tv Squawk on the Street CNBC October 11, 2016 9:00am-11:01am EDT
presidential. and i think we as a nation are a laughingstock of the world today given what's going on with the debates and the things that are being talked about and what have you. it's not substantive and it's confusing. >> they're pretty funny too, the rest of the world. >> we've got to say thank you. it has been terrific to have you. thank you for your candor talking about these other issues. we hope to have you back. >> alfred e. newman. "squawk on the street" is next. good tuesday morning, welcome to "squawk on the street." i'm ca the unofficial start of earnings season is upon us. alcoa reports this morning, along with headlines on oil, upgrades for cat, twitter and more.
pounds under pressure although german business sentiment did hit a ten-year high. the samsung saga getting worse. galaxy note 7 smartphones permanently discontinued. how are the other players like apple being impacted? we'll have the latest from twitter. we'll give you the latest on the continued talks with salesforce. alcoa shares falling this morning. coming up we dig into that report and talk to klaus kleinfeld in a cnbc exclusive. first up, samsung has permanently halted production of its troubled galaxy note 7 smartphone. the recall could cost as much as $17 billion. apple is poised to open at its highest level since december of last year. the stock is up 21% in the past three months. we're now on to a cycle where the replacement phones are catching fire. the company says if you have them, turn them off and we're simply not going to make them
anymore. >> i believe the company told people in china that it was the batteries that were the issue. they tried to make a little difference about the idea that the two batteries were very close to each other, it was a wiring problem. you can't fix it. that's the way it is. don't forget, this is a company that had 22% share. much bigger share than apple. and i don't know what's going to happen, but i will give you a little watch word. when you fly, as i did, gentlemen. >> yes, sir. >> if you see something, say something. >> in other words, if the passenger next to me pulls out one of these phones, say something. >> if the tsa lets these go through, it's a travesty. >> there's only two and a half million out there. >> that's a number they came up with. tsa, please, stop it. stop this phone from coming on our damn planes! this is all we looked at. everybody looked at everybody else's phone. i looked at the person next to me, looked at the person next to
me. see something, say something. try to get them to not put their phone on. try. this is like a shoe bomber. enough! >> i assume you're suggesting this now opens them up to all kinds of -- >> i think it opens you up to being afraid to fly. i mean i've got to tell you, everybody looked at everybody else. when you heard -- how many times did they tell you, please, do not put this thing on and that you looked. you just looked. you wanted to see who had what. i've got to tell you -- >> how many times did they? you've flown across the country. >> three times. three times i heard the stewardess say yesterday. >> the samsung phone. >> yes. and the pilot warned us before we took off. i want to make sure that everybody has it off. how can it get through the tsa? >> if it's a galaxy and not the actual -- it's a samsung -- >> they took away my water bottle. >> well, there's no more galaxy note 7s, they're recalling all of them, jim. >> how do we know? people can't live without their phones. >> well, we heard from ralph
della vega saying i can't remember anything like this in my career. take a listen to what the head of verizon said. >> this is by far the biggest concern i've seen in cell phones during my tenure. and i think they're a little surprised that the fix didn't fix things. so it's a major black eye for them, but at the end of the day, them recov they'll recover. >> yeah. they didn't want to talk up apple. go behind the scene on them. before this they're saying we're equal opportunity, but that's because they don't want the apple to have the edge. >> they're not the first company to have a significant recall. it's going to cost them a great deal of money. the stock price is down 8%. elliott chose a bad time to get in and start being an activist at samsung potentially. but these things do pass, to mr.
mcadams' point. over time they cost a good amount of money and then you move on. >> i think that's right, but i think in the interim i was surprised and fearful by how often they mention it on every plane. they put the fear of god in you. i mean i checked everybody next to me. i looked at the guy next to me, i thanked g eed god it was an a. i flew six planes. and you just felt, oh, my god, please, i hope dthey don't have the galaxy. remember, you plug in phones. they scared me. look, i came in -- >> does it change the way you think about apple or android/google? >> the fact is, is that their share is remarkable how big samsung is. >> but not in china. they're number five and falling fast. >> jack moore, who works with
me, chief investment strategist at the street put out a memo how samsung rushed ever developer, to try ten days ahead of apple. i just think that the tsa is being very irresponsible. you cannot have this be a voluntary thing where they check you off where you come in, they say it when you come on, they say it when you're in line, the pilot says it. it is ridiculous that it's a voluntary thing. when so many people warn you. >> you pray for apple. >> fly safe, jim. >> you just want apple. >> you're pack now, it's okay. i have an apple, you're okay. >> you're safe at the desk. >> the guy next to me had a lenovo and he had an apple. i also had like a surgical mask just -- i carried a surgical mask. >> no, you didn't. oh, please. >> why do you not believe me? >> what is going on with you?
>> because i don't take any chances. >> really? >> no! >> you have more chance of walking out on broadway and getting hit by a bus. >> you're a dreeamer. i've got my surgical mask. i play for keeps. i also had gloves in case. >> he's got actual gloves. look at this. >> all right. you better trust me. >> this is true. what in the world do you use these for? >> okay. let's move on to twitter. >> i have it! >> this morning, if we can. of course jim was out at dreamforce last week with salesforce. let's go back, it was september 23rd, we reported twitter talking to both salesforce and google. the stock ran up to the mid-20s eventually. it also then entertained at least in conversations with disney and microsoft. i can confirm as well. and then google stepped aside. disney didn't really engage too much and neither did microsoft. but the talks with salesforce
continue. and people close to the situation indicate, yeah, salesforce is still engaging, talking to twitter about a potential deal. the question is will they get it done given all the heat they got from their own shareholders, but twitter's stock price has adjusted dramatically over the last few days on all the reports of all the companies they're no longer talking to. and so, jim, the question becomes what would a price be that salesforce feels like it could get a good deal and twitter's board feels like it would be doing the right thing. the board i'm told is somewhat split on those. some believe a sale is the right thing right now, given the pressures that the company in general on its top line, the morale, a lot of different things. and so it is interesting here because you spent a lot of time out there, which i know with salesforce management, shareholders probably as well, you know, what's the right price they could pay without
completely ticking off their shareholder base, at the same time what is a price twitter's board feels like it could accept? one would expect they'd issue 19.9% or less of their overall stock. that would still equate to about $10 billion of the consideration were they do go 22 or 22.50. total guess, total guess on my part. what do you think? >> they will not pay 29, which was the price tag. that's why google dropped out. >> i don't think that's the price tag anymore, though. >> no. i think that it's not so much the price tag as a partner. they need to find a deep-pocketed partner in order to please t. row and fidelity. they will sell the stock aggressively unless they have a deep-pocketed partner and there's a big discount to 29. >> what's that mean? >> someone that can come in and offset the cost of this thing. like a 3g situation. >> okay. >> where they have other people involved. they need someone else to be
involved to be able to prove that they're not willing -- that they don't want to shoulder all the losses, two-year comeback. >> right. >> everybody goes. >> management, you mean. everybody gets -- >> why just management? everybody. >> what happened to the argument that only a founder can come in and change? remember that whole thing. >> you know, this is because salesforce does not want this to be a trash-talking place. i cannot tell you, not that anybody believes the trash talkers on twitter, they are very concerned that gresham's law takes over. there's only been 9 million people added during 150 million people added during the time dorsey took charge. they find that irresponsible because they fired so many developers. they have cut back. the two terms you hear are yahoo! and myspace. again, no one believes that. i don't care anymore whether people believe it. i don't care because i know --
>> you think it's not ridiculous? >> i would never compare the two. >> to that point they will -- at this point they're either going to try to get something done with salesforce in the very near term -- >> right. >> -- or this thing is finally over and we'll see what the october 27th is when we get earnings from twitter. >> deutsche bank said they might have a good quarter. again, myspace, disastrous business model. yahoo! no developers. versus what could be the finest place to mine data using artificial intelligence that's left after facebook, totally defensive. it's a way to be able to offer a one-stop shop to a customer who wants to try to figure out what people want because it's natural and raw. they feel possibly you could triple the number of people on it by changing the interface and making it so there would be a service so people who want to be in there are not trashed
consistently so that they want to continue to do it. they mention that over and over and over again. civility, civility. they want facebook-like civility. >> if what you're saying is all true, jim, why is the market not allocating capital efficiently here? if it's so valuable? >> because -- okay, that's a great question. and the answer is, is that salesforce had a ramp to go from $10 billion to $20 billion. and there is no doubt without a deep-pocketed partner that ramp is derailed for two years. so you have -- two years. it will be two years to fix. >> two years to fix twitter? >> twitter, yes. it would derail. it's about the projection. salesforce doesn't want to do anything to hurt its stock. i know people feel -- >> it doesn't sound likely to me they get to a deal unless twitter is willing to accept a big, big reduction in what twitter wants. deep pocketed partner. go to fidelity, go to t. row, say we hear you, we are not
going to lose two years of our plan and it gets done. short of those factors -- and you have to get rid of the trash -- they want civility. salesforce wants civility. twitter doesn't care and they refuse to develop anything that keeps things going. don't believe me, i don't really care. >> i believe you. >> i don't really care. >> i've been listening to you from the very first time you mentioned data and customer service to me. >> and i have been 100% right. >> you have been. >> but you know what, don't believe me. i don't care. i do not play for dinner, okay? i don't play for dinner. by the way, i have that surgical mask -- >> people are asking why we didn't help you find it. >> i'll have it after the break. but i tell you if i hear one more person that works at an airline say please, please turn off your samsung, please. okay, i took my shoes off, i removed my belt, i was stopped because i have cuff links, but no, no, you're allowed to have that all you want?
please don't turn it on. please! oh, nice, please don't turn it up. alcoa out with its final earnings before splitting into two pieces. klaus kleinfeld, we'll talk to him. later on, barry diller with his take on an ever-changing media landscape. another look at the premarket on this tuesday. we'll get to oil and the ten-year. what powers the digital world? communication.
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we started the morning with a discussion about the samsung galaxy note 7. jim believes it's a liability on airplanes. >> tsa. >> you were not joking about the mask. >> if the guy had one next to me, who knows what kind of plastic -- what is in that. that is not just a regular fire. i mean, you know, plastic when it burns is not -- is a little more toxic. hey, that's not like -- it's not kingsford's. i wouldn't put this on if it was a kingsford. >> jim, let's get to alcoa this morning, down in the premarket. results did miss forecasts. the company citing the impact of curtailed and closed operations as well as pricing pressures. split into two, scheduled to become effective before the market opened on november 1st.
stay tuned for an interview with klaus kleinfeld later on this hour. >> i wish the company wouldn't come out and say, listen, better than expected. there's a lot line items that are not better than expected. i do see, for instance, aerospace down 4%, commercial transportation down 2%, industrial pilots down 7%, packaging down 3%. this is a subsequent shal change. primary metals up 3%. that's not bad. but this is a transition quarter. we have to find out how much of the costs are really up -- how much of the revenue shortfall is because of shutting of plants. how much of the cost is because of the split. aerospace is a problem, but we heard that from honeywell and from united technologies. so aerospace is weakness. but you know what, the company is kind of -- there's some headwinds. it's somewhat consistent with the downbeat nature of the company in the last quarter. >> interesting. you mentioned honeywell, utx up,
and yet caterpillar upgraded today at goldman. so industrials, is there a split personality within the group? >> i think caterpillar has fundamentally changed its business model over the last year. i think they have gotten control or figured out the supply chain and dealer network, which had been very renegade. i also feel like there's mining orders that are finally coming through. that china has bottomed. the production per machine, the cost per machine is radically changed and the company, therefore, can make a lot more money with less. the upgrade seems a little late to me. you need to see the baltic freight go over 1,000, it's in the 900s. i think china has turned -- >> industrial questions last week with honeywell and ppg. >> ppg was paint, honeywell was aero. it's the same story with alcoa. united technologies really screwed things up with the lateness of their product. you know, with the gear turbo fan, which was so important to their profitability.
greg hayes made that really clear. it hurt everybody else and hurt alcoa, but i think that we can find some good things in alcoa. i was disappointed. a small position, hope it gets bigger. three for one split so it stays in the s&p. i thought the commodity side wasn't as bad. i like the cat coal because i do think it's the cost savings. doug has done a good job. >> we'll talk to klaus in a few moments. we'll get cramer's mad dash, fake another look at the premarket. more "squawk on the street" from nyc is straight ahead. from long island to buffalo, from rochester to the hudson valley, from albany to utica, creative business incentives, infrastructure investment, university partnerships, and the lowest taxes in decades are creating a stronger economy and the right environment in new york state
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let's get to a mad dash this morning. we've got about seven minutes before the opening bell. we want to talk about st. jude here. abbott in a deal to acquire st. jude in cash and stock. this morning or late yesterday, st. jude issuing an alert, jim, saying premature battery depletion has been seen in a small number or percentage at least of implantable cardio verter defibrillators and now analysts are starting to weigh in. the market is concerned. the spread of what the deal is worth has opened up a great deal. >> two deaths, 47 dizziness, possibly 350,000 people. obviously that's the universe. i think it's going to be far less than that. thei issue here is they have to replace it. if it's implantable, obviously that's not something that you expected. now, this is a very responsible
company and they immediately as soon as there's a death because of this, they have to put out this alert. so my question to you, david, is why wouldn't you readjust price? >> well, you know, you have to wait and see what the impact is. you've got a lot of analysts starting to weigh in. for example, i'm reading a report here that says they had a chance to speak to a number of electrophysiologists regarding the issue. both physicians felt it would have a modest negative impact on the market share because some physicians will be hesitant to implant these devices and be upset about disruption. that becomes the question. how much. and then if you're in a position if you're abbott, do you really want to fight that battle. you're also fighting on another front with alear trying to get out of that deal. the spread is opening up on this deal this morning, but the early reports are most likely not going to be something that changes the terms. but these things are fluid.
>> it was bad. what they did was definitely not a good situation with the batteries. different from samsung, which was a wiring issue. this is actual battery issue. but the one thing i would tell you, david, is that this company is already subjected -- remember there was a short report on them saying that it could be hacked. so i mean if they didn't -- and that didn't break the deal, although i think that frankly there was some of that. but this is something that i think abbott will have to take a hard look because of the share that you just mentioned because this is a very competitive battle. who knows whether people will say i don't know whether i have a good st. jude or don't have a good st. jude and that's part of the issue. >> we'll be watching the shares of st. jude and a lot of the others when we get the opening bell in a few minutes from now. stay with us on "squawk on the street." a used car,
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especially later in the week. this tenure, a stone's throw from 18. >> as leon cooperman was talking on "squawk" there's so many places that you get negative rates. this is just a beacon. you'd think that the money can't really -- geez, you would think the rates would go down given all the money coming here but a lot of people must feel the economy is better than expected. i see some parts that are better, some parts that are worse, but i don't see any strong upward movement in the economy. i see a lot of strong upward talk by fed guys. they seem to want to continue the talk and not in one voice. i think that matters. confuse a lot of people. they have confused a lot of people for several years since bernanke left. i do think i wish there was a little more order to who talked. >> we're going to watch that. we've got headlines out of russia. saying we don't think we want to
abide by our production cap. sort of flies in the face of what putin said. oil is off just a touch this morning. at the big boater it's navigant and nordicmade. >> i want to point out tomorrow when the inventory numbers comes out, it's going to show a dramatic decline in inventories perhaps because of change in the way they're accounted for. so just be careful that that number, if they don't adjust it correctly, is going to surprise people. i was not surprised that russia didn't go along. i am surprised people aren't talking about the way inventories will be calculated coming out tomorrow at 10:30 and it's going to surprise people. just be aware that's what's been going on in the real market because the futures market out five years has not indicated this strength. so a lot of people are hopeful a
something happens in november but i think inventories will surprise people tomorrow. airlines related to that story. bernstein initiates with the only out perform up 7.9. >> i do think that the downgrade of the sale of american is producing no selling, which tells me again these stocks have gone up one for one with oil, which is about as stupid as you can possibly get because it's their single biggest cost. but it doesn't matter. as oil goes up, airlines go up. people have been helpless to diffuse that reasoning. that usually means earnings will be down in 2017. i no longer believe that. i think the earnings could be flat and the group is a buy. >> yum brands is up this morning. they're putting out details on their brand to drive growth, kfc, pizza hut, taco bell.
november 1st, that will begin trading. they talk about having already returned -- repurchased 5.5 billion in shares at an average price of 81, reducing the share count by 16%. they say they did that as of october 10th, 2016. i think they meant 2015, unless they bought all of it yesterday. i don't think they did. >> no. but i think that what matters is if you go back to when they reported the quarter, the quarter was not a great one. and i think that that quarter begged to have more explanation. we now have it. 13.5 billion being returned. i think a split is going to bring out tremendous amount of value. you have to decide whether you want the slower growth with income or whether you want the faster growing china. i do believe that china better start picking up the pace. but people like this. we now know they're willing to overlook what was a bad quarter. >> they're going to say very levered. they're running at five times,
which is interesting, that they choose to do that. >> and franchising does bring in a lot of income. >> they can delever quickly, but at five times they think that's an optimal capital structure. it's interesting. >> the fast food company that's been doing the best is chipotle. stock has been going up. starting to get a better feel. remember, it's eight typically the cycle has been, whether it be -- any of these, whether it's taco bell, jack in the box. 18 months. the clock starts ticking in december. it's coming together a little bit faster for chipotle than it has for the previous recalls. i think that's interesting. don't get too excited about chipotle until we start analyzing in december, but it's obviously getting a little better. >> goldman has a list of companies with upside earnings potential versus downside. the upsides are best buy, domino's, ulta, jpm. the downside includes chipotle, american eagle, lulu. >> geez, i think lulu will not
be as bad. i think whole foods will be as bad. i have to tell you that i -- wow, lulu, i don't know about that. i just -- i do like domino's. domino's is just on fire. >> pizza is -- >> we couldn't get domino's where i was this weekend and i didn't know what to do. >> that's terrible. >> they have that no cheese option, david, if you're a vegetarian. >> really? i wouldn't go with that. are they also with salads? >> it's just an app. i can order it with my fireproof apple watch. >> that's so cool. >> fireproof. >> i'm hungry. would you order one? >> are you? get some kingsfords -- or get some samsungs. don't forget, david, if you see it, say something. >> i will. i do. >> see it, say something. >> i always do. >> that's all you need to do.
>> actually i'm seeing this some things in vie viacom and cbs. they're stretching, they're getting ready, they're taking their sides of the field. but they haven't yet engaged but they will, and they will soon, that is viacom and cbs, both of which have set up special committees with their board to deal with potential negotiations that are going to take place at the urging of their controlling share hold to do a stock-for-stock transaction to bring the two companies together. right now what we've got going on is mostly between leslie moonves, chairman and ceo of cbs, and his shareholder which controls cbs and viacom. there's a look at mr. moonves. i've been hearing this the last week or so, week and a half. with the assistance of well-known marty lipton, he is engaged or trying to engage with national amusements on various fronts in terms of dealing with governance of his company.
and their controlling position. and what, if anything, he can sort of do to level the playing field to a certain extent to allow him to be on a par in some way with sherri redstone and sumner, of course, in terms of co-equals. it's unclear where this is going to lead and some people say they'll ask for ten things and accept one but one is to enhance his power as he moves into this negotiation, maybe not allowing them to act by written consent for a certain period of time. but he does have leverage right now that he may not have that long because he's a successful leader of this company for a long period of time. he's been encouraged to engage with viacom. and so this is an opportunity for him to perhaps get some governance, give up on the part of his controlling shareholder. mr. lipton has not returned calls to talk through what it is they're asking for. if they do get together at
viacom, at some point he may want to take a shot at time warner. that's years from now. that's years down the road. but you can't do it if the governance structure is the same as it is most likely. their resistance to fox when they came after them, that's long-term business but at least gives some context to these current talks. then we'll get into the actual talks between cbs and viacom and the key will be is it a no premium deal or not. you know, is it worth viacom and their board of directors saying let's just get this done with at market because the benefits are going to be manifest or are they going to ask for some sort of premium. we'll see, guys. but that's sort of where things stand. they haven't officially fired their bankers yet on the special committees but are very close to doing that. they got their lawyers, perhaps more important given when you're dealing with all these players to have good lawyers. >> how's football doing? >> not well. these games, tampa bay -- these games are a bore.
>> wow. >> we talked to rosenhaus who suggested a big part of the ratings falloff is politics. we haven't taken your temperature, jim, on trump this morning tweeting our very weak and ineffective leader paul ryan had a bad conference call where his members went wild at his disloyalty. does the market discount fractures in the party? >> i'm surprised that the market isn't thinking more about the house and senate going democratic. because i think that therefore a lot of the tax plans that you felt might be dead on arrival would go through. i'm just surprised that i think the market is -- this is such a heated election that if you give a forecast. i'm relying on a "new york times" forecast, on the espn forecast, which don't laugh, because we know that that's nate silver, and it would indicate that those people, despite what you may think at home, are saying that there's certainty and that certainty, therefore,
makes people feel a little better. but certainty with both houses would mean that the taxes would go up rather dramatically for the people who own stocks. you know what, i'm surprised that it hasn't hurt the market more. i think they just like certainty so much. but this tweet -- i mean, i don't know. everyone has to make up their own mind about what's going on with the situation, but i was -- it seems like people like certainty more than they fear taxes. >> they'll make up their mind in 28 days if not before. let's get to bob pisani. hey, bob. >> we all want to hear what klaus kleinfeld has to say. take a look at the sectors. mixed open. remember the market leadership, it's technology stocks. they were on the upside. banks and energy. those are your three leadership groups recently and all of them down a little bit. oil is at 51, telecom has been fading for a long time. aluminum stocks, you know alcoa down about 6%.
overall those numbers weren't bad for the third quarter, it was the revenue guidance for the fourth quarter that people didn't particularly care for. remember what's happening on november 1st, they're splitting to a slower growing aluminum business and faster growing aerospace and automotive business. and the real problem for today is they reduced their revenue guidance for the faster moving segments, so again, this whole debate we had on friday about whether or not honeywell is correct and there may be slowdown in the aerospace part of business. slower business jet market overall and foreign defense markets slower. alcoa lowered their revenue guidance on the aerospace sectors. so no follow-through to the overall global industrials yet. there's some concern that might happen. meantime, we're 20 points from new highs on the s&p. what's moving the markets? there's a whole slew of things happening here. energy has oil over $50, big plus for them. tech is a super cycle in semis,
we've been talking about that. health care, we'll have stronger earnings in services and the pharmaceutical business. financials are seeing higher interest rates. these are the big sectors in the s&p 500. these are the ones that matter. the earnings estimates, look at these financials estimates up 16%. this is the fourth quarter. that's what the market is trading off of. all good numbers overall. maybe that will change, but that's the reason you're seeing these stocks move up so well. remember, the sector waitings, deck is the big today humanitari -- kahuna. health care and financials are also healthy. when these three groups are moving up, the s&p is going to move up. that's why we're just shy of new highs. finally we're going to see an oil and gas exploration company pricing tonight. extraction oil and gas, 33 million shares at 15 to 18. this is the first exploration production company in two years. a lot of interest in seeing how well this price, if it does price well, guys, that's when
you're going to know you're going to see some returns in the oil and gas business expected. right now the dow down 66 points. carl acti carl, back to you. let's get to the bond pits and rick santelli at the cme in chicago. hi, rick. >> hi, carl. rates aren't going higher faster, they're just going higher. if you look at the intraday of tens, it's not huge. but friday was a huge technical area that didn't close above that 174, 175. yesterday the cash market was closed. and you know those three-day weekends are nerve racking. today seems to be a dose of reality as we kind of leaped over at least extradintra day. we are at the highest yields since 6-22 but gives you the next chart, bund. our spread between our tens and the bund tens has moved a bit but all in all it's started to make its move and maybe japan
and europe making their move is exactly why we continue to move. look at the 622 start on the dollar index. euro versus the dollar, highest level on the dollar, lowest on the euro since the 28th. and the chart, this is september 1st start to the pound/dollar. what a swoon. still, if you really take historical step back, may of '85 last time at these levels and we have lots of auctions today and this week. carl acti carl, back to you. >> all right, rick, we'll talk to you in a little while. when we come back, alcoa's klaus kleinfeld on earnings and splitting into two companies. dow is down 64, apple adding 16 points to that. back in a moment.
take a look at the market there. relative negative. jim, we're going to do klaus kleinfeld in a moment so let's do tonight's "mad" in advance of that. >> something that i think all of us are fascinated is this uber/lyft. this is what's taken the millennials by storm. they use these different methods. i also want to talk about autonomous driving. that is a major focus last week for dreamforce, artificial intelligence, which is what it's about. and informatica is a private company but they have so many different cloud-based products that i think we'll be surprised. one day i expect that company to be public. >> a.i. and autonomous driving. >> and gm was at dreamforce last week. i do think that the economy has changed, and this is why people don't buy as many cars as they used to, younger people.
>> we're going to see that. klaus kleinfeld after the break. guess what guys, i switched to sprint. sprint? i'm hearing good things about the network. all the networks are great now. we're talking within a 1% difference in reliability of each other. and, sprint saves you 50% on most current national carrier rates. save money on your phone bill, invest it in your small business. wouldn't you love more customers? i would definitely love some new customers. sprint will help you add customers and cut your costs. switch your business to sprint and save 50% on most current verizon, at&t and t-mobile rates. don't let a 1% difference cost you twice as much. whoooo! for people with hearing loss, visit sprintrelay.com.
falling this morning after earnings missed expectations. actually it's more of the guidance than the earnings. i'm sure klaus will say that. joining us now is klaus kleinfeld, the chairman and ceo of alcoa. klaus, i understand many of the numbers were made but you made projections for engineered products, for transportation and construction and for aerospace, for north american trucking that were quite disappointing versus what i was hoping to see. can you explain when things could turn so that people might want to own the stock? >> jim, let's be clear. all the iconic segments increased their profitability and all of the future alcoa corporation segments have been profitable in spite of the low commodities pricing situation. we are facing some near-term market challenges on the commodity side. low level as well as on the aerospace.
at the same time, as you know, we are concentrating on those things that we can control and you saw productivity, you saw monetization. on top of it we give quarterly guidance. when you look at the quarterly guidance, all of the iconic segments have performed well inside their quarterly guidance. have performed well meaning better or in the range than these ones. it's a lot of things that are going on in the quarter. granted i think people are struggling with figuring it out. i think they would see long-term outlook is very positive. >> no, i understand that. but they're struggling. target revenue is 4.8 to 5 billion. they're struggling because engineered product solutions revenue 5.6, 5.8 revised from 5.9 to 6.1. construction had been 2.1 and now it's 1.7, 1.8.
so my travel trust owns it and we're trying to figure out when do other people come in and buy it. it's not like i'm saying alcoa is not worth owning. i'm looking at that guidance and it's either conservative or disconcerting. >> well, as you know, we try to give the guidance as realistic as possible. we have to admit that we are seeing in some of the markets some challenges. on the aerospace side we're seeing that there's huge demand there and there are teething problems on the engine side and some destocking on the structures. as our aero customers are adjusting their deliveries, we have to adjust to that too. on the transportation north america, the numbers are down, so we have to adjust that too. so the good thing is automotive growth in the u.s. is coming to a plateau, but the
aluminiization continues. there's a lot of opportunities there going forward. the good news is on aerospace, we will continue to see demand on aerospace. demand is strong. every year 100 million more passengers get added from asia alone. just take that number. these are the problems that we in the -- >> you mentioned the teething problems three times. is that united technologies have problems? is that an inventory glut with boeing? where's the teething problems? because the aerospace story was supposed to be the greatest story ever told. >> it's really two things. one is on the air frame side, people have preboard and they are working through the inventory so that's a destocking thing, that's the boeing situation. the situation on the aero engine side is different.
the aero engines coming into the market are of new technology and they allow enormous amount of higher efficiencies on the engine side. so it is not surprising that when you go through such a change that it requires a supply chain to really optimize together. the demand is enormous, the ramp-up is enormous, it's really unprecedented. you were asking me what do i see going forward. this is not going to go away. we are going through this phase, we're resolving it, everybody is working together. the moment we get out of it and hopefully that's soon, you will see this getting into a very, very attractive area. same thing on the automotive side. alumniization continues. and we should see 45 to 50% increase in auto sheet. so that's all good news and this will continue. >> we continue to hear from you that there is a deficit and that china -- at one point we're going to recognize that the deficit will move up raw
aluminum. i know aluminum was the problem this quarter for the commodity side. is there a path to be able to grow that business, given the fact that you say that supply should be constrained in the future? >> there is an opportunity. i've always said, jim, that alcoa corporation is an attractive investment. partially because we have come down on the cost curve in this business so substantially that the businesses can sustain even low pricing environments, as we see it now in the numbers, right? you also are seeing that we have been growing actively our box side business. china is importing roughly 50% of the box side. alcoa corporation has some of the best box side reserves on this planet and is starting to grow the third-party box side business so there are great opportunities also on the corporation side. >> you are number one or number two in each segment you play in.
so i have to believe that the end markets are struggling or you're not executing. the previous quarter you were somewhat concerned you didn't execute in aerospace. would you point blank say that the end markets are struggling and that your execution is doing its best it can in an environment where the end markets are certainly curtailed? >> the end markets have some issues that i describe. at the same time, you know our attitude. we are never satisfied. we've again added for this year we will probably get about a billion of productivity. we will not stop on that. we are continuously innovating, supporting our customers with new technology. this will not stop. this is the dna of what you will see going forward and also on the alcoa corporation going forward. so there's opportunities on both sides. >> i totally agree with that. i want to thank you, klaus kleinfeld, for dealing with some of the tougher questions on a quarter that looks weak but the
future could be better as you split. thank you, sir. >> thank you, jim. >> thanks so much to our jim cramer. when we come back, david kostin on what he's expecting this earnings season with the dow early session lows, down 93. if you have medicare parts a and b and want more coverage, guess what? you could apply for a medicare supplement insurance plan whenever you want. no enrollment window. no waiting to apply. that means now may be a great time to shop for an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. medicare doesn't cover everything. and like all standardized medicare supplement insurance plans, these help cover some of what medicare doesn't pay. so don't wait. call now to request your free decision guide. it could help you find the
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good tuesday morning. welcome back to "squawk on the street." take a look at the markets. the dow is down almost 100 points rather quickly. we're watching apple try to bring it back. the leading dow component at the moment. s&p down to 2151 and oil is the story as headlines regarding production hit the tape. >> our road map for the hour, so long galaxy 7, note 7. samsung officially pulling the plug on that smartphone after fire set off recalls. how much will it cost the company and can it gain back the consumer trust? corporate earnings warning, why goldman sachs economic strategist said it could be a rocky road ahead. and donald trump fighting back at house speaker paul ryan's comments that he will no
longer defend and campaign with the republican nominee. but our top story, samsung permanently ending production of its galaxy note 7 due to safety concerns. this coming just one day after the company halted global sales for the troubled smartphone. the recall could end up costing samsung as much as $17 billion. let's bring in susquehanna senior equity analyst mehdi hosseini and john ford. mehdi, it sounds like you want to pour cold water on all of the headlines about the damaged reputation and consumer trust for samsung here. what is your message? >> my message is if you look at the note, it only accounts for 5% to 6% of all their smartphone unit shipments that samsung is enjoying. i think there are a couple of things that you need to focus. first, i think samsung is working on making some changes
to their upcoming galaxy s-8 to be introduced early next week. if they do a good job and offer features that would extend, s-8 could offset some of the negativity. they're also doing good in their semi conductor division and also in their display business unit, profit is improving. looking into next year, especially second half of next year, if samsung is able to finally introduce affordable hand-held device which by itself is a new type of a consumer electronic hand-held device, then it could also be a leader in innovating and that could basically put an end to the note series and off consumers a different type of a hand-held which is affordable. so there are a couple of things they have to focus on. if they do that, that would help
offset the negativity. >> that's one way to spin it but clearly investors have their concern. an 8% drop in the stock today. i guess the concern is even if they are releasing new products and have a diversified business model, how much of consumers' trust did they break? >> yeah. mehdi gave us the best-case scenario. it's probably not the likeliest case scenario. here's why i think that. units is not the right way to look at this. smartphone units are not where the profits are. it's in the premium tier and this is the very top of samsung's premium tier so not only is it a profit issue, it's a reputational issue and we have yet to be able to measure what effect this will have on the rest of the samsung galaxy line. and this is q4. this is the time when most people are buying smartphones. if you don't have the units at the tier where they want them at the time, they don't buy them. it's not like you can just pick them up in february.
people aren't buying phones in february at the same amount. and these things don't happen in isolation. there's either a leadership problem here, a product quality here. we know samsung is going through some leadership transitions. this is probably a symptom and it's not the core issue. it's not clear whether samsung can fix that in time for next year's introductions. >> mehdi, do you want to respond to that? specifically even in your best-case scenario where they bounce back, how much of a financial hit are we talking about in terms of writedowns and losses from this debacle? >> obviously the note series is a high end and if you were to think about the downside risk, if note 7 accounts for -- i'm sorry, if note series accounts for 5% to 6% of the total smartphone units, it would have a 10% to 15% impact to samsung's operating profit. so if stock was down 8% and we're not that far from the
worst case scenario where note would come out of the model. and number two, samsung galaxy series, which is more prevalent and is more popular, that's where samsung should focus on and the gs-8 to be introduced early next year could take the attention and focus away. note is a product that is much larger and there could be issues with the larger model that may not be applied to a smaller unit. so if samsung could go through this transition, they could change the focus. >> what makes you so confident, to john's point, that there's not something deeper wrong with management? what makes you so confident that they can just bounce back with another phone when clearly there were some issues about getting on top of this, if even the replacement phones started blowing up? >> sure. i think the issue where samsung is communication. from the beginning they did not do a good job of explaining what the problem is and how the
recall is going to play out. maybe they rush, we don't know, i don't know. but the galaxy series is completely different and it is focused on a different part of the population. what we're dealing here -- >> yes, but, mehdi, you're speaking as if this is an act of god scenario where something fell out of the sky and hit the factory and there's no impact on the rest of the organization. we know from previous reporting that there was conversation internally about how to handle this problem. there was disagreement on whether this thing was engineered right in the first place. if you're going to fix this in time for next year's introductions where as you state there's a possibility of using brand-new technology, you want to be really careful that you get all of that exactly right and it's nailed down because if they suffer another incident like this at the premium tier, how do you think u.s. carriers are going to react? >> final word, mehdi? >> i think this is a problem that has to do with image and brand name. they have to come back and
protect the brand name. >> mehdi hosseini, thank you for joining us, and our thanks to john ford as well. we know you'll talk much more about this in t "squawk alley" next hour. when we come back, a corporate earnings warning from goldman sachs david kostin who's right here. and the lead advisor to monsanto on its $66 million sale. robert kindler will join us when "squawk on the street" continues.
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the third quarter earnings season is now unofficially kicking off with alcoa results this morning, but our next guest sees a disappointing earnings season ahead, possibly pressuring stocks here and sending the market index lower. joining us is david kostin, chief u.s. equity strategist. >> we have a modest economic backdrop in terms of growth and we have this particular quarter, expectation of 4% growth in sales, which is reasonably good, but you've got margin declines of roughly 50 to 60 basis points and that means your earnings growth will be declining by about 1%. so that's your baseline consensus expectation and our macro model would suggest that we're likely to get some
disappointment relative to that expectation. >> that was my question. why do you think it's not already baked in, the forecast, appropriately? >> well, the idea of some of the macro headwinds would be the potential of higher rates later this year. the idea to think about oil prices, the economic growth backdrop, our model would suggest we're likely to get a disappointing earnings season third quarter and that would likely lead to negative revisions in the fourth quarter. so from a valuation of the market, it's at a high level relative to history on most metrics. we think about the prospects for next year, really modest growth. really more of the same. the idea of the market ending this year at 2,100, which is down about 2% relative to today's levels. not significant, but that is in general some headwinds. >> it doesn't sound like a macro environment that's screaming out for a rate hike. >> well, the expectation for the economics team at goldman is that we have a rate hike, 25 basis points most likely in the
december meeting. if we think about that, suggest for stock valuations would suggest a little lower valuation. so i think from a tactical point of view, there's a few ways of investing in this market. one, what's mispriced in the market is dividend growth. not yield, but dividend growth. if you want to think about that, the expectations in the dividend swap market is for about 2%, a little over 2% dividend growth each year for the next decade. that is what the market's pricing. our forecast is something closer to 4% dividend growth and to give that in some context, in 50 years, we've never had dividend growth over a ten-year period less than 2.5%. so for 50 years, this would be the market is pricing something that has not happened. so a dividend dproet story, hon honeywell as an example, emphasis dividend growth. >> honeywell not so hot after that warning last week with some of the industrials, david. is dividend growth the new buyback story which was so important for you for so long?
>> it has been a way of returning cash to shareholders, dividends and buybacks. buybacks has been one of the key drivers of the market the last several years as companies have chosen to return cash to shareholders. on the other hand, valuations are very high relative to history. so repurchasing shares at these levels is a questionable strategy. returning cash in the form of dividends, somewhat more appealing. on the other side, there is secular growth and there is some companies growing their top line sales at a very substantial level, greater than 10%. you think about paypal. fortnet, amazon, google, well-known popular stocks but those are your other strategies. think about it from a barbell approach. you've got dividend growth and secular growth. other than that it's a pretty stable and tough market. >> so you go for the big top line growers, although it varies there in terms of the multiple also. google doesn't have a high
multiple. >> well, the key, key issue on the growth stocks is you need to be buying a company which has a multiple of less than seven and a half times enterprise value to sales. that's a key threshold. >> why is seven and a half times the key threshold? >> anything greater than that, the high likelihood is that you get a stock that underperforms, one year, three years and five years later. the whole concept of a secular growth stock is if the economy is growing at a relatively modest level, are there some stocks that can grow top line at a much faster rate. if there are, you don't want to pay too much for them and that's the key. that's the threshold. less than seven and a half times enterprise to value sales, you tend to outperform one year, three years, five years later. >> impact of either candidate winning on the market, material or not? let me add to that, we had a discussion with jim earlier. if it were, say, the house flips, what happens then regarding tax policy? >> i think the market generally
prices consensus. and the consensus expectation if you look at real clear politics or 538, some of the different polling sites would suggest most likely outcome is that mrs. clinton captures the white house and it appears to be more likely than not that the senate also goes to democrats. that would be the most likely outcome. but the market is trading at these levels in my opinion because there's an expectation of some gridlock. if the house controls -- is controlled by the republicans. that would basically be sort of some continuation of the same. some change with the senate, but relatively speaking not a lot of difference and that would be the consensus expectation. i think the market is priced at. to the extent there's something different from that outcome, whether it's in the white house or whether it is in your scenario, which is the house goes democrat, then you have a market reaction would be different. that's not what the market is expecting right now. >> what about a trump presidency, are you telling investors to hedge in any way? how do they prepare for that? >> well, i think the expectation
is mrs. clinton is most likely outcome. if you have concern in that regard, concern as an investor, not so much political but an investor, you would have some protection in the market. >> david kostin, thank you. always good to check in with you. >> just a home run derby right there, hitting them one or the another. >> seven and a half, got to remember that. seven and a half times sales enterprise value. thanks, david. yum is getting ready to spin off its china business. susan lee is at the company's analyst and investor meeting today and she joins us with more. susan. >> we're here at the mandarin oriental in midtown manhattan today as yum brands tries to sell really to the market its china spin-offs set to take place. yum brands has just announced a doubling of its capital return to shareholders at $13.5 billion by the year 2019. $6 billion of that capital return to take place this year.
also they're going asset light and moving to 93% franchising model by the year 2019. that compares to mcdonald's, which is sitting at 85%. so you see the direction that yum is taking things. also we're looking at cap ex being sliced by four times in the next three years. that's the target at least. and it's interesting when we talk about pricing because some of the analysts want to figure out exactly what yum's china business will be priced at when it lists on the new york stock exchange november 1st. yum brands will be a separate entity and it looks like they will try this trading on october 17th so the market has some price discovery on the range that they think that the stock is worth. of course i just want to remind our viewers that we have a programming note for you. an exclusive with yum china ceo mi micky pant this afternoon. when we come back, donald
trump ramping up attacks on house speaker paul ryan. the latest from the campaign trail next. the dow is down 120 now. "squawk on the street" continues in a moment. who are you? i'm vern, the orange money retirement rabbit from voya. vern from voya? yep, vern from voya. why are you orange? that's a little weird. really? that's the weird part in this scenario? look, orange money represents the money you put away for retirement. save a little here and there, and over time, your money could multiply. see? ah, ok. so, why are you orange? funny. see how voya can help you get organized at voya.com. 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.
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i was getting beaten up for 72 hours on all the networks for inappropriate words 12 years ago, locker room talk, whatever you want to call it. if they want to release more tapes saying inappropriate things, we'll continue to talk about bill and hillary clinton doing inappropriate things. >> when he was pressed about how he behaves, he just doubled down on his excuse that it's just locker room banter. well, i'll tell you what, women and men across america know that is just a really weak excuse. >> 28 days until election day, yet the campaign rhetoric near a fevered pitch. just moments ago donald trump tweeted, quote, it is so nice that the shackles have been taken off me and i can now fight for america the way i want to. so if the shackles have been on
until now, what are the next 28 days going to look like? joining us this morning, gop strategist and former marco rubio campaign manager, terry sullivan and democratic strategist al matter, one of the top bundlers for the clinton campaign. gentlemen, good morning. terry, let me begin with you. in the wake of that tweet, what do the next three or four weeks look like? >> anybody who claims to know is lying to you. it's going to be a roller coaster to watch. a little bit scary as a republican. i'm a little shocked that donald trump feels like he's somehow been restrained or disciplined up till now. but i'm a little afraid to see what completely unshackled or completely unhinged donald trump would be. >> does -- do i'll call them establishment republicans take that as a threat from him? and what's their response? >> you know, you don't know -- you don't know how to take the things that he says. you don't know if he believes
them so there's no reason we should believe them. it might be a threat. but it is -- the only bright side is at least it wasn't at 3:00 a.m., it was actually during normal business hours. >> terry -- i'm sorry, al, what do democrats do here? do they sort of warm themselves by this bonfire? how do you avoid gloating, the fractures on the republican side? >> look, the time is not for gloating, the time is to double down on our ground game and try to increase the margin of victory in november. trump unleashed and unhinged is quite astounding if you consider that that means that his prior practices were somehow considered normal. and with all due respect to terry, the notion that he doesn't mean what he says when we've been listening to him now for almost 20 months saying these awful things, i would suggest that he is what he says and he is who he is. >> terry, i wonder, is there any chance that this proves to be a
risky strategy, too risky for some of the republican senators and representatives that are walking away from trump? in other words, could they possibly have more to lose in their own elections by abandoning him if the voters want them to stick by their party than trump has to lose by not getting their vote? >> yeah, i don't know that trump has anything to lose at this point. but there are a lot of good republicans out there who do have a lot to lose in their races. not just in senate and congressional races but all the way down the ballot. and so they have got to run their own campaign. and whether they see the best thing to do is distance themself from trump or how they handle it, they have got to do it on a case-by-case basis because at this point we are in as a party just a mitigation phase. try to save as much as we can. save the party. hopefully at least try to save control of the united states senate. not lose too much in the house. that's really where the focus of the party has to be right now. it's no longer about defending
donald trump or being distracted. >> yeah, if i follow up on that. is there any corollary to this at all, mr. sullivan? another tweet this morning with the exception of cheating bernie out of the nomination writes mr. trump, the dems have always proven to be far more loyal to each other than the republicans. i mean this is going to continue. is there a corollary at all to what your party is facing right now given the attacks it is taking from its nominee? >> you know, i don't know. like i said, i think it is really tough to draw -- make a line between trump's thought process and any sense of rationale. there just -- they siwing so wildly that you just don't know what he's really intending. if there's a strategy or if it's just on a whim. so that's why i think it's really important for republicans running for any other office to just run their own race. stop focusing -- it's tough.
it's like a dumpster fire. and everybody wants to watch the dumpster fire. but these candidates need to get out and talk about the issues. and at the end of the day, look, it is -- i mean hillary clinton is an awful candidate who has the second lowest approval rating of any nominee in modern history only to be outdone by donald trump. and so, you know, if the democrats are happy or excited or proud of that, that's kind of sad for them. >> al, i'll let you respond to that quickly before we go. i mean what terry just said is true and will remain true for 28 days. >> that may be true for 28 days, but history has shown that when in office, when in a job, hillary becomes extraordinarily popular. she was unpopular before becoming senator. she won re-election with 67%. when she left the state department, she was the most admired woman in the world. when she runs for office faced with 30 years of republican
attack machines, she becomes unpopular. so i fully expect that she's going to win a very solid victory in november and regain her popularity with the american people by engaging in bipartisanship with republicans who are willing to work with her. >> terry, al, you've got a lot of voters just trying to make sense of this season. we appreciate you both coming on to try to help. >> thank you. >> thanks so much. i want to give everybody a quick look at alumina, this is a large company at least until today. gene sequencing the focus for this company. they announced preliminary third quarter revenues of $607 million. that was below guidance. this is the fourth miss in six quarters for illumi ina and thi time investors say we've had it with your forecasting ability. we're going to the sidelines. significant losses for anybody who owns the stock. >> worst day since 2011, i think. coming up, let's make a
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it's going to help me to have a better future for my children. to learn how you can save energy and money with solar, go to pge.com/solar. together, we're building a better california. good morning, everybody, i'm sue herera. here is your cnbc news update at this hour. leon cooperman was on "squawk box" earlier today. last month the s.e.c. announced insider trading charges against him and his firm, omega advisers. here's what he had to say on those charges. >> omega and i have always followed the law. anyone who has done their homework would understand that omega was built on doing detailed fundamental research and complying with the law. we could have settled with the s.e.c. for the amount that is far less, far less than i donate to charity on an annual basis, but i refuse to do so because i know that we acted appropriately and lawfully.
french president francois hollande says he's ready to meet at any time with russian president vladimir putin. putin postponed his visit to france amid growing diplomatic tensions between the two countries over syria. hollande was speaking before the council of europe. britain's dutchess of cambridge making her first solo over seas trip to the netherlands. she was greeted by well wishers at the hague. she's scheduled to meet with dutch king willam alexander a bit later today. that's the news update this hour. david, i'll send it back down to you. >> thank you very much. despite an overall decline in deal making, an moe with agrame and pot ash, very exciting. will the momentum continue this year? let's asked rob windler. vice chairman and global head of m & a. it's so exciting to say it.
>> it's good. it's all good. >> the third quarter was pretty strong, not to be funny about it, and we head into the fourth quarter. how is momentum looking in terms of an m & a environment that i think has been better this year than some might have anticipated after the records in '15. >> you're exactly right. people have to look at '15 as maybe something of an aberration, it was so busy last year. and the early part of the year was hard to keep up that momentum. and then as we've gone through the year, things have picked up. you know, the deals that you mentioned. i think what's basically happening is that people are more recognizing not just that you can't get revenue growth, you know, organically, but also that you can't really do much more with margins. if you look at the s&p over the last few years, which really driven, eps growth has been margin expanse, not revenue growth. so that's played out and people finally realized it makes sense to do deals. >> and all those things that
have been in place, like incredibly low borrowing costs remain the case. >> right. >> but something that has come up this year is antitrust which seems to figure into deals, including the buyer monsanto deal, it's a huge issue both in the eu and the u.s. is that giving buyers and sellers pause at all? >> the environment has been tough, and it's been tough for a while. a lot of the deals people tried to get done, i didn't really understand why they thought they could get done. whoever thought u.s. foods could get acquired by cisco. and even office depot and stapleless given the politics around it. >> well, i think at the time that was viewed as more difficult. the deals being done now people have a high degree of confidence, the last quarter, have a pretty high degree of confidence they're going to happen. but overall absolutely it slowed things down. >> it has slowed things down. let's ask specifically about buyer and monsanto. as your firm advising on that,
are they confident that deal will get done? >> we never comment on active deals, but they have certainly said and i think it's pretty clear, notwithstanding the parties think there's a high degree of confidence. i think you have to remember people doing deals now given the history of deals being blocked and challenged are being even more cautious than they have ever been. >> later in the cycle when there's fewer deals to be done, they do tend to be tipping that line or toeing that line more often on antitrust, don't they? >> well, the political environment has been challenging and the regulatory environment has been challenging. however this election plays out it's going to get better. but i don't think it's an end of cycle case. i think people are realizing that you'd rather have done all of your homework to get a deal done. i think another observation on m & a generally, things have really played out, as i said, on
margin improvement. and the markets do like deals that are the right deal. so even rumored deals like the qualcomm/nxp, people get that. people understand that's a very, very logical deal so the stock went up. on the other hand, people aren't yet getting salesforce and twitter. and they're speaking by voting. they're voting with their feet. >> and salesforce's stock has gone down. >> if you're on the twitter side, you're not going to subject a deal to having a salesforce vote. but what is interesting about it is that boards are listening to shareholders. and when deals are out there that the street doesn't like, boards listen to that. so we'll see if a salesforce deal happens. salesforce tried to buy linkedin. that deal made perfect sense. this deal, you know again, they have to do more to sell it to the market. >> of course your firm advised
on the microsoft/linkedin transaction. salesforce seemed to complain they came in late an didn't get a shot. is that true? >> well, they obviously didn't have the right advisor. >> clearly. where do we go from here as you look at '17? >> i think everything is looking, again, good. not to get to the '15 levels, but there's a lot of conversations going on. there's lots of things floating around. we've seen it much more than earlier this year. earlier this year i think was part of deal fatigue maybe from last year and a lot of volatility in the stock market. that volatility really isn't there anymore. we're trading at fairly narrow ranges. once things sort out in the election any which way, i think brexit is helpful that we now have kind of a hard brexit date. so i think we'll have a lot more activity coming in. i also think that we're going to see a lot more of money coming in from japan and china. we just saw that this week. we advised endurance in that
sale. we've done probably 15 first quarter sales. >> the bayer and monsanto, you may not have expected that. >> people want to be in the u.s. the fact is that that is why you want to put your money. and there are some deals happening into europe, but i think it's going to be a lot more activity in europe next year when things finally settle down. they haven't really settled down post-brexit yet. >> some shareholders opposing deals. but it seems to be activism large at this point where everybody does it, including the t. rows of the world and others you might not associate with being active. >> people forget that in europe this has been the case for a while. deals many years ago like vnu didn't happen because the regular institutions in europe opposed them. that's happening more and more in the u.s. institutions now are looking at
everything basically maybe through an activist lens. it's not really activist, it's active managers, which you expect. >> does that take power away from the actual activists? >> well, i've said for a long time that the activists as an asset class, the time has passed. there really aren't any more companies you can break up like fortune brands or even ebay/paypal. this whole return of capital, people don't buy it anymore. they don't buy that buying your stock back is going to drive anything so what are you left with as an activist? not much. so these guys have become stock pickers. generally. now, there's exceptions. there are guys that target companies like elliott targeting cabela's and cabela's ended up getting sold but i think generally these guys are stock pickers. >> finally one prediction from you, if there's one sector for m & a that you feel is going to be the strongest next year, what do you think it would be? >> i think tech. i think tech. i think we're going to see even
more in the semi space. if you look at our pipeline, i think tech will be pretty high next year. >> robert kindler, let me check that title again. vice chairman and global head of m & a at morgan stanley. thank you. >> all right. when we come back, taking a look at shares of alcoa, down double digits here, one of the worst performers in the s&p 500 after the company reported earnings this morning saying revenue fell and the firm cut its sales targets, citing near-term industry challenges. and election hack attack. the co-founder and cto of crowd strike. that's the company that identified the dnc hackers will be joining us live. much more ahead on "squawk on the street." a cutting ed university counts on centurylink to keep their global campus connected. and why a pro football team chose us to deliver fiber-enabled broadband to more than 65,000 fans. and why a leading car brand counts on us to keep
welcome back. health care the year's worst performing sector is the lag ard today. this as the biotechnology industry group weighs on the market. shares of illumina down after it cut its third quarter sales guidance. they are also hurting the nasdaq biotech etf. health care the only negative sector so far in 2016 down by more than a percent. we'll keep a close eye on that big sector, carl. back over to you guys. >> all right, dom, thank you very much. the dnc e-mail hacks have put russia's role in hackings into the spotlight. donald trump has continued to questioned russia's role, reiterating the same in both debates so far. >> it could be russia, but it could also be china and lots of
other people. it could also be somebody sitting on their bed that weighs 400 pounds, okay. you don't know who broke into dnc. but i notice any time anything wrong happens, they like to say the russians. she doesn't know if it's the russians doing the hacking. maybe there is no hacking. >> trump's statements come just two days after the u.s. formally accused russia of hacking the dnc's e-mails. the co-founder of crowd strike originally identified the dnc hackers and he joins us this morning. good to have you. >> thank you. >> nbc has reported trump has been briefed on this and yet he continues to bring this out in the debates. any idea why? >> well, it's hard to tell, but certainly there is no question that the russians have done this. we were called in by the dnc four months ago to investigate this. we're very confident that two russian intelligence groups independently hacked into the dnc and have then proceeded to leak this information. >> so what happens now that this rift is widening into the public view, right? what's a u.s. response both
before and after an election here, and then how does it conflate, right, on putin's side? >> well, the key thing here is that this is not ending any time soon. the russians are continuing to leak this information. we are engaged -- we're seeing the most unprecedented influence operation against our election being conducted by a foreign government, namely the russian government. and what i fear the most is that they're not just doing this to try to influence the election in favor of one candidate or the other but to fundamentally destabilize the system and get people to question the ultimate result. >> we worked together a number of years ago when i was looking into chinese hacking, particularly of electrical property. huge corporations, both here in the u.s. and around the world. where does that stand versus what the russians are now up to? are they much more aggressive than the chinese? >> well, it's quite different. in fact we've seen a bright light on the issue of china because we've seen a dramatic dropoff in chinese activity since the agreement that the
obama administration signed last year so we're seeing chinese activity drop off. but in terms of russia, we have seen a massive increase in the last few years since crimea and since the sanctions. they have been involved in political espionage as well as economic espionage, particularly in the energy sector. >> everybody -- we've heard -- the view here is that our elections tend not to be cyber heavy, right? a lot of the local ones, hard copies of cards and we've had problems with that in florida, for instance. so how likely is it that they could seriously destabilize election day. >> it's highly unlikely that the result itself can be changed because a lot of machines aren't electronic and can't be physically hacked. but we can expect that the russians will try to proclaim that the election has been hacked. in fact they have put out misinformation just last week claiming that the clinton foundation has been hacked and putting out documents that ended up not from the clinton foundation, so we will expect they will continue to put out
misinformation and try to throw mud into this election. >> can we just talk about what you found in terms of the who. fancy bear and cozy bear. who are those groups and what ties exactly do they have to the russian government, and does it go as high as vladimir putin, who does come up in these debates? >> those groups, fancy bear and cozy bear are our crowdstrike names for those actors. we believe that fancy bear is the gru, the military intelligence agency of russia and cozy bear is tied to the fsb, the primary intelligence agency, domestic intelligence agency that's the successor to the kgb. you have to assume that they're getting orders directly from the russian government. in fact the intelligence community here in the u.s. on friday declared that they believe that the orders are coming from the highest level of the russian government. >> do you assume that these latest wikileaks that we're seeing almost every day and we're getting even more today are coming from russia? >> i can't speak to all the leaks, but certainly some of the
information wikileaks has put out is a result of the hacks into the dnc and dccc that hired crowdstrike to investigate, so we have to assume that they were given that information by someone. perhaps the russians, perhaps someone else. >> how much better are we getting at combatting this? are defenses superior to what they were recently or good enough perhaps to actually be a real problem for the russians? >> well, it's still a huge problem because when you look at these organizations, most of the time when they call us in, we find that the actors have been in there for years. in the case of the dnc, the russians have been in there for over a year before they were discovered. so when you look at the situation, yes, we're getting better when we actually start looking for them. and that's what every organization needs to do. they need to do compromise assessment. they need to assume they're already hacked. they need to get full visibility to their end points and proactively hunt for the adversary, try to find them on your network. >> it makes you worry what the next 27 days will be like. we'll talk to you i'm sure
again. cto of crowdstrike. as we head to break here, take a look at where stocks are trading. we've got a triple-digit decline on the dow, down 115. s&p down 15, about 0.7 of a percent and the nasdaq getting hit the hardest, down about ab. alcoa and alumina. plus, barry diller will be joining "squawk alley." "squawk on the street" will be right back.
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sure, and not much in the way of reducing taxes. land gdp now, mark, on august 5g9 was 3.8. it's 2.1. let's talk your perceptions of growth. >> the government also puts out the gross output statistic, second quarter will be coming out next thursday. but it already has shown three quarters of actual business recession. it's a mild business recession. but it's definitely a business recession. and so what i would think is that this is why the federal reserve has done all the heavy lifting and why the money supply is growing very rapidly. they're not raising interest rates. m2 is increasing at a 10% rate, fastest rate in five years. they're working overtime. they're doing all the heavy lifting. fiscal policy finally has to be injected here. and we need tax cuts. we need to reduce the strangulation on the economy that's going on with all the
regulations under the obama administration. a lot of things need to be done to get the economy going. and, sadly, i don't think hillary clinton is bill clinton. and we're not going to get that kind of strong economic growth. so, we are going to be stuck with this slow economic growth rate that we've been seeing recently. >> you know, i'm going to let the heavy lifting of the fed pass. i think they're heavy lifting all right, on quick sand. let's look at the strong dollar, though. the strong dollar. sarah is right. dollar is strong. strongest levels since the third week in swrul fjuly for the dol index anyway. energy is at the best prices a year ago july. so there's more going on in foreign exchange. address that. >> well, the dollar is stronger. very strong. it's already not going down. maybe oil is next. oil, gold, all the commodities are priced in dollars. you better watch out.
there's a possibility of -- you know, every market is different, supply and demand. but the fact that gold has dropped and we've given a sell signal on gold, an indication that the dollar is very strong, contrary to what all the doomsdayers have been saying about the collapse of the dollar. it's just the opposite. >> still lower than it ended up last year. let's go to my final point quickly. m2. we gave up looking at the ms. nobody could really keep track of the ms. m2 has been moving up markedly. your final thoughts? >> i think i'm the only economist that looks at m2 closely. it's increasing at a double-digit rate, which indicates the fed is panicked and really concerned. they've got to get inflation going and this is the only tool they have left. >> just like japan had to get inflation going. mark, i appreciate your comments. always interesting. sara, back to you. >> rick santelli, thank you as always. a quick check of the markets
here. all major industry groups in the red. health care performing the worst in the s&p 500 along with utilities and energy. nasdaq is down almost a full percent. "squawk alley" will pick it up on the other side of the break. i am benedict arnold, the infamous traitor. and i know a thing or two about trading. so i trade with e*trade, where true traders trade on a trademarked trade platform that has all the... get off the computer traitor! i won't. (cannon sound) mobility is very important to me.
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