Transcripts For CNBC Squawk 20240704

Since april and the first time in 47 sessions where it broke the streak of days where the s p hadnt dropped by 1 first time we have seen a loss like this in a while nasdaq was down 2. 2 that was the worst day since february if you look at treasury yeields, we saw action. The 10year treasury pushing higher the 10year is 4. 41 2year at 4. 19 . Andrew, we talked about the market blowing off the downgrade from fitch in the morning. Yields under pressure which is the opposite through the course of the day, yields did pick up a bit i know you have comments from Warren Buffett in a moment i dont know if this is a number of earnings which were better than expected, but some were weaker you have the report. That brought the expectation to bring more pressure on the fed to raise rates that, to me, is a much better rationale than the fitch report. As you know, my view is not that it is silly. It is important to say aloud the world is a relative place. If you downgrade the United States, you have to downgrade all of the other aaa developed countries in the world otherw otherwise, if we get a cold and sneeze, they sneeze. I will say listening to one of the guys at fitch responsible for the downgrade, we are looking at this 20 years and this is getting worse. Worse than before the pandemic and worse before the financial crisis that may be down from 120 that we were a year or two ago. You see improvement there. If you look at this over 20 years, governance has gotten worse. You are talking about a worse outlook. Those are things worth paying attention to here. Sometimes the silly things matter it is one thing to talk about the economy and another to talk about the markets. Especially in 2023, equities have defied graph vity for a lo time and expectations. Sometimes something sparks the ce sentiment shift. Im not saying this is the thing. There is a fact in fitchs explanation to why they did this. I dont disagree with the explanation of the perspective im suggesting if you downgrade the United States, you have to downgrade everybody else or it makes a mockery of the rating. Is the u. S. Not able to payoff the debt . No if we cant pay off the debt, canada cant either. All of a sudden, you have a Rating System that doesnt make sense. I agree with the commentary around the idea that were not in a better state than 20 years ago and there are important things we have to look at here, but the timing of it here. If they had done this and i had done reporting and heard that they were going public with the view like this two months ago when the debt ceiling debate was happening. That would have been understandable it seems the timing of it all is odd. Not the overall view, but you have to do all the other things at the same time. This brings attention to the treasury markets this is not new news we have comments from Warren Buffett on the downgrade of the rating he says he is not worried about it it is not changing anything that berkshire is doing in the markets. Here is the quote. Berkshire bought 10 billion in u. S. Treasuries last monday and this monday. The next question is if we buy 10 billion in threemonth bills or sixmonth bills that is the decision berkshire makes every week we spoke with him in japan and he spoke out at the annual meeting in may this is the safest place to be he doesnt think people should be worried he made the comments to ease concerns about the downgrade he said there are things people should worry about lets not to say the concerns raised are not valid, but he doesnt agree with everything the federal government is doing right now. It doesnt change the treasuries or the dollar. The dollar is the reserve currency of the world and Everybody Knows it something to keep in mind on all of the issues if you look at the big voinvestors and not changing their perspective on dollars if you look back, he is saying berkshire was fortunate because they were invested in the u. S. Treasuries back in 2007 and 2008 with the great financial crisis which hit. If he had been invested in aaa bonds at that time or credit markets, things froze up he would not have been able to do all of the things because berkshire was invested in treasuries it is the default place he wants to be. It shouldnt change perspective on that. That is the other thing, becky. This bond p mmarket is one of te most covered by Warren Buffett people understand. This is the most well understood markets. It is not to dismiss what fitch is saying because they are raising important issues one issue on treasuries or a Smaller Company some very Indebted Company and you say i need to pay attention. I dont know can i add fitch with the comments i heard from one of the fitch people who made the decision was saying we are still at the second highest rating we have for any of these things we are seeing a steady decline over the last 20 years in things that matter. Governance and debttogdp those are important measurements and it is valid. Moodys did this years ago and has not reversed and put it back this is the second Rating Agency to do it. It reminds me of the 11th grade english teacher. I turned in the paper and got it back and got a b and i was mad because my classmates got better grades i said why did i get the b and the teacher said this is b work for you it doesnt make total sense, but for the United States, maybe this is not aaa work we know it is one thing for Warren Buffett not to be concerned and jamie dimon not to be concerned ordinary investors and citizens thinking about making choices on election day, should they think about the economy or maybe more concerned about the direction . I dont know there may be something here. Then that comes up with this question how political is this with the timing we are getting other reaction to the fitch downgrade from joe manchin. He has a message for the squawk box audience. The downgrade of the Credit Rating by fitch is historic failure by leaders of both parties and the executive branch the Credit Agency specifically cited the decline of governance and ballooning of the National Debt to make the determination to lower the Credit Rating this is the warning that cannot be ignored we must act to fully fund the government and address the National Debt before we wake up to a future where americas super power status is in jeopardy and we lost the confidence of allies around the world and every american will suffer if washington politics gets in the way to address the challenges september is the crucial month to address the deadline. Now is the time for both leaders of both parties to Work Together and send a melgs ackssage to ree the Credit Rating and keep americas economystrong for this generation and the next senator manchin will join us live at 7 00 a. M. Eastern time i think we can say amen to that. He is looking to take a buy partisan approach to just about everything in washington these days that, i think, is hard not to agree with it is good to hear washington stepping up and listen to fitch and the concerns saying they will address it. I look forward to hearing from senator manchin in the next hour and the dplcomments from mani and buffett come after jamie dimon said yesterday he spoke to leslie picker about the fitch downgrade. It doesnt matter that much the markets decide not the rating agencies. Number two, they point out issues which we knew about with the debt ceiling crisis. Number three, most importantly, the American Public. This is the most processed nation on the planet it is the most secure nation on the planet there are other countries rated higher with aaa, but they live under the American Enterprise military system. That is ridiculous more on that dimon interview throughout the morning, becky. It is a different tone from what w we are hearing from joe manchin. I dont think there is much difference with buffett and jamie dimon and joe manchin. I think if the three were in a room, they would agree on the points dimon and buffett can say the market will continue to operate as normal, but buffett and dimon wants washington to address the issues buffett does an agree with everything washington is doing right now. He made the comment that congress can only screw this up or the administration can screw it up if you push too hard he thinks sounder people will prevail in all of this because you ccan screw it up along the way. I dont think there is anybody who says you need to address the debt. Warren buffett is saying im doing the same thing this week as i did last week and same thing next week. Joe manchin is saying here is a chance to do something different. That is the action. I think buffett would applaud what joe manchin is saying here. Lets take this seriously. When we come back, it is a busy morning for earnings. Central banks and economic data. We get you ready for the trading day ahead. That is next. Tomorrow, we have an exclusive interview with Steve Schwarzman you are watching squawk box and this is cnbc announcer this cnbc program is sponsored by Truist Securities have fun, sis cant stop adding stuff to your cart . Get the bank of america customized cash rewards card, choose the Online Shopping category and earn 3 cash back. Businesses need 5g solutions today. Thats why they choose tmobile for business. Mlb partners with tmobile to not only enhance the fan experience, but to advance how the game is played. Aaa relies on tmobiles network to stay connected nationwide, so they can help get their members back on the road. And were helping pano ai innovate, to stop the spread of wildfires. Nows the time to see what americas largest 5g network can do for your business. Sleepovers just arent what they used to be. Nows the time to see what americas largest 5g network a house full of screens . Basically no hiccups . You guys have no idea how good youve got it. How old are you . Like, 80 . Back in my day, it was scary stories and flashlights. We dont get scared. Oh, really . Mom can see your search history. Thats what i thought. Introducing the next generation 10g network. Only from xfinity. On todays planner, we have results from hasbro and Conoco Phillips before the opening bell we have amazon and apple after the close of the bell. We hear from coinbase and booking holdings the bank of england will report the Rate Decision today at 7 00 a. M. Today in the United States,richmond fed president tom barkin will speak at 8 30 a. M. His speech is recession revisited. And we get weekly jobless claims and Second Quarter productivity claims. And in legal news, former President Trump is due in court today and expected to be arraigned on felony charges on the efforts to overturn his loss in the 2020 election billionaire investor bill ackman is betting against the 30year treasury against the hedge of the longterm rates on stocks he believes this is one of the few macro investments that offers upside gains which is greater than the Downside Risk he arguing if u. S. Inflation is 3 in the long term instead of 2 , then 30year treasury yields could hit 5. 5 and he says it could happen soon. Ackman said he will purchase options rather than shorting bonds. Lets talk about that and more on the markets with matthew who is the senior portfolio manager. Good morning to you. Good morning. Lots of places to go, matt. Im curious what you think of the fitch downgrade and the reactions we just heard from bill ackman and equities lets start with the fitch downgrade. If you are an investor and watching this, what are you supposed to make of it i think you and becky are right. Analysis with Warren Buffett and dimon and joe manchin is not cons consistent we are where we are and we could do better. When all is said and done, tbills are the valuable form of collateral in the Financial System we are still in the position prior to the downgrade i think it is not a good sign. It is a warning shot of sorts. I dont think it is necessarily changing things fundamentally. What do you think of the bill ackman statement of 3 is on the table and 2 is a pipe dream i think it is rational. When i think about the way you recapped the way he implements the trade, it makes sense. If you pay option premium, you are at risk of losing premium. You have the payoff. Janet yellen has said recently that maybe we should move up the inflation target instead of trying to aim for the lower one. I think it is consistent with the information the market is given. I dont think it is, you know, i dont think it is a bad trade. We have seen the 30year from 4 to 4. 25 in a couple days. So far, he is right. Does inflation at 3 mean that the fed, therefore, stops and thats why we live at 3 or do you think jay powell decides it is my job to hammer down to 2 no matter what . We had hot jobs numbers. We get the job number tomorrow how much does that impact that adp job numbers impacted the equity markets yesterday ending the bull spell we had i think earnings tell you a lot. When you look at the performance thus far this season, those which outperformed rallied a bit. The ones which missed have been punished that tells me bullishness is priced in on a number of fronts. The reason we are seeing the most recent pullback is we are priced for perfection in an an imperfect world you see a dent in the armor as an excuse for the move are you fully valued you dont have to look too far for inconsistencies. If you look at the Interest Rate prediction screen, it looks like the market is going to cut rates early next year. What would drive cutting rates into early next year it would not be because we hit the inflation target Job Well Done it would signal a probability of recession and something between a soft landing and hard landing. I think people are taking stock of where things are right now from the price perspective i think it is a prudent decision to have dry powder have money ready to work. Look at investing in public equities. Matt is more negative than the rest of the markets. We appreciate your perspective on all of it we look forward to talking again. Thank you jon. Coming up, the bank of england set to announce the latest Rate Decision at 17 00 a. M. And abinbev numbers are dropping after the bud light backlash squawk box is coming right back so i broke up with bad banking and moved to sofi checking and savings. Now i get higher interest, pay no account fees, and get my paycheck two days early. Get up to 4. 40 apy, pay no account fees, and up to 2m in fdic insurance. Download the sofi app and earn up to 250 when you set up direct deposit. Sofi get your money right. The first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. We just got an order from dinosaur, colorado. Start an easy to build, powerful website for free with a partner that always puts you first. Start for free at godaddy. Com ah, these bills are crazy. She has no idea shes sitting on a goldmine. Well she doesnt know that if she owns a Life Insurance policy of 100,000 or more she can sell all or part of it to coventry for cash. Even a term policy. Even a term policy . Even a term policy find out if youre sitting on a goldmine. Call Coventry Direct today at the number on your screen, or visit coventrydirect. Com. Welcome back the bank of england latest interest Rate Decision is due in a mhalf hour. Lets get to Arabile Gumede in london with more it is the decision which is due later on which touched the market red it takes sentiment from fitch with the u. S. Government debt, but the picture from the bank of england is significant and key we had tech earnings come out today with infineon here in europe pointing down infineon saying demand for its chips are said to be weaker. Iphone or Smartphone Market is not necessarily up to scratch. They will get some suffering and huawei with the ban from the United States with their chips which is a downfall. 10 down on infineon overall although there is a bit of a pullback, the ftse 100 in the uk and ftse mib in italy was down 1. 5 this is what with the yields picture is looking like ahead of the bank of england decision the 10year managed to gain 1 basis pointis currently sitting8 on the lower end of the scale, we are seeing a little bit of pullback fiveyear is managing to go down four basis points. The 2year gilt is 4. 193 the bank of england is all but certain to deliver the 14th straight hike taking rates to the highest level since 2008 the question is whether it will be 50basis points or 25basis points markets are pricing in a 2 3 chance the bank will slow the pace of hikes to 25 points and the implied probability of 50 points standing at 37 that is what we are looking at here over the inflation environment improvimproving it will be interesting to note that decision out in a bit yes, indeed 32 minutes away. Arabile, thank you when we come back, the ceo of nerd wallet joins us to talk about earnings thats next. We have more reaction from the fitch downgrade from Warren Buffett and senator joe manchin. We will hear from manchin in about an hour. As we head to break, here is a look at yesterdays winners and losers my cpa told me i wouldnt qualify for the erc tax refund, so i called innovation refunds. Their team of independent tax attorneys will work with your cpa to determine if your company is eligible. [whip sound] take the first step to see if your Small Business qualifies. Good morning welcome back to squawk box on cnbc we have red arrows across the screen dow off 45 points right about now. More comments from Warren Buffett, becky quick these are comments in the last half hour from berkshire h hathaway on the downgrade of the Credit Rating from fitch he says he is not worried with the markets. He says berkshire bought 10 billion in u. S. Treasuries last monday we bought 10 billion this monday the question for next monday is whether we will buy 10 billion in threemonth bills or sixmonth bills. That is what with Warren Buffett told us. He told us in april when we were in japan with him. Nothing the fitch downgrade does changes what he does with the market he made comments to ease concerns of the downgrade saying there are some things people should not worry about this is one. Spre separately, joe manchin is calling this a stark warning to capitol hill and calls it a failure in leadership. Senator joe manchin will speak out at 7 00 a. M. Eastern time. He doesnt agree with everything the federal government is doing right now, according to Warren Buffett, but we will see that reined in. Over time, cooler heads will prevpare tv prevail. We will hear from senator manchin in a half hour. Nerdwallet which matches consumers with Financial Solutions is seeing a strong Second Quarter revenue up 14 year over year. Nerdwallet has an inside look of how consumers are reacting to high Interest Rates and tight lending standards. Joining us now is the founder tim chen tim, appreciate you getting up the quarter is better than expected you got headwinds. Im particularly curious what you are seeing from lenders. How are lending standards tightening up . Thanks for having me back we grew in a quarter when many in the industry were shrinking to answer your question, you know, banks are remaining conservative you have things like the cust commercial real estate concerns and the consumers burning through the pandemic earnings. A lot of that is on banks minds with managing Balance Sheets we see them shy away from some business that they normally would have jumped at in the second half of last year the transfers of Interest Rates with credit cards. It becomes profitable for the card industry over time. We think that conservativism is building up capital for the banks. Even for the prime borrower we have gotten the changes in subprime and prime were just as much business as usual with prime, but invest in the future for the prime borrower is pulled back now thats right. Interestingly, we are seeing a bit of difference versus prior cycles credit quality is not the primary driver right now we are seeing things bottom in areas like near prime lending for personal loans banks are incrementally less worried about unemployment than they were three or six months ago. Banks are expecting unemployment to be 5 or 6 exiting this year as they were doing their underwriting that is more optimistic. We are seeing a bottom in that pick up there which is a big pick up in the Balance Sheet over the prime lending which shows conservative with capital. How are you modelling what will happen with student loan payments as they return in a few weeks from now i remember talking to max a quarter ago. He is watching that closely with the impact on the consumer any chatter from the lenders or what you expect to see when that happens . The lenders are saying they expect a bit of a pickup in q4 we are more conservative we have seen a lot of different proposals post the Supreme Court ruling from the Biden Administration we have seen legal challenges. It is hard to say with certainty what will happen in terms of when people will be forced to refinance and repay student loans. What about the Insurance Business that is newer than the core businesses you have, but impacted by the macro environment. Things are rough. Dont let our 41 year over year growth in insurance trends fool you. Insurers are struggling to be profitable in half the states. What is happening is inflation is making it more expensive to repair a car or replace a car or repair a home or replace a home. That is causing the need to rise premiums dramatically in many areas. Regulatory state by state premium increases need to be increased by regulators and states that can cause underwritersnot want to write new policies we think as inflation cools down, that will work through the system and then we will see a pick up. That could take quarters we are muted there in terms of our outlook. As inflation cools down, but in a way, these are higher costs which will be passed on to consumers in terms of the premiums being higher where inflation cools down, but costs stay high have you seen Something Like this before inflation has been pretty limited through our history. We have not seen an effect like this before. When people are getting notices that insurance policies are increasing 20 or 25 year over year, that causes people to turn to nerdwallet to shop for new policies ofy policies a lot of insurers are not wanting new policies that is the headwind we are facing right now. We look forward to see how it shakes out tim chen, thank you for joining us thanks for having me. Jon, when we come back, more coming up. New numbers from abinbev overnight. Reveal of a drop in profit after the backlash with conservatives with bud light. At the top of the hour, senator joe manchin joins us for the reaction for the fitch downgrade of the american Credit Rating we are coming right back you are watching cnbc. Announcer currency check is sponsored by interactive brokers. The best informed brokers choose interactive brokers. At Morgan Stanley, old school hard work meets bold new thinking. Partnering to unlock new ideas, to create new legacies, to transform a company, industry, economy, generation. Because grit and vision working in lockstep puts you on the path to your full potential. Old school grit. New world ideas. Morgan stanley. Welcome back to squawk box. Some earnings for cigna coming in at 6. 13. Full year Company Revenue guidance is short of expectations Earnings Guidance is roughly in line with that stock up marginal basically flat. Take a look at robinhood shares under pressure. The Company Reported higher q2 revenue with the boost of the Interest Income rates and achieved profitability for the First Time Since the ipo the investors focusing on 5 transaction. That is 1 million fewer compared to the previous quarter. That stock off 6 . Becky. Andrew, thanks we are watching shares of abinbev after the First Quarter report from the bud light backlash in the United States. Net profit for the Second Quarter fell to 3 339 million compared to the same period a year ago revenue rose slightly to 15 billion. That was driven by pricing actions and focus on the Premium Products the company faced a difficult few months after the partnership with the transgender infl influencers. The company says the sales have been stable since april. Revenue in the u. S. Was down 10. 5 while ebitda was down 8 of survey of consumers show 80 were fireavorable or neutral toe brand. It is leading into the football and Country Music ads and said it would buy back cases of beer past Expiration Date stock supis up 2. 8 a hangover for qualcomm. 1. 87 a share Beat Estimates revenue fell short of ex expectations and midpoint guidance fell short of the consensus. Smartphone chip sales were down 25 year over year the company said it expects the hand set sales to decline in high single digit percentage this year. When we come back, jen will join us to talk about Consumer Trends and impact of the return to office. He has been doing his informal survey as he gets back on the train and comes back to the office he will tell us what he sees different from prepandemic. You can watch us any time on the cnbc app fan 1 there ya go jlen what im talkbout is this your plan to watch the game today . hero fan uh, yea. I have to watch my neighbors nfl sunday ticket. josh allen its not your best plan. But you know what is . Myplan from verizon. Switch now and theyll give you nfl sunday ticket from youtubetv, on them. hero fan this plan is amazing josh allen another amazing plan, backing away from here very slowly. fan 1 that was josh allen. fan 2 mmhm. vo for a limited time get nfl sunday ticket from youtubetv on us. A 449 value. Plus, get a free Samsung Galaxy s23. Only on verizon. If you think you have dupuytrens contracture, theres a simple test you can take from anywhere. Try to lay your hand flat against a surface. If you cant, you may have dupuytrens contracture. Talk to a hand specialist about your options, including nonsurgical treatments. upbeat music constant contacts advanced automation lets you send the right message at the right time, every time. constant contact. Helping the small stand tall. Welcome back to squawk box. Lets talk about nintendo. Overnight in japan, a report of 52 surge of profits with the success of super mario brothers movie and zelda for the switch console the report coming after the close in tokyo we will show you reaction in the stock tomorrow morning the super mario movie produced by our Parent Company comcast. Hasbro reporting 49 cents a share adjustdjadjustd revenue 1. 21 billion. That was better than the street was expecting. The company is cutting revenue guidance for the full year as it expects the entertainment section to take a hit from the writers and actors strike. Becky. Our next guest says hybrid return to work schedule should have retailers rethink strategy. Joining us to talk about the impact on Shopping Centers is jan kniffen. Ceo of j. Rogers kniffen you have your thoughts of commuting back to work now versus then. Walk us through that sometimes you dont have to talk about consumers you can take the train in every day for three weeks and compare before covid the observation is tuesdays and thursdays are busy wednesdays not so much mondays and fridays are dead if that is true, and i know it is summer, but i see it in the summer many times. This looks fridays are dead. And if thats true, and i know its summer, but i commuted in the summer many times, this looks different. And i think any retailer will tell you thats true and i think anybody looking at the urban environment will tell you thats true. My commute was into new york, of course i think new york is relatively typical of big urban environments now as far as going back to work it may be pushing a little harder than others because a lot of the Financial Firms are pushing pretty hard. So i dont think this is an oddball observation. I think were seeing a fundamental change, the hybrid workplace is real, and i dont know about everybody else out there watching, but 90 of my meetings now are either on video or theyre a hybrid, and most of the hybrids turn out to be mostly video so, it was unusual that i would have three weeks in a row that i was going into the Office Every Day to work on a project i dont see how that doesnt dramatically affect the city centers. How can we not have a big real estate writedown of commercial property if in fact the offices arent going to be full, people arent going to pay for the rent space and how can we not see a big change in where people shop if theyre not doing their commute nearly as often . Shop where they eat, right. It affects everything. Right the restaurants get affected and where you shop gets affected and were seeing retailers react to that already so suburban and urban environments are looking better than urban environments. And i dont think that thats just temporary i think were back to the new normal so what advice would you give retailers in particular, since thats your area of expertise, thats the industry youve been in for decades and decades well, i still think we have a big transition coming. I dont think we closed nearly enough stores because the stores have to close that are not sustainable. I think well see stores open in environments where people are spending more of their time now and well see the stores close, particularly in the urban areas because theyre struggling i dont see how that doesnt cause a significant change and, you know, were already seeing a change in the way people shop. Were up to 22 online now versus the 11 before covid. Thats not going back. It has slowed as far as growth rate and we may be 21 or 22 again this year, but it is not going to stop there. It is going to continue to draw off that base. We have to deal with that and deal with the fact that people just arent traveling in the same patterns they were and retailers have to change how they approach you. The other thing they have to do, of course, is something to get you to physically come to a store, to make it more entertaining, more of an experience, youre not just going to go shop like we did in the past and thats why youre seeing so many restaurants going to malls, youre seeing so many experiential event things going to malls there is no other way to get foot traffic all retailers are looking at it. Im preaching to the choir here for anybody in retail that is listening, because theyre all looking at this exact same problem. You know, jan, the overstoring of america, the overmalling of america, thats not new, thats not necessarily covidrelated, thats not necessarily Online Shopping. I remember writing stories about this 25 years ago and longer about how there was too much retail space in america, and we kept building more and more into that who are the winners and the losers in this entire situation . Who has done well to figure this out and say, okay, were going to do things differently you were writing about it, i was causing it we peaked on 1992 on this. I was right there, involved. And who is doing it well were watching it already, right . We have seen what a great job walmart has done by making everything available to everybody every place. And thats allowed them to be successfully competing with amazon and target has moved that way really hard too. I still think that walmart sort of has set the pace, but target, youve seen how much of their business is coming out of the store, despite the fact that it is being bought online or being picked up. So, we have seen that happen but we have also seen smaller players determine that they have to be bigger in the eyes of the consumer so either have a presence online or got to be on a Third Party Site and, you know, amazon has done that but walmart has done that as well a lot of other retailers are moving to have Third Party Sites for smaller players and we have got to do that too because the consumer has said to us, heres how im going to shop, im going to shop online, im going to come to your store occasionally, i want you to have a store so i can drop stuff off, pick stuff up, but i want to be able to do all my shopping online and i want to, and i want to have the full range jan, it is jon fortt. How is apple positioned . Interesting because they have earnings after the bell. They not only have a presence in particularly high end malls, but also in urban areas that traditionally had high foot traffic. They tended to be sort of a host unto themselves, drawing traffic, but what do you think the impact post covid is on them well, i think it is really funny you say that apple is a good example. You can go to a mall where apple is doing 5,000 a square foot and nobody is going there and going some place else, theyre just going to the apple store and turning around and leaving thats been a problem when you go to the draw, because the draw hasnt fed the mall. But i contend that had strategy at apple been rent a bunch of trucks, drive around the country, open the back doors and say come and get the product, they could have sold is just as well what their secret is is they have the best stuff and i think their draw, however theyre selling it to you, but do i think theyll stay with stores absolutely do i think best buy will stay with having stores absolutely i think you have to have that offering online where you can buy anything ive got and get it to me in a day or two because you just cant expect them to come to the store for it jan, thank you for your time today and your observations. Thank you all right, coming up, senator joe manchin joins us live. Hes calling the fitch downgrade a stark warning that cant be ignored. That ierewntvi is straight ahead. Plus, well dig through Warren Buffetts comments to cnbc on that downgrade and how berkshire is reacting or not reacting im so glad we did this. Im so glad we did this. Im so glad we did this. Im so glad we did this. Im so. Glad we did this. [kid plays drums] life is for living. Lets partner for all of it. Im so glad we did this. Edward jones good morning stocks tracking for a second day of losses as investors continue to digest the longterm impact of fitchs u. S. Downgrade. We have a special interview this morning with senator joe manchin, who has a message for cnbc viewers earnings and the bank of england Rate Decision are on deck for investors were going to bring you the latest market moving news. Plus, apple set to report tonight. A preview of the numbers and what investors should be looking for as the second hour of squawk box begins right now. Good morning welcome back to squawk box here on cnbc im Andrew Ross Sorkin along with becky quick joe has the day off. But jon fortt is hanging out with us for the full three hours. So thank you, jon, for that. We got a lot going on and were going to need jons help on all of it. U. S. Equity futures at this hour looking off about 53 points right now on the dow 54 points. Treasuries on the back of this fitch downgrade mostly muted i dont think we can say too much has really happened here. But youre looking right now at the tenyear, 4. 14, twoyear, just a little 4. 9 there but we have got some lots of folks with lots of reaction, becky. That is true, andrew. We have been kind of running through the commentary on this and we do have some new thoughts from Berkshire Hathaway ceo Warren Buffett when it comes to the Fitch Ratings Agency Downgrade of the u. S. Longterm Credit Rating. Basically buffett says hes not worried about it and it is not changing anything that berkshire is doing in the markets right now. Here is a quote from him, he says berkshire bought 10 billion in u. S. Treasuries last monday we bought 10 billion in treasuries this monday and the only question for next monday is whether we will buy 10 billion in three months or sixmonth tbills. He told cnbc thats been the decision that berkshire has been making every week recently, just whether to put it in three months or six months, but they have been buying billions and billions of dollars of these and this downgrade is not changing that buffett made the comments to try to ease some concerns about fitchs downgrade of the u. S. Saying there are some things that people shouldnt worry about, and this is one now, thats not to say that the concerns raised by fitch arent valid, buffett did say he doesnt agree with everything the federal government is doing now, would like to see a little more restraint, but it doesnt change how he sees u. S. Treasuries or the dollar heres another quote from him. He says the dollar is the reserve currency of the world and Everybody Knows it now, we do watch kind of whats been coming out of this, these comments were very similar to what we heard from jamie dimon yesterday too. Were going to talk more about that in a moment, first of all, lets get you caught up on what is happening with the bank of england, just coming out of the uk, the bank of england raising rates by 25 basis points as expected there had been some thought that maybe it could be as high as 50 basis points coming in with a quarter point hike, that takes the main Bank Lending Rate to 5. 25 . Well get some reaction from Steve Liesman in just a little bit. Some more coming up on what he hears with this too. Back to what we heard from fitch, the commentary coming out around that. Senator joe manchin actually reaching out to our very own joe kernen who is on vacation this week he has a message for the squawk box audience when it comes to the fitch downgrade. He says it is a stark warning to both Political Parties and to the white house. Joining us now on the squawk newsline is West Virginia senator joe manchin himself. Thanks for calling in today. This downgrade good morning to all three of you, becky thank you. Good morning. Good to hear from you, senator this warning from fitch, even though a lot of investors have said that it doesnt change their opinion on what happens with this, they do say that fitch raises some valid concerns and one of the things that fitch pointed to was governance that it has gotten much more complicated, much more difficult. What are your thoughts when you hear this downgrade . Well, i was concerned let me just put it in perspective. I got elected to be governor of West Virginia in november of 2004 and we had a low Credit Rating from all three, fitchs, Standard Poors and moodys the first thing i got elected in november, i didnt take office until the second week of january of 2005, i went to new york and i asked all three, i went to all three offices and i said tell me about my state i just got elected ceo of a Company Called West Virginia tell me what you think about it. They gave an unfiltered truth about where our challenges were and why we were in a downgrade situation. I said, what can i do to improve it my achilles heel was my workers comp, it was killing our state and employment and economy and everything i had to go back and within one week we changed and we privatized workers comp and now we have the lowest rates in the country, just about, on workers comp, great place to do business and people have come and we have grown. I know it means something. So what i did yesterday, i called paul taylor, ceo of fitchs, over in england last night. And we had a nice talk and he explained to me, he said, listen, it has been 12 years since Standard Poors downgraded he said nothing is going to happen, joe. I dont think anything is going to happen anytime soon, but we can see this for the last 20 years, so when you look at 21 years that we have spent more than we have taken in, you can blame whoever you want to, starting with george w. Bush, up to present democrats and republicans are guilty and we have got to fix this. And were not taking it seriously. So, i welcome the basically the news that fitch has given us to get our governance, our financial house in order, if you will, and take it serious. And to put other things in perspective, we just did for the first time in five years, in the senate, we passed all 12 of our approach bills heres what you dont know the rate the deal that was made on fiscal responsibility act that basically President Biden and Kevin Mccarthy came to an agreement on. On what the caps would be. In order to get the 12 bills out, it was raised 13. 7 billion. So the only thing that is keeping us working in a bipartisan way is if we can spend more money and i made a comment and i spoke out that this is wrong my goodness, it is not going to be what happens in the house and when people say there could be a government shutdown, thats what theyre saying, there is so much difference in how do we spend, why do we have to continue to spend and why cant we curtail it just basically a little bit of responsibility that we have and have the ability to come to agreement that we have a fiscal runaway train that has grown and when you think the last time that we actually passed a budget on time, by september 30th was 1997 and 1997, youre talking about 5. 5 trillion of debt, which i thought was horrendous at that time and now were at 32. 5 trillion so, yes, i do take that serious and i am doing everything i can to make sure that were responsible. Do you have other people in the senate, other people in the house who you think agree with you on this . Because youre right, the only thing bipartisan, the only thing that keeps things going is when both sides agree to spend more do you have other people there who are of the same mindset you are, who would say, yes, we need to do something about this and we need to get together and do it now who would you point to who are other im not going to point anybody out. I think everyone knows that, first of all, there is not a person in america that is listening to you right now or watching that can go 21 paychecks, just forget about 21 years, and spend more every paycheck than they brought in. They cant go 21 paycheckis. We have gone 21 years. In the state of 46 states, i believe, have a balanced budget amendment. Every week i sit down with my Budget Committee and i had to basically ask governor, make decisions that if we stay on this trend and the following week they come back and i say we have to make some adjustments and we would do that, it was my responsibility, constitutionally we dont have that now i guess we never had a Printing Press in West Virginia, so i guess that was the situation but no one takes seriously were spending more and were not doing anything to make sure that we balance that out. Neither income, revenue, spending, or things have to change in order to balance that. There is no restrictions on us to live within the means that every citizen in america has to, every business that is successful, small or large, has to and adjustments have to be made. And only adjustment we make is to agree to spend more and there is a lot of people that understand this is a fiscal cliff and were getting closer and closer this warning shot, i think, by fitchs, is this i dont think it will take 12 years for moody to step up to the plate. Thats awful to say. But if they dont, theyre the ones watching and evaluating, we dont even do a Risk Management, we do nothing at all until we hit the fiscal cliff every year, we raise it, we have to pay more and we spent more and we have to raise to pay our bills were always going to pay the bills, i agree so, i dont know senator, can you just speak to the politics of this, because historically the perception has been the democrats want to spend, spend, spend. And then on the other side, historically, you had republicans who have wanted to lower taxes, which, of course, has created its own, in some cases revenue problems and in some cases it increased revenues or hasnt hurt revenues, but you see where this goes. So my question, which really goes back to beckys question and you dont need to name names, but what has to change in the political system and within our country to create incentives among your colleagues to try to create balanced budgets . And how do you tell an American Public that wants, wants, wants. This is the ultimate me generation, right . Everybody wants something. And how do you tell them youre either not getting it or youre getting less of it well, let me just the toughest one to talk about, nobody wants to talk about it because it is so toxic, is Social Security. Were scared to death to talk about Social Security. I can tell you there are so many people in my state, high, High Percentage that Social Security and medicare is their lifeline thats it. So why do we keep jeopardizing it we have a cap of 167,000 i think is where it is today guess what, there is not that many people in West Virginia that make more than 167,000 in their pay. Theyre paying 100 of the tax everyone above that does not because it stops maybe we should take the cap off, okay to give us some cash flow were not facing the cliff in six, seven, eight years to where there is going to be an automatic 20 cut. We have been warned about that nobody wants to talk about it. And i say for the high income earners, and i had so many of them tell me, hey, joe, i can do away with my Social Security check, dont even send it to me. I guarantee you one thing, what you could do and not create any backlash at all is people over a certain income level or high earners take the cola away they never receive the cola, because they dont need it there is some things we can do that does not jeopardize a persons quality of life or how they live their life and it makes a big difference to the people that depend on it we cant have those conversations, andrew. Thats whats a shame. Senator, i know people are telling me that you and Warren Buffett and jamie dimon agree here, but you sound different to me than they do because it sounds like youre saying that this Fitch Ratings cut, whether you agree with it specifically or not, you understand it and that this is a moment for action, the way youre calling it out am i reading that wrong . This is jon, right . It is hey, jon, thank you i think that what you have evaluated, if you put me and Warren Buffett and jamie dimon in the same room, we would agree. I think they would agree also. But this is not normal how the toxic atmosphere and what is being accepted as the normal and political arena today is not normal in america it is not how you run the superpower of the world, with the greatest economy you dont run it this way. And thats what were saying so this is a warning shot, hey, guys, those of you who have the ability to put a vote toward a piece of legislation and have a road map of how you get yourself out of this, only thing i would say, you say, joe what about the fiscal cliff, why do we go down, why do we make people feel like we may default and not pay our bills . Thats crazy want to get rid of that, you better replace it with something that holds our feet to the fire replace it with a balanced budget amendment, like most states have. You can have exceptions because of war and extreme disasters and things of this sort. But also there has to be a reason why b from any changes you make, it should be dedicated Debt Reduction. Yeah. No one is doing that, jon so, i think that basically the, you know, it is just a chance for us to say you got two of the three main Credit Rating agencies in the country and in the world, two of them have said now, guys, get your act together we have less confidence in how youre governing yourself because it is always extremes. It has to come down to basically a crisis before you can come together and the last 21 years, the only way it brought you together is to spend more money. The other issue, senator, the u. S. Debt is a share of the economy. According to the cbo, it is on track to surpass even world war ii levels by 2029. And youve got higher Interest Rates that were dealing with now as well, which means that what we are paying every month just to service the debt is going to be a much bigger and bigger number to the tune of like a trillion dollars in the not too distant future. When we spend thank you for that when we spend, i think the things you can put into comparison, when the debt were servicing, the debt were servicing and the interest on that debt exceeds what we spend to defend our great country and help our allies around the world, dont you think that should be a wakeup call dont you think we should be concerned about that thats all im saying. Maybe we should put a bipartisan Fiscal Committee together. Maybe we should have a risk evaluation of what were facing if we continue down this risky path we have been talking about that also i think that makes sense give it some clout to where, hey, if we come to an agreement and a bipartisan fiscal commission, with both senate and house working together, republicans and democrats, and we have a majority of the vote that is bipartisan, it has to go to the floor for a vote to make changes in our how we govern ourselves. Something has to be done because we dont have the will to do anything because it is so abnormal what is happening in washington were not we never governed this way it is not always somebody elses fault. Governing going on today is basically can i blame somebody else for a problem that maybe were all responsible, but i can make you believe it is their fault more than mine thats not how i operate and thats not what i believe in senator, what kind of reaction have you gotten or in your own conversations with this administration about the fitch downgrade or the need, just more broadly, for fiscal responsibility i ask because, of course, the Immediate Reaction yesterday was all about maybe tactical issues, the timing of this, did it make sense . I raised issues about, you know, if you look at the model, it looks like it is getting better, why did fitch do it now, should they have done it three years ago, and we can look at that as a political issue, but i am curious whether you think emotionally President Biden and this administration see this the same way you do or not andrew, im not blaming this administration, okay i think that everybody is going theyre working in way they think is responsible. I think there is a better way that we can do it by looking at how we interpret pieces of legislation. And how much cost it is to that legislation. The biggest thing that got us to this point here is legislation that is well intended, and if you dont put caps on it, if you dont put absolute spending parameters on it and if you just deal in good faith, i can tell you a liberal interpretation sometimes will bust that budget. If you think youre going to have a trillion dollar bill and you show us how you pay for it and the bill comes into 1. 6 trillion after a tenyear period, thats 600 billion, it is basically debt financed thats how we have grown this debt so quickly over a period of time so, to blame one administration is wrong the Trump Administration is guilty as is any other, the Obama Administration and then the bush administration, theyre all guilty we were in a downward trajectory after 1997 and that became under Clintons Administration and that was because you had you had Erskine Bowles and john kasich, as im understanding, working out the details of a new tax proposal back then that spun off balanced budgets, that spun off profits that we had as far as surpluses, and we would have been, as im told, we would have been basically on the trajectory to be debt free by 2006. And then we had 9 11 happen, we had two wars that we didnt pay for, we declared, and then we had two major tax cuts and those could have been we could have basically just revoked those after a tenyear period but, no, we started basically carving out who we protect and this and that. Were all in this. Everyone has to pay their fair share. But the bottom line is the thing right now, when you try to pick and choose makes it pretty hard to have any type of continuity to how we pay our bills and thats why im saying balanced budget, fiscal responsibility committee, things of that sort, has to look at exactly where we are and how were going to be in the next five or ten years, and i agree with what theyre saying and paul taylor confirmed that from fitchs, this is not going to change anything, anytime soon it is going to happen. And it is going to be closer and closer and happen quicker than what we anticipated. Wont be another 12 years before we hear any of this concern again. Going to be quicker than that. Shouldnt we heed the warnings we have received and do something . I think thats what were talking about. And thats what we should do so i welcome the news that someone at that level said, guys, get your act together. This is not normal and it is not right, and it is not a good fiscal policy for the future generations. Senator manchin, want to thank you for calling in today and explaining your thought process on this and just how you reached out to fitch as well we hope you will continue to update us on whatever progress you can make in kind of taking this as a clarion call joe manchin from West Virginia, senator, thank you for calling in. Thank you, appreciate very much. Great conversation. Thank you so very, very much. As we head to a break, lets take a quick look at the futures. Dow off about 42 points now. Nasdaq off about 44 points s p 500 off just about nine points we also have an earnings alert for you. Con conocophillips reporting earnings, revenue of 12. 99 billion, lighter than the 13. 68 billion the street had been expecting. Youre looking at that stock up a little bit this morning. Were coming back with more on squawk box. The looks you want, the backpacks you need, all under one roof. When you cant make it to the store, dicks. Com is always an option. And with our best price guarantee, if you find a lower price, well match it. With looks this good, its never been easier to sport your style. It doesnt really matter that much. You know, the markets decide number two, they point out some issues which we all knew were bad about the debt ceiling crisis and things like that. Number three, most important, the American Public this is the most prosperous nation on the planet it is still the most prosperous nation on the planet, the most secure nation on the planet. There are a bunch of countries rated higher than us, like aaa, but they live under the American Enterprise military system to have them be aaa and not in america is kind of ridiculous. That was jamie dimon yesterday on power lunch with reaction to that fitch yun downgrade. It is one of the items in the basket of negatives that has kept him bearish i want to bring in cnbc contributor greg branch. Youve been negative the whole time, though lets be honest. Youve been on a negative streak the markets moved in the opposite direction, they may be moving back a little bit in the past 48 hours. But what is your sense here . So, look, youre exactly right, andrew. And just to recap, you know, it started with what the fed should do in 2021, in terms of raising rates in 2021 to kind of cut off some of the demand that was going to be unleashed into the economy. When they didnt do that, stage two was this is what the fed is going to do in january of 2020 and that was about going into a hybrid environment rates aggressively which seemed alarmist at the time this is stage three. This is what is going to happen because of what the fed has done we look at what the fed has done, they raised 500 basis points, maybe more, i dont know if thats relevant anymore at this point because at the end of the day, bull or bear, what you have to agree with is that if we are going to continue to combat inflation, that means further demand destruction and when you put further demand destruction in the context of an earnings quarter that is down 7 , that likely means that were going to have more down it is very difficult for me to reconcile how we get to a flat Third Quarter or an 8 Fourth Quarter with this quarter down 7 , with the impact of the 500 basis points still ahead of us, much of that still has not been greg, how much of your thesis or bear thesis has to do with Interest Rates and inflation are you in the bill ackman camp who overnight said he thinks this is going to be consistent at 3 . Are you of the view it is not going to be 3 because jay powell is going to come in with higher Interest Rates . I believe hes going higher, andrew ive been at 6. 25 i think this downgrade, which should have been expected, it is one of the things i expected, given this debt ceiling is more pernicious and we proved ourselves a lesser risk. I was surprised by jamies comments we assess risk for a living. Were not the same risk we were ten years ago. But to answer your question, i do think theyll come in a little more. But i think, again, the thing the main driver is that, you know, the main impact of these rates wont be felt until 12, 18 months after so were in the beginning innings, feeling the impact. Im at 2. 25 for next year. Greg branch, it is always good to get your perspective on all this, especially as the News Headlines are flying im sure well talk to you again very, very soon. Appreciate it. Thank you, andrew. We have another news headline that is flying right now. Thats the bank of england raising rates by 25 basis points itself that was as expected, taking the main bank rate now to 5. 25 . Steve liesman, the professor, joins us with more on that what are you thinking, steve good morning, andrew. Well, you know, there was a hawkish whisper on the number out there, 50 basis point hike and so a little bit more on the dovish side that they raised only a quarter but the market almost immediately beginning to price in another quarter in september. And they voted differently over there in england the vote was 8 to 1 to hike rates. But two on the board voted to hike it by 51, dont want to confuse you, there is a hawkish signal in there. The current Monetary Policy stance is restrictive and they see inflation below 2 of rates peaking above 6 here is the deal, all of these Central Banks, main Central Banks are in some form of an endgame here maybe a little bit more tweaking at the boe, less here in the fed perhaps. Ecb may be reaching an end point. They lowered their gdp forecast of england to half, but they see the uk avoiding a recession, even though growth is slowing down theyre seeing further rate hikes will be needed if there are signs of more persistent price pressures and some concern that those price pressures may be chrystallizing there is upside risk to inflation. Lets look at the three main Central Banks out there. 5. 37 at the fed. 5. 25 at the boe and 4. 25 at the ecb. Were kind of getting close to an endgame this was the 14th in a row for the boe. The fed has begun skipping ecb could go either way. Some talk they may do it very quickly here at the fed, probability is 18 for a quarter in september, 33 in november. The market not, andrew as you see there or jon, embracing the idea of another rate hike here at the fed, but up a quarter in england. All right, steve, thank you now coming up, your premarket movers meowor ti n f todays aflac trivia question. What four colleges are tied for the most Heisman Trophy winners . The answer when cnbcs squawk box continues talking about the Expenses Health insurance doesnt cover. So whos talking about the money aflac pays to help close that gap . Gaaaaaaaaaaaap aflac aflac gaaaaaaaaaaaap its about to go down, baby aflac aflac stop that goat get help with Expenses Health insurance doesnt cover at aflac. Com now the answer to todays aflac trivia question. What four colleges are tied for the most Heisman Trophy winners . The answer, ohio state, oklahoma, notre dame, and usc. They each have seven winners all right, welcome back to squawk box. Im dominic chu with a couple of morning movers for you well start with the late breaking news in oil and gas and thats conocophillips. Shares down roughly 1. 5 now, just around 2,000 shares of volume the Exploration Production company reporting profits and revenues at both missed Analyst Consensus estimates driven in large part by the drop in Energy Prices between last year and now. That was partially offset by an increase in volumes, though. Conocophillips raised its production guidance. One of the bigger earnings movers from earnings after last nights close, paypal, down around 7. 5 , 250,000 shares of volume, the fintech and Payments Network company reporting profits in line with estimates with higher than expected revenues but a good amount of the negativity in the stock has to do with lower operating margins on a quarter over quarter basis and credit losses tied to the business lending portfolio paypal is setting aside more money to cover future potential creditrelated losses. Paypal and conoco, two early movers ill send things back over to you. Dom, thanks. Also out in the last half hour, shares of warner bros. Discovery up over 6 the media conglomerate reported a bigger expected loss there is a lot of positivity about this the stock is up by 4. 75 now part of this is because of Free Cash Flow trends Free Cash Flow was up better than expected. They also revised their guidance for more costcutting over the next couple of years their revenue per user was up sequentially and they have a smaller loss, much smaller loss than they did a year earlier because of cost cutting that has taken place. The Company Announcing a commencement of a cashtender offer for any and all of their notes out there. This runs through a lot of the notes. I think it is Something Like 2. 6 billion in debt this is part of the companys previously announced plan to try and reduce debt. You see that stock rhtig now up by about 4. 3 . When we come back, were going to preview apples Quarterly Results. Massmutual. Partnering with financial professionals, benefits brokers, and institutions. At pnc bank, partnering with you can find us in big cities and small towns across the us, where our focus is to always support the people who live and work there. Because you call these communities home, and we do too. Pnc bank. Apple, the big one, set to report Quarterly Results after market closes to we call that overtime. Our next guest recently downgraded that stock to neutral from a buy and joining us now to preview earnings is david vote, ubs Enterprise Hardware networking analyst so, big question is this as good as it gets for apple right here . Theyre in a premium position, but im not sure the carriers will be subsidizing phones in the next cycle, no matter how good they are. Thanks for having me this morning. You bring up a really good point. If you look at the sell through data in the u. S. And the upgrade rates in the United States, they have been relatively weak the last couple of quarters. So were a little bit concerned about the demand trends of the june quarter and the September Quarter and potentially spilling over to the december quarter from a unit demand perspective, we think right now were seeing peak iphone demand in most developed markets, with upside in some emerging markets around the world. The big question i guess is whether apples loyalty holds and whether that premium consumer both in the u. S. , well, around the world, but maybe particularly in china, which has been pretty weak overall, which we saw in qualcomms results yesterday, at that premium Luxury Consumer continues to buy high end iphones and keep margins as high as they could possibly be. Yeah, you know, it is interesting, if you look at china, that market peaked at 50 million iphones in 2021, post the launch of the iphone 12, which was their first 5g enabled phone. China has been weak for some time, actually in the june quarter we think iphone demand in china was up 4 , which is a little bit below our expectations given the festival that happened from an ecommerce perspective last month we think about the december quarter, though, you should see better year over year comps because of the lockdowns last year, covid related in china, so i dont think that gives you a full picture of demand thats an easy comp Going Forward. We would agree with you, i think you saw peak demand, particularly at the high end, for iphones in china, back in 2021 50 Million Units is a big bar. If you think about fiscal 19, they sold 34, 35 Million Units in china youve seen a deep penetration at the high end by china in china by apple at this point. Let me put a finer point on this, with apple retail, do they have to do major renovations to their existing spaces or relocate certain stores based on post covid traffic trends . Are there different opportunities they want to take advantage of over the next five to ten years versus maybe how they were designed before . Yeah, but i think it is going to be interesting. Youre seeing that with the new product categories, vision pro or pro vision. Theyre talking about making this more of a spoke instore experience it is a high price point i think on the remaining part of the products, whether it is max, iphones, or even ipads, the existing layout and the existing sort of structure from a distribution perspective works well but that said, when we look at the vision pro Going Forward, remember, it is a 3500 price point. Thats a really high bar for consumers to spend on the device where there is no killer app at this point were thinking about it from a supply chain perspective were hearing 100,000 units being built this year. Thats really small, less than 2 billion of revenue. At some point, if they take the price points down and increase distribution from the apple store perspective, even if it is a 1500 device, remember, very high end iphones with the most capacity, one terabyte of storage, only sell a couple Million Units per year i think the consumer has some difficulty absorbing that high price point without really a killer app right now. Yeah. Keep it on cnbc all day and overtime 4 00 p. M. Eastern, well break the numbers. Thank you. Thank you for having me coming up, reaction to our interview with senator joe manchin and the fitch downgrade from two former senators and you can check out the futures here as well you can see the dow set to open down more than 40 points welcome back to squawk box. Check out shares of wayfair, jumping 13 . Earnings coming in at adjusted 21 cents a share street was expecting a loss of 74 cents a share revenue also topping estimates at 3. 17 billion gross margin, active customers also topping estimates so, big rise this morning. Almost 14 really now if you look at that stock. Still to come, a lot more on squawk. Well talk about the erosion of governance, Fitch Ratings citing instability. We heard from senator joe manchin. Up next, reaction to that interview from two former senators about the political blame game and wall streets unease with d. C. Dysfunction squawk box returns after this. What if you could make analyzing a big banks data. No big deal . Go on. Well, what if you partner with ibm and red hat, use a hybrid Cloud Solution to connect data across clouds, then analyze all that data with watson. Okay, but this needs to meet our. Security standards . Yup. Compliance standards . Mmhmm. So they get the insights they need. Yup. In real time. Check. To make quick decisions . Check. Aaaand check. Thats the solution ibm and a global bank created. What will you create . Ibm. Lets create. The fitch downgrade of the u. S. Longterm Credit Rating drawing sharp reaction from West Virginia senator joe manchin he spoke with us earlier this morning on squawk. We can see this for the last 20 years, so when you look at 21 years that we have spent more than we have taken in, you can blame whoever you want to, starting with george w. Bush, up to present, democrats and republicans are guilty and we have got to fix this. And were not taking it seriously. So i welcome the basically the news that fitch has given us to get our governance, our financial house in order and joining us right now is former u. S. Senator pat toomey and former u. S. Senator heidi heitkamp, a cnbc contributor good morning to you both senator toomey, im so curious about your reaction to the fitch downgrade. Im sure you, like so many others, youve been ringing the bell on this for a long time the question is do you think the downgrade was right . Well, andrew, thank you for having me. From a technical point of view, no, right. There is no increase in the likelihood that the u. S. Government is going to miss a debt payment we borrow money in our own native currency, thats not going to happen. But the Bigger Picture fitch has exactly right. We are on an unsustainable fiscal path. The ultimate consequence probably isnt a missed treasury payment, but it is probably a disastrous run of inflation when we try to monetize the debt we cant afford so im grateful that fitch has put a spotlight and is forcing the discussion about this runaway debt that we have been accumulating and ill tell you, it is going to take two things to deal with this it is going to take president ial leadership and it is going to take divided government. And thats why it has been particularly just tragic and disastrous that with recent administrations we have had divided government, but had no president ial leadership and we havent had a consensus to deal with this. But this is a reminder that we are on an unsustainable path so, heidi, what do you think you do about this . The question that i asked joe manchin earlier, which is you have a public that wants to keep spending we can talk about this we can have these conversations on tv. People can wring their hands but the truth is in this add society that everybody wants something now, that ultimately is the problem well, if you look at where our debt and deficit ranks in voting issues, its not there. You can talk about divided government, you can talk about a president , but until voters start punishing politicians who arent paying attention, we are not going to get results we can talk about leadership no one has a plan for fixing this because no one wants to stick their neck out the last time we had a politician with a plan was paul ryan and hes no longer in politics you think about this, the democrats dont want to admit that we have an entitlement problem thats going to lead to busting the budget as we get older, we baby boomers the republicans have signed pledges never to raise taxes you have this impasse thats political and you have voters who say give me more, like you said said, andrew, give me more and i dont want to pay something because someone else is getting something and i should get some, too theres no sense of sacrifice when you look at the budget and budget controls. Senator, toomey, rather than throw up our hands, which is what weve been doing for a long time, what do do yoyou do about . I think the voting public is beginning to focus on this lets not suggest this is all equal on both sides of the aisle or both sides of this equation the fact is spending has surged massively. Revenue to the federal government has grown but it hasnt kept up way back in the barack Obama Administration, spending was about 21 of gdp for most of those years. Its at 25 now. Under obama revenue was more like 17 1 2 of gdp. Its at 19 now, its gone up you cant sustain the 6 percentage point of gdp worth of deficits because of the way it adds to this heres what i think is very encouraging. Increasing numbers of republicans have made a big issue of getting spending under control, finally doing something. You saw this challenge that Speaker Mccarthy had much of the issues were focused on fiscal discipline, taking Discretionary Spending back to last year, for instance. Thats a beginning sign that maybe there is some interest on the part of at least some voters and its manifesting itself in congress that is, i agree with heidi, we will need that pressure from voters it does seem whenever somebody wants to limit spending, they want to limit spending on things the other party likes more than they do. Isnt whats really called for here some innovation in politics it seems like in the age of data and the internet, politicians have gotten better at reacting but what about shaping a narrative and how to get voters to care about this in a way that builds Political Capital that can be expended to actually fix the situation. Its hard but it seems like maybe there are narrow times when you get a politician thats able to figure that out. Well, let me tell you, all of the groups, the inside are groups, the committee for responsible budget, which i am part of, you know, the peterson institute, they all talk in washington weve got to take this message out to the people and really explain. And one of the big problems that we have is governors will pat themselves on the back saying we have a balanced budget, why doesnt the federal government the whole while the 30 to 40 of their spending is federal spending weve got to be honest about this budget, honest as politician about the longterm consequences to our kids mccarthy was held hostage because not in my back yard, youre not going to cut a program in my back yard. So there has to be an agreement of mutual sacrifice. When you get to that, it runs against political reality where you want to say youre cutting medicare and medicaid and on the other side theyre saying youre raising taxes, then we get the political unwillingness to address this on a bipartisan basis. And i want to respond to pats point. 25 of this debt was run up during the socalled greatest economy ever in the trump years. So lets not be too quick to point the finger at democrats. This is an equal opportunity problem. I seem to remember there was a bit of a pandemic that occurred during several of those years. And there was its dramatically expanded the size of government and its meant to stay that i will say at least Republican Voters are raising this issue consistently the amount of spending, the amount of debt and theyre seeing the manifestation of the problem, inflation, higher Interest Rate who in the republican primary has forwarded a plan to balance the budget so that we can actually see a Debt Reduction eventually you will hear this in the debate coming up in august you will hear a significant discussion about this from republican candidates. But i would can you what democrat in congress is willing to cut spending on any Welfare Program . It doesnt happen. So weve got work to do. Senators, we need to thank both of you for this hopefully well get there one of these days i dont know when but well try. Appreciate it. Thank you again. Thank you thank you coming up Warren Buffetts reaction to the fitch downgrade and much more with Walter Isaacson a quick check on futures you can see the dow actually now looking to perhaps open lower, about 60 points. A were in the mid 40s aboutn hour ago youre watching squawk box on cnbc well be right back. Ch the game today . hero fan uh, yea. I have to watch my neighbors nfl sunday ticket. josh allen its not your best plan. But you know what is . Myplan from verizon. Switch now and theyll give you nfl sunday ticket from youtubetv, on them. hero fan this plan is amazing josh allen another amazing plan, backing away from here very slowly. fan 1 that was josh allen. fan 2 mmhm. vo for a limited time get nfl sunday ticket from youtubetv on us. A 449 value. Plus, get a free Samsung Galaxy s23. Only on verizon. Good morning futures point to more losses for stocks a slump brought on after the downgrade. And jamie dimon and West Virginia senator joe manchin weighing in. Weve got to fix this were not taking it seriously so i welcome basically the news that fitch has given us. And its the final two fangs, apple and amazon reporting tonight. Well of course get you ready for the numbers as the final hour of squawk box begins right now. Good morning, everybody. Welcome back to squawk box here on cnbc im becky quick along with Andrew Ross Sorkin and john forte. Yesterday you did see a down day with the markets the s p was down by 1. 4 thats the first time in 47 or 48 sessions it broke a 47session winning streak of never being below 1 , losses of more than 1 we saw that changed yesterday. Nasdaq was off by even more, down about 2. 2 , and this was all around what happened with fitchs downgrade of the u. S. Debt you can see this morning there are some red arrows once again dow futures by 57, nasdaq off 56, the s p down by close to 12. Weve been watching yields and you didnt see much reaction in treasury yields. They were actually a little higher a little lower which meant that people were buying treasuries at that point we have seen treasuries higher this morning they closed higher yesterday, the 10year 4. 183 , the 2year 4. 89 probably worth pointing out yesterday we got the adp jobs reports and it showed jobs were much stronger than anticipated and that leaves questions about what well hear tomorrow from the fed and whether theyll raise rates once again and we did hear from Warren Buffett about the fitch Credit Ratings. He says hes not worried about it and not changing anything that berkshire is doing as a result he said berkshire bought 10 billion in u. S. Treasuries last money and the only question for next monday is whether we will buy 10 billion in 3month or 6month tbills. He said thats the decision they make every week and have been doing for quite a while. Though he did say fitch brought up some good points and has concerns about whats going on in washington. He said there are some things people shouldnt worry about and this is one. Not to say that the concerns raised by fitch arent valid he said he doesnt agree with everything the federal government is doing right now but it doesnt change how he sees u. S. Treasuries and the dollar and the dollar is the reserve currency of the world and Everybody Knows it this is very similar to what we heard from jamie dimon yesterday. Tomorrow well hear from Steve Schwarzman, blackstones ceo and West Virginia senator joe manchin, heres what he had to say theres a lot of people that understand this is a fiscal cliff and were getting closer and closer this warning shot by fitch is this i dont think it will take 12 years for moody to step up to the plate. Thats awful to say. They dont theyre the ones watching and evaluating we dont even do Risk Management we do nothing at all until we hit the fiscal cliff every year. Manchin saying theres plenty of blame to go around for democrats and republicans for the out of control spending. So the che said the country is t taking its spending problem seriously, andrew. Another wall street heavyweight sounding off on the downgrade. Leslie picker joins us with highlights from her interview with jamie dimon good morning good morning. Dimon saying the fitch decision to downgrade the u. S. Rating, quote, doesnt matter that much. I questioned him on his core reaction behind the move and he told me washington should get rid of the debt veceiling completely he believes businesses need certainty and he thinks there been a lack of it on the regulatory front we need certainty, policy the stress test clear liver didnt work. We do a 100 week and they do one. Im far more worried about the name of that stress test we should be having conversations about what were worried about. Theres almost none of that. Theres lack of transparency a lot of pop in ivory towers with a lot of opinions theyve never been in the real world. Id like to see them get if the boxing ring one day. He was also critical of regulators handling of Silicon Valley banks collapse i also think we made huge mistakes on Silicon Valley bank. We created a crisis that maybe didnt have to happen. They should be asking a lot of questions like themselves. Whenever we make a mistake we spend a lot of time on what i call the after action report, the postmortem what did we do wrong we know were going to make mistake. I dont think we should treat everybody mistake about a violation are morality but i think we should be doing a little soul searching. And he was here in montana, guys it a beautiful shot there, we should say what was your sense of the political elements in all of this did you get any sense from jamie dimon how sort of how he thinks about that piece of it because as weve been talking to all sorts of folks, there is unfortunately, i wish it was apolitical yeah, he seemed to think it was also apolitical, this idea that fitch was downgrading he didnt think it mattered that much he said the markets werent essentially reacting too much to this as well and thats indicative of something that may have been, as many people have said on air, kind of too late or kind of questioning the timing but i dont think he had any kind of political, you know, theory behind the move at all. No, more of a theory of how do you actually get your fiscal house in order when the politics are so difficult maybe thats where i was going with that. Oh, i see well, he was very, very, very passionate about the Regulatory Environment and whats that doing for growth and he believes the Economic Growth in this country, both for large and Small Businesses would be much, much stronger if there werent such an overlay for bureaucracy, red tape, things of that nature. He felt very strongly about that leslie picker in bozeman, montana this morning, beautiful shot again thank you so very, very much john coming up, as wall street contemplates the possibility of a soft landing, how are ceos feeling about this economy wellyou ve, ha new data from the Conference Board next. Squawk box will be right back. Help you find and unlock opportunities in the market. E trade from Morgan Stanley. With powerful, easytouse tools, power e trade makes complex trading easier. React to fastmoving markets with dynamic charting and a futures ladder that lets you place, flatten, or reverse orders so you wont miss an opportunity. E trade from Morgan Stanley the two most important things in golf are your swing and your style. Dicks Sporting Goods has everything you need to upgrade both. Find toprated drivers and irons from callaway, taylormade, titleist and ping. Tour balls from your favorite brands. And the most dapper styles from travismathew and walter hagen to calia and lady hagen. You handsome devil. Select the best golf shoes like footjoy, nike and more. And get back on the course with onehour pick up. Look good and play great with gear from dicks Sporting Goods. Ah, these bills are crazy. She has no idea shes sitting on a goldmine. Well she doesnt know that if she owns a Life Insurance policy of 100,000 or more she can sell all or part of it to coventry for cash. Even a term policy. Even a term policy . Even a term policy find out if youre sitting on a goldmine. Call Coventry Direct today at the number on your screen, or visit coventrydirect. Com. Sleepovers just arent what they used to be. A house full of screens . Basically no hiccups . You guys have no idea how good youve got it. How old are you . Like, 80 . Back in my day, it was scary stories and flashlights. We dont get scared. Oh, really . Mom can see your search history. Thats what i thought. Introducing the next generation 10g network. Only from xfinity. Every business thats why comcast business de is launching theal. Mobile made free event. With our business internet, new and existing customers can get one year of unlimited mobile for free. Its our best internet. Powered by the next generation 10g network and with 99. 9 reliability. Plus one line of free mobile for an entire year. Its the mobile made free eventhappening now. Get started for just 49. 99 a month. Plus, ask how to get one free line of unlimited mobile. Comcast business, powering possibilities. Welcome back to squawk a new survey that executives are still cautious about the state of the economy i want to bring in dana peterson, chief economist with the Conference Board good morning to you. Good morning. So what do you think of that . Tell us about the survey and tell us about how you think the ceos are really thinking sure, this is a survey of over 100, close to 150 executives from fortune 500 companies, and they are less pessimistic than they were the gauge moved from 42 to 48. 48 is just below 50 and 50 is a threshold where theyre neutral on the outlook fewer expect theres going to be a recession Going Forward but they still think that something bad is happening around the corner and notably they are positioning to prepare for that when it comes to capex and so when you think about that confidence in terms of recession, nonrecession, where do they land well, theyre still landing in the recession category but they still think its going to be short, its going to being shallow. The interesting thing is theyre still really hyped up about the labor market theyre still saying theyre having difficulty finding qualified workers. Theyre still planning to raise wages and still planning to hire roughly 40 said theyre going to continue to hire and 40 said theyre holding on to workers. Explain the recession piece when we talk to ceos on our broadcast, most of them say they dont feel a recession, they dont really see it but they think maybe. I dont know if you think its like a group think because they just think its possible or because they actually see something in their business that suggests to them there could be a problem. I think its going to be very industry specific. Some industries are already in recession. The tech sector has been dialing back on workers. Not all of them are necessarily collapsing in terms of earnings but theyre still looking a the at a very dim outlook with respect to demands youre seeing strains in the Residential Construction sectors. I think it really depends on who you are as the ceo going back to the labor issue, though, they see no signs of wage growth slowing exactly most of them are still anticipating theyre going to need to raise wages by more than 3 the good news is that fewer think its going to be more than 5 , but still in all, rising wages is not the direction the fed wants to see Wage Inflation going because it feeds through to consumer inflation and makes their job harder are you surprised at how strong things have held up just look at that adp report yesterday. Youd think were going to have a hot number tomorrow. Well, i think well, adp and the payrolls report are very different subsets of surveys and in terms of how theyre measured so i wouldnt compare one to the other. But i still think were going to see healthy gains in payrolls because businesses are still hiring, especially those businesses that need workers to come in in person, such as manufacturing and construction, especially on Industrial Construction and Infrastructure Construction and we also see that there are businesses that are trying to catch up in terms of finding labor such as health care and leisure and hospitality. So were probably going to continue to see gains. Youre not going to see the labor market slow materially until gdp starts to slow. That was going to be my last question blackman with a fascinating twitter thread saying he thinks inflation is going to hold at 3 , no way it will go down to 2 and its a great hedge in terms of what thee thinks about treasuries where do you think inflation is two months from now . I athink 2 1 2 the big issue is rents rents are going to come off soon thats going to be what causes inflation to come down even more slowly, as well as potential for continued consumer demand being healthy. Dana, i want to thank you for joining us this morning. Appreciate it. Thank you becky andrew, thanks. When we come back, Walter Isaacson will sit down with us to talk media earnings and a. I stay tuned youre watching squawk box and this is cnbc and deliver solutions that meet complex needs. Young lady who was, mid 30s, couple of kids, recently went through a divorce. She had a lot of questions when she came in. I watched my mother go through being a single mom. At the end of the day, my mom raised three children, including myself. And so once the client knew that she was heard. We were able to help her move forward. Your client wont care how much you know until they know how much you care. vo verizon Small Business days are coming. Until they know from august 7th to the 13th. Now is the time to partner with our experts. Get started today with verizon business. Its your business. Its your verizon. Major averages took a dive yesterday at fitch cut the u. S. Credit rating. So is this the sign of a sentiment shift and a market top approaching . John f jon, do you have an opinion on this fitch makes a sobering argument for the rating cut. The government is putting too much spending on the credit card and with Interest Rates higher, payments have shot higher, too democrats and republicans would rather snipe at each other than solve the problem as senator manchin mentioned. With the economy slowing, that could drive the u. S. Into an economic rut heres why equities could get in a rut. Were talking politics stocks dropped a bit and higher for a decade with one of the most impressive bull markets on record American Companies had an innovation advantage, access to Global Markets and a resilient economy here at home we can figure out the politics theres a reason why jamie dimon called the rating cut ridiculous yesterday and Warren Buffett said it doesnt matter, stocks will be fine the ratings cut isnt the only sign of trouble for the markets. What else is happening that is true. On the other hand, the fitch rating cut is a signaling of a market top ahead and its not the only one exactly two years ago my debate was whether robinhood was worth 70 bucks a share we were at meme stock mania. A few weeks after that, the rally fell apart and now robin hood is around 12 a share monday tupperware was up 20 and yesterday it was down over 30. Stocks have been moving along with a. I. And a positive Consumer Credit and student loan payments will drag on the consumers and suddenly it doesnt pay for consumers to gamble. The difference between the s ps yield and the yield on government bonds is now at a 20year low. Whether youre the government or a consumer, the enough mandate is risk less, spend less and thats why the market top is imminent, becky. Youre not calling the whole stock market a peoplememe markee you . No, im saying in that market, Everything Else has run about as far as it can thats part of that argument anyway go ahead. This is not a function of the fitch Credit Rating downgrade that you have these views. This is a sort of Broader Market perspective around other credit crunches that i think have very little to do with the u. S. Treasury itself. Am i wrong the argument on that side is that risk less, spend less is the ethos that fitch is coming from and that isnt just a government issue, its an issue for consumers, its an issue for businesses, so its just time for this feeling to kind of flow through the market and so it makes sense. It does signal a market top. Thats the one hand anyway which one do you have more faith in ah, i started out on the side of the fitch rating cut matters and does signal a market top, but the more i wrote the other side, i went back to the middle. If you are unsure, the other hand newsletter can help you you can weigh in on linked in. Last weeks question was elon musks rebrand twitter to x, is it a master stroke or mistake . 70 said mistake and 30 said masterstroke its almost like a Benjamin Franklin, write down both sides of the argument every time you do it. Every side. My feelings tend to shift as a right it jon thank you yes and jon is staying here yes take a look at what is going on with Warner Brothers this morning. Were going to get out to julia bore boorstin the stock getting a boost from the announcement of a tender offer to pay down up to 2. 7 billion in debt the ceo kicking off the call with this news, noting that they have already paid off 9 billion in debt since that companys merger the strength in the quarter was in its Free Cash Flow, which came in at 1. 7 billion. Thats nearly a billion dollars more than the year earlier quarter. Its also ahead of analyst projections of 886 million they expect to have that same Free Cash Flow in the Third Quarter and its adjusted ebidta did beat expectations. The companys revenues 10. 36 billion fell short of expectations the direct to consumer subscriber number missed estimates and also fell nearly 2 million from the end of the First Quarter amid the rebrand in combination with the streaming service into the new max streaming offer. On the up side, the loss to the streaming division were less than expected, 3 million nearly flat compared to expectations of nearly 300 million loss. The transition to max is reported to have gone exceedingly well and he noted early signs of stronger engagement and he also said they have the capability to deliver Live Programming and they see opportunity in the streaming space for sports so maybe some competition there for espn plus. And he mentioned the potential around their video game business saying thats a real differentiator julia, its nice to see you in new york. I was going to say Free Cash Flow, thats the holy grail in the Media Business at the moment theres very few other companies having that right now. My question on the sports piece was is your sense when it comes to the nba contract, for example, and some of the other deals that theyre making that they would then put that on to this platform and thats how they would make the economics of it work and would that work . Well, look, turner obviously and the Warner Brothers discovery assets obviously have a lot of these sports rights and turner has the relationship with the nba. Those are the next big rounds of rights negotiations that are on the table. I think what hes noting is if they wanted to bring streaming rights, if they had the capability to bring some of those streaming games over to their new max platform, they could. The question now is whats going to make these streaming platforms really competitive, right . So if everyone is rebundling, whats going to make it even more compelling . Everyone obviously really cares about sports maybe hes hinting when theyre doing their next round of negotiations, theyre going to have the flexibility in there to stream sport as well as offering it on tv, which seems to be what espn is looking at as well julia boorstin, thank you when we come back, well talk jobless claims and the latest fed decision as we get ready for tomorrows latest employment number and you can follow us on your favorite app and listen any time well be right back. Youre watching cnbc powering innovation with access to capital. Powering critical decisions with precise data and insights. Powering seamless execution in evolving markets. We deliver our entire global bank to power new possibilities for you. Barclays corporate and investment bank. Powering possible. vo verizon Small Business days are coming. From august 7th to the 13th. Now is the time to partner with our experts. Get started today with verizon business. Its your business. Its your verizon. Welfar. Welcome back to squawk box. S p 500 off about 17 our good friend Rick Santelli is standing by at the cme in chicago ahead of those numbers what are you thinking about, rick, this morning, maybe that downgrade and all the reaction weve been getting so far . Well, we learn a lot today. Billionaires definitely arent worried about it i personally think that anybody who has any kids or grandkids ought to be much more concerned. Im more in the manchin camp i dont disagree with some of the notions what they did, fitch in particular, is going to have any Lasting Impact potentially in the markets considering all the other large economies have the same problem we do, houston. The globe is just knee deep in debt its going to rust all the economies, growth will be stuck at 2 . Listen, we have an issue here. Whether you agree or not with fitch, i am thumbs up to anybody who brings out the problem that we have a spending problem, a big one. And now the datas hitting the wires. Initial jobless claims of course is expected to be fairly close to last week its productivity that seems to be bothering many with stayathome workers that is a stellar jump from the expectations of 2. 2 and in the rear view mirror minus 2. 1 . 3. 7 is the best number going all the way back to pre well, right around covid, september of 20 a few months after covid hit, we jumped up to 6. 5 it was right around covid we had productivity at 17. 3 because of distortions of course. And if we look at unit labor costs and thats benchmarked against productivity, unit labor costs at 1. 6 is also very good news, very good news 1. 6 would be the smallest monthovermonth gain since the last quarter of last year. If you look at Interest Rates of course we see that Interest Rates are up everywhere across the curve. But truly almost near unchanged in short maturities. Its the long maturities going wild, 227,000, by the way, on initial claims very close to expectations no significant revisions 221,000, that will make that officially up 6,000, still very well behaved under the psychological level of 2. 5 . We havent been above 2. 5 since mid june continuing claims darn close to expectation, right smack dab 1,700,000 is the first time we had that handle since july after losing the handle we had after benchmark revisions. Those numbers were all in april. Basically these are well behaved, which explains why Interest Rates arent going down is potentially going to continue to pressure indices like the nasdaq andrew, what did you think about the downgrade, especially as a father we have to look our kids in the eye. What a great legacy. What are we going to do . Basically empty the kitchen, empty the fridge, empty the freezer. What are we going to give thieves kids, an empty ice box look, im with you in that regard ive always wanted to have our budget balanced. Theres finger pointing thats the only thing that matters. Its a conundrum in this country as we got to figure out how do we do it and figure out a political system where theres incentives for both sides to actually do it and do it right thats the great conundrum the truth is that most americans its about what we think. Its about the fact that the country cannot prosper when were rusting with the corrosion of debt. I dont disagree with you, but i think the truth is that you and i may be in a different position than a lot of other people who want more than they give whats the difference we have i want to know the difference. I dont think that you and i have a difference. Im suggesting theres a larger problem in america, which is that we have a lot of people who effectively want, want, want and they dont want to pay thats what weve had. Thats what it is. You know what, thats a great place to stop. I totally agree. Meantime, lets get oaf to Steve Liesman who joins us with his take on maybe the fitch downd downgrade. Steve. Yeah, i have a different view i dont know where that point is where we start to worryabout the debt maybe were there now. I will point out that every person thats complained about the debt being too high, you can go back five or ten years and they were talking about the prior levels of debt creating some huge issue that has not yet materialized i would just be a little humble. We did spend a lot during the pandemic, probably too much, created some inflation that inflation is coming off now. There was a lot of spending by the government, some of that Government Spending is supposed to come off. You remember we had Robert Kaplan on not too long ago, talked about there is a decline in Government Spending happening. Well see. Im a little less alarmist about this because we have no actual knowledge at all about where that limit is, especially for the country that is the reserve currency of the world. And youre right, let me just get to some comments by the richmond federal president who says that its plausible that inflation normalizes soon and the economy dodges a downturn. He does say further slowing is almost certainly or surely on the horizon. He is somewhat optimistic on outlook saying recession hasnt happened yet and it would be mild if it comes he says businesses still see healthy demand from customers. Thats one part. Manufacturers and construction workers are seeing a boost from coming government investments. Theyre also the first ones to be fired usually but theyve been pretty much in demand and consumers are continuing spend funded by excess pandemic savings. Youve had higher stock and housing prices he said most recessions come suddenly brought on by unexpected shocks. That shock may have been the fed rate increases or maybe not. Efforts to fight inflation, croat quote, have pushed Many Industries into recession. He think if recession occurs if will be less severe than recent downturns. The market has been thoughtful but hes looking at how businesses have reacted. Its been pretty good to listen to barkin about his outlook here hes mildly optimistic or cautiously optimistic i think is the best way to put it i think hes worth listening to. Thank you and joining us now is the founder and president of macro policy perspectives. Welcome. So your reaction, first of all, julia, to these numbers . Yeah, im going to go with steves a little bit more optimistic take. Weve got a surge in productivity and this is something that we thought would be a theme this year yes, we have higher rates from the fed, yes, we have a slowing economy, but meanwhile we have this offset from better functioning. The economy is functioning better better supply change fixtures and dividends for companies. Thats the secret sauce for noninflationary growth. At least for the near term i think were set for a pretty positive economy and its less inflationary and that allows the fed to not keep ratcheting higher and we can have the possibility of a soft landing looks more tangible than it did four months ago. For people who are looking at the numbers right now and maybe at the economy in general, this fitch rating downgrade on u. S. Long term, it doesnt matter i guess you agree but from the broader perspective, at what point does this load of debt start to matter . Yeah, its a great question and the unfortunate answer is it doesnt have to do with numbers like debt to gdp you can look at japan, their numbers are much higher. But then you can look at countries, emerging Market Countries that have much lower debt to gdp and much more inflation and currency problems. So theres no specific number that we can point to and say thats where the problem lies. It more about trust and confidence in the economy, in the institutions that manage money, the fed, the treasury, the u. S. Government. That was something that fitch cited for governance, our sort of dancing around the debt ceiling problem is one reason for the downgrade. Im very sympathetic to that as a risk we just dont know when that accumulates into, you know, an erosion of confidence in the dollar as rick pointed out, whats the alternative . Julia, when you say japan, i dont feel better though i mean, is that our future i mean, japan has a very high debt to gdp, but theyve grown in per capita terms. They have very high standards of living not fantastic but okay productivity growth. You know, its not the worst case scenario. I think when we talk about high debt to gdp julia, isnt part of it debt to gdp as just compared to ourselves . By the year 2029, the cdo says were going to be at debt to gdp levels that are higher than we were at world war ii i think its about trajectories and comparing the United States to itself over time. I hear you and it is a risk i certainly would not downplay taking on ever increasing amounts of debts doesnt pose some risk to the stability of the dollar, to the trust in the u. S. Dollar and, therefore, the fiscal tradeoff and inflationary pressures it absolutely does all im sapying is theres not one magic number its abroader story about the functioning of our economy, the productivity of our economy, the stability of our governance and our institutions thats what i worry about. All right julia, thanks. Up next, we have author, media watch erer and professor Walter Isaacson. Plus metas digital news battle in canada and elon musks rocky relationship with the city of san francisco. Teiee morrow an exclusiv inrvw with blackstone ceo Steve Schwarzman stay tuned you are watching squawk box and this is cnbc welcome back, everybody. The big media mover of morning, Warner Brothers discovery, the Company Reported a bigger than expected loss and a bigger drop in subscribers that some had forecast, but there was a lot of positive actually the stock was up by 6 now its relatively flat Free Cash Flow was up better than expected and subscriber revenue did grow sequentially. Maybe theyre making comments in the Conference Call now. Stock is flat at the moment. Pu but we have with us Walter Isaacson, a Tulane University professor, a cnbc contributor, an author and his latest biography is on elon musk. A lot of anticipation ahead of that release great to see you. Lets talk about Warner Brothers discovery, whats happened at cnn, cutting costs to get things back in order. What do you see . David is a great executive and hes clearly created Free Cash Flow, which is good i think youve got a few things happening, one of which is his move into streaming, whether its espn plus, whether its zaslav saying were going to bible to stream live sports. And doing this at a time when the entire industry is under siege. It is a mess, the industry, and then you add the strike and a. I. And these are huge forces these are tidal waves hitting. And so its really going to be interesting to see how disney, Warner Brothers, discovery and others can navigate. Bob iger saying anythings up for sale potentially you know, it was in the old days, you figure i have the content, i have the distribution platform, were going to make the pieces fit now none of the pieces fit are you glad youre not at cnn right now trying to navigate this yeah, i am actually its the broader issue we talked about, whether its the fitch downgrade or what was said about both sides is weve become more po polarized in the media its do the gdp to debt ratio, its that we have a dysfunction in our politics. Thats the underlying problem. Well, that starts even with cable news, social media, whether its from what used to be twitter to the throw cable news networks. It tends to fracture us and make us have different sets of facts, not just opinions. I dont know what the cure is for that how do you put things back together you know, we americans always think, okay, heres a problem so lets figure out what the solution is. Some problems dont have a solution right away and one of them is the growing partisanship theres about 20 things you can do, everything from worrying about gerrymandering to trying to create media that is, to get back to jon, both sides now were going to look. You said Benjamin Franklin did that ledger. That was a great thing he did and he did it in his journalism. I wrote about ben franklin once. Throughout his life, it was like heres one side, heres the other, lets do the calculation. I city still think most americans come down on the side of not necessarily being far right or far left. They look at issues and decide based on issue by issue. Absolutely. And most of us try to have open minds. Ive changed my mind on so many Different Things over the course of political debate, but the technology of a fractured media where you want to grab a hard core, whether its on your corner of the bloggosphere tend to drive people in echo chambers and those of us like most americans and trying to see all sides, we dont have a natural base now if you go back to cnn, its hard right now because its all trump all the time its hard for them to get off of that it would be useful to see if you could try to do a very high value information, nonpartisan, nonideological news and that would appeal to 60 of us. I think thats what they started off trying to do theres an addiction to trump. I hate to say it when i first went to cnn, first day i was there, Christiane Amanpour was doing a great series about women in the muslim world and they say we have to cut to a car chase i said no. Two other networks did and they showed me the numbers, theres an addiction theres no better car race than trump. You think most americans are living in some kind of middle and that, you know, were all very close id like to think that i tell myself that but then i look at the polls and i see its not just the addiction that we have to the ratings or trump or this or that, its it really is dem on when you have somebody like trump polling better than the current president. Even if you think the something. It cant be that were all in the middle, because were not. Well, yeah, and im going to give becky and me credit both for having said that the majority of people are openminded and goodhearted i think what youre seeing is that we have become more polarized, and its happening fast, and thats what the fitch Rating Agency said thats what youre seeing in polls. And everything is pushing us into our corner of our, you know, tribal thoughts, our ideological thoughts, and so it is getting worse i still maybe im very optimistic feel that you have at least im sure you could get 60 of the people in this country, if you sat them down calmly, to agree on 60 of the things about 60 of the issues i agree with that just because when i talk to people, i can talk to people of all persuasions, and i find that we agree on a lot of things. Maybe were in an echo chamber, though. Maybe were talking to people and saying, we could fix spending if we just sorry, john no, lets talk a. I. For a minute back to the media point. It seems to me that part of whats happening here is the powers that be are trying to use a. I. To flood the space with content, and thats lowering the value of some humancreated content, including that from creators who many of whom are on strike right now, whether youre an actor or a writer. Is that perhaps whats happening . In a way, it happened with the internet with the long tail and all the trash content that went out and killed the advertising model for so many print publications you make two good points. One is that a. I. Will scrape information from all over the place. Let me take the elon musk book im writing. Comes out in september what happens if the very day it comes out, you know, various a. I. Scrapes up the whole book, is able to tell people they can ask whatever they want, and all of that information ive spent three years reporting can just be used and by the way, may be based on different a. I. S in the future, different algorithms for those who love koelon musk, those who hate elon musk, left, right. First of all, i dont get ill be fine, but content creators do not get compensated if a. I. Companies take all the movies they ever did, all the books they ever wrote, and serve it up that way and then secondly, to get to your point, if you got an algorithm thats going to try to engage, that means it will try to enrage, and it means that it will add to the polarization theres the problem with the polarization these algorithms are all designed to go after our basest emotions and get people riled up on those levels. How is that not going to get worse under a. I. You said, how do we solve this problem thats why sometimes im saying, problems arent always easily solvable if you can have both a. I. And then algorithms that existed before a. I. That just know how to enrage you and get you to repost something, that is going to add to the polarization what do you do i dont think government regulation is going to fix it. I think maybe, you know, doing good business, having advertisers, having valuable subscribers that will pay for your content will push some incentive for highvalue content, but thats the only hope i would have. Thats a longer discussion. Not sure i agree with it, because i dont know that the advertisers or the companies you asked me for some solution theyre playing us out right now. Lets come back and have a longer discussion. Thanks, walter jon, good to see you. Still to come, an amazon earnings preview you dont want to miss. Stay tuned youre watching squawk box. Thats what you get from the Morgan Stanley client experience. You get listening more than talking, and a personalized plan built on insights and innovative technology. You get grit, vision, and the creativity to guide you through a changing world. You got this. Lets go. Gobble gobble. Ive seen bigger legs on a turkey rude. Who are you . Im an investor in a fund that helps advance innovative sports tech like this Smart Fitness mirror. Im also mr. Leg day. 1989 anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq100 innovations. I go through a lot of pants. Before investing carefully read and consider Fund Investment objectives, risks, charges, expenses and more in prospectus at invesco. Com. Welcome back to squawk box. The final two f. A. N. G. Stocks report Quarterly Earnings tonight. Were going to be hearing from apple and amazon nick jones, good morning to you. Theres a lot to talk about when it comes to amazon we can break the company into a multitude of pieces. What are you looking for, specifically i think at the end of the quarter, were really looking for aws to go around 9 to 11 and then the q3 guidance details be around 8 or 9 . Thats the focus after microsoft got softer growth than expected. Aws is kind of front and center. Secondary, were really looking at ecommerce sales. The consumer has been resilient. Will that continue to be resilient . The third focus is profit margins. Can they utilize their capacity, and can aws start expanding margins again . Those are the three items were squarely focused on heading into the print later. Do you want to own this stock into the print at 128 i do. I do i think amazons got a long runway we saw their summit last week. Theyre putting a lot of integrations into large language models, a. I. , Machine Learning we think amazons a longterm winner we like it here. You just mentioned a. I. You talked about aws the big concern, of course, has been how much market share is captured by microsoft in this battle between aws and i dont know where you want to put google or alphabet in that game. But how do you see it . And given some of the things that we have heard from amazon, how far along do you think they really are so, its i think theyve been working on this for quite a while. I think kind of the, you know, the hype were seeing now is because consumers or average people have really been able to utilize generative a. I we think theyre squarely in competition for budget for this type of solution were still incredibly early in kind of the cloud life cycle, so we think it will be very competitive for years to come, and amazon will continue making investments like we saw at the summit last week and then lastly, advertising, which has been a growing part of their business, but theres been real questions about advertising, just the weakness of advertising broadly across the media, how do you think that shakes out advertising for amazon has been a bright spot we like that business ask with advertisers increasingly focused on retail media, amazon is really well positioned to capture that budget Going Forward. We think investors are not paying enough attention to how big the numbers could be its the higher margin than aws. If this grows, it could deliver strong profits nick, i want to thank you for joining us this morning. We will be watching amazons number later this afternoon, and of course, well be watching apple as well. I imagine both of those topics will be the hot ones for us tomorrow morning a quick final check on the markets. Take a look at where things stand right now. Were in the red dow off about 65 points, nasdaq off about 82 points, the s p 500 off about 15 points, and i dont know if were going to say thats a function of fitch or thats a function of a lot of other things we got the jobs number tomorrow, becky. That will be a biggie we got a lot to do. Join us tomorrow for that number squawk on the street begins right now. Good thursday morning, welcome to squawk on the street, im Carl Quintanilla with jim cramer at post nine of the mark stock exchange. David faber has the morning off. Bond yields still elevated even after reassuring productivity and labor cost data. Our road map begins with Warren Buffett telling cnbc hes not worried about the fitc