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Speaker 1: This is Bloomberg surveillance. See, we can't afford to buy

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Speaker 1: a home. They're opting to rent. And people actually like

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Speaker 1: the single family product and are going to rent it

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Speaker 1: as opposed to buy it. The manufacturing sector is doing

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Speaker 1: a little better right now than it had been for

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Speaker 1: most of last year, and that's something that has been

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Speaker 1: signaled by a few of these regional indiceses. We have

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Speaker 1: significance sustained upside surprises in the US. It's going to

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Speaker 1: be more difficult for the FED to remain dubbish. Bloomberg

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Speaker 1: Surveillance your link to the world of economics, finance, and

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Speaker 1: investment on Bloomberg Radio. Good morning, I'm Michael McKee in

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Speaker 1: New York. It's seven am on Wall Street. Seven am

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Speaker 1: in Pittsburgh and Washington. The Penguins the Capital's Crosby Ovechkin.

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Speaker 1: They will meet in the NHL playoffs for the first

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Speaker 1: time since two thousand nine. Tom Keane was so excited

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Speaker 1: he couldn't do the show this week. He has gone

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Speaker 1: on vacation so he can stay up every night and watch.

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Speaker 1: So joining me today, Francy Lackwall Francy, We're doing five

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Speaker 1: hours together today. This is exciting it's so so glad

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Speaker 1: to have you. Um you are, of course our hockey expert,

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Speaker 1: and you know we'll get your predictions on this series

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Speaker 1: coming up exactly. That's my four time. There's a lot

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Speaker 1: of news out there. The president in Germany, weird developments,

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Speaker 1: and the Republican presidential race. We'll talk about that with

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Speaker 1: Greg Vae a little later. The news from Saudi Arabia.

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Speaker 1: They're planning for their post hydro hydro carbon area. The

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Speaker 1: Toddle will All Shares index in Saudi Arabia lower right now,

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Speaker 1: a big influence there, and weighing on oil prices. West

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Speaker 1: Texas Intermediate nine down one percent, Brent crude down seven

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Speaker 1: tenths and as oil goes well, we know what happens.

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Speaker 1: Stocks in Europe are lower. The stock six hundred down

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Speaker 1: by right now three tenths of a percent one point.

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Speaker 1: The docks is off by fifty four half a percent.

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Speaker 1: Brief rise when President Obama was speaking in Hanover, Germany today,

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Speaker 1: but it did not hold. US futures are lower, SMP

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Speaker 1: futures down by a tenth, doll futures are down by

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Speaker 1: a tenth, and the same percentage for Nasdaq EAT Mini

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Speaker 1: futures some of that money going into bonds. The ten

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Speaker 1: year and OHE yield is down to basis point one

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Speaker 1: eight percent, one point three four for your five year

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Speaker 1: and the two year one basis points. It is also

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Speaker 1: Central bank week. The FED meets Wednesday, the Bank of

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Speaker 1: Japan on Thursday. Ahead of those meetings, the euro right

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Speaker 1: now four, the yen one O nine, the dollar index

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Speaker 1: still LOWOT eight five seven, the ran on the screen

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Speaker 1: and interesting contrast to results we have seen from some

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Speaker 1: of the biggest industrial companies, which one would think would

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Speaker 1: be hurt by slower growth and currency fluctuations. But ge

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Speaker 1: honeywell they bettered expectations last week. Their outlooks don't seem

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Speaker 1: to match the gloom. Nick Camon covers Industrials for William Blair.

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Speaker 1: Uh Nick, did they do something right? Is the zeitgeist wrong? Well,

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Speaker 1: that's a good question. I think both companies managed to

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Speaker 1: kind of check one keybox off, which is a better

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Speaker 1: than expected and the earnings versus skin census. But after

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Speaker 1: that they were, you know, actually pretty similar in the

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Speaker 1: sense that the optics weren't quite uh quite as sharp

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Speaker 1: as as as might be hoped. They both had large

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Speaker 1: acquisitions which they had to integrate, and in Honeywell's case

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Speaker 1: as well as GES, that brought certainly some margins down.

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Speaker 1: And you know, at the same time, um, you know,

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Speaker 1: both companies are working to drive through this headwall with

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Speaker 1: regards to foreign extenc currency exchange, and for Honeywell they

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Speaker 1: hedged it so ironically today they did not get penalized,

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Speaker 1: but at g hearnings were penalized two cents. But going forward,

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Speaker 1: if the dollar weekends because of the hedge on earnings,

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Speaker 1: Honeywell actually might find some more optical challenge as if

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Speaker 1: in fact they're sales in flight, which would put more

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Speaker 1: pressure on their reported margins. Well, how did they respond

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Speaker 1: to what's going on the banking sector just cut it

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Speaker 1: was all about expenses. Are they finding any way to

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Speaker 1: grow sales in the industrials? Yeah, I mean that's a

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Speaker 1: big challenge, you know, and quite honestly, um, the key

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Speaker 1: is pretty tepid and market grant and demand growth in

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Speaker 1: their key and markets for both companies. So what they're

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Speaker 1: trying to do is find different either acquisitions or in

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Speaker 1: the case of GE, try to find a base infrastructure

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Speaker 1: where the demand is endless. It's been basically held up

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Speaker 1: by getting adequate financing both together and so he's working

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Speaker 1: with third parties to arrange that for project finance. So

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Speaker 1: that's really the kind of the key for the for

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Speaker 1: this big headwall for pretty weak revenues. Nick, you mentioned

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Speaker 1: their acquisitions. If you look at Honeywell, sure they beat

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Speaker 1: on earnings, but actually they reported lower margins. This is

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Speaker 1: because of the costs linked to acquisitions. When can they

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Speaker 1: get margins back up? Good question, and I would say

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Speaker 1: that we would certainly expect to see diminished UH purchase

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Speaker 1: accounting and you know, a deal closing costs as the

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Speaker 1: year progresses, but you'll still have amorization of good will

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Speaker 1: on what was eleven billion dollars or eight acquisitions at

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Speaker 1: Honeywell has completed since early last year. So that's quite

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Speaker 1: a good slug for them, and that'll keep you know,

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Speaker 1: some some cap on on margin, which historically has been

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Speaker 1: the big driver. You know, um in the face of

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Speaker 1: slowing organic sales growth for Honeywell, and Nick, are they

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Speaker 1: still going to acquire more? It's fascinating. Mike and I

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Speaker 1: spend a lot of time on the program talking about

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Speaker 1: the fact that CEOs are not that confident about the future.

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Speaker 1: So most CEOs, be it in London where I am,

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Speaker 1: or New York or everywhere else in the States, they're

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Speaker 1: just not brave enough to acquire. Honeywell is yeah. I

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Speaker 1: mean Honeywell have made the now you know, drop to

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Speaker 1: overture to acquire uh, you know, technologies, and our guests

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Speaker 1: from listening to speaking with the management last farriety is

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Speaker 1: that they're going to be focused more on buyback um

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Speaker 1: rather than big acquisitions. They got a lot on their

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Speaker 1: plate to integrate. They came through and beat two of

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Speaker 1: the sense of the beach on Friday's numbers were due

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Speaker 1: to hey, one point one billion or purchase of stock

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Speaker 1: that was not expected in the first quarter, and so

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Speaker 1: my sense is that's where the bias will be near

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Speaker 1: term because we've got a lot to digest and integrate.

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Speaker 1: Led by Elster. Nick Hayman is with us from William Blair.

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Speaker 1: This is Bloomberg Surveillance. Michael McKee Francie laqua in for

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Speaker 1: Tom Keene were brought to you this morning by Investco.

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Speaker 1: Don't settle for average in your portfolio. To invest go

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Speaker 1: the right approach means investing with high conviction. Find out

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Speaker 1: Laura investco dot com. Slash high conviction. Nicolas stayed with Honeywell,

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Speaker 1: they have a new president and see oh, suggesting that

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Speaker 1: Darius Adam Check is going to be in line to

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Speaker 1: succeed Dave Cody as CEO. But as we have seen

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Speaker 1: here in the United States, particularly with Disney in the

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Speaker 1: last week or so, being next in line is not

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Speaker 1: always a good thing. Yeah, it was really interesting with

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Speaker 1: Dave Cody, this current CEO and chairman, was asked to

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Speaker 1: know what what was the significance of the creation of

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Speaker 1: a new job of president CEO to which Darris was appointed,

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Speaker 1: and he said, Darris is a great guy. Didn't want

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Speaker 1: to go anywhere, And that was a unique response. I mean,

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Speaker 1: Dave's gonna turn sixty four next July, and he'll be UM,

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Speaker 1: you know, sixty five in July two thousand and seventeen,

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Speaker 1: so it's expected that he'll probably step down sometime in

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Speaker 1: early two thousand eighteen. Is he the kind of person

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Speaker 1: that we expect to step down? Well, that's always a

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Speaker 1: good question. But I think UM tends to be certainly,

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Speaker 1: uh pretty a pretty strong UM, you know, earning point

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Speaker 1: for tenure for for most management at these larger public companies.

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Speaker 1: As much as daf Cody has done extremendous job really

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Speaker 1: turning around Honeywell. I think that you know, the board

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Speaker 1: will will certainly continue to focus on the succession plan

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Speaker 1: at sixty Nick, are you confident that both g and

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Speaker 1: Honeywell will continue doing better earnings wise? This is almost

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Speaker 1: a barometer of the strength of the US economy. But

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Speaker 1: then you look at cher Yellen and what she thinks

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Speaker 1: about the head wings facing the us Econmune, it doesn't

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Speaker 1: look so good. Yeah, I mean, right now, it's it's

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Speaker 1: become a much greater challenge for our companies to be

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Speaker 1: able to generate um, you know, continued earnings growth with

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Speaker 1: sales or you know demand for and market demand in

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Speaker 1: most of the industrial and markets around the world being

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Speaker 1: pretty pretty weak. Um, they've had the resort to acquisitions, uh,

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Speaker 1: to returning you know, a lot more cash to shareholders

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Speaker 1: five by back, but those are getting challenging, you know,

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Speaker 1: goals to still achieve as well, and so for most

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Speaker 1: of our companies. UM, they've also got a little bit

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Speaker 1: creative quite honestly, with regards to their accounting. And we

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Speaker 1: now have a twenty five percent divergence across our universe

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Speaker 1: of diversified companies between gap earnings and adjusted uh EPs,

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Speaker 1: and that's grown from just six percent and two thousand

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Speaker 1: and thirteen. All right, let's come back with Nick Camman.

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Speaker 1: He's the co Group head of Global Industrial Infrastructure, asking, well,

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Speaker 1: I gotta talk a little bit more about ge when

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Speaker 1: we come back from But he also covers a lot

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Speaker 1: of the big European industrials, and I'm sure we're interested

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Speaker 1: in finding out there's a difference in outlook at this point. Yeah,

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Speaker 1: they're not doing too great. Of course, it's the Germans

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Speaker 1: that are exporting the most, and then we had that

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Speaker 1: drop in business confidence in Germany. It will be great

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Speaker 1: to get his take on where German big companies go

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Speaker 1: from here. I won't ask you yet, but I'll let

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Speaker 1: you continue to cogitate on whether you're gonna go with

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Speaker 1: Pittsburgh Tom's team or Washington. I have adopted them this year,

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Speaker 1: so that is going to be the big surveillance SmackDown

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Speaker 1: all week. Tom's not here, so um so, Mike, I'm

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Speaker 1: gonna go with Tom, just because I know he's listening

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Speaker 1: and will be paid back if I don't. You gotta

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Speaker 1: look up the team. Now, Black and Gold are the colors.

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Speaker 1: I hope you look good in black and gold. Of course,

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Speaker 1: everybody looks good at a little black hockey jersey, right right.

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Speaker 1: This is Bloomberg surveillance. We're looking at futures. They had

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Speaker 1: almost gotten too flat. Now they're deteriorating a little bit.

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Speaker 1: S ANDP futures down by two points, a tenth of

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Speaker 1: a percent down, futures off twenty tenth, stock six hundred

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Speaker 1: down by a point. That's a four tents drop. This

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Speaker 1: is Bloomberg Surveillance on Bloomberg Radio. This hour of surveillance

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Speaker 1: is brought to you by Mont Kisco Volvo. Visit Mount

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Speaker 1: Kisco Bovo dot com. Here's Michael R. With news headline, Mike,

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Speaker 1: you very much. President Obama outline has planned to send

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Speaker 1: additional troops to Syria. The President, and a speech in Hanover, Germany,

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Speaker 1: says he will send up to two hundred Fifties Special

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Speaker 1: Operations troops and an advisory capacity in the fight against

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Speaker 1: the Islamic State. That will bring the number of US

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Speaker 1: advisors there to about three hundred. The Brussels subway station

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Speaker 1: where sixteen people were killed by a suicide bomber, is

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Speaker 1: now open again. Security remains high across the underground network,

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Speaker 1: which was hit during the March twenty second attacks in Brussels.

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Speaker 1: Donald Trump's Republican rivals are teaming up to deprive him

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Speaker 1: of the delegates needed to outright when the nomination. John

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Speaker 1: Kasi's campaign says will give Ted Cruz a clear path

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Speaker 1: in Indiana and return the Cruise campaign will clear the

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Speaker 1: path for Kasik in the Oregon and New Mexico primaries.

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Speaker 1: Global News twenty four hours a day. I'm Michael bar Mike,

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Speaker 1: Thank you, Michael. When we come back. More with Nick

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Speaker 1: Hayman from William Blair on ge and the outlook for

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Speaker 1: European industrial stocks. You know instinct to Bloomberg Surveillance, Michael

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Speaker 1: Micking with Francie Blackla. This is Bloomberg Radio Worldwide. Bloomberg

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Speaker 1: Karen Moscow. This updates brought to you by cbo E

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Speaker 1: rich reading from the highest close in five months, and

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Speaker 1: it signs of global glut will be prolonged because Middle

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Speaker 1: East producers boost supplies US DOT Index futures. They are

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Speaker 1: lower this morning. SNP eveny futures down two and a

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Speaker 1: half points now even the futures down twin need to

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Speaker 1: and nasdac emity futures down five and a half. We

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Speaker 1: checked the markets every fifteen minutes throughout the trading day

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Speaker 1: on Bloomberg and I'm ex screwed. Oil as I was

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Speaker 1: talking about, down nine tenths percent, or forty cents to

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Speaker 1: forty three dollars thirty three cents a barrel. The decks

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Speaker 1: in Germany's down six tenths percent this morning, the ten

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Speaker 1: year treasury up four thirty seconds, the yield one point

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Speaker 1: eight seven percent. Yield on a two year point a

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Speaker 1: zero percent coll mix schoold is up four tens percent

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Speaker 1: or four dollar seventy cents to twelve thirty four seventy

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Speaker 1: and ounce the euro at Allar twelve fifty seven, they

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Speaker 1: had one eleven point one one and that's a Bloomberg

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Speaker 1: business flash. Mike and Francine Cara Moska, thank you very much.

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Speaker 1: We're talking with Think Hayman from William Blair. He covers

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Speaker 1: the industrials and one of the big companies that everybody

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Speaker 1: follows a sort of signed post. I don't know if

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Speaker 1: it's a benchmark guide posts to how the economy is doing.

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Speaker 1: General Electric U late of Fairfield County, Connecticut heading to Boston. UH,

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Speaker 1: Nick GE better than forecast margins if you include the French,

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Speaker 1: if you include Allstum, falling d forty basis points this

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Speaker 1: last quarter. UH. Is this a short term problem because

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Speaker 1: of the acquisition or is there a problem in the

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Speaker 1: in sort of the the organic area that Jeff m

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Speaker 1: L's is trying to create there. No, that's really just

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Speaker 1: the fact that alstom Um, you know, have significantly lower

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Speaker 1: profitability UH than GE. And we would expect it will

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Speaker 1: take until probably the fourth quarter of this year before

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Speaker 1: you'll see the combined um margins from alstom NG be

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Speaker 1: able to be higher than your earlier levels. How much

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Speaker 1: is GE going to be then dependent on overseas revenue

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Speaker 1: at a time when everybody is talking about lower growth

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Speaker 1: overseas well, you know that's probably some place in the

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Speaker 1: neighborhood about fifty five or six percent. But one thing

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Speaker 1: you want to keep a mind is that one of

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Speaker 1: the goals of the acquisition of all Sto Energy is

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Speaker 1: to really shift gees center gravity to becoming a predominant

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Speaker 1: base infrastructure supplier. And the last front here for growth

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Speaker 1: in the world economy right now is non developed countries.

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Speaker 1: But for finished industrial good products, that's really hard. There's

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Speaker 1: no aftermarket, there's no service support distribution. But for base infrastructure,

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Speaker 1: all you really need is to put together um some

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Speaker 1: funds from sovereign wealth and from insurers into project finance,

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Speaker 1: and that suddenly opens the door. And for Siemens and

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Speaker 1: for GE this is really starting to click. The problem, Nick,

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Speaker 1: is that when you look at emerging markets, and you

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Speaker 1: were also mentioning some of the sovereign wealth funds is

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Speaker 1: a lot of them are dependent on oil, and oil

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Speaker 1: has gone down so they're suffering quite a lot. What

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Speaker 1: does it mean for infrastructure in these emerging markets. It

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Speaker 1: comes at a time we're sure johnet Yellen has given

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Speaker 1: them a lifeline at the same time we worry about

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Speaker 1: bad debt in emerging markets. Yeah, it's UM. The project

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Speaker 1: finance is a bit different than just issuing death. UM.

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Speaker 1: It's mezzanine death structure with some equity as well. That's

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Speaker 1: overseen by the I FI S and UM. What we're

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Speaker 1: trying to do is bring the third of the world's

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Speaker 1: population that doesn't have access to base electricity, fresh water,

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Speaker 1: available energy, transportation, healthcare. Those types of products there are

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Speaker 1: really really critical UH for much of Indonesia, parts of Indian, China, UH,

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Speaker 1: certainly most of Africa and UM that's really where the

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Speaker 1: growth is going to be. And gees put together a

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Speaker 1: package of different types of solutions to countries needs that

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Speaker 1: are both cost effective that can help in turn generate

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Speaker 1: more cash UH, such as energy because many of these

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Speaker 1: companies countries will actually UM be sources for fossil fuel

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Speaker 1: offshore UH in the future after the under decade. I

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Speaker 1: know you also look at some of the European industrial

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Speaker 1: so you kind of BB you look at Siemens, Is

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Speaker 1: there any value in these Siemens is probably one of

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Speaker 1: the strongest European companies. It's a big German exporter, and

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Speaker 1: yet they've been hit. Yeah. I mean, Siemens is doing

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Speaker 1: a good job as well, trying to get back to

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Speaker 1: or two new highs um you know, in terms of

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Speaker 1: their profitability. And I think that they certainly have had

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Speaker 1: some benefit from currency in recent quarters which will diminish.

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Speaker 1: But at the same time they've been restructuring their cost space. UH.

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Speaker 1: They've got a good outlook for their wind and renewables business. UH.

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Speaker 1: They like ge has received large orders from Egypt for power.

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Speaker 1: And I think that Siemens is UH is certainly really

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Speaker 1: more than able to overcome any handicap from the dollars

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Speaker 1: weakness that would impact their results adversely on a currency

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Speaker 1: translation basis. But the underlying business that Joe was building

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Speaker 1: there again based on core based infrastructure for non developed

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Speaker 1: countries is UH is coming along and getting stronger every quarter.

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Speaker 1: I gotta ask you about one stock that you cover,

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Speaker 1: because it's just so notably, you have an outperformed on

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Speaker 1: Bombardier that's from February, and this is a stock that's

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Speaker 1: just been killed. Uh is it going ahead turned around?

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Speaker 1: And if so, when does it match your outperform rating? Well,

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Speaker 1: the stocks almost doubled. Okay since febrywhere and the stock

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Speaker 1: right now? This has been a call about whether they're

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Speaker 1: plane the C series would in fact be a viable

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Speaker 1: contender versus air Buses Neo and through tween NEO and

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Speaker 1: the hut Boeing seven three seven Max. And in fact

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Speaker 1: we're on the cuff now of having the aircraft I

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Speaker 1: guess a cult legitimized UH with a large order from

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Speaker 1: Delta which should be finalized and announced here in the

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Speaker 1: next couple of weeks. And behind that is uh several

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Speaker 1: other orders again from major North American and European carriers.

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Speaker 1: So I would say at this point, uh, yeah, it's

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Speaker 1: it's probably a situation where it's taken much longer than

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Speaker 1: we might have thought to be able to get this

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Speaker 1: aircraft to market and more importantly, to have it break

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Speaker 1: the the the the strangle hold that was held by

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Speaker 1: UH both the air Bus and Boeing. But now Bowing

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Speaker 1: is even talking about developing a new new product to

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Speaker 1: compete with it. Nick Camin, William Blair, thanks so much

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Speaker 1: for being with us here this morning, right now before

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Speaker 1: the market open, Bombardier at a dollar seventy one Canadian

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Speaker 1: and nixt price two dollars share. This is Bloomberg's surveillance

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