tv Squawk on the Street CNBC February 11, 2016 9:00am-11:01am EST
good thursday morning. welcome to squawk on the street the. i'm kacarl quintanilla. busy earnings day. yellen back in front of the senate banking committee. europe's losses have moderated some. still in the 2% to 3% range as the banks get punished there. our ten year got to 1.55. oil below $27 is near a 12 year low. big show this morning on did he go. we're talking live to hugh johnson of pepsi, walter rob of whole food, and of course janet
yellen live in an hour. first up, though, stocks in sellingoff mode away the world. oil prices down sharply. gold rallying to a one year high after yellen highlighted some of those risks to growth during idea's testimony on the hill but did not rule out gradual interest rate hikes. she'll be back there an hour from now, this time as we said before the senate banking committee. some trying to argue this this morning is related to what she said. do you buy that? >> i know everyone wants to be on fed centric, but i'm sitting here watching the rio tinto ceo basically saying this is it, we're going to have a situation where not only the distressed players in the junior level and mid tier, but now the senior players will have trouble. listen to bob did attituudley s fundamentals will kick in. they're more powerful than yellen. yellen can be a force of calm by
saying we're just watching the world and we can talk about rate hikes when we have to, but we're not going to talk about rate hikes today. we're going to focus on where the u.s. can be in order to be a beacon to the rest of the world in the safe haven. that would be the states manlike thing to do about that that's not what you learned if you were her age and you went to school when i did. this would be a great time to put a stake in the ground saying we're the locomotive, we can't get derailed. i'll talk about rate hikes when it's necessary. and then you have us distinguished from everybody else. think about the typhoon companies we have on today. four were great. not good, great. they were great. the fifth is twitter. we can talk about whether that's a value play. gold is certainly sounding off. but look at the dollar. the dollar is going down. that helps our companies. if you look at our bonds, we're not negative breaks. all i can say is that it is frightening if you have been
following bonds a lot. but i'm just saying that yellen has a chance to make a difference, but not in the way that she did yesterday. >> she didn't really have a message yesterday is what people are saying. but you bring up negative rates and i think that seems to be a fear today that is permanent ya permeating a lot of the broader markets. ten years in japan, nine in germany. it brings deflation conceivably and then tee nation brinfla def idea of collateral going down in value. we need inflation. not sure we got it. >> how right was draghi to be worried about deflation? i don't want to pick out any particular banks in europe, but they are really being hurt by deflation. they didn't have to raise capital. they're very opaque. but we're going down almost one for would with them and that's a
mistake. >> what about when you try to surprise the market with negative rates. and currency up 7%. >> which would be terrific to yellen to be a little more statesmanlike. recognize that we have an election that is not signifying stability. and i'm not telling her to say rates are on hold. this is not the time. we're just focused on the world and trying to continue the engine. >> but germany's dax is down 6% for the week and we're only down 3.3%. >> that's right. >> france is down over 7% for one week. >> if deutsche bank were our largest bank, i'd be some what concerned. but if i look at jpmorgan, they have been overcapitalized for so long. i was going over some of the loan book last night because my life is so pathetic. and they haven't been able to take the risk maybe that would
have gotten them in trouble in another time. but deutsche bank, i don't know. some of these banks, by the way, they're still negotiating with the government. litigation risks. we don't have litigation risk. am i saying buy the banks? no, because the credit lines over and over -- but i'm just saying we're better and what a great time for janet yellen to say is this not a time to talk about rate hike. let's just talk about stability. because deflation did produce terrible results over in europe. >> look at the socgen. >> take a quick listen to this. >> all in all i think globally speaking systemically when you look at the system, i think it's much more robust and i think there is again too much nervousness. >> we're starting to see the word counterparty risk again. is it too early? >> i remember one time talking about the counterparty risk and
people at morgan stanley were very serious and they explained to me exactly what was going on versus the hedge funds. and i regret that i emphasized it too much. because our banks really had a lot of transparency doing a lot of things right. i can't say that about the european banks. but if you positiositioyou thin think you missed the last five years were all these banks were told you can't give money back. you just have to conserve it. doesn't mean we don't have bad loans. does the mean bank stock is not going down. it does mean that at a certain point the european banks, and they can cause a lot of problems -- >> more banks are in far better shape than theirs we can say broadly speaking. we have lower leverage rates. much higher capital ratios. but it's all a black box. are you really going to tell me you know what is going on at
goldman sachs? >> no, i don't. i know the book value has been scrubbed. >> we need to have confidence they know what is going on. back in '07, if you had confidence merrill lynch knew what was going on, you were wrong. >> that's correct. but the roe is so pathetic because they're not the allowed do anything with their capital because we've decided from volcker that they're pitiful helpless giants. in europe, draghi saw it coming. b before i turned 61, i would have called him an idiot, but -- >> as you get older, you become more of a statesman. when i look at you, i think lincoln. >> some of lincoln's stuff still holds up. like the gettysburg address. >> we have a lot to get to. the ceos of cisco, whole food,
pre-market remains ugly, but it was actually worse this morning as we saw moves in equities. ten year got down to 1.55. busy morning for earnings. pepsi out with results beating on the top line. >> pepsi earnings in line as you mentioned, revenue beat despite the negative impact that continues from the stronger dollar. we welcome now hugh johnson, cfo and vice chairman. welcome back to squawk on the street. >> good morning. >> so we mentioned this was a pretty strong quarter, though the outlook came in a little bit less than wall street was expecting. can you talk about what you're seeing out this year which perhaps made you more cautious
than the street expected? >> absolutely. if you look at the rear year we delivered, we certainly had top line as well as margin improvement. we invested in the business and drove cash flow. as we looked at 2016, really from an economic outlook, i think more of the same. developing this emerging markets, we faced lots of challenges there for many of those markets. that said, we are executing very well within those markets. we saw developing and emerging revenue break of about 6% fourth quarter. we expect that to continue. and in the united states, businesses are performing very well. so this notion of balance in our portfolio is actually working very well and i think that is what is enabling us to generate strong results and in a day when defensive stocks look awfully good, pepsico i would position is a pretty attractive choice in that regard. >> your advice to investors there. just quickly on strike the right balance, it's always a balance when it comes to volumes and
pricing. we did see strong revenue growth, but a lot of that was on the back of pricing. kind of sluggish volume growth for both snacks and beverages. do you expect to be able to maintain that kind of pricing environment when consumers are pretty sluggish right now? >> yeah, i think if you think about 2015 in that regard, we had 10% foreign exchange headwinds. and as that played its way into on local transactions, we did have to price on that front. looking forward into 2016, we're calling if for only 4%. that means less inflation. which means we'll probably take less pricing and see more volume growth. from north american beverage perspective, we continue the pricing environment to be quite healthy and given the challenges in terms of volume growth in north america beverages, i think it will be somewhat driven by volume, but clearly driven by
pricing as well. >> jim cramer. good to see you. we all watched the super bowl and saw a tremendous amount of pepsico. we also saw in your release this morning a big step up in advertising marketing. can you explain to our viewers why that is worth doing given the fact that it is a big statement that pepsico is around? >> absolutely. and the super bowl is the most advise shl indicativisible indie doing. and the pepsi brand plays particularly well into music and sports and what better event than the super bowl to combine those two things in a positive way. more broadly, if you look at where we've been since 2011, we've taken advertising and marketing up by 110 basis points. 40 basis points last year. and the reason we're doing that is we're seeing good returns on investment. it if you look at our revenue growth over the last four or five years, it's been around the 4% or 5% range and compared to most consumer products
companies, that is relatively on the high end. we think it's the investments in research and development driving innovation and enabling top line growth and we think that balance between good top line growth and good margin improvement is the one that is the most sustaining and value creating strategy in our space. >> let's talk about the margin improvement. i've been waiting for you to say that commodity costs have come down. and i know that the dollar versus other currencies, locally it can actually hurt you. but you emphasized each line that the commodity is coming done does matter and is lucrative for pepsico. >> without a doubt. and what we saw in the quarter was some commodity deflation as you said. looking forward into '16, on a local currency basis, we will see commodity deflation. on a dollar basis, we will see commodity inflation. and that is and on democratgoin
challenge. so we think the headwinds are much less substantial. we are calling for deflation. but frankly we're build to handle it. >> here we are in the middle of another global market selloff. you can talk about whether the u.s. consumer will hold up this year despite some of the major headwinds on growth, on markets coming from overseas? is the cheaper gas price helping at all? >> yeah, i think it actually is, sarah. i mean the bellwether for me on that in the u.s. is the convenience store business. and we saw convenience stores up about 6% for us in the quarter and about 6% or 7% over the course of 2015. so as i look at the u.s. consumer broadly, now, there are geographic pockets that are doing great and others challenged, but broadly u.s.
consumer is actually pretty healthy right now. they delevered their personal balance sheets. generally the employment situation has gotten better in the u.s. so the u.s. consumer i think is in a good spot. my biggest concern in that regard frankly is it if cooperations wind up pulling back on invest the because of the turbulent financial markets and that ultimately plays its way into mainstream. but right now, not seeing any signs of that. the u.s. consumer is doing just fine. >> word this week that chibani declined your offer. where are you looking to add or take away from the portfolio? is it on food, drench obeverage geographically? >> happy to talk about that. obviously as i've said in the past, we don't talk about any specific transaction. and the truth is we look at many, many things as part of really turning over every stone to find value creation
opportunity. our principals around m&a are the same. it has to meet certain strategic criteria that enable long term growth and financial criteria for short term growth. very few things pass through the screen. as i look forward, we talked again this morning on our call about beingacquisitions. more likely to be in snacks and outside the u.s., but it really comes down to one met take ma m does it create value. >> hugh, thank you as always. good to see you. on the back of another receipt strong quarter. you mentioned the margin improvement, jim. >> look, this is part of my thesis that we could be really glum in we wanted to, but then we look at a pepsico and we get
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at ally bank, no branches equals great rates. it's a fact. kind of like social media equals anti-social. hey guys, i want you to meet my fiancée, denise. hey. good to meet you dennis. whole foods beat first quarter estimates. joining us is walter robb. good to have you back. good morning to you. >> good morning, carl. >> jim of course has telegraphed
your story for a long time. last night you talked about improving what you called price perception. how much progress are you making in convincing customers that they can shop at your story without paying a whole lot of money? >> i think we're making good incremental progress and i think we've improved our tracking of pricing depends competitors, making smart strategic investments. and i think we're also making progress on communicating our quality and our differences by the launching of our digital platforms. >> walter, jim. great to see you particularly on a day when beat the estimates. i'm torn on your quarter because you obviously stood there at 30. you bought back a huge amount of stock with your money. but you had this 365 where your co-ceo says there is no culture, no legacy, just nothing to overcome, we'll go radical. i think this is your single
greatest opportunity. but you're buying back stock. shouldn't you just plow it into 365? it sounds so good. >> we can do both. we did buy back stock, but we're also moving ahead aggressively in 365. the first one open in may. so i'm not sure it's either/or. it's some of both. and i think your average price is a little high. >> i'm rounding it up. now, i do need to know, you've got these regional presidents, it sounds like the whole foods coming forward is a more unified whole foods where you're lowering the costs, labor scheduling is getting a little better. it sounds like that you've got a lot of things going just when you're digitizing the company. am i right to think that the gross margins next year at this time, even though ethey're goin down now could be expanded? >> hard to say. i think what we've got it for this year is to take the gross margins down incrementally quarter to quarter and let's
play out this year and see where we need to go. there are lots of opportunities to grow the business, but i think we just need to play it a year at a time. >> this is the first time i feel like i'm being more bullish than you. i'm trying to get at your conservatism, but that's okay. because you have always been a straight shooter with the show. can you tell me what is going on -- >> look, just last quarter we kind of laid the business out and said here are the things that we'll work on over the next year and we're back three honesties later saying we've done all these things, we're making progress. i think we have a lot of runway to go in making progress in all those areas. so that's really the message we want to get out this morning. >> absolutely. i've been waiting for the digital, the kinds of things you're doing with digital coupons. talk about what these mean. i know it's only been in philadelphia a short period of time, but talk about the impact instantly that make people want to go to whole foods because t
it's cheaper. >> right now there is a great coupon for your roses. but download the app. the coupons pop up with a single scan at the register, you get the value of all the coupons. and so we've been doing it in philadelphia for a number of months. and the potential here is that we will have -- unique individual identifier. for everyone that downloads the app, we'll be able to track that and personalize the offers for the customers. so we're getting the coupons, but also the information about customers and we're building out our customer base close to 4 million customers on our e-mail platform now. that allows us to again continue to reach out aggressively. >> what about the legacy business here. we're in an environment where a lot of p investors are starting to put together a list of stocks to open or avoid in a recession. doesn't your stock naturally fall into the former category? >> i think -- which category is
that, carl? >> i would imagine the stock to avoid if households come in under severe pressure. >> i think we've approach prove real staying power. and people have to eat and a lot of times people will let other things go and continue to by grocery so is they can feed their family. and i think we've shown you we're taking steps to evolve. we're not sitting still. we have the highest quality standards. the best team members in the world, best in-store experience of any grosser. a lot to like in all those areas. >> 365, first one is in l.a. in may? >> first one end of may in los angeles. second one in port haland and td in seattle all in about a space of three months. >> is that schedule expected to accelerate? >> i think we'll do the three this year and then we have seven
lined up for 2017. so i think we announced yesterday we have 13 365 signed thousand. but we can accelerate it if we want top about. >> walter, thanks for coming on. interesting store, jim. about. >> walter, thanks for coming on. interesting store, jim.about. >> walter, thanks for coming on. interesting store, jim.bout. >> walter, thanks for coming on. interesting store, jim.out. >> walter, thanks for coming on. interesting store, jim.ut. >> walter, thanks for coming on. interesting store, jim.t. >> walter, thanks for coming on. interesting store, jim.. >> walter, thanks for coming on. interesting store, jim. >> whole foods is this transition. i'm very excited about it because they are he doing digital coupon and 365. they're talking about a radical departure. maybe a cultural shift. mr. mackey on the conference call saying a lot of positives. the fact is they stood there and bought stock. this is a more humble, less chess beat, a more you know what, we'll get it right whole
foods than i've seen in some time. i like the blocking and tackling. it's what i always expected from a kroger. we're getting it it from whole foods. i like this story. >> and for the broader market, wh we head into the open, europe down sharply, the banks leading losers there. broader let's call it stocks in europe down about 3%. germany down over 2%. the dollar keeps getting -- >> five against the euro right now. >> it's the story year over year. >> negative interest rates this germany. ten years in japan. worries about deflation over there. yellen about to testify an hour from now. kind of a muddled message yesterday some are saying. and here we sit. >> they are where we were a few years ago. and we are where the chinese were in 2008.
china was on steroids. >> and they also unveiled a huge infrastructure spending plan there. we haven't done that here. >> but we have a new president coming and i don't know if you looked at these two guys, but if either of the leaders -- >> well, that is a concern for the stock market. both of those guys who won new hampshire. >> well that's true. it's a question mark. but i'm saying that we can't look at our country through the prism of the current president because he won't be our president a year from now. >> we'll know a lot more once south carolina comes along. as for buy backs, you talked about that with robb. goldman today says it's a strongest start ever for authorizations. 90 billion so far in announcements. do investors care or would they rather see the balance sheet repaired? >> i think they would rather see a dividend boost. pepsico, they're looking at treasuries versus pepsico.
i think that the whole foods story is an instance where you do want them to buy back stock because what this says is we believe now. and just so you know, that is 21.2 million shares just doing the math. but that kind of buy back works. because that sops up all the people who don't believe. time warner's buy back, i think that works. disney's buy back works. >> time warner upgraded by goldman to a conviction buy this morning. >> we could talk about oil for the rest of the show, talk about the -- but interesting that one of the things that we heard from hugh johnston is, hey, listen, if you stay negative, we can get everybody to be negative. basically we can sit here and just talk ours into a recession. people get nervous and then they pull bag. chuck robinson at cisco alludes
to that in january. says everybody is very negative. >> i'm interested to hear more from him on that. >> so we can cause it a little. scare people with deutsche bank? i don't know. i don't like the derivative book, but i went through this this 2011. and all those banks are still standing. because don't do what we do in this country. they have crony capitalism. our candidates may think that we have it. they all go to the same club. geithner never went to any of the clubs that our bankers went to. they don't do that. this europe it's really a cultural heritage. you're abank er, you went to the same schools. better in t really comes down t the idea that they don't regulate. but our banks are ready to move in there if we want to.
i don't like the book of loans for oil and gas. so easy to come in and be incredibly negative. and i debated that. it's the day after my birthday, why not be negative. and one of the main things i was negative about, i thought rates might go higher and they're going down. now that the dollar is going down, i can craft new negatives. >> i'm sure you can. i'll give you another negative which is you've got the banks as we're speaking down sharply this morning here. and that interest margin is gone. we're talking 1.6 on the ten year. and then this worry at least of deflation although here it's not as much of a worry. >> it's forcing yellen's happened if she were to pay attention. >> but, yeah, and then morgan stanley some reports that they will reach new settlement. they have not confirmed that, but some reporting on that.
they're all down -- bank of america is down over 5%. citi down 4.5. goldman sachs 3.5%. worst performing sector since the beginning of the year. let's call it not even six weeks ago. >> very worrisome that they're trading through book value. it either means book is phony, and i don't think that, or it means perspective book is phone any. and i don't believe that either. but they should ask janet yellen. >> so what goes through your mind when citi talks about what they called a death spiral and then kyle bass says china's problems could be five x u.s. sub pricprime losses. >> 2011, i must have pronounced
a half dozen european banks dead and that was wrong. premature. i just want to caution people that you can take these bank stocks down all you want. it's entirely possible that -- let's use bank of america. 20 billion in bad loans. let's take it to zero. let's say that every single one is a writeoff and that there are 10 billion i don't know about. that stock should be down three on its book value. and it's through that. now, they do have big reserves. they have way too much capital. maybe this says that the fed review that they won't be as forthcoming and let them buy. but i'm just saying that if you look at our banks today, you feel like an idiot. but i just keep coming back to 2011. and i just remember what i did wrong. i remember what i said that was wrong. that this bachk may not make it and that bank may not make it. and i look back i think why was i so negative. why did i say that, why didn't i understand the way europeans
work. why did i not know that socgen oig doesn't go because it's part of the firmament and they're not united states. >> but you don't agree that the central banks have as many bullets in the chamber as they did then. >> i recognize that they are ahead of the curve this time. that draghi is a very smart man. they have bigger balance sheets. they have needed to be able to do something. this is when hmerkel says it's time. it's time to tell deutsche bank you want $100 billion credit line, we have it. i mean i just think some odd number. but they have been tight fisted so maybe they need to say we have to stop doing what we're doing. they should wake up.
>> i want to get to some movers. after their failed attempt to buy perigo, said we're happy to not take milan's cash and move on, but mylan paid a large premium and report not great numbe numbers. it's only around nine times or so. but you can see the stock getting crushed. that again is not great numbers. and that big premium they paid for that stock. when you come back to some of
these names, viacom at this point at 30 bucks and 44 cents a share after this incredible week it's had down 26% for the year now has a free cash flow yield of roughly 15%. in other words, if you were to buy the company right now, you'd get 15% of your money back and free cash flow year one and there on if you can maintain that. they bought paramount to $10 billion 20 years ago. some people at least starting to look at value there saying at some point -- >> do they own some deutsche bank? >> not a lot of confidence in current management. it you see the comments yesterday from charlie munger on ibm where in a speech he said i'm neither a believer or
disbeliever in ibm. >> he's agnostic. i'd rather hear him say i'm a believer i wouldn't leave if i tried. >> i like that song. >> not the monkeys that wrote it. >> yeah. >> and twitter reported. user growth was not there. they did a top line growth of 48%, 53% when you adjust for currency. i want to start talking more about adjusted ebitda which was fine except they had just automatic all these companies for stock based compensation. in the first quarter, 150 to 160, stock based competent six of 160 to 170 million. so if you don't adjust for stock based compensation -- >> you have to repeat that.
because i was bisis -- >> first quarter 150 to 160 of adjusted earnings brf interest, taxes, depreciation. they had just for stock based compensation. they don't include it. in other words if you had to pay in cash -- thousand, now, to bet of companies have a lot of stock based compensation and we see a lot of adjusted ebitda numbers. but with all the stocks coming down, do you have you do have t into account. and if you were to take them private like yahoo! or a twitter and you hear this talk about taking them private, you're not the paying them stock based compensation. you're giving up part of your equity as the new owner broadly speaking, you're distributing it through the organization. that hurts your returns. so keep that in mind.
>> a poison pill. let's talk about real numbers. let's go to chuck robbins who delivered incredibly real numbers. it's up sharply this morning. chuck, first of all, congratulations. this was the number we've been looking for. 4.6% yield. but you talk about the worries about the macro. i'm trying to understand. why throw in that macro when either's cles's clear certain things long term make it number a lot better than what happened in january. go ahead, chuck. >> jim, sorry, i couldn't hear you. how are you guys this morning? >> well, good. we're look at your stock and wondering -- i'm sure people think it's an aberration, but you raise the difference tend big, numbers were baeetter than
expected. how can you do that in an environment where everyone says the world is ending. >> it's amazing. just feels like this market is being driven so much right now by emotion. and what we saw during the quarter was as i said yesterday a tail owing of two quarters. through the first ten weeks which was through the end of december, we actually -- the quarter was moving along as exactly as we would have expected. and then the last three weeks as i stated yesterday, we had the dubious honor of ending our quarter at the end of the third week of january. and we all know what was going on in the markets at that time. and we did see a slowdown in those last three week. but what i would point out is that this light of that our teams executed incredibly well and that is our commitment is that we will continue to execute despite what the markets hand u us. >> the other cramer, your cfo, talked about a number that i've not seen from cisco in some
time. operating cash flow up 36%. i know you were able to take advantage of the problem with unicorns becoming public. this jasper acquisition not asked about by the analysts. 1.4 billion. when i looked at skras pjasper customers, you're closer with ntt and with ford and gm. is this the acquisition that eliminates the idea that and you are not a clown company? >> well, i appreciate the fact that you realize the strategic value of that acquisition. i think it's interesting. a lot of people overlooked that acquisition. those people who understand this market realize the relevance of that acquisition. and as i think about what we're we're trying to do, we're operating on two fronts. we're first focused on executing in light of whatever macroeconomic situation we face. and on the second front, we are building out for the future. as our customers move to the next waiver of digitization and this technology transition that
we see happening, we're ingesting aingest i investing and skras pjasper wast example. and it will require a company that reallyst investing and jasper was a great example. and it will require a company that really can connect through the service provider to those connected devices and that is what we think we bring in addition to security and analytics with what the platform that they have already built. >> to me it was the most overlooked story. there used to be these things called bric. they're all written off. i'm listening to your call. india because of the digitization effort was a huge positive for you. and i'll quote growth we saw in china is very low balanced. but india and china two bright spots for your company? >> i didn't, jim. when we look at how well our teams executed this past quarter, one of the key things i thinks that been a hallmark of cisco and will continue to be is
the balance of our portfolio, whether you look at it geographically across our product lines. and in this case we had very good performance in india as well as in china. and i'll talk just a minute about india and some of the countries that we've launched digitization efforts. and these country leaders understand the power of technology and fundamentally what it will do to change the lives of their citizens, create jobs, position their students and younger generation for in next generation of technology. whether germany, france, italy, the uk, we've seen acceleration where we've engaged with those leaders and lined up gechagains their priorities. in china, the team rebalanced again and looked at the portfolio. they diversified gee dwraograph and across customer segments and our switching bes wusiness was wireless, sp video. so it was a balanced performance
and we're quite pleased there. >> you talked last night about customers holding some nonessential buys. honk of a jump is it between that and enterprise budgets really getting shut? >> what we saw this past quarter is when you get into that three week period in january, in our switching portfolio, when a customer is looking at doing a refresh on their campus switching infrastructure as an example, that is easy for them to say i'll wait a month or two months because what i have is working, what i'd like to have is going to be better, but what i have is working. but what we see now our customers are fundamentally changing in how they think about technology. i'll give you a statistic. in the last two quarter, we have 400 customers come through our customer briefing center every quarter, they are now bringing an average of 13 executives from their companies into our briefing center and the statistic that is really telling is that 70% of the attendees who
are coming to our customer briefing center are not from i.t. and i think that speaks to the fact that technology now is not only viewed as something that is being bought during times of prosperity, but they also view it as just a fundamental element of how they position about their strategy going forward and itching that in this case we saw spending on security, we saw spending on next generation data center. those areas that are still very mission critical to our customers. and they paused those areas that they felt like they could. >> i got to tell you, when i listen to what you're doing, i was surprised, you have so much money overseas. you still get comfortable enough to increase that dividend. so obviously you don't have to bo -- you have to borrow municipality. is that prudent? >> i was listening to you earlier talking about the yields. i was glad you got the around talking about the strength of our yield. and we have a great deal of confidence in our business and sustainable cash flows going forward. and certainly rates are at a
very reasonable clip right now regardless of what the fed decides to do. so we felt like this was the right time. our strategy hasn't changed. we'll still return 50% of our free cash flow through a combination of buy backs as well as dividends. and in this case we listen to our shareholders who have been asking for a dwragreater divide and we felt like the time was right. >> one last question. not again mentioned by these analysts. you beat a risk in a very important patent case. impact on customers? >> as we think about what is going on in the data center in particular, the area that we're really focused on is this next generation buildout which will enable the applications that will power moesbile, cloud, iot. and it was a $2 billion portfolio run rate this last quarter. $2 billion. and it grew at 100%. and so i don't know of many
businesses at $2 billion growing 100%. so we're very pleased at how we're executing in that space. as it relates to customers, i think that speaks to how they'red adapting to our technology and how they believe that we will build the next generation stacks for them and really enable this hybrid cloud which we still believe is where this market will end up. >> chuck, thank you. good do sto see you, sir. >> thanks for having me. cisco virtually the only dow component with any green on it today. let's get to bob pisani on the floor. >> we're off of the lows. i want to show you s&p futures because it could is been a lot worse. about 7:00, the yen which us a dramatically strengthening against the dollar kind of turned away and suddenly weakened. i'm not sure why. but that saved us a bit.
in europe, societe generale is 10% decline for them. deutsche bank, the more italian banks, another down day in europe. the more defensive names, utilities and telecom are down, but not nearly as much. a few of the telecom names are in positive territory. we're at 52 week lows in virtually every single major regional bank including bb&t, pnc, doesn't matter. citigroup also at 52 week lows. we've been talking about oil companies cutting dividends. but material companies are facing the same supply glut issues. rio tinto came out with comments. they have an 8% dividend yield. the company said it's no longer appropriate to maintain the progressive dividend policy.
they did not cut the dividend, they simply implied that they were not the going to be increasing anymore, they would cap it at $1.10 for 2016. right now paying $1.05. so the whole dividend is under review. a sign of the investigatiostres. meantime you mentioned the biuy backs. the old program is being replaced with a $5 billion buy back. i think more important is we've seen a number of buy backs initiated for the first time recently. companies are out buying. so apollo initiated a $250 million buy back. carlisle oig, $200 million. lending club, $150 million. about 6% of the market cap. it looks like some of these companies think the stock price has gone too far and are now
attractive. leon black just made comments at the current price levels for apollo share, he says we see a significantly undervalued company. again, they're initiating a buy back. even kkr initiated a buy back back in october $500 million. their first one. and of course the stock has been down significantly in the last six months. and just today announced that they had repurchased $270 million of the $500 million. that's an enormous amount in just the few months. so it appears they think there is some value out there in buying back their particular shares. so we'll keep an eye on this. there you see what is going on with kkr. $23 six months ago, it's been cut in half. so we're taking a close look at this and see what buy backe made a difference. so the dow down 224 points. and neil diamond wrote i'm a believer. and the monkeys are back on tour again, jim.
i don't know if you noticed this, but they have announced a new tour, they have an album coming out and it will be the two surviving members, i believe davy jones has passed away and the fourth member i to get is probably sitting out on tour. but they will be out on the road with a 50th anniversary album coming out. back to you. >> thanks for that update. busy morning for rick santelli in chicago. >> definitely busy. hasn't been much of a positive investor response as central bankers continue to push rates negative. not sure what outcome they're looking for, but imagine all the various rates around the globe locked this arm moving in the same direction. hard to imagine anything else could happen. let's look at a two year note yield. it's comping back towards october. most is really the slow growth
story. let's look at a longer term chart of fives. because they have been stellar in predicting the future. we talked about how the 115 to 118 level was crucial on a closing basis. hot knife through butter, about the size of the hancock building went through very soft butter. look at the chart, you can see what i mean. we're not far away from it. looks like 1% is the next pause. but now it becomes a game of the resistance of 115 to 120 above the market with respect to yields. let's go further down the curve. let look at a ten year note and let's look at a ten year chart. we're kochling towa incomping tt the session. last time we would have closed at the low 150 levels all the wae back to the fourth quarter of 2012. yeah, fourth quarter of 2012.
and remember, the all-time lows from the you wisummer of 2012 a. so there is room if you look at a six year chart at 30 year bond which is are currently hovering at a one year low on a closing basis, you can see same dynamic on there. if you're looking at rates, it's now more about where the resistance is on yields above the market. swiss two year, 100 basis points negative. it's been worse. and let's look at a bund chart. euro versus the dollar. best level since october '15. plummeting rates pushed there primarily for slow growth in central bankers and the response, the euro rallying. back to you, carl. >> thanks so much, rick. it's time for cramer. >> i'm looking at a bunch of stocks that are really working and the one that is working biggest is tesla. and their people are telling me
they're losing a fortune per car and other people telling me they will have a great 2016. other people telling me never more bullish. other people saying they will run out of money. so there is something for everyone. but it is up and that could be because it's been down so much or it could be because elon musk said this is our year and he is so hated and so loved. it's hard to get your arms around it. and by the way never feel bad for the monkeys because mike nesmith's mom invented whiteout. >> yes, i know that. never feel bad for them. >> you got a lot to cover tonight and who knows what the day will look like. be brent just went positive of all things. >> and that trumps everything. wendys's hanging in there. and then timothy boyle, it does
get cold out there. can i stay for the twitter? >> you are going to stay. >> and we have things perking in the general market. cisco up, apple is up. >> stop it, i don't want to hear that. include socgen. i bank there. i'm closing my account. >> s&p still down 1.25%. >> that's what i want to hear. you toideutsche bank you. >> don't go anywhere. because we'll talk to twitter's coo adam bain and also the ceo of expedia. and then skrjanet yelling on th hill.
we're live from post nine at the new york stock exchange. want to take you live to capitol hill. it is day two of janet yellen's testimony before the senate banking committee this time. as soon as the q&a starts, we will bring you there live. of course yesterday's testimony making headlines. she didn't whiexplicitly take mh off the table and that caused a little anxiety. those stocks finished flat yesterday. >> what is really interesting in today's show is the way in which you have presumably yellen being relatively optimistic about this economy again today as she was yesterday. when you hear from the ceos of expedia or pepsi, that actually the economy is not too bad, which raises the question as to why the markets keep falling. and why the focus of the markets in those falls moves from oil to high yield to china to the europe banks. and whether it's purely a market
phenomenon, a repricing of assets almost irrespective of the underlying nature of what is going on because you don't have the fed blanket anymore or the perception of that. >> and then you get minto the question fifth day of the row with all s&p sectors down right now about whether the markets will lead it turmoil that could cause a recession. as jamie dimon said on cnbc from davos, it doesn't happen that often where markets can themselves lead to a recession but did happen in 2008 and this relentless selling makes you wonder whether you could cause the economic pain that way. >> and cisco ceo saying they saw in terms of the unwillingness of some customers to make a decision. say,ing on, i ing o'm okay righ see where things go.
>> we may not be there. >> people are talking about negative rates in so many places around the world. prospects of deflation. and the incredible expansion of credit that has taken place over the last let's call it seven years since the financial crisis and whether in fact that has led to enormous amounts of capacity that is really not needed. and we just immediate to catch up. >> the point i'm making, none of this is new. why are the markets moving thousand. is it simply that repricing. it changes every day. yes european banks are a huge issue. but it doesn't mean to say that the underlying nature of the economy is poor. when that repricing has worked its way through, when you don't find value in the market, a lot of people are excited by the
falls that they see because they know that this is potentially the next leg higher. >> i would just point out that the u.s. banks are bearing the brunt of the selling again. s&p up to another 2.4%. the banks as a sector down 17% for the year. they're almost in bear market territory which would be 20% off the recent highs. >> let's send it over for carl and jim for a big vinterview. >> twitter shares down. julia boorstin is live with their coo. >> thanks so much for joining us here this morning. so last quarter, your user numbers declined despite twitter making a number of changes designed to add more users and retain years. why can't twitter manage to add years? >> twitter is an important company.
either and he vit it's vital to the world and we're focused with a new level of execution that we haven't had before. our focus is around live. live is important and powerful to people and also to the business. on the product side, we're focused on refining an iconic product and with this focus on live, we know that we will see a return to user growth and also the business is in a really strong place. >> is this a business that is basically limited to around 300 million users? what should make us think that you can grow those users? >> no marketers, that reach in scale is over now 800 million people. over 300 million log into twitter on a 30 day basis and a whole lot more on a logged out state. so we just started turning on ads and advertising in the logged out state.
so more than 2.5 times our reach in scale in the last quarter. >> eithit's jim. there a moment in the call with 3 mr. dorsey he says recruiting is his number one priority. so how do we know whether he should be taking the best people and putting them in square rather than twitter? i thought that thrust showed a real conflict of interest and it surprised me. >> thanks for the question. jack talked about his ability to value his responsibilities across both companies and speaking personally, i've seen it and he's doing a terrific job. we've also had an addition to the management team. we've just announced our cmo leslie berland, and incredibly executive and past customer and client for twitter.
>> adam, you talked about periscope in the call. i have data here and it's some what encouraging, but i think the equivalent of facebook periscope for two days and i've already done far more users than twitter. i just started. and it's dramatically much bigger. it's also -- it doesn't go away. it's there the next day. how can you compete against facebook? >> we're really excited about periscope. it was apple's app of the year for 2015. and we know it will just get bigger and stronger. we have just done integration there from twitter into periscope so you can have the live broadcasts show up within side of tweets. and we're also seeing on the business side a pretty huge and powerful canvas that marketers are taking advantage of and we saw it actually during the super
bowl. to doritos went live from levi's stadium during the super bowl and it was an incredible experience for consumers. they actually promoted that also on twitter. so we're really excited about it. it's a great canvas and a great opportunity for marketers to take advantage of. >> it's carl. you've gotten more than your share of advice from outsiders on how to adjust the business model in recent months. but increasingly there is this call for twitter to ditch the ad revenue model and open the api and sell real time data from the customers that you already have which would be powerful. is that dismissed out of hand by the board? has it been considered at all? >> hey, carl. great to see you, as well. look, on the miss side, the business business side, the business has been incredibly strong. our q4 was strong.
we're pretty well diversified. we have revenue on the owned and operated side, the twitter logged in base, but we've also now recently opened up ads to logged out users. we also have ads in syndication. so ads that travel where twitter users go out seed of the twitter app. and also where kept where cont well. we have an ad exchange. >> but there is no inkling that you would consider committing to that data business and essentially throwing in the tall on trying to grow the user base? >> we're very committed to the data business. all the customer service examples that you have been seeing, you're stuck in an airplane because your plane got delayed, on which off p you get
better service by tweeting to the airline than picking up the phone. and the businesses themselves are doing customer service because they have a chance to turn the customer moment into a marketing moment. so it's a fantastic business for us and powers all other kinds of consumer experiences. >> you mentioned your revenue growth in q4, but your guidance for q1 was less than wall street had expected. are you concerned that your ad load is suppressing your user growth? >> no. so let me talk about what we saw. as we think about q1, traditionally for brand advertisers, historically q1 is a lower quarter than q4. so what we see in terms of that business, it's the largest part of our business. so we see some seasonal trends there. the direct response business, these are advertisers looking for clicks and conversions, that is the fastest growing part of
our business, but also a smaller part. and we're confident that we'll continue to grow that, as well. in and i just want to return to some comments you've made about your product. you said that you wanted to refine the product. obviously you have to worry about not losing your core year base, but there are a lot of concerns that the change he is are not enough to attract a new different kind of user. >> we're focused on live because we think that is actually a really powerful part of the platform. whether live video or live information, we think we have a massive opportunity when it comes to live. and in fact we made a change last night where we've turned on a way to bring the best of twitter to your time line. >> twitter evaluation is now around $10 billion. a number of people in the industry have said this is the rice point where twitter would be a really attractive acquisition target. does twitter need to remain a standalone company is this.
>> speaking for the management team, we're focused on building a really strong and powerful twitter. we believe that the road map that we have from a product standpoint is strong. and we believe that tweter can be a powerful independent company. >> unfortunately, we're out of time here, but adam, thank you so much for joining us. adam pabain, twitter's ceo. >> thanks so much. one thing about twitter, their ability to make money, adam's job, is not the problem. >> no, i feel like sometimes that it's like abc, cbs. it's a good medium for t advertisers but it's not growing. we want facebook growth, we don't want yahoo! growth. >> were you satisfied with some of those answers? >> i like adam. he's a nice guy. but he didn't answer any of my questions. dy a facebook with richard
sherman and he was kind of like sherman, you know. he was illusive. but that's okay. i wouldn't answer my questions either. they were about how periscope is not doing as well. who would want to answer that? maybe he's running for president. >> we appreciate him coming on for sure. jim, thanks for sticking around. simon, back to you. up next, expedia up sharply in the wake of the key outlook. hear what the ceo had to say in an exclusive nonevasive interview next. we're down 200 points on the dow. at ally bank, no branches equals great rates. it's a fact. kind of like grandkids equals free tech support.
>> certainly as far as the paris attacks go, there was some effect on the business in apotherwise really terrific quarter and year. we it say on the call that the pairs are attacks had an effect to the tune of negative 10 to 15 million in the fourth quarter. but otherwise the company is hitting on all cylinders. if you look at the year the growth rate of the company was extraordinary. we hit almost $60 billion this gross bookings. $1.2 billion in ebitda and the company really is growing the way that we want to now going into the future. as far as losses of the company, that is related mostly to restructuring charges that we're taking as a result of some of the acquisitions that we've done in 2015. you know that we've been verying a breaks sif on the acquisition front. they're thon recurring. and these acquisitions set us up for she significant growth on a go forward basis. >> at the same time, you're cutting the fees that you charge to hotel owners.
and this is not the first time. it's a very deliberate policy. is that because you found yourself at the wrong price point charging more than some of your competitors? >> i think in general as it relates to distribution, we want to get to a much lower price point to make sure that we have the broadest supply out there on a global basis. we're adding hotel sly at record level. we have over 270,000 hotels. we will augment that with home away inventory, as well. we're introducing a model where hotels can essentially bid for placement and to the extent that you're competitive with your pricing, your content, you have terrific pictures and you treat our customers well, you have move up in the exteed i can't m expedia marketplace and we think that's better than a fixed price model. the transition is going really well. supply is increase. and the demand, customer demand,
is increasing at a significant rate. so our customers are liking the new model. >> it's clearly another very difficult day down here at the new york stock whiexchange. your stock was down 30% year to date coming into the results last night. i've got a note here, rbc markets say you have credibility on the macro front because in 2007, 2008, you were one of the most vocal about how bad it was. you said it was time it was a doing dog's breakfast. what do you see now is this. >> we read about the macro issues. we see it on tv. we're not feeling it as much in our business. low oil prices which are normally a negative, they have driven air ticket prices down. the lower air ticket prices go, the more the leisure traveler travels and the more he or she
has to spend in market. so low oil prices for us are actually a positive. they get the leisure traveler out there. as far as hoe -- obviously we're seeing really good volumes. pricing has come down versus what we've seen historically. and so at this point we're not seeing any big mac crow effect. we see some spot issues obviously paris was an issue in q4. we see pricing is yous for example in hong kong where outbound china volume has definitely weakened. so we see little signs, but we certainly don't see anything on a macro basis and as we look at our business, our business continues to grow at great rates. >> we didn't see anything on a macro basis. you see the stock ticking hire as we played that interview out. worth mentioning expedia probably had 75 pfrts % of the
market here in the united states. so when he talks about what he's seeing, he's plugged in real time into what is happening here. and it is significant for many people. in the same way that you see janet yellen presumably about to be upbeat. that while the markets may fall, you still have a very robust economy here. that is significant if you're looking for entry points into the market further down the line once we've repriced for whatever we are repricing about and that is a huge debate. >> all right. looking at the broader market, we're down 200 points on the dow. we're in the middle of a broad market selloff. all ten major industry groups of the s&p are lower right now. dow is getting hit the hardest of the bunch. nasdaq down on 0.6%. and we're waiting for the q&a to begin. she's there now and delivering prepared remarks.
the sale ones that you heard yesterday before the house financial services committee. it will happen during the hour. we'll bring it to you live. can she say anything to calm these markets. at the td amerite trader offices. steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. td ameritrade.
when the q&a begin, we'll take you straight to washington and listen in. in the meantime, rick santelli is at the cme for us. good morning once again. >> good morning. well, you know, right around 8:00 a.m. eastern this morning looking at 24 hour chart, the ten year rate it get down to 152. of course that would comp back to the he said of 2012. it has come off on bit. we're currently at 162. so 10 basis points. remember, it becomes thin. now let's look at a start charting in march of 2013. and this is really important. we basically are hovering around 162, 163 now. look at how significant that was
in may of 2013 and how significant in january of 2015. as we look at this level, this is the third time you want it pay attention to it. let's go all the way back to july of 2012. right after that is when we made the all time low of 138. you can see how this it is shaping up. swap, fixed for voting when central banks are going negative, you talk about a wild market. first look at a one year of ten year swaps. roughly minus 15. and that isn't the lowest they have been. right around november last year, they actual traded as low as minus 17. that's the last time we had the extreme in the two year of swiss. that's when they traded minus 110. they came within about eight basis points that same time reference. open that chart up to 20 years on the swap and you see how unique this is. and the final chart, i don't know if the bank of japan has ban active or not, there is a
lot of talk. obviously the volatility is drawing boat loads of attention. let look at the october 1st of 2014 of dollar/yen to give issue perspective on how dramatic that rally is. back to you. >> if only janet yellen would talk about the dollar/yen today. thank you. rick santelli, we are waiting that q&a moments from now from janet yellen and the senators. steve, is there nation she can say to sooth the markets is this>> i think there is the problem, there 1 not very much janet yellen can say here today. for which the market would have any particular confidence.is1 nh janet yellen can say here today. for which the market would have any particular confidence. not janet yellen can say here today. for which the market would have any particular confidence. the question of whether or not she can say anything to calm markets. some said nothing short of yellen taking right hikes off the table will suffice, others worry that there is no fed response that will inspire
confidence. carl weinberg asks why are the finance ministers not meeting today. underscores the totally uncoordinated global response. and then thing thatting question of the continued strength in the u.s. job be hear ket that stays yellen's hand being more dovish. claims fell to 269 together with job's openings report, says the u.s. economy is nowhere near recession. that is what bank of tokyo writes. not today, no recession, nope, not with jobless claims at the 269. the stake in the heart is jobs losses. and the result of yellen's testimony yesterday, for most to rule out a march rate hike and yet forecast a hike in june, those are the shops right now
looking for that june hike. we survived and 14 forecast a june hike. within reason for the reaction this morning could be that yellen left rate hikes on the table if the whicheconomy rebou and there is another worry out there. and that is one of the fixes nobody seems to like negative interest rates. simon, just one thing i want to bring to your attention. a pretty good rebound in the yield of the two year. i don't know what sparked it. but down near 56, 58. now up 65. and this may not strike you as big, but when it comes to a two year note that kind of seven basis point move is worth remarking. >> and these banks plunge on the concern in part that they will go further into negative territory. >> i think that's right. that pushes down or brings down u.s. yields.
and i think overlaying is maybe an understatement. i think what is happening in europe and with the european banks again and also in china, maybe the main story and it may be less story what the fed is doing or the u.s. economy which underlies it. >> that's a conversation for another time. steve, thank you very much. let's move over to mike. the dow now down 224. >> it's interesting that the market here is kind of administering the pain in a relatively localized way. you have the bank stocks obviously extending their losses down close to 3% in large cap banks. but broadly speaking, i think a lot of people are probably saying why has the s&p 500 not really fully registered the carnage overseas. perhaps that is just a little bit of tentativeness ahead of what janet the yellen might say. i degree with steve, hard to see
her doing much other than what the markets have built in. i also wonder you have the fact that we're somewhere near the january lows, and by the way things look pretty bleak at 1820 or 2812. and turned from there. so i think there is a little bit of gun shyness on both sides. you also have the dollar weakening which you would think in this environment has been a net positive for u.s. stocks except for the wrong reasons. >> mike, you have to make a judgment here as to where the truth lies. is it the truth lie with the markets and the price signals or does the truth lie with janet yellen. and expedia and pepsico when they say there isn't actually a problem with the economy, it may be that be there is just a repricing of financial markets for various reasons undetermined at this stage. that surely is a possibility. but they're not actually telling the truth as to whether we are. >> certainly is a possibility. and as a matter of fact, if that
is the case, if it's just a resetting, it's been going on a while. you have half the members of the s&p 500 stocks down at least 25% from their highs. so this has been something that is has been ongoing for several months right now. and therefore if you don't have some kind of a sudden slowdown in u.s. economy, then maybe we can just sort of knock around from here and say, okay, the markets have just made that adjustme adjustment. >> mike is an tolly, thank you very much. janet yellen has finished her prepared testimony. the q&a portion is about to start. we'll listen into what the senators ask her. >> it is essentially a theory that fits reasonably but certainly not perfect explaining the inflation process. and it's a theory that says first that inflation expectations play a key role in
determining inflation. secretary, that various supply shocks such as movements in the rice of oil or commodities were import prices also play an important role. and third, that the degree of slack in the labor market or the degree of mar generally of pressure on resources in the economy as a whole excerpt an influence on inflation, as well. and that theory underlines the kind of statement that i've made that if inflation remains, inflation expectations remain well anchored and the transitory influence of energy prices and the dollar fade over time, that in a tightening labor market with higher resource utilization, i expect inflation to move back up to 2%.
it is consistent with that phillips curve theory. so in essence, yes, i want to make clear that all of those elements play a role. and of course there can be other factors, idiosyncratic factors or other factors not captured by that model that make a difference. so that model in part underlies an expectation inflation will return to 2%. but in our statement in december and january, the committee indicated we will continue to assess actual developments with inflation and see whether they are in alignment with expectations because after all, this is not a theory that is perfect. >> would you say today that the precipitous decline in the price of oil and gas and plus the rise
of the dollar has surprised the fed to some septembextent or co have predicted all of this? >> i think we have been and markets have been and we have been quite surprised by movements in oil prices. i think in part they reflect supply influences, but demand may also play a role. the stronger dollar is partly something that we anticipated because the u.s. economy has been performing more strongly than many foreign economies and we have divergence in the stance of monetary policy that influences capital flows in the dollar. never the less, the strength of the dollar and the extent to which it's moved up since mid 2014 is not something that we
anticipated. so, yes, we've been surprised in part by those developments and they have played a significant role this holding down inflation. >> do you believe this economy although it's a number of years old as you would say has peaked or near peaking or will start declining and put us into a recession of some kind? or you just don't know, it's something you're watching? >> well, we're watching developments very careful. i would say there is always some chance of a recession in a year, but the evidence suggests that expansions don't die of old age. as i mentioned in my testimony looking very carefully at global financial market and economy developments that create risk to
the economy and we're evaluating them, recognizing that these factors may well influence the balance of risks or the trajectory of the economy. and thereby might affect the appropriate stance of honest taker po monastery policy. but at this point, it's premature to make a judgment.ne monastery policy. but at this point, it's premature to make a judgment. we will deliberate about what impact these developments have made. today i think it's premature to render judgment on that. >> are you saying basically you would -- the fed will be careful looking at every aspect of the economy and the international before it raises the federal fund rate? >> yes, we certainly will evaluate the outlook, certainly taking these developments into
account. and i want to emphasize that as i said, monetary policy is not on a preset course. we want to set the path of policy that will achieve the objectives that congress has signed to us and that certainly entails making sure the expansion doing what we can to make sure that the exanxious continues. >> could you take a couple minutes and share with us your view as to the strength of our banking system today if we were to -- we hope we won't go into recession, but what is the condition of our banking system, do you feel comfortable about the banking system or is it something you're working every day on? >> i think the steps that we have taken over the last seven
years have had very substantial payoffs in the form of a much more resilient and stronger better capital azed more liquid banking system. we have not only raised capital and liquidity standards including especially ramping those up for the most systemic firms. we've also used stress tests methodology to see whether we think those firms and we did think that they can continue to support the credit needs of our economy even in the scenario of significant stress. so i do think we have a strong banking system and we've seen marked improvement. >> thank you, mr. chairman. you said in response in your testimony and in your response,
you said this regards to honest taker po monetary policy, the commit c y citicitity is not on a reset course and less likely to raise interest rates. a comment and then a couple questions about the wages. the dual mandate is so important and i appreciate your emphasis on it on it of course restraining inflation. but also equally importantly into many of our constituents i think maybe even more importantly that the importance of job growth. and i also appreciate the importance to you of wage growth us a deliberate on these questions of raising interest rates. and while job growth has been better than some might have expected with 71 consecutive months, wage growth hasn't as you know. and with good signs recently, but not enough. data released earlier show
average hourly earnings increased in 2015. my questions, three questions and answer them together if you would, are other wage growth indicators showing the same increases, are wage increasing occurring across race and gender, and across economic sectors, or are certain groups doing better than others in that wage growth. and finally, can the economy reach full employment without labor force participation increases for women and minorities and have widespread wage growth. so if you would sort of pull those together and answer. >> so you asked about other wage indicators. as you indicated, average hourly earnings have picked up. but it is a series that is volatile. and while i think we see some evidence of faster wage growth there, i would still refer to that evidence as tentative. in compensation per hour, we
also see a somewhat slightly higher pace over the last 12 months in its growth. but again, this is a very volatile series. and in terms of the employment cost index, compensation growth has really not shown any sustained pickup in that significant series. so at best i would say the evidence of a pickup is tentative. i do continue to envision that if the labor market tips to improve as we certainly hope it would, that there is scope and we will likely see some further pickup in wage growth. in terms of particular groups in the economy, i can't give you recent evidence on developments
by -- i think you asked for race and gender. >> and sector. >> so i don't have those data at my fingertips. but, i mean, we know that in the u.s. we have had a long standing trend toward rising inequality, rising wage inequality in this country. and that more educated people have seen faster wage growth than those in the middle and at the bottom. and i believe that trend continues. a lot of jobs during the downturn middle income jobs were lost. and although jobs across the occupational distribution have been created, job creation has perhaps been more heavily skewed toward sectors that have lower
pay. and i think that there are deeper structural reasons that these trends continue. they redate tpredate the downdo the downturn perhaps accelerated the trends related to globalization and technological change demanding thk edincrease skill. is this and i think we. >> and i think we can't be satisfied without full employment across demographic lines. i know you recognize that. let me shift, you said you felt the fed and fdic have provided
companies with the clear feedback and that you would be willing to make formal determinations that certain plans are not credible. when do you anticipate employing feedback on last year's submissions, when did you -- are you still committed to make formaloying feedback on last year's submissions, when did you -- are you still committed to make formal determinations about insufficient plans and between you differentiate between and among firms when you provide feedback or make determinations? >> so when we are actively engaged and far along in evaluating these plans, the board has met regularly since august. i believe we've had seven board meetings to discuss these plans. we have worked closely with the pd fdic. it's premature for me to give you a definite time. but we will make these
determinations in the not too distant future. we very actively engaging. and, yes, we are still committed as i indicated to finding the plans that don't meet the specifications we youtlined, we are certainly prepared to find them deficient and to speacifac what those deficiencies are. >> and is it anning a yes, sir sif thorough living will process answer the question of too big to tail? >> it certainly helps. he have also put this place requirements for adequate or so-called tlac rules for adequate loss aborbancy. and dodd-frank, so we want to make sure that there is a way that they could be resolvable
under bankruptcy and that the resources are there so that the taxpayer would not be at risk. and dodd-frank provided as a backup authority title to which would be if it's necessary an additional tool that we can use. so i think it's premature to say we've solved too big to fail, but i do think we've made substantial strides toward dealing with it. >> thank you. >> thank you, mr. chairman. i appreciated your comments when we discussed the $50 billion trigger being used to determine when a bank is isn'tsystemicall important and focusing on the flexibility that we need there. while congress continues to make progress on this effort and
hopefully we will make some progress soon, you have previously noted that the federal reserve has the authority and discretion on its own to tailer the application of these rules as they apply to sinlgly important designated banks. those covered by section 165 of dodd-frank. my question is you can give us some specific examples of kind of tailoring that might be in the works as the federal reserve works on this and will there be relief on stress testing and resolution planning? >> so we are for example actively engaged in reviewing our stress test testing and capital framework for the companies above $50 billion. and we are considering ways in which we can make that less burdensome for the bank holding companies that are close to the $50 billion asset line. along with that, we might make it stricter, somewhat stricter
for some of the gsibs. we're considering that, as well. and i think that would be tailoring at both appropriately i think at both ends of the spectrum. we are paying close attention to the costs and benefits of particular changes, how they affect those institutions. so we haven't made final decisions, but that certainly something on the drawing board where i hope we can make progress. >> do you believe we will see any of that tailoring announced soon or applied soon? >> certainly this year, but i think that if we were to make changes, they would not take effect until the 2017 cycle of stress testing. >> thank you. and shifting topic, because of the liquidity issue that occurred on october 15th, 2014, in the treasury market, there has been a lot of effort by the
federal reserve and others to better understand the factors that impact the liquidity of the treasury market. especially during stressed market conditions. the concern that i hear is that several factors including new regulations may have reduced market making capacity in the market and that during stressed market conditions, liquidity may be more prone to disappearing at times when it's most needed. as it seemed to do so october 15th. are you concerned that liquidity in the bond markets may be less available in stressed market conditions and that we need to better understand and analyze all the factors including the impact of regulations on this? >> senator, yes, i agree with what you said. normal metrics, the ones we typically monitor on liquidity conditions in these markets haven't changed that much. but the perception and of course some experiences as you cited
suggest that under stress complains liquidity may disappear when it's most needed. so we are looking very carefully at that and all the factors that at that and alter the factors they may be involved. regulations on the list, but there are other things as well. the previous lance of high frequency trading is increased. broker dealers have reconsidered in the after math of the crisis of the appropriate models they want to use to run their business, there have been changes in disclosure that affect corporate bond market itself and we want to try to disentangle the impact of all of those influences. >> thank you. one last question, there have been several hearings on financial oversight council that focus on ways to improve transparency accountability and community indications.
in the april subcommittee. thens witnesses agreed they needed to provide actionable guidance, designated to designated systemically important financial institutions on how they could derisk and ultimately shed their designation label. what has been done, this has been referred to as an off-ramp. do you agree further progress is appropriate and wouldn't our financial system be safer if companies knew what they could do to address the risks and have an incentive to become less systemic ally risky? >> so i would certainly agree with you. it would be good if they became less systemically risky and designation is not intend to be permanent. fsot review these did he go ig nations every year. it is, of course, important for firms to understand the kinds of
steps they could take to shed their designation and become less risky. i think the fsot needs to be very careful not to micromanage these firms and to try to tell them exactly what their business models ought to be. those firms know exactly why they were designated. they've received detailed letters and analysis explaining what the exactors were about their businesses that would give rise to systemic risk in the event of their failure. so they do understand why they have been designate and the things that they would need to address. so designation is not intended to be permanent. we do have regular reviews. i think those firms do have an understanding of the kinds of
things they'd need to be prepared to do. so i just don't think it's appropriate for the fsot to say we want you to do the following business plans. there are a lot of different ways if which the firm might decide to address those issues. >> if my time is expired, i'd like to address this with you further. >> thank you. >> senator tester. >> thank you, senator corker. thank you, chairman young, for being here today. i want to follow up with the senator's questions, there is new information that you just gave they was not aware of. >> that is that, correct me if i'm wrong, you said the companies understand why they're designated as a sify, therefore they understand what they have to do to get undesignated. is that what you said? because that's new information for me. >> in the sense they have been given very detailed explanations of what aspects of their
business give rise to this systemic risks that have caused them to be designated. >> so are those, is that information given as the proses is goes on or the process of designation is done? >> there is a three-stage process. there is a great deal of interaction with fsot during that process. so you believe before they're designated, there is a sufficient amount of interaction that they will understand by the aspects that are leading them to be designated and they are given a very detailed. >> would they have the opportunity as that process goes on to make changes so they would change the direction of the fsots going, if that information is what i'm getting at, if that information is given out early enough so the company can say we're going to make some changes, not changes at the
f-sock demantz to some scop the designation before it's made? >> they certainly have lots of opportunities to interact with f-sock and to explain their business model and the direction it's going. >> thank you, chairman. i want to talk about the housing sector, very, very briefly. could you give us your perspective on what the fed is seeing in the housing sector right now and what a hick up in that sector would mean for the american taxpayer. >> so we are seeing recovery i would say in housing. it's going on now for a number of years, but it's very, very gradual. house prices are recovering. they're increased quite a bit.
i think that's helping the financial situation of many households. >> yeah. >> the level of new construction of residential investment remains quite low relative to underlying dem graphic trends, so it seems to me there's quite a significant way for housing to go before we could say it's a level consistent with graphic prints. so i think it will continue to move through. it is a support to the economy. >> and a hiccup in the housing industry, what would that mean for the taxpayer right now? >> for the taxpayer. >> the american taxpayer. what would a housing slowdown or perhaps a not a collapse but a decrease if their growth mean to the american taxpayer vis have a
i have freddie mae and fannie mack. >> i don't have numbers on -- >> we're going down the line. tell me, give me a sense of what the fed is doing to ensure that we are protecting consumers while at the same time with the differentiation with community banks. >> when you say we are protecting consumers. >> while at the sarnlths differentiateing the regulations that impact the small banks versus the big guys. >> so consumer protection is a very important part of our supervision and we, the cfpb examines the larger banks in terms of their consumer compliance and our responsibility is now with the smaller banks an community banks
where we have consumer protection enforcement. we try to tailor our examination, our consumer xms of the community banks so that they're not too burdensome, they're focused on real risks. >> do you feel you have been successful in that tailoring from a community pank standpoint? >> janet yellen. a few headlines of the feds, she says, was quite surprised by the move in oil, premature to predict a recession. although, recessions are a chance she says in every year, talking about job growth and wage inflation t. job growth is, in fact, skewed to lower play paying jobs. phil. >> carl, let's take a look at shares of boeing you will see in the last i'd say half hour to 40 minutes t. shares really moved sharply lower. >> that following a report the security exchange commission is
investigating the accounting that boeing does related to the 787 dream liner as well as the 747 t. report says the sec is looking into the along-term profitability of the dreamlineer as well as the 747. we have reached out to boeing for a comment. at this time the company says the comment is, that it's not going to make former comment regarding this investigation or a possible investigation. we should point out, there is no sec filing, carl, with regard to whether or not they are look nook the accounting at boeing. so that's why the stock is down what more than 8% today, really taking it out of the dow components. >> all right. phil, thank you very much. we will continue to watch that story, obviously, in the meantime, we take you back to capitol hill. >> 2% inflation and full employment that as you look at data that guide where you are going, i'd like not a particularly long answer to that. i think there has been, as you
know, criticisms about whether there really is a rule-based system that people understand so that it's not like the fed is the wizard of oz and nobody know what is will happen. market versus fallen 500 points, which is unusual after the last couple days after testimony, which i thought was good yesterday. but is there some other rule-based system that those of us that care about these kind of things could count on relative to what the philadelphia's actions are. >> so, senator, i would, if i might, i'd like to distinguish between a systematic approach to monetary policy which i believe we have and have put into place and the system that we use that's in line with what other advanced central banks do and a mechanic am mat mat cal rule-base aid proech, which i don't support and no central bank that i'm aware