tv Squawk on the Street CNBC October 17, 2012 9:00am-12:00pm EDT
government is showing signs it's committed to reform. the ten-year there, 5.5%, the lowest since april. mixed results for the third quarter. they are up 70% this year. >> the second place financial debate is in the books, incumbent barack obama and challenger mitt romney were not pulling any punches. john harwood with highlights for the showdown and where things stand in the run for the white house. double whammy, taking a toll on shares of ibm and intel. we will explore whether tougher times are ahead for these blueships. talk to one analyst downgrading ibm this morning. >> and there continues to be plenty of buzz surrounding the surprising ouster of vickram pandit. revelation owes what city insiders knew, coming up. it was a break even quarter compared to analyst estimates. we're looking for a seven cents a share loss. revenue, a bit short of consensus. ceo brian moynihan pointing to
several positive trends, including an increase in deposits, mortgage originalation and small business lending. as well, kayla, i know you were on the reporter calls. the analyst calls beginning shortly, i guess. >> it began at 8:30. i think there's still unprepared remarks, as well. it was interesting to see the stock up, even if it was just slightly in the premarket because on the face of it, the numbers aren't great. but there's two things at play here. one is the fact that in the third quarter, we saw bank of america settle some legacy litigation regarding merrill lynch and what it told shareholders about the quality of merrill lirn assets when it bought that company. i think investors were really excited to see that actually just get out of the way. bank of america actually came out in front of its own earnings and at the end of september said we're going to take a $1.6 billion charge to our earnings because of this settlement. investors had a settlement. they see that as good news. the other thing is their capital levels are better than any other
bank. one thing bank of america has been able to do extremely well, they ended this quarter with a tier one common capital ratio. 11.4%. and boggled three tier one capital ratio which is the furthest generation of boggle three. a lot of generations are getting up to speed on that. >> they've come a long way, perhaps even more than people had anticipated. >> that's phenomenal. >> which is a positive. net interest margin is better than what might have been anticipated or better than we've seen from some of their competitors. but they telegraphed that earlier in the investor conferences. with that being said, it's been interesting this period. wells fargo, not great. mortgages, bank of america an okay there, as well. but we're seeing investors move out, perhaps, of some of these names as they search for exposure to housing as we watch that go up. take a look at real estate. has anybody seen what that stock has done yesterday? up another 7% after that incredible week. >> and we mentioned starts at the top.
a 15% consensus was about 2. 872,000. everybody is trying to put it back into perspective because at these levels, this is what we've been doing at the depths of the '91 recession. house sg a bright spot. >> and bank of america this morning weighing in on that big argument, whether housing has turned the corner. he said i think we are beginning to turn a corner. prices are going up. we're seeing some stability. but there is still headwinds. bank of america is trying to get shares there, take it away from wells fargo. not as sunny as outlook as jpmorgan or wells fargo. but, you know, some bright shoes for them. >> the banks do give us one small opportunity to talk about pandit being written about in the papers today. and the stock mirrors what we were saying tht desk 24 hours ago. >> yeah. we were scrambling yesterday to try and figure out what happens given how unexpected, how shocking it was to find out that pandit had resigned along with john hayden. i think safe to say that this
board became a bit more muscular, perhaps, than people had anticipated. sometimes you don't notice the composition of a board over time has changed. he came in as chairman in april and clearly there was a difference of opinion here. there's no doubt, based on the reporting i've done both yesterday morning and through the day, i assume you've heard similar things. >> i have heard similar things. and i think it's clear that it was in no doubt in anyone's mind that michael was the successor, that the board had pinpointed him and chairman mike o'neal said as much on last night's call. the question is why did it happen this quickly? vickram pandit had said he doesn't believe in lame duck sessions. but that being said, i think from some of my reporting that the idea was to have pandit stay on until the end of the year. >> yeah. but it's over and done with. we'll see how city stock does. as you know, carl, it was up yesterday. >> and a lot of discussion about how the board for better or worse owns this story. we'll see what they do with it. meantime, the second presidential debate is the talk
of the nation. last night, the president came out swinging after that lackluster performance in the gop debate. our chief washington correspondent john harwood has made its way back from new york to englewood, new jersey, with a look at what's at stake and how this debate, john, like the first one, may have changed the trajectory of the race. >> carl, i suspect it won't change the trajectory as much as the first one did. there was more upside for mitt romney in these debates than there is for president obama in the second debate. when he may have stopped mitt romney's momentum. this was an incredibly pugnacious debate. i've never seen two guys in a general election go at each other quite the way they did. many points of contention. whether it was on their pension plan, china, the 47% which barack obama hit mitt romney on at the end. but i think from an economic point of view, the crystallizing moment for obama came in this exchange when he rebutted mitt
romney's claim that he has a five-point plan for the economy. >> governor romney doesn't have a five-point plan. he has a one-point plan. and that plan is to make sure ta folks at the top play by a different set of rules. >> now, of course, that's what mixed together the entire obama argument against romney. but romney, as you said in the intro was not backing down. he acquitted himself well in the debate generally. he was very aggressive in going after president obama and his most of coursive weapon is the argument that president obama's policies have simply failed over the last four years and he used the recent drop in the unemployment rate to make that case. >> if the unemployment rate was 7.8% when he took office, it's 7.8% now. but if you calculated that unemployment rate, taking back the people who dropped out of the workforce, it would be 10.7%. >> but there you have mitt romney saying, even though the rate has come down below 8%, it still shows we're going backwards when you take into
account the broader labor market forces. the question is going to be, carl, which swing voters, if there are any of them left, are going to be affected by those arguments? the polls will tell us in the next few days. but certainly in the near term, the most dramatic effect is the rise in democratic enthusiasm. they were down after the first debate. republicans were sky high. now that's more evened out. >> i've heard people say there was less substance to this debate. i've heard george wilson say that it was probably the best debate he's ever seen. did you think it was close to that? >> if you like rock em sock em, it was good. i would not say that there was necessarily more or less substance. i think we asked glenn hubbard about this, you remember, in our postgame show. and i said, did you hear any new policy put out in the debate and glenn looked at me and said you think the last couple of weeks of the campaign is the time to put out new policy? no. this was practice argumentation. but the two sides got in each
other's face. i think sometimes it went a little bit too far. both candidates were a little bit too hot at times. they didn't overly attend to the audience. they rolled over candy crowley when she tried to stop the discussion a few times. but on balance, people got to see both candidates at a high level of aggression and they can make up their minds. >> a lot of jokes about whether the secret service is going to get involved at some point. >> exactly. >> very little sleep, john harwood this morning. mitt romney claimed that he requested finders full of women during his debate. it was part of his response to a question about women's issues and inequality in the workplace. complete this sentence. romney would have really won voters over if he said if he had a binder full of -- black -- because -- blank ". we'll get your responses throughout the morning. on the back of mixed
results, a neutral rating on the stock. price target, $211. and he joins us now. you know, i guess the first question, how long hates been since we didn't see this company kind of beat and raise? because they didn't. >> usually they do, don't they? >> yeah, they usually do beat and raise. we actually -- i think 24 of the last 27 quarters they've beaten and raised. and they particularly raise guidance for that, as well. so this quarter was the first time in a long time that we didn't see that happening. >> and what is the problem and does it auger for perhaps tougher times ahead? >> yeah, i think. the reason for the downgrade was three things. first, we thought that they had some poor execution on the personal side of the business. their gbs has been down this year and they had to do some restructuring of the profitability and the contract. the bookingings or the backlog was basically flag. but we don't see that turning around anytime soon. ibm does product their earnings
through margin upside. we think that comes into question here as revenue growths has been slow. and then the stock has been on a massive run. it's up 40% since we initiated with a buy, 11% since last quarter. and they're going to need to execute better in order to maintain that 12.5 multiple that we now have on. >> i think i heard someone say this morning that they're beginning to test the elements of their business model. is that essentially what you're saying when you talk about beginning to execute? >> yeah. i think point number two of our downgrade was that, you know, one of the things that this company has always done is beginning to protect earnings. we think they're still there, but as revenue growth continues to decline, that becomes a much, much harder path to go down. so, yeah, i would say they're definitely starting to test the limits. >> now, over a five-year term, ibm is a good company. but in the short-term with what the execution is on the services side and what we're seeing, it becomes more difficult. >> is there a read through to other competitors here or is
this more of an imb problem? >> that's a great question. i think in i.t. services, which is where most of our focus is, i think the read through is that business is stable, which doesn't necessarily imply that there's a ton of upside. and with most of our coverage listed at 52-week highs, i think it's going to be tough for some of these companies to continue to maintain the valuation and their price targets in the face of wa stability not necessarily up side. >> all right. thanks for joining us. appreciate your time. now on to another check bellwether, that is intel trading lower in the premarket. chipmaker's third quarter profit fell 14%. not a big surprise. declining pc sales. earnings did beat expectations. yesterday on closing bell, stacey smith talked about the company's future. >> wa we guided for q4 is similar to what we saw in q3. we're going do see some growth in the pc market, less than seasonal, but some growth. and our expectations based on the order patterns is that they'll continue to manage things cautiously. >> doug freedman is an analyst
with rbc capital markets, downgraded intel to market perform from outperform a month ago. that was a $24 price target. good to see you. welcome. >> thanks. good to be here. >> you say the report is not likely to alter sentiment on the stock. is that because everybody is so down on it? >> yes. i would agree with that. really, there's two things in play here. demand side is just not working. and on the internal side, management has to take action toes bring leverage back to the business model. >> what is the solution, if any? are we just in some sort of structure ka none dumb as we watch tablets take over? >> that absolutely is part of the problem. there's the problem that intel's growth expectation, they were targeting 60 billion in revenue these year. we're going toned somewhere at 54 billion. so we're seeing the fact that they let their installed base get a little too big. >> i know we're down and some people anticipated that would not be the case. is that becoming more of a problem than perhaps investors
realize? >> it's definitely something that we need to watch closely. there are some signs that i.t. sxnding is not expanding the way we might have expected it to. the enterprise side of that business is showing stockness. there is a little bit of concern there for us. >> looking at the chart over the excited once we get to 25 and et 30. why was this all a big surprise? this decline in pcs just knocked everybody's socks off. clearly, you mentioned the revenue expectations. did nobody see this coming? >> i think some of us saw it coming. i definitely was looking for a little stronger revenue growth this year. the company was themselves extremely bullish on their ability to deliver at 8% revenue growth, regardless of units or whether it was going to come through afts. so the fact that they really thawed out and aren't going to be able to deliver any revenue growth this year is really where the disappointment came. and as i said, management with
that expectation is too big. the crazy part in some eyes, the less we do, the more expensive it is. intel is taking $900 million of charges effectively and it's rising by that amount in the fourth quarter. >> interesting. finally, you know, we got some m&a. it's nothing to write home about, but seymer, consolidation in tech. i word, can intel buy some growth at this point? >> can they buy some growth? to buy growth for intel means that they have to go out and try to find businesses outside of their core market. i don't think that that's what they're focused on at this point. they need to share a wallet and get people back buying pcs away from the tablet. >> that's a tall order. >> doug, thanks a lot. good to talk to you this morning. when we come back, investors and employees still a little shell shocked from vickram pandit's departure over at citi. we have details about where the firm goes from here.
wall street was stunned yesterday. they were stunned by the news that vickram pandit is out from citi. kayla. >> thanks, david. it's been a long 24 hours, hasn't it? but an interesting one. so i think people within citigroup remain surprised. although they're start to go digest the news and starting to get some more ideas about what the new ceo might bring to the table. there have been a series of calls starting second half of yesterday, possibly even before that. analyst phone call with mike corbat. there are not a lot of dashls facts emerging in terms of why vickram pandit ended up leaving so abruptly or exactly what michael corbat's strategy is
going to be. so not a lot of answering to the questions. i spoke to one banker in a field office who says corbat has so much experience with our clients and our worldwide business. hopefully he will help ag bit with client sourcing. that's not something that pandit did during his tenure. that's one area where people are starting to see some hope. people are hoping for a few more answers as the day progresses. >> yesterday, 4:30 on the conference call with o'neal and the new ceo, as well. i mean, the key being, i guess, is there a real change in the strategy? they said no. but many of the people i've spoken to indicate, well, there certainly was a difference in strategy between the board and its former ceo. >> well, it seems as though the core business strategy remains
the same. if we can believe what we're hearing about what the board room drama was about with pandit, they wanted to make some improvements in key areas, but not the core business. one of those key areas is the relationship with regulators. we've heard a lot about pandit squalling with sheila baer who has been a big critic of his, needing to rebuild those relationships. right now they're going through the capital assessment project for calendar 123 and there's a desire to make sure they don't wind up in the situation they were last year where they were unable to pay out a promise dividend because of the fed's concerns about their capital. then you've got the say on page debacle with questions about relations with their key investors. i agree with you, i don't think they're making a seismic shift in terms of the business. but there are some very important areas that are ancillary to the core business that it sounds like need attention. >> all right. kate, as always, appreciate your reporting. we'll check in with you through the day. when we come back, earnings,
the economy and the debate, what top art cashin's list? and also ahead, steven radner weighs in on last night's debate and what it means for the economy. a little weakness here on the futures. we've had two 90 plus days in a row. haven't done that since the end of july. 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. monarch of marketing analysis. with the ability to improve roi through seo all by cob. and you...rent from national. because only national lets you choose any car in the aisle... and go. you can even take a full-size or above, and still pay the mid-size price.
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ubs financial services. happy wednesday to you. >> to you, as well, sir. >> they seem to think rajoy has it in him, or at least that the spanish government has it in him. >> i think they're as intrigued as all of europe happens to be, that rajoy is developing a kind of homeowner's credit and helocs for a nation. and the plan, it works to everybody's advantage. that way he doesn't have to call for austerity by asking for a bailout and the germans don't have to pay anything if they never tap the fund. i'm not sure it's going to work. >> we eventually had to pull the bazooka out. >> they wind up tapping into these things once way or the other. >> art, i want to ask you about earnings. we're seeing earnings growth just turning positive, but yet 70% of companies have beat expectations.
at what point will we be not managing expectations that low any more? when are we getting real growth? >> i think you see a couple of things. first of all, the expectations were managed rather low. we went from record profit margins to contraction of profit margins and the company started to say, it won't be as easy to do this, but the american corporate background has become so lean, you know, they've learned to work with ten people where it used to take them 15. so they're able to beat those lowered earnings expectations. but i don't know that they're going to go for the champagne bottles quite yet. >> well, i mean, i'm looking at ibm. i'm looking at intel today. maybe they're each company specific but there may be something going on in the willingness of corporate america. you see five different strengths? >> yeah. well, i think you've got a couple of things. you've got a lot of people underinvested. the hedge funds are badly underinvested and underperformed. and they're coming to end of
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a lot going on this morning, guys. the banking news, that's where the action has been this week. >> surprising. they're not making much money. still, most of the stocks creating well below tangible book value, but yet some signs of life. one of those this morning, the margin. back of america and citigroup, surprisingly, the to only two banks reported so far. the negatives will outweigh the positives. the person who usually sits there, mr. cramer. interesting movement within the banks overall. but there does seem to be some movement out, sort of rotation out of the banks overall. perhaps because there's some
disappointment that you aren't seeing the housing rebound. as large as it is, as small as it is, in other words, off a small base, but it is moving. so, you know, a lot of mixed picture in terms of investor reaction. a lot of the leaders today, masco, poulty, dr horton, lenar. freeport. i think it's fascinating how people get scared out of the names when there's a valuation call or when home depot's results aren't stellar enough. i guess they're quick to come back because there are things as much as housing, at least for now. >> right. and last week, we had an initial public offering of, if i recall, $27 a share. i think i'm correct on that. at the high end of the range. it's up another 5% today. this is, many people said including the ceo, a sure plan on housing. that stock is $37. it's up ten pukts since the
initial public offering, only a week ago, not even. that does give us some sense as to what investors seem to be looking for. >> csx, 34 cents. michael ward was on squawk earlier this morning. revenue essentially in line. mix is not a big surprise. calling prices for natural gas. one of the biggest transporters of coal, if cramer were here, he would probably mention that. in terms of volume, cars or making a big part of it, we know we're putting together a decent year in terms of the annual runway for the car manufacturing. >> we also saw earnings this morning for knight capital. you see the name of the marketmaker plastered all over here. $6.30 per share loss for the quarter. they had to raise emergency capital. still afloat now. this is more than many thought that they could say in that first week of august. after so much weakness already for that stock, you wonder when that's actually going to get
behind them. >> shares of pepsi are not doing much after that company reported earnings of $1.21 a share. $1.20 a share. company did reaffirm its 2012 for constant currency net revenue and constant currency etf. of course, they did have some negative foreign exchange translation and the likes that we see there with the stock. by the way, coca-cola more or less flat this morning after yesterday talking a bit about real slowness in china, which may have larger ramifications than just coca-cola itself. >> china also an issue for intel. that was a big issue there. they were pinning their strategy on the ultra book, trying to sell a lot in china. didn't work out there. but looking at intel and ibm, interesting to note how far they're still coming down today, not just after hours yesterday. ibm, last i checked, was up about 4% premarket. let's thinking about the fact that warren buffett made a big
bet on ibm last year. it's only up about 9% since then. underperforming the overall market. not a great gain for buffett there. >> as our guest points out this morning, if it weren't for ibm down 9.57, the dow would be up 30 instead of down 40. ibm subtracting 70 points. >> weighing in by $200, weighing heavily in the dow. >> let's see. bob pisani, i think i see him on the floor. we're going to watch ibm today. >> we are. but i want to talk about earnings in general. you know what the paradigm is for everybody. q4 is going to be worse and we're going to slow down in 2013. guess what? wrong. none of this is happening so far. so i said on monday that likely we will see q3 earnings positive and q beside 3 will mark the trough for earnings. so far, that is playing out. it's very early, folks. we've got 70 companies reporting in the s&p. do the math. what's that, 14% or 15%?
so far, earnings are now up, 0.27% for the quarter. i don't want to make too much of that. it's fractional. but it's not negative any more. they've been wrong on that. there's been positive investments for -- it's the first time we've seen a positive estimate going back to july. so far -- and it's early, 357% of the companies are beaten. that's above the historical average. did you hear that? above the historical average. not booel people who are missing, they're beating now. and the reason they're improving is bank earnings have come in better than expected so far. so remember the paradigm. everybody has been expecting the numbers to come down. they were concerned that they would miss on even the lower expectations. this has been wrong. the theory is wrong. companies have been very conservative and they're beating the expectations. you see historic norms for this. so houb the second question? you know what's going on with q4? earnings estimates are going up, not down. therve going down for about 9% a week ago. estimates today for the q4,
10.2%. earnings estimates are going up for q4. they are not going down. pay attention, everybody out there who keeps waiting for the pullback that is not coming. we were down 3% at the worst of those a couple of days ago. also the highs. now we're 1% off. how about housing? lift off on housing. this number, possibly good. highest level since july 2008. 872,000. let me show you what's going on in the construction industry. raymond james had it great no doubt talking about the themes construction has been talking about. here is something very important. there are now skilled shortages in the construction industry because so many people have left the workforce in construction. they've gone out and gone into other jobs, in other careers. they're looking to hire people in certain parts of the country. they've got to incentivize some construction people to come back
to work. what that means is they have to start paying some more money to get back into the industry. when did you think that would happen? some people were saying for ten years there would be people leaving the industry. wrong. we heard that 20 years ago on real estate. we turned around quickly in real estate 20 years ago and we're starting to turn around on housing. the supply of developable lots is now surprisingly scarce, raymond james says. how about that for talk of a turn around in housing? we'll keep an eye on that. i've been concerned about the valuations myself, but if you don't look at these stories and say, uh-huh, things are turning around in housing, guys, you're not paying attention. >> that is interesting about the home builders. a man bites the dog story, bob. thanks a lot. we want to shift to the dollar. rick santelli, happy wednesday. >> happy wednesday, carl. indeed, better housing data. europe believes for the moment seems to be on a low boil.
and we can talk about whether that flame is going to go up in the future or not. but for now, it doesn't matter. spreads are narrowing in europe. and stocks are up. so we see interest rates are up. the ten-year rate, we're about the highest in a month should we close here. let's look at a chart of boom rates. as it continues to monitor world equities. carl, back to you. >> all right. talk to you in a little while, rick. thanks a lot. let's talk about the latest move
in energy. hey, sharon. >> hey, carl. the second question last night in the debate was about gas prices. that's what consumers and investors are very interested in. it's going to get more interesting later today when we get the report on the energy debate on weekly supplies. the supply picture is key. yesterday they talked about the fact that we saw an increase in crude supplies. that was double what many on the street were expecting and we keep talking about tight gasoline splices as a reason for the high prices that we've seen. but, in fact, gasoline prices are actually coming down. retail gasoline prices are down 5 cents in a week. we're looking at -- in states like ohio, pennsylvania, florida, key battleground states where prices have dropped 10 to 20 cents. what's happened here? we're seeing a rebalancing of inventory, that they had been tight on the east coast and the west coast but now, of course, with the new rules on winter rate gasoline for california and some of the refineries coming back online on the east coast,
we're seeing those supplies come back online. 10:30 a.m. >> we're talking about the so-called fiscal -- season. if it's more of a slope or a slightly graded scale. the fact is that next year, potentially, the taxes on dividends are going to get up. and so we are starting to see signs of companies that are paying dividends now, rather than waiting until next year. case in point, hca. a public company, large for profit hospital operator in this cup. but also owned still a great deal by family and by the likes of its private equity sponsors, in this case, kpr and bayne, for example. yesterday, this incredibly high yield market and the need perhaps the believe that it's
better to return moment to money to shareholders now, behind a 2.5 billion junk bond offering by the company, they're getting things done at below 5%. it is really amazing. 5.875%. you see the ten-year and they are returning $1.15 billion to shareholders in the form of a dividend. expect to see more of this in the coming weeks and months. if you're a high yield banker out there or just a banker in general, aren't you going to call on companies and say, hey, you can borrow at this rate? and you can return the dividend to your shareholders. do it now before those taxes go up. they may not go up. you're seeing that both in the forms of dividends and from surprisingly not as much as you may have anticipated in terms of share buyback. as we've pointed out many times, you can borrow at a rate cheaper and reduce your share count and
see precaps flow positive. you don't see that very often. talking about high yield, by the way, i did want to address clear wire bonds. we talk a lot about the stock which has moved up sharply, although it was down yesterday percentagewise sharply since we first started reporting on the bank yield and clear wires placed in that field. but it's the bonds that have seen the clear move. many of them are tolerable. when we show you the bonds, by the way, you're going to see them coming down. prices have gone up and gone up sharply. what can we tell you about clear wire? again, as we first report last week, it is -- who consolidates clearwire. it's not something that needs to happen immediately. and it's a complicated process. they own 40% of the common equity out there. yes, they are probably not that happy to see the stock up sharply in the last few days. but at the same time, they want to buy in perhaps that stock and also consolidate it. the plan, according to people
close to the situation is to try to get a clearwire deal done at the same time they have the bank transaction. though as we saw and we've seen n merger agreement, it's not conditioned in any way on that conclusion. that being said, again, and others who report it, as well, their effort is under way to do that. that is reflected more so even in the bonds. which we don't typically talk about as much as in the stocks. we did want to update you on clear wire. it's complicated. a lot of regulatory finals taking place on that one. carl. >> would you advise those who want to believe this is going to happen to be patient, wait? i think when you're looking at clearwire stock, it is an option in many ways. we've seen analysts saying it's worth $5 and some saying it was worth the $1.40 that it was inhabiting prior to news of the softbank transaction. it's very difficult to say. very difficult to say. >> yeah. it's going to be hypnotic to watch.
and certainly a long and winding road, too. a lot of obstacles. it seems like they do have a bit of time. >> exactly. as we gear up for the launch of ipad, one is out with a new note detailing how big of an impact the smaller ipad may have on apple as a whole. gene, always good to talk to you 37 good morning. >> good to see you. good morning. >> it looks like you're trying to draw some lessons from the way they made the ipod smaller back in the day and how that changed the story then. you think this is going to be part of the larger story for the company? >> absolutely. and i think what happens is this is well anticipated. obviously, the ipad mini, but i think investors haven't had that inflexion point with the ipad. and so if you look back at the ipod is when they came out with new form factors that really caused an inflection point acceleration in the growth. and so right now, the ipad is 24% of apple's business.
but based on our expectations, is that this new form factor could cause a reacceleration in the ipad growth. >> with no impacts -- i mean with a good or a negative impact on margins? >> well, it's a lower price. the impact to margins is going to be about a negative .5%. so it really doesn't have that big of an impact. i think that's concerned. the investors that i talked to this morning have been very concerned about that, but the reality is that it really just mathematically doesn't have that big of an impact on margins. >> you believe it's likely this mini ipad begins selling on november 2. everybody is going to want to know whether or not this does fit into the corner or not. >> no. it won't be out for the september quarter, but in terms of the december quarter, we're expect background 5 million units. and so if you look at the street numbers, it's probably going to add to about 1% or 2% upside to the december numbers. that's a logical question, but i
think the more important story is the 30% growth that the street has for ipad next year is going to be too low. >> the stock at large, gene, is the pain over? >> i think it is. you know, if you look back at the last six months, there's been two big dips. they've all been on some real concern. the real concern now is iphone. we check a hundred stores for the night and look for iphone availability. last night was the first time we saw sprint phones available an hour after the preorder starts. at the sign of some of this pain in terms of supplies starting to ease, that's positive for the stock. >> and then, of course, you have the added drama of having this announcement come out just days before windows 8. that is going to get interesting to watch, as well. gene, thanks for coming. good to see you. >> thank you. when we come back, jeremy epstein. you may not have known him yesterday. you know him as the first time voter who got to kick off the questioning in last night's debate. he will join us live, tell us
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he had he had binders full of apple shares. danny writes, he should have said he had a binder full of idea toes fix the economy and unemployment. mandy writes, probably a better choice than hard drives which might sound questionable. the poor guy is getting hammered over this. i was trying to make a point of hiring in massachusetts. >> he left out the word resumes. but it is funny. >> it is funny. >> a tumbler site with some pretty funny images. you're seeing the viral nature of this election with a comment like that. >> it's amazing how twitter has changed the way we all watch these things. people are hungry to latch on to something. the last time it was big bird, this time it is binders. drinking water in the vice presidential debate. there needs to be something
accessible. there are things hard to understand quite frankly for a large portion of the country. >> they are complicated questions that they're dealing with. but it was interesting and it was fun. my favorite moment was in obama asked him the pension question. i did enjoy that moment. >> yeah. and i think kudlow is coming on later. who thought the ben gaza issue would be a home run coming in for romney largely considered to have fumbled that tax a bit. we'll talk to him in the 11:00 a.m. hour. meanwhile, more about vickram pandit's oust from citi. as we go to break, a look at this morning's s&p. losers, dow erase something losses but still down 0. tdd#: 1-800-345-2550 this morning, i'm going to trade in hong kong.
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on the street," reunited and it feels so good. the former chief strategist of merrill lynch and the former chief economist who resigned on the same day will join us here live. the former car czar for barack obama will be here and vickram pandit maybe didn't understand the degree to which banks are one by washington. that's coming up on cnbc. [ male announcer ] you are a business pro. governor of getting it done. you know how to dance... with a deadline. and you...rent from national.
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welcome back to "squawk on the street." a jam packed hour here. let's get to the road map this morning. first up, a blue chip beatdown. check bellwether's ibm and intel showing revenue declines. ibm heavily impacting the dow. will the results change investor sentiment? >> plus, vickram pandit sending shock waves through the street. we'll talk live with david vitter for his take. >> and with vickram's departure at citi, one of the critics of citi is no longer. harvey pitt is here to discuss what that means for the banking industry as a whole. and with a number of blue
chips beating so far and today's housing hitting a near year high, are perfect gains likely for u.s. markets? david rosenberg and richard bernstein of rich bernstein advisers will be here to lay out their take on the next move for the markets. >> but first, bank of america reporting thrd quarter losses after uk taxes and some accounting adjustments. what we saw here during the quarter was basically a break even on the eps side. that was a slight dip for the bank, but the bank noted that several items contributed to the break even mark and most namely, the $1.6 billion in lit gailg investigation from merrill lynch. premarket investors thought that was a good thing. you're getting some legacy issues out from underneath you and the bank put a cap on what it expects to turn into in the near term. the shares are up a little bit again. they went down about 1% while
moynahan was speaking on the call. he said actually they're still facing some housing issues that they expect to be out of the woods on foreclosure by 2014. and that short sale volumes are actually as high as they've ever been. he said foreclosed properties still sell within 60 to 90 days. also, moynahan making some important comments on returning capital. city face aes key element in the car stress tests which are coming up at the beginning of next year, new regulations over returning capital we should say for the financials. bofa said that ee amid the 1.6 billion in litigation charges, they still were able to set aside some capital to return to shareholders. that still remains one of the main focuses of the banks. but as we talked about before, their capital position remains strong. that's one big positive for investors, the best of any universal bank. simon, all in all, a good quarter for bofa.
no bank ceo has come out guns blazing and said this is going to be a great near term environment for banks. we'll have to see. no great news, but at least no bad news. >> still have morgan stanley tomorrow. we'll see what they say. >> exactly. >> let's focus on technology. clearly, we have a few major issues weighing on the dow. as far as ibm is concerned, down almost 4% there. we're joined now from stern ag. he has a buy rating and a $230 price target. welcome to the program again. >> yeah. thanks for having me on. >> nice to see you. let's focus, if we may, on what is being said here, particularly with ibm about the broader outlook for technology. you listened to what the ceo said on the conference call and he's talking about a sharp drop in business in the united states. on a macro level, how worried
should we be? >> yeah. so definitely, the macro is weighing on technology. but at the same time, ibm has, we think, two issues that were more company specific and not as macro. for example, the software business, we estimate that it was impacted by $100 million to $200 million. a business that could have booked this quarter, but it looks like they'll be booked in december. they also have this power fresh processor going on. it looks like it's going to start ramping this quarter. >> what about the concern that they may not be as fully up to speed as everybody else is in the switch to cloud services?
>> i would argue that ibm is one of the leaders in cloud. they've been very early in terms of the adoption. this impact businesses, hardware, software services. in hardware, they have this new platform called pure services that's designed for that. it's designed for analytics and big data. those are also, you know, great markets to be in. and then software, you know, they're a leader there. they've been making a lot of acquisitions to beef up that effort. >> you've been the voice of optimism in tech lately. i remember the other day when apple was having a really rough session, you came on mid session and tried to talk everybody off the ledge. here you are with ibm saying things are company specific. do you think you're missing a broader, more systemic weakness that tech is facing right now? >> well, i want to be clear. we are very cautious on the environment. and in terms of tech spending. but we look at companies that
have -- that we think will continue to outperform, have fundamental advantages and that's the key reason why apple and ibm are our top picks. for ibm specifically, they really lead in software, in services, in terms of new areas like cloud, analytics, big data. so we think they're going to continue to outperformance and obviously apple, you know, with the iphone a 5 and now we have the ipad piny as a potential we think a product catalyst. >> what about china? the concern obviously is with the chinese economy growth slowing, that that would hit technology. but actually, within ibm last night, they came through with a 19% increase in their revenue in china. >> yeah, no. that's correct. i'm glad you pointed that out. so china is definitely seeing a slowdown, right? china was growing at high single digits. we're now talking 5% to 6%. and yes, ibm actually delivered well there. we think it's going to become,
you know, frankly, a selective market. companies that have a clear advantage, you know, have a clear -- in terms of value proposition for companies, for customers, we think they're going to continue to do well. i think we think is very differentiated in the product space. >> it's been tougher to get growth. we have a little m&a action in tech today. i wonder if you think we're going to start to see these large companies flush with cash even amid some uncertainty start to try to buy, at least vote on acquisitions to get some growth coming. >> yeah, no, that's probably going to be a trend that we'll see. in this very tough environment, only the best companies do well, right? so the companies that are not as well positioned are probably going to see their stock prices decrease, potentially make them acquisition targets. but also, the sweeping of the environment where the stronger
gets stronger and the weaker get weaker, right? so we believe ibm, being in the very strong position they are, will make very opportunistic acquisitions. >> so 230 on the target for ibm is about 15%. is that one of your top picks in terms of potential upside or is it -- is it kind of in the middle? >> yeah. so we -- when we set our price targets, we look at risks adjusted returns. we also take into account volatility, relative earnings,s set a ra. in that regard, apple and ibm are our top picks. >> we mind us of your range for apple? >> $860. >> thank you very much. >> got a quick market flash here, due to tech consolidation. >> shares of isml and chairs of
cymer. the shipmaker buying cymer for $2.5 billion. it will help them make smaller and charter chips. asml will pay $260 million in cash. it's going to raise the rest of the money through shares. over the past fwoou few days, you can see cymer has been up quite a bit. it popped yesterday, as well. guys. >> jackmy, thanks so much. >> the presidential candidates going at it for round two last night at hofstra university. sparks were flying. the president and mitt romney getting testy at times. what does president obama's former auto industry adviser have to say about the hot button issues? we'll find out. also ahead on the program, a pair of merrill lynch alumni. plus rich bernstein will be here to talk about the rally, the economy and where they're putting their money to work right now.
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when governor romney said we should let detroit go bankrupt, i said we're goio bet on american workers and the american auto industry and it's come surging back. i want to do that in industries not just in detroit, but all across the country. >> auto bailout, a contentious topic in last night's debate. we're joined now by the man who oversaw that bailout. steve ratner served as the auto industry adviser. joins us from 30 rock. steven, good to have you back. >> thank for having me.
>> it's been watch romney evolve as he continues to have to defend this now famous op-ed in the "wall street journal," let gm go bankrupt. last night, he brings in 7-eleven, and macys and continental airlines that went through the kind of bankruptcy he envisioned for gm. what's wrong with that argument? >> first of all, i'm not sure i would describe romney's position as evolving or flip flappin and wandering around. but the fundamental problem with the examples that he gave last night and the idea that you could have put these companies in a bankruptcy, macy's or 7-eleven or whatever, was private capital available during the bankruptcy so the company could operate and literally function as it reorganized itself. in the spring of 2009, there was no such capital available. there was no banks prepared to prove this internl interim financing. and so if the government had not provided it, gm and chrysler
would have literally had to shut their doors and liquidate, which woulhave caused them to li liquidate and brought down for at least for a time. >> this race is largely about ohio and there's been a lot of discussion about the consider door of toledo and youngstown where the president is seen somewhat as a savior. is that a fair assessment of how he's viewed in that state? >> i think it's a fair assessment of how he is view and a fair assessment frankly of how he should be viewed. in the spring of 2009, the auto bailout was extraordinarily unpopular. if you looked at all the polls, the president was doing fairly well on his handling of autos. but on autos, many people felt the government should have stayed out. as i said, i think if the government had stayed out, toledo and large parts of ohio today would be economic rate
plans. so the polls have reversed and today, more americans across the whole country believe the president did the right thing with the auto rescues. that's why frankly i don't understand why governor romney keeps pushing this and presents something not valid by most americans. >> steve, i wonder what sort of report card you would give the auto bailout. but if you look at gm, allied, chrysler, chrysler bought back its t.a.r.p. payment. gm has recouped about $23 billion for tury as of last week's most recent monthly accounting report. allied is still a big question mark. based on where we stand right now and what the government expected to recoup at the time, what grade would you give it? >> i would give the government an a minus or something like that or clearly even an a. we always said the government was not likely to recoup all the money that went into this industry. $17 billion went into the
industry at the end of 2008 as a bridge financing by the bush administration which i think was the right thing. that money is not coming back. whatever money is ultimately lost, over a million j were saved in this part of the country and, in fact, across the whole country. if you want to look at where the government spends its money, i wod argue that if the government ends up losing $10 billion or $15 billion on the auto rescue, it was a great tradr the erican people. >> and presumably they've made enough money on other investments to have that come out in the wash. steve, i'd like to get your take on what happens at citigroup yesterday. obviously, there's selective use of information here. we're only able to glean what we know and what we e. but based on what you'v seen from your perch, how are you perceiving this situation? what do you think citigroup should have done differently? >> let me say first of all, vickram pandit is a friend of mine. i think he's anxtra edinarily
able person. but clearly, what happened at citigroup was you had a change in leadership, you had a new chairman come in about six months ago who had a different view of vickram's leadership and of the progress that the bank was making. and so the board made a decision and vickram, i'm sure, would be the first to say that's the board prerogative. citigroup has been a very, very long slog. it was ach more complicated, difficult octopus of a bank than pretty much any of the others. we'll never know whether someone else going in there might have done a better job than vickram did. i think he's a very capable guy. once the board makes difference, there's no choice but to move on. >> have you talked to him sin the news broke? >> i have nod. >> does it strike you, we're all trying to piece together exactly what happened. but it does seem like it was a bit of a hot head move, which some would argue wouldn't be unlike vickram pandit. is there any liability during
his reputation because of that view? >> well, my guess is it was not a hot head reaction. i think vickram pandit is a very clear thinking guy. and when the board and mr. o'neal same to him and said you've lost the confidence in the board, i think vickram was probably pretty analytical and said to himself, okay, the board has made its decision and that's that. it is certainly not great for anybody's reputation to have to leave under these circumstances. so i do think it will be a bit of a bump in the road for vickram. as i said, i've worked with him and i think he's an extraordinarily capable guy. >> appreciate you helping us out with two big stories today. we'll see you next time. >> my pleasure. ahead of the program, the man who asked the first question in last night's debate is here to tell us whether the candidate's answers have swayed him. the first time voters said he's worried about finding a job
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one of the most talked about questions in last night's debate was the very first one. it came from a first time voter worried about the job market. in case you missed it, take a listen. >> as a 20-year-old college student, all i hear from professors, neighbors and others is when i graduate, i'll have little chance to gain employment. what can you to reassure you and more importantly my parents that i'll be able to support myself after i graduate? >> i know what it takes to create good jobs again. i know what it takes to make sure you have the opportunity you deserve. and kids across this country will recognize we're bringing back an economy. it's not going to be like the last four years. >> what i want to do is build on the 5 million jobs that we
created over the last 30 months in the private sector alone. and there are a bunch of things we can do to make sure your future is bright. >> joining us this morning, the student who asked last night's first question. jeremy joins us from new york. good morning to you. i guess i should say congratulations, too, because you suddenly became the talk of the country. it must have been extremely nerve-racking. and my understanding is, correct me if i am wrong, that you did not know you would be asking the first question until candy crowley basically told you on you. >> no, you're right. i had no idea. it was very nerve-racking. so i was -- it was very unexpected. i had a feeling i was going to ask a question. i didn't know if it would be the first or i would open up the debate. i just felt a lot of pressure. >> so i have to ask you, they both gave you pretty -- i mean, pretty interesting answers, at least. governor romney made it interesting to see he was going to come back, make sure you had
a job in a couple of years. which answer did you prefer? >> well, governor romney, he really harped on the fact that he has business experience and that he has been balancing the budget while he was governor of massachusetts and president obama's was the one who was saying that my future is bright, he's going to build on the 5 million jobs he created. they spoke spoke passionately, they articulated themselves very well. i think governor romney's business experience did sway me a bit in that area. but the way the president spoke to me and kind of said we believe in the youth of america, which i was trying to represent with my question, i think that really, you know, hit a soft spot and i understood what he was talking about. >> that's what a lot of people talked about, the format lending itself to that. you actually got a chance to talk to them afterwards, as well, right? >> yes, i did. >> what did you talk about, first with governor romney? >> i just exchanged pleasantries, shook his hand and
said thank you for answering my question and i hope i get that job in a couple of years. >> and his response was? >> hopefully i can make that happen for you. >> and how about the president? >> it was kind of the same thing. i had a little more time with the president. he stayed longer. and i talked about the question i asked. he said he was impressed that i was able to ask the first question, he was proud of me. and we talked about like the chicago bulls team and the fact that he thinks he could beat me one-on-one basketball and stuff like that. >> jeremy, the type of feedback you got is nothing short of explosive. i'm looking at a few of tweets that came in, some suggesting that they have a job for you in engineering, some suggesting green energy. i understand that you're an exercise science major. have you thought about any of the suggestions that have come in? have you decided to widen your horizons? what are your thoughts about the economy and where you're headed after graduation now? >> i think that whenever president is elected, we will have a decent plan for my future. i haven't read a lot of the
tweets and the people that have sent things because i didn't even have a twitter until last night. so i think that my future is bright, like the president said, and i think i will be able to get employment once i graduate. >> i think it's @jeremyeps if i'm not mistaken. >> yes. >> jeremy, thank you for your time. you deserve a ticket to inauguration whoever wins. thanks for coming on. >> thank you very much. i appreciate the opportunity. don't forget to tweet us. mitt romney, claims during the debate that he had binders full of women. the comment was part of his response to a question about women and inequalities in the workplace. complete this sentence, romney would have really won voters over if he said he had a binder full of blank because blank. our handle is @squawkstreet and we'll get your answers throughout the morning. we'll have breaking news on crude oil inventory.
and up next, a capitol hill bigwig speaks out on vickram pandit's sudden departure. we'll sit down with david vitter, republican from louisiana. if we want to improve our schools... ... what should we invest in? maybe new buildings? what about updated equipment? they can help, but recent research shows... ... nothing transforms schools like investing in advanced teacher education. let's build a strong foundation.
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some of the stories we're squawking about, sadlers among the stocks hitting new all-time highs. now up 42% over the past 12 months. dean foods up 12% on whitewave's unit. says it expects between $14 and $16 a share. different story for apollo group. down 17% on some weaker quarterly earnings, shrinking enrollment. apollo cutting about 800 jobs and shutting off of its campus to save costs. meanwhile, crude oil inventories, sharon has the data. >> the data shows, same crone, that crude inventories in the last week rose by 2.9 million barrels. 2.9 million barrels with the increase in crude supply, that is greater than the 1.5 million barrel that's analysts were anticipating but it is less than what the american pa toll yumm institute reported last evening.
gasoline, though, inventories rose by 1.7 million barrels. that was a bigger increase than analysts were expecting. in fact, many analysts were expecting to see a decline. we are looking at gasoline futures coming off here and declining as a result. and we're looking at fuel supplies that declined by 2.2 million barrels, a big drop there in distillate fuel supplies. and we are seating heating oil prices coming off a bit, as well. keep in mind, though, when you look at where the five-year average is for crude supplies, it is about 10% or so above where it normally is for this time of year. and we're looking at a decline in where we're seeing in terms of refineries demand and where it normally is for this time of year. so that may be adding to the increases that we're seeing in crude supplies. another key factor here in this report, of course, has been the
tightness we're seeing. but we are looking at the atlantic coast area, the atlantic coast being quite tight. and that is what has supported gasoline prices here for reformulated gas futures. we'll continue to watch the demand figures and the supply figures as analysts crunch the numbers. >> thank you very much, sharon epperson. wall street, many on wall street are still stunned by the abrupt resignation of citi's vickram pandit. we want to get some reaction now from a lawmaker on capitol hill. joining us, david vitter. senator vistter is a member of the banking committee. "the washington post" suggests today that, actually, the man had very few friends on capitol hill and that very few people will miss him. but he didn't have the skills to court the people in washington that he needed to. is that a fair comment? are you sad to see him go? >> i'm not particularly sad. i think rightly or wrongly, he
represented, you know, citi in particular moving away from a solid commercial bank sort of tradition into a much more higher risk investment banking tradition. a lot of us are concerned about that movement in the mega banks. so i don't know anybody who is distraught about his resignation. >> so what do you think should happen now? >> well, i don't know exactly what this resignation means. as you suggested, it was a big surprise. i hope what it means is that city is going back in a more solid, conservative commercial banking direct. you know, there was a big representant of bailout dollars, almost a 456 a trillion dollars to one institution alone. i hope they're going back to their more solid, stable commercial banking roots. >> senator vitter, what's your immediate react to the new ceo mike corbat. a lot of focus is on the fact that he was previously the chief of citi holdings which is citi's bad bank and that during the
crisis, he had a lot of face time with regulators over deciding what went in there. have you had any interaction with him? >> i don't know him personally, i have not had inter action so i don't have a big reaction. in terms of his background, it sounds like one of his greatest skill sets is dealing with the regulat regulators, dealing with others in washington. that's a sign of the times, i guess. i'm not sure it's particularly healthy, but it seems to be a sign of the times. >> because banks are increasingly run in part by -- >> correct. washington has become the financial center instead of new york. that's a dangerous trend that i want to reverse. >> so do you think it's fair that he appears to be taking the blame from the board for the fact that he was unaware that ben bernanke would reject his application to buy back stocks? that seems to have been a big issue for many on the board, that he got that wrong. he said he was friends with ben bernanke and he wasn't despite the fact he spent one day a month in washington or could it be argued that actually the
losing beast here was the regulator and perhaps the bank hadn't appreciated the degree to which the regulator was getting more tough. >> well, friends with ben bernanke does not change the whole fed's decision on major issues, number one. but number two, certainly it's difficult to predict reaction of the current regulatory environment. so i wouldn't be too harsh on anyone, given that. >> senator, there has been so much discussion about the boards, boards with the ceo in their pocket. here we have a situation where this, out of nowhere, this citi board appears to have been emboldened to make this move. i wonder whether you think it's a silver lining to all of this? >> well, i think in general, that is healthy. given everything at stake, given everything we've lived through, thank god, since 2007 and 2008, the board better be very, very hands on and involved in thinking about strategic decisions every step of the way. so i think it is in general a
healthy sign. >> senator vitter, you said it's an unfortunate consequence that washington has been responsible for steering the direction of the bank versus new york and that you'd like to see a shift back. but i'm looking at a quote from you in the "new york times" earlier this week that there's a growing nonpartisan consensus to do a lot more to limit the size of the mega banks. what exactly is going on in washington and how are pens being put to paper on this issue? >> well, there are a lot of ideas floating out there. the one i am most focused on along with a democratic colleague, sharon brown of ohio, are capital requirements for the mega banks and just as importantly, making them very transparent and clear, which i don't think the basul 3 requirements are at all. i think that would help correct the imbalance caused by too big to fail. i think too big to fail is alive and well. it is hurting our tradition of regional and community banks in this country. i think we need to correct that.
and one way to do it is higher capital requirements, but make those requirements very clear and transparent which basul 3 is not. >> but what you need for a good conversation is kind of an equal weighting on both sides. many would argue with the problems that jamie dimon has at jpmorgan, that there is no longer a major bank statesman who could go up to washington and argue on behalf of the industry as still you hammer out. let's not forget. do you think that's going to be to the detriment of shareholders, shareholders in banks and ultimately the economy as a result? >> it sure hasn't been so far because the mega banks have increased in market share since the crisis. that's the sort of trend that i am concerned about. i think dodd frank isn't the only caught of it, but it's helped it along. it's ironically favored the mega banks versus other institutions in an unhealthy way. >> it's good to see you, senator. thank you for your time. thank you for joining us there from the senate banking committee. thank you.
the dow is down about nine points. market flash here, little to do with those housing starts, jackie. >> that's exactly right. those numbers this morning, a flurry of housing starts last month, giving some of the retailers a bid today. we're watching stocks like lowe's and home depot, they are up the months. also williams-sonomi being up a pop. they're going to need more home related items to put into homes that are being bought. up 1.8%. >> thanks, jackie. when we come babb, citi without vickram pandit. we'll talk to former sec chairman harvey pitt about citi's future and all those regulatory concerns when we're back in two. make 70,000 trades. ♪ reach one customer at a time? ♪ or help doctors turn billions of bytes of shared information...
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markets mixed this morning, but the dow still less than 5% from its record high. you saw the cover of barons the other day. almost there in their words. where do we go from here? david rosenberg &, now chief economist and strategist richard bernstein the ceo of richard bernstein advisers. i'm getting deja vu. this is taking me back to a much better time. i am curious, rich, and we'll get david's take, as well. we know you're generally positive. you're positive on liquidity, sentiment, valuation, the u.s. is the gap between your view and david's, is it as wide as it's ever been? >> well, carl, i feel like i'm in that had last night's debate, center stage here. but, look, i think there are some similarity in what dave and i are talking about. i think we both probably agree that the long-term prospects are in risk off assets.
i think we're both very different along those lines in that respect. i don't think we think there's going to be another credit bubble, which i think is actually consensus, although those people wouldn't say that. they're still investing in risk on assets, which are all credit related assets. i think where dave and i mice disagree with in the near term prospects for the united states and for me particularly, the united states centers rest of the world. >> david, do you want to take a crack at that? >> well, i'll just say that one of the strongest correlations for the stock market is corporate earnings. and, you know, i'm not going to dismiss all the other stuff that rich looks at. when we both worked at mother merrill, there's liquidity and there's valuation and there's market positioning sentiment. but corespondent earnings is one of the most critical drivers. the reality is that the s&p of
100 through the interim peaks and valleys hit its high on september the 14th, the day after qe3 is announced. a lot of it is because we're tapping the market to the upside, the fact that corporate earnings are now on the down escalator. so the fed and the expansion of the balance sheet and liquidity probably gives you a much firmer floor in any correction. but the market is telling you right now the upside is capped because earnings are on the down escalator. >> do you think it's anywhere near the corporate earnings, at least on the s&p? >> i wouldn't be surprised looking at the deepening and spreading recession in europe, the impact that that is having on trade shows in asia. i think there will be a long impact on exports here at home. housing is recovering, that's good news, but that's 2% of the economy. and manufacturing ain't what it used to be, but it's still 10% of the economy. so i think when you add it all up together and we have margins at almost record highs, my sense
is that the profits are going to be coming down somewhat over the next year. i don't think that necessarily means we have advisable corrections in the stock market. but what i think it means is it's going to be a stock picker's market. we're going to be range bound. and i think it's an environment looking at the correlations where hedge funds that really hedge the rift, this will be their time to shine. i'm not so sure that the markets will make new highs in the next year. but there will be opportunities. >> david, a lot of people will be mindful of what the fed is doing. and to mohammed el-erian's point, it has now reinflated the wedge between where risk@asset res trading. you stand very scientific on being on the road to anywhere, don't we? >> well, we know that the fed is going to be keeping policy rates at zero, at least through mid 2015. we know that bernanke has told us that even if the economy
reaccelerates on a sustained basis earlier than expected, they have no intention of raising interest rates before that date. and, of course, what they're doing is keeping real interest rates negative for prolonged period of time. so that leads me to a view that, you know, rich talked about credits. i think what the fed has done here, they can't really influence directly the earnings cycle. but they can certainly influence the amount of interest rate volatility and secure yield. they want to take out of the marketplace. so i still think it's going to be a great environment for a dividend growth, dividend yield, dividend coverage. that's the slice of the stock market that i think remains intact. and the one thing i do have conviction in is that the state of corporate balance sheets hasn't changed. it's interesting that the u.s. economy has slowed enough and the global economy has slowed enough that now corporate earnings are on a downward track. corporate profits are rolling over. it's amazing to me that global
economic growth, included including the united states, that corporate default rates are barely over 3% to half their historical norm. so corporate bonds in terms of trying to find the equity rate returns, i still think that credit, product will continue to be a good place to generate suggested returns for investors. >> david, speaking of friends, i think we're seeing firming up in europe, as well. looking at the cost to ensure against a possible default, those and banks are at 15-month lows. do you think that's a mispricing or do you think that's a real reversal in news? >> it's a real reversal -- >> oh, sorry about that. go ahead. >> i'm not sure who that was for, but -- >> rich. >> why don't you take it, get you some time. >> these are my few minutes. >> all yours. >> well, look, i think you've got -- you have to realize that europe and what you're seeing the european banks is part of
the risk on trade. when people think that the global credit bubble is going to be reflated, you will find risky assets outperform. the european banks would clearly be one of those risky assets. in fact, large u.s. banks are part of that risky asset. what is interesting in getting back to davis's point about corporate profits is that domestic profits are doing better than global profits. and what you're finding is a lot of the weakness in s&p 500 profits is in multi national. the russell 2,000 profit cycle has already turned up. the notion that margins are beginning to decrease is absolutely correct. margins decreased through whole 1984 market base. so i think people have to be very careful with the normal progression that margins do compress as cycles expand. but the point that i'm trying to make here is simply that i think that people are overestimating the risks in the united states and grossly -- i would add the
word grossly underestimating the risk outside the united states. >> david, last question for you. we continue to be surprised at the strength of the consumer, whether it's retail sales or consumer confidence. you talk a lot about household leverage, i think even recently as the big picture. how fragile are these numbers when we come in and find out the consumer spent until the gave quarter? >> well, you know, look, we have to look at it in the context of the week it's the consumer spending cycle in recorded history. what you're looking at is the trend line. the august september, was all gasoline. the september number was fairly broadly based. what's giving cash flow right now has been the mortgage refinancing boost that we're getting. i'm not sure that's going to be sustained, but that's what's getting for mortgage financing. i wouldn't exactly put a big multiple on that. i'm not getting a sense that the income growth is accelerating.
>> yeah. it's one of the key numbers of the week. it's so good to see you guys together again. i hope you do this more often. >> thanks. >> david rosenberg, legends. not in their own mind. legends from merrill lynch. >> 24 hours ago, it was the you. >> thanks. >> david rosenberg, legends. not in their own mind, legends from merrill limplliynch. >> 24 hours ago, the departure heard round the world. vikram pandit is out and michael corbat is in. [ male announcer ] you are a business pro.
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there's no doubt that vikram pandit's abrupt departure from citigroup has shocked the street. the timing of the announcement is exceptionally unusual, given the fact there was no mention that pandit was leaving during monday's earnings call. joining us, former s.e.c. chairman harvey pitt, currently the ceo of kalorama partners. good to have you on the show, sir. welcome to cnbc. >> i'm sorry? >> welcome to the program, mr. pitt. it's nice to have you here, mr.
chairman. the chain of events for many people is exceptionally worrying. on monday, you get a clean set of results out of citigroup. on tuesday you find out that the ceo and coo are being ejected, and today in the "the wall street journal" we learn that that is because, in the view of the board, they were not managing the assets effectively, and they were not keeping the board appropriately informed. it would appear that somebody wasn't telling the whole truth. in your view, where does the legal liability lie? >> i think you've put your finger on it. there are some serious problems here. when citigroup went out with its announcement of results, they either knew or should have known what was coming next. unless this was purely a surprise move by mr. pandit, and it doesn't appear it was. second, i think the board itself and the company said this was a voluntary decision. it appears that that is
inaccurate, and that is a very troublesome affirmative statement. it confuses the marketplace, and that's what the securities laws are designed to prevent. >> if you were chairman of the s.e.c. now, would you order an investigation? >> i've lost the connection. >> can you hear me, mr. chairman? i think we've lost chairman pitt there. we will attempt to regain that audio connection in just a few moments time. let's take a break. copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign.
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...so they can inspire our students. let's solve this. we rejoin our conversation with former s.e.c. chairman harvey pitt. welcome back to the network, mr. pitt, after the technical problems we had. before we lost you, you were saying how concerned you were about the timing of the vikram pandit departure. in particular now, the revelation that it may have not been voluntary. if you were the chairman of the s.e.c. now, would you be ordering an investigation? >> i would indeed. i think this is something the s.e.c. needs to investigate to find out why the disclosures were so confused and apparently
inconsistent with what the facts may actually have been. >> and is there a legal liability there, therefore, for shareholders? >> i think there is. companies are required to get their disclosures right, and they are required not to mislead investors. having two separate announcements plus an affirmative statement that the resignation was voluntary, if that is, in fact, not correct, would appear to create violations of the federal securities laws. >> and from your knowledge, from what you've read, from what you've seen, why do you think that happened? >> i think some of it may be a concern, when somebody's d discharged and it's a public event, no one wants to be seen as denegrating the individual. but public companies have to get their disclosure right. that's essential, and it doesn't
matter if that happens to have some negative effect of the reputation of the person being discharged. >> finally, harvey, i can imagine some lawsuits being filed, but the stock was up yesterday. i don't know, it might even be up again today. does a private citizen, private shareholder have any standing suing the board for something like this? >> there may not be a private cause of action if there were no damages. in fact, some investors may view the information as positive, but from the s.e.c.'s perspective, it does not want public companies playing fast and loose with the disclosure requirements of the law. >> fascinating stuff. harvey, thank you so much for the time. good having you. harvey pitt joining us from washington. guys, thank you for sticking around. we'll see you in 30 minutes. we'll talk securities. fascinating story. if you're just tuning in, here's what you missed earlier on this morning.
>> welcome to hour three of "squawk on the street." here's what's happening so far. >> the way to push this economy forward is by building the prosperity from the ground up, by working to support the middle class. >> the problem is his only solution is increasing taxes on the productive sector. the proposals they put forward, for example, the buffett rule, raise $5 million. that pays for 11 hours worth of spending. >> it's been interesting this period. wells fargo, not great. mortgages -- bank of america, so sort of okay there as well. we're seeing investors move out perhaps from some of these names as we search for exposure to housing as we watched that go up. >> i think 24 of the last 27 quarters they beat and raised, and they typically raised guidance with that as well. this quarter was the first time in a long time that we didn't see that happen. >> halfway through here. >> i think, if the government
had stayed out toledo and large parts of ohio today would be economic wastelands. so the polls have actually reversed, and today more americans across the whole country believe the president did the right thing with the auto rescues. >> i had a feeling i was going to ask a question. i didn't know if it would be the first or i would open up the debate. i just felt a lot of pressure not to embarrass the family. >> i hope what it means is that city is going back in a more solid conservative banking direction. >> good wednesday morning. we're live here at post nine at the new york stock exchange. let's get a check of the markets. dow was down 30, 40 points earlier this morning, now down 5. s&p has gone positive, nasdaq as well. a lot of this due to ibm, of course, which given the weighted index of the dow, is responsible for a large weight of the dow's performance. after news that white wave, a
unit of dean food, says it expects its ipo to price between $14 and $16 a share. dean foods also saying third quarter sales for the unit rose 13% from a year ago. education stock some of the biggest losers after apollo reports a 60% decline in profit after weak enrollment numbers. it's dragging down others, including itt, strayer, and devry. romney and the president went head to head in their second debate last night. we'll get reaction from former new hampshire senator and governor judd gray. plus intel and ibm taking a beating today. how do these companies stay relevant in a market where new companies like apple dominate? and a surprising political split in silicon valley. in a state where most are dominated by democrats, some surprising technical people voicing their support for the republican party. and a strategist for jp morgan,
tom lee will join us at post 9. all that coming up in the next hour. we'll start with l po ticpo. the governor and president meeting at hofstra university in new york. our john harwood at hq with more on how the candidates reformed. it was like reversion to the mean. president was doing okay, weak first debate. romney did well in the first, weak second debate. what happened here? >> i think obama decided to be more aggressive. romney was pretty aggressive himself. he did well in that debate. what was new about this debate, obama showing up, taking the fight to romney, new attacks we hadn't heard before. i think that's what made it a debate that would benefit him more than it benefited romney, though probably not as much as romney benefited from the first debate. the essence of this thing was in your face engagement. i want to give you three little slices that have experience. the first was when mitt romney
directly challenged the president on his record on coal and oil and gas. >> in the last four years, you cut permits and licenses on federal land and federal waters in half. >> not true, governor romney. >> how much did you cut them by? >> not true. >> by how much did you cut them? >> governor, we have actually produced more oil. >> then you had president obama going after mitt romney on china, said that mitt romney is the last person to crack down on china because of his own investments in chinese companies, stemming from his private sector work in bain. and mitt romney went right back at him about the president's own pension. >> mr. president, have you looked at your pension? mr. president, have you looked at your pension? >> i don't look at my pension. it's not as big as yours, so it doesn't take as long. >> so there you had a right in each other's face confrontation. and then fim nally, you had president obama, in a way he hadn't done in denver in the first debate, saying that mitt romney's economic plan, because
of its lack of details, was a sketchy deal he never would have accepted at bain. here's how mitt romney responded to that. >> and you can't buy this sales pitch, nobody who's looked at it that's serious actually believes it adds up. >> of course they add up. i was someone who ran businesses for 25 years and balanced the budget. >> by the end of that fight, carl, both guys were in their corners getting stitched up. we'll see whether the foreign policy debate has the same amount of fireworks. i'm sure the public is going to have a little less ease in following it because foreign policy isn't topic one in this election. they certainly gave a lot of entertainment to the viewers last night. >> like "million dollar baby," vaseline over the eyebrow. thank you, john harwood. a long day for you yesterday. here to give us team romney's take on last night's debate is judd gregg, former governor from new hampshire, a cnbc contributor, and former financial adviser to goldman
sachs. you're no stranger to debate prep. i wonder if you saw anything lacking in governor romney's prep last night, specifically on benghazi. >> well, i thought that, unfortunately, it was a tag team event there, when both the moderator and the president went after him. i thought the moderator's comments were totally inappropriate. >> you mean candy crowley? >> yeah, i mean, really. it wasn't her job to define what mitt romney was saying. what he said actually was accurate, that the president had not identified this as a terrorist event. he had used the term terrorist in his statement but in a very generic way and that the administration for many days basically maintained this unfortunate position which was that this was a spontaneous demonstration driven by the film that was made when, in fact, there was a lot of folks showing up with grenade launchers and ak-47s who intended to attack the ambassador and his entourage
at this consulate. and there had been a request, a specific request for more security at that consulate. i think what was interesting was that the questioner, who was from nassau county, said i would like to know, mr. president, why the request for more security wasn't honored, and that question was never answered. i mean, the president just simply ignored that question. so i thought that the substance of that exchange was important. i think the style of the exchange, because of the engagement of the moderator was inappropriate. >> when the president says, check the transcript, not everybody's going to do that. it might not read as convincingly as it sounded on the floor. but we know, senator, to a large degree, the election is not about benghazi. i wonder how much of the theater, as john said, them being in each other's faces, was a turnoff for the very few americans who are at this point still undecided. >> first, i think there are a
fair number of americans that are undecided in the swing states, and it's the independent vote, and it's obviously important that both sides make their case to those folks. i thought there was a lot of good discussion last night on policy. i genuinely thought that mitt romney made a very good case for the fact that the president's policies have failed and that he's projecting driving this country into massive debt, which we can't possibly pay if you continue to take those policies forward. i thought he did a good job in that. i thought the president did a good job on his comebacks. i thought it was an excellent debate from the standpoint of both sides making their points. stylistically, it was a little pu pugilistic, to say the least. that's not bad as long as it wa wasn't personal. i didn't see it going over the line anywhere. >> was any discussion of the fiscal cliff any argument -- >> wasn't that a surprise? here we are with the biggest fiscal policy issue we've had in years facing us, which is the
fiscal cliff, and more importantly, the underlying deficit and the debt, and we're getting questions from the audience which are obviously screened by candy crowley, which are off -- which are tangential issues like ak-47s, and what were the bush years like? why didn't we get to the issue of the fiscal cliff? i would really like to know what the president intends to do to avoid having us go over the fiscal cliff. i would like to know what mitt romney's proposals are specifically in the areas of getting our debt down and discuss those things. i think it's important. >>st it the elephant in the but clearly not that room because they never got to it. senator, we'll be talking soon, i hope. good to see you again. >> thank you. good to talk to you. >> senator judd gregg joining us from new hampshire. a capital markets update. gary ka minski. a lot of people talking banks today. >> and the intrigue and interest continues 24 hours after the initial reports out of citi what was going to happen. i want to give you my theory as
to what i think really went down there. this is how i think it played out. i think last week mike o'neill made this decision they were going to bring michael corbat back to the states and put him in some sort of role, maybe president of citigroup. have vikram pandit stick around and have corbat come back to the states. i truly believe on monday, when the company reported its earnings, pandit had not made a decision at that point on monday that he was not going to stick around for that plan. that's what happened. late monday, he made the decision, as i discussed with you yesterday, carl, some people have that personality. he said, i don't like that. i'm not going to stick around. the interesting thing about this whole sort of soap opera episode to me is, in speaking to big revenue producers at citi yesterday, despite the well reported 89% decline in the stock price during the pandit tenure, more people will focus on the legacy of pandit. they refer back to chuck prince. they'll say pandit did an okay
job. he did a good job for us. it was chuck prince who was the worst ceo in the history of citi, which i thought was kind of interesting despite the stock price. i want to talk about financials. one of the things you heard, when you heard o'neill and corbat on that conference call late yesterday, a lot of folks, in terms of what may be perceived as shrinking citi, cost containment, and a focus on cost controls. it's not a surprise. look at the goad mldman sachs numbers that reported yesterday. goldman, the best bank out there, best managed. look at the comp there. 44%. look at the return on equity, 8.8%. what does that tell snu it tells you the same thing you've known for some time n a nonleveraged, low leveraged world, the return on equity for these banks, unless there's a dramatic change in the compensation structure, is going to be continue to be subpar. nowhere near the mid-30s like it was at the height, but not even in the mid-teens where a lot of investment companies, public companies want it to be. when you think about 2013 and think about all these institutions, carl, that is the single biggest question?
are we finally going to see return on equity go up because compensation has to come down? >> absolutely. you're right about that number. got a lot of people's attention when goldman reported yesterday. we'll talk more in a little bit. gary back at hq. meanwhile, get to the cme. rick santelli talking, i think some canadian labor stuff at that santelli exchange. rick? >> we're talking that and going to talk some mathmathematics. i've said many times our neighbors to the north can give us information about how close we are to having a great unbridled economy just moving out. we talk a lot about the fiscal cliff, and cnbc is doing great work behind the scene that will come to the front of the scene soon. in the end, we continue as a country, mostly because of what's going on with our leadership and both sides of the aisle, we shoot ourselves in the foot. whether it's on energy and whether it's on jobs. and i'll tell you, i think that nothing paints this picture better than canada. we've said it before. we're going to say it again.
one-tenth the population. just in the last two months, they've created close to 90,000 jobs, which would be equivalent, if we make it apples to apples, multiply with by ten to put people to people, it would be close to 900,000 jobs. according to the finance minister, since july of '09, they've created about 820,000 jobs. if you multiply that by ten, you're talking 8.2 million. we haven't done that well. is the economy in canada really are holding ourselves back. that much better? our economy is much better. no. i think they have a lot of on the math side, fact checkers issues, and they have very high for these debates are just as taxes. but in the end, it shows how we horrible as some of the facts being thrown out by both candidates. i will tell you this. you can slice it any way you want. the president was sworn in in mid-january of '09. if i go back and look at nonfarm -- and i have all the data. actual nonfarm payrolls, the establishment survey, the headcount survey, and i take the 818 minus thousand from january because he wasn't sworn in until
the middle of the month. do the math. you know what the math is? it's a push. it's a push. there's zero jobs created. it's a push. if you look at the minuses and the pluses, it's a push. where they get all these numbers, well, they were going down for -- listen. whether it's cub managers or the president, january of '09 to today, throw out january, it's a push, basically zero. back to you. >> hopefully, people are smart enough to know where they're getting that 5 million, rick. great point. talk to you in a few moments. >> they're not counting the minus numbers. if i don't count what my family spends, i'm a rich guy. >> rick, thanks. looks like chicago's got your back, i can see. when we come back, old tech running into trouble today. what does the future look like for companies like intel and ibm? what do they need to do to get back on track? later, how one of the world's biggest oil corporations is using steam to harvest oil. [ male announcer ] this is joe woods' first day of work.
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"wired" magazine joining us. >> thanks for having me. >> a lot of people know the pc sector is in trouble. they're wondering whether intel knows what everyone els seems to. you think they're beginning to figure this out. intel's answer to the threat was they don't need these super small machines. they need the clunky devices somewhere between a mobile device or a pc because it fit their chip set better. to their credit, they've adjusted quite a bit. we wrote a story about this guy mike bell from apple they hired to really head up their mobile strategies. they've come out with one chip called medfield, which is actually pretty solid. the challenge for intel is they built their whole business on building more and more powerful chips. that's what they were motivated by. keep making chips more powerful. mobile devices don't need the most powerful chip. they need the most energy
efficient chip. people don't want to run incredibly powerful software. they want to run the lightweight apps they use without draining their battery. >> this is the important. gordon moore is from there. they understand the history of chips and arguably the future. even if they start now, how long of a process does this take. you think it might take a couple of years. >> it could take a couple of years. one thing to look at, they've released some benchmarks of what they expect the next iterations of chips to look at. single core to dual core chips. if they hit the benchmark, that's a sign they're on the right track. intel is a very disciplined company, and they have a huge budget to spend on this kind of thing. once they set their minds to it and say, okay, we're concerned about efficiency. we're concerned about size. once they get on track, they show he canity rate a iterate a. so that's an upside. >> i know you're not comfortable about talking about bellwethers
for ibm. do they deserve 0 to be a bellwether when big blue comes in with revenues like they did? >> i think this is less about ibm's business model and more a sign of what's ahead for the sector, period. ibm is a pretty well diversified company. they're a model for what you want to do when you want to diversify. 60% of their products come from software and services. it's not a question of them being able to transition into the new era. it's just a question of what overall, particularly tech business spending is going to look like over the next year. there's some concern it could be pretty soft. >> that's one thing to keep an eye on is the future of enterprise. jason, good to have you. thanks so much. jason tans joining us from wired in new york. when you think hollywood, you probably don't think conservative politics. turns out there's a lot of republican ins tinseltown. we're going to find out who they are and how they're supporting the cause. ahead, what this debate means for the country's economic future. in america today we're running out of a vital resource we need
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despite the fact that california is traditionally a blue state, high profile figures in both hollywood and silicon valley are coming down on both sides of the political debate. our julia boorstein is here with more on the golden state's political split. >> not every high profile name on the west coast bleeds blue. here's a look at individual donations compiled by the center for responsible politics. yes, there are big spepding dream works, led by animation ceo jeffrey katzenberg. but rupert murdoch's donations are all to republicans. and clint eastwood has more company in romney's camp. others include jerry
bruckheimer, sylvester stallone, kelsey grammar and lion's gate jeffrey burns. up north, there's more of a split. more republicans in the vc crowd and more democrats in the executive ranks. case in point is facebook, where sheryl sandberg has deep roots in democratic politics. facebook's political -- but two of the company's highest profile investors have poured money into conservative causes. mark an dreesen backs romney, donated nearly $200,000 to republican causes while peter thiel has given nearly $5 million to conservative and libertarian super pacs. he backed ron paul. many lean left, microsoft's steve balmer and sin ga's mark pinkas. now the candidates agree on silicon valley's reform in sib
err securi cyber security. but the biggest argument is the internet. net neutrality, which is preventing broadband providers from discriminating against certain types of data, which is a stance that romney opposes. carl, back over to you. >> interesting stuff. although the state may go blue, we'll see, there's certainly a number of people that go the other way. bell is about to sound across europe. we'll get the details and the impact on the u.s. we'll talk about the moody's call. spain avoiding junk status. mike rowe here at a ford tell me fiona, who's having a big tire event? your ford dealer. who has 11 major brands to choose from? your ford dealer. who's offering a rebate? your ford dealer. who has the low price tire guarantee... affording peace of mind to anyone who might be in the market for a new set of tires? your ford dealer. i'm beginning to sense a pattern.
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got our own earnings to watch, of course, but it's largely about europe, simon. >> there are two major things happening in europe. before we lose this chart, focus on the figures you see there. you see the degree to which spain has risen today. big price action coming across europe. on the one hand, you have the facts that moody's is holding spain's ratings steady, explicitly because it believes it will continue to have that credit rating based on access to the market because the ecb is there to buy its bonds moving forward. so you've dodged a bullet on that. the second major development that you have continuing over the last few days is this belief that momentum is building towards spain asking for a bailout. today you've got -- we've got a two-day summit kicking off tomorrow of all 27 leaders of the european union. you've got the calling
for action today. you've got this clear softening from the germans what they would require in return for helping the spanish, a bailout light, if you like, and at the same time, finally those electionin galithia and the vast territory under way on sunday. and potentially, they'll ask the for bailout to trigger the bond buying. the effect is to have a very powerful rally in risk assets, notably, of course, on peripheral bondmarkets. as the spanish ten-year rallies, for example,he yie continues to fall, as you can see. look at the chart. ths a six-month chart. we're now back at six month lows on those yields in spain. ve that spain will continue to have access to the market. you also see it on the yields over in italy. in fact, much lower than where we were six months ago. the converse is those safe havens continue to sell off. it's much less attractive to park your money at the short end of the german bond market, and therefore the yields which were
negative on, say, the two-year, as you can see, have now moved further into positive territory. you continue to see the periphery of the bond market rising around europe and the middle just going back down a little bit as we unwind that safe haven play. meantime, on the equity markets, again, very powerful price action. let me show you where we are for the week on italy and spain. i told you building towards a bailout. one week, 5.5% gains on spain and italy. over in greece, it's even more pronounced there over the last month. we have a gain there of 17%. carl, back to you. >> sharon epperson is over at the nymex. sharon? >> that gain we were seeing in oil prices has gone away here, after we got the report from the energy department, showing a bigger than average increase on the crude supplies. we're off the lows of the session. that's not necessarily the case for gasoline futures.
gasoline futures near the session lows, down 2%. in fact, near the lowest levels we've seen in the futures market in about two weeks time. we're seeing dramatic drops at the gas pumps as well across the country. the national average down 5 cents in the past week. look at prices in ohio, down nearly 20 cents, just since last wednesday, in illinois and wisconsin, down about 10 cents since last wednesday. and you remember on october 9th. california drivers were paying the highest price for gasoline on record. it has now fallen about 10 cents from that level. what's going on here? a lot of analysts say it's just a rebalancing of supply. we did see a build in supply unexpected for gasoline in the last week, according to the energy department, as well as the typical autumn selloff. back to you. >> sharon, thank you so much. sharon epperson. bob pisani is here at post 9 looking at what's moving. it's largely about housing >> liftoff. i'm dying to hear what diane has to say about it, my old friend here. the point is these numbers were
a magnitude of order greater than expectations. normally t normally analysts don't get it this wrong, but here's what we're talking about. september starts were up 35% year over year. that is a huge number. and even more importantly, up 15% sequentially from august. these are very, very big numbers. and everybody says, oh, it's all multi-family. no, that's an old story. single family up 43% year over year. up 11% from august. these are big numbers, way above expectations here. let me show you the chart, the long-term chart going back eight or nine years for housing starts. pretty sickening drop all the way to 2009. there's the bottom at 458,000. look at the numbers we're dealing with here, almost at 800,000. there's a long slow slope on the upside, but definitely moving there. from 458, approaching 800,000. it's a long way from where we
were up here, nearly 2 million, but the trend is definitely moving in the right direction. what do i worry about? let me give you three points. and raymond james brought this up this morning. we've got to have a recovery in sales. you can't just start building stuff. mortgage lending is very tight, and we don't know what the new regulations are going to do. we've got to be on that. secondary, this is a very good point. there's been growing labor shortages in parts of the country. a lot of people in the construction jobs left because they couldn't get a job. they're doing upholstery now. we've got to get those people back. and there's also talk about some lots where there's very low inventory out there. remember this business has been put on hold for several years. you get a notable recovery, you may get some log jams. take a look at the housing stocks. they're all to the upside. you know the questions about the valuations might be too high. here's the home builders, lennar, volcker materials that make all the stone, they're sitting at highs too.
retail sales, consumer sentiment. dianne will talk about this, i'm sure. this is all moving in the right direction. i'll tell you what the problem with ibm is. it's very simple. company wants double digits earnings growth for the next several years. this is hard to get. their revenues down 5%. you can't get that. the street is a little disappointed. we'll see what's going on. there's a deceleration in a lot of the metrics in business software as well. microsoft is going to report thursday night. we'll get a little more clear idea of what's going on in business software. intel generally is cautious, and the tech group is down today. housing liftoff. that's the big story. >> good stuff. thanks very much, bob. quick market flash from jackie deangelis. >> a new study out by the american association for cancer research showing that multivitamins modestly lowered risk for cancer by about 8% in healthy male doctors who took them for more than a decade. we're seeing a jump in the
vitamin stocks. of course, we're going to have seema mody with more on this in "street signs" to give you a little more insight. for more on the market and the economy, tom leech, chief equity strategist at jp morgan. diane swock. bob brings up housing. can we put the numbers in context? >> absolutely. >> they're great, but they're not so great. >> they're great coming off such a low level. really the composition that bob pointed out, single family homes, bank per dollar, number of people per square feet who work on single family home for construction purposes, much bigger than an apartment. to see the single family housing market come back, and the strong gains were in the west and the south. these are areas that have been very hard hit, and they're now short on inventory. we're starting to see that come back. and we're seeing single family homes being bought and rented instead of, as bob engs med, the
issue about mortgages. one of the things you're seeing is the shift to rentals. people want a single family home. they want a dog in the backyard and a home in a neighborhood, but they're renting. what you put in a rental versus a home that you own different. i actually know someone out in california, the epicenter of the subprime crisis in northern california, he rented out a lot of the homes they built, and people walked out not just with the washer, dryer, subzero refrigerator, they even took the kitchen sink. you can't make that up. multipliers are a little less. i think it's really important you saw in the industrial production numbers, which were weak yesterday. where was that strength? carpeting, aplipss, and furniture. you're starting to see the housing market and the fact that housing prices are no longer falling and people are seeing those headlines, biggest wealth effect out there. >> tom, big leaders today, dr horton, pultze. and every other week we get a valuation call saying party's going to end. is it close to being over? >> we did a piece in august, one of several pieces, housing
cycles for the stocks last three to five years. we're not even one year into these cycles. last three cycles, 100% of the move was rerating. you really shouldn't focus on earnings actually. i think it's a pretty classic cycle. i'd still buy them at these levels. >> gary? >> thank you, carl, and viewers of this fine program know i have a lot of respect for tom. we follow his work very closely. tom, i want you to take a look at the chart. hopefully, we can see it on the monitor. take a look at this chart. i'll explain to you why we bring this up, why we've got that chart. tom, if you take a look at this chart, somebody else i have a lot of respect for, timmy bash yell, credit trader, if you look at this, you've got the most long position since december of 2008. the relative performance which you said have been so dead right about, tom, if you look at where people are, it looks like everybody trading futures right now is net long, and they
haven't seen this since 2008. what do you make of that as we think about the relative performance which, again, you've been dead right about. it's going to be retail mutual funds, which is really looking at mutual fund data, and it's the retail investor. you can measure that through sentiment or actually look at the retail systems on the beta within those retail systems. i think macro-hedge funds are definitely bullish. i think they are the only ones that have really made the big turn since june. i've been doing a lot of meetings. i was just recently in the midwest. the long only managers just refuse to get caught up in the beta chase. they want to sit this out. they think the third quarter numbers stink. europe's still an issue. they want to wait for a pull-back before they get in. they haven't really made a beta move yet. and the retail system, if you look at the retail surveys, it's still pretty bearish.
i think only 1 of 3 is bullish. and the minis are capturing the hedge funds. >> tom, one other point. we've shown your work with the junk bond market and the relative value with the s&p in terms of the junk bonds. people know 1650 on the s&p if you just take the data. are you concerned at all? you pointed out we have another sort of very, very junkie junk deal price today. we've had them now. what is the junk bond market and what's happening there tell you in terms of that relative value on the s&p? >> you know, one thing we have to remember is an unlefrd junk bond buyer, a guy who's making this bond, he's not doing a hedge fund trade. he has to be comfortable doing the work. the junk will start to be narrow. that's very bullish for stocks. i don't think we're at the point yet where there's so much money into the junk bond market where they're just buying anything. there are some distortions, and i'm sure you've pointed out the leverage loan market, which normally should trade cheaper
than the junk bond market, that's a pretty narrow gap, meaning you should probably look at leveraged loans now which is where the alpha opportunity is for a hedge fund. >> interesting. i want to get your take, diane, on the consumer at large. it's been suggested the last hour, david rosenberg, it's being fed by the reidentify boom. how long does that last? are the numbers still good? are they still fragile if the window closes? >> absolutely. that's the key issue. the refi boom is adding to consumer growth and spending. it's such a large component of gdp growth. consumer spending was strong yet real wages declined. >> no fresh income coming in? >> they're getting it from refis. the good news is they're willing to spend it because their home is no longer falling in price. that's a drain in savings. how long is that sustainable? is we really need to see big employment numbers to sustain the kinds of gains we've seen. otherwise, it's going to soften. very uneven in the retail
sector. people moving down the food chain and up the food chain. that real bimodal distribution of wealthy consumers and people in the middle moving out of the middle and moving on down. i think that's very important. and not a lot of discretionary spending on food, bars, where you go out. when gas prices are high, that's when it comes out of your budget. >> we haven't touched on fiscal cliff and big enterprise uncertainties. ibm is going to feed people's worries about the by nary outcome we have in front of us. >> i think in some ways tech and industrial tell us what we already know. europe has been weak. china's been weak. the cliff of uncertainty is certainly out there, but at the end of the day, after elections, we're going to be able to see what congress can do. i think the market is going to look through that and see, look, we're going to have a cliff. there might be some accidents. but at the end of the day, it's really more like a speed bump in the sense i don't think a cyclical recession takes root
after that. >> you think it gets resolved in q1? >> yes? >> even with that, the uncertainty has its cause. everyone is quoting in washington, you can count on americans to do the right thing after we tried everything else. when we liberated the p.o.w. camps in germany, they cheered. the fiscal cliff going on has already taken a cause. we see fiscal tax gone, unemployment insurance gone. we've got fiscal drag alone without the fiscal cliff falling off it. i have better quotes from him that i like better. >> thanks, guys. if you've been waiting to take advantage of the record low 30-year mortgage rate, you may have waited too long. why the days of cheap refis might be gone for good when we come back. 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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with the blackish-blue frame and the white dots and the splattered paint pattern, your lights are on. what? [ male announcer ] the endlessly customizable 2013 smart. coming up, one of the most respected names on the street, goldman's jim o'neill with a surprising take on the election. tech gets left behind as the markets melt up. but we found a smart way to play the tech wreck. and the debate, the election and your money. we found a way to trade the race for the white house. >> the judgment is back. see you later, scott banks. let's get to rick santelli in
chicago with a look at the mortgage market. rick? >> absolutely. one of my favorites, robert country on the floor, been on the floor for decades, the way i used to be. the interesting topic, if you look at fannie, 30-year adjusted mortgage rates, theyment boo eb out around 1.70. they're currently at a high. and the average mortgage rate for a 30-year? >> right now the average mortgage rate is 3.5%, and it's interesting when you compare that to the fannie 2.5%, which currently trade at 2%. that's positive for the banks. being able to pick it up atnd sell it at 2%. it's interesting, what you basically have is fannie mae or
fhaa. so fannie mae currently charges 28 basis points over the life of the loan to securityize the debt. when you consider that and the hedging risks and ings thother the big banks don't have the spending points that everybody thinks they do. >> if you're a layperson watching this, they're not knee deep in the market ver bossity, would you say now is a great time that you think that spread is going to narrow? and rates are going to move lower? >> if you look at 2% and ten-year at 1.75%, 25 basis points is the lowest that spread has ever been. 3.5% mortgages are the lowest they've ever been. i understand that ben bernanke is on a plan to buy all these mortgages, but to be perfectly honest, given the spreads, given the fact that fhaa is talking about raising this "g" fee at the beginning of next year. >> that's something new. problematic states trying to
liquidate these foreclosures, they're, in essence, passing along these costs to states like new york, illinois, some of the worst states. >> illinois, they're talking about 15 basis points, and new york they're talking about 30 basis points. those types of things are going to prevent the mortgage rate 3.5% coming down. >> you heard it from rob, seasoned veteran. if you're looking to refi, go now. carl, back to you. >> that is the debate of the day. thanks so much, rick. it's a big topic in all the presidential debates, and that is energy. now old energy companies trying to use new technology to make fuel cheaper. our jane wells is live in california looking at just that. nice hat, jane. >> hey, carl, i'm not exactly felix baumgartner height, but it feels like it. billions in your money spent on green energy projects. the solar without subsidies make any economic sense? that story when we come back. w. since ameriprise financial was founded back in 1894, they've been committed to putting clients first.
one industry that could be greatly afbllinged by the cost of the election is the solar industry. the president has been a supporter of many green energy initiatives. our jane wells is live at the chevron solar test facility with more on how that industry is evolving. good morning, jane. >> reporter: hey, carl. i'm # 00 feet up in a tower. all those mirrors are reflecting the sun's energy onto a boiler. billions of tax energy programs in solar. five ventures that you've helped support have gone bankrupt, but not one dime of taxpayer money
is being spent here. watch. is solar energy's future getting cloudy? >> that's why we invest in solar and wind and biofuels. >> what we don't need is the president to keep us from taking advantage of oil, coal, and gas. >> reporter: those breaks haven't always paid off, and federal subsidies are scheduled to end. >> if the industry can't stand on its own two feet by 2016 without incentives, then the industry just doesn't deserve to survive. >> reporter: so who's testing solar without subsidies? an oil company, if you can believe it. >> what we have out here is 7,644 mirrors. >> reporter: in california's central valley, chevron is using the sun's heat to boil water. the steam is injected into the ground to loosen up viscous crude in the nation's oldest oil field. solar energy is being used to produce salt. it covers 65 acres and was built without taxpayer money.
but the solar built only makes 5% of the steam needed. the rest comes from gas boilers. >> in other parts of the world like indonesia or the middle east, where those fuels aren't readily available, you have to slip in lmg, liquified natural gas, it gets more expensive. these facilitieses are more economical. >> reporter: chevron will continue to test renewables despite the election. >> when we invest in technology, our view is it will operate for 25 years or more. >> reporter: chevron is also testing solar panels to see if any of them can generate power cost effectively. again, probably won't work here in the u.s., carl, but could be cost effective in other parts of the world where electricity is very expensive but you have a lot of sun. back to you. >> jane, how are you going to get down from there?
>> reporter: well, i'm not going to look down. that's the first step. >> jane wells, very good stuff. interesting to see a lot of that investment is not public investment. thank you so much. google ceo and co-founder larry page speaking out for the first time in months, and he's taking subtle swipes at apple. ♪
google's larry page speaking publically for the first time at the annual zeitgeist conference. the google co-founder didn't waste the opportunity to talk about apple's map problems. >> i get really excited about the things we can do at google it really seriously change the world. seven years ago we started to work on maps. when you think about that, that was before phones, smartphones, couldn't really use the maps on your phone. you had to use it on a computer. we said it would be really nice to have a virtual representation of the real world that was accurate. seven years later, we're kind of almost there, and we're excited that other people have started to notice that we've worked hard on that for seven years.
we should mention google is higher. apple is down by 6 cents. does it for us on "squawk on the street." let's get to headquarters, wapner and the "fast money" halftime. >> carl, thanks so much. welcome into halftime. investors focusing on a number of big stories. debating the debate. who's got the momentum now, and what does it mean for the markets and your money three weeks from election day? october surprise. earnings were supposed to be awful. stocks were supposed to hit the skids. the major averages still within striking distance of new highs. can the momentum keep going? first, our top story. tech wreck. intel and ibm raising troubling new questions about it spending. what do their outlooks signal about the sector.