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tv   Squawk Box  CNBC  September 2, 2009 6:00am-9:00am EDT

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>> here is what i know. sell away and come back in summer, people sell, they buy in july. maybe you do the opposite of what the phrase is. >> which works until everybody starts doing it, and then -- >> we were all heading over the cliff together. but i mean, september is a little rocky, but october has an uncanny knack of being crash month over the decades. >> so we're looking forward to october. in any event, the financials were the hardest yesterday hit yesterday. they were down by over 5ers p. >> she's not here yet. >> michelle girard is here. she's smirking over there. >> i always figured it was because we knew october was bad and people start to look ahead. >> gearing up for the crash. >> trying to be smart by selling before everybody else. >> so we'll be selling in july in anticipating of the selloff
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in september. >> thanks for pointing that out. >> the september? >> no. the july information because if everybody starts following that and tries to buy, then it's the wrong time. >> okay. i'm confused. but what we need to look at is whether these are statistically significant differences. if it's a little bit, it doesn't matter. if it's a lot, people will trade by it. people do it because other people are going to do it, and so it reinforces. >> it's so much more than fundamentals sometimes. it's amazing how it takes over. >> we're watching things today and it has been a rough start for the asian markets, as well. japan was hit the hardest. and in early european trading, you'll see that across the boards. the ftse 00 off by about 22 points right now. the cac 40 is down by 32 points
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and the xetra dax is down by 41 points. if you're watching the u.s. equity futures, it's been three down days in a row pop u.s. ekts. right now you're talking about the dow futures down, but by only 12.5 points below fair value. so anything could happen. we do get big economic news today. the market will be key on what we hear when it comes to jobs. >> but we have no idea how? no. >> strong data yesterday. accelerate to the downside. wells fargo says it will pay back t.a.r.p. funds soon, but a spokesperson telling cnbc the company will not raise equity to do so. there has been a furry that wells was one of the odd out. >> but you know what's so interesting about this? they came out a few minutes before the bell rang. some of these stocks were getting hit very hard, and the
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put options for wells fargo had very heavy activity. so he came out just before the market -- >> so let me get this straight. at this time, you're at home, you have the computer up, you're following the put options. is that what you're doing, beck? >> actually, yes. >> and people say i'm weird. >> but there were so many rumors and it's -- for a ceo to come out and say, no, this is not the case, don't buy into this, we're going to do what we can to pay it back with our own money. >> there has been a noticeable from wells on when it will get out of the t.a.r.p. wells, remember, was one of the ones that didn't want to do it. then, of course, they got
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involved with wachovia and all of a sudden, they needed the money that had been given them and we had not heard anything about their exit strategy, which applies both to the private secretary either and to the government sector. >> kudos to them for coming out and saying something before the bell. >> 500 more banks may fail by the end of next year. the same investors for the on cnbc yesterday afternoon. >> the fundamental problem now is commercial real estate as opposed to residential. the first wave of the big banks were the securitization. the regional banks are the ones now going down mostly didn't have much in the way of securitization. but they all have construction loans, they all have development loans, they all have loans on thrift shopping centers. they've got that kind of portfolio. >> well, the fdic hit a total of 416 banks failed its grading system last quarter. obviously, everyone has a
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different number on this. i think we had john on the show last week and he was saying we could see about 1,000 more banks fail over the next week. >> when i first saw the rumors that a u.s. bank would fail, no kidding, we'll see a lot of thegs things. i think the concern that really spread was when people started worrying it was bigger banks. >> yesterday, it looked like minor echos of bad days when it was the flight to safety stuff, seeing the yields come down across the board, there were other things that looked like the market was nerve kwus about something, not just any old bank, but a major bank. of course, we have no sense at all that that is the case. >> and i was willing to write all this off, somebody trying to manipulate things in a light volume day. but the volume was very heavy volume. >> if you're watching the puts and the volume yesterday at home. >> trying to point out what a geek i am. that's what i do. >> we do get up around 3:00 in the morning. we're not allowed to have a life anyway, right?
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>> that's what i like about it. it's 4:00 in the around. how many screens are talking in the den there, becky? >> just one or two. >> two? >> yeah. >> anyway, did you see this last night? fdic woman sheila bair, she seems to agree with wilbur ross and what he's been saying. she tells cnbc that commercial loans are the biggest threats to banks. >> residential mortgages are still a bigger percentage of where the credit distress is right now, but commercial real estate is catching up. so i think commercial real estate will be a bigger driver of losses and bank failures. but we've known about this for some time. again, it's part of the process that we have to do to clean out the banking system. >> chairman bair wag speaking on cnbc last night. she warned that investors should keep their cool. >> i don't understand her op-ed from yesterday, but we'll talk about that yesterday. >> i got it.
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>> but she's arguing against the super regulator of banks, but nobody is talking about that. >> i think she's arguing against putting all the regulatory power in one area. maybe it's the fed having too much, maybe it's the treasury having too much, and more than anything saying we have to be careful what we do here. we have to make sure there are other people who keep their eyes on those things in that we have a series of checks and balances. >> two things. first of all, she said it's not about turf. two is she had we need many regulators and she points out how many regulators in that state missed it. so it's not like the system -- >> but i can understand the all that you don't want just one voice of thought, that you would like to have several people checking out. now, we have had had several people come on saying, forget it, you should not allow people to shop for regulators when it comes to insurance companies. but there's a third issue, which is that i don't think the
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administration's proposal is for a single regulator. it is for a systemic risk regulator, which is different from what she's arguing and i don't know if she's -- >> but i thought the proposal did take away from some of the existing regulatory powers that were out there. >> i think it consolidated one agency into another agency, created one single one, created two. maybe i have that wrong, but it looks like she was arguing the proposal not on the table and arguing in a different way. >> you know how these things happen. the same thing happens with health care where we're not entirely sure what we're talking about. >> maybe trying to spin before you really see where things wind up because things can get changed drastically. >> right. well, what is disconeither issing from the administration's view is you have sheila bair arguing against their proposal. i don't know. but it seems like different regulators talking with different mouths here on the issue of reform which everybody says -- >> that i would agree with.
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there is not one -- >> maybe there should be. maybe that's how we get to a better solution here. meanwhile, this is right in line, the banker's association is called upon to transfer mortgage lenders fannie mae and freddie mac. the industry group wants the gfcs to be divided into a number of smaller, privately held companies that would issue government securities. the plan's architect will be released at 8:40 eastern here. >> the herl at age 15 eastern, a survey of forecasters called for a loss last month. product activity and data costs, that will be released at 8:30 eastern time. unit labor costs fall by 5.8%. and some other economic news of note to watch today, there's quite a lot on the plate, july factory orders will be at 10:00
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eastern. dennis lockhart will be released a and, steve, you're on that case, as well. >> i'll be there, 2:00. you talk about the screens. the vix, too, right? you probably have the vix on another screen, right? i've got the minutes over here, i've got the talf over here. >> that's your thing. >> who wins for bigger gains? >> becky will win. whatever it is, becky will win. >> and you know what? i have to say -- >> maybe the objective. >> i have to say, that is a good thing, not a bad thing. >> it worked. we showed you the futures, but again, you are talking about futures under a little bit of pressure after the markets have
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been down for three trading sessions in a row. oil prices were down 2.7% yesterday as people started worrying about economic recovery. 68.52 is what we're watching for crude oil. the ten-year note getting -- i was talking about the yield under quite a bit of pressure yesterday as people were fleeing stocks, moving into these areas. right now, the yield is at 3.75%. yesterday it closed at 3.377%. that was the lowest yield we've seen for the ten-year since mid-july. if you've been watching the dollar, as well, let's check out quickly where the dollar stands today. dollar/yen, 92.66. the euro at 1.4225. and the pound is at 1.6176. gold prices, as you might expect, down by just 90 cents to
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$955.60. gold prices haven't been moving tight as you might expect given the chaos and other areas of the market. >> maybe inflation concerns out there, inflation, as well. >> let's get to the overseas markets right now. christine tan is standing by in singapore. we're going to get to her in just a moment. we'll start things off with louisa bojesen who has the latest on the stock market bombing outside the marketplace in athens. >> we're trying to figure out what took place there and we know that they will be giving further press conferences from greece later on as the day goes on. let me show you the markets, though. european bourses are trading in slight negative territory down in the region of 0.5% to 1% or so. on screen, you can see lloyd's
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at the top of the charp by 4.5%. there's been speculation that they could be looking at a large cash call to reduce their involvement in the government scheme to ensure bad debt. there was speculation that they were looking for backing from important city share hold hers to raise $16 billion in order to finance this. i am looking at a couple of comments from lloyds themselves here in the past hour or so saying that lloyd's has not been in conflict with shareholders over potential rights issues. that may wipe out some of what we're seeing on these comments. there is a lot of aggressive selling. for more on what's taking place in asia, let's cross out to christine. hi, christine. >> hey, louisa. japan led the nikkei down by
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2.4%. even gains in shanghai failed to support the hong kong market. the composite rose 1.2%. gains in china were led by the banking sector after slightly better than expected lending data in august. australian stocks dropping today after second quarter gdp data failed to impress the market. however, the aussie market got a boost. that's it from asia. becky, back to you. >> christine, thank you very much. as we've been talking about this morning, it is a new month and the new market. summer rally coming to an abrupt halt yesterday as the dow, the s&p and the nasdaq closed down by 2%. joining thus morning is michelle girard. also, jeff irery, partner with stone bridge financial. michelle, i want to talk to you about what happened with the economic data yesterday. this is some of the best
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economic data we've seen in i don't know how long. if you're looking at manufact e manufacturing, it was the first time in a year and a half that you saw growth. auto sales for the first time in a year, you sass saw an increase. >> the economic data has continued to improve and if anything, has shown an acceleration in the potential for growth. it's completely supported the idea that the rebound in economic activity could be stronger than people expect. and sometimes psychology overwhelms fundamentals. we were so surprised to see the -- obviously the stock market not be able to do better and to see the treasury market, as you said, yields moving lower in the face of some strong economic news. you know, it sort of makes you wonder what friday will hold. i mean, you know, even if the numbers do come in along the lines of what we've seen, maybe the reaction will be different. >> is it possible that there's a bit of buy the rumor, sell the fact, as well? over the course of the summer, we had that month to rally because they were basically
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factors in economic data. so here it's priced into the market. >> well, i think there's something to be said there, but i have to say, the magnitude of the gains here of late have been stronger in housing and manufacturing. now, even some of the skeptics who i think argued against the economy being able to gather any momentum, they argued against the sustainability of the uptick in activity, i think the magnitude of the move and the breath of improvement across so many indicators, he think it makes it difficult to ignore. so we have been suspected earlier, a couple of weeks ago, that perhaps stocks are doing better. you saw the sign that all the fed's liquidity was beginning to show itself in the financial markets and was giving all assets a lift in surprise. >> maybe we want to be careful, jeff, in drawing too many conclusions from what was it, a
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single day trade in december? >> three days down. >> i don't disagree. especially because of the number of screens that becky has up in her house. i don't know that -- >> i'm not betting on that. >> i'm just saying, jeff, there's the possibility you had the end of august, which is a terrific month, and then you saturday off in a different way. are you drawing drastic conclusions here? >> i would think so. people spend too much time for focusing on the moves for 10, 20, 30 minutes when she should be looking farther out. >> almost an hour, right? >> that's right. in michelle's case, i think she's absolutely right. we're cautiously optistic. the folks are still worried about their housing prices, they're still worried about unemployment. these issues haven't gone away. >> there's always been a disconnect between what mail street and feeling and what wall street is feeling. i guess the true test of the
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conviction now is whether or not they want to come back in and buy these dips and whether they want to stay out and let things settle and see which way this market is going. >> i think they're going to get pulled into the market kicking and screaming and i think that's good for a bull rally. i think that throughout the year, we've seen a number of dramatic moves. march was certainly, in my opinion, a swing of the pendulum far to the left and now what we've seen is some of that correction back. the fundamentals are strong. i think inventories is another issue that's going to be a big player in the next few months. the biggest concerns i have, i think treasuries are -- they still need to be a concern and i think people need to be worried about inflation and what they're going to do to put some of those concerns behind them. >> you know, michelle, there's that point of view. this idea that people are going to get dragged into this rally kicking and screaming. then as doug cass said yesterday, he thinks the market
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has peaked for the year. what do you think s more likely scenario. coming into this week, it was like, oh, people are gol going to come back and focus on what's in the equity markets. everybody who was away will get pulled in. and so given that and given the reaction to the strong numbers, i think that is why yesterday anticipates move was so rattling, you know, why we're spending so much time trying to figure out what happened. i have to say, because looking at the fundamentals, i continue to see, you know, the news getting better on balance. it's hard for me to see a dramatic context. >> so you did some work on historical recessions and rebounds. quickly, i know we have to go, but are we setting up here for a v of a kind of u or a lackluster -- >> the work that we did actually says that the zone we're in for that great ism number yesterday doesn't tell you a lot. in both cases, sort of in the
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slow recovery out of the last two recessions and the v-shape, the move from the lows to about where we are now happened in both cases. it didn't tell you -- you have to get about three or four points higher to get to the point where you differentiate, oh, this is a v versus a u. right now we're in that zone. >> tony craszenzi point the out something from the ism yesterday showing there was a number, and i forget what he called this number. it showed that the orders were going out faster than they could refill them, which may indicate that these factories may have to hire people, which could be a positive sign. >> absolutely. a lot of people will be looking at disconnects or orders inventory people are looking at closely. >> let me ask jeff quickly. take what michelle just said. what's baked into the market right now? is it a lackluster recovery and is there room for the market to move if this v shows up? >> i think there is some room.
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again, we're cautiously optim t optimist optimist optimistic. i'm more along the lines of a slow, plotting, steady recovery as opposed to that traditional v shape. main street isn't there yet. they're not comfortable with dlr housing, they're not comfortable with their jobs. until they can get comfortable that their own backyard is security and safe, i think it's going to take a bit of time before they want to come roaring back into this market. that being said, there's a tremendous amount of opportunities out there both in bonds, stocks and commodities. bonds and stocks, you've got high yield. longer term, you've got the small caps and midcaps and some emerging market. i think there's nice opportunities there. and i think, you know, with the family i'm dealing with, if you're worried about inflation, there's nice commodity picks out there. >> i wanted to pick up on that. i wanted to ask you why you think we ought to be worried about inflation and in what time frame. there's still disinflationary
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forces out there. >> you know what? that's usually when i start to get nervous, when the fear is not there and everybody looks positive, i start to get a little nervous. i think -- i think when you look at -- >> we're underestimating this. >> i think we might be long-term, right. and again, my perspective is a little more long-term in nature. you know, most of the families that i'm dealing with, if we need money that is going to be spend in the next five years that's in kan catch and cash equivalent, because that, that's where you start to look at inflationary pressures. you can't look at tips right now because the real return is so low. i think there are concerns. certainly i'm talking about hedging positions, i'm talking about if you have concerns with inflag, it makes good sense to look at things like commodities to off set those concerns. >> je, michelle, thank you very much for coming in. we appreciate it. the supply delivery component, i
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found in the notes. >> digging the hole, becky. >> i had to find it. anyway, right now, it's time for our business traveler's forecast. if you are traveling today, taking a plane, car, train, listen up, scott williams of the weather channel is here. scott. >> good morning, everybody. as we look at our current airport delays, a cool start in the northeast and new england right now. later on this morning, we might see some delays out of the world's butsiest airport in atlanta due to low clouds and scattered showers and thunderstorms later this afternoon as we move down into the sunshine state. the overall national perspective here, high pressure and full control over the great lakes in the northeast. watching this stationary boundary around florida, scattered showers and thunderstorms along the i-95 and i-75 corridors. also watching hurricane jimena as it makes landfall around the baha and tropical storm erika,
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we'll talk more about that in a moment. >> just outside of tampa, jacksonville, florida, flash flood watch throughout the day. watching thunderstorm activities around kansas city and moving outside of tulsa and oklahoma earlier this morning, so watch out for that. now, tropical storm eric erika, drifting to the west at about 5 miles an hour, hurricane hunters will be out all day long trying to probe the system, really having a hard time finding the circulation, as well. the forecast model is all over the place here. moving into the upcoming holiday, it looks like it will be approaching the bahamas. maximum sustained winds now at 50 miles per hour. back to you, steve. >> thanks very much. coming up, this morning's top stories and why captain morgan
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k today.
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all right. good morning, everybody. welcome back to "squawk box" here on cnbc. i'm becky quick along with mandy drury and steve leisman. carl and joe are off today. as you know, september kicking things off, starting off in less than stellar form for the bulls. let's take a look at the markets this morning. futures have shown some improvement. right now, you're talking about the dow features being virtually unchanged at this point. they've been fighting back after seeing losses overseas and in asia. this morning, you're talking about the dow relatively flat lining as we await to get very important news from adp and from challenger. >> let get out to the futures pits in chicago now where we find jessica hoversen of ms global. as becky just said, already september is leading up to a dismal month. do you think we should shrug off
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the vibes from asia >> and europe? >> it was right that we were ready for a correction. we had the euro/yen start to capitulate. we had the sell-off in china. so i think it was just a matter of time that we saw the s&ps pull back. the question is now, can we continue and for how long will we, you know, stay at these depressed levels? i think what happens going forward is that we need to continue to watch the consumer sector. the main concern of many investors is will the investor be able to continually repair itself and begin consuming and allowing for the economy to move forward. >> and what do you think is the answer to that question? >> well, i think one of the major questions is what's going to happen in the government sector if we continue to push forward with this, you know wab health care, that's stopped in congress. i think if we do continue that, that's going to have negative implications for small
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businesses, which is going to have negative implications for the consumer. the consumer is overleverage the right now. debt is about 100% of gdp. it's goc to be a long and ar due i couldn't tell process for that to unwind. >> it seems like if you get those better economic reports, that that would sort of draw closer the day when the fed would tighten and washington might not spend all the stimulus and that tends to offset some of the joy that may come from the economic data. what is the relationship right now? >> well, i think there's an anticipatory factor baked into the market and the market moves ahead of the fed and as well as the treasury. i think going forward, we have seen credit conditions improve fastly because of what has happened with the fed and -- to see the capitulation that we did see last september. one of the main drivers of that
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move were so incredibly tight. but that has abated immensely. and so i think that the market is actually -- the market recognizes that the fed has baked in and that the treasury additionally, though they are issuing a lot of debt, they, too, are looking to repair the sector. and i think that has positive implications for the overall tenor of the market. >> you know, this morning we were discussing something that was yesterday and that is, of course, the unstashated rumors of the banks default and how it was interesting how jittery the market seems to be. and it's no secret that lots of banks are going to continue to fail and default. so, you know, does this sort of give an idea of the psychology that's in the market right now? >> i think that when uncertainties are elevated, the market has a tendency to be exceptionally volatile and obviously, i'm not original in that herery. but what we see in times like that is that we move back to that one trade mentality. whereas if the s&p breaks back, we see safer assets elevate,
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that being the treasury market, the dollar, the yen, those sort of issues. what i do think is most important or the banking sector is, obviously, the commercial real estate market. and i think there is an inherent relationship between commercial real estate and the consumer sector. if we see unemployment start to fall and the consumer repair, i think you'll see a lot of builders have the confidence to go out and build shopping malls. so i think therein lies the problem of what's going to happen with the consumer sector. >> thanks for your report today. >> thanks for having me. analysts are expecting crude stockpiles to have fallen by as much as half a million barrels. joining us now, steve short. good morning, steven. >> good morning, steve. >> so where are we right now? we're down two bucks, we're up two bucks. what's the overall direction here? >> it means absolutely nothing right now. we're up two dollars, we're down two dollars.
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we have to appreciate that the normal daily volatility we've been seeing in this market, steven, has been about $2.50 on any given day. >> so hang on, steve. if there was a vix for the oil market relative to where it usually is, would it be a very high vix? >> we're absolutely off the charts at this point. and a lot of this stems from the fact that we have two different commodity markets here in the united states. we have the consumer commodity markets. this is you and i having to happen to go to the retail commodity markets. and then we have wall street's version of the commodity markets and this is a market that is ever going higher right now. now, the statistic i would like to focus on this week, steve, is the consumer right now. if we go by the consumer, the market is stopped out. this is because the spending that we have on our gasoline is around 3%. now, that's a lot better than
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where we were last year. >> steven, stop right there for a second. i think you remember the geek club which includes becky as our chairperson. we have to establish your credentials, mandy. but i want to ask steve, if you were to look at the consumer side of this thing, given the current demand, the current expenditures, where would the oil price be? >> closer to $50 and i would say with a $who handle, rather than flirting with $70. >> so there's $20 of speculative froth built into this price, is that what you're saying? >> i would absolutely. look, the situation with these green shoots, maybe perhaps we are seeing better numbers. by the end of the day, you know what? we're still defaulting ow mortgagers at a record pace. we're defaulting on credit carts at a record pace. unemployment has doubled. if you look at gasoline station
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sales receipts, we're just not driving. the demand just isn't there at this time. >> steve swb opec has never had a fantastic track record with complian compliance. i'm getting they're looking and saying, i'm going to have a piece of that and they're not really complying with the agreed production cuts. how much how long that is going to keep a slightly down pressure on prices? >> i don't expect much coming from opec. you're absolutely correct. opec only -- you know, they only come together when their backs are against the wall. so we saw this in 1999 when oil prices were at $10. and we saw this at the beginning of this year when oil prices were at $30 a barrel. but as every $10 we go, the propensity to cheat from the group grows and they are certainly putting more barrels. but keep in mind, this run up in oil prices has nothing to do with the viability of --
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>> quickly, steve, we're going to run out of time. so the issue is what is it going to take for that demand number that the underlying fundamentals to catch up with where wall street is? >> well, i think if you see this correction, the problem is it's the dollar right now, steve. over the last five years, there's a negative correlation. as goes the down, oil prices go the other way. the five years prior to that, from '990 '03, there was a positive correlation. if you get that rally in the dollar, that's going to make oh pem very happy, that's going to help ease prices. but if the dollar continues to weaken, there's nothing we can do. >> when you go home n evening, steve, how many screens do you have? >> it's called cenimax and i have six screens. >> and that's for your computer. >> yes. and then i have two large screens. >> i was just going to say, an
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interesting factoid, russian oil hit a record high in august which doesn't jive with the demand. >> and there is a report that opec is increasing compliance, as well. >> yeah, exactly. >> how many screens do you have, becky? what was your number. >> i'm not telling. >> the "l.a. times" reports owner diageo is receiving $2.7 billion in tax credits for 30 years from its production operations. the virgin islands government is arranging a new $165 million distillery. >> i take no responsibility for having -- >> you are putting your own national stereotypes. we don't have to do any of that at all. coming up, it is payday on wall street. we'll talk about how the leaders of the biggest bailout banks are cashing in.
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welcome back to the show. the top executives of bailed out banks are poised to pocket millions of dollars as stock prices rebound. the latest was awarded options as the sector bottomed out this year. now, a new report says the top five executives of firms that took bailout funds has seen a combined increase of their stock openings of nearly $90 million. the report is by a wug based institute for policy stus studies. >> if you have any questions or comments about anything you see here on squawk, e-mail us,
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squawk@cnbc.com. when we come back, we'll get to the news making headlines outside the world of business. first, do you remember where you were a year ago today? let's tell you where the markets were a year ago. september 2nd, 2008, the dow erasing a 247 points gain. businesses more efficiently,
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time now for check on the news outside the world of business. monica jones us this morning. >> we'll start out with the west help of cooler temperatures and higher humidity there, firefighters are making
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significant progress against that massive wildfire raging near los angeles. it's claimed 121,000 acres so far, an area nearly the size of chicago. dozens of homes have been destroyed, while the number of homes nearly evacuation is down now to 4,000. it was up as high at 6,300. so far, cash for california has she would out nearly $14 million to battle the station fire alone. and it appears the white house is considering a new health care strategy to take control of a debate that's increasingly slipped out of its grasp. a senior adviser saying president obama may lay out his top priorities in specific detail as early as next week. on msnbc.com, the scoop is reporting that five months into their relationship, it ams appears kate hudson has moved in with yankee slugger alex rodriguez. she is reportedly living in his new york apartment, including when the team is on the road.
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mandy, here in new york, the tabloids love this story. i don't know if you've seen it yet, but it will likely make the tabloids in the coming days. >> absolutely. this is absolutely essential news that has made its way down to australia already. >> there was the pictures in the tabloids a couple of weeks ago where it showed all the players' wives and she was in the middle of the players' wives. >> and the article was about the players' wives, but i thought they just wanted to show that picture. but they talked about how they had accepted her. that was unusual, that it's a tight-knit group. >> so he dumps madonna for kate hudson? >> you don't follow this stuff. this is why you're going to win the geek contest. >> was that ever confirmed? >> no, it wasn't. >> what a life, you go from madonna to kate hudson. >> the geek forum has been made even before. before, becky was out in front. >> as a viewer wrote in, geek is
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good. geek clarifies. >> gordon geeko. a quick break now. still ahead, life after cash for clunkers. auto nation's ceo mike jackson runs the nation's largest auto dealer and today he drives on to the squawk lot with the real story. he ran off with his secretary! she's 23 years old! - oh, come on. - enough! you get half and you get half. ( chirp ) team three, boathouse? ( chirp ) oh yeah-- his and hers. - ( crowd gasping ) - ( chirp ) van gogh? ( chirp ) even steven. - ( chirp ) mansion. - ( chirp ) good to go. ( grunts ) timber! ( chirp ) boss? what do we do with the shih-tzu? - ( crowd gasps ) - ( chirp ) joint custody. - phew! - announcer: get work done now. communicate in less than a second with nextel direct connect. only on the now network. , hard of hearing and an people with speech dischities accessac.sprintrelay.com. ...or if you're already sick... ...or if you lose your job. your health insurance shouldn't either.
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welcome back, everybody. we are in the chairs, looking at the paper, finding some stories we thought we would like to bring to your attention. one of them is a story about bears. this is from the wall street journal, talking about what a problem these bears have been in colorado communities. mandy, i showed you this picture, what did you say? >> i said it's adorable. >> it's adorable until it breaks into your house, something that has been happening frequently in aspen, hardest hit town in colora colorado, more than 460 calls for help dealing with bears since july 1st. these bears, like i said, have been breaking into people's houses, mauled people, a woman asleep on her deck, and it's because they figured out that people food is a much easier way to bulk up before they hibernate. >> all those carbs. >> i was in one of those towns last week where there was a bear in the tree. >> did you see it?
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>> i didn't see it. i have two very quick points i want to make. one is the story about the industry doing all this research on cancer drugs, very slow progress. but i think it contrasts with the story "the times" had a couple of months ago about the government studies on cancer that are done and don't really do very much. this looks like the idea of the private industry forging ahead looking for the next great drug. i read this story and another financial story on the front page of "the times," the journal is changing. we don't talk about that, they're a partner of ours. it's a contest to see who has more financial stories on their front page now. >> over the course of the last year, "the new york times" and other papers have paid a whole lot more attention to the business news. >> right. >> and if you look, it's a mix. i do believe a lot of people who never watched finance news before over the last 12 to 24
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months is watching it. it's affecting everybody. >> they want fair market value explained. >> exactly. they respond to our viewer polls about which one is the bigger geek out of you two. >> exactly. diagnosis for the u.s. economy one year after the world market changed forever. i'm here on this tiny little plane, and guess what... i've still got room for the internet. with my new netbook from at&t. with its built-in 3g network, it's fast and small, so it goes places other laptops can't. anything before takeoff mr. kurtis? prime rib, medium rare. i'm bill kurtis, and i've got plenty of room for the internet. and the nation's fastest 3g network. (announcer) sign up today and get a netbook for $199.99 after mail-in rebate. with built-in access to the nation's fastest 3g network. only from at&t. why is dick butkus here?
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good morning. stocks kicking off september with a thud. more worries about bank failures and whether or not this market has gone too far too fast. we will find out if you should pull some chips off the table.
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early read on the job situation. challenge of jobs data and the world report. and looking back at august. cash for clunkers by ford, gm and chrysler are still losing market share. we get the news from mike jackson as "squawk box" begins right now. good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick, along with steve liesman and amanda. doug dachille is our guest.
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mandy starts us off with our first news of the morning. calling on congress to transform fannie mae and freddie mac, divided into a number of smaller, privately held companies that would issue mortgage securities with a government guarantee. elsewhere, nokia marketing new phones and a deal with facebook, update their location and status directly with a nokia internet account. china has raised fuel prices for the fourth time this year. many in the markets had been expecting beijing to hold off until after the national holiday day on october 1st. the government is intent on sticking to its market-based fuel pricing system that closely tracks global crude cost. back to you, steve. >> thanks, mandy. a look at futures. where are they? here they come. we'll look at the futures. i've never done this before, becky. help me out here. minus three on the dow jones,
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minus four, 3.4? >> no, 2 1/2.s. >> subtract the half? >> yeah. >> so you're talking about down by a point. >> 2 1/2 on that. look, we were much worse this morning and we've been much worse the other mornings i've been here. we were minus 60 right? >> we were lower this morning. you're almost unchanged at the futures. >> okay, thanks. gasoline -- we had that guy the last hour. it's well within the volatility range. >> although you're talking about two days in a row where you're down by 2.5%. >> here is something i know, the tenure, 3.474, very good. the dollar, i know this, too. we are weaker against the yen, weaker against the pound and
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euro. let's do gold. >> make sure you don't have to read boards anymore. >> down zero points. 10, 13, 14 dollars in a day. we're not talking about anything really. how did i do? >> well done. >> thank you very much. i have to read something here on the prompter. a list of those predicting more bank failures, 500 more may fail by the end of next year. an interview with larry kudlow last night, they said investors should keep their cool. >> everybody has to keep their heads. we're still working through credit losses and now we are getting into the credit losses relate related to the overall deterioration of the economy, but there's some positive news out there on the economy. and even though banks will continue to work through cleaning up their balance sheet, we saw a few glimmers of hope and second quarter resolve. >> commercial loans are a growing concern, likely to be an increasing factor as bank
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failures as we head into 2010. i was told by mac i have a screen right here that i could have looked at for the boards. >> we like to be helpful at the last second. >> i think that means they're going to make me read board. >> i think you earned your safety. there we go. >> headline numbers coming out at 8:15 eastern time, august employment report. survey of forecasters is calling for a loss of 13,000 jobs last month. also productivity and labor costses, second quarter revised productivity to rise 6.5%. unit labor costs are expected to fall by 5.8%. the organization for economic cooperation and development global forum on transparency and exchange of transformation is taking place in mexico city today, around 17 jurisdictions will be represented at the meeting, aimed at strengthening the
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global crackdown on tax havens. live in mexico city, joining us now with more, scott cohn, what have you heard? >> reporter: a global crackdown on tax havens, really picking up steam. it's a big accomplishment they got this group, this forum to be in los cabos, mexico, and moved it to mexico city because of the approaching hurricane. that was accomplishment enough. what's going on here is perhaps much broader, really on the cusp of doing something they've tried to do for years, to rein in these havens. we spoke exclusively with the secretary general of the oecd, practically elated about what is going on. they have been trying for so long to put some teeth into their anti-tax saving efforts.
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in the last few months, he says, what they've done is nothing short of a revolution. >> after decades of many jurisdictions in the world helping those who did not want to pay their taxes and to fool -- to hide their taxes and not report them to their home countries, this is now dramatically changed. >> reporter: actually, 87 count countries now are represented here. they're working on a couple of different tracts, working together to put teeth in the anti-tax-saving provisions and create something that will help these nations and also nations are meeting with others and working out their own bilateral tax information sharing agreeme agreements. and the basic benchmark is if you have 12 such agreements you are in compliance with the standards. why is everybody rushing to do this now? one basic, very simple reason.
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>> there's a worldwide crisis, the worst we've ever seen in our lifetimes. every country is now increasing their deficit. every country is now asking their citizens to either tighten their belts, cut their expenditures or, in some cases, pay more taxes. >> reporter: well, this is positively infuriating to anti-tax forces, right-wing forces. they are here saying this is coercion by the high tax jurisdictions like u.s. against the low-tax jurisdictions. they want it stopped. that's not likely. >> scott cohn from mexico city. we'll be hearing more from scott here throughout the day on cnbc. we're taking a look back at september 2008. today's focus is the fed one year later. is the central bank too powerful right now? we're joined by doug dachille, a
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question racing through the halls of congress right now. is the fed too powerful? >> you go back to september 2008 and you talk about what happened in that month. that month was the month, famous month of conservetorship of fannie mae and freddie mac. you roll forward a year later and now we have all of those activities effectively concentrated in terms of the portfolio buying of mortgages now in the federal reserve under the control of two investment managers they selected to manage those funds. we've gone from a situation where we've said we really are concerned about having two entities potentially making mistakes, how they manage those risks of buying all these mortgages. everybody universally thinks it guarantees the mortgages. as we were coming into this, everybody was talking about let's have -- break up the guarantee. really, why do you need to break
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up the guarantee? there's no hedging involved in guarantees. you write a guarantee. it's simple. you're pricing a guarantee. it's all about pricing and reserving for guarantees. where all the complexity and angst was involved was all about the buying and retained portfolio of mortgages, hedging, use of derivatives and accounting. >> you may have people argue two people at the fed are responsible for much more, but probably people who are more conservative than the people you were looking at with faninform ie and freddie. >> the problem with the fed they're not hedging. they're just buying. before fannie and freddie would buy mortgages, they would have to compare to the benchmark rate. the benchmark rate the fed has to beat right now is zero. so, where is going to be the market force ♪ other thing you have to think about -- >> wait a minute. let's stick with that idea. they create the excess reserves. >> right. >> collecting a coupon of 4% or
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5%. >> absolutely. >> i think -- i may be wrong -- even a government bureaucratic can see that. what am i missing here? there's a long way to go before it's a problem, before the interest rate mismatched. >> do you want to know what the problem is? here is the problem. >> okay. >> the problem is there's always a problem when somebody owns 100% of the outstanding supply of any particular investment, all right? in the mortgage market now they practically own 100% of all the 4% coupon mortgages and 4.5% coupon mortgages. you tell me the plot, the exit strategy for that. how somebody who owns 100% of an investment -- >> htm. >> htm is great. now what's going to happen to the -- okayo. but ben bernanke wants to -- >> i don't want to make that trade. >> you know what happens with cash trade. >> you're a dead man. >> the fed has the ultimate
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carry right now. >> i wish i could have a carry trade like that, where i get to control the carry. no one else in the world has the ability -- >> you make a great point. tell me, is there a problem? there is another issue, which is is the fed going to be reluctant to raise rates above and really -- essentially destroy its own carry? >> right. >> okay. so the fed adds a point to its own carry cost and bill dudley talking about interest rates being the main tool. let's follow through. it will go 100 basis points on the interest on reserves. my carry just went to 300. i go to 200 basis points, my carry just went to 100. >> right. >> every time they do what's right for the economy, they end up doing what's wrong for their balance sheet? >> the interesting thing is we know it will be impossible to exit. unfortunately i inherited once in my career a position in a mortgage-backed security where i owned 100%. i can tell you every time i even picked up the phone to have a
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casual conversation with a trader somewhere in the world i watched the price of that security that i owned. just to shoot the breeze. >> another call they're going to get is from the mortgage bankers association. what do you do selling mortgages? are you crazy? the politics of the exit strategy of the mortgage backed is going to be insane. >> that's the first time anybody has laid it out like this. to this point i've been watching what's going through congress, worrying that the fed will lose its independence when it comes to interest rates. you're making it sound like it doesn't matter. they've already lost it. >> absolutely. once you've gotten into a situation where -- once you've gotten into a situation where you are the market in something and you set the price, we don't even really know, absent the fed, which will come into a whole discussion about mortgage policy, the policy that we have about subsidizing mortgages, which involves buying mortgages, guaranteeing mortgages and tax
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bre breaks for mortgages. that's really at the helm of what they have to do when they decide to do with fannie and freddie. people had argued we don't need anybody buying mortgages. it would be at a fairly low level without anybody buying it. yes, right now we have the fed on a plan to buy $1.25 trillion. the question they have to ask, is it necessary to go the full monty, go the whole way to the $1.25 trillion? >> dudley told me this week he thinks it's too early to call it, but it sounded to me like they're going to be thinking about this at the next meeting. i think it's important to look, by the way, at the minutes today, to see how much concern there was. remember what they did. i'll tell you a term i picked up in the conversation of the hallways at jackson hole, tapering. this is the term of art for exit strategy. they're going to lengthen it a little bit,but let it wind down like that. >> a lot of programs -- you're absolutely right. a lot of programs other than this mortgage-backed buying
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program are tapering. acid-backed securities held. right now, the yield on those consumer acid-backed securities are lower than the yield you can borrow from the fed. obviously no one is going to ask for loans from the fed if the market is already at a yield. that is tapering. the problem with the mortgages they're buying, when rates go up, those things extend. you have a lot for a really long time. when you have a fannie 4 1/2 on your books and now the market is 6 1/2 or 6, no one is refinancing that mortgage. so now a five-year mortgage becomes a ten, 15 year mortgage. and you're under water. >> duration, go back and -- no, it's already doing that. we've got to go. great stuff, doug. >> doug will be with us the rest of the show. we'll talk more about it. comments, questions about anything you see here on "squawk," including what doug
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now the answer to today's aflac trivia question. what actor within the noble prize for the novel "doctor zhivago" but was forced by the soviet government to turn it down? the answer, boris pasternak. august sales numbers are in the book, cash for clunkers program boosted the numbers. we'll look at what is next in the post clunkers world with mike jackson. good to see you this morning. you've been telling us what a boost it was to get the cash for clunkers program. clunkers program. what's happening now that it's ended? >> becky, good morning. nice to see you this morning. >> you, too. >> you, too. >> cash for clunkers, unquestionably, is one of the most successful stimulus programs of all time. we sold 700,000 clunker deals in most successful stimulus a four-week period where we normally would have done about
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75,000. >> wow! >> just to give you some idea of the dimension. if you strip away the clunker business in august, the selling rate was still at an annual rate of $10.5 million. so, definitely still on an upward trend line, and our traffic going into september has returned to the same levels we had before the clunker program. had before the clunker program. so, we're still tracking at $10.5 million going into september. inventories, though, are extremely tight. i don't have the industry figures yet. i assure you, they're far below 2 million. the clunker program then has led inventories, though, are i assure you, they're far below to exactly what they wanted, massive order from dealers, we've increased our forward we've increased our forward orders by 50%. all the factories have solid orders to rebuild inventory. >> hold on. >> very necessary shot in the arm. >> are you just announcing this now, that you're increasing the now, that you're increasing the order by 50%, what does that mean? what was your prior order? how much have you increased it by? how many cars is that? >> for the industry, i think it will be be between mean?
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by? >> for the industry, i think it to 1 million cars. we've increased our units for the month of september and are the month of september and are asking for even more going into october. and we're not the only ones. october. every dealer i talked to has dramatically increased their forward orders. >> you mentioned the traffic is about the same as it was before the cash for clunkers program. what about sales? the big question i've had, is if everybody gets these orders, this new inventory that comes in and the sales aren't there because people -- the sales were drawn forward in the cash for clunkers, what are you seeing in clunkers, what are you seeing in terms of sales post clunkers? >> i think this is one of the things that everyone is missing in this, becky, using this term pull forward. i prefer the term claw back. the clunker idea has been on the table since november of '08. >> i think this is one of the in this, becky, using this term
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these are very smart, sophisticated consumers who sat sophisticated consumers who sat there for nine months, waiting for this program. so, there was a massive postponement of clunker business waiting for this program to arrive. so, there was a claw back. since clunker normally only represents 5% of the business, it can't be a massive pull so, there was a massive since clunker normally only forward. the only issue i see for the only issue i see for september business is inventories. i'm sure by october we'll have sufficient inventories. inventories. i see a selling rate of $10.5 million for the balance of the year and a gradual recovery going into 2010 and the selling going into 2010 and the selling rate will be between 11 and 12 million. the worse is over. million. this was a necessary shot in the arm for the industry. we're on our way to a gradual recovery. >> one of the complaints is that they haven't been paid back by the government. >> yeah. >> yeah. >> what's the situation with you? have you been paid back? >> mandy, you're on a point of quite some consternation. imagine dealers across the country on baf of the u.s. government have advanced to consumers $3 billion. the government said they would get paid in ten days. we all said okay, about ten days we'll get our money. the government said, no, no, when we get to you, we'll pay you. does that mean after world peace and when health care is reformed? >> mandy, you're on a point of imagine dealers across the
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government have advanced to the government said they would the government said, no, no, you. dealers are a little nervous about we'll get paid ten days after they get to us. >> how much are you owed by the government, mike? government, mike? >> we're owed $55 million at the moment, which even for us is a nice piece of change we would like to have. >> are you confident you will get that money back? >> there is no question in my mind that we will get the money. our paperwork is perfect. the government is being very moment, which even for us is a like to have. fascid fascidious to make sure that there's you only get the money
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if you earned it. looking at deals even before looking at deals even before we've been paid. they're all over this and they're looking out for the taxpayer dollar. it is $3 billion set sitting out there, owed to dealers across america. >> i just want to ask one question about cash for clunkers. mike, i realize that this is a program you've seen as a huge success. i'm still not sure what i think about the whole thing. you bring up the point that people stopped buying cars, in part, because they were waiting to see what happened with cash for clunkers. these are claw backs, how these are claw backs, how successful was a program of it? would they have bought it anyway if there wasn't a program out there that they were waiting on? >> at the core, these are would they have bought it anyway nonbuyers. they buy a vehicle and drive it they buy a vehicle and drive it for 10 or 15 years. that's one of the geniuses of the program that was designed, is that you took a segment of the market that is normally at a
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standstill, only 5% of the business, and clawed back and got those who would not buy for years, not in the next couple of months. they weren't buying for two or three years, and brought them into showrooms. we had no credit issues because these consumers are very conservative with perfect credit scores and fully supported the concept of buying fuel-efficient vehicles. we saw a lift of 10 miles a gallon. we didn't have to argue with the consumer that the point of the program is to improve fuel program is to improve fuel efficiency. i've never seen a stimulus program work so well for its intended target other than we didn't get paid. tax credit. >> that's what doug dachille says, tax credit. bumps up to 10 1/2, then you settle into this rate of 11 or 12 million a year. are you settling on a long-run
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rate that is below the replacement rate? are you talking about a big shift at all in the -- in car purchases in this country? >> steve, to be clear, i'm >> steve, to be clear, i'm referring to 2010 between 11 and 12 and that's still a recovery year, i don't consider it long run. in the first quarter the industry was on its knees at a selling rate of 9.2 million. in the first quarter the in the second quarter we saw stabilization just under 10, eliminating cash for clunkers, eliminating cash for clunkers, we're now between 10 and 11 and next year we'll go 11 to 12. in the out years, i see, ultimately, a recovery to 15, 16 million units that will take another two to three. >> before we get back to above >> before we get back to above the replacement rate? >> that is correct. >> that's what i didn't >> that is correct. understand. >> it remains 13 1/2 million >> it remains 13 1/2 million through all this. steve, you're absolutely right. i think the recovery will be gradual because credit remains
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an issue. the consumer is scarred. it's going to take some time. >> are you in a position to >> are you in a position to start hiking prices now? >> well, i wouldn't put it in terms of hiking prices. but i think prices will be >> well, i wouldn't put it in higher. >> good question. >> good question. >> unsustainable from the manufacturer, the regulatory environment is much tougher around fuel economy, which is around fuel economy, which is going to add cost to the vehicles. becky, you'll recall, i said in the middle of the summer, there will never be better pricing than there is right now. as a car salesman, for once, it was true. becky, you'll recall, i said in will never be better pricing as a car salesman, for once, it and going forward, pricing will be higher. >> mike, thanks so much. >> great seeing you all this morning. >> appreciate that, mike jackson. doug dachille, guest host, has a lot more to say on markets and the economy. plus, the report due at 8:15 eastern. who is hiring, challenge of jobs report out in just minutes. "squawk box" will be right back.
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welcome back to "squawk box." let's get to mandy drurie.
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she has the headlines. mortgage applications fell even as rates dropped. mortgage association says the average 30-year fixed rate mortgage fell to 5.15%. even though jets contain unauthorized parts, faa considered grounding those jets, which represent a tenth of southwest fleets. it decided not to do that since the parts don't pose any safety issues. after bp announced what it's calling a giant oil discovery in the gulf of mexico. steve, back to you in the studio. >> thank you so much, mandy. hitting the wire just now, numbers on reaction. john challenger, ceo of challenger, gray and christmas, it looks like there's a decent number, 21%, lower than july,  john. >> steve, i think that's right. this is a story of layoffos continuing to drop, sixth 
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consecutive month where numbers have dropped from the previous  month. numbers were very light in the month comparing to what we were seeing and certainly with what we saw earlier in the year. >> how does it compare to a yea ago? >> we're down 14% from what we saw august in a year ago. now for the third consecutive month, we are seeing lower numbers year on year compared to where we were last year. the surge that started last summer, but really took off after the lehman collapse led to heavy, heavy downsizing from about september through maybe even april, may, now has really begun to abate. >> some of the regional data here, john, while you're talking. it looks pretty heavy in the east. new york seems like it's really getting hit pretty hard, as the east does in general. is that the securities industry right there showing up? >> some. but it was also heavy cuts this month leading the way was the  federal government. that was particularly led by th
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post office, which made major  cuts. most of the cuts that have been occurring in government and  nonprofit this year have been  coming out of state and local governments because they've had to balance the budget. now we're seeing maybe because of the change in technology som real changes in the federal  government, too, particularly at the post office, which dominated the cuts in the month. >> john, i can imagine some unemployed people at home watching us, saying terrific, cuts are down. tell me what this tells me abou hiring. >> well, that's a different  picture. that's kind of what this econom is about right now. there's no question that employers have really turned of the spigot, being very careful about laying people off now. they're hoping their businesses are going to start turning up. matter of fact, they may be  seeing signs of that. they're not going out and hiring in great numbers. we haven't seen the in-flow, jo creation that would start to  balance off the layoffs and cause unemployment to start going down. that may be the picture for a while in terms of jobs.
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>> john? >> yes. >> sorry, there's a debate right now, did employers overfire here ? is there any sense at all? your data shows really, really sharp spikes in job cuts. any sense at all that there was overfiring that could lead toy asharp bounce back here in jobs? >> i'm not seeing that sense of over -- letting people go, or at least a sharp bounce back. companies always slash when they're seeing their business g down, sometimes too heavily. some companies certainly too  heavily. again, they have a lot of tools at their disposal, temporary  hiring, asking their part-time workers to come back and work  more, just asking for overtime. i don't think we're going to see that sharp bounce back in hiring. >> john, thank you very much. that seems to be the general sense when it comes to jobs. less bad news, but no real good news.
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>> ugly contest. when we return, market reaction to the challenger data. let's look at the most widely held stocks, citigroup near the top of the list. we were talking about how overall trading volume has been well above average for the year. yesterday it was well above average and citigroup accounted for the overall volume. bulls are on the run this morning. dow, of course, price of oil getting absolutely crushed today.
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welcome back. minutes ago, we were speaking with john challenger, who was telling us first on cnbc that august job cuts were down 21% from july. strategist at the cme group.
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peter, how do you think the market will react to this number, which does suggest there's less stress on the labor market out there, shrugging off good economic news yesterday. >> wells-fargo fears put a crimp in the trading for a lot of people yesterday. and that seems to be a little bit overblown. so, we should see a little bit more of an even kiel trade today. mr. challenger says the cuts are dimini diminishing. once you cut a pig's throat, the bleeding has to stop at some point. pairing it down, as steve liesman said, people may have even overfired over the last year. they're hesitating to hire more people and a lot of people are waiting to see the turnaround actually come to fruition. the stock markets priced it. we're all kind of waiting with bated breath to see the economy come back.
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>> right. >> a lot of people haven't really seen it yet and are not going to hire until they do. >> interesting. american airlines cutting 121 jobs. not all sectors are equal. >> at some point it's all about output. what they've done is ku the amount of employees that they can use and have extracted tremendous amount of increased productivity from those increasing workers. you can't cut any more workers, because that workforce you have employed on your payrolls are your best-trained workers and it's very expensive to lay them off and try to get them back. until capacity starts exceeding the productivity of your existing workforce, you're not going to hire any more people or you exceed thence enhancement you're going to extract out of the workforce. you should expect to see those numbers constantly kicking up. when employers are just extracting more and more value out of that existing workforce -- >> we're all doing the same jobs. you just got rid of a couple people so it looks like we're much more productive when you
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see these numbers. >> what's going to be the highlight of trading today, peter? >> i think that the highlight of the day is going to -- really the highlight of the week is friday's big kahuna, the jobs report. we might be treading water a little bit until we see it, i'm afraid. >> thanks for joining us. >> okay. we're counting down to the adp report, numbers and instant analysis. coming up next, american consumer, why they make the perfect fit. janua janette shamlian has that report. >> you're watching "squawk box," first in business worldwide.
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♪ now instead of looking fly and rollin' phat ♪ ♪ my legs are sticking to the vinyl ♪ ♪ and my posse's getting laughed at. ♪ ♪ f-r-e-e, that spells free- credit report dot com, baby. ♪ seeming ideally positioned for the current economic climate. from denny's in dallas, janet shamlian joins us. >> reporter: economy took a toll on the restaurants last year,
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but some benefited as consumers traded down. now a number of them, like denny's are trying to gain, customers whot it to go. they're testing a concept called fresh express. basically a counter within a restaurant. you walk in. anything you can get on the menu and some other offerings are available to go. the restaurant chain says it's about offering a higher quality of food than fast food while not sitting at a restaurant. here in the dallas area, two kiosks and dfw airport, all based on being a better quality than what you might get at a traditional fast food restaurant, little bit higher price point and something the customer can manage their own time, take it to go. it's all about adapting to consumers' changing spending
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habits. >> we're in a very, very tough economic environment right now. there's no doubt. that's something we all have to contend with. we have to offer value to our guests, and we know that. >> i think that if this could work in suburban markets, it could work on college campuses and in hospitals and those are venues we intend to be in. >> reporter: to give you an example, denny's has long made its name on the grand slam. now they have the grand slam wich, essentially the same meal, but a way to take it, get out the door, manage your own time. they think they're going to appeal to people during the week who don't have time to come in and traditionally sit in a fast, casual restaurant. a number of concepts are being tested, steve, here in the dallas area. and both of those chains we talked to say they're going to roll it out nationwide. >> can you hold up that sandwich there? how thick is that sandwich? how many layers are we talking about?
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>> reporter: well, i don't know. too many from me. >> can we zoom in on that? let's see. about four, bacon, egg. >> heart attack waiting to happen. >> that's a grand slam. that's a grand slam sandwich. >> can you do the moons over my hammy to go? >> reporter: possibly. customers will buy it, i think they'll package it and -- >> grand slam to go. >> reporter: we don't want to sit down anymore. >> that's right, because we're so productive. thank you so much. that's right, doug. right? we're going to do our 6% productivity gains, we have to have the grand slam to go. we can't sit and eat breakfast. >> those are the people that are working. >> they're on the way to work. >> their boss is deciding whether they should be cut. >> how much productivity do you get sitting to eat the grand slam? >> what's the line looking like at these places? you know, trying to create on the food quickly and get these customized orders, what kind of
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line will it be and how quickly will you be able to deliver that food? >> let's go further on the consumer here, right? the line being how much consumers are willing to spend out in terms of going out to eat at all anymore. the government wants you to go out there and lever up and buy. the consumer wants to delever and save. >> that's why the cash for clunkers program was so ingenious. if you took normal government stimulus, send a check of $2,500 to the consumer. the problem is, he might do something crazy with it, like pay off debt or save with the money. cash for clunkers program, it was incredible, because in order to actually take advantage of the government stimulus, you have to spend five times more money. >> right. >> that way, you actually got leverage stimulus that way. you went approximate in with $3,500 rebate check, in theory, and wound up walking out with a $15,000 car. that forced consumers to buy. >> right. the theory here is that, look, the government has an interest in easing the transition. not necessarily stopping the
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transition, that people are going to save, they want to readjust their balance. we just don't want it all to happen at once. >> absolutely. >> there's nothing wrong with that concept for me. >> absolutely not. people are realizing that you're spending now is going to be driven not by extraordinary one-time gain and your ability to borrow against those assets on your balance sheet. your spending will be driven by your earnings and you can no longer spend in excess of what you're earning because some financial institution is going to come and insert a piece of debt on your balance sheet against a one-time extraordinary gain on some asset that you have. >> how do you, as an investor, position yourself for what you're talking about, which is really a permanent change of spending? >> it's not just about that. it's all about what is the consumer's attitude toward a number of -- all at one time, unlike 2001, 2002, when you lost your job but your house went up. all of a sudden in 2008, everything went bad. you lost your job, house went down, stock market went down. that changed consumer behavior. that changed investor attitudes
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toward risk to reward to views on home ownership. a lot of people are thinking that a home is no longer a slam dunk to own. >> i could say something that sounds smart in the beginning but when you take the next step it doesn't sound that smart. 5% of capacity is coming out of the z just tell me which 5% and then you'll be the winner, right? let's say -- i'm just throwing out numbers here. consumer spending goes from 70 to 68, 65, something like that. that means that you have a bunch of malls, you know, five stores. one of those has to go, right? >> you're already seeing that in the commercial mortgages relating to refinancing those strip malls. >> exactly. but see thaets thing that's so interesting, right? it's not just that it's only 5%, it's that we don't know which 5%. there's a portfolio with a ton of mortgages in it from commercial and we don't know which one. >> you're absolutely right. you don't know what part of the country it's going to be that
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loses the 5%. some other part of the country might be the beneficiary of 2% or 3%. >> florida is seeing a loss, dhien in its population for the first time in 50 years. >> absolutely. look at the state -- look what's happened to the state unemployment fund. there's no money in the state unemployment fund. it's completely wrong way risk, because your revenues go down when there's unemployment and outflows go up. the whole thing is completely drained and the federal government is financing that fund right now. >> five points of gdp is a larger percentage of consumer spending and retail spending, retail is 30%, 40%, and the other part is services. it could be there's a guy who does haircuts, a guy who sells dresses and those are the ones that go. it's hard to know where that money is going to come from. that's what investors have to figure out. the end of the day, we talked a lot about this, doug. it's not the end of the world that happens. it's a shift, more money into the banking system, it means
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interest rates would otherwise be lower than they otherwise would be. they are offsetting. >> absolutely. >> we've got a lot more to talk about this morning. when we come back, stocks on the move ahead of the opening bell this morning. plus, as we head to a break, some of yesterday's volume movers, take a look at this. "squawk box" will be right back. tdd#: 1-800-345-2550 if i'm breathing, i'm thinking about trading. tdd#: 1-800-345-2550 i always have my eye out for a stock on the move. tdd#: 1-800-345-2550 doesn't matter if a company sells computer chips tdd#: 1-800-345-2550 or, i don't know, fish and chips. tdd#: 1-800-345-2550 i'll look at all kinds of stocks before i settle on one. tdd#: 1-800-345-2550 if i think i'm onto something i'll check it out, tdd#: 1-800-345-2550 you know, see what other traders are up to. tdd#: 1-800-345-2550 when everything feels right though,
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welcome back, everybody. let's take a look at stocks to watch this morning, some of the stocks are on the move. first up, bp, which is looking right now like it's going to open significantly higher. you're talking about a gain of $2 over the 4:00 pm closing price of 50.47. bp is announcing what it's calling a giant oil discovery at the tiber prospect in the gulf of mexico. they say they still have to appraise this to figure out the size and commerciality of the discovery. the well was drilled. you don't often hear words like a giant discovery coming from these guys, significantly helping that stock out this morning. general mills has downgraded from a hold to a buy. the target price was cut to $62 from $65. stocks already yesterday closing
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at 59.21. the firm talking about earnings upside this year that may not be as meaningful as the market has come to expect from that company. up grade from a buy to a hold. upgrade on that stock today. we'll keep an eye on where that trades. coming up, next hurdle to clear, jobs report coming out that could set the tone for today's trade, reshaping the mortgage market one year later. you're watching "sidewalk box" on cnbc, first in business worldwide. fithe same tools the pros use, so you can be a disciplined trader. by selecting from eight advanced triggers,
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squawk on the job. we are counting down to the adp employment report. what kind of clues will it give the marks about jobs friday?
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more cleanup for the banking systems. >> real estate will be a bigger driver of losses in bank failures. >> will they keep their cool or will the september bears scare all those bulls away? are we seeing the final days of fannie and freddie? a year ago, the government took over the mortgage giants. what is the exit strategy a year later? hear it first on cnbc. "squawk box" begins right now. good morning, everybody. welcome to "squawk box" here on cnbc. first in business worldwide. i'm becomy quick, along with mandy drurie and steve liesman. in studio with us, guest host today is doug dachille, ceo of first principle capital management. a lot to talk today with doug.
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before we do, let's get a quick run down of the economic calendar. 8:15 eastern, august adp employment report. survey of forecasters is calling for a loss of 13,000 jobs last month. 15 minute after that number, productivity and labor costs. economists are looking for second quarter revised productivity to rise 6.5%, and labor unit costs to fall 5.8%. today we get july factory orders at 10:00 eastern. atlanta's fed president, dennis lockhart is speaking at 11:30. a very packed day. ahead of all that, sell-off of futures, down about 4 1/2 points. this comes as a third consecutive day of losses. right now, futures are almost at the flat line. mandy has more of the headlines. >> thanks a lot for that, becky. >> wells-fargo says it will pay
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back top funds soon. the company will not raise equity to do so, being a flurry of market rumors that wells-fargo was planning a secondary offering. elsewhere, fdic chair sheila bair says details are coming, commercial loans are the biggest threat to bank. >> residential mortgages are still a bigger percentage of where the credit distress is right now. commercial real estate is catching up and will be a bigger driver of losses and bank failures, but we've known about this for some time. again it's just part of the process that we have to do to clean up the banking system. caution investors that they should keep their cool. the mortgage bankers association is calling on congress to transform government controlled lenders fannie mae and freddie mac, wanting them to
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be divided into a number of smaller companies that would issue mortgage securities with a government guarantee. the framework is being released today pln's architect will be joining us on the show at 8:40 eastern this morning. do stick around for that. oecd's global form on transparency is taking place in mexico city today, focusing on global crackdown of tax havens. scott cohn is live in mexico city this morning. scott? >> reporter: good morning, mandy. many are saying that offshore private banking itself may be dead partly because of meetings like this, also because of that landmark settlement between the u.s. and switzerland over releasing names of account holders at ubs. because of meetings like this and this sort of effort that's picked up steam lately, the whole idea of hiding money in a secret offshore account may be next to impossible. 87,0 countries are gathered her
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in mexico. giving teeth to the oecd's long standing efforts to curb tax havens. with the global crisis going on, it has picked up steam. no one wants to see any of their tax revenue get away. the idea now of hiding money from the tacks man in the secret offshore account may very well be a thing of the past. >> nowhere to hide, and that is going to mean because there's nowhere to hide that maybe people will feel less inclined to put the money elsewhere and maybe the people will say, well, why did i repatriot those resources to my own country? >> reporter: of course, there are critics to this effort saying this is merely coercion by high-tax countries like the u.s. and france against their low-tax counterparts, countries
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in the caribbean and switzerland, but gurria rejects that argument. >> we have a set of mandatory, binding principles, part of our key, part of our armory of instruments, precisely those that allow for the free flow, promote the free flow of capital. >> reporter: nonetheless, there may be some contention at the meetings today as they try to actually put, as i said, some teeth into what they're trying to do here. they're essentially trying to get 87 countries, many of whom have resisted these in the past, police these themselves, trying to figure out how to do that where there is, indeed, nowhere to hide. they're hoping mid day today to come out with some agreement. we'll have the details when we get them.
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becky? >> scott, thank you very much. that's scott cohn reporting from mexico city. we'll have more reports from him throughout the day. as he was talking about very high tax rates out there, if you're wondering what they are, cnbc.com put up a list of them. japan has the highest corporate tax rates in the world at 34.94%. can you get the entire list from cnbc.com if you want to check that out. job cuts falling 21% last month compared to july challenger, gray and christmas releasing those numbers minutes ago. when you start looking at the adp number, this is a number that the markets track very, very closely. >> yeah. >> what's been the correlation over the last few months? >> i was actually just looking at it. adp, overall thinking is that it's the best of a very bad lot of indicators to tell us what the jobs are going to be. indicators are volatile, because they go back and change them over time. there's no really good thing.
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jobless claims and some economists put adp ahead of the jobless claims in order to help predict it. let me call up my spreadsheet. i didn't know you were going to ask me about this. what's happened is that the adp has been under -- been reporting more job losses than the private sector portion of the payrolls, but what's been happening, previously it was overreporting it. so there's this long string where it's coming back and getting back to even overtime. there's a period of time where there were more job cuts at -- so it's evening out overtime. >> you raise a really good point when you talk about the fact that payrolls come down to the market, and then they go back and revise it the month after. why does the market put so much importance on it he they know it's going to be revised? >> because it's the best information the market has at the moment for where the jobs picture is right now. why do we go with adp?
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it's the best that tells us what will happen friday. why do we go with friday? friday is the best one that tells us about next month. what's interesting to me is does the market ever price in reality? let's say you had a number that was minus 100 and the market sells off. and two months later it's revised or plus 100. did it ever really price in that plus 100? i don't know the answer to that. >> the issue is, you have an expectation, then you have the result. to your point, if the result is within that error range you can have, should there be such a significant market move when there's a deviation from the expectation from what you observe within the normal error within the revision? >> that is so important, doug. >> you see 100,000 deviations from what the expectation was, but you know the error could be plus or minus 100,000 or 200,000, so why move the market 2% in a day on the basis of that? >> let's talk about the numbers. if somebody says it was going to be minus 100 and it's minus 150, that sounds like a big miss.
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the base is 135 million. >> exactly. >> just be clear. >> exactly. >> what we're talking about, when we talk about the kind of errors we're talking about. >> bill rogers is here today. good to see you. former labor department chief economist, professor at rutgers university. we like to talk to you on these monthly numbers to try to figure out what's coming on friday. we've gotten some reads. what's your expectation of the general direction we're headed right now? >> sure. great to be back and see you all. my sense, i agree with steve in some earlier conversation here that we really -- you use the adp as a first perbenchmark, an i've been trying to track adp with what we end up seeing with the payroll. it does a good job of giving us the direction of what we're going to see on friday. we're now moving into a period where the estimate of what we see with adp will lock on to what we see with the payroll numbers. with that said, we agree with
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the consensus that around -- we're still going to see losses, less bad news, still on the rise. talking about 200,000, 220. that will translate into what we see on friday and will be helped out because of the cash for clunkers program that we did see a ramp up of increase in manufacturing. >> i would be interested to see how reliable jobless claim numbers are when you consider a finite period in which people can claim those jobless benefits. for some people they've been on the jobless benefits for ex-amount of time and they get taken out of the number. when we get that number does it paint the full picture of the people out of work? >> reporter: in te >> in terms of -- two surveys, payroll survey with employers, unemployment insurance benefits, that's from people who are filing. it's administrative data. that's very gaood data. one of the interesting points,
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we have to follow that very carefully. in this month there's been estimates about 1/2 million americans will be using up not just the regular portion of unemployment insurance benefits but even the extended and estimates for the rest of the year are looking at 1.5 million, going to be exhausting those benefits. yes, it looks like those benefits, or claims have peaked. however, you have to be very careful how you interpret that. >> you're not talking about the unemployment rate? >> talking about claims. looking at initial claims, which is the number of new people that have become unemployed versus -- getting very confusing. keep seeing these initial claim numbers that look like new people getting laid off. in the claims numbers, those things look like the employment picture is getting worse. then you look at the continuing claims number, continuing to go down further and further and you're saying what's going on? is there hiring to et the new people that have been laid off or are these people just
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losing their benefits, even though extended benefits are up to 79 weeks? it's not the number 28 week, you have the extended benefits that can almost get you 18 months. >> john silvio from wells-fargo is out with a piece, very sobering piece, how these things work and what's going on in a secular way when it comes to the jobs. first year of the economic recovery has been jobless since the 1970s, this is not a recent phenomen phenomenon. he also points out no matter what happens, manufacturing has peaked, that we have been losing jobs, manufacturing jobs, percentage of the economy since 1979. so, as we look at this cyclicalc rebound of jobs, it's important to put into context where the jobs market is right now. i don't know why it is we end up having jobless recoveries in the first year, but that seems to be the reality. >> the reality is the question
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i'm thinking about, will we see a jobless recovery that will look more like the 2000 jobless recovery, 24 months before we began to see robust job creation, or is it going to be a jobless recovery shortly after 1991, '92 recovery, about 12 months? my feeling is that i can't imagine it's going to be in that 24-month range because as long as we maintain and keep the fiscal stimulus in play and also the federal reserve doesn't begin to put the brakes. >> stay right here. adp number is coming out. bill will stay with us. adp employment report is coming out. we'll have that when "squawk box" returns.
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the adp employment report is about to be released. ahead that have, we've been watching the futures. dow futures are kicked higher 1 1/2 points above fair value. a very quick pick up. steve has the numbers. >> becky, the adp company that tries to tell us what the number will be calling for, minus 298,000 job losses in the month of august. that is worse than the expectation. i think the forecasters were looking for minus 213,000.
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they revised july a bit better, minus 371, now minus 360. you can see from the prior month. let's bring in -- minus 233 for private and government. >> dropped about 25 points on that. >> i have -- would not -- am not surprised by that. the market wants to see jobs. i don't think -- i think there's a limit for how far the market goes here if it doesn't see the consumer and the job market come along with it. let's bring in economic adviser chairman. joel, it is an improvement, right? you were as bad as -- not you, but your number was as bad -- i'm going back to march here, minus 736,000. now with the minus 360, that's three straight months of improvement, joel. it is getting better, but maybe not as much as some optimists hoped. >> job losses in the first quarter of this year were close to 700,000 per month, second quarter, mid 500 per month and
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this quarter closer to 300,000. job losses are diminishing. that's good news. the economy has only just recently turned. employment lags behind gdp. it's not surprising that employment is still falling. and i would expect to see several more months of klein in employment before we turn the jobs situation around. >> i want to talk about phasing out there. split between small business, medium business and large business. what you see is small business losing 122,000, large business only minus 60. what's interesting is there's another split out there, strong ism numbers which some economists think tells us more about big business, and weaker number, small business survey. what's going on here? small business seems to be losing jobs, not feeling the effects of recovery where big business seems to be. >> let's start first with the ism index, for the manufacturing sector at this point. >> right. >> the employment component of the ism index is still below 50
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and signaling weak growth manufacturing employment. in fact, we did have 74,000 jobs lost in manufacturing this month. but that's a lot better than it was six or seven months ago. there's some signs of improvement there. i think, you know, large business -- this decline in employment in large businesses is -- let's just back up. if you look at the report, what you'll see is that job losses are sort of skivents all sizes and all industries. the trends i see of gradual improvement are broad spread and likely we'll see the same patterns going forward. >> and what about manufacturing? i'm surprised to see additional job losses there. i didn't think they had any more jbs to lose. >> well, you know, your previous panelists were making an interesting point that. is manufacturing employment has been declining for decades. we've lost something like 8 million jobs in manufacturing since the early 1980s.
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and so we need to interpret job losses in manufacturing against that declining trend. it seems to me when that manufacturing sector really catches fire here over the next several months, as i expect it to, that we could see a few months where job losses are quite small or maybe even no job losses. to think that we're going to see employment gains in manufacturing that are startingly large in positive territory, i think, would buck the trend that we see. >> let's take another look quickly at what we see, stock market futures have been under some pressure since we got these numbers from adp, initial knee jerk reaction was down 25 points. now you see these job futures down by about 18 to 20 points below fair value. treasury has been cutting their losses. the dollar has been stronger against the euro, adding to its losses versus the yen. again, bill rogers, still with us right now. and, bill, you look at numbers like this. it comes as a bit of a surprise to the markets. as somebody who is taking a
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braer lk at the economy, what do you think? >> sure. one number that comes to mind for me is 8.5 to 9 million. that's basically the number of people who are unemployed, have become unemployed over this recession, adding on the number, about 2 to 3 million americans who make up the population. so, back to what steve's question was before the break, and your question, too, is that we are going to continue to see job losses. once we start to see job growth, we're going to continue to need many more months to sort of bring back and move up the ladder, to bring those 6 to 8 to 9 million americans back to work. >> you used the phrase jobless recovery. >> is it going to be a jobless recovery or jobless double dip? if we continue to see losses, increasingly smaller losses in the job sector, will it cast a double dip, will it be a contributor? >> i'm not in the camp of a double dip. it will be interesting to see
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what kind of slow slaughter will we see? but again i come back with regards to the 2001 stimulus, that was a stimulus that was going to iraq and afghanistan. here you have a large amount of similar types of dollars that are staying in this country. so, the sense will be roughly in that 12 to 16-month range. >> that's the question. we talk about stimulus. do you feel that those numbers are already including the impact of the government stimulus or are we having a delayed effect? we had all this discussion of stimulus for infrastructure. have we actually seen jobs created from the stimulus related to infrastructure or are we still three, six, nine months away from seeing the benefits of that stimulus on job numbers? >> i think we're still -- >> what do you think that stimulus could do in terms of the job numbers?
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>> it will mediate the losses. >> okay. >> and it's going to give -- as you said in earlier segments, it will give american consumers, house holes, that opportunity to get their -- >> balance sheet. >> -- balance sheet in order and also it will allow the federal reserve to be a little more patient with regards to -- >> they're definitely going to be patient. >> last word from joel here. how does this figure into your economic forecast? can this kind of job weakness cause you to change your outlook? >> no. this was essentially what we were expecting to see with the job losses gradually diminishing throughout the end of the year. our view is that the economy has turned. we think 3% growth over the second half of the year is possible. the cash for clunkers program clearly pulled sales forward. we think it also pulled production forward. the stimulus is in play. it's had very little effect on employment so far. it is boosting growth and with a
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lag, that will -- let's not forget the monetary stimulus. >> when is that first job going to be created and who is going to get it? >> good news here, steve. we've actually added one to our employment this month. >> nice. >> we have to be safe when we say recovery. recovery of the broad economy or is it recovery of the labor market? >> and that's a good point. >> they're two different. >> if there is a big difference that's a huge political issue, right? >> the administration has a timing problem here, all right? you have a major timing problem here. >> okay. we are not done with breaking economic news. we are not done, folks. coming up at 8:30 eastern, government's latest report on productivity, plowing through all the data today, and vice president, chairman of the
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lose weight. live better. call or click today. down by 30 points this morning after that adp report, loss of 298,000 jobs for the month. traders were expecting down by 213. you can see the pressure it's put on the market. breaking news is going to keep
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coming. government's latest report on productivity about to be released out right after this very quick break, 8:30 eastern time. we'll be talking to the advice chairman of the mortgage bankers, plan that could be death for fannie mae and freddie mac. so, what's the problem? these are hot. we're shipping 'em everywhere. but we can't predict our shipping costs. dallas. detroit. different rates. well with us, it's the same flat rate. same flat rate. boston. boise? same flat rate. alabama. alaska? with priority mail flat rate boxes from the postal service. if it fits, it ships anywhere in the country for a low flat rate. dude's good. dude's real good. dudes. priority mail flat rate boxes only from the postal service. a simpler way to ship.
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welcome back to "squawk box," one hour away from openoing bell. productivity and cost, second quarter to revised number. to rick santelli and larry levin in chicago, and also our guest in studio staying with us. what are we expecting? >> looking for productivity to be fairly similar to our last look, and it is. 6.4 was the last look. for second quarter final it's 6.6, improved by a couple of tenths. remember, when you have good productivity, what do you think happens to unit labor costs? they seem to have a minus sign. indeed, they enhance that a
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smidge from last look minus 5.8 to current look minus 5.9. i think it's particularly interesting to see these numbers continue to hold up because there's so many ways to trpt them. you can't cut anybody else on the assembly line. hence, maybe you're getting a little more production out of them. it also is the ying and yang of the jobs number, down close to 300,000, and one of the reasons it might not be good is exactly because of what's going on with productivity or the notion of getting more out of your workers. aftermath of this number, what happened about 15 minutes ago, we still see slightly lower equities, slightly lower dollar index and interest rate recovery anywhere from 1 1/2 to 3 1/2 month lows depending on the maturity. >> larry, how are you interpreting these numbers? >> it's interesting, man mandy. a little letter on that adp
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number, pretty much doing the same thing on this number, little bit better than expected. it's a technical thing. yesterday on the futures, we blew through ten even, and now at 9.94. in about one and a half days, we're down. there will be some extension of that down draft going into today. >> just a quick historical check here. only once since 1970 have we had a 6.6% or greater productivity number and been in a recession. this is the kind of thing that's very hard to be in a recession and still have this productivity. you still have to have a top line no matter what. we're still talking about output per hour, harder to do in a recession. a great debate, rick, that i wish you were involved in. this idea that the fed is way too concentrated in some of these maturities and how it ever
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gets out. doug seems to think that it is the owner of all four percent coupons and owner of most if not all, doug, of the 4.5%? and what that will look like on the back side when they start getting out. >> i don't disagree with that. i think it's a travesty to think that you can try to put your fingers in so many leaky holes. let the anvil hit the ground, let housing move lower, let the mortgage market, agency market, securities market find their own equilibrium because the cost to try to impact that market is incredible. think of all these programs they haven't done what they're supposed to do. i think that trying to help is one thing -- >> wait a second. mortgage roadways are low. >> yeah because they're subsidized. >> that was one of the things they tried to do. in that sense, it has.
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i would also point out -- this goes back to the argument -- i'm going to throw it to doug. rick and i have been arguing this for two years. if a couple has a verified income and they qualify for a loan, but can't does it make sense that the government could step in, in that case? >> i agree. >> what do you think? >> i completely agree with that. for the fed to come in the market was to create stability. we had unstable market, mortgage spread that made no sense. that made sense to come n once they committed to a program, once you get to the point where a spread goes to historic lows, maybe it doesn't make sense to continue to force that. that's not -- that's my concern. my concern here is the way they're doing the purchasing actually can create just as much instability in a market when you wind up being the buyer of all of the market, because you're buying at a level that he not consistent with what private investors are willing to do it,
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you've brought it to just as much instability as you had last year. >> in agreement with rick's point here -- i'll throw it back to him. rick says the government shouldn't get involved anyway. if they don't mess it up on the front end, they'll mess it up on the back end. >> they did mess it up on the front end and on the back end. they're batting 1,000. >> the question -- i think the real question -- >> let me interrupt one more minute. who in the right mind would continue to take 3.5% down and still issue mortgages? fha, bonehead! come on, america. you have those kinds of swings in housing prices every four or five months. i just don't get it! >> at least they took a -- at least they took some percent down payment. you give somebody a credit card -- the problem was housing became a credit card. you had no underlying security and got half the rate on a credit card. credit card lending was superior. if you're going to take
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unsecured credit to a consumer, charge them 18%, instead of giving him $25,000, he gave him $250,000 and had an unsecured credit exposure and only got 6%. that's the bad lending business. >> we're making a case for the fed to ease back, about 600, $650 billion, maybe it's time -- >> very simple. >> we have to wrap it up. >> don't force buying if you don't need to. >> you've done what you set out to do. >> when the market is unstable, don't feel compelled to have to buy every month because that's what you said you were going to do. >> rick and larry, thanks very much for that. coming up, are we about to see the end of fanny mae and freddie mac? mortgage banker's association wants congress to transform these mortgage giants. michael berman talks to us about the plan first next on "squawk box." you are watching cnbc. we are first in business
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let's take a very quick look at the markets. challenger out better than expected, adp worse than expected. productivity and line labor costs. futures down. this comes after three days of losses. during the tumultuous month of september 2008 that the government took the reins of
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fannie mae and freddie mac. now they're out with an exit strategy that could change the face of the mortgage market. cnbc's correspondent, foreclosure phenom, diana olick. >> you have to stop with that. just kidding. the creation of a new line of mortgage-backed securities through the invention of a privately owned, government-chartered mortgage credit guarantor. mcg pays an insurance premium and sells them to investors with guarantees against the default of those securities. investors take the interest rate risk but are not taking a credit risk. mcg takes the credit risk. insurance fund guarantees the interest rate if something happens to mcgs. they are smalling and would replace fannie mae and freddie
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mac. michael berman, thanks for joining us. we hear government-backed, smaller than fannie and freddie, but still government-backed. >> reduce taxpayer risk and keep the risk in the private sector. as you stated the interest ray rate risk would be with the bond holders. credit rustic would be with the mcgs and it would be a strong regulator that would make sure there's strong capital, appropriate capital structure on an ongoing basis. in addition, they would manage their risk by using private mortgage insurance, credit default swaps and other tools. at the same time, as you also described, there would be payment on an ongoing bases every time they used their access to issue these government wraps around the mortgage-backed securities. so, there would be this federal insurance fund that would be built up.
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that would be there in the event of a catastrophic event with respect to that particular mcg. again, we have a series of buffers so that if the regulators are doing their job appropriately and they're measuring the capital adequacy appropriately, you would never hit the government and the taxpayer would never have to pay. >> you talk about regulators and oversight. certain types of loans and restrictions on the loans. which loans would be eligible for a mcgo? >> critical point. in our view, it should be a core set of products. we think that the initial blueprint would be the conforming types of products, single family and multifamily that they currently use. clearly, we want them to be proven, historically proven kind of products and the regulator would be sure that the subprime kinds of products, payment option arms would not be approved for the mcg's. >> would there be jumbos
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involved or conforming? >> part of our proposal is purposely painted with white spaces in the canvas. we have not tried to fill in everything. we believe this is the beginning of the dialogue. and we're looking for input. we clearly do not want the mcg's to usurp the whole market. there continues to be a place and needs to be a place for private label securities as well as fha and va. >> michael? >> yeah. >> steve liesman other than the fact that mcdonald's right now, their attorneys are preparing a lawsuit, most important question i have, with the debt of these mcg's be guaranteed by the government? >> no. the mcg's would be privately capitalized so that the debt -- >> okay. that was the same idea as fannie mae and freddie mac, right, their debt was not guaranteed by the government except when a crisis happened, and it was. why wouldn't we be right back in the same situation as we were with fannie and freddie?
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>> remember, there was an implicit guarantee, backed by an explicit line of credit. in this case, we have neither of those. credit is only with respect to the mortgage-backed securities that are issued. >> effectively what you're saying is that you're going to take fanny mae, freddie mac, not allow them to have a retained portfolio where they issue debt. they'll write insurance to guarantee mortgages, which will get sold to investors and they're going to be government guaranteed because you're saying the guarantees written by these new entities will have explicit government guarantees on the back of them. my question is, the profit that these insurance entities are going to generate is going to be enjoyed by private investors, is that correct? it will be a profit that will be enjoy bid private investors? that is what's going to happen? >> yes, correct. >> so why biforcate the profit? i understand you're going to create a regulator that will
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assess capital adequacy. i understand all that. but what there are these stress events -- last year was a significant stress event outside what anybody would have capitalized against. and the question becomes why would you even biphorcate the return from the taxpayer and have the potential -- i'm sure that you're going to have adequate capital requirements and you're going to have an insurance reserve that these entities will have to pay into, which you didn't have under the fannie mae model, but why would it be so horrible to have the taxpayer take the risk and also the reward of owning the -- the entire profit associated with these activities? >> several different models have been suggested. one of them is to nationalize the entire industry. our view is that that is not the best way to go. this needs to be a private interprize. we need the government guarantee to encourage bond holders to come in and buy the mortgage-backed securities so that we have a constant flow of capital to homeowners and owners of multifamily properties. however, the big issue that --
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and i believe you articulated earlier today, of having a multitrillion dollar portfolio where you're managing that interest rate risk, having that risk, we believe, needs to be separated out from the credit risk. that will allow the management and regulation of those entities to be much more effective. >> i can tell you right now as a person who is actively involved in the mortgage-backed securities market, the most unhedgeable risk in mortgages is the credit. that's which i look to the government to ensure it. with respect to managing interest rate risks, all those tool that you said would be effective for managing credit risk are far more effective managing the interest rate risk of these -- of mortgages than you can actually achieve in trying to manage the credit risk. at end of the day, you wind up wearing a big book of credit risk, there's very little you can do. you won't be able toly off this risk to private mortgage insurers and cvs markets. it will never be of sufficient size to be able to support a 5 trillion dollar market of risk.
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in the interest rate market, managing interest rates associated with mortgages, that is really very, very hedgeable and credit risk exposures ultimately bring you down in taking on mortgages. interest rate risks can never blow your capital. credit risk blows it. >> mr. berman, you've taken this plan to the treasury, you've talked to the fed chairman and administration. they'll be coming up with their own plans. what was their reaction to the mortgage bankers plan? gl they're primarily in a listening mode. it is very early in the dialogue, very early in the process. they did say that they felt that this was the first plan that had really connected all the dots. and they listened quite carefully and asked lots of good questions. we are also planning to go to the hill both sides. we talked to fanny, freddie as well as their regulator, fha. no one at this point has crystallized their views, a good thing. that es why we, the mortgage bankers, wanted to get out and start that dialogue. >> how do you go about breaking
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up the behemoth? fannie and freddie have good assets but have a whole lot of bad assets. what do you do about that? >> they play a critical role today and will continue to. obama administration has decided to use fannie and freddie to help solve the problem and there will be a continuing amount of bad assets, toxic assets, if you will. you need to put a fence around those, do a good bank, bad bank kind of scenario, siphon off the bad assets and allow all the important good assets that are in fannie mae -- in particular, the intellectual capital, people of fannie mae are absolutely critical, at this point in time, to maintaining the system of finance we have in this country. so, it's the people. it's the intellectual capital. it's systems, irchlts t., data, servicing relationships. so, we believe that it would be quite appropriate -- in fact, recommend that the first mcg's
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could, in fact, be a good bank, recapitalized form of fannie and freddie. >> good banks, bad banks. michael berman, thanks so much for join iing us. back to you guys. >> thank you. >> diana, thank you very much. september starting off with the sell-off that catches fire around the world. the mood of the markets today. plus a major oil discovery revealed. where when "squawk box" comes right back. da we've all heard about the trouble in the housing industry. the fact is, with all the talk of a national real estate market, your town, your neighborhood, your home, or the home you'd like to buy, are each unique. the national conversation may not apply at all. if you've been worrying about what your property may be worth, or wondering if your dream home may finally be affordable, ask a re/max agent or go to remax.com.
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let's quickly check out the price of crude. it's down by about .4 of a percent, $67.80 after a steep fall yesterday. staying in the oil pact, bp announcing a major discovery this morning. the energy giant saying it has discovered oil in a deep water gulf of mexico. shares are rallying in early european trade on the back of that news. it's rare that we hear of a big oil discovery. >> it's big that they found oil. a lot of what's been found from the gulf of mexico has been gas
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unexpectedly over the years. now they've had a big oil find, that may change the calculus. i don't know where this is. i want a locator map. >> we're going to look on the map. >> we get the map out there, we know, is this in the deep water where they found all that gas with a little bit of oil and now they found a lot of oil. that could change a little bit. >> thanks. the government cash for clunkers program boosting auto sales, as expected, in the last hour. we were told the worst is over we were told the worst is over for the industry. and it's now on the way to a gradual recovery. >> the clunker program that has led to exactly what they wanted, the massive order from dealers. we've increased our forward orders by 50%. and it's now on the way to a >> the clunker program that has we've increased our forward so all the factories have solid orders to rebuild inventory. and it was a very necessary shot in the arm. >> jackson says the government still owes his company $55 million as part of the cash for clunkers program. confidence they will be paid
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back. let's get to the trader's edge. art cashin is standing by, director of the floor operations at ubs financial services. yesterday, what was happening on the floor? >> well, the market has begun to rally with the 10:00 data. as if it was hit by a baseball bat, rumors began to spread there might be another major shoe to fall in the u.s. banking financial crisis. the dollar spiked. when the dollar spiked, oil got crushed and the stock market got crushed, too. the rumor tended to morph as it went through the day, who is it, where are they. some guessing it was a very large u.s. bank. dhafs kind of dismissed because if it was something big in this time, it would be too big to fail again. the fed would probably step in. then it morphed into it maybe a major default in the commercial
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debt between $10 billion 2507bd billion. there was never any substance brought after the rumor no, real name no, real place no, details at all. the markets never got a breather. that's highly unusual. usually when you get a rumor. driven sell-off, then it's not confirmed, you get a bounce back. >> where does that leave us today? we looked flat lined before we started getting the adp numbers and the other data that came. what do you think is in store? >> the markets over sold on a very, very short-term basis. on the longer-term basis, it's still over bought. you would have thought you had a chance for a replex rally and that may come. the fact yesterday they went down and closed on the bottom with that kind of rumor indicates to me the high level of nervousness in the market, the lack of commitment to many of these buyers. the fact that people are buying cheap stocks and some stocks that are worthless, they're buying them like lottery tickets. this is more gambling than investing and therefore it doesn't have a strong backdrop.
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>> art, thank you very much. we will see you again tomorrow. >> okay. we're in the home stretch of the show, but still coming up, top stories driving the markets and a final round are with our guest host. first of all, let's go out on gold and see how other doing. $965. actually moving to the upside. earlier this morning we were sitting around 955. we have gained somewhat this morning. this is "squawk box" on cnbc, first in business worldwide. finally, good news for people with type 2 diabetes or at risk for diabetes.
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let's turn to our guest host who had amazing comments this morning doug, when do you expect the fed to turn policy? >> interesting question, what does the term mean. stop buying. you look for the fed minutes to say when are we going to stop buying. then the question is do you just raise rates and credit interest on reserves? my view is you're going to see in the next few months, in the minutes they're going to decelerate the buying and then what you'll see is my view would be crediting interest rate on reserves. and not selling. i just don't think their positions are sellable. >> a year from now, fed funds rate higher? >> yes. my view, however, that in the next five years a feds fund rate
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above 5 1/2%. maybe you should sell caps at 4 1/2% as a good trade. >> i love it. >> doug, thank you for coming in. great seeing you. noo do that does it for us today. make sure you tune in tomorrow. "squawk on the street" is next. >> this is cnbc.com news now. >> rose at 6.6% annual rate during the second quarter. that's faster than the 6.4% rate that the government initially reported a month ago. adp said the economy lost 298,000 private sector jobs last month. and mortgage application fell 2.2% last week. the mortgage bankers association says that came despite a drop in mortgage rates. that's cnbc.com news now. i'm courtney reagan. live from the financial capital of the galaxy, this is "squawk on the street." good morning, everybody. i'm mark haines. you're looking at a lower open
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for your money on this second morning of september, after two straight days of losses this week. and three all together. and that's the first time since june that's that's happened. slightly brighter adp and productivity data not really helping. adp private sector employment losses diminishing but likely to continue for several months. productivity logging its biggest increase since the third quarter of 2003. >> right, well, that means fewer people making more, fewer jobs. >> fewer pooe people working harder, is what it means. >> all right. well, oil, let's just look at this. sitting under $68 a barrel right now. british oil company bp reporting a giant discovery in the gulf of mexico. no, not the gulf of sindra although i believe they do have some there. >> they have more in the gulf of mexico? g

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