here what is going on with the futures. dow open higher as of 26 points. as of today, that doesn't general electric the dow would be higher if the ge were in it. but not by much. >> a few points. >> thank you for hanging out, guys. >> fun. >> make sure you join us tomorrow ja "squawk on the street" begins now. ♪ ♪ good tuesday morning welcome to "squawk on the street." i'm carl quintanilla with david faber. cramer has the morning off the bulls face a new round of trade rhetoric as the president threatens harley-davidson. a historic make over in ge europe is green. home prices up 6.4 in april.

road map begins with ge spin-off plans. the industrial giant revealing plans to spin off health care, sell its stake in baker hughes cr ceo john flannery will join us plus, we'll talk, of course, about a day after that sell off. stocks are taking a breather futures are pointing to a flat open. and taxed like never before. the president delivering a warning to harley-davidson about moving production overseas let's get to the news out of ge they plan to unload the ownership in the oil service company baker hughes it's a conclusion of a yearlong strategic review by john flannery ge slashed the dividends shares of the company have tumbled by half in the past year erasing $100 billion in wealth today marks the end of an era at the company. it's officially out of the dow after more than a century of

trading on the index being replaced by walgreens. as we said, ge's john flannery will join us on set at 10:30 a.m. eastern time. david has been telling us, helping us understand how the portfolio can change for a better part of a year now >> here we are i think the key or one of the keys, certainly, is that aviation stays there was some expectations, perhaps, along the way as we knew the company was doing this a long review of the businesses lead by mr. flannery and his board. that aviation, perhaps, could find itself outside of ge. on its own because of, of course, the great value that company conceivably would have or reverse as far as trust candidate or something that's not the case. health care is going to be sent out into the public markets. monetize 20% and split or spin the remaining 80%, such that current shareholders will have the ownership of this new

company. they do plan to maintain their current quarterly dividend, at least through the completion of the health care separation as we said a few weeks ago, mr. flannery alluded to it comments that were somewhat misinterpreted when he presented an investment conference a few weeks back then you're going to get that adjustment in the ge dividend and, of course, health care itself will pay a dividend commence rate of what a typical payout ratio for companies like it to put it in perspective, we're talking about the likes of s seamans, thermo, these are all within the peer group of what is an enormous company. $19 billion in revenues. they're hoping it would be valued by the public markets somewhere around 14 to 15 times which would give it an overall value of let's call it between $60 to $70 billion that would be upwards of $5 a

share at this point. to give you a sense, in terms of the value, and then you'll have an health care company that has a different capital allocation strategy perhaps more access to capital than it currently does and it will take $18 billion in debt and pension liabilities, as well it ends up being about the balance sheet which has been a concern to ge shareholders remember one of the key dividing lines for what the stock has suffered so much as a result of is when they took the hit on the long-term care liabilities as a part of still what is left of ge capital, despite the fact they've gotten rid of most of it it will have the affect, overall of reducing leverage by 2020 from what is three and a half times to two and a half times by 2020 they want to take an additional $500 million of cost out of the business by pushing down the cost centers from headquarters to the units themselves.

then power of renewables and aviation, which are, in a way, kind of all make things that turn around. >> they say the synergy is there with the technology, right >> yes. >> you've said that everyone expected aviation to be a part of it. what about power is there disappointment there? >> it's been a weak spot and i think for that reason, sara, there was expectations you can't, what are you going to do with it? you have to turn it around mr. flannery said it publicly. i'm sure he'll reiterate it when he joins us. that's the key is turning around power and selling what they own of baker hughes over time it's the public markets having a more focussed company around aviation, power, and renewables with the hope, of course, you can start to have the significantly increase the focus, the simplicity, that's kind behalf they're going to try to get investors to be focussed on. >> as for the premarket move here, 6% hand had a 5% day since

2015 i think you go back to 2011 to see if 5.5% move you could be looking at a substantial move here. as for the dividend, others are looking at whaothers pay honey well 2 nowhere near the current that is going to reflect their peers. >> it will and if you're a current shareholder, you're going to get shares of the new health care company to be lead by karen murphy and you could argue that the dividend there plus whatever the dividend will be on ge will be commence rate to what is now let's take a listen to flannery a few moments ago talking about this move this morning. >> the core aviation renewable businesses can thrive inside the current ge framework we think substantial value can be created by moving other

businesses outside of ge to implement that strategy, we're creating a separate, stand alone health care company and we intend to fully sepate the hge. these are two strong and competitive businesses with leading positions and strong growth prospects but they both have various constraints operating inside the current ge construct. >> yeah. some of those constraints they're talking about, of course, are capital allocation again, mr. murphy there have the ability to use shares for acquisition, for example that's one benefit and just perhaps have more ability to -- >> it's amazing to think about the transformation the historical transformation of this company. >> yes. >> in an american conglomerate that housed our parent company nbc and a major financial company up until after the

crisis, home appliances, i mean, it's undergone so many changes and this is just the latest chapter. really interesting it's happening. i don't know if it was purposeful on the day where it is booted from the dow. >> yeah. that was a pure coincidence, i think. they've been planning this, obviously, a long period of time i don't know how long they targeted this particular day had nothing to do. >> ultra symbolic. >> it is and, you know, it's interesting health care itself of course was a large acquisition early in the tenure that was one of the larger deals that ge had done, certainly at that time and still one of the larger deals it did. as was so often the case, of course, people looking back on i believe that the price paid perhaps was very, very high. as we know, he did have a tendency to buy high and sell low. over a long period of time that did come back to hurt this company given the high levels of debt it has. so much is getting back to

creating more flexibility in terms of the balance sheet itself important, also, they continue to deal with ge capital and with these long-term liabilities of long-term care they have a great business in there in the aircraft leasing business which is like $43 billion. they have another $42 billion of, let's call it less appetizing assets. they are planning to keep hammering down on them i'm told they do not believe there are any other hidden disasters similar to what we saw when they came out with that $22 billion liability. >> a lot to ask flannery when he joins us we hope he'll stick around for that futures, as you saw earlier flat this morning coming off the sell-off on monday sent the dow negative for june down nine of ten and now the president commenting last night at a rally in south carolina take a listen. >> last year on trade, our

country lost $817 billion, with we lost $817 billion who the hell can do that >> now he's coming out this morning with several tweets targeted at harley-davidson. talking about thundershower production shift announced production shift overseas because of tariffs. there's one harley shouldn't be built in another company their employees and customers are angry at them. if they move, watch it will be the beginning of the end they surrendered they quit. the aura will be gone and they'll be taxed like never before that crystallizes the dilemma that supply managers are in. where do you go if you're facing tariffs on the eu and you can't make it here if you get taxed coming in, can you make it somewhere else. >> the presidential tweet. what a reversal for

harley-davidson. one of the president's favorite companies. he visited there paul ryan visited there. they're based in wisconsin this is the ultimate company that signifies america now he's threatening they'll be taxed by never before. >> the about face is listen on trade policy itself as well. whether it's secretary mnuchin saying one thing yesterday in a tweet. conceivably with the president's authority. he said that and then the borrnavarro coming air and saying something different. >> what navarro said turned the market the market added 150 points to the close. i think it's interesting they' putting people out on cnbc this is very strategic to talk down a 500-point decline in the market whether it makes sense or not. and it shows the division within the trump administration i think they care about the market it was secretary mnuchin who said on this network it's a mark-to-market business. they judge themselves on the stock market. >> that's ridiculous

that's no way to run a railroad. >> leaves a question to the policy are they going to crack down on foreign investment or not? focus somehow on losing.nued equating the trade deficit with so many of the economists we have on said it's not the correct way to view it as long as you're running structure budgets deficits, you have to somehow run a trade deficit. and he gets a lot of push back on that. he continues to view it certainly as simple my zerosome. >> right you have china today dropping tariffs on soybeans and other feed ingredients to their asian neighbors as they get ready to buy soybeans, our largest export to them from others that's going to be interesting and xi telling a small group that in the west you turn the other cheek. in china we hit back but the shanghai is in a bear market as of today. >> yeah. down 20%.

>> who has higher pain tolerance. that's what we're in now. >> this is a very -- nobody wins in a trade war everybody has the potential to lose it's interesting that china's market is getting hit worse than ours the chinese currency is at the lowest point of the year continues to weaken. i'm thinking maybe they're doing it on purpose. >> the journal h reported they said they're not focussed on moving the currency lower as a response it's happening. >> it's a trump card they have it definitely hurts global financial markets. >> clearly when the rest of the world fights back, the president's strategy of trying to eliminate tariffs all over the world and make trade bearer is backfiring. i mean, it's so far not working. maybe he had some grand plan and maybe the negotiations will bear fruit and other countries will have so much pain. like china where they have to capitulate for now, companies like harley are moving out of the u.s. that's not winning. >> yeah. and there's two different tracks

here one about selling of intellectual property. they're taking of intellectual property or sharing of it when they force joint ventures on our technology companies that's a separate issue from the huge trade deficit we have with china. they've been put together. it's not clear. >> which is the priority. >> yep a discussion if harley-davidson would have moved from thailand to kansas city if we stayed in tpp. there might not be the need to locally source some of that production. >> right the idea there is they're facing tariffs for an emerging market like thailand moving the production over. >> tpp comes up every single time we'll see. when we come back, we'll continue to wash shares of general electric soaring we'll talk to john flannery on set at 10:30 eastern time on the heels of finalizing his plans for the future of that company take another look at the premarket, more "squawk on the street" continues in a moment. ♪

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looking to avoid a back to back day of losses as the s&p

and nasdaq coming off their worst day since early april. nearly half the s&p is down 10% or more from the highs joining us this morning chief investment strategies bob dole is with us good to see you. >> hi, carl. >> if you were a repetitive dip buyer, right, and you were good at pattern recognition, you might look at the nasdaq three standard deviation move. vix up 25% there is where things have been constructive, at least in the last six months to a year. >> no question about it, and, of course, the fundamentals supporting that has been awesome improvement in earnings. we'll get the second quarter soon and the numbers will be good. >> so are you buying >> it's not that schism. we had a long period six straight years where earnings went up and pe went up. now we have earnings up and pes are struggling reasons modestly higher rates

and inflation, and a long list of things including most especially the drake nonsense. if we didn't have the strong earnings, carl, my guess the market would be flirting with the 25.32 low. we're not there because the earnings are too strong. >> you call it a trade nonsense but yesterday something different happened and other trade-related sell-offs. the faang stocks got involved. netflix was down on the day. what did the action tell you does it spell anything more ominous as the tensions don't seem to be stopping escalating around the world. >> if the tensions keep escalating, you're right there won't be many things that are standing up strong i think the fact that those two areas held up so well said that's where investors were hiding

the question is that the right place to hide? my view is in portfolios, you want to have a lot of your earnings coming from the u.s., which takes do you smaller cap and away from a lot of multinationals look, nobody wins in the short run in a trade war no one there may be a relative winner and a relative loser but everybody loses absolutely and we've got the tariffs, we've got threats of more tariffs. will we get export controls? will we get other trade restrictions that's what the market is worried about. if we stop right here, it's small. relativeo the u.s. economy in the global economy but every day or every week there seems to be, i'll use the phrase again more noise that unfortunately has teeth associated with it. >> bob, ge has a huge story today. you know this company well what do you think of the announcement they've made. what is your stance on the stock

since it had a rough year? >> finally, finally, finally we've been short the stock for 18 or 24 months, covered a little bit a couple of months ago and we'll use the excuse to cover the rest i think the story from here is very complicated requires a lot of analysis but at least they're taking the bull by the horns and trying to do something after, i would argue, years of deterioration. >> umm, well, it's been good to be short the stock you don't think it could be a turning point for the company? getting itself on a path that may end up, you know, in a better place >> certainly could we're going to move to the sidelines and watch. i think being short no longer makes sense. but i haven't done enough work in this complicated set of destructions now to say it's appropriate to be long but hopefully they have stemmed the tide of the deterioration.

i would agree with that. >> 6% move we'll talk to flannery later on this morning bob, good to check in with you interesting week as we go to break, take a look at futures as we said, dow nine out of ten. we're keeping an eye on the stabilizing move today more "squawk on the street" in a moment

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the opening bell is brought to you by -- you're watching cnbc "squawk on the street. live from the financial capital of the world opening bell in a couple of minutes on this busy tuesday watching the president's tweeting regarding harley-davidson. big news at ge today as they spin off health care baker hughes and get ready for a dow session without ge in the index for the first time since 1907 or so. >> wow. >> yeah. >> replaced by walgreens. >> correct. >> yeah. >> which we'll dig into. i'm sure you talked about that decision about what it reflects. thefact that american consumer spend so much more on health care now. >> yeah. >> and how amazon can't be added to the dow we add a walgreens how long does walgreens stay in the dow? amazon is threatening retail businesses itself. >> you know how i feel about the

dow. statistically insignificant index that is not market weighted but price weighted. therefore -- >> not indate of the broader economy but we quote it every day. it appears on the front pages. >> yes, it does. it's incredible marketing by the people at dow. all though that's not dow jones anymore but, yeah. >> it's significant for ge, though. >> it is psychologically without a doubt. it's reflective of the change that is taking place at this company. of course, it's been a horrible year, as we know for the stock which is looking to turn around a bit today. it's lost about $100 billion in value over the last year concerns about the balance sheet. huge missteps in power that took place last year that really only came to light late last year and john flannery now has been in the seat for not quite a year as ceo. >> the worst dow component, of course, for the year by a long

shot inteiny, caterpillar and goldman are both off from the year by about the same amount. [ opening bell ] >> we talked about trade senses and the trade war escalading yesterday. but what also happened in the session was that the yield curve flattened. meaning there are concerns about longer term growth in this country. why aren't the longer term yields, the tenure and the 30 year moving up as the federal reserve interests rates? it will be a conundrum for the fed and the banking sector and what it says about the overall economy. we'll watch it an inversion could signal a recession. >> let's get to the opening bell ringing the bell this morning it's direct stand celebrating the launch of the new portfolio.

over at the nasdaq it's reality shares etfs. but your point about the index and g serks a good one today let's find out hopefully flannery can give us ideas how it changes the growth trajectory. >> that's the idea over time simplicity is what they're seeking to a certain extent and the focus among the likes of try began. decision making down to the level of the companies involved. and of course with just the power company, hopefully they believe in turn around with aviation and then the renewables portfolio. that's what you've got and there is conceivably some shared expertise in terms of engineering and material sciences for all the products that they make and you make something turn

faster and do it in higher heat, for example, because of the material, you may be better off and have a more efficient engine or windmill or turbine. >> been spending time in a factory? >> no, but i've been talking to people about it. >> morgan brennan is covering it. >> i've spent some time in factories. >> yes i think the point david made is exactly right. we're talking about aviation, power, and how, you know, sort of implied in this they're breaking apart renewables and looking at the stand alone as part of this newer, simpler, stronger ge that seems to be the message this morning at's exactly right when you're talking about production and you talk about manufacturing, a lot of synergies between those two. note worthy when it comes to tension obligations and liabilities. a lot falls on the two divisions, as well part of the reason capital remains within that reimagined ge, they did say they're going to stream line that. in terms of health care and spinning it off. we have kpashls in the market.

most recently siemans this is probably the most direct kpashl to that they did note in the call, i think it's wrapping up now, that about $18 billion in liabilities and pension obligations will transfer to the new stand alone health business. that's note worthy and the other thing that jumped out is the idea that flannery said aggressively working to reduce eliminate, or mitigate exposure to long-term care insurance. they're talking about ge capital. that's a big issue they took that almost $22 billion charge tied to that legacy insurance business. it's stuff like that. >> it's a process to do that. >> yeah. and within that you're talking $42 billion in liabilities there are secretary insurer. there are ways they can put back certain things but it's piecemeal it takes a long time to do it. but i think the key to a certain extent, morgan, at least i've

been assured by people that they have searched under every rock and they don't believe they're going to be any other surprises when it comes to that. and, of course, that was one of the keys to really determining, i think, the stock price when they came out with that number that was so far above what anybody anticipated. >> yeah. i think what you said is key for investors and wall street. i think a lot of folks were feeling harmed in recent months because it seems like every time ge met investors, there was another piece of news coming out. so the idea that perhaps everything is out there, that could mean maybe stability in the stock. i would imagine that's part of the reason you're seeing the stock rally this morning as well just as much as the fact we have the longer term strategy. >> the analyst community has been tough to please on this one. have they been reacting this morning so far to the announcement >> so far i've seen a couple of

notes. you know, as i mentioned, this call with the analyst community and investors is wrapping up now. we'll see what the commentary is as the morning unfolds. >> important to note, you know, the changes that have been taken place under flannery when you think about the company being inherited last summer. power was down 50% they were in free cash flow decline. leverage was over 3.5 times. they added debt to buy back stock in receiretrospect wasn'tt move they're been attacking things and the separation, obviously, being one of the keys. one of the biggest things that they've done after a long period

of study of what would be best for, they believe, the company itself so a lot has gone on we haven't mentioned the transportation with lab tech deal yesterday's deal small but not insignificant. they've done a lot they've done a lot it hasn't been enough to satisfy investors in any way. >> yeah. today is obviously the biggest thing they've done during the ten year. >> yeah and the other one to watch is baker hughes. see what the stock does on the news, as well. i think it's important to note they did essentially spin out the oil and gas into the emerged company. a similar deal to what we're seeing take place in lab tech. but they own about two-thirds of the shares there that'll be how they unwind. >> right you can sell into the market but you can't dump it at one time. two and a half to three years to fully divest themselves of the baker hughes asset

that's something that the hope that business is, to a certain exnt, a turn around and they'll benefit over time from selling over time. and aviation is considered, and i know you follow it closely a jewel. >> yes and flannery talked about that on the call this morning, as well he said, you know, the leap engine has been the big production record ramp rate. he did say they're maintaining despite they're maintaining 20% margins there. those are the numbers investors in industrial companies are looking for. that certainly continued to be a bright spot in the details he put out this morning, for sure. >> >> some miserable action in banks today. new lows on bank of america. down percent or better goldman, citi, the xlf, is it

down 12 days in a low? >> probably. the industrial group is one of the best performing now thanks in part to a ge, energies doing well technology is doing well you're seeing a bit of a come back from yesterday's session the staples and utilities are down things are reversing not as much as they fell yesterday but a different tone. >> something we talked about, we've talked about the anti-trust potential of an action being brought against some of the biggest names in technology i mentioned that because we did focus, to a certain extent, on yesterday's decision from the supreme court involving american express. but perhaps didn't take it to the next level which is where a number of investors are. given the 5-4 decision by the court, in terms of ruling in favor of amex. it's a benefit for companies

that are in two-sided platforms. facebook, google, uber to avoid anti-trust action. two-sided platform would have to demonstrate on both sides. that's what the court said and that could make it easier for them to avoid. and that's a big deal. that drum beat has been ongoing for some time. would there be an anti-trust taken for the biggest names in technology yesterday's court decision should not be overruled. >> it was a conservative vote in favor of american express. we saw that in the share price reaction you're saying broader implications for anyone worried about anti-trust. >> right the argument being they have undue power is unfounded in the the court's opinion. >> the debate rages on regarding semis which has been lacking some leadership. ubs does take micron to neutral. a target of 60, they say

producers are taking more cautious stance regarding deramp supply going into the back half of the year. but intel bernseen cuts to underperform mira cut it yesterday to neutral. >> yeah it's a con influence with factors but it's broadly the trade issue. semis get hit. they have a lot of revenue derived from overseas. places like china. it's a globally linked supply chain, as we know. and we talked about curbing tech exports and foreign investment into companies. >> yeah. >> that's where you think of the semis get hit hard in that. >> yeah. so much of what this focus in terms of curbing all those things is because of china's plan to try to advance key areas of the economy and technology by 2025 you know, right now you have to

look at zte if you want an example of how much china is relying. a large wireless company was closed down by the u.s. government they rely on chips that are u.s. maybe not manufactured, necessarily all in this country, but the ip is. >> right i want to point out lenar. good earnings out the home builder. if you go through the key metrics, pretty strong picture total revenue rising 67% deliveries also gained double digits 57%. new orders up 62% guys, and the comments a lot of people are talking about from the executive chairman that lennar store miller concerns about raising rates and construction costs have been offset by low unemployment and increasing wages. painting a picture of a strong economy and housing character demand. >> wow despite the lumber, as well.

we've been talking about ge, it does mark the end of an era for that company it's officially out of the doubt after more than a century trading on that index. that's a long time, bob. >> it is, indeed, david. here is good news, we have a new dow, as of today the bad news it isn't that much different from the old dow dow jones said they want the dow industrials index to be representative of the u.s. economy. everyone agrees that industrials stocks are a little bit overweight in the dow paradox. it's about industrials about 23% by price weight. remember, price weighted in the dow. that's more than twice the weighting in the s&p 500, of course, is market cap weighted okay fair enough. getting ge out will slightly reduce the weighting of industrials but by about a percentage point or two. what is odd is the choice here consumer staples, which is walgreens, is well repsented in the dow already it has walmart, proctor and gamble, coca-cola in it now. it's a weighting of almost 6%

before walgreens goes in it won't change too much here. what is underrepresented is technology here is where everybody was wrong. it's 18% of the weighting in the dow jones industrial now so you've got ibm, intel, microsoft, sisco, as well. that's well below the 26% weighting of the s&p 500 i was betting this, as well. now i get leaving out amazon i get leaving out google even netflix they would distort the index. facebook would be a logical choice it was a choice of many people, including myself it's only $200 some say it's been public since 2012 and that wasn't long enough and they argued against it but i don't think so given the importance of tech in social media, it isn't going to go away. finally, don't expect too much in the way of etf changes or changes in money moving around

not much money is benchmarked to the dow industrials. the spider etf that is out there has about $21 billion. that's the ia that is the etf. $21 billion indexed to it. compare this to almost $1 trillion benchmark to the s&p 500 and there's an awful lot of money, also, indexed to the russell 2,000 index as well as the russell 1,000 index. what we're waiting for, guys, the new dow devisor. it's about 6.8 almost seven points to any individual dow component it will change slightly but not that much. it should be published within the next couple of hours we'll get it to you as soon as we have it back to you. >> bob, thank you very much. keeping our eye on ge as we away john flannery in the next hour 10:30 a.m. eastern time. key questions for him, morgan? >> so many i mean, definitely more details

on, you know, the decision to move this way in terms of keeping aviation and power together how he's thinking about renewables as the own stand alone bucket and the growth opportunities there. i want to know more about ge capital and how they're going to whittle it down. also, you know, it's one of the questions that andrew ross sorkin put to me this morning on "squawkbox." how much and we've talked about it for months now. how much should investors be surprised by all the developments we've seen over the last couple of months versus how much should they have expected it right. that seems to be the key question why you've seen so much angst. why we saw so many, i guess, skeletons come out of the closet the other thing i would note is that if ge is anything like some of the other recent components, we've seen exit the dow, alcoa, at&t, honey well, maybe it's the beginning of a rally for them. we'll see.

if history is any indication. >> the blessing of leaving the dow. >> yes those that exit, i think, are up an average of 6% the following year sort of the opposite of the curse. we'll watch for that morgan, see you in awhile. dow is up about 39 let's get to martha who has an additional look at ge today. hey, bertha. >> looking atwal greens and walgreens a got the best pump by being added to the dow over the last week or so. this morning to the downside a little bit of news, though, it announced a new partnership to beef up its specialty phrarma delivery they are trying to stave off amazon potentially entering the pharmacy deliveries base and one of the things that analysts say is a good move on the part of company, of course, over the last couple of years back in

2015 walgreens took over and amaking it more of an international play it had the deal scuttled to take over rite aid. it did complete the acquisition of 1900 stores in march. compared to ge, walgreens has been a relative outperformer in terms of its stock it has been down, as well, about 13% over the last year that compares to ge about 50%. it's about half the size in terms of market cap at about $66 million compared to ge it's larger when it comes to its estimated annual revens. $132ilon, which makes its dividend slightly lower than ge's at a yield of 2.38% it will have the same weighting as everything else in the dow, it barely registers within the nasdaq 400 the other nasdaq stocks that are in the dow have a bigger weight

and combine more than a quarter of a percent of the total move and the impact that you see in the nasdaq 100 on any given day. walmart as a 26th largest is only a fraction. if you look at it today, for example, you've gotsis coe, microsoft, and apple to the outside adding about ten points of positive impact the nasdaq 100 walmart is at subtracting less than a point with the decline today that is the big difference, david, when you look at a price weighted versus a market weighted index. >> yeah. good point walgreens down 1.8%. the distinction as the biggest loser in the dow thank you. we'll head to the bond pits. rick santelli tracking the action out of chicago. >> yes we're drifting a little bit -- look at a one week of tens the move has been like watching paint dry. as a matter of fact, if you open the chart up and look at the entire month of june, we have melted out of our closing yield

range, which, of course, was all in the 290s. a couple are like 289. yesterday 288 we have drifted a little bit you look at the yield curve spreads and everybody is for obvious reasons. whether it's watching the fed or thinking about the fed looking at weak growth overseas pitting yourself in the head of global investors you know, tens minus twos did make it going back to flat low to august of '07 you know, last week we were at 34.5 excuse me, 35. 25. yesterday we moved down a bit. i guess the point is, in a week we moved about half a basis point. we're sitting not much below 35, but it has been very slow. as a matter of fact, many believe five is the yield curve to pay closest attention to. and 30 minus five is four basis

points higher than the mid june low close, which goes back very quickly, dollar versus one one week chart the dollar keeps creeping. the dollar index closed up every month april, may and june so far. let's go back to sarah. rick, thank you. rick santelli. coming up it is the big news of the morning. g.e. finalizing its strategic plans. all sorts of changes. the ceo will be joining us exclusively on the heels of this morning's nocentanunme. "nightly business repor "squawk on the street will be right back. here. we perform over 50,000 operations a year in places like this. for the past 15 years, chubb has identified ways that we can strengthen our safety measures.

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watching shares of f.a.a.n.g. stocks. tech beginning to work after a crazy outliar session in which netflix was down close to six percent. we will continue to talk more

about comments that tim cook made over at apple. david has mentioned the prospect of anti-trust regulation getting close to these guys. >> benefitting from yesterday's ruling from the supreme court in terms of that not being a case that can be easily made certainly at least given the law that we got. >> i think yesterday spoofed investors because f.a.a.n.g. which was seen as the port in the storm, growth companies despite economic pain and trade tensions had fallen to indicate something broader. >> you saw valueuation on instagram? >> a little more than a billion. >> paid a billion. closing in on 100. deal of the century. when we come back an exclusive with g.e.'s john flannery.

let someone else do the heavy lifting. tripadvisor compares prices from over 200 booking sites to find the right hotel for you at the lowest price. so you barely have to lift a finger. or a wing. ipadvisor. welcome back to "squawk on the street." there is a big number out. we are looking for consumer confidence from the conference board. we are expecting 128. a little light, 126.4.

last time 128 moved to 128.8. 126.4 isn't a bad number. it's the best number since april when we were 125.6. anything over 120 truly is a lofty number. richmond fed came in better than expected at 20. we were looking at 15. it follows 16, solid number. carl, back to you. >> thank you very much. rick santelli. good tuesday morning. welcome back to "squawk on the street". in a few moments g.e.'s john flannery will join us in an exclusive you don't want to miss. first we will look at the s. dow trying to hang on to early gains after being down nine of ten. s&p up almost eight. >> trade is certainly the focus. our road map begins with the after math of a sell off.

stocks modestly high following dramatic losses but have fears cooled off >> the president taking on harley davidson over twitter following the statement that it will shift some production overseas. why the president is saying they will be taxed like never before. and finally john flannery will sit down with us about 30 minutes from now and talk about today's big news. g.e. is the story of the day. the shares are up sharply as the company announces plans to monetize about 20% and will distribute the remainder and saying it will exit the baker hughes stake on the first day the dow trades without g.e. as a member. it has been over 100 years. let's bring in michael santoli joining us here. that is tertiary story.

the key in many ways is you will be creating a new public enemy, the health care company viewed along the likes of siemens, all these businesses share certain things with this health care company. do you have expectations in terms of where ishould trade i talked to some people involved who believe perhaps it gets a multiple as much as 15 times. >> i think 15 times would be generous but right in line with companies you mentioned. i think something like aglnt they are close to 20 times earnings. they are a little bit different in terms of not being as oriented towards large capital goods, not imaging machines quite as much. i think that is the universe you are talking about. this health care business had something like $3.5 billion in operating profits last year. it is a healthy chunk of g.e.'s total market cap. i think one reason you are seeing relief in the stock is that investors just want to be

able to have some basis to value the pieces. this will give that to you. baker hues is another way to do it. the rest of it is simplified and betting on or not betting on the turn around. >> speaking to people who crafted the deal it is their belief that the health care company is worth about $5 a share. and so they get to a number that is quite a bit higher than the current stock price even with it up, but you still have g.e. capital that you are dealing with and pension liabilities and concern about that. >> to me it is about how you allocate the liabilities and how you view liabilities in terms of being the consistent overhang on parts of the business. they know what health care will shoulder in terms of debt. i think a lot of it is a matter

of getting clarity on a lot of these things. that exercise you went through there doesn't get you to 30. so that's the amazing part here is that two years ago that is where the economy traded. there is a huge gulf between where we can hang our hat on valiation va valuations. >> we will bring up the cash situation. i remember in the interview with you last time flannery talked to us he called the cash flow situation horrible. what does this do to improve it or is it hard to find a clear picture? >> health care i think is a cleaner business when it comes to that. i think in g.e.'s own materials it says it is basically all free cash flow. that is the good stuff. i think the question of power business and exactly how much cash you can generate and run it in a way that does maximize cash i think that will be a

persistent question. >> the balance sheet is a key focus for so many investors. they are targeting to be less than 2 1/2 times by 2020. that is a reduction of more than one turn of leverage over the next year and a half or so and a reduction overall of 25 billion in net debt and pension liability. there is a lot going on and a lot for investors to sort through. >> deleveraging is becoming a bit of a theme here. granted in the wake of a big deal but now here, too. >> g.e. added a lot of debt for all the deals that they did even as recently as 2016 sand 2017. that is dangerous. >> big companies did in general. the markets were begging big companies to borrow cheaply and they have done so. >> and if you look back at the original deck when they came out and wanted the emto borrow an

additional $20 billion. >> g.e. overly relying on short it is a simpler business financially. you don't know how much the market will value it. >> much more g.e. talk all through the hour including with the ceo john flannery who will be here at post nine. looking at the broader markets looks like stocks are trying to rebound this morning as investors continue to gauge fears of a trade war. the president weighing in saying we are finishing our study on tariffs on cars from the eu and have taken advantage of the u.s. in the form of trade barriers. in the end it will all even out and won't take very long. good to see both of you. did anything change between yesterday's bizarre mixed

messages from mnuchin on trade that led the markets to rebound today? >> it was a message from the white house. taking a step back, we were a little surprised by the market reaction inso far as it was related to trade in that the white house had actually really clearly telegraphed investment restrictions on china. they announced it on march 22 and then on may 29 they actually specified a timeframe. in some ways the market should know that these were coming. june 30 was the deadline. i think the overall message here is that the trump administration is serious on trade and particularly on china. and president trump's u.s. trade representative has been very consistent on this. i think that the focus of this, the focus on china is not surprising. >> you are not of the school of thought that says there are

multiple caps and you might hear from him one day that is where the confusion is. >> i think it really is important to parse out these trade issues. there is china which i think there is a lot of uninimity in the white house and congress that china has been a bad actor. there is political will to see that rectified. and then there are other trade issues. i think the division that you are alluding to is on the other trade issues. it is certainly on the auto potential tariffs. on china there is a lot of agreement on china. they might sort of disagree about the tactics but in terms of actually holding china accountable for their trade practices there is a lot of political will in washington. >> what does an investor make of all of that? >> i think the market investors looked at the rhetoric yesterday and said trump and company blinked. they are paying attention to the stock market. they don't want to see necessarily a tail spin as a

result of their poli they are trying to considlarify there are just four different voices and it is hard to reconcile all four of them into one policy. i think the bottom line is china technology and intellectual property. unfortunately steel and autos are collateral damage hoping to protect intellectual property here at home. >> is what you are saying that you think this administration actually doesn't have a high tolerance for a lower stock market and that is why they sent him out just ahead of the closing bell to walk back some of the worst of the investment restrictions that have been outlined in the papers and that they are not going to go so far to let the market fall >> i think so. i think this administration is looking at the stock market as a barometer of their success. and while i do think that they

do want to push these trade policies, they don't want to also put the stock market at huge risk. that said, for everyone percentage point the u.s. markets are down china is down four or five percent because our exports to china are about one fourth our imports from china. so i think that they are feeling the effects more than we are. it is really just a game of chicken. it seemed to me yesterday that part of that is the administration. >> bloomberg has a nice piece about presidential xi and wheth it was an overreach and the debate within china about whether they have the fortitude to sustain a repeated attack on trade. >> it's interesting because reports from china indicate that they are trying to sort of down play their discussion to the

china 2025 priorities in the press in china. i think that this is just fundamentally we are trying to reset the trading relationship with china. and that is not going to be easy. it is going to entail some short-term pain. should the president be committed to that -- i think he is because if he weren't he would have taken that deal that was offered on the table in may. we can get china to buy more goods but in terms of from them making structural concessions that will be a much heavier lif. >> is the president's strategy working? >> i think it would be more effective if we had our allies with them and right now we don't because we are alienating them on aluminum and steel and other things. >> really quick, timeline on a face saving resolution >> my personal view is this gets worse before it gets better.

i think you will see investment restrictions on friday. i think you can see retaliation from china. will they come to the table? maybe ultimately. the president necessarily doesn't have a lot of incentive to make concessions before the mid term elections. >> thank you. when we come back watching shares of baker hughes as g.e. announces it will exitts stake in the company. we will talk to john flannery. he will sido wh he.t wnituser dow is up 43. ♪ lower carbs. ♪ lower calories. ♪ higher expectations. the light beer you've been waiting for has arrived. corona premier.

they will be taxed like never before. those were the president's words to harley davidson after reports they would move production overseas to avoid retaliatory from eu. >> the president laid in to harley davidson saying the tariffs were just an excuse and if the company actually did move production overseas that would be the beginning of the end for the brand. it was a far cry from the praise he lavished on the company at the white house last year for helping him win wisconsin during

the election for expanding manufacturing in the u.s. and for being a vocal proponent of tax reform. >> thank you, harley davidson for building things in america. i think you can expand on business doing very well. there is a lot of spirit in the country that you weren't having so much in the last number of months that you have right now. you see what is happening. >> reporter: the issue of harley has become a lightning rod on catol hill democrats using it to bash tax reform. chuck schumer tweeting this morning that giving corporations like harley a big tax give away would mean more jobs. and then you have other republicans who are saying this goes against their free trade mantra. you have ron johnson, nebraska senator ben sass slamming the tariffs and the harley move. then you have the top senate finance chair who said this on

capitol hill to msnbc moments ago. >> i don't think the tariffs are beneficial to anybody in any business in america. i'm very concerned about it. i'm a strong supporter of the president but i think he is wrong on that. >> reporter: there is a trade meeting among principles as the administration faces deadlines at the end of the week both for their own actions towards china as well as retaliation that looms from allies. >> thank you very much. getting breaking news from the supreme court. the court has ruled five to four backing the president's travel ban. the case, of course, was president versus hawaii. we are just getting through the decision right now upholding the travel ban announced by the white house some time ago. eamon javers, good morning to you. >> reporter: this is a big win

for the trump administration. the travel ban had been so contentious going back to rhetoric when he called for a ban on all muslims entering th united states of america. the question here was whether or not the current edition of the travel ban was in effect a muslim ban and therefore against the constitution of the united states. what the supreme court is saying here is that the current ban is fine. one of the reasons why the administration had argued it was fine was because they added a number of countries to the ban that were not muslim countries. north korea and venezuela had been included. supreme court is saying that that ban is fine. i want to read you from the opinion here which is written by the chief justice john roberts saying the government set forth sufficient justification to survive rational basis review. we express no view on the

soundness of the policy. we hold that plaintiffs have not demonstrated a likelihood of success on the merits of a constitutional claim. they are saying the judgment of the court of appeals is reversed and the case is remanded for further proceedings consistent with this opinion. this will be wind under the sails of the trump administration. this backs up his argument that in expanding the travel ban it made it clear the president has argued that this was not a muslim ban and therefore legal under u.s. law and under the constitution. the supreme court agreeing with him today. >> if you go back to the initial ban itself if i remember it was to be done over a period of time so they could undertake an investigation of better methods to make sure we were clearly vetting people coming into the country. it has been a long time since the original ban. any update on new policies that might replace the ban itself

>> reporter: they have issued a number of versions of this ban. they issued the initial one which had a time clock to it. there was a second version and then the third version back in september. the question is now that this is upheld what the administration is going to decide to do with it over a longer period of time. there may be nuance in this opinion. this is a 34-page opinion that i am just reading three paragraphs of. there may be nuance to effect how this plays outgoing forward. but right now the administration has said that they have the authority, the president has the authority to ban travelers on national security grounds. we'll see how all this plays out and over at the department of homeland security. >> the decision does look at some changes in policy. >> three muslim majority countries have been removed from

the list. it's roberts writing for the court joined by kennedy. kennedy and thomas with concurring opinions. >> i guess the upshot is they rejected the challenge that it was discriminatory against muslims. i would think this has pretty big implications for presidential authority. >> there were two arguments here that the state of hawaii was making. one is he didn't have the authority to do what he said he wanted to do. the other one was the travel ban violated the establishment clause of the constitution that prohibits establishment of any official religion and bars the government from issuing laws that prefer one religion over another. those arguments seem to have not held today. ultimately we will see where all of this goes. this is a big political win for

the president at a time when he is very focussed on immigration as an issue not just in terms of right now but looking ahead to the november mid term elections. the president and his team will see this as a big victory. >> some of the language pretty interesting. for example, quoting plaintiffs challenge based on perception of effectiveness and wisdom. e court cannot substitute its own assessment for the executives predictive judgment on such manners. they are giving the white house quite a bit of leeway in deciding what is national security. >> when this was argued in february one of the arguments that came up was who decides when there is a national security emergency in this country. is it the president of the united states? is that a job for congress or should that play out in the courts was raised. and the court has been suspicious of that argument for a long time because the courts and congress don't move in a time horizon that is fast enough

to deal with the emergency holding in real time. ultimately they are giving a lot of deference to presidential authority. >> big news. appreciate that very much. eamon javers as the supr court upholdthe trump travel ban. watching the markets. averages are higher. dow is up 70 points following the selloff as the dow closed below the 200 day moving average for the first time since brexit. david, good morning to you. good to see you. >> thank you. >> so one of the questions from yesterday was if some of this trade stuff should not have come as a surprise was this really about month end, quarter end rebalancing. how much do you buy that theory? >> i think that the market was operating under i think a false presumption that we were supposed to take the president seriously but not literally and now we know that we have to take

him literally. i think that it's not just the stepped up rhetoric but the fact that the trade actions have taken place in steel and aluminum and i think what nobody realizes is the extent to which the eu and china and canada were going to come back with thebac lash of retaliatory action against the u.s. now we are in a situation where it is the trade war. nobody knows when it is going to end or what the factors that precipitate the end are going to be. >> your expectation is for now given that it is hard to get edge here is that we grind through this for the next six months or the next year? where are you here >> i don't think anybody hch-how would anybody really know? maybe mr. market will be the final arbiter in terms of who is going to blink because the chinese stock market has such little correlation with the

chinese economy and because the u.s. stock market has such a larger correlation with the u.s. economy and we know what the stock market means to the president. maybe he finds a way to save face and it is up to america to finally terminate what seems to be a bit of a spiral going on here. that is just an assumption on my part. i don't think anybody should know. we have to know one thing. if i told you last december that earnings were going to be up 25% year over year and that the market would have peaked on january 26 and never made a new high in the overall market since that time you wouldn't have believed it. so the big factor this year, i think the big market theme this year has been multiple contraption of roughly 2.5 points. i think what has happened here is that general uncertainty, whether or not you are playing to the base, whether or not you believe that the tariff action is justified or not, we are in a

heightened state of uncertainty which is correlateth a lower fee multiple and it is five times more powerful than earnings growth. i think that is a big part of this is the general heightened uncertainty is leading to investors paying less for the earning stream that has been coming in so solidly this year. >> the counter argument to what you are making is that we are heading into q 2 and set to have another 20% plus earnings growth quarter and thought consumer investor and business confidence remains strong and that the tariffs that have been announced so far and the retaliatory tariffs represent a pretty small chunk of u.s. sales and profits overseas and a small chunk of our economy and therefore are all just a big negotiating strategy that is the bull argument. >> i think if i was on the show 11 years ago we would be talking about subprime mortgages and i would be told that the consensus

view is that it would stay contained. it is just a small part of the overall u.s. mortgage market. we know how that played out. you kind of look at the situation in a static sense. you have to look at it in a dynamic sense. what are the domino impacts. when we have a shock it's the second and third round effects that have a bigger impact. it's not just about the trade deficit or this constant rhetoric about what little export orientation with the rest of the world. that is such narrow-based thinking. the bottom line is that 4$450 billion of u.s. profits -- we are not talking about gdp. we are talking about corporate earnings and stock market. we are not talking about gdp. the reality is american companies derive $450 billion or 20% of the profit from the rest of the world.

that isn't exactly chump change. when you look at global supply networks american companies have $5.3 trillion of fixed direct investment assets abroad and the other companies have $3.7 trillion of direct investment in the united states. that's a $9 trillion cross border supply chain that the u.s. has with the rest of the world. you are talking about disrupting that and the markets operate at the margin. you can't possibly paint a positive picture for corporate profits out of that. and the talk about consumer confidence and business confidence is forecasting. the question is what will the numbers look like by the end of the year in this time in 2019. >> we need a new index. maybe that will be coming at the end of the month. talk to you soon. sticking with the markets, michael santoli taking a look at financials on pace for the worst

day since may. can't catch a break, mike. >> really a conspicuous under performer for a while. you look at big names down three to five percent. the xlf is down year to date 4.5%, down 11 days in a row coming into today. this would make 12. only down 4.5% but a consistent amount of pressure. the yield curve flattening does not help. european financials down a lot more than u.s. financials. obviously, that sort of bumps up against larger components. burkesure hathaway is tied with jp morgan as largest holding in the financial specter at 11%. it has been a significant under performer. you see the large banks and regional banks that held up well. banks are okay.

huge railroad is exposed to trade. consumer staple stocks have been weak, insurance is not really shining. basically burkeshire may be weighing down financials a little more than the core banking business but not a leadership group at all for this market. >> thank you for that. we are definitely watching the xlf today. let's get over to sue herera for a news update. >> it is a busy news day today. vice president pence arriving in brazil for his third visit to latin america. the focus of this trip, the deteriorating humanitarian situation in venezuela. brazil is reeling from a massive corruption scandal and struggling to recover from a deep recession. defense secretary mattis arriving in beijing. north korea de-nuclearization expected to be high on the

agenda. mattis will visit south korea as well as japan. firefighters in northern california spending the night creating containment lines. more than 10,000 acres have been burned destroying 22 buildings and some 3,000 people have been evacuated. that fire is only about five percent contained. and the kilauea volcano in hawaii remains active. lava continues to flow in the ocean. civil defense says 657 homes have been destroyed. amazing footage. that is the news update this hour. thank you, sue. when we come back, g.e. ceo john flannery is with us. st menl be talking to him in ju aomt.

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welcome back to "squawk on the street." we are live here at post nine at the new york stock exchange. the story of the morning h been g.e. announcing it is going to separate its health care unit and sell down roughly 62% ownership in baker hughes. today marking the first day that g.e. has not been a part of the dow since 1907. that's a long time, longer than i have been alive. joining us on set is ceo of g.e., john flannery. nice to have you here. big day for you. you and i sat down i think october of last year. this process has been a long time coming. why with the day here and this announcement was it health care that you have decided should be separated from this business

>> it is not just an announcement about health care. that is part of the tactical but it is a broader strategic orientation. i came into the job with a lot of thoughts about the company, how we run it and centralize or decentralize authority and allocate capital. i came into the job with some of these thoughts that the structure of the company, the portfolio could be changed and improved. i spent last year going in a very methodical way to make sure we understood the broad picture. it is not just a health care story but broader repositioning of the core. it is a strong business going forward. we thought as we looked at the process which businesses would thrive inside the company or outside the company. we came to the conclusion from health care, for transportation there were unique characteristics of those businesses, investor appetite,

growth opportunities, they were better off outside of the company. the core orientation was businesses flourish, how do we create shareholder value >> give me a little more sense as to when you look in specific in health care why you believe it will flourish outside of g.e. as opposed to inside. >> it is putting up strong numbers. >> it is growing nicely. there is just a lot of change in that industry. if you look at in our imaging business, artificial intelligence, machine learning rapidly transforming that business. if you look at our bio processing business we see a chance to keep growing that and consolidate that business. there is a lot of things in cell therapy, just a constant stream of investment ideas that i thought we could pursue better in that fashion. and we have a great strategy around precision health. i am looking forward to giving my health care shares.

>> 20% split or spun. when can we expect to see this >> 12 to 18 months. we will go through all the alternatives. that is part of a broader package. getting the balance sheet of the company to the right place. if you take these things together, transferring debt to health care, disposition. >> 18 billion goes to health care and pension. >> strong balance sheet is how we grow the company. >> tell me what it looks like from your perspective? what represent as strong balance sheet? >> i'd say at each level health care will be well capitalized, baker is well capitalized and the actions will drop our leverage at the core g.e. company. they are going to have the fire power and investment power they need to keep growing that business. that was really at the end of

the day the objective, position them to grow and focus on getting the shareholder value out of that. >> and decrease the reliance on things like cp. >> much lower debt, much higher cash balance, less short term funding. i like the portfolio moves. they allow us to do deleveraging. when you add on the company in a positive way you get a -- >> and i know you are a believer. there were a number of believers who then were scared a great deal by the liabilities who recognized them in particular but others, as well. the statutory capital contribution, 2 billion annua y annually. it adds up to a huge number. they come back and say how can we be assured that flannery

knows everything that is buried there? can you give a commitment? >> we have covered the company from corner to corner in terms of analyzing all aspects of the company, insurance, capital, power business. i'm very comfortable we have a handle on what is going on inside the company. i'm very comfortable when we had seen issues along the way we have surfaced them and dealt with them. i think today is another example of that. the track record of dealing with issues is there. >> how will you hammer down at some stuff at g.e. capital >> we want to keep growing this down. if you think of g.e. capital think of three basic components. one is industry and financial assets. then you are left with insurance. the insurance business we are attacking every way possible to get the liability down. there is operational things and negotiationwis with primary

insurers. we are highly motivated to do that. if there is something sensible there we would be motivated to pursue that. >> somebody really wants to take these policies on? >> there is a market for everything. the other thing i would say important from today is we went through a collection of sources that we have. 25 billion is earmarked for deleveraging the company. the rest is there to continue to de-risk. i think we have the fire power to work the insurance issue down. and then with respect to gcass that is a real premium asset. there is a lot of value in that. we get calls from that thing every day. i think we can clear up the picture in ge capital. we have the resources to do that. it is not going to be a drag on the rest of the company. >> when i think about what is left of ge there had been a lot of speculation, perhaps thought

that aviation given what a jewel it is and how much it might be valued outside the company might be a part of this. is this it is this the ge that we will be talking about two years from now? >> absolutely. as we looked at that part of the analysis was inside/outside. part of it is these businessvise a lot of commonality that other businesses have like heavy sharing of technology. jet engine comes from gas turbine, ceramics and materials we use across renewables. there is good technology sharing, very common business model, long term service annuity and deeply global infrastructure businesses. i like that combination of businesses especially with the right capital structure so they can continue to invest. i say as an investor you get that business directly well capitalized and other pieces directly with great prospects and i'm excited to get to it. >> are we going to see job

losses as a result of these announcements? >> so there is a philosophy change that i think is important is reducing the size of corporate center and empowering the businesses to be the center of gravity. that is a major change in th way we have run the company. i'm a deep believer in the power of unleashing the businesses and raising their accountability. >> so they will determine layoffs. >> we are transferring things back to the business and at the end of the day the center of the company will be the fraction of what it is now. some will be in other pieces. >> is that part of the 5$500 million in additional cost savings? >> i expect that number to continue to firm up. >> you don't need that real estate in boston >> no changes to the real estate in boston. that has always been a mixed use of headquarters and businesses. we have no change on the real

estate. the philosophy of decentralizing the company, this is a major thought change. i'm very bullish on it. it doesn't get so much air time as the portfolio things. it's a very central change in the company and it is really about emancipating, faster speed. >> this is g.e. >> i think companies evolve, markets evolve. i have seen the company from so many perspectives the business development strategy, running businesses, being in the perimeter. this is a lot of experience i have had for ten years and not a reaction to we had issues in the last 12 months. >> for those who always thought of aviation as the crown jewel and were hoping that would be the one to be spun, were there arguments for that >> at the end of the day it is a great business. i come back to the commonality we see in the portfolio that we

are keeping going forward. we looked. we are open to everything. i have no preconceptions, no ties to the past. i have examined every possible combination you can imagine with this and the board came to the conclusion that this is clearly the best path for the company. it is still a great business. we are quite confident renewables is a high growth business. we are making a lot of business. it's going through a turn around right now. it's choppy right now but the business in the industry is not going away. the power generation from gas production is going to be higher 20 or 30 years from now. we have the largest business there. >> how long does it take to turn around power i'm looking at remarks when you were speaking specifically of

it. this is not a six month -- >> it is a long cycle business in a very challenging short term new unit business. i think it is choppy for a year or two. but i have a lot of confidence in the team. they have an extremely specific plan about right sizing the cost structure and the manufacturing foot print. the core deconomics is a huge install base. so we are going to harvest the value of the service stream and get the new unit volume adjusted for our manufacturing foot print. and the big part of our issue was execution. we had project overruns and things that we can control. so it's a self-help story. >> you alluded to that going on. is that taking place >> it has. >> you have the personnel in place that you want to run the businesses. >> absolutely. we made heavy changes at the company level, the power level. you get a lot of benefit from

fresh eyes. >> some of the investment world looks at power and aviation as separate businesses. when you deal with the problems could you anticipate looking at a potential separation of those businesses >> that is our core company going forward. as i said before, we have the intent and the resources to manage g.e. capital so that our core industrial businesses can grow and have investment capital. that is a big part of our strategy is to get financial standing in the right place. >> you mentioned capital. i didn't ask you about the $3 billion contribution. why is that needed >> that is just again recapitalizing the balance sheet. we have issues mentioned in the call in terms of asset sales. but it is fundamentally allowing us to capitalize the company at the right level going forward. there are some regulatory

requirements. but the core issue i think and message is we want to materially reduce that business. we want to work our way down through the insurance business and we have a very valuable asset. so that is our focus. >> and pension liabilities are circled efficiently. you don't feel there is anything there? >> we looked at that holistically. i treat that the same as any other liability. it is something we have to satisfy. we are moving pension with the health care business. i think you will see the unfunded pension liability coming down pretty dramatically. >> i wanted to ask you about trade. how much is this current spat with our trading partners and china, how much are you feeling it >> in the short term microsense not much. i think financially as we look at proposals and what they might do it's not a huge financial impact. that said, we are a global

company set up for global trade. china is an important market for us in both directions. we are concerned about where it could go. we are watching that carefully. our voice is loud and clear in governments around the world about our position on that. and my expectation is that over time people do things in their own long term self interest and things will settle down. there is a lot of noise. >> is there any evidence at g.e. of deferred investment decisions, friction on supply chains >> i think certainly in the short run we haven't seen any impact. >> you are miles away from shifting production because of all of this? >> yes. i think it's a natural process to look at your supply chains and start to imagine what you might do but we are not in that mode at all. >> this can't be good, though.

>> listen, it depends where it goes. as i said before -- >> what do you expect? >> i expect it to be noisy and that makes sense for everybody. howlong, you know, we'll have to see. but i think if you look back over time, these things flare up they go back and forth and eventually people do what's in their broad self interest. and i think trade, open trade is pretty clear that's been -- >> do support what the president is doing here, acting tough on some of our trading partners to lower their tariffs? >> these are all negotiations. i think any of these topics are ripe for discussion of what's fair and -- so why not have that discussion where it settles out, we'll see. >> back to the announcements of today. >> yeah. >> baker hughes, 2 1/2 to three years sounds like an awfully long time to sell down. >> yeah. >> it's a large stake.

you can get more lick idity than that can't you do it more quickly >> we're talking about separating the company over two to three years we have a range of alternatives. >> i'm sorry, baker hughes, explain to me then it's going to be separate? you own, what, 62%. >> 62.5% of a public company we have not detailed how we will transfer out of that ownership we have a range of options we could spin. we could split there's a range of options important on baker hughes, and health care, too, these are good, good businesses. so, we like them we just think they're in a better position outside of the company. so the core strategy made sense. we're going through, right now, a lot of value creation and transfer of technology, transfer of best practices, cost synergies. we want to let that play out so the maximum values created at baker hughes from this combination and then it will be ready to be a strong, stand-alone company and we'll

have our opgs to put it in that position and we'll share those with you as we go. >> john, it's funny, just in texts and e-mails from investors and the like, i think the one area that people don't have a great deal of confidence is the balance sheet. >> yeah. >> there's still concern that either you've missed something or why the 3 billion to ge capital? why not more, why not less how do you go about winning back the confidence of those who were just -- look at the balance sheet. not necessarily how you run the businesses but the balance sheet. >> those are two central things. i focus a ton of my time on the operations of the company. that's ultimately our mission, is to make the operations of the company better, more cash, better return, better cap allocation, less cost, less bureaucracy, all of that stuff that's key i spent an equal amount of time look i looking at the balance sheet i have total respect for what it means to have a strong balance sheet or what it means to be encumbered by a weak one

when people have time to process what we talked about today they'll see a dramatic change in the leverage capability of the company down to a much lower level. >> less than 2.5 times by 2020,n achieve that >> absolutely. jamie laid out today the exact path there, transferring to health care. there's no doubt about that. and then what's important today for the people thinking about the balance sheet, and we've been thinking about it, is that we laid out a package of $60 billion of potential value sources. 25 of that goes to the deleveraging of the company. that leaves an immense amount of surplus, if you will, to deal with leverage and risk going forward or -- so i looked carefully at the balance sheet it's clear we know how to get to the end point and how we're going to do it and we have surplus. so, you know, when we spend time with people, they'll see that. >> john, i've said this on air a couple of times. i've spent a lot of time at 30 rock, is the home of nbc, used to be of ge company.

>> yeah. >> many employees there still own stock. >> yeah. >> it's been painful these are not people that are necessarily highly compensated what do you say to those people? >> i share the pain, if you will my life savings is in the stock. i have the same sort of connection to the issue. the second thing i would say is we've gone through a tough patch. we know where we are we'll realistic about that we know exactly where we want to go with the portfolio, balance sheet, with how we run the company and we know exactly how to get there and stay tuned for the ride here. our task right now is execution, but it's clear where we want to go, it's clear how we're going to do it and i am really confident that there's a real opportunity for value creation from where we are today. i understand the journey to where we are today i've got to look forward and i'm really optimistic about that and i'm invested in that, in every sense of that word so i would say hang in there.

>> good place to end thank you very much foining us. >> carl, thanks. david, thank you. >> john flannery, ceo of ge. dow up 25 points on this tuesday morning. "squawk alley" will start after the break. welcome to holiday inn! thank you! ♪ ♪ wait, i have something for you! every stay is a special stay at holiday inn. save up to 15% when you book early at hollidayinn.com

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good tuesday morning welcome to "squawk anilla witane brennan and jon fortt. the president tweeting about harley, the travel ban upheld. big story now is ge. he talked to john flannery, ceo on the heels of that company's plan to spin off the health care business and unload its stake in baker hughes take a listen. >> each level, if you look at these companies going forward, health care will be well capitalized, baker is well capitalized and these actions, taken together, will drop our leverage at the core ge company below 2.5 times. so they'll have the fire power and investment power they need

to keep growing that business. at the end of the day that was really the objective. >> interesting discussion with flannery everything under the sun, including the makeup of the portfolio. got to trade issues and whether or not they're evaluating portfolio shifts in production because of these threats not yet. interesting discussion. >> absolutely. also thought it was interesting when david faber said are you done is this it is this sort of the last of the big news and he said yes. i thought that was very telling from an investor standpoint. we have gotten so much news from them over the last couple of months also the decision to have aviation and power together. technology sharing, ceramics, materials. deeply global infrastructures and it made sense to keep those together and spin off health care so more value could be realizesed in that specific company. >> one wonders, really, when a company of this size i