tv Squawk on the Street CNBC November 1, 2016 9:00am-11:01am EDT
>> 21 this year so we're legal. >> it's hard for a magazine to survive these days. >> it's always a triumph. the innovation festival is like a birthday party for us, a 21st birthday party. >> and the lineup that you have -- >> extraordinary. >> you've got to get on the map the first ten years and then are able to get people like this, so it's awesome. >> well, thank you. >> it will be a lot of fun. we need to get some other voices of optimism with all of the uncertainty of the election going on. >> thank you. appreciate. good luck with the festival. in the meantime join us tomorrow, "squawk on the street" begins right now. ♪ good tuesday morning and welcome to "squawk on the street." first day of the new month. plenty of work with. a two-day fed meeting begins, the election is one week away, china pmi with an upside surprise, futures are slightly
positive, europes are slightly in the red and we are watching crude and gasoline on news of the pipeline explosion yesterday in alabama. the first trading day of the month after that red october, more earnings. the election, the jobs number and the fed meeting all on tap for the markets. >> it is one week to go until election day. new polls and investigations are moving the markets every day, including today. we'll have the latest. and a spin-off for kfc and taco bell. yum and yum china begin trading as separate companies this morning. first up, though, a lot for investors to digest into november as we head into the first trading day of the month. a jobs report is coming on friday, the election is next week. all three major indices were in the red for october, posting their worst performance since january, although to be any worse than january would have required a lot more selling, jim. >> look, there's -- there's just a major change underneath. what we saw were a lot of health
care companies, big part of the s&p, almost every single one of them was subpar. and the actual earnings, by the way, you're just not yoogd to reading releases that talk about price competition in the drugs, whether it be amgen, whether it be ab-v, whether it be from zimmer biomed. well, the competition, don't worry about the competition, the need is not as bad as the supply chain management. i see health care competition and then i read the banks and there's very little competition. so the banks had a great quarter. that is very, very different than what we expected, and health care had bad quarters. health care were worse quarters than the banks. retail wasn't so good, that mattered. oil and gas were okay and tech was pretty good, but health care brought everything down. it is rather remarkable to sit here and think that the most defensive stocks were the worst. >> that's a good point.
political risk in there. >> oh, my. >> we're get auto sales today which will give us more granularity. >> we might get a break today on the sales. ford is the worst. i had klaus kleinfeld on last night. they're having a blip on the f-150, the most popular vehicle in the country. there's a little bit of an inventory adjustment. by the way, the -- i am not a believer in the subprime loan problem in autos, but it's three straight months, three straight months of subprime loan problems. this is my we're in a bit of a funk problem. home depot and lowe's, another blip down, according to another piece of research. we're just not getting good, good data from any retailer, any restaurant chain.
i cannot wait to talk to yum. maybe something good. >> it won't be bad, but certainly yum will be positive when we talk to them. >> not bad, that's not exactly, wow, i've got to go buy yum. it's not bad. >> what's behind it? >> this is what i think we spent a huge amount of time talking about politics. i had brunswick on last night. what a great barometer of this country. do you really need a 28-footer, david? i've got a 17-footer boston whaler, i'm totally happy with it. sales are good. but when you hear the company talk, it's like -- why are our sales good but not for polaris. well, people are a little down. the people are a little down. i think it's the election. we get past the election, i think there will be just a kind of a -- >> sigh of relief. >> that's a sigh of relief. >> really? you think so? >> yes, i do.
no, i made that up to -- >> i don't know. >> that was just something i made up. >> just to be provocative. >> just wondering. >> you don't sense the funk? >> no, not particularly. i sense the apprehension. but if trump win, i think you're going to have a lot of questions. >> this is the cover of "usa today." >> oh, my. >> is it over yet? >> i'm doing halloween candy and what are people talking about. the kids are still saying thank you, right? but the parents, no jello shots. it's like all, geez, how's it going? meaning like i can't wait for it to be over. >> speaking of which, long campaign winding down, we are just one week away from election day. our chief washington correspondent, john harwood, has been watching the electoral map and a bunch of other things this morning at hq. hey, john. >> good morning, carl. i think jim is right. i think there is going to be a national sigh, but we've got to wait a week for it, actually eight days, it will be wednesday morning. let's take a look at where this race is coming.
it is clearly narrowing in the polls. real clear politics, that average is down to 2.5 percentage points in favor of clinton. "new york times" average 4.1. "huffington post," 5.6 percentage points. we saw on the abc/"washington post" track this morning, first track showing donald trump one point ahead of hillary clinton. but is that narrowing enough for donald trump to win? take a look at the electoral map and that gives some clues. we've got battleground states all across the country, but it's still a challenging map. remember, mitt romney carried 206 electoral votes. donald trump has to add 64 to that. take a look at his strongest possibilities of taking blue states. nevada, iowa, ohio, florida, all of those are battlegrounds where donald trump is very competitive with hillary clinton. he could win all of them. but if he does, that is not enough to get him over 270. so what's the next tier of targets? you've got states from colorado,
wisconsin, michigan, pennsylvania, virginia -- excuse me, north carolina as well as new hampshire. all of these are states where donald trump is not doing as well, where hillary clinton has had a lead. she's got some advantages in those states. they're more diverse than the other states that he is picking up, so donald trump has got to figure out something to win there. he's traveling to indicate that, both in wisconsin and in michigan. then the final tier of states are states where hillary clinton could take away red electoral votes that romney won which steepens the hill for donald trump. those two are arizona and north carolina. she's held a consistent lead in north carolina, she's very close in arizona. so it's a difficult map for donald trump. not impossible, but difficult. now, we've got a new story this morning in "the new york times" about donald trump and taxes. he hasn't released his tax returns, but what the "times" reported is that he used what
his accountants considered legally dubious methods to claim tax deductions in the 1990s. is this going to make a big difference? i doubt of. it's of a piece with the other information we've learned about donald trump's taxes, which he has not made public, but people have intuitted and he talked about in the debate and said that made him smart. interesting to our audience that monitors how people pay taxes and what means they use to avoid them. >> john, i see a lot of presence of trump in michigan, but there's north carolina as well. if there is a firewall in this race right now, being a state, which is it? >> the firewalls that the hillary clinton campaign hopes that they have are three. those are colorado, virginia and north carolina. two of them, colorado and virginia, are states that bill clinton -- excuse me, that barack obama carried in 2012. donald trump needs to take one of those away. he's had a difficult time doing
that. and north carolina, as i talked about earlier, is a state that mitt romney carried but hillary clinton could take those votes away. and so instead of needing 264 electoral votes to add to romney's 206, so it's difficult for donald trump if he can't carry a couple of those three states. >> we have a week to toss this around. john, thanks. we'll talk to you later this morning. jim mentioned today is the day that yum china begins trading as an independent company. the yum brand spin-off operates more than 7300 restaurants in mainland china, listing on the big board under yumc. we'll talk to greg creed and mi micky pant. they will simultaneously ring the opening bell here and in shanghai. >> this is a huge company. people have to recognize, a
worldwide huge company. this is a move much like a lot of the moves that we see, to give you a fast-growing company, right? no yield. fast-growing company with a clean balance sheelt and kind of a methodical company and you can choose. this is the kind of thing, we've talked about this endlessly on "mad money." this is how you figure out who you are. what we don't talk about enough on most shows, suitability. what do you want? do you want something younger, faster growing, which has been china. although we have to ask about whether the chinese government actually likes this yum china. and then you've got something that over time can grow which i think is underrated which is this rest of world. i think taco bell is doing well. i don't know if you've been to the remallsed taco bell, it's quite nice. pizza hut is doing well. i have to plead guilty, the dark meat kfc with the mashed potatoes, done, done. >> yum itself is going to be asset light. they're cutting g & a significantly.
they're going to be franchised up to 98% is what they're talking about. >> right. >> as you point out, the growth company being yum china, which has you know has been rather volatile. >> don't you think it could surprise -- >> it could. i think they're talking about $1.25 million in evita. they have got to find an investor multiple. but when you look at the comps, you can argue it should be a higher multiple. 4.5% store growth. corvex is in there on the board and happy. >> this isn't necessarily what yum wanted to do or thought necessarily was the right course initially, right? they liked the combination, so it's worth talking about. >> it will be interesting to see how it trades. there's keith meister, of course, but beyond that, as both find their distinct investor bases. >> i find it fascinating because there's a school of thought which says that the rest of world may grow a little faster
than china. i'm reluctant to invest in the chinese side, because i think there was a time when you bought china because there was an aspirational aspect. people used to get married at kfc. the cache of the u.s. blast food was considered to be so much higher. and don't forget, the chinese have delivery now with cell phones and people deliver all over the place. there's a change model. i actually think that rest of world could do as well as china. look at domino's. now that's not the model. but domino's is the fastest grower in the world. did you see domino's stock? >> that's been a challenge for pizza hut, technologically falling behind. >> it's been tech, it's been the app. i did domino's this weekend. i love the app so much. i have the base
blap where it says it's out of here. >> it's a nice way to order pizza. >> when i was shopping at the mall this weekend -- >> we've got lots of pizza places in the neighborhood. >> go set a slice around the corner, fold it in half? >> both of you are not new yorkers, so really just enough, all right? you probably eat are pizza with a fork and a knife. >> i'd rather have domino's. >> like our mayor. >> he'll never recover. >> when we come back, more movers to get to, including valeant. speaking of china, we'll talk more about these pmis, strongest in two years. more "squawk on the street" in a minute. ♪ it's been over 100 years since the first stock index was created, as a benchmark for average.
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valeant is trying to bounce back after falling 12% on monday. the drop in reaction to the report that the former ceo and howard schiller are the subjects of a u.s. criminal probe. in response to that report they said the company does not respond to rumors about investigations but closed it was the subject of a probe by u.s. attorneys and that it was fully cooperating.
how do you trade this one, jim? >> ten years ago, almost right about now, then u.s. attorney chris christie was investigating peter dole angers who wan, the myers. it was a bad investigation. they appointed a monitor. but the point that i mention this is that the investigation of the ceo meant nothing. the ceo. and what you have to recognize is that if you want to sell valeant, it was bad very badly yesterday, do not sell it off the u.s. attorney. you sell it off the $30 million in debt. you sell it off the fact that every single drug stock has had a line of weakness over major drugs. and do you think that their wellbutrin can stand up under
pressure, do you think that their jublia. >> or the one they got from salex. remember the portfolio of drugs under mike pierson, it was let's have 50 drugs that do $50 million in sales and lets raise price because they're all under the radar. there's mr. pearson. now they have gone on with a blockbuster drug and i think you make the salient point, which is simply pricing pressure, what is that going to do to the model at valeant. by the way, they may not be looking for asset sales. it's not clear what they could sell other than bausch & lomb. >> the irritable bowel drug. jublia, the toe fungus drug, that lasts one month so think about how much that is.
do you think that mckesson wants that? we wellbutrin, i know the generic is not tolerated as well. i think the most important thing is that when we've seen the antitrust department go after all these things, who can buy bausch & lomb? not j & j. novartis won't be allowed to buy it. there's no natural buyer of bausch & lomb. who wants to go up against novartis and j & j. if you want to sell valeant it's because of the cash flow. >> if you get rid of bausch & lomb, you're eliminating a lot of t
as well. >> not to mention they're increasing r & d. the whole plan was smaller drugs, increased price, tax rate, which of course they still have extraordinarily advantageous tax rate, and don't skpend anythi spend anything on r & d. >> valeant still has backers. >> and value x still delivering -- >> they have some backers, but i just think that i've seen when a u.s. attorney investigates a sitting ceo or a ceo who's left, it has not really mattered. so don't use that as the reason to sell. use the fundamentals. >> unless they come after the entire company. >> well, that's happened, and that's usually because of a problem with an actual drug that has hurt people. >> right. >> that they have hidden memos. you know who i'm thinking in those cases. you're thinking about asbestos, you know, stuff that is well beyond what we're talking about here. >> speaking of drug stocks, we'll get to pfizer. speaking of rising costs and
now that fedex has helped us simplify our e-commerce, we could focus on bigger issues, like our passive aggressive environment. we're not passive aggressive. hey, hey, hey, there are no bad suggestions here... no matter how lame they are. well said, ann. i've always admired how you just say what's in your head, without thinking. very brave. good point ted. you're living proof that looks aren't everything.
thank you. welcome. so, fedex helped simplify our e-commerce business and this is not a passive aggressive environment. i just wanted to say, you guys are doing a great job. what's that supposed to mean? fedex. helping small business simplify e-commerce. 32 flavors, that's baskin-robbins, but we're talking about l brands. >> i'm going to keep it brief. last night they gave some
numbers that were a tad disappointing but look at this. victoria's secret was down 2, any expect that. look what happens. this is a mall-based store. bath & body works is very good. look at the reaction on just a slight disappointment. >> what's that mean? >> it means that people want to celery tail. so just be careful. there are a lot of bulls out there thinking that the worst is over. that tells me it's not. >> because it wasn't that bad a quarter. >> it was not great. a lot of people felt there was going to be a turn. but i'm just saying beware. matthew boss put out a piece saying there's not going to be many winners in the mall. please read his stuff. he is the best and he's been very right. he said be careful of these guys. i told everyone -- sometimes you defer to your elders. matthew boss is the hottest there is. he said get out, he was right. >> all right. we'll be looking at retail, we'll look at discovery earnings, earnings from pfizer. we'll talk a lot of yum this morning. >> and eating a lot of yum. >> and taking a look at those
deal stocks from yesterday, none of which did particularly well. all of that coming up when the opening bell rings a few minutes from now. my name is valerie decker and i'm a troubleman for pg&e. i am a first responder to emergencies 24 hours a day, everyday of the year. my children and my family are on my mind
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you're watching cnbc "squawk on the street" live from the financial capital of the world. the opening bell in about two minutes. big morning as a two-day fed meeting begins. china pmis were a little better than expected, the boj keeps policy unchanged. we'll of yum and yum china separate and ring the bell simultaneously here in new york and in shanghai. auto sales are on the way and oil, jim. the secretary general of opec saying this deal is still on, whatever that means. >> i know. what's painful about this deal, i was on "halftime" with steve weiss. it's the saudi's interest in talking up. this is one of those things where every day they can get a higher price and make a little extra money. this war in yemen, which is
totally uncovered by the media, because it is a hot war, needs to be funded. so you talk up your product and make a little extra money. it really is about talking up your product and getting more money. >> it hasn't stopped goldman today from saying we see lower odds of a deal and even if there is a deal, lower odds of them successfully bringing inventories down. >> well, the one thing is, is we are seeing a dramatic decline in spending offshore. it is absolutely not economic. and that will lead to a depletion that will make it so the second half of 2017 there won't be enough oil being pumped, that iran and iraq better start pumping a lot more oil or you'll see some lift. china is absolutely producing -- demanding more oil. don't forget, i know we have a pipeline outage that's going to move up all the refiners today. that's colonial pipe that blew up, unfortunately sad. but to get gasoline demand worldwide, they're taking ours. we have excess because we made more refineries. so there's a lot of things in flux away from iran and iraq.
>> we're going to watch all of that along with the s&p here in a moment. at the opening bell, as we said, yum brands celebrating the spin-off of its china division today ringing the bell here and in shanghai. we're going to talk to ceo greg creed in a few moments. later in the show we'll talk to micky pant. at the nasdaq, the cto summit is kicking off today and i guess we'll watch yum and yum-c as it's now known. >> all these things, there's gm down there. you get the first day's trading, don't take your cue from it because there's a lot of people shuffling. >> they have to establish shareholder bases at this point in two different places. they stem their flow-back issues, shares coming back to the u.s. from china by having these core investors, primavera.
>> i just warn people, i was going on with klaus kleinfeld about he's moving oar to iconic, there's alcoa and a ratio at alcoa to arconic. these are unseasoned securities. so you decide you want to place a longer term bet, that's fine. but short term we don't know whether the direction is going to be true, so to speak. it may not be true. >> alcoa is up 2.5%. >> right. well, there's alcoa alcoa and then alcoa arconic and they are very different. alcoa aa is the stub that is commodity, for every three shares you get one of those. it looks like it's down $6, it's not really down. it's the piece that you get as the spinoff, the commodity
piece. >> shares of discovery, those are the guys we have coming on from yum, of course, coming up shortly. we want to get to phil. >> carl, do you want to -- >> sure. jim mentioned gm is out for that. let's get to phil. >> quickly give you an update. auto sales a little better than expected. the estimate was for a decline of 6.3%. remember, october of last year was a huge year, so most of the auto sales you see today will be negative relative to last year, but what you want to focus on is the sales rate. general motors is estimating that the industry's sales rate for the month of october will be 18 million vehicles. if that's true, guys, that's one of the stronger months of the year and still a very strong sales rate. again, gm down 1.7%, a little better than expected. guys, back to you. >> thanks so much. >> you hear the bells ringing for the open of yum china over there, as you can see.
2450 is right around where it's trading right now. you can see it right behind us, to discovery this morning which is down a little over 3%. it wasn't u.s. that was the concern. it was international where the company did operate before the depreciation and amortization of $183 million. that was down, not good. they cited fx and some impact from brexit, but overall investors not particularly pleased with those numbers from discovery, jim, and so we're watching that have some weakness. again, not really as much because of the u.s. where it was okay as international, but international a very important part of this company as its investors know. >> interesting story in the "journal" about now netflix and amazon are taking on india. netflix with a more regional content strategy. amazon thinking we can go local and make shows for this country.
but either way very difficult to do. >> and people are starting to recognize that amazon's comments last week were much more geared toward how much to spend in india than it was about how they're doing in the u.s. amazon is making remarkable comeback. the people who sold it down 40 certainly have seller's remorse already. really incredible. >> do you want to hit ganett? >> do we want to hit pfizer first? it's not down that much. >> it shouldn't be. pfizer, the headline numbers, they did stop a drug, a cluster drug, only $500 million in 2020. you have to back out the numbers. not that the numbers are anything to write home about but the numbers were in line and people were selling it down a dollar and they didn't read the fine printing. it was an in line quarter, it was not great, it was not bad. >> they also mentioned foreign
exchange headwinds. valuation of the venezuelan bolivar and increased the lower ending of their fiscal '16 revenue guidance to account for the closing of a deal. >> but nongap earnings her share, cost of goods sold. but the revenue guidance was narrowed upwards. i thought it was very smart. the people who sold this thing down simply did not bother to read the whole release. i see a lot of that. people shooting first and asking questions later when it comes to drug stocks because they have all been so bad. pfizer was not bad, okay. it wasn't great, not bad. not great, not bad. ho and hum. >> bad for trunk. carl said let's hit that quickly here. shares of the old tribune now called trunk are down, going to be down sharply.
you'll see it in a moment. after gannett called the company and said we're done. it appeared that they had a deal done at $18.75 a share. last week there were reports from bloomberg about banks not signing on and they were correct. however, it did appear gannett was in a position to replace the banks that had concerns about the financing with other banks, but the cost i'm told by a number of different sources was going to approach plus 600 bases points and that's a fairly high rate of interest. the gannett board seemed to have trouble with both the last two quarters at gannett in terms of softness and the rate it would need to pay in order to get the deal done. but i am told that there were banks willing to fill in for those that did not feel comfortable of taking on the load of financing the deal at $18.75 a share. it all adds up to tronc being
down. this started last spring when gannett started an unsolicited bid to buy the company and slowly but surely moved up from there. you can see michael ferrell would have delivered quite a premium if he would have got it done at $18.75. they put a statement out saying it wasn't our fault, these guys just didn't come at the end of the day with the ability to finance a transaction. again, what i am told as well is there may have been that ability to finance it, but then the gannett board said things have been not good here the last couple of quarters, do we really want to be moving into this. others argue this is exactly what you need. you need the cinersin synergiee from a deal. whether it's "time" or whether it's "the new york times" or tronc or gannett or news corp,
it's not a pretty picture. >> 2,000 layoffs. >> reuters today, 2,000 layoffs, 4% of their workforce. it has been a very difficult environment, particularly for those companies that rely on the bulk of their revenues being actual print advertising. all of them are talking digital, including tronc, which those in artificial intelligence and what it will be able to help with its business. right now it's not going the right way. tronc is reporting after the close. >> tronc had a kind of revolutionary approach to things, artificial intelligence, but in the end the dogs won't eat it. wall street is not buying it. it's tough to prove it. in the end anything print. it just reminds me, i remember in 1999 when all these companies were trying to shift their models to dotcoms and they ended
up cannibalizing their own business and that's what happened. digital dimes, dollars, print dollars, digital dimes. now it's digital pennies and digital fractions. i still get the papers. i like to look at the papers. >> right here. but i get made fun of a lot. >> i do too. my kids think that i'm -- i hate the environment. i use this, and this is criminal. and i read the papers. i might as well a fire starter. i should get a galaxy note 7. >> we need to get water bottles, all of us, water bottles. >> let's get for bob pisani and see what's moving on the floor. hi, bob. >> good morning, guys. we have a mixed open, although we did have good news over in china. it was on upside. hong kong also up. better manufacturing numbers. the bank of japan met and stood pat so a little headwind -- a
tailwind, excuse me, going into europe. europe started on the upside. right nowth mixed. we did have some of the big oil companies reporting here. bps an earnings beat but it is down. shell had a nice rise, they posted better than expected numbers. you know, these stocks trading in europe have had a very, very good year. bp is up 30%, royal dutch shale is up 30%. here in the u.s., you see these gasoline refiners this morning all up 3% or 4%. tesaro also on the upside. colonial pipeline has been shut down. that services the gasoline all throughout the south. big explosion there in alabama. not sure how long that's going to be shut down. so valero and marathon and tesaro all trading to the upside. that's why we had energy leading here in the u.s. energy is leading, banks also doing well, industrials. these are leadership groups that
were in october. again, those interest rate sensitive stocks like real estate and utilities lagging. they had a terrible time in october as we saw interest rates moving to the upside. alcoa is around the corner but let's just reiterate, jim was just speaking about this, the old alcoa, aa, trading essentially the upstream operations. bauxite and aluminum products. the new alcoa, arconic, aerospace and automotive, also to the upside. yum china also trading right around the corner here and the important thing is new boards, new businesses and yum china doing very well at the moment. guys, back to you. >> bob, thank you very much. let's get to rick. >> good morning. i've been running around. the last couple of days maybe starting friday we had a lot of inputs, whether it was what the
fbi was doing regarding e-mails or the fact that markets had pretty decent moves, but they started to reverse. rates started to come down. they did it a little bit yesterday too. it's changed again back to the upside. as you turn back up trying to get close to the 190 area, maybe a may 1st start of tens gives you a better picture. this is key. bank of japan, our central bank, all of a sudden everything is back hot, guns hot. look at boone since may 1st. look at what's going on with the french oat. slightly over 50 base points. look at italy hovering a bit above 170. that's the highest yield on a closing basis since early february of this year. let's look at guilds. on -- gilts. they'll escape velocity on that 623 comp to brexit at some point. but jgbs, bank of japan, no more information. it looks like they're all running out of runway a bit and
maybe a little whiff of inflation in europe. and you see the jgbs really haven't gone anywhere quick. where's that steep yield curve? finally, the aforementioned slight rise in inflation rates, while it is giving the euro a boost, as you see on the yur eu versus the dollar, pushing it down half a cent even though rates are higher. back to you. yum brands officially spinning off its china division today. the new company will trade under the ticker yumc. joining us now is the ceo of yum brands, greg creed. greg, nice to see you. >> nice to be here. thanks, guys. >> i want to talk first about yum china, which is the fast-growing company. there's a debate right now. >> right. >> in the old days i remember yum china and we first started talking about it a long time ago and this was the fastest growing restaurant business in the world. then it had some supply issues and also had let's just say headline risk. where is it right now in terms
of those issues being behind them and the growth acceleration? >> i think all issues are behind us. i think the big story is growth, whether it's urbanization in china, whether it's the infrastructure, being about infrastructure, it's railroads, it's airports, it's train stations and malls. there's 1250 malls going to open. all of those are opportunities for us to build new restaurants and grow our fight print in china. we think there's unlimited growth potential in china. >> but have the others caught up? right now you have a cell phone -- my cell phone, i can order so many different restaurants and they can deliver now. in the old days, you guys were the only game in town. >> you can order and get it delivered in china as you can the rest of the world. relevant brands with technology, that's what we're doing, making sure we're on the cutting edge. >> how much is china about competing against fellow u.s. rivals and local rivals, local merchants, right? it's very -- the vendor base is
disparate. >> we have 4 restaurants per million in china. so it's far from saturated. we are so far from being saturated it's not even funny. as all this infrastructure happens, all that will lead to growth. >> you know what i'm interested in, is there any chance, because you know i'm a big fan in regular yum, is there any chance that regular yum is about to have a ramp of growth that none of us see in rest of world because taco bell is doing so well? >> i think right now looking at our third quarter, we had a great quarter for taco bell and kfc. they look even better now that our competitors have posted their numbers. honestly, we believe we can grow 7% for all three brands across the world because we're still in emerging markets and still get the growth from china. >> when you first talked about the split -- i happen to love my remodeled taco bell. you know that chipotle is having a little struggle. this remodeled taco bell is on
fire. >> it is. >> and the ad campaign is good. >> yeah. >> is there any chance that same-store sales could exceed china for a couple of quarters here? >> i think there's a chance. taco bell has momentum and we haven't even begun to scratch the international business. we're only in 22 countries with 300 restaurants. with kfc we're in 23 countries with 16,000 restaurants. >> but the key is to pursue the asset-like model so these would all be franchisees in any countries where you're opening stores. >> even after the china spin, we'll have about 3300 restaurants and sell down to less than 1,000. that will produce about $2 billion in after-tax proceeds which we're going to return all that to shareholders. >> it's funny, because there's another company that has pursued that model, burger king and the like. consolidation in your industry, do you think about it at all as a possibility?
i mean it just occurs that now that yum is a smaller and more contained company. >> don't just focus on growth. we focus on growing all three brands. whether it's taco bell, kfc, pizza put, whether it's in the u.s. or outside, we have tremendous potential growth. >> how does pizza hut catch up with domino's? >> i would say two years ago, kfc u.s. everyone said was down and out for the count. if we can do it to kfc which was in a lot worse situation, we can definitely turn around pizza hut. >> is it a recipe story or an app story. >> there's an asset story, a technology story and make it easier for the customer story. it's going to take some time and we're not promising domino's like numbers next quarter but i believe we can get there in the time frame. >> you and i talk a lot. natural organic, has it peaked as a concept? because your numbers indicate
that natural organic does matter, but taste is king. >> taste and value and convenience always matter. now, do people want to have healthier choices? yes. do you have to have choices? yes. do you have to be more transparent? yes. >> do you have to make progress? yes. but it's all about taste, value and convenience. >> but the numbers for you and for easterbrook are better for everyone else. >> that's true. on our menus, there's probably 2% of our menu makes it across all our brands, very small. >> how would you characterize the environment in terms of the consumer and also on the wage side, given me know that minimum wages have been going up across the country? >> i'd say the consumers, they're in a wait-and-see situation. next week there's a lot to see what happens. i don't think even what happens next week, whichever way it turns out, i don't think the customer will come out and open up their pockets. >> why not? >> i just think people are cautious right now. i don't think it's just the
election. so i think people -- but you know what, great brands that are truly differentiated that offer a distinct point of difference like we demonstrated in q3, they can be successful. i'm not about using the macros to help or to hinder, i'm saying build really dynamic distinctive relative brands and you will be successful in any market. >> is food deflation a story that lasts into the middle of next year? >> everyone is saying we think it will last through the end of '17, and we've already got high wages in seattle. our business in seattle is as strong as it is anywhere else in the country. our advantage is we've got a lot of markets where we have higher markets. in australia, it's $21 minimum wage. we know how to act, how to put our p & l together in a high wage market. we can bring that know-how to the u.s. as obviously wages move up. >> what happened at pizza hut versus domino's? patty doyle comes in and says, okay, our pizza tastes like cardboard. you know what, i admit it. and they do that great -- we did
sample, we had actually people taste it and they said the corrugated tastes better and completely reinvented things. they go all-in technology. those were smart moves. i don't feel like you're aztec logically inclined. >> we've got a lot of red roofs. they have to go away. our pizza hut franchisees have committed $1.5 billion to get out of the red roofs. the second thing is we have to obviously catch up on technology, exactly, and we will do that as quickly as we can. we've got to get to a single pos system and obviously that is part of the game plan. >> the doritos taco. >> yes. >> were you there when that was created? >> yeah. i ran taco bell, yeah. >> where does that level of innovation come from, because it has other guys' heads spinning. >> everything is driven out of insights. we drive everything out of consumer insights and the second
thing is a partnership. so our partnership with pepsico which i think is a world class partnership. if you don't start with insights, you don't have a big idea, i can assure you. >> i am concerned that there were manufactured issues in china. i never felt that what was wrong with china and your food chain was any different from anybody else, but there was bad publicity that was blown out of proportion. how do we know that won't happen again? >> i think people in china think yum china is now a chinese company not an american company. i think that will help. if people think it's a chinese company and not a u.s. company, i think you'll see less volatility and less involvement on outside forces on our china forces. while we've derisked our business by spinning off china, i think china has derisked boy what china will see as a chinese company. >> when we come back, we'll get stock trading.
top for cramer and stop trading. >> the truck story is a bad story and coummins today was a bad number. but klaus kleinfeld told me this would be bad. cummins, huge sales over in china. but it was a miss, it was a miss and it was a miss. so be careful. the truck business is a bad one. anybody in the manufacturing of it, caterpillar has some of that too, but i was disappointed. what can i say, this is -- the industrial renaissance is not happening when it comes to this particular part of the world. >> what are you going to tackle tonight? >> you know, i don't know whether you guys were as blown away by greg as i was, but we decided to have him on. we listened to him and we want to talk about the notion of
knowing what you like and peter lynch, the greatest investor of my life, income versus growth. do you want to own something that you love the taste of, that has a good income, which is going to be kfc, taco bell -- >> you never tire of talking about pizza hut and taco bell. >> no, i don't. domino's has been the biggest hit. i brought the cardboard out, i ate it, candidly it was better. tomato sauce on it. it was better. i did a taste test. i was blindsided. it had a crispier taste, the corrugated. i like it crispy. and the crust was better, as a matter of fact. whatever. >> five-year chart. >> don't forget there's also special dividends in there. let's see if pizza hut can do it. i am the new taco bell -- david, the resign is so gorgeous. you will just be struck. better than the wendy's redesign that you and i like to go to. >> jim, we'll see you tonight.
"mad money" 6:00 p.m. eastern time. when we come back, yum china now trading as an independent company and we'll talk with the ceo of that firm live from shanghai. dow down one point. don't go away. new bikes aren't selling guys... what are we gonna do? how about we pump more into promotions? ♪ nah. what else? what if we hire more sales reps? ♪ nah. what else? what if we digitize the whole supply chain? so people can customize their bike before they buy it. that worked better than expected. i'll dial it back. yeah, dial it back. just a little. live business, powered by sap. when you run live, you run simple.
good morning, welcome back to "squawk on the street." a busy, busy day. we have been talking a lot of yum and yum china but also a two-day fed meeting begins, the election is a week from today. oil managing to behave itself as goldman sees a lower chance of a deal holding together and economic data crossing the tape. >> rick santelli has manufacturing numbers now. how do they look, rick? >> first of all, construction spending for september is a huge miss. missed by nine-tenths. it's down 0.4. last month only down minus five. now let's go for the beat on the
big number. october read, expecting 51.7. we end up with 51.9. so that's not too had ba. let's go through the internals, shall we? prices paid, 54.5. so that's the highest read only since july, the very high read on prices paid for the year was 63.5 in may. new orders at 52.1. keep in mind just in august we were under 50, so that's not too bad. and maybe the biggest in front of tomorrow's employment and friday's big employment report, 52.9 on the ism employment index. why is that key? because it was under 50 as well, so it moves from 49.7, slight contraction to 52.9. just about three points in expansion. how are the markets reacting? well, we gained four or five points and the dow preoccupied with central bank activity and the ten-year note yield hovering at 188, a couple of basis points
below 190. resistance at 192 and 198. carl, back to you. >> rick, thanks for that. meanwhile, we are a week away from election day. john harwood is back at hq watching the latest from the campaign trail. good morning again, john. >> tick tock on the clock, 6 days, 13 hours, 58 minutes, 11 seconds until election day and we've got a close tightening race. we've got a race that has come down where hillary clinton is now in the real clear politics ample down to 2.5 percentage point lead. it had been more than six before. 4.1 in "the new york times," 5.6 in "huffington post." now let's look at the electoral map. donald trump needs to take mitt romney's 206 and add to that to get to 270. here are our battleground states all around the country. now here are donald trump's top prospects. take a look at this next chart. we're going to show you iowa, ohio, florida, nevada. all of those are very good
prospects for donald trump to pick up electoral votes, but if he carries all of them, he's still only at 265. he's got to win someplace else. what are the other targets? take a look at this next map. we've got several states here in which hillary clinton has held a lead. colorado, michigan, wisconsin, pennsylvania, virginia and new hampshire. she has maintained a working margin there, makes it difficult for him to break through. and then finally she's got some chances to break through. take a look at this last map. arizona and north carolina are states that mitt romney carried but that donald trump faces a fight to hold on to. so if she carries either one of those, his hill gets steeper. take a look at the senate, democrats are down, republicans have 54-seat majority. democrats need at least 4 seats in order to get a senate majority. here are all the battlegrounds, all across the country. now let's look at the reverse dynamic from the presidential race. strong pickup opportunities for democrats in both illinois, mark kirk is vulnerable, wisconsin,
ron johnson is vulnerable. but then there's a set where it's a much more difficult fight for democrats. all of these are close, florida, missouri, indiana, north carolina, pennsylvania and new hampshire. and then finally there is one state, nevada, where harry reid, the senate democratic leader is retiring, where republicans have a chance to take a seat. again, mirror image of donald trump. if republicans carry this, the democrats' hill gets steeper. finally take a look at the house of representatives. democrats need 30 seats to take the gavel away from paul ryan, give it to nancy pelosi. the problem is there are only about three dozen seats that are in play that are vulnerable republican seats. they would have to run the table. as donald trump gets closer in the polls guys, that gets more and more difficult. currently forecasters say they're not going to carry more than 20. we will see in one week. >> john, thank you very much for that. for more analysis this morning, let's bring in former obama
campaign press secretary and senior advisor, ben lebolt, also cnbc contributor sara fagan. guys, good morning to you both. >> good morning. >> sara, i just want to make some sense of these polls. this abc tracking poll that gives trump a one-point lead, the first since may, is that enough evidence for you that the comey news is in fact having an impact? >> yeah, the comey news is in fact having an impact, but what you see when you look at the numbers more closely is that hillary clinton's number has remained pretty stable. it's actually donald trump's numbers that have gone up. and where he's getting his increased percentage is from the gary johnson voters, from the third-party voters who are reluctant republicans who weren't comfortable with trump but now because of this news on friday are taking a second look at trump. he's getting a little bit of a boost from that. >> so the lesson being, what, they're not willing to waste a protest vote on johnson? >> the lesson being there is now
deeper concern with hillary and, you know, perhaps so much so that they're willing to vote for donald trump, whom they're uncomfortable with. but hillary clinton is in the lead here and she's at least three points up and probably four or five points up. i don't believe that anything in the electoral college has fundamentally changed. john just gave a great analysis of it. it's still a very uphill battle for donald trump to win this election. >> ben, from an electoral vote standpoint, where would or should democrats be worried? >> well, i think what's amazing is what a strong hand we have going into election day. hillary clinton has solid leads in states like virginia and colorado, where trump should be particularly competitive, would be in a normal election year, but with donald trump as the nominee, he's not. you see the clinton campaign campaigning in stretch states like arizona, which republicans have carried comfortably in the past. the map is a little bit different this year. iowa is going to be a challenge. some of the states with older
and whiter populations that look a little bit less like the majority of america does today will be challenging for democrats. but i think there's no doubt that democrats are on offense and the trump campaign is making some silly mistakes like campaigning in states like new mexico where hillary clinton is really going to walk away with this. >> as a democrat, ben, you know, we've drawn parallels to brexit throughout this election campaign, some of the parallels in the themes, for instance. but now you're starting to see the polls move toward donald trump. he even is ahead in some of them. i mean there's a lot of deja vu here when it comes to the brexit vote and the betting odds overwhelmingly favor hillary clinton winning, just like the betting odds favored britain staying in the eu and that's why the market was caught completely off guard. do you see that analogy? do you think that we should be paying closer attention to it? >> well, i don't think that analogy is -- i saw actually a
cnbc story yesterday saying post-brexit the uk looks more like an emerging economy, which the united states might if donald trump might and he unwound all the economic relationships that we have around the world. i think there is a key difference here, which is that donald trump has attacked and alienated many of the skpit a s constituencies that he would need to win the election. the electorate has gotten more diverse each cycle and to call mexicans rapists, to consistently attack women on the campaign trail, i don't think he's gaining support from the constituencies that he needs to win 270 electoral votes. >> what i was getting at actually, and maybe sara you can address this, the fact that hillary clinton still has 75% odds in the betting market. now, his odds have gone up a little bit, but it seems like there's a divergence between the odds and the markets, which are
remaining resilient and what's happening in the polls, that's all. >> yeah, i think that's right. we don't see any real change in these betting markets or in the market as a whole in terms of people's expectations about the outcome of the election. this race has been very consistent over the course of a year. it has been from tied to hillary clinton plus seven. donald trump has never held a lead in this race. and so i believe going into election day, he would actually have to be up two or three points to win the election. and so -- and the reason for that is because the clinton campaign has much better machine machinery. they have a more organized ground game because she has been the expected leader of the party for many years. trump came in after a very divisive primary and just isn't set up properly for a national election. and so i think that this is still very much an uphill battle and the markets and the betting markets and the political class
still see her as the victor. >> ben, i wonder, sara's point about the ground game gap, isn't that offset at least somewhat by the enthusiasm gap on the republican side? >> well, take a look at the early vote. i mean more than 20 million people have voted so far and those numbers look very strong for the clinton campaign, which means that on election day, they can focus on the sporadic supporters rather than the core supporters in making sure they get every last voter that's leaning their way to the polls. the trump campaign simply doesn't have that level of organization. it's already showing up in the early vote. polls are one thing, but who actually shows up to vote is an entirely different one. >> ben and sara, good to see you guys, thanks so much. >> thank you. >> thank you. our other top story, yum brands officially spinning off
its china business. eunice has what some of the challenges may be for the new company. >> about a thousand yum china employees are celebrating here in shanghai after micky pant, the ceo, along with his management team officially rang the bell for the nyse along with the nyse's president, tom farley. they were celebrating the spinoff as well as the new york listing because after the spinoff, the company now has hundreds of millions of dollars of cash on hand as well as no debt. and that financially stronger position could really help the company move much more aggressively into this market. the company does have a lot of challenges. in the third quarter the same-store sales dropped by 1%. it's really huge main challenge
is the fact that yum just isn't psoas pragsal anymore when it comes to chinese consumers. the company has done a terrific job into getting into every single corner of the company. in fact they have been credited for bringing american fast food and the concept of american fast food to many chinese consumers. however, people here just don't dream of eating at a kfc, so that's one big challenge. now, another big challenge for the company is the fact that the restaurant seen here is incredibly competitive. yum isn't only competing with western brands like mcdonald's or starbucks but also with chinese brands that have come up and taken that american fast food chain model and made it their own. they have really been able to send cheap chinese cuisine as well as western cuisine and done very well. finally, yum will also have to contend with this plethora of food delivery apps. yum with kfc and pizza hut had
really dominated food delivery for a long time, for years, but now because of all these food delivery apps, pretty much anyone with a kitchen and a mobile phone can have food delivered to someone else. and that's been redefining the way chinese people understand fast food. what is yum doing about this? in order to reach out to the up and coming consumer, they have decided to invest some of that money, the proceeds, to renovating a pizza hut to make it much more upscale. they're also going to be taking a page from starbucks' book and moving more into high-end coffee, special drinks like lattes and cappuccinos which are seen as very aspirational here and finally they're going to do what they do best really which is localizing their menu. in fact they have come up with a couple of thing in the last year, a fried calamari is one is japanese curry. >> eunice, thank you.
eunice yoon reporting from shangh shanghai. stay with us, we will speak with the ceo of yum china, micky pant, who is also there, with the stock up almost 2% here in the early action. when we come back, obamacare open enrollment kicking off this. premium increases and insurer exits. we'll break it down. take another look at where stocks are trading at this hour. again, it's been hard to break out of this midteen range, at least in the first horizon or t -- first hour or two of trading. we'll be back, including our interview of yum china ceo micky pant. don't go away.
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and vote yes on sixty-one. the drug giants won't like it. and he'll hate it. open enrollment for obamacare kicking off today. big challenges from rises in premiums to insurers dropping out. bertha has that story. >> even as insurers are contending with what they're going to do this year, they're really looking beyond to 2018 and the next congress and the next administration. they say really what's needed to make this market work is literally an act of congress. the three things that they want are, one, to tweak the law so that they can price a little bit higher for people who are older and sicker, offer plans that are a little skinnier for people who are healthier, widen the subsidies for people who are
buying these plans, extend tax credits to people in the middle class who don't get subsidies and extend the risk adjustment program that helps insurers offset the big losses on sicker patients. this is what they really need. >> if they do make losses, they would like to have some type of cushion to absorb those losses. and the republicans have waged a lot of opposition against that cushion. >> now, if there's mixed government, they need congress and the republicans to come along. if there's a sweep and you have a republican president and a republican congress, the pressure then is to repeal and replace obamacare. doug holt aiken, who used to advise the mccain campaign on health care said then the pressure is on to make sure there's a smooth transition. >> you don't want to shut it down and try to start something from whole cloth.
we saw that even with an implementation period, healthcare.gov was hardly a smooth start. >> and with this campaign up in the air, a lot of folks in the health care industry are wondering just how this will go, guys. >> we will see what the enrollment numbers look like. bertha, thank you. meantime, one person is dead and five others are injured after a colonial gas pipeline exploded in helena, alabama. gabe gutierrez is there and joins us with the latest. gabe, what's the scene there? >> reporter: good morning. several roads are blocked off here as authorities have managed to contain this fire. however, they're still waiting for it to burn itself out. but analysts like aaa expect prices at the pump across a lodge swa large swath of the country to go up after alabama's second pipeline disruption in two months. this started around 3:00 yesterday local time when the
cloel janua colonial pipeline said it had a crew of nine people working on digging up an area around it and an excavator hit that pipeline. that ignited the fuel inside sending a massive fire ball into the air. several nearby homes were evacuated. one person as you mentioned, sara, was killed, five others were hurt. this morning they're still working on the area, trying to really investigate this even further. and analysts suspect that since this is the second major pipeline disruption, just a few weeks ago line one had a major leak just a few miles from here, and that sent prices soaring across a large swath of the country. there was also gas shortages as well. now, overnight gasoline futures rose significantly in overnight trading. again, analysts are thinking that that's going to increase prices at the pump in the coming weeks. this line remains shut down and
it's unclear when it might reopen. >> the biggest jump in almost eight years for gasoline in new york. thank you, gabe gutierrez in alabama. when we return, yum is spinning off its china business this morning. started trading just a few moments ago. it's up about 3% here. we'll sit down with the ceo of yum china, micky pant, in shanghai next. much more ahead on "squawk on the street" with the dow down 14 points. stay with us. this car is traveling over 200 miles per hour.
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yum brands spinning off its china business, now called yum a. shares are up 3%. joining us now is the ceo of that company, yum china, micky pant. welcome to you. greg creed was just sheer talking to the guys. he said there is unlimited growth potential in china. you've already got 7,000 stores there. talk us through your plan of how you're going to achieve that growth. >> well, we've got 7,000 stores and yum has been in china next
year for 30 years. so it's been a lot of experience in this market. the way we look at it at the moment is that we've got about five stores for every million of population and that's under penetrated. in our view we can triple the number of stores. we think we'll have more yum brand stores in china than we have in the united states, so we can get 20,000 restaurants here. >> so it hasn't been a straight shot, there's been some bumps along the way. last quarter in fact same-store sales for china were negative. analysts were looking for 4% growth and there are reports that you have been losing market share along the way. can you describe how you're going to tackle some of those challenges? >> well, you know, like i said we've been around for 30 years and had challenges many times on that journey. if you look at every five-year snapshot the company just keeps growing. last quarter we reported same-store sales at minus 1.
prior to that for four straight quarters, kfc actually ran positive comps. for the first three quarters this year they're running plus 4 on same-store sales. so there have been bumps but we see the opportunities as being far out weighing the risks of being in china. >> what about the food safety scandal that you handled a few years ago. how hard has it been to build back the trust locally? >> i think that's now behind us. you know, we did have a food safety issue. as you know from multiple experiences around the world, it does take a while to get out of that. two years later we feel we're in a much stronger position and actually doing a lot better. so we continually do research on our customers and check with them, what they think. in virtually every attribute we've recovered to the prefood
safety issue. >> sir, technology plays an important role here for a number of fast food restaurants. i'm curious as to what your thoughts are when it comes to technology in china, what you may be able to implement and what your expectations are in terms of leveraging technology to obviously increase sales. >> well, you know, i'm frankly quite astonished at the rate of adoption of new technologies in china. to give you one example, until a couple of years ago we only accepted cash in our stores, we did not accept credit cards, the culture was not developed. well, in just one year some 20% of our sales are now going through cashless payment, which is directly on cell phones, through providers like reach out and alipei. i believe that china sat fastest
adopter when it comes to digital. the speed with which they navigate their cell phones. anyone who can type in mandarin on a small screen can do almost anything. i see the behavior of consumers here, the way they locate stores, the way they locate deals. they can book tables and order in advance so they can pick up food. overall that's growing very rapidly. in kfc alone now we have a loyalty program with more than 50 million members. we believe that's one of the largest in our industry anywhere in the world and just the beginning. this happened in the last one year. so i think the influence of technology is huge in all sectors of our business. we see that as big going forward. it also helps that we've got very good partners here. >> sorry to cut you off. >> i was saying ad financial and primavera have invested in our
company. >> can you talk a little bit about the chinese consumer? we've gotten some mixed reads on the economy. p & g said they're just moving online instead of in stores. nike continues to see double-digit growth. what are you seeing? are they being affected by the broader economic slowdown there? >> well, you know, i think that the consumer is alive and well. one company i have a lot of respect for is starbucks. they felt i think 500 restaurants over the last year or so. when i see people walking to a starbucks and buying a cup of latte or cappuccino for $5, i know there is a vibrant business here. even pizza hut, which is a relatively more expensive concept compared to fast food, in 2015 when the economy was reportedly very difficult, we grou our system sales by 10%. so we believe there's business to be had. we found, by the way, in the 2008 recession when i was
working on the international side of the business, that fast food actually does fine in an economically difficult situation because people downtrade from fancy restaurants to the more affordable concepts. i can't really comment on the overall chinese gdp or those numbers, but the way we look at it the opportunities for building new stores as well as building same-store sales in our business are vital. that having been said, the delivery business is growing rapidly so it's double-digit growth for us and about 10% of our overall sales is now coming through home delivery. so there is definitely that impact, just like in any other sector of retail. >> micky, donald trump has said that if he is elected president, he would name china a currency manipulator and threatened to impose tariffs on chinese goods. a lot of tough talk on trade with china. if he does win the election one week from now, would that be
harmful to your business? >> well, we'll have to see what actually happens. you know, talk is one thing, but china is such an important trading partner that we'll have to see what the actual policy implications of what he says are, assuming, of course, that he's elected. but, you know, we've ridden many, many changes of administration on both sides of the world, in the united states as well as in china in the past. so there may be bumps along the road, but overall we see china and the u.s. as having too important a partnership for anyone to take lightly or make significant changes to without a major disruption. so it's good for both countries to keep talking and keep going. >> we'll see what happens. thank you for joining us. sorry about that long delay out of shanghai. micky pant is the ceo of yum china, with the shares up still over 3%. when we come back this morning, it is day one of the fed meeting, the final meeting ahead of the election. has the time come to raise
rates? we'll talk to former reserve governor robert heller. stocks are still down 23 on the dow. more "squawk on the street" after a short break. co we're bo. co we're bo. because, healthier doesn't happen all by itself. it needs to be earned every day. using wellness to keep away illness. and believing a single life can be made better by millions of others. as a health services and innovation company optum powers modern healthcare by connecting every part of it. so while the world keeps searching for healthier we're here to make healthier happen.
ooimt courtney reagan and here's your cnbc news update at this hour. six people are dead after a school bus and commuter bus crashed in southwest baltimore earlier this morning. there were also significant injuries. according to the police, there were no children on the school bus. no immediate word on what caused the crash. folks in parts of the southeastern u.s. could be faced with another gasoline shortage, this after a track hoe that was removing dirt in northern alabama struck a pipeline causing an explosion that killed one worker and injured five others. bill cosby arriving at court where his lawyers are expected to argue that prosecutors are reaching back to the casting couch era to round up women accusers to build a sexual
assault case. prosecutors are going to ask the judge to let 13 more women testify at the june trial. pope francis arrived to celebrate mass at a soccer stadium on the second day of his trip to sweden. his visit coincides with the 500th anniversary of the protestant reformation. sara, back on over to you. >> courtney, thank you. cnbc's fed survey is out with what to expect from the market and the economy the rest of the year and throughout 2017. our steve liesman joins us with those results. >> sara, thanks. before getting to the stock market and growth outlook, i want to look at the threats that hang over the u.s. economy, according to our respondents in the cnbc fed survey. it begins where it's begun for a while with the threat of global economic weakness. that is judged as the biggest threat to the u.s. recovery and that's up 2 points. but coming along pretty strongly here is tax and regulatory policies, up 11 points in our survey compared to the prior one in september.
rising interest rates hits the board from 0, because of the expectation that rates will rise, and finally over here, the outcome of the u.s. presidential election, that was never big, but it's come down quite a bit to zero so they're not scared of this election quite as much as they were, even though they do believe it's negative for the economic outlook. take a look at the outlook for the market. sideways is the new up and down. we're looking for 2242 in 2017 and 2174. what that tells you is a lot of the gains are built in already that are coming this year and not a whole lot expected to come next year. moving on to the outlook for interest rates, over my left shoulder here, 225 is the expectation for '17, 191. that has come up with the recent rise in interest rates. finally, one more chart. remember, we started this year, 2016, expecting 2.4% growth. that's come down to 1.81.
2017 outlook has held up, but it's come down a bit to over 2%. the overall findings of our surveys, 100% expect that the federal reserve will stand pat at its meeting tomorrow. 69% expect it to be listed in the statement, some form it may pan out a little bit, say the fed statement will signal a december hike. we'll get that statement tomorrow. 86% say the hike is on for christmas, sara. >> pretty much jives with what we're seeing in the bond market. steve, thank you. steve liesman. for more on the fed meeting, the economy, market volatility, with just one week until the election, let's bring in jim paulson, chief investment strategist and economist at wells capital management and pa paul. jim, here on the election, 538 has hillary clinton with 70% betting odds of winning this election but 25% is not insignificant. is that priced in anywhere in
this market? >> you know, i think really what the market is most concerned about regarding the election is less who gets the helm of the white house than it is if anyone can get tri-power, and that still looks fairly good that that won't happen. if it doesn't, then i think there's going to continue to be what we've had in the last six years, sara, a lot of gridlock and blustery talk but little done, which is probably a good outcome for markets because it just means that adam smith will make most of the decisions. as long as that stays the case, the markets will stay pretty comfortable with this, whichever of the presidential candidates wins. >> joe, i know you don't want to talk too much about the election. is it having an impact on the economy, the uncertainty factor? >> at the margin. i started the year thinking growth would be closer to 1% than 2% so i was different than consensus and thought the fed would, though, hike and be in december. however -- actually in that type of environment, the economy is
sort of weak to begin with and people are probably using the election to some extent as an excuse not to invest in capital and undertake expansion plans. at the margin, it is a factor. to continue on a point jim was making, next year if there's gridlock, the likelihood of growth accelerating from a mid-1% type of trend to me is quite low, sara. what businesses want is some idea that the parties are working together. divided government and a pun wkt growth world is a lot different than a divided government in a 3% growth world. >> you're talking about 1% growth world? >> 1%, 1.5%. >> that's lower than consensus. >> well, consensus has been wrong for a while now on this. look, we'll be entering the ninth year of the business cycle. economies don't accelerate from trend in the ninth year of a cycle. so i think you're crazy to assume that growth is going to be over 2% in any meaningful way. >> jim, do you agree with that? how does that fact stocks and
bonds? >> i would just lean in a little bit against that, joe. much of the rest of the world is not really in the ninth year of the cycle. they have essentially, much of it has been rerecessed or virtually so. i think what we're seeing for the first time after the first synchronized policy approach in the entire recovery, where everyone is pushing up, we're seeing the first synchronized bounce in growth abroad. so although the united states may stay about the same, i think we're going to have china back bouncing. i think we've got the uk doing better, the eurozone doing better. with oil prices recovering, i think you'll see the oil-based recoveries like canada do a little bit better. overall growth in the united states may get a little boost just from the rest of the world from the first time also bouncing with them. i think the stock market, sara, is going to respond favorably to the end of the election. they're going to get comfortable with the fed normalizing rates, and i think they're going to react very well to the return of
earnings momentum and sales momentum that we're starting to see right now. >> that is a rosy forecast, joe. you can't deny the fact that the rest of the world could improve. >> if the rest of the world is better than what i have inferred in my forecast, absolutely jim is right. i look at it as the following. here we are, an economy in nominal terms, the simplest way to look at growth is under 3%. you take the consumer out, it's close to zero. not a lot of demand, there's not a lot of pricing power. we have no ability on the monetary side to respond to it because rates are already near record lows, arguably low rates are hurting. the fiscal side is peraralyzed part because as jim said we're going to likely have divided government next year. unless global growth is a lot better, you hit any pothole, you're in trouble, you've in a recession. >> does your gdp forecast go down even more, assuming, say, four hikes next year? >> carl, they're not going to go four times. stan fisher had that totally wrong.
no, they're not going four times. i've got a couple hikes in, but look, that takes you to 1%ish. i don't know if they get much above 1% in the cycle, the funds rate. >> rick santelli has been point this out a lot, jim, the fact that what we've seen is stocks have remained pretty resilient but bond yields have really ticked up here in the month of october. in the last, i don't know, eight years post recession, you saw stocks and bonds rallying together. can stocks rally if they don't have the support of lower bond yields? is that going to be the new paradigm? >> i think they can. the fed normalizing policy, sara, to me that's going to be a confidence booster. i think that's one of the stimulants we still have left in the united states is if we boost confidence, i think the capability to boost capital spending is there if you boost corporate confidence. and the capability to drive better housing is there if the millennials start to form
households, which is starting to happen. the capability to borrow and lend money is there with repaired balance sheets if we just have the confidence to do it. and i think we're going to see more of that next year with a broader, maybe not faster, but a broader recovery showing life from more parts of the world, and on top of that, i think nominal growth for the first time, actually increases in commodity prices and core inflation and wages and nominal activity. i think that's going to help confidence that we are moving away from the abyss, if you will, that we've always been worried about, the stall speed of economic growth. >> we've got to leave it there, it's a good debate and i'm sure we'll have you both on very soon. as we go to break, take a look at shares of tronc this morning really getting crushed, although after the early low after gannett says it's ending talks to acquire the publishing company. and it's day one of the fomc. we'll hear from former reserve governor robert heller and a lot
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welcome back to "squawk on the street." stocks are struggling to make gains while energy is standing out as the leading s&p 500 sector. this as gasoline prices surge after a colonial gas pipeline exploded in helena, alabama. among the names lifting energy higher include valero, tesoro, chevron and murphy oil. the sector still up about 13% year to date. sara. >> all right, seema, thank you. let's send it over to the aforementioned rick santelli in
chicago with the santelli exchange as always. hi, rick. >> hi, and good morning, sara. good morning, bob heller. thanks for taking the time, the first day of a two-day fed meeting. >> good morning. >> all right, bob, in your notes, nine is your big number. maybe you can tell viewers and listeners why nine is important to you, sir. >> well, rick, there are now nine people sitting on the fomc table. there are 17 members. that means that these nine who are in favor of higher rates, and we know that because they are presidents of federal reserve banks whose boards of directors have asked for increases in the discount rate. >> so you're talking about the discount rate. >> so nine are for rate increases. absolutely. but the discount rate is -- the discount rate is close, they will argue the same in the fomc meeting for the fed funds rate. >> now, every time you and i talk about the discount rate, and i think it's important to
mention, i get many e-mails about what happens with the issue and the relationship with interest on reserves. can you go into that briefly? >> well, interest on reserves, i think, is a big mistake that the federal reserve is making. if you pay the banks to hold reserves at the federal reserve banks, you know, then they will hold reserves there. what you want banks to do is you want the banks to lend that money out. >> bob, let me interrupt you, bob. do they really want to lend -- isn't one of the linchpins now of overnight financing is these repurchase arrangements that are dependent in many ways on that liquidty staying on their balance sheet, is it not? >> well, we always get ourselves in these little fixes, you know. that's what i call a minsky moment, where stability creates its own uncertainty and creates
its own instability because the markets have reacted and now you think that's a new normal and as soon as you move away from that, again, you may have increased volatility. so paying interest rates on reserves, i think, is not the right thing for the fed markets have reacted. >> the lowest gauge reading of all of them. you make an argument it's something to watch. i've been watching the uk, the euro, based on europe. central banking activities around the globe seem to be seeding some. your thoughts? >> i fully agree with you, rick. inflation is creeping up around the world. you see it everywhere, especially in an area, like san francisco area. housing prices and rents are
going through the roof. cost of living is increasing. people can't afford to live in the city anymore. so there's increased inflationary pressures are building up all over the place and you see that in the statistics. >> our last read on gdp was 2.9, best quarter in exactly two years, going into the third quarter in 2014. however, i brought up sustainability. if you go back to 2011, we had a lot of quarters that had a lot of horsepower. even a couple back-to-back. it drifted back into the average, version of 1.75 to 2%. what's your thoughts on the last gdp and the fed to raise rates at some point this year? >> the fed keeps saying that they're data driven. now they have the data let them drive the decision. so 2.9% is not a bad number the way -- the situation we're in right now. so, they should act on it. i don't understand. why do we even have a meeting of the federal reserve board or
committee when there's -- you know, when you say, okay, there's an election coming up. we can't do anything. may as well cancel it and save the agony. >> you know what? boy, you represent everything i hear by all my sources. but they're damned either way. if they were to actually say, listen, we have an election. we're going to postpone the meeting, everybody would say, ahh, they're political. that naive relationship. everything is political. bob heller, thank you! sarah, back to you. >> see what we get out of that statement tomorrow. rick, thanks. when we return, it's been a bumpy road for hedge funds. the latest performance numbers for october analysis straight ahead.
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>> thank you, david. the hedge fund may have tapered off temporary this last month. third points offshore fund fell slightly. meanwhile david einhorn's green light capital now up 5.7% for the year. that means both are beating the s s&p. both familiar with einhorn's book says it appears he benefited from the long and short side of it. chemours and, of course, time warner had a great october as did chemours. he had critical boreds for elan musk, from tesla. no word from dan loche. at the same time as all this, bill ackman remains under pressure. down 3% for the month, 21% for the year last check, october 25th. to the extent that a reported justice department investigation
of possible fraud at valeant affects that company further. that, of course, being one of his larger holdings, sar and davi david. >> not a good day for them yesterday, for sure. we keep talking about their inability to over perform s&p for years the broad majority of hedge funds but they still get paid, don't they? >> they do. ackman just released a fee structure that has no bearing on a year like this. you can get a break on the fees if he has under 5% returns. 30% if it's greater than that. it's not addressing the main issue. >> leave it there. thank you kate kelly. >> thank you. that does it for us here on "squawk on the street." with the dow down 20%, pfizer is the big loser. one, two, - wait, wait. wait - where's tina? doing the hand thing? yep! we are all in for our customers.
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