Power lunch starts right now and welcome to power lunch, im Michelle Carusocabrera despite ges drag, although were watching to see if it goes positive, major averages are hitting record highs again dow, s p 500 on track for their sixth straight week of gains check out some of the movers the Home Builders are higher, the etf that tracks them, itb, trading at a more than tenyear high on pace for its eighth consecutive weekly gain. P mp p g down 8 . Paypal rallying on its earnings beat brian . Thank you very much big day for the markets, big day for the markets really they say everything is bigger in texas including todays power lunch because guess what, were back in houston and with the billion dollar buyer, himself, hanging out with his new toeam, the houston rockets. 2 billion buyer of the rockets. Going to join us for the next couple hours we have great guests we got the mayor on, might get a visit from cp iii and james harden, and the man many consider to be the best Hedge Fund Trader of all time. A big huge hour from texas, checking in on the recovery, the rockets, hanging with tillman. Going to be a lot of fun. Tyler, ill hand it back to you and see you in a few minutes. Lets start with shares of General Electric, shares rebounding from the worst level of the session, basically flat now, who would have thunk that still down 25 so far this year. A very ungelike performance. The new Ceo John Flannery speaking to cnbc today using words like horrible and unacceptable Morgan Brennan joining us with more morgan strong words from what was a really strongly disappointing quarter and this is a quarter that a number of analysts are calling a, quote, kitchen sink quarter since its John Flannerys first as ceo of ge. Its all about restructuring were still very light on details and makes the november 13th Investor Update all the more crucial meantime, to sum this up, i would say there are three big factors in play. Cash flow, dividend, and asset sales. Operating cash flow, by far the it biggest disappointment right now. Ge had previously forecast 12 billion to 14 billion for the year today, it cut that in half the cash flow for 2017 is horrible 7 billion number, its way off of our expectations, anyones expectati expectations that is not a thats not the new normal 7 billion is not the new normal theres a number of steps were going to take to improve that significantly in 2018 and beyond now, as we found out on the call, this is what spurred outgoing cfo jeff bornsteins unexpected departure management did say there were big restructuring charges that wont carry over until next year and flanner is already taking steps to cut costs of course, it call calls into question the future of the dividend which, by the way, with a stock down 27 this year, now yields over 4 on that flannery did not make any promises it was safe even though a final decision has apparently not yet been made. I look at all the Capital Allocation things quite rationally if it makes sense to pay a dividend, pay a dividend if it makes sense to buy stock back, buy a stock back mikes sense to acquire a company or sell a company. I dont view it very emotionally really all around whats the best use for the companys resources, management capital, how does that accrue to the benefit of the owners which brings us to the next big topic. More divestitures. Vowing to shed another 20 billion in assets over the next few years. We wont know what or how thats going to happen until next month. Analysts are already pointing to segments like health care, lighting and transportation as possible candidates and of course its biggest segment, power is really under the microscope right now, too, because weve been seeing that soften so even more changes from a company thats already been through so many. Okay exactly. Thanks, morgan. All right. After ges biggest earnings miss in at least 17 years according to the spoke investment group, whats the outlook for the stock now . Lets bring in barbara, shes analyst at morningstar good to have you here. Hi, thanks for having me. I think a key question about the future of the stock and its price has to do with whether or not the dif devidend is going to hold do you see any way possible they keep the dividend in tact . After this surprisingly ugly quarter i think the risk of a dividend cut has increased you know, the reason for that is, you know, when you look at what management had laid out originally, we thought even if we came in at the low end of the previous expectations or missed it a little bit, they had options in place to sort of bridge that gap for the next couple years until underlying earnings improved but, i mean, it was a big miss this quarter you know, industrial Free Cash Flow is going to be very weak this year. And not only that, but the ge capital dividends to the parent now seem to be off the table so if it that is, indeed, the case, you know, we think that ge would probably do itself a favor for reviewing that dividend policy and potentially making a dividend cut. Run viewers through the numbers, they need 8 billion to meet the commitment. Cash flows running at only now 7 billion they could borrow. Then, by the way, theres going to be cap x as well, right theres a real squeeze about the money, the capital that would be available to pay investors. Absolutely and so, you know, if you think about it with the new ceo putting his strategy in place, we think why not give himself a little bit of breathing room, you know, make the cut now. You know, put that out there and then give yourself a little bit more breathing room Going Forward when youre trying to reposition the company for growth you know, barbara, Morgan Brennan just outlined some possible asset sales would that be part of your prescription for the new ceo and if so, what would you get rid of she mentioned one of the things, had been one of the Profit Centers and that was a medical devices. Absolutely. In fact, i think health care is probably not one that i would point to and the reason for that is that is a good cash flow business and i think a lot of the changes that John Flannery had put into place improved the cash flow in that business so if you think about ge having an overall weak cash position, i wouldnt like to see health care divested. You know, they sort of need that to boost those cash flows so indead, you kni instead i would look at maybe transportation, maybe thats a business that doesnt fit well in the portfolio, doesnt contribute as much as it maybe takes from the portfolio. Whats in transportation . Is that locomotives . Thats locomotives jet engines, what. No, thats the locomotives business. Locomotives. Thats right. They have a very small miningfocused business housed in that segment. What should ge look like do you think . In other words, what do they keep, what do they sell up and what multiple does that imply for the stock . We definitely look at health care and aviation as the two gems of that ortfolio, you know, those two businesses we expect to continue to be strong Going Forward. You know, we we think it will probably hang on to oil and gas and power, you know what is the mission of ge, what do health what do these three businesses have in common to warrant being under the same roof you know, a lot of the technologies that come from these businesses do feed into the rest of the segment so if you think 06 healof health carey have imaging technologies, for example, that help oil and gas imaging flow, aviation and power often share technologiieies amos each other i think ge is one of the few diversified industrial businesses that can claim the type of economy in scope threatening to go positive, only lower by 2 cents after selling off so dramatically. Such an ugly quarter. I think there are two things, one, i think the market already priced a lot of these concerns in and two, flannery is taking a longterm perspective and maybe investors are reacting appropriately. Barbara from morningstar. Thanks for joining us. Thank you very much. Were at session highs for all three major averages. In the meantime Congress Taking a major step toward ftax reform what happens next . Ylan mui is live in washington. Reporter republicans plan to announce the date for rolling out their tax bill once this budget is, as they say, signed, sealed and delivered and that budget could be wrapped up as soon as next week. Republicans significantly sped up the timetable last night when the Senate Passed its version 5149. Now usually the next step would be for the house and senate to get together and to negotiate a time version but now republicans are saying that they can skip all of that and save themselves weeks of debate so what they would do instead is the two chambers, they ironed out their differences last night and one thing that they did was increased defense spending later on in a way that will make the house happy and in return Congressional Republicans drop their call from mandatory spending cuts and both the house and the senate have now agreed to a tax cut of 1. 5 trillion. So this means that the house can vote next week to just adopt the senates budget and then they will be done they will have the vehicle for tax reform, and they can move on to actually writing the bill now, of course, some details are already leaking out. Its unlikely, for example, that the deduction for state and local taxes will be entirely eliminated, and House Speaker paul ryan confirmed something weve been reporting for a while, h e told cbs this mornin there will be a fourth rate for healthy households, he said this is something President Trump has been personally pushing for. Ylan, thankss very much. We appreciate it now that it passed the senate, will it reignite the socalled trump trade . Margaret is a portfolio management, part of leg mason. Fund is up a very nice 20 this year kochb gara congratulations to you on that thats a great performance four stars by morningstar. The market seemed to react positively to this news last night that the budget agreement had been agreed to by the slimmest of margins. Well, yes, certainly the market is up i think its more business fundamentals than it is news coming out of washington look at what weve seen this week in terms of results and in terms of ceo commentary. Honeywell, really good results across the board and theyre very optimistic about improvements that theyre seeing in the economy you heard good things from American Express earlier this week you see emerging markets are improving. Now tax reform clearly do the politicians not matter woell, weve seen lots of bak and fort h in terms of things on the docket, whether Infrastructure Spending or Affordable Care reform or tax reform i think the market is taking more of a wait and see i dont necessarily see our companies that are all u. S. Based taxpayers ripping today on this news i think the point is that if we do get tax reform, its clearly positive to earnings and positive to gdp in 2019. You dont think thats priced in right now do as we get more progress toward tax cuts, whatever you want to call them, the market rallies more or is it there already . I think the market could rally more. How much more. I think, well, look, if you assume major tax reform, Major Corporate tax reform in 2019, it could add five points or so to corporate earnings growth. Thats a lot. Why does the effect pass to 2019, not 2018 if they pass it this year or pass it next year, they would probably makeit retroactive they make it retroactive, it could be sooner. Otherwise it takes a while for it to work its way into the economy. The more powerful effect might come in 2019. Yes, and corporations to start increasing cap x to show better results and for the market so with the fundamentals you see, you seem to think the fundamentals are good, we didnt get to Monetary Policy but i guess you baked that into your formula. Where should i put my money now . Well, look, i mean, with the market up as much as it is its definitely harder to find ideas particularly in tech things that have really moved in excess a lot of am don, microsoft. We love amazon. The sector weve been spending more time on is retail, a sector that underperformed the market in each of the last three years. We believe in amazon because of amazon i think the market is so myopically you think of amazon as retail or tech . I think it is both, really has two businesses, right . Sure. Within retail, i think the market is really discounting that amazons success is at the expense so, yeah, tell us. I think costco is really interesting because the thing about costco that is so neat and really protects their business is because they have a membership fee income. They operate their stores at breakeven who can compete with breakeevn that creates a really nice mote around their business, if you look five years out, i think costco as a Business Model you own it now, thinking about it i own it now. I wanted to ask you about celgene on the failure of the Crohns Disease drug already concerns about slowing growth in some of their other drugs like otezla. Still hold onto this any doubts in celgene sfaand longterm prospects . I think the good knnews about celgene, they have a diverse pipeline, dont need every product in the pipeline to work in order for them to fill the hole when it goes after patent come back any time. Weekly rig counts. I wait for this every week the rig counts are just out. Seema mody is at the commodity desk, counting the rigs. So excited. U. S. Oil drilling rig count down for the third week in a row off by seven at 736 so the supply demand equation certainly still part of the discussion when looking at the price of oil, which is higher by 14 cents when looking at wti crude, brent crude, the international gauge for oil higher by around a half a percent at 57 a barrel. Michelle, back to you. All right, thank you very much, seema. Coming up, medical devices, are they susceptible to hackers . Were going to talk to the head of a Cyber Security team trying to protect pacemakers. Were going to go back out to brian in houston. Hey, brian. Reporter hey, michelle, thank you very much. Well, the horn literally sounding on power lunch. See the rockets practicing behind us here thats okay because we happen to be with the owner. This guy coming up after the break, were going to have an indepth discussion about the business of sports why buy the team, harvey relief. Theres so much to do about the consumer, really were calling you the consumer king now. You dont know that because we just made it up. Were going to have a great conversation with tillman right after the break. Power lunch rolls own an the rockets keep practicing. Welcome back to power lunch, live in houston at the Toyota Center with the rockets practicing behind us the 20 rockets. Were joined by our good friend, the billion dollar buyer, new season coming out soon, Tilman Fertitta first off, welcome, thanks for having us in your new home. Its great. Always to have the power lunch team in houston, texas, with e feel special. Thanks. I didnt tell you to say that. I appreciate that. I just realized something, too, not only are you a billionaire, now the owner of the rockets, youre also the only undefeated nba owner ever. Youre right. Sell it now and no, im kidding. Why lets talk about this, seriously, though, tilman. You got a lot on your plate, 600 some restaurants, Golden Nugget casinos, hotels all over the country. Why buy the rockets . Everybody wants to be a part of their hometown, and i started following the rockets 35 years ago, and have been a part of them in different ways for 35 years. But to final will i haly to have opportunity to own a team in your hometown, its the most special feeling in the world theres a lot of openowners t et want to buy different teams but have to in different cities. To buy a team where you grew up, when i followed the rockets when i was in Junior High School with alvin hayes. Yes. Thats how far it goes back this is a great feeling. I love it. And looking forward to this great season. Okay. Im going to ask were at the beginning of the show, if youre going to punch me, do it now im going to say something, you might want to hit me you had the chance to buy this team, what, 25 years ago 20 when was that . 24 years ago. For how much . 80 million 80 million 20 years pa s ag. So youre a value guy, youre successful at almost everything you do, why is 22 a fair price for the rockets . A lot happened in the last 24 years. Maybe if i hadnt missed out 20 years ago, i wouldnt have created the company i did, i would have been a sports junkie. A lot happened with television, Everything Else over the last 24 years. Never been a sports franchise sell for less. People can say, gosh, 2. 2 billion, i still think in the next seven, eight years, this franchise would sell for 3 billion. Now, i will never sell this team okay i can promise you that but you will start seeing some of these major market teams trade at ridiculous prices. You think this is just the beginning. I think its just the beginning. How much did Steve Ballmer change the market, though, when we paid 2 bills for the clippers i think it was headed that way. Did he maybe move it up a couple years . Yes. I probably moved it up aup c co more years this is where its going theres a lot of money out there. People want to own these sports team its moving some the equities i had in my other companies into this this is a generational asset here that is never going down. 20 so pretty good start this is incredible i was joking yesterday that the nba is the new nfl and the nfliv ratings. Nfl is down. Doubleheader opener was up 53 in ratings, probably unsustainable amount, but why do you attribute this big jump, to what you attribute this big jump in basketball laratings . Its pretty incredible it is incredible. Were really becoming a world sport not just like soccer the nfl is having some issues with the cte and with their other issues