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tv   Squawk on the Street  CNBC  August 17, 2016 9:00am-11:01am EDT

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the futures have turned positive up about 10 points on the dow and we get the s&p indicated up 2.25 and the nasdaq up 8. not a great session yesterday but look at oil, almost back to 46.5. thought it was going in the 30s, but it didn't. thank you both. join us tomorrow. "squawk on the street" is next. ♪ good wednesday mork. welcome to "squawk on the street." i'm carl quintanilla with sara eisen and mike santoli at the new york stock exchange. after the biggest drop in about two weeks stocks setting up the possibility of back-to-back losses. something the s&p has done once in a month and a half. retail earnings, fed minutes on the docket this morning. europe in the red, although uk unemployment at an 11-year low. bullard speaks at 1:00 eastern and oil inventories in 90 minutes.
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our road map with more retail reports. lowe's and target disappoint. but there are some retailers bucking the trend this morning. we'll fill you in. >> plus, donald trump's campaign shakes up its staff again. trump doubling down on his strategy for the final stretch. >> more upsets in rio, more medals for u.s. gymnastics. we'll get the latest olympic tally from andrew in brazil. but first up, stocks are looking to rebound from their worst session in two weeks after posting record highs on monday. wall street awaiting the 2:00 p.m. release of the fed minutes from last month's meeting. meantime yesterday, new york, fed president dudley and atlanta fed president lockhart said a rate hike is possible at the fomc september meeting, guys, only question is whether that hawkishness is going to be reflected at 2:00. >> yeah. i mean at 1:00 first when james bullard talks and then at 2:00. i think it's been a noisy message from the fed officials not just because of what they're saying but they've been consistent saying we do expect the conditions will be in place for perhaps another rate hike. the market is not getting to
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that point of pricing that in, though. i think they have that example in mind of the spring when fed officials made the concerted effort to drag the market toward the idea there could be a summertime rate hike and then it basically went to nothing. >> well, remember, when they raised interest rates back in december, they expected four hikes during this year. how many times have they walked that back. first they did it to two and now they're expecting one and i agree with with you. look at the u.s. dollar, the dollar is near a three-month low and that's going to be a key for trading because even as we saw the bond market, the fed fund futures priced in more than a 50% chance that fed does raise rates in december, the dollar has been weak and as for the action in bonds we're seeing some selling, but a yield from 150 to 158 isn't exactly high yields again. it does, though, pay to watch some of the telecom utility sectors which were hit pretty hard, the interest rate
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sensitive stocks, potentially vulnerable here to any tick up in rates. >> mike, your mystery trader has gone short-term sell. >> mystery broker. yeah. let's not make too much of it but this is a guy i followed for many years and pretty good on tactical positioning and sort of feeling when the weight of the evidence says maybe we've run out of the fuel for a rally. i don't think he thinks this is kind of the ultimate end of the bull run but basically says look, the average stock is kind of over bought and is pointing out jackson hole coming next week, the fed conference, will inject that much more uncertainty, anxiety about the path of fed rate increases. >> what's a mystery trader? >> this is somebody i go back to when i was writing for baron's and he got this following, completely accidental thing. >> calls were pretty -- >> he was. hasn't caught all of them. this was a tactical move saying sentiment has gotten to a point where it's no longer so skeptical in helping the bull case right now. >> i can tell you one thing the moves have not been big. we saw a half a percent sell-off
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for the s&p 500 yesterday and that was the worst in a few weeks. we haven't seen a 1% move plus or negative in either direction since, what, back in early july. >> right. although ryan, great technician points out, today, august 17th, higher 76% of the time, only two days of the year are higher with more frequency, november 24th around thanksgiving, and december 26th, believe it or not in terms of frequency of market days that are green. >> what about -- >> he's jinxed it, of course. we figured it out. >> seeing green on the futures. we've got the minutes as we mentioned. also, another busy day on the earnings front. target among this morning's losers. courtney reagan is in texas with more ahead of her interview with jc penney ceo. courtney, expectations were pretty low for target and they still managed to disappoint. >> exactly, vare. this is just an example to show you retail is choppy but target's forecast is really
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pulling down the shares premarket because for earnings per share for the second quarter target beat by a wide margin, reporting 1.23 per share, analysts looking for 1.12. revenues in line and the comp sales metric falling, the first negative number that we've seen in eight quarters and that is a big issue. now the signature categories for target, style, baby, health and wellness, 3 percentage points higher but still that overall number very disappointing. and also the discount retailer is lowering its comp sales forecast for the rest of the year for the third and fourth quarter from somewhere between flat and negative 2%. also lowering its earnings per share range. what the big problem here was, traffic. target saying on the conference call traffic was down and it hit across all categories, electronics particularly weak. down double digits. and apple products responsible for about a third of that decline. the retailer says it's going to
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revisit its grocery plan. we know that grocery is a traffic driver and it hasn't. where target wants or hopes it will be. perhaps we'll hear a little more from them soon about what that means when it -- when they talk about revisiting in the second half. the transition to cvs as a pharmacy, a problem. some disruption in the pharmacy benefits and plans for many of the regular shoppers that filled their prescriptions there at the cvs pharmacy. if we could turn and look at the on-line comparable sales, those did grow 16%. still, that's the slowest growth rate in about six quarters and at least six quarters. remember, target's investing $1.8 billion in its supply chain and e-commerce over the course of this year because it knows that it has work to do there. here in texas analysts are waiting to hear from jc penney's ceo marvin ellison his first analyst meeting as ceo. he took over that position officially just over a year ago. we do know that we'll be getting a three-year plan.
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we anticipate that means some more financial metrics likely towards the end of the presentations today. probably in the 1:00 hour is what we're looking for there. jc penney as we know has had a decent progress record but still a long way to go for what the retailer wants to achieve and we'll talk about it all with ceo marvin ellison when i sit down with him in "power lunch" later at the conclusion of his first analyst meeting. sara, back to you at the new york stock exchange. >> a lot to look forward to after the minutes, the interview, thank you. for more on how investors should be playing retail stocks as we get the earnings joining us now, mike glasser retail analyst at u ubs and jan negativen. good to see you again. mike, thanks for joining us. mike on target you're neutral on the stock. target 73 for the price. why did the turnaround seem to stall this quarter? >> target's in a precarious situation and a very challenging
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retail environment. its progress started to stall this quarter because it didn't see very good electronic sales as your setup piece mentioned. apple was down about 20%, dragged down the total com by 70 basis points. food, that's an area of paying f -- pain for target that continues. pharmacy business under performed. you will remember it sold its pharmacy operations to cvs. it's going to take a while for target to turn this around. it's a very big ship. it moves slowly and it's basing a lot of challenges at this point. >> and jan, really focused on their digital and e-commerce business. courtney mentioned those sales up 16%, which sounds good, but actually, is a much slower rate of growth than what target had been seeing. what's wrong there? what have they been doing? what do they need to be doing more to catch up with walmart.com and, of course, the big one, amazon.com.
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>> actually that was the brightest spot on their release and yet it was disappointing at 16%. they're doing a pretty good job on digital. that's really not their problem. their problem is, they cannot fix grocery. and grocery is dragging the business down. grocery has been 20% of the business for a long time. it doesn't get the traffic it needs to get. it was a bad idea in the beginning when they initiated key fresh. it's never worked. i don't see how they are going to fix it and compete with walmart and grocery and kroger and grocery when you don't have a serious grocery offering and i don't think they can be a great specialty player because i don't think people will go to target for that kind of grocery shopping. >> to sara's question, i mean, 16 on digital. down from 23. is the 40% goal, is that a thing of the past? >> well, i think it is a thing of the past and i never really, you know, 40% was a big number but if they can continue to grow strong double digits in --
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on-line, that's a good thing for the business. but they've got to fix the base business. they've done a good job at retailing 101 as far as getting furniture to be better, home, fashion, they've done a good job in there. a really good job on retailing 101. they haven't done anything for grocery and it's too big a segment and i don't see what fix is. >> trying to get a fix on target as a stock, its valuation, at a big discount to walmart the sway the stock looks like it's going to open today as a 3.3% dv dend yield advantage over walmart. what's priced in terms of target's need to continue to try to restructure and get things right? >> mike, on the new numbers where it shakes out after this, it's trading at a low teens multiple. on next year's earnings. it's got an attractive dividend yield but the question is, can it sustain its profitability in this difficult environment? i look at jan's point a little differently.
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yes, grocery is a problem, but it's a part of a larger problem which is target is having a hard time generating traffic to its stores on a consistent basis. that's not an easy problem to fix. most likely very expensive to fix. that's going to put pressure on its earnings. thus we think it's going to trade at a discounted valuation and we think it's best to approach the shares with caution. >> speaking about a discounted valuation, wondering about lowe's. i think you cover it as well. also disappointing on the comps up 2%, about half of what analysts were looking for and lowered their earnings guidance. so what -- why is home depot seeing the improvement, the spending on the home improvement and remodeling and lowe's not as much late spring, early summer? >> sure. so first i would say the stock is indicated down 5% of premarket. we think that's an attractive opportunity. the home improvement space is a good one. so your question on why did lowe's under perform home depot this quarter our theory is that lowe's a little more levered to the seasonal categories, like
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lawn and garden. it outperformed in the first quarter on that and most likely under performed on the second quarter. so it's really a weather issue. over the long run these two businesses are going to trend very similar to one another. and the category is growing mid-single digits. it's rare for that in retail. they're leveraging that to generate 15 to 20% earnings growth. it's trading at a reasonable multiple. we think this is an attractive opportunity to buy the stock. >> all right. and as you say, it looks set to lose a lot of it s gains from te year up 7%. thank you for joining us on retail. mike glasser from ubs and jan niffin. cnbc contributor. >> thank you. >> when we come back andrew ross sorkin is live from rio with the latest from the olympic games. also ahead, the always outspoken casino magnet steve wynn on everything from macau to donald trump as they announce a new property in macau. another look at the premarket after the biggest drop since
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lot of things going on in rio. women's golf kicks off, good news for gymnastics, but a
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surprise in volleyball. andrew ross sorkin is live from rio with more. hey, andrew. >> thanks, carl. that's right. it was an upset on the beach in volleyball yesterday as team usa's kerri walsh jennings and april ross, that combo were defeated by brazil. this was walsh jennings first olympic beach volleyball match loss. she is 26 wins, one loss. the duo is now going to be facing another brazilian for the bronze medal today. >> i mean, as tough as it gets as an athlete, one thing to lose and a way to lose you never ever want to lose by losing in the final minutes of the game. i'm proud we stuck together and we stayed. down 19-16 and said we got it. we never had the mojo today. it's disappointing and really heartbreaking. but we earned a right to fight tomorrow and make it better. >> and then in gymnastics simone biles has proven she is nothing short of golden taking the top
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spot in the floor exercise yesterday in a near perfect performance. her teammate aly raisman took silver that cap off an incredible olympics not only raisman and biles but the u.s. gymnastic team. we caught up with madison kocian about the team's legacy. >> we just wanted to inspire little girls just to always keep believing in themselves. i think every member on this team have an injury like at the beginning of this year somehow, so, you know, we just never gave up and just kept pushing towards that dream. >> and guys, we're also following two developing stories in rio. rock lochte, you might remember over the weekend, the big news was security scare that he was held at gunpoint he said by police here in brazil. originally the ioc said it didn't happen or u.s. team said it didn't happen but then it did. a story from the associated press citing police here saying that they can't find evidence that it happened. on the other hand, we have
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lochte now saying he didn't originally say it happened because he was worried he was going to get into trouble. so we have that story on tap. and then the other one we're trying to follow here a member of the ioc executive board taken into police custody. nbc has confirmed he's being questioned on a series of allegations that he was involved in helping participate in a ticket scalp iing situation and we're going to be following that story as well. this has been a pervasive problem at the olympics for many, many years, where olympic teams, athletes, families and others have sold their tickets to sponsors, something clearly against the rums. we'll try to bring you that story as we get more information. >> we'll see you in a bit. thank you for the update from rio. >> thank you. donald trump shaking up his presidential campaign staff as he looks to reverse the slide in the poll numbers. chief washington correspondent john harwood is live in d.c. with the latest. what can you tell us abe the
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strategy here? >> well, i don't know if strategy is the word you would apply to it, sara. it's more like long [ inaudible ] within the trump world as his poll numbers get worse and worse. donald trump has taken kellyanne conway a long-time republican message strategist and pollster, made her the campaign manager and promoted or hired an executive from breitbart news, which is an incense areary, not particularly reliable outlet which has dogged mainstream republicans for a long time and made him the chief executive of the campaign. now this is not inspiring confidence in people who have run republican campaigns in the past and i think one consequence of it is not that it's likely to turn trump's campaign around, because he has a significant deficit, it is few people in the republican political world believe it's likely he can turn
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that around but it is likely to shift the move of resources, i've talked with several republican strategists this morning, likely to accelerate the shift of resources from trump's campaign to house and senate races. republicans increasingly are hoping that even if trump loses as they expect, that he will not drag down the house majority or the senate majority. the senate is in greater danger because they've got so many seats that they're playing defense on, especially in obama led states. the house is considered safer, but if trump actually implodes, the house majority could be in danger and i think republicans are likely to be encouraged by this move to try to shore up house and senate campaigns. >> yeah. . big open questions. john, thank you for the update. john harwood in washington. when we return, we're counting you down to the opening bell and the fed minutes this afternoon. art cashin will be here at post nine with his market perspective. more "squawk on the street" from
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♪ just about 6:30 to the opening bell. art cashin, director of floor operations with ubs who joins us once again at post nine. good morning, art. >> good morning. >> nice write-up this morning from you looking at what happens when you have a collapse in the vix, but high yield spreads that sort of belie that sense of calm. >> yeah. some anomalies here. that's not a normal sentiment
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makeup and as usual the bond guys are usually smarter, so if the high yields are showing nervousness, historically that has led to the vix moving back up. the ii survey out, bulls up to over 56% and the bears are down to just at 20, almost under 20%. so those kinds of things with the market at record highs, they're not hurricane sign, hurricane warnings, but they're things to watch out for. >> the hand wringing into august was well founded? >> we'll find out. i mean, the federal reserve is beginning to sound like casey stengle's mess. as he famously said, can't anybody here play this game. it's apparent in some cases the answer is no. we'll see today. we will get at 10:30, crude inventories, i want to see if that short squeeze in crude is
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over. the inventories will be important. there was a huge bill in product last night in the api survey and then at 2:00 we'll get to sort through the minutes and see if there was any hint of this new if you would hawkishness that's showing up now. >> i was going to ask you what kind of language you're looking for there. we will be looking for commentary on brexit. this will be their first time looking at the impact or lack thereof in the markets. >> you'll see how often that's mentioned. if they talk about offshore concerns and where things are. and, of course, we'll keep watching the dollar. if this hawkish stuff wears off the dollar begins to weaken and the oil short squeeze begins to fade then we might pull back a little bit. the level to watch out for there is 2172. so if we pull back through that, might get a little tacky. >> thanks so much. art cashin this morning. the opening bell a few minutes away. planet fitness, celebrating its first year as a public company.
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couple treadmills behind us. we will talk with the ceo in a few minutes. .
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you're watching cnbc's "squawk on the street" live from the financial capital of the world. the opening bell in about 60 seconds on a busy wednesday. not only will we get oil inventories in about an hour or so, but bullard at 1:00 and then the fed minutes we were talking about with art cashin whether it's timing of the hike, brexit, balance of risks, right. i mean there's a few big things we will learn. >> in the july statement there was commentary the environment has become more benign and didn't have to be too concerned about financial conditions. that's where people will focus, will they upgrade that sense of stability and that growth remains on track. >> we will watch some of the retailers as well as we head into the open. target is under pressure. walmart is coming out tomorrow. and oil is a story. it closed yesterday at a five-week high back above $46 a barrel on wti with the sell-off this morning. >> yeah. first couple days of the week,
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sent oil up almost 5% monday and tuesday. obviously we will watch for any give back today. let's get the s&p at the bottom of your screen and the opening bell. at the big board, planet fitness celebrating its first anniversary and we'll talk with the ceo in a few moments. at the nasdaq, talina, a historian operator of stores and supermarkets. we talked about a target. one of the more interesting metrics out of the quarter was traffic going negative for the first time since q3 of '14. and the first negative comp since q2 of '14. it has been a while. >> yeah. i mean it's obviously a retail environment for mainline retailers where the pie is really top line basis, not growing for the industry, so you have this give and take based on, you know, each competitor and target clearly on the losing end of it for now. again, i think the question is, is it really baked into the stock because it's really under performed the likes of walmart
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for so long and looks cheap but it's been a value track for a while. >> i like what jim cramer tweeted target blames, apple, cv, everyone but themselves. it's a tough retail environment which is why we're lowering our guidance. are they making enough moves in the kind of environment to combat that. other retailer at the open i mentioned is lowe's after home depot had a good quarter yesterday. lowe's actually missed reporting 2% comp store sales, a stock that had done fairly well this year and give something back, down 4% at the open. sales they say will show 4% growth in terms of comps for the year but it was disappointing. we'll see if we see any sort of softness in the home improvement space as a result of this. didn't get that quite as much from home depot but they seem to be acknowledging that at least early into the summer. >> right. they did cut their guide on this canadian acquisition which
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pointed to weakness in late spring, early summer. urban is going to be the big story to watch. 66 cents, beats bay dime, revenues ahead. i believe it's a new 52-week high. margins higher on what appears to have been a less promotional environment. evercorp takes hold to buy. a lot to watch. >> 1% comps it's not exactly heroic but it kind of shows you how low expectations are for these. >> they were warning it could be negative. >> exactly. >> and the story there is the 5% increase at its urban outfitters brand because it's seeing declining sales at anthropology and flat sales at free people. training customers off discounts this is a theme. you mentioned this at urban outfitters and saw this at the department stores last week that's going to be key. how they're improving their margins while not growing sales again. >> you know, although on the research front, dks which was yesterday's good retail story,
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taken to neutral by goldman. so ringing the register if you pardon the pun is not uncommon in this environment right now. >> i think all the analysts and the investors are trained not to extrapolate a good quarter, couple quarters because it has been punishing. it's not a zero sum gain but something close to that for physical retail right now and i think that's why people are kind of trying to navigate going from name to name as they seem over bought, over sold, so that seems to be the game right now. >> i was going to mention southern company, separate group, utilities, down about 8% from the recent highs three weeks ago, announced secondary offering, follow on offering, really not that surprising raising capital in this way but shows, a little bit of additional weakness in the stock. i think the big question is, has it just been kind of a gut check for the utilities and the telecoms or something deeper right now as treasure yields inch their way higher not taking off. >> another sort of retail name,
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at least consumer name, lumber liquidators benefiting from the california court ruling that rejects the claim that the company did not warn consumers about dangers of formaldehyde. obviously the stock has been through a lot since that original "60 minutes" story last year or earlier in the year? >> feels like maybe last year. >> i believe it was last year. >> good enough today for a 7% gain up to almost 17.5. >> cisco the biggest drag on the dow ahead of results an also on word from industry magazine crn which is getting a lot of attention that cisco is going to be announcing nine to 14,000 layoffs. potentially as early as today. as the company transitions from hardware to software. john fortt is covering the story, not the first time that cisco has announced layoffs. i wonder what it suggests about the earnings report that we're going to get this afternoon. >> i wonder if it just means long-term these big old tech companies that have done a lot of acquisitions, that have kind of been positioned with the huge
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sales forces and everything else are just in a mode of trying to preserve margins. hp has had multiple rounds of layoffs, different business, but i think relatively new ceo. you're kind of trying to whip the company into longer term shape. it has started to look as sort of a no growth, a very slow growth type platform company. it's not something that you look at product cycles really driving the numbers. dividend play, kind of what it's become. kind of amazing. >> you mentioned the relatively new ceo in chuck robbins we will talk to on this program tomorrow morning. 9:00 a.m. eastern time. in the meantime we've gotten a no comment from the company regarding the layoffs which we should mention, as reported, is about a fifth of the work force. i mean it's not a trimming of the work force. this is a lot of employees. but we'll see if it could -- if it's true, maybe they'll say something more when they report tonight. >> j and p put a note saying we
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expect the announcement will coincide with what that analyst calls disappointing quarterly results. weakness persisted across the sector after a lackluster june quarter. the stock has outperformed to your point potentially on some of the cost cuts and the margin story going higher. >> and again, i honestly think that old tech has become a source of scarce yield. as the staple stocks have gotten expensive. look at the qualcomms and the ciscos -- >> [ inaudible ]. >> they have well above market dividend yields. >> aetna an interesting story we mentioned them pulling away from affordable care act exchanges yesterday. today a story, having filed foy ya requests, exchanges between the company and government in which aetna essentially said help us with our humana merger or we may have to trim our exposure to aca. that's the path that has taken place. i don't know if that's shocking or obvious that discussion would go back and forth with regulators. >> i'm surprised we're not hearing more about this in
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washington. this is what donald trump should be pointing to. health care on that point is actually the only group right now that's in the green. >> yeah. another -- i believe a new york fed survey that showed, you know, employers reducing head count directly attributing it to their own increases if medical costs. obviously as you say, sara, a theme that's really not getting that much attention. >> another theme has been those higher bond yields. the bond pits and check in with rick santelli. rick in chicago. do you have an update for us? >> i'll tell you what, it is unbelievable how this range has had such a ceiling right around 1.60. look at a one-week chart you can clearly see we keep bumping against it. but there's more to it than that. let's look at a series of charts that start 6/23, we know that day, brexit day. because everything and all the volatility that was caused by that, is coming back on a tech thiscle way to give us major key
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levels. so let's look at that 10-year from 6/23 but look at the bund, also in extreme. as we look at the markets, especially foreign exchange whether the brish pound, with with one park that's taken out its extreme, just the other day traded down to 128 handle and that's key, and if we look at the dollar/yen in particular, what i find fascinating about the dollar/yen is whether it was brexit and the movement in the pound causing the pieces to regroup in differences ways, or, of course, was it the new notion that abe nomics isn't succeeding against a backdrop of a fed that says they want to tighten but action speaks more than words. something that seems to be confounding many traders. i will tell you we definitely had the low, lest close under 1 back to november of 2013. however if you look an intraday
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chart from that crazy june 24th when we all learned the results of brexit, the dollar/yen intraday actually traded down to 99. even though it closed with a 102 handle. i'm not big on intraday. i'm all about close and most efficient price of any session, but, that 99 is very important to look at because that in some traders' minds will be where they put their stops after, of course, they already hit their stops that were right under 100. carl, back to you. >> all right. rick, thank you very much. rick santelli. let's get to bob pisani on the floor with the dow down 40 points. >> good morning, carl. retail and tech up just a little bit, but much of the rest of the market to the downside. health care forecast is the market leader. retail and tech slightly to the downside. the european banks, haven't talked about things in a while but as we see bund yields move to the -- bond yields move to the downside in europe the banks are showing signs of rolling over. it's not a big move, all the big names have been weak for the
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last few days, as those bond yields move to the downside. maybe another story again soon. we've been talking about the rotation that's been going on in the market. generally very healthy we've been seeing and just yesterday at the close energy surpassed some of the earlier names like utilities as the second best performing sector on the year. who would have thought that would have happened a few months ago. energy up 14%. telecom and utilities up but fading very fast in the third quarter. materials and industrials have been coming up as well. you can see this in the sector leaders in august. i'm just to the month of august to date. energy has been moving upp as we've had oil stabilize around $45. tech has been a fantastic performer for the whole third quarter. financials are moving up a little bit although banks don't look like they have a lot of energy and as i mentioned industrials also. this is the rotation that we're talking about into the more cyclical names that have been going on here. meantime back to talk about lowe's for a minute and hope you heard all about it. here's essentially what everybody has been talking about. that is the differentiation
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between lowe's, same-store sales, u.s. same-store sales, and home depot. a very wide gap. it hasn't always happened but it's been particularly noticeable. on the conference call they were very upbeat and talked about home improvement spending, outpacing overall consumer spending. we know about that. that's been a main driver for home depot as well as lowe's and a strong engagement in what they call the big ticket discretionary are projects like appliances here. a lot of people trying to figure out what the difference was. some people have been talking about the idea overall that they're more levered to seasonal issues like lawn and garden. they did reference in the conference call the weather was a little colder. other people have been talking about the fact that more professional contractors tend to go to home depot and maybe getting a little bit of an edge. we don't know right now. we will keep an eye on that. lowe's down 4% but it's been a huge performer look at that for the last five years. $20 five years ago and near 80 right now. talking about target again, the big issue down 1.6% for the
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stores. digital up 16%. a much slower growth rate. the guidance disappointing the comp store sales, 0 to 2%. target down notably here. remember something, target and lowe's and home depot are very much part of an important xoi consumer discretionary index. the major movers. you will see a lot of volume in that, canceling each other out to a certain extent. back to you. the dow is down 46 points. >> bob, thank you. meantime oil prices down about a percent on wti. still hovering just above the 46 level. jackie deangelis at the nymex for what's moving energy today. good morning, jackie. >> good morning to you, sara. we hit a technical peak traders are telling me over $46 a barrel. not surprising that we're coming off a little bit here. but also we have the department of energy report at 10:30. everybody is always trying to position ahead of that. now the api reported a draw down in crude inventories last night, but said there was a build in gasoline. overall when you take those elements into effect it is a
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little bit bearish. remember, the lift that we've seen over the last few days and weeks in crude prices has been because of the chatter of a potential opec freeze coming in september out of these talks that we may see by the members. but remember, all members have to coordinate in the past that's been difficult to do. i've reported saudi arabia may have more interest in doing it, but still, traders are a little bit skeptical at that point. we'll see you at 10:30 and bring you those inventory numbers. back to you. >> all right. jackie, thank you so much. jackie deangelis. when we come back, steve wynn boasting his company's presence in macau with a new resort and hear what he's saying about that and the presidential election when we continue. dow down about 49 points. don't go away.
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as wynn resorts ramps up its presence in macau billionaire steve wynn sat down with an interview with cnbc where he also sounded off on the current political climate in this country. jane wells is in los angeles with more. good morning, jane. >> hi, sara. he never disappoints. wynn talked trump but first talked china, the brand new $4 billion wynn palace is about to open. it opened next week with 350
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gaming tables, but 250 of those are being transferred from his other property there. the government only gave them 100 new ones. as macau only begins to recover, emily asked steve wynn if the market can absorb his new property and a new one from las vegas sands? >> in our business it is not a zero sum game. even in a market that's not as robust as it was, for example, a few years ago. the stronger macau is, the better it is for everybody. >> now, he said either a market grows or doesn't, and when it doesn't, shares shifts to the more beautiful property and then he was asked about the election. >> i have no intelligent answer for what's going on in the united states in the presidential election. i am befuddled. i'm surprised at the level of
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discourse. hopefully it's begun to get a little bit more specific. i saw that trump gave an economic -- his information and mrs. clinton is doing it. but if you listen carefully you haven't heard anybody discuss entitlements or government spending yet. what we've heard is promises to spend more money, give more things away. without any discussion how they're to be paid for. >> you have a long history with donald trump, dates back to i believe -- >> i've known donald 30 years because we were in the same business for a while. but, you know, to say we have a long history i've known him for 30 years, yes. >> are you a friend? >> ima friend, yes. >> and i've been reading that you potentially also are an adviser to his campaign? >> no, i'm not an adviser. donald calls me and asks me what i think. very often i'll answer him. but donald trump is his own adviser. i mean, it's really safe to say
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that. he is his own campaign manager, own adviser. >> he won't say who he's going to vote for, carl, only saying, quote, i would like to have an adult in the room. i'm waiting for that person to show up. back to you. >> jane wells, covering multiple angles of the wynn story today. thank you. when we return, planet fitness up more than 35% since going public a year ago. we're going to talk live to the ceo at post nine in just a moment. what if a company that didn't make cars made plastics that make them lighter? the lubricants that improved fuel economy. even technology to make engines more efficient. what company does all this? exxonmobil, that's who. we're working on all these things to make cars better and use less fuel. helping you save money and reduce emissions. and you thought we just made the gas. energy lives here. at ally bank, no branches equals great rates. it's a fact. kind of like grandkids equals free tech support.
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at a great price with over $500 in savings. call today and ask how to get these savings plus a $250 prepaid card. comcast business. built for business. planet fitness ringing the opening bell celebrating one year since its ipo. shares up 38% since the first trade on august 6th, 2015. the company coming off a stellar second quarter earnings report. joining us at post nine for a first on cnbc interview is planet fitness ceo chris r rondeau. >> goes fast, doesn't it? >> shoe suure does. sometimes feels like 20 years. >> what explains the strength the year since we last had you? >> we have a very passionate group of franchisees that continue to open more stores every year. we opened 209 last year, and plan to open 210 to 220 this year. we like to service them a lot and make sure they continue to open stores and our national ad fund allows us to do the times
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square new year's eve celebration here in new york this past year and we're the lead sponsor and i think a lot of tailwind pushing same-store sales. >> we talked last year about your model, low cost, aimed at the casual gym goer. sensing any price elasticity among consumers that they would pay a little more to join some. >> i look at it, if i can provide the right value and service and stay at $10 a month, then why not open it to more people. we have a study we did that just over 40% of almost a million members joined our clubs are first time gym goers. >> anywhere. >> over 40%. we're opening the market, much larger than our competition where they're all fighting for 209s% of gym memberships. we're going after the 80% that doesn't have gym memberships. >> they love the growth that implies but how do you bring the people in. don't you have to spend a lot of money to advertise and how do you do that if you're only collecting $10 for membership. >> our franchisees are required
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to spend between 5 and 7% locally on advertising. every membership dollar, 8.3 million members today, and 2% spent nationally, 2% of every membership dollar comes to corporate, allows us to do the commercials you've seen and digital promotions. our brand awareness continues to go forward and the 80% that doesn't work out. >> i remember looking at this at the time of your ipo, about 6600 members per location. right. average location size 20,000 square feet. >> yep. >> seems to me if they all went a few times a week it's going to get crowded in there. are you in the business of signing people up who don't come that often? >> good question. our member because it's a casual or first time gym goer are not the seven days a week, three hours a day, doing jacuzzis and hot tubs. like table turnover in a restaurant. come in, two, three days a woke on the treadmill. >> are you getting great rents at the malls where you like to be located? >> it's the perfect storm.
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they're low on us driving traffic to the plazas. we can't be amazon. our busiest days monday, tuesday, wednesday. so we're busier when the typical grocery store is not busy. we're driving traffic. they're looking at us to fill the boxes, 20,000 square feet average size. >> what about the early stages that you're in of international expansion. i know you've gone into canada. >> yep. >> how is that going and do you have plans for going abroad further? >> so yeah. we went to canada, and nine stores open today. we have sold about 100 additional units with our current franchisees to develop in canada. we went to the dominican republic this year and have been great results there as well. i think our puerto rico market does well for us. latin america interests us and we will start to look at expanding down at latin america. >> you talk about the casual gym goer. does that mean that turn is high, people join and drop. >> we look at it differently in the industry. >> because we cater to the first timer, we're trying to get them
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off the couch for the first time. our members come and go. we're fluid, one of the easiest cancellations policies. if you're going to come back give it a try again we want you to come back. we don't want to burn that bridge. >> but -- so what is that resulting? >> we don't track it. if we can make you a lifer, after 12 months what happens. first year you are coming and going and fall off the wagon. make you stay for 12 months and a lifer, it's a small 2%, 2.5 to 3%. >> you clearly go. you're jacked. >> unfortunately -- >> for your job i'm guessing. >> i say now it's more mental clarity and having the energy to go forward every day. >> chris, congratulations. >> thanks. >> most people behind us a break on the treadmill. >> working an hour already. >> when we come back, cow wan and company ceo jeffrey solomon his take on the market run fed and politics and then tomorrow as we said earlier, on "squawk on the street," cisco's chuck
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robbins first on cnbc at 9:00 a.m. eastern. talk about the quarter and these reports at least for now of work force reductions. we're back in a minute. (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)
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good wednesday morning. welcome back to "squawk on the street." i'm carl with sara eisen and mike santoli at the new york stock exchange. david faber is off. a look at the markets this morning, more moderate losses. danger here of back-to-back losses, something that hasn't happened since late july for any of the major averages. >> our road map for the hour, does begin with retail. target and lowe's both disappoint this morning. we dig through the numbers and break down if there are any bright spots straight ahead. >> another shakeup in the trump camp, 82 days before the election. the latest on that. >> plus a report that cisco may be slashing its work force by 20%. we've got the details and we will be speaking with the company's ceo cluck robbins tomorrow at 9:00 a.m. eastern. >> target is one of the main stories of the morning. disappointing the street and we're getting some more clarity through the conference call right now. our courtney reagan has been
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digging through the numbers apz joins us with more. hey, courtney? >> hi, carl. retail continues to be a sector where we see highs and we see lows. today, target said that it saw the lowest traffic in more than a year an a half and that was really what hit those comparable store sales falling over 1% and that was worse than consensus an what target itself had hoped at least though they had given a range and that fell right about in the middle of that range. earnings did beat, but largely due to cost cuts. so perhaps not the highest quality beat that the street would like to see going forward. target is also lowering its comp sales forecast for a third and fourth quarter as well as its earnings range for the full year as a result. they say they're just trying to be prudent and if they need to revise it higher later on, they certainly can and will do that. now the transition to cvs as target's pharmacy provider did cause a decent amount of disruption in the quarter with many consumers having to
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re-enroll for the pharmacy benefits. lec trop knicks particularly weak, double digit declines there. apple products actually a third of that decline. food deflation didn't help in the grocery category that target is working so hard to make something that causes consumers to come into the stores. the new children's collections did, however, perform incredibly well but that was just recently introduced. now on a media call, cfo kathy smith did note that target's transgender bathroom policy has supporters and critics. she stopped short of saying that was a reason for the traffic decline, but did say that target is going to invest $20 million to make sure that every store does have a single stall bathroom for all consumers that would prefer that. kathy said that most of the stores do already have that option. now target's on-line comparable sales were up 16%. the number sounds good but it is
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the lowest growth rate in six quarters from target. remember the retailer is investing $1.8 billion this year largely in e-commerce and supply chain investments. in texas analysts have filed in for the jc penney analyst meeting with marvin ellison, the company's ceo. he's been ceo for just over a year and this is the first time that he has led an analyst meeting, more or less here on jc penney's home turf just outside of dallas, texas. we do anticipate getting a fuller three year plan from jc penney. i assume that the financial metrics may be coming from the cfo and that will be towards the end of the day, but the good news is we'll be sitting down with ceo marvin ellison, exclusively on "power lunch" to go through with everything that was said so the street knows what jc penney's plan is going forward. back to you. >> that's going to be an interview to watch. thought very much, courtney reagan. for more on what it will take to turn things around we turn to
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mark cowan, director at columbia university, and dan bender a senior retail analyst at jefferies. good morning to both of you. >> good morning. >> i like your take in that you argue retailers have decided, look, we're not going to try to beat amazon anymore. we will try to be ourselves as best we can. what does that mean for target. >> amazon has a 20-year first mover advantage on everybody. and chasing someone like that is an exercise in futility. i think the struggle that most, if not all of these legacy retailers are exhibiting is they're no longer seeing these increases in their on-line business come down to their bottom line. in fact, i think they've convinced larger and larger numbers of their core customers to shop on-line and not in their stores which makes the size of their store fleet a real issue. >> so that explains macy's, that explains negative traffic at
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target? is that what you mean? >> i think that's going on and that will continue. >> i'm wondering, dan, who gets share from whom? i mean, when target posts a same-store sales loss where do the customers go? are they gone or just not shopping for apparel and accessories anymore and other offerings from target or is that helpful for walmart, for instance? >> well, i think some of the commodity categories will move around to various places including amazon and walmart but once the customer stops shopping the store, shops it less you lose opportunity. i think what target has tried to do is really create a reason for the customer to come back in through unique apparel and home offerings where i think they have fallen short is on the food side. they're neither convenient nor a destination because they don't have a full assortment and as a result they're in limbo. the customers are going to walmart or the local grosser. so i think they have a lot of work to do left in the food
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area. >> dan, just to follow up on that, if you looked at the list of the factors thats when into the target's miss today, whether it's the stumble in electronic sales, the pharmacy transition, food deflation, could you not make the case that those are transient factors and thereof it's the stock trading near 70 maybe it's worth betting that things turn? >> you know, i think it's to be determined whether the cvs transaction really proves to be a good one. i think when you a local cvs on your corner, i'm not sure why you go out of your way to go to target to go to cvs, frankly. i've been skeptical about that transaction since the beginning. in terms of the food deflation, yeah, that should be transient and perhaps even the transgender bathroom situation that courtney mentioned could be a fleeting issue over time. but, you know, i think at the core we focus on what target is doing, that ir' doing a great job in home and apparel and that's about it.
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consumer electronics was terrible. they have a chance to do better this holiday as they reset and add more 4 k tvs to their selection and that did contribute to our downgrade of best buy the other day. >> mark, you have interesting thoughts on how we're going to view jet.com years from now. >> if there's an award for stupid acquisitions, i think -- i nominate doug mcmillon and walmart. i think this hail mary pass goes right up there with jerry levin's merger with aol and carly fiorina's acquisition of comp compaq, microsoft's acquisition of nokia. >> why? >> sears acquisition of lands end. you know, i think you successfully build out your mosaic by acquiring businesses that add to your already successful strategy. i don't think anybody succeeds by using these acquisitions as a solution. clearly walmart is unhappy with
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their walmart.com business. jet may or may not have some magic algorithm. i would submit you don't need to spend $3 billion to figure out a way to lower your prices. the path that they're on suggests that there's no possible way to make sense of what they're up to on a large scale. >> maybe investors want them to do something aggressive on walmart.com like this and they get the talent, that was big part of the jet.com acquisition and the growth. and we don't exactly know how walmart plans to integrate that into the longer term strategy on-line, do we? >> i think the problem is walmart doesn't know. and that's why i give them -- i offer up my nomination for stupid. i think they can clearly afford to spend $3 billion. the street is absolutely on their back to come forth with some growth initiative but you have to have a plan and the plan has to make sense and i'll bet you they're starting to write the plan from scratch right now. >> dan, i don't know if you
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follow urban but the takeaway from their quarter and their price acquisition today is that if you do have sort of an exclusive assortment, you do have a moat around you, even though might not be a giant one. is that true? >> i don't cover urban. another colleague of mine does. i think that your comment is dead on. especially in this world where a lot more is moving on-line, you do need to have a unique product offering in this store and on-line. i think that's, you know, creates more of a moat, it creates, you know, more of an opportunity for you to capture a share and when you look, you know, companies like target, which we were talking about you can look in that store and vast aisles and products you can buy in places. >> yeah. i remember urban, the story behind urban was a lot different than it seems to be right now. mark, thank you, guys, a lot to get to today. appreciate it.
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>> another top story, donald trump shaking up his campaign team. john harwood joins us from washington with more on the back story here, john? >> sairry, we've got continued turmoil within the donald trump camp operation. remember they're now on their third campaign manager, started with cory ey lewandowski and th paul manafort came in and now kellyanne conway, a long-time republican pollster, message strategist has been promoted to be the campaign manager. she had been advising the campaign. and steve bannon who is an executive with breitbart news, has brought in as chief executive. now, that does not signal the kind of general election that republicans have wanted to run. remember, donald trump yesterday made statements saying i don't want to pivot. people want me to change. i don't want to change. i'm running the campaign that's me. the breitbart news message has been very sharp edged and not the kind of thing that is going
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to add votes to donald trump's campaign. he's behind in the polls. what -- from the conversations i've been having with republican strategists this morning, this is deepening a sense within the party that donald trump is very unlikely to win the election and that republican source resources need to go to house and senate races to keep their majorities. no formal decision. haven't been anything concrete about this, but you hear the consensus when you talk to republican operatives that house and senate what is we need to focus on, not the presidential race, because that looks like it's extremely unlikely to be a republican victory, guys? >> although, john, 80 some odd days, we haven't even gotten to labor day and the first debate. we have the journal saying at least let a new quarter begin on labor day. isn't it time ahead in this cycle still some. >> not really. when you're behind by the
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margins that donald trump is behind, six, seven points in the average of national polls, behind in every battleground state that both sides are really fighting for, that is a deficit that we haven't seen in the mod were era be overcome and the trailing candidate come back and win. >> we're going to -- >> that doesn't mean -- by the way, carl, that doesn't mean it's impossible. >> right. >> we do have debates. anything can happen. but when you talk about people who have been through this before, who have a sense of the ebb and flow of momentum in campaigns and what the structural forces are in the campaign, the deficit that donald trump faces is not a small one, it's a big one. >> we have the hillary clinton elon mu e-mail scandal and that could hurt her. >> well, it has hurt her, no question you look in the polls, a majority of americans say they
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don't trust her. and we just saw in the last 48 hours, a republican -- excuse me democratic candidate for the senate in new hampshire hillary clinton's honesty. nevertheless, what the consensus that you see developing is you know, many leading republicans turning away from donald trump on the argument that hillary clinton is making which is, this is not somebody built for the oval office. that argument has attracted republican support and difficult for trump to overcome. >> we're going to find out what bannon brings to the party. thank you. our john harwood in washington. as we go to a break where stocks are trading, down about 50 points, s&p down another 6. coming up at 10:30 the ceo of cow juan and company on markets, the fed ahead of minutes this afternoon and, of course, what the election means for stocks. stay with us.
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fed president bill dudley and dennis lockhart saying a rate hike could come next month giving markets a reason for pause after a trifecta of record closes. talk about where we go with david, global market strategist at jpmorgan asset management and dan, equity strategist for bank of america ml merrill lynch. you're expecting a correction
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and with this decline yesterday and today, less than 1% move lower off record highs. where does your correction come from? >> i think if you look at the makeup of this rally, there's been a shift in leadership. look at the first half, it was all about falling rates and a weber dollar. look at what's happened in the second half so far, the winners are different. i think it's been the whippers have been driven -- winners have been driven by the fiscal stimulus and improving growth. as we overshot to the downside in february, overshooting to the upside here. i don't think the fundamentals are that good. >> you don't see it as bullish as many do, that we're having now leadership from health care and consumer discretionary and technology, the groups that have lagged? >> i would, except i think that the expectations are too high. if you were to look at the number of stories mentioning fiscal stimulus in july, i think it was over 800. that's 2009 type of levels. look at earnings expectations for next year, i think they have 14%. you can discount and say the earnings expectations are way
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too high but that's the highest level we have seen in the last five years and 20% higher and i think we're -- you have to remember that we're dealing with negative earnings growth right now and consensus expects them to get to 8% by the back half of the year. that's a massive pick-up. i think expectations are too high. >> david, dan does give a snapshot of the investor skepticism around record high level for stocks. >> skepticism isn't the right word but investors need to be cautious. the rally has gone on for a while to his point we're not seeing the fundamental driver be low rates. we're seeing a higher correlation between equity market performance and global economic surprises. so what i take that to mean is there's a lot priced into the equity market right now. expectations are high, expectations are that growth is going to continue to be moderate. central bankers will remain easy and rates will not go anywhere. if the scape tips one way or -- scale tips one way or the other that could create a problem for the equity market.
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>> the idea that central banks will remain easy where does the fed conversation come into that right now? do you buy the idea that bill dudley of the new york fed was suggesting that the markets are yawn playing the possibility of a september rate hike too much? >> so i think that markets are too complacent. i'm not sure a september rate hike is as high a probability as people may be interpreting his comment to mean. the inflation print wasn't exciting. inflation remains the issue for the fed and i think the fed recognizes this election as it gets closer and closer may cause a lot of angst amongst investors. i think the fed will stay on hold in september. we still see one rate hike in the cards for this year and see that rate hike in december. >> dan, my question to you, if you are expecting a sell-off where do you go for protection and hedge against that? because you have sectors like utilities and telecom that have been bid up so much as you are looking for higher treasure yields they would be vulnerable? >> yeah. i think you're right. i think there's still cheap places to get defensive
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characteristics and to get yield. if you look at sectors like utility they are trading expensive but you can look, you can find attractive sources of yield like telecom which is the highest yield of any sector in the s&p as a way lower payout ratio and trading at as discount to the market. health care is another defensive play trading at a discount to the market and i think, you know, it's actually continues to have the best fundamentals in the market. just one thing -- >> look at what happened yesterday. the 10-year went up to 158 which isn't a high level and telecom got slammed, verizon closed lowest in the dow. >> you absolutely have to factor in the interest rate sensitive of the yield plays but if you are going to recognize the fact that yields are going to stay lower longer and they go higher you to look for yield but do it at a reasonable price. i think chasing these expensive yield plays doesn't make a lot of sense to me. just one thing on the markets, i think the other thing that's very important in the market today is positioning. if you look at february, people are basically positioning for a recession and we never got it. that explains a lot of the rally
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we saw. if you look at short interest in the markets at the lowest levels we've seen in a year we actually run analysis on fund positioning and funds have the highest beta exposure since '08. it's not as bearish as the headline numbers may read. >> yeah. although hedge fund redemptions now, three quarters in a row, david, we had someone yesterday suggest that without the retail investor, hard to chug much higher, how do you sort of evaluate interest in equities from all those various constituencies. >> so i think that earlier this year the argument was there isn't really an alternative to stocks and that's what caused people to pour money into the defensive income producing plays. what i'm seeing now is that, you know, optimism is a little better. when i go out and meet with clients they're willing to have that conversation around u.s. equities and willing to have conversation around emerging markets. is some of that chasing performance absolutely. i think fundamentally we're seeing the growth fears which were quite present at the beginning of the year begin to subside and again, we have the monetary polg put in place where
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central bankers around the world don't want financial markets to get volatility. they can keep climbing the wall of worry. people have been skeptical of the rally yet it continues to go on. this is the wall of wroir in my michel nischan -- of worry in my opinion. >> david and dan, here at post nine. >> thanks. >> cisco reportedly preparing to lay off about 14,000 employees. that's according to reports from technology news site crn. john fortt joins us this morning with the details. we're going to talk to chuck robbins tomorrow, but if true, what does this mean? what are they trying to do? >> the rumblings, carl, are anywhere from that 20% number to 10 to 15% and you can really see the stage set for this based on how earnings have been going over the past few quarters. you take a look at routing and switching that cisco's core business, about 45% of revenue. switching was down 3%, routing down 5% in the latest quarter and cisco executive said that
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was due partly to the macro environment and partly to just changes over all in the market due to the move to the cloud. then you got the data center, cisco has the server business that was sort of an unlikely growth hero over the past several years, but over the past five quarters or so, it's been delivering revenue in the range of 800 to $850 million. hasn't been growing that much. and cisco has said that that's due to some changes in the way people are using equipment in the data center. so when you look at cisco facing these macro headwinds, looking to maintain margins, cuts wouldn't be surprising given the fact that sistco has been quiztive trying to transition into a software driven strategy and hardwares and servers of the past. those will be important details to watch for in the report. also keep in mind, microsofts has been cutting, intel just announced cuts, ibm has been cutting for a long time.
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if you want to avoid the fate of hp having to break up businesses you want to be able to cut in the right places and grow at the same time. that appears to be what cisco is trying to do. we'll track those earnings and we'll hear straight from chuck robbins tomorrow. carl? >> rbc this morning argues 20,000 would be severe in their words, 10,000 they argue would be fair, the words of rbc. i mean, it's a deep cut no matter what. >> it is a deep cut particularly at a place like cisco which has prided itself in the past on stability in the work force. workers there in silicon valley used to being there for a long time. a story we've heard several times before in the likes of intel and the likes of hp, but these are times that are really shaking some of those titans of technology, managing to largely maintain margins but they're still facing headwinds from the cloud transition and mobile transition as well. we'll see how cisco does with this one and real people's
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livelihoods we're talking about. thousands of jobs being cut. we'll find out what the details are. >> we'll see you for "squawk alley." jon said, tune in tomorrow, 9:00 a.m. eastern time, we'll talk to chuck robbins about the quarter, layoff and macro. usually the color of the quarter is about the enterprise macro environment and see if that remains the case today. >> government spending all the rest, be they all come into play. all right. coming up when we come back, women's golf getting ready to tee off at the olympics. we'll head to rio for a look at that next.
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women's golf teeing off in rio. the olympics and joins us now. good morning, andrew. >> that is right. carl, the best female golfers in the world hit the greens today in rio. teeing off for gold. one of the biggest stars competing lexi thompson. we caught up with her not long after she arrived in rio and despite elite players skipping the games this is an opportunity she would not want to miss. >> i was a little bit surprised but, you know, it's their decision, not mine. this has been a dream of mine. any time i can represent my
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country it's the highest honor i can have. i wasn't passing up an opportunity to say i'm an olympian. >> thompson, who in 2011 became the youngest winner ever of an lpga tournament also spoke about the issue of equal pay in her sport. >> i wouldn't say it's paid fairly. but, you know, it's not my say. we're doing the best we can. we've added a lot of tournaments on our schedule and sponsorships. we're doing the best we can so hopefully that changes over time as well. >> the 21-year-old golfing star also told us about an occasional golf partner of hers, republican nominee donald trump. >> i played with donald quite a bit. my home course is trump international in palm beach, florida, so i played with him probably around ten times or so and he's a character. he absolutely loves the game and you know, he's a pretty good golfer and shoots high 70s. it's just a riot to play with him. he's a lot of fun.
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>> now carl, take a look at this video, 20-year-old simone manuel who made history as the first female african-american to win an individual gold medal in swimming arriving in houston's george bush international airport shortly before 5:30 this morning local time. greeted by family, friends, and a high school marching band. you got to love that. fun to spend time with her. she showed off her hardware, two gold and two silver medals. coming up in the next hour, carl, we have your favorite segment, ask the athlete. >> and a great times piece about manuel and how she could change the course of swimming in general in this country which, obviously, has huge racial divides. andrew ross soshrkin in rio, wel talk to you soon. >> when we return our exclusive interview with the ceo of cowan and company, jeffery solomon on the markets. much more ahead on "squawk on
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the street." the dow up 47 points at this hour. complex challenge. people want power. and power plants account for more than a third of energy-related carbon emissions. the challenge is to capture the emissions before they're released into the atmosphere. exxonmobil is a leader in carbon capture. our team is working to make this technology better, more affordable so it can reduce emissions around the world. that's what we're working on right now. ♪ energy lives here. ♪ guyhey nicole, happening here? this is my new alert system for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade.
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good morning. i'm sue herera. here is your cnbc news update at this hour. mexican authorities confirm the son of imprisoned drug lord joaquin el chapo guzman is among six men abducted by gunmen. they say 29-year-old jesus alfredo guzman and others were taken from an upscale restaurant by seven armed assailants and officials believe they are from rival drug cartels. a state of emergency has been declared in san bernardino, california, after a fast-moving wildfire forced more than 82,000 people from their homes. 18,000 acres have burned. more than 1600 firefighters are
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battling the blaze. they're said to be making a little progress. this morning the u.s. coast guard responded to a fire on board a cargo passenger ferry outside san juan, puerto rico. 500 passengers were removed safely. no word on what started that fire. and the home team advantage paid off in rio last night in women's beach volleyball. americans kerri walsh jennings and april ross lost in straight sets to a brazilian team. they'll have to face another team from brazil on wednesday for a shot at the bronze medal. we wish them good luck. that's the news hour -- that's the news update at this hour. over to jackie deangelis with the eia inventory report. >> good morning to you, sue. thanks so much. the department of energy just out with a weekly inventory report on crude oil. we did see a draw down of 2.5 million barrels, more than expected and a draw down in gas. here's where we conflicted with the api of 2.7 millions barrels. this report definitely is bullish and you can see that
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prices spiked when the numbers came out. we didn't go into positive territory but did erase the losses that we saw earlier in the session. but also this morning, out some reports that saudi arabia will increase production to meet local demand. on its face that doesn't seem very bullish for prices. it seems bearish. at the same time remember the saudis may be more likely to actually freeze in september if these talks materialize, if they're freezing at higher levels. so something to think about when you're looking forward to that opec conversation. back to you, carl? >> all right. jackie, thank you very much. markets have had a steady climb since the gypping of the year -- beginning of the year despite the low volatility. the election 82 days away. how should we be positioned. joining us the ceo of cowen and company, jeffrey solomon. good to have you back at the desk. >> nice to be here. happy summer. >> is it any coincidence that you're beefing up your washington research team? >> well, i mean it's hard to invest in the united states without knowing what's going on inside the beltway. that's what everybody wants to
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talk about. if you're a portfolio manager at a hedge fund or long only shop you have to have a pretty good insight into what washington policy will be doing to figure out where to allocate your assets and that's part of the reason we did this. >> is there any clarity right now about what policy may be? >> i think there's some things that you can probably figure out pup i mean i certainly think there's going to be a lot of debate around health care, a lot of debate around defense spending, there's going to be decision as to whether or not there will be infrastructure spend next year, what's happening with qe. these are all really critical elements to active managers trying to figure out how to figure out their portfolios. >> what are your best and brightest telling yoe this is h. >> i think we're a believer in the health care space. i think we recognize there's been some significant volatility in that area, not with standing what's happening in the vix, a function of debate around drug pricing. look at one of the true growth
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industries in the united states left where you can say over the next decade there bill be growth it's going to be in health care, winners and losers in that area, whether the payers or the providers or the drug discovery companies there's going to be lots of market cap shifts between those guys as the pie gets bigger and so our view is you have to have a pretty in depth view on video individual stocks and washington stocks. >> what's the appetite among institutional investors for trying to figure out what sectors to go for? you mentioned low vix, all the flows going into passive index funds, active management on its heels, hedge fund redemptions, your business not exactly the optimum environment. >> so actually the interesting thing. yes, you have to invest in times when cyclical shifts like or even secular shifts in asset flows from active to passive, you have to take a look at where the market opportunities are. i am a fundamental believer active management is not going away. it might be different, smaller,
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people will be making asset allocation in sector rotations as opposed to individual stock selections. you have to believe buyers and sellers based on individual positions is still going to be part of the environment and so what we're trying to focus ourselves on is, how to help those folks to do better. at the end of the day, even if it's smaller, there's still so few firms that are dedicate the just to that. it's how we're trying to position ourselves in the market. >> on the election and the market, do you buy this idea which seems to be for conventional wisdom barron's cover a clinton presidency is more market friendly? >> i think it is. just on the surface of it markets don't like volatility. i think it's hard to know what donald trump is going to do. and i don't think donald trump foes what donald trump is going to do from day to day. i'm not passing judgment, i'm making an observation. the market doesn't understand that. the market it may like or dislike hillary clinton but it
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has a good repository of information on which to assess her potential policy initiatives. >> it's status quo, right, versus what some say trump's proposals might be friendlier to business lowering the corporate tax rate, lowering even further the repatriation rate. >> so i guess the question is how much of that actually gets done. and i think, you know, at the end of the day we still have a congress and to contend with and congress is very confused what would happen in a trump presidency. i've had conversations with people around trump pricing policy an know what playbook will be from hillary we saw this once before and there's room to maneuver within a tight band to get things accomplished. in the trump presidency republicans and democrats have no idea what that's going to look like. and so i think there's if you're talking about simply markets and what markets would favor they will favor the thing where they understand the regime for investing. positives and negatives, there will be winners and losers but a good repository of understanding the clinton regime because we've
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experienced it the last 30 plus years and it's really not going to be that much different. >> so if the street wants clinton and they get her, and we have this relatively passive fed and we have a path to wage growth, is 2016 a double digit year? i mean if you annualize where we are now we're there. >> in terms of stock growth it would be it. we finished earnings season always this period of time between the next earnings season where you're likely to see volatility. it's an election year. we will see -- could there be a september surprise, october surprise, definitely going to be people focused more on the macro in the coming weeks and you'll likely see more volatile swings in the market than we've seen during the earnings season but at the end of the day like if the fundamental underpinnings of the economy are reasonably solid, and there's no real reason for the fed to move expeditio expeditiously, which i don't think there is, you're likely to see that at the end the year. >> what about your corporate clients, does that reflect that wait and see type attitude in
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terms of capital racing, doing m&a. are they still focused on doing deals and such? >> i think where there's -- where there's core value creation, obvious irrespective of policy, people are moving forward. they're raising money, they're investing in their businesses and absolutely looking to add to growth through mergers. because you can take out costs. that's not -- those are situations that are not specific to what's happening in the political environment. we're also seeing a significant amount of cross border action. so we've seen a significant amount of inflow from china in technology space, in semiconductor what i would call old tech and there's a lot of money in china looking to leverage u.s. technology and buy and access to u.s. technology. we're still at the frond end of the wave and that's the case whether we're in a clinton or trump presidency. >> won't be long before we're starting to talk about 2017 playbooks. >> we're already talking about that. >> yeah. i mean next time you're here.
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>> okay. >> good to see you as always. >> thanks. >> as we head to break have a look at shares of urban outfitters, a bright spot in today's trading session. the sector under performing but check that out, 18% pop on better results. sales and earnings beating the street's expectations. thanks to its namesake brand. much more ahead stay with us on "squawk on the street" with the dow down 50 points.
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is a 15% rally ahead for apple? that's what one trader says. he makes his case at tradingnation.cnbc.com. more "squawk on the street" coming up.
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you've been writing you're talking about we may be exiting one experiment and entering another. i totally get what you're saying. janet yellen and company, the last meeting, basically realized that the new normal is something real and she's kind of come over to the side that traders are on. your thoughts about what we may be looking forward to? is there a change in policy coming? >> yeah. i think it's a change in the reaction funk. williams came out with a piece from the san francisco fed talking about potentially increasing the target rate of inflation from 2% to something higher, potentially targeting nominal gdp. low rate policies, negative rate policies seems that global central banks around the world are starting to walk away from and doesn't mean they're going to hike rates any time soon but they're trying to increase inflation expectations. rick, the problem with this is this comes at a time when many investors have been lulled into believing that rates will be low for a long period of time. so when you look at assets and look at what assets have done, particularly in the fixed income
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space, high yield up 13%, emerging markets local up 18%, emerging markets external up 13%, we're looking at big numbers here that could actually fall with a change in narrative from the fed and what's the fallout from that? that's what i'm concerned about. that's what one of the risks i see plus as a credibility issue, how credible will this change actually be. i mean, dudley comes out and says that potentially there could be -- that september could be a live meeting. well, in the past whenever a fed official comes out and says something like that when the markets didn't think so, the markets used to react and today they're not reacting. i think that's an issue. >> basically, two things i want to just clarify. when you're talking about assets deflating, you're pretty much talking financial assets like the price of the dow. nothing against a retail speculator but they always seem to buy the highs and sell the lows. isn't that the same thing the fed is doing, boost up this, and make stock and financial asset prices go up and see the market there and they get brave and
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talk about tightening, only to see the helium come out and go back down. is that pretty much the way you see it? >> i think it is. i mean, effectively they've gone from being forward looking to being reactive. so, you know, maybe that's an issue right now with the fed and even some going to their credibility and that's a point i want to discuss a lot, because if they start to lose their credibility and their words start to lose impact on the markets that just makes the markets a little less safe because they are a big support mechanism but maybe they've overplayed their hand. i think this is a new era that we're moving into and it's something we're going to have to build into our risk premium for financial assets that we buy. >> i think it's actually beyond insane to expand from 2% to some higher level on quote/unquote inflation when the pressures of downward prices are a global dynamic caused ballack of growth and -- by a lack of growth and too much build out. if they want to see these things changed, most likely we will start to see tariffs and think a
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along those lines. thank you for taking the time today, jim. >> thank you. >> sara, back to you. >> all right, rick, thank you very much. let's send it over now to phil lebeau who has a look at what's coming up next on the show. phil? >> sara, we're at subaru plant in lafayette, indiana. the auto industry has gone from incredible lows to record sales, but only subaru, subaru, the only automaker to do something that no other automaker has been able to do. what is it? we'll tell you when "squawk on the street" returns. approaching medicare eligibility? don't put off checking out your medicare options until 65. now is a good time to get the ball rolling. medicare only covers about eighty percent of part b medical costs. the rest is up to you.
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and voice mobility so your calls find you wherever you are. get some of our most advanced products at a great price with over $500 in savings. call today and ask how to get these savings plus a $250 prepaid card. comcast business. built for business. suburu is flexing it's muscle with sales growth twice as fast as the u.s. auto market last year. phil is in the only plant in lafayette indiana. how did they do it? >> what they are in the midst of a growth stage here in lafayette. they build the outback, the h legacy and there's demand for these vehicles. if you go talk with with a subaru dealer they'll tell you we have some ready to come into the show room and they're buying but we can use more supply.
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sales of 2.7%. that's growing twice as fast as the industry overall and you heard me mention before the commercials subaru is the only auto maker to gross sales every single year here in the u.s. since 2008. part of that is the fact that it's reputation for quality, reliability and safety is among the best in the auto industry. in fact, that's one of the key factors that many dealers believe brings in buyers. >> i think it's really important too, that, you know, the demographics have changed for the brand as we move down into a younger demographic. a lot of young families and things are excited about being able to purchase a vehicle for themselves and their families that's a safe vehicle. >> you might be watching this and saying i don't see a lot of subarus in my area. the strongest sales in the u.s. are in the northeast. always been that way as well as the rocky mountain west. the number of state per sales
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being montana but all the rocky mountain states are strong. the challenge for subaru as it increases capacity and production in the u. s. is maintaining that quality reputation. we have seen this in the auto industry in the past. they're hot and ramp up production and then the quality goes down the drain. subaru is intent on that not happening as they increase the number of vehicles rolling off this assembly line. guys, back to you. >> it seems like their product assortment is pretty well geared to what people want right now. they were very early in what we call cross over vehicles. is that still their focus? that relatively limited number of models? >> a limited portfolio and those are geared primarily at fuel efficient models when it comes to cross overs as well as small sedans. they're not trying to be all things to all people looking for a vehicle. they are trying to hit those people that are looking for a fuel efficient reasonably piesed model when it comes to hospital
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and suv and small sedans. >> a lot of action behind you. phil, thank you on the subaru growth story from indiana this morning. let's check in on markets where we stand. we're seeing a second day in a row the dow is down 50 points right now. the s&p 500 down a third of a percent. and those are the moets from the last fed meeting and they will be released at 2:00 p.m. eastern time and they take on increasing importance here mike because of the fed comments over the last 24 hours. both dudly of the new york fed that's in the inner circle of the federal reserve and yesterday also lockhart suggesting that they may be sooner than the market thinks to a rate hike. not quite sure the market is convinced but we have seen stocks slow off bond yields tick up a bit and the dollars come off the lows. >> fed officials get a lot of
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flak for changing their story but if you read all the statements over the past several months the story hasn't changed very much. every single one of them mentions the possibility of one or two rate increases. every one of them. now the market goes from no way this year to maybe in a few months so the market is much more volatile in it's attitude than the fed has been so it's going to be interesting to see where they settled on the minutes which of course is from last month's meeting so things have gotten better in the period since the meeting happened. >> a lot to look forward to this afternoon and for the time being, over to john fort. >> what's coming up next? >> we have cisco and lay offs coming and we'll take a look at what that means. also tim cook in china and apple's fall season is about to kick off. we'll take a look at the stakes there and finally semi-conductor ceo is going to join us. why this is a chip stock to watch. all that and more coming up on squawk alley.
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♪ john forte and sarah is sticking around. it's good to have you this hour. joining us this morning from stanford, the new york times columnist. great to have you this morning. welcome. >> thank you. first up tim cook taking a trip to china as the company announces it will open an rnd facility in the country. cook met with a senior official from the chinese government and is touring in china today. meantime this new report says

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