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tv   Squawk Box  CNBC  January 21, 2016 6:00am-9:01am EST

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at the world economic forum. we could be returning home hopefully in the first major east coast storm of 2016. hope it stays south of jersey. >> hopefully. >> maybe it will be in d.c. the nation's capital retuexpect as many as 30 inches by sunday. it's january 21st, 2016 and squawk box begins right now. >> live from davos switzerland and the world economic forum, this is squawk box. >> good morning, everyone. welcome to squawk box here on cnbc. we have a great line-up of guests from the hotspots keeping
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the world on edge. this hour, the citigroup ceo and commerce secretary and hp enterprises chief meg whitman. and later this morning secretary of state john kerry, jack lew plus ceo of sis coe, morgan stanley and coca-cola. let's turn to the markets now. the futures are lower after although they have come off of the worst effort. the dow bouncing off it's lows during the day but the index was down by as much as 565 points. by the end of the session the dow travelled all the way back to finish with the decline of 250 and yes these are the days when we say it was a decline of 250. dow futures down 26 points by fair value. the nasdaq down by 10. in europe in the early trading the markets there are waiting for the ecb decision at 7:45
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eastern time followed by a news conference for mario draghi at 8:30 a.m. eastern. these markets are in positive territory right now. they're up by .7%. you see bigger gains in some of the other markets and that's what is happening in china. >> china down 3%. late selling too. try to stabilize but that's a pretty big move and i haven't seen below 2900 so that's scary. shanghai composite, lowest level since december 20th, 2010. the hang seng index dropped to a three year low. china sennal bank pumping money into the financial system ahead of next month's lunar new year holiday and the pboc offering more than $60 billion worth of short-term loans the commercial lenders of today. meantime in japan stocks were up nearly 2% at the high of the session before closing sharply
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lower. another late session sell off and then oil prices, we rolled didn't we -- >> yesterday was the last day of february. >> below $27 yesterday for the first time since 2003. down more than 25% so far this year. >> just remember, the markets didn't understand when it was falling down to 90. markets didn't get it. >> rebound? >> yeah, 90 is way too low. a slump in world financial markets fuelling fears that the crude supply glut is here to stay. in the february contract for wti crude expired yesterday so we're now looking at the march contracts and we're back above 2014 although it didn't get there by trading higher. >> no. >> we'll tell you about a couple of the big stories we're watching this morning. viacom saying it's going to cut the compensation of redstone. company saying that redstone
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earned $2 million for the physical year that ended in september. that is down as he became ineligible for a bonus which was to be $10 million. that's what he got in 2014. they won't say whether this was the decision by the board which has been underfire for lax oversight of its executive pay. of course reports that he has been quite ill for sometime. disney delaying the release of the next star wars movie. moving it to december 2017 from may of 2017. the good news for analyst who is are trying to do some of the numbers last night is that it's still going to be in calendar year 2017. they'll capture the last quarter of the year and potentially between december 15th and christmas they'll still try to get as many people in the door and get those numbers in and then finally the east coast as joe was saying preparing for the first major snowstorm of 2016. 50 million people from virginia to massachusetts bracing for
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blizzard-like conditions so we have that going for us when we head home. i'm on a plane on sunday. i think you guys are on planes on saturday. so we'll see whether we see each other on monday. >> we'll race. we should get back to the markets. stocks are racing huge intraday losses on wednesday. the s&p 500 nearly coming back all the way while the russell 2000 with the biggest reversal in 7 years. joining us is the chief strategist at t.d.ameritrade and we're looking this morning at the futures. not looking too bad even after you saw big losses in the chuy na -- chinese markets again. is that a good sign. >> yeah. i don't think everybody on wall street would have been like yes we're only down 1%. it was almost like a strange victory yesterday. the way we came back. so i think as we go forward you're looking for us to set a base in here somewhere. i think if we can go into the weekend with either small losses
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or small gains basically anywhere near unchanged i think would be really, really good. as you just said the russell which was one of the first indexes to weaken a couple of months ago coming back yesterday really strong. that along with the faed that crude had an up tick leading us back quickly was positive for the market and the one strange thing about this sell off and the sort of naysayiers of the market is this is the most orderly sell off i can ever remember. there hasn't been that sense of panic. yesterday right near the bottom was the first time that i felt like people were starting to panic and we quickly turned around. >> that's what i was going to say. some people say there hahn been that sense of panic and that's a bad thing. you need that panic before you can call it capitulation. do you think we have seen it? >> i don't think so. i do believe that we'll at least go down and test the same levels again down around 1812 and 1802 in the future.
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but the one thing about it is as i said because it's been so orderly overall, you may see us go up first. you know, volatility is not just going to go away. even if we had 2 or 3 straight at as of up moves overall these types of moves tend to last about a month or a month and a half where volatility stays some what elevated. and the other thing about this is we vn even really seen the vix go above 30 to your point about no panic. we went and touched the 30 level yesterday. that's when things turned around. we were starting to hit the panic level so i think we need a wash out or you need a true wash out of people having a sense of panic. the thing we're seeing now is just a no interest and sort of holding assets. if somebody has something the first thing they want to do is get rid of it. it's not that people aren't buying at all but they're not buying aggressively and sellers want to be aggressive and just not hold things. >> thank you for joining us. it's great talking to you.
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>> always a pleasure guys. enjoy your time in davos. >> i've never seen it simple like that. where it's an obvious wash out. it's never been where people can say that was a wash out. i'm going in. it's always up 10% before people realize they're too scared to make the call. >> barely rings a bell. let's turn to one of our first news makers. bill sits at the helm of one of the world's largest software companies and it's current mission is to make your life in business easier. a mission that now includes finding a cure for cancer. >> hi. >> earlier this week he sat on a panel with vice president joe biden to discuss this particular
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issue that's also -- that's simplistic. it was about a thousand different cancers. that's the way i used to think of it i guess. we stopped the rise of the ocean but god speed. anything we try to do is worth wile. what i want to talk to you about is europe. you have probably a sense as well as anyone about how the continent is. word now about china and the u.s., it's improving, isn't it? >> yeah. do you want to talk a little bit about health care? because i think this idea of clinical trials and access to the best research, taking that electronic medical record and personalizing medicine for the individual.
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it's made possible by technology but you have to aggregate that data and you have something to analyze and share and that was the essential message in the meeting with vice president biden. now for europe as you know there's been a lot of noise about china slowing a little bit, joe. i just got back from beijing last week. you'd never know it by being on the streets of beijing and meeting with state owned enterprises and commercial entities that there's slowing at all. we have been very fortunate and our business is growing in double digits so the common denominator that we see is if you're innovating and you're in an innovative product life cycle you can do well but i do not see head winds in europe and i'm not worried about europe. >> other than human intelligence you don't have commodity exposure at all. >> one of the things that's unique is there's a lot of companies that talk about the bad businesses that they're in
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and the good businesses that they're in and they want to convince you that the good businesses that are in are going to outrun the bad ones. we don't have bad businesses because we chose to stay with our core which is business software so whether it's the data base or s4 which is our new product cycle of innovation for that enterprise they're all growing really fast and as you know we move the company to the cloud. we have 95 million you users in the cloud now more than any other company so we have done the things to change and be in high margin, higher occurring businesses that are very profitable. >> i think of it as oracle, s&p, and sales force and you're all sort of talking, is it but where you have line of business or narrow cloud companies like
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sales force for sales or work day for hcm, obviously oracle and s&p and what you get down to is do you have the data model, application model and cloud model which is purely innovative. what i'm learning is they want that because who wants to deal with several different companies when you can deal with one company with better service and better value delivery. that's been our competitive edge. one of the big questions about the cloud is whether the moet is going to be as defensible which is to say it becomes much easier if you're a customer to decide do you know what, i'm going to swiss to sap or switch to somebody else and i can do it much easier or quicker than two or three years ago when that data was sitting on a server somewhere. >> that's true. i think that's good to have a situation where you have to have good customer loyalty and high
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retention rates to have a profitable cloud business. because if you bring it in on the front end and lose it on the back end, it doesn't help. >> what's unique about our position is we have the core operations of a company. supply chain manufacturing financials, people, customer on an end to end level. and then we have the narrow cloud. if you want hcm or sales and then we have the business network where you can trade and run travel and expense or get work force labor. it is completeness that makes you a noncommodity. once you have a solution and you're the big one that's good enough or better, they're gone. >> well, thank you. >> thank you very much for having us. >> great to see you. >> really great to see you too.
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>> thank you becky, thank you, joe. >> you're welcome. >> when we come back we have another big interview coming up. citigroup's ceo michael corbat will be our special guest after this quick break. we'll sit everything from the state of the banking system to the current market environment as we head to a break check out this date in history.
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>> you were going to get joe kernen. it's time for the davos division of the executive edge. pushing to get more competitive in the equity space but the stakes, they are high and traditional engines of trading revenue like bonds and currencies are slumping in response to high rate majority costs and low interest rates. joining us to talk about all of this and much more as we try to make sense of what's going on in the world. city's the fourth largest bank in the u.s. by bank ago sets. thank you for joining us. before we get into the citigroup
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story give us a sense as somebody that has their finger on the pulse of the u.s. economy and the world where you think things stand given the pessimism we've seen over the past couple of days. >> we view it as a repricing of markets than a big fundamental shift. the combination of china, oil and probably a different outlook in term of fed stance or policy from a month ago have people questioning portfolio mix asset selection and we think the markets are adjusting to that. >> that seems hike things are going down and they'll stay down. >> i'm not sure they'll stay down. we have taken a lot on in the last couple of day fuss look at china. china shouldn't be a surprise that it slowed. if you go back to 2010 when they announced the monumental shift of their economy and look at where we are today the world is a slower place. the chinese currency has been a stronger currency at
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exacerbating their competitiveness in manufacturing and you look at oil and the supply demand imbalance. we're about a billion barrels a day out of whack. those things are overcomable. >> what about the economy itself. have you seen a slow down? because some ceos have seen a slow down in the business. others have not. especially ones focused on consumers. >> i would probably separate the overall economy from business. the economy, you look at our reports and the imf reports on paper 2016 feels a lot like 15 in term of growth rates. 2.5. 2.6 rates. emerging markets growing 3.1%. we have some different mixes and the impact of commodity prices of energy prices, movements of currency, assets. probably creates a tougher backdrop and probably what you're hearing and what i hear ceos talking about is top line is going to stay tough.
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we're going to manage our companies through real focused expense discipline and manage our shareholders through buy back, m&a probably and quite active. >> can we talk about citigroup for a second? >> sure. >> you have to a large degree righted the ship but in the past month or two the stock has slumped. you beat on the numbers for q-4 but analysts seem to think that the revenue came in soft because there were a number of one time items in there. how do you think about that? >> we talked about the one time items but more importantly, 15 was an important year for us. it was the best year since 2006. it was a challenging environment that we showed the focus of our business model. we're a completely different company. we're a bank. we're a global bank. we're not an asset manager or insurance company or hedge fund. we're a bank. we showed what we can do.
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three years ago we set out targets and hit those targets and shed $800 billion of non-core assets. we built capital, we built liquidity so we're a very different company today and in terms of the stock price there's a bit of a show us attitude among shareholders of if you are different let's see how you weather the challenges and we have to prove them wrong. >> one of the other questions is whether the bank has more exposure to china than the other big banks and $20.5 billion exposed as of the last quarter. >> we talk about our exposures so if you think about that that's a little bit over 1% of the assets of our institution and you look at the mix of that and the underlying customers, high quality customers and of that $20 billion probably less than half of that is in loans. so we think manageable. >> joe, are you going to ask him
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about the fed? >> when you talk about repricing of markets, i just, that's the thing i think that we're seeing and the repricing comes after a quarter point rise. a lot of people think we were slowing before they raised the quarter point. for citigroup would you like them to continue and go three or four this year to steepen the yield curve and make business better or do you think that 1% where there's an economy that isn't even above stall speed and cannot handle 1%. >> we'd love to see the fed in a position of strength to be making the rate adjustments. that they're doing it because they see the underlying strength of the economy. >> why is it not 4.9% unemployment in a position of strength? why when suddenly the me tricks we used to use don't indicate whether we're in a strong economy. >> you're going to the back to
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the u.s. growth. we're talking about somewhere 2.3, 2.4. that's not 3% or 4% and there's fragility in that growth. we didn't touch on the state of the consumer. consumer has been through a healing process. >> could 1% cause that to go off track? seriously? just maybe i've got the wrong impression of where rates usually normalize too. maybe they were high through the 80s and 90s. i don't know. do you have a feel for that? >> we're in a new paradigm right now where growth is probably going to be lower longer. and we have economies that need to adjust to that. we have the strong dollar and it's going to stay structurally strong for the foreseeable future so that in itself is going to be an inhibitor in the manufacturing sector and export sector. you look at the competitiveness to the rest of the world.
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most devalued 10, 20, 30, 40%. >> do you think as the fed tried to generate the wealth effect and move people out, do you think they were reduced to lend to places. >> not citigroup, but if you look at the financial system today you're not seeing -- you had someone on talking about the lack of panic -- that lack of panic is because as an economy much less levered than we were. you don't see it in the banks or largely in the financial system so people have reached for yield but knew what they were reaching for. >> does that mean the regulation worked because it kept people from leveling up? i heard they caused the crisis but i also heard the regulation prevented this from being another 2008. >> that's going to be a test
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overtime. >> you guys are moving to cu cubicles? what's going on? everything is supposed to be sound proof. >> we have given our investment bankers a bit of exemption. >> they get offices? >> small offices but offices. the speed of information we're a global institution we want to knock the walls down and get information in the right way moving around our company as quickly as possible. >> everybody but you. >> no. >> what. >> he is getting a cube. >> a cube. >> we're cube cal rats too. >> thank you for being here. >> thank you very much. >> we're going to dig into u.s. china trade relation with the commerce secretary. penny pritzker. the first of three cabinet members on the show this morning
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and then tech time with meg whitman. it's only been a couple of months since the big split. we'll find out how that's going coming up in the next half hour of squawk box. so you're a small business expert from at&t? yeah, give me a problem and i've got the solution. well, we have 30 years of customer records. our cloud can keep them safe and accessible anywhere. my drivers don't have time to fill out forms. tablets. keep it all digital. we're looking to double our deliveries. our fleet apps will find the fastest route. oh, and your boysenberry apple scones smell about done. ahh, you're good. i like to bake. get expert advice for your small business at att.com/small business.
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welcome back to squawk box live from the world economic forum in davos. here now joe kernen. >> they should have put in now here now andrew ross sorkin to
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make it even for last time. welcome back. let's check out the futures right now in morning's -- recent mornings it's been interesting to watch these. earlier after the shanghai index again closed lower. oil was again down although it might not look that way. it's an interesting time to be in davos and interesting time to talk to our next get. penny pritzker meeting with president xi jinping and we talk about it all the time, how china effects our economy and more so now than recently and we need to know and i wonder your opinion. 6.9% or closer to 5 or closer to 3%? do you have a feel for -- if we
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were going to measure it accurately? if that was possible, what do you think? >> it's hard to tell but i think what's important is they are growing and there's no one predicting a hard landing. they are going through a major transition from being an investment lead economy to one that's more consumer lead and that's a tough transition. it's particularly tough when you have got global slow down but they're, you know, going about it in a measured way. sometimes some of their moves are hard to interpret in the short run but in the long run their objectives, they lay them out in their various party plans. >> do you look at what's happening with commodities as commerce secretary? do you attribute that? 90%, 80, 75 to china not being the marginal buyer anymore? or is there something more disturbing going on about global growth. >> we have a combination of things happening as it relates
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to commodities. it's hard to sort out who is most or what's more responsible. obviously you have some slow down in demand. you slow down in china. and there's a lot of trading going on and the question is to how much impact that's having as well. >> maybe we built even mining operations and all of those things -- we thought we were going to sell to china forever and it's all overbuilt. >> let's step back for a minute. i think the u.s. economy is in a pretty good position so let's not get overly focused just on china as it relates to the u.s. economy or u.s. commodities. the u.s. consumer is in a pretty good situation and is benefitting, in fact, from the lower oil prices. about $750 per household per year. that's not insignificant and you see that in auto sales or home
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improvements and home purchase which is is also strong and we're starting to see wage inflation in the united states. that's good and we're also seeing low inflation in general. so the united states is sitting i think in a good situation even though there's slow down. >> we have been trying to figure out if the market is right or forward looking or seeing phantoms because the economy is better than it's giving it credit for. >> from the folks that i talked to there's a disconnect into where the market is and what people are seeing on the ground in their businesses. i can't tell if the market has some knowledge that the rest of us don't have but when you talk to business leaders and then talk to them about their u.s. business it's looking good. unless of course you're in the energy sector which is really getting hurt.
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>> can we talk about data and information? there's a lot of technology companies here. telecommunication companies and there is this ruling in europe roadway lated to safe harbor around how data is going to be managed and control and what the u.s. does to get into the back door and i know that you have been acosted by several of them. what do you think is going on. >> safe harbor is about protecting privacy. the united states takes protecting privacy really seriously. the european commission wants to make sure that we're doing that so safe harbor is a set of protocols that is protecting data flow back and forth. we have been working with the european commission to update safe harbor. protocols that we had before were 15 years old. and so in this updating there's a lot of attention because the deadlines are coming to this have completed.
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we have put a comprehensive offer in a comprehensive deal is really one that we have come to with europe that addresses a number of issues and what's important is now that we have addressed the issues raised by the european court of justice as well as by the europeans themselves it's time to close the deal. >> but given all the geo political risks in the world and wants and needs off governments to be able to get away from that privacy, what do you think we should be doing? >> i think we should be completing a deal on safe harbor with the eu. it sets a great example because the deal is not only comprehensive in terms of describing how our national security apparatus works but also in terms of really making sure that eu citizens do have the same rights as american citizens in terms of their privacy but we also acknowledge in the deal by virtue of having an annual review of the deal
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that things evolve overtime. now's the time to move forward and create certainty and the reason is there's about $260 billion of digital trade that goes on between the two the eu and the united states right now. that's a risk for small and medium sized businesses that have been benefitting to having it available to them. >> thank you for joining us this morning. we appreciate it. beautiful day. >> it's a gorgeous day. thank you for having me. >> when we come back we'll be joined by meg whitman. will the current market sell off impact her plans for growth and does she see any bargains out there. right now a quick check of what's happening in european markets right now. you'll see in the early trade actually green arrows in all the major markets.
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>> here now, andrew ross sorkin. >> welcome back to squawk box. it's time for the squawk planner. live from davos switzerland. a decision expected at 7:45 a.m. eastern time. mario draghi holding a news conference at 8:30 a.m. eastern time. the weekly jobless report comes out at 8:30 a.m. and expectations for a drop back toward the 275,000 level.
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also on the earnings front today travellers verizon and american express as well as starbucks all among the company reporting results today and that's today's squawk planner. >> it has been just over two months since hewlett-packard split into two companies. joining us now is meg whitman. it's great to see you. thank you for being here. >> glad to be here. the first earnings that you reported were strong but that was a couple of months ago and we have heard from a lot of ceos that things slowed down substantially. did you see that in your business? >> to be clear we finished as one company so we reported as one hp but we basically reported what would be hp inc but our first full quarter ends january and we report march 3rd. so business around the globe seems quite strong to me right
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now. >> really. >> you have to remember we have invested a lot in r and d. we have reshaped our sales force. we have the benefit of focus in this split is something that i underestimated so there's a lot of challenges and a lot of different companies but we're feeling good about our economy and offerings. we have been trying to figure out if it's making them change their plans. it's still early days and things are still on the move. currency fluctuates might be cause for concern. so i'm wondering what you think. >> we thought about it hard since last year this time when there was that enormous currency shock that we couldn't have hedged for or planned for and there's still some of that overhang still left but was factored into our guidance for 2016. what has happened in the market
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in the last three weeks is breathtaking i have to say. i have not seen anything quite like this. >> in a bad way. >> yes in a bad way. >> it's remarkable actually. but what i think about this is our job is to deliver the results. i can't control the market. i can make sure that we show up with customers and we have the right technology and fight for every dale and we're doing all the things that we can do as a leadership team so i don't actually spend a lot of time focused on this and it goes back to my ebay days. when ebay was go up 60 points in a day and down 40. i just focused on what we could do as a leadership team and overtime if there's a fundamental correction here we'll think through what the issues are but steady as she goes right now. >> but i guess the good side of all the market volatility and all the down side is you have to think $11.5 billion of gross cash, maybe you're on the hunt for things and maybe things got
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a lot cheaper. >> yeah, we do have $11.5 billion of cash on the balance sheet and there's a lot of companies that don't have the strength, the position and the balance sheet that we do and you have seen some of that movement in the marketplace so we'll keep our eyes out but of course now from even three months ago whatever we were thinking about would have to be a lot less expensive than it was three months ago because the market chaz changed. >> to the extent that you're interested in m&a where what the places you want to fill in. >> first is organic innovation. what i learned over the last four years is a dollar spent on our own rnd is the best dollar return that we get and decreased every year and we'll continue to do that. second choice is investments in small companies that we can weave into our solutions so we're making investments in small companies through what we call our ventures i don't want
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to lose money but i'm into incorporating into small solutions and the kind of acquisition that worked well and we have been criticized for ten years of acquisition is there's a number that have worked well. what's the commonality there, complimentary technology to what we have that we can use and leverage our distribution system. so look for that acquisition. the bad news for us is there aren't very many like that but when they come along we would be interested. >> what kind of skills do people need in the technology industry today? who are you looking for? what kind of workers? >> so really quite different skills than the generation of technologists that i entered the work force with and more particularly in the application space versus the infrastructure space. applications are written entirely differently today than ten years ago at the beginning
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of ebay. the first one took nine months to write. today that would be entirely different. you write some of the code, you put it into production. >> constantly changing. >> it's almost a test and it rate mentality as opposed to get perfection. >> you don't have nine months to get things change sod that development is a different skill set so we're looking for that. from an infrastructure perspective it's converging and really our next generation is what we call composable infrastructure. let's say you have server storage and networking you can pull the storage you need and networking and compute you need for the workload. in the old days we used to say we built the church for easter sunday. the bad news was every day but easter sunday you had underleveraged data centers. >> you were involved in politics? >> i was. >> not anymore. >> so as a supporter cheerleader
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but not as a candidate. >> for who. >> i'm chris christie's national finance co-chair. >> right. >> so what do you make -- i was going to say, on your end, given where everybody else is, do you still think he's a contender? >> i do think he's a contender. we'll see what happens in iowa and new hampshire. new hampshire is an important race for him and the polls are, you know, up and down, but there is, i guess, donald trump, ted cruz -- donald trump and then four, if you will establishment candidates. christie has been in the lead in a couple of those and cruz is. polls change. >> what do you think has to change to get out ahead? >> people have to understand that having experience as a governor is the most relevant experience in my view to being president. and listen when i ran for governor of california i ran with no political experience and was criticized for that. i said listen i think i can get through that in the context of a state. i think it is very difficult to have the presidency of the
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united states be your first elected office because politics is different than business. >> politics seems like it's a lot meaner these days even than when you ran. would you say that? >> it's a full combat sport. >> it's always been pretty tough. >> twitter and trolling and half the stuff you read about that the donald says comes from twitter. it's a new world. and then you look in other countries, they hit people in other countries. >> that's true. >> they -- >> we're supposed to be better than that. >> i haven't seen any shoes thrown yet. >> those tweets are like shoes. >> listen it was helpful to me because i got a pretty tough skin running for office so you ask the question do i worry about the stock price. i keep an eye on it but i have a much thicker skin than i did before i ran for governor. >> experience that serve you well. thank you for joining us. >> nice to see you. thank you so much. >> coming up, we have a lot, why
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lower oil prices mean higher profits for the airline industry and thicker prices have been coming down. >> they have come down. >> southwest airlines reported results moments ago. ceo gary kelly will join us next. ♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪
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welcome back to "squawk box," live in switzerland, talking domestic airlines. southwest reported profit of 90 cents a share, matching street estimates with revenue also in line. they reported record profits in the fourth quarter and full year. gary kelly is southwest airline chairman president and ceo and joining us now. good morning to you, gary, congratulations on the earnings. the big question that we have here in davos is really about the health of the consumer in the u.s. and we're all talking about oil prices, which, of course, both issue the impact you if you could speak to both. >> well, gosh, you see all the headlines, and it makes everybody worried, and me included, but if you look at our business, our business is quite strong. we had another record in the fourth quarter and load factor for the month of december, and, we, of course, are growing,
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grows capacity in the fourth quarter over 8%, growing 7.2% for the year, and we're growing passengers faster than that. everything that we can see and everything that we've experienced so far suggests travel demand is strong. the industry is growing. oil prices are lower. you do see prices lower. i think all that is very much to be expected, but overall, i'd give a big thumb's up to the, you know, health of the air travel industry here in the u.s. >> the consumer has been strong thus far. we'll see whether that continues in 2016. if you could handicap or speculate a little bit on where you think of the price of oil is going to be going over the next six to twelve months and how it impacts your business? >> well, it's extraordinarily low, and, you know, i'm the first at southwest toed a mitt we didn't think it would go this direction, especially if you go back a year ago and had a view
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as to where prices would be. i think things are much clearer today about where prices are headed, and it feels like we're going to be very low for quite some time. you know, you just look at the economic sluggishness around the world and demand is just not picking up despite the low prices and the supply just keeps oncoming, so i think we'll have low prices. what price that means? i don't know. i don't think we'll see a sharp spike in prices any time soon. >> let it float or lock it in here in the form of hedge? >> too volatile. it doesn't make sense to us to hedge in this kind of an environment. it's very expensive to try to hedge. what we'll want to do is to work off the hedges that we have in place for 2016-17 and we're essentially unhedged in terms of downside risk in 2018 and
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beyond, but we want to make sure we have out of the money catastrophic risk in place, but i think it calls for a different strategy in this environment. we have strong profit margins putting us into position to absorb increasing prices if they go up from here. >> all right. gary, i got to ask because we talk about how competitive the industry is. prices have come down, have not come down nearly as much as oil prices have, but over the next year, do you think things will be much more competitive? >> well, yeah. it's a very competitive industry. i don't see why that would change now, and with low oil prices, obviously, that makes the industry a lot more prosperous, and we are growing 5-6% this year, so we'll be competing very vigorously for the customers as well. >> okay, gary, appreciate it. thanks for joining us this morning. >> thanks for having us. coming up, more of the biggest names in davos here, and join us in two hours, including
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secretary of state, john kerry and treasury secretary jack lew and ceos of cisco, morgan stanley, and coca-cola.
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the buzz from davos, geopolitics, tackling what matters most to your money with kissinger associates. short term relief rally coming? will the fed respond to the message of the markets? when will oil bottom? the chairman and ceo of morgan stanley joins us with the answers to those questions and more. diplomacy in davos, john kerry speaking to business
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leaders and world elite, but before he does, he talks to "squawk box." we are live in davos, swi z switzerland, as the second hour of "squawk box" begins right now. this is "squawk box" on cnbc, with joe, becky, and andrew ross sorken. >> welcome back to cnbc, first in business worldwide. as you can see, we're at the world economic forum in davos, switzerland, solving many, many problems in the world talking to the powerful business leaders on the globe. chuck robins, ceo of cisco, and jameis gorman, and secretary of state john kerry coming up. wow. big lineup. big day for the markets as we
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yet again, look at crude this morning. they rolled. the prices we should let you know that, back above 28. there's the markets. the asian markets. we're awaiting an ecb rate decision there. there's crude. wow, back below 25% since the beginning of the year. asian markets. futures here, last we looked, down 50 or so. not an awful performance yesterday. the nasdaq up for a while. apple closed higher, averages paired losses, but they are giving back some again this morning. i have not seen the ten-year in a while. there's energy, which we saw already. finally, the ten-year, see if it's below 2%. managed to stay there. 1.97, which is just commentary on what's happening in the world right now. crazy. >> okay. let's talk about the headlines taking place this morning. it is a big day for corporate earnings. this is what we got, dow components, travelers out,
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insurance company recorded a profit of $2.90 a share, beating estimates by 25 cents. look at travelers' stock this morning. verizon -- well, there's the stock there, but verizon because they also are just out beating estimate by 1 cents with profit of 89 cents per share. this afternoon, reports from starbucks and american express. also, key economic reports this morning, 8:30 eastern time, initial jobless claims as well as january philadelphia fed index, european central bank unveiling latest policies at 7:45 eastern time, expecting to leave rates unchanged followed by draghi's news conference at 8:30 eastern time, monitoring that as well. geopolitical turmoil front and center here. let's bring in neil ferguson, and here to talk china with us is the managing director at
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kissinger associates. >> used to be an editor, in the old -- >> in his prior. >> recovering. >> right. gentlemen, talk a little bit about china because we've. talking about it from the market's sper teperspective, bu joshua, you see big concerns? we heard from christine le guard this morning saying it's a communications problem that china has right now. you think there's a loot more going on? >> i don't know that that accurately characterizes my view on it. my view is china is in the mids of a transition beginning with the reformed opening in 1998, continuing with ambitious goals. like any process, grappling with unknown. the level of complexity, that 1% growth is at a level far greater than years ago, but it's true if the long term goal of china is moving more people middle class, the economic model the last
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decade was not going to work. there had to be a transition. we're seeing that now. inevitably in transition, the old models shut down, new emerge, that means slowing down. >> looking at the communism party saying even though president xi has really amassed a lot of power, it could mean the end of the communism party there. >> no. you read notes of somebody else. that's not my view of china at all. i think president xi arrived in the moment where the chinese system was in a period of transition. what he's done effectively is tried to balance the concerns of the long term stabt of the country with the necessary transformations that were ahead, but these are complicated situations, and when you talk to people at senior leadership positions in beijing, their view is that this process is really only just beginning. >> and you think, then, that it's going to be a successful process and maybe we're reading too much into the slowdowns seen? >> uncorrelated questions to some degree. it is a process that's new in human history. by the way, as was trying to lift 400 million people into the
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middle class, which was said was impossible 20 years ago. the long term trajectory, the sustainability is dependent on reform. that's what xi himself says. pay attention to that. are they able to change the system to innovate fast enough to change, not only for a changing domestic population in china, but as we discussed today, an unbelievable, really historic shift in the macro environment around china. >> neil, we're in europe. one of the huge issues you pointed out and wrote about has been this huge migration from the middle east to africa from other places, and that that could have massive implications over the continent. where do we stand right now with all of that? what do you think happens in the next year? >> well, before we get to europe, i think we should stress that china is the most important story, and i agree with a lot of what josh has just said, but i think we should add one point, and that is that there is a huge financial problem, an economic problem, that it's not easy for
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them to solve. they have been talking about liberalizing their capital account for a long time. at the same time, they do not want a massive depreciation of their currency. they want a nice gradual one. that may be impossible with massive capital outflows of the sort that's been in recent months, and one of the big questions here, to which nobody knows the answer is, is it going to give? will there be a slide in the rb in the coming months? that would be a blow to emerging markets into the world economy as a whole. by comparison with all of that, the economic implications of the migration crisis in europe, i don't think anything like as big. the political implications are interesting because it's -- there's no doubt at all in my mind that the combination of a refugee crisis and intermitten terrorism by rad left lane islamists is creating an atmosphere in which the political right in europe, the populist right, makes big gains. that's the thing to watch in europe. is there a fundamental shift in its politics. >> you're a history professor.
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is there an analogous moment in history you compare to today? >> economically, going back to the question of commodity prices and growth, i wonder if we're going into one of the periods from the mid-80s and' 90s where oil prices were low and ramifications that had. remember, that was the shock that led to the disintegration of the soviet empire. i don't see a bounce in oil unless there's a huge escalation in conflict in the middle east, but it would be absolutely massive to offset the big supply increases we've seen. in terms of the politics, it's a different period, no question. a, where's the popularism coming from? where does that lead us back to? actually, i think a lot of the late 19th century popular movements look rather familiar. try to understand what's happening here. it's not fascism we're dealing with. it's not the 1930s, but
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populism, to the right of the conservatives. seeing that a lot after the 1973 crisi crisis. trying to understand trump, that's what you look at. the key point is that populists made a lot of noise in the late 19th century in the time of deflation. they never came to power. that's the thing. william jennings brian, three times a candidate and poppopuli. same in europe. i think in the final analysis. the center left and right always join forces to keep the extreme right out, and in that sense, i'm not panicking. >> neil, so, muslim extremism, world war iii or not an existential threat, it's jv league, and will there be a turning point when mainstream muslims is -- isn't coming from them, from within, defeats this, we can't do it unless we have help. >> two issues here.
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it's not world war anything. it's regional war. there's a huge conflict escalating with every passing month no not just the middle east, but nort africa and parts of south asia. itst not going to be global except in as far as networks carrying out terrorist attacks wherever they want. the question really that you ask the second question about where this goes as an ideology i think is really the key. we keep telling ourselves there's something called moderate islam, which majority of the people believe in and somehow prevails over extremists. that's a false way of thinking about it. the issue is minority of muslims who want to reform islam and take away the most inflammatory parts of its doctrine. i mean, it's not as if islamic state is making up the stuff it claims to quote from the koran. it's in there. without a reform of islam itself, it's very hard to discredit people like islamic state, and as long as there's
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legitimacy, it's posing to street. >> there's a not mainstream thinking. >> it's not. it's right. >> there's stuff in the old testament that's harsh too. >> there's are people implementing the old testament too unless i missed something. >> no, you're correct, but in the old testament, there's crazy stuff in there. >> just one example, because you raised it, islam clearly states that apple states should be killed. if you can't live a religion without death, that's a problem. >> right. >> for western society who believes in freedom of conscious, we cannot live with that fundamental principle. that's the thing that has to change. >> the points you made and the way the current administration addresses the problem -- >> well, they have not. >> think about the disconnect. >> they've been in denial about it. >> right. gentlemen, thank you both. >> thanks, guys. >> thank you. coming up, john chambers led cisco in the dot-com boom and bust, and now chuck robins leads
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welcome back to "squawk box," live in davos, switzerland this morning, the slowdown front and center in davos.
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people talking about what's going on there, and one company with the sizable investment, and, of course, big business exposure is cisco. joining us now to discuss the war against hackers, future of cloud consumption, and china, chuck robbins, i saw your former ceo walking on the steps as well. >> active, huh? >> yeah. >> how long you been on the job now? >> six months. >> how's it going? go going well. going well. in the last week of the quarter, and, certainly, interesting times this week, but everything's going well. >> so when we teed this up, we talked china, and we had the last segment on china, and a number of ceos come in, and there is a serious concern about china. given your business there, what do you see happening? >> it's a bit of a paradox for us at a time where everybody else is struggling, and we see some improvements, but i think in general, it's a huge economy.
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when you see it growing at 6-7%, that's significant growth for an economy that size. as joshua is a friend and really knows that market well, and i believe that having been there 20 years that, you know, we'll ride through ups and downs, but we're optimistic. >> a question as a technology company doing business in china and given some of the things i imagine you have to share with the chinese government, how concerned are you about intellectual property issues? >> well, when we look at markets like china, first of all, we don't share any information. we don't have any back doors, any of the products like our peers, and what we bring is we bring innovation, and we work with local chinese companies. we've established partnerships there, a partnership with inspire that's support, and one of the things is not just driving access to the market and great collaboration, but gives us the ability to innovate for the market with them. >> right. you alluded to the idea of no
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back doors and that's a geopolitical idea in davos talking about no back doors, and some countries now given what happened in paris and elsewhere think back doors would be a good idea. >> well, it's amazing how whatever the events of the time are, sways our opinions on these things, but we had a discussion this morning, and i think that there's an overarching set of policy decisions as we look at the actual theme of davos this year, fourth industrial revolution, and you think about the power of digital and the power of what's going to happen to companies and countries around the world, then we have to deal with some of these policy issues like the balance between privacy and national security. we have to think about cross border data flows and all the things. it's been a topic we've discussed this week, and i think it's something that both the private industry as well as public sector have to work on together. >> all of silicon valley tried to move to a no back door
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approach in part because -- for you to do business in china, they need to believe there's no back doors. at the same time, the u.s. government and other governments say, we need the back door because we need to stop the potential for terrorism and other crime. >> yeah. >> how do you balance that? >> well, i think we were talking this morning in the i.t. governor's session about the need for the policymakers and for the industry to come together and resolve it together. there has to be balance. right? there's got to be balance. that's ultimately -- it's not one answer or the other, and i think that we have never provided back doors into the products, and i think that, you know, citizens around the world want their privacy, but they want security, that's something we have to spend time on and work through together. >> chuck, how are things in europe? john chambers talked about how france is doing, really innovative things to welcome technology in and make it a big focus for the country. >> yeah. you know, from a business perspective in the last quarter, we talked about how it is flat,
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but some growth, and what we see, though, is that we see the leaders in europe, whether it's cameron, whether it's president holla hollande, amerimerkel, they understand this trend is significant, and they all understand they need to think about how it brings job creation, and so overall, i think there are some challenges that europe needs to work through like a single digital market, but overall, the leaders there understand the power and value of technology and what it means to their future. >> let me ask you a separate security issue, maybe less on privacy side, but you tried to build up the security side of your business. how big a business, ultimately, does that have to be in temperatures of relative to everything else? how much is a service business compared to a hardware business? >> well, it needs to be very big, and it's going to be a combination of the two of those things. if you really think about what's happening with this move to digital, we're going to connect everything. i mean, we've built our business on 18 billion connections, and we're going to go to 50 billion
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in four years and hundreds of billions beyond that, and it's going to be massively distributed from connecting cars to oil fields and so the security is distributed and has to happen realtime, which implies the network. we're committed to it. it's a huge market opportunity to us, and we'll invest heavily there. >> as a service on top of the network? >> both. >> or is it a hardware store? >> it is a combination of machine learning software, hardware, and services. >> final question, at least for me, m&a deals. you guys have been deal junkies, not huge deals, but small deals. do we see a big deal from now now in the new world? >> we stand by our belief that large deals are tough to pull off, and, you know, one of the positive byproducts for perhaps the issues going on in the market is valuations are more reasonable, but we'll continue to look at our strategy, look at innovation opportunities internally and look at m&a as a lever going forward as well. >> okay.
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leaving it there. thanks for coming in. great to see you. >> thanks. morgan stanley chairman and ceo, james gorman, and secretary of state john kerry talking iran, russia, north korea, isis, and more. it is foreign policy and your investments straight ahead. "squawk box" will be right back. time now for today's aflac trivia question. in what year did the worldwide web become available to the public? the answer when cnbc's "squawk box" continues. n, i'm glad afla. aflac! isn't major medical enough? no! who's gonna' help cover the holes in their plans? aflac! like rising co-pays and deductibles... aflac! or help pay the mortgage? or child care? aflaaac! and everyday expenses? aflac! learn about one day pay at aflac.com/boat blurlbrlblrlbr!!!
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word wide. welcome back to "squawk box," live from the world economic forum in davos, switzerland. welcome back. among the stories front and center at this hour, a policy decision from the european central bank in a couple minutes. the bank expected to leave rates unchanged. draghi will hold a news conference an hour from now. disney's pushed back release date of the next "star wars" movie, people focused on that. coming out december of 17 rather than may of next year. they did not give a reason, though, for the move. offering $5 billion to buy sharp corporation. that's according to the wall street journal. that report saying that foxcon is known for being the primary
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assembler for apple's iphones. joe? >> thank you. >> highs finishing well aoff th lows, but the s&p lost $2 trillion in value since the start of the year. for more on capital markets and his strategies in the environment, we turn to the man at the helm of the leading institutions on wall street. james gorman, chairman and ceo of morgan stanley, and one thing, you know, both watching the things for a long time, james, and when it comes down to it, you know, human nature dictates what happens as with markets, so we never really know whether the underlying fundamentals cause this or whether it's an overreaction. do you have a feel for if there's any real cracks in the underlying global economy, or is it overdone? >> well, i think, joe, it's a good question. the, you know, the markets are driven by the animal spirits. that's why you have the bulls
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and bears, literally, but, you know, often times when you have this kind of correction, there's a tangible thing to point to. the potential breakup of the european union a couple years ago, obviously, the financial crisis in 2008, you know, when you have incredibly high multiples, you see this thing. it's not obvious to me exactly what the connection is, ebbs in oil, of course, but the u.s. economy, we have 5% unemployment. the economy's growing 2.5%, that's $17 trillion economy. china is growing, may not be 6%, but it's in the zip code. these are good things in terms of global economic growth. oil, of course, has been thew e wild card in the last several months. >> if a lot of these things were sort of -- not real, but if it was fed induced or simple banker induced, or multiples too high, or succeeded in generating a
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wealth effect by marking assets up with asset inflation, as they start headed the other way, is this reflection there was an inflexion point, and it's not going to be as easy as it was? >> that presumes the asset inflation was material and serious enough to cause this. i don't see that. there are pockets, obviously, of excessive valuations, but, generally, i don't see it again. i go back to the u.s. economy, largest economy in the world, consumer debt down, consumer net worth up, and housing prices are up. jobs phenomenal, 5%, a four handle on jobs coming up. this is -- interest rates? we had the first interest rate in eight years or something. this is not an economy under fundamental stress. >> keeps rising? an argument to keep raising rates, go the four hikes people expect or laid out? >> well, i think they got to temper it a little bit, given, obviously, the emotional state the markets are in. you hate to do that and think
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monetary policy is driven offshore, but tempered, but i would be surprised if we don't see more rate increases this year. i would be. >> people pointed to productivity problems. we, only, are not seeing the wage growth we want. people say when corporations for three, four years are able to work financial magic with buy backs and mergers because of the investments, didn't build the foundation for real growth, and that's what is reflected. you don't see that either? >> i mean, yes. there are pros and cons. look at the bank's balance sheets. they are strong, well capitalized. the consumer balance sheets are strong. all the states and municipalities to have financial trouble actually came back to detroit and puerto rico, and they have. building for three decades. listen, it's not a perfect picture. okay. be clear about that. there is some excessive valuations in the market. no question. is this the cause of the kind of
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correction we've seen? my screen i have at my desk says 70 stocks i follow from energy, financials, consumer, housing, media. every single one of them is down. precipitously. in three weeks, what happened? what was the trigger point here? i'm just not seeing it. i'm seeing you can imagine a correction of the highs. i'm not seeing this kind of violence. >> talk about morgan stanley. >> sure. >> there's. violence on your stock as well, but you beat the street, if you will. talk to shareholders, they still say this is a show-me game. gorman's got to show me. you laid off -- said you were going to lay off a quarter of the staff, is that right? >> no. we did lay off a quarter of the fixed income and commodity staff. >> more to come? >> we're not planning layoffs right now. >> it's done? >> yeah. >> what do you have to do to fully complete the transformation, if you will? >> well, you start, andrew,
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with, one, have you put the debris from the financial crisis behind you in terms of getting rid of businesses that really made no sense, settling the various enforcement actions out there, resolving the litigation. the answer is yes. overwhelmingly it's behind us. secondly, do you have a viable business model reflecting the new regulatory environment? we are now the number one equities business in the world. the number one or two wealth management business in the world, the no. 1 ipo business in the world. we have many businesses that are truly world class. the answer is, yes. third, you get the returns you need to make the stock attractive for investors long term? the answer so that is, obviously, no. is that a function of r or the e? in other words, how much of it an earnings problem, which would be a big problem, versus an equity problem, you got too much equity. i like a high class problem. we have too much equity. as a result, our returns are repressed what they would have been pre-financial crisis. morgan stanley's in great shape.
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>> when i think, you know, you started talking about china as well, and it could be traced to a chinese market related to not only fundamentals not here, but not related to fundamentals in china, or is that naive? where there's smoke there's fire? >> the chinese stock market has certainly idiosyncratic risk. it's not a global market. the global institutional money is not there. it's fragile. it's emotional. it's heavily margined. the mart is not reflecting the chinese economy. listen, i come back to -- people tell me the chinese economy is growing at 9%, now 6%. woe is us. i said it's a $10 trillion economy. anybody know what the third is in the word, what it's growing at? third largest is japan. it's not growing. the fourth largest is germany, growing 1-2%. i'll take 6% growth on a $10
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trillion economy. china has issues. they have major transition changes that are taking place from quality of life issues, quality of air, through to building the domestic demand. all the rs you have talked about over the years, but, again, it's not china not having a hard landing here. it is having a natural, mathematical slowdown begin the sides of the economy. >> james, two years ago, i said, james, i got one number in the future that i can give you unequivocally that oil will be $27 in 2016. >> shocker. absolute shocker. >> i tell you that back then, where will the s&p be, and if you asked me that, i would have said, i would have been very frightened and worried. >> yeah. >> maybe we just don't understand what's happening in commodities in terms of the supply commodities, and we're so conditioned to think that it's demand related. we don't -- we've underestimated
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horizontal drilling, fracking, all the other commodities that, you know, even seed technology. everything else that we can do better in innovation. copper, everything. maybe it's that simple. once you realize it's not demand, that should be bullish. >> listen, to be fair, demand is still there. it's just not at the level of growth people expected. global growth in demand is there. on the supply side, the saudis and opec held the line. iran is coming back in the market. venezuela and russia sell a lot of oil, and, obviously, the u.s. shale story. it's been a shock. this is, i don't think anybody i've talked to in the last two years anticipated oil less than $50 a barrel, right? >> right. when we said, it'll go in the 30s, no, no, it's not, and people have said 18. i think that's that's unsettling for some reason. it's hard for us to believe it's
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just, you know, in a supply and innovation. >> look over the life psycycle. if it's growing 3%, and look at the life cycle of oil and commodities prices, supply and demand eventually rebalance. we've seen this again and again and again and again. the question is, have you got the stomach to live through the rebalancing? if you got the stomach -- >> these last couple day, i have not. not talking about me? >> nobody has. that's why it's down to $27. somebody's going to make a lot of money on oil if they have the stomach for a two-year period. >> thank you. >> thank you. >> much more optimistic than the guests yesterday. >> yes, i like that. >> you do. >> it's a sunny day today. >> it is. >> it is. >> sunny day. when we come back, bracing for the storm, details on the areas that listen impacted by the first nor'easter of the year, and tackling geopolitics
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in the market with john kerry. also, coming up at the top of the hour, treasury secretary, jack lew, the guest, and look at oil prices. this shows a lot about this. this morning, on the march contract, looking at wti at $28.12. "squawk box" will be right back from the world economic forum.
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the futures right now, what a wild ride. it's like -- a quick look, down 42 after a session yesterday, coming to davos, happens every year. like clock work. bank on it. >> pretty much. >> in the place where we solve problems, and we do solve a lot here while we're here. throughout the mid atlantic and northeast, people are prepping for the weekend's big snowstorm. remember the last one? it was a big dud. we'll see whether -- >> might not happen. >> never know. >> the one last year we slept in the city for. they shut down the city.
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>> this looks -- >> that one was the dud. >> that was the dud. >> i remember sleeping -- >> i know. >> because it was a dusting. they were expecting, like, three feet. >> you are jinxing this. don't bring it up. >> i know. the weathermen were thinking and ag was defensive. it's not my fault, you know roker, but people are buying supplies, watching roads. >> we're watching our smart phones. >> they got the push notifications from our flights and drivers, and washington, d.c. already getting a taste of what they could expect this weekend. the first nor'easter of the year, expected to bring heavy snow in 14 states with dangerous blizzard conditions developing over parts of the baltimore and washington, d.c. metropolitan areas, and it's -- just below new jersey, like, atlantic city. just come up, maybe atlantic city. maybe maybe? >> we'll take a little. >> other things going on this morning, travelers' earnings, beat estimates 5 cents.
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revenue slightly below consensus on weaker financial markets, but the company did report record profits for the full year. >> verizon earningsconsensus. the company limited wireless turn rates thanks in part to promotions and saw growth for vios television and broadband services. >> bbnt profits fell a penny short. revenue essentially in line. bbnt also said it expected to complete its acquisition of national pen bank shares by around april 1st. also, earnings match the view, chip maker shows signs of ending two years of sales decline, and you see the stock up by 8%. when we return, the ecb rate decision, plus secretary of state john kerry is our special guest. in the next hour of "squawk box," treasury secretary jack
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lew, gary cohen, and robert diamond, and the ceo of coca-cola. "squawk box" returns after a quick break.
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m -- and there's a lot of people at home who look at this and wonder how do we know? >> well, first of all, it's very generous of you to call it a --
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the implementation has begun, remain vigilant with other work to be done. there's issues on the table, syria, libya, north korea, just, you know, there's no end to the challenges, but that said, we are absolutely convinced that the world is safer because iran was hurdling towards an unaccounted for, uninspected, full fledged nuclear program with high levels of enrichment where there was enough enriched material to make 10-12 bombs, and now, frankly, iran's consent and their agreement, they have rolled that back. they've sent all of their enriched material down to 300 kilograms from which you cannot make a bomb out of the country to russia to be processed, and they have destroyed their plutonium reactor, filled it with cement, taken it out, and they've move ed centrifuges out
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undone the infrastructure, and they are now limited for 15 years, they cannot enrich more than 3.67%. you cannot build a bomb with that. they are limited in the stockpile for 15 years, 25 years, every trace of uranium is traced from the mining from the process to the waste, and for the lifetime of the agreement, they have consented to have access where there are questions about their facilities and what they are doing. so the world now has a country that has gone from no accountability to the greatest amount of accountability of any country on the planet and agreed they'll never seek a weapon and have a peaceful program. now, the proof will be in the implementation, but it is, you know, it has avoided a major confrontation, and now fa till sits our focus on other issues and hopefully we can move forward. >> what signs are you watching
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to tell if the checks along the way are thing thas can trust, actually if. >> well, we'll have -- the iaea will have 130 additional inspectors in iran in the facilities, and there are radio sealed transmitters on certain sealed components that will be constantly monitored. there's vis wall inspection of level of enrichment, et cetera, there is 365 days a ye24 hours day, and this inspection and accountability process will be going on. >> mr. secretary, we never get everything we want, obviously, and people are not going to act the way we want them to act. i saw comments about that. the treatment of the naval officers. they are back. it was a nonstory. they are here, that's the bottom line. is that the -- maybe not
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immediately used -- >> first thing to address, and thank you for the question. it's not 150 billion. it's not a hundred billion. iran gets approximately, according to the treasury department and all of the analysis of our intelligence community, about $55 billion. why won't they get the hundred that some people refer to? a large chunk already is committed to china, other countries through loans and long term commitments that have. made. in addition, iran has well over 500 billion dollars in order to get their energy sector up to par to pump at the level they want to, and to modernize, they need $100 billion worth of investment. to get the water, facilities, any number of things, they had deferred maintenance and deferred investment because of the sanctions. so it's going to take five --
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it's going to take a period of time for iran to come online and full economic -- >> but engagement will -- we're hoping things -- that terrorist activities moderated by engagement. after you do this great work and here the supreme leader come out with the rhetoric, it's -- >> yes, but the supreme leader, look, we, obviously, wish that the rhetoric were otherwise. they tell us they are responding to our rhetoric, and they are saying they are responding to the rest of the world that says, do this, we'll do that. what i'm trying to do and what president obama is trying to do, principall principally, is move us away from that confrontation and put the test whether or not we can find cooperation. for instance, we are now -- we have iran at the table in the sere yoo negotiation process. will they make a difference? will they be ab instructionists? we have potential to do something about yemen, again, we looked to iran as the president himself said, to make this a turning point. nothing that president obama did
quote
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here was not his intention in entering into this process, that this was going to solve all the other problems. it was his intention to eliminate the threat of a nuclear weapon, a threat to the united states, a threat to the world, and the region, particularly, into our ally, israel, and others in the region. that's gone. that is gone now. so we will maintain vigilance and we will continue to make sure that the enforcement is what it ought to be, but now we have an ability, hopefully, to reduce tensions in other areas where they exist, if possible. and the president said he wants to use this as a departure point for something new. we're not going to -- you know, we don't take that, you know, just saying it doesn't make it happen. you have to now test it and see where we are going. >> okay, so even if it's the least worst outcome, a fine point on it, do you believe the 55 billion ends up in the hands of terrorists? >> i think that some of it will
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end up in the hands of the irgc or other entities, some of which are labeled terrorists. you know, to some degree, i'm not going to sit here and tell you that every component of that condition prevented, but i can tell you this, but right now, we are not seeing the early delivery of funds going to that kind of endeavor at this point in time. i'm sure at some point some of it will. that has never made the difference of what is happening there. let me give you an example. the saudis alone spend $80 billion a year on defense. the entire gulf state community spends $130 billion on defense. iran spends $15 billion a year on military activities. it's so incredibly disproportioned that i believe that working with our gulf state partners, which we are going to do and which we are upgrading,
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we have the ability to guarantee that they will be secure, that we will stand by them even as we look for the potential of a shift in behavior. >> we have had questions about what our traditional allies feel is comfortable with this m some of them said they do not. unnerved by the process. are you meeting with net? >> i met with him and respect the threat israel faces. we understand that. we disagreed on how to manage it. we don't disagree there are threats and a threat. we believe that what i've just described, israel was facing a country that is in opposition to israel, and israel's existence that was moving towards a nuclear weapon and moving at a
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rate that was extremely disturbing. there was urgency to deal with this. president obama decided the first way to try to deal with it before you start dropping bombs or going to war is to see if you can find a diplomatic solution. we found the diplomatic solution. the two months of breakout time is now over a year of breakout time, and as i said, they do not have materials in which to make the bomb, so israel is safer today. the key here is to make sure that israel's safety today extends all the way into the future as far as anybody can imagine. >> but am i right to think there are some frayed relations with israel, with other nations in the middle east -- >> no. i think there is still a skepticism on the part of some. we acknowledge that. we have the strongest security relationship with israel on a day-to-day basis that any -- that's ever existed, and i believe israel will tell you that.
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our day-to-day work with israel is extraordinary. and with others countries in the region, and i'm leaving here to go to saudi arabia to meet with the gulf state countries. we will go through all of this. i'm convinced that we will see the way forward in way that keeps us united, keeps us on the same page and track with respect to their security, and, indeed, upgrades their ability to defend themselves and be secure in a dangerous region. >> it's -- the world is dangerous. it never perfect solution, and i'm thinking about guantanamo, impossible to bring them here, congress, campaign promise the president wants to keep. when we saw the individual stories of the last five or six gentlem gentlemen, well, i know to say gentlemen, but the prisoners released, it just -- some of us
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question whether it may come back to really haunt us and they may kill westerners or americans again. is it worth keeping a campaign promise to -- >> well, anybody who shouldn't -- i mean, look, if you don't have a case against somebody, under the constitution of the united states and our own values, you can't just imprison people for life on a suspicion or on some kind of battlefield arrest. at some point, the justice system has to confront this. president obama made it clear. worst defenders, those who represent danger against whom there is evidence, they will be tried. they have to be subject to the justice system. the people who have been move the out are people who have been very, very carefully screened. they are screened by the country, obviously, to which they go. those countries have to agree to accept those people. so far, we are reducing that population down to that core group of people where we're not comfortable making that kind of a choice, and there we're going
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to have to decide how do we present them for the values of america to be upheld, for our justice system to act, which is should do. >> mr. secretary, we have to go in a moment. >> i'm so glad you have not asked about oil prices. >> well, i want to ask about oil prices and the middle east, and north korea. >> do you think the market is at the bottom? s&p seen the lows? >> the question i have, you speak to people all over the world. i'm curious what they say about the election going on here in the united states. we're not here in the united states, but, you know -- >> they look to me with an extremely quizzical look, and they ask, what is going on in the united states? >> what do you tell them? >> i tell them, i'm in diplomacy now, i'm out of politics, and i don't have an answer. >> okay. we have to leave it there. >> sir, thank you so much for joining us today. appreciate it. >> thank you, a pleasure. any time i can sit. >> come on back. we have a good backdrop in new york city too. all right. see you there. >> thank you so much. coming up, another
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secretary, this is great, treasury secretary jack lew, comments on the markets, wild swings, dollar, and much more. you're right. he may be the guy to ask about oil, goldman's president and ceo joining us as well, and, later, we'll share a coke with the chairman and ceo of coke kca-co back after a short break.
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welcome back to "squawk box," live in davos, switzerland at the world economic forum. the markets grappling with the trifecta of fear factors in 2016. since the start of the year, s&p seen a loss of nearly $2 trillion in market cap. chin china's academy weakens by the day, and the price of crude dropped 40% in the last year alone, putting immense pressure on the jobs in the u.s. energy space. how worried is the u.s. about risk of a spillover recession? jack lew is here, third secretary of the morning. nice to see you.
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>> nice to see you. >> going to -- talking oil in a second, but china, saying, we talked last time, but you were -- not worried, but watching, monitoring some of the issues there, but you didn't -- you did not have real worry. are you worried now? >> you know, andrew, i think if you look at the statistics out on china's economy, it's not that dramatically different than talking at the end of the year, you know, it is not a surprise to see some reduction in industrial output, and the change in their growth rate was not that dramatic. i think the real question for china is a nervousness of will they stick to the policies they need to stick to, and are they making policy in a way that the world understands? i think that if they stick to the reform program, that they have announced, they can have a soft landing and level off at a rate of growth that is sustainable. if they don't, they have bigger problems than we've seen in the
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indicators. i think they've announced the policies that they know they need. now the question is, can they implement them? the communication has been uneven. it's not been clear. i think you have to separate movements in their economic indicators from the way they made policy and announced it. >> when they made policy, announced it, and especially intervening in the markets, do you guys get on the phone and say, you know, because there's a lot of american ceos looking at this, people in finance saying this does not work. it's not right. >> i talk frequently with my counterparts in china. i have a regular conversation with vice premier in counter part, and i talk to senior and economic policymakers in both positions in the government and bank. >> lesson to be learned? >> i think they have complicated decisions to make, so start with, it's hard. i think transparency is new to them, and the being bounced
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around by markets is new to them. >> right. >> these reforms to stick to are essentially saying that they'll let their economy be bounced around some, and they won't feel the need to ask every time it moves. i think the sooner they demonstrate that, the more -- the sooner they build confidence back up. i'm not saying it's an easy path ahead of them, but i don't think things have change as dramatically as the sentiment towards china changed. >> although, the real question has been with devaluation of the yuan. are they doing it because the economy's way worse than what they tell us? >> we made clear to china over many years, certainly the entire time i've been treasury secretary, that devaluations designed to gain unfair competitive advantage are unacceptable. we'll push back on that. on the other hand, if the economy is slowing down, there's a natural difference, you distinguish between the two. >> right. >> the challenge they face right now is with a currency that historically is linked to the dollar, they have been moving,
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you know, down against other currencies, and partnering up against other currencies, and that has been a challenge iing situation, if they are clear on what they are doing, it's helpful. look, i can't tell you that i have 100% certainty of where they are going. i know their policy, what they've said in meet, and i think they have -- their activities, policies and communication have been confusing. they understand the challenge of being more educatorive. >> we don't expect them to say we're ma liplating currency. >> they added a basket, compare the currency, not just to the dollar, but a mixed basket that includes the dollar. they have not been entirely clear in their movements how they behave, and that creates confusion.
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if they stick to the reform plan and refrain from competitive tu currency movements, make the economy increasingly open so if businesses fail, they don't produce more, but they reorganize or go out of business, they are a stronger economy. everything i just said is emb embedded in their own economic plan, so it's a question of the ability to implement that, and it's hard. we all know in our own economies, dislocations are hard. particularly in an economy that's part of a system where it's been top down control, you know, as in the past. >> one the other topics is oil. >> yeah. >> oil at $28. ultimately good or bad? >> you know, i think the oil prices have gone up and down many times in my lifetime, and this is the first time that i've heard lower oil prices described only as a bad thing. i think you have to be careful to look at both sides of the oil price equation. look at economic growth in europe, even economic growth in the united states where in spite
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of head winds internationally, we're maintaining steady, good growth, consumer demand, and lower oil prices are the reason for that. there's definitely an impact. if you're in the oil patch, it feels terrible. if you're an oil exporting country, it's very disruptive. >> you think -- >> globally, there's also positives. >> you think the savings, savings that consumers get on that lower price are being passed on and being used in the economy in a meaningful way? >> what i know is savings go one of two places, spent through consumption or saved. we said it would be good if consumers saved more. if they are dividing their savings between two good things, you know, the exact mix, obviously, will change from day-to-day. i think we're seeing good, strong consumer demand in the united states, record auto sales, consumer sentiment stayed strong, i don't want to pretend there are not downside risks. i follow the risks very carefully. i don't react to the minute to minute, hour to hour, day-to-day moves of the market. that's, obviously, what you do
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on the show, and it's a different job. what do we as policymakers control? how do we make sure our economy is strong as it can possibly be? how do we help other countries make decisions to strength p their economies and have stronger global economies? >> the latest poll was, like, down what people say, down 7 or 8 points now. it's a possibility. i wonder if you talked to, you know, your colleagues in the u.k. what happens there? i think of merkel and refugee issue and millions more headed that way, and some europeans, i think, maybe want to immigrate to the united states at this point. they don't want to live in a europe that is so chaotic or dangerous. i mean, it's a -- you have to think about the secretary -- this is -- secretary kerry issue, but we asked him about oil, so now asking you about security. i mean, it matters. all interconnected. >> there are many financial
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issues that are part of the security conversation, and, certainly, europe's dealing with the refugee crisis is, in part, a social and security issue, and in parts, financial issue. it's speexpensive. it's important europe make it a strong, stable future. they know that. my conversations certainly reflect that. on our conversations with the british, we are clear both in private and public, it's in the best interest of both britain and europe and the global economy and stability to keep the european system together. there are discussions beginning on now where, you know, like everything else, the vote, i think, will follow the quality of the agreement reached. you know, i certainly think that it would be a good thing if they can reach an agreement, they can get a majority passed. that's what we've said publicly
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and privately. >> on another topic. the director of the imf comes up at the end of the year. will the u.s. support her for another five years in that role and endorse her? >> i have a very close working relationship with her, the highest regard for her. i think she's done a great job. you know, i look forward to continue to work with her. >> endorsing her? >> you know, i actually think that what she said this week is right. there's a lot who should be part of the conversation. i just described my view of her, and i think that's where i should leave it for now. >> strong dollar in the best interest of the united states? every secretary needs to say that once. >> i believe the strong dollar is in the best interest and reflects a strong u.s. economy, and the strong u.s. economy is not just the u.s. interest, but world's interest. >> an industrial slowdown, some characterize it as a recession, and the fed, who knows now.
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never delve into monetary policy, i know, but you think more hikes are coming this year? >> you know, joe, i spend every day worrying about how can we make the economy strong as it can possibly be. we're seeing as i mentioned, strong consumer demand, seeing stronger housing, and stronger manufacturing in all areas. it's really hard in the oil industry, but that's kind of throwing the numbers a bit. >> right. >> you know, i will leave monetary policy to my colleagues at the fed, but i can tell you that a strong economy is something we work every day to try and make reality. >> okay, mr. secretary, thank you. appreciate it. >> good to be with you. >> great to see you. coming up, goldman sachs president, coo, gary cohn on set. stay tuned. we'll be right back.
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global market volatility and fears of a major china slow down puts pressure on financial firms. goldman sachs down 15% since the start of the year. pretty good, actually.
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the company reported fourth quarter earnings yesterday, beating top and bottom lines. joins us now, gary cohn. i phrased question to some of your -- had gorman on, had great ways to ask questions, and there's no need. what -- wtf is happening here, gary? in your view, in davos, beginning of the year, since the fed hike, what do you attribute this to? >> well, joe, i think there's a bunch of things going on here. in some respects, we're trying to throw them all together and have them all make sense together, and i think we're confusing issues. let's start with the biggest driver that's confusing people, which i think is the oil markets. you know, the oil market has come down considerably. we had a dramatic move in oil. what i think the confusing part of the oil market is, everyone's relating the selloff in oil to be an economic slow down.
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i don't believe that the selloff in oil is reflective of an economic slow down. in fact, look at the fourth quarter year over year demand for oil, it was up 1%. we're not seeing a demand slow down in oil. we're seeing a massive over supply of oil, so we're now having to price oil to such a level that we can actually price in all available on land storage, and then we'll move to floating storage, and so we wake up every morning or go to sleep every night looking at the price of oil being so dramatically different, we're trying to say, well, what does that tell us? the only thing it's telling us is there's irrational fundamental over supply in the oil market, and, instead of saying, okay, there's fundamental oversupply in the oil market, we're then saying, okay, if they are oversupplied, therefore, there's huge decline in demand. we must be having a decelerating economy, therefore, all other
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financial assets go down in value. >> you see the chinese stock market, you know, crumbling, and you know all the other commodities down as well not stored offshore, so you think it's not just -- never thought of offshore storage. that's new almost. >> we used it in the past. it's not brand new. >> yeah. throw in the shanghai stock market, then you say, woah, something, maybe we don't understand why the margket's down, but it's justified. >> well, look, when you look atticty markets, bond markets, separate them into what's going on. again, you know, we want the one size fits all solution. >> right. >> there's not a one size fits all solution here. are we seeing slowdown in china? yes, we are seeing slow downs in china. china gone from a cap x to op x economy? building out infrastructure for decades? yeah, they were.
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have we gone from a consumer discretionary economy? yes. think about that. consumer discretionary. that's discretionary spending by consumers. you can't predict discretionary spending the way you can predict a government coming in and spending money in china. we're seeing that transition, but that transition is working again, we saw it 10% increase in demand for coffee and gasoline in china last year. the transition from the government building infrastructure to the consumer spending china is working. the consumer can't drive an economy at 10%. the consumer probably drives the economy in china somewhere in the 5% range, and we're trying to regauge that 5% number. now, i remind you that 5% number on the size economy china has today versus where it was ten years ago, when we were growing at double digits is more gross
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notional gdp than ten years ago. >> we have china, oil, trying to keep them separate. you also just talked to ceos of u.s. firms, european firms, do you think things are slower than we think. >> i think things are slow. i mean, look, the ceo community that i'm talking to, which is our clientele, across all industry groups and all geographie geographies, and most clients are global in nature. they have businesses all over the world, they are clearly feeling some type of slowdown in their business. now, this slowdown didn't start january 1st of this year. this slow down started, you know, in the end of last year. i would say, you know, probably the fourth quarter last year. >> when the fed was going to hike? >> coincidentally, yes, but the slow down started in the fourth quarter of last year. you've seen a bunch of the retail sales numbers out of the retail stores in the united states for fourth quarter. they were not great. on the flipside, you've seen the automobile sales numbers that
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were very good so this slowdown in the economy started, you know, almost four, five months ago, depending what industry you were in. >> what is the bond market telling us with the ten-year below 2%. >> tewell, it's telling you, a, there's a derisking going on in the market, so people are goi getting out the of financial assets. they have to put the money somewhere. there's flight to quality. they are buying ten years under 2%. people are happy to get 2% versus nothing on their money. even though there's been a fed funds increase, fed funds go up, bank savings rates have not gone up. if you want to receive some positive real rate return on money, the ten year is still the best real rate of return to get on your money, and so people are going into the risk free asset with the rate of return to wait out and look for investment opportunities. >> and, last but not least, there's -- is if the way trading used to be now, bids everywhere or less -- are the movements
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exacerbated because it's different? >> well, look, joe, we all know that we've had a bit of an economic disruption. we had a change this monetary policy. we had a slow down in the chinese economy at a time when many of the financial regulations have change have come into effect in the united states and other places, so the answer is liquidity is dramatically different in financial markets today than it has been in the past. in fact, you know, as i watch your show over the last few weeks, you had people debate, is it 2008 or 1998? it's neither. in 2008 and 1998, intermediaries were willing to act as shock absorbers in the financial system so when there was an abundance of selling, they sold in buy. there was an an bun dance of buying, willing to sell and create arms in the market that needed to happen to keep
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products in line. we're in a point in time where the natural financial intermediaries have been taken out of the marketplace. >> i in no way took that in any type of criticism of any regulatory environment or government action, mr. cohn. >> good. >> that was tactfully handed. >> factual. >> no retribution for anybody. excellent. >> thank you. >> thank you. >> appreciate it. thank you. when we come back, veteran banking executive bob diamond joining us on set. stay tuned after a quick break.
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welcome back, everyone. our next guest has a unique perspective on the global economy, the chairman and ceo of coca-co coca-cola, his company gets more than half total revenue from markets outside north america. this year in davos talking about the challenges facing tomorrow's work force and youth employment. always great to see you. >> thank you. great to see you all. >> thanks for being here. i do realize that you can't talk very specifically about a lot of numbers at this point, but i just want to get your sense because coca-cola is such a global company, because you have such a good idea of what's happening around the globe, and because markets are in turmoil, what can you tell us? what are you seeing? >> well, what we're not seeing yet that the financial contagon
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has not passed over the wall to the consumer, and hopefully it stays that way, and -- but we're not seeing that, although the world, obviously, is a lot of puts and takes on what used to be the darlings, the bricks, the emerging countries is no longer. sometimes i say my favorite emerging market right now is the united states of america. >> so things have changed. there has been a lot mentioned, and one of the big issues multinationals deal with is the stronger dollar, currency fluctuatioxuationuations are an. we watched a massive move a year ago, but does it continue to be a big issue, and are you worried about which direction it's going? >> third or fourth year in a row, one of the most international businesses, do business in 207 countries around the word, 75-80% of the business
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comes from outside the united states, but this is not a new phenomena. it's been going on now for three, four -- this is the fourth year, 2016, but i mean, we have to get used to a lot of other -- everything is volatile, becky. you know, there's commodities are volatile pip. >> yeah. >> who would have thought that weed be here with the price of oil six months ago, eight months ago, a year ago. there's a lot of volatility, and i, actually, you know, in terms of the commodities from our perspective, it's a pretty benign environment right now, and it looks like it'll stay that way. >> how much does lower oil prices help in terms of transportation issues for you, and just in terms of how much money consumers have in the pockets? >> more than transportation. yes, it helps with distribution costs, but more important than that, actually, it helps particularly in the place like the united states, it helps the consumer. mobility goes up. the amount of travel goes up. that helps our business.
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we've seen that in the last, sort of six months or so. >> what can you tell us just about consumer trends these days, and how coca-cola's dealing with that in terms of americans wanting water. you provide that to them, that pushes the carbonated beverages. >> consumers just want choice. that's why you see from our perspective, a company that's for a century been almost pretty much one product company, one brand company, and now we have more than 500 brands and 3500 products and going, and so two years from now, we'll have many more. 20 years ago, we had 20 times less products. 20-fold increase in the number of products. we had 150 products, 3,000-plus products. exponential growth. >> constantly on the look? is that the key to the portfolio? >> most of the products have been developed internally, not bought. small percent have been acqui d acquired. most are generated by us, just like, you know, more recent fair
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life in the united states. these are all products that we've created. >> when you come to a place like davos, especially in a place like davos, how much of the conversation from business p perspective has to do with health. this is a feel-good place, and i wonder if you are accosted by people who want to talk about the health issue? >> i think it's not just davos. >> it's everywhere. >> it's very important for us. we care a lot about the health and well being of our consumers and of our stake holders, and, so, when you look at the -- what really we concentrate on is, from a perspective of building stronger communities where we operate, it's women, water, and well being. well being is not just physical well being. mental well being, financial well being, and physical well being in terms of having a healthy, active well being program in every market where we operate. >> ten years from now, what's
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the mix, you think, look like? coca-cola products, carbonated sugar products versus everything else? >> i can't really comment on what the mix looks like, but the following. sparkling beverages brand we have will grow and the still beverage brands we have will grow. growth rates may vary. the still beverage brands we have and business we have may grow slightly faster, but both will grow. >> you're here talking about youth employment and how to spur some of those things. what's your message? what are you learning at the panels you're here today for? >> well, i've been involved with this topic now for -- this will be the third year in a row. i was the chair of the business council for the world economic forum. that was three years ago when, for the figure time, we invited mayors from around the world, ngos, universities, and business leaders from around the world,
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and went sub nationally, if you'd like, to say that, because mayors are more like ceos. they actually, you know, do more than talk, and so, therefore, actually, i was a really good combination, a really important report came from that first session called "disrupting unemployment," all the best practices in the world of the golden triangle where business, government, and civil society combined to produce innovative methods and ways to create better opportunities for youth and for women. and then this was all followed through, and now there's another human capital report, but the facts are, if we don't do anything, if we just sit and watch this, the unemployment rate in the world for youth is going to go up. that is not a good picture for the world. >> social unrest. >> that's not a good place for any of us to be. there's already 200 million unemployed. most of that is youth. a lot of that is women.
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so we have to create more innovative partnerships, apprenticeshi apprenticeships, short term training, vocational training, not everybody has to go to college to get a good job these days. so the meaning of work is changing. we have to be at the forefront of this. and we still have a lot of more work to do, but we know now what really we need to do in terms of creating those win-win golden try angle partnerships between business, government, and civil society to really impact this whole thing. you know, the last report that west published that we were a part of says that continued, there will be a million jobs shed a year, and most of them will be white collar administrative kind of positions and the rate of job creation in the technology sector is noting making up for those jobs. net, net. >> are you seeing that at coca-cola?
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meaning, have you been able to use technology to rid yourself of lower end jobs? how do you think about that? >> we think about that that we continue to grow, invest, grow, and unemployment numbers go up because we are growing. at the same time, where we're putting our focus is changing. so from the back office, we're redeploying into the front end customer facing positions. >> thank you so much for joining us. >> great to see you. >> brought us coca-cola. take a sip. futures are higher now, not only because you spoke, but because draghi spoke. those comments in a moment. but bob diamond joining us, and ecb president mario draghi speaking now in frankfurt. we'll bring you headlines from that conversation in just a moment. u.s. futures jumping. stay tuned, right back. here at the td ameritrade trader group,
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breaking market news, u.s. futures were down 50, remember? jumping following comments from mario draghi. the ecb did not do anything other than leaving things unchanged. steve leisman joining us now with the big headlines, and not surprisingly, steve, i've been thinking about it. is there anything wrong, really, riding a bicycle around with training wheels? i'd like to take them off, but you can do fine. there's times where they are there, but you don't use them, right? maybe we'll never have an economy that can get by without cheap money and qe and things like that. here we go again, though. the slightest inclination we have more of that, and the markets turn around. >> yeah. big comments by draghi. i guess saying the training wheels will be on to carry joe's metaphor for long, and sooner than we thought. he said, it's necessary to review and reconsider our monetary policy in march. the significance of this?
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they just announced a big plan in december. that landed with a thud. the general thinking in the economic community was they were going to come back and think about it again and do new proposals in june. it looks like they are now down it in march because of what's going to happen. they are holding new forecasts, and when that comes through, he also said the downside risks have increased, to the european economy, and this is the big thing here. he said inflation outlook, remember, the ecb is an inflation driven central bank. they don't have a dual mandate. sing mandate, just inflation. so the president, draghi, says the inflation outlook is now significantly lower for 2016. that's, like, a force majority. they have to act in that case. if the inflation outlook goes down, they have to increase policy or at least have policies in place that will bring them back up to the 2%. they have been missing that by a long way. their growth not too bad. it's actually increased, imf, 7% for europe for 2016, but it's the inflation outlook and draghi
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moving up to march, additional policy measures, perhaps, from the eecb. joe? >> thank you, steve. bad news is good news? i don't know what to make of it. joining us now, bob diamond, founder and ceo of atlas merchant. joining us with the views of the banking world and africa where you had a number of big investments. just speak to the issue, which is to say, all the sudden, draghi saying the world not great, and the market thinks it's great news because it means that he may do more. >> well, on the one hand, hard to believe the impact people ascribe to moving from zero rates to 25 basis points in the u.s., but i think governor draghi has viability here. it was not long ago he said 'do whatever it takes. he introduced that long term operation three or four years ago, and i think the impact of
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his easy monetary policy in europe, very, very late, not governor draghi because he did it when he was appointed, late, i think, in relation to when the u.s. began to ease, but it had a very positive impact. his words will mean something to the market. >> still surprises me, though, to see the market react as if, oh, good, don't take the drugs that we need to get us high away. instead of looking at this saying, hey, this is bad news. they look at trouble in the economy that's enough to get them to be at this perspective. i thought the market had moved past that. >> yeah, you know, look ag the the underlying fundamentals what's going on with the market decline, it's around china, commodity complex, oil, and i try to look at the positives, and, frankly, i think about the u.s. and the economy that's a real positive, i think about the last two years in europe in terms of recovery as a positive. the thing that really perplexes me is i remember in the 1970s,
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and four years ago, oil was up, this has a huge negative impact on the economy, and here it comes from 100 down to 27, isn't this positive for gnp? this country's like rwanda, singapore, importing energy having a positive impact from the move in energy prices. >> how weak do you think europe is? you have spent a lot of time there, know the banking system there, and we used to talk about whether your business might ultimately try to buy up banks there. >> yep. we're very, very actively looking at the financial services industry, and europe, as we speak, and, i think, you know, monetary policy, which i just referred to with governor draghi, he's doing a terrific job. fiscal policy, you know, the labor market reform that really is necessary if the economy's going to be anywhere near the kind of economy we have in the u.s., capital markets reform, i don't mean just banks, but asset
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management, distribution of loans after the sheets of banks, development of private equity. deeper markets, acceleration in the reform, which the u.s. is ahead on, and labor reform, i think all three things are required before we see sustainab sustainable, real improvement in the economy. >> to the extent we see you buying a bank in europe? what kind of country would you look at right now for this opportunity? >> well, i think it's financial services more than banks. >> okay. >> and, for us, there's more than a trillion euros of noncore businesses that have already been announced for sale by just the banks in the eurozone. think about what's happened with the much higher capital levels, with the more strict leverage rules, certain things we see, certain businesses no longer fit in large banked. fixed income is the best example. the big flow monsters of investment grade debt, treasuries, repos. we've invested in the repo
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business, a number of other broker dealers, but the second thing is that those higher capital requirements mean that the european banks are going to put their capital where they have scale, where they have competitive advantage, which means the home market. there's a shift from global is good to global means you have capital disenergies, and the champions going forward are national and regional champions, not global champions. >> the flip side is you invested in a series of banks in africa. >> we have. >> successfully made them profitable in record time, a year and a half. >> less than a year. >> less than a year now. at what point do the big guys decide they are going to africa? >> so -- >> is that ultimately a local business in the same way you described other businesses? >> i don't say local because in the case of africa, 40 odd countries, it's a regional place, but the challenge for a global bank, owning operations in africa come back to if you're
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a sife, you have higher levels, and u.k. banks get a tax on global balance sheet. if they take deposits in botswana, they are tacked in the u.k. i think the business model is one of a regional or super regional. >> put money on it, yes or no? >> no. i think the u.k. is in a very strong position, joe. i think the u.k., there's -- >> 20 -- >> 20-odd countries in the european community. >> yeah? >> the only country in the european community that's made a conscious decision publicly to not been in the single currency is the u.k. can they have the benefits of a european union and the benefits of their own currency? we'll see how the discussions go, but i think they are a very strong position, and i think it would be a very, very good thing for the u.k. to stay in and have their own currency and have the benefits of being part -- >> they might exit. >> i -- that's not impossible.
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absolutely. >> you think it's 1-4? >> that they exit? less than that. >> okay. >> bob diamond, thank you for being here, great to see you. >> when we come back, more on the markets and draghi's comments that are pushing futures higher. there's been a turn around this morning. we went from down 55 points to up 136. s&p futures up by 19, nasdaq up by 47, and "squawk box" will be right back. ♪ they may want the latest products and services, but they demand the best shopping experiences. they're your customers, and as you strive to meet their digital expectations, they're enjoying more choice and greater power than ever before. at cognizant, we're helping the world's top global retail companies face the demands of today's digital economy by blending physical with digital to create more responsive, more rewarding retail models...
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. . . welcome back. breaking news. they say there are no limits to go further. he repeated the market moving statement he made earlier. always a big deal. he said it is necessary to review and reconsider our monetary policy in march. downside risks have increased to the european economy and the inflation outlook significantly lower. credibility would be if it didn't act. he was asked about this reversal from december. take a look at futures. sharply higher.
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highlights from another awesome day at the world economic forum. a look ahead at what we have planned for tomorrow. you are watching cnbc, first in business worldwide live in davos, switzerland. back in a moment. >> we view what's going on as more of a repricing of markets than a big fundamental shift, the combination of china, oil or a different look from a month ago, have people questioning portfolio mix, asset selection. we think the market is adjusting to that. ijoo ashley bryant, you are a teacher of small children. that's right. i have read it is the hardest job in the world. that's why i'm here. can you... i can offer advice from the accumulated knowledge of other educators... that's wonderful but... i can tailor a curriculum for each student by cross-referencing aptitude, development, geography...
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it's not a perfect picture. let's be clear about that. there are some excessive evaluations in the market. is this the cause of the kind of correction we have seen? my screen at my desk, there are about 70 stocks i follow, energy, financials, consumer, housing, media. every single one of them is down precipitously in three weeks. what happened? what was the trigger point here? i'm not seeing it. i can seeing, you can imagine a correction off the highs. i am not seeing this kind of violence. >> that was james gorman speaking with us earlier this
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morning. it's too early to say necessarily that he had impressions. the market has turned around since then. he says the down side risks have increased again. >> no, that's good because it means q.e. he added that the euro inflation dynamics are weaker than expected. it means q.e. that makes the market go up. draghi needs to review and reconsider its policy stance at the next meeting. there are, in his words, no limits to how far the ecb will deploy the tools. >> the market is rethinking this. >> they were up 150. >> still a move of 100 points. >> as of last week, the fed was still saying, look at that jobs number. things are on track. the minute these guys blink and admit they watch market turbulence. the minute we think it is one and done, it is off to the races. >> i wonder, though, listening
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to what draghi was saying, is the markets coming back off of their highs thinking it is bad news because of the economy or because they are going to think about this in march and it seems like a long time away. >> we are going to wait for more punch. >> we have a huge show coming up tomorrow. >> join us again. >> join us. >> watch "squawk on the street" and make sure you join us tomorrow. that starts now. good thursday morning. welcome to "squawk on the street." i'm quintanilla with jim cramer and david faber. the market was soft. mario draghi arrived. he said they may reconsider policy. europe did post sudden iof almot 2%. shanghai down 3%. ten-year,

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