Transcripts For CNBC Squawk Alley 20161130

Good wednesday morning. Welcome to squawk alley. Carl quintanilla with Kayla Tausche at post 9, and mark santoli. Donald trump making two key cabinet nominations they morning. Lets get right to our john harwood outside trump tower with all the details. John . Reporter carl, these are two of the big ones. Steve mnunchin has been selected by donald trump to be his nominee for secretary of the treasury. He, of course, is a former Goldman Sachs partner who was the fundraising chief for Donald Trumps campaign. Also, wilbur ross, who is going to be the commerce secretary, billionaire investor, well known to viewers of cnbc, neighborhood of Donald Trumps in florida where he has his marioa lago estate 37 and he moderated the trump economic message in a few ways. Instead of talking about outright scrapping dodd frank, as donald trump did during the campaign, Steve Mnunchin talked about modifying parts of the law that discourage lending. Thats one signal. Secondly, donald trump said during the campaign his goal was 4 Economic Growth. When Steve Mnunchin was asked what was a realistic target, he said 3 to 4 , softer target. Finally, on taxes, Donald Trumps tax plan when scored by all the analysts who took a look at it gave disproportionate benefits to people at the top. Steve mnunchin said, no, were not going to do that. Were going to offset any tax rate cuts for people at the top end by cushing their deductions so that they would not get a net tax cut. There was one other way in which Steve Mnunchin moderated trumps message, and that was when he talked about janet yellen. She, of course, was described as political by donald trump during the campaign. Heres what Steve Mnunchin told us on squawk box this morning. Are you a fan of janet yellen, steven . You know, look, i think shes done a good job at the fed and she should continue to serve out her term . Im not going to comment on whether she should or she shouldnt. Well, she should or shouldnt janet yellen, are you a fan . Well, i think that she dealt with a very difficult situation and did a reasonably good job. She may serve out her term. Would she be nominated . Thats a question for her and the president , not for us. Reporter now, if youre somebody who has been fearing radical changes in Economic Policy from donald trump, and a lot of democrats did, all of those ways in which Steve Mnunchin and wilbur ross expressed a somewhat softer message have to come as some reassurance, carl. Definitely a big day as we watch the transition, john harwood in trump tower. Thank you, john. Along with news out of the trump team, the dow and s p setting new record highs this morning. Oil, of course, inching closer to 50 on news that opec has reached a deal on Production Cuts. For all of this, we turn to mike santoli, talk about closing out november for the fourth year in a row with all three on the up side. Its actually been a rare november in a certain sense, which means we actually went lower in november than we did in october but ended up with a gain. It basically is not the usual pattern. Usually strong novembers historically give way to further followthrough on the up side in december. The issue is the first half of december often not as strong. I think the other thing traders are watching is some measure of trader sentiment, investor sentiment, have gotten happy, theyve chased the rally up here. Seems to me like after we had the rebound following the brexit vote, you had about 8 in three weeks to the up side. Thats what weve had since the intraday lows on election note and then you moderate, go sideways for a while now. The investing piece, though, have been too simple for the month. You have the idea that yields and stocks can rise at the same time that the economy is strengthening, that you should buy health care and financials, because not only will yields be rising, but also there will be this rollback of regulation. But theres been a lot of talk this week about treasury prices bouncing off the 200week average and whether we might have a nearterm treasury bounce and what volatility that could bring. Its interesting. Youre right, kayla. Basically, the thesis has been play checkers, not chess. The obvious stuff you think will happen policywise, just chase that. And yes, youre right, yields are in a zone people say where theyre not yet impinging on equity valuations. Whats interesting is all the news flow on the economy showing that were running pretty high, right . Even today, when youve got incremental news on adp and chicago spending, yeah. All of this says wow, the economy has a head of steam right now. And the incoming treasury secretary most likely saying were going to produce more longterm treasury supply because were going to lengthen the treasury, and were going to grow faster and Inflation Expectations are not a concern. All that stuff not very friendly to bonds, even if we do get a nearterm bid. Everyones wondering if cramers going to get his 40year duration. Well find out. Lets get over to Steve Liesman who has a very important guest. Carl, thank you. I am here with dallas fed president robert kaplan. We were talking second biggest state economy in the country, and like the ninth or tenth Biggest Country in the world, impact on foreign policy. A lot has changed since the election. Stocks are much higher, yields are substantially higher, the dollar has appreciated. The market seems to have changed its outlook since the election. Have you changed your outlook . Ive been saying for two or three months that i thought were at the point we ought to remove some out of accommodation. I felt that way in september, felt that way in november and still feel that way. As we look ahead to 2017, as we continue to make progress on employment and inflation, i would expect we will remove some further amount of accommodation. My question is whether or not youve changed your outlook for growth, for inflation not yet. So, heres why. We were calling for it even before the prospect of new economic policies, 2 plus Economic Growth in 2017, and i believed that were moving toward meeting our 2 inflation objective. Well see how the new policies evolve and develop, and well be analyzing them. But if they help accelerate that, then that will give the fed more operating room, and well have to adjust our stance and our path to future rates accordingly. I want to get to that specifically, but i want to ask this question the market Interest Rates are already higher. And as you say, nothing has happened yet. Do you have to change your outlook to somehow adjust to the ni new realities created by the market . So, youll remember, im someone whos spent the last 30 years in the market, and one thing ive learned, sometimes painfully, is markets move in anticipation of future events, and sometimes they move again, sometimes in a reverse fashion, depending on what actually unfolds. So, no, for me, i focus more on development of economic conditions. If financial conditions change to where they actually foster even better economic conditions, i take that into account. If theres a tightening, take that into account. But no, i dont think the market changes in and of themselves should drive my policy until its demonstrated that theyre actually reflective of changes in underlying economic conditions. Going to throw it to the anchors in just a second. I just want to ask you one more question. You said fed policy could adjust to the fiscal side should adjust to those. Should adjust. Does that mean that if theres a big stimulus package, if theres a big tax cut, that the fed would raise faster than is currently forecast . I dont want to prejudge what we might or might not do, because i dont know exactly whats going to happen. There are some policies that have been discussed that would be stimulative to gdp. There are some policies discussed that may actually retard gdp or diminish it. And i just want to wait and see whats actually enacted and react to that as it unfolds. I dont want to prejudge it, and i think thats a better way to approach this. Kayla tausche has a question for you. Thank you so much, steven. And thanks, mr. Kaplan, for joining us. I want to ask about the dollar, which has been strengthening at a time that our trade relationships have come into closer focus, namely with china, whose currency has been weakening. And theres talk that maybe an accord needs to be reached to put a lid on dollar strength. Whats your view . So, ill speak, again, as someone who represents the 11th district. Texas is the largest exporting state in the country, so obviously, a stronger dollar creates headwinds for our exports. The other impact of the dollar is im very mindful of stabilization going on in emerging markets, particularly china. We saw the First Quarter this year currency in china rapidly depreciated. They had a rapid market selloff, and it transmitted to a global tightening in financial conditio conditions, which if allowed to persist would have slowed the u. S. Economy. So, my comment would be ill stay away from what other parts of the government might do, but i think watching the strength of the dollar needs to be something on my radar, on our radar, and ill be watching it very, very carefully for those two reasons. Mr. Kaplan, its carl. A lot of viewers interested in the effects of wouldbe Infrastructure Program and other kinds of fiscal stimulus. But given where labor is right now and where some believe slack is in labor, is that going to be meaningful to growth, or is it more meaningful to inflation in the long term . Well, well have to wait and see. Ive been someone who has said that we need Economic Policy beyond simply monetary policy. Having said that, whatever policies we adopt, we need to take into account the fact that while were not at full employment, i actually think were making great progress toward reaching full employment, and there is more limited amount of slack. A lot of that is driven by demographics. A key thing going on is our labor force is aging. And whats happening is thats going to go on for the next several years. And as it does, i expect the Labor Participation rate to actually decline further in the next ten years. Our economic policies broadly need to take that into account. So, one of the keys to this, robert, is the idea of potential growth. The new administration talks about ratcheting up growth, potential growth, to 3 to 4 . Is that possible . Ill put it this way, there are two or three big secular drivers that are going on in this country. One is aging demographics here and in most developed countries. Number two is disruption of most industries, globalization and high levels of debt to gdp. Disruption is a factor, but aging demographics is the most significant one. And i think that, ultimately, in order to get much higher levels and sustainable levels of gdp growth, we need to address the size of the workforce and its productivity. That means more open immigration . Ill leave it to policymakers, but the facts are, and our Analysis Shows that if the workforce is declining or demographics are declining, that creates a headwind. So, Vocational Training, improving Educational Attainment, and yes, the size of the workforce are going to be key drivers of future gdp growth. You worked at Goldman Sachs when Steve Mnunchin was there. What can you tell us about the new treasury secretary designee . Ill decline to comment about political appointees other than to say i know steve and got along with him and worked with him for many years. Do you think hell make a good secretary . Hes an outstanding person and ive always thought highly of him. Kayla . As the fed raises Interest Rates, it obviously becomes more expensive for the country to issue and service its debt. As Congress Begins to consider and write new policy, new spending programs, what should it consider when trying to budget for our own interest in this country . I will not be so presumptuous as to advise congress on what they should consider, but i would say that in thinking about it, what i think about is the big secular drivers again. They should think about the workforce and the fact that its impacting the dependency ratio, meaning 30 years ago workers were here, dependents were here. Today its shifting. As we age, there are a diminishing number of workers to support an increasing number of dependents. So the present value of future, unfunded entitlements is now 46 trillion, and u. S. Government debttogdp held by the publics about 76 . That needs to be taken into account in any Economic Policy, because what you dont want is a shortterm bump, and then we revert back to the trend of labor growth and productivity growth, and were left with higher levels of debt to gdp. So, congress and all of us as policymakers need to be mindful of it. Robert, its extraordinary to have you on, in part because of the brief that you had being in the texas district, and one of those is energy. Yeah. Opec is meeting right now. How critical is some form of agreement in opec to the health of the Texas Energy Industry . So, even before this discussion or explicit discussion of opec coming to agreement, we thought that Global Supply and demand, the energy, oil supply and demand was going to get into balance by mid2017. Its not because supply is declining. Its still growing, but demand is growing at 1. 3 Million Barrels a day on average and is catching up with supply. Obviously, if theres an explicit agreement, that would accelerate that balancing. And so, the faster we get into balance, the more youll see prices firm. Ric count is already inching up and will probably take prices between 55 and 65 for that to accelerate dramatically. But to the extent theres an explicit agreement, that will move us closer to the point that that could happen. The equally brilliant Carl Quintanilla has another question for you. On a slightly longer time horizon, we talk about robotics and ai automation on assembly lines. Im reading now that by 2020 this is according to Harvard Business review customers will manage 85 of their relationship with the firm without interacting with a human. Are we framing the future correctly in looking at ai and robotics . Well, so, we spent a lot of time at the fed and i spent a lot of time on this. The broad category called the future of work. Theres no question that disruption, technologyenabled disruption is affecting businesses, affecting business models. Its one of the reasons why i think capex is sluggish, but its also affecting workers, and it means that increasingly, workers are going to have to move industries, get retrained, and thats why, again, Educational Attainment levels improving and Vocational Training and beefing up Vocational Training is going to be critical, because more and more in our future, workers are going to have to adapt to changes in industries which will cause them to need to change jobs and move to new industries. Were behind the curve on that, in my opinion, and we need to rapidly catch up. Robert, im going to get severely disciplined for asking you one more question, but give us your best guest for the funds rate at the end of next year. Okay, well, you know im not going to do that, but id say the following. Id say ive said up to now, the path of future rates is going to be somewhat shallower than weve experienced historically. If theres new economic policies, well have to revisit ill have to revisit that statement and that assumption. I dont want to predict where the pathtofunds rate will be. All i can tell you is we make path on employment, inflation, and we see higher rates of gdp growth. Youll see us respond accordingly with the future fed fund rate actions. And i dont want to prejudge it, but were going to have to adapt to it. Robert, thank you so much for joining us. Thanks, steve. Robert kaplan, president of the dallas federal reserve, aka, the second largest state economy, maybe the ninth or tenth Biggest Country in the world, carl. Steve, thanks for bringing that to us. Steve liesman with kaplan. When we come back, Market Reaction to the dallas fed president and those earlier comments from treasury secretary designate Steve Mnunchin. Dow and s p at record highs. A lot more squawk alley is back in a minute. Where, in all of this, is the stuff that matters . The stakes are so high, your finances, your future. How do you solve this . You dont. You partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. Morgan stanley. Our most important priority is to sustain Economic Growth and i think we can get to 3 to 4 sustained gdp, and that is absolutely critical for the country. To get there, our number one priority is tax reform. This will be the largest tax change since reagan. Weve talked about this during the campaign. Wilbur and i have worked very closely together on the campaign. Were going to cut Corporate Taxes, which will bring huge amounts of jobs back to the united states. Former goldman exec steven mnunchin, pick for treasury secretary, on squawk box this morning. Mike santoli is here joining us along with ubs director of floor operations art cashin. Guys, weve got mnunchin ross and opec with the headlines officially crossing, 1. 2 Million Barrels a day effective january. Do you believe this is actually happening . I believe that thats what theyre going to announce. Whether it sticks or not is a completely different thing. 1. 2 million a day. Half of that will come from opec, half of that from the nonopec sources. Well have to see what the russians actually do about it. We have a history over the last two years of these phenomenal short squeezes in the pits and they tend to overtread very heavily. So, i think thats where we are right now. Were a little bit ahead of ourselves. In my preopening comments, i had said the s p would face some resistance at 22. 12 to 22. 15. We got up to 22. 14 and stopped, so i think thats going to wrap things up. You may try it again today, but i think the riskance may hold. Its hard to deny the relief rally of 9 in crude. What devil is in the details for that agreement . What Sticking Point do you think there could be, once we see the full text, that could give people pause . I think you want to see if they really deliver. Mr. Sechin in russia has right up until this week said he didnt think he was going to be cutting back. And now, while hes not the oil minister, he runs one of the Largest Oil Companies that they have there, and he is reputed to be the best friend forever of mr. Putin. So well see. I had my thoughts. They have come before the public again and again and announced, weve got it all worked out this time. And then when nobody can see whats going on, the cheating begins almost immediately. Interesting impact. Just even if crude stays at this level, lets say it goes up to what everyone feels as if its a nearterm cap of 50, 55, whatever it is. On a year over year basis, youre getting into the zone of where its a big increase, and it just goes into a lot of other indicators that are feeding into building Inflation Expectations. I think what youre really seeing in the markets is ratcheting up the idea of nominal growth going higher, whether its real growth or inflation on top of it or not. That seems to be the easy trade with wage growth going the direction it is. And to me, the key word in Steve Mnunchins comments was sustained. We were at 3 to 4 in the third quarter. Were probably there in the fourth quarter. Sustained is the question, and what do you have to do to get there. One last thought on that, art. The 3 to 4 while rates stay low over the next couple of years, they said. Yeah, no, i think theyre beginning to move in the right direction. The question is can they pull it all together . I was interested in mnunchins idea that theyre going to cap some of the deductibles and whatever. That will probably make it easier to get through congress because you will have the people there who are worried about increasing the deficit, so that will be helpful. The first couple of initiatives sound like moves in the right direction. Not too clear that the math works at the very upper end in terms of capping the deductions, but maybe cosmetically, thats how you get it done. Right. Thank you, art cashin. Nice christmas tea. Kayla. Still to come, a busy hour on squawk alley. Well talk with Banking Committee member senator jeff merkley. Why he thinks Steve Mnunchins nomination for treasury is bad for the country. As we head to break, take a look at shares of netflix. 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I have a lifetime of experience. So i know how important that is. Welcome back to squawk alley, everyone. Check out where europe stands as we head to the close over there, really a sea of green. Stocks, in fact, trading at threeweek highs, helped by that strong move that were seeing in the price of oil with the cartel commentary out of opec that they have reached a deal. A big win, of course, for those nations in europe that are heavily dependent on the commodity. Just take a look at norway, which is the worlds Third Largest exporter. Russia, the Worlds Biggest Oil producer. Its no coincidence that these markets are trading higher in todays trade. Looking at the big movers in the energy space, enbridge, bp and Royal Dutch Shell, strong moves, Royal Dutch Shell up. And in the industry space, linde shares up after a new bid. They had dissolved months ago. The merger of these two companies would create a 60 billion Industrial Gas giant. Meantime in england, bank of Englands Mark Carney talking about the threat to the World Economy under a trump presidency. Royal bank of scotland shares falling after failing the bank of englands stress test. The bank saying it will cut costs and sell assets to boost capital. Take a look at the bund in the bond market after the European Central Bank President , mario draghi, confirming that the bank will decide on whether to extend quantitative easing next week at their thursday ecb meeting. The moves could lead to an even sharper divergence in yields between the german 10year and the u. S. 10year. Thats something that economists had been writing about this morning. Carl, back to you. All right. Thank you very much, seema. Getting more granularity on the opec cut. Oil is moving today. According to an opec official, russia is agreeing to cut 300,000 barrels a day. The overall cut 1. 2 million per day effective in january. And then some of the movers individually, kayla, within the space. Marathons up almost 20 today alone, transocean 14 , devon 13 , murphy 13 . Huge swings. As cramer said this morning, if youre buying at these levels, youre buying off the backs of shorts who are panicking, as he side. And there have been a lot of false alarms when its come to these types of agreement. This would be the first coordinated Production Cut in close to a decade. And as art cashin said, well believe it when we see it, for the most part. All right, when we come back, well speak with senator jeff merkley, member of the senate Banking Committee about president elect trumps picks for treasury and commerce. Merkley says mnunchin in particular is a bad choice. Find out why, next. And later, trump says hes cutting ties with his company, but its not all black and white when it comes to his business dealings. Well break it down when squawk alley returns. Good morning once again, everybody. Im sue herera. Heres your cnbc news update at this hour. Thousands of striking workers gathered in seoul, calling for south korean President Park geunhye to resign. The protests come after park offered her conditional resignation on tuesday. Massive street rallies calling for her ouster because of corruption charges. Iraqi forces continuing their offensive towards mosul, advancing on nearby villages. Its all part of an operation to retake iraqs second largest city from isis militants. A fire erupted last night when a gas pipeline ruptured north of kansas city, missouri. No one was injured, thankfully, and the fire was later extinguished, but the cause of the rupture is unclear. Houstonbased Enterprise Products partners is the owner of that pipeline. And pope francis met film director martin skcorsese aftera screening of silence, about jesuit missionaries in 17thcentury japan. The meeting is years after Church Members condemned scorseses film the last temptation of christ. That is the news update this hour. Back downtown to squawk alley. Kayla, back to you. Thanks so much, sue. Back to the big political news of the day, president elect donald trump tapping former Goldman Sachs banker Steve Mnunchin to take charge of treasury. The new treasury secretary will have farreaching influence on everything from the Nations International economic agenda to tax and banking regulatory reforms. Take a listen to the treasury designee on the future of dodd frank from squawk box this morning. Weve been in the business of regional banking, and we understand what it is to make loans, and thats the engine of growth to small and mediumsized businesses. So as we look at dodd frank, the number one problem with dodd frank is its way too complicated, and it cuts back lending. So we want to strip back parts of dodd frank that prevent banks from lending, and that will be the number one priority on the regulatory side. Joining us now is senate Banking Committee member jeff merkley, a democrat from oregon. Senator, its great to have you here. Good to be with you. You tweeted mnunchin for treasury. Does donald trump really think voters wanted to put a wall street banker in charge of wall street . How is this different than hank paulson in charge of treasury or secretary lew who came from citigroup . Well, you heard him say he wants to deregulate wall street and allow predatory lending, something he is an expert in because his bank did it and they had quick, fast foreclosures on families. If you want somebody to dismantle the protections for consumers, hes just the guy to do it. But that is, in fact, the opposite of what Trump Campaigned on. But there are some banking executives who would acknowledge that regulation has been helpful, who say they dont necessarily want to roll it back entirely. They would keep a heavy capital cushion so they stay safe during the tough time, but maybe release some of the lending regulations so they can lend to some of the underbanked communities. Why is that wrong . Well, actually, when you engage in teaser rate mortgages with exploding Interest Rates, they are designed to fail. When you engage in liar loans, they are designed to fail. They destroy the dream of Home Ownership for families, rather than establishing the dream of Home Ownership. Weve learned this in the most cruel and unforgiving way. Its a place we dont want to go back to. This man is an expert on how to make money in predatory lending, and putting him in charge, it is absolutely the opposite of draining the swamp. It is filling the swamp with a swamp monster number one, who is an expert on how to take it to lowincome families. And so, it really is the opposite of what trump said he was going to do. But why not spin the conversation forward, senator, and instead of litigating the last financial crisis, think about what new ways you could edit dodd frank, perhaps in a lighter way to make both wall street and main street happy. Is there a way to do that . Well, certainly Senate Democrats have put forward a whole list of reasonable ways to make things work more efficiently, and those things were rejected because the republicans wanted to use reasonable adjustments as a wedge to restore predatory activities, really to restore the wall street casino that set the stage for taking down our economy, and that is whats going on here once again. Youre an expert on how to drive the wedge, to set up a strategy that works great for wall street and really hurts main street and really hurts our families who are struggling. Theres been some discussion in the wake of his confirmed nomination now about his background in Goldman Sachs, especially in mortgagebacked securities, the way he profited off the sale of indymac, which was, of course, a subprime lender. Do you think hell face any real opposition in a senate confirmation, though . Absolutely. Every nominee has issues, but what will the opposition level look like . Well, youre looking at somebody who bought a bank that specialized in predatory activities, proceeding to foreclose on thousands and thousands of families, rather than kind of giving them a fair chance to retain ownership of their loans, and he then proceeded to sell it at enormous profit. He had subsidiaries that repaid his primary company right before they went bankrupt, so basically took and stole money from the other people the company owed money to, to enrich himself. Its a real Insider Trading type of structure. Theres a lot of material here about why this person is not a champion of homeowners, not a champion of struggling working families, not someone whos going to make america work for working families. This is someone whos going to make america work well for wall street, and,why hes the wrong choice. Well be poring through the Financial Disclosure forms for all of these nominees. For now, we appreciate your time, senator. Youre welcome. Some news out of the epa, which is going to disappoint some automakers, but perhaps only for now. Phil lebeau has that story in chicago. Carl, this is a proposal from the epa, the administrator proposing that they leave in place the Greenhouse Gas emissions standards that were adopted in 2012, but this impacts years 2022 through 225 as far as the Greenhouse Gas emissions that are expected. By keeping this in place, this ultimately has an impact on the cafe standards or the fuel economy standards. And weve put this graph up to show you just whats expected out of automakers as we go to 2025. And the expectation is that the Fleet Average not every vehicle, but the fleet savage 54. 5 miles per gallon by then. For a frame of reference, its 36. 6 miles per gallon for next year. Right now were at 33. 1 miles per gallon. So, guys, that is the proposal from the epa. Remember, by april is when these have to be locked in place and we know what happens in january when a new administration comes into place. Well see if the standards change then. Good to note for now. Phil lebeau. When we come back, president elect donald trump says hes cutting ties with his business, handing it over to his kids. Easier said than done, though. Were going to break down the details on that. Dows up 80 with goldman adding about 60 of that. Is it a force of nature . Or a sales event . The season of audi sales event is here. Audi will cover your first months lease payment on select models during the season of audi sales event. bing lets get to the cme group, Rick Santelli on trumps economic cabinet picks. Hey, rick. Absolutely you know, normally the picks of the day, ive been looking is it going to be treasury, oil, equities . But the picks of the day today, Steve Mnunchin, treasury secretary, wilbur ross, commerce secretary. Why are they important . And why is there going to be some controversy . You heard our last guest. Listen, i get it. I get it. You know, the whole drain the swamp, wall street, all of that relates to many. It strikes chords, especially when we think about the bailouts and the stimulus plans and everything that went wrong between 08 and 10. However, i just cant imagine, i cant imagine that were going to have a Strong Economy without a strong banking system, without bringing up some of the smaller, midsized banks, without lending to the smaller, midsized companies. I cant imagine trying to get the economy going if we cant create a fertile atmosphere businesswise, a landscape that Companies Want to stay in, thrive in and not leave. I think those two picks really address those issues. So, how does all this play in on the big picture . Believe me, theres going to be moguls. It isnt going to be as easy as its been, but i look at it quite simply. We have an antigridlock dividend. I remember. I traded in times in the 80s and early 90s when gridlock was king, but the economies were much more stable. You cant have gridlock with a stale economy. You need to make change and i think antigridlock dividend is a real issue. I also think that this administration, for even what few facts we have, is going to have much more visibility. I think that its going to be much more carrot versus stick regarding the landscape that is fertile for business. But most of all, and this might shock people, i think that this administration will, without a doubt, be the most transparent in history. Why . Because of whats facing me right now, the camera, the blogs, the websites, the news media. Believe me, everything that this guy does is going to be under a press media microscope. Im not saying its a bad thing. Im saying its kind of a new thing, but i dont think that theres going to be any question or mystery in any direction they go. And actually, i think all of those things could be a bigger dividend than the gridlock dividend, but we cant put the cart in front of the horse. Kayla, back to you. All right. Thanks so much, rick. Still to come on squawk alley, treasury secretary designee Steve Mnunchin says the majority of trump tax cuts will be focused on the middle class, but will they translate into Economic Growth . Well discuss that, up next. Some breaking news on capitol hill. Nancy pelosi has been reelected as House Democratic leader in a closeddoor caucus meeting. 63 votes, though, went to tim ryan, which by some accounts is a significant defection. She did say, though, that she would win about twothirds of the caucus and 134 votes for pelosi is about that. So we will keep our eye on minority leader pelosi. Meantime, president elect Donald Trumps treasury pick promising the nations largest tax overhaul since reagan. Steven mnunchin telling squawk box this morning that reforms will include both corporate and individual tax cuts, but any changes will not result in cuts for the wealthy. Take a listen. Any reductions we have in upper income taxes will be offset by less deductions so that there will be no tax, absolute tax cut for the upper class. There will be a big tax cut for the middle class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it. Joining us this morning, cnbc contributors Jared Bernstein, former economic adviser to Vice President biden and Economic Policy analyst jim pethakoukis. How are you taking mnunchins comments this morning and comparing them to the Campaign Rhetoric . Its not just rhetoric. There are a number of groups in town that have scored the trump tax plan, and they look absolutely nothing like what we heard from the treasury secretary designee. And in fact, they did, even some of these estimates factored in some dynamic it. 1,000 less than the double fifth. The percent of tax break for the top 1 is about 14 . For the middle fifth, about 1. 5 . I dont mean to flood you with numbers. Im just saying that these are the scores that nonpartisan groups have done and they completely contradict what was being said. I want to give the guy a chance, but that didnt make sense to me. Jim, can mortgage deductions make up for all of this at the top . If the eventual plan is anything like sort of the latest version of the Trump Campaign plan, this is going to be a big tax cut for wealthier americans. Theyren going to be able to get rid of enough deductions. If you get that top rate from 40 to 33 , they will get a tax. An absolute tax cut. If the final plan ends up looking a lot like the house plan, if you do include the dynamic scoring, and i dont think the dynamic scoring is magic, but i think its a real effect, but you could have a total plan that might not lose any money or much money. Its still going to lose money, but it wont lose 3 trillion, 4 trillion. Right now on a static basis, not counting economic feedback, both the house plan and the trump plan would lose anywhere from 2 trillion to 6 trillion. Given that deficits are going to be going up a lot over the next few years anyways, thats a big number. They need to avoid that where. The Tax Policy Center says threequarters of the federal revenue loss will come from a cut in the Corporate Tax rate. The house plan cuts it to 20 . Trumps plan cuts it to 15 . You think it should be even higher than 20 to plug that hole. Still get companies to bring jobs back. Look, yes, you know, the corporate side, both the rate cut and doing the immediate expensing, that loses a lot of money on a static basis. If you think there are some dynamic effects. Static scores almost certainly is wrong. The issue is how big are the dynamic effects. If you do include those, then all of a sudden the bang for the buck on the corporate side starts to look much better. The part of this tax cut thats going to lose a lot of money and not give as much growth as all on the individual side. If i was trying to make these numbers work, i would focus a lot more on the business side and i would leave that top tax rate right where it is. Jared, i assume you agree . Well, i think that the dynamic affects can be gained and probably will be gained to an extent that i would hope jimmy and i would find misleading in terms of the kinds of revenue losses. That is if you look at the Congressional Budget Office or the tax policy side, any nonpart zbloon groups, they actually find the dynamic effects are relatively small. What you have to worry about here is trickle down magic elixir that you lower your tax rates and all kinds of wonderful things happen on the growth side. The historical record for that is really, really poor. Now, i definitely agree with jimmy and, in fact, with the Obama Administration and the Trump Administration that the top corporate rate should come down. The only way to do that without really driving a huge hole into the revenue coughers of the treasury is to close a bunch of the deductions and, you know, socalled loopholes. Now youre invoking the wrath of every lobbyist in this town, and thats why this kind of tax reform has always been so difficult. Now, if they can find a way to thread that needle, fine. Revenue neutrality is actually a very low bar. Its the lowst bar ive had. What im afraid were going to see is big revenue losses. I dont like hear the new treasury secretary basically proposing a plan thats going to blow a hole in the treasury. Right. And, jimmy krks to jareds point, i mean, the stock market at least has been responding to the promise of all of this as jared alludes, but when it gets to the finer points and the blowup of special interests in washington, is this going to get a lot more difficult . Listen, you know, theres weve all been talking about tax reform for a while, and there seems to be a general broad consensus jared mentioned. People across the Bank Spectrum certainly agree we need Corporate Tax reform. But it hasnt happened. One reason our traditional sort of partisan differences, Obama Administration wanted it to be not necessarily be revenueneutral, but theres also lobbying groups, interest groups, getting rid of these deductions. Thats all really hard stuff, and, again, theres a reason we havent seen this reform. To immediately start just plugging in the numbers thinking, great, were going to have a 15 tax rate or a 33 income tax rate. Theres going to be a very messy road getting there. Yeah. And markets will have fun watching that. Guys, well be talking a lot in the days to come. Good to see you, Jared Bernstein and jim. When we come back, trump making an announcement this morning about his own business interests. Well get to that after a short break. Ict the market. But through good times and bad. At t. Rowe price. Weve helped our investors stay confident for over 75 years. Call us or your advisor. T. Rowe price. Invest with confidence. 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Now she sends invoices, sees when theyve been viewed and tada, paid twice as fast see how at quickbooksdotcom. Hey, robert. Carl, trump tweeting out this morning that on december 15th he is going to announce that he is officially stepping away from the Trump Organization. His quote while i am not mandated to do this under the law, i feel its visually important as president to in no way have a conflict of interest with my various businesses. Hence, legal documents are being crafted which take me completely out of business operations. Now, he is referring, of course, to the fact that the ethics rules that apply to cabinet members and other government officials do not apply to the presidency. There has been a wave of publicity in the past week about his meetings after the election with his Business Partners overseas in talks with politicians in countries where he and the Trump Organization do business. Now, the Trump Organization does business in more than 20 countries, and, of course, they had that lease with the federal government on the Old Post Office building in washington d. C. , now a trump hotel. There were no details in the tweets this morning about exactly how he plans to step away. The fact is his children will be at the president , and he used the word operations, not ownership. It implies he may stick to his original plan of putting his ownership into a trust and letting three of his children, ivanka, eric, and don jr. , run that business. Given that ivanka has already been sitting in on some of trumps meetings with foreign officials and her husband jared will be a trump advisor, the questions about trumps conflicts of interest will likely continue well after december 15 th and, guys, probably well after january 20th when he is inaugurated. The story is not over, guys. Back to you. Still a chance out there, robert, though, that on the 15th he could come up with some solution that we havent yet thought of. Im thinking of Andrew Ross Sorkins piece where he talked about bringing in feinberg. Corporate monitor. Thats one idea out there. Lots of proposals out there to truly separate them, and, you are right, trump has been known to surprise us. We will await that press conference. Huge gains in oil related stocks. Now lets get over to headquarters and the half. Thanks so much. Im scott wapner. Yes, the trump rally stocks hitting another new record today. With the dow and the s p now on pace for their best month since march. Even as some question just how long the good times can last, some sectors appear primed to continue their postelection run. With us for the hour today, josh brown, steve weiss, sarat, the brothers najarian, and the chief Investment Officer at dell Tech International group. Also joining us from washington d. C. Is michael