Transcripts For CNBC Squawk Box 20130102

The germany dakotas is up 2 . This, of course, follows big gains that we saw on monday, the last trading day of 2012. Still another story for the markets in asia that were open. But see markets continue to be closed in tokyo where shares dont begin trading again until thursday. In china, the shanghai was also closed. In new zealand, that market is closed. You can see the hang seng was up by 2. 9 almost. Bombay and australia also trading higher. At this point, we are beginning to see the u. S. Equity futures, as well. Lets look, and youll see the dow future up by 148 points. No surprise after what we saw around the globe with some market already trading higher. But most markets seeing this as a relief that something got passed, that you are not going to see much higher taxes kicking in on americans making less than 400,000. You will not see the immediate spending impacts. What the markets think longer term is still in question. Again, the dow futures which just began trading are up by 151 points above fair value. All of this is happening because the house passed that senate bill last night by a vote of 257167. The legislation extends the bushera tax cuts for individuals who make less than 400,000 or couples, married couples who make 450,000. John harwood joins us from washington with a look at the other measures in the bill. I guess the big question is what this means in terms of the debt ceiling talks. Sounds like were starting all over again. It Means Nothing in terms of the debt ceiling talks, and upon it really Means Nothing, becky, in terms of the longterm effort to restructure our entitlement programs to make the government more solvent. So in some ways, this is a kick the can down the road deal. It does establish the principle that were going to get more revenue out of the tax code and that rates will go up for the first time in a long time. The lets run through some of the main provisions of this bill. Weve got as you mentioned higher rate, 39. 6 for individual incomes of 400,000 or more. 450,000 for married couples. Set the new estate tax at 40 rather than 35 on estates valued at 5 million or more. Indices the size of the state exemption so that it will rise in the future, democrats didnt like that at all. It has deduction limitations so that if you make more than 250,000 for individuals and 300,000 for married couples, the value of personal exemptions and deductions you get from your taxes phases out as you make more and more money. It sets the Capital Gains and dividends rate at 20 for people in the top income bracket. Thats significant because if nothing had been done, the dividend tax was scheduled to rise to 39. 6. So that in effect is a tax cut from what current law was going to mean. Weve got also in the bill an extension of tax credits for clean energy, for education. Youve got some of the stimulus measures, expanded earned income tax credit, expanded childcare child exemption that was in the bill. So all of these thing are tax cuts for middle and modest income families, although they are going to lose, becky, because we did not extend the payroll tax cut, that temporary 2 cut that means about 20 a week for a family making 50,000. So that is a a bit of a counter drag on the economy from the whatever boost its gotten from theection tension of middleclass tax cuts. Ive seen that in places theyre estimating as much as 0. 5 of gdp growth because of the payroll tax alone. You look at that, and people expect that if you continue to want Social Security youre going to have to fund if t somehow. This is money thats supposed to be going to that. Thats right. And the payroll tax cut was always intended as a temporary measure to stimulate the economy. And if you reason that you stimulate the economy until its recovering, were in a recovery now. So theres logic to letting that expire. Thats why it d. We did have a Significant Development in the house hastert night. Of course, john boehner took to the floor a billion that did not have the support of a majority of republican members. Thats the way that republican speakers have operated for some time. He got less than half, his republicans. And a pron of democratic votes to pass the bill. A significant thing. They went through a bit of kabuki before that because the speaker had a republican conference, and they went through the motions of see figure seeing if they could get a bill with more spending cuts and couldnt. Thats why we ended up with this result. Help go through a couple of headlines here. The big headline out of the white house saying that theyre raising 620 billion over ten years. On the other hand, you have others, cbo and depending on the political elements, some people saying that this is actually going to cost us 3. 9 trillion over the next ten years in part because of amt and how things are associated. Then you have the payroll issue which you mentioned, which apparently on average is going to increase peoples taxes by about 1,600, hitting 77 of the country. So how do you square all that together . Well, the conflicting assessments that you mentioned all are a function of what your baseline is. If you say compared to current policy, that is policy up to january 1, we were talking about tax increases because those topend tax rate increases on 39. 6 going back to the clintonera rate. All that raises more revenue and is a tax increase from what they were. If you measure it against current law which was that on january 1 all of those bush tax cuts were going to expire, we were going to put pull in a lot more money. And so that costs the government money. It was it was negative for deficit reduction measured against that. Coupled with the fact that you just mentioned, the alternative minimum tax, permanently shielding tens of millions of people from a very large increase in their taxes which is something that congress can reason and say, well, we never intended that. Alternative minimum tax was supposed to affect millionaires, thats true. Thats very expensive. Yes, the doc fix is also expensive. What they were doing in the socalled dox f doc fix is prev physicians under medicare from plummeting which would cause doctors not to participate in medicare. So while doing things that raise money, when measured against what was going to happen if they did nothing, they cost themselves a lot of money. Whats dividends are going to be tasked you didnt add in the obama care tax, like youre correct. Thats right. 3. 8. So its 24 on on dividends. 23. 8 for people at the top. Correct. Im trying i gauge who won and who lost by looking at the different, you know, the representative blogs. I think everybody lost. Yeah. I do, too. But the Huffington Post lead was take your medicine. So theyre chortling and crowing except a couple of their columnists. And the guy you have lunch with, sachs, jeffrey sachs. Hes one guy that says this is the worst deal in the world for everybody because it it ruins our ability to take care i dont know what robert reich hated it. Paul krugman hates it. If those are the only guys if you have to go that far to that group to find out, i think theres pretty much on the conservative side, you dont have to be very conservative to not like this deal. To say that boehner caved, right . You know, look, everybody the reason this bill passed is because everybody hates it. If anybody liked it the left doesnt hate it. If anybody liked it, it wouldnt have passed. I think the president likes it, he won one of the weirdest things and joe, i dont think he won. Look, the what did they get on the budget sequester . Come on. Now be happy youre still not happy . Be happy now. How about this what about the notion that suddenly those those reviled bush tax cuts basically are permanent now, arent they, for everyone under 400 . Yes, they are. Thats kind of something, isnt it . Something that the democrats just hated so much. I dont know. It became became permanent or not. To be clear about what they hated. They last a while. To be here about what they hated, joe, they hated tax cuts for people at the top because of their view of the way the i know. The inequality was being i know. You know what im saying. Yes. They hated now i watched all washed that red dye out of my hair. Do you have a monitor . Yours looks the same. And you got the glasses going again. Did we not have what about us . We rose above together, didnt we, on monday . Wasnt that nice . I enjoyed you noticed the deal happened after we anchored together. I noticed. And were redskins buddies, too. I needed an nfc team. I have an afc team. And that so ive got i dont like anything in the beltway except the redskins. So thats the the only thing. Joe, let me make one point. I appreciate the redskins sentiment i want to make a point about why nobody should like this deal. Good. This is starting off the new year well. Debt limit, nothing done whatsoever. No. Longterm spending cuts entitlement cuts, nothing done. No grand bargain. Were about to reenter a period of trench warfare. The president is going to say i dare you republicans not to raise the debt ceiling because im not going to negotiate with you. Lets see how it works out. Lets see how the whole spending cut thing works out. In addition to the fact that back at the starting ground. If the answer from the white house is were not going to do this, and republicans say, okay, we did this so we could get the tax parts through but were not doing it again and weve got to see cuts, were in the same position, kicking it down six weeks or something. Thats right. And the democrats are saying were not done on revenue. Right. Republicans think theyre done on revenue, but the democrats say no, were going to get some more which is logical because the president got less than half of the amount he was seeking. I think that all we have doesnt extend the pain of this sort of political dysfunction and warfare in washington. Lets look you do look i want to try and look at this as fairly as i can. Im not going to call anyone a redistributionist. Say that you were a redistributionist. This kind of does accomplish that. Lets not even look at it as a pejorative. If disparity income, if its risen the last 25 years, and if you want to try and do something theres a lot of causes for it. Remedies to try to take care of it, but this basically does redistribute income from the high end to the low end, does it not . It does. Well, look i mean, our many Government Programs have that effect. Right. So yes, this this increases the amount almost of redistribution that the governments doing. This is one thing the white house was bragging about. And yeah. Fair enough. It make the tax code somewhat more progressive than it was before. But but in terms of solving the longterm problems that we face, both economically and in terms of our budget no buffet tax. I think the really rich people, the ones that the president is talking about when he says millionaires and billionaires, theyre still sitting here laughing. I guess theyll get hit with dividends theyll get hit a little on estates, on dividends estates. A little. And the phaseout of the deduction. Minimal. On the the provisions for 250,000 and 300,000,000 incomes phasing down deductions. Theyll go back again at the proposal that the administration had which had not gone anywhere, to limit the value of deductions. This is a separate deduction limit, limit the value to 28 rather than the top line of 39. 6 . Hitting been billionaires that make 400,000 a year. The billionaires make a lot more than 400,000. I know. He constantly called them billionaires and millionaires. If you made between half a million and a Million Dollars on average youd pay 14,000 more in taxes. Is that where you are . You were looking specifically no, no. Why did that stick in your craw . I was going to tell you the number over 1. 7 million. Still getting book results . And that number is actually about 443,000 on average. They said people over 1. 7. Im assuming thats including the range. It questions what that ultimately what about all those people along with joe in the five millionplus brach. I didnt get that breakdown. Well bring it to you obviously as breaking news when we come back. I am thinking about what i would have to do. I have nothing to sell. Not going to be my body. Hmm. Not going to happen, john. I dont know. I dont know how you get to that level. Thank you for putting me there. You can donate an organ. I saw something funny about the Philadelphia Eagles. It was horrible, though. I cant remember how it went. What do you call the Philadelphia Eagles . 47 millionaires watching the super bowl. Nice. With a new coach. Those are the 47 players okay. The philadelphia 47 millionaires watching. Thats terrible. 47 millionaires watching the super bowl every year. Anyway thank you. Ite excited about next saturday. And saturday i got the bengals, houston. And you got us beating the seahawks . I dont know. I hope so. I dont know much about seattle this year. Wilson, hes good. Another good rookie quarterback. Hes a rookie, too. See, im not that clued in. I like the two rookies on the redskins. All right. Im going to hang my tie near the big screen. Thank you. You bet. Weve got another piece of news. There was another piece of legislation discussed in the house last night. But unlike the fiscal cliff, there was no vote on this. Despite pleas for bipartisan support for this from a bipartisan group, the session was adjourned, and the current term of congress will end without having a vote on Superstorm Sandy aid. That was something that people were looking for. This is absolutely indefensible. The fact is every bit of documentation that was required by the leadership of the house was provided by Governor Cuomo, governor christie, merritt blob, everybody played mayor bloomberg, everybody played by the rules except tonight. Indefensible. We have a moral obligation. The people are out of their homes, the people who are cold, the people without food, the people who have lost their jobs, they dont have the time to wait. We cannot just walk away from our responsibilities. And the senate had passed a 60. 4 billion sandy disaster aid bill last week. The current session comes to an end today after the new Congress Gets sworn in. Legislation does not, though, carry over from session to session. So consideration of an aid bill would have to start all over again if nothing is scheduled before then. Joe . Back and forth on this was whether its direct aid or not, in the house they said that there were things that were tagged on. Things for like aid for fisheries in alaska that they didnt want to see the aid. They want it to be aid that would go directly earmarks is what blew this one up. But its kind of shocking when you realize that that was what, october 29 . Talking about more than two months. They get the music the funds from the concert yet . Have those been dispersed . On 12 12 . Well check on the markets again. Big move that we saw on monday in anticipation of it. Well add to those today. Wow. 175 points should put us somewhere up well, closing in on 13. 5 again if this were to accelerate from 177. Over in europe, i guess maybe something is happening with that japan yen thing. This has nothing to do with the fiscal cliff obviously with whats happening in the you didnt see that. No, i did not. Never mind. This probably has more to do with the fiscal cliff than biggest part of the year is going to be japan. Biggest story of the year. Well talk about that later. The yen, japan. You know how big the storys been for 20 years. No economy and had a lot to do with anyway. Well check out wheres the oil board . That should be up you would think today. Although its 2013 now. A weakness in the dollar, right . Weakness in the dollar and because the world is were not going to go off the cliff. Whatever our gdp was going to be, its going to be now. You know what, the little bit more certainty. So who knows, maybe this maybe this does help. A little bit. I still think we have unresolved issues with recovery. The resilient economy. The u. S. Economy. You got to do a lot to try to mess it up. We do our best. Even this much certainty might help it a little. The ten year, lets see whats happening there. See, you wonder when your friends come back. My friends . Yeah. The gelattes. We didnt do diddly squat to do did not. And the yield is higher. What gilantes . Theyve been friends the vigilantes. And i ask why theyre not there, shouldnt been there sabre rattling. Its like do you say aunt or aunt . Aunt. You do . I dont say i used to say aunt people would say in new york its aunt. I dont know. Youre closer to Great Britain or something. Piers morgan says that we like guns because we we still are thinking about the revolution, and we hate the brits. Thats why we like guns. Hes threatening to move back. In court hes got to be careful. Thats like when some of those other people threatened to move. The country went, what can we do, can we pay for something . You need a suitcase . Never mind. Anyway, did we look at the dollar . We have not looked yet. Want to look. 1. 32. And then gold, gold did i was right. Did not go over 2,000. Thats right. For your prediction for 2012. Yeah. My i dont know what happened to my it 0 in the s p. It was up 30 from the low. Im hanging my hat on. That can i hang my hat on that . You can. Yeah. From the october level before, right . Right. Well take that. Right now time for the Global Markets report. Ross is in london. Ross, obviously a lot of green arrows. And i guess youre standing yep, in front of an entirely green wall today. All because of what happened here with the fiscal cliff. Yeah. Thats right. Happy new year to you. You, too. First trading day of the year. Yeah, green. Were at 91 advances outpaced decliners now with dow jones stocks 6 hundred hunch. Look at the graph. Were also up at the session high. Volumes arent necessarily terrific because it is january 2. But everybody will take the gains that weve got on this first day. It comes after sort of mixed gains really for European Equity markets in 2012. The ftse 100 has been something of the laggard over the last 12 months or so. Just up under 6 . Its broken through 6,000 for the first time today since july, 2011. The xetera dax up over 29 for 2012. Up another 2. 25 this morning, as well. Up 5 in the Fourth Quarter. The acc up 2. 39. And the ftse up 2. 23 . And we have this risk on move, it has brought kwleelds down continuing in spain and italy again this morning. And politics in europe is subdued for once. Tenyear spanish yield, 4. 4 . Italian, 4. 49. Were substantially lower, 4. 3 , as well. Two bits of key Economic Data out of the eurozone. The head of the ism manufacturing, weve had the equivalent in terms of u. K. Manufacturing. It came in surprisingly strong. We expanded for the first time in 50 months, 5. 4. The consensus was around 49. Up from 49. 2 in november. Domestic demand surprisingly supporting the manufacturing pmi. That pushed gild yield higher, 1. 1956 . That was the good news today economicwise. The bad news was in the eurozone. Pmi didnt do much to support bunds. The risk on appetite. We did see eurozone pmis again contracting today. In fact, the contraction in the eurozone this final number for december getting worse. The contraction deepening in spain. Down for 20 months in a year. The german contraction down by european pmis down for the 10th month and at a faster pace, as well. Its key because germanys the manufacturing powerhouse in the eurozone. Mixed pmi data. But on the whole as you see, markets saying we like the deal, well get some risk going here, althoughal continue volumes are light. Back to you guys. All right. Ross, thank you. New years earlier over for ross than it was five hours earlier. Coming up, a deal to start 2013. Were not talking about the fiscal cliff. Well have details next. And the futures at this yeah, thats nice. Up 194. Expected on the open. Tdd 18003452550 this morning, im going to trade in hong kong. 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Tdd 18003452550 call 18665069616 tdd 18003452550 and a global specialist tdd 18003452550 will help you get started today. Happy new year. Look at futures after the flagstaff deal has been reached. Fiscal cliff deal has been reached. The nasdaq up 45. The s p 500 up 24 points higher, the dow jones up 185. European stocks rising on the u. S. Fiscal cliff deal. You can see there that were up over 2 . Pretty much across the board. In other headlines this morning, hyundai and kia motors did hyundai merge with honda . It lime with rhymes with hyundai . Rhymes with ice cream sundae. Hyundai. Hyundai im trying. Hyundai sundae. Do you commit harikari . Theyre targeting a modest uptick in sales. Im trying to merge, people. Got some deals going i feel his pain. That would be the slowest growth in a decade. Other auto makers including toyota are setting conservative sales targets in the face of an uncertain global economy. Since were talking about cars, weve got a deal to start 2013. Joe, youll appreciate this. Avis is buying zipcar. Yay. Yay. For 12. 25 theyre similar businesses 12. 25 in cash, 500 million. A nearly 50 premium to mondays closing. The company saying theyre going to save between 50 million and 70 million in annual synergies as a result of the transaction. Its an effort to compete more against hurts which has its on demand. Used to be called hertz connect product on. Same thing . Same kind of thing. Renting a car except for it how would you pick it up on the street . Its maip program. Basically you pay think 7 or 100, maybe more, annually. You go on line and say i need a car at 10 00 a. M. You look, it will show you in the parking lot, two blocks away. You go there will be a zipcar. You get in the car, drive for three hours. You get back in the car, you leave it there you leave it there and another member picks it up as soon as you drop it off. Basically a carsharing program. And they maintain them. There will be they give you insurance for them. All part of the deal. Anyway, 500 million. 12. 2. Close to a 50 premium. Not bad work if you can get it. Yeah. I wonder how old is zipcar . Do they have a founder the founder is wealthy . They do. I believe its not that old. Not even that old. Maybe ten years. Yeah. All right. Now to todays National Forecast for weather. Mike seidel joins us from the weather channel. Hey, mike. Hey, good morning, joe. Happy new year. Northeast today, chilly weather. Snow showers around the lakes. Light accumulations but what youll notice are the temperatures running below average. Up through in boston, 28. New york city only 32. More flakes around buffalo following the fat of snow last week. Good range in the south. My back yard, an inch and a half upon rain. Showers toward the carolina coast. To central florida, if youre heading there for vacation before you head back to work next monday, temperatures will be 75 to 80. Chilly across most of the southeast. The sun is back out in little rock. Dallas at 46. Below average. Houston cloudy and nippy after hitting almost 80 on christmas. Another front coming through, arctic front, snow showers. Again, not a lot of snow. Maybe an inch or two. Chicago yesterday did not get to freezing for the first time in 310 days. And that ended the record stretch which ended on monday with 35 degrees. Its finally getting cold in chicago. For those of you in the northwest northern rockies, sunny skies, delay in the Pacific Northwest for seattle and portland until the end of the week. And the southwest and Southern California looks good. Breezy in l. A. At 67. Temperatures bouncing back out of the 50s today. 64 in phoenix. And joe, the real story this week unlike in december, we dont have any major storms on the map. Does the was very busy. I was out in snow and ice for 20 days. This their week i look forward to being home with the family. Good travel weather this week coast to coast. Into next week, weve quieted down the weather pattern for everybody in the lower 48. Beautiful. Im torn, i heard nothing for seven days on the horizon. Still, the rockies droughtlike conditions, doesnt mean its not going to get better. I hope theres a storm in seven to ten days that is head for the rockies. You dont tell yet, can you . There are storms and changes coming in about the 12th, 10th to 12th of january. Thats crystal ballissh. If i could tell you the forecast that far out id object a mountain top with stone tablet. We have storms in 10 to 12 days, more reason for skiers. Reason for hope in the rockies this year hopefully. Yeah. Theyve had a good start especially in the northwest. The cascades have had a ton of snow. A lot of rain which is always good for the spring and the Upcoming Season next summer. Good. Thanks. If you spent yesterday watching coverage of the fiscal cliff, you missed plenty of sports news. Among the bowl games of note, number 13, florida state, pounding northern illinois. That was a late one. 3110. In the orange bowl, lonnie pryor carried five to the career high 134 yard and two touchdowns. Eighth ranked stanford, this was a good game. You see dick on the sidelines with barry i did not. He was there. Kenny was. The rose bowl beautiful weather. I was thinking, wow, here we are. Stanford won the rose bowl for the First Time Since 1972. Stefan taylor and kevin hogan combined for 212 rushing yards and a touchdown in the 2014 win over wisconsin. In the capital one bowl, aaron murray passed for 42 yards, five touchdowns 427 yards, fieve touchdowns. They outscored nebraska 4531. In the gator bowl northwestern earned the first bowl victory since the 1949 role bowl. The wildcats turning in a 3420 for mississippi state. We didnt mention South Carolina which won in like seconds with a the touchdown. That was a big game. High kicking guy and anna storm was hosting the propane deal. Yeah. Is that different i have natural gas. If your you have propane on the side. If youre trying to delight and it doesnt light right away you got to turn it off and wait five minutes. I mean, even i know this. I was glad to see her back. Did a wonderful job. You even have an electric thing on your deck hibachi. You have a little his batcher. Do you have anything out there . We open the window. Took it like that. And you can do a foreman grill inside. No. You chinese food come back. Like from the first floor . You can do it inside with the foreman grill. We go to the hamptons. You know . Yeah. Thats right. I thought we werent supposed to talk about that. There is no mance in the hamptons. Theyll think there was. There was a staff in jamaica. What am i supposed to say . Come on. Come on. Exactly. When we come back, setting the tone for 2013. Will it pay to be a little more bearish to start the new year, or will the bulls shake off the nations fiscal mess . This morning at least, the tone definitely seems to be going to the polls. Alec young, strategist at s p capital i. Q. With his forecast after this. [ male announcer ] how could a luminous protein in jellyfish, impact Life Expectancy in the u. S. , real estate in hong kong, and the optics industry in germany . At t. Rowe price, we understand the connections of a complex, global economy. Its just one reason over 75 of our mutual funds beat their 10year lipper average. T. Rowe price. Invest with confidence. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Oh, just diagramming this accident with my state farm pocket agent app. You can also get a quote and pay your premium with this thing. I thought state farm didnt have all those apps . Where did you hear that . The internet. And you believed it . Yeah. They cant put anything on the internet that isnt true. Where did you hear that . [ both ] the internet. Oh look. Here comes my date. I met him on the internet. Hes a french model. Uh, bonjour. [ male announcer ] state farm. More mobile than ever. Get to a better state. Good morning. Welcome back to squawk box on cnbc. The Global Markets cheering a resolution on the fiscal cliff. U. S. Equity futures surging, up 172 points. European shares are also up significantly this morning. A couple of Percentage Points across the board. 2. 2, 2. 4, 2. 25. We like that. And the major markets in asia also responding, up nicely, the hang seng up almost 3 . Lets look at the fiscal cliff deal. The legislation extends the bush tax era, bush era tax cuts for those individuals making less than 400,000 or if youre married 450,000. Estate tax goes up five points to 40 . Over 5 million. But would have gone to 55 for anyone over a Million Dollars. But there is plenty the deal doesnt do. No additional spending cuts immediately. Of course well do those later. Thats nothing dont be worry good that. We have 110 billion in sequester. Yeah. It gets pushed off to the time about the same time doing this in a month and a half. The debt ceiling was not addressed. Well face mini cliffs. The buttons are going nowhere. Involving the debt ceiling, the farm bill expiration and Unemployment Benefits running out. The markets ended a strong we ended strong for the year of 2012. Up 166 if you recall on new years eve even though the fiscal cliff tax dragged on well beyond the 11th hour. Futures, as we said, are surging this hour. Starting off the new year with a bang. With us now on set is alec young, Global Equity strategist at s p capital i. Q. How much uncertainty has been removed from the markets . I would say six. A lot more than half. Relative to where we were, you know, the deal doesnt do everything, but it accomplishes a lot. I think the republicans accomplishes a lot how the tax deal is an excellent tax deal. But how does this accomplish anything toward solving longer term deficits . Well, two different questions. Im trying to forecast what the stock markets going to do based purely on the economy. We had a boost last year, and we had a lot of debt last year. I dont accept the idea that stock market reduction is correlated toward that. The republicans have leverage over the president and democrats for the debt ceiling. They need the republicans to raise it. I think theyll use that leverage to extract as many concessions as possible. In terms of spending cuts . In terms of spending cuts. Weve had debt for a while. Its a longterm secular issue. But the stock market is i think this is just a reason, this is a worry, and the market needs a worry in order to climb a wall of worry. I think people willet from against the debt ceiling for the next few well get the debt ceiling raised. The market will rally. In a few weeks, i think all in all, thing look good starting the year. You dont think well have this conversation literally in i do. Two or three weeks, it hasnt started this morning i do, i do. And thats not going to weigh on the markets . In the short term it may, but the concern is will they raise the debt ceiling . And ultimately they will. And guess what, it will be another morning like this, and youll come in, futures will be up. Right. Alec, i i look at it, and weve been talking about with washington leaders, weve been talking with people who look at longer term issues on these things who say, yes, we need to address the deficit, and we really need a grand bargain to do. That we talked to a bunch of senator whos said if they didnt see a deal for at least 4 trillion, the 4 trillion deal that it would be a failure. But i think it it, and if we had come in with a grand bargain, how would the market have reacted . I think the market would have reacted even more favorably. Really . But i i think there would be significant spending cuts. And there would be some right more tax increases than weve seen. I think a lot of the spending cuts are going to be focused on things like cpi adjustment, means testing for Social Security, medicare, raising age slimts. They set us on a sustainable track but dont hammer the economy now. As far as what came through, the sequester if it goes through in 60 days coupled with the increase in the payroll tax cuts, about 150 basis points on gdp, that was a con senses deal. Thats in the market. Its not going to hurt stocks here. What would hurt stocks is going over the cliff completely. We go into recession. Thats been avoided. I funding we can get some concessions out of democrats on some of these longterm entitlement issues that help bring bend the curve on spending long term, but dont hammer the economy in 2013, thats the kind of thing i think the market will want to see. Ultimately, you know, the debt ceiling i think is a fall debate. Theyre going to raise it. Were not going to default. So to the extent that people want to sell stocks on that concern over the next few weeks, we would view as a buying opportunity. But overall, 2013 is setting itself up in terms of in you had to forecast s p earnings, what would you forecast . We do forecast s p earning youre up what . We think up half of what the streets expecting, 5 , 6 , the consensus is 10 . We think thats too high. We see profits growing, revenues modestly. We think stocks follow those higher. Really, okay. How about how about the ten year . Negative. I think the tenyear yield has bottomed. Finally weve seen several attempts to get below 1. 5 fail. People have been calling the tenyear bond for ten years and gotten run over with the call. I think for the first time in a while weve seen an inability for yields to go lower. I think were finally starting to see some upward movement in yields. I think the bond bears are going to get some validation here. Whats the point for savers or for for individuals that, you know, care about income . Does the combination of the ten year peaking in terms of price as well as higher dividend taxes, does it make these big cap dividend stocks less attractive for 2013 or more attractive attractive . Just as attractive. Same. You brought up the point that if tenyear yields go up it gets more competive with stocks. Having said that, the dividend tax didnt go up that much. Thats why i think the republicans did a great job on the tax side. Given what we could have gotten do you think any of this gets revisited in the next conversation in the next month . Yeah. I think thats the concern. The president threw down the gauntlet last night. Im sure you noticed that. He said, you know, you better not mess with me on this debt ceiling. And i think hes got another thing coming. The republicans will absolutely mess with him because its the only time they have any leverage over him. I mean, the reality is people overwhelmingly vote democratic because they want certain entitlement. Thats a big motivator. The only way to get democrats to not spend money is to hold their feet to the fire on the rare occasions as a Minority Party when you have some leverage. The debt ceilings going to be one of those few opportunities. Real quick, multiples arent out of control right now, do they stay they if up, down, what happens to the Interest Rates . They go up a little. Multiples go up . They arent compressed by the ten year jumping . No, i think tenyear yields have to get above 4 before it compresses equity mobiles. Thank you. Coming up, there was a breakin to the Paris Flagship apple store. Well talk about it. Plus, why the state of pennsylvania is suing the ncaa today. She knows you like no one else. And you wouldnt have it any other way. But your erectile dysfunction you know, that could be a question of blood flow. 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Ask your doctor about cialis for daily use and a 30tablet free trial. Welcome back. Green arrows ahead of a big day of trading. Post fiscal cliff now that we have a deal on the table. Dow opens 162 higher, nasdaq up almost 44 points. The s p 500 would open up about 22 points higher. Making headlines, kind of interesting. Masked and armed thieves used the new years eve celebration to rob the Flagship Apple store in paris. They took up to 1. 3 million in goods which were reportedly stolen. The theft occurred about 9 00 p. M. On monday. It was three hours after the store had closed while police, though, were deployed around the famed champ delysee. Pennsylvanias governor will file a federal lawsuit against the ncaa today. Tom corbett intends to sue over the restrictions posed after the Jerry Sandusky scandal. A News Conference is scheduled this morning to announce the filing in u. S. District court. Last june former penn state assistant coach Jerry Sandusky was convicted of sexually abusing ten boys. In july, the university agreed to a 60 million fine to be used to finance child abuse prevention grants across the country. State and federal lawmaker have raised objections to the money being spent outside of the state of pennsylvania. When we come back, well make our first trip to chairs in 2013. The stories that were squawking about to start the new year after this. Before we do that, before we head to break, check out the early action in europe. This is a good indication of what youll see here this morning. U. S. Futures are sharply higher, same story over in europe. Right now the cac in france up 2. 2 . Similar gains in germany and in london. Well see more when we come right back. At farmers, we make you smarter about insurance. Because what you dont know can hurt you. What if you didnt know that boxes by the curb. Make you a target for thieves . 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You start looking, i hear middle age is 4560. I look at him. Hes 86. He looks great in a tucks. He married crystal how old is the new wife . Im not sure how old she is. She was run away bride last year, supposed to marry her and she got cold fit. Shes 26. Reasonable age spread there. She was on with howard stern and said his stamina wasnt that great in the sack. But but hes 85. Shes saying he didnt last. 85 i mean, youre going to complain about the quality. This is where were coming back around hes 85, in a tux, getting it done. Shes 26, he wasnt quite up to her speed. If youre at any speed at 85, if youre still what do they talk about . Huh . What do they talk about . If theyre on a long trip and need to come up with a song to singalong the way, i think they could come up with starspangled banner. Sing happy birthday to each other. I was going to ask for a pfizer chart just to check the quota. Hugh is a big advocate, as you know. Hes keeping them in business. Look. Doing well. Its raising, shares. Another quick story from new years eve. Rising above. If hugh was getting married on new years eve, what was Lloyd Blankfein doing . 40 million hit for blankfein . Thats one of his couches. Virtually every major Goldman Sachs executive at the senior level, what you do is bury the news, here we can tell you the news. Took home 4. 2 million and their cfo de parting, your 4. 2, basically all the major executives up to 3. 8 each. A lot of compensation in firms like that is in stock options. In stock options. The end of the year, you pay yourself for the year, right . You would think they would do it before the Capital Gains. You think its because people are noticing, youre mentioning it right now even though its only 4 million for someone who has hundreds of millions of dollars. Youre looking at me for hundreds of millions of dollars . No. Im saying lloyd is making hundreds of millions of dollars and youre making an issue of a few Million Dollars, a lot for most people. It is an over 20 million, on new years eve. Which is not a lot for an entire firm. Im just commenting. Its in the news. Are we going to start 2013 like this again . Im just saying whats going on in the world. Happening on new years eve. Hugh got married and they got paid. A much bigger story he was still getting it done at 85. And averting i disaster. Bringing everyone back downtoearth an they avoid the fiscal cliff and congressman steve israel from new york, we will find out where his focus now turns. 315 horsepower. Whats that in reindeerpower . [ laughs ] [ pencil scratches ] [ male announcer ] chevys giving more. Now through january 2nd, no Monthly Payments until spring for qualified buyers. Get the silverado for 0 apr financing for 60 months plus 1,000 Holiday Bonus cash. Plus trade up for an additional 1,000 tradein allowance. [ male announcer ] how can power consumption in china, impact wool exports from new zealand, textile production in spain, and the use of medical technology in the u. S. . At t. Rowe price, we understand the connections of a complex, global economy. Its just one reason over 75 of our mutual funds beat their 10year lipper average. T. Rowe price. Invest with confidence. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. A deal to avoid the cliff, what it means for the economy and americas future as Congress Turns its attention now to the debt ceiling. The futures are open. Next up, the opening bell on wall street, find out whats in store with our guest host, doug, and Wells Capital cio, jim paulson. Its the day after new year. We hope you make squawk box your friend every morning. As we get ready for another exciting year of business news, squawk boxs second hour starts right now. Good morning. Welcome to swaub squawk box o. Im Andrew Sorkin with becky and joe. The dow looks like it would open 156 points higher, nasdaq up 40 points and s p 500 would open up 22 points higher after some talk of an amended deal that would have to go back to the senate, the house eventually did pass the senates bill with no changes. It raises taxes on the highest earners for spending in two months. Much more on this in a moment. Other news, we have the first big takeover deal belongs to Avis Budget Group buying zipcar for 12. 25 a share. Nearly a 50 premium for zipcar shareholders. It may be another good year for the auto industry. 15. 3 million new vehicle registrations this year helped by 43 new models rolling into showroom and 63 newly designed vehicles. More on the fiscal cliff passed last night by the house. Joined by cnbcs eamon javers. By the time i was getting ready to turn in, they were still talking about how they didnt like it. Once we knew. Was there ever any question whether boehner would bring it up for a vote and send it back with some amendments back to the senate . Did we ever think that was going to happen . That was a real possibility for a couple hours yesterday. There was real uncertainty a few hours late in the day what was going to happen. As it turned out, boehner was able to bring it to the floor for a straight up and down vote and as a result it passed with mostly democratic votes. A minority of republicans supported this deal. The deal at the end of the day is the mini deal, extend the tax cuts for families under 450,000 and extend Unemployment Insurance and avoid the milk cliff by extending federal dairy policy and they also extended the sequester for two months. Dont quite get around the sequester, just kick that can down the road a little bit. Last night, all eyes were already turned to the next fight, the fight over the debt ceiling in the house, ways and Means Committee chairman said this has to be all about spending cuts. Take a listen. This is the first step. Permanent tax policy, that then sets the stage for comprehensive and fundamental tax reform and then addressing out of control spending. This would be several steps. Republicans saying this would be several steps. As soon as the bill passed, president barack obama took to the podium at the white house to say, hey, wait a second, this debt ceiling debate is not going to be a debate after all. Take a listen to the president. I will negotiate over many things, i will not have another debate with this congress over whether they should pay the bills theyve already racked up, through the laws that they passed. A lot of interesting political angles here to digest. Negotiating questions for republicans. When you look at the deal the president offered, the very last offer he made was probably better for republicans than the deal they ended up voting on. Although they rejected the president s offer they got something much worse in the end because they did not get the spending cuts they were looking for. The president offered several hundred billion in spending cuts. At the end of the day, they got almost nothing in terms of spending cuts. The republicans said this was still a victory of sorts because they were able to extend the bush tax cuts for 98 of americans and make that permanent something they have been looking to a long time and democrats resistant to. A lot going on. Eamon, i dont understand washington speak to some extent. What does it mean when the president says, i will not negotiate on it. What if the house says they wont raise it . Arent they de facto on negotiations . Yeah. I think the fact of going to the podium and saying youre not negotiating is a negotiations and saying your opening offer is zero and go up from there. Presumably, the republicans come back. He needs them to do it, doesnt he . He needs the republicans to do it and they will demand spending cuts. The president is probably going to cave on some kind of spending cuts and give them something. He signaled willingness to do that last go around. His point is the debt ceiling is not a responsible policy tool, congress should not authorize i know. And spend all this money and revvs revvs refuse to pay for it. Were you sneezing a couple days . I had the boli virus a couple days. Friday was pretty bad and new years eve kind of tough. Im back in business now and like 98 healthy. Thank you. I didnt see you. Maybe you gave it to harwood and harwood carried it and gave it to me on monday and left it on the set. Maybe i gave it to you. Have it. The germs fill the hallways. Nobody is allowed to travel anymore. I was sitting camera left down there. Is that where you are . Im one studio over from where you are. You might be safe. I dont know. I dont want to get it back from you. I dont think you can. I think the beauty of our white blood cells. All right all right. See ya thanks. Joining us to talk more about this is strategist julia glover and former staff for president clinton. All these victory laps people are taking both washington and wall street looking at futures. It seems like we are back at square one in terms of this same negotiations that will start again today. I think thats slaktly right. Exactly right. We went over the cliff and put on a parachute to go over the cliff. I dont think theres any victory laps, maybe hippocratic oath and avoided a terrible outcome as republican from oklahoma said. Well see how the next debates go. Theyre certainly looming ahead. We were talking about president obama in his speech last night he says he wont negotiate those. The republicans can still hold this up in the house. I think its kind of what grounds where the battle lines will be drawn. I think what the president says, i dont want to negotiate or dont think the deficit reduction or extending the debt ceiling is the proper policy tool to negotiate spending cuts. Where the fundamental difference is here is the size and scope of government. I think the president has to come forward with some spending cuts, hopefully finding middle ground. I think weve seen some steps on the tax fronts. Chairman camp was right on that regard. I hope we dont get back into the debt ceiling debate although we may. When is that supposed to happen if not in this nerkt rou next round of negotiations on the debt ceiling. You have the sequester two months ahead and clearly kicked the can down the road. You have a lot of windows to discuss spending cuts other than rai raising ting the debt ceiling i view. You have a number of natural opportunities to do that. Theres no Second Opportunity to grand bargain, if you will, that relate to all of these things . Eventually, thats where we have to go, in some way. That really comes to fundamentally addressing the issues that are before us and governing, making our democracy work. Whats concerning here is this is playing out kind of like a soap opera. Thats all good in television and perhaps on some of our discussions, but this is the real world. Its affecting real lives. The american people, American Economy are strong and resilient but this is a very very fast paced interconnected world, as all of you know. We are truly demonstrating a lack of ability to govern and missing some opportunities to really reset the United States for the future ahead. Thats whats concerning and disappointing and frustrating. I think youre seeing that reflected by the vast majority of the american people. Juliana, we listened to what happened over the last year and half or so. While i understand the republicans and why they said no to a lot of these deals because they dont inherently believe in some things going along. Amy has just pointed out the deals have gotten worse and ones along the way. Back in july of 2011, the deal on the table was for 800 billion in spending cuts. The president this time around offered several 00 billion dollars and what they got in the end was zero spending cuts. Should they agree to come to the table and get some of what theyre looking for. I think the fact the deals have gotten worse for republicans, the fundamental fact of the Political Landscape in washington right now. Its an immutable fact right now, republicans are in fact very much the Minority Party. We only control the house. Every day that goes by that as we come up to the sequestration debate later on this week, a couple weeks, excuse me, in two months well be facing sequestration, thats when republicans have the strongest hand, i believe, were talking about how cuts will need to be made and a dramatic change in the landscape. Up until now it has been primarily about tax cuts that need to be extended. Republicans did get a decent deal but not great in the next two months, about spending cuts rather than tax cuts. We just heard max suggest the way to do this is pass the debt ceiling and go on with sequestration. Is there a smart way you see politically for it . The deal is cut for sequestration only because tim geithner controls when the debt ceiling is hit. Theres many different extraordinary measures he can take to ensure hitting the debt ceiling occurs after sequestration. Debt ceiling negotiations are so dramatic and republicans really do have a much stronger hand in those discussions, because markets, as you well know, react more significantly to threats of the debt ceiling not being raised. While republicans went along with this deal or some republicans did, 85 in the house voted for this, will it be a different scenario not talking about taxes . This was a tough issue for them to vote against. It will be a fundamentally different scenario when we are talking about sequestration. The debate is about spending cuts. Y youll see over the next weeks and days republicans coming out and talking aggressively highlighting the extravagant spending in washington under the obama administration. Two months from now, youll hear nothing every single day, a real hammering on the administration on extraordinary spending, extravagant spending, too much spending is taking place. Where i do think the American Public is going to be focusing, we did have to increase tax rates. It was an immutable fact to the Political Landscape. Two months from now we need to talk how we need to cut spending and republicans will take that as an opportunity to press their messaging forward. In the end, hopefully, this will be something where everyone can come together on and republicans get what they want, decreased spending after having given up so much ground on tax cuts. I want to thank you both for your time today. Thank you very much. Good to be with you. Coming up next, the markets and what you can expect in 2013. Doug shields will give his predictions. The futures as we have now not gone over the cliff. The dow opens up at 161 points higher, nasdaq, 42, s p 500 up 21 points higher. Check out the 10 year, 1. 827. A quick look at the oil boards, as we swap it around. Wti crude. 92. 94. And steve israel will join us. Comment, questions . Send them to squawkcnbc on twitter. Follow the show and look for updates from andrew, becky, joe and the squawk staff. , im goo trade in hong kong. Tdd 18003452550 after that, its on to germany. Tdd 18003452550 then tonight, im trading 9500 miles away in japan. Tdd 18003452550 with the new global account from schwab, tdd 18003452550 i hunt down opportunities around the world tdd 18003452550 as if im right there. Tdd 18003452550 and im in total control because i can trade tdd 18003452550 directly online in 12 markets in their local currencies. Tdd 18003452550 i use their Global Research to get an edge. Tdd 18003452550 their equity ratings show me how schwab tdd 18003452550 rates specific foreign stocks tdd 18003452550 based on things like fundamentals, momentum and risk. Tdd 18003452550 and i also have access to independent tdd 18003452550 firms like Ned Davis Research tdd 18003452550 and Economist Intelligence unit. Tdd 18003452550 plus, i can talk to their global specialists 24 7. Tdd 18003452550 and trade in my global account commissionfree tdd 18003452550 through march 2013. Tdd 18003452550 best part. No jet lag. Tdd 18003452550 call 18665069616 tdd 18003452550 and a global specialist tdd 18003452550 will help you get started today. Welcome back, everybody. If you are just waking up, take a look. Futures are sharply higher after the house passed the senate bill on an up or down vote. S p futures up by more than 21 points. Nasdaq up by 41 and were seeing strong gains in the asian and european markets. Lets talk markets and economy and everything beyond the cliff now that were over it. Were sort of over it in a deficit way. Our next guest host is doug. Great to see you the day after, if you will. We didnt jump. Were here. Everythings okay. Well soft landing. Im a little confused. We passied extensions of tax cuts. Think about those cuts. We adopted those cuts in 2001 and 2003. They were all supposed to be temporary measures, we will have these tax cuts because we have a weak economy and stimulate the economy and once the economy comes back we will reverse. You have to at some time pay for the stimulus that you give at some point. But now what were doing is we put in this big debate about raising taxes. This wasnt about raising taxes, deciding when were supposed to allow the tax increases to occur and pay back. And now we made them permanent. On who. The other thing quite interesting, i was on cnbc listening to Charlie Rangel argue with Michele Bachmann over the fact the tax cuts never really benefitted any but the wealthy. Now were out there discussing the tax cuts we extended were all designed to benefit the not as wealthy. Its very confusing to me to understand exactly. Im confused which side youre coming down on . Heres what im suggesting. Going back to the old . Im suggesting we needed to make an objective decision not on the basis of politics but the basis of economics. In other words, what would the economic criteria when we determined what objective numbers would be turned off . Looking for gdp growth year on year or Unemployment Rate . The key debate should have been what were the economic criteria that turned off these temporary syst systemlatory measures. At some point we have to pay them back. We havent gotten the growth everybody expected we would get in 02 0203 from this. And now the debate about cutting and sounds like you cant have the debate you would have wanted. This is part of what some republicans say is starve the beast theory. Now that we starve the beast, what happens. When i listened to president obama last night the thing that went through my mind, he will continue to put on the Table Discussions of tax reform. To me, i just want rules. We basically have all been trying to play the economic game and somebody came to us and announced well change the rules but well get back to you and tell you what they are at later date. The problem with that is what rules still on the table . They say they want to change Corporate Taxes, eliminate certain loopholes. Theres a number of tax this is a really they didnt have enough time to actually do anything other than sit there and say, lets do a reversion of the previous tax regime and only for a subset of the entire population. You know thats not effectively the tax policy were ultimately going to be operating under. I cannot make rational Business Investment decisions without having a long term stable tax policy because after tax return on capital is what drives my business decisions. If you tell me in two years you will change the tax code again, how do i make a three year decision how to make an investment. Individualings at this point, i think the individual tax scheme for better or worse has just been decided. I tell you what. They told you they fixed the amt. Supposedly its a permanent fix. Okay. You know what that fix involved . That fix involved doing some inflation index situation a to exemptions. The problem with the amt is its completely broken. More and more people will become subject to it. You know why . A tax avoidance scheme thought of by the federal government is paying your state and local taxes and your property taxes. State and local taxes go up and property taxes go up, more and more people will still fall into the amt despite this inflation index situation a. We need a simpler tax code. Everybody wants a better tax code. The question is, has that opportunity been lost for the foreseeable future. From my perspective, the only good thing id say, im happy we reverted to a tax code i already played under the rules of and i dont have to waste a ton of time figuring out what the rules are and how they work and optimize my conditions. That uncertainty is resolved. Youre staying with us. Market participants are waking up this morning trying to make sense what to do with all of this. You think it is good news or i think its bad news. Depends which market youre talking about. Talking about bonds and youre long bonds, it might be okay for bond bonds. Earthqua equity markets righ thats why im not an equity trader. I cant understand it. We came to a resolution. You look at the next steps basically making permanent tax cuts that would revert when the economy improved but we didnt get an economic improvement. Dont go anywhere. Stay where you are. Orange juice getting squeezed in 2012. What meteorologists and traders see for the first half of 2013. And steve israel joins us to discuss last nights fiscal cliff votes. Oh, hey mike. What are you up to . Oh, just diagramming this accident with my state farm pocket agent app. You can also get a quote and pay your premium with this thing. I thought state farm didnt have all those apps . Where did you hear that . The internet. And you believed it . Yeah. They cant put anything on the internet that isnt true. Where did you hear that . [ both ] the internet. Oh look. Here comes my date. I met him on the internet. Hes a french model. Uh, bonjour. [ male announcer ] state farm. More mobile than ever. Get to a better state. Welcome back, everybody. Orange juice futures were bruised in 2012, plunging 30 last year. They were tracked by the crb index. American coffee was the worst performing commodity. Forecasters have predicted above average temperatures for florida in the upcoming weeks and limits the risk of crops freezing, last ye year, the amount of orange we drank rose. We have four minutes of trading for 2013 . We will get you orange juice. It hasnt cleared up in the first day of trading. Are you pulp or no pulp . Im a no pulp. I love pulp but have kidney stones and get stuck with no pulp. Coming up, we slice and dice last nights fiscal cliff vote and what it means for jobs when we return. [ indistinct shoutin] [ indistinct shouting ] [ male announcer ] time and sales data. Splitsecond stats. [ indistinct shouting ] its so close to the options floor. [ indistinct shouting, bell dinging ]. Youll bust your brain box. All on thinkorswim from td ameritrade. I need you. I feel so alone. But youre not alone. I knew youd come. Like i could stay away. You know i cant do this without you. Youll never have to. Youre always there for me. Shh ill get you a rental car. I could also use an umbrella. Fall in love with progressives claims service. Happy new year, everybody. Welcome back to squawk box this morning. Take a look at the futures after last nights budget vote did go through in the house. At this point, you can see dow futures up by 173 points and dow jones up and nasdaq up by 44 points. Theyre all jumping at this point and all indicate strong gains after the opening after the 2012 final gains in trading monday. We have other holideadlines to you about. Avis budget car buying zipcar for 500 in cash and almost a 50 premium for zipcar shareholders. Well get the december ism Manufacturing Index and november construction spending. Both those numbers out again at 10 00 and all looking ahead to friday, the december employment report, a big one. Astill a hotbed of gambling growth. The macau casino jump ed to a record and coming from china. Reacting to the fiscal cliff deal and steve will tell us how it affects the year ahead. We have jobs this week, so focused on the other stuff. Well get to that in a second. While we partially avoided the fiscal cliff, that keeps the u. S. On track for a fiscal drag of 1 to 1. 5 gdp depending which economist you talk with. They say the deal is about in line with their expectations. Heres one that modified what happened. Payroll tax cuts expires 0. 5 gdp, tax cuts on wealthy, probably 0. 1 to 0. 2 i penciled. Health care taxes 0. 1 hit and previous spending cuts. 0. 1 and what happens to the sequester, 0. 2 or 0. 5 , we expect the sequester to mostly be postpo postponeed for 2013 and offset by tax increases that phase in more gradually the next several years. They thank that halfw they th that Halfway Point goes away. And keeping the taxes from hitting most of the public. Why is that so hard . And saying we expect businesses and consumers to remain cautious until these issues are resolved and the Financial Market will remain vulnerable. Finally, alan simpson of simpsonbowles did not waste time last night saying the bill approved today is truly a missed opportunity to do Something Big to reduce our long term fiscal problems but a small step forward in efforts to reduce the federal budget and oh, yeah, see if they feel confident enough to turn their attention to the economic report not been all that bad. At 10 00, the ism should come in over 50 from the prior month. Adp, 150. Vehicle sales, i like this number, maybe 15 million. Maybe some of that could be Hurricane Sandy vehicle replacement. Watch for the minutes. I think were pretty clear where fed policy is going. Finally payroll, friday, 150,000. 7. 7 unemployment. The uncertainty drag, whatever you want give me a number. 1. 5. I think its a wash. Stay at 2 and go up from there. Ill take 2. That would include some deficit reduction. Well get better, dont you think . A couple 3 quarters this year, if we can get the uncertainty behind us an get housing going and start to unleash private capital. For the quarter or the year . 2ish. Whatever our going rate is, at least as good as it was, even though you have new funds, as the old problems start further im interested in the trade. Two out of two times they made a deal in the final hour, which means if id stayed the course, what would i have been, plus or minus zero or bought at the bottom with a nice timing trade. If you would have plowed in some money at the darkest time. However, we didnt do anything yet, still worse to come. Do i make a bet now . Sn depends how long term an investor you are. You go long here. Wait until you see the tax receipts that will come in. Wait until you see the federal tax receipts from all the actions people took to avoid future taxes which really is more government debt. If they dont control spending in 2013. Part of the proposal around the lane of squegs was to allow people to take their 401k and do a roth conversion. Thats taking money today and not getting it in the future. Thats the worst possible thing you could be doing. If they dont have spending controls and they get that money thank you. I think this next guy you talked to is going to say 3 . I bet you. He may be a 4 on gdp . Lets bring him in right now. Jim paulson, Wells Capital management. You hear this discussion were having around the table. What do you tell people, a, in terms of growth e spexpectation and, b, what the market does. Yeah. Happy new year. Every year, expectations at thet start of the year were disappointed on growth as the start progressed. This year, we have expectations on 2 on gdp and i think we will surpass them this year. I think were overly focused on the fiscal cliff and its negative impact. 1 to 1. 5 tightening. Every recovery we had 1. 5 tightening. The deficit went frabout 1 a yr taken off or applied to fiscal cli cliff fiscal austerity. A little bit more fiscal austerity for 2013 is nothing new to this recovery. What you need to focus in is stimulus hitting. We have record low Mortgage Rates helping refis and housing activities. We still have a dollar now down 10 from the recovery cycle highs and 5 from summer highs. We have gas prices at the pump at their lowest levels of the year. Inflation, 2 lower than a year ago. Fall. Thats a lot of positive stimulus. And china not to mention the fed and everything theyre doing. Yeah. I just think china, which was a huge problem this last year was weakness in the emerging world, putting down manufacturing sector. Now, its reviving bringing manufacturing back. Think about 2013 will be the first year of the recovery, becky, we have rising housing activity and rising Manufacturing Activity at the same time. As far as this fiscal cliff affecting us, where is that . Consumer confidence is at a five year high right now. Theyre stepping up, as steve just said, and buying autos and buying houses. Wheres the hesitation . Capital good orders in the last few months have been far better than people expected. Investors did a 15 gain and the World Markets are up 17. Wheres the hesitation . You will be close tore r to. And accord human beiing to h sis, we should have let the tax cuts expire. Based upon that Economic Forecast we should begin the process of paying back, we will have significant growth, we should begin the process of paying back the stimulus we had the last decade. If thats the economic stimulus we encounter, thats what we expected when we established these policies and this was the economy. Youre not going to see that. That moment has come and gone. Of course. You look at whats happened with the stock market we will see a lot of gains. At 13. 3, how cheap this is market . The biggest thing happening, we go into 2013 for the market, already started last year, that is, i think were sencytizing to end of the world stories. What i mean by that, by de senthytizing. Why we do that. It can be lengthened. Maybe were starting to accept maybe the recovery wont start this year, maybe last two or three years. When you discount multiple earnings you can raise the dis disevaluation on that earning stream. Almost 10 of the gain was a rise in the price. We started the year at 13 times earnings and ended at 14 1 2. I think were going to get another 10 gain in the multiple in 2013, maybe from 14 1 2 to 16, as more and more investors start lengthening investment horizons. If that happens, you get a 10 multiple gain and get a 5 earnings gain, you have about a 1700 tart price somewhere on the s p 500. We might not end the year there but i think thats a very reasonable estimate. Most of its gained on rising confidence on the idea of a sustainability and lessens lessenscitized to the end of the world stories. Do you believe based on that forecast the fed will change policy by the end of this year . Will the fed continue to keep rates at zero and continue to do treasury purchases and mortgage purchases . I think the bond markets going to get hit this year. I agree with you or maybe someone earlier said bonds will take a hit and maybe move up 3 . Its the same confidence that is running through the stock market right now in the sustainability, the cycle, is going to run through 3 bond market as well. I dont think the fed will change course this year maybe but i think they will come under intense pressure by the end of this year. Right now, the cultural focus in this country is on fiscal issues and will fade away the next few years. Where the issue will be is monetary issues. That makes multiple expansion harder with rates. I guess you think they need to get above 3 . I do. I think the confidence initially is going to raise multiples and bond yields and eventually, maybe 2014 it gets tougher because rates are back up again. Thank you very much. Nice talking to you. Nice to have you. Thank you for having me. And a deal on the fiscal cliff and reaction to the vote that didnt make it. After the vote, the president spoke to reporters. Heres a bit of what the president had to say. Squawk box coming right back. We can come together as democrats and republicans to cut spending and raise revenue in a way that reduces our deficit, protects our middle class, provides ladders into the middle class for everybody whos willing to work hard. About once a month. Last time i was at a gas station was about. I would say. Two months ago. I very rarely put gas in my chevy volt. I go to the gas station such a small amount that i forget how to put gas in my car. 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Every bit of documentation for this house was provided by Governor Cuomo and governor christie and bloomberg and everybody played by the rules except tonight when the rug was pulled out from under us. Absolutely indefensible and inexcusable. We have a moral obligation to hold this vote. The people out of their homes and without food and lost their jobs. We cannot just walk away from our responsibilities. The Senate Passed a 64 billion sandy bill last week. The current session of the house starts when they get sworn in. The consideration of an aid bill has to start all over again if nothing is scheduled before then. In washington, congressman steve israel of new york, also the chairman of the Democratic Congressional campaign committee. In your view, this will be taken up fairly quickly in the new session . It needs to be taken up quickly in the new session. It is indefensible it didnt pass yesterday. This is why people get frustrated with washington. Peter king a republican and i a democrat worked side by side to get this done. Governor christie, cuomo, mayor bloomberg, republicans and democrats, a republican and democratic Senate Passed this bill. At the last minute for reasons i still cannot fathom, the Republican Leadership of the house decided they will not allow a vote for it. Where are we now . I have constituents who arent interest in parliamentary procedure and arent interested in finger pointing and arent interest in excuses. They want to know what happens now. We have a new congress that gets sworn in tomorrow. We need to get this bill on the floor in the first order of business and need to pass it immediately in terms of delays or excuses. That will happen, right . Ive given up predicting anything in washington. Every time we get close to getting anything done, the house Republican Leadership throws us into more disarray as happened yesterday. Just when we avoid one cliff, they threw United States off another cliff, the hurricane cliff. We have to come together because there is widespread bipartisan support for this bill. Its there, just a matter of getting the vote. If you just look at the way the house bill passed for the cliff and you just do the math, the democrats really like this bill a lot more than the republicans. Does that mean that you really got the best of the republicans this time around, congressman . Can we read it that way . Im not sure that the democrats like this bill more than republicans. I do believe democrats injected some prag matism and compromise and solutions into this. Allowing us to fall over this cliff as a result of partisanship wasnt an option. I voted for this bill. There was plenty i didnt like. I wished we received more deficit reduction. I wasnt going to allow my own immediacy concerns to push us off the cliff. Something i do like good for new yorkers or other high cost of living areas. That is the increased thresholds on the income tax piece. Ive been preaching two years 250,000 may make you rich in some areas of the country but not in high cost of living areas like new york, new jersey, california and elsewhere. Im glad at the end of the day, the president agreed with that, offered that compromise and democrats and republicans on both sides of the aisle were able to support it. Now, we have increased thresholds. For as much as the bush tax cuts were vilified by your party as budget busters, youre arguing to even let more of them be extended. Our guest host made the point today they were supposed to sunset and that, you know, if you really want if youre really a deficit hawk, you would have let all of them expire. I dont think thats a viable option, particularly when were trying to continue and strengthen and fortify the economic recovery, allowing all the bush tax cuts to expire for everybody would have been devastating. You made the bush tax cuts permanent for 98 of the people that were affected. Yes, we did. It was the right thing to do. At the end of the day, we have to have fairness in our tax code. Creating this arbitrary number of 250,000 was unfair to high costs of living in long island and other areas of the country. With respect to high cost areas, living in new york, you have high property taxes and high income taxes. Dont you think the amt should have been fixed in such a way theres not a disallowance for property tax and state and local Government Income taxes . Yeah. Seems ludicrous you have an alternative minimum tax, if you were to have the state and local government tax you on 100 of your income the federal government could ask you for more money. Thats the way the amt works. Thats correct. In a Perfect World we would have a perfect solution. What we have seen is not exactly perfect. We have to get what we can get. At the end of the day we just got 85 republican votes to avoid going off the cliff. Was there any perfection in this process or bill . Absolutely not. Did we get the vote we had to get to avoid going off the bill, rattling our markets and stabilizing recovery. Do you think there will be a debate about further changes to our tax code . I think there has to be. Our tax code is a mess. We will have a whole series of new debates and arguments and new challenges. I hope we will focus on tax reform. Heres the good news. A lot of people are upset with this process and they have every right to be. Sometimes the totality this is sum of its parts. We already have a trillion dollars in spending cuts in this budget control act. Now, we have 640 billion in revenues as a result of the vote last night. We actually may be headi heading maybe im a crazy optimist. We may be heading to a solution big, bold, balanced but just took many pieces, many elements and many attempts to get there. I think tax reform has to be part of the next debate. We cannot play games with the full faith and credit of the United States government and not play games with the debt ceiling. I guess people think theres a lot of pork in that sandy bill, too. Have you looked at some things the critics are talking about, congressman . Its easy, if youre standing in an area of the country that wasnt affected no one is going to say the people affected by sandy shouldnt get help. You look at just like everything, you look at some of the stuff people put into these things when they think nobody is watching, you can see where there might be something to say, you know, were tightening the belts everywhere else and you have some of this crazy stuff in here. I dont know. Look, which is why there was an ayeegreement to do this bill two steps. 27 billion the house thought they could pass without much objection and 33 billion and could have had an up or down vote on both of those. At the end of the day, new york and new jersey need 60 billion and we still have to get there. Thank you. When we come back, the american bankers association, ceo and former governor of oklahoma, Frank Keating is joining us and former pennsylvania governor ed rendell and senator bob corker is here joining us in a little bit. At 8 40 eastern time, from the policy committee, senator John Barrasso will join us. [ male announcer ] with stamps. Com you can print real u. S. Postage for all your letters and packages. I have exactly the amount of postage i need, the instant i need it. Can you print only stamps . No. First class. Priority mail. Certified. International. And the mail man picks it up. I dont leave the shop anymore. [ male announcer ] get a 4 week trial plus 100 in extras including postage and a digital scale. Go to stamps. Com tv and never go to the post office again. Coming up, wall street reacting positively to news of a deal. Plus, we have senator bob corker, governor ed rendell and much much more in the next hour. Switchgrass in argentina, change engineering in dubai, aluminum production in south africa, and the Aerospace Industry in the u. S. . At t. Rowe price, we understand the connections of a complex, global economy. Its just one reason over 75 of our mutual funds beat their 10year lipper average. T. Rowe price. Invest with confidence. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Lawmakers striking a deal to fix the symptoms but not the underlying cause. Setting up another showdown in two months on the debt ceiling. Were going to talk to senators who worked on the last minute deal as markets get their chance to react. The third hour of squawk box starts right now. Welcome back to squawk box here on cnbc. First in business worldwide. The first day of the new year. First business day. Im joe kernen with Andrew Sorkin and becky quick and our special guest, doug de shield. More from him in a minute. First, andrew. Ross sorkin has some headlinheadlines involving the fiscal cliff. They do. Can people rise above ultimately . If rising above wasnt very pleasant for this gentleman, boehner. This is tough. I want to raise this question. It felt like he was probably a proctology exam. Hes probably the only person that did rise above in the whole process, dont you think . He was one of 85 republicans that voted for the bill even though he wasnt pleased with it. He had to bring it up. He normally doesnt. Lets describe what has happened. The fiscal cliff deal that originated in the senate did clear the house last night includesing a tax increase for high earners and permanent extension of the remaining bush era tax cuts and extension of Unemployment Benefits that will last one year and delays automatic spending cuts for two months that sets up a fight over the debt ceiling when the u. S. Hits its credit limit. President obama said he wouldnt negotiate with the house on the debt ceiling. While ill negotiate over many things, will not have another debate with this congress over whether or not they should pay the bills that theyve already racked up, through the laws that they passed. The vote on the fiscal cliff bill split house leadership. Speaker boehner and budget Committee Chairman paul ryan did vote in favor of the bill while eric cantor and congressman mccarthy voted against it. Responding quite positively to that news, doug responding less positively. The dow jones up 180 and nasdaq up 50 points and s p 24 points and ftse up 500 points not 500 points. And you can see the ftse up 2 on this news and look at what happened there in asia. Hang seng up almost 3 . One clarification, i think i may have misspoken when i said all of this lasting one year. What i was describing was extension of Unemployment Benefits, that lasts one year. These other taxes and cuts and increases are now permanent. The fiscal cliff a verdict for now. Now, we can look forward to something with the debt ceiling in the next two months. Joining us in washington is former oklahoma governor Frank Keating and ceo of the american bankers association. Joining us from philadelphia, former pennsylvania governor, ed rendell, also a cnbc contributor. I have to tell that joke again, governor. What do you call 47 millionaires sitting around watching the super bowl . I give up. The Philadelphia Eagles. Well, you can say that about 28 other teams, too. I know. I know. This is every year no, im kidding. I read that. It took me you guys got it a lot quicker than i got it. Governor keating, i know youre a state guy. Im trying to figure out, when the president says, i will not negotiate, are there executive order things he could invoke where he could raise the debt ceiling himself . Is he implying that . What does he mean i wont have a discussion or negotiations about the debt ceiling . Joe, i think the good news for me, i have been a senior treasury official, justice official and hud official so i have been plagued andpummeled as a federal official. The president really has enthusiasm authority and power and can do a lot of things by executive order, even try to increase congressional salaries by executive order. The one good thing by what was done yesterday is that was repealed by the congress, certainly a positive. On the debt ceiling, i think early im not going to talk to you guys about the debt ceiling is a real mistake. The house, those individuals are independently elected, not children, elected officials in the United States and they have to come together, as they did last evening and the day before, to address some very very serious short term problems. We avoided an embarrassing calamity. Theres a disaster down the road and hopefully the president will be at the head of the table and not have a surrogate do his negotiating. Governor rendell, were seeing criticism of the fiscal cliff from both sides. I saw some criticism from the far left about not wanting to make permanent the bush tax cuts, et cetera. I would imagine your criticism would not come from the far left, you probably would criticize us like a republican. Are you troubled by the lack of any spending restraint . Sure. The campaign to fix the debt i am cochair with greg judd and mike bloomberg, we are disappointed like Many Americans are. Frank said this avoided an embarrassment. I think the whole process was an embarrassment. We had seven weeks to do something really good to set the country on the right track and wouldnt have to worry about the debt ceiling and we didnt do it. We simply didnt do it. We didnt come to grips with any realities important for the long term. The president can say hes not going to negotiate over the debt ceiling because he has two other things, continuing resolution to keep the government funded. That comes up in two months and the sequestration has been put off for two months. He can negotiate over those. I agree with frank. Its time for the president to take the lead. He can do it through the Vice President if he wants. Hes got to take the lead and he has to say what spending cuts are acceptable to him. He has to fashion a package that will get us out of this long term problem. We took a step in that direction, but, boy, it was a tiny little step. Theres no way we can get governors to take the place of senators, is there . Sometimes governors doesnt it seem like you guys have i dont know, been in executive positions or something and much more reasonable than what we have in the at least one of the houses of congress . Joe,i think ed would agree with me, i was a republican governor, only the third one in the history of oklahoma and the only one reelected to that time and house and senate overwhelming democrat majorities and i always had overwhelming democrat majorities in my house and senate. As governor you have to be the one to close the door, sit at the head of the table and say, look, were borrowing 40 cents of every dollar we spend, we have to have more revenue and have to dramatically change the debate in terms of entitlements and governors do sit at the head of the table. Governor rendell, a lot of governors become president s. In this case we dont have a president that was a governor. Do you expect him to rise above, finally, what you just heard governor keating ask him to do . I agree with frank. We have to balance our budgets. At all but one state has a Constitution Constitutional requirement to pass balanced budgets and puts it in a totally different framework. I think the president doesnt have the understandi understanding doesnt have the history of having executive leadership. I think hes learning and if he looks at this debacle and it was a debacle and embarrassment, id wait a couple days and early next week get everybody together and say we have three things to do, serious entitlement reform, targeted spending cuts, we have to raise more revenue, actually four things and we have to have a smaller investment agenda to help the economy. Lets get working on these four things now. Lets not wait until four or five days before the sequestration comes up. Governor, how would you raise more revenue at this point . Tax reform. I think everyone agrees we should have tax reform. As simpsonbowles said, it can mean lowering tax rates for Corporate America but getting rid of some of these loopholes that are ridiculous and limit reductions. I was a member of a deficit panel and i think we did some pretty good work. We reduced rates from 39. 6 to 26, corporate rates from 35 to 26 and abolished all deductions, exemptions and credits including mortgage interest and charitable contributions. We balanced out and did what had to be done. The country was on a sustainable path. Simpsonbowles, same thing. Very creative things, medicare, even if you go to premium support, medicaid, block granted, tax reform will stimulate growth, savings and investment we desperately need and it can be done in a bipartisan way and it takes leadership. Somebody needs to sit at the head of the table and close the doors and lock them and say were not leaving until we resolve this. We have to start next monday. We cant wait until a week before and slide down and do last minute patching. I can see them extending sequestration and see them doing all these things again. We cant keep kicking the can down the road. It has had the living daylights beat out of it. Someone should care about that can. I like their suggestion. Let the governors the senate the senate was able to pass a lot of things. They passed this mess weve got. With the exception of the state of california the way the governor handled that. It was very clever on the part of Governor Brown to realize the fiscal cliff and deficit and tax negotiations were going to lead to a lot of people accelerating taxation and then theyd pass a retroactive tax in november to increase tax rates, extremely savvy. I didnt mean the governor from california. Extremely savvy on his part. Up next, an update from senator bob corker. Bottom of the hour, senator John Barrasso on the fiscal cliff deal and fixing our crisis. The Market Indicator will come up. S still the one for you you know it even after all these years. 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The dow looks like it would open 86 points higher, s p 50025 points higher and the nasdaq open up about 52 points higher. Our next guest was confident we would get a deal when we talked to him 48 hours ago. Senator, you did call this correct on monday, a deal was close. We reached that deal. What do you think about it afterwards thinking about the moving parts. If theres anybody in the senate had a reason to vote against this, it was me. Ive been livid and talking to myself over the last year and a half. Im surprised they didnt commit me on the plane yesterday coming down. Look, when youre trying to save our great nation, when youre trying to deal with these massive deficits we have, you have to use your head and not your heart. When youre dealing with a president that, lets face it, is a spend a holic and really has shown no leadership on this issue. You have to use your head. At the end of the day on a big vote like this, i go to the floor, i can run, i can always vote no, or you can vote as if youre the deciding vote on a bill. I looked at the policy where we were going to be if we didnt pass it or where we would be if we did. While it was like eating a you know what sandwich to vote for this, to me, it was a right of passage to this quarter. What i would say to all of you who know that congress and the president is hurting the economy, theres no question, washington is hurting our economy, that this next quarter needs to be about one thing. This is going to be much uglier to me than the tax issue. The tax issue was kind of a sugar debate. How many people will you keep from having a tax increase . This is going to be about entitlement reform. I would say to the Business Community, i would not give one dime to a politician on either side of the aisle that will not sign on right now to specific entitlement changes. Dont let them tell you theyre for entitlement reform. Specific entitlement changes. What i would sayles to the Business Community, dont be a lackey for the president like so many Business Leaders were this last go around. The president has never offered one dime in specific cuts. I was having people call me, gosh, come together, rise above. The president s offered a trillion. If you can find that, show it to me. The president needs to come forth what specific entitlement reforms would you sign up for . Ive actually offered a bill, did it last week and two weeks ago, 1 trillion dollars in entitlement reformed and 1 trillion in debt ceiling increase. Thats what this debate is going to be about this next quarter, the only thing in my opinion that will save this nation. People are paying onethird of medicare costs in our country today. We have 20 million more americans coming on medicare over the next decade. This quarter should be the quarter everybody focuses on entitlement reform. This is our best opportunity to do those things to save our nation. To me, if you wanted to move kids away from the television over the last couple of months, this is the debate that is going to be far more serious hopefully, hopefully now that we have this other piece behind us, hopefully well deal with the kind of things this nation needs to face. We know elected Officials Say theyre for entitlement reform and wont give you specifics because they tend to be incredibly unpopular. What do you think are the least popular aspects of the bill you put forward . The most painful cuts . All kind of look, everything from means testing actually isnt. Colas, copays. One of the things we need to do. The house members that voted against this bill, i understand it. Emotionally, i wanted to vote against this bill and probably had more reason than most to do that. The house members that voted against it, i hope they will join me in this dollar for dollar bill thats been laid out that really does it has some very tough measures to deal with both medicare, medicaid and Social Security. We all know they have to happen. Age increases, copays, means testing, putting in place a competitive situation between Medicare Advantage and fee for service. I got cbo to score that at 290 billion. One of the things we cannot do, becky, i know the house has been focused on measures that put these decisions off or put the measures off for 10 years, we cannot do that. We need to go ahead and implement changes now. Look, im disappointed at where we are. Im disappointed that we have a president that used this leverage in the way that he did and didnt offer any kind of spending reductions. Now the leverage is gone and now its time for a sober conversation and now its time for the Business Community, which should be on strike, because we are affecting the business of this country, and candidly, the world. The Business Community can play a role by not giving one penny, not one penny to any politician that wont sign up right now for specific entitlement changes. Dont let them tell theyre for entitlement reform. Get them to tell you specifically what theyre willing to do and as it relates to the debt ceiling, cr and sequester. Senator, on entitlement reform, i know you have specific proposals, how many of them would be immediate . How many would go into Effect Tomorrow and have an impact ultimately on gdp given the questions about the Economy Today opposed to graduated and come in later . You know, keynesian folks like you obviously want things put off, as it relates to spending issues. Im not sure i want them put off, im just raising the question. Im raising the question because ultimately, this whole i am talking to paul krugman on the other end. Look, at the end of the day, look, heres what you want to see happen. The changes would take place immediately in most cases. In the beginning, as you know, theyre very minor as it relates to actual dollars. They build over time. So if you can get a trillion during the first 10 years with a tre tre trillion dollar debt increase, you have tens and 20 trillion dollars down the road. You want to begin those now. The longer we put this off, i think all of you know, the more the draconian the decisions are and deeper they are. We need to implement these are. I would say one other thing to the Business Community i think can play a great role in this. To anybody who says theyre not going to vote for a debt ceiling increase period, theyre taking themselves out of the game. Dont support them either, dont give them a penny, becau because because what we need is for people who will vote for entitlement reform and debt ceiling increase. If youre not going to be part of the process period you have no role, taking yourself out of the game. I would say Business Community get saturday this time. Doug is here and has a question. There was a discussion of a profession proposal where roth conversions would be aloud. Did that pass . It did. And talk about the consequences, normally when entitlements starting to be paid out, people would be taking money out of 401 k s and pay taxes. Now, what we will do, people have a roth conversion because they expect taxes higher in the future and pay taxes today and have no tax revenue in the future when we have to make entitlement payments. Last year, with all the uncertainty of tax rates going forward, a number of people wisely made roth con versions. Are you concerned roth conversions will exacerbate the problem with tax payments when we wont have any tax from retirees down the road from those accounts. Youre actually hitting on the point i was most livid about, that was how that was sequestered and kicking the can down the road. And dealing with it with revenues. I was livid over that. I candidly feel like we probably could have come out with a better deal if we had just done this on the senate and house floor and not done it in private. Because it was only moved back for 60 days and it aligned more fully with the debt ceiling and aligned more fully with the cr, i can see an opportunity to do something much much bigger as it relates to entitlement reforms. So, look, i didnt like anything about what we did with the sequester, nothing. To me in person, you told me that i was just as reasonable as becky an that you misspoke when you said that. I really you are you may be the most reasonable person in america. I sense sarcasm. Hes not you were if joes the most reasonable, i dont even its sad. Krugman, its like calling someone gallagher, when you say the word, krugman. Do you want to end up being a caricature of something . Do i get a nobel prize as part of this . Thats a lot in economics. Heres what i heres where you guys can play a big role over the next quarter. Its unfortunate that we dont have the courage to make all these decisions and candidly in this case, we did not have the leverage. The president had it and it was a case of holding 98 or 99 of the people in our country hostage. This is the quarter for every elected official that wants to be serious about saving our country to be serious and i think you can tease that out of people who come on to your program. I hope theyll join me and Lamar Alexander who joined our bill, the dollar for dollar bill that raises the debt. Senator. Okay. Thank you. We hear you. Well do our best. Thank you. 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[ male announcer ] get a 4 week trial plus 100 in extras including postage and a digital scale. Go to stamps. Com tv and never go to the post office again. Abecause what you dont know can aabouhurt you. Ce. Le. What if you didnt know that boxes by the curb. Make you a target for thieves . Or that dog bites account for a third of all home liability claims . What if you didnt know that one in seven drivers is uninsured . And that grease fires have to be smothered . The more you know, the better you can plan for whats ahead. Get smarter about your insurance. We are farmers bum pa dum, bum bum bum bum welcome back to squawk box. Lets take a look at some stocks on the move were going to be watching today. I like we called this the first big merger. It is. 500 million bucks. Zipcar bought by avis. 12. 25 a share in cash and 500 million, a 50 premium you just heard over mondays Closing Price for zipcar shareholders. And dow component bank of america has been added. They still use this at goldman. No. This is ever core. The conviction buy list. Got to have conviction. I guess thats one way. I would get conviction out of the lexicon if i worked on wall street. The firm saying the b of a is greater than many competitors. B of a was the best performing dow stock, low mid single digits, went up a little. Urban outfitters and the retailer has seen sustained improvement in its sales because it had less promotional activity. Lets get a check on the markets. Ive been waiting the past 2 1 2 hours to talk to this gentleman. Rick santelli joins us from cnbc in chicago. I was thinking about you last night as this was all going on. I think i know what rick would think. What do you think this morning, the day after . It doesnt surprise me we technically went over the cliff. It doesnt surprise me Grover Norquist gave ground cover to what some of the House Republicans did. It doesnt surprise me that the administration, the Vice President , the president did the easy thing. The only thing i think is going to be surprising is how much of a battle that probably gets best record in 68 weeks regarding the debt ceiling. There has to be some type of an end game for sanity. I think everything thats happened thus far doesnt surprise me. I guess the most surprising thing ive seen in the last week is why new york fired the general manager instead of the coach. Watching politicians all slap each other on the back while the country slips into a grecian like formula isnt surprising. Are you surprised the market so far in looking at the futures has taken such a positive outlook on this . I dont know. To me, the fair value adjustments in the opening is far from a cohuge move in my opinion. Here we are a move in the fixed income markets because of the move in stocks. I caution everybody to wait until the close because i think some of the intraday outside noise will be moderated a bit. I can only hope we see 2, 2 1 2 in the 10 year so it looks at more than adjustment in higher equities. Maybe it will start to do the math and realize we added 4 trillion over the horizon and wouldnt trust their numbers. It will probably be bigger. Why do you think the 10 year is driven by Market Forces opposed to 35 billion a month. I dont think those market prices are reliable on those asset classes. I like the way you think. The fed obviously owns a lot of treasuries. Even outside the lockup so to speak is going to have a move. Dont underestimate Significant Holdings with a lot of guilds and treasuries, shaking of the tree could make them nervous. This probably isnt the biggie yet. You will probably see adjustments and think we will see a very compressed move versus what we see now in about six hours. Okay. Lets leave it there. Rick, thank you for that. We will see what happens to the markets. What did you think, andrew . What did you think . Were you proud of our countrys politicians . No. I was glad we jumped the shark we jumped the shark is what really happened and didnt get to where we ultimately need to get and we will be having this conversation the next several months if not years. I cant claim this is a great situation but better than what could have been the alternative. Do you think he president ought to be able to take his bat and go home and say, im not going to talk about the debt ceiling. Do you think he will get away with that . No. I wanted to check. Were on the same page. Everybody is checking with you. Corker lets get back to doug, cio of principles capital management. He referenced the debt ceiling again. Im trying to get clarity. That makes sense to me e, that geithner can control when it happens. Right. Hes hoping he will get a lot of pick estimated tax payments in the Fourth Quarter of 2012 paid to him on january 15th. That, theyre hoping from all those people that did savvy tax planning, expecting what was going to happen this year. Politically, im trying to figure out the sequester negotiations, how will that impact what happens with the debt ceiling . They wont be spending that amount of money so theyll be they wont capture that. How can each party use it politically, though . As you heard, they ma made they tried to offset some sequestration by roth conversions and hopefully get additional revenues. They hoped they would offset the sequestration by providing a new program to allow medium to do 401 conversions to roth and pay taxes. I dont believe that will occur because most people didnt do the right thing in 2012 and do a roth conversion and do a tax increase. I wouldnt count on those revenues. What would be the end game . Could republicans say were not doing the debt ceiling . Yes. They could say that. And then youll get to exactly what happened the last time we had this in august, where you watched tbill rates go up to a whooping 30 basis points. They said they will use it, the president says i wont negotiate on it. Where does that leave us . That leaves us to watching people panic about treasuries and watching yields go up. When the legislators see whats happening in the treasury markets and disruptions, theyll do what they did last night, theyll raise the debt ceiling. When do we ever get to actual entitlements. Never. After that, right . Right. We talked to corker and he said the prices of treasuries are not providing the right market feedback to legislators to see how bad the situation is. They distorted the prices of those instruments with the feds purchases. Because the fed is buying treasuries. Were not getting reliable Market Participant feedback to tell legislators we want you to do something about the debt because we distorted the price of the debt with Federal Reserve purchases. If you tell everybody, were going to stop Federal Reserve purchases right now that wont happen and the fed already told us theyre in it for the next couple of years. Let it ride . A cycle of incorre correccor biofeedback, look where treasuries are. We dont have a debt problem. Mortgage rates the lowes in debt history. What do you think fitch does after this . Thats a good question. I have no ability to forecast the actions of rating agencies since theyre like a broken clock. Does it matter . To me, it doesnt matter. It wont change what the 10 euro is doing anyway. No see. Because the fed is involved. The has the why its so hard as an investor, your typical benchmarks you use are no longer market determined. As a result, its very ha hard everybody references those rates but those rates arent market determined. I like to call fixed income is price fixed and no income. Thats what youre dealing with as fixed income investor. Thanks, doug. A little bit more from you. When we come back, in fact, lawmakers striking the deal to avoid the fiscal cliff. Setting up another fight in two months or less over the debt ceiling and sequestration measures that got pushed over the road. We have republican John Barrasso with more and budget battle still to come. Cmon dad im here to unleash my inner cowboy. Instead i got heartburn. [ horse neighs ] hold up partner. Prilosec isnt for fast relief. Try alkaseltzer. Kills heartburn fast. Yeehaw but dont just listen to me. Listen to these happy progressive customers. I plugged in snapshot, and 30 days later, i was saving big on car insurance. With snapshot, i knew what i could save before i switched to progressive. The better i drive, the more i save. 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In terms of this debate and the debt ceiling and sequester, do you anticipate us trying to do this at one time and debt ceiling . Is there a grand bargain still to be had . There needs to be a focus on cutting spending. Youre absolutely right when you talk about the secretary of treasury having some ability to move that debt ceiling final deadline debate this way or that way. Bottom line, the president talked about the debt ceiling, said hes not going to argue with congress again over bills theyve racked up, let me remind the president and viewers, those are bills related to his socalled stimulus package which spent a lot of money and i believe has been a failure and his health care law. I will tell you as a doctor it is unworkable and continues to be very unpopular and unaffordable. These are the president s bills. Its a Nancy Pelosi Congress that forced these things through. Walk us through the dance thats going to happen here. Whos got the leverage and whats going on inside your party. Paul ryan and boehner voted yes for this and cantor and others voted no. How will all this come together . The president is addicted to spending. He wants to spend. He wants a new credit card after hes maxed out the last one. He actually, as part of this debt ceiling negotiations, wanted a new credit card then with an unlimited credit limit. Obviously, we kept that out of any of the discussions, so were going to focus on spending and the tidal waves coming at us are medicare and Social Security. Those are the things if we dont address those, there is nothing else we can do to deal with the problem. The president , the night he was reelected said he didnt want our children to be living in a world where they are burdened with debt but yet he fails to address any of that. The president has acted like raising taxes on some would solve all the problem, when in fact it paid for only about a week of spending over the course of a year. Will you put specifics on the table . Absolutely. In terms of dealing with the spending, you have to deal with a way they allow cost of living allowance, we need a more realistic approach on that. We need to look at raising the ages of the entitlement program. Additionally, you have to means test these saying people that are very wealthy shouldnt be getting their medicare bills paid by working men and women of our country. Whats your expectation we have Corporate Tax reform as part of this conversation . I think thats the appropriate and right thing to do and should have been part of this last conversation. Through tax reform, you can lower the rates. In the same way, bring in actually additional revenue. Im for a territorial tax system and the president in debates a year and half ago and geithner seemed to be for it and now they seem to be against it. Thats what i was going to ask, there was an indication from the white house this fall this was a conversation theyre prepared to have. Do you think its back on the table . It should be back on the table. Theres a lot of money overseas and change to the International Tax system in a way we can lower the rates again for corporations. It used to be the biggest competitor to a business was the business down the street but actually the biggest threat to our country now is the federal government and regulations are a very big part of that as well. I would offer one comment about the means testing issue. With the recent proposal to allow peoples retirement accounts to virtually be taxfree when they make withdrawals with roth conversions or 401 k s or conversions people did last year with iras, when those people retire, they wont have taxable income. Even if you means test them, they wont have taxable income from their withdrawals and you wouldnt find any income to means test. If youre thinking about entitlement reform and means testing, i think you have to worry about the interaction having lots of your Retirement Savings account be nontaxable income down the road when people are withdrawing that. You raised that point with senator corker. As he said, youre absolutely right. People are human and make decisions in their own best interests. Whatever incentives the government seems to put out there, there are consequences of those decisions and people act in their own best interest. You will continue to see that happen. Let me ask you this. One of the concerns about many of my clients, with respect to those conversions is that some point down the road, when we look at the issues around means testing to pay entitlements, at some point down the road c those nontaxable retirement accounts, people that did roth conversion, a great concern tax laws will change and people will be subject to tax again on something they already paid tax before. Do you think thats a possibility 10 years down the road . Its hard to say what a future congress is going to do. Bottom line, we need to get this economy growing again. We need to get people back to work. We need more taxpayers rather than raising rates on people that already have jobs. Thank you for joining us this morning. Thanks for having me. Coming up, jame crami jim ce on the fiscal cliff deal. Tdd 18003452550 this morning, im going to trade in hong kong. Tdd 18003452550 after that, its on to germany. Tdd 18003452550 then tonight, im trading 9500 miles away in japan. 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I dont have to leave my desk and get up and go to the post office anymore. [ male announcer ] with stamps. Com you can print real u. S. Postage for all your letters and packages. I have exactly the amount of postage i need, the instant i need it. Can you print only stamps . No. First class. Priority mail. Certified. International. And the mail man picks it up. I dont leave the shop anymore. [ male announcer ] get a 4 week trial plus 100 in extras including postage and a digital scale. Go to stamps. Com tv and never go to the post office again. Welcome back to squawk box, everybody. Were looking back at things that worked and didnt work last year. Listen to this. If you went for the popular dogs of the dow back in 2012, you fell behind the rest of the pack. Yes. Those socalled dogs, those are the ten highest yielding dow stocks from the prior year. They saw their share prices gain an average 5. 7 in 2012. But the remaining 20 dow stocks jumped an average of 14 , and the dow as a whole gained 7. 3 . So you lose. The best performing dog stocks of 2012 was General Electric and pfizer. No kidding. Lets get down to the new york stock exchange. Jim cramer joins us now. Does that mean the dogs will be better this year, jim . Normally, right . Dow versus the s p, ive got to tell you, up 7 , 16 , maybe weve got to go back over and look at the dow. There are probably some bargains there, joe. Jim, will this be you, now that weve i can argue from two sides, i made the point earlier, i think that theyre still saying there may be a point to a point and a half drag on the gdp because of this. But dont you think the improvements in housing and having maybe a little bit of certainty, dont you think that we can grow above where weve been recently . Dont you think the u. S. Economy is that resilient . Thank you, joe. Because this is my theme for the beginning of the year, which is that this no ones happy with the deal. But i do believe theres momentum coming in. Dont forget the need to rebuild from sandy. Dont forget the autos are surging. I believe very strongly we have very good tailwinds coming into the year. Also, europe better than we think. Asia better than we think. Latin america better than we think. The negativity drives me crazy. Im not going to be as negative as everybody else. I started thinking of the other side, though, there are some people, jim, that still say that we will now test all of the policies that some people think are misguided. In other words, that raising taxes on the rich, that it wont hurt that that wont hurt Small Businesses. Remember the argument that will hurt Small Businesses. 54 of the revenue comes from those 2 . Or regulation. Were still in a pretty high regulatory environment. Or obama care, or dodd frank. Were hearing all these things will cause us to grow below planned for years and years. Is it possible that these come home to roost or is the economy that resilient . I think were resilient. I think overseas will pull us up. I also think that certainty matters tremendously. When i speak with executives, look, i had paychecks right before we left, 870,000 Small Businesses rel on them. They couldnt figure out what the tax tables were. It allows you to be able to think about what you want to do. I think temporary help is going to be a big story in 2013 because of the changes in health care in 2014. I do need to tell you this joke, and this is not from me, and it took me a while to understand it, but what do you call 47 millionaires sitting around a tv watching the super bowl every year . This is the 47th super bowl, so im not quite what do you call 47 millionaires sitting around watching the super bowl year after year, the Philadelphia Eagles. Jim, do you want me to hit him for you . Love coach reed. Andy reed is a classic. Seattle seahawks fan. Dont say that. Got your back. I opt for the redskins because of rg3. What about that other rookie. Wilsons terrific. Thats going to be the best game of the weekend. Alfred morris oh, alfred morris. I won the super bowl for mad money because of alfred morris. He sent me over. It took me a while to figure it out. But you got it right away. Our guest host today will have the last word when squawk returns. Dont miss squawk tomorrow. Well talk to president obamas former budget director, peter orszag. Take a look at equity futures which are now surging. Dow 208 points up when the market opens. She keeps you guessing. Its part of what you love about her. But your erectile dysfunction you know, that could be a question of blood flow. Cialis tadalafil for daily use helps you be Ready Anytime the moments right. You can be more confident in your ability to be ready. 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