>> good morning. welcome to "squawk box" here on cnbc. i'm michelle caruso ka brain brar ra sitting in with joe kernen and steve liesman because carl and becky are both off today. steve will be all over this next story because we have new test for the markets this morning. 8:30 a.m. eastern time, first revision to third quarter gdp. it's expected to show the first report of the economy's return to growth may have been a bit too rosy. the dow jones forecast will show the economy expanded at a pace of 2.7% from july to september. figure of 3.5% had original will i been reported. the big factors behind the downgrade are said to be commercial construction, drag from the nation's trade gap and lower business stockpiles. also on the economic agenda today, s&p case shiller, that's the home price index and consumer confidence pushing around the markets today. >> is that teleprompter far away? >> i don't want to hear it. >> well, i just saw you leaning forward and heard you say gdp and gap. >> i used to be how proud of how far away the teleprompter used to be. >> you usually ignore the guys in the back, don't you? >> a lot of times. but you know how michelle just went over the things that could cause the revision, but the collection all ended at a certain point. now we're just revisiting some of the things? >> there's two components of gdp that they report in the advanced number that they don't have for the final month. they don't have trade or inventories for the final month. they estimate them. when the economists do their forecasts, they're estimating the government's estimate. >> a double negative. exactly. or twice removed from reality, right? >> but do you see how i was thinking when she was reading and then you're here and i ask you and you deliver. >> 6:01 a.m. and he is already engaged. >> we're going to talk about the revisions that we're going to get. there's three or four components. we'll talk about that later after i do this read. >> good. maybe it's pushed into the next quarter and -- >> right. especially get the inventory rebounds because the inventories will be lower, more reduced. >> excellent. excellent info, steve. >> speaking of the economy, 20% of u.s. homeowners owe 20% more on their homes than they're worth. more than 5 million how will households have mortgaged at least 20% higher than their home's value. 11% of borrowers who took out mortgages this year already, already, that's this year, owe more than their home's value. >> that's a hideous story. >> the minute you get to the point where when the house is more than 20%, regardless of your ability to pay, your willingness to pay drops dramatically because you think, i could pay this whole thing and at the end of the this morning be under water. >> i was watching the simpsons where major and homer decided to walk away from their home. they say, wait a second, our note is worth more than the house? the next thing you know, you see a picture of homer nailing a sign saying abandon in the yard. >> when, you've seen that in the journal. >> i heard about that. >> she looks good for a cartoon. but i think she's had some work done, if you know what i mean. >> well, she's been around for 25 years. >> but blue hair does it. >> what do you figure they -- how they charge a cartoon character for a face lift? and is it covered? is it covered? >> i'm not talking about a face lift. >> how much does she charge to be on the cover of playboy? >> and does the woman who does the voice get any realty from that? >> oh. >> there are so many questions. for example, did you notice we're both filling in for becky and not carl? carl was off already. we're both filling in for -- >> you're here because it makes sense for you to be here with michigan and with rosenburg, i think. so we need your -- >> did you bring the hem lock this morning for rosenburg? you're here because you're a talented anger and a terrific television personalty whereas seven years in television, i'm still trying to -- >> you're going to have a long day, though, right, michelle? >> i'm workingng till 2:00. >> that's not bad. >> yeah. the official kickoff of the holiday shopping season with black friday. we pull out that animation we run every year, that's what that is called, the bar code and the music. mastercard reports early signs indicate strong sales of tvs. that's the one inelastic thing in the world. you have a tv, a coach and a remote control. >> how else are you going to watch video games? >> exactly. apparel appears to be in trurnl. electronics were up 6.1%. women's apparel down 3.3%. luxury goods dropped 9.2%. the release of the video game call of duty helps electronics. although i think it's call of duty 2, isn't it? >> yeah, modern warfare. it has a tag line. >> it looks unbelievable when you see the graphics. >> they reviewed it in the arts section of the "new york times" because it was visually so appealing. >> i don't play that one. >> i don't get it from my kids. it has that m on it. but they told me it's okay because it's only "m" because of the violence. >> the kids told you that? >> yeah. they said i could get that if they wanted it. >> the fed is reportedly asked nine big banks to explain how they plan to repay t.a.r.p. the ft says the central banks wants to firm toes include the ability to repay common equity. bank of citi, regis financial, suntrust bank and wells fargo, by the way, which we've been trying to get them to talk about how they're going trough pay t.a.r.p. michelle. some federal officials are asking president obama's pay czar to ease up on aig. ultimately, the taxpayer would suffer if the curbs are too severe. aig has received up to $180 billion in federal aid. and don't forget, the current ceo, mr. ben mushet said he would only take the job ceo if he got paid $3 million cash. so out of the all the t.a.r.p. banks, he's the only one who is able to get that much cash. in that case, the government thought they had to pay to get a higher quality ceo. >> some people would say it's cutting off your nose to spite your face. i mean, it's tough. they say you have to hold your nose and do what you've got to do. >> okay. but i happen to know some folks in treasury who are concerned about -- they have a number of aig people that have let me tell and they see their asset and they're responsibility for that aets and they see what's happening to the employee list. >> you know, it's tough. as the populous backlash is huge, look at poor geithner at this point. who would have thought that the treasury secretary for president obama is getting pilloried from the left. it's not really the right that's hammering him. >> oh, the right is hammering him. >> not as much as the left. >> you have kevin brady. the main thing is now he's in wall treat. the one ghie from texas -- >> yeah. >> there's people that want to leave the union in texas. the guy's district is a red -- that was red meat for the people. his couffers are lined now. >> are you saying he was grand standing? >> yes, i am. let's talk about hewlett packard. tripling its size. we're going to talk to someone about the nuts and bolts of the report here. but it tripled the size of the share of purchase to 12 billion. shares of china, boosted hp's quarterly earnings. what boosted the earnings was eds and the ability to take costs out of eds. the results that were reported were basically in line with what the company said a couple of weeks ago when it preannounced. ceo mark herd spoke to cnbc yesterday. >> we feel at a point that whatever the market gives us in terms of growth, we believe hp will overperform that from the market performance perspective. >> shares of hp during the last year, up 42%. let's get you a check on the markets thus far this morning. the futures so far are indicating that we will see a flat open, last i checked. have we got it here? >> now it is red. it was lower earlier. do you want me to help you read the numbers, michelle? >> no. i'm okay. the nasdaq would open higher by 2 points, the dow jones would open higher. we have a slight strength in the dollar this morning, leading to a weakness in xrud oil. $77.53 a barrel for my neck light sweet crude. brent higher in london by 30 cents, $77.76 there. 10-year note is yielding 3.34%. as for the dollar, a little bit of a rebound this morning and then it peared some of that strength when we got the german ifo index. right now the dollar is weaker against the yen, weaker against the euro. that's been the resolving level. >> 1.50. >> yeah, yeah, and the pound, 1.65. and gold, waits seven days in a row for record highs for gold? $ 1,170 per ounce. to the overseas markets right now, christine tan is standing by in singapore. hi, christine. first to zurich where carolin schober has the latest in europe. carolin. >> good morning, mrishl. we saw profit taking on those european markets after those gains of around 2% from yesterday. let me tell you, these markets have been moving higher in the last hour or so. the ftse now in positive territory, up .25%. the dax still lower, trading flat here. that's despite the fact that german business confidence rose to its highest level since august of last year. it came in berts than expected at almost 49 points. on the corporate front, lloyd's banking group in the uk is pricing its massive rights issue the a 37 pence per share. that's a discount of almost 60% from yesterday's closing price and lloyd's will be able to raise $22.3 billion and that will be the worl's biggest rights issue so far. general motors says it plans to cut around 9,500 jobs in the european opel unit. that will be more than a fifth of the total workforce employed. now let's get a check on the asian markets with christine in singapore. >> thanks for that, carolin. asian markets finished higher today. in japan, the nikkei coming back from a holiday too hit its lowest close in four months, down 1%. the stronger yen really hurting the exporters. we have comments from a japanese cabinet minister that said the central bank was asleep at the wheel after the government declashd last month they hit low s in a decade. in shanghai, staging a big sell-off today on lack of market boosting measures by the government, this pushed the main index to fall 3.35% dwb which some say is a healthy correction given the huge run up in the market. on that note, back to you, michelle. and you look lovely in pink. >> thank you, christine. miss you every day. good to see you. >> pretty in pink was the -- >> with the red head. >> the brat packer, molly ringwold who is all groan up in the psychedelic furs, is that the song? >> might have been. you have a pop culture storage data. >> pop culture icon. that's the way i look at it. do you beg to differ? >> no. i'm just a standin this morning. >> because you can be replaced. >> like by tomorrow. coming up, the lost tapes never before seen footage and conversations with two of the world's most successful investors. you can see them right there with becky in the middle. fist, a look at yesterday's winners and losers. for over 150 years, wells fargo has been putting our clients first. according to a leading independent research firm, in 2009 clients rated wells fargo advisors the #1 u.s investment firm for doing what's best for them. with advisors nearby and nationwide, we're with you when you need advice and planning expertise to meet today's challenges. wells fargo advisors. together we'll go far. yet a lot of natural gas has impurities like co2 in it. controlled freeze zone is a new technology... being developed by exxonmobil... to remove the co2 from the natural gas... so we can safely store it... where it won't get into the atmosphere. exxonmobil is spending more than 100 million dollars... to build a plant that will demonstrate this process. i'm very optimistic about it... because this technology could be used... to reduce greenhouse gas emissions significantly. ♪ welcome back to "squawk box." warren buffett, bill gates, the lost tapes. >> so you guys have friends in common. obviously, you care about looking into education. you both care about students and the future. you've both given a ton of money, so you believe in philanthro philanthropy, too. what else do you have in common? >> well, we're both terrible golfers. we share that. we have somewhat similar eating habits. he has a ways to go. but no, we're in sync on most things. >> i don't think the tapes are really lost. >> yeah. i'm confused by that. >> anyway, that is part of becky's conversation with warren buffett and bill gates on the campus of columbia university. the two american icons holding a town hall with mba students there a week and a half ago. this morning, we have exclusive video and comments from the two men that have never been seen before that we're going to bring to you throughout the morning. if you want to see more, go to cnbc.com. there's the two icons. what if carl ikahn was someone and we wanted to see that he was an icon. the icahn icon. you can't use business icon with carl icahn. >> do you sit up at night and worry about that? >> i was just thinking, what would you do? because we throw it around so much. ic icon, iconic. >> what if you called him an iconoclast? >> that's different, isn't it? >> it's something that likes to challenge wisdom. >> i was just wondering. carl is not up this early, anyway. >> i just look at that and i think how cool it is that buffett and gates go for a stroll with becky and how great it is na becky has those two guys go for a stroll. and i want to know where is the stroll with blankfein and where is the stole with jamie dimon, and the guys who are sort of at the front and center of fixing the economy. where is that -- >> i would imagine that behind the scenes at goldman, there is a discussion about do we or don't we at this point. >> a stroll. >> about whether to let blankfine become more accessible. i am sure that lucas von trap was -- he was from that family. he go the goes right through -- >> lucas van prague is his real name. >> the more serious point was that the less they talk, the more they increase the incremental risk of talking. and that's true of the fed, right? the fed doesn't come out and talk that much and then when they talk, where is -- in jackson hole, i sat down with a 30-minute interview with trichet, like it didn't matter. >> did you fall asleep? >> no. i thought it was fascinating. but you sit down with a fed governor, it's huge. what do they do? they don't talk. same with the banks, they increase the incremental risk of talking and they basically make their own bed. >> some stuff coming out here from jpmorgan. jpmorgan recently medicine with the cfo of general electric. jpmorgan expects ge to see dramatic reduction in the current level of ge capital losses. jpmorgan says ge losses continues to see capital provisions better than the worst case, the adverse case. and jpmorgan says commercial real estate is the only remaining hot spot in their terms in the ge capital portfolio. so those are comments coming out from ge -- or from jpmorgan this morning, regarding ge after a conversation with keith sharon. but my point was over the weekend, you're seeing things that -- i mean, goldman has been huddled, was probably outside and probably inside sources to see how to -- the $17 billion, the $500 million and immediately people said that's five trading days. it's 2% of your bonus. so they're going to be serving turkey in soup kitchens over thanksgiving. >> what do you think? >> i think blankfine should guest host "squawk box." >> you think that's a solution to a lot of problems. >> that's what all this was leading top the. >> i think bernanke ought to guest host "squawk box." you know, the solutions to all the issues -- >> but not trichet. trichet's half hour interview is really actually 15 minutes. >> trichet is so full of -- remember how they were never going to ease over there? and we all knew that they had to at some point. i moon, he's an expert at massaging and disassembling and not really saying anything true. >> but he sits down and he talks and you can have a discussion with him and you can see how he deals and get him on the record. >> he's like a politician. he talks out of both sides of his mouth. >> and you get nothing from him. >> so your argument is you shouldn't even talk? >> my argument is that when you do get something from bernanke, you can write it down and he's trying to be honest. >> i think trichet is honest. he talks to the press after every rate meeting. and i'm amazed that our fed chairman doesn't do that. >> you're working your angles here, too. >> exactly. >> but you don't believe -- you know what will face the press? our task force right now. we'll get to our tuesday task force. >> but what about what was in those headlines? >> joining us this morning, christopher sheldon, and beth bavino. chris, let me start with you. i see two headlines in the journal today. we had this two-year note that has the lowest yield on record, which says to me people are fearful. and yet the stock market hit a new 2009 high, which would suggest investors are not fearful. which is it? >> i think in some ways, it's both. but you have to go back. you're talking about listening to the fed. that's almost all it has taken. so if the fed says we're buying treasuries, people buy treasuries. if the fed says we're keeping rates low for a long time, you buy pretty much everyone else. so i think that dynamic is what we're seeing right now. >> beth ann, what do you make of the situation that we're seeing when it comes to the treasury markets and how low, low, low the yields are on the short end of the curve? >> first thing is i know better nabky might not guess guest host, but i would. >> good for you. >> second, yeah, i mean, i would agree with what was just said. i'd say that inflation is very low. i mean, the numbers that we saw with the cpi and the ppi last week still suggest that maybe the fed can hold on the sidelines, at least near term, so that would be another reason why investors would -- >> steve and i were discussing this morning the price war between walmart and amazon. and it almost looks like in some parts of the economy you're seeing deflation if you're trying to buy books or things like that. what about gdp, how are they going to move the markets? >> well, we think gdp. gdp is old news. but we think we're going to see a pullback in that number. we're looking at i guess 277. but it still looks like gdp has bottomed out, at least in our forecast. anything more severe might actually spook market. i'd say probably the consumer confidence and also the housing numbers are going to be a factor with the case shiller. case shiller, we're looking at another kind of pullback in the decline in home prices. we're looking at about 10.5 drop in home prices. so still seeing that abate. that's a positive. if we see something more severe, something that would spook the markets, like for example, how the housing starts did last week, that is going to be unnerving. >> chris, we're going to have david rosenberg on at about 7:00. and i guess the summary of what he's going to see if the stock market is fundamentally nuts, given how much it's risen and given the underlying economy. do you find a huge disconnect between how much the stock market has risen on the underlying economy? >> not really so much. i mean, the stock market is anticipated recovery. remember what we were priced for back in march was almost complete failure. so no, i think it makes a lot of sense given how far it had fallen. i think here we transition more to reflecting growth, and i agree you've got modest growth, but i think that keeps pressure on the dollar. >> there's people that invest money like you, and then there's economists. and economists should not try to decide. and i told him that when he's been on here. neither should el-erian and neither should these guys that i can name about three or four other ones. you're looking at indicators and they're slamming you in the face and the market has realized that nine months ago and the stuff they're trading on now is nine months out of. have you noticed that a lot of data has backed up -- >> i don't think that's right, joe. >> steve, at to%, 30%, 40%, now we're at 65 and -- >> the economist is not only forecasts upon which the market trades, right? >> how do they forecast multiple? >> you don't determine multiples. >> that's one of the things that -- >> if multiples can trade between 8 and 50, what good is even knowing earnings? >> well, that's fair enough, but they don't change that much. >> they do change that much. >> chris wibt seems that virtually every trade out there is driven by this weak dollar trade. should we be worried about that? >> i think it's too early to worry about that because i think, again, with softer economic growth in the united states compared to elsewhere on the sidelines, you probably do continue that trend. ultimately, i like diversification when things are driven differently. right now, we're not getting that. chris and beth ann, thank you so much. >> but at 666 on the s&p -- >> it was -- >> -- calling another big down leg. >> the economists for the year -- >> they're not stock market. >> but they had the growth numbers that are out there. >> i don't think they do, either. if you look at the growth estimates of gdp for the next six months, it has nothing to do with stock prices for the nkts six months. >> but wait a second. if i tell you six months from now, and let's say that you agreed with my forecast, that growth is going to be minus 6%, would that not affect your willingness to buy stocks six months out? >> yes, it would. but psychologically -- >> and i'm telling you that six months ago, the forecast was for plus 3% for the second half of the year and that was something that -- >> why did they turn bearish up 20%? >> who turned bearish? >> all they economists, roubini, rosenburg -- >> jim paulson was -- >> he was pretty negative. >> he's more of a stock market guy. >> but there are plenty of economists who were bullish on the economy. i don't think economists should be out there telling you whether or not to buy stocks. >> i asked roubini, why are you now -- bill gross why he treads into the stock market -- >> when did he say dow 35,000? how many years wag that? >> two years ago. >> fortunately we finally got there -- >> but he was early. >> even greenspan, said 6,000 and we went to 11,000 in the meantime the. >> i believe economists should not be out there putting value on stocks. my point is that -- >> but it's all based on the multiples, which can be between 8 and 30 or 35. it's like saying if your home was valued at $100,000 or $2 million, that's like a multiple. >> okay. i don't did i say really disagree on that. >> coming up, this morning's top stories. plus, the picture from the futures pits. "squawk box" is coming right back opinion. ♪ ♪ (announcer) some people just know how to build things well. give you and your loved ones an expertly engineered mercedes-benz at the winter event going on now. but hurry - the offer ends soon. but aleve can last 12 hours. and aleve was proven to work better on pain than tylenol 8-hour. so why am i still thinking about this? - how are you? - good, how are you? aleve. proven better on pain. long ago. i don't know what you're doing. good morning, welcome welcome back to "squawk box" here on cnbc. i'm joe kernen along with michelle caruso cabrera and steve liesman. and hewlett packard is going to triple the size of its repurchase program by $12 billion. it has a huge market. cap $120 billion. that's pretty big, that's 10%. >> do you push a button over there and it gives you the market -- >> market cap was right here on the lower right-hand screen. results were in line with preannounced results. ceo mark herd spoke to cnbc yesterday. here he is. >> we feel at a point that whatever the market gives us in terms of growth, we believe hp will outperform that from a market performance perspective. >> joining us now with his reaction is aaron rakers, managing director and analyst with stiefel nicholas. there's no doubt hp has distinguished itself in technology. but still, we've got the revenue problem here. was there a single division that had an increase in revenue year over year? >> no. i think generally what you're seeing is the overall i.t. spending landscape continuing to pace the general spending dynamics. i think a lot of people will focus today on the sequential apparentlies and we continue to see improvements there in the industry standard serveses in particular of 16% sequentially. a bit indicator, i think, of ender prices is starting to spend again. even in the pc business, we're seeing improvement these both in the consumer and commercial size. and i think hp continues to be well positioned and also in the industry leading profitability in the pc business. >> but the profitability in this report was cost cutting at eds. i mean, it's almost like they bought that company to be able to do to eds what they had almost finished doing at hp and that's three years of cost cutting to generate increasing profits every quarter. no? >> yeah. i think that's fair. last night they had said that they reduced now 19,000 employees out of the 25,000 targeted out of eds. that continues to play itself out. i think, however, if you look at the ipg segment, that was an 18.1% operateding margin. you look at the pc business at nearly a 5% operating margin, much better than their peers and you're seeing as volumes in that transitional enterprise business coming back, that trend continuing to improve there. so yeah, i agree that you're still seeing the cost cutting, but i definitely start to see the improvement from a volume perspective flowing through that operating margin line, as well. >> but they're more consumer stuff, right? do we now look back on compaq and say brilliant acquisition? >> yeah, i actually would agree with that. i think it's given them a much greater presence not jt in the pc business, but on the enterprise business. i would say that was in hindsight a good acquisition, taking out a xee competitor and what you say from hp now is clearly executing very well against dell and having clearly an opportunity to take share in that commercial pc business as we look into 2010. >> how much more can they do here in terms of revenue being lower and keep cutting costs to keep earnings higher? >> well, i think as we roll into to on 10, the story changes a bit. it becomes more of a focal point on the top line. i think as i look at my model right now, i would assume more or less a flattish type operating trend out of the company in 2010. i think it comes from the ability for the company to outgrow -- >> but he's saying bring it on. give me any economic environment and i can cut my way to higher profits. >> i think he's saying given the underlying spending i.t. landscape, if we double dip, i think he feels that they can outgrow that. i don't think we're immune from it. but i think he feels comfortable that the operating story from a margin perspective will continue to hold up extremely well. >> you mentioned dell. can we definitively say that they are operating better than dell has and that they've taken market share from dell? what is the difference between the two companies? >> first of all, i think you look at it and dell has 70% of their pc business coming from the commercial orienter price side is a different mix from hp. so i think dell starts out disadvantaged. >> but hp crowed about the fact that they now feel that they're selling more to commercial businesses than dell. >> and i think they are starting to see that. i think that moves more meaningfully as we move into mid 2010 on this corporate refresh cycle. so i think we're seeing the early signs of that, but i think that's very much in front of us. to answer your question, i think they've gained 100 basis points a share in the pc market over the last year. and while at the same time, maintaining an industry leading profitability profile at roughly a 5% operating margin. >> what do you do with the shares here, do you buy them? >> yeah. we raised our target price today to $62. i would be a buyer of shares of hp. shares might take a near term pause, but i still think for long-term investors, this is a great story. >> for the benefit of steve, what multiple do you assign? >> 12 times for 2014. also, i would highlight from an enterprise basis, we're assuming a fairly low multiple, only about 8 times relative to the historical medium. i think from an evaluation standpoint, this stock very much looks attractive here. >> and what does it means to announce a buyback of that much? i've seen other companies buy high and sell low. is this a good move? i think you have to put it into context. it doesn't mean that they're buying for the next quarter. i think it's a good signal of their long-term belief in their business profile. yeah, i still think hp is going to be prudent for their cash. i think mark hurd mechanntionedt night, don't point out that acquisition might be a part of the story here as we move forward, as well. >> yeah, but using $12 billion for this looks like it takes away from what they can do with acquisitions. >> this is a company that has a tremendous balance sheet acquisition. grantsed, it does. but this company outlined a $9 billion free cash flow story for this next year, so -- >> how many more workers are they going to lay off? >> out of the eds acquisition, they said they've done 19,000 out of the 25,000. i don't know on a net basis there's a lot more reductions and i actually made comments about putting some investments in place. so i wouldn't expect a big head count reduction here further out of hp. >> all right, aaron, thank you for your time this morning. >> thank you. >> see you later. let's go to the futures pits now. kevin ferry standing by at the cme. kevin, the low ft -- >> good morning to you. >> good morning. the lowest two-year auction on record. what does that tell but the mind of the investor right now, the fixed income investor? >> another auction, another record, right? so i think the key here, steve, is to try and not read too much into it given the period of time that we're in. but the positive stroke is that the bond market and the improvement in the credit market is still the big story. and so i think that's what the stock market is able to look past the risks in the economy, the huge move in gold, and say that the financial system and especially the interest rate market is still the real function behind what's going on. and obviously, with the new record low, it was another successful auction. >> kevin, there's a lot of cross crunch out there. one of those has to be the end of the year balance street dressing that's going on. how much of what we're seeing right now in terms of treasury purchases and banks and bills. banks getting out there and printing up their balance sheets? >> i think a substantial amount. but it could go into the first quarter, too. it might not just be an end of the year phenomenon. although, steve, i think there is still a lot of room on bank balance sheets to take down these type of securities as the fed sticks on message about that. and swob you know, there's good and there's bad. what you really see is the section of the market from two years to three years now becoming what we used to think of as t-bills for the system. and that carries a certain amount of stigma with it. but you know, again, the corporate bond market, other measures of credit. the ted spread. for all that's going on in gold. and gold was the big story in the pits yesterday. >> but kevin, you're going to -- i just want to get to this one issue. you're setting up a huge conflict here, with the fed taking on the treasuries and the mbs on its balance sheet. when the fed goes to move wibt has to consider the losses not only to itself, but to the banks that are its care if it's going to raise rates. >> that's ditch natalie correct. there is no doubt, i don't think in anyone's mind, steve, that the exit strategy is going to be delicate and very tricky. but that's one of the reasons the fed has been more consistent than even we thought they would be on the message that that is a story for some time down the road. and so for right now, the market is able to deal with the present and i think that that is what people are keying off of. one thing to watch today i think would be oil. it had a very aggressive morning session, but didn't finish very well. that's been the tone for the stock market, also. three aggressive mondays and very quiet the rest of the week. so with this week being a holiday week, you have to stay focused on that. >> kevin, thanks very much. >> do you have a diner's club. >> i don't have a diner's club. >> do you know anyone who has diner's club? >> i dated a guy once who had a diner's club. >> that doesn't narrow it down much. >> selling north american -- it's not going to be material. >> the diner's club business is getting sold. >> do you have one? >> no. my parents both have diner's clubs. >> do you date his father? >> no. coming up, satisfying the neigh's demand for swine flu vaccine. >> what? >> well -- the latest greatest technology when "squawk box" comes right back. you all want to run your businesses more efficiently, so we've brought in a team of experts to help. one suggestion is to make your shipping more efficient with priority mail flat rate boxes from the postal service. shipping's a hassle! weighing every box... actually, with flat rate boxes you don't need to weigh anything under 70 pounds. if it fits, it ships for a low flat rate. call or go online for a free flat rate box shipping kit that includes free boxes and our helpful shipping guide. do it today, and we'll ship it all right to your door for free. ok, but i ship all over the country. you can ship anywhere in the country for a low flat rate. ship international, too. and remember flat rate boxes come in four sizes and shipping starts at just $4.95. call or go online for a free shipping kit with a full supply of free boxes, plus the shipping guide. act now, and you'll get them all delivered right to your business free of charge. priority mail flat rate boxes only from the postal service. a simpler way to ship. call or go online now to get started. whatever you want to do. steve has his jacket off now. >> because it's hot under the lights. i understand why you do it now. >> i think you should have taken it off right at the beginning. >> we have to go. >> earlier this month, cnbc had the unique opportunity to host a town hall meeting with two of the world's most successful investors, warren buffett and bill gates sitting down with column ya university students who shared their secrets with keeping america great. but our own becky quick had a chance to walk around the campus with these two legends in a day. we're going to share some of those most insightful comments with you. >> i know you spend a lot of time focusing and studying on all kinds of events, including diseases going around the world and i'm dying to ask you a question. would you have your kids get the h1n1 vaccination? >> sure. as that becomes available, i think everybody should have it. >> today, novartis is cutting to ribbon on the company's first cell vax even making plant. these are cheaper and faster to make than using eggs. our own mike huckman is there until the research area this morning. mike. >> reporter: good morning to you, steve thp the afternoon, more than 200 employees, executives and dignitaries, including the ceo of novartis, the secretary of health and human services and the governor of north carolina will be here to formally open this state of the art first of its kind facility in the united states. it's located in holly springs, just outside of raleigh. now, when this place is fully up and running, the six of these 1,320 gallon tanks will be the egg substitute. in other words, rather than injecting hundreds of thousands of eggs every single day with flu virus in order to make a vaccine, the virus will be mixed with a soup of cells in these giant fermentors. and three days later, it's put into a bunch of syringes. this cuts weeks, possibly even months off the egg-based method. it's highly automated. and the vaccine, they say, is often an even closer match for the targeted flu strain. now, this is the result of a unique public/private partnership. sure, novartis' name is on the building, but the plaques on the fermenters, they say they're owned by the fed. matt is part of making this work. >> i love the fact that it's new technology, right? so we're utilizing -- if you walked into an egg-based manufacturing facility, you're using 50--year-old technology to manufacture a vaccine. today here, we're using state of the art, high tech equipment in order to manufacture this vaccine. >> and indeed, a pick up in the once overlooked flu vaccine business is one reason why barrons just this week picked novartis as one of its top ten dividend paying stocks. if the practice runs all go well and the fda signs off on it, in the event of another pandemic or pandemic threat, novartis says as early as 2011, it could be ready to crank out as many as 150 million of these individual syringed vaccine doses within a six-month period of time. coming up later on the "closing bell" a live interview with the ceo of novartis and before that, kathleen sebelius on market signs. joe, you know you can follow me in here. and there is water in here, not vaccine, it's water. >> it's capital expenditures to upgrade everything to this new way. but we're doing it in -- everything moves forward and this is something we just need to do. it's like automating things, right, mike? but we're we're seeing with the shortages of h1n1, we've got to do this and spend the money to get it done, right? >> yeah. so that $150 million i mentioned, that's compared to the 90 million so you're talking 60 million more doses that they have been able to make in that six-month period of time using eggs versus cells. >> thanks, mike. >> you're welcome. coming up, headlines lighting up our radar screen. "squawk box" will be right back. >> you know, there are a lot of people who don't know you two who may think you're a little bit of an unlikely pair. >> the odd couple. >> i mean bill came up with an entire innovation created a whole new industry, looks at technology and, warren, you don't have an e-mail account. >> warren is on the internet playing bridge a lot, so his non-tech image, i wouldn't want to damage it. >> i'm saving myself for the next big technological break-through. none of them have been big enough for me yet. >> conversations not seen until now when "squawk box" comes right back. the ♪ (announcer) here's hoping you find something special in your driveway this holiday. ho-ho-ho! 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"the wall street journal," if you've got a little bit of gold you've got to take it out of the vaults. cnbc's scott cohn has an exclusive look at one company's efforts to keep up with demand and where the price of gold could be headed. nobody knows, obviously. let's get to michelle with the headlines. >> our top stories today, jpmorgan out with comments on general electric after meeting with company cfo keith sharon. jpmorgan keeping its rating on the component. they expect ge to see dramatic reduction. commercial real estate said to be the only remaining hot spot in ge's capital portfolio. ge industrial trends are seen on track and jpmorgan says an nbc universal deal looks likely. hewlett-packard tripling the share of its share repurchase program. strong sales from china, better profit margins boosting quarterly earnings. the ceo speaking to cnbc yesterday. >> we feel at a point that whatever the market gives us in terms of growth, we believe hp will outperform that from a market performance perspective. >> shares of hp during the last year up by 42%. some federal officials are asking president obama's pay czar to ease up on aig. the argument is ultimately the taxpayer would suffer if the curbs are too severe. aig is 80 act owned by u.s. taxpayers and received up to $180 billion in federal aid. >> our guest host this morning, david rosenberg. he is a former bank of america merrill lynch chief north american economist. and from new york, tom lee, jpmorgan chief u.s. equity strategist. good that we have guys from different disciplines on, because i was just arguing with david saying economists are great at looking at fundamentals of the economy. they should stay out of the stock market forecasting business. he's very upset and says the gloves are off and he'll put his record up against anyone's record the past two years. i mentioned rubini still negative at 666 on the s&p. david says yeah, he could still be right. >> think of all the people he saved on the way down. >> i'm not talking about the way down, i'm talking about now. >> look, you like to live in the moment. >> no, i don't. >> it's been eight months. japan had five or six of these flashy bear market rallies. they're going to come, they're going to go. but in answer to your question, remember, i am the chief economist and strategist. in fact in the introduction, chief economist and strategist. >> and at -- did you have the title strategist at merrill? >> i was the economist and the strategist, '02 to '07 i was the economist. rich is like a brother. rich bernstein was a strategist but he's a closet economist. you know, we both -- >> let me see what tom says. tom, should economists stick to their nigt and have guys like you decide what to do with the stock market. >> well, at jpmorgan i have a lot of respect for our economists because they're touching data and touching global data points that are enormously helpful for us. >> helpful. >> very, very helpful. >> but not definitive. >> and, you know, it just depends. i often get conflicting data when i speak to our analysts. i spend a lot of time with our analysts trying to hear the data points they're hearing from their companies and middle management contacts. the best opportunities really come when you see some divergences. earlier this year the divergence was companies were exceptionally cautious, you know, started bracing for the great depression and economists were seeing data points that were suggesting a trough in the economy. so if you look back, those divergences create great equity opportunities. >> all right. >> that's what i was saying before. economists were right early on, joe. >> all right. let me do this, okay. david is saying at this point that the fair market value on the s&p, tom, is closer to, what did you say? >> 875. >> 875 to 900 and that just looking at eight months doesn't tell the whole story. what do you think the fair market value for the s&p is at this level, tom? are you down at 875 to 900? >> i think the market's fair value actually is considerably higher. i think the investors are really looking at 2010 earnings. last week we raised 2010 eps for the s&p to $80, which is about an $11 increase from the current run rate. the current run rate for the s&p right now is around 69. if you think about whether or not that's reasonable, it's important to consider that bank loss -- loan loss provisions itself in the third quarter are annualizing at $15 per s&p 500 share. if you take it to the middle of '08 levels, it's $6 of losses so you have a $9 lift to s&p profits just coming from loan loss provisions normalizing. >> where do you get 875 to 900, david? >> just by applying -- i don't have $80 in earnings next year. i think we'll be closer to 65. frankly, i don't know where a $69 fourth quarter run rate comes from. i just got data from s&p and it looks like earnings this year are going to be 55, $56. so i don't know where the base of asks 69, don't know the measure of earnings that jp morg morgan is using off their base but the numbers i'm using off the s&p, call it $55, $56. we have $80 next year. call it a 30% increase in earnings at a time when profit margins are already in the upper end of the traditional norm. it's not like we have rock bottom margins. companies have been cutting costs. we don't have those low margins. >> you have rock bottom revenue. >> you have rock bottom revenue. but if we're going to get that revenue back, it's going to come at a certain cost. if you're going to start employing people again, you're going to have a higher cost structure. i mean you can't have the revenues going up. you think the revenues are going up and the cost going down. that's the way you'll get $80 in earnings. let me just go back to what it means for the economy, because there is a time-worn relation slp between gdp growth and earnings growth. if we're going to get 30% in earnings next year we're going to have 10 to 15% nominal gdp growth. >> when we go from the absolute worst number that we saw, we got this estimate coming out today but the negative 6 to the gain of 3, that was a 10% move basically over a two-quarter period. >> i'm not talking about the change in the growth rate, i'm just talking about the growth rate itself. so if we're going to talk about -- $80 based on my calculations, and i guess i'll have to go back and forth to jpmorgan as to how they get their numbers, but if you're talking about 30 to 35% earnings, you aren't getting that with 5% nominal gdp growth. what's your growth for next year? >> don't ask him, ask tom. tom, how do you respond to all this? >> well, you know, i think david is bringing up an important point. there's considerable disagreement with what your base earnings are. we tend to look at what we call the director's report, the number coming from first call which ago gates the normalized earnings from companies. so that base earnings is around $17 for third quarter. what we're asking ourselves is how defensible are margins because companies have done a lot of cost cutting. we know interest costs are really at decade lows. and you have dollars as a tail wind. so as we think about next year, an $80 number really implicitly reflects about 2.5% gdp growth on top of the current base of earnings, but then a big, big tailwind coming from loan loss provisions from banks normalizing. the one thing i want to point out is the $69 number for the s&p 500 right now includes $15 of after tax loan loss provisions from banks. in the middle of '06 that was a $6 annualized number so really $9 of this earnings lift is coming from loan loss provisions normalizing. >> so he can get to 80. >> he can get to 80 on s&p operating eps. i'm not looking at normalized scrub numbers, i'm looking just at the operating, which by the way should be excluding a lot of the writedowns we're talking about. that's why the economists say looking at operating earnings because they reflect what's going on in the economy. so what i'm saying is i'm talking about operating eps. i think -- i was a economist for seven years. most of them that i talk to look at operating eps. you can't annualize $17 in one quarter. the four-quarter trailing run rate by the time we finish the year looks like it's going to be $55, $56. we can sit here and debate what measure of earnings we use. >> you bring up a good point. we're going to get the first look at national profits, corporate profits for the whole nation, not just the public companies. they're going to be up 10.5%, which is a pretty good number. it looks like there's a return to profitability, not just in the public companies but across the nation. >> look, as i said, i think that we're probably going to see something close to 10% profit growth next year. what i'm saying is that the market -- i'm not saying we're going back to like the lows. i'm not going to compare forecasts to one that he might have made eight months ago but the market -- i think it's going to be closer to $65. i guess i'll come back in a year and compare the earnings numbers. that's where the economist comes in handy. if you're at $80 the market is fairly valued, markets do get expensive, it does happen. >> i know. and it's the constant -- >> but they can stay expensive for a really long time. >> and you do had advise clients to buy into an expensive market? as an adviser, what would you do? >> i remember day after day after day being told -- '98 the market was expensive, '99 the market was expensive. >> the market was expensive in '99. i don't know about '98. '99 it got expensive. you're right. then you get into that last extremely overvalued phase. and that's where you want to start taking chips off the table. but i would want to go to joe and say, look, you were saying -- >> i'm not saying anything. >> but you said the market is a discounting mechanism. >> right. >> well, the market bottomed in march. since march the only signs of recovery we're seeing is coming courtesy of all the stimulus. if i told you at the march lows that we were going to lose in the next eight months three million jobs, the employment rate is going to go to 10.2%, consumer confidence was still going to be in the 60s, right, and an expansion of consumer confidence, whether you look at the university of michigan or the confidence board it's at 100. we're in the 60s and we're actually still in recession territory in consumer confidence. we lost another three million jobs. we lost more jobs during this bear market rally than we did in the 2001 recession. >> the market went to 14,000 as one point. we're fighting over scraps here. >> you're saying it overshot on the downside. read it to the stock market, don't read it to me. read it to the stock market which is obviously looking at something else or dead wrong in your view. it's not doing what you think it should be doing. >> valuation is extremely important. >> we've got to go. go ahead, tom. >> well, you know, i think another thing that's important to keep in mind on profits, but i think what's been very unusual in this recession has been the ability of companies to maintain profits. in the third quarter, 25% of companies recorded record third-quarter profits and actually 50%, so half of the s&p 500 had third-quarter profits among the top ten in their history so you've really seen a much better profit performance. it may be partly because the global economy is a much bigger portion of total earning streams as well. the global economy has performed a lot better than the u.s. gdp. >> tom, thank you. we have david for the rest of the show but you've got to go. appreciate your time this morning. >> thanks. >> see you later. >> did you like that whole discussion? if you have comments, questions or anything you see here on "squawk box," e-mail us. still to come, buffet betting big on the rails, so should you do so as well? why one small cap portfolio manager also thinks rails could be on track for big returns. the price of gold is at record highs so rigs like this are especially valuable these days. i'm scott cohn in gold country. we'll kick the tires on this industry when "squawk box" continues. time for today's trivia question. on this day in 1859, what ground-breaking scientific work was published by a british naturalist? the answer when cnbc "squawk box" continues. dental bills... gazooks. you need a back-up plan ho, ho, ho. that's why we have aflac! so i'll have cash to help pay bills! great...but what if you're still not better by christmas? hmm... afllaaccccccccc!!!!!!! (santa): aflac. we've got you under our wing. rudolph's better... but now blitzen's sick! been putting our clients first. according to a leading independent research firm, in 2009 clients rated wells fargo advisors the #1 u.s investment firm for doing what's best for them. with advisors nearby and nationwide, we're with you when you need advice and planning expertise to meet today's challenges. wells fargo advisors. together we'll go far. now the answer to today's aflac trivia question. on this day in 1859, what ground-breaking scientific work was published by a british naturalist? the answer, on the origin of species by charles darwin. >> michelle didn't get it. >> i wrote a paper on the origin of the species and didn't get it. the dollar's drop has been a bonanza for gold investors. >> go ahead, keep going. >> i don't know how becky and carl do it. i don't know how they do it. just throwing bombs the whole time. the dollar's drop -- i'm going to do this straight, has been a bonanza for gold investors helping drive the metal to one record high after another. senior correspondent scott cohn is live in new york's diamond district where they also sell an awful lot of gold. scott. >> reporter: they do, steve. they also buy an awful lot of gold. for those of you who are not from new york and aren't familiar with the diamond district, it's basically a block of 47th street that is all jewelry stores, which that's a bonanza in itself, especially as he head into the holidays, and pretty much every one of them has a sign up that says "we buy gold" which they may be buying for jewelry or just as likely for investment. investment demand for gold isup in a big way as the dollar drops, which means that gold producers are having a blast. >> fire in the hole, leo. >> reporter: a 21th century gold rush. they're blasting it, digging it, hauling it away in massive trucks at the twin creeks mine in northern nevada. elsewhere they're selling it and buying it. all because the price of gold is at a record high, more than $1100 an ounce. >> but investment demand is up significantly. >> reporter: gold is a traditional haven for investors in uncertain times, and times don't get much more uncertain than these. the ceo of the nation's largest gold producer says gold is so attractive because it holds its value. >> the great thing about kboegos a currency is you can't make more of it. >> reporter: at twin creeks in northern nevada, production superintendent tim pike says they're working 24/7. >> it's all a function of economics. >> reporter: this pit is three miles long and 800 feet deep. no gold nuggets in here, they're long gone. nowadays in them there hills, as in most mines, is microscopic particles. >> just by looking at it, you don't know if it's got gold in it. >> reporter: getting the gold out is a massive task. they'll move 190,000 tons of earth every day. out of that on a good day maybe they'll get a few thousand ounces of gold. they grind it, treat it, heat it, until finally they can squeeze out the good stuff. these gold bars are worth, at today's prices, around $10 million. you go through that whole process and it makes you begin to realize why gold costs so much, but it costs them, they say, about $800 to make an ounce of gold so the rest, $360 or so right now, is pure profit. so where do they think that the price of gold will go? coming up on "squawk in the street" richard o'brien has his outlook for the price of gold. you'll want to watch that. you can catch all of our sense on the dollar reports and read more about gold and see some of the biggest gold reserves in the world at cnbc.com. guys. >> scott, thank you very much. joe. still to come, a check on this morning's top stories. later, big returns come in small packages it says here. we look at small cap stocks that could provide sizeable profits. "squawk box" will be right back. when we return, you saw the buffet-gates town hall meeting right here on cnbc. but what you didn't see is our behind-the-scenes conversation with two of the richest men in the world, and both had plenty to say outside the public spotlight. becky's walk and talk through the halls of columbia is coming up next. controlled freeze zone is a new technology... being developed by exxonmobil... to remove the co2 from the natural gas... so we can safely store it... where it won't get into the atmosphere. exxonmobil is spending more than 100 million dollars... to build a plant that will demonstrate this process. i'm very optimistic about it... because this technology could be used... to reduce greenhouse gas emissions significantly. ♪ welcome back to "squawk box." there we are, back indicating a higher open this morning, which is not bad after a move to new highs yesterday. so that stuff bullard said was good? >> they're going to be on hold, i've been saying that for a while. and bullard is actually talking about extending the mortgage-backed securities, which i've not heard from others. i would be a little cautious in that regard. >> the stomach acid spews into his h. pylori. >> i don't like it either. >> that they're buying mortgages. >> they have done what they set out to do. they said they were going to taper off the first quarter of 2010. that's a good time to stop. >> we're going to see more of gates and buffet. before the town hall meeting -- we're basically on a first-name basis with those two. our becky did a special walk and talk interview with both. it's a rare behind-the-scenes look at how two business leaders feel about the future of our economy. >> i have no doubt about the future of america. i'll let bill in on this. just look at bill. it's a good illustration of why this country has a great future. people like bill have been able to come into this united states economy and work miracles. and our system has allowed the potential of a bill gates to come out. 200 years ago, he'd have been some dirt farmer, maybe a blacksmith. i'm not sure what he'd be good at. but we have a system that unleashes potential and it's going to keep doing that. you know, you can bet on the future of america with enormous confidence. >> bill, do you think that there could be another bill gates even at this school right now? >> oh, sure. the opportunities as science creates new frontiers, new businesses are being formed today that are going to save lives, make our lives better and make billions of dollars. and that's why this system is actually being imitated by lots of other countries and that betters the world. so the u.s. has set an example and it's still the best. >> for more of this interview, you can check out cnbc.com. the entire conversation has been posted there. >> if you have any comments or questions about anything you see here on "squawk box," please e-mail us squawk@cnbc.com. coming up in the next half hour we'll put the markets front and center with rick santelli in the house. dollar, gold, stocks, economic data. we have it all when "squawk box" returns. okay, now here's our holiday gift list. aww, not the mall. well, i'll do the shopping... if you do the shipping. shipping's a hassle. i'll go to the mall. hey. hi. you know, holiday shipping's easy with priority mail flat rate boxes from the postal service. if it fits, it ships anywhere in the country for a low flat rate. yea, i know. oh, you're good. good luck! priority mail flat rate shipping starts at $4.95 only from the postal service. a simpler way to ship. welcome back to "squawk box." futures are indicating that the s&p and the dow would open ever so slightly higher, the nasdaq would open slightly lower. government officials want pay czar ken feinberg to relax executive compensation restrictions at aig. that's according to "the wall street journal." they believe excessive restrictions will make it hard to attract top talent which could ultimately cost taxpayers which own 80% of aig. general motors is planning to cut 9500 jobs in its opal unit. that will be presented to unions this week. gm decided to keep opal after months of negotiating a possible sale. merck's pain killer vioxx showed side effects years after it was pulled off the market. that comes from the archives of internal medicine, a publication of the journal of the american med sical association. merck disagrees saying investigators used unreliable methods to assess the data. joe. >> thanks, michelle. gdp data due out in a little less than an hour. rick santelli is here along with senior economics reporter steve liesman and our guest host david rosenberg as well as a former bank of america merrill lynch chief north american. wow, that's long. rick, what did you do last night on "fast money." >> you know what, i had fun. >> did you go off. >> i was on, i wasn't off. >> so you didn't do a rick rant? >> i think just about everything i do in some form or another is a bit of a rant. some gain a little bit more attention than others. >> i think you should put your stamp on that show and start with something or bend something that's purely santelli and see what happens. >> i think i bring something, the traders bring something. i totally enjoy myself, though. >> you could bring more. >> it's like hanging around with the boys next to the pit. you know, it's pretty fun. >> all right. >> whenever he's in the house, he's so calm. >> you need wolfman there. >> 80 guys behind him backing him up with the cheers. >> that's what it is. >> gdp is coming today. steve explained how they -- don't they estimate everything that they ever do? >> that's a good point. for five years they'll come back and redo, right, david? they told us the savings was much higher last time than we thought. we thought it was zero or negative but savings was positive 1%. just the idea here, in september that -- >> that has never happened. go ahead. >> it's an important, i'll take it in a minute. >> september, they estimate inventories. >> you want the sticks, right. the sugar sticks. they estimate inventories and they estimate trade for september. what happens when the economists do the gdp forecast is they estimate the government's estimation. that's how we get there. >> well, think about it. >> no. no, i don't want to think about it. >> traders live and die by these numbers but they don't go back and say, okay, we're going to reopen the pits for a modified trading session because all the guys that thought savings would be x two months ago, they had the right trade but they lost money. >> but what was the forecast going into gdp. last time it was 3%. everybody went nuts when it was 3.5%. same thing with payrolls. you can go back and wipe out a payroll. >> that usually comes january, february and it really is a bit crazy and it really raises a great question. i mean this is the best we have. that's what you have to work with. you have to trade the numbers as they are. but if our numbers are revised this much and are that inaccurate after all these years, i can only imagine how the accuracy of numbers coming out of china is. >> it's not really about accuracy, it's about they're working with a certain sample right now. and then over time they're going to get more information, more tax receipts, and they'll get more information. so it's really not that they're wrong, it's that they're working off a limited sample of data and the universe is going to build and more robust data. for example, next year we're going to find out the employment count. it's going to be 800,000 lower than we thought it was going be. that's the dp numbers, look, i' still struggling -- so gdp. how do we have a recovery. i can understand one single positive print, maybe positive in the fourth quarter, sales close to flat but then you read in the newspaper that state and local government revenues are down 11% year over year and year over year they were detonating because the economy was knee-deep in recession and they're down 11% on top of that and yet we have some sort of sustainable recovery going on because of the gdp data. the data could well be revised with a minus sign in front of it five years from now. >> but david, is your forecast that we are constantly forever going to be in recession? when i read your report, i have to say i want to take some hemlock. i really don't -- i thought about distributing guns to the group so we could all shoot ourselves. that 11 panges that you put out on november 23rd, it is we are forever and forever going to be in a recession. >> no. we are basically in a post-bubble credit collapse. credit is contracting, the government -- that's how fragile it is. is the recession technically over? you know what, all the experts seem to agree on that. that's what has be a little nervous. every economist has taken their cue from the stock market and a gdp number that was being fueled entirely by government stimulus. >> but it's wrong, i agree with you. i agree with you. how do we get out, when do we get out? >> even if we're out of recession, and i'm not convinced we are, but let's be charitable. the question is when's the depression going to end because you had a series of resessions in the 1930s but the depression didn't end until the second world war. and in japan you weren't perennially in recession, i mean this isn't some typical pull through recession. i still find the analysts and strategists that come into my office -- >> you think we're in a depression? >> we're in a form of depression and i'm going to tell you why that's the case. it's because when you take a look and depressions have happened over centuries, they typically happen after a prolonged period of credit excess morphs into a collapse and you get asset deflation. we had asset deflation and a contraction in private sector credit. this is not about inflation that the fed had to correct, this is a different animal than the resessions that we were used to forecasting through in the post world war ii era. this is completely different. look at the amount of stimulus the government and the fed -- the fed first started cutting interest rates in august of '07 and here we are still debating, still debating when did the recession end. >> your investment solution here is to what? is to sell stocks and own the commodities and gold? >> okay. there's -- as i said before it comes down to joe's point, the economists and the strategists. economists gives the economic outlook, strategists decides what's priced -- so what i'll say is we have successfully gotten our clients into our credit strategies, corporate bonds. i was talking with joe earlier about the stock market went to some artificial low. the corporate bond market at the worst levels are priced for minus 10% gdp. i would call that armageddon. so corporate bonds have been a core part of our strategy. >> are they still? >> yes, although the low-hanging fruit is behind us but it's all relative in terms of relative returns, i think they'll do okay in the next year barring a relapse. >> commodities. >> either you believe in the sector growth dynamics in asia or you don't. you look at the proven reserves and see if there's areas where you can drill for the stuff is actually going down over time. it's about supply and demand so we actually have a very high share of our portfolios and our equity portfolios in natural resources. on top of that we talked about gold, we talked about gold. it's a hedge against this, hedge against that. inflation, deflation, the dollar. it's not complicated, it's economics 101 when it comes to gold. gold production peaked ten years ago. gold production peaked and over that time period currency glo l globally has expanded by 130%. so gold as you said before doesn't have a yield. you can't do a price earnings multiple. >> you have to pay to keep it in the vault. >> but what's important about gold is about supply and demand. nobody asks the question, by the way, why did gold go from 850 in the early '80s and 1999 it's 250. we had contracting money supply growth and we did not have the same level of discipline at the producer level. global mine production doubled and we were trying to create disinflation. look at where gold leasing rates are and they're tied to short-term interest rates. >> david, you don't have to be 100% rate but your strategy did miss and would have missed this nice move in equities. >> but his premise is right, the recession is going to go on for a long time. >> forever. >> some of our credit strategies are up 40%. >> i hear you, i hear you. i'm just saying -- >> look it, the market is up 60%, right. who wouldn't have wanted to call the los and call the peaks. if i could do that i'd be in cap reright now. people don't understand that the amount of risk in the market. it's about risk adjustment returns. it's about every portfolio manager will know when i talk about the sharp ratio that you want to adjust for the volatility, adjuju for the risk. you can drive from new york to boston in an hour and a half. i don't know if you want to call your mother and tell her you did that and you get there safely, but think of the risk that you took on by having your pedal to the metal. >> they were smart, they saw the textbook relationships and now everybody wants to pull out to go to the guy who wasn't as sharp on the sharp ratio but caught the move in equities. it gets tough. >> we have buffet on a lot today with becky. we did see him spend $30 billion on a railroad in the middle of a ten-year depression, which probably is not going to be a very smart move if you're right. >> no, you know what, you can look at the headline and then you can actually dig beneath -- joe, what's his strategy. his strategy about railroads, take advantage of a weak dollar. taking advantage of land values. >> you still wouldn't do it. if you were looking at 1932 in a similar situation, you still wouldn't do it. >> wrong, wrong. i think his strategy is not -- >> spending that much on a railroad if we were having a repeat of the '30s? >> you've got to let me finish what i'm saying, right? his strategy is geared towards -- it could be a call on coal, it could be a call on the global economy, not the u.s. economy. >> no, he said it was all on the american economy. >> okay. when i take a look at the overall strategy, and i could see that there is some missing -- there's some moving parts. i actually think it was actually a good move on his part and it has nothing to do with -- i don't look at it as a call on the u.s. economy, i look at it as a call on a bunch of other things going on at the same time. >> well, i don't see him selling everything else either. >> a railroad is like a regulated utility. if you're taking a look at -- >> he owns a bunch of things that he's not selling. >> it is not a call on the economy, right? so basically i could see why he would make a further foray into the rail sector. believe it or not, there are some segments of the stock market that i do like, but i would say that the closer we get to the housing industry, the closer we get to the financial industry, the kroecloser we get the home building industry, look at the front page of the "wall street journal" today. one in four homeowners are upside down. >> joe is just angry that you are an economist picking stocks. he thinks the jobs ought to be separated as part of a full employment program that is in joe's mind. i don't talk about stocks, joe is just angry this morning. we've got to move on. >> i have no personal feeling one way or the other. >> you are angry. >> i'm not angry. i'm not angry. >> 6:00 he's angry. >> i'll be the angry one. i'll be angry. >> you don't think economists should do the stocks. >> no, i'm unhappy becky is out, but i'm not angry. thanks. we'll see you at 8:30 a.m. with the gdp report. coming up, warren buffett betting big on the rails. you just heard that. should you do the same? we'll talk to a small cap stock picker who is looking at one railroad he thinks may be overlooked. "squawk box" coming right back. for over 150 years, wells fargo has been putting our clients first. according to a leading independent research firm, in 2009 clients rated wells fargo advisors the #1 u.s investment firm for doing what's best for them. with advisors nearby and nationwide, we're with you when you need advice and planning expertise to meet today's challenges. wells fargo advisors. together we'll go far. the futures right now couldn't be much flatter. we've got 0.05 of momentum surging. playboy magazine is outskoersing in an effort to curb ongoing losses. it's turning overall non-editorial operations to american media. the publisher of magazines like star and fitness, they said it will return the magazine to profitability by the end of 2011. i think hugh is 83 at this point and keeping pfizer in business, lipitor. >> what's the name of that show "the girls next door"? very funny. >> i've never seen it. it's kind of sad to watch. it's sad to watch -- it's tough. >> it's quaint and charming almost. not that i've seen it lately. >> tough to make money if you're not -- you know, marge simpson is not going to do it for you. they say good things come in small packages, how about in small cap stocks. joining us with his best stock picks for the sector is eric hodges. great to see you. >> it's great to be here. >> small caps have outperformed a lot of the large caps over the last several months. do you think that's going to continue? >> i think it's going to be a little bit more of a stock picker's market, but i think the companies that are going to do the best are the ones that are probably the higher quality small caps that have the best balance sheets and are the best competitively positioned coming out of the recession, and those are the ones that we're trying to focus on in hodges small cap fund. >> a lot of people are argued because of the weakness in the dollar large caps are the place to be right now relative to small caps. >> well, that may be the case, but i think that you could also find opportunities to benefit from globalization in small cap stocks. >> is that why you like kansas city southern, we spent all this time talking about railroads. you invested in burlington northern. do you think the magic extends to the entire railway sector. >> yeah, we're attracted to the whole group and we think kansas city southern is one that's somewhat overlooked in that they are benefitting from the same things, the fuel efficiency, globalization and the fact that rail is just a low cost transportation method relative to other alternatives. kansas city southern is unique, though, in that they have a growth component from mexico. about half of their business comes out of mexico, and not only are they benefitting from cross border traffic between u.s. and mexico, but they're also benefitting from an improving situation in the mexico economy and the eventual emergence of a middle class in mexico. believe it or not, over half the grain in mexico is actually imported from the u.s., from the midwest, and kansas city southern plays a key role in transporting a lot of that grain. >> yeah, that grain metric, a direct result of nafta. kirby corporation also within the transportation section. >> yeah. and they're benefitting from a lot of the same things that the railroads are. kirby is very unique in that they are the largest, most efficient barge operator. that group is only running at about 80% of their capacity. but in the hodges funds, one of the things we're looking at right now is companies that have a high degree of fixed assets that they can leverage incremental demand once the economy improves, and we think kirby is in a very unique position there to see meaningful earnings improvement and maybe come out of the recession in a better competitive stance than they had going in. >> i think almost all things can be privatized including prisons. geo group. >> yeah, this is a space that we like. we think the whole privatized prison group has several years of secular growth ahead of it and they are really benefitting from some of the budget constraints, both at the federal and state level, and they're looking to the private sector to add new prison beds. about 24 out of the 50 states have overcrowding issues with their prisons, and we think some of the private prison operators bike geo group are uniquely positioned over time benefit from that. >> thanks for the small cap ideas, eric. >> thank you. coming up, the fed under fire in congress. former fed reserve governor rick miskkin comes. "squawk box" will be right back. stay tuned to "squawk box." the only place where you'll get down and dirty on stocks that will make you money. joe spills all right after the break. all right, opportunity. well, say you're looking for it in new places, like working with a supplier in china and a manufacturer in germany to reach new customers in the u.s. well, ups can help bring it all together with efficient solutions like paperless invoice that can help make customs a breeze. hey, the opportunities are out there. seize them with ups. you know, it's hard drawing those perfect circles. we have some stocks to watch this morning. let's take a quick look. hormel is reporting fourth quarter net of 77 cents. that's above estimates of 68 cents. but revenue was below expectations. the dividend was increased by 10.5% to 21 cents quarterly and that is from the maker of spam. heinz reporting 76 cents a share, that was seven cents ahead of expectations and revenue also above at $2.67 billion guiding full year net at 272 to 282 above its prior guidance and that is in line with analysts' expectations for the year. >> you see the story about they're trying to make ketchup big in mexico. >> trying to make it big. did you see what they put it on? >> you think i read more than the headline? >> pizza. >> ew. >> ketchup on pizza, ketchup on eggs is not that weird. >> salsa years ago overtook ketchup as the most popular not commodity, condiment here in the united states. >> on pasta, they put. >> now it's a melding. >> i remember randy quaid in "vacation" and they actually used -- do you remember that? they used hamburger helper and no hamburger. they made their ketchup out of tomatoes, just crushed the tomatos. you don't need the meat. let me just move on here. medtronic reported 77 cents, better than expected revenue. and guides full year above prior guides. now 317 to 322 and that is above reuters estimate of 315. general electric remains overweighted. ing for a meeting with keith sharon, the firm believes that a deal for nbc universal is likely and acknowledged that an offer for the ariva t & d unit has been made. walmart, estimates and target both raised, target increased to 64. union pacific downgraded from neutral to buy at ubs. the firm cites a recent buffet-related rally in the sector. the target remains 67. and prudential financial upgraded to outperform from market perform at wells fargo and the valuation range was increased to 58 to 64. amlin pharmaceuticals upgraded. the target is raised to 22 from 16. michelle. next, defending the fed. former fed governor rick mishkin will put on the gloves against all those folks who are taking aim at the central bank. he's a former federal reserve board governor. and the world's largest maker of earth-moving equipment. jim owens, the chairman and ceo of caterpillar will be our guest in the next hour of "squawk box." with fidelity, you can take your trading around the world, because now you can trade u.s. and foreign stocks online, in 12 markets, 24 hours a day, all from the same account, and settle in u.s. dollars or the local currency. plus, we'll guide you with international research and realtime quotes, so you can diversify your portfolio, wherever -- whenever. and we'll be on call around the clock, while you trade around the globe. fidelity investments. turn here. so, at national, i go right past the counter... and you get to choose any car in the aisle. choose any car? you cannot be serious! okay. seriously, you choose. go national. go like a pro. yet a lot of natural gas has impurities like co2 in it. controlled freeze zone is a new technology... being developed by exxonmobil... to remove the co2 from the natural gas... so we can safely store it... where it won't get into the atmosphere. exxonmobil is spending more than 100 million dollars... to build a plant that will demonstrate this process. i'm very optimistic about it... because this technology could be used... to reduce greenhouse gas emissions significantly. ♪ the battle for fed independence. >> what they're talking about is secrecy and what i'm talking about is transparency. >> one of the great strengths of our nation is the independent fed and this idea that's coming out of the house which is populous fervor is absolutely wrong. >> columbia professor of economics, rick mishkin comes to the defense of the central bank. plus breaking news, the latest revision to the third quarter gdp report. that's at 8:30 a.m. eastern time. >> i think that curbing the independence of the fed could lead to a lot of mischief. >> caterpillar celebrating a milestone. the world's largest maker of earth-moving equipment shipped its first export 100 years ago. we mark the occasion with a visit from chairman and ceo jim owe owens. "squawk box" begins right now. welcome back to "squawk box" here on cnbc. i'm joe kernen along with michelle caruso-cabrera. our guest host david rosenberg, chief economist and strategist. you're not a chef too. >> definitely not. >> all right, good. >> you'd look even thinner than you do now. >> he's joining us this hour. also a former fed reserve board governor, rick mishkin. also a professor at columbia business school. we'll talk to both of them in just a moment. and that's a familiar backdrop. nice new hd tv back there. thanks for helping, rick, with the -- those are hot this christmas, you know. first, though, the government about to release its first revision of the third quarter gdp. we'll have the numbers at 8:30 a.m. the futures are indicated up about two points -- maybe one point. >> joe, you know you're not allowed to smile if you work at the fed. they're very serious. the headlines this morning, hewlett-packard tripling the size of its share repurchase program. the company reporting quarterly results in line with preannounced results. the national retail federation predicts 57 million u.s. consumers are ready to shop this weekend. another 77 million could hit the stores if keels appeal to them. discounters expected to attract 66% of shoppers. the founder of galleon securities responding to the sec accusations. in a court filing he denies receiving or trading on the basis of material, non-public securities. hilton hotels, intel or polycom. >> steve, you left the set. >> i was able to confirm this morning, joe, that the federal reserve has asked the nine banks that went through the stress test but didn't pay back the tarp, the fed wants a plan as to how they're going to give the government its money back. a person familiar with the fed's thinking says -- it maintains a special buffer the banks had to maintain. the fed also looking for companies to show a preference for eeoc quit capital over other types. here are the nine banks that haven't paid back. bank of america, citigroup, fifth third, gmac and key corp. pnc, regions financial, suntrust and wells fargo. they have expressed differing comments. most are eager to get out. there is no timeline from the fed for paying back the tarp, but it's unclear how eager the fed is to see these banks give this money back. we do know treasury has made no secret of its eagerness to see tarp money repaid. >> so this h is who, the fed or treasury? >> well, it's the fed that has made the request. it seems to me it the may be more treasury driving this. >> seems to me? >> it would appear to me that this is maybe more the treasury driving this process. >> what with the fact that bank of america had wanted to pay it back but were told, no, they wouldn't be allowed to pay it back. you've got ten different hands in the soup. >> it's a little confusing. in general, the regulator would tend to side on banks having more capital over a period of stress, whereas maybe the fiscal authority in this case would tend to want the money back for deficit reduction reasons and other priorities it may have for the money. the fed is under fire. congressman ron paul on this network many times making it hiss mission to extract more information from the central bank saying americans need to know what's going on inside the fed. >> 75% of the people right now want an audit because of the pressure of the people and the congress, we have 313 members of congress that have co-signed this legislation. even during the debate last week we had four new people sign on at this last minute realizing this is very, very important and people deserve to know what's going on. >> becky hosted a town hall with bill gates and warren buffett but beyond the stage becky had the chance to ask the investors about the fed's independence. >> there are a lot of concerns about the independence of the fed, especially all these bills that are moving through congress right now. do you worry about that? >> well, i think there's nothing more important in the economic future of the country than to have an independent fed. and i think that's been demonstrated over the years. i think it was demonstrated even particularly last fall. but you do not want to fool around with the independence of the fed. >> joining us from irvington, new york, is former federal reserve board governor rick mishkin. rick, good morning. how serious do you think the ron paul is to the independence of the fed, how serious a threat? >> this is, i think, the most serious attack that i've seen on the federal reserve in the many, many years that i've studied it as a scholar. this is really dangerous stuff. what to me is remarkable about it is that many of the supporters of this legislation are very worried, for example, about inflation. they talk very much about how important that the federal reserve preserve the value of the dollar. this kind of legislation will do exactly the opposite. it is an outright attack on fed's independence. it is understandable how frustrated the american public is with what has happened and there are issues about whether the fed has done everything completely right during this episode. but the bottom line is that we know from point of view of both theory and also a lot of evidence that if you weaken the independence of the central bank, you get worse economic outcomes, and, boy, that's what's going to happen in this case. >> rick, what i want to understand is how an audit of the fed's monetary policy would threaten the independence. you have been a voting member of the federal market committee. tell me specifically how the ordering of an audit by a member of congress as to how monetary policy decision is made threatens the independence. >> the problem here is not that we want to get information about why the fed is making the decisions that it's making and doing this from a long-term basis. i've been an advocate for a very long time that the federal reserve should have more transparency in terms of describing its objectives, why it's doing what it's doing and explaining that both to the public and to congress. the issue here is that having an audit, which is on a day-to-day basis looking at particular items and then second guessing them, is going to be extremely, extremely problematic. you know, one thing about transparency is you want transparency, but it can go too far. the full monte is not the way you want to go. people have to be able to make tough decisions. >> i really want to get this because i want to understand why members of the fed and former members of the fed are so concerned about this and i'm just not getting it. >> why is it different from the minutes. >> that's what i don't get. they're going to come in, ask you why you made those decisions and publish their audit six months later. that's according to the paul bill. there's 180-day buffer. i'm a little lost as to why this threatens your independence to make a vote up or down on interest rates. >> the issue is the way it would be used. my feeling about this is -- and it's very subtle here. so, for example, there's a lot of information that the fed actually now does produce that it didn't used to. for example, the minutes describing exactly why it's doing what it's doing. similarly, there are issues including transcripts. having things come out too quickly can actually be problematic. there are cases, by the way, in fact i participated in an evaluation of swedish monetary policy before i became a governor at the federal reserve and indeed the kind of oversight they see in sweden actually works quite well but it's done on a longer term basis. it's not going into the details asking for every decision and actually calling people up in front of congress and saying we want to know individually why you voted the way you did. there's all sorts of dangers here. it's a slippery slope and very dangerous. >> mr. mishkin -- >> one second. one thing that's important to recognize is that this bill is coming from somebody who has on his web has written a book called "end the fed." >> but there's 213 co-sponsors also. >> absolutely. and in fact we get legislation because of the frustration and actually some of the decisions that were made pie the federal reserve are very controversial. that's understandable. but even if you're mad about the situation, if you get legislation that results in very bad institutional framework, which helps cause inflation to go up, particularly -- >> i want to explain to people for the novice viewer why you should be worried about inflation in this scenario. an unnamed source and an unnamed south american country with an unnamed skewedy dictator who was offered the head of the central bank there on one condition, that he lower interest rate, even though they had 17% inflation. are you concerned that if this happens members of the federal reserve get called up in front of congress and are forced to make decisions that keep money very, very easy and, hence, we get an inflation problem? >> yes. in fact, look, here's how dangerous it is at the current juncture. we're in a situation where we've got a very tenuous recovery. if the markets start to think that the federal reserve is not going to be able to resist the pressures from the congress to keep interest rates low when they need to raise them, that will raise inflation expectations. what that will do is right now is it will mean we'll have an increase in long-term interest rates, which will hurt the recovery, we'll have a decline of the dollar and it could be a very serious one. these are consequences that nobody wants right now. and so the danger here is that weakening the ability of the fed to exit from are what it has had extremely accommodating monetary policy over the most recent years, that if we actually hinder that process and there's a fear that that process will be hindered, we're going to get bad outcomes right now. that's not what the congress wants. >> david rosenberg, do you feel like this audit bill, which by the way lifts the exception from auditing the -- the prohibition from the gao auditing the fed's monetary policy, do you think this will lead to higher inflation outcomes? >> i doubt that very highly. i doubt that it's going to sacrifice the fed's ability to operate monetary policy, governor, it's great to see you again. the comment i would have us the fed's balance sheet has already become so politicized. i mean when you start -- i mean the fed brought this upon themselves. when you're talking about aig, you're talking about bear stearns, when you start taking on your balance sheet, you politicized your balance sheet. >> and if you're worried about easy monetary policy, a lot of people argue we already had easy monetary policy. >> but i would just say you don't want to make it worse, right? >> agreement. >> i'm still a little lost on how the audit is a political tool. are there other kpampls, rick, where the audit is used as a political tool that influences the agency that is making the policy? >> well, look, in terms of the balance sheet issue, i by the way agree with you. this is very dangerous stuff for the federal reserve. a key issue for the exit strategy is how to shrink this balance sheet. remember what happened here is extraordinary times. ben bernanke had to make the following decision, and this is butts ball. he had to make a decision of saying, look, we have a risk of having a depression. that probability was not low. wee going to take extraordinary steps to get this economy rolling again and more importantly get the financial system to recover, which indeed it very much has. that in fact involved decisions which are now playing out to affect the fed in ways that are very, very difficult. one of the reasons this expansion of the balance sheet occurred is because the fed couldn't lower interest rates any lower than zero and yet the negative shock to the economy was so severe. so, you know, it's always easy after the fact to say, gee, there were a lot of things that you could have done differently. boy, when you're trying to make decisions, it is tough. i've got to tell you, when you look at past history with central banks have acted like deer in the headlights, when a shock like this has occurred, we've had depressions. this is a case where the federal reserve took very active steps. maybe not all of them were correct. but on the other hand you look at the outcome here and it's a hell of a lot less bad than could have occurred. >> thanks, rick. david, we're going to get more from both of you in just a bit. joe, do you take them at their word that they say it's going to hinder monetary policy, take them at their word? >> the only thing i was thinking is that ron paul is going to vote against the bill. he said that. >> on cnbc. >> he said even though it's his amendment, he doesn't like all the other stuff and he wanted it to stand alone. >> he made his point and he's moving on. coming up, the first revision to third quarter gdp at 8:30 a.m. eastern time. in a tight job market many mba students are worried about their future. dean of the mit sloan school of management will tell us about some reassuring trends. then we've got caterpillar, the chairman and ceo jim owens on 100 years of exports and how business overseas and i know michelle wants to ask him about cap in trade coming right back. for a smarter way to trade online. only fidelity lets you back-test your strategies against an entire portfolio of stocks. plus you'll get advanced, customizable trading platforms. and you get the kind of execution you'd expect from fidelity... ...with a dedicated specialist to talk about even your most complex trades. they'll even help expedite the account transfer process. trade like a pro. trade with fidelity. welcome back to "squawk box." futures pretty flat. they are suggesting a flat open. yep, is it till there. it would be super flat. >> but a big move yesterday. it's holding on to that. >> a quick check of stories making headlines. the l.a. times agrees google has agreed to subscribe to tivo user data. it will see which ads users are fast forwarding through. if no viewer watches a commercial, the channel doesn't get paid for it. china's economic planning agency has okayed a plan to build a disney theme park in shanghai. disney says the initial phase of the project would include a magic kingdom style park tailored to the chinese region. magna international winning a contract to make frames for light duty pickups and suvs. no word on the value of the deal. >> think. ratings information we could get from tivo if nielsen didn't have a strangle hold. you could get a big enough sampling to get a greater number. >> the greatest came after the janet jackson clothing malfunction. they were bragging if you didn't have tivo you couldn't rewatch it. the average tivo user rewound it 7.1 times so they could tell you exactly. they know everything about what we do. >> i think they know already. >> they do. >> it helps them in negotiations. >> i think there's all kinds of privacy issues. there was a privacy outcry from libertarians. >> they need a better measurement of who's watching. >> to get the actual number of millions watching "squawk box." >> exactly. in a tight job market and with wall street looking less welcoming many mba students are worried about their future. our next guest seize some reassuring guests. joining me is the dean of the m if the t school of management and we also have rick mishkin and david rosenberg. we could use some positive trends. dean, what are they? >> good morning and happy thanksgiving almost. you know, we're seeing a lot of positive news in the opportunities that our mba graduates are experiencing in the market. we're a relatively small and elite school focused on management and innovation. innovation driven companies are continuing to do extremely well. i've been in china twice in the last three weeks in, london over the weekend, obviously going around the united states. companies that are focused on innovation and doing it well are seeing a really bright future. i think they are more concerned about missing the upside, not having enough human capital, to deal with the opportunities that lie just ahead. obviously there are lots of points of stress, but there are really positive places in most of the leading sectors, depending on which firm you're talking about. >> dean, i assume when you talk about innovation, that you're not talking about a new kind of cdo or credit default swap on wall street. a lot of these people are going into, you know, more traditional types of businesses? >> well, they sure are but that's been mit sloan's history. we have a really balanced profile in our students and in where they tend to go. in a typical year about a fifth go into financial services and that's true now. we're very proud of the choices or students make. there are great opportunities in financial services the for the right person who wants to help bring capital to the places it can do the most good that's a great future, but it's not the only future. and i think, you know, the innovation-driven companies in the real economy provide a great opportunity to make a real difference in a community and in the world and our students see that. >> sir, michelle here. do you ever get tired of our cohorts complaining about the fact that we don't graduate enough engineers in this country. and we graduate far more mbas than engineers and the mbas get paid more than the engineers. that tells me that actually we don't have an engineering problem. if they wanted more engineers, they'd pay for them, wouldn't they? >> i think you make a great point. i think this country does need more leading engineers and i think that mit is close to reidy to make a commitment in that direction. america really does need to continue to lead in all aspects of innovation. >> we just don't want to pay for the engineers. >> i think they will want to pay for it. our students at mit sloan spend a great deal of time working with engineers across the institute to give companies the best of both. >> and get paid more when they graduate. >> michelle is hitting on a point here that we've had a lot of financial innovation that essentially has been for the sake of financial innovation. when you go back and read a guy who read the nobel prize for economics, he envisioned these but envisioned companies using them to hedge their risks of manufacturing things, of selling things. instead we got into this loop where financial innovation as a way to just profit from paper. >> let rick mishkin answer that, dean, thanks. >> i think there's a whole set of issues here. there's no question that there's a lot of benefits from a lot of these financial innovations. the problem is when you study financial history and financial crises, that financial innovation can go wrong and, boy, did we have it go wrong in this case. in the long run financial innovation does help the efficiency of the financial system, has tremendous benefits for the economy. in fact i wrote a book on this topic. the problem is that when you get financial innovation and the business model isn't quite right and in this case effectively we had elements of one big carry trade throughout the entire financial system as a result of this financial innovation. a lot of the issues the way compensation was done was very, very problematic. we then actually had this fueled by this incredible flows of capital into the united states from the rest of the world and then it blew up in a way that's very, very damaging. the problem here is going to be how do we get the good aspects of this financial innovation to stay and not kill the goose that lays the goldening a but not also go through this again. >> dean, what are you telling your students about what just happened, and i don't know, their responsibilities when they get out into the world and what it is they ought to be doing? >> sure, right. what we're doing is credit talizing the message that we've been sending students for the last five or i would argue 50 years. about three years ago, four years ago, the head of our finance group, andrew lowe, said there's too much liquidity, too much leverage. not enough people paid attention to it. a few years ago professor simon johnson, another of our faculty as chief economist at the imf said there's too much leverage in the u.s. bank and even more too much leverage in the european banks. he was invited to return to mit for those views. we have faculty, including as i mentioned simon with his website, baselinescenario.com that have a great message for our students. what we want to focus our attention on now is being sure that when the next asset bubble arriv arrives, which the next frothy times come five or six years from ou or two or three years from now we want to be sure that our students continue to be thoughtful and manager who say look at the long term. >> all right, dean, thank you. we appreciate it. rick will be with us and, david, i whispered to david right now for frothy, right? when the next period of froth comes? >> well, you know, i wouldn't say that we are in a frothy environment, necessarily. i wouldn't say the stock market is frothy. i said it's basically overpriced from my particular macro view but i just got hit with an epiphany. here we have the dean of a management school on and credit is collapsing, over 100 banks have closed and i realized what's going to put the peak in our gold when you folks get the chief geologist on there, that will be the peak in gold. >> big economic data coming up. >> we'll have some breaking economic news, third quarter gdp and the revision. take a look at futures right now. they are indicating a flat open. futures higher on the dow by about 12 points. it's pretty close to fair value. you do not want to turn that channel because coming up next, breaking economic news. the first revision to the third quarter gdp, is it going to confirm that we are out of recession? the numbers and the instant reaction next on "squawk box." what's on the minds of independent investors? let's ask. when you're trading a stock, every penny counts. i hate when the trade is done and you find out you paid more than the quote price. i want it at the price i expect... or better. td ameritrade's unique trading platform uses multiple market centers to help you find the best possible price. i like those odds. i know they can't flat out promise a better price, but they're always looking for it. they know what matters to me. every online stock trade is always $9.99. not a penny more. and no maintenance fees. who else does that? are you ready to declare your independence? td ameritrade. independence is the spirit that drives america's most successful investors. announcer: trade commission free for 30 days, plus get 100 dollars cash, when you open an account. don't turn that channel because we are 15 seconds away from the first revision of the third quarter gdp figures. joining us in studio, we've got rick santelli standing by but kevin is at the cme group in chicago, steve liesman and also david rosenberg and rick mishkin. >> reporter: 2.8. right on the estimate, consumption 2.9 and the price index 0.5 down from 0.8. >> what did you say, steve? >> corporate profits 13.4%, which is the first measure they do which we thought might be around 10.5. actually corporations are more profitable than we thought. >> dow jones futures up higher right now. >> reporter: i was going to point out the fact in the bizarre world that we're in, the softer inflation figure might actually cause a bit of a dip. the nasdaq is down on the day. so watch that a little bit. i think overall it's still a fairly good situation and the market should take it pretty li anything? >> consumer spending was revised down to 2.9 from 3.4 so that's a marked stepdown. still a strong number. the big revision coming mostly from durableses, which was that whole cash for clunkers. business investments minus 4.1 after being reported at 2.5. structures down in a big way. housing investment down also. exports revised up a bit, imports also revised up and the government revised up. i don't know about the inventory number. i'll have to look elsewhere for that. but there's a big inventory change. minus 133 billion. let's see if i've got the export number. also 10 billion. david rosenberg, your thoughts. >> i think the fourth quarter is going to be something between 2.5 and 3%. >> that's not bad. >> that's not bad but the configuration is not going to be that good because i think final sales will be close to zero and most will be inventories. i think what does it mean for the first quarter next year. but most of the growth in the fourth quarter will be inventory-related. i think is that all you get for your money because i know that when the first number came out at 3.5 and i stripped out all the government stimulus directly and indirectly, it was a flat number. i would say when you strip out all the medication that uncle sam has applied to this gdp number, the private sector, the organic, was probably fractionally negative. >> rick, what's your assessment after what you've heard so far? rick? >> i'm sorry? >> what's your assessment of the data thus far? >> oh, okay. i just had trouble hearing you for a second. i don't think there's a whole lot of news here. it's always very tricky when you get a data revision like this that people read more into it than actually they should. i think that the answer here is that we do look like a recovery ongoing but it's not a very strong one and in fact for the intermediate term we'll have very low inflation well below the kind of objectives that people have outlined as being reasonable, around 2%, so we're not talking about a strong economy right now. we still are not completely out of the woods and we have a very high employment rate for a very long period of time. a lot of slack in the economy going forward. >> rick, tell us how you view the final demand part here being revised down. does it change your view as a monetary policy maker if you were inside the fed about how strong the consumer is right here? >> you know, none of this is really changing my viewpoint very much. it's sort of very much along the lines of what we expected. you know, when you really look at the situation, i mean the key thing that's happened is that we've avoided a depression. that's the most important piece of news. but, boy, it's not a situation where we look like things are particularly that strong going forward. we still look like we're going to have a sluggish recovery, and it's a tentative one. that's one of the reasons why it's very important to have monetary policy actually still be able to be accommodating and not have to worry about higher inflation expectations which could actually cause monetary policy to reverse prematurely, and that could be dangerous. >> how do you know we avoided a depression, mr. mishkin? rick santelli here. how do we put some numbers on that? >> you can't be exactly sure. >> right. i hate that expression because alls is does is try to give credibility to a strategy that in 20 years will be debated a lot more objectively than it is today. >> so the issue here is that when you actually look and see the nature of what happens during these financial crises, when you start getting the kind of recovery we've seen lately and a lot of information is revealed about the losses that financial institutions have suffered -- >> if we get that audit, a whole lot more information, i would imagine. >> so there's always issues that you never know if there's some shoes out there that could be super surprises. people at the federal reserve, me included, knew things were very bad. i was very worried about the financial crisis, believed very strongly -- hold on one second. i never could have imagined what happened with the lehman brothers. so the issue is that there are surprises that can occur but the likelihood of those surprises occurring right now, negative surprises are much, much, much smaller. it looks like the worst is over. but you can never be 100% sure. the only thing we can be sure of is death and taxes. on the other hand it looks like things are substantially better but that does not mean there's not going to be huge losses as a result of this financial crisis and the economy can suffer for it for a very long time. >> they started calling it a depression in 1934 and that was about two years after the low end gdp and low end in the markets but it was treacherous. we know that the depression didn't end until the end of the 1930s. we're talking here about a gdp number. gdp is not the only measure of economic health. we're talking about a depression. >> absolutely. >> we're talking about credit and the bank systems contracting at a 15% annual rate. we have the government that has stepped in as the lender of first/last resort. we have a situation where the unemployment and underemployment rate, the u 6 is 17.5%. i don't know what you want to call that. that's beyond all of our personal experience. >> wait a second. >> you said it didn't end until the '30s ended. one of the reasonses why it was prolonged is because in '37 they changed policy and went restrictive again both through taxes and by drawing -- receding back on government stimulus in the economy. so here we are having this debate right now that it's time not to -- >> steve, steve -- >> they started to withdraw. >> we still don't know the outcome. we can't use these what-ifs. >> you make your best guess and you go with it. that's the thing. >> they went through the stimulus six years after the worst part. it was '37, '38, five, six years after. are you telling me that the fed is going -- i'm sure even governor mishkin would agree the fed's balance sheet is unsustainable. >> i agree with that. i agree with that. >> look, we're not talking about serious implications here and big problems going forward, but let's be clear here, we're talking about 10% unemployment, it could go somewhat higher. this is not 25% unemployment or 1937-38 when we had 20% unemployment. you're talking about an extremely severe recession, but -- and the issue here is unless there's serious mistakes that could be made and in fact this is one of the reasons i worry so much about the attacks on fed's independence, which if they create a problem in terms of inflation examinations could mean a premature exit from accommodating monetary policy, if those mistakes are not made, then in fact we're going to have recovery. the problem is that we'll have a loss of output and very high unemployment for a long time. let's not talk about depression and use these scare words when in fact they're not appropriate. it's a very different situation right now than we had during the great depression and the key reason is that the financial crisis did get contained. that's really important. the federal reserve was extremely important in that regard. let's not talk about crazy words when we don't need them. >> we've got three different -- we've got rick who said we never did face a depression. you've got governor mishkin says we avoided it and david says that we're still in it. so we've got three different -- we're coming from three different places. we appreciate everyone's time. i just figured out that fast money is on at the same time as glenn beck, so i'm saying all this stuff, that you've got to glenn beck this stuff up a little and compete, so compete. >> we don't need to compete with glenn beck. we are who we are. we're the leaders at cnbc. we are the leaders. >> first in business worldwide but i want to hear some rick rants. >> who's glenn beck? >> exactly. let's check the futures before we go away. the futures were higher. now i think we're looking at down six. i want to see the top of that show with a real santelli rant. next, a big milestone for caterpillar. 100 years of exporting. chairman and ceo jim owens on moving products around the world in this economy. "squawk box" is coming right back. t. oh please. you got the presentation? oh yeah right here. let me stow that for you, sir. thank you. you know, just to be safe i used fedex office print online. oh you did? yeah -- they printed and bound 20 copies of the presentation, shipped it to portland, they're gonna be there waiting for us. that's a good idea. yeah. you have a nice flight. thank you. (announcer) print online...you upload your document -- we'll take care of the rest. welcome back to "squawk box." right now futures indicate down about 18 points. 100 years ago today caterpillar exported its first tractor outside of the united states. now the company is locked in the global debate over carbon tax versus cap in tray. here now with more is jim owens, chairman and ceo of caterpillar. good morning, mr. owens, it's great to see you. >> good morning, joe. good to see you. >> let's get a snapshot, first of all, of the sequential gains that you're seeing with cat because year over year, i think recently you said, what, down 50% or so. but there are some positive things happening in your business globally, right? >> absolutely. i think globally is the key word. we're starting to see an uptick certainly across the asia-pacific theater. china is back to near record numbers. asia as a whole, china, india, southeast asia, even australia, all beginning to pick up quite a bit in that theater. south america, particularly brazil, west coast of south america, i just came from a trip to south africa and the middle east. that part of the world is showing signs of life and picking up. so i think we're going to have a global recovery that's somewhat led by the emerging market theater. and the commodity sectors, principally the oil industry, oil and gas worldwide and minerals. >> jim, in the -- that was the three months ending in october, i think. >> right. >> and it was global sales down 15%. yet your stock was moving from 21 back to 60 or so near its highs. is that a disconnect to see the three-month sales ending in october down 50% and yet your stock has nearly tripled? >> well, we have a lot of disconnects here, joe. keep in mind our stock went from 87 to 22 on record results after five years of explosive growth so there's a lot of disconnects out here. i think the market is more reflecting the fact that we're not likely going to enter a depression from your previous discussions. and that markets are stabilizing, normalizing, global credit markets, for example, and that we're likely going to have a reasonable recovery from what has been the most severe recessionary environment we've seen since the 1930s. >> what about the dollar, when you talk about the improvement that you're seeing in a lot of these overseas countries compared to the united states, it sounds like, is that because of the weakening dollar or is that just a little extra that helps you get sales? >> well, i'm not a big fan of a weak dollar. i think i'd like to see our country be strong, our currency be strong and appropriately valued. i think quite frankly today the dollar is somewhat undervalue d compared to the euro but these things toned correct over time and is not a huge factor in our exports. we're a leading exporter from the united states and yet we're an investor and a major player in all of these global markets. >> jim, could you talk about the u.s. outlook, particularly in light of the stimulus that's out there. is your company benefitting from the stimulus? beyond the stimulus, what's the outlook for the private sector, say, unhelped by the government, unaided? >> well, the stimulus bill, i think, first off it was a two-year spend largely, and a good portion of that spend that will affect our business will come in 2010. the reality is the government sector spend on hard infrastructure is relatively small compared to the size of the private sector, housing, non-residential construction, cap x type investments, et cetera. and so it is being more than offset by declines in these other areas. unemployment in the construction-related sectors in our country is probably north of 20% now and it is a serious concern. so i very much hope we can see moving forward in the near term future a highway bill, for example, which can use some of these very underemployed resources to build infrastructure that we need for our country to be competitive in the global markets of the future. >> has anything that the administration has done, jim, or the actions, i guess, in retribution from china, has anything risen above the level of a skirmish in the protectionism that we're facing right now? or we can handle all this as we are right now, these are somewhat justified? >> well, i guess one of my concerns, i mean in the '30s the lesson we should learn is a turn towards nationalism and protectionism across the world at that time led to a recession cascading to a depression. one of the big policy eras, if you will. i hope this time we have more enlightened leadership around the world, we stay away from it. i'm concerned that we have not done anything to make forward progress in the last year or so. in fact we're kind of politically hung up here on trade. i think we have to be a great trading nation if we're going to be a leading economic power in the decades to come. and we need to focus our country on export competitiveness, we need to focus on opening markets to allow u.s. firms to compete. you know, we get all caught up in the populous rhetoric. three out of the top four manufacturing exporters in the world are high wage countries. that would be the u.s., japan and germany. china is an emergent player. but, you know, we can compete in the world market. caterpillar, i think, is a great example of that. if you look at our big tractor facility that the president visited early e.r. in the year, 88% of everything they told last year went outside of the united states. a very competitive, great products. >> what's your position on cap in trade? there's this national center for public policy research which was very upset with your stance on cap in trade and yet i can't really tell what your stance is based on their press release so you tell me directly. are you in support of this bill that's going through congress right now when it comes to capping emissions? >> well, we were not in favor of the house legislation. it came out way too complex. our concern has been that the united states needs to approach climate change legislation in a global context. i mean the air knows no border. for us to impose a significant cost on carbon that's not reflective of the cost that's incurred around the world, my concern is that it has an adverse impact on particularly our basic industries, aluminum and steel and chemicals. and if we price those basic industries out of the market, then we -- that's the feed stock for other manufacturers like ourselves. then we impede our ability to compete in the world market effectively. so i think we have to address climate change-related issues in an international context, not just from a domestic lens only. and that's been our position with the u.s. cap initiative all along. and when the legislation went through that was very focused on unilateral domestic initiatives, we did not support it. >> i have a question that comes back down, i guess, to what steve asked earlier when he talked about the sales outlook in the u.s. i continue to hear that what is going to repelg the stock market is the fact that we're so gearpt is the fact that we're so geared towards foreign sales and foreign earnings, yet i take a look at the uk and they seem to be stuck it in the mud as much as we are. europe doesn't seem to be doing a whole lot better. japan just report its fifth nominal gdp number in a row. so the question is what precisely, what parts of the world were you seeing your business grow the fastest right now is it just basically china and south america story? >> terrific question. well, it's china, india, southeast asia, add all those up, that's a whole lot of the population of the world. it's grow iing very rapidly. it's now reached critical mass. india itself has a larger middle class than any european country. so there's an emergent middle class, an investment-oriented mantra in these emerging market, brazil and russia could be added to that mix, parts of the middle east, that are driving demand for a lot of basic kmcommoditie. minerals, because that's the stage of economic development they're currently in. and i think this -- if you go back 20 or 30 year it had to be the united states and japan that drove a recovery. then the united states and germany, now, i think, the united states with the combination of a number of emerging markets can drive a very significant global economic recovery and in fact, we believe at cat perpillar, that the emerging market theater will be the primary catalyst that leads this global gdp recovery and they are a sizable critical mass now in the world market. >> mr. owens, we appreciate t it's been 100 years you've been exporting -- do you have any idea how many you exported. >> 16 billion last year, so that's a pretty big number. we start the out 100 years ago, the first tractor was $3,300. >> wow. amazing. congratulations. we appreciate your time today. >> first company name my kids knew, caterpillar. >> did they have little trucks i. think that's their business plan. my kids ever get in charge of a construction company, they're dying to buy cat perpillar. next stocks to watch, dow components in the mix. joe will have that one. "squawk box" comes right back. ♪ well, look who's here. it's ellen. hey, mayor white. how you doing? great. come on in. would you like to see our new police department? yeah, all right. this way. and here it is. completely networked. so, anything happening, suz? she's all good. oh, my gosh. is that my car? [ whirring ] [ female announcer ] the new community. see it. live it. share it. on the human network. cisco. xxxxxxxxxxxxxxxx all right, let's take a look at some stocks to watch. j pch jpmorgan made some comments an general electric after 3450e9ing with the ceo keith sherin. j pch jpmorgan expects to see capital provisions a bit better than the adverse case and commercial real estate, according to jpmorgan is the only remain iing hot spot i ge capital with industrial trends on track. they say nbc universal deal looks likely according to jpmorg jpmorgan. keep an overweight rating. hewlett packard, also exitems, the company reported earnings up 50% on cost cutting really. that stock is actually indicated lower. it's been running higher though. >> coming up, joe has an e-mail to share with us. stay right here. all right, let's check out the squawk inbox. i hope this gentleman will put his money where his mouth is. it could be -- guy's name is james papp. i'm willing to do this. i sent you the executive producer's phone number let's make it 100. let's make it 100 and i'll give to charity. >> ballet. >> autism speaks is what i would do. talk is cheap. let's make it 100.