Transcripts For CNBC Squawk On The Street 20240714

Johnson threatens a general election road map begins with new tariffs on chinese goods hitting over the weekend. No talks between the u. S. And china in sight. Hurricane dorian battering the bahamas as coastal u. S. Braces for the worst and a longer wait for boeings max, could friction between the company and air safety authorities threaten a new delay for that fleet futures, though, slipping after the new tariffs on roughly 110 billion in chinese imports went into effect on sunday. The 15 u. S. Duty hits consumer goods rafrning fr s ranking fro apparel. Reports say that getting some parameters for new talks is proving to be difficult. Exactly i think that if you want to look at the bright side of that, the preopen this morning says there was no real hope for averting the tariffs. It is not as if you have a deal being handicaps now in terms of what the market is expecting on the other hand, bond yields still at their lows, not giving much of a sense that were through this period of just general macro suppressing any kind of risk appetite. I think august took more wear and tear on the psychology of the market than it did on the indexes, right the indexes didnt have that bad a month. A lot of chopping around and indecision hard to know if september is going to be that different to start. On the other hand, everyone is very, very up on the idea that september is typically a weak month and people are defensive so this is what were fighting out. I didnt want to be the first to mention seasonality it is the worst, since 1950, worst month for the dow, worst for the cnbc. One of the more unequivocal it is like a coin flip if it is up or down the fact that august has people back on their heels and you saw lots of outflows, the sentiment saying people are very uneasy now, thats a net positive even though it is not enough. You need something to turn you need some sense that the macro date a is turning for the better thats in the clear yet. Dearth of Corporate News as well not much for the market to grab a hold of in terms of earnings or other news that we might look for as things sort of pick up again from the Holiday Season. Or from the end of Summer Season so the handful of phone calls this morning with Asset Managers were china trade here we are. It is going to keep going. And, you know, the rally for part of last week, i think made it a tougher call today. It seemed like for a while, okay, were at the bottom end of the trading range, people come back to work after labor day, seems like people are too negative it is a little equivocal interestingly, literally the s p is where it was a year ago september 1st of last year, 2913, thats where were going to open today, good news is slightly lower valuation, much lower bond yields, maybe thats enough to cushion things. Yeah. Where were we in terms of the multiple 17 forward. 17 times forward, however, we now know in the year since then, earnings fell short of what was expected then. In reality, were more expensive than 17. It all comes down to whether you think the forward earnings now are plausible or not i think a lot of question about early next year especially. Your point about macro data, well get a steady diet this week as we said earlier. Ism manufacturing in about an hour well see if it confirms the contraction. The speech out of powell in switzerland, which will give him a chance post jackson hole to set the table for september. What else could he possibly say . To characterize exactly what they are engaged in right now. Obviously i think they backed away from the kind of midcycle adjustment language. The market seems to want to see greater sense of urgency but doesnt like if they have to go through a lot of bad news to get to a greater sense of urgency by the fed. Morgan stanley says were past the point where falling rates help equity multiples. But a doubt. You think thats true it is pretty much there in terms of justifying higher the bondlike stocks moving higher and Growth Stocks getting more expensive if bond yields stay around here a rush to 1 on the ten year i dont think would happen under the circumstances where people would love paying up more for stocks at least in the shortterm. Brings to mind peter book far saying the s p is a few Percentage Points from the high, russell is down 14, transports down 12, bkx down 20 because a lot of supporting the overall market of those types of names you mentioned. Exactly you can look at that two ways. One is the market is kind of imposed pain on the areas where probably should and a lot of kind of beaten up stocks that you could get just basic kind of laggard leading effect we saw hints of that financials are just too cheap, bond yields dont go down anymore. That kind of a sentiment on the other hand, the quality and defensive stock would come in. Feels like we had more momentum both ways also. Based on the fundamentals, roku, strong fundamentals, that stock has not stopped and on the downside, a number of companies disappointed but have gone far beyond what one might have expected on the downside i dont know if were seeing more in this marketplace at this point in terms of up and down. Moving far beyond that last weeks responses to earnings, mostly retail, did seem pretty extreme. Just this kind of binary move. An air pocket type of week, last week of august i think you can argue that, that basically people are keeping in general the market on the shorter leash. If only because they just assume that this is a late cycle moment even if things are better, feels like a last hoorah type of move. There are calls for a monster rally on the back half joining us this morning, j. J. K kenahan. Any reason to think that september might contradict the seasonal pattern this year yeah, well, you have a world that is awash in liquidity and conversation you were having puts the a fine point on it were at a point now where youre not seeing a lot of not seeing a lot in terms of growth in fact, a lot of data out there that is pointing to maybe a weakening situation, you get the ism later today, very telling about the real economy here in the United States during august. But if growth doesnt break, lets say growth were to hold on here, and you have all this liquidity and lower Interest Rates, there is a case you made for higher multiples no one wants to make that case this late in the cycle that would be the good case, you have supportive central banks, low Interest Rates, nowhere else to go, and unless you get growth cratering over, there is a bullish case to be made for stocks is that the case youre making no, it is essentially were following the data but we need to be able to see both the good case and bad case that would be the late cycle move to a frothy top, more on expanding multiples and liquidity than anything else it is not really our base case, but it is something we need to be aware of. We are looking at the data and what were seeing is that Global Trends are weaker, manufacturing around the world obviously weak ism for august is so important for us today thats an early indicator about the cyclical part of the economy here in the United States and very fresh data. So thats going to be meaningful for us to watch. Were watching the data. And were in that middle place where things look stronger earlier in the year, and have calmed down as we have come through the summer. I like michaels point earlier about the fact we havent gone anywhere in a year. One thing that has changed significantly, carl, about a year ago, trading on the vix near 16. Now today we open at 20 level. And so with that i think youre seeing what the real crux of the problem is for many people, particularly a lot of our retail traders and that is were just stuck in this range and it seems hard to see how we get out of it as long as the tariff situation exists so it is going to be a matter of bouncing back and forth i think between 2750 and 3,000, were holding 2900 which i think is a great thing overall. But, again, i look at what our clients have done over the last two months, net sellers of equities and buyers of shorter term fixed income. Theyre waiting for this moment so to speak, who knows when it is going to happen when we get some settlement one way or the other. We care how this settles the market wants some settlement one way or the other one of the biggest things that concerns me about the earnings season that just ended is nobody talks about infrastructure or investing in infrastructure. If youre a ceo, how can you make the choice to do so when you dont know where were going to land. It is one of the reasons stock buybacks i think will continue and continue to support many of the stocks in this market. Because companies have the cash, but why would i go to infrastructure when it is the type of thing that can get me fired, where as buying back stock is not necessarily going to do so until there is a clearer picture. One of the reasons that the volatility is around 20 is that to an unusual degree, almost all stocks are moving in the same direction on a given day everything seems to be correlated, in this macro mode in terms of how the market is behaving does that give you anything as a fundamental asset manager in terms of opportunity to say that some stocks dont belong up here or down here, given that the whole market is moving as one. Yeah, we look at a much Broader Group of things than just the vix there is the the month of august was bad for financial markets. A lot of nervousness and anxiety that is shown in the vix very hard to trade the vix we found. But ultimately what were what we are concerned about is if market psychology begins to bleed into business decisionmaking, and how investors feel about stocks, and consumer confidence, thats the tipping point. So we have taken our equity allocation down for more significantly overweight earlier this year to just above our neutral level, but the trend has been down in terms of our data, and down in terms of our allocation to equities and were just looking to see whether or not the sentiment in august spills over into weakness here at home. And were just not there yet to cut to a bearish case. But it is clearly weaker. All right, guys, one more reason to pay close attention this week. Kevin, j j, tha. J. , well see y. Five states under a state of emergency as Hurricane Dorian batters the bahamas. Contessa brewer joins us now with the latest on the storm it has been downgraded to a category 3 and only has just started moving again and only at a mile per hour according to the National Hurricane center wind and raister there called the damage catastrophic. Infrastructure, communications, power lines, roads, have been devastated free port is the Industrial Center it was slammed tourism is a main driver of the bahamian economy were still waiting to get some details coming in about the extent of the damage here, but we know analyst terry curtis at nomura put the impact of the canceled cruises in the region at five cents per share, across cruise lines in florida, were looking for universal to open, disney will open but will close early, across disney world. Both are closing one of their water parks. Seaworld, Kennedy Space center, legoland closed. Mandatory evacuations in place seaports are closed. U. P. S. And uber have suspended service in some places and at least 1400 flights have been canceled now. Airports in orlando, palm beach, ft. Lauderdale, closed ft. Lauderdale is considering reopening. Theyre going to make a decision in 45 minutes. And miami remains open at this point due to changed course of this storm carl well watch that closely. Just a brutal storm hovering off the coast of florida now, contessa, thanks we want to bring your attention to a tweet by the president about china, were doing very well on our negotiations with china. While im sure they would love to be dealing with a new administration, so they could continue their practice of rip off usa, 600 billion a year, 16 month plus is a long time to be hemorrhaging jobs and companies on a long shot and then think what happens to china when i win deal would get much tougher. In the meantime, chinas supply chain will crumble and businesses, jobs and money will be gone. To give a sense of how the tone is going between the two sides no real Market Reaction a week ago, we were jockeying for the signals. Now it seems like the market is entrenched in this idea of not a lot of movement. Reports of tensions between boeing and air safety authorities now threatening a new delay of the 737 max well get some details take another look at the premarket on the first trading day of september back in a minute through the at t network, edgetoedge intelligence gives you the power to see every corner of your growing business. From finding out whats selling best. To managing your fleet. To collaborating remotely with your teams. Giving you a nice big edge over your competition. Thats the power of edgetoedge intelligence. Welcome back boeing is facing some new delays in returning its 737 max to service. Thats according to a report in the journal today. International regulators are reportedly upset over what they perceive as a lack of information from boeing on its proposed Software Fixes for the grounded jet we know what united and american have already said about return to service, probably into september, which is pretty much the heart of the travel season. Exactly it keeps getting pushed out. Interesting, boeing shares up like 40 bucks in the last two weeks. Sort of came back up below the lower end of the range, still does trade in the range. Even as it gets deferred in terms of the comeback. I think the effect on the macro manufacturing numbers has been significant too. You look at gdp, if they slow down production, it actually it moves the needle even though it doesnt say much about anything beyond boeing i think it fits into the general overhang macro slowdown story, even if it is not something that has many legs beyond. If you have a grounding of any kind of airliner from an economic standpoint this would probably not be the time i heard anything from a quarter point gdp to maybe. 4 it is significant, right it is it gives you an asterisk if you want to evaluate how the underlying economy is doing and feeds into the consumer and industrial split we have been looking at for weeks now. Would not expect it would be outperforming the s p over the last year to your point earlier about the s p being flat. Such a huge cushion. It did. Boeing being up over 6 , i guess. It is amazing really has not buckled the overall stock. People believe in the longer term story. Even despite concerns among some that the chinese could employ some kind of Nuclear Option where they blow up all kinds of orders, cancel years and years of commercial deliveries in the years to come. People get comfort about the global duopoly, where are you going to go if you need to longterm kind of feed the demand for air miles. 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It has been clearly huge goal move in the last six weeks or so look at eight year basis, still down, so people feel as if there is a lot of pentup demand i think it is part of the same macro story we have been talking about, zero yields around the world makes the opportunity cost go lower also the u. S. Dollar is making new highs. So it is not a weak dollar play at all right now u. S. Dollar index above 99 a lot of that was yesterdays moves, the u. S. Stoc a close to a threeyear high, after the election, the u. S. Dollar hit 100. All part of the same kind of hunkering down trade that is going on around the world. Other commodities, crude oil saw down 3. 5 this morning so far. Trading right above 53 bucks as you see wti and well show it to you in a minute there, guys. Another reflection of concerns about the Global Economy overall. And then we love to monitor the german bund, tenyear, minus 72 yeah. Were going to start asking more serious questions this month and next about whether or not there is any anxiety about further stimulus out of the ecb, right . Whether or not this rubber band stretches as far as it can go. Twosided anxiety about that. Will they give us more, will it do any good, will it make any difference a german recession of some description is probably now the premise. Thats reflecting that in that context, the u. S. Tenyear basically Holding Around 1. 5, 1 1 2, u. S. Twoyear to tenyear curve hovering in the zone of virtually flat it is not the worst thing, not following the german yield down tick for tick. But it is, thats about the best you can say at the moment. As for the new round of tariffs on chinese goods, 15 on the 110 billion, much more consumer focused this time what was what has been cramers latest take on this round and whether or not it could impact consumption if at all. Jim has been somewhat standoffish, i think, to be the way to im not sure he would want me to paraphrase. But and not necessarily believing that were going to have any resolution anytime soon so it is sort of an advising going back a bit, fair to say, at least the last time we spoke, which was early last week, awake to the end of the week you made this point, mike, i think an important one, the numbers themselves are coming down we keep working with 300 billion. Not going to be 300 billion anymore. Goods affected. Exactly. Whether thats good or bad, right . Less actual tariff revenue and both country are disengaging to some degree. And lowering the stakes, trying to get a deal down the road. Opening bell here and the s p 500 at the cnbc real Time Exchange at the big board, cnh industrial, maker of trucks and tractors at the nasdaq, it is uti energy, provider of Oil Field Services and products to davids point about crude, back below closer to 53 than 54 now as a proxy for Global Growth both whether european demand, u. S. Or china demand, huge driver of global demand. And the stocks are essentially they kind of, like, cant win either way they underperform crude when crude is rallying, the energy stocks, and they take the brunt of it when crude is pulling back it is really kind of fascinating, despite the fact that energy is less than 5 of the index, it is at the center of why value and contrarian investing seems not to be working at the moment. Very narrow winning breadth at the open. And the names youll know are the top of the list, will include things like knew monnew gold, kimberlyclark boeing opens up down 2. 8 , 10. That represents 70 points on the dow. So of the dows decline, 70 points of it more than a quarter is boeing at the moment. Keep your eye on amazon today. Well talk to mark mull haney who takes the target from 2250 curious to see what his reasoning is here. Ive been told it is regarding the impact of prime one day shipping and the initiative that might drive overall retail sales for amazon 2600 street high if not, awfully close. I would imagine it is pretty close. It seems also as there are so many believers in longterm story, has 100 buy rating on it take the opportunities, if you believe in the story, when tactically it pulled back. It has not been a great performer relative to the highs last year. So 177 no0 now. A lot of head room where it is trading and where it was when it hit a trillion dollar market cap. There is 1 trillion market cap right now. Microsoft, the case for a good time now we were focused on friday on ulta because of that incredible percentage decline in the overall value of the Company Given what were unexpectedly not the numbers themselves as much as it was really the guidance and changes in behavior we spent time on friday talking about it i did have a chance to catch up with my 14yearold daughter this weekend, get her take on it all. Youre up on contouring. Much better much more well aware of it. She says a little early to buy the stock. Im kidding. No idea whether to buy it or not. It is down yet again just a little over a percent. In boun no bounce there. To the guidance, a lot of commentary about the category in general and just the cultural momentum behind some of the cosmetics trends i think thats what spooked folks, expensive Specialty Retail stock. Have we had a chance to talk about this one with jim . We didnt. The best s p since the crisis if not, the top five, right . Wasnt in the s p at the time of the crisis, account for the fact it made its way in. It has been a monster performer. It is still 13 billion market value for relatively modest size company. All right people might be used as a proxy for the bearish case put out by morgan stanley. Personal Earnings Growth averaged weekly earning on a real basis is nowhere near where it was at the beginning of the year their theory is this eventually does hit consumption and Consumer Spending and it kind of how it impacted Business Investment earlier in the year. Yeah, there is no doubt that the Weekly Earnings number that they cite has rolled over and still growing but definitely more like the trend of several years ago as opposed to the past couple of years. I think thats really thats the front line of the debate new. Can this be considered an industrial kind of manufacturing trade downturn or is it going to be something more pervasive. Last week, the data were mixed, the ratification, 2 quarter in the second quarter, revision of gdp, i think comforting some folks. The bond market didnt respond to that. The Consumer Sentiment was way lower than the conference board. Thats often cited, that widespread as a prerecessionary condition too. I think that were not out of this zone of feeling as if it is touch and go as to whether the u. S. Economy can kind of plug along at the 2 pace for a while or better. The white house would counter by saying Current Assessment of the economy 19 year high by some measures, but the expectations component, what people think it is going to be like in a year. Right. The confidence component that heavily weight Current Conditions and employment circumstances are very strong. And so thats kind of a good thing. Thats what we know. I dont think we can trust consumers to be able to project the Business Environment down the road and say what their outlook is, it shows you there is anxiety i think with the stock market, it is a similar thing. People can look and say, hey, stocks are appreciably value d. The question is, you know, what can we anticipate from here and is this going to be essentially a profit peak that were valuing stocks off of now. Thats what we dont know. I take heart in the fact that sentiment really has turned very negative and the last couple of times we had an 18 month sideways trading in the s p 500 was sentiment negative and buying low, 2011, 2016 and another big upleg in the market the question is, how many more of those do you get . Works until it doesnt. Quiet morning when it comes to m a, sometimes it is an expectation after a long weekend and the beginning of the fall if we want to call it that, few more weeks until that begins we start to see some announcements. Lets not forget, only a week away from what was news of what would be the largest transaction we have seen all year. Altria and Philip Morris international in talks about an all stock merger we told you there are no premium and the two stocks did react to that initially on that day in question i think it was just a week ago one other deal that certainly i followed for so long, before it occurred, but since then many investors are probably sorry they ever followed it all is cbs and viacom, dont know if people paid attention since the deal was actually announced, talks did nothing but go down. You can take a look, viacom and cbs, they trade more or less in line with each other if you look at the last few weeks, youll see not the reception perhaps that had been hoped for, though the two Companies Continue and will continue to extol the virtues of their potential union. Well hear more about it, i would expect Goldman Sachs Media Telecom conference next week some conversation there, im sure todd unger, negative overall, i shouldnt say that, hes been negative on these companies for some time at bernstein he comes out a piece this morning saying in his opinion, even though they keep talking about spending as much as 13 billion in combined content, a lot of that is nonscripted, and he would go on to sort of say, that stuff doesnt necessarily work when youre looking to compete against disney plus and netflix and hulu in terms of the direct to Consumer World thats where a lot of investors are focused. Is this going to gift combined company the wherewithal to compete in that world, unger makes the point, the daily show, take that, yeah, it is great except it is a daily news program. It is comedyrelated, obviously. Depends if you think hes funny or not, but the fact is do you want to watch one a few weeks old, a few years old on a service like that . You can make the same argument to a certain extent for jersey shore, teen mom, the hills the Library Value isnt zero, but we dont think it is much higher than that thats something ive been hearing prior to his putting it in print from some other investors in terms of how much they really need to spend and whether they have the scale to do so. Really then it leaves you with the idea that putting the companies together is about kind of shrinking more smartly or becoming a more focused player in the areasd of an advantage, t really going head to head and saying were going to have a full fledged or about whatever is next exactly. Continuing to bolt on and add or possibly deciding to sell as a combination. Thats all speculation it has been a decidedly negative Market Reaction thus far to the deal itself. Yeah. Were obliged to bring you the latest tweet from the president , for all the geniuses out there, many who have been in other administrations and taking to the by china, the get together with the e up the au as the eu and others treat us unfairly on trade also, will change this might stem from some comments earlier this morning that this would have been a better practice taking on china had you had help it would have prevented suppliers or china from massaging supply chains, still act to their advantage. Right. And presumably thats going to be one of the modes of attack by whatever democratic opponent comes out. Not so much we should have been, you know, easier on china, but a smarter way to prosecute this trade contest. Including tpp, which the administration pulled out of quickly. It was unclear whether it was ever going to get congressional approval, but a lot of people who have come on our air over the last year or so always point to that as having been a fairly effective tool in their opinion in terms of isolating china and creating a real fair trade zone with many of the other asian nations. Reuter, couple of headlines about the ecb citing sources room for a year of qe, using flexibility under existing rules. And that theyre leaning toward a rate cut reinforcing guidance in september 12th stimulus package. Who knows if thats why were off the initial lows, but computers are seeing those headlines as we speak. To dominic chu. Good morning. As we talk about the idea that setups are starting to happen as wall street gets back into full swing coming off vacations, we do see that we have an s p that is currently hovering just around 2909 or thereabouts, still making a move toward that 3,000 level and holding kind of steady at 2908 as you see here as we watch what is happening with markets, down day across the board, what is interesting about the setups now, take a look at some of the ways that the cap structure is work the out with regard to small and medium large cap stocks. Look at the s p 500 russell and the midcap 400, thats the way it is. The russell 2000, up about 10 now on a year to date basis, 12 from midcaps and 16 for large caps that gap between small and large continues to get bigger now. The development between growth and value so far this year, there has been a market outperformance in certain parts of the market, specifically with regard to Growth Stocks over value stocks one thing you see here is the russell 1,000 etf, it is up 16 . The value side of things is up about 11 and almost double that in terms of growth side of things Growth Continues to be the driver of that environment for stocks overall well see if that trend continues. That gap getting bigger there. With regard to the Sector Performance over the course of the near to medium term, if you look at the real outperformance, in the summer months, since about the end of may, massive move for technology up about 12 , financials and energy, the two worst performers, you can see the Technology Still really driving a lot of the action here, that will be one thing to figure out as the volatile summer comes to a close heading to the year end, and then just to put a bit of a macro spin on it, remember, so far this year, stocks, bonds and gold have generally performed all within the same relative area, but over the course of the past three months, thats where the real outperformances come out stocks and the s p 500 are only up 6 over that three month span longterm treasury etfs are double that performance and triple that coming from gold itself as traders get back to the second half of the year and the last maybe Holiday Season part of trading, that setup will be Something Real key does it break down, does it return to historical norms or do gold and haven assets like bonds continue to outperform stocks, all some of the big themes traders will be dealing with. G dom chu, thank you. Over to Bertha Coombs at the nasdaq, more on whats moving on that market. Up a few blocks from you. The nasdaq in the red with Everything Else today. Small caps also lowering interesting dom was talking about the russell 2000, the russell 2000 will lap its 52 week high. Tomorrow and it is down 14 from one year ago. Little better on the nasdaq composite overall. Not in correction territory. Apple, one of the big drags that we have seen over the last month as there have been concerns about growth, about slowdown in Consumer Spending, and also, of course, the tariffs. The apple watch is among the items that will be taxed with those new tariffs of 15 that are now in effect. The faang names, mixed result now, amazon, little bit higher, notwithstanding the fact that folks are worried about what all those tariffs will mean for consumer goods the only one of the faang names not in correction is alphabet. Down about 8. 5 from its 52 week high chips continue to be in focus as well they have come under pressure whenever this month after falling about 2. 5 in august just shy of that, off about 8. 5 from the 52 week high bucking the trend is tesla u. S. And china may not have a meeting, but it appears he did have a meeting in beijing. And came away with a tax break for tesla owners, notwithstanding the fact that tesla continues to hit new lows. Back over to you guys. Bertha, thank you very much well see you in a little while. To the bond pits, check in with Rick Santelli in chicago good morning, rick. Good morning, carl. Treasury rates continue to kind of surf right above cycle lows look at august 1st of tenyear note yields, last week, 147 close in 10s that takes you back over three years. Basically august of 2016 here we are, 149 now if we look at a threeday chart of the twoyear in europe, known as the shots, you can see it dipped into the mid90s, now light minus 90s it underscores, youre going to see triple digits in the front of the euro curve after the september 12th meeting or that seems to be the whisper on the street there will be a rumble of stimulus in fraont of mario draghi and Christine Lagarde the currency market, look at the pound versus the dollar. This is a 20year chart. You wont find the dollar stronger anywhere, the pound weaker because it goes actually all the way back to february of 85, since last at these levels of course, brexit politics figuring in largely and Boris Johnsons strategy to try to have a no deal brexit to get a better deal brexit and finally, the other big currency, the euro versus the dollar, lowest level since may of 17, which, by the way, is the last time the dollar index was at current levels. Carl, back to you. When we come back, the latest round of tariffs taking effect, how it is impacting staples like food ed rensi will be with us and dow down 249 a lot of that is goldman and boeing and, by the way, market pmi, 50. 3, tenyear low, with ism on the way. Through the at t network, edgetoedge intelligence gives you the power to see every corner of your growing business. From managing inventory. To detecting and preventing threats. To scaling up your production. Giving you a nice big edge over your competition. Thats the power of edgetoedge intelligence. Germany and so many other g countries have negative Interest Rates says the president they get paid for loaning money and our Federal Reserve fails to act. Ak creer, these are also our weurncy competitors. Dow changed on that, down 264. Chinese goods taking effect sunday covering consumer goods like apparel, food chipotle, tyson, campbell, pepsico moving lower joining us to discuss, Branch Chairman ed ramsey ed, good morning. Good morning. Nice to see you. You, too. This round of tariffs really the first one that has the chance of affecting every day Consumer Spending coming at a time when Consumer Sentiment looking a little bit wobbly off of high levels how does this all fit into the set of issues that the restaurant and Food Industries are facing right now well, theres a couple of things the Commodity Prices are 30 35 the cost of sales in a typical restaurant some as high as 50 . Any time commodities go up, obviously your p l goes down and its inflationary so youve got to figure out how to become more efficient or raise prices. One or the other theres an abundance of grains in the United States, abundance of protein right now i think it can be absorbed in the short to medium term longterm problematic. Shortterm okay. The economy feels better, energy is down, gasoline a lot cheaper, the tax benefit they have got from trumps tax plan a little more disonbossable income. Im looking at restaurants i deal with across the board are up anywhere from 2 to 7 and growing very nicely. Transaction counts are good. In the absence of price increases, frankly i think pretty optimistic about the Restaurant Industry. Some of the other industries, i dont have that knowledge of, but right now the Restaurant Industry looks good. Were looking at some of these charts and quick service, fast casual restaurants, they obviously have been very strong. Its a pretty clear read on consumers working ability. What are the challenges now . A very tight labor market and a lot of talk in the coming campaign about even raising minimum wages and things like that. Clearly labor costs are going up, not so much because of minimum wage, not only employment, hard to find employees at any cost. I see Restaurant Managers north of 100,000 a year if they have good experience and good history. Hourly workers getting 15, 16, 17 an hour in metro areas smaller communities, 12, 13 an hour if you can get applicants i know that for probably every 10 applicants, every 10 jobs need filled, you only get one or two applicants a lot of them arent qualified to work. So labor is going to be a problem Going Forward if this economy stays as robust as it is. Ed, really quick this popeye sandwich, ive got to ask you, is it a lesson about how menu drives traffic or logistics issue of how you run out of Something Like that well, its never good to run out of anything. Planning, particularly for large change, is hugely important. Understanding where your props are coming from, it is about the menu, it is about great taste, great service. People want to be entertained when they eat. Bad food, bad service is not good for the Restaurant Industry. They clearly have a taste for something new that gets buzzy, too. Ed, thank you very much. Ed rensi. Dow down, squawk on the street back after a quick break. Johnson johnson is a baby company. But were also a company that controls hiv, fights cancer, repairs shattered bones, relieves depression, restores heart rhythms, helps you back from strokes, and keeps you healthy your whole life. From the day youre born we never stop taking care of you. 1 in 4 of us millennials have debt we might die with. From the day youre born and most of that debt is actually from credit cards. Its just not right. But with sofi, you can get your credit cards right by consolidating your Credit Card Debt into one monthly payment. You can get your Interest Rate right by locking in a fixed low rate today. And you can get your money right. With sofi. Check your rate in 2 minutes or less. Get a nofee personal loan up to 100k. Good Tuesday Morning, welcome back to squawk on the street. Im Carl Quintanilla eyes on manufacturing, lets get to Rick Santelli. It slips into fraction territory, 49. 1. If we look at the employment index, 47. 4. That slipped from 51. 7 prices paid up just a smidge from 45 and change to 46 new orders also slipped in the contraction. 50. 8 now stands at 47. 2. Construction spending, thats for july up. 1 definitely disappointing but keep in perspective that pretty much everybody has been waiting for this to slip into contraction territory. We all know that there are issues with global trade that are starting to catch pretty much every large economy and other pmis have already slipped into contraction so well continue to monitor. Interest rates hovering we just moved below 147 in a tep year note yield, that is currently the low close going back to august of 2016 carl, back to you. All right, rick thanks very much Rick Santelli. Our roadmap begins with stocks selling off first trading day of september. Those new tariffs kicking in obviously weve taken a leg lower on ism well tell you how to protect your portfolio next. Speaking of retail, ceo of ethan allen will join us on how to cope with the trade war. Hurricane dorian as the eastern seaboard braces for the worst. As we said, markets sliding lower after new tariffs crossed over the weekend stocks coming off of a pretty weak month, as we go into september, historically the worst month for dow and s p. Joining us chief investment strategist and pimcos chief Investment Officer of global credit good to see you both. Nice to see you, carl. Pimco, fair to say you guys saw this coming months ago carl, weve been quite cautious on the Global Economy we think u. S. China relationship has fundamentally changed. U. S. Economy throwing from 3 trend lastier to 1 1 2 were basically probably going to enter stall speed so clearly were likely going to have a profit per session about 20 to 40 of the companies likely see year over year negative growth and that should feed through to slower hiring and Capital Spending the question question, can the consumer hold up the consumer is 0 of the economy. So far its really more of the Global Manufacturing sectors which have been hit. If the consumer slows, the u. S. Economy will be quite vulnerable. Does the consumer hold . We think it does. Especially considering you have to remember, too, no one is really talking about that. Lower Interest Rates is a break for the consumer right . Number one number two, consumption experience is really interesting, carl. The makeup of that has changed five years ago, ten years ago people spent 100 in a bunch of different ways, now maybe three ways we think the consumer will hold. By the way, the very best time to buy Consumer Discretionary stocks is during a recession thats the best time to do it. Were saying were doing that . No i feel like i should be wearing orange today, because obviously the market has been spooked by what happened in august. Everybody knows about the seasonality stuff. Its played out. Other guests talked about profits recession, played out. Everything thats already been talked about has played out. I think what people are missing, when you see a negative august, negative september, traditionally you have s p 500 up 6. 5 in the third quarter, fourth quarters are typically strong we think a lot will unwind key Going Forward three letters dda, dollar denominated assets we continue to believe america, stock market, bond market are the places to be in terms of stability. Tenyear reacting to ism data at 1. 4, about 60 of stocks in the s p 500 are averaging a dividend yield thats higher than the tenyear. Where do you want to place your money . The only three sectors were dividend sectors, utilities, real estate and Consumer Staples. The key thing, you never want to focus on dividend players that have the highest yields, you want to focus on dividend players increasing over time, cash yields. Take a look at financials. U. S. Financials are the strongest dividend in the world. New Technology Companies are considered Value Companies and growing their dividend at rates we have not seen in a generation Dividend Growth we think is the place to be. Also its a strategy that actually provides income for investors when you see a long bond or tenyear treasury getting 1. 4 , there are strategies that we actually manage that give you 3 to 4 income by owning best dividend growers. Mark, when it comes back to the consumer, which you raised some concerns about, im curious as to your thoughts. Brian is a believer. We had ed rensi join us minutes ago, runs a fastfood chain saying really hard time to hire workers. The wages keep going up. All of that would seem to say things are going to stay fairly strong from a consumer perspective. Well, we do think that youre going to get the fed to lower rates. I think the lower rates will support the consumer fed fund rate at 2. 25 is too tight in the context of a global trade war particularly where global Interest Rates are in germany and japan. Youre likely going to see the fed cut two more times this year consumer is doing well but labor Market Growth is slowing in general we like going up in quality right now. We like holding cash Consumer Sectors we do favor right now are housing and nonagency mortgages. We also like telecom and cable and we think real estate reads will be supported by low rates as well. There are areas of opportunity out there in the context of taking much lower risk in portfolios you run what is largely a fixed income shop they are a part of, i should say. Is this a time for people to be committing more money to fixed income instruments given historically low rates or should they just be waiting to reenter the equity markets i think it is true some of these Higher Quality equities can compete with bonds given noncyclical sectors like cable, telecom towers, which have decent dividend yields overall we think u. S. Bonds can actually come down even a little bit more remember, youve got 17 trillion of negative bonds all over the world so this is a Global Market u. S. Treasuries look pretty good relative to some Global Alternatives overall, though, we would be very cautious on most equities, particularly cyclicals and highyield bonds and we want to favor very high quality bonds in context of the Global Economy slowing. Is your playbook, brian, Consumer Discretionary or many silos beyond that. I dont think this is a market of sectors, growth value, a market of value type market, i think its a stock market. You want to find those companies in your bucket you want to invest in, services, quick essential and sector with telecom and cable on one side and google machine and facebook machine and netflix machine on one side, those are great Dividend Growth names overall the sector but also cash names financials cash flow yield is going to be very important Going Forward, only solidifies the argument of earning stability. So increase your stability factors in terms of cash yields, return on equity by the way, domestic players the domestic side of things, weve become too focused with Investor Base with respect to international growth, weve taken our eye off. Dollar denominated assets are the key. Some names trading 25 times earnings for Earnings Growth of 2 to 4 . At what point valuation perspective . It doesnt make sense. Take the five Largest Companies in Consumer Staples area earning stability and compare to disrupters, earning stability is stronger, google, amazon, facebook, microsoft than kelloggs, cocacola, general mills. These companies are in a secular decline in terms of their product. One last thing, mark, ft had an interview with pimco, not you, saying were more defensive on bonds even if we get a narrow trade agreement, we could see a pretty powerful snap back in yields is that pimcos base case now . Well, i think whats interesting is the markets price for 1 fed funds by the end of next year, the market could go two ways. If we get a trade resolution, yields should go higher, inflation pick up and Global Economy accelerate at the same time our base case is that this relationship between the u. S. And china has fundamentally changed. Were not expecting nearterm resolution of the trade deal that, i think, will keep the Global Economy slower in terms of growth trajectory and keep the fed still on the path of lowering rates the base case is these rates are probably going to be lower for longer in the context of a trade war with china. Mark, brian, thanks, guys appreciate it. Good stuff to start the hour Hurricane Dorian continues to move very slowly up the southeast coast. This follows, of course, what has been severe destruction in the bahamas over the weekend Contessa Brewer has been following the storm and joins us with the latest. Contessa. Dorian still a mass, dangerous storm. Its barreling towards the east coast of florida now a category 3. Its moving so slowly, a mile an hour that the bahamas are still getting pummeled with rain and wind i want to show you satellite image of the bahamas before dorian came ashore as deadly category 5 this is from google maps her is the satellite shot taken at the height of the storm yesterday. You can see that storm surge sweeping across the island the catastrophic damage includes major infrastructure, communications, power, water, roads, airport the early confirmed death toll is five with early estimates from the red cross indicating 13,000 homes destroyed tourism is likely to sustain longterm fallout here floridas tourism is also taking a hit with 1400 Flights Canceled Kennedy Space center, lego land, seaworld closed. Universal is open but closed its volcano water park today disney closed its water park, too, and all its attractions will close early today i want to mention agriculture here orange juice futures are down almost 5 today as we watch for the impact of floridas agriculture. Well also keep an eye on tobacco and cotton those crops were devastated by Hurricane Florence in the carolinas almost exactly a year ago. Carl contessa, thank you what a story affecting all assets classes when we come back ceo of ethan allen to join retail as we go to break, the worst performing names on the dow in august, cisco and do idow,nc. Wn double digits. Were back in a minute when i called usaa, it was that voice asking me, is your daughter ok . Thats where i felt relief. Were the rivera family and we plan to be with usaa for life. See how much you can save with usaa insurance. See how much you can save [spokesman] if youve tried colleg group cheering shed, snhu lets you transfer up to 90 credits toward you bachelors degree. [woman] it doesnt matter how old you are, you can do it, you can finish. [spokesman] finish your degree at snhu. Edu dow down 400, picking up steam tom of the hour. U. S. Manufacturing did contract for the month of august for the First Time Since 2016. Well see how that impacts trading for the rest of the session. All right retailers are also bracing for ongoing and escalating u. S. China trade war a new wave of tariffs on chinese goods taking effect sunday they covered consumer goods such as apparel and footwear. Joining us at post nine to discuss impact is ethan allen ceo farooq kathwari. Out with memoir trailblazer, the summit of Global Business and beyond. We enjoyed looking at some of those pictures of you when you were a younger plan, farooq. Lets get to what the audience cares about, the impact of the trade war. You said most of your goods made in north america interesting, i notice last Conference Call on earnings, selling into china where you saw weakness first of all, its good to be here and thanks for the launch of the book. It took me about two years to write these stories. Talking about these trade wars, we are one of the few companies that sell products to china, to canada, and to many other countries. In fact, the last six or nine months, our sales have been negatively impacted. Last fiscal year our sales were down mostly because of the lower sales in china our sales were down 50 in china because of the fact they put 25 tariff on our products our sales were also down in canada for some period of time because they also put tariffs on American Goods those have been removed. But the chinese impact, we have 100 locations in china we have locations all over middle east. Middle east, as you know in a fairly unfortunate situation, so were impacted that way, too having said this, we were pleased last fiscal year and june 30th our earnings up 15 . We were able to produce a fair amount of crash and increase our dividend by over 50 to 45 million. So you know, our business has always been to make sure we run it when i say the right way, to generate cash. Do you feel like the market, because your stock price hasnt been a good performer for a long time. Because of the fact our sales have been down the way the market looks at sales. Our sales are down for a number of reasons of course, as i said, the impact of our business in china and internationally. Secondly, we have one of a very unique company that focuses on only one business, thats ethan allen. Most Companies Grow by buying other companies and not necessarily caring about profits. When you do those things, like it or not not necessarily caring about profits. Not necessarily caring about profits. What does that mean i dont know. You folks know youve got to make a profit longterm to survive in the shortterm we know that the street looks at sales growth not necessarily on atrocities. Our Business Model is a different one, longerterm is the right one. Are you benefiting at all from the fact you manufacture most of your furniture in north america versus competitors kboshti importing from china. We started 30 years back when i became president , we had 30 manufacturing plants, now we have six in north america producing more than the 30 did so manufacturing today has to take advantage of a lot of technology. When you first brought ethan allen to china years ago, your message to the market was this is an American Furniture retailer how do you think that resonates with the chinese given ault all thats happening on the trade front. Thats a good question. Our focus was ethan allen, americas classic brand. The chinese customer, Chinese Consumer at the level we are dealing with has been impacted negatively with the trade war. They are holding back on products that are definitely american like ours on top of it, there has been a slowdown on the economy in china, in addition to the tariffs devaluation of currency. All those factors have impacted us. Are you getting a sense the u. S. Consumer is more relipt on credit n reliant on credit now than they have in the past. Are they trying to finance more than they have in the past absolutely. Theres been a lot of talk about certainly people may not believe it, but people are talking about the possibility of a slowdown. You mean a recession . Recession, slow down, recession. That makes people think. I dont think its absolutely there but i think most likely that is going to have an impact in people taking less credit, being concerned about financial stability. Thats what weve seen in the past. Your competitor Restoration Hardware is raising the prices on a number of goods from leather chairs to other goods. Are you also planning to use a similar strategy to get around the tariffs . As i said, 75 of our products are made in north america, so were not account k impacted by tariffs. Ours are other way around. We have extremely competitive pricing and we are going to keep it that way. I guess then coming back to the fundamentals of the company, weve talked about it through the year i understand the weakness in china. Here it would seem to me you have the opportunity to distinguish yourself versus competitors given youre not under tariff why arent sales stronger in the u. S. Well, as i said, you know, we have been impacted like all of us first were impacted by globalization. We talked with our manufacturing, 70 plus years manufacturing went to china in our industry and others. Its not coming back. No, its not coming back. But also what it did was it created a devaluation. So we had globalization created devaluation. You know the price of a sofa 40 years back was 400, a basic sofa its still 400. So we have been dealing with issue of deflation year after year now, to counter that, youve got to either expand your business in products that is not your core or buy other companies and thats what we dont do. Thats what you dont do. What are you going to do then . We are going to build what we have in fact, crisis creates an opportunity, as you have said. Our opportunity is based on the fact that we have 1500 interior designers work for us. We are combining technology and personal service we have refreshed 70 product lines. I think we have repositioned the company and i believe we have were just getting started. Just getting started. Yes. You are as well youve just wrichb a book called trailblaze trailblazer. Why did you write the book i wrote the book because im a storyteller. Last weekend we have two grandkids who dont go to sleep unless i tell them a story im telling stories and stories all these years. People have been telling me write the stories. These, of course, are real stories. I talked about the fact of my voyage from the beautiful mountains of kashmir to beautiful brooklyn i was 20 my first one of my first jobs was right a block from here on one wall street with bear stearns. I was going to nyu Business School around the corner i had never seen a calculator, i had never seen book and here i applied for junior financial analyst. I got the job. A year later the rothschilds had a company on 79th street around the corner they got me to work for them while i was still in school. Four or five years later i became chief Financial Officer of Rothschild Company when my major was marketing. That is america. There are opportunities. You work hard. You also have the opportunity. It was there i met the chairman of ethan allen, founder of ethan allen and convinced him i knew a lot about Home Furnishings and he set up a joint venture. Farooq, thank you for joining us and congratulations on the book. Good to be here. Author of the new memoir trail blazer. When we return stocks selling off on weak data and ongoing china trade tensions, dow down re0 points, s p off 29 mo on the selloff when squawk on the street returns i can. The two words whispered at the start of every race. Every new job. And attempt to parallel park. electrical current buzzing each new draft of every novel. typing clicks the finishing touch on every masterpiece. newborn cries it is humanitys official twoword war cry. Words that move us all forward. The same two words that Capital Group believes have the power to improve lives. And that, for over 85 years, have inspired us to help people achieve their financial goals. Talk to your advisor or consultant for investment risks and information. Now for our etf spotlight, taking a look at Oil Prices Falling again on ongoing china trade dispute continuing to pressure commodity, oil etfs, all continuing to drop with oil down more than 4 over the past year of trade. Take a look at the top holdings in the energy etf, exxon, chevron, conocophillips and slumbchlumberge schlumberger risk performing sector in august. Markets under pressure as we head into historically weaker month for stocks thats september what should investor expect in volatility well tell you when squawk on the street comes back good morning, everyone im sue herera, here is cnbc update Hurricane Dorian, category 3 continues to pound the bahamas causing catastrophic damage. Bahamasian Officials Say three have died. Moving up the coast as evacuations have been ordered for counties in florida, georgia and carolinas. 25 dead and others missing after fire engulfed a dive boat off the coast early monday the man who rescued the only known survivors, five crew members, is sharing his story. Those people, what they were experiencing, trapped. It was just completely lit up. There was not a place on the boat where it wasnt on fire. More than 96 of United Auto Workers Union Members voted to authorize strikes against detroits big three automakers that vote means leadership can call a strike against gm, ford, Fiat Chrysler but doesnt mean a work stoppage. Contracts expire september 14th. Well keep you posted. Thats the news update this hour carl, ill send it down to you. Thanks very much. Markets down due to manufacturing number falling in contraction for the first time in three years our senior economics reporter steve liesman, break do you think, breakdown of sbernls . A lot of that a surprising contraction, carl, reported in this closely watched ism where the details were as bad as the headlines nine of the ten key components are in contraction territory that includes employment, new orders, production, and exports as well. In fact, the fallen exports provided in global tarve economics was the most striking, fell down 43, five points at the lowest level since the Great Recession on that export component of manufacturing pmi u. S. Followed chinas pmi down into contraction territory suggesting whats hurt in china also ailing the u. S. How good a recession indicator is this, about 50 . If you look, it has contracted that shaded area there those are the recessions it does fall ahead of it there are several false declines there that donor did not lead to recession. One in 2012 and one in 2016 where it just contracted but did not lead to recession. Guys, this is an indicator closely watched by the Federal Reserve. Its something that would otherwise cause the Federal Reserve to think more about easing when it sees the manufacturing pmi contracting this way this is not just the u. S. As you know this is global. Certainly an interesting number, the market did move on it steve, thank you. Sure. Dow currently down almost 400 points after ism data and latest round of goods kicking in sunday night. Joining us to get a better sense of how the chinese are thinking about the trade war, China Global Television network run by chinas communist part thank you for joining us on cnbc. Thank you. U. S. Moveect china to respond i think china already had its responses where we had some kind of reaction. 75 billion. Something like that it already went into simultaneously with the u. S. Tariffs. I think thats a very strong message that china is not going to stand down. Were going to protect our interest, our legitimate interests, but were not going to do it over the top. We just want to send a very strong message, as our guest said just now. This tariff escalation is hurting china as well as the United States, so we dont want things to go worse. The market is trying to understand if a meeting between u. S. And chinese officials will happen in september. Do you think its going to happen if so, what is chinas ultimate objective. I think chinas ultimate objective is to reach a deal with the United States, because, as i said, our economies are being hurt its not good for chinese economy, not good for american economy. We want to have a deal as the Chinese Government said already, the United States will need to create the conditions that are conducive for the resumption of negotiations President Trumps condition to put additional tariffs september 1st is not in the right direction to the talks to resume soon. Right at the root of the trade dispute is china forcing u. S. Companies to Share Technology and ip when they operate inside the company. Is china ready to make concessions on that front . This is a very disputable point because you see things that way if you go and ask a lot of American Companies, the latest Statistics Survey by u. S. China Business Council found that actually 5 of American Companies say they have been asked to transfer technology, and it was not some kind of forced Technology Transfer they would all have to agree to it, otherwise they dropped the deal of course that survey was based on a rather small sample, 100 something. But i think it does say something. If you talk about ip protection, i think china is aware of the problems that we have. We are doing a lot because china is also very much investing on innovation and ip protection because we also want to be able to innovate ourselves. We are also climbing up on the invasion index so a lot has been done, a new law on Foreign Investment has been put in place to further enhance ip protection could be a lot of things. I think more work needs to be done a lot of u. S. Companies come on air talking about how that is a concern as they try to expand across the country lets move on, though. Our president has stepped up his attack of president xi as this trade war continues. Whats the perception of President Trump inside china i think after a couple of years of President Trumps term, i think the Chinese People have found a way to understand him. Were not going to follow what he says every day because thats going to be very perplexing and exhausting, actually, to a certain degree we actually want to see what he does at the end of the day, his policies and what really happens on the ground. We understand that he is the elected president elected leader of the United States, so we have to give him due respect. China is not monolithic, 1. 3 billion people i ask this question understanding you may not be able to represent the sentiments of everybody but how many or what is the Knowledge Base of average chinese in terms of being aware of this trade war, being aware of the impact its having on their daily lives in china. I think they are very aware the news about the trade war, the news about whats happening is on a daily basis on their tv or social media, so they are very much aware with whats happening. In terms of impact, i would say a little bit similar to what is happening here yesterday i was on the street, i was outside a supermarket target, for instance, to find out the prices and asked a couple people how they feel. They mostly didnt feel so much yet. I guess the tariffs on Consumer Prices are just kicking in, so its going to take a while for people to feel the pain, ordinary people to feel the pain although i went to the chinatown, the souvenir shops there, the Chinese Grocery stores there are feeling a bigger hit i think in china also a very different story for different people for ordinary consumers, life goes on as normal. If youre working for an american manufacturer, producing for an american company, you might feel the uncertainty as least if you are not already given up and the american producer going to vietnam or somewhere else. Thats a big point. Told jobs are leaving, supply leaving. Weve done reporting from vietnam where they are being flooded with new orders. Isnt china worried about that of course were worried about that at the end of the day if prices are lower in vietnam, banglad h bangladesh, what are we going to do businesses are going to leave. This started a couple years ago, 2015, people started to move to places where costs are lower, to africa as well this is simple economics were in the going to put tariffs on African Companies or bangladesh, vietnam, we have to upgrade, bring ourselves up on the supply chain, develop basic research so we can be stronger these are the pain of development. Are there projections of how many jobs you can lose and with stand the loss of . I dont have any specific number at this moment, but i think the latest number i have for the private sector is their revenue, their profit rating has actually gone up for the month of july if im not mistaken meaning they are very resilient, very resourceful they are flexible. If they see some uncertainty here, they immediately find Something Else to do i think its a mixed some bad impact, not so very strong. You mentioned, of course, china trying to move up the innovation chain something china talked about many years creating a consumerled economy do you think thats happening . We hear anecdotally about younger people there more willing to take on debt, spending a lot more. Is the consumer sort of coming more to the fore in china right now . Absolutely. I think the numbers say clearly domestic consurpgs making up increasing part of the china economy. That is why if you talk about the impact of tariffs on the chinese economy, because domestic consumption is bigger in terms of proportion, impact is cushioned, lets say. In terms of innovation, china is among all the developing countries the highest in the World Innovation index an index, u. N. Ip agency together with Cornell University so china is doing a lot. Because of that, we know that we have to protect ip, because otherwise people will be taking things from us as well. Not steal it, i guess. Yeah. Theres a process you have to learn. We are in the 13th week of protests in hong kong. The u. S. Has warned china not to use force. Is beijing concerned about how the world perceives this aggressive stance both in rhetoric and its military presence towards these hong kong protests i think youre talking about the Chinese Military on stand by in shenzhen, which is across the border from hong kong on the mainland side. I think the message there is more or less a deterrent, that the violence and the rioters definitely should not think about ever spread to the mainland because there they will be met with a very strong reaction i dont think its a message threatening to go into hong kong to bring the situation down. I think, first of all, the scale of things is going down. Although it might still take a while. Second, i think the riots and the offenders are losing the public support of the hong kong people we see the violence they are committing we see the destruction they are inflicting on public property and the interruption to the daily life of the hong kong people, shutting down the metro and disrupting the operation of the airport. A lot of people are losing support of these young people . You think so . Thats oneseventh of the entire population is protesting. But you have to make a distinction between the Peaceful Protesters and the rioters im talking about the public support for the rioters, people who commit violence. I think thats definitely a nogo. We dont get to watch your show for obvious reasons. No, you can. Men in black well start to i dont know if you have a lot of government officials on is there a way for you to characterize your sense as a journalist over there, obviously state owned, Global Television network, the feeling of Senior Leaders in the government in terms of what is next, whether or not september will actually prove to be helpful talks between the u. S. And china or whether they are more frustrated and perhaps unwilling to actually even really engage . Considering your question about whether we have opportunities to enter vow a lot of chinese officials, not so much, i must say thats reality i would love to talk to them were an english program, so we have to have people who are fluent in english. That already shrinks the guests so much. In the prospects of more talks, i think the possibility is always there the ball is not on the court of china here it really depends on whether the United States is able to show sinceri sincerity, show good faith it really wants to have a trade deal i think china is willing to engage any time but it has to be neutr neutraly respectful, a neutraly acceptable deal. I think thats common sense. President trump this morning raising the idea that the chinese want to wait him out until the election is that a fair theory . He can think this way, if he wants. I think for policymakers, prudent policymakers, youre not going to rely on luck. Who knows who is going to get elected. Chinese can see poll data as well as americans can. Poll data can be wrong. What happened before President Trump was elected. Youre in the going to rely on luck you have to prepare for all kinds of possibilities and see what is in your bers interest. If President Trump can table a reasonable deal, i dont see any reason china has to say no. Does china believe someone winning against trump would result in a better deal for china . Not necessarily i think Elizabeth Warren has said that she will be tough on china, so i dont think its a very wise decision for china to wait out and see what happens. In terms of time line, were watching october 1st, which, of course, represents 70th anniversary of the founding of the peoples republic of china could this date be a line in the sand when it comes to hong kong and trade talks . I think definitely the sentiment will be affected a little bit its a year of celebration 70 years a big deal for the Chinese People people are generally happy about what happened. Its going to put a little bit of a shadow on the sentiment there will be a modest celebration in hong kong on the mainland things will be spectacular i was driving by Tiananmen Square the other day, preparations taking place. People are looking forward to it. Its down in the United States and its affecting all kinds of thing we cover. Is the mentality they do not want to visit america . I dont think its do not want to visit america, i was getting a visa, i was surprised at the long queue people have to wait i think people have a lot of enthusiasm the thing is, i think they are not feeling very welcome the kind of messages coming out of either the white house or other officials or what they are seeing Chinese Students being pe suspected of being spies and stuff like that. It doesnt help very much. We appreciate you sitting down with us on the squawk on the street providing the perspective of the chinese. Thank you for having me. As we go to break, take a look at shares of amazon rbc took to 2200 from 2250 well talk about the call in the next hour on squawk alley. Meantime down, squawk on the street back in a moment stand up if you are First Generation College student. Stand up if youre a mother. If you are actively deployed, a veteran, or youre in a military family, please stand. I will tell you this, Southern New Hampshire university can change the whole trajectory of your life. Are we in for a september surprise one strategist sees a bubble forming that could make or break ndut orket fi on trading nation on cnbc. Com more squawk on the street is coming up. 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. Now lets get to cme group in chicago where Rick Santelli is bonds moving on ism data, rick. They are moving on a lot of issues id like to welcome my guest jim. Shes correct. Fresh cycle low closing yields on the curve the main reason is for the first time in three years ism moved under the expansion contraction line of 50 any thoughts there when it last did in 2015 it was driven by collapse in energy sector, price of crude oil from 120 down. You dont have that one sector driving it lower this is more organic, a generalized slowdown in a lot of ways thats worse. You cant dismiss it as price of crude oil its not an economic trigger. Youre saying this for the most part is festering of selfinflicted issues. Not to say whether we should have selfinflicted them or not. Exactly. Now, what did Alan Greenspan say with the notion of negative rates. What was his comment they are no big deal. Wrong, wrong, wrong im sorry, i know hes the maestro. We both agree and youve written a piece on it. Tell the world why you thought it was a bad idea. Ive always thought the worst event in my opinion. I dont think youre wrong on that its the financial sector, banks, security companies, all structured on one, Interest Rates. Marginal reserves. Everything on positive Interest Rates you take those decision loses u money in a negative Interest Rate world, the Banking System doesnt work pensions dont work. How does the european system work theyre doing a little fudging some creative movements . The european system works because we, the reserve currency is still positive. Banks Like Deutsche Bank are restructuring their entire worldwide reserve system to invest in u. S. Dollars, because they got positive yields if we go down that road and go negative yields with them and cut everybody off from positive, i think the Financial System is at severe stress than at that point. Its a huge mistake. So, basically, at some point, the president needs to put somebody on the Federal Reserve board that has an idea how to address this and i think you have an idea of who that might be. Judy shelton. Judy shelton has called for a new brentonwood agreement on Interest Rates brentonwood, get everybody together and figure pout whats going on with the Foreign Exchange side and how to make it better now we need to get together with the Interest Rate side and figure out how to make it better if the europeanwant to go deeply negative and the japanese want to go deeply negative, i argue they force us down were all interconnected maybe thats not the best thing for us, but it forces us down. If we dont go, its bad for us, too. We need to get together and say, all our Interest Rate policies affect everybody else. You cant go to negative 70 basis points with bunds and then have us stay positive to bail you out. I couldnt agree with you more, jim. Heres the problem i have. And you and i talked about it. Libor. How many does it take in the fixed act. What are the chances were going to actually get this meeting to make a difference in a tight timetable, seriously zero. I know. Its taken ten years. Its a depressing place to leave this, because somebody needs to do something. Thank you, jim bee ianco. Were going to have a bull bear debate on apple. An analyst a buy, an analyst with a sell. You remember pierre ferregoo he had a sell on apple and the stock took a dive. Hes got a 170 price target on it again lets find out why in the age o tariffs. Lets find out why coming up on squawk alley. I can. The two words whispered at the start of every race. Every new job. And attempt to parallel park. electrical current buzzing each new draft of every novel. typing clicks the finishing touch on every masterpiece. newborn cries it is humanitys official twoword war cry. Words that move us all forward. The same two words that Capital Group believes have the power to improve lives. And that, for over 85 years, have inspired us to help people achieve their financial goals. Talk to your advisor or consultant for investment risks and information. Stocks obviously selling off on this first trading day of september, on the heels of trade tensions and some weak ism data. Mike santoli is back at post 9, talking about what it might mean for the markets in the weeks ahead. Yeah, i mean, obviously, we came in to september bracing for the fact that its seasonally weak, but also, i think todays data and the reaction to it shows you that we were also kind of steeling ourselves, investors were, for the macro numbers to get a little bit worse because the down less than 1 in the s p 500 right now really just brings you back to last thursday weve been in this kind of sloppy, choppy trading range and investors continue to really contend with the same thing, which is, the lead up to a recession is, looks very much like a soft landing, or a supposed soft landing, where the fed can kind of fend off a recession. And now i think were working through that and a big question to me is whats actually priced in. Not so much what investors, humans expect. Whats actually priced in . I dont think a lot of Earnings Growth is priced in right now, but certainly, a true recession where we have earnings prove to be a peak is anywhere near price tag. Does the fed leave the door open for some disappointment if it doesnt cut rates by 50 basis points on september 18th potentially, seema. I think weve migrated from september looking like an insurance cut to a remediation effort right now, obviously. I think everyone is built up for that i dont think well outright price in a 50 basis point cut before we get there. But i do think that some are going to be wanting more and the market is probably going to ask for more to come. And i think were looking toward certainly more than two more this year. Finally, sub100 job print friday its not the expectation, but were not priced for that either, are we i would say were not priced for that, unless people decide, the bond market already got there. And were just pricing off of that already when it comes to how stocks are valued right now. So, no, i dont think that were priced for the psychology that a company would print. Thanks. A lot of pots boiling on this tuesday. When we come back, the u. S. Chamber of commerce ceo tom donohue will join us with his thoughts on this latest round of tariffs and how the ithowhe use should respond next. Squawk alley starts in a minute r seven so they sleep when they can. [ snoring ] cdw services can help. Our experts will design, orchestrate and manage the most complex technology. So your it people have more time to innovate. And get some shut eye. That sounds great. Uh, i got a malware on my shirt. Should we wake him . Probably should but lets wait till the updates complete. To free up your it staff you need managed services by cdw. People who get it. We believe in education built for all people. , [woman] snhu was the best experience of my life. [man] without snhu, i wouldnt be the leader i am today. [woman] i graduated high school 19 years ago. I still finished. [man] in the military, you feel that sense of accomplishment. Thats what snhu is. You will march from this arena and say to the world. I did it. [woman] you did it. I love you. [graduate] i love you too. Good morning it is 8 00 a. M. At apple headquarters in cupertino, californ california 11 00 a. M. On wall street and squawk alley is live good Tuesday Morning welcome to squawk alley. Im Carl Quintanilla w