it's green 95 points now indicated of positive momentum for the dow in spite of general electric being down not quite 10%. >> are you going to do a jig >> no, it will be done in a couple of days, 23,000, i would have done a happy dance. >> be safe. >> be sure you join us on monday, i'll be in saudi "squawk on the street" begins right now. ♪ good friday morning, welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber is in boston where he'll talk with john flannery, on what will be a tough day for the stock down 8% fre market futures are up as the senate passes the budget resolution and

10-ye 1 10-year yield highest since july the gop does move closer to tax reform what does that mean for investors? ge is down sharply after a wider than expected third quarter miss slashing the full year guidance, revenue did meet estimates in the release john flannery said this was a very challenging quarter. while a majority of our businesses had solid earnings performance this was offset by the decline in power performance in a difficult market. stay tune for david aegs exclusive with flannery. talking with "squawk" about this what are your thoughts is this below 22 >> yeah, i actually confronted jim immelt with many of these particular issues in my last interview with him and he was very much in denial these things would occur. i point that out because today is flannery's day. this is not a report card on

flannery it is a statement that says here's all the things we've done wrong. i think they did very ill advised accounting in turbines and the key phrase here is that ge capital might have to defer additional did he have denvidene 4.8 million until insurance review is completed. i believe it's possible they have as much as 25 billion they are unreserved on for long-term care that they kept on the books when they gave genworth off in a spin he has to address that i think he'll clear up a lot of different issues but the most important thing, this is the last of the immelt numbers and a lot will look like honeywell's united technology's. sometimes you have to be harsh and it's terrible and you can't play for dinner and this is a disgrace what happened here, it was a great american company and in flannery will return it like he did with health care. if you don't speak out formally

about what happened to the country then you are a sham. i refuse to be a sham. i'm proud mr. haines told me i don't give free passes to people mr. immelt did bad things here. >> in terms of the street reaction today, a couple of quotes, morgan stanley, healthy dose of realism for the bulls. a firm got picked up saying pressure to break this up went through the roof where are you going to be headeded to? >> yeah, the larger question of what the overall benefit of this conglomeration of companies is one a lot are asking jim has pointed out many times, it's not clear you can add value by wholesale breaking this company apart. jim had strong words, so did flannery on the call itself. i thought it's opening remarks were rather remarkable for forthrightness and for just how tough he was we're driving sweeping change, moving with speed and purpose. our culture needs to be driven

by mutual candore and intense execution, we can and will and must improve the cash flow and we'll have a simpler focused portfolio. on and on, jim, with very, very strong words of course, something you and i have talked about on air for a week or two, the dividend. seems to be a priority in the capital allocation framework and say they understand it's importance it's still unclear how they can continue to maintain that payout ratio given free cash flow doesn't come close to covering it. >> they can't. the free cash flow is much below where it seemed to be before the earnings cuts are so severe, far more severe than even the greatest bears i presented mr. immelt the research of the greatest bears and he refutded them and he was quite wrong. but the amazing thing mr. flannery is tougher than any of the analysts he's a real good man and going to clean up the situation.

but, david, when you see the shortfall on turbines, you have to wonder how were they accounted for? what happened there? i would say that someone who is much more harsh than i am would say, you know what, i don't think they accounted for those correctly in the way they sold them i'm not saying that because that would amount to saying they need to do a statement. i'm not calling for that mr. flannery, who did rebuild health care is going to be able to address the idea, there's no cash flow to do so anybody who puts the sum of the parts is being someone who's very, very ill advised it doesn't work. mr. flannery will do what's necessary. i'm very glad he came forward and was tougher about that regime now we can go forward with a company which was once a great american company and put it back together again i think flannery is the real deal >> although, guys, i mean, and jim, you know this well. it's not as though this can happen overnight ge's troubles were not createdover night and you're not

going to fix them in a quarter or two quarters or a year. my sense would be this is going to take quite some time and it's interesting how much he seemed to focus in his opening remarks in the conference call on culture and on truly changing it from what i hear from a number of people close to the company as well is this no sacred cows thing is for real. he's not kidding when he says that and when they talk about really changing the full approach of the company in terms of cash and operations, in terms of governance and so many different areas, including and perhaps most importantly, culture itself. >> boy, are you ever right he'll have to turn it upside down it was run like a country club i think they had little accountability i think the company, they paid the highest price for oil assets at the absolute top. they sold finance at the absolute bottom. they bought a second right infrastructure company in france and not able to rationalize it because of the government. they are one of the companies i would say did the single biggest

kabuki active ever seen in my lifetime other than companies that cross the line directly they played it as close as possible i've got to tell you, it was a disgrace >> the sale of nbc, how would you rate that? >> i could say that that was stupid but mr. burke and mr. roberts took an asset -- and i play for comcast, they took an asset that was under valued and i think also not accounted for correctly and turned that around i think that mr. flannery has had ability because the health care division was the second -- maybe a third rate division, turned that around i have said this is the end of my rancor. this is it, i'm putting iton the table and will no longer go forward. the idea they did not account directly for long term care which is going to be a major issue, i hope they can cap it the way aig did. this is the end.

flannery is coming clean i'm no longer going to adopt that attitude going forward. >> you get queet serious but not -- >> i own this for my personal account because it's the only stock and comcast because i was paid in it, my charitable trust owns it because i was stupid i don't think i could be more clear. it's my fault. i believed >> okay. well, i'm their guest here today, guys, let's try and remember that. i don't want them to toss me out of the building. >> that's why we're separate mr. flannery is real if i don't -- i thought about this all morning when i got the release. what am i going to say i like jeff, i love the company. but you know what, if we don't call it as we see it, we just go on and do something else for a living i have a lot of things i like to do for life.

>> last time posted a daily drop of 8% plus, got to go back to april of '09 during the financial crisis months through september through december of '08. the first profit missi in two an a half years. >> the profit may have not been accounted for the way that maybe other people like david cody might have or greg hayes might have david, i'm not going to make your life any more difficult have a super day and i want the celtics tickets. i'll take the celtics tickets. >> we are absolutely looking forward to sitting down with mr. flannery for his first interview as the chairman and ceo of the company on what as you have acknowledged is a very difficult day and he well acknowledged as well. >> he's the real deal. >> the conference call going on right now, he's getting those questions from a analyst community that has not been particularly positive in many of their ranks and i'm assuming

that he's answering them i'm going to get back and listen to that. we'll have him sitting across from me less than an hour from now. >> and he's a good man isn't it interesting, the companies that benefit the most, any sort of break-up ordeal, their analysts could not be contained. they have sells on it because those people of conscience, if you're covering this company, you better believe you have one. >> yeah. and you know, final point from me, carl you raised this as well, but this ideas over the years of all of the businesses thatwere bought and sold and when we've looked back it seemed as though so many were bought near the top and sold near the bottom over time, i think jim, what that has done, if you agree, they levered up to buy many of these things, not all of them but added debt to the balance sheet in part for acquisitions and not delivered the underlying cash flow that might have been anticipated originally and find themselves in this position as well it's not just blocking and

tackling and failure of taking cost out but it's the accumulation of having bought aechb and sold assets, almost over and over and over again. >> the worst i've seen in my lifetime what's really interest, when you get off the desk and speak to the ceo and other industrials, they all knew it was a laughing stock. when they had negative cash flow, they were like calling me and saying, what do you -- how is that possible and the answer is, because of the way things were accounted for. and because of the way assets were purchased and disposed. but that's not going to happen with flannery anymore. he's not going to put up with that stuff he's a good man and knows exactly how the company should be run you're seeing the undoing but after this, it's not going to be -- the new company going forward is going to be flannery's company and look a lot like the other companies in the s&p, not like the one company that this was. no more dispositions to make the quarter, no more booking turbine orders in way you and i wouldn't

do that's all over and that's great. we'll see what the company is worth and that will be great i wish mr. flap flannery luck, he's a good man. >> producers listening in, flannery talking about things will not stay the same at ge and on the dividend we're on the process of finalizing the framework and will share in november. >> they've worked it back -- it started as being it was in violet and top priority and now it's a priority and i'm going to give new language, ill-advised to pay it as the size that it is i suggest he use that language it's less inflammatory than everything else i've said. >> david will have flannery at 10:00 a.m. p and g, the first earnings, they did beat expectations and revenue a bit shy. david taylor said they delivered organic sales growth in a decelerating market. they blame the hurricane jim for rising commodity costs, although

forecast stays the same. >> you know, look. it's not a great quarter, unilever's quarter was not a great quarter. the challenging nature of this consumer products business is available for everyone to see. could mr. peltz make a difference i said he should be put on but he wasn't. this was not a good quarter. you can blame the hurricanes and mr. pullman at unilever blamed the hurricanes costs go up but you still wear deodorant and not in my case, but wash your hair. >> they didn't cite that in the market share >> no, it's going to create a whole new chorus of what exactly is mr. taylor doing. the problem is that the group is so horrendous that it really is almost difficult to say procter doesn't know what it's doing because it does. this is not a ge it's a very tough industry.

>> jim, yesterday, carl, those unilever numbers we hit them briefly but they were not good either. >> no, they were terrible. >> mr. pullman missed the numbers very good and that was an interesting call because it looks like they may have cut back on the things they needed to do after kraft heinz aborted a hostile takeover. >> a big step has been taken towards tax reform we'll talk about what the senate did last night and what the house may do next week 10:00 eastern time wet g'll geto flannery >> we'll also probably hear what kind of bonus mr. immelt got on the way out. i hope it isn't eight figures. >> more "squawk on the street" from post nine in a moment what powers the digital world. communication. that's why a cutting edge university counts on centurylink

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>> the biggest stumbling block will be to do reform, not just a cut. >> the member companies aren't waiting but basing plans on an expectation that tax reform will go through. >> a president it more likely to want somebody in the testimony chair before congress who's want a snack? sure! alright, looks like we've got chips, popcorn, pretzels? pretzels!

plain, sourdough, spicy, sesame, honey mustard, chocolate covered, peanut butter filled, this one's in german, it says, "reindfleisch?" plain. great. so what are we gonna watch? oh! show me fall tv. check out the best of the best hand-picked fall shows on xfinity x1, online, and the xfinity stream app. thirsty? markets are poised for a positive open after the senate passes a budget resolution last night. that's a key step on the way to tax reform this morning the president tweets the budget passed late last night, 51-49. zero democrat votes with only rand paul, he will vote for tax

cuts, this allows for the passage of large scale tax cuts which will be the biggest in the history of our country we mentioned jpm within a buck of 100. >> interest rates going higher i think congress can pass a modest tax cut but the problem is, remember, in the house, they don't want a bill that will blow up the deficit the leadership solution is to double the tax for the blue states but there's too many people in new york, california and new jersey and illinois, republicans who will vote against it they won't be able to get this done it is very much like the affordable care act, where they said they were going to do it but didn't have the bare bones let's not get carried away they don't agree on any coherent policy between the house and senate i think that those who are buying it thinking this is it, you're going to make a mistake but there will be modest tax reform. >> last night was a step toward it, not away from it. >> yes and that's good but people have to remember the house doesn't want to blow up the deficit. and every single deduction that

they are trying to get rid of has a constituency and they all have to be beaten back that's why there can't be any sort of thing that occurs quickly. but it's kind of a kabuki show. >> aside from conversations about the quarter, i assume you'll probably try to touch on this. >> the macro environment is certainly important. things are going fairly well around the world we talk about it so often when we talk about the valuations and jim will chime in about europe being strong and japan is growing, so yeah, we may talk about that as well when it comes to tax reform, guys i heard mcconnell's comments, they seem to be con torting themselves into this position of that it's really about helping middle class families when all along i thought it was about trying to get the corporate rate down to make sure that you can maintain corporations in our country and have them perhaps spending more money than they

otherwise would have helping overall economic growth. i'm curious to see how it will eventually break down when they get down to the details. >> yeah, i mean, david is really right. what happens here the details make it so it's really hard for the senate the senate is much more willing to let's say be more expansive about the budget deficit than the house is the house republican have been the sticking point and they will not be appease by what happened. but you can still get to something modest i don't want to be as negative because this is good. >> even though on some of the legislation that struggled this year, it has been the senate that's been the stickiest, right? >> that's health care and it's harder than tax cuts so to speak. remember, the house is where this thing will get caught up. but i think it's good. i'm not going to be saying it's a sham i do think you'll get modest tax cut but you won't get the comprehensive thing the president is talking about because this is not like 1986. the president has to study some

history, should read chris matthew's book "hardball" about what tip o'neill had to do with president reagan it is the handbook of how to get this done, worth reading. >> we'll get cramer's mad dash and count down to the opening bell futures looking pretty good, at least on the back of that confidence about tax reform and john flannery is with us, david is in boston that's coming up at 10:00 a.m. ♪ it's not just a car, it's your daily treat.

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paypal the latest chapter. >> and it was the star of the night. dan shulman put on an incredible show, 17 million merchants now in the network they added a gigantic number of new accounts, starting to talk about venmo, the way younger people --i used to use cash, people use venmo i think this thing will go dramatically higher. there's been articles how it's overvalued, this is crazy. it is the young person's worldwide credit card, it's an amazon, e commerce play. you're recognizing this was a star born when they split it up. but dan shulman is a man who everyone said visa can wipe him oup, wells fargo, he's got deals with all of those and they respect him because he's a high roller, man of great intellect and also a great representative of younger people even though he's not as young as they are. >> you're showing your tie ran

sar russ rex arms. >> when the stock was at 38, i said the analyst was all wrong then there was a nice young man that came on and i didn't want to rip him aparlt because youth has its own advantages there was a worry about a problem with ebay, those are all past this thing will go dramatically higher it's not done. it's the credit card from next generation. >> you mention deals and now it's paypal partnering up -- and facebook, instant messenger. >> you're talking about actual acceleration of revenue growth of a large company with free cash flow over $841 million, person to person transactions up 47%. this is a remarkable story and deserves everything and more and if you didn't know, you would put this one in fact maybe it's pang. >> acronym has evolved we we'll get the opening bell in a couple of minutes.

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the street." the opening bell in just over a minute's time on this friday futures are up as hopes for tax reform improve a bit as the senate passes that budget resolution but ge is going to be the big corporate story, down 6 premarket. down 3% from the premarket low. >> i think people like flannery's candor, they are going to understand he's going to be able to do things that will make the company look like his company and there is a real company there. it's just many, many mistakes and i feel that the company is in good hands. the problem is it was in bad hands and i just hope that he makes a clean a break with the past i really like him. and it's going to be hard but look what he did with health care it's just that change of culture, this is root and branch he's talking about when you talk about root and branch -- >> that term is being thrown around. >> yes, and it's time for as a great man once said, a truth in reconciliation committee at ge. >> by the way, you might expect

ge to have influence on the dow and it does, but at 22, it only subtracts 12 points from the dow. apple is going to drag down 30 >> rather amazing. things have changed in this world. a company like apple where katie uberty put out a fantastic note at morgan stanley, don't be so quick to judge the orders as a sign of command, by far the best analyst at apple who should make people feel better but did say that listen, there's incredibly strong demand for all new phones. >> we'll see josh lip ton as they open a new flagship store in chicago. >> that's very big. >> a huge store from the retail standpoint there's the bell and nyse it's limited, we'll talk to the ceo when the stock opens over at the nasdaq celebrating an ipo, rise

education, for grades k through 12 in china. we haven't gotten to honeywell, jim. $1.75. >> honeywell has accounting that looks like american accounting and darius is continuing in the long tradition of dave cody in blowing away the numbers, 4 to 6% organic growth. i won't even contrast that with ge that would be unfair the man has freedom to be able -- i was there the night he turned it over to mr. damcheck and said, it's your company, i'm going to go with be my boys and dave was my next door neighbor at the time, a great man darius is continuing with exceptional performance. this is a remarkably good quarter. they can do what they want, unlike ge they have the cash flow to break up any way they can. all i can say to you, is that he is -- i don't want to say he's just as good as dave because that's big shoes -- >> but darius is real good. >> financials are going to rule

the roost at the open, sun trust and zion's capital one and b of a. >> you're talking about $3 billion and rate hikes and we don't sing the praise of brian moynahan nearly enough with responsible banking. sometimes i've been critical of mr. moynahan during the bad old days but he came through the other side and did a good job and that stock goes higher. >> jp morgan in the premarket was 99.30. >> my christmas 100, i don't know, jamie, come on grow faster. >> one of the retail surprises this morning is xechers, 59 cents beats by 16 and so it takes you -- what's the latest gain 20 something >> it's really interesting conference call. i happen to love those guys, what's interesting about the conference call they did, they basically said there was a dramatic reacceleration overseas

and gave you a little -- held up the dress a little bit and told you how thisquarter is doing very well. they are great guys. when you look at xechers, there's a piece out call romo momentum, game calling so good people are looking for that lives overseas, i absolute them. this was the quarter we've been looking for after a series of quarters that i think were suboptimal. >> with today's move, that is going to immediately take you back to july of last year. >> it makes sense because they basically said it's the next quarter will be even better and international story is terrific. i like them so much. that's a hard business, the shoe business look at nike i think nike is trying to bottom here look at underarm or then you have the watt otwo old shoe guye

came through, concongratulation >> a lot going on in autos today, jpm cuts number on tesla target to 195. they think it's not just about cutting the model 3 forecast which they do, but they wonder if it isn't so complicated that they might have to -- the margins are so pressured that eventually they have to raise prices on this thing. >> it wouldn't shock me the car is dramatically i thought underpriced. it's a cult stock. the fact it's not down indicates that people recognize musk did say it's going to be hell to make this car, i think people would pay more because the car represents a great bargain but tesla is a little bullet proof because we have kind of a market that has a nice every essence to it. >> they discontinue this experimental drug to treat kroen's, not a lot of guidance why? >> wells fargo says it's temporary and morganstanley

says it should be down to 15% and ubs lower price target $2 billion in revenue could be lost, downgrades by bared and city it's not the company that bought it, it's another company that they bought. that look like it had -- crohn's is a huge illness. stay by tuesday. >> so ride it through. >> i think you have to i think it is very disappointing but the company is a great company and i know you know the cause, multiple myeloma, it's a largest company in the town that i proudly live in but they've done a great job and this was mr. ugen, not his quarter. if you throw away celgene down 12, maybe you save two points.

i don't want people to throw it away down 12 ride it out. >> we continue to watch action on ge as investors are responding to what flannery is saying on the call ahead in your interview in about a half hour. >> what's notable is the stock is well off the lows prior to the open you see down a little over 3% now. the call continues, taking tough questions from a lot of analysts this call is about the overall backlog at the company and continuing on this theme, talking about the fact that i think it was -- the $7 billion in free cash flow generation will be the low. they see that starting to rebound fairly soon. so perhaps some who want to get positive are allowing things -- look at that that thing look like it was down for 10% open and now less than 3. >> i think you have to pay close attention to the dividend but remember there are people who felt there would be no repud

yags and this is very strong that's great but the cash flow is not there to be able to -- it would be reckless to pay the dividend as it is. they are trying to figure out what level the dividend can be paid and the stock is probably going to go revisit those negative levels but when you make a clear cultural shift and all of the analysts are calling for it, they can't be as negative because flannery is saying, listen, i've heard you, i've heard what you had to say. i'm going to do it but the obviously the earnings awell below expected >> by the way, six minutes into trade. we've already hit two thirds of ge's average daily volume. >> well, changing the guard there who owns the stock we should mention slumber jet. they are talking about north america, slowing and drilling because it's no longer -- no longer can do equity offerings, it's a great company and they

are saying we're set up to have oil go up but what people are saying first, wait a second i thought the permeon they are drilling like crazy, obviously they are not an honest company, 2018 will be better than this year. >> one thing we expect flannery to talk to david about are their costs and 500 million they took out this quarter and they argue is ahead of schedule to the tune of 200 million. >> we've got to find out this long-term care issue, got to put a ring fence around long-term care and turbine accounting. there was a lot of prep this quarter was going to be bad. but the problem is are people rds for a dividend cut if they are, the stock can bottom at 21, 22 but mr. flannery saying repudiating the previous question is very positive. i like him because he's doing -- he's taking the medicine

and it's not like they didn't tell you things were bad anyone who listened told you things were bad. the cash flow was lower than i thought and orders were lower and turbine mess will be cleaned up i've now said seven times i like him because i like him. >> hey, guys, i missed the very top of the open there so you may have hit walmart, i don't know if you did. >> not yet. >> it's an interesting story. >> it was worth mentioning, this lord & taylor thing, not moving the stock, walmart or amazon but it's an interesting potential opening here in making walmart.com a much broader platform it would seem by incorporating lord & taylor inventory and the like on the website. i'm not sure what it means competitively, walmart versus amazon but certainly worth watching. >> yeah, the journal is arguing they are close to a deal on lord & taylor and the overall vision, guys is to create a website that is not a discount website. it's more of a mall.

you tie in other elements to it as well. and they've talked a lot this past week even guys about second mover advantage. >> i think they are going to be a short quesqueeze in the shopp mall off this, those have been hit with a too hard because they have flexibility and well run. i think doug has done a remarkable jot and jet is going to be fantastic. he spent a lot of money on e commerce, it's a good move with the kohl's and amazon tieup and whole foods, walmart sees that and can really stay in the game target had encouraging comments. the new small form stores are right back this is a race that is going to be about aadobe and vm wear and companies that can get quickly to the cloud walmart is not on the amazon cloud -- >> nor will they be. >> but i like doug very much and he's doing a really good job.

>> one thing i wanted to hit with both of you guys, this op-ed arguing that markets need activist investors they rescue the business from valuing companies poorly in an age of passive investing rather persuasive. i wonder what you thought. >> well, i'll start by saying, you look at the way dan approached honeywell, maybe you ought to think about everything. in a very positive way to do it and that was great when nelson peltz first came in, made me think about everything i thought it was going to be a meeting of the minds there i didn't think it would end up being like the bengals versus the steelers, but what i do like about activist and i know this is different from our friend -- david our friend, is that you have a pro vok tour in chief in the board and there's no sacred cows can you imagine if that had been ge it would have never gotten down here it's not a bad thing, i don't think.

>> there are times when an activist is right place, right time and can force management and a board of directors to focus on things that perhaps they simply aren't or are not paying enough attention to but i don't think we can use one broad brush to sort of paint activist in general. i see a lot of -- certainly it's -- i talk about it as form of investing, within it there are so many different approaches trian's approach is not dan lobe's approach or singer approach or even carl, although he hasn't gone active in ages. i do take them differently each time that's not even mentioning mr. ackman who has a place all his own when it comes to that as well. >> that's a very good point. ackman talking this morning about buying ceridian, at one point i owned 4% on that it's an interesting -- owned by a private equity firm now.

but you're right, there no one size fits all. i happen to like the idea that some boards get very oscy fied and you bring in someone new and it can give a fresh perspective, i like that concept. it's a wholistic way to look at it >> it is and listen, again, like so often is the case, you can't say one size fits all. private equity is bad, not always, sometimes it's good. well, not always, sometimes it's bad but there are times as you point out when certainly you can imagine in the case of ge, for example, perhaps, it was -- it seemingly was too large for all of those years, although these days as we know from p&g, nothing seems too large, maybe apple, maybe some of these other big controlled companies but otherwise everything is at least there for the possibility of an activist trying to have their voice heard. >> right, i mean look, i think the people from elliott and david is cloers than i am, are very rigorous. they have come in and made

presentations and i've heard ceos say those are better ideas than i have, we're going to do them i think that's a great leg up. you've got a guy coming in, didn't have to pay $100 million and gives a good plan. you know elliott has done that. >> they have don't forget, a lot of it starts with stock picking by the way, a lot of these activists have not done particularly well versus the overall market, at least in some time because it starts with stock picking. you can pick a company you think from a governance perspective not doing what it should but it's still the wrong name and end up losing money regardless, even if they try to implement your plan. i've seen that a lot too as you have. >> that's very true. i mean, it's interesting we talked about paypal and that was one that management didn't want to do the split up but look at the wealth it's created. it's been remarkable i celebrate guys who have a vision and i don't like people who come in and try to do short termism as we know that the delaware supreme court, we've

heard them, the short term isn't that they see very discouraged >> yeah, good discussion off singer's piece which everyone should rye to read coincidentally it is procter and ge that are dragging the dow down let's get to bob. >> carl, the question is not only the earnings but what's tax cut talk worth i want to show you the futures overnight. the senate passed a bill, the tax bill around the budget bill, excuse me, 9:30, 10:00, futures rose ten points when that happened and not only did futures rise here, japan moved on this. the nikkei was negative when the news came out and then it moved into positive. put up the nikkei, on the verge of being down. the nikkei turned around on that news nikkei turned positive and that's 14 straight days that the

nikkei averages have been on the upside elsewhere here -- there you see the nikkei turning positive on that news. take a look at the sectors, banks up 2.5%, this is a big store rixt the banks normally are down for the week when you're in the major earnings season this is a historical pattern that's not happening this week they are up 2.5% i think that's a major change of a trend there, semis have been strong and materials up here industrials are not doing anything, that's because of ge dragging the whole thing down essentially, still you've got a major market cap for general electric moving things to the down side. there's ge got a note from our buddies, ge has averaged a 2% decline on the day of the earnings for the last -- there you go, the last four quarters, believe it or not, they've just disappointed the street for a long, long time and there you see down an average of 2% on the day they report

schlum schlumberger is at a new low a lot of positive things to say about oil. he is insisting it's turning around and listed the reasons why he thought it was getting better north american land investment was moderating and people were buying so much land, maybe a little more emphasis on buying into real flow, cash flow. opec production extensions were a possibility. investment outside north america and opec was low and he expected supply challenges in the near future so he went out of his way, we're increasingly positive about the global business and you see the stock moving to the down side. we've got a lot of ipo action this week, we're waiting for sea to open here, that's southeast asia, the way to understand that online gaming, backed by ten cent i expect a pop because ten cent is buying more into the company. we don't have an indication.

he'll get you more on that later. let's look is rise education, nasdaq has another chinese education company. these chinese education companies have been doing fantastic recently this is backed by bain capital that should go in about 45 minutes. we'll let you know about that. what's going on with ipos? remember how i tell you how stingy they've been? huh huh, in the last month, there's interest seven of ten ipos have priced above the range. i haven't seen that in a long time rise, sea, amomongo, rhythm pharmaceuticals all priced above the range. is it possible after a year and a half talking about it we might actually really be seeing some action in the ipo market 115 year to date, 88 last year so far things have been overall pretty good and renaissance capital itf up 25% still waiting on indications for sea here dow is up 62 points.

back to you. >> great report. i would point out that there's no froth yet bit there will be in it keeps secondaries, but you need to see some enthusiasm. blackstone has a lot of assets to sell. look, i like the idea that we can have an err of good feeling. fine mr. pisani pointed out everything going on that's really point, including schlumberger. >> bottom at 60. >> we'll talk to the ceo later this morning and future for ge, john flannery, david has that exclusive in a few moments later today, ranadive on amazon's hq 2 to california's capital city we have the 10-year yielding the

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check out the best of the best hand-picked fall shows on xfinity x1, online, and the xfinity stream app. thirsty? let's get to jim and "stop trading. >> i want to be ccautious. jp morgan talking about the top line margin pressures, saying it should be valued at less than it's been valued for a long time this is, again, this is just this industry, this consumer products industry is under a lot of pressure. so i don't want to sit and single out them or david at procter. this is a very tough business. very tough business right now, and people should recognize that unlike ge, because the industrial business is a renaissance business with the exception of ge, that it's not bad. once again, i want to apologize for what people may consider

intemperate remarks about general electric, but sometimes you have to say it's over. we're moving on and i wish you the best of luck i think he'll do a very good job. >> tonight on "mad"? >> i don't even know >> i think you said enough this morning, and people will want to know what you say. >> we have a game plan >> we'll see you at 6:00 p.m >> when we return, david's exclusive with ge's john flannery dow up 75.

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♪ welcome back to "squawk on the street." i'm diana with breaking news from the national association of realtors existing home sales in september up 0.7% month to month to a seasonally adjusted rate to 5.39 million units. the bigger headline is sales in september were down 1.7% year over year. that's the first annual decline we've seen in over a year. what's theissue? nothing to buy inventory. 1.90 million units that's down 6.4% year over year, to a 4.2 month supply.

that's the lowest september inventory number on record, sore since the realtors began tracking it in 2001. that has prices still gaining up 4.2% year over year. the median home price $245,100 that's still a gain, but a bit of a softer annual gain that we have seen lately we'll keep an eye on that. also interesting in this report, houston home sales were actually up 4% year over year that was a surprise given the hurricane there. but the realtors are saying that a lot of investors moved in afterwards florida, though, sales still down year over year. let's go back to "squawk on the street." >> diana, thank you very much for that good friday morning. welcome to "squawk on the street." i'm carl quintanilla with sara eisen and david. david faber in boston going to sit down with john flannery in just a few moments meanwhile, we're watching the markets. report highs across the board as the senate passes that budget resolution last night. lends some enthusiasm to the prospect of tax reform in the near future.

>> our road map for the hour begins with ge the company posting a big miss this morning ceo john flannery calling the results, quote, unacceptable we'll hear from the man himself in just a moment >> later on, who does wall street think will be the next fed chair. the answer may in fact surprise you. >> and finally, procter & gamble posting its first earnings since ending its proxy fight with nelson peltz we'll dive deep into the report coming up. >> a lot of earnings to get to ge tumbling. shares down about 3%, although it was much worse in the premarket. looking at something close to the biggest daily drop since april of '09 when it was down 80%. procter & gamble stock sinking after ending its contentious fight with nelson peltz. stock down to the tune of about 3% as the dow looks for its sixth straight week in the green, interesting to have high profile misses and the market is

thinking about other thinks. >> these big old sort of former bellwether companies struggling to find their way, when the rules of play seem like the have been set when it comes to the tax cut talk if you get incremental pros, okay, fine, we'll try to add value to the market like happened overnight, but nobody is getting, i think, too far ahead of themselves and think that's baked in for 2018, and then the offsets of earning season expectations are pretty high, and you have to be pretty good to have a pop in stock afterwards, otherwise it's a sell on news response which keeps the market stuck in place, i guess. >> the only stock performing worse on the dow right now than ge is procter & gamble this was a disappointing quarter for a lot of investors especially with the pressure on management after the super close proxy vote the preliminary result showing peltz lost by 0.2%

shows how hard it is going to be in this environment to show strength i know you guys pointed to unilever sales which were also disappointi disappointing. if you dig through the p&g results, beauty was good sales up 2% there, thanks to the skii brand health care and fabric growing only 2%. grooming net sales down 5%, taking price cuts out of gillette to try to compete there. baby sales were down 1% as well. weaker than expected margins decelerating global market growth point to the u.s. as a weak spot those are some points investors are teeing into, and it's interesting giving the backdrop of the activist push trian, interestingly, is in ge and procter & gamble, now has a board seat on ge, but it's going to be hard for the company to turn around fast, and almost half of the shareholder base is not happy. >> speaking of turns, making a

list of positive incremental surprises for the week okay, verizon subs, right? goldman's surprise profit. netflix subs ibm on some of their at least hardware and maybe more depending on how you think of the company, and then adobe's guide. there are a few things you could string together. >> i don't think any say okay, the macro is accelerating, but you have incremental winners when it comes to verizon, ibm, expectations beaten down, you get the pop. and adobe, which has magical transparency into growth forever, seemingly and paypal >> sketch rz, we're trying to make sense of. >> they explained it really well the international wholesale business was up 26%. kids are doing really well, the lighted shoes, the lighted footwear, the first conference call that mentioned back to school >> and days after nike was taken

to neutral at goldman, so a lot going on obviously, ge, though, is the story of the morning let's get back to david faber who is in boston with john flanary. >> yeah, thank you very much, carl we're talking about mrmr. flanner mr. flannery's first name, making sure it's john. he's the chairman and ce oh of general electric this morning joining us here i'm joining you here at your headquarters in boston thank you for having us. >> thanks for coming >> of course, a difficult and somewhat, at least somewhat difficult day. at the end of your conference call moments ago, you said the following. you said we know what the issues are. and we're going to fix them. >> yep >> what are the issues >> so, i spent a really 90 days exhaustive review of the whole company. the businesses, our culture, corporate spending everything that the company has been up for examination. every stone turned no sacred cow. that's what we have been doing

as i look across the company, there are three things that keep coming up that we need to work on culture, our operating rigor, and capital allegation if you look at those three things around the company, more candor, more transparency, more executi execution, tighter focus on where we're putting money, concentrating capital. those things come up across the whole company. >> culture, that's an interesting point. you used candor in your opening remarks. people were not being honest with each other? >> really just a working environment and style around challenging each other what's working, what not working. where should we invest i'm not sure i agree with that investment strategy, whatever it is, i expect people to challenge me and i challenge the teams on that that's a good, healthy dynamic, the dynamic i want to have, and i have had in the teams i led in the past that's a big step forward to finding out what the issues are and challenges when you do that, you solve -- >> is that something that was not taking place in your opinion under the previous management team >> i think i just have a

different style. i'm moving forward with what i'm doing with the company i think as you look at what's going on right now, you're seeing sweeping change if you look in terms of culture and people, we made changes at the highest levels of the company. we made changes at the highest level of our power business. the team is very clear what i expect on the culture and how teams perform. so the change is there and i think fundamentally, i keep coming back to, we have good franchises. the franchises are strong. we just have to run them better. and i think as we do that and move forward, investors and employees and customers are going to like what they see. >> you're saying sweeping change you have only been on the job for three months it seems early to be talking about sweeping change. do you think of it because you have already made significant changes in leadership? >> so, i have been in the company 30 years so i didn't walk in off the street >> not like your parachuted in >> i ran the company in india for several years and got a sense of the whole portfolio and i also was in the m & a in strategy i have seen the company from a number of angles and had ideas

in my mind about what i would do in this role so it's three months in the role, but you can see the changes already, i think, in terms of what we're doing in running the company. people changes are the first start. if you look at what i did in health care, we had a lot of changes in people. >> i want to talk about that, but you mentioned your own background many years in ge capital, many parts of thes be what gives you the confidence you're the guy who can do this why is john flannery the man to help turn around, and it is the word to use here, a turnaround, you said it yourself, general electric >> in my own confidence level, i go to my track record. if you look across a 30-year career in the company, i executed in a wide arrange of environments, in financial services, all around the world, in industrial businesses and the acquisition and strategy work. so i certainly feel extremely well prepared with a track record that stands on its own. the second thing i would say is i would call myself the insider's outsider

20 years in financial services, 15 of the last 20 years outside of the united states so people, they know of me, don't know me that well. i think many people in the company, i am somewhat of an outsider and i'm able to come in with a fresh set of eyes and make change that's the ultimate change agent is really look at things freshly, look at things differently. don't have attachment to things in the past. my track record shows that in other assignments. >> let's talk about candor a bit. if i'm somebody within the company and come to you with great candor and say, you know what, our capital allocation doesn't make sense right now, particularly as it relates to our dividend, our free cash flow we're running $2 billion short of the $8 billion we need to fund the dividend, and we have to cut it because that's the smart thing to do. we shouldn't use capital from other areas, bought do you say >> first, i thank them for their input. that's a big part of the environment where people are comfortable with that. we talked about the dividend already. we have, from a philosophy

perspective, manage for total shareholder returns. a mixf our capital that goes into a dividend. a mix that goes into organic and inorganic investment that has to be balanced. the process, the final completion of the analysis of everything going on in the company and we're going to present that in november to the investors. >> november 13th >> november 13th is when we'll lay out the capital allocations broadly and specifically the diskdened on that. the last thing that's really embedded in that question is the cash flow for 2017 is horrible a $7 billion number. way off our expectations, anyone's expectations. that is not the new normal $7 billion is not the new normal there's a number of steps we're going to take to improve that significantly in 2018 an beyond how those all come together with respect to the dividend we'll lay out in november. >> jeff immelt on his last dividend call, he said the day they cut the dividend in '09 was the worst day of his tenure. you want to have a bad day like that >> i look at all the capital allocation things quite

rationally if it makes sense to pay a devdened, pay a dividend if it makes sense to buy a stock back, buy a stock back if it makes sense to acquire a company or sell a company, i don't view it emotionally. it's all around what the is best use of the company's resources, management capital, financial capital, and how does that accrue to the benefit of the owners i don't view it as an emotional issue. i view it as a financial view and we'll do what makes sense for thecompany >> i a ream of analysts saying what would make sense is cutting the dividend >> we'll come back in november with that. >> that's when we're going to learn, find out what the plan is on capital allocation and whether there will be a divkened cut on november 13th you mentioned being able to improve cash flow. a key is taking cost out you're taking $1.2 billion out i think this quarter was $500 million. on the way to what had previously been announced $2 billion. i look back. this was written recently. $10 billion spent on this company on restructuring over the last five years. gross margins ended up down 70

basis points net margin up only 120 basis points what gives you the confidence even if you do these cuts, it's going to roll through to higher margins and cash flow. >> it gets back to this culture issue. one of the big issues in culture is me is clarity, accountability, aggressive tracking of outcomes there's a chulture thing about tying out investments to outcomes i go back again, if you look at the health care experience getting the margins to move is a function of several things it's your base cost, your people, your structure, your overhead, your product cost. your product quality so there's a number of things. if you look in our experience in the health care business, we had a very significant expansion of the margins. from just those sources. so we have done this before. i have done this before in other businesses large businesses and it's not that complicated. >> is this company fat, to use for lack of a better term? >> i would say we can cut

spending you can seen that. i think we can cut it substantially. >> more than $2 billion you already had recognized >> we strive to cut more >> how much more >> we'll see as we go. >> when will you know? >> you know, something like this, you're never finished in a certain sense. you're constantly looking. is this optimal spending where should we spend on r & d or digital you're never fixed >> when you cut company cars or cut back on the planes, i mean, listen, it's a cost, but is it more about sending a message >> definitely. not an insignificant cost, but clearly a message, guys, we're not performing forinvestors. that's our task. so we don't fly around, you know, planes and company cars. so to me, it's pretty straightforward thing that we have to tighten the belt, lead by example and we have to run the company like we own it for the benefit of our owners. >> john, we're going to take a break in a minute, but i want to come back on the dividend. i'm not going to push you any more about whether it's going to

be cut, but i did want to come back to something related to it, which is the dividend you receive from ge capital. >> correct >> and the potential deferral of the dividend as a result of a pending decision on insurance adjustment decisions that sounds concerning is it? >> as you know, the structure ge capital upstreams its earnings, and as it's been liquidating has been upstreaming money to parent company for several years right now. there's an issue with our long-term care insurance portfolio. there's been an increase in claims in that we're going through an actuarial study, and that will be completed in the fourth quarter. depending on the reserve adjustments that are required, it will affects the ability of the company to make dividends up to the parent company. for now, we have suspended the dividend flee until we complete the work >> that could conceivably impact as well the overall dividend

payment if the flow from ge capital to the parent was cut. are you concerned? is there a way to cap this jim cramer has been talking about this in the past other companies have dealt with this >> this is a very complex issue. i would rather come back when we finish the work and walk you through the totality of it >> sundz like you and i are going to have another sit-down, maybe in a month but for now, we'll take a quick break and come back on the other side and talk about a lot of other things john flannery, chairman and ceo of ge.

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the street." i'm david faber at the boston headquarters of general electric, sitting down with its company's chairman and ceo, new to the job first conference call today. >> yeah. >> and very strong words preparing for this interview, and of course, i used to work for this company for many years. many >> well aware of that. >> i was talking to people, and this question came up a number of times i'm deg to ask you which is, why does ge -- what is its reason for being any longer? and it goes to this idea that this conglomeration of different businesses, which there used to seemingly be a strong case for in some ways doesn't seem to have that anymore. >> yeah. >> so why is or what is ge's reason for being, for lack of a better term? >> listen, i would answer this two ways if you go back 125 years, the company itself has always combined incredible technology, incredible innovation, execution rigor. unbelievable global reach. and a number of industries that

have created amazing technology developments, outcomes for customers, affected the lives of billions of people around the world. the company has a special role in the world, and who we are, how we matter in the world, that's not really the issue for the company right now. what matters is the execution and the results and how we deliver is the core i'm focused on with respect to this question about units and how they fit together a couple thaults one is, there's a significant amount of synergy in the things that you shouldn't throw away lightly around central research, leveraging technology from one business to another. common back office operations, bland, global footprint. there's real value in the companies being together that said, we have to prove day in and day out that that format is optimal i look at that all the time. we have too show we're spending a certain amount of money and that creates value in the business levels. i look at that all time.

there are big things like digital and additive, those are massive game changing investments. if you were trying to do those case by case, health care was an example for me, if i was trying to do that on my own, not on the backs of ge, there would be a debilitating business unit i don't reject it out of hand. at the same time, we have to be rational about the form and structure of the company >> you know the argument you'll get from some, at least, and by the way, some of the parts, let's throw that out, but the simple idea that separating businesses out gives them a greater focus to a certain extent when they're competing against their peers. do you believe that to be the case >> that certainly can be the case we want to simplify the portfolio, so we went through that this morning. then we want to run -- you don't have to separate things to run them better. you don't have to have a separated company to have focus and intensity and work on cash and work on cost and work on margin i don't accept the theory that the only way to create that is to separate pieces so i understand that theory.

i understand your question we can make the company better right now and still have all the optionality to do whatever we want >> are you committed to that idea or willing to challenge it as well as you continue? >> committed to this idea. >> the idea that ge should remain together essentially as a conglomeration of these businesses because there's a benefit. >> i'm committed to improving the operations of the company. and then moving forward from there, through whatever optionality makes sense for the owners of the company. i'm not wed to the current forpat if you look at the company over 100 years, we have looked different at different points in time we have been in different industries you know that in the last 10 or 20 years i'm not wed to any current format i'm wed to running the company incredibly well and moving forward for investors. >> when you say in your prepared remarks, we'll have a simpler, more focused portfolio, what does that mean >> we announced $20 billion of divestment, asset value. a lot of businesses, too many

businesses that take time and management resources away that don't have really a prospect for a large substantial reward so there's going to be, i would say, a simplification and a reduction in the number of businesses that we have broadly in the company, tier-two, tier-three pnls. >> people shouldn't take that that you're going to split that apart in a more meaningful way not that $20 billion isn't a significant fund >> from my management philosophy, you have to look at this all the time. it's not a question for october or november or december. it's an ongoing question about where are returns, where can we invest, where are we competitive. i'm open to doing that over time the first port of call is we have to run the company better that i control, we control and that's what we owe as the stewards of the company, first and foremost >> to it extent you're going to be somebody who changes things here, i would assume you have the support of your board of

directors. >> yeah. >> you have an awfully large board of directors there was one analyst who wrote recently, you have 18 members on the board, the largest of the top 50 companies in the country. is your board too big? should you be firing some of your board >> a few things. as we said at the outset, we're looking at every aspect of the company, that includes everything inside the company and things external to the company includes the board everything is under review the board has encouraged me, as new ceo, to look at everything in the company that would be the first point. the second is we have a large board because we have a complex company on some levels we added a lot of people in the financial crisis, so the company itself is larger but the last thing i would say, we have added ed garden from trian to the board i'm very much looking forward, he starts november is our first meeting with him i'm looking forward to that dialogue i think it's healthy to have a lot of pushback and debate between management and the board. i think he's going to add a lot of that. to your point, it is a large board at 18 people

and it certainly is one of the topics under discussion. >> also around aument to be made that this board should be held accountable for the performance of the company >> everything is on the table. we're working through that right now. so the board has been supportive of change. they have asked me to do whatever i thought made sense. they have been highly supportive of what i have been doing and we'll move forward from here >> from a governance perspective, that's another thing we should at least expect you're reviewing closely, not just culture and cash. >> you should expect that on an ongoing basis in any company >> any idea when we're going to hear about it? i would assume that's thought a november 13th issue. >> just an ongoing issue in any company, to see what makes sense. we'll do the same. >> power was of course getting to this quarter itself, your stock is only down 2.6%. you may be happy to know i don't know what your expecications are. >> i'm not happy about it. >> coming in, i'm sure you expected it would be done. >> down is bad >> down is bad power was really bad those are your words, not mine >> yeah. >> what gives you the confidence

you can actually fix it in any given timeframe that investors will care about? >> sure. three things when i look at the power business i look at am macro industry environment, our franchise and position, and how we have run it macro environment is challenging. clearly, a lot of things on, you know, penetration of renewables, overcapacity a challenging end market there we have been slow to realize that so at the same time, if you look at any forecast for the next ten years, there's still going to be power generation, 1%, 2% growth, and electricity coming from gas power generation there's a business there, a big global business there. u.s. challenge, but the macro story, i would say, is challenged but not going away. our franchise is, i would call, a premier franchise in power we have premium technology we have 50% share. we're winning in the market all around the world with the technology and we have an incredible base 30% of the electricity in the world comes out of ge equipment. that's a mind-blowing asset to

work with. we can upgrade, we can replace sockets. we can apply digital so the franchise is good we haven't run this business well we're way too optimistic about where the market was going too aggressive on building inventory into a weakening market, and we got stung this quarter. if you look at the results, big drop in earnings and a huge drop in cash. we've changed the leadership team completely in that business at every level you can think or care about russell stokes is running the business for us right now. a tremendous operator. i have a lot of confidence in him. we're spending a lot ormanagement time in the power business it's a heavy lift. it's not going to get better overnight. we expect these issues to persist into 2018, but we know what we need to do in the business we need to right size the cost for the environment they're in, and we'll move forward it's a big miss for us and i think that one message for everybody today is, if you look at our third quarter earnings,

this one is horrible in total, and especially in power, but the rest of the company did quite well >> did all right >> i don't want to lose sight of that >> over the course of our interview, you spent a lot of time talking about the things you have seen that have gone wrong. you used the word horrible to refer to power, not across the board. is it an indictment of the last management team? did they do a lot of things wrong? >> you're talking with respect to power >> with respect to jeff immelt and the management of ge over the last 16 years? >> let's talk where we are right now. we have a quarter where most of the company is doing quite well. we have an issue in the power business do i think our power business team missed the market yes. did nay not cost costs yes. did they bill too much inventory? yes. it's a localized issue it's severe in its neighborhood, if you will, but it's not a sweeping thing across the company. >> and how long is all this going to take? >> you tell me listen, my experience in health care, i think, was maybe a road

map. the first year is hard there's a lot of changes in people a lot of changes in everything culture, and then things start to move forward. i'm expecting this to be, you know, ultimately a multi-year journey. i'm quite optimistic about where we're going to end up where. the first year is tough, a lot of work to do, heavy lifting to do, but the team is determined one thing that has been great about the job, i have been here 30 years many people have been here 30 years. people love this company there's a pride in the company, a passion for the company. there's a competitive drive right now. nobody likes where we are. nobody wants to status quo, so i'm able to harness that and ignite that. when i go and see the employees and the customers, people have a lot of goodwill for the company. we have to maintain that and earn that, but so it's going to take some time, but it's going to happen. >> and finally, let me end where i kind of started, which is if you're a doctor and you're treated smbt, you need to

diagnose the problem properly to treat it properly. you feel like you have diagnosed the problem at ge properly >> yes >> you know what it is >> yes again, i keep coming back to, we've got multiple business units, microissues in each one, but culture, operating rigor, capital allegation, doing those three things better, and really world class. our operational issues they're in our control when we do that, i know we'll restore this to be in a growth platform and a valuable creator for investors. and people are going to like what they see, but we have to do the work, and i know it's show me time. >> of course >> no words are going to get us out of where we are, only the results. >> we look forward to of course catching up with you periodically along the way and appreciate your willingness to spend time with us today >> my pleasure >> john flannery, the chairman and ceo of ge. i'll send it back toia >> thanks for bringing that to us david faber at ge in boston with flannery if you missed part of it,

flannery telling david about the dividend that process will be announced on november 13th talked a bit about the company's accounting for long term care reserves the breakup philosophy flannery saying i understand that mentality but i'm not wed to any current format. i'm wed to running the company well and moving forward from there. not parsing any words. calling it a heavy lift, a big miss using words like horrible. >> used horrible twice, on cash flow and power results he didn't -- flannery didn't mention jeff immelt specifically by name. david mentioned him a few times, but that was, i think, the big overarching theme. this man is there to provide what he's called sweeping changes. and wants to make a statement through the cost cutting made some news saying there will be more cost cutting than already announced. it will be an ongoing process, and turning around the business. he's open to all ideas, including shrinking the board. and thinking about the conglomerate status. >> what you come away with is certainly a sense of urgency

along every front, but really that this is an operational and financial mess that he feels as if there's a certain phase where you just have to essentially go through the whole organization and sort of tighten up operations and financial practices. then after that, you think about the mix of business and what you're going to sell and what you're going to stay in and things like that to me, it seems as if those couple stages and the capital allocation stratagagy that we'll hear about in a few weeks. >> which he seems open to. >> without a doubt many, many tuments for him to affirm the idea that they should maintain the dividend at this level. the way they have reset their earnings per share for this year, everyone is feeling like it's getting priced in some kind of dividend cut. >> immelt saying it's not an emotional decision, when david quoted jeff immelt saying when he had to cut the dividend in '0 niep, he said that's a financial decision that's how we're going to make it as for the stock, it's lower and one of the worst performers on the dow, down almost 3%, but

well off the lows we saw when the initial report hit helped by perhaps the words there and the conference call as well when we come back, we have an ipo here which we're waiting to open. it's an onlinegaming company that dominates southeast asia. backed by n ntnds tece a asoon as it starts trading, we'll talk to the ceo on "squawk on the street." impossible to ignore.

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we are watching shares of ge you just heard from john flannery, an exclusive interview here on cnbc the new ceo who is promising sweeping changes at this company after reporting what was, guys, a very disappointing quarter keeping an eye on the stock price. down almost 3%, weighing on the dow. clearly, the discussion is going to be around the dividend, around how fast he can make the changes for such a global, complicated conglomerate and we'll wait to see. >> when it comes to the stock, it's really about trying to decipher when that capitulation point might come it's been a slow-motion process. over the last 20 years, total return on ge stock, including the dividend is one third of 1%

a year the dividend didn't save you from a lost generation in stock. >> right >> so i think right now it's about do we think the business is pointed the right way do they have the right mix and right strategy >> the quarter and the interview with flannery today presents an opportunity to discuss all day long the m & a mix at the company, the portfolio mix, the volume today, and what is essentially a wholesale change of ownership in some circles talking, past the 30-day average in 16 minutes. overwhelming volume on a very large name we'll watch it all morning long. >> meanwhile, tax reform is the other big story. the senate passed the budget, setting the table for some kind of tax reform. watching an eventful night in the senate >> they didn't just set the table for tax reform they went ahead and ate the appetizer as well. here's how it all went down last night. the senate passed its budget 51-49. that part was expected but republicans went and took it one step further and they hashed out a deal that

lets them move on to the main course of tax reform as early as next week. normally, the house and senate would have to go to conference over a budget and that's when they get together and negotiate a final document but now, republicans are saying that they can skip all of that the house and senate ironed out their differences last night, and that includes a way to increase defense spending later on will make the house happy in return, congressional republicans dropped their call for mandatory spending cuts and both chambers agreed to that tax cut of $1.5 trillion this means that the house can now vote next week to just adopt the senate's budget and then they are done. they'll have the vehicle for tax reform, and they can move on to writing the bill the business community is pushing lawmakers to act swiftly. the business roundtable and the chamber of commerce praised last night's vote and the rate coalition, whose members include walmart, fete exrr, and ford, they said the only thing that stands between american workers

and the pay raise they deserve is washington's resolve to reduce the corporate rate. now, the details of this tax bill are expected very soon, after the budget is passed and house speaker paul ryan this morning confirmed one piece we have been reporting on for a while. he told cbs there will be a fourth tax bracket for wealthy households, and he said that president trump himself has been pushing for that measure carl >> all right, thank you very much for that. way to set the table for more on the president's tax reform plans this morning, we're joined by grover norquist, president of americans for tax reform, maya macguineas. happy friday, guys >> absolutely. >> grover, between this development regarding a fourth bracket and some of the reports that suggest the way they might carve up salt and last night, how much easier did this get >> well, with last night, we assured that we will get corporate rate down to 20%, that we're going to get rid of the

death tax, that we're going to go to full business expensing for five years all of the major parts of tax reform will be enacted and you saw the senators rand paul, who voted no on the budget, announced he's all in for tax reform susan collins, the people had wondered about, has said she wants to get to tax reform so all of the senators who you thought, maybe they could do to tax reform what they did to health care reform, they have all announced not happening. the conservative caucus in the house is in. we'll see tax reform sooner rather than later. i mean, this process moves it up about three weeks. >> are you more worried, grover, about the murkowski/collins, that triumvirate in there, or the freedom caucus what is the bigger threat to the legislation? >> right now, neither. both collins and murkowski are

enthusiastic for fundamental tax reform, for the outlines of the package, and the freedom caucus has already looked at and had the changes it wanted put in place. on tax reform, the freedom caucus went to work early. worked with everybody else and got the commitment on the 20% rate, no higher than 20%, that they wanted on health care, the people who had complaints showed up after all the work was done and delayed things that's not happening on tax reform >> so maya, grover makes it all seem so simple and quick ylan told us earlier we could expect legislation to see proposals as early as next week. grover just said three weeks even in its simplest form, we don't know things like where the deduction eliminations are going to come from and all the pay-fors we don't know about all the lobbyists. how simple can a tax code be to write? 500, 1,000 pages is this realistic to happen within weeks

>> it's incredibly complex, but keep in mind, work has been going into the tax bill for months and years if you go back to some of the good ideas that could be included in it. i think it is true we could move quickly. what i think we shouldn't jump over is while people are kind of cheering how much easier it is to do tax reform right now, it is easier when you're willing to add to the debt to do it and what happened last night in terms of the budget is actually huge because it was a massive shift away for the republican party from caring about the deficit and debt in that they virtually have now agreed to a budget plan that gives up on achieving balance in ten years, something they had been insisting on for quite some time, out of $47 trillion in spending over the next decade, they aspire to save $1 billion and it allows them to borrow $1.5 trillion for tax reform instead of committing to revenue neutral tax reform, which had been the original plan so people who don't care about the deficit and debt are probably cheering this, but

people who worried about the mountain of debt that we have and realize that slows growth, at the very time we're trying to use tax reform to increase growth, have some real concerns. what i'm very much hoping is as they work through the details of the tax plan you're talking about, we continue to find more ways to offset the costs there are so many tax loopholes. so many things to do to broaden the base that if we just show a little bit of political spine and deal with some hard choices, we could put together a very smart tax bill instead of one that busts the budget or increases the debt >> grover, that $1.5 trillion now earmarked allowing for the deficit to go up, that is exclusive of any anticipated growth effects how aggressive do you think congress ought to be in trying to build in expectations of a lot more growth from these tax cuts on paper, do they have to make it look better than just a 1.5 trillion >> well look, we're talking about reducing a corporate rate

from 35% down to 20%, allowing repatriation, full business expensive for five years, and we all know that it will be permanent. all of these are tremendous growth drivers but the congressional budget office and joint tax, the bureaucratic who guessed so wrong about obamacare, about how it would work and what it would cost, and we had silence from all of these people who now claim to care about the deficit. silence when obamacare was going in and busting the deficit and the stimulus and so on so it's always curious to see the democrats come out and care deeply about the deficit when we're cutting taxes to get growth and there's nothing when they're spending and bankrupting the country with wasteful destructive spending so we're now actually going to have serious growth, and if you grow at 3% - >> the same could be said for the other side >> hold on, if you grow -- >> they have been complaining about the deficit for years.

>> you go at 3% instead of 2% for one decade, the government gets another $2.5 trillion in revenue. the way to bring deficits down is to have economic growth >> we have to go, maya, but one last question. these reports that lindsey graham wants to tie a minimum wage hike to a corporate tax rate, is that being taken seriously? >> i think there will be some talk of how to insure that the gains we have from the corporate tax reform, which is something we really do need, are shared more broadly i think that's a discussion that will happen. i do agree with grover that fiscal responsibility too often is just for the minority party we all need to care about it but in terms of growth, we will see growth, but i'm very worried that claims will be so exaggerated. one idea is to include a trigger on the tax reforms to make sure that that growth actually happens as promised. 3% for a full decade is pretty unimaginable given the demographic challenges we have i would like to have am kind of fail-proof method attached to

anything where you base it on those assumptions. >> that's whey they said when reagan cut taxes and they were wrong then >> we can debate that on another show >> and we will guys, thanks coming up, much more on the future of ge and that exclusive interview with ceo john flannery llffheock now down only 2% we o t lows. we'll be right back.

after posting its worst day since august, what's ahead for shares of apple? finds out on tradingnation.cnbc.com more "squawk on the street" coming up.

what a morning it has been for general electric the company, of course, under the new leadership of john flannery, who spoke to david a few moment ago big miss, heavy lift, as he put it to david. lowering its outlook for next year this is flannery describing the

cash flow to david >> the cash flow for 2017 is horrible >> a $7 billion number that's not the new normal. gl 7 billion is not the new normal there's a number of steps we're going to improve that significantly in 2018 and beyond >> morgan brennan helps us cover the company and joins us this morning with reflections on that interview and the quarter. good morning >> good morning, carl. i think if there were two phrases that seem to be coming out of wall street right now, the first is kitchen sink. the fact this is the kitchen sink, quote, unquote, quarter for ge, given the numbers, the new ceo's flannery first in the season, and cash flow, it's been the focus all year, really for many quarters at this point. in fact, the numbers had been disappointing and the cash flow now for the full year forecast is $7 billion. that's been reduced by about half is really what everybody's focused on, so it is really, you could say, horrible as the new ceo flannery said in this

interview with david faber it's stoking all these questions about what happens next, what happens with the dividends he said in the interview we'll hear more about that on november 13th also what happens with all of these different business segments there's been a lot of focus on what can be sloughed off next and that's something he talked about today, as well, the idea of streamlining business by $12 billion over the next couple of years. >> clearly, he went to great lengths to separate himself from previous management without saying it and talking about how the company is going to see such major changes. morgan, on culture, rethinking business, possibly rethinking the board, any sense of timing of how long it's going to take, compensation, i mean, he said that he feels the pressure, it's a show me story right now and the stock moving lower is bad. so how long is it going to take to turn it around. >> i think that is the question. it does sound like he and his newly assembling team are moving very quickly look, we already knew coming into the results today that they were cutting thousands of jobs

on the corporate level something we've reported, obviously, everything with the business jets and fact ge is grounding fleet, taking away corporate cars he said that $500 million in costs were taken out for the quarter, that they are now ahead of the 2017 -- they were looking to take out a billion dollars this year, they are at $1.2 billion, and this is one of the most interesting things at the outset of the conference call, he said now the forecast in terms of cost cutting next year is $2 billion. that is double what it had originally been, so he seems to be moving fast here, he and the incoming cfo, who are looking to streamline how they report moving forward, as well. >> yeah, morgan, i guess in the immediate reaction to this number and to the reset 2017 earnings so low is to see what happens to 2018 forecasts among the analysts right now it's looking at $1.61 a share, published consensus obviously, looks like downside given the kitchen sink level of

earnings in this call. >> i think the pressure is on even more than it was just a couple of hours ago for this november 13th meeting and what is going to be coming out of there, on the call, in the interview with david, it was really talking about the fact that the cash flow, the restructuring, what's going to happen with the dividend, all of these big overarching questions that investors and analysts have been looking to answers to for months and months and months now, that that's all expected to now come out of that analyst day, investor update day, so one of the things i'm hearing is we could potentially see the stock trade lower ahead of that and just expect it to sort of bounce along at these multi-year lows until we have more >> morgan, obviously, we've been reading a lot about the things they are changing, things flannery is changing in the way of company cars and jets and r&d headquarters, perhaps, and layoffs, perhaps, but give us a sense about other things that

might be redone. processes, the way decisions are made, the way employees are incentivized >> yeah, he spoke about that i think we're going to continue to get more details, really focus both in our interview on air and on the call about the corporate culture and changing that, more transparency. jamie miller on the call talking about sort of streamlining everything and the fact that this has been a very complex company and it has always reported in a complex way. how they can sort of make that entire process simpler and more transparent, both internally and externally to investors. one of the other things i think is really worth keying in on is all of the investments, the billions of dollars of investments we've seen thus far into digital and additive. mind the machines is happening out in san francisco next week there's been a lot of expectation what's going to happen with that it does sound like he is still very committed to that >> morgan brennan, thank you very much for your analysis of the quarter.

let's get a sell sider's take on this, chris glynn joins us chris, we're eager to hear your reaction to flannery's comments and our interview and on the conference call. how do they frame what was a very disappointing what some are calling kitchen sink quarter, did it give you hope >> well, it's definitely a show me story flannery did talk about $20 billion of sales that they'll exit that haven't been identified, so very much focused on a streamlined portfolio didn't get into the philosophy on how they would handle the dilution from that, whether it was other acquisitions, but that's clearly a focus on streamlining and i think the stocks move off the lows reflect, hey, let's give this guy a little bit of a chance, but it might be short lived, given that the cash flow levels and getting those up to a proper yield gets downside

support. remains a show me story. >> which means that it's hard to decide if the stock even after its terrible performance in recent years and months is even cheap based on the run rate of earnings that we're expecting, right? >> that's right. that's the show me story it will take a little time you know, again, how do they reprocess the proceeds from sales? about $20 billion of business lines that they've proposed to exit, but, you know, right now there's not a valuation case that says you have to jump in now because flannery's introduced some ideas that could be very interesting long term. >> thank you for joining us and hopping on the cnbc newsline we know you're on hold with the stock. chris glynn covers ge out of oppenheimer. take a short break here as we watch action in ge. -pntaime the dow hanging on to a

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dow hitting an intraday high helped by the financial sector, which is on pace for its first close in a decade, led by synchrony financial reporting upbeat results, that stock up nearly 5%. also worth pointing out shares of the big bang's jpmorgan, goldman sachs, and bank of america are up in early trade. now back downtown for the start of "squawk alley." hi, carl >> seema, thanks very much good morning, it's 11:00 a.m. at ge headquarters in boston, 11:00 a.m. on wall street, and "squawk alley" is live ♪ ♪