Skip to main content

tv   Squawk on the Street  CNBC  January 12, 2017 9:00am-11:01am EST

9:00 am
deal. but you've got some risks as well. you've got -- what are you going to do about health care? you know, what about this border tax? you know, so you got trade issues. you got a lot going on. so there's some risks as well. >> jim, it's been great having you here. >> thank you guys. >> welcome back, becky. >> thank you. make sure you join us tomorrow. right now it's time for "squawk on the street." ♪ welcome back, becky. good thursday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. focus changes today from fiscal to the monetary. no fewer than five fed speakers today. yellen with a town hall at 7:00 p.m. as the nasdaq goes -- tries to go for its first eight-day win in nearly two years. europe is mixed. ten-year yield down to 2.33. that's a two-month low after trump some say disappointed on the reflation theme in yesterday's press conference.
9:01 am
our road map this morning begins with the market moving on comments from trump on pharma, defense, automakers, what the news conference meant for investors. plus, trump's ally in the valley, peter thiel on the president-elect with comments on apple and the stock market as well. >> speaking of apple, new report the company is planning a significant move into original content. we will fill you in. first up though, futures moving lower a day after the nasdaq hit that record high. it was a rough day for biotech after shot heard around the pharma world delivered by the president-elect at his news conference yesterday. >> our drug industry has been disastrous. they're leaving left and right. they supply our drugs, but they don't make them here. they're getting away with murder. pharma, pharma has a lot of lobbyis lobbyists, a lot of lobbyists and a lot of power. there's very little bidding on drugs. we're the largest buyer of drugs in the world and yet we don't bid properly.
9:02 am
we're going to start bidding and save billions of dollars over a period of time. >> all right. so we know the targeted focus on those two industries. others just argue there was no discussion of deregulation, tax reform. >> oh, i mean -- >> ideas of whether he agrees with the tax plans in the house. >> he doesn't seem to know about the trump rally. he's central to the trump rally and doesn't seem to know especially because the most recent leadership biotech after the j.p. morgan conference. i found these comments about biotech -- about drugs in general, to be totally in keeping with what this man does. i mean, there's a level of inconsistency, obviously, in terms of the way we've seen previous press conferences, but he said he was going to go after them in the campaign. you can go back, there's probably ten references of exactly what he said he's going to do. he said until the man/person of the year interview he said he was going to do this. do people -- this man has not demonstrated that he makes -- says something and then he forgets about it.
9:03 am
this industry has had him fixated. he doesn't like the way that the government does its bidding. he has reiterated that he likes medicare, but it's obvious and i thought it was interesting i was waiting for him to say we just picked a guy for the head of v.a., by the way i looked into that guy, very smart guy, could be a philadelphia thing, very good. but i would have said all he needs to do is we have to negotiate like the v.a. does and that would have sent shivers down people's spines. >> he did almost imply that, but at the same time, jim, he's sayinged same things he said on the campaign trail. he hasn't really added to them, to your point. what we're waiting for, industry is waiting for, investors are waiting for is what that means, in terms of changes in policy when he talks about bidding and the governments need to be more kmetive, i guess, in terms of drug prices. we're talking about a federal government that spends about 28.7% of the total health care spending in this country. >> right. >> the government's 28.7% of
9:04 am
total health care spending, which of course is an enormous number. >> right, the president-elect has often overstated according to "the washington post" how much of that budget is actually on the drugs. i would notice that there were two responses. there was the response that the president-elect wants. brent saunders saying i totally agree with him, we have to really be more realistic. and then the lobby just saying, yeah, we're going to like do something. >> in 2015 we spent $325 billion, as a country on prescription drugs. we don't have the '16 numbers yet. >> right. i would tell you unless you see genuine rollbacks and price concessions given to the government, this isn't going to end. which is why this sector is just barely investable. barely. and it's a big part of the s&p. >> separate from drugs though you've been saying for weeks that you were on guard for any hiccups of getting to the tripod. did yesterday bring you any
9:05 am
closer to it? >> i feel again that it's pushed out. i mean, we had the tillerson hearings, the tillerson hearings going to go on forever. i feel that trump does not necessarily do what we would like in the stock market. i think he ultimately believes, look, if more people are hired, if the taxes are lower, then things get better. but i just don't think you can expect out of this man a definitive, okay, here we go again, let me remind you what we're about. because he's not about the stock market. he's never about the stock market. >> i remember you once saying we don't know what his neilsen rating is. we don't know whether it's the dow or something else. >> we don't. i do think when it was kind of amazing the one group he picked on was the group that had really had a big move. and i started thinking, okay, nothing's idle with this man. nothing. and it just does seem in the last few weeks we have seen it culminating in the last two days in that j.p. morgan conference a
9:06 am
lot of the drug companies are making their numbers by raising their prices. >> right. >> and that is something they can do in this country because we don't negotiate. >> right. but as an investor you're going to have to make some sort of bet on what's really going to come through in terms of policy. my expectation would be based on what we heard from the president-elect yesterday, you're not going to hear much different from him in coming press conferences. >> right. >> so we didn't hear anything on tax reform. >> no. >> but i guess don't expect to. >> no. it's not on the agenda. >> we'll see what house ways and means does with their bill, with the blueprint becoming a bill and what the senate does and what the trump administration in the form of mnuchin or cohn or whoever's going to take the lead, i don't expect much new from him -- >> even his mention of a border tax yet e yesterday was not tied to the border adjustment strategy in the house. we don't know if that's the same thing or not. >> the amazing thing was that the market rallied after. the market rallied after this, of course didn't rally with the
9:07 am
drug stocks but there's a belief that the tripod's always going to be there. but i do think that unless you hear something from these major drug companies saying we are meeting with health and human services and we are going to give the government a bargain, not unlike what boeing said on the air force one, not unlike what starting to talk about the f-35 -- >> did come back to the f-35 again. >> this is the opening bid. the opening bid is, okay, listen, it's not business as usual anymore, drug companies. we're going to do some changes. and you better get on board. it's the opening bid. david, it's the art of the pharma deal. >> the art of the pharma deal. pharma. you didn't say it properly. pharma. >> i'm not relenting on the way i talk. i am from philadelphia and you're stuck with me. >> as we're talking, guys, a news release from amazon saying they will create more than 100,000 new full-time full benefit jobs across the united
9:08 am
states over the next 18 months. these new jobs they say are for people all over the country, all types of experience, education, skill level, engineers, software developers, entry level, on the job training, a lot of them will be in new fulfillment centers. >> right. >> as yet another company -- >> and whether it's washington, texas, california, illinois, kentucky, florida, new jersey, we're talking about military hiring. this is just a press release telling you about the plans of a very large successful company to hire people. i'm sure they would have done this hiring regardless, but now companies i think feel obligated to put it in a press release to make sure everybody's aware of how much hiring they're doing in the united states. now, we are talking about one of the most successful companies of the last quarter century. >> right. but would it shock you? >> 100,000 jobs is a lot of jobs. >> would it shock you if the president-elect says, listen, everybody's got to go on amazon prime because this is terrific, right? >> no. >> do you remember what he said about carrier after greg hayes
9:09 am
agreed he was born at night but not last night and gave -- remember what he said? people forget what he said. do you remember what he said about carrier? he said people should buy carrier. >> i mean, 100,000 jobs over 18 months for a company that only had 30,000 total employees at the end of 2011. >> right. >> gives you a sense as to the growth at amazon and so many different areas as carl said. some of them are fulfillment centers. they're not bad jobs. they pay $13, $14 an hour, benefits and some of them are much higher paid jobs of course in terms of software development. we know how much amazon is doing when it comes to a.i. in the form right now of alexa. but it's just interesting. are we going to start every morning, guys, to get a press release from a company when they know they're going to be adding jobs over a certain amount of time? just saying, hey, we want to let you know. >> as bob lutz said to us the other day, the ford mexico cancellation in his words was sleeves out of their vest. meaning they're going to do this
9:10 am
anyway, but you might as well get a notch in your belt because of it. >> right. >> but this reads like the labor department report. amazon employs 11,000 people in jersey, going to hire additional 2,500. i mean, this is the labor department. >> you've got a decent amount of real estate. you've got some businesses. i think you may want to consider putting a release out about your hiring plans for the year ahead. >> it's not a bad idea. i do want to expand. i do have an idea for a restaurant. i'm not going to reveal it on here because of competitive -- >> you're going to be creating. you're a job creator. >> i'm not kidding. i have the opportunity if the rents came down this thing is going to be reality. if my wife ever gets back from europe, hi, because i'm sure she's watching, we are going to advance. wooe going to do it. and i'm putting out a release and you're going to cover it. >> i will. you know i will. absolutely. >> interestingly there was a call yesterday on amazon saying that margin guidance for the quarter might be a little pressured. i think they brought their target down to 950 from 1,000
9:11 am
because we're in this -- the trough. >> we're in investment phase. that's why i've always found people stock at 7999 i hope people buy it recognize this is not a year where they reap the harvest. this is a year where they spend. and it does seem like the stock moves up because everybody's on amazon for the holiday. and then it pulls back when they discover that amazon spent a lot of money to get the stuff to you, right? >> i'm just -- i'm interested in reading this release. by the way, amazon's already knows how to do these releases. remember the christmas release you always get where they tell you how many things they sold go to the moon and back and around the world 700 times. >> right. >> so they're good at this. but it is interesting reading. they have 11,000 employees in new jersey. >> i know, they built a lot -- >> yeah, to be close to new york of course. >> i mean, those replace a lot of jobs from say pharma. >> right. >> pharma, i mean, pharma takes the jobs, where do they go? they're killing people. what'd he say, committing murder? what was the drug company? lingo that he used. >> he did actually interestingly the president-elect did mention drug companies that manufacture
9:12 am
their drugs overseas. and i think that's going to be interesting. we talk so often about retailers when it comes to this import adjustment, but what if you're making drugs overseas and bringing them back? that's a consumable. you going to throw a tax on that too? or move your plants back here. >> i think they're going to have to move plants back here. look, everything's in play. i think that the next plant that you want to build right now if you're a ceo, you're saying, you know what, maybe we ought to build that plant instead of in mexicali, maybe we ought to build it in austin, right? >> we'll see if trump responds to this news and whether or not there's any reproesh mall between -- no love lost between those two. >> i'm watching this j.p. morgan conference on cnbc and they're all talking about big prices, because if that's the case, we're going to get cited. >> okay. >> when we come back, is apple going to start making its own
9:13 am
movies and tv shows? we'll dig into this report from the journal that's out this morning. plus, we'll talk with legendary vanguard founder jack bogle, talk about trump's effect on the markets, the march to dow 20k and a lot more. watching the ftse too, record ten-day win streak potentially in jeopardy this morning. a lot more "squawk on the street" from post nine after the break. coitithetheranr ncth
9:14 am
9:15 am
9:16 am
venture capitalist and trump transition team member peter thiel offering thoughts on the president-elect. tells "new york times" everyone says trump is going change everything way too much. well, maybe trump is going to change everything way too little. that seems like the much more plausible risk to me. as for some of the anti-trump tech execs who showed up at last month's summit with the president-elect thiel said, i think early on everybody was worried they would be the only person not to show up. in the end everybody was worried they would be the only person not to show up. i think the bigger tech companies wanted a little bit off the ledge they had gotten on. he mentions dorsey not going mostly because of market cap. he says the age of apple is over, that we all know what a smartphone is and that they'll be little innovation in that space. >> look, i've known peter for a long time. he's an iconoclast.
9:17 am
some of these comments i think are almost -- very excited they met with president-elect trump, but what i would say is in terms of apple, i've got someone trimming numbers again today. the problem with apple is that it is a cell phone company. and if he were to become more than a cell phone company, then i think that what would happen is that peter thiel would say, okay, listen, they make cell phones, but they also make x, y, z and i think that's always going to be the problem until you see a definitive revenue stream that comes from the apple ecosystem, i think that you can say the age -- i wish he had said age of the cell phone because i think apple is a great company and a lot of money overseas, but look cell phones are ten years old. the iphone's ten years old and that's a long time. that's a very long time for a product. that we still care about. right? most products ten years ago we don't use anymore.
9:18 am
we all still use it. we hope for more space, we hope for more power, we hope for better reception. but is the age of a piece of equipment for ten years is rather extraordinary, and i wish that -- sometimes i wish that had been part -- >> right. interestingly of course the news today from apple itself -- or should say excuse me reported in "the wall street journal" that apple planning to vodevote significant resources to content, to movies, tv shows. >> right. >> that is an interesting story in and of itself about what they may be thinking. it's something you talk so often about, jim, in terms of the services revenue. which by the way would make them an enormous company in its own right. >> it's going to double by 2020, right? you don't think that's significant? >> well, look, you just want it to be the platform and there are many acquisitions. look, there's the acquisition of beats. i have beats, i don't use them. okay, i just got them. but the acquisition of something that was a revenue stream like
9:19 am
when morgan stanley stalks about how netflix the sign-ups are going to be very good, these are visible streams. instead of coming in here every day say we here in our channel checks that the month of january is not going to be that good for apple so let's sell apple or trade it is the thing that has been the gaiti inggating factor investors who don't want to fight the time. a lot of people feel apple's at 119 because of samsung's problems -- oh, geez. >> that's randall stephenson, chairman and ceo of at&t. >> the first doctor of the iphone. how pertinent. >> and most important of course has a huge deal that will be in front of the department of justice, a trump department of justice namely the purchase of time warner. yesterday it was notable during that press conference the hostility of course that the president-elect showed towards cnn and its correspondent not taking -- >> you got that feel? >> -- without taking a question
9:20 am
and said previously he would not be in favor of an acquisition of time warner by at&t. cnn of course a time warner property. we'll see, but that is an interesting conversation. mr. stephenson though certainly one who embraces -- has embraced free markets, made no secret of sort of where he stood on the political side of things. i would think they have a good deal in common to a certain extent. >> yes. >> randall stephenson and the president-elect particularly when it comes to deregulation. >> yeah. >> so that's an interesting conversation. but especially one in light of the pending approval that they will be seeking from a doj under the antitrust division of the department of justice from a trump administration. be curious to see if he gets a lobby handshake from the president-elect and say, hey, you probably go up there if you're stephenson and talk about your hiring plans. >> is that the metric? lobby handshake?
9:21 am
>> yes. >> the lobby handshake. >> jack, masa son. >> said everybody you want a company you need to go. go up the golden elevator, say what you need to say, do what you need to do. companies being nimble adjusting to new realities. >> well, i like the stock. interest rates going down. i mean, i know that's something we used to talk about before the elevator, but remember that? the idea of whether the stock is good? >> yes. >> it's still a factor. att is a buy. >> when we come back we'll get cramer's mad dash, countdown to the opening bell and one more look at the premarket here as we're looking for a down open. see whether that reverses after the open. more "squawk on the street" in a minute.
9:22 am
elmi d eln ly iryo. . ee
9:23 am
9:24 am
♪ six minutes before we get to the opening bell this morning. you want to head to back to pharma. >> yes. and i think that what the president needs -- president-elect it would help if he would distinguish between companies putting price increases through for old drugs and innovation. because you don't want innovation to stop. witness ketruda for merck, breakthrough getting far bigger designation than we thought for cancer -- for breast cancer. and today delayed reaction. guggenheim, not the museum but the firm, piper and morgan stanley all say, yes, this is the one to buy. now, obviously the corollary is bristol-myers opdivo not doing
9:25 am
well. but i like the fact what could happen here is if there's somehow this is something allergan's been talking about, brent saunders, somehow a distinction between older drugs and price competition and newer drugs and unfeddered prices because it's so expensive to bring a ketruda that -- i ain't going up the golden elevator that i've seen, but these analysts are saying, okay, use i think the decline in pharma to buy merck. merck would have been up a lot more had the press conference not occurred. >> and it was prior to his comments. >> yes. the press conference was a bit of a damper on drug stocks including merck everyone though this was a huge win in front of the fda. people are not understanding -- now, look, bristol-myers can come back with some combination, but it's an amazing drug. it's a wonder drug and costs a fortune to develop. and you don't want to stifle that innovation. >> all right. we got the opening bell about -- oh, four minutes or so away. stay with us, "squawk on the street," we are right back.
9:26 am
and they're absolutely right. they say that it's hot... when really, it's scorching. and while some may say the desert is desolate... we prefer secluded. what is the desert? it's absolutely what you need right now. absolutely scottsdale.
9:27 am
9:28 am
l? atthngtsspthattatatayo mfwa you're watching cnbc "squawk on the street" live from the financial capital of the world. the opening bell in 90 seconds on this thursday.
9:29 am
busy day as we said earlier, five fed speakers, we'll be paying a lot of attention to the fed and rates. confirmation hearings, carson for hud, pompeo, cia director nominee, mattis in front of the senate armed services committee. we mentioned the ten-year. >> right. >> down 30 basis points in about a month. when does that get your attention? >> i was just thinking when you mentioned about the fed speak, last year fed speak and this year we speak about the elevator, but i think we need to see these guys say, listen, there's a head of steam in the economy. december was strong. we need the rate hikes. compare that to last year we were so fearful of rate hikes, so worried about oil and gas collapsing, so concerned about bad loans. and then here we are saying, please, please, ahead of tomorrow's big slate of earnings we need rate hikes, we need rate hikes. very different chant from last year. right? >> yes. that would be a very different chant. >> pushing way forward. >> look at where we were a year ago on the ten-year yield versus
9:30 am
now. >> we need to see these guys say we see animal spirits and we need four rate hikes. that's the bingo number. >> bullard on squawk still sees -- actually heart attacker sees one -- no, bullard sees one, harker sees three, hard to keep them straight. >> we're not seeing eye-to-eye right now. he's a little -- he's not sanguine enough. >> there's the s&p at the bottom of your screen at the big board today ice futures celebrating the tenth anniversary of the new york board of trade acquisition by the international continental exchange, and tcl, tomorrow we'll get wells, jpm, b of a, pnc. earnings for the year estimates are up 12. a year ago they were basically flat. >> well, these things have been -- these earnings have been basically flat for a decade. i mean, talk about a group that
9:31 am
we need to see -- look, we can print numbers other than wells fargo and i think there still could be a pullback. the important thing to remember is about rate hikes. rate hikes cost them nothing and they do well. and it's about deregulation. so you may think, you know what, the stocks have had too big a run, think again if they get hit because it's about what the fed says. the more hikes, the merrier. that's what these companies are based on. we saw it in '91-'92 when greenspan decided to liquefy the balance sheets of the banks. there ain't no stopping them now when they get rolling. >> and you believe they are getting rolling? you still believe that? >> i think deregulation is huge. i think that the idea that you can -- i was looking at k.b. homes last night, if you go on the conference call what you'll hear is, hey, listen, credit's getting a little better. people are starting to be able
9:32 am
to buy homes. look at that, credit's getting a little better. how many years has it been that credit's not been? can you imagine what would happen if the banks suddenly said, listen, 650 fico, butput n this and we'll lend to you. >> there are concerns about credit deterioration in autos, you know of concerns there. >> see, my worry about that worry is if you go read through the fine print of the kb homes, you'll see that the inland empire, those of us i tried to buy real estate in the inland empire in the crash, the inland empire in california, if you get a job there, you need a car. and i think people have to recognize that no matter what you may think of auto loan, a car is more important than a home. people gave up their keys to their home before they gave up keys to the car because you need a job. if job growth like the job numbers we see if they can continue, i'm not as concerned about auto loans. you need a car to get to the
9:33 am
job. >> right. >> you do. >> now, in new york we don't understand that. you take the two -- >> i take the one to the two to the three, yes. later in the day i might take different. if you want an update on the subways, let me know and i'll give it to you. i took the second avenue subway somebody asked for the first time. it was beautiful. i've never smelled a new subway before. >> must be the smell of victory. vf corp., canaccord goes buy to hold. kate spade, we see a note today it might get a takeover bid. i thought that was interesting because that would be rather radical. i was thinking to myself, has david ever been to a kate spade? to the store of kate spade, or ethan allen? have you ever bought furniture at ethan allen? bvf is north face -- >> been there. bought a backpack and a coat for one of my kids. >> prosecution rests then. >> yeah, i've been there. did it. >> speaking of big cap research, we've got some big calls on
9:34 am
disney, pivotal cuts to a sell. rbc initiates with an underperform on boeing. >> what is that? >> and merck, an upgrade. >> yeah, merck is just -- remember when merck was saint merck? >> a long time ago. >> now chairman of regeneron people don't talk about that anymore. his son by the way is doing a very important project in terms of measuring blood pressure. it would make it so these wearables would finally not have the false positive of blood pressure which is what you need. the j.p. morgan upgrade push of disney was so interesting. i did like a word search. espn is not even in -- it's only tange tangentially mentioned. now we're talking about new theme park rides. new theme park rides. >> i think there are people out there who are going to still be counting subs when it comes to disney and espn. >> you do? >> yes, i do. yes, i do. >> the sub loss is moderated, we should point out. >> it has. >> credit suisse with a chart
9:35 am
earlier in the week moderated in '16 from 2% to 3% in '15. so it's getting worse but not as quickly as it was. >> yeah. we'll see. >> the stock is up from 93. >> we're just at the outset though. hulu is yet to introduce their streaming platform, their over-the-top product. google will have one. conceivably from what we're hearing potentially in apple's interest in content. they've tried in the past we know. >> yes. >> amazon certainly easy to imagine they would also move down that. there are going to be so many different potential options for people at home that don't necessarily always include sports that you could see the fragmentation of the viewing audience in terms of those who take the video feed from their cable company really pick up speed. >> is it zero sum or will everybody end up making less money? >> no, i don't think it is. i mean, you can be an entertainment network or one of the big networks and have full
9:36 am
distribution on every ott platform. >> they keep reading down, discovery, there isn't a day that goes by. >> there are some companies in that area that what's the compelling reason to care if you have their networks, right? and that will become more of an issue. >> right. >> smaller guys or other networks that you just mentioned. do you want them in that world? >> i remain glued to man in high castle from amazon. it's amazing now i watch amazon like i watch netflix. i just do. >> this apple story in the journal about original content they make the point it's probably not so much an oncoming war on netflix as it is a war between spotify and apple music. >> oh, i like that. that's a better way to look at it. and i still feel reason to own apple. i just think these are down with number cuts. listen to katie huberty from
9:37 am
morgan stanley, by the way amazon did get through 800. it was down, they put out the press release, now it's through 800. i don't want to get in front of the juggernaut of amazon. i have to bump into two people who yesterday they said don't bother i'm getting that new card. >> you have to get that. i meant to mention that last night. >> what happens if the president-elect says everybody should get that card because they're hiring people? you know, it's not all negative. he could easily say, listen, i think this amazon's a bargain. would that shock you? what if he comes down the elevator and says by the way amazon -- >> nothing would shock me. many of us saw a network repeating the tweet he said about cnn, nothing would shock me. right prior to his meeting with randall stephenson, the man who will run the combined company that will own cnn. it's an interesting thing. you know, if you're over at cnn, do you keep firing away and doing what you think is your
9:38 am
job? and potentially endanger your deal to be acquired? does your task manager come to you and say stop it, be nice? i'm saying that's a question, but that gets into this whole question of intimidation of the press, right? >> i'm going to let you go there all you want. >> i just went and that's all i'm doing. but listen, come on, it's got to come up. by the way, if you're randall stephenson, do you really care that much about cnn? made a lot of money, doebt gn't me wrong for time warner last year, but is it going to endanger your deal? >> what happens if says cnn is fake news. >> this is where it gets very naval gazing but a big debate about whether trump fairly conflated what buzzfeed did and what cnn report. >> that's why i mentioned it. >> agreed. >> that was a moment where it was a breath takeaway moment where i said i wish i could talk about parsely energy and how well that secondary did.
9:39 am
>> let's switch gears quickly here. get the airlines on the record here. delta with 82 cents meets prasm guidance, looks like two years of declines, jim, are going to come to an end. saying it's largely a trump dynamic. >> phil lebeau always asks the right questions. there was a moment where he said basically how was it after the election and the answer was it was fabulous. so the actual lin yarty was good then dip and then come back. which made, i think, delta feel very good about 2017 which is important able to get multiple expansion, costs coming down, i think that was very good to hear. remember, united continental said some good things. this is a very inexpensive group. you need to see the transports continue to rally as a tent pole for the entire trump rally. >> all right. with all that we'll see if these losses can reverse. let's get to bob pisani see what's going on on the floor. bob. >> good morning, carl. moving in the other direction again. let's take a look at sectors and what's going on here. we're finally getting a boost
9:40 am
from energy exxon chevron been horrible all week. energy up, they're helping, doesn't matter big industrial names 3m and boeing weighing on the dow. bank stocks like goldman are weighing on the dow. banks have been sitting there again doing nothing overall. and there's pharma, that's pjp on the bottom. that's down 3% on the week. that's tweak risk right there. bottom line here is 2017 so far we're not getting a really clear narrative. so i've described the markets as a kind of coiled spring right now. we're priced for perfection. we are at new highs for stocks. we are at highs for investor sentiment. we're at highs for consumer sentiment. little volatile there and the most important thing is really high expectations for earnings boost in 2017. there are some people who think we could do $140 next year. we're at 118 on the s&p. that's like the 20% earnings boost. folks, that is a lot to ask of the market. and of course we have the trump tweet risk on top of that. so what's the guidance for 2017? that's why this whole 2017 earnings situation is really
9:41 am
important here. hope you heard phil lebeau's great interview there with ed bastian because he was the first to come out and comment positive no question post election we saw improvement in the consumer confidence that we've seen in traveling, in the marketplace, you see it i think in some optimism with respect to starting to get things done in washington. and we saw it in our results. and that's the most important line. now, as you heard, no earnings guidance but did say unit revenue should turn positive. not a lot of reaction. but remember, airlines have moved about 25% since the election. they're already pricing in better numbers overall. that's part of the problem here. so there are companies coming out saying be cautious here about expecting too much. pivotal research, this is a very small boutique firm. they came out i think this reflects some of the feelings on the street. valuations of companies we cover do not appropriately reflect that the environment for stocks and companies is riskier now than was the case several months ago. they downgraded a few stocks, adobe, cbs and discovery.
9:42 am
tomorrow we're going to be all about the banks. all about j.p. morgan, all about bank of america, pnc and a lot of it's going to be about jamie dimon, who i've said before nobody talks positive future better than jamie dimon and sells it better. important thing is while earnings are not increasing 23 #for 2017 in most industries, they are for the banks. analysts have been creeping numbers up. look here for j.p. morgan's numbers. november 8th they had 625, this is 2017 numbers overall and now they've increased to $6.50. this is an increase of about 4% overall. most of the earnings revisions are on the positive side for banks, four, five, even six percent. of course we're looking at the lobby of trump tower. right now the dow down 93 points. guys, back to you. >> gary cohn of course in the lobby going upstairs on a day where dina powell also from goldman going to join. be the fourth official from
9:43 am
goldman going -- or alum. >> i'll take 237, do you think there will be a pool? >> head of the n.e.c., national economic council. also we have some pictures of hen henry krav its making his way also. don't have the video of mr. krav is. >> remember mr. trump did not favor the private equity exemption. >> no, but most important for private equity will be the component of tax reform as it currently is in the blueprint in the house that gets rid of the deductibility of interest. if that stays, that conceivably changes the entire equation for the private equity industry. that one is like -- that is numero uno for them. >> where would you go with the stock sns. >> it lowers all of their potential returns on any deal. the ramifications simply of that one provision, the deductibility of interest or lack of it is
9:44 am
huge for so many businesses but particularly for private equity. so if henry appears here was in the lobby goes up there, talks with cohn, talks with president-elect, i promise you that is -- >> those stocks -- >> that is issue number one for them. it's got to be. >> and i was worried about takeovers. >> yeah, it's going to affect m&a in certain ways. affect the composition of a deal, right? if you're not going to get interest deductibility then you do more stock. >> david, there isn't a day campbell's soup doesn't go up. >> okay. >> just pointing that out. and they had a mediocre note. >> dually noted. >> let's get to the bond pits. ten-year hit a low of 2.307. let's get to rick santelli in chicago, rick. >> very good, carl. the last time we settled under 2.30 was 11/29, november 29. you know, i find it fascinating we're showing the elevator.
9:45 am
this is kind of the financial elevator, the lobby of the trump arena, because prices are going up and down trying to guess what's going on above that elevator ride. and you know what, not many people really know. and even the people that know don't know how it will actually turn out. but one thing seems for sure, whatever protected territory existed whether it's interest deductions for hedge funds or for homeowners nothing is going to be sacred anymore. i think the big surprise with donald trump, and it's going to anger many on both sides and it's going to please many on both sides, is what negotiators do. it's starts with a c and ends with compromise. if i look at what's going on with tens look at a one-week chart definitely a drift lower. look towards mid-november as carl and i have been alluding to, you can clearly see the pattern. could it be a top? of course it could. and particular note the upper end of that is 2.60, a number i'm sure we're going to be talking about a lot in the future. open it up another month and you can see how the thing ran up before the election. now, here's another way to look
9:46 am
at it. let's go all the way back to july knowing we made the second leg of the double bottom around 1.35 in july of last year. this is important, you see how slow going it was off that bottom? tight, tight ranges. then it popped. consolidation, distribution and then big moves seem to be the new hallmark of markets as they have quote/unquote reversed the generational low yields that we experienced in 2012 and 2016. let's look at the dollar index from that same period in july. of course it looks almost identical. let's look at the dollar versus the yuan/anytime e -- behavior modification seems to be going on a lot quicker than policy implementation is going on. many think some of the issues evolving around the relationship between the chinese hierarchy and what their currency's doing in their capital flows may be in lieu of thinking of how things may change under a president
9:47 am
trump. one-week of the dollar versus yuan shows even though the dollar was doing better, the yuan definitely popped. the dollar dropped a bit today. carl, back to you. >> all right, rick, thank you very much, rick santelli. still to come this morning, the ceo of kbw on the post election rally for the banks and whether that is likely to continue throughout earnings season. watching the dow, the ten-year as rick said and the dollar after falling after that news conference yesterday. we're back in a minute.
9:48 am
w usansl. leses
9:49 am
9:50 am
another marathon day of confirmation hearings for the new trump administration. first up is the president-elect's pick for defense secretary retired general james mattis. mattis retired in 2013 after serving as commander of u.s. central command. later today hearings from mike pompeo at cia and ben carson at hud. but mattis likely to get the lion's share of attention simply because of the focus on isis, defense spending and a whole bunch of other things. >> i think he'll be the easiest to confirm in part because of
9:51 am
his amazing record in iraq and in part because he has been at the vanguard of what i think both parties have preferred to see, that's mccain part and really just the heart of the democratic party. if you go read "battle for fallujah," you will say how could we be so lucky as to get this man to run the defense department. >> morgan brennan this morning doing some good work on how the f-35 could change. logistically, practically speaking, what can they do at this point to lower some costs without compromising the quality or integrity of an important product? >> i went to see the f-35 in close set iting, looked at the engine with greg hayes, it's a wonder -- i know it costs too much, but it's a wondrous dominant product that would make our military dominant when it comes to projecting power. i am sorry to be so just
9:52 am
point-blank saying that, but greg hayes, ceo of united technologies, when he walked me through it, it's a marvel. i've seen other jets. >> really? you know your jet fighters? >> i spent a lot of time analyzing this for some reason, it's a fixation of mine. >> i love watching jet fighters is cool. >> it is cool. you ever been in one? >> yes. >> it's a good ride. >> i have never. >> no, i've never -- really? >> we pulled nine gs in a 16, which i mean you sort of passout briefly because you're not ready for it. we'll do it. >> did you cover that originally many years ago? >> many years ago. >> wow. what a cool thing. >> we'll get stop trading with jim in a moment. dow's down 118 this at this moment would be the worst loss for the dow of the year. back in a minute. nghis si tkiigi
9:53 am
h isn.'mralee.at i iwhinkom'm' stacofs b bwld b b
9:54 am
9:55 am
time for cramer and stop trading. >> boy, i got to tell you there's a downgrade today that's quite startling, which is goldman going skyworks buy to hold. skyworks is an apple play. skyworks has not diversified enough away from cell phones. i mention this because of what peter thiel said cell phone being dead, apple being dead, whatever.
9:56 am
skyworks they're reacting like that. i prefer semiconductor equipment. i like lam research, but what is the name they come back to, guys, can we say it? what name do they like? >> nvidia. >> nvidia. and i've been tired of nvidia, but the street just loves nvidia and goldman just joins it. fortunately they mention broadcom and they mention lam research, which is just a fantastic company. and lam by the way has money overseas. but this skyworks is just part and parcel incredible to me what used to be favored versus nvidia, nvidia machine learning, nvidia artificial intelligence. >> i know, it never ends. >> never ends. >> big story today on chips in the journal. nvid nvidia. >> nvidia. okay, enough already, nvidia. >> it's like lydia oh lydia. >> lydia oh lydia, stevia. if you're listening to this then you're about to die of the flu. >> what's on mad tonight? >> i never do this, but i have a takeover target that i am going to say that you can buy even on
9:57 am
earnings basis. but i'm going to reveal it. and i think that david, you'll like it. >> i want to hear. i'm looking forward. >> as will wilf and sara, who watch the show. sara, wilf, wilf, sara. >> wara. >> jim, we'll see you tonight 6:00 p.m. "mad money." when we come back, trump effect on the markets, we'll talk to jack bogle of vanguard, dow's down 117. tough start for the morning. back in just a moment.
9:58 am
9:59 am
10:00 am
♪ good thursday morning. welcome back to "squawk on the street." i'm carl quintanilla with sara eisen, david faber at post nine of the new york stock exchange. dow's down 108. this is going to be the worst loss for the dow at this moment for the year. but more attention being paid to bonds as well as the two-year works its way back to 2.33. our roadmap for the hour begins with amazon announcing it will create more than 100,000 new full-time full benefit jobs in the u.s. details and analysis on that straight ahead. >> senate takes its first major step toward repealing obamacare
10:01 am
and another busy day on capitol hill. we have the latest. >> and the president-elect holding his first news conference since the election, commenting on pharma, automakers and more market moves there. we'll discuss where you should be putting your money in the trump era with legendary investor jack bogle. investors closely watching the tea leaves from the incoming white house now just eight days from inauguration, pharma, defense stocks, automakers were obviously in focus during trump's first news conference yesterday. biotech stocks still mixed this morning after the president-elect took that shot heard 'round the pharma world. >> the drug industry has been disastrous, they're leaving left and right. they supply our drugs but they don't make them here. they're getting away with murder, pharma. pharma has a lot of lobbyists. a lot of lobbyists and a lot of power. and there's very little bidding on drugs. we're the largest buyer of drugs in the world, and yet we don't bid properly. we're going to start bidding and
10:02 am
we're going to save billions of dollars over a period of time. >> in a moment we're going to discuss the trump effect on stocks with citi's chief global political strategist tina fordham, cnbc senior contributor larry kudlow, but first some big news from amazon this morning investing more in u.s. drob e jobs. let's get to deirder bosa. >> 100,000 new full time full benefit jobs over the next year and a half, that would put amazon's workforce on track to top 280,000 by the middle of 2018. and it would make it one of the biggest employers in the country. now, if it continues to grow at the pace it has been growing at since 2012, nearly 40% annually, amazon could even be on track to eventually be the second biggest employee in the country only to walmart. i spoke to mark mahaney at rbc earlier about amazon's jobs trajectory and he expects amazon
10:03 am
to have cracked the top ten employers in the u.s. in 2016 and predicts it could even crack the top five this year. now, of course this is likely music to the president-elect's ears as he makes jobs his focus. and it could potentially go in some ways in easing tensions between president-elect trump and jeff bezos. >> i have respect for jeff bezos, but he bought "the washington post" to have political influence. and i got to tell you, we have a different country than we used to have. we have a different -- he owns amazon. he wants political influence so that amazon will benefit from it. that's not right. and believe me, if i become president, oh, do they have problems. they're going to have such problems. >> but now, guys, it's probably unlikely he'd go after a company that will create more than 100,000 jobs over the next year and a half, even if most of them were already in the works.
10:04 am
it will be interesting to see if trump responds or has anything to say about this latest release. guys, i also just want to note that amazon is seeing some gains today of about 0.8% while the rest of the sector is lower. back over to you. >> deidre, thank you for that. meantime, trump continues to reach out to executives. this morning's meetings at trump tower have included henry kravis, at&t's randall stephenson. joining us from london, tina fordham, larry kudlow joins us here at post nine. larry, what did yesterday's presser do for you? what did you learn? >> i learned he can be pretty tough with the media. i learned he doesn't like cnn. i think i may have already known that, but he sure underscored that. by the way, i think he was right. i think he was completely right. and i think shall we say this other media outlet did a very poor job. you know, this is trump at his finest. he's tough. he's not going to take any.
10:05 am
having said that, i think he won that war. question learned a lot of stuff about policies. he spent a good amount of time talking about border taxes. he spent a good amount of time talking about appeal and rewriting health care. he spent a good amount of time talking about putting his companies in trusts, quote/unquote. so there was quite a lot of substance in that news conference as well. >> did you get enough on tax reform, which people argue has been the biggest tailwind for stocks? >> no. i mean, i argue that, have for years, but i don't think -- a reporter asked him directly about it, repatriation and tax reform, he didn't really go there. he went to the border adjustment business, maybe we'll get to that in a moment. it's very complicated, somewhat disturbing. but he had a chance to really pound away on 15% small business tax rates and so forth and so on. he didn't do it. now, what we need to see is this
10:06 am
budget resolution, which has gotten through the senate now is going to the house will have reconciliation instructions for health care, a lot of stuff. repeal the health care tax, obamacare, will it have any instructions for business tax reform, or are we going to wait until the end of the year? and if we do wait until the end of the year, i think the 2017 economy and stock market will be less. >> tina, larry just mentioned the major border tax, which was a direct quote from yesterday's news conference, what are your expectations there? and should industries that import autos, apparel at the top of the list be concerned? >> well, i think we should bear in mind that all presidents come in with a long laundry list, a wish list. i was just reviewing trump's 100 days from the campaign trail earlier. and, you know, no way any president superhuman or not could get through them all. markets have high hopes for border tax reform, but i think
10:07 am
that markets are also probably getting ahead of the political process and we should all keep in mind that the first three months at least are going to be focused on political appointments and the mechanics of a new administration. i think trump set a tone, forceful and decisive yesterday in his press conference, but for me it was pretty short on specifics. it was a lot about we're going to get the best people to do the best things. and then the continuing of a sort of name in shaming that we've seen so far, certain companies and certain industries that the president-elect feels are out of line. and that sets a real demonstration effect that investors are also watching. >> you know though, let me just add to this. trump's tax plan has never had the adjustable border tax in it. we worked on this thing in the summer and fall. and the house plan did. >> ryan's -- >> the blueprint of the house ways and means does. >> that's right. it never got into the trump
10:08 am
plan. now, that may have been changed. i'm not part of the transition committee. i don't think it has been changed. i think they're looking at it. so it's the house republicans that are pushing this. we'll see how that works out. very difficult. i mean, i agree completely with trump's analysis you can't just arbitrage border taxes. you can't go, okay, i'm going to go to mexico, they'll charge me this, but if i sell them back to the u.s., i'm duty free. that's wrong. mexico, by the way, my numbers may not be precise, i'm trying so hard to find out, but in the original mexican nafta side of the agreement, they have 5% -- just give me elbow room here. >> so why don't you support the house plan? >> then they raise to about 10 or 11 and now it's 16. they did exactly what they said they didn't do. why do i not support the house plan? i think you're getting into some troubled waters here. i think you're looking at a vat tax in the united states. and i think that's very tricky.
10:09 am
and remember it's being coupled with this no tax on exports stuff, products made for export is tax free. this is a lot of fine tuning in the tax code. this will make k street even wealthier than they already are. and i'm troubled by that. a lot of consumers are going to get hurt. energy, retail, oil -- i mean, we got to -- why not here? have mexico lower its border tax. how about that? go back to the original idea -- >> it's not just about mexico. it's about a lot of other places. >> china. >> right. >> you're dead right. >> telecom, pribt u printers -- >> you're right. >> drugs made in ireland. >> i kind of agree with him on the drug thing. >> okay. >> but let's have sit-downs, "the art of the deal," you got him, he's right there. if we have to do it bilaterally, we'll do it bilaterally and figure out equitable ways of taxing on both sides, imports and exports and by the way while we're at it let's get rid of the
10:10 am
currency arbitrage which is another big part. people are saying the dollar could rise 20% and offset our tax. >> yeah, if follows a textbook pattern, which when do currencies do that? >> i don't know i want to see a dollar 20% higher from here. anyway, we need to work this out with a whole bunch of countries to equalize what i'm just going to call the tariff arbitrage and the currency arbitrage. you can't have free trade -- >> from the trump administration, who is going to lead the fight with both senate, i guess hatch will be very much involved and then as you said brady and ryan. who's running that for the trump administration? >> well, you got a lot of good people in there, my pal wilbur ross, bob -- but let me tell you who's going to run that? >> okay, who? >> donald j. trump. trust me, he is hot on this issue. he loves to get involved. i've had lots of experience, i've won a few and lost a few with him. he's going to be very focused. he will be very involved.
10:11 am
i think that's a good thing. >> tina, we just walked through a whole host of uncertainties politically. is there one thing on any policy that you think is a pretty cut and dried trade for '17? >> a cut and tried trade for '17, well -- >> anything right away looks to be the most foamed, i guess. >> what i'm focusing on in the macro sense is how trump is taking office also and we've seen household incomes rising across every income strata that's very positive headwinds for him, probably associated with the reduction in economic anxiety. that means to me he has room for policy maneuver. i think the very early signals of what he chooses to focus on will be very much eagerly received by investors. but everything you've been talking about so far on the program is what u.s. investors, multinational corporates are looking at. but i can tell you from here in london a lot of focus on what might happen in terms of sanctions, the future of the iran program, climate change and other things that matter
10:12 am
geopolitically as well. so let's keep all of that many mind. >> may i ask, ms. fordham, there's a lot of talk inside the trump transition of a trade deal with britain as a result of the brexit vote. >> a lot of talk here too. >> yeah. right. president obama said, well, that's going to be at the back of the line. mr. trump and others are saying he would put a deal with britain at the front of the line. what you hear from london? >> well, the uk government, the may government would love that kind of a lifeline. they seem to have been rebuffed by prime minister may and their hopes of getting nigel farage as the uk ambassador. that's not going to happen. but the notion that a one-to-one bilateral trade agreement between the uk and u.s. could be a priority would be just what
10:13 am
theresa may needs right now. if trump came out with that, it would be a real shot in the arm for this government, which has been criticized for not having a plan. >> larry, finally, i want you to elaborate a little bit on your take on pharma. this idea of bidding, this is something democrats have wanted medicare and medicaid to be able to bid for drugs, republicans have pushed back against. you really want to go there? >> well, there's bidding and there's bidding. you want to put the government into the bidding? i'm not thrilled about that. on the other hand there's carrots and sticks. right? what is it scissors and rocks? i don't remember that, i'm too old. >> free market capitalism. >> so there's free market capitalism sochlt what mr. trump is saying is your prices are too high. that's a debatable issue. i get that. your prices are too high and you're moving your operations offshore. that's politics. >> not the first president to do that. >> you think? but i'm just suggesting that
10:14 am
he's sending a little shot across the bow just like he did with some of the other companies, you know, stay here, don't jump ship. i'm going to cut your taxes. you'll love it. he's saying to these guys, i want you to come home, we're going to give you tax reform, i hope, but also we're going to take a look at the bidding process. i'm not in favor of the government setting prices. lord knows. but i just have to wonder about this bidding process. i'm going to do some homework on that who knows about that stuff. are prices too high? i don't know. are they? a lot of consumers think they're too high. >> david, you know more about this. >> to a certain extent if you had real generic competition in a lot of ways but yeah went up 9% to 14% or 15%, more than inflation. >> agreed. some places are going to be harmed. pfizer is a -- he's a free market guy by the way. >> there's also been a lot of
10:15 am
innovations, life saving innovations, hard to put a price on that. >> you're right. it's a very complicated issue. >> stay close, larry. >> i hope so. i'm not going any place. i keep telling you that. >> larry kudlow, tina fordham in london. tin tina, our thanks to you as well. >> when questiwe come back we'lk with legendary jack bogle. dow down about 145 points. the selloff is picking up steam. s&p 500 down 0.75% and the nasdaq which is coming off of five record closes in a row is down 1%. "squawk on the street" will be right back. (b♪ni w 5 m 35
10:16 am
10:17 am
10:18 am
dow off 145 points so far looking at the worst day of trading, the worst day for stocks of 2017. joining us now for his take on where we go from here some of the longer term dynamics at play, vanguard founder and former ceo jack bogle. jack, welcome back. good to see you. >> thank you very much, sara. >> so do you think that the stock market got a little bit ahead of itself on the optimism surrounding trump policies and we're due for a pullback? i know you don't like to look at it from short term, but even longer term perspective a lot has changed in the outlook since the election. >> i think there's a constant tension between the outlook for the short term, which is certainly good if the
10:19 am
president's going to spend a trillion dollars on infrastructure, which is going to be far easier said than done and going to a lot of deficit financing he becomes the new john maynard cane priming the pump and that's a good thing for the market in the short term. his long-term policies, i'm afraid, are bad for society and bad for the economy and bad for the market. the gap between the rich and poor, racial -- increased racial tensions, a little less support for our fortress against communism and nato in europe getting in the way of international trade agreements, complicating them. those things are all negative to the market in the long run. so this tension between the bullish short and the i think more difficult long is kind of going back and forth. looks like today, not that it matters to a long term investor at all and it matters even less to an indexer who simply rides the market wave, which has been a hugely profitable thing to do. last year was another great year for the s&p 500 index.
10:20 am
>> yep. >> it beat the international index, beat the average fund manager by significant amount. again. so people are getting that word. and that's what's more important than the momentary distractions. i think that's the right word, of what the president-elect is say i saying at one press conference or tweet after another. this is a funny time in america. >> what would you tell a long-term investor after the rally that we've seen, especially if they're considering diversifying away from bonds to stocks? we've seen quite a rotation there. >> actually, i don't think it's a good idea to change your allocations under present circumstances. the idea of investment allocation is heavy in stocks when you're younger, heavier in bonds when you're older. and i quickly emphasize that when you're talking about the bond position, you have to take into account a valid pension that you get and also the most valid pension of all which is your social security. there's a huge value to
10:21 am
investors capitalize value of maybe $300,000 to $500,000 depending on your particular status. so most people i think should stay the course where they are. and don't try and guess because you're going to be more bullish when everybody else is happy, you're going to be more bearish when everybody else is unhappy. that's a formula for losing. so it's to try and discipline yourself against the waves of emotion that drive the market on a short term basis than the long run are meaningless. so it's just trying to put -- take a blind eye look at these machinations in the market with a blind eye. >> jack, a lot of discussion this week about bonds and depending on your point of view some magical level that would determine whether or not a global bear market in bonds begins 2.6 is bill gross' thoughts. do you think we're at that sort of generational tipping point at last? >> i have great respect for bill. why it's 2.6 and not 2.7 or for that matter 2.5 is beyond my
10:22 am
comprehension. but so either take his word for it or not. i think it's more complicated than that. bonds, i think people forget this about bonds. there's no such thing as a bond bubble. if you buy a long bond at say almost 3% today, and i don't like long by the way in my own portfolio i emphasize about half intermediate and about half short because i think interest rates are just too volatile for me to deal with. and i think that's true for most investors. but if you look at that 3% on a long bond, you've entered into a contract to get 3% on your money for the next 25 or 30 years. that contract will be honored, when the years are all out it's that initial yield that determines your return. and there's just no question about this. so you have to be prepared for lower returns than we've had in the past. but when you buy that bond you are accepting those lower returns. it's not for trading.
10:23 am
i don't know how to do the trading. and, you know, if those who really do know, and i think they're a very small breed if they even exist, have them trade. but not for bogle. >> hey, jack, it's david faber. when it comes to trading of course a lot of those who try to do it in stocks tend to under perform the broader indexes. you've won the war, what you started many years ago of course is now dominant in terms of investors focusing on indexing and etfs, but i wonder as we head into this year with the prospect of a lot of volatility, do you think there's a chance for active management or is it simply done for? >> well, david, that's a good question. and i think people are maybe too ignorant of what's actually going on here. when we say the s&p 500, which was up around 12% last year, beat the average large cap fund which was up around 9.5, you're averaging fund by fund by fund. an individual -- each fund is weighted equally large or small. so you can get very funny
10:24 am
numbers. i would say the index last year was a little bit overrated. and for the last ten years a little bit underrated, but all because of the data. but instead of looking fund by fund you look at asset weighted totals, it is just a simple mathematical fact that all investors capture the market return if the market return is 7%, we all divide up 7%, no way around that. and yet if the indexer divides it up at maybe 5 basis points of cost and the active section of the market holding exact same stocks gets that 7% minus 2%, they only get 5%. that's the mathematics, and that will never change. but the way we look at the data i think misleads a lot of people. and sometimes leads you in the right direction, sometimes leads you in the wrong. so i think the index data will obviously fluctuate much more than the overall comparison to the market. >> and finally, jack, i know you're looking at the broader
10:25 am
indexes here, but there is a lot of people distinguishing groups, winners and losers in a trump presidency. we were talking about pharma earlier. the banks have been such star performers. are there any industry groups that stand out to you that you want to avoid or be a little more heavily invested in going into the next few years? >> you know, honestly, i have no expertise on that. and that lack of expertise i can't tell you how well it has served me over 65 years. you know, nobody knows. i think people ignore the simple obvious fact -- there's a lot we ignore here. that if a lot of people are buying into pharma, guess what, a lot of people are selling pharma. in fact, the exact same number of shares are sold every day as are bought. this is not a great insight, but it's one we often ignore. money doesn't move into or out of pharma, they're all balanced out exactly. so i think we kid ourselves a lot by thinking, you know, we talk about the smart money and a stock picker's market of which there is no such thing because
10:26 am
there's always someone on either side of the pick. i think that's why as david said why the indexing war has been pretty much won. it's simply the mathematics. it's not some pendulum that will swing back. but it's here forever and it's making this mutual fund industry a very difficult place to do business in. we did more capital flow at vanguard last year than the entire industry put together, which means all our peers or competitors maybe had negative flows and we took in i think it will be around something like $300 billion last year. the flight is there. the flight to indexing is there. >> oh, yeah. >> blackrock is doing well. state street's doing okay. the three big three of the indexing world. and the industry doesn't know quite what to do about it. they had a big seminar in new york. you probably read about it, how to deal with index funds. and i think 60 managers showed up. and i don't think they came up with an answer. but they were entertained by the cast of "hamilton." which i thought was, a, ironic, and b, rather questionable
10:27 am
judgment. >> well, i think that that's a consensus trade there. jack, thank you very much. we did see that acceleration into etfs and out of active funds last year. jack bogle, father of index funds. thank you for joining us. >> pleasure to be with you always. >> tweets coming in saying jack bog bogle's a great american. we like that. let's get to dominic chu at hq. >> carl, we're watching shares right now of u.s. traded shares of fiat chrysler, fcau, down 9% in heavy volume trading. this is on the heels of the epa saying it's going to make an announcement. we don't know what the announcement is, however reuters is reporting citing sources that it will be to accuse fiat chrysler of developing software that allowed excess diesel emissions in about 100,000 u.s. vehicles, that again a reuters report citing sources. that's why those shares are now down about 10.5% on heavier than average volume trading. we'll keep an eye on this for
10:28 am
you bring you more details. we're expecting some kind of announcement from the epa latered to. we'll bring those details as well. carl, it's interesting this was upgraded by goldman sachs to a conviction buy just about maybe a week or so ago. so we'll keep an eye on those shares for sure, carl. back over to you. >> we're going to watch that closely. what a week it's been for -- what a month it's been for the auto companies whether it's the news out of ford and canceling production plans in mexico. there's a report out this morning that some of those plants were actually already under construction at the time they were canceled. and those plans move to the united states. but this has a different kind of echo on a week where we got volkswagen news. >> got the settlement, that's right. and some indictments too, i think, or arrests even of some of the executives involved there. yeah. we'll see what the actual news is when we get it from the epa. >> i should say that trump also gave a shoutout to ford and fiat chrysler in his big news conference yesterday. said he hopes general motors will follow suit.
10:29 am
of course mary barra's on his ceo team advising him. so that's a to be continued one for sure. >> when we come back, the president-elect announcing a plan to transfer his businesses to his two older sons. will that be enough to appease his ethics critics? we'll talk about that. by the way, dow down 132 is the worst since mid october now. we're back in a moment. eetttt entsio odaig l
10:30 am
tetetstoerinyore s ua atea
10:31 am
10:32 am
dow didn't have any gains at the open. in fact has eroded through the course of the morning. we're down 145, one of the worst losses -- in fact the worst loss since october 11 9 on the index itself being supported by merck which got an upgrade at morgan stanley. but either downgrades or sell ratings on blue chips. boeing is an example today undere under perform at rbc. disney cut to sell at pivotal and people buying a little bit of bonds today as well. >> little bit of a reversal of the trump trade, the rally that's been working really over the last five weeks after the
10:33 am
election. you see that with goldman sachs taking the most points off the dow right now down taking 20 points off the dow. the dow still down about 150 points there. you saw that reversal come early, guys, in overseas trading when the dollar sharply reversed heading south. pretty strong decline there overnight. and of course the dollar had been strengthening on all of this pro-growth hopes. a lot of people overseas citing the fact that trump didn't talk about infrastructure spending or rolling back regulations or corporate tax cuts. and that's been the basis of this rally, david, which makes you wonder it's all going to be about word from donald trump, word from congress trying to gauge the probability and how realistic all of these hopes that have been built into the market over the last month or so are going to be. >> right. the fact that perhaps he didn't talk a great deal yesterday about tax reform, which is a key. or infrastructure spending is that figuring into investors beliefs that perhaps those are not front burner issues.
10:34 am
i don't think that's the case necessarily, but what we've really heard more about is the repeal and replacement of the aca. we even heard about supreme court justice and not necessarily things investors are very much focused on which are going to move the needle namely tax reform, dereg and infrastructure. >> yeah, the lead in news summary is trump disappoints on reflation theme. >> yeah, the reflation trade. yeah. >> we'll see what happens this afternoon of course. let's get to sue herera and get a news update. good morning, sue. >> good morning, carl and everybody. here's what's happening at this hour. the u.s. military in afghanistan says its investigation into a november fire fight with the taliban showed 33 civilians died in the raid in which u.s. troops fired on afghan homes. the probe followed claims that civilian deaths had resulted from u.s. air strikes. belgian authorities have charged two people with supplying fake documents to an isis militant involved in the november 2015 attacks in paris. prosecutors say belgian police detained a man and a woman
10:35 am
through a house search on wednesday. the first of 100 airbus planes that iran is expected to receive as a result of the nuclear deal with the west landing in tehran after a flight from airbus headquarters in toulouse, france. the 100-plane deal worth about $18 billion. and cvs is now selling a rival generic version of mylan's epipen at about a sixth of its price. it will sell a two-pack for $109.99 after cutting the price nearly in half. the lower price is now available at all cvs stores. that's the news update this hour. sara, back to you. sue, thank you. let's send it to jackie deangelis for a quick market flash here. >> hi, sara. i just wanted to bring to your attention this move we're seeing in natural gas prices. a spike this morning of more than 6%. you can see we're trading at 3.42 right now. that's because the department of energy released its inventory number, a draw of 151 billion cubic feet. that was more than analysts were
10:36 am
expecting. lez u less than what we saw last year, less than the five-year average and temperatures are more mild. so why is nat gas going up right now? total stocks have gone from 4 trillion cubic feet at the start of the season to about 3 trillion cubic feet. that is what analysts are worried about right now. we're trading pretty much smack in the middle of the range in the $3 and $4 range we've been in in the last month. sending it back to you. >> jackie deangelis, thank you. when we come back, the senate announcing its first move to repeal obamacare. we're going to go to washington and get the heads up on this resolution passed late last night. stay with us.
10:37 am
10:38 am
: the senate taking its first steps to repeal obamacare this morning. our john harwood is with us from washington. good morning, john. >> good morning, carl. we've had the senate pass its budget resolution, which puts the obamacare repeal at least the tax and spending provisions of it on a fast track that requires only a simple majority vote. of course republicans have 52 votes in the senate, they don't need any democratic support to
10:39 am
repeal those tax and spending provisions. and one of the less noticed things about obamacare repeal apart from the whole issue of who loses coverage and what happens to deductibles and premiums and all that is there will be a very large tax cut for high earners from that repeal. that's because of provisions in obamacare for surtaxes on hospital insurance and also on unearned income for the medicare fund. now, that amounts to if those two tax cuts are repealed for the 638,000 households that earn more than $1 million a year an average tax cut of $49,000. that's almost as much as the median income for all households and for the top 400 households an average tax cut of $7 million. that's according to to calculations made by the center on bundget and policy prioritie. interesting potential collision with this statement from treasury nominee steven mnuchin on "squawk box" just a few weeks
10:40 am
ago. >> any reductions we have in upper income taxes will be offset by less deductions so that there will be no tax -- absolute tax cut for the upper class. there will be a big tax cut for the middle class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it. >> now, steve mnuchin was talking in that interview about tax reform, which is going to move separately. don't know if he would intend to apply that principle to an obamacare replacement plan. but president-elect trump at his news conference yesterday said he wants repeal and replacement to be done simultaneously. he said that plan will be offered as soon as tom price, the georgia congressman who he's chosen to be health secretary is confirmed by the senate, guys. >> we're going to watch that along with a bunch of other tracks here, john. thanks so much. confirmation hearings continue on capitol hill again today. russia relations still in focus. and for that we'll bring in former assistant secretary of state ambassador lincoln bloomfield. mr. ambassador, good to have you
10:41 am
with us. good morning. >> good morning, carl. >> we all watched rex tillerson yesterday. the general take this morning is that he made some attempts to be more hawkish on russia than donald trump certainly has been. did you see it that way? >> yes and no. i think secretary designate tillerson showed he's a seasoned executive. he's been around the world for a long time. he's dealt with russia. he's certainly trying to show the senate that he's separating from his previous life, 41 years as the ceo of exxonmobil and he's representing american interests. as for president-elect trump, you heard him say yesterday he might have a good relationship with putin, he might have a bad relationship with putin. i'd be very careful if i were putin because if you cross president trump, i don't think that it would be a very good relationship. >> why not? >> well, because i think above all president-elect trump wants to be successful. he wants to restore u.s. national security. if putin embarrasses him by threatening the baltic states or by pushing ukraine too far or by committing more atrocities with
10:42 am
his forces in syria, this will land on president trump's desk. and it will put pressure on him to stand up for human rights, american values, american morals. things that he says that his administration will put at the center of u.s. foreign policy. >> how would you advise the incoming president to time if he were going to have one at all a summit with putin either here or there? >> you know, it may be that they meet whether they choose the timing or not in a g20 meeting, there may be summits in the spring that will inevitably put them in the same room. no one can advise mr. trump how to play these major transactional actions around the world. he's clearly trying to put pressure on other actors saying you're going to have to do better when i take office. what have you got for me? what have you got for the american people? i see him essentially putting negotiating positions forward and then he'll see how people
10:43 am
respond to his power. it's a little bit like when reagan was getting ready to take office. people were afraid of what he might do. and they were more solicitous of his potential influence. >> i'm trying to think of some of the market angles here, ambassador bloomfield, and one of them is that investors want to see some of the republican pro growth policies come to fruition. and for that you need agreement within that party. do you think that the president-elect along with rex tillerson went far enough to sort of calm down some of the hawks within the republican party, lindsey graham, john mccain, when it comes to russia? or is this going to be set up for a collision course on this issue? >> it's a good question, sara. i actually don't predict a collision course. i think that president-elect trump will find that senator mccain and senator graham and others around them are actually very strong allies for a resolute u.s. foreign policy that's based on american principles and american values and international norms. i think that's going to happen.
10:44 am
it's just my opinion. so i'm not sure that they're on a collision course. the other major element of the trump presidency is growth. and i think that above all i think he's going to put in terms of trade and economic well being at the centerpiece even of u.s. foreign policy. that will be a big culture change for the agencies that do foreign policy, state department and others. >> sure. >> but i think president-elect trump can be relied onto look at the growth rate and ask what are we doing to stimulate the american economy no matter what else he's doing. >> one last point yesterday tillerson made about sanctions in his view they're intended to harm american business even though the intent is to disrupt the flow of american business to a certain country. did you see -- how should we be reading sanctions right now? is that going to change? >> you know, i thought the two sides were really talking past each other yesterday. on the one hand, you know, senator rubio was making the point, do you stand for human rights? i think secretary designate tillerson will learn that you
10:45 am
have to say a few words about your devotion to human rights. but he was trying to box the president in before he takes office to commit to decisions that he hasn't made yet. and i think tillerson showed some seasoning as an executive. but he also shows that for many years let's go back to the '80s and '90s the sanctions that were imposed on iran and libya, ilsa, iran libya sanctions act were all basically restricting u.s. private energy companies. i'm not saying i disagreed with that. but the fact is it was the energy companies that took the hit instead of, you know, the congress putting up foreign aid or committing the u.s. military. >> sure. >> they didn't feel any pain. they stuck it on the energy sector. so i can see where tillerson reflects a little bit of that attitude. this is a dialogue that needs to come together. they need to find out what they agree on. >> yeah. well, we definitely know where he's coming from that's for sure. mr. ambassador, please come back. thanks so much. >> my pleasure. >> lincoln bloomfield. >> when we return, financials
10:46 am
are in focus as the big banks get ready to report earnings tomorrow. we'll discuss with the ceo of kbw straight ahead. inmitty. cainl tr l
10:47 am
10:48 am
american stocks outperformed global markets for seven straight years. can they make it eight for eight? we discuss tradingnation.cnbc.com. more "squawk on the street" coming up.
10:49 am
financial stocks rallying post election up 22% with bank earnings just around the corner. and joining us now for a preview of these earnings is tom michaud, ceo and president of kbw. welcome back. >> thank you, sara. >> banks have been the hot spot of the rally way outperforming the broader market. what do investors need to hear or see in the earnings reports which kick off tomorrow to keep buying this sector? >> well, first of all, the third quarter was a pretty good quarter for the banking industry. and the banking industry for several quarters in a row now has been earning -- growing earnings at a faster rate than
10:50 am
the overall market. we think that's going to continue. we think that banks are going to grow earnings per share depe depending on how big you were anywhere between 6% and 9%. 3% for the overall market. so if you continue to see good revenue growth, net interest margins, we think that's going to keep some wind in the sails of the rally. >> what about trading volumes? what do you expect there? >> we think it's actually going to be a very good quarter. if you look at thick, we think this will be the third quarter in a row you've seen double-digit increases. that's the first time that's happened in five years. so we think there's going to be a lot of good news in the revenue story for the bigger banks. >> if you had to ladder the tailwinds, right? rates, curve, deregulation. how would you prioritize them? >> so, that's a fantastic question. i'd do it in the following order. number one, higher rates with a steeper curve is by far the most important factor. the second is potential corporate tax reform, especially if you're mid and smaller size. generally those banks are full taxpayers.
10:51 am
the third is regulatory reform, but all three of them are really positive. >> kind of a dream team within the cabinet when it comes to wall street. a lot of goldman sachs alum. do you think that actually translates into more wall street-friendly policies from the trump administration? >> i'll tell you, my view is that we don't even need friendly. we need neutral. the regulatory response to the crisis has been so aggressive, and we've had the rollout of dodd/frank for the past five years. moving it to a neutral position, which i even think had started before the election, but if we see that continue, i think that alone's a -- >> what does that mean, a neutral position, in terms of actual change to dodd/frank? >> so, dodd/frank was written and never amended, and it's probably one of the major pieces of legislation over the last century. even barney frank has said maybe we didn't get it 100% perfect with the writing. let's do things like look at the volcker rule. right at year end, the fed staff said the volcker rule may be
10:52 am
causing less liquidity in the credit markets. that's a big deal. and i think we have to look at it and say is it doing exactly as we intended, for example. >> what's going to happen on the capital markets for the bigger banks, particularly on the debt markets, if you can't deduct interest any longer? i guess there's going to be a shift. >> there's going to be a lot of shifting and i think there's going to be volatility around that because a lot of individuals and corporations are going to have to change strategy, and i think the american banks are going to be in the middle of it. the other thing i'd say that's big that's happening is the european banks are still in the process of restructuring. i think one of the stories of the next two years is going to be american banks picking up market share on the global stage. so i think the big global u.s., like morgan, goldman, jpmorgan and citi, are going to pick up market share as all these changes happen. >> and consolidation itself, something we haven't seen since the crisis, for obvious reasons. the littlest guys probably can't, obviously, do very much,
10:53 am
but there seems to be a theme we'll start to see, especially among the mid to smaller tier. >> i think it's going to happen. the biggest banks are at the deposit cap and i don't think that regulation or law will be rolled back, but i think you'll see more regional champions. we advised on a deal on monday this week, columbia bank systems in the pacific northwest acquired pacific continental. they're one of the examples of a regional champion doing a roll-up. and i think you'll see more of that around the country. >> which ones are most leveraged to being able to gut your compliance department, right? let go of a bunch of lawyers and all that red tape? >> yeah, i don't know if i'd go that far. that's in the friendly -- when we talked about the pendulum going to neutral, we just need it to start getting worse. i'm not sure we're going to start gutting compliance departments. >> really? >> i think there still is going to be a heavy hand. but remember, we're just still implementing many of the dodd/frank legislations this many years past the crisis. we just need the intensity to stop and roll back. there are some specific things that can happen -- governance on
10:54 am
the cfpb, lift the $50 billion threshold. i think they should roll back the durbin amendment, for example. these things could be substantial to help the economy and help the financial system. there will be more loans for people, if it happens, but i'm not sure if you're going to see that aggressive where it will be gutting of compliance. >> there is also hope that the federal reserve starts picking up the pace here of interest rate increases, which would help with profitability. how many hikes does it take to really filter through to the bottom line in a meaningful way? >> it's immediate. it's immediate. i think that you will see -- so, this 25 basis point increase that we just had in december, it's a little bit of a lag, maybe a quarter or two lag, but our call is that after many years of declining net interest margins, 2017, by the end of the year, you're going to see improving margins. and that is just a headwind that's going to turn to a tailwind that's going to be good for the industry, but it's also going to be good for the whole economy. remember, financial services is the larnegest contributor of th s&p 500 and the biggest sector of the s&p 500, and i think it
10:55 am
will make these banks more likely to want to lend. >> right, although we don't want them to take on too much risk, i would assume. >> no. >> i mean, capital's going stay more or less where it is, right, to your point of neutrality. >> correct. and i think the big change from the crisis is before the crisis, the bigger banks had less capital than the smaller banks because they're supposed to be bigger and better diversified. dodd/frank said now you have to have more capital than an average bank. i don't think that changes. and i think that's probably good, and that's probably part of the reason why the american global banks are going to pick up global market share, because they're ahead of the rest of the world. >> well, you've got skin in the game, but we haven't heard you this bullish in a long time. tom, thank you for being here. >> thank you. >> tom michaud, ceo of kbw. phil lebeau has been covering delta in atlanta and we go to him now, i hope with some clarity on fiat. hey, good morning, phil. >> reporter: carl, we've been talking with some sources familiar with the situation involving fiat chrysler, about to be accused by the epa of
10:56 am
having software in about 100,000 vehicles that allows greater than acceptable limits of diesel emissions. the people we're talking to familiar with fiat chrysler's response is that they plan to contest the allegations and also plans to point out that these vehicles do not have diesel emission defeat devices in them. that's a big difference from what we saw with volkswagen. they also believe that these vehicles do meet the epa emissions standards. and finally, perhaps most importantly, you can expect fiat chrysler at some point today to say that it plans to work with the epa team of the upcoming trump administration to prove their case. so that is a response to the epa. and again, we're going to be hearing from the epa and those allegations in about five minutes. guys, back to you. >> all right, phil, stay close to us. phil lebeau in atlanta today. meanwhile, dow is down 154, not far from session lows. don't go away.
10:57 am
e tststgl mee's gi
10:58 am
10:59 am
to show you what's happening with stocks here, because the sell-off has accelerated this morning. the dow's down about 160 points. s&p 500 down 0.8, the nasdaq down 1%. we're seeing an unwind or reversal of some of the trades that had been winning after the election, financials, for
11:00 am
instance. the best performer post election, leading the declines today. this, of course, comes ahead of some big earnings reports, including from the likes of jpmorgan, bank of america and wells fargo, out tomorrow morning. the nasdaq had been coming off of five straight days of record closes. it is down the worst. one notable outperformer, though, is, of course, amazon, announcing today its intention to create 100,000 full-time jobs. and with that, lot to talk about on "squawk alley," carl. i'll send it back to you. >> absolutely true. thanks, sara. good morning. it is 8:00 a.m. at amazon headquarters in seattle. it's 11:00 a.m. on wall street, and "squawk alley" is live. ♪

76 Views

info Stream Only

Uploaded by TV Archive on