Transcripts For CNBC Squawk On The Street 20240714

Upsidedown shares tumbling on that big subs miss plus, tech in focus ibm and ebay beat estimates. S. A. P. Misses. Microsoft, crowd strike, chewy after the bill and the growing default risk for stocks lawmakers scrambling for a debt ceiling deal why the treasury secretary says dont be concerned obviously netflix is the lead today, tumbling in the premarket. Saw lower than expected international subadditions that news overshadowing a beat on Quarterly Earnings and revenue. Ceo Reed Hastings talked about the miss during last nights earning call this is one where we forecasted high. There was no one thing, and if i think about three years ago, we were also light. You know, we never really were confident of the explanation then we were 2 billion in quarterly revenue. New were on 5 billion so its easy to overinterpret the quarter membership ads the debate this morning is largely about is this about weak content or is this just price churn and elasticity questions yesterday there was a ceo who talked about that in the transportation business, theyve never seen anything like it in terms of the quizzical nature of things csx, yeah this is the same. This is part of the problem that we have. I dont know look, he plays with such an open hand he gives you the forecast they have he clearly forecasted terribly, okay he also pointed out, wherever they raised price was even worse. David, thats to your notion of how much is there any elasticity here. And or what it will mean when theres true competition and people have more of their budget conceivably to decide amongst more players but then he says, look, the last three the last couple weeks have been good then you start thinking about Stranger Things. So heres my point theyve been terrible forecasters, down 50 do you give them the benefit of the doubt . Im beginning to think as i read everybody over here that we have to give them the benefit of the doubt that he doesnt know how to forecast, but we have to be worried about the minus 130,000. That is really suboptimal that he lost. I mean, 2. 7 million obviously versus estimates of 5. They did 5. 5 a year ago. Pointing to doing 7 million. Yes, thank you, david but how much confidence can you put into the 7 million i continue to wonder, to your point, what the world will look like when disney plus is out there. When hbo max exists. Its unclear to me how many people are going to pay a couple bucks extra. But hbo max is out there when the added service from nbc is out there and has the office on it. I just wonder. But none of those are more than Single Digits in demand he talked about a total Addressable Market of 700 million households so theres a lot of room hes also talking about the notion of tvs. I know we dont want to hear this we want to hear they came out with blah, blah, blah, and the world is watching. But that is what they gave you with Stranger Things. Now its just about hits. It will come down to their ability to deliver big hits. Theyll tell us what they say is a big hit, but we never really know do we blame them for that stocks gone sideways for six months people were going into the print thinking the breakout is going to be meaningful is it . Is this meaningful in the longer run . I think youre now in a position because of all the negatives they threw at you that you have to wait until below 300 before you can do this and not because of anything i think. Its some of the things reid does i urge people to actually go and take the time out to look at his Conference Call. Most Conference Calls were better than expected we did this right, we did this right. No, he pointed out every conceivable negative i like that, but at the same time, there are people who still have to get more worried there have to be Portfolio Managers with more panic they are, to your point, incredibly transparent in your letter i dont know how much more you get from a call. Its this weird video call they do he talks about how many people he thinks watch hbo i mean, its really interesting. Its a little unforgiving. I think thats why you have to wait for this to go lower. Just to remember again, theyre going to do Free Cash Flow negative 3. 5 billion full year 2019. They expect improvement in 2020. Obviously they say from there, well continue to reduce our Free Cash Flow deficit as we intends to keep growing our member base. But when does that become an issue . Or not an issue but at least this companys ability to continue to access the Capital Markets so easily. I know, and theres a lot of talk in there about when will you have the inflection. You know, the gross margin on the additional sub is so good. Again, i come back and say, yes, the stock has been flat. Now it has to go down. Its going to put a cloud over all these for the moment one thing i didnt like was where we raised price, its even worse. Costco raises price, do you think anybody cares . Amazon prime this is what b of a looked at last week. Quarters in which there is a price hike and an earnings selloff. 90 days later, stock does extremely well those were days where you didnt have the sand box was not shared back then and you didnt have the loss of friends they minimized the office. I think, do you take the last three weeks as being if this was a railroad company, wed give them the benefit of the doubt. Remember, i didnt say down 60 we sell it i think down 60, you buy it, betting there can be a reacceleration he was really wrong. He was wrong a few years ago it was a great time to buy listen, its not like he doesnt acknowledge it over the next 12 months, disney app and Nbc Universal will join a cast of thousands. He gives you three new competitors youve never heard of if every executive were like him, this business would be so fabulous wouldnt you expect a company like netflix will algos are a big part of the quotient to have better forecasting yes, i would. But theres an element of it where they spent a lot of time talking about what a great india hit. What you realize is its ai per country. And the ai can be very right, but that doesnt necessarily bring in domestic subs in other words, its no longer cause and effect i always felt like, they have this iconic orange is the new black last series i used to say, oh, wow, thats going to be watercooler. Then you do a watercooler times. Weve lost that. Thats what im concerned about. You think theres anything to the idea that if they knew they were coming in so light, they should have let us know in some way or taken down guidance no, because they are adamant that we dont play under promise, therefore we dont have to make any adjustment i think youre right, any company would have had to say they would have had to issue a release. Or at least start letting the analysts know. Oh, you mean like the private way . Yeah, that happens all the time that goes on all the time. We see numbers lowered by analysts the Company Never comes out publicly and says it, but here you are suddenly with a number thats not the number it was four weeks ago because they have quietly told the street. They clearly dont have a problem with volatility. This is not out of the ordinary, this kind of action. Not for them. Over and over again, he says the same thing this is the forecast we made it was not the forecast they gave the street. They etch it in stone and put it in a cabinet they can say, look, heres what we did this is the number we designed we designed this number march 15th here it is and were not using it for a street forecast. I like that. But the problem is, could they really be that wrong last time i was at a restaurant, everyone had the cell phone that went off for the flood he had one that said it was going to be a really beautiful night. Well, maybe it was in l llo los gatlos ga los gatos. Usually is well, i love a rainy night. Tech results are in focus ibm lower despite a Quarterly Earnings beat. Revenue down s. A. P. Down with a disappointing outlook. Ebay is the bright spot with better than expected results and guidance david is going to talk to devin wenig next hour. Whats important on ebay, david . Theyre still not having gross merchandise value go up. So the question is, when will it turn he seems confident they will get it that point. They are doing well in terms of advertising by those who obviously are on the site and then want promotion for the goods that they have put on there. Thats improved. Theyre dealing with a head wind from this Internet Sales tax thats slowly coming into phasing in on all these states hitting particularly hard smaller merchants rather than some of the Bigger Companies they think its a head wind for them that will continue and, in fact, may worsen in the second half that were now in of the year thats the key can you actually reinvigorate the core marketplace business, not expecting him to share much light on our report yesterday about stubhub moving forward with the sea, even though i can tell you thats fact so well see what he has to say beyond that. A diced reaction to the number were in conflict here, david. Great reporting yesterday. I thought the stubhub revenue number plus 7 was very exciting. Again, i think stubhub is a unique property. Thats what i thought i held out. They did youre interviewing, right . Yes please tell devin he should get out of the darn weeds. Theres roundup in the weeds hes in the weeds. When youre on a spotify call, you think they talk about tax . They talk about empowerment. Where is devin with empowerment . How about the summer sustainability is that where we are right now . Are we in the summer of sustainability you know what i mean. He didnt think big. Big picture here is maybe ebay is back as being an empowerment. Small mediumsize business is the holy grail he did not speak to that he went small. I expect you to draw him out and think bigger youre giving me a real mission here i dont know that im going to be able to fulfill that, but i always certainly do try to gain your appreciation. The fact is everyone else was selling a stock. You said theres going to be good news and they kept selling. Thats what i call the mf, the moron factor meanwhile, he actually had numbers the street obviously seems to like. Anyway, it was a great job. I thought the quarter was better than devin did Reid Hastings said the quarter is worse than i thought. I thought devin said the quarter you know, i didnt like it. I thought he down played his own good quarter so give him a little green room action hes going to be coming from there. I wont see him in person. Hes a nice man when we come back, the treasury secretary has a message for the markets when it comes to the debt ceiling youll hear what he told squawk box this morning. Well get to Morgan Stanley and honeywell and united rental. Theres a ton of news today. Take a look at the premarket, which is looking lower possible third day in a row down today. Back in a minute the white house and congressional leaders pushing to resolve this impasse over the debt ceiling before lawmakers depart for their august recess earlier on squawk today, the treasury secretary expressed optimism about a deal being struck take a listen. I dont think the markets should be concerned. I think that everybody is in agreement that we wont do anything that puts the u. S. Government at risk in terms of our issue of defaulting, and i think that nobody wants a shutdown in any scenario i dont think the markets should be concerned, and were working hard well get there one way or another. Talked about the debt ceiling, talked about libra, talked about china trade and pushed back on this journal story that argues huawei is the real problem you know, this man is a dove in trading talks i continue my sources continue to get that huawei may be the defining issue of what we kind of know out there, which is really that the president is trying to figure out whether huawei is a legitimate company were really talking about whether huawei is a communist infiltrated organization, like peter thiel with his bomb throw, or whether its a phone company. The hardliners believe its an arm of the pla the soft liners believe its a company. Mnuchin believes its a company. The hardliners dont i think the idea its not a Sticking Point is crazy. Its the biggest Sticking Point in the whole negotiation the whole point is are their companies pla controlled or controlled by business theres companies that are free market the free market are not communists i really think that this is the defining issue so mnuchin is very nice, but the fact is there are other people in the white house who say, does he continue to think this is about trade . Does he really think its about soybeans versus phone equipment . Its about ho mojny. They also believe this is extraordinarily important for them they should not allow this company of potential growth to be impinged by an inability to get components they need this is about samsung being given a chance to top huawei its about nokia and its about the hardliners are saying, listen, if huawei went out of business, we can leapfrog 5g. Mnuchin isnt focused on 5g. Hes focused on soybeans i dont know if thats fair come on this administration has from a National Security perspective. Its treasury thats stopped broadcoms ability to buy qualcomm why . Because of National Security concerns surrounding 5g. They think that hes controlled by the pla, which is not true oh, im sorry. I did reporting. I know theres that, and its not true i just said it wasnt true. Its completely unfair. Totally unfair. Look, and i want look, secretary mnuchin is a very smart man. Im just saying, he wants more trade. There are other people who dont want any trade thats really what youre dealing with there are people in that white house who said, how much do we trade with the soviet union in 1947 thats a big talking point. Cramers mad dash and the opening bell coming up after this quick look at futures were coming off the biggest decline in three weeks transports, worst day of the year back in a minute dear tech, lets talk. You blaze trails. But you have the power to do so much more. Lets not just develop apps, lets develop apps that help save lives. Lets make open Source Software the standard. Lets create new plastics that are highly recyclable. Its going to take input from everyone. So lets do it all, together. Lets expect more from technology. Lets put smart to work. 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. I want it that way. I cant believe it. That karl brought his karaoke machine . Aint nothing but a heartache. No, i cant believe how easy it was to save hundreds of dollars on my Car Insurance with geico. I never wanna hear you say. No, kevin. No, kevin believe it geico could save you fifteen percent or more on Car Insurance. Well have an opening bell for you seven minutes from now time to squeeze in our mad dash. We didnt get to ibm we spent all our time on ebay, you giving me advice on how i should do my interview, thank you. Lets talk about ibm it was up in the premarket you always warn people, wait for the call now its down. Thank you for that prop okay, david, you have a Glass Half Full situation. Morgan stanley says everything was good i happen to like the work lisa ellis is doing she says the reason the stock should be down is their actual cloud business, which she says it was up 24 in 2017. Then in 2018, it was up 12 . This time, it was only up 5 so thats a huge deceleration. And people who want to own this thing because of the cloud but heres the good side red hat. And red hat maybe red hat is the cavalry. Is it custer, david . Or is it the searchers i think the searchers is the best of all those movies they had some Revenue Growth for a brief period in 18. Now its abated again and its negative people thought they were going to outpace the legacy. The Technical Group the group that does steering, just not doing that well. But i dont think its where every man dead or alive has to do his part. I think when Jim Whitehurst comes in, people are going to be surprised positively i dont think shes ever slept a night. She works every single night i think she joined us briefly on the closing bell yesterday. Did she use a lot of visine shes amazing. Shes an engine. We have an opening bell a few moments from now going to have an update for you on sprint tmobile, doj, dish. You know it. Well give youhat tin the faber report stay with us to a single defining moment. When a plan stops being a plan and gets set into motion. 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Weve talked about some of the earnings we kind of glossed over philly fed, which at 21. 8 blows away the 5 estimate the employment component is near an alltime high theres people now doing work on what it means for ism. Could you see a big reversion up i am so worried for jay powell he has got to be seeing this number and saying, darn it, now that made by july. Fortunately, philadelphia doesnt have a lot of factories. Cant forget that. Used to have chewing gum they took that from us i think its a less important one in terms of factory. I would rather see whats going on in texas. I like everything from the st. Louis fed. Jay has his work cut out for him. He can say, ive talked to the railroads and theyre in trouble because he talked to csx then he talked to lance at Union Pacific. Its okay. He has to accentuate the negative and he doesnt every day he must just say, i cant believe it i cant believe it i need 325 billion more in tariffs. Unp did beat. The week transports have had between csx, rail transportation, freight. Again, every single day, j. B. Hunt, the headline was missed forecast they said, well, business is really good. Intermodal was so horrible from csx. Then they say, listen, its because of some things theyre doing with precision railroad. Union pacific was just good. They do line by line, and it was good it was industrial that was the star so that was a good quarter, Union Pacific. This is just whipsaw i think his head is like reagans head. Jay powells head is like reagans head. Hes on a swivel lets get the opening bell here the s p 500 at the big board celebrating its ipo today is phreesia, a health care company. At the nasdaq, i heart media doing the honors this fits the profile go to market, land and expand, Payroll Processing health care if you had to do the buzz words for what is you want systems meets workday. David, i want you to green light this project i come into david, and i want to merge with payroll process with the vertical for health care will you green light this project . I will. I will green light it. Im moving ahead how are we going to cast it, is the question well, were going to get i dont know charlie chaplain and Mary Pickford i earlier mentioned john wayne. But i dont know i think we need oh, my god. What am i talking about . We have carey grant. And gregory peck. Who isnt doing the casting couch . Lets just not go there were going to watch semis. Taiwan semi says they believe weve passed the bottom of the cycle, matching what asml said earlier. Its funny. Asm goes up on the bottom of the cycle. Taiwan semi is an interesting call its reality related obviously to apple we have an apple upgrade call. Thats really a 5g call. Semis are all over the place, not unlike the railroads it creates a very mixed picture. We are seeing over and over again these ridiculous gyrations, why i say wait for the call unit United Health had a great quarter. In the Conference Call, they say theres one adjustment you should recognize the adjustment is such that it makes it so the numbers are below forecast so people are just saying, i dont know what to do. So taiwan semi sends all the semis up Union Pacific will send all the transports up. United health will send all the health cares down. This is not the way to run a railroad precision railroad, theyre forgetting the lessons s. A. P. , guys, down over 5 this morning. Suboptimal. It was soft, apparently missed consensus expectations. Kwlo cloud bookings decelerated they had strong cost control im reading from a couple notes that came out. They couldnt mitigate that miss on licenses in terms of their ebit line stocks down 6 . If it pulls down salesforce we were kpmting th expecting that at a certain point. You think salesforce it would be a mistake to sell salesforce exactly i think theyre taking european share. Again, how hard are things honeywell comes out saying one of our best lines, it was not that great a quarter but they raised guidance on the phone establishing what a better quarter it was. Yesterday bloombergs story about safety honeywell down five. Now it comes back. How hard is this market . Its incredible. As the call goes on, boom, it takes off. Lets be aware its the call that control, not the headlines. But most people dont want to wait netflix, well touch base on that one obviously one of the worst performers in the s p. Down 10 Reid Hastings did talk about the degree to which theyre poised to face competition later in the year and next year take a listen to that. A lot of new competitors enter over the next year i think our position is excellent. Were building amazing capacity for content. Our products never been in better shape our rate of investment is extremely high if investors believe in internet television, which i think is an easy one to get there, then our position in that market is very strong so now when you see analyst calls on netflix, there are literally tables of every show they have slated for the coming quarters its all going to pivot around that i dont like it how long did it take bob iger to convince people you should buy on the hits they have . I think i see a slate next year where theyre going to dominate on 38 weekends, and yet people will still really buy that stock on disney plus no one believes that everyone can do great content i think the problem with this quarter was when you drop the content i hate to use that world, drop, but this was a Michael Pacter quarter the perennially negative analyst. So the amount of churn is interesting, and the idea people sign off and sign back on when theres something they want to watch. But disney, the franchises that disney has, we dont even come on star wars, you can just go through them Stranger Things is not a franchise. You cant even compare the two i dont think anyone would disagree here on the Conference Call, theres Reid Hastings talking about they love prequels in india. Were going to give them a prequel. Does bob iger have Artificial Intelligence that they like prequels in india . These guys are big thinkers. Again, im not writing off Reid Hastings as you should not why would you . Hes had a proven track record of success, even when theyve had some difficult periods david mentions disney franchises i saw lion king last night its not getting great reviews there are pieces this morning saying its still going to overtake beauty as the top live action reimagining of their vault. Are you serious wait until they start writing on the new nvidia chip. He showed me a clip of star wars storm troopers, but it turned out to be the video game. They can do animation in a fraction of the time with the new nvidia chips one of the things so interesting about netflix was talking about how easy its going to be to do animation. Thats all nvidia. Thats why nvidia must be bought jensons back, bigger than ever. Not unlike ghandi 2. Ghandi 2 . I missed that one. Thats actually from bill sheft, one of the greatest comedians of all time. Apple its kind of damning the praise, saying who is really going to upgrade if you have the 8, 9, arent you going to wait for 5g and do you really want to leave that stock now ahead of 5g the question is, is the valley low enough or aint no valley low enough, right . Who sang that with marvin gay . Aint no Mountain High enough Tammy Terrell i did not know. And who wrote that . Ashford and simpson. Come on, david what do you mean me hes the one who knows all those things im trying to think about netflix margins here it takes two. Look, hes basically talking about when you add that incremental sub, netflix is a lesson its like trying to run with usain bolt, thats what this is. Its impossible impossible burger no, that has gmos. Im going to let you take a breath im going to talk about tmobile and the doj. Go ahead. Thank you i want to update our viewers. Important updates on those continuing negotiations that have been taking place over the last months between the department of justice antitrust division, tmobile, its Parent Company Deutsche Telecom, dish, the direct broadcast Satellite Company thats moving strongly into wireless. Heres where things stand. Were finally at decision days, if you want to call it that. Perhaps not today or tomorrow. But soon and for the rest of their lives. Very soon, in fact next week i am told by people familiar with the negotiations, Deutsche Telecom is going to have to make a decision as to one key issue its still having real trouble with in terms of the dojs divestiture package that it would say passes muster in terms of its ability to protect the consumer in a merger of tmobile and sprint that one issue is specific to the concern that Deutsche Telecom has about the possibility that cable will eventually a Cable Company, such as our Parent Company or charter, will in the not too distant future perhaps try to buy a combined tmobile sprint excuse me, a dish, buy dish wireless and use tmobiles deal with dish to their advantage. Walk us through that. Remember, there were two issues a couple weeks ago. One was that tmobile was objecting to allowing all its capacity to be used by dish for a period of three years after they do the deal so that it could sell tmobile capacity while it built up its own 5g a passty thats no longer an issue. The deal if done would allow dish wireless to use without restraint capacity on the Tmobile Network for a period of three years. Then it would start to taper down in terms of how much that capacity they could use. But the concern that Deutsche Telecom has is if a Cable Company were to come along and buy dish wireless, it doesnt want it to have any access to tmobiles network it wants it cut off. The department of justice is unwilling, although i dont know exactly where what they are willing to alolow. So this has become the final issue the two sides seemingly are industrial not in concert on i can tell you again, according to people familiar with the negotiations, if next week Deutsche Telecom does not agree to what the doj is offering specific to this ownership provision, they will sue to block the deal, in effect killing the deal once and for all. There does remain more optism that theyre going to eventually agree to the dojs position, where there would be some allowance for a Cable Company were to actually buy dish wireless to use the mvno over some period of time. By the way, nobody even says thats going to happen, but that seems to be a concern of Deutsche Telekom thats where we stand. I hope ive explained it properly you have, but what it says to me is cable companies, which i thought were done being able to combine, is this a green light to be able to well, this is what Deutsche Telekom seems to believe is a possibility, that you would have interest from the Cable Company, dish and its wireless, over a short or relatively short period of time. And they want to prevent them from becoming a major competitor right away using their own Tmobile Network you can understand that. By the woi, Deutsche Telekom also dealing with what happened in europe in terms of the wireless business there. The regulators got in, overregulated by far they basically put a cap on the wireless rates are so low that nobody can get a return on capital. Theyre sort of reliving that, even though this is the u. S. , its very different. They seem to be sort of having real issues with it. Well see where this ends up but next week finally is going to be the decision, im told one way or the other either were going to get a deal where its really down to this one provision, one issue, or the doj will sue and the deal will be done. If the doj agrees, the expectation is many of the states will then say, all right, maybe thats an agreement we can live with. Were still waiting on the california puc just to give its approval as well traders who are watching, this is one of the most this is a call put. David, this is so binary the fact you threw in the cable companies, this is the opening of a Cable Company that wants to get in this. Really brilliant brilliant reporting. And thats we got now its coming down to it by the way, this guy michael sievert, the president and c. O. O. Of tmobile hes going to take over. Its not even that far in the future is ledger going to hollywood . Maybe becomes chairman. Im not sure but sievert is going to become ceo. Hes very involved in these negotiations really interesting. Good reporting all right were about 20 points below 3k this morning lets get to bob posani. Happy thursday, everybody this is all about earnings in particular, its about guidance in the second half of the year thats whats moving the markets. Semiconductors up, positive comments from taiwan semiconductor. Communications weak. This is all netflix, folks thats very obvious. Retails got a problem all the auto retailers are down. Advanced auto. Genuine parts gave disappointing commentary it was below expectations. The Auto Companies are having a problem all over the world thats certainly a major issue here if youre raising your guidance, street likes that. They want to hear positive comments about the second half of the year. United health generally did. That was an exception here it did have good commentary, but its trading down. Phillip morris, ebay, novarti, honeywell also beat, raised the low ends of their fullyear guidance generally improving guidance in the second half of the year, generally stock goes up. Very complicated picture when looking at the big Global Industrials. Theyre starting to report i love these Companies Even the small ones give you interesting ideas. Ppg is a big one, dover, watsco, big airconditioning company, honeywell, i mentioned was positive ppg, a great Little Company to watch. They make Industrial Coatings all over the world automotive, aerospace, boat coatings, all over the world they know if things are slowing down, youll see it. What did they do their numbers were pretty good overall. They talked about solid growth, particularly in aerospace and marine business around the world. They said sluggish demand in autos. We know about that we saw it today with some of these auto retailers they said their raw material costs were higher. Weve been hearing this a lot in the commodities space. They said they were trying to raise prices this is a good snapshot of the Global Industrial economy right now. Pressure on prices theyre trying to raise it sluggish growth in some industries this is very complicated, but the worlds definitely not falling part it definitely has some individual problems overall. Taiwan semiconductor we talked about yesterday what was going on in asml there was positive comments. They talked about better part of the second half of the year. All of this is getting thrown on 5g theyre hoping this is going to save them. Maybe it will, maybe it wont. You see the effect just like asml yesterday, semiconductors all moving to the upside finally, its been kind of sluggish in the ipo business recently imartmedia today with a direct listing. We have an ipo today p h phreesia, a Software Company for health care providers. 15 to 17 was the price talk. Theres a trend we saw all throw february, march, april, may, and june generally prices raised just prior to the actual ipo itself not a lot of activity recently, but well see how this one goes today. Guys, back to you. Bob, thanks very much some key data out this morning Rick Santelli gave us that at 8 30 hes at the cme group. Good morning, rick good morning, carl. Yeah, you know, i find it always fascinating when markets key off of data points listen, philly feds always been popular with the trading community, but today that oneyear best in terms of the number we received really did spark Interest Rates to pop a bit. Not only domestically, all around the globe every one of these charts, five trading sessions lets start at twoyear note yields first of all notice the drift, the angle. Its definitely aiming lower the far righthand side, no doubt about it, agitated and moved up a bit move to the tenyear, the pant person is more descending. Its more of an angle. And theres been curve flattening it also popped and the next three charts are overseas the same dynamics. Bunds, they popped but are still at minus 30. Downsloping. The french popped, which by the way is minus again, which really accentuates the downward slope so this is twofold investors, they see the u. S. Economy and take Something Like philly fed and really put more credence in it than they normally would because of the crossroads jay powell and company may be sitting at. The other issue is when someone wants to know where u. S. Rates are going to go, its where all global rates for some extent are going to go. Were all tied together. I cant stress that enough now, carl, david, jim, the three marketeers back to you. All right rick, thanks very much when we come back, just days after that miss by csx, rival unp is up on its Quarterly Results. Were going to talk to the ceo later this morning dow down 53. S p, 2980 as were down for the third day in a row back in a moment take a look at ebays year to date gains. Double that of the s p as they beat and raise fabers got the ceo later on this morning meantime, dow down 42. Dont go away. This is mia. This is mias pulse. With pressure rising, and racing. This is also mias pulse. That her doctor keeps in check, so she can find balance. This is mias pulse, and now its more stable than ever. This is what medicare from Blue Cross Blue Shield does for mia. And with over 80 years of healthcare expertise, imagine what we can do for you. This is the benefit of blue. Here, hello starts with hi mple. 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. Aint no valley high aint no river wide enough baby if you need me call me if i were a king. Your precious love. Okay. So lets just understand remember i said glass half empty, Glass Half Full before the market opens, the glass half empty people for ibm. Now the Glass Half Full, why this is what it looks like with red hat, this coming quarter and without red hat it didnt have the mojo. This is a bet on a man named jim wieber if you believe, and i do, then the Glass Half Full will be the one that holds. So, in other words, you can miss the cloud and be late and still catch up he is a genius. Those who bet against him over time have been real losers. All right jim, whats on mad tonight nucor and brian moynihan, which is the digital bank i love the app i love the numbers i think it was one of the best other than Goldman Sachs and i think its time to recognize that group seems to be creeping up here and moynihan will be maybe the leader boy, does he have a tech story to tell. Be sure to ask about the Bigger Picture of the summer sustainability will you do that david, im all over that. I will bring him out on sub hub. Davids interview with devin wenig. Its going to be great. I prep him everywhere, every day. David, im working on that reservation. Thank you. He is actually working on a reservation for me. When we come back, more reaction to netflix and that sub miss taking a toll on the stock, down to 321 dows down 12. Read Earnings Reports, looked at chart patterns. Ive even built my own historic trading model. And youre still not sure if you want to make the trade . Exactly. Sounds like a case of analysis paralysis. Is there a cure . Td ameritrades trade desk. They can help gut check your strategies and answer all your toughest questions. Sounds perfect. See, your stress level was here and i got you down to here, ive done my job. Call for a strategy gut check with td ameritrade. Youve got time welcome back to squawk on the street. Im Carl Quintanilla with morgan brennan, david faber at the new york stock exchange. Sara eisen has the morning off lets get to rick and lei. Awaiting our june read on leading economic indicators, and it is down 0. 3 a little late on the trigger on that one down 0. 3 is really a nasty number, and ill tell you why. I was looking at my database the last negative number in this series at all was in october of 2018, okay and that was only minus 0. 1. This is way back in the way back machine to get this number minus 0. 3. We have to go all the way back to january of 2016 where it was minus 0. 5. Its unusual to see them in the negative column. Many traders will not bet the ranch on what this number does this is an outlier morgan, back to you. Rick santelli, thank you. Our roadmap for the hour starts with netflix tanking after a big subscriber mess. Treasury secretary mnuchin trying to ease concerns over the debt limit should investors be worried . An earnings blitz we will speak with the ceos of beltway and Union Pacific after they beat the streak with their results. Netflix this morning tanking after losing u. S. Streaming subs for the first time in eight years. Our julia joins with more. Netflix shares down 11 having its worst day in three years. The stock having its first day in three years on those subscriber numbers that came in more than 2 million less than netflix itself had projected Reed Hastings, ceo of netflix, saying this is an anomaly, in part due to they didnt have as strong as programming slate in the Second Quarter as they thought. This is one where we forecasted high. There was no one thing and if i think about three years ago we were also light, and we never really were confident of the explanation. Then we were 2 billion in quarterly revenue. Now we are going 5 billion so its easy to overinterpret the quarter membership ads. Analysts who have been bullish on the stock are reacting to concerns about netflixs lack of Pricing Power and reliance on hit shows and movies to drive new subscriber additions. With a neutral rating on the stock today lowering its price target, he said we cant justify the stock price today. While we have never doubted the offering, we have recently had a hard time finding comfort in netflixs equity value now, stifle lowering their target saying with concern about competition from disney plus, which launches in november, saying netflix shares may be range bound until the next meaningful catalyst, which is Third Quarter earnings now, pivotal actually raised its price target on netflix shares saying lets not make a mountain out of a molehill, that analyst pointing to the fact that netflix actually projected stronger than expected subscriber additions in the Third Quarter. So saying that the numbers will all work out over the course of the year guys, back to you. Thanks so much. Stay with us we want to bring in rbcs lead internet analyst good to see you, mark. Good morning. You like to say you are long and strong its been trading sideways we see the action today. What do you put as the primary reason is this about content or is this about price churn . I think it has to be both of those. It sounds like it was more about content, not having a strong content slate in q2. Maybe a good question for management in hindsight why a price increase in the teeth of a weak content quarter but thats looking backwards it seems like both of those are issues you have to think about near term i think the market is going to be deeply skeptical of this company to reach its subnumbers about 7 million new subs in the september quarter. Nine million in the september quarter. Our guess is near term the stock probably is dead money i will make two points medium term the Revenue Growth will be the same for the last five years they are going to have six years in a row of 35 Revenue Growth long term we think the thesis is well intact. Streaming is where the growth is netflix will always have the scale advantage over anybody else. For how long would you expect it to be dead money . I think you get maybe a small relief on just making the subnumbers in the september quarter. That will be prior to the disney launch then i think it could be range bound through the december quarter and possibly through the march quarter because the concern is we want to know what is the impact of disney launch i dont think there is a big boom move until possibly the march quarter results. That does require them to be able to hit these sub numbers the next two quarters. Mark you, mentioned the market being skeptical of hitting subscriber projections are you . They didnt even face competition in this quarter and we saw subs decline domestically i just wonder what the world is going to look like when they are and when conceivably a consumer we thous had elasticity in their ability to pay price, the company did. Perhaps the consumer not quite willing to watch prices go up and or more and more of their wallet dedicated to streaming. We tempered our enthusiasm a little bit so facts that we know about the back half of this year, we learned original content big hits drive subs. Whats in the back half of this year the three most popular shows are being renewed in the back half of the year or the relaunches are coming out Stranger Things, orange is the new black and 13 reasons why. In the Spanish Language that money heist show they are out in the back half of the year their biggest indian show, a show in india, sacred games, is being relaunched the second half of this year if content is what drives subs, content is coming had the second half of the year this is going to be the strongest content slate they have had in a long time. That should lead to good subnumbers whether its 7 to 9 million, i dont know. After the numbers yesterday, a point was made that when you have tended to see this stock miss expectations. When you have tended to see it underperm or fall shortly. Historically speaking, how much of this is seasonality and how much is the fact that netflix is hit driven i think its both of those things its interesting because the Second Quarter is generally one of the weakest quarters, if not the weakest quarter every single year you have that factor another analyst pointed out that netflix always has a big miss on subscribers one quarter every year that is speculating maybe this was the q2 miss. They did better in the first quarter. They are projecting stronger than expected numbers in the Third Quarter. There is some sense that maybe these numbers were pulled away from the quarter because of when the new shows were launching i think this quarter is about the revelation that netflix is a hitdriven business. You are absolutely right about that when you have a Massive Service with so many subscribers all around the world and such a variety of content, you wouldnt think would be reliant on new names to drive subscriber additions. What i think is interesting is what is clear is that you need the big new shows, the exclusive content at netflix to really add subscribers. It will be interesting to see what happens when they have these new shows from the established show runners like shonda rhimes. They have spent a lot of money to bring over from network tv. That could be a real driver of Customer Acquisition down the line again once you are dealing with hits, its very hard to predict what people are really going to like mark, is content and new content enough to basically bring down and minimize churn for a company like netflix, or as we get more of these streaming Services Online are we going to see the terms to sign up, to subscribe change . Thats a great question its an unknown. I want to make two points. One is that there is a track record for this company in terms of making or missing subnumbers. Its 70 of the times they have met or beaten their sub forecast there is a solid its not one quarter year. Its a little bit more than that on average where theyve missed one of their sub guides domestic or international and then the churn, yeah, i think what drives the churn, it depends how good the competitive launches are rate now we have one launch on track, disney plus my guess is thats going to be a very good launch its going to be a different pitch from netflix surveys show that people are wanting to buy more than just one streaming service. I dont think people are going to drop. The vast majority of people, i dont think they are going to drop netflix for disney. I think they will be adding their netflixsubitiscription. I want to see what the other launches are before we see churn. Julia, if you are a believer that it was largely about pricing, i wonder whether or not we have basically topped out and what people expect to pay for a Monthly Subscription and whether that means further price hikes are going to be hard to come by . Its interesting because netflix said that they saw lower than expected subscriber additions across the world, even in markets where they didnt have a price increase. The additions were worse where things sort of turned out worse were in the markets where they did see price increases. Now, i think that there is some question about how soon netflix plans to raise prices anyways. It seems for now they have to be sensitive to pricing because if people are going to be having multiple services as mark mentioned, they will have they are going to add the disney plus service, maybe pay for hbo max. There is going to be some limit to how much they are going to pay. We know that the Disney Service is going to be a lower priced offering there has to be some limit to the total cost of these of the bundles that people are creating for themselves. Groping in the dark for those who have to set these prices right now. Julia, mark, thanks. See you soon. When we come back, earnings blitz. Two stocks in the green, beltway and Union Pacific, both beating the street we will hear from the ceos of both of those companies. Plus, market catalyst approaching as a debt limit deal stalls should investors be concerned . Squawk on the street will be right back dont go anywhe. Er shares of ebay getting a nice boost this morning as you can see after they beat analysts expectations ebays global active buyers 4 to total 182 million devin wenig is the president and ceo of ebay. Joins me from the companys headquarters nice to have you its very loud here. I apologize. We have a couple of big ipos the marketplace is where people are focused. Its where you are focused in terms of turning it around so once again its showing positive comps in terms of its growth you are not there yet. You do say its healthy, but you cite in the Conference Call shortterm suppression of gmv. Why is it short term and what exactly is that suppression you are talking about . The most important thing that we look at is the Underlying Health of the marketplace. For me thats three things, david. Its how many people are shopping with us how many people are selling with us how much inventory is in the marketplace. Whats on the shelves, if you will and all three of those have never been higher. We have seen active buyers consistently grow. We had added 2 million last quarter. We continue to see a growth in business, sellers, and inventory. If you look in our history, every time those numbers grow, gmv grows. What we are facing right now are a couple of things gmv can move up or down in a 90day period. Right now we are in the middle of a rollout of Internet Sales tax which we know is making an impact particularly on our u. S. Business we are also seeing withdrawal of some of the marketing spend that we did last year, which was part of the plan. We said we would do that this year, and we have line of sight to it and its explainable so were not that concerned about gmv being soft in the short run. What we see is a healthy marketplace, and we know when those metrics grow, gmv follows. It has in every year in our past 24 years. All right if you have that confidence in gmv, why not give 2020 guidance . Well, weve raised guidance now twice in the last two quarters so we dont give gnv guidance. We give revenue guidance and earnings guidance. We started the year saying, look, this year was about grow the underlying marketplace metrics and lets get the two real growth priorities, advertising and payments going, and half of the way in id say im pleased, but not satisfied id say we have made a lot of progress against those priorities we still have a long way to go but its given us the confidence to raise our forecast in q1. We raised it again yesterday so thats a good start a good first half. Now, you mentioned the Internet Sales tax its going into place in many states across the country, sort of phasing in. You said on the Conference Call its going to get worse, that seemingly headwind before it gets better. Explain what you mean about that why is that going to be the case at the beginning of the year there were no states that had enacted a marketplace collection of sales tax now we have nine there are 30 that have declared. 30 will be in place by the end of this year obviously, when a state declares an Internet Sales tax, we must collect on behalf of the sellers. So we know we have forward view as to how many states will enact that tax and where it will be in place by the end of the year it will be 30. It will cover the majority of our sales in the u. S and the Fourth Quarter of this year will be the peak. So i think the impact of Internet Sales tax will make a bigger impact before it wanes. It will wane as we lap out next year again, ill just take the opportunity to say i think its a bad policy we have been advocating on behalf of Small Businesses for years that Internet Sales tax is a regressive tax on small business, and that is exactly what were seeing. Now, you have had some success recently in terms of the increase in your advertising business do you expect that to continue at this point . Are you seeing real traction when it comes those who are willing to obviously promote their offings . Yeah, we are seeing really strong growth in advertising, particularly firstparty advertising on our marketplace we are seeing strong growth in the managed payment plan for advertising, we saw 130 growth this quarter, and we have said this is 1 billion opportunity. We will end it year at 700 million. Its become a very, very nice way for us to offer the merchants and sellers on our marketplace the ability to trade off a little bit of their margin for velocity they are getting a really good roi. Thats why weve gone effectively from not many of those sellers using the product to 900,000 of them used it last quarter. They are getting a very good return they are getting a good boost in conversion and velocity, and thats why we look at this as 1 billion opportunity. And thats just the beginning. When we look at our marketplace, which has just less than 100 billion of sales, we think this could be a multibillion dollar business over time so were very pleased with the explosive growth we have seen in advertising, and i think were really in the first inning of that. Devin, yesterday i updated our viewers at least on your strategic review, although you havent. Namely, your classifieds business specifically stubhub the company is moving forward with a potential sale given what has been fairly Robust Interest in the asset i always like to know when my reporting is wrong so ill ask you, is that incorrect . Well, thats a good way to try, but as i said yesterday, im not going to comment on our review of those assets the one thing i will say is, if you go back in time and look at what weve done rather than what weve said, id agu we have been one of the most disciplined Capital Allocators in technology we consistently return capital to shareholders when we feel like thats appropriate. We have sold assets when we feel that thats appropriate. We dont hold on to things for the sake of holding on to them we constantly look and ask questions about whether it belongs in our portfolio or not. If the answer is no, we dont hesitate to take action. Thats what we have done and with regards to what we will do, well let you know when we have something to say. Okay. I will await that as well when you confirm, of course, what i know to be true. Speaking of capital allocation, devin, you have returned, i think, 14. 5 billion in the form of buybacks since the split from paypal. Obviously, thats already some time ago you continue to buy back stock youre ebitda to debt ratio is 1. 5. Give me a sense as to what you think its still good to buy back stock here and why not use more of that cash perhaps to try to invest in even more growth initiatives. Well we will. We dont hesitate to invest in the business we are suppressing our margin this quarter by a point, point and a half just on the Payments Initiative well also do acquisitions we announced a significant investment in india, buying 5. 5 of a mall, one of the largest and fastest commerce players in india. We dont hesitate to deploy our capital. When we look at the opportunities right in front of us, the ones that we have just discussed like advertising and payments, we think that our own stock is a great investment. We look at the commerce landscape and we say ebay trading at the current multiple is about the best way to use the Free Cash Flow that comes out of this business. We bought a stock back aggressively because we think its a great deal, and well keep doing that as long as we think its a great deal. Had you guys fared during amazon prime days . Did you have more traffic coming, given you were also offering a number of different deals, or does that actually take away . No. The last few years, and this year specifically, its been a very good day for us its become a summer shopping holiday. I think thats a good thing. Its probably the case for us and other retailers as well. We were really pleased with our performance over the last couple of days. We saw strong traffic, strong interest, great deals, and our performance was really good. Finally, devin, we have been covering libra fairly closely. You are part of that consortium. Have you watched the hearings in the senate and house, you hear secretary mnuchin, there seems to be a lot of doubt about facebooks ability to execute on this or whether they want them to move forward with it. Whats your take the hearings made it pretty clear that there are two things that nobody understands yet everybody fears, and that is facebook and cryptocurrency. I would say that we are sponsors of this in part because crypto and blockchain in particular have great promise to run a public distributed blockchain, a public distributed database to reduce core costs, increase transparency, and improve security people still way too much to move money around and to settle and clear that money its a big cost for digital marketplaces the ridesharing, the home sharing, and the commerce marketplaces so the promise of the blockchain is that on behalf of the m merchants that sell on thosing marketplaces we can reduce costs and improve transparency will libra work . I think libra is speculative we all know that but it is promising. And its worth a try and i think that legitimate questions have been raised by regulators we will let facebook respond to those. But i think we might be losing the forest for the trees a wellrun public blockchain that the marketplace has could do immense good. It could create competition in money transfers. It could create enhanced security that money goes back in the pockets of Small Businesses in the united states. So lets not lose the big picture, which is crypto should play an Important Role in the way money moves, particularly in digital businesses, in the next decade devin, appreciate your thoughts on that obviously, more importantly perhaps for those ebay shareholders, your thoughts on the company. Thank you. Devin wenig, president and ceo of ebay from the companys headquarters when we come back just a day after that big miss from csx, rival Union Pacific is up on its Quarterly Results. We will talk to lance fritz straight ahead the dow is down 26 e p s neenre one of our ipos here, you can tell by the noise, there is a number of them that have opened strong open right there, at least up 14 . Ceo is going to be joining us on squawk alley next hour as well. Great. Now over for a cnbc update at this hour. Good morning. Heres whats happening. Iranian state tv is reporting that tehrans revolutionary guard forces seized a oil tanker accused of Smuggling Oil the tanker had 12 foreign crew members on board japanese fire official said 33 people were killed in an Animation Studio fire. 36 were injured. Ten critically a 41yearold man burst into the studio and threw a gasolinelike liquid, injuring himself. Violence against last night. Police fired tear gas as protesters set fires and threw rocks. Its in response to the governors vulgar Text Messages to closest allies. And at home, two new toys r us store will open in november in texas and new jersey they will be 6,500 square feet, which is much less than the 30,000 square feet of the companys Big Box Stores before it went bankrupt maybe they are staging a bit of a comeback there. That is your cnbc news update for this hour carl, back to you. Thanks very much. Lets get our spotlight this morning. The financials the kb is rising, but down a percent over the last week a roller coaster for Morgan Stanley after Quarterly Results beat expectations. I think trading revenue down about 17 look at some of the other big banks, b of a and jpmorgan getting green arrows at this moment. Were quickly approaching another markcatalyst congress is set for a showdown over raising americas credit limit. Steve mnuchin expressed optimism about a deal being struck. I dont think the market should be concerned. I think that everybody is in agreement that we wont do anything that puts the u. S. Government at risk in terms of our issue of defaulting, and i think that nobody wants a shutdown in any scenario so i dont think the market should be concerned, and we are working hard we will get there one way or another. Don joins us with a look at what this might mean for the markets. Dom. Well, debt showdowns, debt ceilings, budget agreements and Everything Else that happens with regard to fiscal negotiations have been the source of market angst for decades but certainly the last ten years. A handful of market type moving events tied to some of those budget negotiations and debt ceilings we will take you through three of them to give you an idea of what could happen if things do not work out this time with regard to a budget deal and or a debt ceiling increase getting passed in 2011, arguably the most volatile of these occurrences. What happened back then remember was the debt ceiling ultimately was raised but there was a huge issue about trying to avoid a Government Shutdown and a huge negotiation there that ultimately resulted in the u. S. Debt rating being downgraded in early august it was also the ongoing european debt crisis. During that time the s p had a massive downside of volatility ultimately rebounded after those issues were resolved with regard to the u. S. Side of things lets fast forward to 2013 also a Government Shutdown issue in place if you look at these situations, what happened is the government shut down in the fall there from october 1st to october 17th. Remember politically in the u. S. Also extraneous amount of tension because of the obamacare. And then well end with what just happened in the Fourth Quarter of 2018 into the beginning part of this year. Remember a lot of downside volatility there the government had the longest partial shutdown in history. But remember also jay powell made some hawkish comments in the early fall and then followed up with a rate hike in december that arguably caused a lot of that market to stress. Then we had a huge amount of bounce back. One of the best first halves of the year in market history as we talk about the way that this could play out, it is not unforeseen to see a lot of downside market volatility if these continuing issues with regard to budget negotiations and raising the debt ceiling do not come to a head, but over the long term the one thing i will say is the three issues all had other much bigger external issues outside of that particular debt ceiling budget for sure its something to watch. Back to you guys. It certainly is something to watch, dom putting charts to politics thank you. We head to a quick break check out shares of honeywell. Stronger than expected earnings. Sales up 5 . Boosting fullyear Profit Guidance the Aerospace Division doubledigit sales the other big thing to watch, honeywells push to become a Software Industrial country. That recent launch of an industrial internet alanytics platform stocks up 2 well be right back. 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. Welcome back to squawk on the street. Rick scandal here live on the floor of the cme group in chicago welcoming vincent reinhardt. Vincent, lets get into it oneyear high on philly fed july reed special questions. Ill give one answer, you give the second 51 of the manufacturers have seen a modest increase in demand in recent months now, you saw another part of that question. Tell us what you saw. Which was only 20 solid decline. They are firing on all cylinders. It was strong pretty much across the board in terms of prices paid, prices received, wages they are feeling pretty good in the city of brotherly love yes now, you know, we dont want to draw used conclusions from that area particularly, but there are a litany of issues that really go cross current against the notion of using up one of those nine quarter point increases you stated some in soom me of yr recent writings. Tell us what you think is positive and makes rates questionable. We have positive data the philly fed number piles on top of the empire purchasing managers consumption growth has been very strong we are going to track gdp in the neighborhood of 2 in the Second Quarter. We are basically growing around 3 over the last five quarters the Unemployment Rate is clearly below its natural rate, and were getting wage gains in excess of 200,000. Tell me exactly why the fed is going to be easing and the answer is because everybody expects the fed to ease and that chair powell hasnt pushed back against that notion. Theyre doing it because they are expecting to do it. Now, i completely agree with everything you have said one thing i can tell you about fed funds and the percent anls, when its a nearterm meeting thats solid over 60 , 70 , and this one is for july if there is no pushback, you are going to get it. What i question is, is why did the fed allow themselves to be put in the box in the first place . Why didnt they push back . I think thats a tough question, and i think the answer is between december and january, jay powell learned that it is punishing to guide markets because when you are guiding markets you are in front of the pack and if you are in front of the pack, you are lonely and you are subject to criticism by market participants, by commentators, and by politicians and so did you happen to catch Charlie Evans . The other day in chicago he basically is doing exactly what you said the fed hasnt learned many of the speakers go out and they lead those listening to think there is a future plan there shouldnt be a fan finish it up, vincent. Data dependent, react to the data if they were reacting to the data, they would have to be thinking about what they are doing in a week and a half they are not thinking. They pretty much made up their mind i think what they should do is 50 basis points. One and done say weve balanced the risks we showed were nimble and we can take it back if we have to sorry about that december you gave me the big one on the 50 you know what . Here is the problem with doing 50 you only have nine quarter points, 2. 25 to 2. 5. Negative rates would not be happy received in america. Maybe the Biggest Issue is, if you give this childish market 50, they are going to demand more vincent, we are out of time. Thank you for playing today. Morgan, back to you. Rick santelli, thank you. When we come back the ceo of Union Pacific lance fritz is with us on his companys results, trade and more. Plus, one giant leap for mankind. Its been 50 years since we landed humans on the moon for the first time well speak with nasa at cinupn quk jim bradyn stein thsomg osaw alley. So should the way you bank. Virtual wallet from pnc bank. Just one way pnc is modernizing banking to help make things easier. Pnc bank. Make today the day. Microsoft hovering near all time highs after the bell, find out what to except on tradingnation. Cnbc. Com more squawk on the street is coming up. Woman my reputation was trashed online. I felt completely helpless. My entire career and business were in jeopardy. I called reputation defender. They were able to restore my good name. If you are under attack, i recommend calling reputation defender. Vo theres more negativity online than ever. Reputation defender ensures that when people check you out, theyll find more of the truth, not trash. If you have search results that are wrong or unfair, visit reputationdefender. Com or call 18778668555. Welcome back to squawk on the street. Shares of Union Pacific surging this morning after posting Second Quarter results that beat the street with us to discuss is Union Pacific president and ceo lance fritz. Lance, thanks for joining us today. Thanks for having me, morgan. So we have had some interesting comments and some Interesting Data where freight is concerned earlier this week, passed around wall street pretty actively, said the shipments index has gone from a warning of a potential slow down to signaling an economic contraction. Does it feel that way to you from the railway lens right now . Our markets feel about like they had when we entered the Second Quarter trucking is pretty loose right now. There is excess capacity in the trucking market. So thats impacting it there is some things thhappenin that are unique like the markets and frac sand. White sand we ship from wisconsin and minnesota is being replaced by locally sourced sand in texas we see a little impact from the coal and energy markets. Then we do see a little impact from trade but i cant say that we see some kind of Inflection Point occurring right now that would make me think that the Third Quarter or Fourth Quarter is getting much worse than what we see right now. And now you have been implementing precision scheduled railroading, record operating ratio for the quarter. It looks like you are targeting sub 61 for 2019 and below 6 por 2020 but you are already there. How much lower can it go we told our shareholders that our guidance sub 61 as you point for 2019, sub 60 for 2020, isnt just about achieving below 61 and 60 its about doing as well as we can. When we set that guidance up it was prudent. We still think its prudent. We are making great progress we just had an exceptional quarter. And i have to note that the women and men of Union Pacific did a stellar job not just generating an Excellent Customer Service product and productivity and efficiency, but doing that in the face of some onetime epic flooding that occurred both in the midwest and then in the southern part of our network they are overcoming that and performing like we did in the Second Quarter is pretty exceptional. Pricing have we peaked in terms of freight prices and rail prices never say we peaked on pricing. Its a little tougher market than i would like, but mostly because of loose truck capacity. But we still generated 2. 75 in yield this quarter i have to always remind our shareholders that we calculate yield in the most conservative way you can. We take all of the dollars that were generated out of price increase, divide it by all of our revenue dollars for the period so, you know, if things dont move that we priced last year, we dont get to count that as price. And 2. 75 , thats a pretty solid performance. As i look forward, the thing that im optimistic about is that our Service Product is improving. Our unified plan 2020 is creating more consistent reliability. We are more efficient. I think that sets us up to do as well as we can in whatever market that we face. And that includes being able to price. Lance, its david faber yesterday we made a lot of, of course, morgan speak with mr. Foote, the ceo of csx who said he is baffled in a sense by the u. S. Economy right now are you in agreement with that assessment, or do you have a better sense of the u. S. Economy . The u. S. Economy to me feels like its still growing. Its growing at a pretty tepid pace its definitely slowed down a bit. I think there is still plenty of opportunity for it to continue to grow if we get certain things right like trade policy, but were set up still pretty well tax reform has set u. S. Industry up to be competitive globally. We have the best infrastructure to serve our industry. We have got healthy consumers. Their wages are growing. Our job market is good and so there is a few things that we have to get right. We have to get trade right, and presuming we do that i think the economy looks pretty sound to me. What is getting trade right mean, lance . There are a couple of moving parts there. We need to ratify u. S. Mca thats critically important. Our neighbors to the south and mexico have done their part, and now we need to do our part and canada needs to do its part. We need to get a deal struck with china that holds then accountable to the spirit of the wto. Ope and then we have to move on to start negotiating an effective agreement with japan and with europe the fact that we are not in tpp says trade agreement with japan is critically important going forward. A lot of moving parts lance fritz, thanks for joining us on the heels of your Earnings Report stocks up 5 right now thanks. Lets send it over to john, get a look at whats coming up on squawk alley. We have a couple of ipos coming up here to the stock exchange, including asset market a back end platform for wnancial advisors weill have the ceo coming up next on squawk alley. Elationsh. Youve done a lot of good for the world. Tionsh. But i feel like you have the potential to do so much more. Can we build ai without bias . How do we bake security into everything we do . We need tech that helps people understand each other. That understands my business. Weve got some work to do. And we need your help. We need your support. Lets expect more from technology. Lets put smart to work. Is it to carry cargo. He 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. Mercedesbenz. The best or nothing. Mno kidding. Rd. But moving your internet and tv . Thats easy. Easy . easy . Easy. Because now xfinity lets you transfer your Service Online in just about a minute with a few simple steps. Really . Really. That was easy. Yup. Plus, with twohour appointment windows, its all on your schedule. Awesome. Now all you have to do is move. That thing. [ sigh ] introducing an easier way to move with xfinity. Its just another way were working to make your life simple, easy, awesome. Go to xfinity. Com moving to get started. Welcome back to squawk on the street. Cybersecurity threats from around the world are ramping up and so are recruiting efforts to fight them, opening up hundreds of thousands of jobs that need to be filled cnbc got an exclusive look at how the federal government is trying to woo these workers, specifically women Kayla Tausche has that story from the pentagon. Reporter good morning, morgan there are currently half a million cybersecurity jobs open in the u. S. And about 5,000 of those are at the department of defense. And while the pentagon says that its Cyber Workforce is 23 women, the industry overall is just 1 . And that is well behind other sectors. So to pique the interest of students and specifically female students, raytheon and federal agencies are sponsoring a cybersecurity competition where the winners get face time with potential employers. Mariah kennys winning status got her a job at crowd strike. She said that her interest was first piqued by a couple of College Courses that initially dismayed her, but she stuck with her. The two guys caught a studentcaught course on cybersecurity. So i took that, super interesting, only understood like half of it. Reporter kara siler is interested in a similar career path and is now interning at raytheon the problems that we face in cybersecurity have realworld consequences so the difference between not solving a problem in cybersecurity and solving it is the difference between millions of people having their data leaked out or having their data be protected reporter the pentagons deputy chief information officer, s. E. Miller, says that is the exact pitch that shes trying to make if it is about money, obviously, we cant compete. But if its about mission, focused on what we do for the nation and also a penchant to serve, we win every time now, clearly, theres an arms race between the government and the Tech Industry to woo some of these workers. Miller says that deregulating some of the hiring processes has helped them to compete, but they still need to do more to get in front of those students at the ground level in college and also in high school and before. Kayla, i love this story. Cyber is such a big focus for the pentagon, for the dod right now. When i think about the criteria thats required, just for people to be able to enroll in the armed services, its a very small fraction of the population that even qualify. I would imagine that that bar jumps even higher when youre talking about cyber jobs how quickly can the dod fill these positions . Thats one myth that the dod is trying to bust. When you think of cybersecurity, you generally think of people in a situation room, behind a computer, trying to thwart an active threat. The 5,000 cyber jobs that are open, they touch accounting, they touch legal, they are across the board and theyre trying to prioritize some of the offensive jobs in cyber from some of the defensive jobs and theyre really table to prioritize the ones where an immediate threat is present. Thats where theyre focused in the nearterm. Kayla tausche, thank you for joining us and bringing us this story. Sure. Got a couple of ipos opening today. Free fresia opening, up about 47, almost 48 and you have asset mark up, priced above the range of 19 to 21 so a busy thursday morning s p flirting with the red and the green, but the dow is down 58 when we come back, early netflix investor paul holland on that subscriber miss and more squawk alley starts in a moment prevagen is the number one pharmacist recommended memory support brand. You can find it in the vitamin aisle in stores everywhere. Prevagen. Healthier brain. Better life. Dont miss your gto experience our most advanced Safety Technology on a full line of vehicles. Now, at the lexus golden opportunity sales event. Lease the 2019 es 350 for 379 a month, for 36 months, and well make your first months payment. Experience amazing. 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. Good morning it is 8 00 a. M. At netflix headquarters in los gatos, california its 11 00 a. M. On wall street and squawk alley is live good thursday morning. Welcome to squawk alley. Im Carl Quintanilla with morgan brennan. Obviously, got to start with netflix today, getting crushed after posting weaker than expected sub numbers this is Reed Hastings on the call last night. Were having a lot of new competitors enter over the next year and i think our position is excellent. Were building amazing capacity for content. Our products have never been in better shape and our rate of investment is extremely high so if investors believe in internet television, which i think is an easy one to get there, then our position in that market is very strong. Cowans john blackly with us along with lee horowitz to talk about a story where investors arent is this part of the normal postprint volatility or is it Something Different this time, lee . Obviously, it was a big subscriber miss in the quarter and it brought about