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tv   Squawk on the Street  CNBC  January 17, 2014 9:00am-12:01pm EST

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check it out and keep in touch. that does it for us today, make sure you join us on tuesday we've got economics professor ken rogoff joining us live from davos and chuck lovelle will be here on set. that does it for us. we'll see you. have a great weekend. "squawk on the street" starts right now. ♪ good friday morning ahead of a long weekend. welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber at the new york stock exchange. we'll close out the week with a bang as far as news goes. u.p.s. just warned on the quarter a moment ago. and, of course, we have earnings from ge, morgan stanley, intel, and more. the ten-year yield take a look, we'll get industrial production and michigan sentiment this morning and then europe has some mild gains. 97% of the german dax by the way trading above the 200-day average. the roadmap this morning begins
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with u.p.s. the stock going to take a hit this morning after lowering their fourth quarter guide ax, a hangover from the holiday shipping fiasco. and shares of intel are sliding after fourth quarter earnings missed estimates and warning of flat revenues for the rest of this year. and speaking of earnings morgan stanley, general electric, and amex making big moves today, we'll break them down with you. but first up, u.p.s., the package delivery company expects fourth quarter earnings of $1.25, well below forecasts. u.p.s. said it's been negatively impacted by higher costs driven by a surge of shipments during the holiday season. the company said it deployed 30,000 more temporary employees than it had planned for. their peak delivery day volume up 7 1/2 from what they expected. as i just said on twitter, their models, jim, nowhere near on plan. >> i want everyone to go to "u.p.s. kicks off peak week" they put out a press release. december 16th, 2013. where they said, look, our peak
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day, all right, is -- they go through everything about what's supposed to happen. i'm just going to read it. driven by the growth in commerce u.p.s. expects to pick up more than 34 million packages today monday 16th, and it's a record for a single day. wrong! i mean, they got it -- and not only that, but they said they'd have to hire 55,000 people. i think there were a couple of things at work here. they did offer if you sent something december 23rd, they promised to get it to you christmas if you do air service. they promised and they're a very honest company and they delivered. they just didn't understand, remember, this day that they obviously did not know about was december 23rd. 31 million packages. i mean, here you -- it's supposed to be the 16th. it's 34 million. >> yeah. >> you get people to work on the 23rd, 24th, you may have to pay them extra money. this is a logistics company. and -- >> they didn't handle their own logistics very well. >> you said it. >> yes. you set me up to say it.
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>> thank you. >> you're welcome. >> yeah. i mean, your point about the overtime, the sg & a. >> man. >> the immediate brushback as well, you got a problem, you got too much business, how is that bad for the quarter? >> it's a high quality problem to be able to have all this business. >> it's part of the whole thing. but you read -- >> it's the same story. >> and it's well above what they had anticipated in terms of volume. >> right. >> all you think about is amazon and the mall traffic story that we've been talking about for some time now. >> front page of "the journal." >> front page of "the journal" today. >> you go to the mall with your hand held device and you look at it and the compare it with your handheld device to what amazon has. you realize you can send it december 23rd and u.p.s. still guarantees it and they are part and parcel with this -- they'll never make this mistake again, with this change in the way people shop.
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and i think it's just happen -- i remember when howard schultz sent me that note two mondays, listen, jim, there's been a sea change, a secular -- wow. really came together with this note being the second to last shoe to drop when amazon reports its quarter -- >> that's going to be very interesting. is there any coincidence here that amazon prime is two-day guaranteed delivery. >> that's exactly right. that's where i'm going. that's exactly right. this is a disaster for the malls not for u.p.s. u.p.s. will figure it out. they won't get it wrong again. >> amazon always gives us very little information. >> right. >> less than any company, frankly, but they did put that press release out after christmas talking about all the new prime memberships that they added. >> think about it, u.p.s. says they'll need 55,000 seasonal employees. more than would fit into yankee stadium. i think they've got the wrong stadium. they need enough employees to do one of those brazilian world cup
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stadiums. >> michigan. >> wolverines. the big house! they needed the big house! 55 in terms of they needed 85. to be off by 30,000 people on the eve of christmas is rather shocking. but i'm sure -- i know there were people who didn't get their packages. scott davis is a very good ceo, so it is not like these guys are a bunch of jokers. this is a very well-run company, extremely well run. >> amazon sends their packages as well as many other e-commerce businesses through usps and fedex. >> did fedex have a different model? maybe they saw it coming more. to be as wrong as to be on december 16th to be so wrong is not unusual for all the malls that we're hearing that were wrong, for all the stores. everyone was wrong about the behavior of the american consumer. >> yeah. and "the journal" did some nice forensics about where the logjams were, largely at some of their kentucky hubs, your point
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about getting someone to work on december 23rd in a hurry is going to cost you. >> those of us who when we started out in our career had to work certain days. well, they even had to give us and we had no clout at all with our employers but they still had to give us extra. remember this idea u.p.s. next-day air shipped monday 23rd for tuesday december 24th, that's what people did! i mean, that's what they did! this we are's highest delivery day occurred six days later than was expected! i mean, you -- how could they be so wrong and the answer is that america changed. we changed. in one season. we changed. >> maybe a quarterly phenomenon for u.p.s. in terms of figuring that out, but the real question is retail, brick and mortar retail, in the mall or not, how is it going to change to compete with what we are starting to believe is not just a seasonal change or something but something that's going to be with us for good. >> right, this is price control because of your handheld. it's the consumer getting much
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smarter. i can buy it here. it's the new frugality, i'm not going to pay it. i can go and -- do you remember when you used to have to go to circuit city, talk about a name of the past, and bring in the ad of another retailer and they guaranteed the ad. that is happening in real time with your cell phone. >> right. and a lot of people are not even bothering to make the trip. let's talk, by the way, on the subject of mobile, good time to talk about intel which reported its fourth quarter earnings of 51 cents a share. that was one cent shy of what had been street forecast. revenues did exceed consensus. the chip maker, though, said it expects sales to be flat the current fiscal year. of course, intel a company that still is focused on the personal computer trying to catch up in this new mobile environment. >> right. >> whether it be, of course, phones or tablets getting their chips in there is the key. and -- >> we had the too much love scenario. remember, we had upgrade, upgrade, upgrade. >> you said that. >> too much love.
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>> you said too much love the other day. >> and he questioned whether you could have too much love. >> i did. >> you were existential with me and i was really speaking of upgrades and you were thinking more about a global -- >> i was thinking, right, more about the beatles and john lennon. >> they finally did it, intel finally underpromised. i saw the headline. i said, oh, flat, thank you. how many times i've been on the call with intel when they said it's going to be fabulous! this time they didn't say it. so, this year's now set up for a good year. >> a big point of some of the upgrades earlier in the week is that the guidance would get more real listy, jpmorgan on tuesday upped it to an overweight, but some were looking for some signs that maybe there would be pc stabilizati stabilization. that wasn't there as much. >> the ceo did everything, the cfo, they did exactly what you want, which is to say, you know, i mean, this year is not going to be that great a year. if you go back and look at the
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first quarter and fourth quarter of last year, what they did was they had this we're all going to be backended, it's going to be great, and all the analysts were, like, are you kidding me? how are you going to do that? they said don't worry about it, we'll get it done. they didn't. this is the opposite, new ceo comes and says, listen, we'll not get it done, when they do get it done and i believe they will because of the end of the decline of pc. >> you do believe they'll get it done, you think that's an important point. >> yes. >> why? >> why? because they are setting the bar so low that they can get it done and they're doing a lot of different chips and things. check out sky works, they had the right combination, david aldridge really an unbelievable chief executive, ceo, he had the notebook and the tablet and the. c, and intel is getting more religious about having to be more secular about their different -- what they back, not parochial anymore. >> let's get the other big names in the a-block, morgan stanley had earnings out as well and beat estimates in the fourth
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quarter by 50 cents a share and as for two dow components general electric earned 54 cents in q-4 and that matched and amex missed by a penny last night posting a quarterly profit of $1.25. and morgan stanley not as bad as the others we've seen. >> morgan stanley is why you don't trade, you get the conference call and it's very clear there's a lot of charges, it's really fabulous. they did everything right and the stock goes right back up. morgan stanley the reason why i think this stock is up when you read the conference and you go through the conference call and go through the release, it's, like, a real bank. it just kind of didn't have this and that and craziness. it's we're a wealth -- we're a wealth management company and we had good wealth management numbers, gorman has simplified morgan stanley. i no longer worry that they own a casino in atlantic city. they seemed to have gotten away from that, david, wouldn't you
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say that? >> listen, he made the big decision to move that company focused more on wealth management, but it doesn't mean investment banking isn't still important. >> no. >> in fact, they had a good quarter there. >> they did. >> they did. he's put a strategic review out for all to read as well, a strategic update, i should say and they are talking about increasing wealth management margins by 22% to 25%, 18% currently. >> that's a very big goal. >> that's a big goal. he's setting fairly big goals out there return on equity more than 10% and fixed income and commodities. a lot of different things that they're focused on doing. he has managed to turn that company to a certain extent and the stock has obviously reflected that up, what, 18% last year. >> a fresh four-year high. >> above tangible book value. >> and then ge 53 cents. they beat by a penny in six of the previous eight quarters but
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this time they match operating net up 20%. >> ge's a transition quarter. a guy who actually came out recently and downgraded buy to a hold is a very good call, my charitable trust owns ge, my take on ge is simple, this is not when they're going to blow it out. they never said they'd blow it out, they didn't blow it out. your industrial sales were very, very good. i like the segments but it was not a blowout quarter. the stock's a buy. when we come back the last key economic report before the bell and industrial production in a few moments and an atm that lets you convert your dollars into bitcoin. here's futures.
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welcome back to "squawk on the street." we have the summer industrial production up 0.3 of 1%. capacity utilization, buckle up on this one, 79.2. 79.2 is the best number going back to may of 2008. may of 2008. so, we want to pay close attention to that and we still have more data to come in the form of university of michigan preliminary january confidence and jolts. and, carl, it's all yours. >> all right, rick, thank you very much, rick santelli. target officials will be headed to capitol hill in a few weeks. the retailer has agreed to testify before congress on the massive data breach that has affected tens of millions of
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customers. a house commerce subcommittee will hear testimony from one or more target officials sometime in early february, comes a day after nieman marcus apologizes for this and this report by a committee suggesting there are others that we do not know about yet but that we probably will soon. >> i had lifelock on last time. lifelock does not do this kind of work. experian got the contract with target. listen, there are big ones still to come. there's some big ones still to come that we don't know about yet. >> really? >> yes. he was very pointed about that. yeah, the chatter is there's still big ones yet to come. >> incredible how antiquated our infrastructure is so to speak. there are many parts of the world, certainly europe, where they're far ahead of us -- >> is that true? >> the security of credit cards, the simple idea of just, you know, you are waving that card away and they can take stuff right from it. >> and the debit question. >> some of the reporting on the particular target hack, discovered that some of the code that was used to hack target was written in russian which makes
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the story a little bit more interesting. on the "today" show this morning and investigators said they'd never seen anything like it. we have to get used to this kind of thing. >> during the height of the dot-com period, companies reported the amazing page views and what the russian page view generators. >> oh, yeah, sure. listen, the criminal gangs out of eastern europe are well known to participate in this, although we've had a couple of guests on that said the sophistication of these attacks would lead them to believe it's not from there. we'll see. we all know, of course, the continued war that is going on between this country and china when it comes to cyberespionage. not to mention what our own nsa is capable of, they are not stealing people's credit cards one would assume, but they can do pretty much what they want. >> in "taken 3" when they say good luck to liam neeson, they
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win. he did not find them. he did not kill them. >> and he's a tough guy as we know. >> that's true. later on this morning the president is due to give details on an overhaul on the controversial nsa program, one that collects vast amounts of telephone call data on americans and those outside the u.s., scheduled to speak at the justice department 11:00 a.m. eastern time. the general thinking he'll bring out some measures to at least evaluate surveillance not just on americans but on foreign leaders too which we know has gotten him in hot political water around the world. >> there have been companies that have been doing business with airbus. i've been saying they're throwing the business to airbus because of this stuff rather than going to boeing. i mean, this is a national issue of commerce, too. >> it becomes an important thing when at&t and vodafone, i'm just talking about the rumors that have been out there for some time, that deal, by the way, between vodafone and verizon
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close to closing and we'll see whether at&t does proceed in some way to acquire vodafone, whether that happens, don't make light of the nsa situation and how it figures into regulators' decisions in europe about treating at&t. it's important. and it could be a real impediment if they do want to move ahead with that. >> i'm glad you said that, because i think it's one of those issues american are almost inured to the notion that everybody seems to know everything. when you spy on world leaders, i mean, we're, like, you know, we're, like, the russians in the cold war. i mean, people don't take that. they don't take to that. >> no. >> these leaders of europe. >> what's interesting is the speech today falls on the anniversary of eisenhower's military industrial complex warning back in 1961. a bit of irony that some have pointed out today, right? >> great speech. yeah. >> changed the way we think about -- >> didn't really heed that warning, though, did we? >> no. that is a great speech when you look back. eisenhower totally underrated,
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really saw it. he was a five star general. he was not afraid of the military and the military did not boss him around and when you have a president who was not in the military, they're very powerful -- the military gets more powerful. when we come back we'll get cramer's "mad dash" as we count down to the opening bell on this friday morning. one more look at futures. we've not had all three stock averages have a positive week all year long. we'll see if we can do it this time with futures mixed. back in a minute. ♪ we need moola [ male announcer ] it's simple physics... a body at rest tends to stay at rest...
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happy friday to you. >> yes. >> we've got a "mad dash" on this friday, so many different names we haven't gotten to, so why don't we go to slumbchlumbs. >> before the call, they're talking about really great worldwide drilling. they're focused on saudi arabia and they're focused on gulf of mexico. gulf of mexico back, remember, after -- after we had the mccondo, they there was a because. they talk about the bachen shale and they very rarely single out a company, continental resources executing the largest ever downhaul microsized monitoring operation. why does this matter? because the bachen is surfacing in the schlumberger release and you get more from schlumberger than anybody as still being a major focus of drilling. >> micro what was that again? >> the microseismic monitoring operation. >> which means what? >> they are finding out there's more oil basically.
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the business that has done is the reservoir mapping business that is something that core labs is very good at, too. it means there's a lot more oil -- they're finding more and more oil, schlumberger is really a tremendous technology company. and you'll love them even more after you read this release. geez, they're so good. i really love this company. they are so good at what they do. >> all right. let's move on to twitter. got an upgrade this morning. very positive comments. >> old friend of mine jordan rohan, and i'm not being si ini facetious. >> he's a deliberate, serious guy. >> he's talking about them. i'll read the headline, it's not laughable, it's rigorous. why it is far too early to be focused solely a valuation, what he is saying is apropos of amazon, david, that the opportunity is so great and it's so revolutionary and disruptive that you've got to give them the benefit of the doubt. it's smaller than facebook. it will take things, it's got a lot of good information here
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about why you should own it including the fact that it resonates particularly well with younger people. so, if you read the report, i think you'll be encouraged to think, okay, at least i know why it's going up and why it can keep going up. rigorous analysis of a stock that has lacked rigor to date. >> right. an investment mode and give them a break on that. >> that is exactly what he's saying. i got to tell you, remember, it's a quarter of the size of facebook and he's predicting one day could be bigger than facebook. >> facebook amongst the many names we'll be watching and earnings from american express and we'll get to those. "squawk on the street" and the opening bell coming back right after this. [ male announcer ] this is the story of the little room
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but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim from td ameritrade. welcome back to "squawk on the street." i'm mary thompson, i just got off the phone with morgan stanley ceo, the company reported better-than-expected results of 50 cents a share beating by a nickel. the company taking a rather large $1.2 billion reserve for legal expenses in the quarter telephoning cnbc it was prudent given developments in the industry over the last three months. also on the company's submissions, she says buybacks are the priority followed by dividend increases. talking about the firm's giant wealth management or brokerage business, they did say they saw
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a re-engagement of the retail client during the quarter from the third quarter there was interest in products in both equity and fixed income. on the institutional size, she said they are seeing growing confidence among ceos in part because of growing confidence in the global economy. this she expects to drive m&a coming into 2014. the company also in a strategic upgrade james gorman is raising the targets for the company's pretax margin in its brokerage business, now expecting it to be 22% to 25% by year end 2015. and that excludes any benefits that you might see from a rising equity market and some other market factors. lastly i want to touch on the comp ratio within the investment bank, dropped from 42% to 45% last year and they expect it to trend down to 40% in years to come. carl, back to you. >> all right, mary, thank you very much. that's going to be a big story to watch. as is -- well, we'll talk about some of these stocks after the bell. but hp over at citi, meetings with management takes their
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target from 32 to 40 which is about a street high subjecting that they might be getting some share back in services after several quarters of share loss. >> well, last quarter was a good quarter for the company and showing progress in those areas. although yet to have any growth. 2014 is a key year for that. >> yes. look, i think part of my -- of the thesis that is developing is pc stocks going down. they reach some level. maybe it's the new windows adoption. i don't know. but if pcs stop going down, it creates -- you don't have that hend wi headwind at hewlett-packard. >> it's helpful. >> s&p at the top of your screen, ep energy celebrating its ipo today and over at the nasdaq biodiesel producer renewable energy group celebrating its second listing anniversary, as we take stock of what's moving today. we were mentioning the bachen prior to the bell, "the journal" has a piece the state adding
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millionaires at the fastest pace, north dakota. >> it's a real boom. when you are out in north dakota, they are very skeptical a lot of people. there was a boom once before, hess was the first in. >> they were. >> and people have to understand there was a train that hit, an oil train hit a soybean train. north dakota is the capital of a lot of your natural and organic, the beans that people like, navy beans, produces the most sunflower oil. this is an ag state that is really dealing with the fact that it's become texas tea and it's -- when i was out there, i could not believe what i see. you see man camps everywhere. >> yeah. >> man camps, kind of like 49ers. not the seahawks. >> no, no, no. we've not mentioned elizabeth arden which, of course, warned yesterday. they see 105 to 108, they were originally 130 to 160 for the current quarter. no guidance 2014. we talked about best buy cutting
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prices. stock falls by a third. arden tried to hold firm on prices, stock's down, well, 20% in the premarket. >> i've tried to -- they've tried to convince me. i actually kind of believed that maybe they had something going on. >> the britney spears celebrity fragrance apparently weak. >> all fragrances are almost all made by iff. >> that's a shock. >> britney spears celebrity fragrance. >> go to iff, that's what makes all those things. >> i'm bowled over by that. >> yeah? i don't even know where to go with that. >> amex one of the big gainers. certainly going to be the one that carries the dow in the early going. >> great blocking and tackling. great quarter. people looked at the headlines and said they missed. it's a juggernaut. it is behind some of the other credit card companies. it's very well run. this was just another verification that they really know what they're doing. one of the best managed companies in the country. >> capital one not getting the same love today. >> yeah, i know. i thought capital one could deliver more. capital one has sold off periodically after they report
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and you look at it four weeks later and it's higher. i think that will be the case again. >> ge down 2%. i'm trying to figure out industrial margins up 100 basis points. takes out almost $2 billion in costs. that's ahead of plan according to the company. >> right. i guess, i mean, becky referenced this right at the end of "squawk box" i believe this idea of simply being cost cutting is great but when are you going to have more significant revenue growth or grow the business faster than gdp, for example. >> you want your stock to go down, you use the word challenged, you know. you use the word mixed. >> that was corbat from yesterday at citi, challenged. >> second paragraph, here he goes. you say mixed or challenged. >> right. >> either one. because it's not mixed or challenged at a lot like -- at boeing it's not mixed, okay? so, i mean, that's -- look, good -- we saw good -- good conditions in growth markets and you're looking for the word great conditions. but what they're doing is setting you up, again, like
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intel, for i think a very good couple of years. not right now and i think that sometimes investors, my trust owns it, we have a lower basis, but the idea behind owning a ge is it's not going to be this quarter. you've got to get in ahead of when it doesn't really have the big financial headwind. and you got to buy it now. but people aren't going to look at that. they're going to say they don't know what they're doing. they do know what they're doing. this is a long-term plan, again, this is a stock that you have to -- you either believe that they are making the transition to a power, water, oil, energy company from finance, or you sell it. and i believe in the transition. >> we've now heard from all the financials, the big ones that i sort of follow. bankamerica, wells fargo, citi, morgan stanley and jpmorgan have all reported earnings. >> suntrust may have actually beaten bank of america in terms of a better quarter. suntrust. >> it's been a while there, too, right? >> again. >> suffered obviously greatly. and suntrust the real estate
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depression. morgan stanley shares the most up of the big financials, up about 2.2% and bankamerica had a good -- >> it was a very good quarter. bank of america did not talk about a mixed picture. that brian moynihan a very forceful conference call. very forceful, very forthright, consume e consumers the deposit growth there is extraordinary. extraordinary deposit growth. it's working. the national model is working for them. >> what do we have, jpmorgan, wells fargo and bankamerica and citi. that's it, right? >> and countrywide it looks like the hangover with countrywide is finally gone. don't forget countrywide underwrote 20% of the 2006 vintage mortgages which is the worst vintage in the history of america. maybe even worse than '31, '32. >> it's funny just a quick aside here on the press releases we get from the financial services companies. they're important. read them. we react to them.
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but you want to wait sometimes to see the actual quarterly filings. >> yes. >> and even then you may still -- my only reason in mentioning 2006 it puts me in mind of merrill lynch, if you had read every one of their press releases quarter after quarter from that period you never would have known how big they were in mortgage-backed securities and the enormous risk that company was taking, you never would have had any sense of it whatsoever and, therefore, could not have made a good judgment and sell the stock. >> you didn't know they were a huge lender in florida which was one of the most overheated markets. morgan stanley had a lot of lending that no one knew about and that's why i like what gorman is doing, you don't have it anymore. >> wealth management is a lot easier to judge. >> is it ever. >> go ahead. go ahead. >> some people will say the smith barney decision citi to give that to morgan stanley, i know that the assets go out the elevator door every morning, but gorman i think has pulled it off. it's integrated. it's impressive.
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it's impressive. >> we mention and talk about retail a lot and certainly a large percentage of the companies that have preannounced for the fourth quarter are in retail. michael kors, though, is finding a little bit of love up 3% here after heading in a direction that would have taken us back to around halloween, just a couple of days ago. >> yeah. this has been endless the -- if you own it, you feel it's endless along with ralph lauren. deckers. some of these companies that people just like to defend, and kors has been a winner. they've surprised the upside every quarter, so maybe it can come back. i just find that the -- you know, macy's, okay, i keep coming barring, they do a big business with michael kors, when you talk about terry lundgren other than fragrances, clearly not arden, other than fragrances kors has been a big seller. >> china mobile the world's largest mobile carrier in china
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goes live. it's always the lines when a new phone is released, but "the times" argues the lines are short. they counted a dozen people at the opening of a store in beijing. the same store where tim cook and the head of china mobile were signing autographing iphones, so there's your anecdotal evidence. >> here's the story i'm looking at the headlines, china mobile's iphone packages are expensive. once again, the flip psychologically, whatever apple does is wrong, whatever they do is wrong. that's the way, you know, people now think they can't get it right. they are judging it maybe on at least -- >> you don't think that. >> i don't think they get the benefit of the doubt i'm saying. apple no longer gets the benefit of a doubt. google puts out a contact lens that measures glucose levels which will be available in, you know, they're saying in five years that could be available. i think it may actually be in 4 1/2 years. i mean, this is the kind of
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things that goes on. google can talk about releasing -- putting out a press release about something that will be out in five years and people say, do you know what, that's genius. apple has five minutes and it's not that great and they're not good. >> actually really good point. we mentioned cook in china. here's a brief bit of sound as to what he said today -- >> it's fantastic for apple to be launching with china mobile today. we have long wanted and waited for this day to come and i'm so happy that it's come today. today we're bringing the best smartphone to the fastest network and the largest network in the world. >> i tell you what, the fact that he's there and speaking publicly shows you just how much this matters to the company. >> three quarters ago people were saying he had no china strategy. here's a guy that goes to china and really accentuates it and now they don't care and now they'll be worried about something else.
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>> apple is an inexpensive stock and doesn't have the love that according to other technology companies but it will happen overtime. u.p.s. barely down. high quality problem. >> amazon shares are up ever so slightly talking about companies that people do -- >> the benefit of the doubt. >> yelp, benefit of the doubt. >> and not to mention twitter which you mentioned earlier up 6.5% on that call from the analyst jordan rohan saying give it the benefit of the doubt at least for now. >> i just think that sometimes -- i was looking at the piece and wondering is this a justification of the rally. and what it really is, it gets into the minds of why twitter could have multiple years of growth and it uses the term that the real growth momentum managers want to hear, accelerated revenue growth. in other words, it's growing at this rate and will have a step function up. that's code for mutual fund managers to say i don't want just growth. i want accelerated revenue growth. that's something that amazon has had over and over again. >> yeah. with that dow's up 14. let's get to pisani on the
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floor. busy one today, bob. >> ipos finally starting to heat up. we had a one-month lull here, we priced a few already. waiting for chc group to open. this is the world's largest commercial helicopter operator largely for the energy industry. 31 million shares that was more than expected at $10. that's below the range. and it's looking somewhere between $9 and $10 so probably opened below the price. over here ep energy, oil and gas exploration company priced 32.5 million shares below the price talk but just opened at $19.90, and trading at $19.57 and another oil and gas exploration company that opened as well, rspp opened here at the new york stock exchange on the other side you can't see it. 20 million shares $19.50 it opened at $20.50. so, let's call it a bit either side of positive or negative for some of these ipos, meantime, guidance had been a real problem
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this morning. it's one thing to disappoint on the numbers but when you bring numbers down when you haven't come out with them or the current quarter is not going to be great, it's a problem. you see what is going on with u.p.s. below expectations on their announcement. lizarden, disappointing guidance. royal dutch-shell said profit will be dsignificantly lower thn recent levels due to oil and gas prices. intel okay on the numbers, uninspiring revenue guidance and that's a problem overall. i'm puzzled by the people that want to dismiss intel these days, oh, it doesn't matter, they missed the whole boat, it's a pc company, and it's qualcomm and samsung that matters they're making the chips that go into the ipads and iphones. i don't know about this at all. i think intel does matter. put up the semiconductor index versus the s&p, it's a very good indicator. last year the sox tracked the s&p 500 practically perfectly, what's the biggest component? i think it's intel, i think intel matters if for no other
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reason than it's a good indicator where the markets are going. i think intel does matter and the strength of the semiconductor industry matters an awful lot. meanwhile where is the growth? that's what we want to know about. i've been mentioning europe. i want to hear comments on how europe was doing because they were very cautious in the prior quarters. jeff immelt said we saw good conditions in growth markets. strength in the u.s. and a mixed environment in europe. i call that modestly bullish. did you see what schlumberger said, the overall global economic outlook continues largely unchanged with fundamentals continuing to improve in the u.s. and are rope seemingly set for stronger growth. let's say modestly bullish overall, still not strong commentary but generally good things. ge, david, i don't know about you, but this is real nitpicking. it's down here. some companies have been making the numbers and analysts complaining about cost cutting for a long time. let me tell you something, companies are making these numbers largely on cost cutting, complain about that or say it's down on that i think is silly.
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amex stated rich people, you see what they're doing there, look at their numbers, fabulous, total revenue up 5%, core market grew 9% on their build business. they're going after higher-income people. so far that strategy is working. back to you. >> yep. tale of two cities in a lot of ways there, of course. >> yeah. >> let's head over to the bond pits now and rick santelli is at the cme group in chicago. rick? >> good morning, david. to many the news is that interest rates are acting a little different than most analysts would have predicted, but granted we're only a bit through january, much less all of 2014. see the 24-hour chart of tens, we've come down and you can see how data plays an important part but nothing played a more important part than softening up the interest rate complex and playing around with the yield curve than the weak jobs report one week ago today. if you open the chart up, you can see that's a one-month chart we're flirting depending on what maturity you are looking at, but basically one-month low closing yields. now, that says a lot about risks. let's look at a different
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version of risk. let's look at an etf, the high yield, it's playing around right now as the stock market opened with the best level since the third week in july. that says a lot. but maybe the next two charts say more about risk than anything and that is the spread between spanish tens and ours. italian tens and ours. and the first case, under 90 basis points difference. in the second case under 100. and once again, you really have to think about that. remember, many investors look at relative value versus fundamentals and the differences really say a lot about what's cheap and what's rich when our yields are so close to southern spain! excuse me, southern europe! now let's look at the foreign exchange market. many thought the dollar index was having a good 2014 because of rising rates, well, we're way down. we're down about 20 basis points from when we close so as you look at a dollar index and then open the chart up to july you can see we're at the basically at an area where we look to be breaking out to the upside on the dollar index. you want to pay close attention to this very significant
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technical formation. carl, back to you. >> rick santelli, thanks so much. when we come back this morning, google, you might have heard jim just mention this, making a move beyond google glass. the company is now testing a different type of wearable technology, contact lenses. unbelievable technology if this is actually going to work. >> brilliant. >> we'll talk about it in a minute. basketball meets bitcoin the owner of the sacramento kings we'll explain why his team has become the first nba franchise is the virtual currency. he'll join us later on. "squawk on the street" is back in a minute. in today's market, 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.
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may be more likely to misuse lyrica. ask your doctor about lyrica today. it's specific treatment for diabetic nerve pain. to hear more of terry's story, visit lyrica.com. google is opening our eyes to a new project a smart contact lens for diabetics, it is built to measure glucose levels in your teardrops by embedding wireless chips in the lens. company's in discussions with the fda. says it plans to look for expert partners in the project. this is actually an innovation out of their google x-unit that does the unthinkable that we all love to talk about, but had designed their own chips and
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mount them on these very thin plastic films, it's actually sandwiched in there, would be incredible. all those diabetics who no longer have to poke their finger. >> you know, my charitable trust owns google and one of the reasons why we own it quite simply they do have omg products it seems almost on a quarterly basis. they're thinking so big out there. every time we get down on our country, think about what this google keeps coming up with. it's rather remarkable. remember, the toughest job in the country to get, number one job in the country, where they reject more people than any other school the top. this is it. google. you cannot get a job there. >> yeah. >> summa cum laude guys at the best school get turned down regularly. >> they've got thousands of people not a mile and a half from here up on 14th street working here. incredible building. >> have you met any of the people there? >> i've walked around there. i've seen the whole -- >> my friend got a job after multiple rounds. and it was notified that she got
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the gig by text. that's how she found out. >> i had a very nice lunch there, of course, free. and delicious. and i was by far the oldest person in the room, i think. >> it used to be you went to the jet propulsion lab and jpl and goldman sachs. >> ibm. >> now you go to google. >> went to bell labs. they had so many nobel laureates and now you go to google. they have a lot of people on campus. we'll get 6 in 60 in a minute. so i c
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all right. 6 in 60 with jim, 6 stocks in 60 minutes. start with dek. >> they take turns defending dek and a huge seller in the marketplace. who the heck knows. >> pioneer. >> this stock has been a horrendous performer. i still believe it has a lot of oil in the permian but people are skeptical. >> what's the take on nu skin today? >> hearing more regulatory action in china. thank you, herb greenberg, for getting people out. >> alcoa at an interesting level. >> i pointed out alcoa because i talked about intel and ge coming back, alcoa 10.50 and went to
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9.80. look at it now. have a little vision, people. forward lightweighting and closing the plant and just have some vision for a change. >> merrill has commented on dillard's. >> i don't know. i thought it was an interesting a department store that's actually liked. >> and baird on ppg. >> people thought it was a bad quarter because they didn't listen to the call and if you did you realize they are having an unbelievable forecast and chuck bunch did doing a great job. i've seen more snap judgments and i hate it because it cost people fortunes. take a chill pill. think about it the next day before you sell. >> on that note, let's get to santelli who has michigan sentiment, rick. >> 80.4, eight zero point four. so, that is a miss. but, remember, this is january preliminary, january preliminary, say that five times. so, of course, we're comparing that to some of the final reads and our final read november was 75.1. but nonetheless, it is a miss. we'll be coming back shortly with jolts. the jolts number.
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supposedly one of janet yellen's favorites. carl, back to you. >> rick. rick santelli. what's on "mad" tonight? >> i want to wish you best of luck this weekend and i am pulling for the broncos because of you, my friend. just like you pulled for the eagles when you're with me. i really want you to win. >> we need the help. >> we have take-two interactive grand scheft auto and when david plays with his son, grand theft auto, i don't know if he likes to be the assassin or murderer, a billion dollar weekend and i want to find out how it happens and he's an intellectual who spends a lot of time thinking about this stuff and i can't wait to interview. >> electronic arts having a nice morning on the new consoles driving sales. >> this is an industry that i'm not that close to and this man is going to unlock the door for meef. >> all right, jim, we'll see you tonight and enjoy the weekend and the football. "mad money" tonight 6:00 and 11:00 and simon is here to tell us what's going on at 10:00. we'll talk about u.p.s. and
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what that means moving forward and the latest analysis on apple's big launch in china and also as we await, of course, the president with his speech on security and the nsa, the former white house cyberadviser will join us live that's hour two of "squawk on the street" heading into a long weekend. nnouncer ] d of energy is so abundant, it can help provide the power for all this? natural gas. ♪ more than ever before, america's electricity is generated by it. exxonmobil uses advanced visualization and drilling technologies to produce natural gas... powering our lives... while reducing emissions by up to 60%. energy lives here. ♪ how did edward jones get so big? let me just put this away. ♪ could you teach our kids that trick? [ male announcer ] by not acting that way. it's how edward jones makes sense of investing.
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welcome back to "squawk on the street." our roadmap this morning begins with u.p.s. the holidays delivering a late blow to the company as it lowers its fourth quarter guidance thanks to the holiday shipping fiasco, we'll tell you what it means for the stock. whilst the iphone is making its long awaited big debut in china to much less fanfare than you might expect here at home. will poly's expensive smartphone be able to compete with the low-cost models. . and the president set to announce big changes with the way the nsa collects data and we'll talk with a cyberadviser about what the new rules mean for your security. and the u.p.s. shares coming off lows of 1.75 of a percent and it expects earnings well
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below forecast. u.p.s. said it's been negatively impa impacted by the higher costs driven by a surge of shipments during the holiday season. on the cnbc news line is donald broughton. great to see you or hear you again. good morning. >> good morning. >> we've been talking about what a high-class problem this is to have, but certainly you would prefer that their models would have been on target. what exactly happened here? >> well, what exactly happened they had to hire a lot more people to be able to deal with the surge. but also they saw the costs of their purchase transportation surge. normally line haul trucking to move things from point "a" to point "b." for them runs somewhere in the $2 to $2.50 a mile and we saw rates for expedited truckload services more than double. we saw team-based trucks, guys that had two drives with the truck basically never stops in transit, be able to command over $5 a mile.
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>> their peak delivery volume almost 8% higher than their models had told them. how do you get that wrong? why did you not see this coming? >> i don't think anyone did. certainly the consumer didn't. they've been trained to believe that you could click on something on christmas eve and have it show up christmas morning. you had the e-tailer trained that they could make it happen and they didn't expect everybody to behave the way they did. and certainly both u.p.s. did not see it coming either. so, it's been a -- it's been -- as you say, a high-class problem. but it's just overwhelmed everyone at that time and weather didn't help. >> donald, your analysis is fascinating about how the costs rise. but at the same time the revenue also presumably rose during this period. and i take you at your word that one may not offset the other because you know more about the industry than i do. but i'm also suspicious, i'm suspicious as to what the secret
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commercial contracts are with the likes of amazon and whether or not, for example, what we're witnessing here is advanced warning of clawbacks from those -- from those big companies against u.p.s. that they may not be able to bring into the public domain because they are presumably confidential contracts. >> well, i would argue that they would be part of it, but here's what i think is going on, simon, what i think is going on is flexibility of labor. unionized teamsters will not be as flexible as nonunion workers and people who own their own routes. let me give you a great example. on christmas eve i got packages from u.p.s. the day after christmas, i got packages from u.p.s. two days, three days after christmas i got packages from u.p.s. that were supposed to be delivered before christmas. on christmas morning a fedex owner-operator who owns his own route, works for fedex ground knocked on my door and said i wanted to make sure you had this on christmas.
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he owned the route. it was important to that entrepreneur and he got it delivered to me on christmas. >> is this -- is the whole episode, donald, going to change pricing? we've been talking about sort of the downgrading of pricing all year long. and i wonder if people are going to have to pay more when the holiday season comes around this year. >> i won't be surprised at all if you see graded pricing where if you order before this date we'll get it delivered at this price. if you order after this date, we could get it still delivered to you, but that guarantee of delivery's going to cost you a bonus because everybody knows what's happening at this time of the year and i see that happening on both the e-tailer side as well as the shipper side. both would and should charge more. >> donald, is this a reason to buy fedex? they've also acknowledged some problems like this. is u.p.s. worse at it than fedex? >> i actually have both of the
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stocks rated market perform, although in 2020 hindsight, i probably should have downgraded u.p.s. yesterday. that said, fedex has a nonunion workforce other than the pilots. their ground business is independent contractors who own their own routes. those are more flexible employees who will do more when things need to be done, serve different roles, work more hours. and be rewarded amply for it than teamsters, than unionized workers will. that's just a clear evidence that's out there in the marketplace. >> donald, thanks for coming to the phone today. appreciate your insight. joining us from avondale. earnings season is in full swing. morgan stanley is next up. the company's conference call kicking off just a few moments ago, the bank's fourth quarter profit fell on the headline of 70% but it still topped what the street was targeting and our own
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mary thompson spoke with thing moen stanley cfo this morning and she joins us with more on that. good morning. >> the first question i had to ask was on the $1.2 million add they made on the legal reserves, the doj had been looking into a number of issues. the reserve is related to mortgage-represented issues and others stemming from the financial crisis. still once you exclude the legal reserve and tax benefit and adjustments for its debt beating estimates by a nickel. revenue excludeing the adjustments for the company's debt also coming in at $8.2 billion. the company's performance reflecting a record $3.7 billion in revenue from its massive brokerage and wealth management bils where the company saw a pick-up in engagement from its retail clients across all products equity and fixed income up from the third quarter. pretax margins in the business the huge driver for the firm's overall profits coming in at 20% a goal reached ahead of schedule and the firm is accelerating its
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timetable to reach pretax margins in the business of 22% to 25% by year end 2015. they say will happen without any benefits frommam prervemts in the equity or fixed income markets, if you do see those improvements you'll see better pretax margins. the trading or securities business also saw revenue improve a bit even as revenue from trading bonds, commodities and currencies fell. citing weakness in the rates business but they also wanted to point out strong performance in the asset and management business and it helped to drive the better-than-expected results. the r.o.e. close to 6% in the quarter but still below the target of 10%. the compensation ratio in its investment bank trending lower to 42% from 45% last year and they see it hitting around 40% over time. carl, back to you. >> thank you very much, mary thompson, at hq. breaking news, job openings, labor turnover date da, our jolts we like to call it.
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brick has it at the cme, rick? >> so fascinating. first of all, it's a good day, 4.000 1 million, why is it the key? the first time that job openings and labor turnovers on the hiring side has crossed the threshold since march of 2008. we should have a chart ready. so, indeed it's good news. now, exactly how this transfers, remember, this is a november number, we saw last friday's weak jobs report and the market will look at it a little different than it would have if we'd had a stronger report last friday. back to you. >> can i pick up and underline something that really came out of the beige book which was you've got this view that the economy in more districts is expanding, wages in mort districts are beginning to rise. and, therefore, we've kind of erased -- correct me if i'm wrong, from what i'm reading from everybody, we've erased the concerns we had with the jobs report at the end of last week. we're now on for clear tapering
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as the timetable was laid out. >> well, i think you're correct. and you're looking at the fundamental data, but i would take it a little twist. i personally think, like many traders around me, that the fed wants out of qe no matter what. so, i'm not sure that, you know, even if the other data didn't -- matched up better or worse than the weak jobs report a week ago, i really think the tapering is going to begin. it isn't so much about the efficacy of trying to prove other jobs and really expanding in a sustainable way, it's more about the cost/benefit analysis of how little qe is impacting that equation and how the questionable costs in the future might be growing very large and uncertain. >> the word efficacy comes to mind, rick santelli from chicago and the cme group. target has agreed to testify before congress about the big data breach after a 16-page government report sent to retailers detailing the methods used in the target breach.
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hampton pearson is live in washington with more on that, hampton, good morning. >> the department of homeland security has said what the agency is describing as a technical bulletin to retailers and other merchants. it specificallies out the malicious software techniques that were used to attack target late last year, those attacks affected 40 million credit and debit card accounts, led to the theft of personal information including e-mail addresses and names of as many as 70 million customers. the report tells us the hackers targeted numerous retailers and here's some more highlights from that, basically saying the malware was written partially in russian, the malicious code couldn't be detected by anti-virus software, hackers as we mentioned targeted numerous retailers and hackers displayed innovation and a high degree of skill. that report was prepared with the assistance of the securities intelligence firm eyesight partners and its ceo john waters shared many of those details late yesterday with us here on cnbc when the story first broke.
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programs the biggest unanswered question remains, what other major retailers might have been targeted for these attacks as well and as was mentioned at the top of this report target plans to testify on capitol hill in a hearing early next month. carl? >> and i just wonder how much target has to reveal when they testify given that there is an ongoing investigation into all of this. >> identify think that's something that will be worked out between the target folks testifying and frankly the congressional staffers. but, again, too, you now have the basis of this report going to the heart of the nature of the attack, the types of techniques that were used and, as you said, the interesting thing will be how -- how widespread -- how deep inside the target e-commerce infrastructure if you will this thing really, really went. >> hampton, thank you for that. hampton pearson in washington today. speaking of security news in about an hour from now the president is set to announce major changes to the nsa's data
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collection practices. of course, we'll bring that announcement to you when it begins live we think sometime around 11:00 a.m. eastern time. when we come back the iphone making its debut in china today, will it be able to compete with the other low-cost phones in that country? we'll hear what tim cook had to say about that when "squawk on the street" comes right back. [ woman ] we had two tiny reasons to get our adt security system. and one really big reason. our neighbor's house was broken into. and since we can't monitor everything 24/7, we got someone who could. adt. [ male announcer ] no one looks out for you like adt, with fast response monitoring to help protect you from burglary, fire, and more.
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welcome back to "squawk on the street." when was the last time an oil company issued a profit warning? check out royal dutch-shell. it did just that saying results
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will be worse than the street expected due to a mix of lower production, higher costs and a weak performance by its refining division. its shares of underperformed most other major oil companies in the past year. it's up only about a percent or so, another one of these companies big bellwethers possibly issuing a warning. back over to you. >> weak guidance. thanks for that. apple is launching the iphone 5-s and the 5-c in china today part of the multiyear deal with china mobile. cnbc's eunice yoon has more on that from beijing. >> reporter: after six years of negotiations china mobile is finally selling po ining apple and tim cook marked the occasion by visiting one of the china mobile stores here in bay shipping with china mobile's chairman and both of them were handing out iphones to some lucky customers. both the 5-s and the 5-c the phones were actually autographed. a lot of people still believe that apple is going to get a
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boost from this deal. the company has been facing stiffer competition from cheaper smartphone rivals, but now apple's going to get access to china mobile's vast network of 760 million subscribers. >> fantastic for apple to be launching with china mobile today. we have long wanted and waited for this day to come. and i'm so happy that it's come today. today we're bringing the best smartphone to the fastest network and the largest network in the world. >> reporter: the two companies say that they've received over a million orders for the phones. but some analysts wonder if this new partnership is going to be the catalyst that apple needs to maintain its iconic status here for the long term. back to you guys. >> thank you very much, eunice yoon reporting there from beijing. all may not be as it seems, though, with apple in china, like china mobile already has 45 million subscribers on smuggled phones. up next in the program, fitness 2.0, taking working out
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google is opening our eyes to a new project, a smart contact lens for diabetics. it's built to measure glucose levels in your teardrops by embedding wireless chips in the lens. the company's in discussions with the fda, says it plans to look for expert partners in the project, and as we said in the past hour, guys, it's part of the google-x unit which does pie in the sky projects, a lot of people in the diabetic treatment community hopes it comes to fruition one day. >> i always wonder about google glass and whether it worked for prescriptions, this might be a way to get a broader use and catch on more. >> certainly it will be a big step in medical devices for this company. >> indeed.
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the sheer number of wearable computers at the consumer electronics show this year has got the fitness industry jumping to become more tech savvy and find a way to use and profit from all that biometric data that we could all soon be churning out if we buy the devi devices. equinox fitness with 65 gyms across the northeast is striving to put itself on the cutting edge of that change and harvey spevak the ceo of equinox joins us now. good morning. >> good morning. thanks for having me. >> what is the cutting edge of how you guys will use this sort of data? >> we're big believers in the wearable segment and how fast it's growing. we think it's very early stage right now but we think it will be a big business in many years to come. a lot of the companies doing this are really technology companies, what they are doing is getting people engaged but they don't know what to do with the data. our expert is what is the data mean and what does it mean to the member in terms of how they get results. that could be in terms of the movement aspect of your
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training. that could be the food aspect and in the recovery piece which we think's a big segment going forward. >> i think we're all members of your gym or were. >> thank you. >> one of the reasons we got you in today i've watched my trainer go through a very intensive six-month training course to come up to what you are creating t-level 4 and it's access to a sleep specialist and nutritionist and i believe you're even going to do dna testing on people so they're aware of what their genes are and how they will respond to exercise. is that a whole new frontier? is it a marketing gimmick? how important is that? how many of your staff will become elite trainers? >> absolutely not a marketing gimmick. we've always believed in the education of our trainers, 2,000 trainers at equinox and as they advance in experience and education we're constantly educating them on the latest and greatest. as you are highlighting, they advance to higher levels including t-4. >> does your profitability rise? are you profiting from it? >> we're benefiting from it and
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our member are getting results and the more they get results, it's a self-fulfilling prophecy and if they get the results they spread the brand and experience. >> if you believe in it, will you be extending it to the other brands like blink or soul cycle or pure yoga if it is the holy grail? >> very different experience. we believe capturing data is important and the expertise of our trainers and strickenucters is critically important and educate them to the high evides it's different at equinox than blink. there we're trying to get people kind of what we talk about the 85% that don't belong to gyms in and getting them moving at a basic level. so, it's different strokes for different folks, but at the end of the day we're trying to help people lead a healthy life. >> we've seen your new ads and everybody is talking about them, working out makes you feel dangerous. we've noticed them and seen them written up in "the new york times." what's the thinking here, no gyms, no treadmills, no workout
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clothes? what are you trying to get at here? >> i think we've always can cutting edge and our advertising has always been much more lifestyle and luxury lifestyle, much more similar to a fashion brand than to a gym brand. i mean, we're much more a club. we've always been more lifestyle oriented so our ads have always been recognized this way. it's just the evolution of the campaign and equinox made me do it. >> the rock 'n' roll for kids is the washboard stomach, if you are a prominent male in that country you'll be on the front of "men's fitness." it's not like the periods of elvis and the way the celebrity used to behave. >> look, fitness industry is very cyclical and right now it's about training to exhaustion. and it's about getting results more than ever. so, you see a lot more hardcore training, a lot more intense training. we've introduced classes at equinox that appeal that. you're hearing less about mind-body, and five or six years ago if you weren't talking mind-body in your advertising campaign, you were dead in the water. today it's about exhaustion and training and pushing you to the limits and equinox made you
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doing and maybe being a little bit naughty as a result. >> we showed a graphics of the fit bits and fuels and i've tried jawboning. i was going to ask you what you use, because you get the data and how do you synthesize it, how does it change your behavior? is jawbone the one that gets talked about the most in the community? >> i wouldn't say necessarily one is more than the other, nike because it's nike the fuel band has sold the most. i'm here to personally critique either one, i like the jawbone. i like the sleep data. once again early stage. we do have a health advisory board at equinox. you talked about the t-4 coaching and everything is based in science. we have a sleep expert on our board. it's early. it's directional information. it's not completely directional, but it's getting there. >> just before we let you go, for people watching around the world you have a fascinating relationship with your owners which is basically one of the largest real estate residential luxury operators related, in the time warner center. is the relationship for you kind
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of filling their rental spaces when they put them up so important that you would not ipo? i mean, is the value in the relationship with related rather than the value in the gyms themselves? >> no. look, we have great partners and great majority owners in related and the big private equity firm based in l.a., but everything is done based on the merits of that situation. if we lease space at related, it's arms length and it's got to make sense for both. >> you could ipo. >> absolutely. >> the ceo of equinox, harvey spevak. as best buy and jcpenney struggle to find their place, we're wondering what does the future of retail look like, and thomas stemberg joins us about the changing face of retail and the problems that some of these brick and mortar stores are facing. we're back after a quick break. [ male announcer ] the new new york is open. open to innovation. open to ambition. open to bold ideas.
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about an hour into trading some of the stories we're talking about, 7:29 on the west coast and 10:29 on wall street, the consumer sentiment index falling to a mid-january reading of 80.4. economists had been expecting an increase. amex is the biggest gainer on the dow up to 5% and new
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all-time highs despite a slight earnings miss. fourth quarter profit more than doubled from a year ago and best buy is falling again today. with more on that let's send it over to dom at hq. >> the retailer hitting a new seven-month low on the heels of disappointing holiday sales and that report yesterday, today ubs downgrades the stock to neutral from a buy with a 12-month price target of just $29 per share. goldman sachs downgraded the stock from a neutral to a buy and they've got a $28 price target and the pressure on best buy, simon, continues. in other security news in about half an hour president obama is set to announce major changes to the nsa's data collection practices. eamon javers is also in washington with the details on that. eamon, it's clear here it's going to be classic obama. he's going to take the middle ground here. >> reporter: yeah, that's right, simon. the difficulty here for the president of the united states at this speech over at the department of justice this morning is that he has overseen this program for about five
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years, so how does he distance himself politically from it now that we've had these disclosures from nsa leaker edward snowden, this has become hugely controversial. what the president is going to do we are told is sort of straddle the issue of whether or not the government can collect this so-called metadata, that is, information about telephone calls although not the contents of those calls themselves. take a look at a couple of bullet points here and we'll see what we can tell you about what we know the president is going to say at the top of 11:00. he's going to say that a judicial finding will be required before the database of metadata can be questioned and the attorney general will look to preserve the necessary capabilities of that program without the government holding the metadata and president obama will consult the relevant committees of congress to seek their views on how exactly to do that. now, some of the proposals that have been out there, guys, have been for the telephone companies themselves to hold a massive database that the intelligence agencies can then query for fo a newly created third party to do that as well.
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those are both very difficult and the companies have resisted the idea of holding a database that would involve government spying on their behalf. also a question here is to watch for as the president talks is what will the telecommunications companies be allowed to say. they have pushed for more ability to disclose when they are asked about government information. they want to say how often they're asked, what they're asked for as much as they can. will the government allow the telephone companies to say exactly what it is they're being asked for here. that's a question to watch for, again, when the president speaks here at the department of justice at 11:00, guys. >> and in political terms, eamon, he kicks it back to congress. he kicks it possibly to the 2016 race. and he kicks it partly into the lap laps of the gop to say, where do you stand on this? this isn't necessarily just me. >> reporter: right, one of the things to watch for is how definitive will the president be about what it is the government is going to do here. will there be a sort of a political punt here, or will there be a definitive action
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taken by the u.s. government to say here's what we're going to do and here's what we're not going to do. you can expect some criticism here if the white house decides to say, hey, we need more time to study this. they've already brought in this blue ribbon commission to do a review here of what the government should do. but they are really caught betwixt and between here, simon, because the president likes the capabilities of this program but he doesn't like the political blowback they've gotten from all the exposure of the details of the program itself. >> all right, thanks, very much, eamon, for a preview of what we're expected to hear from the president at 11:00 a.m. up next on "squawk on the street," intel in the red after fourth quarter results. the company's ceo says he does see signs of stabilization in the pc segment, but have pc sales finally stopped falling? we'll talk about that and what you should be doing with the stock when we come back. amazing.... footwear. and how about the 5 pound barbell at this resort? in to soap? this lodge has some!
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on the heels of a weak holiday season for best buy and the department store operator jcpenney, of course, closing many outlets across the united
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states, what does it mean for retail investors over the next five years, tom stemberg is managing general partner of highland consumer funds and co-founder, of course, and former ceo of staples. tom, good morning to you. >> good morning, simon, how are you? >> i'm concerned about retail, because if you look at the headline level, best buy, jcpenney, lululemon, you got aeropostale flaying around for their ownership futures. it looks bad. but i'm wondering what the bulk of retail is actually like at the moment when you cut through that. >> well, you know, the results vary greatly from company to company, so we've got companies in our portfolio like david's tea and mclaughlin which are running double-digit, same-store comparable sales. it was a very short christmas season that dramatically affected results. you've got some bad retailers out there like jcpenney and sears who are on their way to the graveyard, but they're
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exceptions, not the rule. i actually at best buy see a buying opportunity. i think best buy is doing the right things. right now amazon -- >> forgive me, but it's -- i mean, we had this conversation yesterday when best buy was hurt quite badly. its margins surely are under threat from the likes of am zonle a amazon and there are many questions going forward. >> no question. the big issue here is that amazon is selling products at margins that are not sustainable and for the longest period of time has been able to convince wall street, trust us, we'll make money some day, and i can't believe frankly how long wall street has trusted jeff bezos on this, and the "financial times" wrote a story a few weeks ago saying at some point amazon will have to turn profit. and at that point the best buy value proposition i believe will take on significant value vis-a-vis amazon. and secondly amazon has an
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unfair price advantage in most states by virtue of the fact that they do not collect the sales tax and most people don't volunteer to pay it on their own. and i believe sometime this year, after the republican primaries and the tea party stuff is out of the way, we'll see a bill put forward by great senators like lamar alexander to ensure main street fairness and taking away what in new york is roughly a 10% advantage for amazon, makes a big, big difference, the competitive position of best buy and others. and i think over time by being price competitive for now and taking their lumps, they're doing the right thing for the long term. >> you know, tom, this threat of online sales, it's a problem that some of the brick and mortar have been dealing with for years. it's not new. so, why haven't some of their defensive strategies been working? >> well, you know, frankly, people have tried to blind themselves to it and rationalize they can ignore this kind of pricing. and my old friends in the office products industry, frankly, are
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as guilty as any by not responding appropriately to the kind of pricing that amazon puts out there. you can't take the american consumer is going to let you pay 10% or 15% more at your store versus amazon. you have to go down there and fight them in the trenches. and i think the companies now they are coming to the realization that they have to do that. over time will win. i was talking to a fellow board member of mine yesterday who had spent all day long trying to have a brother printer fixed that he bought at amazon. and i kidded him, he should have bought it at best buy or staples, he could have just brought it back to the store and had it resolved. people like that convenience. >> you did a standout interview on christmas eve because i remember the message that came through and it was that there is excess capacity, way too much capacity in certain parts of retail. i'm asking you now in january whether those ceos will remain in denial most of them and that they won't actually drive the
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profits for their shareholders. instead, they'll say things, well, it's bad for morale to cut stores and it's bad for the image to be seen to be retrenching and arguably moving forward, you know, we may be able to get different products next forward which will drive us forward, this is just temporary. do you think they have the guts to do what they have to do? >> simon, either they have the guts to do it or they'll be former ceos in my opinion. >> okay. tom, we'll leave it there. thank you very much for your time. >> thank you for having me. all right. we are watching intel shares taking a hit after the company despite the fact that the company reported a rise in profit. the ceo noted that the company did see stabilization in the pc segment, but the outlook, hmm, didn't really meet investors' expectations. senior research analyst and manager director at jmp securities and jon fortt joins us as well. run us through the highlights, it seems the question with intell are they adapted fast
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enough to the post-pc world? >> from the results it seals they are not. a few things from the report jumped out at me. they built a fab, basically a manufacturing facility, and they haven't put equipment into yet because the demand's not there. now, granted this has happened at times in the past, but that combined with the overall pc trend doesn't speak well. also enterprise servers. that market not panning out the way intel had expected. the data center group is supp e supposed to be strong, and enterprise pcs not that strong either. intel's now trying to get that market going, also get 40 million tablet units going in 2014. in order to do that, they're going to have to aim at the lower end of the market, something they can afford to do with their advantage in process technology, but there are several areas where this could slip. they said they plan to bring their workforce number down in 2014. there was a little squishiness to my ear on where revenues will come in, they brought down data
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center but didn't bring down overall data, saying some things will go in our direction. this will be tough to call in 2014. >> do you agree with this assessment that it will be tough for intel to make the transformation and keep up with the market and get enough customers, specifically on mobile and tablets? >> absolutely. intel after years of complacency is finding itself playing catch-up in all the key growth markets. it totally missed mobility. trying to play catch-up. as jon mentioned, the problem with the tablet market is that it's a lower-cost, lower-end market. so, to speak up for a lack of growth in pcs, in data center and servers, it's trying to go after markets that really don't add up to a very convincing story right now. and that's why jmp securities continues to direct investors towards the wireless segment, towards business models like sky works that is benefiting from the internet of things, wearables now, exposure to products like the nest and, you know, business is on fire for
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them and their stock is on fire after putting up a really nice quarter yesterday versus what intel did. >> alex, what's the best-case scenario that's actually likely for intel at this point do you think? is it real stabilization in the pc market somehow the consumer comes back? is it success in the tablet market even though it's low end that somehow propels revenue, they do better than 40 million units during the year? what's really likely to happen that would benefit them? >> the most likely good case scenario, not best case, is that we get ongoing economic recovery and they enjoy ongoing stability in pcs and decent data center growth offset by ongoi ing cannibalization of its date s centers. i think that's the bet the company is making and why they put an ops guy in the chair of ceo here. >> is that really likely to happen, though? because they've been trying to
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do that but they haven't been able to work out the wireless piece, really get the system on a chip working the way it should. you look at the apple and they've got the m-7 working alongside their custom-made a.r.m. chip devices, and it doesn't look like they are switching to intel any time soon, even though intel were a little bit cheaper. >> that's right, jon, and that's why we've got a neutral rating on intel because it's not evident that strategy will work. the momentum is behind a.r.m. and the momentum is behind qualcomm, those companies are driving forward with moore's law as well and there seems to be more innovation going on in those ecosystems rather than in the intel x-86 ecosystem. it's trying and it's got the right vision but execution, at least here to date, has been a big black mark for them. >> and it looks like investors agree with you. shares under pressure down more than 3.5%, jon and alex, thanks for the rundown on intel. when we come back the president's going to speak live in a few moments on his plans
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let's hop over to the cme and check in with rick santelli and get the santelli exchange, hey, rick. >> hi, carl, we learned a couple of things from the jolts, job opening and labor turnover report. we finally crossed that very magic 4 million mark and it's the first time i believe since march of 2008. but something else, and, of course, we -- you know, we have so many great viewers, they pointed it out as they send me e-mails, i'm sure, like they send you. the quitter rate which was up 1.8% is basically at a five-year high. why would the quit rate be so important and be such a positive that everybody's a bit excited about it? think about it, if you're in an economy where mobility with regard to your job is not very promising, if your skill sets isn't going to find you opportunities elsewhere, you're going to be hunkered down.
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so, to see i guess, you know, feeling your oats as a worker to see that quit ratio go up, that percentage go up, really may give us a glimpse into a part of a healing process within the labor market. of course, the other part of that, and it gets you tied down a house, is it upsi upside-do upside-down. all of these things seem to be working out. if i look towards europe, towards the end of 2014, everybody was pretty excited about europe. i do see that there are positives in europe. if we look at the spreads, i've been talking about this a lot, the difference between a spanish tenure and u.s. tenure is 85 basis points. it's scary and maybe good. but i will caution, the same discussions we've had in this country for years, as to whether the level of stocks or the level of interest rates, is really in tandem with regard to what's going on in the economy, knowing that there's a lot of tinkering going on by things like fed programs, well, europe might have the same issues. you know, i believe his name is david roman in the madrid wall
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street online that i frequent once in a while talked about how for november recent data in spain, the bad loans are still at record levels. so how do you reconcile that? these are important issues. in the end, as car guy i'll say it this way. the u.s. economy is like a big block. it's not an eight cylinder or tensile der. i think it's like a v-16. we had them in the '30s. cadillac had them. bmw experiment we'd them, rolls royce recently. why is it pornd? anybody who has worked on a car, if you have a four cylinder and you have people who don't know what they're doing, tinkering with the wires with all the manuals, it's not going to run. if you have a v-16, you can have wires wrong, there's so much power that thing will still run and pull a heavy load. i think what the federal reserve has done and many officials in washington, they played around with the wiring. and they're all pointing to the fact that, wow, it's starting to run pretty well, it must be us.
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no, i don't think it is. there's a lot of room for a tune-up here. let's take what we can get. we're lucky to have a v-16 big block economy here. we have to make sure cause and effect doesn't get confused. back to you. >> rick, thank you very much. straight ahead on the show in eight minutes' time, president obama will announce new changes to the nsa or at least where the nsa keeps its data. we'll talk to the former white house cyber adviser about what the president will say, the changes that are being made, b and what's not being done. we'll be right back. looking at covered call strategies to generate income? with fidelity's options platform, we've completely integrated every step of the process, making it easier to try filters and strategies... to get a list of equity options... evaluate them with our p&l calculator... and execute faster with our more intuitive trade ticket. i'm greg stevens, and i helped create fidelity's options platform. it's one more innovative reason serious investors are choosing fidelity.
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lech tern, the president is bekted to give details on this overall or tweak, we will see what it is, to the controversial nsa surveillance program that collects vast amounts of telephone calls on american and leaders outside the united states. let's bring in howard smits, a former cyber security adviser to presidents obama and george w. bush. howard, it's good to have you. >> good to be back. >> trying to work through some
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reports on what he's going do. it doesn't sound like it's going to be an overhaul the way some privacy advocates hoped for. will it be enough? >> well, i don't know if it's going to be enough because we do have privacy advocates talking about this for a long time that are given a specific perspective on what they think would be the important way to do it. but there's no winners in this piece because you don't want to wind up putting us in a position where we're subject to a twist attack, but in the same case we've seen since 9/11 a slight erode, one piece at a time, of the privacy that we have today. >> a big piece of the controversy, of course, surrounds the meta data. we love saying that word. and the debate about whether or not we give full custody of these records to the phone companies. in your view, does that make the country safer? >> well, from everything we've seen, the answer is no. there's probably about 50 some
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odd cases that have been alleged to really help. the question that many of us have, was this solely the things that prevented something, was this collaborating information, did fbi have some information? and then a lot of people talk about the incident that occurred that we should have been able to stop, the boston marathon bombing, the new york city explosives in the car. so in some cases they say it's working. in other cases, we have no clue. >> let's see what we think he's going to say. nbc news is reporting that where this meta data is stored and how it is searched. what the president is not going to say, is he's not going to cancel the mass collection of that data by the government. is eight fact that security in this country is based on the mass data collected of is it really up for grabs here? >> and that's the big debate, because you have the intelligence committee on one side saying we can't do our job without this information.
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on the other side, you even have congress, you have our foreign friends that are saying, wait a minute, if you're collecting this stuff, especially on us, where is our relationship, where is the intelligence that's working together. >> what's your judgment? >> sir? >> what is your judgment? what do you think? >> i think we don't need all that data. i think there are other ways to do these things as opposed to collecting all this data and having sitting in nsa's database. >> you mentioned foreigners. the president is expected to address this issue, particularly how to protect privacy of foreign heads of state. how delicate of a dance is this one between protecting privacy and risking national security? >> well, now, a lot of the international leaders have said very specifically, we don't want you doing this, we don't understand why you did it and oftentimes you don't even conform to our privacy laws with our states. that's going to be another factor that's going to take place in here as to what level within other governments do
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we -- do the collection on them. >> he did commission this blue chip panel which gave him 46 recommendations. he's been pondering that for much of the past month. but given the spectrum of participants it seems like no one was going to glagree on a large amount of recommendations. did that do us any good? >> well, it got some perspectives that weren't available before. so that did help somewhat. when you start looking at the recommendations it's going to pick and choose which would be applicable, which the president decides to implement at this time. like i said before, you don't want to forget the fact that congress wants to do something like that. you have senator widen, and then the courts have been divided on this. this is going to take some time to actually turn sbthis into policy, something that's actionable. >> we'll see what the president says at doj in a few minutes. thanks, howard. stick around. we'll bring you back after the
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president does speak. in the meantime, almost all the gains for the dow are am-ex and visa. >> or earnings. knee deep in earning season. you can see the winners and losers separating themselves out. electronic arts are the best gainer. >> if you're just joining us, here's what you missed earlier on. welcome to "squawk on the street." here's what's happened so far. >> you look at the unemployment numbers we saw last week. does that scare you at all? >> everything scares us, but when you look at the variety of businesses within the lowest corporation umbrella, we can really go against any headwind. >> i'll let you in on a secret, i always root for the team behind because we love the close games. we're always looking to say, how can that game continue to be competitive coming down the stretch. that's what makes the game so fun. >> this year's highest delivery
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day occurred six days later than was puckeexpected. how could that be so wrong and the answer is that american changed. we changed. in one season. intel finally underpromised. i saw the headline, i said, oh, thank you. how many times i've been on the call with intel when they say it's going to be fabulous. this time they didn't say it. so this year's now set up for a good year. >> 4.0001 million. why is that key? it's the first time job openings and labor turnovers on the hiring side is across the 4 million threshold since march 2008. >> we're big believers in the wearable segment and how fast it's growing biological weapon think it's very early stage right now but we think it's going to be a big business in many years to come.
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good friday morning. breaking news. we are awaiting a speech by the president at the department of justice in washington where he is expected to announce some reforms to the nsa's data collection practices. this, of course, comes to the wake of the leaks by former nsa contractor edward snowden. >> with more on the highly anticipated speech by the president, let's go over to eamon javers. >> presidential approximately si directive that the white house is releasing at this hour. it's nine pages outlining the broad themes, the reasons why the united states needs to engage in signals intelligence, and the limitations that the united states is going to put on itself as it gathers them. not a lot here that's new. a lot of this is stuff that the intelligence community has said before. but they're laying it all out in one large document. we expect to hear from the president over the department of justice in just a few minutes as he explains why we decisions he has come to and what we
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decisions he has not come to about how the united states is going to handle what has become a major hot potato here. that is the database of all the meta data, phone call information, who called who and when. that database currently held inside the government. the question here, will he say it should be held outside the government and, if so, by whom, who should be hold that. should it be a private sector, should it be somebody else? we know the telecommunications companies have pushed back very hard on this idea that they should hold this hot a to it a. the question is how does the united states government straddle that. it's a very difficult political, technical, and intelligence question. interesting choice of venue here. the department of justice for a speech about the nsa. the president is not going to the nsa today would be tricky to do that with the media and all their communications equipment but it sends a message of law enforcement and seriousness that sets a tone here for the way the president is going to approach this. you can assume that's why
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they're doing it at d sorks doj and not here at the white house. >> the american public, where are they on these issues of meta data? is it widely understood the issue of privacy protection and what the president has to say? how does he walk that line? >> the american public is of two minds on this. for the most part people want the u.s. intelligence to be able to gather nvinformation that presents attacks. when it comes to gathering information about americans here in the united states, whether it's incidental or accidental, that's where the support seems to crumble. >> eamon, see you in a few moments. in the meantime, let's bring in the chairman and ceo of timco software and owner of the sacramento kings. good to have you back. good morning. >> good morning. thanks for having me. >> we know this is a point of contention, this whole debate all around the country, but especially in silicon valley.
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what do you think entrepreneurs and ceos in that part of the country want to hear today? >> well, we want people to have choice, so our strategy has always been that if you opt in, then that's a decision you make. so if the government does something that you haven't opted in to, then we don't like it so much. >> you're referring to -- by opting in, you're referring to consumers, to actual companies like a facebook, for instance? what? >> yes, exactly. and so i have a social network with the sacramento kings. if you opt in to the fan zone, then we learn a lot more about you but we are able to then give you something of value in return. we make offers to you that you wouldn't otherwise have. so it's really a matter of choice. i think if the government does things without people's approval, that bothers people in silicon valley.
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>> what about the government working with the companies in silicon valley, the nsa specifically? how do you think that relationship is going and do you think the government is doing an appropriate job at it to protect the privacy of american people? >> well, i think it's a complex issue and the government does use a lot of my technology from tipco and you got to outfox the bad guys. so you can't just keep building bigger and bigger locks because they'll find ways to break those locks. so what my technology allows you to do is to detect hackers, kind of like a neighborhood watch. you can see if there's bad guys in the neighborhood and if there are, then you can take actions. but i think just a carte blanche on looking at what people are doing, storing it, their phone records, i think that's something that people don't like very much. >> the other story, vivek, involving you at least, because
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of your affiliation with the sacramento kings, they are becoming, through you, the first professional sports franchise in the country to accept bitcoin. you talk about the bad guys. that's certainly one of the things that people worry about when it comes to the currency. why do you think it's safe? >> well, i believe that it's hit that tipping point where it's gone from being a curiosity to actually being a legitimate form of commerce. and my kids and their friends, which ask me why the kings didn't take bitcoin, we pride ourselves on being the first franchise of the 21st century. we want to be cashless, ticketless, and bitcoin facilitates all of that. so when something new happens, it always starts on the fringes when videocassette recorders came out, it started with porn. but pretty soon it crosses over and becomes mainstream. so i believe that bitcoin is becoming mainstream. >> what's response been like so far? have you had any sales on this?
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>> well, the response has been phenomenal, so we don't actually open sales until march 1. but sacramento actually has very technology oriented citizens and fans. in fact, there's more text messages coming out from persons in sacramento than any other city in the country. the whole movement to keep the kings in sacramento start owned twitter. so we're just doing what our fans want. our fans are technically very sophisticated and bitcoin is a medium that many of them want to use. >> i like the idea that you can go down there in hot dogs with bitcoin. are you yourself investing in bitcoin? >> i actually am. one of the lessons i learned is when your kids start doing something you should pay attention. and my kids are all in bitcoin. so i felt that that was something i should do as well. >> i like how you deem this nba 3.0, making the fan base more social, using technology, and your expertise when it comes to sports. how exactly are you doing that
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beyond using bitcoin to buy products and jerseys? >> well, we paid a lot of money for the team but it's more than a team. if p you redefine it as a social network and using technology, you capture that technology, you expand it, engage it. there are ways to monetize it. network is not just the 18 thousand that fit in the arena but the billion people all over the world. we're going to be really the first global franchise of the lba and nba 2.0 is our vision of using technology, globalization, and sports as an agent of good to drive that vision. >> vivek, appreciate your comments and your insight on bitcoin and especially on what the president is about to say. we'll see you next time. >> thank you. >> vivek ranadive joining us this morning. we're awaiting the major speech by the president over at the nsa. looking for some clarity on when exactly he's going to take the mike but when he does, we will
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take it live. in the meantime, the dow is near session highs. up 56. ♪ [ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade.
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million subscriber on the network but will the deal really move the needle? here's tim cook today speaking at china mobile's flagship store in beijing. >> it is fantastic for apple to be launching with china mobile today. we have long wanted and waited for this day to come. and i'm so happy that it's come today. today we're bringing the best smartphone to the fastest network and the largest network in the world. >> we welcome now a senior editor for re/code and we have a content sharing partnership with them. good to see you again. apple making a huge splash in china. tim cook speaking to cnbc, doing some interviews there. do you see this as a short-term boost for apple or is this a long-term game changer, the relationship?
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>> you know, there are going to be obviously some sales out of the gate, china mobile is the largest carrier. huge customer base. i don't think we're seeing the kind of instant reaction that suggests this is going to be huge overnight changer for apple. they had 1 million preorders. even those were not people actually plunking down money. they were just people saying they were interested. so this is going to help apple but it's not going to immediately, you know, be an order of magnitude shift to their business. >> i wonder what has to happen to get apple to the next level in china? specifically with china mobile because there were hints this was just the beginning of their relationship. >> well, certainly the ipad has typically followed the iphone at new carriers, so when a new carrier gets the iphone usually the next time the ipad comes around they also get the ipad. but i think the real game changer would be if they did something on pricing. the iphone is still very expensive, even for a lot of
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people in the united states. it's even more expensive in china. china mobile's pricing is high even relative to the other chinese carriers. i think the most significant thing apple could do in china is to introduce a true low-cost model. the iphone 5c is mid range. >> we all know that quote from cook just lives on, we're not in the junk business. how likely do you think it is that they would move any lower on the price spectrum? >> it's not apple's typical move so it is still not the sort of most expected thing. >> let me interrupt you there. >> thank you. thank you so much. please have a seat. >> at the down of our republic, a small secret surveillance committee borne out of the sons of liberty was established in boston.
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and the group's members included paul revere. at night they would patrol the streets reporting back any signs that the british were preparing raids against america's early patriots. throughout american history intelligence has helped secure our country and our freedoms. in the civil war, union balloons, reconnaissance tracked the size of armies by counting the number of camp fires. in world war ii code breakers gave us insights into japanese war plants. and when patton marsh acrossed europe, intercepted communications, helped save the lives of his troops. after the war, the rise of the iron curtain and nuclear weapons only increased the need for sustained intelligence gathering. and so in the early days of the cold war president truman created the national security agency, or nsa, to give us
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insights into the soviet bloc and provide our leaders with information they needed to confront aggression and avert catastrophe. throughout this evolution we benefited from both our constitution and our traditions of limited government. u.s. intelligence agencies were anchored in a system of checks and balances, with oversight from elected leaders and protections for ordinary citizens. meanwhile, totalitarian states like east germany offered a cautionary tale of what could happen when vast unchecked surveillance turned citizens into informers and persecuted people for what they said in the privacy of their own homes. in fact, even the united states proved not to be immune to the abuse of surveillance. in the 1960s the government spied on civil rights leaders and critics of the vietnam war.
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and partly in response to these revelations additional laws were established in the 19 70s to ensure that our intelligence capabilities could not be misused against our citizens. in the long twilight struggle against communism we had been reminded that the very liberties that we sought to preserve could not be sacrificed at the alter of national security. at the fall of the soviet union left america without a competing super power, emerging threats from terrorist groups and the proliferation of weapons of mass destruction placed new and in some ways more complicated demands on our intelligence agencies. globalization and internet made these threats more acute as technology erased borders and empowered individuals to project great violence as well as great good. moreover, these new threats raised new legal and new policy questions. for while few doubted the
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legitimacy on spying on hostile states, our framework of laws was not fully adapted to prevent terrorist attacks by individuals acting on their own or acting in small ideologically driven groups on behalf of foreign power. the horror of september 11th brought all of these issues to the fort. across the political spectrum, americans recognized that we had to adapt to a world in which a obama could be built in a basement and our electric grid could be shut down by operators an ocean away. we were shaken by the signs we had missed leading up to the atta attacks. how the hijackers had made phone calls to known extremists and traveled to suspicious places. so we demanded that our intelligence community improve its capabilities and that law enforcement change practices to
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focus more on pro preveeventings before they happened than prosecuting terrorists after an attack. it is hard to overstate the transformation america's intelligence community had to go through after 9/11. our agencies suddenly needed to do far more than the traditional mission of monitoring hostile powers and gathering information for policymakers. instead, they were now asked to identify and target, plotters and n. some of the most remote parts of the world, and to anticipate the actions of networks that by their very nature could not be easily penetrated with spies or enfo enformants. it is a testimony of the hard work and dedication of men and women in our community that over the past decade we've made enormous strides in filling this
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mission. today new capabilities allow intelligence agencies to track who a terrorist is and follow the trail of his travel or his funding. new laws allow information to be collected and shared more qui quickly and effectively between state agencies and local and law enforcement. relationships with foreign intelligence services have expanded and our capacity to repel cyber attacks have been strengthened. and taken together, these efforts have prevented multiple attacks and saved innocent lives, not just here in the united states, but around the globe. and yet in our rush to respond to a very real and novel set of threats, the risk of government overreach, the possibility that we lose some of our core liberties in pursuit of security, also became more
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pronounced. we saw in the immediate aftermath of 9/11, our government engaged in enhanced interrogation techniques that contradicted our values. as a senator i was critical of several practices such as warrantless wiretaps. and all too often new authorities were instituted without adequate public debate. through a combination of action by the courts, increased congressional oversight, and adjustments by the previous administration, some of the worst excesses that emerged after 9/11 were curbed by the time i took office. but a variety of factors have continued to complicate america's efforts to both defend our nation and uphold our civil liberties. first, the same technological advances that allow u.s.
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intelligence agency toss pinpoint an al qaeda cell in yemen or an e-mail between two terrorists in the sahale mean that many are within our reach. and at a time when more and more of our lives are digital, that prospect is disquieting for all of us. second, the combination of increased digital information and powerful super computers offer intelligence agencies the possibility of sifting through massive amounts of both data, to identify pattern or pursue leads that may thwart impending threats. it's a powerful tool. but the government collection and storage of such bulk data also creates a potential for abuse. third, the legal safeguards that restrict surveillance against u.s. persons without a warrant do not apply to foreign persons
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overseas. this is not unique to america. few if any spy agencies around world constrain their activities beyond their own borders. and whole point of intelligence is to obtain information that is not publicly available. but america's capabilities are unique and the power of new technologies means there are fewer and fewer tech b call constraints on what we can do. that places a special obligation on us to ask tough questions about what we should do. and finally, intelligence agencies cannot function without secrecy, which makes their work less subject to public debate. yet, there is an inevitable bias, not only within the intelligence community but among all of us who are responsible for national security, to
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collect more information about the world, not less. so in the absence of institutional requirements for regular debate, private or classified, the danger of government overreach becomes more acute. and it is particularly true when surveillance technology and our reliance on digital information is revolving much faster than our laws. for all these reasons, i maintained a healthy skepticism toward our surveillance programs after i became president. i ordered that our programs be reviewed by my national security team and our lawyers. and in some cases i ordered changes in how we did business. we increased oversight and auditing, including new structures aimed at compliance. improved rules propose bid the government and improved by the
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foreign intelligence surveillance court, and we sought to keep congress continually updated on these activities. what i did not do is stop these programs wholesale. not only because i felt that they made us more secure, but also because nothing in that initial review and nothing that i have learned since indicated that our intelligence community has sought to violate the law or is cavalier about the civil liberties of their fellow citizens. to the contrary, in an extraordinarily difficult job, one in which actions are second-guessed, success is unreported, and failure can be catastrophic, the men and women of the intelligence community, including the nsa, consistently follow protocols designed to protect the privacy of ordinary people. they're not abusing authorities
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in order to listen to your private phone calls or read your e-mails. when mistakes are made, which is inevitable in any large and complicated human enterprise, they correct those mistakes. laboring in on security, often unable to discuss the work even with family and friends, the men and women at the nsa know that if another 9/11 or massive cyber attack occurs, they will be asked by congress and the media why they failed to connect the dots. what sustains those who work at nsa and other intelligence agencies, through all of these pressures is the knowledge that their professionalism and dedication play a central role in the defense of our nation. now, to say that our intelligence community follows the law and is staffed by
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patriots is not to suggest that i or others in my administration felt complacent about the potential impact of these programs. those of us who hold office in america have a responsibility to our constitution and while i was confident in the integrity of those who lead our intelligence community, it was clear to me in observing our intelligence operations on a regular basis that changes in our technological capabilities were raising new questions about the privacy safeguards currently in place. moreover, after an extended review of our use of drones in the fight against terrorist networks, i believed a fresh examination of our surveillance programs was a necessary next step in our effort to get off the open-ended war foot that we have maintained since 9/11. for these reasons i indicated in a speech at the national defense university last may that we needed a more robust public
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discussion about the balance between security and liberty. of course, what i did not know at the time is that within weeks of my speech an avalanche of unauthorized disclosures would spark controversies at home and abroad that have continued to this day. given the fact of an open investigation, i'm not going to dwell on mr. snowden's actions or his motivations. i will say that our nation's defense depends in part on the fidelity of those entrusted with our nation's secrets. if any individual who objects to government policy can take it into their own hands to publicly disclose classified information, then we will not be able to keep our people safe or conduct foreign policy. moreover, the sensational way in which these disclosures have come out is often shed more heat
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than light, while revealing methods to our adversaries to impact us in ways that we may not fully understand for years to come. regardless of how we got here though, the task before us now is greater than simply repairing the damage done to our operations or preventing more disclosures from taking place in the future. instead, we have to make some important decisions about how to protect ourselves and sustain our leadership in the world while upholding the civil liberties and privacy protect n protections that our ideals and constitution require. we need to do so not only because it is right but because the challenges posed by threats like terrorism and proliferation and cyber attacks are not going away any time soon. they are going to continue to be a major problem. and for our intelligence community to be effective over the long haul, we must maintain
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the trust of the american people and people around the world. this effort will not be completed overnight. and given the pace of technological change, we shouldn't expect this to be the last time america has this debate. but i want the american people to know that the work has begun. over the last six months i created an outside review group on intelligence and communications technologies to make recommendations for reform. i consulted with the privacy and civil liberties oversight board create bd by congress. i listened to foreign partner, privacy advocates and industry leaders. my administration has spent countless hours considering how to approach intelligence in this era of diffuse threats and technological revolution. so before outlining specific changes that i've ordered, let
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me make a few broad observations that have emerged from this process. first, everyone who has looked at these problems including skeptics of existing programs, recognizes that we have real enemies and threats and that intelligence serves a vital role in confronting them. we cannot prevent terrorist attacks or cyber threats without some capability to penetrate digital communications, whether it's to unravel a terrorist plot, to intercept malware that targets the stocks exchange, to make sure systems are not compromised, or to ensure that hackers do not empty your bank accounts. we are expected to protect the american people that requires us to have capabilities in this
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field. moreover, we cannot unilaterally disarm our intelligence agencies. there's a reason why blackberries and iphones are not allowed in the white house situation room. we know that the intelligence services of other countries, including some who fain surprise over the snowden disclosures are constantly probing our government and private sector networks and accelerating programs to listen to our conversations and intercept our e-mails and compromise our systems. we know that. meanwhile, a number of countries including some who have loudly criticized the nsa privately acknowledge that america has special responsibilities as the world's only super power, that our intelligence capabilities are critical to meeting these responsibilities and that they themselves have relied on the information we obtain to protect their own people.
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second, just as ardent civil libertarians find the need for robust intelligence capabilities, those with responsibilities y ies for our national security recognize the abuse as technology advances. after all, the folks at nsa and other intelligence agencies are our neighbors. they're our friends and family. they've got electronic bank and medical records just like everybody else. they have kids on facebook and instagram and they know more than most of us the vulnerabilities to privacy that exist in a world where transactions are recorded and e-mail and text and messages are stored and even our movements can be tracked through the gps on our phones. third, there was with recognition by all who participated in these reviews that the challenges to our privacy do not come from government allow.
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corporations of all shapes and sizes track what you buy, store and analyze our data, and use it for commercial purposes. that's how those targeted ads pop all on your computer and your smartphone periodically. but all of us understand that the standards for government surveillance must be higher. given the unique power of the state, it is not enough for leaders to say, trust us, we won't abuse the data we collect. for history has too many examples when that trust has been breached. our system of government is built on the premise that our liberty cannot depend on the good intentions of those in power. it depends on the law to constrain those in power. i make these observations to underscore that the basic values of most americans when it comes to questions of surveillance and privacy converge a lot more than the crude characterizations that
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have emerged over the last several months. those who are troubled by our existing programs are not interested in repeating the tragedy of 9/11 and those who defend these programs are not dismissive of civil liberties. the challenge is getting the details right, and that is not simple. in fact, during the course of our review, i've often reminded myself, i would not be where i am today were it not for the courage of dissidents like dr. king who were spied upon by their own government. and as president, a president who looks at intelligence every morning, i also can't help but be reminded that america must be vigilant in the face of threats. fortunately by focusing on facts and specifics rather than speculation and hypotheticals, this review process has given me
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and hopefully the american people, some clear direction for change. and today i can announce a series of concrete and substantial reforms that my administration intends to adopt administratively or will seek to codify with congress. first, i have approved a new presidential directive for our signals intelligence activities both at home and abroad. this guidance will strengthen executive branch oversight of our intelligence activities. it will ensure that we take into account our security requirements but also our alliances, our trade and investment relationships, including the concerns of american companies, and our commitment to privacy and basic liberties. and we will review decisionses about intelligence priorities and sensitive targets on on annual basis so that our actions are regularly scrutinized by my senior national security team.
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second, we will reform programs and procedures in place to provide greater transparency to our surveillance activities. and fortify the safeguards that protect the privacy of the u.s. persons. since we began this review, including information being released today, we've declassified over 40 opinions and orders of the foreign intelligence surveillance corp which provides judicial review of some of our most sensitive intelligence activities, including the program targeting individuals overseas and the section 215, telephone meta data program. going forward i'm directing the director of national intelligence in consultation with the attorney general to annually review for the purposes of declassify kagsz any future opinions of the court with broad privacy implications and to report to me and to congress on
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these efforts. to ensure that the court hears a broader range of privacy perspectives, i'm also calling on congress to authorize the establishment of a panel of advocates from outside government to provide an independent voice in significant cases before the foreign intelligence surveillance court. third, we will provide additional protections for activities conducted under section 702, which allows the government to intercept the communications of foreign targets overseas who have information that's important for our national security. specifically, i'm asking the attorney general and dni to institute reforms that place additional restrictions on government's ability to retain, search, and use in criminal cases communications between americans and foreign citizens,
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incidentally collected under section 702. fourth, in investigating threats, the fbi also relies on what's called national security letters, which can require companies to provide specific and limited information to the government without disclosing the orders to the subject of the investigation. these are cases in which it's important that the subject of the investigation, such as a possible terrorist or spy, isn't tipped off. but we can and should be more transparent in how government uses this authority. i have therefore directed the attorney general to amend how we use national security letters so that this secrecy will not be indefinite, so that it will terminate within a fixed time unless the government demonstrates a real need for further secrecy.
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we will also enable communications providers to make public more information than ever before about the orders that they have received about data provided to the government. this brings me to the program that has generated the most controversy these past few months, the bulk collection of telephone records under section 215. let me repeat what i said when this story first broke. this program does not involve the content of phone calls or the names of people making calls. instead it provides a record of phone numbers and the times and lengths of calls. meta data that can be queried if and when we have a reasonable suspicion that a particular number is linked to a terrorist organization.
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why is this necessary? the program grew out of a desire to address a gap identified after 9/11. one of the 9/11 hijackers made a phone call from san diego to a known al qaeda safe house in yemen. nsa saw that call but he could not see that the call was coming from an individual already in the united states. the telephone metadata program under section 215 was designed to map the communications of terrorists so we can see who they may be in contact with as quickly as possible. and this capability could also prove valuable in a crisis. for example, if a bomb goes off in one of our cities and law enforcement is racing to determine whether a network is poised to conduct additional attacks, time is of the essence. being able to quickly review
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phone connections to assess whether a network exists is critical to that effort. in some, the program does not involve the nsa examining the phone records of ordinary americans, rather, it consolidates these records into a database that the government can query if it has a specific lead. a consolidation of phone records that the companies already retain for business purposes. the review group turned up no indication that this database has been intentionally abused and i believe it is important that the capability that this program is designed to meet is preserved. having said that, i believe critics are right to point out that without proper safeguards,
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this type of program could be used to yield more information about our private lives and open the door to more intrusive bulk collection programs in the future. they're also right to point out that although the telephone bulk collection program was subject to oversight by the foreign intelligence surveillance court and has been reauthorized repeatedly by congress, it has never been subject to vigorous public debate. for all these reasons, i believe we need a new approach. i am therefore ordering a transition that will end the section 215 bulk metadata program as it currently exists and establish a mechanism that preserves the capabilities we need without the government holding this bulk metadata. this will not be simple.
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the review group recommended that our current approach be replaced by one in which the providers or a third party retain the bulk records with government accessing information as needed. both of these options posed difficult problems. relying solely on the records of multiple providers, for example, could require companies to alter their procedures in ways to raise new privacy concerns. on the other hand, any third party maintaining a single consolidated database would be carrying out what's essentially a government function but with more expense, more legal ambigui ambiguity, potentially less accountability, all of which would have a doubtful impact on increasing public confidence that their privacy is being protected. during the review process, some suggested that we may also be able to preserve the capabilities that we need through a combination of
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existing authorities that are information sharing and recent technological advances. but more work needs to be done to determine exactly how this system might work. because of the challenges involved, i've ordered that the transition away from the existing program will proceed in two steps. effective immediately, we will only pursue phone calls that are two steps removed from a number associated with a terrorist association instead of the current three. and i have directed the attorney general to work with the foreign intelligence surveillance court so that during this transition period the database can be queried only after a judicial finding or, in the case of a true emergency. next, step two. i've instructed the intelligence community and the attorney general to use this transition
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period to develop options for a new approach that can march the capabilities and fill the gaps that the section 215 program was designed to address without the government holding this metadata itself. they will report back to me with options for alternative approaches before the program comes up for reauthorization on march 28th. and during this period i will consult with the relevant committees in congress to seek their views. and then seek congressional authorization for the new program as needed. now, the reforms i'm proposing today should give the american people greater confidence that their rights are being protected, even as our intelligence and law enforcement agencies maintain the tools they need to keep us safe. i recognize that there are additional issues that require further debate. for example, some who participated in our review as
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well as some members of congress would like to see more sweeping reforms to the use of national security letters. so we have to go to a judge each time before issuing these requests. here i have concerns that we should not set a standard for terrorism investigations that is higher than those involved in investigating an ordinary crime. but i agree that greater oversight on the use of these letters may be appropriate. and i'm prepared to work with congress on this issue. there are also those who would like to see different changes to the pfizer court than the ones i proposed. on all of these issues i'm open to working with congress to ensure that we build a broad consensus for how to move forward and i'm confident can shape an approach to meet our security needs while upholding the civil liberties of every american. let me now turn to the separate
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set of concerns that have been raised overseas. and focus on america's approach to intelligence collection abroad. as i've indicated the united states has unique responsibilities when it comes to intelligence collection. our capabilities help protect not only our nation but our friends and our allies, as well. but our efforts will only be effective if ordinary citizens in other countries have confidence that the united states respects their privacy, too. and the leaders of our close friends and allies deserve to know that if i want to know what they think about an issue, i'll pick up the phone and call them rather than turning to surveillance. in other words, just as we balance security and privacy at home our global leadership demands that we balance our security requirements against our need to maintain the trust and cooperation among people and
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leaders around the world. for that reason the new presidential directive that i've issued today will clearly prescribe what we do and do not do when it comes to our overseas surveillance. to begin with, the directive makes clear that the united states only uses signals intelligence for legitimate national security purposes and not for the purpose of indiscriminately reviewing the e-mails or phone calls of ordinary folks. i've also made it clear that the united states does not collect intelligence to suppress criticism or dissent nor do we collect it to advance people on ethnicity or sexual orientation or religious beliefs. we do not collect intelligence to provide a competitive advantage to u.s. companies or u.s. commercial sectors. in terms of our bulk collection
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of signals intelligence, u.s. intelligence agencies will only use such data to meet specific security requirements, counter intelligence, counter terrorism, counter proliferation, cyber security, forced protection for our troops and our allies, and combating trans national crime, including sanctions of asia. in this directive i have taken the unprecedented step of extending certain protections that we have for the american people to people overseas. i've directed the dni in consultation with the attorney general to develop these safe xwards which can limit the duration we can old personal information while also restricting the use of this information. the bottom line is that people around the world, regardless of their nationality, should know that the united states is not
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spying on ordinary people who don't threaten our national security. we take their privacy concerns into account in our policies and procedure procedures. this applies to foreign leaders as well. given the understandable attention that this issue received i made clear to the intelligence community that unless there is a compelling national security purpose, we will not monitor the communications of heads of state and government of our close friends and allies. i've instructed my national security team, as well as intelligence community, to work with foreign counterparts to deepen our coordination and cooperation in ways that rebuild trust going forward. let me be clear. our intelligence agencies will continue to gather information about the intentions of governments as opposed to ordinary citizens, around the world. in the same way that the
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intelligence services of every other nation does. we will not apologize simply because our services may be more effective, but heads of state and government with whom we work closely and on whose cooperation we depend should feel confident that we are treating them as real partners. and the changes i've ordered do just that. finally, to make sure we follow through on all of these reforms, i'm making some important changes to how our government is organized. the state department will designate a senior officer to coordinate our diplomacy on issues related to technology and signals intelligence. we will appoint a senior official at the white house to implement the new privacy safeguards that i have announced today. i will devote the resources to centralize and improve the process we use to handle foreign
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requests for legal assistance, keeping our high standards for privacy while helping foreign partners fight crime and terrorism. i've also asked my counselor to lead a comprehensive review of big data and privacy. this group will consist of government officials who, along with the president's counsel of advisers on science and technology, will reach out to privacy experts, technologyists, and business leaders and look at how the challenges inherent in big data are being con fronted by both the private and public sectors. whether question with forge international norms on how to manage the data and how we can continue to promote the free flow of information in ways that are consistent with both privacy and security. for ultimately, what's at stake
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in this debate goes far beyond a few months of headlines or passing tensions in our foreign policy. when you cut through the noise, what's really at stake is how we remain true to who we are in a world that is remaking itself at dizzying speed. whether it's the ability of individuals to communicate ideas, to access information that would have once filled every great library in every country in the world, or to forge bonds with people on the other sides of the globe. technology is remaking what is possible for individuals and for institutions and for the international order. so while the reforms that i've announced will point us in a new direction, i am mindful that more work will be needed in the future. one thing i'm certain of, this
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debate will make us stronger, and i also know that in this time of change, the united states of america will have to lead. it may seem sometimes that america is being held to a different standard. and i'll admit the readiness of some to assume the worst motives by our government can be frustrating. no one expects china to have an open debate about their surveillance programs, or russia to take privacy concerns of citizens in other places into account. but let's remember, we are held to a different standard precisely because we have been at the forefront of defending personal privacy and human dignity. as the nation that developed the internet, the world expects us to ensure that the digital
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revolution works as a tool for individual empowerment, not government control. having faced down the dangers of total airianism and fascism and communism, the world expects us to stand up for the principle that every person has the right to think and right in forming relationships freely because individual freely is the well spring of human progress. those values make us who we are. and because of the strength of our own democracy, we should not shy away from high expectations. for more than two centuries our constitution has weathered every type of change because we have been willing to defend it and because we've been willing to question the actions that have been taken in its defense.
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today's no different. i believe we can meet high expectations. together, let us chart our way forward that secures the life of our nation while preserving the liberties that make our nation worth fighting for. thank you. god bless you. may god bless the united states of america. thank you. >> that is the president in his speech, for a world in his words remaking it's with dizzying speed. talking about the state of data surveil in this country and around the globe. couple of major changes. the president talking about more executive oversight of intelligence, more declassification is clearly on the way. and then the main headline, a remake of what they call section 215, that bulk metadata program. the president tried to move it into a transition where the government no longer holds that bulk metadata. a lot to absorb.
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eamon, walk us through what's important. >> carl, you put your finger on it. the rule news here is the news about how the nsa will handle and query that massive database of telephone metadata from around the world. the president saying here that the united states will no longer access that database without a court order to do so. that's something the nsa had been free to do before. they will not be free to do under the president's orders going forward. the president also saying he wants to find some way of getting that massive database out of the government's hands, perhaps to the private sector or independent third party. let them handle it and not the u.s. government. that's going to prove to be tricky because that's something the telecommunications have not wanted in the past. the question is how is the government going to manage to do what the president just said it has to do today and they have to come up with recommendations to do it by march 28th. the u.s. government is not going to spy any longer on the heads
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of state of certain friends and allies. on a background conference call reporters were told earlier today that includes dozens of heads of states of friends and allies of the united states. so clearly, there is some blowback here from the angela merkel revelations that the u.s. possibly was tapping into her cellphone and getting content or duration of ore phone calls. clearly some reforms here but not an overall rejection of the spying program. in fact, carl, the president placing spies in the history of the united states going back to paul revere saying it's important and he doesn't want to undermine these important intelligence cape itabilitycapa? >> thank you. let's bring back howard schmidt, partner of schmidt advisers. did this go farther than you thought when it comes to reform and overhaul of the nsa programs? >> it did because my expectation was that there wouldn't be any change to the metadata

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