Transcripts For CNBC Squawk On The Street 20240714

At the Capital Exchange event this morning making a ton of news. Closing the deal. Ibms 34 billion acquisition of red hat has closed both ceos will be with us in just a moment. As we said, pepsi beats the street, strong snack and beverage sales backs the 2019 forecast Hugh Johnston will join us straight ahead. Futures lower ahead of tomorrows capitol hill testimony by fed chair powell. Moments ago at the Capital Exchange event in washington, larry kudlow offered his views on the fed to our kelly evans. Take a listen. Price signals suggest as they have all year going back to last autumn that last policy move in december was unnecessary and i think they could take it back. Price level stability, steady dollar, is what the fed should aim for in my view among the things he said, defended a rate cut this month, said no effort to remove powell at the president time. Mnuchin, lighthizer may go to china. Larry is the happy warrior in this era everything he said made me feel better, made the market, socalled market feel better why . Because this whole idea that trump is going to tweet, it is time for powell to go, i thought that went off the table. I like the fact that he very diplomatically said, look, that last rate hike, unnecessary. At the same time, larry really made it clear that the inflationary component, not the jobs component, but the inflationary component is what always mattered to larry and having worked with larry for years, thats been larrys rap harry is worried about inflation and it is one of the reasons by the way the king dollar. If hes not worried about inflation, he thinks rates can be kept low. Rational, calm, well put although the worry Market Participants seems to be the earnings, particularly of industrial companies, in part because of the trade policies of this administration when you have cfos confused or pulling back on some of their Capital Commitments because of the larger issues theyre dealing with in terms of not necessarily understanding what is going to be tariffed what is not what is going to be under pressure thats what we see in the earnings season. How about the bsaf. 30 decline. I want to be a bull on all things not just on highest growth, not just on pepsico. But basf represents what happens when you have tariff wars and auto slowdown. What it is is chilling what it says is holy cow, i got to sell. 11 of basf revenue is germany. We any autos are in the tank they mentioned north american ag, things like that ag is so bad and some of it is hard because of weather some of it is related to trade remember, when i had martin risonhagen, fabulous ceo of ag co. And our soy went to brazil brazil, we keep seeing good numbers in brazil. Brazil has been turned out to be a big winner big winner. Ive seen the soy fields in brazil enormous amount of capacity. How did you do this ten years ago on u. S. Farmers moving to brazil to plant soy, which now theyre benefitting from as you say because the chinese are buying brings me to ibm and the red hat deal. Exactly a bad segue ibm, 34 billion deal has closed, closed earlier than expected i expected later second half Ginni Rometty and Jim Whitehurst are on hand. This is quite exciting i think this accelerates, some people says it only somewhat accelerates ibms growth rate. Ill ask ginny how much it accelerates because im tired of analysts saying it doesnt move the needle what does it do, ginni and welcome to squawk on the street. Were both happy to be here and this deal not only does accelerate our revenue, it resets the whole cloud landscape. And, jim, as you know, 200 basis points growth for us it is what our clients have asked for. This is it the hybrid cloud as the destination architecture for the future so jim and i couldnt be happier that we closed this and really was record time. And that allows us to get to work yeah, jim, as youve seen, our stand alone growth is accelerated since we announced the deal so customers are already validating it with their decisions and commitments theyre making even before it is closed well, thats what i wanted to bring up because, jim, a lot of people thought when this deal was announced, that it was expensive. I know i thought it wasnt because the need to be able to be all things cloud is so important to ibm but in reality, it turns to be a good price versus the other companies in your area except for the fact that none of those accelerated the way you did, so can we say ibm got a bargain even though i know that you may be able to get in trouble with some of the shareholders i think ibm got a bargain not only are we growing as fast or faster than most others in the space, we also have significantly higher Free Cash Flow than any of our peers and so ive always thought ibm got a bargain. I think it is the right outcome for our shareholders, and a great outcome for ibm shareholders as well. We always said we thought it was very fair. Remember, unlike most other Cloud Companies out there, jims run a really great profitable company, for us it is both Free Cash Flow and gross margin accretive in year one. Let me get a little aggressive then. Jim cavanagh, january 19 Conference Call said ill remind you, we plan to repurchases in 20, 21. If cash flow is that good, any possibility you can be back buying before that well, were going to prudently stop, just like jim said we would, and then our goal is as fast as possible, couple of years here, get back to what you expect to be the targeted leverage ratio for a high single a. And, again, were strong Investment Grade so i feel really good about this and, again, back to what our clients, jim, the other important piece, i want to stick in there, when you just asked that was the really important thing to our investors is this also still allows us to continue with a very solid and growing dividend, which is an important part of the Value Proposition for ibm shareholders. Okay. Ginni, could you outline the revenue synergies, how Many Companies that didnt necessarily do business with you that did with red hat . What this means for you in terms of a open source that a lot of everybody can embrace rather than a closed source, which i like, but also does limit growth. Yes so think of this, again, back to press release, quotes ed bastion from delta, morgan stanley, this is really chapter two of the cloud. Many people thought everything was going to just to public clouds thats not what clients need chapter one, they put a lot of client innovation out there, front ends of many systems then they bash into these back ends of all of their current it and that has to be modernized. Thats 80 of the workload out there. This is going to allow us, were the only one that has a hybrid multicloud platform based on open source. Which really simply means for our client, i have an existing house, i can renovate it piece by piece, i can write something once and put it on any cloud, public or private, that i want that addresses the skill issue, regulations, data, everything. So that really is multicloud, so the ibm cloud can be it could be google, amazon, microsoft, public, private, and thats what somebody needs that is a trillion dollar emerging market out there. And so that is what the opportunity ahead is, and thats why there is no cost synergies here this is about we called it, not an integration, it is a synergy for growth case. Perfect before i turn it over to my colleagues, jim, wikipedia says youre about 52 years old. But youre coming from North Carolina symbolic because thats where you are, or does it say youre here to stay and would you eventually like to run ibm well, look, ive generally found what is most important is find a place you can have the most impact and career will work itself out and im convinced that this allows red hat and what we have done as part of ibm to really be the defining Technology Company of the 21st century. Im excited to play a part in that im really excited and i plan to be around for a long time. And we are going to be this is really redefining the cloud landscape. And together we talked about this were very confident this is the leading hybrid cloud provider together. It is david faber understand your confidence and understand your focus on the organic increase in revenues but youre sticking with the 200 basis point over five years. Since and during this integration that has taken place since you announced the deal in october, there are some hope that perhaps that number could come up. Is that still a possibility . Well, look, we have earnings next week. And then very quickly were going to do an investor briefing, it is august 2nd and thats where well update 2019 and then to your question, david, well update our midterm. And finally, one other sort of broader question here, ginni, i follow 5g, we do closely in terms of what it is going to mean broadly speaking and, of course, for Companies Like your own. We have a lot of data that will move to the edge of the network and i wonder, does that create an opportunity for the likes of an ibm red hat now to sort of make up ground that has been lost to some of the Public Companies . Yeah, very insightful question this is a topic we have not only talked a lot about in the planning, but actually there are good number of clients out there already that we are working together on 5g it is an important point when you think of edge, for many people, edge is defined at many different layers and so thats about putting a lot of processing out there in Software Defined network all pulled together and as you know, linux is that operating system of choice for that. Just to emphasize that, i think thats one of the obvious areas we saw day one were doing a lot of work with the telcos around 5g and application structure at the edge ibm is doing the same. Immediately we had a number of the large telcos around the world come to us excited about what we can jointly do together. Stay tuned. This summer youll see a lot of announcements. All right we know that 5g is something that is intergrgral we know red hat signs a lot of deals that augments what ibm under what Ginni Rometty is doing. Thank you, guys. Thank you so much for coming on. Appreciate it. Thank you, both. Thank you when we come back, two very big consumer names, were going to talk with the ceo of General Mills about his strategy for Growth Company hosting an annual investor day event this morning. Stronger demand for beverages and snacks, earnings beat for pepsico well talk to Hugh Johnston, discuss his companys plans to keep that upward momentum going. Upward momentum is one thing the futures do not have. On track for our third triple digit drop back in a minute driverless cars. All ground personnel. Or trips to mars. 4. 95. Delivery drones or the latest phones. 4. 95. No matter what you trade, at fidelity its just 4. 95 per online u. S. Equity trade. Got that q 2 earnings number out of peps kico this morning sara eisen is here with more on what turned out to be a pretty good quarter. Good quarter. Punctuated by 4. 5 organic Revenue Growth we welcome now Hugh Johnston, the cfo and vice chairman of pepsico. Welcome back nice to see you. Nice to see you as well, sara good morning you really turned up the growth notch over the last few quarters and it is a standout in staples and especially among food what is driving it it is broad in portfolio and geographies. Absolutely right. It really is very broadbased. I think were seeing terrific results out of our frito lay north american business, a real acceleration there north american beverage is doing better and all of our International Businesses doing well growing about 8 . I think a kucouple of things are driving it were investing back in the business in the form of selling capacity to ensure that we get good execution out in the marketplace. As a result, were seeing very Quick Response of this what i think is just as important, though, is were actually not just investing to grow faster now, but investing to be stronger over time whether thats in manufacturing capacity or digital capability, so we really fell like this is a sustained higher level of growth, not just higher level of growth for the moment. Wanted to ask about bubbly. It is specific but brandnew you Just Launched it last year almost a billion dollar brand. What does that show in terms of where the growth is for Consumer Companies and what you need to be doing to really hone in on what the consumer wants now. I think that is exactly it. I think if you do good High Quality Research and understand what the consumer really wants, and then you do some terrific marketing, the brand personality that the team has created there is one of the best i think we have ever done the flavors that have come out of our Research Organization are terrific the execution by our Field Organization has been so good. And this year well probably do upwards of close to 300 million of business for something that didnt exist a year and a half ago. And as ramon noted, we think this could be a billion dollar plus business for us it is about an 11th share of the marketplace now and were not going to be satisfied for a long, long time. We see a ton of growth not just in the u. S. , but globally for that brand. Jim cramer, always good to see you. It does seem that the analysts have lost control of how to value your company they thought that quaker oats would be bad, it was very good some thought that soda, the carbonated was going to be bad, it clearly wasnt. Others seemed to miss the channels entirely, whether dollar store, ecommerce, do we have to find a new way to value pepsico . I cannot believe a group of analysts be more wrong about your company thank you for the kind words, jim. You know what, the analysts eventually will catch up to the potential that we have there is a tendency oftentimes to aggregate companies in the consumer space and to look at them all in the same way and through the same sets of lenses. I think for pepsico, we have a unique set of categories that are convenient that are fun, and that are very much on trend with consumers. And we have a set of geographies that are really a good blend of developed geographies and developing emerging geographies. As we look at the opportunities with what we have right now, we see just limitless Growth Opportunities out there. Per capita consumption on our products in developing and emerging markets is relatively low. Our ability to expand and premiumize our products and developed markets is really just nascent. And the capabilities that were building in digital, to be able to connect with consumers and customers, so much more effectively than we have in the past, we feel like were just scratching the surface and we feel like were in the early earnings of what is going to be a very long game for pepsico. My ears perked up when you said the flavors that have come out of our Research Organization what can you simplify . What are we hungry for right now . Ill bet youre hungry for something flaming hot because it seems like anything we put flaming hot on, we cant make enough of it flaming hot is a phenomenal flaming hot is good any time of day as far as were concerned. Hugh, you mentioned you saw growth across international geographies. Always like to get a read on consumer spending. Both in the u. S. And international. We hear constantly about the Global Growth slowdown constantly about recession risks rising what are you seeing on the ground yeah, heres what i would say. In the United States right now, we dont see any sign of a consumer slowdown. I think consumers are healthy and particularly with our level of products, we represent little treats that really make peoples day better so wherever i look around the u. S. , whatever geography i look in, it seems like the consumer is in a pretty good spot right now and willing to spend on our product. One of the things that is particularly positive is gas prices are relatively neutral year over year and when that is the case, consumers generally feel better about themselves as you walk around the rest of the world, there is a few spots that are challenging the middle east is a little bit challenging right now. Brazil had its ups and downs a little bit western europe has got and little slower. I think if you really take a big step back, overall, with Interest Rates as low as they are right now, there is reasons to believe that the consumer economy is going to continue to be a good economy around most of the world. Im confused about quaker the division that the sectors of whole mosaic doing well seem like theyre intradigtraditionay names. How do you explain the acceleration it is funny, actually as a part of our Investment Strategy we put money behind quaker, not just the quaker oatmeal, but all of the quaker businesses the ready to eat cereal business, the ricearoni business, the aunt jemima pancake business there is a Consumer Base for those and a little money reminding them that these are great products and great to gather the family around we have seen a lot of growth across the board aunt jemima is growing niecely now. I think a lot of times with the smaller consumer brands, they get neglected. When you just give thm a litteml bit of energy and money, they go back to growth again. Hugh johnston, we appreciate your time. Aunt jemima making a comeback, who knew pancakes. Yeah. Men and their pancakes. Some like it hot. Only thing we can cook. I can put them in the i can do them in the microwave. Thats my go to. As long as you get your maple syrup from vermont. Real maple syrup. See you next hour. Thank you cramers mad dash, countdown to the opening bell. Well see if the futures improve in the next seven minutes. Dont go away. [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. Your but as you get older,hing. It naturally begins to change, causing a lack of sharpness, or even trouble with recall. Thankfully, the breakthrough in prevagen helps your brain and actually improves memory. The secret is an ingredient originally discovered. In jellyfish. In clinical trials, prevagen has been shown to improve shortterm memory. Prevagen. Healthier brain. Better life. Futures are weak, we already talked to ibm, red hat and pepsi. Well get to this cisco m a, talked about what kudlow said this morning, powell as well, 3m downgrade. Were back in a minute welcome back time for mad dash. A deal of the morning, big premium, cisco buying Acasia Communications they design and manufacture interconnect technologies that allow web scale companies, Service Providers and Data Center Operators to meet the fast growing consumer demands for data i dont know what that means. Under 5g, incredibly fast pieces of data that can go in and out. Cisco, by the way, acacia is a big supplier to them, zte and huawei this ensures cisco will get the source of product that it needs. Cisco quietly is building a 5g infrastructure away from that we call the core base station and im beginning to think that cisco is going to be maybe the jewel of 5g and we Start Talking more about sprint and tmo, verizon, youll talk about the Service Providers being good customers again. 5g came up in our conversation, asked that question of ginnie promoty, so much data will be moving to the edge of the network and an opportunity, doesnt need to be held anywhere else 5g has no latency. You talk about that happens to the handout cisco will be ready. I will point out that that company has been consistent in its earnings youll see people say, wait a second, we went from being the most consistent and inexpensive software and Hardware Company to being one that is going to have episodic earnings, i would say no if you believe in 5g, you got another reason to buy cisco. Well watch here. The General Mills celebrating its fiscal 2020 investor day as we said earlier. Well talk to the ceo at the top of the hour. At the nasdaq, rambus ringing the bell remotely from san francisco. Despite kudlows headlines, jim, basically saying there is no effort to remove powell, saying that mnuchin and lighthizer may personally get involved in trade negotiations, not working on stocks today. Yeah, it is funny because when i was listening, i said, this could be the lift this is going to change this mornings story line but i think were still stuck with the story line from yesterday. The analysts are collectively saying, numbers wont be made. And it really doesnt matter if numbers wont be made, we dont care what people say about the rate cut we dont care about what larry is talking about with china i think thats false lets take dow chemical, unfortunately a stock that my people know that dow is not going to pretty sure that dow is not going to make the quarter. 6 yielder what happens if you get a trade deal youll be shorting the stock that may be one of the best on a trade deal so i suggest that people rethink the idea that all is lost, earnings going to be bad, i found larry reassuring i bet you my colleague over here to my left is going to say when was he not reassuring . That is what he does. Yeah hes a good promoter you know that. Hes an operator and promoter. Yes yes okay. Doesnt mean that earnings are going to come through and you keep talking about it this morning. Look consumer is strong. We heard Hugh Johnston from pepsico say that cpg, good. The decisionmaking level at international corporations, i think there potentially has been a slowdown in committing capital. Not going to disagree i saw two positive notes on apple today. We havent mentioned apple i saw netflix, Stranger Things, not me this time, but we got some mojo. You seem like you want to be positive but cant get yourself there. Youre counting on the data that netflix gave us on Stranger Things 3, thats the key to the market. A thin read thin read here but we do have the closing of an acquisition that i think will accelerate ibms growth. We have something that cisco is doing, making more 5g. We do have two analysts, not just morgan stanley, saying apple might be doing better. We have we have Virgin Galactic going public come on. Yes, to the moon, alice. Are you in with the people who paid a lot of money to get in line they say tourism flights start in a year g. I dont even want to go to queens cant blame you for that. It is a not the borough, the transportation. Congratulations on the home run derby. Ill tell you something, the subway has been a lot better i know it is it is. A year ago, it was horrible. We havent mentioned rbc on 3m cuts to sector perform you mentioned 3m yesterday. We have to dress thaddress ts steve tusa a note, thats a nice time to mackke a note there, talking about the possibility that ground water contamination is going to be the most important thing that affects 3m. The problem with this, youve done work on this too im starting to do work this is a longer term effort on both our parts in terms of trying to understand this, what it is going to mean for 3m kimora already dealing with this and they have just sued not that long ago and it has been unredacted dupont for saying you understated the liabilities of this very thing. But if you want to get down to the simple story, it is this chemicals made in three states but it ends up polluting the water supply in a lot of other states and may have linked to a lot of major diseases doesnt go away in your body, ever it is a forever chemical. It is terrible. The question is where do the liabilities end and when does the cleanup begin. The broader point is that it is not behaving the way it a defensive industrial should. It cant be there are people who are they will talk about this, the amazing dividend record at 3m and perhaps that will change people will say, wait a second, it is open ended when youre open ended, people think the a word the a word. Asbestos. Yes i think the a word should not be on the agenda. There was a memo that people forget where the Asbestos Companies knew what they did caused this, this is not the case 3m did make a good arrangement with the attorney general. Seemed look a lot of money the note yesterday, very damning. 3m is being called into question as the steady eddie name that so many people think. It is very difficult for the company to come out and reassure what are they going to do . It is not in their hands you got states that are in the mix here that have Higher Standards than the epa at this point, which under the Trump Administration is fairly generous in terms of what will corporations to do it doesnt mean you dont face the significant potential liability. But we know how these things play sometimes they get hit very hard monsan monsanto former monsanto. Other cases it is well overstated think about the concerns that people are having about j j. Vioxx remember vioxx they took merck down to 24 i dont want to overblow it. I dont want to overstate it it moves from being a small footnote in the quarter to being a regular earnings hit and thats whats going to make people very concerned. We dont want to forget 3m is on the radar. Doing some cork on this, a lot of moving parts. Thats going to need chinese approval chinese approval what does that say maybe chuck robins, very close to washington, remember, chuck was the first guy to pull everything out of china. Maybe chuck is a little more optimistic look at cisco going up see. Im glad you made that point. Youre right but i do wonder, because you just dont know, it is taking a risk when you sign on to do a deal like this if you need chinese antitrust approval you dont know how it is going to be used, if it will be used in any way as a bargaining chip. Ken mulis told you thats been a huge at least in large cap m a. A concern and i think they also echoed that at citi it is just a concern hard to sign a deal if youre a board saying we need chinese antitrust approval we only look at one where it wasnt received. Never turned down. It just never came it doesnt mean that will be the case, but it brought up time and again as a potential weapon they have, one of many, sort of asymmetric that they can use if the trade war worsens again. I think hoch tan awk tan is e other way. I am going to go out i want to continue, i know that i sounded very anecdotal, i said pepsi is good and ibm is good and cisco is good. But there is a lot more good than bad there is just a prevailing gloom which is basf. Basf. The market is hanging in there this morning. The number of companies that have issued negative guidance is outpacing upside guidance. It is for q2. And, okay, you hear what phil says you got nintendo switching some production of the switch from china to ietnam the president today tweeting about indian india tariffs on american goods, saying thats no longer acceptable. You saw the india etf trade down on some thin volume, still down 1 just assaulted every day. Trouble for our Manhole Covers, looking at Manhole Covers in new york city, all made in india. Every single one of them. How do you like that . Thats what im talking about. Okay drug stocks doing better people talking about slowdown. And we seem to have also a setback for the Trump Administration, attempt to get pricing revealed. I think that matters tremendously were not going to be able to know how much it is going to stay hidden, i know you like you dont want accountability. Me . Just kidding. Okay. David doesnt have the mojo he doesnt get the mojo i see happening. When apple down 4 turns, youre going it regret your negative stance. Where is your mojo . Has it been stolen austin powers. Piper jaffray and Sandler Oneil getting together, theyre going to call it Piper Sandler sorry. My favorite quote, it is a small deal, but jimmy dunn has run sandler. Guys, just in case youre worried, hes going to continue to focus on exactly the same work hes been doing for the past several years not just the same work, exactly the same work. Precision railroad. Exactly the same work hes going to be customer sensitive as oppose to the other day when we had a company say were now going to be customer sensitive, which calls into question, what were you before anticustomer. Yes. Playing against the customer. Prop trading you had constellation on mad last night you talked about tariffs and you promised that you would get to canopy take a listen. Had to. Female liel like the tariff i behind us. Our beers are Authentic Mexican beers. They have to be made in mexico this was not a choice. This was where they have to be made from their authenticity standpoint were quite confident that thats behind us and were quite pleased it is. This was necessary. There is 4 billion that they gave, former ceo of constellation, to this company, i say bruce linton is one of those guys, he got you to the promised land, but once youre in the promised land, you got to stop with the tweed shirt, got to put on a tie, youre meeting with the likes of major pharmacy companies. And even dr. Gottlieb who was very anticannabis on our show, so you needed a little bit more buttoned down. In the meantime, i think that pepsico, no, cbd to edibles, edibles next, i know mondelez, no i think the Package Goods industry is a little behind because theyre so worried about class one felony i do believe i felt much better after listening to bill that the removal and it was removal, of bruce linton, has to do with the bruce was fantastic at getting the company where it is, but now a different profile. Because if youre going to take over the medical side, you got to look the part right up against pharma in some ways. Eye opening interview with constellation last night coming off the early lows of the session, down 116. To bob pisanpisani. A weak open, 4 to 1 declining to advancing stocks. We got issues around earnings coming up, trade, and, of course, Monetary Policy and headline none of that has been resolved yet. Thats why were in the middle here, floating around, so third down day but semis are been in a down trend for the last several days. Banks have also been in a modest down trend consumer discretionary, historic high there yesterday amazons 23 of that sector, just bear that in mind consume are star staples, the outstanding group. The biggest number of movers near historic highs. Transports an issue. We talked last night about whats been going on with them theyre still 10 below historic highs. Look at the transports that was way back in september there you go, here, you see that 10 below those numbers here here is where we are right now essentially 11 below those historic numbers and this is a very bifurcated group of people. There is is essentially airlines and you got railroads and shipping and low jigistics comp. The problem is the shipping and logistics companies, they have fallen apart on concerns about global trade and, of course, about the global slowdown and theyre all related. Slowdown is somewhat related to global trade fedex, 37 down since september. 28 for jb hunt. Fedex has some particular issues related to it in general you can see the trend here some of the airlines have also been affected by boeing. You get the idea thats not going to change too much to resolve the trade issues that are out there big story today, of course, social capital, one of our favorite specs merging with Virgin Galactic, major position in that social capital went public about two years ago. September of 2017 at 10 here is the big spike. A lot of the specs do not nothing until they announce a particular purchase. You see thats a new high for that hard to understand, relatively new concepts, but it is a special purpose acquisition company, blank check companies. You essentially have experts in the field doing a guy used to run an oil company saying im going to buy something in the oil business, or entrepreneurs, dealmakers, who go out and say were going to buy companies for specific purposes. And thats what were seeing this has been a record year for spacs by the way we had 28 of them announced so far in 2019. That is going to be on track for a record they were 46 back in 2018. Right now were on track for a Record Number of these i said you get different kinds of people in this. Sometimes you get experts who are in particular areas who will buy companies of their expertise and other times dealmakers we had one friday with essentially a dealmaker. Pivotal investment corp. This is Jonathan Ledecky and Jonathan Ledecky is a pretty well known person out there in the overall business coowner of the new york islanders. And hes a dealmaker going to go public, we dont know what hes going to buy. Looking for something that is in some Disruptive Technology area where they can go in and buy into some various companies. 20 million shares of 10, thats a standard price used to be 6. All of these spacs price at 10. Until you announce the actual acquisition, two years to do that, these tend to do basically nothing. What is really going on is the person who is going to the investors and say im the well known investor or the well known individual in a certain area, the oil business, for example, i have a past record, trust me, well buy something, and thats exactly what happened with the investment today bottom line, youre going to see more spacs in the future. Bob, glad you did that. They have been coming at quite a pace lately. As you noted here. And i think in the case of mr. Patia, there is an expectation to buy unicorn and a Technology Business given his expertise in social media, a bit of a surprise here. But this is not a cash flowing asset anytime soon either. No. Frankly it is a little bit of a risk for the particular investors. Remember, they have ways, the investors have ways to get out of this. This is not where they can vote against the deal if they want to and dissolve the whole thing. And get out too you dont necessarily have to buy in otherwise, nobody would ever buy into these deals what would be interesting to see is how many people go along with him on that. I agree. It is visionary. If youre an investor, looking for returns, it is a bit of a long shot. Moon shot if you want to call it that. He said he talked to 200 companies and was prepared to not do a thing if he hadnt found one that was going to be disruptive and do something positive for humanity. Pretty interesting interview yeah. Jonathan ledecky, by the way, classmate of mine at school and always a entrepreneur from the day i met him. Way back in the day. Couple of years behind me a great sportswriter all right, guys to the bond pits as well Rick Santelli at the cme we could talk about the micromoves rates and the dollar continued to hold firm since fridays data the employment report, look at three day of 2 year note yields and pay close attention to the right side of the chart. There is curve flattening going on you can see the rise in rates moving to the right. The 30 year has risen as well. It is not to the same height and you can see the right side is a little lower, flattening showing up if we look at what rates have done in germany, we know theyre negative maybe we dont talk enough about some french rates. Consider the French Economy is slowing as well. And maybe theyre getting more of a say so in some of the bigger issues of the day, consider where the imf head is going to be head of the ecb, served as finance minister if we look at the french ten year, it went negative for the first time ever, around the 25th of june. You can see it is minus 6 basis points now but we sometimes forget, it is not only the creeping slowness, it is the creepingstimulus and negative rates and all the effects it is having on the transmission or banks. Now if we look at the dollar index, since may 1st, you can really see thats 2017, were getting very close to testing those highs. And if you recall on the 25th of april, we made the high of this year for the dollar index on a closing basis at 9820. We are ever getting closer and many say it isnt the strong dollar or the weak dollar that multinationals dont like, what they want is a stable dollar and it has been stable, but it is stable on the strong side and finally, i talked about the yield curve. Lets get back to real quick, 10s minus 2s, since june 19th, the fed meeting day, you can see how much steepening is flattening has gone on as the market tries to get in sync with Federal Reserve policy of the future carl, jim, david, back to you. Rick, well see you later this morning Rick Santelli. We come back, with brands from cheerios to blue buffalo pet food, General Mills delivering a message to investors this morning. Youll hear it when we talk with the ceo first on cnbc. S p down about 8. 25. Dow down 116 dont go away. Obviously tomorrow is the day the markets are waiting for, powells testimony two days in front of the house on wednesday and the senate on thursday live coverage begins at 10 00 a. M. Tomorrow. Well get stock trading with jim a minute, dow is down 117 Xfinity Mobile is a Wireless Network designed to save you money. Whether you use your phone to get fit or to find the perfect gift, youll use less data with a network that automatically connects to millions of wifi hotspots and the best lte everywhere else. So you save hundreds of dollars a year on your wireless bill. Xfinity mobile has the best network. Best devices. Best value. Simple. Easy. Awesome. Click, call or visit a store today. Time for jim and stock trading. Okay. People watching Square Square being one of the great stocks entirely. That was by the way, left, the fabulous spokesperson. Couple of analysts saying positive things. Watch square because reig nation of square means Payment Processing side is back. Stalled nor a couple of days frankly. This is the Fastest Growing area of the entire economy. Square is the one that has a tremendous cash business. Upgrades. That matters. Short has played out i happen to like square very much and everything that they do a fantastic job. Tonight on mad. Wex its another one of these companies that is, indeed, in payments processing. You know what, jim and i are going to swing by. Kind of like foreman, franklin. Remember joe franklin. I do. Im sure most of our viewers have no idea to joe franklin is. See you tonight, jim, mad money at 6 00 p. M. General mills giving investors a reason to smile Stock Performance has doubled. Talk to thcewi d dn 129. Thowow welcome back to squawk on the street. Will we see our third triple digit drop in a row, dow down 106 right now but coming off the lows, s p down about 7. Our roadmap for the hour starts with engage averages, all in the red as carl mentioned as investors await testimony from powell on the hill. Two big consumer names, pepsico on the street, hear from cfo and rare interview with chairman of General Mills on his strategy for growth. Hes sitting right here. Im looking at him im assuming hes coming up soon. Start with markets in the red as fed jair powell is preparing to testify before Financial Services committee Capital Exchange event in washington, National Financial director larry kudlow made questions about the fed questioning its policy moves. Price signals suggest, as they have all year going back to last autumn that that last policy move in december was unnecessa unnecessary. I think they could take it back. Price level stability and a steady dollar is what the fed should aim for in my view. Went on to say he personally believes the fed should operate independently but listen to advice from their elders. Powell has two days of testimony, tomorrow echo jim cramer he has to assert feds independence and why its so important to remain independent, for them to account a in a crisis you dont want politics ent interfering in the Decision Making its one of the reasons they are able to move so quickly and efficiently to combat economic weakness, see qe happened quicker and easier than t. A. R. P. That had to pass congress. Didnt the first time. Exactly so clearly thats going to be an issue. The issue of independence. People who are worried about it may be comforted by larry kudlow saying were not going there thats not what were looking at however, i would note that kudlow did say hes in charge of putting governors on the fed board. They get a vote at every meeting and this they are so far stocking the with people who are likely to favor the president s position of low Interest Rates at what point do you cross the threshold of independence there. Thats up for debate the market doesnt seem too concerned. Powell did make comments about stress tests the last Public Comments before his testimony tomorrow he did say when the next episode of instability presents itself, it may do so in a messy and unexpected way well see if he expands on that on the hill. Meantime General Mills is hosting its investor day today the company releasing a new line of snack products and breakfast items. For a read on the consumer and Global Economy welcome ceo and chairman of General Mills. Thanks for having me. We dont get to talk to you too often. The stock has done well but earnings a few weeks ago were a letdown. Whats happening beneath the surface. We beat on cash flow and earnings per share, a little below what the street expected we have good momentum coming into this year our number one priority for this year is to return to organic sales growth. How do you do that . First and foremost blue buffalo, p. Pet food. Maintaining growth on cereal, looking at two years in a row and looking for third. Cereal, kind of a declining flattish category. Youve been making inroads against competitor kellogg what does consumer want with cereal. Weve done well, two of the last years and going to do it again next year. Were looking to do that with great product innovation, blueberry cheerios and cinnamon toast crunch cheerios. Were growing lucky charms and cinnamon toast crunch. Do we want sugary cereals. We want cereals that taste good americans are snacking more than ever General Mills has a lot of great tasting cereals that are doing really well. Do you think it ever comes back to its glory days. Its improved sequentially eight years in a row it responds to consumer demand thats why weve been able to grow it, we responded better to consumer demand. We had a similar discussion on oreos you take a franchise brand and try to splinter it into a bunch of varieties, cheerios how can you take that before it starts getting silly. The key is to make sure you maintain true to the brand cheerios is a brand people have trusted since 1941 blueberry cheerios is another great tasting variety. While youre doing that you have to market honey nut cheerios talking about cholesterol lower properties of honey nut cheerios and great taste. The key is to do both at the same time, introduce new varieties and grow the things youve had. Is cereal taking share from yogurt or oatmeal or other breakfast foods. Cereal is back to flat. Our cereal is going. We returned yogurt to share growth looking to improve on that this coming year with new product innovations. You mentioned blue buffalo important to Growth Initiatives of the company im curious, only a week ago but dog owners noticed reports from fda in terms of investigation on the link between Heart Disease and any number of pet foods including blue buffalo a, what do you say to that and, b, what effect on sales. Blue buffalo is growing nicely first and foremost is the safety of our products and nutritional value for pets thats how blue buffalo was started to make shur we have nutritious pet food. We continue to work with the fda to make sure theres nothing behind the scenes we dont understand. Can you give us a sense, expectations, may have to change the composition of the product in some way if this continues to be something that is a concern to the fda. We dont think so at this time weve tested all of our products, recipes and they meet nutritional credentials dogs need and pet parents are looking for. At this moment in time were very satisfied. You dont think they are causing Heart Disease. We do not. So they definitely got a lot of attention, big splash acquisition, 8 billion, weve seen the growth, 38 last quarter. Now you get to tough comparison and tough overlaps what are you going to do differently than the previous management which grew blue buffalo into an established and well loved brand. The previous management has done a great job with blue buffalo, terrific Brand Builders thats at the heart of what we do as well a relationship with the people that founded blue buffalo. Still running blue buffalo business continue to grow food, drug and mass channel we grew triple digits in places like walmart and publix and kroeger and meyer. Well continue to do that but continue to innovate one of the things were most excited about is combining expertise of blue buffalo and pet and General Mills innovation capabilities. What does that mean, healthiest snacks for dogs. Humanization of pet food. People want to feed pets like members of the family. A lot of things we do for human food we can do with pet food while providing nutrition they need. When it comes to human there tends to be a focus among millennials and others about sugar intake we mentioned sugary cereals which seem to be doing well. What are you doing across the portfolio, particularly things like yogurt we talked about to reduce sugar if thats something consumers want. Start with cereal we reduced sugar in our cereals in the last few years. Bhol grain is the number one ingredient not sugar, even things like cinnamon toast crunch and lucky charms. In yogurt we offer varieties low in sugar and high in protein, using Ultrafiltration Technology one of the reasons General Mills has been around 150 years we continue to adapt to consumer changes. Snacks was a disappointing part of your portfolio at los in the last quarter. Last quarter and last year. We didnt innovate in our business in the u. S. Even though were going double digit in bars outside the u. S. In u. S. We didnt innovate very well and didnt execute very well were confident well get back on track we have a new product weve Just Launched called wafer bars from Nature Valley and really tasty. Cereal bars arent dead. Im always interested when a ceo says we didnt execute well. How do you identify what went wrong and fix it. The team itself identified it one of the things were pleased with, its a team sport at General Mills. The team that was launching bars, we just didnt execute our marketing plans. We didnt want to, didnt execute the innovation we wanted to thats what we need to do to turn it around Nature Valley is number one bar in the bar category and were confident we can turn around the performance of that. Still theres this perception among big Food Companies, packaged Food Companies, they have been late to consumer game, changes, habits, and were not seeing top line growth you guys are claysing its not just General Mills, its a lot of these companies. What is it about the structure making it difficult to keep up with changes. The key is innovating weve innovated with things like yoplait. Made acquisitions like blue buffalo, annies, lara bar innovate internally and buying Growth Companies weve doubled the size of annies since we owned it and grew blue buffalo last year. The key to grow is internally and looking outside for innovations. Its been a crazy planting season for american farmers, corn is way behind do you see the pendulum swinging on grain and raw material costs . We see raw material growing mid Single Digits last year. A couple months ago people thought inflation for Food Companies will be a lot lower. We dont see that. We dont see higher but lower. Inflation about 4 next year and Raw Materials will drive most of that increase. Are you sourcing for any different parts of the world for any variety of reasons, trade or ag season in general. We keep sourcing from the same places. Any challenges in trade havent had a big impact on our business. Speaking of farming, there are these reports that cheerios and Nature Valley contain roundup weed killing ingredients . Is that having an impact on sales . How are you dealing with that issue and that mess . No. It really hasnt had an impact at all the fda, epa, they have really strict guidelines for how much pesticides residue can be present in food. Our food falls way below safety limits our consumers by and large are not concerned. Why is that showing up in foods . Because at least people use it to dry out the crop afterwards, so its a very, very small amount, measured in parts per million. Theres really a very small residue. Finally, how would you describe consumer macro environment overall, youre dealing with issues on consumer spending, you have an International Business what does it look like in the u. S. Consumer environment good, seeing prices, demand is strong, categories back to growth, were back to growth outside the u. S. , our business in china is growing. Our business in brazil is growing. The toughest part for us is europe, is it brexit, not brexit, dealing with that. Thats the toughest area of the world for us. Finally General Mills has been a winner in the market, a dividend payer it benefits doing better than competitors, kraft, heinz, campbells soup. Where do you see that . In the longterm if youre a food company you need to grow. You need to grow top line. You need to be more efficient, watch cost, innovate, keep consumers in mind and grow Top Line Sales longterm. You dont think everybody is doing that. Not yet but we are. Thank you for joining us. Thank you for having me. Talking to investors, chairman ceo of General Mills. Come become fed chair jay powell break down where you might position yourself ahead of that testimony. Goldmans chief equity strategist is with us. The dow down about 99 points, s p back to 2970 dont go away. Thanks for the ridealong, captain ive never been in one of these before, even though geico has been ohhh. Ooh ohh here we go, here we go. You got cut off there, what were you saying . Oooo. Oh no no. Maybe that geico has been proudly serving the military for over 75 years . Is that what you wanted to say . Mhmmm. I have to say, you seemed a lot chattier on tv. Geico. Proudly serving the military for over 75 years. You ok back there, buddy . When i see obstacles, i create opportunities. soft music when i see adversity, i find a way. When i hear never, i say now. [announcer] Southern New Hampshire university is education made to fit your goals with over 200 degree programs, flexible class schedules, and some of the lowest online tuition rates in the nation. cheering so when i face barriers, i can break through. [announcer] breakthrough at snhu. Edu. Stocks bouncing off lows, hovering near triple digit losses as u. S. And china resume trade negotiations and as investors look ahead to powells testimony tomorrow morning for clues of a potential rate cut. Joining us for cnbc exclusive, david joining us good to see you. All year long we talked about what you expected. I would say a summer lull is a way to describe it are we getting it or not the market is up almost 18 yeartodate, but 90 of that rally has been about multiple expansion. So we know that Interest Rates have dropped from 2. 7 on the tenyear at the beginning of the year to now 2 so a lot of that rise in the market in my estimation is behind us. Looking from now to the end of the year, youre looking at 1 , very small increase to around 3,000 in the level of the market, which is very, very modest and the expectation that most Fund Managers have is the fed is going to cut, which means thats already in the prices. Therefore if the fed or when the fed is cut is anticipated by my colleagues in economics at goldman sachs, the market already admitted that. What new information to push the market higher, not a lot. Hedge funds had the best in a decade, did they take the rest of the year off in a sense. Its been very solid performance so far for the index and Hedge Fund Industry relative to some of their performance in recent years its difficult to find interesting opportunities. We have coming up on the 15th of july basically the kickoff of the significant way the earnings season what are we anticipating for the next several weeks after that, earnings flat to down. The expectations of consensus is down about 1 , which will be the first year over year negative growth in three years. Expectation First Quarter was to show declines of roughly 2 , ended up being positive 2 lower tax rates is one of the contributing factors its not as though theres a big incremental positive information from an earnings point of view. A trade deal also would be sort of a blank . That would be a positive. There would be some meaningful developments in that its not necessarily anticipated by my colleagues or myself so thats we look at where the potential drivers would be, it would be profits. It would be potential trade and potentially lower tracks rates than people are anticipating on the other hand if we look for where theres positive drivers is those companies that have relatively low labor costs i think the risk, some of the issues are markets moved 18 yeartodate, so where are the vulnerabilities we see out there, one of which is companies with high labor sensitivity as part of their cost structure typical Companies Like 12, 13 of their sales is consumed by labor budget so companies that would be greater than that in Different Industries would be at risk, more vulnerable to margin compression. Thats one area of risk. Because of natural Wage Inflation or minimum wage implementation. The idea wages are rising with Unemployment Rate below 4 . Wages rising at roughly 3 so that is certainly a positive social dynamic point of view but from a margin, compression perspective, its a risk looking at what are investors anticipating for this quarter, they are anticipating modest earnings growth. In aggregate, looking slightly down, median companies 4 year over year growth in earnings, so its okay. But its about margin compression is the risk. How do you interpret signals like the transports underperforming. Is that a big tell on the markets and economy. Big issue on transports trade related issues and concerns about that is it necessarily indicative of whats happening, Different Industries with different Dynamics Software is one area where a lot of focus has been. Secular demand for that, products in those areas as mark famously said, software is eating the world thats an important driver for Revenue Growth in that area and thats likely to persist on the other hand some of those software companies, darlings, if you will, on the market traded extraordinarily high evaluations. Look at enterprise sales, trading at extremely high levels history would suggest those stocks are likely to underperform over the next several years. Great businesses, revenues are growing a lot but the history suggests they dont actually grow into their valuations. Any growth, secular growth story you like but not the high evaluation. Within software services, a wide dispersion, some Companies Trading at five, six times sales compared to market overall Trading Market trades like two times, some trading at 12, 15, 20 times, elevated levels. Moving into earnings season, very focused on it, you dont believe consensus estimates for 12 edp growth for next year are right. You think its going to be lower. Correct. When are you going to actually decide what that number should ready be and how important is this earnings season to that excellent question. Our forecast my forecast for 2020 is like 181 per share in s p 500 earnings consensus is around 186 that gives you some magnitude of risk to the downside margins likely to be the driver of how that gets revived dont think its going to actually happen as a result of the Second Quarter i think the expectations will be a little bit later in the year based on the economic story is still reasonably positive. The economy grows 2ish level. Inflation 2 top line Revenue Growth in 4 to 5 for Many Companies. Margin, if you will, some risk to the downside, so not a lot of growth but thats important, you think about the market now just under a little under 3,000. Thats the target for the end of the year in order nor that to move higher, one would anticipate investors focusing more on 2020. Historically that happens sometimes in the fall. How do you think investors will process the election, which is already starting to heat up is it a risk factor . We know its a risk factor. Health care is a challenge sector in the year ahead, still 15 months ahead. Hard to identify whats likely to take place. Really an issue of the economic environment. Expectations we have would be something in the 2ish percent range for gdp growth neck year potentially close elections on that data. Finally, powell you saw no rate cuts this year, now looking at 2 what changed in. Signaling probably indicated in the last press conference they are anticipating to cut rates for in july and september as well. Historically the fed is not wanting to disappoint the market let me rephrase that and say the expectations of the forward market are that theres going to be a cut historically the fed does deliver on those expectations. If theres to be a shift from that direction, a lot of jawboning and speech making in the next few weeks the expectation is the fed will cut. Like i said at the beginning, everyone is anticipating that to be the case. Lets assume that happens. That incremental information wont be positive in terms of higher share prices. Were counting the market is definitely counting on it nice to see you. David acosta. When we come back, snacking success, Pepsico Pietz the street what the company h taso say about future growth. Squawk on the street will be right back dto experiencer gthrilling performance. Now, at the lexus golden opportunity sales event. Get 0. 9 apr for 60 months on all 2019 models. Experience amazing at your lexus dealer. But were also a company that controls hiv, fights cancer, repairs shattered bones, relieves depression, restores heart rhythms, helps you back from strokes, and keeps you healthy your whole life. From the day youre born we never stop taking care of you. Welcome back time for etf spotlight today were looking at industrials, xli, trading lower down more than a percent so far this month 3m in particular dragging the group down rbc cutting its rating on that stock to sector perform flashing price target from 207 to 176 dow component down more than 13 . Its been a big underperformer so far for the year. 3m, xli top holdings including boeing, honeywell, United Technologies the dow is down about 100 points. When we come back, as we said, fed chair powell goes to the hill what his testimony might signal to investors and the big banks well talk with both the former ceos of wells fargo and fitzgerald moonl have the informati torrow 10 00 eastern time on squawk on the street. Dont go anywhere. 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. Has been excellent. They really appreciate the military family and it really shows. With all that usaa offers why go with anybody else . We know their rates are good, we know that theyre always going to take care of us. It was an instant savings and i should have changed a long time ago. It was funny because when we would call another insurance company, hey would say oh we cant beat usaa were the webber family. Were the tenneys were the hayles, and were usaa members for life. Get your usaa Auto Insurance quote today. Good morning, everyone im sue herera here is your cnbc update at this hour President Trump lashing out at britneys ambassador to the u. S. Kim dar off for the second day calling him, quote, wacky and a stupid guy, end quote. This after Prime Minister theresa may stood by dar off amid the controversy over the release of his emails critical of the Trump Administration. Hong kongs chief executive carrie lam declaring the effort to end a bill dead members opposed to her administration say they will continue with their demonstrations there are still lingering doubts about the governments sincerity, or worries whether the government will restart the process in a legislative council, so i reiterate here, there is no such plan. The bill is dead. Ross perot, the selfmade millionaire and twotime independent candidate for president has died this after a fivemonth battle with leukemia. He was a pioneer of Consumer Services industry. He founded electronic data in 1962 ross perot was 89 years old. Youre up to date. Thats the news update this hour ill send it back to you carl. Sue, thank you very much. Fed chair powell said to testify on the hill amid criticism, as you know, from the president earlier at cnbcs Capital Exchange, larry kudlow said powells job is safe but argued there is room for a rate cut. On that basis, watching price signals, not jobs, there is room for them to, as i have said, take back the december hike. Of course this all as the feds independence is now in the spotlight. Joining us this morning former wells fargo chairman, former ceo and founder of Capital Management good morning, gentlemen. Good to see you both. Good morning. Morning. A big week. Any chance he disappoints the market theres always a chance, i think hes put into a box. The market wants a cut hes going to give it to them. Its about the language from there. How is he going to temper expectations of future rate cuts Going Forward. In other words, here is your cut and its all youre going to get for a while. I think its what he should be doing its a subtle dance to get there. Hes going to have to put himself in a position where hes not beholden to the market at any point in time. How about you, what do you see for tomorrow and thursday. I agree with that entirely. I think the fact that the Economic Data recently throughout the world, and even in the United States, that been relatively weak. There appears to be no great progress on the china trade situation in the United States, and the market has spoken. I think the market actually wants 50 basis points but thats off the table now because of the strong employment report and so i think he will the fed will move by 25 basis points, and in the press conference hell try to neutralize that somewhat by not being particularly bullish in terms of not being dovish in terms of future rate cuts. The other question, what impact will it have on already super low Interest Rates, a nearly record high stock market and economy thats doing okay . I dont think it has much impact on the economy at all, unfortunately. If we look at europe, europes negative Interest Rates is not helping the economy. In a lot of cases youre pushing on a string. The market has already made the move if you look at rates, they have already established theres a cut thats out there so in reality, i dont think it helps the economy that much. I think its more for the market unfortunately that just creates further bubble thoughts as time goes along. How does that resolve itself . I dont think well in the long run that doesnt mean tomorrow or the next day but certainly youre going to have a scenario where people are going to be expecting cuts and they dont get them and theres going to be a problem. Richard, you seem fairly confident 50 basis points has gone to 25 given the employment number why . Because the employment number basically the economy is doing okay i think if the fed had its own choice, it may not even move at this time. But they are forced to as a result of whats going on. I think the Biggest Issue Going Forward is trade if something doesnt happen positively on trade, i think the market has at least a 5 to 10 expectation in it already that trade is going to get settled one way or another if that does not happen, i think the stock market is going to fall by 5 to 10 and who knows what happens after that. The trade its not Interest Rates anymore, its what happens with trade after this next cut. Right although it does put the fed in a difficult position as all of us as well trying to figure out whats going to happen on trade is a fairly difficult thing to do at this point, isnt it well, it is but remember, were talking another six weeks or almost seven weeks from now before they have to make another decision. If theres no indication whats happening, positive or negative, in seven weeks, thats negative. So they are going to have to deal with that by then, i think the market will be either down because they dont think anything is going to happen or be where it is today or a little bit better if we get some sort of good news on trade. Youve been cautious for most of the year, right has this summer action surprised you . It has surprised me the first three months of the year, i was bullish coming in, then i got cautious so i missed last 500 basis point move in the equity market. The reality is, its just about probability analysis looking at capital and deploying capital, what risk are you willing to take versus activity set out there. I think the market has continued to push higher because its present value in earnings, based on really low Interest Rates for a long period of time, i think thats a dangerous game over the long run. So richard, what about your industry, the banks . How much do you think this discussion of lower Interest Rates and expectation the fed is going to move hassen about an overhang on valuations it certainly hasnt been a positive there is certainly some overhang on that. But again, i think the economy is even more important than the rates. The reason rates will go down is the economy isnt doing well if the economy is strong, then the rates will stay where they are and so forth banks are cheap today. They have high dividends i think the negative is already in the prices of Financial Institutions of relatively lower Interest Rates for a period of time finally, price action on financials what do you think . 80 are now above 200 . I think they are cheap. I agree with that. I think they are a reflection of its going to be hard to make money Going Forward. If you look at the Investment Banking components of those banks, the return of equity is substantially lower than it will be in prior highs. Thats the future. Look at sales in trading operations, return 7 equity Going Forward over the course of the cycle. So thats substantially lower than it used to be thats going to be a real drag on their future expectations. Is deutsche a poster child for anything try not to get levered that much. Negative rates. Shawn, dick, thank you guys well soo you tomorrow. Thanks. Pepsico out with earnings top and bottom lines, healthiest snacks and sparkling water helping fuel sales groth and offset a drive still happening from the stronger dollar earlier in the show we into to cfo hugh johnson here is what he had to say about the state of the consumer right now. In the United States right now, we dont see any sign of a consumer slowdown. I think consumers are healthy. Particularly with our level of products, we represent little treats that really make peoples day better wherever i look around the u. S. , whatever geography i look in, it seems like the consumer is in a pretty good spot right now and willing to spend on our product. Also commented on where he sees growth inside the company it really is very broadbased. I think were seeing terrific results out of fritolay north america business, see a rely acceleration there north america beverages doing better and all our International Businesses performing well emerging markets growing about will . Were not just investing to grow faster right flou but investing to be stronger over time, whether thats in manufacturing capacity or digital capability we really feel like this is a sustained higher level of growth. Higher on results its lower but barely, guys i think the thinking from analysts and wall street is, its already up 20 so far this year its outperformed cocacola and entire Consumer Staples which have all been doing pretty well in the face of lower growth that pay dividends and in a sort of uncertain economic environment when you have lower rates they are attractive pepsico is an outlier in terms of growth. 4 organic for a food company is certainly a standout cocacola is doing that kind of growth as well the two of them together, i would say, versus General Mills we talked to or kraft, heinz, campbells, smuckers are doing it right, innovations catching on. As you said for the year, up 20 , coke up 9 and change. Its this new you heard hugh say the sustained growth levels, they have been reinvesting in their business. For the last three quarters a higher growth profile. Kind of a newer story at helpsey. That happened with coke. James quincy came in earlier they are both new ceos they are excited about the Growth Prospects for pepsi, its about newfound ways for growth, streamlining manufacturing or dealing with sales people or upping marketing on a drink like pepsi, returned to growth. Quaker, you heard him say, forget whether Millennials Want aunt jemima, put the money in behind marketing and it grows. We talked to General Mills ceo at the top of the hour, particularly snacks, they didnt execute like they could have in north america. Cereal bars, some are wondering if they are in vogue companies continuing to figure out. Its a mix of innovation, a mix of Digital Marketing and ecommerce working with kroeger and walmart. Com. Flamin hot on the package. Flaming hot, smart food popcorn. Cereal bars are out, is that what youre saying they are out unless they get people excited about them. I like them, but i still like cereal cinnamon toast crumple, extra cinnamon, really good. As we head to break, done deal closing of 34 billion acquisition of red hat by ibm. Ibm shares down a half percent getting a check on major averages this hour things are lower, dow off, nasdaq strong, 3m, dow and unitedhealth drag down the dow well be right back. indistinguishable muttering that was awful. Why are you so good at this . Had a coach in high school. Really helped me up my game. I had a coach. Math. Ooh. So, why dont traders have coaches . Who says they dont . Coach mcadoo you know, at td ameritrade, we offer free access to coaches and a full education curriculum just to help you improve your skills. Boom mad skills. Education to take your trading to the next level. Only with td ameritrade. One veteran investors says wall street is focusing on the wrong risk to the rally. Find out what hes watchinong trading nation on cnbc. Com more squawk on the street right after this welcome back to squawk on the street. Time to get the cme group in chicago. Rick santelli with Santelli Exchange rick. Thanks. Id like to welcome my guest peter, thanks for joining me, lets get into it. Segment after segment on cnbc from some of the brightest, most seasoned veterans on wall street and banking. One common refraining, fed has to, its built in, they have to. What Twilight Zone episode are we awake in, peter why is that the case they look at the inversion and im sympathetic to the slowdown story and fed needs to do something, but in a couple of days were going to get core cpi thats smofd to print 2 of thats the 16 month in a row with a 2 handle. We have real rates at the whopping level of about 40 to 50 basis points only. So to say, okay, we need to immediately get back to negative real Interest Rates and thats the cure all i think is getting way over this idea that the costo of moe is an in exhibiting factor of Economic Activity you nailed it, peter. If the cost of money is a factor, why isnt ecbs economy or bank of Japan Economy sizzling in cisco, frisco right now. Exactly if youre looking to buy a home, bond market cut Mortgage Rates 75 basis points for you year over year. To think that the path at ec b b oj have embarked on with continuously low rates and think that make how is going to make a difference i think should be evidence of how not to run Monetary Policy. In fact, peter, would it be fair to say, is this too crazy, towing the line, the central bank that actually says it stops here, negative rate. If they start easy and early before, they mean our central bank before we really start getting into recessionary time and historic or close to historic stocks, i would think they would almost schurrle be forced to go to fair rate isnt that a fair hypothesis at this point i hope for the sake of the Financial System not out of the realm of possibility if they start early one cycle, is it only nine rates to cut if they want to go back to zero, which is a mistake you better use them very judiciously. I agree maybe Congress Actually they are so out of sync with getting anything done. Maybe they need to modify these pillars. First of all, another question when was the last time we truly fell off a deflationary cliff in this country, peter . Be honest . I dont think theres ever been a deflationary cliff because its been part of growth the last 200 years. Inflation data thats as steady as she goes, even when you look at 08, we had a few blips. For the most part meets the pillar top to bottom, 2 crazy arbitrary point needs to be researched and altered. I agree all we do is look at eoj and experience for modern day evidence of what doesnt work and what does. Now, peter, we have 20 seconds left in the final if you were jay powell right now and you didnt think you should ease, how would you frame your testimony on capitol hill the next couple of days what would you zero in on . What jay powell needs to do is not let the markets take policy away from him if hes truly data dependent, then dont precommit to where rates are going to go for the next three, four, five meetings for the rest of the year and next year. If youre data dependent, say were going to play it by ear. Im not going to throw myself out there and say were definitely cutting, possibly cutting basis points he needs control of the bond market fed fund futures odds should be more like 50 50, not 100 . I think he needs to sort of get back to a communication standpoint control of rate policy from the market excellent, peter. Always a blast talking tout about fed policy thank you for joining me carl, back to you. Rick, thank you very much we are one day away from away fm revealing cnbcs 13th annual americas top states for business scott cohn is live in a mystery location, of course, with a look at whats coming up on squawk l l alley. So where i am we will have your next diabolical hint coming up. Also, were looking at some of the issues that are playing a big role in this years top states for business ranking, including infrastructure well tell you what one state is doing while washington sits still. Thats coming up more squawk on the street, coming right back. in dutch tell him we need this merger. in dutch its happening. just ok is not ok. Especially when it comes to your network. At t is americas best Wireless Network according to americas biggest test. Now with 5g evolution. The first step to 5g. More for your thing. Thats our thing. Most of us dont know how much data we use, but we all know were paying too much for it. Enter Xfinity Mobile. Americas best lte with the most wifi hotspots, combined for the first time. When youre near an xfinity hotspot, youre connected to wifi, saving on data. When youre not, you pay for data by the gig. Use a little, pay a little. Use a lot, just switch to unlimited. Get 400 back when you buy the new lg g8. Call, visit or click today. Earlier this morning at cnbcs Capital Exchange event in washington, larry kudlow and kelly evans talked about powells future as fed chair take a listen. Jay powells job is safe . Yes, i believe it is. I will say that there isno effort to remove him i will say that unequivocally at the present time, yes, hes safe went on to say, in a daytoday sense, yes, theyre independent, but that doesnt mean that he shouldnt listen to advice from their elderlies. Didnt specify who he means by elders unequivocally safe at the present time, well take it. Powell will face lawmakers tomorrow and thursday and i think one of the question hes going to ask is about the president s social media tirade against him and whether that threatens his independence and why thats so important. I think it will be interesting to hear what democrats like Elizabeth Warren on the Senate Banking committee have to ask him about that or anything else. If theyre going to sort of go after him, as well and use him as a punching bag in the campaign, which could just, you know, further inject political questions around the fed into the election or not and cramers point yesterday, david, was that he should be more explicit in saying, my job not to boost the dow by 10,000 points yeah, i dont know how bold he would choose to be in that situation or whether he would be egged on by certain members of the committee. Stories today indicate that republicans are also very much in favor of mr. Powell hes visited the hill, i think 116 separate times, both sides of aisle winning bipartisan favor. Yeah. Correct meantime, do you see this . The Trump Administration hosting a dinner last night at treasury honoring the visit of the emir of qatar and his delegation. In attendance, the president , the treasury secretary, and in a photo from the dinner provided by the pool, the president sitting there with incoming ecb president or ecb president nominee Christine Lagarde, currently the head of the imf, and on the other side, new England Patriots owner, robert kraft, who has been charged with a widespread prostitution scheme in florida and has pled not guilty kind of an unusual setup there for a table at treasury. I would love to know what Christine Lagarde was thinking, surrounded by those gentlemen. You havent asked her yet not yet it will be my first question when are we doing the lagarde interview . Its up in the air now, because she has stepped down, and acting managing director at the i the imf. There shouldnt be anyone to come up and challenge her, so i looks like a pretty much done deal when does that take place it will come soon in the next few weeks. Speaking of whats coming soon, whats coming up on the closing bell the earnings continue were just sort of easing our way into earnings, and this will be an interesting one. Levi gearing up for its second Earnings Report since going public in march. The stock has been one of the more successful ipos its been up more than 30 since the initial price. Well see you this afternoon, sara well talk to Toni Sacconaghi of bernstein about tech valuations acd brki pntthey have now rehea eangoi dont go away. Good morning its 8 00 a. M. At Virgin Galactic headquarters in mow hme california 11 00 a. M. On wall street and squawk alley is live hey, mr. Spaceman wont you take me along , i wont do anything wrong hey, mr. Spaceman wont you please take me alon for a ride woke up this morning, i was feeling quite clear had flies in my beard my tooth paste was smeared over my window, theyd written good tuesday morning. Im Carl Quintanilla with morgan brennan. Dre deirdre is here. Phil lebeau said he was going to have some news and he has it now from chicago hey, phil. Reporter hey, carl were still going over the numbers that we got here, but the most important information, the one that people are most focused on, whether or not boeing secured any firm orders for the 737 max in