Transcripts For CNBC Squawk Box 20130722

Investigation of their metals warehousing businesses. In other washingtonrelated news, president obama has a series of economic speeches planned for the week ahead of key budget deadlines this fall. Hes going to be delivering the first address on wednesday at a college in illinois. More from john harwood on that next hour. Corporate news, apples main website for developers was attacked. The company now saying that no customer information has been compromised, but they cant rule out stolen data on developers names and addresses. As a result, apple is overhauling its database and Server Software to prevent future breaches. Good morning to you, mr. Kernen. Oh, good morning. Good morning, andrew. Good morning. I was up late watchle mickelson. Right. I bet you were. But i recorded it because it was over early. I didnt talk to anyone, look at anything, go anywhere. You had no idea . No, i made sure i had no idea. I didnt look at twitter, didnt look at any of my i saw something from alerian. Hes from san diego. I dont know what that means, but it was about the reds. It wasnt about phil. I watched it unfold. I almost started crying like his caddie, like bones. Now to the latest, someone else who might be crying, probably not, the latest on the governments action against steve cohen. On a scale of one to ten, this is like a 0. 2. What hatppened here . Administrative action, not even a civil charge, so its a pretty weak charge. Toothless . I wouldnt say toothless. Wone tooth . Needless to say, this was a surprise that this hit on a summer friday afternoon. The culmination of a fourplusyear investigation into steve cohen, charges that steve cohen failed to supervise and failed to prevent Insider Trading by two Portfolio Managers. The 16page filing where he was allegedly aware that nonpublic information was being used. One was involving elan and wyeth where it was allegedly used to make 275 million. Another in which a manager allegedly traded on an inside tip on earnings. The s. E. C. Says cohen also sold his dell shares on that news. The analyst to that trade pleaded guilty to Insider Trading. An email from cohen after the trade said, quote, nice job on dell. Even with those specific emails and phone calls pinned down around those trades, the s. E. C. Didnt reach charges of willful blindness or conspiracy to commit fraud. In a statement to cnbc friday, dan kramer, an attorney said, quote, the press speculates about a lot of things in this case, but one of the possibilities that the press doesnt engage in is the possibility that steve cohen didnt do anything wrong. We believe the evidence will show he did nothing wrong. The firm has until august 8th to formally respond. Im told it will formally deny those allegations. The firm will also focus on retaining investor money and top trading talent in the meantime. The s. E. C. Is seeking to ban him from investor money and being associated with an investment adviser. It will be tried in front of an s. E. C. If appealed, it goes to a commissioner. The type of proceeding that this is means that its going to stay within the walls of the s. E. C. , which is interesting. So i dont think this is toothless at all, joe. No . No. I think this is actually its a lousy case in that its not as strong as people had expected in terms of what kind of charge youd bring. But the charge unto itself is actually pretty strong. If you go through the documents being able to prove the administrative action . And i think, by the way, the s. E. C. Has more than a decent chance of actually winning that and banning him from the industry. Its almost irrelevant at some level how toothless or tooth i dont know what the opposite of toothless would be the type of action that this is, i mean, i referred to it as a layup, but thats pretty much what it is because it stays within the s. E. C. It doesnt even go to an outside court. And therefore you win unless you are an s. E. C. Judge and youre willing to go against the recommendation of the s. E. C. Staff. But it reads, andrew, like a securities fraud case. When you read it, it looks like theyre going to eventually at the end come to the conclusion there was some sort of conspiracy to commit fraud. They have these exact emails, phone calls and actions that resulted from those communications. But then at the end when they said we believe that he failed to supervise, that is peculiar, to say the least. It may be peculiar, but its still a win, right . Youre saying ts a layup. I believe so. So if its a layup, then its over. The game is over. We started this conversation two minutes ago saying that its not such a bad thing. Hes not going to jail. Hes not going to jail, but the business may be over, right . S. A. C. May be finished . Have we just decided at 6 05 that s. A. C. Is over . Not necessarily. The other thing that could happen, you talk to a few people about whether this precludes anything from happening from the doj. I know in a lot of these cases you let doj, which is sometimes seen as the authority that can bring more grave type of charges in these situations, you let them lead, and then you sort of fall behind. But in this case, the doj might have a different statute of limitations. They might be able to use against cohen anything that he says in the testimony inside the s. E. C. s administrative proceedings to see if he slips, to see if he lets anything go. And then go from there. One other question i cant figure out. Ive been playing with this the whole weekend. He pays 616 million to the s. E. C. He settles with them. This is only four months ago. He gave over the money. I assume he thought when he gave over 616 million that he was in the clear at least from the s. E. C. s perspective. How is it possible that you hand over that this is like a i dont want to suggest this is a shakedown, but its like they give you the money and then you come back for more. Its interesting that would even happen. Its fascinating that would even happen. You have to wonder what the exact communication was like at that time between cohen and the s. E. C. , whether, you know, he did he have legal advice . Whether indicated or implied that this situation was over from there, whether they believed some sort of fallout was still coming. Kernen, what do you thinks going on . So its administrative, and they can sort of do anything they want to him. He cant prevent it, but the worst they can do is ban him from the industry . Thats the worst. And you think thats okay for him . I dont know. I like what his attorney said. The only thing the media wont consider is that he hasnt done anything. It would get him out of the business, but hed just have his billions and hed have to go on with his life. He employs thousands of people, has this giant expansive trading floor. And the way that dodd frank is written, it doesnt just ban you from investing outside money, but you cant have the word adviser in your name. You cant be associated with an investment adviser. He has thousands of employees . Roughly 1,000. I think roughly 1,000 employees. Its a huge operation. And so the worry now, you know, i talked to people who have interviewed for jobs and they said they didnt take the jobs because they felt like there was such pressure to take the job because they want to be seen as hiring. They want to be seen as expanding in the face of some of these charges. The morale, as you can imagine, is low. Can he run a Family Office . He can but its unclear what the restrictions would be. A madoff operation . He cant be incorporated. Hes got 8 million to his name. Someones got to manage that money. Could he manage it himself with 500 or 600 other employees that work at something called s. A. C. 2 or s. A. C. 3 . Could you work in the same building, rename the place, get rid of all the outside investors and say, you know, im running a Family Office . Legally i think that would be a pretty involved operation to have to construct because you cant be incorporated. What sort of protections do those employees have if something goes belly up from there. You know, its interesting. Thank you, kayla. Not a whole lot in the journal today. Saturday. Were now on day three. It was beach reading for everyone. Well check back in throughout the morning. Then at 6 20 eastern, well talk to jacob frenkle, former s. E. C. Attorney. Hell join us to discuss the stakes of that case. Lets check on the markets. Futures indicated up about 35 points after a great week again last week. A lot of that fueled by General Electric, which is really interesting to watch. You were out, werent you . Yeah, you were out. Yeah, on friday. He had good numbers, but revenue was down from last year. And a little below expectations. But it was the order rate. I think Industrial Orders in the u. S. Being up 20 and some positive signs that honeywell, both of those Companies Got people excited with the article today in the journal. Growth outlook is stuck in neutral as corporate earnings have dashed hopes that the u. S. Was entering a phase of selfsustaining growth. Thats the headline there. I dont know. We dont know why the market trades up now. It has a lot to do with bernanke and company. Lets look at oil. Oil is continuing to be stubbornly high. Apparently people drive in the summer. Every year were kind of surprised. We enter the driving season, and we cant believe it. I did pay over 4 on the road yesterday. Easily over 4. But they kind of gouge you when youre out on the highway a lot of times. When youre out of new jersey . Is that what youre trying to say . Definitely when youre out of new jersey. But when you pull into one of those places where you dont really leave the road. Its sort of on the side, you know, and theres lots of people. You know, a couple of different kinds of fast food places. And youre sort of hostage to youre not driving off into where you can look at different prices. You dont pay much attention to that. Youre in the back and you have that thing up most of the time, right . Bicycle, a little windmill on the back. No. Youve got that thing up and god knows what youre doing back there. Soundproof. We dont have any music . Finally. Thank you. What time is it . Its kind of a goal of mine to get it in before we have a commercial, right, mack . An xrated hairdo today. God, i saw that from a distance. Huh . Whoo look at that. All right. High and tight, isnt it . Semper fi, dude. Wow. Tenyear whoo man. He wants to go back to the prompter, too. We need a special forces operation, weve got a guy to lead it right here. Tenyear note, take a quick look. 2. 47. The dollar lately hasnt been really that interesting. But we do have, for some reason, the euro. I saw on the cover of barrons, europe is going to bounce back, andrew. Its going to bounce back. Really . Thats what it says. I dont know. Every of barrons not quite the cover of businessweek or usa today. There is gold which is back above 1300 at this point. A little minirally yesterday. But look at the high there. You could draw a little line through those recent highs, couldnt you . And through the lows. Its still in a band. Well see if it breaks through, you know, on the high end of that band. That would indicate something. Still in a place where it could turn down. You know, we had the commodities super cycle. Super cycle is finished. That was on wednesday, remember . Talking about commodities, did you see this New York Times story that i was talking about yesterday . I saw i got the sunday times. I want to know what they say. I didnt read a lot of it, no. So these aluminum warehouses where Goldman Sachs which apparently owns the warehouses, they move the aluminum every day out of the warehouse and back into the warehouse simply to charge rent. And that that is apparently pushing up the price of aluminum across the world. Can you say the euro . Aluminum. Jacob frenkle says its not over for cohen and can go outside the agency in the appellate process. Were going to talk to him in just a moment. We are. So youve got him, you know you think ive got him dead to right . Yeah. I think youve got him no, i think this is going to be tough. By the way, if you look at some of those messages, its tough. For him. Yeah. Its not good. So he kind of knew. You know, i still have a problem with you hire these research people. I dont know whats inside trading and whats hard work sometimes, you know. I dont want to when youre checking channels and stuff like that, is that inside info, or is that really working hard to find stuff out about . Its a gray area. Depends . It depends. If i told you that the information was coming from somebody at the company, then what do you do with that . Lets pretend, youre steve cohen. Do i get caught . Its like that study. Its like that study. Are you telling me im definitely not going to get caught . I cant even i cant even trade im barely allowed to have a money market at this place. We should go across the pond to europe. You were trying to have me do aluminum . Talk about the british open. Standing by in london. Can you say it . Can you say aluminum . Shes not english. I say aluminum, but i can probably say aluminum. But personally, i would say aluminum. Because i went to school in the states. But i think a lot of people here would actually say aluminum. Guys, as were waiting for the royal baby to be born, could be hours, hopefully not days, but over the next hours, lets just take a look at how european markets are faring. Currently were pretty evenly split between gainers and losing. The 600 is very much flat, just over the last minutes or so, getting a little bit of a negative bias here. I do want to show you the markets one by one because were now actually seeing the xetra dax in germany move just a touch lower. The ftse 100 now moving lower to the tune of around 1. 25 . There is one big outperformer, and thats the portuguese market. Off the session highs but still higher by 1. 6 . This is after we actually averted snap elections. So we are seeing a little bit of a relief rally. Now, elsewhere, we are yes, were also driven by corporate earnings today. Philips in the netherlands up by 3. 7 , Second Quarter numbers beat expectations. Ubs in switzerland surprisingly prereleasing numbers because it also settled a u. S. Mortgage probe, and numbers were better than expected. Thats why were seeing a pop in the share price. Julius baer also rising by 5. 5 . And i want to show you shares of astrazeneca. Lower by around 0. 5 after police visited its china offices. Of course, this is related to the gsk bribery investigation. Guys, back over to you. Okay. Carolin, thank you. I made the mistake of hitting up tv newser. Coming up, japanese Prime Minister shinzo abe vowing to keep the focus on the economy after a big election win during the weekend. Well have a live report from tokyo next. Are you doing that right now . Dont. Do not go there. I didnt know what you were talking about. Dont go there. Theres one story everyone will be talking about today, and not the one i just talked about. Apparently duchess kate is in labor. Wow prince williams wife was admitted to a London Hospital in the early stages of labor. We should know whether its a boy or a girl. They should have told us at this point because it matters. Actually, it doesnt because queens become queens over there. Things are progressing as normal. And in squawk sports news, what a great weekend of golf. Phil mickelson winning the british open, birdied 4 of the final 6 holes. He finished, you know, three strokes ahead. Nobody else was even under par. Its so fitting. The only guy under par, called it the best round of his career. You want to see a special relationship, i mean, obviously with amy and his kids, but between him and jim macay. Bones. I played three rounds out at pebble. Great guys. Its so good to see. Awesome. Awesome. Ury link provides reliae it Services Like multilayered Security Solution to keep your Information Safe secure. Century link. Your link with whats next. Help the gulf when we made recover and learn the gulf, bp from what happened so we could be a better, safer energy company. I can tell you safety is at the heart of everything we do. Weve added cuttingedge technology, like a new deepwater well cap and a stateoftheart monitoring center, where experts watch over all drilling activity twentyfourseven. And were sharing what weve learned, so we can all produce energy more safely. Our commitment has never been stronger. And experience the connectivity of the available lexus enform, including the es and rx. This is the pursuit of perfection. In global news, japanese Prime Minister shinzo abe claiming victory in parliaments upper house election yesterday. The win cements his hold on power and gives him a stronger mandate for his economic reforms. Cnbcs tokyo bureau chief joins us with the full story. Good afternoon. Kaori, good morning, good day. Good evening. Hi, good evening. Hello. Yeah, okay. Good day. Is it the same day . It is the same day. Its the evening. Good morning to you. Yeah. Give us the story. Well, you know, this means that japanese Prime Minister shinzo abe is probably the most powerful Prime Minister that japan has had in about a decade. And it completes the comeback story from him because this is his Second Time Around as Prime Minister. Another big election in this weekends upper house election after a big victory seven months ago that put him back in office. What this means is that you have a parliament where there are two chambers and that his party is controlling both of these chambers. So what it means is that if he wants to pass any kind of legislation, he can do so without any obstacle. There has been a little bit of concern about whether or not hes going to backtrack on some of the economic reforms, particularly the Structural Reforms especially because that socalled third arrow seemed to have missed the point back in june. But shinzo abe, in his press conference last night, and also this afternoon here in tokyo said that he is going to stick on course on economic reform, even suggesting that first on the agenda when Parliament Reconvenes the fall of this year will be to discuss the Corporate Tax rate. Corporate taxes in japan are notoriously high. And many foreign Institutional Investors have wanted a cut on the Corporate Tax as a way to signal its commitment to structural reform and economic reform. But he did suggest this afternoon that that was going to be one of those issues on the table. He also said that he is going to stick on course to raise the consumption tax. This is scheduled to happen next year. There is a little bit of concern whether the economy is Strong Enough to weather a consumption tax hike. But also, economists have been saying that if they embark on economic reform, investors are going to start to get very nervous if he doesnt start to exercise some fiscal discipline, especially the time when japans debt is about twice the size of its economy. So right now he seems to be sticking on course. I think one of the big litmus tests in the next couple of weeks is whether hes going to visit this controversial shrine where some of the war criminals are enshrined because that would be one major step backwards in trying to mend fences with china. Kaori, i wonder, do you feel like can you actually, is it tangible that things are finally changing . Your entire life has been spent in sort of this 20year period that we look at in the west where we remember japan was buying everything. They bought pebble beach. They bought you know, they almost bought new york city. And then weve watched 20 years of, you know, really an economy that just has been stuck in neutral. Does it feel to you like this actually is the time where its changing, or would you even know since most of your life has been spent in that period . You flatter me, joe. I mean, it doesnt feel like the Rockefeller Center days at all, of course, where Japanese Companies were going in to buy real estate and the like in the United States. It is nowhere near that level. I mean, were talking about minute levels of inflation, well below, you know, 0. 5 . Theyre only talking just now of 2 inflation. Were nowhere near that. But for the first time in probably 15 years, youre seeing a little bit of hope. And youre seeing inflation start to creep up a little bit. You are going to see, over the next couple of weeks, corporate japan start to report possibly in some cases record profits. This, as you know, is because of the weakening yen. The picture has changed dramatically over the last 6 to 12 months. If you compare it back to a year ago. 4. 1 growth is not bad at all. Well, were watching because, you know, were not doing the same thing, but were wondering whether reflation, whether it can be a positive thing. Some of the articles weve read over here probably overstate what happened. We think no one has spent a dime or gotten married or had kids in japan because, you know, your moneys going to be worth more, you know, if you hang on to it. Theres been articles written, i think, that overstate the case. I was just wondering whether you feel it is a little bit different at this point. You can feel it on retail on the retail side of things. Retail spending is definitely up. I mean, you had Companies Like tiffanys saying that japanese businesses, the best theyve seen in many years. I think the high end of the segment is starting to do well, and thats been around for six or seven months. Its not really at the Grassroots Level where youre seeing wages starting to increase. Bonus payments are up a little bit of hiring is starting to happen as well. We want europe and japan to do better. Hopefully china. We want all ships all ships. Thanks, kaori. Youll flatter her but you wont flatter me. You have not you havent seen a lot either. You are used to no upward mobility. Youve even the stagnation of this economy over the at least the past six years. You dont remember the you werent there to watch how bad i was a beneficiary of the le 80s. I hope to go back to that. Kayla tausche whos back at the table. Should i just shrink beneath the desk at this point . Thats usually my move right about now. I am old enough to run for the house of representatives. Scary for all of us. Thanks. Tell me how you really feel. Were going to get back to steve cohen. Thats why kayla has joined us. And of course the s. E. C. s case against him. Kate kelly has also been following this story. She joins us on the squawk news line also with the latest for us. Good morning to you, kate. Reporter good morning, andrew. I heard your discussion, and i would agree. It was the nature of the charges against cohen that surprised people friday, a little less than the fact that there were charges to begin with. Ever since this case against a former s. A. C. Analyst was filed last fall, wall street has been expecting to see a securities fraud case against cohen for alleged Insider Trading, not perhaps this failure to supervise case that was actually filed. S. A. C. s reaction was both swift and defiant. In an employee email sent shortly after the case was announced, the s. A. C. President said the charges lacked merit and that the firm would contest them. Much the same language that the firm used in its public statement. S. A. C. Traders who have thus far been mostly loyal to cohen and have been rewarded by additional pay and attention from him in the last year as he seeks to keep morale as high as possible arent quite sure what to make of it, im told. But departures are likely a likeliho likelihood. S. A. C. Is preparing to deny the assertions in the s. E. C. s order, im told, and will do so by august 8th. A week after that it will face redemption notices from its outside investors. But given the mass exodus thats already occurred at least on paper because it takes a while for the money to actually flow out, that may not be a terribly meaningful deadline at this point. S. A. C. Started the year with 15 billion. But after a 1. 7 billion redemption in the First Quarter and a Second Quarter redemption of more than 2 billion, its pot of outside capital, which amounted to some 6 billion at the beginning of the year is now a fraction of what it once was. Turning the firm into a de facto Family Office, running mainly cohens own money. At least by the first of next year when that money will have flown out. Ironically, thats one of the objectives of the s. E. C. s case. Again, as you guys discussed, to bar cohen from managing investor money or at least outside investor money beyond his own banking account in the future. Kate, help us with one other piece of this. Reporter yeah. Do you expect, given what he said actually at the delivering alpha conference just a week and a half ago about the statute of limitations people thought this was it, and now he says theres six years to this, that were going to see a criminal charge in addition to this civil case. Reporter well, you know, theres certainly speculation that the s. E. C. Is paving the way for the doj to make a bigger case down the road. I believe bararra said if you look at different types of fraud, you have a much longer time frame that youre dealing with. In fact, i think he said on some of those, it was actually ten years. Its also been telegraphed in the press in recent weeks that there are numerous other trades that regulators and prosecutors are looking at. Youve heard talk about Weight Watchers trades, and i believe those trades were actually occurred in 2010. So even if youre dealing with a fiveyear statute, you have until 2015. Right. I would certainly think theres more time. The one other thing i wanted to mention is, you talked about why settle for 600 million four months ago if this were going to happen. Well, i had two thoughts on that. I mean, ive asked the same question. And my sense is that there were loopholes, obviously there were, at the time this settle ment wa reached. I think s. A. C. Thought they were eliminating the possibility of future cases related to any of these particular trades. Elan, wyeth, dell and invidia. In fact, this managerial charge filed against cohen personally obviously wasnt ruled out. And i believe there were other iterations that they were able to still bring charges on. Kate, stay where you are only because we want to bring kayla into this conversation. We also have jacob frenkle, former s. E. C. Enforcement attorney with us as well. And we want to sort of get everybodys perspective. Jacob, let me start with you. If steve cohen called you on friday and said, take this case, would you . Is this a good case . In a heartbeat because i do think it is a weak case. Going back to a lot of what you were talking about at the beginning, yes, this case in front of an Administrative Law judge, the first thing i want to know is, who is the Administrative Law judge that they draw . What im doing in trying this case, im not trying this case for the alj. Im not trying this case for that firstlevel appeal, the Administrative Law judge. Sorry. Im not trying this case for that firstlevel appeal to the securities and Exchange Commission sitting as an appellate body. Im trying to case for the District Of Columbia circuit court. The United States court of appeals which is where the appeal goes from the s. E. C. , where the s. E. C. Has not met with much success, certainly in recent years. And thats my approach to this case. Going back to something that kate said in all the swirl about whether there is or isnt going to be, you know, a criminal case, i mean, the short answer is you never say never. But we see these cases getting weaker and weaker coming down to where we get to finally steve cohen, this failure to supervise. The issues i think that come into play are, one, look at the example of the gupta case. S. E. C. Brought an administrative action against gupta within 30 days. The next thing you know, theres a criminal indictment case that goes into federal court. The other issue which is one i think andrew you hit on earlier as well, which is here youve got the 600 million settlement. A couple weeks later, now you have s. E. C. Saying were not going to cooperate anymore. And then theres the case against cohen. It really calls into question the wisdom of cooperating with the s. E. C. Again, your question to me is would i take this case . In a heartbeat. I think it would be a great case to try. I do think its weak. I do think its winnable. Maybe not at the alj or s. E. C. Level, but certainly at the d. C. Circuit level. Jacob, walk us through the process of how it gets from the s. E. C. To the circuit level because i know a lot of experts say this is such an easy case for the s. E. C. And for the alj because its expected to be some sort of circular logic because this is all inters. E. C. Stuff. How does it get outside the commission from there . And kayla, youre right because failure to supervise is really the lowest standard. Its a negligence standard. And you look at the language in the order. It talks about implication, inference, but its not really talking about direct conduct. But ultimately, what you have is once its tried in front of the Administrative Law judge, the Administrative Law judge issues a final order, then theres an appeal to the s. E. C. Itself, sitting in an appellate capacity. Once the s. E. C. Rules on that appeal, if that ruling is unfavorable to either side, there is a direct right of appeal to the United States court of appeals for the d. C. Circuit. Jacob, really quickly, dodd frank extends the statute of limitations from five to six years. Do you believe that that means that it would also include trades that happened that happened basically in to 2008, would you be able to argue that all the trades had to happen after dodd frank was actually passed . I think you raise i certainly know the issue. I think the reason they filed the case on friday is the statute of limitations was running out on the elan wyeth trade. I think it really depends on when the trade actually occurred but i think for most of the trades at issue, were talking about predodd frank statute of limitations. Okay. There it is. Jacob frenkle, thank you for joining us. Kayla, thank you for your report. Kate, thank you for your report. Weve gone all the way around the table. Coming up, Glaxo Smith Kline says some of its executives in china appear to have broken the law in a bribery scandal. The latest from beijing. Thats next. All business purchases. So you can capture your receipts, and manage them online with jot, the latest app from ink. So you can spend less time doing paperwork. And more time doing paperwork. Ink from chase. So you can. Coming up, weve got a busy week in earnings central. Were going to talk headliners and expectations. Also, hasbro just out minutes ago with their earnings. The toymakers earnings missing the mark by a nickel. Revenues also falling short. Were coming back with a lot more in just a moment. If youre serious about taking your trading to a higher level, tdd 18003452550 then schwab is the place to trade. Tdd 18003452550 call 18882849410 or visit schwab. Com trading to tdd 18003452550 learn how you can earn up to 300 commissionfree online trades tdd 18003452550 for six months with qualifying net deposits. Tdd 18003452550 see how easy and intuitive it is to use tdd 18003452550 our most powerful platform, streetsmart edge. Tdd 18003452550 we put it in the cloud so you can use it on the web. Tdd 18003452550 and trade with our most advanced tools tdd 18003452550 on whatever computer youre on. Tdd 18003452550 also, get a dedicated team of schwab trading specialists tdd 18003452550 who will help you customize your platform tdd 18003452550 even from the comfort of your home. Tdd 18003452550 and talk about ideas and strategies, one on one. Tdd 18003452550 get all this with no trade minimums. Tdd 18003452550 and only 8. 95 a trade. Tdd 18003452550 call 18882849410 or visit schwab. Com trading tdd 18003452550 to open an account. Tdd 18003452550 and learn how you can earn up to 300 commissionfree tdd 18003452550 online trades for six months with qualifying net deposits. Tdd 18003452550 our trading specialists are waiting to help you get started. Tdd 18003452550 so call now. Tdd 18003452550 help the gulf when we made recover and learn the gulf, bp from what happened so we could be a better, safer energy company. I can tell you safety is at the heart of everything we do. Weve added cuttingedge technology, like a new deepwater well cap and a stateoftheart monitoring center, where experts watch over all drilling activity twentyfourseven. And were sharing what weve learned, so we can all produce energy more safely. Our commitment has never been stronger. Welcome back to squawk box this morning. Glaxo smith kline it used to be just smith klein saying that some of his executives in china appear to have broken chinese law in a bribery scandal. We have new details now from cnbcs eunice yoon who joins us with the latest. Good morning. Reporter Glaxo Smith Kline has sent three executives to deal with the growing crisis. After those meetings, the Company Issued a statement saying they did find that it appeared as though some of the senior managers did, indeed, engage in some activities that breached chinese law. They also said that they thought that this was something that they did not would not tolerate at all, that they had zero tolerance for it, and they also said that they would be cooperating fully with the chinese authorities. The chinese authorities, on its part, in the form of the Public Security ministry, also issued a statement separately saying Glaxo Smith Kline had apologized for its behavior. Now, what was really interesting is that the conversations then quickly led to pricing. And i just want to read some quick lines from these statements. Glaxo had said that they would be bringing down prices by changing the business model, the operational model. Thats going to be passed on in the form of price reductions. In other words, glaxo is going to bring down prices. But then the government had said that glaxos executives had violated chinas laws, damaged markets by engaging in bribery to raise drug prices, expand sales and reap what this government considers inappropriate profits. Now, what was really interesting about the language here is that it really strikes at the heart of a major issue between big pharma and the Chinese Government. And that is price. The government here has been pry trying to bring prices down of medical equipment as well as foreignmade drugs. But big pharma for years has been trying to keep prices where they are or at least even higher because chinas consumers really view the drugs that are made by big pharma as safer and more reliable. All of this is raising questions if what were seeing today is part of a larger populous game on the part of the Chinese Government to get International Companies to drop their prices. Guys . Okay. Eunice, appreciate it. Were going to keep it tight today and get to michael thompson, although youre not thompson reuters, youre just some guy that spelled it differently. Its an artifact of a different kind. Do you tell people that youre not related . No. Joe, youre dating both of us now. All right. Onethird of the s p set to post Quarterly Results this week. Of the roughly 20 that have already reported, 65 have beat estimates. 51 of estimates on net. Joining us, mike thompson, s p iqs capital editor. Used to be thompson, but you had no money. You werent the founding family or anything. But you do okay. Can i read something to you here . Sure. The longanticipated acceleration has been put on hold again. This is the journal, front page. Disappointing check and corporate earnings reports have dashed hopes that the u. S. Was entering a solid state of growth. Particularly troubling, joe, all the years weve been talking about earnings, revenues are the story. You know, earnings is really something that is its kind of mind boggling. We actually had negative Revenue Growth this quarter. And whats really happening is since Third Quarter of 2011, weve had this declining, you know, revenue top line which is now becoming very troublesome. So historically, you have about 7 over the last ten years. Well, you know, last year we finished about 4 . This year i think well be lucky to get 2 Revenue Growth. It has to be organic. Its not going to be through inflation because we dont have any inflation. Youve got europe this week, and youve got consumers somewhat strapped here. Should we be expecting revenue to go up like night follows day . It doesnt work that way. I think its tied to the conversations that were being had earlier, which is the fact that, you know, you need first of all, the consumers doing their part. If you take a look at earnings, the Consumer Discretionary sector, you pull that out of the s p, youre in trouble. Is it slowing, though . The journal makes the case, sales at restaurants. Consumers showing signs of being a little bit tired. It looks like fatigue might be setting in. Right now theyve still baked in doubledigit Earnings Growth the remainder of the year. That being said, maybe were at an inflection point. What concerns us is that, you know, hey, look. Were kind of seeing things weve not seen before. Weve never had a problem with revenues. And revenues now seem to be on, like, a cyclical decline. I think its because you have such a weak labor market. You dont have enough people contributing as much as they need to be contributing to drive those earnings. And i think, you know, maybe thats why youre starting to see potentially if you see anecdotal evidence through restaurants, which is part of the discretionary. Part of an alltime high. So why . I think first of all i think theres kind of a rationalization of certain market darwinism here where else are you going to invest . Trading 15 times next to earnings is not really expensive. With rates at zero, theres no where else to go. Why . Because bernanke is buying 85 million a month of bonds. Were back to the fed again. 85 billion each month and rates are at zero, theres no where else to go. So the market is disconnected from the backdrop of the real economy. I guess some people i heard a great saying, its picking your poison. The risk curves have been distorted because, you know, theres the fixedincome markets have driven yields down. So when you look at equities versus fixed income, obviously the bias has been towards better bid within bonds. Now you have the kind of reverse starting to move forward. And i think equities i still would make a strong case for equities despite the fact, its like the tenth lemming in the row. Weve got onethird of the s p this week. What did we say, 65 so far have beat earnings. And 51 have beat revenues. So we should be watching these companies this week on the top line. Yeah, i think so. I think revenues are going to be really important. You know, im also concerned about the fact that were seeing, you know, the number of Companies Beating expectations lower than they traditionally have been. Lower than 65 . All right. I had the whole wrong idea about what a selfie was. I went to high school. I thought a selfie was, you know what im saying . The audience doesnt understand whats going on here. If you search selfie or wellknown like a weinerstyle picture. Im talking about someone posted you know, i do believe that the mid50s are the new mid30s. This person happens to be 70. He says its the new 50s. And that towel is just above where youd get a you know what im saying . You know what . For 70 for 50, the guys in good shape. But you take a picture in the mirror of yourself . Have you done this . I have not done this. This is different than the selfie you told me about, right . I dont know what youre talking about. You wear that thing on your registers everything you do. On my wrist. Go ahead. I love you. Coming up keep your distance. If youve ever shared an online article with a friend, you probably have our next guest to thank. The ceo of share this is going to join us after the break. Norfolk southern whats your function . Hooking up the country helping business run build were investing big to keep our country in the lead. Load we keep moving to deliver what you need. And that means growth, lots of cargo going all around the globe. Cars and parts, fuel and steel, peas and rice, hey thats nice Norfolk Southern whats your function . Helping this big country move ahead as one Norfolk Southern hows that function . Wi drive a ford fusion. Who is healthier, you or your car . I would say my car. Probably the car. Cause as you get older you start breaking down. I love my car. I want to take care of it. I have a bad wheel i must say. My car is running quite well. Keep your car healthy with the works. 29. 95 or less after 10 mailin rebate at your participating ford dealer. So you gotta take care of yourself . Yes you do. You gotta take care of your baby . Oh yeah [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ]. Detroit has failed to adapt, cincinnati successfully reinvented lths as a hub for innovationch one of the individuals, the chairman and founder of share this, this is i love this disruptor series. We have an expert, an anchor, you dont know anything about cincinnati, really. I know very little. You live west of the hudson. I have been to cincinnati once. Really . Yes. Welcome. Hes brought i thought. Did something bad happen . All star. I lovement. I stayed up to watch the all star game. Are you intl interested in share this . We have two web sites in 40 different languages. When you share. You know you are on a website. I want to do it. You have to sign in. You can share like on twitter, facebook, linkedin, email, you president es that button. You see this on every site. Dont you need to sign into goog toll do it . Sometimes it never works. I have to copy it. Well set you up. We make it easier. Really . We try to get over the hurdles. How do you make money . Advertising. We help them understand what gets shared and advertisers across the web sharing on topics they are concerned about. Thats interesting. You also, what is, there is a, okay, tell me about it, a centry fuge centrifuge, a startup based in cincinnati . It was start bid the Top Companies in town to help drive innovation. So we are connecting the incubators and corporations together to help startups and encourage more startup activity. So who funded this . You got the big names . Some of the big names, kroger, Procter Gamble. Western, southern, university of cincinnati, cincinnati Childrens Hospital are all behind this, its privately funded. We have a 51 million fund. We will continue to fund raise. So you are trying to get to 100 million . 100 million. It will only be in cincinnati in Northern Kentucky where you make the investments . No, we are actually investing around the country. So what were doing is building relationships with venture terms. One is in cincinnati. The other is in boston. Cigma prime. We are encourageing them to invest in cincinnati and engage in the activity going on. There is an incubator in its fourth year. Theyre a pure accelerator. So they have a class of startups that come through. They learn about branding, how to launch their company. They had recruits from 47 Different Countries this year. How much do you have to do, to try to build a true startup pub in cincinnati. How much is it not about brigg companies there, creating the entire ecosystem, whether its education, finding a whole set of certain types of companies so you can have this talent pool going back and forth rally style, if you will. So thats the intent of centrifuge, so were there to try to educate and inspire entrepreneurs and have this funding component as well. You need the funding. And were taking advantage of is the region is known for its Consumer Insights and branding, right . Its kind of like peoria, if it will play there. Also you got Procter Gamble and Market Research firms that spring up to help Procter Gamble decide. If you think about it, this world is driven by those Consumer Insights. Those are happening in what we call the middle. Its a conservative. I dont mean conservative politically. I mean, conservative. Im surprised. Its god to see this is happening. We have a heart break coming up. We appreciate it. Good luck. Well see what happens with the reds. They kind of hit a soft patch recently, right . Theyre saving it up. The peak is coming. Hopefully, win the first three games in the playoffs an lose them all. All right, when we come back the secs case against steven cohen. We have tom lee coming up. Im a careful investor. When you do what i do, you think about risk. I dont like the ups and downs of the market, but i cant just sit on my cash. I want to be prepared for the long haul. Ishares minimum volatility etfs. Investments designed for a smoother ride. Find out why 9 out of 10 large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus, which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. Help the gulf when we made recover and learn the gulf, bp from what happened so we could be a better, safer energy company. I can tell you safety is at the heart of everything we do. Weve added cuttingedge technology, like a new deepwater well cap and a stateoftheart monitoring center, where experts watch over all drilling activity twentyfourseven. And were sharing what weve learned, so we can all produce energy more safely. Our commitment has never been stronger. After month of speculation, the government takes action against stephen cohen. Earnings central, about a third of the zap zap 500 are set to report this week. Its the economy, president obama hitting the road to make what the white house is hailing as key speeches ahead of the fall budget deadlines. The second hour of squawk box begins right now. Good morning and welcome to squawk box. Cnbc, becky quick will be back tomorrow. The futures right now are indicated higher. Up 25. Well, because, you know, we know what the real lead is, kates in labor, i guess. Here are your morning headlines. Kate middleton, that is, for those not kate kelly. Kate middleton. Kate kelly isnt pregnant . A week ago. When the baby is born, are we going straight to london on this . Do we have a correspondent ready to go . Is Natalie Morales going to join us . We seen recent in the cable wars when you go to news that happens, it seems to benefit. Maybe we need to do that. Stick around. Are you a him who, right . As far as i know. So you know about these things. I have heard. I never have given birth. A live shot in london where the baby is apparently we dont know where things are. She was rushed there in the middle of the night. Things are progressing normally what we know. Sources tell joe kernen things are progressing normally. I dont want to know anything of the real nittygritty stuff. You remember some of that stuff that happens, its shock. Ups reached a tentative settlement. No details were released since the agreement needs final approval. The government sued the firm two years ago over nbsrelated losses. A new survey givers an upbeat assessment. Different labor. The National Association for business economics, says the companies are increaseing their hiring as a result. Its not exactly what wearieding. Gasoline prices are on the rise, aaa says the National Price jumped 12 cents a gallon to 3. 67 a gallon. Yesterday over 4. And more increases are expected in the weeks ahead as the price of oil is high and as gasoline catches up with what weve seen at all. We havent seen that. You know, as i said, you have no idea, among the screen up. Basically, you got the screen up, sitting in the back. Right. You are pressing that button, do this. I go to the sunoco on palisades parkway, still under 4 a gallon. Right. Thats one that, you know, sometimes you need to go off the beaten track, kayla, really, thats right off the a little . No. You got to go where there is competition. Thats where anyone on the policy goes only to that one. Its still a dollar a gallon lower than new york city. I can give you some names. Okay. We will get to the other top stories. The reason that kay lar is at the table this morning. The sec, the government taking administrative action against the founder of sec capital saying he ignored red flags that employees engaged in Insider Trading. We will break it down with us with more details. The administrative action filed late friday afternoon, hitting s. A. C. Founder skeev cohen. The charges laid out in that action was he failed to prevent Insider Trading. The trades took place throughout 28. Fridays action came as a fiveyear statute of limitation was nearing on one of those trades, a Portfolio Manager shorted two far ma stocks on a trip a child would have a bad outcome. They profited losses that totaled 275 million t. Sec alleged cohen traded personally on a tip. Analyst since pleaded guilty, but still the action is a weaker change than the willful blindness or charges many on wall street feared. It still is one that appears to be relatively easy for the icc to try to win. They appoint an ad administrative judge and would gobaing to commissioners. Jacob frankel, a former sec attorney, only if commissioners disagree, when it goes back to them, would the case move to a federal Appeals Court at that time . Also, it does not rule out criminal charges going forward, so the worst probably e possibly is not over yet for cohen. As a penalty the sec is seeking to ban outside investors. Outside capitals was a third under management as of the first half of this year, with redemptions in q 1 and q 2, a majority is gone. In the meantime, the has 20 days to respond formally to this action. Of course, it will want to make sure it retains employees, retain investor money and investor confidence. So they started with 15 billion at the beginning of this year. They will be down by january 1st of 2014 to what . As much as 4. 7 billion. So theyd be down to about 10 billion. Right . In total . They retain the capital throughout the First Quarter, this First Quarter, according to kate kellys reporting, 1. 7 redemptions in the Second Quarter, between 2 and 3 billion in redemption t. Total could be as much as 4. 7. If you estimate he had roughly 5 to 6 billion outside money, you have a majority of that that have gone. Not good. What do you think, joe . Ah, really, honestly . I think its nice pipa is there and carole, kates mother, are both. What were you we were talking about yeah. No, i think. You are working on the baby. Im trying to stay where, we have seen the breaking news and things like this. Were a morning show. With rea morning show, which needs to incorporate all of the morning news, all the morning acti action. Whats your business action . We dont need that, its too constricting. Its saturdays story. This is the story right there. There it is. A lot of action. Plus we have a third describe for the viewers watching on satellite radio what we are seeing in that picture. Joe. Oh, you mean the people that are listening on the radio . Yes. We are looking at a shot of sanet marys hospital in london where the duchess, is she the duchess of cham bridge, i believe . She was admitted to the hospital just before 6 00 a. M. William was there. She went into labor naturally. Things are progressing well. We dont know the sex of the baby at this point. Even the royal couple dont know. It doesnt really matter. The helicopter is out there. Do you know what she was wearing . Something really classy is all i know. It will be one of the few times there is three generations that will, you know, can lay claim to the crown. Whether its a boy or a girl, theyll be the inline at some point. Kates mother carole and younger sister pipa are with her apparently in labor. Im not sure where william is. He is said to have been in the coor that transported her from Kensington Palace to the hospital. The queens at windsor castle. She is being kept informed of kates condition and Prince Charles is in york shshire the birthplace. I would say there is a lot of pressure. Holiday tomorrow, right . Kate has to have its a lot of pressure to have the helicopters use. The documents will be placed on an ease el to be displayed right near the gates of buckingham palace. A scroll with the ferns. Just like so that is where we stand right now. And so who knows how long . One of my kids took 24 hours and thats what i said, theres things that, you know, you dont want to know too much. In the old days, where the guy was out on the golf course with the cigarette. Was there something to be said for that . But i cut the, you did that, right . You cut the the markets. No final thoughts . Sec. Thats different than the sac. Sec vs. Sac. Im with jacob frank franko. You think everybody is guilty. As you know, i defendant the fat cats. Arent businessmen typically guilty of greed . No. Arent they looking for self enrichment. This is capitalism in america no less. All right. About a third of the S P Companies are set to report quarterly numbers this week. Pinnochio has nothing on me. Thomas lee, to have him on, hes been so consistently right for the last couple of years, tom, its great to see you, j. P. Morgan in, no. Earlier i read this piece in the journal, competent earning, the u. S. Was finally entering a phase of solid self sustained growth. Thats what the journal says. Why . Well, you know, i think in some ways what the journal is pointing out is growth did slow in the Second Quarter, but it doesnt mean that growth isnt going to peck up in the Second Quarter half. I think thats really important when viewers think about what markets are going to do, especially stocks. Theyre thinking of the sect half. We have europe exiting recession. In the u. S. , we have the fiscal drag, you know, from sequester fading and thats going to actually lift growth. So there really is a story of improving growth in the second half. We had someone on talking about the down quarter that were going to have possibly in revenue and we talked, we called it negative growth. But its possible that revenue does, is either flat or just up a little bit or down a little bit. Thats not something we should base any of our opinions on . It is disappointing because you know when we think about where we are versus a year ago, you have tom nal gdp is 3 . So we should have revenues growth at case. Part of the offset is this currency, but i think companies are managing this pretty well. We havent had decent earning, we have to remember, earnings if q 2 are annualizing at 110 right now. Which is really above where top down consensus is for the full year. Earnings are tracking betterthanexpected. So you dont tie it to very few alternatives, base 0 Interest Rates and 85 billion a month from the fed. There is other things that are actually underpinning the moves in the equity markets. I think for several years now, i think there is a case that there is pentup demand in the u. S. , both in housing and autos. I i think in europe because of the length of that recession, there is pentup demand there. Now we are starting to see credit stresses ease and the economy accelerate. There is some optimism. Last time you were on, we had come close to a year end target. Then you decided to raise it to what . Were at 17. 15 for the full year. We are almost there. Will you say, weve had it. This is enough . I think if we think about improving growth, the fact that Corporate Bonds are really recovering some of their selloff and stocks are trading at barely 14 times forward earnings when they should be closer to 15 or 17, i think there is plenty of reasons to be optimistic, putting money to work here should be profitable by year end. Thank you. Thank you for having me. I think we have someone, who do we have . I know who we have. In a pinch that could deliver a baby, coming up. He is a doctor. Coming up, the debate over how to deal with detroits bankruptcy, plus, the doctor will talk to us about babies. We will talk about the hard financial season in vermont, governor howard dean. Good morning. Welcome back to squawk box this morning. A deal in the grocery business just announced. Spartan stores will be acquiring nash finch. Spartan stores is a regional grocery distributor and a retailer as well. You can see that stock popping this morning. Joe. Great. Now, to detroit and a debate over on the citys bankruptcy filing. Senior correspondent scott cohen is there. You know, scott, we stick it on all these different, its usually todd tawdry. Michigan wasnt, detroit wasnt there as the best place to do business, was it . No, it wasnt. Michigan didnt improve its rankings. Still in the bottom half i think it was 29. You know, detroit has been in this long, panful state of decline for literally decades. But if you think of whats happened to this city in the last five years, studies stunning. Two of the big three auto makers declareing bankruptcy, fail out by the federal government. Michigan becomes a right to work state. Now this the largest municipal bankruptcy in u. S. History. A battle that goes straight to the courts. Meet judge steven rhodes, he is the bankruptcy judge that will overis see this complicated chapter 9 case, a reagan apontee, she also as it happens an expert on poenz scheme law. Among his first orders of business will be the state as request for an expedited hearing. They want this in court as soon as tomorrow, in federal court in zroit detroit. Also, a Lower Court Ruling in lanceing by a state judge who says the bankruptcy filing is uns unconstitutional because it would curtail the citys pension obligations. There is an Appeals Court hearing 9 00 this morning in lanceing to take up that. Also judge rhodes has a motion to stay that ruling altogether and get on with the federal bankruptcy case, which michigan governor rick snider appearing on meet the press yesterday says it needed to happen. We have to declare bankruptcych every continuing day, detroit will go yourn hill. This is an opportunity to stabilize detroit. Im bullish about the Growth Opportunities of detroit. Also appearing on meet the press, yesterday, snyders predecessor Jennifer Granholm who says with billions of dollars in unfunded pension obligations in cities across the country, detroit is not alone. This is not just detroit. There are 50,000 communities across the country that have lost factories since the year 2000. This is not democratic problem. This is a problem across the country. Cluck, granholm says detroits bankruptcy points to the need nationwide for a Manufacturing Policy and if you want any example of a decarolina of the manufacturing economy in this country, its right here in detroit. Guys. Scott, thank you for that report. The big question, of course, this morning, where does this leave the future of detroit and other cities on the brink . We will ask our guest host howard dean the former government of vermont and a cnbc contributor. There has been a conversation over the weekend about bailouts and whether detroit should be bailed out and what the implications of that would be on the country, the moral hazard, the Municipal Market . Let me read you something that steve ratner the auto czar said over the weekend in the New York Times, he says, no one likes bailout, apart from the residents in motor city are no more responsible for detroits problems than were the victims of Hurricane Sandy for theres. Do you by that . The bailout is a separate question from that. He is right. Absolutely right. The 700,000 people the one thing you could connect themtothey kept electing politicians that kicked them down enhancing their pensions theyre at a phone they get cut, people are talking of them getting cut at 90 . The bankruptcy has to happen. It has to happen. The bleeding has to stop. This is a very unpleasant what i to do it. It should have happened ten years ago. It didnt. Thats number one. Number two, you could do some sort of bailout. I has to happen in conjunction with the bankruptcy t. Reason for the bankruptcy is none of the creditors will be flexible because they have a lot to lose, especially the small people who will lose their pensions or some of them. If there is a bailout, it has to be in conjunction with the bankruptcy. There is no way to avoid the bankruptcy. My worry, the implication, of how this bankruptcy is handled will have huge implications across the country. Thats right. It will matter to cities and to tons all over, depending on whether creditors are paid in the water, they are supposed to be paid or ultimately pensioners and others because of public pressure will be the beneficiaries, that order pensioners will probably take some hit, probably not as much as if there was no hit whatsoever. Therefore, is that is the case, what happens to all the other city irks our borrowing costsing Everything Else . They will all get hammered. Harrisburg is going through this. Theyre not in bankruptcy but theyre skirting around the edges, there are thousands of cities governor granholm was right run by republicans and democrats. Its not bipartisan t. Mayor and city council kicked the can down the road. Would you acknowledge at all this at least indicates as far as public unions go, when there is no one there, when you have a public official being elected by the same people he is negotiateing with, with their pension, there is an inherrint conflict there . I dont think it has anything to do with public unions, joe. The government never shrunk. The same thing is going going on in washington. When george bush failed to cut services, that is no difference making somebody pay the bill 15 years from now. If public unions are negotiateing, theyre electing the people they negotiate with, with their Campaign Contributions. Whats the difference with wall streets campaign . Its the same thing. The problem is public unions. The problem is politicians who lack spine to do the right thing. Well. There is one little blip. If someone elected me and i promised them that i was going to, you know, corzine gave a speech that said im going to work to get you guys a great contract. How does that work . He got the Campaign Contributions from the unions to get elected. My point is not that thats a good thing. My point is, were going to cut taxes. Then you double down. The same thing. Does the bankruptcy of detroit truly act as a wakeup call to other municipalities . They should have been woken up four or five years ago. My worry is, be i the way, because of this, costs are going to go up elsewhere, chicago, santa fe. Chicago downgraded three notches by s p. Whats the most important thing the doctors are looking at right now, the Blood Pressure . What are you looking to see in the blood . You dont want certain things to go up or do un . You are looking for Good Progress in labor. Orderly progression of traction, dielation. Stay put. Coming up, a few week set to get under way. Stock to watch, halliburton betterthanexpected Second Quarter results. Hmm. Fifteen minutes could save you fifteen percent or more on car insurance. We got a little movie news, the conjureing to win the top spot. Universals data despicable me 2. By the way the movie business this summer in the dumps. Coming up, a trading block set to kick off the new workweek when squawk box returns right after this. 03452550 playing this and trading. Tdd 18003452550 and the better i am at them, the more i enjoy them. Tdd 18003452550 so im always looking to take them up a notch or two. Tdd 18003452550 and schwab really helps me step up my trading. Tdd 18003452550 theyve now put their most powerful platform, tdd 18003452550 streetsmart edge, in the cloud. Tdd 18003452550 so i can use it on the web, where i trade from tdd 18003452550 most of the time. Tdd 18003452550 which means i get schwabs most advanced tools tdd 18003452550 on whatever computer im on. Tdd 18003452550 its really taken my trading to the next level. Tdd 18003452550 ive also got a dedicated team of schwab trading specialists. Tdd 18003452550 they helped me set up my platform the way i wanted, tdd 18003452550 from the comfort of my home. Tdd 18003452550 and we talked about ideas and strategies, one on one tdd 18003452550 really gave my trading a boost. Tdd 18003452550 all this with no trade minimums. Tdd 18003452550 and only 8. 95 a trade. Tdd 18003452550 after all, im in this to win, right . Tdd 18003452550 open a schwab account and learn how you can earn up to 300 tdd 18003452550 commissionfree online trades for 6 months tdd 18003452550 with qualifying net deposits. Tdd 18003452550 call 18882542600 today. Tdd 18003452550. Welcome back to squawk box. Tomorrow a government report on the housing prices and new june sales figures and a. C. T. Developers remain shut down. Last week hackers tried to skew information. Apple says no information was compromised. Perhaps email dresses may have been accessed. Google is taking a stake in imax technologies. It is buying part of that eun that makes displays for google glass, financial terms were not revealed. Intel, though, owns part of that business in the meantime, president obama expected to deliver an economic address on wednesday. Joining us to talk about it cnbcs chief correspondent john harwood. Good morning. Good morning. What you got . Look, the president is trying to at a time when washington is at a place where nothing is popping at this moment. We got negotiation on the farm bill. The house trying to figure out what its going to do on immigration. Youve got the debt ceiling crisis or battle looming, spending battles looming in the fall, not ripe right now. The president will try to fill that space by shifting attention back to core Economic Issues hes been talking about for years there, the white house is saying that this is an address that harkens back to the first big National Speech he made on the economy in 2005 when he talked about the challenges of globalization, of income and equality, of remedying is skills gap thats preventing so many people from moving into the middle class. The question is whether thats going to move the needle at all in talks with congress as they figure out whether to roll back the sequester. Not clear. But the white house is going to give it a shot. John howard is here. Hey, john, how are you . Good, how are you, governor . The defense wants to restore the defense cuts. What do you think the chances of that are . Well, i do think there is a possibility that some of the sequester in some sort of a budget debt ceiling deal gets rolled back. I dont know how much. But when youve got these cracks that are emerging in john mccain showing he can command a block of people to split with the leadership. John mccain is argueing for more revenue, for restoring defense cuts, argueing for getting together on a budget deal. There is some sort of budget accomodation. Joen mccain is trying to push that rock uphill. So you got the possibly that something is going to happen. I wouldnt expect it all to go away. I think some of it will. Where are we on taxes . I saw a new report over the weekend suggesting we might have some movement. You mean on tax reform . Yep. Oh, i think we are pretty much nowhere on tax reform. You got max baucus and dave camp, the two chairmen of the ways and means and finance committees. In a sense, starting with a blank sheet or paper or a bill. They dont have a proposal at this point a common proposal or individual proposals, theyre saying everybody assume no loopholes in deductions justify the ones that you want. Then we come up with a proposal. It seems to me that that is a slow, a very slow to develop process. Both chairmen have told me theyre going to have bills through their chamber. They hope to have bills threw their chamber by the end of the year, but theres not much sign of movement right now. The journal, its business as usual t. Company dates their businesses on royalties want to keep some of the offshore stuff. They dont want to do it if taxes come down like microsoft or amgen. Every sacred cow is going to be, you are going to have lobbying money and corporate money trying to preserve what they have. Of course. Id be as depressed about it as you. There are greater chances of doing something on Corporate Tax reform than individual. I wouldnt put the odds too great either. Farm bill, speaking of the ultimate special interest bill. You got the nutrition stuff for the democrats. They got cut out in the house. You have enormous interest money and payment to farmers. If something doesnt happen, then that will bring us back to the days of the Great Depression in terms of support or lack of same. Well, theyre going to end up passing food stamps and rolling that back in and house members are going to have to accommodate themselves to that. I just dont know how much the reform commune that wants these subsidies onning a gri business to go down. I dont know how much they will get satisfied. I suspect what happens is beth sides get bought off and you end up having some sort of a compromise that is resembles the senate bill, but not quite as expensive. John, finally, we were talking about detroit earlier, over the week, we were talking about whether there should be a federal or state pieout. Is there an appetite for bailout or assistance in terms of this bankruptcy . Zero. You have a federal government and a Democratic Administration that is looking sim pathetically on whats going on with detroit, knowing that municipal governments and state governments everywhere have got common problems with pension and health care obligations to their retirees. But there is no appetite or possibly of any significant chunk of federal money going to that bill. Facilitate. Theyll help. Theyll try to do what they can to make partnerships. But the cavalry is not coming with a check. I have a quick question. I dont know the answer. Do the municipal pensions, are they subject to the federal guarantee pension board . I think its private. I dont think they are. So they got nothing. Unlike General Motors goes broke, at least they get something. Wow. John harwood in washington. Thank you this morning. The trading block only. We will talk currencies, joining us is the president of wells fargo, is the euro back to once again you can put on shorts . Every time it gets up here, how high can it go . How can it go much higher . I think it will go higher a couple weeks we heard from mr. Bernanke tightening is imminent. Then we wait, we have to wait for the next employment report before we change the outlook there in terms of when it might we might go up to 132, 133. It will be hard, though, for the euro to make really significant gains here with that economy still underperforming. I would think that, you know, news any day out of europe could offset what i guess it is all about bernanke, its about the dollar more than part gal or whats happening in gross. Right. We xom back to your question. Is it too imto put on shorts . I dont think quite yet, simply as i say, we heard from mr. Bernanke the last couple weeks. With dough have to wait until august until we see a new kind of trigger there. So id probably wait a couple weeks. Wait for the youre tro to go higher before shorting it. If i was talking currencies that might go up against the dollar, during this period of calm, i would be looking at the new australian. What was happening with the u. S. Bond units. No change in the yen given the developments in japan . It seems like 100 is a place where it just has a stake there. It goes a little below, a little above. Is that where its going to be for the near future . It seems to be gravitateing towards the 100 level. I think they may be hopeful we may see some movement on the yen, soon with the election result. Now the Prime Minister controling both the upper house and lower house. I think that does help the case for continuing with these fiscal expansion and the monetary expansion. Over the next few days, i feel like the markets will digest that. Well start to see some movement in the dollar yen. I think that could move higher in the relatively short term. All right. Nick, thank you. Thats good. Were going to go to break. Would you, if you could, if you could have a chip inserted into your head. Into my brain . This is the google chip . Yeah. You could search effortlessly. Do it in your head. You always like to say how slow i am on the uptake on some of your jokes and things like that. If i could just go into the recessses of google, i would then, i dont know if id laugh. At least id be in on where theyre going. Search all the old movies, bewitched. Old tv show, things like that. You are a print guy. You have time. In this setting, its complicated. Thats why i take the chip. This is something how do you know i dont have one in my brain already . Its a market to beast. People think you shouldnt have anything imminuted in you. Its like a 666. Are you looking around . Well. Coming up, the Economic Impact of obamacare. Well have a debate. You dont agree with anything scott says, dr. Gottlieb. You never practiced, you never get good at it. I practiced ten years. Did you ever get good at snit. Yeah, i wasnt too bad. The American Enterprise substitute scott golieb. You are looking at a live shot in london where duchess kate is in labor. Things are going along reportedly as expected. When it happens, we will find out whether its a boy or a girl. As i said, things are progressing as normal as can be when Something Like that happens, a delivery. announcer at scottrade, our clients trade and invest exactly how they want. 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. Otherworldly things. But there are some things ive never seen before. This ge jet engine can understand 5,000 data samples per second. Which is good for business. Because planes use less fuel, spend less time on the ground and more time in the air. Suddenly, faraway places dont seem so. Far away. Suddenly, faraway places dont seem so. Far away. The world is changing faster than ever, creating new opportunities for those who stand ready to seize them. In a time when the biggest risk is playing it safe, we believe outshining the competition tomorrow requires challenging your Business Inside and out today. At cognizant, our flexible, collaborative approach helps forwardlooking companies not only run better, but run different. To give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because now more than ever, the future belongs to those who challenge the present. Some key provisions of president obamas health care law, obviously, were delayed and a lockout of web insurers may depress enrollments ahead of that october 1st target date for the launch of the government exchanges. Joining us more dr. Scott got alieb. You know governor howard dean md sw with us this morning. We will start off, i guess, the news is about the corporate, obviously, that mandate. Let start off with that. Then well get to your contention, scott, you will see a narrowing of choices for patients and providers. But what did that mean when that delay was instituted. Can he do it . It looks like its a part of the law. It looks like he can do it. It looks like it will put hardship on consumers, now you will see fewer businesses for next year at least starting to offer coverages, those consumers will face an individual mandate essentially a tax to have to get coverage, now they probably have to go into the exchanges with higher Price Coverage than they would have been able to receive from their place of employment. I think its proveing it is complex to reengineer the economy. I have in interacting with you, which has been one of the pleasures of my life over the past ten years or whatever it is, sometimes you stakeout stuff left of the left. Does this anger you that individuals still have the mandate that have to pay the penalty, fat cats get bit. They dont have to . I actually disagree with your characterization, i never did support the individual mandate. What does this benefit, is this another example of the corporate fat cats getting special treatment . I dont think so as all. Theyre mad the individuals have to pay the penalties. First of all, i say hi to scott, im debating him in chi in a couple of months. Look forward to it. So this is very interesting. Its very complex. My view of this, its a smart thing to do. Electionwise . You were head of the dnc . Its smart electionwise but economically. Im interested in getting the largest mandate. Id put everybody through, not manned tomorrow. I think its good to divide it from insurance. I think the more that go into exchanges. You are a single payer. You could call eight single payer. You said that, too. Right. So i actually think this is a positive development. I also think scott right, it will narrow choices, by choice, because consumers will be able to spend, to pay less if they are willing to have their choices narrowed. I think thats a good choice to make. Consumers make bad decisions when they buy health care. Scott says its going to hurt people that need special care, people with cancer. You will have a narrow choice for proirs providers and the quality of care will go down, right, scott . They dont really have a choice. That itself the problem. If you look at the exchanges, its one plan. If they have a competitive marketplace, i think more conservatives would like it. What will happen the actuarial advances is quite low. The traditional tools that Insurance Companies use to hold down costs, underwriting risks is tightly regulated by the federal government t. Only thing insurers can do is tamp down inflation. They either buy the doctors outright and control what they do, which is proveing tob hard, theyre selling out to hospitals, or you offer a Narrow Network plan and dont give consumers choice. What will happen when consumers go outside their networks, nobody realizes that yet. They will be hit with the full cost of that. So if you are a patient with special needs, particularly a chancer patient, you need to go to a specialized Cancer Institute not in your network, good luck. You will get hit with the full brunt of those costs. What is likely to happen is that individuals will make or individual networks will make arrangements with special institutions for some kind of reinsurance and you will be able to get that kind of care. Secondly, it is true that options may be narrowed. It is also true that there is a regulation in terms of variety of deductionibles. What they have essentially done is get rid of the fly by night plans with 10,000 deductibles that dont work. So i mean, we are basically looking at the same side or two sides of the same coin, is there going to be less choice . It might be. It will be a lot cheaper. Hey, scott, i had a question, so it was displayed across the fork times about the 50 reduction in premiums in new york. The liberals in the huffington post. Is evidence of how great it will work. I look closely. I actually read the article. 17,000 people in new york city are what theyre basing this on. Wouldnt you expect if there are only 17,000 people the price would be ridiculously high a. 50 reduction is almost, you know, is it true . Can we count on that for everyone that gets an individual policy in new york . In states where the Insurance Market is heavily regulated that match what the federal regulations will do. What theyre looking at is the individual market, people go in to buy insurance, like einsurance. Com who do face a lot, not a lot of choice in high prices in, no. But most states dont have this same amount of insurance regulation imposed by these federal rules. In those states, you will see premiums go up perhaps substantially. People must be totally confused. Scott. Every day i see a headline, depending on which website you look at, you see rates going up 80 in this state, rates going down 50 in this state. Then the people staked out on both sides of the issue. They point to what they said, this is happening here. This is happening here. How would a normal consumer or just a person know . Well, low regulation states, your prices are going up substantially. I dont think the governor would debate that. In states like maryland or new york or maybe even california, illinois, where there is a lot of Insurance Market regulation already the rates wont go up as much. They have regulations that match what the federal rulings will do. Will you be ready by october, scott . I dont think it matters. They were going to be ready to launch something in october. Once those subsidies unflow, this will be hard to unwind. Actually, i would disagree, in indiana, they announced a big rate increase, it turned out to be a rate increase. You are one of the people im talking about. What i think will happen is we will see. There will be a lot of speculation back and forth t. Big thing is not the state exchanges. Most of those will be ready. The big deal is the federal exchanges. 33 states did not opt in to run their own exchange. Those will be run by the federal government and that makes a big difference how they do. All right. Scott, gottlieb. Thank you. Good luck toward your debate. You can treat yourself. You are a doctor. You dont care. Thats self stretching. Thats right. You are not worried. You can self medicate. If you are nice, we can write you scrip, too. There you go. Coming up, detroit becoming the largest American City to declear bankruptcy t. Head of munies, thats coming up in the next hour. [ dog barks ] i want to treat more dogs. Our Business Needs more cases. [ male announcer ] where do you want to take your business . I need help selling art. [ male announcer ] from broadband to web hosting to mobile apps, Small Business solutions from at t have the security you need to get you there. Call us. We can show you how at t solutions can help you do what you do. Even better. Thats me. I made you something. I made you something, too. See you next summer. [ male announcer ] get exceptional values on the highest quality cars at the summer of audi sales event. At the summer of audi sales event. Ever at the summer of audi sales event. Ybody has different ideas, goals, appetite for risk. You cant say one size fits all. It doesnt. Thats crazy. Were all totally different. Ishares core. Etf Building Blocks for your personalized portfolio. Find out why 9 out of 10 large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus, which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. Of the investigation there does not appear to be foul play or criminalality with this incident. The tax giant opened in 1990. At that time it was promoted as the tallest roller coaster in the world with more than a seven hotf degree drop. It opened in 1961. In 1999, one person died. Ten were injured when a raft overturned. Despite the accident the park is opened t. Ride is closed as this investigation proceeds. A six flags spokes woman said we are committed to determining the cause of this tragic accident. We will utilize every resource throughout the process. Meantime, many have looked to six flax as the ultimate turn around story. Talk about the stock here. The Company Making a notable rebound from its share price in 2010. Before the Summer Season kicked off, analysts said it had time to run. Analysts are saying stories like this one have a Chilling Effect which could put a dent in six flags profit. They are reporting Second Quarter earnings. They have a Conference Call and analysts will be looking for commentary on this tragedy about further safety precautions that they may have to take. How it may impact park attendance the next quarter. Jackie, explain this piece to me. The investigation is being conducted by six flags not the state of texas. Right. Thats right. Thats because the police in arlington were able take out the effect of criminal felt that or malicious intent in terms of the incident. So now six flacks looks at it. Its one of 21 states that does not have to be federally overseen when looking into an Amusement Park accident. So the question here now is how they take this investigation as they go forward. Also, will we see more regulation in the rest of the states when it comes to accidents like this . Maybe, heres my problem. My problem is, i believe that some sort of tort reform is a good thing. This ladys family will get totally hosed. Even if six flacks finds some defective equipment, the limit to be compensated and 9yearold kids. Im sure a civil case my follow. All right, mcdonalds coming up. Same store sales. 1kr6rksz 1kr6rksz. Earnings alert. Reaction from an analyst that covers the stock. We will talk to black rocks munny bonds. Netflix original content netting the company to trip to the red carpet, First Time Ever emmy nominations. Will house of cards booth the bottom line . The third hour of squawk box starts right now. [ music playing ]. Mcdonalds reporting earlier, all day, we have been talking about this journal piece that talked about restaurant sales being weak indicating the consumer may not be as flush as before. This is very illustrative of this with mcdonalds numbers. Its a dow component we have to watch the futures. The stock is sharply lower on missing estimates by 2 cents. 1. 38. Maybe the most interesting comment from the company is that the sales, the Economic Uncertainty is pressureing consumer spending. A u. S. Comp store sales were indicated to be up 1. 7. They were up just 1 . Its a 2 cent miss on the bottom len. On the top lean, it was below as well. A 7. 08 billion versus expectations. This is marginally lower. But mcdonalds says the informal eating out market remains challenging around also the Sales Results were impacted because last year they had some promotional activity. So as a result, so, same store sales were up. But the company, the struggles are per sithing with mcdonalds. This is not, andrew, when are you not a low end guy. You would think low end, even in challenging times. You should think the low. The low end is hurt. You know its gas prices. What is darden doing . Is this the company . They say, no, its the market. Id be interesting to find out what competitors are doing. Burger king, wendys, id like to see what dardens is doing. Maybe its upscale. We are joined by the director and Senior Analyst at. Jobs are weak t. Jobs have not translated into same store sechls darden has been discounting aggressively. In the past quarter, thats started to work. We are seeing broadbased weakness in the Restaurant Base despite the fact we had job growth that hasnt translated quite yet. Europe was supposed to be up. It was down. It was only down. 1, it was supposed to be up. 2. So, i mean, this is not a mcdonalds story, is it, peter . Or you dont know at this point . No, i think the industry is still struggling. The market in total is probably drawing out a very, very low single digit rate if at all. I would say for europe, france and germany has been very weak for mcdonalds for probably a year now. The u. K. Has held up fairly well. Russia is okay. They have been struggling pretty much across the globe. Its funny, we sea its weakness, if you look at the unit volumes, they outpace almost everybody else in this space. Quickly. We were talking mcdonalds being a low end restaurant. At the same time they have raised their prices and actually increased sort oof their product to go higher end lately. Dawes have any impath . I i think everybody raises their prices every year, somewhere between 2 and 3 to offset accommodation. Low end if you consider the ticket. Everybodys ticket is moving up, theyre still on the lower end of the ticket t. Transaction accounts are far above everything everybody elses. The good news is Commodity Prices have been coming down. It should translate into marginal relief. The push back by obaum care a year, hopefully, that can give them benefit as well. Forex hurt by 2 cents. The company also said for july, global same store sales are expected to be relatively flat. So theyre basically saying dont expect anything to change near term, that its going to continue to be challenging, right, peter . Yeah, i would say forex is interesting. It helps them, investors never pay and it can only hurt them. I get that comment all the time. I dont pay for foreign exchange. Fine. It can only hurt them on the flipside. Yeah, i think thats been an issue for them and theres nothing they can really do about it. I wonder, gas prices are up 12 cents, too. So this is before all this happened. And before oil movement, you know, really before egypt and before we move back to well above 100. So we could see definitely see more of this and it could be even a little worse. Yeah, its all interesting. They moved the monopoly from ocean they usually run in the fall to the summertime. Its running now. I would have thought that would have given them a benefit. Pass the prices moving up. Shortterm moves, spikes and gas prices can hurt the consumer. I dont really believe this is a move slightly higher, gas prices hurts the consumer all that much. Over the long term, i think its a function of the economy being stronger. They have some promotion going on. We did a bunch of stuff yesterday and ended up with a free medium fries. I dont think we saved it. We looked at a million different, what is that . Its not monopoly . It is monopoly. I moved. Generally speaking its running in the fall. Im interesting to see what theyve run in the fall in replacement. All right. Peter, thank you. Thank you. Well see you later. Lets get you caught up with the other stories we are following, the Federal Reserve continuing to allow banks to continue owning Trading Assets like storage tanks. The regulator is reviewing a 2003 decision that first allowed banks to first trade activities in physical profits, a Senate Committee will be holding a hearing. The cftc wants in on the action. The commodity put banks and big traders on notice for possible investigation into their metal warehouseing business. A huge story about aluminum and how Goldman Sachs owns a number of these warehouses, because of the regulations and the strategy theyve employed, they actually keep moving the aluminum from one warehouse to another to collect the rent and there is an argument to be made because they keep moving it around and because of the delays in shipping and transporting this stuff, it is raising aluminum price across the globe. They get one thenth of an extra cent from consumers for every one of the 90 billion aluminum cannes they set. Which makes them a fortune. All it does is add to the bottom line expense for consumers, producing in ug. I should say ben white of politico this morning has a Goldman Sachs employee anonymously responding saying that roughly 95 of metals sold each year suggests that global Commodity Markets prices are ultimately driven by supply and demand. There has been significant overcapacity in the global aluminum market for years and the role that warehouses have played. Is the excuse. It doesnt explain why you have a fleet of trucks from one place to the other and back again. I am told having done reporting around this, there is a regulation that suggests a certain number of tons in a warehouse on any single day. So, therefore, they sort of play a little dance where they move from one place to the other so they can say its moved. This is not illegal. What it is is exploiting a rule and is anticapitalistic. It drives prices up instead of down. It looks like investigators are on the case. We will see where that goes. Lets get a check of the markets after that mcdonalds report t. Dow is now up just 6 and as you recall, it had been up 35 points or. So that could be almost purely a multiplier, the effect that mcdonalds is having on the dow. Right now, can you see the fair value is down. The futures have been down most of the session, but since fair value is already below those, we are looking for an open, its a little higher. The s p not as affected by the mcdonalds move. The other big story of the morning, the sec continuing its crackdown on Insider Trading. The regulatory body voting unanimously to file charges against steve cohen. Joining us now with more on this story is ron geppner and from washington, d. C. Former sec attorney theresa goody. Are you here on set. What are you making of this case . Is it a strong case . I cant say whether its a strange case or a weak case, its a novel case. Would you take the case . On the defense side. I think its not a wonderful case for the sec to file. Its novel in the sense that they have been velth investigating sac and steve cohen it seems since my children were born. Yet the only action they can bring is not an Insider Trading case a failure to supervisors. Yet, its an ad administrative case. It will only be seen in the corners of the sec in tomorrows of who will adjudicate this matter. Therefore, you could argue the dak is stacked. The dak the stacked. The deck is stacked. Of course, but i dont fault the sec for its stacked right here. Are you stacking the dak . Stop it. I dont blame the sec necessarily for stacking the deck. We all will try to do that if we could. In an ad administrative case versus a civil case, generally, there are les safe guards for respondent, less discovery than there is for a defendant in a civil action. There is an expedited pace in brigg an action. The administrrative law judge has 300 days to rule an initial decision from the filing. So in many civil cases that we defended as a law firm, cases can run as long as three years. Takes away some of the power that steve cohen has with his battery of lawyers t. Third thing the Administrative Law judge. Will it run three years . No, its limited to 300 days in a civil course. Steve cohen could sit there and have a lot of options available to him. If you are steve cohen, do you put up a fight, turn yourself into a Family Officer and call eight day right now . No, i think we should wait and sigh what he has to say. He has 20 days to respond to this. But i think the sec has a very strong case from i i have seen so far. It looks like he not only was aware of these red flags, but he also encouraged suspicious trading and i have to say that i think this was a very clever action to bring for the sec. Theresa, on that score, do you think were going to see a lot more cases like this, meaning are we going to now hold supervisors to a different standard than we did before because were going to suggest that any time theres any kind of malfeasance at a firm that we can now say the guy at the toppio oversaw it somehow missed it. Maybe there were bright red flags, as a result, we can now see the sec bringing more cases like this. I think we will see the sec bringing more cases like this. But this isnt novel for the sec to do. In fact, commissioner gallagher mentioned a few times in speeches last year, they were going to if cuss more on the failure to supervisors. This case is specific facts here, all Fund Managers dont interact with their traders the same way that cohen did here and they dont have the same kind of interaction and arent really in the middle of it. What makes us unusual and novel is that the punishment does not fit the alleged crime. So if you look at a bunch of failure to supervise case, you dont see the regulator seeking to bar the person from life. Is it possible he could be found guilty of this charge but not get the sentence, if you will, that the sec is seeking . Certainly, thats a possibly. So the interesting question here is, is this filed because they cant get him son what they suspect hes doing . Is that why they did this . In other words, is this the al capone strategy . It seems common sense, if you cant bring an Insider Trading case, they bring the next best thing. If they had a better case, they would have been brought the charges. If the evidence was that clear, exactly. Lets take this a different way. Criminal case, they have come out and suggested without saying his name there is a criminal case to be had. We keep hearing from sources there could be a criminal case down the road. My second piece of that question is statute of limitations ended last week. Thats why people say the sec brought this case. Theed to fra the dodd frank case wasnt passed until 2010 that trades made before that wont count . In washington they say the reason they actually created the new law was so that people could prosecute the financial crisis related crimes. What do you say . With the statute of limitation. Well, im not sure if that was a driver in and of itself. With regard to filing the case, they have to do something. The time was running out. For the sec . Where is the criminal side of this. I would imagine they are waiting to see what steven cohen responds to, then theyll assess their case after that. Their ressa, we got to run. Thank you for joining hopefully well have you back and continue this dialogue. This is not going anywhere soon as you said, we have 300 days to be talking about this minimum, thanks. Coming up, the Federal Reserve is quiet this week. Theyre never quiet. Somebody will be saying something, i know, but a policy meeting and dodd report next week is likely to keep the spotlight. Inside, bernankes time line for tapering. More on the biggest city to file for bankruptcy. Peter hayes will join us to talk detroit. [ male announcer] surprise youre having triplets. [ babies crying ] surprise your house was built on an ancient burial ground. [ ghosts moaning ] surprise your car needs a new transmission. [ coyote howls ] how about no more surprises . Now you can get all the online Trading Tools you need without any surprise fees. Its not rocket science. Its just common sense. From td ameritrade. 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 . Quell come book to squawk box. You are looking at me. Now you are looking at a live shot of Saint Marys Hospital in london where duchess kate is in labor. Prince williams wife was admitted to a London Hospital in the early stages of labor. Theyre doing this natural. I dont know. They said natural. I dont know whether that means epidural. Probably . Thats still natural, i think. Yeah. And governor hoddee. Md, did you, you never delivered a baby, did you . Not by myself. But you could, if you have to . Steve liesman is here, you are not pregnant currently, are you . My son says i am. Anyway. He rides me bad. Nobody knows. When do they remove the silver spoon, joe . Nobody knows. Ask andrew. Oh. Nobody knows. I still got it. Oh. Nobody knows. Its not in your mouth. A quiet week for, anyway, they dont know if its a boy or a girl. They dont know. They havent told anyone. The question is whether the market is right. There is obviously a market in london on this. There will be odds on this. I dont know if the odds are even. I think its a slightly greater percentage chance a boy is born rather than a girl. Who are you . Im the economics report. A quiet week. Another fed meeting and a job report on the horizon. Steve liesman joins us now with more on the feds current theme. So we got the possible birth of the baby. Right. We got the selfy from heraldo. Right. We got this. These are deep which one should we focus on . I this i the baby thing is what bernanke is thinking. Every show led with it, by the way, with the duchess. Absolutely. What about the selfy . Everybody has touched on that. I didnt know what a selfy was. I still dont know. I heard the conversation this morning. Geraldo has a selfy. A picture of himself. Huffington post says it cant be unseen once you have seen it. A 70yearold version of the kardashian. To get this much attention from joe. I didnt know what it was. I fixed, oh, then they played the important music. Im going to do the report here. So heres the deal, guys, after two months of volatility surrounding the announcements of its intention to taper, fed officials are turning their attention to how it will taper and do it in a way it hopes it doesnt cause more market chaos. At its upcoming meeting, fed officials will likely discuss everything from how much to taper and how quickly, most importantly, how to communicate these tapering to markets, the question will be tied to the economic outlook. Bernanke suggested at his testimony last week, feds held out hope of a second half rebound. Many surround his fiscal policy and global growth. Amounts could range from 10 to 20 billion t. Fed added 660 billion since october. Its unlikely to think the actual amount of tapering matters very much to Interest Rates in the near term. Fed studies suggest as much as 500 billion to move the ten year 20 basis points. So one months reduction is not that important. What does matter, market expectations, how much the market thinks the federal will reduce the purchase over time. So they will think hard about the amount of tapering and frequency, it could adjust on incoming data. Whether it folds the guidance that the cramer gave at its last press conference, making a policy or does it leave that for his remarks . Does the fed take additional steps amid the tapering to reassure markets it has no intention to raise Interest Rates any time soon. Ultimately, the action of tapering will be the announcement of tapering. Steve, how happy or unhappy was the fed with the testimony last week and the reaction, perhaps more importantly . If you think how this two month period began, may 22nd, with the announcement by the fed, with the intention to taper, all the volatility that surrounded that, i think they were pleased to end this communications period, calm it phase 1 of typering with a whimper. I think they can taper. There is a difference between tapering and tightening Interest Rates. They got that flexibility. Im not sure theyre out of the woods, i think the communication will be critical for sending that signal for what is the outlook for tapering. Go ahead. Im curious, this is sort of economics 101 in the stockmarket. I understand the market reacts violent lotly to suggestions that something new and indifferent will happen. Overtime, theoretically, it should be guided by the strength of the economy. So why this big obsession with a two week fluff in the market. Everybody knows he has to taper. I dont quite get why that happened. I dont know how obsessed the fed is. It does watch the markets for whether or not it has created what they called smooth reaction function. In other words, does the market processing incoming data and events the same way the fed is. The fed wants those to be alone. Clearly, that was not the case in may. We can, you know, were above where we were anyways. How big a deal was it . A lot of communicating, though, in august. Not in jackson hole. Some communicating. Hes not going to be there. I want to find out why that is the case. Coming up, the head of black rocks muney bond group, peter hayes will talk to us a about the bankruptcy of detroit. With fidelitys guaranteed onesecond trade execution, we route your order to up to 75 Market Centers to look for the best possible price maybe even better than you expected. Its all part of our goal to execute your trade in one second. Im derrick chan of fidelity investments. Our onesecond trade execution is one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Peace of mind is important when youre running a successful business. So we provide it services you can rely on. With centurylink as your trusted it partner, youll experience reliable uptime for the network and services you depend on. Multilayered Security Solutions keep your Information Safe, and secure. And responsive dedicated support meets your needs, and eases your mind. Centurylink. Your link to whats next. Honey, is he too into this car thing . [ mumbling ] definitely the quattro. Honey . Huh . A5. What . [ sighs ] did you Say Something . Welcome back to squawk box. Mcdonald reported First Quarter profit of 1. 38 a share. 2 cents below expectations. The Restaurant Operator says that based on recent trends, it expects results for the rest of the year to remain challenged by what he calls a challenged consumer. And food distributor nash finch is being acquired by Spartan Stores with an all stock deal. Spartan is a grocery distributor. Nash shareholders get 1. 2 shares for each share of nash finch. Taiwanese chip maker technologies himax, google has the unit that plaik makes display technology. Intel is a shareholder in that unit which makes the type of Technology Google plans to use in its google glass device. Problems for 100,000 creditors. Debt on the line, joining us now with more on how the motor city can stop its freefall is cbcs scott cohen. Good morning again. Good morning, joe. One of the clear ways to stop the freefall is this chapter 9 bankruptcy filing t. Largest in american history. Of course, its the combination of problems that were years in the making. From the white flight of the 1960s and the decline of the Manufacturing Base after that, a mass exodus to population from this city and also as we talked about the pension obligations, those are a small fraction of the total. The total liabilities you heard about 18 billion. The pensions between the city and police and fire pensions, about 3. 25 billion. Michigan Governor Rick Snyder is hoping that the retirees will join the city at the table and become part of the rebuilding process. Proactively in a bankruptcy petition, one thing were asking for is the judge right up front to appoint someone to represent the retirees. They need to be at the table. They need to have a voice. Reporter but for now the retirees are fighting this. They, of course, filed suit in state court a. State judge saying this bankruptcy filing is illegal, unconstitutional because of the impact on the pension obligations. There is an Appeals Court hearing getting umpbdz way in the States Capital to discuss that. Also a few blocks from here is the federal court. The new bankruptcy judge assigned to this case will be looking at whether to stay those state actions and take it over the federal level. The retirees will have for the choice but to join the state officials at the table. Guys. Scott. Thanks, stay tuned. Joining us with more on the bankruptcy, peter hayes and head of Municipal Bonds group. Peter, thanks for joining us. Your point is its 18 billion here. But, really, a trillion dollars worth of muni bonds, people will be watching how theyre affected. And it matters what happens from here, too, how this is handled, doesnt it . Its weird with Revenue Bonds that seem to be better off tan g. O. S. Do we need to rethink general Obligation Bonds . I think this case is certainly going to test that. Revenue bonds in most cases has a lien to help pay the debt service so theyre considered secured. What we have in the case of general Obligation Bonds, what makes this case particularly unique is that theyre being treated as unsecured and on an equal footing with all other Unsecured Creditors. Thats the big difference here. I think the market is going to question. You also have to think about the total liability about 11. 4 billion in unsecured claims. Only about a become of that actually is debt. So really, its the smaller part of this total unsecured claim. Clearly, its going to be something tested. I think it talks about the complexity of this particular case, just in the sheer number of creditors, the types of debt, the stake holders involved, which tells us its probably going to take us years for this to play out and to be the ultimate workout to be determined. Were not seeing any, youre not seeing a weakness in g. O. S in other states. This is just michigan at this point, right . Thats a real good point. Michigan actually through the emergency manager act, they actually put that in place to keep people from filing. Michigan seems to have backed away from this. Right now this is very much a michigan issue. Peter, how worried are you the order if will you of secureing Unsecured Creditors will get reordered in the process. We were talking earlier of pensions cut supposedby90 . You could see the political blowback that might occur and what therefore might result in the muni market. Thats what makes chapter 9 so difficult. Because you are not talking about in a chapter 11, its a corporation. At the end of the day, they ask liquidate and go away. A city cant do that. They need to continue to exist for the population for its constituents, et cetera. So in this case, thats going to make it difficult. Because you have stake holders, many of the stake holders are residents. Have you the Human Interest angle. And you have bond holders. So you really are very, very complex situation thats taking place here. Again, i think it takes year to really play out. Any shortterm thoughts you might have about the really interesting federal versus state legal conflict, where you have the two judges in conflict and what happens will . I tend to stay out of the legal forum and stick to what i know in Municipal Bonds. Right. The trillion dollars that you say what can we take from this . I guess there are some. 63 of the population is gone since 1950. I mean, its not a shock that the general Obligation Bonds, is Property Values are worth, what are they worth . Whats the tax revenues on the property in detroit right now . There is no income for a government that hasnt shrunk at all in that city, right . Thats the difficulty here. With g. O. Bonds, you are talking about the full states and credits. So whether its a city, a state, a federal government, it basically is sovereignlike debt where they pledge the ability to raise taxes or cut spending in order to pay back that debt service. So thats an important component of why investors buy general Obligation Bonds. Here you have an eroded tax base. How do you raise taxes when the population decreased as dramatically as you have stated. Unemployment is very high. Property values are down, very difficult. Difficult to cut spending further. So it clearly is a very complex situation and you even see it playing out now in the question wlen between the state and the federal government just from the legal standpoint. Then the emergency manager over the next several months has to prove insolvency, sosa lot of complexities in this issue going forward. All right, pe fer, if i own bond anywhere else, i dont know if id do anything based on this, would you . Right now, its a michigan issue. Detroit is a big important element of this. I think you are right. Itself take away for investors, i think its better than 08. I think dont panic. Well take away with that. Well come back and talk to you if something hits the fan. All right. Thank you. Okay. Coming up, netflix celebrateing its first emmy nominations. Will shareholders be celebrating a tf bell . We will talk to an analyst after this break. Heres a billionaire, heres billionaire activist article icahn commenting on his netflix holdings last week. I havent sold one share. I told you. That he doesnt believe me. I believe you. You guys change your mind a lot. The credit goes to two guys that run that fun. Run that account. And theyre both great, both have a huge success the last two years. With unis my son. When i wanted to sell it at 100 points ago, i wanted to sell it. My son threatened to leave. My son. And i really helped that kid all my life. Golden opportunity sales event and choose from one of five lexus hybrids thats right for you, including the lexus es and ct hybrids. This is the pursuit of perfection. Trust your instincts to make the call. To treat my low testosterone, my doctor and i went with axiron, the only underarm low t treatment. Axiron can restore t levels to normal in about 2 weeks in most men. Axiron is not for use in women or anyone younger than 18 or men with prostate or breast cancer. Women, especially those who are or who may become pregnant and children should avoid contact where axiron is applied as unexpected signs of puberty in children or changes in body hair or increased acne in women may occur. Report these symptoms to your doctor. Tell your doctor about all medical conditions and medications. Serious side effects could include increased risk of prostate cancer; worsening prostate symptoms; decreased sperm count; ankle, feet or body swelling; enlarged or painful breasts; problems breathing while sleeping; and blood clots in the legs. Common side effects include skin redness or irritation where applied, increased red blood cell count, headache, diarrhea, vomiting, and increase in psa. Ask your doctor about the only underarm low t treatment, axiron. [ whirring ] [ dog barks ] i want to treat more dogs. Our Business Needs more cases. [ male announcer ] where do you want to take your business . I need help selling art. [ male announcer ] from broadband to web hosting to mobile apps, Small Business solutions from at t have the security you need to get you there. Call us. We can show you how at t solutions can help you do what you do. Even better. To experience the precision handling of the lexus performance vehicles, including the gs and allnew is. This is the pursuit of perfection. Welcome back to squawk box. Netflix streaming dvd by mail Service Expected to post earnings of 40 cents per share. Joining us with a preview is a senior movie entertainment analyst at s q. Good morning. Good morning. Help us with this. We see netflix getting emmys. House of cards, fantastic, arrested development. Is it going to help the bottom line . How many new sub scribers have they resulted . Thats a big question and bigger points we will be watching for when the company reports. You got the emmy nominations. No doubt, that was a historic fit. Whether the company is able to translate all of this into viewing hours and ultimately into subscriber acquisition and retention, i think that will be one of the biggest things investors will be watching. Whats your expectation for the answer . We think directionally, streaming hours are north of a billion dollars. A billion hours, streaming hours. Every month, we think there is a potential for that to continue to increase. We expect the company to come in at the higher end of their subscriber growth guidance, both domestically and internationally. Potentially over a million subscribers. Where do you see the ultimate impact on hbo and amazon once obviously getting to this business, trying to do more streaming through their prime service . There is no doubt, andrew the landscapes a gotten a lot more competitive than it was a year ago. But i do think ultimately, you know, you have to kind of sway to the company storyment we think the Addressable Market for netflix twice. Hbos, dominance in the emmy nominations keep in mind netflix got its own within six months. Hbo took almost 25 years to get their own emmy. In broader context, we think Companies Moving in the right direction. We think the huge Addressable Market internationally. Thats the other part of this story. Sheer a random one for you, when they do this Conference Call, it will be a video call. Hes actually going to be interviewed by moderators, including one from cnbc. Im assumeing this sort of view in the market is they wouldnt be doing that unless they had a positive quarter. I assume they will be having to do this every quarter. What does that mean . Frankly, i think your take is right. There is a lo lot of positive moves to experiment with this new format. I have to say we are scratching our heads as to why they want to go in that direction. They want to blaze a trail. But more importantly the content is going to be the most important that investors will be watching as opposed to the format. A quick one to you on amazons competition. They have big bucks. They have alpha house now coming up, episodes are being wrivenlt id be scared to death of any market that amazon was coming after me in. I would be scared, too, joe. Frankly, i think that tells you a lot about the potential upside from this market and whats happening is that the entrance like amazon and hulu and a lot of others have made this content even much more expensive. If you are a content provider, this will be a nirvana, ultimately, its driven up Strategic Value of content. So this is all good for the future of television i think. Lastly, lets go back to the stock price right now. Is netflix still a good buy . There is an argument out there to be made there is still a lot of upside on this thing . If theyre able to collect more and more subscribers, its much harder to get them to give up the card than for them to take it back . Given that the stock prices quadrupled almost in the last year, i think at some point you have to respect investors. Having said that, if they were to report a positive rapid growth this quarter or international progress, i think you could potentially see the stock continue to revert back to the alltime high levels that it reached about two years ago before the well publicized tumble, potentially reaching 300. So a lot will have to ride on what they report today. Thank you for joining us. I should mention, orange is the new block on netflix. It is pretty cool. You said one thing i disagree with. I dont think this is grit for television. I think this is the end of television. They will watch on their internet. Max screens. Content creator. Its great. Great for the viewer. Yes, great for the viewer. They aint going to be seeing it on television. What are you watching on tv . As its brought into your computer . Are you talking about Network Television . Network and even cable. Over the air. Comcast. We own the wire. We got it covered. Right into the home. Dont worry about us. Buy the stocks. Coming up, get ready for the trading week ahead. We check in with jim cramer. I dont give stock recommendations. We will check in with someone like jim cramer next. Tomorrow, Quarterly Results from dupont, travelers and ups. We will start at 6 00 a. M. Eastern. Welcome back to squawk box. Lets get to the new york stock exchange. Jim cramer joins us now. I confess, q tweeted about this piece, and its unbelievable. I dont know if hes there, but youve got to read it too, jimmy. That was incredible to watch. Just a hero. Always amazing. Just awesome. Its funny how sometimes its riveting whether youre a golfer or not. That was a riveting afternoon. And then at the end, i dont cry for American Airlines commercials where theyre calling home, but things like this, you know, that can get you, cant it . Amy and the kids. Just an emotional, positive positive event. Thats what so great about sports. I still feel i dont know whats going to happen, versus a lot of what youre talking about with tv, i have no idea whats going to happen. Just watching again. The plan, of course, where you see the greatest golfers in the world, and then truly the ones that happened to be on were 3 and 4 over, and then youve got a gee 3 under. That is a champion. That is a true champion. And then you have a guy mickelson says the only guy that cares that i play well is my caddy. The other guys are hoping he stinks that day. I thought the caddy story was great, what, 20 years together . Yeah, 1992. Just a fabulous story. Anyway, jim, now im worried about consumers. Is it mcdonalds or gas prices . Im thinking its mcdonalds i had jack hartung on, ceo of which. Ly. Chipotle. Im wonder if people are saling the value packages for mcdonnells are not that good, or maybe people are just tired of fast food and want better food. Maybe thats it. The journal made a big deal that earnings have been disappointing, revenue is disappointing. Is there a disconnect between really the underpinnings for the stock market . I think totally. I dont know what quarters theyre on. I dont know what Conference Calls they are on, whether it be schlumberger, whether it be johnson controls, whether it be honeywell, ingersollrand, union pacific. They really should read these Conference Calls, because theyre i think that the basis in fact has to do with what these Great Companies are reporting, not what the journal says. He said 20 oshds in the u. S. , right . The g. E. Quarter was superb. Remember, margins were expanded. What more do people want . To me these are the breakout quarters. I just dont get all of the woe and worry, because its just not substantive. Thats good, because were only a third through, and were going to get a lot this week, and we shouldnt judge from mcdonalds. Emerson orders this morning just terrific. These things are not supposed to be happening. Every bank except for First Horizon was terrific. Capital one, we dont even talk about that one in a quarter. All right. There you go. Jim, congratulate q and faber. Sexiest journalists alive, they won the prize. No way. Unfortunately were not on the list. Im done. I dont know what to say. Isnt he taking tweeting lessons from geraldo . Well see, jim, after my selfie tonight. This moment, im snap chatting. I had to philadelphia out wh find out what a selfie was. Maybe im doing it wrong. This morning, one of the sexiest governors, howard dean, well give him the last word when squawk box returns. The stock of the day is coming up. Youre watching squawk box on cnbc, first in big worldwide. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] if then schwab is the placeing your trato trade. Higher level, tdd 18003452550 now a waiting room is just a room. Call 18882849410 or visit schwab. Com trading to tdd 18003452550 learn how you can earn up to 300 commissionfree online trades tdd 18003452550 for six months with qualifying net deposits. Tdd 18003452550 see how easy and intuitive it is to use tdd 18003452550 our most powerful platform, streetsmart edge. Tdd 18003452550 we put it in the cloud so you can use it on the web. Tdd 18003452550 and trade with our most advanced tools tdd 18003452550 on whatever computer youre on. Tdd 18003452550 also, get a dedicated team of schwab trading specialists tdd 18003452550 who will help you customize your platform tdd 18003452550 even from the comfort of your home. Tdd 18003452550 and talk about ideas and strategies, one on one. Tdd 18003452550 get all this with no trade minimums. Tdd 18003452550 and only 8. 95 a trade. Tdd 18003452550 call 18882849410 or visit schwab. Com trading tdd 18003452550 to open an account. Tdd 18003452550 and learn how you can earn up to 300 commissionfree tdd 18003452550 online trades for six months with qualifying net deposits. Tdd 18003452550 our trading specialists are waiting to help you get started. Tdd 18003452550 so call now. Tdd 18003452550 stock of the day, google paying at 6. 3 stake in the unit that makes display technology, google plans to use this technology in its goog the glass device. In an adsaturated city like tokyo, it can be difficult for advertisers to stand out. An agent placed ads on the thighs of young women. Interesting. The ad exec said the idea was a great solution, because it is, in their words, what guys are eager to look at and what girls are okay with exposing. Participants are required to be at least 18 years old, and must be connected to at least 20 people on the social networking site. The Company Offers women around 30 for hanging out in tokyos Entertainment District for at least eight hours with that body print on. Hmm. All right. You didnt sign up for this . I wouldnt sign up, but the selfie i am promising to post tonight could include a thigh shot. All i can say you and the japanese girls better stay out of dubai, because youll end up in jail. You cant even though a thigh . Yeah. Did that happen to you . No, i havent been to dubai for quite a while. You could make money in dubai if you lose weight, gold exchanged for it. Did you notice . You were not listening to my report earlier . No. That is not unique . Want to focus on the big news of the day . Jim cramer, he went right through it, market is doing well. Big Industrial Companies are doing well and were climbing the well of worry. Im now a bull. I was a bit of a bull, but now more after listening to cramer. He has a way of a lot of times of looking at things half full. But making a lot of sense. I worry more about how well General Electric does than i do about mcdonalds. Theyre both big important companies, but you want the world, you buy ge. Howard dean, thank you for joining us. My pleasure. Thank you. Make sure you join us tomorrow. Squawk on the street starts right now. Good month morning. What a week we have in front of us, a third of the s p reporting earnings this week alone. Machined many after he hill the record highs