Transcripts For CNBC Squawk Box 20240714

We did get japanese factory orders which were disappointing down 7. 8 in may they were expected to fall only 5 were down full 1. 5 as you can see in hong kong a little more than that in shanghai 2. 6 . European equities are lower, down around about 0 where do we look on the screens 0. 1 there we go, down 0. 2 in france, italy holding on to slight gains we did get some better than expected german Industrial Production data up 0. 3 in may. It was expected to fall slightly treasury yields back about 2 . Similarly the german yield is back above 0, negative 0. 4 and were up 0. 23 . Deutsche bank announcing it will pull out of Global Equity scales, scale back Investment Banking and slash 18,000 jobs as part of a Global Restructuring plan you have been following this story obviously throughout the weekend. And i thought your comments earlier with dom chu were interesting. You sort of term this as ripping the band aid off. Finally. Perhaps a little too late. Finally exactly. So 18,000 had cut from 96,000 to give it proportions. That bit is not really the surprise from whats been leaked other the last month people are saying could be up to 15 to 20,000 job cuts. Of that, 18,000 will fall disproportionally on the Investment Bank. So, clearly the head count in the u. S. Is predominantly Investment Banks well see a lot of job cuts there. In terms of color i hear from sources around 18 will be instantaneous, day one, out the door a lot of people will sadly been taken by surprise by this 20 will be drip fed over the coming months depending on closing various operations theres a 76 billion of assets going into a bad bank to be wound down that was sort of expected. When it was leaked this bad bank term, that scared some people, but i dont think its really an issue. They have an earnings issue, not a creditability issue. No need to raise capital, they say, at all. That is a slight win relative to expectations the big edline, equities business closed globally if they shut down some of equities, it would be a regional thing, not global. Thats really grabbed the headlines a big, big change. It strikes me that that element of it exiting equity sales and trading globally says something about Deutsche Banks strategy about how much sunk cost there was other many years. I remember 1998 99 bought Bankers Trust for 10 billion market cap is less than 20 so, there you go and in a sense the conventional wisdom has been proven somewhat correct that these large european commercial Banking Institutions werent going to be able to do it but also says something about the equity globally is not a great source of profit for the industry. Exactly right and i think, you know, equities has not been profitable. Deutsche banks 2018 revenue globally was 2. 3 billion jp morgan 6. 9, Goldman Sachs 7. 8 Morgan Stanley 8. 7 million that gives you a snapshot that u. S. Guys had over the european guys how big a gain is this to the u. S. Guys . Not dramatically probably means more to some of the European Investment banks. If they can grab that market share than it does to the u. S. Guys as it does to the Deutsche Bank strategy, they have always been stronger within trading within the macrorelated products fixed income commodities, currencies, derivatives and rates. In that sense, you can think maybe this will work exiting a less profitable area they werent as strong in. Keeping more profitable area they were strong in. That supports their Corporate Bank which is very profitable. Will this work the difficulty is on two levels, one, the other parts of the Investment Bank, typically the stronger guys are the guys that can offer a corporate full service. They cant offer equity trading. Secondly as to whether this is just too little too late and they have already lost some of the potential that this could have had if it had been three years ago. Why do you think it took so long i think was it denial leadership i dont think it was denial they knew the problems so that would be denial. They still hoped to turn it around and still be someone for everything in all kind of circles. I think also the political issues of making job cuts even if its heavier in the Investment Bank than the retail bank has been incredibly hard to get over the line. Look at how the talks with Commerce Bank fell away even though there now is political will in germany to support one of their important flag carriers but has taken so long to get to that point. Do you think commerce job deal can come back no, because that requires 30 to 40,000 job cuts for it to make sense across db and Commerce Bank together all in domestic Retail Banking jobs which would then be framed domestically as theyre doing these cuts to rehire Investment Bankers. That was, a, whether it would have worked any way but b, politically unpal atable to be approved on the political front and thats why that fell away. This is the alternative. Again because there were these various alternatives for a long time, they didnt do any of them instead. I ask the question because Deutsche Bank as all of you know has been on the top of the watch list of the banks over in europe that have the most issues, yet were hearing about all these changes now finally. Thats what the share price said in the past month thats the realization that thats not really the issue and that were not talking about this bank isnt thats a systemic issue. Its can they get back to profitability over the long term just to the other point you say in their defense for this terrible share Price Performance over the past five years, decade, one year whatever you want to say, negative Interest Rates in europe, the retail bank, of course, is also not profitable theyre not doing as much surgery to that part of the business few job cuts will come to that and also dont have an Interest Rate cut that makes them profitable in that part of the business any time soon. Well talk about a source of probably particularly high Interest Rates wework is seeking to raise up to 4 billion in debt ahead of an ipo. Sources say the company has met with ceos of jp morgan and wework has filed paperwork for ipo recently valued 47 billion. Infusion of cash could assure investors they could fund work for years perhaps until it can become profitable which is an interesting idea well pile on debt before we sell stock to reassure Equity Investors that we have a lot of cash to burn because well be burning a lot of cash. To make us look better well take on a ton of debt. That is the issue even if youre a believer in this Business Model which is entering these longterm expensive leases and releasing them on a shorter term bases to get scale and kind of meet those ambitions you need to buy and enter a lot more take over a lot more buildings and spend billions more. I guess, mike, well have a real test of what investors are willing to pay for when this one does come around because were happy to take on losses with an uber or lyft this one by all accounts is going to have the most struggled financials to kind of commit. They did do one debt raise. They hadnt traded particularly well, but they got the deal done this is a pretty accommodating high yield market. This seems almost like a Credit Facility because 3 to 4 can go up to 10. So its not necessarily a straight bond deal it sounds like its more of a Credit Facility which is why you have to be talking to the ceos. Banks, obviously their institutions are big real estate lenders and should know the business well see. Meantime, boeing losing a big order for the 737 max to rival air bus. Saudi airline will buy 50 air bus a30 jets in a deal with 5. 5 billion at list prices. The airline had committed to buying the 737 but the deal was never finalized. They did get the big win from the iberia alliance which was a big, positive surprise outside of that, a little slippage is to be expected the share price 1. 6 im not sure this was a locked in deal from the Saudi Airline any way. Right now the way boeing shares have traded it clearly suggests the market is saying, okay, this doesnt jeopardize the longer term order book which is the only real basis for the boeing investment. Not yet. Thats the point incrementally you have to look at the signals as to whether something is going to look like a lost generation in terms of models. Yeah. Google is denying a report in the New York Post its in talks with dish network to create a new u. S. Wireless carrier. The post says alphabet director and former ford ceo was speaking to dish in a statement to website 9 to 5 google, a Spokesman Says the claims are, quote, simply false. It would be interesting if, in fact, it was true. It would. The capital needed to build a fourth would be substantial. You look at the price competition, its hard any way to consolidate as we well know in terms of politically, but why would you want to enter that part of the business look at what google did localized with google fiber. Its a different business obviously but that capital intensive were going to wire the world type of an idea and they retreated from that. As verizon did with fios. Still to come the fed taking center stage for the markets this week after junes up beat jobs report, well talk about expectations for rate cuts here is a look at the biggest premarket winners and losers in the dow. Is where people first gathered to form the stock exchangeee, which brought people together to invest in all the things that move us forward. Every day, invesco combines ideas with technology, data with inspiration, investors with solutions. Because the possibilities of life and investing are greater when we come together. We have had great economic numbers that came out. We saw that over the weekend you saw it on friday we have just spectacular numbers. Were doing better than any nation on the planet were very honored by that were paying Interest Rates which the Previous Administration essentially didnt pay, so we had tremendous numbers coming out and thats a big thing our economy is doing incredibly. That was President Trump yesterday afternoon taking yet another shot at the feds Interest Rate policy meantime, it will be a busy week for fed watchers jay powell will answer questions about the economy and fed policy that testimony coming after fridays strong june jobs report casting doubt now on whether the fed will cut rates this month. Well also get the minutes from the feds most recent meeting on wednesday afternoon. Joining us to talk about the economy and fed, david, Jim Osullivan our guest host peter still with us. Jim, you first, are they going to cut in july more than likely. Thats the signal they sent. The appearances from powell in each of the previous two weeks i think they have laid the ground work here obviously the employment report was pretty solid, but theyre worried about the traderelated uncertainties hanging over the economy. Inflation is very muted. They have clearly given us the signal theyre going to go by a quarter point. The future of the rally is hanging on this . Well, i dont think every word, move and Everything Else from the fed. I think everyone is fixated about it but for good reason that the Market Expectations for the feds rate cut are extremely important. But at the end of the day, lit turn out to be earnings and what will take place over the course of the next quarter or two and we think the Market Expectations are simply too high for earnings you look out to next year, youre talking about 11 Earnings Growth. This year, were just trying to hit these incredibly lobars of 1 or 2 . Thats what the bond market is telling you. You have lower expectations and so were waiting for the fed because thats what they need to keep equities higher. Youre negative stocks . We just reduced on june 17th and reduced our equity allocation to under weight by 3 thats a significant move for us we reduced the quality of stocks we want our customers to own and move money offshore. Where offshore . We like some of the latin american countries we like a lot of the south asia countries. We like brazil and growth wise as well. Jim, the jobs number seem to give the mark a little bit of an occasion for a rethink of maybe just how much is going to be behind a july cut or how dramatic the fed easing is going to be. How much suspense do you think theres going to continue to be about exactly where we are in terms of what the feds expectations are, whether this is just going to prove an insurance cut or whether its going to be necessary matters. That will be the case well constantly be watching new data when that comes in. Certainly at this point theres some evidence of slowing so theres some moderation there. Meanwhile, the fed is pointing not so much to the current numbers as the uncertainties related to trade to justify some easing the signal is its not dramatic easing the numbers weaken significantly, thats a different story. Youre pushing against powerful forces, though, being negative stocks. Its not going even g the fed moves once this month and you get progression on trade, those are absolute positives for stocks, no i would agree with you that they are positives for stocks over the longer term what we look at is principle evaluations as really whats going to drive it. Lets put us back to where we were last october and november everyone was worried about the fed overshooting now what we talk about is the fed saving the day whats really different about this economy versus that and the answer is not very much. So whats happened now is rates have come down significantly and then the question is what is growth thats where valuations and portfolios have to consider what they own. Peter, where do you think the fed ends up at the end of the month . Well, theyll cut, but to mikes point, what would they do after . Is this the beginning of a rate cutting cycle or is this a one or lets play it thereafter . Important question is what will it do . The bond market is already cut for the fed. If youre buying a home, well, you just saw the average mortgage point drop 75 bases points over the year you got three rate cuts if youre a home buyer. What behavior is the i argue its probably not much of an effect but theyre at least going to try and see what happens. Does it affect the dollar i think the dollar is already weakening. The dollar index is at 97. Top that over 100 a couple years ago. The dollar is fighting whether its its own worries about debts and deficits but you look at the euro the euro trades really well and all the issues that europe has and negative Interest Rates and lagarde. It has issues and rate cuts will not help. This is a great question of what jim cutting Interest Rates is going to do whether it gets the stock market to go up but does little to spur corporate investments and other areas that would help the economy. There presumably is some read through which does affect business investment. It would be a different story if it was done 20 . I dont think theres any doubt that there is some passthrough from the equity market to the broader economy. Mortgage rates are down but housing is up. You look at the q 2 gdp numbers, that looks like it picked up in the Second Quarter the residential investment part along with Consumer Spending at the end of the day as well, you have to keep in mind that the fed is not trying to get back up to 3 plus growth. They would love that if productivity is soaring. Theyre trying to prevent the downside and happy with 2 growth unless productivity is a lot stronger. You suggest with the cautious stance on equities that earnings forecast probably have to come down they look vulnerable going into next year and the multiple maybe have to adjust, but what about this promise that a lot of investors start with, look, theres no recession, then usually you dont get big down moves in stocks that stay that way. Is that legitimate or not . One of the things we advise clients to do is not to market time you miss 40 days over the last ten years you took your turns down by 10 . You cant do that. What you can do is decide where you want to be in the market the fed was originally in a posture to prevent us from dealing with potential recession. Thats not what theyre doing now. Their policy has changed materially as a result of that, were actually taking bullets we might expend in a difficult situation and spending them now to maintain the growth or some amount of growth in the future thats not a particularly bright forecast so, i hear you, but if you have already made as much money as investors have made over the course of the last eight to ten years you want to rebalance your portfolio now. What do you make of the president s fed nominees and does that alter the likelihood of what the next couple years of action is going to be. Well, from whats known about them theyre viewed on the dovish side. Theyre not going to determine policy even the st. Louis fed research persons boss, of course, was on the dove it side already so, i mean, they are leaning that way already in terms of dovishness i dont think one or two other people especially if they have different sort of frameworks generally theyre not necessarily going to influence people dramatically. But they add to the dovishness to the fed right now again, do they mean the fed will be moving aggressively without the economic numbers being weak . No but they certainly will add to the feds dovishness if the fed doesnt cut rates this month, what does the stock market do . If the fed doesnt cut rates youll see a bit of crazy thought at this point that theyre not going to cut. Its not completely crazy but seems unlikely given how everyone is viewing it, but what you saw last december is a bit of whats going on here. At that point, the fed was overshooting and everyone got upset with the fact they were being too restrictive. If the fed doesnt meet lower rates and expectations, youre also going to have a market correctness. Last september as dramatic . No. Out of ilk yes, it could be a trigger point not necessarily for a 20 point drop but could have a negative impact. We expect Earnings Growth to slow but the fed to cut. Whats the right multiple on the market should it stay the same . Should it go up because the fed is cutting or go down because earnings if you look at what happened in 18 and where we are now, you saw a real change of valuation because you had earnings in the u. S. Go up 20 dueto a tax cut we think valuations right now are fair, maybe a little rich, but i wouldnt expect a big change due to a quarter point drop. Thank you good to see you this morning thats david and jim well see you again soon pete, youre here. Stick around dont go anywhere. Still to come, well show you the huge numbers from the Holiday Weekend box office right after the break. How do you gauge the greatness of an suv . Is it to carry cargo. Or to carry on a legacy . Its show of strength. Or its sign of intelligence . In crossing harsh terrain. Or breaking new ground . This is the time to get an exceptional offer on the mercedes of your midsummer dreams at the mercedesbenz summer event, going on now. Lease the gla 250 suv for just 329 a month at the mercedesbenz summer event. 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That brings its global toll to nearly 600 Million Dollars in just ten days. Meanwhile, avengers end game is inching closer to a Box Office Record its now just 15 million shy from taking in the most money ever in theaters still has time to make up the difference it will likely remain in theaters in labor day. Its first run in theaters lasted 234 days. Wow, coming up well tell you what happened in turkey may have President Trump greenwood en envy look at s p 500s, winners and luers. Through the at t network, edgetoedge intelligence gives you the power to see every corner of your growing business. From managing inventory. To detecting and preventing threats. To scaling up your production. Giving you a nice big edge over your competition. Thats the power of edgetoedge intelligence. Still nervous about buying uhoh, la new house. Meones is it that obvious . Yes it is. You know, maybe youd worry less if you got geico to help with your homeowners insurance. I didnt know geico could helps with homeowners insurance. Yep, theyve been doing it for years. What are you doing . Big steve . Thanks, man. There he is. Get to know geico and see how much you could save on homeowners and renters insurance. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. Welcome back youre watching squawk box. Live from the Nasdaq Market site in times square. Welcome back to squawk box. U. S. Equity futures pointing at this hour just around 08 or 90 points on the dow closer to 100. The nasdaq is down 46 points asia declined significantly overnight, down 2. 6 on the shanghai composite hong kong was down 1. 5 . Japan down 1 . We are following a developing story out of turkey suffering worst day in months after turkish president erdogan fired that nations Central Bank Governor no official reason was given for the firing but erdogan has expressed frustration with the central bank for keeping its benchmark rate at 24 since last september to support the lira. Coming up, a potential new player in telecoms well tell you why google is the latest tech giant being mentioned as a potential entrance into that sector. Plus, later, well discuss what the feds next move should be after the blow out jobs number on friday well look at futures as we head to break as well dow has an implied open down 100 points s p still knocking on that 3,000 door doesnt look like its going to get there, at least off the open could open lower by 10 youre watching squawk box on cnbc but were also a cancer fighting, hiv controlling, joint replacing, and depression relieving company. From the day youre born we never stop taking care of you. From the day youre born it all started under this buttonwood tree. Twentyfour people came together to sign an agreement that created the stock exchange. Just the right elements coming together. It started when scores more people came together, just down the street and traded bonds that helped pay for the revolution, and the nation it created. It started in an office on the corner where the right people witnessed the telegraph and brought information and humanity together forever. It started with the markets, bringing together steel and buildings and silicon and medicine and rockets. We believe the possibilities of life and investing are greater when we come together. Its why for eighty years weve connected ideas with technology, data with inspiration, investors with solutions. So that every day together, it all starts again. Good morning, welcome back google denies a New York Post report that said its in talks with dish network to create a new u. S. Wireless carrier as part of the potential sprint, t mobile merger. Google saying the report is simply false, but what is behind Silicon Valleys interest in entering the telecom sector. Lets discuss with dan morgan. Dan, good morning to you do you believe any of this good morning, will fred its kind of breaking. It hasnt really been confirmed at this point. To me it would just look will fred as an effort on googles behalf to try to spread out their Business Model a little bit, not to be so focussed just on the Online Search advertising space. You guys have well documented issues with, you know, regulators coming in on the antitrust side and so forth and taking a hard look at it so i think it is an effort on their behalf to try to expand out a little bit more in their current model. It would be a very capital heavy low margin business for them to enter, wouldnt it yeah. And also very competitive. So its kind of different than what we think of google in terms of driverless vehicles and some of these other things that they have been getting involved with. It is kind of a strange connection for them to make. Its something kind of unexpected that we would look for from them in terms of expanding their Business Model. Switching focus slightly, how serious do you think the anti trust threat is to the likes of googl google the antitrust thing is a little out there, wilfred. You look at not only google but also facebook. What are you really going to do . Are you going to extract their Search Capabilities from their driverless vehicles from their Cloud Platform theyre involved in many Different Things same thing with facebook are you going to break it into instagram, whatsapp, messenger and break it into that you are new libra, which is their new currency so Crypto Currency Exchange business at their attempting to get into i dont know how you break these things up in terms of antitrust issue. What about internationally. Did you see some stories last week whether it was the uk or france that in europe it does seem to be ever growing pressure on those big u. S. Tech companies . Well, europe is always much more stringent than the u. S. In regards to these types of issues they seem to be always having something on a regulatory front with a lot of these Large Technology companies it doesnt surprise me that theyre pushing towards it youve been around a little bit like i have in the tech space and may remember back in the late 1990s when microsoft is under a tremendous amount of scrutiny, they are going to break up the explorer from the word, all the different desktop functions and so forth and that kind of just played out and there really was no big effect on microsoft i dont know if its going to have the same negative effect that the market is anticipating. Even with the in roads you may expect over in europe. Dan, you got fang coming right in front of us here with earnings over the next couple of weeks. What do you expect can that trade get back to some sort of sustainability catch up to the moves and chips that stocks have done . Youre right. Were going to kick things off here a week from tuesday, july 18th youll have netflix in with numbers, the first of the fang stocks its a muted picture you have apple, companies that are all the same microsoft, google, facebook which have relatively decent numbers. Ed up expect good numbers out of netflix. Within the fang, so to speak, or fang or faang, however you want to pronounce it, i would hope netflix will kick things off with good numbers which will roll over into these rors. Obviously theres a lot more divergence in performance. Thats been a real lag where would you diecide the market has it wrong . Again, the faang is a very small group. We like the cloud stocks were expecting good numbers out of the Companies Like sales force and work day and amazon. In terms of trying to decipher faang away from chips and trying to determine who is going to outperform is kind of a difficult question, within technology, theres definitely areas of opportunity and other areas like you mention that are having difficulties antitrust and privacy issues and of course we all know whats going on with the chip sector. Dan, if theres one sector of the market thats very exposed to International Growth rates, tariffs, trade, its technology. Who do you think is more susceptible to that sort of weakness well, i think its really the chip sector. We go into this upcoming Earnings Report season well have here next week, Second Quarter, some down 39 , tariffs, benign pc growth, the list goes on and on. So thats probably the most difficult group within technology and probably going to face the most head winds like you said from the International Side in terms of all the things that have been going on. In terms of amazon just wanted to mention the fact that they hit 25 years of course last week, where do you see the next significant period of time taking it . We still like amazon because of the cloud, you know, focus they have where aws. As you know, theyre the leader in infrastructure service. Last quarter they grew that segment by about 41 we would expect amazon to continue to morph itself away from what we consider their core business as they kind of expand out into these other thing you guys have well documented their efforts into getting into the pharmaceutical distribution business they have gotten into all kinds of things. So to me the future for them is really the cloud because that is by far the most exciting aspect of their business. It actually encompasses a very small portion of their sales that is an area we feel very strongly about in regards to amazon going into the future i ask you that on a morning when apple got downgraded to a cell at rosen blat and theyre talking about the fundamentals of the company deteriorating over the next 6 to 12 months i think youre right. Apple is by far the company that will be under the most heat. Youve had a couple of Brokerage Firms downgrade them as you mentioned before their issues are continuing to mount if you start to get into cost associated with these tariffs either bringing parts into china or shipping out the end product back out of china. Do they then start to squeeze their margins down on their iphones or other products . I think within the faang group, to me apple is the one that will be the most difficult Going Forward into this upcoming quarter just because of the issues that we talked about. Thank you for joining us. Thank you, wilfred. Coming up, does investing for impacts mean foregoing profit . As we med to break, a quick check of whats happening in european markets right now at comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Investing for impact has been growing that includes socalled esg investing considering the ethical impact of a company on the environment, social issues and Corporate Governance our next guest is here to talk about whats behind this trend and why investors perhaps should be a bit cautious. Founder and ceo of vsg advisers and senior lecture at Harvard Business school. Welcome. Thank you very much. What started out as a sideline to Asset Management considering social impact and has gone very mainstream there was a time when it was effectively sense of, well, didnt want to participate in certain products or trends now theres been this revisionist idea that, in fact, its actually good for Investment Performance as well somehow. Where do you come down on that and where is this industry i think theres a whole spectrum of approaches here. I am in between values and value. So the three trends that are really driving this, like you say, peripheral thing and now its become much more mainstream the three things one is whether you like it or not the millennials are going to control a lot of the assets. Any that is taken suggests millennials 29 to 39yearolds are significantly more interested in these issues its more important to them. As the world kind of koe elessing around important issues say the sustainable goals, it is clearer that the requirement to kind of get where we need to get to, 5 to 7 trillion a year is just not going to get there by Government Spending and philanthropy private capital has to play a role in that i think the third as you rightfully just said, theres growing evidence and we have done a lot of research on this or my colleagues have, growing research that companies that actually focus on esg issues that are important to their business outperform. In fact, theres a study we did over 1992 to 2012, 30 years, 48 industries, a whole bunch of sectors and that was consistently a 6 alpha on companies that actually focussed on and its important to mention material alty. Tech company are very different for Consumer Company to Service Company to energy company. So its an obvious thing if you step back as well companies that focus on things that are important for their business should do better, but its not really happened until now. So from an investor perspective, theres a realization this actually is really important stuff. This creates an overlay of inefficiency, right . Youre investing on a premise something besides potential returns down the road or Financial Capabilities the values are there religious organizations will not invest in certain stocks some of the california Pension Plans will not invest in tobacco, et cetera, et cetera. Tons of studies have been done o this you dont lose return, theres one that says you do and another study says its inconclusive the fact of the matter is theres been no conclusive evidence that suggests youre losing returns thats one two is that when large Pension Plans start to look at these things, theres always a debate internally of divestment versus engagement and thats an interesting one. Ill give you example, essentially when all the whole issue of gun violence cropped up, there was a lot of push on the part of the pension die vest gun stocks they could have done that but they chose, in fact, to own the gun stocks and be more proactive. Basically saying, look, you guys are in the business of manufacturing guns we cant stop you from doing that here are the six things you can do to be more responsible for civilian gun manufacturer. Youll see a lot of that in the proxy season this year so, i think there is this issue of inefficiency to some extent, but i do think that a lot of investors are now moving towards the engagement approach and i think youre going to see that in the proxy season. Climate is the number one issue. Really focussing on companies to really both disclose information. So i think this is here to stay. And the assets on a management are growing. And i would think that in ten years they wont be the separate kind of esg discussion they will be part of it. To your point, what is going to happen to the Asset Management industry, the pure plays are going to grow exponentially or more in fact that just traditional managers adapt the way they do their business i would think its more the latter than the former i do think again you get into this issue of long term versus short term i think if you look at the Pension Plans, look at this growing trend towards passive investing, these investors have to own these stocks. So for them not to actually focus on these issues is longterm investors will actually result in poor investment decisions. The same logic i think, though, doesnt it lead all ceos and boards of Public Companies to say, hey, were an esg compatible institution absolutely. I do think that trend is going to come. Well, you think about pick and dhchoose companies which are better performing. Esg will be part of that process. How is technology judged by esg firms. You look at the explosive growth in tech, how its going to dominate our lives for the years forward, social media. Theres positives and negatives. How do funds judge all of that well, if you look at the pure esg factors in that context, in fact we wrote a case, it was a case on gender diversity, state street launched this etf traded on the nyc she companies which have more diverse boards and Senior Management would get higher ratings in this etf. There are tons of studies show that men and women think differently. So they had to because they had sponsored this etf they had to make some adjustments, but i think the Tech Companies as far as governance issues go, i think theres a lot of room to go both in terms of diversity, in terms of shareholder involvement, the dual voting shares, et cetera. So i would say on the one hand theyve obviously done phenomenally well for this world and we wouldnt be doing a lot for them, but i think they can improve. I think our disruptive technologies, the societal i impact soft some of the products as well. Thank you. Still to come, how does fridays huge jobs number change the calculus for jay powell and the fed . Well discuss. Plus, later Walter Isaacson shares his thoughts on apple head winds and much more stay tuned the dow looks to open lower as hopes for a fed rate cut fade after fridays jobs report up next, testimony from jay powell and corporate earnings. What you need to know coming up. Deutsche bank exiting the Global Equities business what this means straight ahead. Plus, a battle brewing between economists on the left why the Elizabeth Warren wealth tax has some of the old guard fighting with the new guard as the second hour of squawk box begins right now announcer live from the beating heart of business, new york, this is squawk box. Good morning welcome back to squawk box here on cnbc im scott walker along with wilfred frost and mike santoli joe, becky and andrew are off today. Our guest host is peter bookvar. U. S. Equity futures at this hour look negative. The dow would open lower by little more than 100 points. The s p down by 11 or so at the open the nasdaq looks to be the ugliest, if you will, of the decliners. At least at this point. Thanks to apple, yes. The apple downgrade certainly is not helping there. Here is whats making headlines at this hour fed chair jay powell will testify before House Committee on wednesday and Senate Committee on thursday. Hell answer questions about the economy and fed policy the testimony comes after a strong june jobs report. This which cast doubts on whether the fed will cut rates this month well have more on what to expect later this week in just a moment Deutsche Bank pulling out of the its Global Equities sales and trading business to improve profitability. The bank will also slash 18,000 jobs and aim to reduce costs by 6 billion euros sonys spiderman far from home blowing away Box Office Expectations this weekend. The superhero sequel took in better than expected 185 million. The film was projected to take in 125 million tuesday through sunday the film made 580 million globally in its first ten days of release wework is reportedly seeking to raise up to 4 billion in debt they have met with ceos of Goldman Sachs and jp morgan to discuss the potential offering wework filed paperwork for ipo was valued at 47 billion in private funding round. Infusion of cash could help reensure investors they can fund growth for years perhaps until it can become profitable. New analysis of Employment Information appears to show deeper links between the tech giant and chinas military and intelligence agencies. The leaked file suggests that some huawei staff have worked with agents and worked on joint projects with the Chinese Peoples Liberation Army and have been employed by a military unit accused of a cyberattack on u. S. Corporations. Huawei said it was unable to verify the employee sited by the Research Paper and that the study had many, quote, speculative statements well, thats not going to endear that company any more to the administration in the heart of this trade fight. Yeah. And you know, it does nothing to really clear up exactly where the Huawei Campaign sits within the trade dispute more prodly as well. Meanwhile, fridays jobs report came in stronger than expected, so could the numbers put the market and the fed at odds Steve Liesman joins us with more on that. Good morning, michael 25 remains alive despite the strong jobs report on friday markets along with most fed observers still see the fed cutting Interest Rates by 25 bases points this month even though the job market signals this economy doesnt need much help from the central bank here is the big change the market now pricing out the chance of more aggressive 50 point bases cut. Why cut at all people are saying trade the still a negative despite neutral to slightly positive development to the g20. Inflation is below target and Global Growth remains weak jp morgan says, however, the most compelling reason is simply its in the Federal Reserve signaling has been strong. The testimony is one of the things that could influence fed policy this week you have the jolts survey tomorrow wednesday the fed minutes and day one of the chairs testimony before congress. Day two on thursday. Along with equally and maybe more important that cpi number followed by the ppi on friday. Generally fed officials have publicly signaled willingness to cut mostly because the fed is missing the 2 target but a strong inflation number or upside on q2 gdp could give the Federal Reserve some pause steve, stick around for more lets bring in alicia lavigne. This is the setup, right the market for a while seems like its been betting on a fed rate cut or cuts and hoping that its not because the economy needs it so, is the market correct . So, you know, at first blush it looks like powell has a dilemma because the jobs report was much better than any of us were expecting all of us were away. We were a little surprised markets were a little bit quiet on friday. You would have thought they would have sold off more, but as steve pointed out, is signaling has been all about inflation not meeting target, heightened risks from overseas slowing growth and trade uncertainty which still has the opportunity to hit the real economy here in the u. S and we see the g20 as simply being neutral, slightly positive in that tariffs were not put on but the trade war is alive and well and that uncertainty is alive and well while current tariffs remain so 25 is on the table and the fed doesnt cut once so, if they go at 25 in july, we should expect another 25 for the rest of the year and has the market already kind of taken account of that . Does that explain where we are is that going to be reason enough for the market to keep going higher so the market has priced in all the great news and what it hasnt priced in is earnings rolling over. So we had a stabilization of the earnings decline sort of the in the april and early may time frame. Once again we see earnings coming down from 2019 and 2020 and the markets still pricing in four cuts, 100 bases points by the end of 2020. So the good news is already in and it just seems that your risk is to the downside however, we have received liquidity. I dont know if there are any hawks left on the Federal Reserve board. One they are more dovish. And lesser dovish. I dont think we should cut. Shes not saying we should raise. Theres nobody in the face of 220,000 job number, gdp running on average unemployment is low nobody saying we should be hiking into this so i dont know. Am i missing something, peter in terms of who is your one est Esther George is probably the only one putting that aside, shes not voting it doesnt matter any way. Theyre inclined to ease. You have a couple folks coming on who i think they want i dont know what they would do, but they want to cut a lot. Look whats going to happen with the ecp christine lagarde, a shock to a lot of people when we learned she was the head of the ecb, she will continue draghis policy and more so because shes a political figure her job is to keep the union together in a political way. So theres global liquidity here and asset prices will move higher the real risk is that you get into the bubble situation you had in 1998. So the question is can lower rates and lower yields actually produce growth in the real economy and a higher multiple. Peter is the only hawk. But the thing is hes the only one who writes about consistently the potential excesses from having rates too low for too long. Well, that and also look at the experience of the krerks b and the bank of japan. The Japanese Bank stock index is down 90 over the past 30 years with all this easing so im of the opinion that what youre doing to Bank Profitability is not easing. Youre actually doing restrictive policy when you damage the banks, which is the transmission mechanism for your policy. Germany is the perfect example of this as well. Its the same thing. You damaged the banks. You cant grow the economy you have the lowest yields ever and you cant grow the economy. And further still, banks ar more important transmission mechanism because of the underdeveloped bond market. This all could be true, though, but you still have a situation where the fed in the rates under its control has threemonth treasury yields above 2 and no bonds in the rest of the world are near 2 thats an anomaly. Positive 70 bases points. Be still my beating heart that you are way too restrictive at a positive 70 bases points. How much dry powder does the fed need to have in case of legitimate downturn. That was still one thing that leaned against the idea of a cut when it was gathering at first there were some folks still talking about dry powder. Thats why i asked. The dry powder argument has been put in storage. Not if its still front and center within the halls. Its not. The new new mingle thinking preemptive is better. Preemptive is better. I forget how that all came up. It began actually with a commentary i broke on your show from bill nelson, former high level fed staffer who said the thinking out there is that doing more earlier when youre closer to zero is a better way to approach it. Is that powells thinking powell echoed that in the press conference the last press conference he did. To what extent is what the ecb doing and saying and bank of japan also relevant there which is that the longer we stay higher when theyre continuing to ease, the more its going to hurt us before we acted. I think thats right. I will point out that President Trump is not right about the dollar he has complained about having a dollar thats appreciated. It has not president obamas economy is the one that suffered the big appreciation of the dollar which happened around 2014 when the market correctly sussed out there would be this massive differential on average i did the work just a couple weeks ago, the dollar has been slightly weaker under trump than it was under president obama. So, thats not been accurate alicia, just to bring it down to how to react to all of this right now, the market has priced in the great stuff, where does that leave you look, i think you have acidprice inflation. You cant escape the sea of liquidity, our yields will stay low and pile people into equities so markets moving higher but ultimately the fundamentals have to follow. I dont think anybody would be surprised if we had a negative Earnings Growth this year that seems to be baked in can i follow up on that i think thats an important point. It is better to have stronger growth and stronger job growth than it is to have fed cuts. The history of this thing is that the fed can cut and it will not completely offset especially in earnings weakness you have one or the other you would take higher growth and higher rates than the other way around. For sure. Absolutely its a little bit of Financial Engineering thats going on here, but if youre asking about the market specifically, were moving higher. Which is why the market implicitly needs us to be a flattening out of earnings not a cliff. Before we wrap, can we say happy birthday to mack. You just did. 60th birthday, long time floor manager. Hes the man couldnt do the show without it. There he is hes not here. We cant put him on tv. This show doesnt happen without mack. Thats right. Coming up, financials having a strong first half of the year. The financial select spider etf up 16 year to date. Well discuss and preview upcoming earnings. Later, warrens wealth tax up front and center in the 2020 election we have that story stay tuned youre watching squawk box on cnbc hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Welcome back to squawk box. Futures right now trading lower. The nasdaq, the lowest of the three. Partly because of an apple downgrade its down 44 points. The dow is down shy of 100 s p down around 9 points. Boeing under pressure this morning also exerting some weight on the dow. Low cost Saudi Arabian fly a deal has cancelled boeing decided not to go ahead of the provisional order because of schedule requirements the deal included option to purchase more. Instead they will buy 50 airbus jets in a deal worth 5. 5 billion at list prices. Coming up, market moves and focus on banking sector. Later trade talks with china starting up again after a successful meeting at the g20 between President Trump and president xi theres still no time frame on a adneo ri aagement. Well discuss the latest round of talks mean tots the markets welcome back to squawk box. Dom chu with the this mornings early market movers. Lets kick things off with a stock on shares of crowd strike higher than just around a percent of so on 5,000 shares of premarket value being helped along by analysts at bank of america, merrill link who started Cyber Security and 75 target impressive recent growth rates in sales and customer additions. Other analyst teams are also making similar buy recommendations. Were watching those also shares of American Airlines down by nearly 2 on just around 1,000 shares of premarket volume analysts at create swiss have downgraded to under perform, lowered price target to 30 bucks from a prior 32. They sited Downside Risks by continued groundings of the boeing 737 max jets and on going mechanics labor dispute. And end on share of apple which are lower by just around percent, percent and half or so on 60,000 shares premarket volume one head wind come bisanalysts at rosenblat to a sell rating. They think iphone sales will be disappointing and slowing growth of the ipad sales will come in the second half of the year. We have an analyst in the 8 00 a. M. Hour to explain that call i should also say wilfred, to balance thing out, analysts at needham have put apple on their newly minted conviction buy list strong buy 225 price target they like apples pivot to services. Thank you very much, dom. After deutsches big news over the weekend, exit of the Global Equities business, how are the other large cap banks looking ahead of earnings next week marty, thanks for joining us good morning to you. I have to start with your reaction to Deutsche Bank. I know you dont specifically cover it, but whats your take and what does it mean for the u. S. Investment banks . Well, really what were looking at here is that the european banks are having to catch up what we have already seen in the United States, which is a lot of this restructuring, cleaning up the Balance Sheets, having to look at efficiencies and which businesses you can strategically be profitable in, the equities business is just tough the exit there will generate a built bit of capacity to be reallocated to the Money Center Banks here in the United States. Thats a positive for them Deutsche Bank is basically now letting the shoe drop we saw here in the United States about five years ago. In your experience, can an Investment Bank successfully exit one part of its business and still see the other parts of its business thrive . Well, this is were not going to see how that will work out now. They have always had them pushed together in order, you needed equities to make sure you had Investment Banking, but the two businesses after we went through all of the separation, the chinese wall, have been much more separate than they were a decade ago. So, i think it is reasonable that you can move ahead, especially as you have Investment Banking things that youre adding positively that raise equity raise, those are things that companies will need any way. Marty, the big u. S. Banks are reporting next monday. Whats your expectations for the sector i guess this had come three weeks ago, the share price setup would have been relatively easy. They had a decent performance of the most recent couple of weeks. They have and if you look at it, they needed to kind of close the gap the rest of the market when you look at whats happening on this sector the large cap banks. Theres typically three phases to a recovery and this recovery just taking way longer that what we have seen in the past you have credit, which is the first three or four years. You then had Interest Rates which was really 2015 until now with the transition of feds going through. And then lastly the last phase is deployment of excess capital and liquidity and we had those positive signs as we came back through the capital announcements with ccar at the end of the june. Were now entering the third phase of this recovery we have seen profitability, a return on tangible equity go from 10 back in 2010 to around 17 . We think the banks can hold and that increase another half point. We still have some positive catalysts ahead for the group. This quarter is not going to show much in the sense of earnings the capital is now with a big event here in this period of year. Is fed cut and then fed cut cycle positive for the banks ginn wh given what it could do to the curve . Well, whats interesting its not as much the curve as it is if shortterm rates begin to drop, these banks still are predominantly asset sensitive. So there is a negative earnings with shortterm rats going lower, but we only think thats 2 to 3 . As youre looking at this, inflation has pulled back. I think thats the key factor for the fed. If inflation stays around 2 , i think they feel the freedom they can move back a couple of points but they dont want to move aggressively in the lower end. This isnt something thats going to really impact earnings as strong as what we saw on the capital side that generates a 10 increase of cash flow. While the market is very worried about Interest Rates, the impact will be much more modest whats been factored into the rests right now. Were celebrating the longest Economic Cycle in history. What are you seeing in terms of credit quality trends . Well, we actually have a credit cycle monitor that looks at where were at in the credit cycle. We use it 20 years managing a bank and gave us the foreshadowing of when were going to see the credit cycle turn it is one of those fear factors that Bank Investors have pulled back because theyre imagining that the yield curve is telling us were going into a recession. Right now our index says were in relatively stable or neutral territory. We think that that gives us the all clear for the next 12 to 18 months, although Slower Growth so while its been one of the longest expansions, its also been one of the slowest that we have ever seen so, when we should have been entering phase 3 of this recovery, you know, five or six years ago, were just now getting there. So this has been a slow boil as we have gone through this process and we still feel like were going to be stable but slow for the next couple years marty, whats your top pick going into earnings . Well, as were going into earning season, what were really looking at is which banks can actually start to redirect investors in a sense that what have they accomplished in changing the way they have reacted in the past . So what the fears are whats happening in Interest Rates and whats happening in the Balance Sheet on credit, which banks are going to be able to prove to investors they have done the most to change that. Two that stand out are regions financial changed their Interest Rate significantly as well as derisk their credit side of the Balance Sheet and zions bank corp. , similar process gone through there. Two banks have pulled back because the factors anxiety in the market and we think they have changed the dynamic tremendously and investors will appreciate that in the next couple earning seasons. Marty, thanks for joining us. Thank you coming up, we talk china trade and the markets. And later the Elizabeth Warren wealth tax plan setting off a battle between the old guard and new guard economists on the democratic side. That story in just a bit u. S. Equity futures backing off a little bit dow set to up a little over 90 points and the nasdaq indicated to open 40 points lower. Well be back. Here, it all starts with a simple. Hello hi how can i help . A data plan for everyone. Everyone . Everyone. Lets send to everyone [ camera clicking ] wifi up there . Ahhh. Sure, why not . Howd he get out . a camera might figure it out. That was easy glad i could help. At xfinity, were here to make life simple. Easy. Awesome. So come ask, shop, discover at your xfinity store today. Still to come on squawk box, the latest on china trade talks after the g20 meeting was hailed a success that conversation is just after the break. And then the warren wealth tax grabbing the attention of economist on the left. Why its causing a bit of buzz among democrats. And the futures are lower this morning after a strong jobs number on friday fed chair jay powell set to testify late they are week more on what you can expect in the trading week ahead is coming up squawk box will be right back. These folks dont have time to go to the post office they use stamps. Com all the services of the post office only cheaper get a 4week trial plus postage and a digital scale go to stamps. Com tv and never go to the post office again. I cant tell you anything about myself. As someone intrial witness protection, a digital scale but believe me, im not your average consumer. Thats why i switched to Liberty Mutual. They customized my Car Insurance, so i only pay for what i need. And as a man, uh, or a woman with very specific needs that i cant tell you about say cheese. Mr. Landry . Oh no. Hi mr. Landry [ grunting ] Liberty Mutual customizes your Car Insurance so you only pay for what you need. Liberty. Liberty. Liberty. Liberty. China and the u. S. Seem to leave the g20 meetings with an agreement on the trade dispute, but how long can the tensions be held off joining us is Ambassador Richard hollyman, former u. S. Deputy trade representative under president obama currently partner with the law firm crowell and morning. Good to see you, mr. Ambassador. Good to see you. How long is this peace and love going to last well, the peace and love will last through at least another round of negotiations between the teams to see if they can get back to the type of deal that the u. S. Anticipated it was going to get to months ago but what we have seen now is that were fully a year, a year as of this patst weekend of the tariff being imposed by the u. S. Against china. This has to determine whether we can get a deal or not. The fact is that a year of not yet having a deal leads us all together that were probably less likely to get this deal than we were roughly nine months ago where i think there was a high degree of optimism that the gaps could be bridged. Who needs a deal more, the president going into an Election Year or the chinese just simply because they have suffered a bit because of the trade fight well, it depends on the state of the u. S. Economy. I think there are many within the white house who say if not now when, meaning the u. S. Economy is strong and if we cant do this or their view we cant do this in a strong u. S. Economy, then we cant do it any time but if we see any signs of weakening in the u. S. Economy, or more pain on the part of farmers in the u. S. Who are paying this essentially off their backs because of reduced sales to china, then i think well see the equation shift where the president needs to get a deal right now i would say the sides are pretty evenly matched and really has to be seen whether china can make the hard, longterm commitments that are necessary for the u. S. And the u. S. Having now taken this path needs to get significant commitments from china not just words but changes in the chinese statues to ensure theres a level Playing Field Going Forward. Thats a heavy lift in the big picture. Look, its a very heavy lift. We have known that for over a year when the u. S. Came out with a very damning report that talked about the forced technology transfers, the cyber theft, the way that china was trying to drive its intellectual property business and industry at the expense of Foreign Enterprises and the u. S. , the u. S. Knew that they were asking for the toughest thing from china. Since that time, we have had some progress in that negotiations around a possible set of purchases but they really havent gone to the heart of why the u. S. Lodged this in the first place and then on top of this now we have the head winds of what the u. S. Is doing around huawei so the environment is actually tougher today than it was when we began this a year ago and it was already a difficult ask that the u. S. Was seeking of c china. Ambassador, is it possible to have a twostage deal so they can agree on certain parts of it now and both get through their shortterm issues and President Trump reengage again after an election well, its essentially what china was proposing to do and what it seen several months ago President Trump was inclined to do which is to have a large number of purchases announced by the cheese government. The president would say that was reducing the trade deficit between the u. S. And china and that would have been a partial victory. But what it would not have done is address the longterm systemic issues that the u. S. Has and the president walked away from that proposal a couple months ago hes really the decider on this, but i find that sort of twostep deal very difficult to anticipate coming together largely because china resists so much dealing with the fundamental structure issues that are at the heart of this and that matter for the u. S. Over the longterm. And have those issues in particular the ones now you know matter of so much contention been something that prior to this particular phase, in other words, prior administration, when you were in the u. S. Trade representatives office, operating that there would have to be changes to chinese law in order to have an enforcement mechanism . What was the thinking at time and has it changed sure. We were absolutely thinking we would have to have changes in chinese law. We were negotiating a bilateral investment treaty with china require certain significant opening of the chinese marketplace. One of the key issues of that negotiation and quite frankly one that was not resolved because the u. S. Didnt get what we needed was that china would have to open its markets in technology and innovative industries, Cloud Computing and other ways to ensure that the u. S. Could fully compete at the end of our administration, we had not reached a deal largely because china was unable to agree to those hard things. Those are many of the same things that the Trump Administration is now proceeding on but using the weapon of tariffs rather than the carrot of the investment treaty which is how we were approaching it and the obama administration. Since you went there, let me wrap it up by asking you specifically about that. To the criticism that tariffs have obviously taken from many sides, including the president s own party at times, can you say now that tariffs albeit controversial have actually worked, that they have brought the chinese to the table in a way that other methods diplomatic and other side that you just mentioned just werent able to do china was already at the table. This probably captured chinas attention in a bigger way but captured chinas attention over a year ago now and we still have not seen the results of this action well, its difficult, though. In fairness, the chinese arent going to move overnight. You had to get their attention now the administration feels they had to keep hitting and keep pounding and keep the pressure up to actually get a real deal. The pressure is heavily on the u. S. Economy as much as it is on the chinese economy. Again the jury is still out. I hope we get a deal now that we have gone dhoun rows road of imposing tariffs we need to make sure we get something that offsets the loss to the u. S. Consumers and longterm establishes a longterm issues. Thank you. Still to come, a warren wealth tax war is brewing between democrats. Frank joins us with a preview on whats coming up. The wealth tax has gotten highly personal and we have the old guard economists battlings the darlings of the new left [leaf blower] you should be mad at leaf blowers. [beep] you should be mad your neighbor always wants to hang out. And you should be mad your smart fridge is unnecessarily complicated. But youre not mad, because you have e trade which isnt complicated. Their tools make trading quicker and simpler. So you can take on the markets with confidence. Dont get mad. Get e trade and start trading today. Welcome back shares of apple lower this morning by about a percent and a half in the premarket. One head wind seems to be analysts at rosenblatt securities downgraded the iphone maker to sell they think iphone sales will be disappointing and ipad sales set to slow. We have the analysts in the 8 00 a. M. Hour to explain the rational. Theres another firm adding it to the conviction buy list today that particular thing. You have a good fight going on today. See which one wins out. Were following a developing story out of turkey. Lira suffering after erdogan fired the nations Central Bank Governor erdogan has expressed frustration with the central bank for keeping its benchmark rate at 24 since last september to support the lira. Peter, interesting you were starting to say in your notes that some economies, local currency debt you were drawn to because of your view on the dollar is the turkish lira in that camp turkey is certainly a part of these em funds and universe. I still think its attractive. When you see a story like this it obviously worries you erdogan said lowest Interest Rates will lower the rate of inflation. He has been fighting his central bank for years now im optimistic on the rest of em turkey is still a problem. Erdogan is a disaster for that country. Until he changes there wont be a change until how that continue is run so, it is alarming when you see a president firing their central bank. In the shortterm of course the istanbul election has increased the Political Risk because its given more shortterm issues for erdogan to deal with and of course the risk is serious unpredictability and this is a slight example of that which of the em economies stand out to you to me brazil is really interesting with the pension fund change likely to pass that was really the last legislative Sticking Point that needed to get done in order to control the exploding budget deficit there. The vespa is at a record high, so thats interesting. Even some of the other asian em countries are interesting even though theyre susceptible to the china slowdown, from a budget standpoint, a central bank standpoint still a lot of different and interesting situations there. Elizabeth warren calling for a specialized tax on the ultra rich but some on the left arent agreeing with her call robert frank joins us now with more hey, robert. Good morning, scott well it all started when Larry Summers the former treasury secretary and obama adviser published an oped in the Washington Post saying that the revenue estimates for warrens wealth tax were likely to disappoint he used the estate tax model saying that the tax would only raise about 25 to 75 billion a year since the rich would find ways of avoiding the tax and hiding a lot of their wealth now the two economists who helped create that proposal both at the university of california berkley fired back at summers saying, quote, he is just assuming that the wealthy cant be taxed most wealth today is in stocks which are easily valued, easily proven and the irs enforcement would be strengthed under the warren tax fixing Corporate Taxing, closing loopholes, appropriately taxing Capital Gains and the audit and enforcement of tax compliance. Now rather than a wealth tax which he said could be unconstitutional and had been abandoned by most other countries he favored those other issues zukman responded very cool to attack young academics for doing policy Relevant Research and offered summers a bet f the wealth tax yielded 80 of his estimated revenue i give you 10 of my wealth, otherwise you give me 10 of yours. Summers wealth obviously a lot more than these guys have. This debate in terms of the numbers is on the wealth tax part of whats been proposed not any kind of higher income tax. Correct its just that Elizabeth Warrens tax between 2 and 4 of any wealth over 50 million when you get to the billionaire level its up to 4 . And whats interesting is we all expected that the right would fight back at this and analyze it instead its left versus more left and the best analysis has come from the economic oligarchs a bit like the Green New Deal or medicare for all, health care for all its sort of this split within the party thats what happens when you have 27 or 22 or 25 president ial candidates which all agree that tax asian is broken and that people at the upper end dont pay enough the argument is how to achieve something better. Robert stick around well discuss this further jason furman, former chairman of the advisers and current professor at the Harvard Kennedy school joins us as does maddy dupler very good morning to you both. Jason, ill start with you, assuming that the wealthy need to be taxed more as a given for the sake of this question coming to each of you in turn, whats the best way of doing that you know, i think theres a lot of ways to do that you know, ending step up bases at death is one of the most obvious low hanging fruits you could certainly raise rates on Capital Gains and dividends. I think the holy grail would be whether you could tax gains as theyre accrued rather than when they were realized realization gives a lot of control over whether or not you get taxed. Maddy, your take. Well, we already have an extremely progressive tax system particularly when it comes to income, but that component that jason just mentioned the notion of taxing unrealizized gains would have the same challenges as a wealth tax. The Administrative Burden of these taxes alone create a lot of problems. I for one love seeing these economists get into the dirty details whether or not some of these fantastical taxes have been proposed would actually raise the revenue that theyre intended to do so. Its one thing saying taxing the rich that polls well. Its another thing to show your math on that as you mentioned before, you have 30 some people running for president at one point you need to stop promising high flew tant tax policy details and show your work even if youre against the idea as a whole f you did have to put a tax on the wealthy, how would you do it . I reject the premise that you have to put a tax on the wealthy. The wealthy are already taxed. I do think that its important to continue to strive for more simplicity in the tax code, certainly having more complexity allows the very wealthy to avoid taxation and certainly against that some of those efforts need to be taken into account when you look at a wealth tax, that would serve to further obfuscate wealth in this country. This debate boils down to how much the wealthy would avoid the new tax. You look at what zucman said, look, the wealthy would basically avoid or evade about 15 of their wealth summers say they would would evade 08 to 90 . European countries used to have 20 that had the wealth tax, now only 4 three of those four dont really raise much money because the wealthy are very good at devaluing their wealth or highing. Im sure you followed this debate with your colleague where do you come down on roughly how much wealth the wealthy could hide or avoid with the wealth tax look, i dont have my own estimates here theres two problems one is we dont know how much wealth there is in the country because some of the richest people in the country dont just sit at home and answer surveys. Yeah. Here is whats wrong with that because most of the big wealth today is through publicly traded stocks 80 of the wealth of the top 1 , thats the group were targeting with this wealth tax comes from Financial Instruments that are very easy to declare and value so maybe the other 20 is harder but most of it is public and knowable. Theres a lot of other wealth out there. I think hat issue is what are the rules are. How youre enforcing those rules. The fraction of the wealth that you tax, whether its through Capital Gains, through dividends, through a new wealth tax, is going to depend a lot on your rules and your enforcement. Those have been sub par to date. I think there might even be a consensus right here that making that a little bit simpler,e fore it lower and make it more fair i was in favor of lowering the Corporate Tax rate i think we lowered it more than we needed to i think we could have a rate like 28 for the United States and we would be just fine. That would be especially true if we did other efficiency enhancing steps like make expensing permanent rather than have it go away as it did in the past law passed in 2017. How do you think this will play out ahead of the election at the moment, its the democratic nominees fighting for the domination. Right jason is right theres a lot of other wealth out there. One of the experiences in European Countries is not just tax avoidance. That question will be raised in the question and certainly in the primaries too this question of whether or not the United States can remain competitive globally if we continue to kraets tax laws that force companies create barriers for them to invest in the United States certainly as you head through the primary, there will be a cleavage between democrats about what the proper role of taxation is this is a question for i think the party but also for voters, what are they willing to tolerate i think that democrats need to continue to have this debate and be honest about what the total tax burden is when you talk about big social welfare spending programs theyre proposing. This well tax were to raise the total amount of money that Elizabeth Warren said it would wouldnt cover all the spending shes proposing. There seems to be more broad support across party lines for taxing the wealthiest family in this country poll after poll suggests that. Whether its a fox news poll or other polling devices which have been used. Theres broad support for it so how do you reconcile your view with the facts on the ground that say voters are fine . Because the yeah because a lot of polling we see is asking about taxing people who arent the people who are responding to the poll, right . I think last time we were on we were talking about millionaires poll saying that they would certainly welcome a well tax because most of the people werent making the 50 million threshold you need to be suggested to these tax base. This is krushuatingly small. I think that it certainly is one of those questions of taxing the and not me when you make clear what the cost of some of these policies would be, those numbers would certainly drop in support. Thanks for joining us. Thanks, guys. Thank you, guys and we want to thank peter bookbar for joins ugh. Coming up we welcome Walter Isaacson squawk box will be right back. A major Banking Institution changes gears. Deutsche bank starts laying off the first of 18,000 workers as it announces a bigtime restructuring. President trump goes after the fed again. Hes blasting the central bank and saying the stock market would be much higher without the recent moves is he right . And party like its 1999 we play name that ipo and break down the eerie parallels between the dot com boom and bust and today the final hour of squawk box begins right now. The boys are back in town the boys are back in town announcer live from the most powerful city in the world, new york this is squawk box. The boys are back in town good morning, welcome back to squawk box here on cnbc live from the Nasdaq Market site in times square. Im scott wapner along with wilfred and mike santoli dow opened lower by more than 115, s p lower by 11 points and the nasdaq down by nearly 50 points apple getting a big downgrade today that we will discuss coming up as well. Theres your picture of where rates are, tenyear back above 2 203 will lets get back to the big story this morning and thats Deutsche Bank the german lender getting the first of about 18,000 job cuts under a new restructuring that the ceo called reinvention of the company. Job cuts will continue until 2022 with the bulk of those losses expected in europe and the United States. Over the weekend, Deutsche Bank announced it would be closing its Global Equity sales and trading business ceo christian sewing said the lending would create a socalled bad bank to wind down unwanted assets Deutsche Bank is expected to post a net loss of 2. 8 billion later this month thats just the latest in a series of losses for the bank. Clearly share price is significantly higher over the last month as theyve got closer to this plan, often incredibly low base its now trading slightly lower today. It was higher on the initial announcement what it does today is harder today. I think the key thing is over the last month its up by 20 on the fact that finally theyre embracing the need to change having had tiny, tiny changes for the last five years. Still a lot of questions on execution. Still a lot of questions as to whether this works as we discussed earlier. The focus is on equity trading which wasnt their strength. Macro businesses were their strength theyre keeping most of those. They will lose market share regardless well see how that shakes out. Lets bli ees bring in yourt host today Walter Isaacson, a cnbc contributor i want to ask you about first, great to see you this morning. Great to see you. I want to get to apple. The whoa notion of what wilfred said is ripping the band aid off. Finally making these big dra gnattic changes at Deutsche Bank which we probably could have seen coming for years. We could and we had problem with Deutsche Bank in the feeling of comfort and trust its been hit with the political things and the trump and the russia and china so i think something radical happening and some real ripping the band aid off probably makes sense. The question really is whether you can remove an important part of a Financial Institution like this and still thrive in the years ahead. Yeah. I think in that core business they can i mean, theyre going back essentially to Domestic Retail Bank and then a global Corporate Bank with some certain Investment Banking operations added on to support that Corporate Bank thats where they worked 20, 30 years ago and tried to become a global player. The question in the Investment Bank is just closing equity sales is enough or whether youre drip feeding the cuts not so much the fixed income currencies, commodities trading which theyre going to continue with, how can you have a successful ipo business if you havent got equity trading so there are still some areas where it doesnt quite add up. But if youre looking at a big strategic change that sort of makes sense and could work, thats it. That gets to the heart of the question of whether banks really do need to span the gamut, be big, do everything from investment to equity trading or focus on something to avoid conflicts and becomes more of a boutique this goes back and forth over a 30 year period were seeing some say back right now. I think thats certainly on the m a side the question particularly in europe if youre offering Trading Services and execution services, the advantage of being a full Service Global offering now when people are slimming down how many Investment Banks they have serving them, Asset Managers and hedge funds, theyre slend ring down how many people they have serving them, if youre bnp for example, you just became more attractive because theyre not now executing trades with five or six players and they are doing it with six trades. I wonder if there would be a knee jerk bid in Goldman Sachs, jp morgan. It hasnt really happened. Its not a tremendous omt of spend. Just to be specific, Asset Managers have to explicitly buy, put a price on these services. So all of a sudden you cant say to yourself if youre a big bank, well, we think we make it up somewhere else. Right. Its a lost leader business sure, but its good to have the whole conversation. Let me turn the conversation to apple and most recently and we would talk about this morning as the stock getting a downgrade one of the reasons why the nasdaq is under the kind of Early Morning pressure that it is in the news that johnny ive was leaving. I couldnt think of anybody better to discuss this than you considering that steve jobs told you that johnny ive was his spiritual partner and you described it in ive jobs met his soul mate. Just your thought in and of itself of somebody like johnny ive leaving apple. I think the word virtual and soul mate are right on target. They had not just the mind melt but an emotional melt. Everyday when jobs was in the office he would go at midday to that sort of big locked door that went to the desiep studio, be brought in they would feel not just the phone but the plug, the jack the way the wire coiled. Everything else. And jobs at his core was a product person who loved johnny ive. I think what youre seeing now is a company that knows how to execute pretty well, but it doesnt have at its core these two spiritual core mates who lived and breathed the beauty of products. Dont you think that what has been delivered at apple has been transformed into tim cook . Hes been there a long time. He seems to get the ethos what they have been all about well, well see i think it would have been better to have the design chiefs report directly to him the user interface report to him. I am not sure. In my book, and i softened it in the book a bit i sometimes soften things i felt were too harsh but in my book, tim cook can do anything but then he looked at me and said but tim is not a product person. Which areas did jufr . I said that sometimes steve when he was in pain and it was problematic and he was angry, he would say more things than he was not a product person and i felt i would put in certain thing. How would you sort of set the record straight . Im a big softy sometimes. Im not as good of a journalist i used to be. There are things where people will Say Something and you say, is that more painful that is coming from a person near the end of his life about somebody you know he loves or is that more helpful to the reader it was relevant to understanding the company but would have been very painful those are the type of things i softened. The stock when the use broke. Maybe that was a surprise. Should it be a bigger deal the wall street journal had two Great Stories but a really great story about how jony has checked out the past two or three year i have known that and a lot of people have known that he has steve jobs ill hes not going to that decision sin meeting every morning. When you have this charismatic spiritual quality, sometimes live involves showing up i think he was showing up less andless. Do you think from his perspective it wasnt that he used to be big and pictures got small. In other words, is the design of the product as crucial a thing for apple anymore or for the industry anymore in other words, has the great stuff already been accomplished and theres not clearly another direction . Like in 1900 and they said all that has been invented has been invented. The only great design apple has done has the apple headquarters and jony ive and steve jobs made sure they knew the curve of every piece of glass that wonderful round building doesnt have strait pieces of glass. That type of detail. Jony ive was focussing on things like the new campus. I think you could have created an amazing apple tv, an end to end integrated product both the hardware and software and content which is what steve did in every other industry from the iphone to the ipod he went into. You could have created a camera that was truly an awesome piece of design. If i knew more design things they should have done, i would be doing them myself but jonyive and steve job would have done more design. What do you think about the cook pushback about ive had grown disenchanted with the fact that cook wasnt as much of a designer and innovation guy as he had hoped and cook came back and pushed hard against that. Which he doesnt do often. He doesnt do that often. Pushed back pretty hard in an email to you all he did not deny any specific thing in that article. Or say youre wrong about that meeting or wrong about that product or wrong and ive not doing this or jony not being here he said the article is wrong because it misunderstands the new culture at apple so, i also found as interesting now jony ive didnt say a word. If you read that story, it has what your friend said say the odious smell of truth paragraph after paragraph. Well get more from our guest host today Walter Isaacson when we come back, its a big week for the fed chair jay powell getting ready to appear before congress. Investors are hoping for a tipoff about what the central bank will do next. When we come back, well hear from art laffer in light of the president s latest fed criticism and latest job numbers. Stay tuning. Youre watch squawk box on cnbc p. Your daily dashboard from fidelity. A visual snapshot of your investments. Key portfolio events. All in one place. Because when its decision time. You need decision tech. Only from fidelity. 6 ever welcome back to squawk box. President trump amping up criticism of his handpicked fed chairman over the weekend. Eamon javers joins us now with more on that good morning. Good morning. The president stopping to talk to reporters at the white house yesterday and continuing with that withering criticism of the fed. Here is what he said last night. The fed knew what it was doing, they would lower rates and they would stop quantitative tightening if you look at europe what theyre doing is theyre pumping money in and theyre having rates lower. Remember, the European Union was set up in order to compete with the United States. And if you look at what they have done, i mean, they have been somewhat competitive. So a little hard to hear there over the jet noise and the helicopter noise, but the president in effect suggesting that the fed doesnt know what its doing here. Take a look at the bottom part of this tweet from friday. This came out late friday. This is the president continuing to bash the fed, suggesting ultimately our most difficult problem is not our competitors, it is the Federal Reserve. That is tough stuff for the fed from the president of the United States now the question here, guys, is what is the president trying to do here. What is the end game is he just working the ref a Senior Administration official told me a while ago they believe inside the white house that the president has already gotten what he wants from this fed bashing, which is that the Senior Administration official telling me he didnt believe there would be another fed hike in his life time the other question, guys, is how is this playing at the fed are they bending to the president s will here or are they digging in their heels . And i dont think we really know the answer to that question either thank you very much you bet. Well continue the discussion with art laffer, former economic adviser to President Trump hes the coauthor of tru trumpinomics good morning thanks for joining us. Good morning. When you talk to the president , do you advise him to tone down his attacks on the fed. No, i dont talk about what his view should be on the fed. I dont talk to him that often i think the president wants is just plain in what he says is he wants them to lower the discount rate maybe by as much as 50 bases points its clear that he believes that lower rates will improve the economy, increase output employment and production. I would guess the fed probably is resisting his advice but i dont really know. I dont talk to the president about the fed. On a serious note, we were just talking moments ago about president erdogan firing his head of his central bank because they havent cut rates and unanimously all economists say thats a bad thing to be doing now the president hasnt fired anybody at the fed, but he is cheerily putting undue pressure on them with his rhetoric. Is that advisable . Well, im surprised you say unanimously by all economists because its really i dont understand why the fed is independent, to be honest. Fiscal policy is not independent. Military policy not independent. Social policy is not why should Monetary Policy, this very powerful tool to control the economy not be subjected to democracy just like every other instrument of government it should be controlled by the federal by the president , by the legislative and executive branchs, but its not. So therefore you get this back and forth all the time and im sure the same thing is true in turkey with erdogan. And its obvious that theres a difference between the executive branch and the fed and, you know, its going to go on as long as the fed is independent youre going to get these clashes. And always have had them by the way when i was in the white house in 1970, 71, 72 nixon had this real big problem with arthur burns all the time. Thats what goes on there. Art, do you think credibility in the u. S. Drar and u. S. Government debt would be hurt if there was not an independent central bank well, it might be thats true. Is it hurt by not having independence fiscal policy, probably they would probably raise taxes way too much and spend way too much if it were independent they probably would spend less and tax less which would make me happy but i dont think thats the essence of what democracy is i dont think an independent fed run by academics is really necessarily a very good thing for the country. I would like to see us go on a price rule or on a quantity rule and really take the Decision Making out, much like we had prior to the fed in 1913 art, im surprised that you invoke president nixons criticism of arthur burns as a supporting example of why the fed should not be independent considering the aftermath of that was stag flags when you basically got the administration more or less getting its way in Monetary Policy. People look back and say thats what you dont actually want politicians to be running things. Well, let me say he used me personally to visit arthur burns 1972 and 73 just the three of us in the room where john would beat up on arthur burns and i was supposed to be the referee, i wasnt arthur burns pushes in wage and price controls wage and price controls were a disaster for the u. S. And that was all arthur burns the one thing he chose not to be controlled were Interest Rates how is that for hypocrisy at its very highest thats what happens when you have an independent fed and professor basically not someone in business that type of conflict and nixon did not win with arthur burns all the time, far from it. You said just a moment ago you thought maybe there should be a price rule or some ceo rulesbased way of doing this. Would you think it makes sense before 1913, do you think it makes sense to go to some modern version of a Gold Standard or a solid standard well, i dont know if it should be gold or not. It should be a commodity based standard i believe or an interestrate based standard that would make sense as well. I wrote a piece in 1981 called reenstatement of the dollar the blueprint which now this is back in 1981 which was 30, 40 years ago. But what i proposed there was there was a dollar gold relationship that should be looked at very carefully it was broken under kennedy where we really had if you remember Charles De Gaulle tried to cash in his dollars for gold and we had a real crisis in Monetary Policy. I think if you maintain the value of the dollar in the standards there and didnt use quantities and that, i think you would have a much better monetary system, but this one is not bad and this Federal Reserve board is not a bad board i dont want to bash this board and these people theyre good people. Theyre good economists and theyre doing a pretty good job Monetary Policy is not the crisis it was in 1980 and 1981, 1982 when we had crazy Monetary Policy. Why then do we need to cut rates at all we have what the president describes himself as the greatest economy that we have ever had we have stock prices at an alltime high. Isnt the president s withering criticism and repeated criticism of the fed the perfect reason why the fed should remain independent . If it was up to this president , if he had control over it, who knows, maybe he would cut Interest Rates by a full point is that really necessary i dont know if its necessary or not but you dont want a fed thats just baiting the president all the time i mean, thats not the purpose of an independent group. But what you find happening with the fed is they have followed Interest Rates pretty much you know, when Interest Rates started going way down they lowered the discount rate and followed the markets and they have not done that recently. We have the tenyear bond now at below 2 i dont know what it is this morning. Its 2. 02 but your point is taken. Yeah. In that range. And you know, it was 3, thats when they had the discount rate. We had a large fall in Interest Rates and the fed hasnt followed the market which it almost always does and i believe should do. It should follow the market and its not done that and i think theyre just baiting the president to be honest with you. And hes taking the bait and biting back. Art, thanks so much for joining us it is wonderful thank you very much for having me coming up, were going to party like its 1999 we may be 20 years removed from the dot com bubble theres more than a few parallels between now and then are we in for another ipo bust or is this time different . When we come back well play name that ipo and see if things today are too close for comfort. Coming up, well play guess that ipo here on squawk box. Companies are raising dot com era lels from u. S. Listings and you can be forgiven if you confuse them from 1999 well see how todays stacks up against that of yesteryear and see if we can tell the difference between the types of ayunanies going public st ted youre watching squawk box on cnbc their cage. Content on their endless quest, to nowhere. But perhaps this year, a more exhilarating endeavor awaits. Defy the laws of human nature,at the summer of audi sales event. Get exceptional offers now. Welcome back to squawk box on cnbc live from the Nasdaq Market site in times square. Companies have raised 39 billion in proceeds from public listings in the u. S. , the heist since 2000 when u. S. Listed companies raised about 67 billion in that same period. So what separates the listing frenzy 20 years ago from todays ipo rush on set with us for a round of ipo trivia is kathleen smith, the founder of renaissance capital, our own leslie picker who joins us to explain how this game is going to work. Its a bit of a gail. Its a game because its monday and its raining. So we all deserve a bit of a game this morning. Give us the details. Here is how it works. Ill read you a fact or a line about a company from its per spectis and you will say whether the Company Comes from the 90s or now so you guys ready to get started . Yeah. Okay. In what era did an online pet retailer go public with a sizable investment from amazon what era well, 99. What do you think, scott . 2019. I think 2019. Im sticking with 99 its pets. Com in 1999, right that is correct that is correct. It was pets. Com. Doesnt own a piece of chewies. Amazon invested 50 million in pets. Com in 99, acquiring just under half of the company at that time and then that went out of business in 2000. So amazons stake was written down to basically zero but we looked and you can still get the pets. Com puppet on amazon. Com you can still buy it see, there it is for those of you who are feeling nostalgic this morning okay question number two in which era did a Certain Company named a 2 b travel as one of its Key Competitors ahead of its ipo kathleen, well start with you. We know its the dot com era. Boy, i have forgotten these names but definitely dot com there you go ill come up with you. Anyone have any different i dont know what the company is, though im not going against kathleen. Theyre still in business actually. Airbnb. Its expedia. But a 2 b travel sounds like airbnb so at the time that they went public in 99, november 99, they had been wholly owned by microsoft and their stock was worth 14 a share. As of friday, they were trading 135 a share so quite significant jump from there. A company from which era defined itself as the, quote, Central Nervous system for the Digital Enterprise that has to be 99. Its too dated a way to phrase. Its today. Because Digital Enterprise was probably not a phrase as common back then. Im going to say back then. That just sounds like one of the code words that would have been used like eyeballs back in the day. Yeah. Micro systems . It was actually two months ago, three months ago. Pager duty, which actually sounds like the name of a company that should have from 99. They went public they go on to describe themselves as operating at the intersection of human response and machine generated data orchestrating teams into timely manner what does pager duty actually do well, they provide a Cloudbased Software for employees to report issues to their i. T. Department so if you have any issues you can sounds like just marketing. I cant believe that was recent. That was just a couple months ago. Last question, a company dated from which era touted sameday Home Delivery within a 30minute window ahead of its ipo . Same day 30 minutes are they really touting it back then . It sounds like 99. Theyre all going to try to do that i dont think anyone in 99 would have promised that were talking about more currently. Promised versus delivery. This was an ipo they were promising the moon. It has to be 19. No one ipoed in that. Uber eats was part of uber. Chewy when did price line by the way come in . Yeah, 99. Feels like a priceline era promise. Well, it was indeed web van so, they also said in the cover one of the first pages they said they could deliver a live lobster in 30 minutes or less for those of you who are interested in that but they had when they went public in 99 they had 395,000 in revenue for the six months through june 99 with losses of a whopping 35 Million Dollars. Wow. Over that same time period. Uber eats on the other hand had about 350 million in core platform adjusted net revenue in the last six months of 2018 ahead of its ipo so multiples higher. I dont think we should keep the scores on that game. No. I think we should move on. Theres no prize. Theres no prize. And the score would be pretty low. You get a live lobster and a sock puppet. One out of four is not bad. Leslie stick around lets turn to kathleen to talk about what all this means for the momentum and life span of the most recent crop of ipos kathleen of renaissance. You see a lot of similarities between 99 and now, that era and now . Well, its not exactly the same it may rhyme a little bit, however. I think in dollars raised were going to maybe hit some numbers from the internet bubble and certainly valuations are pretty high but if you look at certain things i think it can tell you that were not at those extremes but we ought to be cautious. For example, were now seeing a first day pop on average of 23 . Thats a little bit high back in 992000, the average first day pop was 50 in one year and 70 in the other year it was just an incredibly frothy time investors had a short history. Now were seeing Companies Ten years in venture portfolios before they come out and i think one of the most interesting comparisons really would be to look at we talked about pets. Com and chewies because these are two companies kind of doing the same thing promising Online Pet Supplies and with pets. Com the company had about 600 million in revenue. In one year it ran out of money and liquidated the idea back then was if you built a website they would come. That was about it. Remember, the internet wasnt even available until the mid 90s that was when we could actually get per spectises online people could get more information and learn about a deal flow. Now if you look at chewies, for example, 3. 5 billion in revenue for chewies. Pets. Com lost money for every product it sold. It has negative Gross Margins. Chewies has positive Gross Margins and positive gash flows. So big difference still but we should worry because we are there are some frothy items in the ipo market. Let me ask a fundamental question thats different now than in 1999 now we have three or four Major Companies, facebook, amazon perhaps you can apple or whatever and if something comes along like a chewies. Com and amazon wants to be in that business, it will snap them up real quick which would be good for the people initially investing or say well swamp it i see this with expedia and other things that they get threatened now because i go to google maps to figure out what plane i might want or hotel i might want so is it fundamentally affecting the ipo market that we have these huge dominant players like google and amazon and would we have more innovation if we had a little bit more antitrust enforcement . Well, i dont know if i go down the antitrust route per se except to note as a specialist in covering newly Public Companies, they tend to be companies that are really challenging the large companie with new ideas, new products, new ways of doing business and platforms. These Large Companies want to buy these companies, thats good for these companies that are developing new ideas but we also have some that are becoming very Large Companies that we have some sizable companies that are grabbing market share because they have the capital to be able to grab that share the ubers of the world, the airbnbs, their Major Companies that are actually thriving when there are other Big Companies out there publicly. Walter, we talk about the big success of the last 25 years its amazon. Did it surprise you that in the core business they started in its not profit snbl. No one of the big reasons they have big success theyre willing to postpone longterm profits when youre zappos or shoes or this or drugstore. Com, you get bought or get squashed, which i think changes the nature of being a startup entrepreneur. But look at amazon. It still isnt that good at pet supplies. Thats true. Or fashion. We have seen revolved do fashion much better. So amazon does not they may seem to control the world but they dont when it comes to a lot of high growth opportunities. The shirt im wearing is from amazon because when ever i travel i send a shirt in advance. Even though its a lands end shirt i know to get it through amazon. Thank you very much leslie as well pets. Com ceo is now the founder and ceo of the real real which just went public if we dont succeed, try, try again. Its great to have you both here. Coming up, the biggest stock movers of the morning and the biggest stories driving this week including fed chair jay powell the only thing everybody will be watching well get you up to speed when squawk box returns in just a moment but which ones target your goals . Its not about quantity. Its about quality. No trendy stuff. I want etfs backed by research. Is it built for the longterm . My reputation depends on it. Flexshares etfs are designed and managed around investor objectives. So you can advise with confidence. 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You need someone to guide you and help you make those tough decisions, thats Morgan Stanley. Theyre industry leaders, but the most important thing is they want to do it the right way. Im really excited to be part of the Morgan Stanley team. Im justin rose. We are Morgan Stanley. 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 apple continues to weigh down the dow futures this morning rosenblatt securities downgraded the stock to sell from nuch while maintaining 150 price target saying the Company Faces fundamental deterioration over the next 6 to 12 months. Joining us on the squawk news line is jun zhang. Talk us through the headline reasons for this downgrade. Thanks good morning the reason we downgrade apple is with the stock price rebounding since early this year, we dont see the fundamental improvements for the iphone sales increasing competition and no meaningful speck upgrades for the iphone cycle, we expect iphone shipments to be down 10 year in year second half of this calendar year. We also assume that iphone asp will not see improvement year of year in terms of gross margin, we also have concern because of that key component cost including lent price and panel price already reached the bottom so we dont expect the gross margin for the upcoming iphone will enjoy the Cost Reduction from those two key components in the second half this year. Is the trade war going to hit their demand in china . Yeah. In china we believe that the apple Installation Base continues shrinking and local brands especially huawei continue taking shares in high end market we do see a lot of data point that suggest people are switching from ios system to the Android System over the last three to four months. Its Walter Isaacson. Im wondering what you think about the retirement or semiretirement of jonyive and the motion that tim cook is just a jean glogenius but doesnt ha product feel that jony ives and steve jobs had are you worried there arent transformative new apple products popping up every now and then so in the last couple years we do see apple the design the industry design for the new phone has been lacking behind android upgrades especially the camera and Screen Design so we do see the industry design apple become not have much advantage compared to the android camp so, i dont have specific comments on jony leaving apple needs to have some new design for the phone next year in order to maintain their market share in high end markets. Okay, jun, thanks very much for that jun zhang from rosenblatt securities with a big downgrade on apple. Under an hour until the opening bell on wall street, dom chu has a look at some of the biggest market movers. Dom, what do you got apple apple was one of them. All right. Well, dom will be around hopefully to tell us the movers. There are many and apple, of course, was one of them weighing on nasdaq. Joining us to talk about the markets in general is Richard Bernstein and cnbc contributor rich, good to see you. Good to see you guys. So we have been and will continue to talk a whole lot about the fed and what the market expects, what the market might get from it. In the meantime, question hangs out there, we still have a bit of a global slowdown to Pay Attention to pricing where do you think that leaves the markets . So i think theres always a tug of war between the fed and earnings theres always so when you think about earnings on a upswing and fed is tightening, everybody is worried the fed will tighten and ruin the bull market but typically earnings are stronger, so they win the tug of war where were at now is that maybe the fed will ease. The probability says theyre going to but earnings are decelerating pretty rapidly now. I dont think people are paying i enough attention to the other side of the rope in the tug of war. Theyre assuming the fed can easily save the day. Im not quite sure thats true. You say earnings are decelerating is that all its going to be do you think . Theyre obviously flattening out for the first half of this year. Where does it go subsequently . So at our firm were forecasting on a gap basis 0 to 5 earning growth for 2019 as a whole. But if risk on the upside or downside, we would say the risk is on the downside. A profit recession is not out of the cards for this year, early next year. You say the fed cant save the day on this . Mmhmm. That means you see it is likely there will be a market downturn this year i dont know if there will be a downturn, because you still have Earnings Growth isnt negative yet the yield curve is just inverted here is the way to think about it, i find it curious that people are more bullish now with an inverted yield curve than they were when the yield curve was steep. Is that doesnt make any sense to me at all thats what is starting to happen. How do you position yourself sectorwise were pretty defensively positioned in the United States. Outside the United States we have some cyclical exposure. In the United States, it is health care, it is staples, utilities, real estate, all the defensive sectors, large cap, not small cap. Better Balance Sheets, not weaker Balance Sheets. Pretty standard. They have outperformed to a large degree, held the overall indexes together what do you say to those who look back and say this is what we went through, you know in 2015 and 16, we had a year and a half of indexes went sideways, then carried higher there after. Thats a great point. There is three pillars to a market youre going to have earnings, of course, and were starting to see that and it does resemble, 15, 16, of course and then liquidity we have an inverted yield curve that wasnt true two, three, four years ago and people are more bullish so from a sentiment perspective, you are finding i wont say euphoria yet, but think about your discussion this morning, people are clearly more bullish than they were three, four, five years ago. Does chinas trade issues cause a need to restructure supply chains and how costly will that be thats a great question everybody is kind of saying, oh, we should go and invest in vietnam and things like that i understand that. But what theyre missing is what is the cost of, say, u. S. Company or any kind of Global Company moving the supply chain from china to vietnam, does vietnam have the infrastructure . Probably not and so there is a cost to doing that you dont get a relocation compensation for because of this because of a trade war you to foot that yourself. I think thats something people are missing if the trade war continues, and you really do have changes in supply chains, that is a major cost for companies. Where do you take cyclical exposure outside of the so, youre going to smile given the previous question. Most of our cyclical exposure is in china that worked very well. It is not working right now. I get that but china is one of the few countries where leading indicators, emphasize leading indicators have pretty good momentum right now thats not true of the United States, not true of most of europe, but it is true in china. We still think it is probably the best place to have cyclical exposure. All right, nonconsensus rich, good to see you. Down to the new york stock exchange, jim cramer joining us. Jim, hope you had a good weekend. I guess great, how about you guys good, thank you so good news is bad news, again, i suppose, with the jobs number follow through today well, look, there is this really very bearish Morgan Stanley taking them to sell piece of research which basically says what you said and there is more downgrades than i can recall today, just across the board verizon right apple and verizon. A lot of these could have been made a long time ago. Richard is right, people are much more bullish than they were youre fighting a president who is saying, listen, you got to cut rates. Youre fighting a tape which says, listen, the earnings arent that bad. And i know that there is a lot of fraud, we talk about pets. Com, realreal, pointed that out, realreal is a lot better than pets. Com. I kind of just say, you know, neutral. But i just dont find this to be as dangerous a moment except for when youre buying these things 18, 20 times sales, which there are a bunch of them. Now it will come down to Earnings Data point out of the way with the jobs report, earnings are going to be right in front of us, and it is either put up or shut up. Yeah. Pepsico reports tomorrow, right . Pepsico is going for 108 to 133. Why . I think it is the ten year you had a 1 acceleration in growth but the ten year provided most of that gate i think well find out whether well see the conagras or whether were going to seat c ie cocacolas pepsico is really important. No one is talking about it it is going to tell you whether we move because of the ten year or move because the fundamentals are better. We will see you in about five minutes. Look forward to it. Love this group love the group say hi to good to see you. Good to see you, jim. Like the shirt. Like walters shirt. Speaking of walter, more with our guest host Walter Isaacson coming up in a few moments well check the markets, get you owhiy for everything you need to kn ts morning on wall street stay tuned squawk is back in a minute theyre changing by the nanosecond. Thats why cognizant created a unique engineering approach to design and build new digital products. Learn how cognizant softvision designs experiences and engineers outcomes. Cool. Tech jumped 10 in the past month. After similar gains, the Group Continues to welcome back ou isaacson lets get back to the topic of regulation do you think thats likely and in what shape and by when . I love seeing donald trump call for regulation of twitter and facebook and, of course, on the left, you have that notion of regulation, all of which seems to me a pretty bad idea. Especially when it comes to regulating how corporations handle speech, whether it is cnbc or my old magazine of time. I do think that the bigness of these companies makes them more vulnerable that facebook and twitter and google, by having dominance in their field, you dont have competition. So i would think youre going to see pressure left and right, to say, hey, maybe they maybe we shouldnt keep allowing the facebooks to buy the instagrams or the googles to buy waze because googles maps platform will end up being a platform that needs competition so im in favor of more competition, not major antitrust, but more push on antitrust so that new companies can spring up. We had very few big new companies in the past decade it is the same thing that happened in japan, 20, 30 years ago, when they allowed National Champion companies to speaking of competition, and maybe increased regulation in the 45 seconds that we have left, the title of a book you write on elon musk and tesla would be what . Well, it would be, so were in the middle of the story, so i think tesla is a elon musk is a great disrupter and innovator. And i worry that the problems hes facing is that there isnt that room as there was in the 1970s to do really wacky things, especially physical things that involve things like batteries and tunnels and cars it is easy to do it in software without getting regulated. But physical place, we dont innovate as much anymore as apple and tesla show walter, as always, a pleasure being with you thank you for joining us. Final check of the markets. Were going to open lower to start the first trading day of the week dow opens lower by 130 that does it for us. Squawk on the street begins right now. Rock in the usa rock in the usa congratulations to the womens u. S. Soccer team dow futures down about 100 as we get ready for a the last quiet week before q2 earnings. Powell on deck wednesday and thursday on the hill, downgrade of apple today, watching deutsches restructuring and a lot more europe is mixed. Turkey in focus as the central bank there gets fired. The dow would be 10,000 points higher if not for th