tv Squawk on the Street CNBC July 18, 2013 9:00am-12:00pm EDT
the phone with sources related to the dell deal, and they believe it is closer than reuters is suggesting, and they are working dill yeigently on t dell side to get out the vote, because a no-vote and somebody who does not vote is effectively a no-vote, but if they don't get it the whole thing could be pushed off. and thank you for being here. >> i don't believe i wished you a happy birthday. >> and your last word. word up. >> all right. make sure you join us tomorrow, squawk is next on the street. yeah, showdown in round rock. it is decision day for dell. shareholders are gathering at the company's headquarters and scheduled to vote on michael dell's plan to take the company private. david faber at the new york stock exchange, and i'm carl quintanilla. and david says it is too close the call as they say in po politics, but a slew of inventor ris from verizon, and morgan stanley and ebay and a slew of
others, but at this stage, david, what do we know? >> well, the votes are crazy and as i tweeted even crazier than usual is what people are telling me, carl. so i think that i'm loathe to conclude one thing or another in terms of who has changed their vote. we have seen reports out there, and yes, i had the information a while ago, but things can change back. in is not the typical go to the polling booth and vote. you can, if you are black rock say you are voting against and pull the vote and then say you are voting for and they can keep the polls open by the way for as long as they want if they get the special committee, if they get the outcome they are looking for, then they can close them, and that outcome being the vote in favor. now, my sense from having spoken to people around the situation today, this morning and of course for the last nine months is that they are still trailing, and that would be the dell camp, in terms of getting enough yes votes for the approval, and remember, it has to be of those that you have to vote in favor, and michael dell cannot vote his
shares. >> so, he needs 42%? >> correct, correct. >> of shareholders. >> correct. that is where we stand, and it does appear that the index funds are moving around so i reported black rock and vanguard were gai against which is very interesting, and of course, they side with the iss. >> right. >> whiched a v ed a vadvises th rumors in congress believe it or not, and power of the proxy firms and maybe we are seeing a sea change there in terms of the index funds actually committing to real fiduciary duty. >> wouldn't that be something to do the work? but that means that the fees have to go up. they have it both ways the companies. >> that is a side story, but interesting one here. >> and how about the election, the last-hour election of delivering alpha of carl icahn? isn't that last minute? >> yes, you are trying to influence whatever you k and remember, it is not about the people buying the stock, because june 3rd is the record date and you have to have owned it by
then and it is about what you are going to do, and the game of chicken being played in terms of will michael dell along with silver lake, but they are not likely to increase, so he would have to do it himself and perhaps access less if they were to go up, and will they do so? we will see. as of yesterday, as we headed into the end of the day, it did appear likely that the meeting would be adjourned but black rock having changed and vanguard and state street as well having changed to yeses, but again, i want to caution you. that can change as well. i'm being told by sources that it is all in flux. we will see whether we get an adjournment or not. >> and okay. people who are saying that they know are wrong. >> you can't know, because -- >> huh? >> this is not like the returns are coming in, and we are going to count them in. >> it is important. >> the returns comes in, and the proxy, and come on guy, i'm not a raising. i'm not kidding. you want to vote this down, and then you are going to have, and we will adjourn, but not going up and you will vote this down
and then we have a $10 stock price and is that what you want? >> well, i'm trying to understand the context of politics. for instance, we have exit poll interviews that try to allow us to predict, but you are saying that this is not the case in this -- >> no. >> this is different from politics. >> but what we have the bigger picture here, and what makes it so interesting is that the huge buyout, and the founder and the ceo which is conflict led by the founder and the ceo and i believe that the special committee has done the best job it could in those situations, but if it is voted down, you are in a no-man's-land and nothing says that the carl icahn plan will happen, and he needs to talk to the directors and this will take place in a month or so from now in august, and it would be fascinating if we ended up with that outcome. my experience has been that when the outcome will be as fascinating as that, it never happens. >> speaking of icahn, and you talked about the election
nearing at alpha last night and if you missed what carl said, shame on you, but here is a listen of what he said. >> most of the boards are completely dysfunctional, but i have never seen one as bad as this. i really mean it. i have never seen anything where they actually go out, and they scare their own shareholders. i mean, one guy wrote a headline that was perfect, but he said, they scared the dell out of shareholders, and one guy wrote it, and i didn't write it, but i wish i had thought of it. >> normally in politics, restrictions of where to stand near a polling booth, but that is close the night before the vote. >> who is kissing the babies? not michael dell, the schmooze facer to, but talk about delivering alpha, what is the major theme? jim chanos saying that hewlett-packard's model is broken and if theirs is broken, dell is twice broken. we had stacy smith on cnbc saying yesterday that we didn't see the ultra mini coming, and
basically ultra mobile, and again, dell is wrong. if i were these guys, either one of them, i would say, hey sh, h yours. >> and this concept -- >> it does not come up. >> no sh, it didn't. >> and there is a question if carl is playing for the bump of $14 or if michael dell is willing to go there. we should know something soon and hopefully in the broadcast i can give you something more definitive of where the vote stand stands. >> so if you disappear you will be on the phone? >> yes, that is david's phone and where the magic happens. >> and everybody who says that the vote is done has now been like preet bharara who says that the case against steve cohen is close. >> well, that is a little bit buried yesterday, and believe me, as he was saying it, it got attention. >> and bloomberg said they moved the goalpost on steve cohen, and
the journal is inquizzablely quiet about it. >> and this deal is not going to close until october, because of the chinese antitrust, so even if we got a yes vote today, you are still not going to get the mo knee until october. >> are so you could have a really hideous quarter. >> and costs are going up a little bit in the debt markets and something else to throw into the whole mishmash. >> and jim mentions the tech news and tech earnings on the radar and intel is lower premarket, and the world's biggest chip maker posted a revenue miss, and amid the sales guidance in the pcs news, and ebay is taking a hit as the company's current earnings comes in short of expectations, and we will talk exclusively to the ceo of ebay john donahoe later in the program. let's start with intell, was this a come-to-jesus moment for
these guys? >> yeah, you are too late. one of the things that is incredible in the conference calls and whether it is yahoo! and marissa mayers, and last year they didn't know about the mobile, and this conference call is about, amazing that they said they weren't thinking mobile, and we were behind -- well, what were they thinking? this is a quarter that a lot of companies that did not understand that the cloud was moving quickly, and people didn't understand that mobile was quickly and i felt terrible for intel, because they missed basically the internet backbone, and they missed the tablet, they missed the cell phone, and they caught michael dell and the pc. well, just terrific. it is retro tech and paleo czoi and meanwhile it is seratops.
>> did they have pcs then? >> well, when they scrapped the microprocessors and decided to go into the 286 and everybody laughed at them and the stock was killed, and they were vanguard and this is -- listen guys, we missed it. how did they miss it? what do you carry in the pocket? how do you miss it and what do you live by? you live by this? you are the only guy who carries this, because i have carpal tunnel. >> and stacy smith is a -- >> nice man. >> on closing bell yesterday. l listen up. >> the market really now is dominated by the consumers as opposed to the enterprise, and the result of that is that you are seeing the rapid transitions in technology, and yes, i would say that we were a little slow to recognize that the trend towards mobility, and we are moving fast now and great products on the market. >> and that is hard to listen to. this morning, stern says they have not cut the second half projections by enough. >> they stuck by what is high with gross margins coming down.
and you nknow what they are spending money on? buying back stock, well, how has it done for them? dividend and $3 billion. >> how has it done for them? >> absolutely nothing. war. what it's good for? >> nothing. >> absolutely nothing. >> say it again. >> i mean -- if they had just simply had a vision, i remember when they were trying to, and you know, they could have bought broadcom or and --? and the emphasis now, and the fact that we are going to have cheaper pcs able to do more, and the -- >> the margin is contraction, and i am surprised they can even give the margin guidance that they did. intel got overrun here, and they spent a fortune and now they finally cut some cap x, but it is disappointing from the great american company who has flat revenues and this is why tech has a bad multiple. flat revenues and meanwhile san disk, they were given up for
dead. >> and there is no flash, and few of the businesses have recurring revenues, right? >> well, the only one who saw it coming believe it or not is the one who disliked it and a high multiple is sales force.com, and he said it is a time of social and mobile and time of cloud, and no one listened. if you had listened to him, you would not have screwed soup b e bad, ceos. >> and in the meantime, they missed for eight years but this time, they upped the projection for profit up 1%, and there is some. >> well, there is one that didn't disappoint, but have you heard of revenue growth? remember when tech was tech and meaning that it was progress and innovation, and not just bottom line, and listen, we bought back the stock and this way, and i was disappointed in ibm and the market will take it off, because it didn't blow up, but i want growth. >> there is growth out there, and it is with tech, and -- >> with google. >> well, they will find out.
>> microsoft might put up good numbers. >> and morgan stanley another big one, and let's get to mary thompson to see if she has spoke en to him? >> well, i got off of the phone with bruce who is the ceo of morgan stanley who came out with better than expected results for the second quarter and expects to buy back $500 million of the stock buyback and i asked ruth porat about that and she said they used a provision that allows the company to use 1% of the tier one capital to do additional capital distribution, and that is where it came from and she would not comment on what they will be doing in 2014, but the investors liked the news of the stock buyback program. and the leverage ratio which is a focus of all of the investors of the big banks this quarter, she is going to detail where the company stands on meeting the leverage ratio in the conference call starting at 10:00 a.m. this
morning, and she says that the company has no plans to shrink the asset base to fall below the level to not meet the provision that are again being proposed right now. and she also talked a little bit about the commodities business and fixed incomes and commodities was stronger than the quarter last year, and part of that due to a foreign exchange, and strength in electricity and natural gas, and there is a drag, but some ups e upside. and on the retail brokerage side, she said that the clients were selling out of the fixed income in the next quarter pause of the volatility and moving into cash. and she said a lot of talk of the institutional declines and what to do, and she said that the spector of higher interest rates may force them to finally take action. we have been waiting a long time for that to happen as have a number of the big banks. carl, back to you. >> and a theme here. mary, a theme here. bank of america better than expected. morgan stanley better than expected wells fargo, better than expected and circling back to goldman and not that bad.
i want to be careful about that electricity business. >> you mean with the -- >> well, yeah, hello. >> and really just jpmorgan and barclays they are after? >> well, the release -- >> and barclays saying stick it, and they are a european bank, and the europeans are behind barcla barclays, but i don't know if you want to be in the electricity business in that the ferc wants you to store it for a day and are you supposed to lose money on the electricity and ed edison suddenly back, and where was edison from? that is a question for you. edison, new jersey. >> very good. i'm focused on tesla. >> tesla! >> on tesla, and it is more interesting. >> why don't you get one. >> no sh, i won't get one. i will read the book about the guy. >> well, i have the tell you that i'm thinking that the bank stocks were supposed to be the worst group. no, they are great. unh, and the health maintenance and think about the circle that we are -- by the way, i never
should have left off citigroup, because that is better than expected and that group which is already up 20% going into the quarter has surprise, surprise, surprise and bank of america, we have to go back over it, because it is a beautiful quarter. >> above 14 for first time in a long time. >> and the stock should be at 18. >> and buzz about what jim chanos, and nelson peltz said yesterday at delivering alpha, and this war got interesting. >> food fight with kraft. >> yes. >> oh no. >> i'm going to -- i think that i have news, and we want to -- >> go with it. i will kill the commercial for you. >> i believe they are going to adjourn the meeting. i believe the shareholder meeting at dell will begin and then adjourn. >> that means? >> they don't have the vote. which means that you will get another meeting date set, and that you will then the special committee will go the michael dell very soon, and silver lake,
and say, is this it? best and final or are you going to bump? >> this is news right here. >> yes, this is news right here. this is going to be news, so that the meeting is beginning, but it is according to my sources going to be adjourned. which is what you want to do. so now they have had a look at the votes. all right. explain. they have had a look at how everybody is voting and adjourn it, and michael dell and silver lake with a new amount of time and the new meeting set for next week probably to try to flip some people or raise if they need to or not. >> what is the stock telling you by going up a little bit here? could it be saying anything? saying that they have to raise, and 13.05 up 17 cents and what is the take on that? >> my take is that people are thinking, okay, we have another week, and they will go back to them, and it is close, and maybe -- maybe they bump. >> all right. >> or maybe not. now you are trading below 13.65, and again, i mean, this is a
source close to the situation and appears that the meeting has started and will be adjourned meaning no approval of the dell deal. >> and now citing that the company is reporting what you are saying, david, that the meeting has adjourned and the vote is delayed. >> by the way, that is what we have said. >> we have moved the election day. >> this is what we have been saying all week. >> and other people have loved to be wrong, but it is a new thing, and you can be wrong and be proud. thank you for getting it right. >> well, we should mention, too, it is not just about dell's future, but about the implications for hp, and if they were to go private what does that do to pricing in the industry and hp's performance, and a stock that we know has done very well all year long and better than any other dow component. yep. >> i think that -- you know, you don't want to load this company up with debt after hearing what we have heard from irma in the last 24 hours, that is the last thing. >> and the drama here will continue in a fascinating way.
and you will have a little bit more time here to once again go through where does everybody stand. interesting that we didn't get the best and final from michael dell. in other words, if we went into the vote, and he was not really going to raise, he could have communicated that to the special committee prior to the vote, and made it clear that he could have said hold the vote, but he didn't do that. that is another reason that, jim, you are seeing the stock react the way it has. in other words, there is still this belief that he has -- >> and throw another one out. >> and there is a little bit more in the pocket. and my question has always been, founder/ceo and 60% holder and emotionally attach and do you want it to go and go the next month to battle with carl icahn and you heard him with scott in a proxy fight? >> and michael dell is a proud man who has done a lot of good. he is not going to let -- no. he is going to draw another card. >> and you were in the camp and you were playing risk at home, you are going to buy it at 13 whatever -- >> no, i hate dell. no!
>> wait a minute. that is not the question. >> i know. >> you think that -- >> well, michael dell is not going to let this guy, and he is going to bump the price and gets it and i say fabulous and good luck. >> you don't want to own it just in case. >> he will call into the judge wapner show, and icahn who looks fabulous with the beard and e incredibly funny will make michael dell pay more. >> and there is a look at the next meeting july 24th which is wednesday 6:00 p.m. so we will have stuff to talk about at night instead of the morning. >> yes. >> and making you work late. >> i will work late that day, we will see. but we may know something prior to that which would be do you raise or not? because if you don't raise, everybody has a little time to think about whether they want to vote no. but, you know. we will see. >> fighting for a company that is a try siceratops.
>> and now over to jackie deangelis. any thought on what it is like outside? >> well, you can see the sharehold eers coming out of the meeting and certainly a short meeting, but a lot of people were expecting this this morning. they were expecting to see the special committee adjourn the vote so that there is more time for michael dell to potentially up his bid. the room was full of shareholders and about 300 to 350 people. some people saying that they had voted electronically last night or came to vote today, but they wanted to hear some more comments to sort of get some of the color before they made the final decision. that didn't happen today. so they didn't have that extra opportunity, but of course sh, concern now from the shareholders as well is that this potentially could be the uncertainty of it could impact dell's stock, and that what the people are worried about as they filter out of the headquarters now, and as you know, the next meeting is next wednesday july 24th, 5:00 p.m. central time. >> get on the plane and come back. >> let me give you a little bit
more color if i can. >> jackie, thank you. >> sorry. and in terms of the actual votes in terms of what i am hearing it is is very close. in other words, the no votes versus the yes votes, but you had a lot of the unvoted shares, and remember unvoted shares essentially a no vote, because what you needed a yes votes. >> affirmative. >> exactly. they can work on the people who chose not to vote at all, and this is a risk opportunity which is a no vote and trying to figure it out and play for the bump. we will see what happens next week. >> and in the meantime, becky quick and jackie deangelis' birthday. >> and kayla yesterday. >> and what an incredible corporate drama unfolding right in front of our eyes. david, our thanks to you always. and we will get jim's mad dash after the break. and bernanke is on the hill again. we will talk about that in a moment. i'm a careful investor. when you do what i do, you think about risk.
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little more than 5:00 before the bell on a thursday morning. we are watching a name, jim, that we have talked about a lot, sherman williams with a miss and the projections are a miss and way down. >> yes, one of the big winners as part of the housing portfolio names and they had weak consumer numbers and took a lot of people by surprise, and particularly after nelson peltz used the word paint to describe why he is interested in dupont. you interviewed paulson
yesterday which is a remarkable performance and he said, and i ask you, we are still early this housing, right? >> he thinks year one of the seven-year recovery and that said, this name, the wires this morning said that it is trading sideways for the first time in two years. >> yes. >> and a lot of of the companies did anticipate what paulson said, but if you are listening to him in the fabulous interview, i'm thinking that spike up in housing and then come back down, because the rates went to 4.5%, and then you have another up if particularly the rates go back to 2.25% from 4% and i don't know if i want to sell it, but the analysts are worried and it was a disappointme disappointment, and i don't want to sugar coat it. >> they stuck by the four-year forecast and seven, and that is not terrible. >> well, negative things to say about the consumer, but i go back to what paulson said, and if he is right, you take it and it is a moment now that is going to to be head and shoulders and you know how it works in the business, carl, but i felt that
paulson's conviction was the same as when he knew to bet against housing. so you can't go long-term against sherwin williams if he is right. >> interesting view. and from bernanke to dell and there is a lot to digest today. we will stay on top of the winners and the losers. the opening bell is in about four minutes. [ female announcer ] research suggests cell health
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from td ameritrade. you are watching cnbc "squawk on the street" live from the financial capital of the world and the opening bell is set to ring in less than a minute and a lot of the earnings that we have not gotten to, the verizons and the ebays and the morgan stanleys of the world, but a big story of to day is dell. david, you just got off of the phone, anything new? >> no, i think that it is going to be an interesting few days here on dell. of course, the key question is do michael dell and his partner silver lake try to raise their bid to secure or get those people who chose not to vote at all to vote yes. apparently, they had at least 40% yeses and they were close
and in fact, may have outnumbered the nos, but it is the non-voted shares that forced them to adjourn. >> and with the index fund, and look at that! >> vanguard, and they came back, and lot of them from the risk funds and things like that, so i don't know if michael dell has much in the pocket. >> repeat that, david. >> we will get back to it. we will introduce them and then talk about it in a second. >> there is the opening bell, and at the big board and a loud group. ucp, a california-based home builder celebrating the ipo today over the nasdaq is silver crest asset management celebrating its recent ipo and we should mention by the way the month of july for the dow and the s&p is shaping up like gang busters and the second best month in a year, and the nasdaq with the best month since
january 2012. >> all of the hand wringing and people on our network saying it is ben bernanke, and when you take the money to the bank do you say that is phony? no, great work and you buy a house or second house a la the interview yesterday. >> and bernanke says interesting, that ben says that the market is getting the message and volatility is down, and this morning the spokessays that humphrey hawkins saw the narrowest trading range since 9 '94 so you wonder if the market is at peace with a september take? >> well, he used the word tank that he is -- the economy would tank if the rates go up, and i'm at tributing that to 2.7 and not going to 3.30, becauwe don't ha and talking about the actual market and not the bernanke market. nobody talks about the real market, and it was a breath of fresh air. >> and meanwhile, the morgan stanley gdp outlook? >> 0.3. >> how do you tape wer that type
of numbers out there with respect to the economists. >> well sh, people say it is al phony and you can't taper and meanwhile, what is bernanke talking about really? the underclass. he is talking about the people who don't have jobs, and of course, we all have jobs and when you have a job for a long time, you forget people don't have jobs, but he has not. >> and we have not touched verizon yet, and beats by a penny the estimates. >> in fact, i want to do a faber report on this, because i think that verizon is an important name. >> you can do it right here? >> right here? >> yes. >> stopping commercials, you are doing everything. >> well, right to it, and as you said, carl, postpaid and that is where the strength was 941,000 additions and verizon continuing to cement the sort of number one place in many ways. verizon wireless is segment ebitda which we watch and the margin and maybe a little bit depressed in terms of what people were anticipating and you
can look at how the stock has opened today, and we do have all these for you. postpaid ads are 91,000, and there is a semgt of the ebitda and go on to the payment ads and net ads are strong as carl said. >> yes! >> and churn in line. jim, what is interesting here is that increase in the capital spending. >> yes. >> that is worth spending time on. >> yes, because this is what cisco has been saying. ok okay. zylinks has been saying for video, and what jeff has been saying in the hot seat, and american tow ser saying, but -- tower is say, and it is informative, because who spends the money? verizon. >> and it is said that at and t in terms of the network quality is catching up, and verizon wants to maintain the lead, and we know the advertising and increasing $400 million the spending for the rest of the year and the cap spending from 16.2 to 16.4 and 16.6 billion
for the full year. and it is interesting when you look at wireless right now. you have sprint spending an enormous amount, okay. u no controlled by soft bank by cap x, and timo is starting to show the momentum, and the u.s. government wanted competition and capital spending and does appear that they may be getting what they want and as you pointed out the beneficiaries are the equipment makers and the tower companies. >> and the -- well, we can go into what happened with the report, and if you go to look at the 8k from at athe way it is l out in the report, and you come back and say, jim, that is real estate investment trust and people don't want it, because the because of the bond market, but if you want to increase the signal, you have to buy space and towers or rent space and towers. >> does it make intel slash the
cap x down 4%? sglel -- >> well, they have not been spending the money, and in the previous quarter the analysts say, what is it spent on? it is not marketing. they clearly heard the analysts last time, but intel has the wrong product. sprint is not going to intel and say we need more intel. that is not going to cut it. they are going to go to cisco, and then sienna, and amt and that money is being spent, and that is why cisco is up, and charitable trust, and used to dislike it, but no. cisco you write a check to them, and amt. >> yes, you want to talk about the amt? you tacked on the muddy waters doing a negative piece. >> well, puts before that report. is that the way to play? >> well, the business model seems to be that he buys the put options and puts out a report. by the way, listen, they did great works for us on a number of the chinese frauds or what were certainly accounting issues
at a a number of companies, but one wonders on amt whether that is the case? >> well sh, if i were mr. takeli would say, why doesn't the government investigate who put on the puts? but the stock is going up now, because a lot of the large holders recognize that the charge that he fabricated the bra 1i8ian buy which is again looking at the 8k is still un - nike -- nikkei, and i want to hear back and hear the other side of the trade. >> and johnson controls. >> well, they are breaking it up. >> and that is up 6%. >> and they did a little sell and j krshci is still krooedingi like that they sold a division to jentech, and there is hidden value here and brought out.
>> and ebay, 60 cents did not meet. we will talk to john donahoe later and the forecast misses a little bit with the higher costs and signs that paypal is slowing the growth a little bit. >> i am saying right now my charitable trust is buying it right now. >> why? >> because the conference call is really good. you know, you are going to be interviewing him, and this is -- i'm going against the grain here, and i'm saying that this is literally a buying opportunity, because the numbers were terrific, and paypal was terrific, but they were cautionary going forward because if you remember in october of last year, they did the same thing and the stock topped from 60 to 44 and you look back and you can't see the blip on the chart, but everybody has decided to hate it and the stock was up big in anticipation of the big quarter, and donahoe wanted to rein in the negatives, and we will find out when you talk to him. i am taking the other side. >> and you are a buyer? >> yes, my charitable trust
right here. >> all right. >> right here. ok okay. don't hurt me. >> absolutely. it is okay. >> good. you understand that! >> damn right, i do. >> i will have the offer right now, senator. >> i will write that down. what is the date again? the 18th. >> yes. >> and two days in a row, jim, getting hit on the talk of limiting the fees in europe. >> it has to be that, because i loved that quarter, and ken delivered again and wants to stay on and he should, because the delinquencies is down and the growth is good and the costs are down and the idea that europe, and look, europe -- >> bottomed. >> and that is what london and did you see the retail sales. >> every morning it says that it has bottomed. >> you look at the number this morning from the ubs and if rbs has not said that london bottomed and i liked that guy carney that chairman and stop it. it is not carney, but anyway, but i like a lot of the stocks that are being sold off. i don't want to give up on the american express on rumors or headlines, because what a great company. >> yes, and we have a lot to get to the night, google, microsoft,
and capital one. >> i am not going to bed tonight. i'm just not going to bed tonight, and that is all there is to it. >> that is the way you need it. >> an all nighter, and just like i did 40 years ago. this week. >> at elliott house. >> let's get to bob pisani on the floor. >> i will stay up with you, jim. any time. and we have another home builder and the third one here, and upc, and we are waiting for it to open, and somewhere around 15 right now, and we will see what happens, but the third one this year, and a whole string of them and remember taylor morrison homes way back in the, what, january or april and 22 they priced it? well, now $25 and another one earlier in the year, and william wian homes, and that is $25 and currently around $24 and mixed bag. and the earnings are a mixed bag. so far, financials and a bunch of techs and industrials coming in. financials is a clear success. i mean, morgan stanley and six
in a row on the big financials, and the regional banks are okay. did you see that today, key corp 1% loan growth quarter over quarter and modest, i don't want to overplay it, but they had great mortgage banking results overall, a nd they are coming i well. financials a big success, and techs a mixed bag. and the guidance is all anybody cares about, but the hardware sales are down 12%, and the cloud is eating into the hardware sales everywhere in all of the companies, and there is the clearest proof with ibm. and software up 4%, and the services down 4%, and here is the story, software is the new services where they are competing and doing it effectively. elsewhere, the numbers are good, and sandisk looking good and beat the estimates and mixed on the tech, but more to the positive side overall. industrials are very, very mixed right now. they are the first ones reporting right now, so we have dover, and they sell all over
the world and think energy and fluids and think various refrigeration businesses, and they beat and raised the guidance. i don't see the price here, but if dover is over 80, that is historic high. that is dover likely at a historic high and that is one of the companies that you watch sell stuff all over the world and good sign. and johnson controls is a little mixed and jimmy you mentioned with thinking car batteries and auto seats and all right, but the guidance was lowered. normally that stock would open up lower today, but because they are selling the home link unit and a based system, the stock is trading up, because of course, pieces of vista is worth more than the sum of the parts. so that is why the stock is trading to the upsided a not the earnings overall. finally, the current estimates for the earnings and this is what i'm watching, because everybody thinks a horrible quarter for the earnings, and 3.75 is the growth that we are seeing and early and not even 3% of the s&p's reporting, but if the pattern holds we will see
close the higher. >> and maybe this is the unlocking of the value of the gentech deals. >> and 1685 and close to the may highs, jim. >> remember when the interest rates were -- and anyway, speaking of it, check the bonds and the dollar, and we go the cme in chicago, rick? >> well, good morning, jim. as we look at the 10-year yields we will look at the same charts yesterday but for an important reason. if you look at the 24-hour chart at 8:30 eastern popped up over 2.5%, and even though it is logical that we never go from july 3rd to july 5th, july 4th which shows up every year as a holiday seems to be a seasonal adventure for the numbers. traders are still trading on it and the drop popped up the rates.
if you look at the two-day chart, what is most noteworthy is the bottom of the chart where it continues to hold at 246, 247, and opening up the chart up big, and see the big e sell-off that pushed the rates upstarting on may 1st, and once again like yesterday two-thirds through the chart, look at the flat spot on the tire. that flat spot is 2.46 and 2.47 and we had a session dabbling in the area, and you can see it when we zoom in specifically, because i am telling you, folks, whether it is technicals or how the market moves these days, these levels are significant. the dollar index is another one that had some very interesting technical features starting on may 1st on the chart, clearly a double top to go lower, but however, it seems to me when you look tat the foreign exchange ad especially the euro centric en index what is the real
alternative with the currencies trying to weaken to some extent is a pivot around the 82.5 level but those are the areas to pay the closest attention to, and we have ben bernanke coming up, phillie fan. carl, back to you. >> yes, the intraday high on the dow is nine points away, and we will keep an eye on that. and kelly evans is here at post 9 watching that, and other things. good morning, kell. >> yes, we were talking about what happens if we don't see the much ballyhooed move to the interest rates and the benefit to the home builders but today, the 10-year is below 2.5, and the 3-year below 6%, i want to talk about the side effects here and one that does not get enough focus and that is what is happening with the pension funding across the country, and whether it is cities or companies and couple of news nuggets this week that point to this ongoing problem. a lot of the companies are
talking in earnings about the benefit they will get from the higher rates, but for right now the low rates are still a major problem. just last night moody's cut chicago's debt rating citing the pension costs, and we know that illinois has $1 billion unfunded pension problem and rahm emanuel said that this is evidence that the pension crisis is nearing chicago's doorstep and earlier allstate in the same part of the country cutting the retiree benefits and this is the largest publicly traded insurer in the country, and they are cutting to save costs and incredibly sensitive to the low rate environment and other examples of this happening as well. so from the investor point of view what does it mean? well, it means that you want to avoid unless you are again in the camp just to mention alaska airways we will have a fully funded pension if on one of the assumptions that the rate goes to 4.85%, and if that does not happen, you want to look and be weary of the names with major pensions attached to them or the major pension funding costs, but guys a broader problem in here
as well. it is basically this. the extent to which the social safety net that workers can anticipate is being eroded whether it is because companies are no longer able to contribute as much as they did to the pension funds or the pension plans or they don't exist or the 401(k)s are being put off because of the high student loan costs and what does it mean? it means that the workers have to save more. >> right. >> they are potentially going to have to spend less and an older workforce fundamentally down the road that is less productive workforce as well. >> one of the most amazing things is that bernanke anticipates this stuff and he said in the end, these people have jobs, but i am worried about the people who don't have a job or the pension, and this is unintended consequences. >> yes. >> you have had already a lot of companies going from the defined benefit to defined contribution and that continues, but the m municipal side of it and detroit who may have well filed bankruptcy in the pension obligations that it has are part of that and going to be significantly eroded for the workfor
workforce. >> and again -- >> and counting on them, but it is a huge issue as you pointed out for so many cities including our own right now. >> they will break the unions and the bondholders. >> this is going to be in the polls next year, and again, as we look through the earnings, you will see the companies talk about the shape they will be in when the higher rates help out the pension funding class, and that remains a very big if, and today, we are reminded of that. >> and watching the student loan bipartisan agreement in the senate, and we will see where it go goes. >> exactly. >> thank you, kelly. and exclusive with the ebay ceo john donahoe, and the company disappointing the street with the revenues and what does it a take to overcome the headwinds that he is talking about? and the dow is now higher at 15547 than it has ever been. that is an all-tul hll-time int high for the dow and the s&p. we are back in a moment.
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it is too darn hot in the northeast at least, and you know what else is hot? the stock market. 15,552 is a new all-time high for the dow jones industrial average. the s&p is a point within a similar space. jim, david, if the stock market is a proxy for corporate profits, is this telling the truth? >> wow, i keep listening to in my head what lee cooperman said in your excellent panel that things are going to taper off and then i look at this and i think, i don't know, maybe he was too conservative. >> maybe less than he was a year ago when he had great picks and looking for a significant rally, though he is still seeing 5% to 10%. >> well, there were not a lot of bulls there yesterday, out and out bulls. >> well, after this, we have a lot of earnings to come, but it is not feeling like we are knocking the cover off of the ball. >> no, but ibm is a great microcosm, and the revenue decline and even said the revenue growth, but if you were
in ibm, you don't wait, because there is no revenue growth, but the stock is still higher and so we have ways to win, and i think that whether it be, you know, delivering alpha where somebody says that dupont is worth a great deal or dow stock or whether it is unitedhealth which is, you know, the unhung dow stuff. unsung! look at that play. >> and speaking of dupont, jim,'s "six in 60" is up after the break. (announcer) at scottrade, our clients trade and invest
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in 60." >> and analysts of coldwater saying to split it up, but he is talking about the paint division and if you spin it off the multiples should go higher. i don't want to bet against peltz. >> and the other note is chanos on cap. >> well, he is saying that the risk is bad and the supercycle is over, and maybe it is that thek commodities will go over, but not as bad a as he thought. >> and what about unh? >> well, when you get costs down this is what you will get with revenue growth and profit growth means 52-week high, and unbelievable. >> more analysis of the family dollar. >> well, peltz had a stake in family dollar, and citigroup with a 50% chance of a buyout and we saw dollar general's successful buyout. >> and cell jeangenecelgene. >> be careful short siding the cycle. >> and what about --
>> well sh, he came on mad mone and he said that this margin on the hill is going to break out for cypress. and listen to the ceos who have money and you will make money. >> speaking of money, you have a big show tonight. >> well, i have joy global and that is interesting because it is the spot of what chanos would hate and coming to the studio. and bill mcdermott, and many people feel that the sap missed the quarter, but bob dudley is trying to stop the willy-nilly payments to anybody, and including alabama company got $80 million for a resort, and put it this way, if you are an environmentalist, you will hate what he has to say, but if you are a shareholder, you might like it. >> we will see you tonight, jim, and that is a big show at 6:00 and 11:00 eastern. and we have leading indicators and bernanke on the hill. don't go away. ies ahead? who can show them how to build on your success,
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problems breathing while sleeping; and blood clots in the legs. common side effects include skin redness or irritation where applied, increased red blood cell count, headache, diarrhea, vomiting, and increase in psa. ask your doctor about the only underarm low t treatment, axiron. welcome back to "squawk on the street." we have a june read of leading indicators and goose egg, unchanged. we are expecting up 0.3, and last month up 0.1, and now.02. and the july number and expecting a look of 7.5 to 8.0, and more than double at 19.8, and a big hit on philly fed on
the positive way and showing much more strength coming off of the level of 12.5, and it is definitely one of the bigger jumps i have seen in a while. so 19.8, july philly fed and goose egg unchanged on the june leading ind icators, and kelly, back to you. >> rick santelli, thank you very much, sir. that of course comes as the dow has set a new all-time high today. and we will get more perspective on the data from the cnbc senior economic reporter steve liesman, and a couple of conflicting reports the philly fed jumped when the leading indicators fell flat. >> yes, leading indicators is a indicator of other ings, but the philly fed is new information, kelly. a big beat, and what is interesting to me about it is that the beige book yesterday suggested that the fed was hearing anecdotes of business acti activity that were more upbeat than actually in the data. this seems to confirm that because this is the philly fed
in the regions including maryland and parts of pennsylvania, and what i'm seeing is new orders up to 10.2 and i wanted to check how long that is the biggest of all number, because it looks like march 2011, and what i'm hoping that this is telling us is that we are having a rebound in manufacturing. we haven't really seen it, and we knew that the autos were doing well, and maybe a big auto component to it. i wanted to make sure that we look at the other data, because the employment data was also strong, kelly, and the number of employees is 7.7, and the average work week is 7.6, and what we are hoping is happening is that we had the upsetting ism, manufacturing, and this could lead the way towards a bet better overall national ism number, and we had a stronger empire state number. so those are the things that we are looking for, and critically
to the federal reserve whether or not that second quarter gdp number which is in the 0.7 or 0.8 or 0.9 according to economists that we polled here is going to continue into july and the third quarter. if it continues into july, we can write off the september tapering, but if the rebound happens the way that the fed forecasted it, we are on track for the september tapering. >> well, the situation is punchy and to the point you were making earlier and i have been listening to the union pacific conference call, and they are talking about the intermodal freight coming to the united states from the west coast ports actually down. they say that the second quarter was weaker than the first and worried about the outlook of the second half of the year, so that the jury to the point that you were making earlier on the point that it is still out on the uniformity of the recovery. >> i have no doubt of it, and i love the term intermodal transport and i didn't understand that until this moment, simon. >> i had to google it as well. >> come on, you are a transport
wonk, but listen, most of the day da has been on the weaker side. there are two, actually three data points to talk about right now, and if you can consider the beige book a data point which which it is not, but important input into the fed thinking, the claims number this morning was pretty much a result of the seasonal adjustment, but it shows that the auto shutdowns did not happen which will help to flatter data in the coming months and weeks to kornlgs s s philly fed and empire state more than what we expected and if we have a reversal of the manufacturing weakness, there will be a change, and the early days, but the consumer spending was poor and some of the other data that we have had is not that great. >> steve liesman, thank you, sir. >> sure. >> and as the 10-year has jumped back above 2.5% to 2.1%, david. >> well, the fate of dell is uncertain and the special meeting that was held this
morning was adjourned without a decision being held on michael dell and silver lake's bid to buy the company. a rescheduled vote scheduled for wednesday, july 24th at night, 6:00 p.m. eastern. joining us from the dell headquarters is norm peters who attended the meeting this morning and a short-lived meeting, norm, but i'm curious why a decision on your part to go to the meeting? >> well, my wife and i have been stockholders for a while, and we live nearby, and we have been great admirers of the dells over the years and what they have given back to the community, but we have not yet made the decision. so we decided to come down and the first meeting of this sort to try to get both sides, and very disappointed that we didn't get both sides so i'm very much in a quandary of what to do with my vote right now. >> and so you have not decided and you like many others by the way, and in fact, it was the lack of not -- and not that there were a lot of yes votes or no votes, norm, but the lack of votes at all like your own that
forced them to adjourn this. i'm curious how are you going to make the decision over the next few days? >> well, you cut out on me, david on, that and i think that you were asking about, and could you rephrase the question? >> well, how do you go about making the decision over the next few days before the 24th? >> i'm going to make the decision hopefully if they come back to the meeting next week and do a lot more thorough research with all of the letters we are getting from both sides of the house. we have not yet made the decision, and we are in it like thousands of others in a quandary of what to do. >> today, we had a conference here in new york called delivering alpha at cnbc in which carl icahn was brutal in the assessment of the dell board. he felt that it was not doing what was right for shareholders and not prepared to stand up to michael dell and the incumbents and do you have confidence in the board to do what is right for you? >> well, kaifd, you -- david,
you were cutting out there -- >> do you have confidence in the board, sir, to do what is right for the shareholders? >> do i have confidence -- what did you say? >> confidence in the members of the board to do what is right for shareholders? do you believe they are acting in your interest? >> as a result of the leaving the meeting today, i am losing some confidence in the current board of directors, yes. >> mr. peters, we appreciate your taking the time, and of course, you will have another chance at 6:00 p.m. on the 24th. a lot to come in dell. >> thank you, david. >> you're welcome. >> thank you very much. and one person of course with a lot at stake at the dell shareholder decision is carl icahn, and scott wapner spoke to carl icahn as part of the alpha conference, and scott joins us again this morning. >> well, thank you very much, and even carl icahn says he does not know if michael dell is going to raise the bid or what will go on and at least that is
what he told me yesterday at the conversation of delivering alpha, and he said believe it or not, he wants to own the company a and it is not as bad of a business as the board and michael dell have portrayed. >> things can be done. i mean, this is worse than, you know, where you had these dictatorships, and i mean, you look at dell, and it reminds you of a dictatorship, because they absolutely will scare you and say things wrong about the company, and they have all of the lawyers protecting them. and nobody here would have gotten away with it, and the risk of being modest would have gotten away with this if i had not had a spare $3.5 billion around. >> and what if carl icahn ultimately loses. he says that he is prepared to walk away and go on to the next thing, but at the end of the day, it is all business and not personal. >> if you look back over all of the guys, you know, it really is not a personal thing. and when i lose, i call them up
and congratulate them, and i say, hey, no matter what, and no matter, if dell wins the proxy fight, and the if they go to the proxy fight, but i will be mad if they keep putting it off, but if he goes to the proxy fight, and if he wins and i don't know if he will talk to me, and congratulations and i'm a big minority holder and think of how to get the hell out of this damn thing, but i will still say oka okay. >> and icahn says he thinks that he could win a proxy fight if it comes to that as you look at a photo of michael dell there and looking at the stock, but a it is going to be active today and it is likely to be active up until the shareholder meeting as well on the 24th. guys, who knows what exactly will happen here. david will probably tell us. >> well, yeah. we have a lot the come, scott, of course. will mr. dell choose to raise the bid in my way. >> he said no so far, and no indication that he is. >> well, no, there isn't. and he would not indicate that and he has not said best and final, and that makes people believe he has a little
something left in the pocket, and see if it is enough to satisfy mr. icahn or get some of the people who didn't vote at all to vote yes, because they were closer than perhaps we had anticipated in terms of the yes vote at least of yesterday having turned the noes to yeses, but if they go to the proxy fight, man nax is going to be fun. >> oh, it is going to be a mess. >> never a dull moment. never a dull moment. and $3.5 billion and why not? take a shot. >> he has more than that. >> oh, yeah. >> he could write a much bigger check than that. >> he can. great interview yesterday, scott. >> yes sh, thank you, david. >> and we want a note now that the s&p 500 has hit a record high, and the dow has hit a record high a while ago and you are looking at the levels of the s&p at 16,888 and almost 15,550 there on the dow, and big day and this is following the philly fed index coming in bigger than expect and the 10-year is back at 2.5%, and this is a risk-on
moments, simon. >> yes, and we have a double-dose of ceos for you still in the hour on cnbc. ebay's president will join us live, and the stock trading is down of course in reaction to the company's results last night, and we will see what he has planned for the future and the ceo of union pacific will be with us on his take of the transports and if i heard him correctly on the conference call, he is concerned about an industrial slowdown. stay with us on cnbc. in today's markets, a lot can happen in a second. with fidelity's guaranteed one-second trade execution, we route your order to up to 75 market centers to look for the best possible price -- maybe even better than you expected. it's all part of our goal to execute your trade in one second. i'm derrick chan of fidelity investments. our one-second trade execution is one more innovative reason serious investors are choosing fidelity. now get 200 free trades when you open an account.
am taking the other side of the ebay trade. >> you are a buyer at on the downside. >> my charitable trust yes. >> okay. don't hurt me. >> that is cramer in the last hour on ebay and you can see that the shares are down sharply this morning after the company reported earn inings in line, b guidance weaker than expect and john donahoe is the president and ceo of ebay and he joins us for an exclusive interview. john, good to have you back. good morning. >> nice to be here. >> people are trying to make sense of why the deceleration of marketplace and arguments that there are a couple of one-offs and what exactly happened? >> well, we had a strong second quarter where we grew volume
over 20%, and the ebay and paypal global commerce platform growth grew over 20%, and we were 14% revenue growth, and at the high end of the earnings, and then as we guided for the second half of the year, what we simply said is that macro economic conditions in europe and korea were such that while people were expecting us to be at the high end of the guidance, we simply said we will be within the full-year guidance, but we will use the full range of it. we are bullish about the future and the business and we are in a great market and we have forecasted mid teens growth for the second half of the year. >> and we have heard from a couple and anecdotally we have heard from a couple of business owners who have said they have stopped doing business on the platform because of increase in seller fees and are you hearing that, too? >> no, what we have done is that we have dramatically simplified seller fees, and if you look at the take rates, if anything, they are coming slightly down. so, there is always transition when we change pricing, because we have literally 25 million
active sellers, but what we have done is to simplify the fees and sellers only pay when they actually pay something on ebay which is distinct and unique. the other thing that we have a benefit is that we monetize the same on mobile as we do on the web. and so our mobile volumes and we are allowing the sellers to reach hundreds of millions of consumers through the mobile devices which is fueling enormous mobile growth on ebay. >> and one thing that the market has to grapple with is what the stronger dollar means and the revenue misses getting from ibm, and amex and yourself and what can you tell us about the currencies and the effects and how you plan to deal with that? >> well, you know, we are a global company, and we are used to this. simply what is true is that the dollar has strengthened significantly in the first six months of the year, and frankly in the last three months of the year, and obviously, as a u.s.-based global company that has an impact on the top line. that is one of the things that
is probably the largest single factor on why we have guided to the full range of our annual guidance. of course, on the bottom line, we hedge so that it has less impact on the bottom line. what is interesting about ebay however, and that is true for every global multinational, but what is unique about ebay is how much of the platform enables cross border trade. in fact, 22% of the almost $200 billion of volume transacting this year is going to be cross border. so when one currently strengthens, it will change the trade flows and so you are seeing export from asia and europe into the u.s. on the ebay pl platforms and that is a good thing for our business. >> john, david faber, and back to the macro economic headwinds from europe and korea and that is not news to anyone of course, and including your business who does so much business in those
countries, but i'm curious, were you too optimistic at the beginning of the year, and the sense of some that europe is beginning to rebound, and are you not seeing that? >> well, we came into the year, david, with a, i would say modest outlook for europe. and what has happened is that it has been a little weaker than we expected and in particular here is what we have seen in europe. what was interesting is that last year while we saw macro econ gro and retail sales being weak in europe, e commerce stayed up. what we saw across europe is that what we saw is the european consumers were coming online to get greater prices and value. this year, you are seeing the continued weakness in the macro economics and continued weakness in the retail sales, but the commerce rates have come down, so there is less discretionary income, and we are beginning to see it in the ecommerce growth
rates, a nd on the margin it makes a difference, but we are focusing on what we can control which is executing well, and you know, we are still optimistic about the remainder of this year, and inthe tto the next th >> briefly, john, korea, what is the story there? >> well, it is an interesting market and important market for us. we have a clear leadership position between our market and properties and through a variety of the political factors and economic factors and uncertainty, the ecommerce growth rates have dropped in the last quarter to 4%, so that is some impact on the business, but korea is a notoriously dynamic market where the growth rates go up and down relatively quickly, so we are continuing the drive. it is a high smartphone penetration market. so our mobile strength and the mobile leadership are real strengths there, and while it will impact us in the second half, we will continue the leverage the leadership position
in korea and think it is important in the future. >> john, a macro question for america northwest u.s., and seeing predictions of the qe2 of 0.3, and the sales were a miss last week, and so the things that you are saying about the european consumer, can you say them about the north american consumer? >> not really. that is interest, because our north american business is strong. you will see both the ecommerce market robust and roughly 15%, and the u.s. business if anything is slightly stronger than what we expected at the beginning of the year, and one of the things that driving that is this mobile revolution. our mobile volumes across the global network were up 90% in q2 so what is clear is that the consumers are using the mobile devices to shop and pay, and the paypal is enabling that, and the mobile leadership is helping the u.s. results and frankly sets us
up well for the next three years as well. >> john, always good to get your insight a day after earnings. appreciate it very much. >> thank you, and good to be here. >> john donahoe from ebay. and net flix with the emmy nominations, less than 24 hours after carl icahn said he had not sold one of the shares, 14 nods is what the company is racking up. what does it mean for the future? we will have a quick wrap after the break. ♪
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the street." i'm at the market desk and super value shares are hitting a two-week high on the upbeat earnings adjusted for earnings coming in 14 cents a share versus an estimate of 6 cents per share. earnings were held by operating cost and sale of supermarkets at a deal of $3.3 billion and kelly, you can see the stock up 16%. >> thank you so much. net flix flix is making history "house of cards" and arrested development" have received emmy nominations. and carl icahn also commented on that at alpha. >> i have not sold one share, and i will tell you that and he does not believe me. these guys don't believe me. >> well, i believe you and you change your mind a lot, and i have to make sure that we are current. >> and the credit goes to the two guys that run that fund, that account. and they are both great, and
they both have a huge success in the last two years, and one is my son. when i wanted to sell it at about 100 points ago, and i wanted to sell it, and my son threatened to leave. my son. and i really helped that kid all my life. you know. >> and it looks like a decent call. between icahn and the emmys and big day for netflix, and julia boorstin joins us live in los angeles with more. hey, julia. >> yes, that is right, kelly. quite a day. this is the first time that digitally distributed content has won major emmy nomination, and netflix bringing home 14 nominations in total and that emmy attention in icahn's positive comments sent the stock higher this morning and now pulled back and trading lower fractionally. and now "house of cards" was the big winner earning nine nominations and including outstanding drama series and acting nominations for the the two leads, and "arrested
development" didn't do so well, and no best comedy nomination, but three nominations for jason bateman and hemlock grove picked up two nods. and now that does not have an impact on the financial results, but the prestige of the nominations translates to free attention which helps to secure and attract subscribers and with the netflix earning report coming up monday afternoon, the investors are looking to see how many new subscribers the network's originals have drawn. and now the landmark emmy attention comes 20 years exactly after the first cable show earned emmy nominations, and that is hbo's larry sanders show marking the rise of cable television and of course, hbo. today, the nominations mark the rise of digital content, but netflix has a ways to go to catch up with hbo, because it was the most nominated network this year with 108 nominations. the awards will be announced on september 22nd, and david, we
will be watching. over to you. >> thank you, julia. fascinating, of course, new entrant there. and i did want to mention carl eye khan again, and we have a response from mr. icahn and the partner some ways southeastern asset management who have been very much opposed to the dell lbo and they have their own recapitalization plan that conceivably will be up for a vote to the extent that you will be able to vote for the annual meet i meeting if that is set. mr. icahn says it is unfortunate and not surprising that dell's board and special committee have delayed the date of the special meet i meeting on which the stockholders can vote on the michael dell and silver lake freezeout action and this is not the time to delay, but the time to move dell forward and encouraging all of the shareholders to support him by saying set an annual meeting date and vote for our slate of directors to implement the recap plan, but before it happens, we are focused on july 24th when the next vote will be held on
the deal, itself, and see if michael dell and silver lake can get enough yes votes to carry the day, and if not, we will go to the proxy fight. >> and i'm trying to remember the last time that icahn didn't get what he set out to accomplish, and it has been a while. >> yes, clorox comes to mind and that one, he was vanquished fairly quickly, but he hangs around and he has an awful lot of money and patience and intestinal fortitude. >> as demonstrated last night. >> and intestinal -- >> oh. >> not tesla fortitude. that different. >> one thing that is different. and there are other ways. >> and good stuff. when we come back, people are making big money in real estate again and find out why home flipping is back in a big way and whether or not that is a good thing.
reporting high record earnings, and inconsistent growth, and unexpected jump with philly fed up to 19.8 which is the fastest pace of mid-atlantic manufacturing since 2007, and the average rate of the 30-year fixed mortgage is now 4.37, and that is according to freddie c mac. >> day two for ben bernanke to testify before the senate shortly. we will bring you the q&a session live as we did yesterday. bernanke telling congress that the markets are beginning to understand the messages and reiterated it yesterday that the rates will stay low for the foreseeable future. the q&a could yield a few surprises, and now joining us is drew manus, and also chief investment strategist from russell as well. drew, fair to say that bernanke has gotten the message right with the seemingly regarded muted market reaction or positive one or the markets are in a better mood because of the data? >> well, it is not that the
markets are in a good mood because of the data, but cautious in react ing ing to th terms of bernanke, but they have figured out that he and i don't speak the same language and therefore it is not going to do any better and effectively, what the markets are doing is talking lo louder, but a think don't understand what is being said to them, and i think that now that bernanke is retreat inging a li bit, and people are beginning to understand that he looks at the world in a completely different way than most market participants do, and therefore reacting to everything that he says is a bad idea for everybody involved. >> drew, what is that way? the difference? >> the stock versus the flow argument, and he believes that the size of the fed balance sheet matters. if you went down to the trading floor and asked what everybody believes they would say it is a flow effect or 99% the buy for the month, and so it is like two physicists debating gravity. >> eric, i wanted the ask you as well, bernanke's day two comes on the day when the dow and the
s&p 500 are hitting fresh highs and he indicated yesterday and has in the past that talking about the taper starting on may 22nd was partly aimed at making sure that there wouldn't be excess leverage in the markets down the road or perhaps a greater disruption by sort of fending it off now. in other words, if the fed was trying to prevent an asset bubble from form, do you think that they look at the markets today, and say, geez, we want to speak out there more hawkishly? >> well, no, they will not do that today and you won't see it in the foreseeable future. i think that it is really ben bernanke thinking that i may not be the fed chairman it looks like and not the fed chairman next year, and somebody is going to have to start to take the punch bowl away from the party, and it might as well be me 7 1/2 years into the job rather than the next person on day one of the job. market reaction at this point to a tapering talk, but probably would have been much more violent than we have seen, and we have never fully understood
why the market combined taper talk with interest rates. that we always thought was wrong, and that is what the market has been becoming clearer on that taper talk does not mean that the rates are coming up sooner. >> and back to you, drew, if perhaps the markets were not listening to bernanke as before but there are two possibilities of why the markets are strong and relatively unfazed and the first is maybe they have learned and believe that according to some that you can withdraw the stimulus and they will hang in there, and the second possibility is that bernanke actually at the margin is being more dovish and stressing the downside risks and therefore perhaps pushing the tapering back. would you reject both of those? >> i would not reject both of them, but i think that the second one is a little harder to swallow. i mean, the, you know, russell's point is right, you know, if you think about why he did it and when he did it, and there is a great case to be made that this
is the equivalent of the draghi handoff to get the policy started and then hand it off and then the handoff gives the person instant credibility of the market, that it is what the person of the last eight years has been doing, and so it has to be the right move. that came into play, but in terms of the economic data, the market was strong and nobody talked about tapering than it was june, and by the time june rolled around part of the bad market reaction is that the markets were looking at it and saying that the economy is weaker than it was and why are you talking about tapering now? >> drew, exactly. a lot of the people at the time i think was saying that even though it is the case, the fact that the stock market was on the steady march higher is what prompt prompted the fed to kt a, and loft the people on the street say that is what they were responding to. >> well, i mean, far be it for -- look, they have started to responding to the market movements in ways that we never dreamed of and they are pushed into things because they are
responding it, and don't think that the market doesn't understand that. and why qe2 and twist to qe3? well, in part because of afraid of the equity market reaction of not doing it. >> right. they don't ignore it for sure. drew and erik, thank you both this morning. >> meantime, speaking of the equity market, taand the dow an the s&p 500 hitting fresh new time highs and bob pisani is on the floor watching all of it. >> good morning. carl and folks, take a look at the dow industrials and carl is right, the key story is no selling into the earning season and not in the financials where there is a lot of reports and not even in the tech area where there is a lot of reports. you notice up 90 points and almost 100 points, and two-thirds is the two stocks and the two earners out this morning and that is ibm and unitedhealth, and ibm beat the estimates, and nice numbers, ale though the hardware sales were down by 12% and hurt by the cloud, but sales were up nicely, and there is impressive to see
ib, many moving into -- ibm moving into areas that has growth, and unitedhealth, and adding up eight or nine points is good for 60 points in the dow industrials. and tech earnings overall are not that bad. financials a good result so far, but the sandisk, and raised guidance and s&p lagging, but weak over in the asia, and maybe you are getting a little competition from ibm. a couple of strange numbers out. if supervalue was the gainer on the upside sherwin williams was a real shock and not only miss, but they lowered the guidance was below expectations, and remember, building improvements companies and anything to have to do with that have been huge movers and the stock was 120 a year ago and now 175 earlier today, and this is a big surprise to the street. volume is heavy in sherwin williams. johnson controls, and this is a big multinational, multiindustry
companies and think car batteries and auto sbeerer yours and the numbers were generally disappointing, but they are selling a division that many people have been calling for parts of the company to break up, and the announcement of the sale is motivating the company to the upside and not the earnings which is the guidance which is a little disappoint in. and finally, here is where we stand right now, kelly and carl and david. on the earnings front, we are up 3.9%, and it is early, early, all right. i'm not saying only 20% of the companies are reported, but revenues down 1.2%, and they have a modest gain, but on the top and the bottom line, i still maintain that we have a very decent shot at 5% to 6% earnings growth, carl, for the quarter, and even flat to down earnings, and that trend has been going on for a long, long time. >> and something that you called at the top of the the earning season, bob. i have to give you props for that. >> all right. >> and when we come back, union pacific is trading higher as the president and ceo is going to join us live for a first cnbc
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take a look at what is happening in the oil space. we have wti crude oil coming within just inches of trading higher than brent. of course, the distance between the two coming into the year, people thought it could widetone the range of 50 to 70 a barrel because of the supply coming online to the u.s., and the mideast supply concerns over brent, and in fact, the opposite has happened and what you are seeing play out today in part is an inventory story, but reflects the demand. and the dow and the s&p 500 hitting fresh highs is jumping 1.2% to almost $108 a barrel,
and that is 16-month high and that means that gasoline prices at the pump will continue to rise. >> and let's focus on one of the railroad operators who transports a lot of the oil around the country, union pacific, coming through with the results today and beating the estimates on the top, on the bottom line of revenue in line with expectations. jack koraleski is the president and the ceo of union pacific, and he joins us now live from omaha. good morning, sir. congratulations on the results. >> thank you, simon, very much. appreciate that. >> you have a number of record financial dynamics which we will come back to, but i want to talk if i may about where you see the economy at the moment, since u.p.s. warned about an industrial slowdown in the country last week, we have been on alert and if i heard you correctly on the conference call, you were saying that actual actually the business was slower in the second quarter compared to the first, and you saw the economy slightly deteriorating and you are worried about the second half of the year. is that a correct reading? >> yes, simon.
the second quarter was a little sluggish compared to the first quarter, but as we look out over the second half, we are not unduly concerned. we are starting to see some indication like for instance car orders for lumber shipments are picking up again, and we are kind of anticipating that the international peak season will kick in a wend should see strong international intermodal business and yeah, the second quarter was sluggish, but we are hoping to see it come back to where we were in the first quarter as we look to the second half. >> just to drill down on that, and a lot of it has to do with the freight coming from the ports on the west coast across the country on the railroad, and what you call intermodal traffic. >> that is correct. so the international intermodal particularly was down about 8% for us in the second quarter, and that is actually disappointing, although last year, we had a strong second quarter. so, you know, the comparisons always kind of cause you to step back and think about what is happening, but we are getting some indications now that the
ships are starting to load more hefley as we start to move into the august which is typically the peak season when christmas is starting to be delevered to the united states. >> and the best quarter ever for operating record, and record operating income, and the operating ratio, and the earnings are all way up there, and is that because you are raising the prices? is that what it is about? >> well, you know, the price increases have been a part of it. we had a strong price performance in the second quarter and the core pricing was up 4%, but it is about productivity and operational efficiency, and providing great service for the customers to allow us to attract more business to the railroad and replace some of the other business that is soft. we have a franchise that gives us a lot of opportunity. >> jack, back when brent was trading at $20 premium to wti, that was a huge boom for you the carry the u.s. crude out of the country on your track, i should say, and now we have seen the premium almost entirely eliminated and is that a big
headwind for you in the a second-of the year? >> well, so far, we have not seen it impact the business all that much. we have some business that is kind of local within texas where there's a lot of the pipeline availability where it is kind of an opportunistic market for us, but if you look at the crudes out of the box or the nyberg, it is going to destinations like st. louis and louisiana. >> i would imagine that most of the weather that the country is under is good for you. because coal is a key concern, and you lost a contract, and these must be hand and foot, are they? >> well, we have caught up with the coal demand and started to see it come back in the second quarter, and down 19% in the coal in the first quarter, and we came out about flat. little about flat i guess for the second quarter, and now we are in the seasonal trend, and
you are absolutely right with the temperatures in the 90s and going up to 100, that is good news for the coal business. stockpiles are a couple of days below normal and we haven't seen that for several years. so that is a good indication that the coal business will pick up and be stronger. >> and jack, before we let you go, the stock is up 27% year to date, and i think that is a record high for it. you have spent half a billion buying back stock, and you have a provision to buy back another 1.5 billion that expires in march of next year, and would you buy at the levels? what is your feeling of the stock buyback now? >> well, you know, we are opportunistic, and we look at the use of the cash and we either reinvest back into the railroad for capital and growth and safety and productivity and dividend increases and share buybacks and we have been balanced on the three, and there is nothing at this point in time to cause to change anything. so i expect that share buybacks are part of the strategy as we go forward.
>> good to see you, sir. congratulations on the quarter. jack koraleski, president and ceo of union pacific. ben bernanke has arrived at the senate building where the hearing is under way, and he will be facing questions from the banking committee very soon. as soon as it to you live when it happens. "squawk on the street" is back after a short break. ♪ ♪ honey, is he too into this car thing? [ mumbling ] definitely the quattro. ♪
story of the morning, of course, was the dow hitting an all-time how. now the dow is up 112 points as we continue to watch this record-setting day. let's get to the cme group in chicago. rick santelli. hey, rick. >> hi, carl. you know, i think when the fed chairman is most likely going to have his last appearance in front of these committees in what was previously known as humphrey hawkins, there's a lot of things we should look towards or back at in the past history, important history, to make important decisions about the future, especially when it comes to the fed. and there's been some great articles written of late, some surprising articles. now, i'm going to start off into this by going with my favorite sound bite ever, ever on cnbc and there's been a lot of great
ones. but this is my favorite and it's sandy weil. let's run it. >> what we should probably do is go and split up investment banking from banking, have banks do something that's not going to risk the taxpayer dollars, that's 23409 going to be too big to fail. >> that sound bite really hits it, and i really respect sandy's honesty. i was just after my trading career ended in 19 -- actually, 1999, i remember trading through the last vestiges of some of these important issues whether it was glass/steagall or some of the exemptions. i have been e-mailed in the last two days an article that originally appeared in truthdig.com but it was e-mailed from "the nation." it was written by bob scheer.
what's interesting about this is these aren't blogs or websites or authors that normally will kind of, you know, besmirch anything related to the current administration. they like the current administration, and that's fine. but in this article title and you now see where i'm going, the return of lawrence summers, mr. spectacular failure. this is about is it going to be summertime at the fed, and a lot of people think it is. let's put up one of the quotes, and it's not a nice quote, but think i it's historically accurate that appeared in this article and i will read along. this is the genius who, as clinton's treasury secretary, supported the banking lobby's successful effort to make the sale of unregulated bundles of mortgage securities and the phony insurance swaps that backback ed them up perfectly legal and totally unmonitored. we're not going to go into his role in the stimulus or a lot of other issues, but this is historical record. i understand that there's a lot involved in picking the next fed
chairman, but, please, let's do more digging as truthdig.com did. is this really the guy we want running the fed at this point in history? you be the judge. carl, back to you. >> all right. we're going to learn a lot more, of course, as we get to the senate banking committee in a moment. there's a live shot of the fed chairman about to testify. he will face questions from senators like chuck shunle schu elizabeth warren, tim crapo, tim johnson. we're back after a break. ♪ ♪ let's go! ♪ [ male announcer ] you can choose to blend in. ♪ ♪ yeah! yeah! yeah! or you can choose to blend out. ♪ oh, yeah-eah! ♪ the all-new 2014 lexus is. it's your move.
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dow is up 116 points. it has been quite the session with some records being set, historic day. the dow has never been higher than it is at this moment. s&p same story at 1693. >> the prior highs were on may 22nd, which is the day we last -- not last but the day before the last day we saw bernanke testifying before the joint economic committee. that's when he introduced the taper talk that sent markets down. we recovered and we're back at new highs. >> he's not going to say anything different on day two than he did on day one except for the fact he's before the senate and there are some heavy hitters there who may give him a real run for his money not the least of which is elizabeth warren. >> chuck schumer. you never know. schumer sometimes gives him pats
on the back. other times he says get to work, mr. chairman. bob corker, richard shelby, obviously a lot of big players on the senate side on the banking committee. we'll get to that in a moment. phil lebeau has breaking news on boeing in this case. phil, good morning. >> good morning, carl. and we have an update regarding the investigation into the 787 ethiopian airway that is caught on fire last friday at london heathrow airport. today the british air accidents investigation branch has released a preliminary finding on that fire, and as we reported earlier this week, the fire was focused and the investigation has been focused on what's known as the elc, that's the emergency locator transmitter. essentially it's the device that sends out a signal if there's an airplane crash. that device has a battery within it, not a lithium ion battery but a lit yom manage niece bgan.
they believe something caused a fire in that device. at this point and here is the most important note of this report, the aaib are recommending or is recommending to the faa that, a, you pull all of the emergency locator transmitters from current 787s in operation, and there are 66 worldwide, and also that the faa do an airworthiness review, if you will, of the elts in other aircraft. keep in mind there are 6,000 of these. they're manufactured by honeywell. we should point out and the aaib says this, this is the only known fire involving one of these elts. it's extremely rare. we will be checking with the faa. they no doubt will have a comment at some point. my sense is they will likely say they will take the recommendation into consideration and perhaps at some point in the future we will hear more from them. that's an initial report
regarding the 787 fire at heathrow airport. >> phil, is this unusual for honeywell? >> yeah. this is the only fire that's been known to take place withco transmitter. that's why for them to -- for the aaib to say let's do a full review of the elt in other aircraft, that will be interesting to see what the faa says because there's been no incidents other than this one involving the elt. >> and what does it mean for the relationship between honeywell and boeing? is this the only instance where the two -- where there's a relationship with regard to this aircraft or does this -- is this the case for all of the dreamliners? >> no. they have an extensive relationship that goes well beyond the elt. there's a number of avionic products that are made by honeywell that are part of the dreamliner. i think that it has no impact on the relationship between the two companies. this is really a case where you're looking at one specific
component and one incident. the question is what do you do from here in terms of the investigation. >> right. and just to be clear, phil, this is not in any way a precursor to a grounding of the dreamliner even in the uk. >> absolutely not. absolutely not. and you can fly without the elt. remember, this device is only -- it really only comes into play if there's an aircraft crash and authorities are looking for the aircraft. this sends out the ping that lets everybody know where the wreckage is located. otherwise, this has no bearing on the operation of a dreamliner. so it's not as though you can -- tough ground the dreamliners if you take this out of these planes. >> right. we'll keep that in mind, of course. honeywell did take a dip on your comments on the news. we are watching closely boeing too which had record volume on friday. phil, thanks for your reporting. you're looking at capitol hill where the fed chairman is
testifying in front of the senate banking committee. we're going to take you there live as soon as the q & a part of the hearing begins because, of course, we basically know in terms of his prepared remarks what he said yesterday, likely to be the same today. >> absolutely. so much of it depends as well on the mood of markets today. but it's worth noting that may 22nd was the last time we had record high levels that we've just now surpassed on these indexes. the dow, the s&p 500, the dow is up 115 points and it was actually even though we didn't see a lot of movement in terms of the close yesterday, carl, for the dow, the ten-year did come down. so it's going to be interesting to watch if it does tell you what moves common equities. certainly the triple digit move today would confirm that. let's bring in steve liesman to this discussion as we continue to talk through this.
steve, some indications that perhaps bernanke is looking a little tired after yesterday's marathon session this morning. >> he does look a little more tired than he did yesterday. i think some people commented on how calm he looked yesterday. some people attributed that to maybe he was leaving. giving the muted market reaction yesterday, kelly, i don't think that bernanke has much to walk back "todatoday, which sometime happens on day two. that message i think is two field. on the one hand the street heard taper is mostly on track for september but the fed is not hell bent on that course and will adjust its timing based on the performance of the economy. >> i emphasize that because our asset purchases depend on economic and financial developments, they are by no means on a preset course. >> there's the more awake looking bernanke from yesterday. hfe commenting this morning, the fed to bond market, please calm down or else no tapering. luke crandall writes, quote, we still think the fed is likely to keep tapering in september but
bernanke left the door wide open to the possibility the fed might wait until later. ian shephardson said mr. bernanke did not retreat from the core message but he was at pains to make the point that the tapering of asset purchases later this year a data dependent. here are some of the risks bernanke detailed yesterday that could stay the fed from that tapering. a rise in rates, he said, is something we need to watch. the effect of deficit reduction on the economy, jury is still out on that. a debt ceiling showdown and, of course, economic weakness both domestically or globally. fed policy is built around the pay set purchases which bernanke said he could begin to reduce at 7% unemployment and interest rates which could begin to be raised when unemployment hits 6.5%. he took pains to sigh that's levels are thresholds, not triggers. the fed will be considering policy changes at those levels, not automatically making policy. one aspect of this we're getting
a sense of, what the fed thought it did wrong the past few weeks. it did not address the market's main fear of a policy mistake. bernanke's message therefore has been the fed is not on autopilot. it's paying attention to the data. there will be no change in policy if the economy is not ready for it. so far, carl, that message seems to be working at least to calm the market. >> steve, you nou, yesterday when the chairman said that the market was getting the message and volatility had abated. some people said what is he talking about? i asked how the market range yesterday compared with previous humphrey hawkins. narrowest ranges since '94. >> i think what the chairman was talking about was relative to what it was since he began that round of volatility on may 22nd. if i think if you would draw a graph it's come down like this. i think the message has become clearer. simon and i have been debating this for a couple days now. does the market get this notion that tapering is not tightening
and that -- i think we're going to go to the q & a right now. that's chairman johnson. >> switching to the q & a session. thanks, steve. >> would unwinding too early threaten the economy and the financial system? >> well, certainly we face the same issues that are always faced when monetary policy begins to norm yationize after a period of recession and expansion. which is if we tighten too soon, we risk not letting the economy get back to full employment. if we tighten too late, we risk having some inflation. as always there will be issues of judgment that are unavoidable in any monetary policy normalization. that being said we have laid out essentially a three-stage process for our normalization. the first, which is dependent on the economy strengthening, the labor market continuing to normalize, and inflation beginning to move back towards 2% is a process of slowing,
moderating the pace of our asset purchases and eventually bringing those to zero additional purchases at the point that we can say that we've made substantial improvement in the outlook for the labor market. and we've given some guidelines about how that process would go forward. the second stage would be potentially lengthy period in which we are watching the economy for continued improvement, continued reduction in unemployment, normalization of inflation. as i described in my testimony when unemployment gets to 6.5% and not before and when inflation is looking closer to target, at that point we would consider whether tightening in the form of raising short-term interest rates is appropriate. so that would be the second stage. the final stage would be the ultimate normalization of policy, the raising of short-term interest rates and eventually the normalization of our balance sheet.
as i noted in my testimony, assuming that the economy remains in a slow growth mode as we've been seeing, that that process would be a very gradual process. >> what explains the recent rise in long-term interest rates, and how much more of an increase in rates could cause the recovery to falter, and what would the federal reserve do to respond if interest rates spike? >> well, there are essentially three reasons why we've seen some increase in longer term rates, although i would emphasize they remain relatively low. the first is that there's been some better economic news. as investors see brighter prospects ahead, interest rates tend to rise. for example, we saw a relatively good labor market report which was accompanied by pretty sharp increase in interest rates on that day. second reason for the increase
in rates is probably the unwinding of leveraged and perhaps successfully risky positions in the market. it's probably a good thing to have that happen, although the tightening that's associated with that is unwelcome, but at least the benefit of it is that some concerns about building financial risks are mitigated in that way and probably make some participants more comfortable with using this tool going forward. the third reason for the increase in rates is -- has to do with federal reserve communications and market interpretations of fed policy. we've tried to be very clear from the beginning, and i have reiterated again today that we have not changed policy. we are not talking about tightening monetary policy. merely, we've been trying to lay out the same sequence which i just described to you about how we're going to move going forward and how that will be tied to the economy. but i want to emphasize that
none of that implies that monetary policy will be tighter at any time within the foreseeable future. >> what you currently see as the biggest threat to the housing market recovery as we continue housing finance reform? >> well, certainly we have to keep our eye open to pay attention to mortgage rates and affordability. that's our job at the fed, but i think it's very important for us to get our housing institutions, our regulatory structure, to get those cleared up, to get those in working order. i'm glad to see that the congress is now looking at reforms of the fannie and freddie, mortgage securitization system, we still have rules to do about skin in the game and other aspects of mortgage
market. i think as there's greater clarity about the rules of the game for mortgage making and mortgage securitization, that we will see less tightness in the market for mortgages for first time home buyers and people with less than perfect credit scores. i think one of the risks we face now is there's still a pretty significant part of the population that is having considerable difficulty accessing mortgage credit even though they may have the financial wherewithal to be worthy of that credit. >> senator crapo. >> thank you, mr. chairman. chairman bernanke, you have previously indicated that the fed wants to see substance improvement in the labor market before cutting off qe. and in your june press conference you noted substantial is in the eye of the beholder. if i understood you today, you indicated that if all goes as expected, we could expect to see this wound down completely by mid year next year, is that
correct? >> if all goes as expected, yes. >> i guess the flip side of that is you said if all does not go as expected, we could see qe continue for the indefinite future. >> i suspect that at some -- >> that is the fed chairman in front of the senate banking committee. the q & a beginning. as it continues we'll get you more after a short break. the dow is up 114. don't go away. >> that remains to be seen. is a surprisingly low price -- just $7.95. in fact, fidelity gives you lower trade commissions than schwab, td ameritrade, don't go away. and etrade. i'm monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. now get 200 free trades when you open an account. we used to live with a bear.
let's dip back into the fed chairman. >> you're not expecting the winding down of the balance sheet at any time soon, is that correct? >> certainly not until we get to the rate increase part of the three-part sequence that i described to you, and there, again, it would be not -- we're not planning at this point to sell any mbs. what we would be doing is allowing at some point we would be allowing the maturing securities just to run off and not replacing them. >> but as long as you continue to hold and not wind down the balance sheet, doesn't this lead to credit mispricing and increased investor risk undertaking? >> i don't think so, particularly when we're winding down. i don't see that there's any real difference between, for example, our holding mortgage-backed securities which is intended to strengthen the housing market and usual
monetary policy which lowers long-term interest rates through short-term rate cuts which is also intended to strengthen the housing market. the housing market is always an important channel of monetary policy, so i don't really see there's any significant misallocation going on there. >> all right. thank you. >> senator menendez. >> thank you, mr. chairman. chairman bernanke, i understand this may be your final monetary policy report hearing before the committee before the end of your term as chairman of the federal reserve, and i'm sure you'll miss us, but i want to thank you for your hard work and dedication and your service to our country, especially during a time of crisis, and i appreciate your service. we seem to be experiencing a trend right now where our economy and employment are growing and recovering, but we
still have from my perspective a ways to dig ourselves out from the deep hole caused by the financial crisis. unemployment is coming down, but it's still 7.6%. more than a third of the people who are unemployed are long-term unemployment, which is a true crisis for those more than 4 million individuals and families caught in that situation. and as you've discussed with this committee in the past, long-term unemployment can have serious consequences making it harder for people to maintain skills and networks to re-enter the workforce. my question is while the economy is recovering, we still have a lot of work to do to get full employment and strong broad-based growth. with core inflation well below the fed's target and weak demand suggesting that inflation is unlikely to be a problem anytime soon, isn't it still way too soon to consider any kind of policy tightening? >> well, again, i have
distinguished between changing the mix of our two tools and the overall thrust of monetary policy. i agree with you with inflation below target and with unemployment still quite high and by some measure was unemployment in some ways being even too optimistic a measure of the state of the labor market given some of other statistics that you cited, that both sides of our statutory mandate are suggesting that we need to maintain a highly accommodative monitor policy for the foreseeable future and that's what we intend to do, but i think that wem be able to maintain that high level of accommodation ultimately through rate policy and, you know, by holding a very large balance sheet, but in making that transition to a different stage of this process, we again are intending to keep policy highly accommodative. >> let me just follow up on that. as the reserve has engaged in measures to strengthen our
economy, some critics have argued that any growth that results might somehow be artificial or that low interest rates and cheaper credit might lead to financial instability or asset bubbles if investors make riskier investment in order to, quote, reach for the yield. in the current environment though, suspect weak demand the greater concern. if consumers are pulling back on their spending because of high debt burdens and underwater mortgages from the financial crisis and businesses are holding off on investing because of the weaker consumer demand, doesn't that change the relative cost, benefits, and rick of different monetary policy actions? >> yes, it can. on the first point about artificial growth, during the '30s there was a view called liquidationist view which held that recessions and depressions were healthy, they purged the evils out of the system. i don't think we accept that point of view anymore. we think our economy is
producing below its potential and what monetary policy is trying to do is help the economy return to its potential and that would be real and sustainable growth that we could achieve. on financial stability, obviously given recent experience, we want to be very careful we understand what's going on and pay close attention to these issues. the relationship between monetary policy and financial stability is a complicated one. on the one hand, very low rates for sustained periods can lead to reach for yield and other risky behavior. we are trying to address that primarily through regulation, through oversight, through monitoring, and that's our first line of defense certainly for dealing with those sorts of issues. but you correctly point out it isn't a simple relationship because, of course, a weak economy also is bad for financial sta bibility because means weaker credit quality, less lending opportunities, more defaults and delinquencies. so, again, our strategy is to
try to focus on inflation and unemployment using monetary policy but to pay close attention to any developments in the financial stability sphere and use the regulatory and supervisory tools we have as the first line of defense in that case. >> i appreciate that. the reason i asked those specific questions is because there's been a great deal written and said about expansionary austerity, and as i look at what is happening in europe, i'm not sure that all the measures taken under that guise produce either the economic results that we'd like to see and certainly the consequential human results we have seen in europe and i don't want us making those mistakes here. thank you, mr. chairman. >> senator corker. >> thank you, mr. chairman, and mr. chairman, thank you for being here. we were just talking, the second day of these humphrey hawkins
meetings is like drinking day old coffee and maybe even worse accompanied by a stale doughnut, but certainly i'm here today and i don't really have any questions. i read your testimony yesterday but really to thank you for your service. i know we have had our differences on some issues, but i really do especially appreciate the way you handled the crisis. i think that our country was under extreme duress. i don't know how many people could have handled that crisis and the complexities that came with it in the way that you did. so i want to thank you for that. >> thank you. >> obviously, we've had discussions both publicly and privately about some of the quantitative easing, and i know we had differences, but i would wonder, i know that, you know, there's a whole industry of folks out there who watch every word that you say and people right now doing calculations as
to whether to buy this instrument or that, and i know you have to be very cautious in what you say sometimes, but this is a little bit of a step back. i guess some of the concerns that i have had and i think members on this side of the dais have been the type e hyperactiv the fed and the fed almost acting as an enabler for congress, which has had very bad behavior for a long time. our inability to do the things fiscally and in other way that is would stimulate our economy, and i think you're well aware of those. you do a pretty decent job of staying away from that, although sometimes i wish you'd weigh in more. but i do wonder if you have any possibly parting comments. i don't know what your future is and none of us do at this moment, but i wonder if you have any comments about that, about any concerns about over time because of the hyperactivity that the fed has been engaged in
and in some ways because congress has been so feckless in living up to its responsibilities and dealing with the issues we have to deal with, if that is of any concern to you and is there any similarities, if you will, to a person who knows that they need to do certain things to eat right and exercise and instead, you know, relying on the fed for amphetamines and other kinds of activities to get in a place that the economy needs to be, our nation, and candidly the world. but again as you potentially contemplate those, i do want to again thank you for your service, thank you for your friendship, and whatever happens, i wish you well. >> thank you very much for those comments, senator. on hyperactivity, i think what we learned during the crisis was that we didn't have the right tools. you know, we didn't have a way to address a failing investment
bank that wouldn't create a huge amount of bad effects in financial markets. we didn't have appropriate oversight of the shadow banking system. there were a lot of weaknesses in our oversight or regulatory system, in our response tools to the crisis, and that's why it sometimes seemed frenetic because the fed was trying to improvise in many cases, and i think we've made some progress in setting up a more orderly framework for both strengthening our financial system, monitoring the system, and responding in case of another emergency. so i hope that that's the case. it is true that monetary policy i think has carried an awful lot of the burden for this recovery, and, you know, we're more than happy to share that burden more equally with fiscal policy and other policymakers. but i recognize it's been a difficult time politically for people to come to agreement on some very important issues, and
i don't think you mentioned the enabler idea. i don't think it's my place for the federal reserve's place to try to force congress to come to any particular outcome. i mean, congress is ultimately who is responsible, and our role is to take what congress does as given and to try to figure out how best to meet our mandate given congress' action. i don't think we should threaten congress with higher interest rates or something like that. >> and i know that's not your place and i know you operate under our mandates. i would think though that most people would ration that the fact that the fed is there and does have to do what it does in some ways acts as a cover for us in our inability to act responsibly. i mean, i think that goes without saying, doesn't it? >> well, i think, as you can
see, that our acting alone is not producing the kind of results we all would like. i mean, growth is going in the right direction, unemployment is going in the right direction, but it's still a very slow process. as i have said many times monetary policy is not a panacea. there's still plenty of room for congress to address some of these problems that senator menendez and others referred to. >> thank you. >> thank you. >> senator reid. >> thank you very much, mr. chairman. and let me join senator corker, mr. chairman in commending you and thanking you for your service to the nation. i witnessed your innovative, improvisational and thoughtful approach to problems that were potentially devastating to the economy. i think through your service we avoided a much worse situation and i thank you for that. one of the things reflecting back though is the 20/20
hindsight. there were a if yfew governors the fed that were talking about the housing bubble as the next great crisis but it didn't get the traction. in a similar vein you ever some colleagues talking about the huge growing student debt that is -- could have macroeconomic effects, slowing down home purchases, slowing down sort of what we assume was the normal course, that by your late 20s, you buy the home, you settle down, et cetera, and also i think in a way underscoring another huge problem in the economy which is the growing inequality of the income. our sort of american solution to inequality is education. we have reports from georgetown university, that there's already a 5 million projected gap between jobs available that will be there and skills available to fill them. and yet as we increase the cost of borrowing and all the proposals that we're talking about currently do increase the
cost, that i think will cut down on opportunities for a lot of people. so can you comment, one, on this potential sort of crisis in student debt, macroeconomic effects, and whether if we don't provide some type of support both directly and also refinancing support that this could be the next big problem we face? >> well, first, it should be acknowledged that the ability to borrow, to build your own human capital, to get an education is extremely important and a good thing. there was a time when poor student no matter how qualified was unable to finance an education and the fact that we now can do that is very good for the economy as well as for individuals. the amount of student debt is large. it's over $1 trillion at this point. i think that it is not particularly likely to cause any sharp instability of the sort we
saw in the last few years. it has a couple consequences. one, of course, is it represents a potential fiscal risk for the u.s. government to the extent that some of it is not repaid. secondly, to the extent that there are people who have taken out a lot of debt and the economy is not serving them well, they're not finding opportunities, then obviously over time, this is not something that is a big issue at any given moment, but over a number of years they will not be able to buy the home and do other things that they otherwise would be able to because they're paying off the debt. so i think the answer to it is, first, of course, to have a strong economy that provides job opportunities and that's something we're trying to do and i'm sure you're trying to do as well. but the other is i think we need to make sure that students are better informed about the market, the labor market, and their opportunities and what different options they have. you know, we know of cases, some
of the private sector universities, online universities and so on which don't have very good graduation or placement rates. people are still borrowing to take those courses. i think if there was better counseling, better information, that would certainly be an important step, but i don't want us to step back from doing everything we can to give young people a chance to get whatever skills that are appropriate. >> let me just -- the broader question was just your comment, this growing documented inequality in income in the united states, does it pose both economic and social risks to the country? and how do we deal with it other than through education in many different ways? >> it's a very, very tough problem. it's not restricted to the united states. it's a global phenomena. it's been going on for a very long time. there are a number of factors behind it. i think though that one of the
most important is that the new technologies we're seeing are what's called skill biased. that they favor the most skilled workers, and they reduce opportunities for people of medium or low skills, particularly in competition with the global labor force. so i don't have an easy answer. i do think that related to your question about student debt, i think that focused skill enhancement, people instead of -- not everybody should necessarily be doing a four-year b.a. some people would be better off working specifically towards a job in industry where there's an understanding in advance that this is what's needed, this is the opening, a community college prepares those kinds of courses. so more focused job oriented training for some students who
are interested in that might be helpful. but this is a long-term trend, and i don't have an easy solution for it. >> thank you, mr. chairman. >> senator toomey. >> thank you, mr. chairman, and i, too, want to thank chairman bernanke not just for being with us today, but also for his years of service. and we had our disagreements over the years, but not without on my part a great deal of respect for the way you have approached this work and the work that you've done. i have a couple -- a few questions i hope we'll be able to mow through. one has to do with the he have ka -- efficacy of the quau quantitative easing. there's been analyses that suggest that the benefit of the quantitative easing we've had might be quite modest, and specifically i think the suggestion has been that conventional understanding of the transmission mechanism of the increase in household net
worth to consumer spending would suggest a very modest increase to gdp that's resulted from the pretty significant increase recently in household net worth. even if you attributed all of that increase to the fed which is a questionable premise. and then your own previous testimony, i think it was at the joint economic to a question i asked, you acknowledged that the nature of the impact that monetary policy tends to have on economic growth might be more a matter of timing rather than a net increase. so accommodative policy can accelerate, can move forward economic activity, might not increase economic activity in total. so if the -- i guess what i'm saying is if the mni tud of the b -- magnitude of the benefit has been modest, that would suggest modest benefits and yet the cost and risk keep mounting.
in my view the risk of asset bubbles, mispricing assets, the risks of whether we will have an orderly exit. my question is number one, you who do you quantify the benefits that have been occurring and especially near term marginal benefits going forward and can you and do you systematically attempt to quantify the risks of what you've done? >> yes. that's a very good question. there's a very large literature, academic and within central banks, trying to figure out how big the effects are of quantitative easing and it's quite difficult to know for sure. but the preponderance of the evidence is while this is not as powerful a tool as ordinary rate policy, it does have meaningful impact on jobs and on the economy. in particular since 2008 where we've had no abuilt to move short-term rates and we've had periods where we came somewhat more concerned about deflation, we think that qe has provided an
important boost at critical times to help the economy continue to move forward. so i don't want to overstate it and there's a lot ever uncertainty, but there's a lot of work on this and the preponderance of the work suggests the effects while not huge are quite meaningful. also in terms of timing, it's true that no monitor policy can do very much about the long-term growth potential of the economy, but in a situation where we're well below that potential, if we can get back to that potential more quickly, that is a net gain that is enjoyed by the economy. in terms of costs and risks, we have -- i have identified in speeches and other places some of these risks, and as i said in our statement that we look at this carefully. i think the one that we have paid the most attention to is financial stability, and we have
tried to greatly increase our vigilance, our monitoring, our use of supervisory tools and the like, and as senator menendez actually pointed out thou, there's also risks on both sides because, of course, if the economy does very poorly, that also creates risks to financial sta bill because of the effect on default, delinquency, and so on. let me acknowledge this is an issue that is an important one. we believe the first line of defense should be monitoring, supervision, regulation, and other similar tools, but we do take into account these costs and risks when we debate our monetary policy. >> do you attempt to quantify it or is it all subjective? >> we try to quantify it. it's very difficult, of course, to know exactly what the size of the risk is, but what we do is
that we do a lot of work both qualitative and quantitative trying to measure, for example, we might be looking at covenants on loans and whether those are becoming less restrictive which is suggestive of poorer underwriting, for example. we monitor those kinds of things and report those to the fomc essentially every meeting so they can understand where there may be sectors where financial risks are building and try to gauge those risks. >> all right. thank you. i have other questions but i see my time has expired. thanks, mr. chairman. >> senator schumer. >> i want to thank you as well, chairman bernanke, as you enjoy your second marathon in two days, and echo the views of many of my colleagues in the house and senate who thank you for your service during such a critical period.
your quiet but strong leadership has been instrumental in keeping our economy from falling into an abyss and repeating the devastation 56 great depression and we are now because of your leadership on the path towards turning that economy around. my view is that 2014 and 2015 will be stronger economically than our present time and that will be in large part because of the building blocks that you put into place even if you're no longer chairman of the fed, not prejudging anything, of course. so here are my questions. you have been as clear as i think you can be that the timing and pace of any tapering, these are monetary, timing and tapering of your asset purchases will be dependent on economic and financial conditions. that's logical. in june the committee projected the economic growth would pick up in coming quarters but since then economic data has been mixed. we've had decent job numbers but many signs of weakening growth. we found out that the baseline
for your june outlook was worse than we first thought. first quarter gdp numbers were revised downward. so the economy is worse than you thought in june, but the markets appear to think that you're still set to begin tapering in september. so if the economy didn't change as it is today on september 18th, would the fed be announcing a moderation in the pace of its assets? and just one subsidiary question. you have often said that asset purchases will continue until the fed sees, quote, substantial improvement in the labor market outlook. does weakening data regarding growth change your outlook with respect to the strength of the labor market? in other words, can labor markets continue to improve in relative growth? first about september 18th and then about the labor markets. >> well, the june 236789fomc me was only a couple weeks ago. there have been data points since then. i think it's way too early to
make any judgment. we'll be obviously reviewing the data and what we're looking for is a pickup as the year progresses because our theory of the case, if you will, is that one of the reasons that the economy has been so slow in the recally part of 2013 is because of the fiscal factors. it's hard to judge how long those factors will last, but if the economy begins to move beyond that point and fiscal restraint becomes somewhat less pronounced, we should see, as you suggested yourself, a pickup in growth and so that's what we'll be looking for. >> but the september 18th deadline of beginning tapering is not immutable. you will look at the data. >> we're going to obviously look at the data. it's a committee decision. it's going to depend on whether we see the improvement which i described. >> right. and the second question, does the weakening data regarding growth change your outlook with respect to the strength of labor markets? >> yes. we talked about -- we
specifically set as a goal an improvement in the outlook for the labor market as opposed to labor market per se, and what that means is that we want to see improvement in labor market indicators but we also want to have a sense that improvement will continue. and, of course, for improvement to continue, you need to have a broader based growth. and so of the three conditions which i described, one of them is a pickup in growth which will be sufficient to provide continued improvement -- >> you think we still could be on the path to labor markets improving even with this relatively weak growth in terms of outlook? >> it's possible. again, it's only been a few weeks since the june meeting. i don't think we have new data. >> my first question was about the tapering. my second is when you might end asset purchases altogether. the minutes of your last meeting said that, quote, about half of the participants indicated it would be likely -- that it likely would be appropriate to
end asset purchases late this year. yet you yourself said in guidance that was approved by the committee based on current projections, you expect asset purchases to end sometime in the middle of next year when you currently anticipate unemployment will be down around 7%. that's the level of unemployment you say represents the amount of improvement that would warrant a moderation in fed policy. do those other members have a different definition of substantial improvement in the labor market? there seems to be some disparity between the other members and you and if you're not there come next year, there's a worry there. or a different view of the likely path of the labor market. do they think unemployment will be 7% this year or do they have different assessments about the relative cost and benefit of qe? >> well, there are diverse views, obviously, on this program. and in particular people could see an early wind down because they are optimistic about the economy or because they don't
think that qe is very effective. a lot of different reasons why you might have that view. let me assure you that we have a very careful discussion at the meeting. we have what's called a go-around where every person, including the nonvoters, gets to express for several minutes their view on policy, both current and prospective, and the general scenario which i described in my press conference is broadly supported by people on the committee including both voters and nonvoters. >> that's good to hear and gives me a little relief. thank you, mr. chairman. >> senator coburn. >> mr. bernanke, i appreciate -- >> fed chairman continues to answer questions from senator coburn. with the dow hanging into a very narrow range as he's been
speaking, wavering fewer than 20 points i'd say. let's get to steve liesman. has the latest on this back from hq. steve, your general thoughts, he's answering both sides with similar answers, and he's not taking the bait saying this will, in fact, be his last humphrey hawkins. >> i'm waiting for a senator to bring out the gold watch and present him with a plaque. i think he's going to practically retire right here if it keeps going this way. somebody i think needs to do something to correct the record here as to whether or not he is definitively retiring because the way these senators are talking it sounds a lot like a done deal. you're right though, carl, it sounds like the republicans are asking is there a danger of too much qe? democrats are saying is there a danger of too little qe and bernanke is saying yes to both. what the fed has concluded is there's last -- it feels less cause than there is to keep going with the project as it is. september tapering i think still seems on track if the economy improves. >> with that in mind we will
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[growl] we used to live with a bear. we'd always have to go everywhere with it. get in the front. we drive. it was so embarrasing that we just wanted to say, well, go away. shoo bear. but we can't really tell bears what to do. moooooommmmmm!!! then one day, it was just gone. mom! [announcer] you are how you sleep. tempur-pedic. welcome back. let't ben bernanke testifying before congress, taking questions from senators. >> in terms of what congress could do, i think i can only go so far in recommending, but i do think that an attempt to focus
the budget consolidation efforts more on the longer term -- >> i agree. >> -- would have been a more productive way rather than putting so much of the tax increases and spending cuts in a front-loaded way would have been more helpful. that would have been one suggestion. >> if, in fact, congress had behaved appropriately and helped create a certainty in the long term, especially with our entitlement programs, but also in terms of some of the waste, the effectiveness of some of the things you have done with monetary policy might have been greater. >> certainly. >> thank you. >> senator brown. >> thank you, mr. chairman. chairman bernanke, thank you for your service as others have done and we all mean that. thank you for the new rules on capital standards that you have issued with fdic. i urge you to hold fast on them when the mega banks fight to weaken the standards and i hope you will do that. some financial institutions
argue, as we have discussed, that we should not get out ahead of europe in our financial regulation. monday governor turillo said, i think it's very dangerous that some have tried to characterize basel agreements as the creating, not the floor. so for us in the united states, those of us charged with financial stability of the united states need to make the judgment as to what levels of capital will most ensure financial stability in the country without unduly affecting the flow of credit. even since the publication -- ever since the publication of our proposed reg, i have had calls from my counterparts around the world. tell me the reasoning about this, how you're thinking about it, tell me more why you think 3% is inadequate, end quote. what i hear the grve saying is we should do what we think is best for our financial stability and if we lead by example, the rest of the world will follow. do you agree with the governor? >> i certainly agree with the
first part which is that basel three is a floor, it's not a ceiling. it's really a least common denominator because these agreements are made essentially by unanimous consensus, and, therefore, if there are a few countries that are very resistant for whatever reason, you know, that makes it tougher to get the higher standard. we view them as a floor, and we were prepared to do whatever additional steps are needed in order to make our financial system safe. i don't know whether all countries will follow us, but there are other countries, switzerland comes to mind, uk, that have thought hard about this and have made additional -- taken additional steps to strengthen their banking systems, and we do have a leadership position and i hope that will taken, but i don't think it will be universal. i think that you will see different responses from different countries. >> but the most important countries with financial systems will follow as governor turillo
suggests? >> i don't know whether they will follow the exact same things but they all have the same -- the key financial centers, which recognize how important banks are to their economy but also the fact that in some cases the banks are bigger than their economy, recognize that it's very important to have stability, and they have been particularly willing to consider additional steps. >> so we should not shrink from doing the right thing for stability of our country because some mega banks say that we will be an outlier and other countries won't follow. agree with that? >> the other countries may or may not follow, some will, but whether they do or not, i do agree we should do whatever we need to do to make sure that the u.s. financial system is safe. >> let me -- thank you. let me ask another question. it's bank earnings season again, as you know, and it's no surprise that mega banks are doing quite well, yet they continue to claim that regulations, new regulations,
impending regulations are killing them. tuesday's financial times said here is the problem. banks have spent a lot of time, energy, and money warning of the potential ill effects of ramping up regulation, but since the crisis international regulators have kept demanding more capital including a surcharge for the bigger banks. lenders have doubled their capital levels as a result hitting the new basel three targets six years early in some case and yet "the financial times" asks where are the ill effects. the best of them continue to set new profit records with every earnings season, warnings of calamity look more and more hollow, unquote. the debate about the fed's new proposed supplement yaer leverage ratio remains me when we think about costs, we as policymakers, regulators, and elected officials, when we think about costs and benefits, industry wants us only to think about costs to them. steel companies dump waste into our rivers and then they argue that it will be costly to clean it up.
it's been -- that's a higher human cost to the miners and the children who get sick. >> the conversation has switched from monetary policy to more banking regulation. the fed chairman commenting on some other regulations around the world, including the uk. dow still up very close to triple digits. we'll take a very short break and get back to the chairman in just a moment. what makes the sleep number store different?
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i think you answered the question. >> welcome back. stocks are up 100 points testing fresh record highs both for the dow and s&p 500. just to give you a sense of what's driving the gains, a lot of it is financials. morgan stanley's results just the latest from a big bank. bank of america contributing to the dow's gain. so, too, is ibm. that stock up 2%. because of its price weighting at almost $200 a share, a big mover. if ibm and financials can stay up, you can expect where we are this morning to prevail absent some change in tune from the chairman. >> some of these all-time highs, for instance, a target bog back the highest level at least to 1967.
3m going back to 1965. a lot of history being played out. >> don't overlook what's happening with oil because we are watching wti which has jumped to 16-month highs. that's the other side, carl, of the stronger u.s. demand story. >> q&a continues. let's get back to washington, d.c. >> let me change the topic real quick to housing. all right, thanks. welcome to "the halftime show." four hours until the close. green arrows across the board on this big day in the markets. here is what we're following on "the half." google glasses, what does one of the street's best analysts see for the company, the quarter, and the stock? cat or dog? jim chanos goes short so why is one of our traders going long? one big debate is just