19:25.560 nearly seven p I'm curious about the whole conversation they 0:19:25.640 --> 0:19:27.119 must have had about all right, we're out of the 0:19:27.119 --> 0:19:30.440 down jones, so you don't think it's anything he's giving 0:19:30.480 --> 0:19:36.640 me this look of incredible. I mean that, as Karen said, 0:19:36.640 --> 0:19:38.600 I think that timing is interesting and that may have 0:19:38.640 --> 0:19:40.480 had something to do with it, but I can't imagine 0:19:40.480 --> 0:19:44.800 that the decision to actually do it fair enough Karen, 0:19:44.880 --> 0:19:47.160 you wil Hurt, by the way, it's Industrials analyst for 0:19:47.280 --> 0:20:04.840 Bloomberg Intelligence. We always love getting Hurt insights. It is 0:20:04.960 --> 0:20:09.240 an official The Department of Labor's fiduciary rule is dead. 0:20:09.680 --> 0:20:12.439 Let's find out what that means from Elliott Wise. Bluthy 0:20:12.600 --> 0:20:16.160 is the founder and the chief executive of High Tower Advisors. 0:20:16.440 --> 0:20:21.080 They're based in Chicago and help manage approximately fifty billion 0:20:21.240 --> 0:20:24.400 dollars of customer assets, and I'm sure by the time 0:20:24.400 --> 0:20:26.640 you get done with the interview, they will manage even 0:20:26.640 --> 0:20:29.960 more than fifty billion dollars for customer assets. Elliott, thanks 0:20:30.040 --> 0:20:33.120 very much for coming into the studio. Maybe just refresh 0:20:33.200 --> 0:20:36.399 quickly the people. The fiduciary rule, which was proposed by 0:20:36.440 --> 0:20:39.159 the Department of Labor had to do with retirement accounts, 0:20:39.680 --> 0:20:42.479 but that rule is dead exactly. So this was I 0:20:42.520 --> 0:20:46.359 think that the latest attempt um well intended, and we 0:20:46.400 --> 0:20:50.280 applauded the effort for the agency to implement a true 0:20:50.280 --> 0:20:53.280 fiduciary rule. And for the folks that are listening that 0:20:53.600 --> 0:20:56.399 may not be familiar with that term, you know, think 0:20:56.480 --> 0:21:00.000 think about the way doctors follow the hippocratic oath, or 0:21:00.000 --> 0:21:02.600 a way a lawyer follows a duty to put the 0:21:02.640 --> 0:21:06.639 client interest first. It's a very simple concept. There's no 0:21:06.760 --> 0:21:10.320 caveats to it, there's no exceptions to it. Either you 0:21:10.359 --> 0:21:13.240 put the client interest first or you put your own 0:21:13.280 --> 0:21:16.760 interest first. It's it's really that simple. So when when 0:21:16.800 --> 0:21:20.640 you see the regulators producing thousands of pages of reports 0:21:20.720 --> 0:21:23.560 trying to explain a very simple concept. You know that 0:21:23.600 --> 0:21:26.320 there's been influences that have come to bear to make 0:21:26.320 --> 0:21:31.000 it complicated. And as I say to individuals that we 0:21:31.040 --> 0:21:34.800 talked to clients a lot, if you're confused about whether 0:21:34.840 --> 0:21:38.720 your advisor has a fiduciary duty, or if you're confused 0:21:38.720 --> 0:21:42.199 that they're putting your interest first or not, they're probably not. 0:21:42.359 --> 0:21:46.520 And there's a good reason why there's confusion. So last attempt. Again, 0:21:46.560 --> 0:21:48.800 we've been watching this for years. There was God Frank, 0:21:48.920 --> 0:21:51.399 there was the d O L, there's the sec UH. 0:21:51.480 --> 0:21:54.000 It's dead for now. VISAVI this effort, but it will 0:21:54.040 --> 0:21:57.480 come back. The fiduciary duty discussion is not going away. 0:21:57.600 --> 0:22:00.720 One thing. It is also not going away conflicts of 0:22:00.760 --> 0:22:04.000 interest when it consolutely management tell us about that. Well, 0:22:04.040 --> 0:22:06.919 we started High Tower in two thousand and seven just 0:22:07.040 --> 0:22:09.639 on the eve of the credit crisis, which was a 0:22:09.760 --> 0:22:13.399