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tv   Squawk on the Street  CNBC  January 25, 2022 9:00am-11:00am EST

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good tuesday morning, welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber the selling does look to resume. two-day fed meeting begins, earnings from verizon, ge, j&j, vix still elevated our road map begins with the ongoing market volatility. after staging their biggest comebacks in years, futures point to more declines at the open. >> plus, we are focusing on the funda fundamentals, more than 100 companies in the s&p 500 will report this week with their results. in fact, j&j, am ex, 3m, and
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we'll have the ceos of g serks and rivian join us this hour to discuss their company's quarterly results. >> got a bunch of upgrades this morning. you were talking about how the analysts are a little jum py on these buy ratings. >> didn't want that. the analysts throwing in the towel as opposed to saying it's time to buy because when they have their list ready of companies that sell at 30, 40, 50 times sales, that's just once again an invitation to take your money and put it in the fireplace. we don't want that what we really want are rock solid companies that make things, make money and typically dividends or buybacks. david, the stuff that's going down today remains technology stocks that we can't get a handle on, but today no one's seems to like the companies that report i disagree with that i think the companies that report are really showing the
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truth but that there are supply chain issues and get your arms around it. if everybody has supply chain issues, you know what, david, there's supply chain issues. >> ge certainly has some supply chain issues they noted. we're going to talk to larry culp a half hour or so from now. we'll get a lot more from that company, but organic revenue was down 2%. and the fourth quarter as well, power aviation revenue below estimates at least from some analysts, margin shortfalls and health care and renuewables and they're citing inflation in their own guidance for the coming year. >> what i like about ge, the same thing i like about j&j, the companies that you see are not the companies you're going to get. we're going to speak later from raytheon when greg split up united technologies, created $40 billion, so i mean, yeah, you may say, well, this quarter of ge is not that good, but think about next year, maybe it's going to be raytheon. maybe it's going to be what greg
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hayes did and that you had to buy it when it looked ugliest, and that's today it looks ugly. >> raytheon divides below, amex guides blow. there's a coo-- >> reported a monster quarter, 60% of those new parts from millennials. they're doing -- they're growing at say 20% why come out and say, look, this could continue forever j&j, i happen to like j&j very much they have an orthopedic division, which frankly you don't go to the hospital if you have elective. they have a consumer business that looked to be not as good as proctor. pharma's fabulous, but people have decided that j&j's -- j&j's probably up at the end of the day. good company. >> that guidance, the calculus,
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is that why ibm refused to discuss -- >> they said it was the best growth quarter since 2011, and people didn't like the cash flow, the cash flow projectionings a lot of people felt the margins weren't that good. david, i've got to tell you, arvin krishnam has a better company than he did a year ago. >> that doesn't mean it's not without its significant challenges, though, does it? >> it does have significant challenges that's why it's at 130 and not 180. i guess what i'm saying, it's not like you're getting these companies at the high. >> no. >> you're getting them really off price. >> what's the plan at ibm? we see activism so often and it's always struck me that ibm never attracted an activist. the reason why is not because there wasn't potentially frustration, but because nobody had a plan for how to actually figure out a way to create
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value, at least from an activist perspective. >> you read in the paper that watson has been closed, actually, now just the health care part. >> but they made a big deal of watson and health care for a long time. >> that's the problem. >> a long time i remember getting presentations, right >> yeah. and i remember asked your place, and wow, this is exciting and then you look into the -- you can't compile data here's a good example. ibm target lower by ubs, 124 to 118. i don't think it's going to 118. jim suba whose work i like very much at citi, said it's too early to predict ibm is turning the corner i get that ibm has broken at lot of hearts at the same time, they did buy red hat. red hat's going very well, and carl, when you look at ibm, it's to me another one of those companies where you just say you get a good dividend so why
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abandon it people hadn't listened to the call again, are you coming in at 200? no, you're coming in at 130. so many of the companies i like, i'm still working on 3m. but 3m was at 200, now it's at 172 this morning, with a 3.5% yield. you're not buying it at the high now, when you look at a lot of these software companies that are down other than snowflake, which is a company i like very much, you're buying a lot of these companies. i don't know, were they ever worth what they were selling for? i think 3m, micke roman, maybe it's a term. >> snowflake looped today ups to buy 370. we realize the stock trading at 25 times ev isn't cheap, however, quality unanimous in our experience rarely let you in at a discount. >> snowflake is the only one i really like, down from 320 to 277, it's going to make money next year. you're really make ago bet --
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and this is something that's completely lost. there's a man by the name of frank slootman, and frank is basically belichick, but the fact is that belichick long-term has been good, and sloot is a tough belichick. >> they've got some things in common in the way they communicate. >> do they both wear hoodies and live in caves during the off-season >> if you have a discussion with slootman, i remember once i was asking, why do you have a cot, you're at the end of the quarter. why wouldn't i have a cot? where else do you expect me to sleep? >> i read slootman's book, i said, hey, listen, i read your book oh, wow, okay, that's why i sent it to you. he's not a glad handler. he's a flying dutchman, he went to arasmus.
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>> you've been a big supporter of his from day one and you continue to be you got some people joining you at least. >> look, i think it's the only company -- it's the only company that i'm willing to recommend, the only one there's 600 companies that i went over this weekend >> 600. >> 600 to try to find five, five spac, five ipo. >> what were you looking at as the determining metric >> it had been to be down 50% of the high, and sell for 50 times earnings and there were five. >> five out of 600. >> there's a lot of companies that basically feel a lot like -- remember some of the crazier names in the 2000s >> of course i do. they feel like some of those. >> the
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>> too early >> sock puppet, remember him >> there's a willot of too earls >> i think i'm going to call them that, that's a te >> all right remember when cay tell went to the internet? i remember that one. >> there was a company called -- i'm not going to mention the name, probably get sued. it was a company that had no business, and i said that company's fraud ewe net and then the s.e.c. called me by the time the s.e.c. finished -- >> those companies had no prospect of ever having any revenues whatsoever. refrigeration company that said it was going to be involved in the internet that's different than now in many ways. there are -- you can find it in segments of our market, but it's not the market. >> i know it's better, but that doesn't mean i'm going to recommend them i'm going to come on air and saying it's time to buy this i went on air and said it was
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time to buy rob weesman's company. >> blade >> and immediately hamptons, they closed their airport and the stock dropped like 30% now here's a good example of what happened. rob emails ame and said don't forget, it was down for a little bit, and now it's up but then i see, well, sure enough cathie wood is buying it. cathie wood the way i like to think of it, regulations over, it's overtime. she wins the coin toss, and she elects to kick >> she elects to kick. >> yes, but right, but not actually kick to run the clock out. >> you want to receive >> i see what you're saying. >> she seems to be kicking a lot in those situations, and that to me -- you don't get the ball back i was trying to come up with some neutral way to explain what she's doing, and she's winning the coin flip and kicking. >> a lot of can charts of arc as
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we get a date for woodstock for capitalists. >> listen, the five-year is still fairly impressive. you do need to put it up versus the s&p. >> buying down. >> no, it is >> we point to that many times because i've seen the story in the past where a track record brings in enormous inflows and everybody who came in a year ago is down 50%. you lost more money than you ever made, all the years leading up to that, you had a much smaller asset base >> she came in in the mid-50s and it's like, that's the end of draft kings. it was the end of draft kings. i happen to like draft kings i think that the amount of betting in new york's great, but then again new york is fleecing everybody. i saw her in it. >> why is new york fleecing everybody? i'm sorry. >> because you got the big tax but look at jason robins he is doing his best
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we have unbelievable teams that are playing in football. what was it 35 million watching sunday >> is that the figure? >> yes that is a chart of people who are losing money. >> i haven't used my thousand dollar credit yesterday, so i got to do that if you make your first bet, you can get a thousand bucks back if you lose a thousand. >> i'm talking about if you're new to the platform. >> i'm saying the cost of acquisition is insane. and yousaw win kind of drop back, i look at draft kings and i think they're unbelievably good but it doesn't matter because you've got to make money people don't understand there's been this long period where you didn't need to make money and now you do, and people hate that the meme people when i come after this, i say, look, i'm jimmy chill, but i come after
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you. >> yes >> so you don't -- yeah, you've shown no -- >> i have remorse. >> no, you show no remorse you're going to just -- >> with malice tour. lincoln said that, didn't he >> something like that. >> reverse it. >> people are talking about it more and more. >> when we come back, a ceo doubleheader on this earnings tuesday. take a look at futures here. we'll get to a bunch of the other names we've not yet hit, thonzon and talk about what's e line from microsoft tonight. more "squawk on the street" straight ahead and they want it all personalized. with ibm, you can do both. businesses like insurers can automate it processes across clouds. so agents can spend more time on customer needs. and whatever comes your way, you've got it covered. saving time and improving customer service, that's why so many businesses work, with ibm.
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there's no preordained route here connecting necessarily fed policy with how you're doing, you know, in your mutual funds they may diverge, they may not you know, if my firm were comfortable being long the indices and being short, you know, a lot of kind of the craziness. i think that's still going to be kind of the way you want to be i think you want to avoid a rot of the stuff that's still trading. >> short seller jim chenos weighing in on the market environment. interesting thought given that a lot of people believe the fed is the overriding macro dynamic >> i thought that jim was spot on i don't know, i i know that we all feel theneed, david to be able to say let me just
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explain -- no, that's what i think, and it's okay it's prevailing wisdom that could be right. >> he's known as a short seller obviously. >> he does like certain stocks that's a good marketing position to have to attract assets over a long period of time to say you're a hedge against your other hedge funds. by the way, on that note, we should point out last year and the year prior giving the pain many had in trying to short. this time we all know what happened with a handful of hedge funds, many of them did not -- they just stopped shorting they just stopped really having a hedge book to some extent, and they suffered a lot in this first few weeks here as a result of that and, in fact, that may have been one of the reasons why we're seeing even more selling from them taking the risk off in terms of them selling what really were all longs because they weren't appropriately hedged because shorting has been so difficult the last couple of years. >> i think the problem with shorting is the public was really in.
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i think the public -- >> talk about how the public's pulling out. also said that on friday a lot of people had options so that they owned stock coming in yesterday. they had to blow that out. why am i supposed to think that that's -- i always want the public to win. if the public is really exiting and the shorts aren't shorting, well, then you should be looking for things to buy. i said last night, let's see you got ukraine, you got oil how about buying the oils, and people -- interesting idea, but then other people said, jim, that was last year's trade i don't care about what year it was. it's a multiyear movement. last year wasn't even the beginning. i mean, you've got companies that will go up substantially if anything happens in ukraine and if something doesn't, they still go up. why not look at those just
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because they've had a rally. exon's up 19% already this year. >> everything gets brought down by the futures you had a chance and it's not even the best what's he looking at >> here we go again, not even the best. >> you wore that last week. >> yeah, i did. >> i'll buy you a couple of new jackets. >> i got plenty. >> what do you like dress in the dark >> i dress here. >> you don't like the blue and the black. >> no one can see that i'm wearing jeans. >> he wore the same thing on p friday. >> i wore the same jacket, you're right. >> i like your suit, by the way. it's a different time of year potentially. >> it's a summer suit. >> yes, spring is coming chauncey gardner is going to be ready with the plants. >> maybe we're missing twitter sorry, i was being mean. >> it's probably too early to buy twitter. i don't know i'm just kidding that was a joke. i leave that to him. >> yes
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>> take a look at futures in the premarket here, about ten minutes to the opening bell. we'll get cramer's mad dash as we count down. we'll talk about ukraine, some of these troops on alert and whheorotheetr n t white house may weigh curbing some chip exports to russia, back in a minute
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ukraine remains a major development for markets. let's get to kayla tausche with breaking news. >> this morning the white house detailing a wide range of severe economic measures being assembled for a case where ukraine was invaded further by vladimir putin among the issues that are currently being discussed, a novel set of export controls that specifically would be targeting the ability of russia to use u.s. tools and software for production of items in the aerospace, defense, ai and robotics space with senior administration officials saying the goal of such a policy wob to
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essentially atrophy the production capabilities and the ability of russia to diversify its economy going forward. the u.s. is also discussing with allies and partners around the world a plan to bolster europe's energy supply and to replace russian exports of natural gas specifically for a situation where some of those -- some of that supply might be can the off if sanctions cripple the ability of russia to export that natural gas. the administration is currently discussing with natural gas companies the rerouting of shipments from destinations around the world from africa to asia to the middle east to get those cargoes to europe instead. these officials say that some of those shipments have already begun arriving in europe the belief is that europe has enough natural gas in storage for at least a couple of weeks if there were an invasion and if sanctions did go into place and that some of these shipments would then be able to supplement and to provide supply for europe
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after those supplies in storage currently run out. certainly these are contingency plans for a worst-case scenario. the administration still hopes diplomacy will work. negotiations are still underway. back to you. >> kayla, thank you. kayla tausche on obviously something very important for the world's energy markets >> our government's -- 50% of the energy is going to come from russia for germany, they decommissioned 83 plantsment they just decommissioned some nuclear planti s right now they have no plan whatsoever when it comes to the raw costs and the semiconductors, none of our companies can get them very unconvincing argument. >> it does go to your point about the energy transition and the fact that the germans didn't allow for much of a transition
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a very curious decision. let's get to the mad dash, can we do that we also got an opening bell about four minutes from now. >> let's talk a little nvidia for the mad dash can we do that >> nvidia was trying to buy ark. when it announced that, it was -- a lot of people thought dead in the water, but nvidia didn't think that. >> they were the only ones, though, it feels like. they were singularly focused on it and somehow thought everybody else was wrong. >> i agree with that, and that was har. i like nvidia very much. the stock's down ten if you're selling it down ten because they're not going to get arm. >> we should point out the news is simply -- i've got it right now just reported by bloomberg saying they're quietly preparing to boon their purchase of arm. we have not seen an official
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statement from nvidia or arm saying that the transaction is no longer in force. >> you raised a key point, which is that it was stillborn, and yet they continued and continued and continued to tell you that it was okay and the more research you did, the more you realized that it just couldn't happen, so the idea of selling nvidia now, you've got to come up with a better reason to sell it there are very few people other than a couple of people at nvidia who were still hopeful, and they were hopeful. david versus amd and xilinx, that i don't know. >> that one expectations are very different in fact, people expect that it's going to get passed, but they've had a refirle because the merge agreement had expired. they had to refile between the two parties. scott had run out a few weeks, a couple of weeks ago. jim, on amend and xilinx, there
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still is an expectation. >> nvidia has been down because people think it's a play on crypto, which is barely. they only give crypto people the parts that don't work. crypto is under fire like i've never seen it, which tells me maybe crypto finds a bottom here look at xilinx down 7. who are these people selling down 7 12:00 yesterday, the dow was down 11. who are these people they wake up and say, you know what i'm going to sell do i care about the fundamentals >> it's funny, nvidia, down roughly 20% this year. >> some high performance computing overlap. they have nothing to do with each other, except they're your two favorite stocks. >> maybe the emoji people are shooting against me. here i am, come get me you know, the arrow split the
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tree. >> neil young. >> this whole move, carl, they never diversified that much these people from amc and from gamestop as soon as amc got the money that was the end you know, this big theater next to me, the regal closed. it's a bad business, but they got their money. that was all it was meant to do. it wasn't meant to be invested in for heaven sake. >> aaron looks really smart in retrospect in his journal piece yesterday on wall street bets and the number of daily comments pl plummeting really since the spring that era, you look at the journal piece, you kind of wanted declare it over. >> attacking me and putting my h head in an elizabethean collar. >> it was a long period of time, though there were plenty of people who tried to short amc and gamestop.
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after the nibblinitial moves up >> now they're doing -- they're trying to buy points that you can do on draft kings, but david, as far as owning stocks they never knew what it was. >> a horrible year again by the way. >> what is that about? >> there's the opening bell and the cnbc realtime exchange at the big board, it is cadence bank celebrating its name change and merger, wtw new name and ticker symbol, pretty weak at the open here. you did tweet a big down open, the lows of yesterday good. >> absolutely. now we know that the fed blah blah blah, i mean the fed is going to -- he said, look, it's going to be tough. it's all negative, negative, negative good i mean, we got to wash out all these people we got to wash out the diamond
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hands. what was that anyway we have to get all these people gone they're saying i hate cramer hey, you know, i've been hated since third grade. i've been hated since i didn't hit the principal with the snowball, but i was suspended. it wasn't me i don't tell, but i do find what happens is we have real companies going down with the joker companies. is j&j falling apart >> j&j's doing really well, but they have a problem. you don't want to go in and get your knee done and come back with omicron that was before we discovered that omicron was kind of like a fourth vaccine >> yeah, and thankfully -- certainly in this part of the country. >> other than the comorbidity. when you look at the numbers in this part of the country t is plummeting, so that's great. >> i was speaking to j&j and i've known j&j forever, i'm saying, well, it shouldn't be down well, it's not i mean, let's do some thinking before we sell
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but carl, what's happened is everyone's very depressed. they're all worried. they all think this is going to repeal because of the fed. in the meantime, the time to sell was in november j&j's up, don't take j&j to 16 had. you're going to end up getting hurt at 12:00 you get hurt. but i do think, i'm going to give you one that i thought was extraordinarily good, american express. 60% of the new card growth is millennials. hell, everyone thought it was over, david. they want the card they clobbered the 2019 number this is going to blow away david. guess what, on travel for business, you keep waiting for the go see clients how about the fact that employees are so far flung that they have to get on planes to go see the headquarters. >> that is true. does that count as business travel, going to the office when you have to fry to get there
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>> yes, but that's the new travel >> that's the new business travel, not going to see a customer going to the office. >> going to the office >> i'm going to leave wherever i am. >> from montana or wherever. >> montana, idaho. >> i'm going to come for a few days to the office i'll grace you with my presence, thank you so much for being here. >> 37 years -- i came up with that >> no. >> thank you i believe it to be true. i'm not questioning it i just think it's an interesting reflection of where we are right now. >> are people at home scared first of all, they shouldn't be at home, they should be working. are people scared about their 401(k), how about the idea of invest ago little bit in your 401(k) i got all these rules now, but what am i going to do? am i going to wait until it's down 20? why? how about down 10? okay, i'll be ready with a little fire power. >> your point's good on amex, which is leading the dow a div hike, 20%.
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>> that's going to come back, i think that what really matters is that card growth, looking at lockheed martin. he didn't understand -- he didn't read the room no, i'm fine, i got some stuff for you. >> i know you got all sorts of medicine >> wait, wait, you're moving too quickly. you mentioned lockheed but failed to actually mention the news >> do you know i bought it in '63? >> nobody cares. >> rocket dime holdings is earlier this month, they announced, agreed with the ftc they would not close the transaction before the 27th of january. now they've been advised by the ftc concerns regarding the transaction cannot be addressed adequately by terms of the proposed consent order and therefore they're going to be potentially sued by the ftc. so that's what the news is. >> that's the new world. take what's so good too. >> look at what jonathan canner said yesterday head of antitrust
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for doj, we're in an area where the dwoft seeks to block a deal rather than ask for concessions. >> we've seen so many where they ask for concessions and people made fortunes. >> there's a belief that behavioral remtedies are not effective. either go to court and stop it or don't. >> very much an eu line of thought. american express, the stock was down badly when the headlines came out, and i like to speak to the company and the company's asked me why is it down,and i' asking them why is it down, the answer is it shouldn't be down people don't understand that there's a lot of robo headlines. david, oh, the stock was down. whatever, now ge, we're going to speak to larry culp. that is a very tough call ge. >> yes >> what do you mean it's a tough call >> some of the divisions are questionable when we go over these, we have to remember that these are seasoned companies are seasoned ceos these are not companies that are in the -- we have a lot of companies who are never going to
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be in the playoffs, i mean, like ever, okay, like ever. they're in that, what, the new football league. >> is there another new one? >> that's the old one. the u.s. nfl >> the afl >> i don't know, the boston sham shamrocks. >> mr. culp, david, i believe is ready. >> thank you for telling me that, jim. >> who's beating the fellow from new haven? >> yes, yes, where he goes or how he gets there, nobody knows. that's a reference to "jeopardy!" and the new person who's taking number two spot, that's true in terms of ken jennings in terms of wins. that's for another day what's for right now shares of ge which are down over 7% under pressure this morning. this after the company did signal continued inflation and supply chain challenges across its businesses in 2022 joining us now in a cnbc exclusive is larry culp, the chairman and ceo of ge
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always good to have you. first just give me, you know, the stock is down rather sharply this morning in part because of disappointment about the reported quarter, perhaps as well continued concern that you voiced about inflation and supply chain give me the big picture here talk to your investors are they correct in selling the stock this morning, based on the numbers that you put out >> david, good to be with you, gentlemen, a pleasure. i think what we shared this morning with investors, david, is that we had a strong bottom line finish in 2021. operating margins up 200 basis points in the quarter. 400 for the year, a strong cash flow finish in the fourth quarter, 3.7 billion overall, and as we look at it operationally for the year we came in at $5.8 billion, and that's where a lot of investors were frankly focused during the course of our call that's the best mark that i know to measure our underlying operating performance and strengthen the potential across
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our portfolio. when you couple that with the updated debt reduction now 87 billion over the last three years in the wake of the merger which we closed in the fourth quarter, we're really positioned, i think to move forward. you saw the announcement 77 days ago with respect to the spins. but that debt reduction also carried with it an opportunity to simplify our financials did we go from three column reporting today to single column i think that's going to make ge's performance and its potential far more accessible to investors. there's a little bit of noise in taking people through that transition today, so we're hard at that, but i think the feedback we've gotten relative to the program that we've been on and certainly in the announcement with respect to setting up these independent industry leaders continues to be strong as we look forward, we have a lot of conviction about what we're doing here >> yeah, well, listen, you got a lot of transitions to come obviously over the next two years with the split that we
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discussed a couple of months back when it was announced let's talk about this year, though, because you did cite inflation and supply chain inflation more in one part of your business, namely it would appear onshore wind and the grid and supply chain more acute in health care. larry, explain both impact of inflation on one side and the supply chain on the other. >> david, when we talk about supply chain, we're really talking about availability material, and labor be it in our own shops or from our suppliers around the world we certainly saw i think what many, many companies had seen through the course of 2021 with respect to shortages and extended lead times. that was most acute in health care, particularly given the electronics and plastics nature of much of what we buy we saw in the second half alone, probably eight to nine points of core revenue growth fall into
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'22 because we couldn't ship orders that we had in hand we're working through that we saw that in the fourth quarter to a lesser degree in other businesses we hope that we see that clear in the second half in health care and are working hard to control as much of that as we can. price cost certainly was a pressure for us in '21 and will be in '22 as well. that was why had spread. we feel most particularly in renewables for shuure. it's incumbent upon us to take the cost actions that we have to m mitigate that as much as we can and push price where we can as well smartly and i think we've -- the fourth quarter some progress in that regard. >> it does introduce a lot of questions for the year ahead, it would seem you had guidance for this last quarter, which may have been miss added a bit larry how confident are you in the
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numbers you're putting out there in terms of free cash flow. >> i don't put numbers out i don't have extreme confidence in if you look at what we did in '21, i'm very proud of the work this team did particularly with respect to generating 6 billion in free cash we certainly are going to have he head headwinds. you touched on supply chain and inflationary pressures we have other dynamics we need to work through. that's always the case in business when you look at the strength of these franchises in aviation, a business that's poised for an aviation recovery, we're talking about business travel before i came on, a health care business that is seeing strong demand in both the private and in the public sectors, constrained at the moment with new leadership, lots of momentum with respect to new products and commercial execution, that business is getting better every day and if you look at what's happened in power where we've seen very good margin expansion, utilization is up. you know we've got work cut out for us in renewables, in part
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because of soft revenues here in the u.s. with the lapsing of the production tax credit, but i think that too will resolve itself there's a lot of good things going on today, maybe a little bit of noise in today's results but the guide that we offered up 5 1/2 to 6 1/2 billion of free cash gives us an opportunity to grow year on year our cash from core operations despite probably about a billion five of additional headwinds that we didn't talk about from the remainder of capital and the resumption of deliveries with our airframer customers. so all in all, we'll take that environment. i think it sets us up for not only a good '22 but another step forward in '23. >> larry i'm inclined to -- as you know you focused on the 5.8 billion of free cash flow. in the new world, the new world as defined by what happened in november when the fed wanted to get tight. i only really care about earnings frankly and when i look at earnings and i look at renewable, i don't see earnings, and i'm trying to figure out if i were in a
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quiztive company i would call health care and say listen, you know what, maybe we should to something. but when i look at renewable, i think, eh, you know, it's okay larry. i mean, maybe it's not really right now a business >> jim, it's a business, and it's an important business if you look at what we do in onshore and offshore wind and with the grid, the energy transition won't take place without ge playing a critical role we need to make it a better business we get that, you know, on this if you're from missouri, i get it i'm from nike. we're going to just do it because we know we've got the backdrop of demand in the long-term. we know how to work through the supply chain and inflationary pressures. there are a whole host of things that are frankly within our control. we'll make progress next year. it won't be a positive print here in' 22 unfortunately, but progress in '22 sets us up in '23, and that coupled with what
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we do in power where we've run the same play book, with better results given the stability and underlying demand, it may not be a business that has the profile of aviation or health care but it can still be a good business. it's an important business but it's on us to make it better. >> i think that's fair because right now when i talk to the utility companies everybody's kind of full up. they just don't need the new power right now versus say health care. if you got all the parts you needed, how many mris could you sell versus what you're selling now? >> well, i don't know about the mris in particular, jim, but again, if you look at the print, we have probably 800 basis point of core revenue in the back half of '21 that went missing simply because we didn't have adequate supply. and i don't mean to blame our suppliers. they're working very hard hand in hand with us. but that suggests a business that is significantly constrained in the face of not only strong market demand but
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outstanding relative performance. >> larry, i bring this up somewhat ez tatingly, steve tusa has been right for a long time, at least was years ago he's very critical this morning, the analyst at jpmorgan, and i want your response he says putting aside the fact that this is the worst disclosure least transparent set of numbers we've ever seen in 20 years following the group forcing high level analysis for now, this is an operating miss on revenue profit and order spaces, but respond to mr. tusa when he says the worst disclosure they've seen in over 20 years >> david, i think if you talk to investors in the community, if you talk to our woboard, our aut committee, our auditors, our internal team, i think all of us are proud of the improvements that we have made in our reporting and our transparency, and that pride and that commitment to moving forward
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stands today so i think our record and our disclosures today are upcoming 10-k, stand on their own and i think in the clear light of day, i think people see the progress that we're making they appreciate the transparency, understand the transition out of ge capital, creates a little bit of near-term noise, ask that's the audience that we're most focused on frankly. >> right i mean, i guess there are those who still feel like they can't get a sense for the total earnings power or the earnings power of the total business right now. >> that's what we're focused on. what is the earnings power. >> so we'll both ask the question, arry in '22 with very good cash conversion, right?
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and that's a good thing, let's be clear more cash generated is a good thing, and that's how we get to the 5 1/2 to 6 1/2 billion dollars range that we've talked about for this year, despite the billion five of headwinds and we reiterated our confidence that we can continue to drive those operational levers to yield 7 billion of cash in '23 now, i think we'll see our cash converter normalize over time, but again, because we've got an aviation recovery very much in the early innings, a health care, a high margin, high growth health care business that is supply constrained at the moment, i think the setup here is strong. >> all right, well, we will leave it there, and as you know, always appreciate your willingness to take time, take the tough questions. larry culp, ceo and chairman of ge thank you. when we come back this morning, raytheon's haze on earnings as well, we'll talk about some geopolitical tensions
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and a lot more time for the bond report as we continue to keep an eye on real rates rising once again. got the ten-year almost back to 1.75, and the dow's down 550 to start this tuesday don't go away.
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test about 90 points below these le levels jim, one idea, fund strat said if you're aggressive, use yesterday's low as a stop out. would you go that far? >> you don't want to shoot until you see the whites of the intraday low it's a long day. so they see at 9:45, the market looks like it's holding. no, no, no, it doesn't work like that you have to have this move erased then you have to start looking at things.
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if not all, because it was a crescendo selloff, a climax. last night, we had a quote from mike wilson saying i don't think anyone felt good after the close. i disagree because i found there's a level where we can buy more we're not buying a single stock for the charitable trust at lows so come in today and buy at the same level that's a fool's game just wait. there's nothing that's going to run away >> do you even want to step in front of what powell might say tomorrow >> i don't mind that jay has a history of being considered he's not trying to save the stock market that's never been the issue. he's just considerate. >> really? he wasn't trying to save the stock market oh, all along >> if you destroy it, you can save it. let's talk to a real business
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guy. i'm talking about brad hayes a mixed quarter, beating on earnings per share, missing on revenues we acted to find all these things a lot of these are just robo analysis joining us is the chairman and ceo, always appreciate you coming on. i thought it was good. i'm just looking, good backlog and you've got aerospace, commercial aerospace looking pretty darn good >> i think you know i would say we had a really, really solid fourth quarter i think obviously earnings per share looked really good we had a good, solid beat on the bottom line. top line, not quite as good as we expected. a little bit because we did a divestiture in the fourth quarter that we hadn't anticipated closing so soon. but also, we had some supply chain issues which impacted the top line not so much the bottom line. as i think about it though, a
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lot of momentum in the business. as you said, commercial aero is recovering nicely. continuing to drive solid growth and the defense businesses, huge backlog. over $60 billion total over 150 billion for rtx i feel really good about where we are today >> all right, so let's talk about commercial a lot of people are seeing the problems with boeing boeing problems are writ large but if you're levered to airbus, how's business >> business is good on the oe side if you're focused on the a320 like pratt and whitney is that's the best game in town right now. the 737 still a very good aircraft got a solid backlog of about 4,000 orders, but airbus has about 7,000 orders and obviously we like this a320 with the turbo fan engine and
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we're fogoing to continue to ta advantage of that as airbus ramps production back up to pre-pandemic levels here in the next couple of years >> let's talk about a defense. we had people talking about a hot war in ukraine people obviously seeing 36 planes flew over taiwan air space the other day. are we spending enough on defense and do we have anything that would make it so if you inserted 8,000 american soldiers into ukraine, they can stop 103,000 russian soldiers >> yeah. i think obviously everybody understands the answer to that it's more symbolic than it is strategic with 8500 versus 100,000. we have certain weapons systems we could supply which could be helpful like the patriot missile system, but at the end of the day, look, nobody wins in this war. i think the russians have to understand that calculus as well our core mission, we're about supporting the war fighter and helping our allies and our
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country defend democracy around the world. we've got the technologies to help in these engagements. whether it's the patriot system, radar, some others that we have, but at the end of the day, we have a strong defense as a deterrent to try to prevent things like this from spinning out of control so the hope is we don't end up with a hot war and if we do, it will be costly on both sides >> greg, it's david. i just want to focus on some news from this morning, which is you know, the ftc may be moving to stop the proposed acquisition of aerojet rocket by your competitor, lockheed martin. you've made no secret of the fact you didn't want that deal to happen. strangely, elizabeth warren seems to have been in your corner as well give me your reaction to that and why do you feel that deal would have been anticompetitive? >> there are really only two rocket motor providers in the
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country we all rely on at, orbital atk was one. they were acquired a couple of years ago. and the other was aerojet rocket and having a strategic supplier like that owned by our biggest competitor we thought would be problematic. even with a consent decree, it's still a problem in terms of who gets the supply when there's a shortage the company that owns you or the other company that you have to supply in the marketplace? so again, we understand the difficulty of getting deals done today in the defense space probably further consolidation not on the table in the near term but we fully believe that the ftc's decision is exactly right. having an independent supplier of a key component, which is rocket motors, absolutely essential to providing a level playing field for all of us out there in the defense space >> does it set us back in terms
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of hyper sonic and our competition with the chinese >> no, not whatsoever. in fact, the hypersonic weapons system we demonstrated last year had a scram jet engine it's not a rocket motor driven, at least in terms of the hypersonic profile of the flight so this is you know, aerorocket design will continue as a robust business we're investing. lockheed's going to continue to invest in hypersonics because that is the next great technology we're going to have to pursue. >> let's talk about that, greg, because i think technology still matters. this weekend, uae gets hit with some missiles. you spend $2 million on a patriot missile for something that cost maybe $1,000 but you have a laser technology, which sounds very useful, but
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unbelievable can you tell us about that >> here's the problems that the saudis have found. they've got patriot missile defense systems out there. those missiles cost about $2 million around and if you're taking out a drone that's 1,000, $5,000, that math doesn't work for very long. and so we have been working on it for the last couple of years, a high energy laser system which actually gets mounted on a four wheel drive vehicle with a turret and it can direct a laser on a target like a drone and within about two seconds, destroy it cost per engagement, almost nothing. repeatability, very, very high the problem right now is we have to get them into final production we've got demonstrator units today with the army. it's a great, great tool and the folks at the uae are dying to get their hands on them. so we're going to continue to work with the dod to see if we can license that to the folks in
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the middle east. it's the most cost effective way to fight an asmymmetric war >> i want to thank you for coming on. >> thanks, jim thanks, david. thank you, guys. >> there we go, carl thank you. >> jim, what are you going to do tonight? >> you know, i have so much on verizon tonight. we always want to look at how verizon's doing. >> absolutely. the stock has been holding up. it is now actually down. i haven't looked at the call >> then logitech these are all the cool things we use to do gaming and business at home hans vesper on our show. i finally won one. got everybody else i'm happy. i am happy
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i won. ha, ha >> see you at 6:00 jim good tuesday morning welcome to another hour of squawk on the street we are holding above yesterday's intraday lows by about 90 points on the s&p above 4300 consumer confidence coming out rick >> january read on consumer confidence from the conference board expected to be up around 111. well, it's better. 113.8. so outperformed with regard to expectations, but sequentially, it's following an unrevised 115.8. so two points lower, but better than expected. if we look at the current situation, it's at 90.8 versus sequentially 96.9 with a subtle revision down to 95.4. so it's under expectations and sequentially lower the present situation, of course, is key the last one was expectations,
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excuse me. what lies ahead. our current situation also better than expected at 148.2. richmond fed manufacturing index, a january number as well, comes in at 8. about half of the expectations it's the weakest number since september when it was at a rare minus sign at minus three. so we underperformed on richmond did a bit better, two out of three, on the conference board and yields are slipping once again. ten-year note yields failed to get above its immediate resistance of around 1.8%. morgan, back to you. >> thank you we're 30 minutes into the trading session. here are three big movers we're watching we're going to start with these. starting with dow component ibm beating on bot the top and bottom lines on the strength of its cloud computing business 2022 guidance focused on revenue growth and free cash flow as well this is big blue's first
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earnings report since spinning off kendra plus, johnson & johnson shares, those are under pressure after the company reported q4 revenue below analyst forecast jnj predicting its covid vaccine will generate $3.8 billion in 2022 shares just below the flat line. american express record card spending helping the firm report better than expected profit and revenue for the fourth quarter those shares are up 3.5% shares are up more than 30% over the last year of trading >> back to the broader markets dow's down 750 stocks under pressure following yesterday's historic comeback. joining us now, barry and dan. gentlemen, good to see you barry, last night, you said yesterday's come back was a head fake and you've got a list of things you would need to see to believe that we are sort of out of the woods what are some of them?
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>> yeah, if you think about it, carl, the fed really needs to pivot more to dovishness at some point, but if they do it now before the first rate hike in march, clearly they would lose all their credibility. so i think there will be a lagging indicator there. we have to look to the market indicators to thoughknow what's to happen on the rates the ten-year tips yield, the basis of the t-note, it's been negative ended last year at minus 1.1%. it's up to about minus 65 basis points now you're getting a negative real turn for equities for the next ten years so you buy risk assets and as that real yield climbs, it's pretty negative for the growth stocks. the last thing is the pmi manufacturing. i think that's going to fall abruptly you mentioned the richmond data. we use the regional fed surveys to triaung late on the pmi that comes out the first of the
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month and correlates with s&p year to year change, earnings, industrial production. we're looking at china stimulus. the dollar, when will it top the dollar versus the chinese uan. ukraine is a very big oil and gas issue. but those three things, the fed, the tips and the pmi are really front and center in why we think the market consolidates here >> richmond fed comes in at eight prior with 16. sam, for those who are hoping that earnings can make up for some multiple compression in the face of all of this, i wonder if you think ge, raytheon, jnj are anywhere near a good enough head start? >> i think it's nice we end up with some earnings beats early in this fourth quarter reporting period, but i think that with the fed raises rates, with the
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ten-year yield creeping higher, at least over the longer term, i think we are going to be continuing to see pe contraction going back in time, essentially, you had a negative .5 correlation between the ten-year yield and pe ratios and with us starting the year in the low 20s, i think we would have to fall by at least 15% peak to trough in order to get to the top of the range of pe ratios experienced between 1 3/4 and 2 3/4, going back in time. >> given those factors that you're watching where equities are concerned right now and the broader markets, it sounds like you think we may have further to fall i mean, given the fact the selling has been so broad-based. every sector lower today everything from the russell to the transports to the major averages lower today does an investor just put their money on the sidelines and wait
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or are there actually buying opportunities here >> when you have an environment where the growth is slowing, the fed is exiting and you have the pmi particularly, which as i say, we've regressed every variable against the market sectors and industries for the last 25 years. it's one of the best economic indicators when that occurs, you want to go more defensive consumer staples, healthcare, some utilities, some of the telecommunications, some of the reits and that's where we would hide out in this first quarter because i expect it to have more downside volatility and we'll have to, we will not know what things look like until late in the quarter. certainly not the first few weeks of the quarter, to make a decision on the rest of the year >> sam, one of the things you're known for is couching market moves in historical context and taking us back through the decades to see how major market
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moves like the one we're going through now compare to history what does that tell us >> well, what it tells us is that there are a couple of analogies one can draw on the worst case scenario, you go back to 1961, '62 under a fairly young democratic president, john f. kennedy, who ended up triggering a decline in the stock prices because of inflation. he was worried that with u.s. steel looking to increase steel prices, that would put a pressure on the market put a pressure on the economy et cetera, then that morphed into concerns geopolitically with the cuban missile crisis i don't think we're going to have anything near that kind of a shakeout of the market, which did fall 28% from peak to trough but i think those are the issues affecting the market today we certainly have inflation that's expected to peak at 7.3% year on year for headline in the first two months of 2022 but then come down to about 2.8%
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this time next year. and with the fed likely to raise rates by four times this year, one time next quarter of 2023, then yeah, the upward trend is there in terms of fighting inflation. so i believe that this sophomore slump year for president biden will be as volatile as it normally is, which is 40% higher than the average for the other three years of a presidential cycle. >> midterm years are tough finally, barry, for all the concerns you've listed, and you've been writing about them for months, downside to 4200 doesn't sound dramatic from these particular levels. what are you saying about 4200 >> we became very concerned about the market as you know last may so early in the summer the market could very well return in the first quarter to the levels there
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so big ballistic round trip for like a north korean missile. back to ground level so what we're going to be watching are the variables that i said, but you know, when you talk about growth versus value, there's been a lot of confidence in the value trade and reflation. i do think that the core pce deflator, if you look at it, it was peaking for the last 20 years around two, two and a quarter. that's the new floor so we could very well pull back on inflation see the fed reduce some of the expectations on rates and the balance sheet and you could very well see sometime towards second quarter, a rally in growth stocks relative to value after being been sold off very heavily. but right now, things are just so uncertain and the duration effect on ten-year tips yield rising on the growth stocks, there are big concerns and i would prefer a lower entry price. >> gotcha. good to see you both, guys
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appreciate the guidance as we are looking for direction. appreciate it very much. >> my pleasure >> the imf just releasing its world economic outlook last hour, writing that the global economy enters 2022 in a weaker position than previously expected due in part to the omicron surge and higher than expected inflation. the group projecting global growth to moderate to 4.4% this year that's a downgrade from its october estimates and a decrease from 5.9% in 2021. sarah joins us now along with imf first deputy manager sarah. >> good morning, morgan and gita congratulations on the new role. welcome. >> thank you >> we're looking at another 700-point plus decline on the dow. the markets have been crazy after yesterday's insane turnaround a lot of the worry has to do with fed tightening and this
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turn we're seeing in monetary policy how much of an impact do you think the fed changing course will have on the global economy? >> so this is the year the fed will start raising interest rates and as it should, given that the u.s. economy is back to pre-pandemic trends and unemployment rates have gone below 4% with inflation ending at 7% the end of last year everything points to the fact that interest rates need to go up it is a healthy economy. so i think that has to be kept in mind that you know, earnings are good the recovery is strong so that should help. but of course, there is a period of turbulence that can come about because whenever we have these transitions, there's always a lot of uncertainty about how many interest hikes will it take to bring inflation down we expect turbulence for sure in the next few months at least >> you said it was a healthy
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economy. for the u.s. in particular, is it healthy enough to handle four interest rate hikes this year without the recovery getting killed >> even with four interest rate hikes, we're talking about nominal interest rate of 1%. given what inflation is, that's very low negative real interest rates. so if that's what it is, then we are still looking at quite accommodative conditions even if they were as accommodative as they were before the hikes started. so again, interest rates are going up, but if you look at the quantitative numbers, these are still in the realm of being able to absolutely support and have the recovery and the strength of the economy. >> just one more on the fed because it is such a fixuation for investors. worst since october. bigger risk that the fed is too aggressive when it comes to fighting inflation and hurts growth or not aggressive enough
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and inflation gets out of control? which is the biggest risk? >> well, given the tremendous uncertainty, i think the risks on both sides. you know, this is an inflation that's not just very traditional macro factors inflation, but this is an inflation that's driven by very pandemic specific factors like the shift in demand towards goods. fact that labor supply is not coming back as one would have expected, that you have supply chain disruptions and we haven't seen the end of any of this. so i think what's clear is that there's a tremendous amount of unce uncertainty. when it comes to markets, we have been making the point that markets seem overvalued, especially in some areas so we would expect to see some correction you know, the only thing we need to ensure is this is not like a total overshooting and complete collapse of course we need to work to prevent that from happening. but some correction is certainly expected >> what about the silver impact on emerging impacts?
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interestingly, emerging market stocks have outperformed the u.s. so far in 2022, but there's always a concern that when the fed starts moving, they feel it all around the world so what do you see as the biggest risk factors there >> there's absolutely a risk there. global interest rates go up when the fed moves the monetary policies so it's going to affect countries, but at the same time, you know, several emerging markets pretty aggressively raised their own interest rates in 2021. several have large amounts of foreign exchange reserves so they are in a somewhat better situation, but the countries that are borrowing heavily short-term dollar borrowing could see currency depreciations and that could be more detrimental for their growth but it's not one story for all emerging markets >> the other factor we're watching is the escalation and
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tension between russia and ukraine, the preparation of sanctions. obviously the impact on energy prices and potential for russia to use its gas supply as a weapon how are you watching this geopolitical risk as far as the potential impact on the markets and the economy? >> yes, we're following this closely. i mean, one common factor in headline inflation going up in pretty much all countries in the world were higher energy prices. a conflict of this kind makes that worse so you could see oil and gas prices going up everywhere there are of course bigger consequences for europe given they rely on russian supply for their gas. so you know, there are the risk of these prices going up i think are quite high and that poses a bigger challenge to bring inflation down because even if it is transitory, you know, that could start feeding into inflation expectations and start, you could see an increase in demand for wages then see wage prices spiralled.
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something we haven't seen so far. so we are paying very close attention. >> so given all these moving parts, gita, the tightening of monetary policy, the ukraine russia scenario, what's your forecast for global inflation when it starts coming back down to normal levels >> for global inflation, we have it coming down in the second half of this year that if you look at the trajectory for many countries, the peak happens at the beginning of this year then starts coming down the question is how fast does it come down. so for instance, for the u.s., we have inflation peaking in the first quarter of this year that's in our projection and expectation is that by the end of this year, you know, compared to 2021, core pce inflation will be about 3.4% so that's quite a bit lower than what we have right now but still, that's significantly higher than the fed's target so inflation is expected to come down but it's going to be
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gradual and especially as you see shelter costs coming up. the trend, the direction, is for it to start coming down, especially in the second half of this year. >> we know you have a busy morning. thank you so much for the time >> thank you >> appreciate it all the issues at the top of investor's minds and now she's the first deputy managing director of the imf. formerly the chief economist, back to you. >> thanks. cnbc's out with a new fed survey steve liesman has the results for us steve. >> showing the stocks being marked down while the outlook for tightening has grown declining to 4650 from 4750 from the prior forecast and 4800 for next year. given the current levels, that
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still means returns of around 6% in 2022 and 10% next year if these forecasts end up being right. the cnbc risk reward ratio gauges the probability of a 10% increase in stocks over the next six months falling to negative 14 from minus 11 in the last survey so there's an average 52% probability placed on a 10% decline compared to just the 38% probability of a 10% increase in stocks the more bearish stocks come with an outlook for the ten-year yield to rise over 2% by year end hitting 26 in 2023 and you know that the current level of 174. so a bit to go for this year all right. despite unit four forecast for stocks and hirer bond yields, the outlook for growth improved with forecasters raising their gdp to 4.5% for 2022 also amid a more aggressive fed outlook. here are the expectations.
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first hike now firmly seen coming in march. three and a half rate hikes for this year. that shows the three are baked in the debate is whether there's a fourth this year an additional three hikes are expected next year and the balance sheet runoff in july much earlier than the last survey so respondents expect 380 to come off the balance sheet in 2022 900 billion next year and a total of 3 trillion over three years or one-third of the $9 trillion balance sheet will be reduced, morgan, so that's a pretty aggressive outlook, especially compared to the last time the fed did balance sheet reduction. >> been a while since we've seen a fed that is going to be potentially tightening as aggressively and as quickly as could be the case this year. what just jumped out is this rise in the forecast around economic growth. anymore color or detail as to why we're seeing that? >> well, you know, i think they may have taken some from the end
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of 2021 and put into 2022. we know we had a kind of weakish kind of december just talked to some cfo type folks and they're seeing a real, a pretty good stalling for february, for january and part of february, but they expect acceleration you know, morgan, everybody has been just saying you know what, this turn around or the end of this virus is just around the corner and so i think they just keep, you know, pushing it forward. we get back to some normalcy where we start to go out and use services and have the full dynamic of the economy in full force. that's the color bethhind that increase in gdp. >> that sure would be nice thank you. zbl zbl bitcoin is lower along with equities still down around 50% from its record highs in november investors fearing a crypto winter is coming
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joining us now to discuss is chris. great to have you back on. is a crypto winter actually coming here? >> winter is here, but i'm not sure crypto winter's right here for us yet you know, i think it's important to take a look at where it all started. we look back to january 2021, bitcoin was trading 32,000 versus 36. ethereum, and solana, $2 versus $90. so while there has been a lot of selling pressure recently, the year-over-year gains are still impressive and indicative that the market is growing. >> what are some of the key factors you're watching from your standpoint at cumberland as we are seeing this volatility in the price and we are seeing bitcoin and eitther and other assets trade as if they are higher risk assets along with
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tech stocks and growth and everything else? >> that's a great observation. we're seeing crypto act like high growth tech stocks, but the beauty of crypto is you kind of look past the price process and look for on chain analytics to explain what you're seeing there's two things we want to look at. first is on exchange assets. what we've seen here is that it is at its lows relative to the past three years now, typically retail participants store their assets on these platforms on the opposite side, if we look at long-term holders, somewhere on the order of 80% of assets are held in these accumulating wallets, which are typically associated with institutional investors. so while we have retail selling on one hand, we have strong indications that institutions are continuing to accumulate and not celsell so there might be more selloff
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in the future, but i think there's a base being put in on the institutional side >> that's interesting to hear. we were having a conversation about cryptos yesterday and one of the points raised in that discussion is that the fact that as we've seen institutional investors come into this asset class, it has been treated more as a growth or a growth year or riskier asset hence the downdraft we've seen along something like the s&p 500 and you're telling me that's the opposite >> i'm not saying it's necessarily the opposite i think what we're seeing in the price action is similar to what we're seeing in equities my point i'm trying to make though is that when you peel back the surface price dynamics, there's a transparency to the underlying activity in the marketplace that is indicative of institutions continuing to hold for long periods of time despite the retail selling pressure we're seeing. >> one dynamic we've been
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talking about this week is the notion that crypto has been folded into a lot of traditional portfolios a lot of 60/40 portfolios and as a result, it will begin to trade versus interest rates in a more classic fashion. how important a change do you think that is if in fact you think that's what's happening? >> i think it's starting to slowly happen. the more hedge funds that enter the space, the more institutions that enter the space, they'll take their experiences and know how and apply them to the crypto markets. a great example is looking at the growth in derivative space we're seeing a lot of interest to find structured prices and options transactions that they can put on to generate yield on their holdings while they maintain their longer term positions in bitcoin or ethereum so as we grow our own business, i think the market is reacting positively because they have the way to adapt crypto to their
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financial markets. >> thanks for joining us today >> thank you pleasure being here. >> shares of general electric are down sharply this morning. this after the industrial company reported results revenue was below estimates, but heavyweight forecasting improved cash flow in 2022 with higher margins and potentially higher earnings here's the ceo who joined us last hour. >> earnings power is a combination of what we've just talked about relative to the core growth that we see in the business we talked today about high single digit growth in '22 margin expansion talked about 150 basis points at least of additional margin expansion in '22 with very good cash conversion that's a good thing. let's be clear more cash generated is a good thing and that's how we get to the 5.5, the $6.5 billion range we've talked about for this
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year >> ge is facing inflation concerns as this year begins, particularly in renewables, the wind power area and supply change issues specific as well he said to healthcare. just one of a number of industrials on the move this morning. of course as you take a look at the overall sector there, you can see the industrial ticker, xli, down almost 2.5%. another name on the move this morning is blue chip 3m. it came in ahead onn estimates helping to off set lower sales in the transportation and electronics industry but you know, again, after a somewhat stronger start, that stock has retreated. as i've noted a number of others that were briefly in the green, verizon, are broadly down. >> 3m, organic up. street was looking for roughly flat a lot of the margin concerns haven't been the focus of these
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initial prints 3m's operating margin was ahead of the street. it's more about overall levels of demand and revenue growth at least that's the early read on these big cyclical names. >> and continued concern about supply chain we spoke to larry, also greg hayes at raytheon. he cited that in their business. >> supply chain issues for ge. supply chain issues coming up in the conversation with raytheon also 3m. they've been suffering for a number of quarters in things like their transportation unit from that semiconductor shortage, but there's some positive threads you can weave throughout some of these industrial heavy weights the fact you are seeing this commercial aerospace recovery begin to take root, which certainly took center stage where raytheon is concerned. even as you saw some softness in areas of its defense portfolio, certainly missiles and
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hypersonics and some of these other newer technologies, especially given the fact that lockheed martin, one of the lone names in green today, suggested that the ftc is probably not going to or probably going to block its deal with aerojet, which could benefit raytheon but you're seeing that with aviation and ge, too the fact there's this commercial recovery that's starting to take root and that hopefully begins to materialize in a much more meaningful way in 2022 but a lot of cross currents here that a lot of these big manufacturing stalwarts are having to navigate and what's interesting to me is that when you speak to some of the ceos of some of these companies, it's not even that they necessarily expect some of the supply chain issues to fully resolve by the middle of this year. it's that in some cases like with a ge, the comps start to get easier in the second half of the year and they're getting better in thanks part to
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technology adoption at navigating these supply chains and finding ways to work around some of the shortages we continue to see in the marketplace. >> that's a good point hyundai on the record today saying they see the chip shortage easing in q2 with normalization perhaps in q3. that would be a big deal for the auto sector and texan reports we might get additional color on that after the bail. dow's down 380 hey, bob >> and the important thing is we need to hold the lows from yesterday. technically, that really matters. so it was about 4222 or so we're well above that. right now, we're okay, but keep an eye on that one terms of sectors, industrials on the weak side. ge and 3m a little weak. 3m had an excellent report very good pricing power. banks are down 10% that was a disappointment here the ipo etf is at a new 52-week
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low. that's important because it's f got a lot of young tech stocks tech's about 15% off the highs about 40% of the tech stocks are down 20% or more including some of the big semiconductor names, so teradyne nvidia about 30% off its highs and still expensive. 40 times 2022 earnings so we've got about 15% of the s&p 500 reporting. we've talked about lower multiples being an issue and a little earnings pressure starting to emerge 79 companies reporting the average beat is about 8% still not bad, but remember last quarter, we were getting 13, 14, 15, 20% beats. only half of what they were in the prior quarter. still pretty good, but not the same not as many companies are seeing their earnings raised. it's about the first and second quarter we're interested in.
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right now, about 30% of the companies are seeing their first quarter earnings reported. last quarter, it was over 40%. so they're not raising the number so here's the dilemma. we talked about the multiple compression in the earnings issue. there's a simple equation. we've had very modest earnings growth expected for 2022 about 8% and we're getting the fed withdrawing liquidity means the multiple starts coming down you're getting sub par returns we've had an amazing run in the stock market 15% a year has been the average gain on the s&p since 2009 the historic average is about a 10% gain that a five-point differential is largely due to the federal reserve and the liquidity it's
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added. so now, what happens when the fed withdraws it can we expect subpar returns yes, that's what a lot of people feel we had stovall on. it's poimportant to know the s& 500 tends to go up long, long-term here declines are theirly unusual to see when you start getting into 30, 40% range. 5 to 10% return declines happened 84 times since the end of world war ii. that's more than once a year so this decline we saw yesterday, that's fairly typical as you see here. 10 to 20% only happened 29 times and the 20 to 40% returns which we had in 2020, that's only happened ten times since the end of world war ii and the bounceback usually takes about ten, 12 months even for something like that just a little perspective. remember, the s&p goes up three out of four years historically back to you. >> all right
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not so far this year down about 9%. thank you. for more on where investors can call opportunity, let's call it in tech, we're joined by head of internet research, mark hainey let's start with netflix you downgraded the stock for the first time i think in ten years. or more. off that terrible guidance of course, but now the stock is down 38% this year you know, tell me your thoughts about netflix and whether or not there's a broader read sort of to speak of for a pull forward of demand overall. >> for the first time in quite a while, it gets close to market reasonable multiples so you have, this makes trading it now 25 times next year's earnings that's 23 for something that's at 20 to 30% earnings grower so the valuation is now starting
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to get into a place where it gets you know, highly attractive that said, with this uncertainty over what's happened, some day, you're going to see the sub growth slow down no longer going to be able to do 20 to 25 million new subs. looks like that was this period. that's why we stepped to the sidelines. i'm not a bear or a bull i'm going to wait and see if we get more clarity on what happens to the sub growth. if we can get back to 20 million subs, it's a great buying opportunity. we're just uncertain >> now my second question, which i'll ask again is there a reason for netflix? you brought this up in a recent note maybe the idea that sub weakness reflects a greater pull forward in demand. are you seeing that? >> not yet not across other names just starting the earnings season i'm sure we had a year of pull forward of demand. maybe it was two years for companies relatively well penetrated, it's possible we just pulled forward netflix
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saturation i doubt that, but we certainly pulled forward some easier sub growth i don't think you're going to hear from that facebook. i doubt you're going to hear that from google and i strongly disagree you'll hear that from amazon so we'll stick with the higher quality names here. >> two-year chart of netflix versus disney. they're finally coming back into a similar pattern in terms of returns. even going into the print on netflix, there have been some who said that training the name on subs is just too difficult at this point a lot of times, the misses are small. that it's going to be more about a margin and pricing story which is a new way to think about the stock. do you agree >> i do. as a tech investor, you focus on unit growth more than pricing growth you get higher multiples for companies that can sustain premium unit growth like subscriber growth. when subscriber growth goes x
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premium, when it gets more, you're adding ten to 15 million subs a year, that's a lower multiple ame that's what happened to netflix. it's derated versus ebitda or price to sales basis that's the risk. my guess is that the same thing netflix is seeing, probably other streaming companies are going to see it's just tougher markets to grow in. >> moving beyond streaming, looking across your coverage universe so many of the names you analyze have fallen so dramatically. not just in the last couple of days, but in the last couple of months are there names you feel are babies that have been thrown out with the bath water and you would be buying at these levels? >> yes, we're going the stick with the highest quality names the thing that they have to deal with with these surging interest rates, we haven't had that in arguably at least in five years
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or maybe in a decade the last time we've had a sustained interest rate cycle rise so that just makes it tougher for high multiple future growth stocks you want to find the highest quality names, companies whose fundamentals are going the stay well in tact in a year like this it leads you to google, facebook, amazon then you want to look for real covid recovery plays, home reopening plays. uber and companies that have got really specific business model catalysts this year. one of those is spotify. you have to have something really specific with the stock or just have a very good value play and the value pitch on google and facebook, these are now both trading at like 19 times earnings and it's 15 times earnings on next year's numbers. that's a market multiple for what a clearly bulletproof balance sheet companies with great growth prospects start with the high quality names. those two. >> we know where you're
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constructive for those names that aren't profitable and that are pure play growth plays where the valuations have been based on earnings way off into the future, how much uglier could it get? >> i'm not sure, but how long could it be ugly i think that's really the question we need to ask ourselves. last time we had a real nasdaq correction, the end of 2018. these stocks traded off 16% and it lasted for three months we're three weeks into this correction arguably, maybe longer, but really, it's about three weeks, so we could be looking at tough markets for high multiple, future growth stocks for throughout the spring and maybe into the summer. that's the duration that we should be expecting. >> mark, finally, you mentioned amazon a few times just come back to it to end here what is it that gives you confidence obviously, they spent enormous amount of money investing over the last couple of years, but
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there's not necessarily a belief that's really going to slow, is it >> no. but they certainly accelerated the last two years, so you're right. t that's is set up you had massive investments in the last two years and it was hard to see that during the covid crisis, but this company added so much distribution capacity that's what tanked margins at the end of '21 you also had this perfect storm of supply chain challenges all that gets absorbed or reversed as you go into the back half of '22. now you can buy it as a 20% discount through its average multiple and the last thing to keep in mind this isn't some sort of moon shot investment that the company is making they're doubling down under their core competency, which is logistics. they're going to prove shipping e elasticity i think it's going to come through in spades for amazon
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you're going to see them gain more share of their customer's wallets and purses >> thank you >> thank you, david. we're going to take a quick break here with the markets all firmly in the red though off the lows of the morning. dow's down about 430 points. s&p is down 1.9% and the nasdaq, again, leading everything lower. underperforming by the most, down 2.3%. ba ithe. ckn re
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welcome back take a look at lockheed martin it's trading up 1% after an earnings beat and 2022 guidance. however, the big news of the morning where lockheed and actually the broader defense sector in general is concerned is the fact that the ftc and we're just getting these headlines, that the ftc is filing a lawsuit seeking to
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block aerojet rocketdyne a company focused on space, missile, hypersonic missiles, the trading markedly lower it is trading doung 15%. lockheed signaling this morning ahead of the official filing of this lawsuit that it will, basically has two choices here it can either sue to block the transaction or it can walk away from the transaction unclear what is going to happen yet. we don't have that detail from lockheed yet it is going to be something i will be watching for, but lockheed did also say that it kopts to believe in the benefits of the transaction for the united states and its allies, the industry and all of the company's stakeholders this was a $4.4 billion deal struck under the ceo back in december of 2020, originally expected to close in the second half of last year. was pushed to this quarter, and
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of course, we know with the ftc that's in place and that is taking a much more critical and skeptical lens of mergers and acquisitions in general, that this is now being blocked. it was a vertical acquisition and it is moving to block this it's going to put a pal over the defense and aerospace industry, which may be why you're seeing the small and mid cap defense and space names trade lower in sympathy this morning as well. that being said, this is the type of news as i mentioned, we're talking about space manufacturing. this is the news i will be discussing with policymaking -- you can listen today search manifest space wherever you download podcasts and by following the "squawk on the street" podcast. guys, i say this with the pun fully intended it's going to be a star studded,
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literally, lineup of guests and we're going to have having in depth conversations on a biweekly basis about all of the goings on in this emerging space economy and of course a deal like this today being blocked by the ftc speaks to how crucial and important space and capabilities, new capabilities in space are not only to national security, david, but also to investors when you see shares of aerojet down 15.5% now >> listen, i'm looking forward to that because i love your coverage of space overall and have learned so much in terms of so many different things that are going on investors care about specific to this decision by the ftc to block this deal, morgan they say if konzconsummated, it would give the -- to build competing missiles that is something greg hayes said as well and they've made no secret of their opposition to the deal
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that being raytheon. they've been joined interestingly by elizabeth warren unlikely one would expect that lockheed would go to court to try to challenge, but i guess we'll have to wait and see >> we'll have to wait and see. i would note raytheon has probably been the most publicly opposed, at least of the largest weaponsmakers to this deal, both publicly and formally putting in an opposition to this i guess early last year. almost a year ago. and it's worth noting that northrupp bought atk a number of years ago, which is also a rocket engine maker. if it were to be purchased, raytheon would be sort of one major prime contractor, u.s. prime contractor, that didn't have a rocket enginemaker that had been absorbed into its
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portfolio. now, of course, raytheon did merge with aerospace business of united technology, so it's not necessarily in a position to be engaged in anymore m&a, but there are other types of deals that investors have homed in on over the last couple of years and have helped give lift. a to some of these small and mid cap names. it's going to be interesting to see how that shakes out given the fact that in general, defense has been a really, those names have been a really rough trade ever since biden won the presidential election back in the fall of 2020 >> yep and although this is ftc, we keep coming back to what doj's antitrust chief said last night reportedly to the new york bar when the division concludes, a merger is likely to lessen competition. we should seek a simple injunction to block. what is competitiveness in space? it's a new question we're wrestling with >> sometimes they have to deal with things in industries that
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change so quickly, you're relying on antitrust law that some say is outdated but in this case, it would appear that behavioral remedies don't, in their opinion, work. we've been keeping a close eye on the regulators and questioning how aggressive they will be. certainly aggressive they'll be. when we think about the enormou deal of microsoft acquiring activism, up to 18 months for approval this is a smaller deal, but we'll be focused on these in the future. >> nvidia and arm, again, going back to the national security discussion >> yeah, no question as we go to break, take a look at some of the biggest laggards on the nasdaq 100 bad downside volume day. we'll have more on the sector's volatility i"th ecn ecchk. back to 4,350.
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ap, acorp, and outperforming this morning but i've only mentioned one green spot with that, i'll have to end with a positive note and send it back to you downtown. >> thank you very much let's get over to the news out of russia today, shutting down a major hacking site. good morning. >> good morning. this comes amid the rising tension between russia and ukraine and a potential, the possibility of a russian invasion of ukraine. we're seeing an interesting move by russian law enforcement, which says it has shut down one of the most high-profile credit card theft sites on the russian dark web they're saying they've shut that organization down. we now see a post on the russian dark web from the russian ministry of internal affairs, saying this site has been taken down, and reminding users of the dark web that credit card theft is illegal
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here's what the russian news organization is reporting about this right now they're saying the leader of a group called infraud, and andrey novak, has been arrested and others are under house arrest russia is not planning right now to extradite mr. novak to the united states. what's interesting about this is it comes in the wake of a 2018 indictment by the u.s. department of justice. they indicted 36 alleged members of this group, infraud, way back in 2018. the group's slogan at the time was, in fraud we trust you get a sense of what kind of an organization they are andrey novak was one of the people indicted by the united states back at that time the group was said to be responsible for $530 million in losses, including to u.s. financial organizations. 13 of the 36 who were indicted were arrested globally they weren't able to get their hands on the others. now, the russians have done that
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for the united states. a u.s. department of justice spokesperson declined to comment when i called the doj for comment on this. guys, clearly, observers in the united states are going to see this move as an olive branch by the russian side to the united states ahead of any potential tussle with ukraine, saying, in essence, the message here from the russians to the united states is, look how good we can cooperate. look how well we can cooperate on cybercrime if relations between the united states and russia are in a good place if they're not in a good place, maybe this kind of cooperation goes away. that seems to be the message here, as a lot of people are interpreting it from this recent roundup here of these folks who are allegedly behind this major credit card theft site on the russian dark web, guys back over to you. >> of course, cybercrime not to be confused with state-sponsored state espionage. this is exactly where i was going to go with this, eamon, the timing of this, and whether this is an investigation that has been long in the works or
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whether -- and whether the fact we're getting this news now is any kind of coincidence. it sounds like it is not, given the tensions that are flaring with russia and ukraine. >> yeah, it doesn't seem to be a coinc coincidence. the note was posted by department k of the russian ministry of internal affairs they've had four years to do this it doesn't seem to have been much of a secret who was involved in this organization. the united states named them all back in 2018 it took until just now for the russians to make their move here so you can infer what you will from the timing of all this. >> all right eamon jack on thank you. dow down 1% or 350 points right now. all the major averages are lower. transports are no exceptionment f and we turn to frank for a look at the names under pressure. hi, frank. >> down transports down almost 2% not falling as hard as the broader market they're being held up by airline stocks those are holding up the index
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united up more than 1% other major transport names, night shift, the largest trucker, jb hunt in long beach, both in the red. the largest container ship is down despite raising the profit guidance by $1 million recently. pressure hitting the stocks indirectly higher transport and interest rates impacting plans to hold more inventory, especially lower margin inventory like clothes and toys rail stocks are down near term pipeline is looking good with 100 container ships or so kis consistently outside the port in long beach, but the volume is lowered. there is pricing power, and there's a lot of questions about the ability to withstand a lack of restocking which has been the bread andbutter for ecommerce throughout the pandemic. >> thank you. the big earnings week continues after the bell microsoft is the big mega-cap name that is set to deliver
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results. when the bell closes, it is down about 3% right now ahead of that, down 14% year-to-date. david, it is going to be a key one to watch, especially after the shellacking we saw netflix take last week i realize different businesses, different business models, but just, in general, speaking to the pressure and perhaps the high bar now, especially as we have seen rates begin to rise for tech and growth names in general. >> yeah. obviously, this last quarter was a blowout. top-line growth is stunning for a company as old as microsoft. benefitting enormously from its cloud, azure business, which is growing at phenomenal rates. perhaps was a beneficiary, as well, of the stay at home economy. that'll be a key question for any number of these earnings reports, the question we kind of entertained with mark, was there a pull of some demand over the last couple of years >> that's right.
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of course, we have texas instruments, as well capital one, f5 networks, and other big tech names as the week continues to go on but as we mentioned earlier, major averages are all lower off lows of the session, though, so we'll see where we go from here after the whiplash-inducing ride that was monday, david. >> yup nasdaq down 2.5% that'll do it for us on squawk on the street. "tech check" starts right now. ♪ good tuesday morning welcome to "tech check." today, the tech sell-off does rear its head after the nasdaq fell and recovered more than 4% yesterday. market is declining once again meantime, microsoft and apple kicking off mega-cap earnings this week, both tickin


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