tv Squawk on the Street CNBC April 19, 2012 9:00am-12:00pm EDT
these forcing actions are going to require us to act. my hope is, let's not wait until after the election and say, oh, my gosh, we've got a crisis. let's start now and go ahead and use this either gang of six or bowles/simpson as a starting document, let's fight it out and get ready. >> thank you, senator, very much. great seeing you today. appreciate your time. >> thank you. >> thanks to our guests as well. that does it for us. right now, time for "squawk on the street." ♪ we remember the entertainment icon behind "american bandstand," new year's rockin' eve, the legendary dick clark who died yesterday at the age of 82, what a career, what a milestone for music and broadcasting in this country.
good morning. welcome to "squawk on the street." i'm carl quintanilla with melissa lee, jim cramer and david faber. a day of unexpected earnings. europe, we'll talk more about this spanish auction that did go okay today. as you can see, most of europe is in the red. only the ftse hanging on to the green right now. >> this morning, morgan stanley and bank of america beating expectations but some argue it's all in the accounting. we'll tell you how to view the quarters. >> dupont, verizon in addition to amex last night, so far, very healthy. 77% of s&p companies are topping expectations. >> and that closely watched spanish debt auction goes, as carl describes it, okay. the ibex and euro are selling off today. more chatter that the medicine is wearing off right now. but we start off with banking
and bank of america specifically. revenue also above consensus with the bank's provision for credit losses at the lowest level since the third quarter of 2007. but it's this whole issue of dva clouding earnings not just b of a but also morgan stanley. >> this has become a very difficult measure in terms of allowing us to look quickly through the numbers and understand them and do comparisons and well. we didn't always deal with dva. it has to do with the cost of the company's debt, its credit spreads. if it costs less to buy it back, you have to account for that as opposed to if it costs more -- >> meaning if the bank's doing better, it knocks down earnings. >> thanks. >> it's so stupid, right? >> and they're hoping to get rid of it. they are hoping, the cfos and the like, are hoping to move bass this. all that said, how did b of a look to you? >> b of a looked to me like there's a pulse to merrill lynch
and that this was a merrill lynch quarter. i've always felt that at a certain point, merrill lynch would shine. we've been waiting and waiting and we got it. trading is merrill lynch. asset gathering is merrill lynch. you needed to see countrywide stop bleeding in order to show how good merrill is. this was that quarter. >> lone growth at bac down 2.9% quarter-on-quarter, the worst among the big lions. >> they don't have revenue, that's true. they don't have the revenue growth, i'm sorry, versus, say, a bbt. they do have severine. obviously using shorthand here. but this is a bank that was written off. the fact is they made two acquisitions within a couple of months of each other. countrywide almost put the institution in peril -- >> in complete and total peril. it's a wonder it made it through. when you do that, i feel
obligated to -- >> i like it when you push faber to say "dumbest". >> it's competing for number one. aol, nextel, sprint. to your point, they seem to be moving past to it a certain extent. >> i think one of the reasons why this one had been so bad last year was they weren't able to move past it. montac, you have a merrill lynch figure who's moving up. you see the merrill lynch card. it's back. the bull is back. you see it on some of the branches that they have. i think that this is the reemergence of merrill. >> is it enough to support the run -- the fact that it has a pulse, is that enough to back a 58% run in the stock? >> only because it was knocked
down so badly -- >> it should have never gone to the low point so it's a return to normalcy? >>. >> that's my thing. >> some say it's time to lighten up. would you do that? >> jpmorgan at 43, much cheaper. u.s. bancorp have been remarkable. bbt, people have to recognize that's going to be a major regional. those are all better than bank of america at 10. >> it's not as though they completely put behind them countrywide in terms of the mortgage putback issue. that continues to be a key for bank of america as opposed to some of the others. you saw a $2.5 billion litigation reserve taken by jpmorgan. bank of america, it's been a lot more throughout. as many times as they've tried to put that behind them with this overall resolution that has not worked, that's still hanging over the bank to a certain extent. >> do you like it more than citi? >> i'm a jpmorgan customer.
>> that was diplomatic. >> good to see you shift back to a jeffersonian posture after antagonizing me -- >> i wasn't antagonizing you. >> don't tap me. those anger management courses don't last. >> yesterday it was lennin. today it's tutu. >> morgan stanley handily beat with its first-quarter numbers. revenue well above. morgan attributing the results to stronger wealth management revenue, lower costs. later this morning on "squawk on the street," david is going to have a live interview with the ceo of morgan stanley, james gorman. 11:15 a.m. eastern time. david, i wonder if you think gorman has taken some of the arguments by the critics today and stuffed it in their face? >> to a certain extent, they want these numbers to shine. i think they are very concerned they have to be about a
potential moody's downgrade. they say $6.5 billion in total additional collateral would be needed. larry fink said yesterday, we may have to change our business relationships with certain firms, even though we don't think it's justified because of contracts we have in terms of counterparty risk. that's got to be a concern for morgan. but a good quarter of this will help. the arguments continue in terms of way a rating agency should have such influence -- >> morgan stanley balance sheet, so much better than during the crisis. exposure documents in europe, so much better than it was seven months ago. jpmorgan, balance sheet better. suddenly we have to worry about ratings agencies when morgan may have been teetering at one time and when jpmorgan was not a fortress? how can people make sense of this at home? it's dumb as wood to me. no offense to a fine company like we'
like wirehauser who makes wood. >> actually god makes wood. never what people said it was -- morgan stanley stock not long ago was suffered significantly. a year ago this time, it was all the talk. they were never exposed to the extent they thought. to your point, they're taking it way down. back to merrill lynch you're talking about, morgan stanley smith barney is even bigger. >> for viewers who are waking up listening to this conversation going, what is dva, debt valuation adjustment. and for those who argue that banks use it when it helps and ignore it when it hurt, how do you explain it clearly? >> each quarter, they have to acknowledge what the cost of their debt is essentially.
if it's been a bad quarter for banks and their bonds have traded off, their credit spreads widen. that's actually not a good thing. but it would cost them less to buy back their debt. that's the way i try to think about it. and therefore, they actually will get a dva adjustment positively, reflecting what had actually been a negative in the market. works the other way during better times when spreads are coming in, the cost of their debt to buy back would go up. why is that a part of these numbers? the accountants argue one way. but it makes it very difficult -- >> is it an honest picture, jim, of the health of the company? >> no, the health is much better. and morgan stanley at 17 does not make any sense to me. but it's very difficult to put a multiple on femoral earnings. you raise the point, people wake up and say, what's this dv snashgs they should say, give me
some bbt. >> so go elsewhere -- some bank that doesn't have that sort of dva cloudiness on their balance sheet? >> if you want the mcdonald's of banks, go to same-store sales, which is u.s. bancorp. if you want the chipotle of banks, you go to bbt. if you wanted to know what banks are not awful, you have to look at same-store sales of branches. and that's unfathomable when you look at these banks -- >> these companies have always lacked transparency. if you want to try to understand it, read the quarterly filings and the annual report. but even then -- i always go back to merrill lynch which i did a lot of work on after the crisis or directly following it, looking back at their filings. you hardly ever saw the words "mortgage-backed security" in
any of them. you would not have understood for the life of you what their real exposure was in the mortgage market in the united states of america and all the significant bets they made to that housing market. you wouldn't have been able to. >> so we go to a gilead or a vmware and an f5, talking about big data. we can revert to themes that are really shining this quarter, agriculture with dupont. i mention these because i need apples to apples. and i'm getting apples to kumquats here and i'm getting kumquats to tangerines. >> sounds delicious whatever it is. >> it's a fruit salad. i think that's what you should in the morning. >> would you make me one? >> make enough for everybody, while you're at it. it's easy enough to do one. do three. we want to continue on the earnings front. verizon posting first-quarter
profits, 59 cents a share, beating the street by a penny. its wireless unit added 501,000 contract customers in the period. dupont earned $1.61 a share. >> our raw materials were up 7% for the quarter, for the year, we're pegging it at about 3%. that's below what we had set in january, about one percentage point below. certainly natural gas is down and that's a benefit. oil is up. so that's a negative. but all in all, we're going to see about 3% inflation on our raw materials this year. >> higher pricing, of course, has helped even though we have seen volumes go down in the chemical industry overall. agricultural, their biggest revenue driver for dupont, was up 18% in terms of sales. >> it's not your old dupont, which was a housing play and auto play.
it is a codings play and doing quite well in codings. and this agriculture business is a health and welfare division. coleman has -- if you look at -- david mentioned looking at the annual reports. coleman talks about sustainability and health care, by talking about eating right and feeding the world. that's why that company can get a better p/e. people are paying more for those earnings than they used to. >> finally verizon, david, 501,000 on these wireless ads. a little bit below expectations. what's your take? >> i had a couple of conversations with investor this is morning. the wire line trends were not particularly good. the call has been on going. i haven't been able to be on it. there's a look at wireless
segment ebitda right there. it's actually okay. wireless is better. the margins were better. the question is, you want to turn in your apple iphone, they're going to lengthen that period of time that you can actually get your upgrade. that goes back to the whole subsidy question we've been talking about. not a bad quarter. but the ebitda margin is always the key. wire line, we want to hear some things on the call. while at&t is usually more reflective of business activity and a better macro indicator, let's not forget verizon, i will come back and see what it is f they gave any color on the call about that part of the business because it can be an important broarometer for overall -- >> why is that still considered a key barometer here? >> they've got fios.
that's 5 million wire-lined customers. and then there's your business customer who's in an office who has their full network of phones. that's why. it's less important. this is a wireless company, no doubt about it. but wire still contributes cash flow. >> that's the key to what i think people want to hear who own verizon. they're not hedge funds. they're people who want to hear, can dividend boost occur? i think that's in the cards because of how strong verizon is. the thing that worries the most, qualcomm can't produce its chips which makes people feel apple won't be able to do the iphone 5. people say is that going to hurt verizon's third and foushgt? that's extraneous. >> a bik word about spanish debt -- >> average revenue per user up about 3.6%, a little better than
had been anticipated. it looks like we're fully penetrated in the northwest terms of wireless. >> we're done? >> it doesn't look as though we're going to add any new customers. in fact, the industry may show a loss in subscribers. >> no? >> i think that's interesting. >> finally happened. >> everybody's got one who needs one. >> you're going to cycle in on or off based on your ability to pay -- >> that's going to be some story. >> it's all a market share battle at this point. probably deserves more than just a quick mention. >> that's the big themes. we have to put earnings in context. they come over one at a time. we can say verizon a booming, yum! is booming. this idea that we're saturated, they have to come up with chip that is you put on your shirt and on your dog. machine-to-machine chips a la that spunk that's coming public. we can't have saturation. look at what happened to nokia.
they're drowning in the river -- >> that's in the u.s. >> chip for your dog. like the fido 5000 or something. >> we have to go, but you mentioned spain. i haven't looked at the yields. i know the auction went okay. >> yeah. we'll talk about the results and some of the concerns in "the journal" today about whether some of the ltro medicine is running dry. we're going to be having live interviews with the ceos of morgan stanley, of priceline.com, of ebay, when "squawk on the street" returns live from post 9. [ wind howling ]
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♪ some of the stories we're squawking about ahead of the opening bell, weekly jobless claims fell. wall street was expecting a bigger decline. shares of human genome more than doubling in the premarket. it's rejected an unsolicited $2.6 billion takeover offer bid. and united health reporting profits of $1.31 a share in the
first quarter thanks to a boost in health plan membership. tumi is going public here at the new york stock exchange today. but in case you wonder what it is? it's a peruvian ceremonial knife. it's amazing. in this morning's "squawk on the tweet" we ask you, in honor of tumi's fancy name, if you were starting up a luxury brand, what would be the muse for your company's name and why? tweet us and we'll share your responses throughout the morning. >> when you started the street, were there other names you thought about -- >> in order to get the domain, there was a guy who owned the street. and he said, listen, i know you want it. and i said, no, i'm going to go for "the avenue" and "the boulevard." i convinced him that all streets are created equal.
he ran into a cul-de-sac. >> you swindled that one. >> exactly, all the way to the bank. >> it was a good one. "the avenue" would have been some name. coming up next, cramer's mad dash. find out what stocks is highlighting what he thinks about him. much more straight ahead. everything that i've gained in life has been because of the teachers and the education that i had. they're just part of who i am. she convinced me that there was no limit to what we could learn. i don't think i'd be here today had i not had a wonderful science teacher. a teacher can make a huge difference in a child's life. he would never give up on any of us. thank you dr. newfield. you had a big impact on me. you know, those farmers, those foragers, those fishermen....
for me, it's really about building this extraordinary community. american express is passionate about the same thing. they're one of those partners that i would really rely on whether it's finding new customers, or, a new location for my next restaurant. when we all come together, my restaurants, my partners, and the community amazing things happen. to me, that's the membership effect. that could adapt to changing road conditions. one that continually monitors and corrects for wheel slip.
we imagined a vehicle that can increase emergency braking power when you need it most. and we imagined it looking like nothing else on the road today. then...we built it. the 2012 glk. see your authorized mercedes-benz dealer for exceptional offers through mercedes-benz financial services. properly inflated tires can increase fuel efficiency by three percent. that's about 8 cents a gallon, and that can really add up over the next few years. see, going green can save you green the more you know. ♪ welcome back to "squawk on the street." i'm mary thompson.
just off the phone with morgan stanley's ceo. a couple of highlights from my conversation with her, the company says it is ready for any potential downgrade, that it can sustain any potential downgrade. keep in mind that moody's has suggested that it could cut the company's rating by about three notches. i asked her about an increase in net exposure to france, which was a concern by investors last year. she said it has mostly to do with client activity. the first-quarter strength came across all products and geographies, most importantly fixed income commodities and currency trading was up 34% once you take out dva. she said that was helped in great part by deeper relationships with the company's existing clients and asked whether or not morgan stanley would make a bid for the remaining 49% of the morgan stanley smith barney joint venture brokerage they hold with citi, she said when they submitted their capital plan to the fed, they only asked to buy the 14%, which is what the
schedule that was first revealed asked for. this option comes in in june. and she said that remains on track. also on track to cut $1.4 billion in costs by 2014. carl, back to you. >> really good information, thank you so much, mary. we'll talk to james gorman of morgan stanley at 11:15 this morning. we begin in qualcomm saying fiscal q2 will not look as good. >> the call's going great and then they drop the boom. it's a manufacturing problem. they can't get enough chips. normally i would say it's a high-quality problem. dare i say that three months from now you're going to wish you didn't sell it. >> should clarify, q2 is what they just posted, guiding for fiscal q3. >> it's like it's going great and then it's holy cow, get me some alka seltzer.
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when you open a new account or roll over an old 401(k). so who's in control now, mayans? ♪ the debut of tumi here at the new york stock exchange. the maker of luxury luggage celebrating its debut at the nasdaq. jim, there are so many earnings reports out today. it's hard to kind of see the forest for the trees because we have so many individual data points. but overall, they are coming in better than expected. >> i think it's important to point out that the widely held names -- bank of america, verizon, dupont -- are doing quite well. there's a little excitement today obviously with a big speck like human genome.
ebay widely considered to be a written off for dead resurrection story with paypal which is so, so strong. big data means there's so much data from a google or a netflix that you have to try to make sense of it. and then you have a plain old tumi. why do i like tumi? it's michael kors. tumi's coach and it's exciting because people are going to make money if they can get in. but it is certainly hard to get in. >> but it's not coach and it's not michael kors. it's luggage. >> but it has -- >> do you feel like you need to buy a new suitcase when the next season is out? >> no, i don't. >> you buy it and keep it for a number of years. >> but it has organic growth. it's been a terrible business, the luggage business. then again, it's nice to see a
n non-dot-com doing well. people wish they were in on it. and then we all come back to apple. >> apple? >> apple is qualcomm today. >> today it is down by 1.5%. third-quarter iphone estimates were slashed this morning. but the price target is being raised to $740 saying the decline in iphone sales is mostly because of a number of android launches that are happening. there's a lot of verizon lte promos. and people are anticipating a new iphone model to come out soon. >> and constraints for iphone 5 if qualcomm can't get it shipped -- i want to come back and say if you can earn $53 a share, not hearing anything different on a 2013 basis, i'm hard-pressed to sell the stock. everyone wants every single data
point to matter. i have a $1,200 price target from stern. this stock went down $50, rallied $26, it would be very chartlike to mark some time here. and we certainly have reason to do it because of the qualcomm issues. >> speaking of qualcomm, are you concerned they will lose business on a more permanent basis as they are not able to supply customers with the chips they need? taiwan semi doesn't have enough machines to make these chips. they're saying the customers get very upset when they can't get the chips they need, so they look for alternatives. >> there was intel the other day on its conference call saying, we are ready and apple should know where we are because we have something like them. they have chips that don't use a lot of power. that's always been a qualcomm hallmark. they obviously own their foundry so they can control -- i used to be an intelaholic.
every time they opened a plant, i would go. >> are you serious? >> you would go and you realize when they open a plant, they have to throw away a lot of chips. they're opening three plants right now. i want to come back to the fact that in the end, qualcomm is much-loved company by apple. and the people who listen to the qualcomm call say, where's apple? you mention apple, you lose apple. intel is sitting there saying, i hope that qualcomm mentions apple so we can get that business. >> right. in terms of the supply, the pipeline, i should say, 370 devices use qualcomm chips. this is why we talk about qualcomm so much. the chips go into all of these devices. you like iphone, you like android. qualcomm is the play. they have 400 other devices in the pipeline that are being designed right now to use qualcomm chips. that's the bull case. >> monster story. david has talked at times about
how 4g uptick is going to occur. david, if you need 4g, 4g is synonymous with qualcomm. >> it is. it is synonymous with that. when we talk about full penetration for wireless phones, it's not about finding new customers. it's about selling them more. 4g plays into that dramatically which is why we look at the average use per user. i don't know if we've taken a look -- talking about ebay. i may have missed it. have you guys mentioned it? >> it's remarkable. >> up over 10% now. >> new 52-week high. >> how about management? manager can be the key? they come in, revamp management. thompson goes, unfortunately, because he was terrific. but i see a company that says, well, look, we've got these great pieces, i want to break up ebay so much. i think you've got $55 per share in parts versus hold because of visa, mastercard -- >> you think a break-up still
makes sense? >> i would. >> even though he's resisted those calls. >> i know, i know. >> you can't argue with management at this point given they've turned things around. >> maybe we should say, they can bring out the value. they use paypal. >> we want to go over to carl and bob who are somewhere in this crowd as we wait for tumi to open. >> we are right here. >> we were much closer until the crowd started pushing us away. >> these are all tumi people here. pan over and say hi, everybody. these are all tumi employees here. dozens of them standing around. let me tell you, carl, 24 to -- 23 to 25, they're going to need very heavy, expensive luggage bags to haul away the profits they're going to make today. tumi was $18 priced at. price talk was $15 to $17. it's looking $23 to $25. this is not cloud computing. i'm surprised we're getting these kinds of numbers here. but this is high quality, high
end, very loyal. i own a tumi bag. i think you do, too. >> something you might carry into the clouds but it's not cloud computing. >> guys, we always forget it's not really all just luggage. 40% of their business is for laptop cases. >> but it has very high customer loyalty. that's my point. customers look for these bags. i look for them. that's what's going on. let's talk about the markets. good but not good enough. i see it in three or four areas. first, the spanish bond auction. how do you know if a bond auction is successful? if you had a 7% in front of the spanish bond auction, disaster. if there's a 5%, everybody felt pretty good. yet they sold right into it. spanish stocks sold right after the auction. good but not good enough. futures dropped on the weekly claims numbers. they've been improving for the last couple of weeks. they've been slipping a bit. so, again, good but not good
enough. slipping here and they told into that. there's two examples. a third one, earnings. my producer, we tracked 18 companies with earnings. every single one of them beat. good but maybe not good enough. right now, we were talking about 1% earnings growth for the s&p 500. everybody said, oh. well, now i talked to s. because of these new beats, they're at 3%. now 1% is okay. 3% is better. good but maybe not good enough. revenues also are going up a little bit because we're beating modestly. but we're only a few percentage points away from a new high in the s&p. that's what i mean when i keep saying good but not good enough right now. finally, existing home sales at 10%. we're expecting them to be up about 8%. 8.4%. well, i'm not sure that's going to be good enough either. we need numbers significantly higher, well into the double digits. we are in a bottom for housing but we're not coming off fast enough. again, that theme, good but not good enough.
by the way, housing starts so far this year, fair but not great. my count, i'm counting real starts. unadjusted for the first three months are up 17% on single family. that's the first three months and no playing around with the numbers. these are real numbers compared to last year. that's a recovery. 17%. i'm a son of a homebuilder. that's a decent recovery. but the base is so low that, again, they're expecting numbers into the 20s and 30s before people start really getting excited. by the way, we're still at $23 to $25 for tumi. >> thanks very much, bob. guys, back to you. >> again, awaiting the opening of tumi here. bob mentioned the homebuilders. we're seeing toll brothers up by about .9%. you had federal realty on yesterday. the overall market is strong, he says. >> obviously the location, location, location theme for
real estate comes up. but there are areas of the count country, california, one-fifth of our country, very strong. and i thought that was an important takeaway because california had obviously been a tremendous source of depression for a very long time in our country. >> very strong and housing and california all in the same sentence? >> very strong. he's putting up mixed use in washington, d.c. but he's staying that real estate is back in california. california is one of the first places to go down. does it jive with what we see on our screen? it's so hard -- 15,000 job, 10,000 jobs and we would be up today, not down. >> we should also note that we are waiting for another ipo over at the nasdaq. splunk. it priced at $17.
we're awaiting two ipos. tumi here at the stock exchange and splunk over at the nasdaq. they should open up momentarily. >> splunk makes a lot of sense. i put it in the category of being able to take big data for companies like an at&t and make sense of it. this is red hat, an analog f5, analog to vmware. i think we have an opening. i want to point out that if you want tech, it's got to be big data or it ain't working. and splunk is big data. >> we're also watching shares of mcdonald's. mcdonald's could actually miss its numbers when it reports on friday. mcdonald's taking knit stride. but it's retreated off its recent fees high after a tremendous run so far this year. >> it's been -- it was the best story in the dow last year. it's marking time here. it doesn't have any pizzazz. mr. skinner is retiring. the stock has been a buy on
teedic misses. i don't want to dismiss it. but it doesn't have the buzz that it had last year because last year was coming, it was more of a recession. i want to point out in terms of things that are more of a recession that people are liking today is gilead. >> employee valuation very close. >> instagram is working when it comes to pharma. >> it's interesting. that deal was -- why is gilead up, though, today? >> results turned out to be much better. you have to be really careful. we wrote it off a few months ago. now it's back. bristol-myers is the way to play it at home if you don't want the risk. >> human genome sciences, a double today. >> human genome sciences, we haven't mentioned it this morning. but let's do so now and bring you up to date. hgsi is the symbol. if you take a look, you'll see it's almost up 100%.
you don't often see that. they have a drug out now for lupus and when you look back over the last couple of years, you'll see this stock -- if we go back further -- was much higher based on strong assumptions for this lupus drug. the ramp has been much slower than had been anticipated. they're running at about $150 million run right now, although at least there's a belief on the part certainly of human genome that this will be a billion-dollar drug. they have two other drugs as well that are in phase 3. i can't pronounce these. let's just call them dara and agla. they're all connected to glaxo smith klein. hoped to get in a conversation. instead, human genome came out today publicly saying, these
guys made an offer. we're putting ourselves up for sale. why would you do that? why not negotiate with your partner of 20 years? well, we'll tell you one reason why. glaxo had this to say -- we think this price of $13 takes into account all the assets and the synergies we get. counter that with this -- if you are a shareholder here, your basis is probably higher than $13. >> you're furious this traded in the 30s when we knew they were going to get the lupus -- >> perhaps it was incumbent upon the company to feel as though it needed to come publicly to get that conversation going with its shareholders to see, do you have interest in us opening negotiations? let's see what we can get here. a huge premium, no doubt about it. but the questions are, how big a drug will this lupus drug be. what's going to happen to the other two that are in phase 3? and could there possibly be
another company that would be willing to come in even though the economics favor glaxo? >> glaxo can hurt them. they've been together for 20 years. it's not hostile. the glaxo letter was fairly friendly. but we'll keep a close eye on it. it is possible that there is no other company but human genome shareholders say, you know what, we believe in the growth of this company. maybe down the road we sell it but we believe in these three drugs. >> maybe some of it is -- we have large cap names doing quite well as we await the tumi opening. i always like to see a turn in the market after europe is disappointing. we've got verizon starting to pick up. i see stocks that were working today that were failing yesterday. i like that. >> we want to head back to carl and bob, still in the crowd. bob, as we tick closer to the opening, we have better indications of pricing. what is it so far? >> looking at $25.50.
remember something, the price talk here, $15 to $17. price s at $18. is it $25.50 still? >> a little bit higher. >> it could be $26. talking 18.8 million shares. and also very intense brand loyalty. one of the traders here was quipping they opened one of their big luggage bags and found a tech company inside. that's been the joke. but there's something more here. i'm impressed. >> are you seeing themes run through these new offers? we stood over at annie's a couple of weeks ago with something about this price range. i don't know if the float was the same size. >> no, it was the same prize. this isn't a tech company, what's going on? but we had a similar situation. intense brand loyalty associated with that particular company and also organic foods where whole
foods demonstrated it was possible to mork as a profitable organization, not only does whole foods sell annie, but they blazed away saying, you can make money in organic. so it was other things. >> it's interesting that what's happened is that consumers are going back and buying the stocks of what they use. annie's, they like that. tumi's, they might use their -- i love going to their stores. we're seeing whole foods-ization of this market. a consumer is going to a store and buying the stock. i love it. it says the accessibility is back. >> almost the inverse, jim, of a commerce one, right? >> exactly. >> years ago where you knew you would never have personal dealing with that company --
>> the ultimate personal brand company, apple, where you can call them at any time, walk in any apple store and they'll treat you like you're they're best friend. their loyalty numbers are north of 90%. go to apple users and say, north of 90% will say, i will buy another apple product. that's one of the main reasons that stock is so high priced. i'm going to buy an iphone 5 because i always have the iphone. nothing would make me not want to buy another iphone. >> you have to answer me this. bob, you talk about it every day. no volume, no volume, no volume. and yet who is coming in and buying tumi? it's individuals. i don't understand the dichotomy between individuals who seem interested in this stock market and the volume numbers who are horrendous. >> i'm not sure how many individuals got in on the initial one. the allocation 18.8 million shares, a very tiny. you can bet a lot of guys on the street did not goet get filled. we get back to this good product and intense brand loyalty, it
really makes a different. you have a company that's not a tech company -- $26.50. >> $26.50? there's a lot of tumi people in the audience, i don't want to -- >> there's always a question of valuation that has to enter the equation. just because you like the company doesn't mean you like it at any price and any valuation. >> although annie's was cheap when it opened, this one has 20%, some say 30% growth possibility. the market heads up and i have stocks selling at 10, 11 times earnings that nobody wants. doesn't make sense. >> that's true. go ahead, bob. >> it's not that the tech names have gone away. we do have besides tumi, we have splunk that's going to price at the nasdaq probably at about 11:00. and we have infoblocks that's going to come and a big data protection company. it's not like the tech companies have gone away. a couple of big ones will be pricing.
>> what are they doing? >> it takes time. we've been through this so many times here at the new york stock exchange, jim. getting back to the comparables. you always want to reach for comparables for a newly public company. you mentioned coach. and i scoffed at you about the product lines. the distribution is very similar. >> yes, it is. >> tumi distributes to select department stores, specialty store, it has its own network of company-owned stores. maybe the comparable is a coach or a ralph laurin in terms of the demographic. >> michael kors, you met him. kors has been a remarkable stock. everyone thought the stock opened too high. turned out to be a winner. maybe i'm too dismissive of tumi. maybe people are going to come in and say, tumi -- >> whatever happened to annie's, by the way? >> it just took off. it's at $41. it opened in the low 30s. it's been a rocket ship.
whole foods, good for you. >> you have to wonder whether this kind of performance is going to keep the window wide open for potential public offerings. >> right. >> we can't get splunk to open. the dichotomy between ipos which are just on fire and the hatred -- 10, 11 times earnings for microsoft -- i mean, intel who recollects a balance sheet. raise the dividend sheet -- you couldn't give away intel this morning. sold, sold, sold. >> but let's compare tumi with some of the consumer-related stocks. tumi is something that consumers can buy, investors can buy so they understand the company. would we compare more to, i don't know, the valuation of a mcdonald's or something else? >> nike allegedly disappointed in this quarter. the stock is at $110. have we got it? >> no, we don't. i've got it on my screen. >> i'm hearing it behind us, though.
>> they're still getting the pric pricesing down over there. >> look, i would rather prefer you were mentioning halliburton. here's a stock possibly selling at seven, eight times earnings and yet people are finally recognizing -- this is what i think people should be in. i don't want them in things that they're overpaying. they will get killed eventually. i'm talking groupon. groupon, you couldn't get -- it turned out to be a company that removes hair. >> or cleans your colon. >> what was that colon hydrotherapy? >> apparently it works. groupon made a fortune for the people who sold and hurt the people who bought. i think that's really the takeaway. >> just a look at some of the other movers in the market.
f5 is up by about 10%. there's a peculiar trade after the close where it was sold down by $15. there was confusion in terms of comparables. once there was more clarity on it, the stock actually rose. here we are, it's up 10% right now. >> classic example of people shooting first and missing the big call. f5 is your traffic manager. that's how you get on and off the web. the idea that that thing is not a great secular growth story and the guy who runs f5 is terrific. he decided not to hike the stock. qualcomm didn't hike the stock and, geez -- >> but qualcomm is traditionally a conservative guider and then they beat. they have beat for the past -- i want to say six quarters before this past quarter. >> why aren't people regarding it as a high-quality problem that they can't meet the demand? >> i know. there are worse problems in the world than not having enough
demand. >> i think that qualcomm -- i want to buy it here at $63. i think you make a stand and you decide that they're telling the truth. they've always been an honest company. but ebay at $40? i take that one, too. >> the anticipation of the crowd is building. what are you hearing, bob? >> $26 to $26.50. they're going to trade about 15% to 20% of the whole float right at the open. >> wow. >> it will trade more than 100%, believe me. that's the point about this. with 18 million shares, one of the secrets to these ipos is they have been able to keep the float size small. it's really -- doesn't matter whether you're in tech or annie's. they keep the size small. they have seen for the last six months, as long as there's a little demand, that really helps. >> people get furious.
i was going to do a piece on tumi for "mad mone." and i decided at the last minute, i can't do it. bob is right, i was mentioning earlier that there's excitement in individuals. but the individuals aren't getting it. it's the institution. everyone wants to be in and hold stocks -- they don't want to flip it because maybe they'll get -- >> they have to try and hold it. but it's interesting. as long as it's working, we'll probably continue to see these very small floats created for these companies and yet you have to worry about lock-ups in that case. you have to worry about when the insiders are actually going to sell. that becomes a key date, increasing the float so substantially. nothing's going to look like caesar's at 1.8 million shares. >> and the debt was the way to play it. >> but, bob, to your point, we have seen less than 10% of a company come out to market for the ipo.
>> i think bob's lost in the crowd, so much screaming. >> i'm here. we're just talking about annie's. we were mentioning about how well it's holding up. annie's priced at $19, jim, you'll remember. and it's now at $42. still has held up very well. everybody's been waiting -- melissa was talking about valuations. they're still buying that stock. it's still been holding up very well. >> the all-time on annie's was $45. >> we had irwin simon on the show. what do hane and annie's and whole foods have in common? these are brands, wealthy people, upper middle class, aspirational brands -- >> and tumi -- throw in tumi. it's the same dynamic. >> and that theme is a huge theme. the theme is that people, the wealthy are spending.
lump in ordnordstrom's. >> people have to recognize that it's loved in this market. i saw an upgrade today by deutsche bank saying maybe he gets a leveraged buy. you buy something at whole foods even fattening, you feel like it's healthy. >> at least it's organic fat that you're buying, right? >> have you looked at the calories when you go to chipotle? >> no, what are they? >> i like panera. they have a 417 calorie thai chicken salad that's really good. >> and with the dressing is 2,000 calories. >> maybe there's a flaw in the process here. >> come on, jim. when you say flaw -- >> well, it's just -- >> it's just taking a while.
this is what happens. >> we have lots more to talk about. for example, when did the rolling luggage go from just stewardesses to everybody else? >> i remember the time when you had to actually carry the thing. >> that's right. i remember seeing those stewardesses for years going, gee, that looks like a good idea. >> i want to go back to apple which has been picking up. google, which has gotten stronger. we wrote that one one off the other day. people keep recycling the themes. yesterday, ibm, stock has stabilized. i think we have tumi right now. >> no. >> we're right on top of it, jim. it's looking like it's coalescing around $26. spreads getting narrower and narrower. looks like 3 million on $26. 3 million would be about 16%,
18% of the whole float trading just at the open here. one of the guys who's happy is this very tall fellow. that's jerome griffith over in the distance. there's the ceo standing right there. and of course the tradition is the ceo will make the very first trade. he's leaning over and talking to, i believe that fellow is the cfo. just a few seconds away. designated market maker there is now yelling at everybody what the indications are. $26, looks like the final indication. they're ready to close it. open it. >> there we go. >> these are tumi employees. this is what we love down here because this is america. >> capital creation in motion. >> these people are naturally obviously they have an insider price which is very favorable to them. but more importantly it's a big
day in their lives. their families are here. their wives, their children are standing around. i don't see a lot of tumi bags. >> $26 is $11 above the low enof the range that they originally were thinking of. >> that's right. >> do you think they're underestimating demand? >> no. i think the important thing here is for most of these companies -- you're going to hear, oh, they left money on the table. the smart people are going to say, that's nonsense. when you see this, you want this kind of publicity. you want to see a stock pop like this nicely. that generates positive goodwill for the company and i think the people who are there could not have estimated that this thing would pop this high. this is a very, very difficult game to play. some of this may be the right timing coming just at the right moment where there was a demand for this. there was a little bit of a vacuum, some of the big tech names for tomorrow haven't come in yet. i don't subscribe to the idea of leaving money on the table at all. i think this is a good company
and people are delighted -- i don't see any frowns on these people standing around, only smiles. >> philly fed was due out at 10:00 p.m. as well. >> yeah, we've gotten leading economic indicators up in march. philly fed is also out here. those are the breaking data points that we have so far. >> not strong enough. >> not strong enough? we are seeing the markets holding, though. they are holding in to their small gains at this hour. tumi shares, as we watch that complete its opening, up by about 44%. soft tone in the market across the board. >> the financials, it's interesting, a real dichotomy there. morgan stanley is up after a better-than-expected quarter. morgan is up, although not as much as it had been this morning. but goldman sachs down again.
goldman responded quite negatively at this point to the earnings that we got from that company a few days back as we watch bank of america shares up very slightly at this point, below $9. >> excite figure you own tumi. unexcite figure you own a lot of other stocks. >> yeah. >> apple shares right now down by 1.5%. we're below the $600 mark. this is just something worth watching. we're expecting apple to report earnings next week. maybe that sets up for a nice pop on the back of earnings if apple does beat. but the question about iphone shipments -- because you can say ipad shipments or mac shipments may be weak but you can always say that iphone will offset that. if iphone comes in weaker, could spell trouble for the numbers. >> and apple will spoil things when they talk about nokia tonight. i think microsoft is more of a windows 8 story tonight.
>> while we've moved away from tumi, spanish ten-year yields at 5.9% up from the auction. may be why we're seeing pressure on the financials here. >> let's get to that philly fed number. are we going to kevin in chicago? kevin, are you there? >> kevin, are you there? >> i'm here. yeah, the cluster of weak data still -- existing home sales down 2.6%. i think that was the final nail. market fought in to hold in. but unchanged. duration buying. the bond is leading the market back up. four or five numbers today all coming in weaker than expected and the tone is not very chipper down here. >> thank you very much. philly fed at 8%. >> i've got alcoa tonight.
>> jim, see you tonight, "mad money," 6:00 and 11:00 p.m. eastern time. we look forward to that show. we want to send it over to diana olick for this morning's existing home sales. diana? >> reporter: the existing homes really disappointed, down 2.6% in march. but what i really want to look at here is the inventory numbers. down 1.3% to 2.37 million units. inventory is down 22% from a year ago. this is big because we're in the spring season. historically inventories always rise in the spring season. what we are seeing is big drops in inventories out west and in the south. and that is pushing home sales down. we have been predicting this for several months, that when the foreclosures, the distressed properties start to ease, that is the banks modifying, holding back the foreclosures due to the settlement, it's going to take down the numbers because there's simply not enough supply to sell. we're out here in phoenix, arizona, where they say they have less than a 30-day supply of distressed homes for sale. that's bringing down the numbers.
you see it out west. sales down 7.4% in the west, down 1.1% in the south. you're also seeing distressed share of sales, 29%. that's down sharply from just a month ago when distressed sales were 34% of the market. you see as investors are trying to get in here and eat up all these distressed property, they're not finding enough to buy. and if you have one-third of the market that's distressed and you don't have anything to buy, that is bringing down the overall sales number. the one good data point in this, however, is median home priced at $163,800 up 2.5% year over year. at least we're seeing price stabilization. but if we don't have that distressed supply to buy, we're going to continue to see the distressed home sales numbers to fall. we did predict this. >> thank you very much, diana olick. want to bring in mark zandi this morning. back to the deluge of economic data today. u.s. economy may be picking up steam but plenty of headwinds out there.
mark zandi is the chief economist over at moody's analytics. always good to see you. tough morning -- >> it's a little tough to hear you. >> we have these small cap companies going public and yet a lot going on in housing, a lot going on in spain. characterize your level of worry today, if any. >> i'm not worried. i think growth is 2.5%. i think we're going to create a couple of million jobs. we have ebbs and flows in the data, particularly at this time of the year given weather and seasonals. i'm still very confident it's on track. >> second straight disappointment in claims doesn't move you? >> no. we take a four-week moving average for a good reason. you do that, it's 375,000. >> still the highest in three months right now, the four-week moving average. >> it is. but for context, go back to this time last year. it was 425,000. in a really top-notch economy, we'd be at 325,000.
we're not too far away. again, it's not going to be straight line for the economy. if you told me growth in the spring is going to be on the soft side, i wouldn't argue with you. but in general, i think we're okay. >> philly fed today? >> i haven't seen it. >> 8.5%. >> that's right in there. it's manufacturing base expanding, adding to growth. it's fine. consistent with 2.5% growth. >> start this is week weren't that hot. we just got existing. pisani's argument is that there is a recovery in housing year to date, it's undeniable. but not enough to catch fire anywhere. >> that's right. the housing crash is over. home sales came in at 4.7%, 4.8%, something like that. we were at 4.3% last year. we were at 4.1% the year before. >> we've got critical mass here? >> critical mass. >> have we got critical speed,
forgive me, on the economy -- >> i'm not a citizphysicist buts working on that. we're close. we're creating enough jobs to create enough income to support spending and more hiring. >> but shouldn't it be more at this stage with what the fed is doing, after so long? hasn't something gone wrong? i know your optimistic and that's very welcome. but address the downside why we can't get more leverage. >> you get a boatload of construction activity. and given the nature of this recession, that wasn't going to happen. going back to the housing starts, we're at 700,000 housing starts per annum. we're going to get there. it's not going to be this year or next year. >> and across the nation because the permits were actually very heavily weighted to the northeast coast. the last set of data we had, other areas were falling.
how patchy do you think the recovery is going to be across the united states. >> it's going to be patchy. in florida, atlanta's condo market, california, it's not going to be even, although i have to say, multifamily construction is picking up almost everywhere because we have seen -- because of the low levels of construction, improving absorption, decline in vacancy, increased rent. by this time next year, i think single family will be moving north in a consistent way. >> corporate earnings, quarters turning out not to be as tepid as some thought, although clearly no great shakes. some really have worries more about the fourth quarter and where expectations stand for the rest of the year. do you think those are realistic looking out towards the back half of 2012? >> yeah, i think corporate earnings growth is going to slow. we've seen enormous growth, profits economywide are at record levels by orders of magnitude. the comps are getting tough. year over year if you said to me by the end of this year, we're
at mid single digits, i'd say that looks right to me. >> it's fine, that's the operative word in this economy. >> this time next year, i think conditions will be meaningfully better. >> mark, thanks for coming buy. always appreciate it. bank of america, as you know, out with earnings this morning, beating the street on both the top and the bottom lines. cnbc's kate kelly has more on the story. >> reporter: overall, it's been an upbeat morning for b of a with a stronger quarter that showed upside in businesses like investment banking and fixed income but also slow and steady progress in both expense cutting and loan writeoffs. the stock stayed relatively high through the investor call that just ended. ceo brian moynihan said work remains to be done in areas like consumer deposits and mortgages.
let's take a listen to him. >> a lot of work to do in mortgage. a lot of the progress is taking place and we've seen the bottom, i think, sort of last year. >> reporter: so he's calling the bottom of the problems in the retail banking business, essentially, with that reference to durabin. he's speaking of retail banking there. to b of a's detriment, the number of home loans classified as nonperforming increased, which was the case at all the banks due to regulatory changes. but the number of charge-offs or bad loans that have been written off decreased. and there was also talk about simple modifications like relying more on online credit card sign-ups than expensive direct mail. it may not be sexy but it seems to be perking up results, if nothing else. >> kate, thank you very much. just fine seems to be kind of the tag line of the morning all
the way around. >> reporter: they're showing strength. they had their best fixed income quarter ever. they may be realizing benefit from that merrill lynch acquisition which has been an integration challenge. >> didn't everybody have a good first quarter because of the what the ecb was doing in that huge rally you had in risk assets? >> reporter: absolutely, i think it was solid across the board. there were lots of beats of expectations. the first quarter sends to be seasonally better for banks than the fourth and other quarters, at least in terms of the flow business which is often the wild card. that's something to keep in mind. we could have expected to see some of this. but what i thought was notable about b of a was the slow climb back toward a healthier loan portfolio, slightly healthier consumer behavior in terms of their credit card business was up 19% year over year, for instance. then you see a much lower percentage of charge-offs, the bad loans that have been written off. >> kate, thank you very much for that. kate kelly back at headquarters. still to come on the
program, we're talking to ceo of the company who made this line famous -- >> priceline negotiator! >> we'll be talking to jeff boyd, the ceo of the high-flying momentum name priceline in just a moment. "squawk on the street" is back in two. [ male announcer ] if you want a luxury car with a standard power moon roof, standard keyless access, and standard leather-trimmed seats, then your choice is obvious. the lexus es. it's complete luxury in a class full of compromises. see your lexus dealer. laces? really? slip-on's the way to go. more people do that, security would be like -- there's no charge for the bag. thanks. i know a quiet little place where we can get some work done. there's a three-prong plug. i have club passes.
news from christine lagarde who's made comments about the spanish banks and about recapitalization of the banks which happens to be the big fear in europe at the moment. she said, look, the european financial stability fund, right now, those are bailout funds for countries. she thinks that should change. >> what we are advocating and what we have been advocating for a while and will continue to advocate is that possibly this be done without the channeling through the sovereign. >> reporter: skip the country altogether, go directly to the banks, mimicking what we did here in the united states. remember, guys, spain is not like greece. the government there does have a spending problem but not to the extent that greece has had. what the market fears is their banks are so severely undercapitalized that a bailout from the spanish government might eat up as much as 18% of that country's gdp. that might be too expensive.
so why not bail out the banks directly? back to you. >> it is a huge issue, michelle. i think i'm right in saying the ecb would line up behind lagarde, as would spain behind closed doors. but the germans don't want to. >> reporter: yes, i'm shocked. but i know we've seen the germans come around nearly every step of the way. they're going to learn the banking system is the blood that feeds the guts of the nations. >> as ever, michelle, you're on the money. thank you for that. big day for pharma today with the offer coming through from gs. meanwhile, a new study showing some promising data for patients with hepatitis c. seema mody joins us. >> reporter: highly anticipated data from bristol-myers this morning. developing a hepatitis c drug. and in a clinical trial, patient
who is took a combination of the two drugs received positive results. 100% of the patients on the drug showed no signs of the disease after six months of treatment. another hepatitis c drug being developed by abbott laboratories shows 88% of the patient pool has signs of inflammation of the liver. it has the potential to be a once a day all oral regimen. analysts point to its ease of use and lower side effects as being attractive to patients. the current injectable treatment does have very significant side effects. the guidrug was among several therapies released in barcelona. but gilead's data moves it to the lead position. analysts i spoke to this morning tell me investors finally see gilead's path to market, making
the acquisition more in line with what investors were thinking. >> you can see that in the stock price. seema, thank you. want to take a quick check on shares of tumi, opening up for trade a few moments ago here at the new york stock exchange. what a pop this one has seen. up 44%. this price above its expected range. it is now trading even well beyond that. nice pop there for tumi. we are awaiting the other ipo over on the nasdaq, splunk. when that opens, we'll bring it to you. when we come back, russia's second large bank says it's ready to increase its assets and expand abroad with the latest addition right here in nyc. we'll sit down with andrey kostin in just a moment. and who's next to take the helm in shatner's absence? we'll go straight to the source and sit down with ceo jeffrey boyd in just a few.
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opening its first and only office in new york city this week. andrey kostin is the chairman and ceo and joins us at post 9 for a "first on cbnc" interview. great to have you with us. what are your objectives here in new york city? >> well, of course, new york is the major financial center of the world. so we are opening our brokerage company, particularly focusing on trading with russian fixed incomes and stocks and also providing other things like derivative swaps, foreign exchanges. the focus is definitely on russia. the office will also provide extensive information on russian companies and give an opportunity for american investors to invest in russia. >> you obviously see a lot of demand here in the united states for information and a demand to invest in russia. >> yes, very much so. of course the market is volatile
now. but we believe particularly after the change of government and a new president, we expect a new wave of president to investing in russia. >> what strategy are you adopting to deal with the very big questions about dealing with russia and dealing with the russian government and dealing with russian business? so many things scare foreign investors. what do you say to them to allay their fears? >> i think after the elections, there's now a new program being prepared by the russian government with a large focus on privatization. it's around 850 companies which plan to be privatized. the government understands very well that to make a success, we should substantially improve the
economic environment and investment climate. >> it's not following through on its promises. there was a promise to get the politicians out of business. i see on your board you have the deputy finance minister and another director who seems to work within the ministry of economic development. so you actually have elements of the kremlin embedded in your business. >> well, i put in a new decision over mr. medvedev all the directors will be removed from the board of directors. >> people around the country might not appreciate how much russians have influenced real estate in new york city, especially at the high end. seems like every high-dollar transaction involves a russian gazillionaire. are we in the beginning chapters of that, closing chapters, somewhere in the middle? >> we have one of the most liberal currency controls, among all the brics countries.
and russian company can buy almost any property. before elections normally have this kind of situation when people are buying more, investing more abroad. >> just to clarify what you're saying, money flows out of russia before elections? >> yes, normally it is true. >> why is that? >> because people always have concern about elections. but normally it settles down if they're satisfied with the ruls. and i think mr. putin got very bit support in russia -- >> not that we're complaining. americans think it's just fine. >> it's a growth of real estate prices and demand in russia as well. >> can i just come back on the idea that everything's well in russia -- >> i'm not saying everything's well. >> rarely has discontent with the putin regime been this high.
and that may continue if he can't follow through with his promises. a million are supposed to march at the beginning of next month -- >> you have the wrong impression. mr. putin received 64% of the vote in the first tour. and there is problem dozens of thousands appeared in russia, protesters, very broad specters from social minority rights campaigners to the hardliner communism -- all around the world is this growing content among people because of the worst economic conditions -- they're discontent about putin as well. but you can't have 100% vote. 64% is a very convincing win. >> andrey, great to see you. hope you'll come back soon. >> thank you. after the break, we'll get breaking news on nat gas
inventories. and later on, luxury luggage designer tumi seeing its debut on the big board today. what is the readthrough on the high-end retail trade? we'll talk picks of all the luxury retailers when we come back. we'll make it quick. are you joining the priceline climb? we'll check in with the ceo after this break. and see how mobile apps have boosted their business. >> save yourself! [ male announcer ] when a major hospital
welcome back to "squawk on the street." i'm courtney reagan here at the nymex. we just got the energy department's latest inventory numbers for natural gas. looks like a build of 25 billion cubic feet, right in line with what analysts were expecting. looking for a range between 24 billion and 28 billion cubic feet. we're on par with that five-year average. looking at the reaction and futures of natural gas. looks as if we are down slightly but about where we've been for most of the morning. this is within expectations. we have storage at near capacity record levels. we could hit capacity by the fall. if that happens, we have to get creative with this natural gas glut. back to you. one hour into trading.
here are the stories we're squawking about. tumi holdings with a strong wall street debut surging more than 40% above its ipo price of 18 bucks a share. shares of ebay jumping 14% to a new 52-week high following the company's better-than-expected earnings. we'll have a live interview with the ceo in about an hour from now. and the average on the 30-year fixed mortgage has risen to 3.9%. a lot of companies reporting we are at the height of earnings season, the market overall fairly mixed picture. verizon's lifted telecoms. but we're essentially going -- the nasdaq slightly higher. a crack stat team tells me the 50-day moving average is 1.379. let's check what's happening at the nasdaq. fairly evenly spaced. want to head to chicago for
more on the markets latest moves. joining us is philip strible. good morning, philip. >> good morning. >> the auctions in europe, pretty good. earnings here, pretty good. the economic data on a broad macro level not so great. how would you grade the news flow today? >> we saw the economic data that came out. it was a little bit weaker. it did hit some of the initial markets. crude oil prices started to back off a little bit. the s&p backed off. what was interesting was the gold market got a really nice strong reaction after some investors looked for safety in there. ran into some resistance up at $1,650. but i think that price is going to stabilize around this area. >> speaking of resistance, on the s&p, your magic number, $1,392. been a tough hill to climb. >> yeah, look at the last seven, eight days. we come to that level and start to back off. we're trapped in some kind of range right around that 50-day
moving average. we get about two-day flows over $1,392, probably going to start to move higher. but you have to continue to see the economic improvement out of europe. some at debt auctions have to continue to come through without any problems. also the earnings have to be good as well. >> people making some note today of gas prices, down 6% from the march 26th high. average back below $3.90. do you think we're going to see double-digit crude or is that a pipe dream in the near term? >> no, ting floor is that $100 range. we might hit some stops here and there. but the chinese oil demand is just so strong, especially from the import side. right now, global oil output, they're soaking up about 70% to 80% of anything that is just pumped out of the ground. also you have the geopolitical risks. look at iran. they came out yesterday here and reiterated if there are breakdowns in the next nuclear arms talk they will most likely
look to continue to cut off exports to the european union. >> philip, thank you. the number of people around the world currently activating smartphones and ipads in a single year is roughly equal to the entire population of the united states. and often, they're affluent, no surprise then that for many ceos learning to profit from mobile is now the new holy grail. that's especially true of the online travel agencies and of course top of that list is the current stock market darling whose stock is up a staggering 57% just this year, priceline.com. to explain priceline's mobile strategy in a cnbc exclusive, ceo jeffery boyd joins us. good morning. you've been at this for three or four years trying to align the business with mobile. what have you learned about how to succeed? the best way to go about things. >> i think mobile has provided a great opportunity, particularly for travel businesses, being
able to give our suppliers, the hotels and the rental car companies in particular, information about where a customer is at a given point in time really allows them to hone their discounting strategy and capture customers who are making a last-minute booking or might be right near the hotel or in the airport near the rental car counter. >> what are you seeing at the moment? how affluent are they? what are they buying? what's the pattern of their activity? >> we've seen very distinctive patterns ever since we launched the first negotiator iphone app three years ago. first of all, the mobile user tends to be more often a last-minute user. the majority of our reservations for hotels, for example, in most of the markets in which we do business are for the same day. and in many cases, just a couple of hours before check-in. that's one trend. secondly, in terms of where the customers are for both hotels and rental car, in many cases, they are near the hotel or at the airport making a reservation within one or two hours of the
time they intend to pick up the car. i think what we're seeing is a change in consumer behavior because companies like in our group priceline.com and booking.com are able to deliver last-minute discounts on mobile platforms. customers are starting to defer their decision making knowing they'll be able to get a great deal at the last minute. >> you're not on your own in this space. you launched booking.com tonight last week, an important app for you. how do you rate with the competition? how good is it? >> the booking.com tonight app is fantastic. it has the greatest hotel coverage of any app in the space with over 200,000 hotels available in over 160 countries and 40-plus languages. so the broad international scope of the application by itself, i think, makes it very distinctive. but it also has great tonight deals where you can save up to 50% off for a large number of
hotels around the world. and i think it's the only app that really provides that international coverage. >> jeffery, in terms of profitability, does a customer who does business on mobile versus a regular pc, does it make a difference to you? >> there are some differences in terms of how you access customers on mobile platforms. with respect to an app, it's very good for an online travel agent to get a customer through an app. they download the app once, use it a number of times and you don't have to pay each time the customer uses the app. it may cost a little money to get the app out into the marketplace and to increase your downloads. but once you have it out there, you really have a customer at a very good acquisition cost for a long period of time. >> jeff, ceos are loath to talk about the stock price. but you hear the conversations at wall street around $1,000 and the degree that that is somehow this new magic metric or marking line that companies would like
to cross. what's your reaction to that? >> we don't typically get into discussions about the stock price. we focus primarily on running the business and trying to build our international hotel platform and our international rental car platform. we report the numbers and the market and the analysts decide how to interpret them. >> let me ask you it the other way around. there's a discussion about whether you, apple or google will get to $1,000 first. which do you think? >> i don't have an estimate for you. i'm very, very flattered for our group to be talked of in the same breath as those two great companies. i think i'll just leave it at that. >> part of the high expectations for your company, jeffery, is the expectations in your european business. any sort of stability in europe will provide ample runway for the stock with people's estimates in the $900 range. what's the number one barometer you would look at in terms of indications for your business
there? >> i think over the long term, analysts have looked at hotel occupancy rates, hotel average daily rates to try to figure out where the business is going. but our international hotel business for booking.com is very international. one of the largest markets for booking.com is now in north america. we've made really good progress in growing both brands in asia. sor ti the european part of the business has become a smaller part while still very big and important now. our strategy has been to grow elsewhere in the world to try to get a more diverse base of business. >> are investors getting it wrong, jeffery, by tig your stock so closely to what's going on in europe? in the past year, your stock, 3% moves either up or down, most of them are driven by what is going on in europe. is that wrong? >> i think investors are smart to look at, among other things, what's going on in europe and
particularly the exchange rate, euro versus the dollar. that absolutely has an impact on our translated earnings in the united states. so i wouldn't discourage investors from looking at as part of their investment analysis. but they also have to look at the markets in asia, north america, south america, what internet penetration is there, what kind of runway businesses like ours might have there to you think so the whole picture. >> jeff, why are there so many brands in your business? i spoke to one analyst over at barclays who suggested you need to get a better penetration, a better brand recognition of bookings.com, for example, here. why support so many brands? why not have one brand everywhere? >> we've learned over the years it's much more expensive and takes a longer time to get a brand like priceline.com real traction overseas. and it turns out, at least in our experience, the international business is conducted differently from the way we do business here in the
united states. we're primarily about discounting and value here in the united states whereas overseas, it's much more about selection. and the market overseas makes that kind of selection and information much more important because 90% of the hotels we book from time to time are independents and people really need the information. >> jeff, will shatner ever come back as a spokesperson? >> i think it remains to be seen what the ultimate outcome of our new campaign is. we're delighted to see so much pick-up of it. and it really underscores priceline.com's new message of retail hotel and selection more than just name your own price. but we'll have to wait and see what happens to mr. shatner. >> all right. good to see you, jeff. i appreciate you're in a closed period. we'll come back and look again in more detail at the business in three weeks. the ceo of priceline. more big guns today on "squawk on the street." still to come, we have a "first on cbnc" interview with morgan stanley ceo james gorman on the
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>> i mean the only one in new york city who uses coupons. >> hermes, gucci and tumi. arguably used for different reasons, right? >> i believe the lady does protest too much about luxury luggage. >> do you? >> yes. >> i'll show you my suitcase, the one i pack to go on vacation this afternoon. tumi surging in its debut on the big board this morning. it's now up 46.5%, which as brands like coach, michael kors are all up sharply this year. what is the outlook for tumi? dana telsi joins us. always good to see you. >> thank you for having me. >> when you look at tumi, what are the comparables? what stock, what company do you go to to say, this is the same sort of valuation that tumi merits?
>> we're seeing the fact that tumi only has $330 million in annual sales last year, has a runway for growth in opening stores, expanding overseas. and there aren't a lot of brands out there in the public marketspace. we haven't had a lot of new ipos. so i think investors are hungry for newness. and now it's incumbent upon the company to perform and deliver the same momentum of numbers in the future that they had in the past. >> isn't it different, though? tumi -- 86%, i believe, of its revenue comes from travel cases of various kinds, unlike a coach where you can buy several handbags or want a new handbag every season. you don't necessarily need a new laptop carrier or suitcase, for that matter, with the same frequency. >> that's true. certainly you do have -- its travel cases, business cases and accessories. accessories is only 14% of sales. it certainly is what is one of the growing portions and one of the opportunities. we just heard it from lvmh yesterday is travel retail. we're seeing more of the chinese
certainly travel. if the potential for visa applications to be processed quicker occurs, you're going to see a greater increase in people traveling globally and travel retail is important. you need luggage for that. >> travel retail meaning what specifically, dana? when you say travel retail, i think of duty-free stores. >> travel retail, many of these companies having stores within malls. more global travel certainly means on uptake ick in sales fr many of these companies. and cosmetic companies benefit from travel as well, too. but one of the reasons for tumi going public is that accessories expand 14% of store sales. >> a lot of the talk was how they were going to shift consumer targets, maybe broaden the lower end of the range. is that something we should expect from tumi as well? >> i think so. i think part of the reason why they're growing the accessories businesses fast -- we've seen them in handbags both for men
and for women, some wallets. we're going to see that expand. i think what they're looking at is the quality of their goods to be applied to other categories. >> when we take a look at kors and coach, as you mentioned, accessories for kors, accessories for tumi is a very small percentage of its business. do you need to see that category grow to be a true believer longer term? i think you need product extensions to be a believer longer term but it is also going to be channel growth. e-commerce is only 10% of their sales and it is going to be geography growth. asia pacific is small and europe is still small. >> all right. dana, always great to speak with you. thanks for your time. >> the blackstone conference call getting under way a few moments ago. >> you know, earnings story is going to be a big story for analysts in a couple minutes but the blackstone president tony james always holds a media call before that that is always a market making call. we should note some of his comments about the recovery. he says the u.s. economy is
anemic, fed driven, and europe is still problematic. those issues and also including intrusive regulation on both sides of the pond that is going to lead deal activity through the year down through the rest of the year. that is going to stay problematic. as far as financial ipos he says we're not at a peak. it's going to get worse before better as far as cyclical private equity firms trying to test the public waters. then there is the election with mitt romney, you know, obviously the republican candidate. he says that there is going to be more mud slinging if not from obama from the super pacs. more to come later this afternoon. >> okay. interesting stuff. thank you so much. straight ahead this morning we'll sit down with none other than the ceo of morgan stanley, james gorman in a first on cnbc interview with david faber on the back of the company's blowout first quarter this morning. stick around. [ female announcer ] e-trade was founded on the simple belief
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first quarter results a journey marked by cost cuts, asset sales, and investments in businesses. gorman saying the pay off is strong first quarter results. once you take out the charges for the narrowing credit spread. >> ex-dba our earnings for the quarter remain the highest since the financial crisis. roe was over 9%. >> over 9% but gorman says it is on the path for improvement so they're looking for higher numbers there. earlier i spoke with the cfo who said debt downgrade is manageable. moody's is looking to possibly downgrade morgan's debt and she downplayed the idea morgan stanley might look to buy all of the remaining 49% of the joint venture. it doesn't own it quite yet but is ontrack to buy 14%. also contracted to cut expenses. the results outstanding. 71 kren a share well ahead of analysts' estimates revenue beating estimates as well. once you take out the charges for the narrowing credit spreads two highlights in the quarter, really strength and their fixed
income. commodities and currency trading up 34% year over year. k witty trading was up 6% year over year and it should be noted among the major banks it was the only one to report year over year increases in both of these areas. guys, back to you. >> okay. mary, thank you very much. mary thompson joining us over at headquarters. straight ahead this morning we'll sit down with none other than the ceo of morgan stanley in a few moments, james gorman, first on cnbc interview on the back of the company's earnings this morning which of course were very good. and then ebay having its best day since 2008, the number one gainer on the s&p. we'll talk exclusively with the president and ceo john donaho. tdd# 1-800-345-2550 i'm constantly working my screens.
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that's the power of all of us. that's the membership effect of american express. kimberly clark the ceo. thomas vault, former fed president williampool who doesn't pull punches. >> poole can give us the real story. >> before we leave and before melissa travels to asia for a little vacation what is coming up on "fast" tonight? >> ah, charles cantor is going to take a look at the markets actually. >> don jamison is on with a bit of an under the radar green play. >> it is green week. >> have a great time. >> thank you. i'll see you guys in one week. >> fly well. if you're just joining us here is what you might have missed if you're just tuning in. welcome to hour three of "squawk on the street." here's what's happening so far.
>> the outlook for the rest the year is much better but it in large part will depend on what fuel prices do from here. >> 386 and last week revised at 38 #, becky, so still worse than expected. >> trading is merrill lynch. asset gathering is merrill lynch. you needed to see countrywide stop leading in order to show how good merrell is. this was that quarter. i need apples to apples and i'm getting apples to kumquats here and then to tangerines. it is very difficult to try to figure out what goldman is worth. >> believe me when you see this you want this kind of publicity. you want to see a stock pop like this nicely. that generates positive good will for the company. >> what we're seeing is a change in consumer behavior because companies like in our group price line.com and booking.com
are able to deliver last-minute discounts on mobile platforms. customers are starting to defer their decision making knowing that they'll be able to get a great deal at the last minute. >> good thursday morning. welcome to the third hour of "squawk on the street." let's get a check on the markets on this day where the markets have gone from moderately negative to positive seeing some green arrows after what looked like a concerning start to the session. the dow up currently 32 points. s&p up more than 3. the nasdaq up almost 20. want to check on tumi the luxury luggage maker debuting at the big board today. the stock up more than 45% in the first hour of trading currently up more than $9. 52% gain. time for the road map. ebay sailing past estimates thanks to some huge numbers from pay pal. the ceo is going to join us for an exclusive interview in a few minutes. then morgan stanley's ceo james gorman sits down with faber to discuss the big bank's successful first quarter, the state of the financial industry, and a lot more.
chesapeake merge still reeling from the ceo's loan -- can we call it a scandal? -- we'll call it a scandal for now. and tech startups seem to be a dime a dozen but which is the next big thing? we'll see which little tech companies could have big muscles in the future. all that and more is coming up in the next hour. first though breaking news involving sprint nextel. new york state has filed a $300 million lawsuit against the mobile phone operator, accusing sprint of deliberately under collecting and under paying state and local sales tax. it says sprint's competitors at&t wireless, verizon wireless, have all properly followed the laws involving sales tax collection and we are still awaiting sprint's response. the stock obviously down on that some 13 cents to 2.39. our capital markets editor joins us once again at post 9. great to have you back. >> good morning, carl. >> this chesapeake story not going away entirely? >> well, i want to try to separate a couple things here today. yesterday was about the loans,
intercompany dealings, and i think as was pointed out at this time yesterday for those that have been investors in this company, this shouldn't be that shocking news because this has been a tradition. there's been this type of relationship with the board, with management for sometime. but i did have an opportunity yesterday afternoon to speak to a number of people and i want to point out right at the top here these are not people that are short chesapeake. these are rather analysts and portfolio managers who have been -- who had buys on the stock, have been long on the stock. we're just taking a look at the board of directors. because we did call -- i did call. i called this one of the, if not right now, they've got a lot of questions to answer this board. certainly to shareholders. because remember, the board, this is the important thing that i thought about yesterday as relates to chesapeake. ceos work for the share holders. boards of directors represent the shareholders. and certainly nobody called me. i don't know if they called you. >> the phone didn't ring. >> the board members didn't call me to tell me how they would say
that these type of joint ventures have been in the benefit of shareholders. i'm still waiting. my e-mail if you don't have my phone number, gary.kaminsky at cnbc but i want to focus on a couple things related to chesapeake. if you're thinking about investing in this stock or thinking about trading or buying this stock, these are the questions you may want to think about. let's bring this up. basically they come to a couple things. this company's business strategy right now is about asset sales at a time where everybody who is a potential buyer knows that they are a seller. so when there are multiple buyers out there but you know there is a somewhat aggressive seller the question is do you really want to sort of bid up for things? number two pipeline deals. i can confirm that i have spoken with people who are extremely familiar with the -- many of the deals that chesapeake had put in place years ago with those that are transporting a lot of their product. now, like every other company that's involved in natural gas, they are getting hurt with a commodity price. they'd like to reduce some of
the deals they've heard. they'd like to renegotiate those deals. i ask you, why would somebody want to renegotiate the deal on the other side right now? no reason. remember, the whole beauty of the pipeline business is you are getting a certain guaranteed payment regardless of what the commodity is. you don't want the commodity risk. you want the producer to take the commodity risk. the third thing here gets back to cash. remember this is a company that's had very volatile cash flow sometimes for the greater part. right now a negative free cash flow. the question here is given what's happened with the commodity will this company be able to create enough asset sales to generate the type of cash flow? going to be very interesting. we have an analyst coming up who downgraded the stock. there was an analyst who downgraded the stock earlier this week before all this news came out of reuters and at the end of the day i'm told the payables here are going to skyrocket in the second quarter. if anybody gets a chance to speak to the board ask them in terms of what the payables of this company are going to look like and how they're going to finance this if in fact some of these asset sales don't go
through at the time that they hope. it could be a big cash flow deficiency here. >> sounds like you're more worried about structural market headwinds than you are the loan controversy regarding the company. >> what i'm trying to say is if you're going -- the loan controversis n this company. it became sensational yesterday but, again, this has always been a tendency of this company. i think a lot of the issue here has to do with the fundamentals. i'm glad we'll have an analyst on talking about the fundamentals because if you're thinking about sort of dipping into the security right now, be concerned about the fundamentals. i also want to point out it's not chesapeake alone. we've talked about xco re. all of these companies are under tremendous pressure given the leverages and the businesses. take a look right there. >> the chart is there. >> when you have a chronically over supplied market these are the problems have you to deal with. let's bring it back to the fundamentals. >> don't go too far. gary kaminsky. ebay of course reporting quarterly earnings wednesday after the bell. beat expectations. the e-commerce company cited
growth in its market place and in pay pahl, raised its forecast for the year. is now the time to unload that watch or piece of jewelry on ebay? john donaho is the company ceo and we'll be joined by our tech correspondent john ford in a moment. congratulations on the quarter and good to have you with us. >> thank you very much. great to be here. >> looking at some of the metrics whether active users, margins, was there any area of the business that you found disappointing at all? >> no. it was a good quarter and it was a quarter where all parts of our company were firing on all cylinders. >> obviously ebay has been known for, in some ways, lagging the growth of e-commerce and especially amazon for a while. do you think this is the end of that chapter and the beginning of a new chapter where in fact you out perform? >> well, here's what, carl, mobile technologies is fundamentally altering the retail landscape and ebay and pay pal are right at the forefront of mobile innovation.
and so what we're seeing is consumers now, see, they want a mall in their pocket. they feel like they got a mall in their pocket with their mobile device. and that mall is open 24 hours a day seven days a week. that mall gives them access to local retailers and global retailers. and it allows consumers to get what they want when they want it how they want it. and ebay and pay pal are at the forefront of mobile innovation. we had 12 million downloads of the ebay mobile app in the first quarter alone. and 78 million downloads in total. we're clearly leading in mobile commerce giving consumers what they want on their mobile device. pay pal's mobile payments applications are growing at several hundred percent because consumers don't want to enter their financial information into the mobile device and pay pal allows them to pay while never sharing their financial information on the mobile device. what we see is mobilize reshaping the retail landscape
and at the forefront helping to enable consumers and merchants to play in that mobile environment. >> 2 million active users added in the first quarter, the most in three years, john. do you attribute that to mobile or is there something else at work? >> well, that's on the core ebay business and you've seen the core ebay business we've really transformed the user experience over the last three years. it's fun. it's easy, it's safe. and so more and more people are coming back to ebay that maybe have even tried it in several years and they like what they see so we're seeing the new user growth numbers go up and i expect ebay's growth rates to continue. the new ebay market place is here and consumers really love it. >> john, you want to jump in? >> hi, john. yes. hello. john, good to see you. whoa. three years doubling, you don't get a lot of questions about bill me later but you said you expect that to grow 40%.
can you talk about exactly how you plan to drive that bill me later growth? >> well, what bill me later does is it is a way to pay in the pay pal wallet that allows you to defer when you pay for up to 28 days and then if you'd like to revolve it, it allows you to revolve it. so bill me later is the easiest way to get consumer credit for pay pal users and to allow pay pal users choice about what payment terms they want and when they pay back their balances. and so we're seeing explosive growth of bill me later as you mentioned and what that has a double benefit is it's the most profitable funding source in the pay pal wallet. >> so how do you grow that? what kind of things can you do to really continue driving that growth? >> well weerks s, we are simplyt very available wherever pay pal is available. it used to be bill me later and
pay pal were two different payment alternatives. since acquired the company we've fully integrated bill me later into the pay pal wallet. any of the 110 million active users of pay pal can now have access to bill me later as a funding alternative in their pay pal wallet and more and more of them are choosing it because they like the convenience. they like the flexibility. and they like the fact that it gives them choice about when and how they pay their balances. >> john, a lot of people are attributing part of the growth to your actions and prodding sellers to provide more services like free shipping, like easier returns. at the same time your margins, highest level in five years, can those two things co-exist for very long? >> absolutely. they actually work together. as you said, what we've done now with ebay sellers is the ebay today over half of ebay's volume comes from top rated sellers. and these are sellers that provide retail like experiences. they provide free shipping and fast shipping.
they provide great service. they provide returns. so more and more of what ebay is all about is this great trusted experience and as those sellers grow on ebay, that simply means there's fewer problems. we provide a money back guarantee. the ebay buyer protection. the claims on that ebay buyer protection drop significantly in the first quarter simply because sellers are providing great experiences to ebay and there was no reason for ebay to have to step in the middle to offer that protection to consumers so the two go hand in hand and ebay sellers are stepping up to the plate offering great deals on great selection and great service on ebay. >> finally, before we go, i want to ask you about your expectations for the rest of the year. a lot of people theorizing that you kept your estimates restrained because the economy is still uncertain. did you try to hold those in check? how aggressive are you do you think in your expectations for the full year? >> we feel great about our first quarter and we feel very
optimistic about the year. the cautionary points are the european economy. that's a little bit uncertain. and the u.s. economy seems solid but here is what we see going on underneath the surface. i don't know if you saw but the march e-commerce data in the u.s., e-commerce is growing at 17%. overall retail hasn't gone up but e-commerce is going up as a portion of that and that is driven by mobile. and so our innovation around mobi leadership around mobile is enabling us to capitalize on what is a fundamental trend that's impacting retail. the retail is being transformed and we're at the forefront of that. the ceo of morgan stanley james gorman will join us for an interview. we'll be back in two minutes. ♪
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morgan stanley out with first quarter results this week. they did beat the street. david faber is live at morgan stanley headquarters in new york with the bank's president and ceo. >> that is right. the aforementioned james gorman of course ceo of morgan stanley chairman now too as well. very nice to have you with us and allow us to be here with you after what was a good quarter. not a great quarter for the business of wall street so to speak. but you would say a good quarter for morgan stanley.
why? >> well, what i liked about it, it was clean and it was consistent across all the businesses. we saw continued strength in equities, which has been incredibly strong the last couple years. the investment banking business held in well in a very tough environment but the two areas that have attracted most sort of best attention of where are they in the progress of turn-around, fixed income with $2.5 billion in revenue, obviously had a strong quarter and is very balanced, rates, foreign exchange, credit commodities. the other one of course is wealth management. margins improved. not where we ultimately want them but good evidence of progress with 11% margins. >> where would you like to see the margins? what are your goals in terms of wealth management which continues to become a more and more important part of the company even currently at 51%. >> sure. the long-term goals which we laid out a couple years ago were 20%. obviously we didn't anticipate a three-year zero interest rate environment. very difficult market
conditions. we've said by the middle of next year we'll be at mid teens and i think with an 11% jump this quarter good evidence and good confidence will get there. >> you know, we sat down i think about six months ago and you had indicated during that time that, by the way, in the midst of europe being a very bad situation that it would be a couple years until we got back to the so-called normal, whatever that means. do you still feel that way? >> well, i think first lit global economic macro environment is really what's driving the markets. i mean, fundamentals of individual companies even on days of earnings have very little impact plus or minus. it's the macro. we've had, even last week weerks had spain as sort of the headline, the gdp growth in china was at 8.1 versus an expected 8.3 and suddenly everybody panicked over that. very fragile environment in that regard. but i think as i look at the world the u.s. i believe is recovering better than most people think it is. >> why do you believe that? >> because i've been around the
country a lot in the last six months talking to ceos, wide variety of businesses from the autos to the technology companies to the infrastructure, the energy companies. good progress and the financial institutions are clean. they came through in the background. are we going to be dealing with it coming and going, coming and going and what is the ultimate end game here when it comes to that given it seems to have a particular effect on for example your business and your stock prices. >> yeah. i think the ultimate end game is you can't have a shared currency
without shared rules of engagement if you will around fiscal spend. so if one system has a different tax regime and different spend regime from another country but you're sharing the currency obviously that is a problem and it leads to one of two things. either the euro breaks up which doesn't appear to be happening or the fiscal coordination gets closer together which does appear to be happening. will there be fits and starts? will we move from, you know, six months ago greece to portugal to ireland to spain and across the particularly the southern part of the continent? absolutely. but i think the leadership is committed and the actions of the ecb support that commitment. they're moving to better fiscal integration. >> they are. >> it's going to take some years. >> chain is far larger than any of those three combined. >> it is but if you look at germany, northern europe, austria, lux 'emberg, there are a lot of -- denmark -- there are a lot of companies in there that are very important and have been growing actually surprisingly well.
you look at gdp in europe in the last three month i believe was negative 1%. for all the noise, all the drama, and all the pain, gdp growth is only negative 1%. >> germany helps that. i want to move it back to this country. although this also involves europe. moody's, up coming regarding banks in europe but also in the u.s. they have put you on watch for a potential downgrade of three notches. what i believe take you only a couple notches above junk status. you said it's $6.5 billion collateral call for you potentially, correct, if in fact that occurs? >> yeah. obviously the moody's thing has to be taken in context of where all the rating agencies are. we've had two years of potential ratings action now coming out of the crisis. not surprisingly. and where fitch and s&p in our case both have us rated in a territory moody's is now going through their process. i don't want to prejudge where they come out. >> why should it matter, james, at this point? why should it matter given the behavior of the rating agencies
and their failure to completely appreciate risk during the period of the late 2000s? >> i think it remains an important input but the big credit buys around the world, big debt buys around the world obviously do their own credit rating at the same time. it is an important influence but not the only influence. you go see it in the context of what all the rating agencies are doing and all the credit shots are doing. i think moody's on a mission this would be a late change. you know, obviously a lot closer would have intuitively made more sense. whether they end up moving to the more extreme ratings i don't know. i would be surprised if they do frankly. look at the u.s. corporations. we've all come through the stress test quite strongly actually. incredibly challenging test. 13% unemployment. you know what the numbers were. we've now had first quarter earnings. morgan stanley made only 1.3, 1.4 billion in earnings. this is not the profile of an
institution that would typically be downgraded three notches. so there's more information now. the economy is recovering. the banks, us, and the other banks are much stronger. so that's good input i think for moody's benefit. >> yeah. but to the extent there are still contracts written that actually include ratings downgrades, larry fink yesterday who runs black rock was talking about while he might not want to he might be forced to stop trading with certain counterparties based on that. why is that still the case in this? >> well, there are contracts which are preexisting and we, and i'm sure all the other financials, and many institutions actually would end up rated at the same level we are if it all unfolded, but those institutions are all looking at what there is. on our analysis about 8% of our derivative contracts would be affected. it is not inconsequential but not life threatening to an institution of this size. >> you have to put up another 6.5 billion or so in collateral that is money you could otherwise use to better ends i
would expect. >> that's true but we also build it into our liquidity profiles. we effectively have the funding all set up in anticipation because you should be prepared. one thing we learned from the financial crisis is be prepared for all potential outcomes. this is a potential outcome. we have prepared for it, whichever way it turns out, and the 6 billion is a worst case scenario and obviously we mitigate against that. >> something else at least an area of speculation is how much of morgan stanley smith barney you may buy. you have an option to buy 14% but there have been reports you are in fact negotiating to buy the 49% you don't currently own. is that correct or is it just the 14% you actually believe you'll be buying. >> the correct part is there have been a lot of reports about it. it has attracted a lot of attention. we haven't negotiated with anybody. we haven't spoken to the other party which is citigroup. we haven't applied to our regulators to do anything but stay on the same program. when we put in for our c card the capital action we asked for
from the federal reserve was to buy 14% this year and 15% next year because it covered a two-year window. that was approved. that's the program we're on. we like the business. we will eventually own within two years 100% of it or two years and a month 100% of the business and as i said on the earnings call we feel no particular compulsion to accelerate that. we are obviously always prepared to listen but we like the plan. we like the business, and we're focused on the 14%. >> why would you buy anything when your stock is trading below tangible common book? >> you can't engineer your strategic choices against what the current financial environment might be. and secondly, the way that deal is structured you're actually holding a lot of the good will, in any event. you effectively have prebought it in some ways. >> right. i am told we are out of time. i know you have places to go as well. mr. gorman, as always, very much appreciate your time. >> terrific. thanks for having us. >> james gorman chairman and ceo
of morgan stanley. back to you. >> great stuff. thank you very much. david faber joining from us morgan headquarters. quickly with gary, interesting interview. >> as always, great question by david right at the end given where the book value is and the morgan stanley smith barney transaction. a couple things stood out to me. i think if you're a morgan stanley share holder you have to love the fact that dporman said we are preparing for the worst so in the sense if there is this downgrade they have the capital put to the side. we'll have more on this later. >> and we'll discuss some of the differences and similarities between morgan stanley and goldman. >> now that we've got all the investment banks, the earnings. some thoughts in terms of how investors are going to look at these companies for the next three months. >> yes. meanwhile one more word on another ipo viewing on the nasdaq. in this case. squawk just opened for trading. stock got a nice boost, of course the company splunk collects indexes, harnesses a lot of data generated by websites and servers all around
the world. just a few minutes left in europe's trading day. we'll get you the close there with simon hobbs after the break. [ male announcer ] you are a business pro. omnipotent of opportunity. you know how to mix business... with business. and you...rent from national. because only national lets you choose any car in the aisle. and go. you can even take a full-size or above. and still pay the mid-size price. i could get used to this. [ male announcer ] yes, you could business pro. yes, you could. go national. go like a pro.
mark here. cheap thrills really. the more interesting rumor actually is around france today with the suggestion moody's might downgrade going into the election. we'll talk about that in a moment. let's just take in that close and see where we are in europe as we close down. >> the european markets are closing now. >> do you know that spain is down 2.2%. by my calculations it is now just 1.3% above its lows in march of 2009. so spain on a broad based decline, 20 members of the 35 member ibex in negative territory. we continue despite the fact that we got away with this auction shun successfully today and the yields are below 6% we continue to have difficulties there. this is where we are on the three major markets around europe. london of course, frank furtwengler and paris, you'll notice that during the course of today's session we have seen this notable decline from the french market as that rumor went around that moody's might downgrade france. it seems absolutely
inconceivable that in france three days before the french presidential election moody's would downgrade france. it would be suicidal politically for them to do that at a time when europe is having the debate it's having about ratings agencies anyway. but nevertheless that is the rumor that went around. yes if you look at the french banks they are down. that might follow through from the french rumor but it also might be because alond is getting more likely to win the first round of the presidential election. if it were true, and the rumor was really taking traction that you get the downgrade i think that you would have found the euro would react the other way. have a look on euro dollar and you'll see throughout the session it is headed in one direction. that doesn't indicate to me that they think there will be a downgrade from france because you know the implications would be huge po tlings ftential for out funds to rates moving further down the line. carl mentioned where we are of course on the auctions it was
much talked about. $2.5 billion. in essence the weak spanish bank bought more sovereign debt that already is in question. it is neither here nor there given the pressure there is within corporate spain at the moment to push the whole thing through. this is where we are. overall you see we're now at 5.89 on the yield. the degree to which the market seems to be okay with the fact that in italy they've been pushing back some of their austerity. they seem to have the will of the people or at least the markets are with him. slight rise there. reuters has a survey out today that might in the united states surprise you. it's 29 economists, there was huge skepticism that either italy or spain will ultimately need an external bailout. the probability that the spanish must do that is only 25% and for
italy on this survey the likelihood is just 13% but italy would have to seek an external bailout. despite the talk that we hear those professionals presumably in europe think that it is still unlikely they will need external aid. i'm just saying. >> we'll see how many are in italy not just europe. >> you said it would be suicide for a rate aig si to downgrade france in front of election. and there is sort of an implication that the rating agencies are aware there is an election and they wouldn't do something. what makes you think, i don't know if you heard jim gorman talking about rating agencies and the role that they play. why would anyone think the rating agencies would or wouldn't have their timing involved with the politics? >> if i were a ratings energy and going to downgrade france i would have to make certain as aassumpti aassumptions about what the french economy is going to do. one candidate is going to take
the retirement age down and have a lighter grip on the finances. i might downgrade after he has won and laid out his policies formally but not in the bark. they are talking about setting up state run credit agencies in europe. >> the pole arty of their positions, they are very different proposals. sarkozy and heland. >> it's like greenspan moving rates before the november election. if you're to be impartial you don't put yourself in a position -- one side of the election will be so mad they'll take that pound of flesh down the line. >> excellent point. is it surprising this rumor even gained any kind of traction overnight? >> no. it is perfectly possible. i would have thought me as an individual it a -- two months down the line he could downgrade it because he is going to be less tight on austerity but not now would be my personal bet. it seems totally illogical. >> no surprise fitch came out and reaffirmed their triple-a which would only be catching up
with what s&p has already done. >> i hate when journalists call around and say are you about to downgrade? they'll put out a statement after the markets are closed. that is always a bit of an irritation. they just reaffirm their position now but they could two hours later make the decision. >> thanks so much. your thoughts on that? >> well, simon always can explain things. thank you. i didn't really understand that. now i do and i think many of you probably do. >> huge egg on my face. >> always a fit explanation. my only thoughts on europe today as i typically do. if you look you basically see european credit, the week slows, equities are holding up but sovereign debt also at the week lows. not sure if we have that picture. tim bashl sends it as he typically does so disparate between the credit and equity markets which we've seen for sometime now. >> listening to gorman, we talked about differences between goldman and morgan stanley. your broad point is if you
really wanted a pure play be there on the side of goldman. >> sometimes you have to think about businesses and sometimes you have to think about stocks. this is not anything about the businesses. this is simply about the stocks. if you are a plain vanilla institution which -- you know, long only institution and you want to just play the investment banking theme you will most likely want to be an investor in goldman sachs on a relative basis versus morgan stanley because you have the full leverage to the capital markets business, the m & a advisory business, and banking business. the fact that gorman gave a great explanation about the longer term implications of owning this morgan stanley smith barney jv and owning a hundred percent of it. you talked about getting this up to mid teens type returns and the fact they did a great job bumping up returns from 7% to 11% but if you're an investor you're going to say, and this is just how the game is played, you're going to say, you know what? i want to buy one and i think
goldman sachs will continue to benefit on a relative basis only because they don't have, they don't have the sort of less volatile wealth management business that morgan does. >> right. >> this is not about businesses. this is about stocks. >> depends what you're in to, for sure. >> it's something investors traders should be aware of. certainly i don't believe it is going to change as a result of anything we saw from any of these companies in the first quarter. >> meanwhile bob pisani has come up to the post and has had a lot to watch today. >> unless you're tumi or splunk it is a day where the data is good but not good enough. there are four or five data points where we're still not quite there. existing home sales don't normally move the stock market. we talked about it this morning. i was watching that because i'm concerned about the recent trends in housing. i've been optimistic and ima little concerned still. take a look at existing home sales. normally not a market mover but it was today. here is what you want to watch. number one month over month.
sequentially. down 2.6%. that is not good. we don't want that 2.6%. we want to see the market improving and see more homes and these are contracts remember. year over year 5.2%. is this good, bad, awful? this is an improvement. it is not good enough. it just has to have better numbers than that. the market reflected dwee in fact drop. the stock market actually reacted to numbers. it dropped at home. builders are down. though they have recovered and are a lot worse a while ago in the market when negative fwu did eventually recover. another example of not good enough here earnings update. we had 18 companies reporting this morning and all 18 beat. this was a great morning in theory if you looked at the actual numbers. 18 reporting. 18 beating. this is what the people worried about. 1% is all we're getting in earnings growth for the first quarter but because of the beats today s&p now says we'll be up 3.1%. okay. that's an improvement but not amazing. the stock market is only a few
percentage points from a four-year high. it may not be good enough. revenues are up 6.1%. that is also a little bit better so, so far things are improving but again it may not be big enough to move the stock market forward. let me show you some of the futures here. move forward here because i want to talk about spain very briefly, too. and i agree with simon. the french downgrade rumor is crazy but it did move the stock market a little bit. and if you look at the ibex here, here is what i want to point out. we had a successful auction. i said yes today. if you have a 7 handle in that spanish auction it is a disaster. if we have a 5 that's good. 5.7 to 5.8 is good but it still didn't help. look, we're ending essentially at the lows for the day despite the french rumor being nonsense. there you go. that's what i mean. still good but not good enough. finally just put up the s&p 500. we had of course the weekly jobless claims numbers and did drop on that as it came out. we've had now two weeks where the numbers have ban little on the disappointing side after several weeks where things have been improving. there you go with my theme here.
good but not good enough. we're getting a little choppier data. >> thanks, bob. nice pocket square by the way. >> thank you. working on that. >> want to circle back on some of the sprint headlines. if you didn't hear it already, new york state agreeing to file a $300 million lawsuit against sprint and nextel essentially accusing them of tax dodging. and saying that the state will use every tool in our arsenal to make sure the taxpayers' money is protected. if there was a company, craig, that could have less room to sustain this news it would be sprint. >> obviously not good news for any company but particularly difficult for a company like sprint. >> what do you make of this? not only do they call it tax dodging. they say the scheme is ongoing, they have not corrected t eed t practices and say it arose out of a nationwide effort to gain an advantage over competitors not by cutting price or offering better service but by trying to save on taxes.
what do you make of it? >> i think that is the troubling part. the number is a sizable number. $100 million of tax evasion and as you said they're suing for $300 million which is treble damages but i think the bigger issue is trying to figure out how much this affected consumer prices and whether in fact if and when sprint corrects this problem whether they will either see attrition of those customers or fail to attract customers at the same price point. we don't know all of that yet. this is quite new. i just read the attorney general's complaint. you don't often see words like tax fraud thrown around. there is a very clear implication that this was intentional and that's quite unusual. you downgraded the stock march 19th and reset your target to $1.75. you talked about the problems in debt maturities in 4 g and said we're not predicting a sprint bankruptcy but merely acknowledging it is a very legitimate risk. does this piece of news move you anywhere along that train?
>> i'm not sure this particular piece of news changes the liquidity profile of the company but the point we were trying formake is a very important one. you know, sprint right now is balanced in some kind of a weighted probability between a reasonable chance that it goes bankrupt and a reasonable chance that it is actually worth quite a bit more than what it is. the cds market and the fixed income market now prices in about a 50/50 chance of default and all we were saying is, look. as you get to an iphone 5 you're likely to see that p of default rising rather than falling because they don't really have an lte network and they have a take or pay contract with apple that is very punitive. >> let me just go back to liquidity for a second. do you have any idea whether or not this money should now handle this internally? will this money have to be put in some sort of escrow type account and told this issue is resolved? >> that's possible. but i wouldn't want to speculate about that.
i don't know. >> well, if that is what the accounts recommend or what is determined is that going to be any issue related to any of the covenants certainly that they have with liquidity issues mentioned? >> i don't think so. the near term liquidity issues aren't that dire. the problem gets to be greater as they go along because they're in the process of a very ambitious capital spending program that they refer to as network vision. that's going to take them through a very deep cash flow trough over the next couple of years but going into that they actually have reasonable cash balances today. so i don't think it creates an immediate liquidity problem. it simply exacerbates the problems they already have. again, if they have to raise prices or cut margins on their flat rate plans which what is this refers to in order to comply with new york state laws and potentially in other states as well, then that could be a much bigger issue because it could affect their subscriber growth and their margins.
>> thanks for coming to the camera. appreciate your insight today. one of the deechans of the industry. sprint's response is, quote, this complaint is without merit and sprint categorically denies the complaint's allegations. we have collected and paid over to new york every penny of sales taxes on mobile wireless services we believe our customers owe. under new york state law. straight ahead facebook's next takeover target. find out which tech startup is the next big thing. back in just a moment. great shot. how did the nba become the hottest league on the planet? by building on the cisco intelligent network they're able to serve up live video, and instant replays, creating fans from berlin to beijing. what can we help you build? nice shot kid. the nba around the world built by the only company that could. cisco.
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has been because of the teachers and the education that i had. they're just part of who i am. she convinced me that there was no limit to what we could learn. i don't think i'd be here today had i not had a wonderful science teacher. a teacher can make a huge difference in a child's life. he would never give up on any of us. thank you dr. newfield. you had a big impact on me.
coming up on the fast money halftime report we found pockets of strength in the flat market so first up the banks are back. we've got the trade for you there. plus there is a bull market in mobile payments. who's the big winner? is it ebay or somebody else? then we're getting you ready for blue chip friday with the earnings trade on ge and mcdonald's. we've got lots to cover at the top of the hour. back to you. >> look forward to it, michelle. thank you so much. ever since facebook's $1 billion acquisition of insta gram it seems anyone with internet access has been guessing which company might be targeted next. names like spotify, twitter, even big have been thrown around. if facebook has a shopping list which companies could potenti potentially be on it?
breaking it down for us, our guests. guys, good to see you both. >> hey. good to see you. >> dennis, if doing a billion dollar deal like that is so easy, never mind what zuckerberg has said about i'm only going to do a few. how likely do you think the next big deal comes from them? >> well, for facebook i see a lot of small deals. companies that are basically developed as functionalityies inside the facebook platform. we'll see lots of little things that won't amount to much from a dollar standpoint. i think there probably are a few, however, that make some sense from a big acquisition standpoint. at the top of my list is spotify the company that really brought social networking to music. you basically download music. you pay a monthly subscription fee. you share it with your friends in ways that you just wouldn't have thought possible five, certainly ten years ago. spotify is valued at $4 billion. keep in mind it doesn't make any money. the more revenues it has, the more it loses. but it really is changing the nature of how music is being shared and it is so well
integrated into facebook right now that at least on the top of my list that's where i'm at. >> interesting. paul, don't you think it's google's turn? >> hold on. i want to say something about spotify. it's the top of my list too. i think it is a great assault against apple but more importantly it inherently has a messed up business model. it is raised on this balance of power. the aim here is that it gets so many users that the labels will have -- and writes such big checks to the labels that it will have some more leverage and it has to get more and more users in order to tip that balance of power. >> right. >> and so far, you know, if it was bought by facebook the balance of power would shift so intensely i think it would have control over the labels. >> it is a really good point. you're creating value by doing the acquisition itself. >> right. >> just the way they change the ownership model and music. we thought pandora was the answer for about five minutes until spotify came along. what do you make of pint erest?
>> i think it'll never sell. the talk out there is it's the next facebook and is on fire and i think it wants to be a stand alone social network and go public on its own. i think it would make total sense to put in with facebook. i mean, it's not similar. it complements and is so targeted. people talk about pinterest and its lack of business model but when you have however many women all searching for things for their wedding it is a really targeted audience and the data and the way you can target ads seems easy to monetize. instead they might go after the similar sites, fancy, other smaller ones they could build themselves. i agree they'll probably do more small acquisitionas has been their history but i could see them go after pinterest. >> we got to run but does twit gert sold or go public? >> i think twitter has to get sold. they've really not developed a
consistent business strategy. >> right. >> i mean if you look at what you see on cnbc, right, twitter handles everywhere, it has become such a part of our lives but they've not really sort of turned that into hard cash. and so at a certain point i see the investors getting frustrated and saying we can get a three, four, five, six, $7 billion valuation for twitter. let's sell it to a dumb buyer and that would be say microsoft or even yahoo. >> yeah. finally, guys, what do you make -- we've been tossing around the bing theory for a while here that facebook incorporates bing, makes search something you never have to leave facebook for. a huge dent into google's market share. paul, likely or not? >> likely? i think it would be brilliant. if they could take all the data on facebook and make your search that much better google would be terrified. it would keep you, make them -- facebook that much more engaging. facebook and search right now is a mess, right? people don't use it for that. yet, there is almost a billion users. how many are active is fewer than that but they have a ton of people that spend a lot of time.
if they can incorporate bing it would be just so powerful. >> no way. microsoft isn't selling. microsoft needs to get deeper into the consumer internet and bing is one of the better assets they have. microsoft has to sell for facebook to buy. i see facebook probably just taking, you know, they are going to raise $10 billion. if they say hey we're going to spend $400 million on developing the next generation search project that might actually be money better spent. >> and there are some other search engines out here that are quite good that don't get much traction. they could pick up one of those and try to develop it. >> you guys are great together though i can't tell who has the crazier hair. >> we just need a hair cut. >> i can't see. >> we'll see you next time. when we come back after a short break, take a look at shares of splunk first day of trading shares up more than 90%. big day for that stock over at the nasdaq. of course it was one of the worst housing markets in the u.s. but now investors turning foreclosures into big money. can we call that a comeback? we'll find out after the break. [ female announcer ] want to spend less and retire with more?
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it was once one of the worst housing markets in the u.s. but now investors are streaming foreclosures in phoenix, arizona in search of big rental returns and some are succeeding. good morning, diana. >> reporter: good morning. you're right. phoenix appears to be rising from the ashes with home builders like here at ripson starting to build again. we'll talk to them later on in power lunch but the other half of the phoenix rebirth is a
large scale mass clearance of foreclosures by institutional and large scale investors. they're buying in bulk in what one calls a pioneering asset class. >> i think we're in the top of the first inning. people will come in and come out but if you're looking to build a business for the next five to seven years we think it's the first inning and we're excited about it. >> colony capital used to invest exclusively in commercial real estate but about a year ago saw opportunity also in single family homes. they put an infrastructure in place to buy, rehab, and manage distressed properties turning them into rentals. they started last month. they own 170 so far in three states and they're closing on 50 more this week. now, colony estimates there will be 8 to 10 million distressed properties nationwide over the next three to five years. that is $800 billion in capital required to clear it. they are not worried about increasing competition and are approved to sell bulk reos from
fannie mae. colony expects a rate of return from 15 to the mid 20% on their investments and they are going to expand into atlanta, parts of florida, and texas. areas they say that have a strong economy and a strong long-term rental market. again, we'll be talking about their effect on the builders coming up in power lunch. >> very interesting stuff. thank you so much. when we come back we'll look at gary's final thought on the conflict over at chesapeake.
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