Transcripts For CNBC Squawk On The Street 20171218

Holding in europe. Yes they are the dax, chief amongst the leaders with quite a significant gain this morning. 10year note yield, been hanging around the 2. 4 level there we are, 2. 378. You can see wti up 32 cents. Lets get to our road map this morning. It does start with that market rally you just saw the futures are pointing to new records on growingconfidence that republicans in the senate and house are going to pass that historic tax cut plan this week. Plus, well have more on csx, investors are worried given the turnaround strategy may be in doubt after the sudden death of Hunter Harrison. Surging in the premarket after an upgrade from jp morgan. And weve got plenty of deals to talk about this morning. Geez, we sure do. Well get to those and talk p g. Lets get to stocks first. They are on track to open sharply higher, this on optimism on passage of the tax reform legislation. The house is slated to vote on the bill tomorrow followed by the senate with republicans hoping to get it to the president s desk by christmas. It is amazing how quickly things moved. I will be the first to say, i think that i did not expect this, given the reporting i was doing around it for so long. Jim, had many people believing they would not be able to get things done in this quick a fashion. Certainly it would have been a 2018 action. That is it not appear to be likely at this point this thing could be done for next week. Were going to be looking at the election last year, critical election the country is a bit of a revolution and the same country as it was before the election. And when you have 52 in the senate and you have that group in the house, they are coraled and this is a tax bill great for companies. We can debate how good it is for individuals depending on the states anim animal spirits like we havent seen in the 90s they are ringing the bell, 20th anniversary and i think they have a broad plethora. They are pretty much everywhere. The answer they would say, which is they rent equipment to you, boom its boom and its not like its right now right now and whats will the tax cuts help that or sustain it . Yes is what they are saying theres a lot of not a lot of people who are doubtful. Theres pretty much everybody. Some going to be used for buyback and dividend its going to be so large it literally those do not encompass theres everybody i talk to will be buying some equipment, putting people to work because the economy is so strong, you dont want to lose the opportunity and those who are not buying, well, they get bought. Whole industries today, you see companies that are not going to be able to grow that much. They are getting takeover bids so Industrial Renaissance takeovers in these areas that have been health care, food, entertainment last week. Its difficult to find a chink in this market you see this as a positive for stock valuations is what im hearing you say. Yes. And continuing to perform quite well the raising of numbers is something well be hearing im surprised there werent more raising of numbers today we didnt get that a couple of Companies Report this week and people are excited about it theres also companies that are regarded as shorts k kindread was a short and they got a takeover bid amplify, frankly, its just been miss, miss, miss, miss, you have companies, lance snyder didnt have Critical Mass people are doing deals for scale, disney or having higher than expected earnings so what you end up with, unless you have a particular case, talk about csx, theres a lot of lets just say its hard to get in you have to chase. And its been a long time since you had to chase the discipline seems to be to hold on to stock here before by year end. And there were a lot of analysts who came on and said, things cannot be so good in 2018, recession has to happen. Give us some evidence, other than a yield curve theres way too many people that come on our shows and very academic and focused on topdown they ought to focus on bottom up the bottom up is really hard to do because theres a thousand companies, its very easy to say inverted yield curve, recession. I need evidence. I dont have it. Well, well see whether in fact this tax bill does come anywhere near the levels of growth promised by the engineers behind it. Lets not forget it changed a great deal and happened so quickly, the immediacy of it is something that is really somewhat surprising at the given the years behind the last time we had tax reform of this kind that was bipartisan, but even this one when you think back to blue print and all of those things. Border adjustment tax, lack of deductibility for mortgage interest, capex spending, so many Different Things that were part of that, that arent part of this. We thought there was a disciplined group of republicans who would never go for what some people are saying is a budget bust and they folded like a cheap suit its rather amazing. Where are the people who say listen, we cant have a bigger budget, deficit . They were nowhere. They were nowhere. They are believing that the growth rate will be more significant. They better be right. Many of the economists who scored this thing. Lets get to the hits, runs and errors whats going on right now. Following that for us all along, brings us up to date. Reporter the fiscal hawks will be cheering a new estimate out this morning on the impact that the final version of this tax bill will have on growth the Tax Foundation, projects a 1. 7 boost to gdp over the long run. Wages, those would get a 1. 5 bump and they are predicting the economy will add 339,000 jobs. That all translates into a dynamic cost for the tax plan of 448 billion over the next decade now, this Tax Foundation tends to have a pretty optimistic growth estimate but the report is basically gravy for republicans as they do appear to have the votes they need to pass this bill. Even without the help of senator john mccain, hellen back in arizona after spending several days in the hospital for the side effects of cancer treatment. On a more positive note, thad cochran, his office tells us he is in washington and does plan to be here for the tax vote. There are also a few republican senators who have not taken an official position. Jeff flakes office said hes still undecided and mike lee, worked with marco rubio to expand the child tax credit. He tweeted that the increase was a big win but said hes still reading the final bill and will hopefully vote for it. Susan collins applauded several changes, as well as medical expenses and getting rid of the first in, first out provision in the Senate Version of the bill as well. They all sound supportive, guys, so barring any last minute changes here, republicans look like theyve got this one in the bag. Back over to you. So i want to lee, flake and collins, you gave a couple of reasons why all of them have some reservations. But what youre saying is they are going to vote in favor thats my expectation you never know until they cast that actual vote but theyve made supportive statements so far though they say they are still digging through the details. Got it. As is mr. Corker apparently as well. Thank you. Given there was a lot of uproar about the change having to do with investors in llcs and real estate, he being one of them benefitting, said in a letter that came out last night, he had no idea it was in the legislation until he reread it after he was called by reporters. Because corker of course also changing his vote originally being one of those few deficit hawks you just mentioned. Yes now, lets talk about the media for a second im going to Say Something that is i mean it neutrally but if it were another president who got this through, i think it would say, how about the power trump didnt get the democratic votes but did coral a lot of votes that we had thought wouldnt play ball but somebody wanted to get they wanted to get something done, david. I think they did not want to go into the next year election with a do Nothing Congress and President Trump did not need to go to capitol hill i think that they are all the republicans turned out to be remarkably pro growth and that is something that we had not expected and i think that both you and i felt there were so many people who would come on our air in the house, just saying, listen, we are not going to make it so our children and their children whatever happened to those argumentsand the answer is President Trump won big. Weve got to say it on air he won big lets get some other Corporate News this morning that were dealing with actually over the weekend. Csxceo Hunter Harrison passed away he do iied of severe complicati of a recent illness. Mr. Harrison was 73. You and i on mad dash on friday, were discussing this, of course yes, we did. Always difficult to know how bad his health was but this was a very interesting story from the beginning. Shareholders and mantle ridge, the activist fund that took a very significant stake that came up with this interesting plan to basically have him put in there and then csx some saying its board abandoning its role in making decisions about hiring and firing ceos came in and said well put it to shareholders, that was last february heres a statement from mantle ridge this morning we wanted to reach out to paul hillal and see what he had to say. It speaks for itself they say theyve been humbleded and honored to be his friend for shareholders, since thats what we deal with here, the question is what does it mean for the direction of this rail, jim. He made some serious changes and they are not undone by this mans death. Csx, which a lot of people under mike gore, before we just completely decide that he was nothing special, csx had been doing okay, challenged once before this man in the brief time he was there, created a i would say a culture of can do that does not go away i salute look, obviously, its a great tragedy, but the idea that they picked a guy who was ill and shouldnt have done that, that is very short sighted. I dont know about that we never had a full first of all he was 72 or 73 at the time we never fully understood and shareholders may not have understood the nature of his illness, didnt share a great deal about it. True. A lot of the old Management Team is now gone. Theres questions in terms of who is going to run the rail longer term here or do they need some of the people who recently left to help i dont know i mean, it was fascinating from the beginning that they through this at shareholders and said you decide, unanimously deciding lets get this guy he caused a remember, bill ackman, how much value he added there. It was a fascinating story in and of itself, but you could argue on the part of the board giving up ilgts own role here that may have been best served finding out more about his illness and whether or not he was at risk. Youre right, there was a lack of due diligence, but this is a man who got the trains to run on time. And i think that these this industry is about the ratio. The operating ratio. It is. And i dont think the operating ratio switches back, Norfolk Southern and Union Pacific were better run. Mr. Foot seems to have learned a lot. The interim. I dont know, it was worth the gamble is what im saying, it was worth of gamble. And there are some analysts who say investors now giving csx half the credit for the margeinj improvement. The one thing i would point out, where they are is where the action is in this country the everyone keeps thinking it would be a coal well go back to coal thats not going to happen but coal slowed in its decline a great breath of fresh air even though it caused black lung. Yes. I tried to work that in. I like that it could be anthracite. Pennsylvania. He even knows where it is well fill you in on the food deals and have to talk about p g and well talk a friend of mine rob kindleer hes going to come on. Onset. You lucky dog. Come on and talk about next year and what we can expect as this year koxz comes to a close we have the last not that many more trading days but this one looks like it will have a strong open to say the least a lot more when we come back well, its earnings season once again. Yeah. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its hard to make sense of it all. Well, victor, do you have something for him . Check this out. Td ameritrade aggregates thousands of earnings estimates into a single data point. That way you can keep your eyes on the big picture. Huh. Feel better . Much better. Yeah, me too. Wow, you really did a number on this thing. Sorry about that. Thats alright. I got a box of em. Thousands of opinions. One estimate. The earnings tool from Td Ameritrade. Procter gamble has appointed activist investor nelson peltz to the board of directors following the proxy battle in which both sides claim victory. It decided to hold talks with pets about a board site or put him on because the election was so close and large number of shareholders about 50 of them wanted peltz on the board. When you get down to it, whichever side claims victory here, it was clear i guess that they said lets just make it happen what took them so long. Clearly they didnt want him and they had to have him i think it would have amped up more than it has david, you know that his view is afrn thet cal to this company xbr the strategy, the thing they agree on what hes not going to do. What time did that letter come out. What was that, like 5 30 on friday a lot of people were still at their desks. 5 30 friday people get that and say, wow, lets have tequila and tonic and look this over not. That was cheesy, i thought. To be fair it was 5 15. Oh, okay. I looked at my inbox, im what i saw it, in touch with trian and trian jubilant they favor a strategy that would upend but give greater accountabili accountability the board itself wanted young people and feels like that the restructuring mr. Taylor put in was really starting to go places i think the model would be much more Like Unilever nelson is if he had his way, david, i wonder how many people were he will take his seat in march but have another term. Because they are getting him so late here given the fight and Everything Else he will actually be on for a year and seven months opposed to a oneyear and they have joseph jimenez, former ceo of novartis. Good man. If you look at the Business Units nelson wants, another way to run the company hes always wanted the divisions to be more competitive against each other and i wanted the small scale they had gotten into and got out of, which is reminiscent of what unilever. Ed garden, when we talked about delivering alpha whos making decisions at this company . Tell me who is reporting to who and making decisions hes going to be pressuring them every single board meeting. It does seem like the Cincinnati Bengals was running back by committee. Rbc. You dont want that in fantasy and dont want it in reality. No. There it is. Quiet end to a very loud battle. Up next, weve got jims mad dash and count you down to the opening bell which looks like well have a strong open when you look where futures are this as a result it would seem the expectations. Were going to get a signed tax cut maybe by the end of the week. Holy cow. More squawk on the street squt straight ahead. [ keyboard clacking ] [ click ] [ keyboard clacking ] [ clacking continues ] good questions lead to good answers. Our advisors can help you find both. Talk to one today and see why were bullish on the future. Yours. Talk to one today and see why were bullish on the future. Its a like, a dagger . A worm a tiny sword . Bread. Breadstick . A matchstick a lamppost coin slot no . Uhhh. 10 seconds. A stick a Walking Stick eiffel tower, Mount Kilimanjaro ding time sorry, its a tandem bicycle. What . What . as long as sloths are slow, you can count on geico saving folks money. Fifteen minutes could save you fifteen percent or more on Car Insurance. Their leadership is instinctive. Theyre experts in things you havent heard of researchers of technologies that one day, you will. Some call them the best of the best. Some call them veterans. We call them our team. Six minutes before the opening bell twitter getting some love today from jp morgan they upgraded to overweight, 27 price target. Doug is a seasoned pro. Anthony nodo predicted to me, who is cfo, very powerful coo. They would have four straight quarters of daily digit average user growth and thats what they have whats happened is it was a takeover story a year ago. Its not a takeover story. Its now a story about momentum. There are very few players if we go back in time to how Many Companies survive the dot com period, there are only a handful. This is going to be, if you want social media, its facebook or this one of the things they did, correctly say that snap would not have the momentum that they have that was an interesting trade to go long twitter and short snap when they came that was something that a lot of people at twitter told me would happen. They say here that their product strength is led by video Live Streaming and changes to the ui, all of which drive continued double digit daily average user growth for 2018. One of the things that bothers me, nobody talks about the president and the dialogue, when you go to twitter, many politicians overseas use twitter as a way to community. I wish someone would talk about hue its become a methods of communication that this intermeadiates us just the media not the other word. No faking around here. We have a lot of things to cover. All of those food deals. Snyder lance whole aisles. And amplify hershey deal and penn gaming did a deal. Millennial motivated . Yes opening bell coming up a lot more on quasquawk on the street squt. [vo] progress is an unstoppable force. The season of audi sales event is here. Audi will cover your first months lease payment on select models during the season of audi sales event. 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. Youre watching cnbc squawk on the street. The opening bell will ring a minute from now. Bond market in the brief time we have any concerns weve heard from yellen last week youre talking now about i think i heard you kind of inty mate higher rates of growth. Do we ever worry of overheating of inflation of its hard to. Ill tell you why. A growing deficit crowding out. Crowding out the whole days heres my issue, david, unless you get more inflection in the yield curve whats the incentive for a bank to lend they make too much money sitting on your money. Thats what i care about. We shouldnt be buying the banks then yes. Or we should . You have to they benefit from tax reform but a lot of this is j pou if they choose to sell the 30year paper they can decree atd inflecticre. Youre listening to the opening bell, the s p 500, also composing itself, a lot more green on the board over here with united rentals, jim mentioned earlier, ceo well have mike on and someone youre familiar with hes a leader in m and a, is doa lot of deals. That celebrating the 20th listing anniversary and theyll appear on mad money. Focused on the treatment of cystic fib rose sis, theres a quick promo, mike, who you spoke to. These deals, your world. Talk to me. I think theres a sense in the food business that the snack aisle and we know this from the incredible work that they have done with pepsico and doritos, the snack aisle is on fire on fire, what about mondeleez. Where are they . Why arent they stepping up . They did try to buy hershey. They did. And you know what, theres a lot of talk that nobody is big enough for scale campbells, this deal i really like. Lets get to the first, all cash, campbells soup buying snyders lance, a premium of 27 over the unaffected price, calling that the 13th of december that was our own network, cnbc. Com reporting those congratulations to them. Campbells baked Product Portfolio generates 2. 5 billion in net sales right now and obviously thats going to go up a lot. Snacking will represent 46 of campbells annual net sales from 31 with had deal. They are moving away from soup. People dont understand, they think of lance crackers and think its an old brand. You buy kettle chips, cape cod, that is a very well known brand among people who think its david, none lets say its bu teke, its craft, people think its craft with a c. Snyders of hanover, obviously. When you see popcorn and amplify, dont think about the idea that these are just regular brands this is the part of the supermarket that is doing well the snack part and the frozen food you know why millennials. They like to sit at home and play redemption, which will be out soon and they order dominos, weve got a very interesting upgrade today. I know it seems nuts, but you know, they need to be where the younger people are its not in this canned soup aisle canned soup has such a bad rap trying to change that company rapidly. You point out an interesting trend as well, frozen, the nutritional value of frozen apparently can be very good in terms of vegetables and birds eye, that acquisition, has done very well. That was good pin cal. People are underestimating a company that reports this week, conagra, which i think has some of the best brands that would have been brands that we didnt like, not that long ago. Im talking about david, brands like orville reddenbacher, i like book chick a pop. I would sell too, boom chick a pop has the whole hearted buyin of con dg agra, now in front of the store. You mentioned amplify, thats another deal we should get to, not large but this theme were talking about here, 12 bucks a share. Hershey buying this company. They are paying about 14. 8 times, 2017 adjusted ebita, when you include run rate synergies of 20 million a year, expected to be generated over the next two years from cost savings and things of that nature. Thats a high multiple they have to be happy i would expect overall value is 1. 2 billion or so that includes debt were not talking about a large deal. No, but its but it is a significant deal from the point of view that this is 1. 6 billion, excuse me this company traded at a much higher multiple. It was much higher a few years ago. Theyve not been they had revenue ramped in but no profitability. 28 times earnings coming into this session people are underpricing that stock a bit. Thats where im going my thinking is wall street doesnt like a lot of companies that main street has these Food Companies are desperate for growth now, david, does desperate to stay flat. Kraft heinz. Good old kraft heinz, i look at conagra, they dont want to sell frozen food. This boom chick a pop and im thinking are they finally big enough yes, they dont want to sell and there would be no hostile. You bring up kraft heinz and i talked about the biggest deals, disney and fox and whole foods and amazon the third one that never happened but that had a big impact was kraft heinz failure to get anywhere with unilever and what it did in terms of preventing it from pursuing unfriendly deals in the future it is an interesting year in which were ending without a deal from the guys in brazil either 3g which raised a big fund and or kraft heinz. Going into 18 without having done anything. You cant own that. You need up years. Organic growth is hard to come by but you can buy growth. I really urge people to go to the supermarket and youll be surprised about the amount of space amplify has. Snyders pretzel has big taste and turns over and turns over. The supermarkets love pepsico. You pay them at the end of the month and they deliver the stuff. Cash flow they generate, everybody wants to be pepsico. But theres only one pepsi. All time high on friday doing well the ones that are have momentum. Havent had a chance to look at these other deals, includin Penn National gaming buying pin that kel,. 24 shares of Penn National they are talking about a post synergy multiple of 6. 6 times last 12 months ebita market reacting positively to both. If you did nothing, your stock is up today. That is true. Very hard to company with stocks that are down but the nasdaq is coming off. With the market at all time highs with the dow, where are we at 25,000 . Its more of a dow rally. Approaching 25,000 on the dow. When you look at the defense stocks they are rolling over there was an upgrade of the video game stocks and they are not doing anything its the banks it is the banks. And the banks what great leadership. Did someone downgrade boeing that run one of the greatest of all time is it sustainable . Has it run its course . No this move in boeing has been extraordinary. It was underpriced to begin with people have to get their heads around the idea that stocks are not trapped by the range one of the things i found that is so difficult. If youve been trading for a long time, youve been saying boeing trapped at 250 and hit it up its nowhere near 250. A lot of people fell behind in this market and a lot of people are upgrading stocks they are still upgrading costco caught an upgrade this week home depot, no one seems late. They dont mind. And what about the biggest beneficiaries of tax cuts namely those domestic taxpayers who have a high rate, retailers have fallen into that. Raising numbers again. Take a look at the dollar. Parent company is thought to have been one of the beneficiaries as well, comcast is up less nasdaq is not doing that strongly i have to warn people, if its not doing strongly, that may be where you have to be in the next few days there is a move into out of the cloud today and yet i think thats poorly timed. Weve got red hat this weekend a lot of people very controversial. Its a billing stock that got a lot of positive comment. Vmware, breaking out, a fantastic company. Those who really are betting against the cloud, forget it then david, roku could you tell me whats going on with roku is that underpriced . Is it still heavily shorted too . I think they shorted covered that. I think people didnt understand when a new Company Comes public, you have to be careful shorting it. The stock is not distributed well but roku and block chain. Dont forget. Every morning. Is there an analyst behind it im not familiar with the sponsorship. Im i like saying it. Its spelled with two fs. Had to be a bands before it was a company. It was a garage band. Did leisman play with them . He may have. Its mostly fed but does a lot of music a good friend of theirs this weekend. They opened for you too did they . Did you miss them i saw u2 twice, never saw them you could only buy your tickets in bitcoin so bitcoin this weekend. I mean like, i dont know, i was at the giants game and people bitcoin than there were interested in the g men. Really interesting. It was eagles and g men and eagles bitcoin then the g men. The only thing coming up for thegiants of any value will be the draft pick. Yeah, where it will be, i guess cleveland will still be i have respect for the franchise, not for the coach. Giants franchise, not for the coach. What is going on . With what, tell me . There are industrials that just people are there hedge funds that are short if youre short what do you do today . Under diagno underperforming for many years and poorly performed with a network billed out. Very glad you bought that up because i meant to we have elliott filing on friday 6. 53 . You know, the guys are very aggressive the question there, i think that needs to be asked, could there possibly be a console dagts opportunity for akamai if youre microsoft ceo five years ago, margins have taken a tumble. They spent a fortune. Down as much as 1300 basis points and they have spent a fortune investing in the business they have an incredible Global Network but there is this question, could there be interest from the likes of an oracle i glad you mentioned it oracle needs it, cisco needs it. Ciscoe has been doing a lot in the chain. A lot of people halted akamai because they lost netflix. I think microsoft will be interested and alphabets googles business should be interested and ciscoe would be interested this is a great property Worldwide Network buildout, you cannot do this yourself. 10 billion i remember this was the name at the dawning age of the internet. Akamai, yes. Didnt run without them. They built up the business. This ceo is a mathematician. Still teaches i think. He does yeah. Spent a long time at the business i think there are multiple buyers and people kick the tires and didnt want to sell. I think theres going to be elliott is going to win this and prevail which means theres a transaction or they get quwow. Or they can run the Company Better david, stop the banks from going higher for one second. Goldman sachs comes out and says trading revenue is not going to be that strong. What does it do goes up. Its an exas per ating market for those doing earnings models. I know. Exasperating, humana kindred was a short for ages, stock had gone down four or five i had michael, the stock was sore soaring then a problem with open enrollment in washington. And the Dollar Stores, people think that people are doing well in this country, yes, the Dollar Stores have upgraded themselves. To 1. 50. If you want readers go to Dollar Stores. For whatever reason my eyes havent gone on me. Its a nonmillennial play they have cow tails. They dont know what that is weve got to gets to bertha on the floor give us more color on whats moving this morning. Good morning. As youve mentioned, were seeing this rally mode it started in asia and europe, off our record highs and the tax bill is driving this momentum. You would think it had been priced in at this time but to a certain extent the tax bill may be for going people not selling, a lot of people would sell losers harder to find this morning. The upvolume to the down volume is about 101. And m and a activity also a big driver and you want to think if these firms once they start seeing more cash at their availability, theyll be utilizing that for more m and a. All of this flurry of deals near the end of the year could very well continue into the new year if and when that tax bill is passed among the deals were talking about this morning, reports that humana and pe firms are looking at the Kindred Home Health care and hospice care humana has been the underperformer in the insurance base insurer s are up 44 humana only 24 . In health care, trading a bit later, refuting claims made in the Washington Post 60 minutes report that alleged that the company failed to flag large shipments of opioids the company says its disappointed in the story and working to enhance monitoring of these kromed substances, including a new red flag program. Also in terms of health, two companies this morning reporting that their ceos have passed away one of them csx, Hunter Harrison and on friday the firm said he was taking a leave of absence for medical leave. There have been a lot of questions whether he should have been hired last march because of this undisclosed illness however anl lifalyalysts are sa there is a bench there and m and t bank also announce being its term nantcy of wilburs in place since 1983 has also passed away. And there are members of the board there taking the role. Over the weekend, we saw bitcoin begin trading. The futures on the cme after the cboe launch the last week. At one point they rose above 20,000 looks like they are below that this morning its not just the Bitcoin Futures but there are a lot of bitcoin players that have done well ameri trade launching tradering for the retail set and overstock up 300 this year. Thanks, bertha on the floor for us lets head to the bond pits and join Rick Santelli good morning, david lots of the issues affecting the fixed income sovereign markets specifically treasuries remain constant with drift on the long end as you see on a twoday of 2years, usurp the 184 with a 185. 5, comp back to 2008, that remains somewhat steady. If you look december 1 stt, it has been a remarkable run, six basis points since september 1st. If we look at the farthest end, 30year bond hovering 2. 70, 2. 72. 7 2. 71 and if you look at the bund yields, very similar, even though this of course a 10year bund also hovering close to the lowest yield since september if we look at the dollar index to switch gears to Foreign Exchange the dollar index has been rather predictable as well. Seems to like to reverse off of 94 even as you see on the twoday chart. If you open that chart up to november 1st, you can see not only the big 94 miss, but you can see that the drift continues to be on the soft side and doesnt take a mathematician to see if you have a 93 hand and settle at 102. 20, youre off 7 on the year. A year that found a very aggressive Federal Reserve with regard to tightening rates versus all of the other Central Banks in the globe david, jim, back to you. Okay, thank you, Rick Santelli. Still to come, the white house director of legislative affairs as republicans on capitol hill are trying to push tax reform across the finish line squawk on the street will be right back eres t morhs on all ofheaj avag i think that shes a very nice girl. You never got the brakes looked at . Oh yeah. No. At cognizant, were helping todays leading manufacturers make things that think and do automatically. Imagine that, a world of new Digital Products and services all working together for you. Can i borrow the car when its back . Get ready, because were helping leading companies see it and see it throughwith digital. Directv has been rated number one in Customer Satisfaction over cable for 17 years running. But some people still like cable. Just like some people like wet grocery bags. Getting a bad haircut. Overcrowded trains. Turnstiles that dont turn. And spilling coffee on themselves. But for everyone else, theres directv. For 1 rated Customer Satisfaction over cable, switch to directv. And for a limited time get a 100 reward card. Call 1800directv 25,000, amazing. Six points away. We have a lot more squawk on the street coming back, including stop trading wh m. It the moment a fish is pulled out from the water, its a race against time. And keeping it in the right conditions is the best way to get that fish to your plate safely. Sometimes the product arrives and the cold chain has been interrupted, and we need to be able to identify where in the cold chain that occurred. We took our world Class Network and we developed devices to track environmental conditions. This device allows people to understand whats happening with the location, but also if its too hot, if its too cold, if its been dropped. Its completely unique. If you have a sensor that can keep track of your product, it keeps everybody kind of honest that way. Who knew a tiny sensor could help keep the food chain safe . [ mouse clicks, keyboard clacking ] [ mouse clicking ] [ keyboard clacking ] [ mouse clicking ] [ keyboard clacking ] good questions lead to good answers. Our advisors can help you find both. Talk to one today and see why were bullish on the future. Yours. Time for stop trading with jim. What do you got . Food consolidation. Okay, well, i have to tell you theres a very Important Note out by wells fargo saying look, be aware General Mills could have an upside surprise. This yield is 3. 4 i am not looking for an upside surprise, and the stocks had quite a run, but i also was not looking for such huge amount of m a work in that sector. General mills ever get on the other end of a takeover offer . They need to buy. New ceo yes, new ceo. But i just think that they have to do a deep thats what they need to do you have these two companies snapped up both of these companies would have been ideal for mills. Both of them would have been ideal. And they didnt move theyve got to move faster and i think theyll talk about that on the 20th so even though i think the stock is inflated off this deal, i would trim some if it continues to go up but look, campbells went up on it deal, on the deal they made thats very, very good for denise morrison. Who has been struggling. Candidly, because of the legacy canned products. But the more you switch to snack, the more higher multiple you get. Real quick, what do we have on mad tonight mark butler from ali. Theyre not focused on it, but this is a dollar store going nationwide mike kneeland. Big number boost theyre doing so well. And there is, according to mr. Kneeland, a boom in this country that will only get stronger thats how we started the slow kind of nice circular started and ended on that note thank you. Thank you see you tomorrow. We got, of course, talking tax reform with white house director of legislative Affairs Marc Short coming up this is not a cloud. This is a tomato tracked from farm to table on a blockchain, helping keep shoppers safe. This is a financial Transaction Secure from hacks and threats others cant see. This is a skyscraper whose elevators use iot data and ai to help thousands get to work safely and efficiently. This is not the cloud you know. This is the ibm cloud. The ibm cloud is the cloud for business. Yours. Their leadership is instinctive. Theyre experts in things you havent heard of researchers of technologies that one day, you will. Some call them the best of the best. Some call them veterans. We call them our team. Looking from a fresh perspective can make all the difference. It can provide what we call an unlock a realization that often reveals a better path forward. At wells fargo, its our expertise in finding this kind of insight that has lead us to become one of the largest investment and Wealth Management firms in the country. Discover how we can help find your unlock. Im not really a, i thought wall street guy. Ns. Whats the hesitation . Eh, it just feels too complicated, you know . Well sure, at first, but jj can help you with that. Jj, will you break it down for this gentleman . Hey, ian. You know, at Td Ameritrade, we can walk you through your options trades step by step until youre comfortable. I could be up for that. Thats taking options trading from wall st. To main st. Hey guys, wanna play some pool . Eh, im not really a pool guy. Whats the hesitation . Its just complicated. Stepbystep options trading support from Td Ameritrade welcome back to squawk on the street. Im diana olick with breaking news from the nations Home Builders sentiment jumped five points to 74 in december thats the highest reading in 18 years on the National Association of Home Builders monthly sentiment index. November was revised down by one point, but this is far above the streets expectations, which was unchanged at 70. Last december, the index stood at 69. Anything above 50 is considered positive sentiment this soaring reading appears to be all about the tax plan, and what it could do for small businesses, which most Home Builders are nahp chairman said in the release, Housing Market conditions are improving, partially because of new policies aimed at providing regulatory relief to the Business Community buyer traffic rose the most, eight points to 58 current Sales Conditions rose to 81 sales expectations over the next six months increased three points to 79 builders are also clearly benefitting from the historic low supply of existing homes for sale home Builder Sentiment rose the most in the midwest but was highest in the west where inventory is the lowest. More at cnbc. Com thank you, diana. Good morning, welcome back to squawk on the street. Im david faber along with kayla tausc tausche. Carl and sara both have the day off today. Lets look at the markets. Up on all the major averages new records, largely a result of expectations for a signed tax cut by the end of this week. What that will mean for corporate america, certainly seen as positive with that 21 rate and that is where our road map begins this morning. Stocks, as you see, surging. All record highs on those major averages this as Top Republicans say they expect congress to pass that gop tax bill this week well speak with the white houses director of legislative Affairs Marc Short, next plus, another big step for bitcoin, launching late last night on the cme, the Worlds Largest Futures Exchange how did it do . And in the dark a major power outage brings the worlds Busiest Airport to a standstill well bring you the latest straight ahead first, lets get to the market a strong open on wall street, all three indices in the green, all at record highs. Certainly optimism on tax reform is a key here. Mike, anything catch your eye in terms of this rally . Either in its consistency with what we have seen previously or perhaps something thats an outlier. It seems like its following the december script pretty well. In years that have been this strong, the second half of december really does see the followthrough you had oversees markets up nicely overnight asia and europe, just financial conditions remain so easy given how strong expectations for growth are right now that it seems as if the sellers are just kind of sort of humbled and sidelined at this point. If you look at every measure of equity exposure by any kind of fund category, by the sentiment surs, its all pretty bullish. People are in the pool, but nothing to disturb the bullish view there have been some cracks in the last couple weeks in the russell, which people have looked toward as a barometer or bellwether of the u. S. Economy going forward. Do you make anything of that not too much. Its not such an outlier in terms of being outright weak that you would say, wow, the market is expressing concern about that i dont think the market has been pricing in with any precision the dollar for dollar impact of tax cuts just one more reason, i think, people are optimistic as opposed to saying this is worth x number of dollars on each company or index. Your area of focus, the banks, though, certainly a beneficiary this morning and has been of late and theyre up again, even though were not seeing much in the yield in terms of the tenyear. I think the expectation is not only that tax reform will help this sector but that also if you get a series of rate cuts or rate hikes, rather, next year, perhaps the yield curve will finally steepen that will finally benefit them but were not going to hold our breath because we have heard that story before. In addition to banks, youre also seeing Consumer Discretionary, tech, and a host of other sectors outperforming the Broader Market today the cyclical stuff that has been working utilities have been the one thing that have gotten hurt. Whats interesting is even though theyre domestic oriented and have high tax rates, not considered to be a very key beneficiary of tax reform because their rates are regulated so you have to imagine, municipalities, governments, are going to say give it back to customers. Were going to talk about tax reform the Tax Foundation predicted a 1. 7 boost to the gdp from inrepublican tax plan. Congress expected to hold a vote early this week. Were joined by marc short, the white houses director of legislative affairs. Welcome in good morning thanks for having me. Set us this week for us there is a lot that has to happen you not only have a vote on tax reform you also have a looming deadline for the government to continue to fund itself so how do you see the next five days playing out well, theres nothing like deadlines and christmas to force congress to complete its work. We expect that tomorrow there will be a vote in the house first on the tax bill, the conference report will be sent to the senate and could even complete in the senate late tomorrow night wednesday, thursday, friday, as you mentioned, probably devoted to not just finding the pathway forward on government funding which will likely be continuing resolution into january for final spending deal, but also we have the fisa reauthorization, which is needed. All those issues will be coming together wednesday, thursday, friday last night, we saw senator bob corker, who had been previously on the fens until friday but last night, he said he wants an investigation into this now somewhat contentious provision on passthrough rates for Real Estate Companies do you think that that investigation will hold up this timeline or put his vote in jeopardy no, kayla, were very excited where we are with the vote we think things are moving along just fine. That provision was in the house bill initially it was not in the senate bill, but theres a lot of things that come together in a giant compromise like this theres a lot of things that the administration was hoping to eliminate, for instance, the president continued to try to eliminate carried interest deductions a lot of deductions we were trying to remove, but at the end of the day, this is a huge victory for corporations and middleincome families across america. Reducing the rate from 35 to 21 is a huge victory, as well as the reduction in middleincome tax rates. Were very excited where the package is even corker called that provision air dropped. Who specifically wanted that in the final bill it was not air dropped. It was in the bill that passed the house of representatives lets be cautious in talking about things that are air dropped in not everybody got everything they wanted in the bill. There were things we compromised on, but theres a much bigger news story about what is happening in reducing corporate rates from 35 to 21 . Thats going to make sure we bring jobs back to america and make sure this boom that started with the regulatory rollback this administration has conducted will continue to expand how do you see, marc, this path to keeping the lights on in the government over the next few days because the house leadership put out a proposal last week it was largely called dead on arrival. Where is there room to give on that i think youre going to probably see continuing resolutions, socalled here in this language, pingpong from the house to the senate and back to the house i dont think anybody wants to see the government shut down so i think were optimistic were going to find a resolution this week and again in january, we hope to have not just a spending bill for 2018, but by then, a budget cap deal that paves the path way for 2019. Were not finding ourselves every time at the end of the year having the same discussion. Keep in mind, congress is supposed to complete its appropriation bills by september 30th were anxious to see them completing the bills by september 30th the house feels like they passed all 12 of their bills already. Theres a little bit of a house senate complexity here, but one thing the senate has had to deal with is theyre responsible for confirming all of our nominees, and that takes a lot of time. In many cases, theres not been a lot of cooperation or bipartisan pathway theres been greater obstruction with our nominees than any in history. You mentioned this long todo list and january and the potential to kick the can down the road and discuss all these Funding Priorities the president has also said in january, hell per sue health care reform, and well see an infrastructure plan. What is the priority of those items that where just listed well, theres a lot of priorities for 2018. Im not suggesting theyll all get done in january. Youll see us Work Together with house and Senate Leadership on welfare reform i think youll see us work with them on an infrastructure package, and youre also going to continue to see resolution on the daca issue, as you know, thats one that the permits expire march 5th and were anxious for congress to provide us with a pathway forward on that as you know, the previous administration, it was ruled, had acted unlawfully courts had said their actions at the executive branch level were too much we have returned this back to congress and we believe well get a deal theyre working on it, i believe, senator blake and senator bennet are you pleased with the progress they have made so far we think there are several different working groups in the house and Senate Everybody is anxious to resolve this thats a positive. We think this is going to get resolved before march 5th. That could be a january timeframe that we come together on a package that helps to provide security for our borders and also provides insurance for those who are here on the deferred childhood Action Program for childhood arrivals to find a pathway forward for them to stay too mr. Short, i just want to come back to something you said at the outset about carried interest and the president s interest in having that no longer treated at a capital gain, no longer getting that preferential tax treatment, but it didnt. Its still part of this bill we know many people in the private Equity Industry who will benefit from this, but its a small group of people, and a large group of people feel like this treatment is unfair why did this thing survive how did it manage to survive yet again . Well, i think that theres many people, obviously, those groups you talk about, hedge funds, private equities, who have a lot of influence in this town and continue to advocate for their own interests. Its not one the president supported, but pulling back again, guys, we look at this and say theres tradeoffs and certain compromises we make, and overall, the package is something were very excited about and we think is going to generate a lot of growth for our u. S. Economy the president campaigned on removing carried interest. I think the score of it is not that significant, but politically, it does show that the president is more interested in not looking to protect the private equity and hedge frundz of wall street and is looking to have more of a balanced playing field. We do feel there are a lot of deductions we eliminated including oil and Gas Production deductions and also lobbying deductions are no longer allowed to deduction your lobbying expenses those are steps forward in the path to draining the swamp, but carried interest is one well have to fight another day. How much more difficult does the white houses job in getting its agenda enacted become next year when you have doug jones taking the seat as a democrat for alabama. You have two republican senators who have Significant Health issues, and there are questions about the future for House Speaker paul ryan after midterms how do you see the Party Divisions shaking out . Well, first, im anxious to complete tomorrow nights agenda and get through the tax reform battle and to complete the end of the week, the government funding, before we look to 2018. But i think on doug jones, its an interesting question. Will doug jones come to washington and represent the people of alabama and their interests . If so, i think it could be a Great Partnership for us we could begin to have things done on more bipartisan manner if he comes here and decides to partner with the Bernie Sanders Sanders Elizabeth Warren democratic party, youll continue to see the obstruction we have had with senate democrats. How much longer are you planning on staying around you said youre having fun in a sick way were on the verge of victory. Were excited the way the economy is turning around. We think we have made enormous impact on the regulatory front we look forward to the tax package. We appreciate your time in a busy week. Marc short, the director of legislative affairs from the white house. When we come back, taking a look at pictures there, crippling power outage at the worlds Busiest Airport. Well bring you up to speed on whats going on in atlanta and its a busy morning in the world of mergers and acquisitions well break all of that down as we end the year here with Morgan Stanleys vice chairman, Robert Kindler. A lot more on this record rally. Stocks right now, as you can see, having a strong open. Its a small finger. A worm like, a dagger . A tiny sword . Bread. Breadstick . A matchstick a lamppost coin slot no . Uhhh. 10 seconds. A stick a Walking Stick eiffel tower, Mount Kilimanjaro ding time sorry, its a tandem bicycle. What . What . as long as sloths are slow, you can count on geico saving folks money. Fifteen minutes could save you fifteen percent or more on Car Insurance. Bringing the worlds Busiest Airport to a halt. Were joined with the latest on that ordeal. Hey, phil. Not a fun sunday for hundreds flying through atlantahartsfield jackson airport, or those hoping to fly into that airport. This was the scene yesterday when the airlines were basically shut down because of a power outage flights are gradually increasing once they restored power, you saw the lights come on there that happened around midnight. 413 cancellations today, and the ripple effect, well feel this through the middle of the week delta is the most impacted as they try to get their schedule up and going today delta is canceling 296 flights today. Lets look at a tower cam, if you will, of the tarmac at atlantas airport. And you can see, some of the planes there, they were backed up a fairly substantially yesterday, and again, theyre starting to increase their flights today, and it will take a couple days, guys, for them to work this out. Theyre still searching for the exact cause of the fire that sparked the power station underneath the airport to go out, which caused the outage for the entire airport back to you. Okay, phil, thank you phil lebeau will keep an eye on that lets get back to the markets, sitting at record highs. Optimism for a tax deal this week you hurt mr. Short from the white house giving us the calendar going to be here very quickly, it would seem. Joining us now, peter, global chief market strategist, and Burns Mckinney peter, let me start with you can we keep this going when does this thing end well, its hard to say, but it only ends when the global liquidity backdrop changes yes, tax reform is very, very important. Clearly, for animal spirits and other reasons. But the global liquidity backdrop is tremendous right now. Even though the fed appears to be tightening, when you look at the boj and ecb, over the past two years they provided about 4. 4 billion in liquidity, and that has underpinned risk in my view although theres an expectation were going to start to get tightening in europe next year, not to mention our own fed. Cant speak for the bank of japan at this point. Isnt it possible that backdrop changes . Well, when i see it, ill believe it because i think when mr. Draghi came out with his most recent dovish taper, if you will, he had incredibly dovish language around that statement i think hes going to continue to do it for as long as he feels he needs to, especially with the inflation backdrop not approaching his goal that will continue to drive equity prices . I think thats right. Burns, not necessarily everything or sometimes anything changes in the markets with the turn of the year, but i wonder what you think of the starting point we have here, the way its shaping up for 2018, just given how much Progress Global equity markets have made, where the valuations are and the outlook for whether we can get marginal good news on the fundamental front. I think you hit the nail on the head when you noted the starting point the point of which this year youre going to be starting the year with the s ps pe multiple 19 times up from less than 17 times at this time a year ago. So the good news is never always its never fully baked in, but that said, i think one major headwind we will face next year is were starting from a very rich point. At about 19 times earnings a couple years ago, all the market rally came from multiple expansion. During 2017, probably about half from multiple expansion and half from Earnings Growth and really, we expect for 2018, its going to have to come entirely from Earnings Growth, which probably should mute the returns just a bit, and likewise, continue the rotation into cyclical value equities so where does that bring you in terms of what earnings are going to do to deliver the returns next year . We have about 20 on the s p this year. Yeah, its not a very bold call to say we dont expect it to go up quite that much but were looking at s p earnings of about 142 next year if you take a trailer p. E. Multiple of about 19. 5 times which is where we were prior to the election, its not the longterm average, that gets you to about 27. 70, so youre looking at an absolute ice return of about 3 to 4 you tack on a 2 dividend yield, so i would argue thats really a bit lower than what a lot of folks on the street are saying now, that said, within that, if you do have more muted returns, that really is a sweet spot for dividend paying equities peter, tax bill, benefits priced into this market already . I think they are. Why well, we have been talking about this since november. Okay we have a bill thats very complicated. Theres one thing its not doing, not simplifying anything. I think there are a lot of tradeoffs here i think this is more about Wealth Distribution frankly than Wealth Creation. And at the end of the day, even if there is some Wealth Creation aspect to it, its shortterm in nature tax reform rarely, rarely lasts for all that long. And you know, to your other guests point. Were starting at a very high level on u. S. Equities, and frankly, global assets around the world are very well bid. Im begrudgingly bullish here, but you have to look at valuation in the context of rates and how low rates are. We have seen the tenyear havent the tenyear yield at 2. 35 boons are at 30 basis point. As long as the global rate paradigm stays where it is, everything is a relative valuation call the risk reward to earning ecwouldies here is not good, but were dealing with markets that are not functioning in the way they have historically we keep hearing people say they cant afford not to be in the market when they keeping it going up and up, and burns, to close out, i would like to ask where you would be preparing for unintended consequences of tax reform in the market is there anywhere youre looking besides the sheer cut on the corporate level and this redistribution to say maybe i need to reallocate my investments there . Absolutely. I would say a bit of a contrarian call, given the cpi was just recently muted. Janet yellen has really talked down the risk of inflation, but i think one unintended consequence of the tax reform would be its inflationary effects, which like wise would lead to higher Interest Rates. And of course, really two things kill an expansion. One of which is a recession, and the other is when you have Interest Rates rise sharply. And i think that overlaying, the stim yulus is really larger than it was planned now that theres also going to be tax cuts to individuals. That said, there is a slight risk of things, if anything, to the upside, overheating and leading to Interest Rates rising sharply. All right, which would be bad if it happened it would. Not expecting that. Thanks to you both when we come back, another big step for bitcoin opening for futures trading at the cme. Take a look at it right now, down 2. 25 and later, the founder and ceo of Interactive Brokers, tom peterffy joins Rick Santelli his warning over the crypto currency craze more squawk on the street coming up. Stay with us at cognizant, were helping todays leading Life Sciences companies go beyond developing prescriptions to offering subscriptions with personalized, realtime advice for lifelong, healthy living. Honey . You almost done . Nope. Get ready, because were helping leading companies see it and see it throughwith digital. Traders theyre always looking for advantages. The smart ones look to fidelity to find them. We give you research and datavisualization tools to help identify potential opportunities. So, you can do it this way. Or get everything you need to help capture investment ideas and make smarter trading decisions with fidelity for just 4. 95 per online u. S. Equity trade. Fidelity. Open an account today. Last night on the Worlds Largest Futures Exchange, the cme. Dom chu has been monitoring that and joins us with more kayla, we have trading volumes right now as of a few moments ago of 830 contracts for the cme contract futures the big difference between the cme futures and the ones on the cboe is its with five bitcoins per every one. You can see the trading volumes are not that far different not that big a difference between the cboes first day of trading. You look at the prices, Bitcoin Futures on the cmoe, 19,095. So that spread has actually been narrowing. It was a few hundred dollars wide at one point today. Were seeing the markets get them both into line. The important part is how they fare on all those fragments exchanges. Check those out here as well the price of Bitcoin Futures are still pretty different 18,850 for the spot market for bitcoin. 19,050 in terms of the Bitcoin Futures market well see if that gets more into line theres a premium that people expect in the futures market for the ease and convenience of trading in futures overall, institutions like hedge funds are starting to look at getting into bitcoin some of the concerns they do have, we spoke to mike harris, the president of campbell and company. Theyre a Commodity Trading adviser, a cta they develop Hedge Fund Strategies that trade in the futures and commodities markets as well as currencies. They have a number of different concerns quality of market data, liquidity, volatility, trading cost, and regulatory uncertainty. A lot, 123 have started this year, thats according to the folks at Autonomous Next Research fund that tracks finTech Companies. Its the dawning days of an asset class, it looks like well see how it plays out appreciate that. When we and back, merger monday plenty of deal news out this morning, plus whats on tap for 2018 Robert Kindler is withs en quk t seet returns what we do every night is like something out of a strange dream. Except that the next morning. It all makes sense. Fedex powers Global Commerce with vast, farreaching networks. Deep knowledge of industries. And, yes. Maybe a little magic. Good morning, everyone im sue herera heres your cnbc news update at this hour. A developing story out of england. British Police Reporting a, quote, significant incident at a Royal Air Force base used by the u. S. Air force in suffolk. British defense source saying a car tried to force its way inside the base and a suspect has been arrested. Firefighters are hoping the calmer winds will help them battle the Southern California wildfires, potentially dangerous gusts are expected to return to the region by wednesday. The socalled thomas fire blaze broke out two weeks ago. Its still threatening thousands of home northwest of los angeles. Carolina panthers owner Jerry Richardson planning to sell his nfl team after the season. Richardson is the target of a growing investigation which accuses him of Sexual Misconduct and using racist language at work and the u. S. Postal service gearing up for the busiest week of the year. Theyre expected to process and deliver nearly 3 billion pieces of firstclass mail along with 200 million packages through christmas eve. Thats the news update this hour i will send it back downtown to you, david see you next hour. Okay. And i will take it thank you, sue stocks are moving higher at this hour. Certainly partially on hopes of passage of tax reform. But it may not just be equities overall. The tax plan could also potentially spur at least some hope, a wave of Mergers Acquisitions here to give us some insight, rob kindler, global head of mergers and acquisitions at Morgan Stanley nice to have you back. Good to see you lets start off with the news of the morning, this idea in particular of all this cash conceivably coming back in a very advantaged rate will Companies Use it to spur a new round of m a i actually dont think that offshore cash is anything to do with m a i made the point that it was hard to do deals because no one knew what the tax rate was how do you value a company when you dont know what the tax rate is theres been plenty of capital available. When all this cash comes in, i dont think thats going to affect m a the issue is going to be whether the opportunities to spend it. Because the value of companies is up considerably i think, you made the point and jim cramer before, that the market hasnt even fully reflected the value to individual companies of this tax reform, which could cause stock to go up even more you made the point about comcast. Thats one of the Domestic Companies where the stock should go up. Youre absolutely right. I think values are going to go up i think values are going to go up to your point, and i think its an important one to make because you hear this refrain. Money is going to come back in m a. Companies have had access to as much capital they want and need to do deals over the last five years, havent they . Its totally a red herring. This cash will come in thats fine, right do i think a lot is going to be used for buybacks . I do because thats really because theres not enough, i think, m a opportunity. The fact is that the market generally shareholders are looking for m a, and shareholders are looking for Capital Investment but you have to have the opportunities. And buybacks are not really in favor as a strategy, but with all that cash coming back, of course, there are going to be buybacks and m a will drive. To the point we have made in previous conversations and others have shared, until you knoo whether there would or would not be tax reform, making the decision as to whether you want to buy a company or sell your company was more difficult. We are going to have certainty now. Is that going to help . Certainty, when you can do the math you can actually figure out the math, thats what mattered not this repatriation, not any of that. When i was here last time, i basically said the two issues that were holding up m a were tax reform knowing the rate and obviously regulatory, which we have talked about. We talk about european regulatory we have to talk more about regulatory because i think we find ourselves in a particularly strange time right now, rob. I had people on our air last week when disney fox was finally announced saying horizontal deals are fine and vertical deals are problematic. What the world has been turned on its head how can you know whats going to work and not work in this environment when it comes to regulatory uncertainty is a big deal and so over the last couple years, everyone understood when u. S. Foods cisco got blocked everyone understood, it may not have been the right decision, but the insurers, the Health Insurers getting blocked horizontal merger is always an issue. Last time i was here, i said at t, theres prr no basis for that deal to be blocked. I still believe theres no basis for that deal being blocked. But theres irony. Jim stewart was here saying what are we talking about here. Theres issues with a vertical, yet you have a horizontal merger with the number one studio as well as espn and the cable how does that color the advice you give to potential ceos who are thinking of buying or selling a particular industry i think its complicated. I think there now are a lot more uncertainties in the system. I do think at the end of the day we do have a core system, and i think rationality will prevail do i think at t will end up prevailing absolutely i do, just like i said last time by the way, if they dont, which i think is an incredibly low probability, then its game over game over if the doj wins game over for all these media mergers because theres no basis upon which they can say theyre blocking that and not blocking others but i dont think theyre going to win will it let disney fox go through . Totally unprecedented totally unprecedented. If that were to occur, you believe that would put a lid on m a activity overall in media, for sure. And in m skn a, absolutely, because you really dont know whats happening again, i have faith that the law will be applied, which is that vertical mergers, where youre not eliminating a competitor, should not be an issue, and horizontal mergers are case by case were ending the year with momentum cvs, aetna, disney, fox, two of the largest deals of the year. Is it your expectation as you look into next year based on what you know and conversations and activity that were going to start to keep seeing that level . Yeah, and you know, i saw some deals announced today where the markets lagged this year are large deals theres been the same number of 5 billion deals, et cetera. I think were going to see more large deals next year. Why again, with the uncertainty, theres a number of Large Companies that really should consolidate. They have been waiting, havent they its time to do it do you think theyll get to the finish line . Thats always the key question always the question, but were always optimists in the m a world. Always a good time for m a is it always a good time for m a . Next year, with rates potentially heading high also rates have never really mattered as much as the availability of leverage and so whats going to drive m a . I think low growth you guys said it before earlier in the Program People are starved for growth. We may get higher growth, but theres no real way of getting growth unless you do m a i dont see any reason why it shouldnt be strong. And finally, every conversation has to end with activism where you typically defend almost always. Solely defend never on the other side. Never are it continues activism continues to play an Important Role and actually help you sometimes, we were talking about elliott getting inering will they force a sale there do you expect the same pace in terms of activism . Whats been very, very interesting, and youre right, the overall pace has gotten quite good but theres been a shift if you look this year, gm won its proxy fight overwhelmingly adp won its proxy fight overwhelmingly just last week, mercato lost, and pnp is more complicated, but p g won a complicated race who would have thought five years ago that he would have been struggling to get one seat. So its an entirely different world for activists now because they have a real risk of losing on this. You dont think they had a risk of losing a number oyears ago . No. There were battles where the activists didnt putting one or two seats on a board was always a relatively easy thing to do are companies more willing to fight now . I think institutions are much smarter. I think institutions are saying why should this guy with 2 have a board seat i have 9 , i dont have a board seat so theyre really looking at whats best for the company. Its not just a reflex action. All right rob, thank you and thank you for putting to rest this constant refrain about capital coming back, im going to use that sound bite of you from now on. Sounds good rob kindler, vice chairman of m a at Morgan Stanley. Youre going to get a lot of mileage out of that one. Great interview. Speaking of Procter Gamble and that board seat nelson peltz will be taking shares are up just shy of 1 following that highprofile proxy fight. Well talk about that. When we come back, Interactive Brokers founder and Interactive Brokers founder and ce number one in customer satin over cable foro tom ars running. Dont go away. Just like some people like wet grocery bags. Getting a bad haircut. Overcrowded trains. Turnstiles that dont turn. And spilling coffee on themselves. But for everyone else, theres directv. For 1 rated Customer Satisfaction over cable, switch to directv. And for a limited time get a 100 reward card. Call 1800directv let out your inner child at the lexus december to remember sales event. Lease the 2017 is turbo for 299 a month for 36 months. Experience amazing at your lexus dealer. Yes or no . Gin. Do you want the same tools and seamless experience across web and tablet . Do you want 4. 95 commissions for stocks, 0. 50 options contracts . 1. 50 futures contracts . What about a dedicated service team of trading specialists . Did you say yes . Good, then its time for power e trade. The platform, price and service that gives you the edge you need. Looks like we have a couple seconds left. Lets do some card twirling twirling cards e trade. The original place to invest online. S p 3,000 next year. Hell tell us how we get there tdinaonnbcoonrangti. Cc. M. More squawk on the street coming up. Now lets get right out to the cme group in chicago where Rick Santelli has a very special Santelli Exchange this morning hey, rick. Yes, youre absolutely correct, mike. Thank you. I would like to welcome a legendary pioneer in markets and trading and clearing, Thomas Peterffy mr. Peterffy, thank you for joining me this morning. Thank you, rick its a pleasure to be here listen, you have been rather vocal with regard to your nervousness regarding bitcoin and the risks associated with it from the viewpoint of what you do you run a firm futures clearing merchant. My question to you quite simply is if you were a regulator, would you have allowed the contract to be traded on regulated exchanges . I would have allowed that, but i would have insists that it be cleared in a legally separate entity because you see the problem with bitcoin is that it can basically go to any price and then we mix it together with other products, anything can happen now, i understand that, but i know that many firms are requiring 100 margin and restricting shorting theres very little risk to the fcm under those circumstances, is there well, i wouldnt agree with that because we, for example, require 50 margin on the long side but 400,000 per cme contract on the short side, which is basically 400 . And i dont disagree with the short side i understand it, if you put up full margin for bitcoin, if its trading 18,000, you put up the 18,000 on bitcoin, if it goes up, youre obviously not harmed. If you dont allow shorting, you have more money than that price. But a market that only is represented by one side of the trading population also opens up the contract to have other risks, would you not say that . So i think the basic risk is that among the clearing members, there are some smaller brokers and bitcoin could practically go to any price it could come in one day and it could be trading at 100,000 a coin and then the smaller brokers will go bankrupt and the winners will not get paid. So when you are somebody who wants to trade bitcoin, you have to realize that what the risks are in addition to your own risk about your own position. You know, back in the day, Warren Buffett had a saying, he thought that derisk tivs were toxic. I guess in the end i agree with you that they should not have been disallowed. They should be allowed, but i also dont see the notion that anybody is forcing any firm to clear these transactions for bitcoin. I look at this landscape, and i see that there are a lot of risks. If a firm like yours doesnt want to assume the risk, lets be honest here, lots of risk for very small commission dollars per contract, just stay away from it. Isnt that just as viable a solution absolutely you see, on a contract which has 15 on a cboe contract which is one fifth of the size, we charge 5 on a regular future contract, we only charge between 25 cents and 85 cents per contract. So you have to gather up pennies in order to pay for the several Million Dollars if something goes wrong yeah, no, it really doesnt make much sense when you put it in those terms finally, my last question is, many stopped and didnt realize that, yes, its an unregulated product, the Futures Industries are regulated. The trading now opens bitcoin up to lots of things. A, more eyeballs from regulators b, now all that trading is going to be taxed and leave an audit trail. Do you think that will make a difference to bitcoin investors . Well, i think that bitcoin being listed on two reputable exchanges gives a great deal of reputation to the product itself and i think that as a result, it will become even more popular than its been before. And basically, people ask me, what is the point in bitcoin im saying, well, what is the point in gold . Its very similar. Its an emotional product. It has no rhyme or reason for having the price that it has but it could be, a small probability it could become very popular. Well, mr. Peterffy, i really respect your position. Thank you for your honest answers, and in the end, im not sure the outcome of bitcoin, but im glad regulators didnt disallow it from trading on regulated exchanges. Thank you for your time. David faber, back to you thank you, Rick Santelli. Lets send it over to jon fortt and get a look at whats coming up on squawk alley. Jon. From bitcoin to media acquisitions to tax changes. A lot in the water for tech in 2018 well take a look at what it means for the future leinupn quk osaw aly. I think we should do that meeting tomorrow. Well wait. What did you think about her . Its definitely a new idea, but theres no business track record. Well, have you seen her work . No. Is it good . Good . At cognizant, were helping todays leading banks make better lending decisions with new sources of data so, multiply that by her followers, speaking engagements, work experience. Credit history. That more accurately assess a business chances of success. This is a good investment. Shes a good investment. Get ready, because were helping leading companies see it and see it throughwith digital. I just finished months of chemo. But i dont want to talk about months. I want to talk about years. Treatments have gotten better, so. Im hoping for good years ahead. Thats thanks to Research Funded by the american cancer society. The same folks giving me free rides to treatment, insurance advice,and a place to stay during chemo. I need that stuff like you dont know. And now that you do, please give at cancer. Org ubs facing a barrage of litigation from thousands of clients over funds targeted at puerto rico residents. The funds were filled with puerto rico debt and imploded as the islands economy began to crumble. A cnbc investigation revealed a cultural crisis over the sale of these funds and leslie picker joins us more with her story, broken bonds. Here are two brokers that blame ubs, saying they were blind sided by the risks associated with the funds. Jorge and teresa bravo are a brother and sister team who say ubs recruited them in 2011 in the beginning all things started well, as they sold to 200 clients, even teresa invested her own money today the bravos say their reputation is ruined how many complaints did you have before ubs one only one. How many do you have now . Maybe 14. All because of the product the product exploded, basically. They say that product, the funds filled with puerto rican bonds, destroyed brokers like the bravos and their clients the bravos eventually had enough, writing in their Resignation Letter in 2015 that they felt oppressed and harassed by ubs new yorksmanagement directives related to unreasonable demands upon brokers. The company, they say, routinely pushed brokers to sell the funds. But ubs didnt tell you what was inside no, of course not they didnt tell you how concentrated it was in puerto rican debt no. They were supposed to be diversified with u. S. Bonds also the bravos say they are also in litigation against ubs. The company is fighting the claim, saying that during the bravos tenure, they received more than 1. 6 million in loans from ubs, which they refused to pay back any comments they make now should be viewed in light of their obvious financial incentives, ubs says do you believe that you share any blame in what happened in a way, i guess i did because of believing in ubs management believing that they were telling me 100 the facts. Believing that they were protecting our clients assets believing that this is going to be the best for the clients, but now i see that, of course, i didnt have the information. Ubs declined to make anyone available for an interview, but a spokesman wrote in a statement to cnbc that concerns about the puerto rico economy and its prospects have been the subject of wide public debate and press coverage for many years, but no Ratings Agency or analysts predicted anything like the precipitous drop in bond prices that occurred in august and september of 2013. He added there were no undisclosed issues with the funds and that the funds generated taxfree returns greater than 12 in 2010, 2011, and 2012 what motivation would the company, ubs or any company, have to not disclose to their own brokers what type of product they are selling why would a company do that . It was imperative for ubs to make sure these bond funds werent on their own balance sheets, because they were very risky, especially over the course of the last decade. They got extremely concentrated in puerto rican bonds, and as you know, puerto rico was in a decadelong recession, so the more concentrated the funds became, the more risky they were for ubs to maintain them on their own balance sheet. These were traded within ubs, they were not listed on an exchange, so if they werent able to sell them to their clients, then they would be stuck with them on their own, and that could be risky for a firm just recovering from the financial crisis and leslie, just quickly, the nature of the customer complaints is they werent disclosing the riskiness of the investments at this point . The nature of the customer complaints was they were told to keep buying these bond funds even as the economy was crumbling. They knew the disclosures were there, but dont believe it was in plain sight reporting also found bond perspectives were not translated into spanish, which was the primary language spoken on the island, and so they argue it was not fair for them to have to understand the small print and that it was the brokers responsibility to inform them. And this is just one small part of a much bigger story youre going to be covering throughout the day thank you. Thank you when we come back on squawk on the street. Venture capital investor and Founding Partner of draper associates, tim draper, will join us. His take on the cryptocurrency craze and much more. Squawk alley is coming right up at tmobile when you holiday twogether, great things come in twos. Like tmobile and netflix. Right now when you get an unlimited family plan, netflix is included. Wow tmobile covers your netflix subscription, so you can catch the hottest new movies and shows all year long on us. Amazing and its your last chance to buy any of these hot new Samsung Galaxy phones and get a 2nd one free. Thats one samsung for you and one to gift. Just in time to finish off your list. Tmobile. Holiday twogether. Music plays throughout hey yeah . I switched to geico and got more more savings on Car Insurance . They helped with homeowners, too ok plus motorcycle, boat and rv insurance geicos got you covered like a blanket houston . You seeing this . Geico. Expect great savings and a whole lot more. Welcome back to squawk on the street. Consumer discretionary stocks in close focus. Macys, goodyear, marriott, as well, a lot of movement in that Consumer Discretionary space that does it for squawk on the street. Back downtown for the Stock Exchange and start of squawk alley. Back over to you thanks, dom good morning, its 10 00 a. M. At the cme headquarters in chicago, 11 00 a. M. Here on wall street, and squawk alley is live