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tv   Squawk on the Street  CNBC  October 8, 2012 9:00am-12:00pm EDT

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>> carly, it's been a pleasure having you with us today. >> great to be back. >> we have a lot to talk about with her as the campaign continues. "squawk on the street" begins right now. good monday morning. welcome to "squawk on the street." i'm melissa lee along with carl quintanilla, jim cramer and david faber live from the new york stock exchange. let's see how we're setting up this morning, this after the dow hit its highest levels in nearly five years on friday. taking a little bit of a pullback here. the dow is down 48 points here, according to fair value. nasdaq looks to lose about 15.50. finance ministers are gratherring fgrath eathering for a two-day meeting in luxembou luxembourg.
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our roadmap starts off in china. a lower economic forecast from the world bank? is their economy getting even worse? >> earnings season here begins tomorrow with alcoa, costco, jpmorgan highlighting the week. we'll tell you why alccoa is a tell on how earnings will go. >> more worries for apple investors. reported work stoppages at foxconn. the stock now below the 50-day moving average. >> and huawei is sparking new concerns about cyber security. >> we begin with markets around the globe under pressure on global slowdown worries. 7.7% growth in china down from a previous forecast of 8.2%. the world bank citing weak global demand due to the european crisis and a slow u.s. recovery.
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data from europe showing industrial output in germany fell .5% in august. lots to digest. the world bank note was interesting. what they pointed out was a lot of chinese cities that had these aggressive and ambitious spending, stimulus plans to rebuild the cities might have trouble running into funding for these projects. >> i think a lot of the data that we see today is catch-up. there's just not a lot of good news out there. the brightest spot in the economy is the united states. i think it was controversial last week. we got an unemployment number suddenly that was a grand conspiracy. i didn't see it that way because perhaps i'm not a black helicopter guy. but i do think that other than the united states, there's not a lot of momentum. and china and europe can pull the world down. you see today the world being pulled down. china is not doing much to help its situation. i think the estimates for china
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at 7 are wrong. it should be 5.6. >> change in power coming up in china. typically there is inaction on the part of the government in terms of huge programs where it be stimulus or not. many expect you may not get something substantive still march. there's also a great deal concern about the financial system. you hear it a lot. we all talk about the lack of validity of many of the statistic that is we still rely on. but within the financial system itself, where the debt really is, a number of metrics that are followed and thought to be worthy of following are not looking great. there's continued concerned. >> we're running smack into -- our companies have to tell the truth. but there's a huge cohort of companies in our company that don't need a whole lot of growth. so we're funneling into winners
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and leaving aside cyclicals as losers. >> world bank goes from 8.2 to 7.7. if you think 5 to 6 is the real number, should we be bracing for more -- >> yeah. look, these guys want to do everything incremental but the data's bad. i saw someone recommending gm today on strength of china sales. everyone wants to get ahead of the turn. but now we're smack in front of earnings where we didn't get ahead of the turn. now you have to deal with the reality as opposed to the, wow, next year is going to be great. you have to recharge. i don't think it's disastrous by any means. but it's nothing to write home about. >> carl is right in terms of the world bank forecast and you're right in terms of it not being as bad as it should be in terms of the forecast being ratcheted down. the question is, have companies
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here in the u.s. dependent on china sale, have they factored in that scenario or are they factoring in 8.2 at this point. >> coach has bounced back. taco bell is doing better. but you get ge. ge spoke lovingly about china. ge's a company that wants us not to bash chinese companies because china's good. so the industrial world is divided among companies that actually are doing okay in china and companies like caterpillar. we don't have a lot of companies left that we trade that are impacted. it's cummins, joy global, it's cat. we're not an industrial economy. alcoa is producing 4 million to 5 million tons of aluminum too much in china. and that will hurt alcoa, no matter how well they do. but the universe is made up of
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bristol-myers. >> earnings season set to get under way tomorrow after the bell. there are concerns sarah palin companies could see an overall decline profits for the first time in 11 quarters. "the journal" takes a crack at whether or not alcoa misses or beats -- when they beat, s&p is up 4% on average in the next three years. when they miss, s&p is down .6% over the next three months. that's over the last ten years. >> alcoa has several divisions. this they have aerospace. they raised their guidance last night. they have autos and trucks, very strong. they have a tremendous consumer business. steve jobs chose alcoa. and they made the skin for apple products. they have a phenomenal business, frankly, in just the kind of -- in cans.
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but they make alumina and aluminum. people are too long alumina in the world. construction is not good for them either. >> at the same time, if carl did not have the statistics and i asked you, should we watch alcoa to see where the s&p 500 is going to be in the next three months, what would you say? would you say, yes, it's a bellwether? >> yes. when you look at the broader economy as opposed to to health care and retail, it's autos, it's construction, it's aerospace, there's a million screws in every boeing 787 and a-300 from airbus. 1 million screws made by alcoa. they are a company that is very much involved in aerospace. and they make all the screws for the aircraft in defense. >> do you know how tired your
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wrist would be if you did that a million times? >> they've got the electric one. go to lowe's and save a little money. but alcoa's a good barometer. but the great thing about alcoa is it's really a better company. but they moved into europe, they have gigantic europe and asian exposure. but they make aluminum. so the dogs won't eat it. this is like new and improved dog food that dogs aren't eating it. in the end, the dogs have to eat the stuff, you know? >> hopefully not a million screws. >> you were at petsmart this weekend -- >> i was. even though i don't own a pet, i like to go to petsmart. >> did you go to costco -- i tweeted my cart at costco. it's still a bargain. >> was this before or after the three fumbles by michael vick? >> that was -- >> tough sunday. >> very tough. and watch the giants.
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victor cruz, he's better than expected. i'm raising numbers. >> td to reception ratio. >> i'm taking his outlook up. it's not just currency. >> with a side bet on reuben randall, i assume? >> yes. >> speaking of tough, a tough couple of days for shares of apple, trading below the 50-day moving average. foxconn denying rumors of a work stoppage. there had been two incident of disputes. but foxconn says those incidents did not stop production. at this point, it seems -- when we point out the 50-day moving average, the bottom line is it could be losing short erm-term momentum here. that is a concern for investors. >> stock trade is like death. no doubt about it. >> like death? >> yeah. but at the same time, this is a
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company where at&t and verizon's numbers are being trimmed because they're selling so many iphones. i think about antenna-gate and how people thought the iphone wasn't selling well. i keep hearing things that are wrong with the iphone and yet i keep seeing people downloading the now upgrading system on that you are 4 and buying the 5. and there is very good reason to believe that this is a phone that's selling well or else you would not be trimming verizon and at&t's numbers. you know there's a big expense to selling these. >> the subsidies we talk about all the time for at&t and verizon. exceeding last year what their capital expenditures were. the phone doesn't cost a few hundred bucks. it costs $900 or something like that. >> is apple going -- apple's been an unbelievable performer. suddenly everybody's bashing apple. it's in the technician's hands.
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and it's interesting because there's a lot of stuff that's in the technician's hands. when apple's down, does it pull the whole market down? i remain positive on apple. that doesn't mean i want to own the stock for a trade. but i think as an investment, apple is still very inexpensive. >> then you have "the journal" this morning reporting some of the company's suppliers indicating they have received orders to make more than 10 million ipad minis in the fourth quarter. >> staggering. >> i had the misfortunate of even going near an apple store this weekend. these places are so crowded, it's scary. >> was that before or after costco? >> it was actually after. i was going to check out saks. i got people to send me -- i
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asked my friends to send me photos, pictures of apple in various stores to see how crowded -- the king of prussia mall, you could not -- it was two hours to get good service there. >> two hours? >> two hours. i know that because my box mate at the eagles' game missed the first half and it wasn't just because they're awful. he chose to be in the apple line versus watching the eagles. that's a statement on both cases, long apple and short a team. >> makes me feel better about sitting in the rain for hours watching 10-year-olds play baseball. >> i watched 10-year-olds play soccer and field hockey for years and i miss it. >> the house intelligent committee saying american companies should avoid doing business with china's two leading technology firms because they pose a national security threat. a year-long probe says these
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companies pose a security risk. the committee recommends that government computer systems should not include any components made by these companies and they may have violated some laws. how important is this, dave? >> it's important. chairman rogers was an important component of the piece we did early this month that was on chinese cyber espionage. it focused on huawei. a company discovered the chinese were in their system, nortel. they went out of business. some claim it's because of huawei. chairman rogers is trying to raise the alarm on this. i can only tell you from firsthand experience, so many ceos of fortunate 500 companies who would not come on the program that we did a number of
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months ago because they fear for their business in china have admitted to me face to face that their firewalls had been breached by the chinese, that they'd been informed of that by the fbi. and so by doing this, chairman rogers simply is able to raise a larger awareness of it. as for the huawei allegation, we'll see. we haven't seen the report yet and the specifics. >> the reason why the issue has been treated with -- this has been going on over the course of a decade at least. it's not just in technology. it's in other areas of business where intellectual property in general is being stolen, allegedly by chinese hackers and chinese corporations. think of how many u.s. companies we talk about who want to make inroads into china and they fear retribution, being locked out of a market, that's a bottom-line fear. when i heard that these companies were being invested
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and could face some sort of punishment or blocked from entering the u.s. market, i thought immediately, is cisco going to feel the same impact in china? are other companies going to feel the impact of being able to do business in china? >> chinese cyber espionage has only ratcheted up dramatically over the last decade. ten years ago, it was a minor thought for most. now it is a major issue and should be a board-level issue for many u.s. corporations. to your point, it's nots -- natural resource companies are the ones that they're typically most focused on, for obvious reasons. the chinese are able to try to extract and always trying to extract as much information as they can. they will claim the u.s. is always doing similar things. but we have typically done a great deal of espionage for national security interests because if you could imagine in an open system like ours f you
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come up with secrets, who do i give to it? to apple or dell or hp? the chinese system, you can draw a link. and huawei was founded by somebody who was part of the liberation army. it's always been open for these sorts of questions. and these in telecommunications equipment as well. they will tell you that there's been a great deal of espionage in their business specifically. >> it's incredible. if you go back to the debate, there's that moment where governor romney says, how long are we going to get the chinese pay for what we're doing? the chinese on the one hand are paying for what we're doing because they own a lot of the debt. on the other hand, the navy is asking for billions more to defend against the chinese. where are they going to get that money from the chinese? we're tied in. it's one world. not necessarily a good one. >> that's why these are the kinds of things that have to be put on the able, one would
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expect, and discussed. >> i think at 11:20 a.m., chairman rogers is going to join us today. when we come back, barnes & noble upping the ante in the tablet wars. in an exclusive, ceo bill lynch will tell us how their venture with microsoft will help barnes & noble take on amazon. and making the case for groupon's future. we'll talk with the co-founders. and taking another look at futures, lower opening after weakness in shanghai and europe today. "squawk on the street" is back in a minute. between listening to the numbers... ...and listening to your instinct. duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services. you won't just find us online, you'll also find us in person, with dedicated support teams
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♪ the privately spunded spacex rocket successfully launched from florida's cape canaveral last night currently on its way to the international space station with scientific and other supplies including chocolate vanilla swirl ice cream, krushl. that brings us to this morning's "squawk on the tweet." if you could send one company into space, never to be heard from again, what would it be and why? we'll air your responses throughout the morning. never to be heard from again. >> just disappeared that we don't need?
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i don't want to send hewlett-packard, because there's 320,000 people whom i heard from many this weekend don't do much. but i still think that perhaps it may not be early. it mate be on time for zynga -- it's a close start. you never know who wants to play farmville. it could be a whole new audience. where was superman from? >> his father was jorrell. >> that guy's a gamer. >> i don't know what to say. you're probably right. >> let's find out whether they should be put in orbit. i don't know. maybe they'll help us in this. i don't know where they come in, in terms of their being relevant or not. they probably still favor their own relevance. cramer's going to give you a
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head start on earnings season. he's going full speed. his mad dash is next. and new territory for north america's largest home security company. it's been a little more than a week since adt was spun off from ty tyco. one last look at the futures. a little bit of a pullback here at the open. much more "squawk on the street" straight ahead. i gave birth to my daughter on may 18th,
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five days later, i had a massive heart attack. bayer aspirin was the first thing the emts gave me. now, i'm on a bayer aspirin regimen. [ male announcer ] be sure to talk to your doctor before you begin an aspirin regimen. [ woman ] learn from my story. what a week it's going to be. a vice presidential debate, we
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have earnings, we have data and the mad dash. we're going to start it off with netflix. >> how do you like this? morgan stanley says it's actually gotten cheap, don't worry about the amazon competition. a major shorted stock, carl, with a major firm getting behind it. it has lagged dramatically. 24 one's going to have a couple of day move. >> part of the call here -- this is dewitt, the idea that amazon can't afford to go into a stand-alone video service. it would be too expensive. >> right. although i tend to download more from amazon than i do from netflix. many do. but i think this netflix -- whitney tellson praised it the other day. is it valuable? when it comes to monetizing its subscribers, maybe they're doing better. don't short netflix, too late to short. >> is it too late to short facebook also getting a call? >> greenfield makes this call and he says that the tug of war
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is the user experience is being hurt by that. i will defend facebook and say, i think that they have not compromised the user experience. i just feel like that what's happened is facebook has become such a fiasco ahead of these big lock-up expirations, no one wants to get behind. let's look at it in november when the big tranche comes. until this, hold. i don't want to hold it, sell it, i don't want to buy it. >> over the weekend, huge glowing profile of dick costello over at twitter. is facebook the new myspace, it was asked. is sentiment building against it. >> i have not heard young people turn against it. it's very much of a go-to place. 1 billion people, did not happen to myspace. twitter is very popular and it's being used to sell a lot of product. it does seem to have an edge in terms of companies trying to get customers. >> there's a lot cooking at the
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home of the nook. faber has an exclusive with the ceo of barnes & noble. and what's the deal with groupon? and adt recently spin off from tie owe. all that and the opening bell in just a minute. [ horn honks ]
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here at the big board, adt celebrating its spin-off from tyco international. at the nasdaq, polycom. and it looks like a down day across the board for futures. 1% -- more than 1% declines in the early going in shares of apple. $644.52. in the technicians' hands. >> just to give adt its due, the
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tyco spinoff, continually creating value. one of the things i keep seeing and i keep waiting for deals, but in the interim, the sum of the parts have been -- very few have been bad. >> when we say deal, we should think about acquisitions and break-ups because we have seen if not as many perhaps even more significant companies splitting apart than we have of the size acquisitions that we became so accustomed to a number of years ago. another monday passes. i know it's columbus day. no significant activity. united health doing a deal in brazil. but to your point, the break-ups are a key. and it goes again to the investors' psychology and the ceo psychology that says, i'm going down this route, not taking the big risk. the values here, i have an active investor that may be in
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there or may come. >> you're describing the situation that ubs would like to see out of hewlett-packard saying not only sell the stock now but the company needs to be split up and thinks it's likely an activist will come along and make that happen. >> we'll see. we asked meg about it last week. she clearly believe this is company is much stronger being together. if the stock is weak and we don't see significant upturn, say, a year from now, i would imagine those kinds of calls will become much stronger. >> it's interesting because the difference was pointed out between ibm -- ibm was a very different kind of business in that it provided i.t. solutions
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to mostly enterprise customers. and hewlett-packard is here and it has a consumer base as well as an enterprise. that's why they should break between the enterprise and the more consumer side of the business with pcs and printers. and brian marshall was another analyst that called for this split-up. >> it was reversed, the former ceo -- but meg whitman explained to us -- >> but ibm, s.a.p., accenture, three routinely hitting 52-week high companies, they save companies money when they come in, they're consulting companies. hewlett-packard is a hardware company with a consulting arm. that's not enough.
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are you going to split it into hardware and consulting? lenovo woke up one day at ibm and said, we don't need lenovo. that was a great call. ibm's made so many right moves in the last decade, it's extraordinary. hence why the stock's up. >> disney getting downgraded to what they call a 3 average over at karas. valuation now in line with historical growth trends, price target remains the same, not as much enthusiasm to buy names in the dow with the dow 500 points from an all-time high. >> my charitable trust sold disney last week. why? very big gain, didn't know what was going to take it up again, well-run company, bob iger doing a terrific job. but it tends to snowball.
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there's nothing there. the bank stocks, it's been done without a single upgrade that i can recall. now they're rolling back over, be very interesting, bank of america's been holding in there, no one likes it. i continue to think the banks are very valuable. but the stuff that is run big, vulnerable going into the quarter. >> really? four sectors up 20% for the year that's a lot. >> financials, telecom, di discretionary and tech. they're calling it the broadest-based rally in many eras. >> semiconductor downgrades today, optical downgrades today. i just think that tech is continuing to lose momentum even though seasonally is supposed to be write. i think the financials are very, very inexpensive. the discretionary, i kind of like. anything related to housing.
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but i just think that we're exhausted. the market seems exhausted for now with apple being the primary example of the exhaustion. >> against a backdrop, though, of a fed that's going to keep printing money and q.e. that goes on forever? isn't that a good thing? we'reheading into earnings period? "the journal" highlighted that it's not going to be a good one. but does it matter? >> fedex is back to $86 here. these stocks, they tend to go down on specifics and go up on global. meaning go down on their fundamentals. and people say, hold it, bernanke -- there's so much liquidity. here's a good opportunity. fedex. ryder, the same way. people are saying, what an opportunity for disney. it's going to get there. >> unh is a deal you mentioned. that stock is trading higher. they did say it would be
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accretive up to 13 but investors shouldn't worry. strategic deals and the stock was higher. >> often times the acquirer's stock price goes up. but there's not been, at least at this point, enough evidence to support more deals, more decision making by those who make them about, let's get in and let's get in at least big. it's not as though we're not seeing any m&a. but there's been a dearth of anything above $5 billion. >> we turn on the gas and oil goes down, people talk about iran falling. i'm not on that side. i mean, i love it, obviously. but that's not going to happen. chavez got a nice victory this weekend. >> yeah, six more years. >> very transparent. >> tough election. i hope they let the opponent live. and i just keep seeing oil coming down also off of a glut here. it is supposed to be the commodity that was supposed to
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go up the most after q.e. and it has gone up the least. been terrible. >> crude down 2.5% last week alone, incredible fall. let's get to bob pisani on the floor with what's moving on a monday morning. >> happy monday. i was listening with great interest to your discussion on earnings. the only thing that matters right now on the street, the only thing anybody's talking about is whether this is the tough for earnings and i know about q3 is negative by a few percentage points. try to look at it a little bigger at this point. the question is whether or not we're going to see any kind of modest expansion in 2013 or whether there's going to be dramatically continued contraction. if you're in the expansion camp, you want financials, energy, materials. in the contraction camp, you're generally on the defensive side. the trade everybody's been talking about, jim you alluded to it, it's to play the u.s. market, play autos, housing, consumer staples. i call it the home depot trade.
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it's been a monster. that's the classic trade to play in these circumstances. i have a couple of problems with this. number one, cyclicals have outperformed defensive names in the last couple of months since this has been a very popular notion out there. since june overall, earnings and stocks have been somewhat negatively correlated. we've seen earnings come down and yet the stock markets continue to move up. in the last few weeks, really hold right near its highs. you can argue and there is certainly truth to that that that's because we have q.e. 3, because we've got the ecb in the market. but i look at the facts of where the market is, not necessarily what's been moving it every minute. that's what i see right now. today, the european bailout fund is coming into effect. if spain keeps going along the path, looks like it's going to ask for a bailout probably this month. things have been notably calmer as a result of that. how about q4? that's the issue, this trough question. earnings are expected to be up 10% in q4, particularly a turnaround in financials. everybody knows the numbers have
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been slowly coming down. but suppose we're only up 5% in the fourth quarter? we're still going to see an expansion this year. earnings will still be up, 2%, 3%, perhaps even 4%. i guarantee some of these people are going to surprise on the upside overall. 2012, we'll get 3% to 4% earnings growth. perhaps 2013, that's the big issue right now. depends on what side of the global expansion you're on. i've heard some call for 20% corrections. i don't normally stick my neck out about these observations. i could see it going to $13.70. but there are buyers out there at this level. people are looking to get into this market lower. and by the way, even if we end with a somewhat lower q4 than people anticipate, we're going to get the modest earnings growth and it's going to close 2012 with historic high earnings. the s&p will end with historic
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high earnings levels, barring a catastrophe in the fourth quarter. my point is, earnings slow down, but don't kid yourself. it's not drooping off the end of a cliff. >> that's terrific. i totally concur with that out of the realm down 20%, bob. thank you very much for that. let's check out the latest moves in energy and metals and do to sharon epperson at the nymex. >> you were talking about oil prices and the slide we saw last week. over the last three weeks, wti futures down 9% or 10%. that selloff is continuing today. off the lows of the session. but this marketplace is very concerned about asian demand. it's been in the marketplace for the last several weeks. the asian development bank with their growth forecast. and then today the world bank lowering their 2012 growth forecast for china. that is another reason why we're seeing weakness in this marketplace. we've also seen in terms of speculators reducing their long positions over the last week or so by about 7%. that's not the same in the brent crude market.
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money managers in that market increased their net lock positions and a lot of the geopolitical factors that have been supportive of crude prices are definitely more supportive of that market. we continue to watch what's happening between syria and turkey. that's a big reason why brent crude was flat on the week last week, wti futures down about 2%. also watching what's happening in gold. extension of the weakness we saw at the end of last week in gold, it's continuing today. technically traders say keep your eye on that $1,760 to $1,765 level. and we'll continue to watch the central bank. but the china story is weighing heavily on copper and some of the other base metals. back to you guys. >> sharon, thank you so much. sharon epperson at the nymex. fresh from the opening bell this morning, first on cnbc, security company adt celebrating its
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spin-off from tyco international. shares up over 6% since it began trading one week ago. we're joined by the ceo here at post 9. congratulations, welcome. >> thank you very much. >> why is this the right time to go solo? >> adt is ready. we've been part of tyco, we've cloned up the portfolio, we're performing very well. it's a great opportunity for us to be a pure play, focused exclusively on the small business and residential security market. >> a lot of people talk about as adt goes, it pivots around what housing is doing. to what degree is that true? >> we haven't had a very strong housing market for the last five years when you think about it. and adt as continued to perform well. we grew our business through the economic downturn. clearly with a stronger housing market, we think we can accelerate our growth. but we're not dependent on a strong housing market. >> within housing, how can we understand what will push your
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business the most in terms of existing home sales versus new home sales? is it new construction where you see the most upside to your stock in profits or is it existing homes? >> i think both benefit us. security tends to be an event-driven purchase. whether you're moving into a new home or building a new home, it's the time to think about what are you trying to protect what's important to you? and that's usually when people make that investment to buy a security system. >> there's a weird trade going on, you speak to the gun companies, they're going nuts, sales are going nuts. and a lot of people say it's because of obama. but is there just this kind of, i want to protect my home at all costs? >> i think that's a piece of it. but i think in reality, it's much more than just protecting your home. it's protecting your family, it's protecting your business. and it's not just burglar alarm. it's fire, smoke, carbon monoxide. with the home automation push,
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there's tremendous opportunity to expand beyond traditional security. >> i met with at&t wireless and they said we're going to eat adt's lunch. we have the best thing going. >> they've announced they're getting into the security space and they're starting to ramp up -- we haven't seen them in the market with their new solutions yet. >> of course, they could just buy you, right? >> you'd have to ask them about that. >> tyco acquired adt in 1997 and along the way said, hey, we will benefit from the synergies within our businesses. why are you better off not a part of tyco than erp as a part of it? >> i think we are a subscriber-based business. we make an investment up front and get that return over time with that monthly recurring revenue to value that as part of a portfolio with a couple of other business models was difficult for the investor to understand. 90% of our business is recurring
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revenue, that ongoing monitoring and services -- >> ityou have your own currency now and you've done deals in the past. is that part of your strategy -- >> there are deals out there that make sense financially for our investors. but we're looking to grow both organically -- >> organic growth is, what? it can't be that large? >> we've been growing in that 3% to 5%. we've got that opportunity to grow further. today, only one in five homes has a monitored security system. >> my insurance xwacompany insi on it. i'm lowering my rates. >> and then there's the added change of mobile. and i assume how that's changing. you have a new product, adt pulse, what's that about? >> that allows you to remotely interact with your security system. you can arm and disarm your system as well as getting alerts
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from your phone. you're expecting your kids to get home, you're set up to be notified that the door opened. and if it hasn't been opened, you can be notified of that. you can put cost-effective vaido cameras in the home. >> bad news for teenagers everywhere. >> sends a bad message of trust. >> thank you so much for coming. congratulations. >> thank you very much. >> we'll be watching shares of adt. >> thank you. spacex marks the spot with a privately funded rocket successfully launched last night from florida's cape canaveral. if you could send one company into space, what would it be and why? your answers are coming. and rolling the dice, the story of cash-strapped states and cities turning to sin for salvation. take a look at this morning's early movers this day on wall street.
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up. a short word that's a tall order. up your game. up the ante. and if you stumble, you get back up. up isn't easy, and we ought to know. we're in the business of up. everyday delta flies a quarter of million people while investing billions improving everything from booking to baggage claim. we're raising the bar on flying and tomorrow we will up it yet again. you have to dig a little. fidelity's etf market tracker shows you the big picture on how different asset classes are performing, and it lets you go in for a closer look
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"squawk on the tweet" for this monday morning, after the successful launch of the privately funded spacex rocket over the weekend, which i'm sure you were all over, we're asking, if you could send one company into space never to be heard from again, which one would it be and why? bill writes, kodak, launch it to seek out ancient civilizations that still need their ancient products. jim writes, blackberry soshgs all those people who think they can't live without the tiny keyboards can get over it. you guys are harsh. >> i like that. >> harsh and clever. >> that's just inviting snashg. that tweet is about inviting senatorkiness. huawei feeling the heat from capitol hill.
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we'll talk live with the chairman of the house intelligence committee at 11:20 a.m. but first -- >> coming up, investing in this market can be quite the fight. that's why we have cramer with his six stocks in 60 seconds. we'll help you avoid the mess when "squawk on the street" returns. [ male announcer ] at scottrade, we believe the more you know, the better you trade. so we have ongoing webinars and interactive learning, plus, in-branch seminars at over 500 locations, where our dedicated support teams help you know more so your money can do more. [ rodger ] at scottrade, seven dollar trades are just the start. our teams have the information you want when you need it. it's another reason more investors are saying... [ all ] i'm with scottrade. it's another reason more investors are saying... if we want to improve our schools... ...what should we invest in? maybe new buildings?
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let's kick off the week with "six in 60," six stocks in 60 seconds with jim cramer. we'll begin with gilead. >> this is an up stock. >> upgraded over at lazard today. foot locker, ubs says buy it. >> foot locker, remember nike was great in north america. so foot locker should be a good reason. i agree with ubs. >> goldman says a short squeeze possible at safeway. >> the days when you recommend a stock on a short squeeze, that's old days. i don't like it. >> abkrob and fitch --
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>> don't bother. >> texas instrumented downgraded -- >> this thing is so cheap and no one cares. >> and medical properties trust? >> you asked me where are people going. they're going to 7% yielders if the balance sheet is going and smgt good. this is 7%. that's the solution, carl. >> i think the eyeroll quotient on that "six in 60" was the highest ever. more tonight about -- >> healthy week. we have some good names this week. and i'm unveiling a group of stocks that cannot -- that can't be stopped because there's money managers who want to show they own them, two a day for the rest of the week. the anointed ones. >> i like that. a blessed stock and the anointed stock. we've not touched on gas prices. california's looking at $4.65 a
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gallon. >> inbridge says, give us a permit, we'll get the gasoline to you. california does not permit pipelines. so it's a shortage going in. refinery shortage and a shortage of product. >> and the governor there trying to fix things in a hurry. see you tonight. >> if he has an spr, fine. >> 6:00 and 11:00 p.m. eastern time. when we come back, the world's online daily deals website in the spotlight. you want to hear from a fair of co-founders of groupon, what they have to say about the company's futures. and faber will talk to barnes & noble ceo wichl lynch in a cnbc exclusive in just a moment. tdd#: 1-800-345-2550 let's talk about low-cost investing. 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
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let's get the roadmap for the next hour. earnings season here in the u.s. kicks off tomorrow. as risk assets take a leg lower, what's next for the markets? >> to social media, on the heels of groupon's moves to better position itself for profitable growth, we'll be joined by the
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two co-founders for their read on groupon's future. >> and david faber with an exclusive interview with the ceo of barnes & noble, william lichl. we'll get his insights on all things noox, bo nooks, books an tablet related. with unemployment dipping below 8% now, the november election is right around the corner and the kickoff to third-quarter earnings tomorrow. what is next for the markets? jim mckaughen joins us. seems like the sentiment on third-quarter earnings is so negative. you think that could set up to be a positive for the markets? >> yeah. i do think that for the first time after this year, a large part of the reason why the u.s. stock market has been strong is the expectations.
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it's poised to be the worst quarter of the year in terms of earnings. but i do think it might not be as bad as people think. the other thing that i would point to is the job numbers, the housing market, both are suggesting the u.s. economy is doing reasonably well. against that background, i see the likelihood of modest positive surprise and then some momentum in sentiment pushing towards the year end. >> does that 7.8% number make you revisit your view of the economy? does it change anything? >> yes. i think that that's -- the point about the household server is the key to why the headline was the jobless number coming down from 8.1% to 7.8%. the payroll gains were a continuation of the previous modest positive trend, particularly when taken with july and august. and the payroll gains is based on the employer survey.
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what the difference between the household survey and the employer survey suggests to me is that small businesses which are not fully captured in the payroll numbers, maybe self-employment has been improving. uxd see it as partly just a seasonal adjustment, as you say, but i think it's modestly positive news and probably not add confusing as some have suggested. >> there are still people who think that even though the fed seems committed to this open-ended policy, that if numbers keep coming in like we've been getting on housing and jobs, that they do rethink it. you look at the ten-year yield, beginning to reverse to a small degree. what about those who bought this market with a global central bank put and what if they reverses on them? >> i'm a bit skeptical of the global central bank put. don't fight the fed is a fair maxim. i expect fluctuations to stay fairly low over the next two to
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three years. the fed expects it. even if there's a positive in the economy, you're going to see easing monetary policy from the fed. i think the trade that's been talked about into italian and spanish bonds is one that may end in tears. >> why? >> the reason i'd say that is ultimately what i think needs to happen on a five-year view to particularly spanish debt is we need to see some debt forgiveness because the economy is not competitive enough to repay debt of the level that the spanish government has incurred. >> that forgiveness implies restructuring, implies some tumult within the eu or even the idea of them not being within it. >> yeah. i think that's an interesting point you make because two or three years ago, people said greece can't default. if they default, they have to leave the eurozone. i have news for people who said that. greece has defaulted and it may default again, by the way, but
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it's still in the eurozone. and i tend to think of it as a little bit of an either/or. i think short term, clearly the stability mechanism that they're debating should be a positive. clearly the ecb buying is a positive for those bonds. but i think that it's a bit like picking up dimes in front of a road roller. sometimes, you may get crushed when people realize that there is possibility a rescheduling somewhere in spain's future. >> do you believe the fiscal cliff worries have put a lid on the market? do you believe it will be avoided and if it is, how much is springloaded in stocks? >> to your first question, absolutely, yes. i think the market would be materially higher, were it not for the fiscal cliff. i do think nothing obviously is going to happen ahead of the election. but once you get past the election, depending on what signals the electorate gives, i think you are going to see washington really push towards
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either a compromise or a direction taken from the electorate. hard to tell which at the moment because i think the presidential election is basically very finely poised. so depending on which way the electorate goes, you're going to see the deficit reduced either by tax increases or public spending cuts or a bit of both. and i do think the intrenched positions you've had the last year and a half will in the send cause someone to blink, either the administration or congress because ultimately neither will want to push the u.s. into an unnecessary recession next year. the answer is, yes, i expect some compromise. may seem foolish given the behavior of washington in the last few quarters. but having said that, i do think you're going to see some compromise. and ultimately, although it has hurt the market, it won't be too much of a negative going into next year. >> some may argue the more important elections in the next few weeks are the spanish
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regional elections on the 21st, which may trigger or allow spain to then ask for a bailout. do you think that's the event to watch as opposed to -- earnings season is great, it's not going to be a headwind in your view. but do we really need spain to request a bailout in order for us -- the equity markets to move higher here in the u.s.? >> yeah, the spanish are having a very interesting -- the spanish government is in a very interesting conundrum. it's obviously talking to berlin and talking to the eu and the ecb about a bailout. but it's trying to give the impression back to its population, its own electorate that it's not. that will resolve itself at some point. but with spanish bond fields at 5.60, they can fund themselves with a ten-year yield at that level. they won't ask for the bailout at least until those elections and maybe for a few months afterwards. ting market can sustain that. i take the longer-term view that
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this will not end well in terms of spanish debt holders. i think that's the key issue. >> jim, thanks for coming by. >> thank you. let's get to a market flash here. the auto industry, brian sullivan is back at h.q. >> it's the giant auto retailer carmax. shares are soaring today. there's a positive note out from itg about carmax. here's the problem. i've reached out to itg, trying to get the exact note to figure out exactly what their positive points were. they got back to me and said, we're only sharing with our clients at this time. but the bottom line is itg confirmed with us they have put out a positive note about carmax. the stock sup 9.6%. with that move, they're back in positive territory for the year. big stories last week about those low rates are helping auto
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sales as well as housing. maybe q.e. 3 could be a new car model. what are you driving? the new buick q.e. 3. cost comes later. >> thank you, brian. another 9% mover, shares of netflix up by about 9.25%. morgan stanley coming out with an upgrade. the amazon video service is not a direct threat, they say. and this valuation here, overweight rating values just the domestic business. that share is up 9% here. >> it was the top gainer until carmax cut in front of it a few moments ago. up next, an exclusive interview with two of groupon's co-founders. they join us to make the case for the company's future and tell us where their putting their money to work now. and what's barnes & noble going to do to stay relevant? david faber has an exclusive
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interview with the ceo, william lynch, in just a moment. ♪ into a scooter that talks to the cloud? ♪ or turn 30-million artifacts... ♪ into a high-tech masterpiece? ♪ whatever your business challenge, dell has the technology and services to help you solve it.
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whatever your business challenge, we call this our mission.mpany, green toys teaches children that if i have a milk jug and i stick it in the recycling bin it can turn into something new. chase allows us to buy capital equipment to be able to manufacture in the states to the scale we need to be a global company. with a little luck green toys could be the next great american brand. find what's next for your business at ♪ all day long, cnbc's going to be checking out the performance of different sectors. courtney reagan takes a look at retail as we gear up for the big holiday shopping season, already, courtney? >> that's right. get ready, david. strong back-to-school sales and
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consumer confidence hitting its seven-month highs, a number of stocks has been hitting bullish milestones. the s&p index is up just under 29% in 2012 and the centimeter consumer discretionary index is up 22%. both outperforming the benchmark, s&p 500. these stocks trading at all-time high levels. walmart also announcing today it's teaming up with american express to offer an alternative to traditional checking and debit accounts called bluebird. gap trading at levels not seen since july of 2000. one of the best performers in the s&p 500, in fact. but not to be outdone by the retailers. a number of consumer stocks are making money for investors, too. philip morris trading at levels not seen since its spin-off in 2008.
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and autonation now above its all-time highs. and wyndham trading at all-time high levels. if history repeats this fourth quarter, it's not too late to get into a number of these high flyers. over the past four quarters, shares of wyndham, gaining an average of 20%. and philip morris gaining a share of 10%. that's just the average for the past three fourth quarters. >> carl? >> thank you very much, courtney reagan. two interpret nears working to create a new paradigm of venture capital in chicago. the man behind ideas week is brad keywell joining us with eric lefkofsky. they are co-founders of groupon.
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they join us from chicago this morning. gentlemen, good to have you both with us, good morning. >> good morning. >> good morning. >> you're talking to a native of chicago. so i'm going to try to make this an unbiased interview. i'm not sure if i'll get there. but, brad, what is the mission behind this week? you talk about bringing people in with big ideas and create change. but is it just about bringing technology companies to the city or is there something beyond that? >> it's something way beyond it. i believe that there's a power to bringing great, globally provocative thinkers and doers together with a community and that great things come out of an exchange like that. i personally go to the conference and you look at the aspen institute and their great conference in davos. what all those things have in difference, none of those are in chicago. by starting chicago ideas week, we wanted to create something
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that was globally great that on any level would be measured as one of the important global ideas conferences and ideas platforms. we wanted to do it right here in chicago. and that's what we've done. >> eric, is this about bringing new opportunities for lightbank and for yourselves? you've already created nine companies. you have investments in 50. $10 million in equity values. is it about bringing opportunities closer to you or are trying to great a greater good here? be honest. >> brad is really the architect behind ideas week. i think he did it when he decided to launch it last year. had nothing but the noblest of intentions. we have a larger mission of turning chicago into a world class technology and innovation hub. and we were convinced that the elements are ripe and that chicago's about to really take off. it's the third largest city in the united states of america.
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there's no reason that it shouldn't be among the top tier in terms of innovation technology companies that get built. groupon being one example. but at lightbank, we're in over 50 companies. doing amazing things. this is just one more part of the cocktail that gets built that allows us to get great entrepreneurs and great ideas and help get them off the ground. >> eric, from your perspective as venture capitalists and co-founders of groupon, the stock is down more than 50%. i'm being generous. since it ipo'd at the new york stock exchange. i'm wondering what you think went wrong when it came to this issue. >> first of all, we're not here to talk about groupon -- the guy you should talk to is andrew, the ceo. but i think in general, when you look at the recent ipo of
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facebook, zynga, groupon, there's no question that these companies have been very volatile and investors have bounced around quite a bit over the past few months. and why that is, i'm not an expert in the field and couldn't really tell you. i do think that our job is to try and help build great businesses that over the long term will do well. we have a couple of other companies, one being inner workings which we took public in 2006, i think, and one is echo, which we took public in 2009. if you look at both of those, in the case of interworkings, it's up over $14. i'm at a loss to tell you why it was up and down and up. i don't have enough knowledge to know why investors can so violently come into something and come out of it and come back in. we just kind of focused on
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helping build great companies. >> eric, you're so modest by saying you're not an expert in the field when you've invested in so many companies and also brought them public. brad, from the venture capitalist standpoint, does it change when you bring companies to market at tpoin>> look, we f either starting companies or helping companies grow and develop their business models and i can point to three where we've invested and they've grown quite well. one is belly, which has raised money. another is bench prep to raise money from nea and revolution ventures and another is sprout social. these are companies that we invested in early and we also start businesses. we focus on growing businesses and finding great entrepreneurs, building great teams and finding roles for these businesses where they're adding real value to customers and they grow because
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of the value that they're creating for our society. >> and i think you raise an interesting point which is how do -- when will really great interesting private companies choose to go public in the future in light of some of the recent noise? i think it is going to have an impact. you'll see more and more companies waiting longer and longer. certainly some of the rules that just came out that weren't in place when groupon went public that allow you to have maybe twice as many shareholders as you could have had previously are also going to fuel some of that. and you'll see people waiting because the public markets have been recently unforgiving for businesses that are very young. groupon hasn't even celebrated its fourth anniversary. so when you really look at the business over the horizon of what it's going to be over 10, 20 or 30 years, it's still just in its infancy. and the public markets have not
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been as forgiving as maybe they were. >> mr. lefkofsky, given that, you had an opportunity, many reported, to sell groupon to google, if not others. do you regret not going down that road at a price far higher than the current market cap of the company? >> no. i don't think any of us regret the decisions we made. i don't speak on behalf of brad or andrew. but certainly when the company was growing and growing quickly -- look, again, this is a business that has over 12,000 employees. it's in nearly 50 countries and it's not even four years old. i think when a business is growing that fast, it's hard to know at any point where you should sell or double down on your investment, at the time when people knocked on our door and were interested in potentially buying the company, we all looked at it and said, the business is just so young and has so much potential that
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we want to see that through. and i don't think any of us regret that decision. >> finally, brad, one note from you, i understand why it's hard to explain the behavior of the capital markets. nobody knows why stocks go up and down. but for the two of you guys, watching you guys come public at $20, now trade where you are. from your own perspective, with your own holdings, how has that felt? >> i look at my world and our world across the many things that are going on. eric mentioned interworkings, this is public on nasdaq. echo global logistics, public on nasdaq. groupon and over 50 other companies. so it doesn't feel good, obviously, when stocks go down. but i like to say that you've got to be very focused on building real value. and if you judge your mood every day by the stock market, you're going to have some pretty moody days. >> well said. brad, eric, thank you so much for being with us.
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look forward to hearing a lot more news out of chicago ideas week. appreciate your time. >> thanks for having us. >> thank you, thank you. budget shortfalls across the country. why are some states turning to vice to raise a little revenue? we'll look at that. still ahead, my exclusive interview with barnes & noble ceo william lynch. keep it right here.
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♪ around the country, state and local governments are frantic to cover budget shortfalls. leaders are turning to sin for sl invitation. case in point, the state of ohio and today's hoping of the hollywood casino columbus, the third to open in ohio in less than a you're. our brian shactman has more on this national trend, live from the tables where i'm sure he's been up all night. good morning, brian. >> reporter: blackjack is my game. but i haven't played as of yet. the ribbon-cutting is going on behind me here in ohio. and nationally, 23 states have
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commercial gaming now. a generation ago, it was basically new jersey and nevada. put it all in perspective, gaming is worth about $35 billion to the economy. $8 billion in tax revenue. and the whole industry employs about 340,000 people. here at the hollywood casino in columbus, ohio, the $400 million project provided 3,500 construction jobs, 2,000 casino jobs and the gambling revenue will be taxed at 33%. the other two casinos already open in ohio, cleveland and toledo, they had $40 million in revenue for august. it obviously means a lot of money for the state. pennsylvania, though, might be the best example of this national trend. the state has been aggressively expanding its gaming presence. taking share from the likes of atlantic city and west virginia. and it gets more tax revenue than nevada. that's $1.5 billion compared to $865 million. part of this is an exponentially
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higher tax rate. but former governor ed rendell justifies all of it. >> we love to gamble, we love to bet. ed rendell can't stop it. barack obama can't stop it. mitt romney can't stop it. so if we can't stop it, let's make the best of it, make sure it's regulated well, make sure it's taxed robustly and make sure those dollars go to a good purpose. >> reporter: initially that 55% tax rate in pennsylvania was to go to give property tax relief for senior citizens, great political move for rendell. here in ohio, a chunk will go to the host city, columbus, ohio. a chunk goes to the state and there are slices that go to every county in ohio. it's obviously going to mean millions in taxes for the state of ohio. another one opens in cincinnati, carl, next spring. back to you. >> judging from the fact that it's probably 9:30 there in the morning -- i don't know if you're east coast. but behind you, brian, people are already lining up. you can see revenue being generated right there.
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>> reporter: they expect -- they open officially -- vips are inside for the rib-cutten. they expect 10,000 people by noon. they'll have to keep people outside until then. there's 1.8 million people in the metropolitan area of columbus. it's going to be big. >> and it's columbus day. it's a holiday. >> that is true. >> we are working so we can't -- >> columbus day as in columbus, ohio. >> reporter: i'll take any suggestions. i'll put a number down for you. >> red, let it ride. brian, thank you so much. brian shactman. from casinos to rockets, spacex falcon rocket successfully launched last night from cape canaveral. it's on its way to the international space station. that brings us to this morning's
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"squawk on the tweet." to you could send one company into space never to be heard from again, what would it be and why? tweet us. remember our new hand handle @squawkstreet. we'll air your responses throughout the morning. when we come back, financials on a tear as of late. in the pa are further gains in store? and barnes & noble's ceo william lynch at 10:40 a.m. eastern. d#: 1-800-345-2550 this morning, i'm going to trade in hong kong. tdd#: 1-800-345-2550 after that, it's on to germany. tdd#: 1-800-345-2550 then tonight, i'm trading 9500 miles away in japan. tdd#: 1-800-345-2550 with the new global account from schwab, tdd#: 1-800-345-2550 i hunt down opportunities around the world tdd#: 1-800-345-2550 as if i'm right there. tdd#: 1-800-345-2550 and i'm in total control because i can trade tdd#: 1-800-345-2550 directly online in 12 markets in their local currencies. tdd#: 1-800-345-2550 i use their global research to get an edge. tdd#: 1-800-345-2550 their equity ratings show me how schwab
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walmart hitting new all-time highs. the retail giant now up 40% over the past 12 months. shares of navistar up sharply. the truck maker agrees to appoint three new members to the board, avoiding a proxy fight with carl icahn. and united health shares on the rise. combining with amil. unh pays $4.9 billion in cash for 90% of amil's outstanding shares. let's take a quick check on the energy markets. for that, we turn it over to sharon epperson at the nymex. >> we're looking at weakness pretty much across the board here in the energy market, particularly when you talk about crude oil prices, off the lows of the session. but there's a great deal of concern about asian demand. that world bank forecast saying the growth in china would be
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down around 7% compared to 8% last year, compared to double-digit growth in the past. that continues to worry traders about energy demand. and on the flip side, we have the syria/turkey tensions continuing to support the market. you can see that better in the brent crude market which didn't falter much in the past week where nymex futures, wti futures falling sharply, down about 2% last week. three weeks in a row, lower prices. still at the lower end of the $88 to $92 range we've been stuck in. but the real story is what's going on in california. california, big part of the reason that we saw the spike-up in gas futures last week. and now that governor jerry brown has now said that we are not going to -- that we are going to be to have winter grade gasoline for the wholesale market, that is supposed to boost supplies, drive down prices. we've seen it in the wholesale
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level. and we've already seen a little bit of a weakening here in the arbob market as well. prices will start to trickle down. jane wells all over that story. we'll have much more coming up. back to you. >> thank you, sharon. big week for the marriage banks. earnings to come from jpmorgan and wells fargo. but what about banks and reserves for loan losses? the last several quarters, banks have seen their earnings up sharply in some ways as a result of releases of those reserves because, well, the credit picture is getting better. kayla tausche takes a deeper look and joins us from h.q. >> a key banking industry barometer is that of those loan loss provisions or the money that banks set aside to fund loans that could turn sour. it's no surprise that that figure which indicates how stable a bank's borrowing base is, that those would touch record highs during the financial crisis. with consumers facing steep debts, a crippling economy. but what is surprising is that
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even with lackluster performance of earnings and stocks, the amount set aside has fallen to pre-crisis levels. according to the fdic, the amount set aside in q2 was a five-year low for banks. citigroup which set $12.7 billion aside at the peak, the most of any big banks on a quarterly basis, citi cut back on the provisions the most, cutting contributions by $2.3 billion or roughly 7% of its $34 billion in reserves. for bank of america, it took out 2 billi$2 billion in q2. bank of america keeping $31 billion on hand. jpmorgan as well cut credit loss allowances by $2 billion in q2. and wells fargo shaved just 5$50 million from its reserves last quarter but keeps $18.6 billion on hand for the bad consumer loans. but these reserves can cushion earnings if the banks don't need them. but the big e feger fear is cre isn't improving.
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there are fewer consumers that are delinquent on bank credit cards, according to the american bankers association. the lowest default rate in a decade. but the problem is that delinquencies are increasing elsewhere, like home equity loans. delinquencies are increasing across eight different categories. we'll definitely have a rude awakening in the quarters to come. >> thank you, kayla tausche. banks start reporting on friday, kicking off with jpmorgan and wells fargo. i want to get right at the heart of kayla's report. and that is the drawdown in reserves, does it actually reflect the better credit conditions in the u.s. economy or should investors be concerned that banks no longer have this cushion and therefore earnings can be lumpier? >> it's also a reflection of how much these guys put back in the crisis years of '07 and '08. i think some of these guys, jpmorgan, still have a lot of reserves relative their defaults out there.
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defaults are not improving as quickly as we'd like them to. we hope they get better. but what you're really seeing is the confidence of the management team with their book. they feel most of their stuff has been flushed out and if we don't go to another recession, they're well-positioned going forward. >> delinquencies rising in home equity loans, et cetera. are there banks out there where you feel perhaps the reserves were drawn down prematurely, that perhaps as confidence by the part of management is overconfidence at this point? >> not really. we would like always the banks to hold more reserves than they always do and the banks always have pressure to lower them. there are also issues with the s.e.c. and what you can keep in those rerves and what you can't. they have to have the right models out there. would we like to see them hold more reserves, yes. but it's not a concern to us at this point. credit was really bad in ' '07-'08. not as good as it was in '04 and
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'05. but the reserves we have out there, we're comfortable with those. >> seems like you like the banks that do more lending. which ones do you want to get in front of ahead of their earnings report? >> right now, we love anything that's exposed to mortgage banking. mortgage bank is probably the most profitable it's ever been, even before the pre-crisis years. wells fargo, pnc, ubs, bb&t, those names are going to do very well, we think, over the next couple of quarters, not just next quarter. we think the refi boom won't end until probably late 2013. >> you watch the ten-year yield go down and hitting -- and staying at historically low levels and the mortgage rates aren't necessarily reflective of that. does that -- do these low rates enable the banks to make that sort of profit which you like in these mortgage lenders? >> that's exact right. right now, rates probably
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somewhere between 3%, 3.5% where the ten-year is trading at 1.75. now that the fed is buying these mortgage-backed security, that's widening even more. but we think mortgage rates will continue to drift down as we work through these big books of people able to refi. but i wouldn't be shocked to see mortgage rates down 3% or below over the next quarter or two which is one of the reasons behind why we think mortgage bank is going to be so profitable. the gain on sales probably not as strong as they are today but still at historical levels. >> the volumes will be there. but when you talk to the homebuilder, they say their one wish is for the banks to loosen up their lending standards a little bit. do you foresee that happening? shouldn't it follow that perhaps lending standards should loosen up a little bit? >> they're exactly right, the lending standards are very tight. and the people getting refis -- it's the same people refiing over and over again.
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the problem with what the homebuilders are seeing is that fannie and freddie are pushing back a lot of bad loans from the crisis years and the banks don't want to take any risk at all on the mortgage origination space. they can do 750 ficos and still make a lot of money. they don't want to go below 700. we'd love to see it loosen up to the 600 level. but until we get more guidance on how fannie and freddie are going to approach reps and warrants, those are going to tighten. >> what's your top pick going into earnings season? >> pnc. >> pnc. short and sweet. paul miller, good to see you. you see him making his way on to the set. barnes & noble ceo, william lynch here to talk nooks, books and tablet wars in a cnbc exclusive. that will be live from post 9 in just a moment.
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been a busy couple of weeks for barnes & noble with the announcement of its two new tablets, the nook hd and income hd plus. the bookseller closing its $300 million deal with microsoft, forming the nook media subsidiary. william lynch is the ceo of barnes & noble, he joins us now. nice to see you again. >> good to be here. >> you closed the deal. microsoft put its money in assuming a $1.7 billion overall valuation for what is called nook media, essentially the nook business and the ones we just mentioned. you have an $800 million market cap. forgetting retail, barnes & noble does own 82% of this. why the disconnect? >> we're not sure, david. if you look at the retail business alone, as you said, talking about a business that last quarter grew comps 4.6%. if you look at profit, ebitda is $75 million in profit, which was
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88% growth versus last year. in nook media, you have a business that was post-money valuation of $1.7 billion, includes a profitable college business that we feel had a competitive advantage and our explosive nook business in an area with books, newsstand and e-learning content set to explode over the next five years. we think by any measure, we believe the company is undervalued right now. >> that being said, i know many of the analysts expect you to not be ebitda positive or ebit positive for quite some time. >> ebitda, as a company? >> correct. >> we were ebitda positive last year. >> i know you were. but goldman sachs as you going out for years to come in terms of ebit, $54 million in the fourth quarter of 2014. i mention that because that could be coloring the viewpoint of those who believe barnes & noble's only worth $800 million. >> two things i'd say to that.
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retail was up in q1. and ebitda in retail was up 88% year-on-year. what we've said in terms of the nook segment is he will close the losses, we will scale the business and shrink the losses. in addition, if you look at the balance sheet of nook media, there's no long-term debt on that balance sheet. talking about a business over $3 billion in revenues and that just received $300 million in equity infusion from microsoft and another $305 million in committed payments. so i don't know what any one analyst suggests in terms of forecast. i'm not giving guidance but we feel good about the business. >> i understand. but there is that disconnect. as for market share within the e-reader business, the second quarter, according to idc data, you lost market share, fell to 21% from 34%. are these new products going to reverse that? >> yeah. if you look quarter to quarter, these market share statistics are sensitive new products. with nook hd and nook hd plus, we launched the two best products ever launched for
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reading. it has the highest resolution screen in the 7 zin-inch catego. and it's a quality never before seen. both products, nook hd and nook hd plus, we're seeing preorders at the highest levels we've ever had for nook. with the nine-inch product, talking about a screen with a similar resolution to the ipad 3 and the new ipad. but at half the cost and over 20% less weight. >> also talking about a very crowded marketplace. you mentioned the ipad. there's the kindle, and many versions of that. and there are different price points and the possibility of an ipad mini hitting fairly soon. what gives you the confidence that you can maintain that with the likes of competing against apple and amazon? >> well f you look at the segments, this notion that there's going to be one winner in the tablet market is not correct. if you look at the segments we're going after, we're creating the best tablets for
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reading and families. if you look at who we've aligned with, we'll have more distribution in terms of target and walmart than we've ever had this holiday season. those are two huge channels that are not carrying the kindle products, the amazon products. we have our barnes & noble channel where we've invested to make our nook areas even bigger. and we've got distribution in terms of the digital bookstore with our forthcoming windows 8 application, the best reading application on windows 8. we feel very good about our ability to grow in that market on an ongoing basis. >> at the lower end of the tablet market, how deep can you go into a price competition? if google says, we're taking $20 off or amazon says we're taking $20 off of its tablet offering, could you do the same and what sorts of margins are we looking at for your products so understand how far you go down that road? >> clearly we've said where we see the growth in economies are coming from the digital content area. so we have been aggressive with pricing our products out of the gate. if you look at that nine-inch
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$269 product it's not only the lightest product, but the lowest price, large format tablet. we think extremely high quality. we're willing to compete on price. price. it depends on what our competitors do and what we choose to do in term of competitor response. what we're doing is innovating. we're not building commodity products we're building products that the market wants. >> but in terms of understanding the economics of the nook, one analyst said to me about amazon's kindle all it has to do is sell two books and it has made the money back on the kindle. it's not making money off the kindle but once it gets people to buy two books, everything is okay. how do we understand the nook model? >> it's similar. the higher attached content rates. >> how high is that right? >> extremely high. our cohort attach rate is the highest in the market because we
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get higher media consumption customers. if we do that it suggests we can compete on the hardware economics extremely well. >> what is the doj ebook pricing done? >> our pricing margins have stayed steady. the three publishers who settled on the consent decree make up 24% of our business. we feel good about our content margins. earlier i talked about k-mart and walmart. publishers are interested in seeing us do well. as we settle those three deals we feel confident our new new york video stores are enough. we're attractive. >> at the outset of this interview we talked about a disconnect between the valuation of barnes and noble and media. people aren't shopping at your
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stores. you had a 4.6% comp instore sales increase. to a larger context of that question that eventually everybody is going to be reading their books on these devices and nobody will bother going into the stores. what's the answer? >> the answer is if you look at most analysts that project the book business, physical books will still be the majority of book sales for the next five years. what we've seen is an enormous second lie addition effect that's leading this even on top line growth. if you look at our reliance on the book business in our stores with us launching things like toys and games which is up over 30% and is a sizable business for us, we feel retail will be vibrant for the foreseeable future. if you just look at the multiple that must be embedded in our implied valuation on retail, it's extremely low. and anybody would tell you that. what i'll say is we think retail will be an incredible profit driver for the foreseeable
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future. >> maybe deservedly so. it can't be a growth business for much longer. >> if it was getting a 20 multiple then you would say gosh what's going to happen to books. this multiple we must be getting right now at this 1.3 billion enterprise value has to be very low. this is a healthy, vibrant and growing business. >> william lynch, we appreciate you updating us on that base. >> thanks for having us. california drivers are paying on average a record breaking $4.65 a gallon for unleaded gas, forcing the governor there to take action. is any relief in store? we'll take you live to california for the latest. with , a crash management system 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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california trying to allow for some leave at the pump. governor jerry brown asked pollution regulators to start selling winter blend fuel. the average price of regular unleaded hitting $4.66 a gallon yesterday. our jane wells is on the case live this morning in north ridge, california, an amazing number, jane. >> reporter: hey, carl, $4.58 at costco. costco is getting supplied.
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southern california stations are open. there may be relief in sight. even as california wakes up to another record breaking day for prices. you said 4.66 yesterday. penny higher today on average for regular. it's the third day in a row with a record. prices are up 49 cents in a week. 12% even as stations are still sometimes running out. >> since friday this is the fourth time. >> that may end. governor jerry brown has ordered state area resources to start letting stations sell this special winter blend of gas now three weeks early. the winter gas evaporates quickly and not as good for air quality. but even in california there's a point where clean air has to take a back seat. the air resources board tells cnbc will increase the supplies of gasoline by as much as 10%. quote there will be negotiatible air quality impacts. senator feinstein wants the ftc
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to investigate the reason behind these price hikes and some are suspicious of the timing. >> seems like the oil companies are trying to piss people off to get obama out of the office. i don't know. a lot of people are upset. i am. they have you by the short and curlies. what do you do? >> reporter: all right. well the president is in town this morning. so prices may go down happen andy liphouse says california gas in the plain has dropped 50 cents a gallon but take some time to transition here. quickly look at the prices, most expensive place i was at on friday. on the left there you see it. on the right how it is this morning. a drop of the cheapest gas 70 cents. you won't see that here. that station is some sort of beta trade on the whole thing. >> jane wells, thanks for that report. several tech names trading at all time highs. quite the opposite today. should you be buying on the pull
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all right. dow off about 24 points. what's coming up tonight. >> we'll talk to the man heading up one of the nation's biggest university endowmen.
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derek young. and we've got a technical strategist on apple's break down. >> we're down below 600 million cap. see you night. if you're just joining us here's what you might have missed. >> welcome to hour three of "squawk on the street". here's what's happening so far. >> the problem now is, you know, companies don't have endless time any more. the competitive landscape is very, very tough. so when someone says i need four or five years to turn around, that's difficult. >> i'm not surprised the picture is getting better. it's not near where we want it to be but it's getting better. >> let me ask you this -- >> the unemployment coming down seems to make sense. >> i know it's controversial last week we got an unemployment number suddenly that was a grand conspiracy. i didn't see it that way because perhaps i'm not a black helicopter guy. i think in the united states there's not a lot of momentum and china can pull the world
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down. europe can pull the world down. you see today the world being pulled down. there is very good reason to believe that this is accelerating well otherwise you wouldn't be trimming verizon and saturday numbers. there's a big expense to selling. >> i do think the entrenched positions you've had all of the last year and a half will in the end cause someone to blink either the administration or congress because neither one wants to push the united states into a recession next year. >> groupon hasn't celebrated its fourth anniversary. when you look at the business over the horizon of what it's going to be over 10, 20, 30 years it's still just in its infancy. >> good morning. live here at post nine at the new york stock exchange. let's get a check on the markets. starting out in the red after
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lower numbers for shanghai, europe, dow off the loss. down some 20 points. it was up last week for the first time in a few weeks. we still have gone since june 25th without a decline of 1% or more on the dow. marathon petroleum seeing strong gains after buying bp's texas refinery. the deal expected to add to marathon's earning. green dot a prepaid card selling falling sharply. our road map for this monday, netflix gaining almost 30% in just the last week after several bullish calls from street. should you put the stock at the top of your queue? we'll tell you how to play it. the house against kmeept releasing the results of an gigs slamming huawei. the chairman of that committee will join us live and why u.s. companies shouldn't do any business with huawei. >> california gas prices are
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getting worse. prices hitting an all time high. will the switch to winter blend give drivers the relief they need? and as the push to mobile stalls some gaming companies, we'll talk to the head of one game maker that's conquering the mobile ward. the ceo of kabam will tell us the secrets of his success. mitt romney staying within striking distance of the president. coming in two points behind the president after essentially winning last week's debate. a long way to go before november 6th. our chief washington correspondent john harwood is here with more. good morning. i know you were aware of some saying that by the weekend the race would be tied. this morning you tweeted as to whether or not that is now actually true. >> reporter: yeah, matthew dodd who was a bush campaigner in 2000, 2004 said we'll have a tied race by monday. we're not quite there yet. it's tied in the rasmussen poll
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at 48 which featured in the weekend post-debate poll. romney was ahead by two points. there was some impact from the unemployment numbers on friday, you look at the data since the debate it's a 47-47 tie. there's big events coming up. the first debate was the biggest thing since the conventions. now this thursday on the 11th you've got paul ryan and vice president joe biden. this is going to be very important for obama's effort to stave off romney. then on the 16th you got the second obama-romney debate. on the 22nd final obama-romney debate. then the last friday before the election one more jobs number.
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my own inclination the job numbers aren't quite as "game change"ing for debates as for the reason voters know how they feel about the economy. they don't need a government report. it does get a lot of attention and we got a race that's plainly at this point even though obama still has a slight advantage in the battleground states this race can go either way. >> interesting. then we got the governor, of course, speaking at vmi about foreign policy, an area for which a little while he appeared to want to take the campaign, at least before the debate. how ground moving is this? >> reporter: i don't think it's very ground moving. it's not what people will vote on. for romney it's an effort to press a leadership advantage which may be one of the things that move the numbers for him after the debate. he looks strong on the stage with president obama. he took the fight to obama. obama was a little bit more passive. but ultimately the economy, i believe, carl, is going to be what drives the result. >> if anyone who watched snl over the weekend knows the
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president wasn't that passive. thanks, john, we'll see you later, john harwood in washington. netflix is up 10%, 30% on the week, the street getting bullish on this name which has really gone on a tear. should you be a buyer? an analyst over as lasar and an analyst at pacific crest securities. guys good to see you both. >> good morning. >> let's start with you, barton. what explains the moves. we got some calls. today morgan stanley and amazon is not as much of a potential threat. why 30% in such a short period of time? >> this is a stock that will be up and down e7% in any given year. that's a statement to the uncertainty in the business model. so little wiggles up or down on expenses or revenue analysis and you can say it's the best stock ever or a wipe out. i'm sitting with a neutral. i don't think the risk is worth the reward. there's a good business underneath but i'm not confident that netflix is spending at the
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level that will reward shareholders today. >> what would need to get you to move from a neutral. >> the guys need to keep a check on domestic spending. netflix opportunity in the u.s. is about like hbo. 30 million subs or so. if they keep spending where it is today they can make a nice profit and find international expansion. what i'm scared is they believe their opportunities are much larger, they can expand beyond their opportunity. there's risk in the stock. >> andy, it's funny you got some people saying they need to spend more and other people who are into the name saying they can't spend more they need to spend less. what's the truth? >> i don't know if any of us know the truth. the truth will be dictated by how many subscribers that ultimately they are able to get to. i would say they already started to rein in spending especially in the u.s., the pace of increase has slowed pretty substantially and will continue to slow. doesn't mean the content won't
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grow but it grows as a moderate pace. as long as they are manage it so it's within the realm of the sub describer growth the business should look really good. >> you have a 130 out form. why are you at least incrementally more optimistic than barton. >> we think the u.s. market opportunity is bigger than what barton thinks. one, there's a lot of people that have broadband these days and a lot of them like net flakes, the attach rates to tablets and smart phones shy. a lot higher than what it is in the general customer base and we think that those trends are continuing to grow. so we think there's a bigger revenue opportunity here. internationally we think that goes from losing money to making money eventually and goes from being a negative to a positive. >> barton, we have seen it take a tumble on the ethics deal. is there a looming competitor out there that could essentially cut the stock significantly from
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this point on ? cramer said it's too late to shoirt. >> have a neutral rate ppg the risk is not worth the reward. but do i think that what you've seen is everything else has surged in terms of online video consumption. we have a ceo at a conference last week telling us half of their consumption now is nonnetflix content. that was 100% netflix a few years ago. over time cable companies will put more cable content online, espn, disney channel, viacom, stuff you'll get outside of a netflix. i want will relegate net flex. if you enthusiast it's beyond an hbo opportunity, you know, you think so at your own risk. there's a real risk here being overly optimistic how much you spend on netflix. >> we'll continue to watch it. definitely been leading the winner's list. appreciate your time. see you next time. >> thank you. >> let's get a capital markets outlook.
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gary kaminsky is on set. >> before the viewers say is kaminsky talking about junk again, why is he talking about junk. oil explain why again. take a look at the five year chart of the jnk, the etf junk bond market index. i've been focused on it for a long time. it's a leading indicator for the equity markets forever and certainly been the case over the last five years. it's important to take a look at where things are now and if you pick up the business newspapers at the end of last week, over this past weekend you saw a lot of articles like this one from the "new york times" pointing out how investors continue to pile into the junk bond funds and the junk bond funds are creating demand for very bad junk bonds. there are good and bad junk bonds. management doesn't like me to do that. companies that could not have accessed the high yield market a year ago not only are they accesses the high yield market now they are selling bonds which
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may in some cases not even pay investors coupons and cash but paying them back in further bonds known as pick bonds. that's a bad thing. here's what you need to know. let's revisit a chart from jpmorgan. we showed to it. correlation between the s&p and the junk markets. stay on this. the important point very simple. if you believe in the correlation which has a 90% probability of being lined up, you talk about an s&p right now at 1630 as opposed to where we are around 1460. this is because as we pointed out numerous times, the artificial lack of price discovery thanks to bernanke. what do i mean? people have been buying bonds, pushing them to yields where they should not be and not get drug price discovery. what does it say about the junk market and equity market? i don't know if the market market is going 1650. a trade that has been there, an investment that's been there for some time and buying the jnk as
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an equity substitute is over. i thought about it over the weekend. the capital appreciation in just buying the jnk etf, junk mutual funds is over. you can participate in the sense of the coupon but in terms of buying this asset class of capital appreciation when you start to see the type of bonds companies are issuing now, game over. so it's game over. >> why don't you trust the correlation enough to say the trend will continue. >> the correlation is effected. it's effected because bernanke is pushing people into this asset class that shouldn't thereabout. if you have that true price discovery -- >> doesn't change the fact that they are there. >> correlation is there. 90% of the time works. we're in that 10% period given the artificial activities we have taking place that you have to believe that we don't, we're not in that time frame right now. >> we're through the looking glass in so many ways. we'll talk more about it in a
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little bit. >> i love that reference. >> did you see big bird. >> i shown have agreed to a debate. you're a colorado guy so you know. >> mile. thanks, gary. these tech stocks were trading at all time highs. today different story. should you buy on the pull back. we'll talk about that after the break. all energy development comes with some risk, but proven technologies allow natural gas producers to supply affordable, cleaner energy,
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let's get you a sector check. the bond market closed but stocks quite open. utilities and materials top performing sectors. health care and tech are lag the broader markets. interesting, four sectors so far this year have gains of more than 20% and eight out of the ten s&p sectors have double digit growth for the year. we've been looking at all time highs within the sectors and especially in tech even though its pulling back. jack ford is looking into the sector and where it's headed as we go into earning season and then holiday season. >> got to pull back sometime. lots of highs in the tech sector. the names you expect, apple hitting new highs ahead of the iphone 5 launch. mapping problems smack it down. google reaching above $700 a share. goaling and amazon doing well. take a look, a closer look at who is doing well. plainly not all tech's across
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the board. companies that recently ipo'd are not doing well. some of the largest tech's were doing an unusually good job transitioning to mobile and cloud. those names are doing well, apple, google, amazon. take a look at the former pc giants, hp, dell, intel not on the list. nokia, rim still struggling. ia hind the muds of a turn around. money indeed has flowed to the bigger players but if windows 8 has a good launch some pc players could do a bit better. all day we're looking at stocks that powered the s&p to thinks multiyear highs.
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sector spotlight shines on "fast money" halftime. >> house intelligence committee warning chinese telecom huawei could pose a threat to domestic security if allowed to do business in this country. the chairman of that committee mike rogers will join us live after the break first on cnbc. ♪ [ male announcer ] how do you make 70,000 trades a second...
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don't be modest, bob. you found a better way to pack a bowling ball. that was ups. and who called ups? you did, bob. i just asked a question. it takes a long time to pack a bowling ball. the last guy pitched more ball packers. but you... you consulted ups. you found a better way. that's logistics. that's margin. find out what else ups knows. i'll do that. you're on a roll. that's funny. i wasn't being funny, bob. i know.
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this morning the house intelligence committee out with a new report urging u.s. companies to avoid doing business with chinese telecom form huawei technologies. members of the committee are reviewing the firm's close relationship with chinese government creates unacceptable security risks. here now is mike rogers, chairman of that committee and david faber joins us. congressman, good to have you with us. i'm trying to get through the
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report. a large part of it appears to involve the fact that you hhuwa would not answer questions. >> they said we're a open book. they've been anything but cooperative or an open book. that raises concerns. the questions asked and i used to be an old fbi agent and you want to know about half the hanss hans s -- answers to the questions you ask. they inaccurately responded to so much what the committee needed to know. we know the chinese is so active in cyber espionage. so we know that's going on. then you have a company that is
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clearly under the protection of the chinese government, has relations to the chinese government that they could not sever, have not been able to show us how they've done that. now they want to get into the infrastructure, back bone infrastructure of the united states. it is really very, very concerning. so we've had information from former and current huawei employees. classified information, australians and british that pass aide long information that they have swheen it comes to huawei activities is a very clear indication that i have no problem of saying you i would not use huawei equipment, find other vendors. if you care about your consumers data and the national security of the united states you need to look elsewhere. >> chairman rogers, you and i had an opportunity to sit face to face some months ago discussing the larger chinese espionage, cyber espionage threat which we both know is a significant one. when it comes to this report,
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you know, you do seem to have a lot of assumptions and conjectures as posed to hard facts that you hhuawei is a cle player. >> we have a hurdle in laying out employees' aserges word for word is that this information is so serious and so significant that we are going to refer it for department of justice investigation. so you have bribery and corruption not only overseas where the chinese certain lie are active and engaged in bribery as a part of their business culture overseas but here in the united states. and we have some very clear examples of that that will be forwarded tomorrow to the fbi for a thorough investigation. you can't put those details in
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the report if you want to have a successful investigation. what we did is show clearly that they have not been able to ameliorate the committee's concerns. in the open hearing they said we'll give the current and past members of the communist committee that operates in huawei headquarters. they said that during the hearing. afterward they came back and said no we're not going to do that. there's so much smoke we thought that could go into the unclassified portion and meat of this investigation, i hope, will result in prosecutions when it comes to bribery and corruption, when it comes to a systematic part of visa violations in an effort to help the american company by bringing in chinese workers under different ruses and schemes to do that. we have this whole host of bad acting going on. by the way we have all of these
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reports of back doors and bugs and beaconing that has to be vetted from a criminal perspective. >> if i run a u.s. telecom company how worried do i need be now about retaliation in terms of vis-a-vis doing business in china? >> unfortunately china has a bad history here of retaliation and extortion about getting what they want if you want to do business in china. i hope that this is the first step in leapti iletting china ud if you're in the world market you have to play by the world rules. you don't get to set your own rules. it doesn't work that way. so, could it create some tension? i suppose. it shouldn't. the they want to become transparent, if they want to severe their ties from the chinese government, if they want to work to the next level of protecting source code and intellectual property at a level that's acceptable to americans and europeans and other asian nations, this would be a good outcome. unfortunately, you know, i know
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that isn't happening. businesses who want to do business in china feel like they have to do it under their rules which would not pass the muster anywhere else in the world. so one of the things that is my job to worry about is the intelligence committee is what does that do for our national security. okay they are stealing the next generation of economic prosperity. we watch them do that every day. what does it do for our national security that they would have such clear access to data that also the government would use some of these infrastructure networks as well. that's very, very troubling and they could not walk away from that. >> chairman rogers, it's a complicated relationship we have with china to say the least. the largest holder of our debt ashs huge trading partner. do you have any confidence that this huge issue and i agree with you, you know that, will 0 koem to the fore in terms of our dealing with that country the same way we talk about treasury bonds. >> argue this ought to be at the
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top of my bilateral discussions with china. we made a serious mistake by not doing that earlier. they had unfettered capability over the last five or six years to do this cyber espionage and pay no penalty for it. they invested billions, we watched their cyber capability and military and intelligence services grow every year and the amount of information their stealing grow every year. part of the reason was nobody wanted to talk about it. i argue we have to talk about it. i hope said bilateral discussion. do i think you can get somewhere with the chinese. i don't think they want the embarrassment of the whole world really acknowledging under the light of day the level of theft that they participate in every year of intellectual property from private networks and private businesses. >> well, i agree. the question is whether this report is a step in that direction, mr. chair hahn. but appreciate your time very much. >> thanks for having me.
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i appreciate it. >> congressman mike rogers. "squawk on the street" will be right back. jack, you're a little boring. 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.
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european markets are closing now. >> got the european close. as you can see markets all over europe closing largely in the red amidst some global growth concern ranging from china lowering their growth forecast. eurozone ministers are gathering
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in luxem bo mmpluxembourg. today more anti-austerity protests in greece. this time pensioners hitting the streets of athens to protest planned income cuts. the demonstrations come one day ahead of chancellor of germany, angela merkel's first visit to groois since the european crisis began and that should be interesting getting into tomorrow and wednesday. let's bring in miss plus for a look at what's going on. >> 2-1 declining to advancing stocks. we tend to be done. there's a reason we talk about europe. i want to point out they are all gathered all the finance ministers. as carl mentioned the bailout fund is now in existence here. they are all talking about this
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bailout funding existence. he had the best line. nobody is in a party mood here but i'm less pessimistic for the eurozone than in the spring. this bailout fund is a clear instrument for dealing with some of this crisis. heaven knows if it's enough. most think it's won't be enough. for the moment they are feeling better. that's why our markets tend to do better here. let's look at this correlation. why do we talk about europe? here is the s&p 500 and here is the euro. as the euro goes up our markets go up. as euro goes down our markets go down. that's a pretty tight correlation over three months. that's why we talk about europe because it moves our market. let me move on and talk about a couple of things. kudos to gary my colleague for his comments earlier on the euro. excuse me. what was going on for junk bonds. i very much subscribe to his ideas. it is the number question i get. should we keep putting money
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into junk bond funds because they have been pouring money all year. the answer is be very careful. junk bond funds don't act like bond funds. in times of volatility they act like stock funds. here's the s&p 500, the white line. here is the bond funds the green line. the junk bond funds. look how closely they could relate. when the stock market goes down these junk bond funds go down. when the market goes up the junk bond funds go up. here's the regular big bond fund. they move sideways. more volatile. the yields are coming down not just because the prices are going up but these funds are getting new issuances at lower yields than before. that's because it's heaven right now for these guys. a lot of people are questioning the quality. a lot of people rush in and go out in this junk bond market. be aware of what you're getting into when you have these junk bond funds. take a look at the last five days for transport.
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everybody has been complaining about transports underperforming. last five days outperforming, put up the chart for the last three months this is what people are worried about. underperformance of the transports. the only thing i can tell you is at least now this is starting to happen, starting to narrow a little bit. a little bit of less concern for the people who are talking about dow theory right now. can you dose for your comment. >> bob brings up a great point in terms of the risk associated with these funds. leapt me add that when you buy a bond you have maturity. when you buy a bond fund like etf there's no maturity. they are rolling over constantly. that is why suggest people sell if they own these etfs. game over for etfs. because the type of stuff you said it politely crap coming to the market. >> you made that point several times in different ways. thanks, bob. you're looking into friday's jobs numbers in a way. you had some time over the weekend to digest -- >> there was a correlation on friday.
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i spoke about correlation. there was a correlation between the friday action and s&p and jobs number. people paying attention to the jobs number. >> somewhat. things looked better in the morning. >> controversial jobs number for sure. i want to look at some stuff. i was amazed. were you aware, these were the numbers. 873,000 in the household survey, i'm sure you all know this, you saw this. bump up of 873. 582,000 part time position. did you know, carl, i did not know, in investing its good to learn something. when they do these surveys if they call you up and say have you done any part time work and you say yes i've done some part time work. i mowed my neighbor's lawn and i was paid for it, even if i wasn't paid for it that's considered part time work. additionally, if you have five different part time jobs within a one month period that's considered five different jobs. so amazing stuff. i know a lot of people will
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focus on this. i suggest do you something that i did which i guarantee you chris matthew, bill o'reilly did not do. go to this website. web and put it up there. there it is. we will leave it up there. and you will go there, if you are interested in to see how these numbers come to be and decide whether it's garbage in or garbage out. >> sure had its share of controversy on friday. >> interesting stuff. >> yes. >> a little tease back at the end. hour i'll give you some other numbers. today is a day with numbers. we were paying attention to the corporate buy back stuff. some numbers at the end. show that will blow your mind in terms of what's happening there too. >> markets pulling back this morning but the fourth quarter off to a good start. dow closing on friday. what are they saying about this
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market. let's bring in katie. it was said this morning in 9:00 a.m. that the market is in the hands of technicians now. what your seeing? >> reporter: certainly does seem to be a momentum driven market and i think that's important to note that despite the fact that the news has been very negative the market has held up very well and i think we'll see that continue over the very near term at least into the heart of earnings season. my momentum indicators are very struggling positive in support of the interim uptrend. ate more mature uptrend than before and ultimately that gives way to a correction phase. it's at least a couple of weeks out and that it will come from much higher levels than here. >> when you talk about a correction phase are we talking about a classic defending of a correction or not? >> i'm looking for 5% to 7% down side but from above 1500 for the s&p 500. a breakout above the september high which is around 1475 would target 1510 over the short term
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and that's within the scope of our intermediate term target which is 15 to 20 which will ultimately be tested after a correction phase. the trend falling models are still lined up very positively and we're not as overbought as it may feel. >> as i recall, the last time you were on talking about 2013, your targets were, i think, what some would argue, still relatively historic. are your looking for record highs on the s&p? >> i am. first half of 2013. based on the longer term momentum indicator. that's what i would not lose sight of if we see a significant correction. corrections feel bad but at the end. day it will prove to be a buying opportunity. the breadth behind the market is strong. 65% of the constituents of the nyc is above their moving day average. so we do have room for expansion in the market participation. >> and finally, i assume breadth, for those arguing a
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bullish case that's to their favor >> it sure is. the cumulative advance decline lines including the percentage of stocks are all trending higher over the short and long term with room to break out in here. so i would still be constructive on breadth and also again like i said we're not as over bought as we could be. >> interesting stuff, katie. thanks for your time. katie stockton. if you drive in california you are now paying more for gas, this is unbelievable than people in hawaii. will the switch to winter blend bring the relief drivers need? we'll talk about that. game maker zynga falling. 2.44 is the price. which companies may be able to come out on top. we'll be right back. [ male announcer ] how do you trade?
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welcome back. coming up on halftime a make-or-break week for market vanguard founder, jack bogle. plus is apple on the verge of a technical breakdown or is this a buying opportunity. and the call that everyone is talking about, is it time to break up hp? tune in at the top. hour, carl will have steve on that made the call that's the talk of the wall street. >> amazing note. i look forward to hearing from steve. as we heard from jane wells california drivers are fuming after a spike in gas prices last week sent prices up past $5 a gallon. the governor now has called for the immediate release of a
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cheaper but less environmental friendly blend of gas to help bring prices down. david hackett is an energy consultant in irvine, california. he joins us from there. good to see you, david. good morning. is this the solution? >> this is a great step. going to the winter blend will allow the refiners reduce 10% of gasoline. that's like adding another refinery to the market. >> how much is this the structure of refining in that state. why is this happening? >> well, the evidence points towards refining problems. a fire at the chevron richmond refinery in august. power bumped knocked exxonmobil off line last monday. two of the big reasons. and then, of course, this is a difficult market to resupply from long distance. we're sort of an island.
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when there's a sudden supply short fall it's tough to get additional barrels into this market in a hurry. >> so if we bring in this -- if we allow for different blends how much could the price come down. is this marginal improvement. are we still looking at relative highs given the season? >> no. this should be a significant improvement. the market was off on toward of 45 or 50 cents on friday. the governor's announcement will take another 45 or 50 cents out of it. indeed the market that was up about $1.16 from the time things got started until it peaked last thursday. so another 50 cents is going to come out of the market in the next day or so. >> nothing to shake a stick at, i guess. is there any danger in this kind of precedent or is this done all the time. once you start missing with the seasonal guidelines on blends if it's a slippery slope. >> certainly, one has to be cautious about this, but i know that it's been looked at very
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closely at all levels of government, and i think they waited and made the right decision. >> all right. we'll see. it's unbelievable numbers on those boards. dave, thank for your time. when we come back the video game industry facing one of its toughest foes and that's financial uncertainty. the push to mobile becoming a serious threat. can video games make to it the next level or is it game over? we'll talk to one company that made the transition successfully when we come right back. you'd spot movement, gather intelligence with minimal collateral damage. but rather than neutralizing enemies in their sleep, you'd be targeting stocks to trade. well, that's what trade architect's heat maps do. they make you a trading assassin. trade architect. td ameritrade's empowering web-based trading platform. trade commission-free for 60 days, and we'll throw in up to $600 when you open an account.
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social game maker zynga on the down trend since its ipo as the popularity of games like farmville fade. traditional game makers are hurting. the industry now turning to the promise of mobile gaming but will that be enough? what will the gaming industry like five years from now? the ceo of kabam joins us this morning from san francisco. kevin, good morning to you. >> hi, carl. >> i think the entire industry could probably use your advice because it appears that a lot of leaders are lost as the migration continues. what's the answer for a company like zynga? >> i think the industry is going through a breather. what's happening right now companies are trying to figure out all the new things that's
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happening from distribution to monetization. we're growing rapidly. we did over $100 million in gross revenues last year. second is we have a diversity of different platforms. while we started off facebook much like other social gaming companies, we went into 2011 with 100% of our revenues on one platform. that's facebook. today we're on the web, we're on gamestop, on steam, april many's ios devices and top ten gaming company on android as well. the third is we've made major partnerships. so we announced last week we're working with time warner on the hobbit and today we're announcing we're working with gamestop on our hit game, that's running through gamestop's online and retail store
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promotions. >> i want to ask you about one thing, the head of rumble said the other day. he said casual gamers were 10% of the total market and zynga tapped it out. posting about your progress in farmville gave it a false virility. nothing about the quality of the experience. was there a bright light shining on zynga through the lens of facebook made people overestimate demand for their product and i'm talking on a macro scale. >> i think other gaming companies out there have done a tremendous job serving a casual gaming market. when you look at traditional gaming the core of that market has been more towards a traditional what we call a core gamer. people who are playing their x-boxes and playstations, playing other great games. >> which is closer to your own audience, right? >> kabam is different from other casual gaming companies that we focus encore audiences np stead of playing two to 15 minutes a
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day, our players are playing two to three hours a day. >> if you were a 100% facebook and brought that number down to 70 your happy with that number in the long term or would you like to see it come down more as you spread the wealth around. >> it's flipped a little bit. we started with 100% and now less than 30% of our revenues are off of facebook. more than 70% of our revenue is coming from other websites and mobile devices these days which is our fastest area of growth. >> souts 30 now. >> less than 30 today. i'm happy with that number. facebook is an important partner for us. we love to grow our business with facebook much like i want to grow with every other partner. when we were 100% dependent on facebook that was rask. we had 100% of our business dependent on one supplier. i wanted to diversify that. we feel good about the dweefrity of our business. >> sounds like a good strategy. kevin, appreciate your time very
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much. fascinating times. kevin chu the ceo of kabam. keep those tweets coming. you may have heard the privately funded spacex falcon launched from cape canaveral last night on its way to the international space station. we want to ask you if you could send a company into space, and never here from them again, who would it be and why? tweet us. our handle is @squawkstreet. street is spelled out. we'll get your answers after the break. tridion safety cell which can withstand over three and a half tons. small in size. big on safety. which can withstand over three and a half tons. customer erin swenson bought so, i'm happy. today. sales go up... i'm happy. it went out today... i'm happy. what if she's not home? (together) she won't be happy. use ups! she can get a text alert, reroute... even reschedule her package.
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let's get the squawk on the tweet. what a great question. they are sending rockets into space that are privately funded. if you can send a company into space which one would it be and why? again if you never heard from them again. brenda writes zynga so i wouldn't have to decline farmville inactivities on facebook. carly writes amazon. and tom tweets i would send hpq but not before getting a groupon for the tickets. corporate buy backs, their effect on the market. >> we spoke at great length about the massive buy backs that
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have taken place. check out the numbers right now. last week, corporate selling was 6.8 billion which exceeded the amount of corporate buying, 4.6 billion. the data since the beginning of september has changed. talk about correlations breaking down. since september there's been 22.7 billion more selling than buying. very important to note. this is a major, if you're bearish on the market or short the market you'll love this data because this been a trend that's been broken. >> after how much time? how long has this trend been in tact? >> the bulls will tell you pretty much the whole year and certainly since the beginning of the qe3 phenomenon. i'm surprised to see that data broken. very surprised this morning. >> until the reversal were you trusting that the trend was going to continue, that the correlation would continue? >> that correlation was something you expect with companies doing less m and a and generating a lot of cash. 'v


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