Transcripts For CNBC Squawk Box 20130225

Good morning. The days top stories, the battle of the bull as is s p comes off its first weekly loss of the year. On the global front, european markets are trading nervously amid election uncertainty in italy. And in hollywood, argo stormed to a best picture victory at the oscar hes. Its monday, february 25th, 2013 and squawk box begins right now. I thank everyone on the movie, worked on the movie, did anything on this movie gets thanked. I want to thank canada, our friends in iran living in terrible circumstances right now. I want to thank my wife who i dont normally associate with iran, but i want to thank you. Good morning, everybody. Welcome to squawk box here on cnbc. Im becky quick along with joe kernen and Andrew Ross Sorkin. Were watching the u. S. Equity futures at this hour and right now it looks like there are some green arrows. You can see dow futures up by about 50 points in fair value. S p up by just about 7. Joe mentioned the oscars. He was very excited about this. If you went to bed early, here is a recap of the major winners. Argos win as best picture marks the First Time Since driving miss daisy that a film won top prize without its director being nominated. Ang lee was best director for life of pi. Three other wins for life of pi came for original score, sen ma effects and cinematography. Daniel daylewis took home best actor for his role as lincoln. The best actress went to Jennifer Lawrence for Silver Linings playbook. And best supporting actress was ann hathaway for les miserables. Randall stephenson will be joining us live in about ten minutes. The big news on his company today, gm is switching to at t from verizon for onstar wireless service. Thats beginning with the cars they make in 2015. Plus, we have a busy week ahead for retailers in earnings central. After fridays report from walmart, we will hear from a number of names in the coming days. Home improvement chain lowes is just out of the gate. You can see the premarket trade there down by 1. 3 . The other big story this week is the sequester. Budget cuts set to kick in on friday, march 1st unless Congress Takes action. We will talk to president obamas right hand xhan on the economy been Gene Sperling. And we will talk about what action or inaction means in Corporate America and the markets. Among our guests today, Larry Bossidy. He will be our guest host today. Evercores founding partner, roger altman. In the headlines this morning, Royalty Pharma is making an 11 a share bid to acquire elon. It hasnt received a formal response, but acknowledges it has been unsuccessful so far in its efforts to engage with the drugmaker since making that offer. Shares rising this morning. Take a look. Also today, voluntarily recalls all lots of anemia treatment in the u. S. By Royalty Pharma. The drug is used to treat anemia. Shares of affy defendants exhibit madz down sharply in early trading this morning. And Hewlett Packard announcing its making a tablet that uses googles operating system. The hp7 will be in a similar size to the amazon fire. Hp had a failed attempt back in 2011 with a device based on palms web os software when it bought that for a nice sum actually, it paid way too much. There it is. Joe. I dont know what amantis is. But anemia is dialysis patients, i dont know how this competes, but i want to mention lowes, which is reporting results this morning. Lowes reported 26 cents a share at 3 cents above estimates. Samestore sales were up 1. 9 . Stock is trading higher. Fourth quarter revenue is also above 11 billion versus 10. 84 billion. And i think the stock is lower. Now it is, yeah. Its not i cant tell which it is. It was 38 bid after a 37. 67 close. Yeah, now it looks like its down 52 cents. Thats just happening. Well see. But everything looks okay. Earnings of 2. 05 are expected for the year. That might be below. 2. 09 is what people are looking for. And then the samestore sales number looks okay, too. I think it was 3. 5 . The thing i can tell but lowes is that Jimmie Johnsons car was a lowes car. It says lowes everywhere. If you look at usa today this is lowes. Danica patrick was in third place right until the very end. Here it is. So jimmy johnsan was i can talk about the daytona 5 hup. I can talk about Michigan State ohio state. And i can talk about date line which came on. Its an nbc product. It came on at 8 00. And the guy definitely, in my view, killed his wife in the jacuzzi. Theres no way that the that the injuries that she suffered were from an accidental fall. And that includes your broad viewing for the week . That was my broad viewing. I mean, andrew, even women that are, like, embarrassed enough to admit that they watched it say that they only watch it to see the dresses and the makeup and the hair. They dont even pretend that they watched i watched. I know you did. I also can talk about daytona, but i did watch what can you talk about daytona . You know its in florida . Thats not nice. If i had been awake, it would have been it would have been walking dead. I watched a brief bit of it because the girls wanted to shes making an schoous excuse even. The one part i did see was ann hathaway which is an Nbc Universal film. She thanked ron. She did. They thanked ron meyer in her speech. He even knows she had a great speech. Daniel daylewis had a great speech. One question, by the way, total box office how late were you up . I watched some of it this morning. Total box office receipts, less than 10 billion. Hewlett packard reported 28 billion. The quarterly influence of hollywood, can you explain it to me . It cant all be dollars and cents, joe. Everyone can relate to it. Actors were one step below the groundling in sphake spears they performed for the aristocrats and royal families. How is it that you can do im not degrading it. Im just trying to and then make references to movies throughout the show every single day as if pop culture and movies are from 30 years ago . Godfather, caddie shack, unforgiven and g2. Thats all. Even becky makes mac, how much of the oscars did you see . There was a joke thats worth retelling. Did you see . Come on now, you watched it the zlp zero. Did you . Not one . And who laughed when anybody . Did you see . A minute of the oscars . Come on. Until 10 00. Weve got people here. Weve got people watching. You didnt see any of the big awards. 10 30, you you skr a choice between the walking dead and the oscars and you watched the oscars . Yes. And you missed michelle obama, right . Youre taping walking dead. I heard. Great. Michelle obama gave the award by video. Okay. Best joke of the night in my mind, seth mcfarland, where does rihanna go with chris brown . What was the date night movie . This is is it about Domestic Violence . Jango unchained. But it had people on the floor, i must say. My retelling was not i liked chris kardashian. Chris brown, rihanna, theyve had problems, but the movie yeah, but why violent. Well, that is a Domestic Abuse joke that i dont find funny. Well, let me i like the kardashian one he told better. That was good. I watched this guy kill his wife in a jacuzzi on dateline and im up to speed on that story. Thats the only one. Okay. If you want to trash absennbcs offering, thats fine. Not at all. And that guy, he looks like a you know the guy im talking about, the correspondent . I love him. In economic news, a new survey shows keith something, keith ill look it up. Shows chinas Manufacturing Activity has declined to a fourmonth low in february. Export orders decreased and output grew at a slower rate. Forecasters say its a reminder to chinas shaky economic recovery. In the u. S. , polled economists say likely government budget cuts and the prospect for messty political fights over fiscal policy is going to slice into gdp, a survey by the National Association of business economics finds more than half of those polled believe fiscal uncertainty will project and nearly onethird beginning to retract from half a point to a full point. And the average price of gasoline rose 20 cents in the last two weeks to 3. 79 a gallon and thats just for regular prices. Theyre now up 54 cents in the last nine weeks. But widely followed industry analyst lundberg says the twomonth upward trend in pump prices may be about to end. No kidding. And you wonder how does she know . Because she does seem to know. But Oil Prices Fell to like 93 bucks. But sometimes that doesnt matter because of gas prices and you know why. Because of the summer driving season and because of the crack spread. Your favorite. Muler, muler, muler. I saw that this weekend. 20 years old, right . They dont make them like they used to. I used to walk to school 20 miles each way up hill. Uphill was different. These movies stink. Theyre awful. Theyre terrible. You sound like my grandfather. Unwhat i liked . Zero 30. They they couldnt give it an award because of waterboarding. One of the others got it for sound. Lets talk about other corporate news. A federal judge in new orleans is going to begin hearing Opening Statements in the bp oil drill case today. A judge will decide how much money is owed by bp and its project. Gulf coast states are considering offering bp a deal under which i would pay 16 billion to settle civil suits stemming from the deepwater horizon explosion and the oil spill. In china, meantime, kfc is unveiling new Quality Control measures. The campaign follows a scandal of misuse antibiotic use by suppliers to fatten poultry. Also, the new ceo of media group pierce i dont know says the financial sometimes knot for sale. These comments came after repeated media speculation about the newspapers future at the company. Im not saying its for sale. First of all, everything is for sale. Thats right. But i think it ultimately trades. Next two years youre calling . Im saying next two years and i want to say its trades to our competitor starts with a b. Oh, okay. Bloomberg. Thats my buyer. Well keep an eye on it. Last week, the s p closed down by zero. That was the first week in seven that the s p has closed lower. The dow barely eked out a gain. And when i say barely, it was a gain of 0. 1 . It ended above right on that 14,000 mark, which is a key psychological level. Nasdaq was down about 1 . Dow futures up by about 50 points. Take a look at whats been happening in europe. Thats following the trade in asia been and this morning in europe, france is up by about 1. 3 . In germany, the dax is up by over 2 . In asia overnight, you can see that there were some green arrows. The nikkei was up by 2. 4 . Modest gains in shanghai and in hang seng. Oil prices as weve been talking about have been coming back down. This morning, theyre up by 81 cents, but still below 94. If that is the case, if that continues, perhaps it will lend some much needed help at the pump where prices continue to climb. The tenyear note is rating right now at a yield of 1. 969 . The dollar this morning, after seeing some gains last week, its down against the euro this morning at 1. 3271. It is up against the yen once again. 93. 76. And there is a lot of speculation about who is going to be the next bank of japan head. The leading candidate at this point is a man who is seen to be a big dove, someone who really puts some extra lending so that perhaps the yen would continue to rise pep talked or would continue to drop. He talked about how the yen has been at too high levels in the past. Right . He is going to be the guy if he makes his way through both houses of parliament. A bay does not have a majority, so there is a shot he gets knocked down, but yeah, the nominee, at least. Well see if he makes it all the way through. I liked abe. You liked abe. I liked abe. Abe . Abe. Theres a local ad, i admit well, maybe its not local, but for a car and they have abe and George Washington singing about president s day. I want to four score a deal and its sort of like abe singing and he goes for the red, white and bluetooth. It was so good that theyre still running them. Wasnt president s day i saw it last night. But a guy dressed up like lincoln. Now, i saw lincoln and i liked it. Im okay with that one. Weve got to go across to the pond. See if Ross Westgate time for the Global Markets. He was big on bond last night. Keep talking. They have yeah, they had all those it was 50 years so they had a lot. They had halle berry. And even i didnt see them all, but they did a big ross was not there, though. No, but i bet he looked it because of that. Skyfall won with zero dark 30. They shared that award together. For skyfall so congratulations to ross. Ill take that on behalf of the british Film Industry and music industry, well accept it. Amazing first oscars for a bond movie and it was a good one, as well. Here we go with just three hours and sa minutes into the trading day in europe. Were weighted to the upside and you saw that from beckys report. 7 to 2, advancers outpacing decliners at the moment. Plenty of focus on uk assets. We joined you in britain. We lost our aaa rating, moodys downgrading and a stable outlook mainly because of growth. That came out after markets are closed here on friday. There was a little bit of reaction in new york trade with sterling. Whats worth pointing out here is not much follow through to today. Initially in asian trade we pushed the pound down to a 31month low against the greenback of 1. 5073. The ftse here up 0. 5 . It is lagging the rest, but it has eked out seven weeks of gains in the first eight weeks of the year, as well. Lets show you where we stand then with sterling. As i say, we hit 1. 5073. At the moment, 1. 5154. Here is the thing. Since the beginning of the year, it has been declining anyway. Already down around 7 since the start of the year. And we saw a big fall down last wednesday when we saw minutes from the bank of england suggesting three members were looking for adding to qe. So that has already piled the pressure on the pound and gilt yields had been moving substantially, as well, before the moodys announcement. Take a look at gilt yields at the moment. But we had been up at 2. 21 last week, as well. So and then we pulled back both those qe minutes. So the actual net impact for moodys downgrade as weve seen elt where, fairly muted at the moment. Some moves weve seen have maybe already happened before the moodys downgrade. So threeyear gilt are higher today, 2. 29 . One issue, of course, is weather the quest for growth means we get more action from the bank of england, as well. The other big event going on in europe today is the italian election. Its the second day of polling right now. And those polls close 3 00 Central European time. There will be some extra programming on cnbc world. Well take a snapshot view of those polls, not quite clear whether anybody will get overall control of the senate. Italian assets, 3. 39 . They had a small auction index link. Didnt raise quite the maximum they targeted, just over 4 billion. Big tests coming up on wednesday for italy. Were going to get a fresh tenyear. That will be the first test post the election. Keep your eyes on that. And the currency market has been weaker. Maybe getting the nod for bank of japan governor is mr. Kuroda. Thats where we stand here in europe ahead of your trading day. Back to you guys. For a while, you were aaa and we werent, ross . Is that yeah. Does that seem logical to you . Was this a big surprise that this was coming at this point . No, it wasnt a big people have been talking about it. I think what was a surprise is the timing, joe. Weve got a budgets in a couple of weeks. Most people thought that moodys would wait to see what the outcome of that budget was and then oscar weekend. I mean, the timing is suspect. All right. Oscar weekend, right . Because they have great actors. If you have an accent, you will win there were a lot of brits at the oscars last night who were winning. If you have an accent, you will win the award for acting because it sounds so good. Why do you think i call them the vigilantes . By the way, theres news out from barnes noble this morning. Len riggio, the largest shareholder in that company is apparently going ahead and saying that he would be interested, andrew, i think in splitting up the chain. Splitting up the chain and buying out the the retail chains from the nook business. And he would like to buy the book part of the business. The stores part of the business. The stores part of the business. Which is interesting because the creation of all that is where they were going to spend so much money. They thought thats how they would compete against amazon. The latest things ive read show nook did not see the tablet gains that so many of the other companies did. That is a huge drop for that company at this point. There was speculation that riggio would be interested in doing this and apparently its now been confirmed through an s. E. C. Filing. The stock looks like its up 3. 5 on that. 1399 is the last trade and well continue to keep an eye on that. Right now, to our newsmaker of the hour. At t ceo rand i cant tellal stephenson. Weve heard the big news that onstar is going to be going with at t in the future instead of verizon. Were hoping you can tell us a little bit about that deal. What happened . Its interesting. General motors has probably been the most aggressive in terms of thinking about the connected car and where the connected car goes. And when you begin to contemplate an environment where you have these big, mobile Broadband Networks deployed ubiquitously, like around the United States, gm is asking how does that affect how you consider the experience within the car . How do you think about diagnosing troubles within the car . How do you think about traffic and monitoring traffic. Gm has done some aggressive thinking and announced theyre going to move to the car in 2014 to make that a reality within the General Motors product line. And we see those will be 2015 modeles and beyond. It starts in 2014. Already onstar has around 20 million customers around the world. What does this mean for customers that you intend to bring into at t . Well, we havent given any numbers in terms of what to anticipate as it relates to new customers the. But just to begin to contemplate the number of automobiles that they bring to the market every year in the United States, our expectation is those automobiles will all be connected. The connected car will become just as routine as people carrying a smartphone. And then it goes into the connected home. And so this is what the world looks like when you have a you have u. S. Policies that are encouraging this kind of innovation and investment in mobile broadband. And where does it go . It goals to the car, it goes to the home, it goes to the wallet. So its an exciting time. And youre seeing this. Im in europe right now at the mobile World Congress and youre seeing this play itself out. This is an exciting place. Youre seeing all kinds of new opportunities, new services that are coming to market, taking advantage of these networks and these capabilities. Randall, can you take the onstar system and effectively leverage that into other consumers using at t more broadly . Meaning people will get their Onstar Service and move on to get a cell phone and use one number that somehow works with all of that . Is that possible . Can you look at it that way . Well, i dont think we all i dont think we all fully recognize how all of this plays itself out over time. But the way we think about the car is its just a big smartphone on wheels in the future. And so the customer will have an automobile thats connected. I keep saying it, but theyll have a home thats connected. All of these are just new connections on to those mobile Broadband Networks. Randall, can you tell from usage, i dont know, broadband usage, do you have a gauge of how the consumer is behaving in the United States, like a snapshot based on any metric thats at t is privy to . Can you tell whether hes pulled back a little or she has pulled back a little because of payroll taxes or late i dont know. Uncle sam sending the money back late on refunds . Do you see anything to indicate that . At this stage, we havent seen anything significant, joe. Certain parts of january, it looked like it was slowing. But we really are seeing trends seasonally consistent with what weve seen in years past. Were seeing no evidence right now of that. And you have at t has told people what these new smartphones i know you know ive seen what theyre able to do with ski reports and weather. Youve gotten if word out that these smartphones do a lot of different things. I wasnt aware of some of this stuff. But its an amazing world were living in here, randall. Well, its an exciting world. You think about how the consumer has changed in terms of how they use our technology. Its changed how the consumer communicates, its changed how they interact with their business, its changed how they interact with their families. And we believe, joe, that as we begin to deploy the next generation of technology into these networks and as Cloud Technology scales and becomes a reality at scale, it is going to change how we think about every aspect of our lives. And what we like to say is that the world of the smartphone, it changed our industry. We think the next five years is going to change everyustrgby around the globe. And so think about how we consume entertainment. You guys, i believe, three or four years from now will be watched as much on mobile devices as you are in televisions in peoples offices and homes. So we think this is radical. We think the back seat of the car will be another venue for people to watch entertainment like cnbc. So but randall, you said the back seat so theyre not watching it while theyre driving down the road, right . I certainly hope not. We dont even want people texting while theyre driving much less watching cnbc. We love you guys and we dont want people watching you and driving. Was there a bidding war tore this contract . How did it work and how much does it have to do with your technology which allows you to do voice and broadband at the same time whereas verizon locks you into either voice or broadband . Well, all of these types of arrangements that youre seeing right now, theyre partnering arrangements. So its not, you know, a function of economics and so forth. Its a function of, you know, who do you want to work with and who do you want to partner with . Youre starting to see the ecosystem play itself out here and people choosing those folks that theyre comfortable partnering with. We were very comfortable with General Motors and their vision and their view of where the connected car goes. I think they were obviously comfortable with our view and vision for where it goes. So its just a meeting of the minds and strategies and how we see the world in the future. All right, randall. You look so comfortable with that mike and youre holding it with the cnbc, like, perfectly. I was going to ask you if you see any ceosroun over there, if youd be willing to just for the day represent us. But then i said he probably doesnt want to do that. But i think hes busy. Youre busy. Youre probably right, joe. A second career. But im telling you, you look very comfortable doing that. We appreciate your time this morning in barcelona. Of course. Its a great place. Enjoy. Barcelona. Thank you. Thank you. Im going to see what the weather is there right now. Goodbye. I can go on my iphone and get weather and time and amazing. It is. Randall must be impressed that you know all this. He is. He said, you know b, he did notice that i was learning a lot. I said, you know, you should get yourself a metal driver. I said, wait a second. You could actually they make drivers now . Im making fun of you and im still on a blackberry. I saw you this morning in your makeup with your thumbs going crazy on that keyboard. If you want the keyboard, this is not for your you. If you want the world to open up to you if youre small minded and just want the keyboard, this is for you. Day two of elections in italy. Theres some weird stuff, cardinals, did we know this guy was supposed to resign . I dont know what to believe and what not to believe with the back drop and whats happening. Did you see all this stuff over the weekend . And now this cardinal just resigned for something. I dont get what haeps thats about. Is that totally different . Some kind of a who knows. Anyway, and the Global Markets are paying attention to whats happening in italy. Michelle ka rue sa cabrera probably will know if its tawdry. Shes in rome. Were going to hear about her weekend, as well. She will join us with the full story, next. All stations come over to mission a for a final go. This is for real this time. Step seven point two one two. Verify and lock. Command is locked. Five seconds. Three, two, one. Standing by for capture. The most Innovative Software on the planet. Dragon is captured. Is connecting todays leading companies to places beyond it. Siemens. Answers. Is moving backward. [ engine turns over, tires squeal ] and youll find advanced Safety Technology like an available headsup display on the 2013 lexus gs. Theres no going back. Welcome back, everyone. U. S. Equity futures are indicated higher this morning. The dow barely eked out a gain this week. The s p 500 was down first time out of seven weeks las week. The dow is up about 54 points above fair value. In our headlines this morning, the chairman of the finance Committee Said the committee will vote tomorrow on the nomination of jack lew to be the next treasury secretary. Joe. Coming up, positive news for blackberry. Wow. Really . Plus, the week ahead for apple shareholders. Its good. Blackberry ten sales or something . Exactly. Theyve been much better than people expected. Shares holders following a Court Decision friday. First, as we head to break, here is a look at last weeks winners and losers. [ male announcer ] how do you engineer a true automotive breakthrough . You give it bold new styling, unsurpassed luxury and nearly 1,000 improvements. Introducing the redesigned 2013 glk. See your authorized mercedesbenz dealer for exceptional offers through mercedesbenz financial services. But at xerox weve embraced a new role. Working behind the scenes to provide companies with services. Like helping hr departments manage benefits and pensions for over 11 million employees. Reducing document costs by up to 30 . And processing 421 billion dollars in accounts payables each year. Helping thousands of companies simplify how work gets done. Hows that for an encore . With xerox, youre ready for real business. Good morning and welcome back to squawk box here on cnbc. Im joe kernen along with becky quick and Andrew Ross Sorkin. Making headlines, blackberrys ceo says sales of the companys new blackberry 10 are running faster than expected. He says the company has increased production to keep up, but blackberry says it does not want to publish sales figures for the new smartphone until it has observed the trend in sales a bit longer. Is that a smartphone . Its like your iphone. It does most of what your iphone does. Fast . You could say it does some of it better, actually. Like what . The typing. The type sg 10,000 times better. Even on the screen . Even on the screen. If the iphone could have a keyboard like the blackberry, the game would be over. Is it bigger . Its slightly pig bigger, but it predicts the text in a totally different way. The iphone is awful. Its out of control. Its a software thing. Ahha. All right. You like to feel the keyboard, right . Yeah. But theyre going to have a keyboard in the next version. Okay. Were going to go across the pond again. This time were going to italy. Polls in italy opening up for the second and final day of voting. Michelle Caruso Cabrera joins us now from the best place in the world, rome, italy. It is the best place in the world. Its rainey today, and yet i wouldnt want to be anywhere else. 2 1 2 hours to go until italians have to stop voting. The polls close at 3 00 local time. Thats 9 00 a. M. East coast local time. Well start getting early exit polls. Its really confusing. The first numbers will be difficult. We have with us today amato gerardi. Hes an american, he lives in philadelphia, but hes a member of the Italian Parliament because the Italian Parliament has representatives from all over the world who represent people of italian desent living overseas. You are on the berlusconi ticket. Yes. You know berlusconi actually quite well. He could possibly win in this election. Looks like he may come in second. Can you explain the phenomenon of berlusconi to americans . We find it quite amazing that somewhere who had so much trouble with the laup law, yet italians have put him into power three times. If he wins, this will be the fourth comeback. We are comfortable that hes going to win this election. I think hes going to win . We are comfortable that the polls as of today will put us over the top by a small margin. Could he be Prime Minister again . Its a good chance, even though he says he doesnt want to be Prime Minister. Maybe a young beryl skonny, the former minister justice could be the Prime Minister. But it all depends on the coalition. Yes. The knock that you hear on even people who support the free markets, which presumably is what beryl skonny does, they say, look, his written policies are things that we like. Yet when hes been in office, he hasnt achieved enough of they them. Is he an effective leader . Very effective leader, very effective entrepreneur, this is a man who employs over 6 0,000 people in italy, never puts anybody into unemployment. But when it comes to the being a leader politically, its the italian Prime Minister that doesnt work. You can even fire your own minister. And i was speaking with jans nordwig. He says if berlusconi were to win, the markets would fall. No. We cannot afford otherwise sfp. Really . The market pushed out berlusconi. Come on. Well, the reason the market pushed out beryl stop sign skonny is because of International War against italy. Italy is such an Industrial Power in europe, the most manufacturing power in europe and theres a big economic war going on. They want to bring italy down again. They buy the italian Multi National companies. And this was a very, very planned fact by some of the from the hedge funds and special interest for the economic takeover of italy. What did berlusconi say when these women took off their tops yesterday and started screaming at him . He said relax, go do Something Else thats more important. Honorable mr. Gerardi, thank you for joining us. When mr. Beryl skonny was auto tv last week, one of the first things he said during the interview was, you know what . Ive looked at all the candidates who are out there and im the only one who is handsome. You should vote for me. That just goes to show what you kind of personality we have. Well see how he does in the polls in the next couple of hours. I have no puzzlement. Im polling for him. You probably can understand that. I think hes perfect for italy, right . I agree. He makes for a good story. And he is handsome, yes. There you go. If you have to have a guy this charge, you might as well have someone like berlg sconeny. Anyway, michelle, get over there. I had dinner over there the other night. Ask your pal there about it might be a all right. See you later. Were kick off a busy trading week. Fed chairman bernanke testifies on the hill on tuesday and wednesday. Automatic sequester cuts are expected to kick in at the end of the week. Dick, big deal or not . You see where the democrats are and what the president is saying. Its weird, even like the air traffic type stuff he talked about. Ten years ago, we spent half of much as were spending now. Who is demagoging more, the left or the right on this . Well, even a little bit on this. This sequester was designed by the Obama Administration. Thats what bob woodward said and then they said no, it doesnt. Bob woodward was a classmate of mine. The last president that disagreed with him had to leave town in a little bit of a hurry. The history was that republicans demanded multi Year Spending cuts and the president wanted an extension of the debt ceiling until after the election. In exchange, the Obama Administration designed a sequester designed to be so bad that the parties would compromise. So i think Bob Woodwards story that this was designed and part of it was designed by jack lew who had a memory of what happened with the but so it is bad, then . Yeah, it is a its a bad policy, not as much because of the size of the cut. Its a bad policy because of the inflexibili inflexibility. Rather than saying, oh, gee, we have something here we dont need to do, lets eliminate it, lets not cut the air traffic controllers. Theres very little capacity to make rationale choices but nobody can agree on whats necessary and whats not. Thats the problem in washington. Well, i think with the first round, its easier. There are some things that people in washington know are not very valuable that the government is spending on. This is not the tenth year of the ee quester cuts. There are things, for example, the Democratic Senate bill proposed some cuts to farm spending over a ten year, nineyear, tenyear period. I think what will happen is most likely case in about to weeks to four weeks there will be a substitute bill that will tighten the fiscal policy this year by somewhat less. The sequester drags by 60 basis points. I think it will be replaced by a bill that might drag 30 basis points. Weve got 90 seconds. Doug, what do you think . I think any way you can ruse the size of government, do it. Certainly there has been a way of getting it done. You about i think what we need is some pro growth economic policies Going Forward. Lets cut Corporate Income taxes. Lets get the economy growing and lets get government out of the way. It would be a whole lot better if we did the thing that scares me is a trillion dollar deficit every year and we borrow most of it to expand on whatever were spending it on, we borrow it and we cant get 85 billion without the world ending . What does that say about our future and being able to get it under control . Well, this every day has to do more with less and i think government needs to figure out that theyre in the same game. Dan, what is the market going to do this week as we get closer to when this happens . As we get closer, i think the market will start backing off again. Right now, it seems like they think something is going to come about. As a minimum, i think this is going to force the issues. Make the politicians start thinking about what we need to do to start cutting effectively. And as the first guest said, i think somewhere down the line, maybe two or four weeks theyll come up with a different plan. Hopefully its way better than what we have now. The sequester will make the fed stay easy for a long time. We already know that. Bullard told us he was going to do that. Anyway, thanks, dick, doug, daniel, we appreciate it. See you guys later. When we come back, why a growing number of wall street veterans are jumping ship in favor of starting their own hedge funds. 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The different free dinner almost every weeknight . Or maybe, its all of the above. And all the rest. Am i home . Nope. But it almost feels that way. Homewood suites by hilton. Be at home. [ engine turns over ] [ male announcer ] we created the luxury crossover and kept turning the page, writing the next chapter for the rx and lexus. This is the pursuit of perfection. Welcome back to squawk. Our next guest says the jobs act is sparking a new phenomena on marching street youre effectively in the back office for hedge funds. Yeah. Youre the administrator, if you will, behind so many different hedge funds around the country. Around the world, really. Absolutely. Essentially we provide the heavy lifting for the fund managers. What is happening here . Between whats happening in washington and on wall street it seems there are so many managers leaving the big firms like Goldman Sachs and others and trying to strike out on their own and im surprised, well im surprised theyre doing it and really want to know, is it working . Yeah. Well, actually were seeing huge emergence of the emerging manager. Since the downturn a lot of Investment Managers sitting on certain desks have been considering going out and doing it themselves. But the downturn it was tough to do that because liquidity dried up in the entire market. What were seeing now is a lot of liquidity coming back dshsz when you say liquidity dried up in big Institutional Investors didnt want to give money to small guys who didnt have a record. Exactly. Right. They only wanted to give it to the biggest firms. Exactly. The safe haven of commodities, gold, whats happening right now is gold isnt a very high dividend paying stock to hold. So a lot of these Investment Managers now and also investors are starting to move their cash now back into asian markets and looking to invest in whos going to be the next big emerging manager. When you think about the success of these emerging managers, whats the record . I mean do 50 go out of business in a year . You know, people always say you start at Goldman Sachs and some of these guys, great when theyre at the desk at a big firm. Am i wrong . Theyre not getting the same kind of deal flow. Same information flow. Returns are different. They sort of structure in place previously through the institutions then they go it alone and realize there are more challenges out there. Youve got your setup, your ongoing the burn rate in the Hedge Fund Manager business is extremely high. What weve done is launched the emerging manager platform structure. What that allowed is emerging managers coming to market to essentially find a Cost Effective way why are investors now going towards why are they now willing to invest in smaller funds without as good a record or a record at all than before. Is that because the bigger funds are not returning dont have the same kind of returns they used to . Yeah, essentially the larger funds, the returns have what were seeing is because of the markets returning to alltime high right now investors are now searching for the managers that can give them that very big high return. So higher risk is coming back into the equation. Thats what were seeing out there. Okay were going to leave it there. Thank you for coming in this morning. Thank you very much. When we return, a legendary corporate Leader Speaks out on the stories of the morning. Former honlywell boss Larry Bossidy will be joining us right after this. W whats impressive . A talking car. But ill tell you what impresses me. A talking train. This ge locomotive can tell you exactly where it is, what its carrying, while using less fuel. Delivering whatever the world needs, when it needs it. After all, whats the point of talking if you dont have something important to say . Transit fares as in the 37 billion transit fares we help collect each year. No . Oh, right. Youre thinking of the 1. 6 million daily Customer Care interactions xerox handles. Or the 900 Million Health insurance claims we process. So, its no surprise to you that companies depend on todays xerox for services that simplify how work gets done. Which is. Pretty much what weve always stood for. With xerox, youre ready for real business. You name it. Ive hooked it. But theres one. One thats always eluded me. Thought i had it in the blizzard of 93. Ha never even came close. Sometimes, i actually think its mocking me. [ engine revs ] what . Quattro Quattro announcer scottrade knows our and invest their own way. With scottrades smart text, i can quickly understand my charts, and spend more time trading. Their quick trade bar lets my account follow me online so i can react in realtime. Plus, my local scottrade office is there to help. Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Voted best Investment Services company. The spending cut deadline and your money. We break down whats ahead this week as the markets get ready for another showdown in washington. Former honeywell chairman and ceo Larry Bossidy is todays guest host. Building a better business. What lowes is saying about Economic Conditions and how the company is preparing for the spring housing season. We run through the latest numbers and talk whether the stock is a buy. And the winner is we recap hollywoods biggest night. Turn off your cell phones, sit back, relax and enjoy the show. As the second hour of squawk box begins right now. Good morning, welcome back to squawk box here on cnbc. Im Andrew Ross Sorkin along with joe kernen and becky quick. Take a look at the futures on this postoscar morning. Is there any rules, myths around how the market does after the oscars . There is for everything else. Just about everything else. We do have green arrows across the board. Dow would open up about 55 points higher. S p up a little. Maybe 7. 5 points. And nasdaq over 15 points. Lets get you through your morning headlines. Home improvement retailer lowes is reporting quarterly earnings. Earnings came in three cents ahead of expectations at 26 cents. Revenues rose to 11 billion. Were going to have more on the companys results and talk about the state of retail with brian nagel of oppenheimer. Hes going to join us in just a bit. Also economist poll, survey from the National Association for business economics now says likely government budget cuts and the prospect for messy political fights over fiscal policy are going to be weighing on the economy. Theyre expecting growth of 2. 4 this year. More than 95 of the 49 economists who participated in that survey, they believe policy actions or concerns would slice into gdp. And the average price of gasoline is rising 20 cents in the last two weeks to 3. 79 a gallon for regular. Price is now up 54 cents in the last nine weeks. But widely followed industry analyst lundberg says the twomonth upward trend in pump prices may be about to end. Well have more on gas prices and where they could be headed with kevin book, gas and oil expert at Clearview Energy partners. Thats coming up in about 15 minutes. Early stock to watch, barnes noble chairman eleven and reggio has notified the board of a plan to bid for the companys bookstore business. This news happened within the last hour or so. The company is a pioneer of the book superstore format. Also investors are going to be focused on washington, as the drama surrounding the sequester which could result in 85 billion in spending cuts set for march 1st. What happens if theres no resolution in washington, and what will the Market Reaction be . Larry bossidy, the former hon honeywell chairman and ceo, also a cnbc contributor, is here today to talk about the markets and much more. And Charles Campbell is mkm partners executive director. Gentlemen, welcome to both of you. Its great to see you. Larry, we Start Talking about this, wall street seems to have shrugged off any concerns about the sequester. But on the front page of usa today, the headline is, in washingtons latest budget war, Collateral Damage could be huge. The sequester is here, its happening and its likely to affect your life. Whats the real story . I think its way overblown. I think if this were to happen for business, for example, cut the budget by 2. 4 , it would just be an everyday occurrence. Theyll do it the wrong way and publicize it in a way that makes people have lots of anxiety but, in fact, i dont think its going to make any big difference. And while you wouldnt design it this way its better than the alternative, which they have in front of them, in the sense that we need to get expenses under control. So i think after the all the publicity passes, it will go down in a way that wont be injurious to the economy. So to you the important thing is that these cuts actually take place one way or another . I do. You know, when you look at the agencies of the government, theyre all up more than double digits in the last eight years. Including transportation, 68 . Education, 18 . This, for example, will cut education by 1 . Right. So i think its way overplayed as the politicians will do it. It will get demi goinged all day in terms of the atrocity it will create. I dont think it will be a big deal. I think of the faa things. Yeah. The idea were going to have furloughs. The faa is saying there will be up to 90 minute delays at some airports. I mean you could argue that cuts into growth when you talk about actually what it means for the economy. Andrew, dont you think im not saying we shouldnt be cutting, im wondering whether we should be cutting in a more probably should. Some of that is staged. Wouldnt you agree . I imagine some of it you cut the School Budget youre going to take care of the athletic programs. I mean a lot of this is just staged. I do think theyll do some things where people notice and feel it. I dont think they have to in light of the overall cut. Which is de minimis. 90 minutes would lessen some of the average delays, wouldnt it . Is that bad or good the 90 minutes . 90 minutes is pretty bad. But you can walk into a 90minute delay on any given day. Right . You can repeatedly and routinely there may be i dont know. You have to be following legislation here. And theyll be enabling amendments down the road. So it wont last in this particular form for too long i dont think. Larry and charles it just scares me that if its a trillion dollar deficit, and we borrow a lot of it, to pay for what we consume, and we cant cut 85, then i just think, i dont understand the math there. First of all they thought the 85 was too big. Then people recognized what a small percentage it was, so less than 1 of the gdp, so now they say they dont like the way they cut it and they didnt cut it terribly artfully. But nonetheless. If you look at transportation department, theyre budget 74 billion. Ray lahood, the transportation secretary on friday said theyre going to reduce their spending by 600 billion. 600 million. Which is less than 2. 5 . Now the Public Companies that were doing layoffs were cutting 2. 5 of our workforce, what happens to stock price . Goes up. The market is aware and it discounted dysfunction in washington. What ive been surprised by though is even things like the defense stocks havent performed poorly when you consider there are going to be cuts and its going to mean less spending thats going into some of these stocks, and the less of everything, all the way around. Jim cramer was talking about this over the weekend. Something will get worked out at some point in the future. Democrats, and market knows this, are loathe to admit that entitlement programs, the large governmentrun entitlement programs, need to be restructured. How is it that cocacola, ibm, exxon mobil, general electric, can restructure on a regular basis, every ten years each of them restructure something, thats accepted. People understand thad. But theres such sensitivity in washington about admitting that theres inefficiency. In government programs. Theyre loathe to even approach restructuring them. Whereas, the private sector is restructured on a continuous basis. Although you guys did mention, larry brought this up, allen blinders oped piece in the wall street journal today. He says that despite all of the concern out there, we have been seeing an improving budget picture. The democrats and republicans have agreed on something. He said well basically have cut 4 trillion if we implement sequestration as planned. On the other hand we havent touched entitlements to any extent. We havent overhauled the tax code. We havent done the energy policy. While hes true arhythmatically theres a lot more that needs to be done. Maybe were spinning our wheels over silly stuff when we start looking at 10 discretionary when the entitlement package and part of the reason for the improvement now is becauses we have some economic expansion which increases taxes even though its anemic and below historical standards in economic recovery we had some expansion going on. Tax receipts are higher. But its even with the sequestration, the budget is still going to be larger than it was so charles you dont think that theres any situation, even if we get into friday, we dont have any agreement, and we push forward with this, you dont think it weighs on stocks when they start to really contemplate this . You dont think the markets been thinking at some point that washington will come up with a final 11th hour agreement . It may weigh on them but it wont weigh on them the way that the Washington Echo Chamber will suggest, you know, the meat supply will be tampered, delays are going to be significant. Incidentally, paul ryans airport by paul ryans home is going to be closed. Just by coincidence. I dont think its going to weigh nearly the way it might seem if you hear the sound bites. I saw the president again saying were not going to let this happen on the backs of the middle class because the republicans are loathe to raise taxes, they will not raise taxes on their wealthy friends. So were hearing that again. I wonder, would itten the last thing, the fiscal cliff, we didnt get a lot of spending cuts on the fiscal cliff. Would that really be should we just wriz taxes 85 billion. 50 50. I thought what he said was raise taxes on 50 of us. Wed raise another 42 billion. Anyone at 1 million you pay at least 30 and then youd have to get rid of some loopholes, ri t right what he really wants is 500 billion. If you think of this as a 1 trillion deal. Do 500 in revenue. So another 15 revenue. And then 15 in spending cuts. Probably speak to some of this. What would you do as a republican i dont know. I thought i thought theyd say no. I thought Marty Feldman had a good submission the other day where you cap expenditures at 2 . 12 times. And then you delay the entry into medicare by one or two years, you change the index in terms of cost of inflation and you get a couple hundred trillion dollars in terms of ten year deduction. So i think that needs to be considered as well over time. I heard on the news last night, they said this was just as bad as the fiscal cliff what americans are facing on friday. And thats the kind of thats the kind of enabling that the market clearly doesnt think that. Id like to see we were in a very different place talking about the fiscal cliff and talking about the debt ceiling. It was a totally different discussion. The market has blinked at all and thats what i keep waiting thats because they think theyre going over the sequester and they dont care i dont think they think its because theres a fix coming. Theres no discussion. The market looks at the data. Washington talks about what creates fear and what creates anxiety. Market looks at data. 85 billion in the context of a 15 trillion dollar economy is a fraction of 1 . In the context of a 3. 6 trillion dollar budget, its less than 2. 5 . I mean, its not critical issues. And it shouldnt turn the economy upside down. Now washington, if they want to inflict major pain, they can i mean the sequestration is supposed to be equal cuts among programs across the line. Percentagewise. Right. So if they want to inflict major pain, the party does, they can do that. But they can give the president some freedom in terms of flexibility. The funds and i think over time he doesnt have them today, they wont have them march 1st but he will he could have them there after. You think it would be a surgical cut eventually . Yes. Once i think were going to pass the continuing resolution. The republicans should at least, i think, at the lower spending as imposed by the sequester and give the president or the executive branch at least some flexibility in terms of how to administer the cuts. Charles thank you very much for joining us this morning. Pleasure talking to you. Youre welcome. Larry is our guest host. Hes going to be with us the rest of the program. Comments or questions about anything you see here, email us, you can do it do we have the screen or maybe we dont . I have to read it. Squawk cnbc. Com. You can follow us on twitter, squawkcnbc is our handle. Dont forget mobile and facebook there you go. Dotcom. Cnbc. Get it from there. I dont know. I have to read that. Anyway, if you need copy it down if you really want to send something in here. Up next, consumers facing the highest gas price at the pump ever. For february. Month of summer driving. You know what is coming . Summer driving season. Will these increases hit the consumer where it hurts the most . We talk pain at the pump next with kevin book. [ male announcer ] any technology not moving forward is moving backward. [ engine turns over, tires squeal ] and youll find advanced Safety Technology like an available headsup display on the 2013 lexus gs. Theres no going back. Checking futures right now. We are seeing some green arrows this morning. Dow futures up by about 58 points. S p futures up by 8. 5 points. This is coming after a week where the s p was actually down for the first time in seven last week. So green arrows this morning and well see where it goes. The American Consumer watching prices rise at the pump. Kevin book, managing director of Clearview Energy Partners Joins us now with more. Good morning, kevin. Your thesis is that demand will at least moderate, or even slow in the u. S. . Is that what do you pace that on . Morning. Part of the reason is youve got a demand response whenever prices are high. The other part of the reason is people are replacing their old clunkers, at last, with new, more efficient cars. We see about a 2. 3 reduction in u. S. Demand. That wont necessarily change prices but what it means is that the pain of those prices will be proportionately somewhat less as people become more efficient. So, but is there a reason that you can point to right now that prices seem to be ahead of where crude is . Or was it a catchup with crude . How did we get up to near 4 . Sure, its been precipitous, and surprising to many. Partly theres the math. If you divide oil by 42 you get the prerefined per gallon margin. And then you add in whatever the refiner takes. Thats the second part of the story. Brent prices, which set the gasoline price in the u. S. Are up and refineries are down. And so with refineries out for maintenance and including some unscheduled maintenance youve had unnatural tightness on the refined product supply. That is going to relent in the next couple of months. Really in the next month, with the switch overto manufacturing of gas for the summer driving season. Did you see boone when he was on last week . If you didnt i can bring you up to speed on a couple of things he said. One of the things he said was his whole thesis about peak oil with fracking and shale, and domestic energy. His idea was that if we still are held hostage by our friends in the middle east, that they can always decide where to put prices by either closing or opening the amount that they produce. And they still have flexibility there. He says theyre going to keep it above 90 no matter what. Do they have the power to do that . I recall a conversation with mr. Pickens in his office about his thesis on peak oil back in the days when he was for peak oil. Im glad to hear hes revised his view. I will say opec has a lot of power and the saudis have drawn back by almost a Million Barrels per day just in the last year. Part of what we have to ask is as we tighten our pressure on americas allies and irans trading partners, whats going to happen to that marginal capacity in the world . Are the studies going to begin to roll back out some of the oil that needs to be there for the world to stay in a narrow price brand . Are they going to take the hit for the global economy. The question i think remains to be seen and obviously theres a bigger geopolitical question to be answered. You know, it looks like we may be on the brink of Energy Independence. While thats a ways away, it is at least within the realm of imagination. How would the saudis react to that . And does that give us any leverage in terms are of the cost of of the brent crude that will be coming out of that country . Ironically it diminishes our leverage. As we become a less relevant of the opec producer nations we get less of the most favored customer treatment. Zbon are the days we could say we need some help, were hurting. Now theyve got better customers whose demand grows while yours declines. We dont want to get ahead of ourselves. Calling for Energy Independence while were still dependent would be silly. That is interesting. Thats a nonconsensus, at least it wasnt kevin book, thanks. Thanks for having me. Well check backyou. When we return a recap of hollywoods big night. Then Evercore Partners founder and former treasury official roger altman will join us to talk about the week ahead. As we mentioned futures are indicated higher as well. Dow up another 10 points, up 66 points above fair value. Squawk will be right back. [ indistinct shouting ] [ 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. You name it. Ive hooked it. But theres one. One thats always eluded me. Thought i had it in the blizzard of 93. Ha never even came close. Sometimes, i actually think its mocking me. [ engine revs ] what . quattro no one film dominated the Academy Awards but several scored big wins, including a best picture victory for a film based on a reallife historical events number. Heres nbcs stephanie stanton. She has a recap. Argo. The Academy Awards biggest prize went to ben afflecks thriller about the 1979 rescue of american hostages from iran. I thank everyone in the movie, on the movie, worked on the movie, did anything with this movie, give thanks. Affleck produced, directed and starred in the film which won three oscars, including best adapted screenplay. Claudio mirren dough, life of pi. Actually went argo one better. It won four awards including best director for ang lee. Leaving out lincoln director steven spielberg. Thank you movie god. Lincoln did make movie history. Its star daniel daylewis became the first threetime winner for best actor. My fellow nominees, my equals, my betters, im so proud to have been included as one amongst you. Winning oscar for the first time was Jennifer Lawrence. The Silver Lining playbook star took a stumble up the stairs on the way to claiming the prize. You guys are just standing up because you feel bad that i fell and thats really embarrassing, but thank you. Christoph waltz. On a night when the academy spread the wealth django unchained brought Christoph Waltz his best oscar as best supporting actor. And Quentin Tarantino won his second for best original screen play. And two years after cohosting the oscars Anne Hathaway was best to win one, best supporting actress for les miserables. It came true. A feeling shared by others basking in oscar glory. Stephanie stanton, nbc news, hollywood. It was a good night. She thanked ron. She specifically said ron meyer. It was a good show. Comments, questions about anything you see on this show. Email us squawkcnbc. Coming up next, washingtons budget debate could stir up new anxieties as markets head into march. What to expect if sequestration really does happen. And which areas of the economy will feel the pinch . Were going to hear from traders in the currency and commodities market in our trading block. And then coming up next, roger altman of Evercore Partners is going to join us with his assessment of the economy and where this market may be headed. music throughout why turbo . Trust us. Its just better to be in front. The sonata turbo. From hyundai. Welcome back, everybody. In our headlines this morning, royal to pharma is making a bid to acquire elan. Affymax are recalling all of their anemia drug omontys in the United States. And Pope Benedict will step down this week. Today the vatican announced he has changed the rules of the conclave that will elect his successor allowing cardinals to move up the start date before the usual 15day transition between pontiff between popes. Thanks, beck. The expiration of some serious spending cuts are just days away. Despite the summit and the bills to help squelch the drastic cuts no compromise is seen. And yet roger altman is chairman and founder of evercore partner and former deputy treasury secretary. Good morning, roger. Hey, joe. Trying to figure out how to approach this with you. Its discretionary is not our problem. And we already sort of snow that. And there are those well im not sure Everybody Knows that. But i agree with you. Yeah. And entitlements are the big issue. And 85 billion when you look at the growth of the federal budget, you know were really. Its still going to grow. Were going to cut it a little. I cant imagine that you or people in your camp think 85 billion, if you found the right places, is undoable. Is your main problem with this the the blunt nature of the cuts . Is that is that really what what youre against . Well my main problem is that were shooting the wrong victim, so to speak because, as you said, Discretionary Spending, especially the nondefense part of it, is not the spending problem which this country has. Its entitlements, especially medicare. So, as i side, in this oped piece on friday its like invading iraq, when the attack came from afghanistan. Its just the wrong place. Now, my own idea, joe, is to take the 85 billion which is scheduled to be cut through the sequester in 2013 and stretch it out. Keep the total amount of deficit reduction, which is a trillion two over ten years in this sequester but make it nine this particular piece nine billion a year over nine years so you lessen the immediate impact, you give the players in washington more time to forge the right agreement, but you dont lose any of this deficit reduction. I think Everybody Knows what the right agreement ought to be. Yeah. No well i think thats the problem, right, roger . Well, Everybody Knows that the heart of the problem, i think Everybody Knows, is entitlements which are growing too fast, and revenue, which is growing too slowly. So if you simply look at the historical levels over many, many years, decades, expenditures as a share of gdp and revenue as a share of gdp, you see that expenditures remain above, may above, the longterm historical norms. Theyre about 20 of gdp now, and they need to be lower. And revenues remain quite below the longterm historical levels, theyre between 16 and 17 and they need to be at least a percentage point higher than that. So we need to do something on each side, and entitlements are the spending problem and id personally like to see deductions as a way to get more revenue because that would avoid any further increase in marginal tax rates and we have an upside down system so to speak of deductions in this country. Roger, how are you . Good to see you this morning. Same here. One of the things that occurs to me is that people are pretty much aware of some of the statistics youve just cited appropriately in terms of the level of expenditures as a percent of gdp and revenue, et cetera. But the question i think in the minds of some people is, in the absence of being able to reach an agreement on some of the things that you mention in which i would agree, theyre going to take sequester as the best thing available, even though its a portion inappropriately and perhaps even targeted inappropriately. But i think the American Public in large thinks its the only thing we are going to be able to get. Are you at all helpful that we or hopeful that we can reach sensible in dealing with entitlements, for example . I actually am. And one reason is that i think over the next few weeks, maybe it will take a bit longer, but medium term well see a pretty big public outcry over the sequester. Airport delays, meat inspections, Defense Department furloughs and so forth. It may take a little bit, but the public is eventually going to get all fired up about this and theyre going to be mad. Especially people standing in line at airports for example, and that outcry will put more pressure on the decisionmakers in washington and i think that pressure could be constructive, which is one reason i dont think we should postpone the sequester. Its a stupid instrument, but its putting a lot of pressure on for a better deal. I wonder, we never know, roger, i just wonder if it doesnt happen what you know, i remember y2k and i cant remember anything. I dont remember one thing that i worried about that so much and had so much done, youre absolutely sure that that theres going to be things that cause the public to to, you know, to chafe . Joe, it may take awhile, because its 85 billion of Budget Authority but its only 44 billion of fiscal 13 appropriation. So the next week, three weeks, five weeks, perhaps we wont see much effect, but eventually, i believe there will be real impacts on the public. You know, for example, National Parks as the warmer season comes on and people want to visit National Parks, theyre going to be delays, closings and so forth. I think eventually this is going to affect people. Roger, could you see a way to come up with those cuts and do it in a more surgical manner, a way that is less of a blunt sort of well across the top of the head . The right way to do it is on the entitlement side. If you want to keep this pressure on, my own idea, take this 85 billion in Budget Authority, stretch it out over nine years, 9 billion a year. You dont lose any deficit reduction. You lessen the immediate impact. And you keep the pressure on the parties in washington. Theres a lot of other ways you could approach it, too. That was just my thought. Once again it sounds like weve we feel like in the future well be more ready. We always feel like thats what i mean. Because like well be growing faster. And then i think i saw a piece over the weekend, roger, about how many firms make sure people only work 29 hours now. And how many firms may make sure that they dont go over the 49th employee. And obama care is not even mandated until 2014. What makes you think that given all the headwinds that were going to see, just in terms of, you know, regulations and new programs that in 2014 were going to be in a better position to absorb some of these cuts . Im worried now were never going to be in a good position to absorb cuts economically. We may never have any growth. Im more optimistic than that. Weve talked about this before, joe. But, i think 2013, in gdp terms, is a transitional year, transitioning from these five years of weakness following all the events of 2008, into a stronger economy, mid 2014, end of 2014 thats a long transition. I think thats the case because of housing, because of energy, because of manufacturing, because of the end of household deleveraging, and i really think were going to enter into a stronger period. Its not going to be this year. But i think its coming. Roger i want to go back to what becky said, which is lets say if you had a week to redo this plan. You still have to cut 85 billion, you just have to do it differently, is it possible . Oh, sure its possible. Thats a tiny amount by standards of our 3. 6 trillion budget. Think about it what are you going to go over . After the weekend in the New York Times theres a school thats a 100 million budget. 30 million gets cut because of the impact payments that they get because of the way the taxes are structured. There are going to be people that are going to be hit. The question is how do you avoid places like that, whether its the or the faa or the National Parks and still get to your 85 billion number . Well, andrew, theres one of two ways to do that. Either focus on the right problem, which is entitlements, and just to give you an example, if you means test some entitlements, especially medicare, and people like me dont get the same benefits as other people, youre going to save a lot of money. And the president s proposal on chain cpi, for example, in terms of modernizing cost of living adjustments for Social Security, would save a lot of money. But if you insist on focusing on discretionary, which is the wrong place to focus, then you can just stretch out the 85 billion. Put it over nine years. Thats 9 billion a year. For the next few months youd only have 9 billion of cuts and largely that would not be felt. All right. Did ridge yo call you directly how does that work, roger . Youre on the barnes noble deal . I dont have anything to say about that. Evercore guys must be really good. One question for you. Do you use a kindle or a nook . I use an ipad. Hmm. Hold on. But with reading a book, software . I read books on iipad. With the Kindle Software or Nook Software . Kindle software. Wrong answer. Ive got to be honest. Thank you. We appreciate that. I appreciate that. Finally. Finally or me or finally for the show . Thank you, roger. Coming up, what investors should be expecting this week. Volatility has been the name of the game as of late. Find out if its here to stay. Thats coming up next. Check out shares of zynga. Quite amazing. Theyre rallying in premarket trading this morning. At the end of last week, this is actually big news we havent focused on yet, nevadas governor signed legislation legalizing Online Gambling within the state. Winn resorts reportedly had talks with zynga about online offerings of gambling. Shares were up sharply on friday and appear to be adding to it today. On squawk box tomorrow, the intersection of the consumer and the Housing Market. Home depot set to report quarterly numbers. For up to the minute earnings and analysis, tune in to squawk box. Revolutionizing an industry can be a tough act to follow, but at xerox weve embraced a new role. Working behind the scenes to provide companies with services. Like helping hr departments manage benefits and pensions for over 11 million employees. Reducing document costs by up to 30 . And processing 421 billion dollars in accounts payables each year. Helping thousands of companies simplify how work gets done. Hows that for an encore . With xerox, youre ready for real business. Hows that for an encore . How do you keep an older car running like new . You ask a ford customer. When they tell you that you need your oil changed you got to bring it in. If your tires need to be rotated, you have to get that done as well. Jackie, tell me why somebody should bring theyre car here to the ford dealership for service instead of any one of those other places out there. They are going to take care of my car because this is where it came from. Price is right no problem, they make you feel like youre a family. Get a Synthetic Blend Oil change, tire rotation and much more, 29. 95 after 10. 00 rebate. If you take care of your car your car will take care of you. Welcome back to squawk. Green arrows across the board. Dow looks like it would open up about 65 points higher. S p 500 up almost nine points, and the nasdaq up a little over 20 points. Check out shares of barnes noble this morning. Premarket action there, up 18 . The company says its going to be evaluating the sale of its retail business. Chairman Leonard Riggio has told the board he plans to buy the Retail Assets of the Company Including Barnes Noble Book sellers and barnes noble. Com but not the nook digital reader business. A lot of investors trying to figure out whether a deal would come. The company saying its going to evaluate that in an s. E. C. Filing. Gunmakers are aiming for record Quarterly Sales as First Time Buyers including a growing number of women and pensioners rushed to buy weapons before anticipated gun control laws come into force. President obamas proposals to curb gun violence have increased political investor scrutiny on Gun Companies accustomed to growth. Smith and wesson, theyre going to be reporting Quarterly Results within the next two week. Also background checks for firearm sales mandatory for all purchases in gun stores rose nearly 50 yearonyear in december. Data from the fbis National Criminal background check system showed all of this. This was the highest monthly percentage rise ever reported for a measurement commonly used to gauge the firearm industrys performance. All right, andrew, thank you. Lets talk markets. Joining us is mark sebastien the coo of option pit mentoring and consulting. Also Mark Chandler who is the chief global currency strategist at brownberger. Mark chandler, why dont we start off talking about the dollar. It looked like the dollar is finally starting to relax a little after all the gains we saw against the euro last week. Maybe its the yen thats the big story with this talk thabou the leading candidate to head the bank of japan. I think youre right. The yen has been a big driver. The dollar gap much higher in asia on the news that he may get the nod for the boj governor. The dollar yen had come off in the european session. The other big story of course is the following up on the uk downgrade by moodys before the weekend. Sterling also was hit early and also has come back nearly retracing most of its losses earlier in asia. And the third thing is the italian elections. Well get the results around 9 00 new york time this morning as the polls end. And the fourth thing id point out is bernanke testifies before congress tomorrow, and i think were going to see a correction to the hawkish read that many had on these fomc minutes. I think this is keeping the dollar sort of more volatile than weve seen in recent weeks. Is your guess that you would not be taking a position in front of the yen with all of this news about the bank of japan, and who the next governor is going to be. I think that the boj governor has been already tilted in the sense that we already know that the abe government of japan wants to have a dovish boj governor. I think this is largely a formality now. I think koroda has a lot of Great International experience and speaks well for the g7 and g20 cooperation. On the other hand hes not as aggressive as some of the boj candidates were, talk about buying foreign bonds. I think he is a sort of a middle of the road tip of candidate. Definitely easing policy from the bank of japan. Starting probably in april or may. Okay. Mark sebastian weve watched the Retail Stocks today. Weve got walmarts Earnings Report last week. But now were going to get the focus on many of the other big retailers. Is there any direction that the traders seem to be taking ahead of this . Is everyone going to be affected the same way walmart was . You know, i think it will be interesting. I dont think what im going to be interested to see is how target and the Dollar Stores versus macys move. Our macys customers move through kohls and jcpenney. Are jcpenney customers moving to target and so on. I think thats going to be the interesting thing to watch. Is the Social Security tax affecting the consumer right now, kind of potential sequestration affecting the consumer right now. Do you think it is . I dont. I dont. If you look at the financial markets, they do not care about the sequestration right now. Right now it doesnt look like american politicians can stop the s p. Now the italians, maybe. But i dont think american politicians can stop this market from going up. Its just been a juggernaut higher even in the face of some fed announcement last week we bounced right back off 1500. I think were going to see the dow breaking alltime highs in the next, you know, couple of weeks. And the s p threaten in the next month or so, as well. Mark mentioned bernsys speech tomorrow. Is there anything the chairman could say that would change your mind about that . Id be shocked if he says anything thats going to really change my mind. The fed governor is pretty clear on fed chairman has been pretty clear on what he thinks. So i think this slow grind higher that weve been having is just going to be more of the same. And i think consumers need to get on this train. Gentlemen, thank you both very much. Thank you. Coming up, lowes reporting earlier this morning. Were going to go through those numbers, and talk retail and payroll taxes, as retail analysts brian nagel next as we head to break check out the shares of lowes this morning. Because i couldnt tell where they were going to raise i thought they were going to be higher yeah they are higher. Squawk box will be right back. 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Helping you save, even if its not with us now, thats progressive call or click today. No mas pantalones welcome back to squawk. Home Improvement Company lowes reporting Fourth Quarter results earlier this morning and beating expectations. Joining us now from new york, Brian Nagel Oppenheimer Company Senior Equity Research analyst. Good morning. Better than expected pretty much across the board and yet, profits did fall 11 year over year. What do you make of it . I think its a good report. Theres a little bit of noise in the numbers, given the 53rd week in 2011, so that profit decline you mentioned was very much expected. I think the numbers here to look at. They did 26 cents. The street was looking for 23. So they beat by three cents. Probably the most important thing, they did a 1. The comp. If you look at the amount of stat basis that assumes a pretty nice acceleration from the Third Quarter levels. Were seeing the stock up 2 in premarket. Is that a function of the 5 billion buyback . No i think its more momentum in the business. Lowes said for awhile now theyll be buying back a lot of their stock. So the new buyback announcement today is basically a reflection of that. Thats not necessarily new news. With the market concerned here with lowes is just sales acceleration. Youre seeing now this is the Second Quarter weve seen sales start to pick up, and a pretty decent pace. If you look at the guidance they gave for 2000 initial guidance for 2013 that assumes that sales are going to continue to improve there. And whats your sense on sales improving . And let me ask that question across the board retail given some of the taxes that are starting to take a cut out of peoples paychecks. Whats your expectation . I think its difficult to make a kind of a broadbased comment. My view on Home Improvement retail and i put a piece out for our clients last week talking about lowes and home depoe, i think its ticking up nicely here. All the data suggests that with Mortgage Rates lower, i think comp is improving, Housing Market improving, thats helping to bolster Home Improvement spending. We have seen some signs out there. Not in my coverage universe, but some signs of weakness related to presumably the payroll tax cuts. Thats more spotty than anything broadbased this morning. Larry bossidy is here. Home depot and lowes have competed with each other for years and from time to time one has an edge over the other. It seems to me that home depot is doing more innovative things right now and that lowes has to kind of refashion itself, if you will, in order to regain position that they had previously. Whats your view on that . No, i think thats a good observation. You know, i think probably the easiest way to think about that from a numbers standpoint is that home depot has been outcomping lowes for eight quarters. Well see what home depot reports tomorrow. I assume the comp at home depot will be better than it is at lowes today. But look, i think that gap is beginning to narrow. You know, lowes talked a lot about over the last year or so remerchandising their stores. You know, evaluating prices, i think that effort is beginning to bear fruit for them. So youre going to see that comp gap narrow over the next few quarters or so. Brian, im just still trying to get a feel for whats really happening with the consumer. I mean thats kind of where the market is playing this whole thing out. Is the consumer going to reflect overall what we heard from walmart last week, or was that a walmart specific problem . Im still trying to get a sense for that and i dont know what your thoughts are. Look, i can think its difficult to make a broadbased consumer comment at this point. My overall view, as i look and i wrote a lot about this earlier this year, about these changes in the u. S. Fiscal policy. My overall view, the combination of the strengthening Housing Market, Strong Equity markets, improving jobs growth, are going to offset, more than offset, any type of higher taxes on Consumer Spending. But if you have if you have these retailers which are sort of staying more focussed on the lowend consumer like a walmart youre probably going to see more of an impact in the near term of the higher tax rates or the expiration of the payroll tax cut. Larry whats your sense of the situation . I think the consumers been remarkably resilient, and i think that theyre going to get through this difficulty, as well. Everybody keeps looking at retail sales and expecting them to sag. In fact they continue to move along, not at a risk base, but at least in a progressive way. And i think that will continue, and it will continue throughout the year. Okay. Brian, were going to leave it there. Great, thank you. Thank you. Kind of interesting that lowes is you were talking about lowes needing a refresh. Yeah. And maybe they dont need a refresh. Depends. In comparison with home depot, i think home depot is outchilling them over the last year or so. All Retail Businesses need to be refreshed from time to time. Be number two, right . There is. But theres more to be made when youre number one, andrew. That is the truth. Okay. Stick around. Lowes on the car, lowes on jimmie johnson. Yeah. Saw a lot of lowes. Coming up to the National Economic council, and an assistant to the president for economic policy, Gene Sperling will join us. Later, gene will be smiling, he wont look like that. Hes going to be in a good mood. Later stock picks from president of Delphi Management, scott black, including one company that specializes in turning starches into sweeteners. It also has some business with some of the biggest Consumer Companies in the nation. Squawk box will be back right after this. [ construction sounds ] [ watch ticking ] [ engine revs ] come in. Got the coffee. That was fast. Were outta here. [ engine revs ] [ male announcer ] this is not my home. There. I said it. They dont have pictures of my kids. They dont have my yoga mat. And still, i feel at home. Could it be the flat screen tv . The not so mini fridge . The different free dinner almost every weeknight . Or maybe, its all of the above. And all the rest. Am i home . Nope. But it almost feels that way. Homewood suites by hilton. Be at home. Countdown to sequestration. Will washington allow 85 billion in automatic budget cuts to kick in by the end of the week . Well talk about the Economic Impact of the cuts with Gene Sperling. Plus best investment ideas from a member of the barrons roundtable. Delphis scott black joins us with picks for your portfolio, third hour of squawk box starts right now. I got gas in my truck butter on my biscuit welcome back to squawk box here on cnbc, first in business worldwide. Im joe kernen along with becky quick and Andrew Ross Sorkin. Our guest host this morning has been Larry Bossidy, former chairman and ceo of honeywell. We will have lots more from larry still ahead. Hes hes running on fumes, too. Didnt miss a minute of the Academy Awards last night. And like so many people, says he watches for the dresses, and for the makeup, right, larry . Absolutely. Didnt miss a second. Didnt miss a minute. Also joining us barry knapp . See any of the oscars last night . Nope. Head of u. S. Equity portfolios. Im in a lot of company. I was kidding about larry. I did watch argo. You did watch what . I watched argo. Head of portfolio strategy at barclays. Well get to barry and larry in just a minute. First, though, becky has your morning headlines. Joe, we know you were autopsy all night. Trying to push that off on larry. We know you were watching for the dresses. We heard you talking about it in the commercials all morning long. The other thing weve been talking about the average price of gasoline. If you havent seen this yet its been rising 20 cents just over the last two weeks alone. Its now at 3. 79 a gallon for regular on a National Average here. Prices are now up 54 cents just over the last nine weeks. But widely followed Industry Analysts lundberg says the twomonth upward trend in 3u6r7 prices may be about to end. Also barnes noble chairman has notified the board of a plan to bid for the companys bookstore business. That includes the Retail Stores and the online business, but not the companys nook ereader business. This is a pretty big pusharound because that nook business had been what the company had been pinning its hopes on. He is the companys largest shareholder and also the pioneer of the book superstore format. The company put out a statement saying it will evaluate the proposal and that definitely causes shares to jump this morning. Stocks up about 17. 5 this morning. Also Home Improvement retailer lowes reported Quarterly Results a little earlier. Earnings came in at 26 cents a share. That was three cents better than the street had been expecting. Revenue rose to 11 billion. And that stock is up by about 1. 5 . Lets check on the broader markets. Youve been watching the u. S. Equities market and they are indicated higher. Dow futures up 67 points. S p just over 9. Overseas in asia, green arrows, as well. The nikkei was the big outperformer. It was up by 2. 4 . In europe this morning weve been watching some of those markets keying off what we saw. Right now the dax in germany is up by 2. 4 . In france the cac is up by almost 1. 9 . And joe ill send it back over to you. Thank you, becky. With the sequestration cuts looming, the Obama Administration continues to stress the importance of congress to come together and vote on a solution. Joining us now is Gene Sperling, director of the National Economic council, and assistant to the president for economic policy. Gene, we had thanks for coming on. We had roger altman on earlier and kind of came to a meeting on the minds, if we want to tackle our real big problems its probably not in the discretionary side of things anyway. Its probably on entitlements. But lets say we do try to figure out some way to do this with discretionary. He thinks we ought to do only 9 billion this year, and then not you know, not forego these cuts but spread them out over the next nine years so we dont do it nearterm. Does that have any merit, that idea . You know, i think what we need is what the to do is what the sequester was always designed to make us do, which is come to the on a grand bargain. A promise on revenues, and entitlement savings. Weve already cut domestic discretionary and defense significantly. Were on path to be at the lowest levels as a percentage of our economy since the 1950s. So what we really need to do and i think everyone knows this is just about the basic compromise that everybody who is serious about fiscal issues understands. You need tax reform thats going to raise some revenues. You can do that exactly in the way that Speaker Boehner and the republicans had been talking about, through closing loopholes and reducing tax expenditures, and you do it at the same time that you take on some of the important entitlement issues. Thats what we need to put our deficit down, getting down a percentage of our economy. Thats what this and thats what i think our economy needs right now. We need some certainty that were going to Work Together and get this done. And what i say to our republican colleagues is that you should be just seeking to do basic compromise, honorable compromise, because we should not let our fights and disputes impose a selfinflicted wound on this economy. And im afraid that as long as they take the position that you cant have one single penny of revenues or closing loopholes or deductions that everything has to happen on middleclass families, on health care, on Mental Health services, that were going to be at an impasse and the only thing that were going to do is hurt our own economy and keep this recovery from having the chance to grow the way it should be. Gene, weve heard these numbers a lot, 15 revenue, 25 spending as a percentage of gdp. Usually we can do 18 to 20 or 19 to 21 is what people want to do and run a 2 ref sit. How much of the 25 are you saying is entitlement . None of that is discretionary . The safety net and all the gaft programs that we have theres we cant cut any of that at this point and what percentage would that put us at in terms of percentage of gdp . It seems like its not all entitlements. Seems like we have to cut some other stuff eventually. Well, no, actually if you look historically, Discretionary Spending is at historically low levels. So if you ask where is our greatest challenge. Weve always known with the baby boom retirement challenge we need to have enough revenues and we have to try to do things to control entitlement spending. You want to get down to 20 though eventually . Does the president want to get down to 20 or permanently be at a new higher level of government as a part of our lives . Do you think its 23, 24, 25 . What is well if you were king, where would it be . Heres what i would tell you. If the republicans were to accept the last offer that the president of the United States put on the table to Speaker Boehner, we would be seeing our deficits for the next ten years be going down and be under 3 , as low as 2. 2 of gdp. That would bring the debt as a percentage of our economy down and on a stable path. That is what i believe people making longterm decisions about investing in the United States, locating plants here, thats what they want to see. And they also want to see us working together. And i think that is the critical element, is to make sure that the combination of policies we are doing is putting our debt and our deficits on a sustainable path. Gene, i know im sure you saw the column over this weekend bob badward said that you guys have moved the goalpost and that you own us. Jay said the column was willfully wrong and bob woodward came back with this the white house pushback is a classic case of distortion and confusion. Weve seen this too often in president ial history, i do not think it is willful, they are mixed up, surprisingly so. How do you react to that . Ive known bob for 20 years. He has never been more wrong. Theres virtually nobody on the planet who agrees with him. Everybody who has followed fiscal policy over the last two years know that we had an agreement on Discretionary Spending in 2011 and that because we got close, but couldnt quite come to an agreement on entitlement savings and revenue, that we put in and enforced a mechanism that was designed to bring everybody back to the table. The republicans knew that. In fact, they created as part of this a Super Committee to try to get us out of the sequester. Even republicans like senator toomey, like the speaker of 9 house john boehner, were putting revenues on the table in the Super Committee in the end of 2011. The entire dna of the enforcement mechanism in the sequester was to bring both sides back on the table. The democrats would compromise more in entitlements, that republicans would compromise more on revenue. So the idea that this move the goalpost is just i mean theres not an ounce of for truth to that. When the white house did get its way in terms of wanting to make sure that rates went up on the wealthiest. Well, you know, again, we take into we take into account the fact that weve done 600 billion in revenues. So when you look at what the president s offer is, still on the table, to Speaker Boehner, were not were saying that you can get less revenues. You dont have to worry about raising rates anymore. We acknowledge that that was done. But to get a deal compromised, you still need to do some closing of revenueof loopholes and tax expenditures to raise revenues, together with entitlements. Remember Speaker Boehner had almost a trillion dollars on the table when he left the negotiations. Right with the president. So all were saying is we have to have some compromise but if you dont find compromise are you okay with going over . Its starting to sound like the republicans are okay with going to sequester. It seems like theyre saying well go to sequester. I would say that is their choice. I think its an unfortunate choice. There is another way forward. Its a way where nobody gets everything they want. Where we compromise. Where everything is on the table, and you Work Together, and you could do a shortterm agreement to give us more time. I think for them to choose that they are now going to take an absolutist position that you cant find one single penny of revenues, not one single penny of loopholes for Corporate Tax expenditures, thats an absolutist position, and its their choice to do that, but then thats going to inflict harm on our economy. Its going to inflict harm on education, on health, on our national defense, and i think the American People would rather us rather them take a different choice, which is to Work Together, and compromise, nobody gets everything they want. But we move forward, and we give this recovery a chance to get some certainty that it needs. Gene, Larry Bossidy. Youve been around the administration for a long time. A number of administrations for a long time. You know, we couldnt get the compromise before we went over the cliff. We cant get the compromise now before we go into sequestration. Why do you think were going to be able to broker the compromise that you mentioned . Because this is what the overwhelming number of amount of the American People but they have wanted for a long time and it hasnt happened. You know its interesting, larry, actually if you look at whats happened at during the last two years, it hasnt been pretty but we got 2. 5 trillion of deficit reduction. Its been about 2. 5 of spending cuts for every dollar of revenue. Thats when you combine the discretionary cuts with the revenue. So we have made progress. It hasnt been pretty. But we only make progress when we have some form of working together in compromise. And look we have divided government. None of us are going to get everything we want. Everybody knows, every serious fiscal person knows that there are revenues that can be raised through tax reform that close es tax expenditures, close s loopholes. Lets remember Speaker Boehner was saying just eight weeks ago you could get 800 billion in revenues for deficit reduction from that type of tax reform. How can it be that now, as were at risk of hurting our economy theyre going to take this absolute position that you cant find one penny. Thats their choice. Its the wrong choice. Gene i know you got to run but the markets dont seem to be thinking that the worlds going to fall off of its axis if we go over the sequester cliff. Yet some of the things we hear from the white house and from washington would suggest so. Why is there 1u67 a disconnect . Well, first of all, i think one of the things that has helped is that theres less perception that the republicans are going to threaten default or not paying our bills on time. The markets often do assume that we will be reasonable in the end. But i think the most important thing is we know the reality. If you try to pull 85 trillion excuse me 85 billion of spending out of this economy in the next seven months thats a 9 on on domestic spending, 13 on defense, there is no way thats not going to hurt the cbo, Congressional Budget Office, independent Congressional Budget Office estimates it would hurt growth over a half percent this year. Jobs 750,000 jobs lost because of that. Why why is the president said in the state of the union when our countrys worked so hard to pull ourselves out of a great financial crisis would we now impose upon ourselves manufactured financial crisis simply because one side refuses to do the minimum amount of compromise thats necessary to move the ball forward and at least give us a chance to work further on the big deal most people want. All right, gene, we know you got to go somewhere. Its not on another network or anything is it . You have to go to your day job, right, thats why were going to let you go, right, you have important things to do, right . Very important. Very important. Very important. But nothing more important than being on this show with you guys. On squawk box. Squawk box. Thank you. Well see you later. Coming up, hackers targeted apple, microsoft, facebook and twitter just in the last week. Up next were going to talk Cyber Security with eamon javers who is going to be joining us from the security conference in san fran. As we head to a quick break take a look at u. S. Equity futures up this hour. Green arrows. Welcome back to squawk box with Cyber Threats and attacks on Companies Like facebook and apple experts are now agreeing that no business is immune to the threat. Still companies are reluctant to admit their data or intellectual property has been a target thats been a problem pretty much across the board eamon jafrs joins us from San Francisco where Cyber Security experts are gathering this week to create notes on cyber defense. You probably cant see this eamon but when we went to you and went to me there was like a little flicker in the screen as you can note evils of hacking, and theres nothing wrong with your screen if youre watching at home right now. Im worried were under attack here, andrew. Thanks. Were here at the rsa conference in San Francisco. Theyve got about 350 of the top Cyber Security experts in the country. Were going to be presenting here all week. One of the questions that were going to talk to them about is why companies dont seem to be disclosing their Cyber Security attack in their s. E. C. Filings. In fact, last week we went through hundreds of s. E. C. Filings from 2012 trying to find any companies at all that had disclosed Cyber Security attacks that year. We found a handful, and there are a handful more that had been reported publicly. Generally companies are not really eager to talk about their Cyber Security vulnerabilities in their s. E. C. Filings and disclose this to investors. Now we asked one expert why exactly that might be. Take a listen. Companies correctly see that disclosing something could hurt their reputation, could encourage other attackers to go to come after, open them up to lawsuits including shareholder lawsuits. Now i talked to folks over at the National Security council over at the white house. They generally agree that companies are not by and large disclosing all of the cyberattacks that theyre feeling. But they said theyre encouraged by the couple of disclosures theyve seen in recent weeks. Companies are more and more willing to start to come forward. But guys i got to tell you when you talk to the National Security council folks, the Intelligence Community and Cyber Security experts they tell you their hairs on fire. U. S. Companies are under attack to such a degree that the entire u. S. Economy is going to be affected by this. Then when you look in those s. E. C. Filings to find any evidence that thats happening you really cant find all that much evidence there. A couple companies and ones and twos are disclosing. You dont see massive waves that would indicate anything like what the intelligence guys are telling us. So theres a real conundrum there. Eamon what are the rules on that in terms of disclosure. Is, do they have to . The s. E. C. Put out guidance in the fall of 2011 telling companies that they ought to be disclosing their Cyber Attacks and vulnerabilities. What you saw after that is Companies Put in boilerplate disclosures saying among the things that might affect our business Going Forward including tornadoes and hurricanes and other things are Cyber Attacks. What you dont see a lot of is companies coming forward and giving revealing actual Cyber Attacks that have happened in the past is there a material thats one of the questions yeah. Whether or not its material, and its hard for the companies in all fairness to the companies, it can be hard for them to figure out whether the attack has done a whole lot of damage, actually. Because they know that the data has left the building but they dont necessarily know how the enemy is going to use that data against them and what the dollars and cents level of the damage is going to be. So theres a real, you know, confusion out there. Sometimes the companies dont even actually know theyve been hacked and when theyve been hacked they dont know necessarily what the dollars and sense impact of that is going to be. Okay, eamon, thank you for that. Were going to be checking in with you throughout the week for more updates on all of that and the chairman of rsa will be on closing bell today to talk more about Cyber Threats. You want to stay tuned for that. Our guest host this hour are Larry Bossidy and barry knapp. Barry, sometimes i just cant face asking i guess i should. With Gene Sperling, the republicans finally agreed to raise taxes, and you know, the tax reform we were talking about was get rid of loopholes so you could lower rates and broaden the base. Instead of doing that youve got the increase on the wealthy and if you were a republican and you had agreed to that and then theyve come back and said okay weve already done that now the loopholes were going to get rid of were going to do it in conjunction with raising the higher rates wouldnt you find of feel like they changed the goalposts or theyre after weve already done it theyre going back on the original agreement . The problem here is, theres the political side and then theres the economic side. As someone who looks at the economics youd say the host weve ever collected in government receipts as a percent of gdp is 18. 5 . Top marginal top rate of 90 we get 18. 5 we become greeks. Top marginal tax rate at 28 we get 18. 5 we become i dont know maybe swiss maybe they pay their taxes right . Government spending is 23. 5 of gdp. Milton friedman said thats all that really matters. Not the deficit. But the amount of government spending. So until you get that below 20 you just cant get there. So, all this talk about, you know, additional receipts and 20 . Closer to 21 if you assume 2 to 2. 5 . But if you want to stabilize the debt and bring it down then youre clearly going to have to go below 20 to make it sustainable over time. So, to me, thats the economic argument. The political argument, from my perspective is that republicans have decided the president s at the height of his political power in the six to eight months after hes elected. Dont fight him then. Right . Because then his power dissipates fairly significantly, no Minority Party has ever lost seats in the midterms in the final term, you know, of the second term of a presidency. The republicans are threatening to be the first. So the idea is dont battle in here for six months, do the ropeadope, keep your powder dry and fight them later on. So from an Economic Perspective i cant see them giving any more on revenurevenues. But from a political perspective i wouldnt be surprised if they didnt give on revenues this time probably on the corporate side. Larry you would be okay with the corporate side . I would. Id like to see the expense on the table first before i compromise in terms of may not happen. It may not happen. Because i think i was taken the first time. I gave up 600 billion and got nothing. Im not going to go back to that. All right. You put expenses on the table first and then well talk about some tax closing of loopholes or whatever. Youve got to remember, only five times in the last 47 years have revenues exceeded expenses. So thats a hard mountain to climb. But nonetheless, weve got to at least neutralize it. You ever in a fraternity, andrew . I was. Did they i was in kappa kega brew when i was being hazed theyd spank me with a big paddle and id have to say thank you, sir, may i have another. That was not my normal response. Oh that was in a movie. Anyway. Anyway that was the omega. Coming up, ben bernanke see i get all mixed up. What was my actual history . You dont look lie john belushi. I look like the other guy. Niedermayer. Hes running the new york stock exchange. Ben bernanke set. While keeping out threats to your operations . Its not working yes it is. Welcome to tyco integrated security. With worldclass Monitoring Centers and thousands of qualified technicians. Weve got a personal passion to help your business run safer, smarter, and sharper. We are tyco integrated security. And we are sharper. How do traders using Technical Analysis streamline their process . At fidelity, we do it by merging two tools into one. Combining your customized charts with leadingedge analysis tools from recognia so you can quickly spot key trends and possible entry and exit points. We like this idea so much that weve applied for a patent. Im colin beck of fidelity investments. 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When we return, the bernanke effect on the markets. What to expect when the fed chairman testifies on the hill this week. And we have delphi scott black sharing his best investing ideas. Its part of our whats working now series when squawk box comes right back. [ cows moo ] [ sizzling ] more rain. [ thunder rumbles ] [ male announcer ] when the world moves. Futures move first. Learn futures from experienced pros with dedicated chats and daily live webinars. And trade with papermoney to testdrive the market. All on thinkorswim. From td ameritrade. You name it. Ive hooked it. But theres one. One thats always eluded me. Thought i had it in the blizzard of 93. Ha never even came close. Sometimes, i actually think its mocking me. [ engine revs ] what . quattro welcome back to squawk box. I federal judge in new orleans will begin to hear Opening Statements in the bp oil spill trial today. And barring a lastminute settlement the u. S. District judge will decide how much more money is owed by bp and its partners on the drilling project. On friday the wall street journal reported that the u. S. Government and gulf coast states are considering offering bp a deal under which it would pay 16 billion and settle the civil suits stemming from that oil spill that we all remember so well. And does your boss ever let you work from home . If your boss is yahoo Ceo Marissa Mayer the answer is no. The company is cracking down on Remote Workers. All things deep reports yahoo s Human Resources sent out an internal memo on friday requiring Remote Workers who work at yahoo offices by june not from home. The memo said in part being at yahoo isnt just about your daytoday job, its about the interactions, and the experiences that are wholly possible in our office. Work at home doesnt work so well. I have to, though. No, do the show from home. Actually do the show from home. No. But Remote Access we get all of our yeah but you have to put your face time in here, too. Well, yeah. Viewers demand it. Thats kind of a revolutionary edict that shes just issued. The world is going in the other direction. Thats right. Cameras and satellites at home, right . Do the work at home in our pajamas . I think we could do the show. The could news is you cant break yahoo its been broken. Get them back to work maybe its going to be a plus. You know how i sleep, though . Pajamawise. That would be no, i dont. This moment has been brought to you by joe kernen. We cant do it this way, let me just say that. Right, andrew . Do you you could is this a pay channel . What are you talking about . I have the little buttons in back and the flap. Anyway, and the kids are there with you. Yep. And furniture retailer ikea has halted all sales of meatballs in sweden. This after czech authorities detected horse meat in frozen meatballs. Labeled as i always thought it was weird that ikea sold food. I thought they sold very creep, crappy furniture. They have a cafeteria and the swedish meatballs are a huge draw. Love that. All right. And rodney said that. I see the whip marks on the steak. An ikea spokesman said that the batch of meatballs had been on sale in the czech republic, britain, portugal, the netherlands and belgium, and of course we talked about it last week, the british love shepherd pie, German Shepherd pie. I dont know what the big deal with is that not made out of you know Girl Scout Cookies are not made out of girl scouts, either. Thats the good news. The markets feeling the effects of uncertainty over the feds exit strategy. How do you segue from that to this . Chairman ben bernanke heads to capitol hill to testify this week. Rick santelli is at the cme in chicago and Steve Liesman is with us on set. Weve also got Larry Bossidy who is here and barry knapp. And steve, set up the fed story for us. What are we going to see this week . This always happens to me, andrew, i have to segue from the horse meat story into the fed. Its worth thinking about, guys. The concept of qe infinity may already have failed. All the argument over how long the current policy will last by fed members undermines one of the pillars of a policy. Its promise to remain in place until the labor market improves substantially. But with all the concern about potential costs, and these costs include a sharp decline in the amount of money the fed gives to the treasury. Markets can no longer rely on the promise in the fed statement. That is whatever benefits the precommitment was supposed to bring forward end up being diluted. Practically whats hat issue here is the Second Quarter or half trillion of qe. It seems likely that the fed will continue qe through june. That would bring in about half a trillion of new purchases. But now there is talk of tapering these purchases and ending them before the end of the year. The question is whether fed chairman ben bernanke pushed this board too far and how or if he uses tomorrows Humphrey Hawkins testimony to put the policy back on track. One more thing if the feds qe policy lacks credibility, does the market believe the Interest Rate, the separate Interest Rate thats what i was going to bring up, even if they taper qe right. And dont do 85 billion a month we still have Interest Rates at zero. But remember the whole if we go back to what the cornerstone of this policy was, the paper presented by mike woodforde at jackson hole which said that the fed needs to promise the market that it will act differently in a zero bound environment when the economy starts to improve. Were going to keep going with this policy. And thats what is embedded in the Interest Rate policy, thats whats embedded in the qe policy. But right now, whats happening is the costs seem to be overwhelming, and the market the committee is just not comfortable being there. Its a bit like heres the promise. The promise was you put your hand out and im going to light a fire underneath it. And the policy is this, that even when your hand gets too hot, im not youre not going to remove your hand. Youre going to keep in place. What were finding out now is that this is a promise too far. The board is just not comfortable being there and its going to have to find the language and the rhetoric to either put it back in place, or find something new if its not working youve got to admit it. Right. And youre not getting the benefits you thought you were getting. Is this all because of stein . We heard bullard steins papers incredibly, its really important in the sense that not that its going to affect nearterm policy shifts, but look the feds mantra prior to this subprime housing related collapse was that subprime is contained. Well now steins lifted a number of series around credit markets. Credit markets are starting to heat up. Junk bond issuance as a percent of total for example is one of the things he cited. If those markets really heat up, they get so overvalued. Theyre already overvalued rick would probably argue this. Even to an extent that it looks like another bubble and they ignore it, and create another bubble, thats a huge problem for the fed. I dont think theyre at the point 6 influencing their current behavior. But they clearly have to be cognizant of that. The second half story i do not through june, probably. Second quarter is the earliest that they would really start even debating this. And thats assuming that im wrong, that the tax hikes dont slow Consumer Spending fairly significantly. Did we misread the minutes last week . No. The market got i think the market has it slightly wrong in the sense i think bernanke has 11 votes to continue with this policy. I dont know how long that lasts. I think that if jeremy stein, hes a governor, hes going to raise objections. You guys had bullard on last friday. It sounds like hes on board for the moment. The question becomes what the market is supposed to be believe. If the statement says we are going to keep doing qe unless theres substantial improve innocent in the labor market and now theres more talk about the costs of the amount of remittance to the treasury going down. Of credit bubbles, then do you believe the fed in their promise, and if you dont believe the fed, then how good is qe . Rick, do you believe the promise . Let me see. Im doing a rain dance and if it happens to rain i dont know that my dance had anything to do with it so discussing whether i should keep dancing or not dancing is the way i look at everything lately that comes out of the fed. Its the nanny approach to the economy, the crisis is passed. I couldnt even make a guess as to what rendition of the next rain dance is coming. I think its crazy. Thtance on the fed. Steve, whats the nearterm economic consequence of stopping qe or tapering it . I mean whats going to happen you see theyve got to stop it sometime. You see it in the market. The idea of qe, the idea of the woodforde paper is that the market stocks, especially, but bonds as well, could look forward to the fed being in the game down the road. To a certain amount. So the market pulls back a little bit. Because what were talking about here is two, somewhere between, you know, 200, and 500 billion dollars less qe than the market anticipates. So that to the extent that they keep Interest Rates down, the estimates are 100, 150 basis points, you probably can look forward down the road, not today, larry, down the road to somewhat higher Interest Rates. Youre saying its digestible. Its not going to be a catastrophe when that happens . I dont think its a catastrophe. Look i think it would be a good thing. Because it represents because of what it would represent. Look in reality, nominal gdp has been incredibly stable through this entire recovery. Less than 4 . Almost 2 less than the last business cycle. So theyre not really impacting real growth. They might be age to drive the price, you know, the level of inflation up a little bit. But theyre really not impacting real growth here. So theyre mitigating the risk of deflation. Maybe theyll create a little bit of inflation. But this is not a huge driver for growth. So tapering the purchases, it will drive the stock market down, and that was what was so instructive about last week. The bond market rallied, credit spreads barely widened. But the stock market sold 100 points and it came back, right . And rick, did the i asked bullard, i was kind of laughing, 85 billion is the sequester, you guys do that in a month like its, i mean, the 85 billion to the fed they laugh at 85 billion. Theyre just Getting Started at 85 billion and now we think its the end of the world he the government tries to cut that out of a whole year of spending. That shows you thats a big number every month, isnt it . Yeah, no, listen when we debated at the end of the year as to whether there was this monstrosity of a sector change rotation going on, the numbers were talking about on the inflows of stocks were what, between 18 billion and 25 billion . Yes, its a huge number. Weve gotten so into this idea of being comfortable with this crazy impact that the feds trying to have, and its Balance Sheet and questions to the exit. We almost dont even question it anymore. Weve become so complacent. I agree, rick. Huge, huge numbers. Happen in a way that were like, okay, the feds doing qe infinity, and its going to raise and i put up the charts. I showed that the fed this year would increase its Balance Sheet by more than it had in the prior three years if it went through the 58 billion. I dont think there was enough debate. Maybe not enough debate on the board. Did you see the chart of japan and how much qe they had done, and they got no Pricing Power whatsoever. It was just it flat lined. They were so timid about it. We need to go big. Thats the point that other people make about why japan is japan because they dont stick to their commitments. Thats the theory, anyway, and they were trying to break that cycle with qe infinity and now theyre incapable of doing it. Its like groundhog day for monetary policy. Steve, thank you. Rick, thank you. Barry, thank you. Larry, youre not going anywhere. Thank you. Thank you guys. When we come back, get your portfolio ready for the trading week. Up next, investment ideas from a member of the barrons roundtable. Scott black is Delphi Management will join us. [ male announcer ] ive seen incredible things. Otherworldly things. But there are some things ive never seen before. 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T with scottrades online banking, i get one view of my bank and brokerage accounts with one login. To easily move my money when i need to. Plus, when i call my local scottrade office, i can talk to someone who knows how i trade. Because i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Awarded fivestars from smartmoney magazine. Welcome back, everybody. We are continuing our whats working now series with portfolio picks from the top investor and a member of the exclusive barrons roundtable. Joining us from boston is scott black, founder and president of Delphi Management and scott its great to see you again this morning thank you for joining us. Thank you for inviting me, becky. So lets talk a little bit first off about the broad details before we dig down to a couple of the stocks that you like to look at. Sequester is coming up. There does not look like theres a deal in place. Do you care as an investor . Absolutely. This is a selfinflicted wound on the investment community. Firstly we lost 110 billion through the payroll tax hike rescissi rescission. That represented 0. 7 of gdp. Although the 85 billion doesnt kick in automatically next week, thats another 0. 5 . Thats 1. 2 of gdp. Were barely at 2 . The economys just above stall speed and that doesnt bode well. And of course, you see that, the savings rate is up. Personal consumption is only up 1. 9 . Consumption is 17. 5 of the economy at this point. You can see the consumer is pulling in, and it doesnt really look good for the rest of the year, you know, for nominal gdp. So scott that sounds like youre not just concerned about the sequester kicking in, youre concerned about the idea of any more austerity this year . Well, i think we should have a combination. Simpsonbowles has the right blue print. But it looks to me like the president is posturing and the republicans are being adamant, instead of trying to get together the way reagan did with tip oneill, or clinton did with republican congress, theres just too much animosity. It should be time for compromise. Just the administrations that i alouded to before. So if thats the situation and youre worried about where were headed, youre thinking the economy is at stall speed how do you set irportfolio up . Are there stocks in particular that you would avoid . Well, at this point youd have to avoid the defense stocks because obviously the acrosstheboard sequestration is not going to be good for the lockheed, General Dynamics or northrops of the world. You have to avoid them because the earning power could drop substantially. A couple of stocks i am going to represent this morning are defensive in character. The first one is cvs caremark. The company is selling at about 12. 9 times expected earnings. They should earn 3. 95 to 4 this year. The top line growth is only 2 or 3 but similar to what happened with mckesson which i recommended the last time is the gross margin dollars not the revenues that are important because theres a shift now from 75 of their scripts to 80 are generic that carry less total revenue dollars but higher gross margin dollars. And the nice thing about cvs is they generate over 4 billion a year in free cash which was greater than their net income and they buy back over 4 billion worth of stock this year. But doesnt the stock at the front of the stores wont that be impacted by all of these to some degree. But their comps are still over 4 in the latest quarter. They shot out the lights visavis rite aid or wall greens. The company is a steady grower. Modest topline growth which will have about 15 earnings per share growth and people get sick every day and people need part b medicare fulfillment of their drugs via the mail. So i think this is a good defensive play. What about ingredion. Thats a midcap stock. Its roughly 35 billion as i dividend yield just under 2 . They basically crossed a starch in sugars. Most of the stuff goes to the kelloggs, general mills, pepsi and coke. Its an intermediate ingredient thats used and roughly 70 of the business is food, beverage and pet foods. It supports consumer staples. The stock is selling about 11 times earnings. Its not going to have run away growth, about 6 on the top line. 6 on the bottom line last year they did about 433 million in net income and generated 420 million in free cash so its almost dollar or dollar. High return on equity, about 19 . 13 on total capital. Its a Good Business for an 11 multiple, so theyre selling at roughly 3. 5 multiple point discount to the s p at this point. Its an interesting business. Does it have any natural competitors . I guess theyre in global competitors. But a global foot print and the only area theyre not doing well right now is latin america. There are three other segments, north america, europe, middle east, and also asia, are all up nicely in both revenue and operating income in the Fourth Quarter. Its a solid business, and its defensive in this type of an environment. All right. Scott, thank you. Really appreciate it. Thank you very much, becky. And coming up, kick off your week with some stocks to watch. From jim cramer. Were going to head down to the new york stock exchange, next. Revolutionizing an industry can be a tough act to follow, but at xerox weve embraced a new role. Working behind the scenes to provide companies with services. Like helping hr departments manage benefits and pensions for over 11 million employees. Reducing document costs by up to 30 . And processing 421 billion dollars in accounts payables each year. Helping thousands of companies simplify how work gets done. Hows that for an encore . With xerox, youre ready for real business. But we can still help you see your big picture. With the fidelity guided portfolio summary, you choose which accounts to track and use fidelitys analytics to spot trends, gain insights, and figure out what you want to do next. All in one place. Im Meredith Stoddard and i helped create the fidelity guided portfolio summary. Its one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Welcome back to squawk box. Lets get down to the new york stock exchange. Jim cramer joins us now. I figured out whats going on there. Were going to do that as a stock of the day. No, i do follow it. Antianemia drug. Some people have come down with ant an anaphalaxis. So we go back to doing epo, and good for amgen. This is a decline of preposterous proportions. If you pull the big drug, it tends to end badly. I should have known, you did cover that. You cant help but notice it going down on the tape. How about lowes . Anything else so far today . Its so funny, joe, the negativity. I know it gets to me. Out with a great quarter. The first thing i read a bunch of research which is, nah look, this is a Company Buying back a lot of stock. It is doing fine. The stock has been on fire. Its up again a little bit. I think this says good things. They just talked about the sandy rebuild. Were both in jersey, so you and i know, it hasnt even started yet. I like lowes a lot. What do you use, a blackberry, iphone . I use it an iphone. I absolutely love it. It changed my life. Its great. Me, too. Thats exactly what i said. People think im silly because it took so long to do it. Im doing things that just im talking to becky, but just doing email on a keyboard, just because you have a keyboard, youve got to come in, right . A lot of people feel its changed my life to the negative, because while im talking to them im on it, that type of thing. I love it. It had a preferred attached to it, id like the stock. What about barnes noble . Like this is like dell, this is like Richard Schulz making a statement that my companys too cheap and i want to sell it right here right now. Except for the nook part. What do you do . I think you sell. Anybody that says theyre about to do a takeover, i say, i dont want to wait for it, i want to go home and ricng the register. Would you do anything based on the sequestration, jim . I was on meet the press yesterday with maria bartiromo, and i said, you know, the defense stocks hit a 52week high on wednesday. The Shipyard Company most at stake is the best performing stake. Sequester tell me in ten days the parks are closed. Tell me the ten days that they throw out the workers ill stay home and watch netflix and have a good time. And use your iphone. And i wont eat meat. Wed be a smarter, well you know, less obese nation if those ag workers took more time off. Anybody at ikea deserves to when i was really poor, i lived on the swedish meatballs, partner. You did . You bet i did. Plymouth meeting at pennsylvania, thats where i went to, because i couldnt afford anything else but the meatballs. They could fill you up the whole day. The meatballs you had was 5 to 1 at delmont. Thanks, jim. Yeah. Oh, boy. When we come back, the last word from our guest hosts. Squawk will be right back. On squawk box tomorrow, the intersection of the consumer and the Housing Market. Home depot set to report quarterly numbers, for uptotheminute earnings and analysis, tune in to squawk box, starting tomorrow at 6 00 a. M. Eastern. Ms re. But way too many arent. Why . Because selling their funds makes them more money. Which makes you wonder isnt that a conflict . Search proprietary mutual funds. Yikes then go to etrade. Weve got over 8,000 mutual funds, and not one of them has our name on it. Were in the business of finding the right investments for you. Etrade. 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