Transcripts For CNBC Squawk On The Street 20180226

Street. Im Carl Quintanilla a strong close with buffett on squawk. Fed chair pal on the squawk tomorrow we begin with futures pointing to a sharply higher open on the twoweek rally and buffetts advice for the longterm investor despite volatility, buy equity, not bonds. Ge is planning to restate three new candidates to a streamlined board of director. And the chip war continues over qualcomm urging broadcom to engage in direct talks for a takeover deal. Buffett is one of the big stories of the deal saying Berkshire Hathaway received the new tax law. Heres what becky said earlier on squawk. We had about 100 billion of unrealized gain in equities. Now, when they are sold, you pay tax on that. And previously when the tax was 35 , we would have had a 35 billion reserve for taxes against that as a liability. That would drop to about 21 billion. So 14 billion roughly that was a reduction in the amount of tax that when we saw those securities, we will pay. It wasnt cash now, but it reduced the liability. When you reduce the liability, the net worth goes up. And the other important point related to the same thing, deferred income taxes, when we buy some kind of fixed asset, locomotive or whateverit may be, were entitled, in previous years, to 50 depreciation in the first year and lets say its going to last ten years, it may last longer to make it easy, but you would normally on a book basis depreciate it 10 million a year on a 10 million asset over ten years. For tax purposes, you have to have depreciation and take 50 of it the first year so youre going to get the same amount of depreciation over time, but you have the Tax Deduction earlier. And that became a deferred tax and we have a lot of that. Obviously, a lot to breakdown here shorter letter than usual, but does say they have been a net buyer of stocks this year. Confident, fairly confident, hell find ways to deploy 116 billion in cash. Just incredibly enjoyable, as usual, fabulous job by becky quick and the squawk team. Joe emphasized the situation but i thought what was most interesting is this man taught for three hours. He taught you act tax reform in a way that was english he taught you how to invest. There are certain assets not investable, he mentioned the vix. He talked about owning companies as a way to make money it was spellbinding i know my wife is saying, what are you doing . Why are we watching this can we save this until we get to work great to have us back, this is the most supportive three hours youll get about the security analysis once a year. Take a look at the longterm performance from 1965 in the letter we read over the weekend that brings the point home im reading it this weekend. Also was struck by themes that hes hit on many times on emergers and acquisitions. They want to do a huge deal, however, he doesnt see things at the right value at this point. Of course, as he has done a number of times, talking about all the reasons why companies overpay, whether it is excited bankers or ceos looking to make a statement or so many other things to get wrapped in a deal. Also interestingly stating the doesnt include synergies when they think about a potential transaction as well. They have an enormous amount of cash at berkshire. And they do want to do something huge, but it is unclear what it will be. That is really an important takeaway theres almost like theres a buffett foot we went down so quickly, 9 with 60 return but one thing i think about when stocks come down after listening to that unbelievable interview is buffett is not just sitting back idly. He feels like he needs to make a move i imagine prices come down for some time, he will make a move. You know, every time he comes on, he talks about stocks over bonds, gives it to the fund managers, gives it to leverage, but some still point out this morning his largest position is cash right . What does that say about buffetts view of the market right now . Well, i think that he likes to buy companies cheaper than they are i would counter by saying, well, hes been buying a lot of apple here, so hes found something there. Extraordinary consumer franchise. But it is true, hes not sitting there and saying, you know what . Im going to put a lot more money to work in a given sector. It did not impress me as a moment in time where he is saying, you have to go buy stocks i think what his comment about how he likes to buy certain pieces of companies was very intriguing to me because what hes basically saying is there are assets out there that are buyable, but they are not big companies. Kind of extraordinary. We talked about apple, of course, which hes bought more of than anything else in the last year. He said, heres what he told becky. If you look at our holdings, you would assume that we like them in the order in which they rank by dollar value holdings. But if you look at them in terms of recent purchases, you know, over the last year, we have bought more apple than anything else can i take it and run with that as your headline, apple is your favorite stock . , no because i have not been telling you what i have been buying for the last week he went on to joke that he still has a flip phone tim cook sometimes says why. And buffetts answer says, that means the market is not saturated yet. I like that and the fact that he always mentions his kids. When talking about the ecosystem they want to be a part of. I was listening to john fords excellent coverage out of barcelona for the mobile conference and talking about the samsung phone. Its always funny because samsung is clearly a dominant player but it doesnt come up to the ecosystem that a warn Warren Buffett talks about. When we sit about the 30 in growth of phones from apple and what that means, he calls it a Consumer Product company when youre on the rather, im going to say this rude Conference Calls with the exception of Shannon Cross on the Conference Call that was differential, you hear about, come on, its a cell phone and has to go away go away meaning theres no growth there was an interesting quarter on friday with hp talking about how theres a challenge growth category but in the end, the idea that you can raise your average selling price as apple did the continual neglect of the Service Industry as a price factor makes me feel like the warn re bu Warren Buffett when you go buy a gillette rara, and you have the same Plastic Thing you cant get it out the Cash Register person cant get itat it. To your point, theres a revising of the multiple to account for that i dont know if it is when the revenue stream reaches, what, 20 overall . What it needs to be, i can imagine us sitting here and talking about how suddenly there are people who are revising the multiple higher, if, in fact, they are successful of that, jim. Apple is the second largest dollar position. Wells fargo is still the largest position at the company. He did talk a bit about wells and the challenges this morning. I thought the wells comments came very early in the morning were indicative of two things. He doesnt think its over he did praise tim sloans worth. But he said something, and i would like to, he doesnt like picking the government in the eye. Now, was that something that the government, that kilwells was doing . Or is it something it is doing i was not comfortable with tim sloan saying, you know what . Madam chairwoman told us we cannot grow, but we have ways to ship things around so we can grow that to me is poking the fed in the eye. The continual comparison to solomon brothers is quite daunting uh think wells is a great bank and will get through this, but this is not the thing that made me say, i feel great about wells. It made me say, they will get through it and that is not the endorsement i would like to hear from someone who is the largest shareholder. Well talk more about buffett throughout the morning really quickly on ge today, they nominated three new directors for the board. Former american ceo thomas horton, and fsb chair leslie sideman. The overall size of the board goes from 18 down to 12. Directors who will not stand for redirection, deckers, hockfield, henry, jung, lazarus, moore and shapiro. This is a board and the guys and lady better get ready to be very, very busy. They have to hit the ground running. Interesting to note that mr. Horton is lead director at qualcomm hes got a lot on his plate right now, not to mention the director of walmart. Qualcomm conceivably, well have more on that in a moment, may wrap up in the nottoodistant future of march 6th. They are trying to figure out the insurance loss and revision. What they should have known and didnt know in the board brennon stays on as the lead director and will be gone in 19. This sport is cull kabl to a certain extent, whether they knew or didnt know, they should conceivably had known more but you can make a larger announcement how little boards do know what is going on at companies. And as i have said before, a company in major transition to include options to break it up, potentially find dimpbt homes for aviation and health care for example, but well see where that ends up these People Better be ready to hit the ground running with a lot of decisions to be made. They did talk about a restatement. What i think of is, did you buy the stock because the numbers were going to be up more in Warren Buffett talked very eloquently about how aggressive ge is in the booking of profits. Referring to power that is not something that will the sec likes. The sec ge can say whatever it likes about this material and disclosed it for theres a 15 reduction, 9 reduction, i can easily focus on that even though temp else em said they lost over it but the main thing was the footnote in the back of Warren Buffetts incredible letter. And the footnote was devastating. It said that ever since the deal he did with aig where he bought the long tail, the Reinsurance Firm for longterm care, he missed it. He actually used terms that i would on the board of ge i would be shaking he basically said you mean it will be more than 22 billion, jim, is that what youre saying . I think so easily how can Warren Buffett be so wrong and fast in the same year . They are hoping it is a contained number, 22 billion. He disparaged the deal to make a deal with kansas and the regulator there. It was devastating it says we got it wrong if we got it wrong, what else is there . I would not disagree with Warren Buffetts analysis well talk about health care and a lot more well get to other news as well including qualm. Comcomms messa broadcom were back in a minute where can investors seek predictable income in an uncertain world . 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 one hundred fifty billion dollars in real assets. Partner with pgim. The Global Investment management businesses of prudential. This is where i trade and manage my portfolio. Since i added futures, i have access to the oil markets and gold markets. Okay. Im plugged into equities trade confirmed and i have Global Access 24 7. Meaning i can do what i need to do, then i can focus on what i want to do. Visit learnfuturestoday. Com to see what adding futures can do for you. Got some new news on the ongoing conversations and, well, kind of a battle between bro broadcom and qualcomm. They are voting to see how many of the six directors that broadcom nominated for qualcomms board in a letter written dated february 26th to hock tan, by the way, qualcomm lays out the following. There was a meeting that we did not know about on friday in san diego. It took place at 1 00 eastern time and it really only involved the principles here, tom horton, the lead director, steve malakof, and the numbers more or less at broadcom in the meeting, they did seem to make some progress on concerns about antitrust that qualcomm continually had about the broadcom officer and there was a willingness in part of broadcom to consider raising a reverse break fee that stands at 8 billion but could go a lot higher. They want as much as 9 of the enterprise value which would get youcloser to 1 or more billion dollars. One area that remains the key stumbling block is price and qualcomm has basically put it to broadcom saying, we can make and continue to make progress on antitrust. We no longer want you to have a hell or high water provision but you have to come up in price because you are nowhere near where we need to be. To emphasize that, let me go back to our interview theres a week with the lead director of qualcomm, tom morton, the man who is leading these negotiations interesting, isnt it . Jacobs writes the letter, horton leading the negotiations, mollenkoff not the center, they want it to appear that way, but heres what horton said about the 82offer but now a 79 offer from broadcom. If you look at our 2019 and next projections, which are now more certain than before with the plea deal, around 7 a share. 82 represented 11 to 12 times multimillion on that, the semiconductor multiple average is around 18 the president deals around 22. So it is not close to what the value of the company is. And that is the boards view. They would immediately say, up even if the semi industry is rated higher let me tell what you could be going on here. The board of qualcomm met with shareholders last week for a first time in a significant way. Horton has as well, but the qualcomm shareholders do not like that company. And i believe based on reporting they certainly think there is a decent chance they would lose all six. They engaged to a certain extent, they meet some of the criteria that i assess and put out there and you are saying, what are they calling this they call it engagement theater. It is their belief at this point it is not really about true engagement why would it be . Why would they make a public announcement if every time they sign the mba, then they can extend the meeting and buy themselves more time and try to win over their shareholders well see, we dont know how the shareholder vote is going to go. The index funds are always a question mark, but there does seem to be hostility for shareholders who run the company. Takada people feel about the increase in price, the acquisition qualcomm is making. Some believe it was a strategic me sis ty sisty myste. It will be a close field at this point, even with the bizarre move to lower the price from 82 to 79. Theres a lot of part on the border to offset. Do you want to go with a winner or a loser . Well see well keep watching this closely. The biggest deal ever inside of a week to go. Well get the mad dash and the opening bell dont go away. But to us, its the pace of tomorrow. With ingenuity, technologies, and markets expertise we create the possible. And when you do that, you dont chase the pace of tomorrow. You set it. Nasdaq. Rewrite tomorrow. Mikboth served in the navy. S, i do outrank my husband, not just being in the military, but at home. She thinks shes the boss. She only had me by one grade. We bought our first home together in 2010. His family had used another insurance product but i was like well ive had usaa for a while, why dont we call and check the rates . It was an instant savings and i shouldve changed a long time ago. Theres no point in looking elsewhere really. Were the tenneys and were usaa members for life. Usaa. Get your insurance quote today. We have a question about your brokerage fees. Fees . What did you have in mind . I dont know. 4. 95 per trade . Uhhh and i was wondering if your brokerage offers some sort of guarantee . Guarantee . Where we can get our fees and commissions back if were not happy. So can you offer me what schwab is offering . Whats with all the questions . Ask your broker if theyre offering 4. 95 online equity trades and a satisfaction guarantee. If you dont like their answer, ask again at schwab. All right. Lets get to a mad dash for this monday nice to have you back next to me theres so much to catch up on i want to use this as a m metaphor obviously, one of the Great Companies that does Cloud Computing, oppenheimer comes out to say, buy this stock ahead of the Conference Call on the 28th. 125 goes to 135. I think this is important because one of the major themes that continues away from cell phones, obviously, is the notion of cloud Cloud Computing and how early are we we saw good numbers with cisco we saw varying numbers from hpe. But this is the daddy. And if mark if mark delivers, this one can break out and its been a great source of excitement about a group so i point this out because you dont need to make that call right ahead of the quarter its a dangerous call to make unless it is a fantastic quarter. So i think the analyst is staking a little ground here saying, this is the quarter that is going to move the stock yeah well, certainly a name that you have followed for us for a long time and know extraordinarily well well keep an eye on this. And we have a lot of things to cover this morning we are just getting arstted on squawk on the street. We have the opening bell about four minutes away. My name is Cynthia Haynes and i am a senior Public Safety specialist for pg e. 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The name to remember. When it might be time to buy or sell . With fidelitys realtime analytics, youll get clear, actionable alerts about potential Investment Opportunities in real time. Fidelity. Open an account today. You are watching cnbc live with squawk on the street. Coming off a late rally, we have pal on the hill starting well see how the market responds to his comments and we are dissecting what buffett said about the markets and health care, too, jim. He went into more than he said so far about the partnership with amazon and jpmorgan saying they are shooting to, not just shave a few points off the cost, but halt the percentage of costs on gdp. This is a pause for america to talk about the 3. 2 trillion business at a competitive advantage for our country. The most important thing is who will be the ceo. There was a new bit of information there that i did not expect hes talking about others getting in on it i agree this is jpmorgan having a competitive advantage with amazon or berkshire. It looks to be a Bigger Mission than that. Im not so sure whether jeff bezos doesnt want a win for his company before others win with him. Theres the opening bell on the s p at the bottom of the screen of the big board today. It is innovator and Investor Business Daily celebrating the new farmmi Agriculture Company in china maybe name a ceo within a year but dont expect any miracles any time soon. I know. And i think a lot of people are looking at jeff bezos and saying, wait a second, this guy is a miracle man i went to whole foods yesterday just to see the change they got the 5 back visa card more importantly, i bought, we bought nice goods there. When i get back, i go to nytimes. Com. And whole foods will pop up immediately. Thats a served this is not a idol it just has to do with the power of amazon all around you this is introducing six days ago, but a lot of people felt there hasnt been enough real sign that prices are coming down at whole foods i think when you have this cash back card, it reminds me almost like, frankly, like costco this is big. People are underestimating again what amazon is doing they just dont seem to understand that amazon wants to win everywhere including whole foods. Its not its no longer just an experiment is what im saying. No. 1509 is a new high. Somebody gets it even buffett wasnt surprised at the evaluation i know. What has happened is you have the third leg of the school, which has the advertising leg, the Amazon Web Services is just a juggernaut and obviously, its just the prime card it has become, really, a way of life looking around on twitter, someone is saying, there are other ways to get it i mean, i found myself thinking when coming out of whole foods, wouldnt it have been better had i ordered the detergent and towels from amazon or bought them from amazon at the store . Well, you get 5 back on amazon with the card. Yes, with the prime card. But i have to say is amazon has you covered 360. Yes, they do. And it is a rather amazing thing and cheaper than i thought it would be. Which is why we couldnntinue have the growing beat of questions on monopoly power. The New York Times magazine this weekend, it was out last week, many people read it with an interesting story focused on alphabet, and the market google power, relating to the europeans far ahead of us on this. But when you go back to read the clayton act or the sherman act, they dont have anything to do necessarily about price competition. Theres a lot more at stake there in terms of market power and were going to were going to be talking a lot more about this as the real threat over time to the likes of amazon or alphabet or facebook, i think, jim. Antitrust is trying to figure out itself innovation. Because when i hear you talking like that, it immediately makes you think, all the places amazon competes, we regularly refer to it as the death star well, look, while i was away, walmart reported and i always felt that maybe we were in a bipolar world between walmart and amazon and walmart has to spend a lot more see, the best defense for amazon in any sort of antitrust action is, well, wait a second, we have powerful competitors but walmart only 4 of the overall retail sales. Right but this is not standard and i think the antitrust department away from att time warner is pro growth. Youre probably right that it seems unlikely that any action would be taken but if youre going to put the risks out, i mean, they used to take action. Ibm, microsoft, at t, standard oil. No. It is remarkable the strength. And when you think about all the attention that facebook is having with ads and google, no, its market concentration and power. And i think that you will see increasing level of distance between amazon and everyone else its still pulling away. Someone on the program last week argued that when you have a player so big for whom profit incentive, they have been bequeathed this freedom from profit incentives, is our Economic System ready to handle that were they moving to a space and it is immediately disinflationary to everyone . What a great question the federal chairman jay pal will be on the hill. And i always felt that the missing ingredient is digitization well talk about real wages that were not up in january, but what youre really talking about is the deflationary power in the hands of the gdp factor. And if i were chairman powell and said, is inflation going up . There are other forces that never existed before and are keeping track and keeping in place inflation. And lets start with amazon. Its too powerful to not believe its a counterforce to actual inflation in our system. Lets spend a little time here on food, guys we can talk kraft hines or dean foods. Warren buffett steps down from the board. And there were immediately analysts who wanted to believe this will free up kraft hines to go hostile now i did send you that over the weekend. We went back and forth on it. So i checked it out. Thank you its not true buffett still owns a lot of kraft hines. They have two members of the board. He stepped off mr. Buffett and talked about this with becky hes 87 years old. Its a lot of travel for him, a lot of time for him. And he doesnt want to do that anymore. Does it mean that somehow they have now been freed up at kraft heinz to go hostile . No and theres not one iota of truth to that. As long as they own the stock and are an important part of the company. And you prefer they own kraft heinz. The belief is that will continue to be the case in terms of their approach that being to getting a deal done for kraft hooipsz, theinz,t failed to get a deal done in 2017 and it was such an important part of their story for investors. Wow, okay, im glad you clarified that obviously, i was discussing about i didnt say it to you, but is there a possible put for General Mills . A lot of people dont like the acquisition of above i happen to like it because i think that thats a category that if you go natural, you can win. But General Mills is down again. The analysts really dislike that deal but yeah, i thought there was a possibility. Because, david, that quarter from kraft heinz was not a great quarter. Why do i say that . They said that in the first paragraph. Nobody ever believes that it would be able to be done is denone we did an interview with emanuel fabier. And heres what he had to say about the possible of the takeover of his company. Take a listen. I joined this company 20 years ago to become the cfo. And already at that time there were rumors that danone was a takeover target. So yes, i think thats the case. You know, its a free market and that is how Financial Markets can work my concern is not that my concern is to make sure that, again, this company has a compass, knows where it is going and delivers. Those comments, of course, continuing to build the belief that if there were a potential bidder for danone, the french government wouldnt stand in its way, nor would mr. Faber then we can talk dean foods, too, jim interesting about dean foods this morning, obviously it is a disappointing commodity milk market but danone bought white wave in 2017 white wave is the exact opposite i bought their almond milk yesterday. White wave is exactly what kraft heinz needs. And yogurt is still a good category i did not know that when i was away a deal must be done in order to get out of the center of the store. And anything that can get them out of the center of the store can reignite kraft heinz they have an entire group of brands, you dont need me to tell you that. And i was looking at snacks as a great growth business, but kraft heinz doesnt own that people say periodically, can they get together . That doesnt seem to be in the cards. Not to mention the ability to go hostile and they have a new ceo as you say so it is unlikely. Well see what they manage to come up with but danone comes around and around and now with faber out there saying, hey, i get it. Free market. Kraft heinz, the quarter, look, theres one part of kraft heinz that will be with me is cheese whiz, where you get whiz whit other than that, i have not been stocking up on their party because i dont believe a nuclear war is on the horizon. Im glad to hear that as well you are back from korea did you tattoo the money five play from the fourth down . No. Rick who did have the tattoo, i find that im really channeling, kelsey who was playing in the mummers band, i only bring up the eagles because carl has not had a chance to congratulate me on the victory because you were away very positive across the board, except ge, you talked about the footnotes of break shires annual report pointing to continued concern from buffett about the liabilities related to longterm policies. We know ge has already taken as much as 22 billion, much of it unexpected, to reserve for its own longterm care issues. They were fresh on the board this morning by the way, Lawrence Culp is also on the board. This guy ran down to her for 14 years. Very well regarded executive is mr. Culp but ge shares going the opposite way of the Broader Market. And doesnt own it. Got rid of it. You sold it yes. Where did you sell it terrible price. I got a chance because i was able to finally not be restricted but when Warren Buffett, that was the aig deal where he ensured the longterm care headmitted in the early portio of the interview that he got it wrong, which then made me feel like, as much as i need John Flannery to get his arms around this, you cannot seem to get your arms around the idea that policies were written, which are on ge capital dividend, which hopefully will resume. Policies were written that were highly unrealistic how do i know this my father paid for this insurance. You dont want to be too impersonal, but he happened to have one of the policies ly not mention the firm because it was very ugly but he was receiving for, lets say a kind of the price of the auto insurance, care worth about 100,000 fulltime care and there were many people who bought the policies. You cant pay that little and get that long even longev longevity, the tables were wrong when the pieces of paper were written. And the cost of home care has skyrocketed. Its a double whammy that Warren Buffetts company misjudged this all i can say is, who are we to think that John Flannery, as much as he wants to get around this deal, couldnt be more accurate than Warren Buffett. They are trying. They are trying. They are hoping that was the end of it. By the way, ges impact on the dow is close to zero, two points today and an inch on the show is brought up repeatedly that it exists the dow. I think historically that is powerful look, they are making every move that you can do that is right. Shrinking the board is smart, adding the two people is really excellent. But i always stress without getting too personal, the hand that mr. Flannery was given, the one where you thought im pretty far along in the year to earn 2 bucks. Obviously, that was not the case, a lot of people bought the stock, including my travel trust, i like what Warren Buffett said, it is my fault i believe. And for that im paying the price. And i understand that. But i did believe, and sometimes a great actor friend once told me, you just get had and i got had. And thats okay. You learn. I got had. Well, every dow components green except for ge. Nasdaq trying to go positive for the month. And pretty good breath as we saw on friday as well. And how about apple will apple take you out that high apple made such a stunning comeback and this morning, obviously by Warren Buffetts comments, youre still a couple points from where it was in january 18. I think it is important. I know we have to move on because theres someone in my ear im not used to hearing while in italy telling many e to move on, but were moving on and i want to see if apple takes that out bob, thats your cue. Threetoone advancing in interest stocks. And the market has a real vote of approval. So far, its starting to look a lot like january look at the Leadership Group semiconductors are out, consumer discretionary, financials and consumer stopples are lagging. This lookses a lot like january. The pocket bottomed on february. Since then, we have had a nice move to the upside tech has been the leader, cyclical stocks have led from the bottom just like in january with consumer stopples so my point is, the recovery is continuing overall from february 1st to february 9th, the market was down 10 there was the correction we saw. February 9th to 23rd, we had a nice comeback 8 up from the bottom and the losses are huge from top to ottom also, were starting to see new highs creep into the market. Some old friends are back on the new high list. Im talking about amazon and netflix. You get the point. It is creeping back in you throw it all together, ill quote lowry, one of the oldest technical firms in the u. S despite the sometimes violent moves up and down by the price indexes over the past few weeks, the markets primary trend remai remains. The nasdaq, textile performing, europe and the far east is still up fractionally. Emerging markets are doing better Frontier Markets are doing better this is part of the global rally that did not fall apart with the overall movements we saw i just want to know one particular sector doing well, thats the steel group the president , theres reports that he wants to slap a very significant terrorist on reporters. And they would extend winter production cuts to combat air pollution. Thats helping as well finally, well talk about what happened in the early parts of february. A lot of people are trying t figure out what happened with the 10 decline and the s p 500. One group of trading advisers, these are basically trendfollowing hedge funds. They are long in the market getting hit badly when the markets worked down. And mostly they traded futures contracts and commodities, but when the market goes up a lot, they are long. And they are caught in the volatility stocks trade that we talked about this is what happens when everyone gets involve in a different trade. Many of the trades blew up at this point weed a ctas, we had people involved in vix extrainichange e notes. All the strategy combined to have a real mess in the first few days of february thats all changing now with the dow up 200 points. Now to rick at the cme in chicago. Good morning to you, rick. Good morning, carl. As i look up, i see the twoyear note down a couple the middle of the curve is down three. And the former 30year bonds are down four. So we continue to get a bit of flattening two days of tens down two to three basis points what is interesting is we hit the high yield for this cycle at 295 on a closing basis we have given up ground and are up 40 points for the yeartodate of charts on tens heres the yeartodate chart of hyg, shall we . The rates are moderating a bit and the market volatility is in theererview mirror. It is getting its sea legs back. As the tens minus the two. As credit as gotten less crazy, the curve is flattening a bit hovering at 61 basis points. If you look at what is going on in boons, very fascinating opening up to july of last year, boons are coming down. We are always at the hip with them, just the calibration that changes. Well Pay Attention to the top from last year right around 60 basis points and finally, the dollar index is up a little bit. A High Frequency area from friday was around 89 90. We settled at 92 and 90. 60 is the way its been this year. The nasdaq is back within 1 of the alltime high were back in a moment pretty good performance out of the dow this morning. The dow and s p are at the highest since february 2nd a few weeks ago, february 1st for the naz. Well get stock trading in a minute with jim. Were invested in creating the worlds first stateoftheart drone testing facility in Central New York and the mohawk valley, which marks the start of our nations first 50mile unmanned flight corridor. And allows us to attract the worlds top drone 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, wake up early, o. Slap on some cologne im 85 and i wanna go home just got a job as a lifeguard in savannah im 85 and i wanna go home dropping sick beats, they call me dj nana 85 and i wanna go dont get mad. Get e trade, kiddo. Nice to welcome back cramer in trading. Last week there was a fabulous quarter put together by hp the stock continues to rally after an upgrade, but they talked about deramp pricing that was steady to decline as recent as october last year. They gave up on the forecast they said the price will be steady all of 2018 why is this important . Micron mu has not been able to take it out after a quarter. This is the cheapest stock in the s p 500. You basically got a green light to buy the stock so this was a remarkable turnabout by the smartest people in the pc entry, other than tim cook. I pointed that out on friday. You did i heard that in the Conference Call. Theres no tv or cell phone in italy at least its a dream come true. We made a lot of ravioli not bad. Jim, what are you going to do on mad tonight novocure has a revolutionary way to slow down cancer, specifically brain cancer. And wondering one day when medicare will pay. But those who have used the product know it lengthens the life its a significant story to tell. A lot of viewers will be happy to hear your views on where you are. I miss my darn show. See you tonight at 6 00 p. M. Eastern time when we come back, a lot more on what buffett told our becky quick this morning with the dow up 214 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. When it might be time to buy or sell . With fidelitys realtime analytics, youll get clear, actionable alerts about potential Investment Opportunities in real time. Fidelity. Open an account today. Fidelity. Of emerging markets obsolete . 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. Welcome back to squawk on the street. Breaking news, our january read on new home sales. Wow, some action back there. Were expecting the number around 650,000 we expected around 593,000, seasonally adjusted annualized units. Thats down close to 8 . And we had a slight positive revision, very slight from 625,000 to 643,000 on the last look as i look up, we are down in Interest Rates, dollar index unchanged. Stocks having a big day. Now well head east to talk to diana olick. What color do you see underneath the headlines on the new homes number reporter well, rick, this is a big miss we were actually expecting 650,000 up 4 month to month and remember, the december number was also down a big chunk, 9 . Why is this read so important . Because this is the first month that Mortgage Rates really come into play here these numbers represent signed contracts that as people are out shopping in january, signing a contract with a home builder january was the first month that we realily started to see the moor ga Mortgage Rates it is up from 315,000 in january of 2017. So builders are still raising prices, still trying to get the higher price because their costs are so much higher but clearly, buyers arent able to pay for that. So youre seeing the big drop in sales up from a year ago but expecting people on the sidelines to say were worried about the higher Interest Rates. Lets jump in by now clearly, that didnt happen. Back to you guys. Good monday morning, Everyone Welcome back to squawk on the street. Im Carl Quintanilla the dow is up 212. We have markets at the highest level since the beginning of the month as yields settle back a pick the road map begins with Berkshire Hathaways Warren Buffett sitting down with becky quick. And well look at the market power behind the ecommerce giant as one bull says it could hit a trillion market cap in 12 months plus, more companies announcing that they are cutting ties with the nra. We have the details plus a look at how the Security Companies are stepping up in the wake of the Florida School shooting. As we said, berkshires Warren Buffett unveiled the companys annual report in a letter to shareholders over the weekend. And he talked about the markets to taxes to ge with becky quick on squawk joining us live from omaha. Great show, bec. Reporter thank you, carl good morning, everyone we had time to talk about everything with Warren Buffett this morning one of the issues was the company many the News Headlines this morning, that would be shares of General Electric the company talking about restating their earnings for 2016 and 2017. And that has sparked conversation with Warren Buffett about his perspective of what has been happening to the company. They have been under pressure for quite some time. The new ceo is making all kinds of changes trying to shake things up. But we got the chance to ask buffett what he thought about ge Berkshire Hathaway was a shareholder of ge. They bought in during 2008 with preferred shares that came in with a 10 dividend. But he talked about what he has seen happen with the company over time. Heres what he had to say. The accounting at ge has not been a model at all in verecent years. But you can make mistakes in Something Like insurance this early big time and longterm care has probably been the biggest single element of misconstruing insurance throughout the agency. And they were in it big time but i was staggered by the amount of it reporter the numbers that buffett was talking about there were the numbers that wall street has noun for some time. Thats the 6. 2 billion write huff off that the company took after reviewing the insurance portfolio. John flannery said everything is on the table, there are no secret cows. And that plenty of people wondering if others may be interested in buying all or part of General Electric. Thats what we got from plenty of viewers coming into this special sitdown with Warren Buffett. A lot of people wondered if he would be interestedthis buying ge heres what he had to say on that front. If we like the business and the price was right, we could write a check for cash and that would apply to ge theyve got a few big businesses i dont think they want to sell them, but they have some smaller units that they are interested in selling but we are always in the market for a big business we got the management for it and so on. Reporter now this was part of a broader conversation about what buffett thinks about stock prices right now he wrote the annual letter to shareholders and he pointed that Berkshire Hathaways has 116 billion that he has to put to work. Businesses overall are pretty expensive, especially if he wants to buy a full business because you have to pay a premium to what they are trading at today in the stock market values that doesnt mean that he thinks the stock market is overvalued berkshire is a net purchaser of stocks in the open market since the beginning of this year and that inqulucludes a 3. 3 bio sale that they sold of phillips 66 not to go up over 10 ownership in the company overall, with the 3. 3 billion, they have bought more than that in stocks that they have purchased during the beginning of the year. So he still thinks u. S. Equities are a great place for people to be. A lot of people look at the cash position to say, you can look at what he says or like what he does e the has a lump of cash and sees a big space between here and where valuations are i wonder what you think it says about the Broader Market reporter that was my question to him. I wondered the same thing, carl. He did a good job of saying you can buy little piece of companies at prices he still thinks are attractive. That was his point that they have made purchases, net purchases in this stock market this year, and not just at time that is the stock market was dipping because of the huge volatility things. He still thinks its agreat place and made a long point about how you really have to look at it versus bonds. If you are looking at it versus bonds, stocks are still the place to be because youre getting a historically low yield on bonds pointing out the tenyear is below 3 historically, that means the businesses and equities are a better place to invest your money. Its worth coming back to ge for a moment as you were speaking the stock traded below 14 a share in part because of some of the things that mr. Buffett both in his letter and to you said. To refresh viewers memory, we should point out the legacy reassurance businesses that actually remain with ge after they spun off genworth and erc back in 04 through 06. So these were a long time ago, but what has really heard them is this longterm care book. They started to take a look at their they evaluated all the a ac actuarial assumptions. There were 3 billion in the First Quarter this year and 2 billion annualry, the total of 22 billion, becky from what buffett said, they may not be done there given he has some real view into that business as well, because of the longterm reassurance business they have. He didnt spay specifically he admitted what he was saying was only what he has been reading and seeing with the company over time. He knows that the annual letter for General Electric was just out. He was going to sit down and it may take him all day to dig through. I dont know that he has additional insight into the particular happenings at General Electric i just know hes familiar with the actuarial and reserves that should be accounted for. This has gotten the most people into trouble, including break shire at points, but he was staggered by the amount being written down. And bec, well check back in with you before you day gets busy well talk airlines, health care and teva, other topics you covered with buffett today see you soon. All right, see you soon well, buffett also commented on recent market volatility. Take a listen. Well, if you own stocks like you own a farm or apartment house, you dont get a quote on those every day or every week. You look at the business and the value of American Business depends on how much it delivers in cash to its owners between now and judgment day i dont think it quhachanges to over a twomonth period if you look at it as a business now, youve got anything can happen in markets. Anything can happen in markets thats why i say dont ever borrow money against securities. The markets dont have to open tomorrow i mean, you can have Extraordinary Events for more on the markets we are joined by bill smeed and we were chatting before the segment. You were concerned about the lack of market leadership or the quality of market leadership since we concentrated on the heavy hedge fund holding at this point. And they are the outperformers. If you are a longtime buffett follower, this was do as i do and as i whisper. So he whispered to avoid mob enthusiasms. Now, not from a oneyear basis, but from the historical context. 250 times trailing earnings on amazon is a mob enthusiasm and im glad to go here right on this floor and say, that is a mob enthusiasm that doesnt mean its going to top now, but when it cracks, remember, buffett owned disney and got out of it and regrets it but it went down 85 from a 90 pe and to quote pedro from napoleon dynamite. All their dreams came true if you bought disney, all their dreams came true and it was a bad idea to buy it at the end of 1972 at 90 times earnings. If all amazons dreams come true, how are you going to do it at 250 thats what he whispered to us the mob enthusiasm and mob fear. What were buying is the mob fear created by amazon and him and jaime ganging up on health care the truth of it is, they do everything on health care, you dont utilize people over the age of 70. We love our mother and father a and. And he said aws was one of the most extraordinary things ive seen in business. Thats high praise from him. And aws is probably 85 of the value of the business because the other side loses money. So if you were valuing the ecommerce business on a standalone basis, you never know, this guy has such a great scheme, hes the pied piper and Johnny Appleseed on wall street. And everybody wants those seeds. Thats a mob enthusiasm by definition why he isnt willing to say that, this is terrible to say, but it could be because bezos has a higher net worth than him and hes envious. We are talking market longevity in terms of yield because that has triggered a lot of the market volatility recently the competitor on the street Goldman Sachs said 4. 5 is a line in the street, tenyear yield could lead to a 25 drawdown in equities. And a slow down in the u. S. Economy, i wonder how you view the climbing yield and what the socalled line in the sand is for you guys. Well, timing is everything here were obviously the stock marketwas in an exuberant mood putting off all kinds of risks and finally in the past few months started to Pay Attention to the selloff in the bond market so there seems to be a lot of sense to be a correction in the equity market. But the fundamental backdrop is very good. Well have the best growth here of this recovery in 2019, great growth. Strong growth overseas as well the fed is far away from hitting the brakes the way they often do late in the Business Cycle they are only tapping on the brakes so i think that while a correction makes sense and certainly the bond market looks like it is in a bare market, i think that looks fine to me. I want your take on inflationary pressures given the print and jobs numbers indicating the wage inflation. But we are also hearing from a lot of ceos there are inflations and other ways that perhaps the markets are not necessarily factoring in we talked to the ceo of tyson last week who mentioned the cost of trucking has gone up significantly. And he thinks that hes not going to be the only one or the poultry industry wont be the only one to feel the sort of inflationary impacts that gets passed onto the consumer in the form of price increases. Yeah, i think that is right we are seeing a little bit of inflation percolating under the surface. I think in the next couple of years inflation goes back to the feds 2 target. Remember, we are seeing more strength on wages. This is the point in the Business Cycle where workers tend to do well because of the low unemployment rate. And so the income, the real income backdrop of a significant pickup in wages and a small pickup in prices is still positive for the consumer. So yes, eventually inflation becomes a problem. If we get well above the feds target, the fed hits the brakes and we start worried about that late cycle equity market weakness but i think that is still a story for two years away its a little bit hard to inflate the economy when the largest seller of goods online is selling at a loss right . So its pretty bizarre because i dont know if you notice that walmart has an ad now saying no prime membership needed to get the twoday delivery thats another deflation now i can get my stuff delivered to me without the 99 prime membership and four other people on the membership with me. If you talk to ups and fedex, it costs a lot of money to do those deliveries and that is the bizarre thing. Then the other thing you mentioned, aws, whatever retail growth they get, the largest customer of aws is the ecommerce business of amazon so its almost like youre double counting. We could have had the same conversation on amazon ten years ago, 15 years ago. Dean evaluation did have that on cnbc. And yet you would have missed one of the greatest opportunities the stock market has given you. It is up 40 compound in the last five years and netflix is up 60 net compounded. All that says is, this bull market will be enforce as long as they continue to provide leadership thats fwhaps a bull market. The Leadership Group goes and goes but then the next bear market, it obliterates the moms enthusia enthusiasm and that is the way the nifty fifty worked and all the other ones. We have to leave it there bill, great to see you thanks to evan as well. When we return, the Security Companies react to the school shootings. Well talk to Dave Petratis. E itand the dow is slightly off thinial highs of the morning at 171 squawk on the street is back in a minute. Highest in Investor Satisfaction with full Service Brokerage firms. Again. And online equity trades are only 4. 95. I mean you cant have low cost and be full service. Its impossible. Its like having your cake and eating it too. Ask your broker if they offer awardwinning full service and low costs. How am i going to explain this . If you dont like their answer, ask again at schwab. Schwab, a modern approach to wealth management. Gglobal bonds, and highdividend strategies. Sure, these are investments. But theyre not what people really invest in. What people really invest in, is what they hope to get out of life. But helping them get there takes a pure focus. Because when you invest their money without distraction, hidden agenda or competing interests, Something Wonderful can happen. They might just get what they want out of life, and maybe even more. The nra and gun makers are facing growing corporate pushback. Many are planning to engage with gun makers about Safety Measures you probably already know that united, delta, metlife and others cut their nra discount programs late last week. And now fedex keeping a discount in place so far making it the focus of a rather scathing cover of the New York Daily News yesterday entitled, deliver us from evil as schools look to boost security measures. Joining us is the chairman and ceo of allegion, Dave Petratis david, thanks for your time today. My pleasure walk us through your exposure to how this has evolved over time. Allegion has been part of School Products for over 100 years. We make products like locks on doors, exit bars, which would be on the perimeter facing exits and closers that assist in locking the facility, lockdowns, in case of threats or getting students and faculty out of schools in the case of a fire. Its a unique business and allegion and the Security Industry is part of the safety and preparation of k12 schools and college campuses. Is it changing due to retro fitting existing schools or the growth of new schools or part of a broader revamp, so to speak . So, number one, were involved in the new construction of almost every school on the continent and globally, the Security Industry. Two, with the increasing awareness around school security, were part of those solutions in terms of retrofits. Cnbc did a nice piece at what is considered the Safest School in the United States in shelbyville, indiana our equipment is part of that solution along with video, communications systems, locks and exit devices that provide a comprehensive capability to secure, evacuate and protect our young people what do those retrofits luke like, david . Are they physical locks or the electronic locks to remotely control who can and cannot enter . Well, it is all of the above. But todays technology as we move into the Digital World allows us to use both line of electricity to fire elocks, connect that to the overall management system. You also have wireless or elocks, wireless elocks that also give the ability to come in and upgrade infrastructure and connect those through emergency plans, normal course of daily maintenance that if the School Closes at 4 00, i can put lockdown in place. But the technology and the integration of technology all the way to sheriffs offices, the central office, the school office, gives you a level of connectivity, surveillance that helps you to plan for the unforeseen do you think the measures that youre able to bring to a school make it unnecessary for a teacher to be armed . I think its important as we partner and invest in things like the Safe School Alliance and Partner Alliance for safe schools, is a strong message on preparedness i would not be an advocate for arming teachers, but i think wellgrounded plans that take levels of security through a lot of different situations is the best motive preparedness any time, david, you introduce an aspect of connectivity to any sort of system, it opens the possibility that the system could be hacked. How hackproof are you systems at this point . Are you put that through the stress test . We absolutely do. We have fulltime people involved youll see us if you look back at some of my earnings calls for a fast five follower, we swept through the details with advancement of artificial intelligence, voice recognition, you know, cloudbased versus Standalone Services you open Security Systems to different types of breaches. Nothing is hackproof, but we try to provide levels of capabilities and securities that give electronic capabilities in the event of a school disaster, hacking wouldnt be the first thing were concerned about. It would be the safety of the students, which is fundamentally the importance of a locked door in some cases, which can be done electronically you can push lock down and electronically all doors lock. So our work really about providing connected equipment, standalone equipment, but our industry, is willing to partner with every schoolhouse in the nation to review procedures and capabilities to help drive awareness and planning for high school security. And finally, im just wondering from a standpoint, what do you think the bill is to bring it from Elementary Schools to the best technology can buy well, if we look at the shelbyville schools there, the bill was about 700,000 for the high school. So significant i also personally worked with a Community College, the western Community College in my hometown was 14 billion for five campuses including video, master key systems and exit devices so these are certainly commitments, but i think owhen you consider the safety of our young people, its a great place to invest. Thats really good information on an issue that has obviously gripped the country for all the wrong reasons in this case. David petratis joining us this morning from allegion. My pleasure when we come back, well take you to barcelona, spain well check on the gains here. The dow industrial up by 167 the s p adding 11 and the nasdaq up 37 points more squawk on the street after this make something for dinner. But some of us make something much more. With blue apron, any night is a chance to see what cooking can do. 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 some big announcements out of congress and barcelona, spain. John ford is there and joins us with more. Good morning, john reporter morning, carl new phones and new networks are the focus of the mobile World Congress this year now folks can no longer count on smartphone growth to drive demand and drive business across Different Industries with smartphones and the galaxy s9 versus the iphone x the focus is on the cameras this time hey, brad reporter and the camera on the s9 is different bringing it up to competition with the iphone this is the s9 plus with two cameras with different aperture on each one of them. That allows for a good performance in a highlight and low light. Samsung is saying, you can see the fingerprint sensor underneath right here. Better placement for samsung users. Some were complaining about that the camera is really the battleground this will be 720 for the lower end s9 and 840 for the s9 plus i mean, that seems cheap compared to the iphone x starting at 1,000 but phones themselves really not the only focus because this is coming at a time when the reality is, the smartphone business isnt growing anymore theres a lot of hype therefor around the 5g networks that will arrive in the real world starting at the end of the year. There are some it could bring a trillion dollars worth of Revenue Growth around the world to Different Industries. But it is not clear exactly how that is going to become a reality everywhere what exactly is going to drive demand i talked to at ts chief Technology Officer about the rollout the end of this year to atlanta, dallas and waco, texas. And what kind of speeds consumers can expect heres what he said. What is different about 5g is its deploying a Millimeter Wave Technology what that means is these are really, truly sustained high speeds, multi gigabyte speeds. These are bursting speeds, not very sustainable so this is very different and will open up a whole new set of a applications for the service to run on reporter not all about the phones this time, a lot of folks being pinned on 5g we talked to a number of leaders here about what that means, not just for the wireless business, not just for the device business but for economies around the world. Well bring you more coverage as the Conference Goes on, guys back to you. I look forward to that, jon, jon fortt from larceny bow in. Now to Courtney Reagan with more the un. Secretary says it is time to stop the hell on earth in the gh ourks,outa region. He asked for a 30day ceasefire as required by the Security Council. The United Nations is ready to do its part i had the opportunity to say in the Security Council itself a few days ago, in particular, it cannot wait. It is time to stop this hell on earth. A powerful earthquake rattling central napa new guinea it hit near the site of a large gold mine that employs more than 2500 word yet on the damage. And Angela Merkel is at a Party Convention in berlin members overwhelmingly approved the deal thats your cnbc update for this hour back over to you, melissa. Thank you, Courtney Reagan. When we come back, the ceo of airstream is back with us and talking about building a new Production Company in america, investing 400 million and hiring thousands of employees. Much more is ahead on squawk on the street. Dont go away. So why wouldnt you take something for the most important part of you. Your brain. With an ingredient originally found in jellyfish, prevagen is now the number one selling brain Health Supplement in drug stores nationwide. Prevagen. The name to remember. Warren buffett on squawk box today talking about what hes adding to his stock portfolio. Take a listen. If you look at our holdings, you would assume that we like them in the order in which they rank by dollar value holdings. But if you look at them in terms of vent purecent purchases, ovee last year we have bought more apple than anything else. Can i take it and run with a headline that apple is your favorite stock no, because i have not told you what ive been buying the last week. Mike santelli is joining us from the floor of the exchange looking at how to build a portfolio similar to buffett but with etfs. This is a fun exercise to really display the breadth economic plan of Berkshire Hathaway if you didnt want to simulate the exposure through the eft shares, heres what it wild look like insurance is the single biggest part of the business there are spiders, then the kie, then theres not a railroad specifically for this, but you could do the dow Jones Transport iyt. That would get you exposure both to the Railroad Sector and the Airline Holdings he has there. You have utilities you have Energy Infrastructure i would put in there as opposed to just a pure energy like oil etf, so the Energy Structure and then the apple stock is the single largest one but dow jones at 16 with apple right there. All this put together, you still trail Berkshire Hathaway over the past five years. But theres a bucket people y separating those. Good to have you back, mike san toll le santelli joining us to talk more about amazon is dan eys. Good to see you guys a trillion dollars in the fear future look, we saw this in the middle innings playing out if i let the consumer piece ultimately, i think prime members spend another 30 this year members come up another 10 to 15 . And some of the parts evaluation, the consumer business is worth 650 billion the enterprise of ebs is worth another 3 to 350 i think that dans done a good job with this and tend to agree. The only thing to add to that is in coming years, you may have the opportunity to break out the Logistics Business and value that as a separate unit on top of the valuation hes coming to. Unbelievable. Has there been any evolution among investors in terms of their demand to show a consistent operating profit . I think when you look into 2019 and 2020, we have a window with investors are willing for them to invest but looking at 2019 and 2020, they have 80 in earnings powers as we go to 2012 so part of that is giving the rope and right now to really heavily invest on the ad business and health care, we think that would be added on to the amazon mansion. A lot of critics say it is too expensive. But with amazon getting into the brick and mortar, logistics that you mentioned, why should amazon be pressured to take on the characteristics of those which they are investing more heavily in its a Multifaceted Program where they leverage a Core Infrastructure to get into the other businesses so if you worked to september recall the laughter. When we look at the industry trade, we can look at the platform with over 600 billion in gross per chan dice value one multiple on that is at the higher end range of traditional brush merchandise retailers. Value the business in terms of the nonprofit multiple then begin to think about the other businesses as well you were quickly getting north of a trillion dollars by doing that math. If i made a bearish thesis, could you do it . If i went to a bears thesis to be the regular commerce, ecommerce, they get to 50 by 2019 and that gets more into the cross hairs of the competition increases. They would have to break up the sort of amazon franchise into the consumer and to the enterprise piece walmart was going to have a monster Holiday Season and start the game sharing that hasnt happened so it has to be an execution issue. Eight earnings of power it could add more value scott, you mentioned breaking out the Logistics Business give me a sense as to what youre talking about there amazon historically has run a Logistics Business to run the own Retail Operation and youre seeing increasing signs, including new products being announced, with amazon providing services in third party franchises partners and suppliers are different with logistics providers. When you think about the Logistics Business and valuing it as a separate entity, the more they provide for the Third Party Companies outside the system, the more credible the case for separating the evaluation of business fascinating thank you so much. Great to see you when we come back, well be joined by Rick Santelli sitting down with the former director of the cbo douglas ltean. Hozki well talk the trump tax plan, taxes and a lot more squawk on the street will be right back what is one fund manager calling the biggest story ofhe t year find out at tradingnation. Cnbc. Com find out on squawk on the street coming up. Hi im joan lunden. Todays Senior Living communities have never been better, with amazing amenities like movie theaters, exercise rooms and swimming pools, public cafes, bars and bistros even pet care services. And theres never been an easier way to get great advice. A place for mom is a free service that pairs you with a local advisor to help you sort through your options and find a perfect place. A place for mom. You know your family we know Senior Living. Together well make the right choice. Now well get to the cme group in chicago Rick Santelli is there with the santelli exchange. Hi, rick i would like to welcome my first guest here, doug holtzaiken. Everyone is scratching their head they like to smerpend more mone with tax reform, but theres Federal Reserve and all Central Banks at some point are taking the punch bowl away. Now, many of us wanted that, but it all seems to be happening at a time where the deficits really look like they are going to grow exponentially. Your thoughts on this package . I think theres good reason to be concerned about this deficits, but that was true before we did the tax reform the federal budgets on the unsustainable course has been for a long time. How do you aggress that . You have to fix the large mandatory entitlement spending programs and i dont think think you can do that in an environment of growth so im glad to see the regulatory reforms and the tax reforms that we have seen in the past year. I think that moves us from something that looked like 2. 3 in 2017 to 2. 8 or higher in 2018 thats an environment where you can take on the longterm deficit problem. And thats what we need to do. I like the way you framed this so the landscape the way it is you like and ultimately, whether it is you or exsenator simpson, you both decided, it sounds to me like, Discretionary Spending or cutting that is not the way youre going to get to the deficit promised land. It is entitlement. So do you think at some point after the midterms that that is going to be something that politicians will all of a sudden become adultlike and actual discuss . Well, i dont know if they will become adultlike, but i think the numbers are the numbers. You said it right. You can do all you want with the discretionary council but you cant get there. By process of elimination, they will be talking about the entitlement programs, not because they want to but because they have to and that conversation will begin this year where they have the special select committee to do budget process reform. Thats just process, but the process is how to get to dealing with the problem and the problem is the big spending program. So that is inevitable. When we add in the notion that the central bank has been raising rates since 2015, the very gradual spreadsheet is receding my question to you is, will the central bank be able to ignore the notion of growing deficits and the fact that servicing the deficits by the very nature of normalization is going to be higher what should the central bank be thinking as it removes stimulus in the context of financing deficits i think the central bank should keep their eye focused on inflation. Thats the core job of a central bank to begin with if you get the kinds of productivity growth that we anticipate from the reforms we have seen, wages will rise without inflationary pressures Central Banks wont have to jump the gun and tighten prematurely. You can get a smooth return to normalization. Thats the base case risks are what they are. If they make policy errors, we could have trouble for a long time, thats been the issue. Doug, thank you were going to get infrastructure in under the wire before we talk about entitlement reform so the numbers are going to continue to get large. Thank you for your opinions on deficits and growth. Carl, back to you. Rick santelli, thank you so much when we return, investing in america. Ceo of airstream is going to talk with us theyre hiring 300 employees as they build a new production plant in ohio. A quick programming note, Jerome Powell will testify before Congress Tomorrow starting at 10 00 a. M. Eastern time. Of course, well have the full coverage right here on squawk on the street. And the wolf huffed and puffed. Like you do sometimes, grandpa . Well, when you have copd, it can be hard to breathe. It can be hard to get air out, which can make it hard to get air in. So i talked to my doctor. She said. Symbicort could help you breathe better, starting within 5 minutes. Symbicort doesnt replace a rescue inhaler for sudden symptoms. Symbicort helps provide significant improvement of your lung function. Symbicort is for copd, including chronic bronchitis and emphysema. It should not be taken more than twice a day. Symbicort contains formoterol. Medicines like formoterol increase the risk of death from asthma problems. Symbicort may increase your risk of lung infections, osteoporosis, and some eye problems. You should tell your doctor if you have a heart condition or high Blood Pressure before taking it. Symbicort could mean a day with better breathing. Watch out, piggies get symbicort free for up to one year. Visit saveonsymbicort. Com today to learn more. If you cant afford your medication, astrazeneca may be able to help. Airstream will break ground on a new facility in may, expecting to hire an additional 300 employees. Joining us now, airstream ceo bob wheeler. Welcome to the show. Good morning. Thanks for having me demand is obviously strong. You had record deliveries in 2017 walk us through what you think is driving that demand right now. There are a number of things we watch and theyre trending green or slightly yellow Consumer Confidence, Interest Rates trending a little yellow Credit Availability is huge both at the wholesale and retail level. Credit is plenty available light truck and car sales. Theres a number of things that we watch that give us confidence in the future of this industry and theyre all in a great, great shape at the moment. I think of an airstream when i think of one of the most, you know, the ultimate discretionary item s that case in terms of how people view an airstream when theyre purchasing it . Yeah, its funny. It is a discretionary item its a luxury good but it is also really aspirational people dream of owning airstreams their whole life. Were not recessionproof but as long as people can see economic sunshine in their future in, the last seven or eight years theyve been lining up to biven buy what benefit do you think tax reform had on your business . Most of the Corporate Tax breaks, of course, go to our Parent Company were wholly oenld subsidiary. In terms of Consumer Confidence moving forward, i think once people start to see that benefit in their paychecks theyre likely to start spending it that has yet to be seen. Bob, im not sure what your exposure is to Aluminum Prices there continues to be more speculation about wouldbe tariffs on aluminum imports. Would that hurt . Were really fearful of that we source all of our aluminum domestically but imported aluminum, it cant help us so were watching that very carefully. We hope the administration does the right thing here typically when you have a rise like that in raw materials, bob, do you pass the entire cost on to the consumer or does that also bite into your margins . It really depends on how much it is and what else we have going on on a cost basis you know, its inevitable. Some of it gets passed on. Its really depends on the amount of the increase and when it hits. There are a lot of articles out, there bob, im sure youve seen them about, millennials buying rvs is that the case for airstream it is a higher price point rv. Are you seeing that demand from the younger crowd . Yeah. Its really interesting that trend starting to kick in. Millennials are buying younger than their parents did and grand parents. There is this millennial there is cultural value of collecting experiences and not things theyre not really about the big house in the suburbs they would rather have an adventure. Everything core to the airstream brand lines up well with what millennials value. Were seeing them come into the market sooner which bodes well as we start to taper off from the babyboomers and that big wave that is supporting the rv industry for decades one last thing. Gas prices, were going to Start Talking about summer blends here soon how much of a worry is it given the year on year increase . You know, interestingly, gas prices dont provide much of a head wind to the rv industry, at least they havent historically. The pain points adjusted for people they may shorten trips, travel a little less far. But theyre still coming to the lifestyle and enjoying the rvs and taking them on the road. Bob, thanks yeah, sure. Thanks for having me bob wheeler of airstream. Fascinating dow up is 163. Squawk alley starts in a coleines up mut obvious. Sometimes, they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. 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. Good morning, it is 5 00 p. M. In barcelona where the mobile World Congress is under way. Its 11 00 a. M. On wall street and squawk alley is live. Good monday morning. Welcome to squawk alley. Im carl kinquintanilla with moa brennan. Jon fortt is live at the mobile World Congress in barcelona. Samsung unveiling the new smart phone at that event. A lot more coming up Warren Buffett sat down wit