Transcripts For CNBC Squawk Box 20240714

The list and flat screen televisions this will take pressure off retailers ahead of the Christmas Holiday season still other product that will get hit. Only a little pressure. Because in the breakdown that some conducted for the items hit with tariffs on september 1st versus december 15th there are still tens of billions of dollars of foot wear and apparel categories that will be included in september 1st you have Musical Instruments, sporting goods, and a lot of food items that will be hit on september 1st. Musical instruments, is that a big market in the United States chinese made Musical Instruments . I dont know im happy that today youre serious today. It is a big show it is a big show. It is a big show every day thats the part that bothers me sometimes it is not. You say it is. Other times he says i will be honest with you. Im like really . Thats nice. In this one vignette you will be honest youre not always maybe honest but you say its a big show every day. You have backish today we have bob of the combined viacom cbs first on cnbc you got him. You have to leave to go to where he is. I have to leave i know youre excited about that wh what time is it well do that interview at the 8 00 hour. Its probably one block away. You can get this camera over there . You can see the viacom sign over there. Well walk across the street these lights take forever i would say 6 30 is a good time to go. I agree. Dont you agree . This is a big show today big show, not only backish but wilbur ross on the day that is the deadline for the waivers for companies to do business with huawei. Thats the big thing happening today. Its a big show one other thing, you were talking about these electronics. I want to update people. My air pods what happened someone told me put the right one in the left ear, the left one in the right ear it worked for this person. They work for me its a little uncomfortable. What was the issue . They dont fit normally right and left theyre too i think they might be too big so it never is in there well i have one right here you could be walking over a sewer grate im petrified just standing there, they fall out. One goes to the right ear like this. Instead of placing it there, backwards . Yes but you have to turn the volume up more because the actual speaker is facing the other direction. I didnt notice that. I didnt have trouble with that. Did it fit its tighter, right . Tight ner a less tighter in a less comfortable way so Musical Instruments. They can make anything if youre a school, if you are in orchestra we make light of it, but certainly a lot of buyers for these products that are not consumer every day you know what is not made in china now . Something you might like it might be the label you see on things now not made in china. How about made in the usa well talk more about the reprieve yesterday but what do you make of it is it hes not a great negotiator he folded again . Hes in tune with Christmas Season and consumers and doesnt want them to be hurt even though he argued its not the consumers that are hurt, its the chinese paying the tariffs youre saying all the good stuff right there. Im trying to draw it out of you. Senior Administration Officials told nbc news this should not be seen as a thaw in tensions between the u. S. And china. That view was echoed in lots of reports from capitol econ and Goldman Sachs. The tranche that hits on september 1st is still 1 112 billion in goods thats still bigger more than double the size of the first tranche. That being said, couple weeks ago i asked larry kudlow this question what happens if you hit all of these Consumer Products that the administration has acknowledged, all the Consumer Products were in that tranche. What happens if that hits right before christmas he said the impact would be negligible clearly there was hand wringing, and a lot of thought that had to go into how do we limit potential Economic Impact. If we say theres not one, how can we prevent there from being one. Are you going to say anything or are you thinking about this big interview you landed gaggle, is that a bunch of geese . A bunch of reporters. Thats a good analogy a bunch of reporters so that is like a bunch of geese is called something. You know how we have different we have these different names. A school for reporters its a gaggle. Yeah. Thats cool should we get to the markets lets check. You think about what youre feeling is on this what my feelings are . You know what if people now accuse President Trump of being weak or of flipflopping, that could make him mad enough to just throw some back on to prove he will do it easy come and easy go the announcement of these tariffs came like a thief in the night do you totally rest easy now if youre long stocks that there wont be another round of tests . No. Its a temporary situation at best the markets are down. We were talking about that giving back some of the gains we saw yesterday. We were up well over 400 we ended up on the dow up 370 or so theres an inversion now again the tenyear note now falling below the twoyear yield well have some people on trying to decide whether its a forecast of a is recession or cn cause a recession or is a reflection of low inflation and sovereign yields everywhere else theres an argument that this guest thinks its the latter well see. Not everybody is in the recession camp u. S. Equity futures are giving back some gains. Now were triple digits, down 120. Maybe participants are watching as we raise the specter that the tariffs can be put back on at any time overnight in asia, things that got a little bit calmer in hong kong, but that is reflected a bit. Thats not the only thing happening. All green. In europe, things are down down in the red, and it looks like our markets this morning. We got some negative gdp data out of germany followed some weak data earlier this week and some weak gdp data out of the uk. So certainly a lot of worried signs over there this developing story in hong kong is where we want to go next. Flights at one of the regions busiest airports have resumed after two days of mass demonstrations janice mackeyfrayer joins us now. Things are calmer today the Airport Authority got an injunction to repeat what happened the past couple of days where thousands of protesters took over the airport, disrupting operations here Cathay Pacific is saying 55,000 passengers were afaffected authorities are restricting access to the airport. You have to show a flight ticket or proof you have a reason to be here there are still some protesters though theyre allowed to set up in this area behind me. But they have been told if they cross those lines, so to speak, they will be seen as acting unlawful there is a Stronger Police presence here today. Definitely a shift from the chaos that we saw here last night with riot squads storming in at one point an officer was beaten with his own baton. He drew a gun. The other officers had to try to get him out of the building. The mood inside really shifted to protesters looking at each other with suspicion rumors of chinese spies among them and now a lot of trepidation about what happens next with the authorities here in hong kong as well as the government in beijing signaling that they want these protests to end. Its interesting this deescalation happened just as theres images spreading of not only trucks at the border of shenzhen and hong kong but also President Trump saying hes learned theres troops being sent to the border what role does that play in this beijing has been telegraphing, perhaps not its intentions, but its options through state nemedia for over a week now theyve been referring to the protesters as rioters. Today theyre being called radicals chinese officials in the last few days have been using words like terrorism, which is very broadly defined in china it can justify the use of certain policies then there were the videos of the military drills in shenzhen that have been shown on state media. We got word about an hour ago that theres going to be a special drill tonight at another airport, Security Forces will demonstrate how they would quell riots if they happen there all of this messaging coming from beijing saying this is what we can do. So its time for these protests to end all right janice, thank you. Well check in with you later this morning coming up, a potential recession signal in the markets. The tenyear falling below the twoyear yield much more after the break. And we did get some weak Economic Data out of germany overnight. As we head to break, heres a look at the biggest premarket winners and losers in the dow. Learned ao play second language applied to college applied for a loan started a business started a blog shared a picture shared a moment turn your wish list into a checklist. Learn more. Do more. Share more. At home, with internet essentials. Recession warning in germany. The countrys q2 gdp fell by a ten ths th of a percent quarterr quarter and it could contract in the nithird quarter as well. The gdp slump was in line with estimates but still sent the negative yield on the tenyear bund to a record low got a minus sign before it any time you see a minus sign before it, you have to think about it crazy some weak Economic Data released from china overnight. Eunice yoon has the latest on that youre in the center of everything again, eunice thanks, joe sometimes i do feel like im in the center of all this just too much news it looks as though chinas economy is headed for a deeper slowdown all of the data released today missed the factory output figure came in at the left level in 17 years. Retail sales were hit because of the weak auto purchases, fai fell a lot of this was because the economy faces increasing downward pressure but the official said that the impact of the trade war should be controllable President Trump did provide some relief because of the decision to exempt or delay tariffs however what was interesting is there was no official response from beijing the state news agency, xinhua, did report on the phone call but said china lodged its opposition to the additional tariffs that would be kicking in on september 1st. So that suggests that the chinese think that the u. S. Need to do more and that this latest move is not particularly meaningful i was speaking to some suppliers to the United States and asked what they thought the impact would be they didnt think it would have a major effect because they had been rushing orders ahead of the september 1st deadline to get stuff to the United States in time for christmas they did say that at least it provided some time for them to adjust their pricing for 2020. So in that way it was a relief another company, hasbro, which had lobbied the administration to make this change said the additional three months would give it more time to change where it sourced some of the materials and products that would be affected by these tariffs. I wonder if theres concern on the ground in china about how Many Companies are trying to find manufacturing sourcing elsewhere. Yeah. There is concern if you talk to, say, workers or if you talk to people in the government there is some worry that as this trade war continues, that manufacturers, supplier also start looking and sending teams to vietnam or to mexico to try to move production but there is still a lot of reasons why a lot of these companies from the u. S. Source in china its not just because of price a lot of it is because theres so many skilled people here. So there is concern, but it doesnt from their perspective it doesnt look like it will happen quickly yune nice yoeunice yoon, thau lets get to the big story for u. S. Markets the tenyear yield falling below the twoyear yield for the First Time Since 2007. Joining us is jason hunter head of Global Fixed Income and ed campbell, Portfolio Manager at qma we have a couple of campbells on today charles is later youre ed. Yes you say either the yields are forecasting recession or its the biggest bond bubble in history. You tend to think its the latter i do got that right . I dont think i used the phrase biggest bond bubble in history. I guess theyre certainly overvalued i dont think the u. S. Economy or the Global Economy is going into recession at this point were neutral on bounds, but i think the bond market is overvalued at this point as far as the machinations and the trade wars, youre a little bit tentative about committing a lot right now while this is going on we were bullish earlier in the year we pulled back to neutral in may. Reduced risk again underweight now yeah. Modestly underweight equities. Skewed pretty defensively in terms of some equity groups that were overweighting. I dont think yesterdays news changes the underlying dynamics of the situation this is less of an olive branch. Not a true deescalation. Its more of an attempt to avoid politically damaging price increases during the holiday seasons. I dont think the latest announcement of tariffs was pretty hastily put together. And now theyre thinking through some of the implications and backing off a little with no concessions from the chinese jason, youre two people sort of you wear a couple hats youre head of Global Fixed Income, right . Executive director at jpmorgan but also u. S. Equity technical strategy thats impossible to do both the correlations are high so it is related. Lets put your head of global picked income has tht on is the bond market overvalued . I would say the inversion of the yield curve is a forecast of a recession, but there is a lag. Its usually two years when the curve inverts and the recession hits were in the early part of that transition that doesnt mean the equity market rolls into bear market. Is there any way it could be based on innovation and secular disinflation and positive things and we should look at you say well stop at 1. 52 on the tenyear on the nearterm basis. Yes. Whether thats a is it good that we can have low unemployment below 4 . We can have what seems to be a good consumer and a good economy and rates are low, why does it always have to be something is wrong . Why couldnt it be there for Different Reasons . Im a technician, i take signals from the price action. The willingness to go from the safe haven of assets thats not necessarily a good thing. Its problematic. Thats what we always think. I wonder if it could be sending sometimes technical signals are wrong, right thats right. Weve seen the last four business cycles, theyve been consistent that timing and everything you take it for what it is now maybe its different this time more often than not when that term is used whats the real problem globally for growth. Central bankers, we lived off that so long that eventually it no longer works . Pushing on a string. Have we built something up that will end badly at this point, again, as a technician, i look at price action for signals, im not an economist. From my perspective, if you look at the way the market is acting now, its clearly manufacturing markets most impacted by manufacturing have been underperforming the trade story is the dominant weight on the Global Economy so from our perspective were in the same camp. Lets say underweight on broad index exposure weve been that way since early may. Locking in gains that we picked up from Fourth Quarter purchases from last year at this point, if that manufacturing pressure were to lift, thats purely trade policy, what were looking for now is the most cyclicly sensitive markets, copper, if those are showing positive signs, those are the groups were happy to chase into. If the cycle were to extend and the s p goes 3,000, we think that leadership is required. Both of you are doing horribly in terms of the down. Were down 175 when we started, we were down 100 or so. I dont know which one of you i have to blame. I guess its a combination we should take credit for that do you think this is a a correction that will like next year, are we going to be down i dont think this is the end of the equity bull market and were not full on bearish. But i do think given the escalating trade war, the general environment of elevated geopolitical risk that we need to see about a 10 correction from recent highs, and before we would be putting money to work again. Would a 10 correction stave off a recession . Know one believes that there will never be another recession again. Were already in the longest expansion and bull market in history. Theres a debate over when it happens and what is the catalyst right i would agree with some comments made earlier the inverted yield curve is a very effective indicator for recession but a long leading indicator. The recession could come 18 months from now. Equity markets dont really response to that until about six months out you could have another leg of this bull market in the late cycle those tend to be powerful. Thank you both. Ed campbell. Jason hunter, youre able to merge fixed income and equities but you cant do anything with fundamentals and technicals. You dont have an opinion on why its happening or if we have a macro backdrop to our work. The technical signaling will tell you shortterm fixed income and stocks, but no fundamental analysis. No feeling about anything . None that we publish. Are you married do you give anything to your wife emotionally seriously. Honey, i saw the way you were acting at dinner, therefore im not sure whats behind it, but i will treat you huh . We gain the aggregate decisionmaking we let others make the decisions and play along. Coming up, we go whale watching new numbers show a big rebound from a well known investor after his worst year in a decade details on which investor and how he got there after the break. Dear tech, lets talk. We have a pretty good relationship. Youve done a lot of good for the world. But i feel like you have the potential to do so much more. Can we build ai without bias . How do we bake security into everything we do . We need tech that helps people understand each other. That understands my business. Weve got some work to do. And we need your help. We need your support. Lets expect more from technology. Lets put smart to work. Whale watching, tria partners staging an impressive comeback in 2019 the 9 billion hedge fund posting an 18 gain through the first seven months of the year thats according to the financial times, this after peltz suffered one of the worst annual losses in a decade last year among the firms most notable holdings, procter gamble, cisco and General Electric nelson peltz will join david taylor on stage at the delivering alpha conference in new york joe kernen will be there interviewing Vice President mike pence. Register for your tickets at deliveringalpha. Com. Check out u. S. Equity futures at this hour were down near session lows up next, the big movers including one pot stock seeking 10 and some big moves from two ipos a huge lineup at 8 00 a. M. , starting with commerce secretary wilbur ross and ending with robert bakish, ceo of the reunited viacom and cbs. As we head to break, a look at the s p 500 winners and losers through the at t network, edgetoedge intelligence gives you the power to see every corner of your growing business. From using feedback to innovate. To introducing products faster. To managing website inventory. And network bandwidth. Giving you a nice big edge over your competition. Thats the power of edgetoedge intelligence. Welcome back youre watching squawk box live from the Nasdaq Market site in times square. Good morning welcome back to squawk box on cnbc a quick look at u. S. Equity futures at this hour the twoyear and tenyear have inverted the dow jones off about 172 points nasdaq looking to open down as well off 62 points. The s p 500 off about 20 points. Got a couple stocks to watch tilray down sharply this morning. The marijuana producer reporting a wider than expected Second Quarter loss as it ramped up investments to boost production. Revenue beat forecasts tilray warms growth will be muted in canada where recreational pot is legal. Sales have been hit by supply constraints. Shares of realreal are higher the site which sells secondhand luxury goods are reporting a narrower adjusted loss since going public in june sales rising 51 , in line with expectations shares of another recent ipo are falling sharply. Adaptive biotechnologies posted its first Quarterly Report since going public 1 lo it lost 1. 23 per share. Coming up on squawk box, the latest news out of Hong Kong Well take you there live after a day of violence at the airport. Well be joined by asia insight circle Walter Jennings for a look into how the unrest is affecting business in the area uay tuned yore watching squawk box on cnbc by consolidating your Credit Card Debt into one monthly payment. And get your Interest Rate right. So you can save big. Get a nofee personal loan up to 100k. I went straight to ctca. After my mastectomy, i felt like part of my identity was being taken away. My team made me feel whole again. Cancer Treatment Centers of america. Appointments available now. Welcome back to squawk box. Flights out of the hong kong airport have resumed after days of mass demonstrations janice mackeyfrayer joins us again with an update things have remained calm here it appears the Airport Authority has been able to get things back on track after two days of chaos, of canceled flights Cathay Pacific saying 55,000 passengers were affect eed by protests that flooding both levels of this terminal. The authorities are allowing some protesters to stay. You can see behind me theyve been set up here it remains quiet they have been told they have to stay within those lines. If they dont, they will be seen as acting unlawfully a different scene than what we saw here last night. The chaos, the violence, when riot police stormed in its really being played up today in Chinese State media now portraying the protesters as radicals, talking about the need for punishment and also still playing those propaganda videos of the Chinese Military drills happening in shenzhen, dangling the possibility or options before beijing. Tonight, there will be a security drill at guangzhou airport, about 25 miles from here Security Forces there will be practicing their tactics to quell what they call riots at chinese airports a lot of messages being telegraphed by beijing on what they could do next kayla . Beijing seems at the ready should the situation escalate. Lets welcome in Walter Jennings, founder and ceo of asia insight circle. Jennings formerly served as huaweis corporate spokesman in shenzhen, china. Thank you for joining us lets talk about how your members are looking at this situation in hong kong and any Business Decisions that may come out of this. Look, kayla, hong kong people love certainty hong kong businesses enjoy certainty. Right at the moment we dont have that. Today is wednesday, its the middle of the week, so we are in a bumper period between protests on the weekend but i think were going to continue to see uncertainty as this issue resolves itself so, walter, tell me a little bit about your read on u. S. china relations in the wake of this. We got relief on certain tariffs that the white house and u. S. Tr announced yesterday. China demanded that the u. S. Halt the sale of aircraft to taiwan what is your read on u. S. china relations at this moment given the situation in hong kong look, u. S. china relations are very strained at the moment as were seeing with the escalation of trade tariffs and were seeing that hong kong protests are coming at an inconvenient time. Its placing greater pressure on china in the public stage, in the global arena yet youre also seeing china very successfully carrying on and conducting businesses in hundreds of other countries around the world so if there is disruption in trade with the u. S. , there are plenty of other markets for china. I would suggest that chinas state media is playing up the role of International Organizations and International Agents in these protests here in hong kong. So its a very good time for american businesses to lay low and look at their options. How is china viewing the u. S. s role in this . There was some suspicion that perhaps china believed the u. S. Were behind these protest because they were carrying american flags, singing the national anthem. President trump said yesterday that he hopes the situation works out for everybody, including china. Trying to message to china, theyre not picking sides here do you think that that actually works . Look, currently were in a Public Relations war as well as in protests within the city of hong kong. Youre finding that state media are being very quick to categorize the u. S. As being an agent in these theres a cartoon thats been deployed showing kind of an octopus with many tentacles, each of them is a finger puppet with Different Actors playing different roles in hong kong you also saw the british flag being proudly waved by an elderly female protester as the beginning of these troubles. So there is heightened concern about outside influence, yet at the street level youre really just seeing predominantly hong kong youth fueled by their own challenges and frustrations protesting and continuing to protest with really no end in sight at the moment. Id like you to put on your former huawei executive hat for a moment to ask you finally, its expected that as soon as this week, we could see some carve out for companies in the u. S. To continue doing business with huawei after the Commerce Department put it on its business blacklist a few months ago. Do you think theres a clear line among huaweis business of certain business that could raise red flags on u. S. National security and business that simply doesnt when youre looking at huawei specifically in the United States, there are many concerns around 5g technology which is the fifth generation of mobile te telephony. Huawei has other businesses in terms of enterprise services, mobile handsets. Theres quite a lot to love about huawei and those balance out those concerns on 5g where you will find the greatest pressure is on the smaller in independent carriers in the u. S. That rely on Huawei Technology to affordably provide their customers great Broadband Service at prices that the competition cant match. Walter, real quick, if you were to look at a calendar, trying to understand the timing of when some form of a resolution even if the resolution is no huawei ever again in the United States, i dont know, what does that look like to you . In terms of the timing of all of this or is this something well be talking about for five, ten years . Joe, i think what well see is until we have other nations fully 5g, that is when youll see greater and greater pressure on the u. S. With regards to huawei so well be seeing china, korea, other countries rolling out and becoming fully 5g, which provides an Incredible National competitive advantage unparalleled speeds and connectivity so i think were going to actually see this carry on and on with regards to calendar here, closer to home in hong kong, were dealing with summertime, schools, universities beginning next week. So perhaps some of the disenfranchised protesters will be resuming studies. Were also preparing for the october 1st 70th anniversary of the peoples of the peoples republic of china and the concerns that the issues in hong kong are resolved prior to then. Huawei, well be talking about that in two, three years time. The hong kong protests i do see those leading to some form of resolution in late september all right walter, well leave it there Walter Jennings, ceo of asia insight circle. Coming up, well dig into the media merger that finally came together. Cbs and viacom renewted, but both stocks down this morning. Well talk to the ceo of the new company, bob bakish later this morning. As we head to break, a quick check of whats happening in european markets right now driverless cars. All ground personnel. Or trips to mars. 4. 95. Delivery drones or the latest phones. 4. 95. No matter what you trade, at fidelity its just 4. 95 per online u. S. Equity trade. I can shine. Imma do what im made to do. Built for excellence. You start from the foundation up. The excellence is reaching dreams and chasing them at the same time. Playing the music for the deal, cbs and viacom reaching a deal joining us right now to talk about what the deal means, ed lee, Corporate Media reporter. And jeff sonnen berg, also a cnbc contributor whos watched this company combine, go apart, combine again. We have seen it all several times. So ed, tell us something new about this deal. I mean, like groundhog day for almost for a year. Weve waited for this deal. Actually whats the Biggest Surprise this morning thats come from the details that we have learned thus far before we go see bob backish . I think the newly created cbs division, theyll be around for a few years in the role or at least a year based. You dont think thats a transitionary role i dont think so. I think the fact that theyre only looking at half a billion in synergy thats not as overlap as you might think so there is a bit of a carveout there. Hey, jeff, should they have done this two years ago when Shari Redstone was first trying to make it happen . This is a great triumph to Shari Redstone and the timing of this is really just incredible with all the consolidation in the industry that it was the old eradio comedian fred allen who used to say that imitation is the highest form of television, he didnt like tv yet with the at t massive deal of course with time warner and the exciting deal happening with disney and fox, and of course our parent comcast here at nbc kicked off, these guys are doing one more, no, this goes back 67 years they have been together and the miosis andcytosis is amazing. People didnt get along with each other so i think ed is right. The fact that jo and bob bakish gets along so well, but Shari Redstone shes with one of only 7 of major corporations chaired by a woman she happens to own 80 of both of the businesses but her dad who really put this together originally so undervalued her. As his health declined she had a chance to come back in and forcefully make this happen. But this was definitely a match made in heaven, a great fortitude to the division and the courage of Shari Redstone and the understated brilliance of bob bakish. As you will see in moments when youre with him. In a world full of pitch man and show business, hes the classic still waters run deep. The last years performance just proves that the recovery of paramount and other things, the ad search. I agree with him. I think this is a win for shari. The deals are personality driven and it came through in this in terms of making it happen. Of course, she has been pushing it for three years long term, theres still a question about the size and scale which is to say that relative to some of the goliaths we now see it will still be small so the question is, two or three years from now i ask this of ed and jeff, do you believe they will acquire other things . Are there enough things to acquire of quality that you can get to the size and scale that you may think you need to compete or do you think that Shari Redstone would ever sell the combined company to somebody else who do you want to go to first . Ed is next to me. So i think in the next two or three years youll see her wanting to take on other assets. Theres sony is out there. Of course theyre not saying theyre for sale but of course thats always the state of play. You know, Networks Like amc, starz is something they have been looking at as well. Even if she sort of makes the deals, discovery is also out there, its not quite big enough i think. It makes it a more attractive company, slim some things down and then that combined in two years could become an attractive target for someone else. Jeff . I agree ill add to what ed put on the list good for you, ed, i would agree with both of the opportunities you mentioned discovery. Judith mchale on the board who used to be a deputy secretary of state she led discovery on this some of the biggest and best years tremendous relationship with john malone. Shes on the board and thats a great asset she certainly could help make that happen. Also at sony as you mentioned, Nicole Seligman was president of Sony Entertainment and a great attorney, shes she can make this happen. And zellman, Take Two Interactive as well as by the way, we see we can talk about win view the opportunities for gaming thank you for the Shopping List ed, thank you. Sure. Appreciate you both being with us. Stick around for our interview with bob bakish, ceo of the newly formed company, 8 40 eastern time. Coming up on squawk box a recession warning from the yield curve. U. S. Equity gave back much of yesterdays gains. Well talk about inversion signals and what happens next. Plus, a closer look at apples big day. Does the temporary tariff relief change h y sulbeowouhod investing in the cupertino giant . Stay tuned to squawk box on cnbc starts from the ground up. For a lot of teens, shoes matter. The right kicks, make the outfit. Kids like to make a statement, they want that wow factor. And for parents, you want to pick shoes that theyre going to wear over and over again. So i put together some of my favorite kicks for the new school year. When it comes to back to school shopping, your year starts at dicks. Breaking news. The main treasury yield curve just inverted for the First Time Since 2007 triggering a recession warning equity futures tumbling on the news. Dont forget about trade still a big driver for the Global Markets commerce secretary wilbur ross will join us in studio. Raising the roof on housing and the economy. New data just crossing on Mortgage Applications, the numbers and what they tell us as the second hour of squawk box begins right now live from the beating heart of business, new york, this is squawk box. Good wednesday morning. Welcome to squawk box here on cnbc im Kayla Tausche with joe kernen and andrew ross sorkin, we are closely watching the situation in hong kong the markets moved yesterday on the tariff front and look at where futures are now. The dow would open down 175 points the s p would open down 19 and the nasdaq would open down 60 that was not the case when we first came on the air at 6 00 a. M. But equity futures started tum bling after the yield curve or the spread between the two year and the ten year Treasury Bonds inverted earlier this what morning. The ten year is yielding 1625. Thats a just a couple basis points more than the two year note and thats a closely watched spread and well keep you posted on that but that seems to be the escalating factor for the markets. Even amid all of the weakness globally some soft data out of china coming on the back of other weak data globally earlier this week. Even as nfib, Consumer Price index, all that stuff came in well this week lets get you caught up with the latest dom chu is at cnbc headquarters watching the Market Movers and eamon javers is here but we begin with eunice yoon. The fai fell, retail sales sank hit by weaker auto purposes and the Chinese Statistics bureau that the economy continues to face downward pressure but they believe that the impact of the trade war will be controllable. As for President Trumps reprieve on the tariffs what was interesting is that the Chinese Government didnt respond. It only said that the chinese lodged their opposition to the tariffs that are supposed to kick in on september 1st that suggests that the chinese dont see this move by President Trump as particularly meaningful speaking to some suppliers who sell to the United States they said that they think that this reprieve is not going to have so much of an impact because they have already been rushing a lot of orders for christmas, answering the september 1st deadline but they did say it will have an effect on their pricing adjustments because the tariffs had been announced very, very quickly. So now they have a little bit more wiggle room to make those changes on pricing into 2020 guys okay. Eunice, thank you for that report i want to head to washington for the latest on hong kong and the move by the u. S. To delay some tariffs on china eamon javers has that story this morning. Yeah, andrew, i think the vibe is that the white house is taking a soft touch approach on both of these problems that its facing, both the trade war situation with beijing and also the hong kong protests which affect the white houses relationship with beijing. Heres a statement we got late yesterday from a Senior Administration official on the protests in hong kong that shut down the airport for two days. A senior official saying freedoms of assembly are core values that we share with the people of hong kong and it should be protected. The United States firmly rejects the notion that we are sponsoring or inciting the demonstrations so the white house is pushing back on this idea that the United States has anything to do with these protests that are happening in hong kong but also taking a soft touch approach there you notice that the Senior Administration official did not want him or herself to be named. We havent seen a cavalcade of Administration Officials running to the talk shows, running in front of cameras to talk about hong kong. They have been keeping fairly mum about this just issuing that statement and then we saw the president yesterday taking a soft touch approach to the tariffs as you have been discussing heres how he explained the decision to postpone some of the tariffs and also to offer some exemptions yesterday talking to reporters. For this Christmas Season, just in case some of the tariffs would have an impact on u. S. So far, its virtually none. So the president there saying hes doing it to protect the Christmas Season in case the tariffs would have an impact on consumers. Thats an awkward straddle for the white house. The white house has been insisting so far that the tariffs dont impact consumers the president says the tariffs are paid by china which is not true they have also insisted that consumers are not going to see price increases. The president said hes pulling the tariffs back to make sure they dont see tariffs between now and the Christmas Shopping season, so the president is taking some steps in the face of economic and political reality going in to 2020 he doesnt want to see any price increases in this Christmas Season, guys . All right, thanks now to this mornings market story. The yield on the ten year triggering a recession warning dom chu has been following the move im doing some research, waiting to intro you i dont have an exact record of, you know, we have heard that people joke predicted 14 out of the last three recessions. I dont know the actual data, plus it depends on how long you wait during the great recession. And in 2008 it took two years before it happened its is it better than 50 in terms of its accuracy would you say, dom all right, so heres what i would say. The folks over at Credit Suisse ran the numbers going back to 1978 and it turns out the last five times that we have seen this two to ten year spread, this part of the yield curve invert, we have actually seen it lead to the recession on average about 22 months after it happened so this could be a long runway before things happen i would also point out, joe, that they figured out that its about 18 months on average where we actually see the stock market turn lower from the time an inversion actually happens this is not something imminent, but its something that people have been watching and the reason why is because this is the last and perhaps more significant portion of the yield curve thats now inverted. Thats to say longer term rates dropping below shorter term rates. And the reason why its important, joe, as you pointed out it has been a quasi reliable indicator of a down turn not just in the economy but the markets overall. As you can see here, we are fairly close not just there yet. But we did briefly invert on that side of things here but you can see just about even at this stage for the two and ten year note. I would put a star right by the 30 year right now because its at a record low yield on that side of things and lets point out just historically, we have mentioned the fact that its been 2007 since the last time that we saw a yield curve inversion so the level that were seeing here going all the way back here. The reason i would say its 2005 is because 2007 was the last time the yield curve was inverted but that was when we were exiting this idea of a yield curve inversion. We actually went into that inversion back in 2005 so andrew, the reason why its important and the reason why youre seeing on the ticker below us right now a cycling of the dow, the two year and the ten year is because theres a good amount of focus on it from traders all over the world well keep you updated throughout the morning back over to you guys. Okay. Futures as you just mentioned dropping this morning. Joining us is anastasia amoroso. Charles campbell is here from mkm partners are sirens going off in your office this morning . Well, we have been watching this for a long time it say in medium terms its about 11 months of the stock market peaks that the curve inverts and it returns about 15 . But theres still 15 to go. Well, potentially i want point out to 1995, because there was an instance where the yield curve was on the cusp of inverting but actually steepened out. And the reason why that was the case is because the fed overdelivered on Market Expectations for easing. So whatever the expectation was they cut quicker and faster. So this brings me back to the fed today. This is what they have not done in july and this is essentially what has to happen going forward. If we are to resteepen the curve. The fed has to get out of being behind the curve so they have to cut more than the Market Expectations. 95 was an unbelievable year. Three in a row of 30 gains in the averages youre saying that the fed did it the way it should have been done back in 95 they reacted to what was happening and prevented something bad from happening and maybe they could do it again if they do the right thing . If they do the right thing. The historical parallel is uncanny. Because you had a manufacturing slowdown you had the Unemployment Rate at the lowest point in 20 years then you had the fed cutting rates more than the markets expected so the stock market did very well after the first cut in 1995 this is why i think its crucial for the fed to focus on this yield curve because i get they do a mandate, of full employment and inflation. But its all these Different Things that ultimately matter to full employment. Charles, are we 1995 . What year are we in . Its a different year, not comparable to prior years and heres why the story here is that we have got a fed thats behind the curve. Market based indicator since the fifth fed meeting july 30, 31, are consistent with a fed behind the curve. The three month ten year which is what the San Francisco fed said last year is the best metric for predicting recessions its been minus 30 yesterday and continues that way tip spreads are all shallower. Iron ore prices, its down 20 in asia since that june july meeting. All indicating a slowdown and tightening you combine that with the fact that the fed has contributed to every single recession except for win in the 1960s one in the 1960s and we can see that the market is is telling us that the fed is behind the curve. They tightened nine times. Were now at risk thats whats going on the reason its different from 95, you have a trade situation between the u. S. And china incremental gdp growth between the two largest countries in gdp is 47 of global gdp growth. Chinas 30, were 17 thats why its critical. Lets say the fed catches up, lets say they lower the fed fund rate to zero and we enter a recession later, whats the monetary role then 20 years ago we had one sovereign debt that was really in negative deal then. That was japan now japan is negative yielding out to 15 year terms we have got countries all across europe, 24 of sovereign debt worldwide is negative yield, why . Because Monetary Policy is doing all the work fiscal policy from elected officials is not carrying much of the ball. The stimulus is not there. Our measures of gdp and inflation i would submit to you are probably not accurate because the models that policymakers and economists use have not kept up with Technological Developments and what do you think the chances can i go back to this idea that the market could still be 15 off of the highs before it goes into this recessionary move do you think thats possible le 15 meaning well decline 15 . No no no. I think shes saying theres still an opportunity to rally 15 . Sure. We can go to 31. Whether you want to trade that or not is a bigger question. Yesterdays move up higher 60 . The Hedge Fund Guys have to participate in that. They cant sit by and do not nothing. They may not believe it or have High Conviction but they begrudgingly get involved. Still unfriendly towards the market i dont know, it feels like a downward view of it. Maybe we might get 15, but my job is to ask the questions. This is to answer your question, i think theres many excellent Trading Opportunities in the markets. Between now and 12 months from now. You may have a period of time in august where we want to project but if i look at september and october i do think the fed has a chance of catching up. If they do cut by 50 basis points they may be successful at resteepening out the yield curve. Because thats what the long term bonds need to see and then what if President Trump does continue to back off the recent escalation, which by the way, theres some theories out there that maybe thats the case maybe thats the playbook. There are a lot of flash points in the next six months, maybe you call them Trading Opportunities but you have, you know, this september 1st tariff deadline, you have a phone call thats supposed to happen before then in person talks that may or may not happen after that. The october 1st holiday, december 15th i mean, do you buy or sell going into those anything can happen. Right thats what we have learned. We have the big downdraft last monday we said theres a relief rally, but use it to add some protection, especially for august because weak liquidity and who know whats going to happen on the you know, escalation front. Longer term, i think theres a trump put, theres a fed put that will kick in. Maybe september or some time before year end. So you want to be positioning for that rebound and by the way, for tactical investors the Options Markets have given us excellent opportunities to do that. With a market that goes up over time, the question might not be do i trade this for the next 15 , but do i worry about the inevitable pullbacks that well have from 15 higher or do i just stay long and thats the question. 800 to 30,000 i would give you one sector to stay long. What about trading in the next 15, worry about getting invest in u. S. Companies and u. S. Growth, andrew. If i told you youre a young man. Youre a young man. In the next 18 months you might want to buy cheaper you can buy cheaper. But how good do you think we are at selling and buying . Terrible. Thats what this conversation is about every single morning one thing if youre not if you want to buy something for the long term, look at buying health care. Look at buying European Health care specifically because health care tended to be the sector that outperformed past the fed cut. And by the way, European Health care gives you a yield of 2. 88 . And the bond yield is 0. 6 i would take that 2 any day and its seeing the earnings inflex. If youre going to buy one thing, i would suggest European Health care. No, comcast. Comcast that would be my dont you think . The only thing were allowed to buy. Thats right. So that helps. Hence the double down on margin. All right okay thanks. Half empty, half full people. You dont want to go through life half empty, do you . Do you know what im saying . Im half full. Im completely full. I know that. Thank you, guys. Coming up, we are how would you know look we work. If youre going to read that it would be like we work, you would think its a verb, but its a noun, because its a company we work filing could go public heads up quotation marks. Three different by the way, classes of stock. At wework thats great i hope that the guys in charge get e sttothbe sck [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. Dont get mad. How you watch it does too. Tv just keeps getting better. This is xfinity x1. Featuring the Emmy Awardwinning voice remote. Streaming Services Without changing passwords and input. Live sports with realtime stats and scores. Access to the most 4k content. And your movies and shows to go. The best tv experience is the best tv value. Xfinity x1. Simple. Easy. Awesome. Xfinity. The future of awesome. Welcome back to squawk box. Wework just unveiling the ipo filing literally moments ago this one we have been waiting for and leslie picker is going through the filing as we speak gam. Hey, andrew thats right hundreds of pages long this filing is. Theyre filing with the place holder of 1 billion the actual offering size for wework is likely to be much, much larger. According to sources about three times that amount. As you mentioned earlier filing with three classes of stock, in a class, b class and c class and they rebranded them to be the we company. We know them as wework interestingly they do not have banks on the cover but they have them in the underwriting section. It will be led by jpmorgan followed by barclays, Credit Suisse, the list goes on and on as you can imagine a lot of the firms are also participating in the Credit Facility theyre raising alongside of this ipo. So description of that theres a description of indebtedness in this ipo prospectus and they say that in may 2019 they entered into the agreement that provides 2 billion of stand by credit and we expect to concurrently with the closings of the offering they dont mention the amount although im told that the Credit Facility as well as a loan offering that theyre looking at should amount to about 6 billion in addition to the proceeds the equity proceeds theyll make from this ipo as well. So still going through the hundreds and hundreds of pages, the risk factor so far kind of exactly what youd expect. You know, we have been growing at a quick pace. We may or may not be able to maintain that pace of growth we have had so far. Any numbers in terms of how much money theyre making or losing right now we do the most recent date from which they posted is the Six Months Ended june 30th. Okay. They say revenue was 1. 5 billion losses which i know everyone is keenly interested in here, net losses were just under 1 billion, 904 million, but losses from operations came in significantly higher than that at 1. 4 billion so youre seeing almost a one to one ratio of losses to revenue when you look at losses from operations. Sort of reminds me of snap, the rebranding of the ipo. Were not just a company where people go to work remotely, we have apartments. We have all of these other assets so we are the we country, a community. It didnt go so well for snap because people think of the country and judge the company by the core app and the core metrics associated with the app. They did not become a Camera Company per se i imagine there will be a lot of questions about that. I think so. It reminds me of snap with the governance structure as. We i mean, they dont go so far as snap did to have no Voting Rights for shareholders but the three classes can you explain the three classes to us . So its 20 votes per share for bnc. Let me confirm that real quickly because i was breezing through this then class a as well will be sold in the offering so class c appears to be for their preferred shareholders let me pull this up real quickly. Viewers at home will see us all inside our laptops trying to do some heavy control action here we are joined on set by dan levitin, cofounder of mav did i pronounce that correctly question. Yeah. You have Consumer Companies but hearing about the wework ipo whats your reaction its great for the Consumer Companies to be going public theyre bringing the growth thats unique in this economy to public investors and by and large, im a big believer that companies are better public than private in terms of governance even if they have three classes of stock. Do you think they stay private too long not just weworks but in the past decade. I dont know what too long means, andrew. But what i would say is you have had an unprecedented amount of private capital flowing into the private markets. Late stage versus ever before. I mean, i worked on the starbucks ipo in 1992. It was a 40 million ipo and thats a series a today so billions of billions have come from if Public Markets into the private markets and why do public if you dont have to . Because you can finance as a private company. Never happened before up until the last five years. Just to clarify, it was 20 votes for b and c. One vote per share for class a. B and c will vote as a combined unit. Owned by insiders there. More details on the Credit Facility they are aiming to provide up to 6 billion in every single underwriter for this ipo participated in this Credit Facility for wework which is pretty interesting i think this is also an example of the consumerization of so many big industries. I mean, real estate was a laboring noninnovative industry and i think weworks is the beginning of many Public Companies youre going to see in innovation and not just commercial but residential also. Right a lot of the companies to try to woo investors theyre talking about what products they can offer, how much revenue they can get. Wework is saying its total opportunity is 3 trillion i mean, thats 3. 5 of the entire worlds gdp how does a company get to a number like that a lot of people are very focused on tamm as whats the size of the price. I dont know the exact definition of how theyre creating their tamm. But theres plenty of adjacency to weworks core business is lets say Residential Housing that can inflate the tamm and frankly, unless the entrepreneurs are incredibly ambitious, they dont create Companies Like wework and uber i think the world loves the ambition of some of the entrepreneurs and then sometimes frankly its excessive. When you look at the ipo class this year and the middling performance of a lot of the stocks does that give you pause without knowing the financials and the composition of wework itself getting back to what i said earlier when you say the middling performance i totally get it many of the stocks havent performed well, but thats because they have gone from obscurity to ubiquity in the private markets and are being priced as Public Companies in the private markets so yes, it worries me long term that i hope maybe some of the velocity of capital and increases of valuation as theyre private slows down a little. So that stocks are rewarded for having pops in the Public Market does that make sense it does dan, we appreciate you letting us put you on the spot in realtime. Youre wearing high tops is that what those are thats correct. I have enough seen those before. Well, im glad to hear you say that, andrew should i just show real quick. Look at those. Because hes an investor. Limited edition. Limited edition. And kind of an tommy john underwear that andrew would want to youre not going you know me and my tommy johns. Dont show them. I wont. Another good company you can invest in. Dan, we appreciate it. I want to tell you about Bo Jo Boris Johnson on facebook. Theres a terrible collaboration between those who think they can block brexit and the eu collaborating. He says we need the eu to compromise the eu is not compromising at all on the brexit deal the longer the situation goes on, the more likely of a no deal exit is whats going to happen and then he goes on to say, were leaving on october 31st. One way or another so there are some other comments in here as well saying that if the eu thinks that parliament is if they dont have the votes for a no deal exit that means that it makes it more likely that theyre not going to compromise so knowing that they cant do a no deal exit means that theyre more intractable and so i dont know. U. S. Is trying to figure out its own contingency plans. The u. S. Reporters were told that ambassador bolton met with his financial counterparts to structure a temporary trade deal that will take effect on november 1st sort of day zero, that would be a makeshift trade deal that would cover things Like Financial Services well, its a long way from it being at the end of the queue, which is what president obama said there would be if there was a brexit do you know what a queue is . Yeah. School of fish, im thirsty, im going to go to the bubbler to get a drink after i throw away this rubbish. Study all the puns and the oxymorons. And movie references. Dan was in Robin Williams named after you. Amazing. Coming up, mortgage youre not even a disc jockey are you . Weird. Mortgage application data out a short time ago well run you through that data ted were watching the ten year no squawk box the brexit comments are interesting well 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. Breaking news this morning we are watching the spread between the ten and two year notes right now which went negative for the First Time Since 2007 a leading recession indicator, even as many market experts say it can take 14 months to bear out. But its something being watched very closely were taking it to three decimal points but its still negative nonetheless. Well keep you posted on that. Meanwhile the latest report on Weekly Mortgage applications was released diana olick has the details. Good morning. Huge reaction to that further drop in Interest Rates, total Mortgage Application volume jumped nearly 22 for the week up 81 from a year ago all thanks to the drop in the 30 year fixed fell from 4. 01 to 3. 93 on the Mortgage Bankers association index. Thats the lowest since november of 2016. Refis popped dramatically, up 37 for the week and 196 higher than a year ago. Rates are still not as low as they were back in 2012 and the first half of 2013 so a lot of people are holding on to even lower rates. But if you bought a house in the past five or six years you might benefit from the refi. Its 88 basis points lower than the same week a year ago home buyers not as enthused. Up just 2 on the week but a stronger 12 annually. Lower rates are helping some, but still not off setting sky high home prices insome market as well as short supply of homes for sale back to you guys. How do you know when it makes sense to refi . Everyone says its going to create a surge of refinancings, and you could have been refinancing for the last 12 months. Yeah. Serial refiers and there are a lot of them. But look, the number is generally 75 basis points. If you can lower your rate by that much you can benefit from a refi but you have to calculate in how far you are into your mortgage if youre into the 30 year, 15 year or 20 years it probably doesnt make sense to start that again. But 75 basis points, rule of thumb. What do consumers spend it on consolidating debt. Get your Credit Card Debt, Student Loan Debt all under one roof and use that money to do that but also a lot of people are putting money back into their homes. Now, the renovation market has been cooling quite a bit it did last year that might have been because Mortgage Rates are higher so well see if we get a pop in the renovation business. Should we wait till we go negative the rest of the world and the mortgage goes down over time ill get a 100 year mortgage it will end up at zero. Didnt you see that piece . I read that about denmark and i called the mortgage gurus could we have a zero in u. S. Absolutely not. How did happen in denmark its crazy. Well, in denmark its a different model. It has to do with where to put the money over time, would they get a better yield but you can get a better yield on credit cards and all kinds of lending. So i shouldnt wait. Youre not going below zero. Dont wait for the negative rate, okay, thank you. A lot more coming up on squawk box. Were going through the wework filing and well bring you more on in a little bit apple stock is getting a pop in yesterdays session after the Trump Administration delayed tariffs on electronics until december well discuss the apple economy, holiday sales figures in a bit as we take a break, look at the u. S. Equity futures at this hour as the ten year and two year note have inverted and folks are talking about a ceression. The dow jones off 219 points right now. Were back in a moment what about him . Lets do it. Come on. This summer, add a new member to the family. Hurry in and lease the glc 300 suv for just 419 a month with credit toward your first months payment at the mercedesbenz summer event. Going on now. Welcome back to squawk box. We have been watching futures slide into further in the negative territory throughout the morning and dom chu has more on whats moving dom . So kayla, the macro picture being driven in large part by this kind of flight to safety on over concerns that longer term Interest Rates are below shorter term Interest Rates the yield curve as its better known as. Gold you can see, it was unchanged for much of this morning so far not a huge amount of movement but all of a sudden, in the last couple hours or so, we have seen a nice move higher in gold prices now 152370 and this continues the trend of the safe haven asset like gold which is considered to be rising in price as concerns about the market kind of take a little bit more of a a bit of steam here. So were watching gold prices also watching now whats happening elsewhere in the macro complex. Oil prices are falling economic concerns playing out there. You can see the medium term trend is to the downside and its off by 2. 5 for wti cruise futures. Thats something to watch there and we put up bitcoin prices because there have been folks on wall street, analysts and others, talking about this idea that bitcoin has been one of those quote unquote haven type investments as things have looked a little bit worse. I would point out today even bitcoin prices are taking a bit of a slide 10470 last trade, off 3. 5 but still a huge elevated move over the course of this year. Well see if the bitcoin prices still reflect some of that haven status that some traders are assigning to it, joe back over to you. I guess haven, another word for haven is just a place maybe to go when youre seeing the neighbor race to the bottom around the world in fiat currencies earlier today we spoke to nick hollis this idea you did see that on the hong kong concerns and china, kind of took shape over there bitcoin maybe one of the places they do that, but not stocks its not correlated as much to stocks i like to blame it on the other places too but i think we matched our budget deficit from last year already to this year. I would say that with the budget deficit, if Interest Rates keep going lower. Were spending it on good things we can finance at such low rates. Right right. Dom, thank you apple rose sharply yesterday on some trade war tariff relief, but this mornings yield curve inversion signal trouble we have the managing director of d. A. Davidson who has one of the highest price targets on apple at 270 and tim lesco, principal at granite investment advisers. Well start with you, tom. What is the key thing that anyone that buys apple now should be thinking about its not tariffs, is it . Its more things specific to apple or do we worry about if something happened with china where it just you know, something really you know, there was a scorched earth against apple. But other than that its their transition into the Services Model rather than hardware, i think, isnt it, tom definitely the long term story for apple is moving away from their dependence on the iphone which was 60 of their sales in their last fiscal year. But when you look at todays news on the inverted yield curve, i would argue on a short term basis for apples shares the greater risk is concerns of a Global Economic slowdown i think that trumps the risk of the china trade war to the extent that apple is a Multinational Company selling to consumers across the globe and you have already seen consumers shown a willingness to hold on to their iphones for extended periods of time if they get concerned about the Global Economy. I think the news on the inverted yield curve does pose some risk for apple shares are you going to change your price target actually, no. All right. On that point, i think what youre seeing is that this transition into services as you pointed out has enabled the company to, you know, maintain their Revenue Growth rate and the Free Cash Flow and theyre still returning a lot of the Free Cash Flow to buy backs. It say this is a risk were monitoring but today would not inspire me to lower my target. Your comments yeah, well, i think i echo some of the same comments as the other guest, but where the tariffs are concerned is a microstory so tariffs arent the issue, but its being able to sell iphones and particularly services into the economies that were perhaps having a war with. We want the Chinese Market open to not only iphones but the rest of the services. I say the same about india india has some pretty restrictive trade policies so were all were doing around the world is much more important to apple two or three or four years down the road than perhaps the cost of a broadband antenna going into 2020. So tom, where what will the Company Look Like if it was not an iphone based company . I cant imagine. Im going to need a new iphone, sorkin my battery it goes down so fast now i dont have i dont like the big one. But whats going to change that . I need a new one because of my battery. But thats not a business model. Basically, apple looked more diversified. Think of the premium content when apple tv plus, think of what theyre doing with health care and including wearable devices. Enabling you to monitor your heart rate among other things on your smartwatch. You think about their efforts potentially in cars. To the extent that they may be creating a full automated car or just an operating system for automated cars so apple in the future will be a much more diversified company. The smartphone will be one of Many Services they will offer and it will offer the lower portion of sales youre okay with that we dont know what the next great things will be, i guess. Well, i think that peoples relationship with apple really does start with the iphone so if youre going to move to the company thats selling more services whether that be more airpods, more watches, still ties back to becoming an apple customer the good part about apple nobody lives so the customers buy more and more services over time. So, you know its all about the air pods. I think tim should come out not you, tim. Tim cook, sorkin, turtleneck, he should say, different size airpods for different ears i do i think that should be the big no . I dont think i dont know how big the market is. Im using the right in my left. Your skew on that one. You dont think that would be the one more thing that would wow. I think the stock could bounce i dont know anyway, that may not be enough he wears a black turtleneck . He does not. He looks pretty casual. Buttoned down guy. We are counting down to a big hour lb rs llwiuroswi be our special guest on the set well get the latest on huawei and much more. Squawk box will be right back. Whats working is sponsored by comcast business. Beyond fast. Comcast business gives you high speed internet. We also have Solutions Like powerful wifi that gives your entire business more coverage and automatic internet backup that can keep your business running. And it all starts with our gigspeed network. So give us 10 minutes. If we cant offer you faster speed or better savings than your current internet service, well give you 300 dollars for your time. Call now to get your comcast business 10 minute advantage. Comcast business. Beyond fast. Investors are waking up to the recession warning from the bond markets Steve Liesman has more we were going to talk about the deficit, but obviously the conversation today has changed. Yeah. Up to less expensive deficit, at least in part. Let me do everybody is up on the conversation an inverted yield curve where short term bonds yield more than long term bonds, supposed to be the other way around because the investors want higher Interest Rates if theyre going to lend you money for a long period of time and it inverted for the First Time Since 2007 and tried and true recession warning. Each one curtain raised a recession from 13 to 17 months notice i did not circumstance it will recent one because we dont know if that leads to the recession. How did we get here . Well, the fed cut rates and the markets thought that was not enough that was a big ten basis point decline in the yield curve and then a trade war escalation and a deescalation and a stronger than expected cpi inflation that pushed up the two year bond yield. Which is why we inverted this morning. Heres what the market expects from the fed in coming months in context of all this. Getting a rate cut in december, 100 we dont have the third one dialled in from here until january. In the 40 its the 40 percentile for december so big caveat with the capital c. No one knows if it means the same thing as a decade ago it it rose after the president rare raised some tariffs you have negative Interest Rates i think the count is 15 trillion one other thing. We dont think that the yield curve inversions cause the recession. They reflect concern about a recession. But it shouldnt be Something Like oh, my god its what causes it it just reflects the a good point. Short rates are like who knows, 6 . Much different story than if theyre 2. 6. Plus when was the first part of the yield curve inverted like a year. March back for the three month ten year which is by the way the inversion the fed follows whether youre taking about the entirecurve or just this 10 2 bread. Its something to worry about. You see a bond yield it reflects the combined interest of investors in trillions of dollars of bonds in the outlook for growth and inflation and all sorts of other things the Federal Reserve is out there. So it could be anything happening here you have to watch it. I wonder if it could be a good thing for the first time in history. Because it reflects innovation and secular disinflation around the globe. I want it to be the good thing we have low unemployment and inflation is so low that we can have low Interest Rates too. We can have it all. I could give you a serious answer to that i share your aspiration in that regard. It would be nice. But in that world, why would short term money cost more than long term money . Because its a couple of basis points in that world, joe all Interest Rates are basically the same. But everythings the same sounds like an alvin top lower Interest Rates are good. More on the bond market, the recession warning and the fed. Were joined now by university of california berkeley economics professor brad delong, a former Deputy Assistant treasury secretary under clinton. And row mena a budget director we are joined by jim rio and talking about what this means for the Recession Risk and when we could see that. But i want to start with you, brad, because its not as if unemployment is high there are questions about whether the u. S. Can continue to issue debt to pay its bills. So is this telling you there are no questions about whether the u. S. Can continue to pay the bills. Look at the Interest Rates on the debt look at how extraordinarily valuable the debt is people worldwide think that holding u. S. Government debt is an extraordinary good thing to do and it has an extraordinarily high value i dont United Nations i dont understand why you can say there are questions about whether the u. S. Can continue to issue debt when everyone out there wants it and wants it a at a high price. A high price compared to what theyre getting for their money anywhere else around the world no, high price in general u. S. Bonds create a dollar of cash flow and sell it as a cash bond and it has a uniquely high value. Save for germany and jap where its even higher. Youre just talking relatively today, not relatively in life. Because otherwise it doesnt have a high price at all. It does too 30 year Treasury Bonds ever been this high . No. The price is not. Its brad, real quick, how worried are you about this yield curve inversion . Not the yield, but the price. Its honking the horn very loudly at the Federal Reserve. The question is does Jerome Powell have a better sense of how to maintain the expansion or is the market right to be worried . Given what we have seen over the past 40 years youd be likely youd be well advised to bet on the market and i think powell is going to respond. Which is why everyone expects Interest Rates the three month rate now to be 75 basis points lower in january than it is today. But how much honking the horn at the economy and the fed is responding. And the fed responded in july certainly because how much longer do you think the fed is actually able to expand or to extend this expansion . This is a really tough question and ultimately the market is going to decide this but the fed shouldnt concern itself with facilitating fiscal policy for the u. S. Federal government to enable this huge borrowing spree that were witnessing were looking at potentially almost 1 trillion deficit this year certainly next year. The interest cost alone will exceed what we spend on all of medicaid at the federal level. And over the next five years it looks like interest on on the debt may exceed what the u. S. Spends on National Defense who is backing the debt, its the u. S. Economy, the American People if things should turn for the worse, those Interest Rates could spike relatively quickly and that could get us into real trouble fast one of the reasons though why President Trump has advocated for lower rates is so that the cost of government borrowing would go down because of the expectation that it would be issuing more debt. But what happens if we do go into the recession, if Corporate Tax receipts get lower and does that offset any potential cost savings from low Interest Rates . You know, the Federal Reserve should be independent. Thats the whole purpose of having an independent central bank if we get in real trouble when they see their mandate as facilitating fiscal policy for a government that is spending out of control and borrowing at excessive rates. The fiscal situation is not sustainable not just in the long run but in the short run thats a real problem. Now, we have to see what the markets will do, but i do worry that were finding ourselves in a bubble and the longer we try to extend it the deeper that fall will be. I want to ask jim, earlier this week you said that even when this spread goes negative that if it for tends a recession its not for 14 to 18 months when you look at futures and you see just this spread going negative, leading the dow futures down by more than 200 points, 250 points, does that seem overdone to you yeah, it does it seems to me there was people waiting in the weeds for any little bit of bad news to come out and sell the stock market. I dont think theyre selling it because of the bad news. I think theyre trying to find pockets of panic out there the discussion has gone on for ten minutes or so and nobody has mentioned that the world banks tried to compress the long end rates to the tune of turning 15 trillion into negative yields to me then when everybody is buying long in debt creating money across the world to do that, wow, long end yields are really low that shouldnt surprise us as much. Theres some distortion. We can argue about how much distortion is in the yield curve but theres some for me that its lost some of the Predictive Power is completely reasonable. If its operating at a flatter pattern to begin with. Steve i agree with what jim is saying which is the next step to what jim is saying which makes me a little nervous is Central Banks could reinvert the curve as a mission if they decided there was some sense to that im pretty sure theyre not there. In fact, brad might know a little bit about the current state of thinking but the idea of creating a positive slope to the curve, brad, is not sort of one of the items in the feds playbook. No, no. Definitely not right. Should it be . Definitely not. Should it be . I dont think so. I think what the fed is in the business of doing, its in the business of controlling short term rates and then watching what the market then does with long term rates and using that to assess the state of demand. For investments. Lets i think thats the right thing to peter fisher has an opposite opinion of that. Thinks that where the banks and other reasons. And its an important idea we have do go for now macys earnings just hit thanks to you, thanks guys. Courtney reagan has the results from macys. Hi. Hi, joe, yes. Its big miss for macys profit. 28 Cents Per Share analysts were looking for 45 cents. We have got revenue though essentially is in line at 5. 55 billion that was what we were expecting along with the 0. 3 comp sales growth so that marks seven quarters without that metric declining. But macys is lowering the annual Guidance Range to between 285 and 305 a share and that was previously at 305 to 325 and that guidance does not reflect the new tariffs. Macys is still evaluating the details and macys Ceo Jeff Gennette said it started slow and finished below the expectations and they had to discount if merchandise. After one, a fashion miss in the private brands so they sold things that customers just didnt want to buy slow sale through warm weather apparel in general and an accelerated decline in international tourism. I spoke with Ceo Jeff Gennette who told me quote we took our medicine we took almost a full point of margin for these markdowns to address the inventory issues he said we needed to protect the fall gennette said he learned from list three tariffs moving from 10 to 25 that quote, the customer has no appetite for price increases and that right now, we are expecting that there wont be price increases with tranche forward at 10 but if it goes to 25 well have some more work to do thats a bit of a change from before when gennette had said he didnt see a way through this without higher prices. Gennette calls the store sales healthier and notes the 40th quarter of double digit online growth but shares of macys is down more than 12 after these results. Andrew thank you we should tell you wework is unveiling the ipo filing this morning. Now, its a doozie hundreds of pages literally. Probably the longest filing i have seen in quite some time couple key numbers to focus on this morning theyre going to be raising 6 billion theyre putting 1 billion for the filing itself or for the ipo itself, but an additional 6 billion led by jpmorgan the message there of course is a sign of confidence that the banks not only want to bring the Company Public but want to finance this company in addition to that. For those cynics out there i dont think you get enough fees. I dont know how its structured but to the extent theres some saying you have to do the financing to get the ipo theres still not enough to money to go around to get that work i think theres a semblance of confidence in the future of this company. As of june, the run rate revenue number is 3. 3 billion theyre growing at an 86 growth rate year over year. Enterprise membership increased 18 . From 2016 to 40 in q2 of 2019 if youre playing at home, go to page five because we talk about the path to profitability. They say theres one and then if youre playing at home, the real place to go is to basically page around 200 page 200 because then you get into the related Party Transactions and how the ceo and founder of this company is going to be paid theres three different three different voting shares. Right. In this instance, he gets hes going to get 10 million share options are going to vest over a five year period irrespective of what happens he gets another 9. 5 million shares if he can get the stock im sorry, 7 million shares if he gets it over 50 billion. Gets another 7 million shares if it gets over 72 billion another 9. 5 million shares if it gets over 90 billion. Sort of like remember when elon musk got his compensation strategy plus, all sorts of related Party Transactions that are worth looking into theres the Charitable Giving element. If they dont give away over 1 billion they get money taken back from them. Probably for tax reasons. Probably for tax reasons. But they dont get into that theres properties that he owns, thats being leased back to wework. Yeah. We know about that. Its awesome. Adam has committed quote not to purchase any Additional Properties with the purpose of making them available for our occupancy. Thats good. Theyll be selling the properties back to wework as part of the sale lots going on. So uber the path to profitability. They skipped that. Less paper for them. They didnt have a page five went four to six. I think dont have to bother with that we have no path. Lets get to the big interview of the hour. For the latest on the u. S. china trade war, lets welcome in wilbur ross. This was yesterday today, well get right to that we will. But i have to ask you about the yield curve and as an administration official, i would not suggest that you should say well have a recession in 12 to 18 months. That probably would not be the tape that i would have on this, but a lot of people say thats what this indicates. What do you think . Well, formulas like that work when they work and they dont work when they dont work this is also a question of how far into the future and eventually there will be a recession. So the idea that 1,000th of 1 inversion which is what i saw in your screen a little before is going to be the end of the economy strikes me as a little aggressive. Yeah, i agree its the point being made that rates are so low theres a difference between the 7 short rate and a 6 , 30 year or a ten year and when youre down its basis points too. This is 1,000th of 1 . Youre good at that stuff thats how much the tariff on aluminum cans were youre good at these really, really small numbers let me ask you about the deal that was the reprieve that we saw yesterday. I dont know if we know for sure whether there was any concessions from china yesterday on that phone call or whether this was purely a move unilaterally by the president to make it easier for consumers at christmastime. Did china blink on anything or was this totally unilateral . There had been all sorts of Research Done before there were public hearings about what items to put on and nobody wants to take any chance of disrupting the Christmas Season. We dont think so youre saying we didnt extract anything from china to do this . There was no quid pro quo . Not a quid pro quo. It was a decision to do what we decided to do and then we the president said well see if they follow through this time on some ag buys which seems to indicate there was behind the scene maneuvering and some tentative deal there too can you comment on that . Well, when we broke off the talks they had very publicly when we were all in the oval office committed to buying lots of soybeans. Doing all kinds of things in addition to that we thought we had a very detailed deal on the basic trade issues they didnt deliver on any of that and i think thats what the president was referring to. You also are saying that were where youd like to get and maybe theres a phone call resumption in two weeks that were going to see on the phone right. Do you think there you said they might be back to where they were before things broke down on some of the big issues some of the things that we are we say that they reneged on are they back to where they were or are they getting in that position where theres been no movement whatsoever . I think until something is really formerly announced and mutually agreed its premature to say where everybody was we had three objectives in the beginning. Those are the same three one was increase current trade, reduce the deficit thats the easy part if thats all we wanted, we would have had a deal three years ago. Second part was structural reforms. The problem of Technology Transfers being for us, problems of not fair Market Access to foreigners that whole list of things youre familiar with. That takes legislation and thats a big ask but the third and most important is the deal thats verifiable and enforceable. We need all three components so it isnt a question of just agreeing on something. But its often the in person negotiations thats more productive did china commit to coming to washington in Early September . I dont think its a question about anybody committing to anything what were interested in is having discussions that focus on where we thought we were. But the white house said frequently that they have invited the chinese delegation to washington in Early September for negotiations is that formalized i dont believe a date has been set youll notice all that was discussed was perhaps another phone call in a couple of weeks. Today is also a significant day because i believe its the day that the three month general license that was provided to huawei comes up. Can you update us . No, it comes up on monday. Okay. Can you update us on then where that process stands to issue more licenses . An monday ill be happy to update you. Mr. Secretary, has the administration done any type of concrete analysis, economic analysis, of the Economic Impact of these tariffs internally . Is there a piece of paper . Is there some real analysis that looks at this, given we take we talk about the analyses done by banks and investors and a analysts and what is done inside the administration on this about what we just did yesterday . What you did yesterday and whats taking place over the last several months in terms of the bigger approach. Well, in terms of yesterday, it was only certain products, namely those that are 75 or more supplied by china and the reason we use that as a cutoff is that its very hard to replace quickly somebody whos a 75 supplier the earlier things we had done were ones where china was a much lower percentage therefore, much easier to replace them so that was one of the sorting devices. But no, is there an analysis that says, okay, if we put these tariffs on, this is whos going to this is what the cost is going to be on the american consumer, heres what the cost is going to be on the american farmers. This is what well end up having to play out. I mean, a full sort of analyses, if you will, in the same way that Goldman Sachs over the weekend put out its own analysis they can put out their analyses is there an internal one and what does it look like we do a lot of analyses and the important thing is that youre trying to judge peoples reaction whats going to happen to currency that has an impact on the inflation that might come from tariffs. What are they going to do by retaliation . You have to make guesses to each of those in order to make a sensible thing so you need a whole matrix, not a single point analysis but the fact is there is not very much inflation in the economy. Import prices in fact have been very stable. And the study done in europe indicated that of the 25 tariff we had put on 20. 5 or thereabouts was borne by the chinese and 4 point some odd by the americans. How much is based on chinas currency devaluation and the administration has criticized and the president last wee acknowledged benefits the u. S. Consumers . Its not a question of whether we like it or not. Its a fact that the currency has gone down. That does offset tariffs so thats a fact. Its not a matter of opinion. On the phone call where we informed china that there would be the reprieve, it would said that we made it clear that this was not a concession to china. Was that a point that we thought was important to make . Listen, it wasnt even a debate we had decided before that to okay. The hong kong protests and theres been criticism i mean, theres going to be criticism every day as you know. Youre used to it by now with the Trump Administration but that we have pulled back from our role in the world as supporters of freedom. By saying were neutral on whats happening is creating a vacuum where we should be there saying were with the people that are looking for freedom and freedom of expression. Everything else. I think what the president said is that this was a tough decision and that he hopes he works it out well for all parties. Should we be taking a stronger tactic . Are the trade negotiations making it harder for us to do to lead in a way that we would have in the past would you say i dont know that we would have done anything different in the past what would we do, invade hong kong we might warn china overtly in the very strong terms that were watching whats happening with you know, no one wants another tiananmen obviously. The president has made clear that he is watching very carefully whats happening he talked about the possibility of troop buildups and its not that were not watching it its a question, what role is there for the u. S. In that manner this is an internal matter. Okay. The we have been hearing a lot about ag buys. We have been hearing less about ip and some of the other bigger issues is it possible with the election coming and its getting closer i cant believe how fast time goes, but is it possible that it becomes some type of let me well get some big ag buys and resolution of huawei and thats all we get with the president at that point saying thats all well get and if hes reelected well revisit this but were going to sort of agree to disagree on these other things well, the president s the ultimate arbiter of trade policy obviously, but i havent come off the firm objective that we need structural reform that this is really after all about the section 301 action that we brought. All these tariffs are a section 301. And the purpose of section 301 was to induce the structural reform but theres been an expectation that there would be a short term set of deliverables and then a longer term set of deliverables if you have a reprieve on huawei and some agricultural buys, then that would usher in where the two sides can negotiate the tougher issues instead of not talking at all. But that would push the longer term outcome further down the road. Thats a whole theory as to how the talks may evolve theres no basis for that. Have you had a discussion or within the administration has there been a discussion on how the hong kong situation plays into the negotiations and whether it emboldens president xi because of nationalism rising in main land china or something that adds to his you know, all the balls that hes got in the air right now. This is not a great time to be having a slowing economy or something affected by a trade war. When you wonder whether this is the beginning of it really the beginning of something. Well, there are lots of speculations but the truth is we dont know. Does it help our negotiations or hurt in our negotiations . I dont think we know the answer just yet because we dont know what the outcome will be of the hong kong situation. I just wonder, you know, whether long term we think th that how important it is for china to continue to make progress economically to sort of keep people, you know, in the fold and not you know, if that were to slow, you know, and the middle class emergence we have seen were to slow, that would be a problem for president xi and for the communist party. The economy has been slowing. The output went up in july and thats the lowest in 15 years in some such time period and theres no question that its been slowing and no question that a lot of the supply chains are moving elsewhere some to the u. S. , some to mexico, some to vietnam or other countries. So there are some other economic problems that are that are partly induced by the trade situation. Some people said that move yesterday was purely a stock market put and that the president had seen enough in terms of 1,000 points on the dow or the volatility and the averages he loves the stock market going higher he loves a good economy. Do you think theres some truth to that . No because i know that the decision had been planned quite a while before but the tariffs the september 1st tariffs werent announced until a few weeks ago so how long could it have been well, we have been doing analysis since the hearings were announced by the ustr. There have been hearings submitted about the whole idea of the last batch of tariffs so even though they were only announced as being imposed recently, the analytical work had begun well before that. Id like to ask about your dialogue with congress right now. Come september theres a lot of efforts, bipartisan efforts, to try to tie the administrations hands on tariffs do you think any of them will be successful are you having any conversations with about them about how to craft the legislation so its effective . Well, theres been legislation proposed by one member of congress for the last couple of years. But senator grassley which has jurisdiction over trade said hes open to working with all of the lawmakers who are interested in this to find something that suits everybody. Sure. If you look back i think youll find that chairman grassley has made similar statements in the past so its not new. But what about van holland and cotton who are trying to limit what youre able to do on huawei well, well see what they do. Where we are on huawei is where we are. As a private sector turn around guy, you would go in there to auto parts or mining or oil and gas and all of whenever you went in it was because it had way too much debt so you know about that do you see whats happening in our Balance Sheet in the United States, and rates are low but do you look at this now and say, wow. If this i know you cant equate private sector and Public Sector debt but is there a problem yet in your mind with the amount of debt were running up i think the key to our debt situation is how fast the economy grows. If the economy grows at 3 plus percent, the debt problem its not. And in ten months last year it was 1 trillion and in ten months were there already this year then you arent even talking about entitlements and what we know there, wilbur. Absolute the amounts arent the issue, but the relative amounts relative to the size of the gdp. The important thing is can we grow at 3 or 3 plus can i ask you a question about that, which it hasnt. You look at the tax policy and all of the things that have been implemented, what the president laid out as the goal and that line has never been hit yet in a meaningful way do you look at that and say, we have not succeeded yet are you willing to no. Take for example the most recent quarter, boeings problems with the 737 max, probably took Something Like 0. 4 off. That will come back when the 737 max problems are ultimately fixed. We think that the economy is strong the economy is headed in a good direction. The key to growing at 3 is three things amount of people in the working age population thats already been pretty well set. Second labor force participation. And thats starting to go up thats important then the third thing is productivity those three add up to 3 we go at 3 . 60 faster than the previous eight years. 2. 4, 2. 5 versus 17 not for nothing. Mr. Secretary, you have the huawei issue coming up and you have the census situation in the rear view. I want to ask how long you continue to continue serving in this role and what conversations you have had with the president. Well, you remind me with your repeated suggestions that im departing, when pt barnum said when they published his obituary namely that the reports of my death are greatly exaggerated. I never reported that you were dying i reported that cabinet members serve at the pleasure of the president and sometimes the pleasures of the president change. Im not going to debate with you, but you might be on that. I think you love doing this because we throw you love answering these questions. Youre like ready, bring it on youre like with us, you like to argue. This is the most stimulating thing i have done in the last 20 years. Squawk box . No, not squawk box. Oh, okay. No i knew what you meant. Although with a little more belligerent questioning might be squawk box. Wilbur, secretary ross, great to have you on, so great to see you. We want to do it whenever we can. Andrew . You have another big interview. Going across the street right now. This is a great get for you. Im going to leave you now. Good job. Thats okay. Wilbur, nice to see you im going whenever i tell you to leave camera is following you. I have to run. I didnt know i had this power. See you later. Okay. Good to see you. Thanks, mr. Secretary thank you thats what happens in golf nothiand in life. Ily. Im very fortunate i can lean on people, and that for me is what teamwork is all about. You cant do everything yourself. You need someone to guide you and help you make those tough decisions, thats Morgan Stanley. Theyre industry leaders, but the most important thing is they want to do it the right way. Im really excited to be part of the Morgan Stanley team. Im justin rose. We are Morgan Stanley. Welcome back to squawk box. Futures red now. Not quite the worst levels but pretty bad down 327 points, 330 points indicated on the dow the s p giving back 36 nasdaq indicated down about 113. If it were to end today, it would be a lions share of the rebound we saw yesterday after the tariff reprieve. Coming up, breaking Economic Data, a fresh read on import and export prices due out in just minutes. Stay tuned for our first on cnbc interview with bobakh. Bis he takes the lead as ceo of the newly announced viacom cbs looked at chart patterns. Ive even built my own historic trading model. And youre still not sure if you want to make the trade . Exactly. Sounds like a case of analysis paralysis. Is there a cure . Td ameritrades trade desk. They can help gut check your strategies and answer all your toughest questions. Sounds perfect. See, your stress level was here and i got you down to here, ive done my job. Call for a strategy gut check with td ameritrade. Welcome back to squawk box. Rick santelli. We have breaking news, the july read on import export prices up 0. 2 thats definitely a higher number aal though last month we lost a few. Minus 0. 9 stands at minus 1. 1. On the import prices expetroleum unchanged and if we look at import prices year over year 0. 2 cooler than expectations its also 0. 2 cooler than the last peak. Export price up 0. 2. Although in the Rearview Mirror we upgraded last month from down 0. 7 to down o0. 6 the macro view on export prices eyear over year now stands at down 0. 9 sequentially following the revise down. These are firmer import and export prices and minus 65 basis points low yield, historic negative year on the bund. Ten years have touched 157 30 year bonds never settle under 2. 099. Well round it out to 2. 10 this is going to be a biggie and considering the yield curve and the fact that it certainly looks like tens to twos is in the red zone im not talking football, remember the last time it was in the red zone meaning inverted, two year note yields closing higher than tens, june 5, 2007 kayla, back to you. All right, rick santelli, thank you. Joining us now for more is Richard Bernstein, ceo of the Richard Bernstein advisers and cnbcs Steve Liesman digest that for us. A lot is a decline in the prior month. You were down 1. 1 in june which is a downward recision from the prior report up 0. 2 which is hotter than expected so it kind of washes out. I think the best way to look at this is year over year 1. 8 year over year. Petroleum down 6 . Nonpetroleum down 1. 6 you are seeing the reversals Motor Vehicle prices have been soft zero in june my must 0. 3. You nonts know how the tariff you dont know how the tariffs affects this what we see is Global Economic weakness one of the ways that the overseas economies affect our economy. In part through the import of inflation. As for tariffs, these are pretariff prices so the tariffs go on afterwards to the extent theyre down it could reflect some margin pressure back on the supplier. But they need to fall in concert with the amount of the tariffs to fully off set it. Its this kind of data that tells economists how and why theyre being paid on this side of the border, not the other. Richard bernstein when you look at the unexpected rise in the import prices for the month, obviously its a small enough amount it wouldnt necessarily be passed on to consumers but what does that tell you about the economy . Sure. So kayla, were in a late cycle environment. I know the fed likes to say its a mid cycle environment. Its a late cycle environment and the yield curve is telling you that late cycle environments are horrible for the fed why are they horrible for the fed because the front end of the economy begins to slow down. But yet, you have lingering inflation pressures so the fed is always in a late cycle environment caught between a rock and a hard place and its not so easy. If you look at the recent inflation data, youre starting to see that. Its not out of control, not horrible but whats interesting is the fed is easing and willing to talk about easing in a late cycle environment. That is highly unusual to see that happen. Although what inning are we in the late cycle environment . Thats the Million Dollar question. I think were in the ninth inning the yield curve is telling you the lead you have batter may be up and theres not a pitch yet but were in the ninth inning. The fed is in a no win situation, steve. I want to before responding to that tell you whats going on overseas rick alluded to this earlier he talked about didnt allude to it he said it the german bund new alltime low. Minus 0. 646 if you want to be precise. Also happening in european bonds. Again, the chicken or egg question are we importing their low yields or are they reacting to whats happening here . A little hard to tell but itll all a global downdraft in yields thats animating the stocks. I agree but if you look at policy here in the United States, policy here in the United States whether its tariffs or the fed easing at late cycle environment is a pro inflation policy. Whether its monetary or fiscal policy that is the story. 100 right. Usually the fed is battling inflation at the end and now theyre not. Joe has a great question. Theres the correlater of what i was saying. Exactly. Recessions come when yields get too high the yield curve inverts and the fed has to tighten this is totally different. Thats why i disagree with you its the ninth inning. A twilight doubleheader . No. Twilight doubleheader i used to love those. They dont do those anymore. Youre so old. I know. But with age comes wisdom which might be lacking he still has his hair. Touche. Somebodys hair. But steve who knows i think he said something i disagree with earlier about half an hour, 40 minutes ago. That is i think that the yield curve does have an effect on the economy. Because when short term rates are above long term rates for an extended period of time you begin to shut down the credit creation process in the economy. So not only does it reflect expectations, not only does it reflect current situations but it has a proactive effect on the economy which is never good. And i dont think you know, people are saying why is the curve inverting and this time its different it doesnt make any difference. A couple of basis points im not panicked. You said ninth inning youre selling everything . Look, if youre a yankee fan, unlike a Cincinnati Red fan, you know the ninth inning can go a long time. Im not saying the yield curve doesnt have an effect on the economy, but does it cause the recession or reflect concerns about a recession i dont think i dont think the yield curve itself causes a recession. Or an inversion. It can contribute but i get your point, yeah. Richard bernstein, thank you for joining us and steve, thanks. You never said this before. Ninth inning. Well, we reduced equities quite a bit in our portfolios. 75 . Youre burying the lead. Im just following what the questions are i know you are. Its our job too to get you 70 equity. The chances of a recession in the next 12 months are i would say 5050. Thats high thats high. Its usually one in five. Thank you little less than an hour until the opening bell and come chu is joining us now with more. Hey, joe, lets put some real numbers and Premarket Movement to the discussion that you, richard and kayla and Steve Liesman just had and why youre seeing the Market Reaction in the way its playing out right now. One of the places we have seen buying on recent dips is in Large Cap Technology and Media Telecommunications that sort of thing. Lets check on the faang numbers to start this morning with the dow implied opening down, you are seeing amazon off 1. 5 and netflix up 1. 5 . And almost 1. 5 losses for Google Parent Company alphabet the faang complex, you can see the profit taking happen over the course of the short term also whats happening right now with regard to banks to speak about what Richard Bernstein said about the yield curve what it does to lending and creation, one of the biggest moves that you will see premarket so far today is coming from the financial complex. Specifically, money center and Regional Banks look at citigroup. Off 3. 5 right now bank of america a similar percentage decline right here. Jpmorgan chase outperforming some of the peers. Only down around 3 . And then Pnc Financial on the Regional Bank side of things theyre more exposed to perhaps traditional lending activities those are down as well just to put it in a little bit of context here, check out this chart. One year of the financials both the banks and the Regional Banks can we see that downturn here continue . Thats a big question for Bank Investors as they weigh the yield curve inversion story. Joe, back over to you guys. All right dom, thanks. Coming up well head to the viacom building well, not actually going to do that, but were heading to andrew at the viacom building. You did it you made it. No trouble crossing the street i made it. Go against the lights i crossed the street. It wasnt that hard. I dont know if anyone saw me jaywalking but im over here when we come back, the big interview of the morning were here with the ceo of the newly combined viacom and cbs, bob bakish what it means in the media world, when squawk returns after this im here at the Nasdaq Market site in times square with jpmorgan asset managements alex dryden the volume of Government Debt is continuing to increase, could the u. S. Be next the fed has begun the rate cutting cycle and theyre nervous that theyll follow the ecb and the bank of japan into the murky world of negative Interest Rates. You continue to be skeptical aboutnegative yields but make the case. Negative yielding bonds are strange. If you hold it to maturity you guarantee yourself a loss. Why would investors do that . Two holders of negative yielding debt some are forced buyers like Central Banks or financial institutions, some are traders, speculating on the direction of bonds. The challenge is however, those drivers force bonds to survive in a different way they behave more like a commodity and less like a fixed income as set. There are Global Implications of this. Inverses no longer have to go to fixed income. They can use it for insurance and hedging against equity risk but they have to go elsewhere if they want to find income. Thanks, alex. Thank you. For more insights from jpmorgan asset management, search jpmorgan solve it online. Its the media merger wall street has been waiting for. For years. One thatll add another twist to the streaming content wars viacom and cbs are reuniting after a decade apart andrew, over to you. Thank you, kayla. Joining us right now is bob bakish the current president and ceo of viacom he will become the ceo of viacom cbs when the big merger closes. Great to see you. Its a big day for you announcing this transaction after yesterday after so very long how many years in the works have you been trying to get this together well, you can argue the third times the charm we started this discussion at the end of 16 when i was acting ceo of viacom. Then it was revisited again about a year and a half later. This time, yesterday, we announced were putting the two companies together. Lets talk about the strategic rationale for doing the deal and how it may or may not have changed what were creating is a leading multiplatform global content company. It really has almost unmatched scale in the content side. 140,000 Television Episodes in the library. 3,600 films. Very substantial production capabilities feeding you know our own platforms, feeding third parties. We are leaders in markets all around the world certainly in the u. S. Here with the cw and cbs and obviously the viacom pay networks. In places like the uk where we have a cornerstone and channel 5, argentina, australia, india and then Branded Network distribution all around the world. We have a very compelling play in d to c. Not something that people have talked about a lot but cbs clearly embarked early on a subscription strategy cbs all access, viacom on the other hand chose to enter in the free space, pluto tv, the largest Free Streaming Service in the u. S. , you unite that together and you have an ecosystem thats compelling with substantial millions of users, good, strong growth. So on the product side, the asset side a lot going on. Financially a real power house company. You just said the word unmatched scale. Theres some who would take issue with that. You look at a disney it has a market cap of 245 billion, for example. Netflix value of 136 billion. I think the larger question actually in terms of scale is is this going to be enough and two or three years from now were going to see you want to to continue to make acquisitions to compete at that level or whether you ultimately have to sell the company, given this scale question because we have the big giants. Well, lets unpack scale. Where do you see value in case is you see value in scale in terms of margins and being able to amortize, no question we have scale and bringing the two companies together gets us more scale there. We have talked about 500 million in synergies on the cost side as an example. You look at content, we clearly have scale and content between the studios that we operate, paramount, Cbs Television studios, Paramount Pictures nickelodeon animation. Viacom International Studios a library of 140,000 Television Episodes 3,600 films. We have 750 series ordered to or in production. There is true content scale here and then you go and you look at dealing with partners. On the b2b side, distributors and advertisers. We have the number one television position in the United States by audience. And thats general audiences like 25 to 54s 18 to 29s and specialized like kids and africanamericans and et cetera. We have cop tent content for advertisers and for distributors no question the companies are stronger together than they were independently. And, you know, well start executing with that. In terms of the savings you have put out the 500 million number there was a 1 billion number that was being floated you look at the discovery scrips deal, theres 1 billion of savings. Do you think theres more savings out there . Because it sounds like between cbs and viacom there was a difference over this issue. Look, this is day two, right, we announced the deal yesterday so we have a lot of work to do i feel very good about the 500 million synergy number on the cost side. Again, this is cost, excluding programming. Excluding marketing and revenue. So theres a very material opportunity. As we get into it well move forward and begin to realize that that number is over 12 to 24 months a significant portion of it will be in the first 12 months and then a balance across the second year. What do you think of the culture or potentially even culture clash between the two companies . It sounded like viacom has wanted to do the deal for a long time, but cbs did not. Both under les moonves and there was push back for quite some time how do you see that playing itself out as you try to merge the companies together look, i think theres a tremendous opportunity to create a unified viacom cbs i think theres a lot more in common in the cultures than people give credit to. These companies are built on world class premium content. The employees love brands talk about a brand thats employee of cbs news, they love cbs news. Just like an employee at mtv loves mtv. Theres incredible value in the combination. Look at the strategy well start to execute against building a leadership position in d to c. Through the combination of subscription product and this ecosystem. Tremendous opportunity there you look at expanding the partnerships and building new partnerships with advertisers, with distributors. Tremendous opportunity there for all of the people that worked in that area. You look at being one of the most significant content suppliers in the world tremendous opportunity there so i think very quickly this culture will come together the other thing i would say as an example is when i took the acting ceo job at the end of 16 for viacom, paramount was an island by the way it had lost half a billion dollars and the networks werent that collaborative but today we run one viacom. We have multiple Business Units that are building off of the brands, whether its viacom digital studios, domestic and International Networks and paramount. And that was the result of a vision, a Management Team and then executing its the same kind of thing we have to do at viacom cbs. One of the sticking points for a point is governance, who would be in charge, Joe Ianniello will stay on explain the rational in terms of joes role and how that works. Ive known Joe Ianniello for 20 years i have tremendous respect for what hes done at cbs. Hes clearly a world class executive. He and i have spoken a lot in the days leading up to yesterday. And including yesterday. We havent talked today, but it is early still and there is a tremendous interest, joint interest, in unlocking the value of these combined companies yes, he will take the leadership position, running the cbs branded assets upon closing. By the way, we need someone to run those assets, thats a big complicated business, ideally suited to do it. He has, you know, 20 years of knowledge in that space. At the same time, he knows we have to create value from the assets we have to work across the company. Hes 100 committed to it. I cant wait to get on with it with him. He has a compensation arrangement that pays him 70 million if he doesnt get the top job. Will he be paid that you can look at the public filings and all. Were thrilled to be moving Forward Together well create a lot of value here and we cant wait to get on with it. So a public we have seen the public filings on this. His contract is what his contract is and you can pull the public filings. Let me ask you, in terms of content, in terms of content spend, do you have to spend more money on content you talked about the size of your library already. One of the real values of the deal is the financial position the combined companies create. 28 billion of revenue, 6 billion of income, 2. 5 billion of cash flow, commitment to Investment Grade why does that matter it means we can sustain on an organic basis, growing commitment to content and innovation, and also means we have a Balance Sheet that will let us pursue other opportunities that might emerge in the marketplace thats critical today. There will be opportunity and just as we used m a as a vehicle to accelerate our strategy at viacom, we will potentially use m a as a vehicle to accelerate our new strategy at a combined viacom cbs. Can we talk about how you see the rest of the landscape . There are other players, i mentioned at the beginning of the interview, the scale issue, people say will they go after discovery scripps next, after stars. How do you think about the future youre just getting started, so this is almost too early to ask, but how do you see that play out . What we announced yesterday was the creation of a leading global multiplatform premium entertainment company. Thats a big deal. We talked about our growing scale, we talked about our financial firepower. Were very well positioned moving forward of course we have people who we will compete with and we will and well look at what other opportunities emerge im feeling great about the hand ive been dealt. Im feeling great about the team well put in place we made announcements yesterday and you see well have a blended Management Team with strong executives from both companies in the combined company and it is early days, were just getting started. What is the role of Shari Redstone now in all of this . Shari is an unwavering advocate for both companies. She has been for years now she certainly is thrilled at the prospect and now reality of bringing these companies together she is an exceptionally intelligent and passionate advocate for these assets. Shes become a great adviser to me and other members of our Management Team. And so were thrilled that she is our controlling shareholder. Final question, philosophical, this companies came together, came apart, coming together. Should they never have come apart the first time they came apart at a different time in media with different circumstances around it what i can tell you unequivocally is putting them together today is the right move creates Incredible Opportunity you look at the valuations of the companies, the multiples are very low, why were they low . Because there was a cloud of uncertainty hanging over both of them that cloud has been removed. People will pretty quickly see as we execute against this strategy how powerful this company will become and how compelling an opportunity it is to be part of. Bob bakish, thank you for joining us love the transaction back to you. All right, andrew awesome, thank you thank you for that get that was great going to ask about survivor, but i said never mind. I just cant believe you can ask about survivor. I cant bob, come on, pull the plug. Are you a survivor watcher . I am. Corporate survivor, right we wont go there. I used to give the last gentleman a lot of grief about that he said, you know what he said, we dont care about you, joe, youre not in our demo not in the key demo. So mean. For reaction to that interview and more, down to the New York Stock Exchange jim cramer joins us now. I can ask you anything, i just got to ask you about this yield curve, giving back everything we got yesterday. Does it matter that yields are so low that when short rates go to 7 versus a sixyear, 30 or something, i understand that. Basis points at these levels, is it as significant in terms of its recession forecasting ability . I think it is significant in terms of what diana olick said her reporter has been completely overlooked mortgage refinances at that level are extraordinary. More money going to the consumer, the consumer is robust i want very much to point out that germany had really negative yields the stock market has done okay there. Were in lockstep. Must be some algorithm that says you have to sell stocks. You both know that Warren Buffett is still the Greater Investor of our lifetime hes sitting there and buying the banks. Longer term, am i going to bet against buffett . I cant. Particularly when the consumer is taking advantage of the rates and i look at the s p top 50 companies and it is very hard to find ones that are really hurt by this. I dont know, joe. I know i have to be negative i guess i should trash the economic policies of the president while im at it. I just give me a Little Something to do it so i can do that. Six months from now, look back, it is always interesting to look back we got to go we look forward to seeing you in three minutes. Thank you. Coming up, hell chewell ch markets. At synchrony, were changing whats possible. For instance, we know how your customers shop. And what theyve already purchased. Like this lamp. And we use those insights to show you what they might consider buying next. Midcentury modern, nice. That way, you can keep sending them offers for the perfect products. And that keeps them coming back. Hows that for changing whats possible . Final check on markets, anything could happen throughout the session. But after that nice rebound yesterday of 300 plus points, were giving back 300, not quite all of yesterdays gains were off the lows of the morning. We are. Important to know. The yield curve is inverted bring that up at the cook packtl party. See eyes glaze over. Thats a way to make friends. Thank you, again. Be back tomorrow andrew will be back tomorrow join us. Squawk on the street is next good wednesday morning withing to squawk on the street. Im Carl Quintanilla with jim cramer at the New York Stock Exchange dow features down almost 300 as the 210 yield curve inverts for First Time Since 07, that with disappointing china data. Europe is red. 30 year yield hits a record low of nearly 201. So, a lot has been said already about the curve what it means for the timing of a recession and we should point out, doesnt necear