Transcripts For CNBC Squawk Box 20240714

Overnight that washington could be delaying easing up restrictions on huawei as part of the trade war deepening tensions potentiallimentpotentially ment and we have the s p 500 and the dow coming off some highs yesterday. Overnight in asia, we had some interesting news out of japan. Theyre changing the way theyre buying maturities across the yield curve. We have the nikkei higher by 0. 4 we have red arrows on the hang seng and shanghai. New china data overnight that showed food prices surging 9 , largely in part due to a surge in vegetable and pork prices european equities, down arrows across the board the dax is down by 0. 9 . Treasury yields, this has been the focus all week, yesterday the intraday on the tenyear yield was 1. 793 we are seeing extraordinary moves on a daytoday basis. Getting close to the twoyear feeling it feeling it feeling it little resecessionary feeling i. We have one other piece of Corporate News to bring you. Uber shears undehears unde s uber shears undhares under a lof pressure the Company Reported a loss of 5 5. 2 billion in the Second Quarter. Thats compared to 878 million a year ago the bulk of the related costs or the costs are related to the ipo and compensation im not its real costs, but the way the headlines are coming out its not just the loss, its the commentary excluding that, uber losses were still about 30 worse than in the First Quarter. Revenue growth slowed to 14 to 3. 2 billion that also missed forecasts ubers Ceo Dara Khosrowshahi telli telli telli telli telling cnbc that 2019 will be the peak investment year and losses should come down over the next two years. He says theres no doubt that uber will eventually be a breakeven an profitable business bookings from the ride hailing business topped estimates, but bookings from uber eats fell short of forecasts khosrowshahi says uber eats still has room for Significant Growth but he doesnt expect the business to be profitable any time soon. Ubers report catching a number of investors off guard after lyft, a different business posted a smaller loss and raised its revenue outlook. The companys 0 q2 loss was larger than the q2 losses for all but three others, craft hei kraft heinz was one of those, maybe ge only three wow what do you do . With lyft, theres a pathway to some profitability. The main concern i had with lyft, we talked about it on the great show at 5 00 called fast money, that lock up has to give people pause but short of that, i think lyft looks good here. Uber at a price makes sense. You said it. 5 billion is not 5 billion lets say its 1 1. 5 billion thats still 1 1. 5 billion too much if you listened to that call, which i know you did last night, theres a lot of ifs, maybes, i dont know, i think. Particularly surrounding the commentary on the path to profitability, khosrowshahi was tentative on how that would come about. And if you look at latin america, which was a growth driver for uber internationally, revenues down there 24 on year because of didi, the chinese Ride Hailing Service entering the market thats providing competition for him to say on the Conference Call the biggest source of competition is owning autos, thats a little i dont know. I think invest want to hear the truth of the matter. You wanted him to say the biggest competition was what im not sure. It sounded like they dont have their arms around it to mels point, latin america is the second biggest revenue, down 24 . Thats a significant drop. Granted its still four times the size of north america, but if your Growth Engine is not growing, you have issues do you think this is a broken model . The one thing i wondered about these services is whether the model unto itself works. I think the model works i think as you pointed out, a big chunk of the loss was related to the ipo i think uber still represents whats scarce in the market, and that is growth yields are pricing in major policy mistakes, recessions. If you have an idiosyncratic growth stock, i think you want to stick with it here. When you spiyou speak about model, they have said they might never be profitability tim seymour will say they have to say that, but you have to take some pause there. I guess a lot of companies have done extraordinarily well in terms of the stock with the same model, but at a certain point, you have to ask yourself, to your point, how sustainable is this i dont know but my view in the 90s, a lot of people thought amazons model didnt work. People said how does it become profitable does lift show you that there is a path to profitability so therefore you question uber more the move in uber premarket, yesterday we had uber climb along with lyft. Down 8 here, its not much in the context of two days. Fair enough. People out there say at a 36 entry point, it may make sense but over the course of the last 48 hours, which Company Makes more sense in terms of the stock . My pushback is lyft. Quick programming note. Dara khosrowshahi will be joining the gang on squawk on the street, that is at 9 00 a. M. Eastern time. We have a developing story out of hong kong hundreds of protesters are rallying in the Central Terminal at Hong Kong International airport trying to redraw attention of the National Audience and restate a full withdrawal of the extradition bill the airport connects the city to more than 220 global destinations and serves 74. 7 million passengers organizers say this will be a threeday event. New data from china overnight showing that surging food prices are taking place lets get over to eunice yoon. Good morning to you. Traders are talking about how sevrve7 is the new normal. The Chinese Central Bank set the yuan at 7. 0136 to the dollar still stronger than what the market had expected, this afternoon the bank posted on its social media account a fresh interview with one of its officials, and in this state tv interview the officials played down the yuans movement saying the fluctuations are Market Driven and repeated that chinas economic fundamentals are strong so the yuan would remain stable. So there are signs that policymakers may have to do more to sure up the economy the inflation data was out deflation fears have returned here the Producer Prices contracted for the first time in three years. The cpi was pushed higher. A lot of that is because of food prices, vegetables and pork. So china has been battling a bout of african swine fever and chinese manufacturers have been cutting prices in order to try to gain market share and fend off weakening demand theyre seeing falling prices when it comes to oil and other raw materials. Policymakers here are in a bind. On the up with hand, there is the option of easing Monetary Policy to lift prices, but theres concern if there is more stimulus here, it could push prices at the consumer level higher that is a big headache for the chinese. Though from a lot of analysts here, they think the policymakers will lean more towards trying to lift Producer Prices because theyre getting more concerned about deflation eunice, thank you coming up, well talk about the rate shock that spooked the markets this week and the potential for a yield curve inversion that predicteded ten of the last five recessions. As we head to break, 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 . The warning lights flashing that the u. S. Economy could be heading towards recession. Lets get to our guest hosts savita, do you put stock in the yield curve forecasting recessions frnlg the forei think its net watch the yield curve. Either the fed is not dovish enough or trade risks will roil the economy. I still think the consumer is a bright spot. The winners on the dow were all consumer stocks. Mortgage rates are the lowest theyve been i thought i was getting a low rate two years ago i still think theres room for the economy to run it is a little bit nerveracking right now. We are very late into the cycle. The economy is running pretty hot. The fed and policymakers dont have that many bullets left. So theres reasons to worry. Does that picture that savita paints match up to what the equity markets are painting with the s p 500 3 off record highs . Ill ask the following question, what causes a recession . Does the market selloff cause the recession or does the recession cause the market selloff . I would say the market selloff causes it. 73 of the u. S. Economy is driven by the consumer in my opinion consumer confidence, all it is is an overlay of the s p 500 not suggesting that everybody owns stocks, but suggesting people look at the market and say hey, the stock market is going higher things must be good. If things are good, i can buy that starbucks coffee, i can go on vacation. Go back and look at october and november and how quickly spending grinded to a halt why . The market went to so no recession in your view . Its all contingent upon what the market does. We are sort of hanging by a thread ill say this, and then i will let savita talk. The biggest villains of the 21st century will be Central Banks globally we had three mini bear markets over the last ten years. Consumer confidence remained relatively healthy i think its jobs, prices that are more important than the market how many of your average americans are really levered to the s p 500 . Not many im not suggesting people own stocks its just a its a barometer. When the evening news leads with this, stock market down, stock market down, people take notice and they say whats going on maybe we shouldnt go on that trip its the jan kniffen test the retail guy. For 20 years he would go out, talk to people and ask two questions. If you lost your job today, could you get a new job . How quickly . And would you get a job for more money . If the answer is yes to both, this would happen quickly, everything is great. I think thats pretty much where were at now with the tight labor market the answers would be yes the problem is the new round of tariffs are targeting consumer goods so thats where i worry about consumer confidence. Its not so much the market but the idea that prices could go up and consumers will feel it in their wallets. Thats whats more worrisome the consumer has been the bright spot over this entire bull market they might not be able to keep it together. All right well hear more from this dynamic duo this is a dynamic duo on a friday morning. Coming up, new details about apples new credit card and what it takes to get approved a new report about to go live on cnbc. Com its an exclusive. Weve got it ahead of time you have to hear this. Thats after the break you should be mad they gave this guy a promotion. You should be mad at forced camaraderie. And you should be mad at tech that makes things worse. But youre not mad, because you have e trade, whos tech makes life easier by automatically adding technical patterns on charts and helping you understand what they mean. Dont get mad. Get e trades simplified technical analysis. Welcome back cnbc is reporting a new story this morning that you have to hear about Goldman Sachs and a new credit card from apple we have the story before the story. We have the author of the story right here you want to tell us about this sure. It rolled out tuesday. People in an early preview, if you signed up for it, you go to the wallet app, you press a plus signal, you can get the card you get a decision in two minutes. What we found from early reports is that theyre actually accepting people with fairly low credit scores, which is a surprise i didnt introduce you, by the way. This is hugh son you should have said that the beginning. Its important he says it this is on the record its on the record. One of the best banking reporters here i knew that i wanted to make sure everyone is aware you have figured out that apples now taking on customers that historically they would not be or Goldman Sachs wouldnt otherwise take on. Yeah. Some people i talked to are saying im shocked i got this card going into it they said Goldman Sachs, this is a tony new York Investment bank. This is not something that somebody in reading, pennsylvania, who has a 620 fico score will qualify for thats what happened most people think of this as the apple card, they dont realize its a goldman card, do they well, weve had a couple stories about this apple card is the brand that leads. They own the relationship, to be clear. The question i have for you is if theyre taking on lower fico score customers s that pressure that goldman is getting from apple because apple wants to have this mass audience on this is that goldman wanting to build this large platform . Is apple and goldman on the same page about this . My understanding is that theyre aligned. From the beginning, before goldman won this deal a year ago, it was very clear from apple that they wanted as many of their 100 million plus u. S. Iphone users on this card. When you think about that, 100 million u. S. Iphone users, how many of them will be prime some op them, right . When you say some of these folks are not prime is that because theyre lowering their standard or because theyre using Additional Information theres a number of credit players out there. Im thinking of affirm and others who almost created their own fico score what looks like someone who may not be a prime credit to an affirm may be a prime credit the question i put to people, are they using data that we dont see . As far as i can tell theyre using transunion one of the big three Credit Unions theyve using that, using what i would think of as prudent underwriting the person i talked to from reading, pennsylvania, is getti getting a 750 credit line. Not a lot of money the Interest Rate is at 23. 99 oh. For him, thats the lowest Interest Rate plastic in his wallet this is the best deal for him. This is the only reward card he can get. This is a story of goldman willing to take on subprime. You make the argument in the article that 13 of loans in the market are already subprime. So were talking about fico scores sub 660 yes why does Goldman Sachs want to do this if you drink the koolaide, the new bank wants to help americans lead healthier financial lives. Thats certainly the stated goal of the apple card. I think that, you know, if you decide that you cant deal with a certain segment of american borrowers, youre cutting yourself out of a lot of scale of the business. Ultimately thats what they decided. This tells me that goldmans valuation should reflect an increase in risk on its books. Thats the only risk theyre taking if you look, fixed income currency and commodities are not doing it theyre not taking risks i said this with andrew before, i wont make friends at the bank, but Goldman Sachs is Goldman Sachs in name only now i was there in 96, there were 6,000 people there theres 40,000 now you cant have the same culture. And i think 65 or 70 of the firm is 35 and under, thats a good thing, but it speaks to what youre saying, theyre trying to play to this millennial audience. Theyll probably do well with it but to your original question, whats the right valuation they just reported tangible book at 203, book value 214, the stock trades within that range and it probably should i have a different question for you. Are you sure everybody thinks this card will take over the world or well all be signing up for it were talking about it today, right . I know were still in beta of some sort. How will it show up on my screen for the first time how will i be advertised this card beyond what ill see out on the billboards you go to your wallet theres a plus signal in the upper righthand side, you hit it if youre preselected, within two minutes a lot of people dont go to the wallet often, do they . I go there when im at the airport. I recently became aware of the existence of the wallet to be honest now im using it the reason i ask, apple launched like the news plus product earlier this year or late last year and, you know, i wanted it, so i knew to go and press the plus and do the thing, pay the money. But it wasnt like they were telling me get the card, get the news product so Something Like 49 of everybody who are geny are aware of the card. Im too old. The penetration of this card is sort of insane. Hugh, thank you thanks for having me. Our prompter is working again, which is exciting are you going to share that with the audience . Im excited the full story is available on cnbc. Com right now coming up, stocks on the move including one luxury retailer that is getting crushed in early trading and huawei news breaking overnight on just how ready that company is for a tougher crackdown by the United States details coming up. As we head to break, look at yesterdays s p 500 winners and losers can i get some help. Watch his head. Im so happy. Whatever they went through, they went through together. Welcome guys. Life well planned. See what a Raymond James Financial Advisor can do for you. Welcome back youre watching squawk box live from the Nasdaq Market site in times square. Good friday morning to you were about three hours before the market will open lets show you the u. S. Equity futures at this hour if we opened up now, you will see red arrows across the board. The dow would open off 131 points nasdaq down close to 60 points s p 500 off about 16 points. Look at the tenyear yield dipping below 1. 7 weve been talking just now about how close the ten and the twoyear are Steve Liesman and some other indicators the range of the tenyear yield this week that we witnessed, sub 1. 60 to 1. 8 should yields move like that . No. Thats not normal currencies moved a couple percent in the 80s and 90s, now they move every few minutes. We talk about currency war or currency crisis, if you want to pick between the two, pick the war. At least people think they can control things in a crisis they cant thats where i think we are i dont think the market is as complacent as everyone says it is. If you look at the stuff in the s p thats expensive and thats led, its defensives the most bondlike stocks. So i feel like if you look at the internals of the s p 500 now, its actually pricing in a recession, which we dont think will happen. I think the market at alltime highs is something thats bandied about, seen as the market being too complacent, if you look at whats risen, its utilities, not your classic take that forward is that healthy for the Broader Market and quickly, i agree with you, maybe the complacency is not there, when you measure complacency in terms of volatility, in this environment i think the volatility index should be higher and one of the many unintended consequences of the Federal Reserve is they tamped down volatility they made people feel like when volatility gets to a certain level you sell it with reckless abandon. That works until it doesnt. When it dose en, theres issues. I agree volatility has been low, but if you think about it, the market right now is at alltime highs, the pe multiple is not i think the big question is earnings and this quarter doesnt look great. It doesnt look awful. We avoided an earnings recession. The real driver of Economic Health you tell me what you think of this, but how trade is incorporated into corporate spending, consumer confidence, those are the drivers for what we see Going Forward and we have to go, i know mel asked the other night what do you think ceos will do in september when they have to budget for things . I dont know the answer. Im not smart enough to be a ceo. Well find out and find out quickly. Time for the executive edge. Shares of far fetch are cratering this morning the Company Reported a loss of 15 cents per share, not as bad as expected. Revenue was betterthanexpected but far fetch cut their expectations for gross merchandise value growth and announced their chief operating officer is stepping down after nine years the Company Announced it is acquiring nugard group this was always a tough business its a tough industry. Whole thing. Farfetched. See what i did there sort of threw it in. Coming up, news out of huawei the company says theyre ready to face a tougher crackdown by the United States. And as we head to break, a whopping 58 of revenues in the tech sector come from outside the u. S. The rest of the s p 500 gets 39 of its revenue from outside the country. Through the at t network, edgetoedge intelligence gives you the power to see every corner of your growing business. From finding out whats selling best. To managing your fleet. To collaborating remotely with your teams. Giving you a nice big edge over your competition. Thats the power of edgetoedge intelligence. Lower carbs. Lower calories. Higher expectations. The light beer youve been waiting for has arrived. Welcome back to squawk box. Right now huawei is launching its own operating system known in english as the harmony os the head of the companys Consumer Division said it would prefer to use googles Android Software on its devices, but if it were banned huawei could migrate to its own operating system within one or two days. Trying a bit of a hedge here for them in case theyre no longer able to use android. A bloomberg report says the white house is holding off on allowing businesses to do business with huawei according to that report, well have to see what will happen next joining us to talk about huawei and its role as a policy lever in this larger trade war is Robert Spalding from the hudson institute. Robert has a book out this fall titled stealth war how china took over while americas leet slept. Good to see you. In terms of the latest steps in this huawei battle, how much do you think we still have to how much of this is really still about huawei, how much of it is about trade and tariffs . Is there a way this gets separated . I dont think it will its about National Security, it will continue to be about National Security. Its interesting to see how china is retaliating with the decline to purchase Agricultural Products i dont want to say that has anything to do in the delay on getting licenses for android, but its hard to say if you were President Trump, and you could sort of to the extent you want to get the negotiations to work, how would you handle huawei . Is there a way to thread the needle so that you can take care or at least restart the negotiations in a meaningful way with china where they are happier or happy enough yet you can protect the National Security component that has been discussed so much . I thought about this a lot, i know that the president wants to have an agreement with the chinese. I dont think theyre prepared to have an agreement after 2008 they really relied on their Stateowned Enterprises to pull them through the crisis since then they have begun increasing the amuptd ount of p they have in the economy theyre not willing to unwind that the reform and opening up that they talked about that theyll do in the last several fiveyear plans, they reversed theyre not in a place now where they want to go back on that i know the president wants to have a deal. Even if he wanted to have a deal as bad as he wanted, they are not prepared to restructure their economy or have the type of enforcement measures that would be required to have a deal that really meant anything so you think theres nothing that the president can offer them either as an olive branch, a fig leaf fig leaf you dont want it to be a fig leaf no. An olive branch theres Nothing Available in the toolkit to make this work . Certainly what the president could do is say he could say well continue to do business as usual. That means theyll continue to have a closed economy. It will still be difficult for American Companies to operate over there, but their companies will be able to feelly ll ll l operate over here and they can get all the capital they need to grow their company so he could cave in to their demands and let them do whatever they want. Why dont you think the huawei issue is part of this trade war . If you follow the ban, if you follow in june that President Trump said he would revisit this, and looked to ease up restrictions in june, that timed perfectly with a detente in the trade war and then beijing says we will not buy Agricultural Products from the u. S. , and then the u. S. Reportedly says theyll reevaluate easing the restrictions it looks like its being used as a chip its just about the importance of data in National Security in the 21st century the platform for the app services and biz nlsz musiness r the 4g world is mobile commuting. The android and Apple Ecosystem via their smartphones provide that platform. In 5g, thats the platform for deployment where you could opt out of the 4g world, you cannot opt out of the 5g world theres going to be cameras, mike phonemicrophones placed ar the city to provide you better as far services and make your life better, but also determine whats important to you and ultimately influence you thats the real challenge with 5g, its a real challenge with data, and its a real challenge with telecommunications. Just how connected our world has become in allowing Foreign Companies that actually are at the behest of totalitarian regimes. I guess the question that i should have asked, robert, is can it be both a National Security threat and being used as a chip in the trade war is that right . To determine whether thats right you have to go to the fact that theyre not trading Agricultural Products. So i think the answer is probably swr yomewhere yes, but couldnt tell you that what i see today is huawei is a National Security risk that doesnt mean that the administration is not trying to get a better deal for the American People by using them as a chip i dont think they are, but that could be robert, great to see you. Thank you for joining us good to see you. Coming up, uber goes downhill the company reporting a 5 billion loss in the Second Quarter. Well get you up to speed and show you where shares stand next make sure you tune in to squawk on the street at 9 00 a. M. Eastern for our exclusive interview with Ceo Dara Khosrowshahi 7pgnoo uber shares falling sharply overnight. The company reporting a loss of 5. 2 billion in the Second Quarter. The bulk of that includes costs related to its ipo but excluding that ubers losses were 30 worse than its First Quarter joining us Jeff Kauffman and rhett wallace. Gentlemen, good morning to you both jeffrey, ill start out with you. Down 8 , is that warranted probably not, but that will be the initial reaction. I think the headline is a miss on revenue, a miss on the bottom line the reality is not only were the onetime costs related to the shares but they also paid their drivers almost 300 million as a onetime benefit to employees. That was taken out of revenue. When you add that back to revenue, it actually beat consensus by 4 . When you adjust for the iporelated expenses, the bottom line actually beat expectations as well. Both lyft and uber commented on a more sensible domestic competitive environment. Both guided to better ebitda numbers by 300 to 400 million this one took a little algebra the headline looks bad when you dig beneath it, it was a beat on the revenue line and the earnings line. The comparison that you just made between lyft and uber and their outlook for the u. S. Market would seem to argue to be more in favor of lyft as opposed to uber. If you look at where the weak spots were in uber, at least ride hailing, it was latin america. Theyre facing more competition from chinese competitors thats a Growth Market for them and that was down more than 20 year on year. Well, these are two different stories. Divot is a domestic rideshare story. I understand that. 40 growth. When you look at uber you dont want to be in the International Parts of the business well, not necessarily what happened in latin america happened a year ago. Were just seeing the yearonyear impact. Were seeing the catch up. Right when we looked at eats, eats beat our expectations in that category freight was a little weak but was consistent with the freight market that we saw so the brokers were all reporting weaker results when you look at the two, theyre different bets uber is a bet on the Global Growth of personal mobility. Whats the risk that didi or somebody else jumps into that market any time theyre in a market where theres at least one competitor, it becomes complicated very quickly. And one of the things we like about what they do is when they see that, they have gotten out of some of those markets and focused on other markets so we only you dont want them to own every market at all . We dont. They have actually gone and partnered with partners where the competition was difficult. You have regulators trying to slow down growth theyre finding new growth avenues, such as delivery of meals to the homes, we think eventually delivery of grocery to the homes so this is a global bet in the case of uber on the spread of convenience economy, personal mobility. When youre looking at lyft, its more of a domestic bet on ride share, so theyre different investments. Do you think that these companies are welcoming regulation, because its essentially providing a moat around the industry . I mean being regulated isnt a bad thing if youre uber because youre making it harder for new entrants in your marketplace. Well, theres pros and cons theres going to be groups like the Taxi Limousine Commission here in new york that wants to keep the taxis as they are so theyll limit the amount of licenses. Right. I think the real big item for the industry in the long run is the idea of Autonomous Vehicles and how that will affect it. On one hand its a competitive threat on the other hand its going to lower the cost of transportation so you probably grow the whole market so theres plusses and minuses to each. What did you make of the quarters especially when you do the comparisons. I thought that was the highlight of the call is darr going after mayor de blasio about how you integrate uber into a total transportation solution that works for everybody. Regulation is a factor but they want to be productive about it in a longterm view so the platform works for the most possible people. As far as the quarter as a whole, i think it was a yawn the stock went back to where it was monday it didnt matter really. The ipo wasnt a big entry catalyst for people. Initiation of salesside research wasnt and this wasnt either what is it going to be then because darr was very vague about the path to profitability. Lyft was a bit clearer darr was not as clear as far as the investment cadence the next couple of years. This wasnt the buy catalyst in the sense that the loss profile is still 2. 8 billion a year they have 11 billion and change and so they have a fouryear runway to figure this out. If im thinking which one of these names do i like, lyft goes out of business first and at least they get the u. S. Market they still have to fight everywhere else. Whatever it is were waiting for to reveal the longterm vision of the profit of the company we havent seen yet were still trying to figure it out because we dont know. Thats a long horizon, four years. My question back to you would be did the lyft quarter put in context to mels point, is that the reason why uber might have had an outside move to the downside the market is saying, wait a second, lyft seems to have figured this out wheres uber, four, five years away. Ive looked at the way they have traded and theyre still right where they were in terms of the discount to the ipo price. The range that they have traded in so uber moved up a little bit in the runup and moved right back to where it was but didnt go below that i dont know where we are today. Does somebody want to tell me how to value the company thats all i want to know. I dont know what the right answer is. I think thats why so many people sat out the ipo most big investors owned it already. What should i pay for this in the long term . Unclear. Lets wait and see. We also have a programming note the uber ceo will be on squawk on the street at 9 00 a. M. Its been a wild ride for markets. Well wrap up one of the most volatile weeks of the year so far and get you ready for whats to come. Later, well be joined by Scott Gottlieb to discuss the latest investigations and controversy surrounding the ecigarette industry its an interview you do not o nt to miss twbig hours of squawk box straight ahead the wild week that was wall street getting ready to wrap up a volatile week for the markets. China, the fed and where you should be putting your money to work straight ahead. New warnings about vaping putting the industry on edge former fda commissioner Scott Gottlieb joins us to discuss. Plus dems descend on des moines their economic message to farmers and what it could mean for the 2020 president ial election, and your money, as the second hour of squawk box begins right now announcer live from the beating heart of business, new york, this is squawk box. Its friday, were in love good morning, everybody. Welcome to squawk box. Im Andrew Ross Sorkin hanging out with melissa lee today with us in studio we have seven people a Water Polo Team sabrina has been hanging out with us. Trader guy adami is also here. We will properly introduce everybody else in just a moment. I want to show you u. S. Equity futures two and a half hours before the market opens. If we did it right now, wed open down about 111 points the nasdaq would open down about 55 points and the s p 500 would open off about 14 points. Heres whats making headlines at this hour uber reporting a larg largerthanexpected Second Quarter loss growth slowed and it also incurred expenses related to its ipo earlier this year. The uber ceo will join squawk on the street at 9 00 a. M. Shares of semantech are rising adding to yesterdays gains. It struck a deal to sell its Enterprise Security business to broadcom it had been reported that the two sides were close to finalizing a deal. The government is out with july Producer Price index figures in 90 minutes. Headline ppi should rise with the inflation rate up z0. 1 of a percent. One of the issues all week have been currencies, a source of dramatic stock volatility with china beginning the week by allowing the yuan Dollar Exchange rate to drift weve been reporting on the president s tweets all week. Steve liesman joins us now with a lesson in how toweaken your currency a game you can play at home if you live in the white house markets beginning to game out whether and how the u. S. Government will take any action to weaken the u. S. Dollar. I know of no formal or imminent effort to weaken the dollar at this time but heres how you do it you start off with open mouth operations the president is sort of doing that, saying he would like a weaker dollar, telling the fed to lower Interest Rates to weaken the dollar. You would move on to lower relative Interest Rates if you wanted to be really fancy, you would include inflation. Well look at that and more in a second then you would actually intervene in Foreign Exchange markets if thats what you wanted to do the president has talked openly about fed Interest Rates and weakening the dollar, likely than the past three, four or five president s combined this has had little to no effect on the dollars broad Exchange Rate unless you argue it would be Even Stronger if the president didnt openly advocate weakening the green back rate differences between europe and the u. S. Look to have been more important but not decisive. The dollar strengthened against the euro while the fed was raising rates. It began to weaken well ahead of the feds shift to hold and then its easing. This shows rate differences a pretty uncertain tool. If the move isnt coordinated other Central Banks can just cut their rates to maintain the gap. That leaves actual intervention where the u. S. Sells dollars and buys yuan or euro in these cases. Typically thats only worked as part of a coordinated effort with other countries Mark Chandler who helped me game this out points out the u. S. Would end up check this out youd by european bonds with a negative Interest Rate you would pay the germans to hold u. S. Savings or youd buy chinese bonds. Youd help fund the chinese belt and Road Initiative which is all this is about. So currency intervention a tricky game. Its not a game you should play at home. Maybe not even if your home is the white house. I like the openmouth operation. I like the phrase. You remember robert reuben, strong dollar, john snow, paul oneill, tim geithner, larry summers, strong dollar and the president just tweets stuff out and the market kind of ignores it, i guess. Its a little unclear. I guess you could argue it would be stronger if the president wasnt openly talking about it but the thing is i dont hear from currency traders or other folks that they think the United States is going to go in and do an actual entintervention we have a small amount of munne money in the stabilization fund. Typically the fed comes in and matches that amounting youre shaking your head not going to happen. It would not be effective unless there was what you have to do is you have to have a definitive other side no side to the traders. You have to say, look, we are weakening this currency. If you bet against me, you will lose and thats why you bring all the other Central Banks into this operation. You have to breathe the fear of god into the traders they cant feel like theres a winning trade here against the government. Lets bring in some other voices to this conversation. Steven parker is here, liz young is also here, director of Market Strategy at bay melon investment a investment guy adami is here. Liesman is hanging out weve got everybody here im going to go to both of you real quick you have the bond market flashing lights and sirens and the whole situation. The equity market, i dont know doesnt care. Doesnt seem to care. What gives. The equity market cares intraday but then we close and it doesnt seem to care. You have to watch the signals. So the washington watches the inversion signal at the we see some of that gyration intraday the recession signal is 2 year 10 year weve had inversions without recessions but never really had a recession without a preceding inversion. So the recession signal hasnt happened yet we dont think theres a recession on the horizon it still makes sense to own stocks at this dividend young above the 10 year. What do you think, is it a real signal . We were talking about this in the last hour. I dont believe any Single Market has Perfect Vision into the future the whats the word im looking for. The accuracy that we impart to somewhat randomly divined numbers in the market is beyond me it happens, its not perfect what is the phrase that was coined the market has predicted nine of the last five recessions if youve got Something Better than 50 , you may wanting to go with it. Steven. I think you have to keep in mind the buyers in the fixed income market, especially treasuries and agencies are not as price sensitive as they have been historically. Central banks who own 50 plus of the market, so i think thats skewing some of the price movements that were seeing. I think equity markets are reacting to that when you look at what people are buying, the shift this year has been into defensive bond proxies. Investors looking for yield anywhere theres been 5 billion into etfs in the traditional defensive sectors. 20 billion has come out of cyclical sectors equity Market Investors are clearly voting in response to the bond market. What do you think of the valuations of those defensive sectors at this point . Were cautious on them. So a potential bubble, were not there yet, but were seeing inflated valuations for those sectors. I think theres a low volatility bubble right now. If you look at any stock with low volatility, its trading in the stratosphere but to your point about tools for forecasting recessions, so one of the things we came up with was the necessary and sufficient conditions for a bear market there are 19 things that generally happen im not going to go through all of them, but credit spreads, tightening of lending standards, et cetera. And right now less than half of those conditions have been checked off. Id like to see that. Its interesting. Malcolm gladwell says theres 11 things that have to go wrong for a plane to crash. Theres 19 things that have to go wrong. How many are there . 47 have been ticked off. Just less than half of them. Thats pretty good. Thats a lot, though. Its a lot, but typically before the end of a bull market, youve seen 80 or more triggered. Liz, i want to ask you a question first of all, would you be surprised to wake up and hear the United States government is intervening to weaken the dollar what would happen to your thinking about the stock market if that were to happen i would be surprised if they could actually do it effectively for a long period of time. I think they could send a message that wed like to intervene and affect the currency but i dont think they have enough tools to actuallydo it over a longer period that would be lasting and actually bake through into the economy the market would react certainly. How how . Is it a plus for stocks . There are people who argue that the president is essentially right here and this is a subject for another day, which is that the dollar is overvalued and considerably overvalued. Mark chandler walked me through a bunch of things. Another day. But the dollar is overvalued and we would get some boost to stocks and earnings from a weaker dollar. Which is why the administration is going after the fed because we want to put pressure on the dollar but the issue is at some point the fed will have to take the market on and say were not going to keep cutting because we dont have any good reasons to keep cutting well cut a little bit and i think they got backed into a corner in july by the fact that we had 100 chance priced into the market that they would cut do you think thats a mistake for them now no, i dont think it was a mistake. If they didnt do it, financial conditions would have tightened to a point they couldnt reverse so they had to do it in july i think they probably do one more this year at some point maybe later this year or early next year, theyre going to have to say what gives . Whats the data thats telling us we still need to cut and theyll have to stop. Steven, how do you game out if we got the headline currency war, u. S. Intervening in the currency market. How would stocks react i think there would immediately be a pickup in volatility but i think one of the places you would look if you were to actually see policy that could weaken the dollar, which to this point has been more of a hope than a reality, look for international markets. Look at emerging markets specifically thats one area where we like the fundamentals they have suffered a lot more pain as a result of the trade headlines than we have here in the u. S. Valuations are discounted. That china stimulus in the beginning of the year should be kicking in now if you started to see that dollar weakness, i think thats another tailwind for emerging markets which makes for a compelling opportunity. And commodities commodities could do really well energy, which is dirt cheap at this point could be the sector to own in that environment. If they were to actually intervene. If they intervene. Exactly but a weak dollar is not priced into the markets right now a weaker dollar. A weaker dollar. So that means that the market really thinks, its hard to impart all this stuff, that if the fed moves more, we expect europe to move more, which means that gap that weve been talking about all week is going to remain i want to say one thing. I want to applaud the president for the following thing. For years ive been complaining that the treasury doesnt talk about the dollar the dollar is too important, like a socioeconomic factor, to not discuss. We need to talk about it a few minutes ago you said you liked when the treasury i didnt say i liked it, i said thats what used to happen. I think we ought to talk about it because people are affected by it and its important. But you want them to say we want to devalue our own currency i think we ought to have a conversation about it. Nobody would talk about it it would just go on. Ive interviewed every treasury secretary going back to brady, i guess, even, and they didnt talk about the dollar. But the dollar affects the way people live. It affects businesses. It affects everything. Its okay to have a public conversation about the dollar. Whats not okay is i dont think the president can get there from here without allies. I dont think he can get to the right value of the dollar in the world by himself i absolutely agree with that, especially because demand for the dollar is going to stay here theres no other good option if youre a safe haven currency investor, youve got the pound, the yen or the euro. None of that is attractive compared to the dollar so well have demand that continues to prop it up, no matter what we try to do to weaken it. Were going to thank everybody for this fabulous conversation. Theres a lot of people to thank. So im just going to say thank you, everybody. Steve, liz, steven, sevita sometimes youre a participant in the show and sometimes youre a spectator like i enjoy i love that. Learning give and take here. On a friday morning fantastic. Coming up, the fda investigating reports of seizures after vaping, despite Companies Pushing that it is a safer alternative than smoking former fda commissioner Scott Gottlieb will join us. Later, with boeing 737 max grounded, airlines around the world are scrambling to meet the growing demand for travel. Phil lebeau will look at how airlines around the world are getting creative stay tuned, uyore watching squawk box on cnbc hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Cannabis stocks having such a good conversation here with the fda commissioner well get to scott. Go for it. Thats like the ultimate tease, you want to see what were talking about. Cannabis stocks could see some movement when some of the bigger names in the industry. Dom chu will join us with more. I know dr. Scott gottlieb is over there and theres probably a reason why youre going to be talking about a lot of different things, but marijuana, cannabis, pot stocks are probably going to be a big focus for not just you guys but a lot of investors out there as well. Thats because we have a lot of big names reporting next week. Weve got cronos yesterday but among some of the biggerish relative names in the marketplace, Medipharm Labs comes out monday, tuesday weve got tilray and wednesday Canopy Growth the ones we want to focus on more is tilray and Canopy Growth they have become so much more prevalent for marijuana investors out there. Tilray yesterday got dea agreements to kind of send more cbd to nyu for testing in Academic Circles canopy, were going to talk about this idea that constellation will owns the massive part of them take a look at this. If you look at the overall movement in pot stocks, they got off to a really hot start last year and then since then tilray has dropped about 85 from its highs. Pun maybe not intended canopy is 43 below and Medipharm Labs about 14 there has been a shift from some of the high valuations weve seen one place to put this all rubber meets road, andrew, is in the etfmg that tracks many of the ones in the cannabis system. The important part is you can see going back to the highs of last year they lost about half their value. This etf going into the december 24th lows and were up roughly 25 or 26 since then. But check out this that has been a steady decline over the course of the year, so can anything happen with these big reports, andrew, that will get these companies to get that trend reversed and moving to the upside again that will be a big question for investors next week, especially with canopy and tilray in the middle of next week. We have a guy who may know some of the answers. Right over here. The fda continued to investigate over 100 reports of seizures after vaping adding to the growing concerns over the safety of ecigs and other devices. I want to bring in our guest, former fda commissioner dr. Scott gottlieb hes also a cnbc contributor conversation, folks, that we were having offair was about cbd and whether you should take cbd before you go sleep. I was saying occasionally on a sunday night i take melatonin. I dont know if anybody does that. No. Ive done that. Now people are doing cbd. Ive never done that. I want to talk to you about this vaping situation but youre not a fan of the cbd situation. There are demonstrated therapeutic uses for cbd i suspect were going to demonstrate clinical uses for cbd but you need to be delivering it in a purified form, in standard doses so you know what youre getting what were seeing on the market, a lot of the cbd on the market is all different formulations and potency. A lot of it does have high concentrations of thc. I was taking calls on another show this week on cspan from a caller who gave cbd to her dog i didnt ask her if he had the munchies too when you get the cbd online, a lot of times it has high concentrations of thc. Right now all of this cbd is ill local in food or dietary supplements. Its illegal . Theres nothing legal on the market except for some of the emulsions that dont get absorbed like creams and the drug thats approved you can divine a legal pathway but the fda would apply good manufacturing practices to make sure its manufactured in proper formulations theres no purity standards, no dosing standards, so anything that you consume is not legal. Really . I didnt know that. I sent dr. Gottlieb a picture. I was at brunch one sunday and on the menu theres a line that said add cbd for 5 to your entree its illegal. Right now cbd because it exists as a drug or is subject to substantial clinical experimentation, you cant mupu it into the food supply. Fda would have to exercise Enforcement Discretion to allow it to continue on the market if they did do that, if they chose to do that, they would probably want to outline that it has to be manufactured in proper formulations you have to make sure theres no thc in it. I assume you must get approached by all sorts of people every day, Venture Capitalists and other people who are trying to invest in these new bd companies do you ever think to yourself i need to get into this business or no . I do Venture Capital work right now. I think people stay away from these opportunities because they know my background look, i think this is going to be an opportunity Going Forward, but we really need to sort out the regulation in terms of how to allow this onto the market and what the appropriate uses are. Just because theres not a demonstrated therapeutic effect from all these compounds doesnt mean there shouldnt be a market for them people should be allowed to use a substance if its legal and doesnt cause harm the problem with cbd is in high concentrations it can be harmful. So you want to make sure if theres formulations as a food its in a low concentration that wont cause any harm. Theres also another point you made before. Its not just high concentration for one thing but if youre putting it on your body as a lotion, injesting it as a gummy, cumulatively what is that . Whats really ignited this debate was a 2018 farmized the hemp cbd is a high margin derivative. They want to put cbd oil into commerce and thats whats opened up this event. Can we talk a little about vaping and these seizures that people are talking about and the correlation between them by the way, i dont know whats going on do you guys realize when you walk around new york city now everybody is vaping . Yes. Everybody. You can smell strawberry and all sorts of weird vape smells. I know its a thing but for some reason this summer its everywhere in a different way. My last week on the job in april i put out a Public Health advisory that we had evidence of 35 seizures that occurred in the setting of vaping. Some were a day later, some were immediately after people had used vaping products, some were in people that had underlying seizure disorders. We knew that would instigate additional reporting when you report a safety finding, you instigate additional reports 92 additional reports is a lot i think its concerning. What you want to do is investigate those carefully and look at the cause or the potential for causal relationship and things like did the seizure occur right after someone used the vaping product that is more suggestive that it was the vaping product remember, these vaping products are very high concentrations of nicotine they replicate the experience of smoking so youre getting a quick, high hit of nicotine. Could that precipitate a seizure in an adolescent brain thats something we need to investigate. In all these cases it is the nicotine that is under suspicion versus some of the additives that are used in order to deliver the nicotine to the system unclear some of these are probably pharmacies some of these were situations where people were also vaping marijuana, thc. So this was not all the same. Different brands, different everything. Different everything. No correlation between one or the other . Well, i dont have the data now. I have the 35. I knew what i saw before i left. I dont have the additional 92 cases. Its always messy. Any time you get public reporting, you have to investigate the individual cases. Thats why it takes so long because you want to find out all the circumstances of each individual case. Thats what fda is probably doing. Theyre going back and interviewing the people involved in these. Should people be concerned that their lung tissue is changing because of vaping its a less harmful alternative to smoking its not safe. We had evidence and we undertook a major talstudy. The National Tobacco survey data will be out showing whether theres an increase in vaping in kids. Are we looking at potential warning labels like tobacco had with cigarettes . They are already regulated and having warning labels that says nicotine is an addictive substance. If you have evidence, it would support a warning label. Ive got one final question and i want to get back to the markets at some point because the markets are falling. Down to 144 points this morning if we opened up right now. Real quick, i know you have some views on beyond meat we talk about beyond meat all the time talk about the Health Effects of beyond meat. Look, its processed soy, but theres no reason to believe that these are unhealthy products theres impossible foods as well. Impossible is soy and then beyond meat is protein isolate. Theyre both processed in order to make it like a burger. Exactly ive had both, ive eaten both i have no reason to believe that these arent products that cant be a healthy part of a normal diet the space that i like a lot is the cultured meat space. I think theres going to be a real opportunity from there as well. Scott gottlieb, always great to see you thanks for coming in. Coming up, its been a wild week of trading on wall street well finding out where you should be putting your money to work after this break. We are looking at dow futures down 148 right now well be right back. Announcer time for todays aflac trivia question. In what year did the cubs host their first night game at Wrigley Field . The answer when cnbc squawk boxonnu cties but not when to use it. Do i use aflac when the kids get slime in the plumbing . No. Thats home owners insurance. Slime in my motorcycle. No. Thats motorcycle insurance. Slime everywhere . Ughhh nooo, theres no insurance for that. Do they help when i have bills Health Insurance doesnt cover . Yeah thats it aflac gross guys. Get help with expenses Health Insurance doesnt cover. Get to know us at aflac. Com announcer now the answer to todays aflac trivia question. In what year did the cubs host their first night game at Wrigley Field . The answer, 1988 were looking at a lower open this morning, even though the s p and nasdaq in yesterdays session became positive for the week. The s p now looking to lose about 18 at the open, the nasdaq looking to be down 66 points and the dow looking to be down by 148 points the qs are down 8 and the faang stocks are down basically a full percent. Lets check on the bond market because that has been driving the action in the equity side of things 10year note at 1. 007 were watching this very closely. Lets get some investing ideas from guy adami and sevina. Lots of ideas. What kind of ideas do you have dont say that with such indignation. I could see it in your face. Im curious. Ill give you two we just had dr. Scott gottlieb here and he started with epidialects. Gw pharma. On fast money we do the power pitch. Fast pitch. And we talked about this stock 18 months ago. Look at the quarter they just reported revenue beat in a major way. You wonder how many more indications. People say valuation is crazy. They said that 100 ago. Thats one number two, and ill say it again. History is riddled with disastered outcomes born of great intentions and thats what were seeing now and its manifesting itself in the gold market it goes up every single day. Pete najarian has been on this for a while and weve been talking about it at least the last six months. Gold is going higher. Should there be a place for gold in your portfolio these days i think gold is a great diversifying asset class stocks and bonds have grown more correlated and gold is more uncorrelated with everything so its a great place to hedge your risk but i think within the market what is most compelling to me right now and what the world isnt giving credit to is the u. S. Financial sector. So financials are returning the most shareholder yield out of all 11 sectors, and they get no respect for this and i think theres a real opportunity right now to buy yield and cash return at a very reasonable price so little known fact if youre in the early stages of a fed easing cycle, lets say the fed continues to ease, which we think will happen, two more this year, best sectors to own are those with the highest cash return profiles. Right now thats u. S. Financials and it goes down every day for no great reason. Isnt that sort of a winwin situation . Youve saying if this is an easing cycle, its great to own financials but if this is a midcycle adjustment, then its still great to own the financials because the yield curve will steepen exactly really . Oink thati think thats reals going on weve had a bull market where financials have underperformed almost every year. They have transformed themselves into this new high quality sector theyre very, very similar to regulated utilities in my opinion but trading at half the pe multiple of the regulated Utilities Sector record discount to utilities, same dividend yield. Theres something gone wrong here. They are utilities theyre regulated. But they dont have the same avenues to make money the way they did ten years ago but ill say this, and i understand valuations on a pe metric might make sense. I look at banks price to book and price to tangible book i have not been a fan of financials when citi trades at a discount to tangible book, its historic the last 18 months, its been a buy. It traded down to 65 you have to ask yourself where should it fall i mentioned Goldman Sachs earlier. These banks exjpmorgan trades somewhere between tangible and book value i think thats where theyre meant to trade. We will continue this conversation were keeping our eyes on the markets. Things keep sliding downwards. Were about 154 points down on the dow if we opened right now we still have two hours to go. Coming up, airline veteran bob crandall on how airlines are scrambling to keep up demand while boeing 737 max remains grounded weve got attrghahd. A back in just a moment welcome back to squawk. With boeing 737 max grounded, airlines are scrambling to meet the growing demand for air travel theres a question what are they going to do about it its called wet leases phil lebeau joins us with more now. Andrew, a wet lease is where an airline will go to a charter Aviation Company like this one, which is just north of montreal, and say, you know what, can we take your 737, in this case 737200 along with a crew and youll fly our routes for us thats what a wet lease is its becoming increasingly popular for a number of airlines when you take a look at the Aircraft Leasing market right now, the big focus for all airlines that had the 737 max which is now parked is finding the planes to cover their schedules. They are paying more for shortterm leases. Depends on the aircraft and the contract thats been written but they are paying more in demand right now older 737s, which is why we are here they have ten 737200s that they can basically modify to whatever the airline wants. They have already leased out a couple to sun wing, a discount carrier out of toronto when you talk with the executives here, they will tell you this is a summer where their planes are in demand i think it was after a few weeks after the issue with the 737 max started to get very publicized we started having requests about our availability for summer. And then it changed to will you still be available during the fall and now were talking about christmas time take a look at the Aircraft Leasing Company Stocks the publicly traded one. Air lease as well as air cap, their planes are in demand but theyre also impacted because they have customers who have maxes that are not being flown right now. Quickly, guys, i want to show this to you. The beauty of what theydo here the side of the 737 can open up and they can load in as many seats as an airline would like do you want it for 120 passengers, 125, you name it they will do it. They just slide these seats in and out. Believe me, these guys are in demand right now. As a passenger, phil, you know that its not an actual lets Say United Airlines plane . Well, the livery clearly says nolinor. So it doesnt say sun wing on the outside of the plane but the point is theyre covering the schedule, and generally speaking most passengers dont care. Get me on a plane, i know that its safe, get me from point a to point b. For more lets bring in airline veteran bob crandall, a former American Airlines chairman and ceo on the squawk news line. Bob, always great to speak with you. Good morning, melissa. Summer is a tough month there are a lot of people traveling on vacation, there are thunderstorms all over the place, weather delays. Do you think that the airlines are handling the grounding of the 737 max well, and do you think that its ultimately impacting passengers and the routes in terms of delays . Oh, theres no question its having an impact, melissa. Look, the problem is airlines and Airline Schedules have a longer planning horizon than is permitted under these circumstances. When the 737 max was grounded, everybody was talking in terms of a delay of weeks or months. Now its been many months. The consequences that the airline planners, the guys who do the schedules, just dont have a reliable handle on how many aircraft are available. As a consequence, theyre sort of constantly making shortterm changes. Thats adverse to their Financial Wellbeing on one hand and also adverse from a consumer point of view, because the consumer is dealing with the kind of shortterm confusion that the airline in fact is wrestling with because they dont have line of sight to when these airplanes are coming back. So yes, its had an effect i think in the long run quite a profound effect. In the short term of course the airlines are doing everything they can to avoid inconveniencing people but it is a very difficult situation. Hey, bob, when these planes do come back online, what do you think that the airlines themselves and boeing together with the airlines are going to have to do to instill confidence in the marketplace does it have to come from the airlines, from boeing, from the regulators whos got the credibility in this well, i think i think you put your you kind of put your finger on it everybody has a part in the credibility issue. The public is going to want to know that not only the faa in the United States, but regulatory agencies in other countries willing to accept the tests that have been run when all of the regulatory agencies have signed back on and when boeing is signed back on and when the airlines themselves have put their own pilots in sim lar simulators to test the changes that have been made, i think the public will say these are very complicated machines but a number of agencies have said its safe to fly and i think people will get on the airplane without much of a problem. However, before that happens youve got to have that simultaneous approval by multiple parties, and that, as you know, hasnt yet happened and we dont really know what the schedule for that is. Bob, we appreciate your time. Bob crandall. Always a pleasure, melissa. Coming up right here on squawk box in just a moment, protesters occupying hong kongs airport as they look to gain the attention of global leaders. Weve got the details on whats taking place there and the latest data out of china in just a bit. Squawk returns right after this weve got a developing story out of hong kong once again this morning. Hundreds of protesters are rallying in the Central Terminal at Hong Kong International airport. I want to get over to euniyou ee yoon who joins us with the latest. Reporter the protesters have crowded into the arrival halls and are handing out antigovernment leaflets in order to raise awareness of some of their concerns to the visitors to the city now, this sitin is expected to last until sunday and its just one of whats been a series of protests around the city which have started in june and eventually first started as a march against an extradition bill but then they morphed into whats become a prodemocracy and antibeijing demonstrations. Now, these moments ago the hong kong leader, carrie lam, called for calm. She held a press briefing. Sh she showed no willingness her financial secretary says the chances of a further slowdown there is high and the problems in hong kong are now filtering into whats become an already tense relationship between the u. S. And china in beijing, the government here has been characterizing the protests as organized by foreign powers and in particular by an american diplomat in hong kong in fact state tv has described this political officer who ended up meeting with one of the opposition leaders as a black hand creating chaos in hong kong a pro beijing newspaper has published photos and personal details of her and her family. The state department ended up slamming that decision and calling china a thuggish regime for releasing that information and today the foreign ministrys Hong Kong Office had a response for the state department saying that the blatant slander against china has exposed the u. S. , quote, gangster logic and hegemonic thinking so this hong kong issue is now weighing on the u. S. china relationship so separate to that we had more data out of china on inflation, which showed that deflation fears are starting to return here Producer Prices contracted for the first time in three years. The cpi was pushed higher. A lot of that because of food, in particular vegetables as well as pork. China has been battling with a bout of african swine fever and also some of the manufacturers have been concerned because of the weak demand brought on by the trade war and slashing prices guys all right, eunice, thank you. Eunice yoon in beijing for us. Coming up, democrats are headed to iowa with their economic message to farmers. Well go live to des moines. Dont forget the alpha investor summit is back well explore the Critical Issues with david taylor, nelson peltz, josh harris and many more plus joe kern enwill sit down for a oneonone with Vice President mike pence lirican register for tickets at devengalpha. Com. Squawk box will be right back. 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 democrats are descending on des moines, iowa, this weekend to take their trade message to farmers. Kayla tausche is right there and joins us this morning with more. Kayla. Reporter good morning, andrew the iowa state fair is an essential stop for candidates to refine their swing state stump speech and try to reach the 1 million fair goers here at the retail level but for the next four days, it will also be the epicenter of the trade debate as democrats rip into President Trumps trade policies for an audience of farmers who are currently caught in the middle. Take brad meckley, for example he runs a farm in elkhart, iowa. He used to sell his pork to china. He said his farm will barely break even and hes aflied for farm aid he voted for trump in 2016 and said hell give the president another year before deciding whether to change his mind i asked Vice President joe biden what his message is to farmers like meckley who are willing to give the president a little bit of time and suffer a little bit of financial pain. I think its going to cause a lot of them to go bankrupt i think its going to cause an awful lot of Industries Like the industries that make the tractors and make all the farm equipment, theyre going to be in real trouble. Reporter a new Monmouth University poll that was out just yesterday says that biden does still have a lead here in iowa at 28 . Senator Elizabeth Warren close behind at 19 . Of course the iowa state fair is home to many makeorbreak moments. Vice President Biden has had a few gaffes here, but still many months to go before the election guys. Kayla tausche at the iowa state fair lets talk trade, politics and the markets with our guest host, savina, and guy adami. What are the assumptions that you are making in terms of politics in 2020 are there assumptions . Yeah. One big assumption is that this trade war is probably going to last for a while so the advice we have for investors is to stick with more domestically Oriented Industries within the u. S. Market you know, i also think that Growth Stocks, like we were talking about uber earlier, Growth Stocks are probably a better place to be idiosyncratic companies that have less to do with the macro environment. Because as we know from the last few months, tweets and headlines can really roil sectors. Look at semi conductors today. So theres a lot of theres potentially more pain to be felt from this trade war. I do think that there are a lot of really cheap stocks in the equity market right now that are attractive, that have very little to do with trade. In fact we wrote a note the other day in research where we asked our analysts to identify Growth Stocks that could rally based on the selloff that wed had. We were flooded with emails from our analysts there were a lot of great ideas out there that are insulated from trade risk. Do you stay away from these trade stocks i think so. I know weve got to go but i think people are underestimating hong kong. The pla is the largest militarized force in the world something bad appears to be happening there. Something bad happens, i never thought there would be a trade deal in the first place. That will galvanize congress the dollar will get stronger and i think its market deleterious great word for a high coup. And thats whats happening ahead of the weekend. I believe so. Thats part of it. In my opinion, andrew. Thats all i can give forth are opinions all right youre leaving im getting out of here ill see you in the 5 00 show. Oh, no, youre not going to do 5 00 tonight im off in the afternoon. Sorry. Thanks thank you for being here. Yeah, its been fun. Well have much more on the market selloff straight ahead plus well talk to an analyst who just raised hipre taets icrg on uber. Squawk box will be right back. Do you have concerns about mild memory loss related to aging . Prevagen is the number one pharmacistrecommended memory support brand. You can find it in the vitamin aisle in stores everywhere. Prevagen. Healthier brain. Better life. Lower carbs. Lower calories. Higher expectations. The light beer youve been waiting for has arrived. Market whiplash. Is it supposed to stay upside down like this futures again pointing to a lower open on wall street. Isnt this where we started the week shares of uber under pressure this morning can the company ever find a way to make a profit well talk to an analyst who raised his price target overnight. Plus how to grow your money in this volatile market. A top investor tells us where theyre putting hundreds of billions of dollars to work. The final hour of squawk box begins right now announcer live from the most powerful city in the world, new york, this is squawk box. Good morning welcome back to squawk box right here on cnbc im Andrew Ross Sorkin along with melissa joe and becky are off today. Our guest host is savina, the head of u. S. Equity and quantitative strategy at bank of America Merrill lynch. The market will open up it wont open up. It will open in about an hour and a half and its going to open down, lower, 136 guy adami explained this to me, guys i often say the market will open up down. It cant open up down. It can open lower. The nasdaq would open lower, 64 points off, s p 500 would open lower, 17 points down ill show you treasury yields right now because we are getting close to that sort of terrible sign the 10year note right now at 1. 712 and the 2year at 1. 614. The big corporate story of the morning, ubers disappointing Second Quarter results. They lost 4. 72 a share, wider than the 3. 12 a share expected by analysts. Growth in its ride business slowed well talk much more about uber with an appear linalyst who rai price target then a wild ride as you know all week on wall street with some big downswings. Some upswings, but based on where we are in the markets, almost like the volatility never happened at all. Dom chu joins us now with more. The markets have been going up, down, up, down, up, down anyway, we are just about where we were to start the week. Were not even factoring in what happened last week after the fed rate announcement and the presser from fed chair jay powell and everything that happened with President Trumps tweet about china and tariffs. But lets just start with fridays close because from fridays close we already had some negativity yet entering into this week then from there we saw a pretty decent move to the downside there. China devalued its currency not actively but let it fall we saw the dow drop by 767 points big moves again the next day as a bounceback happened we started to see a little bit more in terms of perhaps sentiment shifting to people wanting to buy some of that dip. A little Interest Rate play coming into effect now and then on wednesday, yields falling, safe haven bids all over the place for things like gold and treasuries and government bonds we saw that market drop huge to finish only down 22 for the dow. Then yesterday we saw a nice surge higher th eer as yields sd to stabilize a little bit more so right now as things stand were just a little over 1,000 points or less than 4 away from record highs in the dow, about 3 for the s p 500 the question now remains we are bumping into, melissa, i know you like charts, the 50day moving average is in play right now for the s p. Were bumping right up against that and were just below it for the dow. Right now it doesnt seem like its going to be in the cards. Back over to you guys. Dom chu back at headquarters. T charlie is here whos called a number of big market moves this year and mike santoli joins us charlie, ill start off with you because you seem to have an explanation for this sort of volatile price grabby kind of action weve seen the past week. Sure. I would say that as we were transitioning, it was only two weeks ago that we were making new alltime highs in s p and nasdaq across the month of july you started seeing signals from the vol market that were quite to the contrary with regards to pricing in some types of tail types of events. And as you saw that people were actually preparing for some sort of tail type of event in the market, either crash up or crash down, the common kind of rhyming nature of the slow momentum higher and then crash down is oftentimes theres an overlapping or convergence of what i call short gamma, which is dealer positioning with regards to selling options to clients and certain levels there where dealers get short gamma meaning the low the market goes the more they have to sell to stay hedged. Which exacerbates the moves. And this convergence aligns with Systematic Strategies typically of the target volatility or risk control nature who are implicitly short volatility, implicitly short gamma. Once you have that macro catalyst in the form of the trump tariff tweet escalation, when you gap down, thats how you get the ball rolling into this so thats how weve jumped down. Now there is one more incremental catalyst as well, which perversely then sets the table for the actual rally up over the course of, i think, in my mind the next week or two actually. Hey, charlie, do you ever look at the commission, the cftc, the commitment of traders report one thing i noticed was a few weeks ago when the market as at alltime highs, the net positioning in s p futures was close to record highs. That hasnt really come off much in the last week despite the fact that weve had a selloff theres a lag in the data, but what do you think about that as an indicator of shortterm moves . We always want to get a sense certainly with regard to the Leverage Community, the Hedge Fund Community how theyre positioned just because by nature theyre more tactical in short term oftentimes position is looked at as a contrarian indicator. I myself am trying to find where the maximum pain points are. The thing that i really pay more attention to, and we have internal models with regards to where the Leverage Community is, where the Systematic Community is and the scale of those positions, how much leverage has been deployed, thus how big the sizings are. In classic minsky fashion, stability breeds stability it has contributed to this trend momentum, easy carry dynamic in the market. Absolutely. Per a target volatility strategy need to deploy more leverage onto that position to maintain your exposures and thats why you have those crash downs. In terms of where youre seeing that leverage deployed, was it mostly concentrated and piling into the safe haven trade and thats why we saw such a giant reaction when we had the yields drop . Very much so. Just because a trade is crowded doesnt mean its the wrong trade and doesnt mean its going to blow up without question its been this long duration, long fixed income trade. The idea that weve tightened ourselves into a slowdown. Its not just a fixed income trade where its treasuries or euro dollar or Interest Rate futures that are positioning f a recession or end of the cycle, its expressed certainly in the equities trade your long secular growth, idiosyncratic growers that dont need it to work. Also on the opposite side are the bond proxies staples, reits, those types of things that have outperformed the highflyer faang type of stuff. The short side are that trade are cyclicals. I believe over the past year the only four s p sectors that are down are financials, energy, materials and industrials. So i mean that really tells a story. So the duration trade isnt just a fixed income trade, its an equities trade and its everywhere. Just another way to get at all of that is when bond yields were kind of low and steady, it was kind of this favorable backdrop that said this supports equity valuations. This allows me to say volatility will remain low, i can buy those bondlike quality stocks that are out there. When theyre kind of accelerating lower, bond yields, then the signalling effect and instability effect is, whoa, Something Else has changed here. So there was a delicate balance in the market going into august which is we need to have the incrementally dovish fed, we need to bridge ourselves through this flat Earnings Period and we need confidence in the next couple of quarters that companies will earn more money we havent really gotten that as weve had the macro stuff be unfriendly in the course of china trade debt so the way the market has reacted here, we got back all of mondays decline the market stops on a dime exactly where you wouldnt really be sure what the next move was yesterday, which was just this 50day average but just going back to fridays levels so i think this is where we are. Youre in this tactical moment always and bond yields will give permission for the next move or not. Is that what youre talking about in terms of the swing lower matched by a swing higher. Right so i think the moment with regards to that dovish back stop, feel good and were still the cleanest dirty shirt with regards to the u. S. Versus the rest of the world, the inflection there was we went from a bull steepener with regards to the shape of the u. S. Interest rate curve which was pricing in more fed cutting. What ended up happening power fully over the course of the last month was you had a bull flattener. That was really when growth expectations, the long end, started rallying and the curve started flattening, that was the shift. Now as pertains to equities in the trade right now, the perverse thing is that all of this short gamma that dealers have, all of this deleveraging, the systematic funds who use volatility as their toggle to deploy leverage on the position side is they have deleveraged. Now theres a dynamic where the market is particularly short vix upside to one play in the market, the returning of 50 zen cent and specifically the call wing, really crashy type of stuff. As we move toward expiration next week, if they hold in this stable zone, a lot of those are going to start to come in and those are going to head towards expiring worthless all the dealers, all the options desks that are short all this crash and have had to go around and daisy chain other desks to hedge themselves and created all this demand for s p downside, thats why what i was speaking about in july, where volatility was telling us the vix was telling us skew, that some sort of crash or explosion higher was coming those then have to be reduced. So those hedges start coming off into expiration. And thats whats going to push the market. All this is going on, Retail Investors got very bearish with a 5 pullback. Other active managers so in other words, the implication of a 5 shake, if thats all this was or 6 shakeout is the real money people watching from home have become anxious about it and so net bullish Going Forward. You see it with all the sentiment data all the sentiment data has turned very bullish or excuse me, has turned very bearish which is the most bullish indicator for the market you said it best, the u. S. , the s p 500, is the cleanest shirt out of a bunch of dirty shirts cleanest dirty shirt. Where else do you go to get people have that thought of nothing has really changed for microsoft. The Software Stocks were kind of punished on monday because theyre heavily owned and you had to sell something and turn it into cash and then they bounced. You pair it up with whats happening in expiration, you see the markets going higher vol is going keep bleeding because theres the same short gamma, short options dynamic there where these dealers have to sell more volatility as we get closer to expiration so were dealing with this sticky vix with a vol north of 100 for almost three weeks now thats going to really slingshot equities higher and i think that thats going to kick off this rally, which then you take a step back and you have the backstop of the corporate buyback, which has been a big talking point this week. The majority of companies are through. So the slingshot higher, could we see new records i think we can get back to there. This is how tactical i work, operating a day, week, two week time horizons. We get through options expiration and we can catch that slingshot and then september 1 were dealing with trade tariff and position or not. Then were dealing with fed midmonth, ecb so were not out of the woods by any means. This is a very tactical market. Thank you, charlie and mike. Coming up well get you caught up on a number of developing media stories this morning, plus a rare interview with a top money manager overseeing hundreds of billions of assets. Sebastian page will be our very special guest. It is all ahead. You dont want to miss that conversation quk xetnsig after this see thats funny, i thought you traded options. Im not really a wall street guy. 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 box. We have improved in terms of where the futures are standing the dow is now looking at an open lower of 87 points, s p looking to be down 11 and the nasdaq looking to lose 45 points at the open. Lets talk cbs and viacom both beating expectations in their earnings yesterday but still no word on the expected merger Julia Boorstin joins us now with more andrew, thats right. Neither cbs or viacom would comment. Instead the two companies focused on their strength in the changing media landscape joe ianello saying cbs all access and their showtime app said the two apps are on track to reach 25 million subscribers by 2022. Cbs all access is adding childrens programming with the library over 1,000 episodes plus new original series and they are accelerating their launch of cbs and local news streaming services the viacom ceo talking about domestic ad revenue returning to growth and their studio pair mounting is on track to deliver full year profitability. He admitted the pricing of disney plus is competitive but viacom aims to play in all parts of the streaming wars as well as offering adsupported pluto the two sides are aligned on leadership of the new back backish would be the ceo with ianello overseeing the cbs assets but the companies are still working out the final financial details. Andrew. Thank you joining us for more on this to continue the conversation, michael wolff, cofounder and ce o of activate. You know a little about these companies if not a lot. Everyone has been watching whats happening here. Whats going to happen . The family win. Right its a control company Shari Redstone can do what she wants. The boards serve at her pleasure. For the audience, explain how you think the deal will work itself out given the size of cbs relative to viacom and given sort of the management that we keep hearing about with bob backish running it, how that works. Take over, take under situation . Theyre already i think the big issue today is the exchange ratio, which were not going to have any window into it but i think importantly you have to look at what are the benefits of this. First of all, of course theres cost savings its more leverage with Cable Operators and direct broadcast satellite operators in terms of making sure that the networks dont get retiered as julia was saying, between cbs all access and showtime, they have already got 8 million subscribers. Viacom comes into this with their pluto service, which is adsupported, so theres a lot thats going to happen here. And the fact that both of them have shown increases in domestic ad sales shows that the Advertising Market is still going to be robust. Let me ask you a pricing question, and this will apply to cbs and its all access, showtime package as well and just about everybody in the industry. We talked earlier about what disney announced, hulu and disney plus 12. 99. And espn. Basically you get espn for free doesnt that mean as long as disney is out there with that price, it means none of these guys will be able to raise prices, and what does that do to their business by the way, not even raise prices, some may have to lower their prices. Its not about the pricing, its about the Customer Acquisition costs. So in some cases theyre paying as much as 30 , 40 to amazon to sell their services. And so thats going to put a huge crimp on profitability. Yes, its going to be hard for netflix to raise prices, but its going to be hard for them to gain the scale in subscribers theyre going to need unless theyre going to give away forever a big piece of their revenue. What does hbo do on hbo max hbo max, this puts the pressure on hbo max to not be higher priced than these other services some of it is going to come down to not just the originals that they have but also the Library Programming that they have so with nbc pulling back the office and our Research Shows that people dont come for the originals, they come for the library and may stay for the originals. Julia, i want to get to you in half a second i cant believe that that defies logic. Yes, i think people spend more hours watching the library than the originals, but you think they actually come for the library . Absolutely. Why do we see subs sign up on netflix whenever theres a new season dont they come for that but the library is moving the needle and actually i think theyre going to suffer. The reason why we see that is those are incremental subscribers. Yes, there may be other people who are signing up but the great majority of the subscribers, what theyre watching and what theyre interested in is the Library Programming. Julia, jump in. Yeah, well, i think its interesting because youre talking about the cost of these services how much people will be willing to pay, how all these Different Services will shake out. I do think its worth noting on the heels of those viacom earnings that viacoms big plays in the free ad supported content with pluto tv. As we see disney fight it out with netflix and all of these other pay services, we are going to see the rise of these free adsupported services. Part of that is just because that digital premium content ad revenue is so valuable in this space. Thats what hulu is in a lot of ways about, even though disney is offering this bundle with these three services theyre going t mao make money o those hulu subscribers so i think thats something to keep in mind, there are two different battles here, one for the ad dollars and another for the subscription dollars but back to this question of what draws people into the new services, i have always heard that its the new content, which by the way that netflix advertises with great expense, that brings people in and then what they do once they watch a new season of a new show is they just stick around and watch what used to be the office. Final word. Youre flipping that script around it sounds like. All of our Research Shows the opposite and ill stick with that. Okay. Appreciate it. Great to see you julia, thank you coming up, ubers eventual path to a profit, does it exist after the companys q2 results disappoint wall street well look at what steps might help the ridehailing giant make it into the black and talk to an analyst who just raised his price target ornhtveig stay tuned, youre watching squawk box on cnbc 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 . Or trips to mars. 4. 95. Delivery drones or the latest phones. 4. 95. No matter what you trade, at fidelity its just 4. 95 per online u. S. Equity trade. Coming up, breaking Economic Data weve got markets waiting for the latest Producer Price data we will have it when squawk returns right after this stay tuned Johnson Johnson is a baby company. But were also a cancer fighting, hiv controlling, joint replacing, and depression relieving company. From the day youre born we never stop taking care of you. Welcome back to squawk box. Rick santelli live on the floor of the cme group breaking news, our july read on Producer Price index expecting up 0. 2 on headline, exactly what we received no revision to the up 0. 1 in the Rearview Mirror mirror image of the 0. 1 up we were expecting boy, what a reversal from up 0. 3 last month exfood and energy, down 0. 1 food and energy year over year up 2. 1. Even though this is really on the low side, it does happen to be the 24th 2 or higher number in this series, so a long time with the 2 handle. Exfood and energy trade year over year 1. 7 is a little light as well. Everybody is talking of course about how chinas Producer Prices moved lower unexpectedly year over year, even though their cpi is moving higher its going to be interesting to see if we have any mirror image of that as we get cpi next week. Just to give you a perspective on how big of a week its been i know we had a great bounce in treasury yields, but we gave a lot of the second part of that bounce away yesterday after the options. We settled at 1. 85 in 10s last week, down 15 basis points we settled at 2. 38 last week at 30year bonds. Were at 2. 22. The dollar index is one of the few areas that has had a downward drift but yields have had an anvil drop. Melissa, back to you. Were seeing a slight bit lower on the futures in the equity markets as well as a slight pressure on the u. S. 10year yield here steve is here with more on this. Yeah, i think this is sort of a neutral report in that its kind inform line with the yearoveryear numbers, the exfood and energy 2. 1 cpi and ppi have been tracking pretty well together which has been kind of interesting theres a lot of theres some trade in this number, right . What youve had is some pressure on the middlemen they show up their profit level shows up in this number here that number was down with the most recent round of actual tariffs put in place it fell in other words, their profit margin declined the actual whos paying them those folks who were in charge of importing stuff, and their margins got hit a bit. Also when you look at import price data from china, this is how we know that americans are paying the tariff, because import price data would have to fall an equivalent amount actual to the tariffs for the chinese to be paying it. So this show that its being paid on this side of the border. Its an interesting point, youre right, steve, this number incorporates the tariffs, a little bit of the tariffs so far. The next roundi of tariffs are going to be on consumer goods. Do you worry thats going to be a bigger driver of Inflationary Pressure so i forget the quote that the vice chairman said they increase prices but not inflation. Tariffs are a oneoff rise in the price level unless you keep raising tariffs on a continuing basis or unless you change the psychology of people about the outlook for prices and drive up expectations, you would not change the inflation which is a growth rate. Its not an actual level so im not worried about that. In fact most of the fed guys that i talk to say this is really a deflationary phenomenon youve upset supply chains, youve upset trade back and forth. Basically put different dislocated a lot of activity and that tends to be a deflationary phenome phenomena. I think we should take a look at the outlook for the Federal Reserve as we close the week i think youll find there is a 100 probability that well be talking about a rate cut come september. Very interestingly, we may not have this data here, Something Like a 70 or 80 probability we have one in october. So that went higher let me call this up because we may not have the chart in the back there it takes me a second here. And then its like a 60 probability that we have another one in january so a third cut from now thats been bouncing back and forth to 50 probability between december and january. Quiet time is now for the Federal Reserve. Then it opens up in jackson hole in a couple weeks time, well get a lot of fed commentary out of there then another stretch of time for data but theres three cuts built in. Again the question will be the question we had before does the fed push back against the markets or do they let the market run with its feelings about whats going to happen next im getting cake im getting a really big cake. Its coming, its going to be a huge cake. Its going to be chocolate and thats the way the market is thinking the fed has not said to the markets youre not getting cake. Or if youre getting cake, youre not getting as big of a piece as you think its not going to be as much chocolate as you think the fed has not said any of that. A chocolate cake . Any cake you like because its cake that the market wants. Its cake it could be coconut for you carrot, red velvet. What about pie . Were not talking about pie this is about cake, andrew you may want pie or crumble. The market wants cake okay. Get with it, sorkin. Uber this morning trading lower after posting disappointing q2 results deirdre bosa joins us with the details. Andrew, not only is uber burning through billions of dollars but its Revenue Growth was the slowest that the company has ever disclosed after lyfts results earlier this week, it is difficult to argue that this is a ridesharing problem now, ubers total revenue grew 14 this quarter when you dig through the numbers, take ubers performance in latin america, a hugely important market for not just uber but ridesharing at roglar. Revenue fell 24 ridesharing revenue across all regions grew just 2 this past quarter. Ubers food delivery eats business is still growing at a rapid pace, over 78 , but Competitive Forces there are even tougher and they said it would be years before it was profitable now, perhaps the overarching takeaway, guys, was that uber really couldnt give investors a clear indication when losses would start to narrow. He thinks 2019 will be a year of Peak Investments andthe balanc between top and bottom line is more of an art than a science. Lyfts team, on the other hand, was willing to say quite definitively that last year was its year of peak losses and its heading toward profitability faster than even it expected back to you, andrew. What a situation we have here appreciate it. Joining us for more, early uber investor and advisor, founder of kindred ventures, steve jang and justin patterson. Justin raised his price target overnight from 50 to 54 explain that one for us. Lets start there, from 50 to 54, justin. Yeah, happy to. I actually feel like we listened to two different calls versus the description i just heard so its absolutely true that the reported number was slower, but youve got to factor in currency, youve got to factor in the driver appreciation award that uber awarded drivers that came in. When you do that, revenue actually increased 26 year over year you saw contribution profit turn back to profitability and meaning fully above street expectations so yes, you can look at the headline number but youve got to fix some messy items during the quarter. When you do that, you see a market thats rationalizing and a faster timeline toward profitability. Thats what gives us more confidence uber can trade higher. Real quick, how do you think about uber relative to lyft, though yeah, i would say that lyft on the very short term is the cleaner story. Its a onedimensional company, strictly transportation, strictly north america the earlier comment, uber is a Global Company and competing against Many Companies in the foodsharing and ridesharing business, so we think lyft probably performs better over the next six months, uber over the next 12 to 18. Steve, when do you think this can be a Profitable Company . I think its going to take several years. You know, the company is still in investment mode i said this last time i was on the show, that comparing lyft and uber is sort of apples and oranges right now. Uber is still in investment mode theyre investing in uber health, uber freight, micromobility, Autonomous Vehicles, even uber elevate, which is flying vtel cars the groundwork is being laid out right now. First, theres the law of larger numbers. Number two, what youre seeing right now is a complexity to the business that quite frankly in the short term may look very different from lyft and some of the other competitors, but long term i think theyre setting down the groundwork for future growth so i think its going to be a few years out at least. Steve, when you look at some of the locations globally that uber is playing in and you see the number, i guess this was true before, but you look at whats happening in latin america with the competition with didi, for example, are there markets i mean when there really is a significant competitor in a market with uber, it becomes a very tough business number one, keep in mind that they have a doubledigit ownership in didi from the uber china sale number two, didi is probably the most Comparable Company out there globally in terms of market share and global reach, but uber is still the largest expanse in terms of global reach. When you think about ridesharing for uber, thats the Logistical Network that goes in first and pioneers a region uber eats, uber freight, uber health, micromobility can all roll into those regions this those networks so keep in mind were very in the beginning globally as well as in vertical products for uber whereas a lot of the competitors, whether it be food delivery or whether it be ridesharing are short of onedimensional products that are competing with different sections of uber around the world. Justin, you said initially that you thought that your takeaway from the call was quite different from what deirdre got from listening to the call im wondering, did you think dara, the ceo, was more certain about the path to profitability . Did you think dara was also more certain about 2019 being a peak investment year . Did you get more of a degree of certainty, the kind of certainty we got out of the lyft call from uber last night . Absolutely. You can go back to nelson, the cfos comments, where he definitely delineated between profitability on the core business and Growth Investment in areas like autonomous if you look at the core business, youve seen a return to profitability it was 220 million for ridesharing and eats. If i roll in the other businesses like bikes and scooters, 100 million in profit all in so youve already seen that step occur. So right now ifi look at uber, you see a healthy core business. Some very large investment in these growth initiatives, but id argue at less than one times 2020 bookings, youve got a call option on a lot of very longterm bets that could prove financially lucrative to uber. Does it matter to you when uber achieves profitability . Steve said it could be several years because the company is in investment mode. Whats in your model, and if it is several years, does uber warrant the valuation that you put on it . Yeah, i agree with that weve always had uber turning profitable around 2022 on an ebidta basis thats a very long time basically. But lets step back and revisit q2 earnings. Weve seen lots of Companies Get squeezed by google search. If you look at uber, youve got a hundred million monthly active customers globally theyre engaged about five and a half times per month and theres very minimal advertising costs spent toward google. When i look at how uber can grow over time and create enterprise value, that should be bigger than the otas, the Online Travel agents like booking and expedia that compete for one, two trips a year and have to pay 30 of revenue to google. Steve, i have a question for you about private equity and kind of capital intensive investments in general so uber is in investment mode and weve been in an environment of a very low cost of capital, super tight credit spreads its been a really friendly environment for Growth Companies that need capital. Are you worried at all that if that environment changes that could pose some headwinds for some of these stocks that have had a relatively free ride so far . Yeah, i think thats a real concern for Companies Still in the private market i think the competition out there for uber is sort of onedimensional. Whether its in food delivery, micromobility or ride sharing. And then theres some businesses that dont really have any clear competition like uber freight and uber health and businesses like that. So as the private equity market sort of finds maturity in some of these business lines like food delivery, youll have other Companies Going public within the next year or two i think that moving on, private equity has a. D. D. , right it will move to another vertical to find higher returns so i think that window is probably done for food delivery. And i think that there will be a next set of problems to tackle the interesting thing about where uber is today is that they have got four or five different product lines to really tackle thats four or five different vertical markets globally. Other than didi, there really is no comparable competition. And so judging it against some of the existing comps doesnt make as much sense i would say look at this with a long view. Steve, justin, thank you guys appreciate it. A programming note, ubers ceo will be on squawk on the street at 9 00 a. M. Eastern time you dont want to miss that interview. And coming up, valuable Market Insights from a very special guest. Sbe atbastian page will tell you wh you can do to come out ahead. Well get into that when squawk box comes right back. [ dogs barking ] what about him . Lets do it. [ sniffing ] come on. This summer, add a new member to the family. Hurry into the mercedesbenz summer event today for exceptional offers. Lease the glc 300 suv for just 419 a month at the mercedesbenz summer event. Going on now. Welcome back to squawk box. Here is a sobering market stat as we get ready to close out what has been a very busy week a whopping 58 of revenues from the u. S. Tech sector comes from outside the United States. That now makes tech very vulnerable to a trade war as weve seen these past couple of months the rest of the s p 500 getting just 39 of its revenue from outside of the country well, as andrew said, its with been a roller coaster week on wall street. The s p and nasdaq turned positive yesterday but our next guest says we are still in for a bumpy ride joining us now sebastien page. He leads a team that manages more than 330 billion thank you for joining us this morning. Thank you. You say you dont want to be a hero by being tactical in this market what exactly do you mean by that and what should you be doing now is not the time to be a hero were in for a bumpy ride, as you said we have Major Market Forces colliding. There is lots to worry about of course trade uncertainty, uncertainty around fed policy, but also slowing Global Growth, slower earnings, and generally speaking a wall of worry that the market has t on the other hand, though, global Central Banks have entered a significant and aggressive easing cycle. You have good Employment Data in the u. S. You dont have a lot of inflation. So those forces are colliding and now is not the time to be a hero were not taking large tactical positions. We have just reduced our stock allocation on the margin sebastian, question for you, so if we are in an environment where we have got global easing, across the board, putting downward pressure on Interest Rates, what do you think about equities just as the opportunity for kind of safe high dividend yield. If you look at the s p 500 now, you know, over half of the stocks pay a dividend that is higher than the ten year just curious your reviews within equities if thats where youre gravitating towards . Thats an important question. And when you look generally speaking, whether high dividend stocks or sector growth versus value, utilities, you see this issue where stocks or sectors that are cheap have poor fundamentals and stocks that have good fundamentals like big growers, large cash flow generating Tech Companies are very expensive so this happens a lot in markets, but those threats are pretty extreme right now whether it is for dividend paying stocks or for growth versus value or if you look at small versus large caps. Some of the valuation spreads are worrisome. Growth versus value is in its growth is in its 98th, 99th percentile ref tiff relative to last ten years versus value. What do you do . At the moment, we introduced our overall stock allocation and playing offense in a few parts of the portfolio relative to growth versus value, we have a small overweight to growth because ultimately were late in the cycle, and those companies, we dont want to hold too many cyclicals when youre that late in the cycle other places we play offense, while reducing risk at the top level, would be emerging Market Equities theyre down 14 year to date relative to u. S. Equities. We allocate as asset allocators to actively manage strategies. Portfolio managers in emerging Market Equities have opportunities to look at countries, sectors, securities that have been dragged down with the asset class around trade worries, but that arent necessarily linked to trade. So this creates buying opportunities in emerging markets which is cheap to begin with but we recommend doing it actively and actively managed strategies were also looking at high yield on the margin, high yield has lower downside, we think, versus stocks at the moment spreads have widened default rates have remained stable so we think thats an opportunity to add back some of the equity risk indirectly in the portfolio while we reduced the stocks allocation at the top level. We also added a little bit to cash as dry powder, the bumpy ride will provide opportunities to deploy capital quickly. In terms of growth what is the complexion of your growth allocation in terms of sectors so the growth allocation is mainly towards large tech growers, disrupters. We have bought into the thesis of the Disruptive Companies for many years so thats where some of the Portfolio Managers are concentrating their positions. All right sebastian, well leave it there, thank you for joining us we do appreciate it. Thank you. Sebastian page of t. Rowe price. Down to the New York Stock Exchange where jim cramer joins us now you have a big interview with derrick osrasati give us your first take on uber ahead of that. What is incredible is they raised price targets or said this company is really taking off. And i think you guys asked all the right questions,how do you own a stock thats a curse word curse investment for every other company other than this. We got to find out why this company is getting a pass by the analysts, but not by the marketplace, which did not like the number. Where did you land between the analysts beyond where the market is today and the analysts we had on who raised their price target on this company im actually with the analyst. I look at the tape i think it is good you back out a lot of these one times which the analysts did it is not so bad latin america, we get two great guests that really talked about how powerful this company could be and the ecosystem that theyre developing andrew, this is not a car service. Thats my biggest worry, a car service. And are they trying to do too much and two many different places i would argue yes, we got to ask them you know as well as i do, andrew, dara is a real visionary. Im not going to take that away from him in a First Quarter. You nodar know dara. Dont you think hes doing a lot of things that are right. You got headline number here. You talked about the 6 00 hour, the headline number and then the reality which is that i think things are steadily improving of sorts and i think this is one of those this is one this will be a show me stock over time but i think early on it is a gamble it is a bet and you are betting on dara, betting on the company, betting on the model. I like betting on the model i like betting on the company. And i particularly like betting on dara. You know the mayor talk on the Conference Call, where new york is trying to basically clip them thats my biggest fear my biggest fear is that these small towns or new york, these small minded people who are trying to block them, it is almost protectionist, not protectionist like we are with china, but you know what i mean, that was the best part of the call jim, we got to go real quick, everyone is i know friday, everyone leaves. Why everyone leaves town. Why do we have to go . My question is, given all the match nations of what happened over the past week and what people think may or may not happen next week, is this a day that just ends in the red because people want to hedge may not pretty early, i think, in the trade. Has to start again i have to tell you, i know i hear the music, but i dont even care about that. Im trying to get you some information i think is really important. Here is my take. They should have raised tariffs rather than going to the huawei again. Thats the the chinese hate that and yet we could have gotten more money if we had done tariffs. All right. Have a good weekend. I love the music i always love that music. Have a great weekend. The music is great. I miss you squawk returns in a moment. [leaf blower] you should be mad at leaf blowers. [beep] you should be mad your neighbor always wants to hang out. And you should be mad your smart fridge is unnecessarily complicated. But youre not mad, because you have e trade which isnt complicated. Their tools make trading quicker and simpler. So you can take on the markets with confidence. Dont get mad. Get e trade and start trading today. Want to thank saveda for hanging out for all three hours. Big Time Insights from all the craziness we have seen. A lot of fun. Big interview with Dara Khosrowshahi coming up in a moment david faber and jim cramer have that have a great weekend, everybody. Squawk on the street begins right now. 0 to 6 in 3. 5 you got the speed shut up and drive shut up and drive and welcome to squawk on the street. We do have a big morning for you. Moments away, the ceo of uber, Dara Khosrowshahi will join us, this after the Company Posts what is a record loss and slowing Revenue Growth but there is a lot more to deal with here. Somewhat difficult quarter to get through from an investor perspective, why were