Transcripts For CNBC Squawk On The Street 20171017

Financials driving the premarket following those beats from goldman and Morgan Stanley plus, netflix sharpens its fangs. The streaming giants beats on subs and promises an 8 billion on original content next year. The stock is poised to hit all time highs. Trump versus insurers, the president calling out insurers and drug makers, both unh and j and y have results this morning. Well get to that. But we are going to start with the banks. Goldman sachs beating expectations as investing bext revenue rising 17 and morgan stan lids exceeley exceeds on td bottom line. Its a good time to be in the Wealth Management Business Revenue there nearly half of the total. Dont forget has the president tweeted how many electric trillions have been added . I like the fact that Goldman Sachs did not report disappoint on this fixed income trading ip hoping Goldman Sachs reads the release and comes out more positive on the Conference Call. Last time they had good numbers but they were very sir couple inspect on the Conference Call this makes it they should be less particularly with how much stock they bought back, now under 4 million shares and roe is good. What i like about goldman, tangible book value is 200 bucks. You close the building its more than 100 i think goldman deserves to be higher and Morgan Stanley and boeing bringing the dow down because of bombardier being saved. Lets understand, this is a market where at the beginning, netflix was up 4, unchanged and bears shoot it down and want to be able to color the trading then buyers come in between 11 . 30 and 1. Quoegoldman, the last quartea not a good quarter and you point out the Conference Call but it was not a good quarter. Right. This youre right, you know, fixed income currents and execution, 1. 45 billion in revenue, 26 lower than last year. Its more than most. But they had been retooling their business or trying to at Goldman Sachs to move away from Hedge Fund Flows and or to change its mix because frankly they relied a lot on the needs of hedge funds and particularly in building particular products for them that had very high margins and that proved to be more difficult and has proved to be more difficult overtime to maintain whereas the bigger institutional flows didnt always come to them they do but not as much. Thats why morgans model was better goldmans model is in conflict with what the Justice Department wanted to some degree and what i like is that they are transitioning, doing more lending, fixed income was better even trying to get to the consumer but the markets, you know. Its early. Its early. Early for Netflix Goldman wasnt as bad and morgan was consistent, bank of america trading up jp morgan will go to 100, even the dog that is wells fargo, youve got will flying out there to see sloan it could be watershed. Goldman was the only one of the big banks that analysts thought would see a drop in earnings so we got the surprise a couple of interesting story lines, m and a fees up and 14 at jpm. Their private investment, jim, about a fifth of which are equity stakes, up 35. They have a lot of irons in the fire the problem with goldman has been that they were too smart during the Great Recession therefore they became i thought a target were kind of well past that tony west is at pepsico, just no real correlation there like you pointed out. The group is back. Does goldman deserve a 15 multiple you put a 15 multiple, you have a 300 stock. But youre not getting a 15 multiple. Im giving it a 15 multiple. In part because the recent performance has been uneven to be kind. Have you seen the rest of the market whereas frankly Morgan Stanley for a brief time whos market cap eclipsed that has been less uneven in part because of the move towards Wealth Management, its been seven or eight years. Its a great niche, fabulous niche. Turned out to be large. Thats an interesting comparison. Look at that. Remember when Morgan Stanley was 12 and one of those outfits that tried to influence the market said it was going to zero and Morgan Stanley reminded us it wasnt at 12 going to zero. That was a good call that was not early by the way, it was timely. To carls point, m and a has been a strong point, it has not been a great overall point for financial service, decent base of deal making not quite what we saw last year domestically. How about tax reform . They did widen their lead. Yes. Youre if that comes back in Capital Markets they certainly can benefit. Im getting you to move here on goldman here, just a little bit. If it were like olympics, youre giving it a 5. O6 instead of 5. 3 bulgarian judge in there, weve got a 7. Bul gar yan s can never be trusted regardless, its going to help the dow get closer to 23 k. Boeing, airbus takes a stake in a failing Plane Company and boeing goes down six everyone wanted boeing to go down you know what it does after it goes back up. Goes back up. They did say the deal is questionable between two heavily state sub sid diesed competitors. These companies would not exist. Boeing is actually profitable. The other Companies Jobs are like the wpa for countries Works Progress Works Progress for those who arent aware. I know what Works Progress administration looks like. Absolutely, we could use a new one in the country right now by the way. Whatever happened to infrastructure. Infrastructure is better than ever i see the new york state ads, were doing great. Nothing happened. Theres a lot of buses being used because subways are broken down. This is true in new york. Bus line just got announced on my street our street in carol gardens thats night. I dont know what to do about it buses come through, like 50 miles an hour, youve got you look both ways, doesnt matter, they hit you anyway. I like the buses the drivers are fabulous, but slow down, buses. Lets get to netflix. As jim says it is off the highs of the premarket, subgrowth up 5. 3. That beats revenue above consensus. Reed hastings talked about the quarter on last nights earnings call. Our focus is on doing even better content and Getting Better partnerships and mobile streaming. We have to have the discipline to keep doing what were doing at many times the scale and if we do that, things will work out really well for our Global Customer base and thus for our investors. The guidance for q4 subs above expectations, although the journal today looks at longterm debt up 45 since the beginning of the year. They could do a 2 billion right now convertible bond stock will be down because what happens there was a little too many enthusiasm after the bell and youve got to wait until the stock comes in under 200 you can let them pick it up. The reason the stock is not going up is because the overall unbelievable theme of the analysts, even though they all raise price target how long can this go on . I point out it can keep going out because its a 80 billion company that represents the only International Tv network worth 100 billion. Let the traders knock it down and long knives be out and then pick it up. They are being somewhat conservative some believe in the u. S. Subscription. I agree, domestic. In part because of the price increase so they are taking that back a bit what otherwise had been the case because fewer people may take it up thats unclear and many people think they are being very conservative. I think with Stranger Things 2. I revealed early on pablo was killed i thought people knew pablo was killed. In narcos in real life. Narcos 2 tracks real life. You mean escobar . It wasnt pena, doesnt not look anything like you we dont have to give too much pena does not look like you at all except for the show he was in game of thrones. Ive got to get the glasses and hair with me. Aviators. I have my dollar store as we sort of deal with the overall eco system of the way people watch television, look at ma mustache. And the flamingos. You come home and see whats on netflix as opposed to going through the bundle. After i have watched to see how boring a Football Game can be people want to stay star spangled banner how did you move from netflix to football . Football is the only thing still being watched in real time maybe the world series, maybe not. Nba starts, i dont know whether people watch nba or catch the scores on this. Jimmy kimmel gives an interview to variety and says its ridiculous the way we Pay Attention to ratings because in his words, ten times as many people are watching on a device after the fact. Yep. Its engagement. I agree. It needs to be measured in a much more effective way. I pulled up with jimmy this weekend. I visited with jimmy as they say in the booth in the nfl. Hes doing a weeklong show in brooklyn what hes trying to do is trying to raise what i regard as being the excitement level of the traditional talk show that were all kind of trying to make it into an event. I pulled up with jimmy. You pulled up with him. What does that mean . Bringing the show to brook n brooklyn. I had a cocktail he wasnt drinking, i was drinking i saw there was jimmy. Hey, how are you doing, buddy . He butdy buddyed me and i palled him. Pal, im doing well. It was a barbecue, my wife got me in. Sounds like a netflix show right there. It was, hey, jimmy. You know you pull up with him and who did you visit with i didnt visit with anybody lets get to break, well talk about j and j on the president s remarks on drug prices and look at the premarket. Industrial production in just a couple of minutes. At pgim, we see alpa in the trends, driving specific sectors of out performance. Where a rising middle class powers a booming auto industry. A leap into the digital era draws youthful populations to mobile banking and ecommerce. Trade and travel surge between emerging markets. Everyday our 1,100 investment professionals around the world search out opportunities for alpha. Partner with pgim, the Global Investment management businesses of prudential. Whentertaining us,es getting us back on track,hing . And finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing xfinity mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit or go to xfinitymobile. Com. Got some data headed our way. Well get housing index at 10 00 eastern time before that, well get Industrial Production. For that well get to Rick Santelli in chicago. Good morning, carl, Industrial Production, best unitization hitting the wires as expected on Industrial Production it is up. 3 last month was a dismal month. Two tenths up to seven tenths. Were looking for a number slightly north of 76 but ended up with 76 flat. That follows the downwardly revised but it is an improvement but last month was 76. 1. We continue to monitor the curve flattening and the shortened is twoyear yields move higher to areas we havent seen since the fall of 08. Back to you. Thank you for that. Talk to you in a moment. We have two dow components with numbers. J and j did beat on the top and bottom line. The cfo reacted to yesterdays complaint by the president that drug prices are too high in this country. Drug prices as you probably know represent only 14 of over all Health Care Costs and whats lost in the discussion the immense benefit they provide patients and help reduce the other 86 of the cost that were not talking about. Pharma was especially strong as jeffrey said it would be. That was a terrific number. Waiting to hear what Goldman Sacks suggested sell on. Consumer still going for product, but internationally starting to gain the stock will be down in early once the stock opens, i believe because they did not guide up for the second half again, youve got to buy the stock. These things are. That stock was knocked down off the subsidies going away even though it should have been because they are not in aca. The pattern the first hour, hedge funds come in and blast stocks down because they find Little Things they dont like. Like j and j they didnt like necessarily, consumer in u. S the buyers come in because the stocks arent expensive. When you say not that expensive, give me examples what youre talking about and why i shouldnt be worried about elevated miultiples. Given the fact it does have a real path with return on equity being strong and efficiency ratio being very do you think citi should not sell its funny you came to two financials. J and j is a relative you want to tall allergen after the disappointing restasis i could say its very easy to see j and j at 17 times next years earnings. Does that make sense with the best company in the world, it doesnt make sense it should be at 17 when they have a 15 pharma growth, which is extraordinary. 15 , do you really give it a 17 the journal this week takes a look they ask why were not even higher after eight years is it like the experience of going through two bubbles in the past couple of decades. Yes, it is. People are afraid to trust. Thats where you are. The alpha lows are extraordinary. They are going into certificates of deposit which is a really tough call i think that the class has been so discredited, you have these etfs that are gym micks and that sucks up more money. I think the answer is i have often felt like a tri ser tops because i feel people are fed up they think stocks are manipulated by the rich. You had a eightyear president who felt the stock market was a playground for the rich. Youre not talking about millennials not participating, you say its broader than that. Someone else would hear you saying those things and look at the market we show up and talk about new all time highs whats the Problem Companies are buying back a lot of stock and i will institutional money that comes in and worldwide flows are good for you. You do not see that kind of aggressive price churnings mobile its the anniversary maybe thats a good thing not a bad thing. I like it. You could argue 1999 things got ahead of themselves. Yes. Great deal of enthusiasm. The the nasdaq we got too excited and this week selling nine times earnings, a lot was japanese money coming in nowhere near back all of their banks, i covered banking back then, mitsubishi i thourpt they were going to buy jp organ. They were the big banks. Long term bank of japan you would rather have the current environment . I like the current environment. Im worried about everything because i come in and boeing is down five. If you say you liked boeing yesterday. Didnt you see the bombardier coming its being crushed by boeing airbus is being crushed by boeing mule berg is doing a great job you may not have liked the way up almost 70 this year. What was it doing selling so low because people thought the dream liner would never be profitable its extremely profitable. Dont forget the defense line. Theres a lot to hawaiian punch. Well get cramers mad dash in a moment and count down to the opening bell as we watch the premarket, relatively strong tmobiles unlimited now includes netflix on us. Thats right. Netflix on us. Get 4 unlimited lines for just 40 bucks each. Taxes and fees included. And now netflix included. Has grown into an enterprise. Thats why i switched to the spark cash card from capital one. Now, im earning unlimited 2 cash back on every purchase i make. Everything. Whats in your wallet . Weve got a mad dash going for tuesday. Fairly crowded floor as we wait the opening bell about seven minutes from now you want to talk a little ge weve been talking a lot. I finally saw a piece that is reminiscent of something you and i talked about, largely in 2016, not 2017 Goldman Sachs comes out and says its time for ge to shrink, to grow now they cant one of our favorite catch phrases. They cant do that with the current cash flow unless they trim the dividend. The stock is reflecting a dividend trimming where i would say probably 60 cents. I dont think ge can continue to maintain that dividend and shrink to grow i do feel so we know, lets get the understanding, they report this week, id say no pain without gain is better than shrink to grow they have to talk the numbers down i think they have to tell you if they do cut the dividend that theyll have enough cash flow to be able to do everything they want to do in 2018 cash flow does not we do not meet for the dividend as currently stands financially there are those who say they havent appreciated cash enough over the last few years in terms of it and of course we talked so many times about buying things high when youre buying streams at very high multiples, its not going to help you in terms of contributing cash. Thats where they find themselves. In the last infrastructure buy was classic, top of the market bought oil and gas at the absolute top of the market and sold finance i would argue the absolute bottom of the market. Even sold entertainment at what was a bottom they sold that in a terrible price and let themselves with het care, which is the standout where flannery worked, got the numbers back but locomotives dont fit in, anymore. Maybe they do get smaller. They should get rid of locomotives. What i keep hearing, nothing is sacred. Im not sure what that means but he says nothing is a krsacred. I think thats good there have been so many wrong moves. This has been the worst industrial of our time. They have a big Analyst Meeting coming up and i think flannery can straighten it out but they have to be more realistic. I think dont stop at eps and prove accountable for ditch dend flanner i didny has to correct y they report. A way neither you nor i is proud of its done. Time to do it on cash eps. Shameful. All right, were going to keep an eye on ge and so many other stocks that have reported earnings or companies that reported earnings after the llbe and this morning when we come back on squawk on the street. Volatile markets. Something we all think about as we head into retirement. Its why Brighthouse Financial is committed to help protect what youve earned and ensure it lasts. Introducing shield annuities, a line of products that allow you to take advantage of growth opportunities. While maintaining a level of protection in down markets. So you can head into retirement with confidence. Talk with your advisor about shield annuities from Brighthouse Financial established by metlife. Squawk on the street. The opening bell in about a minu minutes time. We work through Bank Earnings and well get ibm tonight and nafta talks will wrap up and watching the one year yield, 1 1. 42 odds of a december hike are 93 . These banks are reflecting that every day we come in, a tad higher and ive got to tell you, i think that is the most under valued group in the market the most overvalued remains the retailers. Why . Because of amazon. When you see houston offline and florida offline, thats good for amazon. As long as ups and fedex can deliver. Those stocks have been fantastic. Home depot is the other one, dont mean to you know what is the most hated stock, that could turn around. I like what im seeing in terms of selloff at the opening netflix coming in. They are joking around with the ugly sweaters. Yeah wait for it to come in, not to the packers level. We dont he raises price target thank heaven hes a nice guy that call has been perennially ridiculed. If he wasnt the nicest guy in the world i wouldnt even mention it. Theres the opening bell. Celebrating its 130th anniversary. Well talk to the new ce oext in a half hour. Investors celebrating the launch of the mega cap multifactor index etf. Netflix is going to fight at this 200 level, jim. Its a battle because people dont like the fact that in the end they are upping how much money they are going to pay when we thought they were paying too much before and dont like the dividend i have to tell you, when you go over the substance of the call, what are they saying we welcome everybody to come in this the more the merier. You know what it is . They do a happy call people want glum they want just yeah, another tough quarter, competition is really great and they want to hear all of that stuff and hastings wont give it to them they dont see any impact from certainly weinstein and dont expect to see much impact from the loss of disney. No, people are saying, look out for disney i dont know look, cbs bought saw next to bob kraft with the big patriot victory, cbs bought back a huge amount of stock and what has it done netflix offered a huge amount of debt and look whats that done people are afraid of missing the next amazon. This is an 80 billion Company Growth versus not a growth company. Its the key there. Lets tell the truth. Criticized many times the Media Companies that had enormous amounts of cash flow and used it to buy back stock. Not really perhaps when you look at a viacom, for example, contributing to the business to make sure that they future proofed it so to speak. Do you go to movies at all . No, i dont go to the movies anymore. You know why . Because its 12 bucks and 12 bucks, where you been, its like 15. Youve to buy it online. You get the popcorn and candy, its another 12 bucks have you been to netflix its like its less than one movie and i get Stranger Things 2 and Foreign Language programming and im aware. And for like less than going to the movies. Foreign language are you a big consumer of Foreign Language programming . Yes, thats lithuanian language records, 1968 jim, some industrials having trouble, eden, freeport at the open we saw free port down, seeing a reshuffling of the guard, negative notes. Nafta talks didnt go well. Theres a real belief frankly a real belief that emerson is the winner in this group i see the last few quarters they have missed on the dental line if they solve the dental line people will say, wait a second, why are we throwing it away ahead of earnings. But the selling seems to be a bit of an overreaction today but there is a belief that tech has moved too far and belief that the industrials have moved too far. Netflix was up five and now its down let those come in. Theyve had big runs industrials big runs tech big runs. Tech and materials are the biggest gainers for the month. Telecom and energy have been the biggest lagguards and ulta is getting a reprieve. Morgan stanley taking up 50 is a good sign of a Company Stock hasnt run big the one that is the Battle Ground is lamb research, added to Merrill Lynch u. S. Route 66, something going there, its october 17 and which last i looked is today, its up 1. 60. And heres the problem, last time they were on, they came on understated ceo and stock went down 14 points after a blowout quarter. Now look at it, its up huge be careful the ones that are running into the quarter have had some problems and the ones that havent, havent had fewer problems have you seen granger . You know, granger has run anywhere. Granger, yeah. For lowering and lowering, they beat the numbers. Granger works. Ever been to granger fabulous place to buy equipment if you own a restaurant. I havent had the need, havent opened a restaurant unlike you. You come in with me on my new one . Sure, done. Ive got a new one. Small plate italian. Really . Thats on the drawing board. Back to netflix, one moment as we watch it down, 8 billion next year in content spending dwarfs any other of the companies out there. I think amazon may come in second and hbo third. They are critical of amazon on the Conference Call. Its a staggering sum of money for one company to be spending on content and most of it im not sure the percentage wise, i think on original and rest still be distributed to those for buying the likes of what was available to them. Disney will not be in the not too distant future as they move to their own direct to consumer. I think the crucial line in that was not how much they are going to spend but how Reid Hastings feels they are not spending nearly enough people dont like, its asking questions, its kinds of like murrow meets charlie rose. Netflix is going down and people look at is the price target and come back in versus a j and j, which im so glad is up. When Goldman Sachs put the sell on it, that was rude that was rude. You thought that was rude delivering 15 growth thats double zblsh speaking of Goldman Sachs, it is down. I had a feeling not a lot you pointed out Morgan Stanley, which is up 2 and interesting, that Little Market cap raise between the two is very close, neck in neck. I knew they would come after goldman. They are not coming after that but the reaction is not uniformly positive, though you were quite positive on the quarter. Yes, because i am and i think that ive i think that the quarter they are going to speak candidly and i like candor but it does tend to send a stock down its a competitive environment within quarter theres been some dissection of their value at risk, which they are being rather cautious, jim theyve been that way remember you know the previous cfo. He was a very important man there, thats a big change to chavez significant. Chavez, hes going to be very conservative and by the way, hes a quiz, mr. Jeopardy and mr. Pena, mr. Watson what company has on the board vinier and has almost tripled in the time since he joined the board . I know this im not going to get it though is that an o were playing charades now, carl. Im for getting hair, a lot of hair. Square. Square, right. Part of the investment thing i was mentioning, revenues for private investment up year on year includes things like equity today is builders eninnovators. Yes, i happen to think that yes, the loan growth from the markets isnt going to do it yet but the tangible book value and amount of stocks they bought back and the other thing about goldman. The window i told you i like Foreign Language you know what that is . Open the window. Open the selling window and when they open the selling windows, partners will sell. I know what defen strags is. Thats not a word 40 cents beats by a penny but net income year on year down 40 . We talked about their demographic. It is ive got to tell you when i went to the harley store, i brought down the demo. Its amazing, you see a group of motorcyclists go by and all 75 years old. Like senior living. Senior living motorcycle club, now its like the warlocks. They still look pretty nasty, i have to say. I love has a dog named harley, my dog lost a tooth yesterday. Let nvidia come, hes grog gi. Hes groggy . Just quickly did want to mention viacom, weve been following closely people are continued talks but no resolution at this point in terms of a new carriage agreement between the two. Interesting note out today from Sanford Bernstein or last 24 hours going through the economics, thinking about dropping viacom all together what you do end up with if you end with a deal will be very important. Are they relegated to a more expensive tier or are they on the general the large regular priced bundle will be a key. But every one of these negotiations takes on more and more meaning in the current environment. Because it seems as though investors are waiting for that moment when one of these major Media Companies finds itself locked out or shut out or simply they say no more yes. And so when they come up, didnt happen with disney will it happen with charter and viacom well see, they continue to talk which is a good sign. What did you think of the tmobile bundle with netflix people said its mature, going towards the bundle we love the bundle for disney and hate it for netflix. United health, can i just say, you look at the cash flow on 7. 5 billion, return on equity down 22. 5 this is not a they are one of the biggest stocks in the world. Revenue 21 for opentum, this is a ceos First Quarter. But the First Quarter comes out hot. How about flannerys First Quarter versus this guys First Quarter. Well find out. How can you grow that 22 earnings per share from operations plus 13 unh, j and j, these are companies that im saying are under valued, these Gigantic Companies unh, umr is our insurer they deny mris. Let you demri. Ten cents on the dollar getting back. They are betting youll never get sick and live to 100. Its an abomination. Its an abomination yeah, the Health Insurance. You are with trump. I knew it. Unh is hes protrump. Unh is leading the dow and ge is the lagguaard actually travel eveers is. 25 points from 23,000, carl good morning, happy tuesday. Lets look at the sectors that are moving i think the important thing is banks have been moving side ways for a while now. Since the earnings numbers came out, thats a very typical pattern were seeing thats happening again today. Biotech has been a Leadership Group on the upside. We mentioned industrials being a bit of a laggad. Semis hit the highest level since 2000 but down fractionally today. 25 points from dow 23,000 and seems like just a short time ago we were at 22,000. Remember that, it was the beginning of august. Just a quick look here heres the last 1,000 points, price weighted indexes, boeing, caterpillar, Goldman Sachs and 3m, up about 600 points of the 1,000 points weve seen in the dow from 22,000 to 23,000. Chevron, nearly another 100 points seven companies, quarter of the dow are responsible for 70 of the gains. That is not unusual by the way when you have big gains over very short periods, usually get a few companies that move up better than everybody. Earnings today, all of the big players beat, all opened on the upside goldman now trading down as you can see but Morgan Stanley, highest level since 2008 johnson johnson, 137 i think that is an all time high for johnson johnson. Ill check that but were right on the edge of that one. I want to point out, weve mentioned several times Goldman Sachs, but Morgan Stanleys Wealth Management is now really becoming big and they properly highlighted it in their Conference Call. So just as a percentage of the pretax income for this quarter institutional securities which is all of the old Investment Banking and trading and sales you think about when you think of Morgan Stanley, now only 49 and Wealth Management is now 45 . Thats a huge change look what it was a year ago. One year ago this quarter we reported it was 58 . Wealth management was only 37 you see a huge sea change going on here and thats because its a safer longer term way to play money for them you want to go out and trade every day . A lot riskier. When youre managing other peoples money, look what theyve got right now. The client assets, 2. 3 trillion right now. And in a fee based accounts, 1 trillion of that in a fee based account. It means heck, we have money coming through and were charging 1 or so to manage the money. Thats an estimate but look at the fee revenues now, almost 2 of that, 2. 4 billion. Thats just toll keeper money essentially. They are sitting there managing money and collecting a fee every time simple business but again a little bit more perhaps stable and in the long term, i think they feel definitely more profitable lets move on. If you talk about the banks, were in earnings season and its a typical pattern if you look at the kbe. Its been sideways for the last week and a half since we started earnings season. That is not unusual. One thing i do want to highlight that may be a bit of a problem here is the yield curve. It has been flattening noticeably you look at the yield curve as the spread between the 2 and 10 year and were down to a very low number its down below 80 basis points, thats the lowest its been all year and the lowest in more than a year so you want to watch that because this is part of the whole reflation theme. We talk about market keeps going up on reflation theme, its about Global Growth and tax cuts and higher rates but also in particular for the banks, a steeper yield curve. You start throwing steeper yield curve out and you might have a problem with the overall reflation trade. Finally want to note, big ipo might be pricing tonight at the New York Stock Exchange. This is trin yan, a microlender in china, 700 Million Company well keep an eye on that and ill tell you more about that tomorrow right now, were close but not quite. 28 points away from dow 23,000 carl, back to you. Thanks, bob really quickly before we get to santelli, we want to touch on p g. Peltz appears to lose the vote by a hair. 6 million votes, a lot of people writing he made his point, regardless of what the end result is. I think one of the things that has to happen, is that product t procter has to take a look expenses like ed garden. Yeah. And procter has to start thinking about getting smaller brands there was a lot of lessons and takea ways from the fact so many people voted for peltz. More or less a dead heat. They still want to play it out to the final tally, youre talking about 2. 55 billion shares outstanding or something along those lines, a 6 million share differential as carl pointed out, tiny. And i think that look, a lot of what happened is that theres a theres this period, there was a continuum where the board let you down by selecting people who were sub optimal i think a lot of longer term people are saying, wait a second, ten years in the wilderness and two years and taylor hasnt done it yet. People are tired of these stocks not generating any real organic Revenue Growth organic Revenue Growth has come around a little bit. You would think that if p g does go on to vehicle tvictory, it will be one where they are under the microscope and conceivably comes back around next year. I think youre right. If they havent performed, then you would imagine if he wants to run another proxy fight, hed get on well see. Jim mcnerny would say, you know what, maybe maybe they just put him right. What a battle. What a battle. You know who had negative words about peltz yesterday on halftime was jeffrey son feld, really dont like each other, do they theres not a lot of love there. Jeff likes to bring the provocation from time to time. Peltz has been a much more of a reasoned guy peltz got on his bad side somewhere. Yeah, something about that institute there. But i think that jeff is, you know, making measured points but has taken these hes kind of lowered the anger. People dont like anger. Youre lying about my record people didnt like that when that was said. Youre lying about my record. Its historical. Dows gains are slipping, lets get to Rick Santelli at the cme. Good morning, carl. A two day of twos, you can see they are moving higher, were hovering at levels we havent seen as we talked about all day since around september of 2008 doesnt end there, keeps moving up the curve look at the two day at fives keep in mind, fives close the end of year 1. 93 now he have twos and threes and fives all higher yield lower price on the year. Thats where it stops. Once you get to seven years and beyond, they are lower in yield than the end of last year. But if you look at 30s minus fives and i like this, tens minus twos flattening. This one is really flattening. And you look at the chart and since just september of this year, how much its moved, the reason this is so fast naturing, looking yes, rates are rising a bit but when you think about the curve flattening, what you see is that 10year yields are s soggy, the shortened is more aggressive to the upside when you look at tens minus boons, its widening whats going on with mario draghi still buying paper creates a distortion distortion it locks at what the fed is most likely going to do its a weird set up. A twoday of the dollar index. There is some strength there it might be able to challenge what everybody perceived at strong resistance. Ed is going to be us at 10 40. Back to you. Thank you very much when we return, rbcs mark mchanie on netflixs result. Dow up seven points. Nasdaq going for 14 out of 16. Back in a minute mh higher than theflate line well get to much more in a moment throughout my career, ive been fortunate enough to travel to many interesting places. Ive always wanted to create those experiences for others. With my advisors help along the way, its finally my turn to be the host. When you have the right financial advisor, life can be brilliant. Ameriprise all right, jim, whats on mad tonight . We have a Company Called thought spot big data, big data thats how you get your stock harder analyzing it, Artificial Intelligence its why i think netflix only comes back because its an Artificial Intelligence company masking as an entertainment company. There you go got a lot done. We didnt touch nearly much and this is the next week, i told my wife to go to italy because i do not have time for her saying you cant get up at 3 00 for Earnings Period i said go to italy and get out of my face i said have a great time jim, well see you. She doesnt wamp the show shes doing the spin thing pelaton. Deep soul cycle reference well see mad at 6 00. Dow 23 watch continues. It can detect a threat using ai, and respond 60 times faster. It lets you know where your data lives, down to the very server. It keeps your insights from prying eyes, so theyre used by no one else but you. It. Is. The cloud. The ibm cloud. The cloud thats designed for your data. Ai ready. Secure to the core. The ibm cloud is the cloud for business. Yours. Its not just a car, its your daily treat. Go ahead, spoil yourself. The es and es hybrid. Experience amazing. Today, a focus on innovation in the Southern Tier is helping build the new new york. Starting with advanced manufacturing that brings big ideas to life. And cuttingedge Transportation Development to connect those ideas to the world. Along with urban redevelopment projects worthy of the worlds top talent. All across new york state, were building the new new york. To grow your business with us in new york state visit esd. Ny. Gov. To grow your business with us in new york state win an uncertain world . K predictable income pgim sees alpha in real assets. Like agriculture to feed the world. And energy to fuel its growth. Real estate such as ecommerce warehouses. And private debt to finance transportation and infrastructure. Building blocks of strategies to pursue consistent returns over time from over 120 billion dollars in real assets. Partner with pgim. The Global Investment management businesses of prudential. Welcome back to squawk on the street. Im diana with breaking news in the Housing Market home builder sentiments jumped four points to 68 on the Housing Market index street was looking for a onepoint gain anything above 50 is considered positive this is the highest level since last may it comes after a threepoint dip following the hurricanes the index stood at 63 in october of last year in the release, Granger Mcdonald warns Home Builders to be mindful of longterm repercussions from the storm such as intensified material increases and labor shortages. The commodities future price for lumber is up 21 from august both from the hurricanes and the fires in Northern California the labor shortage was acute nationally and has gotten far worse in texas due to harvey you can expect the same in california of the indexs three components. Sales conditions rose five points to 75 sales expectations over the next six months rose five points to 78, and buyer traffic rose one point to 48. That last one still in negative territory. Back to you guys all right, diana, thank you very much for that information good Tuesday Morning welcome back to squawk on the street. Im Carl Quintanilla david joins us sarah season is off. Markets trying to get to 23k. Unh has been a help in that regard, but goldman has not, boeing has not were close to the flat line with oil, just up 0. 15 the big banks did beat the expectations of analysters Goldman Sachs and Morgan Stanley reported earning ones up, ones down Netflix Announces an 8 billion bet on content, surging subgrowth. Details and analysis and we are on watch for dow 23,000 were closing in on the record breaking number. What it means straight ahead first up, Morgan Stanley and goldman had earnings this morning. Both did beat the streets. Were joined with numbers and whats going on on the calls yeah, so gs beat expectations importantly, not doing worse than expected in fixed income currencies and commoditiy ies trading. Still down 26 year on year but ahead of the 1. 4 billion expectation. However, the markets really focusing now on the fact that the top and bottom line beat was mostly due to the investing and lending business that grew 35 year or year or 19 quarter on quarter it continues huge growth in that area but is viewed as lower quality. Hence the beat being frowned upon Goldman Sachs investment strength was encouraging equities and Investment Management disappointing Morgan Stanley produced another quarter of strong results across all of its businesses supported by good cost control profit before tax margin came in at 26. 5 ahead of the 25 target partly due to cost controls and also because of better deposit pricing than expected following the bank of america and wells fargo commentary last week investment banks was a slight beat and trading overall was solid. With fixed income currency commodities ahead of expectations heres the ceo summing up the key aspect of Morgan Stanleys beat we continue to see signs of operating leverage across our Business Model not just in wealth mnjment where its most apparent incremental revenue is expected to generate higher margins assuming we continue to manage our cost space with discipline also of note was this comment from the cfo we saw more cash going into the markets. Particularly the equity markets, as those markets rose around the world. And we have seen cash in our clients accounts at its lowest level. Share prices, as you mentioned, carl, changing direction during the course of the day. Morgan stanley still up nicely Goldman Sachs turning south based on a number of analyst comments about the lower quality beat on the top and bottom line. Thank you for that. Wilfred frost back at hq for more, lets brin in antawn, a capital adviser, good to have you back are you in the camp or will just mentioned some of the analysts seeing the quality of goldmans beat not as good as some say they get punished when they miss on that segment, and they get punished when they beat. So the Rodney Dangerfield of investment banks right now the return on equity was slightly better than Morgan Stanleys. People should focus on that as well, and the return on capital was peat impressive as well from a buyback perspective i dont think it deserves to be down on this news. Morgan stanley, in their own right, had a very good quarter it does deserve to be up i dont think goldman should be down on this news. I think its just crowding is that a comment on the kind of market were in right now you would rather have Morgan Stanleys model than goldmans i think thats probably right. I think its certainly more popular, you know, certainly, the deposit data, ie, the cost of funds didnt move up as much as federal funds did i think that really was a good surprise and helped their global Wealth Management beat clearly less sensitive to some of the swings that you have in fick so i think people would rather pay for Morgan Stanley today than the investment lending piece, but clearly, you know, return on capital is big for both of these Companies Going into the future. I think theres a lot more to come, a lot more regulatory relief, and fick which has been so pressured for such a long time could see some off side for the Central Banks around the world stop removing liquidity. We have a better curve, get more trading action, and maybe some of the regulatory stuff gets removed as well. You say you think that the returns on capital can trend up over time. You mentioned Goldman Sachs roe returns on equity about 11 . A lot of big banks have been coming in in that range. Its been sticky in that level were not in hailing distance of the 15 . Do you think more volatile markets will cause investors to say i want to own more of these companies putting capital at risk, perhaps the latter part of a cycle . I think certainly on the fi krirx side of things, these markets have not been friendly to any of the investment banks clearly, they could do much better in an environment where the Central Banks arent putting so much pressure on rates. So i think theyll earn more the question is will people be willing to pay more. From a regulatory perspective, some of the volcker things will get eased. Its not just the changing of the rules. Its the fact you have new regulators in office now and some of the rules will be clarified. I do think we need the investment banks to provide liquidity to the markets we havent seen the markets need liquidity in a while, but theyll need to be there to provide it i expect the rules to be lightened up, and some of the liquidity will be lightened up as well. I understand you think of goldman, you said its the Rodney Dangerfield of Financial Services right now isnt there a case to be made they are in the midst of having to change mare Business Model to a certain extent but they are in this period where perhaps relying on hedge funds for a good deal of margin, for example, and fixed income currency and commodities is no longer going to cut it and isnt that or shouldnt that be something of a concern . You know, im not sure its a concern, but clearly, the regulatory relief could lead them maybe somewhat going back to some of their old model i see some of that happening theres no doubt that investment in lending is lesser quality thats for sure. But at the end of the day, you know, return equity is return equity youre putting up numbers that are respectable and you have upside to them i think there is upside to them. A better fick environment, all of these stocks will do much better im not trying to say you should differentiate. All of them would do better in a better fick environment. We wont see return on equity as high as it was before because theyre all going to have to carry more capital just some loosening of some of the rules will allow them to make more money. Were between 11 and 15. We would like to see 12 or 13 rather than 8 or 9 yeah. On goldman, the lending efforts, the private investments, at what point would those truly be material the way we talk about things like fick does that ever happen . Clearly, theyre building this business. And i think theres some acquisitions that could happen down the road as well. Take market share. I think the real trick to any of this lending is how do you fund it Morgan Stanley has an edge in funding it through all of the customer whose have deposits there. That gives them an edge. How is goldman as a bank charter able to fund the business . Thats the trick in all of it, capturing funding. For any of the lending clubs or Companies Like that, do they have funding how do they get funding . The first to crack that nut and get funding ie the way banks get funding is going to be a winner. Meanwhile, i know you look across the spectrum at different banks. Coamerica reports a beat the stock is up more than half a percent. Is that the area you think might be a better advantage in this current point in the cycle or not . I happen to like the regional banks better i like them better because i think m a is a catalyst. We talk about regulatory relief out there. I think 200 billion for ccar would be regulatory relief i think the timing of deals getting approved, mergers getting approved, the timeframe is lessened. And theres going to be good growth if we get tax cuts, theyre the highest taxpayers of any part of the s p and the fed is raising rates. People like coamerica because rates are up margin is up hasnt been a lot of loan growth there, but i think theres others who will have better loan growth banks in places like tennessee or north carolina, and i think a lot of opportunity is going to be in markets where coamerica is texas is going to provide a lot of opportunity for rebuild florida is going to provide a lot of opportunity for rebuild a lot of loan growth, a lot of deposit inflows into the markets. Those are places i would rather hunt good to get your take on it we appreciate it, as also. Talking the big banks today. Thanks when we come back, President Trump is taking aim again at Health Insurers and the Big Pharmaceutical Companies as well well be joined by the president and ce oh of a top ten global insurer, although it is Life Insurance, but a lot to talk about when we come back. And by the way, take a quick look at shares of j j. Theyre moving higher, this after reporting a beat on the top and bottom lines, the kaech Company Always raising its fouryear forecast squawk on the street will be right back want a snack . Sure alright, looks like weve got chips, popcorn, pretzels . Pretzels plain, sourdough, spicy, sesame, honey mustard, chocolate covered, Peanut Butter filled, this ones in german, it says, reindfleisch . Plain. Great. So what are we gonna watch . Oh show me fall tv. Check out the best of the best handpicked fall shows on xfinity x1, online, and the Xfinity Stream app. Thirsty . Wall street moving forward in the first nine months of the Trump Administration insurance and pharmaceutical Company Stocks have recovered this morning, this after taking a hit over the last few days the latest target, of course, of President Trumps policy focus take a listen. Take a look at where their stock was when obamacare was originally approved and what it is today youll see numbers that anybody, if youre invested in those stocks, you would be extremely happy. And they have given them a total gift they have given them, you could almost call it a payoff, and its a disgrace. The gravy train ended the day i knocked out the insurance companys money. Which was last week. Well, just how do Global Executives need to play shifting policies from washington, d. C. Joining us, ceo roy gori, theyre the company, is one of the top ten providers of Life Insurance in the world number three in north america. Nice to have you here. Thankfully, perhaps you dont offer Health Insurance in the u. S. , although you do in canada. Although to be fair, the Health Insurers here are doing well are you happy you dont offer this product in this market . We are that we dont offer health in the u. S. Were focused primarily here in the Life Insurance factor. Our business has been doing really well and we see tremendous opportunity going forward. When it comes to your business here, i know and im reading through the notes some of your Team Provided us you say your business is built on a unique managed Architecture Model that allows you to quickly meet investor preference what does that mean . In the wealth space, its key were focused on the customer and delivering on the solutions that are critical for them when we think about offering holistic solutions, were going to cover both the Life Insurance aspects of that as well as the wealth and asset management. In the wealth space, we offer homegrown manufactured products that we actively manage and we also offer solutions that other players provide. And where those are a capability we dont actually have a strength in, we basically make that choice available to customers. You will sell other products as well given the needs of the underlying customer. Absolutely. Is the u. S. Your most important business or does asia represent what would be i guess the largest Growth Opportunity well, were quite unique in that weve got a presence both in the u. S. , quite frankly, across the u. S. , canada, and asia and both all three geographies represent about a third of the earnings of the franchise overall. The u. S. Is an important market for us its the largest market in the life and growing at a rapid pace in the areas were focussed in, but asia represents a significant opportunity for us a key market for us as we look to growth, and we have been in asia for about 120 years and seeing big demographic trends in that part of the world that we feel were well positioned to capitalize on. When you talk about the Wealth Management and Insurance Products being tailored for the customer, is that the individual and also the adviser i know you sell through Financial Advisers and things like that. Is that business doing well . We keep hearing about disintermediation and people doing it themselves . Its a great question we are focused on the customer as well as the adviser the adviser in many ways is our customer and theres been a lot of talk about passive taking over from active and we see that as a huge trend, but we see it as a trend thats actually enabling Better Solutions for customers. Rather than standing in the way of passive, theres a solution were believe we can be quite uniquely placed in that we can offer passive solutions for customers but at the same time offer them active solutions. So thats, i think, a unique capability we think weve got where others perhaps maybe dont have such a strength a lot of discussion on our desk for years now, but more recently, more acute and recent months about rates and yield, right . Are you planning on an environment where the hunt for yield is not as intense . Well, look, i think there is a general expectation that yields are going to rise and were going city rates increasing i dont think well see a bounce back from the rates we saw 10, 15 years ago so i think we are in a lower for longer kind of rate period, and thats something that we just have to come to grips with but again, our focus is around diversifying solutions for our customers soez they get the best return possible and managing Solutions Across different Asset Classes is key for what we do for customers, quite frankly, key for how we manage our own business and putting assets against lieabilities we have no annuity portfolio that would be in jeopardy as a result of significantly rising rates . Were reasonably well hedged. We spent a lot of tinal in the last ten years and postcrisis looking how we manage the risk of our business, and hedging our portfolios is a key focus and something we have managed reasonably well. One policy thing that might touch your business. As part of the white house tax proposal, they talk about taxing 401 k money up front instead of at the back end. Is that something you think would have a huge impact on the industry again, hard to tell we dont really know what will eventuate, but we believe that helping people save for retirement is a key priority theres currently a retirement gap globally of about 70 trillion thats expected to grow to 400 trillion in the next 35 years. So people saving for retirement is a huge focus area not just here in the u. S. But in every market of the world. And i think the government can really encourage that saving through a variety of means part of that may be tax. And tax policy 400 trillion is a real sum of money it is thats a real number. A big deal. And again, as a company, we have been focused on retirement and pension planning we have a strong capability here in the u. S. With our 401 k rps business or Retirement Plan services we have a great Retirement Service in canada and pockets of cape nlt in asia we think this is an area of focus we can lean in on and capture some of that 400 trillion even a percentage of that would be important thanks for your time appreciate it. Roy gori. When we return, forget the price hike netflix reports another quarter of surging subgrowth and a big multibillion bet on content well get some reaction as the stock is just above 200 take a look a stocks in general. Dow up 24 points on its way, 0 inng to get within 2pots of 23,000. Back in a minute quarter for netflix. Beat on the street, the top and bottom lines as well as reporting this big surge in subscriber growth. Julia has been digging through the numbers and joins us with more good morning to you, carl exclusive original content, thats where the ceo says netflixs future lies. In helping maintain its head start on new arrivals in the base to insure consumers wont mind price increases prices are relative to value, were continuing to increase the content offering, and were seeing that reflected in a viewing around the world so we try to maintain that feeling that consumers have that were a great value in terms of the amount of content we have relative to the prices netflix is boosting its content spend by as much as a billion dollars, between 7 billion and 8 billion next year, up from 6 billion this year this is a company that doubles down on original movies among other things with 80 in the works for next year. Thats a tenfold increase our focus is on doing even better content Getting Better partnerships, better mobile streaming. We just have to have the discipline to keep doing what were doing at many times the scale. If we do that, things will work out really well for our Global Customer base and thus for our investors. Netflix execs promoted a move into merchandise check out these ugly Stranger Things christmas sweaters that are going to be hitting target stores soon. Now, content chief said theyre open to strategic m a, which was an interesting note, but hastings said what netflix is not interested in includes adsupported content, sports, and the assets of the weinstein company. Now, analyst reaction to last nights numbers has been positive, with at least half a dozen analysts raising their price targets on the stock and now two thirds of analysts have a buyer overweight rating on netflix stock back over to you julia, thanks for that. For more on netflix, lets bring in mark mahaney, lead analyst at rbc Capital Markets. Good morning good to see you. Good good morning, carl. Youre due today, the long faces in tact, the secular shift away from linear tv. Theyre the leader u. S. Profitability, universal appeal what is to be worried about right now . I think theres two things. One, we do have a price increase coming into effect in the december quarter or maybe slopping over a little bit into the march quarter. We dont really know, neither does the company, how consumers are going to react, and the second is the issue about Free Cash Flow burn its increasing. Theres a good reason for this which is the company is buying content in advance of the subscriber bill. Its been doing that in the United States for years. It does raise Financial Model pressure they can work through that, but those are the two big pushbacks, the risks. You say the downside scenario gets you to 150. The upside gets you to 300 what needs to happen to make that happen . This is the new new, if you will, on netflix theyre accelerating their subads each and every year for the last five years. Theyre going to add 22 million new subs globally, and were seeing more and more of the subs from International Markets the last quarter was the quarter in which it tipped over to being an International Story now more subs from outside the u. S. From inside the u. S were seeing higher satisfaction scores from outside the u. S. Than inside the u. S. Most Global Markets are less competitive. That means netflix can scale its subbase more than the market realizes that gets you to the 300 million subs worldwide, and if they have pricing power, you could get margins up to 30 , which means you could get 20 in earnings power out of this asset within five years that allows the stock to double from here. Thats a three to fouryear pitch on the stock near term, we think the stock goes to 250. Mark, that path to 20 in earnings obviously is about scaling the subscriber base, but not keeping up in terms of content cost to that same degree, right . Thats where you get the leverage effect. At what point, though, are they going to either slow down or maybe step off that treadmill . Do you feel as if netflix is sort of ramping to some Critical Mass of content and a run rate of originals or are they going to keep going up as long as the market lets them thats a good question. So heres the really important setup i think people are really fixated on how much theyre spending on content. Next year, theyre going to spend 7 to 8 billion and the cash spend is greater than that. But if you step back and look at this globally, theyre large operators in europe that in wunt country will spend 8 billion to support the market absolutely, youre going to spend 10 billion to 15 billion and the Business Model will support that i dont think realize how expansive the global footprint of netflix is. If they can repeat the success they had in the u. S. Our data suggests otherwise. If they can, you should expect content spend to go up by a billion for at least the next five years we should talk about a Company Spending 15 billion on content five to ten years from now wow mark, youre a technology analyst, so to speak, not a media analyst. But the impact that netflix has had on the socalled media stocks or at least what we always thought of as them, has been dramatic. When you talk about this future, whether its them spending 15 billion on content or earning as much as 20 a share a year, what impact do you see on the traditional providers of media and the distributors well, i think, david, youre all over these trends just like i am i think the consumers have voted dramatically with their feet, their eyeballs, and their pocketbooks, if you will people want on demand streaming. They want to be able to look at content on whatever device and whatever amount Binge Watching or snacking and at whatever time they want. That move has just gotten huge amount of tail winds behind it i think the numbers setup is this theres about a billion paid cable tv subs worldwide and maybe 150 million, 175 million streaming video subs worldwide giving these structural secular growth trends, i think the numbers are going to meet. I dont know if its 600 million or 700 million paid tv subs are going to come up and streaming subs will come up, but thats what were living through right now. Right now, the single best bet off that is netflix. Thats why the stock can go higher do you think the bigger competitive threat comes from old line Media Companies like a disney trying to do direct or from some of the newer entrants, the hulus of the world who are having success in content . You know what netflix kind of didnt throw any punches last night they said they were going dramatically in International Markets, which is true, without really any help from disney. They said they only had disney content in countries like the netherlands and australia. They may have exaggerated the point, but the point is there, theyre able to grow with or without disney in a lot of International Markets. The biggest competitive risk always has been amazon if they really pivot and want to go after netflix and offer a standalone streaming subscription business for 7 a month, that would be amazon esque and that would cut at net flick. I dont think they want to do that the survey work we do shows that even though those amazon customers who get the prime content that they pay for, theyre actually more likely to go to netflix than less likely so i think the bigger trent is people moving to streaming and netflix is one of the most Viable Options for that. What a world that were in, mark as the stock hits a new alltime high today and fighting around 200. Well see you soon thanks thanks, carl. Lets check in with sue herera for our cnbc news update. Good morning, everybody heres whats happening at this hour they are celebrating in the streets of raqqah. U. S. Backed Syrian Forces liberated the city from isis the militants have claimed raqqah as their capital for more than three years more wildfires have broke out in california. One in the southern bay area and one northeast of los angeles it comes as crews continue to battle blazes burning for more than a week now in wine country. The death toll there has risen to 41. A little bit of good news. 8,000 Mendocino County evacuees have been allowed to return. Natural disaster is also wreaking havoc in the uk the remnants of hurricane ophelia moved into scotland and northern england, knocking trees and Railroad Tracks and slowing down Train Service throughout britain and scotland and 2. 7 trillion dollars, thats the net worth of the 400 richest americans on the 36th annual forbes 400 list no change at the top bill gates is number one for the 24th year in a row followed by jeff bezos and then Warren Buffett the cost of admission this year is a record 2 billion a very exclusive club. Thats the news update this hour mike, ill send it back to you those 400 people are worth exactly what those four companies, amazon, apple, facebook, and google are worth its amazing. Puts it in perspective. Thank you very much. You got it. Sue herera. As we head to a break, taking a look at shares of United Health, surging as the Largest Health insurer, that beat and revenue that was slightly below forecast company is predicting full year profit to be better than the consensus forecast, and that gain is really the only reason the dow is in the positive territory, up 24 points right now. Squawk on the street will be right back stay with me, mr. Parker. When a critical patient is far from the hospital, the hospital must come to the patient. Stay with me, mr. Parker. The at t network is helping First Responders connect with medical teams in near real time. Stay with me, mr. Parker. Saving time when it matters most. Stay with me, mrs. Parker. Thats the power of and. What is an answer and how can you measure the value of one . Today trusted answers from trusted sources are rare and precious commodities. And when industries are undergoing massive transformation, opportunities are only opportunities if you can find an answer that separates fact from near fact. Thomson reuters provides you the intelligence, technology, and Human Expertise you need to find those trusted answers. The answer company. Thomson reuters. Apple reportedly considered expanding into health care clinics. Christina farr broke that story and joins us now with more good morning morning, mike thanks so much for having me so the big news were about to share today is that apple has been in talks with buying the onsite Medical Clinic that operates within its cupertino campus thatscross over health and its also been in talked with one medical. That would represent its next big push into health care, which would be into primary care and so whats the idea behind this strategy, if it still is an active strategy on the part of apple . How does it link up with the device business, with other objectives of the company . Great question. Well, its still very much in the exploration phase, my sources tell me, but it does make sense for apple given how well its done with its own retail clinics thinking about the health care side of that, perhaps the Primary Care Clinic of the future is not totally out of the realm of possibility for apple, and it could also represent a great new Sales Channel for the company as it looks to sell more of its devices as the apple watch as a health and fitness device rather than for things like streaming music and entertainment. So you could see perhaps even doctors at some point prescribing these apps to patients as a way to monitor them from home and so do we think that apple is going to continue looking into this area im trying to imagine exactly why apple might want to get into this area with lots of regulatory issues that might be bound up in it and all the rest of it. And does the Retail Experience of apple through its stores translate into this potential with clinics well, absolutely. Everything were hearing about apple is if theyre going to do health care, theyre going to have to do it in a big way they need to be selling a lot more devices, millions more, through this kind of a push. Its not small potatoes for them and primary care represents a very big opportunity it does make sense its part of the dna to do this sort of Retail Experience. They know how to do that well. They know how to delight the customer its a great way to build relationships with doctors also as they look to build credibility for the apple watch as a Health Monitoring tool. This could be a big market for them its not a done deal but certainly something people internally are excited about Huge Tech Companies looking for big potential markets, i guess its going to bring you to health care sooner or later. Thank you very much. Appreciate thanks for having me. Well, President Trump calling out pharma and Insurance Companies yesterday, claiming the drug prices are out of control. As usual, the world has taken advantage of the United States theyre setting prices in other countries and were not. The Drug Companies frankly are getting away with murder and we want to bring our prices down to what other countries are paying or at least close and let the other countries pay more meanwhile, the president s pick for drug czar, tom mareno, abruptly withdrawing from consideration after reports suggest he helped disarm the dea during the height of the Opioid Crisis lets bring in bill george, a cnbc contributor bill, good morning good morning. So on this sort of threat from the president about drug prices, again, obviously, this was a theme of his during and immediately after the campaign hasnt really been foreground for a while. Stocks of pharmaceutical industry went down yesterday theyre bouncing today the first question is how much should we take these remarks as a statement of intent, as part of an actual policy attack or is it just kind of, you know, throwing some rhetoric out there and thinking its going to be well received . Well, with President Trump, you never know, but i think hes got this right drug prices are out of control if i were a leading pharmaceutical manufacturer, i would work the president to get him back under control and i think the answer to this is we have to increase competition. What really happened under obamacare, it all started back when rahm emanuel was negotiating with the drug manufacturers and they agreed not to permit any negotiation between medicare and medicaid and the drug manufacturers so they have Carte Blanche and the unintended consequence was a lot of these socalled specialty Pharma Companies bought up offpatent drugs and jacked up the price. Like Martin Shkreli, the epi n epipen. So they have to get that under control. The easiest way to get it under control is get more generics out there. I think the generic pipeline today takes three years to get approval with the fda. We have to shorten that down to three to six months. I would direct Scott Gottlieb to get it down to three to six months continue to process biosimilars, which is a very promising area which the fda has done a good job at then i would get together with drug manufacturers and say look, you guys have to get things in line we cant have these kind of increases. Voluntary situation. Because if he goes to change the law, hes going to have trouble getting support. Yeah, bill, you know the response from the Drug Companies. We spend a dozen years developing a drug. Billions of dollars. And we deserve to get we deserve to get a significant return on that investment, particularly because were taking on the risk now, i mean, the president may also have a point that foreign governments seem to their people seem to pay less and we bear the cost of innovation here in this country, but what about when the Drug Companies do say, come on, we deserve a return on the investment were making to develop lifesaving drugs . They do deserve a return. And it is an enormous investment i served on the board of novartis for ten years its an enormous investment. Theyre Breakthrough Cancer drugs coming through the system. The bioPharma Companies, some of the Smaller Companies you have barely heard of have really important ideas to save lives. I would not focus on that. But i would try to get more competition. And even when you have existing drugs under patent, i would get more patented drugs in that area, similar kind of drugs. I think that can get control over the whole pricing phenomenon and i think if the drug manufacturers dont do that, i think the president always has the option going back to congress and removing that law. Senator klobuchar from minnesota has a proposal now in front of congress, and i think he could go back and hold that threat over their head. But i talked to a lot of these people i think they would be happy to work with him. Theyre as embarrassed as anyone else by some of the antics of Martin Shkreli and valiant that they pushed out of their association. So to me, the solution is more competition. By the way, theres going to be a lot more distribution competition coming with the consolidation of the big pharmacy benefit plans, health plans, and retail manufacturer cvs and walgreens. I think youll see more pressure on pricing thats a good solution all right, market might do part of that job thank you very much, bill george appreciate it. Thank you paying a lot of attention to nafta this week. We are getting new developments out of the negotiations which are wrapping up. Kayla is in washington this morning. Good morning, kayla. I learned top trade negotiators from canada and mexico will meet today with the u. S. Traderepresentative Bob Lighthizer when they do that, they plan to firmly reject the u. S. Proposals floated in this round of nafta negotiations thats according to two people briefed on the countrys positioning. Despite an outright rejection of some of the u. S. Protectionist demands that were brought forward this round, canada and mexico, im told, will not walk away from the negotiating table. That leaves the ball in the u. S. s court the u. S. Trade Representatives Office had no comment. The white house declined to comment as well. So certainly an interesting development. We knew canada and mexico were not happy with what the u. S. Put forth, but now i have learned from these people briefed on this plan that they plan to firmly reject them officially to ambassador lighthizer but say theyre willing to keep negotiating. Carl were going to keep our eye on that with your help thank you for that kayla in washington. When we come back, were closing in on dow 23,000 just about 31 points away. Its the search for the next Federal Reserve chair, the president getting ready to meet with janet yellen this week. Ed lazear will join Rick Santelli after this break. It can detect a threat using ai, and respond 60 times faster. It lets you know where your data lives, down to the very server. It keeps your insights from prying eyes, so theyre used by no one else but you. It. Is. The cloud. The ibm cloud. The cloud thats designed for your data. Ai ready. Secure to the core. The ibm cloud is the cloud for business. Yours. Investors are more bullish now than they have been in years. But does that mean bad things for the market find out at tradingnation. Cnbc. Com lets get back to the cme group in chicago, get Rick Santellis special edition of the santelli exchange. Hey, rick. Yesering carl whenever we have ed lazear, the word special features prominently. Ed, first of all, why dont you tell me and the viewers why you happen to be passing in person through chicago. You know, this is my second home i spent a lot of time at university of chicago, still love it here its a wonderful city. And always happy to be back. Good to be with you. Any time in d. C. Of late . I was there last week meeting with the white house and with congress, talking about taxes and getting the tax plan moving, i think, and i think most of my team, the economists on it, think this is the most important way we can get the economy going again. So getting tax reform is absolutely essential now, without listen, i dont want any private conversations here, but in general terms, when you say your colleagues, the economists, think we need Something Like this, what do they think of as a group specifically about the plan currently on the table . Well, i think theres a good bit of enthusiasm for the plan and the team that i led was actually a bipartisan team, so we all didnt share the same politics, but we did have very similar views in terms of what needs to be done the reality is most of this has to be done on the business side. The personal side is important for the politics and in order to make people feel better about the plan thats necessary. I understand that, but in terms of economic growth, theres no question that its business taxes that matter. This plan is quite good in terms of business tax cuts i think it will be stimulative it will create some growth the obvious concern among policymakers right now is tax right which brings me to this beautiful oped you wrote in the wall street journal and especially now after your travels through d. C. , why dont you tell the audience how you could make this tax reform plan even better. All right, well, the big deal here is creating incentives for growth most of the incentives for growth come about by giving businesses an incentive to invest in capital. Some of the smaller ones too, right . Thats true, but the big thing is keeping the expensing cuts permanent most of that shouldbe folkishe primarily on small and midsized businesses thats where the action is so what we suggested were some tweaks to the plan that would push it in that direction. But again, you know, i dont want to be too negative because i want people to understand that it is a good plan even as it stands right now it just could be made a bit more productive and a bit more progrowth if we were to move when most viewers view in on the process through the media, it certainly doesnt look like theres a whole lot of confidence by the media in the plan you said economists in general seem pretty happy that were moving in this direction whats the biggest rub you see right now . Well, the biggest issue, of course, is whether it will produce the kind of growth necessary to make up revenue thats lost. Its rarely the case that tax cuts pay for themselves, but this one will at least move in the direction of producing the growth we need, but more important what it will do is it will increase wages. Not necessarily immediately, but in the long run, because its a productivity enhancing plan, and that generally passes through to workers wages were almost out of time and i have to ask you this, but i dont want specifics theres definitely a race going on with regard to the public trying to figure out whos going to be the next fed chairman. Being at stanford, you rubbed shoulders with several of these and several of your friends. All i want to talk about is the disruptor effect many believe that President Trumps a disruptor. One name, john taylor, i think, represents a bit of disruption do you think disruption is something that would prove to be an asset to the fed at this point in the cycle so many years after the crisis well, i guess the way i would put it is this, the disruption probably should have occurred a few years back i think you and i have been in agreement on that. I wish that they had been raising rates im in good Company Little bit earlier. That didnt happen they probably would have followed the same trajectory then that they are following now, but it should have happened earlier. The question is, you know, do you need more disruption at this point. I guess the way i would put it is i wish hard break coming, ed i have to run. Thanks for coming through. David faber, back to you all right i will take it, mr. Santelli, thank you. Lets send it over to john fortt and get that look that we always wait for and look forward to, john, on whats coming up on the big squawk Alley Program well, david, Virtual Reality as a market didnt take off last Holiday Season as many hoped it would, but microsoft is jumping in today is the day were going to hear from the head of the windows and Devices Group about acy athe company has on tap. Thats coming up on squawk alley ive asked chase sapphire reserve cardmembers to find my next vacation. Uganda, what are you up to . Thats a real silverback gorilla. Im freaking out 3x points on travel and restaurants. Sapphire reserve, from chase. Make more of whats yours. Not quite done yet following that proxy battlby about 6 million votes, about 2. 2 overall. This is a preliminary tally, which could change based on certification by an independent firm last week p g said he lost, but said the vote was too close to call and was not conceding were talking about over 2. 5 billion shares outstanding they do say about 75 of those voted. And, again, youve got what they claim is a 6 million advantage for p gs directors over mr. Peltz. 75 not bad, given the u. S. Elections. Thats a lot of people showing up more registered shares, more people that own their stock certificates than typical. As important as voting for president , remember . Yes, yes, he did. I guess p g spent the exact proper amount, though, given the margin no, on terms of how much they spent. Of course, the next one to come, adp figho have as much well, i dont want to get into that. Index funds were so important, vanguard went against peltz, did get state street and black belt, but not enough if this vote holds, theyve got to perform, otherwise one would imagine they may be under similar pressure indeed. Well watch that when we return this morning, more on netflixs blowout quarter. Well talk to early investor paul holland, who always has good insight on what netflix is up to. S p has gone red by about two points squawk alley continues in a moment the amazing new iphone 8 is at at t. And we know youll love it. Because we know you want more. More great camera features and more power. And more than just unlimited data, we give you unlimited plans with hbo included for life. Because you deserve more entertainment. And more spokespeople. Talking like this, saying the word more. At t. Its time for more. Am i too close . I feel like im too close. Get the iphone 8 and with all at t unlimited plans, get hbo for life. Only from at t. 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One estimate. The earnings tool from td ameritrade. Welcome back to squawk on the street. Im dominic chu. Health care standout is the best performing sector in the s p United Health group adding the biggest boost so far and the dow as it approaches that 23,000 mark for that index. The stock is hitting an alltime high on earnings and strong guidance other leaders are aetna, as well that does it for squawk on the street. Lets send it downtown to the New York Stock Exchange for the start of squawk alley. Guys, back over to you thanks for that good morning, it is 8 00 a. M. At netflix headquarters in los gatos, gacalifornia, 11 00 a. M. O wall street. Welcome to squawk alley