Transcripts For CNBC Squawk Box 20240714

Restarting next week thathelped things in asia. In europe, its a bit of a mixed picture. The dax up by 0. 1 you do see red arrows for both the cac and the ftse the ftse, well talk more about Boris Johnson who will become the Prime Minister there today ftse now down about 0. 8 stocks are flat in italy and in spain. If you check out the treasury yields here in the United States, you will see this morning the tenyear is yielding 2. 057 the big story of the morning, shares of Big Tech Companies like google, amazon and facebook, theyre under pressure after the u. S. Justice Department Said theyre opening a broad antitrust review of Technology Firms the review was scrutinikru desie if these companies are stifling information and harming consumers. The Justice Department does not name specific companies, but it is likely to encompass google, foos facebook this is the real first shot across the bow by william barr and the doj. You know you have the democrats, you have the republicans also after watching the market yesterday, 177 points on the dow, im like thats a great day. Then this then after the close, i was like tomorrow i saw this. You know the market you know, President Trump, the market will be down tomorrow based on this as long as you understand that you know Elizabeth Warren and her wing of your party its not my party you can claim the republicans for yourself you cant claim the others for me the negative is that trump when they say they actually said search social media and retailing. Duh . Google, facebook, and amazon if this is what you want im annoyed by it. Then i immediately heard that well check to see if consumers are being harmed if youre bein by a loss of privacy, i can understand that, but youre not being hurt by services or by retail if anybody thought a european approach to it would be right maybe some Small Company somewhere has trouble entering amazon space t anybody who thought this would be get chopped up, the ftc would be responsible for facebook, no, this means the department of justice is looking at everybody, and you will still see the ftc stuff. For someone who is so blatantly manipulative of the fed and of the Justice Department, for his own sort of selfinterest, in a lot of ways you just said it. You shake your head and go i cant believe this you cant believe that how to not understand the cause and effect of this and lower stock prices is strange. Youre either pro big business, pro innovation, pro u. S. Technology or youre like thats been the situation so what are you saying about your guy im saying that normally he is blatantly pro business because he wants the economy, he wants jobs, he wants higher stock prices can you explain this then mine,ean, i hope its not i google because they sort of maybe search for liberals, i hate facebook because of that, i dont like amazon. What did you think after his administration went after at t and time warner . I cant believe the government you like so much would be so selfinterested . Would they do it just because of cnn . Would the Justice Department do that just because the president doesnt like cnn maybe im naive, im usually not. Why do you think they went after at t why do i think they went after at t yeah. Cnn . I imagine the president had a particular problem with that tra transaction. One thing that was so interesting, when President Trump was campaigning, in a very unique way he tried to thread a strange needle where he did campaign against big business. The whole populist approach, you go far enough one way, you almost get to where Elizabeth Warren is. Drug prices . Same thing there thats so confusing for people thats annoying to me its annoying to you . Im annoyed that a pill costs a dollar to make and you charge more there are times where true conservatives have problems with the populist approach. This is a real moment not really. But if you go after if you go after the big leading market cap Companies Like amazon, you dont like the washington post, so youll knock down amazons prices and tax them differently . Do all the things that will hurt their business you sound like aoc who are you saying sounds like aoc President Trump . Yeah. Youre cutting off your nose to spite your face. I dont disagree with you then let me rethink this. The ftc is expected to announce a settlement deal with facebook over the mishandling of user privacy later today. Reports say the social network will have to pay 5 billion Mark Zuckerberg Mark Zuckerberg will have to certify every three months that the company is properly safeguarding user privacy big day for you. Why so . Five ho five hours of mueller theyre not my people you can keep saying that. And the other side is not mine either. This is a big day for do you think that if everybody knew what was in there, that they would say this guy has to go has to be impeached . We dont want to go here a lot of many eyes will be on this larry dud lkudlow said when a asked about President Trumps remarks, he said ill stay in my lane hopefully its not the left lane going 50. Thats all im saying. Do not do that okay this is like two weeks ago. I know. For those of you who were on vacation people understand they see the people. You in that highlander, does it go over 50 . If you push it, do the four cylinders let me talk about trade news. The white house confirming a u. S. Trade delegation will head to china next week for the first high level facetoface meetings since President Trump and president xi met last months at the g20. Robert lighthizer and Steven Mnuchin are expected to meet with chinas vice premiere late their morning well get an update on the trade talks from secretary mnuchin. He will join us at 8 00 a. M. Eastern time we will talk to him about that we will talk about the debt ceiling, that and much more coming up. Another thing im not sure about. Whats that were just the debt ceiling . Like drunken sailors still. This is interesting all of a sudden you disagree with the president bitcoin, libra yeah. On trade. On deficit i actually do think for myself occasionally. I do ratherthan the knee jerk reaction to everything. Coming up, well get you ready for todays big reports, including at t. I think youre squarely on the side of the editorial side of the wall street journal. Usually usually usually yeah boeing caterpillar, all of those before the opening bell heres a look at the biggest premarket winners and losers in the dow. Were changing whats possible every single day. , and if you run a business, that means a lot. We create Financing Options for your customers. To help them get the things they love instantly. Our data provides insights into what your shoppers have already bought. So you can offer them what they might consider buying next. Our financial and Tech Solutions are changing whats possible in all sorts of ways. So, how can we change whats possible for you . 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. At t, caterpillar, boeing, facebook and tesla set to report results today. Lets talk about earnings optimism, trade and the effect on the broader markets joining us is the Global Investment specialist from Jpmorgan Private Bank and ed keon from qma. Monica, i was struck by something you said i hear this a lot, its a different place in january following the december selloffment i think i was last here in the winter, after the selloff. It was easy to say you have to buy. I think youre getting to th point where youre saying, geez, i dont feel quite as positive now. A lot of people are expressing that end of cycle fears i dont know if were end of cycle, late innings. The challenge is how much further does this go if you had some nice moves, were pairing back risks so you would sell some stuff and wait for a shallow pullback . Try to time it and go back in. Its hard to time these pull backs. Generally speaking you want to be attached to a cycle take some chips off the table. Look to come back. I will do 5 , 6 in your sleep, standing on my head thats fine. Thats a normal equity return, right . Why not stay in most of our clients will stay invested through a cycle its nearly impossible to time things if you have great gains, vol is low. True end of cycle would mean more than a 5 or 6 pullback, wouldnt it. Typical draw down over 20 . That i dont want do you see that coming i dont think its near at the end of the day, look at earnings better than feared if we dont see a significant slowdown, trade fears abate, corporate fears are okay that gives you a good runway for a couple quarters. Thats the first thing you said, earnings have come in good better than expected. Earnings always Beat Estimates we only missed estimates a handful of times the fact theyre coming in above the wall street forecast is not a big deal, but theyve come in more like 5 , 6 ahead of h estimates. So we may get a 2 growth for this quarter so earnings have been generally positive for the market and they look good to support stock price prices youve been sort of tepid about things yeah one concern is what you just said, you would expecting maybe them not to be yeah. Does that allay your concerns and make you less tepid . Yeah. You feel better yeah. Really . We started the year, i thought earnings could be negative for the year. Now it looks like theyll eke out a couple percent gain. Valuations are higher at the beginning of the year. I think the process has probably run its course and from here, if were going to get gains as we go to the end of the year, it will be based on 2020 earnings looking like theyll give us another 5 , 6 , 7 so you would call yourself you moved up a couple points on the zero to ten scale on how bullish you were yeah. We have been net buyers over the past month we moved up to a slightly overweight position in the u. S still nervous about europe, growing very slowly if at all. Asia slowing down. The rest of the world is slow. You can still participate in the u. S. Market. The government will not shut down for two years is that good or bad . I suppose its good barely good what else scares you europe still not great the rest of the world is not growing that robustly. Europe around 1 , maybe less than that. China slowing down you still have the conflicts that we talk about every day, what happens with the trade war, what happens with brexit so theres things that can go wrong. I just think at this point were probably getting a reasonable expected return out of stocks. Not a lot, but a few Percentage Points between now and the end of the year, id be happy with that no one is talking about iran. I dont know grab these 17 guys that can affect oil that can theres a lot of ways that can go wrong i dont know is that on your radar screen is it brexit only . Certainly because that could weigh on sentiment to the point we make about valuations, you have a hit to sentiment that causes valuations to contract. That could be a challenge. We had a lot of headline risks for two years, here we are we will have fiscal and Monetary Policy turning more supportive so we could extend the cycles couple quarters. We have gdp on friday that wont surprise people 3, 2 anything in that range. Around 2 is my range. Thank you thanks. Still to come, we are expecting numbers from at t in the next few minutes right now that stock is up by 7 cents to 32. 16 also well tell you about another big earnings mover that is getting crushed in early trading. Squawk box will be right back. At t reporting earnings. The company is coming in with earnings of 89 cents a share, in line with expectations same story for revenue, 44 44. 9 billion, also in line with expectations Randall Stephenson making some comments saying theyre on track to deliver on all of their 2019 priorities he says we continue to pay down debt and are more confident than ever we will meet our yearend deleveraging goal and look at buying back stock. Mike santelli is here. Probably debt is the biggest issue. 6. 8 billion net debt reduced. Yeah. Thats a pretty good number thats been the big piece of discipline and what theyve been targeting for this year. On track for that is good. For stockholders, its like what does that mean for the rest of the strategy maybe just the mention they would be looking at buying back stock. So they feel like they will get past this point where they have to focus on Debt Reduction and have some cash left over theres a lot of stuff outside the numbers now with at t. Its a Media Company whats the strategy with the hbo streaming product, and really pay tv sub losses is a big story now. Directv and if you knew the dividend was safe yes recover and qualify 6. 3 , maybe some upside to the stock. They have great assets just depends on what you pay for assets and whether you can service the debt if you feel comfortable with that and theyll continue to earn it and cover it. Its not always tax advantage. Everybody would be in at t, would they not when you see a yield that high, you have to determine what does the market determined we determined its safer . Its less of an automatic operating company now that it owned directv and time warner. Its not the same as it was a clock work utility type earnings has plenty of skeptics, i wonder if the skeptics are justified in ways. A lot of times its like i dont know what causes people to be so skeptical . The question is, youll have this hbo max product that will start in the spring of 2020. Good managers there was a view from a pricing perspective you could capture 4, 5 on this new product now with disney, you might be able to capture a dollar or two or three more maximum over and above the other theres no commentary in this release talking about the pricing on that. Hbo now is 14. 99 we do anticipate well hear more about that on the Earnings Call today. Assuming so were at 14. 99 now. Lets say you go 3 more to 18, its hard to think you can go meaningfully above that given the amount of content available relative to a netflix and everybody else so when you said whats the expectation, the expectation going into the transaction is that you would be able to create more dollar volume on each sub than you currently are you asked why people are skeptical, im not sure theyre right or wrong, im saying this is the math. Theres more uncertain execution risk in the longer term strategy than there used to be directv was not a good deal. Theyre working that off that was the only bridge to the deal that they got is it that or that directv was like we cant make it working we have to find content that scale allowed them i dont think anyone thinks at this point that time warner went for a crazy price i dont think it was an overpay given what disney ended up paying for fox some other comments our first net bill does not only run ahead of schedule its a driver of our wireless network, leadership and speed he also says its there to have nationwide commercially 5g coverage available in the first half of 2020 5g and sprint tmobile are the other parts you want to hear about. Theres a question of what nationwide coverage of 5g really represents if you look at whats going on in some cities where theyre doing it, theyre getting super fast speeds, but its not blanketing the place and its very challenging to do that right its going to probably feel like it did in the earlier days of wireless it really mattered what network you had, the whole roaming stuff. Thank was not that long ago. I dont know if you saw the test the wall street journal did last week to check the 5g networks networks, in most cases, because of the way 5g works currently, the phones become so hot they have to put them in his packice, just keep 5g rolling you have to ice the phone. The phone is going over 100 degrees every time theres a hardware issue that has to be worked out theres a bit of a software a cell tower theres a lot of things that have to happen to get to where we want to be mike, good to see you at t shares down by 10 cents. When we come back, more on squawk box. Trade war fallout. Well tell you how u. S. Cherry grandmothers are handling tariffs. 50 imposed by china a live report out of shanghai. And later well get an update on the trade talks from the treasury secondary, Steve Mnuchin will join us that will happen at 8 00 a. M dont want to miss that. As we head to break, a look at yesterdays s p 500 winners and losers these folks, they dont have time to go to the post office they have businesses to grow customers to care for lives to get home to they use stamps. Com print discounted postage for any letter any package any time right from your computer all the Amazing Services of the post office only cheaper get our special tv offer a 4week trial plus postage and a digital scale go to stamps. Com tv and never go to the post office again welcome back youre watching squk sqsquawk live from the Nasdaq Market site in times square. Good morning. Welcome back to squawk box. Dow down about 80 points we have at t already reporting nasdaq indicated down 32 thats not as bad as it was earlie earlier and late yesterday after the new doj investigation into big tech the s p indicated down by 9. Those are all moderate in terms of the selloff after coming close to new highs yesterday just being less than a half percentage point away on most of averages part of that may be because of some positive sentiment built in because of the trade talks. Turns out u. S. Trade negotiators will travel to shanghai next week for a round of talks. Eunice yoon is there now and joins us with a look at the trade war fallout. Good to see you. Great to see you, too you know, American Farmers have been hurt by the trade war yesterday i got a chance to talk to somebody who works on the front line hes the International Director of the northwest cherry growers. Hes here on a multi day marketing blit toz get more chinese to buy american cherries despite the tensions this box here is an ideal quality. Reporter despite the trade war, keith hoo is making his best pitch for american cherries china is very important reporter this is the second largest wholesale fruit market in china, every year keith comes to shanghai to look at where the appetite is for cherries cherries makes up a third of exports so they feared the worst when tariffs were raised last year on their cherries overall volumes plunged by 40 from before the trade war. But the farmers are still making money. So far chinese importers like george liu have been willing to eat the extra cost so because of the tariff, the u. S. Cherry in the market needs to sell at a higher price. So in the end it will reduce demand a little bit. Chinese people are willing to pay for premium product. Reporter to keep people here buying, hu is tapping into the chinese desire to live a healthier lifestyle but hes still losing sleep over what might happen if the trade war continues. Theres a new competition from cheaper cherries from turkey and uzbekistan other fruits from other countries are our competition. Were fighting an uphill battle. With the tariff, it just made or challenge bigger and there is a bit of good news the trade talks are expected to resume here in shanghai next week hu told me that any signs of progress that trade tensions could be eased would be welcomed by the cherry growers. Sounds like at this point both sides are kind of playing nice heading into the new trade talks. Yeah. I think so at this point its hard to say how much progress has been made and what is going to be discussed. But at the same time, they look as though theyre going to meet. From what we know from the u. S. Side, the u. S. Delegation is supposed to be led by trade representative Robert Lighthizer they will be here and meeting from the chinese side not only the vice premiere, but a new addition which has been getting attention, the Chinese Commerce minister some answer list analysts beliel be a good thing, that beijing may be more serious about the discussions, up until now its been the vice commerce minister, but some are worried because the minister of commerce is known to be a hard lliner. So people dont know if beijing really wants to have a hawk at the negotiating table as well because they plan to dig in in these discussions. Lighthizer is known as being the more hawkish one, but treasury secretary Steven Mnuchin also will be going to those talks and well talk to him here on squawk box to see what hes anticipating ahead of that eunice, thank you very much by the way, sticking with this opic, the u. S. Department of agriculture is working on an aid package that would pay a minimum of 15 per acre to farmers who have been hurt by the trade war with China Agriculture secretary sonny purdue said the plan would be unveiled before the end of the week President Trump has said china is not living up to its end of the bargain made at the g20 last month. When we return, the doj cracking down on big tech. Well tell you what it means for widely held stocks well do that next coming up at 8 00 a. M. , our interview with treasury secretary Steve Mnuchin, he will join us to talk about trade, the budget deal and so much more stay tuned, youre watching squawk box on cnbc through on these roads shhh, sorry, i didnt catch that. I said ask how soon they can be here right now . Whats now . He says theyre surveying our property now theyre probably at the wrong house i dont see any hovering his name is hovering . Look up . 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The doj announcing a crackdown on Big Tech Companies. Ylan mui joins us with more. Good morning good morning this is a new effort by the Justice Department to examine potentially anticompetitive behavior in big tech this review will scrutinize leading Online Market platforms focusing on whether theyre reducing competition, stifling innovation or otherwise harming consumers. In a statement assistant attorney general megan delrahim said without the discipline of meaningful market based competition, digital platforms may act in ways that will are not responsive to consumer demands. This review could encompass facebook, amazon, apple as well. The move creates a more formal process for hearing out the types of concerns raised by yelp, tripadvisor and spotify. They say these Big Companies are big footing them, using the power of their networks to promote their own products and services over those of competitors. This review is separate but related to the dojs ongoing inquiry on whether google and apple are monopolies its not a formal investigation into any particular company. But the Department Said if violations of the law are found it will proceed appropriately. We are seeing on capitol hill some big techskritd critics well kcoming this news. Republican senator josh holly tweeted this is an indication that attorney general william barr is taking anti trust seriously. We have reached out to google, facebook, amazon and apple, so far we have either gotten a no comment or were still waiting for a response i wasment to understand one thing, about two months ago there was a spate of reports about how the doj and ftc were effectively splitting their investigations so that the doj would cover two companies, ftc the other two. Now it seems like the doj is taking on all. Square that up for us. This is my understanding of how this will work and that this review is much broader than those specific inquiries into individual companies. This review is focused more on industry behavior. That sort of division of power, if you will, between the ftc and doj where they split up the companies. That was about specific Company Behavior and questioning their potent nall lially monopolist ic opportunities. Theres a lot of regulatory overlap that could be happening in washington. Thank you for that. We want to continue this conversation now our next guest covers facebook and alphabet along with snap which reported better than expected results last night. Joining us is kevin rippee this is like putting out a billboard with your phone number on it for the government, now i bet every competitor will call them how do you think about these four stocks, of the biggies, given this now overhang if this overhang didnt exist before i think the important thing to keep in mind is since the breaking of the Cambridge Analytica scandal a year and a half ago, investors had a long period of time to think through and discount a wide range of scenarios as it relates to antitrust, different global regulatory investigations. I think were seeing that today in fairly limited down side after the announcement of these new investigations the worst is facebook down 1. 5 . Google down 1. Amazon down 1. These are not meaningful downside moves in light of what could be otherwise ominous headlines. You dont believe that if the government really put pressure on amazon and said, you know, this marketplace of yours, we dont like it. Or if they go to apple which is dependent on services longterm, they made that a strategic part of their strategy, if they said this app store, you have to open it up. Those anything like that or any push in that direction i would think would have an impact certainly the app stores are an area of vulnerability across apple and google i think if we think through what has been the traditional framework by which the government pursued antitrust, its been largely grounded in Consumer Price and choice. With the app stores, you have things that do demonstrate kind of common carrier characteristics which have been long regulated what is the lesson of the at t time warner transaction that was one transaction where most people who studied anti trust would have said looks like a classical deal that would go through. Yet the Justice Department decided to object. Right my question is how does that relate to this i think a lot of people look at the product, these Tech Products and say theyre free, theyre not hurting consumers. Consumers have been helped. Ive been helped tremendously by amazon they say theres very little downside risk, then you look at the a. The at t transaction the doj did take objection they lost was a benign outcome. Benign unless youre sit stlg wa sitting there waiting on a deal that you thought was legit, everyone advised you they thought this was completely legit. The head of enforcement told you it was legit before he took the job. You could think of the areas that could come under scrutiny thats what i mean f youre trying to game this out and play the parlor room based on what we have seen in the past, you would say no problem thats not turned out to be the case this is not an administration that necessarily follows the old game plan. This is new territory, right clearly they pursue unconventional strategies. So long as consumers are not really making a push to make a change, there probably wont be the political will to follow through with a five, six, sevenyear process i love my google. Real quick. Snap right we talked about we mentioned their earnings whats the chance they succeed amidst this cloud over everybody else everyone is paying attention over here, maybe theres an opportunity over there i think snapchat and the results we saw last night is indicative of the fact that despite all the competition from instagram, people left snapchat for dead because of that, it has found a way to calf out a new attractive growth profile. That a niche profile or something that can grow in a meaningful, significant way . So were talking about it again in the same context as an instagram. Our view would be that its largely a niche offering it will attract a cohort of 14 to 25yearolds, and have very strong residence with them as consumers age out of that cohort, maybe you see less and less engagement. Where do they age out to . Facebook or something new . I think instagram is probably the de facto answer, particularly in developed markets, United States, western europe outside of that, emerging markets, facebook has an enormous amount of residence and i was going to say the other piece, theyre aging into tick tock. Tick tock tick tock. Kevin, thank you thank you when we return, boeing, the dows biggest impact stock set to report in under an hour erhi y nt you ready with evytngoueed to know. Squawk box will be right back. Boeing getting ready to release Quarterly Results 40 minutes from now phil lebeau has a preview. Becky, the numbers from boeing at least on the commercial side of the business theyre not pretty, but the focus is where is the max and where is it headed what do the executives at boeing think . You look at the outcome that will be the focus for almost all of the analysts today. Remember last week, they took a 4. 9 billion charge. They already preannounced this so to a certain extent we know some of the impact on the max. But ramping production and deliveries how does that progress as they look at the Third Quarter and especially at whether or not they can get the max recertified and then back in service as they assume by the Fourth Quarter part of this has to do with how do you take all of these planes, remember, theyre still building the 737 max. They have more than 160 that are parked mainly in the pacific northwest. How do you take those and ramp up the deliveries not only in the Fourth Quarter but as you stretch into first and the Second Quarter of next year, so as you look at shares of boeing remember its the Conference Call the Conference Call is always that will be the primary focus people want to hear from dennis moan berg and to get some sense if they truly believe they can get this thing recertified and flying again by the Fourth Quarter. All right phil, thank you very much. See you in a little bit. Joining us right now to talk more about what to expect from boeing and how the earnings season is shaping up so far, well, maybe the confetti is telling you the picture on this. Got one single confetti i planned for more. We do that here got caught up here. The chief Investment Adviser of Bleakley Group is here. And mike santoli peter, earnings have been better than people had anticipated. About 70, 75 beat which is the normal rate and the revenue season is not that good. 40 are beating revenue estimates and i think whats noteworthy for the Second Quarter in a row, we are seeing compression. Margins are receding but then on the eps basis as opposed to the net income basis stock buy backs are adding two Percentage Points to the earnings growth. Mike, how would you characterize the earnings so far . I think thats about right. Theyre beating at the Historical Rate but i think whats clear, companies were way too skeptical three months ago. Lower the bar. I think the street is about to get a lift in terms of that things are not as bad globally. You heard it from cocacola the storm never arrived. Were they worried about the things is it the trade talks we just thought the economy was going to be way worse than it was. The Global Economy slowed down more. I think the consumer is doing better than the industrial manufacturing side we are seeing more difficulty with those companies that are susceptible to manufacturing like some of the distributors that we saw a few weeks ago where the consumer dependent companies are doing better because the Services Side and wage side is doing better than the industrial side. The early part of the year you really did have kind of the synchronized global slowdown i think companies didnt know what he to anticipate out of that of course you had the trade stuff and the shutdown and i think that filtered into the kind of more conservative outlook. That they presented out there. I mean, look, its still you know, we are looking at the Second Quarter of essentially flat earnings. Going into the Third Quarter of flat earnings most likely. The market says fine, we can live with that if its a pause and not the beginning of a decline. Peter, you probably think that things are not doing as well, based on your just pointing out the margins compressions and youre still thinking that stocks are overvalued at these levels i think it will be tougher to drive incremental growth margins had been at historic drives its main driver over the past ten years much less so on the sales side so if this margin story is a now now a trend, because labor costs are going up material costs are going up. Then its something that its something notable because nominal gdp growth on a global scale is slowing the world bank has global gdp, only 2. 5 . So if you dont get the help from the sales side, youre going to have to drive it from the margin side. If youre not getting it there its tougher to drive incremental earnings growth. And the market has figured it out. This whole class of companies that we dont think earnings are going to pick up for and so well concentrate and rebuild the entire markets valuation on the back of those companies we consider to be steady growth, reliable. They had the long term growth stories so therefore thats why thats why visa, you know, has done whats it done, for example. It looks like the stock will hold up at alltime highs for that reason. Today we still have caterpillar, boeing, u. P. S. Still out too. What to watch . You know, caterpillar, you know, this year revenues for caterpillar are going to be below what they were five or six years ago. So they have been fighting this battle for a long time they have restructured constantly its a ton of charges a ton of messy stuff but they have tried to preserve the margins and the cash flows are up over that period its obviously about what theyre seeing in terms of demand even the capex from the companies its not in stuff or in buildings its in software, things like that. Mike, great to see you and peter thank you for coming in. Good to see you. All right, coming up well dig into at t and the earnings after the company matched estimates and beat the street on revenue. Coming up in an hour, treasury secretary mnuchin breaks down the new budget deal and the latest on u. S. china trade deal. Bck xn atching squawbo o cn lets talk. We have a pretty good relationship. Youve done a lot of good for the world. 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 . 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At t, caterpillar and boeing, three big names, three big Earnings Reports that will move markets reaction straight ahead. Markets are at a alltime high well talk about the Quarterly Results. Regulatory pressure on the sector and the hot ipo rush. Plus, a deal on the debt ceiling announced but does it really matter to the markets a look at whether or not the patch will help or hurt stocks as the second hour of squawk box begins right now. Live from the beating heart of business, new york, this is squawk box. Good morning. Welcome to squawk box right here on cnbc im Andrew Ross Sorkin with becky quick and joe kernen this morning. Well show you red arrows with the dow off about 50 points and the nasdaq looking lower as well, off about 20 points and s p is off about 6 points. At t reported adjusted quarterly profit of 89 cents a share. That matched the streets expectations also estimates beating wall street forecasts. Craig moffett is the founder and Senior Analyst at moffett nathanson. Craig, thanks for being here today. My pleasure. They came in line with the earnings per share and with the revenue number but some of the comments that Randall Stephenson made are more important. Theyre on track right now, in terms of paying down debt. Thats right. In fact they raised the Free Cash Flow guidance so all in all, the results are pretty good. Right . Thats not to say there are no areas for concern. This is a big and complicated company. The number of satellite subscriber losses is sort of terrifying how quickly that business is unwinding. Is it faster than expected . Yeah. 778,000 oh, versus like 6 something. 665 which was already horrific so youre looking at that business, the premium video subscribers including u verse shrinking 8. 8 a year is terrifying. Because they rolled off some of the incentives . Well, in effect in that segment i dont want to focus too much on that segment because its not the whole segment but theyre raising prices in order to stabilize ebitda. But what happens when you raise prices in a declining business, it declines even faster so the challenge is next year how do you reconcile a business thats losing subscribers at close to 10 a year. Thats a tough thing to do. Your grand takeaway though is focused on what . What do you think is the most important thing . So look, i think most eyes today are on the merger between sprint and tmobile and what that means for the industry structure for at ts wireless numbers. The wireless numbers are good. Theyre back to positive Revenue Growth the subscriber number was better than expected. And by the way, while people dont Pay Attention to the commercial wire line business at at t, thats a huge business its about the same size as the entire company of time warner just to put it in perspective and nobody talks about it very much and they actually did pretty well its ebitda grew. It has been falling rapidly but it grew by 1 and the revenue decline was only about 1 . All in all theres probably more good than bad. You say its overshadowed by the tmobile sprint deal and the path was cleared because dish agreed to pay 5 million for thats right. We wrote theres three scenarios. One scene breaux where scenario they agree to the Network Hosting deal and then its worse after the deal, bad news for everybody scenario two play that out help me understand that. Had they agreed to a deal and it looks like they have not, a deal that created a Network Hosting agreement for dish so putting dishs spectrum on sprint tmobiles network and putting dish into the business that would have been a negative for the whole industry because dish would have such an incentive to discount. The third scenario to skip to the other end was that they walk away and they couldnt get to an agreement because Deutsche Telecom would refuse the deal. The middle scenario, number two as we called it was the fig leaf scenario scenario a virtual agreement where they can sell capacity on sprint tmobiles network. What we hypothesized friday and what i suspect is still true and it sounds like thats what we agreed to last what was agreed to last night is that thats not going to be enough to satisfy the staff at the doj even if it satisfies makan delrahim. Which means what . The states proceed with the lawsuit and youre still in this kind of awkward nether world of i dont know if the deal is actually going to be approved or not. But that that scenario i think you can make a pretty good argument that scenario doesnt really make dish all that credible a competitor. If it survives its great news for the industry because you do get Something Like the kind of market repair that everybody talked about but i dont think you can bet on that surviving the legal challenge. Sprint is up more than 4 this morning tmobile up 1. 75 . Do you think thats the right move for the markets is that what you would be . Well, its interesting, sprint is not fully discounting the Exchange Ratio because the market is i think rightly saying its not entirely clear if thats the deal that thats going to survive legal challenge. So a lot will depend on what the staff you think the traders are getting ahead of themselves . Not necessarily i think theyre saying this is a step in the direction of the deal is more likely. But do you think the states will hold this up for, you know, 12 more months thats a problem unto itself. Sure. A big one. I think this is unlikely this is to a deal that the states say this is good enough well back off. Can i bring us back to at t because we were having the conversation about the issue about how much debt at t has and to the extent there are people skeptical longer term about at t and the transaction still they look at time warner, hbo max, i know they commented in the release today that hbo max is going to launch in the spring of 2020 they havent announced what kind of price i think this was an expectation there could be a 4 or 5 price given where disney is 6. 99. It has to be 17 plus. What does that do to your calculation . Do you say it was then a worthy transaction . Does it change the math of this . Disneys 6. 99 pricing is a big problem for at t because at ts hbo business cant be cheaper on as a direct to Consumer Service than on comcast and charter and everywhere else. You have to be at 17 plus i suspect when they when they bought time warner and they contemplated the direct to consumer play their assumption was that is where if market would be when disney came out at 6. 99 a throws a hand grenade into their hands. How do you price at 17 plus . And netflix is basically at the price of hbo current. Thats right. So the challenge and you can see the challenge theyre facing, right . Hbo right now reaches about 30 of u. S. Households in the best Case Scenario including hbo max theyll get to eventually 30 of households paying the same thing as they are today so thats the same business as it is today but in the process youll have burned turner and the tv studio to the ground because the licensing revenues that you used to get externally are now just become pumped into hbo max and turner channels will be distributed in a way similar to that. So its going to be tough to make one plus one plus one equal more than one. Is disney at 6. 99 risking cannibalizing its own Revenue Streams . Sure. And i guess are they just willing to take the hit because they want this to get big . Theyre making its funny how the three players that have announced strategies, comcast with what they have said about their nbc strategy, at t with what they said about the hbo max strategy and disney have taken very all different routes. Right. Do those collide at some point its hard to imagine that all three of them are right. At ts is to some extent think of comcast as the most conservative strategy. Disney as the most aggressive and at t somewhere in the middle and comcast is talking about what we can do this with our advertising support, without a subscription,but theyre mostly thinking about lets preserve the status quo at t is doing something in the middle they have started to pull back some content and move it to the direct to Consumer Service that means foregoing some licensing revenues they otherwise would have gotten from players like netflix but it is not an abrupt change. Disney is pulling like the amazon walmart strategy of we want to make up for this en masse. But importantly, disney i think is thinking about it in a nuanced way which is the strategy for the sports business, for espn, is completely different than the strategy its separate. For the entertainment business. Right i think they understand that sports is going to be distributed via the traditional model. Disney already got the bounce in the stock if thats the wrong strategy, its going to come back down. Youre right. One of the things thats really interesting is disney did get a bounce. Huge. Its hard billions of market cap, craig. Absolutely 6. 99 and no profit margin. Its hard to imagine comcast or at t getting a similar bounce for a similar strategy and so one of the challenges is, you know, everybody compares themselves to netflix and says can we do what netflix did well, netflix is able to keep investing what strategy works if theyre an a collision course . Well, some of what well see even this quarter is probably a swing back to in some ways the status quo the rate of decline for linear video is still accelerating but the virtual mvpds are dying. So the idea that everybody was going to go to these virtual packages my guess is this is going to be a really rough quarter for virtual packages and that has to be very scary for the media companies, right because it means youre losing the traditional distribution, but not getting it back in virtual distribution so youre just plain losing distribution thats a scary model, because it means all you can do is start raising prices faster and faster and faster to make up for the subscriber declines. What is that going to do it will create an even faster spiral downward. But if youre a Sports Network you have a contract with the nfl or with major league baseball, you have no choice because your input costs keep rising. You have no choice but to raise prices faster and faster. This will be interesting to watch. Craig, thanks for coming in this morning. Good to see you. My pleasure. We have some news for you from dunkin and beyond meat together. Hi, dunkin made a big announcement it is getting into the plant based meat game. They launched a beyond sausage breakfast sandwich at about 160 locations in manhattan beginning today. The sandwich will be available through years end and there are plans for a nationwide rollout to follow. Now, dunkin is the first u. S. Chain to offer beyond Breakfast Sausage featuring spices and tim horton has a partner with beyond for sausages and burgers in canada dunkin ceo hoffman is one year into his tenure and menu innovation has been one of the chief things hes focusing on for growth they slimmed the menu in recent years to make room for new items like this one of course. Beyond meat has partnerships for burgers with karls jr. And bear burger and more and its up 700 we will have the ceos, David Hoffman of dunkin and ethan brown in a joint first on cnbc on the exchange. Dont miss that. And manhattan is a notable test market for a product like this over to you. After blue apron announced theyre in business with beyond meat of course that stock jumped remarkably i think it was almost up like a third for at least a moment there. I dont know if you want to make a bet right now, but whos going to get the bigger pop today . Beyond meat or dunkin well, when the news first crossed, beyond was up a bit more dunkin is unchanged right now we have to see how investors digest the news when we hear the executives. Digest i havent planning that coming up, nasdaq ceo Adena Friedman is our guest. Big tech is under fire much more. And then boeing ready to report. The stock hit a high of 440 back in march but a string of bad news about the max 737 has dampened the investor appetite well talk about the companys future youre watching squawk box on cnbc moving is hard. No kidding. 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 box. The futures right now are indicated down about 45 points the nasdaq has pared the losses down to 22 this morning. S p indicated down 6. Which is kind of unbelievable given the department of justice now did you hear our analyst the analyst is like they wont do anything. Yeah, except i would have said the same thing about lots of other cases they have gone the other way on. I wish i could say all right, doj make it look good but dont mess with the greatest companies that have ever been created. By the way, theres a theory thats whats happening. Part of a theory. I know. Harassing thats yeah. Make them look political harassment. The republican administration. I dont know. Im all for it. I have read if they mess with my google maps i way not be here. Waze. I dont like waze as much have you ever actually reported something . You dont have to do anything. I know. But i have ended up between two trees on a back road that didnt exist. U. P. S. Is reporting quarterly profit of 1. 96 and revenue exceeded analysts forecasts u. P. S. Chief executive office david abney will join squawk on the street to discuss the quarter so dont miss it. To dom chu who is looking this morning at some of the big Market Movers and we have had a number of them, dom. I mean, big ones and Massive Companies that really matter some of the biggest preMarket Movers are on the Earnings Report and well kick it off with chipotle mexican grill, up 3 very thin premarket trading. The restaurant chain posted better than expected profits and sales and chipotle also said it would look at rolling out new steak products soon and could have quesadillas that taste better as well next up, snap, Parent Company of snapchat up around 300,000 shares premarket. That social media platform posted a smaller than expected loss better than expected revenues though the number of daily active users grew to 203 million and Profit Margins were better. Shares were up 169 after a bad last year. Then shares of Texas Instruments. They are up nearly 6 on almost 100,000 shares of premarket volume they beat on profits and sales the results did ease some fears about the chip industry slowing down some and said the ongoing u. S. china trade dispute is not affecting its ability to do business in china. And well end on shares of irobot look at that, down 17 10,000 shares of volume. They posted better than expected profits and the sales fell shy unlike Texas Instruments they did say that the u. S. china trade dispute will hamper growth in the second half of the year and the shares are down huge 17 , guys, in reaction back over to you, becky. All right maker of the roomba. Dom thank you. When we return, nasdaq ceo Adena Friedman on Quarterly Results and the record run well ask about the big review of Big Technology and much more. That interview is next then boeing is set to report well get you the numbers and the Market Reaction as soon as quk xilbeig bs the wires. Sawbo wl rhtack. Welcome back to squawk box. Nasdaq reporting the Second Quarter results. Quarterly profit of 1. 22 per share beats the consensus by 2 cents. Joining us right now, youre were in your home so Adena Friedman is here. Ceo of the nasdaq, of course we are at the Nasdaq Market site right now. Nice to see you. Nice to see you too. I want to talk earnings an big tech and i want to talk ipos i think theres a lot of concern especially this morning given what we heard from the department of justice yesterday. In terms in terms of the earnings piece of this, what is your expectation for the rest of the i mean, we know what happened i want to know what your expectations for the rest of the year. Well, when we break down the results we are pleased to have still 8 growth in our nontrading businesses. And when we look at the overall performance of our business, its really coming from demand for our technology, demand for our index products and our data and analytics products as well as a very strong ipo market. So were really, really pleased with how our business continues to perform and i would say that those demand characteristics we see continuing as we go we always overthink the ipo piece . Well, in terms of the ipos, i mean, the Corporate Services business generally is driven by a lot of Different Things but certainly ipos do help in terms of creating growth in our overall number of issuers which create recurring revenue for us. Are you a believer in the news from the department of justice . Some of these are on your exchange, the companies, a. B, Smaller Companies that are trying to compete with these guys who are on your exchange or want to be on your exchange. What do you think is going to happen here . Well, i think the first thing to note there are hundreds if not over a thousand Technology Companies listed in the United States today and when we look at the overall performance of Tech Companies so far this year, its over 20 and when we look at new companies coming out on to the market Technology Companies that are coming which are not those Big Tech Companies but companies are into the enterprise space or even in the consumer space, their performance so far is about over 40 but generally speaking, the Technology Companies have a higher multiple overall than the rest of the s p. So we really have to look at the overall industry and realize that the opportunity set for Technology Companies in the United States and in the world continues to be extremely strong. Thats an argument against. What some politicians are saying at this point. I think its a healthy, Competitive Landscape in general and technology can be applied in many different parts of the economy. Enterprise and consumer. Heres the part im trying to understand its either a healthy, competitive market or its not i would bet money that theres a lot of Technology Companies actually on your own exchange, smaller ones, smaller than the biggies who are going to be the ones calling the department of justice in the next 48 hours, no well, all i can say is i think that we have got a very, very vibrant Technology Industry here in the United States. The question is, and the large Technology Companies have done Amazing Things to bring accessibility to people around the world, to make it so were more connected around the world and to make commerce more available around the world so there are a lot of positive effects that those companies have had asthey have grown now, now that they have gotten as big as they have gotten they have a responsibility to society as well. And i think thats something that theyre working through as to what is the responsibility that they have to manage their technology in the face of continued growth at the same time theyre working with the government on that. But i also believe that thats the purpose of the industry itself is huge its applying technology is being applied to every industry around the world now and therefore the opportunity set in tech continues to be incredibly large. And regardless of kind of what part of the Tech Industry youre in you talked about youre pushing things in terms of selling your Information Technology services. The Sports Betting is one of the places you picked up on that can you tell us about that sure. So our technology is really applicable across other industries as well so when you look at realtime price discovery in matching technologies as well as some very complex types of betting technologies those things are applicable whether youre in the capital markets, in insurance. Youre in industrials or youre in betting and sports so we have applied our technology now to a new Sports Betting company who wants to try to create almost like a fantasy soccer type of marketplace. Our technology is applicable to help them create a matching engine for that. Real quick on the ipo front what do you make of the argument that the companies stayed private too long and theres too much private money out there so i think its hard to say theres too much private money out there but theres a lot of private money out there and companies now have very, very vibrant choice of staying private for a very long time part of that reason the reason for that is that the Public Markets put an enormous amount of obligation on companies when they want to come in and access public investors so we have been advocate fog or two years on trying to make sure we make some changes to make the Public Markets more attractive. Thank you so much squawk box will be right back in a moment excuse me, where is gate 87 . You should be mad at nonseasoned travelers. And they took my toothpaste away. And you should be mad at people who take unnecessary risks. How dare you, hes my emotional support snake. But youre not mad, because you have e trade, whose tech helps you understand the risk and reward potential on an options trade its a paste. Its not liquid or a gel. And even explore whatif scenarios. Wheres gate 87 . Dont get mad. Get e trade and start trading today. 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. The mucma fest of summer. Country musics biggest stars perform their hottest hits. And the first time ever. Lil nas x, Billy Ray Cyrus and keith urban perform the hit old town road. Cma fest sunday august 4th, on abc. And after the show check out a special encore performance of brett youngs song, catch. Available only on xfinity. Just say brett young into your x1 voice remote. Dow component boeing will be reporting momentarily. In the meantime, lets look at the futures which show the dow down 54 points and with boeing up in the mid to high 300, it could change phil lebeau has the numbers. Joe, we knew these were ugly numbers not only in terms of what happened with the 737 max but also in terms of analysts are all over the map in terms of expectations for the Second Quarter. Boeing reporting a loss of 5. 82 a share. Thats well below what analysts had as a consensus of earning 1. 87. But remember some have factored in the full impact of the max. Some who have not. In terms of revenue 15. 75 billion that is well below the consensus of 18. 55 billion. Free cash flow negative 1 billion the consensus was for negative 2 billion so that came in a little better than expected. The three divisions, commercial losing 4. 95 billion no surprise since they had no deliveries of the max and thats really the bread and butter where you bring in the revenue defense earned 975 million and services 687 million with both of those divisions posting Profit Margins of greater than 14 . Remember, boeing reported a announced last week it would report a 4. 9 billion charge due to the max so it ends the Second Quarter with 9. 6 billion in cash on hand but 19. 2 billion in debt. Thats an increase compared to the end of the First Quarter remember they took out debt in april so thats why you see the increase here. One Important Note here in terms of the commercial airplane program. The 777 x originally scheduled for the first flight this year, theyre having engine issues and now theyre saying the first flight will not happen until next year. And theyre still targeting delivery in 2020 though it will be late 2020. Guys, thats the story on boeing back to you. Okay. Phil, thank you. Lets also break out caterpillar results. Take a look at this double whammy for the dow here thats why were down triple digits caterpillar looks like they came in at 3. 12 a share but revenue came in in line with expectations 14. 4 billion was right in line with what the street had been anticipating they are talking about their 2019 full year outlook they say at this point their outlook range ismaintained at 12. 06 to 13. 06 a share the Company Currently expects to be at the lower end of this outlook range. The street was at 12. 24 which is at the lower end of that range. That does also include the First Quarter of 31 cents a share in discrete tax benefit mike, what do you think . I think the guidance is saying that lower end of the range is a little bit in contrast to a lot of companies saying the rest of the year looks okay so theres more higher stakes in the back end of the year for a caterpillar to make that number at this point revenues, yeah, mostly right in line you know, it doesnt seem like theyre pointing to any one factor they do say that expecting a recovery in oil and gas at the end of the year and it seems like theyre shoving towards the end of the year what it will take to make that guidance number. For the sales growth they expect modest sales growth for 2019 they do say they expect their profit per share in 2019 to be another record the chairman and the ceo saying they have the right strategy in place to deliver these long term things but again you can see what the street is doing right now with shares of caterpillar down about 3 . A decline of over 4 based on the quick knee jerk reaction to some of the numbers. You know, there was a stock thats remained cheap looking. Right . So the market has not kind of bought into the idea that it will be over a new growth path Something Like ten times earnings at this point you know it doesnt seem as if a little more, like 11 times at this point still skepticism and the idea they have been fighting through this flattish slow growth revenue story and then trying to maintain margin. Theyre still tied to the Global Economy, with mining, construction, farming, all of those issues farming we have seen an impact from the tariffs. Yes. And maybe keeping some farmers from wanting to go ahead and buy some new equipment they say the strength came from construction at least from the quarter that just ended. Exactly mining is probably hit or miss too. Thats a global piece of the business so i think a lot of the commentary is going to matter a lot. From the Earnings Calls, right. Boeing is valiantly trying to make a stand here. Lets get to an analyst. Now all the way back to down about 3 it got all the way down to the mid 360s its now got a bid right around 370. So its down only 3 now down about 7 earlier. Who knows in the Conference Call well make if it will make a difference but carter copeland, the knee jerk was down about 7. The dow was well below trip well above triple digits and now down 85. Some of the numbers that the analysts had did not include the impact of the 737 max. The issue they issued 2019 guidance doesnt reflect that so how does bad is that look, joe, phil was right on the lack of usability of the Analyst Consensus at this point. Youll recall boeing took a large preannounced charge on the 737 max last week so some of the numbers have changed others have not. And if we look at what that number would have been for the quarter before the charge and then in the low 2 range some changes have pulled that number lower but boeing is covered by a lot of the analysts and most did not change. If youre starting from the low 2s you took the 8 and plus dollar charge off of that, you should have expected a minus 6. 5, 7 number in the quarter. So thats actually better. But the number that everybody is clearly going to focus on is cash flow. Cash flow expectations are probably in the around the 2 billion outflow, free cash was a 1 billion outflow so that will be i think somewhat comforting and people like to focus on the boeing commercial airplane segment margins i think without the 737 max in there, folks expected that to be in the low to mid Single Digits and it was in the high Single Digits so there are good things to find in this set of results the 787 continues to click along from a profitability standpoint. They had a larger deduction in deferred cost there so i think the more you sift through the numbers and the more you consider that the consensus that were judging against was unadjusted from last weeks charge, this is actually a lot less scary than it could have been. Yeah. Last week when all of those numbers were issued by boeing the stock really surged that day. We have were not giving back those gains all of them, at least, at this point and in fact, its 371 bid now. Almost unchanged 371, 371 yeah its down 57 cents, carter so thats a far cry from being down 7 or 8 i guess the company also is saying its going to give some new guidance at a future date. Well get new guidance on the company at some point in the future what else, carter . I mean, this i think we said about what we need to say. It will be unchanged in a second it looks like. I think it will trade up, i think. Joe, i think a lot of whats important here is clarity around the time line. So what people found so comforting in last weeks release was yes, there were numbers on charges and in many respects they were larger than folks expected but there was also information in there about boeing sort of expected time line on the return to service for the max we hadnt really gotten that yet. They pulled the guidance saying we wont reissue that until we have a certainty around when the plane returns to the sky we still dont have that but you know they were i think forthcoming with their assumptions around that last week and i think the clarity around the time line is just as important if not more important than the numbers we dont get anything additional to that in the release, but you can bet that, you know on the call thats the focus. Yeah, on the release we have were working very closely with the faa to certify the new software and return the plane to service. But doesnt really you think about the position that bowing is in and trying to convey this message, they have to give guidance to investors. They have to have a message to the faa. To the airline customers, all the rest of it so they cant be i guess that aggressive in saying, you know, we think near term well have this wrapped up if they arent getting what signal from the regulators i think the way that the stock has traded its giving the Company Credit for having this year be a little bit of a wash and then it resumes the margin of free cash growth. Thats the question. I think the other thing is you wont get any guidance on the regulators because what the faa says is not what every other regulator will do as in the past. Yeah. Cat is searching for a bottom. It was down like 4 5. Now its down less than 5 at this point, 133. 50 after a 138 close. Not much of a bounce in cat yet. I still dont understand why earnings per share missed by so much. With revenue revenue was 35 million less. But if you round it but 14. 4 billion but the earnings per share its a pretty big delta swing on the eps. Some language about how they hope that pricing can be make up for higher costs on some products i dont know if the mix of sales was toward reach out to the company. Ill see if i get an answer back on that. Still to come on squawk, President Trump and congress agree to a deal on the budget and the debt ceiling and do deficits matter to politicians and the markets anymore . Well debate that when we return. Plus, the department of justice announced a big antitrust review of big tech then at the top of the hour, dont miss our interview with treasury secretary Steven Mnuchin. Hell be our special guest and well ask him ouabt huawei, the budget deal, crypto and so much more squawk box returns after this. When we come back, congress agreeing on a debt ceiling fix for now. Well debate whether deficits even matter after the break. Lets get to the futures at this hour. Weaker than anticipated earnings from caterpillar putting some pressure on the dow right now. We heard from boeing and at t dow components right now dow futures down by about 96 points after closing within ten points of a high yesterday s p fures tuoff by 7 1 2 and the nasdaq down by 18. Squawk box will be reich that. We create Financing Options for your customers. To help them get the things they love instantly. Our data provides insights into what your shoppers have already bought. So you can offer them what they might consider buying next. Our financial and Tech Solutions are changing whats possible in all sorts of ways. So, how can we change whats possible for you . Car vending machines and buying a car 100 online. Vented now weve created a brand new way for you to sell your car. Whether its a year old or a few years old, we want to buy your car. So go to carvana and enter your license plate, answer a few questions, and our technowizardry calculates your cars value and gives you a real offer in seconds. 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Two dow components reporting results and caterpillar shares trading lower, calling it an earnings miss. That stock is down 3 . Boeing is coming in lower, a loss of 5. 82 per share. The stock is now just off a bit. Really actually staged a minicome back from where it was for that brief second. President trump and congress agreeing to a deal on the budget and the debt ceiling this sparks the question, do deficits matter to politicians and the markets . Steve liesman has more age old question, do deficits matter becky, youre young, but not too young to remember the old thinking, remember deficits mattered. The debate centered on when they mattered expansions or contractions, how much they mattered at each time. The new thinking which appears to have gripped both sides of the political aisle, forget the politicians they change their view on who controls the government, lets look first at the relationship of deficits to growth in general, deficits decline in times of strong growth and rise in recessions. This is in part a desired effect, like automatic stabilizers like unemployment insurance. They maybe restore demand and growth somewhat unusual right now if can look at the end of the graph, deficits continue to rise because were spending a lot and we have the tax cuts a paper by the former imf chief he said as long as the countrys interest costs are below the nominal growth, even should borrow more. You grow at 4 those are nominal rates. So your interest cost is 2 . You can do that all day long. Right. So add to that, the revival of modern monetary theory, mmt promoted by some on the left which says governments should and bore reand spend as long as recession is low or below targets and many republicans have acted this way even if they havent endorsed the way is all the old thinking wrong . Heres a couple reasons that deficits may matter. First, higher rates raise the annual costs and can raise interest costs and u. S. Has trillions of unfunded liabilities that are coming down the pike not too long away. It also limits the governments ability to fight during recessions if the fiscal the ability to borrow is limited heres the most important one. Any day they could matter i think the only rule about when deficits matter is when the bond market says they matter. So a question for the future will be whether large deficits limit the feds ability to act in the place of the inflation. It will be politically and economically painful. There was a classical thought that when you get real high percentages of debt to gdp that the gdp becomes affected just not even necessarily whether its higher rates. But just by definition slows growth when deficits are high. Do you need high rates to dampen growth i mean, if rates stay low, can we have a quadrillion dollars worth of debt . Can i just address the end of that question first, which is people get freaked out when that say 22 trillion of debt part of the reason why its in the trillions is because the economy is in trillions. Does the debt clock not matter anymore i dont see anyone looking at it anymore i dont hear the politicians talking about it. Because of the rates. We should have been at like 8 by now if the vigilantes where are they there was a brief spur of the vigilantes, joe. Like 95, 96. The dollar is supposed to be like so deflated inflated at this point right . You were talking about beggaring the neighbor before. As opposed to exactly which i think we got thrown off the air. Really . You said beggaring. If i said the other one ill be thrown off the air . In the uk you might not a good word. Joining us is johnny and Dave Mcintosh john, can you explain . You seem to think it doesnt matter why doesnt it matter . Why dont deficits matter . We have a great economy. We have the ability to service the debt but it just i dont know its hard not to feel bad about it for some reason. Well, deficits dont matter because theyre a distraction from the much bigger problem which is the total level of Government Spending. It cant be forgotten when Congress Takes in dollars they dont stare lovingly at them every dollar that Congress Gets to spend another dollar that nancy pelosi, Kevin Mccarthy and Mitch Mcconnell and Chuck Schumer have over the economy. Whats the better scenario an annual deficit of 1 trillion or a balanced budget of 4 trillion . Obviously you take the deficit scenario every time because its the total doesnt matter how Congress Gets the money. What matters is that theyre spending the money in ways imincabell to progress. I thought if i was nodding steve would have indigestion dave, you dont feel that way, do you no. First of all, lets agree it doesnt matter to either republicans or democrats up on capitol hill they both have conspired together to produce these high deficits and the increase the debt the bigger problem is the size of government and should we be spending all of this money when theres tremendous waste buried into it, and steve made a very good point that the one i was going to make which is this may be less of a problem now when were in very good Economic Times but it is sort of loading the shotgun aimed back at our economy if in the future Interest Rates have to go back up and then this tremendous debt service will dramatically limit the ability or force us to borrow even more at a costly rate in the future its human nature when things are good, people spend more. The government republicans and democrats are very much susceptible to that. What theyre not doing is being wise to prepare for the future. John what about i worry about all the problems not just the 22 trillion but the total unfunded liabilities thats not a problem either . If the Social Security and medicare and Everything Else well, its crucial to point out ill first acknowledge dave is right. Look, politicians exist to spend money. Thats why theyre there and thats always going to be. But i think dave would agree that markets are rather wise and markets have priced well into the future if you look back to 1980 the federal budget deficit was 900 billion and the yield on the ten year treasury was 11 . Fast forward to the president s 22 trillion and as joe alludes with unfunded liabilities its quite a bit larger the yield is 2 not much higher on the 30 year so this is not me saying that Government Spending doesnt matter i think its a huge barrier to progress but lets not pretend that markets arent very wise and what theyre saying is that revenues will not be a problem in fact, what theyre paradoxically saying is that revenues will be too high in the future and the investors are lining up to buy debt because theyre trusting the income streams into the future. You dont think that way, liesman, did you ever think that way . That deficits dont matter . No. Theres plenty we hear every day we have to raise revenue revenue needs to be raised higher and taxes need to be raised, marginal rates got to be raised capital gains, got to do something to raise revenue the government needs more. I thought very quickly to go back to what was said earlier it matters what we spend on not all Government Spending is equal. Theres wasteful Government Spending and theres some that helps to pay back in the future and that matters a lot from what was being said. All right dave, john, thank you. Thanks. Coming up an interview you dont want to miss treasury secretary Steven Mnuchin will join us live right after this break well discuss the latest on so much the trade front, his recent comments about regulating crypto and so much more well be back with the secretary of the treasury in just a moment take a quick look at the futures as whethe ad to at break we have red arrows across the board. Back in a moment this hour on squawk box, u. S. Treasury secretary Steven Mnuchin live well ask him about u. S. china trade talks, the threat from huawei and this weeks debt ceiling deal. Big tech under fire. The department of justice targeting some of the nations Biggest Companies in a sweeping new investigation. What does it mean for your money . And two industrial bellwethers are out with Quarterly Results, well dig through boeing and caterpillar well get you ready for the trading day ahead as the final hour of squawk box continues right now. Live from the most powerful city in the world, new york. This is squawk box. Good morning. Welcome back to sequential squawk box. Im joe kernen with becky quick and Andrew Ross Sorkin the futures are down right now, after caterpillar and boeing down after reporting results that well see by the end of the session, but at first blush didnt look too awesome at least for the people who are long in the stocks ten year, just had a long conversation yep, if youre in a time capsule and came back and saw it at 205, youd be shocked but were used to it. Lets get to the treasury secretary. Sources telling cnbc that american trade negotiations are headed to china either late this week or next week. Although a final trade deal can be months away joining us right now is u. S. Treasury secretary Steven Mnuchin. Good morning to you. We want to get your take right now just we want to start off with what is going to happen in this next week and exactly what you think the time line looks like. Well, good morning. Its great to be here with you the time line on the budget or the time line on china i want to go to china first given that markets this morning, both in china and the u. S. Seem to be moving on this expectation that theres going to be a Team Including lighthizer and potentially yourself headed there. Right so ambassador lighthizer and i will depart on monday. We will spend tuesday and wednesday in shanghai. The reason why were going to shanghai is that the host country, china, has invited us there. Theres a significance to them of the shanghai communique and the symbolism. Obviously of that important agreement. So hopefully ill take that as good news that well be making progress next week but i would say theres a lot of issues so my expectation this will be a foal follow it one a meeting back in d. C. After this and hopefully well continue to progress. Mr. Secretary, can you explain sort of where the white house is with huawei at this point because that seems to be such a pivotal chess piece in these conversations. U. S. Companies that clearly want to do business with Huawei Huawei yesterday Just Announced that theyre laying off 600 people in the United States. I wanted to get your thoughts on that. Well, i think as you know the president hosted a group of tech ceos in the oval office. He also had secretary ross, myself and ambassador lighthizer and director kudlow. We had a very good discussion. Part of the discussion was obviously on huawei. Part of the discussion actually was on other Important Technology issues and immigration issues but huawei issue is being driven out of commerce and what commerce has said is theyll issue waivers for items that dont Impact National Security so where there are commodity products or issues that dont Impact National Security commerce will be proceeding with that i think it was a very productive twoway discussion for the president. Related to that, i think this has to do with National Security and also corporations being patriotic. You probably saw the comments late last week from peter thiel saying he thought that google, that alphabet was treasonous and that President Trump would look into those comments. There was theres some people in both chinese officials and chinese executives who at least have said to me how is that any different than what huawei is relative to the u. S. To the Chinese Government in terms of that relationship . Well, let me just say the president did look into that as well as i. The ceo of google is with us this week. We both had very direct discussions. They assured us that there is very, very limited work. The only work theyre doing is some minimal open source work. They continue to do work with us in certain areas of dod. I think google is an American Company that wants to help out the u. S. So thiels comments were misguided . I dont see any area again, the president and i looked at this and were not aware of google working with the Chinese Government in a way that raises concerns. Okay. Lets pivot real quick to the debt ceiling and the debt deal this is from Freedom Works about this deal that has been struck washington has all but abandoned economic sanity with this deal gop leadership has ceded the ground on fiscal responsibility for which years of for years was supposed to be the core tenet of the party what do you make of that critique first thing id say is that spending is an issue that has to be a bipartisan agreement. So this cant be an issue of just what the president wants to do what the republicans want to do or what the democrats want to do it wasnt just because of the debt ceiling we got a 2 1 2 year extension to the debt ceiling including the special powers but any spending required bipartisan agreement. So first issue is that the president was very determined to fund the military. And make sure that we funded veterans so we held expenses to a modest 2 increase a year. Which is in line with inflation. So i think we were very careful on the spending issues we think well grow revenues in excess of 4 over this period of time a year. And, you know, this had to be a bipartisan agreement so people who said we should have increased military and decreased nonmilitary, you know, one, we had to take care of our vets and two, we needed bipartisan support thats a cost of losing the house. Mr. Secretary, can we go back to what you were talking about with google and both you and the president looking into the claims we had ash carter on the show last week. The former defense secretary and he had said when we asked about the same questions about whether google was cooperating with the Chinese Government in ways that could be considered treasonous, he demurred from that and focused on the idea hes been disappointed that some of the companies in the Silicon Valley, the idea they have not wanted to do work for Defense Department and he seems to be of the belief, if youre an American Company you have benefited from the government and what this country has done for you and you should be willing to do work for the government in turn do you share the thoughts . I do share those thoughts but i would balance that i want to be careful because a lot of companies cooperate with the Defense Department some of our most important critical Technology Companies. As i mentioned in my conversations with google and we researched this, there are areas theyre cooperating. Having said that, private businesses do have the right to make decisions theyre owned by shareholders, they have boards that control them but i do think its important and i would say almost all the Technology Leading Technology Companies in the u. S. Do cooperate with the government in very significant ways. Mr. Secretary, related to technology the department of justice said yesterday theyre going to look into some of the Big Tech Companies that were at the white house yesterday, in fact, and consider the antitrust issues that are involved whats your take right now do you believe that these Big Companies im thinking of the facebooks and the googles and the apples and the amazons of the world, do you believe that they are that theyre hurting competition . Well, let me just say that its good that the attorney general is going to look into this i think its an important issue. I look forward to him reporting back to the president and hearing his recommendations. I think as you know if you look at amazon, although, you know, there are certain benefits to it, they have destroyed the Retail Industry across the United States. So theres no question they have limited competition. Theres areas where they have really hurt Small Businesses so i dont think this is a one size fits all and i dont i dont have an opinion going in other than i think its absolutely right that the attorney general is looking into these issues and i look forward to listening to his recommendations to the president. Amazons competition any different than what walmart used to be a decade ago it is different in a way its the same and in a way its different people had the concerns about walmart. I think as you see walmart developed a business where Small Businesses could continue to keep compete with them. Look, walmart ceded a lot of the Retail Business to amazon and these are important issues i look forward to hearing from the attorney general. How do you weigh the size and scale issues of the big u. S. Companies and when we compete internationally . One of the things you hear from the Silicon Valley executives, look were trying to compete with china and youre negotiating with them on trade and if we become smaller or hemmed in and we have to limit ourselves, its actually going to become harder to compete. Well, i think thats a very important statement. Thats why i think theres not a one size that fits all approach. So people talk about the faang stocks like theyre all the same each company is very different apple competes head to head with huawei, with samsung, with other companies. So i think theres in question the size and scale of apple is very important they also have an ecosystem, so, you know, i dont think you can talk about competition amongst all of these companies in the same way. Mr. Treasury secretary, the president has overtly actually talked about a weaker dollar being in our best interests and in terms of on moves by powell and the fed and how he feels were not on a level Playing Field with the rest of the world in terms of the Central Banks and accommodation. In the past, we have never had a treasury secretary do anything other than say we have a strong dollar policy and we advocate a strong dollar policy so you could be the first one in history to say we have a weak dollar policy. Is that in your view something that would benefit the United States if we could weaken the dollar for exports well, let me just comment that although treasury secretaries have always said that they believe in the strong dollar, treasury secretaries have also been particularly careful about commenting on the dollar and, you know, i remember last year i know. Davos my limited comments got misinterpreted all over the place. So let me just clarify this. I think the dollar is the reserve currency of therd the world. Its in our interest we want to maintain it. A stable dollar is very important. And over the long term period of time, again, the long term, i do believe in a strong dollar which signifies a strong u. S. Economy. A strong stock market and particularly because of the president s economic policies. We have growth in the u. S. That has outpaced everywhere else we have a ton of money as a result of tax cuts, regulatory relief coming in to the u. S so just as the stock market has gone up as a result of these policies, theres also these markets are the largest traded markets in the world so you know what i would say is the dollar trades as much as anything in the world every day and theres buyers and sellers and right now theres a lot of people who want to invest in the u. S. And that creates a lot of demand for dollars so you dont advocate a weak dollar policy near term per se i am not going to advocate a weak dollar policy near term. Although the president seems to be in some respects. I think the president is very focused on a lot of issues he is focused on our trade issues he is focused on our Economic Issues i think you know where he is on the federal reserve. I dont need to make any comments on that. Right. But the president is very pleased with the Economic Performance and, you know, the next election is really going to be an election about two different views. You know, our view is about growth, growing revenues, faster than expenses. Having free markets. Making sure the u. S. Economy grows creating Job Opportunities and the other view is very different. So if you have concerns about, you know, our budget deal, you can imagine what a democratcontrolled white house would look like. In terms of tax and spend. Thats not so well we cut taxes definitely celebrating the deal that was in the second if there is a second term we have heard rumor that maybe spending cuts are going to be something that the administration would focus on. Are you still going to be here for the next definitely im going to be here with the president for the second term and the president is determined on a bipartisan basis, we look at expense controls so whether its Something Like reagan did, so again we want to look at how we spend in the military you know as i said, our job is cut taxes, grow revenues faster than expenses. Grow the economy thats what the president is doing. Secretary mnuchin i know its difficult, we keep asking you to explain the president s thought process with some of these things maybe you can, maybe you cant on this issue. But if hes convinced this is a great economy, why does he also want the fed to cut rates . Well, again, i want to be careful because these are the president s views because you know as treasury secretary im not going to comment on Interest Rates. Right. But the president believes that we have very low inflation. So i think when the fed i think he believes when the fed raised rates, they had much higher Inflation Expectations and because we have had very low inflation that we should cut rates so theyre more in line with the rest of the world again when you look at Interest Rates in the United States, you have to look at real Interest Rates. So, you know, the fed has models we have models, sometimes they turn out to be right sometimes they turn out to be wrong. Again, without me commenting on what the fed is going to do, obviously the market expects the fed to cut if they do that, i think youll see a continued improvement in the economy throughout the year. Mr. Secretary, two other quick questions. Boeing announced their earnings this morning there are still questions about when that 737 max plane is going to get into the air. How concerned are you about the International Reaction to boeing right now . Well, boeing is a great American Company and they obviously they have a big Defense Department business they have a big commercial business theres no question, this is very important to us we compete, boeing versus airbus every day. I think as you know the president has said hes concerned about the 737 max. Quite frankly he thinks they should bring back the 757 and look at selling 757s we want to absolutely make sure that before the 737 max flies that its safe but i think theres no question, boeing has the Financial Capacity to fix this but i think we need to make sure theyre fixed and we need to figure out how they continue to compete against airbus because they are a leading u. S. Company. Would the fiscal restraint in the second term include entitlements which the president never talks about, i dont think, in terms of the unfunded liabilities which some people think i dont know. I hear 80 trillion. 100 trillion. Something eventually its not a great subject to talk about in an election, i understand that medicare, things like that but would that ever be on the president s plate, or would you put it there do you worry about entitlement not being able to deliver on all these promises . I have not spoken to the president on this issue. Were really focused on the Economic Issues today. So this is just my own personal thoughts and in no way do i want to attribute them to the president. You keep saying that a lot. I think we need to make sure that we guarantee people who we had promises that we keep those promises so thats very important but we have a 4 trillion expense, discretionary is just part of it there are many things in the nondiscretionary part of the budgets that we can look at without in any way breaking promises to the people who rely on these our seniors, veterans and our areas. Again this will need to be looked at on a bipartisan basis. You know, hope think well take back the house but even with the house you need bipartisan support in the senate to get these things done with 60 votes. And mr. Secretary, we could not leave this interview without asking you at least a question about crypto the last time we had you on, i think joe tried to convince you about the merits of bitcoin. You talked about regulating or the need to regulate libra and the question i ultimately sort of land with is do you think that all cryptocurrencies will ultimately have to be regulated like i dont know, like a commodity or like a currency meaning that especially Digital Currencies like a bitcoin that dont have a central organizer will have to have the same kind of regulations and how that would happen all cryptocurrencies today in the United States are subject to regulation theyre subject to the Bank Secrecy Act and subject to our money landering and subject to the same issues that physical. So whether youre moneygram or Western Union or trading bitcoin youre subject to that i can tell you there was 100 agreement from the g7 finance ministers and Central Bank Governors those rules well enforce throughout the world so we will make sure that cryptocurrencies are not used for bad activities i think as i have said in the past i am concerned that bitcoin is used for a lot of illicit activities we have a working group to combat that and im concerned that consumers dont understand the speculative issue of these things as it relates to libra we have made very clear to facebook before they start this, this needs to be something that passes our regulations and again, there was 100 support at the g7 on these issues so we support we like Payment Systems that reduce costs. But we dont support unregulated bad actors using anything any type of currency or cryptocurrency. When you talk about the working group looking at bitcoin what are you looking at . Well, were looking at all of the crypto assets. I mean, we talk about bitcoin because its the largest but it has to be a level Playing Field. And this is a working group that includes all the regulators. The fed, the occ the Consumer Protection bureau the s. E. C. The cftc well look at it whether youre trading a derivative or trading cash whether youre looking at it in a Payment System well going to make sure we have a unified approach and my guess is that there are going to be more regulations that come out from all of these agencies to make sure that we keep the u. S. Financial system safe. You think well be talk about bitcoin in ten years from now . I wont be talking about bitcoin ten years from now. But you might be in six years as the treasury secretary. I would bet in five or six years im no longer talking about bitcoin as treasury secretary. Ill have other priorities. Youll be loaded up on bitcoin. And be a ga zillionnary. I wont be loaded up on bitcoin. Sounds like the secretary is not convinced about bitcoin. Mr. Secretary, we appreciate you taking the time to speak with us this morning. Thank you. Thank you. Andrew mnuchin is so far ahead of your earlier expectations of him would you concede that i would absolutely i would say this to mr. Secretary the most effective cabinet member hes done a remarkable job. And youre a tough sell. Im a tough sell. I will say i wont say i was skeptical i dont want to say i told you so. You told me so. I give the man credit. What i appreciate the most is the breadth of issues that hes involved in. And what we can talk to him about. Right and its like go ahead hit me with your best whatever you say, im going to deflect or im going answer well. Ill give him the most credit, why hes been able to sit in that seat as long as he has, he has the trust of the president and that matters a lot. Yeah. And he has the ability to say that was trump hes managed to thread a needle thats actually very hard to thread. Exactly. Yeah. And i think trump understands that the president understands that to some extent. Hes speaking for himself at certain times and realizes that the secretary you cannot talk about a weak dollar when we come back, well talk about the threat from huawei should u. S. Tech companies be allowed to selltern sell Certain Companies to the Telecom Giant or is the blanket ban the only way to keep data safe well debate the issue with tom cotton, who is an tsken oupo voice on huawei in congress. Stay tuned youre watching squawk box on cnbc welcome back to squawk box. We just heard moments ago from treasury secretary Steven Mnuchin on huawei and he said that everybody is American Companies can do business with the chinese Telecom Giant. The huawei issue is being driven out of commerce and what commerce has said is theyll issue waivers for items that dont Impact National Security so where there are commodity products or issues that dont Impact National Security, commerce will be proceeding with that i think it was a very productive twoway discussion for the president. For more on this lets welcome senator tom cotton of arkansas hes a member of the banking intelligence and Armed Services committees and senator, thank you for being here today. Sure, becky, thanks for having me on. You have been very outspoken about huawei and the risk that you think it presents. What do you think about what secretary mnuchin just told us becky, huawei is essentially is an arm of the Chinese Communist party and theyre setting up the fifth Wireless Technology in the world. Thats why we shouldnt allow American Companies to do business with huawei in setting up the fifth Generation Wireless Network. Why i have introduced legislation that would codify the president s policy keeping huawei on the denied entity list and allowing congress to review any future president s decision to remove them from the list or grant waivers to American Companies to get licenses to sell to huawei just like we review arms sales when we sell them to saudi arabia or the United Arab Emirates we should be reviewing the attempts to sell products to huawei to build out fifth Generation Wireless Networks watching from the side lins its been confusing to be told that huawei is so dangerous, but then to see it kind of getting thrown into play in terms of the trade talks. It seems to be the central piece between the china u. S. Trade talks at this point. What do you think about that well, i know that xi jinping wants it to be a central piece of the trade talks but i would not allow huawei to get any reprieve or to let American Companies deal with them in their fifth Generation Wireless Network business huawei has other lines of business, most notably second rate inexpensive handheld phones and theyre not a threat to americas security or prosperity but its the fifth Generation Wireless Network thats a threat because Information Technology and fifth Generation Wireless Networks are so essential not only to our economy but to the way that our American Military will wage war in the future. Theres life between what you explained the first go round and the second go round. Would you allow American Companies do sell goods to huawei to be used in the phones that are not a threat . Thats what the president has said and what wilbur ross has said theyll review the applications based on whether its a National Security threat. I dont see selling any kind of technology that isnt going into the hand set business as a National Security threat i would want to take a careful look to make sure its not repurposed into the fifth Generation Wireless Network business or other possibilities. But those are the reasons that secretary ross has said at least its conceivable that American Companies can do business. I dont think the administration should grant licenses and i think congress should review the grants of licenses with this administration or future ones. If thats the case, if we go along with your plan on this, it seems that very likely that could mean that tariffs exist for a longer period of time and china steps back from the commitment to buy more goods particularly from u. S. Farmers i would assume that would have an impact on your state of arkansas as well are you prepared to go down that path well, china has discriminated against arkansas rice farmers and they have made a lot of commitments in the past. Not only to this president but to previous president s they often dont follow up on their commitments so i for one am not particularly impressed with any commitments they have made until they reach an ironclad agreement my proposal be it not touch on the huawei fifth Generation Wireless Network if he can reach a good agreement for the farmers and the ranchers and the foresters thats a good thing but we shouldnt by the huawei fifth generation wireless into the negotiations. What do you have support from your colleagues in the senate and from the administration . Who have you spoken with there widespread support, becky senator chris van hollen, on the banking committee, is my cosponsor for the legislation. As we have seen in the past, china has few friends in congress and thats because the American People know what a raw deal that china has given to the workers. I believe well move forward on the legislation during the congress and i expect it will get a large bipartisan super majority. Senator, can you hold for one moment we have breaking news. We have some breaking news. We have some news on facebook right now. The ftc formally announced a record 5 billion settlement with facebook over alleged privacy violations and this agreement imposes new requirements on ceo Mark Zuckerberg and makes structural changes to the board of directors. Now, under this agreement, zuckerberg would have to submit quarterly certifications directly to the ftc over the privacy programs if he doesnt or if theyre wrong he would be subject to individual criminal or civil penalties. This agreement creates a new independent Privacy Committee within the board of directors. And it requires facebook to step up its oversight of Third Party Apps ftc chairman joe simons said that facebook has undermined Consumer Choices he called the 5 billion penalty for the agency unprecedented and he said the settlement is designed not only to punish future violations but to change facebooks entire Privacy Culture to decrease the likelihood of continued violations now, what does facebook get out of this . Zuckerberg is not currently facing any violations or any personal charges and the settlement does cover any existing violations of the previous agreement that facebook signed with the ftc back in 2012 all known and unknown violations now, those issues were major points of contention between the three republicans who lead the ftc and the two democrats who both dissented from this agreement. They said this is essentially letting facebook off of the hook but republicans say that they were what they could negotiate versus what they could win in any court case. They said it was unrealistic to think that a court would remove zuckerberg as ceo or strip him of the Voting Rights they argued that this deal does significantly diminish his power within the company and thats something no other regulator anywhere has been able to do so far, guys. Thank you very much lets get back to senator tom cotton and senator, very quickly, listening to what you just heard from this, we have also heard that the department of justice is looking at a broad investigation into the major Technology Companies, Big Technology companies to see if they have overreached in any of these areas. What are your thoughts on what you hear about Big Technology and additional regulation . First, becky, facebook has done a lot to let down the usereusers over the years second, i have been disappointed with a lot of the Big Tech Companies in Silicon Valley. They havent done more to work with the United States government in particular the department of defense. I know ash carter was on your show last week saying that oftentimes the Senior Executives of those companies who should know better are deferring to the far left young employees and not working with the department of defense or the intelligence community. These are American Companies they have grown and they have prospered under the blanket of americans security and the rule of law and protection of Property Rights and they should do more to help america defend itself. Thats the argument that president obama used for higher taxes on corporations because they didnt build this i mean, i see that to an extent but thats a dangerous slope t go down. We just had the treasury secretary on kind of talking about amazon about how they put a lot of like local retailers out of business. They made it hard for, you know, brick and mortar to compete. I mean, republicans in general i think are would advocate for Creative Destruction i mean, we dont rue the day that the buggy whip makers were put out of business by the automobiles, do we no, i mean, technology changes. Obviously new products come on to the market and consumers have a choice to express their preferences in the marketplace now we have antitrust laws and monopolization laws and i think the department of justice in opening an inquiry against several companies is going to be examining if that is what is happening to the technology markets. If theyre taking advantage of one market for goods and services and trying to leverage that against other competitors in a secondary market. Innovating and having a new Business Model that really lays waste to your competitors is not against free market principles and its harder i mean, how do you figure out when one when you go past that and, you know into where your market power makes you too powerful another slippery slope. Well, it is ultimately a Free Enterprise system is about businesses taking their products to the market and trying to win in the marketplace. There are always going to be businesses that succeed and businesses that fail one of the great dynamics of the american Free Enterprise system an opposed to europe you have so many new businesses that come into the market. They didnt exist 30 or 40 years ago, that becomes some of our Great American companies but they face the risk of other disruptions as well. What we cant allow businesses to do once they grow so large and develop monopoly power in one market to leverage that and try to hurt competition in another market were not trying to protect any particular business, but competition and markets. Are you talking about amazon in this case or apple . Yes. Yes to both im talking about any company, but especially some of the Tech Companies that have grown so large and the lines between some of these markets and some of these companies have blurred. I think its appropriate that attorney general bill barr has said were going to review potential anticompetitive practices of any company that has such market power. That does not say theyre violating antitrust laws but to say we have to protect markets and competition not protect companies. Is that a distinction you draw between lets say amazon and walmart from your home state . Well, amazon is obviously been competing against walmart for many years thats led to walmart innovating itself it is expanding the ecommerce business and doing more for delivery or Online Purchases and pickup in the end, that helps all americans because theyre getting Higher Quality goods and services at a lower price. Senator cotton, thank you for your time today. We appreciate it. Thank you all. Good to see you joining us right now for more on the facebook settlement with the ftc is gene munster the founder at luke ventures and maurice stuckey, law proffer from the university of tennessee and a former prosecutor for the department of justice. And maurice, lets start with you. We heard from ylan about what this means, what zuckerberg has to agree to along the line, the fine that was laid out and the fact that democrats and republicans disagreed on this. The two democrats dissented, saying they wanted to see stricter punishment and the republicans saying this is the best you can get and more from the court. What do you think . Its always hard to, you know, look at the counterfactual of what had happened if they had gone to court. But i think what youre hearing now is a far different tone than what you heard from the ftc shut down its investigation in google and had very much sort of a light touch antitrust mentality. Here what youre what youre seeing is a greater bipartisan concern about the power of these data onlies and how do we rein them in . And so you think that this has more teeth than what we have seen from the ftc in the past . Oh, absolutely. I mean, when you look at when they closed the investigation in google, that was possibly the weakest recourse they could have chosen they asked for voluntary commitments by google. They didnt even use the ordinary Consent Decree mechanism typical in these matters and flat out they told the public originally oh, there wasnt really any evidence of wrongdoing and then when the wall street when it came out in the wall street journal the internal memoranda by the legal staff that pointed out evidence of anticompetitive intent and behavior that was later picked up by the europeans, that created really the ground swell of the aggressive antitrust movement that youre seeing today. Gene, we see the stock down 1. 25 . This is kind of finalized you see what the monetary punishment will be. It clears them from the time period of 2012 to now. But you do see the stock do you know do you think thats more of a reflection of this deal or that the department of justice is still looking at all of the Big Tech Companies and that this deal with the ftc doesnt necessarily clear facebook of the problems theyll be dealing with the department of justice its the latter, beck ki. Going forward, the news today about the settlement the only real incremental piece is that zuckerberg now has some personal potential liability around the privacy. But thats insignificant i think the movement in facebook shares is all about what the federal trade commission will do around the companies i want to take a step back and anchor the conversation into two areas that the they governor by one is practice is anticompetitive and the second is the consumer better off and that balance i think what that means for typical investors is that its going to take a long time for this to sort out i want to caution people that the resolution is many months away. Maurice, gene just touched on this idea of the privacy potentially that zuckerberg would be on the hook for its almost like a sarbanesoxley for privacy issues how important is that and do you expect that to be applied to other ceos as well i think its theres going to be now greater accountability on the part of Senior Executives on privacy i think one important thing that youre seeing with the germanys is the merging of privacy law and we can too little privacy competition as a result of too little competition. The agency is moving away from price and looking at other components of competition such as privacy protection. Another is greater calls of accountability of executives then third, to touch on genes point that this is is not going to be a short term endeavorment when i was at doj, merger investigations took six to seven months and monopolization cases can take on months. We have breaking news in washington i appreciate your time today. We want to get back to washington, d. C. And this mornings hearings with exspecial counsel robert mueller. Kayla tausche has more. The witness is being introduced, mueller is standing up to be sworn in after months of negotiations between the special counsels office and the house judiciary and intelligence committees the swearingin is the starting pistol of a marathon day of approximately five hours of questioning from 63 members of congress in the house. We just got about ten minutes of Opening Statements from the democratic chair of the committee and the republican Ranking Member who each borrowed from the text of muellers report to reach different conclusions. Democrat jerry nadler said that essentially that the president was not exonerated by the report and that the special counsel found that he did seek to use some of the russian efforts to potentially to his advantage. Also that his the most damning of the findings in the report according to nadler was when he tried to fire the special counsel and then lied about it whereas collins the republican Ranking Member noted that the report found there was no collusion. I think this highlights the different goals of the two parties here you have democrats who have been watching tapes, studying the previous 88 instances of muellers testimony on capitol hill to figure out exactly how to question a notoriously stoic and disciplined official and then you have republicans who really want to ask questions and explore the idea of the integrity of the investigation the way that mueller hired the prosecutors who were working on this investigation to try to see whether anything was compromised in the work that was done in reaching the conclusions that the special counsel reached. Well bring you more as we have it from this hearing as it gets under way. But for now well send it back to you. All right kayla, big crowd big crowd. See that, sorkin the line waiting to get in. Yeah. I dont know life always imitates art for some reason for me al pacino sitting there and then thats a totally different thing. Right . Remember he brings yes. Anyway, well stay here for a second and actually lets listen to lets hear it. And with absolute integrity. Our team would not leak or take other actions that could compromise the integrity of our work all decisions were made based on the facts and the law. During the course of our investigation, we charged more than 30 defendants from committing federal crimes. Summary phase here. We will return if necessary, but theres other breaking news. Maybe in our lane on the challenges that carmakers are having with autonomous vehicles. More in our lane phil lebeau has a special guest. Hey, joe, lets bring in the ceo of cruz. You will be adding more test vehicles to your fleet and also youre delaying the launch of an autonomous ride sharing that was going on at the end of the year. What is the details in getting it up and running . Good morning, phil. Any time youre working on a problem that hasnt been solved before it shouldnt be too surprises to have time lines moved around and whats most important we do it absolutely the right way. We do it with safety and we do it in a way that were able to scale it and were in a Technology Race to bring this technology to market but were in a trust race to make sure when we bring a Transformational Technology like this to society and to the community we do it with everybodys support and in the best way possible. Youre trying to add you will be adding more test vehicles, but the question keeps coming up in terms of the autonomous Ride Share Service what is realistic for the public to expect when we see it widespread, whether its with cruise or some other company are we looking at the next couple of years, more likely five or ten years, what do you think . Well, we have made a tremendous amount of progress over the last few years. We have been putting the Building Blocks in place in building the amazing talent because here at cruise, we are rating a lot of capital. This is a capital intensive exercise and putting the Building Blocks in place has allowed us to make all the progress we have made up to this point. Were excited about what we have achieved so far. Were excited about what lies ahead in the months and the years ahead in terms of the ramp up and the testing, big Infrastructure Investments were building the largest charging station in the country to support the scaling up that were doing here our goal is to bring this technology to market as quickly as possible in the safest possible way so as soon as were in a position to make a net positive contribution to safety on the roads we want to be able to deploy the technology with the support of the community and do it in a way to scale it and make it a service thats usable for everybody and youll want to use it to get from point a to point b. Dan hammond, its a because i busy day. Well have more on cnbc later on today. Well move around the country from chicago well going even further west right now. We want to talk about some of the breaking Facebook News Julia Boorstin has more. Good morning. Facebook is responding to the 5 billion fine from the ftc and all of the new restrictions that theyre implementing to enforce the protection of the users privacy and facebook said in a blog post on the companys website the agreement will require a fundamental shift in the way we approach our work and building the products at every level and the company it will mark a sharper turn towards privacy on a different scale than anything in the past. They have said this accountability surpasses current u. S. Law and they hope it will be a model for the industry saying it introduces more stringent processes to every step to identify privacy risks, more documentation of the risks and making sure they meet the new requirements i want to pull up the graphic saying that facebook is going to protect your privacy in this agreement through building privacy into every product starting at when theyre innovating and creating new products also stricter compliance measures including quarterly reports, executive accountability across the Company Including zuckerberg signing the reports and then independent oversight dedicated to privacy and independent assessments to the ftc so facebook going on to say here that they have already made large strides in privacy, but theyre going to be doing more and reviewing the systems constantly they note in the settlement with the s. E. C. About disclosures about when they find issues that have happened. Such as the Cambridge Analytica issue. So they say here in sort of an almost apology we have heard that words and apologies are not enough and we need to show action by resolving both the s. E. C. And ftc investigations. We hope to close this chapter and turn our focus and resources towards the future you that report. One of the biggest quarterly reports is caterpillar missing analyst estimates on the bottom line. Revenue was slightly below expectations those are some of the worst levels we have seen and that is what has the dow down triple digits the market seems a little surprised, players exiting the stock based on what in your view so there was an earnings miss i think that right now the market is looking for security and stability and so you have a record wide discount for uncertainty and for the cyclical end of the market. With a miss here, that has the uncertainty a little bit thats whats happening. Earlier we talked abouthow revenue came in line, but earnings was a big miss. They said part of it is the timing of restructuring costs. They pointed just to the idea that the Company Still expects price realization to offset manufacturing costs for the full year but, again what they said in the release, that assumes that recovery of in the oil and gas near the end of the year and dealers working through a higher machine inventory level. I guess kind of hoping out hoping that it is going to be made up for down the road with price increases. A couple of Different Things going around cat is a big company a lot of different patchy weaknesses and strengths in the Global Economy now on the oil and gas side, they dont just do fracking they do turbines for gas pipelines. Some of that is project based. Dealer inventory is a different issue. We have high inventories right now. Thats a bit of a concern for us wasnt a positive to see inventories go up this quarter. They had an unfavorable mix of products within energy and transportation. Right big profitable turbines that didnt sell as much and maybe will sell more next quarter. The china issue, any commentary on any of those things you can give us i think tariffs put a lot of uncertainty into the economy i think thats caused inventories to rise up, which isnt always a great thing the continued sort of lower resolve, will we in the resolve, makes it difficult for managers to plan. Thats been a little bit tricky. And then within china, you had a slowdown, you also have seen Construction Activity and construction sales do fairly well cat had many years of gaining share and doing very well in china, selling bigger products, good stuff, and then several months of losing share again thats related to geopolitical tensions or just pricing, it is not yet clear. When would you say, this is a great value . I say that now. Well see. So machinery and cyclicals across the market are trading in a very widespread to tech and to more stable growth and i think that we start to see that narrow when we get a little certainty. Misses like this, you dont edge up on that you have had multiple years of underinvestment in oil and gas underinvestment in Global Mining and that will catch up some day. So is cat iss tis time to shi happened yet a buy then . We have a buy on the stock. Price target is way up from here, 14 times earnings on price target. Okay, great down to the New York Stock Exchange now good friend jim cramer so many stocks to talk about i want to hear your quick views on cat, boeing, all the tech names that are getting hit overnight on this doj report and so much more cat was suboptimal. I expected better. I think the the mix wasnt that good. I dont know why oil and gas wont come back. They did reaffirm. The stock should be down it is not what i was looking for. I thought they would do better boeing again, i guess you could say the operating cash flow was good nonconsequential quarter, all the problems u. P. S. , a very strong quarter. Really amazing job and when it comes to the faang names, with netflix, i dont know i think they should be down. Cant figure out what is going on the ftc, this is much more about antibusiness ftc than you had under obama. Trying to get my arms around it. Zuckerberg constrained and the Company Looks like theyre going to have a modern by the government. It is kind of shocking how strongly i think the ftc is coming in, more Justice Department action. These guys will be these guys are on the red hot griddle for a while. Right would you own any tech names as a result or no i think that these things will come down and then we have to see what facebook does. I really like the stock of facebook i think it is okay im not concerned about apple. Look, all these things are do they hurt does alphabet hurt yelp because when you own a restaurant, now, there is 40 Google Reviews and there are 40 yelp reviews i understand why everybody feels agrieved, but i dont know, just Justice Department seems gung ho to please people on that note, well see in a couple of minutes, julia has additional news, comments from Mark Zuckerberg. Posting on his facebook page, a comment on this ftc settlement and the new requirements imposing on the company. He writes, as we build our privacy focus vision for the future, social networking, i outlined earlier this year, critical we get this right the next focus for our company is to build privacy protections as strong as the best services we provide he stresses here his commitment, the companys commitment to protect user privacy saying they want to set a in standard for our industry. What i hear from zuckerberg here is theyre really trying to show how much progress has been made in fixing this company as they face so much scrutiny from legislators on capitol hill. They want to make sure this is seen as an effective solution so they arent under quite so much scrutiny Going Forward with so many different issues on their plate trying to make a point here about their commitment to change one of the analysts we spoke to earlier mentioned that look, he thinks the stock is down today because of that news from the doj yesterday. A lot of investors thinking that this ftc settlement would be putting it all behind them the questions now remain, are opened once again, based on what we heard from the doj yesterday, they were talking to facebook competitors in part of this. That stock now down by 3. 5. Thank you very much. Stay tuned squawk box will be right back. At your phones. The design thinking, the digital engineering, security, blockchain, and we will be first to market yes. When we do we launch . Unfortunately, in 2 or 3, hours. Why the delay . Cognizant is helping banks use Digital Technologies at scale to advance speed to market. Im not really a, i thought wall street guy. Ns. Whats the hesitation . Eh, it just feels too complicated, you know . Well sure, at first, but jj can help you with that. Jj, will you break it down for this gentleman . Hey, ian. You know, at Td Ameritrade, we can walk you through your options trades step by step until youre comfortable. I could be up for that. Thats taking options trading from wall st. To main st. Hey guys, wanna play some pool . Eh, im not really a pool guy. Whats the hesitation . Its just complicated. Stepbystep options trading support from Td Ameritrade welcome back to squawk news on tmobile and sprint. Sources telling us the department of justice expected to announce a transaction that they will be approving that transaction tomorrow, based on sales of assets to dish for 5 billion. That will be the news we will be talking about tomorrow morning still unclear whether the states have signed on and that remains a big issue. Join us tomorrow, were that will be front and center squawk on the street begins right now. Good wednesday morning welcome to squawk on the street. Im Carl Quintanilla with jim cramer, david faber at the New York Stock Exchange. Caterpillars miss and soft guid guidance, so much else to watch, including the doj on big tech. Facebook settlement, weak global pmi, mueller and more. Europe is mixed. Ten year yield below 205 the d. C. Head winds for bi