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tv   Squawk Box  CNBC  August 16, 2019 6:00am-9:00am EDT

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♪ live from new york where business never sleeps, this is "squawk box." good morning welcome to "squawk box" on cnbc. we're live from the nasdaq market site in times square. i'm becky quick along with joe kernen andrew is off today. our guest host is joe lavorgna great to see you >> thank you >> have a lot to talk about. questions about recession. >> yes >> we'll jump into that in a moment are you worried about recession at this point? >> not as much as everyone else, because i'm of the view that the fed will save us temporarily >> we'll dig deeper into that question it looks like u.s. equity futures are reacting positively. dow futures indicated up by 250 points, after the dow eked out a gain of almost 100 points
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yesterday thanks to walmart and the good numbers we saw there. s&p futures are indicated up by 28 points. the nasdaq up by 96 points again we are on the worst week for the stock market since may we'll see what happens today with the gains, or if they can hold on to them through the opening and the close later on today. the treasury market was different story. a lot of concern about what's happening with yields. the 30-year fell below 2% for the first time in history. this morning it's yielding 2.026% the ten-year fell to the left level in three years this morning that yield is slightly higher, 1.564%. ten-year/two-year no longer inverted overnight in asia, we saw some green arrows some gains there the nikkei up barely the hang seng was up a percent the shanghai was up by a third of a percent in europe, london's ftse ohm ed
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higher after a nearly two-hour delay because of a technical glitch elsewhere in europe, you can see the green arrows are there across the board the smallest advancer is the ftse, which is up by almost half of a percent totally uninverted totally uninverted we're fine it was bad when we were one basis point over that was scary i like what you said the fed will save us temporarily. you know we all die. everything is temporary. >> australia has been in expansion mode since june of '91. >> they'll say until the real day of reckoning comes or -- >> the market has an uncanny ability to sniff things out and anticipate things before the data if you look at the last year and
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a half, the yield curve was inverting well before the trade discussions. it was based on weak global growth and the fed last year realized maybe we shouldn't keep tightening, but we're not close to neutral we'll keep going the market was saying too much >> you mean the bond market. >> yeah. the bond market -- >> stock market might have been saying something, too. >> in december >> at that point powell felt like they wanted to get the four in the president may have put extra pressure on. the fed made a mistake by going in december. worse is the press conference where they hinted they would do more, and then within two weeks he did a 180 >> i thought it was funny that you said the fed will safe us t save us temporarily. >> it would be a mild recession. >> you know what
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i told you, to satisfy you, there's a story that men sometimes don't change their underwear -- >> "usa today" says 45% of men go two days or longer without changing their underwear >> we had one man on air tell us he had toe fungus once he never lives it down you see when i leave sometimes in the middle of the show? >> you tell me you have your august pair on now >> that's not true you know when i leave the set, i'm changing my underwear before i come back. i'm -- >> because of something happening on the set >> that's the other option if you can't wear it two days in a row, you have other problems >> what about people who don't wear underwear >> i'm sorry i rescind my snarky comment. >> eunice! eunice is like has show is this? yesterday president trump said september negotiations with china are still on let's get to eunice yoon in beijing for the latest trade
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talk i'm hoping you just put your ifb in you did hear that. i apologize. it's beckedy edbecky's fault. >> that's okay it sounded like a good, heated conversation there are a lot of heated conversations over here as well about the trade talks. especially because president trump had said overnight that he believed that china wanted to have this trade deal over here the read of his comments was that perhaps president trump is really the one that wants to make the trade deal faster than the chinese overnight he said the september trade talks were still on. that the chinese wanted to move ahead quickly to buy more american agricultural products he also said that he and president xi jinping would hold a phone conversation soon. the government here has not confirmed whether or not that phone call will happen again, a lot of people think
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that china does want to have a trade deal, but just not at any price. the bottom line is that chinese sovereignty cannot be infringed. xinhua ran another piece today which said china would never give in on major issues of principle no matter how extreme the pressure president trump touched upon china's counter measures saying he didn't believe china would retaliate because of an increase in tariffs well, again, no confirmation officially, but in state media there were plenty of stories about how the retaliation will take place at some point soon. the peoples daily said retaliate firmly, fight to the end china daily was saying tit-for-tat action is ready for the latest tariff plan not a lot of detail. the message being sent is that china will be fighting to the
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end if they feel that at the en of the day their economy is threatened >> thank you, eunice >> well played >> at the edges, you're still like -- people should be happy on a friday. we need to take a break from the world, right i'm hoping -- >> at least for the weekend. >> i'm excited about the weekend. is it blue behind me now the skies are clear. then after this report or maybe one more later today, i'm going to make an attempt to go for a run. i want to take advantage of the clean air that beijing so rarel has. >> we hope that happens for you. we're coming all the way back here mexico's central bank cut interest rates yesterday for the first time in five years
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in this case citing slowing inflation. that's not something you always hear in south america. increasing slack in the economy. the move follows rate cuts by a handful of central banks around the world. it's been a source of frustration for the president who would like to see the federal reserve cut interest rates at a faster pace here is president trump speaking yesterday on the way to a campaign rally in new hampshire. >> jerome powell should be cutting rates because every country all over the world is cutting. we want to stay sort of even i don't mind if we're higher, but we're way too high jay powell made a big mistake. he raised them too fast and he quantitative tightened >> last month the fed cut the rates for the first time since way back in 2008. bridgewater associates founder ray dalio speaking with cnbc he said the u.s. economy is taking a turns for the worse and
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handicapped the odds of recession before the 2020 presidential election. >> of course recessions are always inevitable. the only question is when. >> do you see one coming >> yeah. i think in the next two years, let's say prior to the next election, there's probably a 40% chance of recession. and i think that you're seeing this around the world. >> dalio warned that rate cuts by central banks this late in the economic cycle may not be effective in stimulating the economy. that brings us to our guest now. james camp is managing director of strategic income at eagle asset management and our guest host is joe lavorg lavorgna joe, you said you think the central bank will come and save us ray dalio says it may not be effective. >> he said 40% chance.
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i saw the notes james had. i wanted to ask the yield curve is inverted but the credit spreads are contained. that would tell you maybe the fed has some time to actually ease and get ahead of things before credit markets deteriorate. when credit deteriorates, you have some problems >> we had a number of conversations about the yield curves that matter in the fall we had a 3.25 ten-year i looked at that december experience as a deleveraging moment the folks that funded libor were looking to fund their positions. now we're looking at the twos and tens, that's probably a better real economic signal. in credit spreads are still positive, meaning short credit spreads are 70, 80 basis points, long-term spreads higher, the math of financial engineering still works. credit is readily available. most investors out there want
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yield. there's an ample amount of activity in the short end of the credit curve to keep us from a credit inversion >> you don't think what we've been seeing is a signal of recession? >> i think the bond market is telling you loud and clear, global slowing, inflation is a nonstarter i'm suggesting what we've done is created a massive credit cycle in the u.s that is likely to continue giving the credit configuration. real economic activity, i might be higher than mr. dalio we are curtailing in the face of tariffs and trade talk and federal reserve complete policy blunder. i've been doing this for 30 years, i've never seen a retraszment retras me retracement of a fed misstep as quickly as we have seen. >> is that good news or bad news >> i think they're trying to
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quickly correct it, but the policy mistake on the table in november would have put us into recession, full stop the point i would make is we're seeing a slowing in capex, which was exciting to us we were seeing productivity growth, all kinds of good stuff. >> but that was cut short. >> cut short by trade and uncertain global growth. >> because businesses don't feel confident. >> economists have been around since the beginning of time. i'm still waiting for one to be right about something. >> careful, joe. >> sorry >> you would think that we would have made the point that maybe it's not the absolute level of interest rates it's where where are versus the rest of the world that determines things. no one could believe the fed could be too tight at these levels why didn't they take into account other countries and currency factors you have other countries much
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lower than you, they're doing qe, negative yields, even if you're only at 2.5%, you're still so much higher than they are, you can actually cut off the economic expansion xhurss didn't think we had a proble problem. >> central bank policy is fungible it doesn't matter where the machines are turned on, just that they are. we've seen that throughout the cycle. the fed cannot afford to be completely out of phase. that's unfortunate >> for that reason you can't blame the fed that much. if not a single pro economist warned that we could get too tight under 2.5%, then why should they -- >> actually, i wrote a piece -- >> you wouldn't think that that you could be too tight coming down from 8 to zero. >> the thing is if you look at the fed and where neutral rates
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theoretically could be i wrote a piece for cnbc in february of '18, i said the fed needs to steepen the curve stop the rate hikes. let the balance sheet sell off a bit. i think it's there i'm guessing james might agree that the fed is way too academic they're too model centric and too into the numbers and the math >> jerome powell doesn't come from the economic side of things, he comes from the academic side of things. >> you still these to know the economic history and be a practicing economist, and his experience hasn't been that. >> that set up why the yield curve was so inexpensive we had prognosticators 5 s all r the streets in new york saying we're on our way to 4 and 5. the retail investor was not served by that i like what you're saying about
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scarcity of duration assets, 30-year treasury is at all-time lows pension funds have to fund long-term liabilities. there's a scarcity of long duration yield that's why we're seeing this massive rally in the long end of the treasury curve 30 year treasury at 2% extraordinar extraordinary. >> james, you go on an overnight trip, you will take four pairs of socks it's not as much an underarea thing. >> intraday you need to change out. midday you go to new socks you go to dinner events, you're a new man or woman it's all good to go. >> you would never know that about james. you said that like you were talking about the yield curve. >> just as seriously >> people at home are like what? what's happening >> stay with us. there's a theme. >> i agree with you on the
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socks. coming up, new details on the smile direct club. that story after the break. and president trump out with a new tactic to try to salvage trade talks with china, linking those negotiates with unrest in hong kong. brian sullivan is there. he'll join us in a few minutes as we head to break, a look at the premarket winners and losers in the dow your daily dashboard from fidelity. a visual snapshot of your investments. key portfolio events. all in one place. because when it's decision time... you need decision tech. only from fidelity.
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smile direct club was disclosing its prospectus this morning with the 1$100 million place holder cnbc learned that the ipo target will be about $1 billion by the time all is said and done. one of the biggest ipos of the year they are filing with two classes of stock today jpmorgan and citi group leading the ipo. it will be list right here at the nasdaq under the ticker symbol sdc big growth on the top line revenues increasing 190% year over year to 4$423 million of course they do show significant losses the top risk factor is the history of losses as we've been known to see from these ipos other risk factors include changes in laws golf eaverning e healthcare what smile direct club does is offer clear liners for people
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who want to straighten your teeth. >> it's like visalighn but you don't have to go to the dentist. don't even know how it works >> they will send you a model forev for your teeth >> you make it yourself? >> you make it yourself. they will send you the various liners and the program of how you do it and when they work with a set of doctors that help them kind of craft this and set up a plan -- >> so you're relying on -- or hoping that you won't have operator error with the situation. you doing your own molding >> exactly and you have gotten push back from the orthodontist community, certain people say you need these in-person visits to straighten your teeth properly it's $1,900 versus braces which could be five times that >> so they are here at the snazz
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dak. they nasdaq, they could have gone with smile, but they went with smd >> yeah. the ceo is an expert in disruptive models. they have 700,000 members. they were founded just a few years ago. >> leslie, thanks. president trump's continued to link the hong kong protests to trade negotiations with china. brian sullivan is in hong kong he now joins us with the latest. hey, sully >> joe, thank you very much. tonight is going to be a very, very important night it's going to be a big tell for the way things may be going over the next couple of weeks and the next couple of months. tonight in this park where we are now in a couple of hours, this will be filled with thousands, tens of thousands, maybe 100,000 protesters,
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marchers, rallyists, whatever you want to call them listening to speeches. it's called the power to the people rally the reason we say it's an important night is because it's been relatively quieted for a couple of days we'll see how the hong kong police respond to this rally and how the protesters here respond in return. after this is over, about 10:00 local time, many of these folks are expect the to leave and march down the street. it's in those marches where we have seen the disruptions. the fear gas, the fighting we've seen on tv we'll be here and following them throughout the night why does this matter we've seen some of this unrest our markets have gone down yield curves have fallen the hang seng has fallen cowen research group put out their morning note chris kruger said the gist is this, even if president trump and xi want to do a deal for domestic concerns external
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forces and events could complicate it if not make it impossible the situation in hong kong now tops that list so many people in wall street and in washington saying that if trump and xi want to come together on a macro trade deal, they both, at least xi needs to figure out how to handle the hong kong unrest situation tonight will be a big tell >> humanly, the president keeps talking about. it's -- it is hard to see how we get from one place to another. hopefully it will be you know, trump keeps saying it's all hopefully going to work out where both sides win in some way. i'm not talking about the trade. i'm talking about the protesters and the chinese government >> yeah. >> we all hope for that, right i'm trying to figure out, you know, we've heard that president xi thinks that would be showing
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weakness i don't know what road map looks like so what i would say to you, brian, you have to -- your credit cards are good? how many days you think you can make it over there >> scheduled to come back soon this weekend we'll see what happens here's the one side that i don't think that's been discussed a lot and should be. president xi is now on the world stage. how he handles this situation will be watched. as china has sort of -- i don't want to say lost the u.s. as a trading partner, but with the tariffs and the trade war there's concern that u.s./china relationship may slow down if so, the chinese will want and need major new markets for their goods. maybe also for their money and so there's a school of thought that has sort of come up the last couple of days which is how xi handles all of this could reflect in germany, could reflect in the uk, other parts of asia and australia. beijing will want to have a good
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relationship with those countries as well. if not from a political standpoint, from an economic standpoint as well certainly they're on the world stage. one thing the protesters will call for tonight, other than the core five demands, youautonomy, they want the uk to look at the agreement made in 2007 >> all right, brian, thank you earnings in from deere and company. adjust ted quarterly profit of $2.71 a share compared to 2.85 revenue also fell short of forecasts. if you're watching this morning, the dow up about 250
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points so far this morning when we come back, american expansion has been a great way for leaders to get their names in history books from the louisiana purchase to alaska could greenland be next? "squawk box" will be right back. great riches will find you when liberty mutual customizes your car insurance, so you only pay for what you need. wow. thanks, zoltar. how can i ever repay you? maybe you could free zoltar? thanks, lady. taxi! only pay for what you need. ♪ liberty. liberty. liberty. liberty. ♪
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a new report in the "wall street journal" says president trump has floated the idea with varying degrees of seriousness of buying greenland. the report says president trump has asked advisers whether the u.s. could acquire greenland, a self-ruling part of the kingdom
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of denmark one of the "journal" sources believed the comment was a joke and shouldn't be taken seriously until you hear it in one of his campaign speeches. it's a natural resource-rich part of the world. it is part of north america. it's been done before.truman trr 1$100 million >> costs about half a billion to run. just before we came over here -- >> i thought it was a kri crazi idea until i read about it >> i want it now because of the natural resources. >> why not >> the foreign minister of greenland five minutes ago said we're open for business, not for sale >> that's not his decision though >> we're not questioning what you are, we're questioning your price. >> that's all of us. >> is trump buying it or is the
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u.s. buying it it could be called trump land. kind of cool >> if he puts a golf course there, you would hit it far. i think it's mostly ice. a long -- i would hit everything out of bounds. >> markets are up by almost 250 points this morning, which is why we have a little room to do something with a little levity as we head into the weekend. check out this story from "usa today." according to a survey by tommy john, 45% of americans say they wore the same pair of underwear for two days or longer 13% said they wore the same pair for a week or more okay men were 2 1/2 times more likely than women to wear the same und underwear for a week or longer tommy john says it is crucial to update your underwear wardrobe every six months to a year 46% say they own the same underwear for a year, and 38%
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said they don't know how old their underwear is >> i don't know how to massage this story i would joke around and say i have my august pair on then i thought i would say i change them three times a day. then you have issues >> i came up with a great shark tank idea. biodegradable disposable underwear. like contact lenses. >> you don't have to wash them or anything. >> get rid of them >> not a bad idea. you don't want them mid workday, you don't want them disintegrating >> i wouldn't say edible >> wow >> thank you >> you guys started this conversation >> we did. >> there's a joe kernen and joe lavorgna that was lav lavorgna with that
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one. >> you started this. >> al bundy, long ago, he was looking at someone's shoes, trying them on it was a person, he said my god, i saw -- i saw a "t" for thursday on the underway he said what's the problem it's monday. there was a seinfeld where cramer revekra kramer revealed he was not wearing underwear. >> you were worried. >> you couldn't do a married with children show anymore in this day and age futures pointing to a positive end to a volatile week. we'll show you how markets are responding. and this week's big move in the big banks. the interest rated effects on financials straight ahead. as we head to break a look at yesterday's s&p 500 winners and losers
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welcome back you're watching "squawk box" live from the nasdaq market site in times square. good morning welcome back to "squawk box. we've been watching the u.s. equity futures they are indicated sharply higher for now right now the dow futures indicated up by 237 points s&p futures up by 26 the nasdaq up by 94. this comes after an up day for the markets yesterday. it was a volatile session throughout the morning and throughout the rest of the session. right now we are on track for the week to still look like a losing week. 2.7% down for the dow. 2.4% for the s&p and the nasdaq. even with these gains it would not erase the losses for the
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week and for the month of august stocks are on track for the second losing month of the year. may is the only month we saw losses this year time for the executive edge. we have been watching the green arrows across the board in europe the open there was marred bay trading delay in london. julianna tatelbaum joins us from cnbc's london bureau what can you tell us about what happened >> good morning. yeah as you say, the uk stocks, they got off to a rough start, the london stock exchange experienced some technical difficulties that delayed the start of trade we are seeing the ftse 100 rally alongside the rest of europe as you can see here, decent gains coming together. this follows a volatile week for european equities. i want to take you to the yield space here in europe
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we've seen global -- or we've seen european bond yields plummet to record lows across the board. yesterday we heard from olli rhrh rehn calling for a significant stimulus package from the ecb. the ten-year german bund trading at 0.69% one other thing i want to flag for you in the yield space here in europe, we've had so much focus on the u.s. yield curve this week and the inversion that we saw there it wasn't the only inversion in town in the uk we saw yield curve inversion, the 30-year trading down the ten-year gilt trading at 0.46%. looking like we're heading into the weekend on a relatively high noted. coming up, this week's volatility sending bank stocks sharply lower. and later we'll be joined by
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carlyle group's david rubenstein ceioays we may be due for a ressn.stay tuned you're watching "squawk box" on cnbc through the at&t network, edge-to-edge intelligence gives you the power to see every corner of your growing business. from using feedback to innovate... to introducing products faster... to managing website inventory... and network bandwidth. giving you a nice big edge over your competition. that's the power of edge-to-edge intelligence.
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welcome back bank stocks under pressure this week as interest rates fell. joining us is marty mosby from vining sparks. i keep asking people whether as a redistricter of the futurpred of the future, do you think we're at a point where things are bad enough to think the bottom has been reached in a lot of these names yet you still scared >> when you look at it you have to separate the perception from
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the fundamentals if you look at the fundamentals, the banks grew their earnings per share 30% last year, returns kept going higher. we look at what factoring in the lower interest rates for longer, we still see eps growth of about 5% in 2019 and 2020. we see the returns can hold relatively flat. all that gets wiped away by the perception of what happened to banks the last time we went through a downturn and rates went to zero so the debacle and the loss of investable funds that happened in that financial crisis is what people still invest in as they think or perceive that there may be some risk of that happening again. so the disconnect between the fundamentals and the perception is the battle going on in the marketplace. >> you figure what's different this time around that would -- that we wouldn't see the same outcome?
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banks are structured differently? it's a different macro environment? >> we've been through a decade of restructuring if you look at the actual balance sheets, the capital positions are significantly stronger if you look at the actual liquidity positions on the balance sheets of the large cap banks they added 2$2.5 trillion worth of liquidity on to the balance sheets they're defensible mechanisms to go through the process and defend against what happens when you go through a downturn is much better than what we had in the last downturn in recession and financial crisis we'll be able to have a downturn without a financial crisis next time you have to prove that to investors before they disconnect from the last experience and recalibrate to what will happen next they can't appreciate all the differences that has happened over the last decade and made these balance sheets stronger. >> i remember when we would talk
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about waiting for 3% it was like five years we were waiting for rates to go up i guess we'll be dead before that gets here, marty. >> we had inflation, which used to be the worries in the 1980s, all the monetary policy built to fight inflation has won that battle inflation is percolating between 1% or 2% if you're lucky the fed reacted as inflation started to go up between '15, '16, '17 now as we have gotten into '18 and '19, inflation is coming back down that allowed them to bring back interest rates. if you par rel thaallel that, wt need a fed funds rate above 2%, we need it around 1.25, 1.50%. yes, we'll have lower for longer >> i guess now we know, it seems obvious. >> exactly. when we return a tale of two
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fortunes in the retail sector where companies that don't innovate are feeling serious pain we'll bring you the tale of the tape next. as we head to break a quick check on currencies this morning. "squawk box" will be right back. this is the couple who wanted to get away
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welcome back, everybody. it has been a big week for the retailers with the good, the back and the ugly. courtney reagan taking a look at the sector and what it is telling us about the health of the consumer good morning. >> good morning. it has been a wild week for retail we had the tariff delay for some goods at least, then a hand full of divergent reports and then strong retail sales numbers. the etf that tracks retail down big time, about 8% for the week. so walmart continues with better than expected revenues,
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comparable sale and updated guidance including the impact of tariffs. shares for walmart, those are up 4% in a week it seems to be a bit of an anomaly right now. the department store space remains challenged even with new innovative strategies macy's grew comparable sales slightly but it had to discount merchandise to entice consumers to buy it shares tumbled 20% for macy's. tapestry results are down for kate spade brands. the street expect a slight gain there. the coach brand was flat as expected the ceo is calling thenorth american backdrop challenging, and the annual forecast is being cut. the stock lost about a third of its value in a week as investors doubt that kate spade can really turn itself around anywhere in the near future. but u.s. retail sales, those grew for the fifth straight month. in fact, marking the strongest
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five-month growth rate since 2005-2006. when you put it all together, most say the u.s. consumer is still strong with low unemployment, rising wages and low gas prices and high confidence the consumer has financial flexibility and with lots of retail choices they can be afford to be discerning, which means not all retailers are going to be winning their favor. becky. >> thank you, court any. for a closer look apt consumer trends let's bring in jerome martis also brian nagel, senior research analyst for oppenheimer. you are taking slightly different tacks on these brian, you are looking at this as glass half full for a lot of the retailers we heard from like walmart and others. >> the question i'm getting is what shape the consumer is in and my answer is i think the consumer is in good shape. clearly there are reasons to be
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worried with geopolitical concerns, but i agree with what courtney said a second ago if you look at walmart results, i think it is a great barometer for overall consumer spending. it is very strong for them i look at the data differently, i look at year on year year on year in corrie tail sales at 4.2%, which is best in the last several months. i think the consumer is in good shape here. >> jerome, you are worried about what is to come with the consumer and what happens as the tariffs, maybe more come on board. >> that's correct. i do agree with brian. it is suggested that the consumer is still engaged. but imagine the condition retailers are in right now, so if they cannot make it in this state where the consumer is still engaged imagine an all-out trade war recession. if the retailer can't make it now, what will happen them it will be more devastating for them then than the consumer behavior itself. >> that's what you think
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explains the 8% decline this week >> consumer confidence is down the latest reading shows that the consumer is paying attention to the sirens going off regarding market volatility and a possible recession they are worried about their future job security, and they're pretty much increasingly becoming aware of the repercussion goes of a trade war and it might mean they might pay higher prices. it is not just the consumer. retailers are telling us not to expect too much from them from the third quarter. today we received 90 negative reannouncements compared to only seven positive which underlines the strength of wal-mart yesterday, that they are so bold in raising their gried answer in a time when so many other retailers are posting negative guidance. >> that's what jumped out to me yesterday, was the idea they would be willing to lay it out and say we're raising guidance for the full year when we don't know what is going to happen with the tariffs or trade at that point. >> it is a testament to the strength of their business the other point is as investors
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we are all looking for signals of weakness in the consumer because we very much agree that consumers drive the u.s. economy. i think we have to be careful looking at the retailers too closely because as we discussed a lot, retail is very much a sector within transition we are seeing more and more the winners and the losers, and usually the delineation is on digital. you take a company very much pushing the digital strategies as well as others out there. some of the other retailers reporting weaker results are being left behind by the technological. i don't know how indicative it is with the health of the overall consumer. >> as a result you would tell people to buy what >> in my coverage universe, if i want to continue to play what i consider a healthy consumer backdrop, names like nike and lulu, i think both of those companies are performing well.
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the home improvement names we talk a lot about on the show, again, i think there's a good demand backdrop there. the real key in home improvement that we can see next week, mortgage rates have come down significantly. that's a big stimulus when you think about consumers making that type of purchase. >> joe, what do you think? >> the hustle balance sheets look good. household debt service burdens are extraordinarily low and household savings rate is elevated to me consumers look good. there are worries but i would be more concerned about the corporate sector and what is happening globally. >> i want to thank you both for being here with us great to see you. >> thank you coming up, we're due for a recession according to david rubenstein of the carlisle group. he will join us next to explain why. the next guest for the hour, barry knapp is with us he says more pain to come.
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"squawk box" on cnbc will be right back
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i ♪ >> breaking news futures surging. green arrows to wrap up a wild week of trading on wall street ray dalio's call. >> i would say prior to the next election there's probably a 40% chance of recession. >> the hedge fund manager sounds off on the global economy, the fed and whether china is weaponizing its massive u.s.
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treasury holders this hour david rubenstein will join us live as the second hour of "squawk box" begins right now. ♪ live from the beating heart of business, new york, this is "squawk box" ♪ good morning, everybody. welcome back to "squawk box" here on cnbc i am becky quick along with joe kernen andrew is out today. our guest host for the hour is barry knapp of ironside macroeconomics good to see you here. >> good morning. take a look at u.s. equity futures this hour. you will see dow futures are rebounding, up by 257 points, coming after a 99 point gain for the dow yesterday. s&p up by 29 and the nasdaq up by 99. even with the gains this morning, if they were to hold we still would not be looking at the market in positive territory for the week we had big losses for the week including the one day where we
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saw 800 points lost. treasury yields are coming back up a bit 30-year bond is back up 2.19%. yesterday it fell below 2% first time in history. >> if you are not someone that likes to watch the world burn, and we know, you know, there are people -- that's a batman quote. if someone on that day at 4:00 said, you know, by the end of the week you will be saying we didn't quite make up all of the ground we lost this week, you would be like, really? if you were hopeful it wasn't the end of the world, you would be happy with getting anywhere close to break even, would you not? >> yes, but we should point out -- >> it could have gone down another 800 the next day and another 800 the day after that. >> the one thing we have seen is a lot of volatility. i wouldn't be willing -- >> don't you sometimes think, okay, this is where we're -- >> i will say i felt that earlier this week watching the bond market more than the stock market. >> trillions of dollars are telling us something in the bond market
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we will talk to barry about that who wastes letters as we know. it is not knapp, it is no purpose for it. >> and two ps. >> are there two ps? a k and a p. k-n-a-p-p. shocking. >> as a son of electrical engineering, that he would have allowed -- >> as a person on tv, no shares of deere are falling in premarket trading. they missed estimates for the third quarter. many farmers have postponed purchases because of uncertainty in the export market makes sense. smile direct club has filed for an initial public offering it is a maker of street straightening kits plans to offer up 100 million in class "a" common stock it intends to list its stock
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under on the nasdaq under the ticker symbol sdc. bond related mutual funds and ets continue to gain in popularity they saw 11.5 billion in inflows over the past week, the largest amount in two months and fifth largest on record. u.s. bond funds now hold about 2.8 trillion in assets, up 200 billion from the end of 2018 >> recession fears are still alive and well in fact, here is what ray dalio told cnbc earlier today. >> recessions are always inevitable, the only question is when. >> do you see one coming >> yeah, i think that in the next two years, let's say prior to the next election, there's probably a 40% chance of a recession. i think that you are seeing this around the world. >> steve liesman joins us right now with a look at what the data is telling us versus what the markets are saying. >> is that 60% >> i don't know. >> 60% no recession? >> right. >> over two years.
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>> i think it is more likely we don't -- if you were to paraphrase what dalio said and you weren't a news organization where it bleeds, it leads, you would say ray dalio says unlikely we have a recession the next two years, would that be the headline >> that could be a headline. >> you take the 60% -- >> you could say. >> 60% is more than 40%. >> right or if you have a normal one in five chance, 20% chance, ray dalio says 100% increase in the chance of probability from normal >> oh. >> not for -- per year 20% for year. >> he says 40% >> joe and becky and barry, i hate to do this but i need to say this if you are not confused about the economy and the outlook you are not paying attention. >> yeah. >> numerous cross currents, weak global growth but u.s. forecasts remain relatively strong bond yield suggest a recession coming in the coming months but u.s. economic data suggest it is
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unlikely finally, a consumer thriving versus a manufacturing sector some economists say are in recession. rsm writes, a robust consumer driven by strong in the first quarter of the year continue to prop up the economy. take a look now. the growth rate of industrial production has declined in ten of the past 11 months, but retail sales growth, looking at x auto here, up three months in a reon a year over year basis. despite weak industrial, economists upgraded the tracking forecast for the third quarter forget all of that, the flatness of the yield curve is predicting recession. here is the new york fed's recession index, its key of the spread between three month and ten year it shows recession on the way. so to recap, consumers strong, manufacturing weak, forecast call for continued growth, bond yields point to recession, leaving the final question, will
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foreign economic weakness and the trade war be the decisive factors and drag the u.s. into recession. >> or weakness, why the bond market is forecasting -- >> so you could move the whole thing and move it aside. >> no, for weakness, why yields are low over there and why we're infected with, if you want to call it that i think it could be a bonus for us that's why we're benefitting potentially from having rates low in a strong economy. >> i think so. >> yesterday, unequivocally, and not the end all, be all, but obviously he has a lot of experience and was with pimco, he said no recession no, no, no. >> he also said that the u.s. consumer correspondent save the world. >> the rest of the world >> yeah, i think -- >> what's wrong with that report was that report -- >> no, it is fine. it is just a point in time >> right. >> what i would add to that is first of all global trade is in recession, right given economies number two,
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three and four are all dependent upon exports, those countries are in serious trouble, right? germany, japan and china that global trade being in recession is what is driving bond yields lower. we thought when global trailed weakened at the end of the year it was a function of stockpiling exports ahead of proposed tariffs, but then it would rebound this year. it hasn't rebounded. forget chinese gdp chinese ordinary imports, that's their demand for stuff from the rest of the world is falling at an 8.5% negative to the world. as far as the u.s. consumer goes we had weak consumption when the stock market crashed at the end of last year. >> the christmas that almost didn't happen. >> correct i call it an echo of '87 the same response happened when the stock market crashed in '87. then it came roaring back.
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it was completely unexpected christmas sales would fall off the cliff at the end they did it clreated an inventory glut now that retail sales have been running at a 9.5% for the three months, inventories will be burned off and u.s. manufacturing will recover global manufacturing likely will not. >> can i add a footnote to that? the data is all screwed up by the trade war. we have these rushes in of imports and then it comes off and then it comes in again we may have another artificial inventory cycle ahead of the september rise in tariffs, and then it may happen again in december so i have not seen anybody do this i bet you have done this, as sort of a gdp number that sort of looks at outside of all of the issues of inventory. >> well, real final sales. this is why the narrative that u.s. growth is slowing, every
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time i hear it i think, that doesn't make sense because real final sales to domestic private purchasers went up decidedly in the second quarter. >> right. >> domestic demand is -- >> can i say what they're talking about? >> i don't know, they're yelling at me. >> oh, they're yelling >> i just said, am i talking >> real quick, the final sales number is the noise from exports inventories and looks at what is being purchased here in the states and that's been strong. i wanted to explain that the next guest says we're due for a recession. here to explain why, carlyle group founder david rubenstein, is it the same call for recession by ray dalio where he was saying it is a 60% chance we don't have a recession over the next two years, but headline writers get hold of it and love to do the 40% we might where are you over the next two years, greater than 40% or less than 40% we have a recession >> i'm not any better at predicting recession as most economists most economists and
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businesspeople are good at telling you why it occurred after it occurred but not when it is going to occur and i'm probably in that category. i don't know when a recession is going to occur we have them on average every seven years, we have been ten years without a recession. that's really long there's no guarantee there will be one soon. the u.s. economy is in good shape, but we're an island. as another economies go into recession, we can't completely avoid it i don't see it in the immediate future for people that care about this kind of issue, the issue is whether or not there will be a recession before the next election when presidents run for reelection in a recession they tend to lose only william mckinley has run for reelection and won from president trump's point of view and the point of view of members of congress, they worry about a recession before the election and i think that's an important issue for them to worry about, but it is too hard to say whether it is going to happen before november or after november but at some point in our lifetime there will be another
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recession. >> okay. and we've heard -- we even have cliches about this, david, that expansions don't die of old age. it has to be policy mistakes do you see policy mistakes being made, either by the fed or by president trump or congress? >> well, the fed, i think the fed is trying to judge the data like all of us are and they're human and they make mistakes and can gauge things differently at times depending on how the data changes. right now i think the fed is doing a pretty good job. i would like to remind people that the federal open market committee which decides interest rates is composed of now ten people, usually 12 people. we don't have a full fed. it is not just the chairman of the federal reserve that makes the decisions on interest rates. at the moment it appears that the fed is likely to decrease interest rates again this year, most people would say 50 basis points nobody knows for certain if there's a 50-basis point reduction, i think it will keep
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the economy in a reasonable shape. you cannot avoid a recession only by interest rates if china trade agreement is not resolved in some form before the election, i suspect it will not be good for those running for reelection. >> when you say -- >> i do think. >> when you say there's -- >> i do think there's a chance of getting agreement before the election. >> when you say resolved and getting an agreement, are you talking about a deal light type of thing that's what tom friedman was kind of laying back yesterday, we have to roll back our ex president-ele pectations. >> there are three parts one is that the chinese will buy more from us i think with intellectual property considerations taken into account, it can get done. the hardest part is when china is told by us they have to change china 2025 policy, which means the government of chien
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kau cann china cannot intervene and help their companies. that's a challenge to their manhood and they -- >> whoa, you can deal with the male but i'm not touching on that part. >> i think an agreement on parts one and two is possible and we don't have to have the most comprehensive china trade agreement of all time in order to have an agreement with china. i think the markets would feel if we got an agreement on parts one and two and an agreement on part three after the election, that still would be adequate. >> right what tom friedman would say. >> david, you are a washington whisperer. we saw president trump, he seemed unpredictable but he seemed to offer an olive branch in terms of that do you think he is getting the message you and tom and others are talking about or what happens next >> well, the president does talk to lots of different people and i would say he is hearing from
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people that some agreement is better than no agreement certainty is what the markets want markets do not like uncertainty. right now there's uncertainty about china. give the markets some certainty, even if it is not comprehensive. i think the markets would respond well to it i think the chinese want to make a deal they can't say, please give us a deal, we'll take any deal, because they have their own political conversations. i think xi jinping would like a deal but it has to be face saving neither the chinese nor the americans say it is the greatest deal from their point of view, it has to be couched in a way both sides win and has to be carefully stated why it is good for both sides we can't brag about the deal being so great for us, nor can the chinese brag about it being so great for them. >> you wonder, david, whether wrapped up in, you know, an autocracy and communism is ip theft and not allowing other companies to really have a fair
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shake in your country though you get to export a lot, is that part of the overall communist way of doing it? we could never say to china, you have to become a democracy before we will deal with you and that's what we're saying right now. you have to change the spots on a leopard and you can't really do that, can you it is a totally different way of doing business than what they've been so successful with in the past. >> some people would like the chinese to become a pure capitalist country that isn't going to happen in our lifetime in my view. but i do think that the chinese are willing to make some accommodations as we're willing to make some accommodations. i do think an agreement that is a partial agreement is better than no agreement. i think our own negotiators should take it into account. i think the chinese are willing to have a partial agreement as well. >> there are some people that think that system is inherently evil, and if you do become even more powerful by 2025 with the system that you have, with the internment camps and everything
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else, ybannon and other hawks think you are con sorting with, for lack of a better word, an evil empire. >> to get something done in life, you can't worry about people on the far left or right side >> and we won't have oil from saudi arabia in terms of human rights go ahead. >> we can't worry about every country's internal situation if we are going to get anything done. >> right. >> nobody is saying china is perfect by our standards, but we can get a deal done with them in my view and i think it can be done before the election. >> david, this is barry knapp. a quick question for you if the motivation for doing a deal is primarily political on donald trump's side, getting something done before the election, why wouldn't it just be energy purchases, farm purchases and a currency agreement, which is a big, visible, you know, statement that he can promote in his rallies? but trying to get something done on ip and something done on them cutting their capacity in heavy
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industry and all is something that the left could easily poke holes in, someone like elizabeth warren could say, hey, this wasn't fail proof, this was a bad deal why wouldn't it just be the former rather than something a it more comprehensive than you seem to be implying? >> i don't want to say that the president is only going to do something for political purposes he has lots of people in his administration that are not worried about the election as much as they're worried about getting a good agreement i'm sure he wants one too. i don't think the agreement he will get that people running on the democratic sidle sae will s wow, that's a great agreement. that's unrealistic forget the election, getting something done in the next four months or so so that the economy can get some certainty is the most important thing. >> let's get back to what we were talking about at the very
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beginning with you, david, and that's where there was a recess. how do you explain or how do you live with inversions and low interest rates and the specter of this sort of historic move that we have seen, that we don't know whether it is really something scary or whether we can explain it in ways that aren't quite as, you know, bad. >> well, first of all, anything that happens in august in the markets probably has to be discounted because everybody is not trading in august and lots of people are on vacation. secondly, the inverted yield curve, when we have one, it is usually a good indicator of a recession. however, we had an inverted yield curve for about ten minutes. we haven't had it for a long period of time when we had the last inverted yield curve before the last great recession, it was an inverted yield curving for about a quarter. it doesn't necessarily mean because we had a ten-minute inverted yield curve we will have a recession by the way, when you do have an inverted yield curve for a period of time, more than ten minutes, it can take between 300 and 500 days before a recession
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owe k occurs it is not an immediate indicator we are going into a recession. i think that the inverted yield curve might not be applicable with negative interest rates in europe that's a factor that didn't exist before. >> you are a terrible dancer as we saw in the obama administration, but a washington whisperer. you don't whisper to a lot of republicans i don't think. which democrats are whispering to right now >> i don't whisper to anybody. i am an independent and i don't give money to any political party or political candidate i talk to democrats and republicans all the time, and i talk to many members of congress and i don't whisper to either. i tell people what i think and i'm telling them publicly what i think as i am now. >> who do you think will be in the next election, just out of -- >> i think president trump is likely to be the republican nominee. >> david, can you give us your take on corporate profitability right now and valuations of the
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market given all of the uncertainty that's out there >> valuations are very high by traditional standards. in the buy-out world that i know reasonably well we are paying high multiples by traditional standards. traditionally we like to pay seven, eight, nine times cash flow and now we're paying 13, 14 times cash flow. you can get away with it for a bit because investors are willing to take lower returns than ten years ago we can still get very good returns in private equity, by traditional standards i would say 15% or so, 16% annualized rates of return are still pretty good, but obviously it would be better if we could pay lower prices valuations are hiergh, but not o high we can't get good deals done. >> you are looking at interest rates being so low, and that is pushing stock prices higher and higher. >> the valuations -- >> there's no doubt that low interest rates fuel prices being higher and i expect interest rates will be lower.
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remember, they're high by people in europe and japan, they're negative there remember, low interest rates don't guarantee you will not have a recession recessions are going around the world in countries with negative interest rates it doesn't mean because we have interest rates going down the economy will prosper. >> david, what about the profitability outlook? >> profitability is in pretty good shape for u.s. companies. obviously some better than others in the private equity industry, the industry has been doing quite well and we've been getting good returns for investors. profitability is pretty good because we're in a pretty good economy right now. if it continues this way i think profitability will be good for the next several quarters. >> thank you for the washington monument it is all open. >> we will make an announcement today about it i don't know if it has been made yet, but there will be an announcement when it will be open. >> you are almost done, right? >> it is done. it will be opening shortly. >> i don't know if you thought of this, but if washington falls
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out of favor it will be the rubenstein monument. >> i doubt they will name it after somebody with that last name, but thank you very much. >> who else? that's why it looks so good. it is a great thing and we thank you for that. >> my pleasure. >> i will suggest that, which could kill the deal completely. >> thank you very much my family will appreciate that thank you. >> thanks for -- it is good to see you again. i can't wait to go i am afraid of going all the way up, but i love standing underneath it. you have been all the way up >> i've been to the top. it is great. >> you have to get ticket it is and wait in line have you been up >> i don't do anything in washington but go to the fed and go home. i have been to the vietnam memorial and luncheincoln memor. >> that's something. you have seen the cherry blossoms. >> i have. >> when we come back, "toy story" makes history here is the big market stat of
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the morning. $25 billion was raised by ipos in the second quarter, the most capital raised in five years 62 companies made their public debut in the second quarter making it the most active ipo count since 2015 stayun ted you are watching "squawk box" on cnbc and you should be mad at simple things that are unnecessarily complicated. but you're not mad, because you're trading with e*trade, which isn't complicated. their app makes trading quick and simple so you can strike when the time is right. don't get mad, get e*trade and start trading today.
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with sofi, get your credit cards right- by consolidating your credit card debt into one monthly payment. and get your interest rate right. so you can save big. get a no-fee personal loan up to $100k. welcome back, everybody. chip maker nvidia overcoming possible trade warhead winds and posting a strong quarter for the second quarter with bottom and top line beats on both ends. joining us to break down the
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numbers is chris caso, an analyst at raymond james thank you for being here today. >> thank you. >> the stock is up about 6% this morning, i know it was up even more than that overnight what was the most important part that you heard here that made you think, okay, there's a bit of a turn around in this >> right i wouldn't say it is necessarily a turn around, but for all semis it appears that conditions aren't really getting worse right now. remember, semi conductors have been seeing a slow doin, ydown a year we downgraded the space almost a year ago when you started to see some of the weakness i guess the question right now is a lot of the macro stuff we are seeing right now i think the semis were telling you at least some of that quite sometime ago, nvidia specifically. >> you downgrades the sector a year ago do you think this is the bottom? would you be willing to say people should buy again? >> the way we are looking at it is we're trying to obviously take some of the macro questions off the table because it is something that's unpredictable,
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and we are looking for things that are -- have some product cycles for next year we can count on nvidia is actually one of them where, you know, for example in data center, which has been, you know, the big hyperscale is google and amazon, that definitely slowed down this year it is not because cloud has slowed it is because they spent so much money in 2018, cloud spending was up 15% year on year in 2018, it is about flat now. >> they built up and we're ready for capacity for increased demand. >> that's right. inindividu nvidia has been pretty good there because the product they spe specifically sell for artificial intelligence is about 2 1/2 years old, so it is long in the tooth. >> the company's cfo on the conference call said that the sales for internal hyperscale, while that use was muted,
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engineering focus on ai is growing. >> there's no question artificial intelligence is a hot sector nvidia, they own the ai spaces in training. when you build the complex models, they own that part of it the next part of it which they're trying to break into and a lot of people tried to break into is called inferencing, which is running the models. one of the points they made in the call yesterday is that is becoming a more difficult problem to solve because for things like an amazon alexa when you are trying to use artificial intelligence for sort of conversational queries, it has to be really fast because, you know, you ask alexa a question and you want it back right away, where some of the stuff you are kind of doing a web search, you can spend a little more time in latency. >> chris, thanks for coming in good to see you. >> thank you. >> chris caso. >> we have been together a long time. >> you and me? >> yes, so i need your help
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here coming up, ger shares clammed after marco -- >> polos. >> we did not discuss that. >> no, we did not. >> our analyst respond next as we head to break take a look at u.s. equities
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still to come on "squawk box", madoff whistleblower, harry marko -- >> polos. >> has been covering the company. at 8:15, in session with congressman kevin brady. stay tuned we will be right back. with techy with techy that helps you offer shoppers a better experience. take your company's app. we can add in all sorts of capabilities, which help your customers manage rewards, offers, and payments on the fly. and now, applying for credit can happen in a flash. that way, more people can start shopping with you on the spot, wherever they are. how's that for changing what's possible?
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shares of general electric suffering their biggest decline since 2009 yesterday, plunging 11%. the drop triggered by accusations of accounting fraud. bernie madoff whistleblower harry markopolos, i guess we will play it straight here, told nbc ge has a $38 billion problem. >> put a lot of people in prison over the years and i'm continuing that trend. i need to get paid i have a family to support anybody who signs those financials as a ceo or cfo is culpable. >> you are coming after the current management team right now? >> on march 7th they had an insurance teach in, they could have come in they could have shown you the insurance deals and what the losses were in dollars and cents, they did not. it would have been easy to do.
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they did not i did. world con and enron lasted about four months before they were exposed. >> ge responded issuing a statement saying, ge will always take any allegation of financial miskk misconduct seriously, but it is market man nip lags. it contains false statements of fact and these claims could have been corrected if he had checked them with ge before publishing thereport. joining us, cnbc contributor william kohn, a special correspondent for "vanity fair". let's start on the cnbc news line with nick heymann who in a note called the accusations inaccurate nick, i think some of the allegations go all the way back to welch in 1995, and it is hard for me to believe that -- and i haven't looked at it, you know
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i'm not an accounting -- i'm not a cpa. but even since culp has been there, haven't a lot of people gone over a lot of these things with a fine tooth comb to see exactly what is there, and is it possible that they've come to such different conclusions as mr. markopolos >> yes, i would say that if these -- you know, this whistleblower suit, you know, and report was filed in 2016 or even 2017 before, you know, ge announced in january of 2018 they were going to take and make 15 billion of additional cash contributions to the reserves that their long-term health care reinsurance business, yeah, it would have been a lot more substantive. we spent two years now, ge has, working through with the regulators, whether it is the scc or the department of justice, going through all of their accounting as it relates to timing of revenue recognition and adequacy of disclosure
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while there's still some suits pending, you know, i don't think this is like new news. >> nick, you are not saying he is wrong you are just saying he is late >> what i'm saying is the two noncash charges that he alleges should be, you know, currently reflected on ge's balance sheet, which collectively total 18.2 billion, those are not accurate simple and factual, those are not accurate under gap accounting but what i can't assess, because i'm not, you know, like you i'm not an expert and don't have close relations with the state insurance regulator boards, is the 18.5 billion of additional cash reserves. so what we did was take a look and see, could ge actually afford this if, in fact, the alleged additional requirement over and above the 15 billion was, in fact, required you know, the immediate liquidity of the company, unrestricted cash, revolving lines, less commercial paper
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outstanding is over $60 billion. that's write a check and then additional near-term liquidity should be in hand this fall from the 21.4 billion from sale by pharma if you want to go into next year and think what they could do, they could sell health care for 46 billion and, you know, the rest to baker hughes, they could potentially divest that's only worth 5.5 billion right now. but that gives you 133 billion of intermediate-term cash liquidity to address an 18.5 billion alleged requirement. >> right. >> this is why you have the stock on sale yesterday for absolutely no basis. this is why all of "the insider"s are buying i think, like i said, if this was announced in 2016 or 2017 it would be a very different, real, substantive pulling back of the covers but i don't think today that's where -- you know, that's not where we're at this is the lost molotov
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cocktail somebody is throwing down the street. >> you know a lot about general electric i will tell you what struck me and i don't know whether it struck you, for a "vanity fair" piece i would love someone to say it is enron and world com combined i would love that. put it in the lead and splash it on the front and everything else, i don't know, for a magazine piece but when i see it from supposedly rigorous analysis from a person that has had some success in the past exposing -- >> yeah. >> i'm talking to bill this time, nick. >> yes. >> but doesn't it build -- to me it sort of made me think it is not serious. is there any way ge is a combined enron and world com in your view? >> no, no, ig think it is way too hyperbolling, number one he used the word fraud he used the word bankruptcy. he compared it to an enron i think it is way over the top so you say to yourself, why is this respected research analyst
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who brought to the fore the madoff crimes doing this and, frankly, he discloses why he is doing it. >> sure. >> he gave this report to a short seller who he doesn't name who then profited. somebody -- the stock was down $9 billion yesterday if he covered the short, that's more money than bill ackman made when he did his little gambit with allergan and valiant. this is -- frankly, i'm -- i think this should be something that should be investigated by the sec. >> or litigated by ge. >> about why short sellers are allowed to do this, irregardless whether there's truth to what he is saying because, as nick said, it is being investigated by the sec and justice department. >> in your reporting, bill, and you don't need to tell us what you are going to say if the book, but how would you say it in a way that's not nearly as
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hyperbolic do you think -- i had smart people tell me larry culp is so thought of in -- you know, he is very well respected, and he's been there for a while now that has people thinking, you know, at $7 i'm ready to go in and buy this thing because it might double >> well, i mean what i would say is to the point that mr. markopolos made about the teach-in, i was on the teach-in call too and i think it was, frankly, less than adequate disclosure on that front and they refused to provide any more information. they have new people out there who are probably doing a very good job of assessing the risk right now, but as to what happened in the past, they're not willing to discuss it and they're not willing to share any more information so i thought that the teach-in frankly was less than adequate, and ms. seidman yesterday on your show said no one was complaining, it was a beautiful thing, and i'm not sure i agree with that. i do agree with nick highman
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saying they have adequate cash and reserves i would say there's long been a question at ge about the difference between gap earnings and the actual cash that ge generates. >> right bill, we won't go into some of your other recent pieces, but are you on any other cable networks today talking about maybe something different than this i just am wondering whether you are booked -- are you on cnn every hour today >> you mean along with my friend, the mooch? >> the mooch, yeah >> no, not yet it is early though. >> it is early keep your phone, don't tie up your phone you will be in big-time demand bi bill cohan, thank you. nick heymann, thank you, too >> okay, yogi. >> these predictions will be born out >> you have to think at this point, insurance is so
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quantitative you have actuarial assumptions you know health care costs, how rapidly they rise. you know life expectancy all of those sorts of things this problem ought to be pretty quantifiable. >> it should have been a long time before it was. >> it was. but in the light of day you would think you pretty much would know what it is going to cost >> although leslie seidman said yesterday on cnbc, look, we're doing a regular review of this and we will find out very quickly. you will see potentially what happens in the third quarter. >> not just enron, but enron and world con. >> it is not the same thing. we are talking long-term health sunce. >> when we come back, big protests in hong kong. we will go there live right after this break
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excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. ♪ hong kong protesters are out in force right now brian sullivan is there surveying all of it. what are you seeing, brian >> reporter: yes, hey, becky i don't know if you can see it i know there's a lot of people on their phones right now so our feed is kind of popping in and out from what i understand you can see they're filling in the protest, the march, the rally, whatever you want to call it, about ready to take place starting at 8:00 p.m. local time, 8:00 a.m. your time. really it is filled in you can't see it behind us, there's a subway they're streaming out of the subway the stage, i don't know, maybe 100 meters that way and they are still filling in here. it is expected to go from 8:00 to 10:00 this is called the power to the
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people rally normally on the rallies and the protests they reiterate the five demand they want, free and fair elections, removal of the hong kong ceo carrie lam. they want protesters freed they want the dropping of the word "riders" because it is a term of art and science as far as the law goes. but tonight is different, guys, because tonight it is about making two new demand. number one, they would like the uk to sort of denounce what they view as beijing's lack of adhering to the uk-style treaty of 1997 and get the u.s. to talk about the laws with regards to the people who violate protester's rights it is really filling in here, guys we probably will have to move, but we will be live all night. back to you. >> brian, we will check in with you again shortly. again, these are protests taking place right now in hong kong always you can see brian sullivan is in the thing of things he will be giving us updates about what is happening because obviously the world is watching. let's look at how the hong kong unrest is impacting u.s./china
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trade talks. we will talk to riley walters, heritage foundation policy analyst, and mike fuchs, center for american progress. weigh in on this, riley. what do you think? this is things that the world is viewing because of the attention president trump has put on this. >> i think the world is watching what is happening in hong kong and rightly so at this point i don't think hong kong has had significant impact on the tried talks with china. >> what do you think the potential is here? obviously it is front and center the president made it front and center, and we will be watching closely. president xi is stepping up and saying he could squash it quickly. >> i don't think we have heard much from president xi yet. >> absolutely the big problem -- >> wait a second riley, finish your thought and then we will get to mike. >> sure.
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i don't think we will have an issue right now. i know the president tweets about these things, but at this point there's no significant impact between the two. >> mike? >> yeah, absolutely. i think the big problem we have here right now from a u.s. perspective is the message that president trump has been sending over the recent weeks. he has been saying very clearly that he doesn't care about what happens in hong kong, he only cares about a trade deal that's dangerous for two reasons. first, it is dangerous because it increases the chances that xi jinping thinks he has a free hand to crack down on the protests in hong kong, but the second reason it is dangerous is because it shows weakness to xi jinping. if president trump thinks he is going to get some sort of concession on a trade deal out of this, i think xi jinping will only see weakness and president trump is sorely mistaken. >> riley, at this point, again,
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the world is watching, what do you think the next step is we have heard from china yesterday, beijing saying they think the u.s. should butt out and stay out of it >> it is really a war of rhetoric at this point you know, there's a lot of focus on these incidents of violence breaking out in hong kong, but it really hasn't gotten to the escalation -- >> good reason tiananmen square it hasn't gotten to that point but there's the potential for it. >> there's always the potential for anything, right, but we haven't gotten to that point the president, of course, does want to make sure that the world sees that he's at least familiar with what is going on in hong kong but, again, the trade issue with china is separate from what is going on in hong kong, and ultimately it should stay that way. >> it should stay that way mike, what do you think happens next >> well, look, i think what we will be watching for is to see what beijing's moves are are they going to increase the pressure and potential violence
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and brutality against protesters here in hong kong or are they and the hong kong government going to try to actually quietly make some concessions to tamp down the protests in the coming days and weeks i think that the united states has a very important role to play here. president trump needs to change his tune very, very quickly, and leaders of congress need to increasingly speak up as well to make clear that there will be consequences in the u.s./china relationship if beijing cracks down violently on the protesters. >> like a red line that wasn't your policy in the obama administration, was it, mike >> i think it is very clear that there will be consequences in this relationship, and i don't think it should be controversial that we should be sending that signal loud and clear to beijing. >> mike and riley, i want to thank you both for you time. >> thank you. >> thank you. >> coming up, black rock, on the
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week's big story, coming right back
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tgif after a week that could give any investor vertigo, futures are pointing sharply higher this morning. >> ray dalio on the next
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recession. >> recessions are always inevitable the only question is when. >> we will bring you the hedge fund tight an's exclusive comments to cnbc investing add vice you can't afford to miss from one of julian robertson's tiger cubs. the final hour of "squawk box" begins right now ♪ live from the most powerful city in the world, new york, this is "squawk box" >> good morning and welcome back to "squawk box" here on cnbc, live from the nasdaq market site in times square. i'm joe kernen along with becky quick. andrew is off. our guest this hour, mike reider the futures are 230 points on the dow, a snies snap back we managed a 100 point game. we had so many head fakes, up and down, up and down and movement on the slightest
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things, like something china said six months ago, they said meet us halfway. they said it again yesterday and it was good for 300 points i don't know. >> said it this way. >> yeah, we said it this way they said it a little more -- i don't know from facing with the right profile of the person's face instead of the left. anyway, yeah the 30-year is still below 2%. >> wow. >> this morning. but what is -- >> it wasn't a little bit ago. >> what is 30 years on a planet that's 4 billion years old you lock up your -- just seems like a long time, right? is it a long time? >> it is a long time to lock up your income. >> but you do get something instead of owing money when you are done. >> better than the reps of the world by a lot. >> here are some of the stories investors will be talking about today. hedge fund titan ray dalio sounding a note of caution on the u.s. economy in an exclusive interview with ynbc he said the economy is taking a turn for the worst and
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cutting interest rates this late in the economic cycle may not be as effective usa a stimulus e made a call on the odds of a coming recession. >> recessions are always inevitable the only question is when. >> do you see one coming >> yeah, i think that in the next two years, let's say prior to the next election, there's probably a 40% chance of a recession. and i think that you are seeing this around the world. >> on the flip side, last hour we heard from david rubenstein, the co-founder of the carlyle group, and he said, not so fast. >> i don't know when recession is going to occur. we have them on average every seven years. we are now ten years without a recession. that's very long there's no guarantee there will be a recession any time soon the u.s. economy is actually in pretty good shape. we're not an island though, and there's no doubt as economies in european of europe and asia slow down and go into a recession we can't completely revoid that at the moment i don't see a recession in the imminent
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future. >> smile direct club has filed for an initial public offering the maker of treeintends to lis stock under the symbol sdc. >> this week's market volatility could change the thinking about the next move from the federal reserve. steve liesman joins us with more the economic data was so good, wasn't it? >> well, the consumer side a quick note, becky is right we just did break below two on the 30-year, about 7:45 this morning. put up the chart, it is kind of a straight down kind of thing. i didn't see the 2.10 inverted, still positive by a healthy two basis points that's economic sarcasm. the market thinking hard about how the fed will react to all of this and the fed is thinking hard, too. they're trying to process the cross currents, strong consumers and decent u.s. growth versus
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market growth. here is the way the market is currently pricing in the federal reserve. these are cme probabilities. 100% chance of a quarter point in september 82% of another quarter in october. 56% chance of another one in december so really pricing in 75 basis points of rate cuts by the end of the year. i get a nod of approval from rick we will be back to him in a second i do want to break down september a little more closely because there's some talk about a 50-basis point cut, about a 1/3 chance right now of a 50-basis point cut some calculations have it more towards 40, but not in the 50% range there. >> wait a second i thought you said it was 100% chance. >> right, add those two together the chance of a -- >> oh. >> i'm glad you asked that you are absolutely right so it is 100% chance of a cut with a 72% chance of a 25 and a 28% chance of a 50.
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>> okay. >> those two, i think -- it is early in the morning -- but they add up to 100. >> they do. >> the fed chair has made clear he takes market pricing into account. the recent flattening, the inversion of the 2, ten. we will get a good feel for the fed's outlook in our coverage next week from jackson hole, wyoming. tune in to cnbc. we will have special guests, the annual gathering in the mountains taking on new importance in my opinion. >> there's always something new. >> i don't think they plan it that way it is not the concept of the meeting. it is supposed to take a step back, think about the academic stuff, long papers are present and the world is swirling around them plus, i think the added importance to this, getting to the thing that -- the horse that joe has been riding for several weeks now, the differential between the u.s. and the rest of the world, there will be many
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foreign central bankers there. they will have a chance to talk and see if they have some way of solving this problem. >> not easy to ride a dead horse either. >> i didn't say dead. >> no. >> we have the perfect guest host today to weigh in on all of these issues rick reader is here, black rock managing director and chief officer of fixed income. he can talk about equities but we want to focus on the bond market right now. >> so is the market generally. it is a pretty incredible thing. it is telling you more than i think a barometer of the economy. i think the economy is slowing moderately the consumer is pretty good, so it is slowing moderately i don't think it is telling as pernicious a story about the economy as people suggest. >> it is not flashing a recession signal >> no, when people say, my god, the flatness of the curve, it is a recession. it is an indicator of the time one, the ecb is about to go and buy everything left in the rates
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market, flattening the yield curve there. german bund is at negative six basis points it is extraordinary. that's pulling investors are looking for where in the world do i have positive yield. the other one, there is a demand from pension because of the aging demographic. we talk on the show all the time, the pension demand there's not that much dead issuance on the market people focus on treasury issuance we used to have mortgages, factories were being built, you are not issuing that much debt today. we are in an unbelievable oasis, the demand for product and income is immense and not that much debt. >> other than the pension funds, you have to buy these things which is why they continue to push rates down. is there going to be a time when they say we're not going to buy negative interest rates, we're not giving our money away? >> you get a dynamic with a
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stream, whether it is a pension company, and you saw this week a scramble for, gosh, i may see the last 2% instrument to hedge my liabilities and that's what was creating some of the pressure. >> rick, we can make it more complicated than it is. >> yes. >> but maybe it is a simple supply/demand issue. in that sense where there's huge demand not only for the demographic reason but there's the flight to safety aspect of it. >> yes. >> and the answer, and i'm going to duck after i say this, is maybe we ought to be issuing a lot more debt. >> 100 years or 30 years. >> 30s, 50s, 100s. people want it, give it to them. >> we have all of the sell side guys coming on scared ballotless or however you want to say it. they're scared i want mark mobius who come on, who said it will be unbelievable because of the stock dividends think about three. there are normal companies where you are not saying, wow, is that dividend safe.
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there are great companies yielding 2.5% to 3%. >> you map it against what is the duration of the equities -- >> if you keep it simple stupid, not talking to anyone on this set at this moment currently if you say that, why wouldn't you buy yield stocks why wouldn't you buy -- i don't know, take your pick. >> so you would. it is a question of do you buy yield stocks or stocks that participate in an expanded multiple if you think growth, and some of the things you will talk about, you if think growth is okay. i don't believe in the business cycle argument people said before, it happened in a manufacturing economy. it happened when you had goods into the economy. >> you can buy growth stocks that yield as much as the ten-year that will raise their dividends as they go forward you don't need to buy dividend stocks. >> that's what i think is right. >> that assumes there's a market mispricing in the risk adjustment >> rick, can i say one thing i think is important >> yeah. >> people talk about, my god, there's so much debt in the world. if you think the market's pivot
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off of is rate of change debt was built five years ago, ten years, the last couple of years, take u.s. year up, japan is issuing more debt, but the rate has changed other than treasuries the rate is significant there's no bonds for people in pressure >> we can come back and talk about this, but quickly before we have to go, your outlook for the fed here are you a 25er for september, who are you? >> i think they should go 50. >> in september? >> in september. i think they should go 50 because the economy is less interest rate sensitive than it used to be the only way you get transmission in the economy, particularly as you approach the zero bound, you should go 50 and then step back and evaluate the data from there. incrementalism, particularly when easing and close to the zero bound, do i think they will go 50?
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i think market odds are about right. when i say it is 50/50 -- maybe i shouldn't say it this way, 50/50 to go 50, but i think it is probably closer to right. it is the right thing to do and then you could step back, particularly with the ecb -- and you have to be really careful about the dollar if you are the fed, we live -- think about what happened last year, you shift the rates higher, you get the shift to the system. >> gives a little bit of a shock. >> totally the fed has to operate in a global economy there have been 20 interest rate cuts by central banks over the last few weeks. >> you should have been watching earlier. that's what i said economists some day will get something before it happens, because none realized rates this low could be too high. >> correct. >> the reason is because of fx. >> the ee quiquilibrium rate of interest -- >> why didn't anybody tells us 2.5% could be restrictive? the last guy said he did too. >> i think the fed pause was the
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thing to do. >> we'll have rick for the rest of the show. coming up, can china and the u.s. find common ground and solve the escalating trade war before permanent damage is done to both economies? up next, we will ask congressman kevin brady, the ranking me of the house ways and means committee. later, a guy that i'm not political but i'm glad he is in congress a special interview with one of the first tiger cubs, hedge fund manager david gerstenhaber it is all ahead. you are watching "squawk box" on cnbc
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welcome back to "squawk box" let's look at the futures, which have been strong all morning 230 points on the dow right now. 82 on the nasdaq, and the s&p indicated up 25. so we were down seven total from the highs and then we gained not a percent yesterday, but we stabilized so we'll call it 6.8 or something. then today another one so we will be down after all is said and done -- >> 5 1/2. >> 5.5%, 6% on the week, but not even on the week because it is tough to make back 800 it was a week we had a 380 earlier this week, wasn't it >> yes, plus, and then minus
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800. >> and a tough one last week because the 380 -- >> look, there's a lot of volatility in the markets. >> i think people under estimate liquidity in the markets today, across all markets, rate, currency, equities, may be some of the worst some of it is it is august. >> that's what david rubenstein said. >> you have argentina, china, there's a lot of uncertainty. >> can you look at the gazillion dollar bond market and say that august affects that too like the stock market >> yeah. >> we think that the bond market is so big it really means something when it moves. >> it means something, but what it means is you watch these gaps -- >> someone is on vacation? >> yes, you get these gaps, particularly when there's no bonds available. people have to put money to work, and if you get some concern, as ali wren said from the ecb, you get a concern and there's not enough supply.
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>> it can be august liquidity and the pros being gone can affect the bonds market? >> 100%. you see the uncertainty, the tanks rolling into hong kong, by the way it is a weak, people are resting. >> you try not to take time off during august. don't act like you don't have the money to do that. >> you can tactically trade these markets -- >> you don't take off in august? a couple of days here and there. >> saturdays and sundays. >> no, actually. but one of the things i think is interesting is you get the big day-to-day swings like this morning. it was a good opportunity to buy some raise, maybe sell the equity bounce you've got it is not bad to try to take advantage of the liquidity. >> president trump kicking off a rally in new hampshire but defending his trade war with
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china. >> president trump making a push to win the four electoral votes as democrats candidate heavily in the state. he warned of a market crash if he loses and spent a lot of time defending his trade strategy. >> i never said china would be easy but it is not tough and they want to make a deal we just positive to them yesterday. they want to make a deal they have to make a deal you have know what it will be wonderful to make a deal i don't think we're ready to make a deal. we are taking in billions of dollars in tariffs, and, again, china's devaluing their currency they're pouring out money. the prices haven't gone up so that means we're taking in billions of dollars. we're not paying for it. >> it is a different message than a few hours earlier when president trump acknowledged in a q & a with reporters consumers would be paying for the next round of tariffs if they went through.
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he said the u.s. has made very good offers to china but he is not ready to make a deal notably, he said he and president xi jinping would speak soon by phone, and that conversation would come as tensions with china remain on edge chinese troops are conducting exercises on the hong kong border beijing is slamming a u.s. arms sale to taiwan the pentagon is showing out and new data has shown japan has leap frogged the biggest holder of treasuries it is unclear whether it is a temporary change in demand or something more forebodying. >> yes, we have been talking all day. time will tell if it has to pass, at least some of the things get resolved thank you. from one trade story to another, texas congressman kevin brady is just back in the u.s. after taking president trump's usmc -- after talking about it, the deal with mexican officials, the
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usmca. what do we call it nafta 2.0 or -- let's call it the usmca. brady is the ranking member on the house ways and means committee. he joins us now. congress mng, thanks for being with us this morning. >> thanks, joe. >> still not done. is it going to get done before -- >> yeah, i do believe so i think it will be done this year i think it is a good news trade story. i went to mexico with a democrat from texas who is helping build bipartisan support for this. the meetings were incredible frankly with the mexican leaders because the trade agreement is helping them transform their economy from one based on low wages to one based on productivity and competitiveness. you know, we ought to be helping them in that effort, and the new trade agreement is, frank reply, the most pro-labor trade agreement america has ever seen, maybe in all of the trade agreements i have ever seen. i think that's why that is drawing democrat support i think there's an opportunity
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for a bipartisan win here that's pretty important. >> when, and as we get closer to the election does it become less likely because it would be seen as maybe a win for trump and company? >> yeah, i think that's the case, but i think both parties seem to realize this is the year to do it i don't think anyone wants to kick it into next year i think there's an urgency to this every year we delay -- or every day we delay, excuse me, hurts our farmers, certainly hurts our workers in comparison to the current nafta. i think there's just a design to get this approved this year. there's work to be done and it is being done right now, but the key will be speaker pelosi when she gives the green light to the white house, the agreement will come up. i'm confident we will find the votes to get it done. >> it happened with -- you know, finally had to push back against the left end of her caucus with the immigration, you know, and
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she finally did. so there's some precedence, but i'm not -- i don't know if i would call it better than 50/50 she will do it this time it is a pretty big win for the president. >> well, i don't know. i think it is actually a win for them as well because these labor environmental provisions are something they've championed i have been involved in trade a long time. i think i have worked on 12 of the 14 free trade agreements we have in place today. these are items they have championed for decades and have never achieved in a trade agreement. they're there right now. i think that's why it has drawn so many more democrats to this issue, is they're seeing results they wanted. do they want some fine tuning, yes. but that's fair and there's common ground and they have the opportunity for a win on the argument as well. >> the argument with china, switching gears, congressman, is the old sacrificing the good for the perfect because we're not going -- china is not going to give us everything we want probably and if we settle for less, if
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president trump settles for less he will be set up for criticism from chuck schumer and people in his own party that he is just getting a deal for the election and kicking the can down the road but is it really possible to get anything more from china in your view at this point they know there's an election coming >> you know, i do. i think they were awfully close just months ago. i think there's an opportunity to recreate that environment with some fine tuning on the agreement. whether you support his trade policies or not, i think everyone knows, you know, he doesn't accept bad agreements. there has to be substance to them ive think that's where they're headed right now, and so i'm not in the pessimistic camp here it won't be easy but i think there's an opportunity for this to be settled in the short term rather in the prolonged way. i think the odds are better for
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that than a prolonged trade dispute. >> you don't think some ago b b here and a few things around there? >> no, i don't if that were the case, this would have been settled months ago. i thank looking at real changes in how our ip is protected, our access to chinese markets, how they stretreat enterprises. >> will it be codified, that's the stumbling part, that xi doesn't want it codified in chinese law? >> what we know is in our negotiations with china, if it is not written down there's no chance for them to be held accountable for it we know from experience, and i think the white house is right on track here. they know it can't be enforced at thecentral level government level. any of these agreements have to be enforced all the way down to the local and regional provinces. they're insisting that be the case and i think that's the
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right thing to do. >> all right just finally you're a budget guy and you know about this better than anyone. we can float as much debt as we want at under 2% for 30 years. do we just not have to worry about trillion dollar deficits anymore, congressman >> no, we do have to we do have to. no one is walking away from that what we know this year we have the highest revenues on record for the first nine months of the year, the second highest apples-to-apples inflation adjusted spending still continues to be our big challenge and that's where we have to frankly, in the automatic spending, we have to work together on that one. >> congressman, we have other stuff to do so we appreciate your time. hope to see you again soon thank you. >> thank you, joe. >> okay. when we return, key housing sector data is due out at the bottom of the hour we will have that for you as it breaks hedge fund manager joins us live
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onset to talk about investing in a volatile market. stay tuned, you are watching "squawk box" here on cnbc. take your company's app. we can add in all sorts of capabilities, which help your customers manage rewards, offers, and payments on the fly. and now, applying for credit can happen in a flash. that way, more people can start shopping with you on the spot, wherever they are. how's that for changing what's possible?
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all right. coming up, breaking economic data the latest housing sector stats are minutes away we will inyou brg the numbers and the instant analysis when "squawk box" returns the ground . for a lot of teens, shoes matter. i'm a professional stylist and i know that style starts from the ground up and for parents, you want to pick shoes that they're going to wear over and over again. so i put together some of my favorite kicks for the new school year. ♪ when it comes to back to school shopping, your year starts at dick's.
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need up 200 music, not down 800 music. welcome back to "squawk box", live from the nasdaq market site in times square. it would be bad to change it every day on -- >> it would be biased. to housing permits and building starts, rick santelli. >> our july read on housing starts, a bit of a disappointment, 1.191 million seasonally adjusted annualized units. this follows a slight downward revision from 1.241, which he givhe -- gives you really the picture there, how much weaker it is it is the lightest number since february it looks like february of this year when it was 1.149 let's go to permits, shall we? permits are the opposite they're a nice surprise.
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1.336 million seasonally adjusted annualized units, expecting a number around 1.27 sequentially it is up over 8% from the last which is upwardly revised, ended up at 1.232 it was a solid number. wow. very solid on permits. so doing it down and dirty, looks like start sequentially down 4%, permits was exactly the opposite times two response in the market actually not so much. we are still down under 2% in a 30-year bond the shocks, the two-year in europe was minus 90 plus today, on its way to 100. september 12th is their meeting. my guess is it will get closer to that level. the big surprise really for the last month in my opinion has been the ongoing strength in the dollar index, which is just closing in -- remember, the highest level it closed at since may of 2017 is right around
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98.5 getting close to that. i think that helps underscore and put in perspective the counter intuitive nature in how markets respond to central banks gone wild. becky, back to you. >> all right, rick that's a lot to digest stay right there we will bring in diana olick and steve liesman for more on this right now. steve, why don't you tell us what you think quickly >> you know, i'm going to defer to diana nobody is better on the details of support than diana. i have a macro to point but i will let her give details. >> i'm going micro here. you have to separate single family versus multifamily. you see starts down 4%, but single family, which is most important to the housing market, up 1.3% month to month and up nearly 2% year over year we have seen single family starts down for the first six months of the year annually and it was a problem builders were saying they were trying to deal with backlogs from last year because sales were so weak at the beginning of the year sales started to pick up this spring and you are starting to
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see the starts picking up, and again in the building permits. that's a good sign because it is future starts and future sales we will see, and a lot a reaction to the rock bottom mortgage rates we are seeing right now, still falling i spoke to the ceo of kb home last week. he said mortgage rates play into this and they're starting to see more demand, a lot more traffic through their model homes. that's a good sign going forward. again, they're a little backward looking, but i would say don't look at the big picture. a lot driven by multifamily. you know, multifamily is very volatile it was way up last month, it is a little down this month mully family i would put aside for a minute and look at that kind of nice game in single family starts. >> go big or go home, steve? >> the point i was going to make, i look at this number to know how sensitive the housing market is going to be to lower rates. if i look at the headline, which diana told me not to do a second ago, i get like, you know, maybe it is not so sensitive if we have this big decline in mortgage rates and they're not building homes, but the permits
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is possibly a good sign. if we could get a little bit of juice, i guess is the best way to put it, from the housing market given other things like manufacturing coming down and you get beyond -- right, diana, beyond re-fi re-fi is good because it gives people more money from a macro standpoint, but the real money comes from building homes and people buying new homes. >> right. >> that's where you get the best -- >> any part of re-fi is renovation as well, and that adds to the economy. >> sure. >> what i think the real key here will be is consumer confidence you can talk about mortgage rates as much as you want and how it helps affordability and that's all wonderful, but home prices are still very high we have low supply and it all will be about the consumer confidence picture because if you think we are going into a recession and you think maybe you might lose your job or you might not get that raise, are you going to make that single largest investment or are you going to move up to the bigger house if you are a little bit worried about your own personal finances? >> one thing i would say, it is
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this continued dichotomy the consumer is in great shape you look where hiring is because it is slowing a bit from where it is, but net disposable income continues to be really good. you have, part of why it is hard to predict a recession coming or anticipate a sign of recession, you have a consumer-oriented economy. the parts of the economy that are sensitive are houses and autos and you are seeing the flow through again which are positive. >> and savings are good, too. >> savings are good. >> i thought you were giving us micro on being down and the permits. i am interested -- >> i don't like to divide it no, i don't like to do it. the northeast has the smallest amount of construction in general. >> right. >> so it is so volatile month to month when you look at that. >> of course. >> in the northeast, if you see a swing month to month, you can't gauge that as a whole. all of the building happens mostly in the south and the west, and building has been depressed in the west but booming in the south. >> if you don't look at it month by month, you look at the
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northeast over the course of the last year or so, people are trying to figure out what some of the changes in salt might mean for some of the states like new jersey, new york, connecticut, what does it show you? >> i see housing starts in the northeast up 22% month to month but down 10% year over year. again, it is the volatility of a very, very small sample of homes. but i think what it says is, look, builders are looking at trying to lower prices they know pieces are being strapped by salt and higher costs and they're worried people will be moving again, it is like where do you put the hole in the ground if you are a builder, and these are a lot of large builders, are you going to be shifting a lot of the construction more to the south or more to your share out west you know, i don't see that salt is really playing into construction right now that's more a factor of the supply situation. >> that said, becky, i want the data here, it shows that northeast single unit
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construction has been negative year over year six of the last seven months >> listen, i mean we do a lot of financing in the residential market there is no doubt there's a regional dispersion going on the best exercise i have done probably in the last six months is if you go on u haul's website and track the movement, it costs you six or seven times more to go from california, san jose, l.a., to nevada, to texas, than going the other way. it is incredibly revealing about where housing trends are moving. >> people are leaving. >> totally. >> and it is also demographic. >> i am worried about real estate values on cape cod because of the shark sighting goes there. >> it is time for a good deal. >> it may be time for a good deal or maybe time for -- i don't know if people want to swim there anymore, but i have an aanyoniffinity for the place. >> you know a vending machine is more likely to kill you than a shark. >> have you seen how close they are to the shore
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they're right there. >> you would rather be on a west side highway in a taxi cab than a delta jet. you have to do the numbers. >> i do. >> i think you can get killed by a vending machine if it falls. i have seen you put your arm all the way and you're like, oh, no, just for cheet-os. >> i want to know, people swimming in it -- with the sharks -- >> when you were in the jersey shore, were you worried about it >> no, ip wasn wasn't. >> do you have a fear of vending machines >> i have a fear of what is in them am i right >> am i right or am i right? >> when it comes to real estate, i always find it fascinating to kind of overlay, you know, different tax base, whether it is salt or state income tax. happy feet will continue to be a dynamic in housing for years to come i know i live in one of the salt states but, you know, it is what it is. you know, none of us should be
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too upset about paying more taxes, right, steve? >> i'm upset about paying more taxes. >> why >> when other people get -- >> when we talk about income taxes -- >> taxes, rate cuts, and the entire pay for of the corporate tax cut fell on those in salt and the tax system was used as retribution against voters against the president, i'm against that. >> what about people that work hard and think they make money and the income tax is retribution for a federal government out of control? it doesn't taste so good, does it >> some of us want to pay our fair share for the great government and country we live >> i would say salt is sweet for you then, right? >> some of us like our educational system locally where we educate our kids and they go to good colleges and some states don't do that. >> did your kids go to private or public? >> they went to public school, both of them. >> so did mine. >> very proud of my boys, and i
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know you are of your girls. >> and i have seen videos, they're good musicians. >> thank you very much i want to ask rick the macro question will fed rate cuts do any darn good >> so if you do the small move -- why all of a sudden did they hit in december because you moved rates 13 times. you need to have in a less interest-sensitive economy, you think about technology and health care, it is not an economy like it used to be it is very rate sensitive. it is still rate sensitive in autos and housing but you have to move. when you move 13 times on the high side, if you move 25 basis points, you won't see the difference buta 50 will do it by the way, if you are willing to do more, you have got to make bigger moves than you have historically, particularly when close to the zero boundary. >> do we have time for santelli to weigh in on that? rick >> i don't think interest rate cuts at this point will do any good the real issue is foreign central banks, and i don't
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believe that our fed, especially considering the breadth of the foreign exchange market, if they're thinking they could use interest rates to weaken the dollar and import inflation i think it is silly. if they're lowering rates because they're worried about some type of existential crisis, i don't think it makes sense i think what they should worry about is minus 90 basis points on a two-year shot. >> yes. >> that's what they ought to be worrying about. >> rick, thank you. >> i will not see all of you guys, from the farm tomorrow. >> enjoy. >> for the 50th woodstock reunion. >> thank you very much rick reader will be with us for the rest of the show deere posting weaker than expect on the top and bottom line the company saying farmers resisted purchases of new equipment because of fear of trade and recession fears. it is down by almost 1%. joining us to break it down is rob wortheimer
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what do you think? it is a case we are probably blaming it on trade and it is legitimate. >> yes, there's a couple of impacts from the trade war one, it kicks farmer's sentiment around two, it makes it harder to operate. if you are trying to source parts from different geographies and demand swings up and down, it is tougher. that explains part of the results. >> your reaction to the misses, not only the misses but also lowering guidance? >> i would say it wasn't so bad. they lowered guidance but a little bit they had a construction guide puzzling high to some people as your sentiment is buoyant, dealers want to buy more and stock on inventory, and as that ebbs away. so the guidance wasn't too bad deere has a lot of advantages. they're doing very well in technology and advanced tractors, advanced guidance, different features they can add on they have a plan for the future that's pretty good. >> in terms of that, in terms of
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becoming more efficient, trying to make sure they're watching where the costs are coming, what more can they do >> there's a bunch they can do actually they have a leading position in technology i don't know if you follow the blue river acquisition, but they have the ability to do -- >> the gps that's -- >> yes, and even robotic spraying of -- you know, you recognize a weed versus a plant and spray that there's a lot they can do to help formers they're a big and well-run and efficient company so they can bring the value better than others can to farmers. >> ultimately it will be how farmers are feeling about all of this and if you look at the numbers over the last five years, it has been a horrible series of circumstances for farmers, whether it be drought, floods, the trade talks and fewer buyers. >> we started from a very high point, we had a good cycle 2012, '13 and 's14 and it has come dow there. the trade war back and a forth does weigh on sentiments, so we have a struggle to get past that and see where we come out on the other side. >> for some of the smaller
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farmers, they talk about issues not being able to see through the next season, needing to know what happens here. if there was some sort of clarity on the trade talks, if china stepped in and started buying more agricultural products, what would it mean how quickly would it turn things around. >> it would help smaller farmers are in a tough spot the world has gotten bigger, equipment has gotten more expensive and seeds have gotten more expensive clarity helps those folks so i don't see it as being easily resolvable in the near term. the trade war causes near term uncertainty. there are not a lot of places that can grow like the u.s. can. we have a productive farm economy. if it goes on too long you get investment in brazil and argentina and our long-term competitiveness ebbs away. >> you sound positive from deere, although it was disappointment would you tell people to buy shares today >> we have a neutral it is not as disappointment as
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some feared. there is a plus coming as deere works to take advantage of some of the natural advantages. >> thanks a lot. good talking to you. coming up, and we just proved it is not me that gets in between you and santelli as a catalyst it is not. i was now no part of that, so, you know, when i get accused of that, you guys are just fine on your own coming up, an interview you can't afford to miss with one of julie jan robertson's first tiger cubs, david gerstenhaber we will talk about investing when markets get volatile and wherhee sees the opportunities at this movement stay tuned you are watching "squawk box" on cnbc we trust usaa more than any other company out there. they give us excellent customer service, every time. our 18 year old was in an accident. usaa took care of her car rental,
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welcome back to "squawk box" the futures right now still up over 200, but they've come down a little bit they were about 250. up 216 now 76 on the nasdaq, and the s&p indicated up 24.5. >> some of the gains have given back a little bit as the yield on the 30 fell back 2%, too. let's get to the next guest on the unusual volatility we have seen in the markets and how it plays. joining us the david gerstenhaber, acorn add weiser and cio. thank you for being here. >> thank you. >> i looked back at some of the calls you made and it turns out some of the calls were prescient. let's run through the calls and
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see if you want to double down or change your opinions. >> okay. >> you said the stock market had seen most of its gain. >> yes. >> we will be trading relatively flat you were pretty much right on with that. do you still worry about this? is it still the case >> i don't have an upbeat message. i don't have a particularly down beat message either. it will be a frustrating period for investors and we should expect muted returns from financial assets bonds are rich we can debate that a little bit. but coupons are obviously low, what you are going to get on bonds is low stocks, we don't really have any substantive profit growth at this point the market tends to struggle when it gets above 17 times earnings, which is kind of where we are now we struggled there earlier this year we struggled there last month, earlier this month the multi decade average is more like 15 times earnings, which would imply something closer to 2,600 on the s&p now, interest rates historically have been higher, so the
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question is do you want to use a different discount factor because interest rates are now substantively lower than they were, and value the market higher but at some point you want to pay for growth, and all we're getting now is a little bit of earnings reflecting buybacks, b no underlying profit growth. >> i want to jump in on that this plays into your thesis and what we were talking about earlier today, interest rates are so low you could seesome expansion of earnings multiples and with growth stocks. >> think about it, you got to balance two things one, the reason why interest rates are so low, feeds into the equity market. if you drop the rate low enough, the discount rate, equities, you think about a portfolio balance channel, you should have a higher weight in equities when you press down the the rates. >> i think you have to put your money somewhere. and, you know, you know what you're going to get in ten year bonds. 1.5% over time, maybe a capital
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gain if rates keep dropping for a period of time that's what you're going to get. >> when they go negative, you'll be rich. >> we should address the negative interest rate thing, in europe, it is really driving down our rates and one thing that i think at some point we should address is do we think the fed is going to cut as much as the market is pricing. 110 basis points from here into the mid le of next year. they're supposed to manage our economy, not the global economy. it is not clear to me that given how our economy is behaving that level of interest rate cutting is warranted. >> what do you think you'll get this year? >> the market is pricing in excess of another 75 basis points out to the end of next year i guess the question is, and i heard some of what you guys were discussing before, does the fed panic or not we're pricing over, you know into the mid-30s into terms of basis points cuts for the end of september. a typical midcycle adjustment is 75 basis points. the question, do they want to
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ratify what the bond market has done with a 50 basis point cut, september, and this would be on the heels of two descents at the last meeting for the cut overall or do they want to stick with 25 basis points in which case the market may be disappointed >> rick thinks cut 50 at the next meeting what do you think? it sounds like you're meaning more towards - >> i'm leaning more toward 25. it is a tough call in terms of what they do the bond market rallied so far, they will disappoint the market if they only go 25 no question about that when i look at what's going on in the economy, the consumer is in fine shape. retail sales data has indicated that the employment market is fine. yes, the gains have slowed decisively from where they were. we're still creating far more jobs than is necessary to sustain the unemployment rate at these low levels we have a much more service oriented economy than a manufacturing oriented economy true that manufacturing globally is effectively in recession now. hasn't spilled over to the service sectors in the advanced industrial economies and particularly not in the united
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states. >> so you don't see a recession. >> i don't see a recession at this point and the typical precursors of a recession aren't really present. you have very high consumer sentiment, a high savings rate, with the exception perhaps of high corporate debt and the high budget deficit you don't have the typical imbalances that would precede a recession. >> david, you've been known as being an expert on macro calls, great macro calls out there. i noticed some of your biggest holdings are things in midstream operations for energy. i think nprx is a new investment that you made that is in the midstream, you also have energy transfer, which is big pipeline company. is that a macro call on where you think oil prices are headed? >> i'm not so bullish on oil prices to be honest with you i think there is actually a bit of risk in oil prices because they're being supported by opec and russia effectively saudi arabia and russia with cuts the question is how long do they want to continue with those cuts
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because the demand numbers are deteriorating given the weakness in the global economy. but there is no doubt there is a substantive buildout in the midstream sector in the united states and these are relatively high yielding securities at this juncture. >> some of your biggest holdings are technology you got amazon, alphabet, alibaba. what is that a function of >> the new economy is where all the growth is at this juncture and that's one reason our market multiple is higher than what you see in europe and japan, frankly. these are more rapidly growing companies and i think they're secular opportunities, frankly. >> that plays into what you were talking about too, rick. in terms of looking for growth, growth that will pay a dividend. >> i call it the fast rivers of cash flow, we're seeing the economy today that is extraordinary. trying to pick the bottom on industries that are atrophying is a business.
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some of these industries, i was in silicon valley a week ago, you meet with the companies and you see the potential to grow internation internationally, the potential to take on more clients, the potential to broaden your streams of businesses is extraordinary. that's where the fast rivers are today. that's what free cash flow potential is. >> david, do you have any concerns about the trade war when it comes to alibaba there is all the talk about the internet splintering. >> there is at this point, the chinese have walled off their internet fairly effectively. and there is no doubt that some of the chinese internet companies are beneficiaries of the fact that ours are excluded. but it is a very large market. these are very sophisticated companies and they're making very rapid progress and i don't see that changing. >> no. >> okay, very quickly. residential mortgage backed securities i look at two horb eharbors. what do you think about where we stand with residential mortgage securities, and housing data we got today? >> well, look, the housing data has been weak for five quarters
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effectively. been a detractor from growth in this economy for a period of time it is sort of surprising when you think about it, the two most important drivers of housing demand are employment, which is still rising nicely, and interest rates, which have come down sharply you can address whether or not it is the salt tax changes that have disturbed the market. but the housing market should be doing somewhat better than it is i guess that's somewhat surprising but if you look at underlying multifamily mortgages, everything is performing quite well at this juncture. you're getting higher yields >> david, thank you for coming in come back soon. >> national tell a joke day. i just found out man walks into a hospital, breaking news, admitted with several plastic horses in his stomach. spokesperson says he's now in stable condition okay guy goes to -- went to a zoo, only one animal, a dog it was a shi zhu
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coming up, more with rick rieder we'll get you ready for the final trading day of the wk.ee stay tuned "squawk box" will be right back. . we have a pretty good relationship. . you've done a lot of good for the world. but i feel like you have the potential to do so much more. can we build ai without bias? how do we bake security into everything we do? we need tech that helps people understand each other. that understands my business. we've got some work to do. and we need your help. we need your support. let's expect more from technology. let's put smart to work. ♪ ♪
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all right, want to thank our guest host today, rick rieder.
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we'll see you again soon. >> thanks, becky. >> world not ending tomorrow >> no, world is okay a little more risk, a little bit of volatility, good for markets, really good. >> it is that does it for us today. we're going to watch very closely. right now you are looking at gains across the board for the equities markets make sure you watch on "squawk on the street" to see what happens with the opening bell. we'll see you back here on monday bye. ♪ >> good friday morning welcome to "squawk on the street." i'm carl quintanilla with scott wapner at the new york stock exchange jim and david have the morning off. nice bounce in futures, up 200, well on track for the third consecutive weekly loss. nvidia the good earnings news today. deere not so much. europe is green. the ten year bund now yields a record minus 72 basis points back home our 30 year yield hits a record low of 198. road map begins with

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