Skip to main content

tv   Squawk on the Street  CNBC  May 31, 2016 9:00am-11:01am EDT

9:00 am
i think watson might have hijacked him. >> didn't want him saying these things and bringing up the questions about whether these machines should actually be as powerful as they are. >> we're going to be totally -- people with flesh and blood, they're not going to -- some day they're not going to need us at all. and it's going to be scary. >> let's hope. >> they don't like us. >> they're protecting us. >> oh, yeah, right. make sure you join us tomorrow. "squawk on the street" is next. ♪ good tuesday morning. welcome to "squawk on the street." i'm carl quintanilla with david faber, martin sooshort week, ja jobs numbers, auto sales, stocks trying to hold onto gains. consumer spending came in strong here. the best in nearly seven years. and watch oil ahead of that opec meeting on thursday. s&p case shiller up 5.2 in
9:01 am
march. last trading day of the month, a lot o data, more fed comments ahead of the jobs report on friday. >> at viacom the drama continues. the current board, well, it's not going to go quietly vowing to dig in. and this is what's amazing, fight its controlling shareholders hold over the company. >> and a new name at the top, debt on the highest paid ceos and why the pay isn't moving the direction you may think. first up we head into the final trading session of may. the nasdaq leading the month more than 3%. if the gains hold this will be the fourth year stocks have major averages have gone positive for may. no selling and going away necessarily. mike, your point this morning is stocks have been able to rally in an environment where a rate hike looked more and more likely. >> exactly. although it's hard to say if the market is fully kind of digested that idea that we're going june, july. but today's personal spending number kicks you in that direction again.
9:02 am
been a strain in the market for well over a year. we'll see if there's really enough energy behind this move. >> meanwhile, is the debate about june or july? is it binary, neither? >> well, the market kind of getting to july and the way the fed fuds futures work, this is when the rate hike will have happened by. so by july is seeming bit of 50/50. and it's interesting the fed has steered things that way even though the brexit polling or betting odds are down to something like 20%. so maybe that's not really this kind of out of left field risk the fed has to incorporate into decision making on june. >> of course it's light volume, monday, thursday and friday of last week three of the lightest four days of the year. does that say anything? >> summer seems to start earlier every -- i don't know that it says anything. we obviously are kind of l levitating. flows are coming out of equity funds and mindful of that idea
9:03 am
2100. this has been an area where you've paused at least for a better part of a year and a half. >> meanwhile ward mccarthy joins us, talk some markets, see where we're going to wind up later in june. ward, good morning to you. >> good morning. bullard thinks we're ready for this. so with spending today do you think we are? >> oh, i think we're ready for this. i think the fed has been as specific as they could be. and at this point i think the burden of proof is heavily for something significant to happen to keep the fed raising rates on june 15th. and as you pointed out, it doesn't look like brexit is going to be a major concern. so i think that, again, unless something falls out of the sky, the fed will raise rates for the second time this cycle in the middle of this month. >> why would you though -- is it worth the risk stepping in front of brexit by just eight days? >> well, what's the risk? brek it does not have a direct effect on the u.s. to the extend there is a
9:04 am
surprise with brexit, it will have an effect on global markets. so from the fed's standpoint i would think that as long as the global markets are calm, which they are. and the u.s. seems ready for another rate hike, that the fed should get it out of the way before the vote because the fed's not going to have any effect on the brexit vote. >> ward, you know, at this point ahead of the december fed meeting the markets had pretty much figured out we're probably going to go in december, maybe more so they now think june is a likelihood and yet you did see the disorderly market response. is that just because of other circumstances going on in december, because the dollar really took flight? what are the things we should look for to test the idea that this market is ready? >> well, if you go back to december, the market actually handled the liftoff in a fairly orderly way. it was events that took place in january that did cause significant disruption. but i don't think we can lay that at the feet of the fed. so i think that, you know, to
9:05 am
oversimplify things, we just really need to watch the equity markets and the vix specifically. and also watch the dollar. you know, if the equity markets were to begin to become unglued again and you got a rocket ship on the dollar, i think that could cause the fed to delay a rate hike from the middle of june until july. but they've sent a pretty significant message to us that they do want to get this done. >> jim paulson joins us on the phone this morning. chief investment strategist at wells capital management. jim, good to talk to you again. >> good morning, carl. >> just hop in this discussion here, we have a lot to get to during the course of the week, pmis, auto sales and jobs, is there still enough runway here where if the disappointment is great enough we go into this june meeting saying it's actually not that likely? >> i think it's possible. i think the key is probably the jobs report, carl, but there's been a fair amount of pretty
9:06 am
good data here including this morning spending report, atlanta fed numbers up to almost 3%, i think there's pretty growing odds they may go in june. and if they don't, they'll probably go in july. >> we didn't think yellen was going to give us much, jim, on friday. she actually trotted out some interesting talking points. of course she's going to talk in philly on the 6th. would you expect her to have material comments that close to the meeting? >> i don't think so. i think she'll probably now start to stay away from that with the meeting so close. but you know, carl, i think the key issue here for the stock market is why the fed would lift rates. if they're going to lift rates because their view of the economy is improving, i think that will lead to greater confidence among investors and private economic players throughout the economy. and i actually think it will be a healthy development. if we get to a point where the
9:07 am
fed has to lift rates because core inflation and wages are accelerating too fast, that could be a very damaging event for the financial markets. but what we're talking about here is the fed's showing some confidence in the economy, which i think we've needed for some time. and i think it's going to turn out to be a positive. >> jim, just to maybe build on that point, the fed is expressing confidence in the real economy at a time when profits are still projected to decline in the current quarter and, you know, stock valuations are certainly at the upper end of their range. so do we have the same kind of fix that we were in several months ago where it seemed like the economy was ready but the financial markets have really kind of, you know, been in a more uncomfortable place for what the fed wants to do? >> i don't think so. you know, i think we're getting in a better place here. i think the big thing too this changes a lot that the inflationary end of this story has ended and we now have a reinflation story going on in commodities, not just energy but
9:08 am
more broadly. we also have increasing evidence of manufacturing sort of stabilizing its resolve. i think it's becoming clear and clear to most on wall street that we just passed the worst earning season for this year and earnings will probably pick up as we go forward. i see more evidence with economic price indices have picked up global growth not just in the united states. and i like pessimism almost as high as if it would be if we were at the low levels of the year. i think that's a powerful combination that didn't exist earlier that does now. >> hey, ward, with all of this as a backdrop then, are financials just a layup? because there's an ongoing debate about the steepness of the yield curve, the degree to which these banks need to see a trend of rate hikes, not just one in order to benefit. >> well, i think this should be a pretty good environment for financials. it will be helpful if the fed
9:09 am
does raise rates again soon, which i think will happen. i don't think there is such a thing as a layup as far as the financial markets are concerned. the performance from individual institutions of course can vary quite significantly. but i agree, the u.s. economy had a bad first quarter. we're off to a really nice start in q-2. it looks like if the year's going to progress that corporations will have more top line flexibility because we are going to be seeing more inflation generated. so i think, you know, all in all the negativity that we still, you know, see permeate the markets, really is not warranted. >> finally, jim, on those worry points, we continue to talk about layoffs in retail, credit delinquencies although low seem to be at least flattening or getting -- ticking up a little bit. are any of those major in your mind? >> not so much.
9:10 am
i look at the consumer sector and the trifecta that's going right now 3.25 mortgage rate, $2 gas here in minnesota and almost 2% job creation, i don't know that's a trifecta the household sector has and maybe ever had. i think it reflects the fact that their balance sheets, household net worth 25% above -- service ratios record low, savings rates have been positive. i think the household sector in some regard is in better shape today, carl, than it's been at in any point in this recovery. the recovery seven years old but the debt cycle like some majors, like credit card usage is only about two years old. so i think the risk of recession is still pretty low. and as a result of that if we're going to have a recovery last for several more years, i think you've got to stay a bull. >> jim ward, a lot to get to in the short-term at least this week, thanks, guys.
9:11 am
jim paulson at wells capital management and ward mccarthy. the drama at viacom continues over the weekend. the company's six independent directors say they plan to contest any attempt to oust them from the board. they don't believe sumner redstone is mentally competent to act of his own free will. the letter, which was sent by or released by the lead director comes three days after a statement from redstone issued through his spokesman saying he was considering ousted viacom ceo philippe dauman and the board. make every decision with the same deliberation consideration with which remove mr. dauman and george abrams as trustees. that was of course on friday. may recall it was last tuesday we first reported many of the members of the board of directors of viacom were awaiting the likelihood that they would in fact be replaced by mr. redstone, the company's controlling shareholder. it did not happen on friday. it did not happen this weekend. and in speaking to some people
9:12 am
close to the situation, they say perhaps at this point shari redstone, because they believe of course she is in control, if you will, of mr. redstone, has not quite figured out what the plan will be. but we'll see, it could come at any moment today, tomorrow, but this board of directors really setting up something that's somewhat unprecedent in corporate governance. the letter says we face a key question, should we acquiesce in or contest a removal attempt, k w but he goes onto say to a person we feel the responsibility to challenging what we honestly believe would be legally flawed removals because they don't believe mr. redstone is acting of his own free will. we'll see at this point what actually transpires. the expectation is still that
9:13 am
those directors will be removed, that a new board will be put in place and that new management will follow, of course, the new board as well. and that will have significant impact on viacom, which by the way continues to try to negotiate a deal in which it will sell a significant minority stake in paramount conceivably to bayer in most likely in china. in fact, in the letter he spends a good deal of time talking about the consideration of that minority investment in paramount, that they hope they will be able to actually complete. and they hope the fight over control doesn't impair their ability to completely undermine that. mike, given how long i've been following deals, if you're the chinese buyer and i'm viacom and i'm negotiating with you, i have a hard time imagining you're not going to say, well, wait a second, how am i going to do a deal with you when in a month's time i have no idea if management's going to be in place? >> exactly. first of all, it's interesting
9:14 am
to me that there seems to be this great value assigned to a minority stake in a studio within another company. that being the case this only has to say, you know, why are we -- you know, what terms are we negotiating. and actually, what, david, do you think is the end game here? let's say what's the presumed end game from the shari redstone point of view removing these directors and kind of re-establishing control over viacom. and then what with regard to cbs? >> that's a great question. some people speculate the end game would be to try to put cbs and viacom together to finish what you were sort of alluding to, but we don't know. initially it may simply be to try to restore what she believes is the lost luster at viacom and enhance her own legacy as being somebody able to put a board and a management team in place that did so. one final thought from me here, the lead directors here do have a duty to the minority shareholders, but they have the same duty to their controlling shareholder. so the idea that they're going to go to delaware to contest something the controlling shareholder conceivably wants, well, we're in new territory.
9:15 am
>> carl, thank you. when we come back latest report card on ceo pay and also ahead the surprise winner of the indy 500 at the big board. we'll talk with him after he rings the opening bell. take another look at the premarket. dow's hanging onto a gain for the month of 99 points trying to post its fourth positive month. we're back in a minute. and can you explain to me why you recommend synthetic over cedar? "super food"? is that a real thing? it's a great school, but is it e right the one for her? is this really any better than the one you got last year? if we consolidate suppliers what's the savings there? so should we go with the 467 horsepower? or is a 423 enough? good question. you ask a lot of good questions... i think we should move you into our new fund. ok. sure. but are you asking enough about how your wealth is managed? wealth management, at charles schwab. it's more than a nit's reliable uptime.
9:16 am
and multi-layered security. it's how you stay connected to each other and to your customers. with centurylink you get advanced technology solutions, including an industry leading broadband network, and cloud and hosting services - all with dedicated, responsive support. with centurylink as your trusted technology partner, you're free to focus on growing your business. centurylink. your link to what's next.
9:17 am
9:18 am
average pay for executives at the biggest companies fell 15% last year, but the gap between their pay and that of the average worker remains very wide. mary thompson's in new york with details on that. >> hey, carl. the declining pay is closely linked to a tepid stock market and fewer really big paychecks at the country's biggest firms. over the weekend "new york times" and compensation consultant releasing annual look at ceo pay. it's a shifting group, not a static one made up of the 200 highest paid ceos with firms over a billion in revenue filing proxies by april 30th. on average these ceos earned $19.3 million, a 15% haircut from the 2014 average. median pay down as well 5.7% number of executives taking home more than $40 million dropped by
9:19 am
half to 8 from 16. in 2014 two executives were paid over $100 million, last year no one hit nine figures. expedia ceo total pay of $94.6 million at the top of the list. expedia stock the best performer of the firms run by the highest paid executives. cbs's total stock return fell 14% last year, ceo les moonves had a 4% pay hike. 42% stock fell and oracle's co-ceo rounding out the top five. media firm taking six of the top spots, only two had positive stock returns last year. ceos also continue to make multiples of the average worker while government data saw slight increase in wages last year to
9:20 am
over $36,800, the average ceo of these 200 firms made 524 times more than that. one last note, if you compare apples to apples, meaning if we keep the group of ceos constant, the top paid ceos in 2015 got a raise with median increase of 5% while the median stock return was up 3%. carl, back to you. >> amazing numbers, mary, thank you very much. getting some word from carl icahn he's got a new name. >> apparently. according to reuters not sure where this is coming from, everybody, but there are a number of headlines saying carl icahn has required a large position in allergan, says he has every confidence in brent saunders, the company ceo, ability to enhance value for all allergan shareholders and very supportive of mr. saunders. you can see the stock reacting in premarket here to that news. again, mr. icahn saying these things it is being reported by reuters. not sure where if it was a one-on interview or something along those lines. of course allergan shares fallen
9:21 am
rather sharply with the deal with pfizer fell apart after those changes in the regulations dealing with tax inversions that were aimed specifically at tanking the deal and succeeded in doing so. there is also been concern at least about the upcoming deal to sell generics business to teva. when will it close, expectation is that will be fairly soon. there's mr. icahn, again, his quote saying we're very supportive. oh, he tweeted it. he tweeted it. so that's how carl's letting us know about all these things. and it's also on his website as well, guys. so at this point of course just saying the right things. allergan had come back a bit but certainly suffered as a result of that deal falling apart. in fact, many had expected it would be the beneficiary given it's still inverted, it still has the ability to acquire other companies and do so perhaps with kind of a ring fenced ability to not have to compete against the
9:22 am
likes of other companies that don't have its tax rate. but it suffered a lot when that deal broke. >> it did. this is a $300 stock in march. that's the kind of sudden dislocation that carl icahn it seems he at least wants to sniff around and see if there's something there. now, the bull case has been assuming the deal closes these guys are in a pretty good position to buy back stock and other deals as you say. pricing environment still not great, but there you go. >> right. the expectation is given the $40 billion or so in proceeds they're going to realize from the teva deal they will immediately move to significantly reduce their share count and do a number of other things. in addition to of course continuing to potentially acquire other companies. i think hopefully we're going to have brent saunders join us one of these days fairly soon. it's been a while. >> couple weeks at least. door's always open, brent. don't forget. when we come back art cashin's take on the markets as we count down to the opening bell. one more look at the futures on this tuesday. more "squawk on the street" from the nyse where indy 500 winner
9:23 am
alexander rossi will talk with us after he rings the opening bell. ♪ ♪ for decades, investors have used a 60/40 stock and bond model, with little in alternatives. yet alternatives can tap opportunities that traditional assets can't. and even though they're called alternatives, they're actually designed to help meet very traditional goals. that's why invesco believes people should look past conventional models and make alternatives a core part of their portfolios. translation? goodbye 60/40, hello 50/30/20.
9:24 am
9:25 am
opening bell just a few minutes away. indy 500 winner alexander rossi will ring it and we'll talk to him in just a few minutes. re ate trader offices.
9:26 am
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
9:27 am
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.
9:28 am
just about two minutes before the opening bell. let's bring in art cashin here. art, it's a tuesday but feels like a monday. >> yes, it does. >> got a lot of work to do. you've been pretty resolute about not seeing a rate hike this year. is this the evidence whether it's fed speaker data changing your mind? >> well, the fed speaks certainly, not the data. i think the fed has worked mightily to try and get the
9:29 am
market to believe that it's going to happen this summer. and they have managed to get the possibility of july just over a flip of a coin. so i don't know that it's might dity -- what i am going to watch and recommend to your viewers, keep your eye on currencies. in particularly the relationship with the chinese currency. that was a factor when they raised in december. you had a little bit of a delayed response. and then you got a movement in the chinese currency. and we wound up with january and february. >> so, in other words the dollar has not really strengthened that much ahead with all the fed speak i think what you're referring to here, right, art? is that something you think the markets have maybe gotten used to this idea? the second time around the taper tantrum and when the taper happened it was a less dramatic response. could we be for something we're accustom to -- >> it is a little more muted but
9:30 am
still keep an eye on it. >> finally, what does it mean to punch above 2,100 again, anything? >> not much because you've got layer after layer of resistance here. 2104 to 2109 another layer. >> thank you for that. art cashin at the big board we said earlier alexander rossi winner of the indianapolis 500. we'll talk with him in a few moments. fascinating story. at the nasdaq oak capital trading company based in london doing the honors. a lot of movers to get to. soda and starbucks are two big stories. starbucks because they're opening this new cold bar, a portfolio of cold beverages. and then in soda realizing that people like beer. >> apparently so. >> i think when you talk about beverage innovation, this is what we're kind of talking about here giving people a little more of what they think -- i just hope the starbucks work flow stuff is sorted out before they get to this cold. that's been an issue i think in
9:31 am
a lot of the stores. and of course the lawsuit about putting too much ice in the drinks. >> one of my favorite deals today is relatively small one. it's jazz pharmaceutical buying celator. but check this out, cpxx, take a look where this stock was trading in february. it was trading at $1.19. it is going out for $30 and 25 cents a share in cash in a deal announced this morning. the key here was back in march when the company announced that its lead asset, a drug for high risk acukucute myloid leukemia reported results, overall improvement in patient survival about three and a half months more than what would have been the case. stock traded up a lot on that, traded up a lot since, you could have bought a share of this for $1.19 in february.
9:32 am
february. and it's being taken out obviously at a huge premium to its closing price on friday by jazz. the deal itself worth about $1.5 billion. looks to not have much hair on it at all, they've even carved out the risk of the drug itself from the material average change clause. >> you wonder why traders can't stay away from biotech. >> exactly. every so often -- >> one product and one lottery ticket. >> one other deal i thought was sort of interesting, two midwest utilities, utility stocks have been amazingly strong. the valuations are high. it's mostly a cash deal. and i looked at it and basically great plains paying mostly cash for an $8.6 billion acquisition plus some assumption of debt, they basically pay the same in debt on their own debt as they do in a stock dividend. so in a sense the debt markets have been so good they're saying fine you might as well kind of raise the cash or debt levels by an adjacent utility.
9:33 am
once these utilities have run where they have, you have to figure deals is the one thing that can get them moving. though great plains will open a little lower. >> $9 in great plains stock, and to your point, michael, cash given what you're paying for borrowing right now, deals are almost always acretive when you're buying for cash. that's one reason why we have continued to see decent pay some merger and acquisition activity. can't point out enough the incredibly low borrowing rates. imagine if you're doing in europe where you're not paying anything at all, might get them to pay you. >> if you're great plains issue new stock for it paying 3.3% dividend. so it's almost kind of silly not to do debt if the ratings -- >> in the interest of the banks and the deal becomes much more cretive as a result. >> in the absence of many earnings this week we are going to get workday tonight, but it's mostly research driven, micron and deere the beneficiaries of
9:34 am
upgrades. deere at ubs neutral to buy. micron baird goes to outperform on a better margin story, cost structure story. and more of what we've been hearing about and that is price stabilization within chips at large. >> yeah, seems to me the micron call is obviously, you know, kind of a beaten up value name in a relatively strong group. it's not exactly their area of semis that have been strong, but semis in general have in fact if anything gotten a little overbarred here and look like kind of a strong group within tech. >> brings to mind this story in nikkei today about apple where we have like a full refresh every two years, the 6, the 6s and the 7, nikkei argues they'll graduate to a full year refresh and that the 7 this fall will not have a complete makeover. better camera maybe, better battery. >> it's interesting. and seems like maybe if that's true an acknowledgment by apple
9:35 am
that, look, there's just not a whole lot left to do, we're already kind of at that point where the features are what they are at least for the foreseeable -- i actually looked back at this date in 2014 ahead of the iphone 6 launch and what was known in terms of leaks and rumors about that phone and it was basically dimensions, two different sizes, so at this point at least last cycle we knew pretty much what it was going to be. >> of course apple was the best dow stock last week. as you can see back to 100. some people thought for a while might not get back there any time soon. >> yeah, it's obviously gotten a little bit of help. and i'm going to call it more or less coincidence or at least just a little bit of a boost that berkshire hathaway took its stake there. it to me shows you it became kind of by the financials something that was an incredibly defensible stock to buy. didn't have to have an edge on the technology to say i can own this thing. >> to round up the deals and none of them of great size
9:36 am
except the great plains deal with mentioned earlier. a provider of engagement marketing software and solutions does a deal with private equity. we haven't seen private equity rear its head that often. it's about $1.8 billion in cash, 35.25 a share for shareholders of symbol mkto. they're saying it's a 64% premium to what they call the uneffected stock price. there had been some reporting on this possibility. we'll watch, i'm not sure it's opened as of yet. it was halted news pending that news out again it's vista equity partners private equity firm that does play often in technology deals. we mentioned earlier carl icahn tweeting that he's taken a sizable position in allergan. that stock also looking up on that news. he says he has full support for brent saunders, the ceo of allergan, has his full support, the two dealt with each other when saunders was over the forest deal some time back.
9:37 am
of course as michael and i were discussing allergan itself had suffered from a variety of concerns including drug pricing, also got sucked into that vortex involving valeant, endo, mainly companies that had been acquirerers over and over again, serial acquirers with low tax rates but they all seem to get penalized and a lot of hedge funds spit them out. speaking of valeant, by the way, we can tell you former ceo michael pearson still has a few paydays coming from that drugmaker. an s.e.c. filing reveals that pearson will be paid about $83,000 a month to serve as consultant. that will be through december of 2017. also severance of $9 million and of course gets the medical, dental, vision, i hope better than we get. >> pretty nice separation agreement. >> not bad. not bad. >> dow is up one point.
9:38 am
let's get to bob pisani. welcome him back from a week's vacation. hey, bob. >> and i highly recommend hawaii to everybody, particularly ku wie, what's not to like, the economy is doing well there, the convention business is on fire. i think hawaii is benefitting about concerns to travel to other countries. i saw a lot of conventions and comments from people saying business has been strong there and more conventions, more small businesses groups are coming there. let's move on and talk about the markets. it's a mixed market overall, but energy and financials are leading consumer discretionary utilities, kind of a mix eed market overall, but the mashlgts held up very well as we go into the close in may here. show you some of the global indices, s&p among the leaders internationally. germany done very well after a horrible start. remember germany had a very, very rough first quarter overall. it's been making up for it. she think high do shanghai down a little bit. japan stronger as the yen has been weaker recently. we've seen notable rotation this month. that's what you could call may
9:39 am
typified by. so what was the laggard in the earlier part of the year? tech stocks were laggards, and yet tech's been a real leader. we've seen double digit gains in nvidia and salesforce throughout the month. health care also did really well. energy and industrials were doing well until recently. and they have been laggards this month. so we see a little bit of rotation going on. we also saw this with the two biggest winners and losers. banks laggard earlier in the year, they did well in the month of may, retail stocks all fell apart of course on their earnings reports and on the realization that a lot of their businesses simply are not going to be coming back. also big story china where we saw very nice moves in china in the shanghai and shens shenzen exchanges. there were some very interesting moves and perceptions that msci and their indices may include mainland china in their major
9:40 am
indices. right now only stocks in hong kong are included. that excludes a big part of china here. goldman upped the chances of inclusion from 70% to 50%, msci will make a decision by june 14th. this will have a lot of implications for indexers around the world. shanghai and shenzhen have had problems recently. massive trading holds remember in june pushback from people saying they're not ready to be included in the global indices. overnight they said they would try to limit trading halts to no more than three months, sounds ridiculously long but better than they've had so far. at the close we will see some inclusions from the u.s. listed china stocks in those embassy indices. you'll see action at the close in stocks like alibaba and jd.com. carl, good to be back. >> good to have you back, bob pisani. rick santelli's at the cme in chicago watching this ten-year. hey, rick. >> absolutely. that will be out in a few minutes. we'll quickly go through the charts in front of that may
9:41 am
number. if you look at a one-week of tens and i picked one-week, can't do two-day, we were closed yesterday. i want you to notice the treasuries retaken the ground we slipped. we saw buying into the holiday weekend, everything up three basis points but of course the two-year already been pretty firm. if you look at a may 2nd start to bunds, our counterpart overseas, what's interesting while we were closed rates crept up a bit close to four-week highs as they get ever closer to 20 basis points. look at the very short end i mentioned earlier, mid may read on two-year, why is this interesting? because it's up about a good 10 or 11 base points. if we look at the dollar index from the same context, of course the minutes incited everybody to put the fed back in play, always friendly to the dollar. and the last chart, we'll go back to the 28th, why? because that's the time the dollar index was at this level. carl, back to you and see you in a few moments for that release of chicago purchasing managers
9:42 am
survey. >> all right. rick, thank you very much. oil continues to hover just below 50. jackie's at the nymex. hey, jackie. >> good morning to you, karl. we're getting close to the $50 level, keep testing it. we need to close over 50 is what the traders are saying before they really believe that the support is there. a couple of big catalysts to watch for this week, tomorrow we get inventories from the department of energy. of course that opec meeting on thursday and the jobs report on friday that could have an impact with the dollar, which can push crude around. but right now there's good support for crude at these levels even if the dollar index continues to rise. crude probably won't go that much lower from here even though analysts are saying the upside right now is limited, carl. >> thank you very much, jackie deangelis. when we come back, bank stocks among this month's biggest winners. we're going to look at whether to expect more of the same in june. and as we said, pmi is on the way. don't go away. new bikes aren't selling guys... what are we gonna do? how about we pump more into promotions? ♪
9:43 am
nah. what else? what if we hire more sales reps? ♪ nah. what else? what if we digitize the whole supply chain? so people can customize their bike before they buy it. that worked better than expected. i'll dial it back. yeah, dial it back. just a little. live business, powered by sap. when you run live, you run simple. with usaa is awesome. homeowners insurance life insurance automobile insurance i spent 20 years active duty they still refer to me as "gunnery sergeant" when i call being a usaa member because of my service in the military to pass that on to my kids something that makes me happy my name is roger zapata and i'm a usaa member for life. usaa. we know what it means to serve. get an insurance quote and see why 92% of our members plan to stay for life.
9:44 am
because my teeth are yellow. these photos? why don't you use a whitening toothpaste? i'm afraid it's bad for my teeth. try crest 3d white. crest 3d white diamond strong toothpaste and rinse... ...gently whiten... ...and fortify weak spots. use together for 2 times stronger enamel. crest 3d white. it's more than a nit's reliable uptime. and multi-layered security. it's how you stay connected to each other
9:45 am
and to your customers. with centurylink you get advanced technology solutions, including an industry leading broadband network, and cloud and hosting services - all with dedicated, responsive support. with centurylink as your trusted technology partner, you're free to focus on growing your business. centurylink. your link to what's next. welcome back to "squawk on the street." breaking news, our may read chicago purchasing manager survey and we lost a handle. no, not like on a suitcase, we were supposed to be 50.5, we slipped under 50.
9:46 am
there's your handle change 49.3. 49.3, that's the lowest level only since february when it was much lower at 47.6. and prior to that we had quite a string of 47s, 48s, under 50. so of course we pay attention to this to see if the national number will mirror it. and we will know later in the week if that is the case or not. carl, david, back to you. >> okay. thank you very much, rick santelli. well, financials are among this month's top s&p performing sectors for a look at whether they can keep that momentum going we're groing to bring in gerard, beneficiary would seem higher rates either move up from the fed in june or july, does this rally that we saw continue given that prospect? >> i think it does. i think what you'll find is that the bank stocks are still very inexpensive relative to the market. so i think people are going to continue with this rally assuming of course the fed raises rates, which we think
9:47 am
could come in july. >> and what would be the impact? i know you've run -- you run scenarios on interest rates sensitivity for several things. >> correct. when we look at the top 20 banks we think it could positively impact earnings by as much as 11% if we get continuous rate increases through next year. so the single rate increase of 25 basis points will have a smaller impact, but if we get rate increases in december which we think could happen and possibly next year, upwards to 11%. >> is that the what the case boils down to? is it fed funds besides the stock's looking cheap? >> i think you're right the bull case has been weighed on that and it's like that old peanuts comic strip with lucy pulling the football away from charlie brown, yellen has done that a number of times. >> the title of your report let's hope she doesn't pull the football away again. how about political risk, regulatory risk going into the fall. an election ten weeks away. >> i think that's a hard call either candidate will be
9:48 am
slightly better than the regulatory environment that we've been in today. the big regulatory event coming in june is the so-called ccar results, stress tests, banks increase dividends and buybacks and we expect some banks like citi group or m & t ceasee. >> many of the banks how it's increase also the dynamic between regulators and regulated, but what caught my eye, gerard, is just how many people have been hired in compliance across the board for so many of these big banks. and it does bring that word back, which is utility. have they become in a sense utilities? >> david, you're so right. i think we've been calling the biggest banks, the big four bank america, citi group, wells fargo, j.p. morgan chase are becoming financial utilities for the very reason you've cited. it's the full employment act for these folks that are hired because this regulatory burden
9:49 am
is not going away. the rate of increase has ended in terms of double digit rates of increasing costs, but it's going to remain elevated for quite some time. >> what does that do to the investment case then? >> it's an interesting observation because the return on equity for the industry has been permanently lowered. and there is going to be some interesting debate over the next 12 to 18 months that if we do get rising interest rates and the return on equity for some of these biggest companies still cannot exceed their cost of capital, what are they going to do? and there's going to be some real pressure put on these management teams to come up with innovative solutions to get that r.o.e. over their cost of capital. >> still a far cry from february where we were asking them to open their energy books to all of us, right? how close of a scare was that? >> i would say the february scare was for selected small banks in texas, i think, was pretty severe. but for our biggest banks their revenue is so diversified now you look at j.p. morgan's first
9:50 am
quarter results, they took a $500 million charge to build up the reserves for energy. but they still earned an enormous amount of money because they're so diversified. so for our biggest banks it's not as much of a scare. smaller banks you're right. we'll leave it there for now, but continued conversation. i know. thank you. >> you're welcome. >> gerard cassidy from rbc capital. >> when we come back, a rookie stuns the racing world by capturing the checked flag at the indianapolis 500. we'll talk with alexander rossi when we return. meanwhile the dow is up. ow. (woman) and there's no way to restart it. (jon bon jovi) with directv there is. ♪ you see, we've got the power to turn back time ♪ ♪ so let's restart the show that started at nine ♪ ♪ and while we're at it, let's give you back your 'do ♪ ♪ and give her back the guy she liked before you ♪ ♪ hey, that's the power to turn back time. ♪ (vo) get the ultimate all-included bundle. call 1-800-directv.
9:51 am
9:52 am
great time for a shiny floor wax, no? not if you just put the finishing touches on your latest masterpiece. timing's important. comcast business knows that. that's why you can schedule an installation at a time that works for you. even late at night, or on the weekend,
9:53 am
if that's what you need. because you have enough to worry about. i did not see that coming. don't deal with disruptions. get better internet installed on your schedule. comcast business. built for business. a 66-to-1 long shot but stretched the tank of gas and won in stunning victory. am exander rossi joins us outside the new york stock exchange. everybody knows when you're watching the fuel gauge get to zero. >> it's stressful enough when you're in a car trying to get to the next exit, but for me to try to win the indy 500 was huge stress and big credit to the guys who knew we had enough to get there in the end. >> first american born rookie to
9:54 am
win since 1928, what does that mean to you? >> it means a lot. the largest turnout we've had at the indianapolis motor speedway. for me to be able to do it as an american showed american talent is on the rise. and it's very present in the indy car series, was a big boost for me. >> what does it mean for you in terms of what changes? obviously your bank account increased by a decent amount, but beyond that expectations now going to be higher? >> yeah, for sure. as a racing driver you always go into an event aiming to win. starting 11th i knew we had a decent shot. you never expect to win, so now that we have, i don't know if i'll be able to match that again in terms of that was the biggest race globally that's ever existed. so, you know, we have a race this weekend in detroit and looking to carry momentum forward and definitely for the rest of the season. >> you grew up admiring andretti. >> yes. >> and yet your career took you to formula 1, you spent years in europe and now you're sort of in this period where you could go either way. i mean, do you have a real
9:55 am
affection? >> it's strange, man. i was never expecting to be in indy car this year. when i got the phone call from michael andretti and the opportunity to drive it was something that i jumped at. at the moment i'm fully focused on indy car and we got a great sponsor onboard with napa auto parts and look forward to carry that momentum for the rest of the year. >> i would expect other sponsorships may follow as well. are you starting to hear things? your phone ringing lately? >> it's gotten active. my battery doesn't last as long as it used to. i'm just grateful to be here and have the opportunity. >> everybody was learning about you quickly over the weekend. and i saw some quotes, for instance, your workout routine has shifted from cardio to strength. >> yes, sir. >> why? and what does that do for you? >> only in europe and formula 1 the weight is a much bigger restriction than indy car. in indy you don't have power steering, so the weight isn't an
9:56 am
issue. i've been running for the past seven years of my life so it's nice to get into the gym and lift weights. >> when you think about the state of racing in general, corporate interest, consumer interest, where are we, do you think? on the scale from one to ten, versus where history has taken us? >> i think this past weekend was a ten in terms of we had the greatest race in terms of attendance and viewership that's ever happened. it was the largest single day sporting event in the world. so i think it's important for us now to carry that momentum forward, educate people why the indy car series is such an amazing championship and the most competitive open road championship in the world. >> what is the fuel capacity of a car like this? this is not the one you won in. >> no. it's not the one we won in, it varies but it's around, you know, 20 or 30 gallons. >> it goes quick. >> down to the last -- >> especially with lead foot here. alexander, great to mee you. congratulations again. alexander rossi winner of indy 500. dominic chu has more for us from
9:57 am
hq. carl icahn recently acquired a large position in allergan and very supportive of the ceo there brent saupders saunders. allergan issued a statement in response to carl icahn's investment. acknowledge the investment by carl icahn and has no reason to believe that this investment was made for purposes of influencing the actions of management or control of the company. we welcome all investors who recognize the value of our business. the company is grateful for the confidence of our investors whether they are new holders or have been long-term investors. that a formal statement coming from allergan. latest development there in what's happening. again, we're watching those shares up about a percent. more "squawk on the street" when we return.
9:58 am
i'm only in my 60's. i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i looked at my options. then i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare, you may know it only covers about 80% of your part b medical expenses. the rest is up to you. call now and find out about an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement insurance plans, it helps pick up some of what medicare doesn't pay. and could save you in out-of-pocket medical costs. to me, relationships matter.
9:59 am
i've been with my doctor for 12 years. now i know i'll be able to stick with him. [ male announcer ] with these types of plans, you'll be able to visit any doctor or hospital that accepts medicare patients. plus, there are no networks, and virtually no referrals needed. so don't wait. call now and request this free decision guide to help you better understand medicare... and which aarp medicare supplement plan s we love to travel - and there's so much more to see. so we found a plan that can travel with us. anywhere in the country. [ male announcer ] join the millions of people who have already enrolled in the only medicare supplement insurance plans endorsed by aarp, an organization serving the needs of people 50 and over for generations. remember, all medicare supplement insurance plans help cover what medicare doesn't pay. and could save you in out-of-pocket medical costs.
10:00 am
call now to request your free decision guide. and learn more about the kinds of plans that will be here for you now - and down the road. i have a lifetime of experience. so i know how important that is. good tuesday morning. welcome back to "squawk on the street." i'm carl quintanilla with simon hobbs. kayla tausche, david faber at the new york stock exchange. we pack a lot of data into just four sessions for the time being dow basically flat, s&p at 2101
10:01 am
for the first time since april 20th. and then check out oil just below 50 on a week where energy's going to get a lot of attention as well. meanwhile, we have data hitting at this hour. let's get to rick santelli atd the cme. rick. >> much like chicago pmi this one's a disappointment. 92.6, we were expecting a number slightly north of 96. last month gained 0.5 from 94.2 to 94.7. but here's the fly in the ointment, that number 92.6, well, we equal that in november of last year. you go all the way back to july at 91 to find a weaker number. so a bit of a dis appoiappointm there. equities are of course just a bit in negative territory. and we look at the treasurietre ten-year getting close to 190, kind of like it was before it took its hiatus going into the long weekend. simon, back to you. >> of course it's the employment report, the big one on friday, rick, thank you very much.
10:02 am
meantime markets essentially reopening to the flat line this morning after of course last week the s&p chocked up its biggest weekly gain in a couple of months with a gain of 2%. with us now is cnbc's senior markets commentator mike santoli and erin gibbs. michael, it's interesting, volumes were low oftentimes last week, but we were able to make those gains despite the fed repeating again and again that interest rate rises were on the way. >> yeah, which simon, you have to continue net positive that expectations for a move this summer rising at the same time the stock market is able to, i guess, adjust to that view. now, bank stocks rally in large part because of fed expectations. if i look back to the last time we closed above 2100 isn't the s&p 500, april 20th, bank stocks higher, high yield spreads tighter which means high yield market is stronger, oil's a bit higher, vix-to-volatility index about where it was. on a net basis you're slightly better positioned.
10:03 am
meanwhile, the public keeps pulling money out of stocks so therefore sentiment is not exactly giddy yet. seems to me we're at least in a position to challenge those old highs, again, this 2100 level in the s&p 500 once calculated we crossed and recrossed it more than 50 times last year between may and december. this has been an area hard to get through. >> yeah, erin, where are you on this? usa today is warning again, and we've heard this before, of an event risk june and the possibility that we get a summer of shock. obviously the employment report, it's the fed, it's what the uk does with brexit. but having said all that of course we're still doing okay as a market. it hasn't really fallen back. >> right. we're expecting us to continue this trading range. and when you look at particularly valuations we've been just bouncing between about 15.5 to 17.5 times earnings. we're coming a little off those highs. june tends to be a low volatility month in any case, so even if there is a fed hike in
10:04 am
mid june, we're still expecting just a low amount of volatility going in. valuations are kind of toppy. we don't expect any really big news certainly can be the chinese pmi numbers on wednesday could add a little volatility for the week, but ilt matly we see a consolidation faze. >> erin, are you able to help us to the extent events factored in. talking in asia still overnight saying he felt the market was well prepared for a summer rate hike. would you agree? >> yes. >> question of whether it's just one i guess. >> yeah, i think we're really prepared for one whether it comes in june or july, that's really baked in within the estimates that we're looking at. i think the one thing that's interesting for me today more has been the consumer spending because that's one area where we've really seen some good value. a lot of retail stocks have really been beaten up and there are some of those retail consumer durables, particularly those related to housing
10:05 am
spending that could be some actual real options coming into the summer months. >> yeah, you know, simon, just to that point on whether the markets have priced this in, i think the stock market conclude fine with it as long as the dollar doesn't race that much higher. it's very contingent. yes, knowing what we know now if earnings are going to be coming back to positive growth in the third quarter, which is what the consensus thinks, that can be fine. big picture, does follow this theme of main street taking a greater share and corporate profit struggling, which has been a pattern in place since late 2014, which is when the market stalled out. >> right. >> a report out just a couple days ago about some of the black swan events that could hit the market and the highest probability they gave, the highest probability event was reverberations from what's happening in europe. and how much that could knock global growth. >> that's a pretty good odds on favorite. one thing i think to keep in mind is that when banks are
10:06 am
making lists of unpredictable events by definition you can't foresee, i think it's a positive when we start saying here's what we should be worrying about. so maybe so. maybe something disorderly in the european markets and the european bank stocks were the real area to watch back in the winter. i just don't know how to handicap that at this point. >> it is a french bank in fairness. it sells european insight in large part. >> very important distinction. >> erin, i guess the other thing in a glass half full sense the other thing we should point out is we have a june of risks and some very big risks, but oftentimes those risks don't actually amount to trouble for the market. i mean, i think that's probably worth remembering at this stage. until you see the whites of their eyes on say the brexit vote, then a lot of people will say along. >> right. same thing we saw with a lot of chinese decreases earlier in the year. you really need to see some negative numbers, not just one month but two, three months, a real trend before you really see that capitulation and change in the marketplace.
10:07 am
so like i said for most of the summer we expect a fairly flat summer. no big upward moves, no big downward moves, sort of low volatility. >> okay. we'll leave it there, have a great week, thank you both. erin gibbs and mike. when we come back summer travel season in full swing but the lines at the airports don't seem to be getting any better. is staffing the issue and how can it be fixed. coming up after the break former tsa administrator chad wolf will weigh in. (speaking japanese) oh watson, your japanese is very good. thank you. (speaking japanese) exactly. i can understand nuance, context and idiom in seven languages to help companies all over the world with everything from retail solutions, to banking, to cyber security. (speaking japanese)
10:08 am
10:09 am
man 1:man 2: i am. woman: ex-military? man 2: four tours. woman: you worked with computers? man 2: that's classified, ma'am. man 1: but you're job was network security? man 2: that's classified, sir. woman: let's cut to the chase, here... man 1: what's you're assessment of our security? man 2: [ gasps ] porous. woman: porous? man 2: the old solutions aren't working. man 2: the world has changed. man 1: meaning? man 2: it's not just security. it's defense. it's not just security. it's defense. bae systems.
10:10 am
travelers breathing a sigh of relief today after a few screening headaches during the long memorial day weekend. with the travel season in full swing, what must the tsa do to keep lines down and streamline screening procedures? joined by former tsa administrator chad wolf. good to have you. >> thank you, good morning. >> did we just get lucky this morning? what happened? >> yeah, i think so. i think tsa has recognized some of their problems and they're trying to staff up. i think you've got a very busy travel summer schedule coming up, so i think they're not out of the woods yet, this is sort of the first test the memorial day break. but there's a lot of travel, passenger loads are up so tsa will be really under the gun over the next several months. >> we've seen some personnel adjustments especially like chicago o'hare. what do you think they're doing right so far in the wake of the irritation from consumers? >> yeah, i think they're surging staff, mainly, to these problem airports. so places like atlanta, chicago,
10:11 am
denver and others, they're making sure that they have all of their lanes open at every checkpoint. i think this is sort of a band-aid solution. i think on a longer term issue you've got to identify some of these underlying problems that are occurring at tsa. one of them is precheck. they're not getting the numbers they want into their frequent flier or their precheck program. so tsa has really got to identify that. and i think also we have to look at the if he ctechnology at the checkpoint. you can only process so many passengers and one of the limitations i believe at the checkpoint is the technology they're using. >> chad, a lot of travelers have been urged to sign up for precheck and a lot of them have been waiting in line to do so ahead of this heavy travel season. but we've seen some people tweeting pictures of say dallas-ft. worth where the precheck line was actually extending into the atrium of the airport. what happens if precheck is bursting at the seams if there are too many people that sign up for that? >> i don't think there's too many problems with individuals signing up for precheck. this comes down to a tsa
10:12 am
management and efficiency issue. and tsa at dfw or whatever airport where the precheck lines get longer, they need to open up additional lines. so fsd or federal security directors at those airports have the ability to manage those lines accordingly. there really shouldn't ever be a time where the tsa line is backing up and becomes longer than the normal line. at times that can occur, but tsa has the ability to shift screeners and to shift those lines ask to make more than one tsa precheck line. perhaps you need two if you have the passenger loads at that airport for precheck. >> chad, with the greatest of respect, it's not brain surgery. i mean, anybody who stood there and waited in a line can see some of the things that are going wrong. and surely if this is what tsa does for a living, it too would have identified just some of the things that you were just saying. i mean, it's not -- it's kind of obvious stuff. what fundamentally has gone wrong here, do you think? >> yeah, i think, you know, for the most part tsa has lost the
10:13 am
trust of the american public and the traveling public. we have a new tsa administrator trying to put his team in place. and i think he's doing the best he can. it's been a limited time, so we'll see how he does over the long haul. but you're right, it's not rocket science. but tsa really needs to do some fundamental which i thithings a checkpoint to speed that up. i've been advocating for some time they need a blue ribbon panel to come in to take a look to see what are the issues and what should the checkpoint look like in the long-term. just recently they've opened three innovation lines in atlanta talking about an automatic bin return system, some conveyer belts. these are things tsa has been talking about for four or five years. and why are they just now instituting these innovati nono lines? that goes back to the management of the agency and the role that the checkpoint and technology plays in their checkpoint operations. they utilize great technology for checkpoint -- or for checked baggage called c.t. and why they're not using that
10:14 am
at the checkpoint to alleviate some of these lines you can reduce throughput, increase passenger -- you know, the throughput times, you can do some really innovative things at the checkpoint. these are the questions i think a lot of folks are asking, which is we've got great technology, tsa has been at this for 15 years. you should be able to identify the problem and solve this. >> sounds like you're saying the solution can be created within the agency or at least within the public sector. and it doesn't have to be an outright rush to privatize. is that what you're saying? >> yeah, i think, you know, there are certainly things that tsa can do here in the short-term and long-term that can get this under control. i think when you talk about privatizing the screener function at airports, i think it's a debate worth having. kansas city and san francisco certainly like their private screeners and have efficiencies there. you know, being able to train, hire and fire screeners outside of the federal model is attractive to a lot of different
10:15 am
airports. so i think it's certainly a debate worth having, although i do think there are things tsa can do here in the short-term that can help the situation. >> finally, i wonder, let's pretend for a moment that the summer ends up being kind of like memorial day was, meaning the lines are not extreme. do you think that reduces the urgency to do anything at all and we just continue to drift along? >> unfortunately, i think it does. i think unless there is a problem that's identified, that's reported on a lot, sort of the attention shifts away from tsa. but what we saw last year is it's not only wait times an issue, it's security at the checkpoint. if you recall those i.g. tests from last year about this time where tsa was letting through 96% of prohibited items through the checkpoint. that's a real problem for tsa. they have to balance the weight time issue with the security at the checkpoint. and admiral neffenger says we have to focus more on security, that may mean longer lines. i don't accept that. i think you can do both.
10:16 am
i think you can have great security and you can have efficient lines. and i think tsa needs to look at solutions like checkpoint technology that gets them there. >> certainly something everyone, and we mean everyone, is interested in and can relate to. chad, thanks again for the insight. chad wolf former tsa assistant administrator. >> ahead on the show, this morning's case shiller data shows home prices continuing to rise across the country. is it too late to invest in the home builders? we'll debate that next on cnbc. and fight far from over at viacom. the board is fighting back after sumner redstone's attempt to oust directors. more on that when "squawk on the street" returns. e uptime. and multi-layered security. it's how you stay connected to each other and to your customers. with centurylink you get advanced technology solutions, including an industry leading broadband network, and cloud and hosting services - all with dedicated, responsive support. with centurylink as your trusted technology partner,
10:17 am
you're free to focus on growing your business. centurylink. your link to what's next.
10:18 am
10:19 am
well, the battle has yet to fully begin, but the independent directors of viacom in a letter released late yesterday made it clear they will fight to retain their seats should the controlling shareholder of the company sumner redstone seek to have them removed. as i reported last week first on tuesday and then again on friday, there's a great expectation on the part of many of those directors that in fact mr. redstone will move to have them removed as directors of the
10:20 am
company replaced by another slate of directors and conceivably by a new management put in by those independent directors or the entire board of directors. in a letter released late yesterday on behalf of the six independent directors of the company went back and discussed again their belief that sumner redstone is being controlled by his daughter shari redstone and said to a person, we feel the responsibility to challenge in court what we honestly believe would be legally flawed removals. that is special so, he writes, because the flaw we see would be the inexplicable assertion that sumner was acting of his own free will and with the mental competency to do so. setting up of course a remarkable series of events. by the way, nothing has happened here while there is still this expectation that something will. at this point sumner redstone or shari redstone, depending on how you view things, has yet to make the move many expect will take
10:21 am
place. but it is extraordinary of course to see a board come out in this way and conceivably be fighting with its controlling shareholder, to whom it owes a fiduciary duty, there's his daughter shari redstone who already last week or week and a half ago replaced on the trust that oversees the controlling stake in viacom and cbs, replaced philippe dauman and george abrams, long-time trustees with people who are more favorably disposed perhaps to her view of the world. at least that again is the belief of mr. dauman and mr. abrams. back to the board fighting in a sense for mr. dauman, it's extraordinary. it's something we haven't seen if in fact the move is made to replace them and we end up in delaware court, it will be very interesting to see what is decided in that courthouse. of course other litigation already commenced in massachusetts to try to
10:22 am
reinstate mr. abrams and mr. dauman on the trust. and much may come from here. but of course we're talking about two large companies. and that being cbs and viacom, and their fate seemingly on hold right now as one continues to try to negotiate a deal to sell a minority stake in the paramount studio, simon. >> seems never ending. >> well, it's just begun. just begun. >> this is true. in the meantime this morning's case shiller index shows house prices nationally gaining 5.2% over the past year, separately of course both new and existing home sales surging to their highest levels this year setting up the market for what would appear to be a strong spring selling season. we take a look at the home builders, the basket of stocks year-to-date badly lagging the broader market. if you took that chart back into last year, the position was even
10:23 am
worse. analyst from j.p. morgan joining us. what is going ton here? why the disconnect between what appears to be a very solid housing market and the stock sns. >> this late in the recovery there's been a ton of skepticism about the continuing recovery and it really dates back to the taper tantrum bursting the momentum in the housing market in mid 2013. and since then it's been a slow pace of recovery, but the fact is if you look at 2015, the housing market lived up to expectations. it was an above average gdp performer and we expect the same thing to happen this year. >> although from what you're saying we might have expected more, our expectations have been severely downgraded. i don't want to put words into your mouth, but is that in essence the position? >> well, we had double digit growth last year. we should have double digit growth again this year in terms of volume starts and new home sales. so i would call that a pretty good performance. >> okay. michael, what is your take on this? some stocks like toll brothers down 20% over the last year.
10:24 am
other big housing builders are down almost 40%. what is your take on what's going on? >> well, i think you have a couple of things. first off, on a bigger picture, really what we're talking about is the lack of the first-time buyer that's impeded the pace of recovery compared to prior cycles. i think builders in a sense just like consumers have been gun shy to get back into the market, take on additional risk. and so you're only seeing a couple of builders like d.r. horton go more aggressively against the first time buyer. toll brothers is a little bit of a separate issue. i think there are concerns there around the manhattan market and the foreign buyer. that's one of the reasons we like it. it's one of the most attractively priced. >> michael, as we wait for some of those pickups that you mention, there are other less orthodox indicators that some are looking to our colleague
10:25 am
robert frank wrote in the times over the weekend what he call add worrisome pileup in nine-figure price homes the last time that happening of course in 2007. any indicators you think should be showing us red flags in the market rather than slowing momentum to the upside? >> you know, i think one of the things that ultimately we look at the most in terms of the cycle is supply. supply by and large is still fairly reasonable if not tight in a lot of markets. we track the top 23 markets across the country down 5% year over year. also affordability is still reasonable relative to historical averages. so we're pretty comfortable at this point. and, again, it's important to recognize we're still roughly 30% below long-term averages in terms of starts and new home sales. >> what's interesting is that both of you have bought the same two stocks to the table. michael mentioned toll brothers, which i know is one you're interested in. and both of you also have independently picked out cal
10:26 am
atlantic. why would you draw attention to that? >> so cal atlantic has the fastest rate of book value growth, return on equity in the sector. but there is a huge discount against the other mid and large cap builders. the reason is it was formed out of a merger last year. people are still skeptical about the merger even though there are very good reasons not to be. >> right. and, michael, what would you add to that as somebody else who picked out calatlantic. >> yeah, i think the other key point is that because of the merger, and this is actually a very basic reason, but it's still very much relevant, a lot of pms just didn't have the ticker caa on their stock screens. >> really? >> the company was very much focused for the first three, four months on just integrating, which was the right thing to do. but they were a little bit more focused inward and not reintroducing themselves to the broader public. so we see a real opportunity.
10:27 am
this is in a sense a large cap builder trading at a small cap multiple. and that's what we think that gap should narrow over time. >> okay. we thank you both for the recommendation. thank you. when we come back, could apple be changing its update cycle for iphones? a report has the investor community buzzing today. shares dipping just below 100 today after a nice rally last week. top analyst is going to weigh in in a moment.
10:28 am
great time for a shiny floor wax, no?
10:29 am
not if you just put the finishing touches on your latest masterpiece. timing's important. comcast business knows that. that's why you can schedule an installation at a time that works for you. even late at night, or on the weekend, if that's what you need. because you have enough to worry about. i did not see that coming. don't deal with disruptions. get better internet installed on your schedule. comcast business. built for business. good morning everyone. i'm sue herera and here is your cnbc news update at this hour. a shiite military group aligned with the iraqi government releasing footage appearing to show the bombardment of isis positions in fallujah where an operation to retake that city is underway. isis has held fallujah for the past two years. hundreds of protesters blocked access to a logistical area used by trucks near
10:30 am
marseilles as part of an ongoing action against french labor unions. the trucks were allowed to leave but not enter as protesters lit fires and barricaded off the area. california governor jerry brown has endorsed hillary clinton for the democratic presidential nomination. in an open letter to californians, democrats and independents, he says clinton is the only path forward to winning the presidency and keeping donald trump out of the white house. clinton's rival bernie sanders took time away from the campaign trail to catch the golden state warriors win game seven of the nba western conference finals. he attended the game with actor danny glover, who is a big campaign supporter of his. that is the cnbc news update this hour. carl, back down to you. a good game to catch if you're going to leave the trail. >> a good one. could iphone sales improve enough to turn around recent sentiment for apple? our next guest says yes. analyst with rbc capital markets. good to have you back.
10:31 am
good morning. >> good morning. >> we got to have this report out of nikkei today talking about their report an elongated refresh cycle from the company's standpoint. first off, is that report credible in your view? >> you know, i'm not sure if this is a long-term structure apple is implementing, but the data points right iphone 7 would be more evolutionary or revolutionary to the cycle i think that's been validated by numerous sources, right. the foreign factor will be the same, incremental updates so from that perspective i would say they have a lot of the right data points, i'm just not sure if apple is truly going to conscious three-year cycle as you go forward though. >> all right. so if it's a one-off, disregarding this year and the 7, what does that mean? >> you know, the iphone 7 we still think what you will see is success has a bit of a hanger effect. so i think as you get into the iphone 7 cycle the decline will start to moderate a fair bit and
10:32 am
you should see loss in the revenue growth out of the model. to the extent you get that i think the stock should work higher 120, 130 fair game. main point iphone 7 have lower declines, stocks should do much better than what it's been doing of late. >> amit, the more meaningful change to the phone, ostensibly the more expensive the phone. i'm wondering if we should read anything into the rumors around the report that apple will be shifting focus to the more low cost end of the spectrum. >> yeah. you know, the iphone se clearly a sign they're trying to go more towards the lower end of the pyramid or wider part of the pyramid. there's been a lot of data around this launch iphone 7 pro which will be at a premium to the 77 plus model. i would argue that should play with both ends of the pyramid if you make very high end and very low end. the net effect of that, to mine
10:33 am
which we've seen but i think as much as play to the low end of the market they are tapping to the high end price and elasticity as well. >> amit, are you able to help us with what's going on in the indian market? obviously tim cook stopped off there on the way back from china. he met with leader, there was a discussion about the lower cost iphone while he was there and then today reports out of delhi discussing on the waver to source 30% of the products locally, which i assume apple effectively can't do. i mean, how important would this waiver be moving forward? i think they have 2% of the indian market at the moment. it's a market they've been unable yet to penetrate. >> right. if you look at it tim cook and apple extensively in the market over the last couple earnings calls, dubbed maybe to some degree smaller scale china market for the next seven years
10:34 am
2.0 so i think it's extremely important the fact tim cook was there for several days shows importance has for them right now. do they get this or not we have to wait and see. if they don't get the waiver, they have to pay a higher excise tax which probably make the price of phones much more expensive versus what the market would bear right now. >> finally this nikkei report talks about big design changes for next year including what they're calling this organic electrolululemon electro. >> enhance any smartphone or apple product you would get. second part has much higher pixeldensity. those are really the two, better quality and display out of the
10:35 am
phone. >> interesting, we'll look for that along with better battery and cameras and everything else. amit, thanks again. when we come back, the summer box office starting with a whimper, what does that tell us about some of the titles coming out this year? and then, energy secretary erne ernest moniz interview coming up.
10:36 am
10:37 am
all right. coming up on trading nation, we're looking at a stock that has risen more than 1,000 percent in the past five years. who it is and if there's more upside ahead at tradingnation.cnbc.com. more "squawk on the street" coming up.
10:38 am
vo: at&t introduces a buy one get one offer that sounds really good. and looks good. thanks nice job on the typesetting, guys. this bogo offer is making me feel all tingly inside. is that normal? yes. anyway, come in and take advantage of this offer. huh? (yelling) it's a great offer! what? buy one get one free! yeah, this bus goes downtown. let's just go back to the graphics. right now at at&t, buy a samsung galaxy s7 and get one free. welcome back to "squawk on the street." stocks have taken just a modest leg lower in the last few moments or so. however, financials still among one of the best performing sectors in the s&p 500. as you can see there some names powering gains mason, goldman
10:39 am
sachs, charles schaub and morgan stanley. health care financials negative sector still again. kayla, certainly something to watch out for in terms of overall trade. we'll see if the market can get some of that steam back again. over to you. >> thanks so much dominic chu back at headquarters. let's get to the cme group. rick santelli and the santelli exchange. hey, rick. >> good morning, and thank you. i like to welcome my chicago pmi guest, alice andres france. there's only one place to start on this report, isn't there? by the way why does this list look peculiar? i went in order 37.9 is the lowest level, 50 is expansion, contraction all the way to the highest. but inventories is key, why do you think? >> well, rick, this inventories number is the lowest since november 2009. and purchasers don't like it when these levels get into the 30s. it's just too low. the big deal here, rick, is that companies are having trouble getting their needed supplies from their suppliers. and that is directly reflected
10:40 am
in your supplier deliveries. it's very long. it very much an expansion at 57.8. the longest since october 2014. we're hearing things like getting production material, it's 25% longer. if you need capital equipment, it's a 10% longer wait. and so as a result you're not getting your needed goods to produce your widgets and so you have to dip into your inventories that you have to fill orders. >> compelling story before we went on, off camera if this was a demand story, in other words inventories low, demand is great so takes you forever to get what you want, but that's not what's going on. there's shortages because they've been fooled so many times on inventories that they're keeping them low because the builds never last sustainable 3% growth is still kind of a dream. >> that's right. and, you know, just taking a look at thissin veb inventory a putting in perspective, a more comfortable level probably see a little bit more of that level next month as people build a
10:41 am
little bit. but if you look at a year ago, the three-month moving average was 56.6. >> 56.6 moving average. >> that tells your story that the whole deal is everybody keep it lean. >> and the more volatile it is the only conclusion i could come to as an observer is if it is volatile at a time where just in time inventory, logistic software everywhere you look it's not a good thing to see the inventory volatile and at these low levels. all right, let's go to employment next because obviously tomorrow and friday employment dates what do we see? >> this is still -- >> still under 50. >> right. the tenth month of the last year below 50. just very weak. i think that goes along with a very weak report. we are in contraction again on our headline number. this is the sixth time in the last year we're below contraction. production in new orders falling into contraction, employment and contraction. and, you know, the other story here rick -- >> now, here in the black are the only two that were above 50.
10:42 am
prices paid, which you don't really want going up although maybe you would if you were the fed and supplying issues we went over. headline number still below 50 since february we've been here before. tie it all up for me in the last few seconds? >> well, i think that prices paid are going up a little bit because of the shortage issue. you see people grabbing things as they can. they need it. we're also hearing things like transportation costs are going up because people need their stuff and they have to pay up. there's a lot of that going on. this is really a shortage issue. the whole thing here, rick, with this inventories being in contraction, there's just a major lack of confidence. so we asked our survey panel, do you plan on increasing or decreasing your business investment over the next six months. and 68% said no. >> 68% no. think back to durable goods, orders, nondefense ex aircraft businesses aren't nsting and spending areas in future growth that's one of the key problems. david faber, back to you.
10:43 am
alyce, thank you so much. >> thank you, mr. santelli. we've had a number of deals this morning, none of them particularly notable but this one caught my eye and many investors as well. not because of its size but because of where the stock price was not that long ago. i'm talking jazz pharmaceuticals purchase of celator for $30.25 a share in cash. it's about a billion and a half dollar deal. but what is interesting is to go back only to february and see that celator itself was $1.19 a share. it is the kind of deal at least certainly can make people focus on the ability of the stock market occasionally to generate incredible returns. the key here for the company was its lead drug, a treatment for high risk acute myloid leukemia, positive results came out in the middle of march had the effect of sending the stock price up quite a bit though nowhere near it's current level. and then of course a huge premium on top of where the trading price was last week. so you do have almost a 30
10:44 am
bagger for anybody who perhaps was smart enough to have bought the stock back in february and held it through what was an incredible increase up until this deal. by the way, just for you deal junkies out there, the performance of that drug or anything related to it is carved out of the material adverse change clause in the merger agreement. it is a tender offer, so it should close with relative speed. simon. and no revenue. >> no revenue. >> the power of the clinical trial. cadillac is trying to make its brand cool again creating a new experience center here in new york. phil lebeau is at cadillac house. what are they doing, phil? >> they're still working on it, simon, but we've been able to get a sneak preview of what we will see when cadillac house officially opens tomorrow night. one of the coolest things is over my shoulder, it's a little bit hard to see back in the background there. that is a '53 cadillac lamon. only four were made, they know where three are. one they don't know where it is. they brought this one in from
10:45 am
the gm heritage center in detroit, one of the cool features of the cadillac house. this is a coffee bar, joe coffee, if you come in here, you know joe coffee here in new york, you can get yourself an espres espresso, use the wi-fi, the whole idea is to improve the image of cadillac, especially with those who are trend setters in the new york area. when you look at cadillac versus the other luxury autos in the u.s., it still has an uphill climb in terms of gaining market share on bmw, mercedes and lexus. in fact, look at where their sales are year-to-date. at least market share, again, this is just in the united states, cadillac certainly has its work cut out there. but the cadillac house is not about selling vehicles. in fact, if you came in here and said, look, i want to buy the new cts-v, they couldn't sell it here. they would recommend a dealer nearby and they would help you get to that dealer and buy that vehicle. this is all about extending the brand image. and they're going to replicate this in other cities. they're going to open one in shanghai by the end of 2017. the head of the cadillac brand says he is hopeful this is the kind of location that will
10:46 am
attract artists, tech fans, people who are looking to see things a little bit differently. >> we think that people who are luxury consumers, people who are tech innovators, people who are from the fashion world, the creative spirits that make our cosmopolitan society so interesting. all will find something of interest here. >> and speaking to that creative spirit, yes, you will see some cadillac vehicles here, but not many. i think they're going to have four tomorrow night including the one you see over my shoulder. there will be a special art exhibit we can't show you right now. there's going to be an area for pop-up retailers, every several months to come in and designers, people in the fashion world where they can set up a pop-up store. the whole idea here is to attract people into this space, perhaps begin the discussion about cadillac, but not necessarily to sell vehicles. and we saw something similar
10:47 am
from mercedes, remember, over when we were in beijing you're going to see this more and more from the luxury auto players, guys, places where they can extend the image of the brand especially in metropolitan areas. >> in fact it's not just cadillac. i mean, samsung's done it very close to where you are now, phil. >> true. >> we're beginning to see it pop up right across lower manhattan. thank you phil lebeau at cadillac house. alice through the looking glass was a big disappointment to the box office over the memorial day weekend. disney's big budget film suffered from poor reviews. look at the movie pipeline for the summer season next.
10:48 am
10:49 am
10:50 am
it has been a blockbuster year for disney's movie season, but the premier of the summer season turned out to be a bust. johnny depp's "alice through the looking glass" cost $170 million
10:51 am
and turned out to be a box office bust. and welcome in eric, and we should note right off of the top that our parent company also owns fandango. and "alice" a bomb, and is that when johnny depp is going through the p.r. scandal? >> well, that is not playing into it, but the bad reviews. when the first "alice in wonderland" came out, it is was in the wake of "avatar" and if any money took advantage rof it, it is the first one. and then six years later, 3d is not what it once then, and not as many people hankering for the e sequel, and this is why it did what it did. >> and does it have a tail through the summer, and the weather is better, and people don't want to sit in the theater? >> well, the memorial day weekend is not what it used to be. the first weekend in may, huge
10:52 am
numbers with the marvel movies, and surprises in june like last year with "jurassic world" and so don't feel so bad for disney, because they are over $4 billion globally and not into june yet. and they have "finding dory" which is going to rival captain america for the biggest movie of the summer. they do need to look at the live action adaptation, and say, do they warrant sequels? >> but isn't it the holy grail. "jungle beast" out. and dropped the trailer for "beauty and the beast ". >> yes sthashgs is a monster. and that is trouble if the live action remake was flawed, but soer far, it has not shown itself. >> yes, and "alice and the looking glass "sigh the first sequel and 6 1/2 years after the first one so we have to see what they do, and how they change it up. >> we had james stewart from
10:53 am
"the new york times" here saturday and he felt that the batman and versus superman had failed, because it was $9 mi million gross, because of the cost of the production was so huge, and the franchise with warner brothers was huge. >> and the critics feel like it, because it was very bad on rotten tomatoes. could they have made a more successful one? yes. and you have batman and superman and wonder woman in the first action movie, that is is a big deal. >> and could they pick it up? >> yes, and we are in the world of the cinematic adventure. and if one comes out, don't feel bad for batman v superman, because they can work and move it on the fly to meet the audience expectations. >> but the franchise sequels are the low-hanging fruit, and they is been going back to the well, and keep adding on to them, but "x-men" grossed two-thirds of
10:54 am
the original in the opening weekend, and too early to make a call on that one? >> no, what happened with the "x-men" and audiences are wanting to see the superhero that drive the genre forward. "dead pool" and captain america" where they are fight iing each other this, but the "x-men apocalypse" and it is just not that they are fatigued, but the superhero movies need to see, hey, we have been here for a while, and we have to do something different for the audiences to come out in droves. so "x-men apocalypse" did what you expected or maybe more, but if it had done something that we had not seen from the "x-men" sequels, it could have done better. >> and so we are seeing that the sequels have a great life span, but maybe the message is a
10:55 am
little higher than the originals? >> well, the rogue, you have to take into account, because they work in time for the reshoots, so if you are a fan, that does not mean that the movie stinks, but it is a that they have looked a what they have, and how to improve it, and we have the time, and lets ooh goes to do that and when you have the re r research, the fans say, oh, it is a bomb, and what am i going to do? and so "rogue i" looks good so far, but yeah, giving them timek and space. if they have time to make them good and listening to fans, we reokay. >> and how good is "ninja turtles" this friday? >> i like it, because they don't make a lot of the super heroes movies for 7, 8, 9-year-olds, and so if you have a fan that is younger, the "teenaged mutant teenaged turtles" will be a fun
10:56 am
and great movie. >> and resonate with the millennial millennials out there for those of us who grew up on the mew tent teenaged turtles. >> thank you, erik. and now, how often we see new phones may be changing, and plus the battle for viacom continues and more on what is up next with the redstone and the board's composition, and the interview with the u.s. energy secretary earnest moniz coming up next on "squawk alley." it's more than a network and the cloud.
10:57 am
it's reliable uptime. and multi-layered security. it's how you stay connected to each other and to your customers. with centurylink you get advanced technology solutions, including an industry leading broadband network,
10:58 am
and cloud and hosting services - all with dedicated, responsive support. with centurylink as your trusted technology partner, you're free to focus on growing your business. centurylink. your link to what's next.
10:59 am
good morning. it is 8:00 a.m. in cupertino, and 11:00 a.m. on squawk street, and "squawk street" is live. ♪ welcome to "squawk alley"
11:00 am
for tuesday, kayla tausche and myself at post 9, and joining us is the founder and editor at the information jessica, and new york times tech reporter isaac wilson, and we will get to you in a moment, guys. but, there a report that nikkei says that it will take up to a year for apple upgrades, and it was expected to have a huge one this fall, but now minor ones like a new camera. apple sold 230 million foep phones in 2013, and so jessica, what kind of reports are these from the nikkei reports are to be believed? >> well, it is hard to believe, because they are based on the data from the suppliers, and for years now, apple has been using many more suppliers so that any one supplier does not have the full picture, and that is why we are seeing the rumors in the hit or miss rate going up quite a bit. so it is hard to tell, and the definition of what

40 Views

info Stream Only

Uploaded by TV Archive on