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tv   Squawk Box  CNBC  June 10, 2019 6:00am-9:00am EDT

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get your money right with sofi. good morning a deal you've probably gotten wind of. united technology and raytheon making a deal. president trump suspending the tariffs on mexican imports after the two countries reached an agreement. plus, a big market rally the dow is on the first five day winning streak since january 5% last week 5% 5% in a week funny, it's always darkest before the dawn. remember monday last week? futures this morning, more green
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arrows this morning. monday, june 10th, 2019 and "squawk box" begins right now. ♪ ♪ live from new york where business never sleeps, this is "squawk box." good morning, everybody. welcome to "squawk box" here on cnbc we are live from the nasdaq market site in times square. i'm becky quick along with joe kernen and mike santoli. andrew is out today. u.s. equities this morning, things are looking up once again after the tariffs with mexico have been called off the dow futures are indicated up another 107 points s&p futures up by 10 1/2 nasdaq up by 23, almost 24 this morning. dow has now been up five days in a row. the s&p 500 and nasdaq were up four days. the dow now breaking a six-week losing streak, i should say. that was its longest in eight years with that big gain that we saw from last week
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again, five days in a row with gains looking at triple digit gains open now take a look at what's been happening in the treasury market yields the other big story after the jobs report that we got on friday that was weaker tan anticipated, the 10 year yield is 2.0%. >> that's up from -- >> what does that mean for the fed? they don't necessarily have to step in as quickly as people thought? >> it might ease things off although the market probably still has that pricing for later. not june but july and september. still expect. >> big disappointment if they didn't. >> why would they do it if there's no tariffs with mexico they were ready to stand by if needed. >> we only had 70,000 jobs. >> what's the margin of error that you could have on any given month? it's going to take a lot of other numbers that you're going to have to see confirming that especially if you don't see the immediate --
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>> they are quiet until they are needed fed officials have noability t lay the groundwork on a formal basis for june if you say, hey, we're watching everything, wait until the g-20, what happens there. >> still china >> never know if there's tariffs. >> if you have prepared for previous recessions, get ready this time. it shows step wise over a period of years every time there's some break, something very serious, you see the fed going way down here now. the last one is here in terms of financial crisis way down here. supposedly this is the better case, but stuff we aren't talking about. student loans. anywhere you can see there's money that's cheap has gone to places where it wouldn't necessarily go and it's all there. >> isn't the expectation that that would be a problem if the
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fed started hiking rates the fed actually lowers rates from here, okay -- >> the perception becomes that is a huge overhead. >> corporate debt -- >> is there more corporate debt based on where revenue lies? >> there's more absolute >> more absolute debt. >> but as a percentage of cash flow, profit and interest. >> do the math what's the average number of quarter point cuts in the recession? >> you've been able to say that. >> if you do the math we're at minus 4. >> oh, my gosh, the fed is at 3%, never been so low. 2003 it was 1% granted, we didn't have a great time of it >> we can invest i have a choice to be in some of these crappy mutual funds which were horrible. i don't know how they keep their jobs we're certainly not in cash and if there's going to be a major issue -- >> are you thinking of a position >> no, but, you know, guys like
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that that are talking about this is -- you look like you've heard all of this stuff. >> 20 years ago it was here on my phone. >> i know. i know other people -- crazy david stock, too i don't know i don't know i don't want to be, you know, fully invested if -- >> something got to you over the weekend. this is a big, big change in perspective. >> no, it's just -- >> it was the jobs report? >> no. it's just after all this time where we keep throwing -- you know, the fed saved us a bunch of times. >> yeah. >> i just wonder if the fed shouldn't have said -- >> japan is throwing us away. >> fantastic >> japan on a gdp per capita basis is not in bad shape. they -- it's not about the -- >> the argument is we might get to be japan, that's not something -- >> i don't think that's necessarily the case
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my point is there are no real limits the boons aren't in negative territory. fantastic. >> there you go. >> that could be he's on the process. he's recovering. >> he is >> i'm trying not to be that person. >> no one can really in my eyes -- believe me, no one can replace andrew oil prices were up 50 cents last week and we'll keep an eye on where those stand, too. here are some of the other top stories today. china, are they devaluing their currency or not, santoli they are. >> it firmed up overnight. >> to counter act the tariffs they've been letting it go down. >> they were propping it up for a very long time the overall trade surplus, 42
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billion. last month, 20 billion economists know a lot. they were looking for 20.5 china's trade surplus, we're going to hear from treasury second secretary steven mnuchin. u.s. and mix i could he striking a deal to impose it on all tariffs. now is our new deal, mexico is going more for the u.s.a. on the legal immigration than the democrats. in fact, the democrats are doing nothing. they want open borders which means illegal immigration, drugs and crime. undocumented democrats basically. and the peso at this hour as you
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can see, a little bit but still a big -- actually, that's against the -- >> yeah. >> against the dollar. >> undocumented democrats? >> yeah. you're not allowed to say -- a human being can't be an illegal person by definition they preferred that. >> i think they prefer undocumented people. >> yeah. >> keep telling yourself that. today's top corporate story, dow component united technologies and raytheon announcing an all stock merger after planned spinoffs, the company will be valued at more than $100 billion and have annual sales of $74 billion. the new company will be called
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raytheon domestic corp they're calling it a merger of equals utx will own 57% of the shares greg hayes will be the ceo of the newly combined company joining us is wall street journal reporter carolyn bardo she has the lead story. >> thanks for having me. >> why are these two companies doing this >> the idea is they'll be able to share technology and cut costs. both aerospace sales and defense sales have been having pretty good run but both are coming under pressure they're expecting slowdowns. so the idea is think will create the technology that you want to create. >> the pentagon is pushing back and looking for ways to save costs. you have to be big to fight the
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pentagon. >> that's a huge piece of it they're getting intense pressure to create the new technologies and spend their own money. in fact, we wrote in our story that raytheon's ceo tom kennedy had approached united about this deal he was on the lookout for this. >> he approached a while ago, didn't he? >> he approached last year it's been in the works for several months utx having this underway, does this seem like this was eventually the pairing that was going to happen for a while ago now creating a dream tieup that people on wall street have speculated about it wasn't entirely clear what the next step was going to be after they spin off their carrier businesses
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this wasn't going to happen but definitely something that has been dreamed about by bankers. >> is there any potential challenge from regulators or they're in a different business -- >> so far though they don't expect any issues there. they operate in very different spaces there's very little overlap. maybe 80 million of sales will have to be divested. very little compared to the size of new company the pentagon is not there. >> you see it open somewhat modestly higher here it is billed as a merger of equals does that bear out sometimes that's what the companies say and in reality one -- >> yeah, you're right. there's no such thing as a merger. >> especially a company like
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this where there's going to be a spinoff down the road and we don't know what that value is going to be. >> there are a lot of things that tip it like united is buying raytheon. >> the name? >> the name. >> uta 57% >> the raytheon people are like, oh, okay that's good. >> no, bank of america should be called nations bank. nations bank bought bank of america. >> utx is more well known. >> they kept technologies. it's united technologies. >> you're right. i loved t. they expect this to actually be taking place it's going to happen the next and as they think the spinoffs will happen next year.
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>> is defense consolidation at a stand still? i mean, maybe we'll see the competitors. that's the only police they can go. later this morning, don't miss the first interview with ray hayer and tom kennedy coming up at 9:00 a.m. treasury secretary steve mnuchin on treasury talks. why new tariffs could be in the cards. before we head to the break, this is the biggest winners and losers in the dow. we'll be right back. my ideal cloud? it has to work like air traffic control. it's gotta let new data integrate with data from our existing systems. ♪ ♪ be able to pull from reservation platforms built 20 years ago. and also be able to use apps to book super-personalized trips on shiny new phones from the future.
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[ slurps ] frogwho's a good boy?orn it's me. me, me, me. hey guys! you're gonna want to get in on this. i know how to those guys in here. let's pause the internet on their devices. wohhh?
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huhhhh? [ grumbling ] all: sausages! mmm, mmmm. bon appetite. make time for what matters. pause your wifi with xfinity xfi and see the secret life of pets 2 in theaters. welcome back to quack box, everyone the futures have indicated a sharply higher we saw gains for the dow last week s&p 500 and nasdaq were up the last four days of the week this morning on news that the tariffs are not happening, the tariffs against mexico, the dow futures are up another 113 points s&p up 10 and a half and nasdaq up 22. trade has been a big part of the market steven mnuchin sitting down with cnbc to talk about prospects for a deal with china. >> i think we had a deal that was almost 90% done. china wanted to go backwards on certain things
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we've stopped negotiating. if china doesn't want to move forward, then president trump is perfectly happy to move forward with tariffs to rebalance the relationship >> president trump is set to meet with chinese president xi jinping at the g-20 summit in japan later this month secretary mnuchin says president trump will make a decision about whether more tariffs on china are appropriate. joining us now to talk markets, alec young, managing director of global markets research and jim o'sullivan at high frequency economics what happened friday what was that? >> payroll numbers are volatile. >> yeah. >> obviously they jump around. 75,000 is down sharply from 200,000 plus last year we know how volatile the numbers are. year to date average is 164 which again is down from 200 plus last year i think that's plausible that there's been some slowing here i wouldn't take one employment report literally especially when
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we're not seeing corroboration of any weakening in claims which are hanging near 50 year lows. >> where else are we seeing signs of possible slowdown people that like to predict recessions are back. >> the manufacturing sector is clearly weakening. obviously that's consistent with export numbers weakening, not just for the u.s. but globally trade has slowed sharply so there's no question the manufacturing sector has shifted down here, but as far as the economy as a whole goes, if you're not seeing a clear up front, but at this point i think the only sector that really clearly is slowing is manufacturing. >> how about construction, too >> construction jumps around housing numbers if anything have been on the positive side. nonresidential has been weaker
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public construction has been strong housing itself is not booming but if anything the numbers have been up over the last four or five months. >> don't you think the fed is now kind of committed, at least -- if you look at fed funds, futures or whatever you want to look at, it would be a big disappointment now >> well, i mean, obviously the markets are in a way counting on the worst at this point. i think the fed has made very clear and they've encouraged the market to step in if necessary i don't think they've signaled that they're going to go next week, not that they couldn't given what they've said, but i think they're ready to move. but at the same time, as william said last week, they don't necessarily view the market as a great oracle just because the market is predicting it doesn't necessarily mean they have to follow. >> but they seem to be following and being buffeted by stock market moves and by any weak
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data point and i don't know, social media's fault >> although if you look at the broad market, the s&p 500 was down 2.5% from the all-time high and has rallied more this morning. >> i know. >> to the extent you're making an argument for easing based on financial conditions, it's not there. it's chicken and egg i think the fed can take a little bit of weakening in the equity market. the fed doesn't want to see 200,000 plus per month in payroll. they want to stop the trend in the unemployment type. >> if you were in a valium and you saw where unemployment was and then you didn't say else about tariffs or anything ils. would you say you're still in a cut? >> yes >> they want to go above 2%.
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it's cool they're not going to tighten with a core pc of 2.6. the growth numbers broadly with the markets, there's clearly not a case yet at least to ease. >> normally anyone that came, you know, in a time machine forward they would not understand it, that's what we're waiting for. >> they have to be forward looking, of course part of the backdrop is the trade tension. is that only going to get worse? we're seeing exports weaken. they have to take that into account. as of now the numbers don't make the case. >> i know a lot of people, alec, that are at $27.50 they were there a week and a half ago they were there and they thought they were smart. is it june >> june. >> so it's june and we're back almost to 2900 on the s&p. do you have a year-end target? >> i think the fed's clearly signaling. >> do you have a year-end target or you don't have a year-end target >> i think we're going to be
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higher 2750 feels too conservative. we're late in the cycle. there's a lot of sensitivity to policy obviously monetary policy is very supportive. a lot of this is psychological when the market feels like it needs reassurance, the feds made it pretty clear from the chairman on down, it's there to do that. the market reresponsibilities very quickly you know whenever things wobble, also with rates you have this problem now, there is no alternative. if you look at a lot of areas of the market whether it's starbucks, waste management, companies are making all-time highs. we had a bit of a stealth market it didn't feel like it because some of the bigger companies that were holding up the averages were doing fine the average stock got hit pretty hard over the last couple of years. we're seeing a lot of that reverse. so it feels like there's more risk being out in the market
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obviously the big metric people are watching, it's great you had secretary mnuchin, it's going to be that g-20 if we get it on the trade front like we had it on the other front, it will challenge the highs. >> it's nice that the euro was as low as it could go thanks to germany, japan, everyone else, that's not even new math plus we can print as much money as we want to lower the monetary -- >> i'm sure among the fed just saying we can't zsh. >> put that in your pocket >> if you get good news on trade and better economic data by july when people are thinking they're going to cut, people won't have cared if they cut. we will have gotten better news. if things get shaky, investors are nervous and the outlook is
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murky, they're there to be supportive the powell fed is more consumer friendly than any fed. >> alec young, alec baldwin. do you have a preference there >> amazing. >> guinness? >> they're great adam sullivan -- >> more way back >> yes literally, yes when we come back, a big win for pets at the weekend box office stay tuned, everybody, you're watching "squawk box" here on cnbc welcome to seattle.
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welcome back to "squawk box. it's time for the executive edge universal's "secret live of pets 2" tops the box office taking in just below 47 million. it topped "dark phoenix" which came in at second with $33 million. gasoline prices falling 9 cents during the last three weeks. the latest lundberg study says the average price is $2.84 a gallon that's 17 cents lower than a year ago. coming up this morning, stocks to watch. as we head to break, a look at
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welcome back you're watching "squawk box" live from the nasdaq market site in times square. good morning s&p futures strong again is it only five days >> it was five days for the dow, yeah. >> this will be five today >> no, this will be six. last monday it gained 4 points. >> we did triple digits every day. >> already it's been five. >> 1200 points 5% another 120 day. a lot of the -- probably the
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news about tariffs not going on, i think that started really -- >> the market by some degree. >> it would be five days today for the nasdaq and s&p they were up four days last week. stocks to watch this morning, shares of spark therapeutics dropping coming on the word that roche's gene therapy has been delayed again they're asking more questions on the equipment. the u.k. regulator has opened a probe. you can see spark's therapeutics down. shares of cannabis produced tilray reaches an agreement with the largest shareholders, privateer. it's backed by peter teal. it has a lockup on the 75 million tilray shares.
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that could be accomplished through a so-called downstream merger short sellers have been betting that privateer will slip the market american airlines is extending the cancellations until october 3rd. boeing has yet to complete a certification test flight and submit a software upgrade and new training procedures to the faa for approval this is a way of making sure they're not going to see disruptions if that takes longer to see the planes put-back in place. coming up, china's latest trade numbers catching the markets by surprise. our next guest says a coming credit crunch says it mabrey the hurt to the china economy. plus, we're going to have more on the major news of the morning. united technologies and raytheon with an all stock merger
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we'll talk about the implications stay tuned you're watching "squawk box"n bc o
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welcome back to "squawk box. thousands of people were protesting in hong kong speaking out against a new proposal that would allow people to be extradited to main land china to
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face charges wait long enough to see what happened we can ask eunice. they're not allowed to show anything like this it's on the cover of every newspaper around let's ask her. it's interesting because this is long enough right now to where i think -- >> eunice yoon joins us right now from beijing with details on new data that's out today, too eunice, what can you tell us are we on? >> are we off the air? >> no, actually right now we're on so the censors might be a little slow at this moment but earlier today and pretty much the entire day the hong kong protests -- oh, sorry we're just out. so they did go get a cup of coffee they were a little bit slow on the censor ship button in terms of the trade data, the
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may export figures beat expectations it looked as though the manufacturers had a front loaded shipments. so they rushed orders because of president trump's threat that he could potentially slap tariffs on another $300 billion worth of chinese goods. the numbers came in pretty good. they blew past a consensus of a fall of 3.8% imports suggested lackluster domestic demand. there's been a lot of talk about the chances of a second half recovery are probably not going to happen because of the weaker globaldemand as well as the u.s./china trade war one other development on the u.s./china trade war that i wanted to point out to you guys. china responded to treasury secretary steven mnuchin's assertion that the u.s. and china -- that president trump and president xi were going to meet at the g-20 and they wouldn't confirm the meeting today at the regular foreign
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ministry briefing. this is what the foreign ministry said. they said we have noticed the united states has repeatedly expressed its expectation if there is concrete news on this china will release it in a timely manner. that means that the chinese don't believe that this meeting is a done deal and likely beijing is calculating right now whether or not it makes sense to send president xi jinping into a meeting with president trump and if there's a risk that president xi could be humiliated they have seen what happened with mexico. they have seen what happened with north korea and likely they don't want to be m a situation, which it looks as though it's being set up by the u.s. where the u.s. lays the groundwork and terms and china walks in and could potentially have egg on their face so it's interesting today that they still wouldn't confirm this meeting at the g-20. guys >> sounds like the -- kind of the setup coming from treasury
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secretary mnuchin is that they expect that the deal is going to be what had been originally negotiated before he was saying they were 90% done on those negotiations and that they expect that they're going to sit down again they will be picking up where they left off that sounds like there's still a lot of space >> yeah and what was interesting was in that foreign ministry statement, the ministry said that they noticed that the u.s. is saying that the trade talks are all going to -- everything is going to be sorted out at the g 20 but, of course, the chinese haven't confirmed this meeting then afterwards the ministry spokesperson went in to the routine standard statement saying that the u.s. -- that the china will -- that china will
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negotiate with the u.s. as long as the u.s. treats china as an equal partner and that if that doesn't happen, then china will fight to the very end. so it suggests, i think, that china is potentially looking at a way where it doesn't necessarily have to be in that meeting with president trump. >> right. >> china could be thinking it is going to blow off this meeting and it could still walk away the other calculation that china has is it still does want to appear that it's the states person and the adult in the room, that it's the stable, consistent partner so from an international standpoint it won't want to back out of the meeting but it also wants to be very careful about what happens if it does go into a meeting. >> it's interesting from the perspective -- i think the markets, i would say, markets have been thinking that it's the g-20 and that's where we'll get some clarity, but china probably doesn't have the same interests in setting that up
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i hadn't thought about that until you just started talking about it this morning, the idea that china says, no go, and then how the markets react in turn. >> reporter: yeah. that's right i think that from china's perspective, they -- you know, they don't necessarily want to be in a position where from mnuchin's statements it's all been about how we're going to -- you know, it's all on china right now and from china's perspective just from this latest foreign ministry statement, they're saying it's all on the u.s they don't want to be in a situation where they're potentially seeing their president publicly humiliated by president trump. >> eunice, thank you very much by the way, are we back on yet >> reporter: yeah, actually we switched right on. i saw this come on with the screen as long as you don't talk about hong kong and the protests, then we're all good. >> eunice, thank you very much joining us right now is hsbc's frederick newman, what do you think? i hadn't thought of that
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perspective, but if china were not to show up at this g-20 meeting, how would the markets react? >> i think markets are primed for some sort of a break through and a deal so i think markets would sell off on the news that china didn't show up to the g-20 or to the specific meeting as you said, 90% -- we might go back to 90% has been agreed on the last 10% really matters. >> i feel like it's the 90% we're still arguing about. >> even that. >> if you believe what the u.s. is telling us, that's why the chinese walked away. we had these things that will like it will be a quick fix. very meticulous, planned, they wants everything set set in stone before they show up. the trump administration, the exact opposite leave the last deal on the
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table, fix it at the g-20. that's very difficult to find a common agreement in the next, what, 4 weeks, three weeks >> that's the front end of negotiations chinese want to show up and maybe not stick to the deal they've greed to in the first place. you have all kinds of long-term negotiating problems cultural differences. >> we have more negotiating subjects now we have huawei that wasn't present weeks ago. >> mnuchin's trying to say that's separate at least in the dmoents cn comments, huawei is separate the president has hinted that -- >> officially, yes it's hard to keep it completely separate from the negotiations. >> mike, how much do you think has worked into the snarkts. >> i think the market was -- it seemed like it was making its peace that we're at the stalemate. provided the chinese economy doesn't look like it's spilling into a worse place what do we know based on the
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export data, what the currency is doing it's priced to the upside. do we have stability there or not? >> we have some signs of things slowing. import side, imports down 8.5% that's a big reduction in china's purchases from the rest of the world that's ultimately what the market needs to worry about. china contributed 1/3 to gdp growth any marginal slowdown is going to be a problem for japan, korea, for the entire region there are signs that things aren't picking up as quickly now with the unstecertaintyuncet looks like to might be more stimulus until we get that, the market will be in a holding pattern. >> why are imports down? is that raw materials? are they trying to punish the u.s. by not taking any imports >> very quick in turning off imports. soy bean imports down during the month. that compresses imports. 8.5% is a big number off of a big sort of headline number.
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partly it's the components that china buys to reexport to the u.s. it's going to show up in the export data. it's all linked. so we're going to get some very challenging global trade numbers in the coming months. >> what do you tell clients, people who are looking to you for some sort of advice on what to do with all of this >> well, we have some regions that are a little bit better asean, for example, in asia looks a bit more resilient northeast asia a bit more challenging. china will probably pull through. we'll sort of wait and see wait for the stimulus. it is not going to be a quick turn around. we think we're cautious at this stage. china will add enough stimulus and hold it at 6% growth. >> thank you. >> thank you neumann does that translate? it doesn't. >> no, it does. >> you get that? >> i get that. i've seen it all i've heard it all.
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neumann. >> i looked at dr. neumann's background i said do i call him -- >> an annoying post man? >> yeah, exactly i said, yeah no, thank you. >> shocking. shocking you came to that conclusion. >> i can't help myself i love that, neumann government regulators take aim at big tech. what should investors think twice -- andrew would have no idea you got it buying the faang stocks. later this morning, gia dam my has not seen a single "seinfeld". >> ever? >> in history? >> how is that possible. >> i don't know but i think about him differently because of that don't miss a first on cnbc interview with the ceos of united technology and raytheon tironhe megamerger coming up at 9:00 a.m. eastern. stay tuned
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the faang stocks have all lost ground in the past month, all well below their highs from last year. joining us now to talk about it, paul meeks, lead portfolio manager at the wireless fund paul, good morning you know, part of what investors loved about the faang stocks was that they couldn't even help but grow they had these magical platforms that could not be challenged very well and network effects and the rest of it now, that's what regulators maybe are suspect of how does that play into your assessment of how they're valued and how these stocks can do? >> the stocks have come down quite a bit from their top, and i own the entire cast of characters, but i'm in really a wait-and-see mode, particularly for the two i think are going to be the most dramatically impacted with their business models as we go from a public
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forum to something more private, and that would be facebook and google when i take a look at some of the other ones -- amazon implicated less so, apple has problems of its own with the natural slowdown in smartphones around the world, and netflix, again, is facing a full-fledged assault from everybody and their brother who wants to get in video streaming. but i worry most on a regulatory basis about facebook and google. >> does that mean that none of that group right now is a good candidate for you in terms of buying at these levels, or would you pick and choose? how do you play it >> i would pick and choose, and i think i would go forward if i were to add to any of the faangs with amazon. you know, amazon can still make the case in front of any regulator, here or abroad, that they're such a small part of what they do when i say "what they do," overall, globally in e-commerce, and also, even though they dominate with aws and public
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infrastructure, that's going to be a pretty big market with several viable competitors, including facebook, which is coming on strong, and google >> now, microsoft, i know -- i think your biggest position and one that sort of trades now like faang used to trade, right i mean, people basically all agree, very well positioned. stock keeps going up not cheap, but maybe a $1 trillion market cap. so, how do you view it right now at its current valuation and what it has ahead of it? >> microsoft, you're never going to be able to make a value case. it has to be a growth at a reasonable price case. and i think ever since satya nadella came aboard as the ceo in 2014 and the company has essentially become a number two, a very strong number two, to amazon with microsoft azure, and i'm bullish that it will continue to gain some share and that overall pie will get bigger one of the things i'm particularly intrigued about is what they have just announced in
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video game streaming i think a lot of folks don't realize how large that market is and how it's many fold bigger than box office revenues for movies and so, if you think about microsoft in that space, they have proprietary content, and now they are going to emphasize their distribution pipe. i think it could be a real growth driver for microsoft. >> all right and not the one that everyone has been focused on exactly. paul, thanks a lot for your time this morning, paul meeks. >> thank you. when we come back, we have more on the defense mega deal of the morning, utx and raytheon announcing a merger. two analysts join us with their thoughts on what this means for the stock and for the industry but as you can see, both those stocks indicated up this morning. utx up by about 4.4%, raytheon up by 2.8%. and then later, facebook's former chief privacy officer chris kelly. we'll get his thoughts on what might happen to big technology now that the doj and the ftc are turning up their scrutiny. he also represented netscape in
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monday's word of the day raytheon and united tech announcing an all-stock merger a look at the deal and what it means for the sector. treasury secretary steven mnuchin defending the president's stance on tariffs. we'll get the latest on the trade wars and what it means for your money. the government looking closely at legislation to regulate big tech. former facebook chief privacy officer is here to defend silicon valley, as the final hour of "squawk box" begins right now. ♪ >> announcer: live from the beating heart of business, new york, this is "squawk box. ♪ good morning, and welcome back to "squawk box" here on cnbc i'm joe kernen along with becky quick and mike santoli andrew is out today. u.s. equity futures are up triple digits this morning after five straight days of gains last week and almost 1,200 points, or
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1,200 and change in the dow, 5% move nice snapback after six weeks of lower equity prices. this morning's big story -- defense giants raytheon and united technologies announcing that they're merging in an all-stock deal, creating a giant in the defense and aerospace industry the combined company would have annual sales of around $74 billion, making it the second largest aerospace and defense company behind boeing. making everything from jet engines and cockpit controls to tomahawk missiles. shares of both companies in the premarket are indicated up nicely, and that's part of the gain we're seeing in the dow, that move in united technologies -- >> raytheon shares just jumped they had been up only 2 point something percent a minute ago picking up really uickly. >> morgan brennen joins us now with more. morgan, good morning yeah, mega merger monday that's how i would describe this raytheon technologies, that's
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going to be name of the combined giant, valued at more than $100 milli million. all-stock merger of equals and if that's familiar to defense investors, it is a similar playbook to the one between l-3 and harris, which are also in the process of merging in a similar transaction right now. utx shareholders are going to own 50% of this company. rtn investors the rest united tech's greg hayes is going to be the ceo. raytheon's tom kennedy will be the chairman for the first two years, then hayes is going to assume that role as well deal is expected to close in the first half of 2020 that is alongside united technologies' spin-offs of otis elevator and carrier building systems. $1 billion in annual cost synergies by year four, $500 million in annual savings returned to "customers," $18 to $20 billion of capital returned to investors in the first three years. so, what is this going to create an aerospace and defense behemoth $74 billion in sales, 50/50 defense versus commercial aerospace. last year between the two
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companies, about a third of the sales combined were to the pentagon alone raytheon's the top producer of missiles in the world, perhaps best known for the tomahawk but also has a hand in every major missile defense system made by america -- radars, hypersonics, lasers, a fast-growing cybersecurity business united tech makes everything from avionics and aircraft nearors to jet engines, including that inside the f-55 joint strike fighter, which is the world's biggest program. and a company with scale to negotiate aggressly and wherewithal to double down on tech tech will be a big focus of this raytheon shareholders will get more growth. united tech shareholders are going to get, no pun intended, a more defensive business that maybe smooths out cyclicality. guys, we're going to get more details on the investor call at 8:00 a.m. eastern today. here's what i would expect to hear from these names, that this is really focused, as i just
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mentioned, on technology and a business for the future. hypersonics, directed energy, intelligence surveillance and reconnaissance, cyber protection for connected aircraft, advanced analytics, ai. these are going to be the terms you hear about, i suspect, on that call, and also them talking about the fact that they don't necessarily expect to see much regulatory pushback on this and that they do believe there could be cost synergies, even if maybe wall street's a little skeptical about that. >> you did a very nice job setting that up. and we've got two analysts we're going to talk to now about it, but we've got another merger happening before that in tech and business data, i guess, sales force. >> sales force. >> making an acquisition. >> of tableau software they're going to be combining the two companies. they're buying all of the class "a" and "b" shares for a 1.103 shares of salesforce common stock. they say that's $15.7 billion, an enterprise value of $15.7 billion net of cash.
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but yeah, this is just coming out now. salesforce shares down about 2.5% on this tableau software up by 28%. >> yeah, before the merger it had a $9.4 billion market cap, so add 35 on 120 -- add a quarter onto that for -- they're talking about the whole enterprise value then they do talk about, you know, a lot of gobbledygook about what this will do, bringing together the world's number one crm -- customer resource management -- with the number one analytics platform. tablea nk helps people understand data and salesforce helps people engage and understand customers that's true, the best of both worlds a combination to supercharge the digital transformation is what is happening with tableau. salesforce will play an even greater role in driving digital transformation and i like the market they're looking for, santoli, $120
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trillion they expect -- by 2022. >> total adjustable gain crm -- >> it's almost as big as uber's aggressive -- >> it's about 10% of salesforce's market cap. >> right. >> enterprise value is so it's not a huge deal, but still pretty significant tableau has been trading close to the highs software's been a high of the market but they also traded at 125, had a scoop down and now it's coming back so not a bargain relative to this company's history, but obviously, they're going to bolt it into the crm hub and spoke and see how it goes. >> all right what were you talking about, morgan oh, yeah -- >> the other merger today. speaking of analytics. >> let's bring in a couple analysts to discuss what the united technology/raytheon deal means. aerospace and defense analyst sheila cayaglu of jefferies and ron epstein of bank of america
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sheila, you're famous. you're all over the "wall street journal" -- >> we're old news already, though we just announced another deal, so -- >> yeah, this not quite as big i want to understand the rationale here and why i should think that it's anything other than economies of scale and they've got some of the same customers so they can -- those complicative operations they can put together -- although they don't do a lot of the same thing, but defense spending is going to slow to single digits i mean, it was slow three, four, five years ago, but recently it's been up double digits it's going to slow again is that why this is happening? >> morgan and i were talking about this earlier it reminds us a lot of harris and l-3. you have to keep moving to get ahead. if you think about the budget, it's $730 billion, so not an uber-size addressable market, but it's slowing it's still off of a very low base so we have a good addressable market just these companies are seeing a way of merging and bigger is better in defense seems to be the theme. >> yeah.
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ron, similar notion or anything to add to that, nuance >> yeah, if you look at the defense budget, actually, the request was $750 billion for 2020 and the house came back with $733 billion it will probably end up being $740 billion, which is probably about 5% top-line growth for the stuff the defense contractors get their hands on, it's probably a close to 10% growth in 2020 and you'll probably get another year of that after that. so, defense isn't quite as slow as people think, right the underlying, i think, point of this transaction is a couple things one, for united technologies, basically, they're swapping out otis elevator and carrier air conditioner for raytheon and no offense to otis and carryer but raytheon's a far superior asset the barriers to entry, the technology, the whole thing. so with the spinout of those companies from utc, you know, mr. hayes has rebuilt this portfolio into a technology juggernaut. >> so, pentagon is how much of the two companies separately
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right now? >> i think it's about a third. >> only a third? >> 55%, 45% commercial >> jet engines and everything else. >> raytheon has also been growing its international sales. it's about a third of its sales last year, so that is a big part of the business, too, is the foreign military sales we've been making to our allies as well. >> okay, so -- and that's not included in the third then so, just -- how much is military sales, would you say i mean, a lot of it's commercial, right, or half of it more than half of it's commercial >> about 45% is commercial, so -- >> only 45%. >> that's pratt engines. the gtf, which is a big part of this valuation, that engine is currently losing money it's on the a-320 neo, so that will create future cash flow streams. some of it's commercial. >> the combined entity will be closer to 50/50 when it's all done. >> you mentioned otis and carrier, inferior assets, but nevertheless have some value how do you look at utx right now in terms of assuming a value for them >> so when we look at the
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company, in its current form, we think the shaures are worth $180 maybe more when you look at the value of the gtf, the aerospace businesses, otis and carrier and compare otis and carrier to their peers, you get a lot of value. >> how much is left once you spin out otis and carrier, the part that will remain? >> yeah, so utc, the aerospace company, it's on the order of maybe 60% of the revenue of the company. >> okay. >> so, yeah. but the combination here, i mean, it just makes it defensive, high-tech portfolio i mean, it really is a spectacular combination. >> not a whole lot left to put together in the whole defense group, is there? >> you know, it's pretty incredible, because we started the 1980s with something like 60 major defense contractors bidding on major programs. now we have five major defense primes, certainly a number of suppliers and other names, too,
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but it's been an incredible couple decades of consolidation. and in the last couple years, we've seeven more m&a, northrup grummon, the l-3/harris deal and more on the government services side of things i think the key question -- and sheila, i know you've been writing about this -- what is still left out there and what happens to the other primes like lockheed, like general dynamics, but also companies like honeywell and ge on the heels of this. >> right so, honeywell is now going to be one of the smaller aerospace suppliers. it was one of the biggest ones so, it has an ample balance sheet, $18 billion potentially to deploy. you have textron as one of the only mid-caps left that l-3 and harris are combining, so there are very few left in this space. >> you're not going to be able to combine defense companies with each other anymore, correctly? that's what an analyst told us last hour, that if you want to do it, it will have to be a little outside -- the pentagon doesn't want anybody getting bigger and bigger. >> i think the major primes will have trouble consolidating from
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here, but suppliers could come together. >> that's what's interesting about this deal is raytheon's combining with not a prime, right? it's a large commercial aerospace company. >> right. >> and from a strategy point of view, if you think about what boeing did almost 15 years ago by buying mcdonnell douglas, over the last 15 years, half of the free cash flow of the boeing company has been generated by their defense business. >> i think that's a key part of this, too, and i'd be curious to get your thoughts on this -- is that boeing model, because they have that commercial business which has been a cash cow and some would argue it's been able to help them essentially bid very aggressively on some of the recent defense contracts that we know they've won, that maybe their competitors wouldn't have bid quite so aggressively for. and i wonder if this deal sets up united tech and raytheon to be able to do the same and thus create more competition in the market place. >> i think it goes back and forth. if you go back to the dark days of the 787, boeing's defense business allowed them to kind of plod ahead. >> true. >> the cash coming out of the
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commercial business today has helped their defense business. so there really is a nice back-and-forth, and i would expect raytheon technologies to have the same advantage, right big balance sheet, cash coming out of both sides and an ability to play both cycles off each other. >> looks like it's not a false claim that it's a merger of equals looks pretty close to that although raytheon shareholders are getting a little bit more of a jump today it's more -- it's kind of a utx ut utx/raytheon acquisition more than a merger of equals, isn't it >> when you look at the free cash profile and the long-term free cash profile, it ace merger of equals. >> and they structure it -- >> the inside baseball on this, it's my understanding that raytheon actually approached -- >> originally. >> yes. >> and if you look at the economics of the deal based on the stock close on friday, utc at the end of this thing is being, you know, valued at like 11.8 times ebitda, and raytheon's 10 times ebitda,
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right? and the last point -- who's going to run the company after two years? >> greg hayes. >> greg hayes. so, to me, this is clearly united technologies acquiring raytheon. >> that's what i think, too. and that's why we said earlier, hayes gets to run it and their shareholders get 57%, but we'll give you the name. and like, the guys at raytheon are like, okay, all right, that sounds -- that doesn't seem -- that's not enough. >> well, their stock's getting the bigger bump today. so the market's deciding who's getting -- >> well, that's because the company being acquired >> right. >> but the acquiring company should stay united technologies. you like raytheon. you think that's a cool patriot missile sounding name. >> i think united technologies is generic and more conglomerate -- >> it's a conglomerate of -- >> but you like -- >> no, he does not you're disparaging him >> nader. >> no, it was venador. verizon? >> it's a bridge thank you, sheila. i was going to ask about boeing,
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but there will be another time. >> always back to boeing. >> yeah, we've got to get back to boeing. ron, thank you morgan, thank you. all right, later this morning, don't miss a first on cnbc interview with united technologies chairman and ceo greg hayes and raytheon chairman and ceo tom kennedy. that's coming up at 9:00 a.m. eastern. when we return, it is that time of the year cnbc's list of top states for business is just one month away. we're going to break down who's in the running for the top spot this time around plus, secretary mnuchin speaking to cnbc on trade and defending the president's tariff threats. we've got the highlights of that interview, next. ay tedstun you're watching "squawk box" right here on cnbc ♪
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welcome back to "squawk box. the futures right now continuing to add to their gains. looks like the dow's set to open 133 points higher. s&p 500 up 13, a little less than 0.5%, adding to last week's gains of about 4%. nasdaq poised for about a 36-point gain. markets have, though, been reeling in recent weeks over president trump's tariff threats against mexico and china in an interview with cnbc, treasury secretary steven mnuchin defended trump's use of tariffs to gain leverage on issues that aren't directly tied to trade. >> president trump has done a great job in using these tools
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the immigration issue was a very serious issue. we couldn't be more pleased that mexico came to the table and negotiated an agreement. and because of that, we don't need to put tariffs on them. i believe if china is willing to move forward on the terms that we were discussing, we'll have an agreement if they're not, we will proceed with tariffs >> the treasury secretary also stressed that washington's ongoing campaign against telecommunications behemoth huawei is a national security issue, not a trade-related one >> as we've said all along, with the huawei discussions, they're really national security discussions, separate from trade. both we and china have acknowledged that in our discussions. now, of course, president trump, when he has the meeting, to the extent he gets certain comfort on huawei or other issues, obviously we can talk about national security issues, but these are separate issues. they're not being linked to trade. >> not clear if china has acknowledged it's a separate
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issue, necessarily -- >> no. >> but maybe in the discussions they have. >> and with eunice yoon earlier, when we were speaking to her -- she's in beijing -- she was just pointing out that the chinese ministry won't even at this point confirm that there's going to be a meeting between president xi and president trump at the g-20. >> right, exactly. >> deciding whether they want to get pinned into that position and go in one on one without a real deal that's actually in place. >> it's a little too soon after the breakup, maybe all right. coming up, america's top states for business you're kidding, right? that's not the scott cohn thing. >> it is he's right here. >> scott, wait a second! are you doing this every month >> no! you're just -- time's going -- when you get older. >> are you kidding me? it's time? oh, my god, we just did that. >> it's a month from now. >> oh, it's a month from now. >> yeah. this is a preview. >> oh, my god, my life
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i have breakfast like, breakfast every morning. no, what is that i have breakfast every hour. that's what she said, maggie smith. and then washington versus silicon valley former facebook chief privacy officer chris kelly will join us "squawk box" coming right back are you kidding? really
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♪ cnbc's top states for business rankings will be released a month from right now on "squawk box," but today we have some preliminary findings and scott cohn is right here with some of the data. hi, scott. >> hey, mike hi, guys it is hard to believe it's our 13th year. even hard to believe that i'm only 26 years old. >> that is hard to believe. >> our top states for business always a closely guarded secret, but here's what we can tell you one month out. more than ever before, the most crucial battleground is workforce, where can employers find the most talented pool of employees? we saw that with the microsoft
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q-2 sweepstakes, though they changed their mind about new york but we also know this because of our top states analysis, where we determine which attributes carry the most weight in our study by looking at how frequently the states cite them in their economic development. in these days of low unemployment, workforce is our heaviest weighted category, worth one-fifth of our 500 total points, the most weight it's carried in the 13 years we've been doing this. states are also talking up their economies more than ever, things like growth, housing and credit ratings. that's next on the list, followed by infrastructure, cost of doing business and quality of life and those latter factors help convince foxconn to pick wisconsin for its first u.s. manufacturing plant. cost of doing business includes incentives and they stand to pick up nearly $3 billion in tax breaks from the badger state rounding out our list in this order -- education, technology and innovation, business friendliness, access to capital, and cost of living last year's top state was texas. we have never had a repeat winner could this be the year for that?
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we've got more about our study, about state competitivenesh lon topstates.cnbc.com. >> what was the number one weighting last year? >> it's been workforce for the last three or four years, but it's carrying more and more weight companies are having trouble filling skilled positions. that was happening even before the low unemployment there's this so-called skills gap that we've been reporting about for the last -- >> why is business friendliness worth half of quality of life? then why wouldn't everyone be in florida or somewhere warm? >> because -- well, there's a number of things we look at. with business friendliness, we look at what the states are talking about and when they're marketing to companies we figure they know what the companies want what they're talking about is workforce. they're talking about economy, infrastructure they're not talking so much about regulation and business friendliness we know that that's important -- >> some states probably can't talk that much about it. >> that's absolutely right. >> so, new jersey will never win? >> well, new jersey has not done very well historically, let's just say that. >> illinois will never win. >> illinois has also not -- the
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interesting thing about illinois -- i mean, their finances are terrible. there are so many things that are wrong with illinois, but illinois has a lot going on as far as access to capital, as far as technology and innovation and workforce. so, it's one of these sort of split things california, a similar type of thing, really expensive, really heavy regulation, but it's also where all the capital goes. >> okay. so, andrew's not here. i need to ask this question. so, north carolina got penalized a couple years ago is georgia going to get penalized this year? >> if you're talking about the abortion -- >> you know exactly what i'm talking about. >> well, so we started a few years ago looking at inclusiveness as part of quality of life. the abortion issue is still kind of playing out we don't know whether it's something that businesses -- >> that hurt north carolina, didn't it, with the lgbt, with the bathroom >> two different issues. >> social issues. >> social issues we really -- this all sort of bubbled up as we were doing our analysis this year, and so we're not really looking at the abortion laws yet because we don't know how business is reacting to that
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we know there's been some early talk about a boycott from the film industry in georgia, but there hasn't been the kind of widespread talk that there was following indiana's religious freedom law a few years ago and the bathroom bill in north carolina, where businesses were almost unanimous against it, saying they were going to pull out. abortion is a tougher issue. we know that and so, we're still -- we're looking at that. >> so, you're going to milk this for a whole month. >> you bet >> so, it hasn't been a year it's only been 11 months. >> it's been 11 months. >> it's only been 11/12 of the year. >> it's only been 11 months since we were milking this -- >> we have many guesses, but still have time to go over this with you still not telling us your travel plans? >> around the u.s. -- >> you said you'll be in new jersey. >> i'll be at global headquarters -- >> new jersey, not cnbc. thank you, scott when we come back, we'll talk about legislation and regulation of tech companies like facebook, google, amazon and others with facebook's
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former chief privacy officer, chris kelly. right now, though, as we head to break, check out u.s. equity futures. dow's indicated up another 135 points that comes after almost 1,200 points of gains last week. s&p up 13, the nasdaq up 37, and "squawk bo wl rhtacx"ilbeig bk. ? don't just track an index, help me meet a client's need. is the fund built to sell or built to last? etfs are only part of a portfolio. so make it easy to explain. give me a quality fund that helps me get clients closer to their goals. flexshares etfs are designed and managed around investor objectives. so you can advise with confidence. before investing, consider the fund's investment objectives, risks, charges and expenses. go to flexshares.com for a prospectus containing this information. read it carefully.
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♪ what would you say still to come on "squawk box" this morning, a mega deal in the aerospace and defense industry raytheon and united tech agreeing to an all-stock merger. much more on what this means for the sector is straight ahead facebook, google, apple, amazon, all facing scrutiny in washington are these companies getting too big, and what would regulation look like? we'll ask facebook's former chief privacy officer. trade and the fed remain key drivers for the markets this monday morning a breakdown on both issues and what it means for your portfolio is coming up "squawk box" will be back after a quick break. ♪ what would you say
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welcome back, everybody. the federal trade commission is hosting a meeting in omaha this week state attorneys general are to attend and participate in a series of roundtable discussions with a commission on consumer protection and antitrust issues. of course, all of this comes as washington's antitrust concerns about big tech continue to escalate and joining us now to talk about
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that is a man who's pretty uniquely positioned to comment on this issue. chris kelly is a former facebook chief privacy officer who was the company's first general counsel and he represented netscape in its antitrust lawsuit against microsoft back in the late '90s so chris, you've looked at this a lot of different ways. >> yeah, it's an interesting ext area and just to think how the digital economy has changed and the way people interact. now, just because there's been different concentrations of power and people are using sites marketedly doesn't mean they have an antitrust monopoly, or antitrust injury's a critical part of all these discussions. so we're trying to figure out -- and everyone, i think, is talking about this in the space -- what are you trying to do what are the harms that you're trying to address? and that's where i think -- you know, antitrust law might not be the right approach for a lot of these things. >> we've had that same discussion around the table. a lot of what these companies have done, i would argue, is good for consumers they're getting stuff for free
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they're getting things delivered the way they want them delivered. so, what is the answer when you look at it, you think facebook is not a monopoly but that google is. >> so, i mean, google has a, you know, market power is the traditional definition if you look at online advertising as a defined antitrust market, they're the ones with market power, not necessarily facebook or anyone else the question is how it evolves over time. you know, i think that defining this from a true monopoly perspective is one of the most difficult things, and that's what a lot of the fight will be about over time as these investigations start you know, it's going to be interesting to see how we define consumer welfare you know, traditionally in the way that it's worked and with the law, it's a lot about pricing, and it's almost exclusively about pricing, but where you're seeing leverage on platforms exercised for particular purposes -- and the most interesting example of that right now is apple trying to leverage itself into the sign-in market, if it's a market at all,
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by saying if you use google and facebook, you have to use apple sign-in. or you can't use ios that's a pretty big deal, actually. >> although probably most of the eyre in washington is probably focused on facebook. how many americans get their news from facebook every day >> it's tremendous and that's changed the feeds when we launched news feed, i think there was an appreciation that it would be a big deal, but not enough of an understanding that it would be this big a deal and that it would turn into the front page of everyone's internet experience, or a lot of people's internet experience. >> one of the elements of the discussion about a monopoly, or is it a utility, should it be regulated like a utility -- usually with a utility, the government has granted some kind of access or exclusivity that's not really the case with a facebook or google is it strictly about how much of the market do they dominate and what do they do with that leverage >> so much of it is and should be about what do they do with
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that leverage. are they doing things that protects consumers, that give them better experience online, that, you know, don't set them up for exploitation in the future and i think a lot of the privacy argument has been arguing that people are somehow exploited by all of these new capabilities. and if you're only looking at this as a data mining opportunity, then there's a decent argument to say that some actors are bad here. i think that, you know, at facebook, when i was there, and they've continued to this day, and with the focus that they're turning to right now, that they've never really seen it that way that's just the way that -- the world changed. you know, supercomputer in your pocket, that's the extension of your brain, you know, talking to supercomputers in the cloud. it's a very powerful, powerful change in the way that humans experience life. >> but privacy matters. >> oh, it does. >> and i don't think there's nearly enough credit, especially among younger people who don't realize what they're giving away at this point or how there may be repercussions decades down the road. >> and it's very interesting
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that companies are competing on that, increasingly and i think that that's a consumer good at the end of the day, to be able to talk about how you can have more control over your data >> i got nothing you know, take it. nothing interesting in my privacy. but -- >> you don't know that you don't know -- >> i do know that. there's nothing interesting. and you can have it. but -- okay, so, google's so good at this that they can offer everything free. so, it's their fault that nobody else can start a company as a start-up because they'd have to offer it free, too so, i have to take google to court because nobody else can come in and do anything because google's so good at what they do >> and this is one of the things that's the biggest challenge, is that if all we end up doing is crippling american technology companies here, the discussion of wechat or anything else kind of coming into the market could be a major change. and so, from a strategic perspective, we have to have the view and the understanding that this is actually a world marketplace, and that has to be always taken into consideration when you're thinking about how
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you would put different structures or strictures on american companies. >> the big banks use that same argument when they were looking at all the issues post 2008. do you think that's an argument that flies in washington today because there's so much anger at these tech companies, but also so many concerns about trade and competition from china and ip theft. >> right the anger is about -- some of it's about election interference, some of it's about challenging content online and how people's, you know, experience can be manipulated, potentially, by bad actors antitrust doesn't connect with that very well at all. and in fact -- >> there's more than just antitrust -- >> of course. >>they've now got congress looking into this. there's all kinds of potential regulation that could come out. >> yes so, regulation or not is not the issue. i mean, we have current regulations, that there are false and deceptive practices, strictures by the ftc act that can always be enforced in a number of different ways
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state a.g.s are reactive in this area you want to make sure there's a connection happening between the harm that you're talking about and the remedy that you're pursuing and you can have massive, you know, problems and unintended consequences caused by the wrong type of breakup. >> to joe's point, though, a lot of consumers love these companies. >> yes. >> amazon has made my life better google has made my life better. >> right. >> facebook talks about how users like relevant ads. >> no, facebook ruins people's lives. because you see everybody else going on vacation and it's like -- >> jealous and envious, yes. >> bullying and all that stuff. >> so, but a lot of that can be addressed over time both with tuning of the algorithm that you want to present and allowing people to tune their own algorithms, too. that facebook and google and amazon have different views into people's lives, and if they over time sort of present the way to live a better life, that's one of the things that they're competing on. >> are these companies going to look drastically different ten years from now >> of course. >> because of government.
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>> so, because of government i doubt it i think that consumers vote with their attention at the end of the day, and the massive reconfiguration of how that attention is brokered over time is the big story of the internet and right now that's still being worked out >> having said that, how glad are you that you are no longer general counsel at facebook? >> look, the company seems to be on the right path right now. talking about privacy and data and control, and a lot of the things that, you know, i think that are actually core values there that have been, you know, sort of, certainly in the public mind been challenged, that those are core values. but i think that they're setting about proving it right now, and obviously there's a lot of challenges. >> and you still look pretty happy right now. >> yeah, it's been -- it was a good experience when i was there, and there's just a lot of wonderful change that i think has happened in the world. because facebook got to the scale that it got, you know, they ended up being the boogie man on privacy in particular
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but what we really had is a change from a relatively unrecorded world where, you know, you could always manipulate how you wanted to see your own life. and now there's a record over time, which is great, for connecting with your friends and everything else -- >> thank god i didn't grow up in that era terrible for our children. >> but it has challenges, and that's where the experience has gone. >> nobody wants to be reminded how stupid they were 20 or 30 years ago. >> although sometimes it can be healthy. >> chris, thank you. it's great to see you. and obviously, we have a lot to talk about, so please come back. >> thank you very much when we return, friday's jobs data and the fed. how many cuts are on the table we'll find out after the break here are the futures highs of the day, 147 points on quk x"ilbee w. "sawbo wl right back. wanted to get awayo who used expedia to book the vacation rental which led to the discovery that sometimes a little down time can lift you right up. expedia. everything you need to go.
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friday's jobs report raising the questions of when, not if, the fed will cut rates steve liesman joins us now with more. >> despite the weekend deal with mexico, markets are still betting on a series of rate cuts from the federal reserve this year, and fed observers broadly agree. here are the probabilities this morning. june, 20%. so, that backed off a little bit. you had as high as 30% probability, but nobody was ever really banking on the june cut they are banking and were banking on the july cut at 79% probability, 93% for september, 96% for october. embedded in those numbers -- you can't see them there, but other numbers show a 60% chance of not one but two quarter-point cuts by september and a 50% chance of
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three cuts by december ubs says "our outlook for 75 basis points in precautionary rate cuts this year from the federal reserve was not predicated on adverse direct effects from major escalation in protectionism against mexico." aka, they saw other weakness in the economy. they point to slowing global capital spending and hiring, including, by the way, in several trade-related sectors, as reasons the fed will eventually get around to cutting, if not in june, then by july and the deal with mexico does not end the trade concerns jpmorgan writes "the drag on confidence should deepen as companies question the stability of the rules-based global trading order. they say tariff hikes could become a 1% tax on u.s. households this year if they're imposed on all chinese imports so, the mexican deal not enough to derail the rate cut train i want to show you guys the rate cut train. here's the calendar to the cut i don't know if they have that there we go. we've got the fed meeting coming up i don't think it's going to happen there
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we may get some guidance there that it's going to happen. then you have the trump/xi meeting at g-2037 what was eunice saying? >> maybe. >> there's no deal to meet, but that's the date of it. so that's like ten days later. and then the june jobs report, which, joe, you'll be interested to know is less than a month away. >> oh, my god. >> right because we just had it -- by definition it's less than a month away. >> i know that comes quickly, but what about scott cohn's best states that's coming up in a month. >> right. >> how is that possible? >> how many years has he been doing that. >> i think he's doing it biannually now because he has to get through all 50 states. >> well, my son is going to be 21, which is more ridiculous q-2 jeep is july 26th, days before the fed meeting so things that have to come in line before the fed cuts rates. >> very useful calendar. i was jotting it down. >> i can send it to you. very analog of you, becky. >> very interesting. steve, hold on here. let's bring in a couple other voices on this as well after friday's jobs report fell short of expectations, could the
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fed actually cut rates in the coming months? joining us for most is julia coronado, founder of macro policy perspectives. also, krishna guha, evercore isi's chairman julia, steve answered part of the question i was looking for with mexico, with the tariffs not happening, does that take back the idea that we're going to get a rate cut at this point? >> no, i agree with steve and the market pricing we're expecting a cut in july and another in december. we're already seeing global weakness in the economy. it's hard to disentangle it from the trade war, but manufacturing pmi fell in may, so we're seeing the slowing momentum, and it's spilling into u.s. jobs and that's even before -- the jobs report came before the escalation with china. so if you're worried about this spilling into the u.s., still going to be still willing to take out some insurance, but we haven't even seen the impact of the latest round. >> krishna, what do you think? >> look, i'm broadly on board
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with that exact same message the key thing is here an insurance cut, if that's the idea, it has to take place before you see the full impact of trade risks materializing in the data if you wait for all the data to count as data, then it's not an insurance point. at that point, if you get the bad draw, you're dealing with potentially a full-blown easing cycle. fed wants to get ahead of that, act earlier and preemptively >> krishna, i'm really skeptical on this insurance thing. i mean, if i took out $2,500 of insurance for my family, i wouldn't be doing them much good if i took out $2.5 million of insurance, that would be actually helping them. what does a 25 basis point cut buy you in terms of insurance for the $20 trillion u.s. economy? >> so, certainly you're absolutely right, that just one quarter-point cut itself's probably not a terribly big deal, and that's why most of us, i think julia like myself, have two or three cuts in a mini easing cycle that's the insurance play if you decide to go that way.
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so, what does it do? obviously, it supports asset prices and credit conditions, it softens the dollar a little bit, it would help sectors like housing that are beginning to benefit from lower ten-year yields is it totally transformative no does it help lean against this extreme uncertainty from trade yeah, it does. >> yeah. we've seen that in the market, steve, right a tremendous reaction to powell basically, chair powell basically blessing the market's expectation for rate cuts. a tremendous market reaction and the direct impact of these tariffs is not that gigantic, right? it's not going to be recessionary in and of itself. it's the confidence channel we worry about, the businesses and the markets will start losing confidence and will get that accelerator effect through the markets. so, the fed right now has been very effective at short circuiting that confidence channel. we're a little worried about the hiring slowdown. it's not overly dramatic so far, but so far, the markets have certainly taken on board that
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insurance quite well, and that's worth something. >> if it's an insurance cut is the idea that we do one or two and then that's not really the start of a full easing cycle in other words, we might bump back up, like in the '90s? >> exactly so, the mid-'90s, late '90s, we had global risks present themselves the fed took out some insurance. in the end, it wasn't as bad as the worst-case scenario, and they actually ended up hiking again. so, we're in a similarly very long expansion we're going to see the recovery, the expansion ebb and flow monetary policy might have to ebb and flow with it, so -- >> but that kind of gets back to the idea, krishna -- >> i think that makes total sense. i would just add one extra twist to that, which i think julia might agree with, which is, it's also the case that inflation remains stubbornly low. >> yes. >> and that there are underlying quite serious, longer-range concerns at the fed about slippage and trend inflation and inflation expectations that's not the main driver of why you're thinking about cutting rates. absolutely -- zrurk
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>> but it -- >> like '95, like '98, but it's there and lowers the threshold for doing those rate cuts. >> but it also means that the underlying economy is not that weak we're talking about some weakness, but that weakness could be thrown off with just a couple of rate cuts. >> right. >> and then you see a much stronger economy we're just talking about some business confidence issues >> business confidence issues, precisely. i mean, what we're seeing is some fading in investment, some fading in hiring, not necessarily anything that looks recessionary in the hard data yet. so, hopefully, some insurance can get us through this patch and onto, you know, a continued expansion. >> hey, krishna -- >> i think it's also -- yeah. >> krishna, hold on. help this confused fed observer put some stuff into context here first of all, i did three fed interviews last week and gave each one an opportunity to push back against the market pricing, and none of them took it that's one. >> yep. >> second one was john williams, who would not really sort of embrace what the market was pricing.
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he was like, i hear it, i see it, we're going to do our thing. is williams a little bit separate from, say, clarida/powell on this, would you say? >> look, i think that every central banker wants to be clear that they're not going to be dictated to by the market and john's probably temperamentally a little bit more in that direction than most. but i think the basic question they will all have to answer is has the shift in financial market conditions associated with rate cut expectations, taken them closer to their goals or further in their goals? and i think it's pretty clear when you look at the data, when you look at market inflation break-evens, when you look at the balance of risks, the market is doing what it should be doing. it's actually helping the fed get closer to its goals, in particular on a risk-adjusted basis. at that point, it's right for the fed to follow through and deliver on the market expectations. >> yeah, and what is the cost of
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a rate cut i mean, think about that with inflation so low and the economy actually slowing, what is the cost of a rate cut? it really isn't that, you know, risky for them in terms of the cost benefit. >> realize that we're still at such low levels. >> the only question is whether you get too much asset market excitement out of this. >> right, right -- >> sure, sure. >> and are there bubbles that have built up, so low -- >> and 1995 -- >> and that's the concern, the fed keeps flagging its concern about the corporate lending in particular and the risky corporate lending. so, that is a concern. >> julia, krishna, steve, thank you guys. >> spirited debate. >> any time. thank you. coming up, it's a merger monday much more on the big defense deal between raytheon and united technologies plus, another big merger deal just breaking this hour. salesforce buying tableau software in an all-stock deal. the combined company will be worth a lot more than that tableau best known for its
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analytics platform we'lspk thl eawi analysts covering both deals. "squawk box" will be right back. [leaf blower]
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raytheon and united technologies announcing a tie-up. we've got the investor impact covered from all angles. the deals keep coming. salesforce is buying tableau software in a multibillion dollar acquisition. plus, will markets stay hot? the dow's longest losing streak in eight years is over, but can last week's strengths carry over the final hour of "squawk box" begins right now ♪ hold on loosely and don't let go ♪ >> announcer: live from the most powerful city in the world, new york, this is "squawk box. ♪ good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square i'm joe kernen along with becky quick and mike santoli andrew is off today. the futures right now are right now at their highest levels of the morning, up 152 on the dow the nasdaq indicated up about 44
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and change s&p indicated up about 15 points so far this morning. let's see, does that put it back -- oh, we're getting close. that will be 88 or so. 2,888, getting back close to 2,900 on the s&p -- >> i thought you were looking at the ten-year. >> no, ten-year $2.15, inching up a bit, the yield. united technologies and raytheon announcing a stock swap merger that will create a company worth roughly $120 billion. raytheon's shareholders will receive about 2.3 shares of stock for every share that they now own, and the new company will be known as raytheon technologies we're going to talk much more about this deal later this hour, but as you can see, both companies' shares are trading higher then at 9:00 a.m. eastern time, united technologies' ceo greg hayes and raytheon's ceo tom kennedy will join "squawk on the street" for a first on cnbc interview. another big deal this morning, salesforce is buying
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analytics company tableau. shareholders will receive 1.4 shares, representing a 40% premium based on friday's clo closing prices we have more coming up later this hour, but salesforce shares are up about 1.4%, tableau shares up 35%. and chrysler and renault are looking to renew their merger plan nissan is said to want renault to reduce its stake in the japanese automaker significantly in return for supporting the deal. president trump boasting this weekend about an immigration deal with mexico, but this morning he's going back to the tariff threat, saying he'll use them if mexico can't get part of the agreement through its legislature. kayla tausche joins us now with more good morning, kayla. >> good morning, mike. after getting applauded from the right and condemned from the left, the president is keeping the tariff option on mexico open, saying the full details of the deal will be revealed in the not-too-distant future and that
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it will need a vote by mexico's legislative body and that if for any reason that approval is not forthcoming, that tariffs will be reinstated. the deal as announced sends 6,000 members of mexico's new national guard to its southern borders and expands a program keeping migrants in mexico until the u.s. processes their asylum cases. it does not require mexico to provide permanent asylum, and it has no mention of agricultural purchases thus far i'm told the president's change of heart was shochocked up to t forces influencing him late friday afternoon top aides like secretary of state mike pompeo, who led marathon negotiations with mexico throughout the week, and senate majority leader mitch mcconnell, who was hoping to avoid an intraparty fight. republican senators were extremely critical of the president last week but ended up praising him >> i think just in general, republicans understand the tariffs are a tax on american consumers and we don't want to see them in place long term, nor do i believe president trump does, either
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he's using tariffs as leverage in trade negotiations, and i think he used them as leverage in this situation brilliantly, quite honestly. >> the question now is whether republicans move to try to limit the president's power to keep this from happening again, joe, but for the short term, in the business community and on the right side of the aisle, there is a sigh of relief. >> okay, kayla, thanks we're going to talk to business right now. he represents all business in the u.s. joining us now for more, u.s. chamber of commerce vice president. i thought about joe brilliant. myron, i'm just going to start with this, okay? president trump is right about the crisis at our southern border, and it is a national emergency. he is wrong to address that emergency using tariffs. really >> yes >> okay, what happened, though in the end, how do you like -- the deal -- if the deal became better than the deal we had and did this somehow get them off of
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the schied or whatever it's called >> they have been working together to take care of migration. >> but it didn't happen. >> both at the southern border of the united states and of mexico we have to deal with that challenge and frankly get to the root cause, deal with the economic issues that are causing the migration challenge. but the weaponization of tariffs, the increase of threats on our economy, on our farmers, on our manufacturers, our consumers, is going to hurt our country. it also creates uncertainty, joe, with our trading partners, both in europe and japan, where we want to get deals and frankly, it complicates the waters to try to get something better with china. >> we didn't invent tariffs, and the tariffs were already on in a lot of the places where we're responding, finally, with some tariffs. and you know, when you see year after year after year after year of nothing happened using whatever -- you know, let's talk to our trading partners, let's get them involved. and then finally, you try this,
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and it's a -- becky as favorite word is cudgel if they were never going to go on and he knew this -- and once we're doing it with china and they're already on -- mexico didn't know. and if he says he's going to do it, mexico's going, he's going to do it he's going to do it and they come to the table -- 6,000 national guard troops, they do this, that, and the other thing. how can you just say -- >> they came to the table because it's in their interests to resolve the immigration challenge. it's in mexico's interests >> so, it never works, myron. >> the bottom line is every time we threaten tariffs -- >> never works, under any circumstances. >> tariffs are not the way we want to do we do need to force the hand of china and address unfair trade practices. >> how >> a lot of ways we've got to protect our technology, sign trade agreements with other partners we've got to put pressure on china directly -- >> and no one wants to use -- >> one other quick thing what's the ultimate goal here? we want to get the usmca passed, the new nafta, right we want to get that through the congress threatening mexico is not a way to get this through the u.s.
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congress so, we've got to address the fundamental causes of the migration challenge, but we've got to also focus on what we can do to get the usmca passed through the congress this summer, well before the election season. >> that would be my bigger concern. even if you get one-off wins where you feel like you got some additional leverage squeezed out of people, what have we done in terms of creating uncertainty, or would any of the trade negotiations or deals are actually worth, if even when you get this, you have the president continuing to say, okay, if we don't like what we're seeing, the tariffs will come back anyway it creates a constant uncertainty. >> becky, the world is watching -- >> the world that already had tariffs on us, and fully -- >> we have the potential -- >> but that's why china's different. >> we have the potential of more tariffs at a higher rate than india, which is one of the most protectionist countries in the world. if we go down this road and start to have more tariffs on china, tariffs on india, tariffs on mexico -- >> myron, you don't -- >> we could be talking about a
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trillion dollars -- >> you don't think there's anything to the notion that we've been sitting here like patsies while everyone has tariffs on us, and we're like, thank you, sir, may i have another? >> that's why mexico is different than china. >> no, we want to move ahead with mexico and canada, get a good agreement that will protect intellectual property rights, that will advance the digital age, that will give us modern rules for the three countries to work together in a competitive fashion. so, we want to move ahead with usmca. >> let's say -- >> china is a separate issue. >> hypothetically -- okay, china -- then you can at least admit this is a statement you can make all the time. if the means to the end is that places that had tariffs against us for years and years and years, if after this, the world goes to zero tariffs, would you then say i was wrong and we should have used the tariff tool to not just sit there and take them unilaterally, but actually threaten to respond in kind so that the tariffs come down across -- would you then say, you know what, i was wrong, and i'm glad that they're gone now and that we did this tactic?
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>> look, when we eliminated all tariffs throughout the world, i'm happy to come back on the show and have a conversation, but i'm focused on where we are today, not where we are tomorrow >> business lobbying -- we don't want one-quarter of business to be impacted when this is a 20-year fight against china for global hegemony. you don't want a two-week period where your businesses aren't able to totally get all the money that they -- >> i'm the first one to acknowledge -- >> for the country long-term -- >> i'm the first one to acknowledge that we've had problems in the u.s./china relationship i've been involved for 30 years -- >> can you give us a week? how about a month? >> there's no question they're stealing our ip. there is no question they're forcing our technology we've got to change the game there. >> i understand. so a quarter and you guys are ready. oh, my god, a quarter! there are long-term interests for all of us -- >> i'm worried about the market. i'm worried about the impact on farmers. i'm worried about the impact on manufacturers, supply chains, and i'm certainly worried about the consumers who are going to pay a higher price when tariffs are kicked in. >> eventually. they haven't yet. >> you think this is going to take years to work out
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this is probably not something that's going to be resolved -- >> mexico? no. >> i'm talking china. >> china's going to take a while. we have an opportunity with the g-20 coming up in osaka. the two presidents are going to meet -- >> not necessarily >> they're going to get a deal done -- >> china's ministry was saying -- >> i know, i know. but i think they'll meet because the signal to the world if they don't is very bad. i think they're going to have to recommit and recalibrate and each side will have to blink, because at the end of the day, we're going to need a deal between china and the united states because it's not only in our interests, but in the world's interests to see china and the united states not fracture the world trading system. >> mike, what do you think happens to the markets if they don't meet at g-20 >> tell me where the markets are -- >> right beforehand. >> before the schedule, yeah that's going to tell you something. i think the markets are actually kind of maybe okay without the next round of tariffs -- >> but that's what we're facing. >> exactly. >> we've got another $300 billion of exports that could go on after the g-20 if we don't
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see progress in this relationship then china retaliates. they don't retaliate with tariffs. they hold back licensing they tighten the ict regulations. they make it more difficult for tech firms to be suppliers of chinese companies. they'll tighten the screws they won't do it through tariffs because they don't have that capacity, but in other ways. >> market rallies -- >> that's what i'm worried about. >> it seems the white house may be softening its position. i'll just put it that way. >> yeah. thank you. myron, good to see you thanks for coming in. >> you'll be okay. tell your clients -- i know they pay you to be strident, but you know, we can't -- you know, there are bigger concerns than them making their quarterly numbers, okay? >> joe, the concern we have is the economy. >> i understand. >> and jobs. what we want to do is create jobs in our economy. let's have a pro-growth trade agenda that's the goal. >> that's part of what the administration is trying to get to maybe you don't like their means -- >> no, we're working with the administration very closely on china and on usmca and on other issues let's get to it.
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>> thank you, myron. how's that other -- how's donohue? is he still with us? >> donohue's doing great. >> does he go on there and say tell joe, that squawky moron anyway, good to talk the trade turmoil will be front and center at cnbc's next capital exchange event taking place tomorrow in washington visit cnbcevents.com for details on how to register. when we come back, what the modest may jobs report means for the fed and key sectors of the economy, especially those dependent on interest rates. with many on wall street now expecting at least one rate cut this ear, real estate could be primed for the second half of the year we'll talk with realtor.com's chief economist about housing demand, the hottest spots in the market and whether buyers are simply waiting for the fed to ras. interest te stay tuned you're watching "squawk box" right here on cnbc what if other kinds of plants captured it too? if these industrial plants had technology that captured carbon like trees
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we could help lower emissions. carbon capture is important technology - and experts agree. that's why we're working on ways to improve it. so plants... can be a little more... like plants. ♪
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welcome back, everybody. this is "squawk box" and we've been watching the futures this morning. implied up right now about 160 points this comes after big gains all through last week. the dow was up by almost 5% last week, s&p up by close to 16 points this morning, and the nasdaq is indicated to open up by about 45 points friday's jobs report could
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have big imapplicables for what the fed does next, and that is something the real estate market will be watching very closely. diana olick joins us now with a look at that sector. hi, diana. >> good morning, mike. after a pretty unremarkable spring, the housing market could get a little more juice this summer, thanks to lower mortgage rates and more supply. rates took another dive on friday, ending the week at 3.86% on the 30-year fixed, that according to mortgage news daily. that rate was up around 4.25% throughout much of the spring season, so if it stays here or even lower, that gives buyers a lot more purchasing power. of course, the flip side of that is the reason rates are so low that's because of concern in the economy, the trade war with china, then last week with mexico, then the weak jobs report didn't help on friday, either, and those concerns make people nervous about making their single largest investment, that is, a house the supply of homes for sale is rising, though and while home prices are still gaining annually, those gains have been shrinking for about a year now consumer sentiment in housing is
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also improving, thanks to those lower mortgage rates, according to a fannie mae survey the number of people who said now is a good time to buy rose in may compared with april but was slightly lower compared to a year ago back to you guys >> diana, thank you. stick around joining us now, danielle hale, chief economist with realtor.com. danielle, good morning you know, when interest rates are on the rise, bond yields are up and mortgage rates follow them, a lot of times we hear, well, you know, that's not really instrumental, necessarily, to the purchasing decision, it doesn't make that big a difference do lower rates refresh buying interest, or is it also kind of other factors that multimore at this point >> lower rates can absolutely refresh buying interest. they make homes more affordable. since most buyers are financing their home purchase, not paying cash, so rates absolutely factor into the affordability calculation. in fact, the fact that rates are lower now means home buyers are paying $20 to $25 less than we would have a year ago, and that's definitely going to help. but it's not the only factor
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so, it's important, but it's not the only factor that matters for home-buying demand. >> and how would you characterize the strength of the housing market in general right now? seems it's been fits or starts, maybe on firmer footing very recently, but in terms of sales price, volume, all the rest of it, how does it play out >> yeah, so housing definitely took a step back in the fall of 2018, and it started to come back in 2019, as you noted, but it'snot been an even recovery. we've seen some months where the data looks good, other months where the data is a little bit disappointing. in general, house prices are that's good news for both buyers and sellers. it makes housing more affordable for buyers, which means sellers are still getting price gains and buyers are able to actually make those transactions happen so, and as mortgage rates drop, we should see that affordability improve, so we should see some more home transactions in the months ahead. >> and yet, at the higher end is what is seemingly struggling the most at this point what's happening there >> yeah, absolutely. the major story in housing for
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years has been inventory shortage we don't have that same inventory shortage at the higher end because builders have been able to build profitably at the higher end, so there's not as few homes and demand is not quite as strong at the higher end. on the lower end, you have the opposite phenomenon. there's not a lot of new building there's plenty of demand from entry-level millennials, some boomers seeking to downsize, investors. so that's driven a mismatch in supply and demand and kept the market really hot at the affordable entry-level end >> diana, what are you watching, beyond all of this if we do get an interest rate decline, what else should we be paying attention to? what wl would we see it start popping up >> i think we really need to look at the builders and the investors. for one thing, builders say they want to focus on that lower end, which is what danielle was talking about, but they can't make the math work right now because of the high cost for land, labor, and materials tariffs don't help, either, but they are saying that they're moving into that entry-level market and if they can get those entry-level homes up, that's going to really help juice the market quite a bit the issue, though, is also
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there's a lot of investors out there, and they continue to do that single-family rental trade. it's very hot right now. rents are very hot so, everybody thought they were going to sell off all these rental homes, and they're really not doing that so, the question is how many more investors get into it we're seeing build-to-rent now if builders are building for investors who are renting, that's not going to help those home buyers. so, it's all about the inventory. >> is that part of the reason why it's been so tight >> absolutely. >> why people can't get into first-time homes >> yeah, we lost a lot of homes to the rental market now, a lot of people needed rental homes and single-family rental homes are the bulbulk everybody thinks of rentals as apartments but the bulk is single-family rental homes and it used to be mom-and-pop owners now you have a lot of big investors. they're not a huge part of it, but more investors coming in so, we lost a lot of entry-level supply to the investors, to the renters, and we need some of that supply back, those lower-end homes that people can afford to buy. >> blackstone's a big part of it, too? >> exactly. >> biggest in that arena.
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>> and danielle, is there any sign that that dynamic might change here? if that's going to be kind of a restructuring of the home market, what might alter that? >> so, i think the fact that prices are rising in homes, i think that has made it a little bit less attractive for investors to come in but that also makes it a little bit more challenging for individual owners to get into the market the fact that mortgage rates are coming down is going to be a huge plus for individual owners, as i mentioned, from an affordability perspective. and the fact that we're starting to see the market slow, so it's not at the frenzied pace we saw in most of 2017 and 2018 that's really going to help. it gives buyers more time to make decisions, more time to get their ducks in a row, figure out what they want and find it in the market that's definitely going to help. >> all right market slowing, good news, okay. we'll see how it plays out danielle and diana, thank you very much. and coming up, a live report on the raytheon/united technologies merger. there are a lot of players with stakes in this deal, from
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customers to suppliers to the u.s. government. we'll run it all down for you. and we'll talk about it tomorrow with former secretary of defense ash carter. he will join us on set from 7:00 to 8:00 steaern time stay tuned "squawk box" will be right back.
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welcome back to "squawk box," everybody. we've been watching the futures this morning you're going to see right now the dow looks like it would open up by about 143 points above
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fair value the s&p would open up by 14 points, the nasdaq by 40, and this builds on the gains we saw last week. dow was up almost 1,200 points last week. and coming up, defense going on offense raytheon and united technologies are merging. we'll talk about what the tie-up means for investors and how the combination could impact the other big players in defense and aerospace industries stay tuned u' wchg quk x"n cnbc
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all right, welcome back to "squawk box. we had an interested viewer watching myron brilliant make his case against tariffs president, the leader of the free world, president donald trump was watching he has a few comments he would like -- i guess he'd like to answer some of mr. brilliant's contentions in realtime. so, coming up, we will have an interview. i don't know how long we'll go, but -- >> it was amazing, because when
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mike was doing an interview right after that, heard the phone ring. >> he's mad at the chamber, and he just -- he thinks that tariffs are a tool, obviously. >> yeah, clearly, yeah. >> and he was watching that interview and he wants to make his case -- >> myron made a lot of arguments against tariffs, basically saying they shouldn't be used in any situation. >> right. >> but we're going to hear from the president himself, why he thinks it is an effective tool. >> right and here are the stories investors are going to be talking about, other than that kraft heinz says it completed an internal investigation of accounting errors and changed its financial practices. kraft heinz shares took a hit earlier this week when it was real re veeld that securities regulators were examining its financial reporting. and american airlines has extended cancellations of flights involving the grounded 737 max jet. that cancellation will now extend through at least september 3rd. american does say it's confident that new software and training for the jet will lead to recertification of the aircraft
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soon. and opioid drug-maker insys therapeutics has filed for chapter 11 bankruptcy protection, the first opioid manufacturer to do so due to legal expenses stemming from opioid lawsuits. last week, insys had agreed to pay $225 million to settle a probe into payments that it had made to doctors for prescribing opioids. let's get back to the merger of the morning and maybe even the month or year. united technologies' aerospace business combining with raytheon the company holding an investor call now morgan brennan joins us now with more morgan, you told us earlier this call is likely to hit on a lot of the technology investments and platforms. >> oh, yeah. >> is that the case? >> that is very much the case right now, mike. and actually, the call continues as we speak. greg hayes, the ceo of united technologies, who will also be the ceo of the combined entity known as raytheon technologies, kicking off the call, really talking about numbers, cost synergies, free cash flow, this idea of a more resilient, more
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sustainable company that will be well positioned for growth over the next decades and ceo tom kennedy of raytheon, who will be chairman of this newly merged company, this merger of equals, also sounding off with comments about what the two will bring as a combined entity as well take a listen. >> sounds -- >> we're listening. >> sounds like the sound bite wasn't coming in, but again, utx owns -- will own 57% of this raytheon's shareholders will own 43% of it. both of those stocks are up sharply this morning on this news and joining us right now to talk a little bit more about all of this is united technologies shareholder tim lesko. he's a partner at granite investment advisors. they own under 73,000 shares of utx. what do you think of this deal >> on the surface, it looks like a pretty good deal since greg hayes took over at
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utx, he had set apart a honeywell-like divestiture of starting to split the businesses out, and this seems like a really good partner for the aerospace business that is left with united technologies. >> it was not greg hayes' idea raytheon apparently approached united technologies last year about some of these ideas. but he's going to be the one who's running the company. are you happy with that as a shareholder? >> i'm happy with that as a shareholder. looks like the structure, the deal seems pretty fair to united technology's shareholders. certainly, i'm going to listen to the call that's going on right now after this segment to really get a sense for raytheon. as utx shareholders, we do not own raytheon, so we have to do our homework to find out what the combined entity looks like two, three, five years down the road but at least the deal itself is not immediately dilutive to the company that we own. >> tim, you know, part of the logic and maybe the premise of owning united technologies over the years was that they had multiple business lines. obviously, they're going to be spinning off the sort of
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building equipment and services, otis elevators, carrier, home heating and air conditioning and things like that what does it do for you as a utx investor you had multiple different cycles working in your favor do you think there's value in those stub companies. >> i certainly think there's value in them, but i think what happened with united technologies is both carrier and otis were subject to the same cyclicality in housing and commercial real estate businesses so, in a way, they're going to reduce the cyclicality because the defense business so far over the past 30 years has had a little bit less cyclicality to it so, in a way, it might make the remaining utx businesses less cyclical, but certainly, otis and carrier are leaders in the businesses that they're in. >> you know, we had an lsioanal on who said this is a better portfolio to trade out carrier and otis and get raytheon in exchange is that your gut feel or you really don't know at this point because you just don't know anything about raytheon? >> oh, i think that's our gut
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feel if you look at it just from a revenue standpoint, they're spinning out two units that have been somewhat of a thorn in heir side and they're gaining raytheon, which has been a very, very strong player for a better part of the last decade. what that means, whether there are synergies in the defense side or the advanced technology systems that raytheon has that are applicable to either the engine business or the avionics business, i think that has yet to be seen, but certainly they are in very similar businesses, just not the same business. >> tim, how do you feel about the defense stocks overall these days >> well, for a long time it's felt like the defense stocks have been a little bit overvalued we have owned boeing and united technologies for a long time, and we've long looked at things like raytheon, but they were trading at premiums to the market these last two downturns, both in the fourth quarter of last year and again in the second quarter of this year have probably created some buying opportunities in stocks that otherwise were trading at valuations that we found a little bit high. so, in a way, getting raytheon as a part of united technologies
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is a bit of a win for a value-based manager like us because we're not paying a significant premium for it. >> part of the argument for putting these two companies together is that the pentagon has been pushing back on suppliers and the companies it does business with to try and make sure that there's less fat in anything that goes through. in order to be able to negotiate, you've got to be a little bigger, have a little more heft. do you agree with that argument? >> i absolutely agree with that argument and i think it matters both for their customers and for the supply chain that they deal in and if anything hasbeen subjec to a lot of variability over the last 18 months, it's been the supply chain so, i think by having scale within a very specific business, that the kbicombined unit creat much bigger platform than perhaps on their own. >> president trump has boosted defense spending, but we're in an election cycle coming up in the not-so-distant future. what do you think would happen what would your take on the defense stocks be if it was not
quote
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president trump who was going to be the next president? >> i think we've seen through every cycle that the expectation is that at some point, defense spending is going to come down, and it's been a little bit like college tuition. we always think it's going to come down, but it keeps going up and if you look at inflation in that business, it's been much higher than the rest of the economy, so it's been a pretty good place to be, and the valuations have reflected that so any opportunity to buy these stocks at a lower valuation has proven to be a pretty good investment over the last decade or more. >> very good all right. thank you. we appreciate it joining us now on the "squawk" news line -- what day is it? >> june 10th. >> it's a monday it used to be trump tuesdays it's going to be a trump monday. mr. president, are you with us >> i am with you hi, joe. >> hi. great to have you on thank you for calling in i guess mr. brilliant, who was on from the chamber of commerce, you got to see a part of that interview, mr. president what did you make of it?
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or what was the points that you had a problem with that he was trying to make there >> well, i guess he's not so brilliant. look, without tariffs, we would be captive to every country, and we have been for many years. that's why we have an $800 billion trading deficit for years. we lose a fortune with virtually every country. they take advantage of us in every way possible, and the u.s. chamber is right there with them, and i assume, and i'm a member of the u.s. chamber -- maybe i'll have to rethink that, because when you look at it, the chamber is probably more for the companies and the people that are members than they are for our country. because without tariffs, we would be absolutely, outside of something that i won't even mention, we would be absolutely in a competitive disadvantage, the likes of which you've never seen now, people haven't used tariffs, but tariffs are a beautiful thing when you're the piggy bank, when you have all the money. everyone's trying to get our money, china -- and the china deal's going to work out
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you know why because of tariffs because right now china is getting absolutely decimated by companies that are leaving china, going to other countries, including our own, because they don't want to pay the tariffs. and china will, in my opinion, based on a lot of facts and a lot of knowledge, china's going to make a deal because they're going to have to make a deal. >> mr. president, the deal that you arrived at on friday with mexico -- there's something you've alluded to that you haven't made clear that you're going to make it clear later on something that was also included and you heard some of the criticism that you then levied some criticism at "the new york times" for them saying that this was all in the works and nothing happened from the tariffs. can you go into exactly what else was part of that deal that you haven't really outlined yet? >> well, i'm going to tell you that most people understand that the people having to do with borders and illegal immigration and immigration of any kind, they understand exactly what
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that is. but we purposely said we wouldn't mention it for a little while. it's going to be brought up because it has to be brought by their legislative body it's got to be taken to a vote so we didn't bring it up, but most people know that answer, joe. and it's another very powerful tool in addition to the very powerful tools we got. we had none of these tools -- or virtually none, or they were just being talked about. they've been talked about for 20 years with mexico, until i said -- and it wasn't a threat i thought we would be receiving billions of dollars, frankly and you know what happens with tariffs, countries -- companies will move out of mexico and they'll move out of china, and they'll come into the united states or go to other countries also but in the occasicase of mexico say we'd get virtually 100% of the companies. they make a product and they sell it into our country we lose a tremendous amount of money every year with mexico for years, we've lost over $100 billion a year on trade with mexico and of course, then we get into
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the second problem we have with mexico, which maybe frankly is the first, and that's drugs and drugs coming across the border so we want to have very, very powerful borders, and you can't do it unless you have these deals with mexico. and "the new york times" wrote a story, like i already made the deal it's nonsense. we talked about it for months and months and months, and they wouldn't get there, and we just said, hey, look, if you don't get there, we're just going to have to charge you hundreds of billions of dollars in taxes and we would have been just fine, because what would have happened -- you know, all these babies, these -- i don't know if they can honestly believe it -- you got it, joe. i noticed you were just about 80% there. not quite 100%, but you were 80% there. but what will happen is the companies will move into the united states, back where they came from. they took 30% of our automobile companies, of our carry companies. they moved into mexico all of the people got fired. they would all move back if they had to pay a 25% tax or tariff. >> right. >> they would all move back. it's a very simple formula
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now, that would leave mexico in an unbelievably bad position. we don't want that either. and i spoke with the president of mexico. i get along with him very well, and we made this deal. but this is something the u.s. has been trying to get for over 20 years with mexico they've never been able to do it as soon as i put tariffs on the table, it was done it took two days >> a lot of times i just -- you know what devil's advocate is, and with myron, he just made it -- he was so dogmatic about never use tariffs, so i was kind of kidding around with him and pushing back but 80% is good. that's a good grade for me i'll take it. >> joe, he's protecting companies who are members -- he's got most of them -- >> they're worried about their quarterly results. >> he's not protecting our country. he's doing a very big disservice and frankly, i've never had support from the u.s. chamber of commerce because they know where i stand on these things. i don't need money i don't care how things are. the only thing i care about is our country. and he's protecting all of those companies that are members that like it just the way they are. and they have companies in
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mexico and they have companies in china i mean, if you look at what general motors did, they moved so much into china well, they can't be happy about paying tariffs like we're charging, 25% for cars general motors was charging 45%. if you look at what was going on, they built -- they built massive car factories, automobile plants in china so, what happened is china has a tariff for 45% we have a tariff of basically zero it's 2.5%, but basically it's zero so, they sell us a car, it comes right into our country, no problem. we sell them a car, we have to pay 45%. it doesn't work that way, and it's not working that way anymore. and a lot of companies -- and i will say this -- companies and countries, but a lot of countries have changed their habits because they know they're next without the power of tariffs by the richest, most successful country -- you know, we've picked up trillions of dollars in worth since i've been
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elected. china has lost many, many trillions of dollars they're way behind they were going to catch us. had a democrat gotten in, namely, the one we're talking about, china would have caught us by the end of her term. they're nowhere close. they'll never catch us not with what i'm doing. they'll never catch us >> mr. president, most economists -- and i know you've heard this -- i don't know how you've responded, but most economists say it's a tax on u.s. consumers tariffs are simply a tax on u.s. consumers. they hurt u.s. consumers how do you respond and even, i think one of your guys waund of our guys, larry kudlow, kind of conceded that at least a major part of it could be on the u.s. consumer. how do you respond to that because i know you've heard the economists say that. >> sure. i hear it all the time and i hear the other also. but i hear it all the time and with larry, in all fairness to larry, they didn't let him finish his answer. he had further to go and nobody put that on. he put some of it on, but they didn't put it on the way that they should have so you know, that was a little bit of the media
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look, it depends on what country you're talking about if you're talking about china, it's different than mexico china will subsidize their product because they want to keep people working. so, china is going to pay a lot. we have put 25% on $250 billion of chinese goods coming into our country, including $50 billion of high-technology equipment and things you haven't seen any, or virtually any price increase, because what china does -- it's basically their companies -- they subsidize their companies because they want to keep people working, they want to stay competitive. we have another $300 billion to go with china. i haven't done that because it's a very big thing for them, not for us for us, it's not going to matter because we'll be able to buy the product in other countries that don't have the tariffs so it's not going to have an effect with mexico, what's going to happen is all the companies would immediately move into the united states. you'd have car plants going up all over our country, and there would be no tariff from my standpoint, it's a no-brainer, and it's only the chamber of commerce, who's representing many of these
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companies, like general motors i'm sure is a member, and most of these companies that we would talk about, they'd be members of the u.s. chamber of commerce well, general motors does not want to see us put a 25% tariff on china, and now they send their cars in before -- when they built those plants, there was no tariff. so they build a car in china and they send it into the united states same with ford same with others now with a 25% wall, those plants don't work anymore. they made a bad investment so, they're going to say, oh, trump's a bad guy, he doesn't know what he's doing about tariffs. no, what's going to happen is they're going to have to come to the united states to build their plant. and the same with european union at the right time, they're going to come in they've been a very, very difficult negotiator i would say maybe more difficult than china in certain ways and nobody understands that. >> we decided not to call -- >> a lot of it comes from europe. >> we decided not to include china as a country that devalues or manipulates its currency. but now in response to the tariffs, there are some that say china has tried to offset the
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tariffs from letting the yuan fall do you think that that has been something china has done that needs to be addressed? >> absolutely. they devalue their currency. they have for years. it's put them at a tremendous competitive advantage and we don't have that advantage because we have a fed that doesn't lower interest rates we have a fed that raises interest rates the day before a bond issue goes out, so we have to pay more money. you tell me about that thinking, okay we should be entitled to have a fair playing field, but even without a fair playing field -- because our fed is very, very destructive to us -- even without a fair playing field, we're winning, because the tariffs are putting us at a tremendous competitive advantage -- >> let's talk about the fed just -- >> people want our goods -- they want our money we're the piggy bank we're the bank >> let's talk about the fed for a second do you think they should cut in june have they come around to your thinking, or has the stock market volatility or the economy? do you think they've listened to you or they've arrived at the
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decision themselves maybe to cut rates? and when do you think they should >> no, they haven't listened to me and you know, we have people -- it's more than just jay powell we have people on the fed that really weren't, you know, they're not my people, but they certainly didn't listen to me because they made a big mistake. they raised interest rates far too fast that's number one. number two, they did quantitative tightening. they were taking in $50 billion a month, $50 billion a month and they've now eased that, but it's still $25 billion a month, which is ridiculous. now, china's doing just the opposite they're pumping money in so, i'm not -- i'm winning, but i'm not winning on a level table. if i had a table -- don't forget, the head of the fed in china is president xi. he's the president of china. he also is the head of the fed he can do whatever he wants. they devalue, they loosen, or you would just say they pump a lot of money into china, and it
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nullifies to an extent, not fully -- it nullifies the tariffs. but i will say this, they're also devaluing their currency to a point. makes it better up to a point. it's very hard for them to buy oil. oil becomes very expensive they have to buy a lot of things outside of china so, that's where the devaluation is bad for them. but it's good for them in terms of selling product and it's good for them in terms of sort of negating to a certain extent the tariffs. but with china, if we don't make a deal, you'll see a tariff increase of -- you know, we have three -- they do $100 billion with us. we're doing close to $600 billion with them. so we have the big, big advantage. plus, we're the one that everybody is so used to taking advantage of as a country because we had, frankly, presidents that either didn't understand it or they were bored by it or they weren't smart enough to get what's going on. but those days are over, and we're doing great as a country we're doing -- but i just want to say to the united states
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chamber of commerce, if we didn't have tariffs, we wouldn't have made a deal with mexico we got everything we wanted. and we're going to be a great partner to mexico now because now they respect us. they didn't even respect us. they couldn't believe how stupid we were with what's going on, where somebody comes in from mexico and just walks right into our country and we're powerless to do anything, whereas they had very strong immigration laws they don't have to take anybody. they can say, out, you get so, we're going to be essentially using to a large extent the very powerful immigration laws of mexico and mexico wants to do a good job. they're moving 6,000 soldiers to their southern border. do you think they agreed to do that before? and they're paying them. they're moving 6,000 soldiers to their southern border. that means the people from guatemala, the people from honduras and el salvador, in theory, if they do it right, they're not going to be able to get through. nobody's going to be able to get through. and then they're also going to protect our southern border.
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so, it should have a big impact. now, with all of that being said, the democrats refuse to do anything on illegal immigration. they want open borders and they don't mind crime, they don't mind human trafficking, they don't mind drugs you tell me if that's a good campaign issue, because i think they get clobbered on that issue. >> mr. mr. president, becky haa question, you know becky quick >> i know becky for a long time. >> on china, we had our correspondent from beijing telling us that the chinese ministry won't confirm that you will be meeting with president xi at the summit if they don't come, does it mean -- >> we are scheduled to have a meeting. i think he'll go i have a great relationship with him. he's an incredible guy, great man. he's very strong and very smart but he's for china and i am for the united states.
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very simple -- it is a simple stat he's from china and i am for th u.s., we'll have our differences. i think i will be surprised if he didn't go we are expected to meet. if we do, that's fine, if we don't -- look, from our standpoint, the best deal we can have is 25% on $600 billion. those companies are going to move into other locations and there won't be a tariff. our business people of our country is very good, if a product goes up in price, they go to vietnam or one of many other countries or they make the product in the united states which is my favorite that's what will happen. if we don't have a deal and don't make a deal, we'll be raising the tariffs, putting tariffs on more than, we only tax 35% to 40% of what they said then they had another 60% that'll be
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taxed. >> mr. president, as you know in terms of innovation and technology i guess the worry is we certainly don't want to kill the goose that lays a golden egg do you think facebook and amazon and google, these companies are too big now and do you think the antitrust company is warranted and do you think they should be broken up? >> people talk about collusion the real conclusion between the democrats and these companies. they were so against me during my election run. if you don't have them, you can't win. well, i won and i win again because we are doing well. we are not fools anymore, we are not the foolish country that does so badly. you look at india, the prime minister modi, you take a look at what they have done, 100% tax on motorcycles we charge them nothing when harley sends it over there,
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they have 100% tax i called him i said it is unacceptable. he reduced it by 50% with one phone call i said it is still unacceptable because it is 50% verses nothing. it is still unacceptable they're working on it. if we did not have the power of what we have, if we wanted to bank, we would not be talking about it because nobody would care with the bank, everybody wants to rob $800 billion we have in trade deficits with other countries. you tell me who made those deals. >> i know you like strong defense and it would be nice to get prices down for those things do you think united technology and raytheon and united technology >> i am the one making the
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budget i was left a depleted military i feel the opposite. i am very much of a cost cutter. i want to have a great budget. before a budget, i have to have a great military as long as i am here, we are going to have al great military. we rebuilt and ordered many f-35s and ships and planes and missiles and we are ordering the best stuff in the world. i am a sales man for the country, i am getting other country to buy tremendous amount of our military. you can ask any of the folks run our military companies of what they are doing because of me i get nothing. i'm siting there in the oval office, you got to buy our helicopters, if you don't, we are not happy with you and they end up going out to buy our helicopters and our f-35 look at how many f-35 in japan and other companies are buying it is good as long as -- i am a little concerned of unitedraythf
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the things we bring on, we used to have many plane companies and they all merged and now we have two main one, you have lockheed and boeing they're all merged in so it is hard to negotiate when you have two companies. when we have 10 or 12 companies, that may not be sustainable because they all go bust that's the purpose of what they did. never the less, i can tell you because i get involved in negotiations got the plane cost down a lot. when i hear united technology which is a great company, i know it well. it is a great company but when i hear united and i hear raytheon, incredible company, when i hear them merging, does that take away more competition? it becomes one big fact,
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beautiful company, i have to negotiate meaning the united states has to buy things and does it make it less competitive because it is already not competitive. you look at the budgets of other major countries. take a look at russia, they spend $68 billion a year on military take a look at china, $250 billion a year. well, we are many times that part of it because we spend so much money and we have no competition. we don't have competition. >> the treatment you set aside with google and facebook, just in terms of market size and market dominance, do you think there is a monopoly antitrust problems with those companies, setting your personal feelings aside with them that needs to be address or an update on competition, competitor laws ormondor
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or monopoly laws what do you think? >> the person at the european union that's in charge of taxation hates the united states more than any person anywhere in the world. i believe that's true. every week you see them going after facebook and apple and all of these companies, they're great companies but something is going on i will say the european union is suing them all the time. we are going to be looking at them differently we have a great attorney general, we'll look at them differently. when they give european union $7 billion and $5 billion. apple gets sued for $10 billion. right now it is going on but they'll end upset settling. they think there is a monopoly i am not sure if they think
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that, they figure it is easy money. we'll sue apple for $7 billion and we'll make a settlement and win the case i think it is a bad situation. obviously, there is something going on in terms of monopoly. >> mr. trump, mr. president, you mentioned utf and raytheon, most of the analysts we talked to today, they don't think there will be a problem with regulators with utx and raytheon to merge, do you think there is a problem? >> they have some overlaps i can tell you from the airplanes, you want to buy a plane and you will have one bid. you don't have the people that make them. the companies that make them are incredible they are great companies you don't have any competition it is crazy. we have given up making f-22 fighter jets i was a joint venture between
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lockheed and boeing. it was the greatest ever we gave it up because it was costing so much. you have the two companies in a joint venture, from what i hear you could not negotiate with them this is what we want them, the government says we'll take it. i just want to see competition, the two great companies, i love them both. i want to see that we don't hurt our competition. >> do you see huawei as a national security threat or a moving chest piece in the overall negotiations with china? what is in your view >> i view it as a threat it could be very well that we do something with respect to huawei as part of our trade negotiations with china. china very much wants to make a deal they want to make a deal much more than i do we'll see what happens
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i don't mind tiaking in billion of dollars a lot of people says we picked up one point because of all the tariffs that we are taking in from china just remember they're charging us tariffs some of the folks that i really like but some of the senators come to me, not really good because it is not free market. you take india where they are charging 100%. 100% is nothing compares to what some companies charge. france charges a lot for the wine and we charge them little for french wine. sure, we are paying a lot of money to put our products into france this country is allowing this french wine which is great, we have great wine, too allowing them to come in for nothing. it is not fair we'll do something about it. >> while i have you, there is so many things going on t-mobile and sprint, do you have a feeling on telecom and

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