tv Squawk on the Street CNBC October 1, 2012 9:00am-12:00pm EDT
i see it on the rotten cake. it's got to change. >> thank you for being our guest today. pleasure having you here. >> it's been a lot of fun. join us tomorrow. "squawk on the street" begins right now. eagles and their fans flying high after the philadelphia eagles, sunday football victory over the defending super bowl champs, the new york giants. welcome to "squawk on the street" on this first trading day of the fourth quarter. i'm carl quintanilla along with melissa lee, jim cramer, smiling broadly, and david faber. got a big week ahead. a lot of economic data coming on the way. some presidential debates, jobs number. futures are higher despite another china pmi number that came in under 50 this weekend. and as for europe, germany pmi also up. eurozone unemployment remains at record highs. >> ready to walk us through the
fourth quarter after a 6% gain for stocks in q3. september ism in less than an hour as well as a speech from ben bernanke. >> two big downgrades on two big companies. microsoft says momentum will slow. >> and facebook's stock is up 30% from the july lows. and julia boorstin with a sitdown with facebook's cheryl sandberg. futures ant rise and the fourth quarter gets under way. major indices coming off a third quarter that was their best quarterly performance in two years. but there's a lot for wall street to digest this week waiting for today's monetary policy speech from bernanke. and the big jobs number is coming up on friday. it's been said that q3 was
characterized by expectations from central banks, that we got what we wanted and that's not necessarily going to be the picture for this quarter. >> you're fighting worldwide feds. if you don't like the market, i understand expectations lowered along with estimates lowered. all you have to do is beat estimates even if they're lowered and you have the various feds behind you. still got a good market. >> evans this morning on "squawk" is few moments ago saying he'd like to see twist go all the way through 2013. there are things the fed could do that they have not yet done. >> this fed is fighting the word. the war collateral, not damage but the collateral goodness is if you own high-yield stocks, there's not that many left. but they're your cd equivalents. cd rates, not going anywhere. you make no money in cds. >> when thinking about high-yield-dividend paying stocks, can you ignore or put
aside historically high valuations knowing that you're on the fed's side? if you're not fighting the fed, you go into these stocks and many of them have stretch valuations at this point. >> which ones? >> ones like at&t and verizon. >> on a cash flow basis, i don't think they're that expensive. i was doing some work on stocks, where they were that were downgraded today, like an allstate. take a look at it five years ago. almost doubled. the homebuilder, some of them are triple. it's almost as if we forget that there was a great, great rally that went on for many years. we're nowhere near it and people are still downgrading. >> not to mention bond yields were higher back then than they are now. i do wonder -- we saw it show its head last week. europe is still an issue. granted, it's been quiescent. they say they're making
progress, although i argue with that. profit growth is not great. top-line growth is not great. m&a is a reflection of confidence. it's not there. and we're dealing with this fiscal cliff which we're going to hear even more about in this quarter than we did last quarter where it's been quite a topic of conversation. >> i come back to a nike. on friday, nike was down big. topline growth in china is slow. middle of the day, people like it. there are battlegrounds everywhere. there are people who take the same data and buy the stock because of the big central banks, not because of the companies themselves. i know purists think this is not the way to go. but purists have not made a lot of money. >> i like to think of myself as a purist. so thank you. but you're saying, don't fight the fed, period. >> it's a time when the most rigorous people lose the most
money. and it's frustrating for someone who does a lot of homework out there and everything comes to pass and then the stock doesn't go down. it drives you crazy. it should go down but that's not enough. the goal is to make money. not to say, wow, it should go down. and yet many people are playing the it should go down game. >> what if you're making a call on the real economy, x market. what would you be saying about the u.s. fortunes into q4? >> i still await a negative retail story that i don't have. china -- can china remain bad forever? that's a difficult question to see how long it can remain bad. >> good point. stuff on housing is good. the lead story in "the journal" today, trade slowing. slowing pmis in japan, china, europe -- >> how is this news? what news was there in that story about trade is slow?
were they really that devoid of anything new? that's like, d.a. probes rackets. come on! >> meanwhile, busy week for new companies. one of the busiest weeks for ipos since july. and i think september, i just saw these numbers, the best september since '99. eight deals, $5.5 billion, best actual month since may. >> david bust ser coming back. my daughter was able to beat -- there's a claw that comes down -- my daughter got five straight. i'm glad dave & buster is coming back. >> anything worth anything? >> not more than two cents. >> and it costs 50 cents to play? >> i've dropped 50 bucks playing that like. and lifelock, sponsor for trump, you get six banks being hacked. i have a friend who swears by this lifelock because he was hacked.
>> we have two big downgrades this morning. microsoft lowered to a sector perform from outperform largely on valuation. microsoft's 15% year-to-date gains. and steve grasrg and citigroup was downgraded at sterne agee. a little stall because of concerns about windows 8 and whether or not it's going to be robust. q3 could be a make-or-break quarter for them. "the journal" points out, there's no place to try out the new tablet. are you going to buy a tablet just on blind faith without trying it out? >> tiff beta. it's quite exciting.
but excitement doesn't necessarily equal sales. there was a downgrade of nokia saying the windows 8 operating system, not good for phones. intel seems to have lost its way with that 4% yield being the only reason to be in it. the desktop -- i feel very triceratops here with this. >> how about the story in "the times" over the weekend about meg whitman? >> they still make a lot of them. but the question is, is it really a business you want to be in? >> do you remember scm? >> yes. >> smith corona mar chant. they were making electric typewriters like they were going out of style. >> that "times" story, not a lot
that we didn't already know in terms of what hp is trying to accomplish and how important this year is going to be. but we'll be watching closely on wednesday when they do outline their targets for the coming year at a stock that's seen new lows. down 24% since meg took over a year ago. >> did you see that kodak got rid of what was supposed to be a superior technology -- >> in terms of printers. >> yeah. i had a kodak printer and i thought it was magnificent. >> printing was made one of the focuses. we saw the printer here. this is what's going to turn around kodak. the company in chapter 11 trying to reorganize. but they're getting out of it entirely. >> such a great profit center. but doesn't seem to matter. >> melissa mentions the citi call, the mcdonald's call, the marriott call. these analysts are -- it's not that they're down on the stock all of a sudden. it's that they're reweighing the
risk/reward, we keep seeing that, the balance of risk/reward. >> it's what we started with. they can't come out and say, stick with marriott or stick with microsoft because the fed is easing. they have to deal with what i used to call because i was an art history guy in college, the four walls of the canvas. and they can't go outside of it. they're more rembrandt than they are cessa. >> i'm making i'm sure in the right century. >> good. >> they're not polak necessarily. >> they're saying, what the heck is going on with the earnings? this must have been what it was like to be a realist painter at the time. >> what are you guys doing? >> yeah. like, that's not a painting. and now it's going for $150 million.
>> the realist guys are worth like $5 million. that's what the analysts are like. they're realists in a time when the impressionist fires have taken over. it's a spots and dots interpretation. >> i love this. let's keep it going. >> that's a good analogy. shares of facebook have fallen by about 42% since the company went public 4 1/2 months ago. facebook's coo, sheryl sandberg believes her company is worth much more. julia boorstin asked her to respond to the idea that $15 a share is a fair price for fb. >> what i do believe is that we are a more valuable company than we were four months ago the day we went public. if you look at what we've done since we went public, we've invested more in monetization and we're showing great products with great returns for advertisers. >> we have a lot more with julia's exclusive interview with
sheryl sandberg throughout the morning. and julia will join us on set in the next hour. koling out of their shell to some degree, jim? facing the media -- >> it's moving the stock. there was a brutal piece that came out today saying, look, the numbers aren't there. they're lowering the growth rate, talking about how the younger people just strictly use facebook on mobile and mobile acceleration. so maybe this interview can combat what i think is going to be another round of estimate cuts here. not kidding. >> the outcome move was cutting estimates for fiscal year '12 and fiscal year '13. it's a dramatic move on the price target. and basically this analyst saying that he's using different sorts of metrics to evaluate the country. time spent and revenue per hour are going to be the key metrics he believes in evaluating facebook shares going forward. he also points out the dramatic
change in the use of desktops just such april -- it's happened in a matter of months. that happened around the time the company went public. you can understand why the optimism was built into the stock going in and the estimates had to come down. and there was a letdown because that change was happening at exactly the time of the ipo. >> david, according to the excellent piece that we read about facebook and the cfo being in charge of the deal, is it possible that things went so fast that morgan stanley itself wasn't able to recalculate how negative things had gone? >> it's possible, although i don't know for certain. they mispriced the deal. come on. and if ebersman was pushing du -- but here we are $22. and they are a lot higher.
>> the stock acts well every time inspeaks from facebook. the guy comes out with a hood, i'm a buyer. woman comes out, i'm a buyer. >> he's in -- zuckerberg's in russia, if he gets putin in, he's done. >> and medvedev -- >> he's met with medvedev. i wonder if he shows up in a hoodie when he's meeting with them. >> when the web first started, there was a things called the russian page view. the russians cracked it. there was a deal where if you had a lot of page views, you did well. maybe the russian page view generator is being talked about again. that could be a savior. >> we mentioned these ipos this week. and the question is out there whether or not the facebook hangover is finally over. it has been almost five months. >> i kept thinkings about the money that keeps coming out from
equities. i know we've had people come on the show and say, it didn't affect anything. no. the retail investor has just been beaten up so badly. there was an article today about high-speed frequency at trading and how the s.e.c. isn't backing the chicago study. i keep coming back and saying, what has to happen to make it so that individual investor feels better about this market? sure wasn't facebook. >> what does need to happen then? aside from double-digit gains for the year? or is that enough? >> they've already given you something. you're right. they're going to come in at the top, i guess. they're coming out now. >> very good point. >> classic pattern recognition. we've seen this story before. >> into bond funds, still. >> yeah. >> as we mentioned, how can facebook win over the skeptics? we'll get a lot more of julia's exclusive interview with the company's coo, sheryl sandberg,
her first since they went public. an exciting morning here. william lauder joins us live at post 9 after ringing the opening bell today. and take another look at futures. up 70. we'll see if this could be a monday where the market actually does close higher. "squawk on the street" is back in a minute. boring. boring. [ jack ] after lauren broke up with me, i went to the citi private pass page and decided to be...not boring. that's how i met marilyn... giada... really good. yes! [ jack ] ...and alicia. ♪ this girl is on fire [ male announcer ] use any citi card to get the benefits of private pass. more concerts, more events, more experiences. [ jack ] hey, who's boring now? [ male announcer ] get more access with the citi card. [ crowd cheering, mouse clicks ]
here's something we don't often get to talk about on cnbc, european strengths. europe defeating the u.s. to retain the ryder cup. martin kaymer giving europe the 14th point it needed to retain possession of the cup. that brings us to this morning's "squawk on the tweet." complete the following sentence -- europe may take our ryder cup, but they'll never take our, blank? tweet us. we have a new twitter handl handle, @squawkstreet is the new twitter handle. they'll never take our? >> place of employment refs. >> wasn't it great to see great refs? >> the saints game, even some controversial calls still, although that's -- there's something more comfortable about it knowing it comes from a full-time ref.
>> seriously. someone who's got skin in the game with a 401(k) coming -- the new guys. use the ford motor play, the gm union negotiation. the new guys come in, get shafted. the old guys do well. >> they went to a define contribution from defined benefit. a lot of people are trying to to do that. that's going to hurt private equity. if you're defining what your contributions is going to go to, there are not a lot of private equity -- >> great point. never thought of that. >> it's a huge issue for private equity. taking advantage of new opportunities and a new month and a new quarter. cramer will show you the way. his mad dash is on deck. plus, how is the world's largest furniture company doing? we'll talk with the president of ikea usa.
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and a health care company ] ceradyne had been like all the defense contractors. more downgrades of defense contractors. anyone who knows this company knows they're an innovator. but when you're pulling back on the military, pulling back on cera dyne. >> accretive by a penny? >> lowered -- remember they said the goals became stretch goals. and the stock didn't get hit. this is an example after what we talked about at the beginning of the show. there's no real momentum there. >> deutsche is looking at ibm taking their price target up. >> another stock that's a huge dow leader. what i would tell you here is that this stock has very little resistance. accenture last week reported, these are remarkable. ibm has a mainframe cycle, too. the consulting companies are on
fire because they save companies money whenever they bring them in. >> finally, i think we have time for credit suisse going to a sell on nokia. >> nokia, i'm trying to figure out where it stops. i could do one of those, mow, larry, curly things where i go on the floor. but i do think that nokia has minimal upside. the balance sheet is going down. compare wit research in motion. research in motion is not a good short. cash is building. this one, you don't short $2 stocks. but they're doing poorly. windows 8, no one seems to want it except for ballmer, the ceo of microsoft. he probably isn't going to apple iphone 5 because of maps. i used it this weekend. >> you used apple maps? >> yeah, i got from boston to cambridge. this thing's terrific. >> before we go, you want to do ge? got a couple of price target boosts on friday. >> industrial outlook for them was so in contrast to what
everybody else is saying. and this stock is an up stock. obviously we own shares in it. but this was the most encouraging single analyst day of the second half of the year. and it is coloring a lot of good action. >> that's a good way to put ut it. as we kick off the opening bell on this first day of october, first day of the new quarter, a lot more of julia's exclusive interview with facebook coo sheryl sandberg. and deutsche's chief u.s. strategist with his top picks for the fourth quarter. and william lauder will also join us at post 9 after ringing the opening bell in just a moment.
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october of last year. >> into the bear market. went down 19.5%, ended in october. >> unbelievable gains. although we should also point out that this october marks the 25th anniversary of the '87 crash. we'll talk a lot more about that. here at the big board, estee lauder honoring the 20th anniversary of its breast cancer awareness campaign. we'll talk with william lauder in a few moments. over at the nasdaq, hologic. looks like an up day. it was pointed out by oppenheimer this morning, first weekly back-to-back selloff since may last week. it was interesting. we've had small percentage moves. doesn't necessarily feel like it was the first back-to-back. obviously today, positive. microsoft trading higher despite the downgrade from rbc. it's up so far by 11 cents or about .4% at $29.87.
that one bucking the downgrade there. the negative sentiment on that one. >> nice action. >> exactly. >> it's funny because it feels -- i was mentioning to david, we used to come in and mondays used to bring in money. this is the first day in a while it's been like, let's throw am money at the market, 401(k) contributions, third quarter ending, fourth quarter beginning. look -- >> you're going through? >> i'm grasping for straws here. >> there's always a possibility that's true. i don't know. >> we could play debby downer music for david every time. >> that realist outlook. >> by the way, the market's been up sharply. you've been very positive. >> you continue to let the facts get in the way of the story. it is very unnerving. >> so annoying. >> we could be in for a couple of difficult data points. ism in half an hour.
auto sales tomorrow. we talked about this the last couple of weeks with the fiscal cliff that david brought up earlier. if you're in a big capital intensive business, do you build inventory ahead of the fall? you think that's worth looking past? >> working on union pacific numbers this weekend. and what i see is they're still talking about good auto builds. and i come back and say, you have to remember that auto is a major part of this u.s. economy. we are not getting interest rates going higher. housing, hairnlg part. retail continues to be good. it's this export business that's so bad. and that's not a big part of the dow. the dow is merck, the dow is pfizer, the dow is j & j, the dow is procter. >> it's a component for many of the bigger company wes discuss. but it's not even that large overall. >> it's not an alcoa economy, even though alcoa makes the skin
on your ipad. >> by the way, today, back in 1908, the first model "t" rolls off the line of ford. they eventually sold 15 million in the first 19 years, changed the way we all get around. >> remember that $5 pay scheme he had. he wanted -- henry ford wanted everybody to be able to afford a ford car. he was in the end, i think, a little demographically challenged in his outlook about the country. >> a bit. >> but great industrials. >> now we've got car driving themselves on route 1 in california thanks to google. >> take a look at shares of oracle, surging today on the first day of its open world conference. it's up 1.6%. really nice, strong gain, bucking the trend amongst its peers, as well as a broader market. one of those ipos going to hit the market workday. that's a cloud play, expected to be a hot ipo. in fact, people are already estimating that revenues will hit $1 billion by 2015. so workday is that ipo.
could be in oracle's back yard in terms of competition. >> i find it amazing. oracle's application growth was nil. and there frankly is not -- the growth tends to be acquisition growth. and people love it. they don't look through the numbers. one of the frustrating things for the purists is there wasn't a lot of growth in oracle and the stock didn't get hit. this is a remarkable time, guys. here you don't have the classic what you want to see from tech, which is good revenue growth and no one seems to mind. >> i think in certain companies, investors are willing to look past. that's oracle, that's amazon, a number of them. and they're very much connected to the people running those economies. 234 particular, mr. ellison, mr. bezos. they're not going to react, not going to run and hide from one quarter that may not be exactly what you're looking for. it wasn't a bad quarter. >> no. a lot of people are asking, why
does google keep going up? i say, it's not up a lot. second, they are mobile. so everything that you read about that's bad for mobile is perfect for google because it's search oriented. there's nothing better, more exciting than google when you're on the road. that's when you start. it's where you start. yelp was started with a neutral at barclays. that stock won't come in, of the social media types of names. >> we're also watching wendy's, down by 3.7%. that got a downgrade from janney. it's an extension from that downgrade of mcdonald's on friday. fast-food burger sales in the u.s. look weak in the month of september. wendy's to 1.5%. young got buffeted by two factors. nike, as well as mcdonald's. and yum is recovering nicely, higher by more than 1%. people willing to step in on that pullback. >> mcdonald's, the regular burger is only 400 calories. and they post the calories now. >> you mean the quarter-pounder?
>> oh, no. but mcdonald's -- this is a burger call, this janney call. it's like burgers aren't selling well. it's not -- sometimes i wonder, this is something that patty doyle put in my head from domino's. there is a sense that vegetarians are the greatest growing cohort. that's one of the reasons why domino's is doing quite well. >> it's a burger call and yet if you look at jack in the box, that's up strongly today. new 52-week high in today's session. and burger king is also up. the market is telling you that it's a wendy's-specific story and maybe they're gaining market share from wendy's. >> jack in the box is doing a re-skinning and changing their model. burger king, we'll hear from ackman tomorrow. but that starts with a very low expectation situation. so, again, you get this kind of
crosscurrents where you find yourself thinking, burger wars, jack in the box makes you money, you can't be so -- you have to be agnostic. take a look at a call. i was calling it the joanie mitchell market. you have to look at -- >> 17 years old. >> stocks from both sides now. you remember the judy collins version -- is that why you're giving me -- >> i'm thinking this is where there is a divide. even between us. >> you're thinking all along the watch tower -- >> thank you. >> let's check in on bob pisani. >> nelson peltz, one wonders where they're going to see there. they did lower their stake in legg mason, delivering shares to an investor in the fund, worth xhen mentioning. >> that's been a stinker. >> let's check in with bob pisani who's here on the floor with more on what is moving on this monday. good morning.
>> joanie mitchell, that was good. you notice we're up. all the market this is morning, go overnight, all my e-mails, oh, my heavens. asia is a mess and the numbers were not good out of china. not good out of taiwan and not good out of most places in the world that had a pmi that was published. but the minute europe opened, the minute europe opened, the markets rallied. not only europe. s&p futures rallied, the euro rallied, the dollar weakened, commodities went up. why? it's very simple. more stimulus and a smooth transition towards a spanish bailout is what's motivating stocks right now. i'm not happy about the weak asian situation either. but you can see what's moving stocks. everybody, everybody over the weekend was debating whether or not q3 was going to be the trough for earnings. as we all know, we've been wringing our hands about the fact that the numbers would probably be negative in q3.
earnings estimates for the s&p for q3 will be below what they were last year, maybe by 2%. but this is the first time in a while that earnings have been down. earnings have been decelerating but decelerating for a reason. remember what happened in 2010. earnings rebounded enormously after the 2008-2009 financial crisis. the s&p earnings were up like 38%. then following year in 2011, they were up 16. this year is a letdown. earnings are going to be up, 4% for the whole year. a couple of points about this. number one, remember reversion to the mean. after you've been up 38%, it's hard to keep growing at that rate. the historical norm for growth in the u.s. is 17%. considering where we've been recently, it's not bad. secondly, talk about where we can be in the next quarter, fourth quarter, which is what matters. is q3 the bottom? here's what has to happen. financials really have to do better this quarter.
they're the ones where all the pressure's on. we're expecting earnings growth of groceclose to 20% in financi. there's the weak spot. consumer discretionary, have to do a little bit better. tech's got a fairly easy hurdle. 7%, 8% advance for technology stocks. financials is the weak spot in q4 earnings outlook right now. for everybody who's worried about earnings, 2012 estimate for the s&p 500, $102.88 is an historic high. that's right. for all this worry about decelerating earnings growth and no topline growth, we will make historic high earnings numbers for the s&p 500 this year, a testimony to the fact that corporations continue to find ways to eke out profits even without topline earnings growth. back to you. >> there you go. there's bob 'em peerically
poining pointing it out. let's shift to bonds and the dollar. rick santelli at the cme group in chicago. >> good morning and welcome to the new quarter. if you look at a two-day chart of ten, hovering where we were on friday, around 1.62. but that's fascinating in and of itself. look where we were on the last day of june, which happened to have been the last day of the second quarter. we closed the second quarter out at 1.64. we closed the last quarter out at 1.63. and we're currently trading at 1.62. how much response are we getting in the treasury complex? for all the things going on over the last couple of quarters, very little. it seems to have monovision, tunnel vision. it's looking at things like pmis in europe and the uk, looking at pmis in china. looking at those 17 countries that share the euro which in
aggregate had a historically high 11.4% unemployment rate. of course with all that going on, as bob pisani pointed out, look at the euro on a 24-hour chart. it rallied. why? because they're taking a big lesson from the u.s. quantitative easing cures all ills, or does it? jim, back to you. >> thank you so much, rick. let's check out the latest moves in energy and metals. sharon at the nymex. >> the momentum here definitely in the metals market. i'm standing in the gold pit. gold prices went above $1,794 an ounce. a lot of investors may have looked at the s&p 500's returns, that's decent. but gold up over 10% in the last quarter. silver up over 25% in the last quarter. they want some more of that in the fourth quarter. and we're looking at that here in the metals market. also looking at momentum taking over, the weak sentimental data out of china in terms of the oil price. the oil prices here are a little bit of a bid for oil. the fact that they lowered a mix
a little while ago before the open on the weak data out of china on their manufacturing numbers. in terms of the biggest mover here in the commodities space, definitely it is natural gas. natural gas at a ten-month high. natural gas here above 3.40. some are saying that $3 gas is sustainable here even if we don't see the same focus on coal to gas switching. still going to see higher natural gas prices. back to you. >> thank you very much, sharon epperson. fresh from ringing the opening bell, commemorating 20 years of fighting breast cancer and in honor of evelyn lauder is william lauder, chairman of estee lauder. >> it's nice to be here. >> what's the next push here? >> we've been trying to touch consumers to raise awareness of
breast cancer but to raise money to help fight the cause. we've raised over $300 million to date. 100% of that money goes to researchers to help affect clinical trials as well as treatment for breast cancer. and today even though one in eight women are touched by breast cancer, there's over a 90% cure rate if caught within stage one or two. 20 years ago that, number was 75%. >> staggering. the empire state building will be illuminated in pink to honor the campaign. >> to date, you've passed out -- >> over 120 million ribbons in 20 years. >> that's amazing. >> wow. want to talk to you about business since we have you here on post 9. in terms of china, there have been so in reports, so many data points about a slowdown in china and estee lauder is at the forefront of launching a brand-new china-specific product there.
tell us about the initiative and what you see in terms of consumer demand for the high end -- >> we see strong demand in most of asia for high-end prestige cosmetics. we see the demand in china proper as well as greater china, taiwan, hong kong, traveling chinese, so many different markets around the world. we see a fairly strong demand. we see some shifting of that demand. east coast china, tier one city, shanghai, beijing, demand is not as strong and robust as it was. still very good by western standards. as well we still see continued demand in places like hong kong and travel retail. very strong demand online for the brands. the chinese consumers are a robust consumer of our brand. we see fairly healthy consumption, most effort market in the world, western europe,
there's some slowdown, not quite as bad as we see it. greece has not been good. but other than that, not so bad. northern parts of europe, germany, scandinavia, pretty good overall. >> thank you for your work on this great cause. >> thank you. >> walgreens makes a deal with boots. walgreens tells me one of the reasons they do that is because in this country, high-end cosmetics, they want to own that segment because people are spending on that here, too. i find it counterintuitive. we talk about how unemployment is not great. it doesn't seem to relate to your industry in this country. >> the disposable income -- we do best in market where is there's an expanding middle class consumer. in our category in particular. the consumer is comfortable spending at this category because it's a relatively low number for her to get in and she feels very good about herself right away. now, why is there this
bifurcation? in most markets in the world between prestige, aspirational and more mass oriented, we offer a value proposition for the consumer with service, with touch, where an expert helps you find the right product, the ride shade, the right formula for you. they give you that high service experience for a relatively low premium relative to the service level you get. so the value proposition is in the quality, the experience and the service whereas when you shop in the more mass-oriented environments where it's pegboard and they point you to aisle four, go find it yourself. we've done research that shows in certain categories, especially foundation, the consumer shop en masse, she spends more than when she buys in prestige where she buys in the store to the exact match foundation. the value proposition is around service which is why in this market, in north america, very
high percentage of the total beauty business that's done in prestige like macy's because of that service proposition and a relatively low, absolute value differential in the price point. >> we continue to see companies go in and have difficulty in china. one company told us last week that western companies are going into china with western views about the chinese consumer and their loyalty and they're finding that that consumer passes them by in different ways. are there lessons you've already figured out on that front? >> we've been doing business in asia for 30, 40 years. and we first started in japan in the early '70s, then expanded into korea and hong kong. we've been in china doing business directly for ten years, through distributorships for another five or seven years before that. and you have to understand, it's a sophisticated consumer. she's got -- the average western consumer, european, north american, she has a regimen of
about seven or eight different products in her treatment regimen. the average asian consumer has about 11 to 14 products in her regimen. she's very sophisticated. has a very specific need. you have to understand what it is she wants. she wants very high quality. she wants the very best. she's very demanding and she's very particular. you have to understand what that means for her. it's not western -- you have to customize your formulations for the asian skin, understand the coverage she wants, understand the feeling she wants to get. and if you can do that right and make her feel like it speaks to her while at the same time it is relevant to her, that's great. it's not about you take what we want westernwise. it's not about customizing it just for an eastern thing. we've seen the evolution in japan, in korea and other parts of the world where you start with western, where the consumer feels what's made elsewhere is better than here. over time, that evolves and they
begin to want to believe and know that the quality of what's made for them that's a locally derived or made specifically for me is okay. the evolution in japan took 25 to 30 years. the evolution in korea took about 10 to 15. we expect it will be as fast if not faster in china. why are we creating something? we see a gap in the marketplace. we see an opportunity. we want to be there now so when that consumer begins to turn towards what's made now for me, we're there already and well established. >> we hope you'll come back and keep us updated. >> thank you very much for having me. 4 1/2 months of facebook's ipo, checking in on the state of the social network, more of julia boorstin's exclusive interview with facebook's coo sheryl sandberg. >> there's a lot of interest and speculation out there, oh, my god, has everything blown up? and the answer is no. if you come to facebook for work as you did four months ago, i think we're a stronger company today than we were then. as we head to break, take a look at this morning's early
time to get "six in 60." six stocks in 60 seconds. pulte downgraded at credit suisse. >> every time this group goes up, people downgrade it and re-up. >> raymond james downgrades sprint. >> you can take profits. i still like it. >> gilead upgraded. >> it goes higher. still not expensive. >> sterne takes finish line from a sell to a hold. >> i like that call. >> credit suisse initiates abercrombie with a -- >> sell. teen ainge apparel, if you can figure them out, god love you. >> lowe's recommended by morgan stanley. >> i think the stock should be moving higher on this. the home group is still strong. >> what's tonight? >> i like to do real estate investment trusts. they have a better handle on what's going on in the economy. >> see you tonight. 6:00 and 11:00 eastern time.
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it wasn't. 51.5. surprising jump after three months under 50. if we look at august for construction spending, it was down .6%. a bit of a surprise on both sides, strength and weakness. on the manufacturing, the surprise. and this is a far different number than we've seen in china or the uk. we'll have to synthesize. slight upticks and back into triple digits in the stock indices. back to you. >> rick, thank you so much. you're right, dow's up 121. highs of the session. let's get to the roadmap. the first day of october and the first day of the fourth quarter. we'll kick off your fourth-quarter preview from sector checks to stocks you might be considering now with deutsche's chief u.s. equity strategi strategi strategist and how is ikea gearing up for the holiday.
>> and 4 1/2 months since facebook went public. we check in on the state of the social network. you don't want to miss what facebook's coo sheryl sandberg has to say about the value of the company post-ipo. >> and nobu making a move into the hospitality business. where's the hot new locale? we'll be joined by the chef himself. >> let's bring in steve liesman who has been speaking to the chicago fed president, charles evans. steve? >> thanks very much, simon. definitely upside surprising. what i've heard from economists is they're looking for more upside surprises in the services index which i saw a report this morning. this will come in a couple of days, up to 54. we'll see. obviously not the bottom but obviously not all that great. and i'd be interested to know what the employment production and the new orders indices were inside those numbers. those will be the kind of
details that will tell us how strong the internals were on the ism. i talked to charlie evans this morning. he was one of the advocates of what we're calling the q.e. infinity program, the idea of keeping your foot on the accelerator, the central bank keeping its foot on the accelerator as long as employment remained above 7%. just a little background, the fed did not go with evans' specific proposal but did create an open-ended quantitative easing. so i asked him, how open-ended is it? what happens at the end of this year when operation twist ends? what happens to additions to the balance sheet? here's what he said. >> i frankly think it's going to take almost a year in order to see the type of improvement in labor markets that i'm expecting, just getting through the first half of next year with the headwinds that we're facing. i think that it's probably later in 2013 that we would get there. so in my opinion, we'd continue
with those asset purchases until we see payroll employment more like 200,000, 250,000. >> continue at $85 billion into all of 2013? >> this is my recommendation. >> it's important to parse it just a little bit. remember that part of that $85 billion right now is selling short-term assets and buying long-term ones. evans is suggesting, no, no, get rid of that twist part of it and just do net additions to the balance sheet of $85 billion into all of next year. so that would be the next thing to look for from the federal reserve. and of course from the fed chairman speaking later today is what happens in january when twist ends? is he in favor of an additional $45 billion in asset purchases on top of the $40 billion in mortgage purchases going on right now. >> to be clear here, this is treasuries as well? this is opening up the prospect that they continue to buy treasuries in addition to mortgage-backed securities, which is important for rates, as we've seen? >> right. that's exactly the right question to ask.
and the fed really is constrained in what it can buy. agency mortgages on the one hand and treasuries on the other hand. unfortunately, it can't go out and buy your mortgage specifically, even though i'm sure that's a wonderful credit that's out there. it has to buy essentially government-guaranteed debt. >> or shares of apple, which would also please a lot of people. >> it can't do that. >> i get that. thank you, steve. as we kick off the first day of the fourth quarter, we have deutsche bank's top u.s. equity strategist here on how to best navigate the markets, sitting at session highs right now. joined now by david bianco on post 9. >> thank you. >> you're actually skeptical, which i was surprised by. you have been a noted bear on wall street. but now you see that there could perhaps be headwinds when it comes to third-quarter earnings? >> i've been bullish during darkest hours of this market the past couple of years. the reason i'm cautious, i'mall
quarter, we've seen a deterioration in export activity, investment spending and manufacturing activity that has something to do with the fiscal cliff uncertainty. certainly has to do with europe. i think it mostly has to do with the sharp deceleration in chinese construction activity. i don't think we're going to see any sign of a major improvement there until early next year. right now, we have to contend with what's likely going to be one of the most disappointing earnings seasons we've seen since the recovery began. >> so the greatest headwinds will be felt by sectors such as multinationals, industrials, what sorts of companies? >> big companies do tend to have more international exposure. but it's the sectors that are most driven by investment spending exports, like energy and industrials, commodity price sensitivity. i'm underweight energy and industrials. i was hoping at this stage to be able to upgrade them. but with all the data that we've seen so far, i'm hesitant to do that. we're sticking with what we've been overweight all year,
financials and technology. >> important to note that these are the larger financials that you're overweight. can we have financials move higher when you're thinking the stock market is going to tread water? >> right. in the past, i was asked the question, could the market go up without financials leadership? now i'm expecting a little financials leadership. so i do believe this time you'll see big banks -- markets businesses lead the market higher into year end because there we see their credit spreads tigening and some of their markets businesses picking up a little bit, thanks to the quantitative easing. i think right now, we want to play financials with big banks. >> i want to reframe the interview. to me, it looks like you're throwing in the towel on your pessimism. you're still pessimistic but you're going, wow, we're surprised at the rally we got on q.e. 3. and, wow, we still expect this to correct in october on earnings. wow, we're not going to up our targets at the moment but maybe further down the line.
you're a guy that's shifting. the market is not as pessimistic as you thought and you're clearly navel-gazing. >> i want to be as explicit as i possibility can. $1,1, 1,475 is my year-end target. quantitative easing has been offsetting global weakness. my perspective is the global economy, investment spending, exports, key drivers of s&p earnings, not so much housing or the consumer. that's where i see the weakness. >> but you don't feel that the market can fall from here, according to your notes. that's a change for you. it's now underpinned, a bernanke put, if you like. >> my view is the market has a little bit of a pause that it should take and to really digest that the earnings environment is softening. i don't think we're going to have a bear market. i don't even think we're going to have a full correction.
seeing 1,300 before seeing 1,500 is the most likely outcome. >> you put out 25 names to buy. you want to walk us through a few and are there dynamic that is run through all these? >> our process is disciplined in this regard. we look for industries that fit my theme, my valuation criteria. i'm overweight financials and technology. within technology, some of the preferred spots are things like software and services. microsoft, ibm. managing through the european challenges, looks like the threat posed by a much weaker euro is passing. the euro is at least stabilizing at almost $1.30. so ibm, microsoft. in the financials space, before we talked about playing some of the improvement in housing with the regional banks. now we're actually saying go buy names like goldman and citi, take advantage of the credit spread compression and the stronger fixed income markets. >> for a long time, you and joe lavorgna were seen as bulls in some of the darkest hours.
>> that's right. >> would you say that's flipped? would you say now you're -- >> i think myself and joe and most of my colleagues remain amongst the most constructive. especially for the u.s. economy, we do see unquestionably positive things happening in housing. that should be helpful to jobs. it should help the manufacturing data get incrementally positive. >> did you always expect housing to bottom? that's a phenomenal thing to have achieved this year if we have achieved that. did you foresee that, which is why you're not changing your year-end targets? >> joe lavorgna was way ahead of the curve seeing a bottom in housing. but i don't see it as a key driver for the s&p. and i need to see better global activity to have more optimistic on the earnings outlook for growth out of s&p earnings. >> what's your biggest caveat to the fourth quarter when it comes to your year end of 1,475? >> everybody points out the
fiscal cliff, election, fiscal issues are certainly important. what's important to me from an equity perspective is seeing taxation on equity returns kept low. i really don't want to see the dividend or capital gains rate go any higher than 25%. i'd like to see these two rates stay equal to each other. that's important to us. >> is there a cost to the market associated with that changing n your view? >> yeah, if the dividend rate goes up to the marginal income tax rate, this market will give back some of the rally and it will limit the upside for next year. >> is there a point at which you see obama in the polls and you say actually now i believe that we are going to get the tax hikes and the market should fall? there must be a watershed quite soon as we head towards particularly what happens in the house and the senate. >> our focus has been on the senate. we think that's what's going to mostly influence the outcome. i hope there's appetite to see the rates low. i don't see a benefit from
raising them. i would call a coin toss on the senate outcome. but wiser minds will see the wisdom of helping the fed in its efforts to stimulate asset prices by not onerously raising taxes on the most important asset class other than homes. >> have you actually calculated a number? you said it would give back some of the rally. but is there a number or a percentage? >> 12-month price target is 1,500. we've written in our research that 1,600 would be a reasonable 2013 end. i need to see an acceleration in global growth. >> contingent on both, not just the tax issue? >> both. somewhere between 1,500 and 1,600. >> david, thank you for being with us. let's get a market flash within the health care space. courtney reagan is back at h.q. >> a lot of health care movers have performed fairly well in the past quarter. it's the first day of the fourth
quarter. tenet health care up almost 7%. this is on news the company is going to buy back $500 million in shares. also issuing a reverse stock split all in an effort to increase shareholder value and so far shareholders are liking it today. back to you. >> thank you, courtney reagan. we should check on the markets. we are sitting at or close to session highs. the s&p 500, up by 1.1%, a gain of 15.5 points. the nasdaq up by .9%. microsoft is a weight there on the nasdaq, trading lower on the back of a downgrade this morning from rbc, down by .4%. where we are seeing the strength, financials, across the board, seeing gains of between 2% and 4%. some of the u.s. financials, materials and energy stocks with crude moving higher this morning. 4 1/2 months in, how can facebook win over the skeptics after its less-than-stellar ipo? we have an exclusive interview with facebook's coo, sheryl sandberg. and up next on the program,
how do you say post 9 in swedish? i think that's rhetorical. ahead in the show, we'll talk to the president of ikea usa on cnbc. and now the top five ikea products we need pronunciations for, number five -- number four. number three. . number two. and number one. [ male announcer ] at scottrade, we believe the more you know, the better you trade. so we have ongoing webinars and interactive learning,
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believe it or not, the holiday shopping season is just around the corner. if you're in the market for furniture, chances are you may eventually visit an ikea store, the world's largest home goods retailer, also announcing a new initiative in morning. here first on cnbc is mike war, the president of ikea usa. welcome. good to have you with us. >> thank you. >> the initiative, we should point out, involves l.e.d. lights. >> yes. >> and something you're going to put into motion in august in all u.s. stores. what is it? >> by 2016, we're taking all other light sources out of the range. we've already taken incandescents out. by 2016, you can only get l.e.d. lights. >> life span, 20 times the
old-fashioned bulbs. >> 20-year life span. they use 20% less energy. most households have up to 40% of their electricity bill is lighting. it's a huge savings potential. >> it's not just the bulbs, but any fixture sold in your store that would use a bulb. >> the bulbs will go in any existing lamp. they come with all the different sizes and the halogen sizes ] >> a lot of consumers aren't up to speed on the technology changing but it is changing. we were just talking about housing. we talk about it all the time on this program. what are eyou seeing in the u.s in terms of demand for goods that people are going to put in a house? >> for us, the last few years have been good. even in tough times, we represent good value. i think more people have tried us.
traditionally people think we're good for college students and storage. and what we find is that our growth is coming mostly in the main areas of the home, living room, kitchen, bedroom. those are the products we've also been pushing. >> what's the demographic? >> our demographic is young families, people up to 50 years old. but we're broadening out because for example, kitchens are bought by people more in their 40s and 50s. that's actually one of the areas of the businesses growing the quickest now. so we are broadening the customer base from our traditional start. >> aside from just age range income, what is the typical income of the ikea customer? >> we cover quite a broad spectrum of the population. those are the people visiting our stores. >> after years of being full of secrecy, you're slowly coming into the light. we now have sales figures and profit figures which we didn't get before. we know the founder's two sons
are heavily involved in the business. you want to double the number of store openings. your current ceo is resigning next year. is there a decision within the leadership team, actually guys in order to be the store that we want to be in terms of profitability, we have to be more open? there was a book, the truth about ikea, that painted you as a cult internally. are you very consciously having to shrug that off? >> we think it's good to share who we are and what's happening. i think mostly for our co-workers, they need to know. and for everyone as well. yes, there has been a decision lately that we want to be more transparent and we are. >> who can we get on the program? can we get the founder on the program, the sons of the founder on the program? where does this take us? >> i suppose you could ask. it's a long way for them. but, yes, there has been a decision to be more transparent. >> why, though? why is that? it's a private company. why the decision to be -- >> mostly we want to inform our co-workers of what's going on.
we're interested, people are asking. it's important to build relationship that is way. >> do you get resistance -- walmart can get heavy resistance when it wants to set up somewhere. do you get the same? is it about winning over local public opinion? >> i don't know about walmart. but i know for us, in most places that we go, we establish a really good relationship with the community. most cities are happy to have us there. and we can -- we expect that to continue. we're talking in miami right now, kansas city. and we have a very good relationship with the city there is. >> i would imagine given that you take up a bit of a footprint and the buildings tend to be noticeable, for lack of a better word, the blue paint. never any pushback on that? >> well, they sometimes wonder, do you have to be so blue and yellow? should the navigate tower be 100 feet tall? but those are the details. in most cases, an average store is going to add 450 jobs to a local economy.
it's good for the city and it's good for us. >> interesting stuff. we'll keep an eye on how the lightbulb sales track. thanks for coming in. mike ward. facebook shares ending september on a strong note, up more than 20%. tacking on gains in today's session. what does sheryl sandberg think about the ipo? we'll hear from her in just a matter of moments. plus, guess which ceo mark zuckerberg is tagging in his facebook photos? answer straight ahead. tdd#: 1-800-345-2550 at schwab, we're committed to offering you tdd#: 1-800-345-2550 low-cost investment options-- tdd#: 1-800-345-2550 like our exchange traded funds, or etfs tdd#: 1-800-345-2550 which now have the lowest tdd#: 1-800-345-2550 operating expenses tdd#: 1-800-345-2550 in their respective tdd#: 1-800-345-2550 lipper categories. tdd#: 1-800-345-2550 lower than spdr tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 and even lower than vanguard. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 that means with schwab, tdd#: 1-800-345-2550 your portfolio has tdd#: 1-800-345-2550 a better chance to grow. tdd#: 1-800-345-2550 and you can trade all our etfs online, tdd#: 1-800-345-2550 commission-free, from your schwab account. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 so let's talk about saving money,
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don't forget to tweet us on this monday. as you might know, europe defeated the u.s. to retain the ryder cup. martin kaymer of germany holing the decisive put on the 18th green on sunday. amazing six-foot par putt. complete the following sentence, europe may take our ryder cup, but they'll never take our, blank. we have a new twitter handle. did you watch over the weekend, guys? it looked like it was going one day and did a 180. >> i was watching saturday night
and looked like it was over. >> partisan crowd, though, very partisan crowd, unusually. >> in illinois, yeah, i would think they're one-sided, sure. facebook ceo mark zuckerberg in russia to discuss boosting innovation in the region with prime minister dmitry medvedev. and zuckerberg even war a suit and a tie? he just posted this picture to his facebook page. up next, in connection with that, sheryl sandberg will join us in her very first interview since the facebook ipo debacle. >> how the social network is approaching the 1 billion users milestone. >> you're close to 1 billion users. you're fast on the road to 1 billion users. what does that milestone mean for facebook? >> i think the 1 billion milestone when we hit it is a big deal. we're the large est and most
engaged community of people anywhere online. when facebook started, people thought it was absurd or unbelievable that they would ever put their real identity onli online. we have over 950 million real people connected to real friends sharing real things in their lives. and the fact that we could get to this scale and continue to grow is a really exciting milestone for the company. a crm and the world's only tridion safety cell which can withstand over three and a half tons. small in size. big on safety. for the spender who needs a little help saving. for adding "& sons." for the dreamer, planning an early escape. for the mother of the bride. for whoever you are, for whatever you're trying to achieve, pnc has technology, guidance, and over 150 years of experience
some of the stories we're squawking about, ism for september, up almost two points to 51.5, the number above 50 indicating manufacturing sector growth for the first time since may. 29 of 30 dow components in the green. and ceradyne agreeing to be acquired by 3m for $35 a share. facebook's coo sheryl sandberg ahead of advertising week is finally talking. she spoke exclusively to our own julia boorstin. julia joins us here live at post 9 with more on this. >> when i sat down with sheryl to discuss facebook's ad strategy, i had to ask the question on everyone's mind. what happened with the ipo and facebook's stock price, which is
now off by more than 42% since it started trading in may. for the first time, sandberg weighed in on the ipo, the stock and what it means for the business. >> as mark said, we're obviously disappointed and really surprised by what happened in the ipo. this was certainly not how we planned it. the good news for us is that we're really focused product-driven company. so we're taking that energy and really focusing on proving to the world that we can continue to grow our business, continue to grow our users and their engagement and build a great company, not just for a quarter, but hopefully for decades and decades. >> but your ipo has been described as an utter debacle. whose fault was it? >> i'm going to let others go ahead and answer those questions and i know you have many people who are willing to come on and talk about that. the focus for us is really on the things we can control and the future. we're looking forward to the business we're building, to providing great experience for users, to the mobile transition
and continuing to lead for mobile users. and importantly, to really increasing our focus on monetization. >> what's happened since the ipo cannot be good for employee morale. what do you tell new recruits? >> obviously employee are discouraged that the stock price has gone down. but they get to come to build great products for users. most of our employees are mission-focused. they want to come and build products. if you want to build social products, there's nowhere that's better to work than facebook and no bigger opportunity out there. >> but you must be disappointed in the stock price? >> we've said ate bunch of times, as mark said, we're both disappointed and surprised in the stock price. but we really have to focus moving forward on how we build a business. >> a lot of people have come on cnbc's air saying that $15 is a fair price for facebook stock. how do you respond to that?
>> not going to predict stock price movements. but what i do believe is that we are a more valuable company than we were four months ago the day we went public f. you look at what we've done since we went public, we've invested more in monetization and we're showing great products with great returns for advertisers. >> i pushed sandberg about what exactly went wrong with ipo and who is to blame. but she couldn't comment because of pending litigation. coming up in the next hour of "squawk on the street," we'll bring you more from my exclusive interview with sandberg, including how she's battling madison avenue skepticism about social ads and some of her new data on how well facebook ads work. >> fascinating interview. let's bring in mark hulbert. mark, we should point out that it was a mai 25th column about fair valuation. you said facebook should be trading at $13.80.
since then, has anything changed? >> i'm afraid not. if you look at the numbers, basically it was just a back of the envelope calculation that i used to come up with that $13.80 target. it was simply saying, if facebook revenues can grow at an average rate for the next five years and you give them google's valuation that google currently has, price-to-sales ratio, then you come up with $13.80. another way of putting that is if facebook's going to have to grow at more than the average pace for the next five years, simply to get to a $13.80 target, that is a really big hurdle to jump over because facebook is already such a large company. to come up with that average growth rate i was choosing, i was looking at all ipos between 1995 and 2005 that included the go-go years of the internet boom. looked like a lot of the companies there, of course, were
very small companies. it's much easier to produce a high-percentage growth rate when you are a small company. when it's a big company, to grow that fast is a huge hurdle to jump over. and even if they jump over it, you still only get to $13.80. so i wouldn't want to be in their shoes. they have a huge hurdle to jump over to come up with a higher stock price. >> sheryl sandberg talked about some of the new areas they want to move into, e-commerce and surge. do you think these additional revenue streams could help generate the kind of growth that they need, beyond the growth that you were predicting? >> i'm not an expert in that. so far, the indications are that it's going to be really tough for them to have it grow at that rate. if all of the things fall their way, they might be able to keep up with the average of these much smaller, much more dynamic companies from the internet era
that were able to grow at the fast pace that's the average that i was using to calculate that $13.80 target. so they need all of that just to get to $13.80. that's the thing i want to emphasize. they have to have a lot of things go their way in order just to come up with justifying a price of $13.80. >> julie, from your perspective, in terms of what sandberg told you, did she acknowledge that perhaps the company was a little bit too mum on specific strategy until months, months, months after the ipo when investor sentiment had already turned so bearish? >> i think that's why she wanted to talk to me now. she gave me new data on how well facebook's ads work. of the 60 ads studies they've done in the past year, 70% of them had really had good results. of 70% of all the studies, we're talking about three times or five times roi.
i think she wants to get out there and start talking about the return on investment of advertisers when they really invest in facebook ads. i think she was also interested in talking about these new businesses because this is something facebook has been very quiet about. facebook only has two reverence streams, its ads and its payments. >> mark, i'm concerned when julia specifically asked you about these new businesses, you brushed them aside and say, i'm no expert. isn't the fact that these -- you only have to have a market that begins to run with the idea that these new businesses are potentially very powerful in the way that they monetize 1 billion users very shortly, and that stock could rerate very rapidly. and your calculation becomes redundant, doesn't it? >> well, think back, the same argument was being made in the late '90s when you had these companies that went public in the internet go-go years who said, well, think of the things that we might be able to do if things go our way. >> yes, but these -- facebook
will have 1 billion users and it will be monetizing them to an extent. that's very different from that period. >> that's right. i think we're already giving them enormous amount of credit to assume that they can grow at the average rate of those much smaller companies which are able to produce much higher revenue percentage growth rates over their first five years of life. remember, also that facebook came to market much later in its maturity cycle, which also makes it much more difficult to grow at the same percentage rate than some of those other company that is went public earlier in their life cycle. >> how shortly after the ipo was your $13.80 call? >> a week later. >> it's been 4 1/2 months. since then, have you had reason to doubt your call or has every passing data point reaffirm that had $13.80 in your own mind?
>> if you look at the first earnings report, which is really the only new pieces of -- the new substantial piece of data that came out, it was very consistent with that. again, i need to stress, these are back of the envelope calculations. people on wall street are doing much more sophisticated analyses. i don't claim this is the be-all, end-all. it points out what facebook needs to do in order to do better than $13.80. and the two things that sooemdz seems -- they have to have their revenue growth faster than the ipo growth between 1998 and 2005. are big hurdles. maybe they can. but don't be upset with the math. the math is unassailable. this is what facebook has to do
in order to produce a higher stock price. >> mark, good to speak with you. julia, we look forward to listening to the rest of your interview. you'll be back next hour. >> that's right. let's get another market flash. on the back of a big rally, a big bank name. courtney's back at headquarters. >> financials are leading the way as far as sectors are concerned. take a look at shares of goldman sachs, rallying nice here on two things. first of all, barron's putting out a note over the weekend believing the stock prices as much as 25% within a year. also getting a lift on the ism numbers. back to you. meantime, on the search for yield in this low-rate environment, jpmorgan's naming one sector that just might give you the fix you're looking for. let's -- let's start over from the beginning. we were just driving along, comin' back from the lake, and all of a sudden, ka-plam. it blindsided us. what is it? our college savings account. how do you think it happened? not sure. i think something we bought a while ago turned out to be something else, annnnnd, i remember a lot of other stuff in there
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on the search for yield in this low-rate environment, jpmorgan says look no further than pharma. several drugmakers are expected to deploy more cash towards dividends. seema mody joins us now. >> pharma is already one of the highest-yielding sector for the largest pharmaceutical firms on average, offering a dividend yield that is 2% higher than stocks in the s&p 500. when looking at the wisdom tree, large cap pharma represents the second biggest contributor of any industry, roughly 10%. and the pharma dividend stream could rise further thanks to several rounds of cost cutting, cash balances across the pharma sector are increasing. jpmorgan says, we could see more cash being returned to shareholders via dividend. which company is most likely to make a boost to their dividend? pfizer and merck are expected.
pfizer has increased its dividend three times in the past five years. in addition to this, jpmorgan also expects share buyback activity to increase. in fact, in 2011, share repurchase activity across the pharma sector reached its highest level in four years, representing 2% to 3% of the pharma sector's market cap. bottom line, cost cutting, stronger pipelines in place could mean more cash for drug firms and potentially more cash returned to shareholders. >> thank you so much, seema mody. before we get to rick santelli who's at the cme working on the next hour of "squawk on the street," we want to send our congratulations to marissa mayer. her husband just posted this tweet. baby boy bogue born last night. mom and baby are doing great. we couldn't be more excited. now over to rick santelli. what are you working on?
>> it's switcharoo monday. at the top of the hour, we'll have rnc chairman reince priebus. why? what a day to have him. mitt romney wrote an op ed. we'll talk about that and the op ed below it that talks about the next battleground, the state labor wars. and then the "santelli exchange," bottom of the hour. what we're going to talk about, to be or not to be. is inflation gestation or inflation on vacation? we'll talk about that and all the issues that involve your money. top and bottom of the hour. mentm and the world's only tridion safety cell which can withstand over three and a half tons. small in size. big on safety.
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welcome back to "squawk on the street." i'm courtney reagan. let's take a look at shares of lane christensen. it's attractive with limited downside because the business itself protects this floor. as you can see, shares are up more than 5%. scott wapner will be live at the conference for the "fast money halftime report." markets rapidly adding to gains here after the ism came out better than expected. bob pisani is live on set to walk us through what is moving and how big in context today's move is. >> it is big.
we're back to where we were last monday. remember all the concerns prior to spain rioting and maybe this thing wasn't going to go smoothly? wouldn't go smoothly? we have sort of come back. remember the markets were up even though asia had very important numbers. our numbers were up the minute that european markets opened. the euro was strong and s&p futures up notably over night and they were already up 6 or 7 handles and take a look at the s&p 500. we open to the up i'd and then clocked the ism numbers came out for december and let me show you the quote that got things going. the ism has useful comments that came out and said the panel reflects a mix of optimism, optimism over new orders beginning to pick up and consider concerns. it was the any orders to moved things to the positive side. here is the risk on sectors financial, energy, industrials, mixed tells to the upside and a
bunch of stocks from the dow jones at new highs. ibm and travelers, historic highs and multi-year for general electric, home depot also a new high. you will see the drop last tuesday. we were at 1457 or so and back to the cloe on monday and dropped down to 1441 and here we are, guys, not far, 2 points maybe from the closing numbers on monday. >> thank you for the wrap up. joining us more for is hank smith. good to have you with us. does the number today outweigh what he with saw last week in terms of durables and pmi which were disappointing. >> i think obviously it is a reaction to a positive surprise, and i think we combined last week's action and today's announcement and it is a mixed bag and we know we're growing at a below average rate and i am reminded of two wall street
adaada adamag adamages, the trend is your friend and don't fight the fed and i think that will take us right into the new year. >> basically you're saying you expect us to sort of list into the year's end? >> look, the trading activity in the second half of this year is very consistent with historical precedent in election presidential election years 2008 notwithstanding, and so this really isn't surprising action. i also think it is reflective of the markets belief that the fiscal cliff will be averted and a lame duck congress will not let us go into the full fiscal cliff. >> as we go into october they call it the jinx month for a reason. this has to at some point be digestion of the news we have gotten and even if you are a believer in the central bank how much of a correction would you expect and what level would you question your year end call?
>> beilook, the last two weeks a very modest pull back and maybe we saw the extent of that so i don't think we're going to get a correction this year. we might get a pullback, and i think investors will take advantage of those pullbacks. remember, we still have extraordinary sour sentiment, most equity investors don't believe the market is doing as well as it has been this year and money continues to come out of equity, mutual funds into bond funds. we would say this sentiment is more reflective of a market low, not a market top. >> hank, which sectors do you have the most conviction of? >> we continue to have a balanced between your traditional defensive sectors, consumer staples, health care, and you can't ignore the cheaper
valuations in industrials and basic materials, so kind of a bar bell strategy between defense and offense, offense being the more cyclical sectors and then as an overriding theme as well focus on the dividend paying stock, this is not an overcrowded trade and you will know it is overcrowded when the dividend yield advantage in equities does not exist anymore. it still exists in every single sector. >> hank, good to talk to you. hank smith of haverford investments. >> investment psychology time. what does this ink blot look like to you? for some it is the market. >> i guess. >> starting to look a lot like 2007, 2008. that's not a good thing. could we be in more a mind-bending reversal. >> and favor on tech's new world order. back in two.
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and be able to focus on other things, like each other, which isn't rocket science. it's just common sense. from td ameritrade. welcome back. for the first time since it went public google he is amarket value now eclipses that of microsoft. when you take a look at the ten years for the two stocks you will see much of it made up by the fact that, yeah, google has
gone up and microsoft has not. or not much beyond that 27.9% that we're talking about. google's move recently of course has been the reason the why it is around 248, 249 and a little weak today on down grade but interesting to note the fortunes of both of thoses in terms of google's appreciation and what it is in a larger market value company. >>s interesting to think when facebook was going public people would think facebook google, google being the old guard of tech and facebook being the new guard and wonder field goal that would also happen wz very seen with google and microsoft and so far we have not. >> seems that google won the mobile war. >> in the meantime might want to take a look at gold today, the highest level since november, not just related to what the ecb and fed have done in recent weeks and the comments by charlie evans whom we all know
is a noted dove and maybe the most dovish of the members and again today we see "squawk box" talking about how they wish it would go through the end of 2013 and the fed has additional tools they could use and we're off the highs but 1779 closing in fast on 1800. in the meantime what's coming up. >> tonight we'll talk about microsoft. it will be a make or break quarter for the quarter for microsoft. we'll also have the vice chairman of ymca michael burnz, what is coming up in terms of the pipelines of movies and give us a preview of the new season of mad men and the value investment congress going on in new york city. we'll take a look at the track record and the impact on the stocks. >> what is the next big lions gate move? >> the second hunger games is starting. >> catching fire. >> catching fire started shooting in september. >> you have to catch up. >> yes.
i will wait until my son and old enough and maybe we'll read them together. >> there you go. >> thanks, guys. we'll seal you tonight. here is what you missed earlier on this morning. >> welcome to hour three of "squawk on the street." here is what's happening so far. >> do you think social media is a bubble? >> it is not a bubble. you can't have a billion users in something called a bubble. >> you need to monetize it. >> the big issue is to monetize it. >> we're looking for substantial improvement in labor market conditions. that's the criteria for how long we're going to continue with very accommodated policies and that's a step in the right direction. >> there are battlegrounds everywhere. there are people who take the same data and they buy the stocks because of the central bank, not because of the companies themselves and i know that purists think this is not the way to go. purists haven't made a lot of
money. this must have been what it was like to be a real entertainer at the time. >> what are you doing? >> right. >> come on. that's not a painting and now it is going for $150 million. >> we think it is good to share who we are and what's happening and i think for the co-workers, they need to know and for everyone as well, so, yes, there has been a decision lately that we want to be more transparent and we are. >> what i do believe is that we are a more valuable company than we were four months ago the day we went public. >> good monday morning. it is a good monday morning we're. market posting strong gains today and take a look at where we are on the dow, awfully close to session highs this morning, same for the s&p and up 14 and we should point out the ism is stronger than expected. the dow has not had an october
loss and the s&p has not had a loss in the fourth quarter and only three since the year 2000. or we will and hp two of the biggest gainers and oracle getting a boost and hp up sharply ahead of wednesday's meeting and molson coors, the biggest loser down sharply after announcing it is combining the european businesses and getting a dunn grade at morgan stanley. we'll tell you how to play the rally from every angle. the candidates are gearing up for the first presidential debate on wednesday and the chairman will join us live to give us a preview of how governor romney is preparing. we have the q4 playbook with a man that manages nearly $400 billion and cheryl sandberg second in command of facebook speaking out about the ipo and the future of the company and more of our exclusive interview with her and more in the next
hour. we'll start with the markets. it is the first trading day of the fourth quarter after rising 6% in q3 and our markets poised for more gains. our cash is director of floor operations with ubs and joins us this morning. good morning. nice way to kick this quarter off. >> nice way, yes. >> hard to tell what it is attributed, and evans comments today clearly dovish and ism better than expected. what's at work here? >> we started out with a little booster shot out of europe. asia was not as strong as some people had hoped. then europe had had some data that looked on the face of it to be perhaps even mediocre, but it was interpreted to be not as bad as people had worried about and not indicative of europe's slipping further into a resession so that i understand could of boosted things, and we got a boost out of the euro and the dollar went the other way and then we got to open here and the ism was big boost because
people were expecting a numbbel0 and assumed that would tell us we were borderline double dipped and when that didn't happen the shorts got panicky and taking us on a nice ride. >> it is weird to square it with durables and cmi told us in recent weeks. any idea whys the disparity, and if that is going to be confirmed or not confirmed in the weeks to come? >> that would be the $64 million question. you do have to take it with a grain of salt. some of it is survey based and depends how not unlike the political polls how the sampling is done and where it comes up. so not a lot of big revisions usually in ism, but you do get a kind of second look at how it came together. >> right. technically at these levels, 1455, in what motion are we going and upward motion or -- >> it would be very important and very helpful for the bulls
if they can stay above 1450. if we can manage to close above 1450, you will get a lot of people saying the recent pullback was simply that, a correction that had to happen and now it is out of the way and we may be ready to go again. should they pull back below 1450, that would lead the question somewhat open again. >> we mentioned at the top some of the few instances relatively speaking since 2000 when the s&p had a lower fourth quarter. what do you make of seasonality about the period? >> it is a little bit dangerous because first of all sell in may and go away was not very productive this year. you're getting into the area of the halloween sequence and a variety of other things, but in an election year the fourth quarter can be hit strangely, particularly if there is anything near an election surprise, so you are going to get a little weariness and i will also be watching for another change in leadership and that's in china.
they delayed their convention, very unusual, and there may be a lot going on beneath the surface. we'll have to keep an eye on it. >> i think november 8th. >> november 8th is correct. >> and talk about an outlier year there in terms of politics, they have had a lot to juggle. >> and some people think the table pounding about the islands between china and japan is kind of a coverup with trouble they're having domestically. we'll see. >> art, thanks so much. we'll talk later. >> gary kominski is back at headquarters talking about alternative opinions on dividend stocks. gary. >> good morning, carl. welcome to the fourth quarter. on friday i suggest the that it wasn't going to be the central banks in the fourth quarter. well, i guess so he had i am wrong. central banks continue to dominate. overall global equity moves. we will begin to talk about the fiscal issues as it relates to the equity market. perennial bull, built a great ground, jeremy siegel, was on "squawk box" earlier today and
asked about the fiscal cliff and asked about what may change. this is what he had to say as it relates to equity markets. let's listen. >> after the election would i like to see is a six to nine-month extension so that the next congress can work on it. they're not going to do simpson-bowles between november 6th and december 31st. there is no way anything like that can be accomplished. all they can do is say, all right, let's give this some time and again postpone, and i think that could mean 500 to even 1,000 points on the dow just removing that uncertainty. >> that's just -- this guy will always find a way with to tag in there i think the dow will go up 1,000 points, 10,000 points, but he does point out the idea about what will happen and he did specifically reference dividend paying stocks. we know how many people have been forced into the high-paying dividend stocks out of munis and corporate bonds and incidentally i happened to be reading something by another professor.
he happened to speak specifically about what he thinks giving his modeling the change in stock price from the dividend cliff. when accidetaxes go up on divid and individual investors paying a higher tax rate on those dividends. take a look at the be ins, carl. he is essentially saying the yield is at the bottom. let's rg at thattet 4% yield stocks. he sees an 18% decline in the price of those stocks given the total return that investors will expect as a result of higher taxes and then after tax returns being low. what he basically says, he computes the percentage change of stock prices that you can expect in stocks with the dividend yields and the bottom line he says i may be overly pessimistic t scares me. i am planning for the eventual change january 1, 2013, and as a result i continue to prune his portfolio he says and shifting money away from the large
dividend paying stocks and to the non-dividend paying stocks total return. the point is very simple. everybody is one direction on this. chasing yield in the high dividend paying stocks, today it doesn't matter what the tax changes will be. you hear it all the time on cnbc. i was reading this. this makes a point that, yes, there are a lot of non-tax paying investors who buy these dividend paying stocks and there is a lot of actual investors doing it as well. be aware that this will have an impact and i do think it will start to factor in the fourth quarter here even though the central banks are dominating today. >> i was going to say a lot of strategists even today with david on the set saying it is a huge factor for the year end 2013 target and if they manage to find a way around this cliff, 1600 is a possibility. without it, that's a much more difficult hurdle. >> yep. >> thanks. >> we are just two days away from the first presidential debate and of course the stakes there could not be higher for both candidates. special guests joining us for
the santelli exchange and rick santelli with the chairman of the rnc. take it away. >> thank you very much. befo we're going to be talking about the op-ed written by mitt romney and a new course for the middle east and we have seen a lot of issues going on in foreign policy not the least of which is what happens september 11th, so depending on demographics if you watch the woman's talk show you had a certain glimpse of what happened and if you watch the sunday programs, you had a completely different glimpse, and of course if you listen to press conferences, you had a third iteration of what potentially happened. with the previous welcome can you tell me that foreign policy shoved its way to the shop of the list of the platform for the election and tell me the insights as to mitt romney in the pc road today in the journal. >> well, first of all, i think it is going to be a big issue in the campaign. i still think this week is going to be dominated by the economy, but you're seeing foreign policy
and national security percolate up the ladder as far as what issues are going to matter in november, and here is why. obviously we can talk about the economy and what a mess it has been and that barack obama hasn't fulfilled his promises. we put that aside. then you look overseas and the atlantic toeocean and the promi obama made in 2007 and 2008 and how he was going to bring a unique perspective into the middle east and northern africa and it hasn't happened. as far as the op-ed is concerned i think it goes deeper, and i think it is disturbing and i think we need to figure out in this country why are foreign policy as it relates to israel, the middle east, and northern africa is such a disaster, so disorganized and the state department doesn't know what the embassies are saying. the white house doesn't know what the state department is saying, and you have a president out there with unfortunately just a horrific scene in libya and the fact they're sending out statements and you have a
president saying this is a bump in the road. he has a miserable prord when it comes to throwing israel under the bus and our presence in the northeast and calling it a bump in the road. i think you can slice and dice this president on almost every issue and everything he has touched has turned out badly, and so i think it is time that this house of cards comes down and hope. ly what we're going to see on wednesday night at this debate is a real contrast in what the facts are and what the truth is and the american people need to hear it. >> let's switch gears. there was an op-ed below mitt romney's and the next battleground in the state labor wars. i will summarize. michigan will have a constitutional state amendment on their ballot in november. to make it jordan sweet, it will really empower unions, so potentially what happened in indiana, right to work state won't happen. my question is, boy, michigan, how well did the unions and the
auto industry turn out? think gm bailout. this is shocking to me because the states that seem to be going the other way show so much more economic depth in the recovery. thoughts? >> well, first of all, you're right. the key on this question, though, to look a little bit deeper is that it is really about public employee unions because the private unions are protected by federal law, but what this question is on the ballot is basically saying that the rights of collective bargaining apply to all public employees, so let's take it one step further. what it really means is when it comes to michigan and the state government's ability to say, look, foodservice in the schools will be handled by private companies, bus transportation handled by private companies, what you're looking at is 2 to $3 billion in additional costs onto the state government in michigan calling collective
bargaining a state protected right for state union employees, and so number one, this is a huge issue for the state of michigan. it is big for the governor. i think that if you look at what's happened in wisconsin, you're going to see hopefully the same level of success over in michigan. people understand that while we're -- >> we're a little short on time. i hate to cut you off here. there is going to be interesting questions at this week's debate and i would like to have you back next week to talk about it. thanks. >> i would love to. >> don't forget to watch the coverage of the first presidential debate wednesday 8 p.m. eastern on cnbc. over to courtney i believe with a market flash. >> i do. thanks a lot. take a look at sharsz of visa and mastercard. j.p. morgan thinks the resolution of the litigation over the swipe fees could increase capital returns to
shareholders and they think both visa and mastercard could repurchase around 1.5 billion annually in 2013 and 2014. also possibly increasing dividends or seeing both of those trade higher. carl. >> thanks so much. tracking the rally today, dow up 158. talk more about how to play it after a break and later more from facebook's cheryl sandberg on the state of the social network. >> i think there is a lot of interest and speculation out there. oh, my god, has everyone blown up and the answer is really no. if you come to facebook and you have come to facebook for work as you did four months ago, i think we're a stronger company today than we were then.
check on the nasdaq amid the market action today. >> hey, the nasdaq not up as much as the rest of the other indices and right now we have and the ceramics for defense and solar up 43% and in the meantime apple was strong. oracle is strong as it launches oracle word and integrating the mapping technology and if you took apple, oracle and google, and microsoft the drag today would more or less come up with the market cap we would see nor apple at the all-time high and gaggle and microsoft today have comparable market caps as google
is higher and microsoft of course dragging a bit on the down grade from rbc that does see some strength in the windows upgrades for consumers and they think that is already built into the stock. biotechs also very strong. take a look. gilead at a new high as it gets an upgrade up 65% year-to-date over at bernstein. they still think is can move more and list the price targets at $80. thank you very much. let's go over to sharon as well at the nymex and a lot of people watching gold today as well. >> a lot of people watching the 2012 milestones, a new one in natural gas as well today. looking at futures that hit the highest level since of novembers lar year and did get private forecasters coming out and talking about the temperatures being cooler over the month of october and that originally forecast and that is something that has extended the rally and we had already seen over last week and we have seen futures up
about 50 cents just in the past week, about a 20% gain and granted we're in a new front month contract and that helps a little bit and we definitely are seeing strong momentum here and some fund buying in the natural gas market and not so much though in oil futures. a little mixed picture here and under pressure somewhat gains being capped by the fact we're looking at the weak economic data and in terms of gold, as you mentioned, yes, we did hit a new high of the year in the gold contract here and in the front month contract and 1794 announced was the high and this game just as the fed official charlie evans you heard on cnbc's "squawk box" talking about the fact that quantitative easing will last through the end of 2013. that fueled the momentum. we looking at big gains in the gold market. some of that being paired but still up on the day. back to you. sharon, thanks a lot.
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welcome back to "squawk on the street." want to get you headlines out of the value investing congress happening in new york city. there are comments about netflix saying that netflix 2012 looks like amazon 2001 and it is a better business than amazon. you can see shares moving higher almost 2.5% and scott walker is at the conference and will speak to him live on the fast money report. >> we'll see a lot of headlines over the next couple days. thanks. over to the cme group this morning, a delayed santelli exchange because of the rnc chairman at the top of the show and have at it. >> we always like to keep things shaking up on squawk on the street third hour. to be or not to be, of course i
am talking about inflation. what is interesting is as i look at gold and definitely reversed off the highs and today it hit a high of 1794 and 40 cents. that's the highest for 2012 and indeed goes all the way back to november last year when we traded over 1800. the issue is to be or not to be? is it inflation vacation or inflation gestation? we have had a lot of critics in both directions, but the way i see it, let's consider a couple of things. printing money, is it really the answer? we had larry lindsay on last week and many the trading floor sound some of his words veriy enlighteni enlightening. if we just print a million dollars for every man, woman and child and handed it to them, wouldn't that fix everything? in order to look at sprinting i like taking everything to the
extreme. if it was that easy there would be no need for economist, no need for even cnbc but it isn't that easy. you look at the wima republic and the height of inflation and it didn't appear over night. ats lot like soybeans. you plant them. you wait. conditions take time. you need sun. you need water. ultimate mayly things start to grow. are we in that phase or not? we had an view with an accommodative fed president and what i found interesting is in the end he couldn't really give us metrics to measure how quantitative easing is truly working so he brought in confidence. confidence is important. it is feel good. some of us like hard numbers. back to you. >> right about that. people make fun of the confidence numbers all the time. markets are pushing higher over
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forget the manager's index again is indicating a 14 month of contraction. the eurozone is going into recession and it has a very, very strong bid under it. showing you the map, show you the green and the degree to which we bounce today. the corporate data and the macroeconomic data really aren't making any difference. we were up before wall street opened and during the course it has propelled europe and still higher gains and 90% of the stock 600, the 600 blue chip around europe are in positive territory and it is a real mixture and cyclicals have done well and the banks aren't necessarily leading and the spanish details of the bank bailout came after the close on friday. no real lasting surprises within that and you have the prospect of moody's could down grade to junk status at any point and still the market is rallying
through that as if despite the corporate data. this is a spanish bank that will have a share issue to raise 2.5 billion euros toward the 3 billion euro hole identified on friday and want to go to the taxpayer or the rest of europe vee at grid, so they're cancelling the dividend as well. as far as the french banks are concerned, a very strong performance so far today and looks like it has a preferred partner to sell its greek bank to in greece and it is alpha bank and despite the fact they say they may have to inject another 550 million euros into that particular unit because they're selling it for just one euro potentially still the feeling is the transaction could actually leave it here and that's why you get that one bouncing as well. the big deal, the sdeel in europe of the year could still go ahead and glencoe starter and
basically giving the pace ever night and importantly slating off the issue where by the top 70 managers get a course of a billion dollars and that was a non-starter for a lot of people and now that they separate the two issues it could be there is $33 billion deal goes through and one upgrade i thought was interesting and listed other automotives, it is ubs unleash, the second largest tire maker suggesting, karl, that is a buyerless stock and the rest of europe has done well on the first day. >> and auto sales tomorrow. thank you very much, simon. to want get to mary thompson in the breaking news desk regarding american express. >> that's right, carl. the consumer financial protection bureau ordering three american express subsidiaries to re tunfund $85 million to 250,0 card members, the reason being the regulators saying that american express violated consumer laws at every stage of
the marketing process. in addition, the company will pay $27.5 million to a number of federal agencies including the fdic and the occ. >> after discover and now this. the protection board has been busy. thank you very much. time for a capital markets op-ed. gary, you have been critical about the fed and qe, yes? >> have i been critical? >> i think that's fair to say. >> i think i have been realistic. before we get to that i want to say reading the press release out of delta air lines, delta names a new member of the board of directors, george matson, formerly head of industrials at global sacs. congratulations. great addition for the board. talking about the quantitative easing, rick has been highly critical about quantitative easing and i have tries to connect the dots between what the market expectations are with the various programs and some of the history going back and obviously we looked at japan last week. i want to bring up a picture, a
chart sent out over the weekend. take a look at this chart t shows you that 51% of the population, over 100 million households are getting some form of government assistance. i don't like to get into the politics of this. as you know, i will leave this to others. i want to make a point. if you go back to q12009 you see what the numbers are. this is proof to me and proof to others that the quantitative easing program, the money being printed under athe world is not helping address the labor problems. in fact, if you listen to charles evans and some of that earlier this morning, the fed continues to believe these various programs will have an impact on the labor market, an impact on the economy and obviously have an impact on the aefr all financial markets. i want to say look at the picture. you see what's happened over the last three and a half years. we have had various programs put into place and i am not going to
decide whether or not i think that chart will keep going up. i will leave that to others. the point here is simple. if you needed evidence that quantitative easing hasn't helped the problem that is it is so-called trying to address, i think the picture says a trillion words. >> it is called the op-ed. you can have the opinion. you can tell us what you think. >> you know, i don't want to really ever call getting into the politics of it an the reason is when you're managing money, you can have a political belief in one direction. i can decide who i want to vote for in november. if i am managing money and i am a fiduciary, that cannot become the impact on my decisions on how i am going to manage money. so i try to take with this roll call the idea that i am trying to bring to the viewers the things that people are allocating capital and making investment decisions are thinking about. that's the reason i try to stay away from it. >> called discipline. we know you got it.
thank you very much. bob is here back at headquarters and the dow continues to hold onto the high. >> a lot of people are stomping their feet and idealogically saying what the fed is doing and wrong and i am not going along and they're getting hurt and under performing. gary made the point he want don't let that, your political or philosophical beliefs influence what you think will do the most to make money for your clients. they may not not same thing. good pint, gary. as for today, remember what was going on with the spanish barng stress test? that's old news to us. the markets were closed afterwards. when we opened this morning at about 3 a.m. in the united states the markets were up and our futures were up and there is the open and the ism number at 10:00 eastern time. you see the nice boost and it was the new orders component and people were surprised. new orders. they had an optimistic note and that brought us to the 1455 and 56 level. this is where we were last mop before the concerns about the spanish riots.
simply put, it is a risk on day again. you have the financials. you have the materials. you have industrials all moving to the upside and the sector stocks and you can see what's going on. that's the important thing here. there is the market movers overall. heavy volume etf. it is just looking at the percentage change. where is the volume going in? put these up. will you see they're all in the commodity space. for example, we'll see the sill rer group moving today, the slb moving, the natural gas stocks. that's what's happening here. we're also seeing ultra long s&p 500s moves as well and the selling much bonds also going on on top of that here. how about dow stocking at new highs? we're seeing general electric, for example, hit a new high, bill is at a historical high. travelers at a hrk high. home depot at a multi-year high. i want to note tomorrow is the
sec is holding an unusual meeting, a round table to discuss market stability. what does that mean? the ornl thing is they're trying to figure out what happened when you had a rogue algorithm going on here. they're going to suggest the possibility of a kill switch coming into space here. i think this is very important to show this. they have proposed what would essentially shut down various parts of the exchange or various individuals who are participating in it if you get this rogue algorithm. i don't have nuf time. maybe we can talk about it later and the other thing is how do you stop this from happening ? we have all of these things going on and didn't prevent the rogue algorithm and now trying to create the kill switch. >> it would be a circuit breaker for computers at large. that's the way to look at it, a kill switch, yes. >> very good way. >> hear pore about that. thanks very much. want to bring from david kelly
this morning weighing in on the market rally and the data we have gotten today. >> good morning to you. >> good morning. >> i want to get your take on certainly the ism and we get these contracting pmis out of japan, china, europe, and then suddenly we come in with a plus 50 number. what's up. >> there could be issues with the number. it was a little stronger than we were looking for but i think the broader picture is the u.s. economy is doing better than the world right now. europe is not dealing with its fiscal problems, not dealing with the economic growth problems and i think there is still a lot of adjustments necessary in china and in asia because of the chinese problems and the united states we are gradually move ago long. we're gradually growing i think building momentum, particularly in housing and orders and i think that should allow the u.s. manufacturing sectors should be doing a bit better than around the world and that inneed is the days. >> do you believe we can hold onto growing plus 50 numbers through year end?
i know barring all the vasslations in the individual data, can we built on this? >> it is a close call in manufacturing. of course we are affected by what's going on around the world in manufacturing. in the broader economy if you look at the housing sector, the consumer sector, various service sectors, yes, i think the u.s. economy can continue to grow steadily and pick up moment unas we get into next year. >> the market is reacting positively and we're at key levels above the 1450 level. does the data change the way you're viewing the markets going into four? >> not really. it has been a very good year so for for anybody willing to take risks. what happened all year long is we have had a battle between what i call tail valuations and tail risks. by tail valuations i mean if you look at just how low long-term yields are and how low carb yields are, there really is no choice to put your money into a risk asset unless you think armageddon is going to occur and the big thing is nothing has been fixed in the global economy
but the european central bank has been very effective at reducing the risk to the european banking system and the so far republican debt market and by reducing those risks thattal louder markets to mover higher. i still feel positive. >> somebody told us last hour if you look at market sentiment, it is more in the view of the low, not close to the highs of the year. >> that's right. in terms of the economy and the markets people are negative. if you look at the fund flows, money has been moving out of stocks and into bonds throughout this year and actually the stronger paste than the last four years. right now investors still aren't believing. if they again to believe more it could help the equity markets. >> ism may be one small step in
that direction. want to get to sue this morning at the breaking news desk as well. >> sad news to report at this hour. former johnson & johnson chief executive james e. burke has died. he was 87. he spent 37 years at johnson & johnson and he is perhaps best remembered for guiding the company very successfully through the tylenol poisoning scandal in the early 1980s. as a result of that fortune magazine named him one of lift's ten greatest ceos, and he was awarded the presidential medal of freedom in the year 2000. he died at the age of 87.
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the vast majority of facebook's revenue comes from advertising as you know. with the company's growth decelerating the big question is do the ads work. julia sat down and joins us here this morning. >> great to be here. madison avenue still wonders about the value of social ads. after all, people go to facebook primarily to connect with friends but not to look for products to buy. sheryl sandberg told me she still struggles to convince advertisers and she didn't reveal new data about how well the new ads work. >> facebook ads are increatably effective, not just helping people remember ads and have brand affinity which is really important in our platform but more importantly ringing the cash register. new platforms take awhile to develop and they take awhile to understand. ours is a new platform and i do think there is still september sichl out there. the good news is with our clients and the people we're working with directly, they're increasingly convinced of the
return we provide. in the last year we have done over 60 studies looking it he impact facebook has had on ringing the cash register either in online purchases or offline. of the 60 studies 70% showed a return on ad spend of three times or better and 49% showed a return on ad spend of five times or better. >> ip it wasn't a financial hit, but generally motors deciding to pull its money out of facebook ads dealt a big blow to your image. are you still struggling about that image issue with madison avenue? >> we're a new platform. new platforms take time and take time for people to alopt and understand. the first thing people have to understand is that we are a different type of advertising opportunities. the right ad on tv is not necessarily the right ad on facebook. the right ad on facebook inviting people to really eng e
engage. gesh ran a promotion inviting parents to take a picture of their children and submit it for an ad campaign what they saw a return on ad spend of almost $4. increasingly as we're working with clients we're able to show that return and this measurement of offline sales is only something we have been doing this year. >> do you have any new ad products you haven't announced yet? >> one of our new products custom audiences, fab.com back using it and enables them to target repeat customers rather than the general public. the conversion rates are up ten times using that product. that's one of the many things we rolled out. we feel very strongly that not only do we have a great opportunity ahead but that we're already executing even more favorably. >> a lot of brands are starting to dip their toe? it is showing them strong
results for the marketers to come back and we'll bring you sandberg's insight into how facebook has changed. >> don't go too far. want to bring in a panel, ter a there cutting the target from 41, a street high to 27 and dennis berman and columnist of the "wall street journal." good morning to you both. >> hi. >> jason, walk us through what you did. you changed the methodology you use to calculate revenue from mobile. why 41 to 27? that's a big move. >> sure. previously the way we and we think most people were trying to calculate revenue we were trying to figure out the penetration in the world of number of people, how often they were interacting, the number of impressions that that created and the price per impression. numerous variables we put together, got a revenue number, and the reality is based on the
information that the company is willing to give out on a quarterly basis and other third party data, it is not a good way to forecast revenue. garbage in, garbage out. we think the best way is to look at time spent on a desktop and mobile and looking at revenue per hour. while i don't disagree with anything cheryl is saying, we probably have plenty of examples of where an advertiser is paying a higher premium for a mobile impression than desktops and we can't see that data. today what we can see is that mobile is monetizing roughly 80% less on a per hour basis than desktop with we were looking for too high of revenue estimate for this year and next year and lowered our estimate. >> what about the other revenue streams? spoke about the potential search and e-commerce and telling premium services to brands.
do you see big revenue opportunities there? >> we are giving them some credit in our model for payments. however, today, outside of the gaming payment credit they have, if there is not really a clear model, so what we did look and we did say, look, take a look at the amount of revenue that aol and yahoo! are generating per user and we're assuming in the future that facebook in generate a premium to that, roughly a 20 to 30% premium depending on the geography. it is still well below what google is doing. we do say worst case there is that fallback and they could turn on a more powerful search fee and get the monetization up. how have, in the near term it does not seem like that is a focus, and i think some of the things they talked about on friday and the gifting initiative, you know, there will be small types of things and i think it is going to take awhile to walk and feel comfortable. >> turn to you.
they have been clamoring for data points. are these surveys carol is pointing out do, they impress you? >> not really. we're not really seeing the actual data. she talks about 4 x dollar ad spend, 5x, and i think people are suitably skeptical of those numbers and not that facebook can't be a profitable place to advertise, but 60 studies seems like over kill. the proof will be in the pudding when the advertisers themselves put more revenue in the facebook platform and we get to mobile and i think the main thing right now and jason probably has this problem is more data on mobile, as much as possible, because if we know overall how much on the secular basis it is moving to mobile, that in effect becomes the business. >> i think the big issue is not just how users are shifting but where advertisers are putting dollars and e-market projects
that mobile ad revenue will grow 80% this year and i think the big question is how much of that growth can facebook get a piece of? >> right. >> go on. >> i think if you look at desk top usage, this is a statistic and in the month of august 12 to 17-year-olds were down about 30% on the desktop computer, 30% year-over-year. okay? now, however, why is that? according to one of the surveys out there, penetration of smartphones among walls of 17-year-olds is now at 45% from 33% a year ago. worry seeing many more smartphones put in younger users. i can see mobile usage increasing among the 18 to 54-year-old, but i can't see what the 12 to 17-year-olds are doing, and i think you also have to acknowledge that the iphone 5 and the 4g and the increased speed will drive even more usage away from the desktop towards mobile and again at the end of the day we think facebook is a
great product. users we think are very engaged with it and the question is how much money is the company going to make? >> i wish i had time. we'll see you next time. appreciate your time as well. thanks for bringing all of this to begin with. markets continue to rally and dow is up 140 and change. bernanke speaks at 12:30 today eastern time at the economic club of indiana at indianapolis and of course the fast money halftime will cover that. back in a moment.
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